Athelney Tst. Regulatory News (ATY)

Chairman's Statement and Business Review

Overview

I am very pleased to be able to report such a substantial change in the fortunes of the Athelney Trust plc (the 'Company' or the 'Trust'), environmentally, structurally and with respect to performance, over the past 12 months. Given the uncertainties in all these areas at this time last year, I am delighted to report very good results for the Company in the year ended 31 December 2019. The key points are as follows:

·; At 31 December 2019, audited NAV was 266.9p per share (2018: 225.9p), an increase of 18.2%

·; The Trust's investment performance over 12 months as measured by Net Asset Value (NAV) total return, which is the change in NAV plus the dividend paid, was plus 22.2% (2018: minus 17.6%). Long term performance represented by the Trust's average 10 year total shareholder return of 127% beat the FTSE 100 (107%) and lagged the FTSE 250 (211%).

·; The 12-month revenue return per ordinary share was 9.1p (2018: 9.9p), a decrease of 8%

·; Issues leading to Board/major shareholder disruption are now fully resolved. However, the disruption led to approximately £88,000 non-recurring costs over the financial years 2018 and 2019. Conditions leading to these non-recurring costs ended when Robin Boyle sold his shareholding in November 2019. In November we welcomed a new major shareholder, BIP Worldwide Flexible Fund to the register. We expect the more normal cost run-rate for the Company, re-established since the AGM last April, to continue in future

·; Your Board recommend a final dividend of 9.3p per share (2018: 9.1p) an increase of 2.2%. UK Inflation for the year of 2019 was 1.4% (Office for National Statistics)

·; This is the 18th successive year of progressive dividend and importantly returns the Trust to a Top 5 position in the dividend yield league table for Investment Companies as well as keeps us in the Next Generation of Dividend Heroes list maintained by the AIC (Athelney was 3rd on the list in March 2019)

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 on pages 17 to 23.

An Independent Board

There were a number of movements including five directors who came off the Board, another five who came on and two reshuffles in the first third of 2019. Details of the various Board changes are on page 24. The directors in place at the time of signing these accounts are:

·; Myself, Frank Ashton - Non-Executive Chairman

·; Simon Moore - Non-Executive Director, Chair of Audit Committee

·; David Lawman - Non-Executive Director

·; Dr Manny Pohl - Managing Director, Fund Manager

We currently have four directors who together make up an independent Board under the AIC Code of Governance 2019. I have no current or prior connection with any major shareholder of the Company and maintain I am an independent Chairman. The Board is also agreed that Simon Moore and David Lawman are independent at 31 December 2019. I returned to a Non-Executive role and fee from Executive Chairman in July 2019 when it was clear the conditions requiring this unusual position had ceased, as reported at the time.

Capital Gains

During the year the Company realised capital profits before expenses arising on the sale of investments in the sum of £262,480 (2018: £98,840).

Portfolio Review

Holdings of Abcam, Boohoo, Churchill China, Close Brothers, Fevertree Drinks, Gamma Communications, Homeserve, JD Sports, Liontrust Asset Management, LXI REIT, Smart Metering Services and National Grid were all purchased for the first time.

 Additional holdings of AEW UK, Custodian REIT, Hill & Smith, Lok'n Store, Londonmetric, Paypoint, Randall & Quillter, Regional REIT, Rightmove, S&U, Treatt, Tritax BigBox and XP Power were also acquired.

 Air Partner, Braemar Shipping, Capital & Regional, Charles Taylor Consulting, Chesnara, Cineworld, Crest Nicholson, Epwin, F&C UK, Fisher (James), Gattaca, Goodwin, Greene King, Hansard Global, Harworth Group, Heath (Samuel) & Sons, Hostelworld, Huntsworth, Ibstock, John Menzies, Jupiter Fund Management, KCOM, Kin & Carta, Latham (James), M&C Saatchi, McColls Retail, Ocean Wilsons, Palace Finance, Park Group, Photo-me, PRS REIT, Quarto Group, Reach, Real Estate Investors, Record, River & Mercantile, Schroder European, Schroder REIT, Town Centre Securities, TPICAP, Wynnstay Group and XL Media were sold. 

Corporate Activity

The holding of Greencore was subject to a Tender Offer during the year at a capital profit of 60% whilst Dairycrest, Murgitroyd and Safecharge were taken over at a capital profit of 32%, 52% and 74% respectively.

