Half-year Report

Aberforth Smaller Companies Trust plc

Half Yearly Report
For the six months to 30 June 2016

The investment objective of ASCoT is to achieve a net asset value total return (with dividends reinvested) greater than on the Numis Smaller Companies Index (excluding Investment Companies) over the long term.

Aberforth Smaller Companies Trust plc (ASCoT) invests only in small UK quoted companies and is managed by Aberforth Partners LLP. All data throughout this Half Yearly Report is to, or as at, 30 June 2016 as applicable, unless otherwise stated.

FINANCIAL HIGHLIGHTS

Total Return Performance			%
Net Asset Value			-11.3
Numis Smaller Companies Index (XIC)			-5.6
Ordinary Share Price			-22.3

	30 June 2016	31 December 2015	30 June 2015
Shareholders' Funds	£1,034.8m	£1,191.9m	£1,256.7m
Market Capitalisation	£859.9m	£1,133.6m	£1,133.4m
Actual Gearing employed	2.8%	0.3%	4.7%
Ordinary Share net asset value	1,092.06p	1,254.30p	1,320.66p
Ordinary Share price	907.50p	1,193.00p	1,191.00p
Ordinary Share price discount	16.9%	4.9%	9.8%

Chairman’s Statement

Review of performance

For the six months to 30 June 2016, the net asset value total return of Aberforth Smaller Companies Trust plc (ASCoT) was -11.3%, which compares with a total return of -5.6% from the Company’s investment benchmark, the Numis Smaller Companies Index excluding Investment Companies (NSCI (XIC)).  The FTSE All-Share Index, which is dominated by larger companies, generated a return of +4.3% over the same period.  The discount on the Company’s shares widened from 5% at the start of the period to 17% as at 30 June.

It is clear that this has been a disappointing six-month period in both absolute and relative terms.  In financial markets, describing events as “exceptional” has been a somewhat overused cliché in recent years.  In the aftermath of the Brexit referendum and with ten year gilt yields falling below 1%, such a description of the six months to 30 June 2016 seems entirely appropriate. The Managers’ Report expands on both occurrences and reviews other factors that have influenced the Company’s returns during the first six months of the year.

Dividends

In recent reports to shareholders, I have highlighted the excellent dividend environment that has prevailed since the recovery in 2010.  The first half of 2016 witnessed a continuation of that environment.  Accordingly, the Board is pleased to announce an interim dividend of 8.60p per Ordinary Share for the year to 31 December 2016.  The interim dividend will be paid on 25 August 2016 to Shareholders on the register as at close of business on 5 August 2016.  The ex dividend date is 4 August 2016.

The Company operates a Dividend Reinvestment Plan.  Details of the plan, including the Form of Election, are available from Aberforth Partners LLP or on its website, www.aberforth.co.uk.

The growth of 5.2% in the 2016 interim dividend when compared with 2015 maintains the roughly 5% rate of progress that shareholders have seen in both 2014 and 2015.  Against a backdrop of extremely low inflation, the majority of that growth rate can be thought of as real, i.e. inflation adjusted.  This current rate of real dividend growth compares very favourably with the average of around 2.5% that has been witnessed from the NSCI (XIC) since its start date in 1955. The period since 2010 has been unusually strong in terms of dividends for shareholders in small UK quoted companies.

In determining its progressive dividend policy, the Board has been acutely conscious that such high rates of real growth must inevitably decline.  However, the pace and timescale of such a fading are much harder to forecast.  This uncertainty has encouraged the Board to balance its ambition to expand ASCoT’s dividends in a progressive fashion with a strengthening of revenue reserves.  The Company had revenue reserves of 45.2p per share at 31 December 2015, which represent 1.7 times the total of the 2015 final and 2016 interim dividends.  This compares with 1.3 times in the immediate aftermath of the Global Financial Crisis in 2010.  This represents an encouraging position for your Board to deliver its progressive dividend policy.

Gearing

Gearing has shown little change over the period and stood at 2.8% of Shareholders’ Funds at 30 June 2016.  The Board reviews the level of gearing regularly and is comfortable that your Company has access to sufficient liquidity for investment purposes and also to fund share buy-backs, as and when appropriate.  It remains your Company’s current policy to use gearing in a tactical manner.

Share buy-in

During the six months to 30 June 2016, 271,000 shares (0.3% of the issued share capital) were bought in for a total consideration of £2,751,000.  The Board keeps under review the circumstances in which the authority is utilised.

