Aberforth Smaller Companies Trust Plc – Final Results

Aberforth Smaller Companies Trust plc
Audited Annual Results for the year to 31 December 2025

The following is an extract from the Company’s Annual Report and Financial
Statements for the year to 31 December 2025. Page references correspond to the
2025 Annual Report & Financial Statements.  The Annual Report is expected to be
posted to shareholders by 6 February 2026.  Members of the public may obtain
copies from Aberforth Partners LLP, 14 Melville Street, Edinburgh EH3 7NS or
from its website: https://www.aberforth.co.uk/trusts-and-funds/aberforth-smaller
-companies-trust-plc/. A copy will also shortly be available for inspection at
the National Storage Mechanism at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

FINANCIAL HIGHLIGHTS

Year to

31 December 2025
Net Asset Value per Ordinary Share Total Return          7.9%
DNSCI (XIC) Total Return   12.7%
Ordinary Share Price Total   10.8%
Return

Total ordinary dividends (excluding special dividend) for the year of 46.80p per
share represents growth of 7.3% compared to last year’s 43.60p per share. In
addition, a special dividend of 12.00p (last year: 6.00p) results in total
dividends of 58.80p per share for the year.

INVESTMENT OBJECTIVE

The investment objective of the Company is to achieve a net asset value total
return (with dividends reinvested) greater than that of the Deutsche Numis
Smaller Companies Index (excluding Investment Companies) («DNSCI (XIC)» or
«benchmark») over the long term.

CHAIRMAN’S STATEMENT TO SHAREHOLDERS

Review of performance

ASCoT completed its 35th year in the twelve months to 31 December 2025 and
recorded a net asset value total return of 7.9%. The share price total return
was higher at 10.8%, which reflected a narrowing of the discount between the net
asset value and share price. ASCoT’s small company benchmark is the Deutsche
Numis Smaller Companies Index (excluding investment companies), which is
abbreviated throughout this report as DNSCI (XIC). Its total return in 2025 was
12.7%. The positive return from small companies is welcome, but it was eclipsed
in 2025 by that of larger companies: the FTSE All-Share was up by a remarkable
24.0%. I touch on the context for performance in 2025 below, while the Managers’
Report as usual goes into the important influences on absolute and relative
performance in greater depth.

ASCoT’s long term performance record is strong. Since inception in 1990, ASCoT’s
net asset value total return has compounded at an 11.7% annual rate, which
compares with 9.7% for the DNSCI (XIC).

Investment background in 2025

Donald Trump’s second presidency took shape in the opening months of 2025. It
was dominated by the so-called Liberation Day tariffs, which shocked financial
markets and sent share prices around the world lower. The long lasting impact on
businesses is unclear since the measures are subject to legal challenge in the
US itself and negotiations between countries continue. However, after their
initial consternation, markets took confidence from a series of trade deals that
indicate a pragmatism on the part of the US’s trading partners, and that would
seem to reduce the risk of a spiralling trade war. Sentiment also improved as
geopolitical risk eased. The war in Ukraine continues, but the US has worked to
achieve a ceasefire between Israel and Hamas. The recovery in share prices was
further enhanced by what often feels like an obsession with AI. There is growing
excitement that the vast amounts being invested by the large US technology
companies will generate commensurate profits in due course.

However, I would note that the strong returns in 2025 were not the preserve of
the AI leaders, as the performance of larger companies in the UK showed in
shrugging off concerns about the UK’s politics and economy. If the FTSE All
-Share showed what was possible, the valuation of smaller companies continues to
bear the brunt of concerns about the UK’s fiscal position. Their share prices
have struggled as both recent Budgets leaned on the private sector and the
political stability promised by Labour’s decisive majority remained elusive.
Amid this uncertainty, it is important to remember that the market’s
reservations about smaller companies contrasted with another year of dividend
growth and share buy-backs, funded by the strong free cash flow and balance
sheets that characterise the DNSCI (XIC) and ASCoT’s portfolio. These qualities
are not lost on overseas companies or private equity as takeovers of small
companies carry on at an unusually high rate. ASCoT’s performance continued to
benefit from this takeover interest as recommended bids for eight of the
investee companies were received in 2025.

