Final Results
30/01/2025 13:24
Aberforth Smaller Companies Trust plc
Audited Annual Results for the year to 31 December 2024
The following is an extract from the Company's Annual Report and Financial
Statements for the year to 31 December 2024. The Annual Report is expected to
be posted to shareholders by 7 February 2025. 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 2024
Net Asset Value per Ordinary Share Total Return 12.1%
DNSCI (XIC) Total Return 9.5%
Ordinary Share Price Total Return 10.7%
Total ordinary dividends (excluding special dividend) for the year of 43.60p
per share represents growth of 5.1% compared to last year’s 41.50p per
share. In addition, a special dividend of 6.00p (last year: 9.00p) results in
total dividends of 49.60p per share for the year.
INVESTMENT OBJECTIVE
The investment objective of the Company is to achieve a net asset value total
return (with dividends reinvested) greater than that of the Deutsche Numis
Smaller Companies Index (excluding Investment Companies) (“DNSCI (XIC)” or
“benchmark”) over the long term.
CHAIRMAN’S STATEMENT TO SHAREHOLDERS
Review of performance
I am pleased to present ASCoT’s annual report and accounts for 2024. The
year brought renewed interest in the UK stockmarket and, importantly, a higher
share price for the Company as it continued its record of dividend growth.
ASCoT’s net asset value total return in the twelve months to 31 December
2024 was +12.1%. The share price total return was +10.7%. The difference
between the two numbers reflects a widening of the discount from 10.3% to
11.8% over the year.
ASCoT’s small company benchmark is the Deutsche Numis Smaller Companies
Index (excluding investment companies), which is abbreviated throughout this
report as DNSCI (XIC). Its total return in 2024 was +9.5%. A broader
perspective is given by the FTSE All-Share, which is representative of larger
British companies. Its total return was also +9.5%.
It was a good year for UK equities. This cannot easily be explained by the
global investment backdrop since macro economic and geopolitical uncertainty
remained elevated. Most major economies, with the notable exception of
America’s, were in the doldrums. Meanwhile, elections in several countries
brought results that will require further elections in the new year to
resolve. The Presidential Election in America did produce a clear winner, but
the world now waits to see the substance of Donald Trump’s policies
including the much vaunted trade tariffs.
Amid this, the UK’s economic performance was unspectacular as it emerged
from the recession in the second half of 2023. However, interest rates started
to decline and there have been encouraging signs that activity has started to
recover. On the political front, Labour’s decisive victory heralded some
political stability, though October’s Budget was unconvincing and undeniably
bad for businesses. Nevertheless, the impression developed through 2024 that
the UK is less of an outlier in both political and economic terms than it
seemed just over a year ago. This was enough to stimulate interest in UK
equities given how depressed sentiment had been. Further impetus came from the
persistently high level of M&A activity in the UK stockmarket. Takeovers
contributed significantly to ASCoT’s performance in 2024, which the
Managers’ Report examines in detail.
Dividends
The recession in the second half of 2023 meant that we entered 2024 with some
apprehension about ASCoT’s dividend receipts from its investee companies. In
the event, the dividend experience was good. The Revenue Return per Ordinary
Share of 56.59p was above the Managers’ estimates at the start of the year.
The 56.59p was also the second highest in ASCoT’s history, bettered only by
the 59.79p earned in 2023. Excluding special dividends received in both years,
the Revenue Return per Ordinary Share rose by 1% in 2024 compared with 2023.
The Board is pleased to be able to meet its ambition of growing ASCoT’s full
year ordinary dividend above the year-on-year rate of CPI inflation, which was
2.5% in December 2024. The dividend experience also makes it possible to add
to ASCoT’s robust revenue reserves. The Board has used these extensively in
the past to keep the dividend moving ahead even in difficult circumstances
such as the pandemic. Strong revenue reserves also give the Managers
investment flexibility, allowing them to deploy ASCoT’s capital where they
see the best long term total returns.
The Board proposes a final dividend of 30.00p per Ordinary Share, which would
represent growth of 5.1% on the previous year’s 28.55p. Together with the
interim dividend of 13.60p, the full year dividend would be 43.60p. Growth for
the full year would also be 5.1%, which would be comfortably above the rate of
inflation. On top of the ordinary dividend, we propose a special dividend of
6.00p, which ensures that ASCoT complies with HMRC’s minimum retention test
for investment trusts. After paying these dividends, ASCoT would be able to
retain 6.99p of revenue per Ordinary share. This would increase revenue
reserves to 87.89p per Ordinary share to keep the ordinary dividend covered a
healthy two times.
Gearing
ASCoT has a credit facility with The Royal Bank of Scotland International
Limited. This £130m facility runs to June 2026, which is aligned 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 34
years. The current phase started amid the pandemic in early 2020 and has since
enhanced ASCoT’s net asset value performance. The Board and Managers
regularly review the appropriateness of gearing and judge that current
stockmarket valuations merit its continued deployment. At the year end, £104m
of the facility was deployed and the gearing ratio, which is defined in the
glossary on page 66 of the Annual Report, was 7%.
Beyond the potential to enhance investment returns, the credit facility
provides other benefits. It provides the flexibility to conduct share
buy-backs and allows the Managers to react nimbly to new opportunities without
disturbing existing investments. This is particularly important in what can be
a volatile and relatively illiquid asset class.
