Aberforth Smaller Companies Trust plc
Annual Report and Financial Statements
31 December 2021
Contents
Strategic Report
Investment Objective 1
Financial Highlights 1
Chairman’s Statement 2
Investment Policy and Strategy 4
D
irectors’ Duty to Promote the Success of the Company 5
Principal Risks 6
Key Performance Indicators 7
Managers’ Report 9
Thirty Largest Investments 15
Investment Portfolio 16
Viability Statement and Other Information 20
Governance Report
Board of Directors 21
Directors’ Report 22
Corporate Governance Report, including Environmental, Social and Governance Matters 26
Audit Committee Report 30
Directors’ Remuneration Policy 33
Directors’ Remuneration Report 34
Directors’ Responsibility Statement 36
Financial Report
Independent Auditor’s Report 37
Income Statement 43
Reconciliation of Movements in Shareholders’ Funds 44
Balance Sheet 45
Cash Flow Statement 46
Notes to the Financial Statements 47
Notice of the Annual General Meeting 56
Shareholder Information & Glossary 58
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt about the action
you should take, you are recommended to seek your own independent financial advice from your stockbroker, bank
manager, solicitor, accountant or other independent financial adviser authorised under the Financial Services and Markets
Act 2000 if you are in the United Kingdom or, if not, from another appropriately authorised financial adviser. If you have
sold or otherwise transferred all your ordinary shares in Aberforth Smaller Companies Trust plc, please forward this
document, together with the accompanying documents, immediately to the purchaser or transferee, or to the stockbroker,
bank or agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.
Investor Disclosure Document
The EU Alternative Investment Fund Managers Directive (AIFMD) requires certain information to be made available to
investors prior to their investment in the shares of the Company. The Company’s Investor Disclosure Document, which is
available for viewing at www.aberforth.co.uk, contains details of the Company’s investment objective, policy and strategy,
together with leverage and risk policies.
Net Asset Value per Ordinary Share
2
32.5
Numis Smaller Companies Index (excluding Investment Companies) 21.9
Ordinary Share Price
2
20.3
31 December 31 December %
2021 2020 Change
Shareholders’ Funds
1
£1,473m £1,148m 28.3
Market Capitalisation
2
£1,288m £1,109m 16.1
Actual Gearing employed
1
5.6% 6.1% n/a
Ordinary Share Net Asset Value
1
1,674.35p 1,292.38p 29.6
Ordinary Share price
2
1,464.00p 1,248.00p 17.3
Ordinary Share discount
2
12.6% 3.4% n/a
Revenue Return per Ordinary Share
1
36.76p 13.28p 176.8
Dividends per Ordinary Share
1
35.20p 33.30p 5.7
Return attributable to equity shareholders per Ordinary Share
1
415.19p -245.50p n/a
Ongoing Charges
2
0.75% 0.81% n/a
Portfolio Turnover
2
25.6% 30.4% n/a
1
UK GAAP Measure
2
Alternative Performance Measure (refer to glossary on page 60) Source: Aberforth Partners LLP
Absolute Performance over past year
(figures are total returns and have been rebased to 100 at 31 December 2020)
Strategic Report Aberforth Smaller Companies Trust plc 1
Year to 31 December 2021 %
Total Return Performance
Financial Highlights
Strategic Report
The Board is pleased to present the Strategic Report on pages 1 to 20 which incorporates the Chairman’s Statement and
Managers’ Report. It has been prepared by the Directors in accordance with Section 414 of the Companies Act 2006, as
amended.
Investment Objective
The investment objective of Aberforth Smaller Companies Trust plc (“ASCoT”) is to achieve a net asset value total return
(with dividends reinvested) greater than that of the Numis Smaller Companies Index (excluding Investment Companies)
(“NSCI (XIC)” or “benchmark”) over the long term.
The Company has appointed Aberforth Partners LLP as the investment managers ("the Managers"). Further information
can be found on page 22.
90
100
110
120
130
140
150
Dec-20 Mar-21 Jun-21 Sep-21 Dec-21
NAV Benchmark Share Price
2 Strategic Report Aberforth Smaller Companies Trust plc
Chairman’s Statement
Review of performance
It is pleasing to report on a good year for performance in 2021, one that contrasts sharply with the difficulties of 2020.
A
SCoT’s net asset value total return was 32.5%. The share price total return was lower at 20.3%, which reflects the
widening of the discount from 3.4% to 12.6% over the course of 2021.
A
SCoT’s net asset value performance compared well with that of the investment benchmark. The total return of the
Numis Smaller Companies Index (excluding Investment Companies) (NSCI (XIC)) was 21.9%. The share prices of large
companies also rose, though to a lesser extent with the FTSE All-Share up by 18.3% in total return terms.
The contrast between 2020 and 2021 was due among other things to the arrival of the vaccines, which gave confidence
to markets that the pandemic could be controlled without reliance on lockdowns. The on-going uncertainties pertaining
to the Omicron variant show that the effects of the coronavirus linger and it continues to extract a regrettable toll in
terms of lives lost. However, from the investment perspective, it does feel that the issue at hand is the pace of recovery
rather than recovery itself. In this context, it is encouraging that the resilience shown by ASCoT’s investee companies in
2020 allowed them to benefit from the first stages of economic recovery in 2021. In turn, as the Managers’ Report
describes in detail, profits and dividends are rebounding well. The improvement in trading conditions is convincing,
though it is necessary to recognise the challenges from inflation and supply chain problems that became increasingly
evident through the latter part of the year.
Dividends
The recovery in the profits of small UK quoted companies is amply demonstrated by ASCoT’s Income Statement. A large
increase in investment income through 2021 was always likely, given how far it had declined in 2020, which was the worst
year for UK dividend income in the post war period. However, the degree of the pick-up has been greater than the Board
had previously expected. Some of this is due to two special dividends received by the Company during the year, but the
heavy lifting was done by numerous investee companies returning promptly to pay dividends having passed them amid
2020’s lockdown. This outcome is to the credit of the resilience and stewardship of the companies in which ASCoT invests.
The growth in investment income fed through to a 177% increase in the revenue return per Ordinary Share to 36.76p,
which has allowed the Board the flexibility to propose a final dividend of 24.25p per Ordinary Share. This, together with
the interim dividend of 10.95 pence, would give a total dividend of 35.20p per Ordinary Share in respect of the year to 31
December 2021. Growth of 5.7% is consistent with the Board’s aim to increase dividends in real terms. Notably, the
35.20p total dividend is funded entirely from the year’s revenue return – there has been no need to use revenue reserves,
which is a better outcome than I had envisaged when I wrote my interim update.
Inflation running at its current elevated rate may prove a more demanding hurdle for the Board’s progressive dividend
policy if the investee companies struggle in the near term to pass on higher costs. However, the Board takes
encouragement from ASCoT’s revenue reserves, which were 59.0p per Ordinary Share at 31 December 2021 assuming
approval of the final dividend. Additionally, the Managers’ dividend estimates for the portfolio plot a path for ASCoT’s
investment income to exceed 2019’s pre-pandemic levels over the next couple of years.
Gearing
Throughout ASCoT’s life, it has been the Board’s policy to deploy gearing in a tactical fashion. Decisions to gear are
motivated by periods of stress in equity markets. The pandemic and lockdown in 2020 produced such an episode, which
allowed ASCoT to gear for the fourth time in its 31 year history. The £130m debt facility to enable this is provided by
The Royal Bank of Scotland International. It has a term running to June 2023, which is designed to align with the three-
yearly continuation vote cycle.
Gearing, which is the ratio of net debt to Shareholders’ Funds, was 5.6% at 31 December 2021, down slightly from 6.1%
at the start of the year. This reduction in gearing reflects the increase in share prices and therefore in Shareholders’
Funds through the year. Despite this recovery, the Board and Managers consider that continued use of the debt facility
is appropriate. As the Managers’ Report explains, the portfolio’s companies continue to make sound progress, while
valuations remain attractive.
Share buy-back
The Company seeks authority to buy back up to 14.99% of its Ordinary Shares at the Annual General Meeting. The
authority was renewed in March 2021. In the year to 31 December 2021, 874,800 shares were bought back and
cancelled. The total value of these repurchases was £12.9m, on an average discount of 11.2%.
The Board continues to believe that, at the margin, buy-backs provide an increase in liquidity for those Shareholders
wishing to crystallise their investment and, at the same time, deliver an economic uplift for those Shareholders wishing
to remain invested in the Company. Accordingly, the Board will be seeking to renew the buy-back authority at the
Annual General Meeting on 3 March 2022.
Stewardship
In November, COP26 reinforced the increasing importance of environmental, social and governance issues for economies
and financial markets. As part of its stewardship responsibilities, the Board regularly reviews the Managers’ approach
to these issues, which is described in additional detail elsewhere in this annual report. The Board endorses the
Strategic Report Aberforth Smaller Companies Trust plc 3
Chairman’s Statement
Managers’ stewardship policy, which is set out in their submission as a signatory to the UK Stewardship Code 2020. This,
together with examples relating to voting and engagement with investee companies, can be found in the literature
library of the Managers’ recently refreshed and updated website at www.aberforth.co.uk.
Board changes
T
he Board regularly reviews its composition and structure in line with corporate governance requirements. As part of the
Board’s succession planning, Paula Hay-Plumb, who has been a Director for eight years, will not stand for re-election at
the forthcoming Annual General Meeting. Paula has made a valuable contribution to the Board’s deliberations and we
wish her well for the future.
A recruitment process for a new Director, being run by the Board, is well advanced.
Annual General Meeting (AGM)
The AGM will be held at 14 Melville Street, Edinburgh EH3 7NS at 2.30 pm on 3 March 2022. Details of the resolutions
to be considered by Shareholders are set out in the Notice of the Meeting on page 56. Shareholders are encouraged to
submit their vote by proxy in advance of the meeting in case restrictions related to the Covid-19 pandemic apply and it
is therefore not possible for shareholders to attend in person. The Company will issue a regulatory news announcement,
which will also be posted on the website, if the only attendees permitted will be those required to allow the business of
the meeting to be conducted. The Board welcomes questions from Shareholders and invites them to be submitted by
email to enquiries@aberforth.co.uk before the meeting, in case attendance is not allowed. Questions will be considered
by the Board and responses provided. In light of these circumstances a brief update on performance and the portfolio
will be available on the Managers' website following the meeting. In accordance with normal practice, the results of the
AGM will be issued in a regulatory news announcement and also posted on the website.
Conclusion
The enduring fascination of financial markets is that they never cease to surprise. Had I been told at the start of 2021
that ten year government bond yields would finish the year still below their pre-pandemic levels, I would have concluded
that nascent inflationary pressures had given way to the disinflationary conditions with which we have become familiar
since the global financial crisis. And yet the year ended with inflation running at its highest rates for decades. The
Managers’ Report explores this conundrum in more detail, but, with the rhetoric from the central banks evolving, it does
appear likely that the coming year will bring some form of resolution.
The nature of the resolution will have important implications for the direction of equities as a whole, for the Managers’
value investment style and for ASCoT’s returns. I would note that financial markets ended 2021 in a familiar manner –
bond yields were low and growth stocks had resumed leadership within equity markets. At the risk of being confounded
again, I would venture to suggest that the burden of proof does not sit with the value investor.
The second order effects of the pandemic, in the form of inflation and supply chain challenges, threaten to hamper the
profit recovery in 2022, but a year of progress nevertheless seems likely. Political developments in many parts of the
world remain unpredictable and affect equity valuations. At home, it is remarkable how rapidly political uncertainty has
re-emerged after the decisive general election result at the end of 2019. This has no doubt contributed to the valuation
of UK equities remaining below their global peers. It is notable, however, that these valuations are attracting the
attention of other companies and private equity as M&A activity recovers to levels last seen before the EU referendum.
While politics and economics will be important influences on ASCoT’s near term returns, the more important
contribution over time is the fortunes of the investee companies. I am struck by how well these businesses have fared
through the great challenges of the past two years. Their resilience is brought out in the Managers’ Report through
analyses of balance sheet strength, good returns on equity and growing dividends. Such characteristics may be
considered to sit oddly with a portfolio managed under a value investment philosophy. My interpretation is that this is
another instance of the financial markets’ ability to surprise and highlights the opportunity for ASCoT’s shareholders
Finally, my fellow Directors and I very much welcome the views of Shareholders and are available to talk to you directly.
My email address is noted below.
Richard Davidson
Chairman
28 January 2022
richard.davidson@aberforth.co.uk
Investment Policy
The Company aims to achieve its objective by investing in small UK quoted companies. These are companies with a
market capitalisation, at time of purchase, equal to or lower than that of the largest company in the bottom 10% of the
main UK equity market or companies in the NSCI (XIC). At 1 January 2022 (the date of the last annual index rebalancing),
the index included 337 companies, with an aggregate market capitalisation of £156 billion. Its upper market
capitalisation limit was £1.6 billion, although this limit changes owing to movements in the stockmarket. If any holding
no longer falls within this definition of a small company, its securities become candidates for sale.
Portfolio risk is spread by diversification of holdings in individual companies: the portfolio will usually have holdings in
over 80 small UK quoted companies. The Company may, at time of purchase, invest up to 15% of its assets in any one
security. However, in practice, each investment will typically be substantially less and, at market value, represent less
than 5% of the portfolio on an on-going basis.
The Company’s policy towards companies quoted on the Alternative Investment Market (“AIM”) generally precludes
investment, except either where an investee company moves from the “Main Market” to AIM (so as to avoid being a
forced seller) or where a company quoted on AIM has committed to move from AIM to the “Main Market” (so as to
enable investment before a full listing is obtained). The Company does not invest in any unquoted companies. Neither
does the Company invest in securities issued by other UK listed closed-ended investment funds except where they are
eligible to be included in the NSCI (XIC). In any event, the Company invests no more than 15% of total assets in other
listed closed-ended investment funds.
The Managers aim to keep the Company near fully invested in equities at all times and there is normally no attempt to
engage in market timing by holding high levels of liquidity. The Company may employ gearing. The Board, in conjunction
with the Managers, is responsible for determining the parameters for gearing. When considered appropriate, gearing is
used tactically in order to enhance returns.
The Board believes that small UK quoted companies continue to provide opportunities for positive total returns over the
long term. Any material changes to the Company’s investment objective and policy will be subject to Shareholder
approval.
Investment Strategy
The Managers adhere to a value investment philosophy. In practice, this approach utilises several valuation metrics,
recognising that flexibility is required when assessing businesses in different industries and that buyers of these
businesses may include other corporates as well as stockmarket investors. As a result of this philosophy, the Company’s
holdings are usually on more attractive valuations than the average for the NSCI (XIC). While there is good evidence that
a value approach within small UK quoted companies results in superior returns over the long term, there can be
extended periods when the value style is out of favour.
The Managers select companies for the portfolio on the basis of fundamental or “bottom-up” analysis. Analysis involves
scrutiny of businesses’ financial statements and assessment of their market positions. An important part of the process
is regular engagement with board members of prospective and existing investments. Holdings are sold typically when
their valuations reach targets determined by the Managers.
In order to improve the odds of achieving the investment objective, the Managers believe that the portfolio must be
adequately differentiated from the benchmark index. Therefore, within the diversification parameters described in
Investment Policy, the Managers regularly review the level of differentiation, with the aim of sustaining an active share
ratio for the portfolio of at least 70%.
Dividend Policy
The Board confirms its commitment to a policy of progressive dividends. In addition, in order to qualify as an investment
trust, the Company must not retain more than 15% of its income from any financial year. The Company pays an interim
dividend in August each year based on the forecast net revenue position for the current financial year. A final dividend,
subject to shareholder approval, is then paid in March each year based on the actual net income for the financial year
just ended and the future earnings forecasts.
Investment Policy and Strategy
4 Strategic Report Aberforth Smaller Companies Trust plc
The Directors have a duty to promote the success of the Company for the benefit of Shareholders as a whole and to
describe how they have performed this duty having regard to matters set out in section 172(1) of the Companies Act
2006. The Directors have fulfilled this duty and considered the likely consequences of their actions over the long term
a
nd on other stakeholders.
Stakeholders – As an externally managed investment company, the Company does not have employees. Its main
s
takeholders therefore comprise its Shareholders, who are also its customers, and a small number of suppliers. These
suppliers are external firms engaged by the Board to provide, amongst others, investment management, secretarial,
depositary, custodial and banking services. The principal relationship is with the Managers and page 22 contains further
information. Their investment management services are fundamental to the long term success of the Company through
the pursuit of the investment objective. The Board regularly monitors the Company’s investment performance in relation
to its objective and also to its investment policy and strategy. It seeks to maintain a constructive working relationship
with the Managers and on an annual basis reviews their continuing appointment to ensure it is in the best long term
interests of Shareholders. The Board receives and reviews detailed presentations and reports from the Managers and
other suppliers to enable the Directors to exercise effective oversight of the Company’s activities. Further information
on the Board’s review process is set out in the Corporate Governance Report. The Managers seek to maintain
constructive relationships with other suppliers on behalf of the Company, typically through regular communications,
provision of relevant information and update meetings.
Shareholder communications – To help the Board in its aim to act fairly as between the Company’s members, it
encourages communications with all Shareholders. The Annual and Interim reports are issued to Shareholders and are
available on the Managers’ website together with other relevant information including monthly factsheets. The
Managers offer to meet the larger Shareholders twice a year to provide detailed reports on the progress of the Company
and receive feedback which is provided to the Board. Directors are also available to meet with Shareholders during the
year and, in normal times, at the AGM. Shareholders’ views are considered as part of the Board’s regular strategy
reviews. Shareholders have the opportunity to validate the Board's strategy through a triennial vote on the continuation
of the Company and the Board encourages Shareholders to participate in this vote.
Enhancing value – In seeking to enhance value for Shareholders over the long term, the Board has also established guidelines
to allow the Managers to deploy gearing on a tactical basis when opportunities arise and to implement share buy-backs.
During 2020 the Company's borrowing facility was refinanced for a further three years and as described in the Chairman's
Statement part of it has been drawn down to take advantage of attractive investment valuations. In addition, the Board
remains committed to a progressive dividend policy, as reflected in the dividends announced for the year.
Corporate Governance – As described in more detail within the Corporate Governance Report, the Board is committed to
maintaining and demonstrating high standards of corporate governance in relation to the Company’s business conduct.
The Board also expects good standards at the companies within which the Company is invested. In this regard, it is
satisfied that the Managers’ investment process incorporates regular consideration of investee companies’ governance
structures and procedures. It is also encouraged that the Managers engage consistently and proactively with the boards
of investee companies on governance and other matters that are material to the investment case. These activities are
ultimately important to the long term success of the Company.
ESG matters – Many investment cases are influenced by environmental, social and governance (ESG) matters,
particularly as the increased profile of such issues affects the stockmarket’s valuations of companies. The successful
design and implementation of environmental and social policies are the responsibility of a company’s board and
governance regime. Whilst the Managers do not exclude investments from the portfolio based on ESG matters alone,
and a broad range of factors is used for evaluation, ESG considerations are an important component of the investment
case assessment. Where ESG matters impinge upon the investment case, the Managers engage with investee companies
to encourage the issues to be addressed and improved. The Managers are well placed to undertake this activity, since
engagement has always been a fully integrated element of their investment process. The Managers’ adoption of the UK
Stewardship Code 2020 highlights the engagement and voting activity undertaken. Their investment team is well
resourced and, collectively, has a deep knowledge and understanding of small UK quoted companies, derived from many
years of interaction and fundamental research. The Managers’ long history of investing in small UK quoted companies
and their willingness to take significant stakes in investee companies can also be helpful in their engagement with
investee company boards. Further detail on the Managers’ stewardship policy and supporting documentation are
available within the 'About Aberforth' section of the Managers’ website, at www.aberforth.co.uk.
Summary – In summary, the Board’s primary focus in promoting the long term success of the Company for the benefit
of its Shareholders as a whole is to direct the Company with a view to achieving the investment objective in a manner
consistent with its stated investment policy and strategy. In doing so, and as described above, it has due regard to the
impact of its actions on other stakeholders and the wider community.
Directors’ Duty to Promote the Success of the Company
Strategic Report Aberforth Smaller Companies Trust plc 5
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 actual and
emerging 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
such as conflicts of interest and ESG can be found in the Corporate Governance Report. The Audit Committee Report (pages
30 to 32) 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. Since the Covid-19
pandemic, these firms have deployed alternative operational practices, including staff working remotely, to ensure continued
business service.
Emerging risks are those that could have a future impact on the Company. The Board regularly reviews them and, during the
year, it added to the risk matrix potential economic risks arising from inflation, reversal of quantitative easing and supply
chain constraints. This risk was grouped under the principal risk category of market risk, as described below. 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. They tend to be relatively consistent
from year to year given the nature of the Company and its business. The principal risks faced by the Company, together with
the approach taken by the Board towards them, are summarised below. To indicate the level of monitoring required during
this year each principal risk has been categorised as either dynamic risk, requiring detailed monitoring as it can change
regularly, or stable risk, requiring less monitoring.
(i)
Investment policy/performance risk – The Company’s investment policy and strategy exposes the portfolio to share
price movements. The performance of the investment portfolio typically differs from the performance of the benchmark
and is influenced by stock selection, liquidity and market risk (see (ii) below and Note 19 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 monitors performance against the investment objective over the long term by
ensuring the investment portfolio is managed appropriately, in accordance with the investment 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 analysis, risk profile and attribution analysis. Senior representatives of Aberforth Partners
attend each Board meeting. Peer group performance is also regularly monitored by the Board. 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 – Investment performance is affected by external market risk factors, including those creating 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’ quarterly and other reporting. The Board and
Managers closely monitor significant economic and political developments and, in particular, are mindful of the
continued uncertainty following the departure of the UK from the EU, the impacts of the Covid-19 pandemic and
government responses, and the potential effects of climate change. This remained a dynamic risk during the year, in
which the Managers reported on market risks including inflation and supply-chain pressures and other geo-political
issues as referred to in the Managers’ Report.
