Final Results
28/07/2023 10:11
Aberforth Split Level Income Trust plc
Audited Annual Results for the year to 30 June 2023
The following is an extract from the Company's Annual Report and Financial
Statements for the year to 30 June 2023. The Annual Report is expected to be
posted to shareholders by 7 August 2023. 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 (SUMMARY)
Performance (Total Return) Year to 30 June 2023
------------
Total Assets +9.7%
Ordinary Share NAV +12.2%
Ordinary Share Price +20.0%
ZDP Share NAV +3.6%
ZDP Share Price +3.0%
Refer to Note 2, Alternative Performance Measures, and Glossary.
Dividends Declared
Second Interim Dividend per Ordinary Share 3.30p
Together with the first interim dividend of 1.70p, the total underlying dividend for the year to 30 June 2023 is 5.00p per Ordinary Share. This is an increase of 16% compared to last year’s underlying dividend of 4.30p, which represents the total dividend of 4.55p less the special dividend of 0.25p per Ordinary Share. The second interim dividend has an ex-dividend date of 10 August 2023, record date of 11 August 2023 and pay date of 31 August 2023.
INVESTMENT OBJECTIVE
The investment objective of Aberforth Split Level Income Trust plc (ASLIT) is
to provide Ordinary Shareholders with a high level of income, with the
potential for income and capital growth, and to provide Zero Dividend
Preference (ZDP) Shareholders with a pre-determined final capital entitlement
of 127.25p on the planned winding-up date of 1 July 2024.
CHAIRMAN’S STATEMENT
Introduction
This is the sixth annual report of Aberforth Split Level Income Trust (the
Company), which covers the financial year to 30 June 2023.
Many of the significant challenges highlighted in my recent reports remain
firmly in focus. Elevated geopolitical tensions, persistently high inflation,
especially in the UK, and rising interest rates continue to influence the
direction of stockmarkets. With consumer budgets and profit margins under
pressure, recession is a realistic threat either in this or next year.
The financial year started well as the initial shock of Russia’s invasion of
Ukraine and the impact on energy prices eased. M&A activity also contributed
to positive returns, but the UK’s well documented Budget debacle in
September 2022 led to weak share prices, higher bond yields and sterling
approaching parity with the US dollar. Calm was restored towards ASLIT’s
half year with the change of Prime Minister and Chancellor. Share prices
responded well to this development and further impetus was provided by the
emergence of more benign inflation data in the US. However, enthusiasm about
the prospects of lower interest rates in the US was interrupted by the rapid
demise of Silicon Valley Bank and Credit Suisse, which provoked a sharp
reappraisal of risk in March. Swift regulatory action reassured the markets
that these bankruptcies were isolated cases and enabled stockmarkets to shift
their focus back to subsiding rates of inflation. The exception was the UK,
where stubbornly persistent inflation is requiring the Bank of England to
continue to raise interest rates and, by extension, the risk of recession.
Given this ‘wall of worry’ it was pleasing to see positive index returns
for UK equities during the period, albeit marginal ones for mid and small cap
companies, who underperformed their large cap brethren. However, UK indices
remain deeply unpopular from a global perspective, which is reflected in lower
returns generated during the year compared to most international peers.
Performance
I appreciate that it doesn’t really feel like it but in fact, over the
financial year as a whole, UK equities generated positive returns. The Numis
Smaller Companies Index (excluding Investment Companies) (“the Index” or
“NSCI (XIC)”), which defines ASLIT’s investment opportunity base,
generated a positive total return of 4.4% over the twelve months to 30 June
2023. Larger companies in the UK, in the form of the FTSE All-Share Index,
recorded a total return of 7.9%.
It is pleasing to report that ASLIT’s total assets total return, which
measures its ungeared portfolio performance, was up 9.7% during the year. When
geared by the Zero Dividend Preference (ZDP) Shares, the net asset value total
return of the Ordinary Shares was 12.2%. This reflects the return attributable
to equity Shareholders of 8.87p per Ordinary Share together with the effect of
the reinvestment of previously declared dividends. The Ordinary Share price
total return of 20.0% was helped by a narrowing of the share price’s
discount to net asset value from 12.1% to 6.7%.
As the capital value of the portfolio has increased, the projected cumulative
cover of the ZDP shares increased to 3.2 times at 30 June 2023 from 3.0 times
twelve months earlier.
Turning to the longer-term perspective from ASLIT’s inception in 2017 to 30
June 2023, the cumulative total assets total return and net asset value total
return are 5.8% and 1.8% respectively. These modest returns are clearly not
what the Board envisaged when ASLIT launched but in its short life, ASLIT has
had to battle with the fraught aftermath of the EU referendum, the pandemic
and the war in Ukraine, as well as the macro-economic headwinds of the past
year. Any one of these events would have been challenging enough for a company
with ASLIT’s geared structure, let alone all four. Detail about the effect
of these challenges on ASLIT’s valuation opportunity is provided in the
Managers’ Report.
Earnings and Dividends
The twists and turns of share prices over the year to 30 June 2023 contrast
with the steady progress of ASLIT’s revenue stream. The upward trend from
the pandemic lows has continued, which reflects positively on how well
investee companies’ boards stewarded capital during what was a very
challenging period. ASLIT’s dividend experience in the twelve months was
enhanced by the receipt of seven special dividends.
ASLIT’s revenue return per Ordinary Share was 5.35p in the year to 30 June
2023, which is 11% higher than the 4.81p earned in the year to 30 June 2022.
Special dividends from investee companies represent 0.42p per Ordinary Share
of the 5.35p of revenue generated for this financial year.
The Board is pleased to declare a second interim dividend of 3.30p per
Ordinary Share for the year to 30 June 2023, which represents an increase of
18% compared to the 2.79p in respect of the previous year. Together with the
first interim dividend of 1.70p paid on 8 March 2023, the total underlying
ordinary dividend with respect to the year to 30 June 2023 is 5.00p per
Ordinary Share. This is an increase of 16% compared to last year’s ordinary
underlying dividend of 4.30p, which represents the total dividend of 4.55p
less the special dividend of 0.25p per Ordinary Share.
