Regulatory Story
Go to market news section View chart   Print
RNS
Value and Income Trust plc  -  VIN   

Annual Financial Report

Released 18:24 29-May-2018

RNS Number : 5966P
Value and Income Trust plc
29 May 2018
 

VALUE AND INCOME TRUST PLC

ANNUAL FINANCIAL REPORT

FOR THE YEAR ENDED 31 MARCH 2018

 

 

 

Highlights of the Year

 

•       Net Asset Value total return (with debt at par) of -1.6% over one year and 9.3% over three years.

 

•       Share price total return of 7.1% over one year and 15.5% over three years.

 

•       FTSE All-Share Index total return of 1.3% over one year and 18.6% over three years.

 

•       Dividends for year up 3.6% - increased for the 31st consecutive year.

 

 

Financial Record

 

31 March 2018

NAV (valuing debt at  par) (p)

330.5

NAV (valuing debt at market) (p)

309.2

Ordinary share price (p)

262.0

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

15.3

Dividend per share (p)

11.40

Total assets less current liabilities (£m)

200.4

 

 

STRATEGIC REPORT

 

Chairman's Statement

 

The Board is recommending an increase in the final dividend which would make total dividends of 11.4p for the year to 31 March 2018 compared to 11p in the previous year, an increase of 3.6%. This would be the 31st year of real dividend increases following the reconstruction of Value and Income Trust in 1986.

 

Over the year, the net asset value performance of the Trust was mixed. Our property portfolio had a good year. The equity portfolio was less successful in a difficult year for income focussed investors. Overall VIT's net asset value total return was -1.6% and the share price total return was 7.1%.

 

The traditional accounting approach that used to distinguish clearly between income and capital has been replaced to an increasing extent by the notion of total return, which takes income and capital together. We have so far resisted the opportunity to distribute our capital profits as dividends. However, recent UK legislation to prevent the exploitation of tax relief for borrowing had a consequence for investment trusts which was probably unintended. This has reduced our income account in accounting terms, but made no difference to the cash available to pay dividends. As a result our income account appears more stretched than it would have been otherwise. In these circumstances we may consider in future, given the level of our revenue reserve, using capital profits to maintain the growth of our dividend in future.

 

I would remind Shareholders that new Articles of Association were adopted in July 2016.  These included a requirement for the Board to put an Ordinary Resolution to Shareholders in 2024 in relation to the future direction of the Company, including proposals that provide an opportunity for Shareholders to realise their investment in full at net asset value (NAV), less costs, by March 2027 at the latest.

 

No performance fee is payable in respect of last year and we have agreed with our two Investment Managers that this arrangement has ended. We have also agreed a reduction in the investment management fee from 0.66% of the Company's total assets less current liabilities to 0.6% of the Group's gross assets. 

 



 

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 NAV of 330.5p. We also show in Note 17 to the Financial Statements, a NAV of 309.19p 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 £17.764m whilst the second debenture is repayable for £20,000,000 in 2026 and has a fair value of £26.663m. The bank loan of £15,000,000 is repayable in 2026 and has a fair value of £15.258m. All these figures are shown in Note 21 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.

 

Dominic Neary was appointed to the Board in January 2018. His recent experience as the successful investment manager of an income oriented investment trust is already proving to be very helpful.

 

We remain fully invested and at the year end the portfolio yield was 5.0%. Our property portfolio was fully let with leases which have an average unexpired length of 14 years and of which 62% are index-related. Both of the portfolios continue to provide good value when compared to the remarkably low yields available from UK gilts.

 

I hope that we shall see as many Shareholders as possible at the Annual General Meeting on Friday 6 July which is to be held in Edinburgh this year. Our Investment Managers will give a brief presentation on the outlook.

 

James Ferguson

Chairman

 

29 May 2018



 

INVESTMENT MANAGERS' REPORT

 

UK Equities

 

Market Background

 

For the first nine months of VIT's year to the end of March 2018, equities continued to rise on a global basis, encouraged by increasing rates of global growth. However, in the first quarter of 2018 there were considerable falls from the high levels at the end of 2017. Over the year as a whole the FTSE All-Share Index fell by 2.4% and, including income, the total return was +1.3%. The MSCI World Index, which is measured in dollars, rose by 11.8%, but to sterling based investors the capital value rose by less than 1%, as the pound strengthened from $1.26 to $1.40 during the year. Within the UK market, high yielding companies gave the weakest performance with a fall of 6.0%. The FTSE 100 Index of largest companies, which fell by 3.6%, underperformed the 250 Index of mid-sized companies, which rose by 2.6%. In bond markets, ten year gilt yields rose from 1.1% to 1.4% but longer term gilt yields were unchanged. The total return on the FTSE All-Stocks Gilt Index was +0.5%.

 

There were again many uncertainties and unexpected events during VIT's year, beginning with the UK General  Election  which  took place in early June. Despite expectations of a comfortable Conservative win, Labour voters, encouraged by a skilful Corbyn-led campaign, nearly overturned the expected result. Since then, Mrs May has been forced to lead a minority government, with the support of the Democratic Unionist Party of Northern Ireland. As the summer progressed international tensions grew between President Trump and North Korea's dictator, Kim Jong-Un, due to the testing of North Korean nuclear missiles close to Japan.  Despite all these uncertainties markets were remarkably stable. In the first half of VIT's year the UK market rose by 1.4%.

 

In the second half of our year, markets were more volatile. In the three months to the end of December, UK equities rose by 4.2%, encouraged by upgraded forecasts for economic growth in the UK and in global markets. After the euphoria at the beginning of January, however, fear of rising interest rates and generally tighter monetary policy caused a sharp setback in almost all equity markets around the world. US interest rates were raised twice during our year, and in the UK base rate was increased by 0.25% to 0.5%, reversing the post Brexit reduction of the same amount. In America, the Federal Reserve has guided towards further rises in interest rates and Mark Carney at the Bank of England has also made a similar statement. Unemployment levels in America and in the UK have fallen to just over 4%, the lowest levels for several decades, putting pressure on wage inflation in both countries. In the UK, the fall in sterling after the Brexit vote caused the Consumer Prices Index to rise to 3.2% during the winter, though the gradual recovery of the sterling/dollar rate has eased the most recent inflationary figures.

 

UK economic growth in 2017 was greater than expected after the Brexit vote in 2016, but nevertheless trailed most developed markets with growth of 1.7%, which was lower than the Eurozone, which grew by 2.5% and America which grew by 2.2%. The UK economy grew fastest of the developed nations in 2016 making longer term comparisons more aligned. Eurozone growth benefitted from negative interest rates and Quantitative Easing of €90m per month, which has now been reduced. Despite the weak political position and the antagonism of the press, Mrs May finally made satisfactory progress in the negotiations surrounding our trading agreements after we leave the EU. Her government is further encouraged by the figures for public spending, which are currently less than the government income.

 

Performance

At the end of VIT's year, performance was affected by the collapse of Conviviality, which was 2.4% of our equity portfolio at the beginning of our year.  We bought it originally as a way of investing in the changing habits of consumer spending, as shoppers switched their bulk food and drink purchases from out of town superstores to on-line orders, with frequent local top ups at convenience stores. After the transformative acquisition of Matthew Clark, the financial system ultimately proved inadequate, credit insurance was withdrawn and administrators appointed. This holding caused the loss of 3 percentage points in relative performance against the FTSE All-Share Index. The total return on VIT's portfolio over the year was -1.7% compared to the index return of +1.3%.

