ABERFORTH SMALLER COMPANIES TRUST PLC
Aberforth Smaller Companies Trust plc
Audited Final Results for the year to 31 December 2014
The following is an extract from the Company's Annual Report and Accounts for the
year to 31 December 2014. The Annual Report is expected to be posted to shareholders
on 3 February 2015. 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: www.morningstar.co.uk/uk/NSM facility.
FINANCIAL HIGHLIGHTS
Net Asset Value Total Return -0.7%
Numis Smaller Companies Index (Excl. Investment Companies) Total Return -1.9%
Ordinary Share Price Total Return +0.1%
Final Dividend increased by 5.3% to 17.00p per Ordinary Share
The objective of Aberforth Smaller Companies Trust plc (ASCoT) is
to achieve a net asset value total return (with dividends reinvested) greater
than that of the Numis Smaller Companies Index (excluding Investment
Companies) over the long term. ASCoT is managed by Aberforth Partners LLP.
CHAIRMAN'S STATEMENT TO SHAREHOLDERS
Review of 2014 performance
In last year's report my predecessor pointed out that the strong
returns of 2012 and 2013 were unlikely to be matched in 2014 and indeed the
year proved tougher for small UK quoted companies when compared with the
strong returns of the previous two years. The FTSE 100 Index gave a total
return of +0.7% while the FTSE All-Share Index, which is heavily weighted
towards large companies, delivered a return of +1.2%. By comparison, the Numis
Smaller Companies Index Excluding Investment Companies (NSCI (XIC)), the
Company's benchmark, produced a return of -1.9%. Over the same period, the
Company's net asset value total return was -0.7% while the share price total
return was +0.1%.
The Managers' Report gives much greater detail to the headline numbers and
expands on the influences and factors that have affected the Company's
performance in 2014.
Board changes
In October 2014 I became Chairman of the Company replacing
Professor Paul Marsh. Paul was an excellent Chairman and Director of the
Company over a ten year period. We will all miss his invaluable contribution
and his knowledge of the investment landscape. He did a superb job for
investors in the Company and leaves with our very best wishes.
I am delighted to be the Company's fourth Chairman since its
formation in 1990 (even though it feels a little like being asked to follow
Alex Ferguson!) and, along with my Board colleagues, look forward to working
with the Managers to help extend the excellent long term record.
Dividends
The Company witnessed a continuation of the recent positive trends
with regard to dividend experience from investee companies. In this context,
the Board is pleased to propose a final dividend of 17.0p. This results in
total dividends for the year of 24.75p, representing an increase of 5.3% on
2013. Based on the year end share price of 1,072p, the Company's shares
deliver a historic 2.3% yield.
The Board remains committed to a progressive dividend policy. The
Company's revenue reserves, after adjusting for payment of the final dividend,
amount to 38.6p per share (up from 36.1p as at 31 December 2013) and provide a
degree of flexibility going forward.
The final dividend, subject to Shareholder approval at the 2015
Annual General Meeting, will be paid on 5 March 2015 to Shareholders on the
register as at the close of business on 13 February 2015. The ex dividend date
is 12 February 2015. ASCoT operates a Dividend Reinvestment Plan. Details of
the plan, including the Form of Election, are available from Capita
Registrars.
Gearing
It has been the Company's policy to use gearing in a tactical
manner throughout its 24 year history. As reported in the Interim Report, the
previous debt facility expired in May 2014 and this was replaced with a new
£125m facility from The Royal Bank of Scotland plc. The new facility is on
improved terms and is due to expire on 15 June 2017. The facility provides the
Managers with flexibility in accessing liquidity for investment purposes, as
well as the ability to fund share buy-ins without disturbing the underlying
portfolio. At the year end, gearing stood at 2.8% of Shareholders' funds.
During the year, the level of gearing ranged from 0.2% to 3.6% with an average
of 2.3%.
Share buy-in
At the Annual General Meeting in March 2014, the authority to buy
in up to 14.99% of the Company's Ordinary Shares was approved. During the
year, 38,000 Ordinary Shares (0.04%) were bought in at a total cost of £0.4
million. Those Shares have been cancelled rather than held in Treasury. Once
again, the Board will be seeking to renew the buy-in authority at the Annual
General Meeting on 27 February 2015.
