Company Announcements

Annual Financial Report

Source: RNS
RNS Number : 1490B
Value and Income Trust plc
05 June 2019
 

VALUE AND INCOME TRUST PLC

ANNUAL FINANCIAL REPORT

FOR THE YEAR ENDED 31 MARCH 2019

 

 

Highlights of the Year

 

·    Net Asset Value total return (with debt at par)* of 4.2% over one year and 15.3% over three years.

 

·    Share Price total return* of 0.2% over one year and 30.6% over three years.

 

·    FTSE All-Share Index total return of 6.4% over one year and 31.3% over three years.

 

·    Dividends for year up 3.5% - increased for the 32nd consecutive year.

 

 

Financial Record

 

31 March 2019

NAV (valuing debt at par) (p)

332.5

NAV (valuing debt at market) (p)*

312.2

Ordinary share price (p)

251.0

Discount of share price to NAV (valuing debt at market) (%)

19.6

Dividend per share (p)

11.80

Total assets less current liabilities (£m)

201.3

 

 

* This is an Alternative Performance Measure (APM) which has been explained in the Glossary in the Annual Report.

 

STRATEGIC REPORT

 

Chairman's Statement

 

The Board is recommending a final dividend of 3.4p per share which would make total dividends of 11.8p per share for the year to 31 March 2019 compared to 11.4p per share in the previous year, an increase of 3.5%. This would be the 32nd year of dividend increases following the reconstruction of Value and Income Trust (VIT).

 

During the course of last year we reviewed the investment aims of VIT. These were established in 1986 and have served us well as is shown by our dividend and long-term total return record.  However, the combination of equities and direct property investment is unusual for an investment trust. It has meant that the share price of VIT has tended to be at a larger discount to its Net Asset Value (NAV) per share than its peers. Our conclusion from the review was that this is still a good formula for our purpose of providing long-term real growth in our dividend and capital, but that we needed to demonstrate the reasons for confidence in our ability to achieve this.

 

A practical outcome of the review was the establishment of an annual income target for the equity portfolio. The target is for the equity portfolio to generate income in any given financial year equivalent to 115-130% of the yield on the FTSE All-Share Index as calculated on the last day of the Company's prior financial year. We believe that such a range combines a focus on strong near-term income from dividends, while allowing the Manager to select a portfolio of equities which will, in aggregate, produce steady and predictable income growth into the future. You will see from the equity report, that as a result of this renewed focus on equity income generation there has been some rearrangement of the portfolio which now has a yield of 4.8%. In the property portfolio, a recent reorganisation has led to 79% of the portfolio's rental income now being subject to RPI-linked or fixed increases.

 

These portfolio developments, alongside the repayment of your Company's relatively high-cost 11% debentures in 2021, give the Board encouragement for the outlook for longer-term income and capital growth. It is this that is behind the Board's proposal to augment this year's earnings with modest use of the Company's reserves to maintain above-inflation growth in dividends.

 

Another consequence of our review, and in line with current practice, was the retirement of Angela Lascelles and Matthew Oakeshott from the Board on 1 April 2019. Patrick Harrington and Louise Cleary have succeeded them as the lead portfolio managers, having worked closely with them in managing VIT's portfolio. We are very grateful for all that Angela and Matthew have contributed to VIT as the architects of its success. We know that they will continue to take a keen interest in the progress of VIT.

 

Over the year the NAV total return (with debt at par) was 4.2% and the share price total return was 0.2%. This compares with the FTSE All-Share Index total return of 6.4%. The total return from the equity portfolio was 5.5% and from the property portfolio was 8.0%.

 

VIT has two debentures and one bank loan which, in the Group's Financial Statements, are stated at cost, adjusted annually over their lives to write off the issue premium and issue expenses. These numbers are used to calculate the year end NAV of 332.5p per share. We also show in Note 17 to the Financial Statements a NAV of 312.16p per share which is adjusted for borrowings at fair value, being amounts greater than their respective nominal values. This fair value is calculated by reference to the market. The first of our debentures is repayable for £15,000,000 in 2021 and has a fair value of £16,966,000 whilst the second debenture is repayable for £20,000,000 in 2026 and has a fair value of £26,620,000. The bank loan of £15,000,000 is repayable in 2026 and has a fair value of £15,658,000. All these figures are shown in Note 21 to the Financial Statements.

 

It is important to note two points: first, the differences between the two values of each of our debentures and our loan will reduce until each instrument is repaid at its nominal value, thus increasing the NAV with borrowings at fair value over the period. The two debentures have covenants attached to them. Information about these is included in Note 12 to the Financial Statements; there is plenty of headroom in terms of both capital and income. Secondly, I would remind Shareholders that new Articles of Association were adopted in July 2016. These included a requirement for the Board to put an Ordinary Resolution to Shareholders in 2024 in relation to the future direction of the Company, including proposals that provide an opportunity for any Shareholders to realise their investment in full at NAV, less costs, by March 2027 at the latest. The details of this are shown in the Annual Report. 

 

As was the case last year, we remain fully invested. Both of our portfolios continue to provide good value when compared to the yields available from UK gilts.

 

Our Managers have been working on the production of a new monthly factsheet which will shortly be available on the Managers' websites at www.olim.co.uk and www.olimproperty.co.uk.

 

I hope that we shall see as many Shareholders as possible at the Annual General Meeting to be held on Friday, 5 July 2019 at 12.30pm at the offices of Shepherd & Wedderburn LLP, Condor House, 10 St. Paul's Churchyard, London EC4M 8AL. Our Managers will give a brief presentation on the investment strategy, portfolio and market outlook.

 

James Ferguson

Chairman

 

4 June 2019

 

 

INVESTMENT MANAGERS' REPORT

 

UK Equities

 

Market Background

Global equities gained ground steadily during the first six months of VIT's financial year to the end of March 2019, encouraged by widespread economic growth. As the summer progressed, trade tensions grew between President Trump and China, whilst the Federal Reserve continued to tighten monetary policy. The positive economic background outweighed these negatives and markets made good progress. In the first half of VIT's year the UK market rose by 6.0% and gave a total return of 8.2%.

 

In the second half of VIT's year stock markets were more volatile. The final three months of 2018, the third quarter of VIT's financial year, saw UK equities fall by 11.0%, as the combination of rising interest rates and the potential for a damaging trade war between the US and China began to hit economic growth expectations and undermined investor confidence. At the end of the year, the Federal Reserve indicated that it would halt its programme of monetary tightening as evidence of weakening economic growth mounted. No further interest rate rises from the current Fed Funds rate of 2.5% are now expected in 2019. Consequently, share prices have rebounded strongly since the turn of the year and have recovered much of the ground lost in the previous quarter. Over the six month period the UK stock market fell by 3.6% and gave a total return of -1.9%.

 

Over the year as a whole, the FTSE All Share Index rose marginally by 2.2% and, including income, the total return was +6.4%. The MSCI World Index, which is measured in US Dollars, also registered a small increase of 2.0%, but to sterling-based investors the capital value rose by 9.6%, as the pound weakened from $1.40 to $1.30 during the year as Brexit concerns came to the fore. Within the UK market, high yielding companies performed in line with the FTSE All Share Index, rising by 2.2%. The FTSE 100 Index of largest companies, which rose by 3.2%, outperformed the more domestically focused FTSE 250 Index of mid-sized companies and FTSE Small Cap Index, which fell by 1.8% and 2.3% respectively. In the bond market, ten year gilt yields ended VIT's year at 1.0%, down from 1.4% a year earlier and twenty year gilt yields also fell to just 1.5%. The total return on the FTSE All Stocks Gilt Index was +3.7%. Commodities reflected the general background in financial markets and were volatile over the year. The price of a barrel of oil traded between $50 and $86 but ended little changed over the year at $68. Metal prices generally fell as Chinese growth slowed but iron ore rose substantially after the dam disaster in Brazil caused a large reduction in supply.

 

Brexit has dominated the UK political scene over the last year and, at the time of writing, it is no clearer what the UK's eventual relationship with the EU will be or even if the Brexit referendum result will be implemented at all. Despite this uncertainty, the Bank of England followed the Federal Reserve's lead and increased the UK base rate by 0.25% to 0.75% in August 2018. This is the first time base rates have been above 0.5% since the financial crisis. Given the weakening economic outlook and ongoing Brexit difficulties it would be surprising if UK interest rates were increased again in the near future. The fall in sterling over the last year has not fed through to inflation; the most recent reading of the Consumer Prices Index gave an annual figure for inflation of 1.9%, just below the Bank of England's 2.0% target.

 

UK economic growth moderated to 1.4% in 2018, which was lower than in America, which grew by 2.9%, and in the Eurozone, which grew by 1.8%. Recent economic surveys suggest that Eurozone economic growth has slowed sharply with even Germany posting disappointing readings. Even though UK growth has not been especially buoyant, the Chancellor has been successful in reducing the Government deficit to the lowest level seen since the financial crisis. It is perhaps unsurprising that the UK economy has not grown rapidly given this significant fiscal squeeze and the background of rising interest rates, although much of the blame is often placed on "Brexit uncertainty". Even though the rate of UK economic growth has fallen, the UK employment market has remained buoyant. As a result, the total number of people in jobs is at record levels and the rate of unemployment in the UK has fallen below 4%, the lowest level for several decades. This is putting some upwards pressure on wage inflation and giving hard-pressed UK consumers a welcome boost.

 

Performance

Over the last twelve months the total return on VIT's equity portfolio was 5.5%, which was a little behind the FTSE All-Share Index total return of 6.4%. In overall terms stock selection was a net positive but this was more than offset by the negative asset allocation effect between sectors. In particular, the underweight positions in Mining, Pharmaceuticals and Oil & Gas Producers and overweight positions in Life Assurance and Chemicals were costly for performance, whilst the underweight positions in Tobacco (not held) and Banks were beneficial. To an extent, this reflected the portfolio's underweight position in FTSE 100 stocks and greater exposure to small and mid-cap stocks. The portfolio gains diversification benefits from being less concentrated in the largest sectors and this leads to the natural underweighting of large cap stocks. On the other hand, stock selection was positive overall with Britvic (+40% over the year after good results led to a re-rating), Cineworld (+24% as investors re-appraised the merits of its US acquisition) and the portfolio's two mining stocks Rio Tinto and BHP Group (+24% and +32% due to their exposure to iron ore) doing especially well. Disappointing performances came from Restaurant Group (-36%), Babcock International (-26%), Centrica (-20%) and Crest Nicholson (-19%). Restaurant Group has fallen as a result of the poorly received purchase of Wagamama. Although the acquisition was not cheap we feel the quality and growth prospects of the group have been enhanced by the deal and see significant value in the shares at present. Babcock International has been affected by the market's aversion to outsourcing businesses after a number of high profile collapses, whilst Centrica and Crest Nicholson have faced trading difficulties.

 

Portfolio

The year ended 31 March 2019 saw sales and purchases of equities totalling £43.49m, with net sales of £1.04m. In view of the attractive yields to be found in the market, our policy was to be as fully invested as possible in the equity portfolio throughout the year, in line with the Board's policy to receive maximum dividend income. During the year we took profits in several successful long-term holdings including Beazley, Informa, Unilever and Cineworld. We also made complete disposals of Halma, on valuation grounds, and of British Land, as the outlook for its retail property assets worsened. We also disposed of N Brown, which has struggled to shift its clothing catalogue business on-line, and Wood Group, which is grappling with its purchase of AMEC. We also reduced Restaurant Group in order to take part in the rights issue that funded its purchase of Wagamama. New holdings were started in Phoenix Group, the leading life assurance consolidator, Devro, which manufactures edible food casings, and DS Smith, a FTSE 100 packaging business. All three were offering above average dividend yields with the potential for attractive dividend growth over the medium term. We also took advantage of Brexit-related concerns to add to Marstons and to start a new holding in Lloyds Banking Group. In the media sector we switched Daily Mail & General into ITV on a higher yield. At the end of March 2019 we held investments in 35 companies with an average yield of 4.8%.

 

Outlook

The overall investment outlook remains mixed. Global economic growth is undoubtedly slowing as a result of the monetary tightening seen over the course of the last two years. The economic outlook in Europe has deteriorated the most sharply with economic surveys now suggesting that growth in the Eurozone has completely stalled and that several major European countries may well be in recession. The ECB has softened its monetary stance as a result, but to little effect. Even in the US, the rate of economic growth has tempered as the effect of the Trump tax stimulus has worn off. Deteriorating economic growth will put pressure on company profit forecasts but monetary policy has become more accommodative and this should be supportive for investment markets. In the UK the interminable Brexit process grinds on and, at the time of writing, it remains highly uncertain as to when, or indeed if, the UK will leave the European Union or what form our future relationship with the EU will take.

