Half-yearly Report
Aberforth Smaller Companies Trust plc
HALF YEARLY REPORT
For the Six Months ended 30 June 2013
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 2013 as
applicable, unless otherwise stated.
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.
CHAIRMAN'S STATEMENT
For the six months to 30 June 2013, Aberforth Smaller Companies
Trust plc (ASCoT) achieved a net asset value total return of 16.8%, which
compares with a total return of 13.2% from the Company's investment benchmark,
the Numis Smaller Companies Index excluding Investment Companies (NSCI (XIC)).
Meanwhile, the larger company oriented FTSE All-Share Index registered a total
return of 8.5%. Over the period, smaller companies thus gave a return that was
4.7 percentage points higher than that of the FTSE All Share, while ASCoT's
NAV total return exceeded the FTSE All-Share by 8.3 percentage points.
In last year's Half Yearly Report, I highlighted the impact on the
investment landscape of government bond yields that were at 100 year lows.
Twelve months on, I am reporting on a period that saw, in its closing weeks,
yields rise sharply around the world. The Managers' Report expands on this
topic while also highlighting the other influences on both markets and the
Company during the past six months. One such factor is income: it is
encouraging to see the dividend environment remaining positive despite the
general lacklustre economic backdrop. This is allowing your Board to pursue
the Company's progressive dividend policy with a 5.0% rise in the first
interim dividend to 7.35p per Ordinary Share for the year to 31 December 2013.
The first interim dividend will be paid on 22 August 2013.
Gearing remains relatively unchanged over the period and, as at 30
June 2013, stood at 7.1% of shareholders' funds. Gearing is of a tactical
rather than structural nature with its level driven by valuations of the
investee companies which remain particularly low in the "smaller small"
segment of the NSCI (XIC).
At the Annual General Meeting on 5 March 2013, all resolutions were
passed, including the renewal of authority to buy in up to 14.99% of ASCoT's
Ordinary Shares. During the six months to 30 June 2013, 135,000 Ordinary
Shares (0.1% of the issued share capital) were purchased under this authority
for a total consideration of £1m at an average discount of 15.5%. Your Board
keeps under review the circumstances in which the authority is utilised in
relation to the overall objective of seeking to manage the discount.
Given the length of Ernst & Young's audit tenure, the Audit
Committee decided during the period to undertake a review of the current
auditor's engagement. This decision was supported by subsequent revisions to
the UK corporate governance code, which suggested a tender exercise should be
completed at least every ten years. Following a full audit tender process, the
Board approved the appointment of Deloitte as the Company's auditor in respect
of the current financial year. The Audit Committee wishes to thank Ernst &
Young for their services over the years and looks forward to working with
Deloitte in future.
The Board and its advisers continue to devote considerable time and
effort to analysing and understanding the implications of the Alternative
Investment Fund Managers Directive. Whilst several matters remain to be
clarified by the regulator, the Board's current working assumption is that the
Managers will be appointed as the Alternative Investment Fund Manager of the
Company by 22 July 2014. The Company will be required by the regulations to
appoint a Depositary, by 22 July 2014, though the ongoing costs of this have
yet to be determined.
Your Board also continues to monitor the impact of the Retail
Distribution Review with a view to identifying opportunities to broaden the
demand for the Company's Ordinary Shares. Ensuring that investment management
fees remain competitive in this environment is important. In this regard, I
can report that the Board has agreed a revised tariff with the Managers,
backdated to the start of the current financial year. Reflective of the
success in growing the Company's net assets, the Managers have agreed that a
reduced rate of fees is appropriate where net assets exceed £800 million.
Further details are disclosed in Note 2.
The period after the global financial crisis has witnessed
depressed economic activity in the UK and exceptionally low bond yields. The
Board fully understands the Managers' value investing philosophy and current
bias of the portfolio towards "smaller small" companies. It has been
encouraging that over the past eighteen months leadership from the "growth
stocks" has waned and we have witnessed an improvement in the Company's
relative performance. Your Board is confident that the Managers' experience
and consistency of approach will continue to benefit ASCoT over the longer
term.
Professor Paul R Marsh
Chairman
18 July 2013
paul.marsh@aberforth.co.uk
MANAGERS' REPORT
Introduction
The strong performance of equity markets in 2012 was sustained in
the first half of 2013. In May the FTSE All-Share exceeded its 2007 peak in
capital only terms. It subsequently retreated but nevertheless achieved a
total return 8.5% over the six month period. However, this performance was
outstripped by that of small companies, reflected by the NSCI (XIC)'s total
return of 13.2%. With an NAV total return of 16.8%, ASCoT performed relatively
well.
