Half-yearly Report
ABERFORTH SMALLER COMPANIES TRUST plc
HALF YEARLY REPORT
For the Six Months ended 30 June 2011
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 2011 as applicable, unless
otherwise stated.
The investment objective of ASCoT is to achieve a net asset value total return
(with dividends reinvested) greater than on the RBS Hoare Govett Smaller
Companies Index (Excluding Investment Companies) over the long term.
CHAIRMAN'S STATEMENT
For the six months to 30 June 2011, Aberforth Smaller Companies Trust plc
(ASCoT) achieved a net asset value total return of 7.1%, which compares with a
total return of 5.7% from smaller companies as a whole, as measured by the RBS
HGSC Index (Excluding Investment Companies), your Company's investment
benchmark. Meanwhile, smaller companies outperformed their larger counterparts,
with the FTSE 100 Index returning 2.7%, and the FTSE All-Share Index, which is
heavily weighted towards larger companies, giving a return of 3.0%.
Following the Annual General Meeting in March, where Shareholders
overwhelmingly voted in favour of the continuation of your Company, I am
delighted to be reporting on a period where your Company has outperformed its
benchmark by 1.4%. While encouraging, this very short time period of six months
should be viewed against recent periods of relative underperformance when value
investing was firmly out of favour. Since the Autumn of 2010, market conditions
have moved tentatively in favour of value, and this has undoubtedly helped
performance.
The Managers' Report provides greater insight into the macro and style
influences over the past six months. It also revisits perhaps the strongest
theme of recent reports, that of the powerful dividend recovery. I would
reiterate my remarks from this year's Annual Report that "Your Company's
dividend per share has increased by 8.2% p.a. and 7.9% p.a. over the past ten
and twenty years respectively and has been a key component in delivering the
long term record". Dividends matter to all long term investors, but for value
investors, they have a special importance. Against this backdrop, I am
delighted that the strong recovery in dividends is allowing your Board to
recommence your Company's progressive dividend policy with a 7.5% rise in the
first interim dividend to 6.45p per share. The interim dividend will be paid on
26 August 2011. For Shareholders participating in ASCoT's Dividend
Re-Investment Plan, the last date for submission of Forms of Election is 5
August 2011. In the absence of a "Lehman's style" shock, it would appear that
the powerful dividend recovery has further to run.
During the period, your Board replaced your Company's existing borrowing
facilities which were due to expire on 9 July 2011. The new £100m facility,
from The Royal Bank of Scotland, is for a three year period and is on
appreciably improved terms after an extensive tendering process. Your Board
reviews the level of gearing regularly and is comfortable that your Company has
access to sufficient liquidity both for investment purposes and also to fund
share buy-backs, as and when appropriate.
In recent years, at the heart of the Managers' strategy has been the contention
that they were able to find investee companies that were attractively priced,
that possessed flexible balance sheets, often with net cash, and whose boards
were committed to providing shareholders with a rising income stream. While
macro economic risks are always present, and the adjustment phase from any
financial crisis has always proved to be a multi year process, it is
encouraging to see corporates making progress. With the evidence of modestly
increasing M&A activity, and the previously discussed strong dividend recovery
underway, there are grounds for optimism. In the short term, that optimism is
most likely to manifest itself in the level of dividends both paid out by
investee companies and indeed by your Company. Over the longer term, the
Managers would anticipate that rising dividends and increasing M&A levels are
likely to exert upward pressure on the prices of the underlying portfolio
companies, where valuation levels in both absolute and relative terms are, in
the Managers' view, among the most attractive they have seen in ASCoT's
history.
Your board remains confident that the Managers' experience and consistency of
approach will benefit ASCoT over the long term.
Professor Paul Marsh
Chairman
20 July 2011
MANAGERS' REPORT
The FTSE All-Share's total return in the first half of 2011 was 3.0%. Small
companies were stronger, with the RBS HGSC (XIC) producing a return of 5.7% and
thus setting new all-time highs. In a pleasing reversal of recent relative
performance trends, ASCoT out-performed with a net asset value total return of
7.1%.
