Athelney trust PLC

Legal Entity Identifier:

213800ON67TJC7F4DLO5

24 July 2025

Half Yearly Financial Report for the Period ended 30 June 2025

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.

Chair's Statement

Dear Shareholder

I am pleased to present the Interim Financial Report for your company Athelney Trust plc, for the half year to 30 June 2025.

Period Highlights

At 30 June 2025:

• Unaudited Net Asset Value (NAV) has increased to 187.2p, (plus 0.6%) over the six month period

•The share price at 30 June was 165p compared to 175p on 31 December 2024

•The discount to NAV had increased to 11.9% from 5.9% at 31 December 2024 compared to a sub sector average of 11.3% (for UK Smaller Companies sector of the AIC)

•The Company ranked third out of 21 investment trusts with a yield of 5.94% in the AIC's comparison for the UK Smaller Companies' segment

• NAV total return in the six month period was 8.7p (calculated as the change in net asset value during the half year, including dividend paid)

•Gross revenue increased by 41.1% against the comparative period last year, to £133,835 (30 Jun 2024: £94,816)

 •Revenue return per ordinary share was 5.5p (31 Dec 2024: 7.4p, 30 Jun 2024: 3.0p)

•A final dividend of 7.6p was paid in April 2025 (April 2024: 7.6p) and an interim dividend of 2.3p was paid in September 2024 (September 2023: 2.2p) making the total dividend paid for the financial year 9.9p (2023: 9.8p)

•The interim dividend will be 2.4p (2024: 2.3p).

Performance

The Company's investment performance over the six months to 30 June 2025 was mixed, but still comparable to the wider UK Smaller Companies sector as reported by the Association of Investment Companies. While some challenges persisted, the portfolio navigated a volatile but improving economic environment with resilience.

Despite some underperformance in specific holdings, the broader portfolio benefitted from recovering investor sentiment towards UK small and mid-cap equities. This was underpinned by the improving macroeconomic environment, declining inflation, and increased corporate activity, including M&A interest in undervalued UK-listed businesses.

I am delighted that gross revenue income increased to £133,835 (up by over 41% compared to the same period last year), providing a very welcome fillip to our revenue reserves.

The Board remains encouraged by the performance of the Fund Manager in a period marked by ongoing geopolitical instability, high but easing interest rates, and cautious consumer behaviour. 

The UK economy has been relatively resilient so far in 2025, weathering volatility driven by US tariff policy announcements and slowdown fears, with some advantages resulting, including a 'sweetened' US tariff in the US-UK trade deal.  Along with the new trade deal with India, opportunities appear to be increasing, with promise of external investment from companies like Nvidia, backing the UK's investment in AI.  PMI indicators increased for the third consecutive month to 47.7 in June however companies report weak market conditions due to uncertain economic policy, geopolitical backdrops and tariffs. Jobs were cut for the eighth consecutive month, perhaps resulting from increases in National Insurance contributions announced last October.  Inflation has been decreasing but remains high, as companies passed on that NI increase to consumers. 

Political uncertainty has been higher than might be expected with a government that won such a large majority only a year ago.  The rising costs of defence, driven by a more uncertain future and obdurate wars in Ukraine and Gaza, against a backdrop of domestic price increases and costly government U-turns on winter fuel payments and disability benefit changes, mean there is next to no headroom for the Chancellor and less confidence in the Prime Minister. 

In this context, the Company's share price lost just 10p over the period, closing at 165p per ordinary share on 30 June, recovering from the trough (suffered by nearly all other UK equities) after the announcement of dramatic increases in US trade tariffs by President Trump on 2 April. There have been several US tariff flip-flops since then.

For all the above reasons, including higher interest rates leading to higher yields and strong interest in bonds, the share price discount to NAV widened to 11.9% by 30 June.   Many other Investment Trusts experienced the same headwind over the period, resulting in the average discount for the AIC UK Smaller Companies investment trust sector ending the period at 11.3%.

Dividends

As previously noted, revenue income for the first half was £133,835, larger than for the same periods over the last 4 years.

The Board has declared an interim dividend of 2.4p per share, to be paid on 26 September 2025 to shareholders on the register at the close of business on Friday 12 September 2025.  We will complete the final dividend decision in Q1 2026.

Shareholder Relations

The AGM held on 23 April 2025 included valuable engagement from shareholders during the meeting and at the informal discussions that followed. We look forward to welcoming more shareholders to the next AGM, scheduled for 15 April 2026 in London.

Outlook

The UK's outlook, according to many commentators, has contradictions: Tepid growth, persistent inflation and fiscal tightening arrayed against some compelling investment opportunities, including some undervalued equities.

UK fiscal policy and geopolitical uncertainties make it harder to forecast accurately, and we must wait for news from the Chancellor in the Autumn Budget, on whether she will raise taxes as many predict.  These factors may dampen short-term growth prospects.

"Consumer Price Inflation is expected to remain broadly at current rates throughout the remainder of the year before falling back towards target next year", the June Monetary Policy Committee notes said.  The Bank of England said this would inevitably have an impact on interest rates.  A short term increase in interest rates is expected, driven by energy price cap rises which distort headline inflation.

The Office for Budget Responsibility, the UK's official forecaster, said as a result in its latest fiscal risks and sustainability report, that the UK's public finances are in a 'relatively vulnerable position' and that 'the scale and array of risks to the UK fiscal outlook remains daunting'.

