REG-Aberforth Smaller Companies Trust Plc: Final Results
31/01/2024 15:15
Aberforth Smaller Companies Trust plc
Audited Annual Results for the year to 31 December 2023
The following is an extract from the Company's Annual Report and Financial
Statements for the year to 31 December 2023. The Annual Report is expected to
be posted to shareholders by 8 February 2024. 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
Year to 31 December 2023
Net Asset Value per Ordinary Share Total Return 8.2%
Numis Smaller Companies Index (excluding Investment Companies) Total Return 10.1%
Ordinary Share Price Total Return 8.0%
Total ordinary dividends (excluding special dividend) for the year of 41.50p
per share represents growth of 6.4% compared to last year’s 39.00p per
share. In addition, a special dividend of 9.00p (last year: 8.30p) results in
total dividends of 50.50p per share for the year.
INVESTMENT OBJECTIVE
The investment objective of Aberforth Smaller Companies Trust plc ("the
Company" or "ASCoT") is to achieve a net asset value total return (with
dividends reinvested) greater than that of the Numis Smaller Companies Index
(excluding Investment Companies) (“NSCI (XIC)” or “benchmark”) over
the long term.
From 1 January 2024, the benchmark was renamed the Deutsche Numis Smaller
Companies Index (excluding Investment Companies).
CHAIRMAN’S STATEMENT TO SHAREHOLDERS
Review of performance
ASCoT’s net asset value total return in the twelve months to 31 December
2023 was +8.2%. The discount of ASCoT’s share price to its net asset value
widened very slightly over the year. Therefore, ASCoT’s share price total
return was +8.0%. The total return from the Numis Smaller Companies Index
(excluding investment companies) (NSCI (XIC)) was +10.1%. Larger UK companies,
represented by the FTSE All-Share, were up by 7.9% in total return terms.
It was a volatile year for financial markets as they wrestled with inflation
and its implications for monetary policy. A positive outturn for 2023 seemed
unlikely as late as November. But then favourable inflation data in both the
UK and the US encouraged the view that the next move in interest rates would
be downwards. This triggered a powerful and welcome rally into the year end.
In the UK, this has so far been led by the mid cap stocks, to which ASCoT has
a relatively low exposure.
The financial markets maintained an obsessive focus on the interest rate
cycle, largely overlooking other developments in 2023. With the war in Ukraine
continuing, Hamas’s October attacks intensified geopolitical risk.
Meanwhile, the economic backdrop also deteriorated as the impetus of the
pandemic recovery faded and the impact of earlier monetary tightening affected
activity. Through the second half of the year, evidence built of more
challenging trading conditions both in the UK’s domestic economy and in many
overseas markets. The frequency of weaker trading updates rose and many
companies, not just in the UK, experienced a year of lower profits in 2023.
Another notable feature of 2023 was the persistent despondency about the UK
equity market and its constituent companies. Institutional and retail
investors continue to move money out of the UK and valuations for most UK
companies are very low, particularly among smaller companies. Low need not
mean attractive, but the Managers’ report makes a strong case for why the
prevailing doom and gloom have been overdone.
Dividends
My statement twelve months ago described the very strong recovery in dividends
paid by investee companies following the pandemic. This recovery took
ASCoT’s Revenue Return per Ordinary Share to its highest ever level of
55.64p. Remarkably, this number was exceeded in 2023, with Revenue per
Ordinary Share reaching 59.79p. Seven special dividends were helpful, but even
with these excluded from both years, the underlying rate of growth was 9%.
The strength of this income performance means that the Board can meet its
ambition to grow ASCoT’s full year ordinary dividend above the rate of
inflation, which was 4.0% in December. In dividing Revenue per Ordinary Share
between the ordinary dividend, the special dividend and the addition to
revenue reserves, we have taken into account the economic outlook for 2024 and
the Managers’ dividend estimates for the investee companies. These estimates
point to a year of lower dividend receipts, which would be consistent with
what does appear to be a more difficult trading environment for companies.
However, it seems likely that Revenue per Ordinary Share will still be well
above its pre-pandemic levels.
The Board therefore proposes a final dividend of 28.55p per Ordinary Share,
which would represent growth of 5.9% on the previous year’s 26.95p. Together
with the interim dividend of 12.95p, the full year dividend would be 41.50p.
The year-on-year increase of 6.4% would be well above the rate of inflation.
We also propose a special dividend of 9.00p, which underlines how robust a
year it was and ensures that ASCoT passes the HMRC’s minimum retention test
for investment trusts. The total dividend in respect of 2023 of 50.50p would
allow 9.29p to be added to revenue reserves to take them to 80.1p per Ordinary
Share, which would cover the ordinary full year dividend just under two times.
In what has been the best year for income in ASCoT’s 33 years, the Board
considered it appropriate to add to revenue reserves. Prudent management of
revenue reserves since 1990 has made an important contribution to ASCoT’s
dividend record, allowing it to be sustained even in the more challenging
years. Thus, amid the pandemic in 2020, ASCoT was able to grow its dividend by
4% when the UK equity market saw dividends decline by 33%. Revenue reserves
also allow the Managers to appraise investments in the context of total
returns – they are not limited to finding value among higher yielding
companies. This flexibility has been important as ASCoT has navigated its way
through previous economic cycles.
Gearing
In May 2023, ASCoT announced the refinancing of its credit facility with The
Royal Bank of Scotland International Limited. The term of this £130m facility
runs to June 2026 and is designed to align with the three yearly continuation
vote.
The Board’s gearing policy has been consistent throughout ASCoT’s life:
gearing is deployed tactically with the aim of taking advantage of periods of
stress in equity markets. ASCoT has been geared on four occasions in its 33
years. The most recent of these came in 2020 amid the pandemic. Gearing has
remained in place since then and has added to ASCoT’s net asset value
performance. At the year end, £72m of the facility was deployed and the
gearing ratio, which is net debt to Shareholders’ Funds, was 5.1%.
Beyond the potential to enhance returns, the credit facility provides
flexibility to conduct buy-backs and allows the Managers to react nimbly to
new opportunities without disturbing existing investments. In what can often
be a volatile and relatively illiquid asset class, these are important
benefits and the Managers took advantage of them over the past twelve months.
Share buy-back
The Board believes that buy-backs provide an increase in liquidity at the
margin for those Shareholders looking to crystallise their investment and, at
the same time, deliver an economic uplift for those Shareholders wishing to
remain invested in the Company.
