Company Announcements
ABERFORTH GEARED INCOME TRUST PLC - Half-yearly Report
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PR Newswire
London, January 27
Aberforth Geared Income Trust plc
Interim Report
Six months ended 31 December 2014
The following is an extract from the Company's Interim Report for the six
months ended 31 December 2014. The Interim Report is expected to be posted to
shareholders on or before 3 February 2015. Members of the public may obtain
copies from Aberforth Partners LLP, 14 Melville Street, Edinburgh EH3 7NS or
from its website at www.aberforth.co.uk. A copy will also shortly be available
to download from the National Storage Mechanism (www.morningstar.co.uk/uk/nsm).
Investment Objective
To provide Ordinary Shareholders with a high level of income, with the
potential for income and capital growth, and to provide Zero Dividend
Preference Shareholders with a pre-determined final capital entitlement of
159.7p per Share on the planned winding-up date on 30 June 2017.
Financial Highlights
--------------------
Total Returns in the six months ended 31 December 2014
Total Assets -1.1%
Ordinary Share - NAV -3.0%
Ordinary Share - Share Price -2.3%
ZDP Share - NAV +3.3%
ZDP Share - Share Price +2.4%
Dividend declared
First Interim Dividend 2.50p (+7.8%)
Chairman's Statement
--------------------
Performance
The first six months of AGIT's financial year ending 30 June 2015 brought a
series of challenges to equity valuations. At the global level, the economies
of the Eurozone and Japan continued to find growth elusive, while China's rate
of expansion has fallen further. Russia's actions in Crimea and the events in
Ukraine, together with the Islamic State conflict, have added to investors'
nervousness. Closer to home, although the UK survived Scotland's referendum,
political uncertainty remains and may undermine a domestic economy that has
been one of the better performing among developed markets. While these factors
have been in evidence for some time, the new development over the six months
was the collapse in the oil price, which brings a further set of risks - and
opportunities - to the investment landscape.
Against this background, the FTSE All-Share Index, which is representative of
larger UK companies, experienced a total return of -0.4% in the six months to
31 December 2014. Smaller companies were weaker: the total return of the NSCI
(XIC), which defines AGIT's opportunity base, was -1.3% and, as suggested in my
previous Chairman's Statement, it was expected to be a significant challenge to
deliver continuing levels of performance in view of the particularly strong
returns that characterised the first four years of your company's life.
AGIT was unable to escape unscathed from the influence of the weaker small
company asset class during the period. Its total return on total assets, which
is the ungeared return at the portfolio level, was -1.1%. The Managers' Report
provides detail on the most important influences on this performance. This
performance has seen the projected final cumulative cover on the ZDP Shares
fall to 2.4x from 2.5x at 30 June 2014, though it is still markedly higher than
the 1.4x at launch. The 6.75% per annum required rise in the ZDP Share's
entitlement from launch to the final entitlement of 159.7p on 30 June 2017
imposes a hurdle on the Ordinary Shares. This hurdle was not overcome in the
most recent six month period. Accordingly, the NAV total return of the Ordinary
Shares, at -3.0%, was lower than the return at the total assets level. Over
longer time periods, however, the hurdle has been cleared: since launch, a
90.8% total asset total return has translated into a 132.9% NAV total return
for Ordinary Shareholders.
Earnings and Dividends
The Ordinary Shares enjoy rights to all the income generated by the portfolio.
A good dividend performance in the six months to 31 December 2014 mitigated, in
total return terms, the effects on the Ordinary Share NAV of lower markets and
the gearing imposed by the ZDP Shares. Investment Income in the six months to
31 December 2014 was £5.4m, against £4.9m in the corresponding period a year
earlier. Earnings per Share were 4.46p, which represents growth of 11.8% on the
first half of the previous financial year.
Taking into account this revenue performance, the Board has declared a first
interim dividend of 2.50p per Ordinary Share in respect of the year ending 30
June 2015. This is 7.8% higher than the payment in the corresponding period
last year. The first interim dividend will be paid on 27 February 2015 to
Ordinary Shareholders on the register at 13 February 2015. The ex dividend date
is 12 February 2015.
Your Company operates a Dividend Reinvestment Plan. Details of the plan,
including the Form of Election, are available from Aberforth Partners LLP or on
its website, www.aberforth.co.uk.
Scottish Independence Referendum
While the outcome of the referendum on Scottish Independence was that Scotland
should remain within the United Kingdom, constitutional changes appear now to
be a fixture on the political agenda. Your Board's stance on this is unchanged:
we will continue to monitor developments and be prepared to take such actions
as may be appropriate and in the interest of Shareholders as a whole.
Outlook
A contrast to the economic pressures summarised in the opening paragraph has
been the strengthening of the US economy, assisted by its shale boom. Continued
progress in the US should offer some compensation for struggling demand
elsewhere, although dollar strength can be problematic especially for emerging
markets. In the case of the UK, there are clear signs of improvement, although
the recovery has its vulnerabilities. Further austerity is inevitable,
irrespective of the hue of the government after May's general election. While
ultimately the state of public finances limits room for manoeuvre, it is
plausible that uncertainty about the nature of the next government might affect
businesses' investment decisions in the early months of 2015. It is
unambiguously the case that the UK faces a less clear political and
constitutional outlook than has been evident for some time.