Investment Background
Stockmarket returns, both in the UK and further afield, have on the whole been
positive over the past six months: the powerful cyclical recovery in profits
from the recession of 2009 has been enhanced by a re-rating of these profits as
risk aversion has diminished. Equity valuations nevertheless continue to face
familiar challenges.
* In the US, monetary and fiscal policy remains highly stimulative. Markets
are grappling with how smoothly the authorities can start to bring the
economy back to more normal conditions. The issue is particularly relevant
in view of the expiry of the second round of quantitative easing at the end
of June. This raised concerns about how reliant the recovery in the economy
and in equity prices may have been on accommodative monetary policy.
However, recent data releases, notably from the Philadelphia Fed, have
pointed to weaker manufacturing conditions and no doubt delayed monetary
tightening. It will take time to disentangle the effects of Japan's natural
disasters, but at some point markets were always going to have to come to
terms with a decline in the second derivative of economic and profits
growth: the pace of recovery had to slow.
* In contrast, China has already embarked on a phase of monetary tightening
in response to the inflationary consequences of a still rapidly growing
economy. With China representing a crucial source of global demand,
particularly during the recession, a reduction in its contribution to
global economic growth would be unhelpful.
* While the Northern export-oriented economies continue to prosper, the
Eurozone as a whole and the single currency are still bedevilled by the
highly indebted peripheral economies. With the austerity measures required
by bail-out programmes proving unsurprisingly unpopular, Greece has
returned to the headlines, with financial markets concerned about the
implications of a Greek default for the balance sheets of banks across the
continent.
* The UK would appear to be in the worst of all worlds: high debt levels,
sluggish growth and persistent inflation. However, the fiscal correction is
well underway and the economy's reliance on the public sector is
diminishing. There is evidence that the corporate sector is taking up the
strain, benefiting from a floating exchange rate. The household sector
remains under pressure but the drag of higher taxes and prices on
disposable income ought to diminish as the year goes on.
Fortunately, the performance of the corporate sector in the UK, and indeed in
much of the developed world, stands out at the present time both in relation to
its own history and to other parts of the economy. Results issued by small UK
quoted companies in the first half of the current year confirmed the strength
of the recovery in 2010. Aggregate sales of the 96% by value of the RBS HGSC
(XIC) tracked closely by your Managers rose by 6% in 2010. Benefiting from cost
cutting in the recession, operating profits increased more sharply, by 16%.
Despite aggregate capital expenditure returning to exceed depreciation,
aggregate net debt fell substantially.
Indeed, debt reduction has been a theme of the UK corporate sector for almost a
decade: private non financial corporations have acted as lenders to the rest of
the economy in every quarter since 2001. Among the quoted portion of the
corporate sector, this is now evident in very strong balance sheets. These
balance sheets were strengthened through 2010: company boards have been slow to
deploy their financial resources, no doubt scarred by the global financial
crisis and recession. However, they are under pressure: the Chancellor would no
doubt like to see higher investment in the UK in order to aid the rebalancing
of the economy, while investors would argue that cash could be returned should
investment opportunities, whether organic or acquisitive, not promise an
appropriate rate of return.
Investment Performance
Over the first half as a whole, the recovery in profits and resilience of
corporate balance sheets won out over the various macro economic issues to
produce good returns from equities. The RBS HGSC (XIC)'s total return was 5.7%.
ASCoT out-performed, with a net asset value total return of 7.1%. The following
paragraphs set out the principal influences on this performance.
* Using research conducted by London Business School, your Managers' Report
in the 2010 Annual Report and Accounts described the influence of
investment style on ASCoT's relative returns. The value style employed by
your Managers, while clearly more successful over the long term, has been
out of favour over the past five years, with growth stocks enjoying their
strongest bull market in the past 55 years, eclipsing even the TMT period.
However, an updated analysis suggests that since the end of October 2010
style influences, though volatile on a quarterly basis, have tentatively
moved back to favour a value philosophy. This has undoubtedly assisted
ASCoT in securing a relative return above that of the benchmark over the
first half.
