Athelney Trust Plc
Annual Report 2009

Plain-text annual report

Annual Report for the year ended 31 December 2009 COMPANY NUMBER: 2933559 Athelney Trust plc CONTENTS Directors of the Company Chairman's Statement and Business Review Corporate Governance Statement Investment and Portfolio Analysis Report of the Directors Directors’ Remuneration Report Independent Auditors’ Report Income Statement Reconciliation of Movements in Shareholders’ Funds Balance Sheet Cash Flow Statement Notes to the Financial Statements Officers and Financial Advisers 2 3 - 6 7 - 10 11 - 13 14 - 17 18 - 19 20 - 21 22 23 24 25 26 - 33 34 1 Athelney Trust plc DIRECTORS OF THE COMPANY The Directors of the Company are: Mr Hugo Deschampsneufs, non-executive Chairman Hugo Deschampsneufs, aged 64, has spent his entire working career in finance and is a fellow of the Institute of Chartered Accountants in England and Wales (FCA). He qualified with Binder Hamlyn. He has worked for the Rank Organisation and National CSS Inc., a subsidiary of Dunn & Bradstreet. In 1979 he joined Manchester Exchange & Investment Bank, leaving in 1989 as Director of Leasing Operations. For the next 20 years, he held the position of Finance Director of Longriver Holdings Limited, a group with assets of £70 million, specialising in the leasing of fixture-type assets to local authorities, in which his diverse roles encompassed the disciplines of marketing and legal. He currently acts as advisor in the leasing industry. His work in both the accounting profession and investment banking has given him extensive knowledge in a wide-ranging variety of business sectors. He has considerable experience of asset management both as a non-executive Director of Dunbar Boyle & Kingsley Holdings, the holding company of a firm of stockbrokers, and as a Director of Athelney Trust plc since its formation. David Horner, non-executive Director David Horner aged 50, qualified as a Chartered Accountant in 1985 with Touche Ross & Co before joining 3i Corporate Finance Limited in 1986 where he was a manager giving corporate finance advice. In May 1993, he joined Strand Partners Limited and was appointed a Director in January 1994, where he carried out a range of corporate finance assignments identifying, structuring and managing investments in quoted and unquoted companies. In October 1997 he left to set up Chelverton Asset Management Limited, which specialises in managing portfolios of private companies and small to medium-sized public companies. He was responsible for setting up Chelverton Growth Trust plc and, since May 1999, has managed the Small Companies Dividend Trust plc. Mr Robin Boyle, Managing Director The assets of the Company have been managed since formation by Robin Boyle, the managing Director of the Company. Aged 65, he has spent the last forty one years in a number of different roles with institutional fund management and stock broking firms but always retaining an intense interest in Small Caps. His first job in the City of London was with the company that eventually became Gartmore; he then went on to Panmure Gordon, Hoare Govett and Capel-Cure Myers before becoming founder, major shareholder and Managing Director of a private stock broking business, Dunbar Boyle & Kingsley, which he sold in 1994. From 2000 to 2006 he was co-manager of Small Companies Dividend Trust run by Chelverton Asset Management. Between 2006 and 2008 he was non-executive Director of Capcon Holdings plc, an AIM- traded commercial investigations and stocktaking business. 2 Athelney Trust plc Waterside Court, Falmouth Road, Penryn, Cornwall, TR10 8AW Telephone: 01326 378 288 Email: hugo@athelneytrust.co.uk CHAIRMAN’S STATEMENT AND BUSINESS REVIEW I have the pleasure of enclosing the results for the year ended 31 December 2009. The salient points are as follows: • Audited Net Asset Value (“NAV”) was 127p per share (31 December 2008: 95.2p) an increase of 33.4 per cent. • Gross Revenue decreased by 0.8 per cent to £122,963 (31 December 2008: £123,951). • Revenue return per ordinary share was 5.3p, a decrease of 3.6 per cent (31 December 2008: 5.5p). • In respect of the year ended 31 December 2009 an Interim Dividend of 4.75p per share was approved for payment on 01 April 2010. Review of 2009 More than any other time in history, mankind faces a crossroads. One path leads to despair and utter hopelessness: the other, to total extinction. Let us pray we have the wisdom to choose correctly. Woody Allen 1935- : Side effects (1980) ‘My Speech to the Graduates’ The air of immediate crisis is over. The patient is recovering but is still far too dependent on the drug of government spending. The coming year (including the General Election campaign) will be dominated by a debate about how quickly that support can be taken away. Two shocks have reduced the standard of living of Western economies: one is the terms- of-trade shift. Thanks mainly to China, the prices of manufactured goods that rich countries sell have fallen – on the other hand, raw materials prices to make those goods have risen. The other is the ‘leverage’ shock, in which the credit crisis has stopped companies and households from borrowing to finance consumption. In response to the latter, governments have deliberately taken on the debts of the private sector. In most cases, it is assumed that governments have an almost limitless capacity to assume such burdens. But you can see welfare states as national Ponzi schemes in which governments grant benefits and take on spending responsibilities, confident in the expectation that the next generation of citizens/subjects (poor things!) will pick up the bill. Such promises have worked so far because of continued economic growth and rising populations. But with such populations starting to fall in some countries and with the tax base shrinking in others (such as the U.K.), the strain is starting to show. Iceland was overwhelmed by the debts of its banks. Dubai has shown that the distinction between government debt and that of government-controlled companies can be very fuzzy indeed. Greece has been downgraded by two rating agencies. A zero –interest rate policy has supported assets such as equities and commercial property, while quantitative easing, by allowing central banks to buy government bonds, has prevented long-term interest rates from rising. But having taken these two steps the authorities cannot prop up their currencies even if they desired to do so. A falling currency, after all, seems to be a painless way of boosting the prospects of exporters. So the Bank of England has been happy to watch sterling slide. When the time comes, will the British electorate be willing to swallow unpleasant medicine in the form of several years of austerity? The temptation must be to try to solve the problem by raising taxes, especially if those taxes can be aimed at an unpopular group like bankers. However, in a world of highly mobile capital and labour, this strategy seems doomed to failure in the long run. The pain is likely to fall on the broad mass of the population. The battle will be between the taxpayer and the public-service worker represented broadly by respectively the Conservatives and Labour. Even if the former were to win a working majority in the Commons, it could still lose on the streets if strike action were to force a climb-down. The gold standard broke down in the 1930s because countries such as Britain would not pay the price in the form of austerity to maintain the link: voters came before foreign creditors. The Bretton Woods system of fixed exchange rates broke down because America was unwilling to bear the burden of being the linchpin any longer. Now, the system that has prevailed in the 1980s, 1990s and 