Invesco Perpetual UK Smaller Companies

LEGAL ENTITY IDENTIFIER: 549300K1D1P23R8U4U50

Invesco Perpetual UK Smaller Companies Investment Trust plc

Half-Yearly Financial Report for the Six Months to 31 July 2023

The following text is extracted from the Half-Yearly Financial Report for the Six Months to 31 July 2023. All page numbers below refer to the Half-Yearly Financial Report which will be made available on the Company's website.

Investment Objective

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

Financial Information and Performance Statistics

Capital Statistics

Notes:

(1) Alternative Performance Measures (‘APM’). See pages 16 and 17 for the explanation and calculation of APMs. Further details are provided in the Glossary of Terms and Alternative Performance Measures in the Company’s 2023 Annual Financial Report.

(2) Source: Refinitiv.

(3) The Benchmark Index of the Company is the Numis Smaller Companies + AIM (excluding Investment Companies) Index with dividends reinvested.

CHAIRMAN’S STATEMENT

Highlights

• Discount to NAV has narrowed from 12.8% to 11.6% during the period
• Discount has further narrowed to 8.9% as at 9 October 2023
• First interim dividend increased to 3.85p (2022: 3.75p), maintaining the target dividend yield of 4%
• Revenue per ordinary share up to 8.17p (2022: 6.74p) during the period

Dear Shareholders,

I am pleased to succeed Jane Lewis as the Company’s new Chairman. Having served on the Board for nine years, Jane retired at the conclusion of the AGM held in June 2023. I would like to take this opportunity to thank Jane for all her hard work and service to the Company. Her vast knowledge and experience of the investment trust industry proved invaluable to the Board over that time. I would also like to welcome Simon Longfellow to the Board. As previously announced, Simon was appointed as a Non-Executive Director of the Company with effect from 1 July 2023 and has specialist experience of marketing investment trusts and communicating effectively with Shareholders. The Board has now settled back to its normal number of four Directors.

Performance

In common with many companies investing in the smaller companies sector, it has been a difficult six months. The increasing interest rate environment has led to the highest rates the UK has experienced for 15 years which has proven challenging for markets in general and smaller companies in particular. Fears about the cost of living crisis and the UK dipping into recession have weighed heavily on sentiment. There is hope that interest rates might have peaked and that the UK may avoid recession, though growth is still weak.

Your Company’s net asset value (‘NAV’) return was -6.9% compared to -4.2% for the benchmark index (in each case measured on a total return basis).

The Company’s share price fell from 451.00p to 416.50p during the six months to 31 July 2023, a decrease of 7.6% (a 5.4% decrease on a total return basis), and the discount to net asset value ended the period narrower at 11.6%, having been 12.8% as at 31 January 2023.

It is particularly pleasing to report an increase in revenue per share for the period to 8.17p (2022: 6.74p). This reflects the robust dividend flow from the portfolio.

Since the Company’s half-year end to 9 October 2023, the latest practical date before publication of this interim report, the Company’s NAV total return is -9.1%, the share price total return is -6.2%, whilst the benchmark index total return is -8.7%. As at 9 October 2023, the discount has narrowed further to 8.9%.

Dividends

The Company’s dividend policy is to target a dividend yield of 4% of the year end share price paid from income earned within the portfolio and enhanced, as necessary, through the use of realised capital profits.

In accordance with this policy, on 20 July 2023 the Board declared a first interim dividend of 3.85p for the year ending 31 January 2024, which was paid on 1 September 2023 to shareholders on the register on 4 August 2023 (2022: 3.75p). The expected timetable for the remaining dividend payments is as follows: the second and third interim dividends are payable in December 2023 and March 2024 respectively, with the final dividend payable in June 2024, following its approval by shareholders at the Company’s Annual General Meeting.