With the discount to NAV, we still believe this is a great opportunity for investors in Athelney Trust - as undervalued investments produce results and the discount unwinds in the future.

Your Board continues to monitor developments closely, consider all options to create value and is confident that the Company remains well-positioned to achieve its objectives.

Frank Ashton

Chair

24 July 2025

Other Matters

The Interim Financial Report for the six months ended 30 June 2025 comprises an Interim Management Report, in the form of the Chair's Statement and Other Matters, the Managing Director's Report, Portfolio Information and a set of Financial Statements which have not been reviewed or audited by the Company's Auditor.

The important events that have occurred during the period under review and their impact on the performance of the Company as shown in the Financial Statements is given in the Chair's Statement, the Managing Director's Report and the Notes to the Financial Statements.

Directors' Responsibility Statement

The Directors are responsible for preparing the Interim Financial Report in accordance with applicable laws and regulations. The Directors confirm that to the best of their knowledge:

·              The condensed set of Financial Statements for the six months to 30 June 2025 have been prepared in accordance with FRS 104 "Interim Financial Reporting", and gives a fair view of the assets, liabilities, financial position and profit of the Company.

·              The Interim Financial Report includes a fair review of the information required by:

a)             rule 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements and a description of the principal risks and uncertainties for the remaining six months of the year; and

b)            rule 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the financial year and that have materially affected the financial position or performance of the Company during that period; and any changes in the related party transactions described in the last Annual report that could do so.

Principal Risks and Uncertainties

The Board is responsible for the Company's system of internal control and for reviewing its effectiveness. The Board considers that the principal risks and uncertainties facing the Company, other than as set out below, remain the same as those disclosed in the Annual Report for the year ended 31 December 2024 on pages 14 and 15 and page 39. These risks include, but are not limited to, market risk, investment and strategic risk, regulatory risk, operational risk, financial risk and liquidity risk.

Global Issues

The ongoing war in Ukraine and other conflicts around the world have emerged as significant risks which have impacted global commercial activities. The board have been monitoring the development of these risks and have considered the impact they have had to date and assessed the impact they may have in the future. The Chair's Statement and Managing Director's Report cover these in more detail.

On behalf of the Board

Frank Ashton

Chair

24 July 2025

Managing Director's Report

Review of 1 January 2025 to 30 June 2025

While we're fundamentally bottom-up investors - focused on company-level execution, durable growth, and valuation discipline - we're macro-aware, not macro driven. However, over the past twelve months there has been a global reset of cultural norms which continue to affect the share price performance of a few of our portfolio holdings. As one would expect this has prompted us to consider if we have missed anything in our deliberations or if there was anything we should have done differently in our analysis? 

Our Investment Philosophy is based on the belief the economics of a business drives long-term investment returns and is evidenced through our investment process which delivers a portfolio of high-quality businesses in the growth stage of their life cycle.  However, investment returns over any period comprises two components, namely the dividends received and the movement in the value of the investment portfolio.  While the earnings and hence the dividends we are likely to receive from the companies in our portfolio respond to economic forces and are fairly easy to predict and, for the most part increase over time, the same cannot be said for the market valuation of the business. Market valuations in the short term are affected by investors responding to the context around daily news feeds and commentary on local and global economic events and how that context is nuanced. To this end, the following themes stand out:

Politics ignoring the economic outcome

President Donald Trump has taken a combative stance toward both the liberal elements of society and trade imbalances and has frequently criticized higher education institutions for what he viewed as liberal bias and inflated costs, and his administration has imposed restrictions on international student visas-particularly from China-impacting university revenues and global collaboration. On trade, Trump sought to correct what he described as longstanding unfair trade practices, especially with China by imposing tariffs on hundreds of billions of dollars in imports, aiming to reduce the U.S. trade deficit and bring manufacturing jobs back to the country. These actions and those of other government officials significantly reshaped the landscape of international trade and challenged the global flow of goods and academic exchange and in the case of tertiary education, decimated a major sector of the global economy.

AI Hype vs. AI Impact

In AI we're seeing a major bifurcation. Some companies are chasing AI because they feel they have to - others are quietly embedding it into workflows in ways that genuinely improve productivity or margin structure. We're excited about what some of our portfolio companies are doing on the latter. For example, we hold firms in fintech and logistics tech where AI isn't a headline, it's already driving lower cost-to-serve, more productive client solutions, and in the mid-term can drive material margin benefits.

While we don't build portfolios around macro narratives; we use them to stress-test theses. It's not about making top-down calls - it's about ensuring the growth we're underwriting is resilient in multiple environments.

The End of "Easy Money" Is Forcing Real Differentiation

We're through the phase where capital was cheap and indiscriminately allocated. What's emerging is a market that rewards real earnings power, sustainable unit economics, and operational leverage, all of which are positive tail-winds for us.

Performance, Positioning & Outlook

While the UK stock market performed positively over the past six months as shown in the table below, this varied materially from sector to sector with some negatively affected by ongoing global macro-economic themes while others benefit from improving economic fundamentals and a market rerating. Inflation for the most part has declined in response to higher interest rates and central banks are leaning towards continuing to ease them over the coming months.  In spite of the political turmoil on the global stage, the broad stock market improved by 4.87% during the period under review. During the same period, the portfolio increased by 7.26% and, after providing for all expenses and the payment of a dividend of 7.6p in April, the NAV of our portfolio increased by 0.59% as shown in the table below.