In the year to 31 December 2023, 930,000 shares were bought back and
cancelled. The total value of these repurchases was £11.6m, on an average
discount of 13.3%. Since 2008, ASCoT’s share buy-backs have totalled £158m
and added £24m of value to shareholders.
The Company seeks authority to buy back up to 14.99% of its Ordinary Shares at
the Annual General Meeting. The authority was renewed in March 2023 and the
Board will seek to renew the authority at the Annual General Meeting on 5
March 2024.
Stewardship
The Board is responsible for the effective stewardship of the Company’s
affairs and oversees the activities of the Managers in relation to
Environmental, Social and Governance (ESG) matters. Pages 14 to 16 of the
Annual Report cover the Board’s oversight and activities in 2023. They also
address the Managers’ ESG policies and practices, along with their voting
approach and activity during the year. 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 “About Aberforth”
section of the Managers’ website at www.aberforth.co.uk.
Board Composition
The Board regularly reviews its composition and structure in line with
corporate governance requirements. As I previewed last year, as part of the
Board’s succession planning Julia Le Blan retired from the Board during the
year and Patricia Dimond took over as chair of the Audit Committee.
Furthermore, Jaz Bains became a member of the Audit Committee.
In addition, the Board has decided, given its relatively small size, that
Martin Warner will be appointed to the Audit Committee from 1 February 2024
having previously attended by invitation. In the past, the Audit Committee
chair has performed the role of Senior Independent Director (SID) as and when
needed. The Board has decided to formalise this with the appointment of
Patricia Dimond as SID from 1 February 2024.
Annual General Meeting (“AGM”)
The AGM will be held at 14 Melville Street, Edinburgh EH3 7NS at 10.30 am on 5
March 2024. Details of the resolutions to be considered by Shareholders are
set out in the Notice of the Meeting on page 62 of the Annual Report.
Shareholders are encouraged to submit their vote by proxy in advance of the
meeting. In accordance with normal practice, the results of the AGM will be
issued in a regulatory news announcement and posted on Aberforth’s website.
An update on performance and the portfolio will also be available on the
website following the meeting.
Conclusion
It promises to be a fascinating year on both the economic and political
fronts. The outcome of the Presidential Election in the US will set the tone
for global financial markets over the medium term, while the UK’s General
Election will affect the trading environment for many smaller companies. At
this stage, the UK election would appear to carry less risk. A smooth change
of government could help restore confidence in UK politics and erode the
political discount that has afflicted UK stockmarket valuations since the EU
referendum.
At the same time, there is good reason to reappraise the UK’s economic
performance. It is now clear that the economy fared less badly during the
pandemic than initially feared. Furthermore, recent inflation data indicate
that the UK is not an outlier and that the Bank of England will have scope to
reduce interest rates in coming quarters. Whether these cuts will be enough to
mitigate the impact of previous monetary tightening remains to be seen. The
risk of a recession lingers, though it may be mitigated as growth in wages and
benefits moves above the rate of inflation.
A downturn would be unfortunate for the country – recessions bring financial
stress and hardship to households and companies alike. However, from ASCoT’s
perspective, the question of whether we experience recession now feels
academic. As the Managers’ Report makes clear, a downturn is baked into the
valuations of ASCoT’s investee companies. So, in practical terms, the more
interesting question is what will allow the stockmarket to move on and to
anticipate recovery. Though there will be a myriad of complicating factors,
the straightforward response is the reality of interest rate cuts.
In the meantime, my fellow directors and I are excited by ASCoT’s prospects.
In a constantly changing industry, the Managers’ value investment philosophy
and their consistent investment process are important differentiators. They
have underpinned the Company’s 33 year record and their relevance today is
undiminished. We have also been encouraged by the additional insights shared
in the Managers’ Report into their engagement approach. Through our
discussions with them over the years, it is clear that engagement has made an
important contribution to ASCoT’s investment returns. Insights of this sort
are a further support of the Board’s ambition to keep ASCoT’s dividend
growing in real terms. This can reward Shareholders for our patience as we
await a broader appreciation of small UK quoted companies and UK equities in
general. When that reappraisal happens, the very attractive valuations of
ASCoT’s portfolio bode well for a period of strong investment returns.
Finally, my fellow Directors and I are always keen to receive the views of
Shareholders – please contact me at my e-mail
address, which is noted below.
Richard Davidson
Chairman
31 January 2024
richard.davidson@aberforth.co.uk
MANAGERS’ REPORT
Introduction
ASCoT’s net asset value total return in the twelve months to 31 December
2023 was +8.2%. Over the same period, the NSCI (XIC) – ASCoT’s benchmark
– rose by 10.1%. The FTSE All-Share, which is representative of larger UK
companies, was up by 7.9%.
Investment Background
Geopolitical risk was already elevated at the start of 2023 as the war in
Ukraine continued. It rose further towards the end of the year with Hamas’s
attack on Israel. However, financial markets were dominated by one issue –
inflation and its implications for monetary policy, especially US monetary
policy. Persistent inflation had driven the Federal Reserve to raise interest
rates by a cumulative 525 basis points in the sixteen months to July 2023.
This brought to an end the era of very low borrowing costs that followed the
global financial crisis of 2007 and 2008. Understandably, markets have
struggled with this new reality and have been eager for indications that
inflationary pressure might be relenting.
The ebb and flow of sentiment through the year can be gauged from the US ten
year government bond yield. This started 2023 at 3.8% and surged to 5.0% in
August, which was its highest level since 2007. As inflation data improved and
markets started to anticipate lower interest rates, the yield dropped to 3.9%
by the year end, a move that was echoed by the strong performance of equity
indices over the last two months of the year.
The UK and much of Europe are also facing higher borrowing costs. These
contributed to lacklustre economic growth in 2023, compounding the effects of
high energy costs and waning momentum from the pandemic recovery. Recession
threatens several European economies, including the UK’s, while China’s
reopening has so far proved rather tepid. The brighter spots in terms of
economic activity are the US, which is benefiting from government spending
through the Inflation Reduction Act and other programmes, and some emerging
economies, which are proving more resilient than in past phases of US monetary
tightening.
An overall weaker economic backdrop has complicated trading for companies.
Results for 2023 will be reported in the first half of 2024 and are likely to
show that profits declined in the UK and in Europe. Even the US stockmarket is
expected to experience next to no profit growth, notwithstanding its
“magnificent seven” technology leviathans. There are several reasons for
this. First, higher interest rates and the other macro-economic uncertainties
have put pressure on revenues. Second, it is proving more difficult to raise
selling prices as the rate of inflation reduces, but labour costs are
continuing to rise. These are harder to pass through to customers, which
squeezes profit margins. Third, the cost of borrowing is rising as debt terms
are renegotiated in today’s environment of higher interest rates.