 

However, the valuation of the UK stock market in particular remains attractive even after the recent bounce. The market dividend yield of over 4% is rarely seen outside of recessionary periods, suggesting longer term investors will be well rewarded from current market levels. Additionally, the gap between the 10 year gilt yield of 1% and the dividend yield of 4.2% has not been wider for over 50 years. This level of yield differential, combined with expectations for another above-inflation increase in overall dividends this year, makes UK equities look exceptional value when compared to gilts. In addition, it should not be forgotten that the UK stock market provides a wide degree of international diversification and its constituents are relatively well insulated from any adverse effects of a "hard" Brexit. Furthermore, any Brexit-related devaluation of sterling would be of direct benefit to income investors as over half of the stock market's dividends are now declared in either US Dollars or Euros.

 

Patrick Harrington

OLIM Limited

 

4 June 2019

 

 

PROPERTY PORTFOLIO

 

The Market

UK commercial property delivered a total return of 5.2% over 2018 as a whole, with average capital and rental values both 1% up. This was well above the total return on UK equities and gilts and most overseas equity and bond markets. In the last quarter of 2018, property capital and rental values turned down. They have slipped further on very few transactions so far in 2019 as Brexit chaos drags on. Average property capital values rose slightly over the first three quarters, but valuers were very slow to address weakness in high street shops, shopping centres and retail warehouses, and retail property pain only started to show through in annual valuations at the end of December. The MSCI Annual Property Index, the most comprehensive measure of the performance of institutional investment property portfolios, delivered a return of 5.2%, well below the Quarterly Index returns of 6.2% and the Monthly Index Return of 7.3% over calendar 2018 as a whole. The variations between these indices stem mainly from their differential weightings in shopping centres as against industrial/warehouse property.

 

A flight to property safety is now taking off, with significant polarisation in UK property values between safe, long-let property and the rest of the market. Retail property is performing poorly almost across the board, with retail warehouses and high street shops down by around 10% over 2018, and shopping centres weaker still. Company Voluntary Arrangements (CVAs) even at profitable retail groups, have hammered values and there will be many more company failures in 2019. All these retail sectors have further to fall over 2019, with many shorter let retail properties, notably shopping centres, still overvalued by as much as a quarter. Only one retail sector is bucking the trend - supermarkets - where the high quality of income from the main operators on long, often index-linked leases, is proving attractive to investors fleeing the non-food retail storm. Even here however, over-rented and over-sized supermarkets are falling in value.

 

Office values in general edged ahead in 2018, with rental growth in the big provincial cities and a handful of trophy purchases, mainly by Far Eastern buyers, propping up the London office market despite downward pressure on rents. But Brexit uncertainty has now frightened off most overseas buyers and made even large companies take serviced office space rather than sign long leases in London. Office capital values are likely to fall overall in 2019, with London leading the decline and regional offices generally steady.

 

Warehouse/industrial property was the star performer of 2018. The structural shift from bricks and mortar to online retailing has driven up demand, both for large distribution depots near motorway junctions and smaller warehouse units for "last mile" type local deliveries. Investor demand has forced investment valuation yields for industrial/warehouse property down below retail and office yields for the first time since reliable yield records began forty years ago - and, more seriously, to a yield level even lower than at the property market peak in 2007, showing clear signs of overheating. Average industrial/warehouse yields for all except the most secure, long let properties are now therefore starting to rise, given the present uncertain economic and political outlook, so growth in industrial/warehouse values in 2019/20 will be limited to the beneficial effect of rising rents on capital values.

 

Most other types of investment property (usually called "alternatives" in the property market), such as hotels, pubs, cinemas, bowling, bingo, petrol filling stations/convenience stores and healthcare and educational property, should continue to outperform the conventional commercial investment property market over the next few years, as they did by delivering total returns typically between 8% and 10% in 2018. In these alternative sectors, unlike traditional retailing, structural change can benefit multiple operators - as in pubs, where the 39,000 pubs still trading in 2018 have revenue 6% higher in real terms and employ 6% more people than the 50,000 pubs trading in 2008, with the biggest increases in pubs with over 10 employees.

 

The twin keys to outperformance by alternative property are generally strong national operators, often building a dominant position (e.g. in cinemas, bowling, pubs and budget hotels), and long, index-linked leases signed because rent reviews have been impractical on a conventional open market basis. Investments with such leases are increasingly sought after by many institutional investors who feel underweight in these alternative sectors.

 

These contrasting trends in UK commercial property will produce a fall in average capital values - maybe of 4%-5%, offset by a similar income yield, giving a total return around zero for the MSCI Index over 2019 as a whole. Average rental values may also fall by about 4%-5% with industrials and alternatives up, and offices (slightly) and retail (well) down. Within those averages, retail property (except supermarkets) may give a double-figure negative return. Many shops and retail warehouse units are only re-lettable well below current rent levels as tenants fail, leases expire and the few strong retailers left in the market dictate their own terms to take new space or renew short leases. Most traditional shopping centres are obsolescent or already obsolete in 21st century Britain.

 

Office rents in London could also fall, if Brexit uncertainties drag on, so total returns in the office sector may average between 0-5%. Industrial/warehouse and alternative returns may average between 5% and 10%. These projections are on the basis that there is no "hard Brexit" in the sense of the UK leaving the Customs Union and European Single Market suddenly in mid-2019, with accompanying disruption to supply chains and serious labour shortages in construction, hospitality, the care sector and agriculture. In that event, risky property in more vulnerable sectors could suffer substantial falls in values, with an even faster flight to the safety offered by long leases to strong tenants.

 

The market for most types of property has been thin and sluggish so far in 2019, with most institutional buyers paralysed by indecision. Only very safe, long-let stock is trading in size, plus a few purchases by private buyers at sub-£2 million lot sizes.

 

Any forecast for the UK economy in 2019 and beyond continues to hang heavily on Brexit, which is by definition uncharted political and constitutional territory. The only clear light shining through the fog is a general acceptance that there is a substantial majority in this Parliament against the UK leaving the European Union without a negotiated settlement. But whether and when that can take effect on the terms of Brexit, or whether it is delayed or stopped altogether remained unclear at the time of writing.

 

Even if there is no hard Brexit, the UK economy may still only grow by about 1% in 2019, with a weak start and some recovery in the second half-year, after disappointing growth of around 1.4% in 2018. Business investment has fallen in each of the last seven quarters, services and consumption are flat, and manufacturing has been boosted by some short-term precautionary stock-building before 29 March which may unwind soon. Inflation is well under control at under 2% for the Consumer Price Index and around 2.5% for the Retail Price Index. Sterling's post-Referendum fall has now dropped out of the annual figures, bringing the annual RPI rate down from 4%, and the CPI from 3% in December 2017. Average earnings are now therefore growing again faster than prices, and the National Minimum Wage has just risen by 4.9% to £8.21 an hour. But retail spending is still under pressure as consumers have stopped running up debt, especially for big ticket purchases, and remain generally cautious. Short-term interest rates are unlikely to rise further for some time, and long-term rates have fallen further, with the 10-year gilt yield touching 1.0%, despite the danger of a high-spending, left-wing Labour government.

 

After a generally benign world economic background in 2018, the outlook for growth in most developed economies is deteriorating, and the IMF has again cut its forecast for world economic growth in 2019 to 3.3%. Political turmoil in the United States and trade wars with China, together with instability in Italy and to a lesser extent, France and Germany, suggest the risks to that forecast are on the downside.

 

Despite Brexit uncertainty, and the challenges in retail property in particular, UK commercial property now offers a comfortable yield cushion of 4.3 points over UK conventional gilts and 7.5 points over UK index-linked gilts, (with both yield gaps near 10-year highs). This represents excellent absolute and relative investment value for investors sticking to safe, long, preferably index-linked leases secured on strong tenants in well-specified buildings in prosperous locations. The premium institutional investors are prepared to pay for that security against average or riskier commercial property has been growing since the Referendum in 2016 and will grow further and faster in 2019 as open market rental growth evaporates. Meanwhile the outlook for risky property in general, and retail property in particular, is poor and getting worse.

 

The Portfolio

VIT's property portfolio produced a total return of 8.0% over the year to March, against 5.5% for the MSCI (formerly IPD) Index, the main benchmark for commercial property performance. VIT's property record is shown in the property section of the Investment Managers' report.

 

We specialise in properties with long, strong, preferably index-related, income streams to deliver outstanding long-term real returns. The total returns on our property portfolio have been between 11% and 13% a year over the past 3, 5, 10, 20 and 32 years and are above the MSCI averages over all these periods. The real returns above the RPI from VIT's property portfolio were 6% last year and between 8% and 9% a year over all cumulative periods from 3 to 32 years since the inception of our management.

 

We bought three new properties over the year with RPI-linked rent reviews: an industrial/warehouse in Aylesford, Kent just off the M20, and two bingo halls in Bradford and Manchester, at a purchase price of £8.8 million and an average net initial yield on purchase of 6.6%; their average unexpired lease length was 19 years. We sold two pubs in Lancaster in view of covenant concerns as well as short-leased retail properties in Bedford, Oxford and Sevenoaks at a sale price of £10.3 million (5% above valuation) with a net initial yield of 7.3%, falling to below 6.0% on their current rental values. The property portfolio was fully invested at the year end.

 

The capital value of properties held throughout the year rose by 1.5%, rental income rose by 4.4% and rental values by 4.9%. Industrial properties, pubs and the caravan park performed best, but retail properties were down. 10 properties gained in value, 9 fell and 4 were unchanged, with 3 new purchases.

 

All properties are let on full repairing and insuring leases, with upward only rent reviews and an average unexpired lease length now over 15 years. The portfolio has been fully let and income-producing throughout the year. 38% of the rental income is reviewed annually, with 62% five yearly. 79% of the portfolio's net rental income comes from index-related leases (up from 35% seven years ago).

 

The property portfolio has been funded for many years by long term fixed rate loans - £20 million of VIT 9³⁄8% Debenture Stock repayable in 2026 and £15 million of VIT 11% Debenture Stock repayable in 2021. Because these Debenture Stocks were issued at a premium, their effective interest cost averaged 9%, against the 13% p.a. long-term return from VIT's properties. We borrowed a further £15 million in 2015-2016 at a fixed interest rate of 4.4%, including all costs, also until 2026 and invested the proceeds in properties at a net initial yield of 6.9%.

 

VIT's combined weighted cost of loan capital is thus 7.6%; this will fall sharply in two years' time when our original 11% Debenture is repaid, saving £1,650,000 in annual interest costs, almost 40% of VIT's present interest payable.

 

Results of Independent Revaluation

The VIT property portfolio was subject to an independent professional revaluation at 31 March 2019 by Savills. The revaluation showed a value of £68,800,000. Our properties are revalued every six months, at 30 September and 31 March. Twenty-four of the properties valued at 31 March 2019 are freehold and two are long leasehold with 86 and 39 years to run respectively.

 

Louise Cleary

OLIM Property Limited

 

4 June 2019

 

 

BUSINESS REVIEW

 

This Business Review is intended to provide an overview of the strategy and business model of the Company as well as the key measures used by the Directors in overseeing its management. The Company is an investment trust company which invests in accordance with the investment aims and investment policy below.

The Group

Value and Income Services Limited (VIS), a wholly owned subsidiary of the Company, is authorised by the Financial Conduct Authority to act as the Company's Alternative Investment Fund Manager (AIFM).

 

Investment Aims

The Company invests in higher yielding, less fashionable areas of the UK commercial property and quoted equity markets, particularly in medium and smaller sized companies. The Company aims to achieve long-term real growth in dividends and capital value without undue risk.

 

Investment Policy

The Company's policy is to invest in quoted UK equities, UK commercial property and cash or near cash securities. It is not normally the Company's policy to invest in overseas shares or in unquoted companies. UK equities usually account for between half and three-quarters of the total portfolio and property for a quarter to a half but the asset allocation may go outside these ranges if relative market levels and investment value, or a desired increase in cash or near cash securities, make it appropriate.

 

The Company focuses on the fundamental values and incomes of businesses in which it invests - their profitability, cash flows, balance sheets, management and products or services - and the location, tenants and leases of its property investments. The equity portfolio has generally yielded more than the FTSE All-Share Index. The Group has held between 30 and 40 individual shareholdings and between 20 and 30 individual properties in recent years. These ranges may change as market conditions or the size of each portfolio vary in future. In order to limit the risk to the equity portfolio that is derived from any particular investment, no individual shareholding will account for more than 10% of the equity portfolio at the time of purchase.

