Source - LSE Regulatory
ABERFORTH SMALLER COMPANIES TRUST plc PRELIMINARY RESULTS For the Year to 31 December 2007 FEATURES Net Asset Value Total Return -10.4% Benchmark Index Total Return -8.3% Increase in Dividends per Ordinary Share +13.4% The objective of Aberforth Smaller Companies Trust plc (ASCoT) is to achieve a net asset value total return (with dividends reinvested) greater than on the Hoare Govett Smaller Companies Index (Excluding Investment Companies) over the long term. ASCoT is managed by Aberforth Partners LLP. CHAIRMAN'S STATEMENT TO SHAREHOLDERS REVIEW OF 2007 PERFORMANCE The year to 31 December 2007 was difficult for small company share prices. As a result of this, Aberforth Smaller Companies Trust plc (ASCoT) produced a negative total return of 10.4%, compared with a negative total return of 8.3% for the Hoare Govett Smaller Companies Index (Excluding Investment Companies), your Company's investment benchmark. ASCoT has therefore under-performed its benchmark for the year. Larger companies, as represented by the FTSE All- Share Index, registered a positive total return of 5.3%. In each of the last three Annual Reports, your Board and Managers have been cautious about extrapolating previous years' excellent returns. This caution has been proven correct. GEARING ASCoT's policy has always been to remain as near to fully invested as possible. While our caution did not and will not alter that policy, this caution has, at least, prevented us from any material gearing of ASCoT in the recent past. ASCoT's gearing position is reviewed regularly by your Board and Managers and a borrowing facility remains available to ASCoT. DIVIDENDS Following a review of ASCoT's dividend payment policy, your Board concluded that the payment of a second interim dividend, in lieu of a final dividend, enables the dividend to be paid to Shareholders earlier than in previous years. Therefore, your Board is pleased to declare a second interim dividend of 10.5p per share, which produces total dividends for the year of 15.2p per share representing an increase of 13.4% on the total for the previous year. This is a larger increase than your Board would have declared in the absence of the positive outcome to the VAT legal challenge (described in more detail later in my Statement) and therefore defers, for an excellent reason, the rebalancing of the relative weight of the first and second interim dividends alluded to in my Interim Statement. The second interim dividend of 10.5p per share will be paid on 21 February 2008 to Shareholders on the register at the close of business on 1 February 2008. The last date for submission of Forms of Election for those Shareholders wishing to participate in ASCoT's Dividend Reinvestment Plan (DRiP) is 31 January 2008. Details of the DRiP are available from Aberforth Partners LLP on request or from their website, The underlying growth in dividends from ASCoT's portfolio has been good. However, the year's earnings have been enhanced by approximately 1.89p per share as a result of the VAT situation mentioned above and more fully explained below. This comprised 1.44p per share in respect of past years' expected repayment of VAT and 0.45p per share in respect of 2007 (a combination of VAT paid in 2007 being recoverable and some management fees not incurring VAT in the year). Future years' earnings will be higher than would otherwise have been the case as VAT is no longer charged on ASCoT's management fee. VALUE ADDED TAX (VAT) In 2004, the Association of Investment Companies (AIC), together with JPMorgan Claverhouse Investment Trust plc (Claverhouse), brought a case against HM Revenue and Customs (HMRC) to challenge the imposition of VAT on management fees paid by investment trust companies. The case was referred to the European Court of Justice and its judgment was delivered in June 2007 supporting the Claverhouse and AIC position. HMRC announced its decision to withdraw its appeal in November 2007. Your Board congratulates the AIC and Claverhouse on this outcome. We are pleased that agreement has already been reached with your Managers that will secure recovery of all the VAT paid by ASCoT since 2001 subject to the appropriate refund of VAT by HMRC to Aberforth Partners LLP. In this regard, ASCoT's net assets include #4.7m (4.75p per share), being the estimated repayment of all VAT paid on investment management fees since 1 January 2001 including VAT previously offset by your Managers. Certain VAT paid in relation to earlier periods may also be recoverable pending the outcome of further legal appeals although the relevant amounts have not been recognised at this stage. CONTINUATION VOTE ASCoT has no fixed duration. However, in accordance with its Articles of Association, an ordinary resolution will be proposed at the forthcoming Annual General Meeting (and at every third subsequent Annual General Meeting) that ASCoT continues. If this resolution is not passed, your Board will prepare and submit proposals to reconstruct ASCoT appropriately. If these proposals are not approved, Shareholders will have the opportunity of passing an ordinary resolution requiring ASCoT to be wound up. Such Continuation Votes have been held in 1996, 1999, 2002 and 2005, and