Annual Financial Report

RNS Number : 9929Z

Value & Income Trust plc

29 July 2008

 



VALUE AND INCOME TRUST PLC

ANNUAL FINANCIAL REPORT 

FOR THE YEAR ENDED 31 MARCH 2008

SUMMARY 

	31 March 2008	31 March 2007
Net asset value per share valuing debt at par	251.0p	299.0p
Net asset value per share valuing debt at market value	222.7p	271.1p
Ordinary share price	166.0p	253.0p
Total interim dividend and proposed final dividend per share	7.4p	6.7p
Total assets less current liabilities	£151.8 million	£175.0 million

THE YEAR

• VIT's share price total return was -32.2% and +0.8%, compared with the FTSE All-Share Index total return of -7.7% and 31.3% over one year and three years, respectively, to 31 March 2008

• VIT's net asset value total return was -13.6% and 26.6% over one year and three years, respectively, to 31 March 2008

• Total dividends for the year are 7.4p, up 10.4% on the previous year - the twenty-first consecutive year of increase 

CHAIRMAN'S STATEMENT

Value and Income Trust had a difficult year. Over the twelve months to 31 March 2008 the net asset value total return per share fell by 15.6% with debt valued at market price and by 14.0% with debt valued at par. The FTSE All-Share (total return) Index fell by 7.7% over the same period. As the discount to net asset value widened, the share price total return fell by 32.2% over the year but rose by 0.8% over the three years ended 31 March 2008. Whilst the result for the year was disappointing, it came about for understandable reasons which are set out in the Investment Managers' Report below this should be seen in the context of the previous successful four years in each of which OLIM earned a performance fee. Over five years the net asset value total return (that is taking the growth in asset value and dividend together) has more than doubled, rising by 107% (Source: Fundamental Data).

The proposed final dividend of 3.7p per share would make total dividends for the year of 7.4p, an increase of 10.4%, and would be payable on 18 July 2008 for shareholders on the register on 20 June 2008. The ex-dividend date will be 18 June 2008. Those of you who have been shareholders for some years will recall that recently we were permitted by the Listing Rules of the Financial Services Authority to have only one director of VIT who is also an employee of OLIM. This requirement was removed in March and consequently we are allowed to have both Angela Lascelles and Matthew Oakeshott as Joint Managing Directors on the Board. I am pleased to report that this means that we have been able to restore the successful formula which was established when the Trust was reconstructed in its present form in 1986.

However, we continue to be required, on this occasion by International Financial Reporting Standards, to provide in our Balance Sheet for a deferred tax charge of £2.0 million which is caused by a potential liability to capital gains within our subsidiary company, Audax Properties plc. As I indicated last year it is unlikely that this tax will have to be paid in the foreseeable future because of our policy of long term investment in property. This provision reduces the net asset value per share which is announced to the Stock Exchange.

For example on 31 March 2008, the net asset value per share was reduced by 4.4p to 251.0p per share (valuing debt at par). We continue to believe that the outlook is for real growth in dividends from our equity investments. These were yielding 4.5% (net) on average at 31 March 2008. In the short term this presents a better opportunity for new investment than property and consequently the percentage in equities is as high as it has been since the reconstruction of the company.

However, as you will see from the property report below, we expect to see opportunities for investment before long. I hope that we shall see as many shareholders as possible at the Annual General Meeting on Friday 11 July 2008. As an experiment we are holding this in London for the first time and there will be a brief presentation on the investment outlook.

James Ferguson

6 June 2008

  MANAGER'S REPORT

EQUITY PORTFOLIO

Market Background

Equity markets worldwide were badly affected by the 'credit crunch' which first became apparent in the late summer but problems in the money, bond and equity markets continued to escalate for the rest of VIT's year. After a steady first half of our year, when the FTSE All Share Index rose by 1%, there was a severe deterioration in the second half and for the year as a whole the Index fell by 10.8% and gave a total return of -7.7%. The economic background overall was helpful with growth in GDP of 2.9% in 2007 and in the twelve months to the end of our year dividends grew overall by 12.6%. These supportive statistics would normally have resulted in steady growth in equity valuations. The problems in the US sub-prime mortgage market, however, which should have been confined to US banks, quickly became a global banking crisis as it became apparent that the loans on the original sub-prime properties had been sold into the global banking market, and that hedge funds had borrowed huge amounts on the security of these properties. These problems in America spilled over into our own mortgage bank, Northern Rock, and the queues outside its branches dominated our news screens for many days. Subsequently the wholesale banking market dried up, with our banks unwilling to lend to each other until they knew which ones were holding worthless paper. The gap between bank base rates, which were falling, and 3 month London Interbank Offered Rate (LIBOR), which is the real rate at which banks lend to each other, grew steadily and by the end of March, was nearly 0.75%. This is unprecedented; normally the banks' lending rates broadly follow the base rate set by the Bank of England, which should be in control of the banking system, but now clearly is not.

Despite companies reporting buoyant trading results, and raising their dividends well above the official rate of inflation, the problems in the bank market and the collapse of high profile hedge funds caused sharp falls in UK equities in the last few months of VIT's year. Gilt yields rose in the first half of our year, but fell in the second half as the panic on other asset classes took hold. At the end of March, the All Stocks Index had a yield of 4.4% compared to 5.0% a year earlier.

The spread between gilt and corporate bond yields widened during the year and even the fixed interest markets became paralysed with difficult dealing conditions. In the currency markets, the dollar continued to weaken but the euro moved strongly upwards in the second half of our year and ended at 1.25 to the pound compared with 1.47 at the end of March 2007.

The main equity markets around the world all fell substantially during the year, with Japan -28%, Germany -14% and America -7%, all measured in local currencies. Oil and commodity prices rose strongly during the year and the price of Brent Crude oil rose by nearly half, ending our year at 100$ per barrel.

Performance

VIT's Aims of the Trust are stated as 'investment in higher-yielding, less fashionable areas of the.…quoted equity markets, particularly in medium and smaller sized companies'. After several years of outperformance in this part of the market, the last year was relatively poor. Against the market fall overall of 10.9%, small companies fell by 23.9%, mid-cap companies by 14.3% and high-yield companies fell by 16.2%. The main strength in the market was in mining shares, which are very large and have very low yields and are not suitable for inclusion in our portfolio. VIT's equity performance reflected these trends, with a fall of 16.5% and a total return of -12.7%.

Portfolio

Transactions for the year totalled £53.3m. The changes to the fund were concentrated into the second half of our year as the economic changes in the UK became apparent. We made minor changes in the first half, with a switch from HBOS into the Royal Bank of Scotland, a partial sale of Legal and General and reinvestment of the proceeds into Aviva. We also sold BAE Systems where the yield was too low following the conversion of the preference shares, and we sold Trinity Mirror whose prospects were declining in the fast changing media world.

