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31 Mar 2009 07:00
Embargoed 7am Tuesday March 31 2009
ATHELNEY TRUST PLC: FINAL RESULTS
Athelney Trust plc, the investment company which invests in small companies and junior markets, announces its audited preliminary results for the year ended December 31 2008.
Highlights
Like-for-like NAV is 102.3p per share (31 December 2007: 173.1p) a fall of 40.9 per cent.
Audited Net Asset Value ("NAV") of 95.2p per share a decrease of 45 per cent.
Gross Revenue increased by 2.9 per cent to £123,951 (31 December 2007: £120,488).
On a like-for-like basis revenue increased by 9.2 per cent and dividend income rose by 5.6 per cent (special dividend of £6,961 received 2007).
Revenue return per ordinary share was 5.5p, an increase of 41.2 per cent (31 December 2007: 3.9p).
Recommended dividend of 4.7p per share (2008: 3.5p), an increase of 34.3 per cent
Athelney Chairman Hugo Deschampsneufs said: "In a normal year Athelney would have comfortably outperformed two of its main benchmarks, The FT Small Cap and AIM indices, but 2008 was the year the Directors, after careful consideration, decided to move from AIM to a full listing in order to qualiy for authorised investment trust status.
"There were several reasons including no longer being liable to Corporation Tax on any capital gains, resulting in a higher Net Asset Value per share, regulatory costs are expected to be lower and the shares become PEPable and ISAble which we hope will attract new investors enabling the company to increase in size and thus lower costs per share.
"I look into my crystal ball with some trepidation, after all, John Kenneth Galbraith, the economist, once said: 'There are two classes of forecasters, those that don't know and those that don't know they don't know'. I expect the economy to contract by 3.5 per cent in 2009 and show no growth in 2010. UK company profits and dividends are likely to fall by 25 per cent this year with the banks and mining companies being the worst affected at perhaps 50-60 per cent down on 2008.
"Following the heavy fall in markets last year I am expecting a decent bounce sometime in 2009 with small caps finishing 12-17 per cent up on 2008. If the Bank of England continues with quantative easing, begins credit easing, and the Treasury sets up a bad bank then the outcome could be better than that".
-ends-
For further information:
Robin Boyle, Managing Director
Athelney Trust plc 020 7628 7937
Paul Quade 020 7248 8010
CityRoad Communications 07947 186694
CHAIRMAN'S STATEMENT AND BUSINESS REVIEW
I announce the audited results for the year ended 31 December 2008. The salient points are as follows:
Like-for-like NAV is 102.3p per share (31 December 2007: 173.1p) a fall of 40.9 per cent.
Audited Net Asset Value ("NAV") of 95.2p per share a decrease of 45 per cent.
Gross Revenue increased by 2.9 per cent to £123,951 (31 December 2007: £120,488).
On a like-for-like basis revenue increased by 9.2 per cent and dividend income rose by 5.6 per cent (special dividend of £6,961 received 2007).
Revenue return per ordinary share was 5.5p, an increase of 41.2 per cent (31 December 2007: 3.9p).
Recommended dividend of 4.7p per share (2008: 3.5p), an increase of 34.3 per cent
Review of 2008
Lord Alvanley, a member of the Victorian landed gentry, used to say that his greatest pleasure was to sit in the window of his club (Watier's) and 'watch it rain on all the damned people.' Well, it certainly feels as if it has been raining on me all year and I do not suppose that there is an investor in the land who does not agree with me. Just look at these statistics: London (the FTSE100 Index) down 31 per cent, New York by 39 per cent, Tokyo 42 per cent, Paris 43 per cent and Frankfurt 40 per cent. Amongst lesser markets, China fell by 65 per cent, India by 53 per cent, Russia 67 per cent and Iceland an eye-watering 95 per cent. Re-visiting the London market, the FT 250 Index was down by 40 per cent, the FT Small Cap Index finished 45 per cent down and the Aim Index by 62 per cent (Athelney has 48 per cent of its funds invested in this last area) - in short, it was the worst year since 1974.
In a normal year, Athelney would have comfortably out-performed two of its main benchmarks, the FT Small Cap. and AIM Indices, but 2008 was the year that the Directors, after careful consideration, decided to move the Trust from AIM to a full listing in order to qualify for authorized investment trust status. There were several reasons for taking this course of action. As an investment trust, Athelney would no longer be liable to Corporation Tax on any capital gains. We believe we will have large capital gains in the future and not having to pay tax will result in a higher Net Asset Value per share than would otherwise be the case. Your Directors also expect that regulatory costs will be lower on the main market. Finally shareholders will be able to put their shareholding into a PEP or ISA, which we hope will attract new investors enabling the company to increase in size and thus lower costs per share. Professional fees and other costs of £128,782 were incurred in the move to investment trust status, which resulted in an NAV of 95.2p rather than 102.3p on a like-for-like basis, a fall of 45% and 40.9% respectively.