 

Otherwise in our portfolio our overweighting in the sectors of non-life insurance, electronics and chemicals benefitted relative performance, as did the absence of tobacco holdings. Our underweighting in oils and overweighting in utilities were negative factors over the year.  In stock selection, our holding in Beazley, our largest at the end of our year, returned 37% and Croda in the chemical sector returned 31%. The engineering company Rotork (+19%) and Informa (+14%) also significantly outperformed. Negative relative performance came from Carillion (-44%% to the sale price),

Babcock (-21%), which was affected by negative sentiment about outsourcing companies, and Marstons (-20%) which suffered from caution on consumer spending and snow-affected sales during the winter.

 



 

Portfolio

Sales and purchases of equities over the year totalled £13.64m, with net sales of £563,000. Our policy was to be as fully invested as possible in the equity portfolio throughout the year, in line with the Board's policy to receive maximum dividend income. During the year we sold the holding in John Laing Infrastructure, which we considered overvalued in an increasingly competitive world for infrastructure funds and we sold Carillion immediately after its profit warning in July. We reduced the holdings in Spectris and Beazley after strong outperformance and we reduced the holding in the old shares in Cineworld, in order to take up the rights on the new shares issued to fund the acquisition of Regal, the second largest operator of cinemas in America. At the end of March 2018 we held investments in 35 companies with an average yield of 4.3%.

 

Outlook

After the euphoria at the beginning of 2018, when rising global synchronised growth was dominating investment thinking, sentiment abruptly turned negative, after the release of data in the US which showed a marked move up in pay growth in January, which was followed by the warnings on further increases in interest rates in both America and the UK. More recent indications that Germany's economic growth is slowing in 2018, after its buoyant performance in 2017, suggest that global growth may not be as fast as expected at the beginning of the year. The UK has the extra concern about the terms of Brexit, which will have taken place before the end of VIT's current year, though there will be a prolonged transition period afterwards to finalise trading agreements. Recent reports suggest that the Government is making progress in agreeing principles with our EU counterparts.

 

During April, when this report was written, the pound recovered almost all of its post Brexit fall against the dollar. This would have been helpful in lessening the inflationary pressures on consumers, and would have encouraged the Bank of England to soften its intentions towards further raises of interest rates. Dividends declared in dollars on UK quoted companies would suffer the translation effect of the recovery in the pound and reduce the overall yield on UK equity investments. Against the euro, the pound is continuing to recover modestly and is close to the level of March 2017, though still well below the pre-Brexit level. With all these factors in mind, we believe that the valuation of UK quoted equities, on an average yield more than twice the yield on long dated gilts, offers a reasonable balance between macro-economic and political risks and the attractive income returns.

 

Angela Lascelles

OLIM Limited

 

29 May 2018

 

 



 

PROPERTY PORTFOLIO

 

The Market

UK commercial property delivered a total return of 9.6% in 2017 as measured by the IPD Annual Index. This was well above the returns on UK equities and gilts, as well as market expectations at the start of the year.  But the rising tide has not lifted all boats - industrial/warehouse and the newer alternative types of property (such as leisure, hotels, car showrooms, medical and student accommodation) have substantially outperformed office and retail property.  Capital and rental values of shopping centres, high street shops and shorter-let London offices have been slipping since the autumn. In all sectors there has been a flight to safety, with longer-let, particularly index-linked property outperforming stock with short leases or weak tenants. Rental values rose by 2% in 2017 on average across the property market as a whole, with retail rents under pressure and the growth coming from the industrial/ warehouse and alternatives sectors.

 

Average capital and rental growth will be lower in 2018, with rental income providing most of 5% - 7% total returns.  Two props for parts of the investment market have been cut back, with the long overdue introduction of capital gains tax for overseas investors in commercial property (which has affected some central London investments) and restrictions on local authorities borrowing from the Public Works Loan Board to buy commercial property outside their own area.

 

Cyclical and structural pressures on many retailers and restaurant operators, both in and out of town, have now combined to push many retailers and restaurant operators into difficulties. Toys R Us, Maplin, New Look, Carpetright, House of Fraser, and Select, and Jamie's Italian, Prezzo and Byron Burgers have all torn up their leases or cut the rents they pay on over a thousand properties. Rising food prices resulting from the post-referendum devaluation of sterling have meant consumers have had to spend more on their basic supermarket shop, thus squeezing more discretionary areas of consumer spending, often savagely. Although annual consumer price inflation has now peaked and is falling back into the 2% - 3%  range,  so real consumer incomes have stabilised, any growth in overall retail spending will be online rather than through bricks and mortar shops, shopping centres and retail warehouses.

 

Commercial property rental values may show little overall growth in 2018, with retail faring worst, and rising business rates and Brexit concerns making it necessary to offer London office tenants ever bigger incentives to sign new leases. But these falls should be offset by further growth in industrial/warehouse rents, especially in Southern England where much industrial land has been lost to housing, and in the fast growing alternatives sectors, (which accounted for almost a third of all property investment transactions in 2017).  Safe property with long, preferably index-related, leases to strong covenants, should enjoy another year of strong real returns; institutional property investors are only just waking up to the excellent investment value such properties still offer in a yield-hungry world, in comparison with conventional and index-linked gilt yields still near their historic lows.

 

The UK economy continues to grow, but at the slowest rate of any of the G7 major world economies. The world economy is estimated to have grown by 3.7% in 2017, with a slight acceleration in 2018 and 2019, and with both the Eurozone and U.S. economies growing steadily at around 2.5% in each of those three years. At around 1.5% a year, the UK economy is being helped by improving exports and higher overseas growth. But it is held back by weak consumer spending (representing two-thirds of GDP) and business confidence, deferred investment decisions and growing labour shortages, especially in construction, hospitality and agriculture, with net migration for the EU halved as the Brexit decision date approaches. The UK service sector and construction had both been resilient for most of 2017, but were already weakening over the winter even before the recent adverse weather. The smaller manufacturing and export sectors, however, are still performing well.

 

Consumer Price Inflation and Retail Price Inflation have both peaked at 3% and 4% respectively and may fall back to between 2% and 3% this year. The "wedge" effect - the difference between the annual growth rate of the RPI and the CPI - looks likely to stay near to 1%, partly for technical method of calculation reasons, but also because housing depreciation (a proxy for house prices), mortgage interest payments and council tax payments are all included in the RPI but not the CPI. Investors in index-linked property should therefore continue to pay a significant premium for RPI-linked over CPI-linked rental income. The Minimum Wage has risen by 4.3% to £7.83 per hour, helping consumer incomes to stabilize in 2018 after a 1% real cut in 2017. Public sector net borrowing is down from almost 10% of GDP  to 2.2% now, but the strains of successive cuts are growing in local authorities (especially funding social care, education and the NHS), with the 1% public sector pay cap now scrapped. The Bank of England has raised base rate from 0.25% to 0.5%, but further rises may be small and slow. Longer term interest rates may rise significantly if overseas investors start to price in the risks of a hard Brexit or far-Left Labour government.

 

Over the past two years, there have been many more transactions in the safer sectors of the UK property market than in shorter-let offices and shopping centres. Those parts of the market are still in limbo, with many frustrated sellers, especially U.S. distressed debt and hedge funds, while buyers are few and far between. So valuations of property in those sectors, and the IPD indices overall, are still too optimistic. When more properties change hands in the weaker sectors they will gradually be marked to market, cutting capital growth right back in the overall IPD market indices in 2018.

 

"Safety first" should stay the slogan for property investors targeting strong real returns again at relatively low risk.  This approach paid off in 2017, and property portfolios with weighted average unexpired lease lengths (WAULTs) above the IPD average of 7 years, and void rates below IPD's 7%, should continue to deliver strong relative and absolute real returns over 2018.

