interim report and - margetts...birmingham vat no. (gb) 795 0415 16 b2 2hl b1 3jr registered in...

HEAD OFFICE MARGETTS FUND MANAGEMENT LTD DEALING

1 SOVEREIGN COURT PO BOX 17067

GRAHAM STREET www.margetts.com BIRMINGHAM

BIRMINGHAM VAT No. (GB) 795 0415 16 B2 2HL

B1 3JR

Registered in England No. 4158249

TELEPHONE: 0121 236 2380 Authorised and Regulated by TELEPHONE: 0345 607 6808

FACSIMILE: 0121 236 2330 the Financial Conduct Authority FACSIMILE: 0121 236 8990

Interim Report and

Financial Statements

for MGTS St Johns

High Income Property Fund

For the six months ended 31 August 2018 (Unaudited)

ACD Margetts Fund Management Limited

1 Sovereign Court Graham Street

Birmingham B1 3JR

Tel: 0121 236 2380 Fax: 0121 236 2330

(Authorised and regulated by the Financial Conduct Authority)

Directors of the ACD T J Ricketts A J M Quy

M D Jealous A S Weston

T H Ricketts (non-exec) G M W Oakley (non-exec)

J M Vessey (non-exec)

Depositary The Bank of New York Mellon (International) Limited

One Canada Square London E14 5AL


Administrator and Registrar Margetts Fund Management Ltd

PO Box 17067 Birmingham

B2 2HL

Tel: 0345 607 6808 Fax: 0121 236 8990


Auditors Shipleys LLP

Chartered Accountants & Statutory Auditors 10 Orange Street

Haymarket London

WC2H 7DQ

Investment Advisers St Johns Asset Management Ltd

AFH House Buntsford Drive

Stoke Heath Bromsgrove

Worcestershire B60 4JE


Contents Investment Adviser’s Report 1 Certification of Accounts by Directors of the ACD 3 Portfolio Statement 4 Property Portfolio 6 Net Asset Value per Share and Comparative Table 10 Financial Statements

Statement of Total Return 12 Statement of Change in Net Assets Attributable to Shareholders 12 Balance Sheet 13 Cash Flow 14 Notes to the Financial Statements 15 Distribution Table 24

General Information 25

1

Investment Adviser’s Report For the period ended 31 August 2018 Investment Objective and Policy The aim of the Fund is to carry on a property investment business and manage cash raised from investors for investment in the property investment business with the aim of providing high income and long term capital appreciation with a bias towards income. To achieve this, the Sub-fund will primarily invest in a portfolio of UK commercial properties, securities (typically comprising shares in property companies and REITs) and: units and/or shares in collective investment schemes consisting of property or property related assets (for example, REITs or other property companies); freehold and leasehold immovable property including (but not limited to) commercial property, light industrial, heavy industrial, chemical industry, manufacturing, office, service sector and such other immovable property as the Investment Manager sees fit in pursuit of the investment objective generating high income; transferable securities; units and/or shares in collective investment schemes; money market instruments; derivatives (for efficient portfolio management purposes only); cash and near cash; and deposits. Investment Review In the 6 month period ending 01/09/2018, the property assets held by the MGTS St Johns High Income Property Fund (‘the PAIF’) increased by £14.6 million to £83.5 million, reflecting additional purchases in lieu of continued inflows and movements in the PAIF’s liquidity over that same time period. Elements of the fund were de-risked by disposing of an office unit in Warrington for £1.2 million. In this period the fund acquired a diverse range of assets including industrial, convenience retail, office and trade counter. At the end of this reporting period, the he PAIF retained 45 units at 23 locations. As at 1st September 2018, the weighted average unexpired lease term of the PAIF was 10.5 years (9.4 years to break) which the investment advisers believe to be an attractive attribute in the present market. During this latest reporting period, the fund managed to maintain attractive and competitive income distribution levels on behalf of investors. Fund Performance MGTS St Johns High Income Property 1.90% Benchmark IA Property Sector 2.53% Source: FE Analytics. Calculated on a total return basis.

Investment Market Summary

The UK property market remains very competitive with overseas investors and local authorities continuing to see the property market as a stable proposition for investment. The lack of industrial supply has led to yields for industrial stock becoming compacted and yields ranging from 4-6% depending on the age and location. The retail sector continues to decline and high street retail continues to see a record level of voids in the market, in addition to out of town shopping becoming increasingly exposed due to lack of footfall with known retailers going into administration. The lack of confidence in this sector has driven investment capital away from retail towards more stable investments in the industrial, as well as more defensive areas of retailing such as food, hence the yields being compounded further. The UK office market remains location specific and investment in this sector needs to be viewed on a case by case basis, rather than using a generic market level approach. Local authorities meanwhile are now being advised to only acquire assets within their boundaries. In turn, this is leading to asset sales but has resulted in the authorities being more aggressive with acquisitions in their own areas. The fund will continue to avoid any direct competition with bidding against local authorities who consistently buck the market trend with their aggressive bidding strategies.

