Aberforth Smaller Companies Trust plc

Annual Report and Financial Statements

31 December 2018
Contents

Strategic Report
Investment Objective 1
Financial Highlights 1
Chairman’s Statement 2
Investment Policy and Strategy 4
Principal Risks and Viability Statement 5
Key Performance Indicators 6
Managers’ Report 8
Thirty Largest Investments 13
Investment Portfolio 14
Portfolio Information 17

Governance Report
Board of Directors 18
Directors’ Report 19
Corporate Governance Report 23
Audit Committee Report 27
Directors’ Remuneration Policy 30
Directors’ Remuneration Report 31
Directors’ Responsibility Statement 33

Financial Report
Independent Auditor’s Report 34
Income Statement 40
Reconciliation of Movements in Shareholders’ Funds 41
Balance Sheet 42
Cash Flow Statement 43
Notes to the Financial Statements 44

Notice of the Annual General Meeting 54

Shareholder Information & Glossary 56

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.
Strategic Report
The Board is pleased to present the Strategic Report on pages 1 to 17 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. Further information can be found on
page 19.

Total Return Performance

Year to 31 December 2018
%

Net Asset Value per Ordinary Share2 -15.4

Numis Smaller Companies Index (excluding Investment Companies) -15.3
Ordinary Share Price2 -11.8

Financial Highlights
31 December 31 December %
2018 2017 Change

Shareholders’ Funds1 £1,154m £1,436m -19.6

Market Capitalisation2 £1,031m £1,233m -16.4
Actual Gearing employed1 1.3% 0.3% n/a
Ordinary Share net asset value1 1,273.72p 1,543.72p -17.5
Ordinary Share price2 1,138.00p 1,326.00p -14.2
Ordinary Share discount2 10.7% 14.1% n/a
Revenue Return per Ordinary Share1 45.30p 41.59p 8.9
Dividends per Ordinary Share1 38.00p 35.50p 7.0
Return attributable to equity shareholders per Ordinary Share1 -235.92p 279.32p n/a
Ongoing Charges2 0.79% 0.76% n/a
Portfolio Turnover2 26.0% 21.9% n/a
1 UK GAAP Measure 2 Alternative Performance Measure (refer to glossary on page 58)

Absolute Performance over past year

(figures are total returns and have been rebased to 100 at 31 December 2017)
115

110

105

100

95

90

85

80
Dec-17 Mar-18 Jun-18 Sep-18 Dec-18
NAV Benchmark Share Price

Strategic Report Aberforth Smaller Companies Trust plc 1

Chairman’s Statement

Review of 2018 performance

Around the world, 2018 proved to be a year of negative returns for the vast majority of stockmarket indices. As the year
progressed, trade wars, politics and slowing economic activity all weighed heavily on markets. Perhaps unsurprisingly,
with Brexit as its companion, small UK quoted companies did not escape.
The Numis Smaller Companies Index excluding Investment Companies (NSCI (XIC)), the Company’s benchmark, gave a
total return of -15.3%. The Company’s net asset value total return was -15.4%, which reflects the return attributable to
equity Shareholders of -235.92p (2017: 279.32p), together with the effect of dividends received by them and re-invested.
The share price generated a total return of -11.8%.
By comparison, the FTSE 100 Index’s total return was -8.7% and that of the FTSE All-Share Index, which is heavily
weighted towards large companies, was -9.5%.
The Managers’ Report provides more detail on 2018’s performance.

Board changes
I have informed my colleagues of my decision not to stand for re-election at the forthcoming Annual General Meeting.
Initially appointed as a Director of the Company on 30 January 2013, and subsequently Chairman on 17 October 2014, it
has been my privilege to serve the Shareholders of the Company. My Board colleagues are a great team guiding the
direction of the Company and I have enjoyed working with them throughout this time. My replacement will further
strengthen the Board. I would like also to record my admiration for the partners and staff of Aberforth. Their focus and
depth of understanding is admirable in a world where so often asset gathering is prioritised over serving the needs of
customers. This is never an issue with Aberforth and I am confident this will remain the case.
We are delighted to appoint Richard Davidson as a Director with effect from 26 January 2019. It is intended that he will
become Chairman following the closure of the Annual General Meeting on 28 February 2019. Richard brings a wealth of
knowledge of the investment world and is looking forward to working with both his new Board colleagues and the
Managers. An independent board of directors is undoubtedly one of the principal advantages and differentiators of
investment trusts in the broader UK savings industry.

Dividends
The Board remains committed to a progressive dividend policy. In this context, the Board is pleased to propose a final
ordinary dividend of 20.75p. Total ordinary dividends of 30.25p for 2018 represent a 5.0% increment when compared with
2017.
Since 2015, alongside the ordinary dividend declared, the Company has also paid a special dividend, thereby ensuring that
the all-important minimum retention test imposed by HMRC is not breached. The Board adopted such a strategy to avoid
the pitfalls of allowing non-recurring revenue streams to become embedded into the progressive dividend policy, a
particular risk given the greater prevalence of special dividends and non-recurring distributions since the financial crisis.
In 2018, the Company was once again a beneficiary of special dividends and the Board has declared a special dividend of
7.75p per share alongside the total ordinary dividend of 30.25p to ensure the retention test is met.
After adjusting for both the final ordinary and special dividends, the Company’s revenue reserves will be 68.8p per share,
circa 2.3x the ordinary dividend. Strengthened revenue reserves, and prudent management of the non-recurring revenue
streams of recent years, leave the Board optimistic about the sustainability of the progressive dividend policy. As
highlighted in last year’s Chairman’s Statement, the ambition behind this strategy, and perhaps its acid test, will be for the
Board to deliver dividend growth through the next downturn. Dividend growth from small UK quoted companies has been
exceptionally strong since the global financial crisis. There was further progress in 2018, though the overall experience
was more mixed than in previous years.
I would reiterate my comments from previous years that the base level for the Company’s progressive dividend policy is
the ordinary dividend, i.e. 30.25p which excludes the special dividend.

Share buy back

At the Annual General Meeting in March 2018, the authority to buy back up to 14.99% of the Company’s Ordinary Shares
was approved. During the year, 2,418,826 Ordinary Shares (2.6% of the issued share capital) were bought in at a total
cost of £32.8m. Consistent with the Board’s stated policy, those Ordinary Shares have been cancelled rather than held
in Treasury. Once again, the Board will be seeking to renew the buy-back authority at the Annual General Meeting on
28 February 2019.

2 Strategic Report Aberforth Smaller Companies Trust plc

Chairman’s Statement

Gearing
It has been the Company’s policy to use gearing in a tactical manner throughout its 28 year history. The £125m facility
with The Royal Bank of Scotland International has a term expiring in June 2020. As has been the case in the past, the
facility term dovetails with the three-yearly continuation vote cycle. The facility continues to provide the Company with
access to liquidity for investment purposes and to fund share buy-backs as and when appropriate. In an illiquid, and at
times volatile, asset class such as small UK quoted companies, having access to immediate funds through a credit facility
provides the Managers with enhanced flexibility. During the year, the level of gearing ranged from nil to 2.8%, with an
average of 0.8%, and at the year end gearing stood at 1.3% of Total Shareholders’ Funds.

Outlook
Throughout my tenure as Chairman, politics has cast a somewhat dark shadow. Two referendums, two general elections
and the rise of populism globally have contributed to a challenging investment environment. Brexit negotiations are
currently centre stage. The difficulties in reconciling a narrow referendum outcome, which would seem to be at odds
with the majority in the Houses of Parliament, should not be underestimated, although it is perhaps the transition from
quantitative easing to quantitative tightening that will have more lasting impact on the investment world.
Amidst all this uncertainty, the asset class is getting cheaper! In October 2014, when I became Chairman, the NSCI (XIC)
sold on a historic price/earnings multiple of 14.1x and yield of 2.5%. As at 1 January 2019, it is selling on a 10.9x p/e
multiple and yielding 3.6%. As value investors, the Managers, unsurprisingly, oversee a portfolio that is selling at a lower
p/e multiple of 9.6x and a yield of 3.7%.
The coming year will undoubtedly bring an array of surprises. However, after a tough 2018, the Board looks forward with
a degree of optimism, which is based upon the attractive valuations and the consistency of approach and professionalism
of the Managers.
Finally, the Board very much welcomes the views of Shareholders and we are available to talk to you directly. My email
address is noted below.

Paul Trickett
Chairman
25 January 2019
[email protected]

Strategic Report Aberforth Smaller Companies Trust plc 3

Investment Policy and Strategy

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 2019 (the date of the last annual index rebalancing),
the index included 359 companies, with an aggregate market capitalisation of £140 billion. Its upper market
capitalisation limit was £1.3 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 maximising the active share
of the portfolio.

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.

4 Strategic Report Aberforth Smaller Companies Trust plc

Principal Risks
The Board carefully considers risks faced by the Company and seeks to manage these risks through continual review,
evaluation, mitigating controls and taking action as necessary.
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. In addition, the Company has a simple capital structure and outsources all the
main operational activities to recognised, well-established firms.
The principal risks faced by the Company, together with the approach taken by the Board towards them, have been
summarised below. Further information regarding the review process can be found in the Corporate Governance and
Audit Committee Reports.
(i) Investment policy/performance risk – the Company’s portfolio is exposed to share price movements owing to the
nature of its investment policy and strategy. The performance of the investment portfolio typically differs from the
performance of the benchmark and is influenced by market related risks including market price and liquidity (refer
to Note 19 for further details). The Board’s aim is to achieve the investment objective over the long term by ensuring
the investment portfolio is managed appropriately. The Board has outsourced portfolio management to experienced
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. The Board and Managers closely monitor economic and political developments
and, in particular, are mindful of the continuing uncertainty following the UK referendum result to leave the EU and
other geopolitical issues referred to in the Managers’ Report.
(ii) 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 on a daily basis 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.
(iii) Gearing risk – in rising markets, gearing enhances returns; however, in falling markets the gearing effect adversely
affects returns to Shareholders. The Board and the Managers consider the gearing strategy and associated risk on
a regular basis.
(iv) Reputational risk – the Board and the Managers monitor external factors outwith the Company’s control affecting
the reputation of the Company and/or the key service providers and take action if appropriate.
(v) 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.

Viability Statement
The Directors have assessed the viability of the Company over the five years to December 2023, taking account of the
Company’s position, its investment strategy, and the potential impact of the relevant principal risks detailed above.
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 in 2020.
In making this assessment, the Directors took comfort from the results of a series of stress tests that considered the
impact 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. The Company invests in companies listed and traded
on the London Stock Exchange. These shares are actively traded and, whilst less liquid than larger quoted companies, the
portfolio is well diversified by both numbers of holdings and industry sector. The Directors determined that a five year
period to December 2023 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.

Strategic Report Aberforth Smaller Companies Trust plc 5

Key Performance Indicators
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,
the Board considers the share price discount against its investment trust peer group each day. A glossary of these
Alternative Performance Measures can be found on page 58.