Conclusion

Following the result of the Brexit referendum, the investment climate has become more uncertain.  Currently, the UK is very much centre-stage, as economists, politicians and journalists attempt to predict both the near-term pathway for the UK economy and the longer-term implications of the “out” vote.  Stockmarkets do not wait for leadership elections or European diplomacy and almost instantaneously discounted tougher times for UK domestic-facing businesses over the coming months.  Unsurprisingly, in the short term, this has had the most impact in the small and mid cap sectors of the UK stockmarket.  Alongside the decline in sterling, we have seen some early policy shifts from both the Bank of England and George Osborne, which are aimed at providing additional support to the UK economy.  In the short run, macro factors are likely to be at the front of investors’ minds, despite the fact that numerous academic works highlight GDP growth and stockmarket returns as being uncorrelated.  Other academic studies, and experience, suggest that valuations matter more and in that regard the de-rating of the NSCI (XIC) over the past two years both in absolute terms and relative terms, when compared to the larger companies, may suggest a reasonable proportion of an earnings decline is priced in. 

Over the first half of 2016, the Company has had to contend with the adversities of a weakening UK economy, small and mid-cap underperformance, ten year gilt yields at less than 1% and a resurgent resources sector.  And, in what could easily be described as a perfect storm, a large widening of the discount over the six month period has produced one of the most painful six monthly results for shareholders in ASCoT’s history.  Such setbacks have in the past been followed by sharp rebounds in performance.  This time round, headwinds for small companies and the value style may blow for longer as much of the developed world becomes subsumed by negative real interest rates.

However, with valuations already almost a third below their peak of the last three years and with ASCoT’s robust income characteristics, this situation will not last indefinitely.  Moreover, the Managers are well placed to take advantage of the market volatility that has followed the referendum and that has given rise to some anomalous valuations for good businesses.  ASCoT remains heavily differentiated from its benchmark and from its peer group, which is in part a result of the Managers’ value investment philosophy.  The Board remains firmly of the view that the Company will benefit from this philosophy consistently pursued by the well resourced and experienced team at Aberforth.
Paul Trickett
Chairman
27 July 2016
[e-mail]

Managers’ Report

Introduction

What had already proved a challenging start to 2016 became distinctly more so with the outcome of the EU referendum at the end of June.   The year had commenced with familiar concerns about US and Chinese economic growth affecting stockmarket sentiment.  A powerful rally, led by the resources companies, then commenced in mid February.  Its momentum diminished as the EU referendum campaign progressed and the chance of an “out” vote rose.  Still, the eventual outcome was unexpected and initiated what could be a protracted period of intense uncertainty for the UK and for Europe more broadly.

The net effect of these developments was a total return of 4.3% for the FTSE All-Share over the six months to 30 June 2016.  Large companies benefited from their substantial exposure to overseas earners and to resources companies, though they also had to contend with the drag from banks in the wake of the “out” vote.  Small companies have less exposure than large to both banks and resources, but they have a greater reliance on the domestic economy, which seems likely to experience a slowdown as a result of the referendum.  Hence the NSCI (XIC) experienced a total return of -5.6%.  ASCoT’s NAV total return was -11.3%.  This was clearly a disappointing result in both absolute and relative terms.  While the greatest impact on the absolute number was the referendum outcome, the more significant relative influence came earlier in the period and was related to the resources rebound.  This is explained in more detail in the Investment Performance section of this report.

ASCoT’s NAV performance was made more painful for shareholders by an expansion in the discount of the share price to the NAV from an unusually tight 5% at the start of the year to an unusually wide 17% at 30 June 2016.  Thus, the share price total return over the six month period was -22.3%.  ASCoT was not alone: discounts across the range of UK small and mid cap investment trusts expanded in the period.  Brexit was a significant influence, since, with their greater exposure to the domestic economy, small companies are likely to be more disadvantaged by the greater uncertainty that accompanied the “out” vote.

It is probable that Brexit will undermine the UK’s economic growth in the near term.  Small companies have less overseas exposure and so, all else being equal, will suffer more than their larger peers from a UK recession.  The referendum result also ushers in an indeterminate period of intense uncertainty for financial markets.  Crucial issues – such as government, the timescales for the exit itself, terms of trade, the make-up of the UK – are up in the air.  Accordingly, it is difficult to argue that UK equities do not now merit lower valuations, even if, over the longer term, the “Brexiteers” are proved right in their belief that the economy has been stifled by EU membership.

Of course, the implications of the Brexit vote are not confined to the UK.  Political risk across Europe has risen as a result of the UK’s decision: with the arguments of break-away parties in other countries now carrying more weight, the threat to the stability of the Eurozone, with its structural challenges, has undoubtedly risen.  More broadly, Brexit may embolden populist anti-establishment movements around the world and confirms that politics is creating more volatility in equity valuations than at any time since the end of the Cold War.