2

Investment Adviser’s Report (continued) Some reflections on the current investment landscape As the Investment Advisers, we have taken an increasingly flexible approach to maintaining a sector leading yield from the Fund. However, it is expedient to highlight that to maintain high and attractive levels of income requires the Fund takes a more pragmatic view of sector concentrations and weighted average unexpired lease terms (‘WAULT’). Yields remain most favourable in retail and office sectors but both pose their own risks. Retail is under pressure from online sales and the perception that rents in the retail field remain too high against the footfall attributed to their locality. Many retailers have called on landlords to reduce their rents to avoid landlords having to deal with voids which would be difficult to re-let to established retailers. Due to the level of uncertainty this market poses, the fund will continue to avoid acquisitions in this sector. Yields in the industrial space are becoming more compacted due to lack of supply with deals in key locations have been secured at sub 5%. Convenience retail i.e. food retailers continue to perform well with Aldi, Lidl, COOP and Tesco all wishing to expand their range of portfolios by another 100+ sites in 2019. The fund can achieve acceptable yields to compliment those that are already being achieved if it considers less high profile tenants but with stable financial covenants. In the immediate future, the investment advisers to the PAIF believe the relevant opportunity set will be to consider tenants who are regionally strong in the industrial and office space, whilst considering properties with shorter lease terms. This would be in the expectation and understanding that the tenant will wish to remain beyond lease expiry or that the unit will be easily re-let should the tenant vacate, potentially providing scope for capital uplift as well. Lastly, the office market sector supply has been affected in certain areas due to permitted development rights which allows offices to be changed to residential should they be suitable. In these areas it has been found that there is now stock shortage and yields have grown as a result of the increased rents at the end of this most recent reporting period, the fund carries c15% internal liquidity with further funds expected to be available for investment. Therefore, it is the expectation of the investment advisers that the NAV of the fund will grow through time whilst reminding investors that the Fund’s primary investment objective is to produce high levels of income, achieving in time, longer term capital growth. St Johns Asset Management Ltd Investment Adviser 18 October 2018

3

Certification of Accounts by Directors of the ACD This report is signed in accordance with the requirements of the Collective Investment Schemes Sourcebook (COLL) as issued and amended by the Financial Conduct Authority.

T J Ricketts M D Jealous

Margetts Fund Management Ltd 31 October 2018

Authorised Status

The MGTS St Johns High Income Property Fund is an open-ended investment company with variable capital incorporated in England and Wales under registration number IC954 and authorised and regulated by the Financial Conduct Authority with effect from 14 September 2012. The fund is classed as a Non-UCITS Retail Fund (NURS) scheme, which complies with the requirements of the FCA FUND and COLL handbooks. Shareholders are not liable for the debts of the fund.

Investor Notice With effect from 13 August 2018, the trustee and depositary, as appropriate, of the funds, BNY Mellon Trust & Depositary (UK) Limited ("T&D") retired and was replaced by The Bank of New York Mellon (International) Limited ("BNYMIL"). This change has been agreed by the Financial Conduct Authority and the Manager/Authorised Corporate Director. As a result, the activities previously carried out by T&D will be performed by BNYMIL. The change did not impact on the effective organisation of the trustee and depositary as carried out by BNYMIL, the business address remained the same and all commercial terms remained unchanged including the fee structure and costs.

4

Portfolio Statement As at 31 August 2018

Total Net Assets

Holding Portfolio of Investments Value (£) 31.08.18 28.02.18

% %

Retail Warehouse

Birmingham 4,000,000 4.13

Bodmin 6,995,940 7.22

Burnley 4,865,000 5.02

Ipswich 4,192,899 4.33

Lichfield 2,978,193 3.08

Normanton 5,595,000 5.78

Redditch 3,165,000 3.27

Rotherham 3,370,000 3.48

Shrewsbury 4,595,000 4.74

Tewkesbury 4,295,000 4.43

Wales 3,640,000 3.76

York 2,916,600 3.01

Total Retail Warehouse 50,608,632 52.25 47.72

Retail

Birmingham 3,200,000 3.30

Blackpool 1,165,000 1.20

Newark 1,025,000 1.06

Oswestry 4,595,000 4.74

Spalding 4,160,000 4.30

Total Retail 14,145,000 14.60 12.80

Car Showroom

Nottingham 3,880,000 4.01

Total Car Showroom 3,880,000 4.01 4.63

Office

Fareham 2,155,000 2.23

Solihull 4,420,000 4.56

Warwick 2,130,000 2.20

Total Office 8,705,000 8.99 12.06

Leisure

Pembroke 2,580,000 2.66

Somerset 4,750,000 4.90

Total Leisure 7,330,000 7.56 8.75

Money Markets

Goldman Sachs GBP Inst Liquidity Fund 4,100,000 4.23

Invesco GBP Corporate Class 2,000,000 2.07

Total Money Markets 6,100,000 6.30 11.92

5

Portfolio Statement As at 31 August 2018

Total Net Assets

Holding Portfolio of Investments Value (£) 31.08.18 28.02.18

% %

Portfolio of Investments 90,768,632 93.71 97.88

Net Current Assets 6,093,982 6.29 2.12

Net Assets 96,862,614 100.00 100.00

The investments have been valued in accordance with note 1(b).