Set against such "big picture" concerns is AGIT's diversified portfolio of
small companies. This has been selected in accordance with the Managers' value
investment discipline, which the Board supports. Investee businesses are thus
on average valued more modestly than small companies as a whole. The scope for
revaluation should bode well for the portfolio's future performance and, in
this regard, the Board notes the role played in recent months by M&A activity.
The Board therefore remains optimistic about AGIT's prospects over the
remaining two and a half years of its planned life. However, in the near term,
volatility in equity valuations can be expected.
Jonathan Cartwright
Chairman
28 January 2015
jonathan.cartwright@aberforth.co.uk
Managers' Report
----------------
Introduction
AGIT's total return on total assets over the six months to 31 December 2014 was
-1.1%. This outcome was influenced by a weak showing from the small company
asset class: the NSCI (XIC) generated a total return of -1.3%. The FTSE
All-Share, which is representative of larger companies, produced a total return
of -0.4%. Thus, the current financial year has so far seen a reversal of the
pattern of very strong returns from smaller companies of recent years. However,
from AGIT's launch on 30 April 2010 to 31 December 2014, the total return of
small companies has been 82%, against 45% for large, as represented by the
foregoing indices.
The modest recent movements of UK equities are in contrast to some remarkable
gyrations in the broader financial markets.
• Government bond yields, which rose sharply in 2013 headed downwards again in
2014. The UK is illustrative: ten year gilt yields, which eased from 3.0% to
2.7% in the first half of 2014, ended the year at 1.8%. The declines were
influenced by a reassessment of the outlook for economic growth, as Japan and
the Eurozone in particular disappointed expectations. Also influential were the
anticipation of quantitative easing in the Eurozone and more stimulus in Japan.
These offset the "tapering" of the US's quantitative easing programme.
• Among equity markets, the S&P 500 stood out: it rose by 11% in 2014 and ended
the calendar year close to its all time high. The relative buoyancy of the US
economy was helpful. Its recovery from the global financial crisis has seen it
resume its pre-eminence in the context of the global economy. However, growth
in gross domestic product was not the sole determinant of equity performance.
As noted, despite a better than expected outturn for economic growth, the UK
market struggled, which in part reflects its significant exposure to oil
companies. In contrast, Germany and Japan, whose economies have disappointed,
saw their equity markets achieve positive returns in 2014.
• Currency movements change the picture. The US dollar was particularly strong
in 2014, rising by 13% on a trade-weighted basis. Thus, in dollar terms, the
positive returns of the German and Japanese markets lapse into negative
territory: for example, Germany's Dax was up by 3% in euro terms but down by
10% in dollar terms. Periods of dollar strength are frequently awkward affairs
for other parts of the world economy, challenging established financial
relationships and hampering global trade.
• The strong dollar exerted pressure on the prices of commodities. Of these,
oil stands out. Its 46% price decline in 2014 accelerated in the final quarter
as the impact of weaker demand, the US shale boom and OPEC's reluctance to cut
production were digested. The share prices of oil companies duly suffered,
though other stockmarket sectors ought to be beneficiaries of lower oil prices.
These various price movements are often contradictory, which complicates the
tasks of running small UK quoted companies or of making investment decisions
about those companies. The burden has been eased somewhat by the performance of
the UK economy overall, which accounts for around half of the revenues of the
small cap universe. However, challenges to the domestic economy remain. Among
these are several more years of expected austerity, wage growth that struggles
to exceed the rate of inflation, and a particularly uncertain political
environment. Nevertheless, the recovery continued through 2014 and helped small
companies generate earnings growth of around 8%. This was lower than market
expectations at the start of the year, but was an acceptable outcome,
especially when backed up by dividend growth of a similar magnitude.
Investment performance
As stated above, AGIT's total asset total return in the six months to 31
December 2014 was -1.1%. As always, the most significant influences on this
return were the performances of equities in general and of small UK quoted
companies in particular. The Managers' investment process and value investment
philosophy give rise to additional influences. The following paragraphs address
some of these.
Sectors
The portfolio's sector positions reflect the outcome of bottom-up stock
selections. However, a more general comment about the Oil & Gas sector is
relevant. AGIT's exposure to this area of the market has been limited by the
scarcity of dividend yield among smaller exploration and production companies.
This has helped reduce the impact on the portfolio of the collapsing oil price.
The pressure on share prices was sufficient to bring several mid cap oil
companies into the NSCI (XIC) on its annual rebalancing. These boosted the
index's weighting in Oil & Gas at 1 January 2015 to almost 6%. Consistent with
their value investment philosophy, the Managers will look to take advantage of
an indiscriminate sell-off in oil stocks where share prices fall below their
intrinsic value. However, it is unlikely that AGIT will be able to participate
fully in such an exercise because of the lack of dividend yield.
Style & size
On its 1 January 2015 rebalancing, the NSCI (XIC)'s largest constituent had a
market capitalisation of £1,266m. The index thus encompasses a large portion of
mid cap companies: the overlap with the FTSE 250 represents 67% by value of the
NSCI (XIC). Motivated by relative valuations, the portfolio has a relatively
low exposure to this mid cap component. This positioning was unhelpful over the
six months to 31 December 2014, as the returns of the FTSE 250 (+3.2%) and the
FTSE SmallCap (-3.1%) suggest.
