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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Value And Indexed Property Income Trust Plc | LSE:VIN | London | Ordinary Share | GB0008484718 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 221.00 | 221.00 | 224.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMVIN
RNS Number : 1490B
Value and Income Trust plc
05 June 2019
VALUE AND INCOME TRUST PLC
ANNUAL FINANCIAL REPORT
FOR THE YEARED 31 MARCH 2019
Highlights of the Year
-- Net Asset Value total return (with debt at par)* of 4.2% over one year and 15.3% over three years.
-- Share Price total return* of 0.2% over one year and 30.6% over three years. -- FTSE All-Share Index total return of 6.4% over one year and 31.3% over three years. -- Dividends for year up 3.5% - increased for the 32nd consecutive year.
Financial Record
Hot Features
Premium
31 March 2019
NAV (valuing debt at par) (p) 332.5
NAV (valuing debt at market) (p)* 312.2
Ordinary share price (p) 251.0
Discount of share price to NAV (valuing
debt at market) (%) 19.6
Dividend per share (p) 11.80
Total assets less current liabilities
(GBPm) 201.3
* This is an Alternative Performance Measure (APM) which has been explained in the Glossary in the Annual Report.
STRATEGIC REPORT
Chairman's Statement
The Board is recommending a final dividend of 3.4p per share which would make total dividends of 11.8p per share for the year to 31 March 2019 compared to 11.4p per share in the previous year, an increase of 3.5%. This would be the 32nd year of dividend increases following the reconstruction of Value and Income Trust (VIT).
During the course of last year we reviewed the investment aims of VIT. These were established in 1986 and have served us well as is shown by our dividend and long-term total return record. However, the combination of equities and direct property investment is unusual for an investment trust. It has meant that the share price of VIT has tended to be at a larger discount to its Net Asset Value (NAV) per share than its peers. Our conclusion from the review was that this is still a good formula for our purpose of providing long-term real growth in our dividend and capital, but that we needed to demonstrate the reasons for confidence in our ability to achieve this.
A practical outcome of the review was the establishment of an annual income target for the equity portfolio. The target is for the equity portfolio to generate income in any given financial year equivalent to 115-130% of the yield on the FTSE All-Share Index as calculated on the last day of the Company's prior financial year. We believe that such a range combines a focus on strong near-term income from dividends, while allowing the Manager to select a portfolio of equities which will, in aggregate, produce steady and predictable income growth into the future. You will see from the equity report, that as a result of this renewed focus on equity income generation there has been some rearrangement of the portfolio which now has a yield of 4.8%. In the property portfolio, a recent reorganisation has led to 79% of the portfolio's rental income now being subject to RPI-linked or fixed increases.
These portfolio developments, alongside the repayment of your Company's relatively high-cost 11% debentures in 2021, give the Board encouragement for the outlook for longer-term income and capital growth. It is this that is behind the Board's proposal to augment this year's earnings with modest use of the Company's reserves to maintain above-inflation growth in dividends.
Another consequence of our review, and in line with current practice, was the retirement of Angela Lascelles and Matthew Oakeshott from the Board on 1 April 2019. Patrick Harrington and Louise Cleary have succeeded them as the lead portfolio managers, having worked closely with them in managing VIT's portfolio. We are very grateful for all that Angela and Matthew have contributed to VIT as the architects of its success. We know that they will continue to take a keen interest in the progress of VIT.
Over the year the NAV total return (with debt at par) was 4.2% and the share price total return was 0.2%. This compares with the FTSE All-Share Index total return of 6.4%. The total return from the equity portfolio was 5.5% and from the property portfolio was 8.0%.
VIT has two debentures and one bank loan which, in the Group's Financial Statements, are stated at cost, adjusted annually over their lives to write off the issue premium and issue expenses. These numbers are used to calculate the year end NAV of 332.5p per share. We also show in Note 17 to the Financial Statements a NAV of 312.16p per share which is adjusted for borrowings at fair value, being amounts greater than their respective nominal values. This fair value is calculated by reference to the market. The first of our debentures is repayable for GBP15,000,000 in 2021 and has a fair value of GBP16,966,000 whilst the second debenture is repayable for GBP20,000,000 in 2026 and has a fair value of GBP26,620,000. The bank loan of GBP15,000,000 is repayable in 2026 and has a fair value of GBP15,658,000. All these figures are shown in Note 21 to the Financial Statements.
It is important to note two points: first, the differences between the two values of each of our debentures and our loan will reduce until each instrument is repaid at its nominal value, thus increasing the NAV with borrowings at fair value over the period. The two debentures have covenants attached to them. Information about these is included in Note 12 to the Financial Statements; there is plenty of headroom in terms of both capital and income. Secondly, I would remind Shareholders that new Articles of Association were adopted in July 2016. These included a requirement for the Board to put an Ordinary Resolution to Shareholders in 2024 in relation to the future direction of the Company, including proposals that provide an opportunity for any Shareholders to realise their investment in full at NAV, less costs, by March 2027 at the latest. The details of this are shown in the Annual Report.
As was the case last year, we remain fully invested. Both of our portfolios continue to provide good value when compared to the yields available from UK gilts.
Our Managers have been working on the production of a new monthly factsheet which will shortly be available on the Managers' websites at www.olim.co.uk and www.olimproperty.co.uk.
I hope that we shall see as many Shareholders as possible at the Annual General Meeting to be held on Friday, 5 July 2019 at 12.30pm at the offices of Shepherd & Wedderburn LLP, Condor House, 10 St. Paul's Churchyard, London EC4M 8AL. Our Managers will give a brief presentation on the investment strategy, portfolio and market outlook.
James Ferguson
Chairman
4 June 2019
INVESTMENT MANAGERS' REPORT
UK Equities
Market Background
Global equities gained ground steadily during the first six months of VIT's financial year to the end of March 2019, encouraged by widespread economic growth. As the summer progressed, trade tensions grew between President Trump and China, whilst the Federal Reserve continued to tighten monetary policy. The positive economic background outweighed these negatives and markets made good progress. In the first half of VIT's year the UK market rose by 6.0% and gave a total return of 8.2%.
In the second half of VIT's year stock markets were more volatile. The final three months of 2018, the third quarter of VIT's financial year, saw UK equities fall by 11.0%, as the combination of rising interest rates and the potential for a damaging trade war between the US and China began to hit economic growth expectations and undermined investor confidence. At the end of the year, the Federal Reserve indicated that it would halt its programme of monetary tightening as evidence of weakening economic growth mounted. No further interest rate rises from the current Fed Funds rate of 2.5% are now expected in 2019. Consequently, share prices have rebounded strongly since the turn of the year and have recovered much of the ground lost in the previous quarter. Over the six month period the UK stock market fell by 3.6% and gave a total return of -1.9%.
Over the year as a whole, the FTSE All Share Index rose marginally by 2.2% and, including income, the total return was +6.4%. The MSCI World Index, which is measured in US Dollars, also registered a small increase of 2.0%, but to sterling-based investors the capital value rose by 9.6%, as the pound weakened from $1.40 to $1.30 during the year as Brexit concerns came to the fore. Within the UK market, high yielding companies performed in line with the FTSE All Share Index, rising by 2.2%. The FTSE 100 Index of largest companies, which rose by 3.2%, outperformed the more domestically focused FTSE 250 Index of mid-sized companies and FTSE Small Cap Index, which fell by 1.8% and 2.3% respectively. In the bond market, ten year gilt yields ended VIT's year at 1.0%, down from 1.4% a year earlier and twenty year gilt yields also fell to just 1.5%. The total return on the FTSE All Stocks Gilt Index was +3.7%. Commodities reflected the general background in financial markets and were volatile over the year. The price of a barrel of oil traded between $50 and $86 but ended little changed over the year at $68. Metal prices generally fell as Chinese growth slowed but iron ore rose substantially after the dam disaster in Brazil caused a large reduction in supply.
Brexit has dominated the UK political scene over the last year and, at the time of writing, it is no clearer what the UK's eventual relationship with the EU will be or even if the Brexit referendum result will be implemented at all. Despite this uncertainty, the Bank of England followed the Federal Reserve's lead and increased the UK base rate by 0.25% to 0.75% in August 2018. This is the first time base rates have been above 0.5% since the financial crisis. Given the weakening economic outlook and ongoing Brexit difficulties it would be surprising if UK interest rates were increased again in the near future. The fall in sterling over the last year has not fed through to inflation; the most recent reading of the Consumer Prices Index gave an annual figure for inflation of 1.9%, just below the Bank of England's 2.0% target.
UK economic growth moderated to 1.4% in 2018, which was lower than in America, which grew by 2.9%, and in the Eurozone, which grew by 1.8%. Recent economic surveys suggest that Eurozone economic growth has slowed sharply with even Germany posting disappointing readings. Even though UK growth has not been especially buoyant, the Chancellor has been successful in reducing the Government deficit to the lowest level seen since the financial crisis. It is perhaps unsurprising that the UK economy has not grown rapidly given this significant fiscal squeeze and the background of rising interest rates, although much of the blame is often placed on "Brexit uncertainty". Even though the rate of UK economic growth has fallen, the UK employment market has remained buoyant. As a result, the total number of people in jobs is at record levels and the rate of unemployment in the UK has fallen below 4%, the lowest level for several decades. This is putting some upwards pressure on wage inflation and giving hard-pressed UK consumers a welcome boost.
Performance
Over the last twelve months the total return on VIT's equity portfolio was 5.5%, which was a little behind the FTSE All-Share Index total return of 6.4%. In overall terms stock selection was a net positive but this was more than offset by the negative asset allocation effect between sectors. In particular, the underweight positions in Mining, Pharmaceuticals and Oil & Gas Producers and overweight positions in Life Assurance and Chemicals were costly for performance, whilst the underweight positions in Tobacco (not held) and Banks were beneficial. To an extent, this reflected the portfolio's underweight position in FTSE 100 stocks and greater exposure to small and mid-cap stocks. The portfolio gains diversification benefits from being less concentrated in the largest sectors and this leads to the natural underweighting of large cap stocks. On the other hand, stock selection was positive overall with Britvic (+40% over the year after good results led to a re-rating), Cineworld (+24% as investors re-appraised the merits of its US acquisition) and the portfolio's two mining stocks Rio Tinto and BHP Group (+24% and +32% due to their exposure to iron ore) doing especially well. Disappointing performances came from Restaurant Group (-36%), Babcock International (-26%), Centrica (-20%) and Crest Nicholson (-19%). Restaurant Group has fallen as a result of the poorly received purchase of Wagamama. Although the acquisition was not cheap we feel the quality and growth prospects of the group have been enhanced by the deal and see significant value in the shares at present. Babcock International has been affected by the market's aversion to outsourcing businesses after a number of high profile collapses, whilst Centrica and Crest Nicholson have faced trading difficulties.