Banks and insurance companies set out to be monuments of stone and steel but the best and greatest of them have splintered into matchwood. A few short months saw the nationalization, failure or rescue of the world's biggest insurer with assets of $1 trillion, two major investment banks with combined assets of $1.5 trillion and two U.S. mortgage giants with another $1.8 trillion. In Europe, Bradford & Bingley has gone and Britain's largest mortgage lender, HBOS, has fallen into the arms of Lloyds TSB for a mere £4 billion following a huge fall in the share price. Alliance & Leicester, hounded by short-sellers, was bought at a knock-down price by Banco Santander. In the rest of Europe, Fortis, Dexia, Hypo Real Estate and all the Icelandic banks have been rescued by state intervention. The bankruptcy of Lehmann Brothers and Merrill Lynch's rapid sale to Bank of America were shocking enough but the U.S. Government's rescue of AIG in September marked a new low in a grim year. AIG is a mostly safe, well-run insurer but its financial products division, which accounted for just a fraction of total revenue, wrote enough derivatives business to destroy the firm and shake Wall Street to the core.
Bankers have always earned their crust by committing money for long periods and financing that with short-term deposits and borrowing. Today, that model looks under stress. Many of the banks' assets are unsaleable even as they return to the market every day to ask lenders for further support. No wonder the banks are hoarding cash. That is why politicians on both sides of the Atlantic who set the interests of Main Street/High Street against those of Wall Street/Lombard Street are wrong. Sooner or later, money markets affect every business.
Companies face higher interest charges and the fear that one day they may lose access to bank loans altogether. So they, too, hoard cash, cancelling acquisitions and investments in order to pay down debt. Managers delay new products, leave factories unbuilt, pull the plug on loss-making subsidiaries and cut costs and jobs. Car-makers and other manufacturers may no longer extend credit and loans could become both elusive and expensive, consumers would suffer and unemployment rise. Even if credit markets work well, the developed economies would slow as the asset-price bubble pops.
The Bank of England base rate finished the year at 2%, thus matching 1951 when the average house price was £2,000 and Winston Churchill was promising that he would never permit the dismemberment of the Empire. And as for oil, it rose to $147 in early July on its way, it was said, to $200, but all commodities except gold collapsed in price as the credit crunch bit and so oil finished the year at $40. Thus emboldened, the Bank of England was able to embark on its fierce programme of rate cuts from a starting level of 5.5 per cent. As rates fell, so did the confidence of overseas investors in the U.K. generally and the pound in particular, so Sterling dived from $1.9929 to $1.4427, a collapse of no less than 28 per cent. Back to Pontin's this Summer, then!
I make no apology for returning to the subject of the banks, which are, after all, at the heart of the credit crunch. Nor do I intend to stick rigidly to my brief, which finishes on 31 December. We start in October, when Mr Brown thought that he had saved the banks (and, as he later said, 'saved the world') by the injection of £37 billion. He was told then that that sum of money would merely re-capitalize the banks and not provide any scope for increased lending by them and, of course, he refused to listen. So a second attempt was made on 19 January, nearly three weeks after Athelney's year end. The Treasury's new measures were wide-ranging. The Bank of England will set up a £50 billion facility to buy private-sector assets such as corporate bonds and commercial paper. This would create a framework within which the Bank could conduct 'quantitative easing' - printing money to buy assets - if that proves necessary. Northern Rock, nationalized early in 2008, will no longer be forced to slash its mortgage book. The Government will also try to encourage lending by guaranteeing up to £50 billion in asset-backed securities and the Financial Services Authority helpfully said that the new capital recently injected into the banks could, in fact, be used for both mopping up losses and new lending. The heart of the package was an Asset Protection Scheme, 'asset' being a euphemism for those toxic assets hindering a return to financial health. Rather than setting up a 'bad bank' to take those assets off balance sheet, the Treasury has decided to turn itself into a kind of catastrophe insurer. In exchange for the payment of a premium and agreeing to take the first chunk of any loss (my car insurer would call it an 'excess'), the banks would be able to turn to the taxpayer for any further write-down.
