Athelney Trust Plc
Annual Report 2006

Plain-text annual report

Athelney Trust plc Annual Report for the year ended 31 December 2006 Athelney Trust plc CONTENTS Chairman's Statement and Business Review Investment and Portfolio Analysis Report of the Directors Report of the Auditors Income Statement Balance Sheet Cash Flow Statement Notes to the Financial Statements Officers and Financial Advisers Page 2 - 4 5 - 6 7 - 8 9 10 11 12 13 - 20 21 1 Athelney Trust plc 2 Queen Anne’s Gate Buildings, Dartmouth Street, London, SW1H 9BP Telephone: 020 7222 8989 CHAIRMAN’S STATEMENT AND BUSINESS REVIEW I have pleasure in enclosing the audited results for the twelve months to 31 December 2006. The salient points are as follows: • Audited Net Asset Value (“NAV”) is 189.7p per share (31 December 2005: 157.7p) a rise of 20.3 per cent. • Gross Revenue increased by 10.8 per cent to £95,614 (31 December 2005: £86,265). • On a like-for-like basis revenue increased by 12.5 per cent and dividend income rose by 15 per cent. • Revenue return per ordinary share was 3.3p, an increase of 22.2 per cent (31 December 2005: 2.7p). • Recommended dividend for the year of 3.25p per share (2005: 2.5p), a rise of 30 per cent. Review of 2006 This has been another excellent year for investors, despite all the problems and worries that many had at the start of the year. Could the world-wide bull market continue for an amazing fourth year, we all asked ourselves in January? Well, we now know that it could, thanks to no avian flu pandemic, a mild hurricane season, no successful terrorist attack on the West and no big hedge fund blow-up beyond Amaranth, which had wildly over- exposed itself to natural gas prices. There were plenty of nasty surprises, though, with Iraq and Palestine moving to the brink of civil war, the summer conflict between Israel and the Hezbollah, North Korea firing off nuclear weapons, Iran determined to acquire some of the same and Russia turning into the school-yard bully under its ex- KGB president. Despite these international factors, the price of crude oil failed to stay high: there were confident forecasts in January that it could spike at $100 a barrel (from $61) but, in the event, it hit $77 during the Lebanon conflict and dropped to just over $50 by the turn of the year. I believe that this fall in the oil price was critical to the health of world equity markets in 2006. Interest rates rose in the U.S., the U.K., Europe and Japan: as a consequence, the new housing market in America was badly hit although the impact of two rate rises here at home was less marked, nor did they seem to have much effect on inflation which finished the year at 3 per cent. Indeed, there was considerable scepticism as to whether that figure was high enough although I do not seem to remember too many people pointing out that many consumer items have fallen in price these last six years, such as used cars (an average of 3.6 per cent a year), IT equipment (20 per cent), photographic stuff (8 per cent), clothing (6 per cent), toys (5 per cent) and new cars (2 per cent). One constant and hugely positive factor last year was the tidal wave of global liquidity (the sum of corporate cash, funds available for investment by financial institutions and consumers' bank balances) which helped drive equities, bonds and gilts to ever higher levels. Investors' attitude to risk changed as well: the spread between emerging market bonds, corporate debt and U.S. Treasuries narrowed to all-time lows in December. The reason? Too many investors moving into ever-riskier areas of the market as returns in their traditional hunting grounds were squeezed. Commodities on average fell by 15 per cent in 2006 but most other things did well: China was the top- performing equity market (up by 138.4 per cent in Dollar terms), followed by Venezuela (99 per cent), Russia (70.7 per cent) and India (51.3 per cent). Turkey, on the other hand, fell by 5.6 per cent and Saudi Arabia by a striking 52.5 per cent. In the U.K., the FTSE 100 Index rose by a rather sedate 11 per cent whereas small caps., typically, were 17-18 per cent higher over the year. With an estimated $300bn in 'dry powder' (funds available for investment to you and I), private equity had a major effect on 2006 and will again this year. At its crudest, a private equity deal is no more than an old- fashioned asset-strip (and paying themselves a huge dividend) and gearing up the balance sheet (and paying themselves another huge dividend). The aim is to 'strip and flip' in three years by selling the husk onto gullible 2 Athelney Trust plc CHAIRMAN’S STATEMENT AND BUSINESS REVIEW (CONTINUED) investors. As gearing ratios rise higher and higher, and the asking price of suitable targets increases steadily, the risks of doing this type of business are enough to make one sleep uneasily in one's bed. Hedge funds are private pools of capital that are lightly regulated, often borrow heavily to enhance returns and are sometimes paid enormous performance fees to undertake quite simple tasks, such as borrowing at very low rates of interest in Yen or Swiss Francs and lending at high rates in Australian or New Zealand Dollars for instance. Other strategies involve equities, bonds, distressed debt and so on. If 20 per cent of trading in equities on the New York Stock Exchange and 30 per cent in London is accounted for by hedge funds, as has been estimated, then I think that it is very natural to worry about this opaque area of the fund management business. Yet another area of concern is the new issue market in London. The collapse of the London-listed internet gaming shares following the Senate's effective ban on their U.S. activities came just months after the controversial flotation of Rosneft. This Russian oil giant's prospectus included a 26-page risk statement which acknowledged allegations that its assets were obtained via a 'conspiracy.' AIM, the LSE's junior market, attracted companies as far apart as Silicon Valley and China but more than a handful, in my opinion, and particularly in mining, oil and gas, looked to be poorly put together with low governance standards and speculative business plans. The continued survival of such companies should not be taken for granted. Proponents of private equity, hedge funds and new issues will no doubt think that the above comments are, to say the least, unkind. Nevertheless, I believe that all three should be watched extremely carefully in the coming year and beyond by all investors, large and small. Am I the only one to be worried about the flood of take-overs of major British companies and the lack of reciprocity when our companies want to expand overseas? I suspect that I am. As the year finished (I will use the old names to remind you just how important they are), British Oxygen Company, British Airports Authority, Associated British Ports and Pilkington Brothers have all been absorbed by overseas buyers, British Steel, Scottish Power and Gallagher were headed in the same direction and even the London Stock Exchange was under attack by American rival NASDAQ. For good or ill, take-overs were a significant factor in 2006 and are likely to be so again this year. As the market in high quality equities continued to shrink, someone invented the word 'de- equitisation' when describing the short-term beneficial effect of take-overs and cash buy-backs on the remaining stock of equities. Finally under this sub-heading, it is interesting to read that India, after years cast as China’s underperforming neighbour, is now in hot pursuit. Over the past year, the Indian economy has grown by an impressive 9.2 per cent, not far behind China’s 10.4 per cent. Results Gross Revenue increased 10.8 per cent compared to 2005. A breakdown of the companies paying dividends is given below: Companies paying dividends Companies sold (therefore no true comparison) Companies purchased (therefore no true comparison) Increased total dividend in the calendar year Reduced total dividend in the calendar year No change in dividend Number 82 9 17 44 7 5 3 Athelney Trust plc CHAIRMAN’S STATEMENT AND BUSINESS REVIEW (CONTINUED) Corporate Activity Six of our companies were taken over in 2006: three were reported at the half-way stage, namely PD Ports, Brandon Hire and Wyvale Garden Centres. In the second half, cash offers were accepted in respect of Richmond Foods (a 24 per cent profit on book value), MSB International (60.6 per cent) and Biotrace International (44.6 per cent). Portfolio Review A total of fifteen holdings were purchased for the first time or were existing holdings which were increased in the six months to 30 June; in the second half, the following investments were purchased: Arden Partners, Dowgate Capital, Broker