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 2024, 590,000 shares were bought back and
cancelled. The total value of these repurchases was £8.4m, on an average
discount of 11.7%. Since 2008, ASCoT’s share buy-backs have totalled £166m
and added £25m 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 2024 and the
Board will seek to renew the authority at the Annual General Meeting on 6
March 2025.
Stewardship
The Board is responsible for the effective stewardship of the Company’s
affairs. These include oversight of the Managers’ activities in relation
to Environmental, Social and Governance (ESG) matters, which for 2024 are
covered on pages 14 to 16 of the Annual Report. 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.
Annual General Meeting (“AGM”)
The AGM will be held at 14 Melville Street, Edinburgh EH3 7NS at 10.30 am on 6
March 2025. 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
When writing last year’s statement, I was struck by the pessimism
surrounding the UK’s economy, its politics and its stockmarket. This was
clear in the valuations that the market was then placing on the stocks held by
ASCoT. But there was hope in the gloom. Stockmarkets crave a theme but have a
habit of overdoing it when they find one. The unusually low valuations in
October 2023 were themselves the seeds of improved investment returns. All
that appeared to be lacking was a catalyst. This was duly forthcoming with a
better economic performance, some political clarity and M&A activity.
This does not mean that it is now plain sailing for the UK. I would note that
companies and the gilt market are wrestling with the consequences of what was
an unconvincing Budget. However, a useful indication that there remains too
much pessimism about small UK quoted companies is the frequency of takeovers
– the acquirers clearly see value even as stockmarket investors remain
sceptical. ASCoT has consistently benefited from M&A over the years and the
Board supports the Managers’ purposeful and discreet engagement in bid
situations, and elsewhere, to improve investment returns.
In contrast to the gloom surrounding the UK, there is exuberance today about
the prospects for the American economy and its stockmarket. Donald Trump’s
victory and the broad enthusiasm for artificial intelligence have together
driven US equities to new heights. The US market would appear extended on
several measures, including the cyclically adjusted price earnings ratio and
stockmarket concentration. There is therefore a lot resting on what policies
the new president does implement. It is not clear to me that the consequences
of some of his mooted initiatives would be entirely good for stockmarket
valuations, even in America itself. What happens across the Atlantic will
likely be an important influence on ASCoT’s investment returns in the coming
year. Interest rates in America affect monetary policy in other countries.
Many of ASCoT’s investee companies do business in the US. The stockmarket
leadership of the “Magnificent Seven” has rekindled an investment style
environment that is more helpful for the growth investor.
Amid today’s top-down uncertainties, it is important not to lose sight of
the opportunities that come with change. Small companies are well placed to
take advantage by virtue of their scale and flexibility. Additionally, their
records of coping with the likes of the pandemic and their strong balance
sheets give confidence in their resilience. Nevertheless, risks continue to
influence valuations of small companies more than do the opportunities.
The Board believes that the Managers’ value investment philosophy can take
advantage of this situation and sees further upside from these valuations over
the medium term. A further re-rating would enhance the return from the
companies’ underlying progress, which can be gauged over time by the
dividend growth consistently delivered by ASCoT to its shareholders. Finally,
the Board believes that tactical gearing and share buy-backs can enhance
investment returns from ASCoT, particularly when stockmarket valuations are as
attractive as they are at present.
My fellow Directors and I always welcome the views of Shareholders. Please
contact me at my e-mail address, which is noted below.
Richard Davidson
Chairman
30 January 2025
richard.davidson@aberforth.co.uk
MANAGERS’ REPORT
Introduction
As they did in 2023, UK equities made progress in the year to 31 December
2024. ASCoT’s net asset value total return in the period was +12.1%. The
DNSCI (XIC), which is ASCoT’s benchmark, recorded a total return of 9.5%,
while that of large companies, in the form of the FTSE All-Share, was also
9.5%.
Investment Background
The top-down backdrop for stockmarkets was inauspicious in 2024. The war in
Ukraine rumbled on, as did the conflict between Israel and Hamas. The risk of
escalation buffeted oil prices and equity valuations. Political uncertainty
was an additional challenge. The results of the elections in the UK and the US
were broadly as expected, though the markets are now digesting the
implications of policy change under the new regimes. Politics are more unclear
elsewhere. An election looms in Japan, while South Korea has seen its
president attempt to impose martial law. In Europe, June’s election for the
European parliament was the catalyst for a snap election in France, where a
stable government has yet to be established. Meanwhile, Germany is also
facing elections early in 2025 following the collapse of the ruling coalition.
On the economic front, the UK pulled out of the recession in the second half
of 2023. The recovery has been tentative so far, but prospects for wage growth
above the rate of inflation, lower mortgage rates and high household savings
offer encouragement for the coming year. In Europe, Germany continues to
struggle to escape recessionary conditions. Its export reliant industrial
economy is contending with Chinese and Japanese competition, while demand for
its products from China and elsewhere is depressed. The bright spot has
remained the US, though even here recent macro-economic data have been patchy
and hint at slowing growth.
Despite these challenges, equities performed well in 2024, even stripping out
the boost to the US market from the “Magnificent Seven” and artificial
intelligence. The main reason for the broader performance was optimism about
the interest rate cycle – for equity markets, the promise of a lower cost of
money can overcome a host of other issues. The prospect of lower rates was
fuelled by that lacklustre growth environment described above and by improving
inflation data, as the pace continued to subside from the very high rates of
2022. Interest rate cuts were duly forthcoming, with the European Central Bank
cutting in June, the Bank of England in July and the Federal Reserve in
September. Stockmarkets’ great hope is that the Federal Reserve can achieve
the historically elusive “soft landing” – taming inflation without
tipping the US economy into recession.
