Aberforth Smaller Companies Trust plc
Legal Entity Identifier (“LEI”): 213800GZ9WC73A92Q326
Half Yearly Report
For the six months to 30 June
2017
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 2017 as applicable, unless
otherwise stated.
FINANCIAL HIGHLIGHTS
Total Return
Performance |
|
|
% |
Net Asset Value |
|
|
13.8 |
Numis Smaller
Companies Index (XIC) |
|
|
9.7 |
Ordinary Share
Price |
|
|
14.7 |
|
30
June
2017 |
31
December
2016 |
30
June
2016 |
Shareholders'
Funds |
£1,362.0m |
£1,220.2m |
£1,034.8m |
Market
Capitalisation |
£1,174.6m |
£1,046.9m |
£859.9m |
Actual Gearing |
0.0% |
2.7% |
2.8% |
Ordinary Share net
asset value |
1,448.33p |
1,292.57p |
1,092.06p |
Ordinary Share
price |
1,249.00p |
1,109.00p |
907.50p |
Ordinary Share price
discount |
13.8% |
14.2% |
16.9% |
Chairman’s Statement
Review of performance
For the six months to 30 June
2017, Aberforth Smaller Companies Trust plc (ASCoT) achieved
a net asset value total return of +13.8%, which compares with a
total return of +9.7% from the Company’s investment benchmark, the
Numis Smaller Companies Index (excluding Investment Companies)
(NSCI (XIC)). The FTSE All-Share Index, which is dominated by
larger companies, generated a return of +5.5% over the same
period.
At the end of June, the gap between the Company’s share price
and its net asset value was 13.8%. This discount narrowed only
slightly over the first six months of the year, but it allowed the
Company’s share price to rise by 14.7% in total return terms. More
broadly, discounts within the AIC’s UK Smaller Companies subsector
continue to be among the widest in the investment trust world,
which comes despite a good run of performance from the asset class.
Brexit is the likely explanation. While the worst fears in the
aftermath of last year’s EU referendum have failed to materialise,
small UK quoted companies are relatively exposed to the UK’s
domestic economy and therefore remain vulnerable to an acrimonious
divorce. The bewildering political developments of the first half
of the year do not inspire the greatest confidence in our
politicians to avoid a chaotic exit.
After the disappointment of 2016, it is pleasing, as Chairman,
to be reporting on a stronger period: recent performance
demonstrates the benefits of an actively managed portfolio whose
differentiation from its benchmark index is significant, not least
as a result of the Managers’ value investment style. As is usual,
the Managers’ report provides greater insight into the factors that
influenced the Company during the first half of 2017.
Annual General Meeting
I am delighted to report that at the Annual General Meeting on
1 March 2017, 99.9% of Shareholders’
votes cast were in favour of the continuation of the Company.
Furthermore, all resolutions were passed, including the renewal of
authority to buy in up to 14.99% of ASCoT’s Ordinary Shares.
Dividends
It is an inescapable truth that shareholders in small UK quoted
companies have enjoyed a golden period since the recovery in
dividends began in 2010. The first half of 2017 saw a continuation
of the dividend friendly environment. The Board is pleased to
announce an interim dividend of 9.05p per Ordinary Share for the
six months to 30 June 2017. This
represents an increase of 5.2% compared with last year’s interim
dividend. The Board, in implementing its progressive dividend
policy, continues to be mindful of the fact that at some point in
the future the dividend climate will turn more hostile. In this
regard, the increase in the interim dividend should be viewed
alongside the Company’s retained reserves which now stand at 52.5p
per Ordinary Share, approximately 1.9 times the total of the
2016 Ordinary Share final and 2017 interim dividends. The interim
dividend will be paid on 24 August
2017 to Shareholders on the register as at close of business
on 4 August 2017. The ex dividend date is 3 August 2017.
The Company 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 first half, following an extensive tendering process,
the Board replaced the Company’s borrowing facility, which was due
to expire on 15 June 2017, with a new
£125m facility from The Royal Bank of Scotland plc, which is on broadly similar
terms and will run for a period of three years. Gearing levels are
reviewed on a regular basis by the Board though ASCoT was not
geared at 30 June 2017. The Board
remains comfortable that the Company has access to sufficient
liquidity for investment purposes and also for share buy-in, as and
when appropriate. It remains the Company’s policy to use gearing in
a tactical manner.
Share buy-in
The Company’s share buy-in authority is renewed annually at the
Annual General Meeting. During the six months to 30 June 2017, 361,800 shares (0.4% of the issued
share capital) were purchased for a total consideration of
£4,507,000 at an average discount of 15.5% to the net asset value.