 

The Portfolio

VIT's property portfolio produced a total return of 11% over the year to March, against 10% for the IPD Index, the main benchmark for commercial property performance. VIT's long term property record is shown in the property section of the Investment Managers' report.

 

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 been between 11% and 13% a year over the past 3, 5, 20 years and 31 years since the start. Over 10 years the average return was 9%. These returns are 1 to 2% a year above the IPD averages over 1, 3 and 5 years and 3% a year over longer periods. Real returns above the RPI from VIT's property portfolio were 6% a year over the past 10 years and 8-10% a year over all other periods.

 

We bought two new properties with index-related rent reviews in Southampton and Stafford in the past year for £5.4 million at an average net initial yield on purchase of 7.0%; their average unexpired lease length was 18 years. We sold four over-rented shop properties in Caerphilly, Lytham St Anne's, Poole and Stratford, for £5.7 million (2% below valuation) at a net initial yield of 8.7%, falling to below 7.0% on their current rental values. Their average unexpired lease length was 4 years. The property portfolio was fully invested at the year end.

 

The capital value of properties held throughout the year rose by 4%, rental income rose by 1% and rental values by 2%. Industrial properties, pubs, supermarkets and the caravan park performed best, with capital growth of 7%, but shops and motor trade properties were flat. 17 properties gained in value, 5 fell and 4 were unchanged, with 2 new purchases.

 

All properties are let on full repairing and insuring leases, with upward-only rent reviews and an average unexpired lease length now of 14 years. The portfolio has been fully let and income-producing throughout the year. A third of rental income is reviewed annually, with two-thirds five yearly. 62% of the portfolio's rental income comes from

index-related leases (up from 39% five years ago).

 

The property portfolio has been funded for many years by long term fixed rate loans - £20 million of VIT 9 3/8% Debenture Stock repayable in 2026 and £15 million of VIT 11% Debenture Stock repayable in 2021. Because these Debenture Stocks were issued at a premium, their effective interest cost averaged 9%, against the 13% p.a. long-term return from VIT's properties. We borrowed a further £15 million in 2015-2016 at a fixed interest rate of 4.4%, including all costs, also until 2026 and invested the proceeds in properties at a net initial yield of 6.9%.

 

Results of Independent Revaluation

The VIT property portfolio was subject to an independent professional revaluation at 31 March 2018 by Savills. The revaluation showed a value of £68,700,000. Our properties are revalued every six months, at 30 September and 31 March.

 

Capital values rose by 4% over the year and rental income by 2% on a like for like basis. Twenty-six of the properties valued at 31 March 2018 were freehold and two are long leasehold with 40 years and 87 years to run.

 

Matthew Oakeshott and Louise Cleary

OLIM Property Limited

 

29 May 2018

 



 

BUSINESS REVIEW

 

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

 

The Group

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

 

Investment Aims

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

 

Investment Policy

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

 

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

 

The Company has, since 1986, had a long-standing 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 2018, no material changes were made to the Company's investment policy.

 

Performance, Results and Dividend

The first quarterly dividend for the year to 31 March 2018 of 2.7p per share was paid on 27 October 2017, the second quarterly dividend of 2.7p per share was paid on 26 January 2018 and the third quarterly dividend of 2.7p per share was paid on 27 April 2018.

 

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 3.3p per Ordinary Share (2017: 3.2p) is paid on 27 July 2018 to Shareholders on the register on 29 June 2018. The ex-dividend date is 28 June 2018.

 

Principal Risks and Uncertainties

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

 

Market risk

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

 



 

Price risk

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

 

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

 

Interest rate risk

Interest rate movements may affect:

 

-      the fair value of the investments in property; and

 

-      the level of income receivable on cash deposits.

 

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

 

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

 

Currency risk

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

 

Liquidity risk

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

 

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

 

Credit risk

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

 

The risk is not significant and is managed as follows:

 

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

 

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

 

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

 

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 14 years (2017: 13½ years).  Details of the tenant and geographical spread of the portfolio and the long-term record of performance through the varying property cycles since 1987 are set out in the property section of the Investment Managers' report. OLIM Property is responsible for property investment management, with surveyors, solicitors and managing agents acting on the portfolio under OLIM Property's supervision.

 

Political risk

In a referendum held on 23 June 2016, the UK voted to leave the European Union (a process informally known as "Brexit"). The formal process of implementing this decision exists in Article 50 of the Lisbon Treaty which was invoked on 29 March 2017. The full political, economic and legal consequences of the referendum vote are not yet known.

 

It is possible that investments in the UK may be more difficult to value and assess for suitability of risk, harder to buy or sell and may be subject to greater or more frequent rises and falls in value. In the longer term there is likely to be a period of uncertainty as the UK seeks to negotiate its exit from the UK.

 

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

 

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

 

Additional risks and uncertainties include:

 

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

 

•       Regulatory risk: The Group operates in a complex regulatory environment and therefore faces a number of regulatory risks. A breach of Section 1158 of the Corporation Tax Act 2010 would result in the Company being subject to capital gains tax on portfolio investments. Breaches of other regulations, including but not limited to, the Companies Act 2006, the FCA Listing Rules and the FCA Disclosure, Guidance 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 from the Investment Managers.

 

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

 

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

 

In January 2018 two new pieces of legislation were introduced. The Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation and the Second Markets in Financial Instruments Directive (MiFID II) came into force on 1 and 3 January 2018 respectively. PRIIPs required that a Key Information Document (KID) be published for the Company. A copy of the Company's KID is available to view on the Managers' websites www.olim.co.uk and www.olimproperty.co.uk

 

It should be noted that the form and content of the KID is strictly prescribed and includes specific information on investment risks, performance and costs, which must be provided to all potential investors before they can purchase shares in the Company to enable them  to compare the performance of different investment companies. In addition, there is a new requirement under MiFID II, for the Investment Managers to report all transactions in quoted shares (for buy backs as well as those in underlying investments) to the Financial Conduct Authority (FCA) to assist in its continued efforts to combat market abuse. 

 



 

The General Data Protection Regulation came into force on 25 May 2018, replacing the Data Protection Act 1998. This regulation enforces the principle of 'privacy by design and by default' and enshrines new rights for individuals, including the right to be forgotten and to data portability. The Directors have been working with the third parties that process Shareholders' personal data to ensure that their rights under the new regulation are respected and the Company's privacy policy is now available to view on the Managers' websites www.olim.co.uk and www.olimproperty.co.uk

 

Key Performance Indicators

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

 

•       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 2019 as it is believed that these are in the best interests of Shareholders.