However, towards the end of the year, politics intruded to unsettle the
narrative of disinflation and lower interest rates. The Republican clean sweep
in America’s Presidential and Congressional elections increased the
likelihood of potentially inflationary policies, such as trade tariffs, lower
immigration and tax cuts. It remains to be seen whether tariffs are
implemented in full force or are more of a negotiation tactic. And it is still
unclear whether the new Department of Government Efficiency can mitigate the
impact of tax cuts on budget deficits. Therefore, the assumption of a swift
return to the lower inflation and interest rate environment of the
pre-pandemic era has been undermined. It is notable that US bond yields have
risen and that the market now expects a slower pace of interest rate cuts than
it did before the elections.
In the UK, there have been similar developments. Labour’s first Budget in
nearly 15 years has clouded the outlook for monetary policy and the economy.
It seems likely that changes to the National Living Wage and employers’
national insurance contributions will be inflationary, as businesses seek to
pass on their cost increases. At the same time, higher government spending and
borrowing threatens to crowd out the private sector, which must also
contemplate further tax increases if the government’s growth ambitions do
not transpire as intended. Again, fiscal action jeopardises the outlook for
monetary policy: expectations today are now for less significant interest rate
cuts than was the case before the Budget. As in the US, the point here is not
to judge the merits of government policies. Rather, it is to highlight the
unintended consequences of governments’ plans for what buoyed stockmarket
valuations through 2024, namely expectations of lower interest rates.
Turning to the UK stockmarket, its relevance has been widely questioned in
recent years against a backdrop of outflows from equity funds and a dearth of
IPO activity. The angst has been shared by regulators and successive
governments. Several changes have followed, notably to the listing rules, and
more are to come with the new prospectus regime in 2025. Other initiatives may
follow, but the new Chancellor’s commentary thus far has been rather vague
and, as the short-lived flirtation with the UK ISA shows, policy change can be
abrupt.
Indeed, reliance on government diktat, with all its unintended consequences,
is seldom comfortable. Therefore, other signs of life in the UK stockmarket
are more encouraging. Valuations were at a particularly low ebb towards the
end of 2023, when the UK’s economic and political situation appeared
particularly uncertain in comparison with those of other countries. A year on,
the UK looks less of an outlier. This has helped to bring tension back into
the valuation of UK equities and to elicit a welcome re-rating of small and
large companies. At the same time, the identity of the marginal buyers of
small UK quoted companies is now clear: larger companies and overseas
companies through M&A, overseas asset managers, the companies themselves
through buy-backs, and, of course, ASCoT.
Analysis of performance and portfolio characteristics
Over the twelve months to 31 December 2024, ASCoT’s net asset value total
return was +12.1%. The DNSCI (XIC)’s was +9.5%. The table below is an
analysis of the difference between the two numbers. The most important
influence on ASCoT’s return was the total return performance of the
companies that make up its portfolio of investments.
For the twelve months ended 31 December 2024 Basis points
Attributable to the portfolio of investments, based on mid prices (after transaction costs of 15 basis points) 355
Movement in mid to bid price spread 3
Cash/gearing (17)
Purchase of ordinary shares 9
Management fee (76)
Other expenses (7)
Total attribution based on bid prices 267
Note: 100 basis points = 1%. Total Attribution is the difference between the total return of the NAV and the Benchmark Index (i.e. NAV = 12.15%; Benchmark Index = 9.48%; difference is 2.67% being 267 basis points).
The next table sets out a series of characteristics of both the portfolio and
the DNSCI (XIC). The paragraphs that follow provide context and explanation
for these characteristics and for ASCoT’s performance in 2024.
Portfolio characteristics 31 December 2024 31 December 2023
ASCoT DNSCI (XIC) ASCoT DNSCI (XIC)
Number of companies 79 350 78 353
Weighted average market capitalisation £649m £1,019m £591m £957m
Weighting in “smaller small” companies* 55% 21% 61% 28%
Portfolio turnover 20% N/A 20% N/A
Active share 78% N/A 75% N/A
Price earnings (PE) ratio (historical) 9.6x 13.0x 7.9x 12.8x
Dividend yield (historical) 4.0% 3.4% 4.2% 3.3%
Dividend cover (historical) 2.6x 2.2x 3.0x 2.3x
*”Smaller small” companies are members of the DNSCI (XIC) that are not
also members of the FTSE 250
Style
The Managers invest in accordance with their value investment philosophy. For
existing and potential investments, they calculate target valuations. These
are influenced by fundamental analysis, judgement informed by experience, and
reference to other relevant valuations in equity markets or corporate
activity. Growth of profits is an important component of a target valuation,
but the Managers find that stockmarket valuations are often too generous in
their assumptions of the sustainability and pace of growth.
The value investment philosophy means that ASCoT’s returns are influenced by
the stockmarket’s preference in any period for more expensively priced
growth stocks or more modestly rated value stocks. In respect of 2024,
analysis by London Business School of the DNSCI (XIC) suggests that the value
style performed in line with the growth style, with the latter buoyed in
sympathy with America’s large technology companies. Style was not,
therefore, a significant influence on ASCoT’s performance in 2024. Over
recent years, however, style has been beneficial. Value stocks have out-
performed since the recovery from the pandemic started towards the end of
2020. A further boost came as inflation soared in 2022 and drove bond yields
higher. While the rate of inflation has declined, its future path is
uncertain. This should help maintain interest in the value style.
