Annual Financial Report

RNS Number : 8349I
Value and Income Trust plc
30 July 2012
 



VALUE AND INCOME TRUST PLC

 

ANNUAL FINANCIAL REPORT

 

FOR THE YEAR ENDED 31 MARCH 2012

 

SUMMARY


31 March 2012

31 March 2011

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

253.8p

249.1p

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

227.6p

233.7p

Ordinary share price

181.5p

186.0p

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

20.3%

20.4%

Total interim dividend and proposed final dividend per share

8.05p

7.8p

Total assets less current liabilities

£151.3m

£149.4m

 

THE YEAR

 

·      Net Asset Value total return (with debt at par value) of 5.3% over one year and 71.7% over three years

·      Share price total return of 1.8% over one year and 136.9% over three years.

·      FTSE All-Share Index total return of 1.4% over one year and 67.9% over three years

·      Dividends for the year up 3.2% - increased for 25th consecutive year

 

DIVIDEND

 

The Directors recommend that a final dividend of 4.15 pence per share (2011 - 4.0 pence) is paid on 20 July 2012 to shareholders on the register on 22 June 2012.  The ex-dividend date is 20 June 2012. An interim dividend of 3.9 pence per share (2011 - 3.8 pence) was paid on 6 January 2012.

 

 

CHAIRMAN'S STATEMENT

 

Over the year to 31 March 2012 Value and Income Trust's net asset value total return per share (that is taking the growth in net asset value and dividend together) increased by 0.9% with debt valued at market and by 5.3% with debt valued at par. Our equity portfolio had a good year and our property portfolio performed well in what was a difficult market for its type of property.

 

The share price total return was 1.8% while the FTSE All-Share Index ("the Index") total return was 1.4% over the same period. Over three years the share price total return was 136.9% compared to the increase in the Index of 67.9%. This result entitled OLIM to a performance fee of £792,663 under the existing investment management agreement.  However, during the course of the year we renegotiated this agreement and a revised version was signed just after VIT's year end. OLIM offered to waive part of its fee for last year to reflect the terms of the new agreement and so the amount of the performance fee was reduced to £504,450.

 

The proposed final dividend of 4.15p would make total dividends for the year of 8.05p, an increase of 3.2%. Subject to approval at the Annual General Meeting, the final dividend would be payable on 20 July 2012 to shareholders on the register on 22 June 2012. The ex dividend date is 20 June 2012.  The dividend has been increased every year since the change of investment policy in 1986.

 

Our two debentures have covenants attached to them. Information about these is included in note 12 to the financial statements; there is plenty of headroom in terms of both capital and income.

 

OLIM announced in September 2011 that it intended to split its business in two with the equity side remaining as a wholly-owned subsidiary of Close Brothers while the property activities were to be bought by a company formed by Matthew Oakeshott called OLIM Property. This was subject to FSA approval which was received in April 2012 and new

investment management agreements have been signed since then. As was stated at the time of the announcement, the same people are involved with the portfolio and the way in which VIT is run will not change.

 

David Back will be retiring at the conclusion of the Annual General Meeting. He was appointed a Director of the Company in 2000. VIT has benefitted from his long experience of the UK equity market; we are very grateful to him and he leaves with our best wishes for his retirement.

 

The prospects for dividend growth from our equities are encouraging and our properties are providing an attractive yield with no voids in the portfolio. Consequently we remain fully invested.

 

I hope that we shall see as many shareholders as possible at the Annual General Meeting on Friday 13 July 2012, which is to be held in Edinburgh this year. There will be a brief presentation on the investment outlook.

 

 

James Ferguson

8 June 2012

 

 

MANAGER'S REPORT

 

EQUITY PORTFOLIO

 

Market background

The year which ended in March 2012 saw wide swings in market levels, but overall the FTSE All Share Index fell by 2.1% in capital return terms, giving back a small part of the gains of the previous two years. Over the three years, since the nadir for equity markets, the Index has risen by 51.3%.

 

Our year began steadily with a marginal rise in the indices in the quarter to the end of June, but equity markets worldwide fell sharply during the summer to record the steepest quarterly falls in recent years. In the quarter to end September, the All Share Index fell by 14.5% to record a fall of 13.5% in the first half of our year. The background to the market collapse was the growing fear of a 'double dip' economic recession combined with the ever growing crisis in Europe, where Greece in particular was in need of further support in refinancing its sovereign debt.

 

Equity markets rose steadily in the second half of VIT's year, recovering most of the summer's downturn. In the final quarter of 2011 the background remained critical in Europe and forecasts for global growth in 2012 were downgraded, but investors began to appreciate the extreme undervaluation of companies and the opportunity to obtain the high and growing income achievable through investment in equities. As 2012 began, a settlement of the Greek funding crisis was agreed, and concerns about global growth diminished when the fourth quarter 2011 figures for US GDP were announced, showing growth at an annual rate of 3.0%. In the UK, company announcements were generally well received and dividends continued to grow, showing a rise of 11% in the first quarter of this year compared to a year earlier.

 

Within UK equities, mid-sized companies were more resilient than large companies with a fall of just 0.5%. High yielding companies performed best with a rise of 0.5% in the FTSE Higher Yield Index. Overseas equity markets fell by more than the UK market. The FTSE World Index recorded a fall of 2.7% and the worst performing area was the FTSE Emerging Markets Index which fell by 11.5%. In the currency markets the dollar was unchanged against the pound over the year but the euro fell by 6% to close our year at 1.20 to the pound. In the fixed interest markets, gilt yields fell significantly: ten year dated stocks began the year yielding 3.7% but by end March 2012 the return had fallen to 2.2%. The FTSE Gilt All Stocks Index gave a total return of 14.4% over the year. In the commodity markets, the oil price rose by 4.7% but copper fell by 10.3%, amid concerns over global economic growth.

