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Value and Income Trust plc  -  VIN   

Annual Financial Report

Released 17:26 25-May-2017

RNS Number : 2908G
Value and Income Trust plc
25 May 2017
 

VALUE AND INCOME TRUST PLC

Annual financial report

FOR THE YEAR ENDED 31 MARCH 2017

 

SUMMARY

 

31 March 2017

Net asset value per share valuing debt at book value (including income) (pence)

345.5

Net asset value per share valuing debt at market value (including income) (pence)

318.1

Ordinary share price (pence)

255.0

Discount of ordinary share price to net asset value per share valuing debt at market value (including revenue) (%)

19.8

Total interim dividend and proposed final dividend per share (pence)

11.00

Total assets less current liabilities (£m)

207.3

 

 

THE YEAR

•       Net Asset Value total return (with debt at par) of 12.5% over one year and 17.6% over three years.

 

•       Share price total return of 21.7% over one year and 8.2% over three years.

 

•       FTSE All-Share Index total return of 21.5% over one year and 24.4% over three years.

 

•       Dividends for year up 4.8% - increased for the 30th consecutive year.

 

 

STRATEGIC REPORT

 

Chairman's Statement

 

Last year we recommended a substantial increase in the final dividend and we also made a change so that dividends were paid quarterly. I am pleased to report that this year we are proposing a final dividend of 3.2p per share, making 11.0p per share for the year, an increase of 4.8%. This is the 30th annual increase since the Trust's objectives were changed in 1986. You will see from our Managers' reports that the outlook for continuing income growth is encouraging. The prospects for both portfolios are reasonably good: our equities are yielding 4.2% and the property portfolio is yielding 6.7% with no voids and 52% of the income coming from index-related leases and a weighted average unexpired length of lease of 13½ years.

 

Over the year to 31 March 2017, Value and Income Trust's net asset value total return per share (that is taking the growth in net asset value and dividend together) was 12.5%. Our property portfolio had a good year and produced a total return of 13%. The performance of our equity portfolio was behind the FTSE All-Share Index which increased by 17.5%, but this should be seen in the context of its longer term performance. No performance fee, which is based on share price total return over 3 years, was payable. Details of the investment management fee are shown in the Directors' Report.

 

VIT has two debentures and one bank loan which, in the Group's Financial Statements, are valued 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 net asset value (NAV) of 345.51p. We also show in Note 17 to the Financial Statements, a NAV of 318.09p which is adjusted for borrowings at fair value, being amounts greater than their respective nominal values. This restatement 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 £19,010,000 whilst the second debenture is repayable for £20,000,000 in 2026 and has a fair value of £27,939,000. The bank loan of £15,000,000 is repayable in 2026 and has a fair value of £15,539,000. All of these figures are shown in Note 20 to the Financial Statements. The differences between the two values of each of our debentures and loan will reduce until each instrument is repaid at its nominal value, thus increasing the NAV with borrowings at fair value over the period.

 

Our 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. In addition, in May 2016, we borrowed £15,000,000 for 10 years at a rate of 4.4% per annum including all costs which has been invested in the present property portfolio on attractive terms.

 

I wrote in 2016 that 'both of the portfolios provide good value when compared to the remarkably low yields available from UK gilts'. This is still the case and we remain fully invested.

 

I hope that we shall see as many Shareholders as possible at the Annual General Meeting on 7 July 2017, which is to be held in London this year. Our Managers will give a brief presentation on the outlook.

 

James Ferguson

25 May 2017

 

 

INVESTMENT MANAGERS' REPORTS

 

UK Equities

 

Market Background

In a year of unexpected events on the global landscape, UK equities nevertheless rose strongly and recorded the highest returns of the last five years. The FTSE All-Share Index rose by 17.5% over the year to end March 2017 and recorded a total return of 21.5%. Ahead of the EU Referendum, the market was steady, trading in a narrow range, but after the result of the Referendum, it rose strongly after an initial sharp downward shock. The most significant effect of the Referendum result was the immediate fall in the value of sterling against the other main currencies, which improved the competitive position of UK companies operating overseas and enhanced the translational values of dollar and euro related earnings.

 

Predictions of an immediate recession if Brexit should be the Referendum outcome were proved wrong and our economy was steadily upgraded from June onwards. The Bank of England halved the base rate to 0.25% in August and announced a further programme of Quantitative Easing and ten year gilt yields fell to less than 1% during the autumn. Consumers were motivated to keep spending, with the cost of borrowings reducing even further. With falling borrowing rates and a growing economy, the market was set to rise.

 

Within the UK market the largest quoted companies benefitted most in the aftermath of the Referendum result and the fall in our currency. Oil, mining, pharmaceutical and global banks led the rise in the second half of 2016. The FTSE 100 Index rose by 18.6% over our year, whereas the more domestically focused FTSE 250 Index of mid-sized companies rose by 12.1%. Industrial sectors of our market outperformed the overall trend, encouraged by reports of higher industrial production figures and growing demand for exports.

 

Overseas markets also performed strongly. The FTSE World Index rose by 12.7%. American equities rose by 14.7%, the German Index rose by 23.6% and Emerging Markets also had a good year, with a rise of 14.8%. In fixed interest markets, UK Gilt yields fell over the year as a whole and the All Stocks Gilt Index gave a total return of 6.6%. Overseas bond yields rose and the US Treasury ten year bond yield ended our year at 2.3% compared with 1.8% a year earlier. US Federal Funds rate was raised in December by 0.25% to 0.75%.

 

The pound fell from $1.44 at the start of our year to $1.26 (-12.5%) and from €1.26 to €1.18 (-6.3%). In the oil and commodity markets, oil rose by 33.4% over the year and copper by 14.2%. Both prices had been severely depressed in the early months of 2016 by fears of slowing growth in China and the developing world.

 

Performance

With VIT's policy of focusing on mid and small sized companies it was a disappointing year for performance relative to the FTSE All-Share Index. The capital value of equities, adjusted for changes to the portfolio, rose by 8.3% and the total return, including income, was 12.9%. In the Travel and Leisure sector, the price of Go Ahead was affected by problems with industrial relations in Southern Rail and a slowdown in bus passengers in the North East. Restaurant Group continued to suffer from changing trends in consumer spending and increased competition. In Support Services, Babcock suffered fears of downgrades, following reports from other companies in that sector. Our underweight position in the Mining sector had an adverse effect on relative performance this year, though it has been a major contributor to outperformance in past years. These negative factors were counteracted somewhat by the positive effect of our overweight holdings in the Industrial Engineering and Electronics sectors. A further beneficial factor to performance was the absence of any companies in the Property sector, for almost all of the year. Over the last five years, the equity portfolio has recorded a total return of 68.3%, compared with the FTSE All-Share Index total return of 57.2%.

