Aberforth Smaller Companies Trust plc

Annual Report and Accounts

31 December 2011
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 on the RBS Hoare Govett Smaller Companies
Index (excluding Investment Companies) over the long term.”

Contents
Financial Highlights 1
Ten Year Investment Record 2
Company Summary 3
Chairman’s Statement 4
Aberforth Partners LLP – Information 6
Managers’ Report 7
Thirty Largest Investments 11
Investment Portfolio 12
Portfolio Information 14
Long-Term Record 15
Directors 17
Directors’ Report 18
Corporate Governance Report 25
Directors’ Remuneration Report 30
Directors’ Responsibility Statement 32
Independent Auditor’s Report 33
Income Statement 34
Reconciliation of Movements in Shareholders’ Funds 35
Balance Sheet 36
Cash Flow Statement 37
Notes to the Financial Statements 38
Shareholder Information 49
Notice of the Annual General Meeting 51
Corporate Information inside back cover

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the action you
should take you should consult your stockbroker, bank manager, solicitor, accountant or other independent financial adviser
authorised under the Financial Services and Markets Act 2000 immediately.
If you have sold or otherwise transferred all of your ordinary shares in Aberforth Smaller Companies Trust plc, please forward this
document and the accompanying form of proxy as soon as possible to the purchaser or transferee or to the stockbroker, bank or
other agent through whom the sale or transfer was or is being effected for delivery to the purchaser or transferee.
Certain statements in this report are forward looking statements. By their nature, forward looking statements involve a number of
risks, uncertainties or assumptions that could cause actual results or events to differ materially from those expressed or implied by
those statements. Forward looking statements regarding past trends or activities should not be taken as representation that such
trends or activities will continue in the future. Accordingly, undue reliance should not be placed on forward looking statements.
Financial Highlights
Year to 31 December 2011

Net Asset Value (total return) -13.5

RBS Hoare Govett Smaller Companies Index (excl. Investment Companies) (total return) -9.1
Ordinary Share Price (with net dividends reinvested) -18.5

As at As at
31 December 31 December
2011 2010 % Change

Shareholders’ Funds £603.1m £716.8m -15.9

Market Capitalisation £481.7m £609.5m -21.0
Actual gearing employed 111.1% 107.3% n/a
Ordinary Share net asset value 627.31p 743.81p -15.7
Ordinary Share price 501.00p 632.50p -20.8
Ordinary Share discount 20.1% 15.0% n/a
Revenue per Ordinary Share 24.13p 18.11p +33.2
Dividends per Ordinary Share 20.75p 19.00p +9.2
Total expense ratio 0.88% 0.85% n/a
Portfolio turnover 29.5% 37.3% n/a

31 December 31 December
2011 2010

Total return per Ordinary Share

Revenue 24.13p 18.11p
Capital (121.46p) 138.08p
Total (97.33p) 156.19p

One Year Performance

Absolute Performance
(figures are total returns and have been rebased to 100 at 31 December 2010)

120

115

110

105

100

95

90

85

80

75
Dec-10 Mar-11 Jun-11 Sep-11 Dec-11

NAV Benchmark Share Price

Aberforth Smaller Companies Trust plc 1

Ten Year Investment Record

Absolute Performance Relative Performance

(figures are total returns and have been rebased to 100 at 31 Dec 2001) (figures are total returns and have been rebased to 100 at 31 Dec 2001)

300 140

130
250

120
200

110

150
100

100
90

50 80
02 03 04 05 06 07 08 09 10 11 02 03 04 05 06 07 08 09 10 11
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 2001) (being the difference between Share Price and NAV)

240 5%
Premium
220
0%
Discount
200
5%
180

160 10%

140
15%
120
20%
100

80 25%
02 03 04 05 06 07 08 09 10 11 02 03 04 05 06 07 08 09 10 11
RPI Dividends Premium/Discount of Share Price to NAV

2 Annual Report and Accounts 2011

Company Summary

Introduction
Aberforth Smaller Companies Trust plc (ASCoT) is an Investment Trust whose shares are traded on the
London Stock Exchange. As at 31 December 2011, it is the largest trust, based on net assets, within its sub-
sector of UK Smaller Company Investment Trusts.

Objective
The objective of ASCoT is to achieve a net asset value total return (with dividends reinvested) greater than
on the RBS Hoare Govett Smaller Companies Index (excluding Investment Companies) (“RBS HGSC (XIC)”)
over the long term. The Company’s performance is measured against the total return of this index.
Further details regarding the benchmark, investment policy and approach can be found in the Business
Review contained in the Directors’ Report on pages 18 to 24.

Management Firm
Aberforth Partners LLP are contracted as the investment managers and secretaries to the Company. Both
of these contracts can be terminated by either party at any time by giving six months’ notice of
termination. Further information can be found on pages 19 and 20. Aberforth Partners LLP manage
£1.4 billion invested in small UK quoted companies. Further information on the firm is set out on page 6.

Share Capital
At 31 December 2011 the Company’s issued share capital consisted of 96,138,792 Ordinary Shares of 1p.
During the year 228,000 shares were bought in and cancelled.

Wind-Up Date
The Company has no fixed duration. However, in accordance with the Articles of Association, an ordinary
resolution will be proposed at the 2014 Annual General Meeting (and at every third subsequent Annual
General Meeting) that the Company continues to manage its affairs as an investment trust.

ISA Status
The Company’s Ordinary Shares are eligible for inclusion in the “Stocks and Shares” component of an
Individual Savings Account (ISA).

AIC
The Company is a member of The Association of Investment Companies (AIC).

Aberforth Smaller Companies Trust plc 3

Chairman’s Statement

Review of 2011 Performance

After a good start, the second half of 2011 once again saw acute stress in financial markets. Although not as
extreme as the fourth quarter of 2008, credit markets, particularly European inter bank markets, displayed a
level of dysfunctionality that required, and invited, Central Bank intervention. In such a hostile environment,
there was a global flight to safety. Since 30 June 2011, ten year UK government bond yields have fallen from
3.38% to 1.98% mirroring similar moves in Germany and in the USA as risk assets plummeted.
In the UK equity market, all indices fell sharply in July and August, but larger companies staged a partial
recovery by the year end, so that over the second half of the year, the FTSE 100 fell a modest 6.3% in capital
only terms. Mid and smaller companies suffered more severely and failed to enjoy the same recovery, with the
FTSE 250 declining by 15.9%, the RBS HGSC (XIC) by 15.3%, the FTSE SmallCap by 18.6% and the minnows,
as represented by the FTSE Fledgling, by 25.6%. The UK was not alone. Of the world’s 30 largest equity
markets, smaller companies achieved a positive return in just one country, and underperformed their larger
counterparts in all but three.
Against such a backdrop, it is frustrating to report that your Company, Aberforth Smaller Companies Trust plc
(“ASCoT”), lost all of its relative outperformance of the first half during the brutal sell off of the past six
months. For the year to 31 December 2011, your Company’s Net Asset Value total return was -13.5%
compared with -9.1% total return in the RBS HGSC (XIC), your Company’s benchmark. The Managers’ Report
provides greater insight into the investment themes and influences over the year, where once again wider
market style effects have provided significant headwinds to performance.

Dividends
In sharp contrast to the Net Asset Value decline, your Company’s income account enjoyed an excellent year.
Indeed the recovery in dividends from the investee companies has resulted in your Company’s earnings increasing
at their fastest rate since 1995. As I wrote in my Interim Statement in July 2011, “dividends matter to all long
term investors, but for value investors they have a special importance”. Your Board is pleased to declare a second
interim dividend, in lieu of a final dividend, of 14.3p. This results in total dividends for the year of 20.75p
representing an increase of 9.2% on 2010. This compares favourably with both the ten and twenty year growth
rates that have, in the view of your Board and the Managers, been fundamental in establishing your Company’s
long term record. At the year end share price of 501p, your Company’s shares deliver a 4.1% yield. Your Board
is well aware of the significance of the income component of the total returns from UK equities over the long
term.
Your Board remains committed to your Company’s progressive dividend policy. The level of your Company’s
revenue reserves, after adjusting for payment of the second interim dividend, amounting to 28.1p per share (up
from 24.6p as at 31 December 2010), provides a degree of flexibility going forward in the event of the UK
economy dipping back into recession.
The second interim dividend will be paid on 24 February 2012 to Shareholders on the register as at the close of
business on 3 February 2012. The last date for submissions of Forms of Election for those Shareholders wishing
to participate in your Company’s Dividend Reinvestment Plan (“DRIP”) is also 3 February 2012. Details of the
DRIP are available from Aberforth Partners LLP on request or on its website, www.aberforth.co.uk.

Gearing
As I reported in my Interim Statement, your Company, in May 2011, negotiated a new three year facility of
£100m, replacing the previous facility. Your Board regularly reviews the level of gearing with the Managers and
is comfortable that your Company has access to sufficient liquidity for both investment purposes and also to
fund share buy-ins as and when appropriate. As at 31 December 2011, £68m of this facility was utilised. The
current level of gearing is based upon attractive valuation levels, described in greater detail in the Managers’
Report, but should also be viewed in conjunction with exceptionally strong balance sheets of the underlying
investee companies held in your portfolio.

Share Buy-In Authority and Treasury Shares

At the Annual General Meeting in March 2011, the authority to buy-in up to 14.99% of your Company’s
Ordinary Shares was approved. During the year, 228,000 Ordinary Shares were bought-in (0.2% of the

4 Annual Report and Accounts 2011

Chairman’s Statement

Company’s issued share capital) at a total cost of £1.18 million. Consistent with your Board’s stated policy, those
Ordinary Shares have been cancelled rather than held in treasury. Once again, your Board will be seeking to
renew the buy-in authority at the Annual General Meeting on 7 March 2012. The Board keeps under constant
review the circumstances under which the authority is utilised in relation to the overall objective of seeking to
manage the discount.

Board Changes
Eddie Cran, who has been a Director since July 2001, will not be standing for re-election at the forthcoming
Annual General Meeting. Eddie has been a valued member of your Board and we will all miss his insights and
invaluable contributions. We wish Eddie all the very best for the future.
We are delighted to appoint Richard Rae as a director of your Company with effect from 26 January 2012.
Richard’s investment career extends over 25 years. He has extensive knowledge of the UK smaller companies
area, and we look forward to working with him.

Summary
2011 proved frustrating for your Company. The “return to value” style shift, which was witnessed through the
latter part of 2010 and early 2011, faded as dysfunctional European credit markets became the overriding issue
for investors.
2012 will undoubtedly bring challenges but amidst all the uncertainty it has been encouraging to see the
dividend recovery, described in recent reports by both your Board and the Managers, come to fruition. While
the trading backdrop is likely to be tough in 2012, your Board and the Managers are cautiously optimistic that
the dividend recovery witnessed in 2011 has the strength to continue through 2012. This optimism is
supported by the strong balance sheets of the investee companies and by the relative merits of equity capital,
both of which are described in more detail in the Managers’ Report.
Value investing has proved extremely successful over the long run, but has always been punctuated by
sometimes extended periods when the style is out of fashion. We are currently experiencing one of the longest
such periods on record. While it is impossible to know when it will end, your Managers remain confident that
your portfolio represents excellent value, and that this will ultimately be recognised by the market.

Professor Paul R Marsh

Chairman
25 January 2012
[email protected]

Aberforth Smaller Companies Trust plc 5

Aberforth Partners LLP – Information

Aberforth Partners LLP (the “firm”) act as investment managers and secretaries to the Company. The
predecessor business, Aberforth Partners, 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 £1.4 billion (as at 31 December 2011). The firm is wholly owned by six
partners – five investment managers (including three founding partners), and Alan Waite, who is responsible
for the firm’s administration. John Evans, a founding partner, retired on 31 August 2011. Six investment
managers work as a team managing the Company’s portfolio on a collegiate basis. The founding partners
have been managing the portfolio since the Company’s inception in December 1990. The partners each have
a personal investment in the Company. The biographical details of the investment managers are as follows:
Andrew P Bamford (45) BCom (Hons), CA – Andy joined Aberforth Partners in April 2001, became a
partner in May 2004, and is responsible for investment research and stock selection in the following areas –
Industrial Transportation; Technology Hardware & Equipment; Travel & Leisure; and a proportion of Support
Services. Previously he was with Edinburgh Fund Managers for 7 years, latterly as Deputy Head of UK Small
Companies, with specific responsibility for institutional clients. Prior to joining Edinburgh Fund Managers he
was a senior investment analyst with General Accident for 2 years supporting the head of UK Smaller
Companies. Before joining General Accident, he was a Chartered Accountant with Price Waterhouse.
Euan R Macdonald (41) BA (Hons) – Euan joined Aberforth Partners in May 2001, became a partner in
May 2004, and is responsible for investment research and stock selection in the following areas – Industrial
Engineering; Life Assurance; Nonlife Insurance; Software & Computer Services; and a proportion of Support
Services. Previously he was with Baillie Gifford for 10 years where he managed portfolios invested in small
companies both in Continental Europe and in the UK.
Keith Muir (42) BEng (Hons), CFA – Keith joined Aberforth Partners in March 2011 and is responsible for
investment research and stock selection in the following areas – Automobiles & Parts; Chemicals;
Construction & Materials; Electricity; Fixed Line Telecommunications; Gas, Water & Multiutilities; Household
Goods & Home Construction; Industrial Metals & Mining; Leisure Goods; Mining; and Mobile
Telecommunications. Previously Keith was an Investment Director with Standard Life Investments for 13 years
and spent the last 9 years as a senior member of the Smaller Companies team with associated portfolio
management responsibilities. Prior to that he gained experience with Southpac, Scottish Equitable and
Murray Johnstone.
Richard M J Newbery (52) BA (Hons) – Richard was a founding partner in May 1990 and is responsible for
investment research and stock selection in the following areas – Alternative Energy; Beverages; Electronic &
Electrical Equipment; Food & Drug Retailers; Food Producers; General Industrials; General Retailers; and
Personal Goods. Previously he was with Ivory & Sime for 9 years where he managed international portfolios
for a range of clients including those with a small company specialisation.
David T M Ross (62) FCCA – David was a founding partner in May 1990 and is responsible for investment
research and stock selection in the following areas – Real Estate Investment Trusts; Real Estate Investment &
Services; and Financial Services. Previously he was with Ivory & Sime for 22 years, the last two of which were
as Managing Director. He was a Director of US Smaller Companies Investment Trust plc and served as a
member of the Executive Committee of the Association of Investment Companies.
Alistair J Whyte (48) – Alistair was a founding partner in May 1990 and is responsible for investment
research and stock selection in the following areas – Aerospace & Defence; Health Care Equipment &
Services; Media; Oil & Gas Producers; Oil Equipment; Services & Distribution; and Pharmaceuticals &
Biotechnology. Previously he was with Ivory & Sime for 11 years where latterly he managed portfolios in Asia.
Prior to that he managed portfolios with the objective of capital growth from smaller companies in the UK
and internationally.
Further information on Aberforth Partners LLP and its clients is available on its website –
www.aberforth.co.uk

6 Annual Report and Accounts 2011

Managers’ Report

Introduction
Performance in the first seven months of 2011 was good in both absolute and relative terms. ASCoT’s NAV
total return up to the end of July was 6.1% against 4.1% for the RBS HGSC (XIC). However, coinciding with
resurgent concerns about the Eurozone and global economic growth, performance deteriorated through the
latter part of the year. From the end of July to the end of December, ASCoT’s NAV total return was -18.5%,
which compares with -12.7% for the benchmark. Hence, over 2011 as a whole, ASCoT’s total return was
-13.5%, while the RBS HGSC (XIC)’s was -9.1%. Larger companies proved more resilient over the year, with
the FTSE All-Share’s total return of -3.5% making it one of the best performing equity indices around the
globe. The under-performance of smaller companies came within the context of rising macro economic
concerns and risk aversion of the second half of the year.

