REG-Aberforth Split Level Income Trust Plc: Half-year Report
29/01/2024 18:15
Aberforth Split Level Income Trust plc
Interim Results for the six month period ended 31 December 2023
The following is an extract from the Company's Half Yearly Report and
Financial Statements for the six month period ended 31 December 2023. The Half
Yearly Report is expected to be posted to shareholders by 8 February 2024.
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/trusts-and-funds/aberforth-split-level-income-trust-plc. 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)
Total returns in the six months ended 31 December 2023
Total Assets +7.8%
Ordinary Share NAV +10.3%
Ordinary Share Price +9.4%
ZDP Share NAV +1.8%
ZDP Share Price +1.7%
Refer to Note 2, Alternative Performance Measures and Glossary
Dividend Declared
First interim dividend for the year ending 30 June 2024 2.75p
This dividend represents an increase 62% compared to the 1.70p in respect of
the previous year.
The first interim dividend has an ex-dividend date of 8 February 2024, record
date of 9 February 2024 and pay date of 8 March 2024.
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 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 seventh interim report of Aberforth Split Level Income Trust
(“ASLIT” or “your Company”). It covers the six months to 31 December
2023. ASLIT’s planned life ends on 1 July 2024 and further details on the
planned winding-up are provided in the final section of my statement.
As the final financial year of ASLIT’s planned life started, equity markets
remained beholden to inflationary pressures and their implications for
monetary policy. With the war in Ukraine continuing, Hamas’s attacks on
Israel added to geopolitical instability. Meanwhile, the earnings outlook
for domestic and overseas facing companies has deteriorated. Through the
first half of the Company’s financial year, the frequency of profit warnings
rose and it seems likely that the year to June 2024 will be a year of lower
profits for many companies around the world.
Towards the end of the period, however, inflation data on both sides of the
Atlantic improved and brought into view an earlier end to restrictive monetary
policy. This sparked November’s rally in stock markets and meant that over
the six months as a whole equity returns in the UK and more broadly were
positive. With valuations and the stock market where they are, I remain
positive about the outlook for the medium and longer term.
Performance
The Numis Smaller Companies Index (excluding Investment Companies) (“the
Index” or “NSCI (XIC)”) defines ASLIT’s opportunity base. It
generated a total return of +8.6% over the six months to 31 December 2023.
Larger companies in the UK, represented by the FTSE All-Share, recorded a
total return of +5.2%.
This positive outcome was helpful for an investment trust with your
Company’s structure. ASLIT’s total asset total return, which measures
its ungeared portfolio performance, was +7.8% over the six months. Geared by
the rising entitlement of the Zero Dividend Preference (“ZDP”) Shares, the
net asset value total return of the Ordinary Shares was +10.3%. This
reflects the return attributable to equity shareholders of 7.72p per Ordinary
Share together with the effect of the reinvestment of previously declared
dividends. The Ordinary Share price total return of +9.4% was slightly lower
due to the widening of the share price’s discount to net asset value from
6.7% to 7.7% over the six months.
As the capital value of the portfolio has increased, the projected cumulative
cover of the ZDP shares increased to 3.4 times as at 31 December 2023 from 3.2
times six months earlier.
Turning to the longer-term perspective, the Board is conscious that ASLIT’s
performance over its life so far has not matched expectations at the time of
launch. This is largely due to several unforeseen top-down challenges, not
least the pandemic. It is notable that your Company’s income performance
has been relatively resilient. With dividends reinvested, the recent rally
in share prices has improved ASLIT’s total returns since launch. From
inception on 30 June 2017 to 31 December 2023, the cumulative total assets
total return and Ordinary Share net asset value total return are 14.1% and
12.3% respectively.
Notwithstanding the rise in share prices so far this financial year, sentiment
in and towards the UK market remains at a relatively low ebb, particularly
towards smaller companies. Further detail on portfolio performance and the
investment backdrop is provided in the Managers’ Report.
Portfolio Management
The Managers aim to keep the Company near to fully invested at all times and
do not normally attempt to engage in market timing by holding high levels of
liquidity. As the Company approaches the end of its planned life, the
importance of liquidity as a consideration in portfolio management decisions
will increase. In exercising their discretion in this regard, the Managers
will seek to strike a prudent balance between ensuring that the Company has
sufficient liquid assets to satisfy any cash requirements on winding-up, and
maximising value and income opportunities in what remains of ASLIT’s planned
life.
Earnings and First Interim Dividend
In the six months to 31 December 2023, dividends from small UK quoted
companies continued their recovery following the pandemic. This contributed
to good growth in ASLIT’s dividend income, which was lifted further by the
receipt of three special dividends. The positive experience is reflected in
ASLIT’s revenue return per Ordinary Share of 2.91p in the six months to 31
December 2023, which is 13% higher than the 2.57p earned in the comparable
period last year. The special dividends received from investee companies
represent 0.22p per Ordinary Share of the 2.91p and 0.20p of the 2.57p in the
same period last year.
In light of the strength of the income performance in the first half of the
financial year and in view of the proximity of ASLIT’s planned wind-up on 1
July 2024, the Board is pleased to declare a first interim dividend of 2.75p
per Ordinary Share in respect of the six months to 31 December 2023. This
represents an increase of 62% compared to the 1.70p in respect of the previous
year.
The first interim dividend of 2.75p will be paid on 8 March 2024 to Ordinary
Shareholders on the register as at the close of business on 9 February 2024.
The ex dividend date is 8 February 2024. The Company operates a Dividend
Reinvestment Plan, details of which, along with the Form of Election, are
available from the Managers, Aberforth Partners LLP, or on their website,
www.aberforth.co.uk.
Further shareholder distributions
Looking ahead to the remaining months of ASLIT’s life, while it would be
imprudent not to note the uncertainty of the economic backdrop, current
estimates suggest that the income account is in good shape. Therefore, the
Board plans to declare a second interim dividend to be paid by the end of June
2024. In the absence of unforeseen circumstances, we expect this to be no less
than 2.75p per Ordinary Share. In expressing this intention, which is not a
profit forecast, we are guided by the Managers’ dividend estimates and by
revenue reserves at 30 June 2023 of 1.32p per Ordinary Share. The actual
amount will be influenced by both future dividend receipts and the portfolio
management considerations noted above.
Any income that is not distributed through the first and second interim
dividends will be included in a final return, which may be received by
Ordinary Shareholders as part of the reconstruction and planned wind-up of the
Company. This is more fully described below.
Together with the first interim dividend of 2.75p, a second interim dividend
of at least 2.75p, should it be paid, would imply a full year dividend of at
least 5.50p. Though not a profit forecast, this would represent a year-on-year
increase of at least 10% and would bring ASLIT’s total dividends over its
seven year life to at least 31.27p.