The Company has, since 1986, had a longstanding policy of increasing its exposure to equities and to property through the judicious use of borrowings. Until 2015, all borrowings have been long-term debentures to provide secure long-term funding, avoiding the risks associated with short-term funding of having to sell illiquid assets at a low point in markets if loans have to be repaid. On 26 February 2015, a five year secured term loan facility of £5m was arranged with Santander UK plc at a five year fixed interest rate of 4% p.a. including all costs. This loan was refinanced on 13 May 2016 and a new ten year secured term loan facility of £15m was arranged with Santander UK plc at a ten year interest rate of 4.4% p.a. including all costs to replace the original £5m loan arranged in February 2015.

Gearing has varied between 25% and 40% of the total portfolio. The Company will not raise new borrowings if total net borrowings would then represent more than 50% of the total assets.

No material changes may be made to the Company's investment policy described above without the prior approval of Shareholders by the passing of an Ordinary Resolution. In the year to 31 March 2019, no material changes were made to the Company's investment policy.

Performance, Results and Dividend

The first quarterly dividend for the year to 31 March 2019 of 2.8p per share was paid on 26 October 2018, the second quarterly dividend of 2.8p per share was paid on 25 January 2019 and the third quarterly dividend of 2.8p per share was paid on 26 April 2019.

A review of the performance of the equity and property portfolios is detailed in the Chairman's Statement and in the Investment Managers' Reports. The Directors recommend that a final dividend of 3.4p per Ordinary Share (2018: 3.3p) is paid on 26 July 2019 to Shareholders on the register on 28 June 2019. The ex-dividend date is 27 June 2019.

The table in the Business Review shows the revenue reserve position and dividends paid and payable by the Company, subject to Shareholder approval of the proposed final dividend at the forthcoming Annual General Meeting.

Principal Risks and Uncertainties

The Board carries out a regular review and robust assessment of the principal risks facing the Group including those that would threaten its business model, future performance, solvency or liquidity. The principal risks and uncertainties which affect the Group's business are:

Market risk

The fair value of, or future cash flows from, a financial instrument held by the Group may fluctuate because of changes in market prices. This market risk comprises three elements - price risk, interest rate risk and currency risk.

Price risk

Changes in market prices (other than those arising from interest rate or currency risk) may affect the value of the Group's investments.

It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular sector. For equities, asset allocation and stock selection, as set out in the Investment Policy, both act to reduce market risk. VIS delegates its portfolio management responsibilities to the Investment Managers, OLIM Limited (OLIM) and OLIM Property Limited (OLIM Property) (collectively, the Investment Managers) who actively monitor market prices throughout the year and report to VIS and to the Board, which meet regularly in order to review investment strategy. The equity investments held by the Group are listed on the London Stock Exchange. All investment properties held by the Group are commercial properties located in the UK with long, strong income streams.

Interest rate risk

Interest rate movements may affect:

-    the fair value of the investments in property; and

-    the level of income receivable on cash deposits.

The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions.

The Board imposes borrowing limits to ensure that gearing levels are appropriate to market conditions and reviews these on a regular basis. Current borrowings comprise debenture stocks and the ten year secured term loan, providing secure long-term funding. It is the Board's policy to maintain a gearing level, measured on the most stringent basis of calculation after netting off cash equivalents, of between 25% and 40%.

Currency risk

A small proportion of the Group's investment portfolio is invested in securities whose fair value and dividend stream are affected by movements in foreign exchange rates. It is not the Company's policy to hedge this risk.

Liquidity risk

This is the risk that the Group will encounter difficulty in meeting obligations associated with its financial liabilities.

The Group's assets comprise readily realisable securities which can be sold to meet commitments, if required, and investment properties which, by their nature, are less readily realisable. The maturity of the Company's existing borrowings is set out in the interest rate risk profile section of Note 21 of the Financial Statements.

Credit risk

This is the failure of a counterparty to a transaction to discharge its obligations under that transaction that could result in the Group suffering a loss.

The risk is not significant and is managed as follows:

-    investment transactions are carried out with a number of brokers, whose credit standing is reviewed periodically by OLIM (which reports to VIS) and limits are set on the amount that may be due from any one broker.

-    the risk of counterparty exposure due to failed trades causing a loss to the Group is mitigated by the review of failed trade reports on a daily basis. In addition, a stock reconciliation to third party administrators' records is performed on a daily basis to ensure that discrepancies are picked up on a timely basis. VIS carries out periodic reviews of the Depositary's operations and reports its findings to the Company. This review also includes checks on the maintenance and security of investments held.

-    cash is held only with reputable banks with high quality external credit ratings which are monitored on a regular basis.

Property risk

The Group's commercial property portfolio is subject to both market and specific property risk. Since the UK commercial property market has been markedly cyclical for many years, it is prudent to expect that to continue.

The price and availability of credit, real economic growth and the constraints on the development of new property are the main influences on the property investment market.

Against that background, the specific risks to the income from the portfolio are tenants being unable to pay their rents and other charges, or leaving their properties at the end of their leases. All leases are on full repairing and insuring terms, with upward only rent reviews and the average unexpired lease length is now over 15 years (2017: 14 years). Details of the tenant and geographical spread of the portfolio are set out in the Investment Manager's Report. The long-term record of performance through the varying property cycles since 1987 is set out in the Investment Manager's Report. OLIM Property is responsible for property investment management, with surveyors, solicitors and managing agents acting on the portfolio under OLIM Property's supervision.

Political risk

Following the referendum held on 23 June 2016, the UK voted to leave the European Union (EU) and the two year period to negotiate the Withdrawal Agreement expired on 29 March 2019. The full political, economic and legal consequences are not yet known.

It is possible that investments in the UK may be more difficult to value and assess for suitability of risk, harder to buy or sell and may be subject to greater or more frequent rises and falls in value. In the longer term there is likely to be a period of uncertainty as the UK seeks to negotiate its ongoing relationship with the EU and other global trade partners. The UK's laws and regulations, including those relating to investment companies, may in future, diverge from those of the EU.

The Board regularly reviews the political situation, together with any associated changes to the economic, regulatory and legislative environment, to ensure that any risks arising are mitigated as effectively as possible.

An explanation of certain economic and financial risks and how they are managed is contained in Note 21 to the Financial Statements.

 

Additional risks and uncertainties include:

 

·    Discount volatility: The Company's shares may trade at a price which represents a discount to its underlying net asset value.

 

·    Regulatory risk: The Group operates in a complex regulatory environment and therefore faces a number of regulatory risks. A breach of Section 1158 of the Corporation Tax Act 2010 would result in the Company being subject to capital gains tax on portfolio investments. Breaches of other regulations, including but not limited to, the Companies Act 2006, the FCA Listing Rules, the FCA Disclosure, Guidance and Transparency Rules, the Market Abuse Regulation, the Foreign Account Tax Compliance Act, the Common Reporting Standard, the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation and the Second Markets in Financial Instruments Directive (MiFID II), could lead to a number of detrimental outcomes and reputational damage. Breaches of controls by service providers to the Company could also lead to reputational damage or loss. The Audit and Management Engagement Committee monitors compliance with regulations by reviewing internal control reports from the Administrator and from the Investment Managers.

 

The Alternative Investment Fund Managers Directive (AIFMD) introduced a new authorisation and supervisory regime for all managers of authorised investment funds in the EU.

 

In accordance with the requirements of the AIFMD, the Company appointed VIS as its Alternative Investment Fund Manager (AIFM) and BNP Paribas Securities Services as its Depositary. The Board has controls in place in the form of regular reporting from the AIFM and the Depositary to ensure that both are meeting their regulatory responsibilities in relation to the Company.

 

The Company must also comply with the General Data Protection Regulation (GDPR) which came into force on 25 May 2018, replacing the Data Protection Act 1998. This regulation enforces the principle of 'privacy by design and by default' and enshrines new rights for individuals, including the right to be forgotten and to data portability. The Directors have worked with the third parties that process Shareholders' personal data to ensure that their rights under the new regulation are protected.

 

The Company's privacy policy is now available to view on the Managers' websites www.olim.co.uk and www.olimproperty.co.uk.

 

Key Performance Indicators

The Directors have identified the three key performance indicators below to determine the performance of the Company:

 

·    Net asset value total return relative to the FTSE All-Share Index (total return);

 

·    Share price total return relative to the FTSE All-Share Index (total return); and

 

·    Dividend growth relative to the Retail Prices Index.

 

At each Board Meeting, the Directors consider a number of performance measures to assess the Company's success in achieving its objectives.

 

A historical record of these measures, with comparatives is shown in the Financial Highlights and Long-Term Record.

 

Statement of Compliance with Investment Policy

The Company is adhering to its stated investment policy and managing the risks arising from it. This can be seen in various tables and charts throughout the Annual Report, and from the information provided in the Chairman's Statement, and the Investment Managers' Reports.

 

Employee, Environmental and Human Rights Policy

As an investment trust company, the Company has no direct employee or environmental responsibilities, nor is it responsible for the emission of greenhouse gases. Its principal responsibility to Shareholders is to ensure that the investment portfolio is properly managed and invested. The Company has no employees and accordingly, has no requirement to report separately on employment matters.

 

Management of the investment portfolio is undertaken by the Investment Managers through members of their portfolio management teams. In light of the nature of the Company's business, there are no relevant human rights issues and, therefore, the Company does not have a human rights policy.

 

Future Strategy

The Board and the Investment Managers intend to maintain the strategic policies set out above for the year ending 31 March 2020 as it is believed that these are in the best interests of Shareholders.

 

At the Annual General Meeting of the Company held in July 2016, Shareholders approved an amendment to the Company's Articles of Association. The amended Articles now require the Board to put an Ordinary Resolution to Shareholders in 2024 in relation to the future direction of the Company, including proposals that provide an opportunity for Shareholders to realise their investment in full at Net Asset Value, less costs, by 31 March 2027 at the latest. The reason for doing this in 2024 is to give sufficient time for refinancing the debt or for selling properties as required. The Company's Viability Statement is included in the Directors' Report in the Annual Report.

 

Approval

The Business Review, and the Strategic Report as a whole, was approved by the Board of Directors and signed on its behalf by:

 

 

James Ferguson

Chairman

 

4 June 2019

 

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

 

The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations.

 

Company law requires the Directors to prepare Financial Statements for each financial year. Under that law, the Directors are required to prepare the Group Financial Statements in accordance with IFRS as adopted by the EU and Article 4 of the EU IAS Regulation and have also chosen to prepare the parent company financial statements under IFRS as adopted by the EU. The Financial Statements are required by law to give a true and fair view of the state of affairs of the Group and Company and of the net return of the Group and Company for that period. In preparing these Financial Statements, the Directors are required to:

 

•    select suitable accounting policies and then apply them consistently;

 

•    make judgements and estimates that are reasonable and prudent;

 

•    state whether applicable IFRS have been followed, subject to any material departures disclosed and explained in the Financial Statements; and

 

•    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 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. 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.

 

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations.

 

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's websites hosted by the Investment Managers. Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.

 

The Directors are also responsible for ensuring that the Annual Report and Financial Statements, taken as a whole is fair, balanced and understandable and provides the information necessary to assess the Company's position and performance, business model and strategy.

 

Directors' Responsibility Statement

Each Director confirms, to the best of his or her knowledge, that:

 

•    the Financial Statements have been prepared in accordance with the applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings as at 31 March 2019 and for the year to that date; and that

 

•    the Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

 

The Directors confirm that the Annual Report and Financial Statements taken as a whole is fair, balanced and understandable and provides the information necessary to assess the Company's position and performance, business model and strategy.

