Athelney Tst. Regulatory News (ATY)

Embargoed 7am March 7 2014

ATHELNEY TRUST PLC: FINAL RESULTS

Athelney Trust PLC, the investor in junior markets and small companies, announces its audited results for the 12 months ended December 31 2013.

Highlights:

· Net Asset Value ("NAV") up 47 per cent at 219.3p per share (2012: 149.1p)

· Revenue return per Ordinary Share rose 13 per cent to 6.1p (2012: 5.4p)

· Recommended increased dividend of 5.5p per share (2012: 5p)

· Revenue up 13.8 per cent at £121,884 (2012: £107,956)

· Unaudited NAV at 28 February 2014 was 230.9p per share

Chairman Hugo Deschampsneuf said: "Small companies had a wonderful year with the Athelney audited NAV being up 47 per cent and the Small Cap, Fledgling and AIM indices following on with 29.6 per cent, 26.8 per cent and 20.2 per cent rises respectively.

"Naturally, there are legitimate concerns about the strength of the recovery but most are not about consumption but, for example, Britain's enduring trade deficit says less about spending than about the ability of the economy to supply the goods that Britishers want. The only alternative to increased household spending would have been worse: stagnation, higher unemployment, lower incomes and deteriorating public finances - just have a look at France if you are not convinced.

"What can we say about 2014? Central banks have been pulling out all the stops in monetary policy terms, not just in the form of QE but in the low level of interest rates. In the first three centuries of its existence which included deflation, depression and world wars, the Bank of England never felt the need to push interest rates as low as they are now. 

"Markets will have to learn how to cope with threats to taper, tighten, unwind QE and increase interest rates. This may take some time so we probably need a period of consolidation before asset prices can start to move ahead again. 

"There again, it is likely that markets have got ahead of themselves in recent weeks. What we need are plenty of good company results and dividends and further good news on employment, steady inflation and increasing economic activity. A decent year for asset prices may eventually result".

-ends-

For further information:

Robin Boyle, Managing Director

Athelney Trust 020 7628 7937

Paul Quade 07947 186694

CityRoad Communications 020 7248 8010

CHAIRMAN'S STATEMENT AND BUSINESS REVIEW

I present the results for the year ended 31 December 2013. The salient points are as follows:

· Audited Net Asset Value ("NAV") was 219.3p per share (31 December 2012: 149.1p) an increase of 47 per cent.

· Revenue return per ordinary share was 6.1p, (31 December 2012: 5.4p).

· Recommended final dividend of 5.5p per share (2012: 5p), an increase of 10 per cent.

Review of 2013

I had an out-of-body experience when a banker complained to me that a £4million pay packet was not enough.- Sir Philip Hammond, Chairman of Royal Bank of Scotland (apparently, someone the banker knew was earning £6m at a rival bank).

I can calculate the motion of the planets but not the madness of people.- Sir Isaac Newton, having lost all his money in the South Sea Bubble.

I do say that it would be a nice thing if we could raise enuff Hemp [marijuana] to pay our rates. - John Adams, (1763) before becoming a founding father of the United States.

In God we trust: everyone else bring data. - Mike Bloomberg, mayor of New York 2001-13.

The year 2013 might be remembered for what didn't happen rather than what did. The Eurozone managed to avoid a collapse with all the inmates of the intensive care ward showing signs of recovery, particularly plucky Ireland. The possible meltdown as a result of the US defaulting on its debt was avoided yet again. There were no oil shocks or signs of financial distress, with the possible exception of China where bad debts seem to be escalating fast.

So, a pretty dull year then? Well, er, no actually! All the major markets rose, New York by 26.5 per cent, Tokyo by an astonishing 56.7 per cent and London, burdened with a large proportion of commodity shares, by just 14.4 per cent. Shanghai, partly for the above reason, actually fell by 6.8 per cent. In smaller markets, Argentina rose by 88.9 per cent and Pakistan and Greece by 49.4 per cent and 28.1 per cent respectively. As for the fallers, the list was led by Brazil 15.5 per cent, Chile 13.5 per cent and Turkey 13.3 per cent.