Network Holdings, Johnson Service Group, Somero Enterprises, Hitachi Capital (UK), Macfarlane Group, XP Power, City of London Investment Group, Speymill Group and Tristel. Five investments were sold, all in the first half. Dividend The Board is pleased to recommend an increased annual dividend of 3.25p per ordinary share for the year ended 31 December 2006 (2005: 2.5p). This represents an increase of 30 per cent over the previous year. Subject to shareholder approval at the Annual General Meeting on 23 May 2007, the dividend will be paid on 25 May 2007 to shareholders on the register on 27 April 2007. Update The unaudited NAV at 28 February 2007 was 192.6p per share, whereas the share price stood at 190p on the same date. Further updates can be found on www.chelvertonam.com. Outlook I have already signposted my worries about hedge funds, private equity and the new issue market: other concerns include the possible trend in interest rates (particularly M. Trichet's propensity to push up rates in Euroland against all evidence of static/falling output in France, Italy and elsewhere). Mr. Greenspan, the former Chairman of the Federal Reserve Bank, has taken to musing in public about the likelihood (one chance in three, he believes) of America sliding into recession - certainly, the housing market looks to be in a dreadful mess in some states. Not just that, but so-called trailer-park lending is now throwing up huge bad debts. Having said all that, I remain positive on the long-term prospects of small caps. provided one stays away from the high risk sectors. Selected small caps. offer good value, rising dividends, strong balance sheets and are targets for larger competitors and financial buyers. Donald Rumsfeld, the then U.S. Defense Secretary said, 'I would not say that the future is necessarily less predictable than the past. I think that the past was not predictable when it started.' However opaque prospects seem in the short-term, I am absolutely convinced that each and every investor should hold a strong portfolio of small caps. for long-term growth and a rising income. Hugo Deschampsneufs Chairman 2 April 2007 4 Athelney Trust plc INVESTMENT AND PORTFOLIO ANALYSIS AT 31 DECEMBER 2006 SECTOR STOCK HOLDING VALUE (£) £ % SECTOR Construction & Building Materials Drinks Electronic & Electrical Equipment Engineering Finance Food Healthcare Insurance Media Real Estate Retail Support Services Ben Bailey Clarke (T) Galliford Try Gibbs & Dandy Latham (James) Enterprise Inns Nichols Shepherd Neame "A" XP Power Acertec Gooch & Housego Goodwin Severfield-Rowen Slingsby (H.C. ) Albemarle & Bond Arbuthnot Banking Group Arden Partners Camellia Charles Taylor Consulting City of London Investment Group Corporate Synergy Group Davenham Group Dowgate Capital Hitachi Capital (UK) Jarvis Securities Park Group S & U Tenon Group Vantis NWF Group Treatt Wynnstay Group Tristel Domestic & General Personal Group Holdings Chime Communications Huntsworth International Greetings Media Square City Lofts Group Colliers C.R.E. Erinaceous Group Mountview Estates Smart (J) & Co. Unite Group Blacks Leisure Group European Motor Holdings Flying Brands Havelock Europe Lookers Mallett SCS Upholstery Stanley Gibbons Broker Network Holdings Dawson Holdings Enterprise Genus Johnson Service Group Litho Supplies Macfarlane Group RWS Holdings Somero Enterprises Speymill Group VP Group Waterman Group WSP Group 6,800 18,000 35,000 10,000 16,000 9,000 16,500 5,400 8,000 20,000 15,000 12,000 5,000 4,000 20,000 10,000 18,000 1,200 8,000 17,000 100,000 10,000 4,000,000 16,000 20,000 80,000 8,000 50,000 36,667 12,000 10,500 30,000 71,500 3,300 22,000 85,000 35,000 18,000 213,179 35,000 17,400 13,000 1,750 4,000 7,426 6,000 7,160 15,000 24,000 30,000 12,000 10,000 70,000 14,000 34,000 16,000 15,000 8,000 50,500 100,000 14,000 27,550 54,000 17,000 40,000 20,000 5 209,892 5.66% 253,341 32,400 6.84% 0.87% 304,950 8.23% 616,801 16.64% 206,700 32,175 5.58% 0.87% 92,147 2.49% 193,995 5.23% 301,334 8.13% 43,044 35,685 56,963 39,000 35,200 121,770 40,095 91,476 32,400 36,600 59,250 92,400 68,700 48,000 45,000 54,000 32,760 108,000 31,060 36,550 24,500 33,000 23,200 40,680 18,600 14,400 41,200 24,750 89,101 105,000 33,600 68,100 32,175 40,887 51,260 46,325 34,563 77,400 35,707 37,800 33,060 44,850 116,375 29,000 40,249 23,850 34,816 45,000 37,920 51,900 29,760 51,000 