Dividends

Despite the caution about the state of the UK’s politics and economy, the
Investment Income from Revenue that ASCoT received from its investee companies
grew by 7% in 2025. This outcome was better than the Managers’ estimates at the
start of the year and surpassed the previous high point in 2023. The Revenue
Return per Ordinary Share was 64.0p. Excluding special dividends received in
both years, the Revenue Return per Ordinary Share rose by 13% in 2025 compared
with 2024. This good rate of progress was helped by the year’s share buy-back
activity, which is described below.

The Board’s ambition is to grow ASCoT’s full year ordinary dividend above the
year-on-year rate of CPI inflation, which was 3.4% in December 2025. Our
dividend deliberations are also influenced by ASCoT’s dividend experience over
the year and on the Managers’ forecasts for coming years. We are conscious that
the dividends paid by ASCoT are an output of the Managers’ investment process
and that they should not lead that process. With this in mind, we take comfort
from ASCoT’s healthy revenue reserves, which afford the Managers investment
flexibility and allow dividends to move ahead even in testing times, most
recently during the pandemic.

The Board proposes a final dividend of 32.5p per Ordinary Share, which compares
with the previous year’s 30.0p. Together with the interim dividend of 14.3p, the
full year dividend would be 46.8p. Growth for the full year dividend would be
7.3%, which would be comfortably above the rate of inflation. On top of the
ordinary dividend, we propose a special dividend of 12.0p, which brings the
total dividend to 58.8p per share and ensures that ASCoT complies with HMRC’s
minimum retention test for investment trusts. The total of these means that
ASCoT would distribute c.£47m in the form of dividends to its Shareholders in
respect of 2025. Even after these payments, ASCoT would be able to retain 5.2p
of revenue per Ordinary Share. This would increase revenue reserves to 99.1p per
Ordinary Share to keep the ordinary dividend covered close to a healthy two
times.

Share buy-backs

The Board and Managers have two aims for ASCoT’s share buy-backs. First, when
conducted at a discount to net asset value, they deliver an economic uplift for
those Shareholders wishing to remain invested in the Company. Second, they
provide additional liquidity at the margin for those Shareholders looking to
crystallise their investment. An additional benefit is that consistently applied
share buy-backs may bring additional tension to the share price of an investment
trust when the market loses sight of the portfolio’s value. This last point is
less certain since the discount depends on many factors that the Board and
Managers cannot influence. Nevertheless, the reasons for buy-backs are
convincing and ASCoT was active in 2025.

In the year to 31 December 2025, 4,082,000 shares were bought back and
cancelled. The total value of these repurchases was £60m, on an average discount
of 11.2%. Since 2008, ASCoT has deployed £226m of its capital on share buy
-backs, which have added £33m of value to Shareholders.

Abnormal market circumstances may influence the pace of buy-backs, but ASCoT can
fund them over time through cash generated from the natural turnover of the
portfolio. This is consistent with the Managers’ value investment philosophy and
has been supported by the high level of M&A activity in recent years. Additional
flexibility is provided by the credit facility with the Royal Bank of Scotland
International.

The Company seeks authority to buy back up to 14.99% of its Ordinary Shares at
each Annual General Meeting. Shareholders voted in favour in March 2025 and the
Board will seek to renew the authority at the Annual General Meeting on 5 March
2026.

Gearing

The ability to gear is an important differentiator for investment trusts. The
Board’s gearing policy has been consistent throughout ASCoT’s life. Gearing is
deployed in a tactical fashion with the aim of taking advantage of periods of
stress in equity markets. ASCoT has been geared on four occasions in its 35
years. The current phase started amid the pandemic in early 2020 and has since
enhanced ASCoT’s net asset value performance. The Board and Managers regularly
review the level of gearing. They judge that it remains appropriate in view of
the attractive stockmarket valuations and the prospects for the profitability of
the underlying companies. At the year end, £75m of gearing was deployed and the
gearing ratio, which is defined in the glossary on page 68 of the Annual Report,
was 5%. Beyond the potential to enhance investment returns, the credit facility
provides other benefits. It gives flexibility to conduct share buy-backs and
allows the Managers to react nimbly to new opportunities without disturbing
existing investments. This is particularly important in what can be a volatile
and relatively illiquid asset class.

ASCoT has a credit facility with The Royal Bank of Scotland International
Limited. This £130m facility runs to June 2026, which is aligned with the three
yearly continuation vote cycle. After the Annual General Meeting on 5 March
2026, and providing that the continuation vote is passed, the Board and Managers
will seek to put in place a new facility.