 

For and on behalf of the Board of Value and Income Trust PLC

 

James Ferguson

Chairman

 

4 June 2019

 

 

Group Statement of Comprehensive Income

For the year ended 31 March 2019

 

 

 

 

Year ended

 

Year ended

 

 

 

31 March 2019

 

31 March 2018

 

 

 

Revenue

£'000

Capital

£'000

Total

 £'000

 

Revenue

£'000

Capital

£'000

Total

 £'000

Income

 Note

 

 

 

 

 

 

 

Investment income

 

     6,215

             -

   6,215

 

    5,732

            -

   5,732

Rental income

 

     4,287

             -

   4,287

 

    4,337

            -

   4,337

Other income

 

            9

             -

          9

 

            -

            -

          -

 

 

2

   10,511

             -

  10,511

 

  10,069

            -

 10,069

Gains and losses on investments

 

 

 

 

 

 

 

 

Realised gains/(losses) on held-at-fair-value investments and investment properties

9

             -

     5,294

   5,294

 

            -

     (563)

     (563)

Unrealised losses on held-at-fair-value investments and investment properties

9

             -

  (3,600)

 (3,600)

 

            -

   (5,270)

  (5,270)

 

 

 

 

 

 

 

 

 

 

Total income

 

   10,511

     1,694

 12,205

 

  10,069

   (5,833)

   4,236

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

Investment management fees

3

   (348)

     (813)

 (1,161)

 

     (427)

     (995)

  (1,422)

Other operating expenses

4

   (781)

             -

    (781)

 

     (691)

           -

     (691)

 

 

 

 

 

 

 

 

 

 

Finance costs

5

(4,168)

             -

 (4,168)

 

  (4,168)

           -

  (4,168)

Total expenses

 

(5,297)

     (813)

 (6,110)

 

  (5,286)

     (995)

  (6,281)

 

 

 

 

 

 

 

 

 

 

Profit/(loss) before taxation

 

     5,214

        881

    6,095

 

    4,783

  (6,828)

  (2,045)

 

 

 

 

 

 

 

 

 

 

Taxation

6

     (241)

        343

      102

 

     (256)

      543

      287

Profit/(loss) attributable to equity shareholders of parent company

 

     4,973

     1,224

    6,197

 

    4,527

  (6,285)

  (1,758)

 

 

 

 

 

 

 

 

 

 

Earnings per ordinary share (pence)

7

     10.92

       2.68

   13.60

 

      9.94

  (13.80)

    (3.86)

 

The total column of this statement represents the Statement of Comprehensive Income of the Group, prepared in accordance with IFRS. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations.                                                                                               

                                                                                               

The Group does not have any other comprehensive income and so the total profit, as disclosed above, is the same as the Group's total comprehensive income. All income is attributable to the equity holders of Value and Income Trust PLC, the parent company. There are no minority interests.

 

The Notes form part of these Financial Statements.       

                       

The Board is proposing a final dividend of 3.40p per share, making a total dividend of 11.80p per share for the year ended 31 March 2019 (2018: 11.40p per share) which, if approved, will be payable on 26 July 2019 (see Note 8).                                                                                         

 

 

Company Statement of Comprehensive Income

For the year ended 31 March 2019

 

 

 

 

 Year ended

 

 Year ended

 

 

 

 31 March 2019

 

 31 March 2018

 

 

 

Revenue

£'000

Capital

£'000

Total

 £'000

 

Revenue

£'000

Capital

£'000

Total

 £'000

Income

Note

 

 

 

 

 

 

 

Investment income

 

      6,215

            -

  6,215

 

    5,732

           -

     5,732

Rental income

 

      4,287

            -

  4,287

 

    4,337

           -

     4,337

Other income

 

             9

            -

         9

 

            -

           -

             -

 

 

2

     10,511

            -

10,511

 

  10,069

           -

   10,069

Gains and losses on investments

 

 

 

 

 

 

 

 

Realised gains/(losses) on held-at-fair-value investments and investment properties

9

             -

    5,294

  5,294

 

            -

    (563)

       (563)

Unrealised losses on held-at-fair-value investments and investment properties

9

            -

 (2,970)

(2,970)

 

            -

 (4,639)

    (4,639)

 

 

 

 

 

 

 

 

 

Total income

 

     10,511

    2,324

12,835

 

  10,069

 (5,202)

     4,867

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

Investment management fees

3

     (348)

    (813)

(1,161)

 

      (427)

    (995)

    (1,422)

Other operating expenses

4

     (781)

            -

  (781)

 

      (691)

           -

       (691)

 

 

 

 

 

 

 

 

 

 

Finance costs

5

   (4,168)

            -

(4,168)

 

   (4,168)

           -

    (4,168)

Total expenses

 

   (5,297)

    (813)

(6,110)

 

   (5,286)

   (995)

    (6,281)

 

 

 

 

 

 

 

 

 

 

Profit/(loss) before taxation

 

      5,214

    1,511

  6,725

 

    4,783

 (6,197)

    (1,414)

 

 

 

 

 

 

 

 

 

 

Taxation

6

     (241)

       343

     102

 

      (256)

      543

        287

Profit/(loss) attributable to equity shareholders of parent company

 

       4,973

    1,854

  6,827

 

    4,527

 (5,654)

    (1,127)

 

 

 

 

 

 

 

 

 

 

Earnings per ordinary share (pence)

7

      10.92

      4.07

 14.99

 

      9.94

 (12.42)

      (2.48)

 

 

The total column of this statement represents the Statement of Comprehensive Income of the Company prepared in accordance with IFRS. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations.

 

The Company does not have any other comprehensive income and so the total profit, as disclosed above, is the same as the Company's total comprehensive income.                       

                                                                                               

The Notes form part of the Financial Statements.                       

 

 

Group Statement of Financial Position

As at 31 March 2019

 

 

 

 

 

As at

 

As at

 

 

 

 

31 March 2019

 

31 March 2018

 

 

 

Note

£'000

£'000

 

£'000

£'000

ASSETS

 

 

 

 

 

 

Non current assets

 

 

 

 

 

 

Investments held at fair value through profit or loss

9

 

128,706

 

 

128,925

Investment properties

9

 

68,800

 

 

68,700

 

 

 

 

 

 

 

 

 

 

 

 

 

 

197,506

 

 

197,625

Deferred tax asset

6

 

389

 

 

287

 

 

 

 

 

197,895

 

 

197,912

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

4,338

 

 

3,639

 

Receivables

10

907

 

 

711

 

 

 

 

 

 

5,245

 

 

4,350

TOTAL ASSETS

 

 

203,140

 

 

202,262

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Payables

11

 

(1,794)

 

 

(1,845)

TOTAL ASSETS LESS CURRENT LIABILITIES

 

 

201,346

 

 

200,417

 

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

Borrowings

12

 

(49,913)

 

 

(49,898)

NET ASSETS

 

 

151,433

 

 

150,519

 

 

 

 

 

 

 

 

 

EQUITY ATTRIBUTABLE TO EQUITY SHAREHOLDERS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Called up share capital

14

 

4,555

 

 

4,555

Share premium

15

 

18,446

 

 

18,446

Retained earnings

16

 

128,432

 

 

127,518

TOTAL EQUITY

 

 

151,433

 

 

150,519

 

 

 

 

 

 

 

 

 

Net Asset Value per ordinary share (pence)

17

 

332.45

 

 

330.45

 

 

These Financial Statements were approved by the Board on 4 June 2019 and were signed on its behalf by: -

 

James Ferguson, Chairman

 

The Notes form part of the Financial Statements.

 

 

 

Company Statement of Financial Position

As at 31 March 2019

 

 

 

 

 

 

As at

 

As at

 

 

 

 

 

31 March 2019

 

31 March 2018

 

 

 

Note

 

£'000

£'000

 

£'000

£'000

ASSETS

 

 

 

 

 

 

 

Non current assets

 

 

 

 

 

 

 

Investments held at fair value through profit or loss

9

 

 

128,906

 

 

129,125

Investment properties

9

 

 

68,800

 

 

68,700

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

197,706

 

 

197,825

Deferred tax asset

6

 

 

389

 

 

287

 

 

 

 

 

 

198,095

 

 

198,112

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

4,138

 

 

3,439

 

10

 

907

 

 

711

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,045

 

 

4,150

TOTAL ASSETS

 

 

 

203,140

 

 

202,262

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Payables

11

 

 

(1,794)

 

 

(1,845)

TOTAL ASSETS LESS CURRENT LIABILITIES

 

 

 

201,346

 

 

200,417

 

 

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

Borrowings

12

 

 

(51,176)

 

 

(51,791)

 

 

 

 

 

 

 

 

 

 

NET ASSETS

 

 

 

150,170

 

 

148,626

 

 

 

 

 

 

 

 

 

 

EQUITY ATTRIBUTABLE TO EQUITY SHAREHOLDERS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Called up share capital

14

 

 

4,555

 

 

4,555

Share premium

15

 

 

18,446

 

 

18,446

Retained earnings

16

 

 

127,169

 

 

125,625

TOTAL EQUITY

 

 

 

150,170

 

 

148,626

 

 

 

 

 

 

 

 

 

 

Net Asset Value per ordinary share (pence)

17

 

 

329.68

 

 

326.29

 

These Financial Statements were approved by the Board on 4 June 2019 and were signed on its behalf by: -

 

James Ferguson, Chairman

 

The Notes form part of the Financial Statements.

 

 

Statement of Changes in Equity

For the year ended 31 March 2019

 

Group

 

Year ended 31 March 2019

 

 

Share

Share

Retained

 

 

 

capital

premium

earnings

Total

 

Note

£'000

£'000

£'000

£'000

Net assets at 31 March 2018

 

4,555

18,446

127,518

150,519

Profit for the year

 

-

-

6,197

6,197

Dividends paid

8

-

-

(5,283)

(5,283)

Net assets at 31 March 2019

 

4,555

18,446

128,432

151,433

 

 

 

 

 

 

 

 

 

 

 

 

Company

 

Year ended 31 March 2019

 

 

Share

Share

Retained

 

 

 

capital

premium

earnings

Total

 

 

£'000

£'000

£'000

£'000

Net assets at 31 March 2018

 

4,555

18,446

125,625

148,626

Profit for the year

 

-

-

6,827

6,827

Dividends paid

8

-

-

(5,283)

(5,283)

Net assets at 31 March 2019

 

4,555

18,446

127,169

150,170

 

 

 

 

 

 

 

 

 

 

 

 

Group

 

Year ended 31 March 2018

 

 

Share

Share

Retained

 

 

 

capital

premium

earnings

Total

 

 

£'000

£'000

£'000

£'000

Net assets at 31 March 2017

 

4,555

18,446

134,378

157,379

Loss for the year

 

-

-

(1,758)

(1,758)

Dividends paid

8

-

-

(5,102)

(5,102)

Net assets at 31 March 2018

 

4,555

18,446

127,518

150,519

 

 

 

 

 

 

 

 

 

 

 

 

Company

 

Year ended 31 March 2018

 

 

Share

Share

Retained

 

 

 

capital

premium

earnings

Total

 

 

£'000

£'000

£'000

£'000

Net assets at 31 March 2017

 

4,555

18,446

131,854

154,855

Loss for the year

 

-

-

(1,127)

(1,127)

Dividends paid

8

-

-

(5,102)

(5,102)

Net assets at 31 March 2018

 

4,555

18,446

125,625

148,626

 

 

 

               

The Notes form part of the Financial Statements.           

 

 

 

Group Statement of Cashflows

For the year ended 31 March 2019

 

 

 

 

2019

 

2018

 

 

Notes

£'000

£'000

 

£'000

£'000

Cash flows from operating activities

 

 

 

 

 

 

 

Dividend income received

 

 

5,994

 

 

5,804

 

Rental income received

 

 

4,295

 

 

4,179

 

Interest received

 

 

8

 

 

-

 

Operating expenses paid

 

 

(1,975)

 

 

(2,271)

 

 

 

 

 

 

 

 

NET CASH INFLOW FROM OPERATING ACTIVITIES

18

 

8,322

 

 

7,712

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

Purchase of investments

 

(30,634)

 

 

(11,890)

 

 

Sale of investments

 

32,447

 

 

12,780

 

 

 

 

 

 

 

 

 

NET CASH INFLOW FROM INVESTING ACTIVITIES

 

 

1,813

 

 

890

 

 

 

 

 

 

 

 

Cash flow from financing activities

 

 

 

 

 

 

 

Interest paid

 

(4,153)

 

 

(4,153)

 

 

Dividends paid

8

(5,283)

 

 

(5,102)

 

 

 

 

 

 

 

 

 

NET CASH OUTFLOW FROM FINANCING ACTIVITIES

 

 

(9,436)

 

 

(9,255)

 

 

 

 

 

 

 

 

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

699

 

 

(653)

Cash and cash equivalents at 1 April 2018

 

 

3,639

 

 

4,292

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS AT 31 MARCH 2019

 

 

4,338

 

 

3,639

 

 

The Notes form part of the Financial Statements.