Any shares purchased are automatically cancelled, rather than being
held in treasury, thereby reducing the Company’s issued share
capital.
The Board keeps under review the circumstances in which the
authority is utilised.
Conclusion
In a period of twelve months, the UK has gone from being viewed
as possessing a stable political and economic backdrop to being
confronted by significant change and challenge. Such periods
clearly bring risks for the investor but they will be resolved with
the passage of time and can also offer attractive opportunities. In
contrast to the UK, the outlook for the global economy has improved
over the past year, with a greater synchronisation of recovery
among individual economies than at any point since the financial
crisis. At this level, the predicament facing financial markets is
whether the recent rise in yields is a harbinger of sustained
global reflation. Were this to be the case, equities as an asset
class would benefit and the value investment style would likely
out-perform, to the advantage of the relative performance of the
Company. In contrast, a return to deflationary pressures would in
all probability see a continuation of the broad trends witnessed
since the financial crisis and equities would see leadership revert
to their quality and growth cohorts. Such global shifts, which can
seem very remote from the Company’s investments in small UK quoted
companies, may well have a greater long term significance than
today’s domestic issues.
Paul
Trickett
Chairman
27 July
2017
paul.trickett@aberforth.co.uk
Managers’ Report
Introduction
In common with many stockmarkets around the world, UK equities
performed well in the first six months of 2017. The FTSE All-Share,
which is illustrative of large companies, produced a total return
of 5.5%. This was surpassed by the 9.7% return from the small
companies that make up the NSCI (XIC). ASCoT’s NAV total return in
the six months was 13.8%, which, in comparison with the NSCI (XIC),
represents a pleasing recovery in performance from the
disappointment of 2016.
The superior performance of small companies so far in 2017 has
seen them recover all of the ground lost against large companies in
the immediate aftermath of the EU referendum result in June 2016. That initial negative reaction was
prompted by the greater exposure of the NSCI (XIC)’s constituents
to the domestic economy, which is vulnerable to a poorly handled
Brexit. It would be pleasing to conclude from the subsequent
recovery in small company share prices that Brexit has been well
handled and that its attendant risks have diminished –
unfortunately this is not the case. Rather, the bounce back enjoyed
by small companies has been led by overseas oriented sectors.
Nevertheless, domestic sectors have made positive absolute
returns, which reflect the fact that fears of an immediate impact
on economic activity from the “out” vote have not come to pass.
Indeed, macro economic data and the trading progress of
domestically oriented small companies have proved remarkably
resilient, which is also testament to how tightly run these
businesses are. However, challenges remain, as the weakness of the
pound in the wake of the referendum puts pressure on costs, eating
into real wages, and as Brexit threatens the movement of
labour.
On top of these issues, the outcome of the latest General
Election introduces further uncertainty. While political surprises
in recent times have not been confined to the UK, the days of its
status as a haven of political stability now seem long gone. From
the perspective of the typical small UK quoted company, the
implications of the Conservative Party’s failure to secure an
overall majority are moot. The chances of a badly handled divorce
from the EU have undoubtedly risen, but so have the chances of a
“softer” Brexit, which may explain the phlegmatic reaction thus far
of sterling and of share prices to the result.
Indeed, the strength of equity markets since early 2016 has been
notable despite heightened political uncertainty around the globe.
This buoyancy has its roots in improved economic activity in both
China and Europe and received a boost with the election
of Donald Trump and his promise of
increased fiscal stimulus. Commodities were the initial
beneficiaries, but the effect spread through other cyclical sectors
of the stockmarket to the benefit of the value investment style
followed by the Managers. Within financial markets, which are fond
of snappy terms for complex developments, this pick-up in activity
and optimism has been termed the “reflation trade”. It has
certainly influenced ASCoT’s good returns in the first half of
2017.
Investment performance
Over the six months to 30 June
2017, ASCoT’s NAV total return was 13.8% against 9.7% for
the NSCI (XIC). The following table, which analyses the difference
between these numbers, shows a large positive contribution from
stock selection. While that outcome is influenced by other factors,
which are addressed in the subsequent paragraphs, it is noteworthy
that several of the portfolio’s larger holdings performed
particularly well and that there were few significant large share
price declines among the holdings – this will not always be the
case!
For the six months
ended 30 June 2017 |
|
Basis
points |
Stock
selection |
|
368 |
Sector
selection |
|
46 |
|
|
______ |
Attributable to the portfolio of investments, based on mid
prices
(after transaction costs of 12 basis
points) |
|
414 |
Movement in mid
to bid price spread |
|
4 |
Cash/gearing |
|
29 |
Purchase of
ordinary shares |
|
6 |
Management
fee |
|
(38) |
Other
expenses |
|
(3) |
|
|
______ |
Total attribution
based on bid prices |
|
412 |
|
|
______ |
|
|
|
Note: 100
basis points = 1%. Total Attribution is the difference
between the total return of the NAV and the Benchmark Index (i.e.