Meanwhile, the Managers' value investment style, which boosted returns in the
year to 30 June 2014, proved unhelpful in the six months to 31 December 2014.
Hindering the value style were greater concern about the economic outlook and
the relapse in bond yields, which tends to favour the prospects of growth
companies. In mitigation, M&A activity recovered and some growth stocks
encountered trading difficulties for company specific reasons. From lofty
valuations, these often experienced substantial falls in their share prices. In
certain cases, the derating has been such that they are starting to measure up
to the Managers' value investment criteria.
Dividends
The dividend performance of small companies has remained good since 30 June
2014. Mid to high single digit growth for the calendar year extends the run of
above average dividend growth to five years. One reason for this record is the
starting point: many small companies cut their dividends in the recession of
2009. Another reason also has its roots in the global financial crisis. To
generalise, in the years leading up to 2008, companies were able to raise all
the marginal financing they required from the banks; they did not need to have
recourse to shareholders. The crisis changed this: banks came under pressure to
deleverage and it was the shareholders that kept many companies solvent in 2009
with rescue rights issues. These events have reinforced the priorities of
company boards, one manifestation of which is the growth in dividends.
AGIT has shared in this trend. The table below categorises the portfolio's 70
companies according to their most recent dividend action. It is pleasing that
the largest category is represented by those that increased their dividends;
among these, the median rate of increase was 9%. The `Other' category includes
those companies with no meaningful comparison, i.e. IPOs in 2014.
Band Nil Down Flat Up Other
No. of 5 6 13 44 2
holdings
The `Nil' category comprises five companies that have not paid a dividend over
the past 12 months. The profits of four have suffered to the extent that
dividends have been passed; the Managers have nevertheless seen sufficient
recovery potential to retain the holdings. The other `Nil' constituent is a
company that has committed to resuming payments in the near future; a holding
was taken in anticipation of this.
Strong balance sheets
Managers' reports of recent years have referred to the strong balance sheets
that characterise both the portfolio companies and the small company universe.
This remains the case with the proportions exposed to companies with net cash
on their balance sheet standing at 23% and 26% respectively at 31 December
2014. These proportions have been moving downwards since 2011. The Managers
believe that, in reaction to the global financial crisis, balance sheets had in
many cases been taken to levels that were unnecessarily strong. This
conservatism was hampering growth prospects. The Managers encouraged such
companies to put surplus cash balances to better use. Thus, the lower
proportion now holding cash suggests that company boards have had greater
confidence to invest or, in the absence of attractive investment opportunities,
return cash to shareholders.
Corporate activity
A pick-up in corporate activity through 2014 may be considered another
indication of increasing corporate confidence. As noted in the most recent full
year Managers' Report, the first half of 2014 was dominated by IPOs. The pace
slackened after 30 June 2014 as markets grew more nervous and as vendors became
too ambitious with regard to valuations. Nevertheless, there were 27 IPOs in
2014 that were included in the NSCI (XIC) on its 1 January 2015 rebalancing.
These had a cumulative market capitalisation of £13.4bn. Rights issues and
placings totalled a further £4.8bn. This makes 2014 the year of highest equity
issuance since 2009 when the financial crisis prompted rescue rights issues. At
its half year end, AGIT had positions in two 2014 IPOs, both of which it
acquired in the first half of the calendar year.
M&A within the NSCI (XIC) is recovering from 2013, which was its quietest ever
calendar year, with only 5 deals completed. In 2014, takeovers of 12 NSCI (XIC)
constituents were concluded; of these, 5 had been completed by AGIT's last year
end, 30 June 2014. In addition, there were incomplete bids, approaches or talks
in progress for another 10 companies at 31 December 2014. The value of 2014's
22 deals, completed or outstanding, was £12.9bn. Of these, AGIT had holdings in
5, up from 2 at 30 June 2014. The takeover premiums were often large, ranging
from 31% to 85%. Over the years, a meaningful boost to returns from M&A has not
been unusual. Indeed, the Managers are inclined to view this as a result and
validation of their value investment approach.
Active share
Active share is a measure of how different a portfolio is from the index of its
opportunity base and thus of fund managers' conviction in the stocks they
choose to own. The higher the ratio, the higher is the probability that the
portfolio will perform out of line with the index, for better or worse. The
Managers target an active share ratio of at least 70%, though will tolerate a
temporarily depressed number, and consider the impact on the portfolio's active
share ratio as part of the investment process. The half year end portfolio's
active share was 79%. This is affected by holdings in companies that, following
the 1 January rebalancing, are no longer part of the NSCI (XIC). As these
holdings are sold in an orderly fashion over the coming months, the active
share ratio will fall to the extent that the proceeds are reinvested in new
holdings that are part of the index.
Valuations
The table below shows the historic valuation data for the portfolio and the
NSCI (XIC). The 13.2x PE ratio of small companies compares with 13.8x for the
FTSE All-Share, which is representative of large companies. This 4% discount is
tighter than the long term average of 7%. However, at the end of 2013, small
companies were on a 5% premium to large. History suggests that such a state of
affairs does not persist for long. This is a reasonable explanation for the
underperformance of small companies against large in the six month period under
review and in 2014 as a whole.