 

Portfolio

Sales and purchases of equities over the year totalled £10.02m, with net sales of just £40,000. Our policy was to be fully invested in the equity portfolio throughout the year. We reduced our holdings in Halma and Spectris after strong performance, though they remain amongst our largest holdings. We also reduced Rotork, after recovery in its price from lower levels. We reduced the holding in Informa in order to fund the cost of the new shares issued in connection with its acquisition of Penton, a US based exhibitions' company. We increased the holdings in Carillion, Crest Nicholson, GlaxoSmithKline and Vodafone. Towards the end of our year we started a holding in British Land, which manages a high quality portfolio split evenly between retail and office properties. The share price was hit hard in the aftermath of the EU Referendum and was trading on a 30% discount to historic Net Asset Value and a yield of 5%.

 

Outlook

Since writing VIT's equity report a year ago, prospects for the UK economy and the global economy have improved. In this country we have the benefit of a lower sterling exchange rate, which has resulted in higher demand for our exports and improved competitiveness for UK manufacturers serving both overseas markets and those trading here but with competition from overseas. A year ago, forecasts for UK GDP growth in 2017 were considerably less than 1%, but a year later the Bank of England's forecast has risen to 2%. The other significant change resulting from the fall in sterling, is increasing inflation, now moving above the Bank of England's targeted rate of 2%. We do not expect a rise in interest rates to counter the rise in inflation. Article 50 has recently been triggered to take the UK out of the EU and it is very unlikely that any action might be taken which could upset the pace of economic activity. Rising economic growth and rising inflation are both factors which favour investment in equities rather than in bonds. Dividends have continued to rise modestly across the market and the overall yield on the FTSE All-Share Index is 3.5%, which is very attractive compared to other asset classes. We believe that our equity portfolio, which yields 4.2%, is attractively valued at its current valuation.

 

Angela Lascelles

OLIM Limited

 

25 May 2017

 

 

PROPERTY PORTFOLIO

 

The Market

Average capital values of UK commercial property bottomed out in September 2016 after a sharp post-Referendum fall over the summer and early autumn and have since been edging higher month by month. Values are still slightly down on balance since June, with offices and retail property underperforming and the industrial and alternative property sectors up. The IPD Annual Index for 2016 as a whole showed a positive total return of 4%, with average capital losses of 1% outweighed by rental income of 5%.

 

Capital values of office and retail properties fell by 1½%-2%, on average, over 2016 as a whole with industrial and leisure property gaining about 3%. That divergence in sector performance has continued to widen in 2017. Rental values rose by about 2% in 2016 on average, with industrial/warehouse and office property outperforming retail over the year as a whole. But office rental growth has slowed right down since the Referendum, and has turned negative in London. Within all sectors there is an accelerating flight to safety, with property on long leases strongly outperforming shorter-let, riskier stock - in sharp contrast to the 2013-15 bull market. This trend has helped capital values of well-let supermarkets to grow again after a painful period of underperformance.

 

It is still too early to form a firm view on the long-term effect of the June Referendum result on the commercial property market, as on the economy as a whole.

 

The devaluation of sterling gave a short-term boost to domestic tourism, manufacturing and exports, but the pain is only now coming through in import price rises and cuts in real incomes. Consumers are deeply in debt with the savings ratio down to a 50 year low, and they are now starting to retrench, probably quite hard. The sharp falls in medium and long-term interest rates in the third quarter, which have only been partly reversed, gave immediate support to the safer, long-leased types of property, which were also the most saleable by property unit trusts under severe short-term redemption pressures.

 

Since last June there has been far more evidence of transactions for valuers to analyse in some parts of the market than others. Parts of the commercial property market are still in limbo, with a wall of potential sellers, especially the U.S. distressed debt ("vulture") funds, and buyers few and far between. So the IPD and agents' indices are painting too optimistic a picture of the market - until more properties change hands - for most shopping centres, larger secondary shops and retail warehouses, and short-leased City and South-East offices (where property companies' share prices are discounting further falls in values). Net effective rents are also coming under pressure in these sectors, with rent free periods growing and leases shortening; the evidence of this will feed through into valuations soon. But commercial auction values and volumes have been buoyant. Private investors remain hungry for yield at the smaller (typically sub £2 million) end of the market, and are switching out of residential buy-to-let investments into commercial property following tax and regulatory changes. Local authorities are also active buyers of all sorts of provincial property, often outside their own areas, with taxpayers' money borrowed from the Public Works Loan Board. But they have no coherent investment strategy except raising short-term income to lessen the impact of public spending cuts, so this rush to spend will end in tears and the Treasury should close the PWLB funding window soon.

 

There is also growing upward pressure on capital values and a keen appetite for safe long-term, especially indexed, property income, from pension funds, insurance companies, charities, and risk-averse private investors. The penny has dropped at last with investors that safe property's unprecedently high yield margins over conventional and index-linked gilts cannot last, and that the 15% sterling devaluation is now feeding through fast into consumer prices. The Consumer Price Index rose by 2.3% over the twelve months to March, with the Retail Price Index up by 3.1% and likely to hit 4% later in 2017.

 

These conflicting pressures on different property types are making 2017 a fascinating year. On balance, capital values may rise by about 3%, in line with inflation, with the office and retail sectors down and the industrial/warehouse and the growing alternative sectors (leisure, pubs, hotels, student housing and motor trade) well ahead. Rental values may be flat on average, with the same sectors rising and falling as for capital values. Total returns on the IPD Annual Index may therefore average around 7%-8%, but with a much wider dispersion than usual. The best single predictor of relative performance this year may be a portfolio's weighted average unexpired lease length (WAULT), currently about 7 years on the IPD Monthly Index (11 years on the Annual). A low void rate against the IPD's 8% will also help portfolios to outperform.

 

In an unusually uncertain investment world, with significant inter-related geopolitical risks on top of Trump and Brexit, one of the safest havens must be UK commercial property on long, preferably index-related, leases with high yield premia over conventional and index-linked gilts. Safe property will rise in value in the UK in 2017, risky and over-rented property let on short leases or to shaky tenants will fall. Long-term property investment portfolios should stay heavily weighted to the safe side of that divide for the foreseeable future.