Equities started their recent ascent in July 2012, following the
weak returns of the second quarter of that year. It is tempting to identify
the turning point as Mario Draghi's speech in July 2012 in which he claimed
that the European Central Bank would do "whatever it takes" to sustain the
euro. This was followed by the Eurozone's adoption of additional stimulus in
the form of "outright monetary transactions". These developments allowed
financial markets to shift their focus from the apparent threat of imminent
implosion of the Eurozone and to lengthen investment horizons. New life was
thus breathed into a range of riskier financial assets, equities included.
As the ensuing bull market extended to a year and was unpunctuated
by periodic lurches into pessimism, challenges arose to the "risk-on,
risk-off" paradigm, which has usefully but tediously described the behaviour
of financial markets since the global financial crisis. The search was on for
catchy new terms to rationalise what was going on. Two plausible candidates
were "yieldfall" and the "great rotation".
"Yieldfall" essentially takes the implications of quantitative
easing to the next stage. QE has benefited government bond markets, driving
yields down to very low levels, but investors still crave income. Money has
thus moved on to target higher yielding financial assets such as equities. The
initial beneficiaries in this next stage have been large blue chip companies
with low volatility and above average yields, which is to say the most
bond-like of equities. However, it is plausible that members of ASCoT's
portfolio and investment universe have at the margin benefited from this
phenomenon in recent months. The problem with "yieldfall" is that it is a
finite process, unless unconventional monetary measures succeed in their
original goal - the stimulus of the real economy.
This is where the "great rotation" comes in. The concept here is
that economic growth and/or inflation pick up to challenge the very low yields
offered by bonds and to encourage a rotation from bonds into equities. This
scenario can be seen as a return to normality: the "reverse yield gap" is
re-established with bond yields moving above equity yields, which was the norm
from the late 1950s until the global financial crisis. While the logic for
such a rotation occurring at some point is sound, evidence to date is limited.
Inflows into equities have tended to be funded by cash, while bond funds
enjoyed further inflows through the first half. Meanwhile, economic
developments, which are considered in the Outlook section of this report, are
encouraging but not yet convincing.
Of course, while the "great rotation" offers a relatively
attractive vision for equities, getting there can be a fraught process.
History suggests that equities rarely escape unscathed in the short term when
bond yields begin to move up. This is the best explanation for the weakness in
equities towards the end of the period: commentary from Federal Reserve
officials in the US heralded a quicker than expected reduction in, or
"tapering" of, QE. But if this happens in response to more robust economic
activity, it will ultimately prove a nice problem to have!
Investment performance
ASCoT's NAV total return was 16.8% in the first half of 2013. This
performance benefited from ASCoT's tactical gearing, which averaged 6% through
the period. The table below quantifies this benefit and shows other factors
contributing to the trust's relative performance.
For the six months ended 30 June 2013
Basis points
Stock selection 304
Sector selection (63)
___
Attributable to the portfolio of investments, 241
based on mid prices
Movement in mid to bid price spread 51
Cash/gearing 112
Purchase of ordinary shares 2
Management fee (42)
Other expenses (3)
___
Total attribution based on bid prices 361
Note: 100 basis points = 1%. Total Attribution is the difference
between the total return of the NAV and the Benchmark Index (i.e. NAV
= +16.77%; Benchmark Index = +13.16%; difference is 3.61% being 361
basis points).
The positive attribution at the portfolio level was driven by Stock
selection, which is in contrast to the outcome in 2012. It is worth restating
that, irrespective of the result of the attribution calculation, your
Managers' investment process is "bottom-up": the portfolio profile is
determined by decisions on individual companies. The following paragraphs
describe some of the themes that characterise the portfolio and that have
influenced performance over the last six months.
Investment style & size
Your Managers use Style Research's model (an independent
performance analysis firm) to identify and quantify short term style trends.
In the first half of 2013, this analysis suggests that growth companies
out-performed value companies and that, within the confines of the NSCI (XIC),
larger companies outstripped smaller companies. Therefore, the influences of
style and size represented headwinds to ASCoT's performance, given your
Managers' commitment to their value investment principles and the
preponderance of attractive valuations on offer among the smaller constituents
of the NSCI (XIC). However, looking beyond the output of Style Research's
model, your Managers believe that style influences have been less pronounced
over the past twelve months than in the aftermath of the global financial
crisis. In a trend no doubt related to the strong performance of equities
against bonds since the middle of 2012, the stockmarket has become less
fixated with a small grouping of secular growth stocks and has embraced a
wider range of businesses. ASCoT's performance has been helped by this
levelling of the playing field.