Characteristics 31 December 2014 31 December 2013
AGIT NSCI (XIC) AGIT NSCI (XIC)
Number of companies 70 369 72 363
Weighted average market £705m £754m £739m £833m
capitalisation
Price earnings ratio 12.5x 13.2x 13.8x 16.8x
(historic)
Dividend yield (historic) 3.4% 2.5% 3.1% 2.2%
Dividend cover 2.4x 3.0x 2.3x 2.7x
The average PE of the portfolio's 70 holdings was 12.5x, which is 5% lower than
that of the NSCI (XIC). The average dividend yield of 3.4% is 36% higher than
that of the NSCI (XIC). This relationship is influenced by the impact of nil
yielders on the index. These account for 24% of the NSCI (XIC) by weight and
also explain the index's higher dividend cover. The portfolio is not
constructed with reference to historic PE ratios. Rather the Managers' favoured
valuation metric is the ratio of enterprise value to earnings before interest,
tax and amortisation (EV/EBITA). This valuation approach is aligned with how
one company might assess another, since a bidding company can determine the
means of funding an acquisition and often how the enlarged entity is taxed.
2015 EV/EBITA ratio
43 growth companies 256 other companies Tracked Universe AGIT's Portfolio
15.6x 10.3x 11.0x 9.3x
Consistent with the Managers' value investment approach, the portfolio retains
a pronounced valuation advantage over the growth companies and the broader
small company universe. The table above shows the forward EV/EBITA ratio for
the portfolio, the tracked universe and two subdivisions of the tracked
universe: 43 growth stocks and 256 other companies.
Outlook & conclusion
From a macro economic perspective, the world's rediscovered reliance on the US
economy became increasingly obvious in 2014. Japan resorted to another round of
quantitative easing and the Eurozone continues to flirt with embracing
quantitative easing for the first time. However, the US appears to have
succeeded in weaning itself off the need for incremental stimulus. The
pre-eminence of the US has been reinforced by the transformation of its
reliance on the rest of the world for its energy requirements:
self-sufficiency, by virtue of the shale boom, appears within reach. The
implications of these developments were reflected by financial markets in 2014:
US treasury yields, though down over the year, are higher than those of other
major bond markets; US equities are at all time high levels; the dollar has
strengthened considerably; and the oil price has collapsed.
It is likely that implications of the US's leadership, while crucial to the
overall health of the global economy, will prove painful for some. Such
uncertainty comes on top of Europe's and Japan's sluggish performance,
heightened tensions with Russia, and an intensification of hostilities in the
Middle East. So, as usual, there is plenty for the boards of small UK quoted
companies to worry about. And uncertainties also loom for the UK. These are
less to do with the economy's direction in the immediate future, which, despite
some disappointment with the budget deficit, still seems more akin to the US's
than the Eurozone's. More significant is the perpetuation of a period of
political and constitutional uncertainty, which started with 2010's coalition
government, continued with the Scottish referendum and could persist until 2017
with an EU referendum. This type of risk is not one with which the boards of
small UK quoted companies, or indeed their investors, have had to cope for
generations.
In spite of these top down concerns, there are signs of a general cautious
optimism among smaller companies. This contention is based on the combination
of three factors that have been individually addressed above: the pick-up in M&
A, the willingness to utilise more fully strong balance sheets, and the
continuation of the impressive dividend performance of recent years. While the
risk remains that this growing optimism might prove a lagging rather than a
leading indicator, it is encouraging that such nascent animal spirits are in
evidence.
On reflection, the present situation is not unusual since macro economic risks
of one type or another are ever-present. However, more often than not, there is
a disparity between the pessimism of the top-down perspective and the optimism
from the ability of individual businesses to adjust and cope. The macro
economic challenges of the global financial crisis were particularly severe,
but the experience of small companies, perhaps benefiting from relative
nimbleness, again give reason for hope. The Managers take additional comfort
from the attractive valuations presently accorded by the stockmarket to many
companies and to AGIT's portfolio in particular.
Aberforth Partners LLP
Managers
28 January 2015
Interim Management Report
-------------------------
Review
A review of the six months ended 31 December 2014 and the outlook for the
Company can be found in the Chairman's Statement and the Managers' Report.
Principal Risks and Uncertainties
The Directors have established an on-going process for identifying, evaluating
and managing the principal risks faced by the Company. This process was in
operation during the six months ended 31 December 2014 and continues in place
up to the date of this report. The Company's capital structure is such that the
underlying value of assets attributable to the Ordinary Shares is geared by the
rising capital entitlements of the ZDP Shares and accordingly the Ordinary
Shares should be regarded as carrying above average risk. The Company also has
a £2 million overdraft facility, which when utilised increases the level of
gearing. Some mitigating factors in the Company's risk profile include that it
has a relatively simple capital structure, invests in a diversified portfolio
of small UK quoted companies, and outsources all of its main operational
activities to recognised, well established firms. Investment in small companies
is generally perceived to carry more risk than investment in large companies.
By investing in a diversified portfolio the risks of investment in small
companies should be lower than investing directly in an individual company. The
Company's portfolio will normally consist of between 50 and 100 companies.