Portfolio
The year ended 31 March 2019 saw sales and purchases of equities totalling GBP43.49m, with net sales of GBP1.04m. In view of the attractive yields to be found in the market, our policy was to be as fully invested as possible in the equity portfolio throughout the year, in line with the Board's policy to receive maximum dividend income. During the year we took profits in several successful long-term holdings including Beazley, Informa, Unilever and Cineworld. We also made complete disposals of Halma, on valuation grounds, and of British Land, as the outlook for its retail property assets worsened. We also disposed of N Brown, which has struggled to shift its clothing catalogue business on-line, and Wood Group, which is grappling with its purchase of AMEC. We also reduced Restaurant Group in order to take part in the rights issue that funded its purchase of Wagamama. New holdings were started in Phoenix Group, the leading life assurance consolidator, Devro, which manufactures edible food casings, and DS Smith, a FTSE 100 packaging business. All three were offering above average dividend yields with the potential for attractive dividend growth over the medium term. We also took advantage of Brexit-related concerns to add to Marstons and to start a new holding in Lloyds Banking Group. In the media sector we switched Daily Mail & General into ITV on a higher yield. At the end of March 2019 we held investments in 35 companies with an average yield of 4.8%.
Outlook
The overall investment outlook remains mixed. Global economic growth is undoubtedly slowing as a result of the monetary tightening seen over the course of the last two years. The economic outlook in Europe has deteriorated the most sharply with economic surveys now suggesting that growth in the Eurozone has completely stalled and that several major European countries may well be in recession. The ECB has softened its monetary stance as a result, but to little effect. Even in the US, the rate of economic growth has tempered as the effect of the Trump tax stimulus has worn off. Deteriorating economic growth will put pressure on company profit forecasts but monetary policy has become more accommodative and this should be supportive for investment markets. In the UK the interminable Brexit process grinds on and, at the time of writing, it remains highly uncertain as to when, or indeed if, the UK will leave the European Union or what form our future relationship with the EU will take.
However, the valuation of the UK stock market in particular remains attractive even after the recent bounce. The market dividend yield of over 4% is rarely seen outside of recessionary periods, suggesting longer term investors will be well rewarded from current market levels. Additionally, the gap between the 10 year gilt yield of 1% and the dividend yield of 4.2% has not been wider for over 50 years. This level of yield differential, combined with expectations for another above-inflation increase in overall dividends this year, makes UK equities look exceptional value when compared to gilts. In addition, it should not be forgotten that the UK stock market provides a wide degree of international diversification and its constituents are relatively well insulated from any adverse effects of a "hard" Brexit. Furthermore, any Brexit-related devaluation of sterling would be of direct benefit to income investors as over half of the stock market's dividends are now declared in either US Dollars or Euros.
Patrick Harrington
OLIM Limited
4 June 2019
PROPERTY PORTFOLIO
The Market
UK commercial property delivered a total return of 5.2% over 2018 as a whole, with average capital and rental values both 1% up. This was well above the total return on UK equities and gilts and most overseas equity and bond markets. In the last quarter of 2018, property capital and rental values turned down. They have slipped further on very few transactions so far in 2019 as Brexit chaos drags on. Average property capital values rose slightly over the first three quarters, but valuers were very slow to address weakness in high street shops, shopping centres and retail warehouses, and retail property pain only started to show through in annual valuations at the end of December. The MSCI Annual Property Index, the most comprehensive measure of the performance of institutional investment property portfolios, delivered a return of 5.2%, well below the Quarterly Index returns of 6.2% and the Monthly Index Return of 7.3% over calendar 2018 as a whole. The variations between these indices stem mainly from their differential weightings in shopping centres as against industrial/warehouse property.
A flight to property safety is now taking off, with significant polarisation in UK property values between safe, long-let property and the rest of the market. Retail property is performing poorly almost across the board, with retail warehouses and high street shops down by around 10% over 2018, and shopping centres weaker still. Company Voluntary Arrangements (CVAs) even at profitable retail groups, have hammered values and there will be many more company failures in 2019. All these retail sectors have further to fall over 2019, with many shorter let retail properties, notably shopping centres, still overvalued by as much as a quarter. Only one retail sector is bucking the trend - supermarkets - where the high quality of income from the main operators on long, often index-linked leases, is proving attractive to investors fleeing the non-food retail storm. Even here however, over-rented and over-sized supermarkets are falling in value.
Office values in general edged ahead in 2018, with rental growth in the big provincial cities and a handful of trophy purchases, mainly by Far Eastern buyers, propping up the London office market despite downward pressure on rents. But Brexit uncertainty has now frightened off most overseas buyers and made even large companies take serviced office space rather than sign long leases in London. Office capital values are likely to fall overall in 2019, with London leading the decline and regional offices generally steady.
Warehouse/industrial property was the star performer of 2018. The structural shift from bricks and mortar to online retailing has driven up demand, both for large distribution depots near motorway junctions and smaller warehouse units for "last mile" type local deliveries. Investor demand has forced investment valuation yields for industrial/warehouse property down below retail and office yields for the first time since reliable yield records began forty years ago - and, more seriously, to a yield level even lower than at the property market peak in 2007, showing clear signs of overheating. Average industrial/warehouse yields for all except the most secure, long let properties are now therefore starting to rise, given the present uncertain economic and political outlook, so growth in industrial/warehouse values in 2019/20 will be limited to the beneficial effect of rising rents on capital values.
Most other types of investment property (usually called "alternatives" in the property market), such as hotels, pubs, cinemas, bowling, bingo, petrol filling stations/convenience stores and healthcare and educational property, should continue to outperform the conventional commercial investment property market over the next few years, as they did by delivering total returns typically between 8% and 10% in 2018. In these alternative sectors, unlike traditional retailing, structural change can benefit multiple operators - as in pubs, where the 39,000 pubs still trading in 2018 have revenue 6% higher in real terms and employ 6% more people than the 50,000 pubs trading in 2008, with the biggest increases in pubs with over 10 employees.
The twin keys to outperformance by alternative property are generally strong national operators, often building a dominant position (e.g. in cinemas, bowling, pubs and budget hotels), and long, index-linked leases signed because rent reviews have been impractical on a conventional open market basis. Investments with such leases are increasingly sought after by many institutional investors who feel underweight in these alternative sectors.
These contrasting trends in UK commercial property will produce a fall in average capital values - maybe of 4%-5%, offset by a similar income yield, giving a total return around zero for the MSCI Index over 2019 as a whole. Average rental values may also fall by about 4%-5% with industrials and alternatives up, and offices (slightly) and retail (well) down. Within those averages, retail property (except supermarkets) may give a double-figure negative return. Many shops and retail warehouse units are only re-lettable well below current rent levels as tenants fail, leases expire and the few strong retailers left in the market dictate their own terms to take new space or renew short leases. Most traditional shopping centres are obsolescent or already obsolete in 21(st) century Britain.
Office rents in London could also fall, if Brexit uncertainties drag on, so total returns in the office sector may average between 0-5%. Industrial/warehouse and alternative returns may average between 5% and 10%. These projections are on the basis that there is no "hard Brexit" in the sense of the UK leaving the Customs Union and European Single Market suddenly in mid-2019, with accompanying disruption to supply chains and serious labour shortages in construction, hospitality, the care sector and agriculture. In that event, risky property in more vulnerable sectors could suffer substantial falls in values, with an even faster flight to the safety offered by long leases to strong tenants.
The market for most types of property has been thin and sluggish so far in 2019, with most institutional buyers paralysed by indecision. Only very safe, long-let stock is trading in size, plus a few purchases by private buyers at sub-GBP2 million lot sizes.
Any forecast for the UK economy in 2019 and beyond continues to hang heavily on Brexit, which is by definition uncharted political and constitutional territory. The only clear light shining through the fog is a general acceptance that there is a substantial majority in this Parliament against the UK leaving the European Union without a negotiated settlement. But whether and when that can take effect on the terms of Brexit, or whether it is delayed or stopped altogether remained unclear at the time of writing.
Even if there is no hard Brexit, the UK economy may still only grow by about 1% in 2019, with a weak start and some recovery in the second half-year, after disappointing growth of around 1.4% in 2018. Business investment has fallen in each of the last seven quarters, services and consumption are flat, and manufacturing has been boosted by some short-term precautionary stock-building before 29 March which may unwind soon. Inflation is well under control at under 2% for the Consumer Price Index and around 2.5% for the Retail Price Index. Sterling's post-Referendum fall has now dropped out of the annual figures, bringing the annual RPI rate down from 4%, and the CPI from 3% in December 2017. Average earnings are now therefore growing again faster than prices, and the National Minimum Wage has just risen by 4.9% to GBP8.21 an hour. But retail spending is still under pressure as consumers have stopped running up debt, especially for big ticket purchases, and remain generally cautious. Short-term interest rates are unlikely to rise further for some time, and long-term rates have fallen further, with the 10-year gilt yield touching 1.0%, despite the danger of a high-spending, left-wing Labour government.
After a generally benign world economic background in 2018, the outlook for growth in most developed economies is deteriorating, and the IMF has again cut its forecast for world economic growth in 2019 to 3.3%. Political turmoil in the United States and trade wars with China, together with instability in Italy and to a lesser extent, France and Germany, suggest the risks to that forecast are on the downside.
Despite Brexit uncertainty, and the challenges in retail property in particular, UK commercial property now offers a comfortable yield cushion of 4.3 points over UK conventional gilts and 7.5 points over UK index-linked gilts, (with both yield gaps near 10-year highs). This represents excellent absolute and relative investment value for investors sticking to safe, long, preferably index-linked leases secured on strong tenants in well-specified buildings in prosperous locations. The premium institutional investors are prepared to pay for that security against average or riskier commercial property has been growing since the Referendum in 2016 and will grow further and faster in 2019 as open market rental growth evaporates. Meanwhile the outlook for risky property in general, and retail property in particular, is poor and getting worse.
The Portfolio
VIT's property portfolio produced a total return of 8.0% over the year to March, against 5.5% for the MSCI (formerly IPD) Index, the main benchmark for commercial property performance. VIT's property record is shown in the property section of the Investment Managers' report.
We specialise in properties with long, strong, preferably index-related, income streams to deliver outstanding long-term real returns. The total returns on our property portfolio have been between 11% and 13% a year over the past 3, 5, 10, 20 and 32 years and are above the MSCI averages over all these periods. The real returns above the RPI from VIT's property portfolio were 6% last year and between 8% and 9% a year over all cumulative periods from 3 to 32 years since the inception of our management.
We bought three new properties over the year with RPI-linked rent reviews: an industrial/warehouse in Aylesford, Kent just off the M20, and two bingo halls in Bradford and Manchester, at a purchase price of GBP8.8 million and an average net initial yield on purchase of 6.6%; their average unexpired lease length was 19 years. We sold two pubs in Lancaster in view of covenant concerns as well as short-leased retail properties in Bedford, Oxford and Sevenoaks at a sale price of GBP10.3 million (5% above valuation) with a net initial yield of 7.3%, falling to below 6.0% on their current rental values. The property portfolio was fully invested at the year end.
The capital value of properties held throughout the year rose by 1.5%, rental income rose by 4.4% and rental values by 4.9%. Industrial properties, pubs and the caravan park performed best, but retail properties were down. 10 properties gained in value, 9 fell and 4 were unchanged, with 3 new purchases.
All properties are let on full repairing and insuring leases, with upward only rent reviews and an average unexpired lease length now over 15 years. The portfolio has been fully let and income-producing throughout the year. 38% of the rental income is reviewed annually, with 62% five yearly. 79% of the portfolio's net rental income comes from index-related leases (up from 35% seven years ago).