119,000 393,246 10.61% 35,000 35,445 86,720 79,575 27,960 29,290 30,000 42,700 35,815 33,480 53,210 68,000 114,200 671,395 18.11% Athelney Trust plc INVESTMENT AND PORTFOLIO ANALYSIS AT 31 DECEMBER 2006 ( CONTINUED) SECTOR STOCK HOLDING VALUE (£) £ % SECTOR Technology Transport AT Communications Group Belgravium Technologies Group NBT Pennant International Phoenix IT Air Partner Braemar Seascope Clarkson Fisher (James) Portfolio Value Net Current Assets Deferred tax TOTAL VALUE Shares in issue Audited NAV 50,000 200,000 19,000 116,000 8,500 7,000 2,000 7,000 12,500 18,500 27,000 38,950 22,040 25,904 55,650 78,800 56,735 74,438 £ £ £ £ 3,706,392 87,292 (374,390) 3,419,294 1,802,802 189.7p 132,394 3.57% 265,623 7.17% 100.00% Construction & Building Materials Drinks Electronic & Electrical Equipment Engineering Finance Food Healthcare Insurance Media Real Estate Retail Support Services Technology Transport FULL AIM PLUS PLUS 2.47% Portfolio by Sectors 7.17% 5.66% 3.57% 18.11% 10.61% 6.84% 0.87% 8.23% 16.64% 8.13% 5.58% 5.23% 2.49% 0.87% Portfolio by Listing AIM 40.29% FULL 57.24% 6 REPORT OF THE DIRECTORS OF Athelney Trust plc The directors present their report and audited financial statements of the Company for the year ended 31 December 2006. Principal activity and business review The principal activity of the Company is that of an investment company. The investment objectives of the Company are to achieve long term capital growth while at the same time producing a progressive income return. Investments made by the Company are primarily in the equity securities of both unquoted and quoted UK companies, including smaller companies with a market capitalisation of below £50 million. During the period, the Company followed the normal activities of an investment company. Details of these are given in the Chairman's Statement and Business Review on pages 2 to 4. Directors and their interests The directors who held office during the year and their interest in the ordinary shares of the Company are stated below:- 31 December 2006 1 January 2006 H.B. Deschampsneufs 69,913 108,750 R.G. Boyle 448,970 485,000 D.A. Horner 20,000 20,000 H.B. Deschampsneufs' interest includes 19,163 shares held in his Self-Invested Personal Pension. R.G. Boyle's interest includes 16,970 shares held in his Self-Invested Personal Pension. H.B. Deschampsneufs' and R.G. Boyle's previous interest included a holding of 58,000 shares owned by a pension fund in which they both had an interest. D.A. Horner's interest includes 20,000 shares (2005 - 20,000) owned by a pension fund in which D.A. Horner has an interest. Statement of directors' responsibilities The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice ( United Kingdom Accounting Standards and applicable law).The financial statements are required by law to give a true and fair view of the state of affairs of the company and of the result for the company for that period. In preparing those financial statements, the directors are required to : -select suitable accounting policies and then apply them consistently; -make judgements and estimates that are reasonable and prudent; -prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. So far as each of the directors is aware at the time the report is approved : there is no relevant audit information of which the auditors are unaware, and the directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information. Corporate governance The Board continues to give careful consideration to the principles of corporate governance as set out in the Combined Code appended to the Listing Rules issued by the Financial Services Authority. However the Company is small and it is the opinion of the directors that not all the provisions of the Code are relevant or desirable for a company of Athelney's size. 7 REPORT OF THE DIRECTORS OF Athelney Trust plc (CONTINUED) The Board meets regularly and has ultimate responsibility for the management of the Company, although the Remuneration Committee makes recommendations to the Board relating to the remuneration of the managing director and the non- executive directors. The Audit Committee assists the Board in relation to matters concerning corporate governance and financial reporting. Both Committees, currently comprising H.B. Deschampsneufs and D.A. Horner, meet during the year as required, with the Audit