Final Results

Aberforth Split Level Income Trust plc
Audited Annual Results for the year to 30 June 2022

The following is an extract from the Company's Annual Report and Financial Statements for the year to 30 June 2022. The Annual Report is expected to be posted to shareholders by 8 August 2022. Members of the public may obtain copies from Aberforth Partners LLP, 14 Melville Street, Edinburgh EH3 7NS or from its website: www.aberforth.co.uk. A copy will also shortly be available for inspection at the National Storage Mechanism at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

FINANCIAL HIGHLIGHTS

Performance (Total Return)	Year to 30 June 2022
	------------
Total Assets	-14.9%
Ordinary Share NAV	-20.7%
Ordinary Share Price	-23.2%
ZDP Share NAV	+3.6%
ZDP Share Price	+1.8%

Dividends Declared
Second Interim Dividend Special Dividend	2.79p 0.25p

The second interim dividend and the special dividend have an ex-dividend date of 4 August 2022, record date of 5 August 2022 and pay date of 26 August 2022.

INVESTMENT OBJECTIVE

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

CHAIRMAN’S STATEMENT

Introduction

This fifth annual report of Aberforth Split Level Income Trust (“ASLIT” or “the Company”) is for the financial year to 30 June 2022.

These twelve months have been challenging and tragic on many fronts. The lingering influence of Covid-19, the brutal war in Ukraine and economic conditions not witnessed since the 1970s would be notable in isolation, let alone all occurring together.

It seems a distant memory, but the financial year started well, with economies re-opening from their Covid-19 stasis and share prices reflecting a more positive outlook. However, towards ASLIT’s half year end, valuations came under pressure from the rise of the Omicron variant, the continued challenge of well publicised supply chain issues and inflation that was proving to be more persistent than transitory. The downward trend in share prices was further exacerbated by Russia’s invasion of Ukraine in February, which gave renewed impetus to energy prices, and by further Covid-19 lockdowns in China. Both these issues, coupled with strong demand, disrupted the already stretched supply chains and stoked even higher inflation. With central bankers apparently slow to appreciate the risks, they belatedly embarked on what they promise will be a phase of rapid monetary tightening.

In the initial stages of this cycle of higher interest rates and persistent inflation, the value investment style espoused by the Managers held up relatively well, while growth investment strategies, which had worked very well over the last decade, struggled. However, concern about the cost of living and recession has intensified and has taken its toll on all investment styles. This challenging backdrop has not been helpful for an investment trust with ASLIT’s capital structure and investment policy.

Performance

Against this background, share prices fell in most stockmarkets around the world. The Numis Smaller Companies Index (excluding Investment Companies) (“the Index” or “NSCI (XIC)”), which defines ASLIT’s opportunity base, generated a total return of -17.2% over the twelve-month period. Larger companies in the UK were a notable exception to the trend lower in share prices. The FTSE All-Share Index recorded a total return of +1.6%, supported by its significant exposure to commodity producers and defensive companies.

ASLIT’s total assets total return, which measures its ungeared portfolio performance, was -14.9% during the year. However, when geared by the Zero Dividend Preference (ZDP) Shares, the net asset value total return of the Ordinary Shares was -20.7%, which reflects the return attributable to equity shareholders of -19.0p per Ordinary Share together with the effect of the reinvestment of previously declared dividends.

As the capital value of the portfolio has declined, the projected cumulative cover of the ZDP shares has reduced to 3.0 times at 30 June 2022, compared to 3.6 times twelve months earlier.

Further detail on portfolio performance is provided in the Managers’ Report.

Earnings and Dividends

On a brighter note, the recovery in dividends from small UK quoted companies continued at a higher pace than previously expected. ASLIT has seen more investee companies either resuming dividend payments or declaring higher dividends. In addition, it has received special dividends from seven holdings. This positive experience is reflected in ASLIT’s revenue return per Ordinary Share of 4.81p in the year to 30 June 2022, which is 66% higher than the 2.90p earned in the year to 30 June 2021. Special dividends from investee companies represent 0.51p per Ordinary Share of the 4.81p of revenue generated for this financial year.

The revenue generated in the year to 30 June 2022 marks a bounce back from the pandemic lows in a remarkably short space of time. It is testament to the cost and capital discipline exercised by investee companies’ boards during the pandemic. Looking forward over the remaining two years of ASLIT’s planned life, the Managers’ dividend forecasts are still encouraging and are supported by the investee companies’ strong balance sheets. However, the threat of economic slowdown inevitably justifies some caution.

The Board is pleased to declare a second interim dividend of 2.79p per Ordinary Share for the year to 30 June 2022, which represents an increase of 31% compared to the 2.13p in respect of the previous year. Together with the first interim dividend of 1.51p paid on 8 March 2022, the total underlying ordinary dividend with respect to the year to 30 June 2022 is 4.30p per Ordinary Share, which represents all of the underlying (i.e. excluding special dividends) revenue return per Ordinary Share in the year. The 4.30p compares with 3.05p in respect of the previous pandemic-affected year and with 4.22p in respect of the year prior to that.

In addition, the Board is declaring a special dividend of 0.25p per Ordinary Share. This reflects the contribution from special dividends to the positive income performance for the year to 30 June 2022.

After accounting for the second interim dividend and the special dividend, retained revenue reserves will be 0.97p per Ordinary Share at 30 June 2022. These revenue reserves will be returned to Ordinary Shareholders as dividends by the end of ASLIT’s planned life in two years.

The second interim dividend of 2.79p and special dividend of 0.25p per Ordinary Share will be paid on 26 August 2022 to Ordinary Shareholders on the register on 5 August 2022. The ex dividend date is 4 August 2022. The Company operates a Dividend Reinvestment Plan. Details of the plan, including the Form of Election, are available from Aberforth Partners LLP or on the website, www.aberforth.co.uk.

Stewardship

As part of its stewardship responsibilities, the Board regularly reviews the Managers’ approach to environmental, social and governance issues, which is described on page 26 of the Annual Report. The Board endorses the Managers’ stewardship policy, which is set out in their submission as a signatory to the UK Stewardship Code. This, together with examples relating to voting and engagement with investee companies, can be found in the literature library of the Managers’ website at www.aberforth.co.uk.

Annual General Meeting (“AGM”)

The AGM will be held at 14 Melville Street, Edinburgh EH3 7NS at 11.00 a.m. on 31 October 2022 and details of the resolutions to be considered by Shareholders are set out in the Notice of the Meeting on page 57 of the Annual Report. Shareholders are encouraged to submit their votes by proxy in advance of the meeting in case restrictions related to the Covid-19 pandemic apply and prevent shareholders from attending in person. An update on performance and the portfolio will be available on the Managers’ website following the meeting.

