Half-yearly Report
Aberforth Smaller Companies Trustplc
Half Yearly Report
For the six months to 30 June 2014
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 2014 as applicable, unless
otherwise stated.
FINANCIAL HIGHLIGHTS
Total Return Performance %
Net Asset Value 1.0
Numis Smaller Companies Index (XIC) -0.6
Ordinary Share Price -3.0
30 June 31 December 30 June
2014 2013 2013
Shareholders' Funds £1,134.4m £1,138.1m £880.3m
Market Capitalisation £997.5m £1,044.4m £775.5m
Actual Gearing employed 2.8% 2.6% 7.1%
Ordinary Share net asset value 1,189.50p 1,193.22p 921.23p
Ordinary Share price 1,046.00p 1,095.00p 811.50p
Ordinary Share price discount 12.1% 8.2% 11.9%
CHAIRMAN'S STATEMENT
Review of performance
For the six months to 30 June 2014, Aberforth Smaller Companies Trust plc
(ASCoT) achieved a net asset value total return of +1.0%, which compares with a
total return of -0.6% from your Company's investment benchmark, the Numis
Smaller Companies Index excluding Investment Companies (NSCI (XIC)). Meanwhile,
the larger company oriented FTSE All-Share Index registered a total return of
+1.6%.
The UK economy continued to strengthen during the first half of 2014, but, as
financial markets discount in advance, equities had already advanced strongly
in 2013 in anticipation of the positive data. The current year has brought an
array of geopolitical issues, a continuation of the inflation versus deflation
debate, as well as the spectacle of central bank policy continually evolving in
response to either unexpectedly strong or weak economic developments. Throw in
a resurgent IPO market and a modest pick up in M&A activity and the first six
months of 2014 can be described as anything but dull. The Managers' Report
provides greater detail on the influences on markets and your Company during
the period.
Dividends
One of the important contributors to your Company's good long term record has
been its progressive dividend policy. Between your Company's launch in 1990 and
December 2013, the dividend grew by 7.8% per annum. Your Board is pleased to
announce an increased interim dividend of 7.75p per Ordinary Share for the year
to 31 December 2014. This represents a 5.4% increase over 2013. The interim
dividend will be paid on 28 August 2014 to Shareholders on the register as at
close of business on 8 August 2014. The ex dividend date is 6 August 2014.
ASCoT 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.
Gearing
During the period, your Board replaced your Company's existing borrowing
facilities, which were due to expire on 2 May 2014, with a new £125m facility
from The Royal Bank of Scotland plc. The new facility will expire on 15 June
2017 and is on improved terms following an extensive tendering process. Your
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.
Gearing has shown little change over the period and, at 30 June 2014, stood at
2.8% of Shareholders' funds. It remains your Company's policy to use gearing in
a tactical manner.
Board changes
An independent board of directors is undoubtedly one of the principal
advantages and differentiators of investment trusts in the broader UK savings
industry.
Since its formation back in 1990, your Company has sought to manage succession
in a professional and timely manner. With that in mind, and by virtue of having
joined your Board in 2004, I will be standing down from your Board in October
2014. It has been a thoroughly enjoyable experience to have served the
Shareholders first as a Director and subsequently as Chairman since 2010. It
has been a truly remarkable period for financial markets and I have been
fortunate to have been surrounded by such able colleagues on your Board. In
October 2014, Paul Trickett will succeed me as your Company's Chairman and will
help steer your Company through its twenty-fifth year and beyond. In the world
of investment trusts, ASCoT is barely beyond the adolescence stage but I
consider myself fortunate to have been involved with its development. I will be
remaining as an enthusiastic, long-term shareholder, and look forward to
ASCoT's continuing future progress.
Annual General Meeting
I am pleased to report that at the Annual General Meeting held on 27 February
2014 Shareholders overwhelmingly voted in favour of the continuation of your
Company. Furthermore, all 14 resolutions were passed, including the renewal of
authority to buy in up to 14.99% of ASCoT's Ordinary Shares.
Share buy-in
During the six months to 30 June 2014, 18,000 shares were bought in for a total
consideration of £188,000. Your Board keeps under review the circumstances in
which the authority is utilised in relation to the overall objective of seeking
to manage the discount.
