Half-year Report

Aberforth Split Level Income Trust plc

Half Yearly Report
For the period to 31 December 2017

The investment objective of Aberforth Split Level Income Trust plc (ASLIT) is to provide Ordinary Shareholders with a high level of income, with the potential for income and capital growth, and to provide Zero Dividend Preference Shareholders with a pre-determined final capital entitlement of 127.25p on the planned winding up date of 1 July 2024.

ASLIT aims to achieve its objective by investing in a diversified portfolio of securities issued by small UK quoted companies. The investment manager is Aberforth Partners LLP. All data throughout this Half Yearly Report is to, or as at, 31 December 2017 as applicable, unless otherwise stated.

FINANCIAL HIGHLIGHTS

Performance			%
Total Assets Total Return			4.4
Ordinary Share
Net asset value per share			105.20p
Share price			99.50p
Dividends per share in respect of period			1.4p
Zero Dividend Preference Share
Net asset value per share			101.13p
Share price			109.25p

CHAIRMAN'S STATEMENT

Introduction

This is the first Chairman’s statement for Aberforth Split Level Income Trust plc (ASLIT). It covers the period from inception on 30 June 2017 to 31 December 2017.

ASLIT’s launch took place against an uncertain political and economic backdrop. Indeed the final few weeks preceding the launch witnessed a UK general election, central bankers’ rhetoric appearing to signal a shift in interest rate policy, and escalating tension between the U.S. and North Korea.

Nevertheless, I am pleased to report that the Company’s launch was successful with gross proceeds, before launch costs, of £237.8 million. The Company also started its life almost fully invested with approximately £205.4 million having been subscribed by shareholders in Aberforth Geared Income Trust plc (AGIT) who elected to “roll over” their investment, and the balance coming from the Company’s placing and offer for subscription. On behalf of the Board, I should like to thank all Shareholders for their support.

Before moving on to address performance and developments since launch, a review of some of the salient features of the Company is appropriate.

• ASLIT is a split capital investment trust, comprising Ordinary Shares and Zero Dividend Preference (ZDP) Shares.

• The investment objective is to provide Ordinary Shareholders with a high level of income, with the potential for income and capital growth, and to provide ZDP Shareholders with a predetermined final capital entitlement of 127.25p per ZDP Share on the planned winding up date of 1 July 2024 which equates to a 3.5% gross redemption yield based on the issue price of 100p per ZDP Share.

• Capital returns to the Ordinary Shareholders are effectively geared by the final capital entitlement due to the ZDP Shareholders. In periods of rising equity prices, this can benefit the net asset value performance attributable to the Ordinary Shares, but the converse also holds true. Ordinary Shareholders are entitled to all net income generated by the portfolio of investments. On a winding up, Ordinary Shareholders are entitled to receive undistributed revenue reserves in priority to the capital entitlements of the ZDP Shareholders. Ordinary Shareholders are also entitled to the net assets of the Company, if any, after all liabilities have been settled and the entitlements of the ZDP Shares have been met.

• The Company invests in a diversified portfolio of small UK quoted companies, which comprised 72 holdings at 31 December 2017.

• Aberforth Partners manage the investment portfolio within guidelines set by the Board. Their business was founded in 1990 and specialises in investing in small UK quoted companies. The six fund managers, all of whom are partners in the firm, have substantial experience both of the asset class and of managing split capital investment trusts. They have consistently applied a value investment philosophy to their selection of companies. The Managers’ interests are further aligned with those of the Company through significant personal holdings of the Company’s Ordinary Shares.

Performance

ASLIT’s total assets total return, essentially its ungeared portfolio return, for the six months since inception on 30 June 2017 was 4.4%.

This return is calculated after certain one off costs of approximately £6.8 million. These comprise a fall in market value of £4.0 million relating to the investment portfolio acquired from AGIT between the date agreed for valuing those assets (23 June 2017) and inception (30 June 2017), together with launch costs of £2.8 million.

Thereafter, ASLIT’s total assets total return since its launch on the London Stock Exchange on 3 July 2017 has been 7.5%.

When reporting performance, “since inception” returns will reflect the impact of these one off costs whilst “since launch” will reflect subsequent performance only, i.e. periods post 30 June 2017, and exclude the one off costs.