Committee to include external auditors if appropriate. The Audit Committee assists the Board in relation to matters concerning corporate governance and financial reporting. Both Committees, currently comprising H.B. Deschampsneufs and D.A. Horner, meet during the year as required, with the Audit Committee to include external auditors if appropriate. Results and dividends The return on ordinary revenue activities before dividends for the year is £60,322 (2005: £48,825) as detailed on page 10. It is recommended that a final dividend of 3.25p (2005: 2.5p) per ordinary share be paid. Payment of suppliers It is the Company's policy to obtain the best possible terms for all business and, therefore, there is no consistent policy as to the terms used. The Company contracts the terms on which business will take place throughout the year with its suppliers. There were no invoiced trade creditors outstanding at the end of the year, the amounts shown as creditors in the balance sheet comprise expenses and proposed dividends. Auditors In accordance with Section 385 of the Companies Act 1985, a resolution proposing that Clement Keys be re-appointed as auditors of the Company will be put to the annual general meeting. BY ORDER OF THE BOARD J.M. Davies Secretary 2 Queen Anne's Gate Buildings Dartmouth Street LONDON SW1H 9BP 2 April 2007 8 INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS OF Athelney Trust plc We have audited the financial statements of Athelney Trust plc for the year ended 31 December 2006, which comprise the Income Statement, the Balance Sheet, the Cashflow Statement and the related notes. These financial statements have been prepared under the accounting policies set out therein. This report is made solely to the company's members, as a body, in accordance with Section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by the law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors The directors' responsibilities for preparing the Annual Report and the financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the Statement of directors' responsibilities. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given in the Directors' Report is consistent with the financial statements.This information includes specific information presented in the Chairman's Statement that is cross referred from the Business Review section of the Directors' Report. In addition we report to you if, in our opinion the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit , or if the information specified by law regarding directors' remuneration and other transactions is not disclosed. We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. This other information comprises only the Directors' Report, the Chairman's Statement and the Investment and Portfolio Analysis. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes an examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material In forming our opinion we also evaluated the overall misstatement, whether caused by fraud or other irregularity or error. adequacy of the presentation of information in the financial statements. Opinion In our opinion the financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of affairs of the Company as at 31 December 2006 and of the revenue, total return and cash flows for the year then ended and have been properly prepared in accordance with the provisions of the Companies Act 1985 and the information given in the Directors' Report is consistent with the financial statements. Clement Keys Chartered Accountants Registered Auditors 39 / 40 Calthorpe Road Edgbaston BIRMINGHAM B15 1TS 2 April 2007 9 Athelney Trust plc INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2006 31 December 2006 31 December 2005 Note Revenue £ Capital £ Total £ Revenue £ Capital £ Total £ 8 2 3 3 - 708,480 708,480 - 460,306 460,306 95,615 - 95,615 86,265 - 86,265 (8,216) (24,164) (32,380) (7,266) (21,362) (28,628) (35,355) - (35,355) (37,753) - (37,753) 52,044 684,316 736,360 41,246 438,944 480,190 Profits on investments Income Investment management expenses Other expenses Return on ordinary activities before taxation Taxation 5 8,278 (122,442) (114,164) 7,579 (77,234) (69,655) Return on ordinary activities after taxation 13 60,322 561,874 622,196 48,825 361,710 410,535 Return per ordinary share 6 3.3p 31.2p 34.5p 2.7p 20.1p 22.8p Dividend per ordinary share paid during the year 2.5p 2p The revenue 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 13. There have been no recognised gains or losses, other than the results for the financial years shown above. The notes on pages 13 to 20 form part of these financial statements. 