(iii) Share price discount – Investment trust shares tend to trade at discounts to their underlying net asset values, but a
significant share price discount, or related volatility, could reduce shareholder returns and confidence. The Board and
the Managers monitor the discount daily, both in absolute terms and relative to ASCoT’s peers. In this context, the Board
intends to continue to use the buy-back authority as described in the Directors’ Report. This is considered a dynamic risk
as the discount moves daily.
(iv)
Gearing risk – In rising markets, gearing enhances returns, but in falling markets it reduces returns to Shareholders. The
Board and the Managers have specifically considered the gearing strategy and associated risks during the year. At
present this is a dynamic risk as the Company’s tactical gearing facility is partially deployed.
(v)
Reputational risk – The reputation of the Company is important in maintaining the confidence of shareholders. The
Board and the Managers monitor factors that may affect the reputation of the Company and/or of its main service
providers and take action if appropriate. The Board reviews relevant internal control reporting for critical outsourced
service providers. This has been monitored as a stable risk.
(vi)
Regulatory risk – Failure to comply with applicable legal and regulatory requirements could lead to suspension of the
Company’s share price listing, financial penalties or a qualified audit report. A breach of Section 1158 of the Corporation
Tax Act 2010 could lead to the Company losing investment trust status and, as a consequence, any capital gains would
then be subject to capital gains tax. The Board receives quarterly compliance reports from the Secretaries to evidence
compliance with rules and regulations, together with information on future developments. This is a stable risk.
Principal Risks
6 Strategic Report Aberforth Smaller Companies Trust plc
Strategic Report Aberforth Smaller Companies Trust plc 7
2 years from 31 December 2019 5.9 8.0 0.2 12.2 16.7 0.5
3 years from 31 December 2018 12.5 13.5 12.0 42.3 46.1 40.5
4years from 31 December 2017 4.7 5.4 5.5 20.4 23.6 23.9
5 years from 31 December 2016 8.0 8.1 8.7 46.9 47.8 52.0
6 years from 31 December 2015 7.6 8.6 6.5 55.5 64.1 45.5
7 years from 31 December 2014 8.0 8.9 7.5 71.4 81.5 65.7
8 years from 31 December 2013 6.9 7.5 6.5 70.2 78.2 65.9
9 years from 31 December 2012 11.2 10.4 11.6 159.3 144.0 168.7
10 years from 31 December 2011 13.1 12.2 14.5 242.0 217.0 286.6
15 years from 31 December 2006 7.4 8.1 7.9 192.6 222.7 214.2
20 years from 31 December 2001 10.5 10.2 10.8 635.7 599.1 679.8
31.1 years from inception
on 10 December 1990 12.7 10.7 12.3 3,988.5 2,235.1 3,587.9
Annualised Cumulative
Returns (%) ASCoT Returns (%) ASCoT
ASCoT Share
ASCoT
Share
Periods to 31 December 2021 NAV Index Price
NAV Index Price
ASCoT Discrete Annual Returns (%) ASCoT
Period NAV Index Share Price
1 year to 31 December 2021 32.5 21.9 20.3
1 year to 31 December 2020 -15.4 -4.3 -16.5
1 year to 31 December 2019 26.9 25.2 39.8
1 year to 31 December 2018 -15.4 -15.3 -11.8
1 year to 31 December 2017 22.1 19.5 22.6
1 year to 31 December 2016 5.8 11.1 -4.2
1 year to 31 December 2015 10.2 10.6 13.9
1 year to 31 December 2014 -0.7 -1.9 0.1
1 year to 31 December 2013 52.4 36.9 62.0
1 year to 31 December 2012 31.9 29.9 43.9
Key Performance Indicators
Ten Year Summary (ASCoT)
Net Asset Revenue Dividends
Value per Share per Ordinary per Ordinary Ongoing
As at Share Price Discount
Share Share net Charges Gearing
31 December p p % p p % %
2021 1,674.4 1,464.00 12.6 36.76 35.20 0.75 5.6
2020 1,292.4 1,248.00 3.4 13.28 33.30 0.81 6.1
2019
1,570.2 1,540.00 1.9 42.26 36.00 0.77 0.8
2018 1,273.7 1,138.00 10.7 45.30 38.00 0.79 1.3
2017 1,543.7 1,326.00 14.1 41.59 35.50 0.76 0.3
2016 1,292.6 1,109.00 14.2 36.93 30.10 0.80 2.7
2015 1,254.3 1,193.00 4.9 35.03 28.75 0.79 0.3
2014 1,161.4 1,072.00 7.7 27.24 24.75 0.82 2.8
2013 1,193.2 1,095.00 6.7 27.37 23.50 0.79 2.6
2012 802.8 695.50 13.4 26.07 22.25 0.81 5.9
2011 627.3 501.00 20.1 24.13 20.75 0.88 11.1
The Board assesses the Company’s performance in meeting its objective against key performance indicators (also
referred to as Alternative Performance Measures): net asset value total return; share price total return; relative
performance; and share price discount to net asset value. Information on the Company’s performance is provided in the
Chairman’s Statement and Managers’ Report and a record of these measures is shown below. In addition to the above,
t
he Board considers the share price discount against its investment trust peer group. A glossary of these Alternative
Performance Measures can be found on page 60 and the Company's objective is set out on page 1.
Historical Total Returns
8 Strategic Report Aberforth Smaller Companies Trust plc
Performance Indicators
13 14 15 16 17 18 19 20 2112
100
150
200
350
400
450
300
250
14 15 16 17 18 19 20 211312
80
90
130
140
150
120
110
100
1312 20 2114 15 16 17 18 19
Premium
Discount
25%
20%
15%
10%
5%
0%
-5%
14 15 16 17 18 191312 20 21
120
100
150
170
160
180
110
140
130
Ten Year Investment Summary
R
elative Performance
(figures are total returns and have been rebased to 100 at 31 Dec 2011)
Dividends and RPI Growth
(figures have been rebased to 100 at 31 Dec 2011)
A
bsolute Performance
(figures are total returns and have been rebased to 100 at 31 Dec 2011)
Premium/Discount
(being the difference between Share Price and NAV)
Strategic Report Aberforth Smaller Companies Trust plc 9
Managers’ Report
Introduction
Equity markets performed well in 2021. In the UK, the total return of large companies, represented by the FTSE All-
Share, was 18.3%. This was surpassed by the 21.9% return of the NSCI (XIC), which defines ASCoT’s investment universe
of small UK quoted companies. The net asset value total return of ASCoT itself was 32.5%, while the share price total
return was 20.3%.
Following the negative returns of 2020, these numbers depict a welcome reversal of fortunes for UK equity markets.
However, it would be remiss to pass over the contrast between this improvement and the development of the pandemic
– the world is likely to have seen more deaths associated with the coronavirus in 2021 than in 2020. The disparity
between investment returns is explained by the remarkably rapid development of the vaccines, which were announced
towards the end of 2020. These spurred a powerful rally in share prices and allowed equity markets to fulfil their
function by discounting a future in which the pandemic can be controlled and economic activity can normalise. In due
course, the rollout of the vaccines allowed demand to begin its recovery, boosted by high household savings, loose
monetary policy and fiscal support. Corporate profits followed, thus starting to justify the rebound in share prices.
The economic recovery progressed more or less as hoped through 2021. Support measures, such as the UK’s Job
Retention Scheme, have been gradually phased out without, as yet, a significant impact on activity. However, it is
notable that share prices struggled through the second half of the year. This reflects uncertainties that stem both from
the continuing effects of the coronavirus itself and from the unintended consequences of the stimulus measures
deployed in 2020 to mitigate the economic damage of the pandemic. Three particular issues stand out for their effects
on equity valuations: variants of the virus, supply chain constraints and inflation.
• Despite the success of the vaccines, the prospect of further lockdowns has lingered owing to the emergence of new
variants that might prove more infectious, virulent or resistant to the vaccines. Through 2021 the Delta and Omicron
variants highlighted this risk and buffeted sentiment to companies that were benefiting from the return to normal
economic activity. This is a factor that is likely to remain relevant until levels of immunity around the world are high
enough to compromise the virus’s ability to evolve.
• Supply chains have been put under severe stress as demand has surged and as the impact of 2020’s lockdowns on
industrial production and investment plays out. Employment has also been a challenge: with indications that
elements of the labour force have been slow to re-engage after the lockdowns, wage growth is accelerating. In the
UK, Brexit is an additional complication, though it is difficult to disentangle from the effects of the pandemic. These
issues have combined with rising energy prices to exert pressure on households and on corporate profitability, which
is being reflected in the trading updates of companies around the world, including several of the portfolio’s holdings.
In 2021, this factor has tended merely to take the gloss off results that have been boosted by the demand recovery.
However, the effect on profits in 2022 is likely to be greater.
• Supply chain constraints, rising wages and energy prices have combined to produce some of the highest rates of
inflation in decades. In the UK, the CPI rose by 5.1% year-on-year in December 2021, while the rate in the US was 7.0%.
As the effects of lockdown in 2020 washed through the data, it became clear that this rise in inflation is not as
transitory as was widely expected at the start of the year. This is relevant to the performance of the portfolio since
there is evidence that the value investment style, as followed by the Managers, fares relatively well when government
bond yields rise, which they often do in response to higher inflation. However, in the latter part of 2021, there was
little evidence of that relationship. It would seem that equity markets were focused on the possible responses from
central banks, fearing that tighter monetary conditions might lower both inflation and real economic growth.
While the effect of these issues on ASCoT’s portfolio will become clearer through 2022, reassurance can be taken from
the experience of the past two years. The sensitivity of the portfolio companies to economic conditions was clearly
displayed both on the way down in 2020 and in the recovery phase in 2021. The resilience of ASCoT’s holdings comes
with attractive valuations, despite the strong returns achieved in 2021.
Analysis of performance
To recap, ASCoT’s net asset value total return in 2021 was 32.5%, which exceeded the NSCI (XIC)’s return of 21.9%. The
table below and following paragraphs explain this performance and provide additional detail about the portfolio.
Performance for the 12 months ended 31 December 2021 Basis points
Attributable to the portfolio of investments, based on mid prices 928
(after transaction costs of 20 basis points)
Movement in mid to bid price spread 10
Cash/gearing 202
Purchase of ordinary shares 15
Management fee (87)
Other expenses (7)
Total attribution based on bid prices 1,061
Note: 100 basis points = 1%. Total Attribution is the difference between the total return of the NAV and the Benchmark Index (i.e. NAV = 32.53%;
Benchmark Index = 21.92%; difference is 10.61% being 1,061 basis points).
10 Strategic Report Aberforth Smaller Companies Trust plc
Managers’ Report
Style
A
fter the adverse experience of 2020, the value investment style in equity markets around the world benefited from the
v
accine rally. This boosted ASCoT’s performance over 2021 as a whole, though its influence waned in the second half in
r
esponse to the three challenges to equity valuations described above. According to the London Business School, which
a
nalyses style effects within the NSCI (XIC) using price to book ratios, value stocks out-performed growth stocks by just
u
nder 10% in 2021. This quantification of the style factor is a useful but imprecise gauge of the Managers’ approach to
v
alue investment. The Managers have always used a broader range of valuation metrics – notably EV/EBITA, the price
e
arnings ratio, free cash flow yield and dividend yield – to determine the price targets for ASCoT’s holdings. Moreover,
t
heir investment cases are based on more than a statistically low valuation, additionally taking into account factors such
as the development of profits, market position, pricing power and track record. Consideration is also given to risks and
opportunities emerging from environmental, social and governance (ESG) issues.
Size
The following comments focus on the size effect within the NSCI (XIC), rather than on comparing the performances of
large companies and small companies. The NSCI (XIC) is defined as the bottom ten percent by value of the total UK
stockmarket. This means that the largest constituent’s market capitalisation is around £1.6bn and that roughly two
thirds of the NSCI (XIC)’s value is represented by companies that are also members of the FTSE 250. For several years,
the Managers have chosen to invest the portfolio in the index’s “smaller small” constituents, which can be thought of as
non-FTSE 250 companies. The motivation for this was that the “smaller smalls” enjoyed much more attractive
valuations, without having to compromise in terms of profit growth, returns on equity or leverage. For most of the
period since the global financial crisis, this positioning was unhelpful to ASCoT’s returns as general concerns about
liquidity overshadowed the opportunity. However, the advent of the vaccines appears to have been a catalyst for a re-
evaluation of the “smaller smalls”. A gauge of this is the relative performance of the FTSE SmallCap, representative of
“smaller smalls”, against the FTSE 250. After a strong end to 2020, the former went on to out-perform the latter by 13%
in 2021, which is the best calendar year relative performance since 1999. Size was therefore beneficial to ASCoT’s
performance in 2021.
Geography
The EU referendum in 2016 and the subsequent weakness in sterling led to a phase of share price under-performance
by companies with greater exposure to the UK’s domestic economy. Just as greater political clarity seemed forthcoming
at the end of 2019, domestically oriented businesses were put under renewed pressure by 2020’s lockdown, which was
particularly troublesome for businesses in the retail, travel and leisure sectors. Moving into 2021, geographical exposure
remained relevant, with the share prices of domestically oriented businesses rebounding more powerfully amid the
vaccine rally, before giving up some of that out-performance through the middle of the year. Notably, the fourth quarter
witnessed under-performance by the overseas oriented companies, which reflects their greater exposure, at least in the
near term, to the supply chain issues described in the opening paragraphs. Over 2021 as a whole, the share prices of
domestic businesses out-performed those of overseas businesses by 8%. This was helpful to ASCoT’s performance, since
the portfolio has a weighting of 58% in the domestics, higher than the NSCI (XIC)’s 51%.
Dividends
The swings in the income experience of the portfolio and of small UK quoted companies in general have reflected their
capital performance over the past two years. The London Business School calculated that NSCI (XIC) dividends fell by
52% in 2020, the worst outcome in the post war era. In 2021, dividends rebounded by 70%. ASCoT has benefited: the
proposed total dividends in respect of 2021 are funded entirely by the year’s earnings. Even at the time of the interim
results, the Managers had estimated that it would be necessary to draw on revenue reserves, albeit to a lesser extent
than in 2020.
Behind this improvement was a better than expected underlying dividend experience, supplemented by two special
dividends paid by investee companies to ASCoT. The dividend experience is portrayed in the following table, which
categorises the portfolio’s 77 holdings at 31 December 2021 by their most recent dividend action.
The important categories are Returners and Nil Payers. The former captures those holdings that did not pay a dividend
in 2020 but that have resumed distributions in 2021. There are more of these than the Managers had expected at the
start of 2021, which is testament to the resilience and good stewardship of the investee companies in extremely
challenging circumstances. These have provided a significant boost to ASCoT’s Income Statement. The Nil Payers
category hints at the scope for further impetus. The Managers estimate that 14 of the Nil Payers will make dividend
Un
ch
anged Increased
Ni
l
Pay
er
Cu
tter
Payer
Payer
Returner Other*
24
5
5
16
25
2
* Other denotes companies paying dividends for the first time.
Strategic Report Aberforth Smaller Companies Trust plc 11
Managers’ Report
payments in the next two years. The other Nil Payers, which may be thought of as structural Nil Payers, are likely to take
longer as their cash flows are prioritised for investment or debt repayment.
Balance sheets
The strong dividend performance described above is influenced by the resilience of balance sheets both within the
portfolio and among small companies in general. The table below sets out the weight of the portfolio and the tracked
universe in four leverage categories. Using the Managers’ estimates, it also shows those weights both at the end of 2021
and at the end of 2023. The tracked universe is those companies in the NSCI (XIC) that the Managers follow closely and
represents 97% by value of the NSCI (XIC).
The resilience of small companies is evident from the table. Both the portfolio and the tracked universe are emerging
from the pandemic with a skew to companies boasting strong balance sheets. Some of that resilience is due to equity
issues in 2020, though these were fewer than the Managers had expected. The more important influences were the
control of costs, recovering demand and a focus on free cash generation. It is also notable that, if anything, the
portfolio’s companies look more conservatively financed than does the tracked universe. The latter has a higher
exposure to more highly leveraged companies with net debt / EBITDA ratios above 2x.
The likely strengthening of balance sheets in the wake of the pandemic is consistent with the experience of the global
financial crisis. Company boards are naturally slower to utilise their balance sheet strength in the aftermath of such
events. Such caution is understandable, but it can be taken too far. A lack of investment is detrimental to the longer
term prospects of individual companies and, by extension, to the economy as a whole. Furthermore, in the absence of
attractive investment opportunities, excess cash can be returned to shareholders, as long as it does not jeopardise the
underlying business’s viability.
Return on equity
There is a widespread view that companies in the value cohort of an index should generate much lower returns on equity
(RoE) than do the growth cohort. This makes sense since, if the stockmarket is pricing efficiently, companies with high
returns on equity should be on higher valuations, all else being equal. In turn, value investors would tend to find more
opportunities among companies whose returns on equity and valuations are depressed by some issue but can revert to
more normal levels once the issue is addressed.
The table shows the exposure of the portfolio and of the tracked universe to companies categorised by their RoE. The
impact of 2020’s lockdown-induced recession is clear, with weightings in “loss makers” and “laggards” rising as profits
declined. A more useful picture is painted by the data for relatively normal conditions of 2019. In that year, the
portfolio’s exposures to the four categories compare well with those of the tracked universe. This contradicts the
widespread view that value investors are condemned to owning less profitable companies. The explanation for this
counterintuitive but encouraging finding lies in the portfolio’s relatively high exposure to the more attractively valued
smaller small companies, which is addressed in more detail in the commentary on valuations below.
Corporate activity
The international appeal of UK assets diminished with 2016’s EU referendum. This was reflected in sterling weakness,
in a widening of the valuation discount between UK and global equities and in a decline in takeover activity within the
NSCI (XIC). However, the past year has seen some appetite return. UK equities have continued to under-perform their
global peers, but sterling is above pre pandemic levels and ten percent above the nadir in the wake of the referendum.
Of more direct relevance to the portfolio, the incidence of M&A within the NSCI (XIC) was at its highest level in 2021 since
2015. Private equity and other companies, both domestically based and overseas, have been keen to take advantage of
the considerable value available within the UK equity market.
Net debt/EBITDA Net debt/EBITDA
Weight in companies with: Net cash < 2x > 2x Other*
Portfolio: 2021 32% 47% 11% 10%
Portfolio: 2023 43% 43% 7% 7%
Tracked universe: 2021 29% 34% 24% 13%
Tracked universe: 2023 41% 32% 20% 7%
*Includes loss-makers and lenders.
“Loss makers” “Laggards” “Value creators” “Stars”
Weight in RoE < 0% RoE 0-10% RoE 10-20% RoE > 20%
companies with: 2019 2020 2019 2020 2019 2020 2019 2020
Portfolio 6% 25% 24% 37% 40% 19% 29% 19%
Tracked universe 11% 21% 22% 30% 36% 22% 31% 26%
12 Strategic Report Aberforth Smaller Companies Trust plc
Managers’ Report
Nineteen constituents of the NSCI (XIC) were acquired last year, with offers for another six still outstanding at 31
D
ecember 2021. Of these 25 companies, the portfolio had holdings in six. In addition, there were public approaches for
two holdings that were rejected by shareholders and other approaches that the Managers helped rebuff before
disclosure was required. It remains the case that the stockmarket valuations for many investee companies are so low
t
hat the typical 20-30% premium for control does not get close enough to the Managers’ target prices.
ASCoT’s interim report described an upsurge in IPO activity in the first half of 2021, with most of the companies brought
to the market on high valuations and with more appeal to the growth investor. There were few IPOs in the second half,
but the year as a whole saw 23 companies float with current market capitalisations that brought them into the NSCI (XIC)
on its 2022 rebalancing. The net effect of this rebalancing increased the number of constituents in the NSCI (XIC) from
334 at 1 January 2021 to 337 at 1 January 2022. The largest constituent in the 2022 vintage at 1 January 2022 had a
market capitalisation of £1,645m.
Portfolio Turnover
Portfolio turnover is defined as the lower of purchases and sales divided by average portfolio value. Over the twelve
months to 31 December 2021, the rate was 26%. This is in the middle of the range since the financial crisis, with turnover
as low as the mid teens and as high as around 40%. There is often a relationship between ASCoT’s turnover and the
relative performance of the portfolio. If the share prices of holdings rise close to the Managers’ targets, there is the
opportunity to realise value and redeploy the proceeds in other companies with higher upsides. The Managers term this
the “value roll”. On the other hand, weaker performance implies that the gaps between share prices and the Managers’
targets prices are widening and so, all else being equal, there is less incentive to change the portfolio.
Active share
Active share is a measure of how different a portfolio is from an index. It is calculated as half of the sum of the absolute
differences between each stock’s weighting in an index and its weighting in the portfolio. The higher a portfolio’s active
share, the higher its chance of either out or under-performing the index. At 31 December 2021, the portfolio’s active
share was 76% relative to the NSCI (XIC), which was well above the Managers’ target ratio of at least 70%.
