Fih Group Regulatory News (FIH)

11 June 2019

FIH group plc

("FIH" or "Group" or "Company")

Final results for the year ended 31 March 2019

FIH, the AIM quoted international services group that owns essential services businesses in the Falkland Islands and the UK, is pleased to announce its final results for the year ended 31 March 2019. A copy of the Group's results is also available on the Company's website.

Group Financial Highlights

Profitable growth with satisfactory trading across each operating business

· Group revenue at £42.5 million (2018: £43.8 million)

· Pre-tax profits up 17.1% to £3.86 million (2018: £3.30 million)

· Underlying pre-tax profits up 19.3% to £3.86 million (2018: £3.24 million)

· Diluted earnings per share increased by 20.1% to 24.1 pence (2018: 20.1 pence)

· Diluted EPS on underlying profits rose by 22.5% to 24.1 pence (2018: 19.7 pence)

· Cash balances of £6.2 million (2018: £17.0 million)

· Bank borrowings of £12.8 million (2018: £3.3 million) following acquisition of Momart storage freehold

· The Board is recommending a final dividend of 3.35 pence per share (2018: 3.0 pence) to give a full year dividend of 5.0 pence per share (2018: 4.5 pence per share), an increase of 11%.

Operating Highlights

Falkland Islands Company ("FIC")

· Good overall performance, with further growth in retail and local support services, despite temporary dip in house sales

· Pre-tax profits up 12.5% to £1.51 million (2018: £1.34 million)

Momart

· Strong profit growth helped by release of prior year provision of £0.2 million, and improved margins

· Pre-tax profit up 51.3% to £1.57 million (2018: £1.04 million)

Portsmouth Harbour Ferry Company ("PHFC")

· Solid performance and healthy cash flow with slowing rate of decline in passenger volumes

· Pre-tax profits down £0.08 million at £0.78 million (2018: £0.86 million)

Outlook - Well-positioned for steady returns from careful execution of strategy, and enhanced growth prospects for the Group in medium and long term

· Further scope for steady growth at Momart, and enhanced medium term growth prospects in the Falklands linked to government infrastructure spending plans in addition to potential from oil development and land-based tourism

· Further strengthening of operational management teams to support future growth

· Following strategic review of growth opportunities, focus on maximising the growth in the Falkland Islands and Momart, reducing the time and resource previously committed to proactively seeking out opportunities for strategic acquisitions

· With a healthy balance sheet and improved prospects for growth not dependent solely on the development of oil in the Falklands, the board looks forward to delivering a steady and sustainable growth in earnings and shareholder value over the medium term.

John Foster, Chief Executive said:

"It is a pleasure to report another encouraging year for FIH group, with a steady increase in underlying pre-tax profits, and resilient trading at all three operating businesses.

"It has been a year of strategic investment to enhance the Group's position for further growth whilst at the same time the Group has maintained a strong cash position.

"In the Falkland Islands, the Group took advantage of an expected and temporary hiatus in house building to develop its rental property portfolio whilst a stronger performance from Retail and Support Services helped FIC maintain a continuing increase in profits.

"At PHFC, revenues were essentially unchanged but careful management helped mitigate local external challenges. At Momart, increased demand for its own added value services resulting in a richer sales mix, helped strengthen margins further.

"With our strong cash position, we will focus on maximising growth opportunities within the Group, while remaining open to suitable acquisition opportunities and we are confident that we are well-positioned for the year ahead."

Enquiries:

Chairman's Statement

I have pleasure in presenting the FIH group's annual report for the year ended 31 March 2019 and am delighted to report that the Group has enjoyed another encouraging year achieving a record in pre-tax profits from its trading operations of £3.86 million (2018: £3.24 million), even if helped by a £0.2 million release of a provision made in the previous year.

Trading at all three operating businesses was satisfactory with the Group's fine art handling business, Momart, performing particularly well and the Group's core activities in the Falkland Islands also seeing encouraging growth in earnings.

Despite heavy investment during the year the Group's cash position remained strong with closing cash balances of £6.2 million (2018: £17.0 million) and bank borrowings of £12.8 million, an increase of £9.5 million on the prior year following the Group's purchase of a freehold interest in Momart's warehouses in East London for £19.6 million including stamp duty in December 2018.

In line with the improved trading, diluted earnings per share increased by 20.1% to 24.1 pence per share compared to 20.1 pence in the prior year.

Following last year's full year dividend of 4.5 pence per share, and an interim dividend in respect of the current year of 1.65 pence paid in January 2019, I am pleased to announce that a final dividend of 3.35 pence per share will be proposed at our forthcoming Annual General Meeting on 5 September 2019. This will take the total dividend paid in respect of the 2018-19 financial year to 5.0 pence an increase of 11% over the prior year's 4.5 pence.

Full details of the Group's financial performance in the year to 31 March 2019 and the outlook for the current year are provided in the Chief Executive's Strategic Review on pages 4 to 16.

With respect to the strategic development of the Group, ongoing progress at Momart and the continued positive developments in the Falklands, offer the prospect of sustainable long term growth. We will continue to review potential acquisitions that are brought to our attention, but the objective is to demonstrate growth from our existing activities.

We look forward to reporting on continued good progress in the current year.

Robin Williams

Chairman

11 June 2019  

Chief Executive's Strategic Review 

Group Overview

I am pleased to report an encouraging year for the Group for the year ended 31 March 2019 with an increase of 19% (£0.6 million) in reported pre-tax profits to £3.9 million (2018: £3.3 million). Setting aside previous years in which the Group made profits from the sale of investments in shares, the trading performance in the year under review represents a record pre-tax result for the FIH group.

Group revenues were £42.5 million (2018: £43.8 million), 3.0% lower than in the prior year, however this apparent decline in activity reflected a beneficial change in sales mix particularly at Momart, the Group's fine art handling business, where increased demand for higher margin in-house services and a non-recurring release of a £0.2 million prior year provision produced a £0.5 million increase in contribution. In the Falklands, an expected and temporary hiatus in house building activity saw a decline in housebuilding revenues at FIC but a strong performance from other parts of the business more than compensated for this. At PHFC, the Group's passenger ferry business in Portsmouth harbour, revenues were essentially unchanged.

In a year in which the Group invested £19.6 million, including stamp duty and acquisition costs, to acquire the freehold of Momart's art storage warehouses in East London in December 2018, it was particularly pleasing to see Momart produce continued growth in earnings, generating an increase in pre-tax profits of £0.5 million to reach profit before tax of £1.57 million after absorbing its allocation of Group central costs and interest on new bank borrowings. Profits at FIC in the Falklands saw further progress despite the temporary slow-down in housebuilding with profit before tax increasing by 12% to £1.5 million (2018: £1.34 million). At PHFC flat revenues and an increase in operating costs and overheads saw underlying profitability decrease by £0.1 million to £0.78 million (2018: £0.86 million) although underlying cash flow at the ferry remained strong.

Across the Group, cash generation remained healthy with net cash flow from Operating Activities of £3.0 million (2018: £4.2 million) after absorbing a £2.5 million increase in working capital linked to a recommencement of new house builds in Stanley towards the end of the financial year. With heavy investment in fixed assets of £22.4 million, including additions to the rental portfolio in the Falklands and the £19.6 million acquisition of Momart's art storage warehouses, the Group ended the year with cash balances of £6.2 million (2018: £17.0 million) and bank borrowings of £12.8 million (2018: £3.3 million). In the near term the Group intends to draw down a long term mortgage on its newly acquired freehold property which will add a further £4 million to the Group's cash resources.

Review of operations

 Group revenue and Underlying Pre-Tax profits* are analysed below:

* Underlying Pre-Tax Profit is defined as, profit before tax, before non-trading items, and includes a share of the operating contribution from SAtCO, the Group's Joint Venture with Trant Construction in the Falkland Islands.

** In the current year, there were no non-trading or exceptional items and underlying profits were identical to reported Profit Before Tax. In the prior year there was a profit of £0.06 million from the disposal of old ferry vessel spare parts.

*** As in prior years the profits reported for each operating company are stated after the allocation of head office management and plc costs which have been applied to each subsidiary on a consistent basis.

Earnings per share rose sharply reflecting the increase in profitability. Basic earnings per share rose by 20.2% from 20.3 pence per share to 24.4 pence per share. On a fully diluted basis EPS was 24.1 pence (2018: 20.1 pence). In line with the board's policy, a final dividend of 3.35 pence per share is recommended for approval by shareholders at the Company's AGM on 5 September 2019, which will take the total dividend for the year to 5.0 pence per share (2018: 4.5 pence) representing an increase of 11.1% on last year and giving total dividend cover of 4.8x.

Falkland Islands Company

Background

In the Falklands both squid fishing and tourism remained relatively buoyant with an increased illex squid catch in April / May 2018 and continuing growth in the number of cruise ship passengers visiting the Islands over the summer period reaching record levels of 62,500 in the year ended March 2019, an increase of 5.4% over the prior year.

As in the prior year there was no direct activity or material expenditure from oil companies during the year although the principal licence holder in the North Falklands basin, Premier Oil has commenced preparations for the tender process which is intended to finalise the cost of the onshore services and facilities required for the development of Sea Lion. The tender process is expected to be completed around the end of 2019, at which point Premier should be in a position to make a final investment decision on whether to proceed with its plans for Sea Lion. Separate from plans for the development of oil, both the Falkland Islands Government and the UK Ministry of Defence have been progressing plans to renew and replace their aging infrastructure in the Islands and to modernise their respective property portfolios. The potential economic impact of these longer term plans will be significant, offering important business opportunities in the medium term for experienced local companies such as FIC, although in the year ended 31 March 2019 there was no direct impact.