Back to London, where small companies had a wonderful year with the Athelney Trust NAV being up by 47 per cent and the Small Cap, Fledgling and AIM indices following on with 29.6 per cent, 26.8 per cent and 20.2 per cent rises respectively.

I thought that we had all learned our lesson from the financial crisis not to deal in stuff that we didn't understand so was rather surprised to see Goldman Sachs, a well-known bank, flogging Autocallable Contingent Coupon Buffered Equity-Linked Medium-term Notes. But just to remind everyone, if you don't understand it, don't invest.

A worrying puritanical streak has entered the economic debate and I confess to have been as guilty as anyone. Celebration of our unexpected recovery tends to be followed soon after by complaints that Britain has the wrong sort of growth, fuelled by household debt and consumption. This mood may be strong but I am beginning to believe that it is wrong: consumption is the whole purpose of economic activity and allows us to meet all our material aims and ambitions in the pursuit of happiness.

It is also deeply patronising for those of us in comfortable circumstances to worry that hoi polloi are consuming too much for their own good or for that of the economy as a whole. True, Britain's household liabilities as a proportion of GDP rose from 70 per cent in 1998 to 106 per cent in 2007 but that was not to buy frivolous nonsense but was extra borrowing taken on by young people to buy increasingly expensive houses.

Naturally, there are legitimate concerns about the strength of the recovery but most are not about consumption but, for example, Britain's enduring trade deficit says less about spending than about the ability of the economy to supply the goods that Britishers want. The only alternative to increased household spending would have been worse: stagnation, higher unemployment, lower incomes and deteriorating public finances - just have a look at France if you are not convinced.

The release of Grand Theft Auto V shows that computer games have matured from a cottage industry into big business so that the development cost of £170m rivals that of a Hollywood film. Sales will be helped by the outrage about a game which allows a young, single, keyboard-bound nerd to imagine himself a career criminal but older gentlemen seeking relaxation are an untapped market, so Athelney Games Inc. is proud to launch Robin B, Semi-retired Stockbroker. Immerse yourself in his world of taking a stroll to a country pub, braving midges and cow-pats on the way. Take a trip with him to buy a new suit. Travel with him to the City to have a liquid lunch with an old colleague. Can he stay awake going home? Can't fail, surely?

Plans for airports and other infrastructure projects are back to front. The saga of the Channel tunnel and the railway connecting it to London took a couple of decades. High Speed 2 looks like another 20 years. Fourteen years elapsed between the decision to build the last nuclear power station and its completion, the current nuclear renaissance started in 2006 and will not produce an outcome before 2022.

The search for a lasting solution to increasing airport capacity in the south-east has taken half a century so far. As long as we treat every project in isolation, delays are inevitable as the process gets bogged down in the battles between winners and losers, the latter worried about house prices and back gardens.

What is missing is the bigger picture of our needs, in other words a national infrastructure plan. West Londoners would probably be losers from a new Heathrow runway. As long as the question is narrowly phrased, they have every reason to complain yet they would most likely gain from all the other infrastructure projects proposed as part of a broader, long-term development plan including easier access to the north via HS2 and more power stations. So, decisions about new railway lines and airports should be taken together rather than on a case-by-case basis. Or is that too much to ask?

A story about fracking? The residents of Balcombe in West Sussex were not amused when a team of diggers arrived to start poking around under the North Downs. Just think about the possible damage to the water supply and what about earthquakes? No, the year is 1841 and the result was a tunnel for the London to Brighton Railway plus a handsome new viaduct and the villagers were given a free railway station. This time I'm sure that they are in line for cheap fracked gas.

Rarely has an ugliness competition between banks been so fierce. In November, we were all treated (if that is the right word) to tales of alleged rent-boys and drugs about Paul Flowers, the former chairman of the Co-operative Bank. 