Turning specifically to small UK quoted companies, the Managers expect a
double digit percentage decline in profits for 2023, with falls for nearly
half of the profitable companies that they track closely. Unsurprisingly,
those companies operating close to the housing market have been most affected,
but it has been notable that overseas facing companies also experienced more
challenging trading conditions in the second half of 2023. The effect of this
slowdown on profits might be close to half of the impact typically experienced
in a full economic recession. Strong balance sheets and battle-hardened boards
of directors offer mitigation, but what is important for ASCoT is how much of
this is already embedded in the stockmarket’s valuations of the companies.
This is considered in detail in the Valuations section of this report.
Analysis of performance and portfolio characteristics
Over the twelve months to 31 December 2023, ASCoT’s net asset value total
return was +8.2% and the NSCI (XIC)’s was +10.1%. An analysis of the
difference between the two numbers is shown in the table below. The most
important influence on ASCoT’s return was the performance of the companies
that make up its portfolio of investments.
For the twelve months ended 31 December 2023 Basis points
Attributable to the portfolio of investments, based on mid prices (after transaction costs of 14 basis points) (271)
Movement in mid to bid price spread 40
Cash/gearing 102
Purchase of ordinary shares 14
Management fee (71)
Other expenses (7)
Total attribution based on bid prices (193)
Note: 100 basis points = 1%. Total Attribution is the difference between the total return of the NAV and the Benchmark Index (i.e. NAV = 8.21%; Benchmark Index = 10.14%; difference is -1.93% being -193 basis points).
The next table sets out a series of characteristics of both the portfolio and
the NSCI (XIC). The paragraphs that follow provide context and explanation for
these characteristics and for ASCoT’s performance in 2023.
Portfolio characteristics 31 December 2023 31 December 2022
ASCoT NSCI (XIC) ASCoT NSCI (XIC)
Number of companies 78 353 79 350
Weighted average market capitalisation £591m £957m £548m £866m
Weighting in “smaller small” companies* 61% 28% 62% 32%
Portfolio turnover 20% N/A 18% N/A
Active share 75% N/A 77% N/A
Price earnings (PE) ratio (historical) 7.9x 12.8x 8.1x 8.1x
Dividend yield (historical) 4.2% 3.3% 3.5% 3.4%
Dividend cover (historical) 3.0x 2.3x 3.5x 3.7x
*”Smaller small” companies are members of the NSCI (XIC) that are not also
members of the FTSE 250
Style & size
Since the pandemic recovery started in late 2020, inflation has caused
interest rates and bond yields to rise. These conditions have favoured the
value investment style. The London Business School analyses style effects
within the NSCI (XIC) using price-to-book ratios to differentiate between
value and growth stocks. They calculate that the total return of the index’s
value cohort exceeded that of its growth cohort in 2021, 2022 and 2023. A
caveat to this positive style backdrop for value is the very strong share
price performance in 2023 of the large US technology companies collectively
known as the “magnificent seven”. This suggests a more favourable
environment for growth stocks, which would be consistent with the
stockmarket’s current optimism about an end to the cycle of higher interest
rates. Nevertheless, the positive backdrop for the value investment style has
benefited ASCoT’s returns over recent years.
Turning to size, the NSCI (XIC) has a significant overlap with the FTSE 250
index: 72% of its value is represented by mid cap stocks. The portfolio’s
weighting in these is much lower at 39%, with the majority made up of holdings
in the more attractively valued “smaller small” companies. The share price
performances of the “larger small” and “smaller small” companies were
similar through 2023 as a whole. However, the stockmarket rally at the end of
the year was led by the mid caps, which out-performed their smaller peers by
5% in just over two months. This hampered ASCoT’s performance as the year
drew to a close. In periods of rapid share price moves, both upwards and
downwards, it is common for the “larger small” companies to lead the way
and for the “smaller smalls” to catch up in due course.
Balance sheets
The table below shows the balance sheet profile of the portfolio and of the
Tracked Universe, which is a subset of the NSCI (XIC). It comprises 234
companies, which the Managers follow closely and which together represent 98%
by value of the total NSCI (XIC) index.
Weight in companies with: Net cash Net debt/EBITDA < 2x Net debt/EBITDA > 2x Other*
Portfolio: 2023 33% 42% 17% 7%
Tracked universe: 2023 34% 41% 17% 8%
*Includes loss-makers and lenders
Small companies’ balance sheets have not been so strong since around 2014.
Back then, a phase of balance sheet repair was a reaction to 2009’s
recession. Today, balance sheets are already in a robust state. This should
limit the risk to dividends and the requirement for equity issuance in the
event of an economic downturn. Strong balance sheets also help to mitigate
refinancing risk, as companies’ borrowing costs rise amid the current
environment of higher interest rates.
The balance sheet profiles of the portfolio and the Tracked Universe are
similar, with high exposures to companies with net cash or modest degrees of
leverage. The opportunity for ASCoT to invest in these companies comes from
the stockmarket’s aversion to the UK and to its smaller companies in
particular. Their fundamental attributes are being ignored and pricing
inefficiencies abound.
Another fundamental change being widely overlooked is the improvement in the
funding position of defined benefit pension schemes. For two decades, UK
companies have deployed large amounts of their free cash flow to reduce
pension deficits. A silver lining to the cloud of higher interest rates has
been the narrowing of these deficits. Many pension scheme trustees are now
able to contemplate de-risking, which relieves the sponsoring companies of the
requirement to make top-up payments. The boost to free cash flow is often
significant and several of ASCoT’s holdings benefited in this way through
2023.
Income
The portfolio’s income performance in 2023 was good, with income earned by
ASCoT reaching its highest ever level. Seven special dividends chipped in, but
the main influence was a further recovery in profits from the pandemic.
Inevitably, that momentum is starting to fade as profits and pay-out ratios
approach pre-pandemic levels.
Nil Payer Cutter Unchanged Payer Increased Payer New/Returner
15 14 15 31 3
The table above splits ASCoT’s 78 holdings into five categories, which are
determined by each company’s most recent dividend action. The most populous
category remains the Increased Payers, though there are proportionately fewer
than last year. Three companies returned to paying a dividend, having
previously been classified as Nil Payers. This transition can provide a
significant boost to ASCoT’s income and a further five holdings are
presently expected to make the shift from Nil Payer to New / Returner over the
next eighteen months.