The property portfolio has been funded for many years by long term fixed rate loans - GBP20 million of VIT 9(3) 8% Debenture Stock repayable in 2026 and GBP15 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 GBP15 million in 2015-2016 at a fixed interest rate of 4.4%, including all costs, also until 2026 and invested the proceeds in properties at a net initial yield of 6.9%.
VIT's combined weighted cost of loan capital is thus 7.6%; this will fall sharply in two years' time when our original 11% Debenture is repaid, saving GBP1,650,000 in annual interest costs, almost 40% of VIT's present interest payable.
Results of Independent Revaluation
The VIT property portfolio was subject to an independent professional revaluation at 31 March 2019 by Savills. The revaluation showed a value of GBP68,800,000. Our properties are revalued every six months, at 30 September and 31 March. Twenty-four of the properties valued at 31 March 2019 are freehold and two are long leasehold with 86 and 39 years to run respectively.
Louise Cleary
OLIM Property Limited
4 June 2019
BUSINESS REVIEW
This Business Review is intended to provide an overview of the strategy and business model of the Company as well as the key measures used by the Directors in overseeing its management. The Company is an investment trust company which invests in accordance with the investment aims and investment policy below.
The Group
Value and Income Services Limited (VIS), a wholly owned subsidiary of the Company, is authorised by the Financial Conduct Authority to act as the Company's Alternative Investment Fund Manager (AIFM).
Investment Aims
The Company invests in higher yielding, less fashionable areas of the UK commercial property and quoted equity markets, particularly in medium and smaller sized companies. The Company aims to achieve long-term real growth in dividends and capital value without undue risk.
Investment Policy
The Company's policy is to invest in quoted UK equities, UK commercial property and cash or near cash securities. It is not normally the Company's policy to invest in overseas shares or in unquoted companies. UK equities usually account for between half and three-quarters of the total portfolio and property for a quarter to a half but the asset allocation may go outside these ranges if relative market levels and investment value, or a desired increase in cash or near cash securities, make it appropriate.
The Company focuses on the fundamental values and incomes of businesses in which it invests - their profitability, cash flows, balance sheets, management and products or services - and the location, tenants and leases of its property investments. The equity portfolio has generally yielded more than the FTSE All-Share Index. The Group has held between 30 and 40 individual shareholdings and between 20 and 30 individual properties in recent years. These ranges may change as market conditions or the size of each portfolio vary in future. In order to limit the risk to the equity portfolio that is derived from any particular investment, no individual shareholding will account for more than 10% of the equity portfolio at the time of purchase.
The Company has, since 1986, had a longstanding policy of increasing its exposure to equities and to property through the judicious use of borrowings. Until 2015, all borrowings have been long-term debentures to provide secure long-term funding, avoiding the risks associated with short-term funding of having to sell illiquid assets at a low point in markets if loans have to be repaid. On 26 February 2015, a five year secured term loan facility of GBP5m 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 GBP15m was arranged with Santander UK plc at a ten year interest rate of 4.4% p.a. including all costs to replace the original GBP5m loan arranged in February 2015.
Gearing has varied between 25% and 40% of the total portfolio. The Company will not raise new borrowings if total net borrowings would then represent more than 50% of the total assets.
No material changes may be made to the Company's investment policy described above without the prior approval of Shareholders by the passing of an Ordinary Resolution. In the year to 31 March 2019, no material changes were made to the Company's investment policy.
Performance, Results and Dividend
The first quarterly dividend for the year to 31 March 2019 of 2.8p per share was paid on 26 October 2018, the second quarterly dividend of 2.8p per share was paid on 25 January 2019 and the third quarterly dividend of 2.8p per share was paid on 26 April 2019.
A review of the performance of the equity and property portfolios is detailed in the Chairman's Statement and in the Investment Managers' Reports. The Directors recommend that a final dividend of 3.4p per Ordinary Share (2018: 3.3p) is paid on 26 July 2019 to Shareholders on the register on 28 June 2019. The ex-dividend date is 27 June 2019.
The table in the Business Review shows the revenue reserve position and dividends paid and payable by the Company, subject to Shareholder approval of the proposed final dividend at the forthcoming Annual General Meeting.
Principal Risks and Uncertainties
The Board carries out a regular review and robust assessment of the principal risks facing the Group including those that would threaten its business model, future performance, solvency or liquidity. The principal risks and uncertainties which affect the Group's business are:
Market risk
The fair value of, or future cash flows from, a financial instrument held by the Group may fluctuate because of changes in market prices. This market risk comprises three elements - price risk, interest rate risk and currency risk.
Price risk
Changes in market prices (other than those arising from interest rate or currency risk) may affect the value of the Group's investments.
It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular sector. For equities, asset allocation and stock selection, as set out in the Investment Policy, both act to reduce market risk. VIS delegates its portfolio management responsibilities to the Investment Managers, OLIM Limited (OLIM) and OLIM Property Limited (OLIM Property) (collectively, the Investment Managers) who actively monitor market prices throughout the year and report to VIS and to the Board, which meet regularly in order to review investment strategy. The equity investments held by the Group are listed on the London Stock Exchange. All investment properties held by the Group are commercial properties located in the UK with long, strong income streams.
Interest rate risk
Interest rate movements may affect:
- the fair value of the investments in property; and - the level of income receivable on cash deposits.
The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions.
The Board imposes borrowing limits to ensure that gearing levels are appropriate to market conditions and reviews these on a regular basis. Current borrowings comprise debenture stocks and the ten year secured term loan, providing secure long-term funding. It is the Board's policy to maintain a gearing level, measured on the most stringent basis of calculation after netting off cash equivalents, of between 25% and 40%.
Currency risk
A small proportion of the Group's investment portfolio is invested in securities whose fair value and dividend stream are affected by movements in foreign exchange rates. It is not the Company's policy to hedge this risk.
Liquidity risk
This is the risk that the Group will encounter difficulty in meeting obligations associated with its financial liabilities.
The Group's assets comprise readily realisable securities which can be sold to meet commitments, if required, and investment properties which, by their nature, are less readily realisable. The maturity of the Company's existing borrowings is set out in the interest rate risk profile section of Note 21 of the Financial Statements.
Credit risk
This is the failure of a counterparty to a transaction to discharge its obligations under that transaction that could result in the Group suffering a loss.
The risk is not significant and is managed as follows:
- investment transactions are carried out with a number of brokers, whose credit standing is reviewed periodically by OLIM (which reports to VIS) and limits are set on the amount that may be due from any one broker.
- the risk of counterparty exposure due to failed trades causing a loss to the Group is mitigated by the review of failed trade reports on a daily basis. In addition, a stock reconciliation to third party administrators' records is performed on a daily basis to ensure that discrepancies are picked up on a timely basis. VIS carries out periodic reviews of the Depositary's operations and reports its findings to the Company. This review also includes checks on the maintenance and security of investments held.
- cash is held only with reputable banks with high quality external credit ratings which are monitored on a regular basis.
Property risk
The Group's commercial property portfolio is subject to both market and specific property risk. Since the UK commercial property market has been markedly cyclical for many years, it is prudent to expect that to continue.
The price and availability of credit, real economic growth and the constraints on the development of new property are the main influences on the property investment market.
Against that background, the specific risks to the income from the portfolio are tenants being unable to pay their rents and other charges, or leaving their properties at the end of their leases. All leases are on full repairing and insuring terms, with upward only rent reviews and the average unexpired lease length is now over 15 years (2017: 14 years). Details of the tenant and geographical spread of the portfolio are set out in the Investment Manager's Report. The long-term record of performance through the varying property cycles since 1987 is set out in the Investment Manager's Report. OLIM Property is responsible for property investment management, with surveyors, solicitors and managing agents acting on the portfolio under OLIM Property's supervision.
Political risk
Following the referendum held on 23 June 2016, the UK voted to leave the European Union (EU) and the two year period to negotiate the Withdrawal Agreement expired on 29 March 2019. The full political, economic and legal consequences are not yet known.
It is possible that investments in the UK may be more difficult to value and assess for suitability of risk, harder to buy or sell and may be subject to greater or more frequent rises and falls in value. In the longer term there is likely to be a period of uncertainty as the UK seeks to negotiate its ongoing relationship with the EU and other global trade partners. The UK's laws and regulations, including those relating to investment companies, may in future, diverge from those of the EU.
The Board regularly reviews the political situation, together with any associated changes to the economic, regulatory and legislative environment, to ensure that any risks arising are mitigated as effectively as possible.
An explanation of certain economic and financial risks and how they are managed is contained in Note 21 to the Financial Statements.
Additional risks and uncertainties include:
-- Discount volatility: The Company's shares may trade at a price which represents a discount to its underlying net asset value.
-- Regulatory risk: The Group operates in a complex regulatory environment and therefore faces a number of regulatory risks. A breach of Section 1158 of the Corporation Tax Act 2010 would result in the Company being subject to capital gains tax on portfolio investments. Breaches of other regulations, including but not limited to, the Companies Act 2006, the FCA Listing Rules, the FCA Disclosure, Guidance and Transparency Rules, the Market Abuse Regulation, the Foreign Account Tax Compliance Act, the Common Reporting Standard, the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation and the Second Markets in Financial Instruments Directive (MiFID II), could lead to a number of detrimental outcomes and reputational damage. Breaches of controls by service providers to the Company could also lead to reputational damage or loss. The Audit and Management Engagement Committee monitors compliance with regulations by reviewing internal control reports from the Administrator and from the Investment Managers.
The Alternative Investment Fund Managers Directive (AIFMD) introduced a new authorisation and supervisory regime for all managers of authorised investment funds in the EU.
In accordance with the requirements of the AIFMD, the Company appointed VIS as its Alternative Investment Fund Manager (AIFM) and BNP Paribas Securities Services as its Depositary. The Board has controls in place in the form of regular reporting from the AIFM and the Depositary to ensure that both are meeting their regulatory responsibilities in relation to the Company.
The Company must also comply with the General Data Protection Regulation (GDPR) which came into force on 25 May 2018, replacing the Data Protection Act 1998. This regulation enforces the principle of 'privacy by design and by default' and enshrines new rights for individuals, including the right to be forgotten and to data portability. The Directors have worked with the third parties that process Shareholders' personal data to ensure that their rights under the new regulation are protected.
The Company's privacy policy is now available to view on the Managers' websites www.olim.co.uk and www.olimproperty.co.uk.
Key Performance Indicators
The Directors have identified the three key performance indicators below to determine the performance of the Company:
-- Net asset value total return relative to the FTSE All-Share Index (total return); -- Share price total return relative to the FTSE All-Share Index (total return); and -- Dividend growth relative to the Retail Prices Index.
At each Board Meeting, the Directors consider a number of performance measures to assess the Company's success in achieving its objectives.
A historical record of these measures, with comparatives is shown in the Financial Highlights and Long-Term Record.
Statement of Compliance with Investment Policy
The Company is adhering to its stated investment policy and managing the risks arising from it. This can be seen in various tables and charts throughout the Annual Report, and from the information provided in the Chairman's Statement, and the Investment Managers' Reports.