Performance Attribution Analysis
For the six months ended 30 June 2011
Basis Points
Stock selection } 40
Sector selection } Based on mid-prices 79
-----
Attributable to the portfolio of investments 119
(after transaction costs of 21 basis points)
Movement in the spread between mid and bid prices 20
Cash/gearing 45
Management fee (38)
Other expenses (4)
-----
Total attribution based on bid-prices 142
-----
Note: 100 basis points = 1%. Total attribution is the difference between the
total return of the net asset value and the Benchmark Index (i.e. net asset
value = 7.14%; Benchmark Index = 5.72%; difference is 1.42% being 142 basis
points).
* Stock selection made a positive contribution to ASCoT's out-performance,
helped by the style influences previously described. Sector selection also
made a positive contribution to relative performance. The outstanding issue
at the sector level is the dichotomy in fortunes between those small
companies selling overseas and those selling to the UK consumer. The former
have substantially out-performed the latter over the past two years,
reflecting the particular pressures on the domestic economy. Contrary to
what seems to be common perception, the small cap universe possesses
substantial overseas exposure: just over half of the aggregate sales of the
portfolio holdings were generated outside the UK last year. ASCoT has
benefited from an over-weight position in capital goods businesses.
However, given relative price movements, the stockmarket is presenting the
value manager with a predicament. There is now a wide gap between the
valuations of overseas earners and domestic businesses: to illustrate, the
average 2011 PE ratio of the retailers within the tracked portion of the
RBS HGSC (XIC) was 30% lower than that of the engineers and electronics
companies at the end of June. This discrepancy is large enough to have
encouraged the start of a redeployment of capital into the more
attractively valued domestic businesses, whose profits are still well short
of their peak levels.
* ASCoT retains its substantial investments in companies with strong balance
sheets: on the basis of 2011 estimates, 42% of the portfolio is invested in
companies with net cash. There are several reasons for this positioning. Of
less importance, at least at the current time, is the defensive advantage
of low financial gearing. More significantly, strong balance sheets afford
flexibility to invest, acquire or enhance shareholder returns through a
return of capital. Your Managers believe that the stockmarket, distracted
by the very low returns on cash in the current interest rate environment,
is tending to under-rate this flexibility: announcements of a use for cash,
such as acquisitions, are often giving rise to large rises in share prices
merely on the promise of an enhancement to earnings per share. Such
potential is latent in a large proportion of ASCoT's investments. The
increasingly pressing issue is for company boards to articulate how their
financial strength is going to be deployed in a fashion that increases
shareholder value.
* Global M&A activity has risen by 30% so far in 2011. There is a similar
trend in the small UK quoted company universe, with 12 takeovers of RBS
HGSC (XIC) constituents completed as at 30 June, against 16 in the whole of
2010. Of the 12, ASCoT had holdings in three. Small companies are also
making acquisitions of their own: two portfolio holdings issued shares in
the first half to help fund large deals. Conversely, main market IPO
activity among companies eligible for the RBS HGSC (XIC) has so far been
muted, with six completed. Several issues were cancelled, with investors
reluctant to pay the prices demanded by vendors that still seem anchored to
the glory days before the global financial crisis. In the large cap world,
this year will go down as one of the best for IPOs, but Glencore rather
distorts the picture.
* One of the strongest themes within the universe of small UK quoted
companies since the start of 2010 has been the powerful recovery in
dividends from the recessionary year of 2009, which experienced the largest
dividend cuts in the 55 year history of the RBS HGSC (XIC). Taking a step
back, there can be few stronger fundamental justifications for the strength
of returns from the asset class over the past couple of years. The
following table classifies ASCoT's 92 investee companies at 30 June by
their most recent dividend action:
Band Nil IPOs Down Flat +0-10% +10-20% + >20%
No. of holdings 15 4 4 11 18 16 24
The "Nil" category contains those companies that have not announced a dividend
over the past 12 months. Six of those can be considered structural nil payers,
typically technology businesses at a relatively early stage of development. The
other nine are cyclical nil payers that will come back to the dividend register
once their profits recover and will at that point move into the "+>20%"
category. This phenomenon has a meaningful effect on reported dividend growth
across the portfolio and the RBS HGSC (XIC) as a whole. During the period, four
companies made the transition from the left-hand to right-hand side of the
table.