6

Property portfolio

Between £1 million and £2.5 million in Value

Principal Tenant Rental Income per annum

Next Rent Review

Blackpool

Freehold steel portal framed unit of brick elevations and pitched roofs constructed in the 1990s, totalling 15,366 sq ft. 33 on-site car park spaces.

Howden Joinery Properties Ltd

80,000 18/04/2023

Newark

Freehold public house over 3 floors with basement totalling 12,202 sq ft.

J D Wetherspoon Ltd 77,500 28/09/2023

Warrington

Freehold detached modern two storey office building of steel frame construction with dedicated parking spaces. The property (excl. car park) totals 8,556 sq ft.

Parasol Ltd 117,000 01/01/2019

Fareham

Virtually freehold, detached two storey office constructed in 2001, totalling 10,391 sq ft.

The Injury Care Clinics Ltd

185,000 14/08/2023

Warwick

The Freehold property comprises a purpose production building with high quality offices on two internal levels. Total area is 14,641 sq ft.

Eagle Burgmann Industries UK LP

140,000 14/02/2023

Between £2.5 million and £5 million in Value

Principal Tenant Rental

Income per annum

Next Rent Review

Pembroke

Freehold two storey 51 bedroom detached hotel, totalling 18,730 sq ft. The site has a car park with 42 spaces.

Travelodge 184,781 30/11/2020

7

Property portfolio (continued)



Income per annum

Next Rent Review

Rotherham

The Freehold property comprises two modern detached steel portal frame warehouse units constructed in 2007. Both units total 38,274 sq ft.

ETA Enclosures (UK) Limited

115,000 15/04/2023

Element Materials Technology Sheffield

Limited 99,500 26/06/2021

Redditch

Freehold single storey retail warehouse constructed in the 1980s, totalling 11,734 sq ft. The site extends to approx 0.91 acres.

Halfords 270,611 31/10/2022

Birmingham

A virtually freehold industrial warehouse unit constructed in 2009, totalling 47,530 sq ft. The unit has a secured external yard and separated car park.

TW Metals Ltd 266,350 08/02/2022

Birmingham

Two storey public house with waterfront terrace and balcony. Total area 6,804 sq ft.

New World Trading Company (UK)

Limited 175,000 22/12/2022

Tewkesbury

Freehold detached warehouse. Total area 53,522 sq ft.

Moog Controls 270,000 25/12/2018

Nottingham

Freehold car showroom with two storey office accommodation and workshop. Display and car park spaces. Total area 32,568 sq ft.

Volkswagen 285,000 31/08/2021

Cwmbran

Freehold detached

manufacturing facility with two storey offices. Total area is 61,460 sq ft.

Spear Group Holdings Limited

286,800 18/10/2019

8




Income per annum

Next Rent Review

Shrewsbury

Freehold property comprising three detached retail warehouse / industrial warehouse buildings located on two separate sites. Total area is 74,078 sq ft.

Booker Limited 310,949 various

Somerset

Student accommodation which

contains 53 bedrooms. Total area is 15,873 sq ft.

Richard Huish College

315,800 22/08/2022

Solihull

Freehold modern purpose built office building, constructed in 2008. The property size is 14,669 sq ft and has 53 car park spaces.

Goodman Logistics Developments Ltd

325,270 24/06/2023

Burnley

Freehold retail warehouse with enclosed garden centre and car park. Total area 28,932 sq ft.

The Range 337,500 11/05/2019

Oswestry

Freehold detached supermarket building with ancillary office, accommodation, car parking and loading yard areas. Total area 27,532 sq ft

WM Morrisons Supermarkets PLC

406,850 23/04/2019



Income per annum

Next Rent Review

Normanton

Freehold modern warehouse unit which incorporates a mixture of warehouse and office accommodation. total area including canopy 51,897 sq ft.

Horizon Platforms Limited

315,000 11/04/2021

9




Income per annum

Next Rent Review

Bodmin

Retail park consisting of two retail warehouse units, takeaway food restaurants and a car wash kiosk. Total area 36,098 sq ft.