Alternative Investment Fund Managers Directive
As previously advised, your Board has appointed Aberforth Partners LLP as its
Alternative Investment Fund Manager (AIFM). The Managers have received the
necessary FCA authorisation and commenced this role on 1 July 2014.
Additionally, from the same date, National Westminster Bank plc, was appointed
as your Company's Depositary, as required by the Directive, delegating the
provision of custody services, as permitted, to The Northern Trust Company,
which has acted as your Company's custodian for many years. Furthermore, your
Company has entered into a new Investment Management Agreement (IMA) with the
Managers to incorporate the obligations imposed under the Directive, though I
can confirm that the key commercial terms of the IMA remain unchanged.
Scottish Independence
The referendum on Scottish Independence takes place on 18 September 2014. As
your Company is registered in Scotland, your Board has been considering the
implications that this might have for shareholders. However, until the result
of the referendum is known and results of subsequent negotiations are made
available, significant uncertainty persists. Your Board is therefore reluctant
to take any pre-emptive and potentially costly action, which would be based on
conjecture, and for the time-being prefers to monitor actively the risks,
positive or negative, of a different political, economic and regulatory
landscape in Scotland. In the event of a "Yes" vote, there is expected to be an
extended period of negotiations that will provide both time and greater
certainty based on which the Board will implement an appropriate plan of action
in the interests of Shareholders as a whole.
Summary
The strength of the UK recovery has surprised many commentators. While 2013 was
ushered in amidst fears of a so-called triple dip, 2014 is likely to be ushered
out amidst concerns as to what interest rate normalisation looks like. Such
uncertainties can provide opportunities for the active investor and often
herald shifts in investment styles. Your Board fully understands and supports
the Managers' value investing philosophy and the current positioning of the
portfolio towards "smaller small" companies. Your Board is confident that the
Managers' experience and consistency of approach will continue to benefit ASCoT
over the longer term.
Professor Paul R Marsh
Chairman
25 July 2014
paul.marsh@aberforth.co.uk
MANAGERS' REPORT
Introduction
Most equity markets around the globe have made further progress in 2014.
However, in a general theme of reversal, the stronger performing parts of the
financial markets in 2013 have tended to under-perform so far this year, while
many of last year's weaker performing areas have out-performed in 2014. Thus,
in the context of the UK stockmarket, large companies have out-paced small
companies: the FTSE All-Share has generated a total return of +1.6%, while the
NSCI (XIC) has struggled to maintain its spectacular gains of 2013 with a total
return of -0.6%. ASCoT's NAV total return over the six month period was +1.0%.
This performance is examined in the Investment Performance section of this
report.
In the last annual report, your Managers cautioned that "the absolute returns
that ASCoT generates in 2014 and beyond will be heavily influenced by global
financial and macro economic factors that can seem very distant from the
parochiality of small UK quoted companies". So far in 2014, there have been
several such challenges - Cold War tensions in the Ukraine, volatility in
emerging markets, renewed hostilities in Iraq, even more concern about the
Chinese shadow-banking system, ambiguous US data following a harsh winter, and
some confusing commentary on monetary tightening by central bankers. Against
this background and in view of 2013's strong returns, 2014's modest decline
from small company equities, which tend to be more volatile and less defensive
than their larger peers, might be considered unsurprising.
A further challenge, which plays to the theme of reversal, has come from a
rally in government bond prices. Ten year gilt yields fell from 3.0% at 31
December 2013 to 2.7% at the end of June. This has come despite a continued
improvement in the domestic UK economy, which has recently given rise to
speculation about an interest rate increase in 2014. The drop in yields has
also been evident in the US and has wrong-footed many market observers, who had
been forecasting a continuation of the trends of 2013, when yields rose sharply
from 1.8% to 3.0%.
