TIDMATY
RNS Number : 8673R
Athelney Trust PLC
05 March 2019
Legal Entity Identifier:
213800ON67TJC7F4DL05
NON- STATUTORY ACCOUNTS
The financial information set out below does not constitute the
Company's statutory accounts for the years ended 31 December 2018
and 2017 but is derived from those accounts. Statutory accounts for
2017 have been delivered to the Registrar of Companies, and those
for 2018 will be delivered in due course. The auditors have
reported on those accounts; their report was (i) unqualified, (ii)
did not include a reference to any matters to which the auditors
drew attention by way of emphasis without qualifying their report
and (iii) did not contain a statement under Section 498 (2) or (3)
of the Companies Act 2006. The text of the Auditor's report can be
found in the Company's full Annual Report and Accounts on the
Company website: www.athelneytrust.co.uk
Athelney Trust plc, the investor in small companies and junior
markets announces its final results for the 12 months ended 31
December 2018.
Chairman's Statement
Stabilise the Company in readiness for Growth
Overview
Given the challenging markets and various Board developments
within Athelney Trust plc (the 'Company' or the 'Trust') over the
past months, it is perhaps not surprising to have to report mixed
results for the Company in the year ended 31 December 2018. The key
points are as follows:
-- Investment performance as measured by Net Asset Value (NAV)
total return, which is the change in NAV plus the dividend paid,
was minus 17.6% (2017: plus 16.8%)
-- Audited NAV was 225.9p per share (2017: 284.8p) - a decline of 20.7%
-- Revenue return per ordinary share was 9.9p (2017: 9.6p), an increase of 3.1%
-- Board/major shareholder disagreements led to approximately
GBP90,000 extra cost (GBP40,000 pre year end and GBP50,000 post
year end), ongoing distraction for the Board and general
shareholder uncertainty - more of this would be unsustainable,
especially for a fund of this size
-- Recommended final dividend of 9.1p per share (2017: 8.9p) an increase of 2.2%
-- The Fund Manager (and then Managing Director), Dr Manny Pohl
volunteered in December 2018 to reduce his salary by 0.25% to 0.75%
starting from January 2019
-- Long term performance represented by the 10 year Total
Shareholder Return lags both FTSE SmallCap Index and AIM All-Share
Index (see graph on page 37)
Board and Governance
The Board places significant importance on corporate governance
and compliance with the AIC and UK Corporate Governance Codes. Full
details are set out in the Corporate Governance section of our
Annual Report and Accounts on pages 20 to 29.
An Independent Board - Update
There were a lot of movements including five directors who came
off the Board, another five who came on and two reshuffles over the
last six months. Details of the various Board changes are on page
31. The directors in place at the time of signing these accounts
are:
-- Myself, Frank Ashton - Executive Chairman
-- Helen Sachdev - Non-Executive Director, Chair of Audit Committee
-- David Lawman - Non-Executive Director
We now have three directors who together make up an independent
Board. On 8 February 2019 I took over the role of Chairman from
David Lawman. To the best of my knowledge, like Helen Sachdev, I
have no current or prior connection with any major shareholder of
the Company and maintain I am an independent Chairman.
I am also Executive Chairman. Both roles being undertaken by one
person is not compliant with the UK Corporate Governance Code.
However after full consideration by the Board it is deemed
appropriate at this critical time for the Company. A detailed
explanation of the non-compliant position is available in the
Corporate Governance section.
I believe the Board has created and is now implementing a plan
that reflects Robin Boyle's long-held vision and ambition for the
Company, which he founded 24 years ago. Further details can be
found on pages 6 to 8.
Results
Capital Gains
During the year the Company realised capital profits before
expenses arising on the sale of investments in the sum of GBP98,840
(31 December 2017: GBP296,629).
Portfolio Review
Holdings of Belvoir Lettings, Clarke T, Dairy Crest, Hansteen
Holdings, Paypoint, Real Estate Investors and Rightmove were all
purchased for the first time. Additional holdings of Braemar
Shipping, Cineworld, Epwin, Ibstock, Jarvis Securities, Marstons,
VP and XP Power were also acquired. Connect Group, Debenhams, DX
Group, Countrywide, GVC, Juridica, Low & Bonar, Safestyle,
Slingsby, Sprue Aegis, Standard Life and UK Commercial were sold.
Nine holdings were top-sliced to provide capital for the new
purchases.
Corporate Activity
The holding of Communisis was taken over at a capital profit of
152.8%.
Dividend
The Board is pleased to recommend an increased annual dividend
of 9.1p per ordinary share (2017: 8.9p). This represents an
increase of 2.2 %over the previous year. Subject to shareholder
approval at the Annual General Meeting on 3 April 2019, the
dividend will be paid on 18 April 2019 to shareholders on the
register on 21 March 2019.
Summary
-- As Chairman, I am pleased that we now have an independent
board in place to set up and oversee the transition to growth -
creating shareholder value for all, managing costs and risk. We are
now in a period of stability, which is essential as a precursor to
growth
-- We believe the optimum size for the fund will be between
GBP50m and GBP150m. At this size we will have:
- Sufficient fund management capacity and skills to uncover and
maximise potential opportunities
- The ability to consistently deliver superior performance,
driven by the right targets and measures
- Reduced risk of breaching the Chapter 3 regulation (five
shareholders owning more than 50% of the Company) that would result
in temporarily losing Investment Trust and tax exempt status
- An opportunity to reduce the Ongoing Charge percentage to match or better our peer group
-- We are in the process of confirming a Fund Management team
that in our judgement, will have the necessary skills and processes
in place to identify and realise value-enhancing investment
opportunities, at lower relative risk
-- We will continue to balance the need to manage costs and also
ensure the Company and fund are supported with appropriate
resources now and in the longer term
Outlook
The world and UK markets have recovered since the start of 2019
(FTSE 100 Index rose over 6% from 31 December 2018 to 1 March
2019). I am very pleased to report that along with this
improvement, and with the active support of Dr Manny Pohl the Fund
Manager, the Company's NAV has also recovered from 225.9p per share
at 31 December 2018 to 235.9p per share (unaudited) at 28 February
2019, an increase of 4.4%.