 

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

 

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

 

29 May 2018

 



 

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 2018 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

29 May 2018



 

Group Statement of Comprehensive Income

For the year ended 31 March 2018

 

 

 

 

 

 Year ended

 

 Year ended

 

 

 

 

 31 March 2018

 

 31 March 2017

 

 

 

 

Revenue

 Capital

 Total

 

Revenue

 Capital

 Total

 

 

Note

 

 £'000

 £'000

 £'000

 

 £'000

 £'000

 £'000

Income

 

 

 

 

 

 

 

 

 

 

Investment income

 

 

     5,732

            -

   5,732

 

    5,912

             -

    5,912

 

Rental income

 

 

     4,337

            -

   4,337

 

    4,233

             -

    4,233

 

Other income

 

 

             -

            -

           -

 

           1

             -

           1

 

 

2

 

   10,069

            -

 10,069

 

  10,146

             -

  10,146

Gains and losses on investments

 

 

 

 

 

 

 

 

 

 

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

9

 

             -

     (563)

    (563)

 

            -

     4,170

    4,170

 

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

9

 

             -

   (5,270)

  (5,270)

 

            -

     8,848

    8,848

 

 

 

 

 

 

 

 

 

 

 

Total income

 

 

   10,069

 ( 5,833)

   4,236

 

  10,146

   13,018

  23,164

Expenses

 

 

 

 

 

 

 

 

 

 

Investment management fees

3

 

      (427)

     (995)

 (1,422)

 

     (401)

      (935)

  (1,336)

 

 Other operating expenses

4

 

      (691)

            -

    (691)

 

     (573)

             -

     (573)

Finance costs

5

 

   (4,168)

            -

 (4,168)

 

  (4,083)

             -

  (4,083)

Total expenses

 

 

    (5,286)

      (995)

 (6,281)

 

  (5,057)

      (935)

  (5,992)

(Loss)/profit before taxation

 

 

     4,783

  (6,828)

 (2,045)

 

    5,089

    12,083

   17,172

 

 

 

 

 

 

 

 

 

 

 

Taxation

6

 

      (256)

        543

      287

 

            -

             -

            -

(Loss)/profit attributable to equity shareholders of parent company

 

 

     4,527

  (6,285)

 (1,758)

 

    5,089

   12,083

  17,172

Earnings per ordinary share (pence)

7

 

       9.94

  (13.80)

   (3.86)

 

    11.17

     26.53

    37.70

 

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

 

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

 

The Notes form part of these Financial Statements.

 

The Board is proposing a final dividend of 3.30p per share, making a total dividend of 11.40p per share for the year ended 31 March 2018 (2017: 11.00p per share) which, if approved, will be payable on 27 July 2018 (see Note 8).

Company Statement of Comprehensive Income

For the year ended 31 March 2018

 

 

 

 

 Year ended

 

 Year ended

 

 

 

 31 March 2018

 

 31 March 2017

 

 

 

 Revenue

 Capital

 Total

 

 Revenue

 Capital

 Total

 

 

Note

 £'000

 £'000

 £'000

 

 £'000

 £'000

 £'000

Income

 

 

 

 

 

 

 

 

 

 Investment income

 

       5,732

            -

    5,732

 

    5,912

            -

    5,912

 

 Rental income

 

       4,337

            -

    4,337

 

    4,233

            -

    4,233

 

 Other income

 

               -

            -

            -

 

           1

            -

           1

 

 

2

     10,069

            -

  10,069

 

  10,146

            -

  10,146

Gains and losses on investments

 

 

 

 

 

 

 

 

 

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

9

              -

    (563)

    (563)

 

            -

    4,170

    4,170

 

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

9

              -

 (4,639)

 (4,639)

 

            -

    9,478

    9,478

Total income

 

     10,069

 (5,202)

    4,867

 

  10,146

  13,648

  23,794

Expenses

 

 

 

 

 

 

 

 

 

 Investment management fees

3

       (427)

    (995)

 (1,422)

 

      (401)

    (935)

  (1,336)

 

 Other operating expenses

4

       (691)

            -

    (691)

 

      (573)

            -

     (573)

 

 

 

 

 

 

 

 

 

 

Finance costs

5

    (4,168)

            -

 (4,168)

 

   (4,083)

           -

  (4,083)

Total expenses

 

    (5,286)

    (995)

 (6,281)

 

   (5,057)

    (935)

  (5,992)

(Loss)/profit before taxation

 

       4,783

 (6,197)

 (1,414)

 

    5,089

  12,713

  17,802

 

 

 

 

 

 

 

 

 

 

Taxation

6

       (256)

       543

       287

 

            -

            -

            -

(Loss)/profit attributable to equity shareholders

 

       4,527

 (5,654)

 (1,127)

 

    5,089

  12,713

  17,802

Earnings per ordinary share (pence)

7

         9.94

 (12.42)

   (2.48)

 

    11.17

    27.92

    39.09

 

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

 

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

 

The Notes form part of these Financial Statements.

 



 

Group Statement of Financial Position

As at 31 March 2018

 

 

 

 

 

 

As at

 

As at

 

 

 

 

 

31 March 2018

 

31 March 2017

 

 

 

Note

 

£'000

£'000

 

£'000

£'000

ASSETS

 

 

 

 

 

 

 

Non current assets

 

 

 

 

 

 

 

 

Investments held at fair value through profit or loss

9

 

 

128,925

 

 

137,573

 

Investment properties

9

 

 

68,700

 

 

66,775

 

 

 

 

 

 

197,625

 

 

204,348

 

Deferred tax asset

6

 

 

287

 

 

           -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

197,912

 

 

204,348

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

3,639

 

 

4,292

 

 

Receivables

10

 

711

 

 

744

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,350

 

 

5,036

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

 

 

202,262

 

 

209,384

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Payables

11

 

 

(1,845)

 

 

(2,122)

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS LESS CURRENT LIABILITIES

 

 

 

200,417

 

 

207,262

 

 

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

 

Borrowings

12

 

 

(49,898)

 

 

(49,883)

 

 

 

 

 

 

 

 

 

 

NET ASSETS

 

 

 

150,519

 

 

157,379

 

 

 

 

 

 

 

 

 

 

EQUITY ATTRIBUTABLE TO EQUITY SHAREHOLDERS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Called up share capital

14

 

 

4,555

 

 

4,555

 

Share premium

15

 

 

18,446

 

 

18,446

 

Retained earnings

16

 

 

127,518

 

 

134,378

 

 

 

 

 

 

 

 

 

 

TOTAL EQUITY

 

 

 

150,519

 

 

157,379

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value per ordinary share (pence)

17

 

 

330.45

 

 

345.51

 

These Financial Statements were approved by the Board on 29 May 2018 and were signed on its behalf by:

 

JAMES FERGUSON, CHAIRMAN

MATTHEW OAKESHOTT, DIRECTOR

 

The Notes form part of these Financial Statements.



 

 

Company Statement of Financial Position

As at 31 March 2018

 


 

As at

31 March 2018

 

As at

31 March 2017

 

Note

£'000

£'000

 

£'000

£'000

ASSETS

 

 

 

 

 

 

Non current assets

 

 

 

 

 

 

 

Investments held at fair value through profit or loss

9

 

129,125

 

 

137,773

 

Investment properties

9

 

68,700

 

 

66,775

 

 

 

 

 

197,825

 

 

204,548

 

Deferred tax asset

6

 

287

 

 

            -

 

 

 

 

 

198,112

 

 

204,548

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

3,439

 

 

4,092

 

 

Receivables

10

711

 

 

744

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,150

 

 

4,836

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

 

202,262

 

 

209,384

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Payables

11

 

(1,845)

 

 

(2,122)

 

 

 

 

 

 

 

 

 

TOTAL ASSETS LESS CURRENT LIABILITIES

 

 

200,417

 

 

207,262

 

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

Borrowings

12

 

(51,791)

 

 

(52,407)

 

 

 

 

 

 

 

 

 

NET ASSETS

 

 

148,626

 

 

154,855

 

 

 

 

 

 

 

 

 

EQUITY ATTRIBUTABLE TO EQUITY SHAREHOLDERS

 

 

 

 

 

 

Called up share capital

14

 

4,555

 

 

4,555

 

Share premium

15

 

18,446

 

 

18,446

 

Retained earnings

16

 

125,625

 

 

131,854

 

 

 

 

 

 

 

 

 

TOTAL EQUITY

 

 

148,626

 

 

154,855

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset Value per ordinary share (pence)

17

 

326.29

 

 

339.97

 

These Financial Statements were approved by the Board on 29 May 2018 and were signed on its behalf by:

 

JAMES FERGUSON, CHAIRMAN

MATTHEW OAKESHOTT, DIRECTOR

 

The Notes form part of these Financial Statements.



