Athelney Trust PLC
NON- STATUTORY ACCOUNTS
Athelney Trust plc, the investor in small companies and junior markets
announces its final results for the 12 months ended 31 December 2021.
The financial information set out below does not constitute the Company's
statutory accounts for the years ended 31 December 2021 and 2020 but is
derived from those accounts. Statutory accounts for 2020 have been delivered
to the Registrar of Companies, and those for 2021 will be delivered in due
course. The auditors have reported on those accounts; their report was (i)
unqualified, (ii) did not include a reference to any matters to which the
auditors drew attention by way of emphasis without qualifying their report
and (iii) did not contain a statement under Section 498 (2) or (3) of the
Companies Act 2006. The text of the Auditor's report can be found in the
Company's full Annual Report and Accounts on the Company website:
www.athelneytrust.co.uk
Chairman's Statement and Business Review
Dear Shareholder
I am pleased to present the Annual Financial Report for the year to 31
December 2021.
The Strategic Report section of this Annual Report has been prepared to help
all Shareholders understand the drivers of performance in the past year, how
the Company operates and to assess its performance.
Overview
Athelney Trust plc (the 'Company' or 'Trust') experienced a year of different
conditions to 2020 as the global pandemic transitions little by little to an
endemic and economies deal more with the results of disruption rather than
just the health crisis itself.
Your company performed extremely well in this context, and the key performance
points are as follows:
- At 31 December 2021, audited Net Asset Value (NAV) was 310.3p per share (2020: 255.3p), an increase of 21.5% over the year as compared to a 14.6% increase in the FTSE 250 and a 14.3% increase in the FTSE 100.
- The Trust's investment performance over 12 months as measured by NA
- total return, which is the change in NAV plus the dividend paid, was 25.2% (2020: -0.22%).
- The 12-month revenue return per ordinary share was 7.0p (2020: 5.9p), an increase of 18.6%.
- The interim dividend of 2.0p per share was paid on 24 September 2021.
- Your Board recommends a final dividend of 7.5p per share increasing a total dividend payable for the year to 9.5p (2020: 9.4p) an increase of 1.1%. UK inflation for 2021 was 4.8% (Office for National Statistics)
- This is the 19th successive year of progressive dividend and importantly returns the Trust to a high position in the dividend yield league table for Investment Companies. It also keeps us in the Next Generation of Dividend Heroes list maintained by the AIC.
Board and Governance
The Board places significant importance on corporate governance and compliance
with the AIC and UK Corporate Governance Codes. Full details are set out in
the Corporate Governance section on pages 15 to 18.
An Independent Board
The Directors in place at the time of signing these accounts are:
Myself, Frank Ashton – Non-Executive Chairman
Simon Moore – Non-Executive Director, Chair of Audit Committee, Chair
of Remuneration Committee
Dr Manny Pohl – Managing Director, Fund Manager
We currently have three directors who together make up an independent Board
under the AIC Code of Governance 2021.
Capital Gains
During the year the Company realised capital profits before expenses arising
on the sale of investments in the sum of £354,843 (2020: £223,957).
Portfolio Review
Additional Holdings Purchased
Additional holdings of Abcam, Clinigen, Fevertree, JD Sports, LXI REIT,
Rightmove, Target Healthcare and Treatt were acquired.
Holdings Sold or Trimmed
AEW UK, Belvoir Group, Churchill China, Games Workshop, Liontrust Asset
Management, Mountview Estates and National Grid
Dividend
During the year the Company paid an interim dividend of 2.0p on 24 September
2021.
The Board recommends a final dividend of 7.5p per ordinary share making an
increased dividend this year of 9.5p (2020: 9.4p). Subject to shareholder
approval at the Annual General Meeting on 5 April 2022, the dividend will be
paid on 13 April 2022 to shareholders on the register on 11 March 2022.