The Numis Smaller Companies Index (excluding Investment Companies) (NSCI (XIC)), which represents the Company’s opportunity base of small UK quoted companies, achieved a total return of 8.9% over the same period.

It is important to emphasise that ASLIT’s investment objective reduces the relevance of assessing its performance relative to an equity index. For ASLIT to succeed over its seven year life, the Company needs to produce capital returns at the total asset level in excess of the hurdle rate imposed by the objective to deliver a 127.25p final capital entitlement to ZDP shareholders on 1 July 2024.

The major influences on portfolio performance are analysed in detail in the Managers’ Report.

Dividend

From an income perspective, ASLIT has enjoyed a start that has been better than expected at launch, and it remains the Board’s intention to pay total dividends of not less than 4.0p per Ordinary Share in respect of the year to 30 June 2018.

In this context the Board is pleased to announce an interim dividend of 1.4p per Ordinary Share in respect of the year to 30 June 2018. The interim dividend will be paid on 6 March 2018 to Ordinary Shareholders on the register as at close of business on 9 February 2018. The ex dividend date is 8 February 2018. The Company operates a Dividend Reinvestment Plan. Details of the plan, including the Form of Election, are available from Aberforth Partners LLP or on their website, www.aberforth.co.uk.

Outlook

The Company has enjoyed a positive start to its life. However, I would caution investors against extrapolating the level of absolute returns from what has been a relatively short period since launch. The progress of negotiations for the UK’s exit from the EU, and the political and economic consequences, will likely result in choppy waters for small UK quoted companies in the short and medium term. In addition, markets generally will react to the eventual unwinding of the unprecedented monetary stimulus in place since the global financial crisis in ways that cannot be fully predicted at the present time. Nevertheless, as the Managers’ Report describes, the portfolio is invested in good businesses with attractive valuations. Therefore your Board considers that the Company is well positioned to meet ASLIT’s investment objectives despite the inevitable market headwinds it is likely to encounter along the way.

Jonathan Cartwright

Chairman

24 January 2018

[e-mail]

MANAGERS' REPORT

Introduction

ASLIT’s opportunity base is defined by the Numis Smaller Companies Index (excluding investment companies) (NSCI (XIC)). This index performed well in the first six months of ASLIT’s seven year life, generating a total return of 8.9%. The return from large companies, for which the FTSE All-Share is a useful gauge, was 7.2%. ASLIT’s total assets total return from launch – its ungeared portfolio performance – was 7.5%.

ASLIT was born in a challenging environment for the Managers’ value investment style. Low interest rates, quantitative easing and sluggish economic progress have been headwinds for much of the period since the financial crisis in 2008. However, it is at one level surprising that the value style should have been buffeted over the past six months. One of the most notable developments of 2017 was the synchronisation of economic recovery around the globe, with all major economies enjoying GDP growth for the first time since the financial crisis. While the rate of progress of the US economy eased, tax reform offers the prospect of renewed impetus. Meanwhile, Chinese activity benefited from a bout of stimulus and, perhaps more significantly, the Eurozone returned to growth as the impact of quantitative easing was finally felt. The broad trend of improvement was seized upon promptly by the equity markets and has been termed the “reflation trade”.

Its sustainability was, however, brought into question by the words and actions of the world’s central banks, apparently keen to display their inflation-fighting credentials. Three interest rate rises in the US have been accompanied by commentary on how and when the Federal Reserve’s balance sheet, bloated by quantitative easing, might be run down. To date, the Eurozone has seen no action but plenty of rhetoric from the European Central Bank, while the UK has witnessed its first interest rate rise for ten years. It is to be hoped that the central banks are not too focused on fighting yesterday’s war and that they have judged the risks of runaway economic activity and inflation accurately. In this regard, a bit more nervousness on the part of government bond markets might have been encouraging: yields in the second half of 2017, and indeed over the year as a whole, were essentially unchanged and thus remain at extremely low levels in a historical context. The behaviour of bond investors suggests that the “reflation trade” is merely another of those false dawns to have punctuated the period since the financial crisis and that underlying economic issues of debt and demographics are so intractable as to condemn the world to very low rates of progress for years to come.