all have been passed by overwhelming majorities. ASCoT's long term record is outstanding having produced since inception in 1990 a compound annual total return in net asset value of 16.0%, compared with the 11.7% produced by the Hoare Govett Smaller Companies Index (Excluding Investment Companies). However, since the last Continuation Vote three years ago, ASCoT's net asset value has generated a compound annual total return of 12.2%, compared with 14.5% generated by ASCoT's investment benchmark. This underperformance has been made worse for Shareholders because the discount at which ASCoT's shares have traded relative to its net asset value has widened. Your Board recommends that Shareholders vote in favour of ASCoT's continuation and your Directors intend to do so in respect of their beneficial holdings. In doing so, your Board is mindful of the facts that small companies have recently performed poorly compared with large companies and that your Managers' 'value' investment style has been out of favour. The consistent application of this 'value' investment style by your Managers, the seven partners of Aberforth Partners LLP (five of whom are the founding partners), has served your Company very well over the longer term but no single investment style performs well in all economic and stockmarket conditions. It is clear that the investment styles of 'growth' and 'momentum' have performed better than 'value' over these last three years, and especially so recently. Your Board therefore concludes that ASCoT's underperformance is more to do with investment style rather than any other factors. Some Shareholders may recall that ASCoT underperformed in 1997, 1998, and 1999 as investors increasingly shunned 'value' investments into the turn of the Millennium. In each of the following three years ASCoT produced excellent relative returns so history shows that no style or set of conditions lasts indefinitely. It matters more to remain consistent so that when the environment changes, as it surely will, the greatest possible investment performance may be obtained. Your Board believes your Managers will provide that in due course. SHARE BUY BACK AUTHORITY AND TREASURY SHARES At the Annual General Meeting in February 2007, the authority to purchase up to 14.99% of ASCoT's Ordinary Shares was renewed. No Ordinary Shares were purchased during the year. Your Board will be seeking a renewal of this authority at the Annual General Meeting to be held on 4 March 2008. Your Board has established, and keeps under careful review, the circumstances under which such authority may be utilised. Should these arise, ASCoT will seek to purchase Ordinary Shares and it is your Board's current policy to cancel, rather than hold in treasury, any such shares. As already noted, ASCoT's discount has widened over the last three years. Your Board has always had as the principal objective of any buy back of Ordinary Shares, 'to seek to sustain as low a discount as seems possible'. Constant monitoring of ASCoT's discount relative to other UK Smaller Companies specialist investment trusts has suggested that, even over the periods mentioned, ASCoT's discount has typically been amongst the narrowest of its peer group and that many of these peers who have bought shares in have nevertheless experienced wide discounts and in most cases wider than ASCoT's. Merely buying in shares therefore has not resulted in sustaining low discounts in what has clearly been an 'out of favour' investment trust sub sector. Given this, your Board has been reluctant, so far, to buy back Ordinary Shares under current market conditions. Suffice to say, however, that your Board stands ready to use ASCoT's buy back authority if and when it believes that a sustained and positive effect on the discount would result. SUMMARY AND OUTLOOK I summarised last year: 'There will, sooner or later, be more testing stockmarket conditions than those ASCoT has enjoyed these last four years.' I also noted in each of my last two years' Statements that cheap and abundant debt was causing asset prices to rise, fuelling M&A activity, and that this could not go on forever. We now endure tougher times but (investment) history demonstrates that just as good times end so do tough times. However, it is impossible to gauge their length and depth. Your Board believes the vast majority of ASCoT's Shareholders are long term investors, understanding of investment cycles and appreciative of your Managers' consistency. We strongly recommend Shareholders should confirm this belief by supporting the Continuation Vote. David R. Shaw Chairman 23 January 2008 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 2007 (unaudited) 12 months to 12 months to 31 December 2007 31 December 2006 Revenue Capital Total Revenue Capital Total # 000 # 000 # 000 # 000 # 000 # 000 Realised gains on sales - 111,634 111,634 - 85,852 85,852 Unrealised (losses)/gains - (209,320)(209,320) - 77,180 77,180 ------- -------- -------- ------- -------- ------- (Losses)/gains on - (97,686) (97,686) - 163,032 163,032 investments Dividend income 19,477 877 20,354 18,290 2,261 20,551 Interest income 258 - 258 797 - 797 Other income 15 - 15 20 - 20 Investment management fee (1,094) (1,823) (2,917) (2,496) (4,159) (6,655) Other