 

The Portfolio

VIT's property portfolio produced a total return of 13% over the year to March against 5% for the IPD Index, the main benchmark for property performance.

 

We concentrate on properties with long, strong income streams to cover the fixed interest payments on our debt and deliver long-term income and capital growth. The total return on our property portfolio has averaged 12% a year over the past 3 years, 10% over 5 years, 7% over 10 years, 12% over 20 years and 13% a year over the 30 years since the start. These returns are slightly above the IPD averages over 3 and 5 years and well above them over longer periods. Real returns above the RPI from VIT's property portfolio averaged 4% a year over the past 10 years and 8-10% a year over shorter and longer periods.

 

We have bought eight new properties over the past year: two South-Eastern industrials for £8 million in Fareham and Milton Keynes, three pubs in Cheltenham, Oxted and Thornton-Cleveleys, one shop in Bedford and two small supermarkets in Caerphilly and Harrogate. The average net initial yield on purchase was 6.9% and 43% of the income was index-related. The purchase prices totalled £16.2 million and they were valued at £17.5 million at end March (8% above their purchase price excluding costs and 2% including costs). We sold seven, mainly over-rented, properties this year - shops in Ayr, Birmingham, Dundee, Elgin and Stratford-upon-Avon, a pub in Sherborne and an industrial in Rochford, for £8.4 million (6% above valuation) at a net initial yield of 7.9%, falling to 7.0% on their current rental values.

 

All properties are fully let on full repairing and insuring leases, with upward only rent reviews and an average unexpired lease length of 13½ years. The portfolio has been fully let and income-producing throughout the year. 25% of rental income is reviewed annually, with 75% five yearly. 52% of the portfolio's rental income comes from index-related leases (up from 35% five years ago).

 

The property portfolio was funded for many years by long-term fixed rate loans - £20 million of VIT 9% 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. Interest rates have now fallen so low compared to property yields that we borrowed £5 million in March 2015 for five years and increased and converted the loan in May 2016 to £15 million at a fixed interest rate of 4.4%, including all costs, until 2026 and invested the proceeds in properties at a net initial yield of 6.9% with good growth prospects.

 

Purchase - Milton Keynes

Industrial unit let to Adelie Food Holdings at £296,800 a year on a 12 year lease with 2.5% p.a. minimum rent increases. Bought for £4,000,000 in July 2016 at a net initial yield of 7%.

 

Purchase - Harrogate

Convenience store let to Co-operative Group Food at £65,000 a year on a 14 year lease with RPI-linked rent increases. Bought for £950,000 in March 2017 at a net initial yield of 6.5%.

 

Results of Independent Revaluation

The VIT property portfolio was subject to an independent professional revaluation at 31 March 2017 by Savills. The revaluation showed a value of £66,775,000. Our properties are revalued every six months, at 30 September and 31 March.

 

Capital values rose by 5% over the year and rental income rose by 2% on a like for like basis. Twenty-eight of the properties valued at 31 March 2017 were freehold and two are long leasehold with 41 years and 88 years to run.

 

Matthew Oakeshott and Louise Cleary

OLIM Property Limited

25 May 2017

 

 

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 32 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 recently, 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 2017, no material changes were made to the Company's investment policy.

 

Performance, Results and Dividend

The Company announced on 24 August 2016 that it intended to pay quarterly dividends in the future. The first quarterly dividend of 2.6p per share was paid on 28 October 2016; the second quarterly dividend of 2.6p per share was paid on 27 January 2017 and the third quarterly dividend of 2.6p per share was paid on 28 April 2017.

 

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 3.2p per Ordinary Share (2016: 6.0p) is paid on 28 July 2017 to Shareholders on the register on 30 June 2017. The ex-dividend date is 29 June 2017.

 

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 meets regularly in order to review investment strategy. The equity investments held by the Group 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.

 

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 stock 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 20 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 large number of brokers, whose credit standing is reviewed periodically by OLIM (who report 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.

 

None of the Group's equity investments is secured by collateral or other credit enhancements.

 

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 13½ years (2016: 13 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 is set out in the property section of 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

In a referendum held on 23 June 2016, the UK voted to leave the European Union (informally known as "Brexit"). The formal process of implementing this decision exists in Article 50 of the Lisbon Treaty. The political, economic and legal consequences of the referendum vote are not yet known.

 

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 or the FCA Disclosure and Transparency Rules, 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 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 European Union.

 

       In accordance with the requirements of the AIFMD, the Company appointed VIS as its 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.

 

Key Performance Indicators

 

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

 

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

 

-      Net asset value 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 2018 as it is believed that these are in the best interests of Shareholders.

 

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

25 May 2017

 

 

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 Company and of the net return of the 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 proper accounting records that disclose with adequate 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 its undertakings as at 31 March 2017 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 it faces.

 

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

25 May 2017

 

 

VALUE AND INCOME TRUST PLC

GROUP STATEMENT OF COMPREHENSIVE INCOME

 

 

 

 

 Year ended

 

 Year ended

 

 

 

 31 March 2017

 

 31 March 2016

 

 

 

 Revenue

 Capital

 Total

 

Revenue

 Capital

 Total

 

 

 

 £'000

 £'000

 £'000

 

 £'000

 £'000

 £'000

 Income

 Note

 

 

 

 

 

 

 

 

 Investment income

 

   5,912

             -

   5,912

 

     5,898

             -

    5,898

 

 Rental income

 

     4,233

             -

    4,233

 

     3,937

             -

    3,937

 

 Other income

 

            1

-

           1

 

            1

-

           1

 

 

2

     10,146

             -

    10,146

 

     9,836

             -

    9,836

 Gains and losses on investments

 

 

 

 

 

 

 

 

 

Realised gains on held-at-fair-value investments and investment properties

9

             -

    4,170

4,170

 

             -

     1,759

    1,759

 

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

9

             -

    8,848

   8,848

 

             -

    (5,295)

   (5,295)

 Total income

 

    10,146

    13,018

    23,164

 

    9,836

    (3,536)

6,300

 Expenses

 

 

 

 

 

 

 

 

 

Investment management fees

3

       (401)

       (935)

   (1,336)

 

     (361)

       (843)

   (1,204)

 

Other operating expenses

4

       (573)

             -

      (573)

 

     (777)

             -

      (777)

 Finance costs

5

    (4,083)

             -

   (4,083)

 

(3,702) 

-          

(3,702) 

 Total expenses

 

    (5,057)

       (935)

   (5,992)

 

  (4,840)

    (843)

   (5,683)

 

 

 

 

 

 

 

 

 

 

 Profit before tax

 

     5,089

   12,083

    17,172

 

   4,996

    (4,379)

    617

 Taxation

6

             -

             -

            -

 

            -

             -

             -

 Total Comprehensive Income for the Year

 

    5,089

    12,083

17,172     

 

4,996

     (4,379)

    617

 

 

 

 

 

 

 

 

 

 

 Earnings per ordinary share (pence)

7

11.17

26.53

37.70

 

      10.97

     (9.61)

      1.36

 

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.