 

Performance

VIT's equity performance over the year was significantly ahead of the All Share Index. In capital terms the portfolio rose by 2.5%, which was 4.6% above the Index return. Including income, the total return was +6.6%, compared with the total return on the All Share Index of +1.4%. The construction of our portfolio, with its bias towards higher yielding mid-sized companies, benefitted from market trends in those areas.

 

Our holdings in the global industrial sectors again outperformed with particular strength in Spectris (+32%), Croda (+26%), and Rotork (+17%). Babcock, despite operating mainly in the UK, rose by 28%. Our holdings in the banking and mining sectors fell by more than 10%, but our allocation to those sectors was well below the market average.

 

Portfolio

With dividends growing at three times the rate of inflation and a high starting yield on the market, our strategy continued to be one of full investment all through the year. In stock selection we continued to overweight the sectors operating in the faster growing economies of the world, and the defensive areas of the UK economy. We continued to underweight the resource and financial sectors.  We avoided companies operating in the troubled countries of the Eurozone.

 

Transactions during the year totalled £17.3m, with net sales of £1.5m made to fund property purchases by VIT from Audax Properties plc. Forth Ports plc was taken over for cash early in our year and we sold the holding in Wincanton as the problems in Europe continued to escalate. We sold Interserve in order to consolidate the holding in Carillion, which we believe is a stronger company operating in the construction markets in the Middle East and the UK. We sold Stobart when the company announced a major change in strategy, which entailed a conflict of interest with its directors. We bought a new holding in Inmarsat, which provides global mobile satellite communications services, but sold it later when it issued a trading statement showing a decline in its core maritime business. We added to several existing companies as opportunities arose. At the end of March we were fully invested with a portfolio of 34 companies and an overall net yield of 4.5%.

 

Outlook

During the last year forecasts for economic growth have been downgraded several times from the expectations of a year ago. As expected, consumers have experienced a year ago. As expected, consumers have experienced a severe reduction in disposable income, suffering higher taxes, steeply rising inflation, stagnant wages, rising unemployment and, recently, rising mortgage interest rates. Despite public sector spending cuts, the fiscal deficit remains high and there is little prospect of reducing government debt in the life of this parliament.  These two areas of economic concern and the ongoing strains in Europe have caused the sharp decline in the rate of growth of output. Whereas a year ago the Office for Budgetary Responsibility forecast UK GDP to grow at 1.7% in 2011 and 2.5% in 2012, the outcome for 2011 was only 0.7% and the current expectation for 2012 is only 0.8%.

 

Despite these gloomy statistics, UK quoted companies are generally in good health. In the calendar year 2011 earnings and dividends grew by 14% and the positive trend is continuing so far in 2012, though a little more slowly. The corporate sector refinanced itself in 2009 where necessary and with over half of UK earnings arising from interests overseas, UK plc gives a much broader exposure to world economic growth than just the growth forecast for this country. The retail sector has suffered greatly from the squeeze on consumers and several well regarded businesses have ceased trading, but elsewhere company balance sheets are well financed and many companies have found scope for efficiency savings, thus preserving their profits and earnings.

 

Europe will continue to worry economists and investors, and currently Spain's interest rates are under the spotlight as it attempts its latest refinancing of Government debt. If the situation becomes critical again, we expect further tranches of quantitative easing to take pace, and we certainly expect base rate to remain low, in view of the fragile rate of economic growth and the necessity to stimulate it, in order to begin to tackle the mountain of our government debt. Inflation has been falling but the steep rise in energy prices so far in 2012 may cause renewed upward pressure. Our equity market remains on an attractive valuation at a historic price earnings ratio of 10x and a yield of 3.5%.

 

 

OLIM Limited

 

 

PROPERTY PORTFOLIO

 

The Market

UK commercial property, as measured by the Investment Property Databank (IPD), gave an average total return of 8% in 2011. This reflected an income yield of 6%, plus 2% capital growth.

 

The retail and industrial warehouse property sectors both returned 7% with capital values marginally ahead. Office capital values rose by 3% to give a total return of 10%, driven purely by the recovery in the Central London office values from their collapse in 2008-9. Provincial office values remained under pressure. Average capital values of properties in the IPD Index peaked in the third quarter of 2011 and have since declined slowly.  Transaction volumes in the investment property market are running around half their long term averages, which means valuers are shorter of evidence and further behind the curve than usual in picking up recent market weakness, especially in the rental value component of valuations. The gap between rents being paid by existing tenants and those which could be achieved on reletting has been widening.

 

Average rental values showed a similar trend to capital values, rising marginally in the first three quarters of 2011 and slipping since, with no net change over 2011 as a whole. Office rental values were up by 2% (again, purely the Central London effect) while retail and industrial rental values fell by 1%. Rental income actually received on portfolios included in the IPD showed little change over the year, as void rates remained high by historic standards at 7%, and rent reviews produced little uplift because many properties are now overrented, and tenants are negotiating harder, making it more difficult to maintain rental income. When leases expire, tenants now negotiate as if they were taking a new lease and typically request a rent free period or capital contribution and monthly rent payments even if they are happy to stay, and often a rent reduction as well.

