Annual Financial Report

RNS Number : 8733E

Athelney Trust PLC

16 February 2018

 

ATHELNEY TRUST plc

                                                                                            FINAL RESULTS

Legal Entity Identifier:

213800ON67TJC7F4DL05

Athelney Trust plc, the investor in small companies and junior markets announces its final results   for the 12 months ended 31 December 2017.

                                         Chairman's Statement and Business Review    

I announce the results for the year ended 31 December 2017.  The salient points are as follows:

·    The total return, which is the increase in NAV plus the dividend, is 16.8 per cent (31 December 2016: 5.7 per cent)

·    Audited Net Asset Value ("NAV") was 284.8p per share (31 December 2016: 251.1p) an increase of 13.4 per cent.

·    Revenue return per ordinary share was 9.6p (31 December 2016: 10p).

·    Recommended final dividend of 8.9p per share (2016: 8.6p), an increase of 3.5 per cent.

 

Review of 2017

The Treasury predicted I would become the most unpopular man in Britain.  This was the only correct forecast that the Treasury made in the several years that I was chancellor.  Former Chancellor of the Exchequer Norman, now Lord, Lamont.

Get your facts right, then you can distort them as you please.  Mark Twain.

If you put the…government in charge of the Sahara Desert, in five years there would be a shortage of sand.  Professor Milton Friedman.

If 2016 was the year of shock and surprise, then 2017 was the year of disruption.  A blizzard of tweets followed President Trump's inauguration (my nuclear button is bigger than yours - all grown-up stuff, of course), answered by bots from the likes of Russia, China and North Korea.  Prime Minister (strong and stable leadership) May turned a cast-iron majority into something much more precarious depending on the goodwill of the DUP and the Scottish Conservatives.  The general election campaign was a superb example of ineptitude. As far as Brexit was concerned, Britain gave way completely on the Irish border, the rights of EU workers and the divorce settlement so was allowed to prepare for trade talks this year.  Let us see how easy they turn out to be!  Syria spent its sixth year in civil war and Yemen was not far behind in terms of danger to life.  The rise of the populist parties continued in Europe and brought with it an exceptionally unwelcome increase in anti-Semitism, particularly in Hungary and Poland. President Maduro of Venezuela continued with his quest to destroy what at one time had been the strongest economy in Latin America.  Tanks rolling down the streets of Harare eventually persuaded autocratic President Mugabe to resign while, at the same time, the Generals were claiming no, there is no coup.  

For the most part, though, global markets continued their serene progress and thus improved on my hope that we could hang on to our gains of the first half.  Major markets did very well with New York, Tokyo, Shanghai and London improving by 26.1, 19.1, 8.6 and 7.4 per cent respectively.  Turkey, Hong Kong and Austria did particularly well in smaller markets with rises of 48.5, 38.9 and 33.2 per cent respectively whereas Saudi Arabia, with a fall of 0.2 per cent, and Russia and Sweden underperformed with small rises of 2.7 and 4.6 per cent. Russia is often touted as a recovery situation but four sets of sanctions have always put me off, resulting from: the arrest and murder of Sergei Magnitsy, the invasion of eastern Ukraine and the Crimea, the shooting down by pro-Moscow fighters of Malaysian Airlines flight number 17 and interference in the U.S. general election.  A better recovery proposition might be battered and bashed retailers and shopping malls.  Westfield is being bought by Unibail-Rodamco, Hammerson has bid for Intu and Brookfield is trying to buy out GGP.  Hedge funds are heavily short and therefore vulnerable.  The same comment applies, in my opinion, to underrated brewery groups such as Greene King and Marston's.  

For the record, the Athelney Trust total return for 2017 was 16.8 per cent whereas the FTSE Small Cap., Fledgling and AIM All-share indices rose by 14.9, 23 and 24.1 per cent respectively, which just goes to underline the point that 2017 was about growth strategies while those based on value and income did well enough without matching the strong performance of Fledgling and AIM.

Ryanair boss Michael O'Leary only proposed getting rid of the co-pilot.  But now Airbus has gone one better: pilotless 'planes.  Soon, everyone will be baffled by flight attendant Elaine Dickinson of the Airplane! film, who memorably said There's no reason to become alarmed and we hope that you enjoy the rest of your flight.  By the way, is there anyone on board who can fly a 'plane?