Sectors
The stockmarket can risk focusing too much on demand, whether at
the macro level in the form of GDP growth or at the company level in terms of
top line growth. The downside of such an obsession is clearly illustrated by
the divergent share price performance of two sectors of the NSCI (XIC) since
the start of 2012. The commodities sectors (Oil & Gas, Mining, and Industrial
Metals & Mining) have fallen, in aggregate, by 27%, whereas predominantly
domestic sectors (Consumer Services and Consumer Goods) have risen by 75%. A
meaningful portion of that gap in relative performance can be explained by the
supply side.
Commodities companies have enjoyed a decade of fantastic trading
conditions, supported by the Chinese growth story. It has been easy even for
small commodities businesses with no existing cash flows to raise capital in
order to search for and then exploit a particular resource. Many of these
investments are expected to come to fruition over the next few years, which
will represent an increase in supply of commodities. This will take place
against a background of lower Chinese demand growth than was expected at the
outset. With supply and demand mismatched, economic theory dictates that price
takes the strain, which is perhaps reflected in recent declines in commodity
prices and, by extension, the share prices of commodity companies. ASCoT has a
relatively low exposure to commodities, which has assisted recent relative
performance.
In contrast, under the cloud of austerity, domestically oriented
companies have endured testing trading conditions since the global financial
crisis. However, management teams have not sat idly by but have responded to
sluggish demand conditions by addressing costs and capacity. Constraints to
supply have been exacerbated by the failure of numerous businesses, most
obviously some formerly big high street names. The survivors have become
stronger and have even enjoyed some sales growth as they have won market share
from the weaker players. ASCoT has benefited from such trends, particularly
through its exposure to housebuilders and retailers.
Results
Within the NSCI (XIC), your Managers track closely 281 companies,
which, by value account for 97% of the index. Of these companies, 130 had
December year ends and reported results in the first quarter of 2013. An
analysis of these results points to a period of uninspiring trading in 2012:
sales rose by 1% and EBITA (earnings before interest, tax and amortisation),
with cost controls mitigating the effects of inflation, fell by 1%. Sluggish
trading conditions have persisted into the current year: many company
management teams are signalling a slow start to 2013 and are expecting a
pick-up in the second half. Given share price performances over the first
half, it would seem that the stockmarket is willing to give them the benefit
of the doubt.
In cash flow terms, the analysis of the results season hints at a
greater willingness on the part of company boards to utilise their cash
resources. The ratio of capex to depreciation of the 130 companies was 1.7x in
2012. This was flattered by the huge investment programmes of 19 commodities
companies, but was nevertheless 1.1x for the other 111 companies, which
suggests that modest investment for growth is underway. There are also more
indications that, if opportunities to invest and grow profitably are lacking,
company boards are prepared to return cash to shareholders in the form of
special dividends or share buy-backs.
Strong balance sheets
Despite such indications, the portfolio remains skewed to companies
with strong balance sheets. Companies expected to have net cash at the end of
2013 accounted for 40% of the portfolio at the end of June. The equivalent
number for the tracked universe is 33%. Your Managers would prefer to see
these numbers come down. This is not an appeal to return to the reckless
funding structures of the period immediately preceding the global financial
crisis. Rather, it is a balanced judgement that reflects still uncertain
trading conditions, the likelihood of continued strong cash generation that
will increase cash piles, the very low level of return earned by cash in
today's interest rate climate, and the plentiful opportunities available to
your Managers within the NSCI (XIC).
Corporate activity
The missing piece of the equity rally has been M&A. In the first
half of 2013, only three deals were completed, none of which was a member of
ASCoT's portfolio. Your Managers struggle to recall a quieter start to the
year, despite attractive valuations, the strong balance sheets enjoyed by
companies on a global basis, and the relative weakness of sterling, which
might have tempted North American buyers. The explanation probably lies in
jittery confidence on the part of company boards. An upturn is inevitable -
perhaps some encouragement can be taken from a recent increase in deals in the
US.
While M&A has been largely absent, there has been an upsurge in IPO
activity on the main market. Five listings were completed in the first half of
2013. ASCoT held one of these at 30 June. Your Managers tend to eschew IPOs,
concerned about the knowledge advantage of the vendors. However, in the early
stages of an IPO market, it may be possible to secure better valuations since
the vendors and their bankers need to price deals more keenly. It is also
helpful that your Managers were already familiar with the businesses: several
of the current crop of IPOs are businesses that private equity had bought from
the stockmarket in the heady days before the global financial crisis.