But what of those two options - bad banks and insurance? Mr Brown and his advisers chose insurance alone and, to my mind, he has made (another) mistake. My suspicion is that he preferred insurance for political reasons because it is a cheap promise-now and pay-later scheme. It would have been better to have reached for the kitchen sink (in fact, done the building trade a favour and bought a larger sink) and do both - buy the worst assets at their market value and put them into a bad bank as well as insure the healthy assets that remain against any catastrophe. Is it all a little impractical? In 1988, America's Mellon Bank spun off its bad energy and property loans into Grant Street National Bank, which was financed by junk bonds and private equity. Seemed to work quite well at the time. More controversially, Lloyds of London hived off huge asbestos and pollution liabilities relating to policies originally written as far back as the 1930s into a new company christened Equitas in 1996.
And wasn't it difficult to prise bank directors and senior managers away from their desks, even with hammer and cold chisel, into the world of no-work! I have absolutely no sympathy at all for them who, like the condemned men in the old Scottish tale, protest their innocence and complain at the injustice of their fate. You may remember that, as they head towards the eternal flames of hell, the sinners cry out: 'Oh Lord, we didna ken, we didna ken!' And the Lord answered: 'Well, ye ken the noo.' Well, that's quite enough about banks.
In this recession, we are all followers of John Maynard Keynes now, aren't we? We all believe in hiring a man to dig a hole and another to fill it up again, thus keeping two off the dole. And isn't this Labour government going to enjoy spending lots of money and, in the process, beggaring our children and grandchildren! Except in one respect, that is spending on defence generally and our armed forces in Afghanistan in particular - but we must not just blame Mr Brown and his political cohorts. George Bernard Shaw once half-joked that 'the British soldier can stand up to anything except the British War Office.' The generals have failed to update their counter-insurgency doctrine and units still rotate every six months, which leads to discontinuity and short-term thinking. American soldiers stay for 12. But back to the Labour politicians who must take the bulk of the blame for the air force's transport fleet being in a poor state and the navy shrinking. But it is the army that is worst off. It was not designed to fight two protracted wars and the strains are made worse by shortages of men and equipment. Battalions can be one-fifth below strength with a further fifth ill, injured or otherwise unfit to employ. A multi-million pound hole in the equipment budget means that new systems have to be scaled back or delayed. Buying kit is so expensive and takes so long that spending is completely out of line with current needs - most money now goes on fighter jets, aircraft carriers and submarines, much of which is of little use in Afghanistan. Like any form of insurance, defence policy must cover a range of risks: the safety of sea lanes is vital to move supplies in wartime and to trade in times of peace; the supremacy of the skies is essential for success on land or sea but Afghanistan is the priority. That war will be won or lost on the ground and the army needs more soldiers, helicopters, drones and personnel carriers. More money, a lot more money must be spent. Abandoning Afghanistan, leaving a vacuum for the Taliban to fill, would mean a victory for extremism everywhere, a destabilized Pakistan and a less safe world. Losing today's war may mean fighting another some time in the future, this time on the streets of Britain.
And while we are on the subject of our unelected Prime Minister and former Chancellor of the Exchequer, I think that it is timely to remind you, Gentle Shareholder, of his final Budget speech in March 2007. The opening section was in praise of his own genius, a tribute to a decade of tinkering and tampering (aka micromanagement). 'We will never return to the old boom and bust' he boasted, unencumbered by humility or wit. He had, of course, said it before but this time I think that he really believed it. He genuinely thought that he had found a way to halt, Canute-like, the flow of free-market activity. He then went on to explain that, thanks to him, Britain was doing better than everyone else and that the economy would expand by between 2.5 per cent and 3 per cent in 2009, all of which would be underpinned by 'monetary discipline' and 'fiscal discipline.' According to the International Monetary Fund, Britain's economy is forecast to shrink by 2.8 per cent this year, compared with 1.5 per cent in the U.S., 2 per cent in the eurozone and 2.5 per cent in Japan. Oh dear!
The Americans are fond of expressions like, 'Never give a sucker an even break' and 'Always kick a man when he's down. If you can't, what chance have you got when he's standing up?' I was reminded of suchlike expressions when reading a farrago of nonsense from Jim Rogers, the iconoclastic co-founder of the Quantum hedge fund which famously broke the Bank of England and forced sterling out of the Exchange Rate Mechanism in 1992. The pound, he says, has no underpinning and should fall against the dollar and the euro and reflects the UK's dire economic situation: 'It is simple. The UK has nothing left to sell.' Mr Rogers says that the two pillars of support for sterling have been North Sea oil and the City of London. But just as North Sea oil is running out, so London's standing as a financial centre is set to suffer: 'I don't think that there is a sound bank now. At least if there is one I don't know about it. The City of London is finished, the financial centre of the world is moving east. All the money is in Asia. Why would it go back to the west?' asks Mr Rogers. He goes on to allege that the UK housing market is in a worse state than that of the US and that our economy is in worse shape economically than the eurozone. 'If the UK discovers more oil, I might change this view,' he says 'but I don't see that happening'.