We reduced our telecommunications investments after strong out-performance. In addition to Aviva and Royal Bank of Scotland, we bought new holdings in LogicaCMG (IT services), BPP (vocational training) and Topps Tiles. In the second half, as the economic squeeze began to hurt companies with high borrowings, we sold the holdings in Paragon, Johnson Group Services, Kingfisher and Premier Foods. Their dividends were at risk and they were all suffering difficult trading conditions caused by a combination of funding needs and problems in the housing and markets related to consumer spending. Premier Foods was suffering a margin reduction due to the rising price of wheat. Several companies held in the portfolio received takeover bids, reflecting the cheap overall valuation of the market. We sold these companies, which were EMAP, Kelda, Inspace, and Scottish and Newcastle. We also sold Arriva and slightly trimmed our largest investment, VT Group.

  We balanced our sales and purchases in the first half, but we raised £5.1m in the second half, mainly due to takeovers. The falling market in the second half gave us opportunities to buy several new holdings on an attractive basis. We bought N Brown, the catalogues and internet retailer, Informa, the exhibitions and publishing media company, Renishaw, manufacturer of probes for machine tools, Sthree, the staffing company, and United Utilities, owner of North West Water. We added to several other holdings. At the end of March 2008 we were holding 34 companies with an average net yield of 4.5%.

Outlook

The Bank of England has reduced base rate three times since the summer, each time by 1/4% to the present level of 5%. As in America, but to a lesser extent, the response to the banking crisis has been to try to reduce interest rates. This has failed in the UK, with LIBOR currently at 6%. The Government's complaints about building societies failing to pass on 'interest rate cuts' shows a sad misunderstanding of the reality of the situation. Banks have suffered huge losses in the debacle of the sub-prime and Northern

Rock crises, followed by the hedge fund collapses, and they can only lend to consumers at a rate above the level where they can borrow wholesale funds. Until some liquidity is restored to the London banking market, this situation will continue, and there is effectively a severe squeeze on borrowing both by individuals and by companies.

Apart from the banking crisis, much of the business world continues to experience satisfactory trading at the moment, with continuing good figures reported and substantial dividend increases declared so far this year. We think the Chancellor's forecast of GDP growth in the UK this year is unrealistic but we do not expect a recession. Inflationary pressures are rising substantially with energy prices and food price rises beginning to reawaken memories of South American hyper-inflation. But with such a strong financial squeeze caused by the high borrowing rates, we think that inflation will be contained. There are signs all round the world that economic growth is slowing and this should result in easing commodity and oil prices in due course. In summary, equities yield 3.8% at current levels, and these look very good value against gilts on 4.5%, especially with dividends rising at the current rate. At this level, we strongly believe that the market valuation is discounting the economic slowdown, the problems in the banking market, and the inflationary pressures. After the underperformance of the last year, we think that high yielding medium and smaller-sized companies are particularly undervalued.

6 June 2008

PROPERTY PORTFOLIO

The Market

The United Kingdom commercial property market showed a total return of -3.4% in 2007, as measured by the IPD (Investment Property Databank) Annual Index. Capital values fell on average by 7.7% (retail -10.1%, offices -4.8% and industrial/warehouse property -8.4%). Rental values grew by 4.6% (retail +2.1%, offices +9.5% and industrials +1.6%). The capital declines were due to rising yields, as the tap of easy lending at low interest rates was turned off. Rising valuation yields cut capital values by between 11% and 13% in all sectors but rental increases partly offset those falls. Rental growth in the office sector was concentrated in Central London - elsewhere in the United Kingdom, average rental growth and capital performance were similar in all three sectors.

The rise in valuation yields for well-let, secure properties is now showing signs of slowing down but property with short leases and shaky tenants has not yet been 'marked to market' and has further to fall. The real test, property by property, in 2008 and 2009 will be whether underlying rent levels are affordable and sustainable. London offices have always been the most volatile area of the UK property market and the property boom which has just ended was no exception. Exceptional levels of mergers and acquisitions, private equity and hedge fund activity have driven Central London office rents to unsustainable levels. A tide of job losses in high rent-paying banks and related occupiers is now pressing down on rents while completions of new City office buildings are rising rapidly. Central London office rents will fall for several years.

Retail warehouses are the other area of real pain, as they were in the previous property recession in the early 1990's. Vacancy rates have been rising, and many properties previously let to failed retailers, especially in the furniture and carpet sector, will now have to be re-let at much lower rents as landlords pay full rates on empty properties from April. Falling prices and low turnover in the housing market hit retail warehouses hardest of all. High street retailing is tough, with intense margin pressure and some high profile casualties, but strong operators are still trading well and taking new units, both at the 'value' and more upmarket ends of the trade.

Supermarkets are generally increasing profits and gaining market share. Real consumer spending has only fallen once in Britain in the past thirty years. Rental values in the industrial and warehouse market are starting to come under pressure.

Tenant demand is thin, and void rates are rising, partly as a result of high levels of speculative development in some areas. The penal introduction of full rates on empty property from April after a six month void period is forcing landlords to take low offers to get properties income-producing. Demand for new space is becoming more concentrated on the best distribution locations near motorway junctions. Banks are now much more reluctant to lend on property with short leases and shaky tenants.

Average rental values for office and retail warehouse property may fall by around 5% over 2008, with industrials and shopping centres down 2% and high street retail unchanged. Overall that would show a 3% decline in rental values. Although the IPD Index is still showing modest increases, rental values have been generally flat so far in 2008, with the trend turning down. Valuation yields, on the other hand, should stabilise before the year end. Outperformance will come from strong tenants and well-located properties proving resilient, and well-funded cash purchasers taking advantage of forced sellers to make opportunist acquisitions at attractive yields. Loose lending to highly geared buyers forced property valuation yields down to 30 year lows by mid 2007. After yield rises of at least 1% property's long term income stream now again offers good value against index-linked gilts, and falling interest rates and rising property yields in recent months have given property a comfortable yield advantage over gilts in general. The UK economy is still growing, although the risks are on the downside as house prices fall, and employment levels remain around all time highs. But UK equities still offer better investment value than property, with dividends likely to grow by 5%-7% this year as property rental values turn down. Equity markets remain volatile in the short term and property's high income, protected by upward only rent reviews, is attractive as part of a balanced long term portfolio. Property let on long index-linked leases to strong covenants offers especially good value at low risk.

The Portfolio

VIT's property portfolio produced a total return of 0% over the year to March, compared with the IPD Monthly Index return of -11% over the twelve months. The income yield of 6% on our portfolio offset a capital loss of 6%, due to an unfavourable shift in market valuation yields. Net rental income on the portfolio grew by 5% over the year. Over the longer term, VIT's property record against the main benchmark IPD Annual Index, which covers calendar years and returned -3% in 2007. Our portfolio proved relatively resilient in a poor market because it contains mainly well-let, smaller properties where investor and tenant demand remains reasonable. We were able to negotiate lease extensions on the caravan park at Dover and the Lloyds-TSB branch at Worcester, which helped capital values.