Scottish Independence
Whilst the outcome of the referendum on Scottish Independence was
that Scotland should remain within the United Kingdom, constitutional changes
appear now to be a fixture on the political agenda. The Board's stance on this
is unchanged: we will continue to monitor developments and be prepared to take
such actions as may be appropriate and in the interest of Shareholders as a
whole.
Summary
The Company will move past the quarter century landmark in 2015.
The continuation vote held in 2014 was enthusiastically supported by the vast
majority of shareholders. It is of course an election year and by the time I
write to Shareholders with the Interim Report in July the Company will have
experienced its sixth General Election and potentially its fifth Prime
Minister. Domestic political uncertainty is at a high level and is likely to
remain so at least up to and possibly beyond the date of the election.
Investment trusts, with their fixed capital structures, have a long tradition
of navigating both economic and political change. Regardless of the outcome of
the election, the Board continues to have confidence in both the Managers and
their value investing style. The Board has a clear view that this style and
the exposure to smaller companies will reward investors in the long term but
are very conscious that there will be possibly quite long periods when both
may be out of fashion. However, it is our belief that this combination has
been central to generating the excellent long term returns of the Company.
Since our formation in 1990, the NSCI (XIC) has risen by +11.2% per annum in
total return terms. By comparison, the Company's net asset value total return
has been +14.1% per annum.
Finally, the Board very much welcomes the views of Shareholders and is always available to
talk to them directly. My email address is noted below.
Paul Trickett
Chairman
29 January 2015
paul.trickett@aberforth.co.uk
MANAGERS' REPORT
Introduction
ASCoT's NAV total return in 2014 was -0.7%. This outcome was
influenced by a weak showing from the small company asset class: the NSCI
(XIC) generated a total return of -1.9%. The FTSE All-Share, which is
representative of larger companies, produced a total return of 1.2%. Thus,
last year brought a reversal of the pattern of very strong returns from
smaller companies in recent years. Over the five years to 31 December 2014,
the total return of small companies has been 104%, against 52% for large.
The modest movements of UK equities in 2014 are in contrast to some
remarkable gyrations in the broader financial markets.
- Government bond yields, which rose sharply in 2013, headed downwards again
in 2014. In the US, ten year treasury yields were 3.0% at the start of the
year, experienced an extraordinary dip to 1.7% in October and stood at 2.2% at
the year end. Gilts yields followed a similar path, falling from 3.0% to 1.8%.
The decline was influenced by a reassessment of the outlook for economic
growth, as Japan and the Eurozone in particular disappointed expectations.
Also influential were the anticipation of quantitative easing in the Eurozone
and more stimulus in Japan. These offset the "tapering" of the US's own
quantitative easing programme.
- Among equity markets, the performance of the US stockmarket, the world's
largest, stood out. The S&P 500 rose by 11% and ended the year close to its
all time high. Helping this performance was the relative buoyancy of the US
economy. Its recovery from the global financial crisis has seen it resume its
pre-eminence in the context of the global economy. However, growth in gross
domestic product was not the sole determinant of equity performance. The UK
market struggled, despite a better than expected outturn for economic growth,
which in part reflects its significant exposure to oil companies. In contrast,
Germany and Japan, whose economies have disappointed, saw their equity markets
achieve positive returns in 2014.
- Currency movements change the picture. The US dollar was particularly strong
in 2014, rising by 13% on a trade-weighted basis. Thus, in dollar terms, the
positive returns of the German and Japanese markets lapse into negative
territory: for example, Germany's Dax was up by 3% in euro terms but down by
10% in dollar terms. Periods of dollar strength are frequently awkward affairs
for other parts of the world economy, challenging established financial
relationships and hampering global trade.
- The strong dollar exerted pressure on the prices of commodities through
2014. Of these, oil stands out. Its 46% price decline over the year
accelerated in the final quarter as the impact of weaker demand, the US shale
boom and OPEC's reluctance to cut production were digested. The share prices
of oil companies duly suffered, though other stockmarket sectors ought to be
beneficiaries of lower oil prices.
