Half Yearly Financial Report

RNS Number : 8837M

Aberdeen Smaller Co's High Inc Tst

30 August 2013

 



Aberdeen Smaller Companies High Income Trust PLC

Half Yearly Financial Report for the six months to 30 June 2013

Aberdeen Smaller Companies High Income Trust PLC aims to provide a high and growing dividend and capital growth from a portfolio invested principally in the ordinary shares of smaller UK companies and UK fixed income securities.

	30 June 2013	31 December 2012	% change
Equity shareholders' funds (£'000)	42,141	37,466	+12.5
Net asset value per share	190.60p	169.45p	+12.5
Share price (mid-market)	186.00p	151.50p	+22.8
Discount to adjusted net asset value{A}	1.6%	9.8%
Dividend yield	3.3%	4.0%
{A}        Based on IFRS net asset value above reduced by dividend adjustment of 1.55p (31 December 2012 - 1.55p).

Performance (total return)	Six months ended	1 year ended	3 years ended	5 years ended
	30 June 2013	30 June 2013	30 June 2013	30 June 2013
Share price	+ 25.0%	+ 64.3%	+ 108.1%	+ 84.7%
Net asset value per share	+ 14.4%	+ 36.5%	+ 74.2%	+ 59.4%
FTSE Small Cap Index (ex IC's)	+ 15.3%	+ 38.6%	+ 61.6%	+ 53.6%
FTSE All-Share Index	+ 8.5%	+ 17.9%	+ 43.5%	+ 38.2%
Markit iBoxx Sterling Non-Gilts 1-15 Years Index{A}	- 0.2%	+ 7.5%	+ 20.7%	+ 39.8%
{A}        Source: Aberdeen Asset Management, Markit iBoxx, Morningstar & Factset.
All figures are for total return and assume re-investment of net dividends excluding transaction costs.

For further information, please contact:-

Kenneth Harper

Manager, Investment Trust Investor Relations

Aberdeen Asset Management Limited

Telephone [phone]

INTERIM BOARD REPORT

Performance

The Trust has delivered a strong absolute return over the period. The NAV total return of Aberdeen Smaller Companies High Income Trust was 14.4% while the index rose 15.3%. It is also worth noting that smaller companies have continued to outperform their larger peers with the FTSE All Share total returning 8.5%.

After the unusual performance of recent years, when both bond and equity markets rose strongly, this period saw a divergence of returns with our equities returning 15.6%, fixed interest 2.3%, while preference shares declined 3.8%.

Portfolio Commentary

Within the equity portfolio the Trust benefited from a strong rebound in broker Numis which has had a tough few years. Whilst trading has been weak they have grown their customer base consistently highlighting the strength of their business model whilst also cutting costs to align these with the lower revenue line. Numis also retained a strong net cash balance sheet giving us comfort in their ability to pay the dividend which has been a strong contributor to the total returns they've generated. The other main contributors to the performance were Interserve, Berendsen and Intermediate Capital. The Trust has also benefited from not owning any companies in the mining sector including Talvivaara Mining, Avocet Mining and Anglo Pacific. This sector can be very volatile around swings in single commodity prices, which is not Aberdeen's style. The way your Manager sets up the fund means that if they don't like a company or sector they won't own it irrespective of the index. There were a number of names that underperformed but the main drag on performance was two companies the Trust doesn't hold, Thomas Cook and Xaar. Both had exceptional returns contributing 4% of the underperformance. We did see weakness from one of our commodity exposed companies Fenner. Whilst Fenner is linked to a diverse range of commodities and is more focused on the level of mine production than pricing they have suffered from weakness in their Australian and US markets. We also saw weakness from Elementis, RPC and Oxford Instruments. Your Manager had reduced his position in Oxford Instruments from 3% to 2% on valuation grounds but following a weak trading update he topped up his position. Your Manager has also been active in adding to his positions in Fenner and Elementis.