As the Company's investments consist of small UK quoted companies, the
principal risks facing the Company are market related and include market price,
credit, liquidity and interest rate risk. Additional risks faced by the Company
relate to: investment policy/performance, structural conflicts of interest,
significant fall in investment income, managing regulatory and statutory
changes, loss of key investment personnel, inability to provide ZDP
Shareholders with 159.7p on wind-up, and significant failure in a key service
provider. An explanation of the principal risks and the additional risks and
how they are managed can be found in the Directors' Report contained within the
2014 Annual Report and Accounts. The principal risks and uncertainties have not
changed from those disclosed in the 2014 Annual Report and Accounts.
Directors' Responsibility Statement
The Directors confirm that, to the best of their knowledge:
(i) the condensed set of financial statements has been prepared in accordance
with IAS 34 - Interim Financial Reporting; and
(ii) the Interim Report includes a fair review of information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of
important events during the first six months of the year and their impact on
the financial statements together with a description of the principal risks and
uncertainties for the remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being disclosure of
related party transactions and changes therein.
In addition, each of the Directors considers that the Interim Report, taken as
a whole, is fair, balanced and understandable and provides the information
necessary for Shareholders to assess the Company's performance, objective and
strategy.
On behalf of the Board
Jonathan Cartwright
Chairman
28 January 2015
The Statement of Comprehensive Income, Balance Sheet, Cash Flow Statement and
Statement of Changes in Equity are set out below: -
Statement of Comprehensive Income
---------------------------------
Six Months ended
31 December 2014
(Unaudited)
Revenue Capital Total
£'000 £'000 £'000
Income
Investment income 5,406 63 5,469
Other income 1 - 1
(Losses)/gains on investments held - (7,006) (7,006)
at fair value through profit or loss
------ ------ ------
Total income and gains/(losses) 5,407 (6,943) (1,536)
------ ------ ------
Expenses
Transaction costs - (302) (302)
Investment management fee (410) (958) (1,368)
Other operating expenses (168) - (168)
------ ------ ------
Total expenses (578) (1,260) (1,838)
------ ------ ------
Profit/(loss) before finance costs 4,829 (8,203) (3,374)
and taxation
Finance costs
Appropriation to ZDP Shares - (3,206) (3,206)
Interest expense (7) (15) (22)
------ ------ ------
Total finance costs (7) (3,221) (3,228)
------ ------ ------
Profit/(loss) before taxation 4,822 (11,424) (6,602)
Taxation - - -
------ ------ ------
Profit/(loss) after taxation 4,822 (11,424) (6,602)
for the period ------ ------ ------
Earnings per Ordinary Share 4.40p (10.43)p (6.03)p
Six Months ended
31 December 2013
(Unaudited)
Revenue Capital Total
£'000 £'000 £'000
Income
Investment income 4,864 - 4,864
Other income 4 - 4
(Losses)/gains on investments held - 64,535 64,535
at fair value through profit or loss
------ ------ ------
Total income and gains/(losses) 4,868 64,535 69,403
------ ------ ------
Expenses
Transaction costs - (367) (367)
Investment management fee (347) (809) (1,156)
Other operating expenses (151) - (151)
------ ------ ------
Total expenses (498) (1,176) (1,674)
------ ------ ------
Profit/(loss) before finance costs 4,370 63,359 67,729
and taxation
Finance costs
Appropriation to ZDP Shares - (3,004) (3,004)
Interest expense (1) (2) (3)
------ ------ ------
Total finance costs (1) (3,006) (3,007)
------ ------ ------
Profit/(loss) before taxation 4,369 60,353 64,722
Taxation - - -
------ ------ ------
Profit/(loss) after taxation 4,369 60,353 64,722
for the period ------ ------ ------
Earnings per Ordinary Share 3.99p 55.12p 59.11p
Year ended
30 June 2014
(Audited)
Revenue Capital Total
£'000 £'000 £'000
Income
Investment income 11,242 - 11,242
Other income 7 - 7
(Losses)/gains on investments held - 64,568 64,568
at fair value through profit or loss
------ ------ ------
Total income and gains/(losses) 11,249 64,568 75,817
------ ------ ------
Expenses
Transaction costs - (681) (681)
Investment management fee (791) (1,845) (2,636)
Other operating expenses (288) - (288)
------ ------ ------
Total expenses (1,079) (2,526) (3,605)
------ ------ ------
Profit/(loss) before finance costs 10,170 62,042 72,212
and taxation
Finance costs
Appropriation to ZDP Shares - (6,056) (6,056)
Interest expense (7) (16) (23)
------ ------ ------
Total finance costs (7) (6,072) (6,079)
------ ------ ------
Profit/(loss) before taxation 10,163 55,970 66,133
Taxation - - -
------ ------ ------
Profit/(loss) after taxation 10,163 55,970 66,133
for the period ------ ------ ------
Earnings per Ordinary Share 9.28p 51.11p 60.39p
The Company does not have any other comprehensive income or expenses and hence
the net profit for the period, as disclosed above, is the same as the Company's
total comprehensive income. The total column of this statement represents the
Company's Statement of Comprehensive Income, prepared in accordance with IFRS
as adopted by the European Union. The supplementary revenue return and capital
returns columns are both prepared in accordance with the Statement of
Recommended Practice published by the Association of Investment Companies in
January 2009. All of the profit and total comprehensive income for the period
is attributable to the equity holders of the Company. There are no controlling
interests. The Company does not have any dilutive securities and therefore the
Earnings per Share and the Diluted Earnings per Share are the same.