The aforementioned price movements are often contradictory and
imply large swings in relative valuations between asset classes. Against this
background, the tasks of running small UK quoted companies or of making
investment decisions about those companies are inevitably complicated. The
burden has been eased somewhat by the performance of the UK economy, which
accounts for around half of the revenues of the small cap universe. Challenges
to the domestic economy remain. Among these are several more years of
austerity, wage growth that struggles to exceed the rate of inflation, and a
particularly uncertain political environment. However, the recovery continued
through 2014 and helped small companies generate earnings growth of around 8%.
This was lower than market expectations at the start of the year, as is
usually the case. It is, though, an acceptable outcome, especially when backed
up by dividend growth of a similar magnitude.
Investment performance
ASCoT's NAV total return in 2014 was -0.7%, against the NSCI
(XIC)'s total return of -1.9%. That relative performance is analysed in the
table below. The following paragraphs describe the principal influences on
performance in 2014.
For the 12 months ended 31 December 2014 Basis points
Stock selection 280
Sector selection (40)
____
Attributable to the portfolio of investments, 240
based on mid prices
(after transaction costs of 29 basis points)
Movement in mid to bid price spread (43)
Cash/gearing 0
Purchase of Ordinary Shares 0
Management fee (76)
Other expenses (6)
___
Total attribution based on bid prices 115
===
Note: 100 basis points = 1%. Total Attribution is the difference between
the total return of the NAV and the Benchmark Index (i.e. NAV= -0.70%;
Benchmark Index = -1.85%; difference is 1.15% being 115 basis points).
Sectors
The portfolio's sector positions, and thus the contribution from
sector selection shown in the preceding table, are usually the outcome of the
Managers' bottom-up stock selections. But, in view of the recent weakness of
the oil price, a general comment on the Oil & Gas sector is merited. Towards
the end of 2013, exposure to the sector was increased in a meaningful way for
the first time in around a decade. This was motivated by the low valuations of
several small oil companies, whose share prices had fallen sharply over recent
years in response to industry-wide cost pressures and deteriorating returns on
marginal investment. Such were the declines that a phase of consolidation had
started. The message in this consolidation was that it was becoming cheaper to
own oil reserves through M&A than to produce them by drilling another hole.
Indeed, the portfolio benefited from this consolidation as one of its oil
holdings was acquired. However, the takeover of another oil holding towards
the end of the year was thwarted by the precipitous drop in the oil price.
This has provoked a reassessment of their investment plans by oil companies
and has put significant pressure on share prices. The pressure was sufficient
to render many mid cap oil companies eligible for inclusion in the NSCI (XIC)
on its annual rebalancing. The impact of these means that the NSCI (XIC)'s
weighting in Oil & Gas at 1 January 2015 was 5.8%. ASCoT's exposure was 3.7%.
As they have done in other sectors over the years, the Managers will look to
take advantage of an indiscriminate sell-off in share prices that becomes
unfairly reflected in the valuations of small oil companies.
Style & size
On its 1 January 2015 rebalancing, the NSCI (XIC)'s largest
constituent had a market capitalisation of £1,265m. The index thus encompasses
a large portion of mid cap companies. Indeed, the overlap with the FTSE 250
represents 67% by value of the NSCI (XIC). Motivated by relative valuations,
the portfolio has a relatively low exposure to this mid cap component. This
positioning was unhelpful in 2014, as the returns of the FTSE 250 (+2.8%) and
the FTSE SmallCap (-2.7%) suggest.
Meanwhile, the Managers' value investment style, which boosted
returns in 2013, played a much less significant role in 2014. Indeed, such was
the narrowness of the gap between value and growth that one of the style data
providers used by the Managers, London Business School, suggested that value
under-performed growth, while the other, Style Research, suggested the
reverse. Hindering the value style in 2014 were the relapse in bond yields and
flattening of yield curves, which, all else being equal, tend to favour the
prospects of growth companies. On the other hand, for a variety of company
specific reasons, some growth stocks encountered trading difficulties in 2014.
From lofty valuations, these often experienced substantial falls in their
share prices. ASCoT benefited in a relative performance sense from not owning
these companies. In certain cases, the de-rating has been such that they are
starting to measure up to the Managers' value investment criteria.