NAV = 13.84%; Benchmark Index = 9.72%; difference is 4.12% being
412 basis points). |
Size & Style
For reasons set out in the Valuations section below, ASCoT
retains a relatively high exposure to the “smaller small” companies
within the NSCI (XIC). To assess the appropriateness of this
positioning the return from the FTSE SmallCap may be compared with
that from the FTSE 250 index. Over the first half of 2017, the FTSE
SmallCap performed slightly better, suggesting that size had a
small positive effect on ASCoT’s return relative to the NSCI (XIC)
in that period.
The style picture is altogether more complicated. The Managers
use analysis from the London Business
School and Style Research to assess style influences on
ASCoT’s performance. Both these houses suggest that the NSCI
(XIC)’s growth stocks generated much better returns than did its
value stocks in the first half of 2017, which would have
represented a headwind to ASCoT. However, it is unlikely that
ASCoT’s relative performance would have been so strong had
investment style proved adverse.
So what was going on? Although these style series are a useful
indicator over longer time periods, they can be susceptible to
other influences in the short term. In the six months under review,
the Managers believe that a sector effect introduced such noise. So
far in 2017, the resources companies that performed so well through
2016 have given up some of their gains. Most of these are still
classified as value stocks and so their weakness disproportionately
affected the value component of the NSCI (XIC). Excluding resources
companies from the analysis, there was little to choose between the
returns from value and growth over the past six months.
Corporate activity
Both M&A and IPO activity were subdued in the opening months
of 2017. This probably reflected the on-going uncertainty stemming
from last year’s EU referendum and the additional impact of June’s
General Election. Through the six months to 30 June 2017, six new bids or approaches for
companies in the NSCI (XIC) were made and remain likely to
complete. Meanwhile, IPO activity was confined to eight new
listings. An upturn in M&A still looks likely: small company
valuations remain relatively low, particularly for overseas buyers
who can take advantage of sterling’s weakness since the Brexit
vote.
Strong balance sheets
Balance sheets of both ASCoT’s investee companies and the
broader NSCI (XIC) remain in robust shape. In the case of the
portfolio, 20% is invested in companies with net cash on their
balance sheets. While still high, this proportion has declined from
36% three years ago. The Managers consider the reduction to be
healthy since it reflects greater confidence on the part of company
boards to invest, acquire or return surplus cash balances to
shareholders. Appetite for investment may be gauged by the ratio of
capital expenditure to depreciation: a ratio above one indicates
investment for future growth. The Managers follow closely a subset
281 companies within the NSCI (XIC), which represents 98% by value
of the overall index and is termed the “tracked universe”. Even
with capital intensive resources companies excluded, the capital
expenditure to depreciation ratio for the tracked universe was 1.5x
in 2016. All else being equal, this augurs well for future profit
growth for small companies.
Income
Supported by those strong balance sheets, the dividend
environment for the portfolio and for small companies in general
remained encouraging through the first half of 2017. As the table
below shows, almost half of the 84 holdings at 30 June 2017 announced higher dividends.
Down |
Nil payers |
No change |
Increase |
Other |
7 |
14 |
19 |
41 |
3 |
Dividend growth has also been buoyed by healthy dividend cover
of 2.8x for the portfolio and 2.7x for the NSCI (XIC). These are
higher than the averages since 1990 – 2.6x in both cases – and much
higher than the FTSE All-Share’s present dividend cover of 1.3x. It
should be noted that fashion has played a part in the strong
dividend growth record of recent years. One of the longer lasting
legacies of the TMT bubble was that “dividend” became a dirty word
for many companies, an admission of failure to find something else
to do with shareholders’ money. However, as bond yields have fallen
in the period since the financial crisis, the investment world has
experienced income starvation. Company boards have realised that
they can help address this problem by paying higher dividends and
have no doubt been encouraged to do so by positive share price
reaction to the announcement of a more progressive pay-out policy.
The Managers suspect that the next economic downturn will prove
that not all such dividend decisions will prove sustainable.
Turnover
Annualised portfolio turnover over the six months to
30 June 2017 was 24%. This is up from
16% in the first half of 2016. The increase is related to the
improvement in ASCoT’s performance: as share prices of investee
companies rise and price targets are achieved, the Managers
typically look to recycle capital into companies with greater
upside.