 

Property values are now being pulled up by high yields and down by falling rents. Property let at affordable rents to strong covenants on long leases, preferably with inflation-linked or fixed-rent reviews, is getting steadily scarcer and more valuable, even with no economic - and therefore open market rental value - growth. But with average unexpired lease lengths on properties in the IPD index now down to 7 years, against 12 after the last recession 20 years ago, and overrenting now outweighing reversions, most UK commercial property is falling in value. Property rents, like unemployment, lag the real economy and, like unemployment, they need some real economic growth - about 1% to 1.5% a year - to stay level in real terms. So falling rental values for most types of commercial property in most parts of Britain are likely for at least the next two years, and maybe more, unless the economy accelerates back to its traditional 2%-3% post-recession real growth rates soon.

 

Average property capital values are likely to fall by about 5% over 2012 as a whole, with average rental values down by perhaps 2%, to give positive total returns of about 2%. But index-linked properties at yields 5% or 6% above index-linked gilts offer outstanding value. With little sign of growth in the UK economy at present and unemployment still rising, there may not be much difference this year between the performance of the different property sub sectors - City of London office values, for example are clearly suffering from oversupply and weakening tenant demand although the West End market remains tight. But for all property types, security of income will drive outperformance.

 

The banks are now pressing on with disposals of distressed assets to cash buyers who are known as reliable performers. Royal Bank and Bank of Scotland and the Irish banks have hundreds of billions of property exposure, and many property loans taken out in the boom years will need to be refinanced. Where banks had previously been prepared to maintain loans where interest payments were still being met in full although the capital ratios had been breached, they are no longer waiting for tenant demand to recover, but are appointing receivers to make disposals. Much of the property on which banks lent is highly risky and only saleable at yields well into double figures, but there is plenty of solid, if unfashionable income-producing stock now also coming through. In recent months banks have also been selling large packages of nonperforming property loans to hedge funds, who are aggressively enforcing their security and disposing of the underlying properties.

 

The UK economy is bumping along the bottom, with marginal rises and falls quarter by quarter but no clear growth pattern established. Pressures in the Eurozone affect confidence and growth here, but the USA is recovering. Estimates for UK GDP growth in 2012 have been downgraded, with no more than 0.5% - 1% growth now likely at best. Manufacturing is benefiting from a competitive exchange rate but it now only represents 10% of our economy, construction remains depressed, and bank lending to small and medium sized businesses has dried up. Consumer confidence is fragile, with the full effect of the public sector job cuts only now being felt, but although inflation has stayed higher for longer than expected, it is now clearly on the way, down, both at the factory gate and retail level. However average earnings growth at 1% is still well below retail price inflation, so the squeeze on real wages will continue for most of 2012. The Bank of England Monetary Policy Committee's repeated doses of quantitative easing are unlikely to restart economic growth unless they can be targeted to small business and be part of a wider stimulus package to boost business and consumer confidence. Larger businesses generally enjoy strong balance sheets and liquidity but are reluctant to invest.

 

Britain's credit rating remains strong, but we still have a substantial public sector deficit which will only fall slowly so long as economic growth remains so weak. Unless and until economic recovery is clearly back on as firm a track as after previous recessions, the balance of risk and reward is clearly still in favour of safe property let at affordable rents to strong tenants on long, preferably index-linked leases.

 

The Portfolio

VIT's property portfolio produced a total return of 7% over the year to March, just above the IPD Monthly Index return over the same period.

 

We concentrate on properties with 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 11% a year over the past 3 years, 5% over 5 years, 14% over 10 years, and 15% over the 25 years since the start. These returns are well above the IPD averages.

 

We sold a short lease property in St Andrews for £0.7m, 21% above valuation, during the year, and have sold the Hereford property at the latest valuation figure of £0.6m since the year end. The sales were at an average net yield of 6.8%. Also since the year end, we have bought a small supermarket in Devon for £0.5m at a net initial yield of 7% on a 20 year lease with R.P.I.-linked rent reviews.

 

All properties are fully let on full repairing and insuring leases, with upward only rent reviews and an average unexpired lease length of 13 years. 99% of the rental income is reviewed five yearly, with one-third index-linked.

 

The property portfolio is matched with £35 million of long term, fixed rate loans - £20 million of VIT 9 3/8% Debenture Stock repayable in 2026 and £15 million of 11% Debenture Stock, issued by our subsidiary Audax Properties plc and repayable in 2021. Because those Debenture Stocks were issued at a premium, their effective interest cost averaged 9%. We believe this is the right way to finance long-term property investment and we do not intend to replace it with shorter term bank debt. The turmoil in the property and banking markets over the past five years reinforces that view.

 

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 Jones Lang LaSalle at 31 March 2012.

 

The revaluation showed a value of £48,250,000; properties within VIT were valued at £18,175,000 while Audax Properties plc totalled £30,075,000. Our properties are revalued independently every six months, at 30 September and 31 March.

 

They showed little change in capital value over the full year, with a marginal rise in the first half and fall in the second half year. Twenty-six of the properties valued at 31 March 2012 were freehold or the Scottish equivalent and one is held on a long lease with 45 years to run.

 

OLIM Property Limited

 

 

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 in the Chairman's Statement and the Investment Managers' Report, which includes likely future developments of the business.

 

Aims of the Company

Value and Income Trust ('VIT') is an investment trust 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 aims for long term real growth in dividends and capital value without undue risk.

 

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 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.

 

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, to 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.