That rise played to the theme of "great rotation", which was addressed in last
year's interim report. The "great rotation" describes a strengthening of
economic growth and normalisation of monetary conditions that create conditions
favourable to equity investment. The relapse in government bond yields is
therefore rather inconvenient for this scenario, potentially indicating
deteriorating prospects for economic growth. However, this interpretation is
complicated by central banks' bond purchases. Although the US is tapering its
quantitative easing programme, additional extraordinary stimulus may be
forthcoming from the Eurozone: Mario Draghi has indicated that, on top of
recently announced measures, quantitative easing will be deployed if the threat
of deflation remains.
Perhaps the lesson to learn from the past year or so, with yields testing the
3.0% level, is that economies are still not sufficiently resilient to cope with
this degree of effective monetary tightening. Thus, while the logic of the
"great rotation" is sound, the conditions necessary for it to play out in full
are not yet in place. Financial markets will continue to test the strength of
the real economy, but recovery will be drawn out and monetary conditions will
remain looser for longer, even in the UK.
Investment performance
ASCoT's NAV total return over the six months to 30 June 2014 was +1.0%, which
compares with -0.6% for the NSCI (XIC). The following table and paragraphs
describe the significant influences on the relative performance.
For the 6 months ended 30 June 2014 Basis points
Stock selection 166
Sector selection 36
----
Attributable to the portfolio of investments, 202
based on mid prices (after transaction costs of 16 basis points)
Movement in mid to bid price spread (4)
Cash/gearing 4
Purchase of ordinary shares -
Management fee (38)
Other expenses (3)
----
Total attribution based on bid prices 161
----
Note: 100 basis points = 1%. Total Attribution is the difference between
the total return of the NAV and the Benchmark Index (i.e. NAV = +1.02%;
Benchmark Index = -0.59%; difference is 1.61% being 161 basis points).
Size
The "smaller small" companies within the NSCI (XIC) performed slightly better
than the "larger small" companies. An indication of this is the relative
performance of the FTSE 250 and the FTSE SmallCap, whose total returns over the
first half were -0.4% and +0.4% respectively. This was beneficial to the
portfolio's relative performance since it has a relatively low exposure - 48%
against 72% for the index - to the "larger small" companies. This positioning
is motivated by the more attractive valuations still available among companies
with market capitalisations less than £500m.
Despite the superior returns from "smaller smalls" over the past 18 months, the
FTSE 250 remains by some way the most buoyant component of the UK stockmarket
since the turn of the millennium, having generated a total return of 301%,
against 98% for the FTSE SmallCap and 79% for the FTSE All-Share. These
performance figures, which are influenced by the peculiarities of the TMT
bubble and the global financial crisis, are inconsistent with academic theory,
which suggests that investors in smaller companies should be compensated for
greater illiquidity by superior returns.
Style
Investment style was also helpful to returns, with the value component of the
NSCI (XIC) out-pacing the growth component over the first six months of the
year. This reflects specific problems confronting several growth companies over
the period, but might be considered surprising from another perspective. The
drop in gilt yields and consequent flattening of the yield curve, which were
described in the opening section of this report, are often associated with
headwinds to the value style. There are two reasons for this. First, falling
long term gilt yields should, other things being equal, lower the discount
rates applicable to profit streams over the mid to long term; since a greater
proportion of growth companies' profits come over the mid to long term, the
valuations of growth companies should benefit disproportionately. Second,
flattening yield curves can reflect tighter monetary conditions, with short
term rates rising to quell inflationary pressures; a subsequent slowdown in
economic activity would usually affect value companies disproportionately since
they tend to be more cyclical, lacking the secular growth opportunities of
growth companies.
Corporate activity
The quietest year for small cap M&A in Aberforth's history was 2013, when only
five acquisitions of NSCI (XIC) constituents were completed. However, as
confidence has continued to improve around board room tables, there has been a
pick-up in activity in 2014. As at 30 June, bids for 13 companies had either
completed or were outstanding. The acquirers tend to be overseas companies. The
average premium to the share price before announcement was 37%. Four of these
were holdings in the portfolio. However, the real excitement for the investment
bankers has come from the continued strength of the IPO market, which started
in earnest in the middle of 2013. In the first half of 2014, 22 companies
potentially eligible for inclusion in the NSCI (XIC) had floated on the main
market of the London Stock Exchange. The combined market capitalisation of
these companies was £15bn, roughly double the value of the 13 companies subject
to M&A. A continuation of the recent rate of IPOs would render 2014 the busiest
year since 2000.