2000s in which creditors trusted central banks to maintain the value of their respective currencies is breaking down as well. 3 Athelney Trust plc CHAIRMAN’S STATEMENT AND BUSINESS REVIEW (CONTINUED) Allow me, Gentle Reader, to remind you of a few of the factors that shaped the year 2009. January: interest rates fall to their lowest level in 300 years. The UK is now officially in recession. February: interest rates are cut further to 1 per cent. Car production falls by 55 per cent. March: the Government takes a big chunk of Lloyds Banking Group. April: Mr Darling’s nasty little budget pretends that taxing the well-off will sort out our economic ills. June: Mervyn King, Governor of the Bank of England, tells the Government to put the economic house in order. July: factory orders fall sharply. September: unemployment climbs steadily. November: Dubai-based companies default. December: market professionals digest the news that public borrowing would be £178bn in 2009 and £176bn in 2010. And what of markets in this extraordinary year? Without a doubt, it was the year of the emerging markets: in dollar terms, Brazil was up by 142 per cent, Russia 129 per cent and Jakarta with 115 per cent. Some of the Middle Eastern markets did poorly, Bahrain being down by 20 per cent with Kuwait and Qatar following behind. Looking over the decade, emerging markets again took first prize with Ukraine (yes, honestly) up by 900 per cent followed by Peru, Russia, Romania, China, Bangladesh, Slovakia, Kuwait, Estonia and the Czech Republic. Congratulations to anyone who had anything in three or more of these markets. At the other end of the spectrum, Iceland fell by 81 per cent over the ten years, Japan by 40 per cent, then New York and London. So where did all the money go which was poured into the economy by the Treasury and the Bank of England? Some £76bn from the Treasury to buy shares in Lloyds and RBS, £200bn of liquidity by the Bank as lender of last resort, £250bn of wholesale lending by the Bank through the Credit Guarantee Scheme (CGS), £185bn of loans to banks via the Special Liquidity Scheme (SLS) and £40bn of loans to Bradford & Bingley and the Financial Services Compensation Scheme. Take a deep breath: there is the £200bn of liabilities taken on board from the Asset Protection Scheme and the £200bn of cash pumped into the economy through quantitative easing (QE). It isn’t really fair to add all these sums together – parts are merely guarantees rather than actual pledged money and much should, we all hope, come back to the Government in the end. QE has undoubtedly had a beneficial effect on share and commercial property markets but what of the rest? The answer, disappointingly, is far less than had been expected, certainly in terms of bank lending. Part of the reason the banks are reluctant to lend is that they are unsure about how far they must go in fortifying their balance sheets for the future. Most have increased both capital and liquidity to levels far stronger than before the crisis but they are aware that the regulators will demand even higher ratios. SLS may come to an end in 2012 and CGS in 2014: these dates may seem far off to thee and me but not to a bank offering 25-year mortgages. With stronger regulation a racing certainty and the various Bank schemes running out of runway, the shortage of bank lending is likely to continue, thus dashing hopes for a quick recovery from this recession. No Chairman’s Statement could possibly be complete without a few polite words on the subject of the performance of our Supreme Leader, Mr. Brown. (I exclude shouting at staff, throwing telephones, kicking furniture and the like.) How has the U.K. done since his first full budget in March 1998? To quote the great man himself, ‘A weak currency arises from a weak economy, which in turn is the result of weak government.’ Since that date, the British pound has lost 14 per cent against the Swedish krona, 24 per cent against the Chinese renminbi, 33 per cent against the Swiss franc and 35 per cent against the Japanese yen. The euro did not exist then but my guess is sterling has shed 27 per cent against the basket of currencies forming the euro. As far as the Stock Exchange is concerned, the index has fallen by about 10 per cent compared with Germany (up 12 per cent), New York (up 15 per cent), Hong Kong (up 77 per cent) and so on. Only Tokyo has done worse in terms of the world’s major markets. All share markets perform badly under Labour governments but this one has been even worse than previous incarnations. Back again to March 1998 when he talked about Britain’s ‘debt reduction plan,’ ‘an unshakeable commitment to prudent monetary and fiscal rules’ and (yes, honestly) addressing the ‘structural weaknesses’ of unemployment. So what happened? Well, Britain’s budget deficit at 14 per cent of GDP is higher than that of Greece and is the worst in G20. Our stock of debt is heading for £1 trillion. As for unemployment, today it is 7.8 per cent compared with 6.3 per cent back in 1998. Apart from that, I think that he has done a pretty decent job. 4 Athelney Trust plc CHAIRMAN’S STATEMENT AND BUSINESS REVIEW (CONTINUED) Gold bugs throughout history have been mesmerised by the yellow metal’s apparent capacity to provide a safe haven and store of value. Unlike just about any other commodity I can think of, the global stock of gold could meet 375 years of industrial demand. Proponents point out that the drop in jewellery sales following the rise in price has been outweighed by the surge in speculative demand without any compensating increase in mined supplies. But such backward-looking arguments were probably heard in Holland, circa 1637, when it was seen that gardeners could no longer afford tulip bulbs but speculative investors would support the market, despite the poor growing season. In today’s terms, the gold price is round about where it was in 1265 and, indeed, one banker has pointed out that a 15th Century gold bug who had stored all his wealth in bullion, bequeathed it to his children and required them to do the same would look from his lofty perch and see the real value of his bequest decline by 90 per cent over the next 500 years. Calling a market top is never easy but I would not invest a brass farthing in this metal. More intellectual confusion surrounds the theory of peak oil supply, whose followers believe that oil production is in permanent decline. Others, who believe that the oil price will rise to match the $147 per barrel of 2008, argue that rapid growth from emerging markets, notably China, will underpin a huge rise in the price. However, the best estimate that I have seen demonstrates that oil supply will rise by 9-10m barrels per day (bpd) by 2017, which would absorb the possible 5m bpd increase in Chinese demand. I do not, though, pretend that squeezing an extra 9-10m bpd will be easy – Venezuela, Russia, Nigeria and Iran will, at best, provide stable supplies. The UK, US and Norway peaked in 1999, 1970 and 2001 respectively. However, Saudi Arabia (+3.5m bpd), Iraq (+3.7m bpd) and Kuwait, amongst others, are planning substantial capacity and production increases. Then there are countries like Canada, second only to Saudi Arabia in reserves, Brazil, aiming to double production, Angola, plus 50 per cent by 2015, and Kazakhstan. These increases then have to be linked with country-wide initiatives to change the environment: China is targeting 15 per cent of total energy use from alternative sources by 2020, most European countries offer subsidies for green energies, the US has legislated to raise mileage per gallon on new vehicles, and so on. OPEC spare capacity at present is as much as 6m bpd, there are dramatic increases in oil supply to come and more, much more, alternative energy all suggest to me that I should believe in peak demand, not peak supply. The year 2009 was a disappointing one as far as dividends were concerned with private investors on average receiving 15 per cent less than in 2008. In total, 202 UK companies cut their dividends in 2009, of which more than one third paid no dividend at all. Bank shares, traditionally held by private investors for income, had a bad year with Royal Bank of Scotland and Lloyds Banking Group paying nothing at all and even powerful HSBC cut its payout. Retailers’ dividends fell by 62 per cent, while household goods companies did even worse at 64 per cent: cyclical companies as a group cut by 25 per cent. In these difficult circumstances, the Board is pleased that a small increase in Athelney’s total dividend for the year has proved possible. Results Gross Revenue decreased by 0.8 per cent compared to 2008. 