Dividends
The dividend performance of small companies in 2014 was good. Mid
to high single digit growth across the small cap universe extended to five
years the run of dividend growth above its long term average. Of course, part
of the reason for this record is the starting point: many small companies cut
their dividends in the recession of 2009. The other important reason for the
recent strong growth in dividends also has its roots in the global financial
crisis. To generalise, in the years leading up to 2008, companies were able to
forget about their shareholders: all the marginal financing they required came
from the banks. The crisis changed this: banks came under pressure to
deleverage and it was the shareholders that kept many companies solvent in
2009 with rescue rights issues. These events have reinforced the priorities of
company boards, one manifestation of which is the growth in dividends.
ASCoT has shared in this trend. The table below categorises the
portfolio's 88 companies according to their most recent dividend action. It is
pleasing to note that the largest category is represented by those that
increased their dividends; among these, the median rate of increase was 9%.
The `Other' category includes those companies with no meaningful comparison,
i.e. IPOs in 2014 and other companies that have started paying dividends.
Band Nil Down Flat Up Other
No. of holdings 20 7 11 44 6
The other notable category is `Nil', which comprises those
companies that have not paid a dividend over the past 12 months. These 20
companies account for 17% of the portfolio by weight: this is a high level of
exposure for ASCoT to nil payers. The corollary of this exposure is average
dividend cover for the 88 holdings of 3.0x, which is also towards its highest
ever level. The Managers have not lost their fondness for dividends. However,
in 2014 some of the most attractively valued opportunities happened to be nil
yielding. Crucially, the Managers consider that many of the 20 nil yielders
will be capable of (re)commencing dividend payments over the next few years.
As they do so, income generated by the portfolio will be boosted, all else
being equal.
Strong balance sheets
Managers' reports of recent years have referred to the strong
balance sheets that characterise both the portfolio companies and the small
company universe. This remains the case. The proportions exposed to companies
with net cash on their balance sheet stood at 31% and 26% respectively at the
end of the year. These proportions have been moving downwards since 2011. The
Managers believe that, in reaction to the global financial crisis, balance
sheets had in many cases been taken to levels that were unnecessarily strong.
This conservatism was hampering growth prospects. Thus, the lower proportion
now holding cash suggests that company boards have had greater confidence to
invest or, in the absence of attractive investment opportunities, return cash
to shareholders.
Corporate activity
The powerful pick-up in corporate activity through 2014 may be
considered another indication of increasing corporate confidence. As described
in the interim report, the first half was dominated by IPOs. The pace
slackened through the second half as markets grew more nervous and as vendors
became too ambitious with regard to valuations. Nevertheless, 27 IPOs eligible
for inclusion in the NSCI (XIC) were completed in 2014. These had a cumulative
market capitalisation of £13.4bn. Other issuance, in the form of rights issues
or placings, totalled a further £4.8bn. This makes 2014 the year of highest
equity issuance since 2009 when the financial crisis prompted rescue rights
issues. There were four 2014 IPOs in ASCoT's portfolio at the year end.
As IPO activity waned in the second half of the year, M&A activity
waxed. By 31 December 2014, the takeovers of 12 NSCI (XIC) constituents had
been concluded. In addition, there were incomplete bids, approaches or talks
in progress for another 10. In 2013, the quietest year for small company M&A
since 1955, only 5 deals were completed. The value of 2014's deals totalled
£12.9bn, an impressive number, but one that is nevertheless eclipsed by the
value of issuance.
ASCoT's participation in the M&A upswing was considerable. Of the
22 deals noted above in the NSCI (XIC), ASCoT had holdings in 9. The takeover
premiums were often large, ranging from 25% to 85%. Over the years, a
meaningful boost to returns from M&A has not been unusual. Indeed, the
Managers are inclined to view this as a result and validation of their value
investment approach.