We invest in properties with long, strong income streams to meet the fixed interest payments on our long-term debt. These have also produced good long-term capital performance. The total return on our property portfolio has averaged 14% a year over the past 5 years and 15% over 10 years and the 21 years since the start. These returns are 2%-3% a year above the IPD averages. Three quarters of the total rent is from quoted companies, mainly national multiple retailers. The weighted average unexpired lease length is 14 years. All properties are fully let on full repairing and insuring leases, with upward only rent reviews, and 99% of income is reviewed five yearly.

Results of Independent Revaluation

The VIT property portfolio, including properties held within our subsidiary Audax Properties plc, was subject to an independent professional revaluation by Messrs King Sturge and Co. at 31 March 2008.

The revaluation showed a value of £51,000,000; properties within VIT were valued at £18,100,000 while Audax Properties totalled £32,900,000. Our properties are revalued independently every six months, at 30 September and 31 March. The portfolio showed a capital fall of 5% over the past six months. Twenty five of the properties valued at 31 March 2008 were freehold or the Scottish equivalent and one is held on a long lease with 49 years to run.

6 June 2008

BUSINESS REVIEW

The Directors have prepared this Business Review in accordance with the requirements of Section 417 of the Companies Act 2006.

A review of the Company's activities is given below, in the Chairman's Statement and in the Manager's Report which includes likely future developments of the business.

Principal Risks and Uncertainties

The Directors have identified principal risks and uncertainties which affect its business and these are detailed in Note 20 to the Financial Statements. Additional risks include:

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

• Regulatory risk: The Company operates in a complex regulatory environment and faces a number of regulatory risks. Breaches of regulations, such as Section 842 of the Income and Corporation Taxes Act 1988, the UKLA Listing Rules and the Companies Act, could lead to a number of detrimental outcomes and reputational damage. The Audit and Management Engagement Committee monitors compliance with regulations by reviewing internal control reports from the Administrator and the Investment Manager, OLIM Limited ('OLIM').

Key Performance Indicators

The Directors have identified the Company's share price total return and net asset value total return, relative to the FTSE All-Share Index (total return) and the Company's dividend growth, relative to the Retail Prices Index, as the three key performance indicators for determining the progress of the Company and the relevant figures may be found in 'The Year, above.

Dividend

The Directors recommend that a final dividend of 3.7 pence per share (2007 - 3.5 pence) is paid on 18 July 2008 to shareholders on the register on 20 June 2008. The ex-dividend date is 18 June 2008. An interim dividend of 3.7 pence per share (2007 - 3.2 pence) was paid on 11 January 2008.

Principal Activity and Status

The business of the Company is that of an investment trust and the Directors do not envisage any change in this activity in the foreseeable future. The Company is registered as a public limited company and is an investment company as defined by Section 833 of the Companies Act 2006.

The Company has been approved by HM Revenue & Customs as an investment trust for the purposes of Section 842 of the Income and Corporation Taxes Act 1988 for the year ended 31 March 2007. The Directors are of

the opinion, under advice, that the Company has conducted its affairs for the year ended 31 March 2008 so as to be able to continue to obtain approval as an investment trust under Section 842 of the Income and Corporation Taxes Act 1988 for that year, although approval for that year would be subject to review were there to be any enquiry under the Corporate Tax Self Assessment regime.

The Company's affairs have also been conducted in such a way as to permit its ordinary shares to be included in Individual Savings Accounts and the Directors intend that the shares will continue to be eligible in the future.

The Company makes no political donations or expenditures or donations for charitable purposes and, in common with most investment trusts, has no employees.

Share Capital

During the year ended 31 March 2008, the Company had 45,549,975 ordinary shares of 10p nominal in issue. Each ordinary share entitles the holder to one vote on a show of hands and, on a poll, to one vote for every share held. There are no restrictions on the transfer of the ordinary shares.

Aims of the Company / Investment Objective

Value and Income Trust ('VIT') is a specialist United Kingdom investment trust designed for both institutional and private investors whose shares are listed on the London Stock Exchange. VIT invests in higher-yielding, less fashionable areas of the UK commercial property and quoted equity markets, particularly in medium and smaller sized companies. VIT's aim is long term real growth in dividends and capital value.

Investment Policy

VIT's policy is to invest in quoted UK equities, UK commercial property and cash or near cash securities. It is VIT's policy not normally to invest in overseas shares or in unquoted companies. UK equities should 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 those ranges if relative market levels and investment value or a desired increase in cash or near cash securities make it appropriate.

VIT focuses on the fundamental values and incomes of the businesses in which it invests - their profitability, cashflows, balance sheets, management and products or services - and the location, tenants and leases of its property investments. The share portfolio has always yielded more than the FTSE All-Share Index. VIT has held between 30 and 40 individual shareholdings and between 20 and 30 individual properties in recent years, but both these ranges may change as market conditions or the size of each portfolio vary in future. No individual shareholding will account for more than 10% of the equity portfolio at the time of purchase.

VIT has had a long standing policy since 1986 of increasing its exposure to equities and, particularly, property through the judicious use of borrowings. 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. Gearing has varied between a quarter and two-fifths of the total portfolio. VIT will not raise new borrowings if total net borrowings would then represent more than half of the total assets.

STATEMENT OF DIRECTOR'S RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and the Group financial Statements in accordance with applicable United Kingdom law and those International Financial Reporting Standards as adopted by the European Union.

The Directors are required to prepare Group financial statements for each financial year which present fairly the financial position of the Company and the Group and the financial performance and cash flows of the Group for that period; the Companies Act 1985 ('the Act') provides in relation to such financial statements that references in the relevant part of the Act to financial statements giving a true and fair view are references to their achieving a fair presentation. In preparing those Group 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 they have been prepared in accordance with IFRSs as adopted by the EU; and

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group will continue in business.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the Group financial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the Company and the Group 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 Directors' Report, Directors' Remuneration Report and Corporate Governance statement that comply with that law and those regulations.

The Directors are responsible for preparing the Annual Report in accordance with applicable law and regulations. The Directors confirm to the best of their knowledge, that:

• the Financial Statements have been prepared in accordance with IFRSs give a true and fair view of the assets, liabilities, financial position and loss; and that

• the Directors' Report includes a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that the Company faces.

