Athelney Trust PLC

Half Yearly Financial Report for the Period ended 30 June 2021

Athelney Trust PLC (LSE: ATY) is a company making investments in the equity securities of quoted United Kingdom companies including smaller companies.

Investment Objective

The investment objective of the Trust is to provide long-term growth in dividends and capital, with the risks inherent in small cap investment minimised through a spread of holdings in quality small cap companies that operate in various industries and sectors. The Fund Manager also considers that it is important to maintain a progressive dividend record.

Investment Policy

The assets of the Trust are allocated predominantly to companies with either a full listing on the London Stock Exchange or a trading facility on AIM or AQSE. The assets of the Trust have been allocated in two main ways: first, to the shares of those companies which have grown steadily over the years in terms of profits and dividends but, despite this progress are undervalued by the market when compared to future earnings and dividends; second, those companies whose shares are undervalued by the market when compared with the value of land, buildings, other assets or cash on their balance sheet.

Chairman's Statement

Dear Shareholder

I am pleased to present the Interim Financial Report for the half year to 30 June 2021.

Period Highlights

· Unaudited Net Asset Value (NAV) increased by 8.8% to 277.8p and this improvement lagged the FTSE 250 by just 0.4%

· The Trust now heads the AIC's 'Next Generation of Dividend Heroes' table published each March – with a yield at that time of 4.8% after 18 years of dividend growth

· Total return to shareholders increased by 11.8%.  This is calculated as the change in net asset value (NAV) during the half year including dividend paid

· Gross revenue has increased to £82,309 an increase of 56% compared to the same period last year (£52,578)

· Revenue return per ordinary share was 3p (31 Dec ember 2020: 5.9p, 30 Jun 2020:  1.7p)

· An interim dividend of 1.7p was paid in September 2020 and a final dividend of 7.7p was paid in April 2021 making the total dividend 9.4p (2020: 9.3p)

· Our interim dividend will be 2.0p.

Performance

I am pleased to report your Company has produced very strong comparable investment performance with more than twice the percentage increase of the FTSE 250 index in the past three months.

The NAV return for the half year period was 8.81% compared to 9.21% for the FTSE 250 Index, a lag of just 0.4 percentage points.  Further information on portfolio activity and the drivers behind recent performance and six months of contrasting quarters, is contained in the Managing Director's Report below.  We have a great deal of confidence in Manny Pohl as he leads investment decisions, particularly in such unusual and challenging times;  I would like to thank him personally for his attention to detail, application of clear and beneficial process and commitment to a disciplined approach over the past 18 months:  All shareholders benefit, I hope you agree.

I am very encouraged to see the share price recover to 250p and the discount to NAV narrow to 10.0% (NAV at 277.8p) as the half year concludes.  Most investment trusts this time last year were running at deep discounts and our small fund, at -27.4% was no exception.  As we look back over the past 12 months, it has been quite a journey as COVID-19 laid waste to plans from the small, for example family level, to the large at country level.  Unfortunately the journey still continues as we try to discern what changes are temporary and which are permanent, as we assess the depth of economic scarring, all against a background of continuing, uncertainty as Delta and other variants threaten the rate of recovery.

We now have a concentrated portfolio reflecting conviction, subject to process for both investment and divestment, that is delivering consistent performance for the investor wishing to reduce risk over the long term. Investment in this company means you benefit from closed-end status and our dividend policy, which has marked us out in an 18 month period when many others have faltered.

Dividends

According to Link Group, the pandemic accounted for a 41.6% drop in UK dividend payouts (£44.8bn from Q2 2020 to Q1 2021) as two thirds of companies reduced or pulled their dividends.  Banking dividends are returning, albeit at low levels and oil and gas companies are also showing signs of increasing payouts.

As a result we are seeing a very welcome increase in our Company's dividend revenue of 56.6% to £82,309 in this period, compared to last year.  Link Group expects underlying dividends to rise 5.6% for the year. We would rather see slow, steady progress in the current direction for UK dividends than more volatility and uncertainty.

Your board is delighted that the Company topped the AIC's 'Next Generation Heroes' table published each year in March with dividend yield of 4.81% as we extended the run of consecutive years of dividend growth to eighteen.  To provide more context, eight trusts lost their place in that table since March 2020, as they maintained or cut their dividend.

Your board has decided to pay an interim dividend of 2.0p; we will pay this on 24 September 2021 to all shareholders on the register of members at close of business on 10 September 2021.

We will review the case for a final dividend in Q1 2022, and subject to shareholder approval, pay any final dividend on 13 April 2022 to all shareholders on the register at 11 March 2022.

Shareholder Relations

The Board held the AGM on 30 March 2021 in Yorkshire, in order to safeguard the health of its shareholders, officers and service providers. It intends to hold the AGM for the current financial year in London on 5 April 2022.

Outlook

Just five months ago I wrote in our Annual Report that there may be pent-up enthusiasm from shoppers and a possible spending spree might lead to upside risk and inflationary pressures.  Given the unbalancing effect that COVID-19 has had on supply and demand, with a very variable impact by sector and sub-sector, inflation is now being forecast to rise to a peak between 3% and 4%.  Members of the Bank of England's Monetary Policy Committee (MPC) still differ on how temporary this will be or to be more precise, how quickly we may return to a more normal condition at or below the 2% target for CPI. 

Other areas of life, including the amount of time spent working from the office, the use of online versus store-based shopping, seem unlikely ever to return to the pre-Covid normal.  Several false dawns have passed on travel, whether locally or internationally for  business or pleasure and it still seems likely to be a long time before the world's population approaches vaccination-based protection that allows more normal free movement.

Even as we are about to move to Step 4 and release restrictions in England, it still does not feel like a return to normal.  Despite nearly 90% of the UK population being vaccinated with at least one dose and over 60% with both doses, there are still enough concerns within government to have delayed the release by a month and now also to issue guidance for each of us to continue to be cautious as cases are high and rising, driven by the Delta variant.  Disruption from being required to isolate by the NHS Test and Trace app seems to be higher than at any other time in the past 12 months, including for schoolchildren and workplaces.  Some businesses struggle to stay open and others run restricted services, especially in the leisure/restaurant industry, where supply of labour, which used to be bolstered by EU workers is now outstripped by demand.  Here also a new normal will need to be created.

Supply and demand as a general topic is much in the news lately.  Globally, there are still examples of supply chain problems, in particular in microchip manufacture (tin supplies), steel production (Chinese steel mills increased production, but iron ore supply problems exist in Australia and Brazil leading to record high prices), and also shipping (some evidence of retail majors bringing forward shipping of Christmas stocks to the UK, to reduce risk).  More locally, Brexit teething problems continue and at least one member of the MPC believes there may be little spare capacity in the UK economy.

In summary, consumer and business confidence still seem fragile, and imbalances or bottlenecks in the supply-demand equation can soon lead to a drag on growth and problems with productivity or the rate of return to normal employment levels.

However we do know that in the face of uncertainty and also growth opportunities which are definitely on the rise, better management teams, with access to funds for development will be well placed. 

The review process conducted by Manny Pohl and his team ensures both the potential for growth (e.g. competitive advantage) and the conditions for growth (e.g. quality balance sheet and management team) are evident in investee companies, and ultimately will provide comparative advantage to Athelney shareholders. 

We each continue to have our lives impacted directly or indirectly by the virus, and this will be the case for some time to come.  I wish you patience and stamina in completing the journey and look forward to the AGM next year when we might, I hope, be able to meet in person once more.