In contrast to these opportunities which offer exciting prospects for growth in the medium term, in FY 2018-19, delays in the release of government provided serviced housing plots saw a hiatus in housebuilding activity in Stanley which negatively affected the performance of Falklands Building Services (FBS) and saw its revenue fall by £1.4 million (-48%), with house sales dropping from their previous record of 22 units in 2017-18 to just 6 in 2018-19, leading to a commensurate fall in FBS's contribution.

Despite this setback in one of the company's key profit generators, FIC still delivered a positive improvement in its overall performance.

Trading in Detail

Overall revenue in FIC decreased by £0.7 million (3.8%) to £17.6 million (2018: £18.3 million) largely as a result of the slow-down at FBS noted above. Despite the fall in revenue, tight cost control and continued progress in its retail business and support services saw FIC deliver a welcome increase in pre-tax earnings with profit before tax rising from £1.34 million to £1.51 million (+12.5%) in the year ended 31 March 2019.

See details below:

Retail

Against a relatively flat backdrop for consumer demand total retail sales for the year to 31 March 2019 increased by 5.7% to £9.7 million maintaining the overall 5.6% increase in sales seen in the first half.

West Store sales grew overall by 4.2% with a 3.2% increase in the second half against strong comparatives led by continued progress in the main West Store supermarket and much improved H2 sales at the satellite store at the Mount Pleasant military base. Whereas Clothing and Electrical Store sales saw slower year on year growth, sales at the Capstan gift shop increased by 4.7%.

Warehouse sales to local retailers and pubs (10% of West Store sales) increased by 2%, consolidating FIC's local market share after a strong recovery in the prior year.

Despite the temporary decline in housing completions, sales at Home Living recovered from the falls seen last year and revenue increased by 15.0% over the year with steady growth in the second half after a strong rebound in activity in H1. Gross margins continued the improvement seen in the prior year.

At FIC's Builders' Merchant Home Builder, despite the slow-down in local house building activity, helped by improvements in purchasing and in-store presentation, sales increased by 11% and gross margins also moved forward.

With encouraging growth seen at all 3 of FIC's retail brands and continued progress in enhancing margins by improved buying and waste reduction, FIC's retail business continued to make progress and at time when the other main profit contributors had quieter years the growth in Retail was once again most the important factor driving the increase in contribution at FIC.

FIC's automotive business, Falklands 4x4, in revenue terms operated at a similar level to the prior year with overall revenues 4.5% ahead at £3.05 million (2018: £2.92 million). 76 vehicles were sold in the year compared to 77 in 2017-18, however with a more favourable sales mix of 28 new vehicles sold compared to 20 in the prior year, revenue from vehicle sales increased by 18%, although this growth was largely offset by a decline in vehicle rental activity as the number of external corporate customers in the Falklands renting vehicles on a longer term basis dropped back. Vehicle maintenance and income from parts sales also saw a small decline. With increased vehicle sales largely offset by a drop in the level of fleet hire income, the overall contribution from FIC's 4x4 business saw a modest fall in the year.

Falklands Building Services (FBS), which focusses on building kit homes and small local construction projects, had a much quieter year compared to the record activity seen in 2017-18. House completions fell sharply from 22 to 6 units as private house-buyers awaited the release of government plots at Sappers Hill in West Stanley, resulting in a fall of FBS revenue of £1.4 million to £1.5 million (2018: £2.9 million).

In the face of delays in the release of new housing plots FBS resources were re-directed internally to modernise and expand FIC's own portfolio of residential rental properties in central Stanley. The construction of 9 new apartments and site clearance for 8 new houses was commenced during the year behind FIC's offices on Crozier Place at Fitzroy Road and a further 4 new units were completed in other locations in central Stanley which added to FIC's rental portfolio taking it to 54 units at 31 March 2019. In addition, in November 2018, FIC was awarded its first contract to build new houses for the Falklands' government and this welcome contract for the construction and sale of 18 homes will commence in 2019-20 and will support a recovery in FBS housebuilding in the coming year. In 2018-19 revenues from small contracts and government work for FIG increased by 5.0% to £0.77 million (2018: £0.74 million).

Income from third party freight and port services saw a drop of 17% to £0.78 million (2018: £0.94 million) largely as a result of timing differences in the number of military supply vessels landing in the Falklands during the year.

Support Services income increased by 12.4% to £2.00 million (2018: £1.78 million) helped by another strong illex squid catch in April and May 2018 which generated an increase in Fishing Agency revenues and by the expansion of FIC's offering into 3rd party training. Penguin Travel, which provides agency services to cruise ship operators and visiting tourists, had another encouraging year with revenues ahead by 4.0% and FIC's insurance agency and financial services also made steady progress.

Rental income from FIC's estate of 54 rental properties (which include 10 mobile homes rented to staff), dipped slightly by 0.4% to £0.47 million (2018: £0.48 million) as two older properties were demolished and replaced by four modern semi-detached properties which were completed in March 2019. Occupancy levels allowing for properties being renovated were effectively 100% (2018: 89%) as demand for property for local tenants continued to outstrip supply.

With no oil exploration activity, FIC's joint venture, the South Atlantic Construction Company, ("SAtCO") remained inactive and generated no contribution.

FIC Key Performance Indicators and Operational Drivers

*Includes ten mobile homes rented to staff.

FIC ended the year with a headcount of 169, 23 higher than the 146 in March 2018. Of the 169 headcount, Retail accounted for 67 (2018: 65), Falklands 4x4 accounted for 14 (2018: 18) and FBS 42 (2018: 28), with 46 (2018: 35) in Support Services and administration.

In overall terms the Group's Falkland operations performed well in 2018-19 despite the hiatus in housebuilding. Following the release of new plots late in 2018 FBS's order book for new homes is at record levels and a recovery in FBS level of contribution is expected in 2019-20.

Portsmouth Harbour Ferry Company

In the year to 31 March 2019 PHFC saw total revenues increase by 0.4% to £4.37 million (2018: £4.35 million) with a decline in passenger numbers being more than offset by increases in the yield from ferry fares. However after an increase in operating costs and overheads, underlying Profit Before Tax fell by £0.08 million to £0.78 million (2018: £0.86 million).

2018-19 saw a further slowing in the rate of decline in ferry passenger numbers, with volumes slipping 2.1% over the year; a lower rate of decline compared to the -3.6% and -4.1% falls seen in 2017-18 and 2016-17 respectively. The factors causing the slow attrition of ferry passenger numbers over the last few years are varied and complex but key drivers include changes in patterns of work with less fixed travel to work at one location, more working from home and the continuing appeal and increased affordability of car travel. In the Gosport peninsula the closure of military logistics and support bases over many years has also played a key role but the slow process of redevelopment of these sites for commercial and residential purposes has now commenced and offers the prospect of regeneration for the local economy and community with a positive impact on ferry patronage in the longer term.

In the year to 31 March 2019, total passenger journeys on the ferry were 2.56 million (an average of just under 50,000 passenger journeys per week), some 2.1% lower than the 2.61 million carried in the prior year. However, the rate of decline was markedly lower than the 3.6% reduction seen in 2017-18 and was achieved despite a 7.9% fall in usage by military personnel, who represent c. 4% of ferry users. The fall in ferry usage by naval personnel was caused by the absence from home port of the navy's new aircraft carrier, HMS Queen Elizabeth, which was out on exercise over the summer months.

Weekday traffic reduced by 2.3% compared to a smaller decline in weekend passenger journeys of 1.6%. Weekday off-peak non-commuter volumes which account for 35% of all ferry journeys held up particularly well reducing by only 0.5% compared to the prior year.

Ferry fares were increased by an average of 3% in June 2018 to make a contribution to the anticipated rise in operating costs. These annual fare increases brought the total cost of a standard adult return to £3.60, and the price of Adult 10 Trip tickets for regular customers to £16.00 (£1.60 per ferry journey), Discounted tariffs for seniors and children were also increased by 10p (£2.50/£2.40) per return journey. Monthly and quarterly season tickets which offer excellent value for frequent users at c.£2.00 per day for unlimited ferry access (priced at £65 and £180 respectively) continued to be offered although uptake remains low.

Underlying operating costs increased by more than inflation at 4.0% over the year, as a result of increased cover for staff illness and a sharp increase in the costs of out of water inspections at local third party slipways. There was also an increase in the total costs allocated from Group as accruals releases which reduced these costs in 2017-18 were not repeated.

During the year, significant efforts were continued using mainstream and digital/social media to remind local people of the benefits of travel by ferry and to alert passengers to special offers and promotions and discount offers from local partner attractions around the harbour. Social media including Facebook, Twitter, Instagram and email, were all actively employed and Facebook was used once more for targeted advertising to specific local groups within the ferry catchment area. The general thrust of ferry marketing is to remind people of the real attractions of ferry travel as well as highlighting special offers, promotions and events to stimulate increased ferry usage. A customer survey was also undertaken once again to help better understand passenger concerns and the demographic profile of ferry users. This confirmed the very local nature of the ferry customer base and the generally high levels of passenger satisfaction.

The ferry's annual "Bikes Go Free" promotion (10 Trip tariff: 39p per trip) was once more offered with a "free" period covering the 6 weeks of the school holidays. Cycle and motorcycle passengers continue to be an important component of ferry users accounting for over 11% of ferry passenger journeys with 77% being frequent regular users and the summer promotion represents a valued loyalty dividend for this important group of ferry users.

The company also continued to promote its unlimited monthly ferry and car parking joint "Park & Float" ticket which allows passengers to travel to the ferry terminal by car, park in nearby council car parks in Gosport and then travel across the harbour on the ferry. However the refusal of Gosport Council to offer any frequent user discount for the car parking element has seen the price of this joint ticket rise to £95 and patronage remains low at just over 1.5% of ferry passenger traffic.