B&M Retail Ltd 488,437 various

10

Net Asset Value per Share and Comparative Tables

Accumulation share class

Change in net assets per share 31/08/2018 28/02/2018 29/02/2017 28/02/2016

Opening net asset value per share 122.5580 117.2500 113.2300 106.3000

Return before operating charges * 1.4920 5.4080 4.2400 7.1700

Operating charges -0.0700 -0.1000 -0.2200 -0.2400

Return after operating charges 1.4220 5.3080 4.0200 6.9300

Distribution on income shares 0.0000 0.0000 0.0000 0.0000

Closing NAV per share 123.9800 122.5580 117.2500 113.2300

Retained distribution on acc shares 2.9752 5.7200 5.4767 5.3515

* After direct transaction costs of 0.0000 0.0000 0.0000 0.0000

Return after charges 1.16% 4.53% 3.55% 6.52%

Other Information

Closing net asset value (£) 818,421 627,128 329,241 259,965

Closing number of shares 660,159 511,573 280,820 229,520

OCF 0 1.35% 1.41% 1.28%

Direct transaction costs 0.00% 0.00% 0.00% 0.00%

Prices

Highest share price (pence) 131.35 129.04 123.18 118.52

Lowest share price (pence) 129.04 123.18 118.42 111.39

Performance

Income share class

Change in net assets per share 31/08/2018 28/02/2018 29/02/2017 28/02/2016

Opening net asset value per share 96.0704 96.3900 97.5400 96.1300

Return before operating charges * 1.1413 4.4231 3.6037 6.3831

Operating charges -0.0500 -0.0900 -0.1800 -0.2100

Return after operating charges 1.0913 4.3331 3.4237 6.1731

Distribution on income shares -2.3317 -4.6527 -4.5737 -4.7631

Closing NAV per share 94.8300 96.0704 96.3900 97.5400

* After direct transaction costs of 0.0000 0.0000 0.0000 0.0000

Return after charges 1.14% 4.50% 3.51% 6.42%

Other Information

Closing net asset value (£) 96,044,193 83,296,616 57,457,694 32,915,910

Closing number of shares 101,284,029 86,703,708 59,609,557 33,746,147

OCF 0 1.35% 1.41% 1.28%

Direct transaction costs 0.00% 0.00% 0.00% 0.00%

Prices

Highest share price (pence) 102.94 130.47 104.31 104.46

Lowest share price (pence) 101.13 100.78 101.27 100.78

Performance

11

Net Asset Value per Share and Comparative Tables (continued) Risk Warning

An investment in an open-ended investment company (OEIC) should be regarded as a medium to long term investment. Investors should be aware that the price of shares and the income from them can fall as well as rise and investors may not receive back the full amount invested. Past performance is not a guide to future performance. Investments denominated in currencies other than the base currency are subject to fluctuations in exchange rates, which can be favourable or unfavourable. Fund Performance The performance of the fund is shown in the Investment Adviser’s Report.

12

Financial statements

Notes 31.08.18 31.08.17

Income £ £ £ £

Net capital gains/(losses) 4 (1,393,380) (442,194)

Other gains 5 - -

Revenue 6 2,778,260 1,820,946

Expenses 7 (608,827) (368,024)

Finance costs: Interest 9 (52) -

Net revenue before taxation 2,169,381 1,452,922

Taxation 8 (2,714) (898)

Net revenue after taxation 2,166,667 1,452,024

773,287 1,009,830

Finance costs: Distribution 9 (2,726,769) (1,795,282)

(1,953,482) (785,452)

£ £ £ £

Opening net assets attributable to

shareholders83,923,744 57,786,935

15,626,842 10,184,668

(1,534,527) (1,759,711)

Dilution levy 780,420 426,041

14,872,735 8,850,998

(1,953,482) (785,452)

19,617 8,065

96,862,614 65,860,546

Statement of total returnFor the period ended 31 August 2018

Statement of change in net assets attributable to shareholdersFor the period ended 31 August 2018

Total return before distributions

Amounts receivable on issue of shares

Amounts payable on cancellation of shares

Change in net assets attributable to

shareholders from investment activities

Change in net assets attributable to

shareholders from investment activities

Closing net assets attributable to shareholders

Retained distribution on accumulation shares

13

Notes 31.08.18 28.02.18

Fixed assets £ £ £ £

Tangible assets

Land and Buildings 84,668,632 72,104,896

Investment assets 6,100,000 10,000,000

Current assets

Debtors 10 895,598 921,295

Bank balances 9,252,715 4,270,142

Total other assets 10,148,313 5,191,437

Total assets 100,916,945 5,191,437

Liabilities

Creditors 11 1,695,629 1,329,069

Distribution payable on income shares 2,358,702 2,043,520

Total other liabilities 4,054,331 3,372,589

Net assets attributable to shareholders 96,862,614 1,818,848

Balance sheetAs at 31 August 2018

14

For the period ended 31 August 2018

31.08.18 28.02.18 28.02.17

£ £ £

Net cash flow from operating activities 5,609,202 3,053,214 2,125,497

Servicing of finance

Distributions paid (2,391,970) (3,369,981) (1,435,308)

Taxation

Taxation paid (1,055,084) (897,163) (228,329)

Financial investments

Purchases of investments (9,780,791) (29,356,476) (23,498,588)

Financing

Amounts received on issue of units 14,405,915 30,151,581 27,679,959

Amounts paid on cancellation of units (1,583,325) (2,587,064) (1,253,821)