Employee, Environmental and Human Rights Policy
As an investment trust company, the Company has no direct employee or environmental responsibilities, nor is it responsible for the emission of greenhouse gases. Its principal responsibility to Shareholders is to ensure that the investment portfolio is properly managed and invested. The Company has no employees and accordingly, has no requirement to report separately on employment matters.
Management of the investment portfolio is undertaken by the Investment Managers through members of their portfolio management teams. In light of the nature of the Company's business, there are no relevant human rights issues and, therefore, the Company does not have a human rights policy.
Future Strategy
The Board and the Investment Managers intend to maintain the strategic policies set out above for the year ending 31 March 2020 as it is believed that these are in the best interests of Shareholders.
At the Annual General Meeting of the Company held in July 2016, Shareholders approved an amendment to the Company's Articles of Association. The amended Articles now require the Board to put an Ordinary Resolution to Shareholders in 2024 in relation to the future direction of the Company, including proposals that provide an opportunity for Shareholders to realise their investment in full at Net Asset Value, less costs, by 31 March 2027 at the latest. The reason for doing this in 2024 is to give sufficient time for refinancing the debt or for selling properties as required. The Company's Viability Statement is included in the Directors' Report in the Annual Report.
Approval
The Business Review, and the Strategic Report as a whole, was approved by the Board of Directors and signed on its behalf by:
James Ferguson
Chairman
4 June 2019
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Financial Statements for each financial year. Under that law, the Directors are required to prepare the Group Financial Statements in accordance with IFRS as adopted by the EU and Article 4 of the EU IAS Regulation and have also chosen to prepare the parent company financial statements under IFRS as adopted by the EU. The Financial Statements are required by law to give a true and fair view of the state of affairs of the Group and Company and of the net return of the Group and Company for that period. In preparing these Financial Statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently; -- make judgements and estimates that are reasonable and prudent;
-- state whether applicable IFRS have been followed, subject to any material departures disclosed and explained in the Financial Statements; and
-- prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Financial Statements comply with the Companies Act. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's websites hosted by the Investment Managers. Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.
The Directors are also responsible for ensuring that the Annual Report and Financial Statements, taken as a whole is fair, balanced and understandable and provides the information necessary to assess the Company's position and performance, business model and strategy.
Directors' Responsibility Statement
Each Director confirms, to the best of his or her knowledge, that:
-- the Financial Statements have been prepared in accordance with the applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings as at 31 March 2019 and for the year to that date; and that
-- the Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
The Directors confirm that the Annual Report and Financial Statements taken as a whole is fair, balanced and understandable and provides the information necessary to assess the Company's position and performance, business model and strategy.
For and on behalf of the Board of Value and Income Trust PLC
James Ferguson
Chairman
4 June 2019
Group Statement of Comprehensive Income
For the year ended 31 March 2019
Year ended Year ended
31 March 2019 31 March 2018
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income Note
Investment income 6,215 - 6,215 5,732 - 5,732
Rental income 4,287 - 4,287 4,337 - 4,337
Other income 9 - 9 - - -
2 10,511 - 10,511 10,069 - 10,069
Gains and losses on
investments
Realised
gains/(losses)
on
held-at-fair-value
investments and
investment
properties 9 - 5,294 5,294 - (563) (563)
Unrealised losses on
held-at-fair-value
investments and
investment
properties 9 - (3,600) (3,600) - (5,270) (5,270)
Total income 10,511 1,694 12,205 10,069 (5,833) 4,236
-------------- -------------- ------------ ------------- ------------- -----------
Expenses
Investment
management
fees 3 (348) (813) (1,161) (427) (995) (1,422)
Other operating
expenses 4 (781) - (781) (691) - (691)
Finance costs 5 (4,168) - (4,168) (4,168) - (4,168)
Total expenses (5,297) (813) (6,110) (5,286) (995) (6,281)
-------------- -------------- ------------ ------------- ------------- -----------
Profit/(loss) before
taxation 5,214 881 6,095 4,783 (6,828) (2,045)
Taxation 6 (241) 343 102 (256) 543 287
Profit/(loss)
attributable
to equity
shareholders
of parent company 4,973 1,224 6,197 4,527 (6,285) (1,758)
============== ============== ============ ============= ============= ===========
Earnings per
ordinary
share (pence) 7 10.92 2.68 13.60 9.94 (13.80) (3.86)
The total column of this statement represents the Statement of Comprehensive Income of the Group, prepared in accordance with IFRS. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations.
The Group does not have any other comprehensive income and so the total profit, as disclosed above, is the same as the Group's total comprehensive income. All income is attributable to the equity holders of Value and Income Trust PLC, the parent company. There are no minority interests.
The Notes form part of these Financial Statements.
The Board is proposing a final dividend of 3.40p per share, making a total dividend of 11.80p per share for the year ended 31 March 2019 (2018: 11.40p per share) which, if approved, will be payable on 26 July 2019 (see Note 8).
Company Statement of Comprehensive Income
For the year ended 31 March 2019
Year ended Year ended
31 March 2019 31 March 2018
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income Note
Investment income 6,215 - 6,215 5,732 - 5,732
Rental income 4,287 - 4,287 4,337 - 4,337
Other income 9 - 9 - - -
2 10,511 - 10,511 10,069 - 10,069
Gains and losses on
investments
Realised
gains/(losses)
on
held-at-fair-value
investments and
investment
properties 9 - 5,294 5,294 - (563) (563)
Unrealised losses on
held-at-fair-value
investments
and investment
properties 9 - (2,970) (2,970) - (4,639) (4,639)
Total income 10,511 2,324 12,835 10,069 (5,202) 4,867
--------------- ------------- ---------- ------------- ------------ --------------
Expenses
Investment
management
fees 3 (348) (813) (1,161) (427) (995) (1,422)
Other operating
expenses 4 (781) - (781) (691) - (691)
Finance costs 5 (4,168) - (4,168) (4,168) - (4,168)
Total expenses (5,297) (813) (6,110) (5,286) (995) (6,281)
--------------- ------------- ---------- ------------- ------------ --------------
Profit/(loss) before
taxation 5,214 1,511 6,725 4,783 (6,197) (1,414)
Taxation 6 (241) 343 102 (256) 543 287
Profit/(loss)
attributable
to equity
shareholders
of parent company 4,973 1,854 6,827 4,527 (5,654) (1,127)
=============== ============= ========== ============= ============ ==============
Earnings per
ordinary
share (pence) 7 10.92 4.07 14.99 9.94 (12.42) (2.48)
The total column of this statement represents the Statement of Comprehensive Income of the Company prepared in accordance with IFRS. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations.
The Company does not have any other comprehensive income and so the total profit, as disclosed above, is the same as the Company's total comprehensive income.
The Notes form part of the Financial Statements.
Group Statement of Financial Position
As at 31 March 2019
As at As at
31 March 2019 31 March 2018
Note GBP'000 GBP'000 GBP'000 GBP'000
ASSETS
Non current assets
Investments held at fair value
through profit or loss 9 128,706 128,925
Investment properties 9 68,800 68,700
197,506 197,625
Deferred tax asset 6 389 287
197,895 197,912
Current assets
Cash and cash equivalents 4,338 3,639
Receivables 10 907 711
-------- --------
5,245 4,350
TOTAL ASSETS 203,140 202,262
Current liabilities
Payables 11 (1,794) (1,845)
TOTAL ASSETS LESS CURRENT LIABILITIES 201,346 200,417
Non-current liabilities
Borrowings 12 (49,913) (49,898)
NET ASSETS 151,433 150,519
========= =========
EQUITY ATTRIBUTABLE TO EQUITY
SHAREHOLDERS
Called up share capital 14 4,555 4,555
Share premium 15 18,446 18,446
Retained earnings 16 128,432 127,518
--------- ---------
TOTAL EQUITY 151,433 150,519
========= =========
Net Asset Value per ordinary share
(pence) 17 332.45 330.45
These Financial Statements were approved by the Board on 4 June 2019 and were signed on its behalf by: -
James Ferguson, Chairman
The Notes form part of the Financial Statements.
Company Statement of Financial Position
As at 31 March 2019
As at As at
31 March 2019 31 March 2018
Note GBP'000 GBP'000 GBP'000 GBP'000
ASSETS
Non current assets
Investments held at fair value
through profit or loss 9 128,906 129,125
Investment properties 9 68,800 68,700
197,706 197,825
Deferred tax asset 6 389 287
198,095 198,112
Current assets
Cash and cash equivalents 4,138 3,439
Receivables 10 907 711
-------- --------
5,045 4,150
TOTAL ASSETS 203,140 202,262
Current liabilities
Payables 11 (1,794) (1,845)
TOTAL ASSETS LESS CURRENT LIABILITIES 201,346 200,417
Non-current liabilities
Borrowings 12 (51,176) (51,791)
NET ASSETS 150,170 148,626
========= =========
EQUITY ATTRIBUTABLE TO EQUITY SHAREHOLDERS
Called up share capital 14 4,555 4,555
Share premium 15 18,446 18,446
Retained earnings 16 127,169 125,625
TOTAL EQUITY 150,170 148,626
========= =========
Net Asset Value per ordinary share
(pence) 17 329.68 326.29
These Financial Statements were approved by the Board on 4 June 2019 and were signed on its behalf by: -
James Ferguson, Chairman
The Notes form part of the Financial Statements.
Statement of Changes in Equity
For the year ended 31 March 2019
Group Year ended 31 March 2019
Share Share Retained
capital premium earnings Total
Note GBP'000 GBP'000 GBP'000 GBP'000
Net assets at 31 March 2018 4,555 18,446 127,518 150,519
Profit for the year - - 6,197 6,197
Dividends paid 8 - - (5,283) (5,283)
Net assets at 31 March 2019 4,555 18,446 128,432 151,433
======== ======== ========= ========
Company Year ended 31 March 2019
Share Share Retained
capital premium earnings Total
GBP'000 GBP'000 GBP'000 GBP'000
Net assets at 31 March 2018 4,555 18,446 125,625 148,626
Profit for the year - - 6,827 6,827
Dividends paid 8 - - (5,283) (5,283)
Net assets at 31 March 2019 4,555 18,446 127,169 150,170
======== ======== ========= ========
Group Year ended 31 March 2018
Share Share Retained
capital premium earnings Total
GBP'000 GBP'000 GBP'000 GBP'000
Net assets at 31 March 2017 4,555 18,446 134,378 157,379
Loss for the year - - (1,758) (1,758)
Dividends paid 8 - - (5,102) (5,102)
Net assets at 31 March 2018 4,555 18,446 127,518 150,519
======== ======== ========= ========
Company Year ended 31 March 2018
Share Share Retained
capital premium earnings Total
GBP'000 GBP'000 GBP'000 GBP'000
Net assets at 31 March 2017 4,555 18,446 131,854 154,855
Loss for the year - - (1,127) (1,127)
Dividends paid 8 - - (5,102) (5,102)
Net assets at 31 March 2018 4,555 18,446 125,625 148,626
======== ======== ========= ========
The Notes form part of the Financial Statements.