 

All income is attributable to the equity holders of Value and Income Trust PLC, the parent company. There are no minority interests.

 

The Board is proposing a final dividend of 3.20p per share, making a total dividend of 11.00p per share for the year ended 31 March 2017 (2016: 10.50p per share) which, if approved, will be payable

on 28 July 2017 (see note 8).

 

The accompanying notes form part of these Financial Statements.

 

 

VALUE AND INCOME TRUST PLC

COMPANY STATEMENT OF COMPREHENSIVE INCOME

 

 




 Year ended


 Year ended




 31 March 2017


 31 March 2016




 Revenue

 Capital

 Total


 Revenue

 Capital

 Total




 £'000

 £'000

 £'000


 £'000

 £'000

 £'000

 Income

 Note









 Investment income


5,912      

            -

   5,912


       5,898

            -

    5,898


 Rental income


       4,233

            -

    4,233


       3,937

            -

    3,937


 Other income


              1

            -

           1


              1

            -

           1













2

     10,146

            -

    10,146


       9,836

            -

    9,836

 Gains and losses on investments










 Realised gains on held-at-fair-value investments and investment properties

9

               -

   4,170

   4,170


               -

    1,759


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

9

               -

   9,478

   9,478


               -

   (4,663)











 Total income


     10,146

   13,648

   23,794


       9,836

   (2,904)

    6,932











 Expenses










Investment management fees

3

        (401)

      (935)

   (1,336)


        (361)

      (843)

   (1,204)


Other operating expenses

4

        (573)

            -

      (573)


        (777)

            -

      (777)











 Finance costs

5

     (4,083)

            -

   (4,083)


     (3,702)

            -

   (3,702)











 Total expenses


     (5,057)

      (935)

   (5,992)


     (4,840)

      (843)

   (5,683)











 Profit before tax


       5,089

   12,713

    17,802


       4,996

   (3,747)

    1,249











 Taxation

6

               -

            -

            -


            -

             -

             -











 Total Comprehensive Income for the Year


       5,089

   12,713

    17,802


       4,996

   (3,747)

    1,249











 Earnings per ordinary share (pence)

7

       11.17

     27.92

     39.09


       10.97

     (8.23)

      2.74

 

 

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.

 

All income is attributable to the equity holders of Value and Income Trust PLC, the parent company. There are no minority interests.

 

The accompanying notes form part of these Financial Statements.

 

 

VALUE AND INCOME TRUST PLC

STATEMENT OF FINANCIAL POSITION

 





Group


Company





As at


As at


As at


As at





31 March 2017


31 March 2016


31 March 2017


31 March 2016




Note

£'000

£'000


£'000

£'000


£'000

£'000


£'000

£'000

ASSETS













Non current assets














Investments held at fair value through profit or loss

9


137,573



127,266



137,773



127,466


Investment properties

9


66,775



55,125



66,775



55,125





















204,348



182,391



204,548



182,591
















Current assets














Cash and cash equivalents


4,292



3,481



4,092



3,281



Other receivables

10

744



755



744



755







5,036



4,236



4,836



4,036































TOTAL ASSETS



209,384



186,627



209,384



186,627
















Current liabilities














Other payables

11


(2,122)



(1,152)



(2,122)



(1,152)
















TOTAL ASSETS LESS CURRENT LIABILITIES



207,262



185,475



207,262



185,475
















Non-current liabilities














Borrowings

12


(49,883)



(40,167)



(52,407)



(43,321)
















NET ASSETS



157,379



145,308



154,855



142,154
















EQUITY ATTRIBUTABLE TO EQUITY SHAREHOLDERS





























Called up share capital

14


4,555



4,555



4,555



4,555


Share premium

15


18,446



18,446



18,446



18,446


Retained earnings

16


134,378



122,307



131,854



119,153
















TOTAL EQUITY



157,379



145,308



154,855



142,154































Net Asset Value per ordinary share (pence)

17


345.51



319.01



339.97



312.08

 

 

These financial statements were approved by the Board on 25 May 2017 and were signed on its behalf by:-

 

James Ferguson, Chairman

Matthew Oakeshott, Director

 

The accompanying notes form part of these Financial Statements.

 

 

VALUE AND INCOME TRUST PLC

 

STATEMENTS OF CHANGES IN EQUITY

 

 

Group

 




Year ended 31 March 2017

 






Share

Share

Retained

 

 





capital

premium

earnings

Total





Note

£'000

£'000

£'000

£'000

Net assets at 31 March 2016

 

4,555

18,446

122,307

145,308

Total comprehensive income  for the year

 


-

-

17,172

   17,172

Dividends paid

 


8

-

-

(5,101)

(5,101)

Net assets at 31 March 2017

 

4,555

18,446

134,378

157,379

 









Company

 












Year ended 31 March 2017

 






Share

Share

Retained

 

 





capital

premium

Earnings

Total






£'000

£'000

£'000

£'000

Net assets at 31 March 2016

 

4,555

18,446

119,153

142,154

Total comprehensive income for the year

 


-

-

17,802

17,802

Dividends paid

 


8

-

-

(5,101)

(5,101)

Net assets at 31 March 2017

 

4,555

18,446

131,854

154,855

 

 

Group

 





Year ended 31 March 2016

 






 

Share

Share

Retained

 

 






capital

premium

earnings

Total





Note

 

£'000

£'000

£'000

£'000

Net assets at 31 March 2015

 

 

4,555

18,446

125,881

148,882

Total comprehensive income for the year

 


 

-

-

617

617

Dividends paid

 


8

 

-

-

(4,191)

(4,191)

Net assets at 31 March 2016

 

 

4,555

18,446

122,307

145,308

 










Company

 














Year ended 31 March 2016

 






 

Share

Share

Retained

 

 






capital

premium

earnings

Total






 

£'000

£'000

£'000

£'000

Net assets at 31 March 2015

 

 

4,555

18,446

122,095

145,096

Total comprehensive income for the year

 


 

-

-

1,249

1,249

Dividends paid

 


8

 

-

-

(4,191)

(4,191)

Net assets at 31 March 2016

 

 

4,555

18,446

119,153

142,154

 

 

The accompanying notes form part of these Financial Statements.