Active share
Active share is a gauge of how different a portfolio is from an
index. The higher the ratio, the higher the likelihood that the
performance of the portfolio will differ from that of the index.
The Managers target a ratio of at least 70%, though would tolerate
a temporarily lower number. At 30 June
2017, the active share ratio was 76%.
Valuations
Portfolio characteristics |
30 June 2017 |
30 June 2016 |
ASCoT |
NSCI
(XIC) |
ASCoT |
NSCI
(XIC) |
Number of
companies |
84 |
339 |
83 |
339 |
Weighted average
market capitalisation |
£660m |
£894m |
£514m |
£823m |
Price earnings (PE)
ratio (historic) |
11.8x |
13.8x |
10.5x |
12.4x |
Dividend yield
(historic) |
3.0% |
2.7% |
3.4% |
2.8% |
Dividend cover |
2.8x |
2.7x |
2.8x |
2.9x |
The table above shows the average PE ratio and dividend yield of
ASCoT’s portfolio and of the NSCI (XIC). Consistent with the
Managers’ value investment style, the portfolio compares well on
both measures. A more stark contrast at the present time is with
large companies: the historic PE of the FTSE All-Share was 20.8x at
the end of June. This premium valuation reflects the greater bias
of large companies to overseas markets that would be less
vulnerable to a badly handled Brexit. However, the premium is very
wide: over ASCoT’s history, large companies have been 23% more
expensive than the portfolio on average; currently they are 76%
more expensive. The Managers are therefore of the view that much of
the risk associated with Brexit may already be incorporated in
share prices.
EV/EBITA |
2016 |
2017 |
2018 |
ASCoT |
11.9x |
11.3x |
9.4x |
Tracked universe (281
stocks) |
13.8x |
13.0x |
11.4x |
- 40 growth stocks |
19.6x |
16.9x |
14.8x |
- 241 other stocks |
13.0x |
12.3x |
10.9x |
This next table sets out the valuation of the portfolio on the
Managers’ favoured metric, the ratio of enterprise value to
earnings before interest, tax and amortisation (EV/EBITA). It
also sets out the corresponding ratios for the tracked universe and
two subsets, being 40 growth stocks and 241 other stocks. Again,
the portfolio compares well on this analysis, with the premium of
the growth stocks to the portfolio particularly wide at 50% for
2017.
One of the reasons for the portfolio’s relatively attractive
valuation is brought out in the following table, which shows the
EV/EBITA ratio for four market capitalisation bands, along with the
exposure of both the portfolio and the tracked universe to those
bands. The message is that, in today’s UK stockmarket, the smaller
the company the lower the valuation, which is an unusual state of
affairs since the “smaller small” companies have superior growth
prospects. At work is a general reluctance on the part of investors
since the financial crisis to entertain relatively illiquid
investment propositions. As a closed end fund able to adopt a long
term investment horizon, ASCoT is well placed to exploit this
anomaly and therefore has above average exposure to the NSCI
(XIC)’s “smaller small” companies.
Market capitalisation
range: |
< £100m |
£100-250m |
£250-750m |
> £750m |
Portfolio weight |
3% |
17% |
42% |
38% |
Tracked universe weight |
1% |
5% |
30% |
64% |
Tracked universe 2017 EV/EBITA |
9.2x |
10.6x |
12.4x |
13.6x |
Outlook & Conclusion
ASCoT has enjoyed a period of strong performance as the effects
of the reflation trade, with its positive implications for the
value investment style, permeated the universe of small UK quoted
companies. Given the leads and lags that characterise this
relatively inefficient part of the stockmarket, and the
inconvenience of stockmarket trends seldom fitting neatly into
calendar years, it is perhaps more useful to view this particularly
strong period in the context of the weaker relative returns of
2016. What the past one and a half years demonstrates is that value
style fares better when optimism about economic activity rises.
Conversely, and as explained in several Managers’ Reports over
recent years, deflationary forces represent a challenge to value
but a boon to the growth style.
The first six months of 2017 highlighted threats to the
continuation of the reflation trade. In the US, Donald Trump’s
ability to deliver his vaunted fiscal stimulus has been undermined
by the investigation into Russian interference in the election.
Meanwhile, it would appear unlikely that the political fluidity
that has characterised the UK in recent years is set to change in
the near future, notwithstanding the higher chance of a softer
Brexit that has come with the election result. Indeed, given such
political uncertainty, it is remarkable that economies themselves
have not proved more vulnerable. As the half year mark approached,
a further complication arose. Whether coincidental or co-ordinated,
the actions and comments from central banks in the last week of
June suggested concern about reflationary pressures and a more
hawkish stance on monetary policy. As long as the central bankers
have correctly assessed the risks, higher interest rates and by
extension higher government bond yields should be good news: ten
years from the start of the financial crisis, a normalisation of
monetary conditions would suggest improved economic prospects and
would bode well for the value style. However, the condition at the
start of the previous sentence is important: if interest rate rises
prove too aggressive, they will stifle the recovery, suppress bond
yields and prolong the stockmarket trends with which we have become
familiar since the financial crisis.