The February change in NAV was 1.07%, the second monthly
increase in a row, outperforming the SmallCap Index (0.90%) as well
as the AIM All-share Index (-0.88%). The share price on 28 February
2019 was 225p, trading at a discount of 4.84%, a substantial
improvement on the position just after the shareholder
requisitioned General Meeting (GM) when the discount briefly
increased to more than 20%. This is the point I joined the board.
Ever since the GM, we appear and are more stable; this report will
address a number of basic shareholder questions about the near and
medium-term future stability, including recommended dividend and
management plan, that should reduce uncertainty.
Externally, uncertainties continue for a UK small-cap fund.
Brexit rumbles on, struggling between the need for a political
outcome that reflects the balanced voting 52:48 in the referendum,
and the realities of negotiation between two sides with a lot to
lose, economically and politically - the UK government and
remaining 27 member states of the EU. How or even when this will
end is still uncertain. The manner of Brexit, whatever it is, and
also developments on the global stage will impact the economy and
sterling in the short term; we invest for the longer term in
quality stocks and are mindful of opportunities that arise as a
result in the shorter term.
The US economy is unlikely to repeat its 2018 outperformance and
Washington's more hostile approach to trade is a driver of
convergence of larger developed economies' growth and a thorn for
the UK's trade negotiators post Brexit. More protectionism and
continued uncertainty has already translated to companies deferring
investment or freezing recruitment, and there are signs global
companies will move capacity away from the UK over time.
We are watching these market trends closely to see which Company
plans, if any, need to change as the market cycle continues - there
will be turbulence, but we are here for the long term.
We are excited to see the prospect of a new-look Athelney Trust
on the horizon. We must continue to deliver to all shareholders a
period of stability and solid performance as well as listen to
their feedback and needs, then using that information, build an
even stronger future.
So far our listening and analysis has produced the following
common ground: The Trust has a history of good results, but recent
events also show it is vulnerable, because of its size and pattern
of shareholding. Many would like to see it grow, and at least some
see the advantage of external Fund Management in that regard.
Dividends are progressive but some criticise total shareholder
returns over the long term and also the fund's size.
The conditions need to be right - right to convince existing
shareholders that growth is possible (because the Company is once
again stable over a period of months at least) and then right to
attract new shareholders over time. The benefits from our plan to
Stabilise and Grow are set out in Figure 1 below.
Figure 1 - The Board's Plan to Stabilise and Grow the Company
and Fund
I believe we now have the right elements in place, and a process
and plan to unite them, so that the foundations for 'Readiness to
Grow' are in place. Shareholder support for continuation with this
plan will be sought at the AGM.
The plan's foundations are:
1. A carefully reviewed and confirmed mandate, with continued
focus in the small/mid-cap territory
2. A Fund Management team capable of delivering significant
benefits realised from an optimal size (around GBP100m total
assets)
3. A fund which is large enough to attract further investors and
reduce the risks of accidentally losing investment trust status
4. Realising a larger fund allows us to reduce the Ongoing
Charge percentage as well as attract, retain the best resources
We appreciate the hard-working contribution of Dr Manny Pohl,
the current Fund Manager and second largest shareholder (17.6%) and
continue to discuss his role.
We are grateful for the support and interest shown by Gresham
House Asset Management (Gresham House). Since December 2018 Gresham
House has worked hard with Robin Boyle, the largest shareholder
(20.8%) to set up an 'externally-managed Fund' option for the
Company. Robin founded the Company 24 years ago and until last
September was Managing Director and Fund Manager. Now, as he
considers the future, he wants to help realise the most attractive,
sustainable future possible for Athelney Trust. Those of Robin's
friends and family who are also shareholders and have been
contacted, agree with our initial assessment that Gresham House
appears to be a very attractive route to preserve and grow
shareholder value.
I believe, along with my colleagues, that although Dr Manny Pohl
has investment success through ECP Asset Management, when it comes
to maximising shareholder value, the Gresham House option
represents a strong alternative as it has the following
features;
-- More investment management capacity from existing, proven
skills and experience in UK small- and mid-cap companies - not just
from Robin Boyle who would be a consultant to Gresham House but
also Investment Manager Laurence Hulse, his manager Ken Wotton and
the wider team of Gresham House. These UK-based segments are where
the undervalued companies are and this team has the capacity to
find and realise value for shareholders, now and in the future when
the fund has grown
-- More due diligence face-face with the management team - which
often produces invaluable insights otherwise not available at any
price. In my own experience of due diligence and work with
management teams of all sizes, personal visits always give a
clearer view of management, their processes, culture and
aspirations that aids making better investment management
decisions. 'In person due diligence' has always been central to
Robin Boyle's process and this is also true of Gresham House
-- A route for Robin Boyle's knowledge, insights and investment
process to be teamed with Gresham House's compatible value-based
structure and conviction scoring. This teamwork and parallel
working can be co-located in Gresham House's London office,
allowing the most effective transition and succession plan for
Robin Boyle's knowledge over time. Robin would work closely with
Laurence Hulse, Investment Manager at Gresham House, from the
start; they already speak highly of each other from their work to
date
-- A great opportunity to use Gresham House's proven ability to
grow in the UK market, as well as select from a choice of mandates,
used successfully by them - the existing Gresham House culture,
management style and portfolio structure fits well with our
Company
Finally we believe a move to a 'Gresham House with Robin Boyle'
Fund Management option, could happen quickly after the AGM, with
low risk and limited cost to Athelney and its shareholders, so that
free cash flows over time can be quickly optimised. At the moment,
given Dr Manny Pohl's resolutions that, if carried, would
re-shuffle the Board once again, we are blocked from committing the
Company to further contracts, and therefore unable to proceed more
quickly.
We will use the time up to the AGM to complete our review of the
options available to the Company, and to determine the best option
for shareholders.
We have a particularly important AGM this year. Given the
resolutions presented, shareholders have a clear choice to
determine the future direction and prospects for the Company.
Some resolutions are the usual and expected ones, including
those to re-elect myself and Helen Sachdev (new directors appointed
since the last AGM, not voted on to the Board by shareholders).
Others, requisitioned by Dr Manny Pohl, if carried, return
himself and Simon Moore to the Board and vote David Lawman off,
almost perfectly reversing the result of the GM held a month ago.