After accounting for the second interim dividend, retained revenue reserves
were 1.32p per Ordinary Share at 30 June 2023. There are two reasons for the
Board’s decision to increase revenue reserves. First, notwithstanding the
resilience of the investee companies, an economic downturn could affect the
dividend performance of the portfolio. Second, prudent portfolio and liquidity
management activities in the run-up to the end of ASLIT’s planned life might
affect dividend receipts. Retained revenue reserves give the Board scope to
offset such factors and sustain dividends paid by ASLIT. Any revenue reserves
not utilised will be distributed to Ordinary Shareholders before or at the end
of ASLIT’s planned life next year.
The second interim dividend of 3.30p per Ordinary Share will be paid on 31
August 2023 to Ordinary Shareholders on the register on 11 August 2023. The
ex-dividend date is 10 August 2023. The Company operates a Dividend
Reinvestment Plan. Details of the plan, including the Form of Election, are
available from Aberforth Partners LLP or on the website, www.aberforth.co.uk.
Stewardship
As part of its stewardship responsibilities, the Board regularly reviews the
Managers’ approach to environmental, social and governance issues. Pages 13
to 15, of the Annual Report, describe the Board’s and Managers’ oversight
and activities in the year to 30 June 2023. 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.
Annual General Meeting (“AGM”)
The AGM will be held at 14 Melville Street, Edinburgh EH3 7NS at 11.00 a.m. on
30 October 2023 and 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 votes by proxy in advance
of the meeting. An update on performance and the portfolio will be available
on the Managers’ website following the meeting.
Conclusion
The Board is conscious that ASLIT’s capital performance over its life so far
has not matched expectations at the time of launch. However, despite the
various top-down challenges along the way, the investee companies have made
underlying progress, as may be gauged from the growth in ASLIT’s dividend
over the six years. The upshot of muted capital returns and resilient profits
is that the portfolio’s valuations today appear even more attractive than
was the case at inception. The consequent opportunity is addressed in detail
in the Managers’ Report and influences the Board’s thinking as it
contemplates the end of ASLIT’s planned life.
That planned life ends on 1 July 2024, on which date or in the three months
prior, the Board is obliged by the Company’s Articles to convene a general
meeting to propose that the Company be wound up. The spectre of recession and
the general apathy towards UK assets mean that the upside in ASLIT’s
portfolio is unlikely to be fully realised by 1 July 2024. Therefore, before
then, the Board intends to examine means whereby holders of both classes of
Share will be given the opportunity to continue their investment in some form,
alongside the option to realise their investment in cash.
The Board is working with the Managers and at this stage nothing has yet been
decided or, indeed, ruled out. We shall seek specialist advice in due course
and shall also take account of feedback received from Shareholders when
developing proposals, which we would expect to finalise during the second
calendar quarter of 2024.
My fellow directors and I would welcome the views of Shareholders about these
or any other matters pertinent to the Company, to which end my email address
is noted below.
Angus Gordon Lennox
Chairman
27 July 2023
Angus.GordonLennox@aberforth.co.uk
Managers’ Report
Introduction
Equity returns over the twelve months to 30 June 2023 were positive. The FTSE
All-Share index, which is representative of large UK companies, recorded a
total return of +7.9%. The gain from smaller companies was more modest. The
total return of the NSCI (XIC), which is ASLIT’s investment universe, was
+4.4%. ASLIT’s total asset total return, which is a measure of the
portfolio’s ungeared performance, was +9.7%. This backdrop of rising share
prices benefited both classes of shareholder: the Ordinary Shares’ net asset
value total return was +12.2%, while the final cumulative cover of the ZDP
Shares rose from 3.0x to 3.2x.
The positive returns from equity markets around the world in the twelve months
to 30 June 2023 contrast with the falling share prices that characterised
ASLIT’s previous financial year. Several factors contributed to the improved
mood. The initial shock of Russia’s war in Ukraine has subsided, while some
of the worst fears about energy supplies and prices have so far proved
misplaced. The reopening of China’s economy, following strict pandemic
lockdowns, should contribute to global economic activity and promises to ease
pressure on supply chains. Related to these points, inflationary forces appear
to be abating: in most major economies, the rate of change in consumer prices
is declining, though it remains elevated in comparison with the period before
the pandemic.
The response to inflation has been the large and rapid increases in interest
rates over the past 18 months. These have complicated economic activity and
asset valuations. They have also precipitated financial accidents, such as the
UK’s brief LDI crisis in the autumn followed by the spring’s regional bank
failures in the US. The markets’ calculation is that subsiding inflation
will soon allow the Federal Reserve to signal that the all-important US Fed
Funds rate has peaked. In stockmarket terms, the main beneficiaries so far of
this expectation of falling interest rates have been the large technology
companies in the US: their valuations thrived in the low inflation and low
interest rate environment preceding the pandemic and they are perceived as
being best placed to exploit the emerging fascination with artificial
intelligence.
The likelihood of the UK’s monetary policy following suit seems more
distant. Consumer price inflation is proving more persistent, forcing the Bank
of England to raise interest rates to 5% and bringing recession closer as
higher mortgage rates bite. Reawakened memories of a British problem with
inflation have contributed to a pervasive and thorough pessimism about the
UK’s prospects. Domestic politics of recent years have not helped. A
succession of prime ministers has struggled with the additional challenges
that the country’s departure from the EU has presented to economic activity.
Ideology has too often won out over pragmatism, culminating only nine months
ago in Liz Truss’s extraordinary and short-lived premiership.
These concerns have affected investment in the UK. Open-ended equity funds
have experienced persistent outflows for several years and institutional asset
allocation decisions appear influenced more by what has been rather than what
will be. Valuations attributed to UK assets languish. Against the dollar and
euro, sterling remains 15% or so below its levels before the EU referendum.
Gilt yields are on a wide premium to government bond yields in the US and
Europe. And UK stockmarket valuations are towards their lowest in over 30
years when compared with global equity market averages.
Equity valuations are examined in greater detail later in this report, but the
important point is that they contrast sharply with the recent performance of
the underlying businesses. The majority of small UK quoted companies and of
the portfolio’s holdings increased profits and dividends over the past year,
notwithstanding the slew of macro-economic challenges. Cost inflation was
passed on successfully, which confounds a recurring concern that small
companies lack pricing power. Balance sheets were strengthened and are as
strong as they have been in Aberforth’s 32 years history. This underlying
progress and resilience have persisted through the first part of 2023.