Dividend

The Board is very pleased to recommend an increased annual dividend of 9.3p per ordinary share (2018: 9.1p). This represents an increase of 2.2% over the previous year. Subject to shareholder approval at the Annual General Meeting on 8 April 2020, the dividend will be paid on 16 April 2020 to shareholders on the register on 20 March 2020.

The Board is also reflecting the needs of some shareholders for more frequent income contributions and therefore is assessing the net benefits to all shareholders of distributing dividends twice each year.

Review

I am very pleased that we are now free from a number of elements of uncertainty for shareholders and potential investors that together delayed the time when fund growth might occur. We are now in a period of greater structural and economic stability, because:

• Robin Boyle a major shareholder this time last year, sold all his shares ahead of the planned timetable, effectively removing the conditions that might lead to substantial extra costs being incurred by the Company. Significant efforts were made by myself, other directors and the Company Secretary John Girdlestone, to reach this peaceful, natural outcome in the interests of all shareholders

• Total transaction costs for 2019 temporarily increased as Dr Manny Pohl, the incoming fund manager rotated the portfolio he inherited (as detailed in the Fund Manager's report). The portfolio is now correctly positioned and so transaction costs should be back to lower, more normal levels for 2020.

• Parties who bought the Boyle shares are fully supportive of the Board and its plan - allowing full focus on portfolio and Company performance in readiness for growth

• There was a very smooth transition to Debbie Warburton as sole Company Secretary, when John Girdlestone retired - I thank them both and wish John well

• The sizeable majority of the new Johnson UK government removes much of the very significant uncertainty for UK businesses arising from the Brexit 'political impasse'. It is hoped this should now complete without a hard exit by 31 December 2020, the planned end of the standstill transition period, when a new trade deal should come into effect; and

• China and US signed a trade deal on 15 January 2020, bringing the tit-for-tat trade war that started in 2018 to an end described as "win-win" by China. This reduces uncertainty for the global economy - however considerable uncertainty remains on how new UK trade deals will play out in future months as Brexit takes effect.

This greater stability has meant David Lawman who was due to retire from the Board at this AGM, has decided not to stand for re-election. I thank David for his help in a four-person board to transition to the current state; in future we will revert to the more usual three-person board until fund size or conditions require a change.

Along with all colleagues on the Board, I am delighted to welcome the BIP Worldwide Flexible Fund to our shareholder register. This publicly offered collective investment scheme is managed by an experienced independent team of investment and administrative professionals domiciled in South Africa with its units quoted on the Johannesburg Stock Exchange. It is a passive long-term investor and it has informed us that it has every intention of remaining on the register for many years to come.

The Board is very happy with Dr Manny Pohl's performance as Fund Manager in 2019 which saw greater focus on a smaller number of shareholder value-creating holdings. This resulted from portfolio repositioning within the UK Smaller Company sector in the first half of the year. The excellent year-end performance was effectively realised within eight months post AGM when the current Board and Fund Manager were confirmed. We expect this strong performance to continue in 2020 probably supported by an influx of investors to UK stocks, making Athelney an even more attractive investment opportunity.

We are also pleased to report that, as planned, overall directors' remuneration was 1% less than in 2018, despite there being one more director in 2019. The Board continues to be focused on efficient management and appropriate levels of cost in line with the size of the fund.

Outlook

The world and UK markets had a sparkling year in 2019 (FTSE 100 Index rose 12%) and I am very pleased to report that along with this improvement, and with the active work of Dr Manny Pohl the Fund Manager, the Company's NAV improved from 225.9p per share at 31 December 2018 to 266.9p per share (plus 18.1%) at 31 December 2019. A further improvement to 270.9p (unaudited) took place to 31 January 2020, an increase of 1.5%.

We have realised greater stability and general performance for shareholders building from the April AGM, achieving good interim results and then hearing of Robin Boyle's disposal of his holding in November; we are much more confident that, free from distractions our future performance will lead to better conditions for us to grow the fund by attracting new investors.

Externally, uncertainties have reduced for a UK small-cap fund, particularly around Brexit. Much remains to play out during the next 12-18 months on new trade deals between UK/Europe and UK/US. These can impact sterling, the UK economy, general investor sentiment and so the fortunes of companies in our sector.