The bond portfolio delivered a positive 2.3% return against the iBoxx Sterling Non-Gilts 1-15yrs. It is worth explaining that your Board has been very explicit in the mandate we have given your Manager. Whilst the fund has its constituent parts we run the fund holistically and although we publish a benchmark return for our bond portfolio this is more a guide to the performance we have delivered rather than a target we have set your Manager to deliver. The bond portfolio mandate is to protect the gearing and to boost the yield the Trust delivers which we know is important to our shareholders.

Turning to performance of the bond portfolio your Board is mindful that we have seen strong returns post the financial crisis with yields contracting sharply. We are acutely aware that this level of returns will not be possible over the next five years but we have taken action to position the portfolio given this environment. Firstly, your Manager has been in short dated bonds for some time to protect the capital losses should the yield curve move out. Secondly, they have also sold down holdings which they felt were expensive. The latter was also a reflection of the underlying yields on bonds versus the equity portfolio with the latter offering a more attractive total return. The recurring theme in our Board meetings has been how tough it is to find any value without moving out the curve or by investing in financials. After the hard work we have done over the last few years this is not a decision we wanted to take. Your Manager exited the following positions - Telefonica, Telecom Italia and Anglian Water all of which were trading at a premium to par. Your Manager also added one new position in Electricite De France which was a new issuance at par with a 6% yield.

The preference share portfolio was the weakest performing segment in the first half but given this only constitutes three companies this can be volatile in any one period. We are happy with the holdings and over the last few years we have reduced our reliance on these in the revenue account which has been a sensible decision. In terms of performance it's difficult to generalise on the sector as a whole but Balfour Beatty has seen tougher operational conditions while the financial names, Ecclesiastical and Aviva, have sold off on the back of movement in bond yields.

Financing & Gearing

Following the period end your Board have replaced the £10m floating rate debt facility. To give this a bit of context your Board discussed fixing some of the debt a number of times to protect us against rate rises. Whilst we feel rates may remain low for some time we could never say this with certainty but until now the cost of fixing has been prohibitive. With banks now more willing to lend and gearing below 20% we replaced our debt with a combination of a £5m fixed and £5m floating rate two year facility. This is a good balance and takes advantage of the current low interest rate environment whilst also giving some protection should rates rise. What is even more pleasing is that we have delivered this at a more attractive rate which helps reduce the Trust's expenses. 

Whilst looking at the most appropriate method of financing, your Board also reviewed the level of gearing we had in place. The gearing has historically been higher and over the last few years has been around 30%. We canvassed some external opinion to aid our discussions and the feedback was that 25% for a smaller companies trust was at the top end of the desired range given the retail ownership of this product. After considering these external views, and that of your Manager, your Board believed the current level of gearing was sufficient.

Dividend

Dividend growth from our companies has remained in the high single digit range which is broadly in line with what we have seen from earnings per share. Management teams remain pretty cautious despite the strong dividend cover and the strength of corporate balance sheets but this does give us comfort in the ability to continue this steady growth. What we have seen is an increase in the number of special dividends where companies feel they have excess liquidity. Elementis was the first to announce that they will return 50% of the balance sheet cash at the year-end which they saw as a reflection of the financial strength of the group. Hiscox also did a capital return while Dignity and Aveva have announced they will return capital in the second half assuming they receive shareholder approval.

As you will be aware yields on bonds are at or near historic lows hence the decision to exit a number of holdings. Subsequent share price performance suggests this was the correct decision although this has caused a small overall contraction in the level of revenue.

With the underlying growth in the dividends from equities remaining robust your Board was happy to raise the first and second quarter dividends by 3% year-on-year. Your Board and Manager currently feel well placed to grow the dividend over 2013 assuming no unforeseen circumstances. 