Let me start this paragraph with a quote: The single greatest edge an investor can have is a long-term orientation.  So said the shrewd Seth Klarman in his book (Margin of Safety, Risk Averse Investing Strategies for the Thoughtful Investor)  written over 25 years ago and still a great read.  Private investors think themselves at a great disadvantage compared with the professional fund manager, who has access to considerable resources as well as by-the-second information about companies and markets.  But many fund managers are incapable of thinking beyond a year and some not even beyond a quarter.  This hands a great advantage to the thoughtful investor who, ideally, should do as little as possible whereas the majority of fund managers are incentivised to do things to show their bosses and clients that they are doing their job and deserve to keep it. There is a saying that time in the market, rather than timing the market, leads to a satisfactory end result.  The less you chop and change your investments, the fewer mistakes you are likely to make.  By following the simple rule of doing as little as possible, the private investor will tend, over the long term, to avoid many pitfalls that damage those unable to sit still.  Remember, while you may be doing nothing with your money, that does not mean that your money is not doing anything for you.

The world's central banks now own a fifth of their respective countries' national debt after years of quantitative easing.  The central banks are owned by the states whose paper they are holding so the ultimate owners of all the government debt are the governments themselves.  If you owe something to yourself, in what sense do you owe it?  Answers on a postcard to Mark Carney, c/o Bank of England, EC2R 8AH. 

With all the problems that face us as a country, it would be good to report that the underlying economy was doing well - unfortunately, that is not the case; in fact, the short-term economic performance is already disappointing.  Consensus forecasts cluster around GDP growth of around 1.5 per cent for 2018, lower than just about anything in the developed world except for Japan and Italy.  So what is going wrong?  The aftermath of the financial crisis has been devastating, the recovery from which has been the weakest since the war.  Real household incomes are just five per cent higher than in 2007.  Between 2007 and 2016, real wages grew by 10.6 in Germany and 6.4 per cent on average in Organisation for Economic Co-operation and Development members.  Those of us aged 22-39 experienced a 10 per cent fall in real earnings between 2007 and 2017 and were particularly hard hit by the jump in house prices from 3.6 times average annual earnings 20 years ago to 7.6 times today.

The UK economy remains the most regionally divided: inner London is the richest in Europe but there are some areas of high deprivation.  Part-time employment is relatively high and zero-hours work has increased from 0.7 per cent in 2007 to 2.8 per cent today.  Productivity is poor and very close to that of Italy.  This dire record partly reflects the long (and growing) tail of poor performers.  Last, but not least, UK investment on capital equipment, research and development is exceptionally weak.  Some argue that perverse incentives reward management for an increase in share prices rather than any improvement in the long-term performance of companies.  This is not a description of a healthy economy well able to withstand the severe shock of worse access to its most important market - it is absurd to claim otherwise.  The Brexit shock, coupled with the UK's underlying weaknesses, is likely to make the rising disappointment for the many who voted to Leave all the more severe.  The collective sigh of relief which greeted the agreement on a two-year period of transition was wholly misplaced - all we have succeeded in doing is moving the cliff-edge from 2019 to 2021.

Some 47 per cent of Sports Direct's independent shareholders voted to remove chairman Keith Hellawell at September's AGM, believing him unable to impose corporate governance discipline on chief executive and majority shareholder Mike Ashley. So it was good of Mr. Ashley to show how seriously he now takes such matters.  He didn't turn up.

The average Briton must find nearly eight times his or her salary to buy the average British house.  Not in the Persimmon boardroom.  The £232m notional profit on share options split between three executive Directors would be enough to purchase 300 such homes.  Startling arithmetic like this comes with a few caveats.  The three men in question, the CEO, FD and MD, could sell only 40 per cent of their options at the end of 2017.  Obviously, the remainder could produce less or more when ultimately sold and the profits are likely to be taxed at rates approaching 50 per cent.  The irony is that the long-term investment plan aimed to recognise good performance over a decade rather than just three or five years.  It was also spread amongst 140 senior managers, though the top three received a third of the total awards.  What the remuneration committee did not anticipate was the soaring share price.  When shareholders approved the plan in 2012 (with some dissent), the shares were priced at 657p but were 2738p five years later.  Ministers, trying to sound tough on inequality, will be embarrassed.  So they should be.  The main factor driving the increase in house-building shares has been the government's own interventions in the housing market which have fuelled demand without increasing supply.  Quite rightly, the Chairman of the board and the Chair of the remuneration committee have now gone.