 

 

VALUE AND INCOME TRUST PLC

 

GROUP STATEMENT OF CASHFLOWS

 

For the year ended 31 March

 


2017

 

2016

 






Notes

£'000

£'000

 

£'000

£'000

 

Cash flows from operating activities

 









Dividend income received

 



5,847

 


5,608

 


Rental income received

 



4,976

 


3,374

 


Interest received

 




1

 


1

 


Operating expenses paid

 



(1,692)

 


(1,830)

 













NET CASH FROM OPERATING ACTIVITIES

 

18

 

9,132

 


7,153

 













Cash flows from investing activities

 









Purchase of investments

 


(21,767)

 


(8,935)

 



Sale of investments

 



12,828

 


8,462

 














NET CASH OUTFLOW FROM

 


 

 


 

 


INVESTING ACTIVITIES

 




(8,939)

 


(473)

 













Cash flow from financing activities

 









Loans drawn down

 



9,702

 


-

 



Interest paid

 



(3,983)

 


(3,701)

 



Dividends paid

 


8

(5,101)

 


(4,191)

 














NET CASH INFLOW/ (OUTFLOW) FROM FINANCING

ACTIVITIES

 

618

 

 

(7,892)

 













NET INCREASE/ (DECREASE) IN CASH AND

CASH EQUIVALENTS

811

 


(1,212)

 

Cash and cash equivalents at 1 April 2016



3,481

 


4,693


 

 


 

 


 


Cash and cash equivalents at 31 March 2017


4,292

 


3,481

 

 

The accompanying notes form part of these Financial Statements.

 

 

VALUE AND INCOME TRUST PLC

 

COMPANY STATEMENT OF CASHFLOWS

 

For the year ended 31 March

 


2017

 

2016

 





Notes

£'000

£'000

 

£'000

£'000

 

Cash flows from operating activities

 








Dividend income received

 


5,847

 


5,608

 


Rental income received

 


4,976

 


3,374

 


Interest received

 



1

 


1

 


Operating expenses paid

 


(1,692)

 


(1,830)

 












NET CASH FROM OPERATING ACTIVITIES

18

 

9,132

 


7,153

 












Cash flows from investing activities

 








Purchase of investments

 

(21,767)

 


(8,935)

 



Sale of investments

 


12,828

 


8,462

 


NET CASH OUTFLOW FROM

 

 

 


 

 


FROM INVESTING ACTIVITIES

 


(8,939)

 


(473)

 












Cash flow from financing activities

 








Loans drawn down

 


9,702

 


-

 



Interest paid

 


(3,983)

 


(3,701)

 



Dividends paid

 

8

(5,101)

 


(4,191)

 













NET CASH INFLOW/ (OUTFLOW) FROM FINANCING

ACTIVITIES

 

618

 

 

(7,892)

 












NET INCREASE/ (DECREASE) IN CASH AND

CASH EQUIVALENTS

811

 


(1,212)

 

Cash and cash equivalents at 1 April 2016

 


3,281

 


4,493

 












Cash and cash equivalents at 31 March 2017


4,092

 


3,281

 











 

 

The accompanying notes form part of these Financial Statements.

 

 

VALUE AND INCOME TRUST PLC

 

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 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 January 2017 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 2017 is shown in the Statement of Financial Position. The cash flows of the Group for the year ended 31 March 2017, which are not untypical, are set out in the Statement of Cashflows. The Group had fixed debt totalling £49,883,000 as at 31 March 2017, as set out in Note 12; none of the borrowings is repayable before 2021. The Group had no short-term borrowings. Note 20 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 2017, 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. Any performance fees payable are allocated to capital, reflecting the fact that, although they are calculated on a total return basis, they are expected to be attributable largely to capital performance.

 

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)  Other Receivables and Payables

Other receivables do not carry any interest and are stated at their nominal value, as reduced by appropriate allowances for any estimated irrecoverable amounts. Other 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 investments have been designated upon initial recognition as held at fair value through profit or loss. Investments are recognised and derecognised on the trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market concerned, and are initially measured at fair value.

 

Subsequent to initial recognition, investments are recognised at fair value through profit or loss. For listed investments, this 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 20, 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 January 2014 (the 'RICS Red Book') and revised in April 2015. The determination of fair value by Savills is supported by market evidence. It is not more heavily based on other factors because of the nature of the properties and the availability of comparable market data. 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 recognised at cost, being the fair value of the consideration received, less issue costs where applicable. After initial recognition, 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 estimations of uncertainty

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 uncertainty 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 2017 is disclosed in Note 9 to the Financial Statements.

 

(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.

 

At the date of authorisation of these Financial Statements, the following Standards and interpretations, which have not been applied to these Financial Statements, were in issue but were not yet effective (and in some cases, had not yet been adopted by the EU).

 

-     IFRS 9: Financial Instruments (2014) (effective 1 January 2018)

-     IFRS 16: Leases (effective 1 January 2019)

-     Amendments to IAS 7: Disclosure initiative - Statement of Cash Flows (effective 1 January 2017)

-     Amendments to IAS 12: Income Taxes - Recognition of deferred tax assets for unrealised losses (effective 1 January 2017)

 

     The Directors do not expect the adoption of these Standards and interpretations (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.

 



2017

 

2016

 


Group

 

Company

 

Group

 

Company

 


£'000

 

£'000

 

£'000

 

£'000

2

Income

 








Investment income

 








Dividends from listed investments in UK

   5,912

 

     5,912

 

   5,898

 

     5,898

 










Other operating income

 




 




Rental income

  4,233

 

    4,233

 

   3,937

 

     3,937

 

Interest receivable on short-term deposits

         1

 

           1

 

         1

 

           1

 










Total income

   10,146

 

    10,146

 

   9,836

 

     9,836

 









 




2017

 



2016

 



Revenue

Capital

Total

 

Revenue

Capital

Total

 


£'000

£'000

£'000

 

£'000

£'000

£'000

3

Investment management fee

 

















Group

 








Investment management fee

      401

      935

   1,336

 

       361

      843

   1,204

 

Performance fee

         -  

        -  

        -  

 

         -  

        -  

        -  

 











      401

      935

   1,336

 

       361

      843

   1,204

 



















Company

 








Investment management fee

       401

      935

   1,336

 