Time will tell, as it will for the overall impact of the coronavirus (COVID-19) which remains hard to assess. I emphasise in the meantime that we invest for the long term and strongly believe our UK Smaller Companies focus allied to the Fund Manager's leading stock evaluation process will return very good to excellent performance in the future. Many have commented that such stocks are underweighted - we expect we will now see further investments in this sector if uncertainty continues to recede.

Some developments in 2019 give us an opportunity to remind current and potential investors of some advantages of Athelney Trust, a closed-ended fund. For example, the suspension of the open-ended Woodford-managed funds illustrates that for their investors there can suddenly be no choice, no liquidity at any price simply because the fund manager deems it so. Illiquid stocks create risk for an open-ended fund investor - the Bank of England's December 2019 Financial Stability Report says so as does the experience of many thousands of investors in the two Woodford funds.

For closed-ended funds like Athelney, there is always an option (albeit sometimes at a loss) for shareholders to exit (because the shares are traded every business day on the Stock Exchange) as compared to open ended funds where such an exit may cause balance sheet stress arising from the forced sale of illiquid underlying assets to fund the exit. Therefore, investing in such illiquid stocks is at lower, more diversified risk through closed-ended than open-ended funds.

In addition, investment trusts such as Athelney provide some ability to smooth the highest peaks and lowest troughs of the market because we are allowed to hold back up to 15% of investment income in good years to offset lower income in leaner years.

The net benefit for investment trust investors is a greater probability of more consistent annual income from such closed-ended funds' dividends.

The dividend cover for last year was 2.24 though current year revenues may not cover this year's dividend payment. Maintaining dividend cover is helped by being a closed-ended fund and therefore able to return a proportion of revenues to reserves - a structural advantage compared to unit trust funds.

We continue to poll and listen to our shareholders. We understand from our research and conversations with leading shareholders that a number of the previous Board's 2018 AGM resolutions were voted against because of dissatisfaction with the continuing proposed involvement of Robin Boyle and possible Fund Management by Gresham House. Those possibilities ended at the AGM and the current Board has a very good working relationship with Fund Manager Dr Manny Pohl.

We are also aware that some shareholders along with the Board would like to see the fund grow and we continually assess both the best timing and route for this to happen. We believe shareholders will be pleased by the greater stability and better performance in the second half of 2019 and we look forward to the benefits of the new conditions and environment in 2020, continuing to deliver and cement better performance. We expect the second half of 2020 to be the time at which various economic questions (e.g. UK Trade Deals) allow us to be more certain of next steps to growth.

I believe we are already seeing the fruits of greater focus on value creation within a smaller portfolio reflecting the full conviction of Dr Manny Pohl (rather than the transition portfolio from Robin Boyle's Fund Management legacy, of early 2019). The Board will continue to manage and optimise costs as we have now returned to a more normal operating environment. Shareholder support for continuation with this period of performance improvement will be sought at the AGM.

We look forward to a very good relationship with existing and future shareholders, and with the right management team in place, are confident in the prospects for Athelney Trust PLC.

The 2019 AGM will be held at 3.30pm on Wednesday 8 April, at the offices of Company solicitors Druces LLP, Salisbury House, London Wall, London, EC2M 5PS. I encourage as many shareholders as possible to attend and take the opportunity to meet the Board as well as to hear a short presentation from Dr Pohl, the Fund Manager.

Frank Ashton

Non-Executive Chairman

2 March 2020

Fund Manager's Review of 2019

As I reflect on what was quite a challenging year, I am very proud of what I have achieved in managing the Athelney investment portfolio and in overseeing the ECP Asset Management business (ECP) in what was a particularly turbulent year for geopolitics. This year ECP has increased funds under management to circa £1 billion and added additional support and back-office staff to ensure that I and ECP can deliver on the promises made to clients and to the shareholders of the four associated Listed Investment Companies (LICs). As a custodian of other people's money, we all owe it to those who have invested alongside us to allocate their capital to opportunities that we believe in because of the work that has been.

Alongside my work in Athelney, I continue to lead the evolution of ECP as a business, firming up its corporate values and its vision with a fresh new look that sets the scene for the next phase of its growth in Australia and eventually here in the UK. We have set ourselves the goal to 'Redefine Active Investing' through ensuring we continue to take a forensic approach to our analysis, valuing investment potential not just asset value and historical performance. 

