REG - Worsley Investors Ld - Annual Report for the period ended 31 March 2022
18/07/2022 07:00
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RNS Number : 7232S Worsley Investors Limited 18 July 2022
18 July 2022
Worsley Investors Limited
(the "Company")
Annual Report for the period ended 31 March 2022
The Company is pleased to announce the release of its annual report and
audited consolidated financial statements for the period ended 31 March 2022
(the "Annual Report"). A copy of the Annual Report will be posted to
shareholders and will be available to view on the Company's website shortly
at: www.worsleyinvestors.com (http://www.worsleyinvestors.com)
END
For further information, please contact:
Worsley Associates LLP (Investment Advisor)
Blake Nixon
Tel: +44 (0) 203 873 2288
Shore Capital (Financial Adviser and Broker)
Robert Finlay / Anita Ghanekar
Tel: +44 (0) 20 74080 4090
Sanne Fund Services (Guernsey) Limited (Administrator and Secretary)
Chris Bougourd / Katrina Rowe
Tel: +44 (0) 1481 737600
LEI: 213800AF85VEZMDMF931
Performance Summary
31 March 2022 31 March 2021 % change
Net Asset Value ("NAV") per share 39.91p 41.55p -3.95%
Share price(1) 27.70p 28.00p -1.07%
Share price discount to NAV 30.59% 32.6%
year ended 9 month period ended
31 March 2022
31 March 2021
(Loss)/earnings per share(2) -1.50p 4.91p
NAV Total Return(3) -3.95% 8.77%
Share price Total Return(4)
- Worsley Investors Limited -1.07% 15.25%
- FTSE All Share Index 13.03% 26.71%
- FTSE Real Estate Investment Trust Index 22.54% 19.93%
Worsley Associates LLP ("Worsley Associates") was appointed on 31 May 2019 as
Investment Advisor (the "Investment Advisor") to Worsley Investors Limited
(the "Company"). At an EGM held on 28 June 2019, an ordinary resolution was
passed to adopt the new Investment Objective and Policy. The Investment
Objective and Policy are set out below.
These financial statements are made up to the year ended 31 March 2022. The
annual results, therefore, cover a twelve-month period up to 31 March 2022 and
are not entirely comparable to the previous results, which covered a period of
nine months to 31 March 2021.
Past performance is not a guide to future performance.
(1) Mid-market share price (source: Shore Capital and Corporate Limited).
(2) Loss per share based on the net loss for the year of £0.505 million (nine
month period to 31 March 2021: net profit of £1.657 million) and the
weighted average number of Ordinary Shares in issue during the year of
33,740,929 (nine month period to 31 March 2021: 33,740,929).
(3) On a pro forma basis which includes adjustments to add back any prior NAV
reductions from share redemptions. NAV Total Return is a measure showing how
the NAV per share has performed over a period of time, taking into account
both capital returns and any dividends paid to shareholders.
(4) A measure showing how the share price
(https://www.theaic.co.uk/aic/glossary/S?item=1057) has performed over a
period of time, taking into account both capital returns and any dividends
paid to shareholders.
Source: Worsley Associates LLP and Shore Capital and Corporate Limited.
Chairman's Statement
After a positive NAV total return of +3.11% in the first half year (i.e. to 30
September 2021), the second half of the year saw that progress more than
reversed with our result dipping for the full 12 months to 31 March 2022 to a
-3.95% return.
On a share price basis, shareholder returns were somewhat better, in that the
mid-market share price fell by just over 1% in the year from 28.0p to 27.7p
per share. The discount which the share price represents in relation to NAV
improved from 32.6% to 30.6% as the decline of the market price of shares was
less than the fall in NAV. As at 11 July, the latest practicable date for
which independent data was available before going to print, the performance of
Worsley Investors Limited shares was ranked 1st and 3rd in the UK smaller
companies sector (in each case out of 24 in the sector) over the past 3 and 12
months respectively.
The biggest contributor to this NAV return outcome was a reduction in the
independent valuer's appraisal of the Curno cinema value. Over the full
year, this more than outweighed the rest of the Group's profit contribution.
A fuller description of the effects of this valuation downgrade is given in
the Investment Adviser's Report ("IAR"), but a very high-level summary is that
the valuer has chosen to increase the already very conservative discount rate
it applied to the rental stream from Curno and this has more than offset the
effect of the significant increase in passing rental.
I would like to remind shareholders that the rent benefits from an annual
upwards-only indexation clause in relation to Italian consumer price
inflation. If this measure of inflation exceeds 5.29% p.a. for the year to
31 December 2022, the contractual base rental for 2023 will exceed €1
million to give a passing rental yield of more than 11.5% on the 31 March 2022
valuation.
We are in the fortunate position of having no borrowings and consequently no
banking covenants within which to operate. We can therefore be judicious in
an orderly sale process to optimise the value of the asset as and when
confidence returns to the pool of potential buyers. We note that the last
remaining restrictions on the sale of food and beverages by cinema operators
in this region of Italy came to an end on 15 June 2022. This should improve
the in-theatre experience for customers and, as it is generally a major
contributor to operator returns in the cinema sector, the profitability for
our tenant, UCI.
The second major contributor to the negative NAV returns was the corporate
costs of Worsley Investors Limited. At £530,000, this represented a welcome
reduction in the annualised run-rate of just under 10% and was broadly in line
with expectations.
We also had a foreign exchange mark-to-market translation loss of £48,000 on
the Sterling value of mainly euro-based assets, predominantly Curno. This
was a modest figure over the whole year, although it represented a £161,000
adverse turnaround from the position at the halfway point in the year.
Notwithstanding the impact on equity markets of the Ukrainian conflict,
returns on our core equity portfolio held up well with a total annualised
return of 1.9% on the capital deployed in the portfolio over the year.
Worsley Associates gives more detail in its IAR.
Strategic Priorities
It remains our key priority to release the capital tied up in the Curno asset
for redeployment in our core equity strategy. In that regard, external
events of the past two years have not been helpful. Firstly, Covid
restrictions and secondly, the acceleration of rises in interest rates and
medium-term bond yields which, with the general availability of credit are key
to the ability of buyers to finance the purchase of property assets, have made
this a slower process than we hoped. The current yield and the inflation
protection built into the lease terms mean that the cinema is an increasingly
attractive asset in its own right, generating a high and stable return. It
is a truism that sometimes portfolio managers have to sell good investments
(such as the cinema) to buy even better ones such as those in our core equity
strategy. While the board cannot control the external factors which
determine investment demand for a cinema in northern Italy, we are not forced
sellers at the prey of opportunistic buyers and can temper our response to
retain the cinema until a disposal can be achieved at a price which properly
reflects its medium-term prospects. In the meantime, we have the prospect of
an inflation-hedged return in excess of 10% p.a.
As we compound returns on our core equity strategy over time and have
available for additional re-investment the net cash flow from the cinema
sub-group, the proportion of our total NAV represented by the cinema can be
expected to continue to fall. As at 31 March 2022, it had declined to 54% of
NAV, down from 55% at 30 September 2021 and 58% at 31 March 2021. Two years
ago, at 30 June 2020, Curno represented 66% of NAV.
Our other key priority will be to grow the Company, thereby spreading our
largely fixed costs over an enlarged asset base and benefiting from keener
rates on tiered fee structures. Current market circumstances are not likely
to be receptive to an immediate raise and so this remains more aspirational in
the immediate short term than something on which we have a particular
timetable.
Outlook
When I last wrote to you in mid-December, we were looking forward to an
economy growing at a brisk pace as it recovered from the COVID-19 lock-downs
albeit there was then some uncertainty and concern from the emergence of the
then-new "Omicron" variant. As it has turned out, Omicron was not the
disaster which some had feared and by being relatively mild, may arguably have
had some benefit in the achievement of so-called "herd immunity" and bringing
to a close the public health emergency phase of the pandemic. We expected
interest rates, which had been cut as the pandemic started, to increase again
in response to rising activity and prices. After more than a decade of
ultra-low rates in the wake of the Global Financial Crisis of 2008,
normalisation was at some point inevitable. What we did not foresee was the
Russian invasion of Ukraine in February. Although both countries, especially
Russia, are geographically large, their proportion of global GDP is relatively
small. In 2019 (the last full year before the Covid pandemic), according to
the World bank and IMF, Russia's GDP was ranked at number 12 in the World
(smaller than South Korea) and Ukraine, at number 57, was much smaller than
New Zealand. That said, Russia is a significant supplier of energy and
minerals and Ukraine of food for both the human and animal population across
the world and of fertiliser used in the agricultural industries of many
countries. The supply disruption caused by sanctions and by Russian military
action has caused dislocation and sharp price rises in basic elements of our
own, apparently domestic, economy.
The immediate consequence is that interest rates are rising (as we expected)
but at a much faster rate than we had anticipated. Whilst the stock market
has weakened in immediate consequence, in due course this should further
enrich the opportunity set for a value-based equity strategy such as is our
core strategy.
On behalf of the Board, I would like to thank our Investment Advisor, Worsley
Associates LLP, for the encouraging progress they continue to make in
developing our portfolio and to thank you, our shareholders, for your
continuing support.
W. Scott
Chairman
15 July 2022
Investment Advisor's Report
Investment Advisor
The Investment Advisor, Worsley Associates LLP, is regulated by the FCA and is
authorised to provide investment management and advisory services.
In the year under review, the equities portfolio continued to be almost fully
invested, and the Investment Advisor has concentrated on its development and
fostering investor interest in the Curno cinema, which was impacted
operationally by the tail end of the COVID-19 pandemic.
Curno Cinema Complex
The Group's Italian multiplex cinema complex, located in Curno, on the
outskirts of Bergamo, is let in its entirety to UCI Italia S.p.A. ("UCI").
The cinema lease documentation remains as amended in June 2020.
The key rental terms of the lease, which has a final termination date of 31
December 2042, are:
Base Rent
1 April 2022 to 31 December 2022 - €949,770 per annum.
From 1 January 2022, at which point it increased by 3.8%, base rental is
indexed annually to 100% of the Italian ISTAT Consumer Index on an
upwards-only basis. The ISTAT Consumer Index in the six months to 30 June has
already risen 5.5%.
Variable Rent
Incremental rent is payable at the rate of €1.50 per ticket sold above a
minimum threshold of 350,000 tickets per year up to 450,000 tickets per year,
rising in 50,000 ticket stages above this level up to €2.50 per extra
ticket.
Tenant Guarantee
The lease benefits from a rental guarantee of an initial €13 million,
reducing over 15 years to €4.5 million, given by a U.K. domiciled European
holding company for the UCI group, United Cinemas International Acquisitions
Limited, which has latest published shareholders' funds of £312.2 million.
Tenant break option
UCI has the right to terminate the lease on 30 June 2035.
Trading
The cinema, having been closed at the beginning of the period because of
Lombardy COVID-19 related regulations, reopened on 20 May 2021, and has
remained open since. Notwithstanding the wearing of masks being compulsory
throughout the period, trading built steadily, bolstered in the third quarter
by a strong slate of new movie releases. From 25 December 2021 to 9 March 2022
Italian cinemas were prohibited from selling food and beverages, a significant
revenue generator and major profit source. During most of the period COVID-19
passes were mandatory, which also impacted demand, but it is pleasing to note
that this restriction was lifted on 30 April 2022 and masks have no longer
been required since 15 June.
Rentals have remained current throughout the period.
Valuation
As at 31 March 2022, the Group's independent asset valuer, Knight Frank LLP,
fair valued the Curno cinema at €8.7 million (30 September 2021: €9.6
million), and this figure has been adopted in these Financial Statements.
Since the June 2020 lease amendment, the Board's expectation has been that the
valuation of the Curno cinema would increase once the enhanced rental began to
be generated by the property from 1 March 2021 onwards. The current rental is
some 14% higher than the pre amendment level.
In spite of this, the valuer as at 31 March 2022 has chosen to increase the
yield at which it capitalised the rental stream from 9.10% to 10.53%, which
was had the effect of reducing the valuation by nearly 10%. This extremely
conservative approach reflects the significant impact on investor demand of
COVID-19 trading restrictions in Italian cinemas.
Following the resumption of regular rental arrangements, we have received
enquiries from a number of investors. However, it quickly became apparent that
appetite would remain very subdued until the cinema was fully free from all
COVID-19 constraints. The Group will retain the Curno cinema until a disposal
can be effected at a price which the board believes properly reflects its
medium term prospects.
Investment Strategy
The Investment Advisor's strategy allies the taking of holdings in British
quoted securities priced at a deep discount to their intrinsic value, as
determined by a comprehensive and robust research process. Most of these
companies will have smaller to mid-sized equity market capitalisations, which
will in general not exceed £600 million. It is intended to secure influential
positions in such British quoted securities, with the employment of activism
as necessary to drive highly favourable outcomes.
In the first six weeks of 2022, dovish signals from the US Federal Reserve and
easing of fears regarding the Omicron COVID-19 variant saw the British stock
market drifting upwards, peaking on 10 February. Fourteen days later,
sentiment altered very dramatically with the Russian invasion of Eastern
Ukraine, and the Ukrainian conflict has joined inflation concerns and the
expected impact on monetary policy as the largest influences on the U.K.
market.
The fortnight immediately following the invasion saw a sharp downturn in
global equity markets, but over the next month these rallied on hopes that
economic sanctions and subsequent peace talks would be successful. However,
those proved unfruitful and in early April continued high US inflation and
signals from the US Federal Reserve that it would tackle that with higher
interest rates, allied to weak US retail sales, then sent equities into
reverse.
In the first week of May the Bank of England announced a 0.25% increase in the
base rate to 1%, the highest level for 13 years, and a warned that a very
sharp U.K. slowdown was imminent. Trading for the rest of May was choppy, as
mid-month U.K. inflation was revealed to have hit 9%, and since the beginning
of June the British market has slewed downwards as concerns regarding runaway
inflation have reasserted themselves. Such concerns drove the US Federal
Reserve on 15 June to hike US interest rates by 0.75%, the largest increase in
28 years. This was followed the next day by the Bank of England raising U.K.
rates a further 0.25%.
The prognosis is for rates in the U.K. and US to continue to be lifted to a
level of 3% or more and, in response, the U.K. stock market has retreated,
falling 5.9% over the June quarter. Within the Company's target universe of
British smaller companies, share prices have fared significantly worse than
the market as a whole, being on the slide from almost the beginning of the
June quarter and ending it down 10.3%.
The Company's portfolio has remained quite fully invested during the reporting
period. This includes a previously undisclosed holding of some 3.7% of Net
Assets in Amedeo Air Four Plus Limited ('AA4'). AA4 is a Guernsey company,
whose shares are listed on the Specialist Fund Segment of the London Stock
Exchange's Main Market. AA4 has a market capitalisation of £109.4 million and
owns via its subsidiaries an aircraft fleet of six A380s and two B777-300ERs
leased to Emirates Airlines ('Emirates') and four A350-900s leased to Thai
Airways ('Thai Air'). As at 30 September 2021, the AA4 group held cash, net of
provisions for maintenance, of slightly less than £84 million, which has
subsequently been reduced by a £30 million pro rata capital redemption. In
addition, unencumbered gross lease payments contracted to be paid to AA4 by
Emirates as at 31 March 2022 were some £194 million. Once Thai Air trading
has normalised, there is scope to return by way of capital return the £15
million held by AA4 as a capital buffer, and to increase very substantially
the annual dividend of five pence per share, which is presently constrained by
the AA4 board's prudent approach to Thai Air's current trading.
The holding in Hurricane Energy plc July 2022 US$ 7.5% bonds, which we
disclosed had been purchased in the first half at 63.6% of par, was disposed
of shortly after year end at slightly more than 100% of par.
The largest portfolio position continues to be the shareholding of just over
4% in Smiths News plc, England's major distributor of newspapers and
magazines. In early May, Smiths News published its 2022 interim results, which
disclosed flat profitability with magazine sales recovering well owing to the
end of COVID-19 restrictions, reorganisation costs continuing to be relatively
modest, and good debt reduction from some significant one-off non-trading
receipts. Nevertheless, the shares have underperformed over the past year,
with the prospect of significant special dividends now severely diminished by
unduly restrictive banking facilities entered into at the end of 2021.
The Northamber plc shareholding was increased modestly in the second half, but
that in Shepherd Neame Limited is unchanged since the Interim Report.
Preliminary (less than 2% of Net Assets) holdings are also held in 9 other
companies. During the second half we exited two positions, crystallising
substantial gains over their cost. Other than AA4, one new position was
initiated.
As at 30 June 2022 the Company's portfolio, which had a total cost of £3.92
million and a combined market value of some £5.75 million, comprised 13
stocks. The surplus on the portfolio was a little under 50% of cost, and the
annualised return on capital invested since the current strategy was adopted
remains very acceptable at more than 31%.
Results for the period
Cash revenue from Curno for the period to 31 March 2022 was €923,700
(£790,000) (31 March 2021 nine months: €284,000 (£254,000)). As previously
reported, the rental received in the comparative period reflected the
five-month holiday granted under the 2020 lease amendment.
General and administrative expenses (including transaction charges) of
£530,000 (31 March 2021 nine months: £440,000) were significantly lower than
the 2021 run rate, an outturn which was in line with expectations. Accounting
and taxation-related expenses at the Italian subsidiary, Multiplex 1 S.r.l.
('Multiplex'), were significantly higher in 2022 because of one-off projects,
but Group legal and professional costs were considerably lower. The Company
audit fee was broadly similar to 2021's, the fee for a nine-month period being
no lower than that required for a full year. As previously foreshadowed, the
growth in the value of the portfolio during calendar year 2021 led to an
increase in AUM-based costs in the current period.