Historical Total Returns

Discrete Annual Returns (%)
Period NAV Index Share Price
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
1 year to 31 December 2011 -13.5 -9.1 -18.5
1 year to 31 December 2010 26.6 28.5 22.8
1 year to 31 December 2009 44.4 60.7 59.2

Annualised Cumulative
Returns (%) Returns (%)
Share Share
Periods to 31 December 2018 NAV Index Price NAV Index Price
2 years from 31 December 2016 1.6 0.6 4.0 3.2 1.2 8.2
3 years from 31 December 2015 3.0 4.0 1.2 9.2 12.4 3.6
4 years from 31 December 2014 4.7 5.6 4.2 20.4 24.3 18.0
5 years from 31 December 2013 3.6 4.1 3.4 19.6 22.0 18.1
6 years from 31 December 2012 10.5 8.9 11.4 82.2 67.0 91.3
7 years from 31 December 2011 13.3 11.7 15.6 140.2 117.0 175.2
8 years from 31 December 2010 9.6 8.9 10.6 107.9 97.2 124.4
9 years from 31 December 2009 11.4 10.9 11.9 163.2 153.4 175.5
10 years from 31 December 2008 14.3 15.1 15.9 280.0 307.3 338.8
15 years from 31 December 2003 10.0 10.3 10.3 317.3 336.2 335.3
20 years from 31 December 1998 12.0 9.9 12.8 862.8 557.8 1,007.0
28.1 years from inception
on 10 December 1990 12.7 10.4 12.4 2,772.3 1,498.7 2,525.7

Ten Year Summary

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 % %
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
2010 743.8 632.50 15.0 18.11 19.00 0.85 7.3
2009 605.9 534.00 11.9 17.35 19.00 0.85 7.7
2008 437.7 351.25 19.7 22.75 19.00 0.94 9.5

6 Strategic Report Aberforth Smaller Companies Trust plc

Performance Indicators
Ten Year Investment Summary

Absolute Performance Relative Performance

(figures are total returns and have been rebased to 100 at 31 Dec 2008) (figures are total returns and have been rebased to 100 at 31 Dec 2008)

600 125

120
500
115

400 110

105
300
100

200 95

90
100
85

0 80
09 10 11 12 13 14 15 16 17 18 09 10 11 12 13 14 15 16 17 18
NAV Benchmark Share Price NAV v Benchmark Share Price v Benchmark

Dividends and RPI Growth Premium/Discount

(figures have been rebased to 100 at 31 Dec 2008) (being the difference between Share Price and NAV)

170 5%

160 Premium
0%
Discount
150

5%
140

130 10%

120
15%
110

20%
100

90 25%
09 10 11 12 13 14 15 16 17 18 09 10 11 12 13 14 15 16 17 18
RPI Dividends (excluding special dividends) Premium/Discount of Share Price to NAV

Strategic Report Aberforth Smaller Companies Trust plc 7

Managers’ Report
Introduction
In common with most other equity markets, UK stocks struggled in 2018. The FTSE All-Share, which is dominated by large
companies, produced a total return of -9.5%. Small companies were weaker still, with a total return from the NSCI (XIC)
of -15.3%. Despite the good start to the year described in the interim report, ASCoT generated a net asset value total
return of -15.4%. The principal influences on this performance are described in the Investment performance section of
this report.
These weak returns render 2018 the first bad year for UK equities since 2011. Nevertheless, total returns from the NSCI
(XIC) and the FTSE All-Share since 2011 have been 117% and 66% respectively. After so strong a run, the chances of a
setback inevitably climb, though probability offers little comfort when prices start to fall. Back in 2011, the Eurozone
crisis was in full swing. Today, the obvious equivalent is the UK’s impending exit from the European Union. Brexit has
indeed affected the performance of small caps in general and the portfolio, but, as the year progressed, it became clear
that the UK no longer has a monopoly on gloom. Macro-economic and populist challenges have arisen around the globe
to undermine 2017’s synchronised global recovery and equity valuations.
Europe, whose growth surprised so positively in 2017, faltered in 2018. The uncertainties of Brexit inevitably cast a
shadow and the European Central Bank’s move to taper its quantitative easing programme adds further uncertainty.
Meanwhile, Italy’s populist government has challenged the European Commission with its controversial budget, a
confrontation complicated by higher government spending in France as Emmanuel Macron backtracked on fuel duty
increases. Further afield, China has also seen a slowdown in its rate of growth, which at this stage seems as much a
function of internal policy to address lending excesses as a result of trade wars with the US.
Donald Trump’s “America First” policies have helped to keep the US economy moving ahead at an enviable rate but have
also represented a challenge to the era of globalisation, which has favoured capital over labour to the advantage of
financial markets. One manifestation has been the strong dollar, which is itself problematic for overseas businesses that
have taken on dollar borrowings. Another important influence on the dollar has been the tightening of monetary policy
by the Federal Reserve. Jay Powell, the recently appointed chairman, has thus far proved resolute in balancing the
stimulus of the president’s inflationary fiscal policies with quantitative tightening and higher interest rates. In response,
US government bonds repriced, with the ten year yield rising from 2.4% at the start to the year through 3.2% in
November. However, financial markets grew increasingly alarmed about the pace of tightening and the ten year yield
dropped back to 2.7% by the year end. Through all this, the US yield curve – the difference between the yields of short
and long dated bonds – flattened and has come close to inversion. An inverted yield curve, where long dated yields are
below short dated yields, has historically proved a good, though not flawless, indicator of recession. Such concerns
explain much of the weakness of global equity markets as 2018 came to an end – after a decade of very low interest rates
and quantitative easing, normalisation of monetary policy in the world’s largest economy was never going to be
straightforward.
While influenced by these global issues, the UK financial markets remain a case apart and, with Brexit unresolved,
scepticism about the domestic economy abounds. While catastrophe did not follow the referendum, it is clear that the
leave vote has imposed an opportunity cost on the UK economy as it has dropped down the G7 growth rankings. Sterling
and asset valuations have taken the strain, but the risk of a hard Brexit and an economic downturn remains. This risk
disproportionately affects small UK quoted companies, which are more reliant on the domestic economy than their
larger peers. However, with valuations already depressed, the opposite also holds true: all else being equal, anything
short of a departure without a deal should bode well for the asset class.

Brexit survey
To gain a different perspective on the ubiquitous Brexit debate, in September the Managers undertook a survey of the
93 companies held within Aberforth funds. The questions focused on the companies’ reactions to the referendum and on
potential future actions. The response rate was 94%, which represents a useful cross-section of the small cap universe.
The overall impression was of frustration with the politics, the Brexit process and lingering uncertainty. The lengthiest
and most detailed responses tended to come from businesses oriented towards the domestic economy. This is
unsurprising, though to an extent reassuring, since it is these companies that have been most affected by the decision
to leave the EU. The survey identified three principal areas of concern.
• Employment: executives are worried about the availability of relatively cheap and skilful labour from the EU against
the background of the rising national living wage.
• Sterling: there is an overwhelming assumption that sterling would weaken further in the event of a hard Brexit, which
would be to the disadvantage of domestic businesses but to the benefit of overseas-oriented businesses.
• Supply chain: there is concern that a deal-less Brexit would complicate the movement of goods into and out of the
UK at least in the short term. Contingency planning for several companies involves pre-emptive inventory building
ahead of March.
The results of the survey need to be considered in the context of the continuing uncertainty about the Brexit process and
outcome: company executives are having to operate with limited information and little guidance to date from

8 Strategic Report Aberforth Smaller Companies Trust plc

Managers’ Report
government. Nevertheless, the survey did suggest that the companies are not complacent: money and time are being
spent on preparations. This cannot, however, guarantee that the businesses will emerge unscathed, despite the
commendable resilience displayed since the referendum in 2016.

Investment performance
To recap, the NSCI (XIC)’s total return in 2018 was -15.3%, while ASCoT’s NAV total return was -15.4%. Clearly, the most
significant influence on ASCoT’s performance was the weak returns from equities in general. Beginning with the table
below, the following section analyses the other important influences in 2018.
For the 12 months ended 31 December 2018 Basis points
Stock selection -46
Sector selection 89
Attributable to the portfolio of investments, based on mid prices 43
(after transaction costs of 22 basis points)
Movement in mid to bid price spread 2
Cash/gearing -9
Purchase of ordinary shares 30
Management fee -70
Other expenses -5
Total attribution based on bid prices -9
Note: 100 basis points = 1%. Total Attribution is the difference between the total return of the NAV and the Benchmark Index (i.e. NAV = -15.44%;
Benchmark Index = -15.35%; difference is -0.09% being -9 basis points).

Sectors
The overhang of Brexit means that sector exposure has been an unusually large influence on the performance of ASCoT
and of small caps in general since the referendum. The following comments on sectors are not made with reference to
the NSCI (XIC)’s forty or so industrial classifications that determine the “Sector selection” data in the table above. Rather,
sector exposure here refers to two distinct groups of companies: those that derive a majority of their sales from the
domestic economy and those more dependent on overseas markets. The fortunes of these two groups have diverged
substantially since the referendum, with the domestics under-performing the overseas earners by 24%. This reflects
different profit dynamics under the influence of sterling weakness. The overseas companies have seen their sterling
profits rise as income streams earned in euros or dollars have been translated into pounds. In contrast, the domestics
have had to deal with insipid consumer spending and a hit to gross margins as foreign currency input costs have risen in
sterling terms.

The table below sets out the geographical exposures of the portfolio and of the benchmark. These are calculated by
reference to the sales of the underlying companies. In comparison with the NSCI (XIC), ASCoT was well positioned for
what followed the referendum and relative performance benefited accordingly. However, the extent of the under-
performance by the domestics is such that their valuations have become increasingly attractive. Consistent with the
Managers’ value investment discipline and as part of the usual bottom-up stock selection process, this resulted in capital
within ASCoT’s portfolio gradually moving from overseas to domestic businesses. It is worth noting, though, that the
pervasive market weakness of the fourth quarter has levelled the playing field somewhat: there are opportunities in all
parts of the stockmarket.
ASCoT NSCI (XIC)
Overseas Domestic Overseas Domestic
End 2018 38% 62% 42% 58%
End 2016 47% 53% 41% 59%

Style & Size

Following a bad year for value investment in 2017 – the ninth worst since 1955 – the interim report noted the improved
performance of the style through the second quarter and suggested that this might have been assisted by the sharp rise
in US government bond yields. The second half of the year saw the market question the lofty valuations of many of the
US’s high growth internet businesses, but the relapse in bond yields into the end of the year undermined the rotation
towards value. In addition, style dynamics within the NSCI (XIC) were influenced by the specific issue of Brexit: today’s
typical small cap value stock is sensitive to the economic cycle and so is likely to be particularly affected by the uncertain
outlook. Data from the London Business School suggest that, despite its strong start to the year, value modestly lagged

Strategic Report Aberforth Smaller Companies Trust plc 9

Managers’ Report
growth over 2018 as a whole. Given the Managers’ value investment philosophy, this represented a hindrance to
ASCoT’s returns.
Turning to size, this was an important factor within the UK stockmarket. Against the backdrop of heightened risk-
aversion, particularly through the latter part of the year, small companies under-performed large in 2018, with a total
return of -15.3% from the NSCI (XIC) and -9.5% from the FTSE All-Share. However, within the NSCI (XIC) itself, size was
not a significant influence on performance. The NSCI (XIC) represents the bottom tenth of the total value of the UK
stockmarket. This means that its largest constituent has a market capitalisation of £1.3 billion and that 59% of its total
value is made up of an overlap with the FTSE 250. A useful gauge of size effects within the NSCI (XIC) is to compare the
performances of the FTSE 250 and FTSE SmallCap. In 2018, the latter fell by slightly less than the former. Therefore,
since ASCoT retains its bias towards the more attractively valued “smaller small” companies, the size factor would have
been a modest boost to performance in 2018.

Balance sheets
To generalise, the boards of companies within the NSCI (XIC) reacted to the financial crisis by conserving cash to
strengthen their balance sheets. This was an understandable reaction to what they had endured in 2008 and 2009. In
more recent years, there have been signs of a return to more normal levels of confidence, with unusually strong balance
sheets put to work in the form of greater investment, acquisitions or returns of cash to shareholders. Assuming that
investment propositions have been well judged, the Managers welcome this development, but there is the risk that
balance sheets become over-stretched as happened in the years before the crisis. This would not yet appear to be the
case, as shown in the table below, which sets out the distribution of the portfolio and of the NSCI (XIC) by balance sheet
strength of the underlying companies.
Net debt/EBITDA Net debt/EBITDA
Based on 2019 estimates Net cash < 2x > 2x Loss makers
ASCoT 21% 52% 27% 0%
NSCI (XIC) 27% 38% 28% 7%

As 2018 progressed, there were indications that banks have become choosier in their lending and that credit conditions
are becoming less easy, with the retail and construction sectors appearing to be under particular pressure. It is too early
to determine whether this is simply a consequence of Carillion’s failure or if the lenders are girding themselves in the
run-up to the departure from the EU.

Income
Dividend growth has been one of the most positive features of the small cap universe in recent years. Between 2012
and 2017, annual growth from the NSCI (XIC) averaged 9%, adjusted for inflation, well above the 62 year average rate of
3%. History dictates that a slowdown is inevitable and there are indications that it may have started in 2018. It is
tempting once again to identify Brexit concerns as an influence. However, such a theme is not explicit in companies’
results statements and the deceleration would appear to be a function of one-off cuts and fewer special dividends.
Clearly, though, this might change in the event of a hard Brexit.
Turning to the portfolio’s dividend experience, the table below splits holdings into categories that are determined by
each company’s most recent dividend announcement, excluding specials. Notwithstanding the previous comments
about small cap dividends in general, the message from the table is similar to that of recent years: a handful of dividend
cutters, the persistence of several nil payers and a bias to companies that most recently increased their dividends. As a
reminder, the “Other” category includes companies that have returned to the dividend register or that have paid
dividends for the first time and that therefore do not have a meaningful comparative payment in the previous year.
While the outlook for ASCoT’s dividends will be substantially influenced by the fortunes of smaller companies in general,
the balance sheet picture described above and average portfolio dividend cover of 2.9x continue to offer support.
Down Nil payers No change Increase Other
7 18 24 28 4

Corporate activity
Against a backdrop of buoyant M&A activity around the world, Brexit concerns contributed to a quieter period for
corporate activity within the NSCI (XIC). Only 14 bids for NSCI (XIC) constituents were completed or were outstanding at
the end of the year, down from 17 in 2017 and from 33 two years before that. Of the 14, ASCoT held three, one of which
was announced towards the end of 2017. Overall, M&A dragged on ASCoT’s relative returns in 2018.