More proof of the railways' insatiable demand for money.  One rail operator has come up with its third cash-call in three years.  Anyone would think that Hornby operated real trains………

The border between accounting scandal and fraud is marked by the bars of a jail.  Steinhoff, a South African-based, Dutch-registered, Frankfurt-listed retail group (containing Poundland) is under investigation by prosecutors in Germany over suspected inflated revenue numbers [which] made their way into the accounts and in December the Company said that it was considering the validity and recoverability of €60 billion of assets.  Further back, the year 2002 was a classic of its type.  Multibillion-dollar frauds at WorldCom and Tyco landed executives in jail but only three years later.  Global Crossing filed for bankruptcy protection after it said that profits were inflated.  Xerox admitted to over-stating revenues.  Six years passed from 2009 before the chairman of Indian software group Satyam was sentenced.  Let's Gowex of Spain collapsed in 2014: its CEO said that the accounts were untrustworthy and that he was responsible.  The case continues.  London-listed Globo failed in 2015: the CEO and CFO resigned, telling the board about falsification of data and misrepresentation of the Company's financial situation.  Investigations continue.  Justice should be as swift and as painful as possible - surely the authorities can do better than this!

Maybe Stephen Haddrill's 25-page speech on Lessons from the Financial Crisis was meant to be satire.  The head of the Financial Reporting Council (FRC) opened up with the news that the business had cost us £11 trillion in financial support for UK banks without mentioning that the FRC had cleared all accountancy firms of inadequate audits.  He did admit, though, that one of the big four firms only produced a 'satisfactory' FTSE-350 audit 65 per cent of the time.  KPMG, as it happens.

In October, John McDonnell, the shadow chancellor, reaffirmed the commitments in the Labour manifesto to bring Royal Mail, rail, water and the energy sector into public ownership.  This raises not a few questions, of which possibly the least interesting is how much it will all cost.  After all, if I borrow £200,000 to buy a house worth £200,000 then I do not become £200,000 worse off at the point of purchase.  Similarly, to the extent that the government pays what the assets are worth, then overall the public sector would be no better or no worse off.  Nevertheless, the printed media seems determined to concentrate on this area.  The second question, in my view more important, is how much to pay for these assets.  Forcibly buying assets at below market value smacks of expropriation and it would be crucial to the stability of the British economy that any compensation payment is seen to be reasonable.  What is certain is that, if investors believe that they are at risk of being expropriated in the future, they will not invest, to the detriment of the whole country: that would be a disaster.  The third and most important question is what benefit, if any, we might gain from spending an enormous amount of time, effort and disruption on renationalising these industries.  It is important to remember that sectors of the economy such as energy and water are already highly regulated in terms of prices that can be charged and the amount of capital investment which must be undertaken.  Broadly speaking, the regulatory framework is trying to ensure that these companies act in the public interest while the profit motive pushes them to be as efficient as possible. Labour government ministers should not be allowed a free hand to run these utilities any more than should private shareholders.  It is not at all clear that from the inglorious past that such ministers are likely to be either more competent or more trustworthy than our present system of regulatory bodies.

Ah, those far-off days when trains, gas, electricity and water were all in public hands and there were no fat-cat oligarchs gouging deep profits out of our services - or so the young plus Jez Corbyn appear to believe.  Those with longer memories might remember terrible trains, trying to get a telephone (and then sharing the line with one's next-door neighbour), sewage in the river and at sea, with state-owned industries run for the benefit of their employees.  Estimated losses from 1948 to 1970 - £105 billion in today's money.  Of course, it will be different next time…..