Dividends
The portfolio's dividend experience remained positive through the first half
of 2013. Four years into the recovery from 2009, the worst year on record for
small company dividends, it is inevitable that the rate of dividend growth
across the investment universe should moderate. Nevertheless, as the table
below demonstrates, the majority of investee companies continue to increase
dividend payments.
Band Nil Down Flat Up Other
No. of holdings 20 10 12 54 2
The impact from the cutters on ASCoT's income forecasts was limited
since in most cases the dividend reduction had been anticipated. Your Managers
believe that most of the companies classified in the "Nil" category are
capable of moving to the dividend register over the course of the next two
years. The "Other" category contains dividend paying companies with no direct
comparison, such as the IPO mentioned previously.
Given the traditional prejudice that small companies are all about
capital growth, their income credentials are frequently overlooked. However,
the long term data argue that the heavy lifting behind small companies'
superior total returns is done by yield and dividend growth. The traditional
prejudice is reinforced by headline income data for the NSCI (XIC), which
shows a historic yield of 2.5%, which is 28% lower than the FTSE All-Share's
3.5%. But comparison is not straightforward. Of the 383 companies in the NSCI
(XIC), 106 are zero yielders. Adjusting for these, the yield of the yielders
rises to 3.1%. The dividend cover of these yielders is 2.2x, somewhat higher
than the FTSE All-Share's 2.0x. Moreover, small companies continue to offer a
better spread of income than the heavily concentrated large cap universe.
ASCoT's portfolio, whose yield and cover were 2.9% and 3.0x at the end of
June, demonstrates that through active management the small company universe
is fertile territory for income.
Valuations
Characteristics 30 June 2013 30 June 2012
ASCoT NSCI (XIC) ASCoT NSCI (XIC)
Number of companies 98 383 90 413
Weighted average market £566m £882m £425m £806m
capitalisation
Price earnings ratio (historic) 11.4x 14.3x 9.8x 12.8x
Dividend yield (historic) 2.9% 2.5% 3.4% 3.0%
Dividend cover 3.0x 2.8x 3.0x 2.6x
The table above summarises the income characteristics of the
portfolio and the NSCI (XIC). It also shows the respective PEs, which have
risen over the past twelve months, consistent with the strong returns from
smaller companies. ASCoT's portfolio PE remains lower than both the index's
and its long term average of 12x.
The following table focuses on your Managers' favoured valuation
metric, EV/EBITA (the ratio of enterprise value to earnings before interest,
tax and amortisation). As with the full year 2012 Managers' report, data are
shown for the portfolio, for the tracked universe, for the growth companies
monitored by your Managers within the tracked universe, and for the rest of
the tracked universe. The purpose is to illustrate the "value stretch" that
continues to characterise the small company universe: growth companies are
valued on a 51% premium to the rest of the tracked universe. This has narrowed
slightly from the 57% premium at 31 December 2012, but is still very wide in
the context of Aberforth's 23 year history. The portfolio is even more
modestly valued on 8.9x. The persistence of such valuation anomalies gives
your Managers confidence that, notwithstanding the excellent returns from the
asset class over recent months, there is ample scope for the value investor to
profit from prevailing valuations.
2013 EV/EBITA ratio
34 growth 247 other Tracked NSCI (XIC) ASCoT's portfolio
companies companies
14.8x 9.8x 10.5x 8.9x
Outlook
The pleasing run for equities in general and small companies in
particular over the past twelve months was challenged as the half year drew to
a close. Bond yields rose sharply and equity prices fell as comments from the
Fed gave pause for thought about both the duration and the success of QE.
Whatever the merits of unconventional monetary policies, it is unlikely that
the authorities are about to give up and admit defeat; it is more likely that
the absence of improved prospects for real economies will be met by
incremental doses of QE. The more positive interpretation, consistent with a
"great rotation", is that unconventional monetary policies are succeeding in
stimulating economic activity.
Scanning the global economy, the outlook is mixed. China's growth
is moderating, but Japan, under the huge incremental stimulus from Abe and
Kuroda, holds more promise than it has for some time. In Europe, the periphery
is working through its austerity programmes, while the core is hampered by
weaker exports. The US still offers most hope as the banking system normalises
and the consumer sector regains confidence. Meanwhile, the UK is in an
intriguing position. Structurally, the economy continues to benefit from
relative openness and competitiveness but it still faces the challenges of
austerity and deleveraging. These may be mitigated by the extra discretion
granted to the Bank of England under Mark Carney and, for better or worse, the
Budget's Help-to-Buy scheme threatens to engender a pre election consumer
rally. Recent economic data offer encouragement and through the passage of
time the structural challenges are becoming less onerous.