Active share
Active share is a measure of how different a portfolio is from its
benchmark index. Since the publication of a research paper in 2009, it has
risen in prominence as a measure of fund managers' conviction in the stocks
they choose to own. In simple terms, the higher the ratio, the higher is the
probability that the portfolio will perform out of line with the benchmark,
for better or worse. The Managers target an active share ratio of at least
70%, though will tolerate a temporarily depressed number, and consider the
impact on the portfolio's active share ratio as part of the investment
process. The year end portfolio's active share was 76%. This was affected by
holdings in companies that, following the 1 January rebalancing, are no longer
part of the NSCI (XIC). As these holdings are sold in an orderly fashion over
the coming months, the active share ratio will fall to the extent that the
proceeds are reinvested in new holdings that are part of the index.
Turnover
Over the twelve months to 31 December 2014, portfolio turnover was
36%. In two circumstances, ASCoT is effectively a forced seller of holdings.
First, companies that have grown too large to remain eligible for the NSCI
(XIC) are ejected on the 1 January annual rebalancing. Second, in M&A
situations, it is clearly not possible to remain a holder of the target
company, again necessitating sale. With the pronounced pick-up in M&A through
the year, it was the second of these that was particularly influential in
keeping turnover above the historic average for a second year. Adjusting for
these exceptions, ASCoT's portfolio turnover was 25% in 2014, which is in line
with the long term underlying average.
Valuations
The table below shows the historic valuation data for the portfolio
and the NSCI (XIC). The 13.2x PE ratio of small companies compares with 13.8x
for the FTSE All-Share, which is representative of large companies. This 4%
discount is tighter than the long term average of 7%. However, at the end of
2013, small companies were on a 5% premium to large. History suggests that
such a state of affairs does not persist for long. This is a reasonable
explanation for the under-performance of small companies against large in
2014.
A note of caution is warranted in the quirky UK stockmarket. There
are four very large sectors in the FTSE 100 - Banks, Oils, Miners and
Pharmaceuticals. The market capitalisation of each of these is larger than
that of the entire small cap universe. This means that the merits of these
four sectors should be considered before making a decision on size exposure.
Characteristics 31 December 2014 31 December 2013
ASCoT NSCI(XIC) ASCoT NSCI(XIC)
Number of companies 88 369 92 363
Weighted average market £614m £754m £646m £833m
capitalisation
Price earnings ratio 13.0x 13.2x 13.6x 16.8x
(historic)
Dividend yield (historic) 2.5% 2.5% 2.3% 2.2%
Dividend cover 3.1x 3.0x 3.2x 2.7x
Turning to the portfolio, the average PE of the 88 investee companies was
13.0x, which is 2% lower than that of the NSCI (XIC). On the basis
of dividend yields, the portfolio is, unusually, not on a premium to the
small cap universe. As described above, this is a function of the presently
high exposure of the portfolio to nil yielding companies, which also increases
the overall dividend cover.
However, the portfolio is not constructed with reference to historic
PE ratios. Rather the Managers' favoured valuation metric is the
ratio of enterprise value to earnings before interest, tax and amortisation
(EV/EBITA). Topically, given the high incidence of M&A within the portfolio in
2014, this valuation approach is aligned with how one company might assess
another, since a bidding company can determine the means of funding an
acquisition and often how the enlarged entity will be taxed. The table below
shows the forward EV/EBITA ratio for the portfolio, the tracked universe and
two subdivisions of the tracked universe: 43 growth stocks and 256 other
companies.
2015 EV/EBITA ratio
43 growth companies 256 other Tracked Universe ASCoT's portfolio
companies
15.6x 10.3x 11.0x 9.3x
The portfolio retains a pronounced valuation advantage over the
growth companies and the broader small company universe. This is consistent
with the Managers' value investment discipline. It is the Managers' contention
that this valuation advantage can form the basis of superior returns over the
longer term. An additional reference point is the average EV/EBITA multiple of
the eight portfolio companies that have received bids during the year, using
the takeover price. That average is around 13x, within a range of 7x to 32x.
In comparison with the portfolio's 9.3x EV/EBITA ratio, this may be
interpreted as another gauge of the good value inherent in the portfolio.