We believe this returns shareholders to the conditions of late
2018, and will introduce further uncertainty and delay.
We, the current Board of Directors, have quickly created an
effective and proactive working relationship. We are in the process
of stabilising the Company by doing what all directors must: Listen
to the needs of all shareholders, explore all options to create
shareholder value and carry out our fiduciary duties in a
collaborative way that embodies the AIC Code of Governance.
Compared to our plan we believe the implied direction from the
Dr Manny Pohl resolutions represents less shareholder value, and
carry the prospect of continued instability and we therefore
recommend you vote against his resolutions.
We believe the current Board has understood the current position
quickly and selected the plan that we are confident is best for
shareholders and the future of the Company.
We look forward to a good relationship with existing and future
shareholders, and with the right management team in place, are
confident in the prospects for Athelney Trust PLC.
Frank Ashton
Executive Chairman
4 March 2019
Fund Manager's Report
2018 in Review
The 2018 calendar year began with strong growth across many
global economies, however, the wheels began to fall off quickly,
with growth trajectories diverging. After two years of steady
growth in asset prices, the 13.7% fall in the MSCI World Index in
the last three months of 2018 means global stocks produced their
worst quarterly performance in seven years leading to a decline of
10.4% for the full year. In comparison, the FTSE performed slightly
better during the quarter, declining by only 10.4% to close 12.5%
down for the full financial year.
Since the Global Financial Crisis (GFC), equities have been a
major beneficiary of the low-interest rate and loose monetary
policy environment. Companies have been able to borrow money
cheaply to strengthen their balance sheets while also benefiting
from a pick-up in demand as the global economy recovered.
Low-interest rates have driven down the yield on other asset
classes such as bonds, with UK government bonds yielding around
1.3% compared with the FTSE All Share Index which yields
approximately 4.0%. Now that UK and US interest rates have each
risen by 0.25% in late 2018, markets have recovered well.
The year of 2018 saw disappointing market returns and higher
correlation between asset classes. For many, the geopolitical risks
around the global have presented investors with an uncertain future
with a poor growth outlook.
Investment Philosophy
As a survivor of the stock market crash in 1987 and the GFC in
2008, I have learned the importance of having the courage to stand
true to core values when approaching investments and be willing to
source conviction from within. When times get tough, the
delineation between facts and feelings is blurred and having a high
conviction, based on a core philosophy, helps us move through these
turbulent and traumatic snapshots in time. I have found that when
the dust settles, and we look back on these events, there is quite
a thrilling tale; but only for those who stood by their
convictions.
At the core of my values is the belief that the underlying
economics of a business drives its long-term returns. Companies who
are growing their economic footprint (profitably) are generally
better investment opportunities than those that aren't. I would
rather invest in a smaller number of companies which I understand
well than a large number of companies of which I have only a
cursory understanding. As a custodian of other people's money, I
owe it to those who have invested alongside us to allocate their
capital to opportunities that I believe will produce the best
return for shareholders.
As a high-conviction, quality-growth manager that invests for
the long-term, my promise ensures that: 1 - I will never speculate
to generate returns; 2- I buy for the long-term and do not see
myself as a trader; and, 3 - I do not diversify to cover up for
poor due diligence.
Our Task
My task begins with the mandate of Athelney Trust - to provide
shareholders with prospects of long-term capital growth in quality
small-cap companies, while maintaining a progressive dividend
record. With this in mind, the first task when taking over the
portfolio was to consolidate the holdings and divest of
poor-quality companies, without jeopardising the progressive annual
dividend. My portfolio review identified several investments with
lacklustre long-term growth prospects, with some investments where
the business model is under serious threat.
The request for a GM presented some uncertainty for our Company
and meant I ceased making further wholesale changes to the
portfolio in the event that fund management would revert back to
Robin Boyle.
With the GM behind us, I will continue to deliver superior
returns for shareholders. Note, I will remain mindful that our
investment turnover should remain low while aiming to have no more
than fifty companies in the portfolio. Further, I am pleased to
report that the Company realised capital profits before expenses
arising from the sale of investments in the sum of GBP98,840 (31
December 2017: GBP296,629).
Redefining Active Investing
While the active versus passive debate continues, and while the
focus of the industry has been on the fees paid rather than on the
returns generated, the more compelling issue which needs to be
addressed is, in fact, manager skill in picking quality investments
rather than having a broad portfolio and replicating an index. In
all of this, the acid test is longer-term investment performance
and the only way to grow sustainable wealth that is resilient
through time is to invest money in a careful, considered and
committed way. I adhere to an Active Investing approach and believe
that it requires:
I. Forensic Research: Considerable factors need to line up
before I invest in a business. For example, a sound business
strategy that is contextually relevant to the markets they operate.
A durable business model with a Sustainable Competitive Advantage
(SCA) that management has previously demonstrated a strong
competency of execution.
II. Understanding Potential, not just Performance: I believe
it's important to understand both the narrative of an investment
and the numbers that support it. Investing on the narrative alone
ignores reality; and investing in numbers alone, ignores potential.
I marry the two together so that we can best capture the long-term
potential while ensuring that we pay a fair price.
III. Being Highly Engaged with Portfolio Companies: To make high
conviction investment decisions and to maintain these over the
long-term requires deep understanding and a lot of time and
attention. It means I need to think about investing as an owner,
and not a share trader.
IV. As a result, I only have time for our best ideas, and we
continue to monitor and assess these through collaborative and
discursive practices.
Environmental, Social and Governance Considerations
In more recent times, investment management is more than merely
generating performance in excess of a benchmark. While that is a
core part of a mandate, there are other very important qualitative
issues that are central to what should be done. For example, one
should recognise that capital allocation is a vehicle through which
to drive change. I have the opportunity to demand specific
standards of corporate governance, decide whether specific social
and ethical issues are acceptable and, if they are not, I vote with
my feet.
For me, the integrity and credibility of any management team is
a founding principle to our investment process. I need to trust
that management have the best interests for all stakeholders, and I
have faith that they will make sound strategic decisions and have
strong experience and capabilities in their chosen field. As
custodians of shareholders' capital, we have an obligation to
ensure that we are doing whatever we can to preserve capital and
grow it over time. I allocate capital to investments which are
sustainable in the long-term, and finding trustworthy, values-based
management that align with my core values and beliefs that will
ensure above-average economic portfolio returns.