Group Statement of Cashflows
For the year ended 31 March 2019
2019 2018
Notes GBP'000 GBP'000 GBP'000 GBP'000
Cash flows from operating activities
Dividend income received 5,994 5,804
Rental income received 4,295 4,179
Interest received 8 -
Operating expenses paid (1,975) (2,271)
NET CASH INFLOW FROM OPERATING ACTIVITIES 18 8,322 7,712
Cash flows from investing activities
Purchase of investments (30,634) (11,890)
Sale of investments 32,447 12,780
NET CASH INFLOW FROM INVESTING ACTIVITIES 1,813 890
Cash flow from financing activities
Interest paid (4,153) (4,153)
Dividends paid 8 (5,283) (5,102)
NET CASH OUTFLOW FROM FINANCING ACTIVITIES (9,436) (9,255)
NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS 699 (653)
Cash and cash equivalents at 1 April
2018 3,639 4,292
CASH AND CASH EQUIVALENTS AT 31 MARCH
2019 4,338 3,639
======== ========
The Notes form part of the Financial Statements.
Company Statement of Cashflows
For the year ended 31 March 2019
2019 2018
Notes GBP'000 GBP'000 GBP'000 GBP'000
Cash flows from operating activities
Dividend income received 5,994 5,804
Rental income received 4,295 4,179
Interest received 8 -
Operating expenses paid (1,975) (2,271)
NET CASH INFLOW FROM OPERATING ACTIVITIES 18 8,322 7,712
Cash flows from investing activities
Purchase of investments (30,634) (11,890)
Sale of investments 32,447 12,780
NET CASH INFLOW FROM INVESTING ACTIVITIES 1,813 890
Cash flow from financing activities
Interest paid (4,153) (4,153)
Dividends paid 8 (5,283) (5,102)
NET CASH OUTFLOW FROM FINANCING ACTIVITIES (9,436) (9,255)
NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS 699 (653)
Cash and cash equivalents at 1 April
2018 3,439 4,092
CASH AND CASH EQUIVALENTS AT 31 MARCH
2019 4,138 3,439
======== ========
The Notes form part of the Financial Statements.
Notes to the Financial Statements
1. Accounting policies
The Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) which comprise standards and interpretations approved by the International Accounting Standards Board (IASB) together with interpretations of the International Accounting Standards and Standing Interpretations Committee approved by the International Accounting Standards Committee (IASC) that remain in effect, and to the extent that they have been adopted by the European Union.
The functional and presentational currency of the Group and Company is pounds sterling because that is the currency of the primary economic environment in which the Group and Company operate. The Financial Statements and the accompanying notes are presented in pounds sterling and rounded to the nearest thousand pounds except where otherwise indicated.
(a) Basis of preparation
The Financial Statements have been prepared on a going concern basis as disclosed in the Annual Report and on the historical cost basis, except for the revaluation of certain financial assets. The principal accounting policies adopted are set out below. Where presentational guidance set out in the Statement of Recommended Practice Financial Statements of Investment Trust Companies and Venture Capital Trusts (the SORP) issued by the Association of Investment Companies (AIC) in November 2014 and updated in February 2018 with consequential amendments is consistent with the requirements of IFRSs, the Directors have sought to prepare the Financial Statements on a basis compliant with the recommendations of the SORP, except for the allocation of finance costs to revenue as explained in Note 1(f).
The Board has considered the requirements of IFRS 8, 'Operating Segments'. The Board is charged with setting the Group's investment strategy. The Board has delegated the day to day implementation of this strategy to the Investment Managers but the Board retains responsibility to ensure that adequate resources of the Group are directed in accordance with its decisions. The Board is of the view that the Group is engaged in a single segment of business, being investments in quoted UK equities and UK commercial properties. The view that the Group is engaged in a single segment of business is based on the fact that one of the key financial indicators received and reviewed by the Board is the total return from the investment portfolio taken as a whole. A review of the investment portfolio is included in the Investment Managers' Reports.
(b) Going concern
The Group's business activities, together with the factors likely to affect its future development and performance, are set out in the Strategic Report. The financial position of the Group as at 31 March 2019 is shown in the Statement of Financial Position. The cash flows of the Group for the year ended 31 March 2019 are set out above. The Group had fixed debt totalling GBP49,913,000 as at 31 March 2019, as set out in Note 12; none of the borrowings is repayable before 2021. The Group had no short term borrowings. Note 21 sets out the Group's risk management policies and procedures, including those covering market price risk, liquidity risk and credit risk. As at 31 March 2019, the Group's total assets less current liabilities exceeded its total non current liabilities by a factor of over four. The assets of the Group consist mainly of securities and investment properties that are held in accordance with the Group's investment policy. Most of these securities are readily realisable, even in volatile markets. The Directors, who have reviewed carefully the Group's forecasts for the coming year, consider that the Group has adequate financial resources to enable it to continue in operational existence for the foreseeable future. Accordingly, the Directors believe that it is appropriate to continue to adopt the going concern basis in preparing the Financial Statements.
(c) Basis of consolidation
The consolidated Financial Statements incorporate the Financial Statements of the Company and the entity controlled by the Company (its subsidiary). An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has ability to affect those returns through its power over the investee. The Company consolidates the investee that it controls. All intra-group transactions, balances, income and expenses are eliminated on consolidation. The investment in the subsidiary is recognised at fair value in the Financial Statements of the Company. This is considered to be the net asset value of the Shareholders' funds, as shown in its Statement of Financial Position.
Value and Income Services Limited is a private limited company incorporated in Scotland under company number SC467598. It is a wholly owned subsidiary of the Company and has been appointed to act as Alternative Investment Fund Manager of the Company.
(d) Presentation of Statement of Comprehensive Income
In order to reflect better the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income. In accordance with the Company's Articles, net capital returns may be distributed by way of dividend however the Board has no intention of exercising this authority at present.
Additionally the net revenue is the measure that the Directors believe to be appropriate in assessing the Company's compliance with certain requirements set out in sections 1158-1160 of the Corporation Tax Act 2010.
(e) Income
Dividend income from investments is recognised as revenue for the period on an ex-dividend basis. Where no ex-dividend date is available, dividends receivable on or before the period end are treated as revenue for the period.
Where the Group has elected to receive dividend income in the form of additional shares rather than cash, the amount of cash dividend foregone is recognised as income. Any excess in the value of shares received over the amount of cash dividend foregone is recognised as a gain in the income statement.
Interest receivable from cash and short term deposits and interest payable is accrued to the end of the period.
Rental receivable and lease incentives, where material, from investment properties under operating leases are recognised in the Statement of Comprehensive Income over the term of the lease on a straight line basis. Other income is recognised on an accruals basis.
(f) Expenses and Finance Costs
All expenses and finance costs are accounted for on an accruals basis. Expenses are presented as capital where a connection with the maintenance or enhancement of the value of investments can be demonstrated. In this respect and in accordance with the SORP, the investment management fees are allocated 30% to revenue and 70% to capital to reflect the Board's expectations of long term investment returns.
It is normal practice and in accordance with the SORP for investment trust companies to allocate finance costs to capital on the same basis as the investment management fee allocation. However as the Company has a significant exposure to property, and property companies allocate finance costs to revenue to match rental income, the Directors consider that, contrary to the SORP, it is inappropriate to allocate finance costs to capital.
(g) Receivables and Payables
Receivables do not carry any interest and are stated at their nominal value, as reduced by appropriate allowances for any estimated irrecoverable amounts. Payables are not interest bearing and are stated at their nominal value.
(h) Taxation
The Company's liability for current tax is calculated using tax rates that have been enacted or substantially enacted by the date of the Statement of Financial Position.
Deferred tax is recognised in respect of all temporary differences that have originated but not reversed at the date of the Statement of Financial Position, where transactions or events that result in an obligation to pay more tax in the future or the right to pay less tax in the future have occurred at the date of the Statement of Financial Position.
This is subject to deferred tax assets only being recognised if it is considered more probable than not that there will be suitable profits from which the future reversal of the temporary differences can be deducted.
Due to the Company's status as an investment trust company, and the intention to continue to meet the conditions required to maintain approval for the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.
(i) Dividends payable
Interim dividends are recognised as a liability in the period in which they are paid as no further approval is required in respect of such dividends. Final dividends are recognised as a liability only after they have been approved by Shareholders in general meeting.
(j) Investments
Equity investments
All equity investments are classified on the basis of their contractual cashflow characteristics and the Group's business model for managing its assets. The business model, which is the determining feature, is such that the portfolio of equity investments is managed, and performance is evaluated, on the basis of fair value. Consequently, all equity investments are measured at fair value through profit or loss.
For listed investments, fair value through profit or loss is deemed to be bid market prices or closing prices for SETS stocks sourced from the London Stock Exchange. SETS is the London Stock Exchange electronic trading service covering most of the market including all FTSE 100 constituents and most liquid FTSE 250 constituents along with some other securities. Gains and losses arising from changes in fair value are included in net profit or loss for the period as a capital item in the Statement of Comprehensive Income and are ultimately recognised in the retained earnings.
Investment property
Investment properties are initially recognised at cost, being the fair value of consideration given, including transaction costs associated with the investment property. Any subsequent capital expenditure incurred in improving investment properties is capitalised in the period incurred and included within the book cost of the property.
After initial recognition, investment properties are measured at fair value, with gains and losses recognised in the Statement of Comprehensive Income.
As disclosed in Note 21, the Group leases out all of its properties on operating leases. A property held under an operating lease is classified and accounted for as an investment property where the group holds it to earn rental, capital appreciation or both. Any such property leased under an operating lease is carried at fair value. Fair value is established by half-yearly professional valuation on an open market basis by Savills (UK) Limited, Chartered Surveyors and Valuers, and in accordance with the RICS Valuation - Professional Standards July 2017 (the 'RICS Red Book'). The determination of fair value by Savills is supported by market evidence. These valuations are disclosed in Note 9.
The Company accounts for its investment in its subsidiary at fair value. All fair value adjustments in relation to the subsidiary are eliminated on consolidation.
(k) Cash and cash equivalents
Cash and cash equivalents comprises deposits held with banks.
(l) Non - current liabilities
All new loans and borrowings are initially measured at cost, being the fair value of the consideration received, less issue costs where applicable. Thereafter, all interest-bearing loans and borrowings are subsequently measured at amortised cost. Amortised cost is calculated by taking into account any discount or premium on settlement. The costs of arranging any interest-bearing loans are capitalised and amortised over the life of the loan.
(m) Critical accounting judgements and key estimates
The preparation of the Financial Statements requires the Directors to make judgements, estimates and assumptions that may affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. The critical accounting area involving a higher degree of judgement or complexity comprises the determination of fair value of the investment properties. The Group engages independent professional qualified valuers to perform the valuation. Information about the valuation techniques and inputs used in determining fair value as at 31 March 2019 is disclosed in Note 9 to the Financial Statements. The Group earns rental income by leasing its properties to tenants under non-cancellable operating leases. Due to the rare nature of the long-term leases, the Board assesses a period for which the rental income is reasonably certain to be received based on economic factors, market trends and the overall impact on the tenants and their businesses.