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

James Ferguson

Chairman

6 June 2008

VALUE AND INCOME TRUST PLC

GROUP INCOME STATEMENT

For the year ended 31 March 2008

	Year ended			Year ended
	31 March 2008  (Audited)			31 March 2007  (Audited)
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Investment income
Dividend income	4,368	-	4,368	4,010	-	4,010
	________	________	________	________	________	________
Rental income	3,284	-	3,284	3,196	-	3,196
Interest income on short-term deposits	205	-	205	174	-	174
	________	________	________	________	________	________
Other operating income	3,489	-	3,489	3,370	-	3,370
	________	________	________	________	________	________
Total revenue	7,857	-	7,857	7,380	-	7,380
Gains and losses on investments
Realised gains on held-at-fair-value investments	-	5,451	5,451	-	9,073	9,073
Unrealised (losses)/gains on investments	-	(28,069)	(28,069)	-	10,363	10,363
	________	________	________	________	________	________
Total income	7,857	(22,618)	(14,761)	7,380	19,436	26,816
	________	________	________	________	________	________
Expenses
Investment management fees	(367)	(855)	(1,222)	(366)	(1,361)	(1,727)
Other operating expenses	(396)	-	(396)	(409)	-	(409)
Finance costs	(3,501)	-	(3,501)	(3,502)	-	(3,502)
	________	________	________	________	________	________
Total expenses	(4,264)	(855)	(5,119)	(4,277)	(1,361)	(5,638)
	________	________	________	________	________	________
(Loss) / profit before tax	3,593	(23,473)	(19,880)	3,103	18,075	21,178
Taxation	-	1,310	1,310	-	(713)	(713)
	________	________	________	________	________	________
(Loss) / profit for the period	3,593	(22,163)	(18,570)	3,103	17,362	20,465
	________	________	________	________	________	________
Earnings per ordinary share (pence)	7.89	(48.66)	(40.77)	6.81	38.12	44.93

The total column of this statement represents the Income Statement of the Group, prepared in accordance with IFRS. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations. All income is attributable to the equity holders of Value and Income Trust PLC, the parent company. There are no minority interests.

VALUE AND INCOME TRUST PLC

COMPANY INCOME STATEMENT

For the year ended 31 March 2008

	Year ended			Year ended
	31 March 2008  (Audited)			31 March 2007  (Audited)
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Investment income
Dividend income	4,368	-	4,368	4,010	-	4,010
	________	________	________	________	________	________
Rental income	1,191	-	1,191	1,138	-	1,138
Interest income on short-term deposits	162	-	162	135	-	135
	________	________	________	________	________	________
Other operating income	1,353	-	1,353	1,273	-	1,273
	________	________	________	________	________	________
Total revenue	5,721	-	5,721	5,283	-	5,283
Gains and losses on investments
Realised gains on held-at-fair-value investments	-	5,451	5,451	-	8,183	8,183
Unrealised (losses)/gains on investments	-	(26,754)	(26,754)	-	10,477	10,477
	________	________	________	________	________	________
Total income	5,721	(21,303)	(15,582)	5,283	18,660	23,943
	________	________	________	________	________	________
Expenses
Investment management fees	(254)	(593)	(847)	(257)	(1,107)	(1,364)
Other operating expenses	(291)	-	(291)	(262)	-	(262)
Finance costs	(1,851)	-	(1,851)	(1,852)	-	(1,852)
	________	________	________	________	________	________
Total expenses	(2,396)	(593)	(2,989)	(2,371)	(1,107)	(3,478)
	________	________	________	________	________	________
(Loss) / profit before tax	3,325	(21,896)	(18,571)	2,912	17,553	20,465
Taxation	1	-	1	-	-	-
	________	________	________	________	________	________
(Loss) / profit for the period	3,326	(21,896)	(18,570)	2,912	17,553	20,465
	________	________	________	________	________	________
Earnings per ordinary share (pence)	7.30	(48.07)	(40.77)	6.39	38.54	44.93

The total column of this statement represents the Income Statement of the Company prepared in accordance with IFRS. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations. All income is attributable to the equity holders of Value and Income Trust PLC, the parent company. There are no minority interests.

VALUE AND INCOME TRUST PLC

BALANCE SHEET

AT 31 MARCH 2008

	Group (Audited)				Company (Audited)
	As at 31 March 2008		As at 31 March 2007		As at 31 March 2008		As at 31 March 2007
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
ASSETS
Non current assets
Investments held at fair value through profit or loss		92,063		118,716		110,944		139,206
Investment properties held at fair value through profit or loss		51,000		54,525		18,100		18,800
		_______		_______		_______		_______
		143,063		173,241		129,044		158,006
Current assets
Cash and cash equivalents	9,609		2,266		9,102		1,780
Other receivables	562		1,556		560		1,543
	_______		_______		_______		_______
		10,171		3,822		9,662		3,323
		_______		_______		_______		_______
TOTAL ASSETS		153,234		177,063		138,706		161,329
Current liabilities
Other payables		(1,406)		(2,051)		(3,922)		(4,671)
		_______		_______		_______		_______
		151,828		175,012		134,784		156,658
Non-current liabilities
Debenture stock	(35,444)		(35,468)		(20,444)		(20,468)
Deferred tax	(2,044)		(3,354)		-		-
	_______		_______		_______		_______
		(37,488)		(38,822)		(20,444)		(20,468)
		_______		_______		_______		_______
		114,340		136,190		114,340		136,190
		_______		_______		_______		_______
EQUITY
Called up share capital		4,555		4,555		4,555		4,555
Share premium		18,446		18,446		18,446		18,446
Retained earnings		91,339		113,189		91,339		113,189
		_______		_______		_______		_______
		114,340		136,190		114,340		136,190
		_______		_______		_______		_______
Net Asset Value per ordinary share (pence)		251.02		298.99		251.02		298.99

VALUE AND INCOME TRUST PLC

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR

Group	Year ended 31 March 2008 (Audited)				Year ended 31 March 2007 (Audited)
	Share	Share	Retained	Total	Share	Share	Retained	Total
	capital	premium	earnings		capital	premium	earnings
	£000	£000	£000	£000	£000	£000	£000	£000
Net assets at 31 March 2007	4,555	18,446	113,189	136,190	4,555	18,446	95,685	118,686
Net (loss) / profit for the year	-	-	(18,570)	(18,570)	-	-	20,465	20,465
Dividends paid	-	-	(3,280)	(3,280)	-	-	(2,961)	(2,961)
	_________	_________	_______	_______	_______	_______	_______	_______
Net assets at 31 March 2008	4,555	18,446	91,339	114,340	4,555	18,446	113,189	136,190
	_________	_________	_______	_______	_______	_______	_______	_______
Company
	Year ended 31 March 2008 (Audited)				Year ended 31 March 2007 (Audited)
	Share	Share	Retained	Total	Share	Share	Retained	Total
	capital	premium	earnings		capital	premium	earnings
	£000	£000	£000	£000	£000	£000	£000	£000
Net assets at 31 March 2007	4,555	18,446	113,189	136,190	4,555	18,446	95,685	118,686
Net (loss) / profit for the year	-	-	(18,570)	(18,570)	-	-	20,465	20,465
Dividends paid	-	-	(3,280)	(3,280)	-	-	(2,961)	(2,961)
	_________	_________	_______	_______	_______	_______	_______	_______
Net assets at 31 March 2008	4,555	18,446	91,339	114,340	4,555	18,446	113,189	136,190
	_________	_________	_______	_______	_______	_______	_______	_______