Transaction charges incurred on equity acquisitions were £4,000 (31 March
2021 nine months: £17,000). The initial buildup of the portfolio in the
previous period had incurred much greater charges, reflecting an abnormally
elevated level of transactions.
The Group's ongoing operating costs in the current year are expected to be
similar to the 2022 level. Prior to the ultimate sale of Curno there remains
limited scope for significant reduction in the overall cost base.
The equities portfolio was steady in the third quarter before a downturn in
the fourth, culminating for the year as a whole in a small (£0.161 million)
net investment mark-to-market reduction (31 March 2021 nine months: £2.082
million gain). Investment Income for the year, predominantly dividends, was
£217,000 and net investment gains realised added £46,000. As a result, the
total annualised return on capital invested in the portfolio over the year
came out at 1.9%.
Taxation is payable on an ongoing basis on Italian income and in Luxembourg.
The bulk of the small legacy exposure in Germany was settled in the second
half. For the year, an operating tax charge of £51,000 (31 March 2021 nine
months: £10,000 operating credit) was incurred. In addition, net VAT,
predominantly in Luxembourg, of some £5,000 was paid. The Group took the
opportunity in late 2021 to recapitalise Multiplex, and this generated a
one-off tax credit of €108,000 (£92,000).
Owing to the inflation linked increase in the Curno rental, operating cash
flow (that is prior to allowance for equity income) is now expected to be
modestly positive in the current year.
Net Assets at 31 March 2022 were £13.466 million, which compares with the
£14.453 million contained in the 30 September 2021 Interim Report. The
decrease arose from the combined impact of the loss in the second half of
£0.826 million, of which £770,000 (€900,000) related to the reduction in
the Euro valuation of the Curno property, and a £161,000 decrease in the
pound sterling fair value of Euro-denominated assets, principally the
property.
Financial Position
The Group's Statement of Financial Position improved slightly in the period,
with £576,000 in cash held at 31 March 2022 and no debt. Augmented by the
ample secondary liquidity of the equity portfolio and positive ongoing cash
flows, the financial position remains strong.
In due course, the sale of the Curno cinema will provide considerable
additional resources for equity investment.
Euro
As at 31 March 2022, some 58% of Total Assets were denominated in Euros, of
which the Curno property was some 55% of Total Assets, down from 58% as at 31
March 2021. The pound sterling Euro cross rate moved slightly during the
period from 1.175 as at 31 March 2021 to 1.187 as at 31 March 2022. This cross
rate will remain a potentially significant influence on the level of Group Net
Assets until Curno's disposal.
Outlook
U.K. stock market prices, whilst volatile, finished the first five months of
this year at close to their opening level, in part reflecting a view that the
economic effects of the COVID-19 pandemic were behind us.
Against that, in the Interim Report we had expressed the view that the
economic distortions caused thereby would take some time to dissipate, and
that we anticipated the unwinding across the globe of the exceptional
quantitative easing during the pandemic would expose areas of business
vulnerability.
In the event, the extent of the outbreak of rampant pandemic-fueled inflation
became clear in May, spurring a tightening in monetary conditions which was
the fastest since the Global Financial Crisis, and more abrupt than we had
anticipated. Global equities markets have reflected the unexpected level of
tightening, experiencing sharp downturns since.
We have previously commented that COVID-19 has had little direct impact in the
period on the Group.
Cinemas in Italy have been reopened for over a year, and our rentals have
remained current. Nevertheless, the continued operating restrictions imposed
on the cinema by the Lombardy authorities ruled out any prospect of a
disposal. The final restrictions have now been lifted which will be positive
for future investor appetite.
The Worsley investment strategy, which is focussed on the medium-term
prospects of specific companies, is relatively insensitive to shorter term
economic conditions.
We continue to believe that the British stock market is yet fully to discount
the impact of extreme inflation on U.K. company earnings and the permanent
changes in the structure of certain industries in reaction to the
vulnerabilities exposed by the pandemic, and more recently the Ukrainian
conflict.
In consequence, we expect the upcoming trading outlooks to be announced by
many British companies to be materially worse than market expectations. Whilst
the share prices of many have already tumbled, this is likely to result in
further falls.
Such downturns inexorably lead to a significant level of stock mispricing,
from which strategies such as ours have previously benefitted well.
The equity portfolio is soundly based, and against the above background the
Company can look forward to the future with confidence.
Worsley Associates LLP
15 July 2022
Board of Directors
William Scott (Chairman), a Guernsey resident, was appointed to the board of
the Company as an independent Director on 28 March 2019. Mr Scott also
currently serves as an independent non-executive director of a number of
investment companies and funds, of which Axiom European Financial Debt Fund
Limited and RTW Venture Fund Limited are listed on the Premium Segment of the
LSE. He is also a director of The Flight and Partners Recovery Fund Limited
and a number of funds sponsored by Man and Abrdn (formerly Standard Life
Aberdeen). From 2003 to 2004, Mr Scott worked as senior vice president with
FRM Investment Management Limited, which is now part of Man Group plc.
Previously, Mr Scott was a director at Rea Brothers (which became part of the
Close Brothers group in 1999) from 1989 to 2002 and assistant investment
manager with the London Residuary Body Superannuation Scheme from 1987 to
1989. Mr Scott graduated from the University of Edinburgh in 1982 and is a
chartered accountant having qualified with Arthur Young (now Ernst & Young
LLP) in 1987. Mr Scott also holds the Securities Institute Diploma and is a
chartered fellow of the Chartered Institute for Securities & Investment.
He is also a chartered wealth manager.
Robert Burke, a resident of Ireland, was appointed to the board of the Company
as an independent Director on 28 March 2019. He also serves as an independent
non-executive director of a number of investment companies and investment
management companies which are domiciled in Ireland as well as a number of
companies engaged in retail activities, aircraft leasing, pharmaceuticals,
corporate service provision and group treasury activities. He is a graduate of
University College Dublin with degrees of Bachelor of Civil Law (1968) and
Master of Laws (1970). He was called to the Irish Bar in 1969 and later
undertook training for Chartered Accountancy with Price Waterhouse (now
PricewaterhouseCoopers) in London, passing the final examination in 1973. He
later was admitted as a Solicitor of the Irish Courts and was a tax partner in
the practice of McCann FitzGerald in Dublin from 1981 to 2005 at which point
he retired from the partnership to concentrate on directorship roles in which
he was involved. He continues to hold a practice certificate as a solicitor
and is a member of the Irish Tax Institute.
Blake Nixon was one of the pioneers of activism in the UK and has wide corporate experience in the UK and overseas. Following three years at Jordan Sandman Smythe (now part of Goldman Sachs), a New Zealand stockbroker, Mr Nixon emigrated to Australia, where he spent three years as an investment analyst at Industrial Equity Limited ("IEL"), then Australia's fourth largest listed company. In 1989 he transferred to IEL's UK operation and early in 1990 led the takeover of failing LSE listed financial conglomerate, Guinness Peat Group plc ("GPG"). The group was then relaunched as an investment company, applying an owner orientated approach to listed investee companies. Mr Nixon was UK Executive Director, responsible for GPG's UK operations and corporate function, for the following 20 years, finally retiring as a non-executive director in December 2015. He is a founding partner of Worsley Associates LLP, an activist fund manager, and has served as a non-executive director of a number of other UK listed companies, as well as numerous unlisted companies. He is a British resident and was appointed to the Board on 23 January 2019.
Report of Directors
The Directors of the Company present their Annual Report together with the
Group's Audited Consolidated Financial Statements (the "Financial Statements")
for the year ended 31 March 2022. The Directors' Report together with the
Financial Statements give a true and fair view of the financial position of
the Group. They have been prepared properly, in conformity with International
Financial Reporting Standards ("IFRS") as issued by the International
Accounting Standards Board and are in accordance with any relevant enactment
for the time being in force; and are in agreement with the accounting records.
Principal Activity and Status
The Company is an Authorised closed-ended investment company domiciled in
Guernsey, registered under the provision of The Companies (Guernsey) Law, 2008
and has a premium listing on the Official List and trades on the Main Market
of the London Stock Exchange. Trading in the Company's ordinary shares
commenced on 18 April 2005. The Company and the entities listed in note 3(f)
to the Financial Statements together comprise the "Group".
Investment Objective and Investment Policy.
The investment objective and investment policy of the Company are described in
greater detail below.
Going Concern
These Financial Statements have been prepared on a going concern basis. The
Directors, at the time of approving the Financial Statements, have a
reasonable expectation that the Group has adequate resources to continue in
operational existence for a period of at least twelve months from the date of
approval of these Financial Statements. The Group maintains a significant cash
balance and an extensive portfolio of realisable securities, and the property
lease generates sufficient cash flows to pay on-going expenses and other
obligations. The Directors have considered the cash position and performance
of the current capital invested by the Group, the potential impact on markets
and supply chains of geo-political risks such as the current crisis in
Ukraine, the risk of further COVID-19 uncertainty and continuing
macro-economic factors and inflation and concluded that it is appropriate to
adopt the going concern basis in the preparation of these Consolidated
Financial Statements.
Going concern is assessed over the period until 12 months from the approval of
these Consolidated Financial Statements. Owing to the fact that the Group
currently has no borrowing, has a significant cash holding and that the
Company's equity investments predominantly comprise readily realisable
securities, the Board considers there to be no material uncertainty. Matters
relating to the going concern status of the Group are also discussed in the
long-term viability statement below.
Viability Statement
The Board has evaluated the long-term prospects of the Group, beyond the 12
month time horizon assumption within the going concern framework. The
Directors have conducted a review of the viability of the Company taking
account of the Company's current position and considering the potential impact
of risks likely to threaten the Company's business model, future performance,
solvency or liquidity. For the purposes of this statement the Board has
adopted a three year viability period.
The Directors consider that a 20% fall in the value in the Company's equity
portfolio would not have a fundamental impact on the Company's ability to
continue in operation over the next three years. In reaching this conclusion,
the Directors considered the Company's expenditure projections, the fact that
the Group currently has no borrowing, has a significant cash holding and that
the Company's equity investments predominantly comprise readily realisable
securities, which in extremis could be expected to be sold to meet funding
requirements if necessary, assuming usual market liquidity.
The Directors in forming this view also considered the long operational
history and track record of the Group's investment property, Curno.
In addition, the Board has assumed that the regulatory and fiscal regimes
under which the Group operates will continue in broadly the same form during
the viability period. The Board consults with its broker and legal advisers to
the extent required to understand issues impacting on the Company's regulatory
and fiscal environment. The Administrator also monitors changes to regulations
and advises the Board as necessary.
Based on the Company's processes for monitoring operating costs, internal
controls, the Investment Advisor's performance in relation to the investment
objective, the portfolio risk profile and liquidity risk, the Board has
concluded that there is a reasonable expectation that the Company will be able
to continue in operation and meet its liabilities as they fall due over the
three year period.
Results and Dividends
These Financial Statements are made up for the year ended 31 March 2022. The
annual results, therefore, cover a twelve-month period up to 31 March 2022 and
are not entirely comparable to the previous results, which cover a period of a
nine months to 31 March 2021.
The results for the year are set out in the Consolidated Statement of
Comprehensive Income.
No dividend payments were paid in the year (nine months to 31 March 2021:
none).
Directors
The Directors who held office during the year and up to the date of this
report and their interests in the shares of the Company (all of which are
beneficial) were:
31 March 2022 31 March 2021
W. Scott (Chairman) 400,000 1.19% 400,000 1.19%
B. A. Nixon 10,083,126 29.88% 10,083,126 29.88%
R. H. Burke n/a n/a n/a n/a
At the date of this report, Mr Nixon holds 10,083,126 shares, being an
interest of 29.88% in the shares of the Company and Mr Scott holds 453,500
shares, being an interest of 1.34% in the shares of the Company.
Mr Nixon, a Director of the Company, is also Founding Partner of the
Investment Advisor.
Management
With effect from 31 May 2019 the Board appointed Worsley Associates LLP as its
Investment Advisor. A summary of the contract between the Company and the
Investment Advisor in respect of the advisory services provided is given in
note 4 to the Financial Statements.
Listing Requirements
Throughout the year the Company's shares were admitted to the Official List of
the London Stock Exchange maintained by the Financial Conduct Authority
("FCA") and it has complied with the Listing Rules.
Investee Engagement
The Company is a closed-ended investment company which has no employees. The
Company operates by outsourcing significant elements of its operations to
reputable professional companies, which are required to comply with all
relevant laws and regulations.
The nature of the Company's investments is such that it often seeks to acquire
substantial shareholdings which provide a direct route via which to influence
investee companies. The Company's focus is on investees' medium-term financial
performance, and, if necessary, it will press them to adopt governance
practices which ensure that they are properly accountable to their
shareholders for the delivery of sustainable shareholder value. This active
involvement is outside the scope of many traditional institutional
shareholders. In matters which may affect the success of the Company's
investments the Board and the Investment Advisor work together to ensure that
all relevant factors are carefully considered and reflected in investment
decisions.
In carrying out its investment activities and in relationship with suppliers,
the Company aims to conduct itself responsibly, ethically and fairly.
International Tax Reporting
For purposes of the US Foreign Accounts Tax Compliance Act, the Company is
registered with the US Internal Revenue Service ("IRS") as a Guernsey
reporting Foreign Financial Institution ("FFI"), has received a Global
Intermediary Identification Number (G0W47U.99999.SL.831), and can be found on
the IRS FFI list.
The Common Reporting Standard ("CRS"), which came into effect on 1 January
2016, is a global standard for the automatic exchange of financial account
information, developed by the Organisation for Economic Co-operation and
Development ("OECD"), and has been adopted by Guernsey. The Board has taken
the necessary action to ensure that the Company is compliant with Guernsey
regulations and guidance in this regard.
Significant Shareholdings
As at 8 July 2022, shareholders with 3% or more of the voting rights are as
follows:
Shares held % of issued
share capital
B.A. Nixon 10,083,126 29.88%
Transact Nominees Limited 3,679,409 10.90%
Pershing Nominees Limited 3,000,000 8.89%
Chase Nominees Limited 2,522,420 7.48%
State Street Nominees Limited 2,075,804 6.15%
Lion Nominees Limited 1,815,734 5.38%
BBHISL Nominees Limited 1,800,000 5.33%
Winterflood Client Nominees Limited 1,060.235 3.14%
Guernsey Financial Services Commission Code of Corporate Governance
The Board of Directors confirms that, throughout the year covered by the
Financial Statements, the Company complied with the Code of Corporate
Governance issued by the Guernsey Financial Services Commission, to the extent
it was applicable based upon its legal and operating structure and its nature,
scale and complexity.
Anti-Bribery and Corruption
The Company adheres to the requirements of the Prevention of Corruption
(Bailiwick of Guernsey) Law, 2003. In consideration of the UK Bribery Act
2010, the Board abhors bribery and corruption of any form and expects all the
Company's business activities, whether undertaken directly by the Directors
themselves or by third parties on the Company's behalf, to be transparent,
ethical and beyond reproach.
Criminal Finances Act
The Directors of the Company have a zero-tolerance commitment to preventing
persons associated with it from engaging in criminal facilitation of tax
evasion. The Board has satisfied itself in relation to its key service
providers that they have reasonable provisions in place to prevent the
criminal facilitation of tax evasion by their own associated persons and will
not work with service providers who do not demonstrate the same zero-tolerance
commitment to preventing persons associated with them from engaging in
criminal facilitation of tax evasion.
Independent Auditor
BDO Limited served as the Company's Independent Auditor throughout the year
and has indicated its willingness to continue in office.
Annual General Meeting
The next AGM of the Company is scheduled to be held on 22 September 2022.
Directors' Responsibilities
The Directors of the Company are responsible for preparing for each financial
year an annual report and the Financial Statements which give a true and fair
view of the state of affairs of the Group and of the respective results for
the period then ended, in accordance with applicable Guernsey law and
International Accounting Standards Board ("IASB") adopted International
Financial Reporting Standards ("IFRS"). In preparing these Financial
Statements, the Directors are required to:
- select suitable accounting policies and apply them consistently;
- make judgements and estimates which are reasonable and prudent;
- prepare the Financial Statements on a going concern basis unless it is
inappropriate to presume that the Group will continue in business; and
- state whether or not applicable accounting standards have been followed,
subject to any material departures disclosed and explained in the Financial
Statements.
The Directors confirm that they have complied with the above requirements in
preparing the Financial Statements.
The Directors are responsible for keeping proper accounting records which are
sufficient to show and explain the Group's transactions and disclose with
reasonable accuracy at any time the financial position of the Group and enable
them to ensure that its financial statements comply with the Companies
(Guernsey) Law, 2008. They are responsible for such internal control as they
determine is necessary to enable the preparation of financial statements which
are free from material misstatement, whether owing to fraud or error, and have
general responsibility for taking such steps as are reasonably open to them to
safeguard the assets of the Company and to prevent and detect fraud and other
irregularities.
Disclosure of Information to Auditors
So far as each Director is aware, all relevant information has been disclosed
to the Company's Auditor; and each Director has taken all the steps which he
ought to have taken as a director to make himself aware of any relevant audit
information and to establish that the Company's Auditor is aware of that
information.