Investment Performance

Over the six months to 30 June 2016, ASCoT’s NAV total return was -11.3% against -5.6% for the NSCI (XIC).  The following table analyses the difference between these numbers, while the subsequent paragraphs give additional detail about the influences on performance.

For the six months ended 30 June 2016		Basis points
Stock selection		(394)
Sector selection		(146)
		______
Attributable to the portfolio of investments, based on mid prices      (after transaction costs of 8 basis points)		(540)
Movement in mid to bid price spread		29
Cash/gearing		(20)
Purchase of ordinary shares		3
Management fee		(36)
Other expenses		(3)
		______
Total attribution based on bid prices		(567)
		______
Note: 100 basis points = 1%.  Total Attribution is the difference between the total return of the NAV and the Benchmark Index (i.e. NAV = -11.27%; Benchmark Index = -5.60%; difference is 5.67% being 567 basis points).

Size

For reasons that are set out in the Valuation section of this report, ASCoT’s portfolio remains biased to the “smaller small” companies within the NSCI (XIC).  This positioning was modestly helpful in the first six months of 2016, as may be demonstrated by comparing the total returns of the FTSE SmallCap index and the FTSE 250 index.  The former was down by 4.6%, whereas the latter experienced a decline of 6.2%, which suggests that “smaller small” companies performed less weakly.

Style & sectors

The fortunes of Aberforth’s value investment style were bound up with those of the resources sectors in the first half of 2016.  As was the case in the large cap world, within the NSCI (XIC) value out-performed growth in headline terms.  This was because nearly all the resources companies within the index are classified as value stocks at the present time and their share prices rebounded significantly.  With the resources companies excluded, the value style under-performed growth in the six months.

In 2015, ASCoT benefited from its under-weight position in resources and the miners in particular.  However, the Managers did not possess sufficient foresight to embrace the sector in advance of its bounce, which commenced in mid February.  Through the first half of 2016, the continuing under-weight in resources was therefore a drag to relative returns and the resources sectors in aggregate cost the portfolio 189 basis points of relative performance.

Resources companies, especially the miners, represent a particular challenge for the Managers.  Small cap miners are typically focused on one asset, which is often located in a part of the world that does not enjoy the established property rights of the UK.  Cash flows are weak as a result of large investment programmes and dividends are unusual.  Moreover, the ownership structures of small resources companies are frequently such that corporate governance standards are in doubt.  To be clear, none of these are reasons to justify ignoring the resources sector: the Managers carry out the analysis that they would on any company and, indeed, the portfolio contained nine resources companies at 30 June 2016.  However, the risks already highlighted are reflected in the requirement for a higher margin of safety to be embedded in the valuation and in a smaller than average holding size in individual companies.  The recent flurry of interest in the resources sector has not altered this approach and has not given extra impetus to increase exposure to that area of the market.

The EU referendum is also relevant to sector performance.  The higher chance of a domestic recession and the weakness of sterling since the “out” vote have seen significant differentiation in sector performance: those parts of the market close to the domestic economy – such as the housebuilders, retailers and property companies – have been weaker than those parts with an overseas orientation that are beneficiaries of a weaker currency.   The portfolio’s exposure to the domestic economy is similar to that of the NSCI (XIC): the companies in the portfolio derive 52% of their revenues from the UK against 54% for the index.  In most cases, the stockmarket has been reasonably efficient and has already built in the heightened risk faced by domestic businesses into their valuations.  However, there are anomalies and the managers expect opportunities to arise among both the overseas and domestic earners.

Corporate activity

M&A and IPOs abounded in 2015.  This was not the case in the first half of 2016.  Concerns about the EU referendum appear to be responsible: reluctance on the part of an overseas company to commit to acquiring sterling assets is understandable.  In total, bids for nine constituents of the NSCI (XIC) have been announced over the past six months.  Of those, ASCoT held three in its portfolio.  The paucity of bid activity is a hindrance to the Managers’ value investment style: history suggests that corporate acquirers are often more prepared to recognise value than other stockmarket participants.  While the uncertainty of Brexit complicates a recovery in M&A, the fall in sterling has rendered UK assets more affordable for overseas buyers. It is notable that there have been deal announcements since the referendum.  As regards IPOs, there were eight in the first half.  None of these was taken by ASCoT: the Managers spent time to understand the underlying businesses but were dissuaded from investing by the valuations demanded by the vendors.

