Interim Results
Athelney Trust PLC
30 August 2007
ATHELNEY TRUST plc: INTERIM RESULTS
Athelney Trust plc, the AIM-traded investment company specialising in small
companies and junior markets, announces its unaudited results for the six months
ended 30 June 2007.
Highlights:
•Unaudited Net Asset Value up 22 per cent at 201.3p per share (2006:
164.5p)
•Gross Revenue of £56,010 an increase of 24 per cent (2006: £45,165)
•Revenue income rose 11.4 per cent on a like for like basis; dividend
income by 11.7 per cent
•Revenue return per ordinary share up 11.8 per cent at 1.9p (2006: 1.7p)
Athelney Chairman, Hugo Deschampsneufs, said: 'The worry must be that the severe
housing recession in the US is spreading to the financial area and is
threatening the occurrence of systematic fallout. It is estimated that various
institutions own about $6 trillion of mortgage backed securities of which $800
billion are sub-prime. About 13 per cent of sub-prime mortgages are currently in
default and foreclosure rates are soaring.
'If a fair proportion of $800 billion is wiped out by enforced mark to market,
then it is a decent bet that a large dent will be made in the $875 billion of
capital owned by the commercial banks and how willing will such banks be to
continue to fund the present mergers and acquisitions frenzy which has swept the
world in recent months.
'We are now seeing the liquidity tap being turned off in three ways: central
banks are raising interest rates; lending terms are getting tighter and tighter;
and, perhaps the strongest evidence of a more prudent rationing of liquidity is
the reduced appetite for risk in financial markets.
'I think it might well be a mistake to increase interest rates further in the UK
and Eurozone, but I suspect that the authorities will do so anyway. All in all,
the short term seems full of difficulties but, looking to the slightly longer
term, I remain absolutely convinced that a portfolio of carefully chosen
equities, including a sensible proportion of high quality small caps, will once
again offer an attractive investment home for long-haul investment capital'.
-ends-
A copy of this statement can be downloaded from www.athelneytrust.co.uk
For further information:
Robin Boyle, Chief Executive
Athelney Trust plc 020 7628 7937
John Riddell
Noble & Company Limited 020 7763 2200
Paul Quade
CityRoad Communications 020 7248 8010
CHAIRMAN'S STATEMENT AND BUSINESS REVIEW
I present the unaudited results for the six months to 30 June 2007. The salient
points are as follows:
•Unaudited Net Asset Value ('NAV') is 201.3p per share (31 December 2006:
189.7p, 30 June 2006: 164.5p), a rise of 6.1 per cent and an increase of
22.4 per cent over the past year.
•Gross Revenue rose by 24 per cent to £56,010 compared to the half year
ended 30 June 2006 of £45,165 and the full year to 31 December 2006 of
£95,614.
•On a like-for-like basis revenue increased by 11.4 per cent and dividend
income rose by 11.7 per cent.
•Revenue return per ordinary share was 1.9p, up 11.8 per cent from the
previous half year (31 December 2006: 3.3p, 30 June 2006: 1.7p).
•A dividend of 3.25p was paid in May 2007 (2006: 2.5p) and, as is the
Board's practice, no further dividend will be paid until the full year's
results are known.
Review of 1 January to 30 June 2007
The last six months, and the short period that preceded it, have certainly
produced quite a few shocks: Mexico's disputed presidential election; riots in
Hungary; a coup in Thailand; the disturbing, deeply sinister murder of Alexander
Litvininenko, allegedly by an ex-KGB operative; the arrest of a group of Royal
Navy seamen and Royal Marines by Iran; and Hugo Chavez's nationalization of
foreign assets in Venezuela. In Pakistan, along the North West Frontier, the
deal between the tribal leaders and the government which confined the army to
barracks has resulted in a resurgence of the Taliban and thus provided cover for
al-Qu'eda to train and supply future terrorists. The siege of the Red Mosque and
outbreak of suicide bombing suggests that worse is to come. Iraq is, of course,
a complete disaster and it is immensely depressing that the eventual exit of the
U.S.-led coalition will most likely lead to even more inter-sectional violence.
On 27 February, the Shanghai market fell by 9 per cent, followed by sell-offs
around the world on the view that just about everyone was vulnerable to a crash
in the overheated Chinese stock market. Yet Shanghai rebounded within days and,
even when the Chinese authorities tried to take heat out of the market by
imposing stamp duty on share purchases, things went remarkably smoothly. More
recently we saw a sharp set-back in U.S. Treasuries in June which was quickly
followed by a dramatic sell-off in the credit market which may have
repercussions elsewhere.