The historical dividend yield of ASCoT’s holdings at 31 December 2023 was
4.2%, which was 28% higher than the average over ASCoT’s 33 year history.
Dividend cover of 3.0x also compared well with the long term average of 2.8x.
This feature, along with the portfolio’s strong balance sheets, should
support ASCoT’s income experience as corporate profitability is coming under
pressure.
Corporate activity
Despite the backdrop of higher interest rates and borrowing costs, M&A
continued apace in 2023. The takeovers of twelve NSCI (XIC) constituents were
completed in the year. ASCoT had holdings in six of these. The average
EV/EBITA multiple at which the deals were executed was 12.4x, while the
average premium to the pre-announcement share prices was an unusually high
66%.
Somewhat surprisingly, private equity houses were the bidders in seven of the
twelve deals. The Managers had expected the higher cost of borrowing to limit
this source of interest. However, the very low valuations accorded to small UK
quoted companies by the stockmarket give private equity the opportunity. At
these valuations, it would appear that debt is not needed at the outset to
make M&A models work. This remarkable situation highlights a risk to ASCoT and
other investors in the asset class – in many cases, even a large takeover
premium may not bring the valuation to a level that reflects the true worth of
the target company.
In such circumstances, the Managers are prepared to vote against under-priced
deals and did so in 2023. The best M&A experiences are often those in which
boards of directors consult shareholders well in advance. Such consultation
reduces the risk of embarrassment, should shareholders find proposed terms
unacceptable, and can lead to better outcomes, which may be that the company
in question retains its independence. The Managers make it clear to the boards
of the investee companies that they should be consulted in such situations and
that they are willing to be insiders for extended periods.
ASCoT’s gearing
ASCoT employs gearing tactically to take advantage of periods of stress in
financial markets. It is currently geared for the fourth time in its history,
having drawn on its borrowing facility amid the pandemic in 2020. Since then,
gearing has enhanced ASCoT’s returns, but valuations of smaller companies
remain very attractive. As long as the opportunity embedded in these
valuations remains, it is appropriate for ASCoT to retain some gearing. At 31
December 2023, the gearing ratio was 5.1%, down from 5.7% at the start of the
year. The reduction is influenced by the rise in share prices over the period
and by the timing of purchases and sales.
Active share
Active share is a measure of how different a portfolio is from an index. The
ratio is calculated as half of the sum of the absolute differences between
each stock’s weighting in the index and its weighting in the portfolio. The
higher a portfolio’s active share, the higher its chance of performing
differently from the index, for better or worse. The Managers target an active
share ratio of at least 70% for ASCoT’s portfolio compared with the NSCI
(XIC). At 31 December 2023, it stood at 75%.
Value roll and portfolio turnover
The main influence on ASCoT’s portfolio turnover in any period is usually
the stockmarket’s appetite for small UK quoted companies. If prices and
valuations are rising, the upsides to the Managers’ target prices are likely
to be narrowing. All else being equal, this would encourage the rotation of
ASCoT’s capital from companies with lower upsides to those with higher
upsides. The Managers term this dynamic the “value roll” and it has played
an important role in ASCoT’s capital and income returns over the years. It
follows that periods of higher portfolio turnover are often associated with
strong returns for ASCoT.
In 2023, portfolio turnover, defined as the lower of purchases and sales
divided by average portfolio value, was 20%. This is below the long term
average of 34%. Notwithstanding ASCoT’s positive return in the year, this
suggests that there was less opportunity for “value roll” than usual. This
is another symptom of the deep under-valuation of small UK quoted companies
– if the stockmarket does not reflect their true value, there is every
incentive to maintain the position.
Environmental, social and governance (ESG)
The issues underlying this umbrella term bring both threats and opportunities
to individual companies. Additionally, it seems likely that the valuation of
the asset class as a whole is affected by the view that small companies are
ESG victims. The Managers disagree and believe that the passage of time will
show that small companies are coping well with the challenges of ESG. A
broader appreciation of this ought to contribute to a re-rating of the asset
class in due course, which should benefit ASCoT’s returns.
In 2023, the Managers continued to populate the ESG module within their
investment database. This module was launched in 2022 and is intended to
provide insights into the portfolio’s ESG profile as the data set is
enriched over time. It also allows the Managers to track and prioritise
engagement activities. Work in 2023 indicated that smaller companies are
coping well with the increasing expectations and regulations associated with
ESG. Disclosure continues to improve and action is being taken to address
underlying issues. When that is not the case, the Managers engage to
understand the reason and seek change where appropriate. Beyond this, they
also encourage companies to think about and articulate opportunities arising
from environmental and social issues, such as climate change. To this point,
several industrial companies in which ASCoT invests manufacture products that
generate both financial and emission savings for their customers. Examples are
provided in the Stewardship & ESG section of the Managers’ website at
www.aberforth.co.uk. Further details of the Managers’ approach to ESG are
set out on pages 14 to 16 of the annual report.
Engagement
Since ASCoT’s inception in 1990, an integral part of Aberforth’s
investment process has been engagement with the boards of the investee
companies. The Managers often take significant stakes in investee companies
– up to 25% of issued share capital across Aberforth’s client base.
Engagement is therefore a responsibility. Importantly, it is also a means to
improve investment outcomes. Aberforth’s approach to engagement is intended
to be purposeful, discreet and constructive. It includes regular updates with
executive directors and also encompasses meetings with non executives. There
is a particular focus on the chair, which is the most important role in the
UK’s system of corporate governance. The Managers engage on any topic that
affects the value of an investment or the rights of shareholders, with the
most common being capital allocation.
The Managers are prepared to be taken inside for extended periods, which
indicates their commitment to responsible stewardship and which can be helpful
to investee companies. They also expect to be consulted in a timely fashion
– the presentation of a fait accompli by the board to shareholders is a
risky and unhelpful undertaking. Several of the takeovers in recent years have
been presented without due consultation and have led to the Managers engaging
to improve the terms for shareholders and/or voting against the deals. The
Managers are confident that their purposeful, discreet and constructive
engagement has enhanced ASCoT’s returns over time.
Valuations
The chart depicts the historical price earnings ratio (PE) of ASCoT’s
portfolio. At 31 December 2023, the PE was 7.9x, which was more than one
standard deviation below the 33 year average of 12.1x. History suggests that
this only happens during recession – the early 1990s downturn towards the
left of the chart, the global financial crisis in the middle and more recently
the pandemic recession.