       361

      843

   1,204

 

Performance fee

         -  

        -  

        -  

 

         -  

        -  

        -  

 











      401

      935

   1,336

 

       361

      843

   1,204

 

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

 




2017

 

2016

 



Group

 

Company

 

Group

 

Company

 



£'000

 

£'000

 

£'000

 

£'000

4

Other operating expenses

 








Fees payable to the Group's/Company's auditor for:

 









- the audit of the Company's annual     accounts

          29

 

29

 

          30

 

          30

 


- other assurance services

7          

 

            7

 

            7

 

            7

 


- taxation compliance services

            -

 

-

 

            6

 

            6

 

Directors' fees

         61

 

61

 

          54

 

          54

 

NIC on Directors' fees

            5

 

5

 

            4

 

            4

 

Fees for company secretarial services

       179

 

179

 

        176

 

        176

 

Direct property costs

     (16)

 

(16)

 

          11

 

          11

 

Other expenses

        308

 

308

 

        489

 

        489

 













        573

 

       573

 

        777

 

        777

 

Other assurance services provided by the Auditor comprise review of compliance with covenants.

 

Directors' fees comprise the Chairman's fees of £25,000 (2016 - £22,000) and fees of £18,000 (2016 - £16,000) per annum paid to each other Director. The Directors' fees of £18,000 each (2016 - £16,000) 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 is a director of OLIM Limited which received an investment management fee of £935,000 (2016 - £873,000) and a performance fee of £nil (2016 - £nil), the basis of calculation of which is given in the Directors' Report.

 

Matthew Oakeshott is a director of OLIM Property Limited which received an investment management fee of £401,000 (2016 - £331,000) and a performance fee of £nil (2016 - £nil), the basis of calculation of which is given in the Directors' Report.

 

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

 



2017

 

2016

 


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

        545

 

        545

 

        179

 

        179

 

Amortisation of loan expenses

          37

 

          37

 

          22

 

          22

 











     4,083

 

     4,083

 

     3,702

 

     3,702

 

 




2017

 



2016

 



Revenue

Capital

Total

 

Revenue

Capital

Total

 


£'000

£'000

£'000

 

£'000

£'000

£'000

6

Taxation

 
















a)

Analysis of the tax charge for the year:

 








Group

 








Corporation tax payable

          -  

       -  

         -  

 

         -  

         -  

         -  

 


          -  

-

-

 

         -  

-

-

 










Factors affecting the current tax charge

for year:

 








Revenue / capital return on ordinary activities before tax

 

       17,172

 



       617

 










Tax thereon at 20% (2016 - 20%)

 


   3,434

 



       123

 

Effects of:

 








Non taxable dividends

 


(1,182)

 



(1,180)

 

(Gains)/losses on investments not taxable

 


(2,604)

 



707

 

Excess expenses not utilised

 


       352

 



       350

 




-

 



-

 

 












2017

 



2016

 



Revenue

Capital

Total

 

Revenue

Capital

Total

 


£'000

£'000

£'000

 

£'000

£'000

£'000

 

Company

 








Corporation tax payable

-

       -  

-

 

-

         -  

-

 


 

 

 

 

 

 

 

 


-

       -  

-

 

-

         -  

-

 










Factors affecting the current tax charge for year:

 








Revenue / capital return on ordinary activities

before tax

 

    17,802

 



    1,249

 










Tax thereon at 20% (2016 - 20%)

 


       3,560

 



       250

 

Effects of:

 








Non taxable dividends

 


(1,182)

 



(1,180)

 

(Gains)/losses on investments not taxable

 


(2,730)

 



581

 

Excess expenses not utilised

 


       352

 



       349

 




-

 



-

 

b) Factors affecting the tax charge for the year         

The Company and Group have losses for tax purposes arising in the year of £1,758,000 (2016 - £1,838,000). Under current legislation, it is unlikely that these losses will be capable of offset against the Group's future taxable profits.

 

c) Factors affecting future tax charges

The Company and Group have deferred tax assets of £4,823,000 (2016 - £4,791,000) at 31 March 2017 relating to total accumulated unrelieved tax losses carried forward of £28,373,000 (2016 - £26,616,000). These have not been recognised in the Financial Statements as it is unlikely that they will be capable of offset against the Group's future taxable profits.

 



2017

 

2016

 


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

       5,089

 

5,089

 

       4,996

 

       4,996

 

Capital return

12,083

 

12,713

 

(4,379)

 

(3,747)


Weighted average ordinary shares in issue

45,549,975

 

45,549,975

 

45,549,975

 

45,549,975


Return per share - revenue

11.17p

 

11.17p

 

10.97p

 

10.97p

 

Return per share - capital

26.53p

 

27.92p

 

(9.61p)

 

(8.23p)

 










Total return per share

37.70p

 

39.09p

 

1.36p

 

2.74p

 



2017

 

2016

 


£'000

 

£'000

8

Dividends

 




Dividends on ordinary shares:

 




Final dividend of 6.00p per share (2016- 4.70p) paid 15 July 2016

  2,733

 

   2,141

 

First quarterly dividend of 2.60p per share (2016- nil)

paid 28 October 2016

  1,184

 

-

 

Second quarterly dividend of 2.60p per share (2016- nil)

paid 27 January 2017

1,184

 

-

 

Interim dividend of nil per share (2016- 4.50p)

 

-

 

2,050

 






Dividends paid in the period

5,101

 

4,191

 

 




 

The third interim dividend of 2.60p (2016 - nil), being payable on 28 April 2017, 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 £5,089,000 (2016 - £4,996,000).