Performance and portfolio analysis
The following paragraphs describe the main influences on ASLIT’s performance
over the twelve months to 30 June 2023, as well as some of the significant
characteristics of the portfolio.
Style
The Managers’ value investment style has often been a significant influence
on ASLIT’s returns, and that was again the case in the twelve months to 30
June 2023. Over this period, the value cohort of the NSCI (XIC) significantly
out-performed the index’s growth stocks, according to data from the London
Business School. Continuing the trend since the pandemic recovery started,
investment style was therefore beneficial to ASLIT’s returns. It is notable
that most of this benefit came in the earlier part of the twelve month period.
Over recent months, the glamour of artificial intelligence has contributed to
a strong rebound in the share prices of the American technology leviathans,
which has been to the advantage of the growth style.
Size
The NSCI (XIC) is formed from companies in the bottom ten per cent by value of
the entire UK stockmarket. This meant that the largest company in the index on
its 1 January 2023 rebalancing had a market capitalisation of £1.6bn and that
the index has a significant overlap with the FTSE 250. ASLIT’s portfolio has
a relatively low exposure to companies in this overlap. It has relatively high
exposure to the NSCI (XIC)’s smaller constituents. This reflects these
“smaller small” companies’ much more attractive valuations, which are
set out later in this report. Over the twelve months to 30 June 2023, the
portfolio’s size positioning was modestly unhelpful to investment
performance, as can be gauged by the fact that the FTSE 250 out-performed the
FTSE SmallCap by 3%.
Balance sheets
The table below shows the balance sheet profile of the portfolio and of the
Tracked Universe at 30 June 2023, which is the subset of the NSCI (XIC) that
the Managers follow closely and which represents 98% by value of the total
index.
Weight in companies with: Net cash Net debt/EBITDA < 2x Net debt/EBITDA > 2x Others*
Portfolio 2023 47% 42% 5% 5%
Tracked Universe 2023 34% 36% 23% 8%
*Includes loss-makers and lenders
The portfolio’s balance sheet profile compares well with that of the index,
having a relatively high exposure to companies with net cash and a relatively
low exposure to those with higher leverage. This profile has emerged from the
Managers’ bottom-up stock selection – the stockmarket is not giving small
companies credit in their valuations for balance sheet strength.
The other important point to make about small companies’ balance sheets is
that they have not been so strong since around 2014. Companies had entered the
2009 recession with too much leverage and spent the next five years repairing
their balance sheets. Today, in contrast, companies would be entering a
slowdown or recession with healthy balance sheets. Clearly, there are
exceptions, but the broad-based balance sheet resilience is an
under-appreciated feature of small companies at present.
Income
ASLIT’s aim to generate income growth from its portfolio was impeded by the
pandemic, which forced many small companies to pass their dividends and
necessitated a cut in ASLIT’s dividend two years ago. However, since the
pandemic recovery started, smaller companies have displayed their resilience
and their commitment to their shareholders by promptly resuming dividend
payments. The rebound has been surprisingly and pleasingly quick, which has
allowed ASLIT’s revenue return attributable to Equity Shareholders in the
twelve months to 30 June 2023 to exceed its pre-pandemic level.
The table below illustrates the dividend performance of the portfolio over the
past year. It splits the 63 holdings into five categories, which are
determined by each company’s most recent dividend action.
Nil Payer Cutter Unchanged Payer Increased Payer New / Returner
4 8 8 40 3
The majority of the holdings increased their most recent dividends. A further
boost to the income performance comes from the New / Returners category. Its
constituents are companies that are paying dividends for the first time or
that have resumed payments, having paid nothing through the pandemic. It is
anticipated that three of the current Nil Payers will move into the New /
Returner category over the next twelve months. ASLIT’s income also benefited
from seven special dividends announced by investee companies in the year to 30
June 2023.
The average historical yield of the portfolio’s holdings at 30 June 2023 was
5.2%, while the average dividend cover was 2.4x. An economic downturn would
threaten dividend forecasts, but its impact should be mitigated by the
portfolio’s high dividend cover and strong balance sheets.
Corporate Activity
There was a flurry of M&A activity in the first part of 2022, but this petered
out as interest rates and the cost of corporate debt rose through the second
half of the year. Entering 2023, the Managers believed that the volatility of
debt markets would continue to discourage takeovers. In the event, however,
six new bids were announced for constituents of the NSCI (XIC) in the six
months to 30 June 2023, with ASLIT owning two of them. The average EV/EBITA of
the six at their deal prices was 16.2x, while the average premium to the
pre-announcement share prices was 67%.
More surprising than the rebound in M&A has been the nature of the bidders: in
five of the six deals, the buyers have been private equity firms. The surprise
reflects the fact that debt is the lifeblood of private equity and debt
markets have not yet settled down amid on-going tightening of monetary policy.
However, it would appear that the very low valuations of small UK quoted
companies mean that private equity does not need debt at the outset to make
their M&A models work. This is a stark illustration of the opportunity
currently embedded in the valuations of small UK quoted companies.
ASLIT may benefit from further takeover premiums for its holdings as long as
stockmarket valuations remain at their present low levels. However, in these
circumstances, it remains important to guard against opportunism on the part
of the buyers. Large takeover premiums may still not bring valuations to
appropriate levels and the Managers are prepared to vote against deals where
this is the case. 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.
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%. At 30 June 2023, it stood at 78%.
Portfolio turnover
Portfolio turnover is defined as the lower of purchases and sales divided by
average portfolio value. Over the twelve months to 30 June 2023, turnover was
18%. This relatively subdued rate of turnover is due to the low stockmarket
valuations of the portfolio’s holdings – discounts to the Managers’
target prices have not generally narrowed, so the opportunity for “value
roll” within the portfolio has been limited. “Value roll” is the term
that the Managers use to describe the recycling of capital from companies with
less upside to target prices into those with greater upside.
Some of the turnover in the period reflected investment in companies that
entered the NSCI (XIC) on 1 January 2023. As described in the last Interim
Report, this was the largest ever rebalancing of the index. The 29 companies
that were injected into the index offered the Managers additional opportunity:
the portfolio owned three of these so-called “fallen angels” at 30 June
2023.
Valuations
The table below sets out 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 forecasts underlying the ratios are the Managers’. The bullet
points following the table summarise its main messages.