Size
The DNSCI (XIC) includes all main listed stocks in the UK with market
capitalisations below c.£1.9bn. It therefore includes many mid cap companies.
For much of the period since the global financial crisis in 2008, the Managers
have found more attractive valuations down the market capitalisation scale.
ASCoT has therefore had a relatively high exposure to what might be termed the
“smaller small” companies. Since late 2020, as the pandemic recovery
commenced, the share prices of “smaller small” companies have performed
better than those of the mid caps within the DNSCI (XIC). This was again the
case in 2024. ASCoT’s returns therefore benefited from its size positioning
over the past twelve months. Notwithstanding this improved performance from
the “smaller smalls”, they continue to exhibit more attractive valuation
characteristics, as the section on Valuations below demonstrates.
Geography
Where a company earns its profits – whether in the domestic UK economy or
overseas – can be influential on its share price performance. The EU
referendum in 2016 weakened sterling, which helped profits earned in strong
currencies overseas. This ushered in a period of share price out-performance
for overseas facing companies. Domestic earners took a further hit in 2020
since they were disproportionately affected by lockdown. These events gave the
Managers the opportunity to increase ASCoT’s weighting to domestic facing
companies whose share prices had been disproportionately affected. At the
start of 2024, domestic companies accounted for 56% of the portfolio against
50% of the DNSCI (XIC).
Something changed in 2024. The share prices of domestic facing companies
out-performed those of the overseas earners by a significant margin. This
helped ASCoT’s investment return. There were several reasons for the change
in sentiment. First, there was growing optimism that interest rates cuts will
boost the profitability of domestic businesses, allowing their earnings to
recover from the 2023 recession. Second, prospects for overseas facing
companies were clouded by subdued demand conditions in much of the world and
by the risk of US trade tariffs. Additionally, sterling’s recent strength
against the euro was negative for profits, reversing some of the advantage
gained by overseas earners in the wake of the referendum. Towards the year
end, the effects of the Budget were felt on the share prices of domestic
businesses and the Managers are seeing investment opportunities in both groups
of companies.
Despite their recent challenges, ASCoT’s overseas earners remain strong
businesses. The engineering sector is a good example of the resilience. Most
engineers listed on the UK stockmarket today, including those owned by ASCoT,
are truly international businesses. They have grown geographically over the
years in response to shifting global demand, locating plants close to those of
their customers. Therefore, if the US does impose stringent tariffs on the
likes of Mexico, it is probable that these businesses will adapt again, moving
capacity from Mexico to their US facilities. Some transitional costs could be
incurred to achieve this, but the underlying viability and relevance of the
businesses would likely be unaffected.
Balance sheets
The following table sets out the balance sheet profile of ASCoT’s portfolio
and of the Managers’ Tracked Universe. This subset of the DNSCI (XIC)
represents 98% by value of the index as a whole and is made up of the 234
companies that the Managers follow closely.
Weight in companies with: Net cash Net debt/EBITDA < 2x Net debt/EBITDA > 2x Other*
Portfolio 2024 30% 45% 20% 5%
Tracked Universe 2024 30% 41% 23% 7%
*Includes loss-makers and lenders
The profile is familiar. Balance sheets are robust both within the portfolio
and among small caps in general. Around one third of both the portfolio and
index by value is represented by companies with net cash on their balance
sheets. The more highly leveraged companies tend to be those with asset
backing, such as pub businesses and property companies. It has been argued
that small companies are less securely funded than large companies and that
they therefore merit lower valuations. Some also claim that value stocks are
less securely funded than growth stocks. Neither of these contentions hold
true today, which underscores the attractiveness of ASCoT’s current
investment opportunity.
The strength of balance sheets naturally makes the question of capital
deployment more urgent. The Managers frequently engage on this issue with the
boards of ASCoT’s investee companies. The highest priority should be organic
investment to maintain the viability of a business and allow it to grow.
Thereafter, a coherent and appropriate dividend policy is essential, optimally
one that allows ordinary dividends to grow in real terms through economic
cycles. After that, acquisitions may be considered, but these should be
assessed against the benchmark of lower risk special dividends or share
buy-backs. It is notable that numerous small companies bought back shares in
2024, which points to the value that boards of directors see in their
companies. Within the portfolio, buy-backs were undertaken by 17 companies. At
around one fifth of the portfolio, this is the highest rate in ASCoT’s 34
year history.
Income
The table below categorises ASCoT’s 79 holdings at 31 December 2024
according to each company’s most recent dividend action.
Nil Payer Cutter Unchanged Payer Increased Payer New/Returner
16 12 15 32 4
The message from the analysis is good, with the most populated category being
those companies that most recently increased their dividends. There was
further benefit from the four companies recommencing dividends or making
payments for the first time. ASCoT also received two special dividends during
the year. Less positively, twelve companies cut their dividends. Seven of
these were businesses operating in the domestic economy, usually close to the
housing market. Their dividend decisions in 2024 were influenced by the impact
of the recession towards the end of 2023. Nevertheless, ASCoT’s income
experience in 2024 was on balance strong. Total income earned in the year was
slightly less than in 2023, mainly reflecting fewer special dividends
received, but it should be noted that 2023 was ASCoT’s best ever year in
income terms. The dividend experience of these last two years is a clear
illustration of the resilience of small UK quoted companies in the face of
often testing trading conditions.