Outlook

The current market conditions are more challenging than most people have experienced before. The de-rating of financial assets has been sharp. However, it is often darkest before the dawn and valuations, especially those in ASLIT’s opportunity base, look attractive from a long-term perspective and should generate good investment returns over time. These low valuations are being recognised by corporate and financial buyers, which is evident in the higher frequency of M&A deals and is benefiting ASLIT, as described in the Managers’ Report.

In such trying times for economies and financial markets, it is helpful to focus on the attributes of the investee

companies, which, after all, will be the main influence on investment returns over time. The boards of these companies have coped well with the series of tests set them so far. Confidence in their resilience is enhanced by the health of their balance sheets at the current time. As described in the Managers’ Report, strong balance sheets should enable the holdings to ride out an economic slowdown, to invest in sunnier times and to support ASLIT’s income generation from what is already a high base yield.

The pandemic and the war in Ukraine have ensured that ASLIT’s short life thus far has been rather more eventful than we would have wished. It is frustrating that the remaining two years of the planned life are afflicted by economic uncertainty. The Board is alive to the risk that the significant upside inherent in the qualities and valuations of the investee companies might not be recognised fully within this timeframe. We are mindful of our commitment to examine means by which Shareholders will have the option either to realise or to continue their investments. In due course, the Board will review future options with the Managers and will keep Shareholders updated over the next two years.

Finally, my fellow directors and I welcome the views of shareholders and are available should you wish to discuss these with us. My email address is noted below. Thank you for your support.

Angus Gordon Lennox

Chairman

27 July 2022

Angus.GordonLennox@aberforth.co.uk

Managers’ Report

Introduction

Stockmarket performance deteriorated through ASLIT’s last financial year. The modest positive returns of the first half gave way to bear market conditions in the second half, as macro-economic and geopolitical concerns overtook the vaccine rally. ASLIT’s total assets total return – essentially its ungeared portfolio performance – was -14.9% over the twelve months to 30 June 2022. This was substantially below the rate at which the ZDP Shares’ entitlement increases and so the gearing from the ZDP Shares took the net asset value total return of the Ordinary Shares to -20.7%. The ZDP Shares’ final cumulative cover fell from 3.6x to 3.0x over the twelve months.

The principal influence on these negative returns was the general share price weakness among the companies in ASLIT’s investment universe. The total return of the NSCI (XIC) over the twelve months was -17.2%. ASLIT therefore proved more resilient at the portfolio level, the reasons for which are explored later in this report. However, the strongest performers in the UK stockmarket over the period were the large companies. The FTSE All-Share managed to rise over the twelve months, which set it apart from most other stockmarkets around the world. Its 1.6% total return was helped by its high exposure to commodity producers and its low exposure to technology – characteristics that had previously proved distinctly unhelpful for several years but that were well suited to the changing economic conditions over the past twelve months.

The negative shift within stockmarkets was due to a confluence of macro-economic challenges, several of which have been in evidence for some time.

• The newest challenge was Russia’s invasion of Ukraine. Beyond the suffering of the Ukrainian people, the immediate impact was to raise risk aversion as financial markets contemplated a war in Europe involving a nuclear power. The economic effects stem from Ukraine’s industrial and agricultural importance, which intensifies pre-existing supply chains constraints and inflationary pressures. Over the longer term, the war and the unintended consequences of the sanctions deployed against Russia may accentuate pre-existing geopolitical tensions between the world’s major economic regions. This threatens to undermine the benefits of globalisation, which has been a disinflationary force over recent decades.

• The oil price has rebounded sharply from its mid pandemic low point. Recovering demand has been mainly responsible, but the supply-side has also been influential as a result of years of under-investment in hydrocarbon exploration. The supply pressures have been exacerbated by the Ukrainian war, as Russian energy sales to Europe are brought into question. The consequent jump in oil and gas prices has severely aggravated the cost-of-living pressures that are being felt in the UK and elsewhere. Ultimately, high energy prices are an effective tax on economic activity and complicate the decision-making of central banks as they raise interest rates to address inflation. A longer term consequence of the war is likely to be a reprioritisation of energy security. Notwithstanding arbitrary windfall taxes on oil companies, this may involve renewed investment in hydrocarbon exploration to ease the transition to alternative energy sources.

• COVID is still with us. While widespread and efficient vaccine campaigns have allowed western economies to live with the virus, that is not the case in China. Important manufacturing centres, such as Shanghai, were subject to strict lockdowns through much of the first half of calendar 2022. This has again worsened the supply chain difficulties and inflationary pressures that have plagued economies since demand started to recover in calendar 2021.

• Inflation has proved considerably more persistent than most had expected. Caught out, central banks are now using their most aggressive rhetoric in decades. Their words, though, have not yet translated into meaningful action: interest rates are now rising in the UK, US and EU, but they remain deeply negative in real inflation-adjusted terms. The same is true for government bond yields, despite them more than doubling over the twelve months to 30 June 2022 to 2.2% in the UK and 3.0% in the US. Perhaps bond markets are confident that the presently severe inflationary pressures will abate or that the relatively high levels of debt in western economies will require smaller interest rates rises to affect activity. However, the effect of wage settlements on inflation rates is yet to be determined. Moreover, the historical record for central banks’ commitment to dealing with inflation is mixed, especially when they are under political pressure to achieve the so-called “soft landing” for the economy.

The combination of these challenges has been to increase the risk of a recession later this year or in early 2023. Since most companies within the NSCI (XIC) and the portfolio are sensitive to the economic cycle, the impact of a potential recession on corporate profitability explains much of the pronounced weakness in share prices experienced in the first half of calendar 2022.

Stockmarkets have also had to contend with pressure on the valuation ratios ascribed to company profits. The war, tightening monetary policy and rising bond yields have served to shorten investment horizons. In other words, investors are now less comfortable to ascribe high valuation ratios to profits or, in the case of loss-making companies, to their sales. The valuation stretch within equity markets – that is, the gap between the highest and the lowest PE ratios – has contracted markedly. This has particularly penalised the share prices of companies that previously enjoyed higher PE ratios, typically the growth stocks, and other long duration assets with little near term cash flow. Consequently, the value style has enjoyed a period of good relative performance. This valuation effect has been of benefit to ASLIT and, by mitigating the corporate profitability effect previously described, has helped mitigate the decline experienced by the NSCI (XIC).

Analysis of performance

The following paragraphs set out the principal influences on ASLIT’s ungeared portfolio performance over the twelve months to 30 June 2022. In that period, the total asset total return was -14.9%, while that of the opportunity base represented by the NSCI (XIC) was -17.2%.