Net cash at the start of the period 3,455,389 6,461,278 3,071,868

Increase/(decrease) in cash in the period 5,203,947 (3,005,889) 3,389,410

Net cash at the end of the period 8,659,336 3,455,389 6,461,278

Net cash flow from operating activities

Net revenue before tax 2,169,381 3,342,337 2,018,636

Decrease/(increase) in debtors 2,826,853 (585,071) (100,570)

Increase in creditors 612,968 295,948 207,431

Net cash generated from operations 5,609,202 3,053,214 2,125,497

Cash flow statement

15

Notes to the financial statements As at 31 August 2018

1 Accounting policies

a) Basis of accounting

The financial statements have been prepared under the historical cost basis in accordance with Financial Reporting Standard (FRS) 102, as modified by the revaluation of investments, and in accordance with the revised Statement of Recommended Practice (SORP) for Authorised Funds issued by the Investment Association in May 2014.

b) Basis of valuation of investments

The investments are valued at quoted bid prices for dual priced funds and at quoted prices for single priced funds, on the last business day of the accounting period. Property that is held for long-term rental income or for capital appreciation or both, and that is not occupied by the Trust, is classified as investment property. Investment property is measured initially at cost, including related transaction costs, on the date of acquisition or the date of unconditional exchange, if earlier. After initial recognition, investment property is carried at open market value, after the deduction of unamortised lease incentives. Revaluation gains and losses are recognised in the Statement of Total Return. The standing valuer of the fund is Lambert Smith Hampton Group Limited (Registered address: United Kingdom House, 180 Oxford Street, London, W1D 1NN). Open market value is based on active market information, adjusted, if necessary, for any difference in the nature, location or condition of the specific asset. If this information is not available, alternative valuation methods are used, such as recent prices of similar properties in less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices, or discounted cash flow projections. The principal assumptions underlying the estimation of open market value are those related to the receipt of contractual rentals, expected future market rentals, void periods, lease incentives, maintenance requirements and appropriate yields/discount rates. The expected future market rentals are determined on the basis of the current market rentals for similar properties in the same location and condition. Disposal of investment property are recognised on the legal completion.

c) Foreign exchange rates

Transactions in foreign currencies are recorded in sterling at the rate ruling at the date of the transactions. Assets and liabilities expressed in foreign currencies at the end of the accounting period are translated into sterling at the closing middle exchange rates ruling on that date.

d) Revenue

Dividends, interest and other revenue receivable include any withholding taxes but exclude any other taxes such as attributable tax credits. Rental income consists principally of rentals receivable from tenants in the period. Rental income received in advance is deferred and recognised in the period to which it relates. In accordance with the FRS102, rental income from properties which have been subject to a rent free period or inducement, is accounted for on a straight line basis over the lease term. The valuation of investment properties is reduced by all unamortised lease incentives. Dividends are recognised when the security is quoted ex-dividend. Equalisation on distributions received is treated as a repayment of capital and deducted from the cost of the investment. Interest on bank and short-term deposits is recognised on an earned basis.

16

Notes to the financial statements (continued)

e) Expenses

The ACD’s periodic charge and all other expenses are deducted from Capital, with the exception of costs directly associated with the properties, which are taken from Income.

f) Taxation

(i) The fund is treated as a corporate shareholder with respect to its underlying holdings and its income is subject to streaming into franked and unfranked.

(ii) The holding of land to generate rental income is tax-exempt and therefore the net rental income is not chargeable to corporation tax.

(iii) The net income from the residual business is subject to the corporation tax rate of 20%. (iv) Stamp duty reserve tax suffered on surrender of shares is deducted from capital.

2 Distribution policy

Income arising from investments accumulates during each accounting period. Surplus income is allocated to shareholders in accordance with the COLL regulations. In order to conduct a controlled dividend flow to shareholders, interim distributions will be made at the ACD’s discretion, up to a maximum of the distributable income available for the period. All remaining income is distributed in accordance with the COLL regulations. The fund will make, up to, three different types of distribution per accounting date according to the source of the income: Property income distributions will be paid out net of 20% income tax, however as the rental income is corporation tax exempt, clients are able to opt to have the distributions paid gross as long as they meet the necessary requirements of HMRC. PAIF interest distributions and dividend distributions will be paid gross.

3 Risk management policies

In pursuing the investment objective, a number of financial instruments are held which may comprise securities and other investments, cash balances and debtors and creditors, that arise directly from operations. Derivatives, such as futures or forward foreign exchange contracts, may be utilised for efficient portfolio management purposes. Political and economic events in the major economies of the world, such as the United States, Japan and the European Union, will influence stock and securities markets worldwide. The main risks from the fund’s holding of financial instruments with the ACD’s policy for managing these risks are set out below:

i. Credit Risk – The fund may find that collective investment schemes in which it invests fail to settle their debts or deliver the investments purchased on a timely basis.

ii. Interest Rate Risk – Debt securities may be held by the underlying investments of the fund.