 

 



2017

 

2016

 


£'000

 

£'000


First quarterly dividend of 2.60p per share (2016- nil)

paid 28 October 2016

1,184

 

-

 

Second quarterly dividend of 2.60p per share (2016- nil)

paid 27 January 2017

1,184


-


Third quarterly dividend of 2.60p per share (2016- nil)

payable 28 April 2017

1,184

 

-

 

Interim dividend of nil per share (2016 - 4.50p)

-


2,050


Proposed Final dividend for the year ended 31 March 2017 of

3.20p (2016 - 6.00p) payable 28 July 2017

1,458

 

2,733


 

5,010

 

4,783

 

 

 

 

 

 

Investment

 

 

 

 

Equities

properties

Total

 

 

 

£'000

£'000

£'000

9

Investments

 

 

 

 

 

Group

 

 

 

 

 

Cost at 31 March 2016

 

          86,488

        38,233

   124,721

 

Unrealised appreciation

 

          40,778

        16,892

    57,670

 

 

 

 

 

 

 

Valuation at 31 March 2016

 

        127,266

        55,125

   182,391

 

 

 

 

 

 

 

Purchases

 

            4,989

          16,778

     21,767

 

Sales proceeds

 

(5,029)

(7,799)

(12,828)

 

Realised gains on sales

 

            3,812

358

      4,170

 

Movement in unrealised appreciation in year

 

6,535

          2,313

8,848

 

 

 

 

 

 

 

Valuation at 31 March 2017

 

        137,573

        66,775

   204,348

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in

Investment

 

 

 

Equities

Subsidiary

properties

Total

 

 

£'000

£'000

£'000

£'000

 

Company

 

 

 

 

 

Cost at 31 March 2016

       86,488

            200

       46,562

   133,250

 

Unrealised appreciation

        40,778

-

          8,563

    49,341

 

 

 

 

 

 

 

Valuation at 31 March 2016

      127,266

              200

        55,125

   182,591

 

 

 

 

 

 

 

Purchases

         4,989

                 -  

          16,778

    21,767

 

Sales proceeds

(5,029)

                 -  

(7,799)

(12,828)

 

Realised gains on sales

         3,812

                 -  

358

      4,170

 

Movement in unrealised appreciation in year

6,535

                 -  

          2,313

8,848

 

 

 

 

 

 

 

Valuation at 31 March 2017

      137,573

              200

        66,775

   204,548

 

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:-

 



2017

 

2016

 


£'000

 

£'000

Purchases

 

31

 

32

Sales

 

10

 

4



41

 

36

 





 

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 January 2014 (the 'RICS Red Book') and revised in April 2015 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

 

Name

Country of incorporation

Date of

acquisition

% ownership

Principal activity

Value and Income Services Limited

UK

16 January 2014

100

AIFM

 



2017

 

2016

 


Group

 

Company

 

Group

 

Company

 


£'000

 

£000

 

£'000

 

£'000

10

Other receivables

 








Amounts falling due within one year:

 








Dividends receivable

709

 

709

 

644

 

644

 

Prepayments and accrued income

35

 

35

 

111

 

111

 











744

 

744

 

755

 

755

 



2017

 

2016

 


Group

 

Company

 

Group

 

Company

 


£'000

 

£'000

 

£'000

 

£'000

11

Other payables

 







 

Amounts due to OLIM Limited

        77

 

77

 

        72

 

         72

 

Amounts due to OLIM Property Limited

       33

 

        33

 

        27

 

         27

 

Accruals and other creditors

  1,624

 

1,624

 

      870

 

       870

 

Value Added Tax payable

  388

 

388

 

      183

 

       183

 


    2,122

 

   2,122

 

  1,152

 

    1,152

 

The amounts due to OLIM Limited and OLIM Property Limited comprise the monthly management fee for March 2017, subsequently paid in April 2017.

 



2017

 

2016

 


Group

 

Company

 

Group

 

Company

 


£'000

 

£'000

 

£'000

 

£'000

12

Non-current liabilities

 








Bank loan

     15,000

 

     15,000

 

     5,000

 

     5,000

 

Balance of costs incurred

(384)

 

(384)

 

(109)

 

(109)

 

Add : Debit to income for the year

          37

 

          37

 

          22

 

          22

 


     14,653

 

14,653

 

     4,913

 

     4,913

 










11% First Mortgage Debenture Stock 2021

    15,000

 

    15,000

 

    15,000

 

    15,000

 

Fair value adjustment

          -  

 

    2,524

 

          -  

 

     3,154

 


    15,000

 

    17,524

 

    15,000

 

    18,154

 










9.375% Debenture Stock 2026

    20,000

 

    20,000

 

    20,000

 

    20,000

 

Add:- Balance of premium less issue expenses

        254

 

       254

 

        278

 

        278

 

Less : Credit to income for the year

(24)

 

(24)

 

(24)

 

(24)

 


20,230

 

20,230

 

20,254

 

20,254

 











    49,883

 

    52,407

 

    40,167

 

    43,321

 

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 (2016 - £5,000,000). At 31 March 2017, £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 VIT 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% 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% 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. Under IAS 39, 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 2017 was £17,524,000 (2016 - £18,154,000). 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% of the total value of the assets should be attributable to a single property; and finally, not more than 10% 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 £157.38 million as at 31 March 2017).

 

The fair values of the loan and the debentures are disclosed in Note 20 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.

 



2017

 

2016

 


£'000

 

£'000

14

Share capital

 




Authorised:

 




56,000,000 ordinary shares of 10p each (2016 - 56,000,000)

5,600

 

5,600

 






Called up, issued and fully paid:

 




45,549,975 ordinary shares of 10p each (2016 - 45,549,975)

4,555

 

4,555

 



2017

 

2016

 


Group

 

Company

 

Group

 

Company

 


£'000

 

£'000

 

£'000

 

£'000

15

Share premium

 








Opening balance

18,446

 

18,446

 

18,446

 

18,446

 



2017

 


2016

 


Group

 

Company

 


Group

 

Company

 


£'000

 

£'000

 


£'000

 

£'000

16

Retained earnings










Opening balance at 31 March 2016

 122,307

 

 119,153

 


  125,881

 

 122,095

 

Profit for the year

    17,172

 

     17,802

 


        617

 

     1,249

 

Dividends paid (see note 8)

(5,101)

 

(5,101)

 


(4,191)

 

(4,191)

 











Closing balance at 31 March 2017

  134,378

 

 131,854

 


  122,307

 

 119,153

 










 

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

 



2017

 




2016

 



Revenue

Capital

 

Total

 

Revenue

Capital

 

Total

 

£'000

£'000

 

£'000

 

£'000

£'000

 

£'000

Group

 









Opening balance at 31 March 2016

4,892

117,415

 

122,307

 

4,087

121,794

 

125,881

Profit for the year

5,089

12,083

 

17,172

 

4,996

(4,379)

 

617

Dividends paid (see note 8)

(5,101)

-

 

(5,101)

 

(4,191)

-

 

(4,191)

 










Closing balance at 31 March 2017

4,880

129,498

 

134,378

 

4,892

117,415

 

122,307

 










Company

 









Opening balance at 31 March 2016

3,706

115,447

 

119,153

 

2,901

119,194

 

122,095

Profit for the year

5,089

12,713

 

17,802

 

4,996

(3,747)

 

1,249

Dividends paid (see note 8)

(5,101)

-

 

(5,101)

 

(4,191)

-

 

(4,191)

 










Closing balance at 31 March 2017

3,694

128,160

 

131,854

 

3,706

115,447

 

119,153

 

17    Net asset value per equity share

 

The net asset value per ordinary share is based on the Group's net assets attributable of £157,379,000 (2016 - £145,308,000) and on 45,549,975 (2016 - 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 adjusted for borrowings at fair value (see Note 20) is 318.09p (2016 - 299.17p).