Strategy

Your Board have been proactive in the targets we have set your Manager and are pleased that many of these have come to fruition. The holistic manner in which your Manager runs the portfolio gives them scope to allocate between asset classes to achieve the best total return. By setting your Manager a clear mandate on the bond portfolio we are encouraged that your Manager can run this sensibly with the explicit goal of protecting the gearing whilst enhancing the yield rather than targeting performance against a benchmark return. We have also been encouraged with the long-term performance track record and that this is now being reflected in the discount, which has tightened considerably over the period. Your Board and Manager have been active in marketing and we now believe the simple structure, the strong long term track record coupled with a decent yield are being more appropriately valued by the market.

Outlook

Your Board is pleased with the way the Trust is performing and the feedback we are receiving from our external shareholder meetings. Debt has been refinanced at a lower cost, dividends have grown over recent quarters and we believe we are well placed going into the second half.

At the full-year results, I wrote that we felt well placed in the medium and longer term to deliver value for our shareholders. This view has not changed and your Manager still believes that smaller companies offer an attractive investment opportunity with the recent results season starting positively for the Trust.

Carolan Dobson

Chairman

29 August 2013

Principal Risks and Uncertainties

The principal risks and uncertainties faced by the Company and its subsidiaries fall into three broad categories: (i) market risk, comprising interest rate risk and other price risk, (ii) liquidity risk and (iii) credit risk. Information on each of these areas is given within the Annual Report and Accounts for the year ended 31 December 2012.

Going Concern

The Company's assets comprise mainly readily realisable securities which can be sold to meet funding commitments if necessary. Your Board considers that the Group has adequate financial resources to continue in operational existence for the foreseeable future.

Directors' Responsibility Statement

The Directors are responsible for preparing the Half Yearly Financial Report in accordance with applicable law and regulations. The Directors confirm that to the best of their knowledge:

· the condensed set of interim financial statements contained within the Half Yearly Financial Report has been prepared in accordance with IAS34; and

· the Interim Board Report (constituting the interim management statement) includes a fair review of the information required by rules 4.2.7R of the Disclosure and Transparency Rules (being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements and a description of the principal risks for the remaining six months of the financial year) and 4.2.8R (being related party transactions that have taken place during the first six months of the financial year and that have materially affected the financial position of the Company and its subsidiary during that period; and any changes in the related party transactions described in the last annual report that could so do).

The Half Yearly Financial Report for the six months to 30 June 2013 comprises the Interim Board Report, the Directors' Responsibility Statement and a condensed set of financial statements.

For and on behalf of the Board of Aberdeen Smaller Companies High Income Trust PLC

Carolan Dobson

Chairman

29 August 2013

Distribution of Assets and Liabilities

	Valuation at		Movement during the period				Valuation at
	31 December					Gains/	30 June
	2012		Purchases	Sales	Other{A}	(losses)	2013
	£'000	%	£'000	£'000	£'000	£'000	£'000	%
Listed investments
Ordinary shares	36,698	98.0	5,890	(4,041)	-	4,911	43,458	103.1
Convertibles	1,098	2.9	-	-	-	(63)	1,035	2.5
Corporate Bonds	4,952	13.2	992	(3,139)	(15)	112	2,902	6.9
Preference shares	2,946	7.9	-	-	-	(232)	2,714	6.4
	_______	_______	_______	_______	_______	_______	_______	_______
	45,694	122.0	6,882	(7,180)	(15)	4,728	50,109	118.9
	_______	_______	_______	_______	_______	_______	_______	_______
Current assets	1,965	5.2					2,326	5.5
Short-term loan	(10,000)	(26.7)					(10,000)	(23.7)
Other current liabilities	(193)	(0.5)					(294)	(0.7)
	_______	_______					_______	_______
Net assets	37,466	100.0					42,141	100.0
	_______	_______					_______	_______
Net asset value per share	169.45p						190.60p
	_______						_______
{A} Represents amortisation costs on debt securities of £15,000.