Shareholders who hold shares on the main register and are residents of the UK, Channel Islands and Isle of Man, have the opportunity to reinvest their dividend via the Dividend Reinvestment Plan (‘DRIP’). Shareholders will need to submit an election by the 17 November 2023. Further information can be found in the leaflet included with this report and on the Company’s webpage: www.invesco.co.uk/ipukscit.

Outlook

It is hoped that interest rates and inflation have now peaked; while it is too early to declare new shoots of growth, there are some positive indicators such as the easing of wage inflation.  The worst may now be behind us and there is certainly a widespread belief that UK equities are good value. Our portfolio managers comment more about this in relation to UK smaller companies in their report.

Bridget Guerin

Chairman

10 October 2023

PORTFOLIO MANAGERS’ REPORT

Q What were the key influences on the market over the period?

A Inflation and the central banks response to inflation were the dominant features of the period under review. The Bank of England raised rates significantly, from 3.5% to 5.25%, with the hope that the increased cost of borrowing would reduce demand and moderate price increases. Although inflation has begun to moderate, it typically takes around a year for higher rates to take effect, suggesting this has so far been a minor factor. In fact, many economists calculate that the increased income from consumer savings currently outweighs the negative impact from higher mortgage rates. More importantly, many of the factors that drove inflation to multi-decade highs, such as energy prices, and the supply chain disruption that we saw after the pandemic, have finally begun to normalise.

Another notable feature of the half year was a bout of Artificial Intelligence (‘AI’) exuberance. This was prompted by the launch of the latest version of AI software ChatGPT. Whilst various forms of machine learning have been in use for the last decade, ChatGPT captured the imagination of investors due to its ability to produce written output with a realistic human like quality. The software analyses vast amounts of written online content and uses the information to predict the order in which to place words to create coherent text. Whilst it is a very useful tool, its lack of any actual intelligence makes it prone to regurgitating false information in a highly convincing way. As with all popular stock market trends, investment banks created various instruments (“baskets” of stocks) to allow investors to play this theme. This negatively impacted the shares of a number of companies, which rightly or wrongly, were deemed to be potential victims of this new technology. Whilst we see AI as an important tool for driving productivity, we were surprised by the market volatility created by this phenomenon.

The much-heralded UK recession is yet to materialise. Although the level of growth in the UK economy is anaemic, we continue to benefit from full employment and a higher level of consumer savings than we have seen for some time. So contrary to the endless news headlines about the “cost of living crisis”, the consumer discretionary sector was by far the strongest performing area within the UK smaller companies sector, with leisure stocks performing particularly well.

Q How did the portfolio perform over the period?

A The Net Asset Value total return for the portfolio over the period was -6.9%, which was an underperformance versus the benchmark index, the Numis Smaller Companies + AIM (excluding Investment Companies), which returned -4.2% on the same basis. The share price total return was -5.4%, reflecting the narrowing of the discount from 12.8% at last financial year end to 11.6% at the end of this period.

Q Which stocks contributed to and detracted from performance?

A The best performing stocks over the period included: Infrastructure products business, Hill & Smith (+27%), which is benefitting from increased spending on infrastructure, particularly in the US, where the company generates most of its profits. Gresham House (+42%), is a fund management business focused on ethical investing. The company received a takeover approach at a significant premium to its share price. Pubs businesses, Young & Co’s Brewery (+32%) and Mitchells & Butlers (+40%), both recovered significantly after a period of underperformance. The shares had suffered due to high energy prices and wage inflation substantially reducing profits. However, consumer spending has remained far more resilient than many had expected, and with energy prices now moderating, the stocks have recovered much of the lost ground. Software and services company, FD Technologies (+31%), had a good period after it announced strong sales figures for its innovative data software. Historically it was mostly used within the financial sector, but the company is now gaining new customers across a variety of verticals, which has substantially increased the addressable market for its product.