Responsibility Statement
Each of the Directors, confirms to the best of that person's knowledge and
belief:
· the Financial Statements, prepared in accordance with the IFRS as
endorsed by the IASB, give a true and fair view of the assets, liabilities,
financial position and profit of the Group, as required by DTR 4.1.12R of the
Disclosure and Transparency Rules, and are in compliance with the requirements
set out in the Companies (Guernsey) Law, 2008;
· the Financial Statements, taken as a whole, are fair, balanced
and understandable and provide the information necessary for the shareholders
to assess the Group's position, performance, business model and strategy; and
· the Financial Statements including information detailed in the
Chairman's Statement, the Report of the Directors, the Investment Advisor's
report and the notes to the Financial Statements, include a fair review of the
development and performance of the business and the position of the Group
together with a description of the principal risks and uncertainties that it
faces, as required by:
- DTR 4.1.8 and DTR 4.1.9 of the Disclosure and Transparency Rules, being a
fair review of the Group's business and a description of the principal risks
and uncertainties facing the Group; and
- DTR 4.1.11 of the Disclosure and Transparency Rules, being an indication of
important events which have occurred since the end of the financial period and
the likely future development of the Group.
Signed on behalf of the Board by:
W.
Scott
Director
15 July 2022
Corporate Governance Report
On 18 December 2019, the Company became a member of the Association of
Investment Companies ("AIC") and except as noted herein complies with the 2019
AIC Code of Corporate Governance issued in February 2019 ("the AIC Code"),
effective for accounting periods commencing on or after 1 January 2019. By
complying with the AIC Code, the Company is deemed to comply with both the UK
Corporate Governance Code (July 2018) (the "UK Code") issued by the Financial
Reporting Council ("FRC") and the Code of Corporate Governance issued by the
Guernsey Financial Services Commission (the "GFSC Code").
The Board considers that reporting against the principles and recommendations
of the AIC Code provides appropriate information to shareholders and during
the period the Board has reviewed its policies and procedures against the AIC
Code.
The GFSC Code provides a governance framework for GFSC licensed entities,
authorised and registered collective investment schemes. Companies reporting
against the UK Code or the AIC Code are deemed to comply with the GFSC Code.
The AIC Code is available on the AIC's website, www.theaic.co.uk.
For the year ended 31 March 2022, the Company has complied with the
recommendations of the AIC Code and the relevant provisions of the UK Code,
except for the following provisions relating to:
· Senior Independent Director;
· the need for an internal audit function;
· the whistle blowing policy;
· Remuneration Committee; and
· Nomination Committee
The Board considers these provisions are not relevant given the nature, scale
and lack of complexity of the Company and its legal and operating structure as
a self-managed investment company. The Company has therefore not reported
further in respect of these provisions. Details of compliance are noted below.
The absence of an Internal Audit function is discussed in the Audit Committee
Report.
The Directors are non-executive and the Company does not have any employees,
hence no Chief Executive, Executive Directors' remuneration nor
whistle-blowing policy is required. The Board is satisfied that any relevant
issues can be properly considered by the Board. Moreover, the Directors have
satisfied themselves that the Company's service providers have appropriate
whistle-blowing policies and procedures and have received confirmation from
the service providers that nothing has arisen under those policies and
procedures which should be brought to the attention of the Board.
Composition, Independence and Role of the Board
The Board currently comprises three non-executive Directors. Both Mr Scott and
Mr Burke are considered by the Board to be independent of the Company's
Investment Advisor. Mr Nixon is Founding Partner of the Investment Advisor and
is therefore not independent.
Whilst Mr Nixon is not an independent director, the presence of two other
directors who are independent and non-executive mitigates the risk of Mr Nixon
acting against the Company's interest.
Mr Scott was appointed Chairman on 28 March 2019. The Chairman of the Board
must be independent for the purposes of Chapter 15 of the Listing Rules. Mr
Scott is considered independent because he:
· has no current or historical employment with the Investment
Advisor; and
· has no current directorships in any other investment funds managed by
the Investment Advisor.
The Board has overall responsibility for maximising the Company's success by
directing and supervising the affairs of the business and meeting the
appropriate interests of shareholders and relevant stakeholders, while
enhancing the value of the Company and also ensuring protection of investors.
A summary of the Board's responsibilities is as follows:
· statutory obligations and public disclosure;
· strategic direction and financial reporting;
· risk assessment and management including reporting compliance,
governance, monitoring and control; and
· other matters having a material effect on the Company.
The Board is responsible to shareholders for the overall management of the
Company.
The Board needs to ensure that the Annual Report and Financial Statements,
taken as a whole, are fair, balanced and understandable and provide the
information necessary for shareholders to assess the Company's performance,
business model and strategy. In seeking to achieve this, the Directors have
set out the Company's investment objective and policy and have explained how
the Board and its delegated Committees operate and how the Directors review
the risk environment within which the Company operates and set appropriate
risk controls. Furthermore, throughout the Annual Report and Financial
Statements the Board has sought to provide further information to enable
shareholders better to understand the Company's business and financial
performance.
The Board's responsibilities for the Annual Report are set out in the
Directors' Responsibility Statement.
The Board is also responsible for issuing half yearly reports, NAV updates and
other price sensitive public reports.
The Board does not consider it appropriate to appoint a Senior Independent
Director. The Board believes it has a good balance of skills and experience to
ensure it operates effectively. The Chairman is responsible for leadership of
the Board and ensuring its effectiveness.
The Board has engaged external businesses to undertake the investment advisory
and administrative activities of the Company. Documented contractual
arrangements are in place with these businesses and these define the areas
where the Board has delegated responsibility to them. The Board has adopted a
schedule of matters specifically reserved for its decision-making and
distinguished these from matters it has delegated to the Company's key service
providers.
The Company holds regular board meetings to discuss general management,
structure, finance, corporate governance, marketing, risk management,
compliance, asset allocation and gearing, contracts and performance. The
quarterly Board meetings are the principal source of regular information for
the Board enabling it to determine policy and to monitor performance,
compliance and controls which are supplemented by communication and
discussions throughout the year.
A representative of each of the Investment Advisor and Administrator attends
each Board meeting either in person or by telephone, thus enabling the Board
fully to discuss and review the Company's operation and performance. Each
Director has direct access to the Investment Advisor and Company Secretary and
may at the expense of the Company seek independent professional advice on any
matter. The Company maintains appropriate Directors' and Officers' liability
insurance.
Conflicts of interest
Directors are required to disclose all actual and potential conflicts of
interest as they arise for approval by the Board, who may impose restrictions
or refuse to authorise conflicts. The process of consideration and, if
appropriate, approval will be conducted only by those Directors with no
material interest in the matter being considered. The Board maintains a
Conflicts of Interest policy which is reviewed periodically and a Business
Interests and Potential Conflicts of Interest register which is reviewed by
the Board at each quarterly Board meeting.
Re-election
There are provisions in the Company's Articles of Incorporation which require
Directors to seek re-election on a periodic basis. There is no limit on length
of service, nor is there any upper age restriction on Directors. The Board
considers that there is significant benefit to the Company arising from
continuity and experience among directors, and accordingly does not intend to
introduce restrictions based on age or tenure. It does, however, believe that
shareholders should be given the opportunity to review membership of the Board
on a regular basis.
The Board believes that, while regular rotation is in keeping with good
governance, the unquestionable benefits of ensuring that there is some
continuity mean that it is in the best interests of the Company that not all
Directors offer themselves for re-election each year. The Company may
terminate the appointment of a Director immediately on serving written notice
and no compensation is payable upon termination of office as a director of the
Company becoming effective.
In accordance with the Company's Articles of Incorporation, at each AGM all
Directors who held office at the two previous AGM's and did not retire shall
retire from office and shall be available for re-election. Messrs Scott and
Nixon will stand for re-election at this year's AGM. Mr Nixon as Founding
Partner and a Designated Member of Worsley Associates LLP stands annually.
Further details regarding the experience of each of the Directors are set out
within the Board of Directors section.
Board Diversity
The Board has also given careful consideration to the recommendation of the
Davies Report on "Women on Boards" and notes the recommendations of the Parker
review into ethnic diversity and the Hampton-Alexander review on gender
balance in FTSE leadership. As recommended in the Davies Report, the Board has
reviewed its composition. However, it believes that the current appointments
provide an appropriate range of skills and experience and are in the interests
of shareholders.
Board Evaluation and Succession Planning
The Board conducts an annual self-evaluation of its performance and that of
the Company's individual Directors, which is led by the Chairman and, as
regards the Chairman's performance evaluation, by the other Directors. The
annual self-evaluation considers how the Board functions as a whole taking
balance of skills, experience and length of service into consideration and
also reviews the individual performance of its members.
To facilitate this annual self-evaluation, the Company Secretary circulates a
detailed questionnaire to each Director and a separate questionnaire for the
evaluation of the Chairman. The questionnaires, once completed, are returned
to the Company Secretary who collates responses, prepares a summary and
discusses the Board evaluation with the Chairman prior to circulation to the
remaining Board members. The performance of the Chairman is evaluated by the
other Directors. On occasions, the Board may seek to employ an independent
third party to conduct a review of the Board.
The Board considers it has a breadth of experience relevant to the Company,
and the Directors believe that any changes to the Board's composition can be
managed without undue disruption. An induction programme has been prepared for
any future Director appointments and all Directors receive other relevant
training as necessary.
Board and Committee Meetings
The table below sets out the number of scheduled Board, Audit Committee and
Management Engagement Committee meetings held during the year ended 31 March
2022 and, where appropriate, the number of such meetings attended by each
Director who held office during the same period.
Risk Committee Management Engagement Committee
Board of Directors Audit Committee
Scheduled Attended Scheduled Attended Scheduled Attended Scheduled Attended
W. Scott 4 4 2 2 3 3 1 1
(Chairman)
R. H. Burke 4 4 2 2 3 3 1 1
B. A. Nixon 4 4 2* 2* 3 3 1* 1*
*In attendance by invitation
In normal circumstances the Board intends to meet not less than four times per
year on a quarterly basis in addition to such ad hoc meetings as may be
necessary.
Audit Committee
The Company has established an Audit Committee with formal duties and
responsibilities. The Audit Committee meets formally at least twice a year and
each meeting is attended by the independent external auditor and
Administrator. The Company's Audit Committee is comprised of Mr Burke and Mr
Scott. At the invitation of the Audit Committee, Mr. Nixon may attend meetings
of the Committee. The Audit Committee is chaired by Mr Burke. The Company does
not maintain an internal audit function, and, given that there are only three
Directors, the Chair of the Board is a member of the Committee.
The Audit Committee monitors the performance of the auditor, and also examines
the remuneration and engagement of the auditor, as well as its independence
and any non-audit services provided by it. A report of the Audit Committee
detailing its responsibilities and its key activities.
Risk Committee
The Company established a Risk Committee on 26 February 2020 with formal
duties and responsibilities. The Risk Committee meets formally at least twice
a year. The Risk Committee is comprised of the entire Board and is chaired by
Mr Scott. The principal function of the Risk Committee is to identify, assess,
monitor and, where possible, oversee the management of risks to which the
Company's investments are exposed, with regular reporting to the Board. The
Directors have appointed the Risk Committee to manage the additional risks
faced by the Company as well as the disclosures to be made to investors and
the relevant regulators.
The Risk Committee reviews the robustness of the Company's risk management
processes, the integrity of the Company's system of internal controls and risk
management systems, and the identification and management of risks through the
use of the Company's risk matrix. The Risk Committee reviews the principal,
emerging, and other risks relevant to the Company.
The Risk Committee reports on the internal controls and risk management
systems to the Board of Directors. The Board of Directors is responsible for
establishing the system of internal controls relevant to the Company and for
reviewing the effectiveness of those systems. The review of internal controls
is an on-going process for identifying and evaluating the risks faced by the
Company, designed to manage effectively rather than attempt to eliminate
business risks, to ensure the Board's ability to achieve the Company's
business objectives.
It is the responsibility of the Board to undertake the risk assessment and
review of the internal controls in the context of the Company's objectives in
relation to business strategy, and the operational, compliance and financial
risks facing the Company. These controls are operated in the Company's main
service providers: the Investment Advisor and Administrator. The Board
receives regular updates and undertakes an annual review of each service
provider.
The Board of Directors considers the arrangements for the provision of
Investment Advisor and Administration services to the Company and as part of
the annual review the Board considered the quality of the personnel assigned
to handle the Company's affairs, the investment process and the results
achieved to date.
The Board is satisfied that each service provider has effective controls in
place to control the risks associated with the services which they are
contracted to provide to the Company and therefore the Board is satisfied with
the internal controls of the Company.
Management Engagement Committee
The Company has established a Management Engagement Committee with formal
duties and responsibilities. The Management Engagement Committee meets
formally at least once a year. The Management Engagement Committee is
comprised of Mr Burke and Mr Scott. The principal function of the Management
Engagement Committee is to ensure that the Company's investment advisory
arrangements are competitive and reasonable for the shareholders, along with
the Company's agreements with all other third party service providers (other
than the external auditor).
During the period the Management Engagement Committee has reviewed the
services provided by the Investment Advisor and other service providers, and
recommended that the continuing appointments of the Company's service
providers was in the best interests of the Company. The Management Engagement
Committee is chaired by Mr Scott.
Nomination Committee
The Board does not have a separate Nomination Committee. The Board as a whole
fulfils the function of a Nomination Committee. Any proposal for a new
Director will be discussed and approved by the Board, giving full
consideration to succession planning and the leadership needs of the Company.
Remuneration Committee
In view of its non-executive nature, the Board considers that it is not
appropriate for there to be a separate Remuneration Committee, as anticipated
by the AIC Code, because this function is carried out as part of the regular
Board business. A Remuneration Report prepared by the Board is contained in
the Financial Statements within the Directors' Remuneration Report.
Terms of Reference
All Terms of Reference for Committees are available from the Administrator
upon request.
Internal Controls
The Board is ultimately responsible for establishing and maintaining the
Company's system of internal controls and for maintaining and reviewing its
effectiveness. The system of internal controls is designed to manage rather
than to eliminate the risk of failure to achieve business objectives and by
its nature can only provide reasonable and not absolute assurance against
misstatement and loss. These controls aim to ensure that assets of the Company
are safeguarded, proper accounting records are maintained and the financial
information for publication is reliable.
The Board has delegated the day-to-day management of the Company's investment
portfolio and the administration, registrar and corporate secretarial
functions including the independent calculation of the Company's NAV and the
production of the Annual Report and Financial Statements, which are
independently audited. Whilst the Board delegates responsibility, it retains
accountability for the functions it delegates and is responsible for the
systems of internal control.
Formal contractual agreements have been put in place between the Company and
providers of these services. On an ongoing basis, board reports are provided
at each quarterly board meeting from the Investment Advisor, Administrator and
Company Secretary and Registrar; and a representative from the Investment
Advisor is asked to attend these meetings.
In accordance with Listing Rule 15.6.2 (2) R the Directors formally appraise
the performance and resources of the Investment Advisor on an annual basis. In
the opinion of the Directors their continuing appointment of the Investment
Advisor on the terms agreed is in the interests of the Company and the
shareholders.
The Investment Advisor was appointed on 31 May 2019.
The Board has reviewed the need for an internal audit function and owing to
the size of the Company and the delegation of day-to-day operations to
regulated service providers, an internal audit function is not considered
necessary. The Directors will continue to monitor the systems of internal
controls in place in order to provide assurance that they operate as intended.
Principal Risks and Uncertainties
In respect of the Company's system of internal controls and its effectiveness,
the Directors:
· are satisfied that they have carried out a robust assessment of
the emerging and principal risks facing the Group, including those that would
threaten its business model, future performance, solvency or liquidity; and
· have reviewed the effectiveness of the risk management and
internal control systems including material financial, operational and
compliance controls (including those relating to the financial reporting
process) and no significant failings or weaknesses were identified.
The principal risks and uncertainties which have been identified and the steps
which are taken by the Board to mitigate them are as follows:
Investment Risks
The Company is exposed to the risk that its investment portfolio and the
remaining investment property fail to perform in line with the Company's
objectives. The Company is exposed to the risk that markets move adversely.
The Board reviews reports from the Investment Advisor at each quarterly Board
meeting and at other times when expedient, paying particular attention to the
diversification of the portfolio and to the performance and volatility of
underlying investments.
Operational Risks
The Company is exposed to the risk arising from any failures of systems and
controls in the operations of the Investment Advisor, Administrator and the
Corporate Broker. The Board and its Committees regularly review reports from
the Investment Advisor and the Administrator on their internal controls.
Accounting, Legal and Regulatory Risks
The Company is exposed to the risk that it may fail to maintain accurate
accounting records, fail to comply with requirements of its Prospectus or fail
to adapt its processes to changes in law or regulations. The accounting
records prepared by the relevant service providers are reviewed by the
Investment Advisor. The Administrator, Corporate Broker and Investment Advisor
provide regular updates to the Board on compliance with the Prospectus and any
changes in regulation.
Financial Risks
The financial risks, including market, credit, liquidity and interest rate
risk faced by the Company are set out in note 15 of the Financial Statements.
These risks and the controls in place to reduce the risks are reviewed at the
quarterly Board meetings.
Foreign Exchange Risk
The Company is exposed to currency risk given that the assets of its
subsidiaries are predominantly denominated in Euro but the presentation
currency of the Company is pounds sterling. The Investment Advisor reports at
least quarterly to the Board on the strategy for managing this risk. Although
the Company has the ability to hedge this risk, it has not to date chosen to
do so and has no plans to make such arrangements.
COVID-19
The COVID-19 pandemic has been a significant influence on global markets and
has had an economic impact on certain companies held within the Company's
portfolio. The impact of the pandemic is discussed further in the Chairman's
statement, the Investment Advisor's report and the report of the Audit
Committee.
The Board seeks to mitigate and manage these risks through ongoing review,
policy-setting and enforcement of contractual obligations and monitoring of
the Company's investment portfolio. The Board, Investment Advisor and the
Corporate Broker also continually monitor the investment environment in order
to identify any new or emerging risks.