Annual General Meeting (AGM) and continuation vote

The AGM will be held at 14 Melville Street, Edinburgh EH3 7NS at 10.30 am on 5
March 2026. Details of the resolutions to be considered by Shareholders are set
out in the Notice of the Meeting on page 64 of the Annual Report. Shareholders
are encouraged to submit their vote by proxy in advance of the meeting. In
accordance with normal practice, the results of the AGM will be issued in a
regulatory news announcement and posted on Aberforth’s website. An update on
performance and the portfolio will also be available on the website following
the meeting.

It is the Company’s policy to hold a continuation vote every three years.
March’s Annual General Meeting will include the eleventh such vote in its
history. The Board views the continuation vote as an important shareholder right
and encourages all Shareholders to exercise it.

ASCoT’s performance in the continuation vote period just completed was
frustrating. The difficult conclusion to 2025 meant that ASCoT under-performed
the DNSCI (XIC) over the three years to 31 December 2025. The net asset value
total return was 31.0%, while the share price total return was 32.5%. The
comparable performance of the DNSCI (XIC) was 35.9%. Naturally, the Board has
sought to understand the reasons for this.

Importantly, it is clear to us that there has been no deviation from how the
Managers have always implemented ASCoT’s investment policy. Their value
investment discipline, fundamental analysis of companies and constructive
approach to stewardship are all unchanged. Confidence in this allows us to look
to longer term patterns of performance. A corollary of the Managers’ consistency
is a volatility to ASCoT’s relative performance, even over three year periods,
as the mood of the stockmarket ebbs and flows.

For much of the most recent continuation vote period, the stockmarket’s mood was
one of gloom towards the UK’s politics and economy, with further uncertainty
emanating from the US’s experiment with tariffs. These factors affected
sentiment towards and valuations of many smaller companies. From our
interactions with the Managers, we know that they have confidence in the
resilience of many smaller companies and that they are therefore comfortable
investing in such businesses, notwithstanding their greater sensitivity to
swings in economic activity. We saw this sensitivity in action during the
pandemic in 2020, when ASCoT’s investment performance suffered particularly
badly as economic activity collapsed. Clearly, the reasons for the economic
uncertainty then were different from today’s, but the Managers’ confidence in
the resilience of the portfolio’s businesses was vindicated as the recovery took
hold.

This has not been the first continuation vote period in which ASCoT’s total
return has lagged its benchmark’s. For the Board, the reassuring point is that
the consistency of the investment approach has allowed a rebound in ASCoT’s
fortunes in earlier instances and has underpinned an excellent record of
relative and absolute performance over longer time periods. Three years ago,
following a continuation vote period in which ASCoT out-performed the DNSCI
(XIC), I observed that ASCoT’s differentiated and consistent investment
proposition «does not guarantee superior performance every year, but it does
improve the likelihood of success over time». The relevance of this point
stands, which gives the Board confidence to focus on the investment opportunity
at hand and on ASCoT’s prospective returns.

Conclusion

The Managers’ Report addresses ASCoT’s investment opportunity in detail. I would
draw out the following points as important aspects of what is a positive
outlook.

· Sentiment towards the UK remains downbeat, which is affecting the
stockmarket’s valuations of smaller companies.

· We have a good idea why this pessimism persists. The dominant narrative since
the EU Referendum – almost ten years ago now – has been one of political
dysfunction and economic stagnation in the UK.

· Large companies have shrugged off these concerns – even domestically oriented
companies such as the banks have participated in the FTSE All-Share’s
resurgence. History gives encouragement that where large companies lead small
companies follow.

· My personal suspicion is that the UK gloom has been overdone and that the UK’s
institutional advantages are being overlooked. However, I am more confident in
asserting that the dominant narrative has drowned out recognition of the
underlying progress of smaller companies.

· In recent years, ASCoT’s portfolio holdings have endured a pandemic, a surge
in inflation, higher interest rates and a recession. In the Board’s discussions
with the Managers about the investee companies, we are struck by their
resilience. They have retained strong balance sheets and continued to generate
cash, which is coming back to their shareholders in the form of rising dividends
and share buy-backs.