The Global Scene

Over the past year, volatility, uncertainty, complexity, and ambiguity (VUCA) were at an all-time high. Geopolitical woes, market volatility, trade complexity, and ambiguity of world leadership has seen the world divided across many issues. For some time, confidence and trust in institutions have been a major concern with hostility regarding inequalities coming to the fore. However, the Edelman barometer has indicated that over the past year there has seen some improvement in societal trust with the public focusing more time on relationships they can control and finding unity in one core message: an urgent desire for change.

As the world order continues to be challenged, China comes out from behind its Special Economic Zones to establish and challenge the "five eyes" nations of the West (Australia, USA, Britain, Canada, and New Zealand) by infiltrating and asserting ownership right across the South Pacific. Chairman Xi is now entrenched as the party's leader for life, with China reverting to the governance structure of the emperors who ruled for so many thousands of years and which, until the Industrial Revolution in Britain, gave the Chinese people at large a much higher living standard than the West.

President Trump has continued his colourful presidency, with many of his policies following economic nationalism, having an enormous impact across the world. When we consider the desire for change and an economic system that has brought vast inequity in many parts of the world, moderate political leaders we have seen through time have not brought the radical change needed. As Michael Moore correctly predicted Trump's win in 2016, he appears to be correct in that Trump has been the "human Molotov cocktail" that has driven substantial change (for better or worse).

Global Economics

After robust growth over the past few years, the International Monetary Fund (IMF) forecasts global economic growth to be 3.5% in 2020. Global central banks, including our own, appear perplexed by stubbornly low inflation with many being increasingly frustrated with a lack of political action to stimulate flagging economies.

Interestingly, as the global scene continues to evolve, we are seeing early signs of a shift toward policymakers being more acutely aware of environmental, social, and economic factors.

The 'Wellbeing Economy Alliance' is seeing some early-adopting countries shifting toward frameworks that move beyond GDP as a sole marker for economic success, which can only be a positive political development. In much the same way Environmental, Social and Governance (ESG) factors have become integral in investment markets, and wellbeing indexes are a shift in the right direction for policymakers to recognise what is important to the broader public.

Paul Schmelzin, a senior executive of the Bank of England, has studied interest rates going back to 1321 from which he concluded that current declining world interest rates are consistent with the historic trend and we may not see high rates for a while other than for periodic spikes. Furthermore, with world inflation remaining very low, rates are unlikely to increase in the foreseeable future. Should this be correct, then the BOE is unlikely to raise rates any time soon and P/E ratios will remain higher for longer than we otherwise might expect.

The Markets, Our Portfolio

Turning to the stock market, one could be forgiven for thinking that the world was not burning but rather booming. After financial markets slammed on the brakes in 2018, resulting in a decline of 12.5% in the FTSE 100 Index, this index rebounded in 2019 to be up by 12.1% for the year with most investment managers producing healthy returns in this positive environment. I am proud to say that our relative performance was exceptional as I managed to produce a total portfolio return of 28.5% over the year. While the majority of the stocks in the portfolio contributed to the outperformance of the portfolio over the market, a handful of names performed exceptionally well, including Games Workshop (LSE: GAW), Liontrust Asset Management (LSE: LIO) and Lok 'n Store (LSE: LOK). The biggest detractors from returns over the year included Costain (LSE: COST), M&C Saatchi (LSE: SAA) and Samuel Heath & Sons (LSE: HSM). At an aggregate level, all of the alpha was generated through stock selection, as opposed to sector selection and this is consistent with a bottom-up, benchmark unaware, high conviction manager.

Games Workshop (LSE: GAW)

Games Workshop Group PLC designs, manufactures, distributes and markets a hobby based upon collecting, modelling, painting and tabletop gaming with model soldiers. Its key brands are the high fantasy Warhammer and dark future Warhammer 40,000 game systems. Games Workshop has exploited its valuable intellectual property across a variety of settings, refreshing its miniature toy lines on a regular basis and expanding the Warhammer universe out to encompass video games, books and new campaigns. Its competitive advantage is driven by the fact that it is operating in a market of one with the games voraciously supported by a legion of fans worldwide, who will go to great lengths (and expense) to produce their own accompaniments to add to the series' lore and backstory.