Income

The dividend performance of small companies remained strong through the first six months of 2016.  In contrast to that of the FTSE All-Share, the income generated from the NSCI (XIC) stands out for its good dividend cover – 2.9x against 1.5x – and for its low reliance on a handful of very large dividend payers.  It is likely that dividend growth across the NSCI (XIC) in 2016 will for another year exceed the long term average of 2.5% in real terms and that companies will continue to supplement ordinary dividend payments with special dividends.

ASCoT has benefited from these trends in recent years and, indeed, in the first half of 2016.  This bodes well for the year as a whole.  It is worth noting that, had the Managers anticipated the rally in the share prices of the nil yielding resources companies, the income performance of the portfolio would, all else being equal, be less robust.  It also bears repeating that, in this world of zero or negative interest rate policy, there is a clamouring for income.  Company boards are alive to this and, in certain cases, their dividend decisions may have been influenced accordingly.  The risk is that some of these decisions will prove to have been ill-judged when the next recession happens.  Following the EU referendum, the test might now come sooner than previously expected.

Turnover

Portfolio turnover in the first six months of 2016 was unusually low, annualising at 16%.  This compares with a long term average of around 35%.  There is a connection between investment style and the rate of turnover: if the broader stockmarket is uninterested in the value stocks within the portfolio and is therefore not revaluing them, there is little motivation for the Managers to sell and reinvest.  Hence for a value manager, a pick-up in turnover can be associated with improved relative performance.

Active share

This is a measure of how different a portfolio is from an index.  The higher the active share ratio, the greater the difference.  A higher ratio increases the probability that the portfolio will perform differently from the index, though it offers no guarantees as to direction.  The Managers use active share as a tool to ensure that the portfolio does not become a closet index tracker and target a ratio of at least 70%.  At 30 June 2016, the ratio was 78%.

Valuations

Portfolio characteristics	30 June 2016		30 June 2015
	ASCoT	NSCI (XIC)	ASCoT	NSCI (XIC)
Number of companies	83	339	90	357
Weighted average market capitalisation	£514m	£823m	£700m	£874m
Price earnings (PE) ratio (historic)	10.5x	12.4x	14.1x	15.7x
Dividend yield (historic)	3.4%	2.8%	2.6%	2.4%
Dividend cover	2.8x	2.9x	2.7x	2.6x

The valuation metrics in the table above are consistent with the Managers’ value investment style: the portfolio has a lower PE ratio and a higher dividend yield than the NSCI (XIC)’s.  The historical PE ratio of the FTSE All-Share was 18.0x.  Therefore, large companies presently command a substantial 45% PE premium to small, compared with a 9% premium on average over the past 25 years.  The greater weighting of the resources sectors in the FTSE All-Share is influential: many resources companies are currently very highly rated as the stockmarket anticipates a recovery in profits.

EV/EBITA		43 growth companies	240 other companies	Tracked Universe	Portfolio
2016		15.6x	11.3x	12.0x	9.9x
____		______	______	______	______
2017	pre Brexit	13.8x	9.8x	10.4x	8.5x
	assuming recession	14.8x	11.5x	12.0x	9.8x

The table above examines the valuation of the portfolio and the tracked universe on the basis of the Managers’ favoured metric, the ratio of enterprise value to earnings before interest, tax and amortisation (EV/EBITA).  Given the uncertainties of Brexit and the likelihood of a UK downturn, it shows two scenarios for 2017.  The principal assumptions behind the recession scenario are that the downturn starts on 1 January 2017 and that the profits of domestic businesses decline by 25% on average.  It can be inferred that this would result in little profit growth for the portfolio and the tracked universe as a whole, but that the 43 growth companies still make progress.  This resilience on the part of the growth companies is precisely why they are accorded high valuations.  However, this scenario still leaves growth companies on a 51% premium to the portfolio.  This might suggest that recession risk is already substantially discounted in present valuations.  A narrowing of that premium should be consistent with superior performance from the portfolio.

Market capitalisation range:	< £100m	£100-250m	£250-500m	£500-750m	> £750m
Portfolio weight	6%	27%	23%	18%	25%
Tracked universe weight	1%	8%	20%	19%	52%
Tracked universe 2016 EV/EBITA	7.8x	8.8x	10.7x	11.5x	13.9x

The final valuation table examines the interplay of valuation and size.  ASCoT’s portfolio is heavily under-exposed to the “larger small” companies within the NSCI (XIC).  Higher weightings in the “smaller small” companies make up for this.  The rationale for this positioning is clear from the final row: the “smaller small” companies are on substantially lower valuations, despite being anticipated to grow more quickly.  From a long term perspective, this is an unusual state of affairs but has persisted for several years since the financial crisis.  The explanation probably resides in a more pervasive and intense reluctance since the crisis to take on the risk of lower liquidity that comes with investment in “smaller small” companies.  For the Managers this is anomalous and represents a compelling opportunity, which ASCoT – a closed-end fund able to adopt a long term investment horizon – is well placed to exploit.