The historical dividend yield of ASCoT’s holdings at 31 December 2024 was
4.0%, which was 26% higher than the average over ASCoT’s 34 year history.
Dividend cover was 2.6x, below the long term average of 2.8x. This reflects a
weak earnings performance from small companies through 2024, consistent with
the recession impact, along with the resilience of dividends previously
described. As profits continue their recovery from the downturn, it is likely
that dividend cover will return to its long term average.
Corporate activity
Stockmarket valuations in the UK remain attractive and so M&A activity
continues apace. If UK institutions and retail investors are willing sellers
of domestic equities, larger overseas companies and private equity are willing
buyers. In 2024, the takeovers of 15 companies within the DNSCI (XIC) were
completed. As the year ended, there were offers outstanding for three and
approaches had been made for another two. Of these 20 deals, the buyers were
evenly split between private equity and other companies. Most of the acquirers
were overseas based, with domestic buyers in six of the situations. Turning to
ASCoT’s experience, it had investments in eight of the 20 takeover targets.
Over the years, the Managers’ value investment style has meant that ASCoT
has been a disproportionate beneficiary of M&A activity.
There is nothing wrong with takeovers being the catalyst for the closing of
value gaps, but the low valuations that still prevail in the UK stockmarket
mean that the risk is high of some takeovers being done on unattractive terms.
The risk is exacerbated by boards and other shareholders yielding too quickly
to takeover interest, no doubt succumbing to the gloomy sentiment towards the
UK. The Managers’ approach in such situations is purposeful engagement, as
described in the section on Engagement below.
As the attractive valuations of small UK quoted companies draw takeover
interest, the corollary is a subdued IPO market. Just two IPOs of a reasonable
size and eligible for the DNSCI (XIC) were completed in 2024. The Managers
view this dearth of activity as a temporary phenomenon and a function of
prevailing valuations. The UK’s new listing rules and the imminent changes
to the prospectus regime are likely to encourage IPOs once the valuation basis
of the UK market recovers.
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 approach to engagement is intended to be purposeful, discreet
and constructive. Its purpose is to improve investment outcomes for
Aberforth’s clients and investors. The Managers engage on any topic that
they perceive to be affecting the valuation of a company. The most common
issue addressed is capital allocation, though M&A terms were an important
topic in 2024.
Engagement 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 are prepared to be taken inside for extended periods,
which indicates their commitment to responsible stewardship and which can be
helpful to investee companies. The Managers’ influence is enhanced by their
ability to take significant stakes of up to 25% of issued share capital across
their client base. At 31 December 2024, ASCoT had five holdings in which
Aberforth’s clients had a stake of more than 20% in an investee companies
and 26 holdings in which the stake exceeded 10%.
The currently high rate of M&A activity within the UK stockmarket makes
engagement particularly relevant and explains the recent focus given to it in
these reports. The terms of some of the takeovers have been frustrating. Large
control premiums have distracted from uninspiring exit valuations and from
boards too willing to present faits accomplis to their shareholders. Aberforth
has therefore reinforced, in both writing and in meetings, the importance of
boards consulting shareholders when they are considering a takeover offer or a
significant capital allocation decision. In 2024, there were numerous
consultations by companies about M&A. These often involved the Managers going
inside. In some cases, the Managers supported the boards in question to reject
a takeover approach. In others, they worked with the boards to improve the
initial terms offered. This sort of activity can be difficult and
time-consuming, but it is important particularly when UK valuations remain at
such attractive levels. The Managers are confident that their purposeful,
discreet and constructive engagement has enhanced ASCoT’s returns over time
and will continue to do so.
ASCoT’s gearing
ASCoT employs gearing tactically to take advantage of periods of stress in
economies and financial markets. It is currently geared for the fourth time in
its history, having drawn on its borrowing facility amid the pandemic in early
2020. Since then, gearing has enhanced ASCoT’s returns. Since UK equity
valuations continue to be attractive, the Managers believe that it is
appropriate that ASCoT remains geared. At 31 December 2024, the gearing ratio
was 7%. The ratio varied through the year with moves in the share prices of
the investee companies and as proceeds from holdings subject to takeover have
been realised.
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 DNSCI
(XIC). At 31 December 2024, it stood at 78%.
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.
Portfolio turnover is defined as the lower of purchases and sales divided by
the average portfolio value. In 2024, turnover was 20%. This is below the long
term average of 33%. Notwithstanding ASCoT’s positive return in the year,
this suggests that there was less opportunity for “value roll” than usual.
This is symptomatic of the deep under-valuation of small UK quoted companies
– if the stockmarket does not reflect their true value, there is no
incentive to reduce the position.
Environmental, social and governance (ESG)
In their analysis and assessment of companies, the Managers consider any issue
that affects valuation. This includes matters that come under the umbrella
term of ESG. If the Managers determine that a company’s valuation can be
enhanced by addressing such an issue, they engage with the board in question.
In practice, the majority of such engagements remain concerned with
governance. This reflects the Managers’ firm belief that good governance is
a pre-requisite for a good performance in environmental and social terms.
The ESG module in the Managers’ investment database is now firmly embedded.