VALUE AND INCOME TRUST PLC

GROUP STATEMENT OF CASH FLOWS

For the year ended 31 March 2008	2008		2007
	(Audited)		(Audited)
	£000	£000	£000	£000
Cash flows from operating activities
Dividend income received		4,430		3,903
Rental received		3,411		3,117
Interest received		206		174
Operating expenses paid		(2,213)		(2,020)
		__________		__________
NET CASH FROM OPERATING ACTIVITIES		5,834		5,174
Cash flows from investing activities
Purchase of investments	(25,800)		(28,207)
Sale of investments	34,114		29,680
	__________		__________
NET CASH INFLOW FROM INVESTING ACTIVITIES		8,314		1,473
Cash flow from financing activities
Interest paid	(3,525)		(3,525)
Dividends paid	(3,280)		(2,961)
	__________		__________
NET CASH FROM FINANCING ACTIVITIES		(6,805)		(6,486)
		__________		__________
NET INCREASE IN CASH AND CASH EQUIVALENTS		7,343		161
Cash and cash equivalents at 1 April 2007		2,266		2,105
		__________		__________
Cash and cash equivalents at 31 March 2008		9,609		2,266
		__________		__________

VALUE AND INCOME TRUST PLC

COMPANY STATEMENT OF CASH FLOWS

For the year ended 31 March 2008	2008		2007
	(Audited)		(Audited)
	£000	£000	£000	£000
Cash flows from operating activities
Dividend income received		4,430		3,903
Rental received		1,168		1,176
Interest received		162		136
Operating expenses paid		(1,696)		(1,496)
		__________		__________
NET CASH FROM OPERATING ACTIVITIES		4,064		3,719
Cash flows from investing activities
Purchase of investments	(25,701)		(28,207)
Sale of investments	34,114		27,439
Increase in loan to subsidiary	-		2,159
	__________		__________
NET CASH INFLOW FROM INVESTING ACTIVITIES		8,413		1,391
Cash flow from financing activities
Interest paid	(1,875)		(1,875)
Dividends paid	(3,280)		(2,961)
	__________		__________
NET CASH FROM FINANCING ACTIVITIES		(5,155)		(4,836)
		__________		__________
NET INCREASE IN CASH AND CASH EQUIVALENTS		7,322		274
Cash and cash equivalents at 1 April 2007		1,780		1,506
		__________		__________
Cash and cash equivalents at 31 March 2008		9,102		1,780
		__________		__________

  NOTES TO FINANCIAL STATEMENTS:

1    Accounting policies

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) 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 reporting currency of the Group is pounds sterling because that is the currency of the primary economic environment in which the Group operates, rounded to the nearest £'000.

(a)    Basis of preparation

The financial statements have been prepared 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 (SORP) for investment trusts issued by the Association of Investment Companies (AIC) in January 2003 (and revised in December 2005) is consistent with the requirements of IFRS, the directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.

The directors are of the opinion that the Group is engaged in a single segment of business, being investment business. The Group invest in companies listed in the UK only.

(b)    Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and the entity controlled by the Company (its subsidiary), drawn up to 31 March 2008. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Audax Properties plc, a wholly-owned subsidiary of the Company, charges expenses wholly to income. On consolidation, however, an adjustment is made to charge 70% of the investment management fee paid by Audax Properties plc to capital. The allocation has no effect on the total return of the Company or the Group.

    (c)    Presentation of income statement

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 income statement between items of a revenue and capital nature has been presented alongside the income statement. In accordance with the Company's status as a UK investment company under section 833 of the Companies Act 2006, net capital returns may not be distributed by way of dividend. 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 section 842 of the Income and Corporation Taxes Act 1988.

(d)    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 and other income is recognised as earned.

(e)    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, the investment management fees are allocated 30% to revenue and 70% to capital to reflect the Board's expectations of long term investment returns.  Any performance fees payable are allocated to capital, reflecting the fact that, although they are calculated on a total return basis, they are expected to be attributable largely to capital performance.

It is normal practice 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 do not charge finance costs to capital, the directors consider it inappropriate to allocate finance costs to capital.

(f)    Taxation

Deferred tax is recognised in respect of all temporary differences that have originated but not reversed at the balance sheet date, 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 balance sheet date. This is subject to deferred tax assets only being recognised if it is considered more likely 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 obtain 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.

This is not the case for the subsidiary company and hence the Group where such provision is made, calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

(g)    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.

(h)    Investments 

All investments have been designated upon initial recognition as fair value through profit or loss.

Investments are recognised and derecognised on the trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market concerned, and are initially measured at fair value.

Subsequent to initial recognition, investments are recognised at fair value through profit or loss. For listed investments, this is deemed to be bid market prices or closing prices for SETS stocks sourced from the London Stock Exchange.

SETS is the London Stock Exchange electronic trading service covering most of the market including all FTSE 100 constituents and the 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 income statement and are ultimately recognised in the retained earnings.

In respect of investment properties, fair value is established by half-yearly professional valuation on an open market basis by King Sturge and Co, Chartered Surveyors and Valuers and in accordance with the RICS Valuation Standards.

(i)    Cash and cash equivalents

Cash and cash equivalents comprises deposits held with banks.  

(j)    Non - current liabilities

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

		2008		2007
		Group	Company	Group	Company
		£000	£000	£000	£000
2	Income
	Investment income
	Dividends from listed investments in UK	4,368	4,368	4,010	4,010
		_________	_________	_________	_________
	Other operating income
	Rental income	3,284	1,191	3,196	1,138
	Interest receivable on short term deposits	205	162	174	135
		_________	_________	_________	_________
	Total income	7,857	5,721	7,380	5,283
		_________	_________	_________	_________

3	Investment management fee
		2008			2007
		Revenue	Capital	Total	Revenue	Capital	Total
	Group	£000	£000	£000	£000	£000	£000
	Investment management fee	367	855	1,222	366	854	1,220
	(incl irrecoverable VAT)
	Performance fee	-	-	-	-	507	507
	(incl irrecoverable VAT)
		_______	_______	_______	_______	_______	_______
		367	855	1,222	366	1,361	1,727
		_______	_______	_______	_______	_______	_______
		2008			2007
		Revenue	Capital	Total	Revenue	Capital	Total
	Company	£000	£000	£000	£000	£000	£000
	Investment management fee	254	593	847	257	600	857
	(incl irrecoverable VAT)
	Performance fee	-	-	-	-	507	507
	(incl irrecoverable VAT)
		_______	_______	_______	_______	_______	_______
		254	593	847	257	1,107	1,364
		_______	_______	_______	_______	_______	_______

		2008		2007
		Group	Company	Group	Company
		£000	£000	£000	£000
4	Other operating expenses
	Auditors' remuneration
	- audit	11	8	15	12
	- other non-audit services	1	1	1	1
	- taxation services	1	1	1	1
	- out of pocket expenses	1	1	1	1
	Directors' fees	41	41	35	35
	Fees for secretarial services	125	83	122	81
	Other expenses	216	156	234	131
		_______	_______	_______	_______
		396	291	409	262
		_______	_______	_______	_______

Non executive directors' fees comprise the chairman's fees of £17,000 (2007 - £15,000) and fees of £12,000 (2007 - £10,000) per annum paid to each other non-executive director. 

The executive directors who served during the year received no emoluments directly from the company (2007 - nil).