10 Strategic Report Aberforth Smaller Companies Trust plc

Managers’ Report
Despite some ambitious advisers and what is reputedly a full pipeline of potential deals, the frequency of IPOs also
declined in 2018, with 13 completed against 21 the previous year. ASCoT did not participate in any of the 13: in the
opinion of the Managers, the valuations of the companies did not offer sufficient compensation for the information
advantage enjoyed by the sellers.

Turnover
Portfolio turnover was 26% in 2018. This compares with 22% in 2017 and with a long term average of 35%. As usual, an
element of the 26% was driven by situations in which ASCoT is effectively a forced seller, such as when a holding is taken
over or is deemed too large to remain in the NSCI (XIC). Excluding such situations, the underlying rate of turnover was
low at 14% in 2018, which is below the long term average on this basis of 23%. Underlying turnover tends to be
influenced by investment performance: if the stockmarket chooses not to re-rate ASCoT’s holdings, there is not the
scope to rotate capital into cheaper companies and so turnover is low. Conversely, better relative performance tends to
be associated with a pick-up in turnover.

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. A higher active share would
indicate that a portfolio has a better chance of performing differently from the index, for better or worse. The Managers
target a ratio of at least 70% for ASCoT in relation to the NSCI (XIC) and at the start of January 2019 the ratio was 77%.
Active share can be flattered by holding companies that are not constituents of the comparable index. The Managers
believe that it is important for investors to know in what part of the stockmarket ASCoT is invested and accordingly there
are limited circumstances in which the portfolio can hold companies that are not in the NSCI (XIC). At the start of January
2019, all of the portfolio value was represented by constituents of the index.

Valuations
There is no shortage of data to suggest that sterling assets are particularly unloved at present. Anxiety has intensified
as Brexit enters, presumably, its final phase. The bias of small companies to the domestic economy renders them
particularly vulnerable to a badly handled departure. As the table below shows, this has been reflected in a sharp de-
rating of the asset class, with the historical PEs of both the NSCI (XIC) and the portfolio dropping sharply through 2018.
At 10.9x, the PE of the index is 19% below its average since 1990. The only two occasions in which the multiple has been
lower for a sustained period of time have coincided with recession, specifically in the early 1990s and during the financial
crisis.
31 December 2018 31 December 2017
Portfolio Characteristics ASCoT NSCI (XIC) ASCoT NSCI (XIC)

Number of companies 81 359 86 350

Weighted average market capitalisation £524m £732m £712m £878m
Price earnings (PE) ratio (historic) 9.6x 10.9x 12.5x 14.3x
Dividend yield (historic) 3.7% 3.6% 2.9% 2.8%
Dividend cover 2.9x 2.6x 2.6x 2.5x

The table below provides forward-looking valuation data using the Managers’ favoured metric of enterprise value to
earnings before interest, tax and amortisation (EV/EBITA). Ratios are shown for the portfolio, the tracked universe and
certain subdivisions of the tracked universe. The tracked universe refers to the 284 companies that the Managers follow
closely and that account for 97% by value of the entire NSCI (XIC).
EV/EBITA 2018 2019 2020
ASCoT 9.7x 8.3x 7.5x
Tracked universe (284 stocks) 10.5x 9.6x 8.5x
- 49 growth stocks 16.5x 14.7x 13.2x
- 235 other stocks 9.7x 8.8x 7.9x
The table demonstrates the valuation advantage enjoyed by the portfolio, which has been a constant feature of ASCoT’s
portfolio over its 28 years and is a function of the Managers’ value investment philosophy. Underlying that valuation
advantage are three particular features of today’s universe of small UK quoted companies.

Strategic Report Aberforth Smaller Companies Trust plc 11

Managers’ Report
• Despite pressure on the valuations of some of the world’s technology titans in recent months, the table shows that
growth stocks remain significantly more expensive than value stocks. In the UK context, that premium would be
challenged by a period of more buoyant economic conditions and by progress towards a normalisation of monetary
policy.
• There remains a distinct premium for size and, by extension, liquidity. The average 2019 EV/EBITA ratio of “larger
small” companies (i.e. those with market capitalisations of at least £500m) is 27% higher than that of the “smaller
smalls”, despite no obvious difference in the underlying business prospects for the two groups.
• Using average 2019 EV/EBITA ratios, overseas facing companies enjoy a 12% premium to the domestics, which are
perceived as potential Brexit victims. The premium is not vast, but the profit dynamics of the two groups have
diverged as sterling weakness has taken the profits of many overseas earners to all-time highs but has eroded
margins of the domestic players.

Outlook & Conclusion

The uncertainties surrounding the UK’s departure from the EU have clearly been a fundamental influence on the UK
stockmarket over the past year and, with the matter yet to be resolved, it continues to affect the valuation opportunities
described above. It is tempting, as many have done, to portray investment in small UK quoted companies as binary at
the current time.
• In the event of a hard Brexit, the economy would be vulnerable to a further slowdown and, given presently low rates
of growth, recession. Renewed monetary stimulus would be likely. It is possible that the risks of a downturn and
further uncertainty would prove not to have been fully reflected in share prices and in sterling. Weaker sterling
would insulate the overseas earners, but businesses reliant on the domestic economy would come under renewed
pressure.
• A softer Brexit, along the lines of the prime minister’s withdrawal agreement, would avoid a near term downturn and,
through the removal of uncertainty, might see an acceleration in the economy as businesses increase investment.
Sterling would plausibly recover at least some of its losses since the referendum and the outflow from UK assets
would start to reverse. Some of the current headwinds facing the profits of domestic businesses would presumably
turn to tailwinds, with the opposite being the case for the overseas earners.
However, this stark portrayal of ASCoT’s investment proposition feels rather short term. On the one side, it ignores the
likelihood that political uncertainty will continue to beset the UK even if an immediate hard Brexit is avoided. On the
other, it implies something close to Doomsday for small companies, whereas the events of ten years ago in the financial
crisis proved their resilience. Good management and the support of the equity markets in the refinancing of 2009
allowed businesses to recover and grow. From its previous peak in May 2007 to the end of 2018, the NSCI (XIC) doubled
in total return terms. The Managers therefore suspect that, after the inevitable short term adjustment to a hard Brexit,
a degree of clarity would return to allow small companies to resume their well established habit of creating wealth for
their shareholders.
The binary view also risks ignoring economic and financial developments in the rest of the world, which, as the events
of the fourth quarter demonstrate, will affect perceptions of and future returns from UK equities. Notably, there is
potential for a normalisation of US monetary policy to upset the established investment strategies since the financial
crisis. This is not to argue that the valuations of growth stocks cannot move even higher or that the path to a normal
cost of money will be short and without setbacks. However, to judge by the portfolio profiles of investment and unit
trusts investing in small UK quoted companies, the desire to own growth stocks is extreme, while value investing remains
very much out of fashion.
Finally, the binary characterisation is essentially the consensus view. This in itself does not mean that the view is wrong,
but history suggests that a strong consensus can often lead to opportunities within financial markets, such as in 1981
when 364 economists penned a poorly timed letter criticising government policy. The strength of the consensus against
the majority of small UK quoted companies is evident in their unusually depressed valuations. The Managers believe that
the differentiation of ASCoT’s well diversified portfolio keeps it relevant and that, with sentiment towards UK equities,
small companies and value investment so negative, it is well placed to generate good returns in the future.

Aberforth Partners LLP

Managers
25 January 2019

12 Strategic Report Aberforth Smaller Companies Trust plc

Thirty Largest Investments
As at 31 December 2018

Value % of Total
No. Company £’000 Net Assets Business Activity

1 Urban&Civic 35,450 3.1 Property – investment & development

2 FirstGroup 34,855 3.0 Bus & rail operator
3 Brewin Dolphin Holdings 33,826 2.9 Private client fund manager
4 Vitec Group 32,385 2.8 Photographic & broadcast accessories
5 Future 32,184 2.8 Special interest consumer publisher
6 Huntsworth 31,110 2.7 Public relations
7 Mitchells & Butlers 29,099 2.5 Operator of restaurants, pubs & bars
8 Grainger 28,813 2.5 Property – residential rentals
9 Spirent Communications 28,784 2.5 Telecoms test equipment
10 SDL 26,159 2.3 Software – translation & content management
Top Ten Investments 312,665 27.1
11 Dunelm Group 25,782 2.2 Homewares retailer
12 Northgate 25,487 2.2 Van rental
13 Ultra Electronics Holdings 25,363 2.2 Specialist electronic & software technologies
14 Wincanton 25,106 2.2 Logistics
15 EnQuest 24,341 2.1 Oil & gas exploration and production
16 International Personal Finance 24,140 2.1 Home credit provider
17 Robert Walters 23,920 2.1 Recruitment
18 Restaurant Group 23,147 2.0 Restaurant operator
19 Ei Group 22,379 1.9 Leased & managed pub operator
20 U and I Group 21,913 1.9 Property – investment & development
Top Twenty Investments 554,243 48.0
21 McKay Securities 20,668 1.8 Property – London & South East offices
22 Go-Ahead Group 20,548 1.8 Bus & rail operator
23 Morgan Advanced Materials 20,351 1.8 Manufacture of carbon & ceramic materials
24 RM 20,077 1.7 IT services for schools
25 Just Group 19,855 1.7 Individually underwritten annuities
26 Eurocell 19,457 1.7 Manufacture of UPVC building products
27 Keller 19,028 1.7 Ground engineering services
28 Non-Standard Finance 18,890 1.6 Home credit provider
29 TT Electronics 18,843 1.6 Sensors & other electronic components
30 De La Rue 18,466 1.6 Bank note printer
Top Thirty Investments 750,426 65.0
Other Investments (51) 417,739 36.3
Total Investments 1,168,165 101.3
Net Liabilities (14,429) (1.3)
Total Net Assets 1,153,736 100.0

Strategic Report Aberforth Smaller Companies Trust plc 13

Investment Portfolio
As at 31 December 2018

Value % of Total % of NSCI

Security £’000 Net Assets (XIC)3

Oil & Gas Producers 44,518 3.8 3.2

EnQuest 24,341 2.1
Hardy Oil & Gas 193 0.0
Nostrum Oil & Gas 11,823 1.0
Soco International 4,700 0.4
Premier Oil 3,461 0.3
Oil Equipment, Services & Distribution 3,464 0.3 1.1
Gulf Marine Services 3,464 0.3
Chemicals 5,803 0.5 2.8
Carclo 5,803 0.5
Industrial Metals & Mining – – 0.8
International Ferro Metals1 – –
Mining 29,403 2.5 3.5
Anglo Pacific Group 17,613 1.5
Capital Drilling 2,558 0.2
Gem Diamonds 9,232 0.8
Kenmare Resources Warrants 20192 – –
Construction & Materials 56,764 5.0 4.5
Eurocell 19,457 1.7
Forterra 18,279 1.6
Keller 19,028 1.7
Aerospace & Defence 36,210 3.1 1.8
Senior 10,847 0.9
Ultra Electronics Holdings 25,363 2.2
General Industrials 3,205 0.3 0.9
Low & Bonar 3,205 0.3
Electronic & Electrical Equipment 45,846 4.0 1.8
Morgan Advanced Materials 20,351 1.8
TT Electronics 18,843 1.6
Dialight 6,652 0.6
Industrial Engineering 44,077 3.8 1.8
Castings 11,692 1.0
Vitec Group 32,385 2.8
Industrial Transportation 25,106 2.2 2.3
Wincanton 25,106 2.2
Support Services 150,665 13.1 7.8
Connect Group 10,215 0.9
De La Rue 18,466 1.6
Essentra 18,346 1.6
Management Consulting Group 2,360 0.2
Menzies (John) 5,014 0.4
Northgate 25,487 2.2
Robert Walters 23,920 2.1
RPS Group 17,103 1.5
SIG 11,738 1.0
Speedy Hire 18,016 1.6
Automobiles & Parts 15,300 1.3 0.6
TI Fluid Systems 15,300 1.3
Beverages – – 1.0
Food Producers 13,257 1.2 3.5
R.E.A. Holdings 5,793 0.5
Bakkavor Group 7,464 0.7