The price of Bitcoin rose from about $1,000 at the beginning of the year to $14,129 at the end but, for the life of me, I cannot see that there is any point to the thing apart from representing a mad, wild speculation.  In The Hitchhiker's Guide to the Galaxy, Douglas Adams wrote about similarly useless money.  The exchange rate of eight Ningis to one Pu is simple enough but since the Ningi is a triangular rubber coin 6,800 miles along each side, no-one has ever collected enough to own one Pu.  Ningis are not negotiable currency because Galactibanks refuses to deal in fiddling small change.  Back to Bitcoin, where a chap on the staff of the Wall Street Journal set out to buy lunch in December, paid $76.16 for a $10 pizza and ended up lunching on an ice cream instead.  Apart from the $9.47 in fees, the problem was that the seller had not up-dated the pizza price to reflect price changes in the Bitcoin.  The buyer gave up after waiting 30 minutes for the order to be confirmed and settled for a $5 ice cream sandwich (?) instead, for which he paid $17.50 including $9.62 in fees.  He finally got his pizza four hours later but, alas, by which time he had lost his appetite.

I am often asked, Gentle Reader, is Britcoin a real currency and can I lose money if I hold onto it?  The answer is, of course, that the pound, or Britcoin as it is sometimes referred to in the media, is an unstable and unpredictable currency often used by speculators in shady deals or in money-laundering operations and is not advisable for use by ordinary consumers.  In recent years, Britcoin has been talked up but then crashed spectacularly with huge losses to investors.  At present, the Britcoin remains fragile and ordinary punters are advised to stick to better regulated and more reliable currencies such as the Venezuelan Maduro or Zimbabwean Bling-bling.

Sensible taxes transfer money to the government in a straightforward way but stupid taxes are the ones which encourage stupid behaviour in the population.  Stamp duty, for example, discourages older couples from downsizing and so forces them to live on in a house which is too big for them.  Inheritance tax falls mainly on the less well off since the rich can gift their assets before they die, whereas the moderately off have only their house to bequeath.  Mind you, the wallpaper tax of 1712 was not much better: the rich simply bought plain, untaxed wallpaper, then had it stencilled by hand.  The idea of the window tax of 1696 was that the more windows you had the richer you were likely to be.  You can still see the result in buildings of the period: surplus windows were merely bricked up.  Hat and wig taxes were introduced in the late 18^th Century: result, endless bickering about exactly what was a hat and the terminal decline of the wig industry.  A tax on gin was introduced on the craze that peaked in 1742: result, the rise of the bootleggers who often mixed the rough product with turpentine and sulphuric acid.  Blindness was a common side effect of this particularly stupid tax.

How to claim compensation from Tesco for its accounting scandal: submit claim to KPMG via web portal with evidence of share deals; wait for assessment at 24.5p per share plus 4 per cent interest; download Notice of Acceptance and Release form, sign and upload to portal; wait 35 days for payment.  How to claim a refund on a dodgy packet of sprouts: return to store; show receipt; receive cash.  Should do better!

When was the last time that the UK exported more goods than it imported for a decent period - say five years or so?  The short answer is never.  Over the past 200 years, this great trading nation has had a surplus in manufactured goods for fewer years than you, Gentle Reader, has fingers.  Even during the Empire in all its pomp and the industrial revolution, the UK invariably sucked in more goods than it pumped out.  It's not that we don't make anything - in fact the UK remains one of the world's biggest manufacturers.  But we have never been truly self-sufficient in such goods: indeed, the only thing preventing Britain's balance of payments looking truly horrendous is the services we have sold abroad - financial, legal, consultancy, administration, retail and so on.  In all but two peacetime years over the past two centuries, the UK exported far more services than it imported.  How to square this with the political debate about Brexit?  Listening to strong and stable leader Theresa May banging on about securing tariff-free access to European markets, you might be forgiven for believing that all we need is a replacement for the customs union, a quick trade deal and, hey presto, British lorries and containers will still be able to cross the Channel.  Unfortunately, this catastrophically misses the point.  As it happens, those lorries already face the lowest tariffs in history: these days the problems come from non-tariff barriers such as product standards (does the product conform to our rules), rules on immigration (no consulting work in the EU without permission) and qualifications (a legal degree or medical qualifications may not work in the EU).  Which brings us to the single market, which is everything to do with non-tariff barriers policed by the Tories hate figure, the European Court of Justice.  It works very well in goods but not so in services: architects can work well throughout Europe but it is much harder for accountants to do so.

What we need is a series of deep, complex deals with Europe and the world that harmonise regulation.  Such deals are fiendishly difficult to negotiate: for instance I would expect the UK government to protect the NHS from overseas competition and farmers from those with lower standards on the use of hormones in meat and GM food. Striking such complex deals would invariably involve a loss of sovereignty - will the government explain to Leave voters that, having taken back control, Britain will have to give it up again?