Your Managers tend to be wary of IPOs since the vendors, typically private
equity houses, should know a lot more about the businesses than the acquirers.
Moreover, IPO markets in full flood are particularly dangerous, as prices tend
to be set by the vendors. Over-ambitious valuations can result in disappointing
share price performance of the companies once on the stockmarket, an
increasingly frequent phenomenon as the year has progressed. Within the
portfolio at the end of the period were three 2014 IPOs. One of these positions
was taken after the company had floated and its share price had dropped
sharply. Other opportunities among the recent IPOs may be forthcoming over the
coming year or so if IPO prices do indeed turn out to have been over-ambitious.
The likely net effect of M&A and IPOs is a year of re-equitisation, as the
stock of small company equity capital is replenished. This follows four years
of de-equitisation. While the enthusiastic reception for IPOs might be viewed
as part of the "great rotation", it could be argued that the supply-demand
balance is being altered to the disadvantage of small company valuations.
Results
The 36.9% total return enjoyed by the NSCI (XIC) in 2013 came despite a lack of
profits growth. There are 358 companies within the NSCI (XIC), of which
Aberforth tracks closely 282. This "tracked universe" represents 98% by value
of the total index. Of the 282, 138 have December year ends and reported their
2013 results in the first quarter of this year. The aggregate sales of these
companies rose by 1% in 2013, while their operating profits dropped by 3%.
There is a distortion from 21 resources companies: with these stripped out of
the analysis, the sales of the remainder grew by 2% and the operating profits
by 4%. Nevertheless, these are hardly rates of growth that justify last year's
surge in share prices. The market was therefore prepared to look further ahead.
The outlook for 2014 does seem brighter, as the domestic economy, which
accounts for roughly 50% of the aggregate sales of NSCI (XIC) constituents,
continues to recover. However, as factors such as sterling's strength gnaw away
at the value of sales generated outside the UK, the small cap universe
continues to witness net downgrades to profit estimates. It is by no means
certain that the market would take a repeat of 2013 with such insouciance.
However, more positive evidence is emerging for the medium term. The 138
companies noted above are investing. The ratio of aggregate capital expenditure
to depreciation was 1.8x in 2013. A number above 1.0x suggests that companies
are doing more than just replacing existing productive capacity. Even when the
resources companies are again eliminated, the ratio for the remainder is a
healthy 1.4x: the majority of companies in this cross section of small UK
quoted companies, contrary to the rhetoric of some commentators, do appear to
be investing for future growth.
Income
Despite the disappointing progress of profits in 2013, the income performance
of small companies has remained strong. Another year of mid to high single
digit growth across the asset base is plausible, as is a continuation of the
phenomenon of special dividends. The impact of this encouraging backdrop on
ASCoT's Income Statement can be affected by the timing of special dividends,
the level of gearing and changes to the portfolio. However, the positive
underlying dividend experience among investee companies is evident from the
following analysis. Within the portfolio of 95 companies, 46 increased their
most recent dividends, 12 made no change, 25 currently pay no dividend, 5 cut,
4 are IPOs that have not yet paid a dividend, and 3 pay dividends but have no
meaningful comparison. The number of nil payers, which account for 23% by value
of the portfolio, is unusually high and helps boost the portfolio's average
historic dividend cover, which, at 3.2x, is towards its highest ever level.
Your Managers have not lost their fondness for dividends. However, it seems
likely that the market, inspired by quantitative easing to a pursuit of yield
in recent years, has overlooked companies that at the present time are not
paying dividends. Crucially, most of the current nil yielders should be capable
of returning to the dividend register over the short to medium term. As they do
so, the average dividend cover of the portfolio will decline but ASCoT's income
account will benefit.
Strong balance sheets
Balance sheets across the small company universe remain among the strongest
seen in ASCoT's history. At 30 June, 36% and 33% of the portfolio and the
tracked universe respectively were represented by companies with net cash on
their balance sheets. In the case of the portfolio, this robustness was a
feature even before the onset of the global financial crisis. And it persists
despite encouraging evidence that company boards are willing to put some of
their cash resource to use, either through higher investment or through returns
of cash to shareholders in the form of special dividends or buy-backs.
