Athelney Tst. Regulatory News (ATY)

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 £90,000 extra cost (£40,000 pre year end and £50,000 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 £98,840 (31 December 2017: £296,629).

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 £50m and £150m. 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 £100m 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 £98,840 (31 December 2017: £296,629).

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.

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.

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

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

Statement of the Financial Position as at

31 December 2018

Company Number: 02933559

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

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

3. Return on Ordinary Activities before Taxation

On 1 April 2016 the Company entered into a contract with GW & Co 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

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:

The Company has unrelieved excess revenue management expenses of £214,415 at 31 December 2018 (2017: £127,914) and £102,597 (2017: £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 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

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 9.1p (2017: 8.9p) per ordinary share be paid out of revenue profits amounting to a total of £196,367 For the year 2017, a final dividend of 8.9p was paid on 6 April 2018 amounting to a total of £192,051.

8. Investments

The purchase costs and sales proceeds above include transaction costs of £4,290 (2017: £5,711) and £3,308 (2017: £2,401) respectively.

9. Debtors

10. Creditors: amounts falling due within one year

11. Called Up Share Capital

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.

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

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 £4,873,653 (2017: £6,145,524) divided by 2,157,881 (2017: 2,157,881) ordinary shares in issue at the year end.

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:

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 £31,118 was paid to Global Masters Fund Limited.

2. This figure includes £34,852 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.