While the issues addressed in the preceding paragraph will
influence ASCoT’s returns over the short term, they should have
limited relevance over the long term as economic and financial
conditions normalise and stagnation proves not to be inevitable.
Looked at through a longer term lens, the more significant
influences on ASCoT’s prospects are likely to be the underlying
companies in which ASCoT invests, how these are combined in a
portfolio, and the valuations presently accorded to these companies
by the stockmarket. In each respect, the Managers remain confident.
ASCoT’s typical holding is in a business that was well tested in
the financial crisis and subsequent recession, and that is now,
supported by a strong balance sheet and growing profits, able both
to invest for future progress and to pay its shareholders an
acceptable dividend. Although the typical holding may be classified
as cyclical rather than defensive, the cycles to which each of the
84 holdings is exposed are not the same and individual cyclical
risks are diluted within the context of the portfolio. Moreover, in
view of the attractive valuations of the portfolio, it is likely
that some of the risk of a Brexit-inspired economic downturn is
already embedded in share prices.
Indeed, herein lies the specific opportunity for ASCoT today.
Fear of volatility and illiquidity has been elevated since the
financial crisis and remains so. The valuations of companies whose
profits grow, albeit not in a smooth fashion, are penalised, all
the more so if these companies are small and their shares happen to
be traded infrequently. The Managers believe that, unless we are
now doomed to a future without economic progress, it is likely that
the valuations presently available to ASCoT will continue to
support further good rates of returns for shareholders over the
long term.
Aberforth Partners LLP
Managers
27 July
2017
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 an ongoing process for
identifying, evaluating and managing the principal 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
policy/performance, share price discount, gearing,
reputational risk, and regulatory risk. An explanation of these
risks and how they are managed can be found in the Strategic Report
contained within the 2016 Annual Report. These principal
risks and uncertainties have not changed from those disclosed in
the 2016 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 Guidance 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 Guidance and Transparency
Rules, being disclosure of related party transactions and changes
therein.
(iii) 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
Paul Trickett
Chairman
27 July 2017
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 2017
|
Revenue
£ 000 |
Capital
£ 000 |
Total
£ 000 |
Realised net gains on
sales |
- |
38,833 |
38,833 |
Movement in fair
value |
- |
109,981 |
109,981 |
|
_______ |
_______ |
_______ |
Net gains on
investments |
- |
148,814 |
148,814 |
Investment income |
24,573 |
- |
24,573 |
Other income |
- |
- |
- |
Investment management
fee (Note 2) |
(1,736) |
(2,893) |
(4,629) |
Transaction costs |
- |
(1,503) |
(1,503) |
Other expenses |
(380) |
- |
(380) |
|
_______ |
_______ |
_______ |
Net return before
finance costs and tax |
22,457 |
144,418 |
166,875 |
Finance costs |
(102) |
(171) |
(273) |
|
_______ |
_______ |
_______ |
Net return on
ordinary activities before tax |
22,355 |
144,247 |
166,602 |
Tax on ordinary
activities |
- |
- |
- |
|
_______ |
_______ |
_______ |
Return attributable
to equity shareholders |
22,355 |
144,247 |
166,602 |
|
_______ |
_______ |
_______ |
|
|
|
|
Returns per
Ordinary Share (Note 4) |
23.71p |
152.99p |
176.70p |
Dividends
On 27 July 2017, the Board
declared an interim dividend for the year ending 31 December 2017 of 9.05p per Ordinary Share
(2016 – 8.60p) which will be paid on 24
August 2017.