 

 

 

Company Statement of Cashflows

For the year ended 31 March 2019

 

 

 

 

2019

 

2018

 

 

Notes

£'000

£'000

 

£'000

£'000

Cash flows from operating activities

 

 

 

 

 

 

 

Dividend income received

 

 

5,994

 

 

5,804

 

Rental income received

 

 

4,295

 

 

4,179

 

Interest received

 

 

8

 

 

-

 

Operating expenses paid

 

 

(1,975)

 

 

(2,271)

 

 

 

 

 

 

 

 

NET CASH INFLOW FROM OPERATING ACTIVITIES

18

 

8,322

 

 

7,712

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

Purchase of investments

 

(30,634)

 

 

(11,890)

 

 

Sale of investments

 

32,447

 

 

12,780

 

 

 

 

 

 

 

 

 

NET CASH INFLOW FROM INVESTING ACTIVITIES

 

 

1,813

 

 

890

 

 

 

 

 

 

 

 

Cash flow from financing activities

 

 

 

 

 

 

 

Interest paid

 

(4,153)

 

 

(4,153)

 

 

Dividends paid

8

(5,283)

 

 

(5,102)

 

 

 

 

 

 

 

 

 

NET CASH OUTFLOW FROM FINANCING ACTIVITIES

 

 

(9,436)

 

 

(9,255)

 

 

 

 

 

 

 

 

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

699

 

 

(653)

Cash and cash equivalents at 1 April 2018

 

 

3,439

 

 

4,092

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS AT 31 MARCH 2019

 

 

4,138

 

 

3,439

 

 

The Notes form part of the Financial Statements.

 

 

Notes to the Financial Statements

 

1.    Accounting policies

The Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) which comprise standards and interpretations approved by the International Accounting Standards Board (IASB) together with interpretations of the International Accounting Standards and Standing Interpretations Committee approved by the International Accounting Standards Committee (IASC) that remain in effect, and to the extent that they have been adopted by the European Union.

 

The functional and presentational currency of the Group and Company is pounds sterling because that is the currency of the primary economic environment in which the Group and Company operate. The Financial Statements and the accompanying notes are presented in pounds sterling and rounded to the nearest thousand pounds except where otherwise indicated.

 

(a)  Basis of preparation

The Financial Statements have been prepared on a going concern basis as disclosed in the Annual Report and on the historical cost basis, except for the revaluation of certain financial assets. The principal accounting policies adopted are set out below. Where presentational guidance set out in the Statement of Recommended Practice Financial Statements of Investment Trust Companies and Venture Capital Trusts (the SORP) issued by the Association of Investment Companies (AIC) in November 2014 and updated in February 2018 with consequential amendments is consistent with the requirements of IFRSs, the Directors have sought to prepare the Financial Statements on a basis compliant with the recommendations of the SORP, except for the allocation of finance costs to revenue as explained in Note 1(f).

 

The Board has considered the requirements of IFRS 8, 'Operating Segments'. The Board is charged with setting the Group's investment strategy. The Board has delegated the day to day implementation of this strategy to the Investment Managers but the Board retains responsibility to ensure that adequate resources of the Group are directed in accordance with its decisions. The Board is of the view that the Group is engaged in a single segment of business, being investments in quoted UK equities and UK commercial properties. The view that the Group is engaged in a single segment of business is based on the fact that one of the key financial indicators received and reviewed by the Board is the total return from the investment portfolio taken as a whole. A review of the investment portfolio is included in the Investment Managers' Reports.

 

(b)   Going concern

The Group's business activities, together with the factors likely to affect its future development and performance, are set out in the Strategic Report. The financial position of the Group as at 31 March 2019 is shown in the Statement of Financial Position. The cash flows of the Group for the year ended 31 March 2019 are set out above. The Group had fixed debt totalling £49,913,000 as at 31 March 2019, as set out in Note 12; none of the borrowings is repayable before 2021. The Group had no short term borrowings. Note 21 sets out the Group's risk management policies and procedures, including those covering market price risk, liquidity risk and credit risk. As at 31 March 2019, the Group's total assets less current liabilities exceeded its total non current liabilities by a factor of over four. The assets of the Group consist mainly of securities and investment properties that are held in accordance with the Group's investment policy. Most of these securities are readily realisable, even in volatile markets. The Directors, who have reviewed carefully the Group's forecasts for the coming year, consider that the Group has adequate financial resources to enable it to continue in operational existence for the foreseeable future. Accordingly, the Directors believe that it is appropriate to continue to adopt the going concern basis in preparing the Financial Statements.

 

(c)  Basis of consolidation

The consolidated Financial Statements incorporate the Financial Statements of the Company and the entity controlled by the Company (its subsidiary). An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has ability to affect those returns through its power over the investee. The Company consolidates the investee that it controls. All intra-group transactions, balances, income and expenses are eliminated on consolidation. The investment in the subsidiary is recognised at fair value in the Financial Statements of the Company. This is considered to be the net asset value of the Shareholders' funds, as shown in its Statement of Financial Position.

 

Value and Income Services Limited is a private limited company incorporated in Scotland under company number SC467598. It is a wholly owned subsidiary of the Company and has been appointed to act as Alternative Investment Fund Manager of the Company.

 

(d) Presentation of Statement of Comprehensive Income

In order to reflect better the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income. In accordance with the Company's Articles, net capital returns may be distributed by way of dividend however the Board has no intention of exercising this authority at present.

 

Additionally the net revenue is the measure that the Directors believe to be appropriate in assessing the Company's compliance with certain requirements set out in sections 1158-1160 of the Corporation Tax Act 2010.

 

(e)  Income

Dividend income from investments is recognised as revenue for the period on an ex-dividend basis. Where no ex-dividend date is available, dividends receivable on or before the period end are treated as revenue for the period.

 

Where the Group has elected to receive dividend income in the form of additional shares rather than cash, the amount of cash dividend foregone is recognised as income. Any excess in the value of shares received over the amount of cash dividend foregone is recognised as a gain in the income statement.

 

Interest receivable from cash and short term deposits and interest payable is accrued to the end of the period.

 

Rental receivable and lease incentives, where material, from investment properties under operating leases are recognised in the Statement of Comprehensive Income over the term of the lease on a straight line basis. Other income is recognised on an accruals basis.

 

(f)  Expenses and Finance Costs

All expenses and finance costs are accounted for on an accruals basis. Expenses are presented as capital where a connection with the maintenance or enhancement of the value of investments can be demonstrated. In this respect and in accordance with the SORP, the investment management fees are allocated 30% to revenue and 70% to capital to reflect the Board's expectations of long term investment returns.

 

It is normal practice and in accordance with the SORP for investment trust companies to allocate finance costs to capital on the same basis as the investment management fee allocation. However as the Company has a significant exposure to property, and property companies allocate finance costs to revenue to match rental income, the Directors consider that, contrary to the SORP, it is inappropriate to allocate finance costs to capital.

 

(g) Receivables and Payables

Receivables do not carry any interest and are stated at their nominal value, as reduced by appropriate allowances for any estimated irrecoverable amounts. Payables are not interest bearing and are stated at their nominal value.

 

(h)  Taxation

The Company's liability for current tax is calculated using tax rates that have been enacted or substantially enacted by the date of the Statement of Financial Position.

 

Deferred tax is recognised in respect of all temporary differences that have originated but not reversed at the date of the Statement of Financial Position, where transactions or events that result in an obligation to pay more tax in the future or the right to pay less tax in the future have occurred at the date of the Statement of Financial Position.

 

This is subject to deferred tax assets only being recognised if it is considered more probable than not that there will be suitable profits from which the future reversal of the temporary differences can be deducted. 

 

Due to the Company's status as an investment trust company, and the intention to continue to meet the conditions required to maintain approval for the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.

 

(i)   Dividends payable

Interim dividends are recognised as a liability in the period in which they are paid as no further approval is required in respect of such dividends.  Final dividends are recognised as a liability only after they have been approved by Shareholders in general meeting.

 

(j)    Investments

Equity investments

All equity investments are classified on the basis of their contractual cashflow characteristics and the Group's business model for managing its assets. The business model, which is the determining feature, is such that the portfolio of equity investments is managed, and performance is evaluated, on the basis of fair value. Consequently, all equity investments are measured at fair value through profit or loss.

 

For listed investments, fair value through profit or loss is deemed to be bid market prices or closing prices for SETS stocks sourced from the London Stock Exchange. SETS is the London Stock Exchange electronic trading service covering most of the market including all FTSE 100 constituents and most liquid FTSE 250 constituents along with some other securities. Gains and losses arising from changes in fair value are included in net profit or loss for the period as a capital item in the Statement of Comprehensive Income and are ultimately recognised in the retained earnings.

 

Investment property

Investment properties are initially recognised at cost, being the fair value of consideration given, including transaction costs associated with the investment property. Any subsequent capital expenditure incurred in improving investment properties is capitalised in the period incurred and included within the book cost of the property.

 

After initial recognition, investment properties are measured at fair value, with gains and losses recognised in the Statement of Comprehensive Income.

 

As disclosed in Note 21, the Group leases out all of its properties on operating leases. A property held under an operating lease is classified and accounted for as an investment property where the group holds it to earn rental, capital appreciation or both. Any such property leased under an operating lease is carried at fair value. Fair value is established by half-yearly professional valuation on an open market basis by Savills (UK) Limited, Chartered Surveyors and Valuers, and in accordance with the RICS Valuation - Professional Standards July 2017 (the 'RICS Red Book'). The determination of fair value by Savills is supported by market evidence. These valuations are disclosed in Note 9.

 

The Company accounts for its investment in its subsidiary at fair value. All fair value adjustments in relation to the subsidiary are eliminated on consolidation.

 

(k)   Cash and cash equivalents

Cash and cash equivalents comprises deposits held with banks. 

 

(l)    Non - current liabilities

All new loans and borrowings are initially measured at cost, being the fair value of the consideration received, less issue costs where applicable. Thereafter, all interest-bearing loans and borrowings are subsequently measured at amortised cost. Amortised cost is calculated by taking into account any discount or premium on settlement. The costs of arranging any interest-bearing loans are capitalised and amortised over the life of the loan.

 

(m) Critical accounting judgements and key estimates

The preparation of the Financial Statements requires the Directors to make judgements, estimates and assumptions that may affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. The critical accounting area involving a higher degree of judgement or complexity comprises the determination of fair value of the investment properties. The Group engages independent professional qualified valuers to perform the valuation. Information about the valuation techniques and inputs used in determining fair value as at 31 March 2019 is disclosed in Note 9 to the Financial Statements. The Group earns rental income by leasing its properties to tenants under non-cancellable operating leases. Due to the rare nature of the long-term leases, the Board assesses a period for which the rental income is reasonably certain to be received based on economic factors, market trends and the overall impact on the tenants and their businesses.

 

(n)   Adoption of new and revised Accounting Standards

New and revised standards and interpretations that became effective during the year had no significant impact on the amounts reported in these Financial Statements but may impact accounting for future transactions and arrangements.

 

IFRS 9 'Financial Instruments', replacing IAS 39 'Financial Instruments: Recognition and Measurement' is effective for accounting periods commencing on or after 1 January 2018 and makes changes to the classification and measurement of financial assets.

 

The adoption of IFRS 9 did not result in any change to the classification or measurement of financial instruments in either the current year or the prior year. The Group's investments remain classified as fair value through profit or loss.

 

At the date of authorisation of these Financial Statements, the following Standard and interpretation, which has not been applied to these Financial Statements, was in issue but was not yet effective.

 

IFRS 16: Leases (effective 1 January 2019) - EU adopted

 

The Directors do not expect the adoption of this Standard and interpretation (or any other Standards and interpretations which are in issue but not effective) will have a material impact on the Financial Statements of the Group in future periods.

 

 

 

2019

 

2018

 

 

Group

 

Company

 

Group

 

Company

 

 

£000

 

£000

 

£000

 

£000

2

Income

 

 

 

 

 

 

 

 

Investment income

 

 

 

 

 

 

 

 

Dividends from listed investments in UK

 6,215

 

    6,215

 

     5,732

 

     5,732

 

 

 

 

 

 

 

 

 

 

Other operating income

 

 

 

 

 

 

 

 

Rental income

 4,287

 

    4,287

 

     4,337

 

     4,337

 

Interest receivable on short term deposits

        9

 

           9

 

          -  

 

          -  

 

Total income

10,511

 

   10,511

 

    10,069

 

    10,069

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2019

 

 

 

2018

 

 

 

Revenue

£000

Capital

£000

Total

£000

 

Revenue

£000

Capital

£000

Total

£000

3

Investment management fee

 

 

 

 

 

 

 

 

Group and Company

 

 

 

 

 

 

 

 

Investment management fee

       348

     813

  1,161

 

       427

       995

  1,422

 

 

 

 

 

 

 

 

 

A summary of the terms of the management agreements is given in the Directors' Report.