In overall terms, at under £1.60 per crossing for regular adult travellers (using the 10 Trip ticket) and 91p for seniors and children (using 10 Trip tickets) the ferry service still represents excellent value compared to any alternative mode of transport other than for groups travelling by car with free or subsidised parking.

As in previous years, the car continues to be the only serious transport alternative to travelling by ferry and it remains PHFC's main "competitor" in providing cross-harbour transport with the subsidised Park & Ride scheme operated by Portsmouth City Council continuing to offer commuters and shoppers traveling in groups of two or more, low cost and convenient access to central Portsmouth.

On a more positive note, PHFC's leisure cruises in the Solent and to the Isle of Wight continued to prove popular and the programme of 38 summer cruises again created a modest but welcome additional contribution to ferry profitability. Together with ferry advertising revenue, cruising and other income increased by 2.4% to £0.22 million in the year to 31 March 2019.

During the year work, refurbishment of the company owned landing stage and pontoon on the Portsmouth side of the harbour at Portsea was completed with minimal disruption to passengers, with the pontoon offering convenient pedestrian and cycle access to the newly modernised bus, railway and taxi hub at Portsmouth Hard.

In contrast, on the Gosport side of the harbour, plans for the redevelopment of the area surrounding the ferry terminal to create a new bus and taxi terminus and associated retail and leisure facilities still await private sector and local government funding in order to progress. However, the creation of a modern multi-modal transport hub at the waterfront in Gosport, once realised, would provide an important boost for public transport in the Gosport peninsula and increase the appeal of the ferry to potential passengers.

With its own programme of fleet modernisation and renewal of its operating infrastructure now completed the ferry company is well positioned to continue to provide a first class service to its passengers.

Key Operating Metrics

Average fare yield per passenger journey increased by 2.5% to £1.62 (2018: £1.58).

Ferry reliability was again outstanding with on-time departures running at 99.8% (2018: 99.8%).

PHFC Key Performance Indicators and Operational Drivers

\* Total ferry fares divided by the total number of passengers

Momart

Momart, the Group's art handling and logistics business had another very encouraging year, delivering strong growth in profits despite a small fall in overall revenue. Operating profit in the year ended 31 March 2019 increased by £0.5 million (+51.3%) to £1.57 million despite overall revenues falling by 2.9% to £20.6 million (2018: £21.2 million) as the richer sales mix and increased use of internal resources with less emphasis on overseas outsourcing, boosted gross margins fuelling the further rise in profits.

The £19.6 million acquisition of the freehold of the 100,000sq ft art storage warehouses at Leyton, formerly leased by the company, saw rent savings of £0.22 million in the 3½ months to the end of the financial year and helped boost operating profits by £0.16 million, after taking account of increased depreciation. However after interest charges on new bank borrowings linked to the purchase, the overall impact of the property purchase on reported profits was modest at only £0.02 million. Despite the small positive impact on earnings, the long-term security of tenure afforded by the property acquisition and the removal of the prospect of a continuing escalation in rents has added considerable long-term value to Momart and FIH whilst still leaving the Group with sufficient cash resources and borrowing capacity to pursue its ambitions in the Falkland Islands.

In addition, unutilised space on the Leyton site also offers the prospect in the medium term of relocating the company's administrative offices from Canary Wharf to Leyton, saving office rent and gaining real operating efficiencies from combining all the company's activities at one location. Plans are currently being drawn up for these new offices but with nearly 4 years remaining on the existing lease at Canary Wharf, in the short term no immediate office move is planned.

Momart's results in the period were also helped by a release of a £0.2 million provision taken out in the prior year which proved unnecessary following the successful settlement of the case involved. This boosted profits in 2018-19 and helped offset the negative impact of the loss of two major storage clients (noted in the 2018 annual report) who relocated their artworks out of London in 2018-19 and where the consequent loss of recurring storage revenues held back contribution from storage by c. £0.2 million.

Net finance costs increased to £0.16 million in the year with interest costs on the £10 million of additional borrowings taken out to buy the Leyton warehouse.

Profit Before Tax after an allocation of central costs was £1.57 million, up £0.53 million on the prior year and almost four times the £0.44 million reported in 2017.

Museum Exhibitions

Following the reduced level of Exhibitions revenue seen in the first half (£0.7 million down on the previous year), overall Exhibition revenues in the second half held up well and saw only a modest £0.1 million reduction when compared to the same period in 2017-18. For the year as a whole, Momart maintained its market share with the UK's leading museums but activity levels dropped in absolute terms as UK institutions scaled back their activities after a run of curating very large global "blockbuster" exhibitions, to focus on smaller lower budget shows. At the same time Momart increased its own focus on higher added value international and regional contracts involving the sale of more of its own services with a lower requirement to dilute returns by outsourcing to third parties overseas. For the year as a whole, Exhibition revenues fell by £0.77 million (-6.5%) with activity with large UK museums reduced by 20% (but still accounting for 52% of sales). However, this fall was largely offset by growth with regional and international clients with overseas customers accounting for 35% of revenue compared to 27% in the prior year. With this improved sales mix, the contribution from Exhibitions increased over the prior year by £0.3 million.

Despite this change in balance, Momart has maintained its trusted position with the UK's leading fine art institutions. Notable museum exhibitions in the period included: "Rodin Art of Antiquity" and "Ashurbanipal: King of the World" at the British Museum; "Video Games" and "Christian Dior" at the V&A; "Course of Empire" and "Lorenzo Lotto" at the National Gallery; "Picasso 1932" and "Pierre Bonnard" at Tate Modern and "Van Gogh and Britain" at Tate Britain; and "Gainsborough" at the National Portrait Gallery.

As at 31 March 2019, the value of Momart's 12 month order-bank of large UK Exhibitions stood at £4.6 million, (2018: £4.2 million) £0.4 million higher than the prior year (See key performance indicators below).

Galleries & Private Client Services

Gallery Services ("GS") had another encouraging year as the global art market remained buoyant with private collectors maintaining recent record levels of interest and buying activity. GS revenues increased by 4.0% to £7.54 million (2018: £7.25 million) and with healthy market demand and improved efficiencies the division once again saw improved margins and a higher contribution for the year.

Activity with international art galleries, Momart's most important client category in GS, saw double digit growth in the year as further support was provided to a broad spread of clients both in UK and for their attendance at global art fairs. Momart's ability to address the storage needs of gallery customers with well located, high quality art storage facilities was also a key factor in driving increased business volumes.

In line with trends in previous years Momart also continued to grow its business with leading auction houses. This reflected continued buoyancy in the global art market and further rationalisation of the logistics supply chains of auction houses which are increasingly focussed on delivering high quality delivery and installation services to their client base.

With sales to galleries and auction houses now accounting for 63% of all GS activity the balance of GS sales was broadly spread between a mix of private and corporate clients, public institutions, major artists and overseas agents with a notable decline in the relative importance of living artists as a key source of revenue.

The continued sales growth in GS particularly with galleries and auction houses has allowed Momart to improve efficiencies leveraging the increased scale of activity and this led to further improvements in gross margins and an increase in the overall contribution from the division comparted to the prior year.

Storage

Storage revenue fell by 6.3% compared to the prior year from £2.20 million in the prior year to £2.07 million in the year ended 31 March 2019. As noted in the 2018 Annual Report, two large, long standing storage clients announced plans in early 2018 to relocate their collections to more convenient locations outside London. Whilst this did not reflect any dissatisfaction with the storage service being provided by Momart, this loss did create a significant "hole" in Momart's base level of annual rental income of £0.3 million. Winning new clients is a slow process; storage by itself is rarely a key commercial driver for a client and any new client win by Momart almost always involves client relocation from a competing storage provider within London. However, building on strengthening relationships with commercial galleries and UK institutions, good progress was made during 2018-19 to recruit new storage clients particularly those active collectors and galleries who "churn" their art holdings on a regular basis, generating incremental handling revenue and who are thus much more valuable as clients overall. A total of 8% or 500 cubic metres of storage was taken up by new commercial and institutional clients over the course of the year to help replace the revenue lost in early 2018 and this was delivered whilst increasing the average rental rate. By the end of the year in March 2019 unsold spare capacity had reduced from 29% to 19% and the run rate of storage revenue was over 6% higher pa than at the end of the previous year.

Selling its remaining spare storage capacity represents a major opportunity for Momart in the next few years and renting out all the remaining space on a pro rata basis would add 24% to storage revenues without any significant increase in fixed storage costs.

Maximising the potential from storage remains a key objective for Momart over the next 2-3 years.

Momart Key Performance Indicators and Operational Drivers

Potential Impact of Brexit

In general, the Board believes that the Group is not highly exposed to any potential adverse outcomes arising from Brexit, although the cross border art handling activities of Momart and the European art market in general would face disruption in the event of a disorderly departure from the EU.

In the Falklands, FIC has almost no direct trading links with the EU. However the Falklands economy is heavily dependent on income from squid and offshore fisheries, which account for 60% of Falklands GDP and a significant proportion of the Islands' annual squid catch is currently exported to Spain. In the event of increased tariffs and friction at newly erected external borders, some impact on the pattern of Falklands' trade could be expected to arise, although in the longer term it seems likely that Falklands' exporters would find alternative solutions and / or alternative markets which would minimise any long term damage to the wider Falklands economy. It should also be noted that the greater part of Falklands' government licence income is linked to the illex squid catch which is sold into markets in the Far East and has no connection to the EU.

PHFC is much more focussed on its local market and has no direct trading links with the European Union. Some ferry components are manufactured by European companies but spare parts are available in the UK market and little or no impact is anticipated.

As outlined above, Momart has the greatest exposure to a disorderly Brexit. The European art market and national museums benefit greatly from the current frictionless borders which enable art works for exhibition and sale to move seamlessly across Europe and this in turn depends in particular on the free movement of vehicles through the channel ports. If Brexit is well managed, disruption should be relatively modest but contingency plans using alternative routes onto the continent are being explored, albeit there remains an unavoidable potential impact in the near term if orderly transitional arrangements are not agreed by the UK and EU governments.