I make no apology for returning to the state of the housing market in the U.S.
(particularly the Midwest, Florida and California). Worthy of note is the near
collapse of the funds backed by sub-prime (low quality) mortgages from Bear
Stearns, a large investment bank. The unfortunately named High-Grade Structured
Credit Strategies Enhanced Leverage Fund and its sister the High-Grade
Structured Credit Strategies Fund are now all but worthless, having only been
launched about a year ago. The Enhanced Leverage fund's problems were compounded
by its borrowings which were ten times bigger than its $600 million capital.
The worry must be that the severe housing recession is spreading to the
financial area and is threatening the occurrence of systemic fallout. It is
estimated that various institutions own about $6 trillion of mortgage-backed
securities (MBS) of which $800 billion are sub-prime. About 13 per cent of
sub-prime mortgages are currently in default and foreclosure rates are soaring.
How did America get into this mess? In recent years, there has been a concerted
effort to increase the share of homeowners in the U.S. from a post-war average
of 63 per cent to 70 per cent. Lending standards were relaxed and deposits were
no longer required. The extreme was reached with so-called Ninja loans
(borrowers needed no income, jobs or assets). The influx of new buyers pushed up
house prices which made financial institutions even more eager to lend.
The lenders, however, did not have to worry very much about the risk of default
because they rolled these mortgages into MBS packages, which were then sliced
and diced in tranches known as Collateralized Debt Obligations (CDOs). Buyers
could chose equity (highest risk, highest theoretical dividend yield), mezzanine
and investment-grade bonds. The first, equity, is colloquially known as toxic
waste and the hunt is on to find out who exactly has purchased and is still
holding this nasty stuff. Many of these securities are illiquid so regular
prices are not available. Indeed, highly rated CDOs may still be owned by banks
or hedge funds that do not have to put a (much lower) value on these securities.
They may not recognise the problem until they are forced to by auditors or by
ratings downgrades from Moody's and S&P. Moody's has said that it may cut
ratings on 91 CDOs worth about $5 billion.
How to value illiquid financial derivatives is an interesting question. As
Warren Buffett, the world's most successful investor, pointed out years ago
there is no market for complex derivatives so instead of being marked to market
(valued at market price), they are marked to (computer) model - or, in some
cases, marked to myth. Suppose, he said, you write a contract specifying the
number of twins that will be born in Nebraska in 2020. That will be taken up by
a counterparty in the usual way. Both of you might then devise different
computer models which showed you both making a profit for years. Why would you
do that? Because, as derivatives traders, you get a huge bonus on that and
similarly illiquid trades. In the case of a hedge fund, there is scope to book a
mythical profit, of which the manager can then take his 20 per cent cut in
addition to his annual management fee. The more profits of this kind the manager
books, the better his fund performs in the short term and the more capital the
fund attracts from new investors.
But once these huge losses are recognised, what are the implications for
liquidity, which has been the driving force behind markets for a long time now?
Say the search for who is still holding the toxic waste ends with the finger
pointed at the originating banks and syndicating investment banks?
If a fair proportion of $800 billion is wiped out by enforced mark to market
then it is a decent bet that a large dent would be made in the $875 million of
capital owned by the commercial banks and how willing would such banks be to
continue to fund the present mergers and acquisitions frenzy which has swept the
world in recent months?
We are now seeing the liquidity tap being turned off in three ways: central
banks are raising interest rates; lending terms are getting tighter and tighter
(no more cov-lite and payment-in-kind loans, thank you); and perhaps the
strongest evidence of a more prudent rationing of liquidity is the reduced
appetite for risk in financial markets (no more MBS, thank you).
None of the above is calculated to cheer so it is heartening to report that
equity markets had a decent six months to June 2007. Best of all was China
(+42.3 per cent); followed by Pakistan (+38.1 per cent); Poland (+32.8 per
cent); South Korea (+28.2 per cent); Turkey (+26.5 per cent) and Malaysia (+25.6
per cent). Only three markets fell: Saudi Arabia (-9.6 per cent); Colombia (-4.6
per cent) and Russia (-1.5 per cent). Closer to home, British blue-chips rose by
a respectable 7.3 per cent although small caps., as represented by the FTSE
Small Cap. Index, increased by a slightly disappointing 3 per cent. Crude oil,
having finished 2006 at about $50 per barrel, shot up again to close the period
at $71, a rise of about 40 per cent.