If share prices are unchanged over the next twelve months, it is likely that
the historical PE will rise. This would reflect lower reported profits,
consistent with the description given in the introduction to this report.
Lower profits are clearly not to be welcomed, but they are not inconsistent
with good equity returns because the stockmarket focuses on what will happen
rather than what has happened. In the early 1990s recession, small company
profits declined by 25-30% over three years, while the PE of ASCoT’s
portfolio rose from 7x at the end of 1990 to a high of almost 19x at the end
of 1993. Investors more than doubled their money in total return terms over
that period.
Aside from concern about the near term outlook for corporate profits, three
other factors contribute to the particularly attractive levels of valuation
currently accorded to ASCoT’s portfolio. These are the prevailing malaise
with the UK and its stockmarket, the concern about the liquidity of smaller
companies, and the effect of the Managers’ value investment style. The
following paragraphs address each of these factors.
* At 31 December 2023, the FTSE All-Share’s PE was 35% lower than Panmure
Gordon’s calculation of the PE for the Rest of the World. Since 1990, the
average discount of UK equities has been 16%. Several justifications for
today’s larger than usual discount are regularly offered.
First, since the EU referendum in 2016 and with the subsequent succession of
Prime Ministers, the UK’s reputation for political stability has been
impaired. However, the UK does not have a monopoly in political uncertainty.
The UK’s flirtation with populism may prove to be behind it, while elections
over the coming years may cast other countries in a relatively unfavourable
light.
Second, there is a widespread view that the UK’s economic performance in
recent years has been comparatively poor, from Brexit through a
proportionately tougher lockdown experience to a more intransigent problem
with inflation. However, Brexit’s impact is largely in the past – the
companies with which the Managers engage have learned to live with it. Turning
to the pandemic, recent revisions by the ONS to its calculation of GDP reveal
that the UK’s recovery compares well with other members of the G7. Finally,
the gap between the UK’s inflation rate and that of comparable countries is
now narrowing to undermine arguments that the UK is the “sick man of
Europe”.
Third, there is a concern that the UK stockmarket itself is dysfunctional.
Evidence cited includes its lack of technology companies, infrequent and
unsuccessful IPOs, low valuations, and outflows from pension and open-ended
funds. Some of this reasoning is circular, but the issue has caught the
attention of government, for better or worse. Mooted solutions are mandated
investment in UK listed companies by pension funds, lower governance standards
for UK listings and the dilution of EU inspired regulation on UK capital
markets. For the Managers, it is not clear that the UK stockmarket is broken
and well-intended legislation is often undermined in due course by the
unintended consequences.
* Within the UK market, there is a pronounced valuation discount for size –
the lower the market capitalisation, the lower the valuation. Within the NSCI
(XIC), the average 2023 EV/EBITA ratio of companies with market
capitalisations above £600m (roughly the boundary between the FTSE 250 and
the FTSE SmallCap) is 11.0x. For those below the £600m threshold, the
“smaller small” companies, the average multiple is 23% lower at 8.4x.
For smaller companies, the general concerns about the UK are compounded by
their greater reliance on the domestic economy. Around 50% of the aggregate
revenues of NSCI (XIC)’s constituents are generated within the UK, higher
than the 20-25% or so for the entire UK stockmarket. While companies close to
the domestic housing market have reported more difficult trading conditions
for the past nine months, it is notable that their share prices have often
fallen by less than the extent of the downgrade to profit expectations. This
is an indication that economic weakness is reflected in valuations, which is a
necessary, though not sufficient, condition for recovery.
Against the background of disinvestment from UK equities, there is a
heightened sensitivity towards liquidity on the part of many investors. This
is likely to have penalised the valuations of the relatively illiquid asset
class of smaller companies. However, such an investment stance risks missing
the small company premium, which is the historical out-performance of small
over large and which has averaged 1.6% per annum over ASCoT’s 33 years.
Investors are rewarded for taking on liquidity risk over time and relative
illiquidity works both ways. Gaining exposure to the asset class when
sentiment turns is not straightforward – as so often in investment, time in
the market is more important than timing the market.
* Turning to ASCoT’s portfolio, the 7.9x historical PE at 31 December 2023
was 38% below that of the NSCI (XIC). This compares with an average discount
of 12% since 1990.
ASCoT’s portfolio is managed in accordance with the value investment style
and so a discount to the overall valuation of smaller companies is to be
expected. However, the discount today is unusually wide. Part of this is
explained by the better value on offer among the NSCI (XIC)’s “smaller
small” companies, to which ASCoT has a relatively high exposure. Another
factor is the Managers’ willingness to look through general concern about
near term corporate profitability by investing in strong and growing but
economically sensitive companies. Unburdened by these distractions, ASCoT’s
opportunity set within the investment universe is presently towards its widest
in its history.
The following table sets out further detail about the forward valuations of
the portfolio, the Tracked Universe and certain subdivisions of the Tracked
Universe. The metric displayed is enterprise value to earnings before
interest, tax and amortisation (EV/EBITA), which the Managers use most often
in valuing companies. The ratios are based on the Managers’ profit forecasts
for each company that they track. The bullet points following the table
summarise its main messages.
EV/EBITA 2022 2023 2024 2025
ASCoT 6.8x 8.1x 6.8x 6.0x
Tracked Universe (234 stocks) 9.6x 10.0x 8.5x 7.5x
- 35 growth stocks 18.4x 16.7x 13.4x 11.9x
- 199 other stocks 8.7x 9.2x 7.9x 7.0x
- 83 stocks > £600m market cap 10.7x 11.0x 9.5x 8.5x
- 151 stocks < £600m market cap 7.7x 8.4x 7.0x 6.0x
* The higher multiples for 2023 compared with 2022 are consistent with earlier
comments about lower company profits in 2023. The Managers’ forecasts
currently point to a profit recovery in 2024, but the precise timing of a
rebound relies on the domestic and overseas economic backdrop.
* The average EV/EBITA multiples of the portfolio are lower than those of the
Tracked Universe. This has been a consistent feature over ASCoT’s history
and is consistent with the Managers’ value investment style.
* The portfolio’s 8.1x EV/EBITA ratio for 2023 is considerably lower than
the average multiple of 12.4x at which the year’s completed M&A deals were
struck.
* Each year, the Managers identify a cohort of growth stocks within the NSCI
(XIC). These stocks are on much higher multiples than both the portfolio and
the rest of the Tracked Universe.