The executive directors are shareholders and directors of OLIM Limited which received an investment management fee of £1,127,000 (2007 - £1,089,000) and a performance fee of £nil (2007 - £450,000).

		2008		2007
		Group	Company	Group	Company
		£000	£000	£000	£000
5	Finance costs
	11% First Mortgage Debenture Stock 2021	1,650	-	1,650	-
	9.375% Debenture Stock 2026	1,875	1,875	1,875	1,875
	Less amortisation of issue premium	(24)	(24)	(23)	(23)
		_______	_______	_______	_______
		3,501	1,851	3,502	1,852
		_______	_______	_______	_______

6    Taxation

	a) Analysis of the tax charge for the year:
	Group
		2008				2007
		Revenue	Capital		Total	Revenue	Capital	Total
		£000	£000		£000	£000	£000	£000
	Corporation tax payable	-	-		-	-	-	-
	Decrease/(increase) in deferred tax provision	-	(1,310)		(1,310)	-	713	713
		_______	_______		_______	_______	_______	_______
		-	(1,310)		(1,310)	-	713	713
		_______	_______		_______	_______	_______	_______
	Factors affecting the current tax charge for year:
	Revenue / capital return on ordinary activities before tax				(19,880)			21,178
					_______			_______
	Tax thereon at 30%				(5,964)			6,353
	Effects of:
	Non taxable UK dividends				(1,310)			(1,203)
	Gains on investments not taxable				5,621			(5,118)
	Excess expenses not utilised				489			681
	Reduction in tax rates - deferred tax				(146)			-
					_______			_______
					(1,310)			713
					_______			_______
	Company
		2008				2007
		Revenue	Capital		Total	Revenue	Capital	Total
		£000	£000		£000	£000	£000	£000
	Corporation tax payable	(1)	-		(1)	-	-	-
		_______	_______		_______	_______	_______	_______
		(1)	-		(1)	-	-	-
		_______	_______		_______	_______	_______	_______

	Factors affecting the current tax charge for year:
	Revenue / capital return on ordinary activities before tax			(18,571)			20,465
				_______			_______
	Tax thereon at 30%			(5,571)			6,139
	Effects of:
	Non taxable UK dividends			(1,310)			(1,203)
	Gains on investments not taxable			6,391			(5,598)
	Excess expenses not utilised			490			662
	Group relief			(1)			-
				_______			_______
				(1)			-
				_______			_______

b)     Factors affecting the tax charge for the year

The Group has losses for tax purposes arising in the year of £1,631,000 (2007 £2,268,000). Under current legislation, it is unlikely that these losses will be capable of offset against the Group's future taxable profits.  Audax Properties plc revalues its property portfolio on a six monthly basis and is required to recognise a deferred tax liability in respect of all unrealised gains recognised. Any movement in this provision is recognised within taxation in the Group's Income Statement

c)     Factors affecting future tax charges

Both the Company and Audax Properties plc have deferred tax assets of £3,932,000 (2007 £3,724,000) and £61,000 (2007 £66,000) respectively at 31 March 2008 relating to total accumulated unrelieved tax losses carried forward. These have not been recognised in the accounts as it is unlikely that they will be capable of offset against the Group's future taxable profits.

7    Return per ordinary share

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

		2008		2007
		Group	Company	Group	Company
		£000	£000	£000	£000
	Revenue return	3,593	3,326	3,103	2,912
	Capital return	(22,163)	(21,896)	17,362	17,553
	Weighted average ordinary shares in issue	45,549,975	45,549,975	45,549,975	45,549,975
	Return per share - revenue	7.89p	7.30p	6.81p	6.39p
	Return per share - capital	(48.66p)	(48.07p)	38.12p	38.54p
		____________	____________	____________	____________
	Total return per share	(40.77p)	(40.77p)	44.93p	44.93p
		____________	____________	____________	____________

		2008	2007
		£000	£000
8	Dividends
	Dividends on ordinary shares:
	Final dividend of 3.5p per share (2007 - 3.3p) paid 12 July 2007	1,594	1,503
	Interim dividend of 3.7p per share (2007 - 3.2p) paid 11 January 2008	1,686	1,458
		____________	____________
	Dividends paid in the period	3,280	2,961
		____________	____________

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.

We note below the total dividend paid and proposed in respect of the financial year, which is the basis upon which the requirements of Section 842 ('s842') of the Income and Corporation Taxes Act 1988 are considered. The revenue available for distribution by way of dividend for the year is £3,326,000 (2007 - £2,912,000).

		2008	2007
		£000	£000
	Interim dividend for the year ended 31 March 2008 - 3.7p	1,686	1,458
	(2007 - 3.2p) paid 11 January 2008
	Proposed final dividend for the year ended 31 March 2008 - 3.7p	1,685	1,594
	(2007 - 3.5p) payable 18 July 2008	____________	____________
		3,371	3,052
		____________	____________

9	Investments
	Group
		Equities £'000	Other securities with equity element £'000	Investment  properties £'000	Total £'000
	Cost at 31 March 2007	78,917	921	28,184	108,022
	Unrealised appreciation	37,644	1,234	26,341	65,219
		___________	___________	___________	___________
	Valuation at 31 March 2007	116,561	2,155	54,525	173,241
	Purchases	25,526	-	99	25,625
	Conversion to equity	2,155	(2,155)	-	-
	Sales proceeds	(33,185)	-	-	(33,185)
	Realised gains on sales	5,451	-	-	5,451
	Movement in unrealised appreciation in year	(24,445)	-	(3,624)	(28,069)
		___________	___________	___________	___________
	Valuation at 31 March 2008	92,063	-	51,000	143,063
		___________	___________	___________	___________
	Company
		Equities £'000	Other securities with equity element £'000	Investment  properties £'000	Total £'000
	Cost at 31 March 2007	78,942	921	11,300	91,163
	Unrealised appreciation	58,109	1,234	7,500	66,843
		___________	___________	___________	___________
	Valuation at 31 March 2007	137,051	2,155	18,800	158,006
	Purchases	25,526	-	-	25,526
	Conversion to equity	2,155	(2,155)	-	-
	Sales proceeds	(33,185)	-	-	(33,185)
	Realised gains/(losses) on sales	5,451	-	-	5,451
	Movement in unrealised appreciation in year	(26,054)	-	(700)	(26,754)
		___________	___________	___________	___________
	Valuation at 31 March 2008	110,944	-	18,100	129,044
		___________	___________	___________	___________

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 on investments in the Income Statement. The total costs were as follows:-

		2008	2007
		£'000	£'000
	Purchases	167	181
	Sales	57	50
		___________	___________
		224	231
		___________	___________

		2008		2007
		Group	Company	Group	Company
10	Other receivables	£000	£000	£000	£000
	Amounts falling due within one year:
	Dividends receivable	533	533	595	595
	Amounts due from brokers	-	-	929	929
	Prepayments and accrued income	29	27	32	19
		___________	___________	___________	___________
		562	560	1,556	1,543
		___________	___________	___________	___________

		2008		2007
		Group	Company	Group	Company
11	Other payables	£000	£000	£000	£000
	Amounts due to brokers	-	-	175	175
	Value Added Tax payable	102	50	101	32
	Amounts due to subsidiaries	-	2,999	-	3,000
	Amounts due to OLIM Limited	-	-	543	512
	Accruals and other creditors	1,304	873	1,232	952
		___________	___________	___________	___________
		1,406	3,922	2,051	4,671
		___________	___________	___________	___________

The amounts due to OLIM Limited comprise management fees for the month of March 2007 and performance fees for the year to March 2007, subsequently paid in April 2007.