 

The net asset value per ordinary share is based on the Company's net assets attributable of £154,855,000 (2016 - £142,154,000) and on 45,549,975 (2016 - 45,549,975) ordinary shares in issue at the year end.

 




2017

 

2016

 



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

23,164

 

23,794

 

6,300

 

6,932

 

 

Gains and losses on investments

(13,018)

 

(13,648)

 

3,536

 

2,904

 

 

Investment management fee

(1,336)

 

(1,336)

 

(1,204)

 

(1,204)

 

 

Other operating expenses

(573)

 

(573)

 

(777)

 

(777)

 

 

Decrease/(increase) in receivables

11

 

11

 

(130)

 

(130)

 

 

Increase/(decrease) in other payables

884

 

884

 

(572)

 

(572)

 

 










 


Net cash from operating activities

   9,132

 

   9,132

 

   7,153

 

    7,153

 

 

19    Relationship with the Investment Manager and other Related Parties

Angela Lascelles 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 Directors' Report and in Notes 3 and 11.

 

Matthew Oakeshott 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 Directors' Report and in Notes 3 and 11.

 

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.

 

Directors' fees are disclosed in the Directors' Remuneration Report.

 

20    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 in the Business Review, 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 2017 would have increased/decreased by £20,435,000 (2016 - increase/decrease of £18,239,000) 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 2017 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 2017

Weighted average period for which rate is fixed

Years

Weighted average interest rate         %

Fixed rate £'000

Floating rate
£'000

Assets

 




Sterling

-

-

-

4,292

 





Total assets

-

-

-

4,292

At 31 March 2017

Weighted average period for which rate is fixed Years

Weighted average interest rate         %

Fixed rate £'000

Floating rate
£'000

Liabilities

 




Sterling

7.8

8.31

50,000

-

 





Total liabilities

7.8

8.31

50,000

-

At 31 March 2016

Weighted average period for which rate is fixed Years

Weighted average interest rate         %

Fixed rate £'000

Floating rate
£'000

Assets

 




Sterling

-

-

-

3,481

 





Total assets

-

-

-

3,481

At 31 March 2016

Weighted average period for which rate is fixed Years

Weighted average interest rate         %

Fixed rate £'000

Floating rate    £'000

Liabilities

 




Sterling

7.7

9.26

40,000

-

 





Total liabilities

7.7

9.26

40,000

-

 

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 2017 would increase/decrease by £35,000 (2016 - increase / decrease by £47,000). 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. Where the Group's equity investments (which are non-monetary items) are affected, they have been included within the other price risk sensitivity analysis so as to show the overall level of exposure.

 

(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 tables below detail 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 2017

 

Carrying value

Expected cashflows

Due within 3 months

Due between 3 months and 1 year

Due after 1 year

Borrowings

50,727

84,868

1,191

3,367

80,310

Other payables

652

652

652

Total

51,379

85,520

1,843

3,367

80,310

 

 

As at 31 March 2016

 

Carrying value

Expected cashflows

Due within 3 months

Due between 3 months and 1 year

Due after 1 year

Borrowings

40,640

69,587

980

2,722

65,885

Other payables

432

432

432

Total

41,072

70,019

1,412

2,722

65,885

 

 

(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.

 

None of the Group's assets is secured by collateral or other credit enhancements.

 

Credit risk exposure

In summary, compared to the amounts on the Group Statement of Financial Position, the maximum exposure to credit risk at 31 March was as follows:

 



2017

 

2016

 


Balance Sheet £'000

Maximum exposure  £'000

 

Balance Sheet £'000

Maximum exposure £'000

Current assets

 






Cash and cash equivalents

 

4,292

11,375

 

3,481

6,428

Other receivables

 

744

1,237

 

755

1,191



5,036

12,612

 

4,236

7,619

 

(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 13½ years (2016 - 13 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 Manager's Reports. 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, the future minimum lease receipts under non-cancellable leases are as follows:-

 




2017

 

2016

 



£'000

 

£'000

Due within 1 year

 


4,336

 

3,933

Due between 2 and 5 years

 


16,273

 

13,830

Due after more than 5 years

 


39,039

 

33,093




59,648

 

50,856

 

This amount comprises the total contracted rent receivable as at 31 March 2017.

 

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 2017

 






Equity investments

 


137,573

-

-

137,573

Investment properties

 


-

-

66,775

66,775

 



137,573

-

66,775

204,348








At 31 March 2016

 






Equity investments

 


127,266

-

-

127,266

Investment properties

 


-

-

55,125

55,125

 



127,266

-

55,125

182,391

 

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

 

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset as follows:-

 

Level 1 - valued using quoted prices in an active market for identical assets

 

Level 2 - valued by reference to valuation techniques using observable inputs other than quoted prices

 

Level 3 - valued by reference to valuation techniques using inputs that are not based on observable market    data

 

There were no transfers between levels during the year.

 

(ii)   Borrowings

The fair value of borrowings for the Company and Group has been calculated at £62,488,000 as at 31 March 2017 (2016 - £52,190,000) compared to a balance sheet value in the Financial Statements of £49,883,000 (2016 - £40,167,000) 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 value 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

 


2017

2016

 

2017

2016

 


£'000

£'000

 

£'000

£'000

 

 

 

 

 

 

 

11% First Mortgage Debenture Stock 2021

19,010

19,463

 

15,000

15,000

9.375% Debenture Stock 2026

 

27,939

27,567

 

20,230

20,254

 

 

46,949

47,030

 

35,230

35,254

 

 

 

 

 

 

 

Bank Loan

 

15,539

5,160

 

14,653

4,913

 

 

 

 

 

 

 

 

 

62,488

52,190

 

49,883

40,167

 

 

21    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.

 

22    Events after the Balance Sheet Date

There are no significant subsequent events for the Company to disclose.

 

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 2017, but is derived from these Financial Statements. The statutory Financial Statements for the year ended 31 March 2016 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 2017 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 2017 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 2017 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 2017 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, 7 July 2017 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

 

25 May 2017

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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