Valuations
Before examining the valuations of the portfolio, it is worth noting that UK equities remain lowly valued in the global
context. Research by JP Morgan shows that UK equities have under-performed their US peers by 50% and their
European peers by 25% since the EU referendum in 2016. This has left UK valuations relative to global equities over two
standard deviations below their long term averages. A significant valuation discount persists even when valuations are
adjusted for the UK stockmarket’s heavy exposure to the financials and commodities sectors. Though less exposed to
these sectors, ASCoT’s investment universe and portfolio would appear to bear a UK discount.
The historical PE ratios of the portfolio and of the NSCI (XIC) rose through 2021. This was driven both by the recovery in
share prices through the year and by companies reporting lower earnings in respect of the recession year of 2020. The
long term average PE for the portfolio is 11.6x, while that of the NSCI (XIC) is 13.4x. At 31 December 2021, therefore,
both the portfolio and index are more highly rated than usual. This reflects the fact that recovery in earnings has further
to go – the Managers anticipate that pre-pandemic levels of profitability will be reached again in 2023. In relative terms,
the portfolio PE is 20% lower than that of the NSCI (XIC) at 31 December 2021. This compares with an average discount
over the long term of 13%.
Turning to dividend yields, the portfolio’s 1.9% is lower than the 3.2% long term average. While dividends recovered
more quickly than expected through 2021, they remain below their pre-pandemic levels. Again, those levels are likely
to be seen again in 2023. Consistent with this, the Managers’ estimates suggest a portfolio yield two years out of 3.1%.
As dividends grow again, the presently high dividend cover of 4.0x should reduce closer to the long term average of 2.7x.
31 December 2021 31 December 2020
Portfolio characteristics ASCoT NSCI (XIC) ASCoT NSCI (XIC)
Number of companies 77 337 80 334
Weighted average market capitalisation £624m £934m £587m £866m
Price earnings (PE) ratio (historical) 13.3x 16.6x 7.3x 10.8x
Dividend yield (historical) 1.9% 2.1% 2.2% 1.5%
Dividend cover 4.0x 2.9x 6.1x 6.2x
Strategic Report Aberforth Smaller Companies Trust plc 13
Managers’ Report
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 estimates underlying the ratios are the Managers’. There
follows a series of observations about the table.
EV/EBITA 2020 2021 2022 2023
ASCoT 12.4x 9.4x 8.1x 7.2x
Tracked universe (245 stocks) 15.0x 12.9x 10.9x 9.2x
- 46 growth stocks 21.9x 21.2x 20.2x 18.2x
- 199 other stocks 13.5x 11.6x 9.7x 8.0x
- 105 stocks > £600m market cap 14.6x 13.4x 11.5x 9.6x
- 140 stocks < £600m market cap 16.1x 11.5x 9.5x 8.3x
• The decline in ASCoT’s EV/EBITA from 2020 to 2023 is driven by recovering profits and by a reduction in EV as free
cash flow is generated to reduce debt. The 7.2x multiple in 2023 is based on profits that are expected to be back
roughly to 2019 levels.
• Consistent with the Managers’ value investment philosophy, the portfolio is more attractively rated than the tracked
universe, with a discount of 17% in 2020 expanding to 22% in 2023.
• The valuation stretch among small companies is shown in the EV/EBITA difference between the growth stocks and
the rest of the tracked universe. It is in this latter cohort that the Managers focus their attention, though growth
stocks do encounter trading issues and can offer opportunities as well.
• The bottom two rows demonstrate the present importance of size. Stocks with market capitalisations above £600m
are an approximate match for those NSCI (XIC) constituents that are also members of the FTSE 250. Those with
market capitalisations below £600m are the “smaller smalls”. Despite their better share price performance in 2021,
these remain more attractively valued than their mid cap peers, but they are not inferior in terms of their growth
potential, balance sheets and returns on equity. Since the global financial crisis, the stockmarket has penalised these
companies for their small size and relative illiquidity. Through its diversified portfolio ASCoT has taken advantage of
this and has a meaningfully higher exposure than does the index to the “smaller smalls”.
• Turning back to M&A within the NSCI (XIC), the average 2021 EV/EBITA multiple of the takeover targets (excluding
property companies) was 17x. This is markedly higher than the 2021 valuation multiples of both the tracked universe
and the portfolio, which illustrates the value available among small companies.
The EV/EBITA multiples usefully demonstrate the attractive valuations within the portfolio, but they are not the only
element of the Managers’ investment cases. Each holding is ascribed a target price, which is usually based upon an
estimate of normalised profits to which a multiple is applied. The emphasis of the investment process is assessment of
the appropriate multiple, taking into account factors such as the company’s market position, its record, ESG risks and
opportunities, management and longer term prospects. The ranking by upside to price targets allows the Managers to
circulate capital from companies whose share prices are near their calculated values to those with a larger gap between
the two. Over time this “value roll” can make a meaningful contribution to investment returns. It is the full investment
cases of the holdings that is the main influence on the Managers’ consideration of ASCoT’s tactical gearing facility. Since
attractive valuations continue to unpin significant estimated upside, it is appropriate that the portfolio remains geared.
Outlook and conclusion
Equity returns are determined by the progress of corporate profits and the rating ascribed to those profits by investors.
Inflation and monetary policy are important influences on the latter since they affect the discount rates used to value
financial assets. One of the curiosities of 2021 is that the highest rates of inflation for decades have not had a greater
impact on the pricing of financial assets. Government bond yields in both the UK and US are still below their pre-
pandemic levels, while growth stocks returned to the fore after weaker relative performance amidst the vaccine rally.
So far, therefore, the markets appear to be anticipating economic and financial conditions little changed from those
that have pervaded since the global financial crisis: low real economic growth, low inflation, low interest rates and low
bond yields.
It is not clear that today’s inflationary pressures will be short-lived and easily controlled. The supply chain problems
will be sorted in time, but there may be more intractable influences. Under-investment in oil and gas development
projects in recent years could keep energy prices high. Meanwhile, there is concern that the supply of labour has been
affected by issues stemming from the pandemic and, in the UK at least, by Brexit. Macro-economic data and anecdotes
from companies indicate that wages are accelerating.
14 Strategic Report Aberforth Smaller Companies Trust plc
Managers’ Report
Inflation raises the stakes. While its recent resurgence clearly does not prevent a return to the disinflationary
conditions of the past dozen years, it is perplexing that the financial markets do not yet harbour more doubt. The
chance that bond yields prove too low and that growth stocks are too highly valued is higher today than before the
pandemic, but that is not reflected in current valuations. Were more doubt to creep into valuations, ASCoT’s value
investment style should benefit in terms of relative performance. However, we should be careful what we wish for –
equities struggle when monetary policy belatedly plays catch-up and relative gains might be achieved against the
backdrop of lower share prices.
T
urning back to corporate profits, the outlook is encouraging as economic activity normalises and demand continues its
r
ebound from the 2020 recession. Such recovery remains a common theme from the Managers’ recent engagement
with ASCoT’s investee companies. There are, though, risks. First, the pandemic is still with us and may elicit further
measures by governments. However, the efficacy of the vaccines means that such measures should affect the pace of
recovery rather than threaten the recovery itself. Second, there are the supply chain problems, which are another
recurring feature of company trading updates and will take time to resolve. Indeed, energy and labour costs may put
sustained pressure on corporate margins, with demand also threatened by the impact of energy costs on consumer
spending. Third, there is the chance that central bankers tighten monetary policy to control inflation and thus bring
about economic slowdown. At this stage, this risk is more speculative since monetary tightening, such as the Bank of
England’s 0.15% increase in interest rates in December, has so far been modest – in most western economies interest
rates remain deeply negative in real terms.
So, from the strategic perspective, 2022 feels like a pivotal year as the inflation debate comes to a head. Equity
valuations will be affected, including those of small UK quoted companies. In such uncertain circumstances, the records
of these companies offer reassurance. They have coped with the global financial crisis, the Eurozone crisis, Brexit and
the pandemic. Despite their cyclicality they have displayed great resilience through each episode. ASCoT itself benefits
from a diversified portfolio of companies, with wide ranging activities and geographical exposures. These companies
boast strong balance sheets and generate returns on equity that point to profitable and growing underlying businesses.
Remarkably, these characteristics are available to the Managers without having to compromise on the value investment
philosophy.
Why should that be? Many aspects of ASCoT’s investment policy and strategy – investment in small UK quoted
companies with a value philosophy – have been out of favour for several years.
• Since the financial crisis, smallness has come with concerns about low liquidity. These have trumped the longer term
associations of smaller size with faster growth and higher total returns.
• Since the EU referendum, UK assets have been out of favour and remain lowly valued in the global context. This is
despite the recent upsurge in M&A, which recognises the deep valuation discounts.
• Quoted companies are increasingly being seen as outmoded, with private equity meanwhile lauded for long termism
and its ability to use more leverage. However, as mainstream funds increasingly look to take stakes in private
businesses, it is notable that the private equity firms themselves are seeking stock exchange listings. Moreover, it is
notable that illiquidity is not a concern when it comes to private equity.
• Finally, value investment has been challenged by the environment of low inflation and low interest rates since the
global financial crisis. But a continuation of these conditions is not a given, especially in view of current inflationary
pressures.
A reversal of one or more of these headwinds could supplement the progress of the underlying businesses in which the
portfolio invests to boost returns for ASCoT’s shareholders. This optionality, in combination with the resilience of the
investee companies, underlines the relevance of ASCoT’s investment proposition. These attributes and the upside they
suggest are good reason for ASCoT to retain the tactical gearing of the portfolio, which has been in place since June 2020.
They have also motivated the Managers to add further to their individual shareholdings in ASCoT.
Aberforth Partners LLP
Managers
28 January 2022
Strategic Report Aberforth Smaller Companies Trust plc 15
1 Reach 53,621 3.6 UK newspaper publisher
2 Redde Northgate 46,651 3.2 Van rental
3
Provident Financial 44,372 3.0 Personal credit provider
4 FirstGroup 44,054 3.0 Bus & rail operator
5 Morgan Advanced Materials 41,924 2.9 Manufacture of carbon & ceramic materials
6 Robert Walters 41,538 2.8 Recruitment
7 Rathbones Group 38,920 2.6 Private client fund manager
8 Brewin Dolphin Holdings 38,874 2.6 Private client fund manager
9 Vitec Group 38,007 2.6 Photographic & broadcast accessories
10 Wincanton 35,177 2.4 Logistics
Top Ten Investments 423,138 28.7
11 SIG 33,835 2.3 Specialist building products distributor
12 TI Fluid Systems 33,073 2.2 Automotive parts manufacturer
13 RPS Group 32,633 2.2 Energy & environmental consulting
14 International Personal Finance 32,318 2.2 Home credit provider
15 Keller 30,882 2.1 Ground engineering services
16 Senior 30,770 2.1 Aerospace & automotive engineering
17 Crest Nicholson 29,877 2.0 Housebuilding
18 Just Group 29,270 2.0 Individually underwritten annuities
19 Bakkavor Group 28,729 2.0 Food manufacturer
20 Centamin 27,934 1.9 Gold miner
Top Twenty Investments 732,459 49.7
21 Eurocell 27,534 1.9 Manufacture of UPVC building products
22 Vesuvius 27,075 1.8 Metal flow engineering
23 TT Electronics 26,880 1.8 Sensors & other electronic components
24 Medica Group 26,132 1.8 Teleradiology services provider
25 Micro Focus 26,105 1.8 Legacy software assets
26 EnQuest 26,093 1.8 Oil & gas exploration and production
27 Rank Group 25,945 1.8 Multi-channel gaming operator
28 DFS Furniture 24,770 1.7 Furniture retailer
29 Wilmington Group 24,126 1.6 Business publishing & training
30 Marstons 24,056 1.6 Pub operator
Top Thirty Investments 991,175 67.3
Other Investments (47) 563,410 38.3
Total Investments 1,554,585 105.6
Net Liabilities (82,020) (5.6)
Total Net Assets 1,472,565 100.0
Investments are in Ordinary Shares unless otherwise stated.
Thirty Largest Investments
As at 31 December 2021
Value % of Total
No. Company £’000 Net Assets Business Activity
16 Strategic Report Aberforth Smaller Companies Trust plc
Software and Computer Services 32,366 2.2 6.4
Alfa Financial Software Holdings 6,261 0.4
Micro Focus 26,105 1.8
Technology Hardware and Equipment 26,880 1.8 1.8
TT Electronics 26,880 1.8
Telecommunications Equipment ––0.2
Telecommunications Service Providers 188 – 0.8
Zegona Communications 188 –
Health Care Providers 26,132 1.8 0.8
Medica Group 26,132 1.8
Medical Equipment and Services ––0.4
Pharmaceuticals and Biotechnology ––1.4
Banks ––1.6
Finance and Credit Services 76,690 5.2 2.2
International Personal Finance 32,318 2.2
Provident Financial 44,372 3.0
Investment Banking and Brokerage Services 135,741 9.2 11.9
Brewin Dolphin Holdings 38,874 2.6
City of London Investment Group 13,122 0.9
CMC Markets 16,736 1.1
Jupiter Fund Management 19,641 1.3
Rathbones Group 38,920 2.6
XPS Pensions Group 8,448 0.7
Life Insurance 33,567 2.3 0.8
Hansard Global 4,297 0.3
Just Group 29,270 2.0
Non-life Insurance 25,788 1.8 1.6
Conduit Holding 14,187 1.0
Sabre Insurance Group 11,601 0.8
Real Estate Investment and Services 8,772 0.6 2.5
Foxtons 8,772 0.6
Real Estate Investment Trusts 22,901 1.6 4.4
McKay Securities 22,901 1.6
Automobiles and Parts 33,073 2.2 1.8
TI Fluid Systems 33,073 2.2
Consumer Services 16,688 1.1 0.3
RM 16,688 1.1
Household Goods and Home Construction 50,164 3.4 1.7
Crest Nicholson 29,877 2.0
Headlam Group 20,287 1.4
Leisure Goods ––0.1
Personal Goods ––0.3
Media 123,210 8.4 2.4
Centaur Media 9,332 0.6
Hyve Group 11,493 0.8
National World 13,634 1.0
Reach 53,621 3.6
STV Group 11,004 0.8
Wilmington Group 24,126 1.6
Value % of Total % of NSCI
Security £’000 Net Assets (XIC)
1
Investment Portfolio
As at 31 December 2021
Strategic Report Aberforth Smaller Companies Trust plc 17
Investment Portfolio
As at 31 December 2021
Retailers 66,993 4.6 4.3
Card Factory 14,029 0.9
DFS Furniture 24,770 1.7
Lookers 17,147 1.2
Topps Tiles 11,047 0.8
Travel and Leisure 156,776 10.6 8.9
FirstGroup 44,054 3.0
G
o-Ahead Group 7,526 0.5
Hollywood Bowl 10,888 0.7
Hostelworld Group 10,362 0.7
Marstons 24,056 1.6
Mitchells & Butlers 15,431 1.0
Rank Group 25,945 1.8
Stagecoach Group 18,514 1.3
Beverages 22,286 1.5 1.0
C&C Group 22,286 1.5
Food Producers 31,595 2.2 2.7
Bakkavor Group 28,729 2.0
R.E.A. Holdings 2,866 0.2
Personal Care, Drug and Grocery Stores 9,517 0.6 0.7
McBride 5,926 0.4
McColl's Retail Group 3,591 0.2
Construction and Materials 99,143 6.7 6.5
Eurocell 27,534 1.9
Forterra 10,475 0.6
Galliford Try Holdings 13,051 0.9
Keller 30,882 2.1
Ricardo 17,201 1.2
Aerospace and Defence 30,770 2.1 3.2
Senior 30,770 2.1
Electronic and Electrical Equipment 55,533 3.8 2.9
Dialight 13,609 0.9
Morgan Advanced Materials 41,924 2.9
General Industries ––1.0
Industrial Engineering 92,422 6.3 1.4
Castings 15,928 1.1
Vesuvius 27,075 1.8
Vitec Group 38,007 2.6
XAAR 11,412 0.8
Industrial Support Services 156,455 10.6 7.9
De La Rue 23,895 1.6
Paypoint 8,075 0.5
Robert Walters 41,538 2.8
RPS Group 32,633 2.2
SIG 33,835 2.3
Smiths News 9,945 0.7
Speedy Hire 6,534 0.5
Industrial Transportation 84,324 5.7 2.7
Redde Northgate 46,651 3.2
VP 2,496 0.1
Wincanton 35,177 2.4
Value % of Total % of NSCI
Security £’000 Net Assets (XIC)
1
18 Strategic Report Aberforth Smaller Companies Trust plc
Industrial Materials ––0.1
Industrial Metals and Mining 53,801 3.7 1.9
Anglo Pacific Group 19,363 1.3
Capital 16,144 1.2
Kenmare Resources 18,294 1.2
Precious Metals and Mining 35,135 2.4 2.1
C
entamin 27,934 1.9
Gem Diamonds 7,201 0.5
Chemicals ––2.0
Oil, Gas and Coal 47,675 3.2 5.0
EnQuest 26,093 1.8
Genel Energy 6,614 0.4
Petrofac 7,147 0.5
Pharos Energy 7,821 0.5
Alternative Energy ––0.3
Electricity ––0.9
Waste and Disposal Services ––1.1
Total Investments 1,554,585 105.6 100.0
Net Liabilities (82,020) (5.6)
Total Net Assets 1,472,565 100.0 100.0
1
Reflects the rebalanced index as at 1 January 2022.
Investment Portfolio
As at 31 December 2021
Value % of Total % of NSCI
Security £’000 Net Assets (XIC)
1
Summary of Material Investment Transactions
For the year ended 31 December 2021
Cost Proceeds
Purchases £’000 Sales £’000
Centamin 34,027
Marstons 26,513
Jupiter Fund Management 19,825
Ricardo 16,013
Sabre Insurance Group 14,335
C&C Group 12,697
Babcock International Group 12,099
Rathbones Group 11,592
Galliford Try Holdings 11,418
Micro Focus 10,785
PageGroup 10,463
McBride 8,890
Genel Energy 8,786
XPS Pensions Group 8,722
Crest Nicholson 8,342
Stagecoach Group 8,142
Mitchells & Butlers 7,784
Petrofac 7,135
Foxtons 6,681
City of London Investment Group 6,289
Other Purchases 129,396
Total Purchases (incl. transaction costs) 379,934
Spire Healthcare Group 36,885
RWS Holdings 31,083
Charles Stanley Group 30,740
Vectura Group 30,528
Reach 30,067
Mitchells & Butlers 23,236
Restaurant Group 22,027
U and I Group 20,245
PageGroup 18,835
Forterra 17,471
RHI Magnesita 17,306
Halfords Group 16,700
Zegona Communications 15,501
Babcock International Group 14,384
Alfa Financial Software Holdings 12,904
Harbour Energy 11,539
Essentra 7,904
Future 7,169
Wincanton 6,426
Vitec Group 3,789
Other Sales 10,501
Total Sale Proceeds (incl. transaction costs) 385,240
Strategic Report Aberforth Smaller Companies Trust plc 19
31 December 2020 31 December 2021
NSCI NSCI
Portfolio (XIC) Portfolio (XIC)
2
No. of Valuation Weight Weight No. of Valuation Weight Weight
Index Classification Companies £’000 % % Companies £’000 % %
Portfolio Information
FTSE Industry Classification Exposure Analysis
FTSE Index Classification Exposure Analysis
31 December 2020 31 December 2021
Net Net
Portfolio Portfolio Purchases/ Appreciation/ Portfolio Portfolio NSCI (XIC)
Weight Valuation (Sales)
1
(Depreciation) Valuation Weight Weight
Sector % £’000 £’000 £’000 £’000 % %
Technology 4 48,396 291 10,559 59,246 48
Telecommunications 1 10,375 (14,871) 4,684 188 –1
Health care 5 64,989 (60,761) 21,904 26,132 23
Financials 16 190,103 42,732 38,951 271,786 17 18
Real Estate 3 32,918 (11,533) 10,288 31,673 27
Consumer Discretionary 28 342,359 (6,032) 110,577 446,904 29 20
Consumer Staples 2 30,886 26,968 5,544 63,398 44
Industrials 34 414,095 (19,625) 124,177 518,647 33 26
Basic Materials 4 53,233 27,623 8,080 88,936 66
Energy 3 30,719 9,902 7,054 47,675 35
U
tilities ––– –––2
100 1,218,073 (5,306) 341,818 1,554,585 100 100
FTSE 100 – – – – – – – –
FTSE 250 19 400,518 33 64 18 581,789 38 63
FTSE SmallCap 42 627,943 52 28 42 780,738 50 27
FTSE Fledgling 9 48,298 4 1 7 50,841 3 1
Other 10 141,314 11 7 10 141,217 9 9
80 1,218,073 100 100 77 1,554,585 100 100
1
Includes transaction costs.
2
Reflects the rebalanced index as at 1 January 2022.
20 Strategic Report Aberforth Smaller Companies Trust plc
T
he Directors have assessed the viability of the Company over the five years to December 2026, taking account of the
Company’s position, its investment strategy, and the potential impact of the relevant principal risks detailed above,
including Covid-19. Based on this assessment, the Directors have a reasonable expectation that the Company will meet
its liabilities as they fall due and be able to continue in operation, notwithstanding that the Company's shareholders are
to vote on the continuation of the Company again in 2023.
In making this assessment, the Directors took comfort from the results of a series of stress tests that considered the
i
mpact of a number of severe market downturn scenarios on the Company’s financial position and, in particular, its
ability to settle projected liabilities of the Company as they fall due and to adhere to borrowing covenants (see note 13
on page 51). Portfolio liquidity modelling was conducted to identify values that could be liquidated within different time
periods. The Company invests in companies listed and actively traded on the London Stock Exchange and, whilst less
liquid than larger quoted companies, the portfolio is well diversified by both number of holdings and industry sector. The
Directors determined that a five year period to December 2026 is an appropriate period for which to provide this
statement given the Company’s long term investment objective, the simplicity of the business model, the resilience
demonstrated by the stress testing and the relatively low working capital requirements.