Outlook and conclusion
The financial markets enter 2024 in much the same way as they did 2023 –
focused on US interest rates and hopeful that a turn in the cycle towards
looser monetary policy is near at hand. In contrast to twelve months ago,
today there is a declining rate of inflation in most economies as energy
prices subside and global supply chains improve. A cut in US interest rates in
the first quarter of the year is now priced into markets. If this is achieved,
the probability rises of a “soft landing” – the Federal Reserve, despite
much criticism for having been slow to respond to inflation, may yet be able
to loosen monetary policy without first tipping the US economy into recession.
However, some circumspection is necessary. In particular, the US continues its
ambitious fiscal programmes, with government spending in the final months of
2023 rising at double digit rates. This contributed to annualised growth in
nominal GDP of almost 9% in the third quarter. With full employment and the US
electoral cycle to consider, so robust an economic backdrop is not one
normally associated with quiescent inflation. Therefore, financial markets may
continue to be troubled by inflation and US monetary policy over the next
twelve months. Moreover, it would be bold to assume that the recent easing of
price pressures means that inflation will return to the very low single digit
rates of the pre-pandemic period.
US interest rates are likely to dictate the near term mood of global financial
markets, the UK’s included. But equity returns over time are heavily
influenced by starting valuations, which stockmarkets can take to extreme
levels in their fits of despondency and elation. As the previous section of
this report described, the low valuations ascribed to UK equities, smaller
companies and, in particular, ASCoT’s portfolio bode well for returns over
the medium term. It is not straightforward to identify what will change to
shine the spotlight on the value on offer in the UK – were it easy, after
all, valuations would not now be so attractive. However, while acknowledging
the present debate about the relevance of the UK stockmarket, the Managers
retain confidence in its ability to reflect fairer valuations in due course.
Awaiting a general re-rating of the UK listed companies, ASCoT is well placed
to prosper in the meantime.
* With the outlook for inflation and interest rates more nuanced than in the
pre-pandemic period, there is reason to believe that the value investment
style can help ASCoT’s returns, as it has over the past three years. The
Managers’ commitment to value investment sets ASCoT apart from most other
funds in the small company arena.
* ASCoT’s portfolio is skewed towards resilient companies with strong
balance sheets and experienced boards of directors who proved themselves amid
the challenges of the pandemic. If, as seems likely, this is a period of more
difficult trading conditions, it is plausible that the investee companies
emerge in a stronger competitive position as they have in previous cycles.
* The investee companies’ resilience should support their dividends and by
extension the income ASCoT earns. ASCoT also benefits from its revenue
reserves, which have been carefully nurtured to allow the dividend record to
continue when the macro-economic environment deteriorates. These
characteristics support the Board’s ambition to grow ASCoT’s dividends at
a rate above that of inflation.
* In the absence of a widespread revaluation of companies listed on the UK
stockmarket, takeover activity is likely to continue. This is an obvious means
through which the value gaps that characterise ASCoT’s portfolio can be
realised. Takeovers are appropriate as long as the offer terms reflect the
target company’s true value and are not anchored by the prevailing
stockmarket price.
* Both in M&A situations and more broadly, the Managers will continue to
engage with the boards of investee companies in order to improve outcomes for
investors. Discreet, purposeful and constructive engagement is all the more
relevant today when valuations are so low and directors are frustrated by what
the stockmarket appears to be saying about the companies that they run.
These factors contribute to the strength and relevance of ASCoT’s investment
proposition, which the Managers believe can produce good returns for investors
as we wait for a re-rating of the UK equity market and its smaller companies.
When that re-rating does arrive, ASCoT’s attractively valued portfolio and
tactical gearing mean that it is well-placed to take full advantage.
Aberforth Partners
Managers
31 January 2024
DIRECTORS’ RESPONSIBILITY STATEMENT
Each of the Directors confirms 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 or loss of the Company;
(b) the Strategic Report includes a fair review of the development and
performance of the business and the position of the Company, together with a
description of the principal risks and uncertainties that it faces; and
(c) the Annual Report, taken as a whole, is fair, balanced and understandable
and provides information necessary for Shareholders to assess the Company’s
position, performance, business model and strategy.
On behalf of the Board
Richard Davidson
Chairman
31 January 2024
PRINCIPAL RISKS
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 and the context for risks
can be found in the Corporate Governance Report on page 35 of the Annual
Report. The Audit Committee Report (pages 36 to 38 of the Annual Report)
details the committee's review process, matters considered, and actions taken
on internal controls and risks during the year. The Audit Committee completed
a significant review and reassessment of the risk register in the year. This
included assessing the risks and supporting documentation, and enhancing the
detailed risk register reporting. 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.
Emerging risks are those that are still evolving, and are not fully
understood, but that could have a future impact on the Company. The Board
regularly reviews them and, during the year, it added to the risk matrix the
potential risks arising from reduced market demand for UK listed companies and
also the risks arising in the investment company sector from reduced investor
demand. The Board monitors these risks and how the Managers integrate such
risks into their investment decision making.
Principal risks are those risks in the matrix that have the highest ratings
based on likelihood and impact. They tend to be relatively consistent from
year to year given the nature of the Company and its business. The principal
risks faced by the Company, together with the approach taken by the Board
towards them, are summarised below. To indicate the extent to which the
principal risks change during the year and the level of monitoring required,
each principal risk has been categorised as either dynamic risk, requiring
detailed monitoring as it can change regularly, or stable risk.
Investment strategy/performance risk
Risk –this is a portfolio management risk Mitigation
The Company’s investment policy and strategy exposes the portfolio to share price movements. The performance of the investment portfolio typically differs from the performance of the benchmark and is influenced by investment strategy and policy, investment style, stock selection, liquidity and market risk (see Market risk 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 monitors performance against the investment objective over the long term by ensuring the investment portfolio is managed appropriately, in accordance with the investment 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 analysis, risk profile and attribution analysis.
Senior representatives of Aberforth Partners attend each Board meeting. Peer group performance is also regularly monitored by the Board. This remains a dynamic risk, with detailed consideration during the year. The Managers’ Report contains information on
portfolio investment performance and risk.
Market risk
Risk –this is a portfolio management risk Mitigation
Investment performance is affected by external market risk factors, including those creating uncertainty about future price movements of investments, geo-political stability and economic conditions. 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’ quarterly and other reporting. The Board and Managers closely monitor significant economic and political
developments including the potential effects of climate change (see pages 14 to 16 of the Annual Report). This remained a dynamic risk during the year, in which the Managers reported on market risks including inflation, energy security, recession and other
geopolitical issues as addressed in the Managers’ Report.
