Athelney Tst. Regulatory News (ATY)

Embargoed 7am Thursday 17 March 2011

ATHELNEY TRUST PLC: FINAL RESULTS

Athelney Trust plc ("Athelney"), the investor in small companies and junior markets, announces its results for the year ended 31 December 2010.

Highlights

·; Audited Net Asset Value increased 11.9 per cent to 142p per share (31 December 2009: 127p)

·; Gross Revenue up 15.7 per cent at £142,303 (31 December 2009: £122,963)

·; Revenue return per ordinary share rose 7.5 per cent to 5.7p (31 December 2009: 5.3p)

·; Recommended dividend increase of 3.2 per cent to 4.9p (2009: 4.75p)

Athelney Chairman Hugo Deschampsneufs said: "Against expectations 2010 was a year when it was hard to lose money. All one needed to grasp was that the eurozone's fringes had a serious problem and so avoid anything to do with Portugal, Ireland, Italy, Greece and Spain.

"As to picking out the best investments I think that Paul the Octopus, so good at forecasting the results of World Cup football matches, would have been hard pressed. Equity markets in fashionable areas like China and Brazil went backwards, the oil price went sideways, as did property prices. Defying its critics, including me, gold continued its apparently inexorable rise.

"What about 2011? Well it doesn't take a rocket scientist to work out that it is going to be a very hard year for us as consumers. The rise in VAT, increases in income tax and National Insurance, inflation likely to be running at five per cent in the Spring/Summer period and more unemployment will all impact on our ability to spend. As investors though we may do better. I have pencilled in a gain in equity markets of 8-12 per cent for the year with a rise in total dividends".

-ends-

For further information:

Robin Boyle. Managing Director

Athelney Trust plc 020 7628 7937

Paul Quade 020 7248 8010

CityRoad Communications 07947 186694

CHAIRMAN'S STATEMENT AND BUSINESS REVIEW

I have the pleasure in announcing the results for the year ended 31 December 2010. The salient points are as follows:

·; Audited Net Asset Value ("NAV") was 142p per share (31 December 2009: 127p) an increase of 11.9 per cent.

·; Gross Revenue increased by 15.7 per cent to £142,303 (31 December 2009: £122,963).

·; On a like-for-like basis gross revenue rose by 5.49 per cent to £129,715 compared with the full year to 31 December 2009 of £122,963

·; Revenue return per ordinary share was 5.7p, an increase of 7.5 per cent (31 December 2009: 5.3p).

·; Recommended dividend of 4.9p per share (2009: 4.75p), an increase of 3.2 per cent.

Review of 2010

The salary of the chief executive of the large corporation is not a market award for achievement. It is frequently in the nature of a warm personal gesture by the individual to himself - J.K. Galbraith.

My overriding impression of 2010 was of one catastrophe followed by another: the terrible loss of life in the Haiti earthquake, the volcanic ash at Eyjafjallajokull (how does one pronounce that by the way?) which brought Europe and its airlines to ground in May, floods, fires and other earthquakes too numerous to mention, and the travel chaos at Christmas. Nor must I forget the BP oil spill.* Then there was the General Election, the formation of a Coalition Government, followed by the Comprehensive Spending Review which promised to sort out this country's budgetary problems in a mere four years. In between all that, we had the sight of European politicians taking on the markets and having their bluff called. First they were caught out on Greece, where a no-bailout agreement became a £65bn rescue. Next, they created a bailout fund of £400bn hoping that the size of the thing would shock markets into submission: six months later Ireland had to be saved. Politicians then agreed a permanent fund, due in 2013, which made matters worse by being subsequently diluted. O dear! 

Against expectations, 2010 was a year when it was hard to lose money: all one needed to grasp was that the eurozone's fringes had a serious problem and so avoid anything to do with Portugal, Ireland, Italy, Greece and Spain. New York rose by 13 per cent, London by 11 per cent and, although Tokyo fell by 2 per cent, the strong currency would have produced an overall gain of 11 per cent if one was investing using British pounds. So much for the major markets: plusses for smaller markets saw Argentina +51 per cent, Indonesia +44 per cent, Thailand +40 per cent, Chile and Denmark +36 per cent and Columbia +35 per cent. 

If you didn't get too many of those (I certainly didn't) then perhaps you avoided these: Greece-36 per cent, Spain-19 per cent, China -17 per cent (this gets my vote for the one major surprise) and Italy -12 per cent. As to picking out the best investments for 2010, I think that Paul the Octopus (so good at forecasting the results of World Cup football matches) would have been hard pressed. Equity markets in fashionable areas like China and Brazil went backwards, the oil price went sideways, as did property prices. Defying its critics (including me), gold continued its apparently inexorable rise. 