Other Information
Company Status
The Company is a closed-ended investment trust listed on the London Stock Exchange and an Alternative Investment
Fund under the Alternative Investment Fund Managers (AIFM) Directive. The Company has been approved by HM
Revenue & Customs as an investment trust for accounting periods commencing on or after 1 January 2013 subject to the
Company continuing to meet the eligibility conditions. The Company will continue to conduct its affairs as an investment
trust. Furthermore, the Company is an investment company as defined within the meaning of Section 833 of the
Companies Act 2006.
Board Diversity
The Board’s policy for the appointment of non-executive directors is based on its belief in the benefits of having a diverse
range of experience, skills, length of service and backgrounds. The policy is always to seek to appoint the best person for
the job. The Board actively promotes equality and fairness for all and there will be no discrimination on the grounds of
gender, race, ethnicity, religion, sexual orientation, age or physical ability. The overriding aim of the policy is to seek to
ensure that the Board is composed of the best combination of people to promote the success of the Company for
Shareholders over the long term. The current Directors have a range of relevant business, financial and asset
management skills and experience. Brief biographical details of the members of the Board are shown on page 21. In
respect of gender representation, as at 31 December 2021, there were three female Directors and two male Directors.
Environmental, Human Rights, Employee, Social and Community Issues
The requirement to detail information about environmental matters, human rights, social and community issues does
not apply to the Company as it has no employees, all Directors are non-executive and it has outsourced its functions to
third party service providers. The Company’s and the Managers’ approach to environmental, social and governance
matters is set out within the Corporate Governance Report on page 29.
The Strategic Report, contained on pages 1 to 20, has been approved by the Board of Directors on 28 January 2022 and signed
on its behalf by:
Richard Davidson,
Chairman
Viability Statement
Strategic Report Aberforth Smaller Companies Trust plc 21
2
Board of Directors
Governance Report
Richard Davidson, Chairman
Appointed: 26 January 2019
Shareholding in the Company: 32,000 Ordinary Shares
Richard is Chair of MIGO Opportunities Trust plc and Foresight Sustainable Forestry Company plc. He is also Chair of the
University of Edinburgh’s Investment Committee as well as being a Trustee of its pension scheme. Formerly, he was a
P
artner and Manager of the Macro Fund at Lansdowne Partners. Prior to that, he was a Managing Director and No.1
ranked investment strategist at Morgan Stanley, where he worked for 15 years. Since 2003, Richard has also been heavily
involved in forestry investment and management.
Julia Le Blan
Appointed: 29 January 2014 and chairs the Audit Committee
Shareholding in the Company: 3,000 Ordinary Shares
Julia is a chartered accountant and has worked in the financial services industry for over 30 years. She was formerly a tax
partner at Deloitte and expert on the taxation of investment trust companies. She sat for two terms on the AIC’s
technical committee and is also a director of The Biotech Growth Trust plc and JP Morgan US Smaller Companies
Investment Trust plc.
Paula Hay-Plumb
Appointed: 29 January 2014 and is a member of the Audit Committee
Shareholding in the Company: 2,600 Ordinary Shares
Paula is a chartered accountant and an experienced director with a wealth of finance and governance expertise in both
the private and public sectors. Her previous roles include Corporate Finance and Group Reporting Director at Marks and
Spencer plc, Chairman of the National Australia Group Common Investment Fund and non-executive board member of
Skipton Building Society and the National Audit Office. Paula is currently a non-executive board member of Michelmersh
Brick Holdings plc, The Crown Estate and Oxford University Hospitals NHS Foundation Trust and a Trustee of Calthorpe
Estates and the Mineworkers' Pension Scheme.
Victoria Stewart
Appointed: 1 September 2020
Shareholding in the Company: 4,200 Ordinary Shares
Victoria spent twenty two years as a fund manager, mostly with Royal London Asset Management. She was the sole
manager of the Royal London UK Smaller Companies Fund from its inception in 2007, leaving in 2016 and taking up a
non-executive director role with Secure Trust Bank PLC where she is chairman of the remuneration committee. Victoria
has considerable experience of managing and investing in various investment vehicles and mid and small-cap listed
companies and has a strong working knowledge of performance analysis and corporate governance. Victoria is also a
non-executive director of Artemis Alpha Fund plc and JPMorgan Claverhouse Investment Trust plc.
Martin Warner
Appointed: 1 March 2018
Shareholding in the Company: 7,000 Ordinary Shares
Martin co-founded Michelmersh Brick Holdings plc in 1997 and served as Chief Executive and subsequently non-
executive Chairman from May 2017. Martin is a Fellow of the Royal Institute of Chartered Surveyors and is Chairman of
the Brick Development Association.
22 Governance Report Aberforth Smaller Companies Trust plc
Directors’ Report
The Directors submit their Annual Report and Financial Statements for the year ended 31 December 2021.
Directors
The Directors of the Company during the financial year are listed on page 34. Further information about the Board can
be found in the Corporate Governance Report, which forms part of this Directors’ Report.
It is the responsibility of the Board to ensure that there is effective stewardship of the Company’s affairs. In common
with the majority of investment trusts, the Company has neither executive directors nor any employees. However, the
Board has engaged external firms to undertake the investment management, secretarial, depositary and custodial
a
ctivities of the Company.
Objective, Investment Policy, Investment Strategy, Dividend Policy and Risks
These are explained fully in the Strategic Report.
Return and Dividends
The total return attributable to shareholders for the year ended 31 December 2021 amounted to a profit of
£367,526,000 (2020: loss of £219,198,000). The Net Asset Value per Ordinary Share at 31 December 2021 was 1,674.35p
(2020: 1,292.38p).
Your Board is pleased to declare a final dividend of 24.25p which produces total dividends for the year of 35.20p (total of
£31,014,000). The final dividend, subject to Shareholder approval, will be paid on 8 March 2022 to Shareholders on the
register at the close of business on 11 February 2022.
Investment Managers
Aberforth Partners LLP (the firm, Managers or Aberforth) act as Alternative Investment Fund Manager and Secretaries
to the Company. The business was established in 1990 to provide institutional and wholesale investors with a high level
of resources focused exclusively on small UK quoted companies and deployed in accordance with a value investment
philosophy.
At 31 December 2021, funds under management were £2.3 billion, of which 78% was represented by investment trusts,
10% by a unit trust and 12% by segregated charity funds. All these funds are managed in line with the value philosophy
applied to the Company’s portfolio. The Managers believe that diseconomies of scale come with managing too much
money within an asset class such as small UK quoted companies. Accordingly, they impose a ceiling on funds under
management, which in normal circumstances would be equivalent to 1.5% of the total market capitalisation of the NSCI
(XIC) benchmark. Consistent with this, capacity at 31 December 2021 was circa £150 million of funds under management
.
The firm is now wholly owned by six partners – five investment Partners and an Operations Partner, who is responsible
for the firm’s administration. The investment team comprised the five Investment Partners and one investment
manager. Analytical responsibilities are divided by stockmarket sector among the investment team, but investment
decisions and portfolio management are undertaken on a collegiate basis by the full team. The investment managers
are remunerated on the basis of the success of the firm and its funds as a whole. Alignment with the Company’s
Shareholders is further enhanced by the team’s meaningful personal investments in the Company’s equity.
These investment management services can be terminated by either party at any time by giving six months’ notice of
termination. Compensation would be payable in respect of this six month period only if termination were to occur
sooner. Aberforth receives an annual management fee, payable quarterly in advance, equal to 0.75% of the net assets
up to £1 billion, and 0.65% thereafter. The management fee amounted to £10,005,000 in the year ended 31 December
2021 (2020: £7,246,000).
The secretarial fee amounted to £90,308 (excluding VAT) during 2021 (2020: £89,538, excluding VAT). It is adjusted
annually in line with the Retail Prices Index and is subject to VAT, which is currently irrecoverable by the Company.
The Board reviews the Company’s investment management and secretarial arrangements on an on-going basis and
formally at its October meeting, for which each Director completes a Managers’ Evaluation questionnaire. The Board
then considers the results of the questionnaire and discusses the following matters, amongst others, in its review:
• investment performance in relation to the investment objective, policy and strategy;
• the continuity and quality of personnel managing the assets;
• the level of the management fee;
• the quality of reporting to the Board;
• the alignment of interests between the Managers and the Company’s Shareholders;
• the administrative services provided by the Secretaries; and
• the level of satisfaction of major Shareholders with the Managers.
Following the most recent review, the Board was of the opinion that the continued appointment of Aberforth as
investment managers, on the terms agreed, remains in the best interests of Shareholders.
Governance Report Aberforth Smaller Companies Trust plc 23
Directors’ Report
Depositary
NatWest Trustee & Depositary Services Limited carry out the duties of Depositary as specified in the Alternative
Investment Fund Managers (AIFM) Directive in relation to the Company, including:
• holding or controlling all assets of the Company that are entrusted to it for safekeeping;
• cash monitoring and verifying the Company’s cash flows; and
• oversight of the Company and the Managers.
In carrying out such duties, the Depositary acts in the best interests of the Shareholders of the Company. The Depositary
is contractually liable to the Company for the loss of any securities entrusted to it. The Depositary is also liable to the
Company for all other losses suffered as a result of the Depositary’s fraud, negligence and/or failure to fulfil its duties
properly.
NatWest Trustee & Depositary Services Limited receive an annual fee, payable quarterly in arrears, of 0.0085% of the net
assets of the Company, being £153,000 for the year ended 31 December 2021 (2020: £108,000) and their appointment
may be terminated at any time by giving at least six months’ notice. A Depositary may only be removed from office when
a new Depositary is appointed by the Company.
Capital Structure and Share Buy-Backs
At 31 December 2021, the Company’s authorised share capital consisted of 333,299,254 Ordinary Shares of 1p of which
87,948,266 were issued and fully paid. During the year, 874,800 shares (1.0% of the Company’s issued share capital with
a nominal value of £8,748) were bought back and cancelled at a total cost of £12,886,000. No shares are held in treasury.
Share buy-backs may succeed in narrowing the discount between the Company’s share price and net asset value per
share (NAV) or in limiting its volatility, but their influence is inevitably subject to broader stockmarket conditions.
Irrespective of their effect on the discount, buy-backs at the margin provide an increase in liquidity for those
Shareholders seeking to crystallise their investment and at the same time deliver an economic uplift for those
Shareholders wishing to remain invested in the Company. Accordingly, it is the intention to continue to use the share
purchase facility within guidelines established from time to time by the Board.
Continuation of the Company
The Company has no fixed duration. However, in accordance with the Company’s Articles of Association, Shareholders
are asked every three years to vote on the continuation of the Company and an ordinary resolution will be proposed at
the Annual General Meeting to be held in March 2023.
If such resolution is not passed, the Directors will prepare and submit to shareholders (for approval by special resolution)
proposals for the unitisation or appropriate reconstruction of the Company. In putting forward such proposals the
Directors will seek, inter alia, to provide shareholders with a means whereby they can defer any liability to capital gains
tax on their investment at that time. If such proposals are not approved, shareholders will, within 180 days of the
relevant Annual General Meeting, have the opportunity of passing an ordinary resolution requiring the Company to be
wound up. On a winding-up, after meeting the liabilities of the Company, the surplus assets will be paid to the holders
of Ordinary Shares and distributed, pro rata, among such holders.
Going Concern
The Audit Committee has undertaken and documented an assessment of whether the Company is a going concern for
the period of at least 12 months from the date of approval of the financial statements. This assessment included the
impact on the Company of Covid-19. The Committee reported the results of its assessment to the Board.
The Company’s business activities, capital structure and borrowing facilities, together with the factors likely to affect its
development and performance, are set out in the Strategic Report. In addition, the Annual Report includes the
Company’s objectives, policies and processes for managing its capital and financial risk, along with details of its financial
instruments and its exposures to credit risk and liquidity risk. The Company’s assets comprise mainly readily realisable
equity securities and funding flexibility can typically be achieved through the use of the borrowing facilities which are
described in notes 12 and 13 to the financial statements. The Company has adequate financial resources to enable it to
meet its day-to-day working capital requirements.
In summary and taking into consideration all available information, the Directors have concluded it is appropriate to
continue to prepare the financial statements on a going concern basis.
Voting Rights of Shareholders
At shareholder meetings and on a show of hands, every shareholder present in person or by proxy has one vote. On a
poll, every shareholder present in person has one vote for each share he/she holds and a proxy has one vote for every
share in respect of which he/she is appointed.
24 Governance Report Aberforth Smaller Companies Trust plc
Directors’ Report
The Board is pleased to offer electronic proxy voting, including CREST voting capabilities. Further details can be found in
the Notice of the AGM.
Notifiable Share Interests
T
he Board has received notifications of the following interests in the voting rights of the Company as at 31 December
2021 and 28 January 2022. The total number of voting rights amounted to 87,948,266 at 31 December 2021. Since 31
December 2021, 220,000 shares have been bought back and cancelled and therefore the total number of voting rights
at 28 January 2022 amounted to 87,728,266.
Notified interests Percentage
of Voting
Rights Held
Brewin Dolphin Limited 10.1%
Investec Wealth & Investment Limited 9.0%
Rathbone Brothers plc 6.0%
Annual General Meeting
The AGM will be held on 3 March 2022 at 2.30 p.m. at 14 Melville Street, Edinburgh EH3 7NS. Shareholders are
encouraged to submit their votes by proxy in advance of the meeting in case restrictions related to the Covid-19
pandemic apply and it is therefore not possible for shareholders to attend in person. The Board will continue to consider
carefully the arrangements for the AGM in light of Government guidance. The Company will issue a regulatory news
announcement, which will be posted on the Company's website, if the only attendees permitted will be those required
to form the quorum and allow the business to be conducted. The Notice of the Meeting and explanatory notes are set
out on pages 56 and 57. The following special resolution will be proposed at the AGM.
Purchase of Own Shares (Special Resolution)
The current authority of the Company to make market purchases of up to 14.99% of the issued Ordinary Shares of the
Company expires at the end of the AGM. Resolution 10, as set out in the Notice of the AGM, seeks renewal of such
authority until the AGM in 2023. The price paid for shares will not be less than the nominal value of 1p per share and the
maximum price shall be the higher of (i) 105% of the average of the middle market quotations for the shares for the five
business days immediately preceding the date of purchase and (ii) the higher of the price of the last independent trade
and the highest current independent bid on the trading venue where the purchase is carried out. This authority, if
conferred, will be used as described on page 23 and only if to do so would be in the best interests of Shareholders
generally. Any shares purchased under the authority will be automatically cancelled, rather than being held in treasury,
thereby reducing the Company’s issued share capital. There are no outstanding options or warrants to subscribe for
equity shares in the capital of the Company.
Directors’ Recommendation
The Directors consider each resolution being proposed at the AGM to be in the best interests of Shareholders as a whole
and they unanimously recommend that all Shareholders vote in favour of them, as they intend to do so in respect of their
own beneficial shareholdings.
Additional information in respect of the Companies Act 2006
The following information is disclosed in accordance with Section 992 of the Companies Act 2006.
• The Company’s capital structure and voting rights are summarised on pages 23 and 24.
• Details of the substantial shareholders in the Company are listed above.
• The rules concerning the appointment and replacement of Directors are contained in the Company’s Articles of
Association and are discussed on pages 26 and 27.
• Amendment of the Company’s Articles of Association and powers to issue shares on a non pre-emptive basis or buy
back the Company’s shares requires a special resolution to be passed by shareholders.
• There are no restrictions concerning the transfer of securities in the Company; no special rights with regard to
control attached to securities; no agreements between holders of securities regarding their transfer known to the
Company; no agreements to which the Company is party that might affect its control following a takeover bid.
• There are no agreements between the Company and its Directors concerning compensation for loss of office.
Governance Report Aberforth Smaller Companies Trust plc 25
Directors’ Report
Greenhouse Gas Emissions
As the Board has engaged external firms to undertake the investment management, secretarial and custodial activities
of the Company, the Company has no greenhouse gas emissions to report from its operations, nor does it have
responsibility for any other emissions-producing sources under the Companies Act 2006 (Strategic Report and Directors’
R
eports) Regulations 2013. For the same reasons, the Company is not required to disclose information under the
Streamlined Energy and Carbon Reporting regulations. Further explanation is provided in the Corporate Governance
Report.
Bribery Act 2010
The Company does not tolerate bribery and is committed to carrying out business fairly, honestly and openly. Aberforth
Partners LLP, the Company’s Investment Managers, have confirmed that anti-bribery policies and procedures are in place
and they do not tolerate bribery.
Modern Slavery Statement
The Company is not within scope of the Modern Slavery Act 2015 and is not, therefore, obliged to make a human
trafficking statement. The Company has no employees and its supply chain consists mainly of professional advisers so is
considered to be low risk in relation to this matter.
Criminal Finances Act 2017
The Company does not tolerate the criminal facilitation of tax evasion.
Post Balance Sheet Events
Since 31 December 2021, there are no post balance sheet events which would require adjustment of or disclosure in the
financial statements.
Independent Auditor
During the year an audit tender process was conducted by the Audit Committee and the Board has agreed to appoint
Johnston Carmichael LLP as auditor for the financial year ending 31 December 2022. Deloitte LLP remains in office as
auditor until the forthcoming Annual General Meeting at which a resolution for the appointment of Johnston Carmichael
LLP will be proposed. The Board is grateful to Deloitte LLP for its services as Independent Auditor and confirms that there
are no matters in connection with Deloitte LLP ceasing to hold office following the 2021 audit that need to be brought
to the attention of shareholders. The statement of reasons in connection with Deloitte LLP ceasing to hold office as
Independent Auditor has been enclosed separately for shareholders.
Disclosure of Information to Auditor
The Directors who held office at the date of approval of this Directors’ Report confirm that, so far as they are each aware,
there is no relevant audit information of which the Company’s Auditor is unaware; and each Director has taken all steps
that they ought to have taken as a Director to make themselves aware of any relevant audit information, and to establish
that the Company’s Auditor is aware of that information.
Future Developments
The future success of the Company is dependent primarily on the performance of its investments. Although the Company
invests in companies that are listed or quoted in the United Kingdom, the underlying businesses of those companies are
affected by various economic factors, many of an international nature. The Board’s intention is that the Company will
continue to pursue its investment objective and the stated investment strategy and policy.
Approved and authorised for issue by the Board of Directors
Richard Davidson
Chairman
28 January 2022
26 Governance Report Aberforth Smaller Companies Trust plc
Corporate Governance Report
Introduction
The Board is committed to maintaining and demonstrating high standards of corporate governance. The Board has
considered the principles and provisions of the Association of Investment Companies Code of Corporate Governance
(
“the AIC Code”). The AIC Code addresses all the principles and provisions set out in the UK Corporate Governance Code,
which applies for the year ended 31 December 2021, as well as setting out additional principles and provisions on issues
that are of specific relevance to investment trusts. The Board considers that reporting in accordance with the principles
and provisions of the AIC Code provides more relevant and comprehensive information to shareholders. The AIC Code is
available on the AIC website at www.theaic.co.uk. This report forms part of the Directors’ Report on pages 22 to 25.
Compliance
Throughout the year ended 31 December 2021 the Company complied with the recommendations of the AIC Code
except, as explained below, where the Company does not believe it appropriate to comply.
The Board, being small in size and composed entirely of independent non-executive Directors, has not appointed a
Remuneration or a Nomination Committee. Directors’ fees and the appointment of new Directors are considered by the
Board as a whole. The Board has also decided not to nominate a Deputy Chairman or a Senior Independent Director,
although the Chair of the Audit Committee fulfils this role when necessary, for example in taking the lead in the annual
evaluation of the Chairman.
The UK Corporate Governance Code includes provisions relating to the role of the chief executive, executive Directors’
remuneration and the need for an internal audit function. For reasons set out in the AIC Code, the Board considers these
provisions are not relevant to the Company as it is an externally managed investment company. In particular, all of the
Company’s day-to-day management and administrative functions are outsourced to third parties. As a result, the
Company has no executive Directors, employees or internal operations. The Company has therefore not reported further
in respect of these provisions.
The Board
The Board is responsible for the effective stewardship of the Company’s affairs. Strategic issues and all operational
matters of a material nature are considered at its meetings. At 31 December 2021, the Board comprised five non-
executive Directors, of whom Richard Davidson is Chairman. A formal schedule of matters reserved for decision by the
Board has been adopted. The Board has engaged external firms to provide investment management, secretarial,
depositary and custodial services. Contractual arrangements are in place between the Company and these firms.
The Board carefully considers the various guidelines for determining the independence of non-executive Directors, placing
particular weight on the view that independence is evidenced by an individual being independent of mind, character and
judgement. During 2021 Paula Hay-Plumb was a non executive director of Michelmersh Brick Holdings plc and this
represents a cross directorship with Martin Warner who is non executive chairman of Michelmersh Brick Holdings plc. The
Board, excluding these two Directors, is satisfied that it does not affect the judgement or independence of either Director.
All Directors are presently considered to be independent. All Directors retire at the AGM each year and, if appropriate and
continuing, seek re-election. Each Director has signed a letter of appointment to formalise the terms of their engagement
as a non-executive Director, copies of which are available on request and at the AGM.