 

Statement of Changes in Equity

For the year ended 31 March 2018

 

Group

 

Year ended 31 March 2018

 

 

Share

Retained

 

 

 

premium

earnings

Total

 

Note

£'000

£'000

£'000

Net assets at 31 March 2017

 

18,446

134,378

157,379

Loss for the year

 

-

(1,758)

(1,758)

Dividends paid

8

-

-

(5,102)

(5,102)

Net assets at 31 March 2018

 

4,555

18,446

127,518

150,519

 

 

 

 

 

 

 

 

 

 

 

Company

 

 

 

 

Share

Retained

 

 

 

premium

earnings

Total

 

 

£'000

£'000

£'000

Net assets at 31 March 2017

 

18,446

131,854

154,855

Loss for the year

 

-

(1,127)

(1,127)

Dividends paid

8

-

(5,102)

(5,102)

Net assets at 31 March 2018

 

4,555

18,446

125,625

148,626

 

 

 

 

 

 

 

 

 

 

 

Group

 

Year ended 31 March 2017

 

 

Share

Retained

 

 

 

premium

earnings

Total

 

 

£'000

£'000

£'000

Net assets at 31 March 2016

 

18,446

122,307

145,308

Profit 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

 

 

 

 

Share

Retained

 

 

 

premium

earnings

Total

 

 

£'000

£'000

£'000

Net assets at 31 March 2016

 

18,446

119,153

142,154

Profit 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

 

 

The Notes form part of these Financial Statements.



 

Group Statement of Cashflows

For the year ended 31 March 2018

 

 

 

2018

 

2017

 

 

Notes

£'000

£'000

 

£'000

£'000

Cash flows from operating activities

 

 

 

 

 

 

 

Dividend income received

 

 

5,804

 

 

5,847

 

Rental income received

 

 

4,179

 

 

4,976

 

Interest received

 

 

-

 

 

1

 

Operating expenses paid

 

 

(2,271)

 

 

(1,692)

 

 

 

 

 

 

 

 

NET CASH INFLOW FROM OPERATING ACTIVITIES

18

 

7,712

 

 

9,132

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

Purchase of investments

 

(11,890)

 

 

(21,767)

 

 

Sale of investments

 

12,780

 

 

12,828

 

 

 

 

 

 

 

 

 

NET CASH INFLOW/(OUTFLOW) FROM INVESTING ACTIVITIES

 

 

890

 

 

(8,939)

 

 

 

 

 

 

 

 

Cash flow from financing activities

 

 

 

 

 

 

 

Loans drawn down

 

-

 

 

9,702

 

 

Interest paid

 

(4,153)

 

 

(3,983)

 

 

Dividends paid

8

(5,102)

 

 

(5,101)

 

 

 

 

 

 

 

 

 

NET CASH (OUTFLOW)/INFLOW FROM FINANCING ACTIVITIES

 

 

(9,255)

 

 

618

 

 

 

 

 

 

 

 

NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS

 

 

(653)

 

 

811

Cash and cash equivalents at 1 April 2017

 

 

4,292

 

 

3,481

 

 

 

 

 

 

 

 

 CASH AND CASH EQUIVALENTS AT 31 MARCH 2018

 

3,639

 

 

4,292

 

The Notes form part of these Financial Statements.

 



 

Company Statement of Cashflows

For the year ended 31 March 2018

 

 

 

2018

 

2017

 

 

Note

£'000

£'000

 

£'000

£'000

Cash flows from operating activities

 

 

 

 

 

 

 

Dividend income received

 

 

5,804

 

 

5,847

 

Rental income received

 

 

4,179

 

 

4,976

 

Interest received

 

 

-

 

 

1

 

Operating expenses paid

 

 

(2,271)

 

 

(1,692)

 

 

 

 

 

 

 

 

NET CASH INFLOW FROM OPERATING ACTIVITIES

18

 

7,712

 

 

9,132

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

Purchase of investments

 

(11,890)

 

 

(21,767)

 

 

Sale of investments

 

12,780

 

 

12,828

 

 

 

 

 

 

 

 

 

NET CASH INFLOW/(OUTFLOW) FROM INVESTING ACTIVITIES

 

 

890

 

 

(8,939)

 

 

 

 

 

 

 

 

Cash flow from financing activities

 

 

 

 

 

 

 

Loans drawn down

 

-

 

 

9,702

 

 

Interest paid

 

(4,153)

 

 

(3,983)

 

 

Dividends paid

8

(5,102)

 

 

(5,101)

 

 

 

 

 

 

 

 

 

NET CASH (OUTFLOW)/INFLOW FROM FINANCING ACTIVITIES

 

 

(9,255)

 

 

618

 

NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS

 

 

(653)

 

 

811

Cash and cash equivalents at 1 April 2017

 

 

4,092

 

 

3,281

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS AT 31 MARCH 2018

 

 

3,439

 

 

4,092

 

The Notes form part of these Financial Statements.

 



 

Notes to the Financial Statements

 

1     Accounting policies

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

 

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

 

(a)   Basis of preparation

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

 

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

 

(b)   Going concern

The Group's business activities, together with the factors likely to affect its future development and performance, are set out in the Strategic Report. The financial position of the Group as at 31 March 2018 is shown in the Statement of Financial Position. The cash flows of the Group for the year ended 31 March 2018, which are not untypical, are set out above. The Group had fixed debt totalling £49,898,000 as at 31 March 2018, as set out in Note 12; none of the borrowings is repayable before 2021. The Group had no short term borrowings. Note 21 sets out the Group's risk management policies and procedures, including those covering market price risk, liquidity risk and credit risk.  As at 31 March 2018, 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)   Receivables and Payables

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

 

(h)   Taxation

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

 

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

 

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

 

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

 

(i)    Dividends payable

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

 



 

(j)    Investments

Equity investments

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

 

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

 

(k)   Cash and cash equivalents

Cash and cash equivalents comprises deposits held with banks.

 

(l)    Non - current liabilities

All new loans and borrowings are initially 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 estimates

The preparation of the Financial Statements requires the Directors to make judgements, estimates and assumptions that may affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. The critical accounting area involving a higher degree of judgement or complexity comprises the determination of fair value of the investment properties. The Group engages independent professional qualified valuers to perform the valuation. Information about the valuation techniques and inputs used in determining fair value as at 31 March 2018 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.

 

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

 

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

 

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.