Commodities promised much but some, like cocoa, lost ground: others, such as cotton, posted strong gains but not even a heat-seeking missile could track the violent swings in many commodities. Perhaps to calm themselves down, investors turned to fine wines. The value of investment-grade Claret rose by 32% on the back of demand from Asia but wine has a great advantage over all other types of investment in that both winners and losers may buy the stuff - the former to celebrate, the latter to commiserate. No wonder the average annual return on fine wine over the past fifteen years is more than 15%, a performance which few other asset classes can match. More of this later.

Overall, then, a pretty decent year - indeed, with two victories against Australia in both Rugby and cricket and the Ryder Cup coming back to Europe, some of us reckoned it was not at all bad.

*BP lost 340,000 times what it saved by not running a particular test on its Macondo well in the Gulf of Mexico. Source - Tim Harford, author of the Undercover Economist.

Look around the world and the forces are massing. On one side are Californian prison guards, London tube drivers, French rail workers, Greek civil servants and teachers everywhere. Opposite stand various cash-strapped governments. Even the mere mention of cuts has brought public-sector workers onto the streets of Europe: when the austerity plans are put into action, expect much worse. Perhaps not a re-run as fought out so brutally between capital and labour in Thatcher's Britain, more as one between the taxpayers and the 'tax eaters' (William Cobbett). Politicians have repeatedly given in to the unions by increasing pensions, adding holidays or dropping reforms as well as bumping up pay. This time they have to fight because they are so short of money but it is crucial that the war must be won in the right way. 

Amid all the pain of austerity, there exists a huge opportunity to redesign government by focusing on productivity and improving services, not just cutting costs. The immediate battle will be over benefits - holidays are often absurdly generous but the real issue is pensions. Sixty-five should be the minimum retirement age for those who work in classrooms and offices and new civil servants should be switched to defined-contribution pensions.

Private sector productivity has soared in the West over the last 25 years - companies have achieved this because they have the freedom to manage, to experiment, to expand successful initiatives, to close down bad ones, to promote talented people. Across the sector, unions have fought all of this, most cruelly in education. It is harder to reconstruct government than business but even small productivity gains can bring large savings. The coming battle should be about delivering better services, not about cutting resources and focusing on productivity should help politicians redefine the debate. The imminent retirement of the baby-boomers is a chance to hire a new generation of workers with different contracts. Politicians face a choice: push ahead, reform and create jobs in the long term or give in again, cut services and raise more taxes.

The debate about bankers' pay often generates plenty of heat but precious little light yet it is vitally important that the rules on pay should make banks safer. I have long believed that bonuses (both immediate and deferred) should be paid in new shares, which would strengthen the bank's ability to absorb losses, even if the bankers sold their bonus shares in the secondary market. But now we have a new type of security called cocos (Do you mean cocoa?: Ed.) which would be absolutely ideal for the job. Cocos (Contingent Convertible Bonds) convert into ordinary shares in situations of great financial stress and would consequently strengthen the capital of the issuing bank. Unlike bonuses paid in new shares, however, the cocos would offer no upside gain, the best outcome being that the holder would be repaid at maturity. Having to hold their cocos to maturity would align the bankers' interests with the depositors and other bondholders rather than the equity investors. Surely that would make for safer banks. Paradoxically, this might mean bonuses going up initially but that would be a price well worth paying.

Shock number one, shortly after Athelney Trust's year end, was contained in the announcement that inflation as measured by the Consumer Price Index had shot up to 3.7 per cent for the year 2010. Immediately, there were calls to tighten policy by raising interest rates but, like many a knee-jerk reaction, this would be just plain wrong since there is every sign that this overshooting might not continue. Why not? According to the Treasury, the latest average forecast for growth of the economy in 2011 is 1.9 per cent compared with the even more muted forecast from the O.E.C.D. of a mere 1.2 per cent. Broad money (M4) rose by only 2 per cent in the year to September and there is a huge tightening under way because of spending cuts and tax and National Insurance rises. The O.E.C.D. says that the output gap, the difference between actual and potential output, is as high as 4 per cent. Unemployment is at 8 per cent and unit labour costs are only rising at 1.5 per cent and there is no sign of that ominous trend, the wage-price spiral. In short, leave interest rates well alone unless there is some sign that inflationary expectations are rising and that they are being reflected in wage settlements.

The second shock was the news, issued just a couple of weeks after the first that the economy had shrunk by 0.5 per cent in the fourth quarter of 2010. The cold winter kept customers away from hotels, airports and leisure centres and stopped building work. Statisticians reckon that, without the bad weather, the economy would have been flat but that is far from certain. Business surveys had indicated that progress was slowing but there was still some growth yet history tells us that it is not unusual for recoveries to stall. Experience cautions against reacting to one set of bad numbers but what if cold weather was not to blame and it became obvious that the economy had lost momentum? That Mr Osborne has a plan for fixing the budget deficit is welcome (it would be very nice if America had one, too) and the spending cuts should not be delayed but the introduction of new taxes should be scrapped if more bad figures emerge.