Trading outlook

FIC

After another encouraging year in 2018-19, the general outlook for the Islands' economy and for FIC's trading prospects in the near term remains positive, despite a somewhat weaker illex squid catch at the start of the new financial year.

In its core retail and automotive operations and wider support services, local competition remains strong and with finite local demand, further significant growth is not expected without a major stimulus to the economy from government infrastructure spending, the development of tourism or progress with offshore oil.

On a more positive note, in the near term a recovery is expected from FIC's local housebuilder, FBS, which was held back in 2018-19 by delays in releasing housing plots in Stanley. With only six kit homes built in 2018-19 compared to 22 in the prior year, but with a backlog of orders at the end of March 2019, FBS had built up a record order bank, including a first government order for four flats and 14 houses. Reflecting this strong order bank and the renewed release of government building plots, a recovery in FBS housebuilding is anticipated in 2019-20 with good prospects for steady growth in the medium term.

In addition, the enforced slow-down in housebuilding for third parties seen in 2018-19 meant that during the year FIC focussed on increasing its own property portfolio and commenced the construction of a further 21 residential flats and houses which should be largely complete by the end of 2019-20. Once complete this programme will increase FIC's residential property portfolio by 40% from 49 to 70 units and these centrally located and modern homes are expected to have strong rental appeal in the under-supplied Stanley property market. The full uplift in net contribution from this building programme of c £0.1 million will not be seen for 2-3 years until construction of all units is complete and a full year's rental income has been received from all the properties.

Looking beyond the company's existing activities, progress is still being made towards a final decision on the development of the Sea Lion oil field in the North Falklands basin. Premier Oil has commenced its process to finalise the project costings for Sea Lion and it is hoped that if the price of crude oil remains above $60 bbl and the investment outlook for oil appears stable, that Premier will proceed with the development. The onshore spend for Sea Lion is likely to represent only a small fraction of the estimated total project cost of $1.5 billion but even with a 10% capital spend onshore in the Falklands, the stimulus to the local economy will be significant over the period of the field's construction. Accordingly, if oil development does proceed we anticipate a positive impact on FIC's existing businesses from the increased onshore spend on food, accommodation and services, but we are not basing investment decisions on this outcome until the position is much clearer

In addition, FIC will be tendering for all the onshore construction and service contracts, working where appropriate, with experienced specialist partners and although competition will be fierce, given FIC's local presence and range of skills it is hoped that FIC will be successful in winning an element of such business.

Beyond any potential success in the tender process, securing returns from any onshore projects will depend on the final investment decision from Premier Oil. With a highly geared balance sheet and a volatile global economic backdrop, a positive decision from Premier is by no means certain. However FIC is well placed if oil development does proceed and will be in no worse place if it does not. A final investment decision is anticipated from Premier Oil in late 2019 or early 2020.

In the domestic arena, the Falklands Government has announced a major programme of infrastructure spending that will be rolled out over the medium term. The finances of the Islands' government are in robust good health following years of accumulated budget surpluses and it has also signalled its interest in working more closely with the private sector to help progress this programme of critical works which includes a new power station and port facilities. As with oil development, the indirect benefits to the local economy of this planned investment will be significant and beyond this, FIC will have the opportunity to tender for direct involvement in some of the planned programmes.

In a similar vein there is significant capital investment required to modernise and renew the physical infrastructure of the military base at Mount Pleasant following the British government's continuing commitment to maintain the defence and independence of the Islands against any potential hostile threat. With an establishment of around 2,000 military and civilian personnel, an international scale marine port and airbase, the investment required to maintain and renew the base facilities for the next 35 years will be considerable and should offer local companies, including FIC, real opportunities for participation in both the necessary capital projects and in the provision of non-military services.

Linked to both the government's plans and the renewal programme at Mount Pleasant over the medium term there will also be a need for expanded and modernised residential staff accommodation. With its experience and established track record as a leading local construction company, FIC will hope to play its part in delivering the further investment needs of its government and military partners.

There are also real opportunities in the development of land based tourism which in turn depends on more regular and convenient access to the Islands by air. In an historic development in late 2018, the British and Falklands governments secured the agreement of the Argentinian administration to allow commercial flights from Brazil to pass through Argentine airspace en route to the Falklands. Arrangements for a new mid-week commercial flight from Sao Paulo are now being finalised with the intention of commencing the service in late 2019 in time for the 2019-20 summer in the Falklands. This very positive development will create a vital building block on which to develop a still embryonic tourism industry and offers the possibility of the revitalisation of the Camp outside Stanley and an integrated vacation experience with the cruise ships and expedition vessels that increasingly visit the Islands. With a secure flow of several hundred new tourist visitors to the Islands each week there will be investment opportunities in providing amenities and services for these visitors in Stanley and in Camp as well as using these new air links to embed a more substantial connection to the cruise ships operating from Falklands waters through vessel re-supply and passenger interchanges.

If the more far sighted and progressive attitude taken by the current Argentinian administration is maintained, over the longer term, land based tourism with links to cruise and expedition vessels could become a mainstay and key growth driver of the Islands economy.

PHFC

At PHFC, the slow decline in passenger numbers seen over recent years appears to be slowing as more positive demographic and local economic developments come into play. The increased investment in the Portsmouth naval base seen in recent years and the slow redevelopment of former military sites in the Gosport peninsula are positive influences. In addition, the planned arrival of the navy's second carrier, HMS Prince of Wales, later in 2019 will provide a further boost to jobs and create a stimulus for the local economy.

In the longer term, pressure for the mooted redevelopment of the Gosport waterfront adjacent to the ferry pontoon, is likely to bear fruit and the continuing development of the retail and tourist offerings on the Portsmouth side of the harbour should also prove positive.

In the near term, the focus of management will be to maintain the impeccable safety record of the ferry service and its outstanding reliability, whilst at the same time keeping tight control of operating costs.

With a modern ferry fleet and only minimal capital investment needed for the foreseeable future, the ferry's solid profitability and cash flow generation makes it an effective and complementary support to the other operations of the FIH group, which have more long term growth potential.

Momart

At Momart, with continued buoyancy in the global art market, the company's strong links with leading auction houses and galleries and the positive momentum achieved in recent years with these key clients should underpin continued steady progress in the commercial sector.

In the museum sector, the company's order bank of large exhibitions at the start of the current year is stronger than in April 2018 and provided effective mechanisms are put in place to ease any Brexit transition by UK and EU governments, solid progress is also expected.

With storage, a hoped for growth in revenue last year was thwarted by the relocation out of London of two large storage clients but with these losses now firmly in the past, the company is focused on building on the success seen last year in recruiting new clients and securing more long term rental income from its state of the art Leyton facility. With 20% of warehouse space still unlet, the opportunity for growth in rental income and bottom line contribution is significant. However, winning storage clients from competitors is a complex and extended sales process and although "new" art is constantly being created and the longer term outlook is positive, a complete fill of these facilities may take two to three years.

Finally, as explained earlier in this review, an element of 2018-19's reported growth at Momart was linked to a release of unneeded provisions of £0.2 million.

In 2019-20 this will not be repeated but although this means a lower starting point and base line for the current year, modest overall growth is still anticipated and with further increases in contribution linked to filling storage in the medium term, the prospects for Momart remain attractive.

Group Strategy

In recent years the Group has committed time and resources to seek out strategic acquisitions of new businesses to increase the scale of the Group and to enhance its appeal to investors.

Following a strategic review of the opportunities facing the Group in early 2019, the board has recalibrated its plans based on the significant potential for medium term growth which is now perceived in the Falkland Islands and also at Momart. Although the Group will still review opportunities for investment by means of selective acquisitions, the immediate focus will be based on maximising value from the Group's existing operations.

It has long been understood that with its unique position in the Islands as a major provider of services to the local community, that FIC would benefit from the growth in the Falklands' economy that would result if plans were progressed to develop oil production from the offshore oil fields, including Sea Lion in the North Falklands basin. With the development of Sea Lion still in prospect this opportunity remains very real.

Looking beyond oil, following recent public pronouncements by the Falklands' government and the UK Ministry of Defence it is now clear that there is significant growth potential in areas that are not related to the extraction of hydrocarbons. The Falkland Islands' government's public infrastructure and housing plans and the publicly announced intention by the UK government to maintain and modernise the fabric of the Mount Pleasant military base over the long term will create major opportunities for local businesses including FIC. In addition the recent agreement with Argentina to secure a new commercial mid-week flight into the Islands offers the prospect of more friendly relations with a previously hostile neighbour and most importantly thereby opens up the potential for the long term development of land based tourism.

Taken together, these opportunities offer real growth potential over the long term for FIC and the FIH group, whose local presence combined with access to UK capital markets, make it uniquely placed to channel investment into the Islands.

In addition to the enhanced growth prospects in the Falklands, the Group's fine art handling business, Momart, offers scope for further growth in the medium term and the recent acquisition of the freehold property in Leyton has further underpinned the value of this market leading business.

To support and help deliver the Group's medium term plans for growth, further selective strengthening of the operating management in Momart and FIC will be undertaken during the year.

With the Group's activities further supplemented by the cash generating capability of PHFC the Board believe the Group is in a good place to produce steady and sustainable growth over the medium term which we believe will provide shareholders with attractive investment returns and a consequent increase in shareholder value.

With a healthy balance sheet and improved prospects for growth not dependent solely on the development of oil in the Falklands, the board looks forward to delivering a steady and sustainable growth in earnings and shareholder value over the medium term.