Outlook
This year’s US Presidential Election and the imminence of a UK General
Election justify some caution about politics. At home, there are tentative
signs of greater political pragmatism among the main parties, which may help
restore confidence in UK politics. This could in turn improve attitudes
towards the UK stockmarket and narrow the UK’s valuation discount.
Sentiment towards small UK quoted companies is also affected by the lingering
fears about an economic slowdown, but as the Managers’ Report makes clear, a
downturn is largely baked into the valuations of ASLIT’s investee
companies.
However, the significant recovery potential inherent in the qualities and
valuations of ASLIT’s investee companies is unlikely to be recognised fully
within your Company’s planned life. Nevertheless, the Board is optimistic
about the prospects for the Company’s investment portfolio. The upshot of
ASLIT’s muted capital returns over its life and the relative resilience of
the investee companies’ profits is that the portfolio’s valuations today
appear even more attractive than was the case seven years ago. Therefore,
alongside the option to realise their investment in cash, the Board is keen to
offer Shareholders the opportunity to continue their investment.
Planned Winding-Up
The Board has carefully considered the state of the markets, the investment
opportunity inherent in ASLIT’s portfolio and comments from Shareholders.
I would like to thank those Shareholders who have contacted us and all those
who have given us feedback. The result of these deliberations is that the
Board currently intends to seek the approval of Ordinary Shareholders in
relation to a reconstruction and winding up of the Company, on, or close to,
the planned winding-up date of 1 July 2024.
In this way, both Ordinary and ZDP Shareholders will have the option to
realise their investment in cash should they so wish. Those Ordinary
Shareholders who choose cash will receive as close to the prevailing net asset
value as possible. In addition, Shareholders will have the opportunity to
invest in a new company also managed by Aberforth with a similar investment
policy and strategy to ASLIT's.
Whilst the Board’s obligation to ZDP Shareholders will be satisfied by a
cash exit, at an amount equal to their final capital entitlement,
consideration will also be given to offering them shares in the new investment
trust company as an alternative to cash.
The Board, together with the Managers, have considered outline plans for such
a new investment trust company. Portfolio construction would be aimed at
delivering an attractive yield, but would also be designed to take advantage
of the eventual valuation recovery of UK equities in general and smaller
companies in particular. The new company would be launched with a planned life
of seven years and would benefit from the continuity of Aberforth’s
investment management services. The Board believes that such a proposition
would be of interest to those Shareholders wishing to continue their
investment. We are also encouraged by the Managers’ stated intention to
roll their existing ASLIT shareholdings into the new company and furthermore
to support it with additional investment.
The intention is that the ordinary shares issued by this new investment
company would be geared. The level of gearing would likely be higher than in
ASLIT at launch but similar to the current level, at around 40% of Total
Ordinary Shareholders’ Funds on launch. Whilst the current working
assumption is that the source of gearing will be new ZDP shares issued by the
new investment trust company, this will ultimately depend on demand and
pricing.
While prioritising the interests of existing investors, there may be the
opportunity to bring in new investors by means of a placing and offer for
subscription.
I should emphasise that these plans remain at an early stage and are subject
to change, not least as a consequence of the vagaries of financial markets.
Importantly, the Board’s deliberations to date have been informed by
feedback to the Managers directly from existing ASLIT Shareholders. We shall
now move on to appointing specialist advisers and shall also take into account
further feedback from Shareholders when developing these proposals. The
Board expects to finalise its plans for consideration by all Shareholders
during the second quarter of 2024, at which point we will write to you again.
My fellow directors and I would welcome the views of all Shareholders about
these or any other matters pertinent to the Company, to which end my email
address is noted below.
Angus Gordon Lennox
Chairman
29 January 2024
Angus.GordonLennox@aberforth.co.uk
MANAGERS’ REPORT
Introduction
Share prices rose in the six months to 31 December 2023. The FTSE All-Share,
which is representative of large UK companies, was up by 5.2% in total return
terms. The NSCI (XIC), which defines ASLIT’s investment universe, enjoyed
a total return of +8.6%. ASLIT’s total assets total return was +7.8%.
This cleared the hurdle of the rising entitlement of the ZDP Shares and so the
net asset value total return of the Ordinary Shares was higher at +10.3%.
The final cumulative cover of the ZDP Shares rose from 3.2x to 3.4x.
Investment background
Geopolitical risk was already elevated as the war in Ukraine continued. It
rose further towards the end of the year with Hamas’s attack on Israel.
However, financial markets were dominated by one issue – inflation and its
implications for monetary policy, especially US monetary policy. Persistent
inflation had driven the Federal Reserve to raise interest rates by a
cumulative 525 basis points in the fourteen months to July 2023. This
brought to an end the era of very low borrowing costs that followed the global
financial crisis of 2007 and 2008. Understandably, markets have struggled
with this new reality and have been eager for indications that inflationary
pressure might be relenting.
The ebb and flow of sentiment through the year can be gauged from the US ten
year government bond yield. This started 2023 at 3.8% and surged to 5.0% in
August, which was its highest level since 2007. As inflation data improved and
markets started to anticipate lower interest rates, the yield dropped to 3.9%
by the year end, a move that was echoed by the strong performance of equity
indices over the last two months of the year.
The UK and much of Europe are also facing higher borrowing costs. These
contributed to lacklustre economic growth in 2023, compounding the effects of
high energy costs and waning momentum from the pandemic recovery. Recession
threatens several European economies, including the UK’s, while China’s
reopening has so far proved rather tepid. The brighter spots in terms of
economic activity are the US, which is benefiting from government spending
through the Inflation Reduction Act and other programmes, and some emerging
economies, which are proving more resilient than in past phases of US monetary
tightening.
An overall weaker economic backdrop has complicated trading for companies.
Results for 2023 will be reported in the first half of 2024 and are likely to
show that profits declined in the UK and in Europe. Even the US stockmarket is
expected to experience next to no profit growth, notwithstanding its
“magnificent seven” technology leviathans. There are several reasons for
this. First, higher interest rates and the other macro-economic
uncertainties have put pressure on revenues. Second, it is proving more
difficult to raise selling prices as the rate of inflation reduces, but labour
costs are continuing to rise. These are harder to pass through to customers,
which squeezes profit margins. Third, the cost of borrowing is rising as debt
terms are renegotiated in today’s environment of higher interest rates.