 



2018

 

2017

 


Group

 

Company

 

Group

 

Company

 


£000

 

£000

 

£000

 

£000

2

Income

 








Investment income

 








Dividends from listed investments in UK

  5,732

 

     5,732

 

     5,912

 

     5,912

 










Other operating income

 








Rental income

  4,337

 

     4,337

 

     4,233

 

     4,233

 

Interest receivable on short term deposits

        -  

 

          -  

 

            1

 

            1


Total income

10,069

 

   10,069

 

    10,146

 

    10,146

 

 




2018

 



2017

 



Revenue

Capital

Total

 

Revenue

Capital

Total

 


£000

£000

£000

 

£000

£000

£000

3

Investment management fee

 








Group

 








Investment management fee

       427

     995

  1,422

 

       401

       935

  1,336

 

Performance fee

         -  

        -  

        -  

 

         -  

          -  

        -  



       427

     995

  1,422

 

       401

       935

  1,336

 



















Company

 








Investment management fee

       427

     995

  1,422

 

       401

       935

  1,336

 

Performance fee

         -  

        -  

        -  

 

         -  

          -  

        -  



       427

     995

  1,422

 

       401

       935

  1,336

 

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

 



 

 




2018

 

2017

 



Group

 

Company

 

Group

 

Company

 



£000

 

£000

 

£000

 

£000

4

Other operating expenses

 








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

          26

 

          26

 

          26

 

          26


 

Fee payable to the Company's auditor for other services

 

 

 

 

 

 

 

 


- audit of the Subsidiary's accounts

            3

 

            3

 

            3

 

            3

 


- other assurance services

          10

 

          10

 

            7

 

            7

 

Directors' fees

          71

 

          71

 

          61

 

          61

 

NIC on Directors' fees

(4)

 

(4)

 

            5

 

            5

 

Fees for company secretarial services

        187

 

        187

 

        179

 

        179

 

Direct property costs

          49

 

          49

 

(16)

 

(16)

 

Other expenses

        349

 

        349

 

        308

 

        308




        691

 

        691

 

        573

 

        573

 

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

 

Directors' fees comprise the Chairman's fees of £27,500 (2017 - £25,000) and fees of £20,000 (2017 - £18,000) per annum paid to each other Director.  The Directors' fees of £20,000 each (2017 - £18,000) 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 £995,000 (2017 - £935,000) and a performance fee of £nil (2017 - £nil), the basis of calculation of which is given in the Director's Report.

 

Matthew Oakeshott is a director of OLIM Property Limited which received an investment management fee of £427,000 (2017 - £401,000) and a performance fee of £nil (2017 - £nil), the basis of calculation of which is given in the Director's Report.

 

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

 



2018

 

2017

 


Group

 

Company

 

Group

 

Company

 


£000

 

£000

 

£000

 

£000

5

Finance costs

 








Interest payable on:

 








11% First Mortgage Debenture Stock 2021

     1,650

 

     1,650

 

     1,650

 

     1,650

 

9.375% Debenture Stock 2026

     1,875

 

     1,875

 

     1,875

 

     1,875

 

Less amortisation of issue premium

(24)

 

(24)

 

(24)

 

(24)

 

Loan interest payable

        628

 

        628

 

        545

 

        545

 

Amortisation of loan expenses

          39

 

          39

 

          37

 

          37



     4,168

 

     4,168

 

     4,083

 

     4,083

 

 



 

 




2018

 



2017

 



Revenue

Capital

Total

 

Revenue

Capital

Total

 


£000

£000

£000

 

£000

£000

£000

6

Taxation

 







a)

Analysis of the tax credit/(charge) for the year:








Group

 








Current tax

(256)

     256

      -

 

         -  

         -  

         -  


Deferred tax

-

     287

      287

 

         -  

         -  

         -  

 


(256)

543

287

 

         -  

-

-

 










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

 








(Loss)/profit before tax

 

(2,045)

 



 17,172

 










Tax (credit)/charge thereon at 19% (2017 - 20%)

 


(389)

 



   3,434

 

Effects of:

 








Non taxable dividends

 


(1,065)

 



(1,182)

 

 

Losses/(gains) on investments not taxable


   1,108

 



(2,604)

 

 

Unrelieved finance costs

 


    412

 



      352

 

 

Losses brought forward now utilised



(66)

 



-

 

 

Deferred tax



(287)

 



-

 

 



(287)

 



-

 












2018

 



2017

 



Revenue

Capital

Total

 

Revenue

Capital

Total

 


£000

£000

£000

 

£000

£000

£000

 

Company

 








Current tax

(256)

     256

      -

 

         -  

         -  

         -  


Deferred tax

-

     287

      287

 

         -  

         -  

         -  

 


(256)

543

287

 

         -  

-

-

 










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

 








 

(Loss)/profit before tax

 

(1,414)

 



 17,802

 










Tax (credit)/charge thereon at 19% (2017 - 20%)

 


(269)

 



    3,560

 

Effects of:

 








Non taxable dividends

 


(1,065)

 



(1,182)

 

 

Losses/(gains) on investments not taxable


      988

 



(2,730)

 

 

Unrelieved finance costs

 


      412

 



      352

 

 

Losses brought forward now utilised



(66) 

 



-

 

 

Deferred tax



(287)

 



-

 

 



(287)

 



-

 

 



 

b) Factors affecting the tax charge for the year

The Company and Group have profits for tax purposes arising in the year of £352,000 (2017 - losses of £1,758,000) as a result of the new corporate interest restriction legislation effective from 1 April 2017 that limits the amount of finance costs that can be offset.

 

 

 


2018

 


2017

 

 

 

Revenue

Capital

Total

Revenue

Capital

Total

 

 

£000

£000

£000

£000

£000

£000

c)

Factors affecting future tax charges

 

 

 

 

 

 

 

Unutilised tax losses

 

 

 30,190

 

 

 28,373

 

Potential tax benefit at 19% and 17%

(2017 - 17%)

 

 

   5,736

 

 

   4,823

 

 

 

 

 

 

 

 

 

Recognised as a deferred tax non-current asset

 

 

      287

 

 

         -  

 

Not recognised as a deferred tax asset

 

 

   5,449

 

 

   4,823

 

 

 

 

   5,736

 

 

   4,823

 

The Company and Group have deferred tax assets of £5,736,000 (2017 - £4,823,000) at 31 March 2018 relating to total accumulated unrelieved tax losses carried forward of £30,190,000 (2017 - £28,373,000). The Company and Group have recognised deferred tax assets of £287,000 (2017 - nil) but have not recognised deferred tax assets of £5,449,000 (2017 - £4,823,000) arising as a result of losses carried forward. These losses do not have an expiry date but it is considered too uncertain that the Group will generate profits against which these losses would be available to offset and, on that basis, the deferred tax asset in respect of these losses has not been recognised.

 



2018

 

2017

 


Group

 

Company

 

Group

 

Company

 


£000

 

£000

 

£000

 

£000

7

Return per ordinary share

 








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

 








Revenue return

       4,527

 

       4,527

 

       5,089

 

        5,089

 

Capital return

(6,285)

 

(5,654)

 

12,083

 

12,713

 










Weighted average ordinary shares in issue

45,549,975

 

45,549,975

 

45,549,975

 

45,549,975











Return per share - revenue

9.94p

 

9.94p

 

11.17p

 

11.17p

 

Return per share - capital

(13.80p)

 

(12.42p)

 

26.53p

 

27.92p

 










Total return per share

(3.86p)

 

(2.48p)

 

37.70p

 

39.09p

 

 



2018

 

2017

 


£000

 

£000

8

Dividends

 




Dividends on ordinary shares:

 




Third quarterly dividend of 2.60p per share (2017- nil) paid 28 April 2017

  1,184

 

         -  

 

Final dividend of 3.20p per share (2017 - 6.00p) paid 28 July 2017

   1,458

 

    2,733

 

First quarterly dividend of 2.70p per share (2017- 2.60p) paid 27 October 2017

   1,230

 

    1,184

 

Second quarterly dividend of 2.70p per share (2017- 2.60p) paid 26 January 2018

   1,230

 

    1,184

 






Dividends paid in the period

5,102

 

5,101

 

The third interim dividend of 2.70p (2017 - 2.60p), paid on 27 April 2018, has not been included as a liability in these Financial Statements.

 

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

 

Set out below is the total dividend paid and proposed in respect of the financial year, which is the basis upon which the requirements of Sections 1158 - 1159 of the Corporation Tax Act 2010 are considered. The current year's revenue available for distribution by way of dividend is £4,527,000 (2017 - £5,089,000).