Recent Additions
Since taking over the management of the portfolio I added only
one position: Rightmove Plc (LSE: RMV). Rightmove has been able to
ride the paradigm shift from papers to online. Its principal
business is their website (www.rightmove.co.uk) where its customers
- estate agents, rental agents and new home developers - pay fees
to have their properties displayed on the website, which provides
home hunters with property details to search. The business competes
for classified property advertising and has seen impressive growth.
Rightmove's success means it is now a household name; and its
opportunity ahead remains large, particularly compared to the other
online pure-plays.
Update
The unaudited NAV on 28 February 2019 was 235.9p per share - up
1.07%, the second monthly increase in a row and beating the
SmallCap Index (0.90%) as well as AIM All-share Index (-0.88%). The
share price on the same day was 225p (trading at a discount of
4.84%). Further updates can be found at www.athelneytrust.co.uk
Prospects
To this end, I will continue to consolidate the REIT and
property exposure into names that have a limited exposure to retail
and display the ability to grow their dividend over time. For any
new additions, I will ensure that the investments fit within our
investment philosophy, while adhering to the Company Mandate. The
key attributes that will define my investments are:
I. Organic Sales Growth: Quality franchises organically growing
sales above GDP and can do so (sustainably) because they have a
large, growing market opportunity and compelling competitive
advantage which will drive ongoing market share gains.
II. A Proven Track Record: This encompasses both the
management's capability and the strength of the business' model.
Generally, a firm that delivers a ROE > 15% (consistently)
indicates a Quality Franchise. Our investment philosophy is built
on the belief that a stock's long-term return to shareholders is
driven by the return on capital of the underlying business. Our
view is that long-term investors are backing a management team and
a business model. Management are the key decision-makers regarding
the company's strategy and its competitive position in the
marketplace.
III. Company's future profits: It is critical that I have
confidence in their ability to execute even in a tough environment
like the current Brexit conundrum.
IV. Low Leverage: I require investments to operate with low
levels of debt, which ensure that they have sufficient resources to
execute on its strategy. For me, an Interest Coverage above 4x
provides sufficient bandwidth in times of economic trouble. As a
long-term investor, capital preservation is my highest priority.
There is nothing that changes a management team's focus toward the
short term quicker than an upcoming debt refinance when market
conditions suddenly change. We need to be comfortable that this
will not happen and that the company has a strong enough balance
sheet so that it will retain optionality and can easily execute its
strategy over the long-term.
For me, investment discipline is a prerequisite for success, and
I am going to ensure a consistent approach to investments during
this uncertain time.
Dr Manny Pohl
Fund Manager
4 March 2019
Business Model and Other Statutory Information
Business Model
The Business Model and principal activity of the Company
remained unchanged throughout the year ended 31 December 2018.
Strategy
The long term strategy of Athelney Trust PLC is to pursue its
investment objective and deliver shareholder value by operating as
an investment trust company (as explained on pages 30 to 33 -
Directors' Report). Investment trusts are collective closed-ended
public limited companies. The investment trust company structure
allows the shareholders, whether institutions or private investors,
to access a diversified portfolio of investments that is
professionally managed, and so reduce risk over time compared to
investing themselves.
Stabilising the Company and Growing the Fund
What is clear, however, is that there is a growing imperative to
grow the fund. Our fund must be larger to deliver better long term
performance in all measures. The Board will continue in the early
part of 2019 to stabilise the Governance and running of the fund.
The Board will also in parallel carry out the necessary preparation
to grow the fund. This in turn will allow the fund over time to
move to a proportionally lower Ongoing Charge and in the short
term, reduce the risk of losing its tax status, as well as better
overall performance.
The Mandate will evolve, but will focus on similar opportunities
- small-/mid-cap development from the existing portfolio, allowing
value-/conviction-based process to uncover under-researched
opportunities and so deliver superior performance.
Stabilising New Board appointed, process in place to appoint
the Company long term Fund Manager
------------- -------------------------------------------------------------------------
Growing the We believe the optimum size for the fund will be
Fund between GBP50m and GBP150m. At this size we will
have:
* Sufficient investment management capacity to maximise
potential opportunities
* The ability to consistently deliver superior
performance
* Significantly reduce the risk of losing the Trust's
tax status by an inadvertent breach of the 5/50 rule
------------- -------------------------------------------------------------------------
Reduce Cost Growing whilst keeping a tight control of costs will
allow us to reduce the Ongoing Charge percentage
to be in line with or better than the peer group
Investment Approach - the Board
The Board of Directors is responsible for the overall
stewardship of the Company, including investment and dividend
policies, corporate and gearing strategy, corporate governance
procedures and risk management. Biographical details of the three
Directors, can be found on page 2 and details of other Directors
during the year can be found on page 31.
The Company had one male employee during the year (2017: one
male employee).
Investment Objective
The investment objective of the Trust is to provide shareholders
with prospects of long-term capital growth with the risks inherent
in small cap. investment minimised through a wide spread of
holdings over various industries and sectors. The Board also
considers that it is important to maintain a progressive dividend
record.
Investment Policy
The assets of the Trust are allocated predominantly to companies
with either a full listing on the London Stock Exchange or a
trading facility on AIM or ISDX. The assets of the Trust have been
allocated in two main ways: first, to the shares of those companies
which have grown steadily over the years in terms of profits and
dividends but, despite this progress, the market rating is
favourable when compared to future earnings and dividends; second,
to those companies whose shares are standing at a favourable level
compared with the value of land, buildings or cash in the balance
sheet.
Investment Strategy
The investment strategy employed by the Fund Manager in meeting
the investment objective focuses on active stock selection. The
selection of individual holdings is based on analysis of, amongst
other things, market positioning, competitive advantage, financial
strength and cash flows. The weighting of individual investments
reflects the Fund Manager's conviction in those holdings and his
views on asset allocation, including between UK and overseas
equities, corporate bonds, cash and gearing.