The Interest Rate Risk of these securities is managed by the relevant manager.

iii. Foreign Currency Risk – Although the net assets of the fund are denominated in sterling, a proportion of the fund’s investments in collective investment schemes have currency exposure with the effect that the balance sheet and total return can be affected by currency movements.

17

Notes to the financial statements (continued)

iv. Liquidity Risk – The main liability of the fund is the cancellation of any shares that investors

want to sell. Securities may have to be sold to fund such cancellations should insufficient cash be held at the bank to meet this obligation. Freehold properties may not be readily saleable. Property is slow to transact in normal market conditions and hence illiquid. In poor market conditions it will take even longer to find a buyer to pay an acceptable price. Smaller companies by their nature, tend to have relatively modest traded share capital, and the market in such shares can, at times, prove illiquid. Shifts in investor sentiment, or the announcement of new price-sensitive information, can provoke significant movement in share prices, and make dealing in any quantity difficult. The equity markets of emerging countries tend to be more volatile than the more developed markets of the world. Standards of disclosure and accounting regimes may not always fully comply with international criteria, and can make it difficult to establish accurate estimates of fundamental value. The dearth of accurate and meaningful information and insufficiencies in its distribution, can leave emerging markets prone to sudden and unpredictable changes in sentiment. The resultant investment flows can trigger significant volatility in these relatively small and illiquid markets. At the same time, this lack of liquidity, together with the low dealing volumes, can restrict the ACD’s ability to execute substantial deals.

v. Market Price Risk – Market Price Risk is the risk that the value of the fund’s financial instruments will fluctuate as a result of changes in market prices caused by factors other than interest rates or foreign currency movement. The Market Price Risk arises primarily from uncertainty about the future prices of financial instruments that the fund holds.

Market Price Risk represents the potential loss the fund may suffer through holding market positions in the face of price movements. This risk is generally regarded as consisting of two elements – Stock Specific Risk and Market Risk. The fund’s exposure to Stock Specific Risk is reduced for equities and bonds through the holding of a diversified portfolio in accordance with the investment and borrowing powers set out in the Instrument of Incorporation.

vi. Counterparty Risk – Transactions in securities entered into by the fund give rise to exposure to the risk that the counterparties may not be able to fulfil their responsibility by completing their side of the transaction.

vii. Fair Value of Financial Assets and Financial Liabilities – There is no material difference

between the value of the financial assets and liabilities, as shown in the balance sheet, and their fair value.

18

4 Net capital losses 31.08.18 31.08.17

£ £

Proceeds from sales on investments during the period 9,202,293 -

Original cost of investments sold during the period (9,624,368) -

Losses realised on investments sold during the period (422,075) -

Net depreciation thereon already recognised in prior periods 199,368 -

Net realised depreciation for the period (222,707) -

Net unrealised depreciation for the period (1,117,055) (435,094)

Rental amortisation (53,618) (7,100)

Net losses on non-derivative securities (1,393,380) (435,094)Net capital losses on investments (1,393,380) (442,194)

5 Purchases, sales and transaction costs

Purchases excluding transaction costs 14,219,776 6,928,447

Purchase costs: 4.84% [6.72%] 886,016 465,921Purchases including transaction costs 15,105,792 7,394,368

Sales excluding transaction costs 1,202,293 - Sales including transaction costs 1,202,293 -

Purchases excluding transaction costs 4,100,000 - Purchases including transaction costs 4,100,000 -

Sales excluding transaction costs 8,000,000 - Sales including transaction costs 8,000,000 -

Trustee transaction charges have been deducted in determining net capital

Transaction charges are displayed as percentage of purchase/sale

Total purchase costs: 0.97% [1.48] 886,016

Total charges displayed as percentage of average net asset value

Average portfolio dealing spread : 0.00% [0.00%]

6 Revenue

Bond interest 13,617 4,491

Property rental income 2,764,643 1,816,455Total revenue 2,778,260 1,820,946

Physical Property

Money Markets

19

7 Expenses 31.08.18 31.08.17£ £

ACD's periodic charge 457,628 306,732

Depositary's fee 16,953 14,630

Safe custody 1,137 1,858

18,090 16,488

Other expenses:

FCA fee 72 81

Audit fee 2,212 3,100

Registration fees 302 83

Sundry charges 52,676 4,851

Printing costs - 34

Aborted property purchase cost 4,500 750

Legal fees 1,764

Transfer agency fee 26,063 7,958

Independent valuation fees 21,055 11,816

Property management fee 23,204 11,342

Distribution costs 3,025 3,025Total expenses 608,827 368,024

8 Taxation

a) Analysis of the tax charge for the period:

UK Corporation tax 2,714 898

Irrecoverable income tax - -

Current tax charge (note 8b) 2,714 898Total tax charge 2,714 898

b) Factors affecting the tax charge for the period:

Net income before taxation 2,169,381 1,452,922

Corporation tax at 20% 433,877 290,585

Effects of:

UK dividends - -

Expenses not allowable 111,495 68,371

Property income distributions (542,658) (358,058)

Corporation tax charge 2,714 898

Irrecoverable income tax - - Current tax charge for the year (note 8a) 2,714 898

c) Provision for deferred taxation

No provision for deferred taxation has been made in the current or prior accounting year.