Share price discount
Risk –this is an investor relations risk Mitigation
Investment trust shares tend to trade at discounts to their underlying net asset values, but a significant share price discount, related volatility, or a discount significantly beyond peers’, could reduce shareholder returns and confidence. The Board and the Managers monitor the discount daily, both in absolute terms and relative to ASCoT’s peers. In this context, the Board intends to continue to use the buyback authority as described in the Directors’ Report contained in the Annual Report.
This is considered a dynamic risk as the discount moves daily. The Board discussed with the Managers a detailed analysis and assessment of this risk during the year.
Gearing risk
Risk –this is a portfolio management risk Mitigation
Tactical gearing can negatively affect investment performance. In rising markets, gearing enhances returns, but in falling markets it reduces returns to shareholders. The Board and the Managers have specifically considered the gearing strategy and associated risks during the year. At present this is a dynamic risk as the Company’s tactical gearing facility is partially deployed.
Reputational risk
Risk –this is an investor relations risk Mitigation
The risk of an event damaging the Company's reputation and shareholder demand. The reputation of the Company is important in maintaining the confidence of shareholders. The Board and the Managers regularly monitor factors that may affect the reputation of the Company and/or of its main service providers and take action if appropriate. The Board reviews relevant internal control reporting for critical outsourced service providers. This has been monitored as a stable risk.
Regulatory risk
Risk –this is a regulatory and legal risk Mitigation
Failure to comply with applicable legal, tax and regulatory requirements could lead to suspension of the Company’s share price listing, financial penalties or a qualified audit report. A breach of Section 1158 of the Corporation Tax Act 2010 could lead to The Board receives quarterly compliance reports from the Secretaries to evidence compliance with rules and regulations, together with information on future developments. This is a stable risk.
the Company losing investment trust status and, as a consequence, any capital gains would then be subject to capital gains tax.
Going Concern
The Audit Committee has undertaken and documented an assessment of whether the
Company is a going concern for the period of at least 12 months from the date
of approval of the financial statements. The Committee reported the results of
its assessment to the Board. The Company’s business activities, capital
structure and borrowing facilities, together with the factors likely to affect
its development and performance, are set out in the Strategic Report contained
in the Annual Report. In addition, the Annual Report includes the Company’s
objectives, policies and processes for managing its capital and financial
risk, along with details of its financial instruments and its exposures to
credit risk and liquidity risk. The Company’s assets comprise mainly readily
realisable equity securities and funding flexibility can typically be achieved
through the use of the borrowing facilities, which are described in notes 12
and 13 to the financial statements in the Annual Report. The Company has
adequate financial resources to enable it to meet its day-to-day working
capital requirements. In summary and taking into consideration all available
information, the Directors have concluded it is appropriate to continue to
prepare the financial statements on a going concern basis.
The Income Statement, Balance Sheet, Reconciliation of Movements in
Shareholders’ Funds and summary Cash Flow Statement are set out below.
INCOME STATEMENT
For the year ended 31 December 2023
(audited)
For the year ended For the year ended
31 December 2023 31 December 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Net gains/(losses) on investments - 58,432 58,432 - (195,756) (195,756)
Investment income 56,423 - 56,423 53,188 - 53,188
Other income 91 - 91 7 - 7
Investment management fee (3,350) (5,583) (8,933) (3,513) (5,855) (9,368)
Portfolio transaction costs - (1,855) (1,855) - (2,078) (2,078)
Other expenses (823) - (823) (808) - (808)
-------- -------- -------- -------- -------- --------
Net return before finance costs 52,341 50,994 103,335 48,874 (203,689) (154,815)
and tax
Finance costs (1,578) (2,631) (4,209) (704) (1,173) (1,877)
-------- -------- -------- -------- -------- --------
Return on ordinary activities 50,763 48,363 99,126 48,170 (204,862) (156,692)
before tax
Tax on ordinary activities (82) - (82) - - -
-------- -------- -------- -------- -------- --------
Return attributable to
equity shareholders 50,681 48,363 99,044 48,170 (204,862) (156,692)
====== ======= ======= ====== ======= =======
Returns per Ordinary Share (Note 4) 59.79p 57.05p 116.84p 55.64p (236.64)p (181.00)p
The Board declared on 31 January 2024 a final dividend of 28.55p per Ordinary
Share and a special dividend of 9.00p per Ordinary Share. The Board declared
on 26 July 2023 an interim dividend of 12.95p 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
year. 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
For the year ended 31 December 2023
(audited)
Capital
Share redemption Special Capital Revenue
capital reserve reserve reserve reserve Total
£’000 £’000 £’000 £’000 £’000 £’000
Balance as at 31 December 2022 853 135 50,481 1,109,683 89,718 1,250,870
Return on ordinary activities after taxation - - - 48,363 50,681 99,044
Equity dividends paid (Note 3) - - - - (41,046) (41,046)
Purchase of Ordinary Shares (9) 9 (11,641) - - (11,641)
-------- -------- -------- -------- -------- --------
Balance as at 31 December 2023 844 144 38,840 1,158,046 99,353 1,297,227
====== ====== ====== ====== ====== ======
For the year ended 31 December 2022
(audited)
Capital
Share redemption Special Capital Revenue
capital reserve reserve reserve reserve Total
£’000 £’000 £’000 £’000 £’000 £’000
Balance as at 31 December 2021 879 109 83,777 1,314,545 73,255 1,472,565
Return on ordinary activities after taxation - - - (204,862) 48,170 (156,692)
Equity dividends paid (Note 3) - - - - (31,707) (31,707)
Purchase of Ordinary Shares (26) 26 (33,296) - - (33,296)
-------- -------- -------- -------- -------- --------
Balance as at 31 December 2022 853 135 50,481 1,109,683 89,718 1,250,870
====== ====== ====== ====== ====== ======
BALANCE SHEET
As at 31 December 2023
(audited)
31 December 31 December
2023 2022
£‘000 £‘000
Fixed assets
Investments at fair value through profit or loss (Note 5) 1,363,980 1,322,261
---------- ----------
Current assets
Debtors 2,661 2,145
Cash at bank 2,734 1,668
---------- ----------
5,395 3,813
Creditors (amounts falling due within one year) (305) (75,204)
---------- ----------
Net current assets/(liabilities) 5,090 (71,391)
---------- ----------