14 Strategic Report Aberforth Smaller Companies Trust plc

Investment Portfolio
As at 31 December 2018

Value % of Total % of NSCI

Security £’000 Net Assets (XIC)3

Household Goods & Home Construction 8,345 0.7 3.1

Headlam Group 8,345 0.7
Leisure Goods – – 0.9
Personal Goods – – 1.4
Health Care Equipment & Services – – 1.4
Pharmaceuticals & Biotechnology 12,635 1.1 1.7
Vectura Group 12,635 1.1
Food & Drug Retailers 4,132 0.4 1.0
McColl’s Retail Group 4,132 0.4
General Retailers 76,722 6.7 6.0
Carpetright 5,122 0.5
DFS Furniture 13,180 1.1
Dunelm Group 25,782 2.2
Halfords Group 9,408 0.8
N Brown Group 6,626 0.6
Topps Tiles 8,953 0.8
Lookers 7,651 0.7
Media 91,628 8.0 3.7
Centaur Media 6,540 0.6
Future 32,184 2.8
Huntsworth 31,110 2.7
Wilmington Group 11,097 1.0
Reach 10,697 0.9
Travel & Leisure 153,804 13.3 9.9
Air Partner 1,868 0.2
Ei Group 22,379 1.9
FirstGroup 34,855 3.0
Go-Ahead Group 20,548 1.8
Mitchells & Butlers 29,099 2.5
Rank Group 9,482 0.8
Restaurant Group 23,147 2.0
Stagecoach Group 12,426 1.1
Fixed Line Telecommunications 9,694 0.8 2.1
KCOM Group 9,694 0.8
Electricity – – 0.9
Banks – – 1.6
Nonlife Insurance 16,601 1.4 2.3
Sabre Insurance Group 3,871 0.3
Lancashire Holdings 12,730 1.1
Life Insurance 23,534 2.0 1.0
Hansard Global 3,679 0.3
Just Group 19,855 1.7
Real Estate Investment & Services 89,577 7.8 6.0
Countrywide 3,401 0.3
Grainger 28,813 2.5
U and I Group 21,913 1.9
Urban&Civic 35,450 3.1
Real Estate Investment Trusts 33,823 3.0 5.0
Hansteen Holdings 6,705 0.6
McKay Securities 20,668 1.8
Capital & Regional 6,450 0.6

Strategic Report Aberforth Smaller Companies Trust plc 15

Investment Portfolio
As at 31 December 2018

Value % of Total % of NSCI

Security £’000 Net Assets (XIC)3

Financial Services 94,102 8.1 9.2

Brewin Dolphin Holdings 33,826 2.9
Charles Stanley Group 10,210 0.9
CMC Markets 7,036 0.6
International Personal Finance 24,140 2.1
Non-Standard Finance 18,890 1.6
Software & Computer Services 51,166 4.4 4.6
RM 20,077 1.7
SDL 26,159 2.3
Alfa Financial Software Holdings 4,930 0.4
Technology Hardware & Equipment 28,784 2.5 0.8
Spirent Communications 28,784 2.5
Investments as shown in the Balance Sheet 1,168,165 101.3 100.0
Net Liabilities (14,429) (1.3)
Total Net Assets 1,153,736 100.0 100.0
1
Listing suspended.
2
Unquoted security.
3
This reflects the rebalanced index as at 1 January 2019.

Summary of Material Investment Transactions

For the year ended 31 December 2018
Cost Proceeds
Purchases £’000 Sales £’000
TI Fluid Systems 23,265 Vesuvius 54,145
Ultra Electronics Holdings 20,156 Bovis Homes Group 44,787
Dunelm Group 18,431 Coats Group 35,577
Restaurant Group 13,144 Hogg Robinson Group 32,464
Mitchells & Butlers 12,704 Computacenter 31,920
Wilmington Group 12,196 Bodycote 25,348
Rank Group 12,113 Laird 21,020
Lancashire Holdings 11,815 Senior 13,974
Capital & Regional 10,492 Future 12,635
Future 9,474 Huntsworth 11,634
Headlam Group 9,345 Pendragon 11,394
Grainger 9,021 TT Electronics 11,032
Lookers 8,876 Games Workshop Group 7,269
Nostrum Oil & Gas 8,580 Robert Walters 6,379
Just Group 8,296 Servelec Group 6,213
Dialight 8,171 Sabre Insurance Group 6,179
EnQuest 7,662 Grainger 5,229
Ei Group 7,170 Restaurant Group 5,215
Carpetright 7,080 Vitec Group 4,541
Alfa Financial Software Holdings 6,852 Greencore Group 3,945
Other Purchases 132,991 Other Sales 25,311
Total Purchases (incl. transaction costs) 357,834 Total Sale Proceeds (incl. transaction costs) 376,211

16 Strategic Report Aberforth Smaller Companies Trust plc

Portfolio Information
FTSE Industry Classification Exposure Analysis
31 December 2017 31 December 2018
Net Net
NSCI (XIC) Portfolio Portfolio Purchases/ Appreciation/ Portfolio Portfolio NSCI (XIC)2
Weight Weight Valuation (Sales)1 (Depreciation) Valuation Weight Weight
Sector % % £’000 £’000 £’000 £’000 % %
Oil & Gas 4 5 66,971 24,614 (43,603) 47,982 4 4
Basic Materials 4 2 30,925 2,359 1,923 35,207 3 7
Industrials 26 39 566,148 (114,090) (90,187) 361,871 31 21
Consumer Goods 10 5 73,128 (22,389) (13,836) 36,903 3 11
Health Care 4 1 16,005 3,784 (7,154) 12,635 1 3
Consumer Services 19 22 312,862 74,235 (60,811) 326,286 28 21
Telecommunications 2 1 8,963 1,928 (1,197) 9,694 1 2
Utilities 1 – – – – – – 1
Financials 25 17 252,927 57,147 (52,438) 257,636 22 25
Technology 5 8 112,567 (45,965) 13,349 79,951 7 5
100 100 1,440,496 (18,377) (253,954) 1,168,165 100 100

FTSE Index Classification Exposure Analysis

31 December 2017 31 December 2018
NSCI NSCI 
Portfolio (XIC) Portfolio (XIC)2
No. of Valuation Weight Weight No. of Valuation Weight Weight
Index Classification Companies £’000 % % Companies £’000 % %
FTSE 100 – – – – – – – –
FTSE 250 23 540,054 38 60 23 427,876 36 59
FTSE SmallCap 41 660,501 46 31 39 534,823 46 32
FTSE Fledgling 7 49,783 3 1 8 28,795 3 1
Other 15 190,158 13 8 11 176,671 15 8
86 1,440,496 100 100 81 1,168,165 100 100
1 Includes transaction costs. 2 This reflects the rebalanced index as at 1 January 2019.

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 recognises the importance of diversity in its broadest sense (including skills, experience, gender and tenure)
in enabling it to fulfil the present and future needs of the Company. As at 31 December 2018, there were three male
directors and two female directors.

Environmental, Human Rights, Employee, Social 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 social, environmental and ethical issues is
set out within the Corporate Governance Report on page 26.
The Strategic Report, contained on pages 1 to 17, has been approved by the Board of Directors on 25 January 2019 and signed
on its behalf by:

Paul Trickett,
Chairman

Strategic Report Aberforth Smaller Companies Trust plc 17

Governance Report
Board of Directors
Paul Trickett, Chairman
Appointed: 30 January 2013
Shareholding in the Company: 7,140 Ordinary Shares
Paul is a non executive director on a number of companies. As well as chairing Aberforth Smaller Companies Trust, he
also chairs Railpen Investments and sits on the Board of Aviva Life UK and Thomas Miller Holdings. He also chairs the
Advisory Board of Muse Advisory and is Trustee of the Mineworkers Pension Scheme. He retired from a full time
executive career in 2013 where he was latterly a Managing Director at Goldman Sachs Asset 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, BMO UK High Income Trust plc, Impax
Environmental Markets 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: 2,100 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 The Crown
Estate, Hyde Housing Association and Oxford University Hospitals NHS Foundation Trust and a Trustee of Calthorpe
Estates.

Richard Rae
Appointed: 26 January 2012 and is a member of the Audit Committee
Shareholding in the Company: 4,000 Ordinary Shares
Richard qualified as a chartered accountant with KPMG and joined Hoare Govett as an investment analyst in 1987. He
spent 22 years working in investment research and equities management, latterly as a Managing Director, responsible
for smaller companies, in the Global Equities division of ABN AMRO. Since 2009, he has established himself as an
independent management consultant providing corporate advice to both listed and unlisted companies. He is also a
director of Maistro plc.

Martin Warner
Appointed: 1 March 2018
Shareholding in the Company: 1,000 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.

Richard Davidson
Appointed: with effect from 26 January 2019
Shareholding in the Company: n/a
Richard is currently Chair of Miton Global Opportunities 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 Partner 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.

18 Governance Report Aberforth Smaller Companies Trust plc

Directors’ Report
The Directors submit their Annual Report and Financial Statements for the year ended 31 December 2018.

Directors
The Directors of the Company during the financial year are listed on page 31. 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
activities of the Company.

Objective, Investment Policy, Investment Strategy, Dividend Policy and Risks

These are explained fully in the Strategic Report. A non material change has been made to the investment policy to
conform with regulatory wording and market practice; the policy confirms that the Company will invest no more than
15% of total assets in other listed closed-ended investment funds.

Return and Dividends

The total return attributable to shareholders for the year ended 31 December 2018 amounted to a loss of £215,871,000
(2017: gain of £262,347,000). The net asset value per Ordinary Share at 31 December 2018 was 1,273.72p (2017:
1,543.72p).
Your Board is pleased to declare a final dividend of 20.75p and a special dividend of 7.75p (total of £25,815,000), which
produces total dividends for the year of 38.00p (total of £34,473,000). The final and special dividends, subject to
Shareholder approval, will be paid on 7 March 2019 to Shareholders on the register at the close of business on 8 February
2019.

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. Since then funds under management have grown to
£2.0 billion (as at 31 December 2018). The firm is wholly owned by seven partners, six of whom are investment
managers. The investment managers work as a team managing the Company’s portfolio on a collegiate basis.
These 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 £10,072,000 in the year ended 31 December 2018 (2017: £9,641,000).
The secretarial fee amounted to £84,862 (excluding VAT) during 2018 (2017: £81,692, 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, where 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 19

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. During 2018, the Depositary changed from National Westminster Bank plc to NatWest Trustee & Depositary
Services Limited. The ultimate parent company of both entities is The Royal Bank of Scotland Group plc.
NatWest Trustee & Depositary Services Limited receive an annual fee, payable quarterly in arrears, of 0.0085% of the net
assets of the Company 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 2018, the Company’s authorised share capital consisted of 333,299,254 Ordinary Shares of 1p of which
90,580,311 were issued and fully paid. During the year, 2,418,826 shares (2.6% of the Company’s issued share capital
with a nominal value of £24,188) were bought back and cancelled at a total cost of £32,826,000. 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 2020.
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. The
Committee reported the results of its assessment to the Board.
The Company’s business activities, capital structure and borrowing facility, 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, which, if necessary, can be sold to meet any funding requirements, though funding flexibility can typically be
achieved through the use of the bank debt facility. 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.

20 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

The Board has received notifications of the following interests in the voting rights of the Company as at 31 December
2018 and 25 January 2019. The total number of voting rights amounted to 90,580,311 at each of these dates.
Notified interests Percentage
of Voting
Rights Held
Brewin Dolphin Limited 10.1%
Investec Wealth & Investment Limited 8.7%
Rathbone Brothers plc 5.8%

Annual General Meeting

The AGM will be held on 28 February 2019 at 6.00 p.m. at 14 Melville Street, Edinburgh EH3 7NS. The following special
resolution will be proposed at the AGM.
Purchase of Own Shares
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 11, as set out in the Notice of the AGM, seeks renewal of such
authority until the AGM in 2020. 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 20 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 20 and 21.
• 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 23 and 24.
• 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.

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’
Reports) Regulations 2013.

Governance Report Aberforth Smaller Companies Trust plc 21

Directors’ 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 because it has no or insufficient turnover and is not
obliged to make a human trafficking statement.

Criminal Finances Act 2017

The Company does not tolerate the criminal facilitation of tax evasion.