Turnover
Portfolio turnover over the 12 months to 30 June 2014 was 38%. This is higher
than ASCoT's long term average of c.35%. The most important influence on this
is your Managers' value investment style. When equity prices rise sharply, as
they have over the past 18 months, target valuations for portfolio companies
are reached: the natural inclination of the value investor is to attempt to
redeploy the capital invested in such companies into more attractively valued
companies. Since a repeat of the very strong markets of 2013 is improbable in
the near term at least, it is likely that ASCoT's portfolio turnover will
subside over coming months. It is noteworthy that a portion of turnover is
effectively forced: when holdings leave the NSCI (XIC) after growing too large
or when holdings are subject to M&A, your Managers are required to sell.
Excluding this influence, ASCoT's long term portfolio turnover is c.25%.
Active share
Active share, or active money, is a measure of how different a portfolio is
from its benchmark and thus of fund managers' conviction in the stocks they
choose to own. It may be calculated by summing the active weights (i.e. the
portfolio weight less the benchmark weight) for each stock in the portfolio. A
higher active share ratio implies a lower probability that the portfolio will
perform like the benchmark. Active share may be flattered by owning stocks that
are not constituents of the benchmark; since your Managers sell stocks that
grow too large to be included in the NSCI (XIC), ASCoT's level of mismatch with
the benchmark is low. Indeed, the present mismatch is accounted for by
companies that will be eligible for membership of the NSCI (XIC) on its next
rebalancing. Your Managers target an active share ratio of at least 70%, though
will tolerate a temporarily depressed number. At 30 June 2014, the ratio for
ASCoT's portfolio stood at 73%. Your Managers believe that this demonstrates
conviction in ASCoT's holdings. However, while performance should differ from
that of the benchmark, there is no guarantee that it will do so in a positive
fashion!
Valuation & conclusion
Characteristics 30 June 2014 30 June 2013
ASCoT NSCI (XIC) ASCoT NSCI (XIC)
Number of companies 95 358 98 383
Weighted average market £628m £812m £566m £882m
capitalisation
Price earnings ratio 13.4x 15.2x 11.4x 14.3x
(historic)
Dividend yield (historic) 2.3% 2.4% 2.9% 2.5%
Dividend cover 3.2x 2.8x 3.0x 2.8x
The very strong performance from equities in 2013, coupled with lacklustre
profit growth, resulted in a substantial upwards revaluation. This re-rating
was by no means confined to small UK quoted companies, but is evident in the
movement in the NSCI (XIC)'s historic PE from 12.8x at the start of 2013 to
15.2x at 30 June 2014. This most recent multiple represents a 13% premium to
the average historic PE of the NSCI (XIC) over ASCoT's 24 year history of
13.4x. It also represents a 3% premium to the 14.8x historic PE of large
companies at the end of June, which compares with an average discount of small
to large over ASCoT's history of 8%.
There are potentially extenuating circumstances. Other things being equal, the
very strong balance sheets enjoyed by small companies would merit a higher PE.
And, in relation to large companies, radically different sector exposures can
be more important than a direct size effect in explaining relative valuations.
But it is difficult to argue that small companies as a whole are now cheap, at
least on the basis of historic PE ratios. Of course, the market's purpose is to
look ahead and discount what is to come and thus today's valuations may be
justified by the imminence of strong profit growth. On this front, immediate
prospects are clouded by sterling's strength and by a still uncertain recovery
path in Europe. Over the medium term, stronger than average profit growth
should be achievable if and when Europe recovers properly, but over the long
term profit progression in line with nominal GDP is probably not too far from
the mark. On balance, therefore, from a starting dividend yield of 2.4%, modest
single digit total returns for small companies look likely over coming years.