INCOME STATEMENT (unaudited)
For the six months ended 30 June 2016
|
Revenue
£ 000 |
Capital
£ 000 |
Total
£ 000 |
Realised net losses on
sales |
- |
(5,633) |
(5,633) |
Movement in fair
value |
- |
(147,059) |
(147,059) |
|
_______ |
_______ |
_______ |
Net losses on
investments |
- |
(152,692) |
(152,692) |
Investment income |
23,577 |
251 |
23,828 |
Other income |
- |
- |
- |
Investment management
fee (Note 2) |
(1,588) |
(2,647) |
(4,235) |
Transaction costs |
- |
(1,003) |
(1,003) |
Other expenses |
(319) |
- |
(319) |
|
_______ |
_______ |
_______ |
Net return before
finance costs and tax |
21,670 |
(156,091) |
(134,421) |
Finance costs |
(125) |
(208) |
(333) |
|
_______ |
_______ |
_______ |
Net return on
ordinary activities before tax |
21,545 |
(156,299) |
(134,754) |
Tax on ordinary
activities |
(39) |
- |
(39) |
|
_______ |
_______ |
_______ |
Return attributable
to equity shareholders |
21,506 |
(156,299) |
(134,793) |
|
_______ |
_______ |
_______ |
|
|
|
|
Returns per
Ordinary Share (Note 4) |
22.67p |
(164.75)p |
(142.08)p |
INCOME STATEMENT (unaudited)
For the year ended 31 December 2016
|
Revenue
£ 000 |
Capital
£ 000 |
Total
£ 000 |
Realised net losses on
sales |
- |
15,577 |
15,577 |
Movement in fair
value |
- |
14,097 |
14,097 |
|
_______ |
_______ |
_______ |
Net losses on
investments |
- |
29,674 |
29,674 |
Investment income |
39,027 |
5,229 |
44,256 |
Other income |
46 |
- |
46 |
Investment management
fee (Note 2) |
(3,111) |
(5,185) |
(8,296) |
Transaction costs |
- |
(1,925) |
(1,925) |
Other expenses |
(689) |
- |
(689) |
|
_______ |
_______ |
_______ |
Net return before
finance costs and tax |
35,273 |
27,793 |
63,066 |
Finance costs |
(254) |
(424) |
(678) |
|
_______ |
_______ |
_______ |
Net return on
ordinary activities before tax |
35,019 |
27,369 |
62,388 |
Tax on ordinary
activities |
(36) |
- |
(36) |
|
_______ |
_______ |
_______ |
Return attributable
to equity shareholders |
34,983 |
27,369 |
62,352 |
|
_______ |
_______ |
_______ |
|
|
|
|
Returns per
Ordinary Share (Note 4) |
36.93p |
28.89p |
65.82p |
RECONCILIATION OF MOVEMENTS IN
SHAREHOLDERS’ FUNDS
(unaudited)
For the six months ended 30 June 2017
|
Share capital
£ 000 |
Capital
Redemption reserve
£ 000 |
Special reserve
£ 000 |
Capital reserve
£ 000 |
Revenue reserve
£ 000 |
Total
£ 000 |
Balance as
at
31 December 2016 |
944 |
44 |
166,343 |
983,250 |
69,647 |
1,220,228 |
Return on ordinary activities after
tax |
- |
- |
- |
144,247 |
22,355 |
166,602 |
Equity dividends paid |
- |
- |
- |
- |
(20,291) |
(20,291) |
Purchase of Ordinary Shares |
(4) |
4 |
(4,507) |
- |
- |
(4,507) |
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
Balance as at 30 June
2017 |
940 |
48 |
161,836 |
1,127,497 |
71,711 |
1,362,032 |
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
For the six months ended 30 June 2016
|
Share capital
£ 000 |
Capital
Redemption reserve
£ 000 |
Special reserve
£ 000 |
Capital reserve
£ 000 |
Revenue reserve
£ 000 |
Total
£ 000 |
Balance as
at
31 December 2015 |
950 |
38 |
172,625 |
955,881 |
62,385 |
1,191,879 |
Return on ordinary activities after
tax |
- |
- |
- |
(156,299) |
21,506 |
(134,793) |
Equity dividends paid |
- |
- |
- |
- |
(19,575) |
(19,575) |
Purchase of Ordinary Shares |
(2) |
2 |
(2,751) |
- |
- |
(2,751) |
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
Balance as
at
30 June 2016 |
948 |
40 |
169,874 |
799,582 |
64,316 |
1,034,760 |
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
For the year ended 31 December 2016
|
Share capital
£ 000 |
Capital
Redemption reserve
£ 000 |
Special reserve
£ 000 |
Capital reserve
£ 000 |
Revenue reserve
£ 000 |
Total
£ 000 |
Balance as
at
31 December 2015 |
950 |
38 |
172,625 |
955,881 |
62,385 |
1,191,879 |
Return on ordinary activities after
tax |
- |
- |
- |
27,369 |
34,983 |
62,352 |
Equity dividends paid |
- |
- |