Emerging Risks
The Board is alert to the identification of any new or emerging risks through
the ongoing monitoring of the Company's investment portfolio and by conducting
regular reviews of the Company's risk assessment matrix. Should an emerging
risk be identified the risk assessment matrix is updated and appropriate
mitigating measures and controls will be agreed.
Non-Audit Services Policy
The Company has implemented a policy in relation to the engagement of the
external auditor, BDO Limited, to perform non-audit services. As a Market
Traded Company ("MTC"), since March 2020, the Company is classified as an
EU/UK Public Interest Entity ("PIE") for the purposes of FRCs Ethical
Standard. Accordingly, the Audit Committee must consider whether or not the
provision of such non-audit services is compatible with the list of
permissible services under the FRC's UK Ethical Standards:
The Audit Committee reviews the need for non-audit services, authorises such
on a case by case basis, and recommends an appropriate fee for such non-audit
services to the Board.
The Board considers the actual, perceived and potential impact upon the
independence of the external auditor prior to engaging the external auditor to
undertake any non-audit service, as well as confirming that any non-audit
services are included on the list of permissible services, as amended from
time to time by the FRC.
The Board reserves the right to review the policy periodically and, if
required, amend it to ensure that the policy is compliant with all applicable
law and regulation and best practice.
Relations with Shareholders
The Board welcomes shareholders' views and places great importance on
communication with its shareholders. The Board receives regular reports on the
views of shareholders and the Chairman and other Directors are available to
meet shareholders if required. The Investment Advisor meets with major
shareholders on a regular basis and reports to the Board on these meetings.
Issues of concern can be addressed by any shareholder in writing to the
Company at its registered address. The AGM of the Company provides a forum for
shareholders to meet and discuss issues with the Directors and Investment
Advisor of the Company. In addition, the Company maintains a website
(www.worsleyinvestors.com) which contains comprehensive information, including
regulatory announcements, share price information, financial reports,
investment objectives and strategy and investor contacts.
Promotion of the success of the Company
The Board acts in a manner which is considered to be:
· in good faith;
· likely to promote the continuing success of the Company; and
· to the benefit of its shareholders as a whole.
Whilst the primary duty of the Directors is owed to the Company, the Board
considers as part of its discussions and decision making process the interests
of all stakeholders.
The Board is committed to maintaining high standards of corporate governance
and accountability.
As an investment company, the Company does not have any employees and conducts
its core operations through third party service providers. Each provider has
an established track record and, through regulatory oversight and control, is
required to have in place suitable policies and procedures to ensure it
maintains high standards of business conduct, treats customers fairly, and
employs corporate governance best practice.
Particular consideration is given to the continued alignment between the
activities of the Company and those which contribute to delivering the Board's
strategy, which include the Investment Advisor, the Corporate Broker and the
Administrator.
The Board respects and welcomes the views of all stakeholders. Any queries or
areas of concern regarding the Company's operations can be raised with the
Company Secretary.
Signed on behalf of the Board by:
W. Scott
Chairman
15 July 2022
Audit Committee Report
Dear Shareholders,
I am pleased to present the Audit Committee's Report for the year ended 31
March 2022, which covers the following topics:
· Responsibilities of the Audit Committee and its key activities
during the period,
· Financial reporting and significant areas of judgement and
estimation,
· Independence and effectiveness of the external auditor, and
· Internal control and risk management systems.
The Company remains in a transition period until the Curno investment property
is disposed of. The Audit Committee's activities during the year have
therefore concentrated on maintaining an appropriate risk and control
environment, providing suitable disclosure of progress and residual risks in
the Financial Statements, ensuring ongoing engagement from service providers
and maintaining sufficient liquid funds to meet expenditure for essential or
justified items.
Responsibilities
The Audit Committee reviews and recommends to the Board for approval or
otherwise, the Financial Statements of the Company and is the forum through
which the independent external auditor reports to the Board of Directors. The
independent external auditor and the Audit Committee, if either considers this
to be necessary, will meet together without representatives of either the
Administrator or Investment Advisor being present.
The responsibilities of the Audit Committee include:
1. Monitoring the integrity of the Financial Statements of the Company
covering:
· formal announcements relating to the Company's financial
performance;
· significant financial reporting issues and judgements;
· matters raised by the external auditor; and
· appropriateness of accounting policies and practices.
2. Reviewing and considering the AIC Code and FRC Guidance on Audit
Committees.
3. Monitoring the quality and effectiveness of the independent
external auditor, which includes:
· meeting regularly to discuss the audit plan and the subsequent
findings;
· considering the level of fees for both audit and non-audit work;
· reviewing independence, objectivity, expertise, resources and
qualification; and
· making recommendations to the Board on their appointment,
reappointment, replacement and remuneration.
4. Reviewing the Company's procedures for prevention, detection and
reporting of fraud, bribery and corruption, and
5. Monitoring and reviewing the internal control and risk management
systems of the service providers together with the need for a Company Internal
Audit function.
The Audit Committee's full terms of reference can be obtained by contacting
the Company's Administrator.
Financial Reporting
The Audit Committee's review of the Audited Annual Report and Financial
Statements focused on the following significant risks;
Valuation of Investment Property
The Company's sole remaining investment property was independently valued at £7.33 million (€8.70 million) as at 31 March 2022 (31 March 2021: £8.17 million (€9.60 million)) and represented the majority of the assets of the Group. The remaining investment property comprises a cinema complex in Curno, Italy, owned via an intermediate holding company. The valuation of this investment is in accordance with the requirements of IFRS as issued by the International Accounting Standards Board. The valuation estimate is provided by Knight Frank LLP, an external independent valuer. The Audit Committee considers the fair value of the sole investment property held by the Group as at 31 March 2022 to be reasonable based on information provided by the Investment Advisor and Administrator. All valuations are also subject to review and oversight by the Investment Advisor.
The valuation report received from the independent valuer included a 'Material
Valuation Uncertainty' paragraph in relation to the market risks linked to the
COVID-19 pandemic: this paragraph explains that the valuer continues to be
faced with an unprecedented set of circumstances caused by COVID-19 and an
absence of relevant / sufficient market evidence on which to base their
judgements. Their valuation is therefore reported as being subject to
'material valuation uncertainty' and a higher degree of caution should be
attached to their valuation than would normally be the case.
Valuation of investments
The Company's non-property investments had a fair value of £5.97million as at
31 March 2022 (31 March 2021: £5.50 million). The investments are all
listed. The Committee considered the fair value of the investments held by the
Company as at 31 March 2022 to be reasonable based on information provided by
the Investment Advisor and Administrator. All prices are confirmed to
independent pricing sources as at 31 March 2022 by the Administrator and are
subject to a review process at the Administrator and oversight at the
Investment Advisor.
Audit Findings Report
The independent external auditor reported to the Audit Committee that no
material unadjusted misstatements were found in the course of their work.
Furthermore, the Investment Advisor and Administrator confirmed to the Audit
Committee that they were not aware of any material unadjusted misstatements
including matters relating to the Financial Statements presentation.
Accounting Policies & Practices
The Audit Committee has assessed the appropriateness of the accounting
policies and practices adopted by the Group together with the clarity of
disclosures included in the Financial Statements. Following a review of the
presentations and reports from the Administrator and consulting where
necessary with the independent external auditor, the Audit Committee is
satisfied that the Financial Statements appropriately address the critical
judgements and key estimates (both in respect to the amounts reported and the
disclosures). It is also satisfied that the significant assumptions used for
determining the value of assets and liabilities have been appropriately
scrutinised, challenged and are sufficiently robust.
The Audit Committee advised the Board that this Annual Report and Financial
Statements, taken as a whole, is fair, balanced and understandable.
Fraud, Bribery and Corruption
The Audit Committee continues to monitor the fraud, bribery and corruption
policies of the Group. The Board receives a confirmation from all service
providers that there have been no instances of fraud or bribery.
The Independent External Auditor
BDO Limited served as the Company's Independent Auditor throughout the year
and has indicated its willingness to continue in office.
The independence and objectivity of the external auditor is reviewed by the
Audit Committee, which also reviews the terms under which the independent
external auditor is appointed to perform non-audit services. The Audit
Committee has established pre-approval policies and procedures for the
engagement of the auditor to provide non audit services.
The following table summarises the remuneration payable to BDO Limited for
audit and non-audit services provided to the Company during the year ended 31
March 2022 and the nine month period ended 31 March 2021.
31 March 2022 31 March 2021
£ £
Statutory audit 37,500 37,500
Total fees 37,500 37,500
The following table summarises the remuneration payable to BDO Italia S.p.A
for audit and non-audit services provided to the Group during the year ended
31 March 2022 and the nine month period ended 31 March 2021.
31 March 2022 31 March 2021
€ €
Statutory audit of subsidiary 8,050 8,100
Total fees 8,050 8,100
Performance and Effectiveness
During the period, when considering the effectiveness of the independent
external auditor, the Audit Committee has taken into account the following
factors:
· the audit plan presented to them before the audit;
· changes in audit personnel;
· the post audit findings report;
· the independent external auditor's own internal procedures to
identify threats to independence; and
· feedback received from both the Investment Advisor and
Administrator.
The Audit Committee reviewed and, where appropriate, challenged the audit plan
and the audit findings report of the independent external auditor and
concluded that the audit plan sufficiently identified audit risks and that the
audit findings report indicated that the audit risks were sufficiently
addressed with no significant variations from the audit plan. The Audit
Committee considered reports from the independent external auditor on their
procedures to identify threats to independence and concluded that the
procedures were sufficient.
Appointment of External Auditor
Consequent to this review process, the Audit Committee recommended to the
Board that a resolution be put to the next AGM to confirm the reappointment of
BDO Limited as independent external auditor.
Internal Control and Risk Management Systems
The Board of Directors considers the arrangements for the provision of
Investment Advisory, Investment Management, Administration and Custody
services to the Company on an on-going basis and a formal review is conducted
annually. As part of this review the Board considered the quality of the
personnel assigned to handle the Company's affairs, the investment process and
the results achieved to date.
The Audit Committee has reviewed the need for an internal audit function and
has decided that the systems and procedures employed by the Investment Advisor
and the Administrator provide sufficient assurance that a sound system of
internal control, which safeguards the Company's assets, is maintained. An
internal audit function specific to the Group is therefore considered
unnecessary.
In finalising the Financial Statements for recommendation to the Board for
approval, the Audit Committee has satisfied itself that the Financial
Statements taken as a whole are fair, balanced and understandable, and provide
the information necessary for shareholders to assess the Company's
performance, business model and strategy.
A member of the Audit Committee will continue to be available at each AGM to
respond to any shareholder questions on the activities of the Audit Committee.
R. H. Burke,
Chairman, Audit Committee
15 July 2022
Directors' Remuneration Report
Introduction
An ordinary resolution for the approval of the Director's Remuneration Report
will be put to the shareholders at the forthcoming AGM held.
Remuneration Policy
All Directors are non-executive and a Remuneration Committee has not been
established. The Board as a whole considers matters relating to the Directors'
remuneration. No advice or services were provided by any external person in
respect of its consideration of the Directors' remuneration.
The Company's policy is that the fees payable to the Directors should reflect
the time spent by the Directors on the Company's affairs and the
responsibilities borne by the Directors and be sufficient to attract, retain
and motivate directors of a quality required to run the Company successfully.
The Chairman of the Board is paid a higher fee in recognition of his
additional responsibilities. The policy is to review fee rates periodically,
although such a review will not necessarily result in any changes to the
rates, and account is taken of fees paid to directors of comparable companies.
The Directors of the Company are remunerated for their services at such a rate
as the Directors determine provided that the aggregate amount of such fees
does not exceed £120,000 per annum.
There are no long-term incentive schemes provided by the Company and no
performance fees are paid to Directors.
None of the Directors has a service contract with the Company but each of the
Directors is appointed by a letter of appointment which sets out the main
terms of their appointment. Directors hold office until they retire by
rotation or cease to be a director in accordance with the Articles of
Incorporation, by operation of law or until they resign.
Remuneration
Directors are remunerated in the form of fees, payable quarterly in arrears,
to the Director personally. No Directors have been paid additional
remuneration outside their normal Directors' fees and expenses.
The current annual Directors' fees comprise £20,000 per annum payable to the
Chairman and £15,000 per annum payable to the other Directors.
Upon appointment of Worsley Associates as Investment Advisor on 31 May 2019,
Mr Nixon waived any future Director's fee for as long as he is a member of the
Investment Advisor.
For the year ended 31 March 2022 and the nine month period ended 31 March 2021
Directors' fees incurred were as follows:
For the year ended For the nine months ended
31 March 2022 31 March 2021
£ £
W. Scott (Chairman) 20,000 15,000
B.A. Nixon - -
R. H. Burke 15,000 11,250
35,000 26,250
The directors of the subsidiaries of the Group received emoluments amounting
to £10,994 (31 March 2021: £7,858). Total fees paid to Directors and
directors of the subsidiaries were £45,994 (31 March 2021: £34,108).
Signed on behalf of the Board by:
W.
Scott
Director
15 July 2022
Independent Auditor's Report to the Members of Worsley Investors Limited
Opinion on the financial statements
In our opinion, the financial statements of Worsley Investors Limited ("the
Parent Company") and its subsidiaries (together the "Group"):
· give a true and fair view of the state of the Group's affairs as
at 31 March 2022 and of its loss for the year then ended;
· have been properly prepared in accordance with International
Financial Reporting Standards ("IFRS") as issued by the IASB; and
· have been properly prepared in accordance with the requirements
of the Companies (Guernsey) Law, 2008.
We have audited the financial statements of the Group, for the year ended 31
March 2022, which comprise the Consolidated Statement of Comprehensive Income,
the Consolidated Statement of Changes in Equity, the Consolidated Statement of
Financial Position, the Consolidated Statement of Cash Flows and notes to the
financial statements, including a summary of significant accounting policies.
The financial reporting framework that has been applied in their preparation
is applicable law and IFRS as issued by the International Accounting Standards
Board ("IASB").
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs(UK)) and applicable law. Our responsibilities under those standards
are further described in the Auditor's responsibilities for the audit of the
financial statements section of our report. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis for our
opinion. Our audit opinion is consistent with the additional report to the
audit committee.
Independence
We remain independent of the Group and the Parent Company in accordance with
the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the FRC's Ethical Standard as applied to
listed entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements. The non-audit services prohibited by that
standard as applied to listed public interest entities were not provided to
the Group or the Parent Company.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the Directors'
use of the going concern basis of accounting in the preparation of the
financial statements is appropriate. Our evaluation of the Directors'
assessment of the Group and the Parent Company's ability to continue to adopt
the going concern basis of accounting included:
· Obtaining from those charged with governance and the Directors' a
paper in respect of going concern and challenging this, based on our knowledge
of the Group, with both those charged with governance and the Directors;
· Consideration of the cash available, the liquidity of the equity
portfolio held, and the expected profit generated by the property holding
subsidiary, together with the expected annual running costs of the Group and
determining whether these assumptions were reasonable based on our knowledge
of the Group.
· Performing our own sensitivity analysis of the headroom of the
investment portfolio over the annual running expenses.
· Reviewing the minutes of meetings of those charged with
governance, the RNS announcements and the compliance reports for any
indicators of concerns in respect of going concern.
Based on the work we have performed, we have not identified any material
uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Group's ability to continue as
a going concern for a period of at least twelve months from when the financial
statements are authorised for issue.
In relation to the Parent Company's reporting on how it has applied the UK
Corporate Governance Code, we have nothing material to add or draw attention
to in relation to the Directors' statement in the financial statements about
whether the Directors considered it appropriate to adopt the going concern
basis of accounting.
Our responsibilities and the responsibilities of the Directors with respect to
going concern are described in the relevant sections of this report.
Overview
Valuation of investment property
Key audit matters (2022 & 2021)
Valuation and ownership of listed investments
Materiality Group financial statements as a whole
£244,000 (2021:£253,000) based on 1.75% (2021: 1.75%) of total assets.
Valuation of investment property
Valuation and ownership of listed investments
Materiality
Group financial statements as a whole
£244,000 (2021:£253,000) based on 1.75% (2021: 1.75%) of total assets.
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its
environment, including the Group's system of internal control, and assessing
the risks of material misstatement in the financial statements. We also
addressed the risk of management override of internal controls, including
assessing whether there was evidence of bias by the Directors that may have
represented a risk of material misstatement.
We carried out a full scope of the Group, which was tailored to take into
account the nature of the Group's investments, the accounting and reporting
environment and the industry in which the Group operates.
In designing our overall audit approach, we determined materiality and
assessed the risk of material misstatement in the financial statements.
This assessment took into account the likelihood, nature and potential
magnitude of any misstatement. As part of this risk assessment, we considered
the Group's interaction with the Investment Advisor and the Administrator. We
obtained an understanding of the control environment in place at the
Investment Advisor and the Administrator to the extent that it was relevant to
our audit. Following this assessment, we applied professional judgement to
determine the extent of testing required over each balance in the financial
statements.
We concluded that the most effective audit approach for the Group was to audit
the consolidated financial statements as if the Group was one entity.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were
of most significance in our audit of the financial statements of the current
year and include the most significant assessed risks of material misstatement
(whether or not due to fraud) that we identified, including those which had
the greatest effect on: the overall audit strategy, the allocation of
resources in the audit, and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Key audit matter How the scope of our audit addressed the key audit matter
Valuation of investment property The Group holds a single investment property which is fair valued. Independent valuations
Refer to accounting policies 3(d) and 3(k) and the disclosure note 8) The fair value has been determined by the Directors based on an independent For the independent property valuation, we evaluated the competence and
Royal independence of the external valuer, which included consideration of their
qualifications and expertise. We read the terms of their engagement with the
Institution of Chartered Surveyors "RICS" valuation performed by independent Group to determine whether there were any matters that might have affected
valuers. their objectivity or may have imposed scope limitations upon their work.