Review
Geo-political uncertainties grew during 2021, from more extremely polarised US
politics and questions on that country's future role in conflict areas, to the
end-game for Taiwan and Ukraine. Who can forget the mob scenes at the US
Capitol or the chaos at Kabul airport as the rapid withdrawal from Afghanistan
unfolded? It seems in retrospect that 2021 will be seen by history as a major
year of change and development as the usual suspects reposition on the world
stage
Economies recovered, some faster than expected, thanks to the remarkably rapid
vaccination development and deployment. Shortages of a wide variety of
products occurred as supply struggled to keep pace with demand. We dined out
less, but bought more goods leading to container port blockages for example.
Common items such as microchips were in such short supply that delivery on a
wide range of items – from cars to handheld tablets – were delayed. Apple,
which navigated the shortages better than others, estimated the impact to be a
loss of $6 billion to 2021 sales. The IMF estimates that globally 1% of 2021
GDP was lost as a result, however stock markets reached record highs.
A year on from Brexit it is hard to quantify and isolate the impact from that
of COVID, however most agree that so far it has been negative: The UK's GDP
continues to under-perform the Euro zone which may be partly due to a loss of
EU nationals previously employed in the UK, increased controls at the border
reducing trade, and the long term effects of the uncertainty created by the
referendum result in 2016. The next few years need to produce clearer
benefits to evidence a net gain; in the meantime UK stocks continue to be
under-valued as investors prefer alternatives and continue to present us, your
company with investment opportunities.
The impact of the new Omicron variant added to the list of uncertainties in
the last quarter of 2021 including how much more interventionist European
governments will become, for example on mandating vaccinations or on when and
how quickly the 'free money' and easy lending from central bank intervention
will end, or monetary policy tightens to combat rising interest rates.
I am delighted therefore to report that your company's NAV outperformed both
the FTSE 100 and 250 markets over the year by 7.2 and 6.9 percentage points
respectively. We are seeing the benefit that Manny Pohl brings in the three
years since he became fund manager with greater conviction, focus and
efficiency resulting in a smaller portfolio that is outperforming
comparators. The Board is very grateful for his concentrated efforts to
identify the right investments and timing to invest or divest, and to continue
to provide returns for shareholders against the backdrop of greater than usual
uncertainties.
As 2021 drew to a close, Apple continued its relentless rise, tripling its
share price since early 2020 when Covid first struck. On the first day of
trading in 2022, it became the first company to realise $3 trillion market
capitalisation, reflecting the importance of technology for work, education,
entertainment and staying connected.
In the wider market a concerted lift to global markets began in April,
benefiting stocks to cryptocurrencies, with a rush into US equities by retail
investors at the heart of that lift. All three major US indices set record
highs in October. As the Federal Reserve retreated from its stimulus program,
however, the bubble burst for Spacs and cryptos, the newest, frothiest assets.
By the end of the year some assets had lost a third to one half of their value
in just over a month
Meanwhile your company continues to invest for the long term in the UK market
which has de-rated strongly since 2016 and is now trading at the lowest price
to earnings level against global peers for 30 years: Its value is attractive
on a relative and absolute basis. The UK market continues to offer the
highest dividend yield globally, with high levels of dividend cover.
In the UK, expectations were that dividends would grow just 8% in 2021, best
case (Link Group), however actual underlying growth (excluding special
dividends) was much better at nearly 22% with most sectors contributing,
especially banking (restoring distributions) and industrials. Mid-caps
(+40.1%) rebounded and grew faster than the top 100 on an underlying basis.
Dividend growth amongst smaller companies was faster still and this is one of
the reasons we focus on small companies; resilience from the right companies
and their management team in times of adversity. However despite this growth,
mid-cap dividends only ended the year at the same level as 2007/2008. The
headlines were taken in 2021 by mining companies delivering a record £16.9bn
of special dividends, three quarters of this from Rio Tinto and BHP alone.
Your company's revenue return improved by 19% to 7p per share (2020: 5.9p)
still below the 9.1p of 2019. NAV total return was a very healthy 25.2%
(2020: -0.2%) improving on the pre-Covid figure of 22.2%.
Against this backdrop I am pleased to tell you that your Board recommends a
final dividend payment of 7.5p (total 9.5p). This reflects the better
performance and total return for the year, subject to approval at the AGM. At
a share price of 310p on 31 December, this represents a dividend yield of
3.1%, better than the average 2021 yield from FTSE 250 companies of 1.91% (and
comparable to the FTSE All-Share yield of 3.07%).