These comments pertain to the asset class as a whole, but it is still possible
to differentiate within the confines of the NSCI (XIC). The valuation
characteristics of ASCoT's portfolio differ from those of the asset class. The
historic PE of 13.4x is 12% below that of the NSCI (XIC). The table below shows
the valuation on a forward looking basis to December 2015, using the ratio of
enterprise value to earning before interest, tax and amortisation (EV/EBITA), a
metric that is unaffected by companies' balance sheet financing structures.
2015 EV/EBITA ratio
38 growth 244 other Tracked Universe Portfolio
companies companies
13.2x 9.4x 9.9x 8.5x
This analysis demonstrates the differentiation possible through a value
investment discipline, with the growth companies in the index on a 55% premium
to the constituents of the portfolio. Part of this valuation advantage reflects
the portfolio's exposure to the cheaper "smaller small" companies that the
market at large still seems reluctant to embrace.
It is necessary to be realistic: macro economics, geopolitics and the vagaries
of the yield curve will buffet the stockmarket over the short term, determining
its appetite for smaller companies and for the value investment style. However,
your Managers are encouraged by the still wide disparity in valuations evident
within the NSCI (XIC). The attractively valued businesses within the portfolio
give ASCoT's investors exposure to the value investment style, which, in the
recent past and over the long term, has delivered demonstrably superior
returns.
Aberforth Partners LLP
Managers
25 July 2014
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.
The principal risks faced by the Company relate to investment objective,
investment policy, share price discount, regulatory, operational/financial risk
and gearing risk. An explanation of these risks and how they are managed can be
found in the Strategic Report contained within the 2013 Annual Report.
Additionally, 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. These principal
risks and uncertainties have not changed from those disclosed in the 2013
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.
In addition, each of the Directors considers that 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
Professor Paul Marsh
Chairman
25 July 2014
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 2014
Revenue Capital Total
£ 000 £ 000 £ 000
Realised net gains on sales - 92,169 92,169
Movement in fair value - (88,830) (88,830)
_______ _______ _______
Net gains on investments - 3,339 3,339
Investment income 15,385 - 15,385
Other income 1 - 1
Investment management fee (Note 2) (1,633) (2,721) (4,354)
Transaction costs - (1,814) (1,814)
Other expenses (307) - (307)
_______ _______ _______
Net return before finance costs 13,446 (1,196) 12,250
and tax
Finance costs (156) (260) (416)
_______ _______ _______
Net return on ordinary activities 13,290 (1,456) 11,834
before tax
Tax on ordinary activities - - -
_______ _______ _______
Return attributable to equity 13,290 (1,456) 11,834
shareholders
_______ _______ _______
Returns per Ordinary Share (Note 4) 13.93p (1.53p) 12.40p
Dividends
On 25 July 2014, the Board declared an interim dividend for the year ending 31
December 2014 of 7.75p per Ordinary Share (2013 - 7.35p) which will be paid on
28 August 2014.
INCOME STATEMENT (unaudited)
For the six months ended 30 June 2013
Revenue Capital Total
£ 000 £ 000 £ 000
Realised net gains on sales - 57,985 57,985
Movement in fair value - 59,357 59,357
_______ _______ _______
Net gains on investments - 117,342 117,342
Investment income 16,378 - 16,378
Other income - - -
Investment management fee (Note 2) (1,220) (2,034) (3,254)
Transaction costs - (1,856) (1,856)
Other expenses (235) - (235)
_______ _______ _______
Net return before finance costs 14,923 113,452 128,375
and tax
Finance costs (250) (416) (666)
_______ _______ _______
Net return on ordinary activities 14,673 113,036 127,709
before tax
Tax on ordinary activities - - -
_______ _______ _______
Return attributable to equity 14,673 113,036 127,709
shareholders