Such prospects are some of the factors contributing to the emergence of reactionary populism around the globe, though, again, bond investors appear little concerned by the inflationary effects of populist policies. To be fair, a useful test-case of populism, the UK’s EU referendum, has hardly been a cause of concern for bond markets. There was no implosion in the immediate aftermath of the vote, but the second order effects of sterling’s devaluation have been permeating the economy: inflation is picking up, real wages are coming back under pressure and to this extent the outlook for real growth is deteriorating. Though GDP growth forecasts should be taken with a pinch of salt, the trajectory that has taken the UK from the fastest growing G7 nation in 2014 to the slowest in 2017 is hardly encouraging. Meanwhile, the government is in a difficult position, undermined by the outcome of the general election, riven ideologically by differing views on the EU and inevitably focused on the terms of the exit negotiations.

Against this complicated background, investment in small UK quoted companies has been remarkably straightforward. Leaving aside a small number of highly valued growth stocks, the most important issue was the split of exposure to those companies earning their profits overseas and those that rely on the domestic economy. To have had a lot of the former, which benefited from the weak pound and saw their profits expand to historically high levels, was a significant boost to investment returns.

Investment performance

ASLIT’s total assets total return over the period since launch to 31 December 2017 was 7.5%. Clearly, the main factor behind this performance was the good return in the period from UK equities as a whole and from small companies in particular. The following paragraphs explain other factors that have influenced ASLIT’s fortunes.

Style

The dynamics behind the “reflation trade” of 2017 should have been conducive to a strong performance from the value style, but according to data from the London Business School (LBS), the growth style pulled ahead by almost 4% over the six months to 31 December 2017. This quantification of the style effect has its limitations: the LBS model uses price to book alone to define value, which is much narrower than the methodologies used by the Managers. However, it gives a useful indication of the prevailing style environment, which, given the Managers’ dedication to the value philosophy, will be an important influence on ASLIT’s returns over its lifetime. This is not to say that adverse style issues in a particular period cannot be overcome, only that they will make the task more challenging. And, the long term evidence remains supportive of the value premium: LBS data show that since 1955 the value stocks within the NSCI (XIC) have out-performed the index as a whole by 3% per annum.

Size

The size factor within the NSCI (XIC) hindered ASLIT’s returns. The NSCI (XIC) represents the bottom tenth of the UK stockmarket by value and includes companies with market capitalisations up to almost £1.5 billion. It thus overlaps with the FTSE 250 index. At 30 June 2017 this overlap represented 64% of the value of the NSCI (XIC). In the six months to 31 December 2017, the performance of the FTSE 250 stocks within the NSCI (XIC), i.e. its larger constituents, was 2.5% above that of its smaller constituents. This did not suit ASLIT, 57% of whose portfolio was invested in “smaller small” companies at 30 June 2017. The reason for this disposition is the significant valuation premium presently accorded to larger companies and set out in the Valuation section of this report.

Sectors

At the sector level, a crucial issue in the UK stockmarket since the EU referendum has been the outperformance of overseas facing companies compared to their domestic oriented peers. With the benefit of sterling’s weakness, companies with activities overseas have benefited from the translation of profits at more favourable exchange rates and almost two thirds of them have seen profit expectations for 2017 raised since the referendum; in contrast, domestics have had to contend with the impact of sterling on inflation and real wages, so that only one third of those has enjoyed higher estimates. ASLIT has a higher exposure than the NSCI (XIC) to the domestic economy: 66% of the aggregate sales of the portfolio’s holdings are generated in the UK economy, against 59% for the index. With the share prices of domestics lagging over the six months to 31 December 2017, this positioning was not beneficial to relative returns. However, such has been the stockmarket’s fondness for overseas companies since the EU referendum that a wide valuation gap has opened up with the domestically oriented parts of the NSCI (XIC), despite sterling having stabilised in 2017. Without denying the likelihood of more challenging trading conditions in the UK economy, experience suggests that the stockmarket is prone to overreact and when strong businesses with a domestic bias but attractive financial characteristics and defendable market positions are significantly de-rated the Managers are willing to commit capital.