Such property valuations are a highly subjective area as it requires the We have read the valuation report for the property, noted the material
valuer to make judgements as to property yields, quality of tenants and other uncertainty clauses inserted as a result of the impact of Covid-19 on the
variables to arrive at the current fair value of the property. property markets, specifically Italian Cinemas, discussed the basis of the
property valuation with the valuer to understand the process undertaken by
them and confirmed that the valuation was prepared in accordance with
professional valuation standards and IFRS.
Such subjectivity and judgements are increased due to the impact of the
COVID-19 pandemic on the Cinema market and the changing habits of individuals
as a result of COVID-19 lockdowns. As stated in the note 3(d), as a result of
the impact of COVID-19 on the market, the valuer has advised that less We considered the reasonableness of the inputs used by the valuer in the
certainty, and a higher degree of caution, should be attached to their valuation, such as the rental terms and other assumptions that impact the
valuation than would normally be the case. value. This included discussions with and challenge of the valuer around the
impact of economic variables and, the resulting adjustments to yields and
overall consideration of the resulting valuation. In addition, we agreed a
sample of the significant inputs into the valuation, such as the rental
Any input inaccuracies or unreasonable bases used in the valuation judgements details, to supporting documentation.
(such as in respect of the estimated rental value and yield profile applied)
could result in a material misstatement in the consolidated financial
statements.
Key observation
Based on the procedures performed, we did not identify any indications to
suggest that the judgements made in respect of the property valuation are
unreasonable.
Valuation and ownership of listed investments The investment portfolio as at 31 March 2022 comprised listed investments For all investments, we agreed the ownership of the investment portfolio
whose price is readily available. holdings to the respective independently obtained Custodian confirmation.
Refer to accounting policies 3(o) and
This is a key accounting estimate where there is an inherent risk of We tested the valuation of all listed investments held by agreeing the prices
the disclosure note 9) management override arising from the investment valuations being prepared by used in the valuation to independent third-party sources such as Bloomberg.
the Investment Manager, who is remunerated based on the net asset value of the
funds, derived using those valuations and therefore we consider this to be a
key audit matter.
Key observation
We focused on the valuation and ownership of investments because investments
represent a material proportion of the net asset value as disclosed in the Based on the procedures performed we did not identify any matters to indicate
Statement of Financial Position in the financial statements. that the ownership and valuation of investments are inappropriate.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit,
and in evaluating the effect of misstatements. We consider materiality to be
the magnitude by which misstatements, including omissions, could influence the
economic decisions of reasonable users that are taken on the basis of the
financial statements.
In order to reduce to an appropriately low level the probability that any
misstatements exceed materiality, we use a lower materiality level,
performance materiality, to determine the extent of testing needed.
Importantly, misstatements below these levels will not necessarily be
evaluated as immaterial as we also take account of the nature of identified
misstatements, and the particular circumstances of their occurrence, when
evaluating their effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the
financial statements as a whole and performance materiality as follows:
Group financial statements
2022 2021
£ £
Materiality 244,000 253,000
Basis for determining materiality 1.75% of total assets 1.75% of total assets
Rationale for the benchmark applied Due to it being an investment fund with the objective of long-term capital
growth, with investment values being a key focus of users of the financial
statements.
Performance materiality 170,000 177,000
Basis for determining performance materiality 70% of materiality
This was determined using our professional judgement and took into account the
complexity of the group and our knowledge of the engagement together with a
history of minimal errors and adjustments.
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual
audit differences in excess of £7,300 (2021: £7,600). We also agreed to
report differences below this threshold that, in our view, warranted reporting
on qualitative grounds.
Other information
The Directors are responsible for the other information. The other information
comprises the information included in the annual report and consolidated
financial statements, other than the financial statements and our auditor's
report thereon. Our opinion on the financial statements does not cover the
other information and, except to the extent otherwise explicitly stated in our
report, we do not express any form of assurance conclusion thereon. Our
responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the course of the audit, or otherwise
appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are required to
determine whether this gives rise to a material misstatement in the financial
statements themselves. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are
required to report that fact.
We have nothing to report in this regard.
Corporate governance statement
The Listing Rules require us to review the Directors' statement in relation to
going concern, longer-term viability and that part of the Corporate Governance
Statement relating to the Parent Company's compliance with the provisions of
the UK Corporate Governance Statement specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each
of the following elements of the Corporate Governance Statement is materially
consistent with the financial statements or our knowledge obtained during the
audit.
Going concern and longer-term viability · The Directors' statement with regards the appropriateness of
adopting the going concern basis of accounting and any material uncertainties
identified set out within the Report of Directors; and
· The Directors' explanation as to its assessment of the entity's
prospects, the period this assessment covers and why they period is
appropriate as set out within the Report of Directors.
Other Code provisions · Directors' statement on fair, balanced and understandable as set
out within the Report of Directors;
· Board's confirmation that it has carried out a robust assessment
of the emerging and principal risks set out within the Corporate Governance
Report;
· The section of the annual report that describes the review of
effectiveness of risk management and internal control systems set out
Corporate Governance Report; and
· The section describing the work of the audit committee set out
within the Audit Committee Report.
Other Companies (Guernsey) Law, 2008 reporting
We have nothing to report in respect of the following matters where the
Companies (Guernsey) Law, 2008 requires us to report to you if, in our
opinion:
· proper accounting records have not been kept by the Parent
Company; or
· the Parent Company financial statements are not in agreement with
the accounting records; or
· we have failed to obtain all the information and explanations
which, to the best of our knowledge and belief, are necessary for the purposes
of our audit.
Responsibilities of Directors
As explained more fully in the Directors' responsibilities statement within
the Report of Directors, the Directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true and
fair view, and for such internal control as the Directors determine is
necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for
assessing the Group's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis
of accounting unless the Directors either intend to liquidate the Group or to
cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
Extent to which the audit was capable of detecting irregularities, including
fraud
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below:
Based on our understanding of the Group and the industry in which it operates,
we identified that the principal risks of non-compliance with laws and
regulations related to its investment and property holding activities, and we
considered the extent to which non-compliance might have a material effect on
the Group's financial statements.
We obtained an understanding of the legal and regulatory frameworks that are
applicable to the Company and have a direct impact on the preparation of the
financial statements. We determined that the most significant frameworks which
are directly relevant to specific assertions in the financial statements are
those that relate to the reporting framework such as IFRS and the Companies
(Guernsey) Law, 2008. We evaluated management's incentives and opportunities
for fraudulent manipulation of the financial statements (including the risk of
management override of controls), and determined that the principal risks were
related to revenue recognition in relation to the investment and rental income
from the investments held and management bias and judgement involved in
accounting estimates, specifically in relation to the valuation of the
property and investments (the responses to which are detailed in our key audit
matters above).
We communicated relevant identified laws and regulations and potential fraud
risks to all engagement team members and remained alert to any indications of
fraud or non-compliance with laws or regulations throughout the audit.
Audit procedures performed by the engagement team to respond to the risks
identified included:
· Discussion with and enquiry of management and those charged with
governance concerning known or suspected instances of non-compliance with laws
and regulations and fraud;
· Obtaining an understanding of the internal control environment in
place to prevent and detect irregularities;
· Reading minutes of meetings of those charged with governance,
correspondence with the Guernsey Financial Services Commission, internal
compliance reports, complaint registers and breach registers to identify and
consider any known or suspected instances of non-compliance with laws and
regulations or fraud;
· Recalculating investment income and realised and unrealised gains
and losses in full for listed investments based on external source
information; and
· Recalculating the rental income based on the lease agreement and
required accounting by IFRS and comparing with that of management and
challenging differences.
Our audit procedures were designed to respond to risks of material
misstatement in the financial statements, recognising that the risk of not
detecting a material misstatement due to fraud is higher than the risk of not
detecting one resulting from error, as fraud may involve deliberate
concealment by, for example, forgery, misrepresentations or through collusion.
There are inherent limitations in the audit procedures performed and the
further removed non-compliance with laws and regulations is from the events
and transactions reflected in the financial statements, the less likely we are
to become aware of it.
A further description of our responsibilities is available on the Financial
Reporting Council's website at:
https://www.frc.org.uk/auditorsresponsibilities
(https://www.frc.org.uk/auditorsresponsibilities) . This description forms
part of our auditor's report.
The engagement director on the audit resulting in this independent auditor's
opinion is Justin Hallett.
Use of our report
This report is made solely to the Parent Company's members, as a body, in
accordance with Section 262 of the Companies (Guernsey) Law, 2008. Our audit
work has been undertaken so that we might state to the Parent Company's
members those matters we are required to state to them in an auditor's report
and for no other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the Parent Company and
the Parent Company's members as a body, for our audit work, for this report,
or for the opinions we have formed.
For and on behalf of BDO Limited
Chartered Accountants and Recognised Auditor
Place du Pré
Rue du Pré
St Peter Port
Guernsey
Date 15 July 2022
Consolidated Statement of Comprehensive Income
For the year ended 31 March 2022
For the For the 9
year ended months ended
31 March 2022 31 March 2021
Notes £000s £000s
Gross property income 5 & 8 742 576
Property operating expenses 5 (144) (116)
Net property income 598 460
Other income 6 -
Net gain on investments at fair value through profit or loss 9 102 2,159
Unrealised valuation loss on investment property 8 (770) -
Lease incentive movement 5 48 (322)
General and administrative expenses 6 (530) (440)
(Loss)/profit before tax (546) 1,857
Income tax refund/(expense) 12 41 (200)
(Loss)/profit for the year/period (505) 1,657
Other comprehensive loss
Foreign exchange translation loss (48) (528)
Total items that are or may be reclassified to profit or loss (48) (528)
Total comprehensive (loss)/income for the year/period (553) 1,129
Basic and diluted (loss)/earnings per ordinary share (pence) 7 (1.50) 4.91
The accompanying notes form an integral part of these Financial Statements
Consolidated Statement of Changes in Equity
For the year ended 31 March 2022
Revenue reserve Distributable reserve Foreign currency reserve Total equity
Note £000s £000s £000s £000s
Balance at 1 April 2021 (44,972) 47,263 11,728 14,019
Loss for the year (505) - - (505)
Other comprehensive loss - - (48) (48)
Balance at 31 March 2022 (45,477) 47,263 11,680 13,466
For the 9 months ended 31 March 2021
Revenue reserve Distributable reserve Foreign currency reserve Total equity
Note £000s £000s £000s £000s
Balance at 1 July 2020 (46,629) 47,263 12,256 12,890
Profit for the period 1,657 - - 1,657
Other comprehensive loss - - (528) (528)
Balance at 31 March 2021 (44,972) 47,263 11,728 14,019
The accompanying notes form an integral part of these Financial Statements
Consolidated Statement of Financial Position
As at 31 March 2022
31 March 2022 31 March 2021
Notes £000s £000s
Non-current assets
Investment property 8 6,550 7,336
Lease incentive 8 778 834
Current assets
Cash and cash equivalents 576 486
Investments held at fair value through profit or loss 9 5,973 5,504
Trade and other receivables 10 34 264
Tax receivable 52 52
Total assets 13,963 14,476
Non-current liabilities
Provisions - 42
Deferred tax payable 12 72 74
Current liabilities
Trade and other payables 11 254 167
Tax payable 171 174
Total liabilities 497 457
Total net assets 13,466 14,019
Equity
Revenue reserve 16 (45,477) (44,972)
Distributable reserve 16 47,263 47,263
Foreign currency reserve 16 11,680 11,728
Total equity 13,466 14,019
Number of ordinary shares 13 33,740,929 33,740,929
Net asset value per ordinary share (pence) 14 39.91 41.55
The Consolidated Financial Statements were approved by the Board of Directors
and authorised for issue on 15 July 2022. They were signed on its behalf by:-
W.
Scott
Director
The accompanying notes form an integral part of these Financial Statements
Consolidated Statement of Cash Flows
For the year ended 31 March 2022
For the For the 9 months ended
year ended
31 March 2022 31 March 2021
Notes £000s £000s
Operating activities
(Loss)/profit before tax (546) 1,857
Adjustments for:
Unrealised valuation loss on investment property 8 770 -
Net gains on investments held at fair value through profit or loss 9 (102) (2,159)
Investment income 9 217 17
Decrease/(increase) in trade and other receivables 172 (132)
Decrease in provisions (42) (4)
Increase/(decrease) in trade and other payables 87 (38)
Purchase of investments held at fair value through profit or loss 9 (868) (1,895)
Proceeds on sale of investments held at fair value through profit or loss 9 283 217
Net cash used in operations (29) (2,137)
Tax received 103 43
Net cash inflow/(outflow) from operating activities 74 (2,094)
Effects of exchange rate fluctuations 16 (52)
Increase/(decrease) in cash and cash equivalents 90 (2,146)
Cash and cash equivalents at start of the year/period end 486 2,632
Cash and cash equivalents at the year/period end 576 486
The accompanying notes form an integral part of these Financial Statements
worsley investors Limited
Notes to the Consolidated Financial Statements
For the year ended 31 March 2022
1. Operations
Worsley Investors Limited (the "Company") is a limited liability, closed-ended
investment company incorporated in Guernsey. The Company historically invested
in commercial property in Europe and that was held through subsidiaries. The
Company's current investment objective is to provide Shareholders with an
attractive level of absolute long-term return, principally through the capital
appreciation and exit of undervalued securities. The existing real estate
asset of the Company will be realised in an orderly manner, that is with a
view to optimising the disposal value of such asset.
The Consolidated Financial Statements (the "Financial Statements") of the
Company for the year ended 31 March 2022 comprise the Financial Statements of
the Company and its subsidiaries (together referred to as the "Group").
Please refer to the Investment Policy Note below. The Company's registered
office is included under Corporate Information.
2. Change in year end
These Financial Statements are made up for the year ended 31 March 2022. The
annual results, therefore, cover a twelve-month period up to 31 March 2022 and
are not entirely comparable to the previous period's results, which covered a
period of nine-months.
3. Significant accounting policies
(a) Basis of preparation
The Financial Statements, which show a true and fair view, have been prepared
in accordance with International Financial Reporting Standards ("IFRS") which
comprise standards and interpretations issued by the International Accounting
Standards Board ("IASB") and are in compliance with The Companies (Guernsey)
Law, 2008. The Financial Statements have been prepared on a going concern
basis, and the accounting policies, presentation and methods of computation
are consistent with this basis, as disclosed in the going concern paragraph
below.
The Directors believe that the Financial Statements contain all of the
information required to enable shareholders and potential investors to make an
informed appraisal of the investment activities and profits and losses of the
Company for the period to which they relate and do not omit any matter or
development of significance.
(b) Going concern
These Financial Statements have been prepared on a going concern basis. The
Directors, at the time of approving the Financial Statements, have a
reasonable expectation that the Group has adequate resources to continue in
operational existence for a period of at least twelve months from the date of
approval of these Financial Statements. The Group maintains a significant cash
balance and an extensive portfolio of securities, and the property lease
generates sufficient cash flows to pay on-going expenses and other
obligations. The Directors have considered the cash position and performance
of the current capital invested by the Group, the potential impact on markets
and supply chains of geo-political risks such as the current crisis in
Ukraine, the risk of further COVID-19 uncertainty and continuing
macro-economic factors and inflation and concluded that it is appropriate to
adopt the going concern basis in the preparation of these Consolidated
Financial Statements.
Going concern is assessed from 12 months from the approval of these
Consolidated Financial Statements. Owing to the fact that the Group currently
has no borrowing, has a significant cash holding and that the Company's equity
investments predominantly comprise readily realisable securities the Board
considers there to be no material uncertainty.
(c) Adoption of new standards and its consequential amendments
New Accounting Standards and interpretations adopted in the reporting period
The were no relevant new standards and interpretations which have been applied
for the first time in these Financial Statements:
New Accounting Standards and interpretations applicable to future reporting
periods
At the date of approval of these Financial Statements, the following relevant
standards and interpretations, which have not been applied in these Financial
Statements, were in issue but not yet effective:
· IAS 1 (amended), "Presentation of Financial Statements"
(amendments regarding the classification of liabilities, effective for periods
commencing on or after 1 January 2024).
· Annual Improvements to IFRS Standards 2018-2020 (effective for
periods commencing on or after 1 January 2022). In regard to IFRS 9, the
amendment clarifies which fees an entity includes when it applies the '10%
test' in assessing whether to derecognise a financial liability.
· Amendments to IAS 1 Classification of Liabilities as Current or
Non-current (effective for periods commencing on or after 1 January 2023) -
The amendments in Classification of Liabilities as Current or Non-current
clarify how to classify debt and other liabilities as current or non-current.
· Amendments to IAS 1 Disclosure of Accounting Policies
(effective for periods commencing on or after 1 January 2023) - The amendments
in Disclosure of Accounting Policies require companies to disclose their
material accounting policy information rather than their significant
accounting policies.
· Amendments to IAS 8 Definition of Accounting Estimates
(effective for periods commencing on or after 1 January 2023) - The amendments
in Definition of Accounting Estimates clarify how companies should distinguish
changes in accounting policies from changes in accounting estimates, by
replacing the definition of a change in accounting estimates with a new
definition.
Any standards that are deemed not relevant to the operations of the Company
have been excluded. The Directors expect that the adoption of these amended
standards in a future period will not have a material impact on the Financial
Statements of the Group.