Style

It was a relatively good period for the Managers’ value style. Shorter investment horizons, higher bond yields and a narrower range of PE ratios within equity markets worked to the detriment of longer duration growth stocks and to the relative benefit of value stocks. The London Business School produces style data for the NSCI (XIC), using price to book ratios to categorise stocks as growth or value. This analysis is a useful indication of the pervading style climate, though the Managers’ investment process takes into account numerous other fundamental factors and utilises a broader range of valuation metrics, including EV/EBITA, free cash flow and dividend yields. For the twelve months to 30 June 2022, the London Business School calculates that its value cohort out-performed its growth cohort by 11.6%. This reverses some of the relative gains enjoyed by growth stocks in recent years, particularly in the midst of the pandemic, and suggests that investment style helped ASLIT’s relative returns in the past financial year.

Size

The NSCI (XIC) is defined as the bottom 10% by value of the entire UK stockmarket. This means that FTSE 250 stocks represent around 63% of its total value. For the purpose of explaining the effect of size on ASLIT’s performance relative to the NSCI (XIC), it is useful to compare the fortunes of the FTSE 250, which is indicative of the index’s larger constituents, with those of the FTSE SmallCap, which represents its smaller constituents. In the twelve months to 30 June 2022, the FTSE SmallCap (XIC) outperformed the FTSE 250 (XIC) by 1.5% to extend what has been a remarkable run of performance for the NSCI (XIC)’s smaller constituents since the vaccine rally started in late 2020. Out-performance by these “smaller small” companies benefits ASLIT’s returns since the portfolio has a relatively high exposure to them. This positioning reflects the considerably lower stockmarket valuations accorded to these companies over the past several years, despite comparable growth prospects and returns on equity. It is pleasing that some of the valuation disparity has been addressed by recent share price performance.

Geography

Where companies make their sales and profits has been an important influence on share prices in recent years, owing to the effects of the EU referendum in 2016 and then the pandemic. The weakness of sterling since the referendum reflected a reluctance of international investors to engage with the UK and, through currency translation, benefited the profitability of those companies that generate revenue outside the UK. The share prices of domestic businesses lagged those of their overseas counterparts, which gave ASLIT the opportunity to increase its exposure to them. Through 2021 and so far in 2022, the fortunes of the two groups shifted. The overseas facing companies have more quickly felt the supply chain problems that followed the pandemic, though cost-of-living pressures were starting to catch up with domestics towards the end of the period. In the twelve months to 30 June 2022, the share prices of the NSCI (XIC)’s domestically oriented businesses outperformed overseas facing businesses by 8%. This was advantageous to ASLIT, since at the start of the financial year the portfolio had a weighting of 58% in the domestics, higher than the NSCI (XIC)’s 52%. A note of caution is appropriate. Recent months have seen the debate intensify about Northern Ireland’s status within the Brexit agreement. This threatens to complicate again the UK’s trading relationship with the EU, which has contributed to renewed pressure on sterling. Geography is therefore likely to remain a noteworthy influence on ASLIT’s performance in coming months.

Balance sheets

The finances of small UK quoted companies are in remarkably good shape. This primarily reflects the efforts of management teams to conserve cash during the pandemic and, subsequently, the benefits of the recovery in demand. Playing a less significant role were government support schemes amid lockdowns and equity issuance. The upshot is that small companies’ balance sheets are as strong as they have been since 2014. The significance of that year is that companies prioritised deleveraging for several years after the shock of the global financial crisis.

The table below sets out the weight of the portfolio and the tracked universe in four leverage categories. Using the Managers’ estimates, it also shows those weights at the end of 2022. The tracked universe is those companies in the NSCI (XIC) that the Managers follow closely and represents 98% by value of the NSCI (XIC).

Weight in companies with:	Net cash	Net debt/EBITDA < 2x	Net debt/EBITDA > 2x	Others*
ASLIT: 2022	46%	42%	9%	4%
Tracked universe: 2022	37%	32%	25%	6%

*Includes loss-makers and lenders

The table suggests that, by the end of 2022, around 46% of the portfolio will be exposed to companies with net cash on the balance sheet and that 88% will be exposed to companies with leverage ratios (net debt to EBITDA) below 2x. This unusually robust position has been influenced by the Managers’ investment process. Through the vaccine recovery period, the stockmarket has been more focused on sales and profit growth and less interested in balance sheets. This has meant that balance sheet strength has been under-valued, which has allowed portfolio capital to rotate into companies that display it. Given the uncertain economic outlook, exposure to strong balance sheets feels appropriate, but in due course companies will have to articulate how they plan to utilise their resources. Organic investment to support the progress of the business should be the priority. Thereafter, acquisitions may make sense, if their risk-adjusted returns compare favourably with lower risk alternatives, such as returning surplus cash through a special dividend accompanied by a pro rata share consolidation. Strong balance sheets can reveal much about boards’ ability to allocate capital, but their value is clear amid economic uncertainty such as today’s.

Dividends

The present strength of balance sheets is helping the recovery in dividends paid by UK companies. Within the NSCI (XIC), dividends fell by 52% in real terms in 2020 before rebounding by 70% in 2021. The current year will see further progress, with dividends for the index as a whole likely to return close to pre-pandemic levels. The portfolio is benefiting from this favourable background as the table below demonstrates. It categorises the 66 holdings at 30 June 2022 by their most recent dividend action.

Nil payer	Cutter	Unchanged payer	Increased payer	Returner	Other*
8	5	9	33	10	1

*Other denotes companies paying dividends for the first time

As the dividend recovery continues, ASLIT enjoyed a strong income performance in the twelve months to 30 June 2022. Within the table, the important categories are Nil Payers and Returners. Numerous companies passed dividends amid 2020’s lockdowns. However, many of these Nil Payers have restarted dividend payments and are now classified as Returners. It is expected that the number of Nil Payers will decrease further over the next 18 months, which should boost ASLIT’s investment income. In due course, the number of Returners should also subside as companies exit the recovery phase and their distributions to shareholders are determined by normal dividend policies. In addition to the strong recovery in underlying dividends, ASLIT’s investment income in the year to 30 June 2022 was enhanced by seven special dividends paid by investee companies.