As far as the U.K. is concerned, we have had to live with a strong currency and,
although the two-dollar pound may not be forever, it certainly has given British
business and consumers a gain in spending power. Despite an increasingly
unfavourable exchange rate, U.K. manufacturing exports grew by 10 per cent last
year. Demand for services that the U.K. is good at - such as investment banking,
stockbroking, accountancy and law - has been rising steadily so that the City in
all its aspects now accounts for about 15 per cent of U.K. GDP.
Finally, under this sub-heading, profit warnings are edging closer to record
highs. In the first half of this year, 191 companies issued alerts, saying that
profits would fail to meet targets. This was up from 169 in the first half of
last year and is the highest since the 230 in the first half of 2001 at the end
of the dotcom boom.
Results
Gross revenue rose by 24 per cent compared with the six months to 30 June 2006:
after allowance is made for the special dividend paid by Mallett in 2007,
like-for-like growth was a rather more pedestrian 11.4 per cent.
Number
Companies paying dividends 63
Companies sold (therefore no true comparison) 17
Companies purchased (therefore no true comparison) 19
Increased total dividends in the half year 20
Reduced total dividends in the half year 2
No change in dividend 5
Corporate Activity
Three of our companies were taken over for cash: Enterprise; European Motor
Holdings and City Lofts, producing a profit of 698 per cent, 242 per cent and
30.3 per cent respectively. Since 30 June, Ben Bailey has agreed to a cash offer
which, if it goes through, would result in Athelney booking a profit of 83.8 per
cent. Similarly, Hitachi Capital would give a profit of 9.5 per cent.
Furthermore, Domestic & General and Nichols are separately engaged in bid talks
although, of course, there is no certainty that deals will be agreed.
Portfolio Review
Holdings of Aero Inventory, Umeco, Character Group, Debtmatters, Prime People,
Renew Holdings, Smallbone, H&T Group, Ambrian Capital, FDM Group, Finsbury Food,
M&C Saatchi, Quarto Group, Trifast and Creston were all purchased for the first
time. Blacks Leisure, Johnson Service, AT Communications and Erinaceous Group
were all sold. In addition, a total of twenty-one holdings were top-sliced to
provide capital for the new purchases.
Dividend
As is the Board's practice, consideration of a dividend will be left until the
final results are known. However, having increased the annual dividend from 1p
per share in 1996 to 3.25p in 2007, the Board is keen to maintain Athelney's
progressive record, remaining within the context of what can be afforded without
undue financial strain.
Update
The unaudited NAV at 31 July 2007 was 199.8p whereas the share price on the same
day stood at 203p. Further updates can be found on www.athelneytrust.co.uk
Outlook
I think that it might well be a mistake to increase interest rates further in
the U.K. and the Eurozone but I suspect that the authorities will do so anyway.
Then there is the stubbornly high price of crude oil despite the supply
situation being relatively easy at the moment. And we had better not forget
about developments in America, discussed at length earlier in my Statement and
Business Review. All in all, the short term seems full of difficulties but,
looking to the slightly longer term, I remain absolutely convinced that a
portfolio of carefully chosen equities (including a sensible proportion of high
quality small caps.) will once again offer an attractive home for long-haul
investment capital. Fingers firmly crossed, prospects for 2008 look positive.