Condensed Consolidated Statement of Comprehensive Income  

for the half year ended 30 June 2013

		Six months ended
		30 June 2013
		(unaudited)
		Revenue	Capital	Total
	Notes	£'000	£'000	£'000
Dividend income		972	-	972
Interest income from investments		166	(15)	151
Other income		-	-	-
Gains on investments held at fair value		-	4,728	4,728
		_________	_________	_________
Total income		1,138	4,713	5,851
		_________	_________	_________
Expenses
Investment management fees		(97)	(97)	(194)
Other administrative expenses		(165)	-	(165)
Finance costs of borrowing		(66)	(66)	(132)
		_________	_________	_________
Profit before taxation		810	4,550	5,360
		_________	_________	_________
Taxation	2	-	-	-
		_________	_________	_________
Profit attributable to equity holders	3	810	4,550	5,360
		_________	_________	_________
Earnings per Ordinary share (pence)	4	3.66	20.58	24.24
		_________	_________	_________

The total column of this statement represents the Company's Statement of Comprehensive Income, prepared in accordance with IFRS. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies.

The Company does not have any income or expense that is not included in profit for the period, and therefore the "Profit attributable to equity holders" is also the "Total comprehensive income attributable to equity holders" as defined in IAS 1 (revised).

All items in the above statement derive from continuing operations.

Condensed Consolidated Statement of Comprehensive Income 

(Continued)

		Six months ended			Year ended
		30 June 2012			31 December 2012
		(unaudited)			(audited)
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Dividend income		834	-	834	1,486	-	1,486
Interest income from investments		198	(26)	172	392	(40)	352
Other income		2	-	2	2	-	2
Gains on investments held at fair value		-	2,640	2,640	-	8,356	8,356
		_______	_______	_______	_______	_______	_______
Total income		1,034	2,614	3,648	1,880	8,316	10,196
		_______	_______	_______	_______	_______	_______
Expenses
Investment management fees		(79)	(79)	(158)	(164)	(164)	(328)
Other administrative expenses		(181)	-	(181)	(318)	-	(318)
Finance costs of borrowing		(73)	(73)	(146)	(141)	(141)	(282)
		_______	_______	_______	_______	_______	_______
Profit before taxation		701	2,462	3,163	1,257	8,011	9,268
		_______	_______	_______	_______	_______	_______
Taxation	2	-	-	-	-	-	-
Profit attributable to equity holders	3	701	2,462	3,163	1,257	8,011	9,268
		_______	_______	_______	_______	_______	_______
Earnings per Ordinary share (pence)	4	3.17	11.14	14.31	5.69	36.23	41.92
		_______	_______	_______	_______	_______	_______
All items in the above statement derive from continuing operations.

Condensed Consolidated Balance Sheet

as at 30 June 2013

		As at	As at	As at
		30 June 2013	30 June 2012	31 December 2012
		(unaudited)	(unaudited)	(audited)
	Notes	£'000	£'000	£'000
Non-current assets
Ordinary shares		43,458	32,085	36,698
Convertibles		1,035	1,116	1,098
Corporate bonds		2,902	4,605	4,952
Preference shares		2,714	2,545	2,946
		____________	____________	____________
Securities at fair value		50,109	40,351	45,694
		____________	____________	____________
Current assets
Cash and cash equivalents		1,763	1,391	1,602
Other receivables		563	433	363
		____________	____________	____________
Total current assets		2,326	1,824	1,965
		____________	____________	____________
Total assets		52,435	42,175	47,659
Current liabilities
Short-term loan		(10,000)	-	(10,000)
Trade and other payables		(294)	(150)	(193)
		____________	____________	____________
Total current liabilities		(10,294)	(150)	(10,193)
		____________	____________	____________
Non-current liabilities
Long-term loan		-	(10,000)	-
		____________	____________	____________
Total liabilities		(10,294)	(10,150)	(10,193)
		____________	____________	____________
Net assets		42,141	32,025	37,466
		____________	____________	____________
Issued capital and reserves attributable to equity holders
Called-up share capital		11,055	11,055	11,055
Share premium account		11,892	11,892	11,892
Capital redemption reserve		2,032	2,032	2,032
Capital reserve	5	15,110	5,011	10,560
Revenue reserve		2,052	2,035	1,927
		____________	____________	____________
Equity shareholders' funds		42,141	32,025	37,466
		____________	____________	____________
Net asset value per Ordinary share (pence)	4	190.60	144.85	169.45
		____________	____________	____________