Meetings
The Board meets at least quarterly to review the overall business of the Company and to consider the matters specifically
reserved for it. Detailed information is provided by the Managers and Secretaries for these meetings and additionally at
regular intervals to enable the Directors to monitor compliance with the investment objective and the Company’s
investment performance compared with its benchmark index. The Directors also review several important areas
including:
• the stockmarket environment;
• the Company’s investment activity over the quarter relative to its investment policy;
• performance in relation to comparable investment trusts and open-ended funds;
• the revenue account, balance sheet and gearing position;
• share price discount (both absolute levels and volatility);
• shareholder register (including significant changes);
• regulatory matters; and
• relevant industry issues.
The Board also holds an annual strategy session to consider, amongst other matters, the Company’s objective and
investment strategy.
Governance Report Aberforth Smaller Companies Trust plc 27
Annual Plan
The following highlights various additional matters considered by the Board during the past year:
The following table sets out the Directors of the Company during the financial year, together with the number of Board
and Committee meetings held and the number of meetings attended by each Director (whilst a Director or Committee
member).
There has been no change to the Directors between 31 December 2021 and 28 January 2022.
Appointments to the Board
The Board regularly reviews its composition, having regard to the Board’s structure and to the present and future needs
of the Company. The Board takes into account its diversity, the balance of expertise and skills brought by individual
Directors, and length of service, where continuity and experience can add significantly to the strength of the Board. The
Board has not yet set diversity targets but its diversity policy is described on page 20.
The Board believes in regular refreshment of the Board and in the benefits of having a diverse range of experience, skills,
length of service and backgrounds. The Board is also of the view that length of service will not necessarily compromise the
independence or contribution of directors of an investment trust company or, indeed, its chairman. Continuity and
experience can add significantly to the strength of the Board especially in times of market turbulence. Nevertheless, the
Board’s policy is that in normal circumstances the Chairman and Directors are expected to serve for a nine-year term,
though this may be adjusted for reasons of flexibility. Paula Hay-Plumb is retiring from the Board at the 2022 AGM having
been a Director for over eight years as part of the Board's succession planning and all the continuing Directors have served
for fewer than nine years.
The Board established a committee in 2021, chaired by Richard Davidson, for the purpose of appointing a new Director.
External search consultants, Trust Associates, a firm having no other connection with the Company or its Directors, were
appointed to conduct a full search. The Committee held meetings with a shortlist of candidates and the process is well
advanced.
Board performance and re-appointment of Directors
The Board undertakes a formal annual assessment of Directors and their collective performance on a range of issues
including the Board’s role, processes and interaction with the Managers. This internal review of the Board and the Audit
Committee was conducted by way of an evaluation questionnaire, the results of which were discussed by the Directors in
October 2021, providing valuable feedback for improving Board effectiveness and highlighting areas for further
development. The appraisal of the Chairman was led by the Chair of the Audit Committee. The Board has agreed to utilise
external facilitators every three years.
Corporate Governance Report
Audit
Board Committee
Director Eligible to attend Attended Eligible to attend Attended
Richard Davidson, Chairman 5 5 – –
Paula Hay-Plumb 5 5 4 4
Julia Le Blan 5 5 4 4
Richard Rae (retired 2 March 2021) 2 2 1 1
Victoria Stewart 5 5 4 4
Martin Warner 5 5 – –
January April July October
C
onsider Final
D
ividend
A
pproval of the
A
nnual Report
R
eview of
Gearing
Review of
D
irectors’ Fees
Detailed review
o
f Investment
Trust Peer Group
C
onsider Interim
D
ividend
Approval of Half
Y
early Report
Review of
s
ignificant
interests
Annual Strategy
R
eview
I
nternal Control
R
eview
C
orporate
G
overnance Review
including the
M
anagers’ policy
on stewardship
B
oard &
Committee
E
valuation
R
eview Managers’
continued
a
ppointment and
remuneration
B
oard
Composition
S
hareholder
C
ommunication
28 Governance Report Aberforth Smaller Companies Trust plc
Corporate Governance Report
In line with the Board’s policy, all continuing Directors offer themselves for re-election at the forthcoming AGM. The Board
believes that each Director continues to be effective, bringing a wealth of knowledge and experience to the Board, and the
C
hairman recommends their re-election to Shareholders.
Directors’ and Officers’ Liability Insurance
The Company maintains appropriate insurance cover in respect of legal action against its Directors. The Company has
also entered into qualifying third party deeds of indemnity with each Director to cover any liabilities that may arise to a
third party, other than the Company, for negligence, default or breach of trust or duty. The deeds were in force during
t
he year to 31 December 2021 and up to the date of approval of this report. The Directors are not indemnified in respect
of liabilities to the Company or costs incurred in connection with criminal proceedings in which the Director is convicted
or required to pay any regulatory or criminal fines.
Training and Advice
New Directors are provided with an induction programme that is tailored to the particular requirements of the
appointee. Thereafter regular briefings are provided on changes in regulatory requirements that affect the Company.
Directors are also encouraged to attend industry and other seminars. Directors, in the furtherance of their duties, may
also seek independent professional advice at the expense of the Company. No Director took such advice during the
financial year under review.
All Directors have access to the advice and services of the Company’s Secretaries, Aberforth Partners LLP, who are
responsible to the Board for ensuring that Board procedures are followed and that applicable rules and regulations are
complied with. The Company Secretaries are also responsible for advising the Board through the Chairman on all
governance matters.
Conflicts of Interest
Company directors have a statutory obligation to avoid a situation in which they (and connected persons) have, or can have,
a direct or indirect interest that conflicts, or may possibly conflict, with the interests of the Company. The Board has in place
procedures for managing any actual or potential conflicts of interest. No interests conflicting with those of the Company
arose during the year under review.
Risk Management and Internal Control
The Board has overall responsibility for the Company’s risk management and internal control systems and for reviewing
their effectiveness. The Company applies the guidance published by the Financial Reporting Council on internal controls.
Internal control systems are designed to manage, rather than eliminate, the risk of failure to achieve the business objective
and can provide only reasonable and not absolute assurance against material misstatement or loss. These controls aim to
ensure that the assets of the Company are safeguarded, that proper accounting records are maintained and that the
Company’s financial information is reliable. The Directors have a robust process for identifying, evaluating and managing
the significant risks faced by the Company, which are recorded in a risk matrix. As part of its risk process, the Board seeks
to identify emerging risks to ensure that they are effectively managed as they develop and are recorded in the risk matrix.
The Board considers each risk as well as reviewing the mitigating controls in place. Each risk is rated for its “likelihood” and
“impact” and the resultant numerical rating determines its ranking into High, Medium or Low Risk. The principal risks faced
by the Company and Board’s approach to managing these risks are set out on page 6. This process was in operation during
the year and continues in place up to the date of this report. It principally involves the Audit Committee receiving and
examining regular reports from the main service providers. The Board then receives a detailed report from the Audit
Committee on its findings. Further information on internal control and risks is contained in the Audit Committee Report on
page 32. The Directors have not identified any significant failures or weaknesses in respect of the Company’s internal control
systems.
Relations with Shareholders
The Board places great importance on communication with Shareholders. Directors of the Company are available to meet
with any Shareholder on request. The Managers meet the larger Shareholders twice a year to provide them with a detailed
report on the progress of the Company and to receive feedback. The Board receives reports from the Managers on these
Shareholder meetings. Furthermore, following publication of the Annual Report, the Chairman emails the largest
Shareholders inviting questions on all aspects concerning the Company. The Directors may be contacted via the Secretaries
whose details are shown on the back cover or through the Chairman’s email address, richard.davidson@aberforth.co.uk.
All Shareholders have the opportunity to vote at and in normal circumstances attend the AGM where the Directors and
Managers are available to discuss important issues affecting the Company. Proxy voting figures are available at the AGM
and via the Managers’ website shortly thereafter. In addition to the annual and half yearly reports, the Company’s
performance, daily Net Asset Values, monthly factsheets and other relevant information are published at
www.aberforth.co.uk.
Governance Report Aberforth Smaller Companies Trust plc 29
Environmental, Social and Governance Matters
ESG oversight
T
he Board is encouraged that the Managers consistently and proactively engage with investee companies on
environmental, social and governance (‘ESG’) matters. It is recognised that these can be material to investment cases
and therefore to the long term success of the Company. The Managers believe that sound ESG policies make good
business sense and make assessments of these factors in their company valuations and investment decisions. The
Managers do not exclude companies from their investment universe purely on the grounds of ESG considerations.
I
nstead, the Managers reflect these considerations in their target valuations for companies and adopt a positive
approach, engaging with company directors with the aim of improving operations, culture, profitability and, ultimately,
valuation. The Board supports Aberforth’s continued integration of ESG considerations into the investment process,
which reflects broader society’s increased awareness and its implications for companies’ actual and potential valuations.
Stewardship – UK Stewardship Code and UN Principles for Responsible Investment (‘UNPRI’)
The UK Stewardship Code, issued by the FRC, sets out the principles of effective stewardship by institutional investors.
The Company’s investment portfolio is managed by Aberforth Partners LLP who invest exclusively in small UK quoted
companies and, as a significant investor within this asset class, the Managers have a strong commitment to effective
stewardship. As early adopters of the UK Stewardship Code 2020, the Managers have embraced the principles and were
recognised as an approved signatory of the code in September 2021.
The Managers are also a signatory to, and participate in, the annual UNPRI assessment, the results of which are available
within the 'About Aberforth' section of the Managers' website, at
www.aberforth.co.uk.
The Managers have also published on their website more detailed supporting documents. These outline their
Stewardship Policy, Investment Philosophy, Engagement and Voting Framework, as well as providing examples of
Engagement and Voting.
The Board has reviewed, and endorses, the Managers’ Stewardship Policy.
Voting Policy
The Board has given discretionary voting powers to the Managers to exercise the voting rights on every resolution that is
put to shareholders of the companies in which the Company is invested. The Board endorses the Managers’ voting
philosophy, which treats clients as part owners of the underlying companies. Exercising the rights, they vote on all matters
at all meetings. The Managers vote against resolutions that they believe may damage shareholders’ rights or economic
interests, which specifically includes consideration of environmental and social matters. Under normal circumstances these
concerns would have been raised with directors of the company concerned. The Board receives quarterly reports from the
Managers on governance issues, including voting, pertaining to investee companies.
Activity in 2021
The Board reviews the Managers’ engagement activity and assessment during the year. The Managers conducted a survey
of investee companies to assess their approach to certain environmental and social issues. The results of the survey help
with the assessment of ESG influences on company valuations and to prioritise engagement. In an increasingly congested
regulatory environment for ESG rules, guidance and recommendations, the Managers have also developed a proprietary
methodology for the analysis of ESG factors relevant for each investment. This directs engagement activity and the tracking
of underlying investee company progress.
The Board welcomed Aberforth’s publication of its own Governance and Corporate Responsibility statement, which
provides information about the firm’s approach to ESG matters. The Board considered the applicability to the Company of
the Streamlined Energy & Carbon Reporting Statement (‘SECR’); however, such a disclosure would be meaningless, since
the Company has no direct employees and does not own, operate or lease any tangible assets. More relevant are the
Managers’ voluntary disclosures under SECR, which are included in their Governance and Corporate Responsibility
disclosures.
Policies and practices
Further detail on the Managers’ Stewardship and ESG policies and practices, including engagement examples and voting
disclosures, is available within the ‘About Aberforth’ section of the Managers’ website, at www.aberforth.co.uk.
By Order of the Board
Richard Davidson
Chairman
28 January 2022
Corporate Governance Report
30 Governance Report Aberforth Smaller Companies Trust plc
Audit Committee Report
The Committee members are all independent non-executive directors who have been selected by the Board to fulfil
the Committee’s duties based upon their range of financial and commercial expertise. The Committee members during
the year were Julia Le Blan (Chair), Richard Rae (retired on 2 March 2021), Paula Hay-Plumb and Victoria Stewart
(appointed on 2 March 2021). The current members’ biographies can be found on page 21. Each member of the
C
ommittee has recent and relevant financial experience and the Committee as a whole has competence relevant to the
sector in which the Company operates.
Principal Objective
The objective of the Committee is to provide assurance to the Board as to the effectiveness of the Company’s internal
controls and the integrity of its financial records and externally published results. In doing so the Committee operates
within terms of reference that have been agreed by the Board. These are reviewed annually and are available upon
request.
Principal Responsibilities
The Committee has been given the following responsibilities:
• reviewing the Company’s internal financial controls and risk management systems, identifying principal risks and
monitoring the mitigating controls that have been established;
• monitoring compliance with the relevant statutory, regulatory and taxation requirements for a UK based
investment trust that is listed on the London Stock Exchange;
• reviewing the Company’s annual and interim financial statements and any formal announcements on the
Company’s financial performance, the accounting policies adopted and the main judgemental areas;
• ensuring that the Annual Report, taken as a whole, is fair, balanced and understandable;
• agreeing the external auditor’s terms of appointment and remuneration, determining the independence and
objectivity of the auditor, assessing the effectiveness of the audit and conducting audit tenders;
• considering whether it is appropriate for certain non-audit services to be carried out by the auditor;
• reviewing the need for an internal audit function; and
• assessing the going concern and viability of the Company, including assumptions used.
The Chair reports formally to the Board on the Committee’s proceedings after each meeting. To assist with the various
duties of the Committee, a meeting plan has been adopted and is reviewed annually. This is the latest version.
Meetings
Typically three meetings are held each year. Representatives of Aberforth Partners LLP, who provide the Company with
secretarial services, attend all of the meetings. Deloitte LLP (“Deloitte”), the external auditor, attends the meetings in
January and October. In addition, in November 2021 meetings were held for the audit tender process.
During the year to 31 December 2021 the Committee has focused on the areas described below.
Audit Committee Annual Plan
January April July October
Annual Report
including judgemental
areas, going concern,
viability statement,
letter of
representation,
expense analysis and
Annual Report
announcement
Key Risks of the
Company
Provision of non-
audit services,
including taxation
compliance services
Custodian’s
Controls Report
update
Investment Trust
Status
Audit meeting/
evaluation of the
audit including
auditor
independence
Half Yearly Report
including
judgemental areas,
going concern,
expense analysis and
Half Yearly Report
announcement
Key Risks of the
Company
Key Risks of the
Company
Investment Trust
Status
Basis of
Management Fee
allocation (every
three years)
Audit Fees
Committee’s
Terms of Reference
Corporate
Governance
Compliance
Cyber Security
Measures (Aberforth
Partners)
Investment Trust
Status
Evaluation of the
Committee
Audit Committee
Plan
Auditor Plan,
together with the
Terms of
Engagement
Internal Controls
Review including
reports from the
Managers and other
third parties
Meetings to be
called if required
Governance Report Aberforth Smaller Companies Trust plc 31
Financial Reporting
In July 2021, the Committee focused on the preparation and content of the Half Yearly Report, including supporting
documentation from the Secretaries. The Half Yearly Report was not audited, as is customary for investment trusts.
In January 2022, the Committee received a report and supporting presentation from the external auditor on its audit
o
f the financial statements for the year to 31 December 2021. In addition, the Secretaries reported on the preparation
of the financial results and other relevant matters. The Committee considered these reports in detail and took further
comfort from the internal control and risks review covered below. The Chair of the Committee had discussed the
outcome of the audit process and the Annual Report with the audit partner without representatives of Aberforth
Partners being present. As part of its review of the financial statements, the Committee considered the following
significant issues.
The Committee read and discussed this Annual Report and concluded that it is fair, balanced and understandable. It
provides the information necessary for shareholders to assess the Company’s performance, objective and strategy.
Accordingly, the Committee recommended to the Board that the financial statements be approved for publication.
Going Concern and Viability
The Committee received reports on going concern from the Secretaries in July and January. Both reports included
assessment of the impact of Covid-19 on the Company. The content of the investment portfolio, trading activity,
portfolio diversification and the existing borrowing facilities were also discussed. After due consideration, the
Committee concluded it was appropriate to prepare the Company’s accounts on a going concern basis and made this
recommendation to the Board. The main factors that led to this conclusion were the portfolio composition and the
relatively low levels of cash required to continue operating the Company.
The Committee also assessed the viability of the Company. The Committee agreed that it was appropriate to provide
a Viability Statement for a five year period for the reasons set out in the Statement on page 20. In January 2022, the
Committee reviewed a series of stress tests that considered the impact of severe market downturn scenarios on
Shareholders’ funds, the borrowing facilities, investment income and also the impact of losing investment trust status.
The outcome of this activity led the Committee to recommend the Viability Statement to the Board.
Audit Committee Report
Matters Considered and Action taken by the Committee
Significant Issue How the issue was addressed
Ownership and valuation of
the investment portfolio as
at 31 December 2021
The Committee reviewed the Managers’ control framework, which includes controls over
valuation and ownership of investments. The appointed Depositary is responsible for
holding and controlling all assets of the Company entrusted for safekeeping. Ownership of
investments is verified through reconciliations by the Managers to Custodian records. The
Committee reviewed internal control reports from the Company’s Custodian. The
valuation of the portfolio is undertaken in accordance with the accounting policy for
investments as stated in Note 1 to the financial statements.
Revenue recognition including
dividend completeness and
the accounting treatment of
special dividends
The Committee reviewed the Managers’ control framework, which includes controls over
revenue recognition. The Committee reviewed actual and forecast revenue entitlement at
each meeting. The accounting treatment of all special dividends is reviewed by the
Committee and the external auditor.
Investment Trust Status
The Committee confirmed the position of the Company in respect of compliance with
investment trust status at each meeting with reference to a checklist prepared by the
Secretaries. The position is also confirmed by the external auditor as part of the audit
process.
Calculation of
management fees
The Committee reviewed the Managers’ control framework, which includes controls over
expenses, including management fees. The Committee reviewed management fees
payable to the Managers. The external auditors tested the management fees as part of
their audit.
Impact of Covid-19
The Committee considered the impact of Covid-19 on the Company's financial statements
and the references in the Annual Report, including those contained in the 'Principal Risks',
'Going Concern' and 'Managers' Report' sections.
32 Governance Report Aberforth Smaller Companies Trust plc
Internal Control and Risks
The Committee carefully considered a Matrix of the Company’s principal and emerging risks and the mitigating
controls at each meeting. In October the risks and controls were addressed in more detail. The Committee enhanced
the content of the Matrix during the year, including: updating risk ratings where appropriate; moving a few risks from
emerging to emerged but none were deemed principal risks; and adding some emerging risks, including further waves
o
f Covid-19 and an economic emerging risk category. The Committee believes the Matrix continues to reflect
accurately the Company’s principal risks. These risks are detailed on page 6.
Also in October 2021 the Committee received the Managers’ report on internal controls, including the assurance
report issued by PricewaterhouseCoopers LLP (PwC) on the nature and effectiveness of the control framework that
has been established by the Managers. A representative of PwC attended the meeting. In addition, the Committee
received internal control reports from the Custodian, Northern Trust, and in January 2022 from the Registrar, Link
Group. The Committee reviewed these reports and concluded that there were no significant control weaknesses or
other issues that needed to be brought to the Board’s attention.
The Committee continues to monitor closely the increasing risk arising from cyber threats, notwithstanding that the
Company outsources all of its activities to external parties. In October, the Committee received presentations from
Aberforth Partners and their external service provider for cyber security, covering the measures that are in place to
protect the Managers’ systems and the Company information that they contain. The Committee noted the assurances
that have been given about the effectiveness of control measures. It concluded that, although cyber-attack represents
an increasing threat to companies and public bodies worldwide, the Company has taken all reasonable steps to
ensure that appropriate protection measures are in place. Nevertheless this particular threat will continue to be
monitored closely.
External Auditor, Audit Planning and Audit fees
Deloitte was appointed as the Company’s Auditor on 17 April 2013 following a formal tender process and this
appointment has been renewed at each subsequent AGM. The Committee reviews the reappointment of the auditor
every year. The audit partner needs to be rotated every five years and Chris Hunter was first appointed audit partner
for the 2018 audit. Deloitte presented its audit plan to the Committee in October in advance of the 2021 audit. The
plan set out the scope of the audit, the principal risks that would be addressed (as detailed in the Independent
Auditor's Report), the timetable and the proposed fees. These amounted to £32,000, excluding VAT, for the year
(2020: £27,000) and the Committee considered the increase with general audit market trends. There were no non-
audit activities carried out by Deloitte.
Regulations require the Company to tender the audit at least every ten years and the next audit tender process has
to be conducted no later than 2023. Accordingly, the Committee decided to put the Company’s audit for the year
ending 31 December 2022 out to tender. The Committee managed the audit tender process with an initial list of audit
firms identified from which three were selected to present to the Committee. In view of its length of tenure to date,
Deloitte was not invited to tender. After careful consideration of all factors, including audit quality, effectiveness,
independence and value, the Committee recommended to the Board the appointment of Johnston Carmichael LLP as
auditor for the years ending 31 December 2022 and onwards. The Board approved the recommendation and a
resolution will be put to shareholders at the 2022 AGM. The Committee extends its gratitude to Deloitte for the
professional service provided as auditor to the Company.
Auditor
Following the completion of the audit in January 2022, the Committee reviewed the auditor’s effectiveness. The
Committee acknowledged that the audit team comprised staff with appropriate levels of knowledge and experience.
The Committee noted positive feedback from the Secretaries on Deloitte's performance on the audit. Additionally
Deloitte had provided confirmation that they have complied with the relevant UK professional and regulatory
requirements on independence. Taking these factors into account, the Committee was satisfied that the external
audit was carried out effectively.
Audit Committee Report
Matters Considered and Action taken by the Committee
Committee Evaluation
A formal internal review of the Committee’s effectiveness, using an online evaluation questionnaire, was undertaken
during the year. The outcome was positive with no significant concerns expressed. The Committee has agreed to utilise
external facilitators every three years.