Balance Sheet
-------------
31 December 31 December 30 June
2014 2013 2014
£'000 £'000 £'000
Non-current assets
Investments held at fair value 302,209 310,079 312,959
through profit or loss ------- ------- -------
Current assets
Other receivables 826 825 1,826
Cash and cash equivalents 1,923 2,150 211
------- ------- -------
Total current assets 2,749 2,975 2,037
------- ------- -------
Total assets 304,958 313,054 314,996
Current liabilities
Other payables (85) (82) (102)
Non-current liabilities
Zero Dividend Preference Shares (99,056) (92,798) (95,850)
------- ------- -------
Total liabilities (99,141) (92,880) (95,952)
------- ------- -------
Total Net Assets 205,817 220,174 219,044
------- ------- -------
Equity attributable to equity
shareholders:
Share capital 1,095 1,095 1,095
Share premium 67,345 67,345 67,345
Special reserve 43,480 43,480 43,480
Capital reserve 85,134 100,941 96,558
Revenue reserve 8,763 7,313 10,566
------- ------- -------
Total Equity Shareholders' Funds 205,817 220,174 219,044
------- ------- -------
Net asset value per Ordinary Share 187.96p 201.07p 200.04p
Net asset value per ZDP Share 135.69p 127.12p 131.30p
The financial statements were authorised for issue by the Board of Directors on
28 January 2015 and were signed on its behalf by:
Jonathan Cartwright, Chairman
Statement of Changes in Equity
------------------------------
Six months ended 31 December 2014
Share Share Special Capital Revenue
Capital Premium Reserve Reserve Reserve Total
£ 000 £ 000 £ 000 £ 000 £ 000 £ 000
At 1 July 2014 1,095 67,345 43,480 96,558 10,566 219,044
Total Comprehensive Income:
Profit/(loss) for the year - - - (11,424) 4,822 (6,602)
Transactions with
owners, recorded
directly to equity:
Dividends paid - - - - (6,625) (6,625)
------ ------ ------ ------ ------ ------
At 31 December 2014 1,095 67,345 43,480 85,134 8,763 205,817
------ ------ ------ ------ ------ ------
Six months ended 31 December 2013
Share Share Special Capital Revenue
Capital Premium Reserve Reserve Reserve Total
£ 000 £ 000 £ 000 £ 000 £ 000 £ 000
At 1 July 2013 1,095 67,345 43,480 40,588 8,999 161,507
Total Comprehensive Income:
Profit for the year - - - 60,353 4,369 64,722
Transactions with
owners, recorded
directly to equity:
Dividends paid - - - - (6,055) (6,055)
------ ------ ------ ------ ------ ------
At 31 December 2013 1,095 67,345 43,480 100,941 7,313 220,174
------ ------ ------ ------ ------ ------
Year ended 30 June 2014
Share Share Special Capital Revenue
Capital Premium Reserve Reserve Reserve Total
£ 000 £ 000 £ 000 £ 000 £ 000 £ 000
At 1 July 2013 1,095 67,345 43,480 40,588 8,999 161,507
Total Comprehensive Income:
Profit for the year - - - 55,970 10,163 66,133
Transactions with
owners, recorded
directly to equity:
Dividends paid - - - - (8,596) (8,596)
------ ------ ------ ------ ------ ------
At 30 June 2014 1,095 67,345 43,480 96,558 10,566 219,044
------ ------ ------ ------ ------ ------
Cash Flow Statement
-------------------
For the 6 months ended 31 December 2014
Notes 6 months 6 months ended Year ended
ended 31 31 December 30 June 2014
December 2014 2013 (audited)
(unaudited) (unaudited)
£'000 £'000 £'000
Cash flows from operating activities
Profit/(loss) before (3,374) 67,729 72,212
finance costs and
taxation
Adjustments for:
Losses/(gains) on 5 7,006 (64,535) (64,568)
investments held at fair
value through profit or
loss
Transaction costs for 302 367 681
acquiring or disposing
investments
Decrease in receivables 685 1,037 351
Decrease in payables (26) (26) (2)
Purchases of investments (35,004) (41,120) (78,480)
including transaction
costs
Sales of investments 38,770 37,685 71,568
after transaction costs
------ ------ ------
Net cash inflow from 8,359 1,137 1,762
operating activities ------ ------ ------
Cash flows from financing activities
Interest paid (22) - (23)
Dividends paid on 4 (6,625) (6,055) (8,596)
Ordinary Shares
------ ------ ------
Net cash outflow from (6,647) (6,055) (8,619)
financing activities ------ ------ ------
Net increase/(decrease)in 1,712 (4,918) (6,857)
cash and cash equivalents
Cash and cash equivalents 211 7,068 7,068
at the start of the
period
------ ------ ------
Cash and cash equivalents 1,923 2,150 211
at the end of the period ------ ------ ------
Cash and cash equivalents comprise cash at bank.