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 dividends in the year Reduced total dividends in the year No change in dividend Companies trade suspended (therefore no true comparison) Number 59 3 9 29 6 11 1 5 Athelney Trust plc CHAIRMAN’S STATEMENT AND BUSINESS REVIEW (CONTINUED) Corporate Activity During the year two companies went into Administration – Smallbone and Aero Inventory. Their shares have been valued at nil in these accounts. During the year the Company incurred actual realised capital profits arising on the sale of investments in the sum of £118,623. Portfolio Review Holdings of Alumasc, ATH Resources, Chesnara, Cineworld, Consort Medical, Fenner, Matchtech, McKay Securities, Mucklow Group and Town Centre Securities were all purchased for the first time. Avesco, Creston, Dawson Holdings, FDM Group, Finsbury Food Group, Galliford Try, Gooch & Housego, Mallett, Nichols, OPD Group, Pennant International, Prime People, Shepherd Neame, Vantis, Victoria and Waterman Group were all sold. In addition, a total of fourteen holdings were top-sliced to provide capital for the new purchases. Dividend On 13 January 2010 the Board had recommended the payment of an Interim Dividend of 4.75p per share. Previously the Company had not paid an Interim Dividend. Consequently the Board does not recommend the payment of a Final Dividend (2009: 4.7p) Update The unaudited NAV at 28 February 2010 was 124.8p whereas the share price on the same day stood at 123p. Further updates can be found on www.athelneytrust.co.uk Outlook Last year it was the banks: this year it is countries. The economic crisis, which seemed to have moderated in the latter part of 2009, is once again in full swing as the threat of sovereign default grows, with all eyes on Greece and other members of Club Med such as Spain, Portugal and Italy. Not only that but policy changes abroad are worrying investors: China is reigning in lending due to concerns about asset-bubbles, Brazil’s fiscal stimulus is being phased out, India’s central bank has raised reserve requirements whereas other central banks are gradually unwinding the emergency liquidity facilities they introduced at the height of the crisis. QE, furthermore, is apparently coming to an end. All this has knocked confidence, share prices and commodities. Optimism about a V-shaped recovery has been replaced by my own favourite, the L-shape, or a double-dip recession. Japan has slipped back into deflation and domestic demand has stalled even in countries, such as Germany, where households have no excess debt to pay off. The way forward is clear: we must encourage productivity, investment and competition, free trade, cut spending rather than raising taxes and agree new financial regulations. Oh yes, and we must reform public sector pensions, raise the retirement age and means-test benefits. None of this will help markets in the short-term, which is why I am hoping for a small rise of 5-7 per cent this year rather than something more dramatic. H.B. Deschampsneufs Chairman 6 Athelney Trust plc CORPORATE GOVERNANCE STATEMENT Combined Code The Board is committed to achieving and demonstrating high standards of Corporate Governance as set out in the Combined Code on Corporate Governance published in June 2008. The Board considers that it has complied with all the provisions of the Combined Code except in matters identified and explained below. The Board also confirms that, to the best of its knowledge and understanding, procedures were in place to meet the requirements of the Combined Code relating to internal controls throughout the year under review. This statement describes how the principles of the Combined Code have been applied in the affairs of the company. The Company has not complied with the provisions of the Combined Code in respect of the following: • Due to the size of the Board, formal performance evaluations of the Chairman, the Board, its Committees and individual Directors are not undertaken. Instead it is felt more appropriate to address matters as and when they arise. • Due to the size of the Board, it is felt inappropriate to appoint a senior independent non-executive Director. • All the Directors have service contracts but no limit has been imposed on the overall length of service, however all Directors are required to retire and, if appropriate, seek re-election at least every three years. The recommendation of the Code is for fixed term renewable contracts. • The Company has just one employee, other than Board members, the Company Secretary, whose line of communication in relation to whistle-blowing is to the Chairman of the Company. • The Company does not have a Nominations Committee, as a Board of only three Directors who liaise continuously throughout the year and are aware of their obligations to consider recruitment of further directors as and when the occasion occurs, such a Committee is not considered necessary. The Board The Board currently comprises: Robin Boyle, Managing Director Hugo Deschampsneufs, Chairman (Non-executive) David Horner, Non-executive The two non-executive Directors are members of the Audit Committee and the Remuneration Committee, David Horner being Chairman of each Committee. Board responsibilities and relationship with Investment Manager The Board is responsible for the investment policy and strategic and operational decisions of the Company and for ensuring that the Company is run in accordance with all regulatory and statutory requirements. These matters include: • The maintenance of clear investment objectives and risk management policies, changes to which require Board approval; • The monitoring of the business activities of the Company, including investment performance and annual budgeting; and • Review of matters delegated to the Investment Manager and Company Secretary. 