Performance background

For the twelve months ended 31 December 2011 Basis Points

Stock selection (353)

Sector selection } Based on mid-prices 127
Attributable to the portfolio of investments, based on mid prices (after transaction
costs of 35 basis points) (226)
Movement in mid to bid price spread (7)
Cash/gearing (125)
Purchase of Ordinary Shares 3
Management fee (73)
Other expenses (7)
Total attribution based on bid prices (435)
Note: 100 basis points = 1%. Total Attribution is the difference between the total return of the NAV and the
Benchmark Index (i.e. NAV = -13.48%; Benchmark Index = -9.13%; difference is -4.35% being -435 basis points).
The table above is an attribution analysis that sets out the impact of various factors on ASCoT’s relative
performance in 2011. The largest effects – Stock and Sector selection – are at the portfolio level. Underlying
Stock and Sector selection represent your Managers’ individual investment decisions. In any year, within a
well diversified portfolio of 89 holdings, there will be good investment decisions and poor investment
decisions, the latter being instances where your Managers have got the fundamentals of underlying
businesses wrong. However, potentially more influential on relative returns and on portfolio level attribution,
at least in the short term, is the wider market’s consideration of broader investment themes. This was the
case in 2011, when none of the themes that characterise the portfolio and that stem from your Managers’
consistently applied investment philosophy proved helpful.

Gearing
ASCoT’s portfolio was, on average, geared by 10% through 2011. In an environment of falling equity prices,
this gearing exacerbated the decline in ASCoT’s NAV. Of ASCoT’s 435 basis point under-performance against
the benchmark in 2011, the gearing effect accounted for 125 basis points. The reason for the gearing is the
abundance of attractively valued businesses within the RBS HGSC (XIC). As described in greater detail later in
this report, these valuations would appear to discount the risk of a relapse into recession.

Style
Over the past 21 years, your Managers have consistently followed a value investment style. Though unusual
among small company investors, the logic for this approach is underpinned by a number of studies that
demonstrate substantial long term out-performance of the value style: for example, the London Business
School’s (“LBS”) work on the RBS HGSC (XIC) points to value outstripping growth by five percentage points
per annum since 1955. Within Aberforth’s 21 year history, a value philosophy has on the whole proved
rewarding, but there have been periods, most notoriously during the TMT bubble, when a focus on low
valuations has been made to look misguided. The last five years have witnessed another period that has
favoured the growth style, with the LBS study showing growth stocks to have outstripped value stocks by ten
percentage points per annum over that period. This has represented a headwind to ASCoT’s performance.
Your Managers were encouraged by signs of a resurgence of the value style towards the end of 2010 and in
the early months of 2011. However, this came to a halt as the macro economic developments of the third

Aberforth Smaller Companies Trust plc 7

Managers’ Report

quarter weighed on sentiment and threatened the rising tide of general economic growth. Thus, in the
second half of the year the LBS study suggests that the growth style returned to the fore. Nevertheless, your
Managers continue to favour a value approach that has been advantageous over the long term and that at
the current time is supported by the strong balance sheets and dividend prospects detailed below.

Size
This theme is allied to style. The benchmark’s definition – those companies in the bottom 10% of the UK
stockmarket’s total capitalisation – means that FTSE 250 companies account for three quarters of its market
capitalisation. However, these mid cap companies represent just half of the portfolio by weight and,
accordingly, the portfolio has double the benchmark’s weighting in its smaller constituents. This positioning
is motivated by the abundance of particularly low valuations among the “smaller small” companies: at the
year end, the RBS HGSC (XIC)’s mid cap element was valued on a historic PE ratio 57% higher than that of
its small cap element. This substantial valuation gap has opened up over the past eight years as investors
have shortened their investment horizons and run shy of the illiquidity of “smaller small” companies,
notwithstanding their fundamental attractions. Concurrently, shares in mid cap companies have enjoyed
incremental demand from diversification by large company UK equity portfolios. Your Managers believe that
the historically low PE ratings accorded to “smaller small” companies in particular have the potential for
upward adjustment, with a consequent boost to ASCoT’s capital value.

Strong balance sheets

Strong balance sheets are a feature of the corporate sectors of many major economies. This is certainly the
case in the UK and, more specifically, among small UK quoted companies. At the year end, 43% of ASCoT’s
portfolio was invested in companies with net cash on their balance sheets, somewhat higher than the RBS
HGSC (XIC)’s still respectable 31%. With the yield from cash extremely low in the current interest rate
environment, the stockmarket has been disinclined to value the flexibility and defensiveness afforded by a
strong balance sheet, a trait that ASCoT has exploited. Curiously, however, during the bear market of the
second half of the year, the correlation between balance sheet strength and share price performance within
the benchmark was remarkably low – the relationship between the two was effectively random. This
frustrating lack of discernment can probably be attributed to the prevailing climate of extreme risk aversion,
which has, so far, out-weighed other considerations.

Dividend yield
The correlation between share price performance and dividend yield within the RBS HGSC (XIC) through the
second half was also surprising. Again, the relationship was almost random: a superior dividend yield offered
almost no protection against share price falls. This was in sharp contrast to the experience within the large
company world, where high yielding sectors such as Tobacco, Pharmaceuticals and Utilities all performed
relatively well. The discrepancy is, at least in part, a result of traditional prejudices about small companies: it
is not an area the market associates with yield and income. But there is plenty of yield on offer. The 422
companies in the RBS HGSC (XIC) had an aggregate historic yield of 3.2% at the year end, somewhat less
than the FTSE All-Share’s 3.6%. However, one quarter of the benchmark’s constituents did not pay
dividends, usually as a result of their early stage business models that require cash generated to be reinvested
in the businesses. The aggregate yield of the 300 or so companies that do pay a dividend is 4.0%, actually
higher and less concentrated than large companies. As a function of your Managers’ value investment style,
ASCoT’s portfolio has almost always had a higher yield than the RBS HGSC (XIC) and ended the year with a
yield of 3.4%.

Valuations

31 December 2011 31 December 2010

Characteristics ASCoT Benchmark ASCoT Benchmark

Number of companies 89 422 88 430

Weighted average market capitalisation £391m £676m £424m £696m
Price earnings ratio (historic) 9.0x 10.5x 11.8x 13.7x
Dividend yield (historic) 3.4% 3.2% 2.5% 2.4%
Dividend cover 3.3x 3.0x 3.4x 3.0x

8 Annual Report and Accounts 2011

Managers’ Report

The preceding table shows the historic PE and yield statistics for ASCoT’s portfolio and the RBS HGSC (XIC).
Consistent with Aberforth’s value investment style, ASCoT is cheaper on both measures. However, the
principal valuation metric in your Managers’ investment process is the ratio of enterprise value to earnings
before interest, tax and amortisation (EV/EBITA). This is because EV/EBITA is balance sheet neutral. That is to
say, with cash yielding so little at the current time, the PE ratio of a company is affected by the liability
structure of its balance sheet: other things being equal, a company with a high amount of net debt will have
a lower PE ratio than a company with net cash. The EV/EBITA is not distorted in this fashion.

2011 2012
Characteristics EBITA +5% EBITA -20%

ASCoT portfolio 6.9x 6.6x 8.6x

Tracked RBS HGSC (XIC) 8.7x 8.3x 10.9x

The preceding table sets out the EV/EBITA ratios for the portfolio and the benchmark based on 2011 profits.
It also gives two scenarios for 2012. The first shows the EV/EBITA multiples that would prevail if profits grow
by 5% in 2012. Given current macro economic headwinds, this might be considered an ambitious outcome,
but, for the portfolio at least, is not implausible owing to the impact of acquisitions and recovery situations.
The second scenario, which assumes a 20% decline in profits, is essentially a re-run of the last recession: in
2009, the aggregate EBITA of the year end portfolio fell by one fifth on 2008. The resulting EV/EBITA ratio is
8.6x. But, would this represent good value?
In 2010, with the recovery from recession well underway, the stockmarket had re-rated the portfolio’s 2009
trough EBITA to 12x. Thus, it might be argued that, if profits do indeed fall by 20% again, present market
prices are already sufficiently low to allow an upwards revaluation of around one third, once confidence
builds that the current economic uncertainties have stopped getting worse. In short, a lot of the potential
bad news may already be in the current price.

Potential catalysts
Value investors are usually capable of articulating the valuation merits of their portfolios. The challenge to
such claims typically focuses on what is going to close the valuation gaps and make the portfolios less cheap.
A somewhat glib, but nonetheless relevant, response is “time”. ASCoT has the luxury of investment trust
status and a portfolio of well funded businesses that afford it a long term investment horizon: history
suggests that over time investors in relatively illiquid small and cheap equities are disproportionately
rewarded. However, there are other catalysts that can precipitate revaluation in shorter time horizons.

Macro economy
An improvement in the global economy, together with a decline in risk aversion, would encourage
investment in smaller companies. Experience suggests that it would also help the value style, since growth
would be easier to come by and the “scarcity premiums” currently enjoyed by secular growth stocks would
be harder to justify. Clearly, however, calling the direction of the macro economy at the current time is more
foolhardy than usual. The Eurozone crisis threatens to precipitate another recession in the UK, and to be so
reliant on politicians to effect a solution is worrisome. More optimistically, the US economy has been making
better progress and relieves some of the pressure emanating from Europe. Most importantly, the UK
corporate sector, and within that ASCoT’s investment universe, remains relatively well positioned, having
spent almost a decade in financial surplus. Balance sheets are better positioned now than they were in 2008
to endure a deterioration in demand.

Corporate engagement
Since Aberforth’s formation in 1990, your Managers have taken seriously their governance responsibilities,
voting at every general meeting of ASCoT’s investee companies and interacting with both the executives and
non executives of these companies. Occasionally, your Managers engage with boards more actively, though
discreetly, in order to improve the chances of closing value gaps. Such active engagement can take several
forms, but one feature of the past year has been the change of chairmen of three investee companies. In
each case, your Managers were able to help in installing new chairmen with strong records of shareholder
value creation.

Aberforth Smaller Companies Trust plc 9

Managers’ Report

De-equitisation
De-equitisation is a term coined to describe the replacement of equity funding with debt funding. It was all
the rage in the years leading up to the global financial crisis and undoubtedly boosted equity valuations.
After a pause with the rights issues of 2009, de-equitisation has returned, promoted by the strength of
corporate balance sheets. The most high profile form of de-equitisation is takeover activity. Within the small
UK quoted company universe, the year under review started strongly in M&A terms: 12 deals, of which
ASCoT was a shareholder in three, had been completed by the half year. However, through the third quarter,
consistent with greater macro economic uncertainty, takeover activity waned, so that over the year as a
whole 18 deals were completed, of which ASCoT had holdings in six. A renewed pick-up in M&A would
benefit the valuations of ASCoT’s portfolio. In the meantime, other forms of de-equitisation carry on, again
promoted by strong balance sheets. Several holdings continue with share buy-back programmes and there
have been four special dividends announced over the course of 2011.

Dividends
Payment of ordinary dividends is a form of de-equitisation that has been widely over-looked for much of the
past twenty years: with companies able to rely on debt providers for their marginal funding requirements in
the years prior to the global financial crisis, income returns to providers of equity were often neglected.
However, it would seem that the substantial equity refinancings of 2009 have altered the relationship
between companies and their shareholders, with dividends acknowledged now as a higher priority. This
secular change has augmented the cyclical recovery in dividends to produce good rates of dividend growth
across the small company universe and in ASCoT’s portfolio.

Band Nil IPOs Down Flat +0-10% +10-20% + >20% New

No. of holdings 16 1 11 9 21 14 12 5

The preceding table classifies ASCoT’s 89 holdings at the year end by their most recent dividend action. The
“Nil” category contains those companies that do not pay dividends. Nine of those can be considered
structural nil payers, typically technology businesses at a relatively early stage of development. The other
seven are cyclical nil payers that will come back to the dividend register once their profits recover and will at
that point move into the “New” category. At this stage in the cycle, this phenomenon has a substantial
effect on reported dividend growth across the portfolio and the RBS HGSC (XIC) as a whole.

While the pace of dividend increases has to slow from the high rates of the earlier stages of recovery, your
Managers still expect the year end portfolio to generate real dividend growth in 2012, from the historic yield
of 3.4%. Notwithstanding the clear macro economic challenges, this yield is supported by both strong
balance sheets and historically high dividend cover of 3.3x. Despite these characteristics and the global
yearning for yield, the well diversified dividend income available in the small UK quoted company universe is
an under-appreciated opportunity.

Outlook
It is frustrating to be reporting on a year of poor absolute and relative returns. This sense of frustration is
compounded by ASCoT’s good performance in the first seven months of the year and by disappointing
returns in the second half’s bear market from a portfolio that, by virtue of its above average yield and strong
underlying balance sheets, might reasonably have been thought capable of performing better. The fact that
such characteristics have so far proved worthless highlights the extremity of negative sentiment in the current
market towards “smaller small” companies, particularly to those perceived by the market incapable of
growing through thick and thin. This majority of companies within the RBS HGSC (XIC) includes numerous
high quality businesses: in today’s market it is not necessary to compromise on quality to construct an
attractively valued portfolio. At the other extreme, lofty valuations are accorded to the fortunate few
businesses that are deemed capable of high rates of secular growth. The present gulf between the
valuations of value and growth stocks is exaggerated. History suggests that the relationship between the
two groups will not stay at such stretched levels. The process of normalisation will be advantageous to the
value investment style. However, while this report has described plausible catalysts, the timing is difficult to
call.

10 Annual Report and Accounts 2011

Managers’ Report

In the meantime, the superior income characteristics of the portfolio that tend to come hand-in-hand with
your Managers’ value style offer some compensation pending a re-rating. As the Chairman has described,
the admirable income performance of the underlying investments over the last two years is now again being
reflected in ASCoT’s own dividend payments: like the majority of its investee companies, ASCoT yields more
than gilts and has good prospects of dividend growth.