Corporate activity

The incidence of M&A activity within the NSCI (XIC) has declined over the past twelve months or so. It is tempting to attribute this to the uncertainties stemming from the EU referendum, even though the weakness of sterling since then ought to add to the appeal of UK assets to overseas buyers. In the second half of 2017, the first half of ASLIT’s financial year, seven deals for constituents of the NSCI (XIC) were announced, two of which had yet to complete by 31 December. Of the seven, ASLIT had a holding in one and so M&A was a small influence on returns over the past six months.

The pace of initial public offerings picked up in the latter part of 2017. Wary of the informational advantage usually enjoyed by the private equity sellers of the businesses, the Managers are reluctant to participate in IPOs. However, ASLIT did participate in two deals, where the valuations offered sufficient compensation for the additional risk assumed.

Balance sheets

For much of the last ten years, the small UK quoted company universe has been characterised by strong and strengthening balance sheets, which inevitably reflected the impact of the financial crisis on the thinking of company directors. In the last three years, however, there have been indications of less caution. For the Managers, this development is on balance positive, since it is driven by more investment, returns of surplus cash and, though not to be welcomed in every case, acquisitions. Clearly, however, higher leverage brings risks, particularly if it coincides with an economic downturn. Comfort may be derived from the portfolio’s bias to businesses with less than two times leverage (net debt divided by earnings before interest, tax, depreciation and amortisation), which was almost 79% by value of the portfolio at the end of 2017. Those with higher leverage ratios tend to be property companies, though the portfolio always has some exposure to more highly indebted businesses where the potential upside justifies additional risk.

Income

The table below splits the portfolio’s holdings into categories that are determined by each company’s most recent dividend announcement. The analysis shows a small minority of dividend cutters, whose influence on ASLIT’s income account was out-weighed by the bias to companies that most recently increased their dividends. The “Other” category includes companies that have returned to the dividend register or that have paid dividends for the first time and that therefore do not have a meaningful comparative payment in the previous year.

Down	Nil payers	No change	Increase	Other
5	0	23	41	3

The portfolio’s early dividend experience has been better than initially expected and reflects what remains a buoyant backdrop for dividends across the universe of small UK quoted companies. Robust balance sheets and dividend cover of 2.0x for the portfolio are supportive of further increases, though it would seem likely that the percentage rate of dividend growth across the NSCI (XIC) is moderating from the low double digits of recent years to mid to high single digits. However, in comparison with inflation, this degree of progress remains well above the 62 year average real dividend growth from smaller companies of 2.5%.

Turnover

Annualised portfolio turnover over the six months to 31 December 2017 was 18%. In the years to come, the rate of turnover will be affected by situations in which ASLIT is effectively required to sell, notably through an M&A approach. It is worth noting that the rate of turnover is often correlated with investment performance. Consistent with their value investment philosophy, the Managers strive to rotate capital from holdings that have performed well and are close to their target valuations into companies with depressed valuations and greater upside. This basic dynamic ought to benefit returns, but it can only be put into action if the broad stockmarket is inclined to re-rate ASLIT’s holdings.

Valuations

The strength of equity markets in 2017 has seen valuations rise and the universe of small UK quoted companies has participated in this trend. The 14.3x PE of the NSCI (XIC) at the end of December was 6% above its average since 1990 of 13.5x. The 12.2x PE of ASLIT’s portfolio was in line with the long term average of funds managed by Aberforth Partners. While neither the asset class nor the portfolio is significantly above normal in terms of earnings multiples, the same cannot be claimed of large companies. The historical PE of the FTSE All-Share at the end of 2017 was 21.7x, which is 43% above its average since 1990. This PE reflects the implicit expectation of strong profit growth from large companies in coming months, helped by the translation of overseas profits at lower sterling exchange rates, by the restructuring undertaken in recent times by resources companies and by the effect of rising commodity prices on these companies’ profits.

In terms of income, the average historic dividend yield of the portfolio was 4.0% at the end of December, which is higher than the NSCI (XIC)’s 2.8% and the FTSE All-Share’s 3.6%. ASLIT’s portfolio dividend cover of 2.0x is lower than that of the NSCI (XIC) but above the FTSE-All Share’s 1.3x.