Payable to the Depositary associates of the Depositary and agents of either:

Payable to the ACD, associates of the ACD and agents of either:

20

9 Finance costs 31.08.18 31.08.17

£ £

Distributions

Interim 2,378,319 1,575,764

2,378,319 1,575,764

Income tax deducted at source 542,658 358,058

Amounts deducted on cancellation of shares 13,837 19,872

Amounts received on issue of shares (208,045) (158,412)

Finance costs: Distributions 2,726,769 1,795,282

Finance costs: Interest 52Total finance costs 2,726,821 1,795,282

Represented by:

Net revenue after taxation 2,166,667 1,452,024

Expenses charged to capital


Other capital expenses 102,440 36,556

Balance of revenue brought forward 85 35

Balance of revenue carried forward (51) (65)Finance costs: Distributions 2,726,769 1,795,282

10 Debtors 31.08.18 28.02.18

£ £

Amounts receivable for issue of shares 396,740 152,784

Accrued income:Property rental income 232,650Bond interest 180,413 - Gross bond interest 3,263 1,463

183,676 234,113

Prepayments 2,121 1,672

Other receivables - 8,900

VAT recoverable 313,061 523,826Total debtors 895,598 921,295

11 Creditors

Amounts payable for cancellation of shares 48,798 26,498

Accrued expenses:

Amounts payable to the ACD, associates and agents:


Amounts payable to the Depositary, associates and agents:

Depositary's fees 2,898 2,939

Safe custody fee 873 862

3,771 3,801

Other expenses 84,251 68,313

Deferred rental income 509,196 351,041

Capital costs 68,343 46,541

Taxation payable:

Income tax 549,854 558,369

VAT payable 348,978 210,624Total creditors 1,695,629 1,329,069

21

12 Contingent liabilities and commitments

There were no contingent liabilities or outstanding commitments at the balance sheet date [28.02.18 : £Nil].

13 Related party transactions

Margetts Fund Management Ltd as ACD, is a related party, and acts as principal in respect of all transactions of shares in the Company. The aggregate monies received through issues, and paid on cancellations are disclosed in the statement of change in net assets attributable to shareholders and note 9. Amounts paid to Margetts Fund Management Ltd in respect of management services are disclosed in note 7 and amounts due at the end of the year in note 11.

Acc Inc

Opening number of shares 511,573 86,703,708

Shares issued 170,573 21,775,291

Shares converted - -

Shares redeemed (21,987) (7,194,970)Closing number of shares 660,159 101,284,029

14 Shareholders' funds

15 Post balance sheet events There were no material post balance sheet events which have a bearing on the understanding of the financial statements.

16 Risk disclosures Interest risk - Debt securities may be held by the underlying investments of the fund. The Interest Rate Risk of these securities is managed by the relevant manager. The table below shows the Interest Rate Risk profile at the balance sheet date:

31.08.18 28.02.18

£ £

Floating rate assets (pounds sterling): 9,252,715 4,270,142

Assets on which interest is not paid (pounds sterling): 85,564,230 921,295

Liabilities on which interest is not paid (pounds sterling): (4,054,331) (3,372,589)

Net Assets 90,762,614 1,818,848

The floating rate financial assets and liabilities comprise bank balances, which earn or pay interest at rates linked to the UK base rate and money market funds.

There are no material amounts of financial assets and liabilities which do not have maturity dates.

22

17 Tangible Assets 31.08.18 29.02.18

£ £

Land and Buildings

Starting value 72,104,896 48,548,151

Additions 14,219,776 24,356,479

Disposals (1,202,293) -

Revaluations (453,747) (799,734)

Ending value 84,668,632 72,104,896

18 Fair Value Techniques

Assets 31.08.18 28.02.18

£ £

Quoted prices for identical instruments in active markets 6,100,000 10,000,000

Prices of recent transactions for identical instruments - -

Valuation techniques using observable data - -

Valuation techniques using non-observable data 84,668,632 72,104,896

90,768,632 82,104,896

19 Periodic Disclosure As required by FUND 3.2.5R the ACD is required to disclose certain information periodically in relation to the Fund which is shown below. At the end of the reporting period the percentage of the Fund’s assets subject to special arrangements arising from their illiquid nature was 0% (28.02.2018: 0%) of the NAV. There have been no new arrangements introduced for managing the liquidity of the Fund. The risk characteristics of the Fund are explained in the Prospectus. In order to assess the sensitivity of the Fund’s portfolio to the risks to which the Fund is or could be exposed, Margetts Fund Management Ltd monitors relative value at risk, commitment, gross leverage and the results of stress tests. The ACD has set limits considered appropriate to the risk profile of the fund. Any breaches of these limits are investigated by the Margetts risk committee and appropriate action taken if necessary. During the reporting period there have been no changes to the maximum level of leverage that the Fund can employ or any right of reuse of collateral or any guarantee granted under leveraging arrangements. At the end of the reporting period the total amount of leverage, expressed as a ratio, calculated using the commitment approach was 1:0.98 and using the gross method was 1:0.98. Leverage is limited to overdraft use and the gross exposure from EPM techniques. Although the ACD may use derivatives for EPM, no collateral arrangements are currently in place and no asset re-use arrangements are in place.