Corporate Activity

Overseas interest in British assets declined in the wake of 2016’s EU referendum. Sterling devalued, M&A activity within the NSCI (XIC) collapsed, and UK stockmarket valuations relative to the rest of the world fell to multi-decade lows. The clarity that should have emerged from the UK’s exit agreement with the EU was quickly overwhelmed by the pandemic, but signs developed last year of a renewed appetite on the part of overseas companies and investors to take advantage of low UK valuations. M&A activity targeting constituents of the NSCI (XIC) rose sharply, with 19 companies acquired in calendar 2021. Despite a reduction globally in the value of M&A in 2022, the uptrend has continued among small UK quoted companies: 12 members of the 2022 vintage of the NSCI (XIC) received bids in the six months to 30 June 2022. This would imply a large increase in activity for the full year, though the recent jitteriness among equities is also evident in debt markets and may complicate the funding of deals through the second half of calendar 2022. The acquirers during the first half were evenly split between corporates and private equity, and also between UK and overseas. Of the 12 companies, the portfolio held four and so M&A provided a useful fillip to ASLIT’s investment performance.

For a value investor, M&A can often be the catalyst for valuation realisation and the vindication of an investment case. However, discipline is required, particularly in an equity market such as the UK’s where valuations have been depressed for some time. The gaps between share prices and the true worth of many small companies are substantial, so the customary 30% or so premium for control offered by an acquirer may simply be inadequate. Conscious of this risk, the Managers encourage the boards of the investee companies to consult early in a potential bid process and are prepared to back boards in rejecting undervalued offers, even though this might mean forgoing a boost to short term performance.

Portfolio turnover

Over the twelve months to 30 June 2022, annualised portfolio turnover – defined as the lower of purchases and sales divided by average portfolio value – was 18%. This was lower than the previous year’s rate of 20%. The reduction is influenced by the weaker equity market conditions, which tend to increase the upsides to the Managers’ target prices for each holding. All else equal, there was less incentive to reduce positions and circulate capital as part of what the Managers term the “value roll”.

Active share

Active share is a measure of how different a portfolio is from an index. It is calculated as half of the sum of the absolute differences between each stock’s weighting in an index and its weighting in the portfolio. The higher a portfolio’s active share, the higher its chance of either out or under-performing the index. At 30 June 2022, the portfolio’s active share was 75% relative to the NSCI (XIC), which was above the Managers’ target ratio of at least 70%.

Valuations

Portfolio Characteristics	30 June 2022		30 June 2021
Portfolio Characteristics	ASLIT	NSCI (XIC)	ASLIT	NSCI (XIC)
Number of companies	66	323	69	324
Weighted average market capitalisation	£622m	£795m	£761m	£996m
Price earnings (PE) ratio (historical)	8.3x	9.8x	15.3x	17.4x
Dividend yield (historical)	4.5%	3.1%	2.5%	1.7%
Dividend cover	2.7x	3.3x	2.6x	3.4x

Over ASLIT’s financial year, the historical valuations of small companies fell as share prices declined and as the recovery from the pandemic increased trailing profits. The PE of the NSCI (XIC) dropped from 17.4x at 30 June 2021 to the 9.8x, shown in the table above. Meanwhile, the average PE of ASLIT’s portfolio fell from 15.3x to 8.3x. At 8.3x, the portfolio is more than one standard deviation below the 11.5x long term average PE of Aberforth’s longest running portfolio. This has happened on three previous occasions throughout that portfolio’s 31 year history: in the early 1990s, amid the global financial crisis, and during the pandemic in 2020. Each episode was associated with a UK recession. Clearly, the threat of a demand downturn, spurred by high energy prices and tighter monetary policy, is preoccupying equity investors at present. The table below is intended to give a feel for how much the risk of a potential recession may already be reflected in valuations.

Price earnings ratio	Aberforth portfolio 31 year average	ASLIT at 30 June 2022	ASLIT at 30 June 2022 with earnings -30%
Portfolio NSCI (XIC)	11.5x 13.4x	8.3x 9.8x	11.9x 14.0x

ASLIT’s historical PE at 30 June 2022 was 28% below the average for the long running Aberforth portfolio of 11.5x.Leaving the peculiarities of the pandemic recession aside, other downturns have been associated with a reduction in small company earnings of around 30%. This would imply a forward PE multiple on what might be trough earnings of just over 12x, which would be broadly in line with the long run average PE. Taking a medium term view, this might suggest that much of the risk is already baked into share prices, especially since during recovery phases the stockmarket is prepared to take share prices to high multiples of trailing trough earnings. In practice, the stockmarket is rarely so poised as to take the medium term view. The reality of a recession, together with the accompanying profit warnings from companies, would likely elicit further near term weakness in share prices. However, it is clear that the stockmarket is doing its job – it is much closer to reflecting the risk of recession than are today’s profit estimates for companies and, in a similar vein, it will start to recover well before an upturn in profits.

The following table shows forward valuations using EV/EBITA, which is the metric that the Managers use most often when valuing companies. EV/EBITA is ratio of enterprise value to earnings before interest, tax and amortisation. Ratios are set out for the portfolio, the tracked universe and certain subdivisions of the tracked universe. The profit estimates underlying the ratios are made by the Managers. An important influence on shaping estimates is engagement with management teams. Recent discussions suggest that many companies retain full order books and are not yet experiencing pressure on demand. These estimates do not therefore fully reflect a recession scenario.

EV/EBITA	Number of stocks	2021	2022	2023	2024
ASLIT	66	7.5x	6.7x	6.2x	5.1x
Tracked Universe	235	10.3x	8.8x	7.6x	6.2x
Growth stocks	44	14.6x	14.1x	12.3x	9.1x
The rump	191	9.6x	8.0x	6.9x	5.7x
Stocks < £600m market cap.	159	8.4x	6.8x	6.6x	5.7x
Stocks > £600m market cap.	76	11.8x	10.4x	8.4x	6.5x

A notable feature of the table is ASLIT’s relatively low valuation, compared with those of both the tracked universe of small companies and the growth stocks, despite their greater share price declines in 2022. Furthermore, the smaller small companies, represented by stocks with market capitalisations below £600m, retain a sizeable discount to the larger small caps, despite superior share price performance this year. This valuation disparity explains why ASLIT retains a higher exposure to smaller small companies. Finally, it is worth comparing the 2022 multiples on display in the table with the average EV/EBITA multiple of 15x paid in the 12 M&A transactions announced this year. The gap highlights the deep value that the UK stockmarket continues to offer.

Outlook & Conclusion

From the top-down perspective, the challenges to equity valuations are clear. The war in Ukraine rumbles on and helps keep the oil price high. In turn, this adds to the inflationary pressure that emerged from the economic dislocation of the pandemic, and increases the cost of living, which threatens to tip economies into recession. Were that not enough, we must trust the judgement of central banks, which have been slow to respond thus far and now seem to be making up for lost time with their aggressive rhetoric. The gap between near double digit rates of inflation and low single digit government bond yields implies that the central banks are in control, but history would underline the risk of a less benign outcome. The chances of the “soft landing” appear slim.