 

Principal Risks and Uncertainties

The Directors have identified the principal risks and uncertainties which affect the Company's 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 price which represents a discount to its underlying net asset value; and

-        Regulatory risk: the Company operates in a complex regulatory environment and faces a number of regulatory risks. Breaches of regulations, such as Sections 1158 - 1159 of Corporation Tax Act 2010 (formerly Section 842 of the Income and Corporation Taxes Act 1988), the UKLA Listing Rules or 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

 

Results and Dividend

The Directors recommend that a final dividend of 4.15 pence per share (2011 - 4.0 pence) is paid on 20 July 2012 to shareholders on the register on 22 June 2012. The ex-dividend date is 20 June 2012. An interim dividend of 3.9 pence per share (2011 - 3.8 pence) was paid to shareholders on 6 January 2012.

 

Table 1 shows the revenue reserve position and dividends paid and payable by the Group and the Company, under the former basis of accounting, subject to shareholders' approval of the proposed final dividend at the forthcoming Annual General Meeting.

 

Group

Company



£'000

Pence
per share


£'000

Pence
per share

Revenue reserve at 31 March 2011

1,721

3.78

3

-

Net revenue earned in the year

3,640

7.99

4,561

10.01

Dividends paid and payable

(3,661)

 (8.03)

 (3,661)

 (8.03)

Revenue reserve at 31 March 2012

1,700

3.74

903

1.98

 

 

Table 1 Group and Company revenue reserves

 

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 in Scotland under company number SC 50366 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 Sections 1158 - 1159 of Corporation Tax Act 2010 (formerly Section 842 of the Income and Corporation Taxes Act 1988) for the year ended 31 March 2011. The Directors are of the opinion, under advice, that the Company has conducted its affairs for the year ended 31 March 2012 so as to be able to continue to obtain approval as an investment trust under Sections 1158 - 1159 of Corporation Tax Act 2010 (formerly 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 Corporation 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 ordinary 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

As at 31 March 2011 and 31 March 2012, 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.

 

Investment Management

During the year ended 31 March 2012, investment management of the Company's assets and responsibility for the Company's operations was delegated to OLIM Limited ("OLIM"). OLIM was employed under a contract which could be terminated by either party on giving one year's notice. OLIM received an annual investment management fee of £972,140, excluding VAT, calculated as 2/3 of 1% of the VIT Group of Companies' total assets less current liabilities ("VIT total assets").

 

OLIM was also entitled to a performance fee, charged wholly to capital, if the total positive returns to shareholders from their investment in VIT exceeded the total return on the FTSE All-Share Index by more than ten percentage points in any three-year period. The objective of the performance bonus was to give the investment manager ten per cent of the additional value generated for shareholders by such out-performance. Accordingly, OLIM was contractually entitled to a performance fee of £792,663 for the year ended 31 March 2012. The Directors and OLIM have agreed that a performance fee of £504,450, excluding VAT, be payable to OLIM. This figure is calculated as if total investment management fees payable to OLIM for the year ended 31 March 2012, including the performance fee, were capped at 1% of VIT total assets as under the new agreements set out below.

 

With effect from 5 April 2012, responsibility for providing property investment management services to the Company was transferred from OLIM to OLIM Property Limited ("OLIM Property"). OLIM continues to provide equity investment management services to the Company. Under two separate investment management agreements entered into by the Company, both of which may be terminated by either party on giving one year's notice, OLIM and OLIM Property receive an investment management fee of 2/3 of 1% of VIT total assets, which is allocated 2/3 to OLIM and 1/3 to OLIM Property.

 

OLIM and OLIM Property are also entitled to a performance fee subject to the achievement of certain criteria. The objective is to give the Managers a performance fee of 10% of any outperformance of the VIT share price total return ("VIT SPTR") over the FTSE All-Share Index share price total return ("FTSE SPTR"), the fee only becoming payable on the excess once a minimum outperformance of 10% has been achieved since 31 March 2011.

 

The performance fee will be paid annually in respect of performance over the preceding three years. The fee will be payable only if the VIT SPTR has been positive over the period and, in addition, the NAV total return has been positive and has exceeded the FTSE SPTR over the period.

 

The maximum performance fee payable in any year will be 1/3 of 1% of total VIT assets and will be divided 1/3 to OLIM Property and 2/3 to OLIM. The fee will be wholly charged to capital.

 

An additional fee is payable to Aberdeen Asset Management PLC for company secretarial and administrative services.

 

The non-executive Directors review the terms and conditions of the appointment of OLIM and OLIM Property on a regular basis. Following the most recent review, the Directors are satisfied that the continuing appointment of OLIM and OLIM Property as investment managers, on the current terms, is in the best interests of shareholders as a whole as the Company benefits from the expertise of the specialised teams of investment professionals at OLIM and OLIM Property.  In the event of termination on less than the agreed notice period, compensation is payable in lieu of the unexpired notice period.

 

By order of the Board

Aberdeen Asset Management PLC

Secretaries

Edinburgh

 

8 June 2012

 

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

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

 

The financial statements are published on the Company's website which is maintained by, OLIM: www.olim.co.uk. The maintenance and integrity of the corporate and financial information relating to the Company is the joint responsibility of the Directors, OLIM and OLIM Property. The work carried out by the Auditor does not involve consideration of the maintenance and integrity of this website and, accordingly, the Auditor accepts no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.  Visitors to the website need to be aware that legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

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 International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the European Union IAS Regulation and have also chosen to prepare the parent company financial statements in accordance with IFRSs as adopted by the European Union.  Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, International Accounting Standard 1 requires that Directors:

 

·      properly select and apply accounting policies;

·      present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

·      provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and

·      make an assessment of the Company's ability to continue as a going concern.

 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and 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 2006.

 

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.

 

Responsibility Statement

The Directors confirm to the best of their knowledge, that:

 

·      the Financial Statements, prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

·      the Directors' 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.