Such top down issues can seem far removed from the world of small
UK quoted companies, but it would be naïve to think that the unrelenting
positive returns from the asset class over the past twelve months were due to
the good work of company boards alone. It will be important to retain such a
perspective if the very recent bout of nervousness continues. However, with a
longer term view, it is the underlying businesses and their valuations that
should determine returns for the equity investors. In this regard, the signs
remain positive. Balance sheets are strong (perhaps too strong), boards have
rediscovered the discipline of dividends, and executive management teams are
taking the decisions necessary to make the most of subdued demand conditions.
Most importantly, for your Managers, valuations for the majority of small
companies remain attractive in a historic context. Moreover, the stretch in
valuations between this majority and the growth companies remains wide, which
should be conducive to the value investment style resuming its long term
pre-eminence.
Aberforth Partners LLP
Managers
18 July 2013
INVESTMENT PORTFOLIO
Fifty Largest Investments as at 30 June 2013
Valuation % of
No Company £'000 Total Business Activity
1 CSR 28,261 3.2 Location & connectivity
semiconductors
2 JD Sports Fashion 26,463 3.0 Retailing - sports goods &
clothing
3 Northgate 24,911 2.8 Van rental
4 RPC Group 24,549 2.8 Plastic packaging
5 e2v technologies 22,882 2.6 Electronic components &
subsystems
6 St. Modwen Properties 21,649 2.5 Property investment &
development
7 Spirit Pub Company 20,907 2.4 Managed pub operator
8 Tullett Prebon 20,148 2.3 Interdealer broker
9 Galliford Try 18,628 2.1 Housebuilding & construction
10 Regus 18,532 2.1 Serviced office accommodation
Top Ten Investments 226,930 25.8
11 Brewin Dolphin Holdings 17,850 2.0 Private client fund manager
12 Thomas Cook Group 17,503 2.0 Tour operator
13 QinetiQ Group 16,350 1.9 R&D and consulting services
14 Huntsworth 16,080 1.8 Public relations
15 RPS Group 15,535 1.8 Energy & environmental consulting
16 Unite Group 15,367 1.7 Property - student accommodation
17 Synthomer 15,187 1.7 Speciality chemicals
18 Kofax 14,404 1.6 Document capture software
19 Phoenix IT Group 14,328 1.6 IT services & disaster recovery
20 National Express Group 14,057 1.6 Bus & rail operator
Top Twenty Investments 383,591 43.5
21 Micro Focus 13,940 1.6 Software - development & testing
22 Bodycote 13,670 1.6 Engineering - heat treatment
23 WH Smith 13,532 1.5 Newsagents
24 F&C Asset Management 13,409 1.5 Investment manager
25 Vectura Group 13,307 1.5 Inhaled pharmaceuticals -
respiratory specialism
26 FirstGroup 12,689 1.4 Bus & rail operator
27 Castings 12,638 1.4 Engineering - automotive castings
28 Hilton Food Group 12,413 1.4 Food manufacturer
29 Speedy Hire 12,177 1.4 Plant hire
30 Hansteen Holdings 10,894 1.2 Property - industrial
Top Thirty Investments 512,260 58.0
31 Morgan Advanced Materials 10,458 1.2 Manufacture of advanced materials
32 EnQuest 10,122 1.1 Oil & gas exploration & production
33 Shanks Group 9,116 1.0 Waste services
34 Mothercare 9,069 1.0 Retailing - maternity &
children's products
35 KCOM Group 9,067 1.0 Telecommunications services
36 Jupiter Fund Management 9,032 1.0 Investment manager
37 Go-Ahead Group 9,031 1.0 Bus & rail operator
38 Microgen 8,985 1.0 Software - workflow & financial
services
39 Grainger 8,884 1.0 Property - residential
40 Future 8,828 1.0 Special interest consumer publisher
Top Forty Investments 604,852 68.3
41 Lavendon Group 8,827 1.0 Hire of access equipment
42 Low & Bonar 8,752 1.0 Manufacture of industrial textiles
43 Halfords Group 8,600 1.0 Retailing & car servicing
44 Chemring Group 8,513 1.0 Defence products, including
countermeasures
45 Playtech 8,407 1.0 Online gaming software
46 Filtronic 8,381 1.0 Microwave electronic devices
47 Safestore Holdings 8,296 0.9 Property - self storage
48 Robert Walters 8,261 0.9 Recruitment
49 Optos 8,092 0.9 Medical technology - retinal imaging
50 Smiths News 8,091 0.9 Newspaper distribution
------- ------
Top Fifty Investments 689,072 77.9
Other (48 companies) 253,296 29.2
------- ------
Total Investments 942,368 107.1
Net Liabilities (62,063) (7.1)
------- ------
Total Net Assets 880,305 100.0
------- ------
INTERIM MANAGEMENT REPORT
Risks and Uncertainties
A review of the half year and the outlook for the Company can be found in the
Chairman's Statement and the Managers' Report. The Directors have established
an ongoing process for identifying, evaluating and managing the key risks
faced by the Company. The Board believes that the Company has a relatively low
risk profile in the context of the investment trust industry. This belief
arises from the fact that the Company has a simple capital structure; invests
only in small UK quoted companies; has never been exposed to derivatives and
does not presently intend any such exposure; and outsources all the main
operational activities to recognised, well established firms.
