Trustees' Report and Accounts - Canal & River Trust

The Publication Data items denoted with an * comprise the Relevant Standards for the
purpose of the conditional element of the Defra Grant. The information in the table above
demonstrates that the Relevant Standards have been met for the period to 31 March 2013
and accordingly the Trust will apply for payment of the conditional portion of the Defra Grant
funding for the year ending 31 March 2014 which comprises £3m out of a total of £39m.
Protected Endowment and
Investment Strategy
The Protected Endowment is defined under the Grant Agreement and comprises all the
investment assets and liabilities of the Trust such as investment properties, investments
in subsidiary companies, financial investments, cash available for investment, protected
operational buildings, net of any liabilities that are effectively secured on, or due for
payment from, the assets in the Protected Endowment.
The Trustees have approved an investment strategy that specifies property investments in
the UK as the main asset class but allows up to 40% of the portfolio to be invested in a
more diverse range of asset classes such as equities, absolute return funds, bonds and
private equity. The target nominal total return is 8% per annum subject to the requirement
that the capital value of the assets achieves a minimum growth of UK RPI plus 1% per
annum over the medium term. The objective is to provide recurring income whilst growing
the value of the portfolio to ensure that, over the medium term, income and capital can
grow in real terms. In risk terms, whilst the Trust is able to tolerate modest short term
volatility, the main objective of the investment strategy is to avoid permanent loss of
value in the portfolio.
Total return from the investment portfolio for the 9 month period ended 31 March 2013
was 4.5%. This compares favourably with the IPD UK all property index where total
return was 2.7% for the same period.
The UK commercial investment property market as a whole saw capital values decline,
especially outside of London, whereas the Trust’s portfolio saw a modest capital
appreciation due to higher weighting towards London and the South, lower retail
exposure and a higher proportion of secure long term ground rent investments.
Financial Strategy
The long-term financial strategy of the Trust is to break even on General Reserve funds
such that the net income and generated funds are applied in full to the charitable purpose.
It is not intended to accumulate an increasing balance of reserves within the General Fund.
The Protected Endowment and the Waterways Infrastructure Trust provide for all income
arising from the endowment and the trust assets to be applied to the charitable purpose
of maintaining the waterways for public benefit. The financial strategy for the Trust is to
maximise net income from all sources and increase the contribution to the Trust’s activities
through volunteering and local engagement.
The trustees have a reasonable expectation that the Trust will be able to comply with the
conditional grant criteria in the Defra Funding agreement and that a further £10m of total
grant funds will become available to the Trust from 2015/16 onwards. To provide a smooth
transition from the current levels of funding to the expected higher levels in 2015/16 the
Trust has adopted a policy of incurring small deficits on the General Fund each year until
2015/16. This will allow expenditure on the charitable purpose to be increased from the
level in 2012/13 towards the higher levels predicted from 2015/16 onwards.
Trustees’ Report & Accounts 29