Outlook & conclusion
From a macro economic perspective, the world's rediscovered
reliance on the US economy became increasingly obvious in 2014. Japan has had
to resort to another round of quantitative easing and the Eurozone continues
to flirt with embracing quantitative easing for the first time. However, the
US appears to have succeeded, albeit with the odd hiccup, in weaning itself
off the need for incremental stimulus. The pre-eminence of the US has been
reinforced by the transformation of its reliance on the rest of the world for
its energy requirements: self-sufficiency, by virtue of the shale boom,
appears within reach. The implications of these developments were reflected by
financial markets in 2014: treasury yields, though down over the year, are
higher than those of other major bond markets; US equities are at all time
high levels; the dollar has strengthened considerably; and the oil price has
collapsed.
Understanding the ramifications of such movements is not
straightforward, but it is safe to conclude that the US's leadership, while
crucial to the overall health of the global economy, will not prove painless
for all. Such uncertainty comes on top of sluggish economic growth from Europe
and Japan, heightened tensions with Russia, and an intensification of
hostilities in the Middle East. So, as usual, there is plenty for the boards
of small UK quoted companies to worry about. And uncertainties also loom for
the UK. These are less to do with the economy's direction in the immediate
future, which, despite some disappointment with the budget deficit, still
seems more akin to the US's than the Eurozone's. More significant is the
perpetuation of a period of political and constitutional uncertainty, which
started with 2010's coalition government, continued with the Scottish
referendum and could persist until 2017 with an EU referendum. This type of
risk is not one with which the boards of small UK quoted companies, or indeed
their investors, have had to cope for generations.
In contrast to and in spite of these top down concerns, there are
signs of a general cautious optimism among smaller companies. This contention
is based on the combination of three factors that have been individually
addressed above: the pick-up in M&A, the willingness to utilise more fully
strong balance sheets and the continuation of the impressive dividend
performance of recent years. While the risk remains that this growing optimism
might prove a lagging rather than a leading indicator, it is encouraging that
such nascent animal spirits are in evidence.
On reflection, as ASCoT enters its twenty fifth year, the present
situation is not unusual. Macro economic risks of one type or another are
ever-present. Generally, however, there is a disparity between top-down
pessimism and optimism that individual businesses will adjust and cope. The
macro economic challenges of the global financial crisis were particularly
severe, but the experience of relatively nimble small companies again gives
reason for hope. The Managers take additional comfort from the attractive
valuations presently accorded by the stockmarket to many companies and to the
portfolio in particular: these represent a discounted participation in the
future wealth creation of which these businesses should be capable. This ought
to translate into good returns for ASCoT's investors when averaged over
several years.
Aberforth Partners LLP
Managers
29 January 2015
DIRECTORS' RESPONSIBILITY STATEMENT
Each of the Directors 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 or loss of the Company;
and
(b) the Annual 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 it faces. A summary of
these can be found below.
(c) the Annual Report, taken as a whole, is fair, balanced and
understandable and provides information necessary for Shareholders to assess
the Company's performance, business model and strategy.
On behalf of the Board
Paul Trickett
Chairman
29 January 2015
PRINCIPAL RISKS AND RISK MANAGEMENT
The Board carefully considers the principal risks faced by the
Company and seeks to manage these risks through continual review, evaluation
and taking action as necessary.
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
volatility of returns from diversified portfolios of small and large
companies. The Company has a diversified portfolio. In addition, the Company
has a simple capital structure, invests only in small UK quoted companies, and
outsources all the main operational activities to recognised, well-established
firms.
The principal risks faced by the Company, together with the
approach taken by the Board towards them, have been summarised below:
(i) Investment policy/performance - the performance of the
investment portfolio will typically not match the performance of the benchmark
and will be influenced by market related risks including market price,
interest rate and liquidity (refer to the Annual Report for further details).
The Board's aim is to achieve the investment objective over the long term
whilst managing risk by ensuring the investment portfolio is managed
appropriately. The Board has outsourced portfolio management to experienced
managers with a well defined investment process and receives regular and
detailed reports on investment performance. Peer group performance is also
regularly monitored by the Board.
(ii) Share price discount - investment trust shares tend to trade
at discounts to their underlying net asset values. The Board and the Managers
monitor the discount on a daily basis. The Board intends to continue to use
the share buy in facility to seek to sustain as low a discount as seems
possible.
(iii) Gearing risk - in rising markets, the effect of borrowings
would be beneficial but in falling markets the gearing effect would adversely
affect returns to Shareholders. The Board and the Managers consider the
gearing strategy and associated risk on a regular basis.