Outlook & Conclusion

The modest valuations that characterise the portfolio, and indeed much of the UK small company universe, declined in the wake of the EU referendum.  The coming months will determine whether investors in general deem these valuations to be sufficiently low to compensate for greater uncertainty.  The “out” vote undeniably complicates the outlook for the UK economy and therefore for many small UK quoted companies.  It comes at a time of a wide current account deficit and a still large public sector borrowing requirement.  With interest rates already very low, the monetary policy response is limited, but a relaxation of the austerity strategy might allow fiscal policy to take the strain.  Sterling has already offered some relief, but it would not surprise were the economy to enter recession as spending and investment decisions continue to be deferred.

This is a somewhat downbeat prospect for small companies.  However, the passage of time will see today’s uncertainties addressed, as has been seen already with the prompt appointment of a new prime minister.  Moreover, it is worth recalling the nimbleness and resilience that small companies displayed in the last downturn eight years ago: they emerged from a global recession in a better state than they had entered it, to which their subsequent outstanding dividend performance attests.  Beyond that, the structural advantages enjoyed by the UK, which have helped small companies generate such strong returns over the long term, remain largely intact: language, time-zone, property rights, corporate governance and, perhaps now debatably, political stability and openness.

Notwithstanding the ramifications of Brexit, the Managers believe that small companies can continue their long term record of strong returns.  As a reminder, the NSCI (XIC) has seen £1,000 invested on 31 December 1990 grow to £13,545 on a total return basis, which compares with £8,351 for large companies.  This superior performance has been achieved in a volatile fashion: were an investor to have missed the best five months for small companies in this period, the premium over large companies would be eliminated.  This predicament for the small cap investors is demonstrated by the suddenness of the rebound in small company share prices during the last slowdown in 2009.

History is a useful guide but, with no precedent for Brexit, can offer no guarantees.  The Managers nevertheless retain confidence in ASCoT’s diversified portfolio of companies and in its ability to recover from a period of weak performance, as it has in the past.  With valuations at current levels, much of the downside seems already to have been discounted and the number of attractive investment opportunities has increased.

Aberforth Partners LLP
Managers
27 July 2016

INTERIM MANAGEMENT REPORT

Risks and Uncertainties

A review of the half year and the outlook for the Company can be found in the Chairman’s Statement and the Managers’ Report. The Directors have established an ongoing process for identifying, evaluating and managing the principal risks faced by the Company. The Board believes that the Company has a relatively low risk profile in the context of the investment trust industry. This belief arises from the fact that the Company has a simple capital structure; invests only in small UK quoted companies; has never been exposed to derivatives and does not presently intend any such exposure; and outsources all the main operational activities to recognised, well established firms.

The principal risks faced by the Company relate to investment policy/performance, share price discount,  gearing, reputational risk, and regulatory risk. An explanation of these risks and how they are managed can be found in the Strategic Report contained within the 2015 Annual Report.  These principal risks and uncertainties have not changed from those disclosed in the 2015 Annual Report.

Going Concern

The Directors are satisfied that the Company has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.

DIRECTORS’ RESPONSIBILITY STATEMENT

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

(i) the condensed set of financial statements has been prepared in accordance with the Statement “Half-yearly financial reports” issued by the Financial Reporting Council; and

(ii) the Half Yearly Report includes a fair review of information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events during the first six months of the year and their impact on the financial statements together with a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being disclosure of related party transactions and changes therein.

(iii)  the Half Yearly Report, taken as a whole, is fair, balanced and understandable and provides information necessary for Shareholders to assess the Company’s performance, objective and strategy.