Total Assets less Current Liabilities 1,369,070 1,250,870
Creditors (amounts falling due after more than one year) (71,843) -
---------- ----------
Total Net Assets 1,297,227 1,250,870
======= =======
Capital and reserves: equity interests
Called up share capital 844 853
Capital redemption reserve 144 135
Special reserve 38,840 50,481
Capital reserve 1,158,046 1,109,683
Revenue reserve 99,353 89,718
---------- ----------
Total Shareholders’ Funds 1,297,227 1,250,870
======= =======
Net Asset Value per Ordinary Share (Note 6) 1,536.73p 1,465.67p
CASH FLOW STATEMENT
For the year ended 31 December 2023
(audited)
31 December 2023 31 December 2022
£’000 £’000
Operating activities
Net revenue return before finance costs and tax 52,341 48,874
Tax withheld from income (82) -
Investment management fee charged to capital (5,583) (5,855)
(Increase) in debtors (516) (365)
Increase/(decrease) in other creditors - (24)
-------- --------
Net cash inflow from operating activities 46,160 42,630
===== =====
Investing activities
Purchases of investments (255,193) (250,161)
Sales of investments 270,051 284,746
-------- --------
Cash inflow from investing activities 14,858 34,585
===== =====
Financing activities
Purchases of Ordinary Shares (11,641) (34,026)
Equity dividends paid (Note 3) (41,046) (31,707)
Interest and fees paid (4,265) (1,732)
Gross drawdowns of bank debt facilities (before any costs) 52,000 126,000
Gross repayments of bank debt facilities (before any costs) (55,000) (137,500)
-------- --------
Cash (outflow) from financing activities (59,952) (78,965)
===== =====
Change in cash during the period 1,066 (1,750)
===== =====
Cash at the start of the period 1,668 3,418
Cash at the end of the period 2,734 1,668
====== ======
SUMMARY NOTES TO THE FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been presented under Financial Reporting
Standard 102 ("FRS 102") and under the AIC’s Statement of Recommended
Practice “Financial Statements of Investment Trust Companies and Venture
Capital Trusts” ("SORP"). 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 described below. The
Directors' assessment of the basis of going concern is described above. The
functional and presentation currency is pounds sterling, which is the currency
of the environment in which the Company operates. The Board confirms that no
critical accounting judgements or significant sources of estimation
uncertainty have been applied to the financial statements and therefore there
is not a significant risk of a material adjustment to the carrying amounts of
assets and liabilities within the next financial year.
2. INVESTMENT MANAGEMENT FEE AND BANK BORROWINGS
The Managers, Aberforth Partners LLP, receive an annual management fee,
payable quarterly in advance, equal to 0.75% of net assets up to £1 billion,
and 0.65% thereafter.
The investment management fee and finance costs of bank borrowings have been
allocated 62.5% to capital reserve and 37.5% to revenue reserve, in line with
the Board’s expected long term split of returns, in the form of capital
gains and income respectively, from the investment portfolio of the Company.
3. DIVIDENDS
Year to 31 December 2023 £’000 Year to 31 December 2022 £’000
Amounts recognised as distributions to equity holders in the period:
Final dividend for the year ended 31 December 2022 of 26.95p (2021: 24.25p) paid on 8 March 2023 23,000 21,262
Special dividend for the year ended 31 December 2022 of 8.30p (2021: nil) paid on 8 March 2023 7,084 -
Interim dividend for the year ended 31 December 2023 of 12.95p (2022: 12.05p) paid on 25 August 2023 10,962 10,445
------------ ------------
41,046 31,707
------------ ------------
The final dividend of 28.55p (2022: 26.95p) and special dividend of 9.00p
(2022: 8.30p) for the year ended 31 December 2023 will be paid, subject to
shareholder approval, on 8 March 2024. The final and special dividends for
2023 and 2022 have not been included as liabilities in the financial
statements.
4. RETURNS PER ORDINARY SHARE
Year to 31 December 2023 Year to 31 December 2022
The returns per Ordinary Share are based on : Returns attributable to Ordinary Shareholders £99,044,000 £(156,692,000)
Weighted average number of shares in issue during the year 84,766,084 86,570,115
Returns per Ordinary Share 116.84p (181.00)p
There are no dilutive or potentially dilutive shares in issue.
5. INVESTMENTS AT FAIR VALUE
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).
Investments held as fair value through profit or loss
As at 31 December 2023 Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000
Listed equities 1,363,980 - - 1,363,980
Unlisted equities - - - -
------------ ------------ ------------ ------------
Total financial asset investments 1,363,980 - - 1,363,980
------------ ------------ ------------ ------------
As at 31 December 2022 Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000
Listed equities 1,322,261 - - 1,322,261
Unlisted equities - - - -
------------ ------------ ------------ ------------
Total financial asset investments 1,322,261 - - 1,322,261
------------ ------------ ------------ ------------
6. NET ASSET VALUE PER SHARE
The Net Asset Value per share and the net assets attributable to the Ordinary
Shares at the year end are calculated in accordance with their entitlements in
the Articles of Association and were as follows.
31 December 2023 31 December 2022
Net assets attributable £1,297,227,000 £1,250,870,000
Ordinary Shares in issue at the end of the year 84,414,605 85,344,605
Net Asset Value per Ordinary Share 1,536.73p 1,465.67p
7. SHARE CAPITAL
During the year, the Company bought back and cancelled 930,000 shares (2022:
2,603,661) at a total cost of £11,641,000 (2022: £33,296,000). During the
period 1 January to 31 January 2024, 30,000 shares have been bought back for
cancellation.
8. RELATED PARTY TRANSACTIONS
The Directors have been identified as related parties and their fees and
shareholdings are detailed in the Directors’ Remuneration Report on pages 40
and 41 of the Annual Report. During the year no Director was interested in any
contract or other matter requiring disclosure under section 412 of the
Companies Act 2006.
9. Alternative Performance Measures
Alternative Performance Measures ("APMs") are measures that are not defined by
FRS 102 and FRS 104. The Company believes that APMs, referred to as ‘Key
Performance Indicators’ on page 5 of the Annual Report, provide Shareholders
with important information on the Company and are appropriate for an
investment trust company. These APMs are also a component of reporting to the
Board. A glossary of APMs can be found in the 2023 Annual Report.
10. 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 2022 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 February
2024. 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.
CONTACT: Euan Macdonald or Jeremy Hall, Aberforth Partners LLP, 0131 220 0733
ANNOUNCEMENT ENDS
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