H.B. Deschampsneufs
Athelney Trust plc
INTERIM INCOME STATEMENT
(INCORPORATING THE REVENUE ACCOUNT)
Year ended
Unaudited Unaudited 31 December
6 months ended 30 June 2007 6 months ended 30 June 2006 2006
Revenue Capital Total Revenue Capital Total Total
£ £ £ £ £ £ £
Profits on
investments - 295,354 295,354 - 178,417 178,417 708,480
Income 56,010 - 56,010 45,165 - 45,165 95,615
Investment
Management
expenses (4,776) (14,150) (18,926) (4,015) (11,787) (15,802) (32,380)
Other expenses (24,314) - (24,314) (17,352) - (17,352) (35,355)
------- ------- ------- ------- ------- ------- -------
Return on ordinary
activities
before
taxation 26,920 281,204 308,124 23,798 166,630 190,428 736,360
Taxation 7,723 (48,722) (40,999) 6,537 (29,002) (22,465) (114,164)
------- ------- ------- ------- ------- ------- -------
Return on ordinary
activities
after taxation 34,643 232,482 267,125 30,335 137,628 167,963 622,196
======= ======= ======= ======= ======= ======= =======
Dividends Paid:
Dividend (58,591) - (58,591) (45,070) - (45,070) (45,070)
------- ------- ------- ------- ------- ------- -------
(23,948) 232,482 208,534 (14,735) 137,628 122,893 577,126
======= ======= ======= ======= ======= ======= =======
Return per
ordinary share 1.9p 12.9p 14.8p 1.7p 7.6p 9.3p 34.5p
Athelney Trust plc
INTERIM BALANCE SHEET AS AT 30 JUNE 2007
Unaudited Unaudited 31 December
30 June 2007 30 June 2006 2006
£ £ £
Fixed assets
Investments 3,991,243 3,180,278 3,706,392
--------- --------- ---------
Current assets
Debtors 80,367 103,536 105,603
Cash at bank and in hand 22,153 30,007 32,486
--------- --------- ---------
102,520 133,543 138,089
Creditors: amounts falling due
within one year (103,321) (40,826) (50,797)
--------- --------- ---------
Net current assets (801) 92,717 87,292
--------- --------- ---------
Total assets less current
liabilities 3,990,442 3,272,995 3,793,684
Provisions for liabilities and
charges (361,757) (307,934) (374,390)
--------- --------- ---------
Net assets 3,628,685 2,965,061 3,419,294
========= ========= =========
Capital and reserves
Called up share capital 450,700 450,700 450,700
Share premium account 405,605 405,605 405,605
Other reserves (non distributable)
Capital reserve - realised 985,293 590,450 719,086
Capital reserve - unrealised 1,690,531 1,427,789 1,723,399
Revenue reserve 96,556 90,517 120,504
--------- --------- ---------
Shareholders' funds - all
equity 3,628,685 2,965,061 3,419,294
========= ========= =========
Net Asset Value per share 201.3p 164.5p 189.7p
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.
There have been no recognised gains or losses, other than the results for the
financial years shown above.
Athelney Trust plc
CASHFLOW STATEMENT FOR THE SIX MONTHS ENDING 30 JUNE 2007
Unaudited Unaudited Year ended
6 months ended 6 months ended 31 December
30 June 2007 30 June 2006 2006
£ £ £ £ £
Net cash (outflow) / inflow from
operating activities 37,755 60,642 68,111
Servicing of finance
Dividends paid (58,591) (45,070) (45,070)
-------- -------- ---------
Net cash (outflow)
from servicing (58,591) (45,070) (45,070)
of finance
Taxation
Corporation tax paid - - (18,613)
Investing activities
Purchases of
investments (577,437) (433,030) (1,103,978)
Sales of investments 587,940 407,417 1,091,988
-------- -------- ---------
Net cash inflow / (outflow) from
Investing activities 10,503 (25,613) (11,990)
-------- -------- ---------
-------- -------- ---------
(Decrease) in cash in
the year (10,333) (10,041) (7,562)
======== ======== =========
Reconciliation of operating net revenue to
net cash (outflow) / inflow from operating activities £ £ £
Revenue return on
ordinary activities
before taxation 26,920 23,798 52,044
(Increase) in debtors 25,235 41,574 39,506
(Decrease)/ increase
in creditors (250) 7,057 725
Management expenses
charged to capital (14,150) (11,787) (24,164)
-------- -------- ---------
37,755 60,642 68,111
======== ======== =========
Notes:
1. The figures included in the above statement are an abridged version of
Athelney's unaudited results for the six months ended 30 June 2007 and do not
constitute statutory accounts within the meaning of Section 240 of the Companies
Act 1985, as amended.
2. The calculation for the return per ordinary share is based on the
return on ordinary activities after taxation shown below and on the average
weighted number of shares in issue during the period of 1,802,802 (2006:
1,802,802 ).
2007 2006
Revenue Capital Total Revenue Capital Total
£ £ £ £ £ £
34,643 232,482 267,125 30,335 137,628 167,963
3. Copies of this announcement are available, free of charge, for a period
of one month from Athelney's Nominated Advisor:
Noble & Company Limited, 76 George Street, Edinburgh, EH2 3BU
Copies of the Interim Accounts will be posted to shareholders on 31 August 2007.
30 August 2007
END
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