EV/EBITA 2022 2023 2024
ASLIT 6.7x 7.6x 6.0x
Tracked Universe (234 stocks) 9.4x 9.6x 8.7x
- 40 growth stocks 14.5x 13.6x 13.7x
- 194 other stocks 8.7x 9.0x 7.9x
- 78 stocks > £600m market cap 11.0x 10.8x 10.2x
- 156 stocks < £600m market cap 7.4x 7.9x 6.6x
• The average EV/EBITA multiples of the portfolio are much lower than those
of the Tracked Universe. This has been a consistent feature over ASLIT’s
history and is consistent with the Managers’ value investment style.
• The portfolio’s 7.6x EV/EBITA ratio for 2023 is considerably lower than
the average multiple of 16.2x at which this year’s M&A deals in the NSCI
(XIC) have been struck.
• The profit forecasts underlying the EV/EBITA multiples for 2023 and 2024
are subject to uncertainty about the timing and intensity of an economic
downturn. It can be inferred from the progression of the multiple across the
three years that the Managers presently expect a slowdown in 2023, followed by
a recovery in 2024.
• The growth stocks within the Tracked Universe are on much higher multiples
than both the portfolio and the rest of the Tracked Universe.
• The “smaller small” companies within the index – here illustrated by
those with market capitalisations less than
£600m – are on vast valuation discounts to their larger peers. The Managers
identify no reason for this beyond a
general concern about liquidity and so the portfolio has a relatively high
exposure to these “smaller small” companies.
The table below set out some of the main characteristics of ASLIT’s
diversified portfolio of smaller companies. The point above about exposure to
“smaller small” companies is reinforced in the weighted average market
capitalisation row.
Portfolio characteristics 30 June 2023 30 June 2022
ASLIT NSCI (XIC) ASLIT NSCI (XIC)
Number of companies 63 339 66 323
Weighted average market capitalisation £630m £945m £622m £795m
Price earnings (PE) ratio (historical) 8.0x 10.8x 8.3x 9.8x
Dividend yield (historical) 5.2% 3.5% 4.5% 3.1%
Dividend cover 2.4x 2.6x 2.7x 3.3x
Alongside the 5.2% dividend yield, the portfolio’s most notable feature of
the table is average historical price earnings ratio (PE). It has fallen from
8.3x to 8.0x over the twelve months to 30 June 2023. Given ASLIT’s positive
total assets total return in this period, it can be inferred that the
reduction in the PE was due to growth in the earnings per share of the
portfolio’s holdings. An advantage of historical valuation measures,
particularly when a recession looms, is that they are not susceptible to
forecast uncertainties. To give a longer term perspective than ASLIT’s six
years, the chart below plots the historical PE ratio for the Managers’
longest standing portfolio, which shares many of ASLIT’s holdings.
The messages from the chart are that PE ratios are unusually low at present
and that they fall so low when recession threatens: the earlier low-points in
the chart were the early 1990s recession, the global financial crisis and the
pandemic. It is therefore possible that much of the risk of an economic
downturn is already embedded within share prices. Taking this argument
further, small company profits typically fall by around 30% in a recession. A
repeat of this would take the historical PE ratio of ASLIT’s portfolio of
8.0x to a forward ratio of 11.4x. This multiple of what can be thought of as
trough profits would still be below the long term average PE multiple shown in
the chart of 12.1x.
An influence on the portfolio’s low valuation at present is its exposure to
UK equities. These are out of favour with global investors for reasons
previously set out in this report. Data from Panmure Gordon help quantify the
scale of this disenchantment. The PE of the UK stockmarket is presently 27%
lower than the PE of global equities, which is much more than the average
discount of 15% over Aberforth’s 32 year history. Comparing ASLIT’s
portfolio directly with global equities, the current PE discount is 46%,
whereas the 32 year average for Aberforth’s longest standing portfolio has
been 24%. The valuation elastic is therefore extremely stretched at present,
with ASLIT on a triple discount by virtue of its value investment style, its
exposure to small companies and its Britishness. This appears incongruous
given the resilience of the portfolio’s investee companies and the fact 42%
of their revenues on average are generated outside the UK. An easing of the
tension in valuations, as one or more of these relationships returns towards
the normal levels of the past 32 years, should bode well for ASLIT’s
returns.
Outlook
Stockmarkets’ immediate obsession is US interest rates – each data release
is scrutinised exhaustively for a hint of what the Federal Reserve might do
next. The positive start to 2023 for equities indicates an expectation that US
interest rates are close to their peak. However, there are important caveats.
The speed and extent of the interest rate increases threaten further accidents
– the financial world has grown used to more than a decade of almost
costless money. Moreover, it is not clear that inflation will return
conveniently and reliably to its pre-pandemic levels – the rate of increase
will subside, but underlying inflationary pressures from labour markets and
from forces such as de-globalisation linger.
While equity investors are presently enthused by the outlook for US monetary
policy, they remain nervous about prospects for UK politics and economics over
the next couple of years. On the political front, there will be a UK General
Election within the next eighteen months. This will come at a time when the
influence of the more extreme elements of both main political parties appears
to be waning. However, a change of government looks likely, which brings
incremental risk.
Meanwhile, the UK economy is blighted by more persistent inflation than are
its peers. This threatens a more aggressive monetary response by the Bank of
England and potentially a more severe downturn in economic activity.
Recessions are unpleasant. They increase hardship faced by households and
businesses. They reduce incomes and profits. But they are also inevitable and
even necessary in order to address the effects of past policy mistakes and of
unforeseeable developments such as the pandemic.
The near term risks are undeniable. But so is the attractiveness of the
valuations attributed to the portfolio’s holdings by the stockmarket.
Importantly, the stress-testing of today’s valuations described above
suggests that much of the risk of a recession may already be embedded in share
prices. Ironically, therefore, there is less uncertainty about the medium and
long term outlook for returns from the companies in ASLIT’s portfolio.
History is rather convincing: when valuations have reached today’s levels in
the past, total returns over the next five years have been strong.
Conclusion
Herein lies the frustration for ASLIT. By virtue of its closed end structure
and its gearing, it is well suited to take advantage of today’s valuations,
but it has just one year of its planned life left. It is not clear that the
qualities of ASLIT’s portfolio – its strong balance sheets, resilient
income profile and very low valuations – will be recognised widely by
investors within this time frame. Further takeover activity will help close
value gaps, but more time is likely to be necessary to benefit fully from the
opportunity in today’s valuations. Therefore, the Managers are working with
the Board to offer Shareholders the option, no later than 1 July 2024, either
to realise their investment in cash or to continue their exposure to the
Managers’ investment approach in some form.