John Foster

Chief Executive

11 June 2019

Financial Review

Revenue and Pre Tax profit

Group revenue fell slightly by 3.0% to £42.5 million, and Profit Before Tax increased 17.1% to £3.9 million (2018: £3.3 million) boosted by continued growth at Momart and FIC, offset by a decline at PHFC and the absence of any exceptional costs.

Underlying Operating Profit

Underlying operating profit increased 19.9% to £4.4 million (2018: £3.7 million).

Non-trading items

There were no non-trading items in the year. In the prior year there was a small gain of £0.06 million on the sale of surplus machinery and parts at PHFC.

Net financing costs

The Group's net financing costs increased by £0.1 million to £0.5 million due to the loan drawn down in December 2018 to fund the Leyton property purchase.

Underlying and Reported pre-tax profit

With no non-trading items in the current year, the Group reported underlying pre-tax profits of £3.9 million, 19.3% up on the prior year, (2018: £3.2 million). Reported Profit Before Tax for the Group increased by 17.1% to £3.9 million (2018: £3.3 million).

Taxation

The Group pays corporation tax on its UK earnings at 19% and on earnings in the Falkland Islands at 26%. The Falkland Islands Company Limited, which is resident in both jurisdictions, has been granted a foreign branch exemption, and now pays all its corporation tax in the Falkland Islands and no longer pays UK corporation tax. As a result, FIC enjoys the full benefit of the tax deductibility in the Falkland Islands of expenditure on commercial and industrial buildings. In 2018-19 the effective blended tax rate for the Group was 21.4% and In the prior year, the effective blended rate was 23.7%.

Earnings per share

Fully diluted Earnings per Share ("EPS") derived from underlying profits, increased to 24.1 pence (2018:19.7 pence), due to the rise in underlying profit before tax.

Balance sheet

The Group's balancesheet remains strong. Total net assets increased to £44.6 million from £41.7 million in the prior year. Retained earnings increased by £2.7 million to £24.6 million (2018: £21.9 million) after payment of dividends totalling £0.6 million and after providing for corporation tax of £0.8 million. Opening reserves were restated and increased by £0.2 million under the new accounting standard, IFRS 15 which requires the immediate recognition of insurance broking commission. There was no material impact on current year profits as a result of this change in policy, and bank borrowings increased to £12.8 million (2018: £3.3 million), as a result of the £10.0 million short term loan drawn down to fund the £19.6 million warehouse purchase, and the Group's cash balances fell to £6.2 million (2018: £17.0 million).

The carrying value of intangible assets at £11.8 million is unchanged from the position at 31 March 2018 and no further amortisation charges to goodwill or the Momart brand name are planned.

The net book value of property, plant and equipment increased by £19.9 million to £38.7 million (2018: £18.8 million) after capital investment of £21.1 million including the £19.6 million property purchase, offset against a £1.3 million depreciation charge in the year, and some small disposals, mainly the sales of ex-hire vehicles in the Falklands.

The Group had 54 completed investment properties at 31 March 2019, comprising commercial and residential properties in the Falkland Islands, which are held for rental, together with approximately 400 acres of land in and around Stanley. This includes 18 acres for industrial development and 25 acres of prime mixed-use land. The 54 investment properties available for rental include 44 investment properties, which are mainly houses in Stanley and ten mobile homes, which are rented to staff, together with one flat at the Mount Pleasant military base. Ten properties were under construction at 31 March 2019, and sites had been cleared ready for the construction of ten further properties at the year end. The net book value of the investment properties and undeveloped land of £5.2 million (2018: £4.0 million) has been reviewed by the directors resident in the Falkland Islands and at 31 March 2019 the fair value of this property portfolio, including undeveloped land, was estimated at £8.7 million (2018: £7.4 million), an uplift of £3.5 million on net book value. Investment properties had an estimated value of £6.5 million (2018: £5.2 million) and the value of FIC's 700 acres of undeveloped land was estimated at £2.2 million (2018: £2.2 million).

Deferred tax assets relating to future pension liabilities stood at £0.7 million (2018: £0.7 million). These balances relate to deferred tax benefit of expected future pension payments in the FIC unfunded scheme calculated by applying the 26% Falklands' tax rate to the pension liability. The deferred tax asset decreased very slightly in line with the fall in the pension liability due to the increase in the discount rate.

Inventories, which largely represent stock held for resale and work in progress in the Falkland Islands, were increased by £1.2 million to £5.8 million at 31 March 2019 (2018: £4.6 million), due to the increase in house building stock.

Trade and Other Receivables increased slightly to £7.8 million from £7.4 million at 31 March 2018.

As a result of the £19.6 million property purchase, which was only partly funded by a £10.0 million loan, the Group's cash balances fell to £6.2 million (2018: £17.0 million), and bank borrowings increased to £12.8 million from £3.8 million.

Outstanding finance lease liabilities totalled £5.0 million (2018: £4.9 million). £4.7 million (2018: £4.7 million) of the finance lease balance is in respect of the 50 year lease from Gosport Borough Council for the Gosport Pontoon, which runs until June 2061.

In common with most large UK companies, the Group pays most of its corporation tax by means of payments on account. Residual corporation tax due for payment within the next 12 months is £0.4 million (2018: £0.3 million) as £0.2 million had been paid by the year end in respect of the corporation tax charge for the year to 31 March 2019.

Trade and other payables decreased by £1.1 million to £9.6 million at 31 March 2019 (2018: £10.7 million).

At 31 March 2019, the liability due in respect of the Group's defined benefit pension scheme in the Falkland Islands was £2.8 million (2018: £2.8 million). The pension scheme in the Falklands, which was closed to new entrants in 1988 and to further accrual in 2007, is unfunded and liabilities are met from operating cash flow. A decrease in the liability has been fed through reserves in accordance with IAS 19. Eleven former employees receive a pension from the scheme at 31 March 2019 and there are three deferred members. 

The Group's deferred tax liabilities, excluding the pension asset at 31 March 2019, were £2.5 million and increased by £0.2 million from the prior year (2018: £2.3 million). £2.4 million of this balance arises on property, plant and equipment, and is principally due to accelerated capital allowances on the new vessel in PHFC and also to properties in the Falklands, where capital allowances of 10% are available on the majority of properties. With such assets depreciated over 20-50 years, a temporary difference arises, on which deferred tax is provided.

Cash flows

Net cash flow from operating activities decreased to £3.0 million (2018: £4.2 million) due to an increase in the working capital balances in the current year.

The Group's operating cash flow can be summarised as follows:

Financing outflows

During the year the Group incurred £22.4 million of capital expenditure (2018: £0.8 million), including £19.6 million of expenditure on the Leyton warehouses and £1.3 million spent on the purchase of one new rental property, and the construction of eight flats and five houses at Fitzroy Road and John Street in the Falklands. At Momart, the £0.4 million of capital expenditure included the purchase of one large truck and three sprinter vans.

Scheduled loan repayments of £1.0 million (2018: £0.9 million) were made during the year, including £0.6 million of principal repaid and £0.4 million of bank and finance lease interest. This includes the £0.3 million of repayments to Gosport Council on the 50 year pontoon finance lease, £0.1 million of repayments on hire purchase leases for trucks at Momart and £0.6 million repayments for the five bank loans. A £10.0 million short term loan was drawn down to fund the Leyton property acquisition, and this will be refinanced with a ten year mortgage within the next 12 months.

John Foster

Chief Executive

11 June 2019

Risk Management and Principal risks

The Board is ultimately responsible for setting the Group's risk appetite and for overseeing the effective management of risk. The Group faces a diverse range of risks and uncertainties which could have an adverse effect on results if not managed. The principal risks facing the Group have been identified by the Board and the mitigating actions agreed with senior management and are discussed in the following table:

Board of Directors and Secretary

Robin Williams, Non-executive Chairman

Robin joined the Board in September 2017. He has a wide breadth of corporate experience, gained at a range of quoted and private businesses as well as from an early career in investment banking. He is currently Chairman at Xaar plc, the FTSE listed Cambridge based digital inkjet leader, also at Keystone Law Group plc and Stirling Industries plc and a non-executive director at van Elle Plc. Robin qualified as an accountant in 1982 after graduating in engineering science from the University of Oxford. He worked in corporate finance for ten years at investment banks including Salomon Brothers and UBS before leaving the City in 1992 to co-found the packaging business, Britton Group plc. In 1998, he moved to Hepworth plc, the building materials group, and since 2004 he has focused on non-executive work in public, private and private equity backed businesses. Robin is a member of the Audit and Remuneration Committees and is Chairman of the Nominations Committee.

John Foster, Chief Executive

John joined the Board in 2005. He is a chartered accountant and previously served as Finance Director on a number of fully listed UK companies. Prior to this, John spent three years in charge of acquisitions and disposals at FTSE 250 company, Ascot plc, and before that worked for nine years as a venture capitalist with a leading investment bank in the City.

Jeremy Brade, Non-executive Director

Jeremy joined the Board in 2009, he is a Director of Harwood Capital Management where he is the senior private equity partner. Jeremy has served on the boards of several private and publicly listed international companies. Formerly Jeremy was a diplomat in the Foreign and Commonwealth Office, and before that an Army officer. Jeremy is a member of the Nominations and Remuneration Committees and is Chairman of the Audit Committee.

Robert Johnston, Non-executive Director

Robert joined the Board on 13 June 2017; he is an experienced non-executive director and investment professional and has served on the boards of several quoted companies in both North America, Ireland and in the UK, including Fyffes PLC, Produce Investments plc and Gas Natural Holdings. He is currently on the boards of Colabor Group Inc, Corning Natural Gas Holding Corp, Supremex Inc, and Circa Enterprises Inc. Robert is a member of the Nominations and Audit Committees and is Chairman of the Remuneration Committee.