Notes to the Financial Statements
---------------------------------
1. Accounting policies
The condensed financial statements have been prepared using the same accounting
policies as are set out in the Company's Annual Report and Accounts for the
year ended 30 June 2014. The condensed financial statements have been prepared
in accordance with IAS 34 - Interim Financial Reporting and with those parts of
the Companies Act applicable to companies reporting under IFRS. The condensed
financial statements do not include all of the information required for full
annual financial statements, are not full statutory accounts in terms of
section 434 of the Companies Act 2006 and are unaudited.
The condensed financial statements have been prepared on a going concern basis
under the historical cost convention, modified to include the revaluation of
investments at fair value through profit or loss. The condensed financial
statements have been prepared in accordance with the Association of Investment
Companies (AIC) Statement of Recommended Practice (SORP) for Investment Trusts
issued in January 2009.
The financial position of the Company at 31 December 2014 is shown in the
Balance Sheet. The Company's assets comprise mainly readily realisable equity
securities which, if necessary, can be sold to meet any funding requirements.
The Company has appropriate financial resources to enable it to meet its
day-to-day working capital requirements and the Directors believe the Company
is well placed to continue to manage its business risks and has adequate
resources to continue in operational existence for the foreseeable future. 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.
2.Investment Management Fee
Aberforth Partners LLP are the Company's investment managers. Aberforth
Partners LLP receive an annualised management fee equal to:
- 1% of the Company's Net Assets attributable to Ordinary Shareholders, plus
- 5.0% of the total income (excluding any tax credit), plus
- Base fee of £70,000.
The base fee is adjusted annually in line with the Retail Prices Index. The
management fee is calculated on a quarterly basis, paid in advance, and charged
70% to Capital and 30% to Revenue. The investment management contract between
the Company and Aberforth Partners LLP may be terminated by either party at any
time by giving six months' notice of termination.
3. Earnings per Share
6 months ended 31 6 months ended Year ended 30
December 2014 31 December June 2014
2013
Revenue profit for the £4,822,000 £4,369,000 £10,163,000
period
Weighted average Ordinary 109,500,000 109,500,000 109,500,000
Shares in issue during the
period
------ ------ ------
Revenue Earnings per 4.40p 3.99p 9.28p
Ordinary Share ------ ------ ------
Capital (losses)/profit for (£11,424,000) £60,353,000 £55,970,000
the period
Weighted average Ordinary 109,500,000 109,500,000 109,500,000
Shares in issue during the
period
------ ------ ------
Capital Earnings per (10.43)p 55.12p 51.11p
Ordinary Share ------ ------ ------
Appropriation to ZDP Shares £3,206,000 £3,004,000 £6,056,000
in the period
Weighted average ZDP Shares 73,000,000 73,000,000 73,000,000
in issue during the period
------ ------ ------
Earnings per ZDP Share 4.39p 4.12p 8.30p
------ ------ ------
4. Dividends
6 months ended 6 months ended Year ended
31 December 2014 31 December 2013 30 June 2014
£'000 £'000 £'000
In respect of the year ended 30
June 2013:
Second interim dividend of 4.53p - 4,960 4,960
Special dividend of 1.0p - 1,095 1,095
In respect of the year ended 30
June 2014:
First interim dividend of 2.32p - - 2,541
Second interim dividend of 4.85p 5,311 - -
Special dividend of 1.2p 1,314 - -
------ ------ ------
6,625 6,055 8,596
------ ------ ------
The first interim dividend for the year ending 30 June 2015 of 2.50p per
Ordinary Share, payable on 27 February 2015, has not been included as a
liability in these financial statements.
5. Investments held at fair value through profit or loss
6 months ended 6 months ended Year ended
31 December 2014 31 December 2013 30 June 2014
£'000 £'000 £'000
Opening fair valuation 312,959 247,174 247,174
Opening fair value adjustment (67,849) (32,966) (32,966)
------ ------ ------
Opening book cost 245,110 214,208 214,208
Purchases at cost 34,789 36,066 73,192
Sales proceeds (38,533) (37,696) (71,975)
Realised gains on sales 12,415 15,112 29,685
------ ------ ------
Closing book cost 253,781 227,690 245,110
Closing fair value adjustment 48,428 82,389 67,849
------ ------ ------
Closing fair valuation 302,209 310,079 312,959
------ ------ ------
All investments are Level 1 assets under the definition of IFRS 13 and are
traded on a recognised stock exchange.
Realised gains on sales 12,415 15,112 29,685
(Decrease)/increase in fair (19,421) 49,423 34,883
value adjustment
------ ------ ------
(Losses)/gains on investments (7,006) 64,535 64,568
------ ------ ------
6. Zero Dividend Preference Shares
31 December 2014 31 December 2013 30 June 2014
£'000 £'000 £'000
Opening balance 95,850 89,794 89,794
Capital growth of ZDP Shares 3,206 3,004 6,056
------ ------ ------
Closing balance 99,056 92,798 95,850
------ ------ ------
7. Share Capital
At 31 December 2014 there were 109,500,000 Ordinary Shares in issue (31
December 2013 and 30 June 2014: 109,500,000).
At 31 December 2014 there were 73,000,000 ZDP Shares in issue (31 December 2013
and 30 June 2014: 73,000,000).