7 Athelney Trust plc CORPORATE GOVERNANCE STATEMENT (CONTINUED) The Investment Manager ensures that Directors have timely access to all relevant management and financial information to enable informed decisions to be made and contacts the Board as required for specific guidance. The Company Secretary and Investment Manager prepare monthly reports for Board consideration on matters of relevance, for example current valuation and portfolio changes, dividend comparisons with previous years, cash availability and requirements and a breakdown of shareholdings by listing and sector. The Board takes account of Corporate Governance best practice. In consequence of being a company with only three Directors, a Directors’ and Officers’ Liability Insurance policy has not been arranged but is a matter constantly under review by the Board. Committees of the Board The Board has appointed a number of Committees as set out below to which certain Board functions have been delegated. Each of these Committees has formal written terms of reference, which clearly define their responsibilities and incorporate the best practice recommendation and requirements of the Combined Code. Board Membership At the year end the Board consisted of three Directors. The Directors believe that the Board has the balance of skills, experience, ages and length of service to enable it to provide effective leadership and proper governance of the Company. The Directors possess a range of business and financial expertise relevant to the direction of the Company and consider that they commit sufficient time to the Company’s affairs. Brief biographical details of the Directors can be found on page 2. The Directors of the Company meet at regular Board Meetings, held at least once a quarter and additional meetings and telephone meetings are arranged as necessary. During the year to 31 December 2009, the Board met six times and all Directors were present at all Board Meetings. Chairman and Senior Independent Director The Chairman, Mr Hugo Deschampsneufs, is independent. He considers himself to have sufficient time to commit to the Company’s affairs. Given the size and nature of the Board it is not considered appropriate to appoint a senior independent Director. Directors’ Independence In accordance with the Listing Rules for investment entities, the Board has reviewed the status of its individual Directors and the Board as a whole. The non-executive Directors are considered by the Board to be independent and free of any business or other relationship which could interfere with the exercise of their independent judgement. The non-executive Directors were appointed at the 2009 Annual General Meeting for a term to expire at the next Annual General Meeting. Both non-executive Directors offer themselves for re-election at the forthcoming Annual General Meeting. Audit Committee The Audit Committee comprises the independent Directors, with David Horner as Chairman. The Committee met twice during the year ended 31 December 2009. Both committee members were present. It is intended that the Committee will meet at least once a year, to approve the Company’s Annual Report and Accounts. 8 Athelney Trust plc CORPORATE GOVERNANCE STATEMENT (CONTINUED) The primary responsibilities of the Audit Committee are: to review the effectiveness of the internal control environment of the Company and monitor adherence to best practice in corporate governance; to make recommendations to the Board in relation to the re-appointment of the Auditors and to approve their remuneration and terms of engagement; to review and monitor the Auditors’ independence and objectivity and the effectiveness of the audit process and to provide a forum through which the Company’s Auditors report to the Board. The Audit Committee also has responsibility for monitoring the integrity of the financial statements and accounting policies of the Company and for reviewing the Company’s financial reporting and internal control procedures. Committee members consider that individually and collectively they are appropriately experienced to fulfil the role required. The Audit Committee has direct access to the Company’s Auditors, Clement Keys Chartered Accountants. A formal statement of independence is received from the external auditors each year. The Chairman of the Audit Committee will be present at the Annual General Meeting to deal with any questions relating to the accounts. The Committee met twice during the year. Remuneration Committee The Remuneration Committee comprises Mr Hugo Deschampsneufs and Mr David Horner. Mr Horner is Chairman. The Committee will meet as necessary to determine and approve Directors’ fees, following proper consideration of the role that individual Directors fulfil in respect of Board and Committee responsibilities, the time committed to the Company’s affairs and remuneration levels generally within the Investment Trust Sector. Under Listing Rule 15.6.6, the Code principles relating to directors’ remuneration do not apply to an investment trust company other than to the extent that they relate specifically to non-executive directors. Detailed information on the remuneration arrangements can be found in the Directors’ remuneration report on pages 18 to 19 and in note 4 to the financial statements. The Committee met twice during the year and both committee members were present at both meetings. Company Secretary The Company Secretary, John Girdlestone FCA, is responsible for ensuring that Board and Committee procedures are followed and that applicable regulations are complied with. The Secretary also ensures timely delivery of information and reports and that the statutory obligations of the Company are met. Independent Professional Advice There is an agreed procedure for Directors to seek independent professional advice if necessary at the Company’s expense. Institutional investors – use of voting rights The Investment Manager and Managing Director, Mr Robin Boyle, in the absence of explicit instruction from the Board, is empowered to exercise discretion in the use of the Company’s voting rights. Going Concern After due consideration, the Directors have concluded that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements. 9 Athelney Trust plc CORPORATE GOVERNANCE STATEMENT (CONTINUED) Internal control review The Board is responsible for establishing and maintaining the Company’s systems of internal control and for reviewing their effectiveness. Adequate internal controls are in place for identifying, evaluating and managing risks faced by the Company. This process, together with key procedures established with a view to providing effective financial control, has been in place for the full financial year and up to the date the financial statements were approved. Internal control assessment process The Directors acknowledge their responsibility for the Company’s system of internal controls and for reviewing its effectiveness on a regular basis. The system of internal controls is designed to manage rather than eliminate risk and can only provide reasonable but not absolute assurance against material misstatement or loss. This responsibility covers the key business, operational, compliance and financial risks facing the company. The procedures in place ensure that consideration is given regularly to the nature and extent of the risks facing the Company and that they are being actively monitored. Where changes in risk have been identified during the year they also provide a mechanism to assess whether further action is required to manage the risks identified. The Board confirms that these procedures have been in place throughout the Company’s financial year, are operating effectively and continue to be in place up to the date of approval of this Report. Internal Audit The company does not have an internal audit function. The day-to-day management functions are dealt with by the Managing Director, Mr Robin Boyle, and Company Secretary, Mr John Girdlestone, where each is aware of the daily undertakings of the other. The Board as a whole receives regular monthly reports clearly setting out the transactions of that month. The Audit Committee carries out an annual review of the need for an internal audit function. The Committee continues to believe that the compliance and internal control systems and the internal audit function provided by the Investment Manager and Company Secretary give sufficient assurance that a sound system of internal control, which safeguards shareholders’ investment and the Company’s assets, is maintained. An internal audit function, specific to the trust, is therefore considered unnecessary. Dialogue with Shareholders The Board place great