It is clear that investee companies are coping well with the ESG expectations
of investors and the ESG requirements of regulators. For another year,
disclosure has improved and there are demonstrable actions under way to meet
net zero commitments. This effort is not costless and the burden on some
businesses is considerable. However, once again, the resilience and
flexibility of smaller companies is very much in evidence. This extends to the
identification of commercial opportunities that can arise from the ESG issues.
The products and services of several of ASCoT’s industrial holdings bring
savings to customers in both monetary and carbon terms. By quantifying avoided
emissions, these companies can emphasise their relevance both to the
stockmarket and to the real economy.
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.
Valuations
Last year’s Managers’ Report described an unusual triple valuation
discount from which ASCoT benefited. This is summarised in the following
table.
Price earnings (PE) ratio: 34 year average At 31 December 2023 At 31 December 2024
World equities* 15.9x 16.0x 17.7x
FTSE All-Share 15.3x 10.3x 14.6x
Smaller companies** 13.6x 10.3x 11.9x
ASCoT’s portfolio 12.0x 7.9x 9.6x
*Source: Bloomberg; Panmure Liberum
**DNSCI (XIC) to 2013 then Tracked Universe
Twelve months on, the triple discount remains in place: (1) UK equities have a
lower PE than global equities, (2) small UK quoted companies have a lower PE
than the UK market as a whole, and (3) ASCoT’s portfolio has a lower PE than
smaller companies. The table also demonstrates the valuation opportunity in
another way. At present, UK equities, smaller companies and the portfolio are
each rated on a lower PE than the average over ASCoT’s 34 years. Therefore,
ASCoT benefits from attractive valuations in comparison both with its own
history and with broader equity indices.
The table also reveals some change through 2024: the PEs of all four groups
have risen. In the case of world equities, this was principally due to the
further share price gains of the “Magnificent Seven” and their ilk. Less
appreciated have been the partial re-ratings of the UK equity market, smaller
companies and ASCoT’s portfolio. A broad re-rating of this sort is welcome
but unsurprising given how unusually low PEs were towards the end of 2023. The
uncertainty a year ago was when the improvement would come and what would
prompt it. In the event, there have been three influences: the improved
economic backdrop, a degree of political stability (at least in relative
terms), and the continued buying pressure in the form of M&A.
It is worth dwelling on the components of the re-rating. Focusing on smaller
companies, the historical PE rose from 10.3x at the end of 2023 to 11.9x at
the end of 2024. That is a 16% rise over a period in which the return from the
DNSCI (XIC) was 9.5%. From these two numbers it may be inferred that small
company profits fell in aggregate, by around 6%. This decline in reported
profitability is not news – last year’s Managers’ Report described the
likelihood of such an outturn given the impact of the recession in the second
half of 2023. While lower profits are unwelcome, it is clear that they were
not inconsistent with positive equity returns as the stockmarket discounted a
probable recovery in profits.
There are parallels here with the early 1990s recession, which was caused by
inflation and the tighter monetary policy required to address it. The table
below gives the macro economic context for the early 1990s downturn, along
with how small UK quoted companies performed in the period.
1990 1991 1992 1993 Cumulative 1991-3
UK economic context
GDP YoY +0.6% -1.4% +0.2% +2.3% +1.1%
CPI YoY +7.0% +8.5% +4.2% +2.5% +15.9%
Year end base rates 13.9% 10.4% 6.9% 5.4% -
DNSCI (XIC)* experience
Year end PE ratio 8.2x 11.3x 13.9x 18.6x -
Implied earnings growth +1.8% -13.7% -13.1% +6.2% -20.3%
Total return -23.5% +18.3% +6.4% +41.6% +78.2%
*Taken or calculated from London Business School data
The table shows the positive total returns generated by smaller companies in
1991 and 1992 even as the recession hit and profits declined. These returns
drove the PE ratio up to 13.9x by the end of 1992. This was, though, only a
partial re-rating since the actual recovery in earnings, which started in
1993, prompted a very strong performance from the asset class. Notwithstanding
the similarities with today’s situation, it would be wrong to anticipate
that the market plays out in precisely this way. However, it is clear that the
higher PEs seen in 2024 are not in and of themselves a barrier to further
gains.
The following table turns to forward valuations. It uses the Managers’
favoured valuation metric, EV/EBITA (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 profits
underlying the ratios are based on the Managers’ forecasts for each company
that they track. The bullet points following the table summarise its main
messages.
EV/EBITA 2024 2025 2026
ASCoT’s portfolio 7.9x 7.0x 6.1x
Tracked Universe (234 stocks) 10.0x 9.0x 7.8x
- 38 growth stocks 15.9x 14.7x 12.7x
- 196 other stocks 9.3x 8.3x 7.2x
- 102 stocks > £600m market cap 10.5x 9.5x 8.3x
- 132 stocks < £600m market cap 8.8x 7.6x 6.6x
• The ratios are lower in 2025 than in 2024. This reflects the
Managers’ anticipation of profit growth in 2025, as lower interest rates and
real wage growth drive a recovery in the profitability of domestic facing
companies.
• 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 7.9x EV/EBITA ratio for 2024 is considerably lower
than the average multiple of 13.6x at which takeover offers were made in 2024.
• Each year, the Managers identify a cohort of growth stocks within
the DNSCI (XIC). These stocks are on much higher multiples than both the
portfolio and the rest of the Tracked Universe.