Liontrust Asset Management (LSE: LIO)

Liontrust Asset Management plc provides portfolio management services in UK, European, Asian and Emerging Markets equities. It markets its long-only, long/short and absolute return products through unit trusts, individual savings accounts (ISAs), offshore funds, pooled pension funds and segregated institutional accounts to professional investors, predominantly in the UK and Continental Europe. Assets under management (AUM) jumped to £19.1bn for the period ended 31 December 2019 from £14.6bn at the start of the quarter with the asset manager enjoying net inflows of £836m in the quarter. The acquisition of Neptune added £2.7bn to AUM and allows Liontrust to diversify across global equities and emerging markets and offers an opportunity to expand their client base.

Lok'n Store (LSE: LOK)

Lok'nStore Group plc opened its first self-storage centre in Horsham, Sussex in February 1995 and has grown consistently over the last 20 years, currently operating 26 self-storage centres and two serviced document stores in Southern England offering self-storage and serviced document storage and management services to both household and business customers. Each centre is prominently located mainly in the affluent South-East of England in large towns and cities.

Sleep Well rather than Eat Well

As the investment process aims to find high-quality businesses that are owned for the very long-term, portfolio turnover remains low. Through time the portfolio will comprise investments that have been held for over ten years, however, this does not mean that I am not always looking for new investments. As mentioned in our monthly reports, the focus this year has been to restructure the portfolio I inherited to align it with the investment philosophy and this process is largely complete with the stocks I acquired and those divested listed earlier in this report. In summary, the portfolio I inherited in September 2018 comprised eighty-three (83) stocks, to which we added fifteen (15) and sold fifty-one (51) to end up with the current portfolio of forty-seven (47) stocks. I have retained and consolidated our holdings into those quality companies in the portfolio which are unlikely to be disintermediated by technological change and able to maintain or increase their dividend, as well as adding companies which have an acceptable level of predictable growth in medium-term economic performance. To this end I have sold our holdings in companies where there has been a change to the industry structure, the business model, the senior management team or the product/service offering, the occurrence of which will result in my view in a deterioration in future profitability and hence dividends.

Investment management is more than merely generating alpha in excess of a benchmark. While that is a core part of our mandate, other very important qualitative issues are central to what I do. For example, I recognise that capital allocation is a vehicle through which to drive change. We have the opportunity to demand specific standards of corporate governance, decide whether specific social and ethical issues are acceptable and, if they are not, we can vote with our feet.

For me, the integrity and credibility of any management team is a founding principle to the investment process. I need to trust that management has the best interests for all stakeholders, and have faith that they will make sound strategic decisions and have substantial experience and capabilities in their chosen field. As custodians of our clients' capital, I must ensure that I am doing whatever I can to preserve capital and grow it over time. I allocate capital to investments which I believe are sustainable in the long-term, and finding trustworthy, values-based management that aligns with my core values and beliefs will ensure above-average economic portfolio returns. In cases where I feel I can add something to the conversation, I engage with the company.

Looking Forward

We are now in the Year of the Rat. A quick google tells me that the Year of the Rat is interesting as it marks the completion of a previous long cycle and the beginning of a new one. The rat is apparently characterised as being resourceful and diligent and we certainly aspire to apply these characteristics within the work that we do, and hope that they will flow through to the results we seek to achieve for our clients. As trust remains a central theme across the world, I for one hope this shift towards trustworthiness continues. Through time, I have emphasised the importance of management in the investment process, and I applaud further developments in the trustworthiness of our leaders and the management of companies. Sustainability of investment performance or the improvement of the wellbeing of broader society hinges upon ethical, transparent, and honest leadership.

Our investment philosophy is based on the belief that the economics of business drives long-term investment returns. The short-term financial metrics of portfolio companies, including organic sales growth, earnings and dividend growth, should provide the impetus for improvement in valuations or at least be supportive of the current valuations in the future. Our investee companies have strong business models with capable and experienced management teams which we expect will continue to deliver above-average returns. While I do feel that the overall markets are relatively fully valued and do not see a significant improvement in the P/E ratings of the companies from current levels, our earnings, dividend estimates and forecasts for the stocks in the portfolio remain promising.