The amounts due to subsidiary relate to an interest-free unsecured loan from Audax Properties PLC to the Company. The loan has been made with a view to maximising the total return of the Group and has no maturity date.

There has been no change to the loan principal during the year other than an adjustment of £1,000 (2007 - nil) for group relief.

		2008		2007
		Group	Company	Group	Company
12	Non-current liabilities	£000	£000	£000	£000
	9.375% Debenture Stock 2026	20,000	20,000	20,000	20,000
	Add:- Balance of premium less issue expenses	468	468	491	491
	Less : Credit to income for the year	(24)	(24)	(23)	(23)
		___________	___________	___________	___________
		20,444	20,444	20,468	20,468
	11% First Mortgage Debenture Stock 2021	15,000	-	15,000	-
		___________	___________	___________	___________
		35,444	20,444	35,468	20,468
		___________	___________	___________	___________

The 11% First Mortgage Debenture Stock 2021 issued by Audax Properties plc is repayable at par on 31 March 2021 and is secured over specific assets of Audax Properties plc and the Company.

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

		2008		2007
		Group	Company	Group	Company
13	Deferred tax	£000	£000	£000	£000
	Opening balance at 31 March 2007	3,354	-	2,641	-
	Increase in deferred tax provision (see note 6)	(1,310)	-	713	-
		___________	___________	___________	___________
	Closing balance at 31 March 2008	2,044	-	3,354	-
		___________	___________	___________	___________
	Calculated as follows:-
	Unrealised gains subject to tax on realisation	7,696	-	11,574	-
	Less capital losses previously realised	(395)	-	(395)	-
		___________	___________	___________	___________
		7,301	-	11,179	-
		___________	___________	___________	___________
	Whereof 28% (2007 - 30%)	2,044	-	3,354	-
		___________	___________	___________	___________

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. However, some properties are owned by Audax Properties plc, a subsidiary of the Company, either to ensure that the investment trust status tests are not breached or for other commercial reasons. Provision for capital gains tax has therefore been made for the revaluation surpluses on property assets held by the subsidiary to the extent that the gain cannot be sheltered by capital losses brought forward or non trade losses.

		2008	2007
		£000	£000
14	Share capital
	Authorised:
	56,000,000 ordinary shares of 10p each (2007 - 56,000,000)	5,600	5,600
	13,000,000 6.25% convertible redeemable preference shares of £1	13,000	13,000
		___________	___________
		18,600	18,600
		___________	___________
	Allotted, called up and fully paid:
	45,549,975 ordinary shares of 10p each (2007 - 45,549,975)	4,555	4,555
		___________	___________

		2008		2007
		Group	Company	Group	Company
		£000	£000	£000	£000
15	Share premium
	Opening balance	18,446	18,446	18,446	18,446
		___________	___________	___________	___________

		2008		2007
		Group	Company	Group	Company
16	Retained earnings
	Opening balance at 31 March 2007	113,189	113,189	95,685	95,685
	(Loss)/profit for the year	(18,570)	(18,570)	20,465	20,465
	Dividends paid (see note 8)	(3,280)	(3,280)	(2,961)	(2,961)
		___________	___________	___________	___________
	Closing balance at 31 March 2008	91,339	91,339	113,189	113,189
		___________	___________	___________	___________

The table below shows the movement in retained earnings analysed between revenue (distributable) and 

capital (non-distributable) items

		2008			2007
		Revenue	Capital	Total	Revenue	Capital	Total
		£000	£000	£000	£000	£000	£000
	Group
	Opening balance at 31 March 2007	2,850	110,339	113,189	2,708	92,977	95,685
	(Loss)/profit for the year	3,593	(22,163)	(18,570)	3,103	17,362	20,465
	Dividends paid (see note 8)	(3,280)	-	(3,280)	(2,961)	-	(2,961)
		__________	__________	__________	__________	__________	__________
	Closing balance at 31 March 2008	3,163	88,176	91,339	2,850	110,339	113,189
		__________	__________	__________	__________	__________	__________
	Company
	Opening balance at 31 March 2007	1,976	111,213	113,189	2,025	93,660	95,685
	(Loss)/profit for the year	3,326	(21,896)	(18,570)	2,912	17,553	20,465
	Dividends paid (see note 8)	(3,280)	-	(3,280)	(2,961)	-	(2,961)
		__________	__________	__________	__________	__________	__________
	Closing balance at 31 March 2008	2,022	89,317	91,339	1,976	111,213	113,189
		__________	__________	__________	__________	__________	__________

17    Net asset value per equity share

The net asset value per ordinary share is based on net assets attributable of £114,340,000 (2007 - £136,190,000) and on 45,549,975 (2007 - 45,549,975) ordinary shares in issue at the year end.  The net asset value per ordinary share, based on the net assets of the Group adjusted for borrowings at market value (see note 19) is 222.72p (2007 - 271.11p)

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

		2008		2007
		Group	Company	Group	Company
		£000	£000	£000	£000
	Income from operations before tax	(14,761)	(15,582)	26,816	23,943
	Gains and losses on investments	22,618	21,303	(19,436)	(18,660)
	Investment management fee	(1,222)	(847)	(1,727)	(1,364)
	Administration expenses	(396)	(291)	(409)	(262)
	Decrease/(increase) in receivables	65	54	(118)	(110)
	Increase/(decrease) in other payables	(470)	(573)	48	172
		__________	__________	__________	__________
	Net cash from operating activities	5,834	4,064	5,174	3,719
		__________	__________	__________	__________

19    Related Party Transactions

Angela Lascelles and Matthew Oakeshott are directors of OLIM Limited which has an agreement with the Company to provide investment management services, the terms of which are outlined in Note 3.

Audax Properties plc is a wholly-owned subsidiary of Value and Income Trust PLC and accordingly the latter is the ultimate controlling party. Details of the year end financial relationship between Audax Properties plc and Value and Income Trust PLC may be found in Note 11.

20    Financial instruments

Risk management

The Group's financial instruments 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 Group also has the ability to enter into derivative transactions in the form of futures and options for the purpose of managing market risks arising from the Group's activities.

The Manager has a dedicated investment management process which ensures that the investment policy, set out in the Business Review, is achieved. Stock selection procedures are in place based on the active portfolio management and identification of stocks. The portfolio is reviewed on a periodic basis by a senior investment manager and also by the Manager's Investment Committee.  