Post Balance Sheet Events

Since 31 December 2018, there are no post balance sheet events.

Independent Auditor
Deloitte LLP has expressed its willingness to continue in office as auditor and a resolution proposing their re-appointment
will be put to the forthcoming Annual General Meeting.

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.

By Order of the Board

Paul Trickett
Chairman
25 January 2019

22 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 recommendations of the 2016 Association of Investment Companies Code of Corporate
Governance (the AIC Code) as set out in the AIC Guide. The AIC Code addresses all the principles set out in the UK
Corporate Governance Code which applies for the year ended 31 December 2018, as well as setting out additional
principles and recommendations on issues that are of specific relevance to investment trusts. The Board considers that
reporting in accordance with the principles and recommendations of the AIC Code provides more relevant and
comprehensive information to shareholders. Both the AIC Code and the AIC Guide are available on the AIC website at
www.theaic.co.uk. During 2018, the Financial Reporting Council issued an updated version of its UK Corporate
Governance Code, which is applicable for the year ended 31 December 2019. This report forms part of the Directors’
Report on pages 19 to 22.

Compliance
Throughout the year ended 31 December 2018 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 Guide, 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 2018, the Board comprised five non-
executive Directors, of whom Mr Trickett 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. All Directors are presently considered to be independent. All Directors retire at the AGM each year and, if
appropriate, 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 and unit trusts;
• 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 23

Corporate Governance Report
Annual Plan
The following highlights various additional matters considered by the Board during the past year:

January April July October

Consider Final Approval of the Shareholder Consider Interim Approval of Half Internal Control Corporate
Dividend Annual Report Communication Dividend Yearly Report Review Governance Review
including the
Managers’ policy
on stewardship
Review of Review of Annual Strategy
Gearing significant Review Review Managers’ Board &
interests continued Committee
appointment and Evaluation
remuneration
Detailed review
of Investment Board Review of
Trust Peer Group Composition Directors’ Fees

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).
Audit
The Board Committee
Director Eligible to attend Attended Eligible to attend Attended

S P Trickett, Chairman 6 6 – –
P M Hay-Plumb 6 6 2 2
D J Jeffcoat (retired 1 March 2018) 1 1 1 1
J Le Blan 6 6 3 3
R A Rae 6 6 3 3
M R Warner (appointed 1 March 2018) 4 4 – –

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 or a formal policy but it does recognise diversity as described on page 17. Martin
Warner was appointed on 1 March 2018 and Richard Davidson was appointed with effect from 26 January 2019. Both will
stand for election by shareholders at the AGM and their biographies are on page 18. It is intended that Richard Davidson
will be appointed as Chairman at the close of the AGM on 28 February 2019, following the retiral of Paul Trickett from the
Board. David Jeffcoat retired at the conclusion of the AGM on 1 March 2018.
The Board established a Committee in 2017, chaired by Paul Trickett, for the purpose of appointing a new director in 2018.
External search consultants, Forster Chase, were appointed to conduct a full search. The Committee held meetings with a
shortlist of candidates and the process concluded with Martin Warner being appointed a Director. In the final quarter of
2018, a Committee, chaired by Richard Rae, was established to appoint a new director. Trust Associates were appointed as
external search consultants to conduct a full search. The Committee held meetings with a shortlist of candidates and, as
referred to in the Chairman’s Statement, Richard Davidson was appointed a Director.

Board performance and re-appointment of Directors

The Board undertakes a formal annual assessment of its collective performance on a range of issues including the Board’s
role, processes and interaction with the Managers. The Board conducted this review of the Board and the Audit Committee
by way of an evaluation questionnaire, 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. In 2016, the
Board appointed Lintstock Limited to facilitate an external review and it was agreed to utilise external facilitators every
three years.
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
Chairman recommends their re-election to Shareholders.

24 Governance Report Aberforth Smaller Companies Trust plc

Corporate Governance Report
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
the year to 31 December 2018 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 conflicts of interest 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. 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. 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. As a
consequence 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 of 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, [email protected]. During
the year, the Chairman was in contact with some large Shareholders to discuss a range of topics and provided feedback to
the Board.
All Shareholders have the opportunity to attend and vote at the AGM where the Directors and Managers are available to
discuss important issues affecting the Company. Proxy voting figures are announced at the AGM and are available 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 is published at www.aberforth.co.uk.

Governance Report Aberforth Smaller Companies Trust plc 25

Corporate Governance Report
Socially Responsible Investment
The Directors, through the Managers, encourage investee companies to adhere to best practice in the area of Corporate
Governance and Socially Responsible Investment (SRI). The Managers believe that sound social, environmental and
ethical policies make good business sense and take these issues into account when investment decisions are taken.
However, the Managers do not exclude companies from their investment universe purely on grounds of social,
environmental and ethical concerns. Instead, the Managers adopt a positive approach whereby such matters are
discussed with management with the aim of improving procedures and attitudes.

UK Stewardship Code
The Board and the Managers support the UK Stewardship Code, issued by the FRC, which 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.
The Board has reviewed, and endorses, the Managers’ Stewardship Policy, which is available within the literature library
section of the Managers’ website, at www.aberforth.co.uk.

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 Managers vote against resolutions that they
believe may damage shareholders’ rights or economic interests and 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.

By Order of the Board

Paul Trickett
Chairman
25 January 2019

26 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. They are Julia Le Blan (Chair),
Richard Rae and Paula Hay-Plumb. Julia was appointed as Chair of the Committee on 1 March 2018, following David
Jeffcoat’s retirement from the Board and Paula was appointed to the Committee on the same date. The current
members’ biographies can be found on page 18. Each member of the Committee has recent and relevant financial
experience and the Committee as a whole has competency 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:
• ensuring that all of the Company’s principal risks are identified;
• monitoring the mitigating controls that have been established;
• monitoring compliance with the relevant statutory, regulatory and taxation requirements for a UK based
investment trust which is listed on the London Stock Exchange;
• reviewing the Company’s annual and interim financial statements, 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, determining the independence and objectivity of the
Auditor and assessing the effectiveness of the audit;
• 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:

Audit Committee Annual Plan

January April July October

Annual Report Key Risks of the Meetings to be Half Yearly Report Key Risks of the Corporate Key Risks of the
including judgemental Company called if required including Company Governance Company
areas, going concern, judgemental areas, Compliance
viability statement, expense analysis and
letter of Provision of non- Half Yearly Report Investment Trust Investment Trust
representation, audit services, announcement Status Self evaluation of Status
expense analysis and including taxation the Committee
Annual Report compliance services
announcement
Basis of Committee’s Audit Plan Internal Controls
Management Fee Terms of Reference Review including
Custodian’s Audit meeting/ allocation (every reports from the
Controls Report evaluation of the three years) Auditor Plan, Managers and other
update audit including together with the third parties
auditor Terms of
independence Audit Fees Engagement
Investment Trust
Status

Cyber Security
Measures (Aberforth
Partners)

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.
During the last twelve months the Committee has focused on the areas described below.

Governance Report Aberforth Smaller Companies Trust plc 27

Audit Committee Report

Matters Considered and Action taken by the Committee

Financial Reporting
In July 2018, 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 2019, the Committee received a report and supporting presentation from the external auditor on its audit
of the financial statements for the year to 31 December 2018. 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 previously
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.

Significant Issue How the issue was addressed

Ownership and valuation of The Committee reviewed the Managers’ control framework which includes controls over
the investment portfolio as valuation and ownership of investments. The appointed Depositary is responsible for
at 31 December 2018 holding and controlling all assets of the Company entrusted for safekeeping. The
Committee has 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 The Committee reviewed the Managers’ control framework which includes controls over
dividend completeness and revenue recognition. The Committee reviewed actual revenue against forecast and the
the accounting treatment of accounting treatment of all special dividends.
each special dividend
recognised during the period
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 The Committee reviewed the Managers’ control framework which includes controls over
management fees expenses, including management fees. The Committee reviewed management fees
payable to the Manager. The external auditor independently recalculated the
management fees as part of the audit and no exceptions have been reported.

Alternative Performance The Committee discussed the disclosure of APMs in the Annual Report, including the
Measures (APMs) additional information on these contained in the Glossary.

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. The content of the
investment portfolio, trading activity, portfolio diversification and the existing debt facility 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 relatively high level of liquidity of the portfolio was
the main factor that led to this conclusion.
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 5. In January 2019, the
Committee reviewed a series of stress tests that considered the impact of severe market downturn scenarios on
Shareholders’ funds, the debt facility, 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.

28 Governance Report Aberforth Smaller Companies Trust plc

Audit Committee Report

Matters Considered and Action taken by the Committee

Internal Control and Risks

The Committee carefully considered a Matrix of the Company’s principal 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 and believes that it continues to reflect accurately the Company’s principal risks. These
risks, which are detailed on page 5, have not changed significantly during the year.
Also in October 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 the Registrar, Link Asset Services. 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 July 2018, the Committee reviewed cyber security
reports from both the Depositary and the Registrar. In October 2018, 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 and the need to put the audit out to tender. Based upon existing legislation, another tender process will
be conducted no later than 2023. The Company is therefore in compliance with the provisions of “The Statutory Audit
Services for Large Companies Market Investigation” (Mandatory use of competitive tender processes and audit
committee responsibilities) Order 2014 as issued by the Competition & Markets Authority.
The audit partner needs to be rotated every five years and Chris Hunter is the new audit partner. The Chair met him
in April 2018 and he presented the Deloitte audit plan to the Committee in October in advance of the 2018 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 £20,700, excluding VAT, for the year
(2017: £20,100). There were no non-audit activities carried out by Deloitte.

Evaluation of the Auditor

Following the completion of the audit in January 2019, 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 is satisfied that the external audit was carried out effectively. It has
therefore recommended the re-appointment of Deloitte as the Company's Auditor for the 2019 financial year. The
Board has given its support and a proposal will be put to Shareholders at the forthcoming AGM.

Committee Evaluation
A formal internal review of the Committee’s effectiveness, using an evaluation questionnaire, was undertaken during the
year. The outcome was positive with no significant concerns expressed. In 2016, a formal external review was facilitated
by Lintstock Limited and it was agreed to utilise external facilitators every three years in future.

Julia Le Blan
Audit Committee Chair
25 January 2019

Governance Report Aberforth Smaller Companies Trust plc 29

Directors’ Remuneration Policy
This section provides details of the remuneration policy applying to the Directors of the Company. All Directors are non-
executive, 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 2017. 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.
The 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 Directors’ remuneration. 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, shall determine 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 years ended 31 December 2018 and 31 December 2019.

Annual Fees Annual Fees

2019 2018
£ £

Chairman of the Company 36,750 36,000

Director and Chair of the Audit Committee 30,500 30,000
Director and Member of the Audit Committee 26,000 25,500
Director 24,500 24,000

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.

30 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 34.

Directors’ Letters of Appointment

Each Director has entered into a letter of appointment with the Company for an initial period of service of three years, subject
to annual re-election by Shareholders. After the initial period, each Director’s term is, upon review, extended for a further year.
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:

Date of Date of election/

Director Appointment re-election
S P Trickett, Chairman 30 January 2013 n/a
P M Hay-Plumb 29 January 2014 AGM 2019
D J Jeffcoat (retired 1 March 2018) 22 July 2009 n/a
J Le Blan 29 January 2014 AGM 2019
R A Rae 26 January 2012 AGM 2019
M R Warner (appointed 1 March 2018) 1 March 2018 AGM 2019

Each Director’s unexpired term is subject to their re-election at the Annual General Meeting in February 2019.

Directors’ Fees (Audited)

The emoluments of the Directors who served during the year were as follows:
Fees Fees
(Total Emoluments) (Total Emoluments)
2018 2017
Director £ £
S P Trickett, Chairman 36,000 34,500
D J Jeffcoat (retired 1 March 2018) 4,932 29,000
J Le Blan, Chair of the Audit Committee 29,158 24,500
P M Hay-Plumb 25,166 23,000
R A Rae 25,500 24,500
M R Warner (appointed 1 March 2018) 20,038 –
140,794 135,500
Directors are remunerated exclusively by fixed fees and do not receive bonuses, share options, pension contributions or other
benefits apart from the reimbursement of allowable expenses.