Aberforth Partners LLP

Managers
25 January 2012

Thirty Largest Investments

As at 31 December 2011

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

1 RPC Group 28,276 4.7 Plastic packaging

2 e2v technologies 20,107 3.3 Electronic components & subsystems
3 Anite 19,067 3.2 Software - telecoms & travel
4 Galliford Try 18,049 3.0 Housebuilding & construction services
5 Micro Focus International 17,950 3.0 Software - development & testing
6 JD Sports Fashion 17,559 2.9 Retailing - sports goods & clothing
7 RPS Group 16,955 2.8 Energy & environmental consulting
8 Bodycote 16,530 2.7 Engineering - heat treatment
9 Mecom Group 15,724 2.6 European newspaper publisher
10 CSR 15,583 2.6 Location & connectivity chips for mobile devices
Top Ten Investments 185,800 30.8
11 Collins Stewart Hawkpoint 15,385 2.5 Stockbroker & private client fund manager
12 Spirit Pub Company 11,993 2.0 Managed pub operator
13 Phoenix IT Group 11,993 2.0 IT services & disaster recovery
14 Optos 11,866 2.0 Medical technology - retinal imaging
15 Regus 11,558 1.9 Serviced office accommodation
16 National Express Group 11,500 1.9 Train, bus & coach operator
17 Brewin Dolphin Holdings 11,351 1.9 Private client fund manager
18 Beazley 11,318 1.9 Lloyds insurer
19 Tullett Prebon 10,703 1.8 Inter dealer broker
20 AZ Electronic Materials 10,521 1.7 Speciality chemicals
Top Twenty Investments 303,988 50.4
21 Yule Catto & Company 10,466 1.7 Speciality chemicals
22 Greggs 10,373 1.7 Retailing - baked products & sandwiches
23 Low & Bonar 10,232 1.7 Manufacture of industrial textiles
24 Howden Joinery Group 9,375 1.6 Kitchen supplier
25 Morgan Crucible Company 9,167 1.5 Engineering - ceramic & carbon materials
26 Moneysupermarket.com Group 9,107 1.5 Price comparison websites
27 Castings 8,776 1.5 Engineering - automotive castings
28 Vectura Group 8,639 1.5 Inhaled pharmaceuticals - respiratory specialism
29 KCOM Group 8,606 1.4 Telecommunications services
30 Lavendon Group 8,451 1.4 Hire of access equipment
Top Thirty Investments 397,180 65.9
Other Investments 272,723 45.2
Total Investments 669,903 111.1
Net Liabilities (66,812) (11.1)
Total Net Assets 603,091 100.0

Aberforth Smaller Companies Trust plc 11

Investment Portfolio
As at 31 December 2011

Value % of Total % of HGSC

Security £’000 Net Assets (XIC) Index1

Oil & Gas Producers 16,832 2.8 4.1

EnQuest 5,263 0.9
JKX Oil & Gas 7,359 1.2
Melrose Resources 4,210 0.7
Oil Equipment & Services – – 2.0
Alternative Energy – –
Chemicals 20,987 3.4 2.5
AZ Electronic Materials 10,521 1.7
Yule Catto & Company 10,466 1.7
Industrial Metals & Mining 4,528 0.7 0.5
International Ferro Metals 4,528 0.7
Mining 7,031 1.1 6.1
Anglo Pacific Group 6,292 1.0
Namakwa Diamonds 739 0.1
Construction & Materials 28,281 4.7 1.6
Galliford Try 18,049 3.0 1.6
Low & Bonar 10,232 1.7 1.6
Aerospace & Defence 9,280 1.6 2.7
Hampson Industries 1,096 0.2
UMECO 8,184 1.4
General Industrials 28,276 4.7 1.2
RPC Group 28,276 4.7
Electronic & Electrical Equipment 29,274 4.8 2.8
e2v technologies 20,107 3.3
Morgan Crucible Company 9,167 1.5
Industrial Engineering 29,145 4.8 1.7
Bodycote 16,530 2.7
Castings 8,776 1.5
Hill & Smith Holdings 3,839 0.6
Industrial Transportation 2,226 0.4 1.9
Wincanton 2,226 0.4
Support Services 82,296 13.6 13.7
Acal 4,323 0.7
Capital Drilling 3,036 0.5
CPPGroup 4,402 0.7
Howden Joinery Group 9,375 1.6
Hyder Consulting 179 –
Lavendon Group 8,451 1.4
Northgate 6,523 1.1
office2office 5,784 1.0
Paypoint 3,395 0.5
Regus 11,558 1.9
Robert Walters 4,171 0.7
RPS Group 16,955 2.8
Smiths News 4,144 0.7
Automobiles & Parts – – –
Beverages – – 0.9
Food Producers 3,826 0.6 2.5
Cranswick 3,826 0.6
Household Goods & Home Construction 29,651 4.9 3.3
Barratt Developments 7,968 1.3
Headlam Group 7,837 1.3
Persimmon 6,163 1.0
Redrow 7,683 1.3
Leisure Goods – – 0.3
Personal Goods – – 0.3
Health Care Equipment & Services 13,190 2.2 0.6
Corin Group 1,324 0.2
Optos 11,866 2.0
Pharmaceuticals & Biotechnology 9,131 1.6 2.7
Ark Therapeutics Group 492 0.1
Vectura Group 8,639 1.5

12 Annual Report and Accounts 2011

Investment Portfolio
As at 31 December 2011

Value % of Total % of HGSC

Security £’000 Net Assets (XIC) Index1

Food & Drug Retailers 10,373 1.7 1.5

Greggs 10,373 1.7
General Retailers 41,765 6.9 6.3
Debenhams 8,169 1.4
Game Group 760 0.1
Halfords Group 7,845 1.3
JD Sports Fashion 17,559 2.9
Mothercare 211 –
Topps Tiles 3,176 0.5
WH Smith 4,045 0.7
Media 51,614 8.5 3.9
4imprint Group 5,443 0.9
Centaur Media 2,400 0.4
Chime Communications 3,892 0.7
Future 3,285 0.5
Huntsworth 8,048 1.3
Mecom Group 15,724 2.6
Moneysupermarket.com Group 9,107 1.5
Wilmington Group 3,715 0.6
Travel & Leisure 32,294 5.4 7.8
Air Partner 2,037 0.3
National Express Group 11,500 1.9
Punch Taverns 3,312 0.6
Spirit Pub Company 11,993 2.0
Sportech 3,452 0.6
Fixed Line Telecommunications 8,606 1.4 3.2
KCOM Group 8,606 1.4
Electricity – – 1.2
Gas, Water & Multiutilities – – –
Nonlife Insurance 14,623 2.5 1.7
Beazley 11,318 1.9
Novae Group 3,305 0.6
Life Insurance 7,822 1.3 1.0
Hansard Global 7,822 1.3
Real Estate Investment & Services 22,446 3.8 3.4
Safestore Holdings 6,966 1.2
St.Modwen Properties 8,439 1.4
Unite Group 7,041 1.2
Real Estate Investment Trusts 11,419 1.9 3.5
Hansteen Holdings 5,499 0.9
Workspace Group 5,920 1.0
Financial Services 56,424 9.4 7.5
Brewin Dolphin Holdings 11,351 1.9
Charles Stanley Group 4,476 0.7
Collins Stewart Hawkpoint 15,385 2.5
GlobeOp Financial Services 6,609 1.1
Investec 7,511 1.3
Record 389 0.1
Tullett Prebon 10,703 1.8
Software & Computer Services 65,370 10.9 5.9
Anite 19,067 3.2
Kofax 4,393 0.7
Micro Focus International 17,950 3.0
Microgen 8,322 1.4
Phoenix IT Group 11,993 2.0
RM 3,645 0.6
Technology Hardware & Equipment 33,193 5.5 1.7
CSR 15,583 2.6
Filtronic 2,410 0.4
Laird 6,545 1.1
Pace 3,660 0.6
Promethean World 4,995 0.8
Investments as shown in the Balance Sheet 669,903 111.1 100.0
Net Liabilities (66,812) (11.1) –
Total Net Assets 603,091 100.0 100.0
1
All investments have a listing on the London Stock Exchange. This reflects the rebalanced index as at 1 January 2012.
Aberforth Smaller Companies Trust plc 13
Portfolio Information

FTSE Industry Classification Exposure Analysis

31 December 2010 31 December 2011
RBS Net2 Net RBS
HGSC (XIC) Portfolio Purchases/ Appreciation/ Portfolio HGSC (XIC)1
Weight Weight Valuation (Sales) (Depreciation) Valuation Weight Weight
Sector % % £’000 £’000 £’000 £’000 % %
Oil & Gas 6 3 25,079 8,678 (16,925) 16,832 3 6
Basic Materials 5 3 20,412 20,806 (8,672) 32,546 5 9
Industrials 24 30 229,652 (7,503) (13,371) 208,778 31 26
Consumer Goods 10 2 11,845 24,053 (2,421) 33,477 5 7
Health Care 2 6 45,309 (26,170) 3,182 22,321 3 3
Consumer Services 22 28 213,629 (29,217) (48,366) 136,046 20 20
Telecommunications 2 1 8,183 (918) 1,341 8,606 1 3
Utilities 1 – – – – – – 1
Financials 20 14 111,093 15,627 (13,986) 112,734 17 17
Technology 8 13 103,752 8,083 (13,272) 98,563 15 8
100 100 768,954 13,439 (112,490) 669,903 100 100
1 This reflects the rebalanced index as at 1 January 2012. 2 Includes transaction costs.

FTSE Index Classification Exposure Analysis

31 December 2010 31 December 2011
RBS) RBS
Portfolio HGSC (XIC) Portfolio HGSC (XIC)1
No. of Valuation Weight Weight No. of Valuation Weight Weight
Index Classification Companies £’000 % % Companies £’000 % %
FTSE 100 – – – – – – – –
FTSE 250 32 337,636 44 76 33 345,320 52 76
FTSE SmallCap 42 352,434 46 19 40 260,950 39 17
FTSE Fledgling 8 39,352 5 2 8 16,817 2 1
Other 6 39,532 5 3 8 46,816 7 6
88 768,954 100 100 89 669,903 100 100
1 This reflects the rebalanced index as at 1 January 2012.

Summary of Material Portfolio Changes

For the year ended 31 December 2011
Cost Proceeds
Purchases £’000 Sales £’000
AZ Electronic Materials 13,049 ProStrakan Group 17,924
Yule Catto & Co 11,361 Holidaybreak 14,910
Howden Joinery Group 9,895 Dialight 13,568
GlobeOp Financial Services 9,314 Millenium & Copthorne Hotels 11,774
Headlam Group 9,230 Domino Printing Sciences 10,815
Morgan Crucible Company 8,867 Kofax 10,400
Barratt Developments 8,447 Dunelm Group 9,632
EnQuest 8,326 Anite 9,242
CSR 7,719 De La Rue 8,235
Northgate 7,016 Chaucer Holdings 7,687
Micro Focus International 6,945 Beazley 7,657
Workspace Group 6,885 William Hill 7,648
William Hill 6,334 Ferrexpo 7,562
Laird Group 6,263 Keller Group 7,044
Robert Walters 6,025 Elementis 6,213
Persimmon 5,954 Micro Focus International 6,112
Phoenix IT Group 5,901 Lookers 5,768
RPC Group 5,227 Spectris 5,682
Punch Taverns 5,154 BTG 5,595
International Ferro Metals 4,993 RPC Group 5,493
Other Purchases 84,296 Other Sales 44,801
Total for the period 237,201 Total for the period 223,762

This summary shows the 20 largest aggregate purchases and sales including transaction costs.

14 Annual Report and Accounts 2011

Long-Term Record

Historic Total Returns

Discrete Annual Returns (%)

Period NAV1 Index2 Share Price3

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
1 year to 31 December 2008 -39.6 -40.8 -38.3
1 year to 31 December 2007 -10.4 -8.3 -17.3
1 year to 31 December 2006 26.3 28.0 15.0
1 year to 31 December 2005 24.9 27.8 25.1
1 year to 31 December 2004 28.7 20.7 35.2
1 year to 31 December 2003 37.1 43.0 25.4
1 year to 31 December 2002 -9.7 -23.3 1.7
1 year to 31 December 2001 7.9 -13.0 17.7
1 year to 31 December 2000 15.6 1.2 4.2
1 year to 31 December 1999 49.5 56.2 62.5
1 year to 31 December 1998 -6.1 -5.7 -14.2
1 year to 31 December 1997 5.3 9.2 -1.4

Compound Cumulative
Annual Returns (%) Returns (%)
Share Share
Periods to 31 December 2011 NAV1 Index2 Price3 NAV1 Index2 Price3
2 years from 31 December 2009 4.7 8.1 0.1 9.5 16.8 0.1
3 years from 31 December 2008 16.5 23.3 16.8 58.2 87.7 59.4
4 years from 31 December 2007 -1.2 2.7 -0.4 -4.5 11.0 -1.7
5 years from 31 December 2006 -3.1 0.4 -4.1 -14.5 1.8 -18.7
6 years from 31 December 2005 1.3 4.5 -1.1 8.0 30.3 -6.5
7 years from 31 December 2004 4.4 7.6 2.3 34.9 66.5 17.0
8 years from 31 December 2003 7.1 9.1 5.9 73.7 101.0 58.1
9 years from 31 December 2002 10.1 12.4 7.9 138.1 187.4 98.4
10 years from 31 December 2001 8.0 8.2 7.3 115.1 120.5 101.7
11 years from 31 December 2000 8.0 6.1 8.2 132.0 91.8 137.5
12 years from 31 December 1999 8.6 5.7 7.8 168.2 94.1 147.5
13 years from 31 December 1998 11.3 8.9 11.3 300.8 203.1 302.2
14 years from 31 December 1997 9.9 7.8 9.2 276.2 185.7 245.0
15 years from 31 December 1996 9.6 7.9 8.5 296.2 212.0 240.1
16 years from 31 December 1995 10.4 8.5 9.2 384.4 270.3 309.9
17 years from 31 December 1994 11.1 9.0 9.9 496.9 330.0 396.0
18 years from 31 December 1993 10.3 8.3 8.9 481.3 316.7 361.4
19 years from 31 December 1992 12.1 9.8 11.0 777.3 490.0 627.3
20 years from 31 December 1991 11.6 9.6 10.6 802.2 527.8 652.1
21.1 years from inception
on 10 December 1990 12.5 9.9 11.3 1,095.6 636.6 854.0

1 Represents Net Asset Value (Fully Diluted Net Asset Value prior to 1 April 2003) with net dividends reinvested since 2 July 1997, prior
to which gross dividends were reinvested.
2 Represents capital appreciation/(depreciation) on the RBS Hoare Govett Smaller Companies Index (Excluding Investment Companies)
with net dividends reinvested (prior to 1 January 1997 in its “Extended” version and prior to 2 July 1997 with gross dividends reinvested).
3 Represents Ordinary Share price with net dividends reinvested since 2 July 1997, prior to which gross dividends were reinvested.