As the Company's investments consist of small UK quoted companies, the
principal risks facing the Company are market related and include market
price, interest rate, credit and liquidity risk. Additional risks faced by the
Company relate to investment objective, investment policy, share price
discount, regulatory, operational/financial risk and gearing risk. An
explanation of these risks and how they are managed can be found in the
Directors' Report contained within the 2012 Annual Report.
These principal risks and uncertainties have not changed from those disclosed
in the 2012 Annual Report.
DIRECTORS' RESPONSIBILITY STATEMENT
The Directors confirm that, to the best of their knowledge:
(i) the condensed set of financial statements has been prepared in accordance
with the Statement `Half-yearly financial reports' issued by the Financial
Reporting Council; and
(ii) the half-yearly report includes a fair review of information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication
of important events during the first six months of the year and their impact
on the financial statements together with a description of the principal risks
and uncertainties for the remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being disclosure of
related party transactions and changes therein.
On behalf of the Board
Professor Paul Marsh
Chairman
18 July 2013
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 2013
Revenue Capital Total
£ 000 £ 000 £ 000
Realised net gains on sales - 57,985 57,985
Movement in fair value - 59,357 59,357
_______ _______ _______
Net gains on investments - 117,342 117,342
Dividend income 16,378 - 16,378
Other income - - -
Investment management fee (Note 2) (1,220) (2,034) (3,254)
Transaction costs - (1,856) (1,856)
Other expenses (235) - (235)
_______ _______ _______
Net return before finance costs and tax 14,923 113,452 128,375
Finance costs (250) (416) (666)
_______ _______ _______
Net return on ordinary activities before tax 14,673 113,036 127,709
Tax on ordinary activities - - -
_______ _______ _______
Return attributable to equity shareholders 14,673 113,036 127,709
_______ _______ _______
Returns per Ordinary Share (Note 4) 15.35p 118.26p 133.61p
Dividends
On 18 July 2013, the Board declared a first interim dividend for
the year ending 31 December 2013 of 7.35p per Ordinary Share (2012 - 7.00p)
which will be paid on 22 August 2013.
INCOME STATEMENT (unaudited)
For the six months ended 30 June 2012
Revenue Capital Total
£ 000 £ 000 £ 000
Realised net losses on sales - (37,221) (37,221)
Movement in fair value - 104,931 104,931
_______ _______ _______
Net gains on investments - 67,710 67,710
Dividend income 15,291 - 15,291
Other income - - -
Investment management fee (Note 2) (1,000) (1,667) (2,667)
Transaction costs - (1,083) (1,083)
Other expenses (228) - (228)
_______ _______ _______
Net return before finance costs and tax 14,063 64,960 79,023
Finance costs (284) (473) (757)
_______ _______ _______
Net return on ordinary activities before tax 13,779 64,487 78,266
Tax on ordinary activities (18) - (18)
_______ _______ _______
Return attributable to equity shareholders 13,761 64,487 78,248
_______ _______ _______
Returns per Ordinary Share (Note 4) 14.34p 67.18p 81.52p
INCOME STATEMENT(unaudited)
For the year ended 31 December 2012
Revenue Capital Total
£ 000 £ 000 £ 000
Realised net losses on sales - (19,697) (19,697)
Movement in fair value - 189,234 189,234
_______ _______ _______
Net gains on investments - 169,537 169,537
Dividend income 28,065 - 28,065
Other income 1 - 1
Investment management fee (Note 2) (2,057) (3,428) (5,485)
Transaction costs - (2,035) (2,035)
Other expenses (443) - (443)
_______ _______ _______
Net return before finance costs and tax 25,566 164,074 189,640
Finance costs (540) (899) (1,439)
_______ _______ _______
Net return on ordinary activities before tax 25,026 163,175 188,201
Tax on ordinary activities (18) - (18)
_______ _______ _______
Return attributable to equity shareholders 25,008 163,175 188,183
_______ _______ _______
Returns per Ordinary Share (Note 4) 26.07p 170.13p 196.20p
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
(unaudited)
For the six months ended 30 June 2013
Capital
Share Redemption Special Capital Revenue
capital reserve reserve reserve reserve Total
£ 000 £ 000 £ 000 £ 000 £ 000 £ 000
Balance as at 31
December 2012 957 31 179,461 542,451 45,279 768,179
Return on ordinary
activities after taxation - - - 113,036 14,673 127,709
Equity dividends paid - - - - (14,584) (14,584)
Purchase of Ordinary (1) 1 (999) - - (999)
Shares
_______ _______ _______ _______ _______ _______
Balance as at 30 956 32 178,462 655,487 45,368 880,305