Investment Outlook
The bounce in profits from the global financial crisis and recession has been
rapid - a true "V shaped" recovery. For many companies, particularly
manufacturers with large overseas businesses, profit margins have already
passed their previous peaks in 2007-2008. This has been a pleasant experience
for equity investors but it raises questions about the sustainability of
margins from here, particularly since the macro economic challenges described
in the opening paragraphs of this report will continue in the second half. A
degree of scepticism would certainly seem justified by analysts' 2011 sales and
profit expectations for constituents of the RBS HGSC (XIC).
Analysis of the tracked element of the index described previously in this
report suggests expectations of a repeat of 2010: 6% growth in aggregate sales
translating into 17% growth in operating profits, slightly higher than the
previous year's rate. This seems implausible: even taking the sales growth at
face value, a similar rate of operational gearing is improbable one year
further into the cycle, with capacity utilisation higher and with incremental
cost pressures from input prices. A slowdown in the rate of growth is
inevitable, but, crucially, need not develop into an imminent fall in profits.
But the recent conclusion of the Fed's second round of quantitative easing adds
uncertainty. While the Fed's balance sheet is not due to shrink, there will be
no incremental purchases of securities under that programme. Financial markets
thus have to assess the extent to which asset prices have benefited from the
Fed's extraordinary stimulus in recent years: a less accommodative and thus
less forgiving monetary environment could expose the vulnerable and depress the
ratings accorded to riskier assets.
Set against these negatives for the valuations of small companies and equities
in general are two positive influences. First, as already described in this
report, companies are in an unusually strong financial position. Second, as the
following tables demonstrate, valuations are not demanding.
30 June 2011 31 December 2010 30 June 2010
Characteristics ASCoT Benchmark ASCoT Benchmark ASCoT Benchmark
Number of Companies 92 417 88 430 88 437
Weighted Average £433m £780m £424m £696m £370m £668m
Market Capitalisation
Price Earnings Ratio 10.8x 13.4x 11.8x 13.7x 9.8x 12.8x
(Historic)
Net Dividend Yield 2.9% 2.4% 2.5% 2.4% 3.0% 2.7%
(Historic)
Dividend Cover 3.2x 3.1x 3.4x 3.0x 3.4x 2.9x
(Historic)
At the end of June, the portfolio stood at a 19% discount to the historic PE of
the RBS HGSC (XIC), which compares with a long term average discount of 8%.
Moreover, the PE of the benchmark itself might be considered low at this stage
of the cycle, roughly six quarters into recovery. At a similar point in the
recovery from the recession of the early 1990s, the PE of the RBS HGSC (XIC)
exceeded 18x, though the present upturn is playing out more quickly than back
then.
However, PE ratios, while providing a long term context for valuations, fail to
capture an important facet of the current investment case for the asset class.
With returns on cash so low, PEs are increased by the presence of net cash on
balance sheets. It is possible to adjust for this effect by using other
valuation metrics, such as the ratio of Enterprise Value to Earnings Before
Interest, Tax and Amortisation (EV/EBITA). The following points are important
in understanding the portfolio's EV/EBITA progression set out in the following
table.
Actual Actual Forecast Forecast
2009 2010 2011 2012
EV/EBITA 10.2x 8.9x 7.9x 6.4x
* The results of individual large holdings can have a considerable influence
on the portfolio's aggregate valuation statistics and comparison from
period to period is affected by the active management of the portfolio.
* If estimates are correct, the portfolio offers good value. The 2011 EV/
EBITA multiple of 7.9x can be judged against average M&A multiples of 10x
in "normal" years or even higher in the boom years of 2003-2007.
* Importantly, there are two factors at work to bring the valuation down over
this and next year. First, the denominator of the ratio, EBITA or operating
profit, is forecast to rise. Second, the numerator, enterprise value, is
forecast to fall as free cash flow reduces net debt or increases net cash.
This latter dynamic accounts for one quarter of the improvement in the EV/
EBITA multiple to 2012 and provides a cushion against a deterioration in
the trading environment.
* The rate of profit growth required to meet these expectations is more
modest than that described previously for the RBS HGSC (XIC) as a whole and
thus might be considered less at odds with the progression of the economic
cycle.