Condensed Consolidated Statement of Changes in Equity

Six months ended 30 June 2013 (unaudited)
			Share	Capital
		Share	premium	redemption	Capital	Revenue
		capital	account	reserve	reserve	reserve	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 December 2012		11,055	11,892	2,032	10,560	1,927	37,466
Revenue profit for the period		-	-	-	-	810	810
Capital profit for the period		-	-	-	4,550	-	4,550
Equity dividends	3	-	-	-	-	(685)	(685)
		______	______	______	______	______	______
Balance at 30 June 2013		11,055	11,892	2,032	15,110	2,052	42,141
		______	______	______	______	______	______
Six months ended 30 June 2012 (unaudited)
			Share	Capital
		Share	premium	redemption	Capital	Revenue
		capital	account	reserve	reserve	reserve	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 December 2011		11,055	11,892	2,032	2,549	1,997	29,525
Revenue profit for the period		-	-	-	-	701	701
Capital profit for the period		-	-	-	2,462	-	2,462
Equity dividends	3	-	-	-	-	(663)	(663)
		______	______	______	______	______	______
Balance at 30 June 2012		11,055	11,892	2,032	5,011	2,035	32,025
		______	______	______	______	______	______
Year ended 31 December 2012 (audited)
			Share	Capital
		Share	premium	redemption	Capital	Revenue
		capital	account	reserve	reserve	reserve	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 December 2011		11,055	11,892	2,032	2,549	1,997	29,525
Revenue profit for the year		-	-	-	-	1,257	1,257
Capital profit for the year		-	-	-	8,011	-	8,011
Equity dividends	3	-	-	-	-	(1,327)	(1,327)
		______	______	______	______	______	______
Balance at 31 December 2012		11,055	11,892	2,032	10,560	1,927	37,466
		______	______	______	______	______	______

Condensed Consolidated Cash Flow Statement

for the half year ended 30 June 2013

	Six months ended	Six months ended	Year ended
	30 June 2013	30 June 2012	31 December 2012
	(unaudited)	(unaudited)	(audited)
	£'000	£'000	£'000
Cash flows from operating activities
Investment income received	1,076	972	1,932
Other income received	-	2	-
Investment management fees paid	(183)	(154)	(316)
Other cash expenses	(153)	(177)	(298)
	___________	___________	___________
Cash generated from operations	740	643	1,318
Interest paid	(152)	(161)	(269)
	___________	___________	___________
Net cash inflows from operating activities	588	482	1,049
	___________	___________	___________
Cash flows from investing activities
Purchases of investments	(6,775)	(3,033)	(5,669)
Sales of investments	7,033	3,556	6,500
	___________	___________	___________
Net cash inflows from investing activities	258	523	831
	___________	___________	___________
Cash flows from financing activities
Equity dividends paid	(685)	(663)	(1,327)
	___________	___________	___________
Net cash outflows from financing activities	(685)	(663)	(1,327)
	___________	___________	___________
Net increase in cash and cash equivalents	161	342	553
Cash and cash equivalents at the start of the period	1,602	1,049	1,049
	___________	___________	___________
Cash and cash equivalents at the end of the period	1,763	1,391	1,602
	___________	___________	___________
Cash and cash equivalents comprise:
Cash and cash equivalents	1,763	1,391	1,602
	___________	___________	___________

1.	Accounting policies
	(a)	Basis of accounting
		The financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS') 34 - 'Interim Financial Reporting', as adopted by the International Accounting Standards Board ('IASB'), and interpretations issued by the International Financial Reporting Interpretations Committee ('IFRIC') of the IASB. They have also been prepared using the same accounting policies applied for the year ended 31 December 2012 financial statements, which received an unqualified audit report.
		The subsidiary company was wound up during the year ended 31 December 2012 and therefore consolidated accounts are no longer required to be prepared.
	(b)	Dividends payable
		Dividends are recognised in the period in which they are paid.