Investment of Assets
At each Board meeting, the Board considers compliance with the
Company's investment policy and other investment restrictions
during the reporting period. An analysis of the portfolio on 31
December 2018 can be found on pages 13 to 14 of the annual
report.
Responsible Ownership
The Fund Manager takes a particular interest in corporate
governance and social responsible investment policy. As stated
within the Corporate Governance Statement on pages 20 to 29, the
Fund Manager's current policy is available on its website
www.athelneytrust.co.uk. The Board supports the Fund Manager on his
voting policy and his stance towards environmental, social and
governance issues.
Review of Performance and Outlook
Reviews of the Company's returns during the financial year, the
position of the Company at the year end, and the outlook for the
coming year are contained in the Chairman's Statement on pages 3 to
8 which forms part of the Strategic Report.
Principal Risks and Uncertainties and Risk Management
As stated within the Corporate Governance Statement on pages 20
to 29, the Board applies the principles detailed in the internal
control guidance issued by the Financial Reporting Council, and has
established a continuing process designed to meet the particular
needs of the Company in managing the risks and uncertainties to
which it is exposed.
The principal risks and uncertainties faced by the Company are
described below and in note 12 which provides detailed explanations
of the risks associated with the Company's financial
instruments.
-- Market - the Company's fixed assets consist almost entirely
of listed securities and it is therefore exposed to movements in
the prices of individual securities and the market generally.
-- Investment and strategic - incorrect investment strategy,
asset allocation, stock selection and the use of gearing could all
lead to poor returns for shareholders.
-- Regulatory - relevant legislation and regulations which apply
to the Company include the Companies Act 2006, the Corporation Tax
Act 2010 ("CTA") and the Listing Rules of the Financial Conduct
Authority ("FCA"). The Company has noted the recommendations of the
UK Corporate Governance Code and its statement of compliance
appears on pages 20 to 29. A breach of the CTA could result in the
Company losing its status as an investment company and becoming
subject to capital gains tax, whilst a breach of the Listing Rules
might result in censure by the FCA. At each Board meeting the
status of the Company is considered and discussed, so as to ensure
that all regulations are being adhered to by the Company and its
service providers.
On the 3 January 2018 MiFIDll and KID came into force with the
introduction of the Key Information Document (KID). The Company has
complied with the legislation and the deadlines to ensure that
shares in the Company were still able to be traded. A copy of the
Company's KID can be found on the website www.athelneytrust.co.uk.
The reports are updated on a yearly basis.
The Board is not aware of any breaches of laws or regulations
during the period under review and up to the date of this
report.
-- Operational - failure of the accounting systems or disruption
to its business, or that of other third party service providers,
could lead to an inability to provide accurate reporting and
monitoring, leading to a loss of shareholders' confidence.
-- Financial - inadequate controls by the Fund Manager or other
third party service providers could lead to misappropriation of
assets. Inappropriate accounting policies or failure to comply with
accounting standards could lead to misreporting or breaches of
regulations.
-- Liquidity - the Company may have difficulty in meeting
obligations associated with financial liabilities.
The Board seeks to mitigate and manage these risks through
continual review, policy setting and enforcement of contractual
obligations. It also regularly monitors the investment environment
and the management of the Company's investment portfolio.
Investment risk is spread through holding a wide range of
securities in different industrial sectors.
Statement Regarding Annual Report and Financial Statements
Following a detailed review of the Annual Report and Financial
Statements by the Audit Committee, the Directors consider that
taken as a whole it is fair, balanced and understandable and
provides the information necessary for shareholders to assess the
Company's performance, business model and strategy.
Environment Emissions
The Company does not have any physical assets, property, or
operations of its own and as such does not generate any greenhouse
gas or other emissions.
Social, Community and Human Rights Issues
The Company has one employee (2017: one employee) and, as far as
the Board is aware, no issues exist in respect of social, community
or human rights issues.
Alternative Investment Fund Manager's Directive ("AIFMD")
The Company is registered as its own AIFM with the FCA under the
AIFMD and confirms that all required returns have been completed
and filed.
BY ORDER OF THE BOARD
J. Girdlestone
Secretary
4 March 2019
Income Statement
For the Year Ended 31
For the Year Ended 31 December
December 2018 2017
Note Revenue Capital Total Revenue Capital Total
GBP GBP GBP GBP GBP GBP
(Losses)/gains
on investments
held at fair
value 8 - (1,135,313)) (1,135,313) - 835,709 835,709
Income from
investments 2 251,990 - 251,990 238,832 - 238,832
Investment Management
expenses 3 (5,412) (51,068) (56,480) (6,128) (56,042) (62,170)
Other expenses 3 (33,480) (106,537) (140,017) (26,527) (73,817) (100,344)
Net return on ordinary
activities before
taxation 213,098 (1,292,918) (1,079,820) 206,177 705,850 912,027
Taxation 5 - - - - - -
Net return on ordinary
activities after
taxation 6 213,098 (1,292,918) (1,079,820) 206,177 705,850 912,027
Net return per
ordinary share 6 9.9p (59.9)p (50.0)p 9.6p 32.7p 42.3p
Dividend per ordinary
share paid during
the year 7 8.9p 8.6p
The total column of this statement is the profit and loss
account for the Company.
All revenue and capital items in the above statement derive from
continuing operations.
No operations were acquired or discontinued during the above
financial years.
A statement of movements of reserves is given overleaf.
A Statement of Comprehensive Income is not required as all gains
and losses of the Company have been reflected in the above
Statement.