 

 

 

 

 

2019

 

2018

 

 

 

Group

 

Company

 

Group

 

Company

 

 

 

£000

 

£000

 

£000

 

£000

4

Other operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee payable to the Company's auditor for the audit of the Company's accounts

         30

 

          30

 

         26

 

          26

 

 

- audit of the Subsidiary's accounts

           4

 

            4

 

           3

 

            3

 

 

Fee payable to the Company's auditor for other services

 

 

 

 

 

 

 

 

 

- other assurance services

           4

 

            4

 

         10

 

          10

 

 

- other non-audit services

2

 

2

 

-

 

-

 

 

Directors' fees

         88

 

          88

 

         71

 

          71

 

 

NIC on directors' fees

           4

 

            4

 

(4)

 

(4)

 

 

Fees for company secretarial services

       206

 

        206

 

       187

 

        187

 

 

Direct property costs

(4)

 

(4)

 

         49

 

          49

 

 

Other expenses

       447

 

        447

 

       349

 

        349

 

 

 

 

       781

 

        781

 

       691

 

        691

 

                         

 

Other non-audit services provided by the Auditor comprise consideration of compliance with covenants.                                                 

Directors' fees comprise the Chairman's fees of £27,500 (2018 - £27,500) and fees of £20,000 (2018 - £20,000) per annum paid to each other Director. The Directors' fees of £20,000 each (2018 - £20,000) in respect of the qualifying services provided by Matthew Oakeshott and Angela Lascelles are included in the investment management fees payable to OLIM Limited and OLIM Property Limited as detailed below.

 

Angela Lascelles, who was a Director of the Company until 1 April 2019, is a director of OLIM Limited which received an investment management fee of £757,000 (2018 - £995,000), the basis of calculation of which is given in the Director's Report.                                                                                               

                                                                                               

Matthew Oakeshott, who was a Director of the Company until 1 April 2019, is a director of OLIM Property Limited which received an investment management fee of £404,000 (2018 - £427,000), the basis of calculation of which is given in the Director's Report.         

                                                                                               

Additional information on Directors' fees is given in the Directors' Remuneration Report. 

 

 

 

2019

 

2018

 

 

Group

 

Company

 

Group

 

Company

 

 

£000

 

£000

 

£000

 

£000

5

Finance costs

 

 

 

 

 

 

 

 

Interest payable on:

 

 

 

 

 

 

 

 

11% First Mortgage Debenture Stock 2021

    1,650

 

     1,650

 

     1,650

 

     1,650

 

9.375% Debenture Stock 2026

    1,875

 

     1,875

 

     1,875

 

     1,875

 

Less amortisation of issue premium

(24)

 

(24)

 

(24)

 

(24)

 

Loan interest payable

       628

 

        628

 

        628

 

        628

 

Amortisation of loan expenses

         39

 

          39

 

          39

 

          39

 

 

    4,168

 

     4,168

 

     4,168

 

     4,168

 

 

 

 

 

2019

 

 

 

2018

 

 

 

Revenue

Capital

Total

 

Revenue

Capital

Total

 

 

£000

£000

£000

 

£000

£000

£000

6

Taxation

 

 

 

 

 

 

 

a)

Analysis of the tax credit/(charge)

for the year:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Group

 

 

 

 

 

 

 

 

Current tax

(241)

     241

         -  

 

(256)

      256

         -  

 

Deferred tax

-

     102

      102

 

-

      287

      287

 

 

(241)

343

102

 

(256)

543

287

 

 

 

 

 

 

 

 

 

 

Factors affecting the total tax credit/(charge) for year:

 

 

 

 

 

 

Profit/(loss) before tax

 

 

6,095

 

 

 

(2,045)

 

 

 

 

 

 

 

 

 

 

Tax charge/(credit) thereon at 19% (2018 - 19%)

 

1,158

 

 

 

(389)

 

Effects of:

 

 

 

 

 

 

 

 

Non taxable dividends

 

 

(1,181)

 

 

 

(1,065)

 

(Gains)/losses on investments not taxable

 

 

(322)

 

 

 

   1,108

 

Unrelieved finance costs

 

 

      412

 

 

 

      412

 

Losses brought forward now utilised

 

 

(67)

 

 

 

(66)

 

Deferred tax

 

 

(102)

 

 

 

(287)

 

 

 

 

(102)

 

 

 

(287)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2019

 

 

 

2018

 

 

 

Revenue

Capital

Total

 

Revenue

Capital

Total

 

 

£000

£000

£000

 

£000

£000

£000

 

Company

 

 

 

 

 

 

 

 

Current tax

(241)

     241

         -  

 

(256)

      256

         -  

 

Deferred tax

-

     102

      102

 

-

      287

      287

 

 

(241)

     343

102

 

(256)

      543

287

 

 

 

 

 

 

 

 

 

 

Factors affecting the total tax credit/(charge) for year:

 

 

 

 

 

 

 

 

Profit/(loss) before tax

 

 

6,725

 

 

 

(1,414)

 

 

 

 

 

 

 

 

 

 

Tax charge/(credit) thereon at 19% (2018 - 19%)

 

1,278

 

 

 

(269)

 

Effects of:

 

 

 

 

 

 

 

 

Non taxable dividends

 

 

(1,181)

 

 

 

(1,065)

 

(Gains)/losses on investments not taxable

 

 

(442)

 

 

 

      988

 

Unrelieved finance costs

 

 

      412

 

 

 

      412

 

Losses brought forward now utilised

 

 

(67)

 

 

 

(66)

 

Deferred tax

 

 

(102)

 

 

 

(287)

 

 

 

 

(102)

 

 

 

(287)

           

 

b)

Factors affecting future tax charges

 

 

 

 

 

 

 

 

Unutilised tax losses

 

 

 27,545

 

 

 

 30,190

 

 

 

 

 

 

 

 

 

 

Potential tax benefit at 19% and 17%

(2018 - 19% and 17%)

 

   5,233

 

 

 

   5,736

 

 

 

 

 

 

 

 

 

 

Recognised as a deferred tax non-current asset

 

 

      389

 

 

 

      287

 

Not recognised as a deferred tax asset

 

 

   4,844

 

 

 

   5,449

 

 

 

 

 

 

 

 

 

 

 

 

 

   5,233

 

 

 

   5,736

                       

 

The Company and Group have deferred tax assets of £5,233,000 (2018 - £5,736,000) at 31 March 2019 relating to total accumulated unrelieved tax losses carried forward of £27,545,000 (2018 - £30,190,000). The Company and Group have recognised deferred tax assets of £389,000 (2018 - £287,000) but have not recognised deferred tax assets of £4,844,000 (2018 - £5,449,000) arising as a result of losses carried forward. These losses do not have an expiry date but it is considered too uncertain that the Group will generate profits against which these losses would be available to offset and, on that basis, the deferred tax asset in respect of these losses has not been recognised.

 

 

 

 

2019

 

2018

 

 

Group

 

Company

 

Group

 

Company

 

 

£000

 

£000

 

£000

 

£000

7

Return per ordinary share

 

 

 

 

 

 

 

 

The return per ordinary share is based on the following figures:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue return

       4,973

 

       4,973

 

       4,527

 

       4,527

 

Capital return

       1,224

 

       1,854

 

(6,285)

 

(5,654)

 

 

 

 

 

 

 

 

 

 

Weighted average ordinary shares in issue

45,549,975

 

45,549,975

 

45,549,975

 

45,549,975

 

 

 

 

 

 

 

 

 

 

Return per share - revenue

10.92p

 

10.92p

 

9.94p

 

9.94p

 

Return per share - capital

2.68p

 

4.07p

 

(13.80p)

 

(12.42p)

 

Total return per share

13.60p

 

14.99p

 

(3.86p)

 

(2.48p)

 

 

 

 

2019

 

2018

 

 

£000

 

£000

8

Dividends

 

 

 

 

Dividends on ordinary shares:

 

 

 

 

Third quarterly dividend of 2.70p per share (2018- 2.60p) paid 27 April 2018

   1,230

 

  1,184

 

Final dividend of 3.30p per share (2018 - 3.20p) paid 27 July 2018

   1,503

 

  1,458

 

First quarterly dividend of 2.80p per share (2018- 2.70p) paid 26 October 2018

   1,275

 

  1,230

 

Second quarterly dividend of 2.80p per share (2018- 2.70p) paid 25 January 2019

   1,275

 

  1,230

 

Dividends paid in the period

5,283

 

5,102

 

The third interim dividend of 2.80p (2018 - 2.70p), being paid on 26 April 2019, has not been included as a liability in these financial statements.     

 

The proposed final dividend is subject to approval by Shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.

 

Set out below is the total dividend paid and proposed in respect of the financial year, which is the basis upon which the requirements of Sections 1158 - 1159 of the Corporation Tax Act 2010 are considered. The current year's revenue available for distribution by way of dividend is £4,973,000 (2018 - £4,527,000).

 

 

2019

 

2018

 

£000

 

£000

First quarterly dividend of 2.80p per share (2018- 2.70p) paid 26 October 2018

   1,275

 

    1,230

Second quarterly dividend of 2.80p per share (2018- 2.70p) paid 25 January 2019

   1,275

 

    1,230

Third quarterly dividend of 2.80p per share (2018- 2.70p) payable 26 April 2019

   1,275

 

    1,230

Proposed final dividend for the year ended 31 March 2019 - 3.40p (2018 - 3.30p) payable 26 July 2019

   1,549

 

    1,503

 

5,374

 

5,193

 

 

 

 

 

 

Investment

 

 

 

 

Equities

properties

Total

 

 

 

£'000

£'000

£'000

9

Investments

 

 

 

 

 

Group

 

 

 

 

 

Cost at 31 March 2018

 

        89,340

        47,037

   136,377

 

Unrealised appreciation

 

        39,585

        21,663

    61,248

 

 

 

 

 

 

 

Valuation at 31 March 2018

 

      128,925

        68,700

   197,625

 

 

 

 

 

 

 

Purchases

 

        21,225

          9,409

    30,634

 

Sales proceeds

 

(22,269)

(10,178)

(32,447)

 

Realised gains on sales

 

4,752

542

5,294

 

Movement in unrealised appreciation in year

 

(3,927)

            327

(3,600)

 

 

 

 

 

 

 

Valuation at 31 March 2019

 

        128,706

        68,800

   197,506

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in

Investment

 

 

 

Equities

Subsidiary

properties

Total

 

 

£'000

£'000

£'000

£'000

 

Company

 

 

 

 

 

Cost at 31 March 2018

        89,340

             200

        55,366

   144,906

 

Unrealised appreciation

        39,585

                 -  

        13,334

    52,919

 

 

 

 

 

 

 

Valuation at 31 March 2018

      128,925

             200

        68,700

   197,825

 

 

 

 

 

 

 

Purchases

        21,225

                 -  

          9,409

    30,634

 

Sales proceeds

(22,269)

                 -  

(10,178)

(32,447)

 

Realised gains on sales

         4,752

                 -  

            542

5,294

 

Movement in unrealised appreciation in year

(3,927)

                 -  

            327

(3,600)

 

Valuation at 31 March 2019

      128,706

             200

        68,800

   197,706

 

As noted in Note 12, the movement in unrealised appreciation in the year disclosed in the Company's Statement of Comprehensive Income includes amortisation of £630,000 (2018: £630,000) relating to the transfer of the 11% Debenture Stock 2021 from Audax Properties Limited to the Company in 2014.

 

Transaction costs

During the year expenses were incurred in acquiring and disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains and losses on investments in the Statement of Comprehensive Income. The total costs were as follows:-

 

 

 

2019

 

2018

 

 

£'000

 

£'000

Purchases

 

116

 

17

Sales

 

22

 

11

 

 

138

 

28

 

The fair values of the investment properties were established by professional valuation on an open market basis for existing use by Savills (UK) Limited, Chartered Surveyors. These valuations were carried out in accordance with the RICS Valuation - Professional Standards July 2017 (the 'RICS Red Book'), by reference to the Investment Method whereby the net annual income derived from a property is capitalised by an appropriate capitalisation rate or Years' Purchase figure to arrive at the present Capital Value of the property after an allowance for the purchaser's costs. The relevant capitalisation rate is chosen, based on the investment rate of return expected (as derived from comparisons of other similar property investments) for the type of property concerned and taking into consideration such factors as risk, capital appreciation, security of income, ease of sale and management of the property.