· The underlying qualities and valuations of these companies are being
recognised, though not yet in a broad fashion. The beneficiaries hitherto have
been overseas companies and private equity who are responsible for the still
high rate of M&A within the small company universe. Another lesson from history
is that when the appetite for small companies improves share prices move rapidly
and substantially.

· The current lack of interest in small UK quoted companies contrasts sharply
with the great confidence that the stockmarket has in the giant technology
companies as they spend their billions on AI development. In my experience of
equity markets, such disparities in sentiment and valuation are not uncommon but
tend to be overdone. As in the past, ASCoT is well positioned to benefit when
fashions do inevitably change.

None of this is to deny the risks confronting smaller companies, from domestic
politics, through the threat of a trade war and actual conflicts, to the
implications of the vast investment in AI. However, investment is always risky.
The returns generated by equities over time have been the rewards for exposing
capital to risk. In my experience, what is crucial is that the capital should be
deployed in assets whose valuations provide a margin of safety and should be
managed in accordance with a tried and tested investment process.

On both counts, ASCoT’s record suggests that it is well positioned. The
Managers’ approach to the asset class sets the portfolio apart from the majority
of small company funds. It has driven good returns to Shareholders over time and
the Board notes that the Managers continue to add to their personal holdings in
ASCoT. We also recognise the advantages of ASCoT’s investment trust status,
particularly when operating in a relatively illiquid and volatile asset class
such as small UK quoted companies. The ability to retain income helps dividends
to grow in real terms even in difficult circumstances and contrasts with the
more volatile capital performance. Meanwhile, share buy-backs and tactical
gearing promise to improve what we expect to be a positive performance from the
portfolio over coming years.

I would also note that ASCoT enjoys significant flexibility in its capital
allocation by virtue of its natural portfolio turnover, ability to gear and
revenue reserves. These features allow meaningful sums to be returned to
Shareholders – dividends and share buy-backs totalled £107m in respect of 2025.
The Board is therefore optimistic about ASCoT’s prospects from here and
recommends that Shareholders vote in favour of the Company’s continuation at
March’s AGM.

Ahead of that event, my fellow Directors and I welcome views and questions from
Shareholders. Please contact me at my e-mail address, which is noted below.

Richard Davidson

Chairman

29 January 2026

[email protected]

MANAGERS’ REPORT

Introduction

Since inception in 1990, ASCoT’s purpose has been to achieve a net asset value
total return greater than that of the DNSCI (XIC) over the long term. To achieve
this objective, the Managers have applied a consistent and differentiated
investment strategy, which has three notable aspects.

· The basis of the investment process is understanding companies within the
DNSCI (XIC). The Managers consider factors such as financial performance,
competitive dynamics and capital allocation priorities, as well as relevant
environmental and social matters. Company analysis is conducted by individual
investment managers, but decisions about which stocks merit a place in the
portfolio are taken by the full investment team. The team is experienced and
well-resourced. It is often the case that it has known investee companies for
longer than the directors running the companies.

· Stock selection is guided by a value investment philosophy. The reason for
this is that there is strong historical evidence that a value premium can be
harvested within equity markets over time. In practice, the Managers seek
companies whose share prices are trading at wide discounts to their true values.
As the gap between the two narrows, positions are reduced, with the proceeds
recycled into other companies with greater upside, a process that the Managers
term the «value roll».

· Consideration of governance issues and engagement with company directors,
especially chairs, is an important element of Aberforth’s investment process.
Throughout ASCoT’s history, the Managers have aimed to engage in a purposeful,
discreet and constructive fashion, both as part of their research and to effect
change if necessary. They engage on any topic that affects a company’s valuation
and are willing to be taken inside for extended periods. In return for this
commitment to responsible stewardship of their clients’ capital, the Managers
expect that consultation will be timely and that they will not be presented with
faits accomplis by the boards of investee companies.

The consistent application of these features does not guarantee strong returns
in each year. However, it does ensure that ASCoT benefits from a differentiated
and relevant investment strategy, which has contributed to a good outcome for
investors over ASCoT’s 35 years.

Performance

ASCoT’s superior total returns since its inception are shown in the table below.
The table also shows performance data for the three year continuation vote
period that ended on 31 December 2025. The three indices provide context and
include the DNSCI (XIC), which is ASCoT’s benchmark of small UK quoted
companies.