Aberforth Smaller Companies Trust plc 15

Long-Term Record

Ten Year Capital Summary

Equity Net asset

Total Shareholders’ Value per Share
As at assets5 Borrowings funds Share1 Price Discount 2
31 December £m £m £m p p %

2011 671.1 68.0 603.1 627.3 501.00 20.1

2010 768.6 51.8 716.8 743.8 632.50 15.0
2009 635.2 48.3 586.9 605.9 534.00 11.9
2008 465.3 41.2 424.1 437.7 351.25 19.7
2007 735.0 — 735.0 743.9 587.00 21.1
2006 833.3 — 833.3 843.4 723.00 14.3
2005 671.2 — 671.2 679.3 640.00 5.8
2004 3 547.2 — 547.2 553.7 522.00 5.7
2003 4 431.5 — 431.5 436.7 395.75 9.4
2002 275.9 — 275.9 326.3 325.25 0.3
2001 315.3 — 315.3 371.6 328.75 11.5
1 The calculation of Net Asset Value per Share is explained in the Shareholder Information section on page 50. This represents the Fully
Diluted Net Asset Value prior to 1 April 2003.
2 The discount calculation is the percentage difference between the Company’s Ordinary Share price and the underlying Net Asset Value
per Share which includes current year revenues.
3 2004 figures have been restated in line with the restated financial statements for that year.
4 In 2003 the Company raised £61,876,000 through the issue of Shares pursuant to the scheme of reconstruction of Aberforth Split
Level Trust plc.
5 Total assets less liabilities excluding borrowings.

Ten Year Revenue Summary

Available Revenue Dividends Total

Year to for Ordinary per Ordinary per Ordinary expense
31 December Shareholders Share1 Share net ratio2 Gearing 3
£’000 p p % %

2011 23,247 24.13 20.75 0.88 111.1

2010 17,512 18.11 19.00 0.85 107.3
2009 16,813 17.35 19.00 0.85 107.7
2008 22,223 22.75 19.00 0.94 109.5
2007 18,158 18.38 15.20 0.86 96.7
2006 16,209 16.40 13.40 0.97 96.2
2005 14,325 14.50 11.85 0.99 98.3
20044 13,085 13.24 11.00 0.99 97.0
20035 10,026 11.59 10.10 0.98 96.3
2002 8,855 10.57 9.50 1.04 99.1
2001 9,134 10.93 9.10 0.98 96.8

1 The calculation of Revenue per Ordinary Share is based on the revenue from ordinary activities after taxation and the weighted
average number of Ordinary Shares in issue.
2 Ratio of operating costs (excluding transaction costs taken to capital reserve) to average Shareholders’ funds (calculated per AIC
guidelines). Since 2007, the figures exclude VAT on investment management fees although earlier years have not been restated.
3 Total investments divided by Shareholders’ funds.
4 2004 figures have been restated in line with the financial statements.
5 In 2003 the Company raised £61,876,000 through the issue of Shares pursuant to the scheme of reconstruction of Aberforth Split
Level Trust plc.

16 Annual Report and Accounts 2011

Directors

Directors
Professor P R Marsh, (Chairman, appointed as a director on 16 July 2004)
Paul Marsh is Emeritus Professor of Finance at London Business School. Within London Business School, he has been
Deputy Principal, Faculty Dean, Chair of the Finance area, Associate Dean Finance Programmes and an elected
Governor. He has advised on several public enquiries, and was previously a Director of Majedie Investments plc (until
2006) and M&G Group (until 1999). He co-designed the FTSE 100 Index and the RBS Hoare Govett Smaller
Companies Index, produced for The Royal Bank of Scotland at London Business School.

H N Buchan, (appointed 11 November 2003 and is a Member of the Audit and Management
Engagement Committee)
Hamish Buchan is a consultant in the financial sector and is a Director of Standard Life European Private Equity
Trust plc, Templeton Emerging Markets Investment Trust plc, The Scottish Investment Trust plc and is Chairman
of JPMorgan American Investment Trust plc and Personal Assets Trust plc. He was previously Chairman of The
Association of Investment Companies. From 1969 until his retirement in 2000 he was an investment trust
analyst with Wood Mackenzie & Co and its successor firms.

J E G Cran, ACMA (appointed 17 July 2001 and is a Member of the Audit and Management
Engagement Committee)
Edward Cran was Chief Executive of Cattles plc, a company involved in the consumer credit business, until his
retirement in May 2001. He joined the Board of Cattles plc in 1990 prior to which he held various senior
positions in the credit industry.

D J Jeffcoat, FCMA (appointed 22 July 2009 and is Chairman of the Audit and Management
Engagement Committee)
David Jeffcoat began his career as a production engineer at Jaguar Cars Ltd. After qualifying as an
accountant several years later, he held a number of senior positions including subsidiary-level Finance Director
at GlaxoWellcome plc and Group Financial Controller at Smiths Industries plc. More recently he was Group
Finance Director and Company Secretary at Ultra Electronics Holdings plc from 2000 until his retirement in
2009. He also sits on the Board of WYG plc and is a Trustee of the Marine Society & Sea Cadets.

Professor W S Nimmo, (appointed 16 July 2004)

Walter Nimmo was previously Chief Executive and Chairman of the Inveresk Research Group until 2004. He
founded Inveresk Clinical Research in 1988. Currently he sits on the Board of a number of private companies.

R Rae, CA, (appointment with effect 26 January 2012)

Richard Rae 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 due diligence and
corporate advice to both listed and unlisted companies. He is a non-executive director of Mouchel Group plc.

Aberforth Smaller Companies Trust plc 17

Directors’ Report

The Directors have pleasure in submitting the Annual Report and Accounts of the Company for the year to
31 December 2011.
Business Review
Investment Objective
The objective of ASCoT is to achieve a net asset value total return (with dividends reinvested) greater than on
the RBS Hoare Govett Smaller Companies Index (Excluding Investment Companies) over the long term.
Investment Policy
The Company aims to achieve its objective and to diversify risk by investing in typically over 80 small UK
quoted companies. Small companies are those having a market capitalisation, at time of purchase, equal to
or lower than the largest company in the bottom 10% of the main UK equity market or companies in the
RBS Hoare Govett Smaller Companies Index (Excluding Investment Companies). The upper market
capitalisation limit to this index at 1 January 2012 (the date of the last annual index rebalancing) was £1.264
billion, although this limit will change owing to movements in the stockmarket. The aggregate market
capitalisation of the index as at 1 January 2012 was £134 billion and it includes 422 companies.
The Company may, at time of purchase, invest up to 15% of its assets in any one security although, in
practice, each investment will typically be substantially less and, at market value, represent less than 5% of
the portfolio on an ongoing basis.
If any company held by ASCoT no longer falls within the definition of a small company, as defined above, its
securities will become candidates for sale. The Managers aim to keep the Company near fully invested in
equities at all times and there will normally be no attempt to engage in market timing by holding high levels
of liquidity.
The Company’s policy towards companies quoted on the Alternative Investment Market (AIM) generally
precludes investment except in the circumstances where either 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 securities nor any securities issued by investment trusts or
investment companies.
The Board, in conjunction with the Managers, is responsible for determining the gearing strategy for the
Company. When considered appropriate, gearing is used tactically in order to enhance returns. The
Company’s Articles of Association limit borrowings to 100% of Shareholders’ funds although the Board
would anticipate any gearing to be substantially below this limit.
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.
A detailed analysis of the investment portfolio is contained in the Managers’ Report and Portfolio Information
contained on pages 7 to 14.

Investment Strategy and Style

The portfolio is diversified and will normally comprise investments in over 80 individual companies. The
Managers’ investment style is to focus on ‘’value investing”, an approach that has been developed over time
that does not use any one style or sub-set of value investing. In seeking investments, the approach will be
fundamental in nature, involving regular contact with the management of prospective and existing
investments, in conjunction with rigorous financial and business analysis of these companies. The Managers
recognise that different types of businesses perform better than others depending on the stage of the
economic cycle and this is reflected in the portfolio. Therefore, the emphasis within the portfolio will reflect
the desire to invest in companies whose shares represent relatively attractive value within a given stockmarket
environment.
The sectoral disposition of the portfolio is a result of the “bottom-up” stock selection process and there are
no sectoral constraints, though a “top-down” risk assessment is undertaken regularly.

Bank Debt Facility

In April 2011, the Board negotiated a new bank debt facility of £100 million with The Royal Bank of Scotland.
This facility can be used at any time. As at 31 December 2011, the Company had drawn down £68 million
under the facility. Further information can be found in Note 12.

18 Annual Report and Accounts 2011

Directors’ Report

Corporate Structure, Governance and Regulation

The Company is an investment company as defined within the meaning of Section 833 of the Companies Act
2006 and manages its affairs so as to qualify as an investment trust under Section 1158 of the Corporation
Tax Act 2010. It has a fixed share capital although, subject to Shareholder approval sought annually, it may
purchase its own Shares. The Company is listed and its Shares trade on The London Stock Exchange.
Furthermore the Company is subject to the laws and regulations relating to UK listed companies.
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 no executive directors nor any employees.
However, the Board has engaged external firms to undertake the investment management, secretarial and
custodial activities of the Company. The Corporate Governance Report within this annual report contains a
thorough review of the Company’s stance on corporate governance.

Continuation of the Company

The Company has no fixed duration. However, in accordance with the Company’s Articles of Association an
ordinary resolution will be proposed at the Annual General Meeting to be held in 2014 (and, if passed, at
every third subsequent Annual General Meeting) that the Company continues to manage its affairs as an
investment trust.
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 these 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.

Investment Trust Status

The Company is exempt from corporation tax on capital profits, provided it qualifies as an investment trust. In
respect of the year ended 31 December 2011, this required that:
• the Company’s revenue (including dividend and interest income but excluding profits/losses on sale of
investments) should be derived wholly or mainly from shares and securities;
• the Company must not retain in respect of each accounting period more than 15% of its income from
shares and securities;
• no investment in a company may represent more than 15% by value of the Company’s investment
portfolio at time of purchase;
• realised profits on sale of shares and securities may not be distributed by way of a dividend; and
• the Company must not be a close company.
The Company has been approved by HM Revenue & Customs as an investment trust up to 31 December
2010. It is the opinion of the Directors that the Company has subsequently conducted its affairs so as to
enable it to continue to seek such approval. The Company will continue to conduct its affairs as an
investment trust.

Management
Aberforth Partners LLP, a limited liability partnership, provides investment management, administration and
company secretarial services to the Company. These services can be terminated by either party at any time by
giving six months’ notice of termination. Compensation fees would be payable in respect of this six month
period only if termination were to occur sooner. Aberforth Partners LLP receives a quarterly management fee,
payable in advance, equal to 0.2% of the total net assets of the Company. However, the total fee paid each
year may be slightly higher or lower than 0.8% depending on the movements in the value of the Company’s
assets during the year. The Company also pays a quarterly secretarial fee, payable in advance, which
amounted to £17,446 (excluding VAT) per quarter during 2011. The secretarial fee is adjusted annually in line
with the Retail Prices Index and is subject to VAT which is currently irrecoverable by the Company.

Aberforth Smaller Companies Trust plc 19

Directors’ Report

The Board considers the Company’s investment management and secretarial arrangements on an ongoing basis
and a formal review is conducted annually by the Audit and Management Engagement Committee (the
Committee). The Committee specifically considers the following topics in its review: investment performance in
relation to the investment policy and strategy; the continuity of personnel managing the assets and reporting to
the Board; the alignment of interests between the investment manager and the Company’s Shareholders; the
level of service provided in terms of the accuracy and timeliness of reports to the Board; and, the frequency and
quality of both verbal and written communications with Shareholders. Following the most recent review the
Board, upon the recommendation of the Committee, is of the opinion that the continued appointment of
Aberforth Partners LLP as investment managers, on the terms agreed, is in the best interests of Shareholders as a
whole.

Capital Structure and Share Buy-Backs

At 31 December 2011, the Company’s authorised share capital consisted of 333,299,254 Ordinary Shares of
1p of which 96,138,792 were issued and fully paid. During the year, 228,000 shares (with a nominal value of
£2,280) were bought back (0.2% of the Company’s issued share capital) and cancelled at a total cost of
£1,176,000. No shares are held in treasury. Subject to the requirement that purchases by the Company of its
own shares will be made only at a level that enhances the net asset value (NAV), the principal objective of any
such purchase will be to seek to sustain as low a discount between the Company’s NAV and share price as
seems possible. Accordingly, it is the Board’s intention to continue to use the share purchase facility within
guidelines established from time to time by the Board.

Return and Dividends

The total return attributable to Shareholders for the year amounted to a loss of £93,778,000 (2010 – gain of
£151,017,000). The net asset value per Ordinary Share at 31 December 2011 was 627.31p (2010 – 743.81p).
Your Board is pleased to declare a second interim dividend, in lieu of a final dividend, of 14.30p, which
produces total dividends for the year of 20.75p, an increase of 9.2% over the previous year. The second
interim dividend of 14.30p per share will be paid on 24 February 2012 to Shareholders on the register at the
close of business on 3 February 2012.
£’000 £’000
Revenue return for the year available for dividends 23,247
Dividends in respect of the revenue available:
First interim dividend of 6.45p per Ordinary Share paid 26 August 2011 (6,216)
Second interim dividend of 14.30p per Ordinary Share payable 24 February 2012 (13,748) (19,964)
Transfer to reserves 3,283

Key Performance Indicators

The Board assesses the Company’s performance in meeting its objective against the following key
performance indicators:
• Net asset value total return
• Share price total return
• Performance attribution
• Share price discount
• Revenue and dividend position
A record of these measures is shown on pages 7, 15 and 16.
In addition to the above, the Board considers the performance of the Company against its investment trust
peer group.

Review of Performance, activity during the year and the investment outlook
A comprehensive review can be found in the Chairman’s Statement and Managers’ Report.