importance on communication with shareholders and all Directors are available to enter into dialogue with shareholders. Major shareholders of the Company are offered the opportunity to meet with the independent non-executive Directors of the Board to ensure that their views are understood. The Annual General Meeting provides a forum for communication with all shareholders, who are encouraged to attend and vote. During the AGM, the Board, including the Investment Manager, are available to discuss issues affecting the Company and shareholders have the opportunity to address questions to them. The Annual and Half Yearly Reports of the Company are prepared by the Board and its advisers to present a full and readily understandable review of the Company’s performance. Copies are available for downloading from the Company’s website www.athelneytrust.co.uk and on request from the Company Secretary on 01326 378288. Copies of the Annual Report are mailed to shareholders who have requested paper copies. Voting Policy The Company has given discretionary voting powers to the Investment Manager, Mr Robin Boyle. The Manager votes against resolutions he believes may damage shareholders’ rights or economic interests. 10 Athelney Trust plc INVESTMENT AND PORTFOLIO ANALYSIS AT 31 DECEMBER 2009 Sector Stock Holding Cost (£) Current Price (p) Value (£) £ % Aerospace and defence Aero Inventory * 14,000 43,937 - - Chemicals Construction and materials Umeco Treatt Alumasc Clarke (T) 13,750 53,951 282 38,775 38,775 1.78% 10,500 24,605 273 28,667 28,667 1.31% 30,000 30,910 98 29,400 26,700 29,870 135 36,045 Renew Holdings 55,000 42,054 37 20,350 85,795 3.93% Electronic and electrical equipment XP Power Ltd 20,000 40,993 445 89,000 89,000 4.07% Food and beverages General financial Wynnstay Group 25,000 22,348 226 56,500 56,500 2.59% Albemarle & Bond 15,000 14,999 262 39,300 Arbuthnot Banking Group 10,000 34,134 370 37,000 Camellia 1,000 23,958 7,350 73,500 Charles Taylor Consulting 20,000 44,568 201 40,200 Jarvis Securities 25,000 20,169 170 42,500 Park Group RSM Tenon S & U 200,000 32,817 18 36,000 62,000 19,541 49 30,070 8,000 23,901 435 34,800 333,370 15.26% Healthcare equipment and services Consort Medical 8,000 30,102 390 31,200 House, leisure and personal goods Havelock Europe 24,000 16,430 24 5,760 Tristel 75,000 36,212 58 43,500 74,700 3.42% Smallbone * 36,500 36,366 - - 5,760 0.26% Industrial engineering Fenner Goodwin 32,000 8,768 168 53,600 5,000 3,072 1,020 51,000 Hill & Smith 20,000 32,930 340 68,000 Severfield-Rowen 20,000 20,903 173 34,600 Slingsby (H.C) 4,000 9,958 630 25,200 Industrial transportation Braemar Shipping Services 13,000 16,118 425 55,250 Vitec 13,000 25,015 386 50,180 282,580 12.94% Insurance Media Clarkson 5,000 12,748 740 37,000 Fisher (James) 5,500 4,666 445 24,475 116,725 5.34% Chesnara 16,000 30,182 196 31,360 Personal Group Holdings 17,500 15,908 290 50,750 82,110 3.76% Chime Communications 20,000 20,311 217 43,400 Huntsworth 55,000 24,154 64 34,925 M&C Saatchi Plc 45,000 41,093 80 36,000 Quarto Group Inc Com 40,500 47,369 85 34,425 148,750 6.81% 11 Athelney Trust plc INVESTMENT AND PORTFOLIO ANALYSIS AT 31 DECEMBER 2009 (CONTINUED) Sector Stock Holding Cost (£) Current Price (p) Value (£) £ % ATH Resources 40,000 30,203 92 36,800 36,800 1.68% McKay Securities 22,500 32,958 155 34,875 Mountview Estates 1,500 18,867 4,000 60,000 Mucklow Group 10,000 32,324 303 30,325 Smart (J) & Co. 4,000 21,009 425 17,000 Mining Real estate Town Centre Securities 22,500 31,140 139 31,275 173,475 7.93% Retailers H & T Group 17,000 31,807 300 51,000 Support services Interior Services Group 30,000 49,048 162 48,600 Stanley Gibbons 47,500 5,779 133 63,175 114,175 5.23% Latham (James) 14,000 7,401 165 23,100 Macfarlane Group 155,000 35,205 20 30,225 Matchtech 12,500 30,177 250 31,250 N.W.F Group 40,000 11,707 92 36,800 Nationwide Accident Repair 30,000 37,194 78 23,400 RWS Holdings 9,000 15,862 310 27,900 VP 25,000 31,591 173 43,250 Technology software and services Group NBT 12,000 13,947 315 37,800 WSP Group 13,000 11,435 275 35,750 300,275 13.75% Travel and leisure * In Administration Phoenix IT Air Partner Cineworld 15,000 32,864 265 39,750 77,550 3.55% 7,000 19,233 450 31,500 30,000 31,822 150 45,000 Gaming VC 30,000 40,605 210 63,000 139,500 6.39% 100% £ £ £ 2,184,507 105,100 2,289,607 1,802,802 Portfolio Value Net Current Assets TOTAL VALUE Shares in issue Audited NAV 127p 12 Athelney Trust plc INVESTMENT AND PORTFOLIO ANALYSIS AT 31 DECEMBER 2009 (CONTINUED) Portfolio By Sectors 1.78% 1.31% 3.93% 6.39% 3.55% 13.75% 5.23% 7.94% 4.07% 2.59% 15.26% 3.42% 0.26% 1.68% 6.81% 3.76% 5.34% 12.94% Aerospace and defence Food and beverages Industrial engineering Mining Technology software and services Chemicals General financial Industrial transportation Real Estate Travel and leisure Electronic and electrical equipment Construction and materials Healthcare equipment and services House, leisure and personal goods Insurance Retailers Media Support Services Portfolio By Listing 39.37% 60.63% Full AIM 13 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 2009. This report also contains certain information required in accordance with s992 of the Companies Act 2006. Principal Activity and Business Review The principal activity of the Company is that of an investment trust. 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 trust. Details of these are given in the Chairman’s Statement and Business Review on pages 3 to 6. Environmental Issues The Board has taken steps to reduce any adverse impact on environmental issues and will continue to address this important matter. Social and Community Issues The Company has only two employees and, as far as the Board is aware, no issues exist in respect of social or community issues. Principal Risks and 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. The Company’s assets consist mainly of listed securities and its principal risks are therefore market-related. The Company is also exposed to currency risk in respect of a small number of investments held in overseas markets. More detailed explanations of these risks and the way which they are managed are contained in note 14 to the accounts. 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: H.B. Deschampsneufs R.G. Boyle D.A. Horner 31 December 2009 78,038 443,970 20,000 1 January 2009 78,038 443,970 20,000 H.B. Deschampsneufs’ interest includes 19,163 (2008: 19,163) shares held in his Self-Invested Personal Pension. R.G. Boyle’s interest includes 16,970 (2008: 16,970) shares held in his Self-Invested Personal Pension. D.A. Horner’s interest includes 20,000 (2008: 20,000) shares owned by a pension fund in which D.A. Horner has an interest. There have been no changes in the above Directors’ interests up to 25 March 2010. The Company does not have any contract of significance subsisting during the year, with any other company in which a Director is or was materially interested. Statement of Directors’ Responsibilities The Directors are responsible for preparing the Directors' Report and the Financial Statements in accordance with applicable law and regulations. 14 REPORT OF THE DIRECTORS OF Athelney Trust plc (CONTINUED) 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). Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the total return of the Company for that period. In preparing these Financial Statements, the Directors are required to: select suitable accounting policies and then apply them consistently; - - make judgments and estimates that are reasonable and prudent; - state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; 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 adequate accounting records that are sufficient to show and explain the Company's transactions and 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 2006. 