Julia Le Blan
Audit Committee Chair
28 January 2022
Governance Report Aberforth Smaller Companies Trust plc 33
Directors’ Remuneration Policy
This section provides details of the remuneration policy applying to the Directors of the Company. All Directors are non-
e
xecutive, appointed under the terms of letters of appointment and none has a service contract. The Board has prepared this
report in accordance with the requirements of the Companies Act 2006.
This policy was previously approved by Shareholders at the Annual General Meeting held in 2020. The policy provisions
continue to apply until they are next put to Shareholders for approval, which must be at intervals not exceeding three years.
This policy, together with the Directors’ letters of appointment may be inspected at the Company’s registered office.
T
he Board considers and determines all matters relating to the Directors’ remuneration at the beginning of each financial
period. A Remuneration Committee has not been formed as all of the Directors are non-executive and considered independent.
Company’s Policy on Directors’ Remuneration
The Company’s policy is that the remuneration of the Directors should be commensurate with the duties and responsibilities
of the role and consistent with the requirement to attract and retain Directors of appropriate quality and experience. No
Shareholder has expressed any views to the Company in respect of the Directors’ remuneration policy. The remuneration policy
is not subject to employee consultation as the Company has no employees. It is intended that this policy will remain in place
for the following financial year and subsequent periods.
The Board, at its discretion, determines Directors’ remuneration subject to the aggregate annual fees not exceeding £200,000
in accordance with the Company’s Articles of Association. Such remuneration solely comprised Directors’ fees as set out below
and Directors are not eligible for any other remuneration.
The table below sets out the Directors’ fees in respect of the year ended 31 December 2021 and year ending 31 December
2022.
Loss of Office
A Director may be removed without notice and no compensation will be due on loss of office.
Expenses
All directors are entitled to the reimbursement of expenses paid by them in order to perform their duties as a Director of the
Company.
Review of the Remuneration Policy
The Board has agreed to review the above policy at least annually to ensure that it remains appropriate.
Annual Fees Annual Fees
2022 2021
£ £
Chairman of the Company 39,300 37,425
Director and Chair of the Audit Committee 32,500 30,950
Director and Member of the Audit Committee 27,780 26,450
Director 26,200 24,950
34 Governance Report Aberforth Smaller Companies Trust plc
Directors’ Remuneration Report
The Board has prepared this report in accordance with the requirements of the Companies Act 2006. The law requires the
Company’s Auditor to audit certain elements of this report. These elements are described below as “audited”. The Auditor’s
opinion is included in the Independent Auditor’s Report on page 37.
Directors’ Letters of Appointment
Each Director has entered into a letter of appointment with the Company and is subject to annual re-election by Shareholders.
Directors are subject to election by Shareholders at the first Annual General Meeting after their appointment and thereafter
at every subsequent Annual General Meeting.
The following Directors held office during the year.
Directors’ Fees (Audited)
The emoluments of the Directors who served during the year were as follows.
Date of Date of election/
Director Appointment re-election
Richard Davidson, Chairman 26 January 2019 AGM 2022
Paula Hay-Plumb 29 January 2014 AGM 2022
Julia Le Blan 29 January 2014 AGM 2022
Richard Rae (retired 2 March 2021) 26 January 2012 n/a
Victoria Stewart 1 September 2020 AGM 2022
Martin Warner 1 March 2018 AGM 2022
The following table shows the remuneration of the Directors in relation to distributions to Shareholders by way of dividends
and share buy-backs.
Absolute
2021 2020 change
£’000 £’000 £’000
Total Directors’ remuneration 150 155 (5)
Total dividends in respect of that year 31,014 29,621 1,393
Total share buy-back consideration 12,886 6,090 6,796
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rd
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vid
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on
,
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a
irma
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3
7
,
4
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c
t
ors
a
re
re
mu
n
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t
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d
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xc
lu
s
ive
ly
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y
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ixe
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on
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s
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op
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ion
s
,
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s
ion
c
on
t
rib
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or ot
h
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it
s
a
p
a
rt
f
rom t
h
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re
imb
u
rs
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me
n
t
of
a
llowa
b
le
e
xp
e
n
s
e
s
.
Fees Fees
(Total Emoluments) (Total Emoluments)
2021 2020
Director £ £
Governance Report Aberforth Smaller Companies Trust plc 35
Directors’ Remuneration Report
Statement of Directors’ Shareholdings and Share Interests (Audited)
The Directors who held office at any time during the year ended 31 December 2021 and their interests in the Shares of the
Company as at that date and 1 January 2021 were as follows.
Ordinary Shares
Directors Nature of Interest 31 December 2021 1 January 2021
Richard Davidson, Chairman Beneficial 32,000 32,000
Julia Le Blan Beneficial 3,000 3,000
Paula Hay-Plumb Beneficial 2,600 2,600
Richard Rae (retired 2 March 2021) Beneficial n/a 4,000
Victoria Stewart Beneficial 4,200 4,200
Martin Warner Beneficial 2,000 2,000
Non Beneficial 5,000 5,000
There has been no change in the beneficial or non-beneficial holdings of the Directors between 31 December 2021 and
28 January 2022. The Company has no share options or share schemes. Directors are not required to own shares in the
Company.
Consideration of Shareholders’ Views and Statement of Voting
An ordinary resolution to approve the remuneration report is put to members at each Annual General Meeting. To date, no
Shareholders have commented in respect of the remuneration report or policy. At the last Annual General Meeting held on 2
March 2021, Shareholders, on a show of hands, passed the resolution to approve the Directors’ Remuneration Report: of the
47,930,370 proxy votes, 47,846,353 were cast in favour, 15,925 were cast against, 50,368 were discretionary and 17,724 votes
were withheld. At the Annual General Meeting held on 3 March 2020, Shareholders, on a show of hands, passed the resolution
to approve the Directors’ Remuneration Policy: of the proxy votes cast, 48,850,679 votes were cast in favour, 12,390 were cast
against, 43,932 were discretionary and 1,838,769 votes were withheld.
Share Price Performance
This graph compares the performance of
the Company’s share price with the Numis
Smaller Companies Index (excluding
Investment Companies), on a total return
basis (assuming all dividends reinvested)
since 31 December 2011. This index has
been selected for the purposes of
comparing the Company’s share price
performance as it has been the
Company’s benchmark since inception.
The main influences on performance over
the year are described in the Managers'
Report.
Annual Statement
On behalf of the Board and in accordance with Part 2 of Schedule 8 of the Large and Medium-sized Companies and Groups
(Accounts and Reports) (Amendment) Regulations 2013, I confirm that the above Directors’ Remuneration Report summarises,
as appropriate, for the year ended 31 December 2021:
(a) the major decisions on Directors’ remuneration;
(b) any substantial changes relating to Directors’ remuneration made during the year; and
(c) the context in which those changes occurred and decisions were taken.
On behalf of the Board
Richard Davidson
Chairman
28 January 2022
0%
50%
150%
100%
200%
2
50%
300%
Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-18Dec-17 Dec-19 Dec-20 Dec-21
Share Price Benchmark
Note: for further informaƟon on the above graph, please refer to the Key Performance Indicators page.
Total return performance since 31 December 2011
36 Governance Report Aberforth Smaller Companies Trust plc
Directors’ Responsibility Statement
The Directors are required by law to prepare financial statements for each financial year in accordance with applicable
law and regulations. The Directors are also required to prepare a Strategic Report, Directors’ Report, Directors’
Remuneration Report and Corporate Governance Statement.
The Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted
Accounting Practice (Financial Reporting Standard 102 and applicable law). Under company law the Directors must not
a
pprove the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the
Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors
are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent;
• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed
and explained in the financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume the Company will
continue in business.
The Directors are responsible for keeping accounting records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the Company, and that enable
them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for
safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
The Annual Report is published on www.aberforth.co.uk, which is the website maintained by the Managers. The work
undertaken by the Auditor does not involve consideration of the maintenance and integrity of the website and,
accordingly, the Auditor accepts no responsibility for any changes that may have occurred to the financial statements
since they were initially presented on the website. Legislation in the United Kingdom governing the preparation and
dissemination of the financial statements may differ from legislation in other jurisdictions.
Declaration
Each of the Directors confirms to the best of their knowledge that:
(a) the financial statements, which have been prepared in accordance with applicable accounting standards, give a
true and fair view of the assets, liabilities, financial position and profit or loss of the Company;
(b) the Strategic Report includes a fair review of the development and performance of the business and the position
of the Company, together with a description of the principal risks and uncertainties that it faces; and
(c) the Annual Report, taken as a whole, is fair, balanced and understandable and provides information necessary for
Shareholders to assess the Company’s position and performance, business model and strategy.
On behalf of the Board
Richard Davidson
Chairman
28 January 2022
Financial Report Aberforth Smaller Companies Trust plc 37
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our evaluation of the directors’ assessment of the company’s ability to continue to adopt the going concern basis of accounting
included:
• Evaluating management’s revenue account forecasts and cash flow projections for reasonableness;
• Assessing whether the company has complied with the covenants in place on a monthly basis for its borrowing facility;
• Assessing the impact of Covid-19 considerations on the company and third party service providers prepared as part of
management’s going concern assessment; and
• Assessing the results of stress testing performed by management, simulating falls in investment values, income values and the
market in general.
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF ABERFORTH SMALLER COMPANIES TRUST PLC
Key audit matter
Materiality
Scoping
Significant changes
in our approach
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial statements
section of our report.
We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public interest
entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that we have not
provided any non-audit services prohibited by the FRC’s Ethical Standard to the company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Summary of our audit approach
The key audit matter that we identified in the current year was:
• Valuation and ownership of listed investments
The materiality that we used in the current year was £14.73m (2020: £11.48m) which was determined on
the basis of 1% of net assets.
Our audit was scoped by obtaining an understanding of the entity and its environment including internal
control and assessing the risk of material misstatement. Audit work to respond to the risks of material
misstatement was performed directly by the audit engagement team.
There has been no significant changes to our approach from the prior period.
Report on the audit of the financial statements
Opinion
In our opinion the financial statements of Aberforth Smaller Companies Trust plc (the ‘company’):
• give a true and fair view of the state of the company’s affairs as at 31 December 2021 and of its profit for the year then ended;
• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice, including FRS 102
“The Financial Reporting Standard applicable in the UK and Republic of Ireland” and the Statement of Recommended Practice
i
ssued by the Association of Investment Companies in April 2021 “Financial Statements of Investment Trust Companies and
Venture Capital Trusts”; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
W
e have audited the financial statements which comprise:
• the income statement;
• the reconciliation of movement in shareholders’ funds;
• the balance sheet;
• the cash flow statement; and
• the related notes 1 to 22.
The financial reporting framework that has been applied in their preparation is applicable law, United Kingdom Accounting
Standards, including FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (United Kingdom
Generally Accepted Accounting Practice) and the Statement of Recommended Practice issued by the Association of Investment
Companies (‘SORP’) in April 2021 “Financial Statements of Investment Trust Companies and Venture Capital Trusts”.
38 Financial Report Aberforth Smaller Companies Trust plc
Valuation and ownership of listed investments
Conclusions relating to going concern (continued)
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the company’s ability to continue as a going concern for a period of at least
t
welve months from when the financial statements are authorised for issue.
I
n relation to the reporting on how the company has applied the UK Corporate Governance Code, we have nothing material to add
or draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of
this report.
Independent Auditor’s Report
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of
resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
Key audit matter
description
The quoted investments held by the company, £1,555m (2020: £1,218m) are key to its performance and
account for the majority of the total assets, 99.7% at 31 December 2021 (2020: 99.7%). Please see
Accounting Policy 1b and note 10.
Investments listed on recognised exchanges are valued at the closing bid price at the year end.
There is a risk that the investments disclosed in the financial statements may not represent the property
of the Company. As they are a key driver of the Company’s performance and due to their significance to
the net asset value there is a risk that these investments might not be correctly valued.
The description of this key audit matter should be read in conjunction with the significant issues
considered by the Audit Committee on page 31.
How the scope of
our audit responded
to the key audit
matter
We have performed the following procedures to test the valuation and ownership of the investment
portfolio at 31 December 2021:
• assessed the service auditor reports of the administrator and custodian to obtain an undersanding
of the relevant controls over the valuation and ownership of listed investments;
• agreed 100% of the company’s investment portfolio at the year end to confirmations received
directly from the custodian; and
• independently agreed 100% of the bid prices of quoted investments on the investment ledger at
year end to closing bid prices published by an external pricing source.
Key observations
Based on the work performed we concluded that the valuation and ownership of listed investments is
appropriate.
Financial Report Aberforth Smaller Companies Trust plc 39
Independent Auditor’s Report
An overview of the scope of our audit
Scoping:
Our audit was scoped by obtaining an understanding of the entity and its environment, including internal control and assessing the
risks of material misstatement through quantitative and qualitative factors relating to each account balance, class of transactions
and disclosure. Audit work to respond to the risks of material misstatement was performed directly by the audit engagement team.
Our consideration of the control environment:
As part of our risk assessment, we assessed the control environment in place at the administrator and the custodian to the extent
relevant to our audit. As part of this we relied upon the controls report of the administrator and adopted a controls reliance
approach with respect to investments (valuation and existence) and revenue (completeness, occurrence and accuracy).
Pe
r
fo
r
man
ce
Mate
r
iality
:
We set p
er
for
man
ce mater
iality at a level lower
th
an
mater
iality to r
ed
u
ce th
e p
r
ob
ab
ility th
at, in
aggr
egate, u
n
cor
r
ected
an
d
u
n
d
etected
misstatemen
ts
exceed
th
e
mater
iality
for
th
e
fin
an
cial
statemen
ts
as
a
wh
ole.
Per
for
man
ce
mater
iality
was
set
at
7
0
%
of mater
iality for
th
e 2
0
2
1
au
d
it (
2
0
2
0
: 7
0
%)
. In
d
eter
min
in
g p
er
for
man
ce mater
iality, we con
sid
er
ed
factor
s in
clu
d
in
g:
• th
e q
u
ality of th
e con
tr
ol en
vir
on
men
t an
d
ou
r
ab
ility to r
ely on
con
tr
ols; an
d
• th
e low level of misstatemen
ts id
en
tified
in
p
r
eviou
s au
d
its.
E
r
r
o
r
R
e
p
o
r
tin
g T
h
r
e
sh
o
ld
:
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £0.74m (2020:
£0.57m),
as
well as
differenc
es
below
that thres
hold that, in our view, warranted reporting on qualitative grounds. We also report
to the Audit
Committee on dis
closure matters
that we identified when assessing the overall presentation of the financial statements.
Net Assets
Net Assets £1,472.56m Materiality £14.73m
Audit CommiƩee
reporƟng threshold
£0.74m
Materiality
Our application of materiality
Materiality:
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of
o
ur audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
£
14.73m (2020: £11.48m)
1% (2020: 1%) of net assets
Net assets has been chosen as a benchmark as it is the main focus for investors and is a
key driver of shareholder value.
Materiality
Basis of determining
materiality
Rationale for the benchmark
applied
40 Financial Report Aberforth Smaller Companies Trust plc
Other information
The other information comprises the information included in the annual report, other than the financial statements and our auditor’s
report thereon. The directors are responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in
o
ur report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise
to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there
i
s a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Independent Auditor’s Report
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the company’s ability to continue as a going
concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities
. This description forms part of our auditor’s report.
Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud is detailed below.
Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws
and regulations, we considered the following:
• the nature of the industry and sector, control environment and business performance;
• results of our enquiries of the management and the audit committee about their own identification and assessment of the risks
of irregularities;
• any matters we identified having obtained and reviewed the company’s documentation of their policies and procedures
relating to:
– identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-
compliance;
– detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
– the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations;
• the matters discussed among the audit engagement team and internal specialists regarding how and where fraud might occur
in the financial statements and any potential indicators of fraud.
Financial Report Aberforth Smaller Companies Trust plc 41
Independent Auditor’s Report
Report on other legal and regulatory requirements
Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the directors’ report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
• the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have
not identified any material misstatements in the strategic report or the directors’ report.
Corporate Governance Statement
The Listing Rules require us to review the directors' statement in relation to going concern, longer-term viability and that part of the
Corporate Governance Statement relating to the company’s compliance with the provisions of the UK Corporate Governance Code
specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial statements and our knowledge obtained during the audit:
• the directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material
uncertainties identified set out on page 23;
• the directors’ explanation as to its assessment of the company’s prospects, the period this assessment covers and why the period
is appropriate set out on pages 20 and 23;
• the directors' statement on fair, balanced and understandable set out on page 36;
• the board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 28;
• the section of the annual report that describes the review of effectiveness of risk management and internal control systems set
out on page 28; and
• the section describing the work of the audit committee set out on page 30;
Extent to which the audit was considered capable of detecting irregularities, including fraud
(continued)
Identifying and assessing potential risks related to irregularities (continued)
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and
identified the greatest potential for fraud in the following area: the valuation and ownership of quoted investments. In common with
all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory framework that the company operates in, focusing on provisions of
those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial
statements. The key laws and regulations we considered in this context included the UK Companies Act, Listing Rules and UK tax
legislation, given the company’s qualification as an investment trust.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but
compliance with which may be fundamental to the company’s ability to operate or to avoid a material penalty. This included the
requirements of the United Kingdom’s Financial Conduct Authority (FCA).
Audit response to risks identified
As a result of performing the above, we identified the valuation and ownership of listed investments as a key audit matter related to
the potential risk of fraud. The key audit matters section of our report explains the matter in more detail and also describes the
specific procedures we performed in response to that key audit matter.
In addition to the above, our procedures to respond to risks identified included the following:
• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of
relevant laws and regulations discussed as having a direct effect on the financial statements;
• enquiring of management and the audit committee concerning actual and potential litigation and claims;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material
misstatement due to fraud;
• reading minutes of meetings of those charged with governance and reviewing correspondence with HMRC and the FCA; and
• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including
internal specialists and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.
42 Financial Report Aberforth Smaller Companies Trust plc
Independent Auditor’s Report
(a) The maintenance and integrity of the Aberforth Partners LLP web site is the responsibility of the partners of Aberforth Partners LLP; the work carried out by the auditor of
Aberforth Smaller Companies Trust plc does not involve consideration of these matters and, accordingly, the auditor accepts no responsibility for any changes that may
have occurred to the financial statements since they were initially presented on the web site.
(b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Chris Hunter CA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Edinburgh, United Kingdom
28 January 2022
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to
them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for
the opinions we have formed.
Matter
s
on
w
h
i
c
h
w
e
ar
e
r
eq
u
i
r
ed
to
r
ep
or
t
b
y
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c
ep
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on
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and
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Other matters which we are required to address
Auditor tenure
Following the recommendation of the audit committee, we were appointed by the board of directors on 17 April 2013 to audit the
financial statements for year ending 31 December 2013 and subsequent financial periods. The period of total uninterrupted
engagement including previous renewals and reappointments of the firm is 9 years, covering the years ending 31 December 2013
to 31 December 2021.
Consistency of the audit report with the additional report to the audit committee
Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with
ISAs (UK).
Financial Report Aberforth Smaller Companies Trust plc 43
Income Statement
For the year ended 31 December 2021
2021 2020
Revenue Capital Total Revenue Capital Total
Note £’000 £’000 £’000 £’000 £’000 £’000
Net gains/(losses) on investments 10 – 344,608 344,608 – (223,279) (223,279)
Investment income 3 37,331 – 37,331 15,656 – 15,656
Other income 3 125 – 125 – – –
Investment management fee 4 (3,752) (6,253) (10,005) (2,717) (4,529) (7,246)
Portfolio transaction costs 5 – (2,790) (2,790) – (2,747) (2,747)
Other expenses 5 (811) – (811) (731) – (731)
Net return before finance costs and tax 32,893 335,565 368,458 12,208 (230,555) (218,347)
Finance costs 6 (349) (583) (932) (301) (502) (803)
Return on ordinary activities before tax 32,544 334,982 367,526 11,907 (231,057) (219,150)
Tax on ordinary activities 7 – – – (48) – (48)
Return attributable to equity shareholders 32,544 334,982 367,526 11,859 (231,057) (219,198)
Returns per Ordinary Share 9 36.76p 378.43p 415.19p 13.28p (258.78)p (245.50)p
The Board declared on 28 January 2022 a final dividend of 24.25p per Ordinary Share. The Board declared on 27 July 2021 an
interim dividend of 10.95p 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 year. A Statement of
Comprehensive Income is not required as all gains and losses of the Company have been reflected in the above statement.
The accompanying notes form an integral part of this statement.
44 Financial Report Aberforth Smaller Companies Trust plc
Reconciliation of Movements in Shareholders’ Funds
For the year ended 31 December 2021
Capital
Share redemption Special Capital Revenue
capital reserve reserve reserve reserve Total
Note £’000 £’000 £’000 £’000 £’000 £’000
Balance as at 31 December 2020 888 100 96,663 979,563 70,716 1,147,930
Return on ordinary activities after taxation – – – 334,982 32,544 367,526
Equity dividends paid 8 – – – – (30,005) (30,005)
Purchase of Ordinary Shares 14 (9) 9 (12,886) – – (12,886)
Balance as at 31 December 2021 879 109 83,777 1,314,545 73,255 1,472,565
For the year ended 31 December 2020
Capital
Share redemption Special Capital Revenue
capital reserve reserve reserve reserve Total
Note £’000 £’000 £’000 £’000 £’000 £’000
Balance as at 31 December 2019 895 93 102,753 1,210,620 91,439 1,405,800
Return on ordinary activities after taxation – – – (231,057) 11,859 (219,198)
Equity dividends paid 8 – – – – (32,582) (32,582)
Purchase of Ordinary Shares 14 (7) 7 (6,090) – – (6,090)
Balance as at 31 December 2020 888 100 96,663 979,563 70,716 1,147,930
The accompanying notes form an integral part of this statement.