	31 December 2017
Portfolio characteristics	ASLIT	NSCI(XIC)
Number of companies	72	350
Weighted average market capitalisation	£703m	£878m
Price earnings (PE) ratio (historic)	12.2x	14.3x
Dividend yield (historic)	4.0%	2.8%
Dividend cover	2.0x	2.5x

The following table sets out the forward valuations of ASLIT’s portfolio and the tracked universe, which is the set of stocks covered closely by the Managers and represents 97% by value of the NSCI (XIC). The valuation metric – the ratio of enterprise value to earnings before interest, tax and amortisation (EV/EBITA) – is the one favoured by the Managers. As should be expected of a portfolio put together in accordance with a value investment philosophy, ASLIT’s holdings are cheaper on this metric than the tracked universe as a whole and much cheaper than a subset of 40 growth stocks. Based on forecast estimates for 2018, the premium of the growth stocks to the portfolio was 72% at the end of December.

EV / EBITA	2017	2018	2019
ASLIT	11.4x	10.5x	9.4x
Tracked universe (285 stocks)	14.2x	12.8x	11.3x
44 growth stocks	21.8x	18.1x	16.0x
241 other stocks	13.2x	12.0x	10.6x

The final valuation table highlights a valuation anomaly that has persisted for several years. Despite the superior returns from “smaller small” companies in 2017, the lowest valuations in the UK stockmarket are still accorded to the smallest companies and, as a consequence, ASLIT’s exposure to those companies is higher than that of the NSCI (XIC) as a whole. In the Managers’ experience, the present relationship is unusual: in the years before the financial crisis, the superior growth of “smaller small” companies tended to be rewarded by higher valuations. However, many investors are today nervous about illiquidity and are reluctant to commit to the stockmarket’s smaller denizens. ASLIT’s status as a closed end fund allows it to take a longer term view.

Market capitalisation range:	< £100m	£101-£250m	£251-£500m	£501-£750m	> £750m
Portfolio weight	2%	16%	23%	25%	35%
Tracked universe weight	1%	5%	18%	15%	61%
Tracked universe 2017 EV/EBITA	7.4x	10.3x	11.4x	12.2x	13.9x

Conclusion & outlook

In broad terms, today’s universe of small UK quoted companies can be split into three groups, a framework that has been useful for the majority of time since the financial crisis.

• The first comprises secular growth companies, whose valuations benefit from the low discount rates that encourage investors to extend their investment horizons well beyond historical norms. Decent memories are now required of the last time that capital became effectively costless for growth companies during the TMT boom in the run-up to the Millennium. This is not to deny the existence of some truly outstanding business franchises among the technology behemoths of the US and China or even, indeed, within the NSCI (XIC). However, experience suggests that capital does not remain costless indefinitely, that many growth businesses are being valued as if they are the next Amazon and that few businesses succeed in retaining high stockmarket ratings for extended periods.

• The second group comprises companies whose growth is low but dependable and that tend to pay out a large proportion of their profits as dividends. Before the financial crisis these would have been described pejoratively as “dull” or “ersatz bonds” and, condemned to low valuations, might have fitted into a value portfolio. However, since the advent of quantitative easing with its suppressive effect on bond yields, the increasingly desperate search for income has seen them re-rated to high valuations.

• The final group is everything else – the rump of companies that are lowly valued, typically cyclical, often reliant on the domestic economy, sometimes illiquid and thus uncomfortable for many investors to own. None of these characteristics means that these are all poor businesses that face an existential threat. Some will undoubtedly fall victim to the forces of disruption and these are to be avoided, unless prevailing valuations exaggerate the rate of decline and offer an opportunity for investment. However, many members of this group boast defendable market positions, volatile but good returns on capital through the cycle and the opportunity to grow though not necessarily year-in-year-out. These are the typical holdings of a small cap value fund just now.

An implication of this characterisation is that the big-picture issues of macroeconomics, government bond yields and politics are at present disproportionately influential on the valuations of the three groups that make up the universe of small UK quoted companies. The uncertainties stemming from the EU referendum play a part, but the more significant influence remains the extraordinary monetary policies that anchor bond yields in many parts of the world at very low levels. As long as this continues to be the case, issues specific to individual businesses are likely to play a secondary role in determining ASLIT’s returns, though stock selection can make a difference with the help of some good fortune.