Now we turn from an economy that can scarcely grow at all to one which is growing so fast that some economists believe that it will overtake that of America in the next 40 years - China. But are things quite as rosy as they appear to be? Thinking back, I remember in the 1970s we were told that Japan would overtake the U.S. about the year 2000 and, even harder to believe, in the 1960s it was forecast that Russia would become the top economy, based on the rapid growth in the 1950s as the latter industrialized. 

Perhaps forecasts about China have more to them - output has grown by 9.9 per cent per year since 1979. In three decades, only once has annual growth dropped below 4 per cent: over the same period, the U.K. has only twice grown by more than 4 per cent. To my mind, this rate of progress is unsustainable as productivity catches up with other developing countries. Japan, South Korea and Taiwan sustained their high growth only for about three decades. After Japan's period of industrialization, growth halved to 4.6 per cent for the next 25 years before slowing down to virtually nothing. What could cause a slowdown in China? Fiscal and monetary tightening to control food inflation could work too well. The housing bubble in the large cities could burst, leaving indebted individuals and local authorities in a mess. Finally, the state-controlled banks may need another huge injection of cash to make up for all their wild lending in recent years. Any or all of these suggests to me that China is not the right place to invest at the moment.

O no, not more about Europe I hear you cry! But yes, I would like to mention the Europe Financial Stability Fund (EFSF) because I don't think that it is anything like big enough or designed well enough. The U.S. Treasury's Troubled Asset Relief Programme (TARP) started out as a vehicle for buying up toxic assets from U.S. banks and subsequently became something completely different, a way of recapitalizing those banks.

The EFSF has raised money in the market towards the rescue of Ireland and as part of its mission to provide liquidity for those countries frozen out of capital markets. In practice, the size of the fund is only £220 billion and I worry that it would not be enough to fund Ireland, Greece and Portugal. But just think about Spain, which has £400 billion of financing needs up to the end of 2013, Belgium has £160 billion and Italy a whopping £700 billion - and that is before we get round to the banks. Many are under-capitalized - Spain's cajas (savings banks) may need up to £75 billion, for example. Like the TARP, the EFSF must change tack and raise a great deal more money.

Now that Mr Gordon Brown has run away to Scotland, I find I must direct my steady gaze at Ed Balls, recently appointed shadow chancellor after a long stint as Chief Secretary to the Treasury in the last Labour Government. He is attempting to portray the Conservatives as the bankers' best friends: in the absence of any deal forcing banks to lend more to small business, Mr Balls claimed that it was 'typical of a Conservative Party which has not been on the case with the banks since it took office and opposed tougher regulation throughout the last decade before the global financial crisis hit.' Could this be the same Mr Balls whose speech to the City of London Corporation in October 2006 included the boast that 'our light-touch and risk-based regulatory approach - combined with the great pool of talent gathered from across the planet - that underpins London's success as a modern international financial centre.' And again, this time to the British Bankers' Association, 'It is your success and the strength of the economy that enables you to fulfil your wider social responsibilities.' Is this man a hypocrite? Surely not.

Finally, under this sub-heading, some clever people at the International Monetary Fund (IMF) have pointed out the close correlation of price movements between fine wine and crude oil, although they do not start from the same place. A bottle of really good Claret bottled in 1982, for instance, might cost north of £3,000 whereas the equivalent amount of Chateau Brent sells for only 30p. Yet between 1998 and 2010, there was a correlation of over 90 per cent between changes in oil and wine prices. Emerging markets have accounted for more than 100 per cent of the increase in global oil demand, while oil consumption in rich countries has declined. Similarly, rising incomes in emerging countries has encouraged wine drinking, whereas consumption in Europe, notably France and Italy, has declined. China overtook Britain in 2010 as the biggest export market for Claret. Much of the demand from Asia is for drinking, not investment, whereas wine has become a fashionable way to diversify a portfolio here in Europe. Western wine buffs accuse the Chinese of not knowing how to drink good wine, horrified by reports of good reds being mixed with Coca-Cola or being knocked back in one (Shurely shum mishtake: Ed.).

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Results

Gross Revenue increased by 15.7 per cent compared to 2009but this amount included a special dividend of £12,588 from GVC Holdings, formerly Gaming VC Holdings. If that is excluded altogether then, on a like-for-like basis, Gross Revenue actually rose by 5.49 per cent. However, if GVC had declared an unchanged interim dividend (in fact, it declared no interim at all) and a correspondingly smaller special dividend, then Gross Revenue would have increased by 9.6 per cent.

Number

Companies paying dividends 64

Companies sold (therefore no true comparison) 11

Companies purchased (therefore no true comparison) 14

Increased total dividends in the year 27

Reduced total dividends in the year 22

No change in dividend 2

Capital Gains

During the year the Company realised capital profits arising on the sale of investments in the sum of £93,459 (31 December 2009: £118,623).