• Picking up on the size commentary above, the “smaller small”
companies within the DNSCI (XIC) remain more attractively valued than do the
“larger smalls”, despite the former grouping’s better share price
performance in the year.
Outlook and conclusion
The investment outlook for 2025 is clouded by geopolitics. The war in Ukraine
continues, while the situation in the Middle East has recently become more
complicated with the overthrow of the Assad regime in Syria. Meanwhile, there
are unstable governments or imminent elections in France, Germany, Japan,
South Korea and Canada. Despite the conclusive Republican victory in the US,
uncertainty lingers. Donald Trump’s statements about tariffs and
reindustrialisation seem part of a world view that tends to isolationism,
though it is unclear how much of this is his well- practised tactics to
achieve a deal. To complicate matters, his fiscal actions will affect monetary
policy. This in turn will influence the US economy, whose resilience has been
welcome as other countries struggle, and the valuation basis of equities and
bonds around the world.
Political risk remains elevated too in the UK, despite – or perhaps because
of – Labour’s decisive election victory. The Budget was uninspiring and
impinges upon private sector growth, whatever the government’s rhetoric
about employers’ national insurance contributions. Businesses and consumers
can be forgiven for worrying about what might come next should economic growth
not pick up as the Chancellor predicts. Some of that scepticism seems shared
by bond investors, with gilt yields having risen sharply since the Budget.
However, it is important to put today’s big picture concerns and risks in
perspective. Macro economic and geopolitical issues are a fact of life. They
have beset equity investors over ASCoT’s 34 years, and indeed throughout the
history of financial markets. Indeed, an element of the superior return
achieved by equities over the long term is the reward for taking on those very
risks. In their investment discussions, the Managers aim to take into account
top down influences but try not to be distracted by them.
What is more certain is the resilience and valuations of the companies in
which ASCoT invests. It is worth returning to the way in which small UK quoted
companies have dealt so well with recent challenges such as Brexit, the
pandemic and supply chain disruption. Even in 2024, when companies reported
results affected by recession, many grew their dividends and many were able to
enhance shareholder returns with buy-backs. In this, they have been helped by
their strong balance sheets and experienced boards of directors. Given their
demonstrable flexibility, resilience and adaptability, it is reasonable to
expect them to cope well with further change.
It is clear, however, that the stockmarket continues to overlook the
resilience and progress of small UK quoted companies. Valuations recovered in
2024 but remain low in comparison with history and with other equity markets.
While the US market is priced for perfection, small UK quoted companies are
priced for irrelevance. But this tunnel vision on the part of equity markets
is part of the present opportunity for investors in ASCoT’s asset class.
What makes the valuation discrepancies particularly thought-provoking is that
there are rational investors – other companies and private equity – who
are prepared to pay substantial premiums over stockmarket prices to own small
UK quoted companies.
This takeover activity helped to shine a light on ASCoT’s investment
opportunity in 2024 by raising general awareness of the attractiveness of
valuations. Encouragingly, the Managers’ valuation framework suggests
further upside from the re- rating of the asset class. While it is not
guaranteed that this will come in a prompt and smooth manner, investee
companies are likely to continue to make underlying progress and build value
for their shareholders. ASCoT is positioned to benefit from this with its
diversified portfolio of resilient businesses, which has been constructed
through the Managers’ consistent investment process and value investment
philosophy.
Aberforth Partners
Managers
30 January 2025
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
30 January 2025
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 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 including cyber security. This review is also recorded in the
Company's risk documentation.
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 changes to legal rulings adversely affecting the
business models of investee companies and the risk of artificial intelligence
affecting investment or operational performance. The Board monitors these
risks and how the Managers integrate them 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.
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 economic and geopolitical issues as addressed
in the Managers’ Report.
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 above 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.
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 buy- back authority as described in the Directors’ Report. This is considered a dynamic risk as the
discount moves daily.
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. 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 Annual Report. The
Company has adequate financial resources to enable it to meet its day-to-day
working capital requirements. The triennial continuation vote was considered
including the outcome of the last vote in 2023, which was passed
overwhelmingly.