Total returns 2023 2024 2025 CAGR to 31 December 2025
3 years Inception
ASCoT NAV +8.2% +12.1% +7.9% +9.4% +11.7%
DNSCI (XIC) +10.1% +9.5% +12.7% +10.8% +9.7%
FTSE All-Share +7.9% +9.5% +24.0% +13.6% +8.5%
MSCI World (£ terms) +18.0% +21.6% +13.2% +17.5% +9.9%

· Equity returns through the continuation vote period were positive, supported
by the continued recovery from the pandemic.

· The strongest performance came from the MSCI World index. This is dominated by
the US stockmarket and so reflected the incredibly strong returns from the very
large technology companies that are seen to be leading the AI race.

· Perhaps the most notable number in the table is the resurgence of the UK in
2025, with large company share prices rising by even more than world equities.

· The strength of the FTSE All-Share in 2025 meant that smaller companies under
-performed large over the three years. This large cap out-performance is
considered in greater detail below.

· ASCoT’s total return lagged that of the benchmark across the continuation vote
period. This was largely a result of a disappointing outcome for 2025 and so the
performance analysis commentary later in this report focuses on events in 2025.

Over the past three years, the valuations of small UK quoted companies
experienced two challenges, one more relevant to those companies that earn their
profits within the UK economy, and the other to those companies reliant on
overseas markets.

· The former group, the domestics, comprises consumer-oriented companies, such
as retailers, leisure businesses and media companies. It accounts for around 53%
of the revenues of DNSCI (XIC) constituents. These companies were most severely
affected by Brexit and by lockdown during the pandemic. They operated
resiliently in the face of these challenges but were confronted in 2025 by
intensifying concerns about the UK government’s fiscal situation. The Chancellor
has struggled to achieve convincing fiscal headroom as she contends with her own
fiscal rules, manifesto commitments and the internal politics of the Labour
Party. The predicament was encapsulated by the gyrations in gilt yields through
2025 and by the rising cost of government debt here in comparison with the rest
of the world: ten year gilt yields started 2025 in line with those in the US but
ended the year 31 basis points higher. The UK private sector, wary after the
2024 Budget, was naturally cautious ahead of the 2025 Budget. It is likely that
economic activity suffered as, in a classic Ricardian fashion, households and
businesses held back on spending and investment. This was to the disadvantage of
the domestically oriented companies.

· The overseas facing companies tend to be industrial businesses and account for
the other 47% of the DNSCI (XIC)’s total revenues. They were less affected by
the pandemic and their profitability even benefited from the EU referendum as
sterling weakened in its aftermath. The disruption of supply chains in the wake
of the pandemic, along with the conflicts in Ukraine and Gaza, were unhelpful,
but these companies tended to enjoy good trading conditions for much of the
three year period. That changed in April 2025 with Donald Trump’s tariff
announcements. Their longer lasting effects on global trade and broad economic
activity are as yet uncertain, but it is clear that businesses have incurred
near term headwinds in the form of higher costs and working capital
requirements. Consequently, the valuations of overseas facing companies within
the DNSCI (XIC) also came under pressure in 2025.

These twin pressures have hampered the valuation of smaller companies,
particularly those whose profits are perceived to be more sensitive to broader
economic activity. This has affected ASCoT’s performance since many of the most
attractively valued smaller companies today are in the more economically
sensitive sectors of the stockmarket. Indeed, the market’s near term fears of
cyclicality can often be what presents the Managers with investment opportunity
as they take a longer term view of a business’s underlying qualities and profit
potential.

For most of the three year continuation vote period, gloom about the UK’s
politics and economics affected sentiment towards the UK stockmarket in general,
with the valuations of both small and large companies below their long term
averages. That started to change in 2025. The very strong total returns from
large companies took their valuations above the long term average, even as
smaller companies continued to languish. A common explanation for this
performance divergence rests in the different sector profiles of the large and
small company universes. Among the stronger performers in the FTSE All-Share in
2025 were banks, defence, mining, telecoms and life assurance, which are all
sectors with a lower representation in the DNSCI (XIC). However, this
explanation struggles when the banks are considered further. Most of the banks
are heavily reliant on the domestic UK economy. They are literally geared into
the health of British businesses and households, the same sort of exposure that
many smaller companies have.