Robert represents the Company's largest shareholder, "The Article 6 Marital Trust, created under the First Amended and Restated Jerry Zucker Revocable Trust dated 4-2-07", which has a beneficial holding of 3,596,553 ordinary Shares, representing 28.77% of the Company's issued share capital.

Carol Bishop, Company Secretary

Carol Bishop joined the Company in December 2011. She is a chartered accountant and has previously worked for London Mining plc, an AIM listed company as Group reporting manager. Prior to this she spent three years at Hanson plc and prior to that, six years at the Peninsular and Oriental Steam Navigation Company.

Corporate Governance Statement

Dear Shareholder,

As Chairman of the Company, I am responsible for leading the Board in applying good corporate governance and the Board is committed to good governance across the business, both at an executive level and throughout its operations. The Board strives to ensure that the objectives of the business, the principles and risks are underpinned by values of good governance throughout the organisation.

The FIH group plc Board values include embedding a culture of ethics and integrity, the adoption of higher governance standards, to maintain its reputation by fostering good relationships with employees, shareholders and other stakeholders to deliver long term business success.

In 2018 the AIM Rules for Companies were updated to acknowledge a change in investor expectations toward corporate governance for companies admitted to trading on AIM, and the Board, took the decision to adopt the revised Quoted Companies Alliance Corporate Governance Code 2018 (the "QCA Code") which they believe is the most appropriate recognised governance code for the Company.

The QCA Code has ten principles of corporate governance that the Company has committed to apply within the foundations of the business, which are discussed in detail on the Company's website www.fihplc.com in the Corporate Governance section.

The Board is aware of the need to protect the interests of minority shareholders, and balancing those interests with those of any more substantial shareholders, including those interests of the Jerry Zucker Revocable Trust, a major shareholder holding nearly 29% of the issued share capital and voting rights, which are represented on the Board by the non-executive director, Robert Johnston.

Beyond the Annual General Meeting, the Chief Executive and the Chairman offer to meet with all significant shareholders after the release of the half year and full year results. The Chief Executive and the Chairman are the primary points of contact for the shareholders and are available to answer queries over the phone or via email from shareholders throughout the year.

Business model and strategy

The Group's strategy is set out on page 4 of the Chief Executive's Strategic Report, which sets out in a detail the recalibration by of the board of its plans, based on the significant potential for medium term growth which is now perceived in the Falkland Islands and also at Momart, following a strategic review by the Board of the opportunities facing the Group in early 2019. Although the Group will still review opportunities for investment by means of selective acquisitions, the immediate focus will be based on maximising value from the Group's existing operations.

Risk Management

The Board has overall responsibility for the systems of risk management and internal control and for reviewing their effectiveness. The internal controls are designed to manage rather than eliminate risk and provide reasonable but not absolute assurance against material misstatement or loss. The key risks of the Group are presented on pages 20 to 22.

The Board has determined that an internal audit function is not required due to the small size of the Group and its administrative function and the high level of director review and authorisation of transactions.

Director independence

The Board considers itself sufficiently independent. The QCA Code suggests that a board should have at least two independent non-executive directors. The Board has considered each non-executive director's length of service and interests in the share capital of the Group and consider that Mr Williams, Mr Brade and Mr Johnston are independent of the executive management and free from any undue extraneous influences which might otherwise affect their judgement. All board members are fully aware of their fiduciary duty under company law and consequently seek at all times to act in the best interests of the Company as a whole.

Whilst the Company is guided by the provisions of the Code in respect of the independence of directors, it gives regard to the overall effectiveness and independence of the contribution made by directors to the Board in considering their independence, and does not consider a director's period of service in isolation to determine this independence. The Board acknowledge that Robert Johnston, who joined the Board on 13 June 2017, represents the Company's largest shareholder, "The Article 6 Marital Trust, created under the First Amended and Restated Jerry Zucker Revocable Trust dated 4-2-07", (the "Zucker Trust"), which has a beneficial holding of 3,596,553 ordinary Shares, representing 29% of the Company's issued share capital. The Board has considered Mr Johnston's independence, given his representation of this shareholding and all board members have satisfied themselves that they consider Mr Johnston to be independent. This is as a consequence of (i) the fact that Mr Johnston has considerable international investment expertise, and (ii) that the shareholding of his employer in FIH represents only a small part of its wider portfolio, but nonetheless aligns him with the interests of FIH shareholders generally. It is also relevant that Mr Johnston has recently joined the Board of FIH and does not have long established relations with any of the Group's management, external advisers or businesses.

The Board also acknowledges that Jeremy Brade, who joined the Board on 9 September 2009, will have been a non-executive director for ten years in 2019 and that a succession plan for him should be set in place in due course. All Directors retire by rotation and are subject to election by shareholders at least once every three years. Any Non-executive Directors who are considered by the Board to be independent but who have served on the Board for at least nine years will be subject to annual re-election. In 2019 this applies to Jeremy Brade.

Time commitment of directors

John Foster, Chief Executive of the company, is the only full time executive director. Robin Williams, Jeremy Brade and Robert Johnston have all been appointed on service contracts for an initial term of three years. Overall it is anticipated that non-executive directors spend 10-15 days a year after the initial induction, which includes a trip to the Group's subsidiary in the Falkland Islands. All directors are expected to attend all board meetings, the Annual General Meeting and any extraordinary general meetings. Non-executive directors are expected to devote additional time in respect of any ad hoc matters, such as the Leyton property acquisition, the consideration of any business acquisitions and the attempted takeover in early 2017.

Board Meetings

The Board meets frequently throughout the year to consider strategy, corporate governance matters, and performance. Prior to each meeting, all Directors receive appropriate and timely information. Since the last annual report was published on 12 June 2018 there have been eight Board meetings, Robin Williams, John Foster and Robert Johnston have attended all meetings. Jeremy Brade attended seven of the eight.

There have been two Remuneration Committee meetings in the past 12 months since 12 June 2018 and two Audit Committee meetings, which were attended by all members of each committee.

Board directors

The Board comprises Robin Williams, the non-executive chairman, John Foster, the full time Chief executive and two other non-executives, Jeremy Brade and Robert Johnston. Further details are set out in page 23.

Skills and qualities of each director

Following careers in corporate finance advisory and as an executive director in FTSE 250 public companies, I have focused on non-executive work in public, private and private equity backed businesses and have a deep experience in the public markets and in private companies, in addition to management and operational experience. I have also had significant experience with family and Government owned companies. My experience at director level since early in my career has given me a good background in strategy and relationships with advisers and investors, in addition to exposure to transaction planning and execution. My financial background provides the experience required as chairman of the Group to review and challenge decisions and opportunities.

John Foster is a Chartered Accountant and previously served as Group Finance Director for Macro 4 plc (2000 - 2003) and Hamleys plc (1998 - 2000). Prior to joining Hamleys, he spent three years as Corporate Finance Director of Ascot plc, an industrial holding company with a turnover of £300 million and over 1,600 employees. Before becoming a plc director, John spent 11 years working in Private Equity for a leading UK investment bank following training and CA qualification with Arthur Andersen in 1983. John's finance background, together with his strong analytical skills developed during his nine years working as a venture capitalist with a leading investment bank is well fitted to his commitment to perform both the Chief Executive and Finance Director roles at FIH group plc.

Jeremy Brade has been investing in UK private equity for over 16 years. He has led several successful acquisitions and public-to-private transactions. Previously Jeremy was with the Foreign and Commonwealth Office (FCO) where he served at the British High Commission in New Delhi and as the representative of Cyrus Vance and Lord Owen at the International Conference on the Former Yugoslavia, and prior to joining the diplomatic service, Jeremy was an army officer. Using his experience of acquisitions and various corporate transactions through Harwood Capital Management Limited, Jeremy brings a wealth of knowledge and expertise on restructuring, funding and transforming companies.

Robert Johnston is an experienced non-executive director and investment professional and has served on the boards of several quoted companies in both North America and in UK, including Fyffes PLC and Supremex, Inc. Robert Johnston has been the Chief Strategy Officer and Executive Vice President at The InterTech Group, Inc. and has over 20 years of experience in various financial and strategic roles. He is the principal representative of the Jerry Zucker Revocable Trust. Robert brings experience on many transactions at both the corporate and asset level, including debt and equity, and his experience in the banking sector will prove invaluable to developing the Group.

Details of how each director keeps their skill set up to date

The Board as a whole is kept abreast by the Company's lawyers with developments of governance, and by WH Ireland, the Company's Nominated Adviser of updates to AIM regulations. The Group's auditors KPMG meet with the Board as a whole twice a year and keep the Board updated with any regulatory changes in finance and accounting.

Any external advice sought by the Board

During the year the Board sought advice from Jones Lang LaSalle Limited, a commercial real estate firm, on the property purchase at Leyton. Advice was also sought from third parties on reviewing a number of potential acquisitions in 2018. KPMG provided advice on the new accounting standards and the control environments at the subsidiaries and the Company's lawyers advised on a number of areas, including Modern Slavery, Data protection, and the Leyton acquisition.

Internal advisory responsibilities

The company secretary helps keep the Board up to date on areas of new governance and liaises with the Nominated Adviser on areas of AIM requirements, and with the Company's lawyers on areas such as Modern Slavery, Data Protection and other legal matters. She also liaises with the Company's tax advisers with regards to tax matters and with the Group's auditors with respect to the application of current and new accounting standards, and on the status on compliance generally around the Group. The company secretary has frequent communication with the chief executive and access to the Chairman, and is available to other members of the Board as and when required.

Board performance effectiveness

The directors have considered the effectiveness of the Board, committees and individual performance, and this was discussed by the Board in the April 2019 meeting. The Board meets formally five times a year with update board meetings held in between these meetings as required. There is a strong flow of communication between the directors, in particular the relationship between the Chief Executive and Chairman, who have regular additional calls or meetings. The agenda for the formal meetings are set with the consultation of both the Chief Executive and Chairman, and papers are circulated a week in advance of the meetings, giving directors ample time to review the documentation and enabling an effective meeting. Resulting actions are tracked as matters arising and followed up at subsequent Board meetings to ensure that they have been addressed.