An historic moment.  One of the world's largest companies has changed its name.  Wal-Mart Stores has found a way of better reflecting our company's path to win the future of retail.  Yes, from now on it's to be called, er, Walmart.

Capital Gains

During the year the Company realised capital profits before expenses arising on the sale of investments in the sum of £296,629 (31 December 2016: £294,251).

Portfolio Review

Holdings of Biffa, Countrywide, Crest Nicholson, Debenhams, Greene King, Hostelworld, Ibstock, Marstons, Murgitroyds, NWF, The PRS REIT and Safecharge were all purchased for the first time.  Additional holdings of Air Partner, M&C Saatchi and Record were also acquired. Beasley, Hiscox, Lancashire Holdings and Novae were sold.  In addition, eleven holdings were top-sliced to provide capital for the new purchases.

Corporate Activity

The holdings of Lavendon and Cape were taken over at a capital profit of 99.1 and 19.8 percent respectively.

Dividend

The Board is pleased to recommend an increased annual dividend of 8.9p per ordinary share (2016: 8.6p). This represents an increase of 3.5 per cent over the previous year. Subject to shareholder approval at the Annual General Meeting on 21 March 2018, the dividend will be paid on 6 April 2018 to shareholders on the register on 2 March 2018.

For those patient investors who subscribed for Athelney Trust shares in the IPO of 1994, the annual return has now risen to 17.8 per cent net of basic rate tax on the capital originally invested.

Update

The unaudited NAV at 31 January 2018 was 279.4p whereas the share price on the same day stood at 262p. Further updates can be found on www.athelneytrust.co.uk

Prospects

The Federal Reserve has raised rates three times since the end of 2016 and, in September 2017, announced a reduction in its $4.5 trillion balance sheet.  Despite the Fed's gradual removal of monetary accommodation, monetary conditions have not tightened: I would argue that they have in fact become looser.  Long-term interest rates have hardly changed, markets keep going up and the dollar has not appreciated markedly.  The most plausible reason for this apparent paradox is that the European Central Bank, the Bank of Japan and the Bank of England are still pursuing policies of extreme monetary accommodation.  So, in theory at least, global markets may have a decent-enough year.  As I said at this time last year, much could go wrong (geopolitical risks, trade protectionism, higher oil prices for instance) but monetary policy is unlikely to be unhelpful and so I would hope for a modest 5-7 per cent rise in net asset value in 2018 plus a further 3 per cent from dividends, all being well.

                                                                       Dr. E C Pohl

Chairman

14 February 2018

Income Statement

				For the Year Ended 31 December 2017							For the Year Ended 31 December  2016
	Note		Revenue					Capital	Total		Revenue		Capital			Total
			£					£	£		£			£		£
Gains on investments held at fair value		8	-					835,709	835,709		-			236,357		236,357
Income from investments		2	238,832					-	238,832		242,157			-		242,157
Investment Management expenses		3	(6,128)					(56,042)	(62,170)		(5,210)			(46,933)		(52,143)
Other expenses		3	(26,527)					(73,817)	(100,344)		(25,519)			(63,393)		(88,912)
Net return on ordinary			206,177					705,850	912,027		211,428			126,031		337,459
activities before taxation
Taxation		5	-					-	-		-			-		-
Net return on ordinary activities after taxation         6			206,177					705,850	912,027		211,428			126,031		337,459
Net return per ordinary share		6	9.6p					32.7p	42.3p		10p			6p		16p
Dividend per ordinary share paid during the year              7			8.6p								7.9p

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 2017

	Called-up		Capital	Capital		Total
	Share	Share	reserve	reserve	Revenue	Shareholders'
	Capital	Premium	realised	unrealised	reserve	Funds
	£	£	£	£	£	£
Balance brought forward at 1 January 2016	495,770	545,281	1,563,158	1,910,653	343,369	4,858,231
Net profits on realisation
of investments	-	-	294,251	-	-	294,251
Decrease in unrealised
Appreciation	-	-	-	(57,894)	-	(57,894)
Expenses allocated to
Capital	-	(28,127)	(110,326)	-	-	(138,453)
Profit for the year	-	-	-	-	211,428	211,428
Dividend paid in year	-	-	-	-	(156,663)	(156,663)
Shares issued in the year	43,700	363,933	-	-	-	407,633
Shareholders' Funds at 31 December 2016	539,470	881,087	1,747,083	1,852,759	398,134	5,418,533