expenses (438) (4,052) (4,490) (402) (3,230) (3,632) ------- -------- -------- ------- -------- ------- Return on ordinary 18,218 (102,684) (84,466) 16,209 157,904 174,113 activities before finance costs and tax Finance costs (60) (99) (159) - - - ------- -------- -------- ------- ------- ------- Return on ordinary 18,158 (102,783) (84,625) 16,209 157,904 174,113 activities before tax Tax on ordinary activities - - - - - - ------- -------- -------- ------- -------- ------- Return attributable to equity shareholders 18,158 (102,783) (84,625) 16,209 157,904 174,113 ====== ======= ======= ======= ======= ======= Returns per Ordinary Share 18.38p (104.03p) (85.65p) 16.40p 159.81p 176.21p The Board declared on 23 January 2008 a second interim dividend of 10.50p per Ordinary Share (2006 - 9.15p) and the total payable will be #10,375,000 (2006 - #9,041,000). The Board also declared on 18 July 2007 a first interim dividend of 4.70p per Ordinary Share (2006 interim dividend of 4.25p) and the total paid was #4,644,000 (2006 - #4,199,000). NOTES 1. 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. 2. The calculations of revenue return per Ordinary Share are based on net revenue of #18,158,000 (31 December 2006 - #16,209,000) and on Ordinary Shares of 98,809,788 (31 December 2006 - 98,809,788). The calculations of capital return per Ordinary Share are based on net capital losses of #102,783,000 (31 December 2006 - net capital gains of #157,904,000) and on Ordinary Shares of 98,809,788 (31 December 2006 - 98,809,788). 3. The 2007 investment management fee expense incorporates the expected repayment of all VAT paid on investment management fees since 1 January 2001 as set out in the Chairman's Statement. This expected repayment amounts to #4,689,000, of which #1,758,000 has been credited to revenue and #2,931,000 has been credited to capital. SUMMARY RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS For the year ended 31 December 2007 (unaudited) 2007 2006 # 000 # 000 Opening shareholders' funds 833,331 671,174 Total recognised gains and losses (84,625) 174,113 before dividends Dividends paid (13,685) (11,956) -------- -------- Closing shareholders' funds 735,021 833,331 ======== ======== NOTES 1. The movements in this statement represent the profit and loss of the Company and the equity dividends paid. BALANCE SHEET As at 31 December 2007 (unaudited) 31 December 31 December 2007 2006 # 000 # 000 Fixed assets: Investments at fair value through 710,966 801,470 profit or loss -------- -------- Current assets Debtors 6,354 1,369 Cash at bank 18,018 30,554 -------- -------- 24,372 31,923 Creditors (amounts falling due (317) (62) within one year) -------- -------- Net current assets 24,055 31,861 -------- -------- Total Net Assets 735,021 833,331 ======== ======== Capital and reserves: equity interests Called up share capital (Ordinary Shares) 988 988 Reserves: Special reserve 197,305 197,305 Capital reserve - realised 473,749 367,212 Capital reserve - unrealised 30,302 239,622 Revenue reserve 32,677 28,204 -------- -------- Total Shareholders' Funds 735,021 833,331 ======== ======== Net Asset Value per Ordinary Share 743.87p 843.37p NOTES As at 31 December 2007, the Company had 98,809,788 Ordinary Shares (2006 - 98,809,788). No Ordinary Shares were bought in during either year. SUMMARY CASH FLOW STATEMENT For the Year ended 31 December 2007 (unaudited) 12 months to 12 months to 31 December 2007 31 December 2006 # 000 # 000 # 000 # 000 Net cash inflow from operating 12,296 14,197 activities Returns on investment and (152) - servicing of finance Capital expenditure and financial investment Payments to acquire investments (311,732) (244,363) Receipts from sales of 300,737 262,409 investments -------- -------- Net cash (outflow)/inflow from capital expenditure and financial investment (10,995) 18,046 -------- -------- 1,149 32,243 Equity dividends paid (13,685) (11,956) -------- -------- (12,536) 20,287 Financing - - -------- -------- (Decrease)/increase in cash (12,536) 20,287 ======== ======== NOTES(unaudited) 1. The financial statements have been prepared in accordance with UK generally accepted accounting practice ('UK GAAP') and the AIC's Statement of Recommended Practice 'Financial Statements of Investment Trust Companies'. The same accounting policies used for the year to 31 December 2006 have been applied for the year to 31 December 2007. 2. The foregoing do not comprise statutory accounts (as defined in section 240(5) of the Companies Act 1985) of the Company. The statutory accounts for the year to 31 December 2006, which contained an unqualified Report of the Auditors under section 235 of the Companies Act, have been lodged with the Registrar of Companies and did not contain a statement required under section 237(2) or (3) of the Companies Act 1985. 3. The Annual Report is expected to be posted to shareholders on 28 January 2008. Members of the public may obtain copies from Aberforth Partners LLP, 14 Melville Street, Edinburgh EH3 7NS or from its website at CONTACT: David Warnock, Aberforth Partners LLP, 0131 220 0733 Aberforth Partners LLP, Secretaries - 23 January 2008 ANNOUNCEMENT ENDS
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