 


2018

 

2017

 

£000

 

£000

First quarterly dividend of 2.70p per share (2017- 2.60p) paid 27 October 2017

  1,230

 

1,184

Second quarterly dividend of 2.70p per share (2017- 2.60p) paid 26 January 2018

  1,230

 

1,184

Third quarterly dividend of 2.70p per share (2017- 2.60p) paid 27 April 2018

  1,230

 

1,184

Proposed final dividend for the year ended 31 March 2018 - 3.30p (2017 - 3.20p) payable 27 July 2018

  1,503

 

1,458

 





5,193

 

5,010

 

 





Investment

 




Equities

properties

Total

 



£'000

£'000

£'000

9

Investments

 





Group

 





Cost at 31 March 2017

 

          90,260

        47,570

 137,830

 

Unrealised appreciation

 

          47,313

        19,205

  66,518


Valuation at 31 March 2017

 

        137,573

        66,775

 204,348

 







Purchases

 

            6,536

          5,354

   11,890

 

Sales proceeds

 

(7,099)

(5,681)

(12,780)

 

Realised losses on sales

 

(357)

(206)

(563)

 

Movement in unrealised appreciation in year

 

(7,728)

          2,458

(5,270)

 







Valuation at 31 March 2018

 

        128,925

        68,700

 197,625

 















Investment in

Investment

 



Equities

Subsidiary

properties

Total

 


£'000

£'000

£'000

£'000

 

Company

 





Cost at 31 March 2017

        90,260

              200

        55,899

 146,359

 

Unrealised appreciation

        47,313

                 -  

        10,876

   58,189


Valuation at 31 March 2017

      137,573

              200

        66,775

 204,548


Purchases

         6,536

                 -  

          5,354

   11,890

 

Sales proceeds

(7,099)

                 -  

(5,681)

(12,780)

 

Realised losses on sales

(357)

                 -  

(206)

(563)

 

Movement in unrealised appreciation in year

(7,728)

                 -  

          2,458

(5,270)


Valuation at 31 March 2018

      128,925

              200

        68,700

 197,825

 

 

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:-

 



2018

 

2017

 


£'000

 

£'000

Purchases

 

17

 

31

Sales

 

11

 

10



28

 

41

 



 

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

 

Investment in subsidiary

 

Country of incorporation

Date of acquisition

% Ownership

Principal activity

Name

 




Value and Income Services Limited

UK

16 January 2014

100

AIFM

 



2018

 

2017

 


Group

 

Company

 

Group

 

Company

 


£000

 

£000

 

£000

 

£000

10

Receivables

 








Amounts falling due within one year:

 








Dividends receivable

637

 

637

 

709

 

709

 

Prepayments and accrued income

74

 

74

 

35

 

35

 


711

 

711

 

744

 

744

 









 



2018

 

2017

 


Group

 

Company

 

Group

 

Company

 


£000

 

£000

 

£000

 

£000

11

Payables

 








Amounts due to OLIM Limited

        82

 

         82

 

      77

 

         77

 

Amounts due to OLIM Property Limited

        35

 

         35

 

      33

 

         33

 

Accruals and other creditors

  1,530

 

    1,530

 

 1,624

 

    1,624

 

Value Added Tax payable

     198

 

       198

 

    388

 

       388

 


 

 

 

 



 

 


  1,845

 

    1,845

 

 2,122

 

    2,122

 

The amounts due to OLIM Limited and OLIM Property Limited comprise the monthly management fee for March 2018, subsequently paid in April 2018.


2018

 

2017

 

 

Group

 

Company

 

Group

 

Company

 

£000

 

£000

 

£000

 

£000

12

 








   15,000

 

    15,000

 

   15,000

 

  15,000

 

(347)

 

(347)

 

(384)

 

(384)

 

          39

 

          39

 

          37

 

         37

 

   14,692

 

    14,692

 

   14,653

 

  14,653

 









   15,000

 

    15,000

 

   15,000

 

  15,000

 

          -  

 

     1,893

 

          -  

 

    2,524

 

   15,000

 

    16,893

 

   15,000

 

  17,524

 









   20,000

 

    20,000

 

   20,000

 

  20,000

 

        230

 

        230

 

        254

 

       254

 

(24)

 

(24)

 

(24)

 

(24)

 

20,206

 

20,206

 

20,230

 

20,230



   49,898

 

    51,791

 

   49,883

 

  52,407

 

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 (2017 - £15,000,000). At 31 March 2018, £11,893,750 was drawn down at a rate of 4.344% and £3,106,250 was drawn down at a rate of 3.60%. The terms of the loan facility contain financial covenants that require the Company to ensure that:-

 

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

 

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

 

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

 

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

 

The 11% First Mortgage Debenture Stock 2021, now issued by VIT, is repayable at par on 31 March 2021 and is secured over specific assets of the Company. 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 2018 was £16,893,000 (2017 - £17,524,000). The amortisation of the fair value adjustment is presented as a capital item within gains/losses on investments as it relates to the reversal of a previously recognised loss on the Company's investment in its subsidiary. In the Group Financial Statements, the fair value adjustment is eliminated on consolidation.

 

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

 

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

 

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

 

The Trust Deed of the 9.375% Debenture Stock contains restrictions and events of default. The restrictions require that the aggregate group borrowings, £50 million, must not at any time exceed the total group capital and reserves (equivalent to net assets of £150.52 million as at 31 March 2018).

 

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

 

13    Deferred tax

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

 

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

 



2018

 

2017

 


£000

 

£000

14

Share capital

 




Authorised:

 




56,000,000 Ordinary Shares of 10p each (2017 - 56,000,000)

5,600

 

5,600

 

 

Called up, issued and fully paid:

 




45,549,975 Ordinary Shares of 10p each (2017 - 45,549,975)

4,555

 

4,555

 

 



2018

 

2017

 

 


Group

 

Company

 

Group

 

Company

 


£000

 

£000

 

£000

 

£000

15

Share premium

 








Opening balance

18,446

 

18,446

 

18,446

 

18,446

 




2018

 


2017

 



Group

 

Company

 


Group

 

Company

 



£000

 

£000

 


£000

 

£000

16

Retained earnings

 










Opening balance at 31 March 2017

 

134,378

 

 131,854

 


122,307

 

  119,153

 

(Loss)/profit for the year

 

(1,758)

 

(1,127)

 


  17,172

 

    17,802

 

Dividends paid (see Note 8)

 

(5,102)

 

(5,102)

 


(5,101)

 

(5,101)

 












Closing balance at 31 March 2018

 

127,518

 

 125,625

 


134,378

 

  131,854

 























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

 














2018

 




2017

 




Revenue

Capital

 

Total

 

Revenue

Capital

 

Total

 


£000

£000

 

£000

 

£000

£000

 

£000

 

Group

 










Opening balance at 31 March 2017

4,880

129,498

 

134,378

 

4,892

117,415

 

122,307

 

(Loss)/profit for the year

4,527

(6,285)

 

(1,758)

 

5,089

12,083

 

17,172

 

Dividends paid (see Note 8)

(5,102)

-

 

(5,102)

 

(5,101)

-

 

(5,101)

 












Closing balance at 31 March 2018

4,305

123,213

 

127,518

 

4,880

129,498

 

134,378

 












Company

 










Opening balance at 31 March 2017

3,694

128,160

 

131,854

 

3,706

115,447

 

119,153

 

(Loss)/profit for the year

4,527

(5,654)

 

(1,127)

 

5,089

12,713

 

17,802

 

Dividends paid (see Note 8)

(5,102)

-

 

(5,102)

 

(5,101)

-

 

(5,101)

 












Closing balance at 31 March 2018

3,119

122,506

 

125,625

 

3,694

128,160

 

131,854

 

17    Net asset value per equity share

The net asset values per Ordinary Share are based on the Group's net assets attributable of £150,519,000 (2017 - £157,379,000) and on the Company's net assets attributable of £148,626,000 (2017 - £154,855,000) and on 45,549,975 (2017 - 45,549,975) Ordinary Shares in issue at the year end.