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. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements and other information included in annual reports may differ from legislation in other jurisdictions. Statement Under the Disclosure and Transparency Rules 4.1.12 The Directors confirm to the best of their knowledge: - the financial statements, prepared in accordance with UK Accounting Standards, give a true and fair view of the assets, liabilities, financial position and net return of the company; and - the Directors Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties it faces. Authority to Repurchase the Company’s Ordinary Shares At an Extraordinary General Meeting of the Company held on 21 August 2008, it was resolved that the Company be authorised to purchase in the market up to 270,240 Ordinary Shares (14.99 per cent of its Ordinary Share Capital in issue at the time). This authority expired at the date of the last Annual General Meeting and the Board is not seeking to renew this authority. Move from AIM to a Full Listing The Company moved to a Full Listing on 24 September 2008 (see note 7, page 30). Capital Structure At 31 December 2009 the Company’s capital structure consisted of 1,802,802 Ordinary Shares of 25p each (2008: 1,802,802 Ordinary Shares of 25p each). Allotment of Ordinary Shares The Directors are proposing to allot 198,088 Ordinary Shares in accordance with a placing letter dated 15 March 2010. The Shares are to be issued at a price of 120.15p per share, raising approximately £238,000 gross. This placing is subject to approval by the shareholders at the AGM on 5 May 2010. 15 REPORT OF THE DIRECTORS OF Athelney Trust plc (CONTINUED) Dividends The Ordinary Shares carry a right to receive dividends which are declared from time to time by an Ordinary Resolution of the Company (up to the amount recommended by the Directors) and to receive any interim dividends which the Directors may resolve to pay. Capital Entitlement On a winding up, after meeting the liabilities of the Company, the surplus assets will be paid to ordinary shareholders in proportion to their shareholdings. Voting On a show of hands, every ordinary shareholder present in person or by proxy has one vote and on a poll every ordinary shareholder present in person has one vote for every share he/she holds and a proxy has one vote for every share in respect of which he/she is appointed. Results and Dividends The return on ordinary revenue activities before dividends for the year is £94,825 (2008: £99,603) as detailed on page 22. On 13 January 2010 the Board recommended the payment of an Interim Dividend of 4.75p per share. Significant Shareholders At 25 March 2010, the Directors had been notified of the following major shareholdings in the Company: Mr R.G. Boyle Mr G.W. & Mrs D.J. Whicheloe NS Salvesen and Salvesen Family Trust Mr H.B. Deschampsneufs Mrs E. Davison Mr D.C. & Mrs B.I. Mattey Tax Status Ordinary Shares 443,970 114,000 87,500 78,038 75,000 60,000 % of issue 24.63 6.32 4.85 4.32 4.16 3.33 The Directors have considered the Close Company Tax Status of the Company and do not believe that the Company is a Close Company. 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 invoiced trade creditors outstanding at the end of the year, together with accrued expenses, all appearing as creditors in the balance sheet. 16 REPORT OF THE DIRECTORS OF Athelney Trust plc (CONTINUED) Disclosure of Information to Auditors Each of the persons who are directors at the time when this Directors’ Report is approved has confirmed that: - - so far as each Director is aware, there is no relevant audit information of which the Company’s auditors are unaware, and each Director has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. The above confirmation is given and should be interpreted in accordance with the provision of Section 418(2) of the Companies Act 2006. Auditors Clement Keys have expressed their willingness to continuing office as Auditors and a resolution proposing that they be re- appointed and to authorise the Directors to determine their remuneration will be put to the Annual General Meeting. Waterside Court Falmouth Road Penryn Cornwall TR10 8AW BY ORDER OF THE BOARD J. Girdlestone Secretary 25 March 2010 17 Athelney Trust plc DIRECTORS’ REMUNERATION REPORT The Board has prepared this Report in accordance with the requirements of Section 421 of the Companies Act 2006. An Ordinary Resolution will be put to the members to approve the Report at the forthcoming Annual General Meeting The law requires the Company’s Auditors to audit certain disclosures provided. Where disclosures have been audited, they are indicated as such. The Auditors’ opinion is included in their report on pages 20 and 21. Remuneration Committee The Company has a Remuneration Committee comprising Mr Hugo Deschampsneufs and Mr David Horner. Mr Horner chairs the meetings. The Committee considers and approves Directors’ remuneration. Policy on Directors’ Remuneration The Board’s policy is that remuneration of non-executive Directors should reflect the experience of the Board as a whole and is determined with reference to comparable organisations and appointments. It is intended that this policy will continue for the year ended 31 December 2010. The remuneration of the non-executive Directors are determined within the limits set out in the Company’s Articles of Association. Directors are not eligible for bonuses, pension benefits, share options, long-term incentive schemes or other benefits. Directors’ Service Contracts All the Directors have a service contract with the Company. The terms of their appointment provide that a Director shall retire and be subject to re-election at the first annual general meeting after their appointment and at least every three years after that. The Managing Director Mr Robin Boyle has a service contract commencing 21 August 2008 which provides for retirement by the Company giving one year’s written notice and by Mr Robin Boyle giving six months’ written notice. The service contracts for the two non-executive Directors, Mr Hugo Deschampsneufs and Mr David Horner, provide for their contract to continue until the Annual General Meeting following the appointment and for renewal at each subsequent Annual General Meeting. Their service contracts commenced 21 August 2008 and 19 August 2008 respectively. Company Performance The graph below compares, for the six financial years ended 31 December 2009, the total return (assuming all dividends are reinvested) to ordinary shareholders compared to the total shareholder return on a notional investment made up of shares in the component parts of the AIM All-Share Index and Small Caps Index. The comparison is made between AIM All-Share and Small Caps. as the majority of investment holdings by the Company are a constituent of one or the other of these two indices. Athelney's Shareholder Return and NAV against Benchmarks of AIM All-Share and Small Caps (figures have been rebased to 100 at 31 December 2004) 180.00 160.00 140.00 120.00 100.00 80.00 60.00 40.00 20.00 - *Assuming all dividends are reinvested Past Performance is no guarantee of future performance. Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 NAV Shareholder Return * AIM All Share Small Caps Year End 18 Athelney Trust plc DIRECTORS’ REMUNERATION REPORT (CONTINUED) Directors’ remuneration for the year (audited information) The Directors who served in the year received the following remuneration in the form of salaries: Hugo Deschampsneufs (Chairman, non-executive) Robin Boyle (Managing Director) David Horner (Non-executive) 2009 £ 8,333 40,000 6,667 55,000 2008 £ 6,667 35,000 5,833 47,500 Approval The Directors’ Remuneration Report was approved by the Board on 25 March 2010. J. Girdlestone Company Secretary 19 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF ATHELNEY TRUST PLC We have audited the financial statements of Athelney Trust plc for the year ended 31 December 2009, which comprise the Income Statement, the Reconciliation of Movements in Shareholders’ Funds, the Balance Sheet, the Cash Flow Statement and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. 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 auditors’ 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 As explained more fully in the Statement of Directors’ Responsibilities set out on pages 14 and 15, the Directors are responsible for the preparation of the Financial Statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the Financial Statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the Financial Statements sufficient to give reasonable assurance that the Financial Statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. Opinion on financial statements In our opinion the Financial Statements: • • • give a true and fair view of the state of the Company’s affairs as at 31 December 2009 and of its net return and cash flows for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matters prescribed by the Companies Act 2006 In our opinion: • • the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and the information given in the Directors’ Report for the financial year for which the Financial Statements are prepared is consistent with the Financial Statements. 20 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF ATHELNEY TRUST PLC (CONTINUED) Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion: • • adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or the financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Under the Listing Rules we are required to review: • • the Directors’ Statement, set out in page 9, in relation to going concern; and the parts of the Corporate Governance Statement relating to the Company’s compliance with the nine provisions of the 2008 Combined Code specified for our review. Simon Atkins ACA Senior Statutory Auditor for and on behalf of Clement Keys Chartered Accountants Statutory Auditors 39/40 Calthorpe Road Edgbaston Birmingham B15 1TS 25 March 2010 21 Athelney Trust plc INCOME STATEMENT (INCORPORATING THE REVENUE ACCOUNT) For the Year Ended 31 December 2009 For the Year Ended 31 December 2008 Note Revenue Capital Total Revenue Capital Total £ £ £ £ £ £ - 650,678 650,678 - (1,482,105) (1,482,105) 122,963 - 122,963 123,951 - 123,951 (5,121) (46,839) (51,960) (4,466) (41,700) (46,166) (23,017) (40,301) (63,318) (19,882) (44,947) (64,829) Profits/(losses) on investments held at fair value Income from investments Investment Management expenses Other expenses Exceptional items 9 2 3 3 7 - - Net return/(loss) on ordinary activities before taxation 94,825 563,538 658,363 Taxation 5 - - - - - (128,782) (128,782) 99,603 (1,697,534) (1,597,931) - 256,283 256,283 Net return/(loss) on ordinary activities after taxation 6 94,825 563,538 658,363 99,603 (1,441,251) (1,341,648) Net return/(loss) per ordinary share 6 5.3p 31.3p 36.5p 5.5p (79.9)p (74.4)p Dividend per ordinary share paid during the year 8 4.7p 3.5p 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 13. 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. The notes on pages 26 to 33 form part of these financial statements. 22 Athelney Trust plc RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS Called-up Share Capital £ Share Premium £ Capital reserve realised £ Capital reserve Revenue reserve £ unrealised £ Total Shareholders’ Funds £ 450,700 405,605 892,893 1,239,083 132,441 3,120,722 - - - - - - - - - - - - (88,385) - - (1,393,720) - - (88,385) (1,393,720) (215,429) - - - 256,283 - - - - 99,603 (63,098) (215,429) 256,283 99,603 (63,098) 450,700 405,605 589,079 101,646 168,946 1,715,976 450,700 405,605 589,079 101,646 168,946 1,715,976 - - - - - - - - - - - - 118,623 - - 532,055 - - (87,140) - - - - - - - - - 94,825 (84,732) 118,623 532,055 (87,140) - 94,825 (84,732) 450,700 405,605 620,562 633,701 179,039 2,289,607 Balance brought forward at 1 January 2008 Net gains on realisation of investments Decrease in unrealised appreciation Expenses allocated to capital Taxation Profit for the year Dividend paid in year Shareholders’ Funds at 31 December 2008 Balance brought forward at 1 January 2009 Net profits on realisation of investments Increase in unrealised appreciation Expenses allocated to capital Taxation Profit for the year Dividend paid in year Shareholders’ Funds at 31 December 2009 The notes on pages 26 to 33 form part of these financial statements. 23 Athelney Trust plc BALANCE SHEET AS AT 31 DECEMBER 2009 Company Number: 02933559 Note Fixed assets Investments held at fair value through profit and loss Current assets Debtors Cash at bank and in hand 9 10 Creditors: amounts falling due within one year 11 Net current assets Total assets less current liabilities Provisions for liabilities and charges 2009 £ 2008 £ 2,184,507 1,657,321 96,088 26,321 122,409 (17,309) 105,100 2,289,607 - 65,090 26,038 91,128 (32,473) 58,655 1,715,976 - Net assets 2,289,607 1,715,976 Capital and reserves Called up share capital Share premium account Other reserves (non distributable) Capital reserve - realised Capital reserve - unrealised Revenue reserve (distributable) Shareholders' funds - all equity Net Asset Value per share 12 13 13 13 13 16 450,700 405,605 620,562 633,701 179,039 450,700 405,605 589,079 101,646 168,946 2,289,607 1,715,976 127p 95.2p Approved and authorised for issue by the Board of Directors on 25 March 2010 ………………………………. R.G. Boyle Director The notes on pages 26 to 33 form part of these financial statements 24 Athelney Trust plc CASHFLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2009 Net cash (outflow)/inflow from operating activities Taxation Corporation tax paid Capital Expenditure and Financial Investment Purchases of investments Sale of investments Net cash inflow from Capital Expenditure and Financial Investment Equity dividends paid Increase/(decrease) in cash in the year Reconciliation of operating net revenue to net cash (outflow)/inflow from operating activities Revenue on ordinary activities before taxation (Increase)/decrease in debtors (Decrease)/increase in creditors Investment management expenses charged to capital Other expenses charged to capital Exceptional items charged to capital (note 7) Reconciliation of net cashflow to movement in net funds Cash at bank and in hand £ 2009 £ £ (38,477) - (442,039) 565,531 (975,591) 1,003,983 123,492 (84,732) 283 £ 94,825 (30,998) (15,164) (46,839) (40,301) - (38,477) 2008 £ 39,973 (24,564) 28,392 (63,098) (19,297) £ 99,603 140,683 15,116 (41,700) (44,947) (128,782) 39,973 Net funds at 31.12.2008 £ 26,038 Cashflow £ 283 Net funds at 31.12.2009 £ 26,321 The notes on pages 26 to 33 form part of these financial statements 25 Athelney Trust plc NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 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. 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. 