Then it emerged that the Serious Fraud Office was looking into allegations that the Royal Bank of Scotland had defrauded small business customers of the bank by pushing them into bankruptcy then grabbing their assets. What is absolutely certain is that RBS has failed to support its small business customers. 

If RBS were a smallish bank, it would probably not matter very much that its treatment of customers was so shabby but this badly run giant dominates the market. On the eve of the financial crisis, its share of loans to small business was about 40 per cent: despite the taxpayers' bail-out, that share has now fallen to 33 per cent. It makes one doubt whether the bail-out was such a good idea after all.

In describing Paul Flowers as a latter-day Falstaff, surely the Financial Times made an enormous mistake. Yes, Falstaff slept with prostitutes and drank enormous quantities of sherris wine but in doing so he certainly never intended to pay for either since he was permanently broke. He was the philosopher of the Boar's Head in Eastcheap, a lovable rogue who not only made us laugh at him and with him but also at ourselves. He is to England what Don Quixote is to Spain and delights each new generation that discovers him: I am not only witty in myself but the cause that wit is in other men. None of this can be said for Mr Flowers: liken him to Cloten or Caliban but not to Valiant Jack Falstaff.

It is disappointing that Alex Salmond wants to keep the pound rather than bring back the bawbee and the groat. There are obvious reasons to retain sterling although should anyone really want the thing? Before the Great War, the pound bought almost $5, now it is about $1.67. The loss of empire and the cost of two world wars did not help, although this performance is comparable to the disastrous fall in Scotland's currency against England's the last time each were independent of each other.

In the two centuries up to the fixing of the exchange rate in 1603, sterling rose 12 times against the Scots equivalent (the bawbee was sixpence). Anyone tempted to suggest that Scotland have its own currency so that devaluation could boost exports should, er, go away tae think again. In the long run, the competitive advantage would be wiped out by higher inflation. Still, Scottish banknotes could probably feature lurid pictures of patriotic Highlanders slaughtering Englishmen at Bannockburn.

Shares in Tweeter, a bankrupt electronics retailer, briefly soared 1,800 per cent in October as some investors mistook the ticker symbol TWTRQ for TWTR, the latter chosen by Twitter ahead of its stock-market flotation. Trading was halted but not before investors realized that the early bird does not always get the worm.

Yes, Billy Boy Ben Bernanke has made a real difference in his relatively short spell (2006-14) as Chairman of the US Federal Reserve and deserves to be counted amongst those economists such as John Maynard Keynes who have made a massive contribution in their specialist field. The history books will no doubt record the US Fed's role in the great financial upheavals of the age: it underestimated the impact of the housing bubble on the economy but its reaction to the financial panic of 2006-08 was exemplary; its role in cleaning up the US banking system in 2009 was far-sighted and its balance sheet expansion (QE) from 2010 onwards was more aggressive than most other central banks.

Essentially from the new Keynesian school of economics, he believed that there was a major role for the Fed in a time of deep recession and scolded Congress for tightening tax/spend policies in 2010-13. What is clear, though, is that he won the intellectual debate for an active monetary policy whereas many Republicans were extremely dubious about its effectiveness. Thank goodness that he did so! 

More recently, he has been an advocate of forward guidance alongside our own Mark Carney - this is quite a controversial area but my own belief is that it has helped to ease monetary conditions. So what was his unique contribution? Some would say that he saved the world (probably Gordon Brown would not agree) by flooding markets with liquidity in the autumn of 2008. I would prefer to say that he fixed the US banking system in 2009 and designed innovative monetary policies thereafter. A really tough act to follow.

I was interested to read in the FT that the most lavish event for the retiring Sir Mervyn King, the former governor of the Bank of England, cost £4,672 or about £13.35 per head. Lavish? - try getting into Stamford Bridge or Old Trafford with that sort of money and see how you get on!

At a time of economic growth, the greatest concern in financial markets is, naturally, that inflationary pressures would force central banks to start raising interest rates ahead of the time-table that they had outlined.