(n) Adoption of new and revised Accounting Standards
New and revised standards and interpretations that became effective during the year had no significant impact on the amounts reported in these Financial Statements but may impact accounting for future transactions and arrangements.
IFRS 9 'Financial Instruments', replacing IAS 39 'Financial Instruments: Recognition and Measurement' is effective for accounting periods commencing on or after 1 January 2018 and makes changes to the classification and measurement of financial assets.
The adoption of IFRS 9 did not result in any change to the classification or measurement of financial instruments in either the current year or the prior year. The Group's investments remain classified as fair value through profit or loss.
At the date of authorisation of these Financial Statements, the following Standard and interpretation, which has not been applied to these Financial Statements, was in issue but was not yet effective.
IFRS 16: Leases (effective 1 January 2019) - EU adopted
The Directors do not expect the adoption of this Standard and interpretation (or any other Standards and interpretations which are in issue but not effective) will have a material impact on the Financial Statements of the Group in future periods.
2019 2018
Group Company Group Company
GBP000 GBP000 GBP000 GBP000
2 Income
Investment income
Dividends from listed investments
in UK 6,215 6,215 5,732 5,732
Other operating income
Rental income 4,287 4,287 4,337 4,337
Interest receivable on short
term deposits 9 9 - -
Total income 10,511 10,511 10,069 10,069
--------- ------------ ----------- -----------
2019 2018
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
3 Investment management
fee
Group and Company
Investment management
fee 348 813 1,161 427 995 1,422
========== ======== ======== ========== ========== ========
A summary of the terms of the management agreements is given in the Directors' Report.
2019 2018
Group Company Group Company
GBP000 GBP000 GBP000 GBP000
4 Other operating expenses
Fee payable to the Company's
auditor for the audit of
the Company's accounts 30 30 26 26
- audit of the Subsidiary's
accounts 4 4 3 3
Fee payable to the Company's
auditor for other services
- other assurance services 4 4 10 10
- other non-audit services 2 2 - -
Directors' fees 88 88 71 71
NIC on directors' fees 4 4 (4) (4)
Fees for company secretarial
services 206 206 187 187
Direct property costs (4) (4) 49 49
Other expenses 447 447 349 349
781 781 691 691
============ ============= ============ =============
Other non-audit services provided by the Auditor comprise consideration of compliance with covenants.
Directors' fees comprise the Chairman's fees of GBP27,500 (2018 - GBP27,500) and fees of GBP20,000 (2018 - GBP20,000) per annum paid to each other Director. The Directors' fees of GBP20,000 each (2018 - GBP20,000) in respect of the qualifying services provided by Matthew Oakeshott and Angela Lascelles are included in the investment management fees payable to OLIM Limited and OLIM Property Limited as detailed below.
Angela Lascelles, who was a Director of the Company until 1 April 2019, is a director of OLIM Limited which received an investment management fee of GBP757,000 (2018 - GBP995,000), the basis of calculation of which is given in the Director's Report.
Matthew Oakeshott, who was a Director of the Company until 1 April 2019, is a director of OLIM Property Limited which received an investment management fee of GBP404,000 (2018 - GBP427,000), the basis of calculation of which is given in the Director's Report.
Additional information on Directors' fees is given in the Directors' Remuneration Report.
2019 2018
Group Company Group Company
GBP000 GBP000 GBP000 GBP000
5 Finance costs
Interest payable on:
11% First Mortgage Debenture
Stock 2021 1,650 1,650 1,650 1,650
9.375% Debenture Stock 2026 1,875 1,875 1,875 1,875
Less amortisation of issue
premium (24) (24) (24) (24)
Loan interest payable 628 628 628 628
Amortisation of loan expenses 39 39 39 39
4,168 4,168 4,168 4,168
----------- ------------ ------------ ------------
2019 2018
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
6 Taxation
a) Analysis of the tax credit/(charge)
for the year:
Group
Current tax (241) 241 - (256) 256 -
Deferred tax - 102 102 - 287 287
-------- ---------- -------- --------- ----------
(241) 343 102 (256) 543 287
-------- -------- ---------- -------- --------- ----------
Factors affecting the total tax credit/(charge)
for year:
Profit/(loss) before tax 6,095 (2,045)
---------- ----------
Tax charge/(credit) thereon at 19%
(2018 - 19%) 1,158 (389)
Effects of:
Non taxable dividends (1,181) (1,065)
(Gains)/losses on investments
not taxable (322) 1,108
Unrelieved finance costs 412 412
Losses brought forward now
utilised (67) (66)
Deferred tax (102) (287)
---------- ----------
(102) (287)
---------- ----------
2019 2018
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Company
Current tax (241) 241 - (256) 256 -
Deferred tax - 102 102 - 287 287
-------- -------- ---------- -------- --------- ----------
(241) 343 102 (256) 543 287
-------- -------- ---------- -------- --------- ----------
Factors affecting the total
tax credit/(charge) for year:
Profit/(loss) before tax 6,725 (1,414)
---------- ----------
Tax charge/(credit) thereon at 19%
(2018 - 19%) 1,278 (269)
Effects of:
Non taxable dividends (1,181) (1,065)
(Gains)/losses on investments
not taxable (442) 988
Unrelieved finance costs 412 412
Losses brought forward now
utilised (67) (66)
Deferred tax (102) (287)
---------- ----------
(102) (287)
---------- ----------
b) Factors affecting future tax charges
Unutilised tax losses 27,545 30,190
--------- ---------
Potential tax benefit at 19% and
17%
(2018 - 19% and 17%) 5,233 5,736
Recognised as a deferred tax non-current
asset 389 287
Not recognised as a deferred tax
asset 4,844 5,449
5,233 5,736
========= =========
The Company and Group have deferred tax assets of GBP5,233,000 (2018 - GBP5,736,000) at 31 March 2019 relating to total accumulated unrelieved tax losses carried forward of GBP27,545,000 (2018 - GBP30,190,000). The Company and Group have recognised deferred tax assets of GBP389,000 (2018 - GBP287,000) but have not recognised deferred tax assets of GBP4,844,000 (2018 - GBP5,449,000) arising as a result of losses carried forward. These losses do not have an expiry date but it is considered too uncertain that the Group will generate profits against which these losses would be available to offset and, on that basis, the deferred tax asset in respect of these losses has not been recognised.
2019 2018
Group Company Group Company
GBP000 GBP000 GBP000 GBP000
7 Return per ordinary share
The return per ordinary share
is based on the following
figures:
Revenue return 4,973 4,973 4,527 4,527
Capital return 1,224 1,854 (6,285) (5,654)
Weighted average ordinary
shares in issue 45,549,975 45,549,975 45,549,975 45,549,975
Return per share - revenue 10.92p 10.92p 9.94p 9.94p
Return per share - capital 2.68p 4.07p (13.80p) (12.42p)
Total return per share 13.60p 14.99p (3.86p) (2.48p)
------------ ------------ ------------ ------------
2019 2018
GBP000 GBP000
8 Dividends
Dividends on ordinary shares:
Third quarterly dividend of 2.70p per share (2018-
2.60p) paid 27 April 2018 1,230 1,184
Final dividend of 3.30p per share (2018 - 3.20p)
paid 27 July 2018 1,503 1,458
First quarterly dividend of 2.80p per share (2018-
2.70p) paid 26 October 2018 1,275 1,230
Second quarterly dividend of 2.80p per share (2018-
2.70p) paid 25 January 2019 1,275 1,230
Dividends paid in the period 5,283 5,102
-------- -------
The third interim dividend of 2.80p (2018 - 2.70p), being paid on 26 April 2019, has not been included as a liability in these financial statements.
The proposed final dividend is subject to approval by Shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.
Set out below is the total dividend paid and proposed in respect of the financial year, which is the basis upon which the requirements of Sections 1158 - 1159 of the Corporation Tax Act 2010 are considered. The current year's revenue available for distribution by way of dividend is GBP4,973,000 (2018 - GBP4,527,000).
2019 2018
GBP000 GBP000
First quarterly dividend of 2.80p per share (2018-
2.70p) paid 26 October 2018 1,275 1,230
Second quarterly dividend of 2.80p per share (2018-
2.70p) paid 25 January 2019 1,275 1,230
Third quarterly dividend of 2.80p per share (2018-
2.70p) payable 26 April 2019 1,275 1,230
Proposed final dividend for the year ended 31 March
2019 - 3.40p (2018 - 3.30p) payable 26 July 2019 1,549 1,503
5,374 5,193
-------- ---------
Investment
Equities properties Total
GBP'000 GBP'000 GBP'000
9 Investments
Group
Cost at 31 March 2018 89,340 47,037 136,377
Unrealised appreciation 39,585 21,663 61,248
Valuation at 31 March 2018 128,925 68,700 197,625
Purchases 21,225 9,409 30,634
Sales proceeds (22,269) (10,178) (32,447)
Realised gains on sales 4,752 542 5,294
Movement in unrealised appreciation
in year (3,927) 327 (3,600)
Valuation at 31 March 2019 128,706 68,800 197,506
------------------ --------------- ----------
Investment Investment
in
Equities Subsidiary properties Total
GBP'000 GBP'000 GBP'000 GBP'000
Company
Cost at 31 March 2018 89,340 200 55,366 144,906
Unrealised appreciation 39,585 - 13,334 52,919
Valuation at 31 March 2018 128,925 200 68,700 197,825
Purchases 21,225 - 9,409 30,634
Sales proceeds (22,269) - (10,178) (32,447)
Realised gains on sales 4,752 - 542 5,294
Movement in unrealised appreciation
in year (3,927) - 327 (3,600)
Valuation at 31 March 2019 128,706 200 68,800 197,706
-------------- ------------------ --------------- ----------
As noted in Note 12, the movement in unrealised appreciation in the year disclosed in the Company's Statement of Comprehensive Income includes amortisation of GBP630,000 (2018: GBP630,000) relating to the transfer of the 11% Debenture Stock 2021 from Audax Properties Limited to the Company in 2014.
Transaction costs
During the year expenses were incurred in acquiring and disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains and losses on investments in the Statement of Comprehensive Income. The total costs were as follows:-
2019 2018
GBP'000 GBP'000
Purchases 116 17
Sales 22 11
138 28
======== ========
The fair values of the investment properties were established by professional valuation on an open market basis for existing use by Savills (UK) Limited, Chartered Surveyors. These valuations were carried out in accordance with the RICS Valuation - Professional Standards July 2017 (the 'RICS Red Book'), by reference to the Investment Method whereby the net annual income derived from a property is capitalised by an appropriate capitalisation rate or Years' Purchase figure to arrive at the present Capital Value of the property after an allowance for the purchaser's costs. The relevant capitalisation rate is chosen, based on the investment rate of return expected (as derived from comparisons of other similar property investments) for the type of property concerned and taking into consideration such factors as risk, capital appreciation, security of income, ease of sale and management of the property.