Board performance evaluation

The Chairman conducted an effectiveness review by means of a questionnaire, with comment on the Chairman passed to the Senior Independent Director. Comments were also made on non-executive directors and the Committee's effectiveness. The results of this exercise were reviewed and individual feedback was provided for each of the Directors, and the Board as a whole. Feedback was provided by the Chairman in respect of assessments of each of the other Directors and the Board as a whole, and by the Senior Independent Director to the Chairman himself.

The outcome of the appraisal is that the Board has been effective in discharging its duties during the year. The review was conducted in March 2019 and discussed at the April 2019 Board meeting, with useful conclusions in the areas of major shareholder representation in the Board, how the NEDs interact with only one executive on the Board, the development of strategy and the presentation of recommendations to the Board. 

Robin Williams

Non-Executive Chairman

11 June 2019

Audit Committee Report

The Audit Committee comprises the three non-executive directors; Jeremy Brade, Robin Williams and Robert Johnston, and is chaired by Jeremy Brade. The Audit Committee reviews the external audit activities, monitors compliance with statutory requirements for financial reporting and reviews the half year and annual financial statements before they are presented to the Board for approval. The Audit Committee also keeps under review the scope and results of the audit and its cost effectiveness and the independence and objectivity of the Auditor and the effectiveness of the Group's internal control systems.

The Committee meets twice a year to review both the year end and half year results and KPMG, the Company's auditors, attend both of these meetings in person. It is the Audit Committee's role to provide formal and transparent arrangements, to consider how to apply financial reporting under IFRS, the Companies Act 2006, and the requirements of the QCA Code and also to maintain an appropriate relationship with the independent auditor of the Group.

The current terms of reference of the Audit Committee were reviewed and updated in January 2018. In making its recommendation that the financial statements be approved by the Board, the Audit Committee has taken account of the following significant issues and judgement areas:

Areas of judgement

(i) Going concern

In the year ended 31 March 2019 a key assumption is that in the near future the Group intends to draw down a ten year mortgage on its newly acquired freehold property which will add a further £4 million to the Group's cash resources. This will enable the short term £10.0 million loan to be repaid. The Group has received a formal offer letter with the approved terms of this ten-year mortgage from the Group's bank.

(ii) Fixed assets recognition

In the year ended 31 March 2019, the Group purchased five warehouses which have been leased by its art logistics subsidiary, Momart for £19.6 million including stamp duty and acquisition costs. After detailed discussion with our advisers and consideration of the ages, states and rebuild costs of the properties, together with the location of the premises, £11.5 million of the purchase price has been allocated to land, which is not depreciated and £8.1 million has been allocated to property, which is being depreciated over up to 39 years, which the directors consider to be the remaining useful life of the warehouses.

(iii) Defined benefit pension liabilities

A significant degree of estimation is involved in predicting the ultimate benefits payment to pensioners in the Falkland Islands Company defined benefit pension scheme. Actuarial assumptions have been used to value the defined benefit pension liability (see note 23). Management have selected these assumptions from a range of possible options following consultations with independent actuarial advisers. The actuarial valuation includes estimates about discount rates and mortality rates, and the long-term nature of these plans, make the estimates subject to significant uncertainties. There are eleven pensioners currently receiving a monthly pension under the scheme and three deferred members.

(iv) Impairment testing

Impairment tests have been undertaken with respect to intangible assets (see note 11 for further details) using commercial judgement and a number of assumptions and estimates have been made to support their carrying amounts. In determining the fair value of intangible assets recognised on the acquisition of Momart International Limited management acted after consultation with independent intangible asset valuation advisers. The intangible assets which have not been fully amortised at 31 March 2019 include goodwill and the brand name, as goodwill is not subject to amortisation but to at least annual impairment testing, and the Momart brand name was deemed to have an indefinite life, and amortisation was ceased from 1 October 2013.

(v) New accounting standards

In the year commencing 1 April 2018, the Group has adopted IFRS 15 'Revenue from Contracts with Customers' for the first time with an impact of £160,000 to reserves at 1 April 2018. IFRS 16 'Leases', will apply from 1 April 2019, and it has been assessed that its expected impact will be to increase assets by £2.3 million and liabilities by £2.5 million, as the Group has elected to apply the modified retrospective approach. 

(vi) Stock provisions

An inventory provision is booked when the realisable value from sale of the inventory is estimated to be lower than the inventory carrying value, or where the stock is slow-moving, obsolete or damaged, and is therefore unlikely to be sold. The quantification of the inventory provision requires the use of estimates and judgements and if actual future demand were to be lower or higher than estimated, the potential amendments to the provisions could have a material effect on the results of the Group.

Independent auditor

The independent auditor (KPMG LLP) was appointed in 1997. The current audit engagement partner has been in place since the audit for the year ended 31 March 2016 and will step down after the audit for the year ended 31 March 2020. The analysis of the auditor's remuneration is shown in the table on page 61. Total non-audit fees paid to KPMG were less than £15,000 in both the current and prior year. Tax advisory services are provided by RSM UK Tax and Accounting Limited, and where possible, accounting services are provided by in-house support to the subsidiaries of the Group, by the Group Financial Controller and Company Secretary. The Audit Committee is responsible for ensuring that the Group's risks are understood, managed and mitigated as far as practicable.

Jeremy Brade

Independent Non-executive Director

11 June 2019

Directors' Report

The Directors present their annual report and the financial statements for the Company and for the Group for the year ended 31 March 2019.

Results and dividend

The Group's result for the year is set out in the Group Income Statement. The Group profit for the year after taxation amounted to £3,031,000 (2018: £2,517,000). Basic earnings per share on underlying profits were 24.4 pence (2018: 19.9 pence).

The Directors recommend a final dividend of 3.35 pence per share, which, if approved by shareholders at the forthcoming Annual General Meeting, will be paid on 20 September 2019 to shareholders on the register at close of business on 16 August 2019. Together with the interim dividend of 1.65 pence paid in January 2019 the proposed final dividend will take the total dividend for the year to 31 March 2019 to 5.0 pence per share (2018: 4.5 pence per share). The proposed final dividend has not been included in creditors as it was not approved before the year end.

Principal activities

The business of the Group during the year ended 31 March 2019 was general trading in the Falkland Islands, the operation of a passenger ferry across Portsmouth Harbour and the provision of international arts logistics and storage services. The principal activities of the Group are discussed in more detail in the Chief Executive's Strategic Report and should be considered as part of the Directors' Report for the purposes of the requirements of the enhanced Directors' Report guidance.

The principal activity of the Company is that of a holding company.

Directors

There have been no changes to the Board during the year.

Directors' interests

The interests of the Directors in the issued shares and share options over the shares of the Company are set out below under the heading 'Directors' interests in shares'. During the year no Director had an interest in any significant contract relating to the business of the Company or its subsidiaries other than his own service contract.

Health and safety

The Group is committed to the health, safety and welfare of its employees and third parties who may be affected by the Group's operations. The focus of the Group's effort is to prevent accidents and incidents occurring by identifying risks and employing appropriate control strategies. This is supplemented by a policy of investigating and recording all incidents.

Employees

The Board is aware of the importance of good relationships and communication with employees. Where appropriate, employees are consulted about matters which affect the progress of the Group and which are of interest and concern to them as employees. Within this framework, emphasis is placed on developing greater awareness of the financial and economic factors which affect the performance of the Group. Employment policy and practices in the Group are based on non-discrimination and equal opportunity irrespective of age, race, religion, sex, colour and marital status. In particular, the Group recognises its responsibilities towards disabled persons and does not discriminate against them in terms of job offers, training or career development and prospects. If an existing employee were to become disabled during the course of employment, every practical effort would be made to retain the employee's services with whatever retraining is appropriate. The Group's pension arrangements for employees are summarised in note 23.

Payments to suppliers

The policy of the Company and each of its trading subsidiaries, in relation to all its suppliers, is to settle the terms of payment when agreeing the terms of the transaction and to abide by those terms, provided that it is satisfied that the supplier has provided the goods or services in accordance with agreed terms and conditions. The Group does not follow any code or standard payment practice. As a holding company, the Company had no trade creditors at either 31 March 2019 or 31 March 2018.

Share capital and substantial interests in shares

During the year, 67,719 shares were issued following the exercise of options by employees. Further information about the Company's share capital is given in note 25. Details of the Company's executive share option scheme and employee ownership plan can be found in note 24.

The Company was been notified of the following interests in 3% or more of the issued ordinary shares of the Company as at 11 June 2019:

Charitable and political donations

Charitable donations made by the Group during the year amounted to £19,268 (2018: £19,095), largely to local community charities in Gosport and the Falkland Islands. There were no political donations in the year (2018: nil).

Disclosure of information to auditor

The Directors who held office at the date of this Directors' Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's auditor is unaware; and each Director has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

Auditor

A resolution proposing the re-appointment of KPMG LLP will be put to shareholders at the Annual General Meeting.

Annual General Meeting

The Company's Annual General Meeting will be held at the London offices of FTI Consulting, 200 Aldersgate, London, EC1A 4HD at 14.00 on 5 September 2019. The Notice of the Annual General Meeting and a description of the special business to be put to the meeting are considered in a separate circular to Shareholders.

Details of Directors' remuneration and emoluments

The remuneration of non-executive Directors consists only of annual fees for their services both as members of the Board and of Committees on which they serve.