The following table shows the remuneration of the Directors in relation to distributions to Shareholders by way of dividends
and share buy-backs:
Absolute
2018 2017 change
£’000 £’000 £’000
Total Directors’ remuneration 141 136 5
Total dividends in respect of that year 34,473 33,051 1,422
Total share buy-back consideration 32,826 18,142 14,684

Governance Report Aberforth Smaller Companies Trust plc 31

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 2018 and their interests in the Shares of the
Company as at that date and 1 January 2018 were as follows:

Ordinary Shares
Directors Nature of Interest 31 December 2018 1 January 2018
S P Trickett, Chairman Beneficial 7,140 6,860
J Le Blan Beneficial 3,000 3,000
D J Jeffcoat (retired 1 March 2018) Beneficial n/a 7,926
P M Hay-Plumb Beneficial 2,100 2,100
R A Rae Beneficial 4,000 4,000
M R Warner (appointed 1 March 2018) Beneficial 1,000 n/a

There has been no change in the beneficial or non-beneficial holdings of the Directors between 31 December 2018 and
25 January 2019. 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
1 March 2018, Shareholders, on a show of hands, passed the resolution to approve the Directors’ Remuneration Report: of the
38,119,772 proxy votes, 38,103,180 were cast in favour, 10,516 were cast against and 6,076 votes were withheld. At the Annual
General Meeting held in 2017, Shareholders, on a show of hands, passed the resolution to approve the Directors’
Remuneration Policy: of the proxy votes cast, 42,633,638 votes were cast in favour, 13,370 were cast against and 3,965 votes
were withheld.
Share Price Performance
Total return performance since 31 December 2008
This graph compares the performance of
the Company’s share price with the Numis
400%

Smaller Companies Index (excluding

350%

300%
Investment Companies), on a total return
basis (assuming all dividends reinvested)
since 31 December 2008. This index has
250%

been selected for the purposes of

200%

150% comparing the Company’s share price

performance as it has been the
Company’s benchmark since inception.
100%

50%

0%

-50%
Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18
Share Price Benchmark
Note: For further informa on on the above graph, please refer to the Key Performance Indicators page.

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 2018:
(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

Paul Trickett
Chairman
25 January 2019

32 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
approve 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 Company’s 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 performance, business model and strategy.

On behalf of the Board

Paul Trickett
Chairman
25 January 2019

Governance Report Aberforth Smaller Companies Trust plc 33

Independent Auditor’s Report
To the Members of Aberforth Smaller Companies Trust plc

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 2018 and of its return 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
issued by the Association of Investment Companies in November 2014 and updated in February 2018 “Financial Statements of
Investment Trust Companies and Venture Capital Trusts”; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
• the Income Statement;
• Reconciliation of Movements 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 and United Kingdom Accounting
Standards (United Kingdom Generally Accepted Accounting Practice), including FRS 102 “The Financial Reporting Standard applicable
in the UK and Republic of Ireland”.

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 the non-
audit services prohibited by the FRC’s Ethical Standard were not provided 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

Key audit matters The key audit matter that we identified in the current year was:
• Valuation and ownership of investments
Materiality The materiality that we used in the current year was £11.54m which was determined as 1% of net assets.
Scoping Audit work to respond to the risks of material misstatement was performed directly by the audit
engagement team.
Significant changes Last year, revenue recognition was classed as a significant risk. We have assessed that this is no longer the
in our approach case. Dividend income received by the Company is comprised of a high volume of low value items, with
the only judgement required being allocation of special dividends. Additionally, we have tested all of the
dividends received by the Company last year with no exceptions noted. These facts in combination lead
us to conclude that the risk of material misstatement is no longer significant.

Conclusions relating to going concern, principal risks and viability statement

Going concern We confirm that we
We have reviewed the directors’ statement and note 1a to the financial statements about whether have nothing material to
they considered it appropriate to adopt the going concern basis of accounting in preparing them and report, add or draw
their identification of any material uncertainties to the company’s ability to continue to do so over a attention to in respect
period of at least twelve months from the date of approval of the financial statements. of these matters.
We are required to state whether we have anything material to add or draw attention to in relation
to that statement required by Listing Rule 9.8.6R(3) and report if the statement is materially
inconsistent with our knowledge obtained in the audit.

34 Governance Report Aberforth Smaller Companies Trust plc

Independent Auditor’s Report

Conclusions relating to going concern, principal risks and viability statement (continued)
Principal risks and viability statement We confirm that we
Based solely on reading the directors’ statements and considering whether they were consistent with have nothing material to
the knowledge we obtained in the course of the audit, including the knowledge obtained in the report, add or draw
evaluation of the directors’ assessment of the company’s ability to continue as a going concern, we attention to in respect
are required to state whether we have anything material to add or draw attention to in relation to: of these matters.
• the disclosures on page 5 that describe the principal risks and explain how they are being managed or
mitigated;
• the directors' confirmation on page 5 that they have carried out a robust assessment of the principal
risks facing the company, including those that would threaten its business model, future performance,
solvency or liquidity; or
• the directors’ explanation on pages 5 and 20 as to how they have assessed the prospects of the
company, over what period they have done so and why they consider that period to be
appropriate, and their statement as to whether they have a reasonable expectation that the
company will be able to continue in operation and meet its liabilities as they fall due over the
period of their assessment, including any related disclosures drawing attention to any necessary
qualifications or assumptions.
We are also required to report whether the directors’ statement relating to the prospects of the
company required by Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in
the audit.

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.

Valuation and ownership of investments

Key audit matter The listed investments held by the company, £1,168m (2017:£1,440m) are key to its performance and
description account for the majority of the total assets, 99.7% at 31 December 2018 (2017: 99.7%). Please see note
1b and note 10.
There is a risk that investments may not be valued correctly or may not represent the property of the
Company. Given the nature and size of the balance and its importance to the entity, we have considered
that there is a potential risk of fraud in this area.
This key audit matter is also included in the Report of the Audit Committee within the annual report as a
significant audit risk.

How the scope of We have performed the following procedures to test the ownership and valuation of the investment
our audit responded portfolio at 31 December 2018:
to the key audit • critically assessed the design and implementation of the controls over valuation and ownership of
matter investments;
• confirmed the valuation of 100% of the listed investments to an independent pricing source;
• confirmed 100% of listed investments at the year end to confirmations received directly from
Northern Trust (custodian) and Natwest (depository); and
• reviewed the internal controls report over Northern Trust, as it applied to custody and attended the
Audit Committee meeting at which the Northern Trust controls report was evaluated to assess the
adequacy of the design and implementation of controls at the custodian.

Key observations Based on the work performed we concluded that the valuation and ownership of investments are
appropriate.

Financial Report Aberforth Smaller Companies Trust plc 35

Independent Auditor’s Report

Our application of 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
our 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:

Materiality £11.54m (2017: £14.35m)

Basis of determining 1% (2017: 1%) of net assets

materiality

Rationale for the benchmark Net assets has been chosen as a benchmark as it is considered the most relevant
applied benchmark for investors and is a key driver of shareholder value.

Net Assets £1,153.7m Materiality £11.54m

Audit Commiee
repor ng threshold
Net Assets £0.23m
Materiality

We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £230,000 (2017:
£287,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report
to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.

An overview of the scope of our audit

Our audit was scoped by obtaining an understanding of the Company 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.
As part of our risk assessment, we assessed the control environment in place at the Investment Managers and Secretaries to the
extent relevant to our audit.

36 Financial Report Aberforth Smaller Companies Trust plc

Independent Auditor’s Report

Other information
The directors are responsible for the other information. The other information comprises the information We have nothing to
included in the annual report, other than the financial statements and our auditor’s report thereon to ensure report in respect of
completeness. these matters.
Our opinion on the financial statements does not cover the other information and, except to the extent
otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, 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 audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to
determine whether there is a material misstatement in the financial statements or a material misstatement
of the other information. If, based on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report that fact.
In this context, matters that we are specifically required to report to you as uncorrected material
misstatements of the other information include where we conclude that:
• Fair, balanced and understandable – the statement given by the directors that they consider the annual
report and financial statements taken as a whole is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company’s position and performance, business
model and strategy, is materially inconsistent with our knowledge obtained in the audit; or
• Audit Committee reporting – the section describing the work of the audit committee does not
appropriately address matters communicated by us to the audit committee; or
• Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the directors’
statement required under the Listing Rules relating to the Company’s compliance with the UK Corporate
Governance Code containing provisions specified for review by the auditor in accordance with Listing
Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate
Governance Code.

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.
Details of the extent to which the audit was considered capable of detecting irregularities, including fraud are set out below.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Financial Report Aberforth Smaller Companies Trust plc 37

Independent Auditor’s Report

Extent to which the audit was considered capable of detecting irregularities, including fraud
We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and then design
and perform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient and appropriate to
provide a basis for our opinion.

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, our procedures included the following:
• enquiring of management and the audit committee, including obtaining and reviewing supporting documentation, concerning
the company’s 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 related to fraud or non-compliance with laws and regulations;
• discussing among the engagement team regarding how and where fraud might occur in the financial statements and any
potential indicators of fraud. As part of this discussion, we identified potential for fraud in the following areas: valuation and
ownership of listed investments given the nature of the investments, being a key performance indicator and an area of focus to
users of the financial statements; and
• obtaining an understanding of the legal and regulatory frameworks that the company operates in, focusing on those laws and
regulations that had a direct effect on the financial statements or that had a fundamental effect on the operations of the
company. The key laws and regulations we considered in this context included financial reporting including Companies Act 2006
and UK Listing Rules, as well as the Company qualification as an Investment Trust under UK tax legislation.

Audit response to risks identified

As a result of performing the above, we identified the valuation and ownership of listed investments as the key audit matter. 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 relevant laws
and regulations discussed above;
• 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, reviewing internal audit reports and reviewing correspondence
with HMRC; 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, and
remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.

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.

38 Financial Report Aberforth Smaller Companies Trust plc

Matters on which we are required to report by exception
Adequacy of explanations received and accounting records We have nothing to
Under the Companies Act 2006 we are required to report to you if, in our opinion: report in respect of
these matters.
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the company, or returns adequate for our audit
have not been received from branches not visited by us; or
• the financial statements are not in agreement with the accounting records and returns.

Directors’ remuneration We have nothing to

Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of report in respect of
directors’ remuneration have not been made or the part of the directors’ remuneration report to be these matters.
audited is not in agreement with the accounting records and returns.

Other matters
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 the period ending 31 December 2013 and subsequent financial periods. The period of total uninterrupted
engagement including previous renewals and reappointments of the firm is 6 years, covering the years ending 31 December 2013
to 31 December 2018.
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).

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.

Chris Hunter CA (Senior statutory auditor)

For and on behalf of Deloitte LLP
Statutory Auditor
Edinburgh, United Kingdom
25 January 2019

(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.

Financial Report Aberforth Smaller Companies Trust plc 39

Income Statement
For the year ended 31 December 2018

2018 2017
Revenue Capital Total Revenue Capital Total
Note £’000 £’000 £’000 £’000 £’000 £’000
Net (losses)/gains on investments 10 – (251,019) (251,019) – 232,376 232,376
Investment income 3 46,263 3,429 49,692 43,676 – 43,676
Other income 3 7 – 7 1 – 1
Investment management fee 4 (3,777) (6,295) (10,072) (3,615) (6,026) (9,641)
Portfolio transaction costs 5 – (2,935) (2,935) – (2,651) (2,651)
Other expenses 5 (742) – (742) (750) – (750)

Net return before finance costs and tax 41,751 (256,820) (215,069) 39,312 223,699 263,011
Finance costs 6 (301) (501) (802) (249) (415) (664)

Return on ordinary activities before tax 41,450 (257,321) (215,871) 39,063 223,284 262,347
Tax on ordinary activities 7 – – – – – –

Return attributable to
equity shareholders 41,450 (257,321) (215,871) 39,063 223,284 262,347

Returns per Ordinary Share 9 45.30p (281.22p) (235.92p) 41.59p 237.73p 279.32p

The Board declared on 25 January 2019 a final dividend of 20.75p per Ordinary Share and a special dividend of 7.75p per
Ordinary Share. The Board declared on 25 July 2018 an interim dividend of 9.50p 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.