- |
- |
(27,721) |
(27,721) |
Purchase of Ordinary Shares |
(6) |
6 |
(6,282) |
- |
- |
(6,282) |
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
Balance as
at
31 December 2016 |
944 |
44 |
166,343 |
983,250 |
69,647 |
1,220,228 |
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
BALANCE SHEET
(unaudited)
As at 30 June
2017
|
30
June
2017
£ 000 |
31
December
2016
£ 000 |
30
June
2016
£ 000 |
Fixed
assets |
|
|
|
Investments at fair
value through profit or loss |
1,361,652 |
1,253,247 |
1,063,649 |
|
_______ |
_______ |
_______ |
Current
assets |
|
|
|
Amounts due from
brokers |
1,232 |
- |
191 |
Other debtors |
5,277 |
2,881 |
6,329 |
Cash at bank |
265 |
241 |
59 |
|
_______ |
_______ |
_______ |
|
6,774 |
3,122 |
6,579 |
|
_______ |
_______ |
_______ |
Creditors
(amounts falling due within one year) |
|
|
|
Amounts due to
brokers |
(161) |
(234) |
(2,102) |
Bank debt
facility |
- |
(35,732) |
(33,212) |
Other creditors |
(168) |
(175) |
(154) |
|
_______ |
_______ |
_______ |
|
(329) |
(36,141) |
(35,468) |
|
_______ |
_______ |
_______ |
Net current
assets/(liabilities) |
6,445 |
(33,019) |
(28,889) |
|
_______ |
_______ |
_______ |
Total assets less
current liabilities |
1,368,097 |
1,220,228 |
1,034,760 |
Creditors (amounts falling due after more than one year)
Bank debt facility |
(6,065) |
- |
- |
|
_______ |
_______ |
_______ |
TOTAL NET
ASSETS |
1,362,032 |
1,220,228 |
1,034,760 |
|
_______ |
_______ |
_______ |
|
|
|
|
Capital and
reserves: equity interests |
|
|
|
Called up share
capital (Ordinary Shares) |
940 |
944 |
948 |
Reserves: |
|
|
|
Capital
redemption reserve |
48 |
44 |
40 |
Special
reserve |
161,836 |
166,343 |
169,874 |
Capital
reserve |
1,127,497 |
983,250 |
799,582 |
Revenue
reserve |
71,711 |
69,647 |
64,316 |
|
_______ |
_______ |
_______ |
TOTAL SHAREHOLDERS’
FUNDS |
1,362,032 |
1,220,228 |
1,034,760 |
|
_______ |
_______ |
_______ |
|
|
|
|
Net Asset Value per
share (Note 6) |
1,448.33p |
1,292.57p |
1,092.06p |
|
|
|
|
Share
Price |
1,249.00p |
1,109.00p |
907.50p |
CASH FLOW STATEMENT
(unaudited)
For the six months ended 30 June 2017
|
Six
months ended
30 June 2017
£ 000 |
Six
months ended
30 June 2016
£ 000 |
Year
ended
31 December 2016
£ 000 |
|
|
|
|
Net cash inflow
from operating activities |
17,153 |
15,561 |
35,085 |
|
|
|
|
Investing
activities |
|
|
|
Payments to acquire
investments |
(162,276) |
(112,037) |
(231,112) |
Receipts from sales of
investments |
199,877 |
91,892 |
201,136 |
|
_______ |
_______ |
_______ |
Cash
inflow/(outflow) from investing activities |
37,601 |
(20,145) |
(29,976) |
|
|
|
|
Financing
activities |
|
|
|
Purchase of Ordinary
Shares |
(4,507) |
(2,751) |
(6,282) |
Equity dividends
paid |
(20,291) |
(19,575) |
(27,721) |
Interest and fees
paid |
(432) |
(306) |
(640) |
Net
drawdown/(repayment) of bank debt facilities (before costs) |
(29,500) |
26,250 |
28,750 |
|
_______ |
_______ |
_______ |
|
|
|
|
Cash
(outflow)/inflow from financing activities |
(54,730) |
3,618 |
(5,893) |
|
|
|
|
|
|
|
|
Change in cash
during the period |
24 |
(966) |
(784) |
|
_______ |
_______ |
_______ |
Cash at the start of
the period |
241 |
1,025 |
1,025 |
Cash at the end of the
period |
265 |
59 |
241 |
|
|
|
|
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING STANDARDS
The financial statements have been prepared on a going concern
basis and in accordance with the Financial Reporting Standard 104
and the AIC's Statement of Recommended Practice "Financial
Statements of Investment Trust Companies and Venture Capital
Trusts" issued in 2014 and updated in 2017. 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 2016 have been
applied.
2. INVESTMENT MANAGEMENT FEE
The Managers, Aberforth Partners LLP, receive an annual
management fee, payable quarterly in advance, equal to 0.75% of net
assets up to £1 billion, and 0.65% thereafter.