Even deep into the second half of ASLIT’s financial year, these challenges contrasted with composure on the part of companies. There were some disappointing updates, notably from consumer-oriented businesses towards the end of the period, but in general trading has been better than might be expected, given macro-economic concerns, and a year of profit progress in calendar 2022 still seems likely. The disparity between the top-down and the bottom-up viewpoints is likely one of timing. In the current “phoney war” phase, profit estimates have not yet moved in a meaningful way – companies’ order books are generally full, the demand recovery from the pandemic still has momentum, and price pressures are being passed on. From the perspective of company boards, little else matters and there is no incentive to risk letting customers down.

However, the actual fullness of order books is moot. In times of inflation and compromised supply chains, a degree of over-ordering on the part of customers would not be surprising. Moreover, it is plausible that, in the initial stages of an inflationary shock that many still see as transitory, it has been relatively straightforward to pass through price increases. This may prove trickier on subsequent occasions, particularly when demand begins to ebb. Overall, therefore, it would seem prudent to expect that some of the top-down gloom catches up with companies through the second half of calendar 2022, perhaps indeed to precipitate a recession in 2023.

Clearly, the stockmarket has already judged that this is the likely outcome. However, the duration and depth of an economic downturn are far from certain. There are mitigating factors at play, including the scope for governments to offset the worst of the pressures on the cost of living. Additionally, private sector balance sheets have emerged from the pandemic in good shape and employment rates are relatively high, which should help the gap between the rates of wage growth and inflation close in 2023. A final consideration is that the current macro-economic challenges might ease. A resolution to the war in Ukraine would bring down energy costs. China’s restrictive policies may be relaxed after November’s Communist Party congress. Central banks’ actions may not prove as hawkish as their words, particularly if these words themselves – so-called jawboning – succeed in cooling activity.

Nevertheless, a recession is what the stockmarket currently expects. It would be bad for the profits earned both by ASLIT’s portfolio of relatively cyclical value stocks and by companies in general. However, share prices will also be influenced by the valuation that investors ascribe to corporate profits. Valuations in turn will continue to be affected by inflation and monetary policy. Uncertainty about these factors should hinder the ability of growth stocks to return to the very high valuations that they enjoyed as recently as six months ago. Numerous growth stocks are also having to contend with pressure on their own profitability or, for the loss-makers, their forecast path to profitability. Whether provoked by general economic conditions or by company-specific issues, redundancies and cost cutting programmes are not a good look for glamorous growth companies aspiring to high valuation multiples. The stockmarket is less inclined to give the benefit of the doubt as its focus shifts to companies’ near term profits and cash flows. In the tussle between value and growth styles, this backdrop is suggestive of a better outlook for the value style or, at least, a more level playing field than has been the case in recent years. This should be supportive of ASLIT’s returns given the Managers’ consistent adherence to a value investment philosophy.

The more consistent influence on ASLIT’s investment returns is likely to be the underlying progress of its diversified portfolio of 66 investee companies. Should an economic downturn materialise over the next twelve months, the profitability of these companies would suffer. However, there is reason for optimism. The holdings have proved themselves through a series of challenges including Brexit and the pandemic. Their profits are resilient and grow from economic cycle to economic cycle. Their balance sheets are notably strong at present, which affords their boards optionality around the deployment of capital. And, significantly, their share prices already discount at least some of the risk of an economic slowdown. As the previous section on valuations noted, historical PE ratios and forward EBITA ratios are at unusually low levels. Coming at it from a different perspective, companies whose share prices at 30 June 2022 were lower than at 31 December 2019 account for over 74% by weight of the portfolio. This suggests that there is still significant potential for share price recovery as the stockmarket rebuilds confidence in economic activity returning to pre-pandemic levels.

The remaining two years of ASLIT’s planned life promise to be eventful. To have full confidence that Shareholders will benefit from today’s unusually low valuations and a recovery in share prices, more time would be ideal. To address this, the Managers would intend to work with the Board to offer Shareholders, no later than 1 July 2024, the option either to realise their investment in cash or to continue their exposure to the Managers’ investment approach in some form. In the meantime, the portfolio continues to generate good levels of income and, through the Managers’ value investment philosophy and the underlying resilience of the investee companies, offers significant upside.

Aberforth Partners LLP

Managers

27 July 2022

TOTAL RETURN PERFORMANCE

		Ordinary Share		ZDP Share
	Total Assets¹	NAV²	Share Price³	NAV⁴	Share Price⁵
	------------	------------	------------	------------	------------
Year to 30 June 2022	-14.9%	-20.7%	-23.2%	3.6%	1.8%
Annualised: - 5 year and since inception¹⁴	-0.7%	-1.9%	-4.1%	3.5%	3.0%
Cumulative: - 5 year and since inception¹⁴	-3.5%	-9.3%	-19.1%	18.6%	16.0%

ORDINARY SHARE

	Net Asset Value per Share	Share Price	Discount / (Premium)	Ordinary Dividends per Share	Special Dividends per Share	Ongoing Charges⁶	Gearing⁷
	------------	------------	------------	------------	------------	------------	------------
30 June 2022	73.0p	64.2p	12.1%	4.30p	0.25p	1.2%	40.6%
30 June 2021	95.7p	87.2p	8.8%	3.05p	-	1.2%	29.9%
30 June 2020	52.5p	47.3p	10.0%	4.22p	-	1.3%	52.6%

At inception¹⁴ an Ordinary Share had a NAV of 100p and a gearing⁷ level of 25%.

ZERO DIVIDEND PREFERENCE SHARE (ZDP SHARE)

	Net Asset Value per Share	Share Price	Discount / (Premium)	Return per Share	Projected Final Cumulative Cover⁸	Redemption Yield⁹
	------------	------------	------------	------------	------------	------------
30 June 2022	118.6p	116.0p	2.2%	4.1p	3.0x	4.7%
30 June 2021	114.5p	114.0p	0.4%	4.0p	3.6x	3.7%
30 June 2020	110.5p	106.0p	4.0%	3.8p	2.3x	4.7%

At inception¹⁴ a ZDP Share had a NAV of 100p, a Projected Final Cumulative Cover⁸ of 3.4x, and a Redemption Yield⁹ of 3.5%.