June 2013 _______ _______ _______ _______ _______ _______
For the six months ended 30 June 2012
Capital
Share Redemption Special Capital Revenue
capital reserve reserve reserve reserve Total
£ 000 £ 000 £ 000 £ 000 £ 000 £ 000
Balance as at 31
December 2011 961 27 182,103 379,276 40,724 603,091
Return on ordinary
activities after taxation - - - 64,487 13,761 78,248
Equity dividends paid - - - - (13,748) (13,748)
Purchase of Ordinary (2) 2 (1,469) - - (1,469)
Shares
_______ _______ _______ _______ _______ _______
Balance as at 30 959 29 180,634 443,763 40,737 666,122
June 2012 _______ _______ _______ _______ _______ _______
For the year ended 31 December 2012
Capital
Share Redemption Special Capital Revenue
capital reserve reserve reserve reserve Total
£ 000 £ 000 £ 000 £ 000 £ 000 £ 000
Balance as at 31
December 2011
961 27 182,103 379,276 40,724 603,091
Return on ordinary
activities after taxation - - - 163,175 25,008 188,183
Equity dividends paid - - - - (20,453) (20,453)
Purchase of Ordinary (4) 4 (2,642) - - (2,642)
Shares
_______ _______ _______ _______ _______ _______
Balance as at 31
December 2012 957 31 179,461 542,451 45,279 768,179
_______ _______ _______ _______ _______ _______
BALANCE SHEET
(unaudited)
As at 30 June 2013
30 June 31 December 30 June
2013 2012 2012
£ 000 £ 000 £ 000
Fixed assets:
Investments at fair value through profit or loss 942,368 813,326 724,957
_______ _______ _______
Current assets
Amounts due from brokers 2,602 - 1,254
Other debtors 4,644 1,857 3,777
Cash at bank 172 259 92
_______ _______ _______
7,418 2,116 5,123
_______ _______ _______
Creditors (amounts falling due within one year)
Amounts due to brokers (18,901) (444) (3,988)
Bank debt facility (50,461) - -
Other creditors (119) (133) (310)
_______ _______ _______
(69,481) (577) (4,298)
_______ _______ _______
Net current (liabilities)/assets (62,063) 1,539 825
_______ _______ _______
Total assets less current liabilities 880,305 814,865 725,782
Creditors (amounts falling due after more than one year)
Bank debt facility - (46,686) (59,660)
_______ _______ _______
Total net assets 880,305 768,179 666,122
_______ _______ _______
Capital and reserves: equity interests
Called up share capital (Ordinary Shares) 956 957 959
Reserves:
Capital redemption reserve 32 31 29
Special reserve 178,462 179,461 180,634
Capital reserve 655,487 542,451 443,763
Revenue reserve 45,368 45,279 40,737
_______ _______ _______
Total shareholders' funds 880,305 768,179 666,122
_______ _______ _______
Net Asset Value per Share (Note 5) 921.23p 802.76p 694.69p
Share Price 811.50p 695.50p 579.50p
CASH FLOW STATEMENT
(unaudited)
For the six months ended 30 June 2013
Six months Six months Year ended
ended ended 31 December
30 June 2013 30 June 2012 2012
£ 000 £ 000 £ 000
Net cash inflow from operating activities 10,093 11,150 22,708
Taxation
Taxation recovered (net) - 9 9
Returns on investments and servicing of finance (646) (742) (1,394)
Capital expenditure and financial investment
Payments to acquire investments (182,728) (100,346) (200,491)
Receipts from sales of investments 185,027 113,516 223,997
_______ _______ _______
Net cash inflow from capital
expenditure and financial investment 2,299 13,170 23,506
_______ _______ _______
11,746 23,587 44,829
Equity dividends paid (14,584) (13,748) (20,453)
_______ _______ _______
(2,838) 9,839 24,376
Financing
Purchase of Ordinary Shares (999) (1,648) (3,018)
Net drawdown/(repayment) of bank debt facilities
(before costs) 3,750 (8,250) (21,250)
_______ _______ _______
Change in cash during the period (87) (59) 108
_______ _______ _______
Reconciliation of net return before finance costs and taxation to net cash
inflow from operating activities
Net return before finance costs and taxation 128,375 79,023 189,640
Gains on investments (117,342) (67,710) (169,537)
Scrip dividends received - - (120)
Transaction costs 1,856 1,083 2,035
(Increase)/decrease in debtors (2,787) (1,226) 694
Decrease in creditors (9) (20) (4)
_______ _______ _______
Net cash inflow from operating activities 10,093 11,150 22,708
_______ _______ _______
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING STANDARDS
The financial statements have been prepared on a going concern basis and in
accordance with UK generally accepted accounting practice ("UK GAAP") and the
AIC's Statement of Recommended Practice "Financial Statements of Investment
Trust Companies and Venture Capital Trusts" issued in 2009. The total column
of the Income Statement is the profit and loss account of the Company. All
revenue and capital items in the Income Statement are derived from continuing
operations. No operations were acquired or discontinued in the period.
