Final Results
ABERFORTH SMALLER COMPANIES TRUST plc
PRELIMINARY RESULTS
For the Year to 31 December 2006
FEATURES
Net Asset Value Total Return +26.3%
Benchmark Index Total Return +28.0%
Increase in Dividends per Ordinary Share +13.1%
The objective of Aberforth Smaller Companies Trust plc (ASCoT) is to
achieve a net asset value total return (with dividends reinvested)
greater than on the Hoare Govett Smaller Companies Index (Excluding
Investment Companies) over the long term by investing in a portfolio
of small UK quoted companies. ASCoT is managed by Aberforth Partners
LLP.
CHAIRMAN'S STATEMENT TO SHAREHOLDERS
REVIEW OF 2006 PERFORMANCE
Aberforth Smaller Companies Trust plc (ASCoT) achieved a total return of
26.3% for the year to 31 December 2006, which compares with a total return
of 28.0% from the Hoare Govett Smaller Companies Index (Excluding
Investment Companies), your Company's investment benchmark. ASCoT has
therefore under-performed its benchmark for the year. Larger companies,
as represented by the FTSE All-Share Index, registered a total return of
16.8%. Many commentators had forecast that the stockmarket returns from
larger companies would surpass smaller companies in 2006, which clearly
has not been the case. As in each of the last two Annual Reports, your
Board and Managers are cautious about extrapolating recent years'
significant returns.
This is the fourth consecutive year of small companies out-performing
larger companies and of outstanding absolute returns. This four year
"run" has produced compound annual total returns for ASCoT of 29.2%, for
the investment benchmark of 29.6%, and for larger companies of 18.1%. By
comparison, the previous three years of this millennium (to the end of
2002) witnessed a much better relative performance from ASCoT when its
compound annual returns were plus 4.0%, the benchmark's were minus 12.3%,
and larger companies' were minus 14.2%. Taken together, the seven years
to the end of 2006 would seem to suggest that ASCoT's relative performance
is better when stockmarkets are less buoyant. This fits well,
intuitively, with your Managers' value investment style, though they are
reluctant to concede this correlation.
GEARING
It is worth emphasising that ASCoT's policy has always been to remain as
near to fully invested as possible and our caution has not and will not
alter that policy. With the benefit of hindsight, ASCoT might have gone
beyond being fully invested and made use of debt facilities; to have
employed gearing during the last four years would have enhanced returns to
Shareholders. However, our continuing cautious stance means that we do
not envisage gearing ASCoT currently. This position is regularly reviewed
by your Board and Managers.
DIVIDENDS
Your Board is pleased to recommend a final dividend of 9.15p, which
produces total dividends for the year of 13.40p representing an increase
of 13.1% on the total for the previous year. Subject to Shareholders'
approval, the final dividend of 9.15p per share will be paid on 7 March
2007 to Shareholders on the register at the close of business on 9
February 2007. ASCoT operates a Dividend Reinvestment Plan; the relevant
documentation is available from Aberforth on request, or from their
website www.aberforth.co.uk, for those Shareholders who wish to
participate in the plan and are not already doing so.
Your Board believes this 13.1% increase in dividends is an excellent
performance and reflects the overall health of ASCoT's portfolio. Indeed,
to the extent that dividend growth drives share price performance over
time, there is no doubt that some of the stockmarket's recent strength has
been fundamentally supported by dividend growth, itself a function of good
earnings performance and strong cash flow. However, in addition, the
stockmarket's rating of that dividend stream has risen i.e. the yield has
fallen. While dividend growth may continue to be attractive for some
time, it is harder to envisage the rise in capital values continuing to
exceed dividend growth.
CORPORATE GOVERNANCE: BUSINESS REVIEW
During 2005, the Companies Act 1985 was amended to introduce the
requirement for companies to incorporate a "business review" within the
Directors' Report. The review, which is included in the Annual Report,
provides further analysis of ASCoT's business, its performance during the
year, principal risks and key performance indicators.
SHARE BUY BACK AUTHORITY AND TREASURY SHARES
At the Annual General Meeting in March 2006, the authority to purchase up
to 14.99% of ASCoT's Ordinary Shares was renewed. No Shares were
purchased during the year. Your Board will be seeking a renewal of this
authority at the Annual General Meeting to be held on 1 March 2007. Your
Board has established, and keeps under careful review, the circumstances
under which such authority may be utilised. Should these arise, ASCoT
will seek to purchase Ordinary Shares and it is your Board's current
policy to cancel, rather than hold in treasury, any such shares.
SUMMARY AND OUTLOOK
There will, sooner or later, be more testing stockmarket conditions than
those ASCoT has enjoyed these last four years. I noted last year that
"cheap and abundant debt is causing asset prices to rise and fuelling M&A
activity" and I believe I could do worse than repeat this, whilst adding
that this cannot go on forever. Eventually, valuations rise to a level
that prohibits debt funded M&A and it seems very likely we are nearer that
point than we were last year. Whilst this may read as lacking conviction,
it reflects the facts that economic conditions remain reasonable, M&A
activity seems to be unabated, and therefore returns could well continue
to surprise on the upside for sometime yet. Whatever emerges, your Board
is confident that your Managers' experience and consistency of approach
will stand your Company in good stead in the long term.
