Investment portfolio
Our portfolio of equity release assets grew by 17% from £66.6m to £77.9m during the year. We have continued to invest in equity release assets, despite early signs of a weakening property market.
Our approach to investment has been disciplined, based on the application of long-term criteria for investment returns. Consequently, we have been outbid in some competitive tenders during the year, but have not been afraid to acquire assets in a falling market which met our return criteria, even though provisioning in the Income Statement in line with the fall in the residential property market would be required in the short term.
In March 2008 we acquired The Welfare Dwellings Trust Limited, a regulated home reversion provider with a portfolio of life tenancies, for £8.6m in cash; this acquisition gave us more than 200 additional home reversion plans and shared equity loans from which we expect to make very satisfactory returns by holding these assets to maturity.
In a weakening property market, our equity release assets have generally performed better than the property indices over the financial year; the protection afforded by the substantial discount to vacant value at which we acquire these assets enables us to weather substantial downward market corrections, whilst still making positive returns on investments realised.
Equity release activities
In our first full year since acquiring the Home & Capital Trust Group, we have increased the value of transactions arranged by 25.5% and the number of equity release plans under management by 11.1%. Importantly, as part of a three year plan for transforming this business, we have laid the foundations for future growth. We expect the value of our equity release activities in the Group to be recognised through increased third party revenues, which will make a significant contribution to profitability.
Within our equity release business, we now act as both an adviser to customers on equity release products in general and as a provider of home reversion plans. Each of these businesses has won awards for quality in the last twelve months, indicating a growing awareness of our presence and position in this market.
Equity
In August 2007 we repurchased and cancelled 150,800 shares at a price of 330 pence per share. In December 2007 and January 2008, we repurchased a further 195,050 shares at an average price of 257 pence per share. These latter shares are held in Treasury. The Board will only consider the repurchase of the Company’s shares if these are available at a discount to the Group’s current estimated net asset value per share.
There may be occasions where it is advantageous for us to provide some consideration in the form of equity, or issue equity, in the course of making an acquisition. At the forthcoming Annual General Meeting we are therefore again seeking from Shareholders a renewal of our annual limited mandates for the Board to issue shares for cash and disapply pre-emption rights, as well as make share repurchases.
Dividends
Our policy continues to be to give priority to increase in capital values, and to provide part of the investment return to Shareholders in the form of regular annual dividends. In the last year we increased our annual dividend by 8.6% from 2.90 pence per share to 3.15 pence per share, in two equal half yearly instalments.
We have decided to maintain our first interim dividend in the current year at the same level as the second interim dividend last year and will consequently be paying a dividend of 1.575 pence per share on 5 September 2008. This decision reflects our long-term confidence in our ability to pay dividends as part of returns to Shareholders, tempered by a degree of prudence in the current economic environment.
We have a dividend reinvestment plan to enable Shareholders to apply their cash dividend to purchase shares in the Company; further information can be obtained from our Registrars, Capita Registrars Limited.
Management
Our management team, already one of the most experienced in the industry, has been strengthened in August 2007 by the arrival of Simon Little who was an equity release specialist with Swiss Re. Such experience in this relatively small sector of financial services is a rare commodity. We believe that the management team now assembled is exceptionally well equipped to capitalise on the potential offered by a growing industry operating in what is, at the time of writing, an extremely difficult economic background.
Outlook
We are enthusiastic about the Group’s prospects in this economic environment.
A deteriorating short-term outlook for residential property should provide opportunities for us to arrange an increasing number of home reversion plans, which can be financed by the Group or third parties; as an investor we expect to see a number of opportunities to acquire equity release assets at more attractive pricing than we have seen for some years.
The harsher economic conditions should benefit our equity release activities, as increasing numbers of elderly homeowners seek equity release solutions to sustain and improve their lifestyles. This will generate revenues for our advisory business, rewarding our efforts to build our position over the last year.
Finally I would like to thank all our staff for their loyalty and hard work in what are difficult times as we continue to provide homeowners, intermediaries and investors with the highest level of service possible.
Paul Spencer
Chairman
21 July 2008