 

 

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

 

James Ferguson

Chairman

8 June 2012

 


VALUE AND INCOME TRUST PLC

GROUP STATEMENT OF COMPREHENSIVE INCOME

 

For the year ended 31 March 2012

Total expenses


 (4,218)

 (1,184)

(5,402)

 (4,248)

 (786)

 (5,034)

Profit for the period


3,640

2,087

5,727

3,150

 8,210

11,360



________

________

________

________

________

________

The Board is proposing a final dividend of 4.15p per share, making total dividends of 8.05p per share for the year ended 31 March 2012 (2011: 7.8p per share) which, if approved, will be payable on 20 July 2012 (see note 8).

 

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.

 

 

VALUE AND INCOME TRUST PLC

 

COMPANY STATEMENT OF COMPREHENSIVE INCOME

 

Total expenses


 (2,326)

(957)

 (3,283)

(2,375)

 (560)

 (2,935)

Profit for the period

7

4,561

1,166

5,727

3,004

8,356

11,360



________

________

________

________

________

________

 

 


VALUE AND INCOME TRUST PLC

 

STATEMENT OF FINANCIAL POSITION

 

As at 31 March 2012

NET ASSETS



115,597


113,463


115,597


113,463




_______


_______


_______


_______

TOTAL EQUITY

17


115,597


113,463


115,597


113,463




_______


_______


_______


_______

 

 

 


VALUE AND INCOME TRUST PLC

 

STATEMENT OF CHANGES IN EQUITY

 

Net assets at 31 March 2012


4,555

18,446

92,596

115,597

4,555

18,446

90,462

113,463



_______

_______

_______

_______

_______

_______

_______

_______

Net assets at 31 March 2012


4,555

18,446

92,596

115,597

4,555

18,446

90,462

113,463



_______

_______

_______

_______

_______

_______

_______

_______

 

VALUE AND INCOME TRUST PLC

 

GROUP STATEMENT OF CASH FLOWS

 

For the year ended 31 March 2012

Cash and cash equivalents at 31 March 2012



3,726


2,344




_________


_________

 

 

VALUE AND INCOME TRUST PLC

 

COMPANY STATEMENT OF CASH FLOWS

 

For the year ended 31 March 2012

Cash and cash equivalents at 31 March 2012



3,320


2,384




_________


_________

 

 

VALUE AND INCOME TRUST PLC

 

NOTES TO 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 reporting currency of the Group is pounds sterling because that is the currency of the primary economic environment in which the Group operates.




(a)  Basis of preparation


The financial statements have been prepared on a going concern basis and on the historical cost basis, except for the revaluation of certain financial assets. The principal accounting policies adopted are set out below. Where presentational guidance set out in the Statement of Recommended Practice  Financial Statements of Investment Trust Companies and Venture Capital Trusts (the SORP) issued by the Association of Investment Companies (AIC) in January 2009 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.




The Directors are of the opinion that the Group is engaged in a single segment of business, being investment business.




(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 Business Review.  The financial position of the Group as at 31 March 2012 is shown in the Statement of Financial Position. The cash flows of the Group for the year ended 31 March 2012, which are not untypical, are set out in the Group Statement of Cash Flows. The Group had fixed debt totalling £35,349,000 as at 31 March 2012 as set out in Note 12; none of the borrowings is repayable before 2021. The Group had no short term borrowings. As at 31 March 2012, 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 Group's accounts.




(c)  Basis of consolidation


The consolidated financial statements incorporate the financial statements of the Company and the entity controlled by the Company (its subsidiary). 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. 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.




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.




(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 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 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 income is recognised on a straight line basis over the period of the relevant lease. Lease incentives, where material, are spread evenly over the term of the lease. Other income is recognised as earned.




(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, 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.




(g)  Taxation


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 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 accordance with the accounting treatment of the item which gives rise to the requirement for that provision.




(h) 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.




(i) 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 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.

 

As disclosed in Note 20, the Group leases out all of its properties on operating leases. A property held under an operating lease is classified and accounted for as an investment property where the Group holds it to earn rental, capital appreciation or both. Any such property leased under an operating lease is carried at fair value.

 

Fair value is established by half-yearly professional valuation on an open market basis by Jones Lang LaSalle, Chartered Surveyors and Valuers, and in accordance with the RICS Valuation Professional Standards.




(j) Cash and cash equivalents

Cash and cash equivalents comprises deposits held with banks.

 

(k) 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 interestbearing 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.

 

(l) Adoption of new and revised Accounting Standards

At the date of authorisation of these financial statements, various Standards, amendments to Standards and Interpretations which have not been applied to these financial statements, were in issue but were not yet effective (and in some cases, had not yet been adopted by the EU). These have not been applied to these financial statements.

 

The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group.