David R. Shaw
Chairman
22 January 2007
The Income Statement, Reconciliation of Movements in Shareholders' Funds,
Balance Sheet and summary Cash Flow Statement are set out below:-
INCOME STATEMENT
For the Year ended 31 December 2006
(unaudited)
12 months to 12 months to
31 December 2006 31 December 2005
Revenue Capital Total Revenue Capital Total
£ 000 £ 000 £ 000 £ 000 £ 000 £ 000
Realised gains on sales - 85,852 85,852 - 71,828 71,828
Unrealised gains - 77,180 77,180 - 50,758 50,758
------ ------ ------ ------ ------ ------
Gains on investments - 163,032 163,032 - 122,586 122,586
Dividend income 18,290 2,261 20,551 16,135 4,238 20,373
Interest income 797 - 797 632 - 632
Other income 20 - 20 27 - 27
Investment management (2,496) (4,159) (6,655) (2,083) (3,472) (5,555)
fee
Other expenses (402) (3,230) (3,632) (386) (2,542) (2,928)
------ ------ ------ ------ ------ ------
Return on ordinary 16,209 157,904 174,113 14,325 120,810 135,135
activities before
finance costs and tax
Finance costs - - - - - -
------ ------ ------ ------ ------ ------
Return on ordinary 16,209 157,904 174,113 14,325 120,810 135,135
activities before tax
Tax on ordinary activities - - - - - -
------ ------ ------ ------ ------ ------
Return attributable to
equity shareholders 16,209 157,904 174,113 14,325 120,810 135,135
====== ======= ======= ====== ======= =======
Returns per Ordinary 16.40p 159.81p 176.21p 14.50p 122.27p 136.77p
Share
The Board declared on 22 January 2007 a proposed final dividend of
9.15p per Ordinary Share (31 December 2005 - 7.85p) and the total
payable will be £9,041,000 (31 December 2005 - £7,757,000). The
Board also declared on 20 July 2006 an interim dividend of 4.25p
per Ordinary Share (30 June 2005 - 4p) and the total paid was
£4,199,000(30 June 2005 - £3,952,000).
NOTES
1. The total column of this statement is the profit and loss
account of the Company. All revenue and capital items in the above
statement derive from continuing operations. No operations were
acquired or discontinued in the period. A Statement of Total
Recognised Gains and Losses is not required as all gains and losses
of the Company have been reflected in the above statement.
2. The calculations of revenue return per Ordinary Share are based
on net revenue of £16,209,000 (31 December 2005 - £14,325,000) and
on Ordinary Shares of 98,809,788 (31 December 2005 - same).
The calculations of capital return per Ordinary Share are based on
net capital gains of £157,904,000 (31 December 2005 - £120,810,000)
and on Ordinary Shares of 98,809,788 (31 December 2005 - same).
SUMMARY RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
For the year ended 31 December 2006
(unaudited)
2006 2005
£ 000 £ 000
Opening shareholders' funds 671,174 547,155
Total recognised gains and losses 174,113 135,135
before dividends
Dividends paid (11,956) (11,116)
------- -------
Closing shareholders' funds 833,331 671,174
======= =======
NOTE
The movements in this statement represent the profit and
loss of the Company and the equity dividends paid.
BALANCE SHEET
As at 31 December 2006
(unaudited)
31 31
December December
2006 2005
£ 000 £ 000
Fixed assets: investments
Investments at fair value through 801,470 659,560
profit or loss
------- -------
Current assets
Debtors 1,369 1,408
Cash at bank 30,554 10,267
------- -------
31,923 11,675
Creditors (amounts falling due (62) (61)
within one year)
------- -------
Net current assets 31,861 11,614
------- -------
Total assets less liabilities 833,331 671,174
======= =======
Capital and reserves: equity interests
Called up share capital(Ordinary Shares) 988 988
Reserves:
Special reserve 197,305 197,305
Capital reserve - realised 367,212 286,488
Capital reserve - unrealised 239,622 162,442
Revenue reserve 28,204 23,951
------- -------
833,331 671,174
======= =======
Net Asset Value per Ordinary Share 843.37p 679.26p
NOTE
As at 31 December 2006, the Company had 98,809,788 Ordinary
Shares (2005 - same). No Ordinary Shares were bought in during
either year.
SUMMARY CASH FLOW STATEMENT
For the Year ended 31 December 2006
(unaudited)
12 months to 12 months to
31 December 31 December
2006 2005
£ 000 £ 000 £ 000 £ 000
Net cash inflow from operating activities 14,197 15,066
Returns on investment and servicing - -
of finance
Capital expenditure and financial investment
Payments to acquire investments (244,363) (209,872)
Receipts from sales of investments 262,409 201,811
-------- --------
Net cash inflow from capital
expenditure and financial investment 18,046 (8,061)
------- -------
32,243 7,005
Equity dividends paid (11,956) (11,116)
------- -------
20,287 (4,111)
Financing - -
------- -------
Increase/(decrease) in cash 20,287 (4,111)
======= =======
NOTES
1. The financial statements have been prepared in accordance
with UK generally accepted accounting practice ("UKGAAP") and the
AIC's Statement of Recommended Practice "Financial Statements of
Investment Trust Companies".The same accounting policies used for
the year to 31 December 2005 have been applied.
2. The foregoing do not comprise statutory accounts (as defined
in section 240(5) of the Companies Act 1985) of the Company. The
statutory accounts for the year to 31 December 2005, which
contained an unqualified Report of the Auditors under section 235
of the Companies Act, have been lodged with the Registrar of
Companies and did not contain a statement required under section
237(2) or (3) of the Companies Act 1985.
3. The Annual Report is expected to be posted to shareholders on
29 January 2007. Members of the public may obtain copies from
Aberforth Partners LLP, 14 Melville Street, Edinburgh EH3 7NS or
from its website at www.aberforth.co.uk.
CONTACT: David Warnock Aberforth Partners LLP Tel:0131 220 0733
Aberforth Partners LLP, Secretaries - 22 January 2007
ANNOUNCEMENT ENDS