Aberforth Partners LLP
Managers
27 July 2023
FINANCIAL HIGHLIGHTS
TOTAL RETURN PERFORMANCE
Ordinary Share ZDP Share
Total Assets 1 N A V 2 Share Price 3 N A V 4 S
h
a
r
e
P
r
i
c
e
5
Year to 30 June 2023 9.7% 12.2% 20.0% 3.6% 3.0%
Annualised 3 years 14.8% 20.0% 22.1% 3.6% 4.1%
5 years 0.1% -0.9% -0.7% 3.6% 2.3%
Since inception 14 0.9% 0.3% -0.5% 3.5% 3.0%
Cumulative 3 years 51.1% 72.9% 82.2% 11.2% 12.7%
5 years 0.3% -4.2% -3.6% 19.3% 12.2%
Since inception 14 5.8% 1.8% -2.9% 22.8% 19.5%
The total return per Ordinary Share 2 for the year to 30 June 2023 was 8.87p (2022: (18.98)p).
ORDINARY SHARE
Net Asset Value per Share Share Price Discount / (Premium) Revenue Return per Share Ordinary Dividends per Share Special Dividends per Share Ongoing Charges 6 Gearing 7
----------- ---------- ------------ ----------- ------------ ------------ ------------ ------------
30 June 2023 77.2p 72.0p 6.7% 5.35p 5.00p - 1.3% 39.8%
30 June 2022 73.0p 64.2p 12.1% 4.81p 4.30p 0.25p 1.2% 40.6%
30 June 2021 95.7p 87.2p 8.8% 2.90p 3.05p - 1.2% 29.9%
At inception14 an Ordinary Share had a NAV of 100p and a gearing7 level of
25%.
ZERO DIVIDEND PREFERENCE SHARE (ZDP SHARE)
Net Asset Value per Share Share Price Discount / (Premium) Return per Share Projected Final Cumulative Cover 8 Redemption Yield 9
------------ ----------- ------------ ---------- ------------ ------------
30 June 2023 122.8p 119.5p 2.7% 4.3p 3.2x 6.4%
30 June 2022 118.6p 116.0p 2.2% 4.1p 3.0x 4.7%
30 June 2021 114.5p 114.0p 0.4% 4.0p 3.6x 3.7%
At inception14 a ZDP Share had a NAV of 100p, a Projected Final Cumulative
Cover8 of 3.4x, and a Redemption Yield9 of 3.5%.
HURDLE RATES10
Ordinary Shares Annualised Hurdle Rates to return ZDP Shares Annualised Hurdle Rates to return
100p Share Price Zero Value 127.25p Zero Value
At ------------ ------------ ------------ ------------ ------------
30 June 2023 28.4% 1.3% -68.6% -68.6% -99.7%
30 June 2022 16.2% -0.7% -42.6% -42.6% -94.8%
Inception 14 1.5% n/a -17.0% -17.0% -57.2%
REDEMPTION YIELDS & TERMINAL NAVs (ORDINARY SHARES)
As at 30 June 2023
Annualised Ordinary Share Redemption Yields 11 Dividend Growth (per annum)
Capital Growth (per annum) -20.0% -10.0% +0.0% +10.0% +20.0% Terminal NAV 12
------------ ------------ ------------ ------------ ------------ ------------
-20.0% -23.8% -22.6% -21.3% -19.9% -18.4% 50.0p
-10.0% -9.0% -7.7% -6.4% -4.9% -3.3% 60.3p
+0.0% 5.8% 7.1% 8.6% 10.1% 11.7% 70.7p
+10.0% 20.5% 22.0% 23.5% 25.1% 26.8% 81.0p
+20.0% 35.3% 36.8% 38.4% 40.0% 41.8% 91.3p
The valuation statistics in the tables above are projected, illustrative and
do not represent profit forecasts. There is no guarantee these returns will be
achieved.
1-14 Refer to Note 2, Alternative Performance Measurement, and Glossary.
DIRECTORS’ RESPONSIBILITY STATEMENT
The Directors who were in office at the date of approving the financial
statements confirm to the best of their knowledge that:
(a) the financial statements, which have been prepared in accordance with
applicable accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit/loss of the Company;
(b) the Strategic Report includes a fair review of the development and
performance of the business and financial position of the Company, together
with a description of the principal risks and uncertainties that it faces; and
(c) the Annual Report and Financial Statements, taken as a whole, is fair,
balanced and understandable and provides the information necessary for
Shareholders to assess the Company’s performance, business model and
strategy.
On behalf of the Board
Angus Gordon Lennox
Chairman
27 July 2023
PRINCIPAL RISKS AND RISK MANAGEMENT
The Board carefully considers the risks faced by the Company and seeks to
manage these risks through continual review, evaluation, mitigating controls
and action as necessary. A risk matrix for the Company is maintained. It
groups risks into the following categories: portfolio management; investor
relations; regulatory and legal; and financial reporting. Further information
regarding the Board’s governance oversight of risk, its review process and
the context for risks can be found in the Corporate Governance Report (page 30
of the Annual Report). The Audit Committee Report (pages 31 to 33 of the
Annual Report) details matters considered and actions taken on internal
controls and risks during the year. The Company outsources all the main
operational activities to recognised, well-established firms and the Board
receives internal control reports from these firms, where available, to review
the effectiveness of their control frameworks.
Emerging risks are those that could have a future impact on the Company. The
Board regularly reviews them and, during the year, it considered the effects
of economic and political developments within the risk category of market
risk. The Board regularly monitors how the Managers integrate such risks into
the investment decision making.
Principal risks are those risks derived from the matrix that have the highest
risk ratings based on likelihood and impact. They tend to be relatively
consistent from year to year given the nature of the Company and its business.
Monitoring by the Board did not give rise to any changes during the year to
the risk ratings applied to each of the principal risks. On a forward looking
basis, the principal risks faced by the Company, together with the approach
taken by the Board towards them, are summarised below.
To indicate the 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.