On behalf of the Board
Paul Trickett
Chairman
27 July 2016

The Income Statement, Reconciliation of Movements in Shareholders’ Funds, Balance Sheet and the Cash Flow Statement are set out below:-

INCOME STATEMENT  (unaudited)

For the six months ended 30 June 2016

	Revenue £ 000	Capital £ 000	Total £ 000
Realised net losses on sales	-	(5,633)	(5,633)
Movement in fair value	-	(147,059)	(147,059)
	_______	_______	_______
Net losses on investments	-	(152,692)	(152,692)
Investment income	23,577	251	23,828
Other income	-	-	-
Investment management fee (Note 2)	(1,588)	(2,647)	(4,235)
Transaction costs	-	(1,003)	(1,003)
Other expenses	(319)	-	(319)
	_______	_______	_______
Net return before finance costs and tax	21,670	(156,091)	(134,421)
Finance costs	(125)	(208)	(333)
	_______	_______	_______
Net return on ordinary activities before tax	21,545	(156,299)	(134,754)
Tax on ordinary activities	(39)	-	(39)
	_______	_______	_______
Return attributable to equity shareholders	21,506	(156,299)	(134,793)
	_______	_______	_______
Returns per Ordinary Share (Note 4)	22.67p	(164.75)p	(142.08)p

Dividends

On 27 July 2016, the Board declared an interim dividend for the year ending 31 December 2016 of 8.60p per Ordinary Share (2015 – 8.15p) which will be paid on 25 August 2016.

INCOME STATEMENT  (unaudited)

For the six months ended 30 June 2015

	Revenue £ 000	Capital £ 000	Total £ 000
Realised net gains on sales	-	62,880	62,880
Movement in fair value	-	88,010	88,010
	_______	_______	_______
Net gains on investments	-	150,890	150,890
Investment income	22,218	1,462	23,680
Other income	-	-	-
Investment management fee (Note 2)	(1,606)	(2,677)	(4,283)
Transaction costs	-	(1,884)	(1,884)
Other expenses	(341)	-	(341)
	_______	_______	_______
Net return before finance costs and tax	20,271	147,791	168,062
Finance costs	(119)	(199)	(318)
	_______	_______	_______
Net return on ordinary activities before tax	20,152	147,592	167,744
Tax on ordinary activities	-	-	-
	_______	_______	_______
Return attributable to equity shareholders	20,152	147,592	167,744
	_______	_______	_______
Returns per Ordinary Share (Note 4)	21.15p	154.89p	176.04p

INCOME STATEMENT  (unaudited)

For the year ended 31 December 2015

	Revenue £ 000	Capital £ 000	Total £ 000
Realised net gains on sales	-	186,289	186,289
Movement in fair value	-	(99,157)	(99,157)
	_______	_______	_______
Net losses on investments	-	87,132	87,132
Investment income	37,652	1,462	39,114
Other income	-	-	-
Investment management fee (Note 2)	(3,283)	(5,472)	(8,755)
Transaction costs	-	(3,890)	(3,890)
Other expenses	(778)	-	(778)
	_______	_______	_______
Net return before finance costs and tax	33,591	79,232	112,823
Finance costs	(242)	(403)	(645)
	_______	_______	_______
Net return on ordinary activities before tax	33,349	78,829	112,178
Tax on ordinary activities	-	-	-
	_______	_______	_______
Return attributable to equity shareholders	33,349	78,829	112,178
	_______	_______	_______
Returns per Ordinary Share (Note 4)	35.03p	82.80p	117.83p

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS

 (unaudited)

For the six months ended 30 June 2016

	Share capital £ 000	Capital Redemption reserve £ 000	Special reserve £ 000	Capital reserve £ 000	Revenue reserve £ 000	Total £ 000
Balance as at 31 December 2015	950	38	172,625	955,881	62,385	1,191,879
Return on ordinary activities after taxation	-	-	-	(156,299)	21,506	(134,793)
Equity dividends paid	-	-	-	-	(19,575)	(19,575)
Purchase of Ordinary Shares	(2)	2	(2,751)	-	-	(2,751)
	_______	_______	_______	_______	_______	_______
Balance as at 30 June 2016	948	40	169,874	799,582	64,316	1,034,760
	_______	_______	_______	_______	_______	_______

For the six months ended 30 June 2015

		Share capital £ 000		Capital Redemption reserve £ 000		Special reserve £ 000		Capital reserve £ 000	Revenue reserve £ 000	Total £ 000
Balance as at 31 December 2014	953		35		176,300		877,052		53,000	1,107,340
Return on ordinary activities after taxation							147,592		20,152	167,744
Equity dividends paid	-		-		-		-		(16,209)	(16,209)
Purchase of Ordinary Shares	(1)		1		(2,134)		-		-	(2,134)
	_______		_______		_______		_______		_______	_______
Balance as at 30 June 2015	952		36		174,166		1,024,644		56,943	1,256,741
	_______		_______		_______		_______		_______	_______