(c) Significant estimates and judgements
The preparation of the Group's Financial Statements requires management to
make judgements, estimates and assumptions which affect the reported amounts
of revenues, expenses, assets and liabilities, and the accompanying
disclosures, and the disclosure of contingent liabilities. Uncertainty about
these assumptions and estimates could result in outcomes which require a
material adjustment to the carrying amount of assets or liabilities affected
in future periods.
(i) Judgements:
In the process of applying the Group's accounting policies, management has
made the following judgements, which have the most significant effect on the
amounts recognised in the Financial Statements:
Functional currency
As disclosed in note 3(e), the Company's functional currency is pounds
sterling and the subsidiaries' functional currency is Euro. The Board of
Directors considers that the Parent Company's functional currency is pounds
sterling, as the capital raised, return on capital and any distributions paid
by the Parent Company are in pounds sterling. The Euro most faithfully
represents the economic effect of the underlying transactions, events and
conditions of the subsidiaries. The Euro is the currency in which the
subsidiaries measure their performance and report their results.
(ii) Estimates and assumptions:
The key assumptions concerning the future and other key sources of estimation
uncertainty at the reporting date, which have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within
the next financial year, are described below. The Group based its assumptions
and estimates on parameters available when the Financial Statements were
prepared. Existing circumstances and assumptions about future developments,
however, may change due to market changes or circumstances arising which are
beyond the control of the Group. Such changes are reflected in the assumptions
when they occur.
Revaluation of investment property
The Group carries its investment property at fair value, with changes in fair
value being recognised in the Consolidated Statement of Comprehensive Income.
The property is valued quarterly by an external independent valuer as at the
end of each calendar quarter. Their valuations are reviewed quarterly by the
Board.
Quarterly valuations of the investment property are carried out by Knight
Frank LLP, external independent valuers to the Group, in accordance with the
Royal Institution of Chartered Surveyors' ("RICS") Appraisal and Valuation
Standards. The property has been valued in accordance with the definition of
the RICS Valuation which is defined as the price which would be received to
sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The valuation is based on
the highest and best use of the investment property.
An independent valuation was carried out for the investment property. The
valuation report received from the independent valuer included a 'Material
Valuation Uncertainty' paragraph in relation to the market risks linked to the
COVID-19 pandemic: this paragraph explains that the valuer has attached less
weight to previous market evidence for comparison purposes to achieve an
informed opinion on value. The valuer therefore recommends that a higher
degree of caution and less certainty should be attached to this valuation
compared to valuations carried out under normal circumstances. The material
uncertainty clause is to serve as a precaution and does not invalidate the
valuation nor imply that the valuation cannot be relied upon.
The key assumptions used to determine the market value of the investment
property are explained further in note 8.
(e) Foreign currency translation
(i) Foreign currency transactions
Transactions in foreign currencies are translated to presentation currency at
the spot foreign exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at the Consolidated
Statement of Financial Position date are translated to presentation currency
at the foreign exchange rate ruling at that date. Foreign exchange differences
arising on translation are recognised in the Consolidated Statement of
Comprehensive Income. Non-monetary assets and liabilities which are measured
at historical cost in a foreign currency are translated using the exchange
rate at the date of the original transaction. Non-monetary assets and
liabilities denominated in foreign currencies which are stated at fair value
are translated to presentation currency at foreign exchange rates ruling at
the dates the fair value was determined.
(ii) Exchange differences on foreign operations
The assets and liabilities of foreign operations, arising on consolidation,
are translated to presentation currency at the foreign exchange rates ruling
at the Consolidated Statement of Financial Position date. The income and
expenses of foreign operations are translated to presentation currency at an
average rate. Foreign exchange differences arising on retranslation are
recognised in other comprehensive income and as a separate component of
equity.
(f) Basis of consolidation
(i) Subsidiaries
The Financial Statements comprise the Financial Statements of the Company and
its subsidiaries as at 31 March each year. Subsidiaries are fully consolidated
from the date of acquisition, being the date on which the Group obtains
control, and continue to be consolidated until the date when such control
ceases. The Financial Statements of the subsidiaries are prepared using
consistent accounting policies.
(ii) Transactions eliminated on consolidation
All intra-group balances, transactions and unrealised gains and losses
resulting from intra-group transactions are eliminated in preparing the
Financial Statements.
Worsley Investors Limited, the Company, is the parent of the Group. It was
incorporated in Guernsey on 5 April 2005. The Company owned the following
subsidiary as at the reporting date:
Subsidiaries Country of incorporation Date of incorporation Ownership interest % Principal activities Financial year end
Property Trust Luxembourg 2 S.à r.l. Luxembourg 24 November 2005 100.00% Holding Company 31 March
The company shown in the table below was directly owned by Property Trust
Luxembourg 2 S.à.r.l. as at the reporting date:
Indirect subsidiaries and joint ventures Country of incorporation Ownership interest % Financial year end
Property Trust Luxembourg 2 S.à r.l.
Multiplex 1 S.r.l. Italy 100.00% 31 December
The entity above has a reporting date of 31 December owing to legacy set up.
(f) Income recognition
Interest income from banks is recognised on an effective yield basis. Bond
interest is recognised using the effective interest rate method.
Dividend income from equity investments is recognised when the relevant
investment is quoted ex-dividend, and is included gross of withholding tax.
Rental income from the investment property leased out under operating leases
is recognised in the Consolidated Statement of Comprehensive Income on a
straight-line basis over the term of the lease. Lease incentives are amortised
over the whole lease term.
(g) Expenses/other Income
Expenses are accounted for on an accruals basis.
Service costs for service contracts entered into by the Group acting as the
principal are recorded when such services are rendered. The Group is entitled
to recover such costs from the tenants of the investment property. The
recovery of costs is recognised as service charge income on an accrual basis.
(h) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits carried at
amortised cost. Cash equivalents are short-term, highly liquid investments
which are readily convertible to known amounts of cash and which are subject
to an insignificant risk of changes in value.
(i) Provisions
A provision is recognised in the Consolidated Statement of Financial Position
when the Group has a legal or constructive obligation as a result of a past
event, and it is probable that an outflow of economic benefits will be
required to settle the obligation.
(j) Investment property
Investment property is held to earn rental income and capital appreciation and
is recognised as such. Investment property is initially recognised at cost,
being the fair value of consideration given, including associated transaction
costs.
After initial recognition, investment property is measured at fair value using
the fair value model with unrealised gains and losses recognised in the
Consolidated Statement of Comprehensive Income. Realised gains and losses upon
disposal of the property is recognised in the Consolidated Statement of
Comprehensive Income. Quarterly valuations are carried out by Knight Frank
LLP, external independent valuers, in accordance with the RICS Appraisal and
Valuation Standards. The property has been valued in accordance with the
definition of the RICS Valuation which is defined as the price which would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The valuation
is based on the highest and best use of the investment property.
Lease incentive assets are deducted from the independent valuation to arrive
at fair value for accounting purposes: refer to note 8 for further details.
Subsequent expenditure is charged to the asset's carrying amount only when it
is probable that future economic benefits associated with the item will flow
to the Group and the cost of the item can be measured reliably. All other
repairs and maintenance costs are charged to the Consolidated Income Statement
during the financial period in which they are incurred.
Investment property is derecognised when it has been disposed of. Where the
Group disposes of a property at fair value in an arm's length transaction, the
carrying value immediately prior to the sale is adjusted to the transaction
price, and the adjustment is recorded in the income statement within
gain/(loss) on disposals of subsidiaries and investment property.
(k) Assets held for sale
Investment property is transferred to assets held for sale when it is expected
that the carrying amount will be recovered principally through sale rather
than from continuing use. For this to be the case, the property must be
available for immediate sale in its present condition subject only to terms
that are usual and customary for sales of such property and its sale must be
highly probable.
For the sale to be highly probable:
· The Board must be committed to a plan to sell the property and an
active programme to locate a buyer and complete the plan must have been
initiated;
· The property must be actively marketed for sale at a price that
is reasonable in relation to its current fair value; and
· The sale should be expected to qualify for recognition as a
completed sale within one year from the date of classification.
On re-classification, any investment property which is measured at fair value
would continue to be so measured.
(l) Operating leases (lessor)
The determination of whether or not an arrangement is, or contains, a lease is
based on the substance of the arrangement at the inception date. The
arrangement is assessed to establish if fulfilment of the arrangement is
dependent on the use of a specific asset or assets or the arrangement conveys
a right to use the asset or assets, even if that right is not explicitly
specified in an arrangement.
Leases in which the Group does not transfer substantially all the risks and
benefits of ownership of an asset are classified as operating leases. Initial
direct costs incurred in negotiating an operating lease are added to the
carrying amount of the leased asset and recognised over the lease term on the
same basis as rental income. Contingent rents are recognised as revenue in the
period in which they are earned. Where an operating lease is modified it is
accounted for as a new lease with any prepaid or accrued lease payments
relating to the original lease being treated as part of the lease payments for
the new lease.
(m) Financial instruments
Financial assets and financial liabilities are recognised in the Consolidated
Statement of Financial Position when the Group becomes a party to the
contractual provisions of the instrument. Financial assets and financial
liabilities are only offset and the net amount reported in the Consolidated
Statement of Financial Position and Consolidated Statement of Comprehensive
Income when there is a currently enforceable legal right to offset the
recognised amounts and the Group intends to settle on a net basis or realise
the asset and liability simultaneously.
On initial recognition, the Group classifies financial assets as measured at
amortised cost or at fair value through profit or loss ("FVTPL").
A financial asset is measured at amortised cost if it meets both of the
following conditions and is not designated as at FVTPL:
· it is held within a business model whose objective is to hold
assets to collect contractual cash flows; and
· its contractual terms give rise on specified dates to cash flows
which are solely payments of principal and interest.
In making an assessment of the objective of the business model in which a
financial asset is held, the Group considers all of the relevant information
about how the business is managed.
The Group has determined that it has two business models:
Held-to-collect business model: this includes cash and cash equivalents and
other receivables. These financial assets are held to collect contractual cash
flow.
Other business model: this includes investments in listed equities and
investment funds. These financial assets are managed and their performance is
evaluated, on a fair value basis, with sales taking place routinely.
Impairment
The Group assesses on a forward-looking basis the expected credit loss
associated with its financial assets held at amortised cost. The Group has
elected to apply the simplified approach permitted by IFRS 9 in respect of
receivables because they have a maturity of less than one year and do not
contain a significant financing component. Under the simplified approach the
requirement is always to recognise lifetime Expected Credit Loss ("ECL").
Under the simplified approach practical expedients are available to measure
lifetime ECL but forward-looking information must still be incorporated. Under
the simplified approach there is no need to monitor significant increases in
credit risk and entities will be required to measure lifetime ECLs at all
times. The Directors have concluded that any ECL on receivables would be
immaterial to the Financial Statements owing to the low credit risk of the
relevant counterparties and the historical payment history.
A receivable is considered to be in "default" when the corresponding party is
unlikely to pay its credit obligations in full, without recourse to actions
such as realising security (if held), or the borrower is past due more than 90
days on any material credit obligation.
Cash and cash equivalents comprise cash balances and call deposits carried at
amortised cost. Cash equivalents are short-term, highly liquid investments
which are readily convertible to known amounts of cash and which are subject
to an insignificant risk of changes in value.
Investments at fair value through profit or loss ("investments")
Recognition
Investments are recognised in the Company's Statement of Financial Position
when the Company becomes a party to the contractual provisions of the
instrument.
Purchases and sales of investments are recognised on the trade date (the date
on which the Company commits to purchase or sell the investment). Investments
purchased are initially recorded at fair value, being the consideration given,
including transaction or other dealing costs associated with the investment.
Measurement
Subsequent to initial recognition, investments are measured at fair value.
Gains and losses arising from changes in the fair value of investments and
gains and losses on investments that are sold are recognised through profit or
loss in the Statement of Comprehensive Income within net changes in fair value
of financial assets at fair value through profit or loss.
Investments traded in active markets are valued at the latest available bid
prices ruling at midnight on the reporting date. The Directors are of the
opinion that the bid-market prices are the best estimate of fair value.
Investments consist of listed or quoted equities or equity-related securities,
options and bonds which are issued by corporate issuers, supra-nationals or
government organisations, and investment in funds.
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. Gains and losses arising from changes in the fair value
of financial assets/(liabilities) are shown as net gains or losses on
financial assets through profit or loss and recognised in the Statement of
Comprehensive Income in capital in the period in which they arise.
Realised gains and losses arising on disposal of investments are calculated by
reference to the proceeds received on disposal and the average cost
attributable to those investments and are recognised in the Statement of
Comprehensive Income. Unrealised gains and losses on investments are
recognised in the Statement of Comprehensive Income.
Capital
Financial instruments issued by the Group are treated as equity if the holder
has only a residual interest in the assets of the Group after the deduction of
all liabilities. The Company's Ordinary Shares are classified as equity
instruments.
The Group's capital is represented by the Ordinary Shares, revenue reserve,
distributable reserve and foreign exchange reserve. Share premium is included
in the distributable reserve presented in the Consolidated Statement of
Changes in Equity. The capital of the Company is managed in accordance with
its investment policy in pursuit of its investment objective. It is not
subject to externally imposed capital requirements. The Ordinary shares carry
rights regarding dividends, voting, winding-up and redemptions, which are
detailed in full in the Company's Memorandum and Articles of Incorporation.
Equity instruments
Incremental costs directly attributable to the issue of new shares are shown
in equity as a deduction from proceeds.
(p) Taxation
The Company has obtained exempt company status in Guernsey under the terms of
the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 and accordingly is
subject to an annual fee of £1,200. The Directors intend to conduct the
Group's affairs such that it continues to remain eligible for exemption.
The Company's subsidiaries are subject to income tax on any income arising on
investment property, after deduction of debt financing costs and other
allowable expenses. However, when a subsidiary owns a property located in a
country other than its country of residence the taxation of the income is
defined in accordance with the double taxation treaty signed between the
country where the property is located and the residence country of the
subsidiary.
Income tax on the profit or loss for the period comprises current and deferred
tax. Current tax is the expected tax payable on the taxable income for the
year as determined under local tax law, using tax rates enacted or
substantially enacted at the Consolidated Statement of Financial Position
date, and any adjustment to tax payable in respect of previous periods.
Deferred income tax is provided using the liability method, providing for
temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amount used for taxation purposes.
The amount of deferred tax provided is based on the expected manner of
realisation or settlement of the carrying amount of assets and liabilities,
using tax rates enacted or substantially enacted at the Consolidated Statement
of Financial Position date, except in the case of investment property, where
deferred tax is provided for the effect of the sale of the property.
Deferred tax assets are recognised only to the extent that it is probable that
future taxable profits will be available against which the asset is utilised.
Details of current tax and deferred tax assets and liabilities are disclosed
in note 12.
(r) Determination and presentation of operating segments
The Company has entered into an Investment Advisory Agreement with the
Investment Advisor, under which the Board has appointed the Investment Advisor
to oversee on a day-to-day basis the assets of the Company, subject to their
review and control and ultimately the overall supervision of the Board. The
Board retains full responsibility to ensure that the Investment Advisor
adheres to its mandate. Moreover, the Board is fully responsible for the
appointment and/or removal of the Investment Advisor. Accordingly, the Board
is deemed to be the "Chief Operating Decision Maker" of the Company.
The Board has considered the requirements of IFRS 8, 'Operating Segments'. The
Board is of the view that the Group has two segments of business (see note
19).
(s) Share issue costs
Share issue costs are fully written off against the share capital account in
the period of the share issue in accordance with Guernsey company law.
4. Material agreements
Investment Management Agreements
Worsley Associates LLP
The Investment Advisory Agreement had an initial term of two years, with
either Worsley Associates or the Company being able to terminate the agreement
by giving 12 months' notice from 1 June 2020 and thereafter on a rolling 12
months' notice basis. On giving the requisite 12 months' notice there is no
compensation on termination (save in respect of any payment made in lieu of
notice where Worsley Associates and the Company agree to terminate the
Investment Advisory Agreement on less than 12 months' notice). In addition,
the Company and Worsley Associates may terminate the Investment Advisory
Agreement in certain limited circumstances.
Pursuant to the Investment Advisory Agreement, Worsley Associates is entitled
to an annual advisory fee of 1.25 per cent. of the Company's Net Asset Value,
to the extent that the Company's Net Asset Value is £40 million or less, but
subject to a minimum fee of £150,000 per annum. If the Company's Net Asset
Value exceeds £40 million, the Company will pay Worsley Associates a fee
equal to 1.25 per cent. of £40 million and 1.00 per cent. of the amount by
which the Company's Net Asset Value exceeds £40 million.
During the year, the Worsley Associates was due an Investment Advisory fee of
£181,628 (nine month period to 31 March 2021: £122,871). Fees of £16,841
were outstanding as at 31 March 2022 (31 March 2021: £14,014).
Broker Agreement
Shore Capital and Corporate Limited and Shore Capital Stockbrokers Limited
On 18 April 2019, Shore Capital and Corporate Limited and Shore Capital
Stockbrokers Limited (together "Shore Capital") were appointed as the
Company's financial adviser and broker. Fees expensed in the year ended 31
March 2022 totalled £25,730 (nine month period ended 31 March 2021 £18,750)
of which none was outstanding as at 31 March 2022 (31 March 2021: £nil).
Administrator Agreement
With effect from 28 June 2019, Sanne Fund Services (Guernsey) Limited
(formerly Praxis Fund Services Limited) ("Sanne") has been entitled to an
annual fee payable by the Company as follows:
-Where the Net Asset Value ("NAV") is up to £20 million a fixed fee of
£70,000 per annum applies. This fee is subject to annual adjustment for
inflation;
-Where the NAV is over £20 million but up to £100 million a further fee
equating to 0.025% of NAV per annum will be charged on the excess; and
-Where the NAV is over £100 million, a further fee equating to 0.06% per
annum of the NAV in excess of £100 million will be charged.