The same accounting policies used for the year ended 31 December 2012 have
been applied.
2. INVESTMENT MANAGEMENT FEE
Revenue Capital Total
£ 000 £ 000 £ 000
For the six months ended 30 June 2013 1,220 2,034 3,254
For the six months ended 30 June 2012 1,000 1,667 2,667
For the year ended 31 December 2012 2,057 3,428 5,485
The Managers, Aberforth Partners LLP, were previously paid a management fee,
quarterly in advance, equal to 0.2% of the net assets of the Company. On 18
July 2013, it was agreed to amend the basis of the quarterly fee, backdated to
1 January 2013, to:
(i) 0.2% of the net assets of the Company up to £800m; plus
(ii) 0.175% of the net assets of the Company between £800m and £1 billion (if
any); plus
(iii) 0.15% of the net assets of the Company greater than £1 billion (if any).
3. DIVIDENDS
Six months Six months Year ended
ended ended 31 December
Amounts recognised as distributions 30 June 2013 30 June 2012 2012
to equity holders in the period: £ 000 £ 000 £ 000
Second interim dividend of 14.3p for the - 13,748 13,748
year ended 31 December 2011
First interim dividend of 7.00p for the - - 6,705
year ended 31 December 2012
Second interim dividend of 15.25p for 14,584 - -
the year ended 31 December 2012
______ ______ ______
14,584 13,748 20,453
______ ______ ______
The first interim dividend for the year ending 31 December 2013 of 7.35p (2012
- 7.00p) will be paid on 22 August 2013 to shareholders on the register on 2
August 2013. The ex-dividend date is 31 July 2013.
4. RETURNS PER ORDINARY SHARE
Six months Six months Year ended
ended ended 31 December
The returns per Ordinary Share are 30 June 2013 30 June 2012 2012
based on: £ 000 £ 000 £ 000
Weighted average number of shares in
issue during the period 95,579,173 95,992,743 95,911,500
5. NET ASSET VALUES
The net assets and the net asset value per share attributable to the Ordinary
Shares at each period end are calculated in accordance with their entitlements
in the Articles of Association and were as follows:
30 June 2013 31 December 30 June 2012
£ 000 2012 £ 000
£ 000
Net assets attributable 880,305 768,179 666,122
Pence Pence Pence
Net asset value attributable per 921.23 802.76 694.69
Ordinary Share
As at 30 June 2013, the Company had 95,557,792 Ordinary Shares in issue (31
December 2012 - 95,692,792 and 30 June 2012 - 95,887,792).
6. FURTHER INFORMATION
The foregoing do not constitute statutory accounts (as defined in section
434(3) of the Companies Act 2006) of the Company. The statutory accounts for
the year ended 31 December 2012, which contained an unqualified Report of the
Auditors, have been lodged with the Registrar of Companies and did not contain
a statement required under section 498(2) or (3) of the Companies Act 2006.
All information shown for the six months ended 30 June 2013 is unaudited. Certain
statements in this announcement are forward looking statements. By their nature,
forward looking statements involve a number of risks, uncertainties or
assumptions that could cause actual results or events to differ materially from
those expressed or implied by those statements. Forward looking statements
regarding past trends or activities should not be taken as representation that
such trends or activities will continue in the future. Accordingly, undue
reliance should not be placed on forward looking statements.
The Half Yearly Report is expected to be posted to shareholders on or before
25 July 2013. 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 Ross/Alistair Whyte
Aberforth Partners LLP (Telephone: 0131 220 0733)
Secretaries - 18 July 2013
Monday, 20th May 2024
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