10 Athelney Trust plc BALANCE SHEET AS AT 31 DECEMBER 2006 Fixed assets Investments Current assets Debtors Cash at bank and in hand Note 8 9 2006 £ 2005 £ 3,706,392 2,985,922 105,603 32,486 138,089 145,109 40,048 185,157 (33,769) 151,388 Creditors: amounts falling due within one year 10 (50,797) Net current assets 87,292 Total assets less current liabilities 3,793,684 3,137,310 Provisions for liabilities and charges 11 (374,390) (295,142) Net assets 3,419,294 2,842,168 Capital and reserves Called up share capital Share premium account Other reserves - non distributable Capital reserve - realised Capital reserve - unrealised Revenue reserve Shareholders' funds - all equity Net Asset Value per share 12 13 13 13 13 14 16 450,700 405,605 719,086 1,723,399 120,504 450,700 405,605 520,007 1,360,604 105,252 3,419,294 2,842,168 189.7p 157.7p Approved by the board of directors on 2 April 2007 ……………………………….. R.G. Boyle The notes on pages 13 to 20 form part of these financial statements. 11 Athelney Trust plc CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2006 2006 2005 £ £ £ £ Net cash inflow from operating activities 68,111 3,487 Servicing of finance Dividends paid (45,070) (36,056) Net cash (outflow) from servicing of finance (45,070) (36,056) Taxation Corporation tax paid Investing activities Purchases of investments Sales of investments Net cash (outflow)/inflow from investing activities Decrease in cash in the year Reconciliation of operating net revenue to net cash inflow from operating activities Revenue on ordinary activities before taxation (Increase) / decrease in debtors Increase in creditors Management expenses charged to capital Analysis of net debt Cash at bank and in hand (18,613) (2,017) (1,103,978) 1,091,988 (529,075) 542,398 (11,990) (7,562) £ 52,044 39,506 725 (24,164) 68,111 2005 £ 40,048 13,323 (21,263) £ 41,246 (28,595) 12,198 (21,362) 3,487 Cashflow £ (7,562) 2006 £ 32,486 The notes on pages 13 to 20 form part of these financial statements. 12 Athelney Trust plc NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2006 1. Accounting policies 1.1 Basis of Preparation of Financial Statements The financial statements are prepared under the historical cost convention modified to include fixed asset investments at valuation. The financial statements are prepared in accordance with applicable accounting standards and, unless otherwise stated, the provisions of the Statement of Recommended Practice in 'Financial Statements of Investment Trust Companies' (SORP) in effect for this period. Change in accounting policy The company adopted the provisions of FRS 25 'Financial Instruments: Disclosure and Presentation' and FRS 26 'Financial Instruments:Recognition and Measurement' during the year ended 31 December 2006. The effect of this is to reduce the investment valuations from a mid-market price to a fair value price being market bid price.The impact of valuing the portfolio at market bid price as at 31 December 2005 would have resulted in a downward adjustment of £74,648, reducing the NAV at that date to 140.2p (previously stated 143.6p). Under the transitional provisions of FRS 26, the comparative figures for 2005 have not been restated. 1.2 Income Income from investments including taxes deducted at source is recognised as income on the date the dividend is due for payment. UK dividend income is reported net of tax credits in accordance with Financial Reporting Standard 16 'Current Tax'. Interest is dealt with on an accruals basis. 1.3 Expenses Expenses (including VAT) and interest payable are dealt with on an accruals basis and charged through the Revenue Account. 1.4 Investment management expenses Investment management expenses have been allocated 25% to revenue and 75% to capital, in line with the Board's expected long term split of returns, in the form of income and capital gains respectively, from the investment portfolio. 1.5 Investments Listed investments comprise those listed on the Official List of the London Stock Exchange. Profits and 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. 