20 Annual Report and Accounts 2011

Directors’ Report

Principal Risks and Risk Management

The Directors have established an on-going process for identifying, evaluating and managing the key risks
faced by the Company. This process was in operation during the year and continues in place up to the date
of this report.
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
volatility of returns from diversified portfolios of small and large companies. The Company has a diversified
portfolio. In addition, the Company has a simple capital structure; invests only in small UK quoted companies;
has never been exposed to derivatives and does not presently intend any such exposure; and outsources all
the main operational activities to recognised, well-established firms. Nonetheless, as the Company’s
investments consist of small UK quoted companies, the principal risks facing the Company are market related
and include market price, interest rate, and liquidity risk. An explanation of these risks and how they are
managed is contained in Note 18 to the Accounts.
Additional key risks faced by the Company, together with the approach taken by the Board towards them,
have been summarised below:
(i) Investment policy/performance – The performance of the investment portfolio will typically not match
the performance of the benchmark. However, the Board’s aim is to achieve the investment objective
over the long term whilst managing risk by ensuring the investment portfolio is managed appropriately.
The Managers have a clearly defined investment philosophy and manage a diversified portfolio. The
value of the portfolio will also be affected by events or developments in the economic environment
generally, for example inflation or deflation, recession and movements in interest rates. The Board
continually monitors the Company’s performance against the benchmark, and regularly receive a
detailed portfolio attribution analysis. The peer group is also regularly monitored by the Board and this
includes NAV and share price performance, portfolio exposure, management fees and total expense
ratios.
(ii) Share price discount – investment trust shares tend to trade at discounts to their underlying net asset
values. The Board and the Managers monitor the discount on a daily basis. Furthermore, the Board
intends to continue to use the share buy back facility to seek to sustain as low a discount as seems
possible.
(iii) Gearing risk – in rising markets, the effect of borrowings would be beneficial but in falling markets the
gearing effect would adversely affect returns to Shareholders. The Board consider the gearing level and
associated risk at each meeting.
(iv) Loss of key personnel – the quality of the investment management team is considered crucial in
delivering the investment objective and the loss of key personnel at Aberforth Partners LLP could
adversely affect performance. Board members are in regular contact with the partners and staff of
Aberforth Partners LLP and monitor personnel changes.
(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 being subject to capital
gains tax. The Board receives quarterly compliance reports from the Secretaries to monitor compliance
with rules and regulations, together with information on future developments.
(vi) Operational/Financial risk – failure of the Managers’ accounting systems or those of other third party
service providers could lead to an inability to provide accurate reporting and monitoring, or potentially
lead to the misappropriation of assets. Agreements are in place with all key third party service providers
and the Board reviews regular reports on the internal controls of the Managers and other key parties.
In summary, the Board regularly considers the risks associated with the Company, the measures in place to
monitor them and the possibility of any other risks that may arise.

Aberforth Smaller Companies Trust plc 21

Directors’ Report

Other Matters
Going Concern
In accordance with the report “Going Concern and Liquidity Risk : Guidance for Directors of UK Companies
2009” issued by the Financial Reporting Council, the Directors have undertaken and documented a rigorous
assessment of whether the company is a going concern. The Directors considered all available information
when undertaking the assessment.
The company’s business activities, capital structure and borrowing facility, together with the factors likely to
affect its development, performance and position are set out in the Managers’ Report and the Business
Review. In addition, the notes to the financial statements include the company’s objectives, policies and
processes for managing its capital, its financial risk management objectives, 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 appropriate financial
resources to enable it to meet its day-to-day working capital requirements and the Directors believe that the
company is well placed to continue to manage its business risks. The Directors consider that the company has
adequate resources to continue in operational existence for the foreseeable future.
In summary and taking into consideration all available information, the Directors have concluded it is
appropriate to continue to prepare the financial statements on a going concern basis.

Directors
The Directors who held office at 31 December 2011 and their interests in the Shares of the Company as at
that date and 1 January 2011 were as follows:

Ordinary Shares
Directors Nature of Interest 31 December 2011 1 January 2011
Prof P R Marsh Beneficial 25,000 25,000
H N Buchan Beneficial 19,474 19,474
M L A Chiappelli (retired 2 March 2011) Beneficial n/a 29,173
J E G Cran Beneficial 32,670 31,684
D J Jeffcoat Beneficial 4,738 4,599
Prof W S Nimmo Beneficial 29,157 25,656

There has been no change in the beneficial or non-beneficial holdings of the Directors between 31 December
2011 and 25 January 2012.
As stated in the separate Corporate Governance Report, all Directors seek re-election every year and, as a
result, all Directors retire at the AGM to be held on 7 March 2012. All Directors, with the exception of
Mr Cran who will retire at the forthcoming AGM, offer themselves for re-election and biographical details for
each are shown on page 17.

Corporate Governance Report

The Corporate Governance Report, which details compliance with the UK Corporate Governance Code
(formerly “Combined Code (2008)”), can be found on pages 25 to 29 and forms part of this report.

Voting Rights
At Shareholder meetings and on a show of hands, every Shareholder present in person or by proxy has one
vote and, 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. The deadline for proxy appointments is
48 hours before the time fixed for the meeting, or any adjourned meeting.
Your Board is pleased to offer electronic proxy voting, including CREST voting capabilities. You may therefore
complete the enclosed form of proxy and return it to Capita Registrars, the Company’s registrar, or
alternatively, you may registrar your vote on-line (www.capitashareportal.com) or via CREST. Further details
can be found in the Notice of the AGM.

22 Annual Report and Accounts 2011

Directors’ Report

Annual General Meeting

The AGM will be held on Wednesday, 7 March 2012 at 6.30 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 9, as set out in the Notice of the AGM,
seeks renewal of such authority until the AGM in 2013. 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. 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/warrants to subscribe for equity shares in the capital of the Company.
As mentioned above, subject to the requirement that purchases by the Company of its own Shares will be
made only at a level which enhances NAV, the principal objective of any such purchase will be to seek to
sustain as low a discount between the Company’s NAV and share price as seems possible. Accordingly, it is
the Board’s intention to use the share purchase facility within guidelines established from time to time by the
Board.
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.

Substantial Share Interests

The Board has received notifications in accordance with the FSA’s Disclosure and Transparency Rules of the
following interests in 3% or more of the voting rights of the Company, which total 96,138,792 votes, as at
25 January 2012.

Percentage
Interested person of Voting
Rights Held

Rathbone Brothers plc 5.4

Brewin Dolphin Limited 5.1
Lloyds Banking Group plc (including discretionary investment management) 4.2
Legal & General Investment Management 3.1

Financial Instruments
The Company’s financial instruments comprise its investment portfolio, cash balances, debt facilities, debtors
and creditors that arise directly from its operations such as sales and purchases awaiting settlement and
accrued income. The main risks that the Company faces arising from its financial instruments are disclosed in
Note 18 to the accounts.

Section 992 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 page 3.
• 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 page 28.
• Amendment of the Company’s Articles of Association and powers to issue on a non pre-emptive basis or
buy back the Company’s shares require a special resolution to be passed by shareholders.

Aberforth Smaller Companies Trust plc 23

Directors’ Report

• 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 which the Company is party to 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.

Donations
The Company did not make any political or charitable donations during the year (2010 – £nil).

Creditors Payment Policy

The Company’s creditors payment policy is to agree terms of payment before business is transacted, to ensure
suppliers are aware of these terms and to settle bills in accordance with them. The Company did not have
any trade creditors at the year end.

Auditor
Ernst & Young 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 he ought to have taken as a Director to make him aware of any relevant audit
information, and to establish that the Company’s Auditor is aware of that information.
By Order of the Board
Aberforth Partners LLP, Secretaries
25 January 2012

24 Annual Report and Accounts 2011

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 AIC Code of Corporate Governance (the
AIC Code) by reference to the AIC Corporate Governance Guide for Investment Companies (the AIC Guide).
The AIC Code, as explained by the AIC Guide, addresses all the principles set out in The UK Corporate
Governance Code (“The Code”), issued by the Financial Reporting Council, as well as setting out additional
principles and recommendations on issues that are of specific relevance to the Company. The AIC Code,
issued in October 2010, can be obtained from the AIC’s website at www.theaic.co.uk.
The Board has consequently decided to base this report on the principles and recommendations of the AIC
Code, including reference to the AIC Guide (which incorporates The Code). The Board considers that this
provides more relevant information to shareholders, whilst meeting the Board’s obligations under The Code.
The Company has complied with the recommendations of the AIC Code and the relevant provisions of The
Code, except as set out below. The 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, and as explained in The Code, the Board considers that these provisions are not relevant to the
Company as it is an externally managed investment company. This report, which forms part of the Directors’
Report, outlines how the principles and recommendations of the AIC Code were applied, unless otherwise
stated, throughout the financial year. The Directors are also aware that there are many other published
guidelines relating to corporate governance and, whilst these receive due consideration, the Board does not
consider it appropriate to address them individually in this report.

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 determined by the Board. A formal schedule of matters reserved
for decision of the Board has been adopted. The Board of Directors comprises five non-executive Directors of
which Professor Marsh acts as Chairman. The Company has no executive Directors nor any employees.
However, the Board has engaged external firms to provide investment management, secretarial, registrar, and
custodial services to the Company. Documented contractual arrangements are in place between the
Company and these firms, which clearly set out the areas where the Board has delegated authority to them.
The Board, being comprised entirely of independent non-executive Directors, has not appointed a
Remuneration nor 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 nor a
senior independent director although the Chairman of the Audit and Management Engagement Committee,
fulfils this role when necessary, for example, taking the lead in the annual evaluation of the Chairman.
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. An individual can therefore be considered to be independent
even though their length of service exceeds nine years. No limit on the overall length of service of any of the
Directors, including the Chairman, has therefore been imposed. All Directors are considered to be
independent notwithstanding that Mr Cran has sat on the Board for more than nine years. As in previous
years, all Directors retire at each AGM and, if appropriate, seek re-election. Each Director has signed a letter
of appointment to formalise the terms of his engagement as a non-executive Director, copies of which are
available on request and at the Company’s 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 key areas including:
• the Company’s investment activity over the quarter relative to its investment policy;
• the stockmarket environment; the revenue and balance sheet position;

Aberforth Smaller Companies Trust plc 25

Corporate Governance Report

• gearing;
• performance in relation to comparable investment trusts;
• share price discount (both absolute levels and volatility);
• Regulatory matters; and
• relevant industry issues.

The Board receives regular reports from the Managers analysing and commenting on the composition of the
Company’s share register and monitors significant changes. The Board also holds an annual strategy session to
consider, amongst other matters, the Company’s objective and investment focus and style.
The following highlights various additional matters considered by the Board during the past year:

Jan Feb March Apr May Jun Jul Aug Sept Oct Nov Dec

Consider Approval Consider Approval

Annual Internal Corporate
2nd of the 1st of Half
General Control Governance
Interim Annual Interim Yearly
Meeting Review Review
Dividend Report Dividend Report

Renewal of Review
Annual Board &
the Managers’
Strategy Committee
Registrar continued
Review Evaluation
Agreement appointment

Review of Debt facility: Review Management

Custody Considered Fee allocation
Arrangements and Renewed between Capital and
Revenue

The following table sets out the number of Board and Committee meetings held during the financial year and
the number of meetings attended by each Director (whilst a Director or Committee member). All Directors
also attended the AGM in March 2011.

Audit and Management Other

The Board Engagement Committee Committees
Director Held Attended Held Attended Held Attended

Prof P R Marsh,
Chairman 4 4 – – 6 6
H N Buchan 4 4 3 3 1 1
M L A Chiappelli 1 1 1 1 – –
J E G Cran 4 3 3 2 1 1
D J Jeffcoat 4 4 3 3 1 1
Prof W S Nimmo 4 4 – – 6 6

Conflicts of Interest
A company director has 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 authorising any conflicts, or potential conflicts, of interest
though no such conflicts arose during the year under review.

Training and advice

All Directors are entitled to receive appropriate training when required and changes affecting Directors’
responsibilities are advised to the Board as they arise. Directors, in the furtherance of their duties, may seek
independent professional advice at the expense of the Company. No Director took such advice during the
financial year under review.

26 Annual Report and Accounts 2011

Corporate Governance Report

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. Furthermore, appropriate induction training is arranged by the Secretaries for
newly appointed directors.

Directors’ and Officers’ Liability Insurance

The Company maintains appropriate insurance cover in respect of legal action against its Directors. Following
changes to the law relating to a company’s ability to indemnify its directors, the Company has also entered
into a deed 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 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.

Appointments to the Board

The Board conducts an annual review of its composition having regard to the present and future needs of the
Company and the Board’s structure, including the balance of expertise and skills brought by individual Directors
and their length of service, where continuity and experience can add significantly to the strength of the Board.
As mentioned in the Chairman’s statement, Mr Cran will retire at the conclusion of this year’s AGM and, in
order that the Board should continue to have a balance of skills and experience, the Board decided that an
additional Director should be appointed.

The Board therefore appointed a Committee for this purpose, chaired by Professor Paul Marsh. This Committee,
of which Professor Walter Nimmo was also a member, was requested to identify and nominate, for approval by
the Board, candidates to fill the forthcoming board vacancy. The Committee was instructed to complete this
process taking into consideration the Board’s agreed requirements.

The Committee consulted widely and identified twenty strong candidates, consisting of 13 males and 7 females.
It therefore decided on this occasion not to appoint an external search company. Following several meetings and
conference calls, the Committee then agreed a short list of candidates, comprising 4 males and 4 females, who
were approached. Four wished to be considered, and were interviewed by the Committee. Finally, the remaining
Directors met the preferred candidate put forward by the Committee. After due consideration, the Board
appointed Richard Rae as a Director of the Company with effect from 26 January 2012. Richard will stand for
formal election by Shareholders at the AGM and his biography can be found on page 17. Richard brings to the
Board a deep knowledge of the smaller companies sector having previously headed up the top-rated SmallCap
research team at ABN AMRO until 2009.

Board performance and re-appointment of Directors

The Board undertakes a formal annual self-assessment of its collective performance on a range of issues
including the Board’s role (including Committees), processes and interaction with the Managers. The Directors
also evaluate the performance of the Board and the Audit and Management Engagement Committee by way of
an evaluation questionnaire. The Board then considers the results of this exercise, together with other relevant
discussion areas. The appraisal of the Chairman is led by the Chairman of the Audit and Management
Engagement Committee.

In line with the Board’s policy, each Director retires at the AGM to be held on 7 March 2012. Messrs Buchan,
Jeffcoat, Prof Marsh and Prof Nimmo, whose biographical details are shown on page 17, being eligible, offer
themselves for re-election. As stated above Mr Rae will stand for election. The Board believes that each Director
continues to be effective, bringing a wealth of knowledge and experience to the Board and recommends the re-
election of each Director to Shareholders.

The Board, currently, does not consider that the use of external consultants to conduct this evaluation is likely to
provide any meaningful benefit to the evaluation process, though the option to do so is kept under review.

Aberforth Smaller Companies Trust plc 27

Corporate Governance Report

Relations with Shareholders

The Board believes that regular contact with Shareholders is essential and receives regular reports from the
Managers on views and attitudes of Shareholders. The Managers endeavour to meet all of the larger
Shareholders twice a year and provide them with a detailed report on the progress of the Company. Directors of
the Company are always available to meet with any Shareholder. The Directors may be contacted through the
Secretaries whose details are shown on the inside back cover or through the Chairman’s email address which is
[email protected]. In addition to the annual and half yearly reports the Company’s performance,
weekly Net Assets Values, monthly factsheet and other relevant information is published on the Managers’
website at www.aberforth.co.uk.