Additionally, the Manager's Compliance department continually monitors the Group's investment and borrowing powers and reports to the Manager's Risk Management Committee.  The main risks that the Group faces from its financial instruments are

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

(ii) liquidity risk

(iii) credit risk

The Board regularly reviews and agrees policies for managing each of these risks. The Manager's policies for managing these risks are summarised below and have been applied throughout the year.  The numerical disclosures exclude short-term debtors and creditors. 

(i)     Market price 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 - interest rate risk, currency risk and other price risk.

Interest rate risk

Interest rate movements may affect:

 - the fair value of the investments in property

 - 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, 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 less than xx% at all times. Details of borrowings at 31 March 2008 are shown in note 12. 

Interest risk profile

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

	At 31 March 2008	Weighted average period for which rate is fixed Years	Weighted average interest rate %	Fixed rate £'000	Floating rate £'000
	Assets
	Sterling	-	4.27	-	9,609
		__________	__________	__________	__________
	Total assets
	At 31 March 2008	Weighted average period for which rate is fixed Years	Weighted average interest rate %	Fixed rate £'000	Floating rate £'000
	Liabilities
	Sterling	16	10.07	35,000	-
		__________	__________	__________	__________
	Total liabilities
	At 31 March 2007	Weighted average period for which rate is fixed Years	Weighted average interest rate %	Fixed rate £'000	Floating rate £'000
	Assets
	Sterling	-	4.33	-	2,266
		__________	__________	__________	__________
	Total assets
	At 31 March 2008	Weighted average period for which rate is fixed Years	Weighted average interest rate %	Fixed rate £'000	Floating rate £'000
	Liabilities
	Sterling	17	10.07	35,000	-
		__________	__________	__________	__________
	Total liabilities

The weighted average interest rate is based on the current yield of each asset, weighted by its market value. The weighted average interest rate on debentures 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 non-interest bearing assets represent the equity element of the portfolio and other receivables.  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 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 2008 would increase/decrease by £23,000 (2007 - increase/decrease by £21,000). This is mainly attributable the Group's exposure to interest rates on its floating rate cash balances.

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

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

Currency risk

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

Currency sensitivity

There is no sensitivity analysis included as the Group has no outstanding foreign currency denominated monetary items. Where the Group's equity investments (which are non-monetary items) are affected, they have been included within the other price risk sensitivity analysis so as to show the overall level of exposure.

Other price risk

Other 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. The allocation of assets and the stock selection process, as detailed in the Investment Policy in the Business Review, both act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. The investments held by the Group are listed on the UK Stock Exchange and all investment properties are commercial property located in UK with long strong income streams. The weighted average unexpired lease length is 13 years and all properties are fully let on full repairing and insuring leases with upward only rent reviews.

Other price risk sensitivity

If market prices at the balance sheet date had been 10% higher or lower, while all other variables remained constant, the return attributable to ordinary shareholders for the year ended 31 March 2008 would have increased/decreased by £13,385,000 (2007 - increase/decrease of £16,324,000) and equity reserves would have increased/ decreased by the same amount.

(ii)     Liquidity risk

This is the risk that the Group will encounter difficulty in meeting obligations associated with 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 rather less readily realisable. The maturity of the Group's existing borrowings is set out in the interest risk profile section of this note.

(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 the Manager 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 monthly basis. In addition, the Custodian carries out a stock reconciliation to third party administrators' records on a monthly basis to ensure that discrepancies are picked up on a timely basis. The Manager's Compliance department carries out periodic reviews of the Custodian's operations and reports its findings to the Manager's Risk Management Committee. This review will also include checks on the maintenance and security of investments held.

-     cash is held only with reputable banks.

(iv)     Property Risk

VIT'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 rent and other charges, or leaving their properties at the end of their leases. All leases are on full repairing and insuring terms, with upward only rent reviews, and the average unexpired lease length is 14 years. OLIM is responsible for property investment management, with surveyors, solicitors and managing agents acting on the portfolio under OLIM's supervision.

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

Credit risk exposure

In summary, compared to the amounts on the balance sheet, the maximum exposure to credit risk at 31 March was as follows:

		2008		2007
		Balance  Sheet  £'000	Maximum exposure  £'000	Balance  Sheet  £'000	Maximum exposure  £'000
	Non-current assets
	Investments held at fair value through profit or loss	143,063	177,764	173,241	173,241
	Current assets
	Other receivables	562	2,544	1,556	2,250
	Cash and cash equivalents	9,609	9,609	2,266	8,323
		___________	___________	___________	___________
		153,234	189,917	177,063	183,814
		___________	___________	___________	___________

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

Fair values of financial assets and financial liabilities

The fair value of borrowings has been calculated at £48,333,000 as at 31 March 2008 (2007 - £48,166,000) compared to a balance sheet value in the financial statements of £35,444,000 (2007 - £35,468,000) per note 12. 

The fair values of the debentures are determined by comparison to the fair values of equivalent gilt edged securities, discounted to reflect the differing levels of credit worthiness of the borrowers. All other assets and liabilities of the Group are included in the balance sheet at fair value.

		Fair value		Carrying Value
		2008	2007	2008	2007
		£000	£000	£000	£000
	11% First Mortgage Debenture Stock 2021	21,090	20,983	15,000	15,000
	9.375% Debenture Stock 2026	27,243	27,183	20,444	20,468
		___________	___________	___________	___________
		48,333	48,166	35,444	35,468
		___________	___________	___________	___________

21    Contingent asset

On 28 June 2007, the European Court of Justice ruled that management fees should be exempt from VAT. HMRC announced on 5 November 2007 its intention not to appeal against this case to the UK VAT Tribunal and therefore protective claims which have been made in relation to the Company are being processed by HMRC with our Manager, OLIM Limited. These claims have not been finalised and the Company has made no provision in these financial statements for any such repayment.

Statutory Financial Statements and Annual General Meeting

The income statements, balance sheets, statements of changes in equity and cashflow statements set out above do not represent full accounts in accordance with Section 240 of the Companies Act 1985. The financial information for the year ended 31 March 2007 has been extracted from the Annual Report and Accounts of the Company which have been filed with the Registrar of Companies and restated where required as a result of the implementation of the new Financial Reporting Standards. The auditors' report on those accounts as originally filed was unqualified. The statutory accounts for 2008 are unqualified and will be delivered to the Registrar of Companies following the Company's Annual General Meeting which will be held at 12.30pm on Friday 11 July 2008 at One Bow Churchyard, Cheapside, London EC4M 9HH.

Publication of Financial Statements

The Annual Report and Financial Statements were posted to shareholders in June 2008 and copies are available from the Manager, OLIM Limited, (www.olim.co.uk), Pollen House, 10/12 Cork Street, London, W1S 3NP or from the Secretary, Aberdeen Asset Management PLC, 7th Floor, 40 Princes Street, Edinburgh, EH2 2BY.

For Value and Income Trust plc

Aberdeen Asset Management PLC

Secretary

6 June 2008

END

 

END

 

 

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