 

 

Investment in subsidiary

 

Country of incorporation

Date of acquisition

% Ownership

Principal activity

Name

 

 

 

 

Value and Income Services Limited

UK

16 January 2014

100

AIFM

 

 

 

 

2019

 

2018

 

 

Group

 

Company

 

Group

 

Company

 

 

£000

 

£000

 

£000

 

£000

10

Receivables

 

 

 

 

 

 

 

 

Amounts falling due within one year:

 

 

 

 

 

 

 

 

Dividends receivable

849

 

849

 

637

 

637

 

Prepayments and accrued income

58

 

58

 

74

 

74

 

 

 

 

 

 

 

 

 

 

 

907

 

907

 

711

 

711

 

 

 

2019

 

2018

 

Group

 

Company

 

Group

 

Company

 

£000

 

£000

 

£000

 

£000

Payables

 

 

 

 

 

 

 

Amounts due to OLIM Limited

        74

 

         74

 

        82

 

         82

Amounts due to OLIM Property Limited

        34

 

         34

 

        35

 

         35

Accruals and other creditors

    1,509

 

    1,509

 

   1,530

 

    1,530

Value Added Tax payable

      177

 

       177

 

      198

 

       198

 

 

 

 

 

 

 

 

 

 

    1,794

 

    1,794

 

   1,845

 

    1,845

 

The amounts due to OLIM Limited and OLIM Property Limited comprise the monthly management fee for March 2019, subsequently paid in April 2019.

 

 

 

2019

 

2018

 

 

Group

 

Company

 

Group

 

Company

 

 

£000

 

£000

 

£000

 

£000

Non-current liabilities

 

 

 

 

 

 

 

Bank loan

   15,000

 

    15,000

 

   15,000

 

  15,000

Balance of costs incurred

(308)

 

(308)

 

(347)

 

(347)

Add : Debit to income for the year

          39

 

          39

 

          39

 

         39

 

   14,731

 

    14,731

 

   14,692

 

  14,692

 

 

 

 

 

 

 

 

11% First Mortgage Debenture Stock 2021

   15,000

 

    15,000

 

   15,000

 

  15,000

Fair value adjustment

          -  

 

     1,263

 

          -  

 

    1,893

 

   15,000

 

    16,263

 

   15,000

 

  16,893

 

 

 

 

 

 

 

 

 

9.375% Debenture Stock 2026

   20,000

 

    20,000

 

   20,000

 

  20,000

 

Add:- Balance of premium less issue expenses

        206

 

        206

 

        230

 

       230

 

Less : Credit to income for the year

(24)

 

(24)

 

(24)

 

(24)

 

20,182

 

20,182

 

20,206

 

20,206

 

 

 

 

 

 

 

 

 

 

   49,913

 

    51,176

 

   49,898

 

  51,791

                   

 

The Company has an agreement with Santander UK plc to provide a fixed term loan facility for up to £15,000,000 for a period of up to ten years to 31 March 2026 (2018 - £15,000,000).  At 31 March 2019, £11,893,750 was drawn down at a rate of 4.344% and £3,106,250 was drawn down at a rate of 3.60%. The terms of the loan facility contain financial covenants that require the Company to ensure that:-

 

-   in respect of each 3 month period ending on 31 March and 30 September (the Half Year dates), net rental income shall be at least 200 per cent of interest costs;

 

-   in respect of each 12 month period beginning immediately after 31 March and 30 September, net rental income shall be at least 200 per cent of interest costs; and

 

-   at all times, the loan shall not exceed 60 per cent of the value of the properties that have been charged to Santander UK plc.

 

The 11% First Mortgage Debenture Stock 2021, previously issued by Audax Properties plc, was, on 28 March 2014, transferred to Value and Income Trust PLC (VIT) following the approval of the substitution of VIT as issuer of the Debentures by the holders on 11 March 2014. Applications were made to the UK Listing Authority and the London Stock Exchange for the Debentures to be admitted in the name of VIT to the Official List and to trading on the main market of the London Stock Exchange from 28 March 2014.

 

The 11% First Mortgage Debenture Stock 2021, now issued by VIT, is repayable at par on 31 March 2021 and is secured over specific assets of the Company. Upon transfer to VIT, this debenture required to be recorded initially at fair value of £19,417,000, rather than its nominal value of £15,000,000 in the Company's financial statements. The amortised cost of the debenture as at 31 March 2019 was £16,263,000 (2018 - £16,893,000). The amortisation of the fair value adjustment is presented as a capital item within gains/losses on investments as it relates to the reversal of a previously recognised loss on the Company's investment in its subsidiary. In the Group financial statements, the fair value adjustment is eliminated on consolidation.

 

The Trust Deed of the 11% Debenture Stock contains four covenants with which the Company has complied.

 

Firstly, the value of the assets should not be less than one and one-half times the amount of the Debenture Stock; secondly, the rental income from the assets should not be less than one and one-half times the annual interest of the Debenture Stock (£1.65 million); thirdly, not more than 20 per cent. of the total value of the assets should be attributable to a single property; and finally, not more than 10 per cent. of the assets should be attributable to leaseholds having an unexpired term of less than 50 years.

 

The 9.375% Debenture Stock 2026 issued by VIT is repayable at par on 30 November 2026 and is secured by a floating charge over the property and assets of the Company.

                                                                                   

The Trust Deed of the 9.375% Debenture Stock contains restrictions and events of default. The restrictions require that the aggregate group borrowings, £50 million, must not at any time exceed the total group capital and reserves (equivalent to net assets of £151.43 million as at 31 March 2019).

                                                                                   

The fair values of the loan and the debentures are disclosed in Note 21 and the net asset value per share, calculated with the debentures at fair value, is disclosed in Note 17.

 

13    Deferred tax

Under IAS 12, provision must be made for any potential tax liability on revaluation surpluses. As an investment trust, the Company does not incur capital gains tax and no provision for deferred tax is therefore required in this respect.

 

As disclosed in Note 6, a deferred tax asset has been recognised to reflect the estimated value of tax losses carried forward which are likely to be capable of offset against future profits.

 

 

2019

 

2018

 

£000

 

£000

Share capital

 

 

 

Authorised:

 

 

 

 

56,000,000 Ordinary Shares of 10p each (2018 - 56,000,000)

5,600

 

5,600

 

 

 

 

Called up, issued and fully paid:

 

 

 

 

45,549,975 Ordinary Shares of 10p each (2018 - 45,549,975)

4,555

 

4,555

 

 

 

2019

 

2018

 

Group

 

Company

 

Group

 

Company

 

£000

 

£000

 

£000

 

£000

Share premium

 

 

 

 

 

 

 

 

Opening and closing balance

18,446

 

18,446

 

18,446

 

18,446

 

 

 

 

2019

 

2018

 

 

Group

 

Company

 

Group

 

Company

 

 

£000

 

£000

 

£000

 

£000

Retained earnings

 

 

 

 

 

 

 

 

Opening balance at 31 March 2018

 

127,518

 

 125,625

 

 134,378

 

  131,854

Profit/(loss) for the year

 

6,197

 

6,827

 

(1,758)

 

(1,127)

Dividends paid (see Note 8)

 

(5,283)

 

(5,283)

 

(5,102)

 

(5,102)

 

Closing balance at 31 March 2019

 

128,432

 

 127,169

 

 127,518

 

  125,625

 

The table below shows the movement in retained earnings analysed between revenue and capital items.

 

 

 

2019

 

 

 

 

2018

 

 

 

Revenue

Capital

 

Total

 

Revenue

Capital

 

Total

 

£000

£000

 

£000

 

£000

£000

 

£000

Group

 

 

 

 

 

 

 

 

 

Opening balance at 31 March 2018

4,305

123,213

 

127,518

 

4,880

129,498

 

134,378

Profit/(loss) for the year

4,973

1,224

 

6,197

 

4,527

(6,285)

 

(1,758)

Dividends paid (see Note 8)

(5,283)

-

 

(5,283)

 

(5,102)

-

 

(5,102)

Closing balance at 31 March 2019

3,995

124,437

 

128,432

 

4,305

123,213

 

127,518

 

 

 

 

 

 

 

 

 

 

Company

 

 

 

 

 

 

 

 

 

Opening balance at 31 March 2018

3,119

122,506

 

125,625

 

3,694

128,160

 

131,854

Profit/(loss) for the year

4,973

1,854

 

6,827

 

4,527

(5,654)

 

(1,127)

Dividends paid (see Note 8)

(5,283)

-

 

(5,283)

 

(5,102)

-

 

(5,102)

Closing balance at 31 March 2019

2,809

124,360

 

127,169

 

3,119

122,506

 

125,625

 

 

17    Net asset value per equity share                                                               

The net asset values per ordinary share are based on the Group's net assets attributable of £151,433,000 (2018 - £150,519,000) and on the Company's net assets attributable of £150,170,000 (2018 - £148,626,000) and on 45,549,975 (2018 - 45,549,975) ordinary shares in issue at the year end.

                                                                       

The net asset value per ordinary share, based on the net assets of the Group and the Company adjusted for borrowings at fair value (see Note 21) of £142,189,000 (2018 - £140,834,000) is 312.16p (2018 - 309.19p)

           

 

2019

 

2018

 

Group

Company

 

Group

Company

 

 

 

 

 

 

Net assets at 31 March 2019

151,433

150,170

 

150,519

148,626

Fair value adjustments

(9,244)

(7,981)

 

(9,685)

(7,792)

Net assets with borrowings at fair value

142,189

142,189

 

140,834

140,834

 

 

 

 

 

 

Number of shares in issue

45,549,975

45,549,975

 

45,549,975

45,549,975

 

 

 

 

 

 

Net asset value per share

332.45p

329.68p

 

330.45p

326.29p

 

 

 

 

 

 

Net asset value per share with borrowings at fair value

312.16p

312.16p

 

309.19p

309.19p

 

 

 

2019

 

2018

 

Group

 

Company

 

Group

 

Company

 

£000

 

£000

 

£000

 

£000

18

Reconciliation of income from operations before tax to net cash inflow from operating activities

 

 

 

 

 

 

 

Income from operations before tax

12,205

 

12,835

 

4,236

 

4,867

(Gains)/losses on investments

(1,694)

 

(2,324)

 

5,833

 

5,202

Investment management fee

(1,161)

 

(1,161)

 

(1,422)

 

(1,422)

Other operating expenses

(781)

 

(781)

 

(691)

 

(691)

(Increase)/decrease in receivables

(196)

 

(196)

 

33

 

33

Decrease in other payables

(51)

 

(51)

 

(277)

 

(277)

 

Net cash from operating activities

  8,322

 

    8,322

 

   7,712

 

    7,712

 

 

 

 

2019

 

2018

 

 

Group

 

Company

 

Group

 

Company

 

 

£000

 

£000

 

£000

 

£000

19

Reconciliation of non-current liabilities arising from financing activities

 

 

 

 

 

 

 

 

Non cash:

 

 

 

 

 

 

 

 

Amortisation of loan premium and expenses and fair value adjustment

(15)

 

615

 

(15)

 

616

 

Change in debt in the year

(15)

 

615

 

(15)

 

616

 

 

 

 

 

 

 

 

 

 

Opening debt at 31 March 2018

(49,898)

 

(51,791)

 

(49,883)

 

(52,407)

 

Closing debt at 31 March 2019

(49,913)

 

(51,176)

 

(49,898)

 

(51,791)

 

 

20      Relationship with the Investment Manager and other Related Parties

 

Directors' fees and interests

Fees payable to Directors during the year and their interests in shares of the Company are disclosed in the Directors' Remuneration Report.

 

Angela Lascelles, who was a director of the Company until 1 April 2019, is a director of OLIM Limited which has an agreement with the Company to provide investment management services, the terms of which are outlined in the Director's Report and in Note 3.

 

Matthew Oakeshott, who was a director of the Company until 1 April 2019, is a director of OLIM Property Limited which has an agreement with the Company to provide investment property management services, the terms of which are outlined in the Director's Report and in Note 3.

 

Value and Income Services Limited is a wholly owned subsidiary of Value and Income Trust PLC and all costs and expenses are borne by Value and Income Trust PLC. Value and Income Services Limited has not traded during the year.

 

21      Financial instruments and investment property risks

 

Risk management

The Group's and the Company's financial instruments and investment property comprise securities, property and other investments, cash balances, loans and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement or debtors for accrued income.

                                                           

The Managers have dedicated investment management processes which ensures that the Investment Policy is achieved. For equities, stock selection procedures are in place based on active portfolio management and the identification of stocks. The portfolio is reviewed on a periodic basis by a senior investment manager and also by OLIM's Investment Committee.

 

Additionally, the Managers' Compliance Officers continually monitor the Group's investment and borrowing powers and report to their respective Managers.

 

The main risks that the Group faces from its financial instruments are:

 

(i)    market risk (comprising price risk, interest rate risk and currency risk)

 

(ii)    liquidity risk

 

(iii)   credit risk  

 

The Board regularly reviews and agrees policies for managing each of these risks. The Managers' policies for managing these risks are summarised below and have been applied throughout the year.