Where do I start with my rebuttal? Well, certainly the UK has been a net importer of oil for the last four years and any new finds will be in deep waters and of medium size rather than the gushers of the past. The rest of what he says is, in my opinion, complete balderdash (origin 16th Century, meaning an incongruous mixture of alcohol such as beer and wine). Take the US housing market, which is about to suffer its second great shock with the re-setting of the so-called Alt-A mortgages. He is not the first person to think that the City of London is all about banking - what about insurance, stockbroking, fund management, ship broking and foreign exchange broking for a start? The UK is the world's sixth largest manufacturer with strengths in aerospace, defence, pharmaceuticals, scientific instruments and expensive audio systems. Manufacturing accounts for 13 per cent of UK output, which is roughly in line with France and the US, but if support services at present outsourced, all the way from legal work to cleaning, were 'added back' together with design and development, it would add several percentage points to the figure. Rolls-Royce is a world-class engineer with an operations centre that tracks electronically the performance of every single engine in the air. What about some of our other strengths such as law, accountancy and consultancies covering so many trades and professions like civil engineering, building and quantity surveying, facilities management and logistics?
For fear of boring you, I shall stop now. The man has obviously 'shorted' sterling again and wants to make a quick buck. But you and I both now that there is very little substance to what he is saying. We have a difficult 2009 and 2010 ahead but we will be back with a new government and new ideas that will surprise Mr Rogers and all his friends.
Results
Gross Revenue increased by 2.9 per cent compared to 2007. A breakdown of the companies paying dividends is given below:
Number
Companies paying dividends 80
Companies sold (therefore no true comparison) 11
Companies purchased (therefore no true comparison) 14
Increased total dividends in the year 45
Reduced total dividends in the year 5
No change in dividend 5
Corporate Activity
Three of our companies were taken over for cash: Broker Network Holdings; Financial Objects and Gibbs &Dandy producing a profit of 285 per cent, 166 per cent and 648 per cent respectively.
During the year the Company incurred actual realised capital losses arising on the sale of investments of £88,385
Portfolio Review
Holdings of Gaming VC, Hill and Smith, Interior Services Group, Nationwide Accident Repair, Victoria and Vitec were all purchased for the first time. Acertec, Ambrian Capital, Belgravium Technologies, Blue Oar, Character Group, Colliers CRE, Davenham Group, Dowgate Capital, Enterprise Inns, Flying Brands, International Greetings, Litho Supplies, Lookers, LSL Property Services, Media Square, SCS Upholstery, Somero Enterprises and Trifast were all sold. In addition, a total of nine holdings were top-sliced to provide capital for the new purchases.
Dividend
The Board is pleased to recommend an increased annual dividend of 4.7p per ordinary share (2008: 3.5p). This represents an increase of 34.3 per cent over the previous year. Subject to shareholder approval at the Annual General Meeting on 6 May 2009, the dividend will be paid on 8 May 2009 to shareholders on the register on 14 April 2009.
Update
The unaudited NAV at 28 February 2009 was 91.7p whereas the share price on the same day stood at 97.5p. Further updates can be found on www.athelneytrust.co.uk
Outlook
I look into my crystal ball with some trepidation, after all, John Kenneth Galbraith, the economist, once said, 'There are two classes of forecasters: those that don't know and those that don't know they don't know.' I expect the economy to contract by 3.5 per cent in 2009 and show no growth in 2010. Lower mortgage payments coupled with falling house prices will result in minimal retail price inflation - the average house to 'bottom' at £140,000 compared with £163,000 at present. Weak economic conditions will result in a sharp increase in unemployment with the number of people in work falling by 1.5 million over the next two years and the unemployment rate rising to 8 per cent. UK company profits and dividends are likely to fall by 25 per cent this year with the banks and mining companies being the worst affected at, perhaps, 50-60 per cent down on 2008. Following the heavy fall in markets last year, I am expecting a decent bounce some time in 2009 with small caps finishing the year 12-17 per cent up on 2008. And if the Bank of England goes ahead with quantitative easing, begins credit easing, and the Treasury sets up a bad bank, then the outcome could be better than that.