2.	Taxation
	The taxation expense reflected in the Condensed Statement of Comprehensive Income is based on management's best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual tax rate used for the year to 31 December 2013 is 23.25%.

3.	Dividends
	The following table shows the revenue for each period less the dividends declared in respect of the financial period to which they relate.
		Six months ended	Six months ended	Year ended
		30 June 2013	30 June 2012	31 December 2012
		£'000	£'000	£'000
	Revenue	810	701	1,257
	Dividends declared	(685){A}	(663){B}	(1,338){C}
		___________	___________	___________
		125	38	(81)
		___________	___________	___________
	{A}      Dividends declared relate to first two interim dividends (both 1.55p each) declared in respect of the financial year 2013.
	{B}      Dividends declared relate to first two interim dividends (both 1.50p each) declared in respect of the financial year 2012.
	{C}      Dividends declared relate to the four interim dividends declared in respect of the financial year 2012 totalling 6.05p.

		Six months ended	Six months ended	Year ended
		30 June 2013	30 June 2012	31 December 2012
4.	Return and net asset value per share	p	p	p
	Revenue return	3.66	3.17	5.69
	Capital return	20.58	11.14	36.23
		___________	___________	___________
	Total return	24.24	14.31	41.92
		___________	___________	___________
	The returns per share are based on the following figures:
		Six months ended	Six months ended	Year ended
		30 June 2013	30 June 2012	31 December 2012
		£'000	£'000	£'000
	Revenue return	810	701	1,257
	Capital return	4,550	2,462	8,011
		___________	___________	___________
	Total return	5,360	3,163	9,268
		___________	___________	___________
	Weighted average number of Ordinary shares in issue	22,109,765	22,109,765	22,109,765
		___________	___________	___________
	The net asset value per share is based on net assets attributable to shareholders of £42,141,000 (30 June 2012 - £32,025,000; 31 December 2012 - £37,466,000) and on 22,109,765 (30 June 2012 - 22,109,765; 31 December 2012 - 22,109,765) Ordinary shares in issue at each period end.

5.	Capital reserves
	The capital reserve reflected in the Balance Sheet at 30 June 2013 includes gains of £11,635,000 (30 June 2012 - gains of £3,930,000; 31 December 2012 - gains of £9,357,000) which relate to the revaluation of investments held at the reporting date.

6.	Transaction costs
	During the period expenses were incurred in acquiring or disposing of investments classified as fair value though profit or loss. These have been expensed through capital and are included within gains on investments held at fair value in the Statement of Comprehensive Income. The total costs were as follows:
		Six months ended	Six months ended	Year ended
		30 June 2013	30 June 2012	31 December 2012
		£'000	£'000	£'000
	Purchases	29	17	30
	Sales	5	4	7
		___________	___________	___________
		34	21	37
		___________	___________	___________

7.	Publication of non-statutory accounts
	The financial information contained in this Half-Yearly Financial Report does not constitute statutory accounts as defined in Sections 434 - 436 of the Companies Act 2006. The financial information for the six months ended 30 June 2013 and 30 June 2012 has not been audited.
	The information for the year ended 31 December 2012 has been extracted from the latest published audited financial statements which have been filed with the Registrar of Companies. The report of the auditors on those accounts contained no qualification or statement under Section 498 (2), (3) or (4) of the Companies Act 2006.

8.	This Half-Yearly Financial Report was approved by the Board on 29 August 2013.

9.     The Half Yearly Financial Report is available on the Company's website, www.aberdeensmallercompanies.co.uk.  The Half Yearly Report will be posted to shareholders in September 2013 and copies will be available from the investment manager.

Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise.  Investors may not get back the amount they originally invested

 

END

 

 

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