All Shareholders have the opportunity to attend and vote at the AGM during which the Directors and Managers
are available to discuss key issues affecting the Company. Proxy voting figures are announced at the AGM and
are available via the Managers’ website shortly thereafter.

Internal Control
The Board has overall responsibility for the Company’s system of internal control and for reviewing its
effectiveness. The Company applies the revised guidance published in October 2005 by The Institute of
Chartered Accountants in England and Wales in respect of The Code’s sections on Internal Control (commonly
known as the Turnbull Guidance on Internal Control). 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 financial information of
the Company is reliable. The Directors have an ongoing process for identifying, evaluating and managing the
significant risks faced by the Company and these are recorded in a risk matrix. This was in operation during the
year and continues in place up to the date of this report. The Directors regularly formally review the
effectiveness of the Company’s system of internal control. This process principally comprises the Audit
Committee receiving and examining reports from Aberforth Partners LLP, The Northern Trust Company, the
Company’s custodian and Capita Registrars, the Company’s registrar. The reports detail the internal control
objectives and procedures adopted by each firm and each report has been independently reviewed by
PricewaterhouseCoopers LLP, KPMG LLP and HLB Vantis Audit plc respectively. The Audit Committee then
submits a detailed report on its findings to the Board. The Directors have not identified any significant failures or
weaknesses in respect of the Company’s system of internal control.

Audit and Management Engagement Committee

The Directors have appointed an Audit and Management Engagement Committee (“Committee”), chaired by
Mr Jeffcoat, a qualified accountant. This Committee, of which Messrs Buchan and Cran are also members,
specifically considers the Company’s financial statements and the accounting policies adopted, the Company’s
key risks, the internal control principles adopted and the relationship with the Company’s auditor including
making recommendations to the Board on the appointment, reappointment or removal, and the terms of
appointment, including remuneration, of the auditor. In addition, it reviews the scope and results of the audit,
its cost effectiveness and the independence and objectivity of the auditor, with particular regard to non-audit
fees. Such fees amounted to £2,000 (2010 – £2,000) and related to the completion and submission of the
corporation tax returns. The Committee considers that the provisions of these services is cost effective and does
not impair the independence of the auditor. Furthermore, non-audit work requires the prior approval of the
Committee. The Committee has direct access to the Company’s auditor, representatives of whom attend the
Committee meeting at which the results of the audit and the Annual Report and Accounts are considered.

The appointment of the auditor is reviewed by the Committee annually, with advice sought from the Secretaries.
On the basis of the auditor’s performance, audit fees and confirmation of the auditor’s independence, the
Committee recommended to the Board the continuing appointment of Ernst & Young LLP as the Company’s
auditor.

28 Annual Report and Accounts 2011

Corporate Governance Report

This Committee also formally reviews the terms of the agreements with the Managers and the Secretaries
annually, including the level of service, the basis of fees payable and the length of the notice period. Details of
the arrangements are set out in the Directors’ Report.

The Committee also considers annually whether there is a need for an internal audit function. However, as the
Company has no employees and subcontracts all its business to third parties, it believes that an internal audit
function is not necessary and the Board places reliance on the Managers and its other contractors to ensure that
they operate effective internal controls.

The Committee operates within terms of reference that have been agreed with the Board. The Committee’s
findings and recommendations are submitted to the Board for consideration. These terms of reference are
reviewed annually and are available for inspection on request.

Social, Environmental and Ethical Issues

The Company is normally a shareholder in over 80 small UK quoted companies. Day to day management of the
Company’s investment portfolio is carried out by its Managers, Aberforth Partners LLP. The Managers have a
consistent and well-defined investment process based on fundamental analysis of the constituents of their
investment universe. The Manager’s Corporate Governance Policy and Stewardship Code Statement are
available from their website.

The Managers’ primary objective is to deliver investment returns greater than the return on the Company’s
benchmark index, the RBS HGSC (XIC), over the long term. The Directors, through the Company’s Managers,
also encourage investee companies to adhere to best practice in the area of Corporate Governance and Socially
Responsible Investment (SRI). The Board and the Managers support the Statement of Principles of the
Institutional Shareholders Committee which set out the responsibilities of institutional shareholders and agents.

Effective management of risks and opportunities posed by social, environmental and ethical (SEE) issues is an
important component of good corporate governance. Companies that ignore significant corporate
responsibilities risk serious damage to their reputation, brand and shareholder value, as well as litigation and
operational risks.

The Managers believe that sound SEE 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 SEE concerns. Instead, the Managers adopt a positive approach whereby such
matters are discussed with management with the aim of improving procedures and attitudes.

Voting Policy
The Board has also given discretionary voting powers to the Managers. Aberforth Partners LLP exercises these
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 from the Managers quarterly reports on governance issues (including voting) arising from
investee companies and reviews, from time to time, the Managers’ voting guidelines and its stance towards SRI
and SEE matters.

Aberforth Smaller Companies Trust plc 29

Directors’ Remuneration Report

The Board has prepared this report, in accordance with the requirements of the Companies Act 2006. An
ordinary resolution for the approval of this report will be put to members at the forthcoming Annual General
Meeting.
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 33.

Remuneration Committee
The Board is composed wholly of non-executive Directors who together consider and determine 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.

Statement of the Company’s Policy on Directors’ Remuneration

The Company’s policy is that the remuneration of the Directors should reflect the experience of the Board, as
a whole, and be comparable to that of similar investment trusts within the AIC’s UK Smaller Companies sector
and other investment trusts that are similar in size and structure. This information is provided by Aberforth
Partners LLP, as Secretaries, who were appointed by the Board. It is intended that this policy will remain in
place for the following financial year and subsequent periods.
Directors’ remuneration is determined within the limits set by the Company’s Articles of Association and is
solely composed of Directors’ fees. Directors are not eligible for bonuses, pension benefits, share options or
any other benefits. There are no performance conditions relating to Directors’ fees. There are no long-term
incentive schemes.

Directors’ Service Contracts

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. A
Director may be removed without notice and no compensation will be due on loss of office.
The following Directors held office during the year:

Date of Date of Date of Letter of Unexpired

Director Appointment Retirement Appointment Term1

Prof P R Marsh, Chairman 16 July 2004 — 16 July 2004 1 year

H N Buchan 11 November 2003 — 11 November 2003 1 year
M L A Chiappelli 17 July 2001 2 March 2011 29 April 2003 —
J E G Cran 17 July 2001 — 29 April 2003 5 weeks
D J Jeffcoat 22 July 2009 — 22 July 2009 1 year
Prof W S Nimmo 16 July 2004 — 16 July 2004 1 year

1
Each Director’s unexpired term, other than that of Mr Cran, is subject to their re-election at the Annual
General Meeting in March 2012. As previously stated, Mr Cran will retire at the forthcoming Annual
General Meeting.

30 Annual Report and Accounts 2011

Directors’ Remuneration Report

Share Price Performance

The graph below compares the performance of the Company’s share price against the RBS Hoare Govett
Smaller Companies Index (Excluding Investment Companies), on a total return basis (assuming all dividends
reinvested). This index has been selected for the purposes of comparing the Company’s share price
performance as it has been the Company’s benchmark since inception.

Total Return Performance since 31 December 2006

20%

10%

1.8%
0%

-10%

-18.7%
-20%

-30%

-40%

-50%

-60%
Dec- Dec- Dec- Dec- Dec- Dec-
06 07 08 09 10 11
Share Price Benchmark

Note: For further information on the above graph, please refer to the Historic Total Returns tables on page 15.

Directors’ Fees (Audited)

The emoluments of the Directors who served during the year were as follows:

Fees Fees
2011 2010
£ £

Prof P R Marsh, Chairman 30,000 24,674

H N Buchan, Member of the Audit and Management Engagement Committee 21,000 18,500
M L A Chiappelli, Chairman of the Audit and Management Engagement Committee
until 25 January 2011. Retired on 2 March 2011 3,789 22,000
J E G Cran, Member of the Audit and Management Engagement Committee 21,000 18,500
D J Jeffcoat, Chairman of the Audit and Management Engagement Committee
with effect from 25 January 2011 24,884 18,500
Prof W S Nimmo 20,000 17,500
D R Shaw, retired 3 March 2010 – 4,459
120,673 124,133

No other emoluments or pension contributions were paid by the Company to or on behalf of any other
Director.

Approval
The Directors’ Remuneration Report on pages 30 to 31 was approved by the Board on 25 January 2012 and
signed on its behalf by Professor Paul Marsh, Chairman.

Aberforth Smaller Companies Trust plc 31

Directors’ Responsibility Statement

The Directors are required by law to prepare financial statements for each financial year. The Directors are also required to
prepare a Directors’ Report, Business Review, 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 (United Kingdom Accounting Standards 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 judgments and accounting estimates that are reasonable and prudent; and
• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed
and explained in the financial statements.
The Directors are responsible for keeping adequate 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
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 Directors are also responsible for ensuring that the Annual Report includes information required by the Listing Rules
and the Disclosure and Transparency Rules of the Financial Services Authority. The Directors confirm that they have
complied with these requirements in preparing the financial statements.
The Annual Report is published on www.aberforth.co.uk, which is the website maintained by the Company’s Manager.
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. Visitors to the website need to be aware that 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 confirm 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; and
(b) the Annual 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.

On behalf of the Board

Professor Paul Marsh
Chairman
25 January 2012

32 Annual Report and Accounts 2011

Independent Auditor’s Report
To the Members of Aberforth Smaller Companies Trust plc
We have audited the financial statements of Aberforth Smaller Companies Trust plc for the year ended 31 December 2011
which comprise the Income Statement, the Reconciliation of Movements in Shareholders’ Funds, the Balance Sheet, the
Cash Flow Statement and the related notes 1 to 20. 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).
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.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibility Statement set out on page 32, the Directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to
audit and express an opinion on the financial statements in accordance with applicable law and International Standards on
Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for
Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error.
This includes an assessment of: whether the accounting policies are appropriate to the Company’s circumstances and have
been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the
Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial
information in the annual report to identify material inconsistencies with the audited financial statements. If we become
aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
Opinion on financial statements
In our opinion the financial statements:
• give a true and fair view of the state of the Company’s affairs as at 31 December 2011 and of its net return for the
year then ended;
• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion 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; and
• the information given in the Directors’ Report for the financial year for which the financial statements are prepared
is consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• adequate accounting records have not been kept, or returns adequate for our audit have not been received from
branches not visited by us; or
• the financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement
with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Under the Listing Rules we are required to review:
• The Directors’ statement on page 22 in relation to going concern;
• The part of the Corporate Governance Statement relating to the Company’s compliance with the nine provisions of
the UK Corporate Governance Code specified for our review; and
• Certain elements of the report to the shareholders by the Board on Directors’ remuneration.
Susan Dawe (Senior Statutory Auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
Edinburgh
25 January 2012
(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 accept 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.

Aberforth Smaller Companies Trust plc 33

Income Statement
For the year ended 31 December 2011

2011 2010
Revenue Capital Total Revenue Capital Total
Note £’000 £’000 £’000 £’000 £’000 £’000

(Losses)/gains on investments 9 — (110,015) (110,015) — 140,996 140,996

Investment income 2 26,502 — 26,502 20,533 — 20,533
Other income 2 1 — 1 43 — 43
Investment management fee 3 (2,105) (3,508) (5,613) (1,803) (3,005) (4,808)
Other expenses 4 (522) (2,475) (2,997) (455) (3,159) (3,614)

Net return before finance costs and tax 23,876 (115,998) (92,122) 18,318 134,832 153,150
Finance costs 5 (616) (1,027) (1,643) (796) (1,327) (2,123)

Return on ordinary activities before tax 23,260 (117,025) (93,765) 17,522 133,505 151,027
Tax on ordinary activities 6 (13) — (13) (10) — (10)

Return attributable to
equity shareholders 23,247 (117,025) (93,778) 17,512 133,505 151,017

Returns per Ordinary Share 8 24.13p (121.46p) (97.33p) 18.11p 138.08p 156.19p

The Board declared on 25 January 2012 a second interim dividend of 14.30p per Ordinary Share (2010 — 13.0p). The
Board also declared on 20 July 2011 a first interim dividend of 6.45p per Ordinary Share (2010 — 6.0p).

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 Total Recognised Gains and Losses 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.

34 Annual Report and Accounts 2011

Reconciliation of Movements in Shareholders’ Funds
For the year ended 31 December 2011

Capital
Share redemption Special Capital Revenue
capital reserve reserve reserve reserve Total
£’000 £’000 £’000 £’000 £’000 £’000

Balance as at 31 December 2010 964 24 183,279 496,301 36,221 716,789

Return on ordinary activities after taxation — — — (117,025) 23,247 (93,778)
Equity dividends paid — — — — (18,744) (18,744)
Purchase of Ordinary Shares (3) 3 (1,176) — — (1,176)

Balance as at 31 December 2011 961 27 182,103 379,276 40,724 603,091

For the year ended 31 December 2010

Capital
Share redemption Special Capital Revenue
capital reserve reserve reserve reserve Total
£’000 £’000 £’000 £’000 £’000 £’000

Balance as at 31 December 2009 969 19 186,025 362,796 37,113 586,922

Return on ordinary activities after taxation — — — 133,505 17,512 151,017
Equity dividends paid — — — — (18,404) (18,404)
Purchase of Ordinary Shares (5) 5 (2,746) — — (2,746)

Balance as at 31 December 2010 964 24 183,279 496,301 36,221 716,789

The accompanying notes form an integral part of this statement.

Aberforth Smaller Companies Trust plc 35

Balance Sheet
As at 31 December 2011

2011 2010
Note £’000 £’000

Fixed assets:
Investments at fair value through profit or loss 9 669,903 768,954

Current assets
Debtors 10 2,578 1,620
Cash at bank 151 68

2,729 1,688

Creditors (amounts falling due within one year) 11 (1,657) (53,853)

Net current assets/(liabilities) 1,072 (52,165)

TOTAL ASSETS LESS CURRENT LIABILITIES 670,975 716,789

Creditors (amounts falling due after more than one year) 12 (67,884) —

TOTAL NET ASSETS 603,091 716,789

CAPITAL AND RESERVES: EQUITY INTERESTS

Called up share capital:
Ordinary Shares 13 961 964
Reserves:
Capital redemption reserve 14 27 24
Special reserve 14 182,103 183,279
Capital reserve 14 379,276 496,301
Revenue reserve 14 40,724 36,221

TOTAL SHAREHOLDERS’ FUNDS 603,091 716,789

NET ASSET VALUE PER SHARE 15 627.31p 743.81p

Approved and authorised for issue by the Board of Directors on 25 January 2012 and signed on its behalf by Professor Paul
Marsh, Chairman

The accompanying notes form an integral part of this statement.