Non-executive Director's fees remain at £10,500 each and your board continues
to exercise a tight grip on costs. Our ongoing charges figure has fallen
again, from 2.45% last year to 2.38%. Your board understands that while we
remain a small fund, reducing this will continue to be a challenge, however
every effort is made to do this, while maintaining appropriate attention on
controls and governance.
Outlook
There are a number of ongoing uncertainties that may slow the return to
foreign investment in UK stocks, starting with the obvious potential for
another Covid variant prolonging the progress towards endemicity. Being able
to 'live with the virus' depends on social norms for what is 'acceptable', the
possible occurrence of a more severe variant and the effectiveness of global
vaccinations.
Secondly the risk of conflict or at least lower levels of cooperation and
trade between major nations is higher at the moment, in the case of Russia,
Ukraine and NATO countries, and also between China, Taiwan and America.
Globalisation and trade between major countries and regions means that local
shocks now have a much larger impact on national economies and in some cases
global outlook than perhaps ever before.
Covid has not encouraged the wider country-country cooperation or action that
was hoped; in fact we see more of the opposite as politicians act 'in the
national interest', and countries have to look after themselves.
Thirdly there will be unrest as we experience an uncomfortable financial
squeeze. Interest rates will rise to combat inflation. In the case of the
Fed, which many commentators feel has lost its direction in this matter and
dithered too long, it appears likely there will be an abrupt tightening in
response to 7% inflation and a 5% increase in wages and salaries in America
over 2021. Globally, inflation is running at 6% and here in Europe, central
banks are preparing the markets for two or more interest rate rises in 2022.
In the short term, the UK is going to see a rapid rise in household bills,
mostly driven by huge energy price rises; this has already resulted in calls
from the Governor of the Bank of England for wage restraint to avoid
entrenchment of inflation longer term. To make the challenge bigger, the jobs
market is “extraordinarily tight” according to Governor Andrew Bailey.
At the same time, uncertainty grows for Boris Johnson's premiership, as
'Partygate' gains momentum with a possible fixed penalty notice for him and
senior No 10 staff a possible result. This would certainly trigger a
no-confidence vote by his Tory MPs and a damaging pause to any possible
progress after Brexit while a new leader is selected. All await the outcome
of the Metropolitan Police investigations and the Sue Grey report.
Together these elements raise concern: History tells us the fight against
inflation normally results in a recession and short term, the UK
is apparently short of governmental leadership that inspires trust and
confidence through challenging times.
In the UK, record mining special dividends of 2021 are likely to not be
repeated in 2022. However B&M and Next already have distributed such dividends
to provide a catch-up and to reflect extra revenue from lockdown, online
pent-up demand and little competition for the wallet from international
travel. There is also some optimism that underlying dividends for the top 100
will grow by about 5% overall this year (Link Group): This is likely to be a
stronger number for smaller companies than for the Top 100.
Good companies at fair prices are still overlooked by house analysts. Those
with commitment to a proven system, prepared to analyse fully and act on
conviction, will come out on top in the long run. Our Managing Director and
Fund Manager has many years' experience relevant to operating successfully in
the conditions of 2021 – this continues to bode well for your Trust as we
recently passed his 3 year anniversary in taking on the Fund Management role.
Our AGM in 2021 was again held virtually, with no shareholders present, as
movement restrictions and the safety of our investors and colleagues were
uppermost in our minds. We plan to hold a meeting in person for the AGM this
year on 5 April 2022 at 12.00 noon. Shareholder engagement and opinion is very
important to us, so there are plans in place to give you the opportunity to
engage with the Board. Details of the proposed AGM can be found in the
separate Notice to the AGM publication.
Manny Pohl, as Fund Manager, will provide a short presentation on his
investment approach for all attendees of the AGM.
I and my colleagues on the board look forward to the chance of meeting you in
person once more. We wish you well in the meantime.
Frank Ashton
Non-Executive Chairman
23 February 2022