Statement of Changes in Equity for the Year Ended
31 December 2018
Called-up Capital Capital Total
Share Share reserve reserve Revenue Shareholders'
Capital Premium realised unrealised reserve Funds
GBP GBP GBP GBP GBP GBP
Balance brought
forward at 1 January
2017 539,470 881,087 1747,083 1852,759 398,134 5,418,533
Net profits on
realisation
of investments - - 296,629 - - 296,629
Increase in unrealised
Appreciation - - - 539,080 - 539,080
Expenses allocated
to
Capital - - (129,859) - - (129,859)
Profit for the
year - - - - 206,177 206,177
Dividend paid
in year - - - - (185,036) (185,036)
Shareholders'
Funds at 31 December
2017 539,470 881,087 1,913,853 2,391,839 419,275 6,145,524
========== ======== ========== =========== ========== ==============
Balance brought
forward at 1 January
2018 539,470 881,087 1,913,853 2,391,839 419,275 6,145,524
Net profits on
realisation
of investments - - 98,840 - - 98,840
Decrease in unrealised
Appreciation - - - (1,234,153) - (1,234,153)
Expenses allocated
to
Capital - - (157,605) - - (157,605)
Profit for the
year - - - - 213,098 213,098
Dividend paid
in year - - - - (192,051) (192,051)
Shareholders'
Funds at 31 December
2018 539,470 881,087 1,855,088 1,157,686 440,322 4,873,653
======== ======== ========== ============ ========== ============
Statement of the Financial Position as at
31 December 2018
Company Number: 02933559
Note 2018 2017
GBP GBP
Fixed assets
Investments held at fair
value through profit and
loss 8 4,648,238 5,966,679
---------- ----------
Current assets
Debtors 9 213,435 156,798
Cash at bank and in hand 35,520 45,289
248,955 202,087
Creditors: amounts falling
due within one year 10 (23,540) (23,242)
---------- ----------
Net current assets 225,415 178,845
---------- ----------
Total assets less current liabilities 4,873,653 6,145,524
Provisions for liabilities
and charges - -
Net assets 4,873,653 6,145,524
========== ==========
Capital and reserves
Called up share capital 11 539,470 539,470
Share premium account 881,087 881,087
Other reserves (non distributable)
Capital reserve - realised 1,855,088 1,913,853
Capital reserve - unrealised 1,157,686 2,391,839
Revenue reserve (distributable) 440,322 419,275
Shareholders' funds - all
equity 4,873,653 6,145,524
========== ==========
Net Asset Value per share 13 225.9p 284.8p
Approved and authorised for issue by the Board of Directors on 4
March 2019.
N. F. Ashton
Director
Statement of Cash flows for the Year Ended
31 December 2018
2018 2017
GBP GBP
Cash flows from operating
activities
Net revenue return 213,098 206,177
Adjustment for:
Expenses charged to capital (157,605) (129,859)
Increase in creditors 299 8,410
(Increase)/decrease in debtors (56,638) 100,166
Cash (used)/from operations (846) 184,894
---------- ----------
Cash flows from investing
activities
Purchase of investments (581,051) (674,520)
Proceeds from sales of investments 764,179 660,818
---------- ----------
Net cash used in investing
activities 183,128 (13,702)
---------- ----------
Equity dividends paid (192,051) (185,036)
Net decrease in cash (9,769) (13,844)
Cash at the beginning of the
year 45,289 59,133
---------- ----------
Cash at the end of the year 35,520 45,289
========== ==========
Notes to the Financial Statements
For the Year Ended 31 December 2018
1. Accounting Policies
1.1 Statement of Compliance and Basis of Preparation of Financial Statements
The financial statements are prepared in accordance with
applicable United Kingdom accounting standards, including Financial
Reporting Standard 102 ("FRS 102"), the Companies Act 2006 and with
the AIC Statement of Recommended Practice ("SORP") issued in
November 2014 (amended January 2017), regarding the Financial
Statements of Investment Trust Companies and Venture Capital
Trusts. All the Company's activities are continuing.
1.2 Income
Income from investments including taxes deducted at source is
recognised when the right to the return is established (normally
the ex-dividend date). UK dividend income is reported net of tax
credits in accordance with FRS 102 "Income Tax". Interest is dealt
with on an accruals basis.
1.3 Investment Management Expenses
All three Directors are involved in investment management, 10%
of their salaries or fees have been charged to revenue and the
other 90% to capital. All other investment management expenses have
been charged to capital. The Board propose continuing this basis
for future years.
1.4 Other Expenses
Expenses (including VAT) and interest payable are dealt with on
an accruals basis and charged through the Revenue and Capital
Accounts in an allocation that the Board consider to be a fair
distribution of the costs incurred.
1.5 Investments
Listed investments comprise those listed on the Official List of
the London Stock Exchange. Unlisted investments are traded on AIM.
Profits or losses on sales of investments are taken to realised
capital reserve. Any unrealised appreciation or depreciation is
taken to unrealised capital reserve.
Investments have been classified as "fair value through profit
and loss" upon initial recognition.
Subsequent to initial recognition, investments are measured at
fair value with changes in fair value recognised in the Income
Statement.
Securities of companies quoted on a recognised stock exchange
are valued by reference to their quoted bid prices at the close of
the year, similarly, AIM-traded investments are valued using the
closing bid price on 31 December.
1.6 Taxation
The tax effect of different items of income and expenses is
allocated between capital and revenue on the same basis as the
particular item to which it relates, using the Company's effective
rate of tax for the year.
1.7 Judgements and estimates
The Directors confirm that no judgements or significant
estimates have been made in the process of applying the Company's
accounting policies.
1.8 Deferred Taxation
Deferred tax is recognised in respect of all timing differences
that have originated but not reversed by the balance sheet date.
Deferred tax liabilities are recognised for all taxable timing
differences but deferred tax assets are only recognised 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. Deferred tax assets and liabilities are calculated
at the tax rates expected to be effective at the time the timing
differences are expected to reverse. Deferred tax assets and
liabilities are not discounted.
1.9 Capital Reserves
Capital Reserve - Realised
Gains and losses on realisation of fixed asset investments are
dealt with in this reserve.
Capital Reserve - Unrealised
Increases and decreases in the valuations of fixed asset
investments are dealt with in this reserve. Unrealised capital
reserves cannot be distributed by way of dividends or similar.
1.10 Dividends
In accordance with FRS 102 "Events after the end of the
Reporting Period", dividends are included in the financial
statements in the year in which they go ex-div.
1.11 Share Issue Expenses
The costs associated with issuing shares are written off against
any premium arising on the issue of Share Capital.
1.12 Financial Instruments
Short term debtors and creditors are held at cost.