Financial Report Aberforth Smaller Companies Trust plc 45
The accompanying notes form an integral part of this statement.
Balance Sheet
As at 31 December 2021
2021 2020
Note £’000 £’000
Fixed assets
Investments at fair value through profit or loss 10 1,554,585 1,218,073
Current assets
Debtors 11 1,875 968
Cash at bank 3,418 2,963
5,293 3,931
Creditors (amounts falling due within one year) 12 (905) (1,231)
Net current assets 4,388 2,700
TOTAL ASSETS LESS CURRENT LIABILITIES 1,558,973 1,220,773
Creditors (amounts falling due after more than one year) 13 (86,408) (72,843)
TOTAL NET ASSETS 1,472,565 1,147,930
CAPITAL AND RESERVES: EQUITY INTERESTS
Called up share capital 14 879 888
Capital redemption reserve 15 109 100
Special reserve 15 83,777 96,663
Capital reserve 15 1,314,545 979,563
Revenue reserve 15 73,255 70,716
TOTAL SHAREHOLDERS’ FUNDS 1,472,565 1,147,930
Net Asset Value per Ordinary Share 16 1,674.35p 1,292.38p
Approved and authorised for issue by the Board of Directors on 28 January 2022 and signed on its behalf by:
Richard Davidson,
Chairman
Company Number: SC126524
Registered in Scotland
46 Financial Report Aberforth Smaller Companies Trust plc
The accompanying notes form an integral part of this statement.
Cash Flow Statement
For the year ended 31 December 2021
2021 2020
Note £’000 £’000
Operating activities
Net revenue before finance costs and tax 32,893 12,208
Scrip dividends received 3 – (904)
Taxation 7 – (48)
Investment management fee charged to capital 4 (6,253) (4,529)
(Increase)/decrease in debtors (812) 1,841
Decrease in other creditors 37 –
Net cash inflow from operating activities 25,865 8,568
Investing activities
Purchases of investments (381,045) (341,319)
Sales of investments 385,146 315,913
Cash inflow/(outflow) from investing activities 4,101 (25,406)
Financing activities
Purchases of Ordinary Shares 14 (12,156) (6,090)
Equity dividends paid 8 (30,005) (32,582)
Interest and fees paid 17 (850) (964)
Gross drawdowns of bank debt facilities (before any costs) 18 134,000 182,250
Gross repayments of bank debt facilities (before any costs) 18 (120,500) (123,000)
Cash (outflow)/inflow from financing activities (29,511) 19,614
Change in cash during the period 455 2,776
Cash at the start of the period 2,963 187
Cash at the end of the period 3,418 2,963
Financial Report Aberforth Smaller Companies Trust plc 47
Notes to the Financial Statements
1 Significant Accounting Policies
A summary of the principal accounting policies adopted, all of which have been applied consistently throughout the year and
the preceding year, is set out below.
(a) Basis of accounting
The financial statements have been presented under Financial Reporting Standard 102 ("FRS 102") and under the AIC’s
S
tatement of Recommended Practice “Financial Statements of Investment Trust Companies and Venture Capital Trusts”
("SORP") issued in 2021. 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 23. 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 critical accounting judgements
or significant sources of estimation uncertainty have been applied to the financial statements and therefore there is not a
significant risk of a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
(b) Investments
The Company’s investments have been categorised as “financial assets at fair value through profit or loss” as the Company’s
business is to invest in financial assets with a view to profiting from their total return in the form of capital growth and income.
Quoted investments are valued at their fair value, which is represented by the bid price. Where trading in the securities of an
investee company is suspended, the investment is valued at the Board’s estimate of its fair value. Purchases and sales of
investments are recognised and de-recognised on trade date. Gains and losses arising from changes in fair value are included
in the capital return for the period and transaction costs on acquisition or disposal of a security are expensed to the capital
reserve.
(c) Income
Dividends receivable on quoted equity shares are accounted for on the ex dividend date as revenue, except where, in the
opinion of the Board, the dividend is capital in nature, in which case it is treated as a return of capital. Where the Company has
received its dividends in the form of additional shares rather than in cash, an amount equivalent to the cash dividend forgone
is recognised as income. Any surplus or deficit in the value of the shares received compared to the cash dividend forgone is
recognised as capital. Other income is accounted for on an accruals basis.
(d) Expenses
All expenses are accounted for on an accruals basis. Expenses are charged to revenue except as follows:
• expenses that are related to the acquisition and disposal of an investment are charged to capital; and
• expenses are charged to capital reserve where a connection with the maintenance or enhancement of the value of the
investments can be demonstrated. In this respect the investment management fee has been allocated 62.5% to capital
reserve and 37.5% to revenue reserve, in line with the Board’s expected long-term split of returns, in the form of capital
gains and income respectively, from the investment portfolio of the Company.
(e) Finance costs
Interest costs are accounted for on an accruals basis. Finance costs of debt, insofar as they relate to the financing of the
Company’s investments or to financing activities aimed at maintaining or enhancing the value of the Company’s investments,
are allocated 62.5% to capital reserve and 37.5% to revenue reserve, in line with the Board’s expected long-term split of
returns, in the form of capital gains and income respectively, from the investment portfolio of the Company.
The arrangement fee in relation to the £130 million bank debt facility is amortised over the expected life of the facility (with
62.5% allocated to capital reserve and 37.5% to revenue reserve) on a straight line basis. The unamortised value of these costs
is deducted from the fair value of the bank debt facility.
(f) Capital reserve
The following are accounted for in this reserve:
• gains and losses on the realisation of investments;
• increases and decreases in the valuation of investments held at the year end;
• gains on the return of capital by way of investee companies paying dividends that are capital in nature; and
• expenses, together with the related taxation effect, charged to this reserve in accordance with the above policies.
(g) Special reserve
This reserve may be treated as distributable profits for all purposes, excluding the payment of dividends. The cost of purchasing
Ordinary Shares for cancellation is accounted for in this reserve.
(h) Revenue reserve
This reserve represents the only reserve from which dividends can be funded.
(i) Capital Redemption Reserve
The nominal value of shares bought back for cancellation is added to this reserve.
48 Financial Report Aberforth Smaller Companies Trust plc
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Notes to the Financial Statements
2021 2020
£’000 £’000
2021 2020
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
2021 2020
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Financial Report Aberforth Smaller Companies Trust plc 49
7 Taxation
UK corporation tax charge for the year (see below) – – – – – –
Factors affecting current tax charge for the year
The tax assessed for the period is lower than the standard rate of corporation tax in the UK for a large company. The differences
are explained below.
Total returns on ordinary activities before tax 32,544 334,982 367,526 11,907 (231,057) (219,150)
Corporation tax at 19% (2020: 19%) 6,183 63,647 69,830 2,262 (43,901) (41,639)
Adjusted for the effects of:
Non-taxable UK dividend income (6,508) – (6,508) (2,628) – (2,628)
Non-taxable overseas dividend income (585) – (585) (139) – (139)
Expenses not deductible for tax purposes – 530 530 – 522 522
Excess expenses for which no relief has been taken 910 1,299 2,209 505 956 1,461
Non-taxable capital (gains)/losses – (65,476) (65,476) – 42,423 42,423
UK corporation tax charge for the year – – – – – –
Irrecoverable overseas taxation suffered – – – 48 – 48
Total tax charge for the year – – – 48 – 48
The Company has not recognised a potential asset for deferred tax of £29,908,000 (2020: £27,913,000) in respect of unutilised
management expenses because it is unlikely that there will be suitable taxable profits from which the future reversal of a
deferred tax asset may be deducted. The potential deferred tax asset has been calculated using a corporation tax rate of 19%
(2020: 19%).
Notes to the Financial Statements
5 Other Expenses and Portfolio transaction costs (continued)
Expenses incurred in acquiring or disposing of investments classified at fair value through profit or loss, and charged to capital,
are analysed below:
Analysis of total purchases
Purchase consideration before expenses 377,809 341,169
Commissions 638 633
Taxes 1,487 1,532
Total purchase expenses (a) 2,125 2,165
Total purchase consideration 379,934 343,334
Analysis of total sales
Sales consideration before expenses 385,905 316,495
Commissions (b) (665) (582)
Total sale proceeds net of expenses 385,240 315,913
Total expenses incurred in acquiring/disposing of investments (a)-(b) 2,790 2,747
6 Finance Costs
Interest/non-utilisation costs on bank debt facility 325 542 867 275 459 734
Amortisation of bank debt facility costs 24 41 65 26 43 69
349 583 932 301 502 803
2021 2020
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Analysis of tax charged on return on ordinary activities
2021 2020
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
2021 2020
£’000 £’000
50 Financial Report Aberforth Smaller Companies Trust plc
8
Dividends
Amounts recognised as distributions to equity holders in the period:
Final dividend for the year ended 31 December 2020 of 22.90p
(2019: 22.00p) paid on 9 March 2021 20,318 19,697
Special dividend for the year ended 31 December 2020 of nil
(2019: 4.00p) – 3,581
Interim dividend for the year ended 31 December 2021 of 10.95p
(2020: 10.40p) paid on 5 August 2021 9,687 9,304
30,005 32,582
Amounts not recognised in the period:
Final dividend for the year ended 31 December 2021 of 24.25p
(2020: final dividend of 22.90p) payable on 8 March 2022 21,327 20,340
21,327 20,340
The final dividends for 2021 and 2020 have not been included as liabilities in the financial statements.
9 Returns per Ordinary Share
The returns per Ordinary Share are based on:
Returns attributable to Ordinary Shareholders £367,526,000 £(219,198,000)
Weighted average number of shares in issue during the year 88,519,932 89,285,989
Return per Ordinary Share 415.19p (245.50)p
There are no dilutive or potentially dilutive shares in issue.
10 Investments
Investments at fair value through profit or loss
Opening fair value 1,218,073 1,416,678
Opening fair value adjustment 232,464 35,117
Opening book cost 1,450,537 1,451,795
Purchases at cost 377,809 341,169
Sale proceeds (385,905) (316,495)
Realised gains/(losses) on sales 46,296 (25,932)
Closing book cost 1,488,737 1,450,537
Closing fair value adjustment 65,848 (232,464)
Closing fair value 1,554,585 1,218,073
All investments are in ordinary shares listed on the London Stock Exchange unless otherwise stated on pages 16 to 18.
Gains/(losses) on investments:
Net realised gains/(losses) on sales 46,296 (25,932)
Movement in fair value adjustment 298,312 (197,347)
Net gains/(losses) on investments 344,608 (223,279)
The company received £385,906,000 (2020: £316,495,000) from investments sold in the year. The book cost of these
investments was £339,609,000 (2020: £342,427,000). These investments have been revalued over time and until they were
sold any unrealised gains/losses were included in the fair value of the investments.
Notes to the Financial Statements
2021 2020
£’000 £’000
2021 2020
2021 2020
£’000 £’000
Financial Report Aberforth Smaller Companies Trust plc 51
Notes to the Financial Statements
10 Investments (continued)
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;
L
evel 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).
Investments held at fair value through profit or loss
Level 1 Level 2 Level 3 Total
As at 31 December 2021 £'000 £'000 £'000 £'000
Listed equities 1,554,585 ––1,554,585
Unlisted equities ––– –
Total financial asset investments 1,554,585 ––1,554,585
During the year, an investment, Lookers, with a book cost of £16,538,000, was transferred back from Level 3 to Level 1 when
its shares relisted on 29 January 2021.
Level 1 Level 2 Level 3 Total
As at 31 December 2020 £'000 £'000 £'000 £'000
Listed equities 1,214,140 – 3,933 1,218,073
Unlisted equities ––– –
Total financial asset investments 1,214,140 – 3,933 1,218,073
11 Debtors
Investment income receivable 1,755 939
Amounts due from brokers 95 –
Other debtors 25 29
Total 1,875 968
12 Creditors: amounts falling due within one year
Amounts due to brokers 730 1,111
Other creditors 175 120
Total 905 1,231
On 14 May 2020, the Company took out an uncommitted overdraft credit facility of £20 million with The Northern Trust Company.
The interest rate applying to overdrawn balances is 1.25% over the UK Base Rate. In addition, an arrangement fee of £15,000 was
incurred in respect of the facility. No amounts were drawn under this facility at 31 December 2021 or 31 December 2020.
13 Creditors: amounts falling due after more than one year
Bank debt facility 86,500 73,000
Less: Unamortised costs on bank debt facility (92) (157)
Total 86,408 72,843
On 14 May 2020, the Company entered into a three year unsecured £130 million Facility Agreement with The Royal Bank of
Scotland International Limited. A 0.15% arrangement fee was paid on entering into the agreement and is being amortised over
the expected life of the facility. Under the facility, all funds drawn down attract interest at a margin of 0.80% over LIBOR (SONIA
equivalent with effect from 1 January 2022). A non-utilisation fee is also payable on any undrawn element, at a rate ranging
from 0.3% to 0.5%, depending on the level of utilisation.
The main covenant under the facility requires that, every month, total borrowings shall not exceed 25% of the Company’s total
adjusted gross assets. There were no breaches of the covenants during the year. As at 31 December 2021, total borrowings
represented 5.6% (2020: 6.0%) of total adjusted gross assets (as defined by Facility Agreement). The current facility is due to
expire on 15 June 2023.
2021 2020
£’000 £’000
2021
2020
£’
000
£’000
2021
2020
£’000
£’000
52 Financial Report Aberforth Smaller Companies Trust plc
14 Share Capital
Authorised:
Ordinary Shares of 1p 333,299,254 3,333 333,299,254 3,333
Allotted, issued and fully paid:
Ordinary Shares of 1p 87,948,266 879 88,823,066 888
During the year, the Company bought back and cancelled 874,800 shares (2020: 710,000) at a total cost of £12,886,000 (2020:
£6,090,000). During the period 1 January to 28 January 2022, 220,000 shares have been bought back for cancellation.
15 Capital and Reserves
At 31 December 2019 895 93 102,753 1,210,620 91,439 1,405,800
Net losses on sale of investments – – – (25,932) – (25,932)
Movement in fair value adjustment – – – (197,347) – (197,347)
Cost of investment transactions – – – (2,747) – (2,747)
Management fees charged to capital – – – (4,529) – (4,529)
Finance costs charged to capital – – – (502) – (502)
Special dividends taken to capital – – – – – –
Revenue return attributable to equity
shareholders – – – – 11,859 11,859
Equity dividends paid – – – – (32,582) (32,582)
Purchase of Ordinary Shares (7) 7 (6,090) – – (6,090)
At 31 December 2020 888 100 96,663 979,563 70,716 1,147,930
Net gains on sale of investments – – – 46,296 – 46,296
Movement in fair value adjustment – – – 298,312 – 298,312
Cost of investment transactions – – – (2,790) – (2,790)
Management fees charged to capital – – – (6,253) – (6,253)
Finance costs charged to capital – – – (583) – (583)
Special dividends taken to capital – – – – – –
Revenue return attributable to equity
shareholders – – – – 32,544 32,544
Equity dividends paid – – – – (30,005) (30,005)
Purchase of Ordinary Shares (9) 9 (12,886) – – (12,886)
At 31 December 2021 879 109 83,777 1,314,545 73,255 1,472,565
16 Net Asset Value per Share
The Net Asset Value per Share and the net assets attributable to the Ordinary Shares at the year end are calculated in
accordance with their entitlements in the Articles of Association and were as follows.
Net assets attributable £1,472,565,000 £1,147,930,000
Ordinary Shares in issue at the end of year 87,948,266 88,823,066
Net Asset Value per Ordinary Share 1,674.35p 1,292.38p
Dividend reinvestment factor (defined in glossary) 1.022974 1.028250
Net Asset Value on a total return basis 1,712.82p 1,328.89p
The net asset value total return for the year ended 31 December 2021 is the percentage movement from the net asset value
as at 31 December 2020 of 1,292.38p (31 December 2019: 1,570.15p) to the net asset value, on a total return basis, at
31 December 2021 of 1,712.82p (31 December 2020: 1,328.89p), which is 32.5% (2020: -15.4%).
Notes to the Financial Statements
Capital
Share redemption Special Capital Revenue
capital reserve reserve reserve reserve Total
£’000 £’000 £’000 £’000 £’000 £’000
2021 2020
No. of No. of
Shares £’000 Shares £’000
2021 2020
Financial Report Aberforth Smaller Companies Trust plc 53
Notes to the Financial Statements
17 Interest and Finance Costs Paid
Bank debt facility fee – 195
Interest/non-utilisation costs on bank debt facility 850 769
Total 850 964
18 Analysis of changes in net debt
Cash at bank 2,963 455 – 3,418
Bank debt facility (73,000) (13,500) – (86,500)
Bank debt facility fee (see note 13) 157 – (65) 92
Total (69,880) (13,045) (65) (82,990)
19 Financial instruments and risk management
The Company’s financial instruments comprise its investment portfolio (see pages 16 to 18), cash balances, bank debt facilities,
debtors and creditors that arise directly from its operations such as sales and purchases awaiting settlement, and accrued
income. Bank debt facilities are utilised when the Managers believe it is in the interest of the Company to gear the portfolio.
Note 1 sets out the significant accounting policies, including criteria for recognition of and the basis of measurement applied
for significant financial instruments excluding cash at bank, which is carried at fair value. Note 1 also includes the basis on which
income and expenses arising from financial assets and liabilities are recognised and measured.
The main risks that the Company faces arising from its financial instruments are as follows.
(i) Interest rate risk is the risk that the interest receivable/payable and the market value of investment holdings may fluctuate
because of changes in market interest rates. The Company’s investment portfolio is not directly exposed to interest rate risk.
(ii) Liquidity risk is the risk that the Company will encounter difficulty raising funds to meet its cash commitments as they fall
due. Liquidity risk may result from either the inability to sell financial instruments quickly at their fair values or from the
inability to generate cash inflows as required.
(iii) Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that
it has entered into with the Company.
(iv) Market price risk is the risk that the market value of investment holdings will fluctuate as a result of fluctuations in market
prices caused by factors other than interest rate or currency rate movement.
The Company’s financial instruments are all denominated in sterling and therefore the Company is not directly exposed to
significant currency risk. However, it is recognised that most investee companies, whilst listed in the UK, are exposed to global
economic conditions and currency fluctuations.
(i) Interest rate risk
The Company’s policy is to hold cash in variable rate bank accounts and not usually to invest in fixed rate securities. Cash deposit
balances are held on variable rate bank accounts yielding nil as at 31 December 2021 (2020: nil).
The Company has a bank debt facility of £130,000,000 of which £86,500,000 was drawn down as at 31 December 2021 (2020:
debt facility of £130,000,000, of which £73,000,000 was drawn down). Further details of this facility can be found in Note 13.
If LIBOR and the bank base rate had been 1% point higher at 31 December 2021, the impact on the profit or loss and therefore
Shareholders’ funds would have been negative £865,000 per annum (2020: negative £730,000). If LIBOR and the bank base rate had
been 0.25% point lower at 31 December 2021, the impact on the profit or loss and therefore Shareholders’ funds would have been
a positive £216,250 per annum (2020: positive £73,000 at 0.1%). There would be no direct impact on the portfolio valuation.
The calculations are based on the bank facility drawn down and cash balances as at the respective balance sheet dates and are
not representative of the year as a whole and assume all other variables remain constant. The level of change is considered to
be a reasonable illustration based on current market conditions.
Net debt Other Net debt at
at 1 January Cash non-cash 31 December
2021 flow movements 2021
£’000 £’000 £’000 £’000
2021 2020
£’000 £’000
54 Financial Report Aberforth Smaller Companies Trust plc
19 Financial instruments and risk management (continued)
(ii) Liquidity risk
The Company’s assets comprise mainly readily realisable equity securities which are typically all Level 1 assets and actively
traded. Whilst less liquid than larger quoted companies, the portfolio is well diversified by both number of holdings and
industry sector. Short term funding flexibility can be achieved through the use of bank debt facilities. The Company’s current
liabilities all have a remaining contractual maturity of less than three months with the exception of the bank debt facility.
(iii) Credit risk
The Company invests in UK equities traded on the London Stock Exchange. Investment transactions are carried out with a number
o
f FCA regulated brokers, with trades typically undertaken on a delivery versus payment basis and on a short settlement period.
The investment portfolio assets of the Company are held by The Northern Trust Company, the Company’s custodian, in a
segregated account. In the event of the bankruptcy or insolvency of Northern Trust the Company’s rights with respect to the
securities held by the custodian may be delayed or limited. The Secretaries and the Depositary monitor the Company’s risk by
reviewing Northern Trust’s credit ratings and their internal control report. Cash at bank is held with reputable banks with
acceptable external credit ratings. Outstanding investment income is reconciled to receipts on payment date.
The exposure to credit risk at the year-end comprises the following.
Investment income receivable 1,755 939
Amounts due from brokers 95 –
Cash at bank 3,418 2,963
Total 5,268 3,902
(iv) Market price risk
The Company’s investment portfolio is exposed to market price fluctuations, which are monitored by the Managers in
pursuance of the investment objective. Further information on the investment portfolio is set out in the Managers’ Report on
pages 9 to 14. It is not the Managers’ policy to use derivatives or hedging instruments to manage market price risk.