13 Athelney Trust plc NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2006 1. Accounting policies (continued) 1.7 Deferred taxation Deferred taxation is provided in respect of all future obligations to pay additional tax arising as a result of past events. Tax is provided at rates expected to apply in the period in which timing differences reverse based on tax rates and laws substantively enacted at the balance sheet date.Deferred tax assets and liabilities are not discounted. 1.8 Capital reserves Capital reserve- Realised Gains and losses on realisations 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. 2. Income Income from investments UK dividend income Bank interest Other income Total income UK dividend income UK listed investments AIM investments Other investments 2006 £ 91,470 4,145 - 95,615 £ 57,800 32,566 1,104 91,470 2005 £ 80,987 5,219 59 86,265 £ 54,506 25,365 1,116 80,987 14 Athelney Trust plc NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2006 3. Return on ordinary activities before taxation The following amounts (inclusive of VAT) are included within investment management and other expenses:- Directors' remuneration:- - Services as a director - Otherwise in connection with management Auditors' remuneration:- Audit services - Statutory audit - Audit related regulatory reporting Further assurance services -advice on accounting matters 4. Employees Costs in respect of directors:- Wages and salaries Social security costs Costs in respect of administrator:- Wages and salaries Social security costs Total Wages and salaries Social security costs Average number of employees Chairman Investment Administration 2006 £ 9,000 25,000 6,921 881 1,350 2006 £ 34,000 2,399 36,399 7,000 253 7,253 41,000 2,652 43,652 No. 1 2 1 4 15 2005 £ 8,000 22,000 5,874 752 - 2005 £ 30,000 2,194 32,194 3,500 134 3,634 33,500 2,328 35,828 No. 1 2 1 4 Athelney Trust plc NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2006 5. Taxation (i) The tax charge for the year is based on the return for the year Corporation tax for current year Tax relief on management expenses charged to income 2006 2005 Revenue Capital Total Revenue Capital Total £ - £ £ 34,916 34,916 £ - £ £ 18,613 18,613 (8,278) 8,278 - (7,579) 7,579 - Adjustment in respect of previous years Deferred taxation - - - 79,248 - 79,248 - - - 51,042 - 51,042 (8,278) 122,442 114,164 (7,579) 77,234 69,655 (ii) Factors affecting the tax charge for the year The tax charge for the period is lower than the average small company rate of corporation tax in the UK (19 per cent). The differences are explained below: Total return on ordinary activities before tax 2006 £ 736,360 2005 £ 480,190 Total return on ordinary activities multiplied by the average small company rate of corporation tax 19% (2005: 19%) 108,472 91,236 Effects of: UK dividend income not taxable Revaluation of shares not taxable Indexation relief for capital gains Other Current tax charge for the year 6. Return per ordinary share (17,379) (52,556) (3,621) - 34,916 (15,388) (53,619) (3,361) (255) 18,613 The calculation of earnings per share has been performed in accordance with FRS 22 'Earnings per share'. 2006 2005 Attributable return on ordinary activities after taxation £ Revenue £ Capital £ Total £ Revenue £ Capital £ Total 60,322 561,874 622,196 48,825 361,710 410,535 Number of shares 1,802,802 1,802,802 Return per ordinary share 3.3p 31.2p 34.5p 2.7p 20.1p 22.8p 16 Athelney Trust plc NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2006 7. Dividend Final dividend in respect of 2005 of 2.5p (2004 - 2.0p) per share. 2006 £ 45,070 2005 £ 36,056 A final dividend in respect of 2006 of 3.25p (2005 - 2.5p) per share amounting to a total of £58,591 (2005 - £45,070) is proposed by the Board. The dividend proposed will not be accounted for until it has been approved at the Annual General Meeting. 