Investment in subsidiary
Country Date of acquisition % Ownership Principal
of incorporation activity
Name
Value and Income Services 16 January
Limited UK 2014 100 AIFM
2019 2018
Group Company Group Company
GBP000 GBP000 GBP000 GBP000
10 Receivables
Amounts falling due within
one year:
Dividends receivable 849 849 637 637
Prepayments and accrued
income 58 58 74 74
907 907 711 711
------- -------- ------- --------
2019 2018
Group Company Group Company
GBP000 GBP000 GBP000 GBP000
11 Payables
Amounts due to OLIM Limited 74 74 82 82
Amounts due to OLIM Property
Limited 34 34 35 35
Accruals and other creditors 1,509 1,509 1,530 1,530
Value Added Tax payable 177 177 198 198
1,794 1,794 1,845 1,845
---------- ----------- ---------- -----------
The amounts due to OLIM Limited and OLIM Property Limited comprise the monthly management fee for March 2019, subsequently paid in April 2019.
2019 2018
Group Company Group Company
GBP000 GBP000 GBP000 GBP000
12 Non-current liabilities
Bank loan 15,000 15,000 15,000 15,000
Balance of costs incurred (308) (308) (347) (347)
Add : Debit to income for
the year 39 39 39 39
------------ ------------ ------------ -----------
14,731 14,731 14,692 14,692
11% First Mortgage Debenture
Stock 2021 15,000 15,000 15,000 15,000
Fair value adjustment - 1,263 - 1,893
------------ ------------ ------------ -----------
15,000 16,263 15,000 16,893
9.375% Debenture Stock 2026 20,000 20,000 20,000 20,000
Add:- Balance of premium less
issue expenses 206 206 230 230
Less : Credit to income for
the year (24) (24) (24) (24)
20,182 20,182 20,206 20,206
49,913 51,176 49,898 51,791
============ ============ ============ ===========
The Company has an agreement with Santander UK plc to provide a fixed term loan facility for up to GBP15,000,000 for a period of up to ten years to 31 March 2026 (2018 - GBP15,000,000). At 31 March 2019, GBP11,893,750 was drawn down at a rate of 4.344% and GBP3,106,250 was drawn down at a rate of 3.60%. The terms of the loan facility contain financial covenants that require the Company to ensure that:-
- in respect of each 3 month period ending on 31 March and 30 September (the Half Year dates), net rental income shall be at least 200 per cent of interest costs;
- in respect of each 12 month period beginning immediately after 31 March and 30 September, net rental income shall be at least 200 per cent of interest costs; and
- at all times, the loan shall not exceed 60 per cent of the value of the properties that have been charged to Santander UK plc.
The 11% First Mortgage Debenture Stock 2021, previously issued by Audax Properties plc, was, on 28 March 2014, transferred to Value and Income Trust PLC (VIT) following the approval of the substitution of VIT as issuer of the Debentures by the holders on 11 March 2014. Applications were made to the UK Listing Authority and the London Stock Exchange for the Debentures to be admitted in the name of VIT to the Official List and to trading on the main market of the London Stock Exchange from 28 March 2014.
The 11% First Mortgage Debenture Stock 2021, now issued by VIT, is repayable at par on 31 March 2021 and is secured over specific assets of the Company. Upon transfer to VIT, this debenture required to be recorded initially at fair value of GBP19,417,000, rather than its nominal value of GBP15,000,000 in the Company's financial statements. The amortised cost of the debenture as at 31 March 2019 was GBP16,263,000 (2018 - GBP16,893,000). The amortisation of the fair value adjustment is presented as a capital item within gains/losses on investments as it relates to the reversal of a previously recognised loss on the Company's investment in its subsidiary. In the Group financial statements, the fair value adjustment is eliminated on consolidation.
The Trust Deed of the 11% Debenture Stock contains four covenants with which the Company has complied.
Firstly, the value of the assets should not be less than one and one-half times the amount of the Debenture Stock; secondly, the rental income from the assets should not be less than one and one-half times the annual interest of the Debenture Stock (GBP1.65 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, GBP50 million, must not at any time exceed the total group capital and reserves (equivalent to net assets of GBP151.43 million as at 31 March 2019).
The fair values of the loan and the debentures are disclosed in Note 21 and the net asset value per share, calculated with the debentures at fair value, is disclosed in Note 17.
13 Deferred tax
Under IAS 12, provision must be made for any potential tax liability on revaluation surpluses. As an investment trust, the Company does not incur capital gains tax and no provision for deferred tax is therefore required in this respect.
As disclosed in Note 6, a deferred tax asset has been recognised to reflect the estimated value of tax losses carried forward which are likely to be capable of offset against future profits.
2019 2018
GBP000 GBP000
14 Share capital
Authorised:
56,000,000 Ordinary Shares of 10p each (2018
- 56,000,000) 5,600 5,600
------- -------
Called up, issued and fully paid:
45,549,975 Ordinary Shares of 10p each (2018
- 45,549,975) 4,555 4,555
------- -------
2019 2018
Group Company Group Company
GBP000 GBP000 GBP000 GBP000
15 Share premium
Opening and closing balance 18,446 18,446 18,446 18,446
------- -------- ------- --------
2019 2018
Group Company Group Company
GBP000 GBP000 GBP000 GBP000
16 Retained earnings
Opening balance at 31
March 2018 127,518 125,625 134,378 131,854
Profit/(loss) for the
year 6,197 6,827 (1,758) (1,127)
Dividends paid (see Note
8) (5,283) (5,283) (5,102) (5,102)
Closing balance at 31
March 2019 128,432 127,169 127,518 125,625
-------- --------- --------- ---------
The table below shows the movement in retained earnings analysed between revenue and capital items.
2019 2018
Revenue Capital Total Revenue Capital Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Group
Opening balance at 31
March 2018 4,305 123,213 127,518 4,880 129,498 134,378
Profit/(loss) for the
year 4,973 1,224 6,197 4,527 (6,285) (1,758)
Dividends paid (see Note
8) (5,283) - (5,283) (5,102) - (5,102)
Closing balance at 31
March 2019 3,995 124,437 128,432 4,305 123,213 127,518
-------- -------- -------- -------- -------- --------
Company
Opening balance at 31
March 2018 3,119 122,506 125,625 3,694 128,160 131,854
Profit/(loss) for the
year 4,973 1,854 6,827 4,527 (5,654) (1,127)
Dividends paid (see Note
8) (5,283) - (5,283) (5,102) - (5,102)
Closing balance at 31
March 2019 2,809 124,360 127,169 3,119 122,506 125,625
-------- -------- -------- -------- -------- --------
17 Net asset value per equity share
The net asset values per ordinary share are based on the Group's net assets attributable of GBP151,433,000 (2018 - GBP150,519,000) and on the Company's net assets attributable of GBP150,170,000 (2018 - GBP148,626,000) and on 45,549,975 (2018 - 45,549,975) ordinary shares in issue at the year end.
The net asset value per ordinary share, based on the net assets of the Group and the Company adjusted for borrowings at fair value (see Note 21) of GBP142,189,000 (2018 - GBP140,834,000) is 312.16p (2018 - 309.19p)
2019 2018
Group Company Group Company
Net assets at 31 March 2019 151,433 150,170 150,519 148,626
Fair value adjustments (9,244) (7,981) (9,685) (7,792)
Net assets with borrowings
at fair value 142,189 142,189 140,834 140,834
=========== =========== =========== ===========
Number of shares in issue 45,549,975 45,549,975 45,549,975 45,549,975
Net asset value per share 332.45p 329.68p 330.45p 326.29p
Net asset value per share
with borrowings at fair value 312.16p 312.16p 309.19p 309.19p
2019 2018
Group Company Group Company
GBP000 GBP000 GBP000 GBP000
18 Reconciliation of income from
operations before tax to net
cash inflow from operating
activities
Income from operations before
tax 12,205 12,835 4,236 4,867
(Gains)/losses on investments (1,694) (2,324) 5,833 5,202
Investment management fee (1,161) (1,161) (1,422) (1,422)
Other operating expenses (781) (781) (691) (691)
(Increase)/decrease in receivables (196) (196) 33 33
Decrease in other payables (51) (51) (277) (277)
Net cash from operating activities 8,322 8,322 7,712 7,712
-------- --------- -------- ---------
2019 2018
Group Company Group Company
GBP000 GBP000 GBP000 GBP000
19 Reconciliation of non-current
liabilities arising from
financing activities
Non cash:
Amortisation of loan premium
and expenses and fair value
adjustment (15) 615 (15) 616
--------- --------- --------- ---------
Change in debt in the year (15) 615 (15) 616
Opening debt at 31 March
2018 (49,898) (51,791) (49,883) (52,407)
--------- --------- --------- ---------
Closing debt at 31 March
2019 (49,913) (51,176) (49,898) (51,791)
========= ========= ========= =========
20 Relationship with the Investment Manager and other Related Parties
Directors' fees and interests
Fees payable to Directors during the year and their interests in shares of the Company are disclosed in the Directors' Remuneration Report.
Angela Lascelles, who was a director of the Company until 1 April 2019, is a director of OLIM Limited which has an agreement with the Company to provide investment management services, the terms of which are outlined in the Director's Report and in Note 3.
Matthew Oakeshott, who was a director of the Company until 1 April 2019, is a director of OLIM Property Limited which has an agreement with the Company to provide investment property management services, the terms of which are outlined in the Director's Report and in Note 3.
Value and Income Services Limited is a wholly owned subsidiary of Value and Income Trust PLC and all costs and expenses are borne by Value and Income Trust PLC. Value and Income Services Limited has not traded during the year.
21 Financial instruments and investment property risks
Risk management
The Group's and the Company's financial instruments and investment property comprise securities, property and other investments, cash balances, loans and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement or debtors for accrued income.
The Managers have dedicated investment management processes which ensures that the Investment Policy is achieved. For equities, stock selection procedures are in place based on active portfolio management and the identification of stocks. The portfolio is reviewed on a periodic basis by a senior investment manager and also by OLIM's Investment Committee.
Additionally, the Managers' Compliance Officers continually monitor the Group's investment and borrowing powers and report to their respective Managers.
The main risks that the Group faces from its financial instruments are:
(i) market risk (comprising price risk, interest rate risk and currency risk) (ii) liquidity risk (iii) credit risk
The Board regularly reviews and agrees policies for managing each of these risks. The Managers' policies for managing these risks are summarised below and have been applied throughout the year.
(i) Market risk
The fair value of, or future cash flows from, a financial instrument held by the Group may fluctuate because of changes in market prices. This market risk comprises three elements - price risk, interest rate risk and currency risk.
Price risk
Price risks (i.e. changes in market prices other than those arising from interest rate or currency risk) may affect the value of the Group's investments.
It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular sector. For equities, asset allocation and stock selection, as set out in the Investment Policy, both act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. The investments held by the Company are listed on the UK Stock Exchange.
All investment properties held by the Group are commercial properties located in the UK with long, strong income streams.
Price risk sensitivity
If market prices at the date of the Statement of Financial Position had been 10% higher or lower, while all other variables remained constant, the return attributable to ordinary Shareholders for the year ended 31 March 2019 would have increased/decreased by GBP19,751,000 (2018 - increase/decrease of GBP19,763,000) and equity reserves would have increased/decreased by the same amount.
Interest rate risk
Interest rate movements may affect:
- the fair value of the investments in property; and - the level of income receivable on cash deposits
The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions.