36 Annual Report and Accounts 2011

Cash Flow Statement
For the year ended 31 December 2011

2011 2010
Note £’000 £’000

Net cash inflow from operating activities 18,763 15,766

Taxation (15) (35)
Returns on investments and servicing of finance 16 (1,584) (1,739)
Capital expenditure and financial investment 16 (13,787) 3,364

3,377 17,356
Equity dividends paid 7 (18,744) (18,404)

(15,367) (1,048)
Financing
Purchase of Ordinary Shares (800) (2,746)
Net drawdown of bank debt facilities (before costs) 17 16,250 3,500

Increase/(decrease) in cash 17 83 (294)

Reconciliation of net return before finance costs and taxation

to net cash inflow from operating activities
Net return before finance costs and taxation (92,122) 153,150
Losses/(gains) on investments 110,015 (140,996)
Scrip dividends received (137) (51)
Expenses incurred in acquiring or disposing of investments 2,475 3,159
(Increase)/decrease in debtors (1,471) 508
Increase/(decrease) in other creditors 3 (4)

Net cash inflow from operating activities 18,763 15,766

Reconciliation of net cash flow to movement in net debt 17

Increase/(decrease) in cash in the year 83 (294)
Net drawdown of bank debt facilities (16,100) (3,500)
Amortised costs in respect of the bank debt facility (173) (423)

Change in net debt (16,190) (4,217)

Opening net debt (51,543) (47,326)

Closing net debt (67,733) (51,543)

The accompanying notes form an integral part of this statement.

Aberforth Smaller Companies Trust plc 37

Notes to the Financial Statements

1 Accounting Policies
A summary of the principal accounting policies adopted, all of which have been applied consistently throughout the year
and with the preceding year, are set out below.

(a) Basis of accounting

The financial statements have been prepared on a going concern basis and in accordance with UK generally accepted
accounting practice (“UK GAAP”) and the AIC’s Statement of Recommended Practice “Financial Statements of Investment
Trust Companies and Venture Capital Trusts” issued in 2009.

(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.
As investments have been categorised as “financial assets at fair value through profit or loss”, 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.
Purchases and sales of investments are accounted for on trade date.

(c) Income
Dividends receivable on quoted equity shares are brought into account on the ex-dividend date. Dividend income is shown
excluding any related tax credit. Where the Company has elected to receive its dividends in the form of additional shares
rather than in cash, the amount of the cash dividend is recognised as income. Any surplus or deficit in the value of the
shares received compared to the cash dividend foregone 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 which are incidental 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 £100 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 special dividends; 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) Capital redemption reserve

The nominal value of Ordinary Shares bought back for cancellation is added to this reserve.

(i) Revenue reserve

This reserve represents the only reserve from which dividends can be funded.

38 Annual Report and Accounts 2011

Notes to the Financial Statements

1 Accounting Policies (continued)

(j) Taxation
The tax effect of different items of income/gain and expenditure/loss is allocated between revenue and capital on the same
basis as the particular item to which it relates, under the marginal method, using the Company’s effective rate of tax for
the accounting period. Deferred taxation is recognised in respect of all timing differences that have originated but not
reversed at the balance sheet date where transactions or events that result in an obligation to pay more or a right to pay
less tax in the future have occurred at the balance sheet date measured on an undiscounted basis and based on enacted
tax rates. This is subject to deferred tax assets being recognised only if it is considered more likely than not that there will
be suitable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences
are differences arising between the Company’s taxable profits and its results as stated in the accounts which are capable of
reversal in one or more subsequent periods.

2 Income

2011 2010
£’000 £’000

Income from investments (UK listed)

Franked investment income (net) 26,182 19,869
Scrip dividends 137 51
Other investment income 183 613

26,502 20,533

Other income
Deposit interest 1 1
Underwriting/placing commission — 42
1 43
Total income 26,503 20,576

Total income comprises:

Dividends 26,502 20,533
Interest 1 1
Underwriting/placing commission — 42

26,503 20,576

During the year the Company received no special dividends (2010 – nil) which were considered as a return of capital by the
investee companies.

3 Investment Management Fee

2011 2010
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000

Investment management fee 2,105 3,508 5,613 1,803 3,005 4,808

The Company’s investment managers are Aberforth Partners LLP. The contract between the Company and Aberforth
Partners LLP may be terminated by either party at any time by giving six months’ notice of termination. Aberforth Partners
LLP receive a quarterly management fee, payable in advance, equal to 0.2% of the value of the total assets less all liabilities
of the Company.

Aberforth Smaller Companies Trust plc 39

Notes to the Financial Statements

4 Other Expenses

2011 2010
£’000 £’000

The following expenses have been charged to revenue:

Directors’ fees (refer to Directors’ Remuneration Report) 121 124

Secretarial services 84 78
Registrars fees 65 67
AIC fees 34 38
Custody and other bank charges 37 33
Directors and Officers liability insurance 10 10
Auditor’s fee – for audit services: recurring 20 20
Auditor’s fee – for non-audit services: recurring – taxation services 2 2
Legal fees 33 15
Other expenses 116 68

522 455

The following expenses have been charged directly to capital:

Expenses incurred in acquiring or disposing of investments classified

at fair value through profit or loss 2,475 3,159

Expenses incurred in acquiring or disposing of investments classified at fair value through profit or loss are analysed below.

2011 2010
£’000 £’000

Analysis of total purchases

Purchase consideration before expenses 235,402 248,049

Commissions 852 1,078

Taxes 947 1,127

Total acquisition expenses 1,799 2,205

Total purchases 237,201 250,254

Analysis of total sales

Sales consideration before expenses 224,438 252,477

Total disposal expenses – commissions 676 954

Total sales net of expenses 223,762 251,523

40 Annual Report and Accounts 2011

Notes to the Financial Statements

5 Finance Costs

2011 2010
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000

Interest/non-utilisation costs on
bank debt facility 551 919 1,470 637 1,063 1,700
Amortisation of bank debt
facility costs 65 108 173 159 264 423

616 1,027 1,643 796 1,327 2,123

6 Taxation

Analysis of tax charged on return on ordinary activities 2011 2010

£’000 £’000

UK corporation tax charge for the year (see below) — —

Irrecoverable overseas taxation suffered 13 10

Total tax charge for the year 13 10

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 (26%).

The differences are explained below:

Total returns on ordinary activities before tax (93,765) 151,027

Notional corporation tax at 26.5% (2010 –– 28%) (24,856) 42,288

Non-taxable UK dividends (6,938) (5,563)
Non-taxable overseas dividend income (20) (172)
Expenses not deductible for tax purposes 656 885
Expenses for which no relief has been taken 2,004 2,041
Capital returns (not subject to corporation tax) 29,154 (39,479)

UK corporation tax charge for the year — —

Irrecoverable overseas taxation suffered 13 10

Total tax charge for the year 13 10

The Company has not recognised a potential asset for deferred tax of £16,750,000 (2010: £14,936,000) 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.

Aberforth Smaller Companies Trust plc 41

Notes to the Financial Statements

7 Dividends
2011 2010
£’000 £’000

Amounts recognised as distributions to equity holders in the period:

Second interim dividend for the year ended 31 December 2010 of 13.00p
(2009: 13.0p) paid on 26 February 2011 12,528 12,592
First interim dividend for the year ended 31 December 2011 of 6.45p
(2010: 6.0p) paid on 26 August 2011 6,216 5,812

18,744 18,404

Amounts not recognised in the period:

Second interim dividend for the year ended 31 December 2011 of 14.30p
(2010: second interim dividend of 13.0p) payable on 24 February 2012 13,748 12,528

The second interim dividend has not been included as a liability in these financial statements.

We also set out below the total dividends payable in respect of the financial year, which form the basis on which the
revenue retention requirements of Section 1158 of the Corporation Tax Act 2010 are considered.

2011 2010
£’000 £’000

Revenue available for distribution by way of dividends for the year 23,247 17,512

First interim dividend for the year ended 31 December 2011 of 6.45p
(2010: 6.0p) 6,216 5,812
Second interim dividend for the year ended 31 December 2011 of 14.30p
(2010: second interim dividend of 13.0p) 13,748 12,528

19,964 18,340

8 Returns per Ordinary Share

The returns per Ordinary Share are based on:

(i) a numerator being the Returns attributable to equity shareholders of:

2011 2010
Total Total
£’000 £’000

Attributable to Ordinary Shareholders (93,778) 151,017

and (ii) a denominator being a specific number of shares as follows:

2011 2010

Weighted average number of shares in issue during the year 96,345,381 96,685,671

42 Annual Report and Accounts 2011

Notes to the Financial Statements

9 Investments

2011 2010
UK UK
Listed Listed
£’000 £’000

Investments at fair value through profit or loss

Opening book cost 732,160 690,061
Opening fair value adjustment 36,794 (57,675)

Opening valuation 768,954 632,386

Movements in the period:
Purchases at cost 235,402 248,049
Sales – proceeds (224,438) (252,477)
Sales – gains/(losses) on sales 69,356 46,527
Movement in fair value adjustment (179,371) 94,469

Closing valuation 669,903 768,954

Closing book cost 812,480 732,160

Closing fair value adjustment (142,577) 36,794

Closing valuation (all investments are in ordinary shares (unless otherwise

stated) listed on the London Stock Exchange) 669,903 768,954

Net gains on sales 69,356 46,527

Movement in fair value (179,371) 94,469

(Losses)/gains on investments (110,015) 140,996

10 Debtors

2011 2010
£’000 £’000

Amounts due from brokers — 515

Investment income receivable 2,514 1,038
Taxation recoverable 27 25
Other debtors 37 42

2,578 1,620

11 Creditors: Amounts falling due within one year

2011 2010
£’000 £’000

Amounts due to brokers 1,137 2,137

Bank debt facility (see note 12) — 51,750
Less: Unamortised costs — (139)
Amounts due in respect of purchase of own Ordinary Shares 376 —
Other creditors 144 105

1,657 53,853

12 Creditors: Amounts falling due after more than one year

2011 2010
£’000 £’000

Bank debt facility (see note 11) 68,000 —

Less: Unamortised costs (116) —

67,884 —

Aberforth Smaller Companies Trust plc 43

Notes to the Financial Statements

Borrowing facilities
On 4 May 2011, the Company entered into a new unsecured £100 million Facilities Agreement with The Royal Bank of
Scotland plc. A 0.15% arrangement fee was paid on entering into the agreement and is being amortised over the
expected life of the facility. Under the facility, all funds drawn down attract interest at a margin of 1.35% over LIBOR. A
non-utilisation fee is also payable on any undrawn element, at a rate equivalent to 40% of the level of margin.

The main covenant under the facility requires that, every month, total borrowings shall not exceed 30% of the Company’s
total gross assets (excluding all creditors). There were no breaches of the covenants during the year. As at 31 December
2011, total borrowings represented 10.1% of total gross assets (excluding all creditors). The current facility is due to expire
on 2 May 2014.

13 Share Capital

2011 2010
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 96,138,792 961 96,366,792 964

During the year, the Company bought in and cancelled 228,000 shares (2010: 500,208) at a total cost of £1,176,000
(2010: £2,746,000 ). No further shares have been bought back for cancellation between 31 December 2011 and 25
January 2012.

14 Capital and Reserves

Capital
Share redemption Special Capital Revenue
capital reserve reserve reserve reserve TOTAL
£’000 £’000 £’000 £’000 £’000 £’000

At 31 December 2009 969 19 186,025 362,796 37,113 586,922

Net gains on sale of investments — — — 46,527 — 46,527
Movement in fair value adjustment — — — 94,469 — 94,469
Cost of investment transactions — — — (3,159) — (3,159)
Management fees charged to capital — — — (3,005) — (3,005)
Finance costs charged to capital — — — (1,327) — (1,327)
Revenue return attributable to equity shareholders — — — — 17,512 17,512
Equity dividends paid — — — — (18,404) (18,404)
Purchase of Ordinary Shares (5) 5 (2,746) — — (2,746)

At 31 December 2010 964 24 183,279 496,301 36,221 716,789

Net gains on sale of investments — — — 69,356 — 69,356

Movement in fair value adjustment — — — (179,371) — (179,371)
Cost of investment transactions — — — (2,475) — (2,475)
Management fees charged to capital — — — (3,508) — (3,508)
Finance costs charged to capital — — — (1,027) — (1,027)
Revenue return attributable to equity shareholders — — — — 23,247 23,247
Equity dividends paid — — — — (18,744) (18,744)
Purchase of Ordinary Shares (3) 3 (1,176) — — (1,176)

At 31 December 2011 961 27 182,103 379,276 40,724 603,091

44 Annual Report and Accounts 2011

Notes to the Financial Statements

15 Net asset value per share

The net asset value per share and the net assets attributable to the Ordinary Shares at the year-end are calculated in
accordance with their entitlements in the Articles of Association and were as follows:

Net asset value Net assets

per share attributable attributable

2011 2010 2011 2010

pence pence £’000 £’000

Ordinary Shares 627.31 743.81 603,091 716,789

Net asset value per Ordinary Share is based on net assets of £603,091,000 (2010: £716,789,000), and on 96,138,792
(2010: 96,366,792) Ordinary Shares, being the number of Ordinary Shares in issue at the year-end.

16 Gross cash flows

2011 2010
£’000 £’000

Returns on investments and servicing of finance

Interest/non-utilisation costs on bank debt facility (1,434) (1,739)
Bank debt facility fee (see note 12) (150) —

(1,584) (1,739)

Capital expenditure and financial investment

Payments to acquire investments (238,064) (248,066)
Receipts from sales of investments 224,277 251,430

(13,787) 3,364

17 Analysis of changes in net debt

Net debt Other Net debt at

at 1 January Cash non-cash 31 December
2011 flow movements 2011
£’000 £’000 £’000 £’000

Cash at bank 68 83 — 151

Bank debt facility (51,750) (16,250) — (68,000)
Bank debt facility fee (see note 12) 139 150 (173) 116

(51,543) (16,017) (173) (67,733)

18 Financial instruments and risk management

The Company’s financial instruments comprise its investment portfolio (see pages 12 to 13), 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
financially gear the portfolio. Note 1 sets out the accounting policies, including criteria for recognition 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:
(i) interest rate risk, being the risk that the interest receivable/payable and the market value of investment holdings may
fluctuate because of changes in market interest rates;
(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;

Aberforth Smaller Companies Trust plc 45

Notes to the Financial Statements

18 Financial instruments (continued)

(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; and

(iv) market price risk, being the risk that the market value of investment holdings will fluctuate as a result of changes 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
any significant currency risk. However, it is recognised that most investee companies, whilst listed in the UK, will be
exposed to global economic conditions and currency fluctuations.