Your Managers believe that, by capturing the dual dynamics of profit growth and
free cash generation, EV/EBITA presently best encapsulates the attractive
valuations that continue to characterise the universe of small UK quoted
companies. ASCoT's portfolio offers particularly good value, which should, over
time, translate into superior relative returns. The still early signs of a
return to favour of value stocks are encouraging and a continuation of this
trend would improve the prospects of out-performance. However, one of the main
lessons of recent years is that patience is required: macro economic challenges
will continue to complicate the realisation of value and the stockmarket,
reluctant to value the flexibility afforded by strong balance sheets, needs
actual events to close value gaps. In the meantime, while waiting for the
re-rating of the portfolio's holdings, the strong dividend performance of small
companies continues, underpinned by robust balance sheets and a renewed
appreciation on the part of boards that dividends are important.
Aberforth Partners LLP
Managers
20 July 2011
INVESTMENT PORTFOLIO
Fifty Largest Investments as at 30 June 2011
Valuation % of
No. Company £'000 Total Business Activity
1 RPC Group 34,402 4.6 Plastic packaging
2 JD Sports Fashion 26,504 3.5 Retailing - sports goods & clothing
3 e2v technologies 25,224 3.3 Electronic components & subsystems
4 RPS Group 24,223 3.2 Energy & environmental consulting
5 Anite 22,860 3.0 Software - telecoms & travel
6 Bodycote 21,621 2.9 Engineering - heat treatment
7 Micro Focus 20,943 2.8 Software - development & testing
International
8 Galliford Try 19,645 2.6 Housebuilding & construction services
9 Beazley 18,331 2.4 Lloyds insurer
10 Punch Taverns 18,042 2.4 Leased & managed pub operator
Top Ten Investments 231,795 30.7
11 Huntsworth 16,729 2.2 Public relations
12 Low & Bonar 15,372 2.1 Manufacture of industrial textiles
13 Regus 15,141 2.0 Serviced office accommodation
14 CSR 14,477 1.9 Location & connectivity chips for
mobile devices
15 JKX Oil & Gas 14,396 1.9 Oil & gas exploration & production
16 Microgen 13,918 1.9 Workflow & financial services
software
17 St. Modwen 13,685 1.8 Property investment & development
Properties
18 Tullett Prebon 13,516 1.8 Inter dealer broker
19 National Express 13,031 1.7 Train, bus & coach operator
Group
20 Mecom Group 12,954 1.7 European newspaper publisher
Top Twenty Investments 375,014 49.7
21 Moneysupermarket.com 12,809 1.7 Price comparison website
Group
22 Yule Catto & Co 12,508 1.7 Speciality chemicals
23 Vectura Group 12,362 1.6 Inhaled pharmaceuticals - respiratory
specialism
24 Collins Stewart 11,659 1.5 Stockbroker & private client fund
Hawkpoint manager
25 Castings 11,452 1.5 Engineering - automotive castings
26 Greggs 10,824 1.4 Retailing - baked products &
sandwiches
27 Phoenix IT Group 10,657 1.4 IT services & disaster recovery
28 Lavendon Group 10,234 1.4 Hire of access equipment
29 AZ Electronic 9,986 1.3 Speciality Chemicals
Materials
30 Debenhams 9,643 1.3 Department stores
Top Thirty Investments 487,148 64.5
31 Safestore Holdings 9,609 1.3 Property - self storage
32 Brewin Dolphin 9,382 1.3 Private client fund manager
Holdings
33 Unite Group 9,167 1.2 Property - student accommodation
34 Holidaybreak 9,078 1.2 Education & holiday services
35 Hansard Global 8,585 1.1 Life assurance savings products
36 UMECO 8,373 1.1 Advanced composite materials
37 Northgate 8,354 1.1 Van rental
38 Headlam Group 8,274 1.1 Distributor of floor coverings
39 KCOM Group 8,269 1.1 Telecommunications services
40 Redrow 8,260 1.1 Housebuilding
Top Forty Investments 574,499 76.1
41 Laird 8,183 1.1 Electronic systems and controls
42 Acal 8,141 1.1 Electronics distributor
43 Optos 8,121 1.1 Medical technology - retinal imaging
44 Melrose Resources 7,984 1.0 Oil exploration & development
45 Halfords Group 7,803 1.0 Retailing - car & cycling accessories
46 RM 7,793 1.0 IT services for schools
47 Chaucer Holdings 7,687 1.0 Lloyds insurer
48 Morgan Crucible 7,285 1.0 Engineering - ceramic & carbon
Company materials
49 EnQuest 7,065 0.9 Oil exploration & development
50 Future 6,542 0.9 Special interest consumer publisher
Top Fifty Investments 651,103 86.2
Other Investments(42) 167,393 22.2
Total Investments ---------- -----
818,496 108.4
Net Liabilities (63,374) (8.4)
---------- -----
Total Net Assets 755,122 100.0
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 key 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.