2. Income
Income from investments
2018 2017
GBP GBP
UK dividend income 183,833 154,547
Foreign dividend income 30,496 43,876
UK Property REITs 37,653 40,334
Bank interest 8 75
Total income 251,990 238,832
======== ========
UK dividend income
2018 2017
GBP GBP
UK Main Market listed investments 145,370 101,879
UK AIM-traded shares 38,463 52,668
183,833 154,547
======== ========
3. Return on Ordinary Activities before Taxation
2018 2017
GBP GBP
The following amounts (inclusive of
VAT) are included
within investment management and other
expenses:
Directors' remuneration:
- Services as a director 21,000 21,000
- Otherwise in connection with management 51,163 57,474
Auditors' remuneration:
- Audit Services - Statutory audit 10,930 10,500
Miscellaneous expenses:
- Other wages and salaries 2,400 4,134
- Management services 32,472 30,996
- PR and communications 2,958 3,891
- Stock exchange subscription 8,760 7,920
- Sundry investment management and
other expenses 24,255 26,599
42,559 -
* Legal fees
-------- --------
196,497 162,514
======== ========
On 1 April 2016 the Company entered into a contract with GW
& Co to provide management services at an annual cost of
GBP24,600 plus VAT. An increase of 10% was agreed in July 2017
making the annual fee GBP27,060 plus VAT.
4. Employees and Directors' Remuneration
2018 2017
GBP GBP
Costs in respect of Directors:
Non-executive directors' fees 21,000 21,000
Wages and salaries 51,163 57,474
Social security costs 2,400 4,134
74,563 82,608
======= =======
Average number of employees:
Chairman - -
Investment 1 1
Administration - -
1 1
5. Taxation
(i) On the basis of these financial statements no provision has
been made for corporation tax (2017: Nil).
(ii) Factors affecting the tax charge for the year.
The tax charge for the period is lower than (2017: lower than)
the average small company rate of corporation tax in the UK of 19
per cent. The differences are explained below:
2018 2017
GBP GBP
Total return on ordinary activities
before tax (1,079,820) 912,027
------------ --------------
Total return on ordinary activities
multiplied by the average small company
rate of corporation tax 19% (2017:
19.25%) (205,166) 175,565
Effects of:
UK dividend income not
taxable (34,945) (29,750)
Revaluation of shares
not taxable 233,746 (103,773)
Capital gains not taxable (18,037) (57,101)
Unrelieved management
expenses 24,402 15,059
Current tax charge for
the year - -
============ ==============
The Company has unrelieved excess revenue management expenses of
GBP214,415 at 31 December 2018 (2017: GBP127,914) and GBP102,597
(2017: GBP102,597) of capital losses for Corporation Tax purposes
and which are available to be carried forward to future years. It
is unlikely that the Company will generate sufficient taxable
profits in the future to utilise these expenses and therefore no
deferred tax asset has been recognised.
For the year ended 31 December 2017, the Company received
approval from HM Revenue and Customs under Section 1158 of the
Corporation Tax Act 2010, therefore the Company was not liable to
Corporation Tax on any realised investment gains for 2017. The
Directors intend to continue to meet the conditions required to
obtain approval and therefore no deferred tax has been provided on
any capital gains or losses arising on the revaluation or disposal
of investments.
6. Return per Ordinary Share
The calculation of earnings per share has been performed in accordance
with FRS 102.
2018 2017
GBP GBP GBP GBP GBP GBP
Revenue Capital Total Revenue Capital Total
Attributable return
on
ordinary activities
after taxation 213,098 (1,292,918) (1,079,820) 206,177 705,850 912,027
Weighted average
number of shares 2,157,881 2,157,881
Return per ordinary
share 9.9p (59.9)p (50.0)p 9.6p 32.7p 42.3p
7. Dividend
2018 2017
GBP GBP
Final dividend in respect of 2017
of 8.9p (2017: a final dividend
of 8.6p was paid in respect of
2016) per share 192,051 185,036
======== ========
Set out below is the total dividend payable in respect of the
financial year, which is the basis on which the requirements of
Section 1158 of the Corporation Tax Act 2010 are considered.
It is recommended that a final dividend of 9.1p (2017: 8.9p) per
ordinary share be paid out of revenue profits amounting to a total
of GBP196,367 For the year 2017, a final dividend of 8.9p was paid
on 6 April 2018 amounting to a total of GBP192,051.
2018 2017
GBP GBP
Revenue available for distribution 213,098 206,177
Final dividend in respect of
financial year ended
31 December 2018 (196,367) (192,051)
Undistributed Revenue Reserve 16,731 14,126
========== ==========
8. Investments
2018 2017
GBP GBP
Movements in year
Valuation at beginning
of year 5,966,679 5,117,268
Purchases at cost 581,051 674,520
Sales - proceeds (764,179) (660,818)
- realised gains on
sales 98,840 296,629
(Decrease)/increase in unrealised
appreciation (1,234,153) 539,080
Valuation at end
of year 4,648,238 5,966,679
============ ==========
Book cost at end
of year 3,490,551 3,574,834
Unrealised appreciation at the end
of the year 1,157,687 2,391,845
4,648,238 5,966,679
============ ==========
UK Main Market listed
investments 3,530,985 4,618,263
UK AIM-traded shares 1,117,253 1,348,416
4,648,238 5,966,679
========== ==========
Gains on investments
2018 2017
GBP GBP
Realised gains on
sales 98,840 296,629
(Decrease)/Increase in unrealised
appreciation (1,234,153) 539,080
(1,135,313) 835,709
============== ========
The purchase costs and sales proceeds above include transaction
costs of GBP4,290 (2017: GBP5,711) and GBP3,308 (2017: GBP2,401)
respectively.
9. Debtors
2018 2017
GBP GBP
Investment transaction
debtors 201,627 148,483
Other debtors 11,808 8,315
213,435 156,798
======== ========
10. Creditors: amounts falling due within one year
2018 2017
GBP GBP
Social security and
other taxes 524 2,959
Other creditors 2,961 8,628
Accruals and deferred
income 20,055 11,655
23,540 23,242
======= =======
11. Called Up Share Capital
2018 2017
GBP GBP
Authorised
10,000,000 Ordinary Shares of 25p 2,500,000 2,500,000
========== ==========
Allotted, called up and fully paid
2,157,881 Ordinary Shares of 25p 539,470 539,470
========== ==========
(2016: 2,157,881 Ordinary Shares of
25p)
12. Financial Instruments
The Company's financial instruments comprise equity investments,
cash balances and debtors and creditors that arise directly from
its operations, for example, in respect of sales and purchases
awaiting settlement.