So what might move the world’s major bond markets? A year ago, a reasonable response, though one that appeared unlikely to come to pass, might have mentioned a bout of synchronised global growth accompanied by higher inflation, tax cuts for the world’s largest economy and monetary tightening. And yet government bond markets are unyielding. Perhaps in the face of a decades-long bull market in bonds, which has only intensified since the financial crisis, more convincing evidence is required and perhaps 2017’s “reflation trade” will be condemned to the same fate as 2013’s “great rotation”. Financial markets certainly remain set up for more of the same: corporate bond spreads are extremely narrow, equity markets are led by a small number of beneficiaries of low rates and, to judge by the world of small UK quoted companies, funds tend to be heavily biased to those favourite stocks. With its commitment to value investment, ASLIT stands apart from the consensus and should benefit when conditions do change. In the meantime, the portfolio’s collection of strong, if cyclical, businesses is coping well with the UK economy’s mixed trading conditions and is generating an attractive level of income that is consistent with ASLIT’s dividend objective.

Aberforth Partners LLP

Managers

24 January 2018

INTERIM MANAGEMENT REPORT

A review of the half year and the outlook for the Company can be found in the Chairman’s Statement and the Managers’ Report.

Risks and Uncertainties

The Directors have established a process for identifying, evaluating and managing the principal risks faced by the Company. This process was in operation during the period ended 31 December 2017 and continues in place up to the date of this report. The Company's capital structure is such that the underlying value of assets attributable to the Ordinary Shares is geared by the rising capital entitlements of the ZDP Shares and accordingly the Ordinary Shares should be regarded as carrying above average risk. The Company also has a £2 million overdraft facility, which when utilised increases the level of gearing. Mitigating factors in the Company's risk profile include that it has a relatively simple capital structure, invests in a diversified portfolio of small UK quoted companies, and outsources all of its main operational activities to recognised, well established firms. Investment in small companies is generally perceived to carry more risk than investment in large companies. By investing in a diversified portfolio the risks of investment in small companies should be lower than investing directly in an individual company. The Company's portfolio will normally consist of between 50 and 100 companies. The principal risks faced by the Company relate to investment policy/performance, structural conflicts of interest, fall in income, loss of key investment personnel and regulatory risk.

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 Financial Reporting Standard 104 “Interim Financial Reporting”;

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

             (a)DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events during the period to 31 December 2017 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 Guidance and Transparency Rules, being disclosure of related party transactions and changes therein.

(iii)          the Half Yearly Report, taken as 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

Jonathan Cartwright

Chairman

24 January 2018

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 period from 19 April 2017 to 31 December 2017

	Notes	Revenue £ 000	Capital £ 000	Total £ 000
Realised net gains on sales		-	2,097	2,097
Movement in fair value		-	6,989	6,989
		_______	_______	_______
Net gains on investments		-	9,086	9,086
Investment income		5,393	-	5,393
Other income		-	-	-
Investment management fee	2	(268)	(626)	(894)
Portfolio transaction costs		-	(1,310)	(1,310)
Other expenses		(199)	-	(199)
		_______	_______	_______
Net return before finance costs and tax		4,926	7,150	12,076
Finance costs:
Appropriation to Zero Dividend Preference Shares		-	(852)	(852)
Interest /arrangement fee on bank overdraft		(6)	(14)	(20)
		_______	_______	_______
Net return on ordinary activities before tax		4,920	6,284	11,204
Tax on ordinary activities		-	-	-
		_______	_______	_______
Return attributable to equity shareholders		4,920	6,284	11,204
		_______	_______	_______
Returns per Ordinary Share	4	2.59p	3.30p	5.89p

Dividends

On 24 January 2018, the Board declared an interim dividend for the period ending 30 June 2018 of 1.4p per Ordinary Share which will be paid on 6 March 2018.