Balance brought forward at 1 January 2017	539,470	881,087	1,747,083	1,852,759	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

Statement of the Financial Position as at

31 December 2017

Company Number: 02933559

Note			2017		2016
			£		£
Fixed assets
Investments held at fair value through profit and loss	8		5,966,679		5,117,268
Current assets
Debtors	9		156,798		256,964
Cash at bank and in hand			45,289		59,133
			202,087		316,097
Creditors: amounts falling due within one year	10		(23,242)		(14,832)
Net current assets			178,845		301,265
Total assets less current liabilities			6,145,524		5,418,533
Provisions for liabilities and charges			-		-
Net assets			6,145,524		5,418,533
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			1,913,853		1,747,083
Capital reserve - unrealised			2,391,839		1,852,759
Revenue reserve (distributable)			419,275		398,134
Shareholders' funds - all equity			6,145,524		5,418,533
Net Asset Value per share	13		284.8 p		251.1p

                                                Statement of Cash flows for the Year Ended

31 December 2017

			2017			2016
				£		£
Cash flows from operating activities
Net revenue return				206,177		211,428
Adjustment for:
Expenses charged to capital				(129,859)		(110,326)
Increase/(decrease) in creditors				8,410		(547)
Decrease/(increase) in debtors				100,166		(132,596)
Cash from/(used) operations				184,894		(32,041)
Cash flows from investing activities
Purchase of investments				(674,520)		(741,319)
Proceeds from sales of investments				660,818		570,157
Net cash used in investing activities				(13,702)		(171,162)
Financing activities
Share issue				-		379,506
Net cash used in financing activities				-		379,506
Equity dividends paid				(185,036)		(156,663)
Net (decrease)/increase in cash				(13,844)		19,640
Cash at the beginning of the year				59,133		39,493
Cash at the end of the year				45,289		59,133

Notes to the Financial Statements

For the Year Ended 31 December 2017

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

The Directors confirm that no judgements have been made in the process of applying the Company's accounting policies.

1. Accounting Policies (continued)

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
	2017		2016
	£		£
UK dividend income	154,547		175,503
Foreign dividend income	43,876		46,439
UK Property REITs	40,334		20,210
Bank interest	75		5
Total income	238,832		242,157

UK dividend income
	2017		2016
	£		£
UK Main Market listed investments	101,879		115,086
UK AIM-traded shares	52,668		60,417
	154,547		175,503

3. Return on Ordinary Activities before Taxation

	2017		2016
	£		£
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	57,474		49,401
Auditors' remuneration:
-  Audit Services - Statutory audit	10,500		10,500
Miscellaneous expenses:
- Other wages and salaries	4,134		10,300
- Management services	30,996		22,140
- PR and communications	3,891		9,662
- Stock exchange subscription	7,920		6,420
- Sundry investment management and other expenses	26,599		11,632
	162,514		141,055

On 1 April 2016 the Company entered into a contract with J Girdlestone to provide management services at an annual cost of £24,600 plus VAT. An increase of 10% was agreed in July 2017 making the annual fee £27,060 plus VAT.

4. Employees and Directors' Remuneration

	2017		2016
	£		£
Costs in respect of Directors:
Non-executive directors' fees	21,000		21,000
Wages and salaries	57,474		49,401
Social security costs	4,134		2,971
	82,608		73,372

Costs in respect of administrator:
Wages and salaries	-		6,687
Social security costs	-		642
	-		7,329

Total:
Non-executive directors' fees	21,000			21,000
Wages and salaries	57,474			49,401
Social security costs	4,134			3,613
	82,608			80,701
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 (2016: Nil).

(ii) Factors affecting the tax charge for the year.