Turning specifically to small UK quoted companies, the Managers expect a
double digit percentage decline in profits for 2023, with falls for nearly
half of the profitable companies that they track closely. Unsurprisingly,
those companies operating close to the housing market have been most affected,
but it has been notable that overseas facing companies also experienced more
challenging trading conditions in the second half of 2023. The effect of
this slowdown on profits might be close to half of the impact typically
experienced in a full economic recession. Strong balance sheets and
battle-hardened boards of directors offer mitigation, but what is important
for investors is how much of this is already embedded in the stockmarket’s
valuations of the companies. This is considered in detail in the Valuations
section of this report.
Analysis of performance and portfolio characteristics
Over the six months to 31 December 2023, ASLIT’s total assets total return
was +7.8%. The NSCI (XIC)’s was +8.6%. The paragraphs that follow provide
context and explanation for ASLIT’s performance and for the characteristics
displayed in the table below.
Portfolio characteristics 31 December 2023 31 December 2022
ASLIT NSCI (XIC) ASLIT NSCI (XIC)
Number of companies 63 353 68 350
Weighted average market capitalisation £712m £957m £654m £866m
Weighting in “smaller small” companies* 52% 28% 59% 36%
Portfolio turnover (annualised) 16% N/A 26% N/A
Active share 77% N/A 78% N/A
Price earnings (PE) ratio (historical) 8.9x 12.8x 8.8x 8.1x
Dividend yield (historical) 5.1% 3.3% 4.6% 3.4%
Dividend cover (historical) 2.2x 2.3x 2.4x 3.7x
*“Smaller small” companies are members of the NSCI (XIC) that are not also
members of the FTSE 250
Style & size
Since the pandemic recovery started in late 2020, inflation has caused
interest rates and bond yields to rise. These conditions have favoured the
value investment style. The London Business School analyses style effects
within the NSCI (XIC) using price-to-book ratios to differentiate between
value and growth stocks. They calculate that the total return of the
index’s value cohort exceeded that of its growth cohort in 2021, 2022 and
2023. A caveat to this positive style backdrop for value is the very strong
share price performance in 2023 of the large US technology companies
collectively known as the “magnificent seven”. This suggests a more
favourable environment for growth stocks, which would be consistent with the
stockmarket’s current optimism about an end to the cycle of higher interest
rates. Nevertheless, the positive backdrop for the value investment style
has benefited ASLIT’s returns over recent years.
Turning to size, the NSCI (XIC) has a significant overlap with the FTSE 250
index: 72% of its value is represented by mid cap stocks. The portfolio’s
weighting in these is much lower at 48%, with the majority made up of holdings
in the more attractively valued “smaller small” companies. The share
price performances of the “larger small” and “smaller small” companies
were similar in the six months to 31 December 2023. However, the stockmarket
rally at the end of the period was led by the mid caps, which out-performed
their smaller peers by 5% in just over two months. This hampered ASLIT’s
performance as 2023 drew to a close. In periods of rapid share price moves,
both upwards and downwards, it is common for the “larger small” companies
to lead the way and for the “smaller smalls” to catch up in due course.
Balance sheets
The table below shows the balance sheet profile of the portfolio and of the
Tracked Universe, which is a subset of the NSCI (XIC). It comprises 234
companies, which the Managers follow closely and which together represent 98%
by value of the total NSCI (XIC) index.
Weight in companies with: Net cash Net debt/EBITDA < 2x Net debt/EBITDA > 2x Other*
Portfolio: 2023 43% 42% 10% 5%
Tracked universe: 2023 34% 41% 17% 8%
*includes loss-makers and lenders.
Small companies’ balance sheets have not been so strong since around 2014.
Back then, a phase of balance sheet repair was a reaction to 2009’s
recession. Today, balance sheets are already in a robust state. This
should limit the risk to dividends and the requirement for equity issuance in
the event of an economic downturn. Strong balance sheets also help to
mitigate refinancing risk, as companies’ borrowing costs rise amid the
current environment of higher interest rates.
The balance sheet profiles of the portfolio and the Tracked Universe are
similar, with high exposures to companies with net cash or modest degrees of
leverage. The opportunity for ASLIT to invest in these companies comes from
the stockmarket’s aversion to the UK and to its smaller companies in
particular. Their fundamental attributes are being ignored and pricing
inefficiencies abound.
Another fundamental change being widely overlooked is the improvement in the
funding position of defined benefit pension schemes. For two decades, UK
companies have deployed large amounts of their free cash flow to reduce
pension deficits. A silver lining to the cloud of higher interest rates has
been the narrowing of these deficits. Many pension scheme trustees are now
able to contemplate de-risking, which relieves the sponsoring companies of the
requirement to make top-up payments. The boost to free cash flow is often
significant and several of ASLIT’s holdings benefited in this way through
2023.
Income
The portfolio’s income performance over the six months to 31 December 2023
was good. Three special dividends chipped in, but the main influence was a
further recovery in profits from the pandemic. Inevitably, that momentum is
starting to fade as profits and pay-out ratios approach pre-pandemic levels.
Nil Payer Cutter Unchanged Payer Increased Payer New / Returners
5 10 14 33 1
The table above splits ASLIT’s 63 holdings into five categories, which are
determined by each company’s most recent dividend action. The most
populous category remains the Increased Payers. The number of Cutters has
risen. The theme in this category is exposure to the housing market, where
companies are feeling the impact of higher interest rates on activity.
Partly because of the fading momentum of the recovery from the pandemic and
partly because of more challenging trading conditions, the near term prospects
for dividend growth are less bright than in the past two years. ASLIT’s
investee companies do, however, benefit from dividend cover of 2.2x on average
and from the strong balance sheets described above.
Corporate activity
Despite the backdrop of higher interest rates and borrowing costs, M&A has
continued. The takeovers of four NSCI (XIC) constituents, one of which was
held by ASLIT, were completed in the six months. Bids for another four
companies in the index were outstanding at the period end. The average
premium to the pre-announcement share prices of the eight bids was an
unusually high 57%.
Private equity houses were the bidders in four of the seven deals. The
Managers had expected the higher cost of borrowing to limit this source of
interest. However, the very low valuations accorded to small UK quoted
companies by the stockmarket give private equity the opportunity. At these
valuations, it would appear that debt is not needed at the outset to make M&A
models work. This remarkable situation highlights a risk to ASLIT and other
investors in the asset class – in many cases, even a large takeover premium
may not bring the valuation to a level that reflects the true worth of the
target company.
In such circumstances, the Managers are prepared to vote against under-priced
deals and did so in 2023. 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% for ASLIT’s portfolio compared with the
NSCI (XIC). At 31 December 2023, it stood at 77%.