In a difficult period for markets, inevitably there were some poorly performing holdings: Oil and Gas company, Jadestone Energy (–73%), suffered from reduced production due to some maintenance issues at its main oil field. The profit shortfall meant the business had to issue shares at a discount to bolster its cash position. Whilst the stock appears good value it has been blighted by a number of missteps, so we are currently reviewing the holding. Keywords Studios (–38%), which provides outsourced services to the computer games industry, was caught up in the bout of AI exuberance which gripped the market following the release of the latest version of ChatGPT. Some commentators believe that its revenue could be negatively impacted by generative AI. However, the company already uses AI as a productivity tool in a number of areas of its business, so we believe the fears are misplaced. We think it is an excellent business and used the share price weakness to add to the holding. Software and services business, Learning Technologies (–46%), was also impacted by short selling due to fears about the impact of AI. Again, we do not believe the business will be significantly affected. However, lower business confidence in the US did lead to a reduction in earnings estimates toward the end of the period. Whilst this is disappointing, we believe the company still has substantial growth potential and we have retained our holding. Videndum (–40%), which manufactures products used in the TV, film and photographic industries has seen its earnings expectations eroded due to the strikes called by script writers and actors in the US. The strikes will ultimately be resolved, and profits will recover, so we have retained our holding.

Q What is the current portfolio strategy?

A Our investment philosophy remains unchanged. The current portfolio is comprised of around 70 stocks with the sector weightings being determined by where we are finding attractive companies at a given time, rather than by allocating assets according to a “top down” view of the economy. We continue to seek growing businesses, which have the potential to be significantly larger in the medium term. These tend to be companies that either have great products or services, that can enable them to take market share from their competitors, or companies that are exposed to higher growth niches within the UK economy or overseas. We prefer to invest in cash generative businesses that can fund their own expansion, although we are willing to back strong management teams by providing additional capital to invest for growth.

The sustainability of returns and profit margins is vital for the long-term success of a company. The assessment of the position of a business within its supply chain and a clear understanding of how work is won and priced are key to determining if a company has “pricing power”, which is particularly important in the current inflationary environment. It is also important to determine which businesses possess unique capabilities, in the form of intellectual property, specialist know-how or a scale advantage in their chosen market. We conduct around 300 company meetings and site visits a year, and these areas are a particular focus for us on such occasions.

The current uncertainty over the timing and pace of economic recovery has led us to manage the portfolio using a “barbell” strategy. Around half the portfolio is invested in businesses with more defensive characteristics. These companies either benefit from long term contracts or are exposed to more stable, less economically sensitive end markets. These characteristics provide a greater degree of resilience and earnings visibility in the current environment. However, it should be noted that this sort of certainty comes at a price, with these stocks typically trading at a valuation premium to the market. The other half of the portfolio is invested in more cyclical, economically sensitive stocks. In some cases, these businesses are experiencing more difficult trading, however, we believe they can still be attractive investments where this is reflected in the valuation. When economic conditions improve it is possible to make strong returns from these stocks, as both earnings and the multiple investors willing to pay for those earnings, start to recover.

Q What are the major holdings in the portfolio?

A The 5 largest holdings in the portfolio at the end of the period were:

• 4imprint (4.4% of the portfolio) sells promotional materials such as pens, bags and clothing which are printed with company logos. The business gathers orders through online and catalogue marketing, which are then routed to their suppliers who print and dispatch the products to customers. As a result of outsourcing manufacture, the business has a relatively low capital requirement and can focus on marketing and customer service. Continual reinvestment of revenue into marketing campaigns has enabled the business to generate an enviable long term growth record whilst maintaining margins.

• JTC (3.3% of the portfolio) is a financial administration business providing services to real estate and private equity funds, multinational companies, and high net worth individuals. The business has a strong culture, a reputation for quality and has augmented its organic growth with acquisitions. Margins and returns on capital are strong and the business benefits from long term contracts, giving it excellent earnings visibility.