40 Financial Report Aberforth Smaller Companies Trust plc

Reconciliation of Movements in Shareholders’ Funds
For the year ended 31 December 2018

Capital
Share redemption Special Capital Revenue
capital reserve reserve reserve reserve Total
Note £’000 £’000 £’000 £’000 £’000 £’000
Balance as at 31 December 2017 930 58 148,201 1,206,534 79,919 1,435,642
Return on ordinary activities after taxation – – – (257,321) 41,450 (215,871)
Equity dividends paid 8 – – – – (33,209) (33,209)
Purchase of Ordinary Shares 14 (24) 24 (32,826) – – (32,826)

Balance as at 31 December 2018 906 82 115,375 949,213 88,160 1,153,736

For the year ended 31 December 2017

Capital
Share redemption Special Capital Revenue
capital reserve reserve reserve reserve Total
Note £’000 £’000 £’000 £’000 £’000 £’000
Balance as at 31 December 2016 944 44 166,343 983,250 69,647 1,220,228
Return on ordinary activities after taxation – – – 223,284 39,063 262,347
Equity dividends paid 8 – – – – (28,791) (28,791)
Purchase of Ordinary Shares 14 (14) 14 (18,142) – – (18,142)

Balance as at 31 December 2017 930 58 148,201 1,206,534 79,919 1,435,642

The accompanying notes form an integral part of this statement.

Financial Report Aberforth Smaller Companies Trust plc 41

Balance Sheet
As at 31 December 2018

2018 2017
Note £’000 £’000

Fixed assets
Investments at fair value through profit or loss 10 1,168,165 1,440,496

Current assets
Debtors 11 3,230 3,649
Cash at bank 59 293
3,289 3,942

Creditors (amounts falling due within one year) 12 (309) (199)

Net current assets 2,980 3,743

TOTAL ASSETS LESS CURRENT LIABILITIES 1,171,145 1,444,239

Creditors (amounts falling due after more than one year) 13 (17,409) (8,597)

TOTAL NET ASSETS 1,153,736 1,435,642

CAPITAL AND RESERVES: EQUITY INTERESTS

Called up share capital 14 906 930
Capital redemption reserve 15 82 58
Special reserve 15 115,375 148,201
Capital reserve 15 949,213 1,206,534
Revenue reserve 15 88,160 79,919
TOTAL SHAREHOLDERS’ FUNDS 1,153,736 1,435,642

NET ASSET VALUE PER ORDINARY SHARE 16 1,273.72p 1,543.72p

Approved and authorised for issue by the Board of Directors on 25 January 2019 and signed on its behalf by:

Paul Trickett,
Chairman

The accompanying notes form an integral part of this statement.

42 Financial Report Aberforth Smaller Companies Trust plc

Cash Flow Statement
For the year ended 31 December 2018

2018 2017
Note £’000 £’000
Operating activities
Net revenue before finance costs and tax 41,751 39,312
Scrip dividends received 3 (319) –
Receipt of special dividends taken to capital 3 3,429 –
Investment management fee charged to capital 4 (6,295) (6,026)
Decrease/(increase) in debtors 419 (768)
Decrease in other creditors (21) (17)
Net cash inflow from operating activities 38,964 32,501

Investing activities
Purchases of investments (357,515) (301,163)
Sales of investments 376,211 343,405
Cash inflow from investing activities 18,696 42,242

Financing activities
Purchases of Ordinary Shares 14 (32,826) (18,142)
Equity dividends paid 8 (33,209) (28,791)
Interest and fees paid 17 (609) (758)
Net drawdown/(repayment) of bank debt facilities (before any costs) 18 8,750 (27,000)
Cash outflow from financing activities (57,894) (74,691)

Change in cash during the period (234) 52

Cash at the start of the period 293 241

Cash at the end of the period 59 293

The accompanying notes form an integral part of this statement.

Financial Report Aberforth Smaller Companies Trust plc 43

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
Statement of Recommended Practice “Financial Statements of Investment Trust Companies and Venture Capital Trusts”
(SORP) issued in 2014, updated in February 2018. 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
functional and presentation currency is pounds sterling, which is the currency of the environment in which the Company
operates. The Board confirms that no significant accounting judgements or estimates have been applied to the financial
statements and therefore there is not a significant risk of 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
elected to receive its dividends in the form of additional shares rather than in cash, an amount equivalent to the cash dividend
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 £125 million bank debt facility is being 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.

44 Financial Report Aberforth Smaller Companies Trust plc

Notes to the Financial Statements
2 Alternative Performance Measures
Alternative Performance Measures (“APMs”) are measures that are not defined by FRS102. The Company believes that APMs,
referred to as “Key Performance Indicators” on page 6, provide shareholders with important information on the Company and
are appropriate for an investment trust company. These APMs are also a component of management reporting to the Board.
A glossary of the APMs can be found on page 58.

3 Income

2018 2017
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000

Income from investments

UK dividends 43,758 3,429 47,187 42,002 – 42,002
Scrip dividends 319 – 319 – – –
Overseas dividends 1,167 – 1,167 852 – 852
Property income distributions 1,019 – 1,019 822 – 822
46,263 3,429 49,692 43,676 – 43,676
Other income
Underwriting commission 7 – 7 – – –
Deposit interest – – – 1 – 1
Total income 46,270 3,429 49,699 43,677 – 43,677
During the year the Company received special dividends amounting to £6,313,000 (2017: £882,000), of which £3,429,000
(2017: none) were considered a return of capital by the investee company.

4 Investment Management Fee

2018 2017
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000

Investment management fee 3,777 6,295 10,072 3,615 6,026 9,641

Details of the investment management contract can be found on page 19.

5 Other Expenses
2018 2017
£’000 £’000

The following expenses (including VAT, where applicable) have been charged to revenue:
Directors’ fees (refer to Directors’ Remuneration Report) 141 136
Depositary fee 140 180
Secretarial services 102 98
FCA and LSE listing fees 68 57
Registrar fee 66 74
Custody and other bank charges 58 59
Legal fees 27 20
Auditor’s fee – audit of the financial statements 25 24
– for non-audit services – –
AIC fees 21 21
Directors’ and Officers’ liability insurance 11 11
Other expenses 83 70
742 750

Financial Report Aberforth Smaller Companies Trust plc 45

Notes to the Financial Statements

5 Other Expenses (continued)

Expenses incurred in acquiring or disposing of investments classified at fair value through profit or loss, and charged to capital,
are analysed below:
2018 2017
£’000 £’000
Analysis of total purchases
Purchase consideration before expenses 355,681 298,903
Commissions 667 610
Taxes 1,486 1,416
Total purchase expenses 2,153 2,026
Total purchase consideration 357,834 300,929
Analysis of total sales
Sales consideration before expenses 376,993 344,030
Commissions (782) (625)
Total sale proceeds net of expenses 376,211 343,405

Total expenses incurred in acquiring/disposing of investments 2,935 2,651

6 Finance Costs
2018 2017
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Interest/non-utilisation costs on bank debt facility 278 462 740 229 383 612
Amortisation of bank debt facility costs 23 39 62 20 32 52
301 501 802 249 415 664

7 Taxation
Analysis of tax charged on return on ordinary activities
2018 2017
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
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 41,450 (257,321) (215,871) 39,063 223,284 262,347

Corporation tax at 19% (2017: 19%) 7,876 (48,891) (41,015) 7,422 42,424 49,846
Adjusted for the effects of:
Non-taxable UK dividend income (8,375) (652) (8,966) (7,917) – (7,917)
Non-taxable overseas dividend income (222) – (222) (225) – (225)
Expenses not deductible for tax purposes – 558 558 – 504 504
Excess expenses for which no relief has been taken 721 1,291 1,951 720 1,223 1,943
Non-taxable capital losses/(gains) – 47,694 47,694 – (44,151) (44,151)
UK corporation tax charge for the year – – – – – –
Irrecoverable overseas taxation suffered – – – – – –
Total tax charge for the year – – – – – –
The Company has not recognised a potential asset for deferred tax of £24,177,000 (2017: £22,164,000) 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 current main rate of corporation tax is 19% (2017: 19%).

46 Financial Report Aberforth Smaller Companies Trust plc

Notes to the Financial Statements

8 Dividends
2018 2017
£’000 £’000
Amounts recognised as distributions to equity holders in the period:
Final dividend for the year ended 31 December 2017 of 19.75p
(2016: 18.75p) paid on 6 March 2018 18,332 17,696
Special dividend for the year ended 31 December 2017 of 6.70p
(2016: 2.75p) paid on 6 March 2018 6,219 2,595
Interim dividend for the year ended 31 December 2018 of 9.50p
(2017: 9.05p) paid on 31 August 2018 8,658 8,500
33,209 28,791
Amounts not recognised in the period:
Final dividend for the year ended 31 December 2018 of 20.75p
(2017: final dividend of 19.75p) payable on 7 March 2019 18,795 18,367
Special dividend for year ended 31 December 2018 of 7.75p
(2017: 6.70p) payable on 7 March 2019 7,020 6,231
25,815 24,598
The final dividend and the special dividend have not been included as liabilities in these financial statements.

9 Returns per Ordinary Share

2018 2017

The returns per Ordinary Share are based on:

Returns attributable to Ordinary Shareholders (£215,871,000) £262,347,000
Weighted average number of shares in issue during the year 91,501,299 93,923,545
Return per Ordinary Share (235.92p) 279.32p

There are no dilutive or potentially dilutive shares in issue.

10 Investments
2018 2017
£’000 £’000
Investments at fair value through profit or loss
Opening fair value 1,440,496 1,253,247
Opening fair value adjustment (159,308) (9,457)
Opening book cost 1,281,188 1,243,790
Purchases at cost 355,681 298,903
Sale proceeds (376,993) (344,030)
Realised gains on sales 121,190 82,525
Closing book cost 1,381,066 1,281,188
Closing fair value adjustment (212,901) 159,308
Closing fair value 1,168,165 1,440,496

All investments are in ordinary shares listed on the London Stock Exchange unless otherwise stated on pages 14 to 16.
Gains/(losses) on investments:
Net realised gains on sales 121,190 82,525
Movement in fair value adjustment (372,209) 149,851
Net (losses)/gains on investments (251,019) 232,376

Financial Report Aberforth Smaller Companies Trust plc 47

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;
Level 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 2018 £'000 £'000 £'000 £'000
Listed equities 1,168,165 – – 1,168,165
Unlisted equities – – – –
Total financial asset investments 1,168,165 – – 1,168,165

Level 1 Level 2 Level 3 Total

As at 31 December 2017 £'000 £'000 £'000 £'000
Listed equities 1,440,496 – – 1,440,496
Unlisted equities – – – –
Total financial asset investments 1,440,496 – – 1,440,496

11 Debtors
2018 2017
£’000 £’000
Investment income receivable 3,187 3,610
Other debtors 43 39
3,230 3,649

12 Creditors: Amounts falling due within one year

2018 2017
£’000 £’000

Other creditors 309 199

309 199

13 Creditors: Amounts falling due after more than one year

2018 2017
£’000 £’000
Bank debt facility 17,500 8,750
Less: Unamortised costs (91) (153)
17,409 8,597

Borrowing facilities
On 16 May 2017, the Company extended the unsecured £125 million Facility Agreement with The Royal Bank of Scotland plc for
a further three years and on 17 April 2018 the Facility Agreement was novated to The Royal Bank of Scotland International
Limited. A 0.15% arrangement fee was paid in connection with the extension in May 2017. This 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. A non-
utilisation fee is also payable on any undrawn element at a rate ranging from 0.30% to 0.50%, depending on the level of
utilisation.
The main covenant under the facility requires that, at every month end, 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 2018,
total borrowings represented 1.5% of total adjusted gross assets (as defined by the Facility Agreement). The facility is due to
expire on 15 June 2020.

48 Financial Report Aberforth Smaller Companies Trust plc

Notes to the Financial Statements
14 Share Capital
2018 2017
No. of No. of
Shares £’000 Shares £’000
Authorised:
Ordinary Shares of 1p 333,299,254 3,333 333,299,254 3,333
Allotted, issued and fully paid:
Ordinary Shares of 1p 90,580,311 906 92,999,137 930
During the year, the Company bought in and cancelled 2,418,826 shares (2017: 1,404,155) at a total cost of £32,826,000 (2017:
£18,142,000). During the period 1 January to 25 January 2019, no shares have been bought back.