(i) Investment policy/performance risk (a portfolio management risk) – The
Company’s investment policy and strategy expose the portfolio to share price
movements. The performance of the investment portfolio will be influenced by
stock selection, liquidity and market risk (see 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's aim is to achieve the investment objective by
ensuring the investment portfolio is managed in accordance with the policy and
strategy. The Board has outsourced portfolio management to experienced
investment managers with a clearly defined investment philosophy and
investment process. The Board receives regular and detailed reports on
investment performance including detailed portfolio and risk profile analysis.
Senior representatives of Aberforth Partners attend each Board meeting. This
remains a dynamic risk, with detailed consideration during the year. The
Managers’ Report contains information on portfolio investment performance
and risk.
(ii) Market risk (a portfolio management risk) – Investment performance is
affected by a number of market risk factors, which cause uncertainty about
future price movements of investments. The Board delegates consideration of
market risk to the Managers to be carried out as part of the investment
process. The Managers regularly assess the exposure to market risk when making
investment decisions and the Board monitors the results via the Managers’
reporting. The Board and Managers closely monitor economic and political
developments. This remained a dynamic risk during the year, in which the
Managers reported on market risks including inflation and supply-chain
pressures and other geopolitical issues referred to in the Managers’ Report.
(iii) Structural conflicts of interest (an investor relations risk) – The
different rights and expectations of the holders of Ordinary Shares and the
holders of ZDP Shares may give rise to conflicts of interest between them.
While the Company’s investment objective and policy seek to strike a balance
between the interests of both classes of Shareholder, there can be no
guarantee that such a balance will be achieved and maintained during the life
of the Company. The Board acts in a manner that it considers fair, reasonable
and equitable to both classes of Shareholder. This is a stable risk.
(iv) Significant fall in investment income (a portfolio management risk)– A
significant fall in investment income could lead to the inability to provide a
high level of income and income growth. The Board receives regular and
detailed reports from the Managers on income performance together with income
forecasts. The Board and Managers monitor investment income and it is
considered a dynamic risk.
(v) Loss of key investment personnel (a portfolio management risk) – The
Board believes that a risk exists in the loss of key investment personnel at
the Managers. The Board recognises that the collegiate approach employed by
the Managers mitigates this risk. Board members are in regular contact with
the partners and staff of the Managers and monitor personnel changes. This is
a stable risk.
(vi) Regulatory risk (a regulatory and legal risk) – Breach of regulatory
rules could lead to suspension of the Company’s share price listings,
financial penalties or a qualified audit report. Breach of Section 1158 of the
Corporation Tax Act 2010 could lead to the Company losing investment trust
status and, as a consequence, any capital gains would then be subject to
capital gains tax. The Board reviews regular reports from the Secretaries to
monitor compliance with regulations. This is a stable risk.
The Income Statement, Reconciliation of Movements in Shareholders’ Funds,
Balance Sheet and Cash Flow Statement are set out below.
INCOME STATEMENT
Year to 30 June 2023
(audited)
Year to Year to
30 June 2023 30 June 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Net gains / (losses) on investments - 10,052 10,052 - (41,748) (41,748)
Investment income 10,985 20 11,005 10,024 - 10,024
Other income 14 - 14 - - -
Investment management fee (443) (1,034) (1,477) (521) (1,216) (1,737)
Portfolio transaction costs - (313) (313) - (329) (329)
Other expenses (357) - (357) (335) - (335)
-------- -------- -------- -------- -------- --------
Net return before finance costs and tax 10,199 8,725 18,924 9,168 (43,293) (34,125)
Finance costs:
Appropriation to ZDP Shares - (2,024) (2,024) - (1,956) (1,956)
Interest expense and overdraft fee (3) (7) (10) (3) (6) (9)
-------- -------- -------- -------- -------- --------
Return on ordinary activities before tax 10,196 6,694 16,890 9,165 (45,255) (36,090)
Tax on ordinary activities (24) - (24) (22) - (22)
-------- -------- -------- -------- -------- --------
Return attributable to Equity Shareholders 10,172 6,694 16,866 9,143 (45,255) (36,112)
====== ====== ======= ====== ======= =======
Returns per Ordinary Share 5.35p 3.52p 8.87p 4.81p (23.79)p (18.98)p
The Board declared on 27 July 2023 a second interim dividend of 3.30p per
Ordinary Share. The Board also declared on 26 January 2023 a first interim
dividend of 1.70p per Ordinary Share.
The total column of this statement is the profit and loss account of the
Company. All revenue and capital items in the above statement derive from
continuing operations. No operations were acquired or discontinued in the
period. A Statement of Comprehensive Income is not required as all gains and
losses of the Company have been reflected in the above statement.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS
Year to 30 June 2023
(audited)
Share Special Capital Revenue
capital reserve reserve reserve Total
£’000 £’000 £’000 £’000 £’000
Balance as at 30 June 2022 1,902 187,035 (57,620) 7,635 138,952
Return on ordinary activities after tax - - 6,694 10,172 16,866
Equity dividends paid - - - (9,018) (9,018)
-------- -------- -------- -------- --------
Balance as at 30 June 2023 1,902 187,035 (50,926) 8,789 146,800
====== ====== ====== ====== ======
Year to 30 June 2022
Share Special Capital Revenue
capital reserve reserve reserve Total
£’000 £’000 £’000 £’000 £’000
Balance as at 30 June 2021 1,902 187,035 (12,365) 5,417 181,989
Return on ordinary activities after tax - - (45,255) 9,143 (36,112)
Equity dividends paid - - - (6,925) (6,925)
-------- -------- -------- -------- --------
Balance as at 30 June 2022 1,902 187,035 (57,620) 7,635 138,952
====== ====== ====== ====== ======
BALANCE SHEET
As at 30 June 2023
(audited)
30 June 2023 30 June 2022
£’000 £’000
Fixed assets
Investments at fair value through profit or loss 202,150 193,062
---------- ----------
Current assets
Debtors 782 755
Cash at bank 2,949 1,590
---------- ----------
3,731 2,345
Creditors (amounts falling due within one year) (664) (62)
---------- ----------
Net current assets 3,067 2,283
---------- ----------
Total Assets less Current Liabilities 205,217 195,345
Creditors (amounts falling due after more than one year)
ZDP Shares (58,417) (56,393)
---------- ----------
TOTAL NET ASSETS 146,800 138,952
======= =======
Capital and Reserves: Equity Interests
Share capital:
Ordinary Shares 1,902 1,902
Reserves:
Special reserve 187,035 187,035
Capital reserve (50,926) (57,620)
Revenue reserve 8,789 7,635
---------- ----------
TOTAL SHAREHOLDERS’ FUNDS 146,800 138,952
======= =======
Net Asset Value per Ordinary Share 77.16p 73.04p
Net Asset Value per ZDP Share 122.82p 118.57p
CASH FLOW STATEMENT
For the year to 30 June 2023
(audited)
Year to 30 June 2023 Year to 30 June 2022
£’000 £’000
Operating activities
Net revenue before finance costs and tax 10,199 9,168
Receipt of special dividend taken to capital 20 -
Tax (withheld) from income (24) (20)
Investment management fee charged to capital (1,034) (1,216)
(Increase) in debtors (27) (421)
(Decrease)/increase in creditors (7) 9
-------- --------
Cash inflow from operating activities 9,127 7,520
===== =====
Investing activities
Purchases of investments excluding transaction costs (36,395) (41,203)
Sales of investments excluding transaction costs 37,655 41,007
-------- --------
Cash inflow/(outflow) from investing activities 1,260 (196)
===== =====
Financing activities
Equity dividends paid (9,018) (6,925)
Interest and fees paid (10) (9)
-------- --------
Cash outflow from financing activities (9,028) (6,934)
===== =====
Change in cash during the period 1,359 390
===== =====
Cash at the start of the period 1,590 1,200
Cash at the end of the period 2,949 1,590
====== ======
SUMMARY NOTES TO THE FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been presented under Financial Reporting
Standard 102 (FRS 102) and the AIC’s Statement of Recommended Practice
“Financial Statements of Investment Trust Companies and Venture Capital
Trusts” (SORP).