The tax charge for the period is lower than (2016: lower than) the average small company rate of corporation tax in the UK of 19 per cent. The differences are explained below:

				2017							2016
				£						£
Total return on ordinary activities before tax				912,027					337,459
Total return on ordinary activities multiplied by the average small company rate of corporation tax 19.25% (2016: 20%)				175,565					67,492
Effects of:
UK dividend income not taxable				(29,750)					(34,430)
Revaluation of shares not taxable				(103,773)					11,578
Capital gains not taxable				(57,101)					(58,850)
Unrelieved management expenses				15,059					14,210
Current tax charge for the year				-					-

The Company has unrelieved excess revenue management expenses of £127,919 at 31 December 2017 (2016: £92,354) and £102,597 (2016: £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 2016, 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 2016.  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.
	2017					2016
	£	£		£		£	£		£
	Revenue	Capital		Total		Revenue	Capital		Total
Attributable return on
ordinary activities after taxation	206,177	705,850		912,027		211,428	126,031		337,459
Weighted average number of shares	2,157,881					2,104,868
Return per ordinary share	9.6p		32.7p	42.3p		10p		6p		16p

7. Dividend

		2017		2016
		£		£
Final dividend in respect of 2016 of 8.6p (2016: a final dividend of 7.9p was paid in respect of 2015) per share		185,036		156,663

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 8.9p (2016: 8.6p) per ordinary share be paid out of revenue profits amounting to a total of £192,051. For the year 2016, a final dividend of 8.6p was paid on 6 April 2017 amounting to a total of £185,036.

		2017		2016
		£		£
Revenue available for distribution		206,177		211,428
Final dividend in respect of financial year ended   31 December 2017		(192,051)		(185,036)
Undistributed Revenue Reserve		14,126		26,392

8. Investments

			2017			2016
			£			£
Movements in year
Valuation at beginning of year			5,117,268			4,709,749
Purchases at cost			674,520			741,319
Sales - proceeds			(660,818)			(570,157)
- realised gains on sales			296,629			294,251
Increase/(decrease) in unrealised appreciation			539,080			(57,894)
Valuation at end of year			5,966,679			5,117,268
Book cost at end of year			3,574,834			3,264,509
Unrealised appreciation at the end of the year			2,391,845			1,852,759
			5,966,679			5,117,268

UK Main Market listed investments			4,618,263			4,109,077
UK AIM-traded shares			1,348,416			1,008,191
			5,966,679			5,117,268

8. Investments (continued)

Gains on investments
				2017			2016
				£			£
Realised gains on sales				296,629			294,251
Increase/(decrease) in unrealised appreciation				539,080			(57,894)
				835,709			236,357

The purchase costs and sales proceeds above include transaction costs of £5,711 (2016: £3,695) and £2,401 (2016: £1,344) respectively.

9. Debtors

		2017		2016
		£		£
Investment transaction debtors		148,483		249,295
Other debtors		8,315		7,669
		156,798		256,964

10. Creditors: amounts falling due within one year

		2017		2016
		£		£
Social security and other taxes		2,959		2,623
Other creditors		8,628		172
Accruals and deferred income		11,655		12,037
		23,242		14,832

11. Called Up Share Capital

		2017		2016
		£		£
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 2017 would have decreased net assets attributable to shareholders by 55.3 pence per share (2016: 47.4 pence per share). An increase of the same percentage would have an equal but opposite effect on net assets available to shareholders.

	2017	2016
	£	£
Fair value through profit or loss investments	5,966,679	5,117,268

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.

12. Financial Instruments (continued)

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 2017	At Amortised Cost £	Assets at fair value through profit or loss £	Total £
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
31 December 2016	At Amortised Cost £	Assets at fair value through profit or loss £		Total £
Assets as per the balance sheet
Investments	-	5,117,268		5,117,268
Debtors	256,964	-		256,964
Cash at bank	59,133	-		59,133
Total	316,097	5,117,268		5,433,365
Liabilities as per the balance sheet
Creditors	14,832	-		14,832
Total	14,832	-		14,832

12. Financial Instruments (continued)

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 (2016: classification A investments only).

13. Net Asset Value per Share

The net asset value per share is based on net assets of £6,145,524 (2016: £5,418,533) divided by 2,157,881 (2016: 2,157,881) ordinary shares in issue at the year end.

		2017		2016
Net asset value per share		284.8p		251.1p

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	£38,619²
Dr. Manny Pohl	£25,573¹
Mr Simon Moore	£2,752

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 31. During the year a dividend of £25,573 was paid to Global Masters Fund Limited.

2.    This figure includes £33,678 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 31.

For further information:

Robin Boyle, Managing Director

Athelney Trust plc

020 7628 7937

 

END

 

 

FR USORRWOAUAAR