At the close of Athelney's year-end, inflationary expectations in the US reached as much as 2.3 per cent for the next ten-year period. There is always one problem with this particular view and that is the evidence of deflationary pressures: all the developed world's central banks target 2 per cent inflation, which even the UK has hit and the US and Europe are now well below. 

December's meeting of the US Fed resulted in a document of 8,000 words and included plenty about tapering the amount of stimulus it has been providing to markets but not a single use of the word deflation. Maybe that was entirely correct but what about Japan where prime minister Shinzo Abe's campaign to lift inflation has resulted in a huge fall in the yen against all competitors? As the price of Japanese exports fall, so other countries suffer deflation.

Falling commodity prices also suggest that world economic growth remains feeble: metal prices have fallen by about 40 per cent from their 2011 'high.' Here, the source of deflation is China - as economic growth in that country slows and its communist leadership tries to shift from business investment to household consumption (i.e. the exact opposite of what has been happening here at home), so demand for commodities falls. Lower commodity prices results in lower inflation.

Why should deflation be such a problem? Usually inflation, which makes it harder for households to make ends meet, is regarded as far more dangerous. The problem with deflation, though, is that it makes any debt that much more expensive to pay off in real terms. This is particularly true in the Euro-zone. There, thanks to the sovereign debt crisis, the countries of Europe have made little or no progress in clearing their outstanding piles of debt so the risk of deflation is acute. Investors who have been worrying about inflation should realize that they have, in fact, been engaged in a bout of wishful thinking.

Your Chairman has failed to get to grips with the Twitter revolution - I simply could not think of anything misogynistic enough to say in 140 characters or less.

Is it really possible, as averred by the Centre for Economics and Business Research (CEBR), that the UK could overtake Germany and France to become Europe's biggest economy by 2030? Or is it that the CEBR is fond of a good headline and who will remember a forecast like this in 16 years anyway? 

I have been banging on for years about our problems such as the chronic shortage of skills, too much investment in real estate, that our manufacturing sector is very good but too small, our productivity is poor and we have a modest record of taking innovation out of the lab/workshop and turning it into commercial success. But maybe France and Germany will also have problems over the next 16 years? 

Italy and Spain may well continue to struggle with debt, joblessness, weak government and lack of social cohesion for the foreseeable future so we can concentrate on Germany and our neighbour across the Channel. Germany will be top dog for many years yet but it is not immune to low confidence in the rest of the euro-zone. Furthermore, its demographics look really bad: the population is both ageing and set to decline in size. After two generations of incredibly hard-working, frugal workers it would be a miracle to find the next one working even harder. 

The French, meanwhile, believe themselves capable of overtaking Germany about the year 2040 but France is being dragged in the wrong direction by a bloated public sector, high tax rates and its citizens' sense of entitlement to a vast range of welfare benefits. The CEBR forecasts that the UK will overtake France in about five years' time.

So what are the factors which could work in our favour? Well, not being in the euro gives us a competitive exchange rate when needed, the flexibility of our labour markets gives our companies the chance to be more efficient, we attract foreign business investment and are reducing welfare costs. Furthermore, our attractive rates of tax have persuaded hundreds of thousands of French people to make their careers and businesses here. So, with our good demographics it really could happen, couldn't it?

I am indebted to the Private Eye magazine for the text in full of a recent speech by Lord (Neil) Kinnock:-

'I am totally, utterly and utterly, totally appalled, disgusted and outraged by the suggestion I see being made on every side that Ed Miliband is proving to be a totally, utter disaster as leader of the Labour Party. There are even those who are idiotic enough to be suggesting that Mr Miliband is the worst leader that Labour ever had. This, in my view, is utterly, totally, totally, utterly and utterly, totally wrong. 