Value roll and portfolio turnover
The main influence on ASLIT’s portfolio turnover in any period is usually
the stockmarket’s appetite for small UK quoted companies. If prices and
valuations are rising, the upsides to the Managers’ target prices are likely
to be narrowing. All else being equal, this would encourage the rotation of
ASLIT’s capital from companies with lower upsides to those with higher
upsides. The Managers term this dynamic the “value roll” and it has
played an important role in their clients’ capital and income returns over
the years. It follows that periods of higher portfolio turnover are often
associated with strong returns.
In the six months to 31 December 2023, annualised portfolio turnover, defined
as the lower of purchases and sales divided by average portfolio value, was
16%. This is down from 26% twelve months earlier. Notwithstanding
ASLIT’s positive return for the period, this suggests that there was less
opportunity for “value roll” than usual. This is another symptom of the
deep under-valuation of small UK quoted companies – if the stockmarket does
not reflect their true value, there is every incentive to maintain the
position.
Environmental, social and governance (ESG)
The issues underlying this umbrella term bring both threats and opportunities
to individual companies. Additionally, it seems likely that the valuation of
the asset class as a whole is affected by the view that small companies are
ESG victims. The Managers disagree and believe that the passage of time will
show that small companies are coping well with the challenges of ESG. A
broader appreciation of this ought to contribute to a re-rating of the asset
class in due course.
In 2023, the Managers continued to populate the ESG module within their
investment database. This module was launched in 2022 and is intended to
provide insights into the portfolio’s ESG profile as the data set is
enriched over time. It also allows the Managers to track and prioritise
engagement activities. Recent work has indicated that smaller companies are
coping well with the increasing expectations and regulations associated with
ESG. Disclosure continues to improve and action is being taken to address
underlying issues. When that is not the case, the Managers engage to
understand the reason and seek change where appropriate. Beyond this, they
also encourage companies to think about and articulate opportunities arising
from environmental and social issues, such as climate change. To this point,
several industrial companies in which ASLIT invests manufacture products that
generate both financial and emission savings for their customers. Examples
are provided in the Stewardship & ESG section of the Managers’ website at
www.aberforth.co.uk.
Engagement
Since Aberforth was founded in 1990, an integral part of the investment
process has been engagement with the boards of the investee companies. The
Managers often take significant stakes in investee companies – up to 25% of
issued share capital across Aberforth’s client base. Engagement is
therefore a responsibility. Importantly, it is also a means to improve
investment outcomes. Aberforth’s approach to engagement is intended to be
purposeful, discreet and constructive. It includes regular updates with
executive directors and also encompasses meetings with non executives. There
is a particular focus on the chair, which is the most important role in the
UK’s system of corporate governance. The Managers engage on any topic that
affects the value of an investment or the rights of shareholders, with the
most common being capital allocation.
The Managers are prepared to be taken inside for extended periods, which
indicates their commitment to responsible stewardship and which can be helpful
to investee companies. They also expect to be consulted in a timely fashion
– the presentation of a fait accompli by the board to shareholders is a
risky and unhelpful undertaking. Several of the takeovers in recent years
have been presented without due consultation and have led to the Managers
engaging to improve the terms for shareholders and / or voting against the
deals. The Managers are confident that their purposeful, discreet and
constructive engagement has enhanced returns over time.
Valuations
At 31 December 2023, the historical price earnings ratio (PE) of ASLIT’s
portfolio was 8.9x, which was well below the 33 year average of 12.1x for the
portfolio of Aberforth’s longest standing client. History suggests that
the PE reaches such levels during recessions – the early 1990s downturn, the
global financial crisis and more recently the pandemic recession.
If share prices are unchanged over the next twelve months, it is likely that
the historical PE will rise. This would reflect lower reported profits,
consistent with the description given in the introduction to this report.
Lower profits are clearly not to be welcomed, but they are not inconsistent
with good equity returns because the stockmarket focuses on what will happen
rather than what has happened. In the early 1990s recession, small company
profits declined by 25-30% over three years, while the PE of Aberforth’s
longest standing portfolio rose from 7x at the end of 1990 to a high of almost
19x at the end of 1993. Investors more than doubled their money in total
return terms over that period.
Aside from concern about the near term outlook for corporate profits, three
other factors contribute to the particularly attractive levels of valuation
currently accorded to ASLIT’s investee companies. These are the prevailing
malaise with the UK and its stockmarket, the concern about the liquidity of
smaller companies, and the effect of the Managers’ value investment style.
The following paragraphs address each of these factors.
* At 31 December 2023, the FTSE All-Share’s PE was 35% lower than Panmure
Gordon’s calculation of the PE for the Rest of the World. Since 1990, the
average discount of UK equities has been 16%. Several justifications for
today’s larger than usual discount are regularly offered.
First, since the EU referendum in 2016 and with the subsequent succession of
Prime Ministers, the UK’s reputation for political stability has been
impaired. However, the UK does not have a monopoly in political
uncertainty. The UK’s flirtation with populism may prove to be behind it,
while elections over the coming years may cast other countries in a relatively
unfavourable light.
Second, there is a widespread view that the UK’s economic performance in
recent years has been comparatively poor, from Brexit through a
proportionately tougher lockdown experience to a more intransigent problem
with inflation. However, Brexit’s impact is largely in the past – the
companies with which the Managers engage have learned to live with it.
Turning to the pandemic, recent revisions by the ONS to its calculation of GDP
reveal that the UK’s recovery compares well with other members of the G7.
Finally, the gap between the UK’s inflation rate and that of comparable
countries is now narrowing to undermine arguments that the UK is the “sick
man of Europe”.
Third, there is a concern that the UK stockmarket itself is dysfunctional.
Evidence cited includes its lack of technology companies, infrequent and
unsuccessful IPOs, low valuations, and outflows from pension and open-ended
funds. Some of this reasoning is circular, but the issue has caught the
attention of government, for better or worse. Mooted solutions are mandated
investment in UK listed companies by pension funds, lower governance standards
for UK listings and the dilution of EU inspired regulation on UK capital
markets. For the Managers, it is not clear that the UK stockmarket is broken
and well-intended legislation is often undermined in due course by the
unintended consequences.
* Within the UK market, there is a pronounced valuation discount for size –
the lower the market capitalisation, the lower the valuation. Within the
NSCI (XIC), the average 2023 EV/EBITA ratio of companies with market
capitalisations above £600m (roughly the boundary between the FTSE 250 and
the FTSE SmallCap) is 11.0x. For those below the £600m threshold, the
“smaller small” companies, the average multiple is 24% lower at 8.4x.
For smaller companies, the general concerns about the UK are compounded by
their greater reliance on the domestic economy. Around 50% of the aggregate
revenues of NSCI (XIC)’s constituents are generated within the UK, higher
than the 20-25% or so for the entire UK stockmarket. While companies close
to the domestic housing market have reported more difficult trading conditions
for the past nine months, it is notable that their share prices have often
fallen by less than the extent of the downgrade to profit expectations. This
is an indication that economic weakness is reflected in valuations, which is a
necessary, though not sufficient, condition for recovery.