 


2012

2011



Group

Company

Group

Company



£000

£000

£000

£000

2

Income






Investment income






Dividends from listed investments in UK - franked

4,197

4,197

3,715

3,715


Dividends from listed investments in UK - unfranked

262

 262

108

108


Dividends from subsidiary - franked

-

1,150

-

250



________

________

________

________



4,459

5,609

3,823

4,073


Other operating income






Rental income

3,398

1,277

3,573

1,261


Interest receivable on short term deposits

1

-

2

-



________

________

________

________

 


2012

2011



Revenue

Capital

Total

Revenue

Capital

Total



£000

£000

£000

£000

£000

£000

3

Investment management fee
















Group








Investment management fee

292

680

972

290

677

 967


Performance fee

-

504

504

-

109

109



________

________

________

________

________

________



________

________

________

________

________

________










Company








Investment management fee

194

453

647

194

451

645


Performance fee

-

504

504

-

109

109



________

________

________

________

________

________



________

________

________

________

________

________

 


2012

2011



Group


Company

Group


Company



£000


£000

£000


£000

4

Other operating expenses
















Auditors' remuneration









- audit

17


12

17


12



- other non-audit services

2


2

1


1



- taxation services

4


3

4


3



- out of pocket expenses

1


1

1


1


Directors' fees

53


53

53


53


Employers' NIC on Directors' fees

  3


3

  4


4


Fees for company secretarial services

 142


94

135


90


Direct property costs

30


(7)

  57


12


Other expenses

169


119

185


154



________


________

________


________




Non executive Directors' fees comprise the chairman's fees of £17,000 (2011 - £17,000) and fees of £12,000 (2011 - £12,000) per annum paid to each other non-executive Director.




The executive Directors who served during the year received no emoluments directly from the company (2011 - nil).




Angela Lascelles is a Director, and Matthew Oakeshott was a Director (until April 2012), of OLIM Limited which received an investment management fee of £972,000 (2011 - £967,000) and a performance fee of £504,000 (2011 - £109,000).

 


2012

2011



Group


Company

Group


Company



£000


£000

£000


£000

5

Finance costs








Interest payable on:








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

(23)


(23)

(24)


(24)


Other interest payable

3


-

-


-



________


________

________


________

 


2012

2011



Revenue

Capital

Total

Revenue

Capital

Total



£000

£000

£000

£000

£000

£000

6

Taxation















a)

Analysis of the tax credit for the year:
















Group








Corporation tax payable

-

-

-

-

-

-


Decrease in deferred tax provision

-

(182)

(182)

-

(221)

(221)



_______

_______

_______

_______

_______

_______



_______

_______

_______

_______

_______

_______










Factors affecting the current tax credit for year:


Revenue / capital return on ordinary activities before tax

5,545



11,139



_______



_______


Tax thereon at 24% (2011 - 26%)

1,331



2,896


Effects of:






Non taxable dividends

(1,070)



(994)


(Gains)/losses on investments not taxable

(879)



(2,445)


Excess expenses not utilised

480



379


Decrease in rate of deferred tax

(44)



(57)



_______



_______



_______



_______




The applicable tax rate used of 24% (2011 - 26%) is that relating to deferred tax (rate substantially enacted at 31 March) as the Group has no current corporation tax liability.







2012

2011



Revenue

Capital

Total

Revenue

Capital

Total



£000

£000

£000

£000

£000

£000


Company








Group relief receivable

(1)

-

(1)

(45)

-

(45)











________

________

________

________

________

________










Factors affecting the current tax credit for year:


Revenue / capital return on ordinary activities before tax

5,726



11,315



_______



_______


Tax thereon at 24% (2011 - 26%)

1,374



2,942


Effects of:






Non taxable dividends

(1,346)



(1,059)


(Gains)/losses on investments not taxable

(510)



(2,318)


Excess expenses not utilised

481



379


Difference in corporation tax rates

-



11



________



________



________



________




The applicable tax rate used of 24% (2011 - 26%) is that relating to deferred tax (rate substantially enacted at 31 March) as the Company has no current corporation tax liability.



b)

Factors affecting the tax charge for the year


The Company has losses for tax purposes arising in the year of £2,004,000 (2011 - £1,459,000). 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  Statement of Comprehensive Income.



c)

Factors affecting future tax charges


Both the Company and Audax Properties plc have deferred tax assets of £4,535,000 (2011 - £4,389,000) and £nil (2011 - £3,000) respectively at 31 March 2012 relating to total accumulated unrelieved tax losses carried forward of £18,896,000 (2011 - 16,881,000). 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.

 


2012

2011



Group


Company

Group


Company



£000


£000

£000


£000

7

Return per ordinary share
















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










Revenue return

3,640


4,561

3,150


3,004


Capital return

2,087


 1,166

8,210


8,356










Weighted average ordinary shares in issue

45,549,975


45,549,975

45,549,975


45,549,975


















Return per share - revenue

7.99p


10.01p

6.92p


6.59p


Return per share - capital

4.58p


2.56p

18.02p


18.35p



________


________

________


________

 


2012

2011



£000

£000

8

Dividends




Dividends on ordinary shares:




Final dividend of 4.0p per share (2011 - 3.8p) paid 15 July 2011

1,822

1,731


Interim dividend of 3.9p per share (2011 - 3.8p) paid 6 January 2012

1,776

1,731


Unclaimed dividends refunded by Registrar

(5)

-



________

________



________

________






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 revenue available for distribution by way of dividend for the year is £4,561,000 (2011 - £3,004,000).