• Hill & Smith (3.2% of the portfolio) is a supplier of products and services into the infrastructure sectors in the UK and US. Its proprietary steel and composite products are used in the rail, roads, water, and energy sectors. The business also provides galvanizing services to protect steel structures, and leases temporary road barriers and security products. The company generates good margins and benefits from exposure to growing infrastructure investment, particularly in the US.

• CVS (3.1% of the portfolio) is a leading veterinary services business, which owns over 500 vet surgeries and specialist centres, predominantly in the UK. The scale of the business gives it purchasing power, allowing it to generate a higher margin than individual surgeries. The business has been a leading consolidator of the UK market and have recently entered continental Europe and Australia. The company is relatively immune to the economic cycle, and with ever more being spent on the wellbeing of the nation’s pets, it can continue to grow for many years to come.

 The recent announcement of a Competition and Markets Authority consultation on the sector has negatively impacted its share price. However, there are already restrictions on the number of vets any business can have in a given area in order to ensure a competitive market, and we do not believe the business is generating excessive profits. Whilst prices for veterinary services have risen over the last few years, the increases have only been in-line with wage inflation in the sector.

• Advanced Medical Solutions (2.7% of the portfolio) produces a range of proprietary wound care and wound closure products such as sutures, medical adhesives, antimicrobial dressings and surgical devices. The company should benefit from the backlog of medical procedures following the pandemic and has an exciting pipeline of innovative products which should drive longer term growth.

Q What were the new holdings added over the period?

A New stocks that we added to the portfolio in the period include:

• Tatton Asset Management (‘Tatton’) creates model portfolios which it sells via independent financial advisors (‘IFAs’) in the UK. The outsourcing of investment decisions by IFAs to businesses such as Tatton has increased significantly over the last decade due to an increasing burden of regulation on IFAs. Tatton has a range of model portfolios, made up of both active and passive funds, that correspond with a variety of risk categories for clients. The service has one of the lowest fee structures in the industry, a good long-term performance record and a strong reputation within the IFA sector. The business is growing strongly, and with a highly scalable business model, it achieves an enviable level of profitability.

• Niox is a medical diagnostic business with technology that can more accurately diagnose and monitor asthma. The company is the world leader in fractional exhaled nitric oxide (‘FeNO’) testing, which measures exhaled Nitric Oxide as a diagnostic marker for asthma. FeNO testing is significantly more accurate than traditional methods of testing. The product is approved by the National Institute for Health and Care Excellence in the UK and is reimbursable in all its major markets. We believe the business can substantially grow its installed base of devices, and this should drive a high level of recurring test kit revenue.

Q What is the Portfolio Managers’ approach to gearing?

A Gearing decisions are taken after reviewing a variety of metrics including valuations, earnings momentum, market momentum, bond spreads and a range of economic indicators. After analysing this data, we concluded that the Company should not be geared at this point. We will continue to monitor these factors and look to gear the Company when the indicators turn more positive.

Q How does ESG factor in the investment process?

A Environment, Social and Governance (‘ESG’) issues are increasingly a focus for many investors and analysis of these factors has always been a core part of our investment process. Invesco has significant resources focussed on ESG, both at a group and individual team level. Our proprietary ESGintel system draws in company specific data from a broad range of sources and enables ESG related metrics to be quantified. This provides fund managers with a clear overview of areas of concern, allowing targeted engagement with businesses to bring about positive change.

Environmental liabilities, socially dubious business practises and poor corporate governance, can have a significant impact on share prices. We assess environmental risks within a business, and analyse the steps being taken to reduce its environmental impact. We like businesses with strong cultures and engaged employees, and avoid businesses, which, whilst acting within the law, run the risk of a public backlash, or being constrained by new legislation. We believe that governance, board structure and incentivisation, are by far the most important factors within ESG in determining shareholder returns. The importance of businesses being managed by good quality people, with appropriate incentivisation should not be underestimated. Therefore, we proactively consult with all the businesses we own on these matters and vote against resolutions where standards fall short of our expectations.