Against the background of disinvestment from UK equities, there is a
heightened sensitivity towards liquidity on the part of many investors. This
is likely to have penalised the valuations of the relatively illiquid asset
class of smaller companies. However, such an investment stance risks missing
the small company premium, which is the historical out-performance of small
over large and which has averaged 1.6% per annum over Aberforth’s 33
years. Investors are rewarded for taking on liquidity risk over time and
relative illiquidity works both ways – gaining exposure to the asset class
when sentiment turns is not straightforward.
* Turning to ASLIT’s portfolio, the 8.9x historical PE at 31 December 2023
was 31% below that of the NSCI (XIC). This compares with an average discount
since 1990 for Aberforth’s longest standing portfolio of 12%.
ASLIT’s portfolio is managed in accordance with the value investment style
and so a discount to the overall valuation of smaller companies is to be
expected. However, the discount today is unusually wide. Part of this is
explained by the better value on offer among the NSCI (XIC)’s “smaller
small” companies, to which ASLIT has a relatively high exposure. Another
factor is the Managers’ willingness to look through general concern about
near term corporate profitability by investing in strong and growing but
economically sensitive companies. Unburdened by these distractions,
ASLIT’s opportunity set within the investment universe is presently towards
its widest in the Managers’ experience.
The following table sets out further detail about 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 ratios are based on the Managers’ profit
forecasts for each company that they track. The bullet points following the
table summarise its main messages.
EV/EBITA 2022 2023 2024 2025
ASLIT 7.4x 8.5x 7.0x 6.3x
Tracked Universe (234 stocks) 9.6x 10.0x 8.5x 7.5x
- 35 growth stocks 18.4x 16.7x 13.4x 11.9x
- 199 other stocks 8.7x 9.2x 7.9x 7.0x
- 83 stocks > £600m market cap 10.7x 11.0x 9.5x 8.5x
- 151 stocks < £600m market cap 7.7x 8.4x 7.0x 6.0x
* The higher multiples for 2023 compared with 2022 are consistent with earlier
comments about lower company profits in 2023. The Managers’ forecasts
currently point to a profit recovery in 2024, but the precise timing of a
rebound relies on the domestic and overseas economic backdrop.
* The average EV/EBITA multiples of the portfolio are lower than those of the
Tracked Universe. This is consistent with the Managers’ value investment
style.
* Each year, the Managers identify a cohort of growth stocks within the NSCI
(XIC). These stocks are on much higher multiples than both the portfolio
and the rest of the Tracked Universe.
Outlook and conclusion
The financial markets enter 2024 in much the same way as they did 2023 –
focused on US interest rates and hopeful that a turn in the cycle towards
looser monetary policy is near at hand. In contrast to twelve months ago,
today there is a declining rate of inflation in most economies as energy
prices subside and global supply chains improve. Complicating factors
include the US electoral cycle, the inflationary implications of ambitious
fiscal programmes and full employment. However, on balance markets price
in a cut in US interest rates in the first quarter of the year. If this is
achieved, the probability rises of a “soft landing” – the Federal
Reserve, despite much criticism for having been slow to respond to inflation,
may yet be able to loosen monetary policy without first tipping the US economy
into recession.
US interest rates are likely to dictate the near term mood of global financial
markets, the UK’s included. But equity returns over time are heavily
influenced by starting valuations, which stockmarkets can take to extreme
levels in their fits of despondency and elation. As the previous section of
this report described, the low valuations ascribed to UK equities, smaller
companies and, in particular, ASLIT’s portfolio bode well for returns over
the medium term. It is not straightforward to identify what will change to
shine the spotlight on the value on offer in the UK – were it easy, after
all, valuations would not now be so attractive. However, while acknowledging
the present debate about the relevance of the UK stockmarket, the Managers
retain confidence in its ability to reflect fairer valuations in due course.
Awaiting a general re-rating of the UK listed companies, ASLIT’s portfolio
companies are well placed to prosper in the meantime.
• With the outlook for inflation and interest rates more
nuanced than in the pre-pandemic period, there is reason to believe that the
value investment style can help ASLIT’s returns, as it has over the past
three years. The Managers’ commitment to value investment sets ASLIT apart
from most other funds in the small company arena.
• ASLIT’s portfolio is skewed towards resilient companies
with strong balance sheets and experienced boards of directors who proved
themselves amid the challenges of the pandemic. These characteristics should
support dividends if, as seems likely, this is a period of more difficult
trading conditions. Additionally, it is plausible that the investee
companies emerge in a stronger competitive position as they have in previous
cycles.
• In the absence of a widespread revaluation of companies
listed on the UK stockmarket, takeover activity is likely to continue. This
is an obvious means through which the value gaps that characterise ASLIT’s
portfolio can be realised. Takeovers are appropriate as long as the offer
terms reflect the target company’s true value and are not anchored by the
prevailing stockmarket price.
• Both in M&A situations and more broadly, the Managers will
continue to engage with the boards of investee companies in order to improve
outcomes for investors. Discreet, purposeful and constructive engagement is
all the more relevant today when valuations are so low and directors are
frustrated by what the stockmarket appears to be saying about the companies
that they run.
These factors contribute to the strength and relevance of ASLIT’s investment
proposition, which the Managers believe can produce good returns for investors
as we wait for a re-rating of the UK equity market and its smaller
companies. The frustration for ASLIT is that the full potential of its
portfolio and capital structure is unlikely to be realised fully in the next
six months. That is why the Managers are working with the Board on two
options for Shareholders at wind-up, either to exit for cash or to maintain
investment exposure similar to ASLIT’s in a new investment trust. The
Managers would intend to take the latter option in respect of their own
significant shareholdings and indeed commit additional capital.
Aberforth Partners LLP
Managers
29 January 2024
FINANCIAL HIGHLIGHTS
TOTAL RETURN PERFORMANCE
Period to 31 December 2023
Ordinary Share ZDP Share
Total Assets 1 NAV 2 Share Price 3 NAV 4 Share Price 5
------------ ------------ ------------ ------------ ------------
Six months 7.8% 10.3% 9.4% 1.8% 1.7%
Twelve months 7.5% 9.0% 16.7% 3.6% 1.7%
3 Years 27.7% 34.4% 32.3% 11.2% 12.5%
5 Years 30.6% 35.6% 33.5% 19.3% 16.3%
Since Inception 13 (cumulative) 14.1% 12.3% 6.2% 25.0% 21.5%
Since Inception 13 (annualised) 2.1% 1.8% 0.9% 3.5% 3.0%
The total return per ordinary share2 for the six months to 31 December 2023
was 7.72p (6 months to 31 December 2022: 9.66p)
ORDINARY SHARE
Net Asset Value per Share Share Price Discount / (Premium) Return per Share Dividend per Share Gearing 6
As at: ------------ ----------- ------------ ------------ ------------ ------------
31 December 2023 81.6p 75.3p 7.7% 7.7p 2.75p 38.3%
30 June 2023 77.2p 72.0p 6.7% 5.4p 5.00p 39.8%
31 December 2022 79.7p 69.0p 13.4% 9.7p 1.70p 37.9%
At inception13 an Ordinary Share had a NAV of 100p and a gearing6 level of
25%.