Smaller companies are being penalised for their very size and relative
illiquidity, rather than for fundamental reasons. This suspicion is backed up by
analysis of the dividend characteristics of the DNSCI (XIC) and the FTSE All
Share. For the first time since the global financial crisis, the dividend yield
of the DNSCI (XIC) is higher than the FTSE All-Share’s. This is despite small
companies’ average dividend cover being above that of large companies and
despite small companies’ balance sheets being stronger than those of large
companies. Moreover, dividend growth of the DNSCI (XIC) has remained superior to
that of the FTSE All-Share. Since 2015 – the year before the EU referendum and
therefore a fair starting point – small company dividend growth has been 63%,
whereas large company dividend growth has been 29%. Since 2019 – the year before
the pandemic – small companies have grown their dividends by 23%, whereas large
companies have seen their aggregate dividends decline by 6%.

The superior dividend growth from smaller companies is evident in almost all
time periods and supports the growing dividends paid by ASCoT to its
Shareholders. These dividends also benefit from how the Managers invest ASCoT’s
capital. An important facet of the process is the «value roll», in which capital
is rotated from companies with low upside to the Managers’ target prices into
companies with high upsides. This rotation implies that capital is moved from
companies with low dividend yields into those with high dividend yields, a
dynamic that enhances the income earned by the portfolio over time. This has
enabled ASCoT’s dividends to grow by 7.1% per annum since inception in 1990,
well ahead of the DNSCI (XIC)’s 4.9%, the FTSE All-Share’s 3.4% and the consumer
price index at 2.4%. The steadiness and consistency of ASCoT’s dividend growth
contrast with the volatility of annual capital performance. They have also
contributed to the good absolute and relative total returns that ASCoT has
achieved over time.

Influences on performance in 2025

In 2025, ASCoT’s NAV total return was 7.9%, which was behind the DNSCI (XIC)’s
12.7%. The table below sets out the contribution of certain factors to ASCoT’s
relative return. As usual, the most important influence was the investment
portfolio. The paragraphs that follow provide context and explanation for the
portfolio’s performance in 2025.

For the twelve months ended 31 Basis points
December 2025
Attributable to the portfolio of (429)
investments, based on mid prices

(after transaction costs of 18
basis points)
  Movement in mid to bid price 12
spread
  Cash/gearing (27)
  Purchase of ordinary shares 54
  Management fee (70)
  Other expenses (12)
Total attribution based on bid (472)
prices

Note: 100 basis points = 1%.
Total Attribution is the
difference between the total
return of the NAV and the
Benchmark Index (i.e. NAV =
7.95%; Benchmark Index = 12.67%;
difference is -4.72% being -472
basis points).

Economic cyclicality

As described above, ASCoT’s returns in 2025 were influenced by concerns about
economic activity both domestically and overseas. Many of the most attractively
valued companies within the DNSCI (XIC) at present are perceived as sensitive to
the economic cycle. The Managers are prepared to look beyond these near term
concerns, putting more store in the resilience of business models, records of
profit progress from cycle to cycle and strength of balance sheets. Such bouts
of concern are not unusual in ASCoT’s 35 year history. Economic cyclicality
hampered ASCoT’s performance in 2025, but it is the Managers’ experience that
the stockmarket tends to under-estimate the resilience of smaller companies and
thus creates the conditions for a strong recovery in due course.

Value style

The Managers follow a value investment philosophy. They calculate target
valuations for existing and potential investments. These are influenced by
fundamental analysis of the companies, judgement informed by experience, and
reference to other relevant valuations in equity markets or corporate activity.
Growth of profits is an important component of target valuations, but the
Managers find that stockmarket valuations are often too generous in their
assumptions of the sustainability and pace of growth.

To gauge the style effect on ASCoT’s performance, the Managers use analysis by
the London Business School (LBS). This defines value narrowly in terms of low
price to book ratios, rather than in the broader fashion undertaken by the
Managers. Therefore, while useful, the LBS approach is an imperfect measure of
style effects, particularly over short periods. Despite AI leading the way among
global equity markets, the LBS analysis suggests that value stocks within the
DNSCI (XIC) out-performed the index as a whole in 2025. On this basis, style
would have benefited ASCoT’s returns in 2025.