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS

(unaudited)

For the period from 19 April 2017 to 31 December 2017

		Share Capital £ 000	Share Premium £000	Special reserve £ 000	Capital reserve £ 000	Revenue reserve £ 000	Total £ 000
Balance as at 19 April 2017		-	-	-	-	-	-
Return on ordinary activities after tax		-	-	-	6,284	4,920	11,204
Equity dividends paid		-	-	-	-	-	-
Issue of Ordinary Shares		1,902	188,348	-	-	-	190,250
Ordinary Share issue costs		-	(1,275)	-	-	-	(1,275)
Issue of Redeemable Shares		50	-	-	-	-	50
Redemption of Redeemable Shares		(50)	-	-	-	-	(50)
Share Premium cancellation		-	(187,032)	187,032	-	-	-
Cost of Share Premium cancellation		-	(41)	-	-	-	(41)
		_______	_______	_______	_______	_______	_______
Balance as at 31 December 2017		1,902	-	187,032	6,284	4,920	200,138
		_______	_______	_______	_______	_______	_______

BALANCE SHEET

(unaudited)

As at 31 December 2017

		Notes	£ 000
Fixed assets:  Investments at fair value through profit or loss		5	241,936
			_______
Current assets:
Other debtors			784
Cash at bank			5,608
			_______
			6,392
			_______
Creditors (amounts falling due within one year):
Other creditors			(88)
			_______
			(88)
			_______
Net current assets			6,304
			_______
Total assets less current liabilities			248,240
Creditors (amounts falling due after more than one year):  Zero Dividend Preference Shares			(48,102)
			_______
TOTAL NET ASSETS			200,138
			_______
Capital and reserves: equity interests
Share capital (Ordinary Shares)		7	1,902
Reserves:
Special reserve			187,032
Capital reserve			6,284
Revenue reserve			4,920
			_______
TOTAL EQUITY SHAREHOLDERS’ FUNDS			200,138
			_______
Net Asset Value per Ordinary Share		6	105.20p
Net Asset Value per Zero Dividend Preference Share		6	101.13p

Approved and authorised for issue by the Board of Directors on 24 January 2018 and signed on its behalf by:

Jonathan Cartwright,

Chairman

CASH FLOW STATEMENT

(unaudited)

For the period from 19 April 2017 to 31 December 2017

				£ 000
Net cash inflow from operating activities				3,583
Investing activities:
Purchases of investments				(55,548)
Sales of investments				21,780
				----------
Cash outflow from investing activities				(33,768)
Financing activities:
Proceeds from issue of Ordinary Shares				22,904
Proceeds from issue of Zero Dividend Preference Shares				14,516
Share issue costs paid				(1,587)
Share Premium costs paid				(20)
Interest and fees paid				(20)
				----------
Cash inflow from financing activities				35,793
				----------
Change in cash during the period				5,608
				----------
Cash at the start of the period				-
Cash at the end of the period				5,608
				----------

NOTES TO THE FINANCIAL STATEMENTS

1. Accounting Standards

The financial statements have been presented under Financial Reporting Standard 104 (FRS 104) and the AIC’s Statement of Recommended Practice “Financial Statements of Investment Trust Companies and Venture Capital Trusts (SORP) issued in 2014, updated in January 2017. The financial statements have been prepared on a going concern basis under the historical cost convention, modified to include the revaluation of the Company’s investments as described below. The functional and presentation currency is pounds sterling, which is the currency of the environment in which the Company operates. The Board confirms that no significant accounting judgements or estimates have been applied to the financial statements and therefore there is not a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

2. Investment Management Fee

The Managers, Aberforth Partners LLP, receive an annual management fee, payable quarterly in advance, equal to 0.75% of Company’s total assets.

The investment management fee has been allocated 70% to capital reserve and 30% 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

The directors have declared an interim dividend for the period ending 30 June 2018 of 1.4p which will be paid on 6 March 2018 to holders of Ordinary Shares on the register on 9 February 2018. The ex dividend date is 8 February 2018. The interim dividend has not been included as a liability in these financial statements.

4. Returns per Share

Net return for the period Weighted average Ordinary Shares in issue during the period	31 December 2017   £11,204,000 190,250,000
	----------
Return per Ordinary Share	5.89p
	----------
Appropriation to ZDP Shares for the period Weighted average ZDP Shares in issue during the period	£852,000 47,562,500
	----------
Return per ZDP Share	1.79p
	----------

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).