As everyone who has made the most casual, cursory and superficial study of British politics would know, there is only one man whose grasp of political issues, whose sense of strategy and whose interminable oratorical wind-bagging have given him the undisputed claim to have been the most utterly, utterly and totally, totally useless leader of the Labour Party or, indeed, possibly any other party at any time in history. And that man, I can state without undue modesty and without fear of contradiction, is myself.'

Do you want to know how to have a tax holiday as a giant American multinational? First, set up two companies in Ireland: the first, which is generally resident in that country, pays royalties to use intellectual property which generates expenses that reduce the amount of tax paid in Ireland. The other company, which collects the royalties in a tax-haven like the Caymans, is incorporated in Ireland but not tax resident there so avoiding Irish tax. Simples!

Results

Number

Companies paying dividends 80

Companies sold (therefore no true comparison) 13

Companies purchased (therefore no true comparison) 14

Increased total dividends in the year 36 

Reduced total dividends in the year 5

No change in dividend 12

Capital Gains

During the year the Company realised capital profits arising on the sale of investments in the sum of £297,801

(31 December 2012: £183,707).

Portfolio Review

Holdings of Amlin, Catlin, Costain, F&C UK Real Estate, GLI Finance, Hydrogen, Juridica, Lancashire Holdings, LondonMetric Property, Palace Finance, Picton Property Income, PLUS500, Redefine, Schroder REIT, Sprue Aegis, Standard Life Property Income Trust and Tritax Big Box  were all purchased for the first time. Additional holdings of H & T Group and NewRiver Retail were also acquired. Albermarle & Bond, Consort Medical, Haynes Publishing Group, Local Shopping REIT, McKay Securities, Mucklow Group, Office 2 Office, Paypoint, Personal Group Holdings, Phoenix IT and Sweett Group were sold.  In addition, a total of seventeen holdings were top-sliced to provide capital for the new purchases.

Corporate Activity

A cash offer for Fiberweb was received and accepted, resulting in a 96.5 per cent profit.

Dividend

 The Board is pleased to recommend an increased annual dividend of 5.5p per ordinary share (2012:5p). This represents an increase of 10 per cent over the previous year. Subject to shareholder approval at the Annual General Meeting on 9 April 2014, the dividend will be paid on 14 April 2014 to shareholders on the register on 21 March 2014.

 For those patient investors who subscribed for Athelney Trust shares in the IPO of 1994, the

 annual return has now risen to 11 per cent net of basic rate tax on the capital originally invested.

Update

The unaudited NAV at 28 February 2014 was 230.9p whereas the share price on the same day stood at 210p. Further updates can be found on www.athelneytrust.co.uk

Prospects

What can we say about 2014? Central banks have been pulling out all the stops in monetary policy terms, not just in the form of QE but in the low level of interest rates. In the first three centuries of its existence which included deflation, depression and world wars, the Bank of England never felt the need to push interest rates as low as they are now. 

Markets will have to learn how to cope with threats to taper, tighten, unwind QE and increase interest rates. This may take some time so we probably need a period of consolidation before asset prices can start to move ahead again.

There again, it is likely that markets have got ahead of themselves in recent weeks: what we need are plenty of good company results and dividends and further good news on employment, steady inflation and increasing economic activity. A decent year for asset prices may eventually result.

H.B. Deschampsneufs

Chairman

5 March 2014

INCOME STATEMENT

(INCORPORATING THE REVENUE ACCOUNT)

The total column of this statement is the profit and loss account for the Company.

All revenue and capital items in the above statement derive from continuing operations.

No operations were acquired or discontinued during the above financial years.

A statement of movements of reserves is given in note 12.

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

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

BALANCE SHEET AS AT 31 DECEMBER 2013

Company Number: 02933559

Approved and authorised for issue by the Board of Directors on 5 March 2014.

R.G. Boyle

Director

CASHFLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2013

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2013

1. Accounting Policies

1.1 Basis of Preparation of Financial Statements

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

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

The financial statements have been prepared on the assumption that approval as an investment trust will continue to be granted. The financial statements, and the net asset value per share figures, have been prepared in accordance with UK Generally Accepted Accounting Practice (UK GAAP).