 

(i)    Market risk

The fair value of, or future cash flows from, a financial instrument held by the Group may fluctuate because of changes in market prices. This market risk comprises three elements - price risk, interest rate risk and currency risk.

 

Price risk

Price risks (i.e. changes in market prices other than those arising from interest rate or currency risk) may affect the value of the Group's investments.

 

It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular sector. For equities, asset allocation and stock selection, as set out in the Investment Policy, both act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. The investments held by the Company are listed on the UK Stock Exchange.

 

All investment properties held by the Group are commercial properties located in the UK with long, strong income streams.

 

Price risk sensitivity

If market prices at the date of the Statement of Financial Position had been 10% higher or lower, while all other variables remained constant, the return attributable to ordinary Shareholders for the year ended 31 March 2019 would have increased/decreased by £19,751,000 (2018 - increase/decrease of £19,763,000) and equity reserves would have increased/decreased by the same amount.

 

Interest rate risk          

Interest rate movements may affect:

 

-      the fair value of the investments in property; and

 

-      the level of income receivable on cash deposits

 

The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions.

 

The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions and reviews these on a regular basis. Borrowings comprise debenture stock and ten year bank loans, providing secure long term funding. It is the Board's policy to maintain a gearing level, measured on the most stringent basis of calculation after netting off cash equivalents, of between 25% and 40%. Details of borrowings at 31 March 2019 are shown in Note 12.

 

Interest risk profile

The interest rate risk profile of the portfolio of financial assets and liabilities at the balance sheet date was as follows:

At 31 March 2019

Weighted average period for which rate is fixed

Years

Weighted average interest rate         %

Fixed rate £'000

Floating rate   
£'000

Assets

 

 

 

 

Sterling

-

-

-

4,338

Total assets

-

-

-

4,338

 

 

 

 

 

At 31 March 2019

Weighted average period for which rate is fixed

Years

Weighted average interest rate         %

Fixed rate £'000

Floating rate
£'000

Liabilities

 

 

 

 

Sterling

5.8

8.31

50,000

-

Total liabilities

5.8

8.31

50,000

-

 

 

 

 

 

At 31 March 2018

Weighted average period for which rate is fixed

Years

Weighted average interest rate         %

Fixed rate £'000

Floating rate
£'000

Assets

 

 

 

 

Sterling

-

-

-

3,639

Total assets

-

-

-

3,639

 

 

 

 

 

At 31 March 2018

Weighted average period for which rate is fixed

Years

Weighted average interest rate         %

Fixed rate £'000

Floating rate    £'000

Liabilities

 

 

 

 

Sterling

6.8

8.31

50,000

-

Total liabilities

6.8

8.31

50,000

-

 

The weighted average interest rate on borrowings is based on the interest rate payable, weighted by the total value of the loans. The maturity dates of the Group's loans are shown in Note 12.

 

The floating rate assets consist of cash deposits on call, earning interest at prevailing market rates. The Group's equity and property portfolios and short term receivables and payables are non interest bearing and have been excluded from the above tables. All financial liabilities are measured at amortised cost.

 

Interest rate sensitivity

The sensitivity analyses below have been determined based on the exposure to interest rates at the balance sheet date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates.

 

If interest rates had been 100 basis points higher or lower and all other variables were held constant, the Group's:

 

-      profit for the year ended 31 March 2019 would increase/decrease by £36,000 (2018 - increase/decrease by £41,000). This is mainly attributable the Group's exposure to interest rates on its floating rate cash balances.

 

-      the Group holds no financial instruments that will have an equity reserve impact.

 

In the opinion of the directors, the above sensitivity analyses are not representative of the year as a whole, since the level of exposure changes frequently as part of the interest rate risk management process used to meet the Group's objectives.

 

Currency risk

A small proportion of the Group's investment portfolio is invested in securities whose fair value and dividend stream are affected by movements in foreign exchange rates. It is not the Group's policy to hedge this risk.

 

Currency sensitivity

There is no sensitivity analysis included as the Group has no outstanding foreign currency denominated monetary items.

 

(ii)  Liquidity risk

This is the risk that the Group will encounter difficulty in meeting obligations associated with its financial liabilities.

 

The Group's assets comprise of readily realisable securities which can be sold to meet commitments if required and investment properties which, by their nature, are less readily realisable. The maturity of the Group's existing borrowings is set out in the interest risk profile section of this note.

 

The table below details the Group's remaining contractual maturity for its financial liabilities, based on the undiscounted cash outflows, including both interest and principal cash flows, and on the earliest date upon which the Group can be required to make payment.

 

As at 31 March 2019

 

 

 

 

 

 

Carrying value

Expected cashflows

Due within

3 months

Due between

3 months and 1 year

Due after 1 year

 

£000

£000

£000

£000

£000

 

 

 

 

 

 

Borrowings

50,727

72,805

1,091

3,063

68,651

Other payables

475

475

475

Total

51,202

73,280

1,566

3,063

68,651

 

 

 

 

 

 

 

As at 31 March 2018

 

 

 

 

 

 

Carrying value

Expected cashflows

Due within 3 months

Due between 3 months and 1 year

Due after 1 year

 

 

 

 

 

 

Borrowings

50,727

76,958

1,091

3,063

72,804

Other payables

485

485

485

Total

51,212

77,443

1,576

3,063

72,804

 

 

(iii) Credit risk

This is the failure of a counterparty to a transaction to discharge its obligations under that transaction that could result in the Group suffering a loss.

 

The risk is not significant and is managed as follows:

 

-      investment transactions are carried out with a large number of brokers, whose credit standing is reviewed periodically by OLIM and limits are set on the amount that may be due from any one broker.

 

-      the risk of counterparty exposure due to failed trades causing a loss to the Group is mitigated by the review of failed trade reports on a daily basis. In addition, a stock reconciliation to third party administrators' records is performed on a daily basis to ensure that discrepancies are picked up on a timely basis.

 

-      cash is held only with reputable banks with high quality external credit ratings which are monitored on a regular basis.

 

Credit risk exposure

In summary, compared to the amounts on the group statement of financial position, the maximum exposure to credit risk during the year to 31 March was as follows:

 

 

2019

 

2018

 

Balance Sheet £'000

Maximum exposure £'000

 

Balance Sheet £'000

Maximum exposure £'000

Current assets

 

 

 

 

 

Cash and cash equivalents

4,338

9,306

 

3,639

9,891

Other receivables

907

6,376

 

711

1,249

 

5,245

15,682

 

4,350

11,140

 

(iv) Property risk

The Group's commercial property portfolio is subject to both market and specific property risk. Since the UK commercial property market has been markedly cyclical for many years, it is prudent to expect that to continue. The price and availability of credit, real economic growth and the constraints on the development of new property are the main influences on the property investment market.

 

Against that background, the specific risks to the income from the portfolio are tenants being unable to pay their rents and other charges, or leaving their properties at the end of their leases. All leases are on full repairing and insuring terms, with upward only rent reviews and the average unexpired lease length is 15.6 years (2018 - 13.7 years). Details of the tenant and geographical spread of the portfolio and the long term record of performance through the varying property cycles since 1987 are set out in the property section of the Investment Managers' report. OLIM Property is responsible for property investment management, with surveyors, solicitors and managing agents acting on the portfolio under OLIM Property's supervision.

 

The Group leases out its investment property to its tenants under operating leases. At 31 March 2019, the future minimum lease receipts under non-cancellable leases are as follows:-

 

 

2019

 

2018

 

£000

 

£000

Due within 1 year

4,361

 

4,329

Due between 2 and 5 years

17,446

 

16,641

Due after more than 5 years

44,485

 

40,083

 

66,292

 

61,053

 

This amount comprises the total contracted rent receivable as at 31 March 2019.

 

None of the Group's financial assets is past due or impaired.

 

Fair values of financial assets and financial liabilities

 

All assets and liabilities of the Group other than receivables and payables and the borrowings are included in the balance sheet at fair value.

 

 

(i)    Fair value hierarchy disclosures

The table below sets out fair value measurements using the IFRS 13 Fair Value hierarchy:-

 

 

Level 1

Level 2

Level 3

Total

 

£000

£000

£000

£000

At 31 March 2019

 

 

 

 

Equity investments

128,706

-

-

128,706

Investment properties

-

-

68,800

68,800

 

128,706

-

68,800

197,506

 

 

 

 

 

 

 

 

 

 

At 31 March 2018

 

 

 

 

Equity investments

128,925

-

-

128,925

Investment properties

-

-

68,700

68,700

 

128,925

-

68,700

197,625

 

Company and Group numbers per the above fair value disclosures are the same except for the investment of £200,000 made by the Company in its subsidiary.

 

Fair value categorisation within the hierarchy has been determined on the basis of the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety as follows:-

 

Level 1 - inputs are unadjusted quoted prices in an active market for identical assets

 

Level 2 - inputs, not being quoted prices, are observable, either directly (i.e. as prices) or indirectly (i.e. derived from prices)

 

Level 3 - inputs are not observable

                                                                       

There were no transfers between Levels during the year.                                                             

                                                                       

(ii)   Borrowings                                                                      

The fair value of borrowings has been calculated at £59,244,000 as at 31 March 2019 (2018 - £59,685,000) compared to a balance sheet value in the financial statements of £49,913,000 (2018 - £49,898,000) per Note 12.

 

The fair values of the debentures are determined by comparison with the fair values of equivalent gilt edged securities, discounted to reflect the differing levels of credit worthiness of the borrowers. The fair values of the loans are determined by a discounted cash flow calculation based on the appropriate inter-bank rate plus the margin per the loan agreement. These instruments are therefore considered to be Level 2 as defined above. There were no transfers between Levels during the year.

 

All other assets and liabilities of the Group are included in the balance sheet at fair value.

 

 

Fair value

 

Balance Sheet Value

 

 

2019

2018

 

2019

2018

 

£000

£000

 

£000

£000

11% First Mortgage Debenture Stock 2021

16,966

17,764

 

15,000

15,000

9.375% Debenture Stock 2026

26,620

26,663

 

20,182

20,206

 

43,586

44,427

 

35,182

35,206

 

 

 

 

 

 

Bank loan

15,658

15,258

 

14,731

14,692

 

59,244

59,685

 

49,913

49,898

             

 

 

22   Capital management policies and procedures      

The Group's capital management objectives are:

 

-       to ensure that the Group will be able to continue as a going concern;

 

-       to maximise the return to its equity Shareholders in the form of long term real growth in dividends and capital value without undue risk through the optimisation of the debt and equity balance.

 

The capital of the Group consists of equity, comprising issued capital, reserves, borrowings and retained earnings.

 

The Board monitors and reviews the broad structure of the Group's capital. This review includes: 

 

-       the planned level of gearing which takes into account the Managers' views on the market and the extent to which revenue in excess of that which requires to be distributed should be retained.

 

The Group's objectives, policies and processes for managing capital are unchanged from the preceding accounting period.

 

Details of the Group's gearing and financial covenants are disclosed in Note 12.

 

23    Events after the Statement of Financial Position Date

There are no significant subsequent events for the Group or the Company.

 

Additional Information

In accordance with section 435 of the Companies Act 2006, the Directors advise that the financial information set out in this announcement does not constitute the Group's statutory Financial Statements for the period ended 31 March 2019 but is derived from these Financial Statements. The statutory Financial Statements for the year ended 31 March 2018 have been delivered to the Registrar of Companies and contained an audit report which was unqualified and did not constitute statements under S498(2) or S498(3) of the Companies Act 2006.

 

The Financial Statements for the period ended 31 March 2019 have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The Financial Statements for the period ended 31 March 2019 will be forwarded to the Registrar of Companies following the Company's Annual General Meeting. The Auditors have reported on these Financial Statements; their reports were unqualified and did not contain statements under Section 498(2) or (3) of the Companies Act 2006.

 

The Group and Company Statement of Financial Position at 31 March 2019 and the Group and Company Statement of Comprehensive Income, Statement of Changes in Equity and Statement of Cash Flows for the year then ended have been extracted from the Group's Financial Statements. Those Financial Statements have not yet been delivered to the Registrar.

 

The 2019 Annual Report and Financial Statements will be posted to Shareholders shortly and will contain the Notice of the Annual General Meeting of the Company to be held on Friday, 5 July 2019 at 12.30pm at the offices of Shepherd & Wedderburn LLP, Condor House, 10 St Paul's Churchyard, London EC4M 8AL.

 

 

For Value and Income Trust PLC

Maven Capital Partners UK LLP

Company Secretary

 

4 June 2019

 

 

 

 


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