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 2024
(audited)
For the year ended For the year ended
31 December 2024 31 December 2023
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Net gains on investments - 116,364 116,364 - 58,432 58,432
Investment income 54,506 - 54,506 56,423 - 56,423
Other income 118 - 118 91 - 91
Investment management fee (3,708) (6,180) (9,888) (3,350) (5,583) (8,933)
Portfolio transaction costs - (2,179) (2,179) - (1,855) (1,855)
Other expenses (858) - (858) (823) - (823)
-------- -------- -------- -------- -------- --------
Net return before finance costs 50,058 108,005 158,063 52,341 50,994 103,335
and tax
Finance costs (2,427) (4,045) (6,472) (1,578) (2,631) (4,209)
-------- -------- -------- -------- -------- --------
Return on ordinary activities 47,631 103,960 151,591 50,763 48,363 99,126
before tax
Tax on ordinary activities - - - (82) - (82)
-------- -------- -------- -------- -------- --------
Return attributable to
equity shareholders 47,631 103,960 151,591 50,681 48,363 99,044
====== ======= ======= ====== ======= =======
Returns per Ordinary Share (Note 4) 56.59p 123.50p 180.09p 59.79p 57.05p 116.84p
The Board declared on 30 January 2025 a final dividend of 30.00p per Ordinary
Share and a special dividend of 6.00p per Ordinary Share. The Board declared
on 26 July 2024 an interim dividend of 13.60p 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 2024
(audited)
Capital
Share redemption Special Capital Revenue
capital reserve reserve reserve reserve Total
£’000 £’000 £’000 £’000 £’000 £’000
Balance as at 31 December 2023 844 144 38,840 1,158,046 99,353 1,297,227
Return on ordinary activities after taxation - - - 103,960 47,631 151,591
Equity dividends paid (Note 3) - - - - (43,130) (43,130)
Purchase of Ordinary Shares (6) 6 (8,371) - - (8,371)
-------- -------- -------- -------- -------- --------
Balance as at 31 December 2024 838 150 30,469 1,262,006 103,854 1,397,317
====== ====== ====== ====== ====== ======
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
====== ====== ====== ====== ====== ======
BALANCE SHEET
As at 31 December 2024
(audited)
31 December 31 December
2024 2023
£‘000 £‘000
Fixed assets
Investments at fair value through profit or loss (Note 5) 1,497,304 1,363,980
---------- ----------
Current assets
Debtors 2,874 2,661
Cash at bank 1,349 2,734
---------- ----------
4,223 5,395
Creditors (amounts falling due within one year) (302) (305)
---------- ----------
Net current assets 3,921 5,090
---------- ----------
Total Assets less Current Liabilities 1,501,225 1,369,070
Creditors (amounts falling due after more than one year) (103,908) (71,843)
---------- ----------
Total Net Assets 1,397,317 1,297,227
======= =======
Capital and reserves: equity interests
Called up share capital 838 844
Capital redemption reserve 150 144
Special reserve 30,469 38,840
Capital reserve 1,262,006 1,158,046
Revenue reserve 103,854 99,353
---------- ----------
Total Shareholders’ Funds 1,397,317 1,297,227
======= =======
Net Asset Value per Ordinary Share (Note 6) 1,666.95p 1,536.73p
CASH FLOW STATEMENT
For the year ended 31 December 2024
(audited)
2024 2023
£’000 £’000
Operating activities
Net revenue return before finance costs and tax 50,058 52,341
Tax withheld from income - (82)
Investment management fee charged to capital (6,180) (5,583)
(Increase) in debtors (213) (516)
Increase in other creditors 8 -
-------- --------
Net cash inflow from operating activities 43,673 46,160
===== =====
Investing activities
Purchases of investments (307,701) (255,193)
Sales of investments 288,596 270,051
-------- --------
Cash (outflow)/inflow from investing activities (19,105) 14,858
===== =====
Financing activities
Purchases of Ordinary Shares (8,371) (11,641)
Equity dividends paid (Note 3) (43,130) (41,046)
Interest and fees paid (6,452) (4,265)
Gross drawdowns of bank debt facilities (before any costs) 79,000 52,000
Gross repayments of bank debt facilities (before any costs) (47,000) (55,000)
-------- --------
Cash (outflow) from financing activities (25,953) (59,952)
===== =====
Change in cash during the period (1,385) 1,066
===== =====
Cash at the start of the period 2,734 1,668
Cash at the end of the period 1,349 2,734
====== ======
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 on pages 29
to 30 of the Annual Report. 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 2024 £’000 Year to 31 December 2023 £’000
Amounts recognised as distributions to equity holders in the period:
Final dividend for the year ended 31 December 2023 of 28.55p (2022: 26.95p) paid on 8 March 2024 24,091 23,000
Special dividend for the year ended 31 December 2023 of 9.00p (2022: 8.30p) paid on 8 March 2024 7,595 7,084
Interim dividend for the year ended 31 December 2024 of 13.60p (2023: 12.95p) paid on 29 August 2024 11,444 10,962
------------ ------------
43,130 41,046
------------ ------------
The final dividend of 30.00p (2023: 28.55p) and special dividend of 6.00p
(2023: 9.00p) for the year ended 31 December 2024 will be paid, subject to
shareholder approval, on 10 March 2025. The final and special dividends for
2024 and 2023 have not been included as liabilities in the financial
statements.
4. RETURNS PER ORDINARY
SHARE
Year to 31 December 2024 Year to 31 December 2023
The returns per Ordinary Share are based on : Returns attributable to Ordinary Shareholders £151,591,000 £99,044,000
Weighted average number of shares in issue during the year 84,175,009 84,766,084
Returns per Ordinary Share 180.09p 116.84p
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 at fair value through profit or loss
As at 31 December 2024 Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000
Listed equities 1,497,304 - - 1,497,304
Unlisted equities - - - -
------------ ------------ ------------ ------------
Total financial asset investments 1,497,304 - - 1,497,304
------------ ------------ ------------ ------------
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
------------ ------------ ------------ ------------
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 2024 31 December 2023
Net assets attributable £1,397,317,000 £1,297,227,000
Ordinary Shares in issue at the end of the year 83,824,605 84,414,605
Net Asset Value per Ordinary Share 1,666.95p 1,536.73p
7. SHARE CAPITAL
During the year, the Company bought back and cancelled 590,000 shares (2023:
930,000) at a total cost of £8,371,000 (2023: £11,641,000). During the
period 1 January to 30 January 2025, 520,500 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 4 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 2024 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 2023 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 7 February
2025. 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
Aberforth Partners LLP, Secretaries – 30 January 2025
ANNOUNCEMENT ENDS
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