(iv) Reputational risk - the Board and the Managers monitor
external factors affecting the reputation of the Company and/or the key
service providers and take action if appropriate.
(v) Risk appetite - the effect of inappropriate risk appetite or
failure to establish an appropriate framework to manage the Company to a
desired risk level. The Managers have a clearly defined investment philosophy
and they manage a diversified portfolio. The Board continually monitors the
Company's performance against the benchmark, and regularly receives a detailed
portfolio attribution analysis, including risk measures.
(vi) Regulatory risk - failure to comply with applicable legal 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 Company being subject
to capital gains tax. The Board receives quarterly compliance reports from the
Secretaries to monitor compliance with rules and regulations, together with
information on future developments.
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 2014
(audited)
For the year ended For the year ended
31 December 2014 31 December 2013
Revenue Capital Total Revenue Capital Total
£ 000 £ 000 £ 000 £ 000 £ 000 £ 000
Gains on investments - (24,628) (24,628) - 377,222 377,222
Investment income 30,166 291 30,457 29,741 - 29,741
Other income 1 - 1 - - -
Investment management fee (3,240) (5,399) (8,639) (2,614) (4,357) (6,971)
Other expenses (661) (3,346) (4,007) (496) (3,892) (4,388)
------- -------- -------- ------- ------- -------
Return on ordinary activities 26,266 (33,082) (6,816) 26,631 368,973 395,604
before finance costs and tax
Finance costs (289) (482) (771) (485) (808) (1,293)
------- -------- -------- ------- ------- -------
Return on ordinary activities 25,977 (33,564) (7,587) 26,146 368,165 394,311
before tax
Tax on ordinary activities - - - - - -
------- ------- ------- ------ ------- -------
Return attributable to
equity shareholders 25,977 (33,564) (7,587) 26,146 368,165 394,311
====== ======= ======= ====== ======= =======
Returns per Ordinary Share 27.24p (35.19)p (7.95)p 27.37p 385.35p 412.72p
The Board declared on 29 January 2015 a final dividend of 17.00p
per Ordinary Share (2013 - 16.15p). The Board also declared on 25 July 2014 an
interim dividend of 7.75p per Ordinary Share (2013 - 7.35p).
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 Total Recognised Gains and Losses 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 2014
(audited)
Capital
Share redemption Special Capital Revenue
Capital reserve reserve reserve reserve Total
£ 000 £ 000 £ 000 £ 000 £ 000 £ 000
Balance as at 31 December 2013 954 34 176,703 910,616 49,818 1,138,125
Return on ordinary activities after taxation - - - (33,564) 25,977 (7,587)
Equity dividends paid - - - - (22,795) (22,795)
Purchase of Ordinary Shares (1) 1 (403) - - (403)
------ ------ ------- ------- ------- --------
Balance as at 31 December 2014 953 35 176,300 877,052 53,000 1,107,340
====== ====== ======= ======= ====== ========
For the year ended 31 December 2013
(audited)
Capital
Share redemption Special Capital Revenue
Capital reserve reserve reserve reserve Total
£ 000 £ 000 £ 000 £ 000 £ 000 £ 000
Balance as at 31 December 2012 957 31 179,461 542,451 45,279 768,179
Return on ordinary activities after taxation - - - 368,165 26,146 394,311
Equity dividends paid - - - - (21,607) (21,607)
Purchase of Ordinary Shares (3) 3 (2,758) - - (2,758)
------ ------ ------- ------- ------- --------
Balance as at 31 December 2013 954 34 176,703 910,616 49,818 1,138,125
====== ====== ======= ======= ====== ========
BALANCE SHEET
As at 31 December 2014
(audited)
31 December 31 December
2014 2013
£ 000 £ 000
Fixed assets:
Investments at fair value through profit or loss 1,138,793 1,167,630
---------- ----------
Current assets
Debtors 2,670 2,120
Cash at bank 238 536
---------- ----------
2,908 2,656
Creditors (amounts falling due within one year) (209) (32,161)
---------- ----------
Net current (liabilities)/assets 2,699 (29,505)
---------- ----------
Total Assets less Current Liabilities 1,141,492 1,138,125