Q What is the dividend policy of the Company?

A The Company pays out all the income earned within the portfolio and enhances it using a small amount of realised capital profits to target a dividend yield of 4.0% based on the year end share price. This provides shareholders with an attractive and consistent yield whilst allowing us to target businesses that we believe will deliver the best total return, without having to compromise on quality to hit an income target.

Q What are your expectations for the year ahead?

A The current level of economic growth in the UK is lacklustre, and we are just beginning to feel the lagged effects of the steep increase in the Bank of England base rate, so the prognosis for the coming year appears gloomy. However, we are not currently in recession and the most recent data suggests that wages are growing again in real terms for the first time in a couple of years. We are also in the fortunate position of having full employment and healthy consumer balance sheets (in aggregate) which should feed through to confidence over time.

We are hopeful that inflation should continue to decline over coming months. The supply chain tightness that drove the initial wave of inflation following the pandemic has largely normalised, and energy prices have now significantly fallen year on year. Conversations with companies suggest that it is now much easier to find staff than it was a year ago and this is beginning to feed through to wage settlements. So hopefully the worst of the cost of living crisis is now behind us, and we are near the peak of the current interest rate cycle.

The value within the UK smaller companies market is very apparent to us. Whether we compare current valuations to history, or to other international markets, the sector looks anomalously cheap. Over time this should attract increased interest from the investment community, but in the meantime we have seen a surge in takeover activity from both corporate and private equity buyers looking to exploit the “knock-down” prices of UK equities. Whilst the economic backdrop is underwhelming we continue to see opportunities to buy undervalued shares in companies with excellent long term growth potential. So, after a difficult couple of years, we are optimistic of better returns over the coming year.

Jonathan Brown & Robin West

Portfolio Managers  

10 October 2023

PRINCIPAL RISKS AND UNCERTAINTIES

The Directors confirm that they have carried out a robust assessment of the emerging and principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. Most of these risks are market related and are similar to those of other investment trusts investing primarily in listed markets. The Audit Committee reviews the Company’s risk control summary at each meeting, and as part of this process, gives consideration to identify emerging risks. Emerging risks, such as evolving cyber threat, geo-political tension and climate related risks, have been considered during the period as part of the Directors’ assessment.

In the view of the Board, these principal risks and uncertainties are as much applicable to the remaining six months of the financial year as they were to the six months under review.

THIRTY LARGEST INVESTMENTS

at 31 July 2023

Ordinary shares unless stated otherwise

AIM Investments quoted on AIM.

GOVERNANCE

Going Concern

The financial statements have been prepared on a going concern basis. The portfolio of investments is comprised entirely of quoted securities and the ongoing charges are around 1% of net assets. As at 9 October 2023, the Company has drawn down £3.4m of its bank overdraft borrowing facilities, with a further £11.6m available for investment opportunities within prescribed limits as set by the Board.

The Directors consider this is the appropriate basis, as the Company has adequate resources to continue in operational existence for the foreseeable future, being taken as at least 12 months after signing the balance sheet. In considering this, the Directors took into account the diversified portfolio of readily realisable securities which can be used to meet funding commitments, and the ability of the Company to meet all of its liabilities, including any bank overdraft, and ongoing expenses as they fall due.

Related Party Transactions and Transactions with the Manager

Note 20 of the Company’s 2023 Annual Financial Report gives details of related party transactions and transactions with the Manager. This report is available on the Company’s section of the Manager’s website at www.invesco.co.uk/ipukscit.

Directors’ Responsibility Statement in respect of the preparation of the Half-Yearly Financial Report

The Directors are responsible for preparing the Half-Yearly Financial Report using accounting policies consistent with applicable law and International Financial Reporting Standards.