ZERO DIVIDEND PREFERENCE SHARE (ZDP SHARE)
Net Asset Value per Share Share Price Discount / (Premium) Return per Share Projected Final Cumulative Cover 7 Redemption Yield 8
As at: ------------ ---------- ------------ ------------ ------------ ------------
31 December 2023 125.0p 121.5p 2.8% 2.2p 3.4x 9.7%
30 June 2023 122.8p 119.5p 2.7% 4.3p 3.2x 6.4%
31 December 2022 120.7p 119.5p 1.0% 2.1p 3.2x 4.3%
At inception13 a ZDP Share had a NAV of 100p, a Projected Final Cumulative
Cover7 of 3.4x, and a Redemption Yield8 of 3.5%.
HURDLE RATES9,a
Ordinary Shares Hurdle Rates to return ZDP Shares Hurdle Rates to return
100p Share Price Zero Value 127.25p Zero Value
As at: ---------- ------------ ------------ ------------ ------------
31 December 2023 48.5% -1.8% -93.5% -93.5% -100.0%
30 June 2023 28.4% 1.3% -68.6% -68.6% -99.7%
Inception 13 1.5% n/a -17.0% -17.0% -57.2%
REDEMPTION YIELDS & TERMINAL NAVs (ORDINARY SHARES) AS AT 31 DECEMBER 2023a
Capital Growth (per annum) Ordinary Share Redemption Yields 10 Dividend Growth (per annum)
-20.0% -10.0% +0.0% +10.0% +20.0% Terminal NAV 11
------------ ----------- ------------ ------------ ------------ ------------ ------------
-20.0% -16.7% -15.5% -14.3% -13.1% -11.8% 64.8p
-10.0% -1.6% -0.3% 1.0% 2.4% 3.8% 70.7p
+0.0% 13.8% 15.2% 16.7% 18.2% 19.7% 76.3p
+10.0% 29.5% 31.0% 32.7% 34.3% 35.9% 81.6p
+20.0% 45.4% 47.1% 48.8% 50.6% 52.3% 86.6p
a At 31 December 2023, this represents the rate/yield for the remaining six
months to the planned winding-up date on 1 July 2024
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.
1-13 Refer to Note 2, Alternative Performance Measures and Glossary
INTERIM MANAGEMENT REPORT
A review of the half year and the outlook for the Company can be found in the
Chairman’s Statement and the Managers’ Report.
Risks and Uncertainties
The Directors have a process for identifying, evaluating and managing the
principal and emerging risks faced by the Company. This process was in
operation during the period ended 31 December 2023 and continues in place up
to the date of this report. The Company's capital structure is such that the
underlying value of assets attributable to the Ordinary Shares is geared by
the rising capital entitlements of the ZDP Shares and accordingly the Ordinary
Shares should be regarded as carrying above average risk. The Company also has
a £2 million overdraft facility, which when utilised increases the level of
gearing. Mitigating factors in the Company's risk profile include that it has
a relatively simple capital structure, invests in a diversified portfolio of
small UK quoted companies, and outsources all of its main operational
activities to recognised, well established firms.
The principal risks faced by the Company, as disclosed in the 2023 Annual
Report, relate to investment policy/performance, market risk, structural
conflicts of interest, fall in income, loss of key investment personnel and
regulatory risk. The main risks from its financial instruments are market
price risk, credit risk, liquidity risk and interest rate risk. An explanation
of these risks and how they are managed can be found in the 2023 Annual
Report. Since 30 June 2023, the Board has added two further risks to be
managed as principal risks: failure to satisfy legal obligations and deliver
on commitments made for shareholders in respect of the end of the Company's
planned life, and cyber risk.
Going Concern
The Directors are satisfied that the Company has sufficient resources to
continue in operation for the foreseeable future, a period of not less than 12
months from the date of this report. The Company’s assets comprise mainly
readily realisable equity securities, which, if necessary, can be sold to meet
future funding requirements, though this can typically be achieved through use
of the bank overdraft facility. Accordingly, the Directors continue to adopt
the going concern basis in preparing the financial statements. The Directors'
assessment of going concern included consideration of the planned winding-up
date as described in note 1 to the financial statements.
DIRECTORS’ RESPONSIBILITY STATEMENT
The Directors confirm that, to the best of their knowledge:
(i) the condensed set of financial statements has been prepared in accordance
with Financial Reporting Standard 104 “Interim Financial Reporting”.
(ii) the Half Yearly Report includes a fair review of information required
by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an
indication of important events during the six months to 31 December 2023 and
their impact on the financial statements together with a description of the
principal risks and uncertainties for the remaining six months of the year;
and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being
disclosure of related party transactions and changes therein.
(iii) the Half Yearly Report, taken as whole, is fair, balanced and
understandable and provides information necessary for Shareholders to assess
the Company’s performance, objective and strategy.
On behalf of the Board
Angus Gordon Lennox
Chairman
29 January 2024
The Income Statement, Reconciliation of Movements in Shareholders’ Funds,
Balance Sheet and Cash Flow Statement are set out below:-
INCOME STATEMENT
Six months ended 31 December 2023
(unaudited)
Six months ended
31 December 2023
Revenue Capital Total
£000 £000 £000
Realised net gains on sales - 2,709 2,709
Movement in fair value - 8,135 8,135
-------- -------- --------
Net gains on investments - 10,844 10,844
Investment income 5,908 - 5,908
Other income 41 - 41
Investment management fee (Note 3) (228) (533) (761)
Portfolio transaction costs - (110) (110)
Other expenses (181) - (181)
-------- -------- --------
Net return before finance costs and tax 5,540 10,201 15,741
Finance costs:
Appropriation to ZDP Shares (Note 8) - (1,047) (1,047)
Interest expense and overdraft fee (1) (2) (3)
-------- -------- --------
Return on ordinary activities before tax 5,539 9,152 14,691
Tax on ordinary activities (9) - (9)
-------- -------- --------
Return attributable to Equity Shareholders 5,530 9,152 14,682
====== ======= =======
Returns per Ordinary Share (Note 5) 2.91p 4.81p 7.72p
On 29 January 2024 the Board declared a first interim dividend for the year
ending 30 June 2024 of 2.75p per Ordinary Share, which will be paid on 8 March
2024.