H.B. Deschampsneufs
Chairman
30 March 2009
Athelney Trust plc
INCOME STATEMENT
(INCORPORATING THE REVENUE ACCOUNT)
| 31 December 2008 | 31 December 2007 | ||||||||||||||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||||||||||||||
| £ | £ | £ | £ | £ | £ | ||||||||||||||
| Losses on investments | - | (1,482,105) | (1,482,105) | - | (362,778) | (362,778) | |||||||||||||
| Income | 123,951 | - | 123,951 | 120,488 | - | 120,488 | |||||||||||||
| Investment Management expenses | (4,466) | (41,700) | (46,166) | (9,893) | (28,979) | (38,872) | |||||||||||||
| Other expenses | (19,882) | (44,947) | (64,829) | (52,362) | - | (52,362) | |||||||||||||
| Exceptional items | - | (128,782) | (128,782) | - | - | - | |||||||||||||
| Net return on ordinary | |||||||||||||||||||
| activities before taxation | 99,603 | (1,697,534) | (1,597,931) | 58,233 | (391,757) | (333,524) | |||||||||||||
| Taxation | - | 256,283 | 256,283 | 12,295 | 81,248 | 93,543 | |||||||||||||
| Net return on ordinary activities after taxation | 99,603 | (1,441,251) | (1,341,648) | 70,528 | (310,509) | (239,981) | |||||||||||||
| Net return per ordinary share | 5.5p | (79.9)p | (74.4)p | 3.9p | (17.2)p | (13.3)p | |||||||||||||
| Dividend per ordinary share paid during the year | 3.5p | 3.25p | |||||||||||||||||
Athelney Trust plc
BALANCE SHEET AS AT 31 DECEMBER 2008
|
| 2008 | 2007 | |||
| £ | £ | ||||
| Fixed assets | |||||
| Investments at fair value through profit & loss | 1,657,321 | 3,167,818 | |||
| Current assets | |||||
| Debtors | 65,090 | 205,773 | |||
| Cash at bank and in hand | 26,038 | 45,335 | |||
| 91,128 | 251,108 | ||||
| Creditors: amounts falling due within one year | (32,473) | (41,921) | |||
| Net current assets | 58,655 | 209,187 | |||
| Total assets less current liabilities | 1,715,976 | 3,377,005 | |||
| Provisions for liabilities and charges | - | (256,283) | |||
| Net assets | 1,715,976 | 3,120,722 | |||
| Capital and reserves | |||||
| Called up share capital | 450,700 | 450,700 | |||
| Share premium account | 405,605 | 405,605 | |||
| Other reserves (non distributable) | |||||
| Capital reserve - realised | 589,079 | 892,893 | |||
| Capital reserve - unrealised | 101,646 | 1,239,083 | |||
| Revenue reserve | 168,946 | 132,441 | |||
|
| |||||
| Shareholders' funds - all equity | 1,715,976 | 3,120,722 | |||
| Net Asset Value per share | 95.2p | 173.1p | |||
ATHELNEY TRUST PLC
CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2008
| 2008 (audited) | 2007 (audited) | ||||
| £ | £ | £ | £ | ||
| Net cash inflow/ (outflow) from | |||||
| operating activities | 39,973 | (69,440) | |||
| Taxation | |||||
| Corporation tax paid | (24,564) | (34,916) | |||
|
| |||||
| Financial Investment | |||||
| Purchases of investments | (975,591) | (1,247,174) |
| ||
| Sale of investments | 1,003,983 | 1,422,970 | |||
| Net cash inflow from Financial Investments |
28,392 |
175,796 | |||
| Equity dividends paid | (63,098) | (58,591) | |||
| ________ | ________ | ||||
| (Decrease)/increase in cash in the year | (19,297) | 12,849 | |||
| ________ | ________ |
Notes:
The figures included in the above statement are an abridged version of Athelney's audited results for the year ended 31 December 2008 and do not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985, as amended. The figures for the year ended 31 December 2007 are extracted from the statutory accounts filed with the Registrar of Companies and which contained an unqualified audit report.
2. The calculation for the return per ordinary share is based on the return on ordinary activities after taxation shown below and on the average weighted number of shares in issue during the period of 1,802,802 (2007 1,802,802 ).
| 2008 | 2007 | ||||
| Revenue | Capital | Total | Revenue | Capital | Total |
| £ | £ | £ | £ | £ | £ |
| 99,603 | (1,441,251) | (1,341,648) | 70,528 | (310,509) | (239,981) |
3. Dividend information:
| Dividend payable to shareholders registered on | 14 April 2009 |
| Dividend payable on | 08 May 2009 |
4. Copies of the full financial statements will be available on Athelney's website www.athelneytrust.co.uk on 31 March 2009. Paper copies of the full financial statements specifically requested by some shareholders will be posted on 31 March 2009.
31 March 2009
END