The Directors confirm that to the best of their knowledge:

– the condensed set of financial statements contained within the Half-Yearly Financial Report have been prepared in accordance with the International Accounting Standards 34 ‘Interim Financial Reporting’;

– the interim management report includes a fair review of the information required by 4.2.7R and 4.2.8R of the UKLA’s Disclosure Guidance and Transparency Rules; and

– the interim management report includes a fair review of the information required on related party transactions.

The Half-Yearly Financial Report has not been audited or reviewed by the Company’s auditor.

Signed on behalf of the Board of Directors.

Bridget Guerin

Chairman

10 October 2023

CONDENSED STATEMENT OF COMPREHENSIVE INCOME

The total columns of this statement represent the Company’s statement of comprehensive income, prepared in accordance with UK-adopted international accounting standards. The loss after taxation is the total comprehensive loss. The supplementary revenue and capital columns are both prepared in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies. All items in the above statement derive from continuing operations of the Company. No operations were acquired or discontinued in the period.

CONDENSED STATEMENT OF CHANGES IN EQUITY

CONDENSED BALANCE SHEET

Registered number 2129187

CONDENSED CASH FLOW STATEMENT

As the Company did not have any long term debt at both the current and prior period ends, no reconciliation of the financial liabilities is presented.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

1. Basis of Preparation

The condensed financial statements have been prepared using the same accounting policies as those adopted in the Company’s 2023 Annual Financial Report. They have been prepared on a historical cost basis, in accordance with the applicable UK-adopted international accounting standards and, where possible, in accordance with the Statement of Recommended Practice for Financial Statements of Investment Trust Companies and Venture Capital Trusts, updated by the Association of Investment Companies in July 2022 (AIC SORP).

2. Income

Special dividends of £491,000 were recognised in capital during the period (31 July 2022: £nil).

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

3. Management Fee and Finance Costs

The investment management fee and finance costs are allocated 15% to revenue and 85% to capital.

A base management fee is payable monthly in arrears and is calculated at the rate of 0.75% (31 July 2022: 0.75%) per annum by reference to the Company’s gross funds under management.

4. Taxation and Investment Trust Status

No tax liability arises on capital gains because the Company has been accepted by HMRC as an approved investment trust and it is the intention of the Directors to conduct the affairs of the Company so that it continues to satisfy the conditions for this approval.

5.          Dividends paid on Ordinary Shares

The first interim dividend of 3.85p per ordinary share (31 July 2022: 3.75p) was paid on 1 September 2023 to shareholders on the register on 4 August 2023.

6. Share Capital, including Movements

Share capital represents the total number of shares in issue, including treasury shares.

7. Classification Under Fair Value Hierarchy

Note 16 of the Company’s 2023 Annual Financial Report sets out the basis of classification.

As at 31 July 2023, all of the Company’s portfolio was composed of quoted (Level 1) investments.

In the prior year, Berry Starquest Limited was a dormant subsidiary and was the only Level 3 investment valued at £100 as at 31 January 2023. The subsidiary was dissolved on 28 February 2023.

8. Status of Half-Yearly Financial Report

The financial information contained in this Half-Yearly Financial Report, which has not been reviewed or audited by an independent auditor, does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. The financial information for the half years ended 31 July 2022 and 31 July 2023 has not been audited. The figures and financial information for the year ended 31 January 2023 are extracted and abridged from the latest audited accounts and do not constitute the statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and included the Independent Auditor’s Report, which was unqualified.

The Half-Yearly Financial Report for the Six Months to 31 July 2023 will be available to shareholders, and copies may be obtained during normal business hours from the Company’s Registered Office, from its correspondence address, 43-45 Portman Square, London W1H 6LY, and via www.invesco.co.uk/ipukscit.

A copy of the Half-Yearly Financial Report will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

By order of the Board

Invesco Asset Management Limited

Company Secretary

10 October 2023

GLOSSARY OF TERMS AND ALTERNATIVE PERFORMANCE MEASURES

Alternative Performance Measure (APM)

An APM is a measure of performance or financial position that is not defined in applicable accounting standards and cannot be directly derived from the financial statements. The calculations shown in the corresponding tables are for the six months ended 31 July 2023 and the year ended 31 January 2023. The APMs listed here are widely used in reporting within the investment company sector and consequently aid comparability.