HURDLE RATES¹⁰

	Ordinary Shares Annualised Hurdle Rates to return			ZDP Shares Annualised Hurdle Rates to return
	100p	Share Price	Zero Value	127.25p	Zero Value
At	------------	------------	------------	------------	------------
30 June 2022	16.2%	-0.7%	-42.6%	-42.6%	-94.8%
30 June 2021	3.4%	-0.1%	-35.5%	-35.5%	-87.0%
Inception¹⁴	1.5%	n/a	-17.0%	-17.0%	-57.2%

REDEMPTION YIELDS & TERMINAL NAVs (ORDINARY SHARES)

As at 30 June 2022

			Annualised Ordinary Share Redemption Yields¹¹ Dividend Growth (per annum)
Capital Growth (per annum)	-20.0%	-10.0%		+0.0%	+10.0%	+20.0%	Terminal NAV¹²
	------------	------------		------------	------------	------------	------------
-20.0%	-26.0%	-24.7%		-23.1%	-21.4%	-19.5%	30.4p
-10.0%	-9.3%	-8.1%		-6.7%	-5.2%	-3.4%	47.0p
+0.0%	6.1%	7.3%		8.6%	10.1%	11.7%	65.6p
+10.0%	20.9%	22.0%		23.3%	24.7%	26.3%	86.2p
+20.0%	35.2%	36.3%		37.5%	38.9%	40.4%	108.7p

The valuation statistics in the tables above are projected, illustrative and do not represent profit forecasts. There is no guarantee these returns will be achieved.

^1-14 Refer to Glossary

DIRECTORS’ RESPONSIBILITY STATEMENT

The Directors who were in office at the date of approving the financial statements confirm to the best of their knowledge that:

(a) the financial statements, which have been prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit/loss of the Company;

(b) the Strategic Report includes a fair review of the development and performance of the business and financial position of the Company, together with a description of the principal risks and uncertainties that it faces; and

(c) the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Company’s performance, business model and strategy.

On behalf of the Board

Angus Gordon Lennox

Chairman

27 July 2022

PRINCIPAL RISKS AND RISK MANAGEMENT

The Board carefully considers the risks faced by the Company and seeks to manage these risks through continual review, evaluation, mitigating controls and action as necessary. A risk matrix for the Company is maintained. It groups risks into the following categories: portfolio management; investor relations; regulatory and legal; and financial reporting. Further information regarding the Board’s governance oversight of risk, its review process and the context for risks can be found in the Corporate Governance Report within the Annual Report. The Audit Committee Report (pages 27 to 29 of the Annual Report) details matters considered and actions taken on internal controls and risks during the year. The Company outsources all the main operational activities to recognised, well established firms and the Board receives internal control reports from these firms, where available, to review the effectiveness of their control frameworks. Since the start of the Covid-19 pandemic, these firms have deployed flexible operational practices, including staff working remotely, to ensure continued business service.

Emerging risks are those that could have a future impact on the Company. The Board regularly reviews them and, during the year, it added to the risk matrix potential economic risks arising from inflation and supply chain constraints. This risk was grouped under the principal risk category of market risk, as described below. The Board regularly monitors how the Managers integrate such risks into the investment decision making.

Principal risks are those risks derived from the matrix that have the highest risk ratings. They tend to be relatively consistent from year to year given the nature of the Company and its business. On a forward looking basis, the principal risks faced by the Company, together with the approach taken by the Board towards them, are summarised below. To indicate the level of monitoring required during this year, each principal risk has been categorised as either dynamic risk, requiring detailed monitoring as it can change regularly, or stable risk.

(i) Investment policy/performance risk – The Company’s investment policy and strategy expose the portfolio to share price movements. The performance of the investment portfolio will be influenced by stock selection, liquidity and market risk (see (ii) below and Note 19 of the Annual Report for further details). Investment in small companies is generally perceived to carry more risk than investment in large companies. While this is reasonable when comparing individual companies, it is much less so when comparing the risks inherent in diversified portfolios of small and large companies. The Board's aim is to achieve the investment objective by ensuring the investment portfolio is managed in accordance with the policy and strategy. The Board has outsourced portfolio management to experienced investment managers with a clearly defined investment philosophy and investment process. The Board receives regular and detailed reports on investment performance including detailed portfolio and risk profile analysis. Senior representatives of Aberforth Partners attend each Board meeting. This remains a dynamic risk, with detailed consideration during the year. The Managers’ Report contains information on portfolio investment performance and risk.

(ii) Market risk – Investment performance is impacted by a number of market risk factors, including uncertainty about future price movements of investments. The Board delegates consideration of market risk to the Managers to be carried out as part of the investment process. The Managers regularly assess the exposure to market risk when making investment decisions and the Board monitors the results via the Managers’ reporting. The Board and Managers closely monitor economic and political developments and, in particular, are mindful of the continuing uncertainty following the departure of the UK from the EU and the impacts of the Covid-19 pandemic and government responses. This remained a dynamic risk during the year, in which the Managers reported on market risks including inflation and supply-chain pressures and other geopolitical issues referred to in the Managers’ Report. Some market risks have become more severe during the reporting period and scrutiny of these by the Board and Managers has increased accordingly.

(iii) Structural conflicts of interest – The different rights and expectations of the holders of Ordinary Shares and the holders of ZDP Shares may give rise to conflicts of interest between them. While the Company’s investment objective and policy seek to strike a balance between the interests of both classes of Shareholder, there can be no guarantee that such a balance will be achieved and maintained during the life of the Company. This is a stable risk.

(iv) Significant fall in investment income – A significant fall in investment income could lead to the inability to provide a high level of income and income growth. The Board receives regular and detailed reports from the Managers on income performance together with income forecasts. The Board and Managers have been monitoring the impact of the pandemic on investment income and it is considered a dynamic risk.

(v) Loss of key investment personnel – The Board believes that a risk exists in the loss of key investment personnel at the Managers. The Board recognises that the collegiate approach employed by the Managers mitigates this risk. Board members are in regular contact with the partners and staff of the Managers and monitor personnel changes. This is a stable risk.

(vi) Regulatory risk – Breach of regulatory rules could lead to suspension of the Company’s share price listings, financial penalties or a qualified audit report. Breach of Section 1158 of the Corporation Tax Act 2010 could lead to the Company losing investment trust status and, as a consequence, any capital gains would then be subject to capital gains tax. The Board reviews regular reports from the Secretaries to monitor compliance with regulations. This is a stable risk.