6. Net Asset Value per Share

The net assets and the net asset value per share attributable to the Ordinary Shares and ZDP Shares are as follows:

	Ordinary Shares	ZDP Shares	Total
Net assets attributable	£200,138,000	£48,102,000	£248,240,000
Number of Shares	190,250,000	47,562,500
	----------	----------
Net asset value per Share	105.20p	101.13p
	----------	----------

7. Share Capital

	2017 Shares	2017 £’000
Issued
Ordinary Shares of 1p each	190,250,000	1,902
ZDP Shares of 1p each	47,562,500	476
	----------	----------
Total issued and allotted	237,812,500	2,378
	----------	----------

Upon incorporation on 19 April 2017, the Company issued and allotted 100 Ordinary Shares at £1 each. On 26 April 2017, 50,000 Redeemable Preference Shares were issued and allotted to enable the Company to obtain a trading certificate.

On 30 June 2017, the Company entered into a Transfer Agreement in connection with the scheme of reconstruction and winding up of AGIT. Under this Transfer Agreement, a proportion of the assets of AGIT were transferred to ASLIT as consideration for the issue of Ordinary and ZDP Shares to shareholders of AGIT who elected to rollover their investment in AGIT to ASLIT. Another portion of the AGIT assets were transferred to ASLIT for a cash payment funded from the proceeds of the Placing and Offer for Subscription undertaken by the Company.

On 30 June 2017, 172,126,759 Ordinary Shares and 33,268,212 ZDP Shares were allotted to the shareholders of AGIT who elected to rollover their investment in AGIT to ASLIT at the issue price of £1 each. Assets amounting to £205.4 million were transferred from AGIT in consideration for this allotment, including securities valued at £200.1 million.

In addition, 18,123,141 Ordinary Shares and 14,294,288 ZDP Shares were allotted to satisfy the demand of the Placing and Offer for Subscription at the issue price of £1 each. In accordance with the Transfer Agreement, the proceeds of these issues were used to acquire the remaining AGIT portfolio including securities valued at £29.5 million.

These allotments resulted in the Company having a total of 190,250,000 Ordinary Shares and 47,562,500 ZDP Shares, which were admitted to listing on the Official list and to trading on the London Stock Exchange on 3 July 2017. In addition, the 50,000 Redeemable Preference Shares were redeemed in full on 3 July 2017.

In November 2017, the Court of Session confirmed the cancellation of the entire amount standing to the credit of the Share Premium account and the creation of a Special Reserve, the balance of which may be treated as distributable profits for all purposes as permitted by the Articles of the Company. The Special Reserve will be available to be used for any buy back of Ordinary Shares and ZDP Shares as permitted by the Companies Act 2006 and in accordance with the Company’s Articles of Association.

Costs of £1,275,000 associated with the issue of the Ordinary Shares have been charged to the Share Premium account. Costs of £312,000 associated with the issue of the ZDP Shares will be amortised to capital as a finance cost in the Income Statement over the planned life of the ZDP Shares. Stamp duty amounting to £1,133,000 was also paid in relation to the transfer of securities from AGIT to ASLIT under the Transfer Agreement, as detailed above. This cost is included in portfolio transaction costs as disclosed in the Income Statement.

8. Related Party Transactions

The Board consists of five non-executive Directors, all of whom are considered to be independent by the Board. Each Director has signed a letter of appointment to formalise the terms of their engagement. The fees of the Directors for the period to 31 December 2017 were as follows.

	2017 £
Jonathan Cartwright	20,860
Graeme Bissett	19,180
Dominic Fisher OBE	17,150
Angus Gordon Lennox	17,150
Graham Menzies	16,130
	----------
	90,650
	----------

There were no matters during the period ended 31 December 2017 requiring disclosure under section 412 of the Companies Act 2006.

9. Further Information

The foregoing do not constitute statutory accounts of the Company (as defined in section 434(4) of the Companies Act 2006). All information shown for the period to 31 December 2017 is unaudited.

Certain statements in this report are forward looking. By their nature, forward looking statement 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 February 2018.  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

24 January 2018