An analysis of the remuneration and taxable benefits in kind (excluding share options) provided for and received by each Director during the year to 31 March 2019 and in the preceding year is as follows:

\* The Chief Executive's bonus for the year is normally split into equal parts of deferred shares and cash, with the shares requiring a service condition to remain in employment for up to three years. For the year ended 31 March 2019, John Foster has received a deferred shares award of £34,000, to be issued on 14 June 2019. These deferred shares will be provided at no cost to him in three equal tranches over the next three years.

** From date of appointment

***Until date of resignation

None of the Directors of the Company receive any pension contributions or benefit from any Group pension scheme.

The Chief Executive participates in an annual performance related bonus arrangement, with the potential during the year of earning up to 100% of his salary. The bonuses are subject to the achievements of specified corporate and personal objectives.

Directors' interests in shares

As at 31 March 2019, the share options of executive Directors may be summarised as follows:

The mid-market price of the Company's shares on 31 March 2019 was 275 pence and the range in the year was 273.0 pence to 380.0 pence.

The Directors' options extant at 31 March 2019 totalled 74,301 options granted to the Chief Executive, including 29,751 nil cost options and 44,550 share options granted in 2009 at an exercise price of £2.90. In total these options represented 0.59% of the Company's issued share capital.

The 223,393 options, granted to 35 other employees of the Group including subsidiary directors and senior management, include 104,689 LTIP options granted in March 2018 at a 10 pence exercise price and 118,704 options granted between December 2009 and January 2015, with exercise prices of £2.675 to £3.90.

Under the Company's executive share option scheme, executive Directors and senior executives have been granted options to acquire ordinary shares in the Company after a period of three years from the date of the grant. 163,254 of the outstanding options have been granted at an option price of not less than market value at the date of the grant, and the 104,689 LTIP awards have been granted at an exercise price of 10 pence, the exercise of the LTIP awards is subject to various performance conditions, which have been determined by the remuneration committee after discussion with the Company's advisers. The 29,751 nil cost options granted to the Chief Executive are exercisable at no cost to him, and will vest provided he remains in employment for the required service periods.

In addition to the share options set out above, the interests of the Directors, their immediate families and related trusts in the shares of the Company according to the register kept pursuant to the Companies Act 2006 were as shown below:

*John Foster's shareholding above includes all Shares held in the Company's share incentive plan in which he has a beneficial interest.

** Robert Johnston holds 51,300 shares in his own name, and as he is also the representative of the Company's largest shareholder, "The Article 6 Marital Trust, created under the First Amended and Restated Jerry Zucker Revocable Trust dated 4-2-07", which holds 3,596,553 Shares, Robert Johnston is interested in 3,647,853 Shares in total, representing 29.2 per cent. of the Company's 12,502,137 total voting rights

Share Incentive Plan

In November 2012, the Company implemented an HMRC approved Share Incentive Plan (SIP) available to employees of the Group, which enables UK and Falklands staff to acquire shares in the Company through monthly purchases of up to £150 per month or 10% of salary, whichever is lower. For every three shares purchased by the employee, the Company contributes one free matching share. These shares are placed in trust and if they are left in trust for at least five years, they can be removed free of UK income tax and national insurance contributions. During the year ended 31 March 2019 the Company purchased £600 of matching shares for John Foster.

Statement of Directors' responsibilities in respect of the Annual Report and the Financial Statements

The Directors are responsible for preparing the Annual Report, Strategic Report, Directors' Report, and the Group and Company financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year. Under the AIM Rules of the London Stock Exchange, they are required to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the EU (IFRSs as adopted by the EU) and applicable law and have elected to prepare the Parent Company financial statements on the same basis.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of their profit or loss for that period. In preparing each of the Group and Parent Company financial statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and estimates that are reasonable, relevant and reliable;

· state whether they have been prepared in accordance with IFRSs as adopted by the EU;

· assess the Group and Parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

· use the going concern basis of accounting unless they either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the directors are also responsible for preparing a Strategic Report and a Directors' Report that complies with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Approved by the Board and signed on its behalf by:

Carol Bishop

Company Secretary

11 June 2019

Kenburgh Court

133-137 South Street

Bishop's Stortford

Hertfordshire

CM23 3HX

Independent Auditor's Report to the Members of FIH group plc

1. Our opinion is unmodified

We have audited the financial statements of FIH group plc ("the Company") for the year ended 31 March 2019 which comprise the Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Balance Sheet, Company Balance Sheet, Consolidated Cash Flow Statement, Company Cash Flow Statement, Consolidated Statement of Changes in Shareholders' Equity, Company Statement of Changes in Shareholders' Equity, and the related notes, including the accounting policies in note 1.

In our opinion:

· the financial statements give a true and fair view of the state of the Group's and of the parent Company's affairs as at 31 March 2019 and of the Group's profit for the year then ended;

· the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU);

· the parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006; and

· the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed entities. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion.

2. Key audit matters: our assessment of risks of material misstatement

Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, 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. In arriving at our audit opinion above, the key audit matters, in decreasing order of audit significance, were as follows:

We continue to perform procedures over revenue recognition, including the adoption of IFRS 15. However, given the low level of judgement involved in recognizing revenue, we have not assessed this as one of the most significant risks in our current year audit and, therefore, it is not separately identified in our report this year. 

3. Our application of materiality and an overview of the scope of our audit

Materiality for the Group financial statements as a whole was set at £150,000 (2018: £130,000), determined with reference to a benchmark of Group profit before tax, of which it represents 3.9% (2018: 3.9%).

Materiality for the Parent Company financial statements as a whole, as communicated by the Group audit team, was set at £100,000 (2018: £100,000). This is lower than the materiality we would otherwise have determined with reference to a benchmark of net assets, of which it represents 0.24% (2018: 0.25%).

We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £7,500 (2018: £6,500), in addition to other identified misstatements that warranted reporting on qualitative grounds.

Of the Group's four (2018: twelve) reporting components, we subjected all (2018: all) to full scope audits for Group reporting purposes. The Group team performed the audits of each of the components. The audit was performed using the materiality levels set out opposite, having regard to the mix of size and risk profile of the Group across the components.

The components within the scope of our work accounted for the percentages illustrated as follows:

4. We have nothing to report on going concern

The Directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Company or the Group or to cease their operations and as they have concluded that the Company's and the Group's financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over their ability to continue as a going concern for at least a year from the date of approval of the financial statements ("the going concern period").

Our responsibility is to conclude on the appropriateness of the Directors' conclusions and, had there been a material uncertainty related to going concern, to make reference to that in this audit report. However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the absence of reference to a material uncertainty in this auditor's report is not a guarantee that the Group or the Company will continue in operation.

In our evaluation of the Directors' conclusions, we considered the inherent risks to the Group's and Company's business model, including the impact of Brexit, and analysed how those risks might affect the Group's and Company's financial resources or ability to continue operations over the going concern period.

The risk that we considered most likely to adversely affect the Group's and Company's available financial resources over this period was the availability of funding to repay the short-term loan facility that was taken out to purchase the Momart storage property in December 2018, which is due for repayment in September 2019.

As this was a risk that could potentially cast significant doubt on the Group's and the Company's ability to continue as a going concern, we considered evidence available from the Group's bankers, including the terms of a credit approved mortgage offer and evaluated whether the Directors were able to commit to such a facility and comply with the covenants associated with it. We also considered less predictable but realistic second order impacts, such as variability in cash flows and the impact of Brexit.

Based on this work, we are required to report to you if we have concluded that the use of the going concern basis of accounting is inappropriate or there is an undisclosed material uncertainty that may cast significant doubt over the use of that basis for a period of at least a year from the date of approval of the financial statements.

We have nothing to report in these respects, and we did not identify going concern as a key audit matter.

5. We have nothing to report on the other information in the Annual Report

The directors are responsible for the other information presented in the Annual Report together with the financial statements. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work we have not identified material misstatements in the other information.

Strategic report and directors' report

Based solely on our work on the other information:

· we have not identified material misstatements in the strategic report and the directors' report;

· in our opinion the information given in those reports for the financial year is consistent with the financial statements; and

· in our opinion those reports have been prepared in accordance with the Companies Act 2006.

6. We have nothing to report on the other matters on which we are required to report by exception

Under the Companies Act 2006, we are required to report to you if, in our opinion:

· adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or

· the Parent Company financial statements are not in agreement with the accounting records andreturns; or

· certain disclosures of directors' remuneration specified by law are not made; or

· we have not received all the information and explanations we require for our audit.

We have nothing to report in these respects.

7. Respective responsibilities

Directors' responsibilities 

As explained more fully in their statement set out on page 33, the directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group and Parent Company'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 they either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities

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 our opinion in an auditor's report. Reasonable assurance is a high level of assurance, but does not 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 aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

A fuller description of our responsibilities is provided on the FRC's website at www.frc.org.uk/auditorsresponsibilities.

8. The purpose of our audit work and to whom we owe our responsibilities

This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the 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 Company and the Company's members, as a body, for our audit work, for this report, or for the opinions we have formed.

Craig Parkin

(Senior Statutory Auditor)

For and on behalf of KPMG LLP, Statutory Auditor

Chartered Accountants

St Nicholas House

Park Row

Nottingham

NG1 6FQ

11 June 2019

* The Group's results are being reported under IFRS9 and IFRS15 for the first time in the year to 31 March 2019 following the mandatory adoption of the standards from 1 April 2018. In accordance with the transitional provisions of the standards, comparatives have not been restated. See Note 1.  

These financial statements were approved by the Board of Directors on 11 June 2019 and were signed on its behalf by:

J L Foster

Director

As permitted by Section 408 of the Companies Act 2006, a separate profit and loss account of the Parent Company has not been presented. The Parent Company's profit for the financial year is £1,716,000 (2018: £1,220,000).

These financial statements were approved by the Board of Directors on 11 June 2019 and were signed on its behalf by:

J L Foster

Director

Registered company number: 03416346