The Income Statement, Reconciliation of Movements in Shareholders’ Funds, Balance Sheet and Cash Flow Statement are set out below:-

INCOME STATEMENT

Year to 30 June 2022

(audited)

	Year to			Year to
	30 June 2022			30 June 2021
	Revenue	Capital	Total	Revenue	Capital	Total
	£000	£000	£000	£000	£000	£000

Net (losses) /gains on investments	-	(41,748)	(41,748)	-	86,522	86,522
Investment income	10,024	-	10,024	6,258	-	6,258
Investment management fee	(521)	(1,216)	(1,737)	(395)	(921)	(1,316)
Portfolio transaction costs	-	(329)	(329)	-	(285)	(285)
Other expenses	(335)	-	(335)	(316)	-	(316)
	--------	--------	--------	--------	--------	--------
Net return before finance costs and tax	9,168	(43,293)	(34,125)	5,547	85,316	90,863
Finance costs:
Appropriation to ZDP Shares	-	(1,956)	(1,956)	-	(1,889)	(1,889)
Interest expense and overdraft fee	(3)	(6)	(9)	(3)	(6)	(9)
	--------	--------	--------	--------	--------	--------
Return on ordinary activities before tax	9,165	(45,255)	(36,090)	5,544	83,421	88,965
Tax on ordinary activities	(22)	-	(22)	(22)	-	(22)
	--------	--------	--------	--------	--------	--------
Return attributable to Equity Shareholders	9,143	(45,255)	(36,112)	5,522	83,421	88,943
	======	=======	=======	======	=======	=======

Returns per Ordinary Share	4.81p	(23.79)p	(18.98)p	2.90p	43.85p	46.75p

The Board declared on 27 July 2022 a second interim dividend of 2.79p per Ordinary Share and a special dividend of 0.25p per Ordinary Share. The Board also declared on 25 January 2022 a first interim dividend of 1.51p per Ordinary Share.

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 Comprehensive Income is not required as all gains and losses of the Company have been reflected in the above statement.

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS

Year to 30 June 2022

(audited)


	Share	Special	Capital	Revenue
	capital	reserve	reserve	reserve	Total
	£000	£000	£000	£000	£000

Balance as at 30 June 2021	1,902	187,035	(12,365)	5,417	181,989
Return on ordinary activities after tax	-	-	(45,255)	9,143	(36,112)
Equity dividends paid	-	-	-	(6,925)	(6,925)
	--------	--------	--------	--------	--------
Balance as at 30 June 2022	1,902	187,035	(57,620)	7,635	138,952
	======	======	======	======	======

Year to 30 June 2021
	Share	Special	Capital	Revenue
	capital	reserve	reserve	reserve	Total
	£000	£000	£000	£000	£000

Balance as at 30 June 2020	1,902	187,035	(95,786)	6,801	99,952
Return on ordinary activities after tax	-	-	83,421	5,522	88,943
Equity dividends paid	-	-	-	(6,906)	(6,906)
	--------	--------	--------	--------	--------
Balance as at 30 June 2021	1,902	187,035	(12,365)	5,417	181,989
	======	======	======	======	======

BALANCE SHEET

As at 30 June 2022

(audited)

	30 June 2022	30 June 2021
	£000	£000
Fixed assets
Investments at fair value through profit or loss	193,062	235,448
	----------	----------
Current assets
Debtors	755	416
Cash at bank	1,590	1,200
	----------	----------
	2,345	1,616
Creditors (amounts falling due within one year)	(62)	(638)
	----------	----------
Net current assets	2,283	978
	----------	----------
Total Assets less Current Liabilities	195,345	236,426
Creditors (amounts falling due after more than one year)
ZDP Shares	(56,393)	(54,437)
	----------	----------
TOTAL NET ASSETS	138,952	181,989
	=======	=======
Capital and Reserves: Equity Interests
Share Capital:
Ordinary Shares	1,902	1,902
Reserves:
Special reserve	187,035	187,035
Capital reserve	(57,620)	(12,365)
Revenue reserve	7,635	5,417
	----------	----------
TOTAL SHAREHOLDERS’ FUNDS	138,952	181,989
	=======	=======
Net Asset Value per Ordinary Share	73.04p	95.66p
Net Asset Value per ZDP Share	118.57p	114.46p

CASH FLOW STATEMENT

For the year to 30 June 2022

(audited)

	Year to 30 June 2022		Year to 30 June 2021
		£000	£000
Operating activities
Net revenue before finance costs and tax		9,168	5,547
Stock dividends		-	(328)
Tax (withheld) from income		(20)	(22)
Investment management fee charged to capital		(1,216)	(921)
(Increase)/decrease in debtors (excluding stock dividends receivable)		(421)	22
Increase/(Decrease) in creditors		9	(2)
		--------	--------
Cash inflow from operating activities		7,520	4,296
		=====	=====
Investing activities
Purchases of investments excluding transaction costs		(41,203)	(35,708)
Sales of investments excluding transaction costs		41,007	39,437
		--------	--------
Cash (outflow)/inflow from investing activities		(196)	3,729
		=====	=====

Financing activities
Equity dividends paid		(6,925)	(6,906)
Interest and fees paid		(9)	(9)
		--------	--------
Cash outflow from financing activities		(6,934)	(6,915)
		=====	=====
Change in cash during the period		390	1,110
		=====	=====
Cash at the start of the period		1,200	90
Cash at the end of the period		1,590	1,200
		======	======

SUMMARY NOTES TO THE FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

The Company has presented its financial statements under Financial Reporting Standard 102 (FRS 102) and the AIC’s Statement of Recommended Practice “Financial Statements of Investment Trust Companies and Venture Capital Trusts” (SORP) issued in 2021. The principal accounting policies have been consistently applied throughout the period. The financial statements have been prepared on a going concern basis under the historical cost convention, modified to include the revaluation of the Company’s investments as permitted by FRS 102. The functional and presentation currency is pounds sterling, which is the currency of the environment in which the Company operates.

2 . DIVIDENDS PAID

Amounts recognised as distributions to equity holders:	Year to 30 June 2022 £000	Year to 30 June 2021 £000
In respect of the year to 30 June 2020:
Second interim dividend of 2.71p (paid on 28 August 2020)	-	5,156
In respect of the year to 30 June 2021 First interim dividend of 0.92p (paid on 9 March 2021)	-	1,750
Second interim dividend of 2.13p (paid on 27 August 2021)	4,052	-
In respect of the year to 30 June 2022: First interim dividend of 1.51p (paid on 8 March 2022)	2,873	-
	------------	------------
Total	6,925	6,906
	------------	------------

The second interim dividend for the year ended 30 June 2022 of 2.79p (2021: 2.13p) per Ordinary Share, and the special dividend for the year to 30 June 2022 of 0.25p (2021: nil) per Ordinary Share, are both payable on 26 August 2022 and have not been recognised in the financial statements as at 30 June 2022. Deducting the second interim dividend and the special dividend from the Company's revenue reserves at 30 June 2022 leaves revenue reserves equivalent to 0.97p per Ordinary Share.