INCOME STATEMENT
Six months ended 31 December 2022
(unaudited)
Six months ended
31 December 2022
Revenue Capital Total
£000 £000 £000
Realised net gains on sales - 4,221 4,221
Movement in fair value - 10,997 10,977
-------- -------- --------
Net gains on investments - 15,218 15,218
Investment income 5,291 - 5,291
Other Income 3 - 3
Investment management fee (Note 3) (211) (493) (704)
Portfolio transaction costs - (211) (211)
Other expenses (184) - (184)
-------- -------- --------
Net return before finance costs and tax 4,899 14,514 19,413
Finance costs:
Appropriation to ZDP Shares (Note 8) - (1,012) (1,012)
Interest expense and overdraft fee (3) (6) (9)
-------- -------- --------
Return on ordinary activities before tax 4,896 13,496 18,392
Tax on ordinary activities (7) - (7)
-------- -------- --------
Return attributable to Equity Shareholders 4,889 13,496 18,385
====== ======= =======
Returns per Ordinary Share (Note 5) 2.57p 7.09p 9.66p
INCOME STATEMENT
Year ended 30 June 2023
(audited)
Year ended
30 June 2023
Revenue Capital Total
£000 £000 £000
Realised net gains on sales - 3,543 3,543
Movement in fair value - 6,509 6,509
-------- -------- --------
Net gains on investments - 10,052 10,052
Investment income 10,985 20 11,005
Other Income 14 - 14
Investment management fee (Note 3) (443) (1,034) (1,477)
Portfolio transaction costs - (313) (313)
Other expenses (357) - (357)
-------- -------- --------
Net return before finance costs and tax 10,199 8,725 18,924
Finance costs:
Appropriation to ZDP Shares (Note 8) - (2,024) (2,024)
Interest expense and overdraft fee (3) (7) (10)
-------- -------- --------
Return on ordinary activities before tax 10,196 6,694 16,890
Tax on ordinary activities (24) - (24)
-------- -------- --------
Return attributable to Equity Shareholders 10,172 6,694 16,866
====== ======= =======
Returns per Ordinary Share (Note 5) 5.35p 3.52p 8.87p
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS
For the six months ended 31 December 2023
(unaudited)
Share Special Capital Revenue
capital reserve reserve reserve Total
£000 £000 £000 £000 £000
Balance as at 30 June 2023 1,902 187,035 (50,926) 8,789 146,800
Return on ordinary activities after tax - - 9,152 5,530 14,682
Equity dividends paid (Note 4) - - - (6,278) (6,278)
-------- -------- -------- -------- --------
Balance as at 31 December 2023 1,902 187,035 (41,774) 8,041 155,204
====== ====== ====== ====== ======
For the year ended 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 (Note 4) - - - (9,018) (9,018)
-------- -------- -------- -------- --------
Balance as at 30 June 2023 1,902 187,035 (50,926) 8,789 146,800
====== ====== ====== ====== ======
For the six months ended 31 December 2022
(unaudited)
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 - - 13,496 4,889 18,385
Equity dividends paid (Note 4) - - - (5,783) (5,783)
-------- -------- -------- -------- --------
Balance as at 31 December 2022 1,902 187,035 (44,124) 6,741 151,554
====== ====== ====== ====== ======
BALANCE SHEET
As at 31 December 2023
(unaudited)
Fixed assets 31 December 2023 £000 30 June 2023 £000 31 December 2022 £000
Investments at fair value through profit or loss (Note 6) 208,167 202,150 207,911
-------- -------- --------
Current assets
Debtors 517 782 488
Cash at bank 6,030 2,949 604
-------- -------- --------
6,547 3,731 1,092
-------- -------- --------
Creditors (amounts falling due within one year)
Other creditors (46) (664) (44)
ZDP Shares (Note 8) (59,464) - -
-------- -------- --------
(59,510) (664) (44)
-------- -------- --------
Net current (liabilities) / assets (52,963) 3,067 1,048
-------- -------- --------
Total assets less current liabilities 155,204 205,217 208,959
Creditors (amounts falling due after more than one year) ZDP Shares (Note 8) - (58,417) (57,405)
-------- -------- --------
TOTAL NET ASSETS 155,204 146,800 151,554
====== ====== ======
Capital and reserves: equity interests
Share Capital: Ordinary Shares 1,902 1,902 1,902
Reserves:
Special reserve 187,035 187,035 187,035
Capital reserve (41,774) (50,926) (44,124)
Revenue reserve 8,041 8,789 6,741
-------- -------- --------
TOTAL SHAREHOLDERS’ FUNDS 155,204 146,800 151,554
====== ====== ======
Net Asset Value per Ordinary Share (Note 7) 81.58p 77.16p 79.66p
Net Asset Value per ZDP Share (Note 7) 125.02p 122.82p 120.69p
Approved and authorised for issue by the Board of Directors on 29 January 2024
and signed on its behalf by:
Angus Gordon Lennox
Chairman
CASH FLOW STATEMENT
For the six months ended 31 December 2023
(unaudited)
Six months ended 31 December 2023 £000 Six months ended 31 December 2022 £000 Year ended 30 June 2023 £000
Net cash inflow from operating activities 5,254 4,648 9,127
Investing activities
Purchases of investments (16,083) (25,629) (36,395)
Sales of investments 20,192 25,787 37,655
-------- -------- --------
Cash inflow from investing activities 4,109 158 1,260
-------- -------- --------
Financing activities
Equity dividends paid (Note 4) (6,278) (5,783) (9,018)
Interest and fees paid (4) (9) (10)
-------- -------- --------
Cash (outflow) from financing activities (6,282) (5,792) (9,028)
-------- -------- --------
Change in cash during the period 3,081 (986) 1,359
-------- -------- --------
Cash at the start of the period 2,949 1,590 1,590
Cash at the end of the period 6,030 604 2,949
-------- -------- --------
SUMMARY NOTES TO THE FINANCIAL STATEMENTS
1. Accounting Standards
The financial statements have been presented under Financial Reporting
Standard 104 (FRS 104) and the AIC’s Statement of Recommended Practice
“Financial Statements of Investment Trust Companies and Venture Capital
Trusts” (SORP). The accounting policies used for the year ended 30 June 2023
have been applied.