Creditors (amounts falling due after more than one year) (34,152) -
---------- ----------
Total Net Assets 1,107,340 1,138,125
========= =========
Capital and reserves: equity interests
Called up share capital (Ordinary Shares) 953 954
Reserves:
Capital redemption reserve 35 34
Special reserve 176,300 176,703
Capital reserve 877,052 910,616
Revenue reserve 53,000 49,818
---------- ----------
Total Shareholders' Funds 1,107,340 1,138,125
======== =========
Net Asset Value per Ordinary Share 1,161.41p 1,193.22p
SUMMARY CASH FLOW STATEMENT
For the year ended 31 December 2014
(audited)
For the year ended For the year ended
31 December 2014 31 December 2013
£ 000 £ 000 £ 000 £ 000
Net cash inflow from operating activities 21,065 21,827
Returns on investments and servicing of finance (863) (1,225)
Taxation 15 (15)
Capital expenditure and financial investment
Payments to acquire investments (419,879) (398,414)
Receipts from sales of investments 420,312 417,219
-------- --------
Net cash inflow from capital
expenditure and financial investment 433 18,805
-------- --------
20,650 39,392
Equity dividends paid (22,795) (21,607)
-------- --------
(2,145) 17,785
Financing
Purchase of Ordinary Shares (403) (2,758)
Net drawdown/(repayment) of bank debt facilities
(before costs) 2,250 (14,750)
------- -------
(Decrease)/increase in cash (298) 277
====== ======
Reconciliation of net cash flow to movement in net debt
(Decrease)/increase in cash in the year (298) 277
Net (drawdown)/ repayment of bank debt facilities (2,250) 14,750
Increase/ (decrease) in amortised costs in respect of
the bank debt facility 85 (51)
-------- --------
Change in net debt (2,463) 14,976
Opening net debt (31,451) (46,427)
-------- --------
Closing net debt (33,914) (31,451)
======= =======
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING STANDARDS
The financial statements have been prepared on a going concern
basis and in accordance with applicable accounting standards and the AIC's
Statement of Recommended Practice "Financial Statements of Investment Trust
Companies and Venture Capital Trusts" issued in 2009.
The same accounting policies used for the year ended 31 December
2013 have been applied.
2. DIVIDENDS
Year to Year to
31 December 2014 31 December 2013
£000 £000
Amounts recognised as distributions to
equity holders in the period:
Final dividend of 16.15p for the year ended 15,404 14,584
31 December 2013 (2012: 15.25p)
Interim dividend of 7.75p for the year 7,391 7,023
ended 31 December 2014 (2013: 7.35p)
------ ------
22,795 21,607
====== ======
The final dividend for the year ended 31 December 2014 of 17.00p
will be paid, subject to shareholder approval, on 5 March 2015. This dividend
has not been included as a liability in these financial statements.
3. RETURNS PER ORDINARY SHARE
The returns per Ordinary Share are based on:
Year to Year to
31 December 2014 31 December 2013
Returns attributable to
Ordinary Shareholders £ (7,587,000) £ 394,311,000
Weighted average number of shares in
issue during the period 95,367,970 95,541,545
Return per Ordinary Share (7.95)p 412.72p
4. NET ASSET VALUES
The net assets and the net asset value per share attributable to
the Ordinary Shares at each period end are calculated in accordance with their
entitlements in the Articles of Association and were as follows:
31 December 31 December
2014 2013
Net assets attributable £1,107,340,000 £1,138,125,000
Ordinary Shares in issue
at the end of the year 95,344,792 95,382,792
Net asset value attributable
per Ordinary Share 1,161.41p 1,193.22p
No shares have been bought back for cancellation between 31 December 2014 and
29 January 2015.
5. 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 2013, 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 on 3
February 2015. Members of the public may obtain copies from Aberforth Partners
LLP, 14 Melville Street, Edinburgh EH3 7NS or from its website at
www.aberforth.co.uk.
CONTACT: Alistair Whyte/Euan Macdonald, Aberforth Partners LLP, 0131 220 0733
Aberforth Partners LLP, Secretaries - 29 January 2015
ANNOUNCEMENT ENDS