_______ _______ _______
Returns per Ordinary Share (Note 4) 15.35p 118.26p 133.61p
INCOME STATEMENT (unaudited)
For the year ended 31 December 2013
Revenue Capital Total
£ 000 £ 000 £ 000
Realised net gains on sales - 154,439 154,439
Movement in fair value - 222,783 222,783
_______ _______ _______
Net gains on investments - 377,222 377,222
Investment income 29,741 - 29,741
Other income - - -
Investment management fee (Note 2) (2,614) (4,357) (6,971)
Transaction costs - (3,892) (3,892)
Other expenses (496) - (496)
_______ _______ _______
Net return before finance costs 26,631 368,973 395,604
and tax
Finance costs (485) (808) (1,293)
_______ _______ _______
Net return on ordinary activities 26,146 368,165 394,311
before tax
Tax on ordinary activities - - -
_______ _______ _______
Return attributable to equity 26,146 368,165 394,311
shareholders
_______ _______ _______
Returns per Ordinary Share (Note 4) 27.37p 385.35p 412.72p
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
(unaudited)
For the six months ended 30 June 2014
Share Capital Special Capital Revenue Total
capital Redemption reserve reserve reserve
reserve
£ 000 £ 000 £ 000 £ 000 £ 000 £ 000
Balance as at 31 954 34 176,703 910,616 49,818 1,138,125
December 2013
Return on ordinary - - - (1,456) 13,290 11,834
activities after taxation
Equity dividends paid - - - - (15,404) (15,404)
Purchase of Ordinary Shares - - (188) - - (188)
_______ _______ _______ _______ _______ _______
Balance as at 30 June 2014 954 34 176,515 909,160 47,704 1,134,367
_______ _______ _______ _______ _______ _______
For the six months ended 30 June 2013
Share Capital Special Capital Revenue Total
capital Redemption reserve reserve reserve
reserve
£ 000 £ 000 £ 000 £ 000 £ 000 £ 000
Balance as at 31 957 31 179,461 542,451 45,279 768,179
December 2012
Return on ordinary - - - 113,036 14,673 127,709
activities after taxation
Equity dividends paid - - - - (14,584) (14,584)
Purchase of Ordinary Shares (1) 1 (999) - - (999)
_______ _______ _______ _______ _______ _______
Balance as at 30 June 2013 956 32 178,462 655,487 45,368 880,305
_______ _______ _______ _______ _______ _______
For the year ended 31 December 2013
Share Capital Special Capital Revenue Total
capital Redemption reserve reserve reserve
reserve
£ 000 £ 000 £ 000 £ 000 £ 000 £ 000
Balance as at 31 957 31 179,461 542,451 45,279 768,179
December 2012
Return on ordinary - - - 368,165 26,146 394,311
activities after taxation
Equity dividends paid - - - - (21,607) (21,607)
Purchase of Ordinary Shares (3) 3 (2,758) - - (2,758)
_______ _______ _______ _______ _______ _______
Balance as at 31 954 34 176,703 910,616 49,818 1,138,125
December 2013
_______ _______ _______ _______ _______ _______
BALANCE SHEET
(unaudited)
As at 30 June 2014
30 June 31 December 30 June
2014 2013 2013
£ 000 £ 000 £ 000
Fixed assets:
Investments at fair value through 1,165,755 1,167,630 942,368
profit or loss
_______ _______ _______
Current assets
Amounts due from brokers 2,002 - 2,602
Other debtors 3,607 2,120 4,644
Cash at bank 99 536 172
_______ _______ _______
5,708 2,656 7,418
_______ _______ _______
Creditors (amounts falling due
within one year)
Amounts due to brokers (4,661) - (18,901)
Bank debt facility - (31,987) (50,461)
Other creditors (303) (174) (119)
_______ _______ _______
(4,964) (32,161) (69,481)
_______ _______ _______
Net current assets/(liabilities) 744 (29,505) (62,063)
_______ _______ _______
Total assets less current 1,166,499 1,138,125 880,305
liabilities
Creditors (amounts falling due (32,132) - -
after more than one year)
Bank debt facility
_______ _______ _______
Total net assets 1,134,367 1,138,125 880,305
_______ _______ _______
Capital and reserves: equity interests
Called up share capital (Ordinary Shares) 954 954 956
Reserves:
Capital redemption reserve 34 34 32
Special reserve 176,515 176,703 178,462
Capital reserve 909,160 910,616 655,487
Revenue reserve 47,704 49,818 45,368
_______ _______ _______
Total shareholders' funds 1,134,367 1,138,125 880,305
_______ _______ _______
Net Asset Value per Share (Note 5) 1,189.50p 1,193.22p 921.23p