Benchmark (or Benchmark Index)

A market index, which averages the performance of companies in any sector, giving a good indication of any rises or falls in the market. The benchmark index used in these accounts is the Numis Smaller Companies + AIM (excluding Investment Companies) Index with dividends reinvested.

(Discount)/Premium (APM)

Discount is a measure of the amount by which the mid-market price of an investment company share is lower than the underlying net asset value (‘NAV’) of that share. Conversely, premium is a measure of the amount by which the mid-market price of an investment company share is higher than the underlying net asset value of that share. In this Half-Yearly Financial Report the discount is expressed as a percentage of the net asset value per share and is calculated according to the formula set out below. If the shares are trading at a premium the result of the below calculation will be positive and if they are trading at a discount it will be negative.

Gearing (APM)

The gearing percentage reflects the amount of borrowings that a company has invested. This figure indicates the extra amount by which net assets, or shareholders’ funds, would move if the value of a company’s investments were to rise or fall. A positive percentage indicates the extent to which net assets are geared; a nil gearing percentage, or ‘nil’, shows a company is ungeared. A negative percentage indicates that a company is not fully invested and is holding net cash as described below.

There are several methods of calculating gearing and the following has been used in this report:

Gross Gearing (APM)

This reflects the amount of gross borrowings in use by a company and takes no account of any cash balances. It is based on gross borrowings as a percentage of net assets. As at 31 July 2023 the Company had no gross borrowings (31 January 2023: £nil).

Net Gearing or Net Cash (APM)

Net gearing reflects the amount of net borrowings invested, i.e. borrowings less cash and cash equivalents (incl. investments in money market funds). It is based on net borrowings as a percentage of net assets. Net cash reflects the net exposure to cash and cash equivalents, as a percentage of net assets, after any offset against total borrowings.

Maximum Authorised Gearing

This reflects the maximum authorised borrowings of the Company taking into account both any gearing limits laid down in the investment policy and the maximum borrowings laid down in covenants under any borrowing facility and is calculated as follows:

Net Asset Value (‘NAV’)

Also described as shareholders’ funds, the NAV is the value of total assets less liabilities. Liabilities for this purpose include current and long-term liabilities. The NAV per share is calculated by dividing the net assets by the number of ordinary shares in issue (excluding shares held in treasury). For accounting purposes assets are valued at fair (usually market) value and liabilities are valued at par (their repayment – often nominal – value).

Return

The return generated in a period from the investments including the increase and decrease in the value of investments over time and the income received.

Total Return

Total return is the theoretical return to shareholders that measures the combined effect of any dividends paid together with the rise or fall in the share price or NAV. In this Half-Yearly Financial Report these return figures have been sourced from Refinitiv who calculate returns on an industry comparative basis.

Net Asset Value Total Return (APM)

Total return on net asset value per share, assuming dividends paid by the Company were reinvested into the shares of the Company at the NAV per share at the time the shares were quoted ex-dividend.

Share Price Total Return (APM)

Total return to shareholders, on a mid-market price basis, assuming all dividends received were reinvested, without transaction costs, into the shares of the Company at the time the shares were quoted ex-dividend.

(1) Total dividends paid during the six months to 31 July 2023 of 10.54p (31 January 2023: 22.80p) reinvested at the NAV or share price on the ex-dividend date. NAV or share price falls subsequent to the reinvestment date consequently further reduce the returns, vice versa if the NAV or share price rises.

Benchmark Index

Total return on the benchmark index is on a mid-market value basis, assuming all dividends received were reinvested, without transaction costs, into the shares of the underlying companies at the time the shares were quoted ex-dividend.