The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions and reviews these on a regular basis. Borrowings comprise debenture stock and ten year bank loans, providing secure long term funding. It is the Board's policy to maintain a gearing level, measured on the most stringent basis of calculation after netting off cash equivalents, of between 25% and 40%. Details of borrowings at 31 March 2019 are shown in Note 12.
Interest risk profile
The interest rate risk profile of the portfolio of financial assets and liabilities at the balance sheet date was as follows:
Weighted average
period for Weighted
which rate average Floating
is fixed interest Fixed rate rate
At 31 March 2019 Years rate % GBP'000 GBP'000
------------------- ----------------- ---------- ----------- --------------
Assets
Sterling - - - 4,338
Total assets - - - 4,338
------------------- ----------------- ---------- ----------- --------------
Weighted average
period for Weighted
which rate average Floating
is fixed interest Fixed rate rate
At 31 March 2019 Years rate % GBP'000 GBP'000
------------------- ----------------- ---------- ----------- --------------
Liabilities
Sterling 5.8 8.31 50,000 -
Total liabilities 5.8 8.31 50,000 -
------------------- ----------------- ---------- ----------- --------------
Weighted average
period for Weighted
which rate average Floating
is fixed interest Fixed rate rate
At 31 March 2018 Years rate % GBP'000 GBP'000
------------------- ----------------- ---------- ----------- --------------
Assets
Sterling - - - 3,639
Total assets - - - 3,639
------------------- ----------------- ---------- ----------- --------------
Weighted average
period for Weighted
which rate average
is fixed interest Fixed rate Floating
At 31 March 2018 Years rate % GBP'000 rate GBP'000
------------------- ----------------- ---------- ----------- --------------
Liabilities
Sterling 6.8 8.31 50,000 -
Total liabilities 6.8 8.31 50,000 -
------------------- ----------------- ---------- ----------- --------------
The weighted average interest rate on borrowings is based on the interest rate payable, weighted by the total value of the loans. The maturity dates of the Group's loans are shown in Note 12.
The floating rate assets consist of cash deposits on call, earning interest at prevailing market rates. The Group's equity and property portfolios and short term receivables and payables are non interest bearing and have been excluded from the above tables. All financial liabilities are measured at amortised cost.
Interest rate sensitivity
The sensitivity analyses below have been determined based on the exposure to interest rates at the balance sheet date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates.
If interest rates had been 100 basis points higher or lower and all other variables were held constant, the Group's:
- profit for the year ended 31 March 2019 would increase/decrease by GBP36,000 (2018 - increase/decrease by GBP41,000). This is mainly attributable the Group's exposure to interest rates on its floating rate cash balances.
- the Group holds no financial instruments that will have an equity reserve impact.
In the opinion of the directors, the above sensitivity analyses are not representative of the year as a whole, since the level of exposure changes frequently as part of the interest rate risk management process used to meet the Group's objectives.
Currency risk
A small proportion of the Group's investment portfolio is invested in securities whose fair value and dividend stream are affected by movements in foreign exchange rates. It is not the Group's policy to hedge this risk.
Currency sensitivity
There is no sensitivity analysis included as the Group has no outstanding foreign currency denominated monetary items.
(ii) Liquidity risk
This is the risk that the Group will encounter difficulty in meeting obligations associated with its financial liabilities.
The Group's assets comprise of readily realisable securities which can be sold to meet commitments if required and investment properties which, by their nature, are less readily realisable. The maturity of the Group's existing borrowings is set out in the interest risk profile section of this note.
The table below details the Group's remaining contractual maturity for its financial liabilities, based on the undiscounted cash outflows, including both interest and principal cash flows, and on the earliest date upon which the Group can be required to make payment.
As at 31 March 2019
Due between
3 months
Carrying Expected Due within and 1 Due after
value cashflows 3 months year 1 year
GBP000 GBP000 GBP000 GBP000 GBP000
Borrowings 50,727 72,805 1,091 3,063 68,651
Other payables 475 475 475 - -
Total 51,202 73,280 1,566 3,063 68,651
========= =========== =========== ============ ==========
As at 31 March 2018
Due between
3 months
Carrying Expected Due within and 1 Due after
value cashflows 3 months year 1 year
Borrowings 50,727 76,958 1,091 3,063 72,804
Other payables 485 485 485 - -
Total 51,212 77,443 1,576 3,063 72,804
========= =========== =========== ============ ==========
(iii) Credit risk
This is the failure of a counterparty to a transaction to discharge its obligations under that transaction that could result in the Group suffering a loss.
The risk is not significant and is managed as follows:
- investment transactions are carried out with a large number of brokers, whose credit standing is reviewed periodically by OLIM and limits are set on the amount that may be due from any one broker.
- the risk of counterparty exposure due to failed trades causing a loss to the Group is mitigated by the review of failed trade reports on a daily basis. In addition, a stock reconciliation to third party administrators' records is performed on a daily basis to ensure that discrepancies are picked up on a timely basis.
- cash is held only with reputable banks with high quality external credit ratings which are monitored on a regular basis.
Credit risk exposure
In summary, compared to the amounts on the group statement of financial position, the maximum exposure to credit risk during the year to 31 March was as follows:
2019 2018
Maximum Balance Maximum
Balance exposure Sheet exposure
Sheet GBP'000 GBP'000 GBP'000 GBP'000
Current assets
Cash and cash equivalents 4,338 9,306 3,639 9,891
Other receivables 907 6,376 711 1,249
5,245 15,682 4,350 11,140
--------------- ---------- --------- ----------
(iv) Property risk
The Group's commercial property portfolio is subject to both market and specific property risk. Since the UK commercial property market has been markedly cyclical for many years, it is prudent to expect that to continue. The price and availability of credit, real economic growth and the constraints on the development of new property are the main influences on the property investment market.
Against that background, the specific risks to the income from the portfolio are tenants being unable to pay their rents and other charges, or leaving their properties at the end of their leases. All leases are on full repairing and insuring terms, with upward only rent reviews and the average unexpired lease length is 15.6 years (2018 - 13.7 years). Details of the tenant and geographical spread of the portfolio and the long term record of performance through the varying property cycles since 1987 are set out in the property section of the Investment Managers' report. OLIM Property is responsible for property investment management, with surveyors, solicitors and managing agents acting on the portfolio under OLIM Property's supervision.
The Group leases out its investment property to its tenants under operating leases. At 31 March 2019, the future minimum lease receipts under non-cancellable leases are as follows:-
2019 2018
GBP000 GBP000
Due within 1 year 4,361 4,329
Due between 2 and 5 years 17,446 16,641
Due after more than 5 years 44,485 40,083
66,292 61,053
======= =======
This amount comprises the total contracted rent receivable as at 31 March 2019.
None of the Group's financial assets is past due or impaired.
Fair values of financial assets and financial liabilities
All assets and liabilities of the Group other than receivables and payables and the borrowings are included in the balance sheet at fair value.
(i) Fair value hierarchy disclosures
The table below sets out fair value measurements using the IFRS 13 Fair Value hierarchy:-
Level 1 Level 2 Level 3 Total
GBP000 GBP000 GBP000 GBP000
At 31 March 2019
Equity investments 128,706 - - 128,706
Investment properties - - 68,800 68,800
128,706 - 68,800 197,506
======== ======== ======== ========
At 31 March 2018
Equity investments 128,925 - - 128,925
Investment properties - - 68,700 68,700
128,925 - 68,700 197,625
======== ======== ======== ========
Company and Group numbers per the above fair value disclosures are the same except for the investment of GBP200,000 made by the Company in its subsidiary.
Fair value categorisation within the hierarchy has been determined on the basis of the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety as follows:-
Level 1 - inputs are unadjusted quoted prices in an active market for identical assets
Level 2 - inputs, not being quoted prices, are observable, either directly (i.e. as prices) or indirectly (i.e. derived from prices)
Level 3 - inputs are not observable
There were no transfers between Levels during the year.
(ii) Borrowings
The fair value of borrowings has been calculated at GBP59,244,000 as at 31 March 2019 (2018 - GBP59,685,000) compared to a balance sheet value in the financial statements of GBP49,913,000 (2018 - GBP49,898,000) per Note 12.
The fair values of the debentures are determined by comparison with the fair values of equivalent gilt edged securities, discounted to reflect the differing levels of credit worthiness of the borrowers. The fair values of the loans are determined by a discounted cash flow calculation based on the appropriate inter-bank rate plus the margin per the loan agreement. These instruments are therefore considered to be Level 2 as defined above. There were no transfers between Levels during the year.
All other assets and liabilities of the Group are included in the balance sheet at fair value.
Fair value Balance Sheet
Value
2019 2018 2019 2018
GBP000 GBP000 GBP000 GBP000
11% First Mortgage Debenture
Stock 2021 16,966 17,764 15,000 15,000
9.375% Debenture Stock 2026 26,620 26,663 20,182 20,206
43,586 44,427 35,182 35,206
Bank loan 15,658 15,258 14,731 14,692
59,244 59,685 49,913 49,898
------- ------- -------------- -------
22 Capital management policies and procedures
The Group's capital management objectives are:
- to ensure that the Group will be able to continue as a going concern;
- to maximise the return to its equity Shareholders in the form of long term real growth in dividends and capital value without undue risk through the optimisation of the debt and equity balance.
The capital of the Group consists of equity, comprising issued capital, reserves, borrowings and retained earnings.
The Board monitors and reviews the broad structure of the Group's capital. This review includes:
- the planned level of gearing which takes into account the Managers' views on the market and the extent to which revenue in excess of that which requires to be distributed should be retained.
The Group's objectives, policies and processes for managing capital are unchanged from the preceding accounting period.
Details of the Group's gearing and financial covenants are disclosed in Note 12.
23 Events after the Statement of Financial Position Date
There are no significant subsequent events for the Group or the Company.
Additional Information
In accordance with section 435 of the Companies Act 2006, the Directors advise that the financial information set out in this announcement does not constitute the Group's statutory Financial Statements for the period ended 31 March 2019 but is derived from these Financial Statements. The statutory Financial Statements for the year ended 31 March 2018 have been delivered to the Registrar of Companies and contained an audit report which was unqualified and did not constitute statements under S498(2) or S498(3) of the Companies Act 2006.
The Financial Statements for the period ended 31 March 2019 have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The Financial Statements for the period ended 31 March 2019 will be forwarded to the Registrar of Companies following the Company's Annual General Meeting. The Auditors have reported on these Financial Statements; their reports were unqualified and did not contain statements under Section 498(2) or (3) of the Companies Act 2006.
The Group and Company Statement of Financial Position at 31 March 2019 and the Group and Company Statement of Comprehensive Income, Statement of Changes in Equity and Statement of Cash Flows for the year then ended have been extracted from the Group's Financial Statements. Those Financial Statements have not yet been delivered to the Registrar.
The 2019 Annual Report and Financial Statements will be posted to Shareholders shortly and will contain the Notice of the Annual General Meeting of the Company to be held on Friday, 5 July 2019 at 12.30pm at the offices of Shepherd & Wedderburn LLP, Condor House, 10 St Paul's Churchyard, London EC4M 8AL.
For Value and Income Trust PLC
Maven Capital Partners UK LLP
Company Secretary
4 June 2019
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 SSAFULFUSEEM
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