Aberforth Smaller Companies Trust plc half yearly report for the Six Months ended 30 June 2012
Aberforth Smaller Companies Trust plc (ASCoT) invests only in small UK quoted companies and is managed by Aberforth Partners LLP. All data throughout this Half Yearly Report are to, or as at, 30 June 2012 as applicable, unless otherwise stated.
The investment objective of ASCoT is to achieve a net asset value total return (with dividends reinvested) greater than on the Numis Smaller Companies Index (excluding Investment Companies) over the long term.
CHAIRMAN'S STATEMENT
For the six months to 30 June 2012, Aberforth Smaller Companies Trust plc (ASCoT) achieved a net asset value total return of 13.0%, which compares with a total return of 11.6% from your Company's investment benchmark, the Numis Smaller Companies Index excluding Investment Companies (NSCI (XIC)), formerly known as the RBS Hoare Govett Smaller Companies Index. Meanwhile, the larger company oriented FTSE All-Share Index registered a total return of 3.3%. Over the period, smaller companies thus delivered a return that was 8.3 percentage points higher than on the FTSE All-Share, while ASCoT's NAV return exceeded the FTSE All-Share by 9.7 percentage points. The NSCI (XIC) represents a change in name only for your Company's investment benchmark. The data and series continue to be provided by London Business School and represent an unbroken series since 1955.
The Managers' Report provides greater insight into the influences that have affected markets and your Company during the period. It has once again been a volatile period for markets with events in the Eurozone continuing to cast a shadow. Around the world, investors remain cautious, often favouring safer havens, and this, together with the actions of central banks has driven some government bond yields to their lowest levels for well over a hundred years.
Against such a global backdrop, it is encouraging that for your Company we have seen a continuation of the recent trends of rising dividends and gradually increasing merger and acquisition (M&A) activity, which has frequently been referenced in our recent Annual and Interim Reports to Shareholders.
For long term investors, dividends are a key contributor to overall returns, while for the value investor that role is amplified. The dividend environment continues to be favourable and is allowing your Board to pursue the Company's progressive dividend policy with an 8.5% rise in the first interim dividend to 7.0p per Ordinary Share. The interim dividend will be paid on 23 August 2012.
For Shareholders participating in ASCoT's Dividend Re-Investment Plan, the last date for submission of Forms of Election is 2 August 2012. With the introduction of recent tax changes allowing investment companies to distribute capital gains, Shareholders should be reassured that the increased dividend has been delivered via the revenue account while also allowing an increase in the "old fashioned" revenue reserves which now stand at 28.1p per share. Those revenue reserves, while playing a minor role in your Company's longer term dividend record, were utilised in the immediate aftermath of the global financial crisis.
At the Annual General Meeting on 7 March 2012, all resolutions were passed, including that which renewed the authority to buy-in up to 14.99% of ASCoT'S Ordinary Shares. During the six months to 30 June 2012, 251,000 Ordinary Shares were purchased under this authority for a total consideration of
£1,469,000 at an average discount of 17%. Your Board keeps under review the circumstances under which the authority is utilised in relation to the overall objective of seeking to manage the discount.
Based on the dual influences of rising dividends and M&A activity, last year's Interim Report expressed cautious optimism, but this proved misplaced as the second half of 2011 saw dysfunctional European credit markets re-emerge as the central issue for investors. A re-run of last year cannot be ruled out, but nor can it be taken as a given.
Uncertainty is always present and, while real economic challenges lie ahead, the equity market's ability, eventually, to work through such periods is not in question. Indeed, for investors with a long term horizon, a heightened level of uncertainty can also represent an opportunity. Your Board fully understands the Managers' portfolio positioning in favour of the smaller small companies in the NSCI (XIC) universe. This provides valuation support with the added benefit of balance sheet flexibility at the investee company level.
Your Board remains confident that the Managers' experience and consistency of approach will benefit ASCoT over the long term.
Professor Paul Marsh Chairman
18 July 2012