During the year, Sanne was due an administration fee of £72,869 (nine month
period ended 31 March 2021: £54,054) of which £19,000 was outstanding as at
31 March 2022 (31 March 2021: £10,000).
Fees totalling £45,912 were paid to the administrators of the subsidiaries
(nine month period ended 31 March 2021: £28,880).
Custody Agreement
With effect from 5 July 2019, Butterfield Bank (Guernsey) Limited was
appointed as Custody Agent to the Company. Butterfield Bank (Guernsey) Limited
is entitled to an annual fee payable by the Company at the rate of 0.15% per
annum of the gross value of the investments held, subject to a minimum fee of
£400 per annum.
During the year, Butterfield Bank (Guernsey) Limited was due a custody agency
fee of £9,309 (nine month period to 31 March 2021: £4,179). Fees of £2,300
were outstanding as at 31 March 2022 (31 March 2021: £1,537).
During the year, Butterfield Bank (Guernsey) Limited was due transaction fees
of £1,571 incurred as a result of investment trading (nine month period ended
31 March 2021: £4,450). No transaction fees were outstanding as at 31 March
2022 (31 March 2021: £nil).
5. Gross rental income
Gross rental income for the year ended 31 March 2022 amounted to £0.74
million (nine month period ended 31 March 2021: £0.58 million). The Group
leases out its investment property under an operating lease which is
structured in accordance with local practices in Italy. The lease benefits
from indexation.
The lease, which was signed in December 2018, is summarised as follows:
- Term
15 years fixed, from 1 January 2019 until 31 December 2033 with an automatic
nine-year extension unless cancelled by the tenant with a minimum 12-month
notice period.
- Base Rent
Year 1 - €800,000
Year 2 (i.e. from January 2020) - €830,000, and thereafter to be indexed to
100% of the ISTAT Consumer Index on an upwards-only basis.
As part of the overall negotiation package an amount of €330,329 lease
incentive was paid in December 2018 to the tenant. The new lease was been
treated as backdated with an effective commencement date of 1 July 2018. A
further amount of €330,329 was granted to the tenant as a discount on rent
which adjusted the rental income received from 1 July 2018 to 31 December 2018
to be in line with that receivable under the new lease agreement.
- Variable Rent
There was an incremental rent of between €1.50 and €2.50 per ticket sold
above a minimum threshold of 350,000 tickets per year.
During June 2020, as a result of COVID-19, negotiations with the tenant at the
Curno property were held with the aim of achieving overall terms which would
improve asset liquidity and maximise potential pricing. As a result, a lease
amendment was signed on 11 September 2020 with alterations summarised as
follows:
- Term
17.5 years fixed, from 1 January 2019 until 30 June 2035 with an automatic
nine-year extension unless cancelled by the tenant with a minimum 12-month
notice period.
- Base Rent
From 1 March 2021 - €915,000, and from 1 January 2022 to be indexed to 100%
of the ISTAT Consumer Index on an upwards-only basis. As part of the overall
amendment package an amount of €622,500 was granted to the tenant as a full
discount on rent payable from 1 March 2020 to 30 November 2020. Of the
€622,500 discount on rent, €276,667 related to the year ended 30 June
2020. On 1 January 2022 annual rental increased to €949,770. Please
refer to the table below and note 8 for further details.
- Variable Rent
Remains as per prior agreement. There will be an incremental rent of between
€1.50 and €2.50 per ticket sold above a minimum threshold of 350,000
tickets per calendar year. There was no variable rent earned in the year ended
31 March 2022 (nine month period ended 31 March 2021: none).
Minimum Lease Payments (based on actual cash flows)
31 March 2022 31 March 2021
€000s €000s
1 year 950 915
1-5 years 3,820 3,680
After 5 years 7,976 8,624
Lease incentive
Year ended 9 months ended
31 March 2022 31 March 2021
£000s £000s
Lease incentive at beginning of year/period 834 561
Lease incentive movement for the year/period (48) 322
Foreign exchange translation (8) (49)
Lease incentive at end of year/period 778 834
The amounts recognised in the Statement of Comprehensive Income of the Group
in relation to the investment property are as follows:
Rental income
Year ended 9 months ended
31 March 2022 31 March 2021
£000s £000s
Rental income received (net of lease incentives) 790 254
Straight-lining of lease incentives (48) 322
Rental income 742 576
Expense from services to tenants, other property operating and administrative
expenses
Year ended 9 months ended
31 March 2022 31 March 2021
£000s £000s
Property expenses arising from investment property which generates rental 144 116
income
Total property operating expenses 144 116
As the investment property was rented for the entire year/period, there were
no property expenses arising from investment property which did not generate
rental income.
6. General and administrative expenses
Year ended 9 months ended
31 March 2022 31 March 2021
£000s £000s
Administration fees (note 4) 119 83
General expenses 58 78
Audit fees 44 43
Legal and professional fees 29 36
Directors' fees and expenses (note 17) 46 34
Insurance fees 26 24
Corporate Broker fees (note 4) 26 19
Investment Advisor fees (note 4 & 17) 182 123
Total 530 440
7. Basic and diluted earnings/(loss) per Share
The basic and diluted earnings or loss per share for the Group is based on the
net loss for the year of £0.505 million (31 March 2021: net profit for the
nine month period of £1.657 million) and the weighted average number of
Ordinary Shares in issue during the year of 33,740,929 (nine month period to
31 March 2021: 33,740,929). There are no instruments in issue which could
potentially dilute earnings or loss per Ordinary Share.
8. Investment property
Year ended 9 months ended 31 March 2021
31 March 2022
£000s £000s
Value of investment property before lease incentive adjustment 8,170 8,696
at beginning of the year/period
Fair value adjustment (770) -
Foreign exchange translation (72) (526)
Independent external valuation 7,328 8,170
Adjusted for: Lease incentive (note 5)* (778) (834)
Fair value of investment property at the end of the year/period 6,550 7,336
* The Lease incentive is separately classified as a non-current asset within
the Consolidated Statement of Financial Position and to avoid double counting
is hence deducted from the independent property valuation to arrive at fair
value for accounting purposes.
The property is carried at fair value. The lease incentive granted to the
tenant is amortised over the term of the lease. In accordance with IFRS, the
external independent valuation is reduced by the carrying amount of the lease
incentive as at the valuation date. Quarterly valuations are carried out at 31
March, 30 June, 30 September and 31 December by Knight Frank LLP, external
independent valuers.
The resultant fair value of investment property is analysed below by valuation
method, according to the levels of the fair value hierarchy. The different
levels have been defined as follows:
Level 1: quoted (unadjusted) prices in active markets for identical assets or
liabilities;
Level 2: inputs other than quoted prices included within Level 1 which are
observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices);
Level 3: inputs for the asset or liability which are not based on observable
market data (unobservable inputs).
The investment property (Curno) is classified as Level 3.
The significant assumptions made relating to its independent valuation are set
out below:
Significant assumptions 31 March 2022 31 March 2021
Gross estimated rental value per sqm p.a. 114.00€ 114.00€
Equivalent yield 10.53% 9.10%
The external valuer has carried out its valuation using the comparative and
investment methods. The assessment was made on the basis of a collation and
analysis of appropriate comparable investment and rental transactions. The
market analysis has been undertaken using market knowledge, enquiries of other
agents, searches of property databases, as appropriate and any information
provided to them. The external valuer has adhered to the RICS Valuation -
Professional Standards.
An increase/decrease in ERV (Estimated Rental Value) will increase/decrease
valuations, while an increase/decrease to yield decreases/increases
valuations. The information below sets out the sensitivity of the independent
property valuation to changes in Fair Value.
If market rental increases by 10% then property value increases by 2.41%,
being €210,484 (31 March 2021: 2.76%, being €263,590).
If market rental decreases by 10% then property value decreases by 2.41% being
€210,484 (31 March 2021: 2.76%, being €263,590)
If yield increases by 1% then property value decreases by 8.36%, being
€728,913 (31 March 2021: 9.76%)
If yield decreases by 1% then property value increases by 10.06%, being
€877,169 (31 March 2021: 12.1%)
Property assets are inherently difficult to value due to the individual nature
of each property. As a result, valuations are subject to uncertainty. There is
no assurance that estimates resulting from the valuation process will reflect
the actual sales price even where a sale occurs shortly after the valuation
date. Rental income and the market value for properties are generally affected
by overall conditions in the local economy, such as growth in Gross Domestic
Product ("GDP"), employment trends, inflation and changes in interest rates.
Changes in GDP may also impact employment levels, which in turn may impact the
demand for premises. Furthermore, movements in interest rates may affect the
cost of financing for real estate companies.
Both rental income and property values may be affected by other factors
specific to the real estate market, such as competition from other property
owners, the perceptions of prospective tenants of the attractiveness,
convenience and safety of properties, the inability to collect rents because
of the bankruptcy or the insolvency of tenants, the periodic need to renovate,
repair and release space and the costs thereof, the costs of maintenance and
insurance, and increased operating costs. The Investment Advisor addresses
market risk through a selective investment process, credit evaluations of
tenants, ongoing monitoring of tenants and through effective management of the
property.
The valuation report received from the independent valuer included a 'Material
Valuation Uncertainty' paragraph in relation to the market risks linked to the
COVID-19 pandemic: this paragraph explains that the valuer continues to be
faced with an unprecedented set of circumstances caused by COVID-19 and an
absence of relevant / sufficient market evidence on which to base their
judgements. Their valuation is therefore reported as being subject to
'material valuation uncertainty' and a higher degree of caution should be
attached to their valuation than would normally be the case.
9. Investments at fair value through profit or loss
Year ended 9 months ended
31 March 2022 31 March 2021
£000s £000s
Fair value of investments at FVTPL at beginning of year/period 5,504 1,684
Purchases 867 1,895
Sales (283) (217)
Realised gains 46 60
Unrealised (losses)/gains (161) 2,082
Total investments at FVTPL 5,973 5,504
As at 31 March 2022, the cost of the Investments at FVTPL was £3.983million
(31 March 2021: £3.353million).
Year ended 9 months ended
31 March 2022 31 March 2021
£000s £000s
Realised gains 46 60
Unrealised (losses)/gains (161) 2,082
Total (losses)/gains on investments at FVTPL (115) 2,142
Investment income 217 17
Total gains on financial assets at FVTPL 102 2,159
The fair value of investments at FVTPL are analysed below by valuation method,
according to the levels of the fair value hierarchy. The different levels have
been defined as follows:
Level 1: quoted (unadjusted) prices in active markets for identical assets or
liabilities;
Level 2: inputs other than quoted prices included within Level 1 which are
observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices);
Level 3: inputs for the asset or liability which are not based on observable
market data (unobservable inputs).
The following table analyses within the fair value hierarchy the Company's
financial assets at fair value through profit or loss:
31 March 2022 Level 1 Level 2 Level 3 Total
£000s £000s £000s £000s
Fair value through profit or loss
- Investments 4,189 1,784 - 5,973
Within the Company's financial assets classified as Level 2, securities
totalling £1,149,000 are traded on the London Stock Exchange or AIM Market,
securities of £335,000 being traded on the Aquis Exchange and securities of
£300,000 being traded in The International Stock Exchange. The Level 2
securities are valued at the traded price as at the year end and no adjustment
has been deemed necessary to these prices. However, although these are traded,
they are not regularly traded in significant volumes and hence have been
classified as level 2.
31 March 2021 Level 1 Level 2 Level 3 Total
£000s £000s £000s £000s
Fair value through profit or loss
- Investments 3,976 1,527 - 5,503
Within the Company's financial assets classified as Level 2, securities
totalling £1,227,000 are traded on the London Stock Exchange or AIM Market,
with the remaining securities of £300,000 being traded on the Aquis Exchange.
The Level 2 securities are valued at the traded price as at the period end and
no adjustment has been deemed necessary to these prices. However, although
these are traded, they are not regularly traded in significant volumes and
hence have been classified as level 2.
The valuation and classification of the investments are reviewed on a regular
basis. The Board determines whether or not transfers have occurred between
levels in the hierarchy by re-assessing categorisation (based on the lowest
level input which is significant to the fair value measurement as a whole) at
the end of each reporting period. There were no transfers between levels
during the reporting period (nine month period to 31 March 2021: None).
10. Trade and other receivables
31 March 2022 31 March 2021
£000s £000s
Rent receivable - 183
VAT receivable - 53
Prepayments 34 28
Total 34 264
The carrying values of trade and other receivables are considered to be
approximately equal to their fair value.
Rent receivable is non-interest bearing and typically due within 30 days. At
31 March 2021, the Group had three months of rent outstanding, but had
recognised no expected credit loss provision in relation to the rent
receivable. The rent receivable of £183,000 as at 31 March 2021, was received
in full during April 2021.
11. Trade and other payables
31 March 2022 31 March 2021
£000s £000s
Investment Advisor fee (note 4 and 17) 17 14
Administration fees (note 4) 37 10
Legal and professional fees - 8
Audit fees 40 40
Director fees payable (note 17) 2 2
Other 158 93
Total 254 167
Trade and other payables are non-interest bearing and are normally settled on
30-day terms. The carrying values of trade and other payables are considered
to be approximately equal to their fair value.
12. Taxation
Year ended 9 months ended
31 March 2022 31 March 2021
£000s £000s
Effect of:
Current tax
Luxembourg (4) (3)
Italy 45 (121)
Total current tax 41 (124)
Deferred tax `
Italy - (76)
Total deferred tax - (76)
Tax refund/(charge) during the year/period 41 (200)
The Parent Company is exempt from Guernsey taxation.
Movement in temporary differences
Foreign exchange loss on translation 31 March 2022
Recognised in profit or loss
1 April 2021
£000 £000 £000 £000
Deferred tax liabilities 74 - (2) 72
Movement in temporary differences
Foreign exchange loss on translation 31 March 2021
Recognised in profit or loss
1 July 2020
£000 £000 £000 £000
Deferred tax liabilities - 76 (2) 74
13. Share capital
Year ended 9 months ended
31 March 2022 31 March 2021
Number of shares Number of shares
Shares of no par values issued and fully paid
Balance at the start of the year/period 33,740,929 33,740,929
Shares issued - -
Balance at the end of the year/period 33,740,929 33,740,929
Total equity Year ended 9 months ended
31 March 2022 31 March 2021
£000s £000s
Balance at the start of the year/period 14,019 12,890
(Loss)/profit for the year/period and other comprehensive income (553) 1,129
Balance at the end of the year/period 13,446 14,019
No shares were issued by the Company during the year (period to 31 March 2021:
none).
14. Net asset value per ordinary share
The Net Asset Value per Ordinary Share at 31 March 2022 is based on the net
assets attributable to the ordinary shareholders of £13.466 million (31 March
2021: £14.019 million) and on 33,740,929 (31 March 2021: 33,740,929) ordinary
shares in issue at the Consolidated Statement of Financial Position date.
15. Financial risk management
The Group is exposed to various types of risk which are associated with
financial instruments. The Group's financial instruments comprise
investments, bank deposits, cash, receivables and payables which arise
directly from its operations. The carrying value of financial assets and
liabilities approximates the fair value. The main risks arising from the
Group's financial instruments are price risk, market risk, credit risk,
liquidity risk, interest risk and foreign currency risk. The Board reviews
and agrees policies for managing its risk exposure. These policies are
summarised below.
Credit risk
Credit risk is the risk that an issuer or counterparty will be unable or
unwilling to meet a commitment which it has entered into with the Group.
Failure of any relevant counterparty to perform its obligations in respect of
these items may lead to a financial loss. The Company is exposed to credit
risk in respect of cash and cash equivalents, investments held at fair value
through profit or loss and trade and other receivables. The credit risk
associated with debtors is limited to trade and other receivables. It is the
opinion of the Board of directors that the carrying amounts of these financial
assets represent the maximum credit risk exposure as at the reporting date.
The Company to date has not invested in the securities of any non-Group
company which is not quoted or does not have a listing. All transactions in
listed securities are settled/paid upon delivery using approved brokers. The
risk of default is considered minimal, as delivery of securities sold is only
made once the broker has received payment. Payment is made on a purchase once
the securities have been received by the broker. The trade will fail if either
party fails to meet their obligation.
The credit risk on cash and cash equivalent is considered limited because the counterparties are banks with high credit-ratings assigned by international credit-ratings agencies.
As at 31 March 2022 the Group banked with Butterfield Bank (Guernsey) Limited, which has a Standard & Poor's rating of BBB+ (31 March 2021: BBB+), CA Indosuez Wealth (Europe), a subsidiary of Credit Agricole and which has a Standard & Poor's rating of A+ (31 March 20201: A+) and Banco di Desio e della Brianza S.p.A with a Fitch rating of BB+ (31 March 2021: BB+).
During the year the subsidiary company, Property Trust Luxembourg 2 S.à.r.l., opened a current account with Alpha FX Group plc ("Alpha FX"), an Electronic Money Institution authorised and regulated by the UK Financial Conduct Authority. Whilst Alpha FX does not have a credit rating, the underlying funds held in the subsidiary's current account are held with Citibank International Limited, Luxembourg Branch, a sub sidiary of Citigroup Inc, which has a Standard & Poor's credit rating of BBB+.
Cash and cash equivalents, investments held at fair value through profit or
loss and trade and other receivables presented in the Consolidated Statement
of Financial Position are subject to credit risk with maturities within one
year. The Company's maximum credit exposure is limited to the carrying amount
of financial assets recognised as at the Consolidated Statement of Financial
Position date.