15 Capital and Reserves

Capital
Share redemption Special Capital Revenue
capital reserve reserve reserve reserve TOTAL
£’000 £’000 £’000 £’000 £’000 £’000
At 31 December 2016 944 44 166,343 983,250 69,647 1,220,228
Net gains on sale of investments – – – 82,525 – 82,525
Movement in fair value adjustment – – – 149,851 – 149,851
Cost of investment transactions – – – (2,651) – (2,651)
Management fees charged to capital – – – (6,026) – (6,026)
Finance costs charged to capital – – – (415) – (415)
Revenue return attributable to equity
shareholders – – – – 39,063 39,063
Equity dividends paid – – – – (28,791) (28,791)
Purchase of Ordinary Shares (14) 14 (18,142) – – (18,142)
At 31 December 2017 930 58 148,201 1,206,534 79,919 1,435,642
Net gains on sale of investments – – – 121,190 – 121,190
Movement in fair value adjustment – – – (372,209) – (372,209)
Cost of investment transactions – – – (2,935) – (2,935)
Management fees charged to capital – – – (6,295) – (6,295)
Finance costs charged to capital – – – (501) – (501)
Special dividends taken to capital – – – 3,429 – 3,429
Revenue return attributable to equity
shareholders – – – – 41,450 41,450
Equity dividends paid – – – – (33,209) (33,209)
Purchase of Ordinary Shares (24) 24 (32,826) – – (32,826)
At 31 December 2018 906 82 115,375 949,213 88,160 1,153,736

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:
2018 2017
Net assets attributable £1,153,736,000 £1,435,642,000
Ordinary Shares in issue at the end of year 90,580,311 92,999,137
Net asset value per Ordinary Share 1,273.72p 1,543.72p
Effect of dividends received reinvested on the respective ex dividend dates 31.65p 34.29p
Net asset value on a total return basis 1,305.37p 1,578.01p

The net asset value total return for the year ended 31 December 2018 is the percentage movement from the net asset value
as at 31 December 2017 of 1,543.72p (31 December 2016: 1,292.57p) to the net asset value, on a total return basis, at
31 December 2018 of 1,305.37p (31 December 2017: 1,578.01p), which is -15.4% (2017: 22.1%).

Financial Report Aberforth Smaller Companies Trust plc 49

Notes to the Financial Statements
17 Interest and Finance Costs Paid
2018 2017
£’000 £’000
Interest/non-utilisation costs on bank debt facility 609 758

18 Analysis of changes in net debt

Net debt Other Net debt at

at 1 January Cash non-cash 31 December
2018 flow movements 2018
£’000 £’000 £’000 £’000

Cash at bank 293 (234) – 59

Bank debt facility (8,750) (8,750) – (17,500)
Bank debt facility fee (see note 13) 153 – (62) 91
(8,304) (8,984) (62) (17,350)

19 Financial instruments and risk management

The Company’s financial instruments comprise its investment portfolio (see pages 14 to 16), 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 2018 (2017: 0.10%).
The Company has a bank debt facility of £125,000,000 of which £17,500,000 was drawn down as at 31 December 2018 (2017:
debt facility of £125,000,000, of which £8,750,000 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 2018, the impact on the profit or loss and therefore
Shareholders’ funds would have been negative £175,000 per annum (2017: negative £87,500). If LIBOR and the bank base rate had
been 0.25% point lower at 31 December 2018, the impact on the profit or loss and therefore Shareholders’ funds would have been
a positive £43,750 per annum (2017: positive £21,875). 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.

50 Financial Report Aberforth Smaller Companies Trust plc

Notes to the Financial Statements
19 Financial instruments (continued)
(ii) Liquidity risk
The Company’s assets comprise mainly readily realisable equity securities, which, if necessary, can be sold to meet funding
requirements. 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
of 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:
2018 2017
£’000 £’000

Investment income receivable 3,187 3,610

Cash at bank 59 293
3,246 3,903

(iv) Market price risk

The Company’s investment portfolio is exposed to market price fluctuations, which are monitored by the investment managers
in pursuance of the investment objective. Further information on the investment portfolio is set out in the Managers’ Report
on pages 8 to 12. 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 2018, the impact on the profit or loss and therefore
Shareholders’ funds would have been negative £116.8m (2017: negative £144.0m). If the investment portfolio valuation rose
by 10% at 31 December 2018, the impact on the profit or loss and therefore Shareholders’ funds would have been positive
£116.8m (2017: positive £144.0m). 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 historic stockmarket volatility.
As at 31 December 2018, all of the Company’s financial instruments (excluding loans) were included in the balance sheet at fair
value. The investment portfolio consisted of investments, other than two investments that have been fair valued at £nil, 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 2018
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
Liabilities:
Bank debt facility 210 – – 17,500 – 17,710
Unamortised costs – – – (91) – (91)
Amounts due to brokers – – – – – –
Other creditors 53 46 – – – 99
Total liabilities 263 46 – 17,409 – 17,718

Financial Report Aberforth Smaller Companies Trust plc 51

Notes to the Financial Statements
19 Financial instruments (continued)

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
As at 31 December 2017
Liabilities:
Bank debt facility – 79 – 8,750 – 8,829
Unamortised costs – – – (153) – (153)
Amounts due to brokers – – – – – –
Other creditors 90 30 – – – 120
Total liabilities 90 109 – 8,597 – 8,796

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

Cash flows payable under financial liabilities by remaining contractual maturities

As at 31 December 2018
Bank debt facility – 196 599 17,864 – 18,659
Amounts due to brokers – – – – – –
Other creditors – 309 – – – 309
– 505 599 17,864 – 18,968

Cash flows payable under financial liabilities by remaining contractual maturities

As at 31 December 2017
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

Bank debt facility – 171 521 9,838 – 10,530

Amounts due to brokers – – – – – –
Other creditors – 199 – – – 199
– 370 521 9,838 – 10,729

Capital Management Policies and Procedures

The Company’s capital management objectives are to support the Company’s 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

Directors’ fees and their shareholdings are detailed in the Directors’ Remuneration Report on pages 31 and 32. There were no
matters requiring disclosure under s412 of the Companies Act 2006.

52 Financial Report Aberforth Smaller Companies Trust plc

Notes to the Financial Statements
21 Contingencies, guarantees, financial commitments and contingent assets
The Company had no contingencies, guarantees or financial commitments as at 31 December 2018 (2017: 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.

Financial Report Aberforth Smaller Companies Trust plc 53

Notice of the Annual General Meeting
Notice is hereby given that the twenty-eighth Annual General Meeting of Aberforth Smaller Companies Trust plc will be held
at 14 Melville Street, Edinburgh on 28 February 2019 at 6.00 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 2018 be adopted.
2. That the Directors’ Remuneration Report for the year ended 31 December 2018 be approved.
3. That a special dividend of 7.75p per share and a final dividend of 20.75p per share be approved.
4. That Mr R G Davidson be elected as a Director.
5. That Mr R A Rae be re-elected as a Director.
6. That Mrs J Le Blan be re-elected as a Director.
7. That Mrs P M Hay-Plumb be re-elected as a Director.
8. That Mr M R Warner be elected as a Director.
9. To re-appoint Deloitte LLP as Independent Auditor of the Company to hold office until the conclusion of the next Annual
General Meeting at which the Financial Statements are laid before the Company.
10. That the Audit Committee be authorised to determine the remuneration of the Independent Auditor for the year to
31 December 2019.

To consider and, if thought fit, pass the following Special Resolution:

11. 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 13,577,988 (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 2020 or, if
earlier, at the conclusion of the annual general meeting of the Company to be held in 2020, 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

25 January 2019

54 Annual General Meeting Aberforth Smaller Companies Trust plc

Notice of the Annual General Meeting
1. Attending the Annual General Meeting in person
A member who is entitled to attend and 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.
To be entitled to attend and 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 26 February 2019 (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 attend and vote at the Annual General Meeting.
2. Appointment of Proxy
A Form of Proxy for use by shareholders is enclosed. Completion of the Form of Proxy will not prevent a Shareholder from
attending the meeting and voting in person. To register a vote electronically, log on to the Registrar’s web site 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.
You may not appoint more than one proxy to exercise rights attached to any one share. 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 28 February 2019 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 Asset Services (CREST
Participant ID: RA10), no later than 48 hours before the time appointed for the meeting.
3. Questions and Answers
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 25 January 2019, the latest practicable date prior to publication of this document, the Company had 90,580,311 Ordinary
Shares in issue with a total of 90,580,311 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.

Annual General Meeting Aberforth Smaller Companies Trust plc 55

Shareholder Information
Introduction
Aberforth Smaller Companies Trust plc is an Investment Trust whose shares are traded on the London Stock Exchange.

Shareholder 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:
Shareholder Solutions, Link Asset Services, The Registry, 34 Beckenham Road, Beckenham, BR3 4TU.
Tel: 0871 664 0300 (calls cost 12p per minute plus network extras, lines are open 9.00 am to 5.30 pm Monday to Friday).
Email: [email protected]. Website: www.linkassetservices.com.

Payment of dividends
The best way to ensure that dividends are received as quickly as possible is to instruct the Company’s Registrar, whose address is given
above, 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 dividends to buy shares easily and at a low cost via the Company’s Registrar from whom the necessary
forms are available.

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)

SEDOL Bloomberg Reuters GIIN Legal Entity Identifier

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 2020 (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.

56 Shareholder Information Aberforth Smaller Companies Trust plc

Shareholder Information

Financial Calendar
Dividends in respect of the year ended 31 December 2018
Interim Special Final
Rate per Share: 9.5p 7.75p 20.75p
Ex Dividend: 9 August 2018 7 February 2019 7 February 2019
Record date: 10 August 2018 8 February 2019 8 February 2019
Pay date: 31 August 2018 7 March 2019 7 March 2019

Half Yearly Report Published late July

Annual Report and Financial Statements Published late January

Annual General Meeting 28 February 2019

Publication of Net Asset Values Daily (via the Managers’ website)

Alternative Investment Fund Managers Directive (AIFMD)

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 2018 are shown below. There have been no changes to, or breaches of the maximum level of
leverage employed by the Company.
2018 2017
Commitment Gross Commitment Gross
Leverage Exposure (refer to the Glossary) Method Method Method Method

Maximum limit 2.00:1 2.00:1 2.00:1 2.00:1

Actual 1.01:1 1.01:1 1.00:1 1.00:1

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 2018) are available on request from Aberforth Partners.

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.

Shareholder Information Aberforth Smaller Companies Trust plc 57

Shareholder Information

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
Shareholders’ 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

Net Asset Value per Ordinary Share (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 49).

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 2018 was 1,138.00p
(2017: 1326.00p) and dividends, which went ex dividend during the year (see note 8 on page 47) were 35.95p (2017:
30.55p). The effect of reinvesting these dividends on the respective ex-dividend dates amounted to 31.91p (2017:
34.11p). The share price total return was therefore -11.8% (2017: 22.6%), being the percentage derived from the closing
share price, plus the reinvestment dividend figure, divided by the closing share price at the previous year end.

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.

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.

Performance Attribution is an analysis of how the Company achieved its performance relative to its benchmark. Sector
and stock selection measures the effect of investing in sectors and securities to a greater or lesser extent than their
weighting in the benchmark.

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).

Ongoing Charges represent the total cost of investment management fees and other operating expenses of £10,814,000
(2017: £10,391,000), as disclosed in the Income Statement, as a percentage of the average published net asset value
£1,366,495,000 (2017: £1,363,794,000) over the period, and are calculated in accordance with the guidelines issued by
the AIC.

Leverage, for the purposes of the AIFM Directive, is any method which 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. ASCoT has
no hedging or netting arrangements.

Portfolio Turnover is calculated by dividing the lesser of purchases and sales over one year by the average portfolio value
for that year.

58 Shareholder Information Aberforth Smaller Companies Trust plc

Shareholder Information Aberforth Smaller Companies Trust plc 59
60 Shareholder Information Aberforth Smaller Companies Trust plc
Corporate Information

Investment Managers and Secretaries Solicitors and Sponsors

Aberforth Partners LLP Dickson Minto W.S.
14 Melville Street 16 Charlotte Square
Edinburgh EH3 7NS Edinburgh EH2 4DF
Tel: 0131 220 0733
Email: [email protected] Bankers
www.aberforth.co.uk
The Royal Bank of Scotland International Limited
280 Bishopsgate
Registered Office and Company Number London EC2M 4RB
14 Melville Street
Edinburgh EH3 7NS Custodian
Registered in Scotland No. SC 126524
The Northern Trust Company
50 Bank Street
Registrar Canary Wharf
London E14 5NT
Link Asset Services
The Registry
34 Beckenham Road Independent Auditor
Beckenham Deloitte LLP
BR3 4TU Saltire Court
20 Castle Terrace
Shareholder enquiries:
Edinburgh EH1 2DB
Tel: 0871 664 0300
(Calls cost 12p per minute plus network extras)
Email: [email protected] Depositary
www.linkassetservices.com
NatWest Trustee & Depositary Services Limited
Share Portal: Drummond House
www.signalshares.com 1 Redheughs Avenue
Edinburgh EH12 9RH

J. Thomson Colour Printers Aberforth Smaller Companies Trust plc