However, the latest coronavirus (COVID-19) threatens to be a disruptor to companies, supply chains and the world economy for at least the first half of 2020. The overall impact of the virus is hard to assess at the moment.

Update

The unaudited NAV on 31 January 2020 was 270.9p per share - up 1.59% from 31 December 2019, the seventh monthly increase in a row and beating the FTSE (-3.40%), Small Cap Index (-0.92%) as well as AIM All-share Index (-0.95%). The share price on the same day was 235p (trading at a discount of 13.3%). Further updates can be found at www.athelneytrust.co.uk 

Dr Manny Pohl AM

Fund Manager

2 March 2020

Other Statutory Information

As explained within the Report of the Directors on pages 24 to 27, the Company carries on business as an investment trust. Investment trusts are collective closed-ended public limited companies.

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 four male Directors, can be found on page 2.

S172 Statement

The directors of the Company act in a way that they consider to be;

• in good faith,

• likely to promote the success of the Company and;

• to the benefit of its members as a whole

The Board considers that all the Directors have regard for the long term objectives of the company, meet at regular intervals throughout the year to discuss these objectives, and ensure that they remain on track. The Directors conduct the majority of their Board Meetings via conference calls to reduce travelling, and all printed material produced is using FSC paper which ultimately reduces the impact on the community and the environment. This year the Board has spent time speaking to members of the company and gathering feedback. The Directors aim to maintain a reputation for conducting business at a high standard and maintaining that standard for future years.

One of the directors is the Company's only employee (2018: one 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 spread of holdings in quality small cap companies that operate in various industries and sectors. The Fund Manager 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 NEX. 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 2019 can be found on page 12 of the annual report.

Responsible Ownership

The Fund Manager takes a particular interest in corporate governance and social responsibility investment policy. As stated within the Corporate Governance Statement on pages 17 to 23, the Fund Manager's current policy is available on the Trust's 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 7 and the Fund Manager's review on pages 8 to 11 which form part of the Strategic Report.

Principal Risks and Uncertainties and Risk Management

As stated within the Corporate Governance Statement on pages 17 to 23, 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 17 to 23. 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.

·; 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.

·; Trading - ATY is a small trust and its shares can be illiquid, which means that investors may have difficulty in dealing in larger amounts of shares.

On the 3 January 2018 MiFID ll 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 Board is not aware of any breaches of laws or regulations during the period under review and up to the date of this report.

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 (2018: 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

D. Warburton

Secretary

Waterside Court

Falmouth Road

Penryn

Cornwall

TR10 8AW

2 March 2020

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.

The notes on pages 43 to 51 form part of these financial statements.

Statement of Changes in Equity for the Year Ended

31 December 2019

The notes on pages 43 to 51 form part of these financial statements.

Statement of the Financial Position as at

31 December 2019

Company Number: 02933559

Approved and authorised for issue by the Board of Directors on 2 March 2020.

Dr Manny Pohl

Director

The notes on pages 43 to 51 form part of these financial statements.

Statement of Cash flows for the Year Ended

31 December 2019

As the company do not have any loans, overdrafts or hire purchase arrangements, net debt is equal to cash and therefore no reconciliation of net debt has been disclosed.

The notes on pages 43 to 51 form part of these financial statements.

Notes to the Financial Statements

For the Year Ended 31 December 2019

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 October 2019, 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 four 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. 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

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 (2018: Nil).

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

The tax charge for the period is lower than (2018: 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 £356,765 at 31 December 2019 (2018: £214,415) and £102,597 (2018: £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 2018, 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 2018. 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 9.3p (2018: 9.1p) per ordinary share be paid out of revenue profits amounting to a total of £196,367. For the year 2018, a final dividend of 9.1p was paid on 18 April 2019 amounting to a total of £196,367.

8. Investments

8. Investments (continued)

The purchase costs and sales proceeds above include transaction costs of £15,533 (2018: £4,290) and £8,810 (2018: £3,308) 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 2019 would have decreased net assets attributable to shareholders by 51 pence per share (2018: 43 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.

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

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 (2018: classification A investments only).

13. Net Asset Value per Share

The net asset value per share is based on net assets of £5,758,717 (2018: £4,873,653) divided by 2,157,881 (2018: 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. 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 £45,864 was paid to Global Masters Fund Limited and £91 to Manny Pohl for shares held in his own name.