Size, within the DNSCI (XIC)

The DNSCI (XIC) includes all main listed stocks in the UK with market
capitalisations below c.£2.5bn. It therefore has an extensive overlap with the
FTSE 250 and includes many mid caps, which the Managers refer to as «larger
small» companies. However, ASCoT has a relatively high exposure to the DNSCI
(XIC)’s «smaller small» companies and has had for much of the period since the
global financial crisis in 2008. This positioning reflects the more attractive
valuations available down the market capitalisation scale, which are
demonstrated in the Valuations section later in this report. Analysis by LBS
shows that the return from «smaller small» companies was slightly ahead of that
from «larger small» companies in 2025. Accordingly, ASCoT had a modest benefit
from its size positioning over the past twelve months.

Corporate activity

The pattern is a familiar one of recent years – a lot of takeovers targeting
small UK quoted companies, a lot of buy-backs and few IPOs.

On M&A, the takeovers of eleven companies in the DNSCI (XIC) were completed in
2025. On top of those, there were offers outstanding for another ten companies
at the year end. Of these 21 deals, the bidders were most often trade buyers,
with private equity houses less active than in 2024. The bidders were
overwhelmingly from overseas, attracted by the presently low stockmarket
valuations of small UK quoted companies. The average premium of the bid price to
the undisturbed share price before announcement of the deal was 44%, which is
above the longer term average premium for control of 25-30%. ASCoT had
investments in eleven of the 21 takeover targets. Four of the eleven deals were
announced in 2024, with the deals completing in 2025. The takeover premiums
therefore benefited 2024 returns. Nevertheless, M&A helped ASCoT’s returns in
2025.

Takeovers can be an effective means by which the value in ASCoT’s portfolio is
realised. However, there is an important caveat. The low valuations of smaller
companies mean that takeovers may be proposed on unattractive terms and that
investors’ interests might be better served by rejecting the takeover approach.
The risk is exacerbated by boards and some shareholders yielding too quickly to
takeover interest, no doubt succumbing to the gloomy sentiment towards the UK.
The Managers attempt to mitigate the risk by engaging with boards to support
their independence if the terms of a bid are unattractive or to improve the
terms. This engagement is helped by the often significant stakes that ASCoT and
Aberforth’s other clients hold in investee companies. At 31 December 2025, 15%
of ASCoT’s portfolio was invested in companies that had attracted takeover
interest over the previous 18 months, but where the approaches had not developed
into formal bids. In several of these situations, the Managers were consulted by
the boards of the target companies and, if the standalone option promised
superior returns, supported their independence.

The depressed valuations of small UK quoted companies mean that the IPO market
remains subdued. There were just two IPOs of a reasonable size and eligible for
the DNSCI (XIC) in 2025. The Managers view this dearth of activity as a
temporary phenomenon and a function of prevailing valuations. Recent regulatory
change, to the listing rules and prospectus regime, are likely to encourage IPOs
once the valuation basis of the small UK quoted companies recovers.

While the DNSCI (XIC) has not been refreshed by IPOs, it is experiencing an
influx of companies that are choosing to move from AIM to the Main Market. ASCoT
does not invest in AIM quoted companies except in limited circumstances. These
include when an AIM company makes a public announcement of its intention to move
to the Main List. Over the past 18 months, 15 AIM quoted companies have
announced an intention to relist. Of these, six completed the process in 2025
and were included in the DNSCI (XIC) on its annual rebalancing on 1 January
2026. Of the 15 companies, ASCoT has invested in four. These businesses were
subject to the Managers’ usual investment process of research and engagement.
Their valuations were attractive and consistent with the existing portfolio’s.

Income

The UK’s economic and political uncertainties contributed to a lacklustre
capital performance in 2025, but the dividend performance from small UK quoted
companies remained resilient. ASCoT’s income experience is shown in the
following table, which splits the portfolio’s 78 holdings into categories
determined by the most recent dividend action.

Nil Payer Cutter Unchanged Payer Increased Payer New/Returner
14 9 23 28 4

The drag on ASCoT’s income from the 9 cutters was out-weighed by the 28
companies that increased their dividends and by the four companies that either
resumed dividends or paid for the first time. Overall, ASCoT’s Investment Income
from Revenue, as shown in the Income Statement, rose by 7% in 2025. There was a
slightly larger contribution from special dividends received than in 2024, but
the effect was not significant. The 7% growth took Investment Income to its
highest level in ASCoT’s 35 years, surpassing the previous high in 2023.