2012

2011



£000

£000


Interim dividend for the year ended 31 March 2012 -  3.9p

1,776

1,731


(2011 - 3.8p) paid 6 January 2012




Unclaimed dividends refunded by Registrar

(5)

-


Proposed final dividend for the year ended 31 March 2012 - 4.15p 

1,890

1,822


(2011 - 4.0p) payable 20 July 2012

________

________

 



Investment




Equities

properties

Total



£'000

£'000

£'000

9

Investments










Group





Cost at 31 March 2011

76,278

33,461

109,739


Unrealised appreciation

23,153

16,364

39,517



________

________

________


Valuation at 31 March 2011

99,431

49,825

149,256







Purchases

7,934

89

8,023


Sales proceeds

(9,404)

(1,517)

(10,921)


Realised (losses)/gains on sales

(546)

651

105


Movement in unrealised appreciation in year

3,782

(798)

2,984



________

________

________



________

________

________


Company





Cost at 31 March 2011

76,303

11,759

88,062


Unrealised appreciation

39,276

4,916

44,192



________

________

________


Valuation at 31 March 2011

115,579

16,675

132,254







Purchases

7,934

1,695

9,629


Sales proceeds

(9,404)

(714)

(10,118)


Realised (losses)/gains on sales

(546)

449

(97)


Movement in unrealised appreciation in year

2,150

 70

2,220



________

________

________



________

________

________


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:-







2012

2011



£'000

£'000


Purchases

46

71


Sales

19

15



________

________

 


2012

2011



Group


Company

Group


Company



£000


£000

£000


£000

10

Other receivables
















Amounts falling due within one year:








Dividends receivable

258


258

212


212


Amounts due from subsidiary

-


1

-


45


Prepayments and accrued income

19


17

88


65



________


________

________


________



________


________

________


________










The amount due from the subsidiary relates to an inter-company adjustment for group relief (2011 - £45,000).

 


2012

2011



Group


Company

Group


Company



£000


£000

£000


£000

11

Other payables
















Value Added Tax payable

132


53

136


56


Amounts due to OLIM Limited

585


558

191


164


Accruals and other creditors

1,397


927

2,166


905



________


________

________


________



________


________

________


________










The amounts due to OLIM Limited comprise management fees for the month of March 2012 and a performance fee for the year to 31 March 2012, subsequently paid in May 2012.

 


2012

2011



Group


Company

Group


Company



£000


£000

£000


£000

12

Non-current liabilities
















9.375% Debenture Stock 2026

20,000


20,000

20,000


20,000


Add:- Balance of premium less issue expenses

372


372

396


396


Less : Credit to income for the year

(23)


(23)

(24)


(24)



________


________

________


________



20,349


20,349

20,372


20,372


11% First Mortgage Debenture Stock 2021

15,000


-

15,000


-



________


________

________


________



________


________

________


________










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 Trust Deed of the Audax Properties plc Debenture Stock contains four covenants with which the Company must comply; the assets which are subject to charge and which secure the Debenture Stockmay be owned by either Audax Properties plc or its parent company, Value and Income Trust PLC. Firstly, the value of the assets should not be less than one and one-half times the amount of the  Debenture Stock; secondly, the rental income from the assets should not be less than one and one-half times the annual interest of the Debenture Stock (£1.65 million); thirdly, not more than 20 per cent. of the total value of the assets should be attributable to a single property; and finally, not more than 10 per cent.  of the assets should be attributable to leaseholds having an unexpired term of less than 50 years.




The 9.375% Debenture Stock 2026 issued by 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.




The Trust Deed of the Value and Income Trust PLC Debenture Stock contains restrictions and events of default. The restrictions require that the aggregate group borrowings, £35 million, must not at any time exceed the total group capital and reserves (equivalent to net assets of £115.60 million as at 31 March 2012).

 


2012

2011



Group


Company

Group


Company



£000


£000

£000


£000

13

Deferred tax
















Opening balance at 31 March 2011

572


-

793


-


(Decrease)/increase  in deferred tax provision (see note 6):








-         effect of reduction in tax rate on opening balance

(44)


-

(57)


-


-         current year movement

(138)


-

(164)


-



________


________

________


________



________


________

________


________


Calculated as follows:-
















Unrealised gains subject to tax on realisation

1,955


-

2,744


-


Less capital losses previously realised

(332)


-

(544)


-



________


________

________


________



________


________

________


________



________


________

________


________










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 thatthe gain cannot be sheltered by capital losses brought forward.

 


2012

2011



£000

£000

14

Share capital




Authorised:








Called up, issued and fully paid:



 


2012

2011



Group


Company

Group


Company



£000


£000

£000


£000

15

Share premium















 


2012



Group


Company

Group


Company



£000


£000

£000


£000

16

Retained earnings








Opening balance at 31 March 2011

90,462


90,462

82,564


82,564


Profit for the period

5,727


5,727

11,360


11,360


Dividends paid (see note 8)

(3,593)


(3,593)

(3,462)


(3,462)



________


________

________


________



________


________

________


________










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





2012

2011



Revenue

Capital

Total

Revenue

Capital

Total



£000

£000

£000

£000

£000

£000


Group








Opening balance at 31 March 2011

3,543

86,919

90,462

3,855

78,709

82,564


Profit for the period

3,640

2,087

5,727

3,150

8,210

11,360


Dividends paid (see note 8)

(3,593)

-

(3,593)

(3,462)

-

(3,462)



________

________

________

________

________

________



________

________

________

________

________

________










Company








Opening balance at 31 March 2011

1,825

88,637

90,462

2,283

80,281

82,564


Profit for the period

4,561

1,166

5,727

3,004

8,356

11,360


Dividends paid (see note 8)

(3,593)

-

(3,593)

(3,462)

-

(3,462)



________

________

________

________

________

________

 

17

Net asset value per equity share


The net asset value per ordinary share is based on Group's net assets attributable of £115,597,000 (2011 - £113,463,000) and on 45,549,975 (2011 - 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 20) is 227.58p (2011 - 233.67p)

 


2012

2011



Group


Company

Group


Company



£000


£000

£000


£000

18

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
















Income from operations before tax

10,947


9,009

16,173


14,250


Gains and losses on investments

(3,089)


(2,123)

(8,775)


(8,916)


Investment management fee

(1,476)


(1,151)

(1,076)


(754)


Other operating expenses

(421)


(280)

(457)


(330)


Decrease in receivables

23


2

25


39


Increase in other payables

364


413

121


73



________


________

________


________

 

19

Relationship with the Investment Manager


Angela Lascelles is a Director, and Matthew Oakeshott was a Director (until April 2012), of OLIM Limited which had an agreement with the Company to provide investment management services, the terms of which are outlined in Note 3.