1.2 Income

Income from investments including taxes deducted at source is recognised when the right to the return is established (normally the ex-dividend date). UK dividend income is reported net of tax credits in accordance with FRS 16 "Current Tax". Interest is dealt with on an accruals basis.

1.3 Investment Management Expenses

Of the two directors involved in investment management, 10% of their salaries have been charged to revenue and the other 90% to capital. All other investment management expenses have been charged to capital. The Board propose continuing this basis for future years.

1.4 Other Expenses

Expenses (including VAT) and interest payable are dealt with on an accruals basis and charged through the Revenue and Capital Accounts in an allocation that the Board consider to be a fair distribution of the costs incurred.

1.5 Investments

Listed investments comprise those listed on the Official List of the London Stock Exchange. Profits or losses on sales of investments are taken to realised capital reserve. Any unrealised appreciation or depreciation is taken to unrealised capital reserve.

Investments have been classified as "fair value through profit and loss" upon initial recognition.

Subsequent to initial recognition, investments are measured at fair value with changes in fair value recognised in the Income Statement.

Securities of companies quoted on a recognised stock exchange are valued by reference to their quoted bid prices at the close of the year.

1.6 Taxation

The tax effect of different items of income and expenses is allocated between capital and revenue on the same basis as the particular item to which it relates, using the Company's effective rate of tax for the year.

1. Accounting Policies (continued)

1.7 Deferred Taxation

Deferred tax is recognised in respect of all timing differences that have originated but not reversed by the balance sheet date. Deferred tax liabilities are recognised for all taxable timing differences but deferred tax assets are only recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted. Deferred tax assets and liabilities are calculated at the tax rates expected to be effective at the time the timing differences are expected to reverse. Deferred tax assets and liabilities are not discounted.

1.8 Capital Reserves

Capital Reserve - Realised

Gains and losses on realisation of fixed asset investments are dealt with in this reserve.

Capital Reserve - Unrealised

Increases and decreases in the valuations of fixed asset investments are dealt with in this reserve.

1.9 Dividends

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

1.10 Share Issue Expenses

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

2. Income

3. Return on Ordinary Activities Before Taxation

4. Employees

5. Taxation

(i) On the basis of these financial statements no provision has been made for corporation tax (2012: Nil).

The Company has unrelieved excess revenue management expenses of £82,300 at 31 December 2013 (2012: £67,123) and £102,597 (2012: £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 2012, 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 2012. 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 5.5p (2012: 5p) per ordinary share be paid amounting to a total of £109,069. For the year 2012, a final dividend of 5p was paid on 12 April 2013 amounting to a total of £99,154.

8. Investments

The purchase costs and sales proceeds above include transaction costs of £4,496 (2012: £2,305) and £3,615 (2012: £1,719) respectively.

9. Debtors

10. Creditors: amounts falling due within one year

11. Called Up Share Capital

12. Reserves

13. Financial Instruments

The Company's financial instruments comprise equity investments, cash balances and debtors and creditors that arise directly from its operations, for example, in respect of sales and purchases awaiting settlement. Short term debtors and creditors are excluded from disclosure.

Fixed asset investments (see note 8) are valued at market bid price where available which equates to their fair values. The fair values of all other assets and liabilities are represented by their carrying values in the balance sheet.

The major risks associated with the Company are market and liquidity risk. The Company has established a framework for managing these risks. The directors have guidelines for the management of investments and financial instruments.

Market Risk

Market risk arises from changes in interest rates, valuations awarded to equities, movements in prices and the liquidity of financial instruments.

At the end of the year the Company's portfolio was invested in UK securities with the exception of 2.76 per cent, which was invested in overseas securities.

Liquidity Risk

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

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

14. Net Asset Value Per Share

The net asset value per share is based on net assets of £4,349,693 (2012: £2,956,028) divided by 1,983,081 (2012: 1,983,081) ordinary shares in issue at the year end.