8. Net Asset Value per Share
31 December 2014 31 December 2013 30 June 2014
Net assets attributable to £205,817,000 £220,174,000 £219,044,000
equity shareholders
Ordinary Shares in issue at 109,500,000 109,500,000 109,500,000
end of the period
------ ------ ------
Net asset value per Ordinary 187.96p 201.07p 200.04p
Share ------ ------ ------
Calculated entitlement of ZDP £99,056,000 £92,798,000 £95,850,000
Shares
ZDP Shares in issue at the 73,000,000 73,000,000 73,000,000
end of the period
------ ------ ------
Net asset value per ZDP Share 135.69p 127.12p 131.30p
------ ------ ------
9. Related party transactions
Under IFRS the Directors have been identified as related parties. Their fees
and interests for the year ended 30 June 2014 have been disclosed in the
Directors' Remuneration Report within the 2014 Annual Report and Accounts.
During the reporting period no Director was interested in any contract or other
matter requiring disclosure under section 412 of the Companies Act 2006. No
other related parties have been identified.
Company Summary
---------------
The Company
Aberforth Geared Income Trust plc is a public limited company registered in
England and Wales and is an investment company as defined by section 833 of the
Companies Act 2006. The Company has been approved by HMRC as an Investment
Trust under section 1158 of the Corporation Tax Act 2010 and the Board conducts
the Company's affairs to continue to meet HMRC's Investment Trust eligibility
conditions.
The Company is a member of the Association of Investment Companies (AIC) and is
an Alternative Investment Fund (AIF) in the context of the Alternative
Investment Fund Managers Directive (AIFMD).
The Company has a planned life lasting until 30 June 2017. Details of the
actions contained in the Company's Articles of Association that must be taken
by the Directors in relation to the planned winding up are set out in the 2014
Annual Report and Accounts.
Investment Objective
The investment objective is to provide Ordinary Shareholders with a high level
of income, with the potential for income and capital growth, and to provide
Zero Dividend Preference Shareholders with a pre-determined final capital
entitlement of 159.7p per share on the planned winding-up date on 30 June 2017.
Investment Policy
The Company aims to achieve its objective by investing in a diversified
portfolio (typically between 50 and 100 individual investments) of small UK
quoted companies. Small UK quoted companies are those having a market
capitalisation, at time of purchase, equal to or lower than the largest company
in the bottom 10% of the London Stock Exchange's Main Market for listed
securities by market capitalisation or companies in the NSCI (XIC). As at 1
January 2015 (the date of the most recent `annual NSCI (XIC) index
rebalancing), the NSCI (XIC) index consisted of 369 companies, with an
aggregate market capitalisation of £157 billion. Its upper market
capitalisation limit was £1.3 billion, although this limit will change owing to
movements in the stockmarket. If any holding no longer falls within the
definition of a small UK quoted company its securities will become candidates
for sale.
A more detailed description of the investment policy is set out in the 2014
Annual Report and Accounts.
Investment Strategy
The Managers adhere to a value investment philosophy. The Managers select
companies for the portfolio on the basis of fundamental or "bottom-up"
analysis. The disposition of the portfolio by sector is a result of "bottom-up"
stock selection, though a "top-down" risk evaluation is undertaken regularly.
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 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
NSCI (XIC), the investment universe. Therefore, within the diversification
parameters described in Investment Policy, the Managers regularly review the
level of differentiation, with the aim of achieving a high active weight for
each holding within the portfolio.
A more detailed description of the investment strategy is set out in the 2014
Annual Report and Accounts.
Principal Risks and Risk Management
A summary of the principal risks and risk management is set out within the
Interim Management Report section.
Risk Profile & Gearing
A summary of the risk profile and gearing is set out within the Interim
Management Report section.
Capital Structure
The Company has two classes of shares: Ordinary Shares and Zero Dividend
Preference Shares.
The Ordinary Shares have a return that is in the form of capital and income.
All net income earned by the Company is attributable to the Ordinary Shares.
The ZDP Shares are designed to provide a pre-determined capital growth from
their issue price of 100p at launch on 30 April 2010 to a final capital
entitlement of 159.7p on 30 June 2017 resulting in an expected gross redemption
yield at original launch of 6.75% per annum. No dividends are payable on the
ZDP Shares.
Ordinary Shareholders will be entitled on a winding-up to receive any
undistributed revenue reserves of the Company, which will be paid in the form
of a pre-liquidation dividend or during the course of the liquidation, subject
to all creditors of the Company having been paid out in full and even if the
cover on the ZDP Shares is at the time less than one. In addition Ordinary
Shareholders will be entitled to all of the Company's remaining net assets at
the planned winding-up date after providing for payment in full of the final
capital entitlement of 159.7p per ZDP Share.
Expenses
Expenses are charged to revenue except for transaction costs and expenses
incurred in connection with the maintenance or enhancement of the Company's
investment portfolio, which are charged to the capital reserve. Taking into
account the Board's expectations of the long-term split of returns in the form
of capital and income, investment management fees and finance costs in the form
of bank interest are charged 70% to the capital reserve and 30% to the revenue
reserve
Contact: Euan Macdonald / Alistair Whyte - Aberforth Partners LLP - 0131 220 0733
Aberforth Partners LLP, Secretaries - 28 January 2015
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