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 page 24 of the Annual Report. In
particular the Directors considered the implications of the proximity to the
planned winding-up date of 1 July 2024 and that Shareholders will have a vote
on proposals relating to the Company’s planned life, on or within the three
months prior to 1 July 2024. The Directors may be released from the obligation
to call a general meeting to wind up the Company if a special resolution has
been passed to that effect not later than 1 July 2024. The Directors also
considered the investment outlook, the objectives of both classes of
Shareholder, potential sources of funding to finance the repayment of the
entitlement due to the ZDP Shareholders and other future cash flows of the
Company. The nature of any proposals that may be presented by the Directors
relating to the Company’s planned life on which the Shareholders will be
required to vote and the outcome of the vote on any such proposals represent a
material uncertainty in the context of assessing the prospects of the Company
beyond 1 July 2024. This may cast significant doubt on the ability of the
Company to continue preparing its financial statements on a going concern
basis to the extent that they include, and Shareholders vote for, a winding-up
of the Company. If at some point in the future the Directors conclude it is
not appropriate to prepare the financial statements on a going concern basis
then adjustments would be required to reclassify all assets as current, and a
provision for further liabilities, including liquidation costs, would be made.
Consideration would also be given to valuing the portfolio on a discounted bid
basis to reflect the cost of liquidating the portfolio in a shorter time
frame.
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 significant accounting judgements or estimates have been applied to
the financial statements and therefore there is not a significant risk of
causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year. Given the nature of the Company,
the Board does not consider climate change material to the presentation of the
financial statements.
2. ALTERNATIVE PERFORMANCE MEASURES
Alternative Performance Measures (APMs) are measures that are not defined
under the requirements of FRS 102 and are unaudited. The Company believes that
APMs, referred to within “Financial Highlights”, 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 including APMs can be found below and in the 2023 Annual Report.
3. INVESTMENT MANAGEMENT FEE
The Managers, Aberforth Partners LLP, receive an annual management fee,
payable quarterly in advance, equal to 0.75% of the Company’s Total Assets.
The management fee is allocated 70% to capital reserves and 30% to revenue
reserves.
4. DIVIDENDS PAID
Amounts recognised as distributions to equity holders: Year to 30 June 2023 £’000 Year to 30 June 2022 £’000
In respect of the year to 30 June 2021:
Second interim dividend of 2.13p (paid on 27 August 2021) - 4,052
In respect of the year to 30 June 2022 First interim dividend of 1.51p (paid on 8 March 2022) - 2,873
Second interim dividend of 2.79p (paid on 26 August 2022) 5,308 -
Special dividend of 0.25p (paid on 26 August 2022) In respect of the year to 30 June 2023: First interim dividend of 1.70p (paid on 8 March 2023) 475 3,235 - -
------------ ------------
Total 9,018 6,925
------------ ------------
The second interim dividend for the year ended 30 June 2023 of 3.30p (2022:
2.79p) per Ordinary Share is payable on 31 August 2023 and has not been
recognised in the financial statements as at 30 June 2023. Deducting the
second interim dividend from the Company’s revenue reserves at 30 June 2023
leaves revenue reserves equivalent to 1.32p per Ordinary Share.
5. RETURNS PER
SHARE
Year to 30 June 2023 Year to 30 June 2022
Ordinary Shares
Net return for the year £16,866,000 £(36,112,000)
Weighted average Ordinary Shares in issue during the year 190,250,000 190,250,000
Return per Ordinary Share 8.87p (18.98)p
ZDP Shares
Appropriation to ZDP Shares for the year £2,024,000 £1,956,000
Weighted average ZDP Shares in issue during the year 47,562,500 47,562,500
Return per ZDP Share 4.26p 4.11p
There are no dilutive or potentially dilutive shares in issue.
6. INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS
Year to 30 June 2023 £’000 Year to 30 June 2022 £’000
Investments at fair value through profit or loss
Opening fair value 193,062 235,448
Opening fair value adjustment 38,832 (9,102)
------------ ------------
Opening book cost 231,894 226,346
Purchases at cost 36,734 40,342
Sale proceeds (37,698) (40,980)
Realised gains on sales 3,543 6,186
------------ ------------
Closing book cost 234,473 231,894
Closing fair value adjustment (32,323) (38,832)
------------ ------------
Closing fair value 202,150 193,062
------------ ------------
All investments are in ordinary shares listed on the London Stock Exchange.