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 equity holders in the
period: |
Six months ended
30 June 2017
£ 000 |
Six months ended
30 June 2016
£ 000 |
Year ended
31 December 2016
£ 000 |
Final dividend of 17.85p for the
year ended
31 December 2015 |
- |
16,962 |
16,962 |
Special dividend of
2.75p for the year ended
31 December 2015 |
- |
2,613 |
2,613 |
Interim dividend of 8.60p for the
year ended
31 December 2016 |
- |
- |
8,146 |
Final dividend of 18.75p for the
year ended
31 December 2016 |
17,696 |
- |
- |
Special dividend of
2.75p for the year ended
31 December 2016 |
2,595 |
- |
- |
|
______ |
______ |
______ |
|
20,291 |
19,575 |
27,721 |
|
______ |
______ |
______ |
The interim dividend for the year ending 31 December 2017 of 9.05p (2016 – 8.60p) will be
paid on 24 August 2017 to
shareholders on the register on 4 August
2017. The ex-dividend date is 3
August 2017. The interim dividend has not been included as a
liability in these financial statements.
4. RETURNS PER ORDINARY SHARE
The returns per Ordinary Share are based on:
Returns attributable to Ordinary Shareholders |
30 June 2017
£166,602,000 |
30 June 2017
£(134,793,000) |
31 December 2016
£62,352,000 |
Weighted average number
of shares in issue during the period
Return per Ordinary
Share |
94,287,735
176.70p |
94,869,880
(142.08)p |
94,730,414
65.82p |
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).
Investments held at fair value through
profit or loss:
|
Level
1 |
Level
2 |
Level
3 |
Total |
As at 30 June
2017 |
£'000 |
£'000 |
£'000 |
£'000 |
Listed
equities |
1,361,652 |
- |
- |
1,361,652 |
Unlisted
equities |
- |
- |
- |
- |
|
_______ |
_______ |
_______ |
_______ |
Total financial
asset investments |
1,361,652 |
- |
- |
1,361,652 |
|
_______ |
_______ |
_______ |
_______ |
|
|
|
|
|
|
Level
1 |
Level
2 |
Level
3 |
Total |
As at 31 December
2016 |
£'000 |
£'000 |
£'000 |
£'000 |
Listed equities |
1,253,247 |
- |
- |
1,253,247 |
Unlisted equities |
- |
- |
- |
- |
|
_______ |
_______ |
_______ |
_______ |
Total financial asset
investments |
1,253,247 |
- |
- |
1,253,247 |
|
_______ |
_______ |
_______ |
_______ |
|
|
|
|
|
|
Level
1 |
Level
2 |
Level
3 |
Total |
As at 30 June
2016 |
£'000 |
£'000 |
£'000 |
£'000 |
Listed equities |
1,043,371 |
20,278 |
- |
1,063,649 |
Unlisted equities |
- |
- |
- |
- |
|
_______ |
_______ |
_______ |
_______ |
Total financial asset
investments |
1,043,371 |
20,278 |
- |
1,063,649 |
|
_______ |
_______ |
_______ |
_______ |
6. NET ASSET VALUE PER ORDINARY
SHARE
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 2017
£ 000 |
31
December 2016
£ 000 |
30 June 2016
£ 000 |
Net assets attributable |
1,362,032 |
1,220,228 |
1,034,760 |
|
|
|
|
Ordinary Shares in
issue at end of period
Net asset value attributable per Ordinary Share |
94,041,492
1,448.33p |
94,403,292
1,292.57p |
94,752,792
1,092.06p |
7. SHARE CAPITAL
During the period, the Company bought in and cancelled 361,800
shares (2016: 271,000) at a total cost of £4,507,000 (2016:
£2,751,000). 115,336 shares have been bought back for
cancellation between 1 July 2017 and
27 July 2017 at a total cost of
£1,478,000.
8. RELATED PARTY TRANSACTIONS
There were no matters during the six months ended 30 June 2017 requiring disclosure under section
412 of the Companies Act 2006.
9. FURTHER INFORMATION
The foregoing do not constitute statutory accounts (as defined
in section 434(4) of the Companies Act 2006) of the Company. The
financial information for the year ended 31
December 2016 has been extracted from the statutory accounts
which have been filed with the Registrar of Companies. The Auditor
issued an unqualified opinion on those accounts and did not make
any statements under section 498(2) or (3) of the Companies Act
2006. All information shown for the six months ended 30 June 2017 is unaudited.
Certain statements in this announcement are forward
looking. 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 2017. 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: 0131 220 0733)
Aberforth Partners LLP, Secretaries
27 July 2017