Share Price 1,046.00p 1,095.00p 811.50p
CASH FLOW STATEMENT
(unaudited)
For the six months ended 30 June 2014
Six months Six months Year ended
ended ended 31 December
30 June 2014 30 June 2013 2013
£ 000 £ 000 £ 000
Cash inflow from operating activities
Net return before finance costs 12,250 128,375 395,604
and taxation
Gains on investments (3,339) (117,342) (377,222)
Scrip dividends received - - (223)
Transaction costs 1,814 1,856 3,892
Increase in debtors (1,502) (2,787) (248)
(Decrease)/increase in creditors (27) (9) 24
_______ _______ _______
Net cash inflow from operating 9,196 10,093 21,827
activities
Taxation
Taxation recovered/(paid) 15 - (15)
Returns on investments and (553) (646) (1,225)
servicing of finance
Capital expenditure and financial investment
Payments to acquire investments (223,294) (182,728) (398,414)
Receipts from sales of investments 229,353 185,027 417,219
_______ _______ _______
Net cash inflow from capital expenditure
and financial investment 6,059 2,299 18,805
_______ _______ _______
14,717 11,746 39,392
Equity dividends paid (15,404) (14,584) (21,607)
_______ _______ _______
(687) (2,838) 17,785
Financing
Purchase of Ordinary Shares - (999) (2,758)
Net drawdown/(repayment) of bank 250 3,750 (14,750)
debt facilities (before costs)
_______ _______ _______
Change in cash during the period (437) (87) 277
_______ _______ _______
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING STANDARDS
The financial statements have been prepared on a going concern basis and in
accordance with UK generally accepted accounting practice ("UK GAAP") 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 2013 have been
applied.
2. INVESTMENT MANAGEMENT FEE
The Managers, Aberforth Partners LLP, are paid an annual management fee,
payable quarterly in advance, equal to:
i. 0.8% of the net assets of the Company up to £800m; plus
ii. 0.7% of the net assets of the Company between £800m and £1 billion (if
any); plus
iii. 0.6% of the net assets of the Company greater than £1 billion (if any).
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 Six months Six months Year ended
equity holders in the period: ended ended 31 December
30 June 2014 30 June 2013 2013
£ 000 £ 000 £ 000
Second interim dividend of 15.25p for - 14,584 14,584
the year ended 31 December 2012
Interim dividend of 7.35p for the year - - 7,023
ended 31 December 2013
Final dividend of 16.15p for the year 15,404 - -
ended 31 December 2013
______ ______ ______
15,404 14,584 21,607
______ ______ ______
The interim dividend for the year ending 31 December 2014 of 7.75p (2013 -
7.35p) will be paid on 28 August 2014 to shareholders on the register on 8
August 2014. The ex-dividend date is 6 August 2014.
4. RETURNS PER ORDINARY SHARE
The returns per Ordinary Share are 31 December
based on: 30 June 2014 30 June 2013 2013
Returns attributable to Ordinary £11,834,000 £127,709,000 £394,311,000
Shareholders
Weighted average number of shares in
issue during the period 95,382,693 95,579,173 95,541,545
Return per Ordinary Share 12.40p 133.61p 412.72p
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 31 December 30 June
2014 2013 2013
£ 000 £ 000 £ 000
Net assets attributable 1,134,367 1,138,125 880,305
Pence Pence Pence
Net asset value attributable per 1,189.50 1,193.22 921.23
Ordinary Share
As at 30 June 2014, the Company had 95,364,792 Ordinary Shares in issue
(31 December 2013 - 95,382,792 and 30 June 2013 - 95,557,792).
6. RELATED PARTY TRANSACTIONS
There have been no related party transactions undertaken by the Company during
the six months ended 30 June 2014.
7. FURTHER INFORMATION
The foregoing do not constitute statutory accounts (as defined in section 434
of the Companies Act 2006) of the Company. The statutory accounts for the year
ended 31 December 2013, 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 2014 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 on or before
1 August 2014. 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 * Aberforth Partners LLP * 0131 220 0733
Aberforth Partners LLP, Secretaries
25 July 2014
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