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 in the accounting policies note for the
year ended 30 June 2023. The Directors’ assessment of the basis of going
concern 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. All revenue and capital items in
the Income Statement are derived from continuing operations. No operations
were acquired or discontinued in the period. 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 FRS 104. The Company believes that APMs,
referred to within “Financial Highlights”, provide Shareholders with
important information on the Company. These APMs are also a component of
management reporting to the Board. A glossary of the 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.
4. DIVIDENDS
Six months ended 31 December 2023 £000 Six months ended 31 December 2022 £000 Year ended 30 June 2023 £000
Amounts recognised as distributions to equity holders:
Second interim dividend of 2.79p for the year ended 30 June 2022 (paid 26/08/2022) - 5,308 5,308
Special dividend of 0.25p for the year ended 30 June 2022 (paid 26/08/2022) - 475 475
First interim dividend of 1.70p for the year ended 30 June 2023 (paid 08/03/2023) - - 3,235
Second interim dividend of 3.30p for the year ended 30 June 2023 (paid 31/08/2023) 6,278 - -
-------- -------- --------
Total 6,278 5,783 9,018
-------- -------- --------
The first interim dividend for the year ending 30 June 2024 of 2.75p (2023:
1.70p) per Ordinary Share will be paid on 8 March 2024 to holders of Ordinary
Shares on the register on 9 February 2024. The ex dividend date is 8 February
2024. The first interim dividend has not been recorded in the financial
statements as at 31 December 2023. Deducting the first interim dividend from
the Company's revenue reserves at 31 December 2023 leaves revenue reserves
equivalent to 1.48p per Ordinary Share.
5. RETURNS PER SHARE
Period ended: 31 December 2023 31 December 2022 30 June 2023
Net return £14,682,000 £18,385,000 £16,866,000
Weighted average Ordinary Shares in issue 190,250,000 190,250,000 190,250,000
-------- -------- --------
Return per Ordinary Share 7.72p 9.66p 8.87p
-------- -------- --------
Appropriation to ZDP Shares £1,047,000 £1,012,000 £2,024,000
Weighted average ZDP Shares in issue 47,562,500 47,562,500 47,562,500
-------- -------- --------
Return per ZDP Share 2.20p 2.13p 4.26p
-------- -------- --------
6. INVESTMENTS AT FAIR VALUE
In accordance with FRS 102 and FRS 104, 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.
Level 3 - using inputs that are unobservable (for which market data is
unavailable).
All investments are held at fair value through profit or loss. As at the
reporting dates all investments 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 as at 31 December 2023 are as follows.
Ordinary Shares ZDP Shares Total Assets
Net assets attributable £155,204,000 £59,464,000 £214,668,000
Number of Shares 190,250,000 47,562,500 237,812,500
------------ ------------ ------------
NAV per Share (a) 81.58p 125.02p 90.27p
Dividend reinvestment factor 12 (b) 1.376237 - 1.264249
------------ ------------ ------------
NAV per Share on a total return basis at 31 December 2023 (c) = (a) x (b) 112.27p 125.02p 114.12p
NAV per Share on a total return basis at 30 June 2023 (d) 101.78p 122.82p 105.83p
------------ ------------ ------------
Total Return performance (c) ÷ (d) - 1 10.3% 1.8% 7.8%
------------ ------------ ------------
8. ZERO DIVIDEND PREFERENCE SHARES
Period ended: 31 December 2023 £’000 30 June 2023 £’000 31 December 2022 £’000
Opening Balance 58,417 56,393 56,393
Issue costs amortised during the period 25 48 24
Capital growth of ZDP Shares 1,022 1,976 988
------------ ------------ ------------
Closing Balance 59,464 58,417 57,405
------------ ------------ ------------
9. SHARE CAPITAL
Shares £000
As at 31 December 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.
10. RELATED PARTY TRANSACTIONS
There have been no transactions with related parties during the first six
months of the current financial year that have materially affected the
financial position or the performance of the Company. Under UK accounting
standards, the Directors have been identified as related parties and their
fees and interests are disclosed in the 2023 Annual Report.
11. FURTHER INFORMATION
The foregoing do not constitute statutory accounts of the Company (as defined
in section 434(4) of the Companies Act 2006). The financial information for
the period ended 30 June 2023 has been extracted from the statutory accounts,
which have been filed with the Registrar of Companies. The Auditor issued an
unqualified opinion on those accounts and did not make any statements under
section 498(2) or (3) of the Companies Act 2006. All information shown for the
period to 31 December 2023 is unaudited.
Certain statements in this report are forward looking. 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.
From 1 January 2024, the Numis Smaller Companies Index (excluding Investment
Companies) was renamed the Deutsche Numis Smaller Companies Index (excluding
Investment Companies).
The Half Yearly Report as at 31 December 2023 is expected to be posted to
shareholders by 8 February 2024. 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 - represents the 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 – represents the theoretical return on
the NAV per Ordinary Share, assuming that dividends paid to Shareholders were
reinvested at the NAV per Ordinary Share at the close of business on the day
the shares were quoted ex dividend.
3. Ordinary Share Price Total Return – represents 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 of the Company 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
value of a ZDP Share.
5. ZDP Share Price Total Return – represents the return to a ZDP
Shareholder, on a closing market price basis.
6. Gearing – is calculated by dividing the asset value attributable to the
ZDP Shares by the asset value attributable to the Ordinary Shares.
7. Projected Final Cumulative Cover – is 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, future estimated investment management fees charged to
capital, and estimated winding-up costs.
8. Redemption Yield (ZDP Share) – is the annualised rate at which the
planned future payment of capital is discounted to produce an amount equal to
the price at the date of calculation.
9. Hurdle Rate - is 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.
10. Redemption Yield (Ordinary Share) - is the annualised rate at which
projected future income and capital cash flows (based on assumed future
capital/dividend growth rates) is discounted to produce an amount equal to the
share price at the date of calculation.
11. Terminal NAV (Ordinary Share) - is 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.
12. 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.
13. Inception date – 30 June 2017
CONTACT:
Euan Macdonald/Chris Watt, Aberforth Partners LLP, 0131 220 0733
ANNOUNCEMENT ENDS
Copyright (c) 2024 PR Newswire Association,LLC. All Rights ReservedRecent news on Aberforth Split Level Income Trust
See all newsREG - Official List - Suspension - Aberforth Split Level Income Trust
AnnouncementREG-Aberforth Split Level Income Trust Plc: Statement re Scheme Calculations & Issue Update
AnnouncementREG - Official List - Amendment Notice
AnnouncementREG - Stock Exch Notice - Admission to Trading - 27/06/2024
AnnouncementREG-Aberforth Split Level Income Trust Plc: Statement re Result of Elections and Reclassification of the Shares
Announcement