As the Company's investments consist of small UK quoted companies, the
principal risks facing the Company are market related and include market price,
interest rate, credit and liquidity risk. Additional risks faced by the Company
include investment objective, investment policy, share price discount,
regulatory and operational/financial risk and gearing risk. An explanation of
these risks and how they are managed can be found in the Directors' Report
contained within the 2010 Annual Report.
These principal risks and uncertainties have not changed from those disclosed
in the 2010 Annual Report.
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 UK Accounting
Standards Board; 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.
On behalf of the Board
Professor Paul Marsh
Chairman
20 July 2011
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 2011
Revenue Capital Total
£ 000 £ 000 £ 000
Realised net gains on sales - 53,206 53,206
Movement in fair value - (10,947) (10,947)
-------- -------- --------
Net gains on investments - 42,259 42,259
Dividend income 14,125 - 14,125
Other income - - -
Investment management fee (Note 2) (1,086) (1,810) (2,896)
Transaction costs - (1,497) (1,497)
Other expenses (300) - (300)
-------- -------- --------
Return on ordinary activities 12,739 38,952 51,691
before finance costs and tax
Finance costs (309) (515) (824)
-------- -------- --------
Return on ordinary activities 12,430 38,437 50,867
before tax
Tax on ordinary activities (6) - (6)
-------- -------- --------
Return attributable to equity 12,424 38,437 50,861
shareholders
======== ======== ========
Returns per Ordinary Share (Note 4) 12.89p 39.89p 52.78p
On 20 July 2011, the Board declared a first interim dividend for the year
ending 31 December 2011 of 6.45p per Ordinary Share (2010 - 6.00p) which will
be paid on 26 August 2011.
INCOME STATEMENT (unaudited)
For the six months ended 30 June 2010
Revenue Capital Total
£ 000 £ 000 £ 000
Realised net gains on sales - 18,096 18,096
Movement in fair value - (26,536) (26,536)
-------- -------- --------
Net losses on investments - (8,440) (8,440)
Dividend income 11,590 - 11,590
Other income 42 - 42
Investment management fee (Note 2) (891) (1,486) (2,377)
Transaction costs - (1,693) (1,693)
Other expenses (223) - (223)
-------- -------- --------
Return o n ordinary activities 10,518 (11,619) (1,101)
before finance costs and tax
Finance costs (458) (763) (1,221)
-------- -------- --------
Return on ordinary activities 10,060 (12,382) (2,322)
before tax
Tax on ordinary activities - - -
-------- -------- --------
Return attributable to equity 10,060 (12,382) (2,322)
shareholders
======== ======== ========
Returns per Ordinary Share (Note 4) 10.39p (12.79p) (2.40p)
INCOME STATEMENT(unaudited)
For the year ended 31 December 2010
Revenue Capital Total
£ 000 £ 000 £ 000
Realised net losses on sales - 46,527 46,527
Movement in fair value - 94,469 94,469
-------- -------- --------
Net gains on investments - 140,996 140,996
Dividend income 20,533 - 20,533
Other income 43 - 43
Investment management fee (Note 2) (1,803) (3,005) (4,808)
Transaction costs - (3,159) (3,159)
Other expenses (455) - (455)
-------- -------- --------
Return on ordinary activities 18,318 134,832 153,150
before finance costs and tax
Finance costs (796) (1,327) (2,123)
-------- -------- --------
Return on ordinary activities 17,522 133,505 151,027
before tax
Tax on ordinary activities (10) - (10)
-------- -------- --------
Return attributable to equity 17,512 133,505 151,017
shareholders
======== ======== ========
Returns per Ordinary Share (Note 4) 18.11p 138.08p 156.19p
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS (unaudited)
For the six months ended 30 June 2011
Capital
Share Redemption Special Capital Revenue Total