(i) Interest rate risk

When the Company decides to hold cash balances, all balances are held on variable rate bank accounts yielding rates of
interest linked to bank base rate which at 31 December 2011 was 0.5% (2010: 0.5%). The Company’s policy is to hold
cash in variable rate bank accounts and not usually to invest in fixed rate securities. The Company’s investment portfolio is
not directly exposed to interest rate risk.

The Company has a bank debt facility of £100,000,000 of which £68,000,000 was drawn down as at 31 December 2011
(2010: debt facility of £75,000,000, of which £51,750,000 was drawn down as at 31 December 2010). Further details of
this facility can be found in Note 12.

If LIBOR and the bank base rate had increased by 1%, the impact on the profit or loss and therefore Shareholders’ equity
would have been negative £680,000 (2010: negative £518,000). If LIBOR and the bank base rate had decreased by 0.5%,
the impact on the profit or loss and therefore Shareholders’ equity would have been a positive £340,000 (2010: positive
£259,000). There would be no direct impact on the portfolio valuation. The calculations are based on the 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.

(ii) Liquidity risk

The Company’s assets comprise mainly readily realisable equity securities which, if necessary, can be sold to meet any
funding requirements though short term funding flexibility can typically 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. Further details of this facility can be found in Note 12.

(iii) Credit risk

The Company invests in UK equities traded on the London Stock Exchange and investment transactions are carried out
with a large number of FSA regulated brokers with trades typically undertaken on a delivery versus payment basis and on a
short settlement period.

Cash at bank is held with reputable banks with acceptable external credit ratings.

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 Board monitors the Company’s risk by reviewing
Northern Trust’s internal control report.

(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. No derivative or hedging instruments are currently utilised to
specifically manage market price risk. Further information on the investment portfolio is set out in the Managers’ Report on
pages 7 to 11. It is not the Managers’ policy to use derivatives to manage portfolio risk.

If the investment portfolio valuation fell by 20% at 31 December 2011, the impact on the profit or loss and therefore
Shareholders’ equity would have been negative £134.0m (2010: negative £153.8m). If the investment portfolio valuation
rose by 20% at 31 December 2011, the impact on the profit or loss and therefore Shareholders’ equity would have been
positive £134.0m (2010: £153.8m). The calculations are based on the portfolio valuation as at the respective balance sheet
dates and are not representative of the year as a whole and assume all other variables remain constant.

As at 31 December 2011, all of the Company’s financial instruments (excluding loans) were included in the balance sheet
at fair value. The fair value approximately equates to the book value. The investment portfolio consisted of listed
investments valued at their bid price, which represents fair value. Any cash balances, which are held in variable rate bank
accounts, can be withdrawn on demand with no penalty.

46 Annual Report and Accounts 2011

Notes to the Financial Statements

18 Financial instruments (continued)

Contractual maturity analysis for financial instruments

As at 31 December 2011

Due or due Due Due Due

not later between between between
than 1 and 3 and 1 and Due after
(All in £’000) 1 month 3 months 12 months 5 years 5 years Total

Current Assets:
Cash at bank 151 — — — — 151
Investment income receivable 2,351 163 — — — 2,514
Amounts due from brokers — — — — — —
Other debtors 6 11 47 — — 64

Total current assets 2,508 174 47 — — 2,729

Liabilities:

Bank debt facility — — — 68,000 — 68,000

Unamortised costs — — — (116) — (116)
Amounts due to brokers 1,137 — — — — 1,137
Other creditors 411 109 — — — 520

Total liabilities 1,548 109 — 67,884 — 69,541

Net liquidity of continuing operations 960 65 47 (67,884) — (66,812)

Contractual maturity analysis for financial instruments

As at 31 December 2010

Due or due Due Due Due

not later between between between
than 1 and 3 and 1 and Due after
(All in £’000) 1 month 3 months 12 months 5 years 5 years Total

Cash at bank 68 — — — — 68
Investment income receivable 885 153 — — — 1,038
Amounts due from brokers 515 — — — — 515
Other debtors 6 12 37 12 — 67

Total current assets 1,474 165 37 12 — 1,688

Liabilities:

Bank debt facility — — 51,750 — — 51,750

Unamortised costs — — (139) — — (139)
Amounts due to brokers 2,137 — — — — 2,137
Other creditors 84 21 — — — 105

Total liabilities 2,221 21 51,611 — — 53,853

Net liquidity of continuing operations (747) 144 (51,574) 12 — (52,165)

Cash flows payable under financial liabilities by remaining contractual maturities

As at 31 December 2011

Due Due
Due between between
within 3 and 1 and Due after
(All in £’000) On demand 3 months 12 months 5 years 5 years Total

Bank debt facility — 382 1,155 70,045 — 71,582

Amounts due to brokers — 1,137 — — — 1,137
Other creditors — 520 — — — 520

— 2,039 1,155 70,045 — 73,239

Aberforth Smaller Companies Trust plc 47

Notes to the Financial Statements

18 Financial instruments (continued)

Cash flows payable under financial liabilities by remaining contractual maturities
As at 31 December 2010

Due Due
Due between between
within 3 and 1 and Due after
(All in £’000) On demand 3 months 12 months 5 years 5 years Total

Bank debt facility — 323 52,141 — — 52,464

Amounts due to brokers — 2,137 — — — 2,137
Other creditors — 71 — — — 71

— 2,531 52,141 — — 54,672

Capital Management Policies and Procedures

The Company’s capital management objectives are:
– to ensure that the Company will be able to continue as a going concern; and
– to support the Company’s objective.
This is achieved through the appropriate balance of equity capital and gearing. Further details can be found in the
Business Review.

19 Financial instruments measured at fair value

Level 1 Level 2 Level 3 2011 Level 1 Level 2 Level 3 2010

Total Total
Description £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000

Investments 669,903 — — 669,903 768,954 — — 768,954

Level 1 reflects financial instruments quoted in an active market.

Level 2 reflects financial instruments whose fair value is evidenced by comparison with other observable current market
transactions in the same instrument or based on a valuation technique whose variables includes only data from observable
markets.

Level 3 reflects financial instruments whose fair value is determined in whole or in part using a valuation technique based
on assumptions that are not supported by prices from observable market transactions in the same instrument and not
based on available observable market data.

20 Contingencies, guarantees, financial commitments and contingent assets

The Company had no contingencies, guarantees or financial commitments as at 31 December 2011 (2010: nil). The
Company may be able to recover further amounts of VAT charged on investment management fees in respect of the period
from 1996 to 2000. However, the Board considers that currently there are too many uncertainties to recognise any
amounts potentially recoverable from HM Revenue & Customs.

48 Annual Report and Accounts 2011

Shareholder Information

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 to be placed on a mailing list should be addressed to
the Company’s registrars:
Shareholder Services Department, Capita Registrars, Northern House, Woodsome Park, Fenay Bridge,
Huddersfield HD8 0LA. Tel: 0871 664 0300 (calls cost 10p per minute plus network extras, lines are open
8.30 am to 5.30 pm Monday to Friday). Fax: 01484 600 911. Email:
[email protected]. Website: www.capitaregistrars.com

Payment of dividends
The best way to ensure that dividends are received as quickly as possible is to instruct the Company’s
registrars, 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 registrars from whom the necessary forms
are available.

Sources of further information

The prices of the Ordinary Shares are quoted daily in the Financial Times, The Herald, The Telegraph and The
Scotsman. The price, together with the Net Asset Values and other financial data, can be found on the
TrustNet website at www.trustnet.com. Other websites containing useful information on the Company are
www.FT.com and www.theaic.co.uk. Company performance and other relevant information are available on
the Managers’ website at www.aberforth.co.uk and are updated monthly.

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, PEPs, Savings
Schemes or Pension Plans.

Security Codes SEDOL Bloomberg Reuters

Ordinary Shares of 1p 0006655 ASL LN ASL.L

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.

Aberforth Smaller Companies Trust plc 49

Shareholder Information

Financial Calendar
Results For the half year to 30 June announced July
For the full year to 31 December announced January
Ordinary Share Dividends First Interim
Ex-dividend July/August
Payable September
Second Interim
Ex-dividend January/February
Payable February
Interim Report Published July
Annual Report and Accounts Published January
Annual General Meeting March
Publication of Net Asset Values Weekly
(via the Managers’ website)
Monthly
(as weekly and also via AIC)
Website Content Update Weekly/Monthly

Glossary Terms

“Discount” is the amount by which the stockmarket price per Ordinary Share is lower than the Net Asset
Value per Ordinary Share. The discount is normally expressed as a percentage of the Net Asset Value per
Ordinary Share.
“Total Expense Ratio” is the total annual operating costs (net of any tax relief), excluding interest costs and
transaction costs, divided by the average Shareholders’ funds (calculated per AIC guidelines).
“Gearing” represents total investments divided by Shareholders’ Funds.
“Market Capitalisation” of a Company is calculated by multiplying the stockmarket price per Ordinary Share
by the total number of Ordinary Shares in issue.
“Net Asset Value”, also described as Shareholders’ funds, is the value of total assets less liabilities. Liabilities
for this purpose include borrowings as well as current liabilities. The Net Asset Value per Ordinary Share is
calculated by dividing this amount by the total number of Ordinary Shares in issue.
“Net Asset Value Total Return” represents the theoretical return on Shareholders’ funds per share assuming
that net dividends (gross dividends prior to 2 July 1997) paid to Shareholders were reinvested in the Net Asset
Value at the time the shares were quoted ex-dividend.
“Premium” is the amount by which the stockmarket price per Ordinary Share exceeds the Net Asset Value
per Ordinary Share. The premium is normally expressed as a percentage of the Net Asset Value per Ordinary
Share.

50 Annual Report and Accounts 2011

Notice of the Annual General Meeting

Notice is hereby given that the Twenty-first Annual General Meeting of Aberforth Smaller
Companies Trust plc will be held at 14 Melville Street, Edinburgh on 7 March 2012 at 6.30 p.m. for
the following purposes:
To consider and, if thought fit, pass the following Ordinary Resolutions:
1. That the Report and Accounts for the year to 31 December 2011 be adopted.
2. That Prof P R Marsh be re-elected as a Director.
3. That Mr H N Buchan be re-elected as a Director.
4. That Mr D J Jeffcoat be re-elected as a Director.
5. That Prof W S Nimmo be re-elected as a Director.
6. That Mr R Rae be elected as a Director.
7. That the Directors’ Remuneration Report for the year ended 31 December 2011 be approved.
8. That Ernst & Young LLP be re-appointed as Auditor and that the Directors be authorised to determine
their remuneration.

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

9. That pursuant to and in accordance with its Articles of Association, the Company be and it 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 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;
(d) unless previously varied, revoked or renewed, the authority hereby conferred shall expire on
31 July 2013 or, if earlier, at the conclusion of the Annual General Meeting of the Company to be
held in 2013, 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 2012

Aberforth Smaller Companies Trust plc 51

Notes to the 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 his/her behalf. Such a proxy need not also be a member of the Company.
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 your vote electronically, log on to the registrar’s web site at
www.capitashareportal.com and follow the instructions on screen. You will require your investor code. CREST users should note they
can lodge their proxy votes for the meeting through the CREST proxy voting system. For further instructions users should refer to the
CREST User Manual. Any CREST personal members or other CREST sponsored members and other CREST members who have
appointed a voting service provider(s) should contact their CREST sponsor or voting service provider(s) who will be able to take the
appropriate action on their behalf.
In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a “CREST
Proxy Instruction”) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s specifications, and must
contain the information required for such instruction, as described in the CREST Manual. The message, regardless of whether it
constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed proxy must, in order
to be valid, be transmitted so as to be received by the Company’s registrar (ID R055) no later than 48 hours (excluding non-working
days) before the time of the meeting or any adjournment. For this purpose, the time of receipt will be taken to be the time (as
determined by the timestamp applied to the message by the CREST Application Host) from which the Company’s registrar is able to
retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxies
appointed through CREST should be communicated to the appointee through other means.
CREST members and, where applicable, their CREST sponsors, or voting service providers should note that Euroclear UK & Ireland
Limited does not make available special procedures in CREST for any particular message. Normal system timings and limitations will,
therefore, apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take
(or, if the CREST member is a CREST personal member, or sponsored member, or has appointed a voting service provider(s), to
procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is
transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their
CREST sponsors or voting system providers are referred, in particular, to those sections of the CREST Manual concerning practical
limitations of the CREST system and timings.
The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated
Securities Regulations 2001.
You 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
Registrars of the Company. If you submit 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 any authority (if any) under
which it is signed, or a notarially certified copy of such power of authority, with the Registrars of the Company no later than 48
hours (excluding non-working days) before the time set for the meeting, or any adjourned meeting.
3. Entitlement to attend and vote
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 6.30 p.m. on 5 March 2012 (or, if the Annual General
Meeting is adjourned, at 6.30 p.m. 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.
4. Questions and Answers
Pursuant to section 319A of the Companies Act 2006, the Company must provide an answer to any question which 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 AGM.
5. Total Voting Rights
As at 25 January 2012, the latest practicable date prior to publication of this document, the Company had 96,138,792 Ordinary
Shares in issue with a total of 96,138,792 voting rights.
6. Shareholder disclosure obligations
Any person holding 3% or more of the total voting rights of the Company who appoints a person other than the Chairman as his
proxy will need to ensure that both he and such third party complies with their respective disclosure obligations under the Disclosure
and Transparency Rules.
7. Information on the Company’s website
In accordance with section 311A of the Companies Act 2006, the contents of this notice of meeting, details of the total number of
shares in respect of which members are entitled to exercise voting rights at the AGM 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
8. 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.
9. Audit concerns
The members of the Company may require the Company (without payment) to publish, on its 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 your full name and address and be sent to the registered address of the Company.
10. Documents available for inspection
The Directors’ letters of appointment and a copy of the articles of association of the Company will be available for inspection for 15
minutes prior to the Annual General Meeting and during the meeting.

52 Annual Report and Accounts 2011

Corporate Information

Investment Managers and Secretaries Bankers

Aberforth Partners LLP The Royal Bank of Scotland
14 Melville Street 36 St Andrew Square
Edinburgh EH3 7NS Edinburgh EH2 2YB
Tel: 0131 220 0733
Custodian
Email: [email protected]
The Northern Trust Company
Website: www.aberforth.co.uk
50 Bank Street
Registered Office and Company Number Canary Wharf
14 Melville Street London E14 5NT
Edinburgh EH3 7NS
Auditor
Registered in Scotland No. 126524
Ernst & Young LLP
Registrars Ten George Street
Capita Registrars Edinburgh EH2 2DZ
Northern House
Solicitors and Sponsors
Woodsome Park
Dickson Minto W.S.
Fenay Bridge
16 Charlotte Square
Huddersfield HD8 0LA
Edinburgh EH2 4DF
Tel: 0871 664 0300 (calls cost 10p per minute plus
network extras)
Website: www.capitaregistrars.com

J. Thomson Colour Printers