8. Investments Movements in year Valuation at beginning of year Purchases at cost Sales - proceeds - realised gains on sales Increase in unrealised appreciation Valuation at end of year Book cost at end of year Unrealised appreciation at the end of the year UK Listed AIM PLUS Gains on investment Realised gains on sales Increase in unrealised appreciation 2005 £ 2,555,581 529,075 (559,040) 178,103 282,203 2,985,922 £ 1,306,753 1,679,169 2,985,922 1,884,678 1,027,444 73,800 2,985,922 2005 £ 178,103 282,203 460,306 2006 £ 2,985,922 1,103,978 (1,091,988) 266,437 442,043 3,706,392 £ 1,587,384 2,119,008 3,706,392 2,121,748 1,493,168 91,476 3,706,392 2006 £ 266,437 442,043 708,480 17 Athelney Trust plc NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2006 9. Debtors Amounts falling due within one year: Investment transaction debtors Other debtors 10. Creditors: amounts falling due within one year Corporation tax Social security and other taxes Other creditors Accruals and deferred income 11. Deferred taxation 2006 Provided £ 374,390 374,390 Tax on unrealised gains net of losses Balance at beginning of year Charge to the capital element of the Statement of Total Return Balance at end of year 2006 £ 103,452 2,151 105,603 2006 £ 34,916 5,649 148 10,084 50,797 Not Provided £ - - 2006 £ 295,142 79,248 374,390 2005 £ 142,046 3,063 145,109 2005 £ 18,613 3,731 146 11,279 33,769 £ - - 2005 Not Provided Provided £ 295,142 295,142 2005 £ 244,100 51,042 295,142 Tax is provided at the latest known rates on all taxable gains net of losses which would arise if investments were sold at the market value included in the balance sheet at the end of the financial year. 18 Athelney Trust plc NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2006 12. Called up share capital Authorised 10,000,000 Ordinary shares of 25p each Allotted, called up and fully paid 1,802,802 Ordinary shares of 25p each 13. Reserves Balance at 1 January 2006 Net gain on realisation of investments Increase in unrealised appreciation Management expenses allocated to capital Taxation Profit for the year Dividend paid in year 2006 £ 2005 £ 2,500,000 2,500,000 £ 450,700 Share premium account £ 405,605 - - - - - - 2006 Capital reserve realised £ 520,007 266,437 - (24,164) (43,194) - - Capital reserve unrealised £ 1,360,604 - 442,043 - (79,248) - - £ 450,700 Revenue reserve £ 105,252 - - - - 60,322 (45,070) Balance at end of year 405,605 719,086 1,723,399 120,504 14. Reconciliation of movement on shareholders' funds Retained net revenue for the year after taxation Dividend Total recognised gains for the year Shareholders' funds at beginning of year Shareholders' funds at end of year 2006 £ 60,322 (45,070) 15,252 561,874 577,126 2,842,168 3,419,294 2005 £ 48,825 (36,056) 12,769 361,710 374,479 2,467,689 2,842,168 19 Athelney Trust plc NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2006 15. Risk management, financial assets and liabilities The following information is given in accordance with Financial Reporting Standard 13. Risk management 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 arises from changes in interest rates, valuations awarded to equities, movements in prices and the liquidity of financial instruments. The Company's portfolio is invested in UK securities. Financial assets and liabilities 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 as allowed by FRS 13. Fixed asset investments (see note 8) are valued at market bid prices where available which equate to their fair values. The fair values of all other assets and liabilities are represented by their carrying values in the balance sheet. 16. Net asset value per share The net asset value per share is based on net assets of £3,419,294 (2005:£2,842,168) divided by 1,802,802 (2005 :1,802,802)ordinary shares in issue. Net asset value 2006 189.7p 2005 157.7p 20 Athelney Trust plc OFFICERS AND FINANCIAL ADVISERS H.B. Deschampsneufs (Chairman) R.G. Boyle (Managing Director) Email: robin171@btinternet.com D.A. Horner (Non-Executive Director) J. Girdlestone F.C.A. Waterside Court Falmouth Road Penryn Cornwall, TR10 8AW Email: john@girdlestone.org.uk J.M. Davies 9 Limes Road Beckenham Kent, BR3 6NS 2 Queen Anne's Gate Buildings Dartmouth Street London, SW1H 9BP Noble & Company Limited 76 George Street Edinburgh, EH2 3BU Speirs & Jeffrey Limited 36 Renfield Street Glasgow, G2 1NA Clement Keys 39 /40 Calthorpe Road Edgbaston Birmingham, B15 1TS The Royal Bank of Scotland plc London City Office 62/63 Threadneedle Street London City Office, EC2R 8LA Share Registrars Limited Craven House West Street Farnham Surrey, GU9 7EN CityRoad Communications 42 - 44 Carter Lane London, EC4V 5EA Directors: Administrator: Secretary: Registered Office: Nominated Adviser: Stockbroker: Auditor: Banker: Registrar: Public Relations Consultants: Company Number: 2933559 21 

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