The maximum leverage expressed as the ratio of the exposure to net asset value using the commitment method is 1.1:1.0 and using the gross method 3.3:1.0. Please note that the maximum leverage under the gross method is theoretical and would only occur if market risk and currency risk were hedged across the entire Fund whilst it was using the maximum borrowing facility of 10%. It is not anticipated that both market risk and currency risk would be simultaneously hedged and therefore the likely maximum leverage which would be used in normal circumstances using the commitment method is 1.1:1.0 and using the gross method 2.2:1.0.

23

20 Remuneration In accordance with the requirements of FUND 4.7.7(7) the total amount of remuneration paid by the ACD to its staff for the financial year ended 30 September 2017 is:

£

Fixed Remuneration 2,077,507

Variable Remuneration 1,223,483

Total Remuneration 3,300,990

Full Time Equivalent number of staff 45

Analysis of senior management

Senior management 1,964,095

Staff whose actions may have a material impact on the funds -

Other -

1,964,095

The remuneration for senior management has been calculated in accordance with the Remuneration Policy and is reviewed annually. The remuneration policy and, where required by the FCA, how benefits are calculated together with details of the remuneration committee can be found on the website: www.margetts.com. A paper copy of this is available free of charge upon request by writing to the compliance officer at 1 Sovereign Court, Graham Street, Birmingham B1 3JR. No material changes were made to the Policy or irregularities reported at the last review.

21 Securities Financing Transactions (SFT) and Total Return Swaps (TRS) As at the Balance Sheet date, the amount of securities and commodities on loan as a proportion of total lendable assets is 0.00%

http://www.margetts.com/

24

Distribution Table For the period ended 31 August 2018 – in pence per share Interim Group 1 – shares purchased prior to 01 March 2018 Group 2 – shares purchased on or after 01 March 2018 Income shares

Shares Gross Revenue

Tax Net Revenue

Equalisation Payable 31.10.18

Paid 31.10.17

Group 1 2.9111 0.5794 2.3317 - 2.3317 2.2946 Group 2 1.7270 0.3437 1.3833 0.9484 2.3317 2.2946

Accumulation shares

Shares Gross Revenue

Tax Net Revenue

Equalisation Allocating 31.10.18

Allocated 31.10.17

Group 1 3.7144 0.7392 2.9752 - 2.9752 2.7910 Group 2 1.2302 0.2448 0.9854 1.9898 2.9752 2.7910

Equalisation only applies to shares purchased during the distribution period (group 2 shares). It represents the accrued income included in the purchase price of the shares. After averaging it is returned with the distribution as a capital repayment. It is not liable to income tax but must be deducted from the cost of the shares for capital gains tax purposes.

25

General Information Valuation Point The Valuation Point of the fund is at 12 noon each business day. Valuations may be made at other times with the Depositary’s approval. Buying and Selling of Shares The ACD will accept orders to buy or sell shares on normal business days between 9.00am and 5.00pm and transactions will be effected at prices determined by the following valuation. Instructions to buy or sell shares may be made either in writing to: Margetts Fund Management Ltd, PO Box 17067, Birmingham, B2 2HL or by telephone on 0845 607 6808. A contract note will be issued by close of business on the next business day after the dealing date to confirm the transaction. Prices The most recent mid prices of shares are published on the Margetts website at www.margetts.com. Other Information The Instrument of Incorporation, Prospectus, Key Investor Information Document, Supplementary Information Document and the latest annual and interim reports may be inspected at the offices of the ACD, with a copy available, free of charge, on written request. The register of shareholders can be inspected by shareholders during normal business hours at the offices of the Administrator. The Head Office of the Company is at 1 Sovereign Court, Graham Street, Birmingham B1 3JR and is also the address of the place in the United Kingdom for service on the Company of notices or other documents required or authorised to be served on it.

The base currency of the Company is pounds (£) sterling.

The maximum share capital of the Company is currently £10,000,000,000 and the minimum is £1,000. Shares in the Company have no par value and therefore the share capital of the Company at all times equals the Company’s current net asset value. Shareholders who have any complaints about the operation of the fund should contact the ACD or the Depositary in the first instance. In the event that a shareholder finds the response unsatisfactory, they may make their complaint direct to the Financial Ombudsman Service at Exchange Tower, London E14 9SR or email to: [email protected] or by telephone to 0800 023 4567.

interim report and - margetts...birmingham vat no. (gb) 795 0415 16 b2 2hl b1 3jr registered in...

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