The historical dividend yield of ASCoT’s holdings at 31 December 2025 was 4.3%,
which was 31% higher than the average over ASCoT’s 35 year history. Dividend
cover was 2.2x, which is less than the long term average of 2.8x. The lower
dividend cover was due to the effect of macro economic uncertainty on profits,
together with the higher dividends as companies looked through the near term
uncertainty and took confidence from strong balance sheets. The Managers’
forecasts suggest that dividend cover will rise in 2026 and 2027.

Significant stakes

Engagement with the boards of investee companies has always been a crucial
component of the Managers’ investment process. It is particularly relevant at
present in view of the high rate of takeover activity among smaller companies
and of the recent regulatory changes to the listing rules and prospectus regime.
The latter are intended to make the UK stockmarket a more attractive place to
list, but they come at a cost by undermining governance protections for
investors in UK listed companies.

The Managers’ scope to engage effectively is supported by their ability to take
significant stakes of up to 25% in issued share capital across their client
base. At 31 December 2025, ASCoT had six holdings in which Aberforth’s clients
had a stake of more than 20% and 28 holdings in which the stake exceeded 10%.
The 28 holdings had a combined portfolio weight of 32%.

Significant stakes bring increased influence but come with a downside in the
form of illiquidity – reducing these positions by selling into the stockmarket
can be difficult. However, there are compensating factors. First, the increased
influence, coupled with patience and support, has contributed to improved
investment outcomes – significant stakes have enhanced ASCoT’s performance over
time. Second, illiquidity has been manageable. Exiting significant stakes has
been facilitated by M&A or by renewed investor appetite as prospects for the
business improve. Third, ASCoT’s closed-end structure is ideally suited to
holding significant stakes – patient support from investors is often required as
boards work to improve business performance. The Managers are confident that
their approach to engagement and ability to take significant stakes have
enhanced ASCoT’s returns over time and will continue to do so.

ASCoT’s gearing

As an investment trust ASCoT can employ gearing with the aim of enhancing
returns from the portfolio. ASCoT’s approach to gearing is tactical and seeks to
take advantage of periods of stress in economies and financial markets. It is
currently geared for the fourth time in its history, having drawn on its
borrowing facility amid the pandemic in early 2020. Since then, returns from
small UK quoted companies have been positive and gearing has enhanced ASCoT’s
returns, which was also the case in 2025 specifically. Since UK equity
valuations continue to be attractive, the Managers believe that it is
appropriate that ASCoT remains geared. At 31 December 2025, the gearing ratio
was 5%. The realisation of proceeds from takeovers was substantial through 2025,
which meant that the gearing ratio was often below the Managers’ target. Given
the attractiveness of valuations and the profusion of investment opportunities,
it is likely, all else equal, that the gearing ratio will rise from its current
level.

Portfolio characteristics

The next table presents a selection of important characteristics for both the
portfolio and the DNSCI (XIC). The subsequent paragraphs expand on some of these
characteristics.

Portfolio 31 December 2025 31 December 2024
characteristics
ASCoT DNSCI (XIC) ASCoT DNSCI (XIC)
Number of companies 78 352 79 350
Weighted average £578m £1,225m £649m £1,019m
market
capitalisation
Weighting in 49% 17% 55% 21%
«smaller small»
companies*
Weighting in 39% 26% 29% 30%
companies with net
cash**
Portfolio turnover 34% – 20% –
Active share 80% – 78% –
Price earnings (PE) 10.5x 13.8x 9.6x 13.0x
ratio (historical)
Dividend yield 4.3% 3.4% 4.0% 3.4%
(historical)
Dividend cover 2.2x 2.1x 2.6x 2.2x
(historical)

*»Smaller small» companies are members of the DNSCI (XIC) that are not also
members of the FTSE 250; **Tracked Universe reference explained below.

Balance sheets

The following table sets out the balance sheet profile of ASCoT’s portfolio and
of the Managers’ Tracked Universe. This subset of the DNSCI (XIC) represents 99%
by value of the index as a whole and is made up of the 246 companies that the
Managers follow closely.

Weight in Net Net Net debt/EBITDA           > 2x Other*
companies cash debt/EBITDA
with:      60% revenue within UK 11.5x 11.2x 10.1x
–      113 stocks >60% revenue overseas 10.8x 10.7x 9.2x
–      110 stocks > £600m market cap 12.0x 11.8x 10.4x
–      136 stocks