 

The net asset value per ordinary share, based on the net assets of the Group and the Company adjusted for borrowings at fair value (see Note 21) of £140,834,000 (2017 - £144,891,000) is 309.19p (2017 - 318.09p).

 

 

2018

 

2017

 

Group

Company

 

Group

Company

 

 £000

 £000

 

 £000

 £000

Net assets at 31 March

150,519

148,626

 

157,379

154,855

Fair value adjustments

(9,685)

(7,792)

 

(12,488)

(9,964)

 

 

 

 

 

 

Net assets with borrowings at fair value

140,834

140,834

 

144,891

144,891

 

 

 

 

 

 

Number of shares in issue

45,549,975

45,549,975

 

45,549,975

45,549,975

 

 

 

 

 

 

Net asset value per share

330.45p

326.29p

 

345.51p

339.97p

 

 

 

 

 

 

Net asset value per share with borrowings at fair value

309.19p

309.19p

 

318.09p

318.09p

 



2018

 

2017

 


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

4,236

 

4,867

 

23,164

 

23,794

 

Losses/(gains) on investments

5,833

 

5,202

 

(13,018)

 

(13,648)

 

Investment management fee

(1,422)

 

(1,422)

 

(1,336)

 

(1,336)

 

Other operating expenses

(691)

 

(691)

 

(573)

 

(573)

 

Decrease in receivables

33

 

33

 

11

 

11

 

(Decrease)/increase in other payables

(277)

 

(277)

 

884

 

884


Net cash from operating activities

 7,712

 

    7,712

 

   9,132

 

    9,132

 

 



2018

 

2017

 


Group

 

Company

 

Group

 

Company

 


£000

 

£000

 

£000

 

£000

19

Reconciliation of non-current liabilities arising from financing activities

 








Cash flows:

 








Drawdown of bank loans

-

 

-

 

(9,702)

 

(9,702)

 

Non cash:

 








Amortisation of loan premium and expenses and fair value adjustment

(15)

 

616

 

(14)

 

616

 










Change in debt in the year

(15)

 

616

 

(9,716)

 

(9,086)

 










Opening debt at 31 March 2017

(49,883)

 

(52,407)

 

(40,167)

 

(43,321)

 










Closing debt at 31 March 2018

(49,898)

 

(51,791)

 

(49,883)

 

(52,407)

 

20    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 Director's Report and in Note 3.

 

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 Director's Report and in Note 3.

 

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

 

21    Financial instruments and investment property risks

Risk management

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

 

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

 

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

 



 

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

 

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

 

(ii)   liquidity risk

 

(iii)   credit risk

 

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

 

(i)    Market risk

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

 

Price risk

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

 

It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular sector. For equities, asset allocation and stock selection, as set out in the Investment Policy, both act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. The investments held by the Company are listed on the London 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 2018 would have increased/decreased by £19,763,000 (2017 - increase/decrease of £20,435,000) 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 2018 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 2018

Weighted average period for which rate is fixed Years

Weighted average interest rate         %

Fixed rate £'000

Floating rate   
£'000

Assets

 




Sterling

-

-

-

3,639

Total assets

-

-

-

3,639

At 31 March 2018

Weighted average period for which rate is fixed Years

Weighted average interest rate         %

Fixed rate £'000

Floating rate
£'000

Liabilities

 




Sterling

6.8

8.31

50,000

-

Total liabilities

6.8

8.31

50,000

-

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

-

 

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 2018 would increase/decrease by £41,000 (2017 - increase/decrease by £35,000). 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 table below details the Group's remaining contractual maturity for its financial liabilities, based on the undiscounted cash outflows, including both interest and principal cash flows, and on the earliest date upon which the Group can be required to make payment.

 

As at 31 March 2018


Carrying value

Expected cashflows

Due within

3 months

Due between

3 months and 1 year

Due after 1 year

 






Borrowings

50,727

76,958

1,091

3,063

72,804

Other payables

485

485

485

Total

51,212

77,443

1,576

3,063

72,804

 

 

As at 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

 

 



 

(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:



2018

 

2017



Balance Sheet

£'000

Maximum

exposure

£'000

 

Balance Sheet

£'000

Maximum exposure £'000

Current assets

 






Cash and cash equivalents

 

3,639

9,891

 

4,292

11,375

Other receivables

 

711

1,249

 

744

1,237



4,350

11,140

 

5,036

12,612

 

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 13.7 years (2017 - 13.5 years). Details of the tenant and geographical spread of the portfolio and the long term record of performance through the varying property cycles since 1987 are set out in the property section of the Investment Managers' report. OLIM Property is responsible for property investment management, with surveyors, solicitors and managing agents acting on the portfolio under OLIM Property's supervision.

 

The Group leases out its investment property to its tenants under operating leases. At 31 March 2018, the future minimum lease receipts under non-cancellable leases are as follows:-

 



2018

 

2017



£'000

 

£'000

Due within 1 year


4,329

 

4,336

Due between 2 and 5 years


16,641

 

16,273

Due after more than 5 years


40,083

 

39,039



61,053

 

59,648

 

This amount comprises the total contracted rent receivable as at 31 March 2018.                           

 

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 2018





Equity investments

128,925

-

-

128,925

Investment properties

-

-

68,700

68,700

 

128,925

-

68,700

197,625

 





At 31 March 2017





Equity investments

137,573

-

-

137,573

Investment properties

-

-

66,775

66,775

 

137,573

-

66,775

204,348

 

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

 

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 has been calculated at £59,685,000 as at 31 March 2018 (2017 - £62,488,000) compared to a balance sheet value in the financial statements of £49,898,000 (2017 - £49,883,000) per Note 12.

 

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

 

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

 


Fair value

 

Balance Sheet Value

 

2018

2017

 

2018

2017

 

£'000

£'000

 

£'000

£'000

11% First Mortgage Debenture Stock 2021

17,764

19,010

 

15,000

15,000

9.375% Debenture Stock 2026

26,663

27,939

 

20,206

20,230

 







44,427

46,949

 

35,206

35,230

 






Bank loan

15,258

15,539

 

14,692

14,653

 







59,685

62,488

 

49,898

49,883

 

There were no transfers between Levels during the year.

 

 



 

22    Capital management policies and procedures

The Group's capital management objectives are:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

23    Events after the Balance Sheet Date

There are no significant subsequent events for the Group or 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 2018, but is derived from these Financial Statements. The statutory Financial Statements for the year ended 31 March 2017 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 2018 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 2018 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 2018 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 2018 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, 6 July 2018 at 12.30pm at the offices of Shepherd & Wedderburn LLP, 1 Exchange Crescent, Edinburgh EH3 8UL.

 

 

For Value and Income Trust PLC

Maven Capital Partners UK LLP

Company Secretary

 

29 May 2018

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
END
 
 
FR FKCDBOBKDBPB
Close


London Stock Exchange plc is not responsible for and does not check content on this Website. Website users are responsible for checking content. Any news item (including any prospectus) which is addressed solely to the persons and countries specified therein should not be relied upon other than by such persons and/or outside the specified countries. Terms and conditions, including restrictions on use and distribution apply.

 


Annual Financial Report - RNS