capital reserve reserve reserve reserve
£ 000 £ 000 £ 000 £ 000 £ 000 £ 000
Balance as at 964 24 183,279 496,301 36,221 716,789
31 December 2010
Return on - - - 38,437 12,424 50,861
ordinary activities
after taxaction
Equity dividends paid - - - - (12,528) (12,528)
Purchase of - - - - - -
Ordinary Shares
------ ------ ------ ------ ------ ------
Balance as at 964 24 183,279 534,738 36,117 755,122
30 June 2011
====== ====== ====== ====== ====== ======
For the six months ended 30 June 2010
Capital
Share Redemption Special Capital Revenue Total
capital reserve reserve reserve reserve
£ 000 £ 000 £ 000 £ 000 £ 000 £ 000
Balance as at 969 19 186,025 362,796 37,113 586,922
31 December 2009
Return on - - - (12,382) 10,060 (2,322)
ordinary activities
after taxation
Equity dividends paid - - - - (18,404) (18,404)
Purchase of (2) 2 (649) - - (649)
Ordinary Shares
------ ------ ------ ------ ------ ------
Balance as at 967 21 185,376 350,414 28,769 565,547
30 June 2010
====== ====== ====== ====== ====== ======
For the year ended 31 December 2010
Capital
Share Redemption Special Capital Revenue Total
capital reserve reserve reserve reserve
£ 000 £ 000 £ 000 £ 000 £ 000 £ 000
Balance as at 969 19 186,025 362,796 37,113 586,922
31 December 2009
Return on - - - 133,505 17,512 151,017
ordinary activities
after taxation
Equity dividends paid - - - - (18,404) (18,404)
Purchase of (5) 5 (2,746) - - (2,746)
Ordinary Shares
------ ------ ------ ------ ------ ------
Balance as at 964 24 183,279 496,301 36,221 716,789
31 December 2010
====== ====== ====== ====== ====== ======
BALANCE SHEET (unaudited)
As at 30 June 2011
30 June 30 June 31 December
2011 2010 2010
£ 000 £ 000 £ 000
Fixed assets:
Investments at fair value 818,496 617,313 768,954
through profit or loss
--------- --------- ---------
Current assets
Amounts due from brokers 3,013 3,250 515
Other debtors 4,160 1,898 1,105
Cash at bank 1,024 236 68
--------- --------- ---------
8,197 5,384 1,688
--------- --------- ---------
Creditors (amounts falling due
within one year)
Bank debt facility - - (51,611)
Amounts due to brokers (1,571) (5,398) (2,137)
Other creditors (142) (104) (105)
--------- --------- ---------
(1,713) (5,502) (53,853)
--------- --------- ---------
Net current assets/ 6,484 (118) (52,165)
(liabilities)
--------- --------- ---------
Total assets less current 824,980 617,195 716,789
liabilities
Creditors (amounts falling due (69,858) (51,648) -
after more than one year)
--------- --------- ---------
Total net assets 755,122 565,547 716,789
========= ========= =========
Capital and reserves: equity interests
Called up share capital 964 967 964
(Ordinary Shares)
Reserves:
Capital redemption reserve 24 21 24
Special reserve 183,279 185,376 183,279
Capital reserve 534,738 350,414 496,301
Revenue reserve 36,117 28,769 36,221
--------- --------- ---------
Total shareholders' funds 755,122 565,547 716,789
========= ========= =========
Net Asset Value per Share 783.59p 584.56p 743.81p
Share Price 685.50p 512.50p 632.50p
CASH FLOW STATEMENT (unaudited)
For the six months ended 30 June 2011
Six months Six months Year
ended ended ended
30 June 2011 30 June 2010 31 December
2010
£ 000 £ 000 £ 000
Net cash inflow from operating 7,866 8,707 15,766
activities
Taxation
Taxation paid (11) (5) (35)
Returns on investments and (777) (1,035) (1,739)
servicing of finance
Capital expenditure and
financial investment
Payments to acquire investments (145,979) (127,329) (248,066)
Receipts from sales of 134,135 134,834 251,430
investments
-------- -------- --------
Net cash (outflow)/inflow from capital
expenditure and financial (11,844) 7,505 3,364
investment
-------- -------- --------
(4,766) 15,172 17,356
Equity dividends paid (12,528) (18,404) (18,404)
-------- -------- --------