3. RETURNS PER SHARE

	Year to 30 June 2022	Year to 30 June 2021
Ordinary Shares
Net return for the year	(£36,112,000)	£88,943,000
Weighted average Ordinary Shares in issue during the year	190,250,000	190,250,000
Return per Ordinary Share	(18.98)p	46.75p

ZDP Shares
Appropriation to ZDP Shares for the year	£1,956,000	£1,889,000
Weighted average ZDP Shares in issue during the year	47,562,500	47,562,500
Return per ZDP Share	4.11p	3.97p

There are no dilutive or potentially dilutive shares in issue.

4. INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS

	Year to 30 June 2022 £000	Year to 30 June 2021 £000
Investments at fair value through profit or loss
Opening fair value	235,448	151,999
Opening fair value adjustment	(9,102)	78,901
	------------	------------
Opening book cost	226,346	230,900
Purchases at cost	40,342	36,416
Sale proceeds	(40,980)	(39,489)
Realised gains / (losses) on sales	6,186	(1,481)
	------------	------------
Closing book cost	231,894	226,346
Closing fair value adjustment	(38,832)	9,102
	------------	------------
Closing fair value	193,062	235,448
	------------	------------

All investments are in ordinary shares listed on the London Stock Exchange.

	Year to 30 June 2022 £000	Year to 30 June 2021 £000
Gains/(losses) on investments:
Net realised gains / (losses) on sales	6,186	(1,481)
Movement in fair value adjustment	(47,934)	88,003
	------------	------------
Net (losses) / gains on investments	(41,748)	86,522
	------------	------------

In accordance with FRS 102, 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).

All investments are held at fair value through profit or loss, have been classified as Level 1 and are traded on a recognised stock exchange.

5. NET ASSET VALUE (“NAV”) PER SHARE

The Net Assets and the Net Asset Value per share attributable to the Ordinary Shares and ZDP Shares are as follows:

		30 June 2022		30 June 2021
	Ordinary Shares	ZDP Shares	Total	Ordinary Shares	ZDP Shares	Total
Net assets attributable	£138,952,000	£56,393,000	£195,345,000	£181,989,000	£54,437,000	£236,426,000
Number of Shares at the reporting date	190,250,000	47,562,500	237,812,500	190,250,000	47,562,500	237,812,500
	------------	------------	------------	------------	------------	------------
NAV per Share (a)	73.04p	118.57p	82.14p	95.66p	114.46p	99.42p
Dividend reinvestment factor¹³ (b)	1.242432	-	1.174303	1.196195	-	1.140600
	------------	------------	------------	------------	------------	------------
NAV per Share on a total return basis at the end of the period (c) = (a) x (b)	90.75p	118.57p	96.46p	114.43p	114.46p	113.40p
	------------	------------	------------	------------	------------	------------
NAV per Share on a total return basis at the start of the period (d)	114.43p	114.46p	113.40p	58.85p	110.48p	70.04p
	------------	------------	------------	------------	------------	------------
Total Return performance (c) / (d) - 1	-20.7%	3.6%	-14.9%	94.4%	3.6%	61.9%
	------------	------------	------------	------------	------------	------------

¹³ Refer to Glossary

6. RELATED PARTY TRANSACTIONS

The Directors have been identified as related parties and their fees and interests have been disclosed in the Directors’ Remuneration Report contained in the Annual Report. During the year no Director or entity controlled by a Director was interested in any contract or other matter requiring disclosure under section 412 of the Companies Act 2006.

7. 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 period ended 30 June 2021, 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.

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 Annual Report is expected to be posted to shareholders by 8 August 2022. Members of the public may obtain copies from Aberforth Partners LLP, 14 Melville Street, Edinburgh EH3 7NS or from its website: www.aberforth.co.uk.

GLOSSARY:

¹ Total Assets Total Return – the theoretical return of the combined funds of the Ordinary Shareholders and ZDP Shareholders assuming that dividends paid to Ordinary Shareholders were reinvested at the NAV per Ordinary Share at the close of business on the day the Ordinary Shares were quoted ex dividend.

² Ordinary Share NAV Total Return – the theoretical return on the NAV per Ordinary Share assuming that dividends paid to Ordinary Shareholders were reinvested at the NAV per Ordinary Share at the close of business on the day the Ordinary Shares were quoted ex dividend.

³ Ordinary Share Price Total Return – the theoretical return to an Ordinary Shareholder, on a closing market price basis, assuming that all dividends received were reinvested, without transaction costs, into the Ordinary Shares at the close of business on the day the shares were quoted ex dividend.

⁴ ZDP Share NAV Total Return – represents the return on the NAV value of a ZDP Share. The ZDP Share NAV as at 30 June 2022 was 118.57p (30 June 2021: 114.46p).

⁵ ZDP Share Price Total Return – the theoretical return to a ZDP Shareholder, on a closing market price basis.

⁶ Ongoing Charges – represents the percentage per annum of investment management fees and other operating expenses to the average published Ordinary Shareholders’ NAV over the period.

⁷ Gearing – calculated by dividing the asset value attributable to the ZDP Shares by the asset value attributable to the Ordinary Shares.

⁸ Projected Final Cumulative Cover – the ratio of the total assets of the Company as at the calculation date, to the sum of the assets required to pay the final capital entitlement of 127.25p per ZDP Share on the planned winding-up date, future estimated management fees charged to capital and estimated winding-up costs.

⁹ Redemption Yield (ZDP Share) – the annualised rate at which the total discounted value of the planned future payment of capital equates to its share price at the date of calculation.

¹⁰ Hurdle Rate - the rate of capital growth per annum in the Company’s investment portfolio to return a stated amount per Share at the planned winding-up date.

¹¹ Redemption Yield (Ordinary Share) - The annualised rate at which projected future income and capital cash flows (based on assumed future capital/dividend growth rates) is discounted to produce an amount equal to the share price at the date of calculation.

¹² Terminal NAV (Ordinary Share)- The projected NAV per Ordinary Share at the planned winding-up date at a stated rate of capital growth in the Company’s investment portfolio after taking into account the final capital entitlement of the ZDP Shares, future estimated costs charged to capital and estimated winding-up costs.

¹³ Dividend reinvestment factor - is calculated on the assumption that dividends paid by the Company were reinvested into Ordinary Shares of the Company at the NAV per Ordinary Share/ share price, as appropriate, on the day the Ordinary Shares are quoted ex dividend.

¹⁴ Inception Date – 30 June 2017.

CONTACT:

Euan Macdonald / Christopher Watt - Aberforth Partners LLP - 0131 220 0733

Aberforth Partners LLP

Managers and Secretaries

27 July 2022

ANNOUNCEMENT ENDS