For the year ended 31 December 2015

	Share capital £ 000	Capital Redemption reserve £ 000	Special reserve £ 000	Capital reserve £ 000	Revenue reserve £ 000	Total £ 000
Balance as at 31 December 2014	953	35	176,300	877,052	53,000	1,107,340
Return on ordinary activities after taxation				78,829	33,349	112,178
Equity dividends paid	-	-	-	-	(23,964)	(23,964)
Purchase of Ordinary Shares	(3)	3	(3,675)	-	-	(3,675)
	_______	_______	_______	_______	_______	_______
Balance as at 31 December 2015	950	38	172,625	955,881	62,385	1,191,879
	_______	_______	_______	_______	_______	_______

BALANCE SHEET

(unaudited)

As at 30 June 2016

	30 June 2016 £ 000	31 December 2015 £ 000	30 June 2015 £ 000
Fixed assets
Investments at fair value through profit or loss	1,063,649	1,195,581	1,315,440
	_______	_______	_______
Current assets
Amounts due from brokers	191	-	196
Other debtors	6,329	2,725	3,650
Cash at bank	59	1,025	17
	_______	_______	_______
	6,579	3,750	3,863
	_______	_______	_______
Creditors (amounts falling due within one year)
Amounts due to brokers	(2,102)	(293)	(8,974)
Bank debt facility	(33,212)	-	-
Other creditors	(154)	(217)	(166)
	_______	_______	_______
	(35,468)	(510)	(9,140)
	_______	_______	_______
Net current (liabilities)/assets	(28,889)	3,240	(5,277)
	_______	_______	_______
Total assets less current liabilities	1,034,760	1,198,821	1,310,163
Creditors (amounts falling due after more than one year) Bank debt facility	-	(6,942)	(53,422)
	_______	_______	_______
TOTAL NET ASSETS	1,034,760	1,191,879	1,256,741
	_______	_______	_______
Capital and reserves: equity interests
Called up share capital (Ordinary Shares)	948	950	952
Reserves:
Capital redemption reserve	40	38	36
Special reserve	169,874	172,625	174,166
Capital reserve	799,582	955,881	1,024,644
Revenue reserve	64,316	62,385	56,943
	_______	_______	_______
TOTAL SHAREHOLDERS’ FUNDS	1,034,760	1,191,879	1,256,741
	_______	_______	_______
Net Asset Value per share (Note 6)	1,092.06p	1,254.30p	1,320.66p
Share Price	907.50p	1,193.00p	1,191.00p

CASH FLOW STATEMENT

(unaudited)

For the six months ended 30 June 2016

	Six months ended 30 June 2016 £ 000	Six months ended 30 June 2015 £ 000	Year ended 31 December 2015 £ 000
Net cash inflow from operating activities	15,561	17,619	29,137
Investing activities
Payments to acquire investments	(112,037)	(225,154)	(452,925)
Receipts from sales of investments	91,892	206,721	480,102
	_______	_______	_______
Cash (outflow)/inflow from investing activities	(20,145)	(18,433)	27,177
Financing activities
Purchase of Ordinary Shares	(2,751)	(2,134)	(3,675)
Equity dividends paid	(19,575)	(16,209)	(23,964)
Interest and fees paid	(306)	(314)	(638)
Net drawdown of bank debt facilities (before costs)	26,250	19,250	(27,250)
	_______	_______	_______
Cash inflow/(outflow) from financing activities	3,618	593	(55,527)
Change in cash during the period	(966)	(221)	787
	=====	=====	=====
Cash at the start of the period	1,025	238	238
Cash at the end of the period	59	17	1,025

NOTES TO THE FINANCIAL STATEMENTS

1. ACCOUNTING STANDARDS

The financial statements have been prepared on a going concern basis and in accordance with the Financial Reporting Standard 104 and the AIC's Statement of Recommended Practice "Financial  Statements of Investment Trust Companies and Venture Capital Trusts" issued in 2014. The total column of the Income Statement is the profit and loss account of the Company. All revenue and capital items in the Income Statement are derived from continuing operations. No operations were acquired or discontinued in the period. 

The same accounting policies used for the year ended 31 December 2015 have been applied.

2. INVESTMENT MANAGEMENT FEE

The Managers, Aberforth Partners LLP, receive an annual management fee, payable quarterly in advance, equal to 0.75% of net assets up to £1 billion, and 0.65% thereafter.

The investment management fee has been allocated 62.5% to capital reserve and 37.5% to revenue reserve, in line with the Board’s expected long term split of returns, in the form of capital gains and income respectively, from the investment portfolio of the Company.