(17,294) (3,232) (1,048)
Financing
Purchase of Ordinary Shares - (649) (2,746)
Net drawdown of bank debt 18,250 3,755 3,500
facilities (before costs)
-------- -------- --------
Change in cash during the period 956 (126) (294)
======== ======== ========
Reconciliation of net return
before finance costs and
taxation to net cash inflow
from operating activities
Net return before finance costs 51,691 (1,101) 153,150
and taxation
(Gains)/losses on investments (42,259) 8,440 (140,996)
Scrip dividends received - - (51)
Transaction costs 1,497 1,693 3,159
(Increase)/decrease in debtors (3,050) (305) 508
Decrease in creditors (13) (20) (4)
------- ------- -------
Net cash inflow from operating 7,866 8,707 15,766
activities
======= ======= =======
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING STANDARDS
The financial statements have been prepared under the historical cost
convention, as modified to include the revaluation of investments and in
accordance with applicable accounting standards and the AIC's Statement of
Recommended Practice "Financial Statements of Investment Trust Companies and
Venture Capital Trusts" issued in 2009. 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 2010 have been
applied.
2. INVESTMENT MANAGEMENT FEE
Revenue Capital Total
£ 000 £ 000 £ 000
Total for the six months ended 30 June 1,086 1,810 2,896
2011
====== ====== ======
Total for the six months ended 30 June 891 1,486 2,377
2010
====== ====== ======
Total for the year ended 31 December 1,803 3,005 4,808
2010
====== ====== ======
3. DIVIDENDS
Six months ended Six months ended Year ended
30 June 2011 30 June 2010 31 December 2010
£000 £000 £000
Amounts recognised as distributions to
equity holders in the period:
Second interim dividend of 13.0p for the year - 12,592 12,592
ended 31 December 2009
First interim dividend of 6.0p for the year - 5,812 5,812
ended 31 December 2010
Second interim dividend of 13.0p for the 12,528 - -
year ended 31 December 2010
------ ------ ------
12,528 18,404 18,404
====== ====== ======
The first interim dividend for the year ending 31 December 2011 of 6.45p (2010
- 6.0p) will be paid on 26 August 2011 to shareholders on the register on 5
August 2011.
4. RETURNS PER ORDINARY SHARE
The returns per Ordinary Share are based on:
Six months ended Six months ended Year ended
30 June 2011 30 June 2010 31 December 2010
£000 £000 £000
Returns attributable to Ordinary Shareholders 50,861 (2,322) 151,017
Weighted average number of shares in
issue during the period 96,366,792 96,831,972 96,685,671
5. 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 30 June 31 December
2011 2010 2010
£000 £000 £000
Net assets attributable 755,122 565,547 716,789
Pence Pence Pence
Net asset value attributable per Ordinary Share 783.59 584.56 743.81
As at 30 June 2011, the Company had 96,366,792 Ordinary Shares in issue
(30 June 2010 - 96,747,000 and 31 December 2010 - 96,366,792).
6. FURTHER INFORMATION
The foregoing do not constitute statutory accounts (as defined in section 434(3)
of the Companies Act 2006) of the Company. The statutory accounts for the
year ended 31 December 2010, which contained an unqualified Report of the
Auditors, have been lodged with the Registrar of Companies and did not contain
a statement required under section 498(2) or (3) of the Companies Act 2006. All
information shown for the six months ended 30 June 2011 is unaudited.
Certain statements in this announcement are forward looking statements. 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 during the week
commencing 25 July 2011. 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: David Ross/Alistair Whyte - Aberforth Partners LLP - 0131 220 0733
Aberforth Partners LLP, Secretaries - 20 July 2011
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