At the reporting date, the carrying amounts of the financial assets exposed to
risk were as follows:
Within
one year 1-3 years Total
As at 31 March 2022 £000s £000s £000s
Cash and cash equivalents 576 - 576
Investments held at fair value through profit or loss 5,973 - 5,973
Trade and other receivables 34 - 34
Total 6,583 - 6,583
Within
one year 1-3 years Total
As at 31 March 2021 £000s £000s £000s
Cash and cash equivalents 486 - 486
Investments held at fair value through profit or loss 5,504 - 5,504
Trade and other receivables 264 - 264
Total 6,254 - 6,254
Liquidity risk
Liquidity risk is the risk that the Group will encounter in realising assets
or otherwise raising funds to meet financial commitments in a reasonable time
frame or at a reasonable price.
The Group has the majority of its assets invested in investment property which
is relatively illiquid. The Group prepares forecasts in advance which enables
the Group's operating cash flow requirements to be anticipated and ensures
that sufficient liquidity is available to meet foreseeable needs and to allow
any surplus cash assets to be invested safely and profitably. The Group also
monitors the cash position in all subsidiaries to ensure that any working
capital requirements are addressed as early as possible. As at 31 March 2022
and 31 March 2021, the Group had no significant financial liabilities other
than short-term payables.
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a
financial instrument will fluctuate because of changes in market interest
rates. The Group's interest-bearing financial assets and liabilities expose it
to risks associated with the effects of fluctuations in the prevailing levels
of market interest rates on its financial position and cash flows. As at the
year end, the Group's overall interest rate risk is monitored on a quarterly
basis by the Board. As the vast majority of the Group's investments held at
fair value through profit or loss are not interest-bearing and are not
directly subject to interest rate risk, the exposure to interest rate risk is
not significant.
Concentration risk
As at 31 March 2022, the Company held one Investment Property representing
54.42% of NAV (31 March 2021: 58.28%).
The Group pursues a policy of diversifying its risk. Save for the Curno Asset
until such time as it is realised, the Group intends to adhere to the
investment restrictions detailed within the Investment Objective and Policy
Change section below.
Foreign currency risk
The Group is invested in assets denominated in a currency other than pounds
sterling (that is Euros and US Dollars), the Company's functional and
presentation currency, and the Consolidated Statement of Financial Position
may be significantly affected by movements in the exchange rate of such
currencies against pounds sterling. The following table sets out the total
exposure to foreign currency risk and the net exposure to foreign currency of
the Group's monetary assets and liabilities based on notional amounts.
Monetary Monetary Net
assets liabilities exposure
£000s £000s £000s
At 31 March 2022: Euro 7,757 (363) 7,394
USD 306 - 306
At 31 March 2021: Euro 8,672 (399) 8,273
USD - - -
Foreign currency risk sensitivity
The following table demonstrates the sensitivity to potential fluctuations in
the Euro exchange rate (ceteris paribus) of the Group's equity.
Increase/decrease Effect on equity
in exchange and income
rate £000s
At 31 March 2022 Euro +1% 82
Euro -1% (82)
USD +5% 15
USD -5% (15)
At 31 March 2021 Euro +15% 1,241
Euro -15% (1,241)
The sensitivity rates of 1% for Euros and 5% for US Dollars as at 31 March
2022 (31 March 2021: 15% for Euros) are regarded as reasonable in light of the
recent volatility of pounds sterling vs the Euro and the US Dollar. Any
changes in the foreign exchange rate will directly affect the profit and loss,
allocated to the foreign currency reserve of the Consolidated Statement of
Changes in Equity.
Market risk
Market risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in market prices. The
Group's activities expose it primarily to the market risks of changes in
market prices.
Market price risk
Market price risk arises mainly from the uncertainty about future prices of
the financial instruments held by the Group. It represents the potential loss
the Group may suffer through holding market positions in the face of price
movements.
The Group's investment portfolio is exposed to market price fluctuations,
which are monitored by the Investment Advisor in pursuance of the investment
objectives and policies.
Market price sensitivity analysis
The sensitivity analysis below has been determined based on the exposure to
equities risks at the reporting date. The 20% reasonably possible price
movement for equity-related securities (31 March 2021: 20%) is based on the
Investment Advisor's best judgement. The sensitivity rate for equity-related
investments of 20% is regarded as reasonable, as in the Investment Advisor's
view there is expected to be considerable volatility in equity markets in the
coming year.
A 20% increase in the market prices of equity-related investments as at 31
March 2022 would have increased the net assets attributable to shareholders by
£1,194,615 (31 March 2021: £1,100,682) and a 20% change in the opposite
direction would have decreased the net assets attributable to shareholders by
an equal but opposite amount.
Actual trading results may differ from the above sensitivity analysis and
these differences could be material.
Fair value
Financial assets at fair value through profit or loss are carried at fair
value. Other assets and liabilities are carried at cost which approximates
fair value.
IFRS 7 requires the Company to classify a fair value hierarchy which reflects
the significance of the inputs used in making the measurements. IFRS 7
establishes a fair value hierarchy which prioritises the inputs to valuation
techniques used to measure fair value. The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1 measurements) and the lowest priority to unobservable
inputs (Level 3 measurements). The three levels of the fair value hierarchy
under IFRS 7 are as follows -
Level 1: quoted (unadjusted) prices in active markets for identical assets or
liabilities;
Level 2: inputs other than quoted prices included within Level 1 which are
observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices);
Level 3: inputs for the asset or liability which are not based on observable
market data (unobservable inputs).
The level in the fair value hierarchy within which the fair value measurement
is categorised in its entirety is determined on the basis of the lowest level
input that is significant to the fair value measurement in its entirety. For
this purpose, the significance of an input is assessed against the fair value
measurement in its entirety. If a fair value measurement uses observable
inputs which require significant adjustment based on unobservable inputs, that
measurement is a Level 3 measurement. Assessing the significance of a
particular input to the fair value measurement in its entirety requires
judgement, considering factors specific to the asset or liability.
The determination of what constitutes 'observable' requires significant
judgement by the Company. The Company considers observable data to be market
data that is readily available, regularly distributed or updated, reliable and
verifiable, not proprietary, and provided by independent sources which are
actively involved in the relevant market.
Assets classified in Level 1 consist of listed or quoted equities or
equity-related securities, options and bonds which are issued by corporate
issuers, supra-nationals or government organisations.
Assets classified in Level 2 are investments such as funds fair-valued using
the official NAV of each fund as reported by each fund's independent
administrator at the reporting date. Where these funds are invested in
equity-type products, they are classified as equity in the table above.
Options and foreign exchange forward contracts are fair valued using publicly
available data. Foreign exchange forward contracts would be shown as
derivative financial assets and liabilities in the above table.
Assets classified in Level 3 consist of investments for which no market exists
for trading, for example investments in liquidating or illiquid funds, which
would be reported using the latest available official NAV less dividends
declared to date of each fund as reported by each fund's independent
administrator at the last reporting date. Where a market exists for trading in
illiquid funds, these are classified in Level 2.
The Company recognises any transfers between levels of fair value hierarchy as
of the end of the reporting period during which the transfer has occurred.
During the year ended 31 March 2022 and the nine month period ended 31 March
2021, there were no transfers between levels of fair value hierarchy.
16. Reserves
(a) Revenue reserves
Revenue reserves arise as a result of the profit or loss created by the Group.
(b) Distributable reserves
Distributable reserves arose from the cancellation of the share premium
account pursuant to the special resolution passed at the EGM on 13 April 2005
and approved by the Royal Court of Guernsey on 24 June 2005.
(c) Foreign currency reserves
Foreign currency reserves arise as a result of the translation of the
Financial Statements of foreign operations, the functional and presentation
currency of which is not pounds sterling.
17. Related party transactions
The Directors are responsible for the determination of the Company's
investment objective and policy and have overall responsibility for the
Group's activities including the review of investment activity and
performance.
Mr Nixon, a Director of the Company, is also Founding Partner and a Designated
Member of Worsley Associates LLP. The total charge to the Consolidated
Statement of Comprehensive Income during the year in respect of Investment
Advisor fees to Worsley Associates was £181,628 (nine month period to 31
March 2021: £122,871) of which £8,713 (31 March 2021: £8,128) remained
payable at the year end.
The fees and expenses payable to the Investment Advisor are explained in note
4.
Upon appointment of Worsley Associates as Investment Advisor (31 May 2019), Mr
Nixon waived his future Director's fee for so long as he is a member of the
Investment Advisor.
As at 31 March 2022, Mr Nixon held 29.88% of the shares in the Company (31
March 2021: 29.88%).
As at 31 March 2022, Mr Scott held 1.19% of the shares in the Company (31
March 2021: 1.19%).
The aggregate remuneration and benefits in kind of the Directors and directors
of its subsidiaries in respect of the Company's year ended 31 March 2022
amounted to £45,994 (nine month period ended 31 March 2021: £34,108) in
respect of the Group of which £35,000 (31 March 2021: £26,250) was in
respect of the Company. Please refer for further details on the Directors'
fees.
All the above transactions were undertaken at arm's-length.
18. Commitments and contingent liability
As at 31 March 2022 the Company had no commitments.
Disposal of the Curno property before 1 January 2024 may, depending on the
terms, incur Italian taxes which would be material in the context of
Shareholders' Funds. As at the 31 March 2022 and up to the date of approval of
these financial statements, no disposal was in discussion. As a result, no
provision has been included in these Financial Statements.
19. Segmental analysis
As at 31 March 2022, the Group has two segments (31 March 2021: two).
The following summary describes the operations in each of the Group's
reportable segments for the current year:
Property Group Management of the Group's property asset.
Parent Company Parent Company, which holds listed equity investments
Information regarding the results of each reportable segment is shown below.
Performance is measured based on segment profit/(loss) for the year, as
included in the internal management reports that are reviewed by the Board,
which is the Chief Operating Decision Maker ("CODM"). Segment profit is used
to measure performance as management believes that such information is the
most relevant in evaluating the results of certain segments relative to other
comparable operators.
The accounting policies of the reportable segments are the same as the Group's
accounting policies described in note 3.
(a) Group's reportable segments
Continuing Operations
31 March 2022 Property Group Parent Company Total
£000 £000 £000
External revenue
Gross property income 742 - 742
Property operating expenses (144) - (144)
Unrealised loss on investment property (770) - (770)
Net gain on investments at fair value through profit or loss - 102 102
Other income - 6 6
Lease incentive movement 48 - 48
Total segment revenue (124) 108 (16)
Expenses
General and administrative expenses (144) (386) (530)
Total operating expenses (144) (386) (530)
(Loss)/profit before tax (268) (278) (546)
Income tax charge 41 - 41
(Loss)/profit after tax (227) (278) (505)
(Loss)/profit for the year (227) (278) (505)
Total assets 7,746 6,217 13,963
Total liabilities 314 183 497
(b) Geographical information
The Company is domiciled in Guernsey. The Group has subsidiaries incorporated
in Europe.
The Group's revenue from external customers from continuing operations and
information about its segment non-current assets by geographical location (of
the country of incorporation of the entity earning revenue or holding the
asset) are detailed below:
Revenue from External Customers Non-Current Assets
31 March 2022 31 March 2022
£000 £000
Europe 742 8,086
742 8,086
Revenue from External Customers Non-Current Assets
31 March 2021 31 March 2021
£000 £000
Europe 576 8,170
576 8,170
20. Subsequent events
There were no post year end events which require disclosure in these Financial
Statements.
Portfolio statement (unaudited)
as at 31 March 2022
Currency Fair value % of Group Net Assets
£'000
Property
UCI Curno EUR 7,328 54.42%
Less: lease incentive EUR (778) (5.78%)
Total 6,550 48.64%
Securities
Smith News Plc GBP 3,404 25.28%
Amedeo Air Four Plus Limited GBP 498 3.70%
Northamber Plc GBP 495 3.67%
Hurricane Energy Plc - 7.5% Convertible Bond Snr 24/07/22 GBP 300 2.23%
Shepherd Neame Limited GBP 255 1.89%
Total disclosed securities 4,952 36.77%
Other securities (none greater than 2% of Net Assets) GBP 1,021 7.59%
Total securities 5,973 44.36%
Total investments 12,523 93.00%
Investment Policy
Investment Objective and Policy Change
At an EGM held on 28 June 2019, an ordinary resolution was passed to adopt a
new Investment Objective and Policy.
Investment Objective
The Company's investment objective is to provide shareholders with an
attractive level of absolute long-term return, principally through the capital
appreciation and exit of undervalued securities. The existing real estate
asset of the Company will be realised in an orderly manner, that is with a
view to optimising the disposal value of such asset.
Investment Policy
The Company aims to meet its objectives through investment primarily, although
not exclusively, in a diversified portfolio of securities and related
instruments of companies listed or admitted to trading on a stock market in
the British Isles (defined as (i) the United Kingdom of Great Britain and
Northern Ireland; (ii) the Republic of Ireland; (iii) the Bailiwicks of
Guernsey and Jersey; and (iv) the Isle of Man). The majority of such companies
will also be domiciled in the British Isles. Most of these companies will have
smaller to mid-sized equity market capitalisations (the definition of which
may vary from market to market, but will in general not exceed £600 million).
It is intended to secure influential positions in such British quoted
securities with the deployment of activism as required to achieve the desired
results.
The Company, Property Trust Luxembourg 2 SARL and Multiplex 1 SRL ("the
Group") may make investments in listed and unlisted equity and equity-related
securities such as convertible bonds, options and warrants. The Group may also
use derivatives, which may be exchange traded or over-the-counter.
The Group may also invest in cash or other instruments including but not
limited to: short, medium or long term bank deposits in pounds sterling and
other currencies, certificates of deposit and the full range of money market
instruments; fixed and floating rate debt securities issued by any corporate
entity, national government, government agency, central bank, supranational
entity or mutual society; futures and forward contracts in relation to any
other security or instrument in which the Group may invest; put and call
options (however, the Group will not write uncovered call options); covered
short sales of securities and other contracts which have the effect of giving
the Group exposure to a covered short position in a security; and securities
on a when-issued basis or a forward commitment basis.
The Group pursues a policy of diversifying its risk. Save for the Curno Asset
until such time as it is realised, the Group intends to adhere to the
following investment restrictions:
· not more than 30 per cent. of the Gross Asset Value at the time
of investment will be invested in the securities of a single issuer (such
restriction does not, however, apply to investment of cash held for working
capital purposes and, pending investment or distribution, in near cash
equivalent instruments, including securities issued or guaranteed by a
government, government agency or instrumentality of any EU or OECD Member
State or by any supranational authority of which one or more EU or OECD Member
States are members);
· the value of the four largest investments at the time of
investment will not constitute more than 75 per cent of Gross Asset Value;
· the value of the Group's exposure to securities not listed or
admitted to trading on any stock market will not exceed in aggregate 35 per
cent. of the Net Asset Value;
· the Group may make further direct investments in real estate but
only to the extent such investments will preserve and/or enhance the disposal
value of its existing real estate asset. Such investments are not expected to
be material in relation to the portfolio as a whole, but in any event will be
less than 25 per cent. of the Gross Asset Value at the time of investment.
This shall not preclude Property Trust Luxembourg 2 SARL and Multiplex 1 SRL
(the "Subsidiaries") from making such investments for operational purposes;
· the Company will not invest directly in physical commodities, but
this shall not preclude its Subsidiaries from making such investments for
operational purposes;
· investment in the securities, units and/or interests of other
collective investment vehicles will be permitted up to 40 per cent. of the
Gross Asset Value, including collective investment schemes managed or advised
by the Investment Advisor or any company within the Group; and
· the Company must not invest more than 10 per cent. of its Gross
Asset Value in other listed investment companies or listed investment trusts,
save where such investment companies or investment trusts have stated
investment policies to invest no more than 15 per cent. of their gross assets
in other listed investment companies or listed investment trusts.
The percentage limits above apply to an investment at the time it is made.
Where, owing to appreciation or depreciation, changes in exchange rates or by
reason of the receipt of rights, bonuses, benefits in the nature of capital or
by reason of any other action affecting every holder of that investment, any
limit is breached by more than 10 per cent., the Investment Advisor will,
unless otherwise directed by the Board, ensure that corrective action is taken
as soon as practicable.
Borrowing and Leverage
The Group may engage in borrowing (including stock borrowing), use of
financial derivative instruments or other forms of leverage provided that the
aggregate principal amount of all borrowings shall at no point exceed 50 per
cent. of Net Asset Value. Where the Group borrows, it may, in order to secure
such borrowing, provide collateral or security over its assets, or pledge or
charge such assets.
Corporate Information
Directors (All non-executive) Registered Office
W. Scott (Chairman) Sarnia House
R. H. Burke
B. A. Nixon Le Truchot
St Peter Port
Guernsey, GY1 1GR
Investment Advisor Administrator and Secretary
Worsley Associates LLP Sanne Fund Services (Guernsey) Limited
First Floor (formerly Praxis Fund Services Limited)
Barry House Sarnia House
20 - 22 Worple Road Le Truchot
Wimbledon, SW19 4DH St Peter Port
United Kingdom Guernsey, GY1 1GR
Financial Adviser Corporate Broker
Shore Capital and Corporate Limited Shore Capital Stockbrokers Limited
Cassini House Cassini House
57 St James's Street
57 St James's Street
London, SW1A 1LD
London SW1A 1LD
United Kingdom
United Kingdom
Independent Auditor Registrar
BDO Limited Computershare Investor Services (Guernsey) Limited
Place du Pré 1(st) Floor
Rue du Pré Tudor House
St Peter Port Le Bordage
Guernsey, GY1 3LL St Peter Port
Guernsey, GY1 1DB
Registration Number
43007
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