The major risks associated with the Company are market, credit
and liquidity risk. The Company has established a framework for
managing these risks. The Directors have guidelines for the
management of investments and financial instruments.
Market Risk
Market price risk arises mainly from uncertainty about future
prices of financial investments used in the Company's business. It
represents the potential loss the Company might suffer through
holding market positions by way of price movements other than
movements in exchange rates and interest rates.
The Company's investment portfolio is exposed to market price
fluctuations which are monitored by the Fund Manager who gives
timely reports of relevant information to the Directors.
Adherence to the investment objectives and the internal controls
on investments set by the Company mitigates the risk of excessive
exposure to any one particular type of security or issuer.
The Company's exposure to other changes in market prices at 31
December on its investments is as follows:
A 20% decrease in the market value of investments at 31 December
2018 would have decreased net assets attributable to shareholders
by 43 pence per share (2017: 55.3 pence per share). An increase of
the same percentage would have an equal but opposite effect on net
assets available to shareholders.
2018 2017
GBP GBP
Fair value through profit or loss investments 4,648,238 5,966,679
Market risk also arises from changes in interest rates and
exchange risk. All of the Company's assets are in sterling and
accordingly the Company has limited currency exposure. The majority
of the Company's financial assets are non-interest bearing, as a
result the Company's financial assets are not subject to
significant risk due to fluctuations in the prevailing levels of
market interest rates.
The carrying amounts of financial assets best represent the
maximum credit risk exposure at the balance sheet date. Bankruptcy
or insolvency of the custodian may cause the Company's rights with
respect to securities held with the custodian to be delayed.
Liquidity Risk
Liquidity Risk is the risk that the Company may have difficulty
in meeting obligations associated with financial liabilities. The
Company is able to reposition its investment portfolio when
required so as to accommodate liquidity needs. However it may be
difficult to realise its investment portfolio in adverse market
conditions.
Maturity Analysis of Financial Liabilities
The Company's financial liabilities consist of creditors as
disclosed in note 10. All items are due within one year.
Capital management policies and procedures
The Company's capital management objectives are:
-- to ensure the Company's ability to continue as a going concern;
-- to provide an adequate return to shareholders;
-- to support the Company's stability and growth;
-- to provide capital for the purpose of further investments.
The Company actively and regularly reviews and manages its
capital structure to ensure an optimal capital structure, taking
into consideration the future capital requirements of the Company
and capital efficiency, projected operating cash flows and
projected strategic investment opportunities. The management
regards capital as total equity and reserves, for capital
management purposes.
Fair values of financial assets and financial liabilities
Fixed asset investments (see note 8) are valued at market bid
price where available which equates to their fair values. The fair
values of all other assets and liabilities are represented by their
carrying values in the balance sheet.
Financial instruments by category
The financial instruments of the Company fall into the following
categories
31 December 2018 Assets at
fair value
At Amortised through profit
Cost or loss Total
GBP GBP GBP
Assets as per the
balance
sheet
Investments - 4,648,238 4,648,238
Debtors 213,435 - 213,435
Cash at bank 35,520 - 35,520
------------------------- ---------------------------- --------------------------
Total 248,955 4,648,238 4,897,193
========================= ============================ ==========================
Liabilities as per
the balance
sheet
Creditors 23,540 - 23,540
------------------------- ---------------------------- --------------------------
Total 23,540 - 23,540
========================= ============================ ==========================
31 December 2017 Assets at fair
At Amortised value through
Cost profit or loss Total
GBP GBP GBP
Assets as per the
balance
sheet
Investments - 5,966,679 5,966,679
Debtors 156,798 - 156,798
Cash at bank 45,289 - 45,289
------------------------- -------------------------------- ------------------------
Total 202,087 5,966,679 6,168,766
========================= ================================ ========================
Liabilities as per
the balance
sheet
Creditors 23,242 - 23,242
------------------------- -------------------------------- ------------------------
Total 23,242 - 23,242
========================= ================================ ========================
Fair value hierarchy
In accordance with FRS 102, the Company must disclose the fair
value hierarchy of financial instruments.
The fair value hierarchy consists of the following three
classifications:
Classification A - Quoted prices in active markets for identical
assets or liabilities.
Quoted in an active market in this context means quoted prices
are readily and regularly available and those prices represent
actual and regularly occurring market transactions on an arm's
length basis.
Classification B - The price of a recent transaction for an
identical asset, where quoted prices are unavailable.
The price of a recent transaction for an identical asset
provides evidence of fair value as long as there has not been a
significant change in economic circumstances or a significant lapse
of time since the transaction took place. If it can be demonstrated
that the last transaction price is not a good estimate of fair
value (e.g. because it reflects the amount that an entity would
receive or pay in a forced transaction, involuntary liquidation or
distress sale), that price is adjusted.
Classification C - Inputs for the asset or liability that are
based on observable market data and unobservable market data, to
estimate what the transaction price would have been on the
measurement data in an arm's length exchange motivated by normal
business considerations.
The Company only holds classification A investments (2017:
classification A investments only).
13. Net Asset Value per Share
The net asset value per share is based on net assets of
GBP4,873,653 (2017: GBP6,145,524) divided by 2,157,881 (2017:
2,157,881) ordinary shares in issue at the year end.
2018 2017
Net asset value per
share 225.9p 284.8p
======= =======
14. Dividends paid to Directors
During the year the following dividends were paid to the
Directors of the Company as a result of their total
shareholding:
Mr Robin Boyle GBP39,966(2)
Dr. Manny Pohl GBP31,118(1)
Mr Simon Moore GBP2,848
Notes:
1. Dr Manny Pohl's relationship with Global Masters Fund Limited
is described in Note 1 to the table of Directors' interests on page
38. During the year a dividend of GBP31,118 was paid to Global
Masters Fund Limited.
2. This figure includes GBP34,852 paid to Trehellas House
Limited. Mr Robin Boyle's interest in Trehellas House Limited is
described in Note 2 to the table of Directors' interests on page
38.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SSLSAIFUSEFD
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