26 Athelney Trust plc NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 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 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 accounts in the year in which they are paid. 2. Income Income from investments UK dividend income Bank interest Other income Total income UK dividend income UK listed investments AIM investments Other investments 2009 £ 122,666 297 - 122,963 2009 £ 72,344 50,322 - 122,666 2008 £ 113,571 10,230 150 123,951 2008 £ 56,920 55,707 944 113,571 27 Athelney Trust plc NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 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 (also see note 7): - Audit Services - Statutory audit - Audit Services - Audit related regulatory reporting Miscellaneous expenses: - Other wages and salaries - Nominated Adviser’s fees - PR and communications - Stock Exchange subscription - Sundry investment management and other expenses 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 28 2009 £ 15,000 40,000 9,365 1,466 25,703 - 7,448 7,321 8,975 115,278 2009 £ 55,000 4,771 59,771 19,167 1,765 20,932 74,167 6,536 80,703 1 2 1 4 2008 £ 12,500 35,000 9,505 999 17,170 10,406 6,285 7,961 11,169 110,995 2008 £ 47,500 3,991 51,491 15,833 1,337 17,170 63,333 5,328 68,661 1 2 1 4 Athelney Trust plc NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 5. Taxation Revenue 2009 Capital Total Revenue 2008 Capital Total £ £ £ £ (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 Deferred taxation - - - - - - - - - - - - (ii) Factors affecting the tax charge for the year £ - £ - - (256,283) - (256,283) - - - - (256,283) (256,283) The tax charge for the period is lower than the average small company rate of corporation tax in the UK (21 per cent). The differences are explained below: Total return on ordinary activities before tax Total return on ordinary activities multiplied by the average small company rate of corporation tax 21% (2008: 21%) Effects of: UK dividend income not taxable Revaluation of shares not taxable Capital gains not taxable Indexation relief for capital gains Unrelieved management expenses Losses carried forward Other Change in tax rate Current tax charge for the year 2009 £ 658,363 138,256 (23,552) (111,732) (24,911) - 21,939 - - - - 2008 £ (1,597,931) (335,566) (23,850) 292,681 - (2,858) 48,225 21,545 (177) - - The Company has unrelieved excess revenue management expenses of £31,538 at 31 December 2009 (2008: £14,212) and £102,597 (2008: £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. 29 Athelney Trust plc NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 5. Taxation continued The Company has received provisional approval from HM Revenue and Customs under Section 842 ICTA 1988, therefore the Company is not liable to Corporation Tax on any realised investment gains for 2009 or in the future. 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 The calculation of earnings per share has been performed in accordance with FRS 22 “Earnings Per Share”. 2009 2008 £ Revenue £ Capital £ Total £ Revenue £ Capital £ Total 94,825 563,538 658,363 99,603 (1,441,251) (1,341,648) Attributable return/(loss) on ordinary activities after taxation Number of shares 1,802,802 1,802,802 Return per ordinary share 5.3p 31.3p 36.5p 5.5p (79.9)p (74.4)p 7. Exceptional Items The exceptional item represents the total costs incurred by the Company in moving from AIM to a Full Listing. Included in the total costs is an amount of £nil (2008: £14,599) paid to the Company’s auditors in connection with the Company obtaining a Full Listing. 8. Dividend Dividend in respect of 2008 of 4.7p (2008: 3.5p) per share 2009 £ 84,732 2008 £ 63,098 Set out below is the total dividend payable in respect of the financial year, which is the basis on which the requirements of Section 842 of the Income and Corporation Taxes Act 1988 are considered. An interim dividend of 4.75p (2009 a final dividend – 4.7p) per share amounting to a total of £85,633 (2009: £84,732) has been approved by the Board, for payment on 01 April 2010. Revenue available for distribution Interim dividend in respect of financial year ended 31 December 2009 Undistributed Revenue Reserve 2009 £ 94,825 (85,633) 9,192 30 Athelney Trust plc NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 9. Investments Movements in year Valuation at beginning of year Purchases at cost Sales - proceeds - realised gains/(losses) on sales Increase/(decrease) in unrealised appreciation Valuation at end of year Book cost at end of year Unrealised appreciation at the end of the year UK listed investments AIM investments PLUS investments Gains on investment Realised gains/(losses) on sales Increase/(decrease) in unrealised appreciation 2009 £ 1,657,321 442,039 (565,531) 118,623 532,055 2,184,507 1,527,239 657,268 2,184,507 1,324,512 859,995 - 2,184,507 2009 £ 118,623 532,055 650,678 2008 £ 3,167,818 975,591 (1,003,983) (88,385) (1,393,720) 1,657,321 1,533,219 124,102 1,657,321 833,193 797,986 26,142 1,657,321 2008 £ (88,385) (1,393,720) (1,482,105) The purchase and sales proceeds above include transaction costs of £2,188 (2008: £3,176) and £2,898 (2008: £4,546) respectively. 10. Debtors Investment transaction debtors Other debtors 2009 £ 84,103 11,985 96,088 2008 £ 59,148 5,942 65,090 31 Athelney Trust plc NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 11. Creditors: amounts falling due within one year Social security and other taxes Other creditors Accruals and deferred income 12. Called Up Share Capital Authorised 10,000,000 Ordinary Shares of 25p Allotted, called up and fully paid 1,802,802 Ordinary Shares of 25p 13. Reserves 2009 £ 3,690 171 13,448 17,309 2009 £ 2008 £ 3,087 4,272 25,114 32,473 2008 £ 2,500,000 2,500,000 450,700 450,700 Balance at 1 January 2009 Net gains on realisation of investments Inrease in unrealised appreciation Expenses allocated to capital Profit for the year Dividend paid in year Share premium account £ 405,605 - - - - - 2009 Capital reserve realised £ 589,079 118,623 - (87,140) - - Capital reserve unrealised £ 101,646 - 532,055 - - - Revenue reserve £ 168,946 - - - 94,825 (84,732) Balance at 31 December 2009 405,605 620,562 633,701 179,039 14. 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 9) 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. 32 Athelney Trust plc NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2009 14. Financial Instruments (continued) 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 2.88 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. 15. Post Balance Sheet Event The Directors propose to allot 198,088 Ordinary Shares at 120.15p in accordance with a placing letter dated 15 March 2010. This will have the effect of raising approximately £238,000 gross. The allotment is subject to approval by the shareholders at the AGM on 5 May 2010. 16. Net Asset Value Per Share The net asset value per share is based on net assets of £2,289,607 (2008: £1,715,976) divided by 1,802,802 (2008: 1,802,802) ordinary shares in issues. Net asset value 2009 127p 2008 95.2p 33 Athelney Trust plc OFFICERS AND FINANCIAL ADVISERS Directors: Secretary: Registered Office: H.B. Deschampsneufs (Chairman) Email: hugo@athelneytrust.co.uk R.G. Boyle (Managing Director) Email: robin171@btinternet.com D.A. Horner Email: dah@chelvertonam.com J. Girdlestone Waterside Court Falmouth Road Penryn Cornwall, TR10 8AW Waterside Court Falmouth Road Penryn Cornwall, TR10 8AW Email: john@athelneytrust.co.uk Tel: 01326 378 288 Website: www.athelneytrust.co.uk Email: info@athelneytrust.co.uk Tel: 01326 378 288 Company Number: 2933559 (Registered in England) Stockbroker: Auditors: Banker: Registrar: Public Relations Consultants: Solicitor: 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 City Road Communications 42-44 Carter Lane London, EC4V 5EA McClure Naismith 49 Queen Street Edinburgh, EH2 3NH Email: graeme.dickie@speirsjeffrey.co.uk Tel: 0141 248 4311 Email: simon.atkins@clementkeys.co.uk Tel: 0121 456 4456 Email: enquiries@shareregistrars.uk.com Tel: 01252 821 390 Email: cityroad@cityroad.uk.com Tel: 0207 248 8010 Email: awilliamson@McClureNaismith.com Tel: 0131 272 8378 34 

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