Year to 30 June 2023 £’000 Year to 30 June 2022 £’000
Gains/(losses) on investments:
Net realised gains on sales 3,543 6,186
Movement in fair value adjustment 6,509 (47,934)
------------ ------------
Net gains/(losses) on investments 10,052 (41,748)
------------ ------------
In accordance with FRS 102, fair value measurements have been classified using
the fair value hierarchy:
Level 1 – using unadjusted quoted prices for identical instruments in an
active market;
Level 2 – using inputs, other than quoted prices included within Level 1,
that are directly or indirectly observable (based on market data); and
Level 3 – using inputs that are unobservable (for which market data is
unavailable).
All investments are held at fair value through profit or loss, have been
classified as Level 1 and are traded on a recognised stock exchange.
7. NET ASSET VALUE (“NAV”) PER
SHARE
The Net Assets and the Net Asset Value per share attributable to the Ordinary
Shares and ZDP Shares are as follows.
30 June 2023 30 June 2022
Ordinary Shares ZDP Shares Total Ordinary Shares ZDP Shares Total
Net assets attributable £146,800,000 £58,417,000 £205,217,000 £138,952,000 £56,393,000 £195,345,000
Number of Shares at the reporting date 190,250,000 47,562,500 237,812,500 190,250,000 47,562,500 237,812,500
------------ ------------ ------------ ------------ ------------ ------------
NAV per Share (a) 77.16p 122.82p 86.29p 73.04p 118.57p 82.14p
Dividend reinvestment factor 13 (b) 1.319066 - 1.226413 1.242432 - 1.174303
------------ ------------ ------------ ------------ ------------ ------------
NAV per Share on a total return basis at the end of the period (c) = (a) x (b) 101.78p 122.82p 105.83p 90.75p 118.57p 96.46p
------------ ------------ ------------ ------------ ------------ ------------
NAV per Share on a total return basis at the start of the period (d) 90.75p 118.57p 96.46p 114.43p 114.46p 113.40p
------------ ------------ ------------ ------------ ------------ ------------
Total Return performance (c) / (d) - 1 12.2% 3.6% 9.7% -20.7% 3.6% -14.9%
------------ ------------ ------------ ------------ ------------ ------------
13 Refer to Glossary
8. SHARE CAPITAL
Shares £’000
As at 30 June 2023
Ordinary Shares of 1p each 190,250,000 1,902
ZDP Shares of 1p each 47,562,500 476
------------ ------------
Total issued and allotted 237,812,500 2,378
------------ ------------
There have been no changes in the issued share capital since the launch of the
Company on 3 July 2017.
9. ZERO DIVIDEND PREFERENCE SHARES
Year ended: 30 June 2023 £’000 30 June 2022 £’000
Opening Balance 56,393 54,437
Issue costs amortised during the period 48 46
Capital growth of ZDP Shares 1,976 1,910
------------ ------------
Closing Balance 58,417 56,393
------------ ------------
10. RELATED PARTY TRANSACTIONS
The Directors have been identified as related parties and their fees and
interests have been disclosed in the Directors’ Remuneration Report
contained in the Annual Report. During the year no Director or entity
controlled by a Director was interested in any contract or other matter
requiring disclosure under section 412 of the Companies Act 2006.
11. 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 30 June 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 7 August 2023.
Members of the public may obtain copies from Aberforth Partners LLP, 14
Melville Street, Edinburgh EH3 7NS or from its website: www.aberforth.co.uk.
GLOSSARY:
1 Total Assets Total Return – the theoretical return of the combined funds
of the Ordinary Shareholders and ZDP Shareholders assuming that dividends paid
to Ordinary Shareholders were reinvested at the NAV per Ordinary Share at the
close of business on the day the Ordinary Shares were quoted ex dividend.
2 Ordinary Share NAV Total Return – the theoretical return on the NAV per
Ordinary Share assuming that dividends paid to Ordinary Shareholders were
reinvested at the NAV per Ordinary Share at the close of business on the day
the Ordinary Shares were quoted ex dividend.
3 Ordinary Share Price Total Return – the theoretical return to an Ordinary
Shareholder, on a closing market price basis, assuming that all dividends
received were reinvested, without transaction costs, into the Ordinary Shares
at the close of business on the day the shares were quoted ex dividend.
4 ZDP Share NAV Total Return – represents the return on the entitlement of a
ZDP Share. The ZDP Share NAV as at 30 June 2023 was 122.82p (30 June 2022:
118.57p).
5 ZDP Share Price Total Return – the theoretical return to a ZDP
Shareholder, on a closing market price basis.
6 Ongoing Charges – represents the percentage per annum of investment
management fees and other operating expenses to the average published Ordinary
Shareholders’ NAV over the period.
7 Gearing – calculated by dividing the asset value attributable to the ZDP
Shares by the asset value attributable to the Ordinary Shares.
8 Projected Final Cumulative Cover – the ratio of the total assets of the
Company as at the calculation date, to the sum of the assets required to pay
the final capital entitlement of 127.25p per ZDP Share on the planned
winding-up date, the future estimated management fees charged to capital, and
estimated winding-up costs.
9 Redemption Yield (ZDP Share) – the annualised rate at which the total
discounted value of the planned future payment of capital equates to its share
price at the date of calculation.
10 Hurdle Rate - the rate of capital growth per annum in the Company’s
investment portfolio to return a stated amount per Share at the planned
winding-up date.
11 Redemption Yield (Ordinary Share) - the annualised rate at which projected
future income and capital cash flows (based on assumed future capital and
dividend growth rates) is discounted to produce an amount equal to the share
price at the date of calculation.
12 Terminal NAV (Ordinary Share)- the projected NAV per Ordinary Share at the
planned winding-up date at a stated rate of capital growth in the Company’s
investment portfolio after taking into account the final capital entitlement
of the ZDP Shares, future estimated costs charged to capital and estimated
winding-up costs.
13 Dividend reinvestment factor - is calculated on the assumption that
dividends paid by the Company were reinvested into Ordinary Shares of the
Company at the NAV per Ordinary Share or the share price, as appropriate, on
the day the Ordinary Shares were quoted ex dividend.
14 Inception Date – 30 June 2017.
CONTACT:
Euan Macdonald / Christopher Watt - Aberforth Partners LLP - 0131 220 0733
Aberforth Partners LLP
Managers and Secretaries
28 July 2023
ANNOUNCEMENT ENDS
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