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
Assets1
|
NAV2
|
Share
Price3
|
NAV4
|
Share
Price5
|
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
inception14
|
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
inception14
|
5.8%
|
1.8%
|
-2.9%
|
22.8%
|
19.5%
|
The total
return per Ordinary Share2
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
Charges6
|
Gearing7
|
|
-----------
|
----------
|
------------
|
-----------
|
------------
|
------------
|
------------
|
------------
|
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 Cover8
|
Redemption
Yield9
|
|
------------
|
-----------
|
------------
|
----------
|
------------
|
------------
|
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%
|
Inception14
|
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 Yields11
Dividend
Growth (per annum)
|
|
Capital
Growth (per annum)
|
-20.0%
|
-10.0%
|
+0.0%
|
+10.0%
|
+20.0%
|
Terminal
NAV12
|
|
|
------------
|
------------
|
------------
|
------------
|
------------
|
------------
|
|
-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 factor13
(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