As a result of a management buyout of the property management side of the Company's investment managers, OLIM Limited, the Company has agreed terms to split its investment management contract between OLIM Limited, which will continue to manage the Company's equity portfolio and OLIM Property Limited, which will manage the Group's property portfolio. The new agreements, further details of which are disclosed on page xx, are effective from 19 April 2012.




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 10.

 

Two properties were transferred at an arms length price of £1.65m from Audax Properties plc to Value and Income Trust PLC during the year. A dividend of £1.15m was paid by Audax Properties plc to Value and Income Trust PLC.

 

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 Managers have dedicated investment management processes which ensure 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 the Managers' Investment Committees.




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




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. The numerical disclosures exclude short-term debtors and creditors.




(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 Managers actively monitors market prices throughout the year and report 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. All investment properties 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 2012 would have increased/decreased by £14,223,000 (2011 - increase/decrease of £14,003,000) 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, 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 2012 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 2012

Weighted average period for which rate is fixed Years

Weighted average interest rate
%



Fixed
rate
£'000



Floating rate
£'000


Assets






Sterling

-

-

-

3,726



________

________

________

________



________

________

________

________








At 31 March 2012

Weighted average period for which rate is fixed Years

Weighted average interest rate
%



Fixed
rate
£'000



Floating rate
£'000


Liabilities






Sterling

12

10.07

35,000

-



________

________

________

________








At 31 March 2011

Weighted average period for which rate is fixed Years

Weighted average interest rate
%



Fixed
rate
£'000



Floating rate
£'000


Assets






Sterling

-

-

-

2,344



________

________

________

________



________

________

________

________








At 31 March 2011

Weighted average period for which rate is fixed Years

Weighted average interest rate
%



Fixed
rate
£'000



Floating rate
£'000


Liabilities






Sterling

13

10.07

35,000

-



________

________

________

________



________

________

________

________




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 2012 would increase/decrease by £23,000 (2011 - increase/decrease by £57,000). This is mainly attributable the  Group's exposure to interest rates on its floating rate cash balances.

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




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




Currency risk


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




Currency sensitivity


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




(ii) Liquidity risk


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




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




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







Carrying value



Expected cashflows



Due within 3 months

Due between 3 months and 1 year



Due after
1 year



£'000

£'000

£'000

£'000

£'000


Debentures

35,625

77,975

938

2,587

74,450


Other payables

768

768

768

- 

- 



________

________

________

________

________


(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 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. The Manager's Compliance Officer 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 with high quality external credit ratings which are monitored on a regular basis.




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




Credit risk exposure


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





 



2012

2011

 



Balance Sheet £'000

Maximum exposure £'000

Balance Sheet £'000

Maximum exposure £'000

 


Non-current assets





 


Investments held at fair value through profit or loss

149,447

152,598

149,256

148,572

 







 


Current assets





 


Cash and cash equivalents

3,726

4,691

2,344

5,887

 


Other receivables

277

1,112

300

715

 



________

________

________

________

 



________

________

________

________

 



 


(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 14 years (2011 - 14 years). 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 2012, the future minimum lease receipts under non-cancellable leases are as follows:-

 



 



2012

£'000

2011

£'000

 


Due within 1 year

133

180

 


Due between 2 and 5 years

1,187

2,115

 


Due after more than 5 years

42,819

36,025

 



________

________

 


This amount comprises the total contracted rent receivable as at 31 March 2012.

 



 


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 the debenture stock 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 7 Fair Value hierarchy:-

 



 



Level 1

Level 2

Level 3

Total

 



£000

£000

£000

£000

 


At 31 March 2012





 


Equity investments

101,197

-

-

101,197

 



________

________

________

________

 







 


At 31 March 2011





 


Equity investments

99,431

-

-

99,431

 



________

________

________

________

 







 


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

 



 


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

 


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

 


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

 



 


There were no transfers between levels during the year.

 



 


(ii) Borrowings

 


The fair value of borrowings has been calculated at £47,285,000 as at 31 March 2012 (2011 - £42,401,000) compared to a balance sheet value in the financial statements of £35,349,000 (2011 - £35,372,000) 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. All other assets and liabilities of the Group are included in the balance sheet at fair value.

 






 



Fair value


Balance Sheet Value

 



2012

2011


2012

2011

 



£000

£000


£000

£000

 


11% First Mortgage Debenture Stock 2021

20,845

19,063


15,000

15,000

 


9.375% Debenture Stock 2026

26,440

23,338


20,349

20,372

 



________

________


________

________

 



________

________


________

________

 

 

21

Capital management policies and procedures


The Group's capital management objectives are:




-

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


-

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 and retained earnings.




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




-

-

the planned level of gearing which takes into account the Managers' views on the market; and

the extent to which revenue in excess of that which requires to be distributed should be retained.




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




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

 

22

Events after the Balance Sheet Date


On 13 April 2012, a property at 15-16 Lee Road, Lynton, Devon was purchased at a cost of £514,000. On 26 April, 2012, the property at 4 Harrow Road, Hereford was sold at a price of £600,000; the property was valued at £600,000 at the year end.

 

For Value and Income Trust plc

Aberdeen Asset Management PLC

Secretaries

 

8 June 2012

 

 


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