If the investment portfolio valuation fell by 10% at 31 December 2021, the impact on the profit or loss and therefore
Shareholders’ funds would have been negative £155.5m (2020: negative £121.8m). If the investment portfolio valuation rose
by 10% at 31 December 2021, the impact on the profit or loss and therefore Shareholders’ funds would have been positive
£155.5m (2020: positive £121.8m). The calculations are based on the portfolio valuation as at the respective balance sheet
dates, are not representative of the year as a whole and assume all other variables remain constant. The level of change is
considered to be a reasonable illustration based on historical stockmarket volatility.
As at 31 December 2021, all of the Company’s financial instruments (excluding loans) were included in the balance sheet at fair
value. The investment portfolio largely consisted of investments valued at their bid price, which represents fair value. Any cash
balances, which are held in variable rate bank accounts, can be withdrawn on demand with no penalty.
Maturity profile of the Company’s financial liabilities
As at 31 December 2021
Liabilities:
Bank debt facility 53 – – 86,500 – 86,553
Amounts due to brokers 730 – – – – 730
Unamortised costs on bank debt facility – – – (92) – (92)
Other creditors – 122 – – – 122
Total liabilities 783 122 – 86,408 – 87,313
Notes to the Financial Statements
2021 2020
£’000 £’000
Due or Due Due Due
due no between between between
later than 1 and 3 and 1 and Due after
(All in £’000) 1 month 3 months 12 months 5 years 5 years Total
Financial Report Aberforth Smaller Companies Trust plc 55
19 Financial instruments (continued)
As at 31 December 2020
Liabilities:
Bank debt facility 35 – – 73,000 – 73,035
Amounts due to brokers 1,111 – – – – 1,111
Unamortised costs on bank debt facility – – – (157) – (157)
Other creditors – 85 – – – 85
Total liabilities 1,146 85 – 72,843 – 74,074
Cash flows payable under financial liabilities by remaining contractual maturities
As at 31 December 2021
Bank debt facility – 242 739 86,946 – 87,927
Amounts due to brokers – 730 – – – 730
Other creditors – 175 – – – 175
Total – 1,147 739 86,946 – 88,832
As at 31 December 2020
Bank debt facility – 189 580 74,119 – 74,888
Amounts due to brokers – 1,111 – – – 1,111
Other creditors – 120 – – – 120
Total – 1,420 580 74,119 – 76,119
Capital Management Policies and Procedures
The Company’s capital management objectives are to support the Company’s investment objective and to ensure that the
Company will be able to continue as a going concern.
This is achieved through the appropriate balance of equity capital and gearing. Further details can be found in the Strategic
Report. The Company does not have any externally imposed capital requirements other than the covenant on its bank debt
facility as set out in Note 13.
20 Related Party Transactions
The Directors have been identified as related parties and their fees and shareholdings are detailed in the Directors’
Remuneration Report on pages 34 and 35. During the year no Director was interested in any contract or other matter requiring
disclosure under section 412 of the Companies Act 2006.
21 Contingencies, guarantees, financial commitments and contingent assets
The Company had no contingencies, guarantees or financial commitments as at 31 December 2021 (2020: nil).
22 Company information
Aberforth Smaller Companies Trust plc is a closed-ended investment company, registered in Scotland No SC126524, with its
Ordinary Shares listed on the London Stock Exchange. The address of the registered office is 14 Melville Street, Edinburgh,
EH3 7NS.
Notes to the Financial Statements
Due or Due Due Due
due no between between between
later than 1 and 3 and 1 and Due after
(All in £’000) 1 month 3 months 12 months 5 years 5 years Total
Due Due
Due between between
On within 3 and 1 and Due after
(All in £’000) demand 3 months 12 months 5 years 5 years Total
Due Due
Due between between
On within 3 and 1 and Due after
(All in £’000) demand 3 months 12 months 5 years 5 years Total
56 Aberforth Smaller Companies Trust plc
Notice of the Annual General Meeting
Notice is hereby given that the thirty-first Annual General Meeting of Aberforth Smaller Companies Trust plc will be held at
14 Melville Street, Edinburgh on 3 March 2022 at 2.30 p.m. for the following purposes:
To consider and, if thought fit, pass the following Ordinary Resolutions:
1
. That the Report and Financial Statements for the year ended 31 December 2021 be adopted.
2. That the Directors’ Remuneration Report for the year ended 31 December 2021 be approved.
3. That a final dividend of 24.25p per share be approved.
4. That Richard Davidson be re-elected as a Director.
5. That Julia Le Blan be re-elected as a Director.
6. That Victoria Stewart be re-elected as a Director.
7. That Martin Warner be re-elected as a Director.
8. To appoint Johnston Carmichael LLP as Independent Auditor of the Company in place of the retiring Independent Auditor
and hold office until the conclusion of the next Annual General Meeting at which the Financial Statements are laid before
the Company.
9. That the Audit Committee be authorised to determine the remuneration of the Independent Auditor for the year to
31 December 2022.
To consider and, if thought fit, pass the following Special Resolution:
10. That pursuant to and in accordance with its Articles of Association and in substitution for any existing authority, the
Company be and is hereby authorised in accordance with section 701 of the Companies Act 2006 (the “Act”) to make
market purchases (within the meaning of section 693(4) of the Act) of ordinary shares of 1p each in the capital of the
Company (“Shares”), provided that:
(a) the maximum number of Shares hereby authorised to be purchased shall be 13,150,467 (or, if less, 14.99% of the
issued share capital of the Company on the date on which this resolution is passed);
(b) the minimum price which may be paid for a Share shall be 1p being the nominal value of a Share;
(c) the maximum price (exclusive of expenses) which may be paid for a Share shall be the higher of (i) 5% above the
average of the middle market quotations (as derived from the London Stock Exchange Daily Official List) for the
Shares for the five business days immediately preceding the date of purchase and (ii) the higher of the price of the
last independent trade and the highest current independent bid on the trading venue where the purchase is carried
out; and
(d) unless previously varied, revoked or renewed, the authority hereby conferred shall expire on 31 July 2023 or, if
earlier, at the conclusion of the annual general meeting of the Company to be held in 2023, save that the Company
may, prior to such expiry, enter into a contract to purchase Shares under such authority which will or might be
executed wholly or partly after the expiry of such authority and may make a purchase of Shares pursuant to any
such contract.
By Order of the Board
Aberforth Partners LLP, Secretaries
28 January 2022
Aberforth Smaller Companies Trust plc 57
Notice of the Annual General Meeting
1. Attending the Annual General Meeting in Person and Voting
A member who is entitled to vote at this meeting is entitled to appoint one or more proxies to attend, speak and vote on their behalf.
Such a proxy need not also be a member of the Company. Shareholders are encouraged to submit their votes by proxy in advance of
the meeting, in case restrictions caused by Covid-19 apply and it is not possible for shareholders to attend in person. The Board will
continue to consider carefully the arrangements for the AGM in light of Government guidance and the Company will issue a regulatory
news announcement, which will also be posted on the Company’s website, if the only attendees permitted will be those required to
form the quorum and allow the business to be conducted.
To be entitled to vote at the Annual General Meeting (and for the purpose of determining the votes they may cast), members
must be registered in the Company’s register of members at close of business on 28 February 2022 (or, if the Annual General
Meeting is adjourned, at close of business on the day two days (excluding non-working days) prior to the adjourned meeting).
Changes to the register of members after the relevant deadline will be disregarded in determining the rights of any person to
vote at the Annual General Meeting.
2. Appointment of Proxy
A Form of Proxy for use by shareholders is enclosed. Shareholders are strongly encouraged to appoint the Chairman of the
meeting as their proxy to vote on their behalf. To register a vote electronically, log on to the Registrar’s website at
www.signalshares.com and follow the instructions on screen.
A member may appoint more than one proxy provided each proxy is appointed to exercise rights attached to different shares.
To appoint more than one proxy, please contact the Registrar of the Company. If a member submits more than one valid proxy
appointment, the appointment received last before the latest time for the receipt of proxies will take precedence.
To be valid the proxy form must be completed and lodged, together with the power of attorney or authority (if any) under which
it is signed, or a notarially certified copy of such power of authority, with the Registrar of the Company no later than 48 hours
(excluding non-working days) before the time set for the meeting, or any adjourned meeting.
CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for
the Annual General Meeting to be held on 3 March 2022 and any adjournment(s) thereof by using the procedures described in
the CREST Manual. The message must be transmitted so as to be received by the Company’s agent, Link Group (CREST
Participant ID: RA10), no later than 48 hours before the time appointed for the meeting.
3. Questions and Answers
The Board continues to welcome questions from shareholders in respect of the AGM. However, it asks shareholders to submit
any questions to the Board by email, to the following address enquiries@aberforth.co.uk before close of business on 28 February
2022 in case attendance at the AGM is restricted by the Covid-19 pandemic. In the event the AGM proceeds in its usual format
as currently anticipated, pursuant to section 319A of the Companies Act 2006, the Company must provide an answer to any
question that is put by a member attending the AGM relating to the business being considered, except if a response would not
be in the interest of the Company or for the good order of the meeting or if to do so would involve the disclosure of confidential
information. The Company may, however, elect to provide an answer to a question within a reasonable period of days after the
conclusion of the Annual General Meeting.
4. Total Voting Rights
As at 28 January 2022, the latest practicable date prior to publication of this document, the Company had 87,728,266 Ordinary
Shares in issue with a total of 87,728,266 voting rights.
5. Information on the Company’s Website
In accordance with section 311A of the Companies Act 2006, this notice of meeting, details of the total number of shares in
respect of which members are entitled to exercise voting rights at the Annual General Meeting and, if applicable, any members’
statements, members’ resolutions or members’ matters of business received by the Company after the date of this notice will
be available on the Managers’ website www.aberforth.co.uk.
6. Nominated Persons
Any person to whom this notice is sent who is a person nominated under Section 146 of the Companies Act 2006 to enjoy
information rights (a Nominated Person) may, under an agreement between such person and the Shareholder nominating such
person, have a right to be appointed (or to have someone else appointed) as a proxy for the Annual General Meeting. If a
Nominated Person has no such proxy appointment right or does not wish to exercise such right, the Nominated Person may,
under any such agreement, have a right to give instructions to the registered Shareholder as to the exercise of voting rights.
7. Audit concerns
The members of the Company may require the Company (without payment) to publish, on the website, a statement (which is
also to be passed to the Auditor) setting out any matter relating to the audit of the Company’s accounts, including the Auditor’s
report and the conduct of the audit. The Company will be required to do so once it has received such requests from either
members representing at least 5% of the total voting rights of the Company or at least 100 members who have a relevant right
to vote and hold shares in the Company on which there has been paid up an average sum per member of at least £100. Such
requests must be made in writing and must state the member’s full name and address and be sent to the registered address of
the Company.
58 Aberforth Smaller Companies Trust plc
Shareholder Information
Introduction
A
berforth Smaller Companies Trust plc is an Investment Trust whose shares are traded on the London Stock Exchange.
S
hareholder Register Enquiries
All administrative enquiries relating to shareholders such as queries concerning holdings, dividend payments, notification of change
of address, loss of certificate or requests to be placed on a mailing list should be addressed to the Company’s Registrar. Contact details
are shown on the inside back cover.
Payment of Dividends
To ensure that dividends are received as quickly as possible the Company’s Registrar may be instructed to pay them directly into a
bank account; tax vouchers are then mailed to shareholders separately. This method also avoids the risk of dividend cheques being
delayed or lost in the post. The Company also operates a Dividend Re-investment Plan to allow shareholders to use their cash
d
ividends to buy shares easily and at a low cost via the Company’s Registrar from whom the necessary forms are available.
Electronic Communications
Shareholders can choose to receive communications (including the Annual and Interim reports) from the Company in electronic
format. This method may be more convenient and secure for many Shareholders, reduces costs and has environmental benefits. To
use this service, Shareholders can register and provide their email address on the Registrar’s share portal at www.signalshares.com.
Thereafter, Shareholders will receive an email providing the website address link to the relevant document(s). After registering,
Shareholders will be able to request paper copies in the future.
Sources of Further Information
Shareholders can find up-to-date information on the Company on the Managers’ website at www.aberforth.co.uk. This includes items
such as the latest net asset value, share price and stock exchange announcements, as well as information relating to the portfolio,
management fee and dividend history. Other websites containing useful information on the Company include www.trustnet.com,
www.theaic.co.uk and www.ft.com. The prices of the Ordinary shares are also quoted daily in the Financial Times, The Times and The
Scotsman newspapers.
How to Invest
The Company’s Ordinary Shares are traded on the London Stock Exchange. They can be bought or sold by placing an order with a
stockbroker, by asking a professional adviser to do so, or through most banks. The Company’s Managers, Aberforth Partners LLP, do
not offer any packaged products such as ISAs, Savings Schemes or Pension Plans.
Security Codes (Ordinary Shares)
0006655 ASL LN ASL.L U6SSZS.99999.SL.826 213800GZ9WC73A92Q326
Continuation Vote
The Company has no fixed duration. However, in accordance with the Articles of Association, an ordinary resolution will be
proposed at the Annual General Meeting to be held in 2023 (and at every third subsequent Annual General Meeting) that the
Company continues to manage its affairs as an investment trust.
Retail Distribution/NMPI Status
The Company’s shares are intended for UK investors including retail investors, professionally advised private clients and
institutional investors who are seeking exposure to smaller companies in the United Kingdom, and who understand and are willing
to accept the risks of exposure to equities.
The Company currently conducts its affairs, and intends to continue to conduct its affairs, so that its Ordinary Shares can be
recommended by Independent Financial Advisers ("IFAs") to ordinary retail investors in accordance with the rules of the Financial
Conduct Authority ("FCA") in relation to non-mainstream pooled investment ("NMPI") products. The Company’s Ordinary Shares
are excluded from the FCA’s restrictions that apply to NMPI products because they are shares in an investment trust.
Please note that past performance is not a guide to the future. Your investment may be at risk as the value of investments may go
down as well as up and is not guaranteed. Therefore you may not get back the amount originally invested.
Individual Savings Accounts (ISA) Status
The Company’s Ordinary Shares are eligible for inclusion in the “Stocks and Shares” component of an ISA.
AIC
The Company is a member of The Association of Investment Companies, which produces a detailed Monthly Information Service on
the majority of investment trusts. This can be obtained by contacting The Association of Investment Companies, 9th Floor, 24 Chiswell
Street, London EC1Y 4YY; website: www.theaic.co.uk; tel: 020 7282-5555.
SEDOL Bloomberg Reuters GIIN Legal Entity Identifier
Aberforth Smaller Companies Trust plc 59
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The Company has appointed Aberforth Partners LLP as its alternative investment fund manager ("AIFM"). In accordance with the
AIFMD, information in relation to the Company’s leverage is required to be made available to Shareholders. The Company’s maximum
and actual leverage levels as at 31 December 2021 are shown below. There have been no changes to, or breaches, of the maximum
level of leverage employed by the Company.
Maximum limit 2.00:1 2.00:1 2.00:1 2.00:1
Actual 1.06:1 1.06:1 1.06:1 1.06:1
Furthermore, in accordance with the Directive, the AIFM’s remuneration policy and the numerical disclosures in respect of the AIFM’s
relevant reporting period (year ended 30 April 2021) are available on request from Aberforth Partners.
2021 2020
Commitment Gross Commitment Gross
Leverage Exposure (refer to the Glossary) Method Method Method Method
Financial Calendar
Dividends in respect of the year ended 31 December 2021
Interim Final
Rate per Share: 10.95p 24.25p
Ex Dividend: 5 August 2021 10 February 2022
Record date: 6 August 2021 11 February 2022
Pay date: 27 August 2021 8 March 2022
Half Yearly Report Published late July
Annual Report and Financial Statements Published late January/early February
Annual General Meeting 3 March 2022
Publication of Net Asset Values Daily (via the Managers’ website)
Automatic Exchange of Information
The OECD Common Reporting Standard for Automatic Exchange of Financial Account information (‘Common Reporting Standard’)
requires investment trust companies to provide personal information to HMRC on certain investors who purchase shares in
investment trusts. Accordingly Aberforth Smaller Companies Trust plc will have to provide information annually to the local tax
authority on the tax residencies of a number of non-UK based certificated shareholders and corporate entities.
All new shareholders, excluding those whose shares are held in CREST, who come on to the share register will be sent a certification
form for the purposes of collecting this information.
For further information, please see HMRC’s Quick Guide: Automatic Exchange of Information – information for account holders
https://www.gov.uk/government/publications/exchange-of-information-account-holders.
Beware of Share Fraud
Investment scams are designed to look like genuine investment opportunities. You might have been contacted by fraudsters if you
have been contacted out of the blue, promised tempting returns and told the investment is safe, called repeatedly or told the offer
is only available for a limited time. Shareholders may receive unsolicited phone calls or correspondence concerning investment
matters that imply a connection to the Company. These may be from overseas based ‘brokers’ who target UK shareholders offering
to sell them what often turn out to be worthless or high risk shares. Shareholders may also be advised that there is an imminent
offer for the Company, and the caller may offer to buy shares at significantly above the market price if an administration fee is paid.
Shareholders should treat all such approaches with caution.
You can find more information about investment scams at the Financial Conduct Authority (FCA) website:
www.fca.org.uk/consumers/protect-yourself-scams. You can also call the FCA Consumer Helpline on 0800 111 6768.
60 Aberforth Smaller Companies Trust plc
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Glossary of UK GAAP Measures
Net Asset Value, also described as Shareholders’ Funds, is the value of total assets less all liabilities. The Net Asset Value,
or NAV, per Ordinary Share is calculated by dividing this amount by the total number of Ordinary Shares in issue.
Gearing represents the amount by which total investments exceed Shareholders’ Funds, expressed as a percentage of
S
hareholders’ Funds. If stockmarkets rise, gearing can increase the Company’s returns, but, if they fall, losses will be
greater. If the amount calculated is a negative percentage then total investments are less than Shareholders’ Funds.
Glossary of Alternative Performance Measures
Benchmark Total Return is the return on the benchmark, on a closing market price basis, assuming that all dividends
received were reinvested into the shares of the underlying companies at the time their shares were quoted ex dividend.
Further information on the Company’s benchmark, the Numis Smaller Companies Index (excluding Investment
Companies), can be found on page 4.
Discount is the amount by which the stockmarket price per Ordinary Share is lower than the Net Asset Value, or NAV,
per Ordinary Share. The discount is normally expressed as a percentage of the NAV per Ordinary Share. The opposite of
a discount is a premium.
Net Asset Value Total Return represents the theoretical return on 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 (see note 16 on page 52).
Ongoing Charges represent the total cost of investment management fees and other operating expenses of £10,816,000
(2020: £7,977,000), as disclosed in the Income Statement, as a percentage of the average published net asset value of
£1,436,761,000 (2020: £984,116,000) over the period, and are calculated in accordance with the guidelines issued by the
AIC.
Portfolio Turnover is calculated by summing the lesser of purchases and sales over a one year period divided by the
average portfolio value for that period.
Share Price Total Return represents the theoretical return to a 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. The share price as at 31 December 2021 was 1,464.00p
(2020: 1,248.00p) and dividends, which went ex dividend during the year (see note 8 on page 50) were 33.85p (2020:
36.4p). The dividend reinvestment factor was 1.025611 (2020: 1.030776). The share price total return was therefore
20.3% (2020: -16.5%), being the percentage derived from the closing share price, adjusted by the dividend reinvestment
factor, divided by the closing share price at the previous year end.
Other Glossary Terms
Active share ratio is calculated by summing the absolute differences between a portfolio’s weight in a stock and an
index’s weight in a stock for all the stocks in the portfolio or index. The total is then divided by two to give a ratio
between 0% and 100%. Active Share is addressed in “How Active Is Your Fund Manager?” (Antti Petajisto and Martijn
Cremers, Yale School of Management, 2009).
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 share price, as appropriate, on the day the Ordinary
Shares were quoted ex dividend.
Leverage, for the purposes of the AIFM Directive, is any method that increases the Company’s exposure to stockmarkets
whether through borrowings, derivatives or any other means. It is expressed as a ratio of the Company’s exposure to its
NAV. In summary, the gross method measures the Company’s exposure before applying hedging or netting
arrangements. The commitment method allows certain hedging or netting arrangements to be offset. The Company has
no hedging or netting arrangements.
J. Thomson Colour Printers 200321
Aberforth Smaller Companies Trust plc
Corporate Information
Directors
Richard Davidson (Chairman)
Paula Hay-Plumb
Julia Le Blan
Victoria Stewart
Martin Warner
Managers and Secretaries
Aberforth Partners LLP
14 Melville Street
Edinburgh EH3 7NS
Tel: 0131 220 0733
enquiries@aberforth.co.uk
www.aberforth.co.uk
Registered Office and Company Number
14 Melville Street
Edinburgh EH3 7NS
Registered in Scotland No. SC 126524
Registrar
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds LS1 4DL
Shareholder enquiries:
Tel: 0871 664 0300
(Calls cost 12p per minute plus network extras)
enquiries@linkgroup.co.uk
www.linkassetservices.com
Share Portal:
www.signalshares.com
Solicitors and Sponsors
Dickson Minto W.S.
16 Charlotte Square
Edinburgh EH2 4DF
Bankers
The Royal Bank of Scotland International Limited
280 Bishopsgate
London EC2M 4RB
Custodian
The Northern Trust Company
50 Bank Street
Canary Wharf
London E14 5NT
Independent Auditor
Deloitte LLP
Saltire Court
20 Castle Terrace
Edinburgh EH1 2DB
Depositary
NatWest Trustee & Depositary Services Limited
House A, Floor 0
Gogarburn
175 Glasgow Road
Edinburgh
EH12 1HQ