3. DIVIDENDS

Amounts recognised as distributions to equity holders in the period:	Six months ended  30 June 2016 £ 000	Six months ended  30 June 2015 £ 000	Year ended 31 December 2015 £ 000
Final dividend of 17.00p for the year ended 31 December 2014	-	16,209	16,209
Interim dividend of 8.15p for the year ended 31 December 2015	-	-	7,755
Final dividend of 17.85p for the year ended 31 December 2015	16,962	-	-
Special dividend of 2.75p for the year ended 31 December 2015	2,613	-	-
	______	______	______
	19,575	16,209	23,964
	______	______	______

The interim dividend for the year ending 31 December 2016 of 8.60p (2015 – 8.15p) will be paid on 25 August 2016 to shareholders on the register on 5 August 2016. The ex-dividend date is 4 August 2016. The interim dividend has not been included as a liability in these financial statements.

4. RETURNS PER ORDINARY SHARE

The returns per Ordinary Share are based on: Returns attributable to Ordinary Shareholders	30 June 2016   £(134,793,000)	30 June 2015   £167,744,000	31 December 2015   £112,178,000
Weighted average number of shares in issue during the period Return per Ordinary Share	94,869,880 (142.08)p	95,288,936 176.04p	95,200,792 117.83p

5. INVESTMENTS AT FAIR VALUE

In accordance with FRS 102 and FRS 104, fair value measurements have been classified using the fair value hierarchy:

Level 1 - using unadjusted quoted prices for identical instruments in an active market;

Level 2 - using inputs, other than quoted prices included within Level 1, that are directly or indirectly observable (based on market data); and

Level 3 - using inputs that are unobservable (for which market data is unavailable).

	Level 1	Level 2	Level 3	Total
As at 30 June 2016	£'000	£'000	£'000	£'000
Listed equities	£1,043,371	£20,278	-	£1,063,649
Unlisted equities	-	-	-	-
	_______	_______	_______	_______
Total financial asset investments	£1,043,371	£20,278	-	£1,063,649
	_______	_______	_______	_______
	Level 1	Level 2	Level 3	Total
As at 31 December 2015	£'000	£'000	£'000	£'000
Listed equities	£1,195,581	-	-	£1,195,581
Unlisted equities	-	-	-	-
	_______	_______	_______	_______
Total financial asset investments	£1,195,581	-	-	£1,195,581
	_______	_______	_______	_______
	Level 1	Level 2	Level 3	Total
As at 30 June 2015	£'000	£'000	£'000	£'000
Listed equities	£1,315,440	-	-	£1,315,440
Unlisted equities	-	-	-	-
	_______	_______	_______	_______
Total financial asset investments	£1,315,440	-	-	£1,315,440
	_______	_______	_______	_______

6. NET ASSET VALUES

The net assets and the net asset value per share attributable to the Ordinary Shares at each period end are calculated in accordance with their entitlements in the Articles of Association and were as follows:

	30 June 2016 £ 000	31 December 2015 £ 000	30 June 2015 £ 000
Net assets attributable	1,034,760	1,191,879	1,256,741
Ordinary Shares in issue at end of period Net asset value attributable per Ordinary Share	94,752,792 1,092.06p	95,023,792 1,254.30p	95,159,792 1,320.66p

7. SHARE CAPITAL

During the period, the Company bought in and cancelled 271,000 shares (2015: 185,000) at a total cost of £2,751,000 (2015: £2,134,000).  30,500 shares have been bought back for cancellation between 1 July 2016 and 27 July 2016 at a total cost of £277,000.

8. RELATED PARTY TRANSACTIONS

There were no matters during the six months ended 30 June 2016 requiring disclosure under s412 of the Companies Act 2016.

9. FURTHER INFORMATION

The foregoing do not constitute statutory accounts (as defined in section 434(4) of the Companies Act 2006) of the Company. The financial information for the year ended 31 December 2015 has been extracted from the statutory accounts which have been filed with the Registrar of Companies. The Auditor issued an unqualified opinion on those accounts and did not make any statements under section 498(2) or (3) of the Companies Act 2006. All information shown for the six months ended 30 June 2016 is unaudited.

Certain statements in this announcement are forward looking.  By their nature, forward looking statements involve a number of risks, uncertainties or assumptions that could cause actual results or events to differ materially from those expressed or implied by those statements.  Forward looking statements regarding past trends or activities should not be taken as representation that such trends or activities will continue in the future.  Accordingly, undue reliance should not be placed on forward looking statements.

The Half Yearly Report is expected to be posted to shareholders on or before 1 August 2016.  Members of the public may obtain copies from Aberforth Partners LLP, 14 Melville Street, Edinburgh EH3 7NS or from its website at www.aberforth.co.uk.

CONTACT:
Alistair Whyte/Euan Macdonald   (Telephone  [phone])
Aberforth Partners LLP, Secretaries
27 July 2016