Portfolio Review

Holdings of ACM Shipping, Chaucer Holdings, Hardy Underwriting Bermuda, Haynes Publishing Group, HMV, Local Shopping REIT, Morson Group, Omega Insurance, Paypoint, Randall & Quilter and Wincanton were all purchased for the first time. Additional holdings of Alumasc, Charles Taylor Consulting, Renew Holdings, Macfarlane Group, Matchtech, Mucklow Group and Town Centre Securities were also acquired. Havelock Europe, NWF Group, Severfield Rowen and WSP Group were all sold.  In addition, a total of four holdings were top-sliced to provide capital for the new purchases. 

Dividend

The Board is pleased to recommend an increased annual dividend of 4.9p per ordinary share (2009: 4.75p). This represents an increase of 3.2 per cent over the previous year. Subject to shareholder approval at the Annual General Meeting on 27 April 2011, the dividend will be paid on 4 May 2011 to shareholders on the register on 8 April 2011.

Update

The unaudited NAV at 28 February 2011 was 142.1 p whereas the share price on the same day stood at 135p. Further updates can be found on www.athelneytrust.co.uk

Prospects

What about 2011? Well, it doesn't take a rocket scientist to work out that it is going to be a very hard year for us as consumers. The rise in VAT, increases in income tax and National Insurance, inflation likely to be running at 5% in the Spring/Summer period, more unemployment and so on will all impact on our ability to spend in the shops. As investors, though, we may do better - I have pencilled in a gain in equity markets of 8-12% for the year with a rise in total dividends thanks to BP (and Lloyds in 2012).

H.B. Deschampsneufs

Chairman

28 February 2011

INCOME STATEMENT

(INCORPORATING THE REVENUE ACCOUNT)

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 in note 12.

A Statement of Total Recognised Gains and Losses is not required as all gains and losses of the Company have been reflected in the above Statement.

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS 

BALANCE SHEET AS AT 31 DECEMBER 2010

CASHFLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2010

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2010

1. Accounting Policies

1.1 Basis of Preparation of Financial Statements

The financial statements are prepared on a going concern basis under the historical cost convention as modified by the revaluation of investments held at fair value.

The financial statements are prepared in accordance with the Companies Act 2006, applicable UK accounting standards and the provisions of the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" (SORP) issued by the A.I.C. in January 2009.

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 16 "Current Tax". Interest is dealt with on an accruals basis.

1.3 Investment Management Expenses

Of the two directors involved in investment management, 10% of their salaries 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. 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. 

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 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.

1.8 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.

1.9 Dividends

In accordance with FRS 21 "Events after the Balance Sheet Date", dividends are included in the accounts in the year in which they are paid.

1.10 Share Issue Expenses

The costs associated with issuing shares are written off against any premium arising on the issue of Share Capital.

2. Income

3. Return on Ordinary Activities before Taxation

4. Employees

5. Taxation

(i) On the basis of these financial statements no provision has been made for corporation tax (2009: Nil).

The Company has unrelieved excess revenue management expenses of £31,191 at 31 December 2010 (2009: £31,538) and £102,597 (2009: £102,597) 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 2009, 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 2009. 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

7. Dividend

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 4.9p (2009: Nil) per ordinary share be paid amounting to a total of £97,171. For the year 2009, an interim dividend of 4.75p was paid on 1 April 2010 amounting to a total of £85,633.

8. Investments

Investments continued

The purchase and sales proceeds above include transaction costs of £2,052 (2009: £2,188) and £1,327 (2009: £2,898) respectively.

9. Debtors

10. Creditors: amounts falling due within one year

11. Called Up Share Capital

During the year 180,279 Ordinary Shares with an aggregate nominal value of £45,070 were issued for consideration of £216,605. The premium of £171,535 has been recognised within the Share Premium Account against which £31,859 has been charged in respect of share issue costs. 

12. Reserves

13. 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. Short term debtors and creditors are excluded from disclosure.

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.

The major risks associated with the Company are market 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 risk arises from changes in interest rates, valuations awarded to equities, movements in prices and the liquidity of financial instruments.

At the end of the year the Company's portfolio was invested in UK securities with the exception of 9.33 per cent, which was invested in overseas securities.

Liquidity Risk

Liquidity Risk is the risk that the Company may have difficulty in meeting obligations associated with financial liabilities. The Company has no borrowings; therefore there is no exposure to interest rate changes.

The company is able to reposition its investment portfolio when required so as to accommodate liquidity needs.

14. Net Asset Value Per Share

The net asset value per share is based on net assets of £2,816,162 (2009: £2,289,607) divided by 1,983,081 (2009: 1,802,802) ordinary shares in issue at the year end.