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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Sme Loan Fd | LSE:SMEF | London | Ordinary Share | GB00BYMK5S87 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 98.25 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From May 2019 to May 2024
TIDMSMEF
RNS Number : 6095M
SME Loan Fund PLC (The)
17 October 2016
17 October 2016
The SME Loan Fund plc
("SMEF", the "Company" or "Parent Company" with its subsidiaries (together) the "Group")
Annual Financial Report
For the period from 13 July 2015 (date of incorporation) to 30 June 2016
Hot Features
Premium
A copy of the Company's Annual Report and Consolidated
Financial Statements for the period ended 30 June
2016 will shortly be available to view and download
from the Company's website, www.thesmeloanfund.com.
Neither the contents of the Company's website nor
the contents of any website accessible from hyperlinks
on the Company's website (or any other website)
is incorporated into or forms part of this announcement.
Enquiries to:
Richard Hills, Chairman c/o Cantor Fitzgerald Europe
Amberton Asset Management tel: +44 (0)1481 708 280
Limited
Graham Glass, Managing
Director
graham.glass@ambertonam.com
Cantor Fitzgerald Europe tel: +44 (0)20 7894 8229
Sue Inglis / Ben Heatley
www.thesmeloanfund.com
The following text is extracted from the Annual
Report and Consolidated Financial Statements of
the Company for the period ended 30 June 2016.
Strategic Report
Highlights
30 June
2016
Net assets [1] GBP53,400,000
NAV per Ordinary Share 101.31p
Share price at 30 June 2016 89.75p
Discount to NAV 11.4%
Profit for the period GBP3,655,000
Dividend per share declared in respect of
the period [2] 4.95p
Total return per Ordinary Share (based on
NAV) +7.1%
Total return per Ordinary Share (based on
share price) -6.5%
Ordinary Shares in issue 52,660,350
[1] In addition to the Ordinary Shares in issue, 50,000
Management Shares of GBP1 each are in issue.
[2] Only 3.75p of the 4.95p per Ordinary Share dividends
declared out of the profits for the period ended
30 June 2016 had been deducted from the 30 June
2016 NAV as the eighth and ninth dividends of
0.6p per Ordinary Share each had not been provided
for at 30 June 2016 as, in accordance with IFRS,
they were not deemed to be liabilities of the
Company at that date.
On 24 August 2016, the Company declared a tenth
dividend of 0.6p per Ordinary Share for the period
from 1 July 2016 to 31 July 2016. This dividend
will be paid on 23 September 2016.
Overview and Investment Strategy
General information
The SME Loan Fund plc (the "Company", "Group" or
"SMEF") was incorporated in England and Wales under
the Companies Act 2006 on 13 July 2015 with registered
number 09682883 and its shares were listed on the
London Stock Exchange Specialist Fund Segment (formerly
the Specialist Fund Market) on 23 September 2015
("Admission"). On 31 August 2016, the Company changed
its name from GLI Alternative Finance plc.
The Company commenced operations, following admission,
as an investment company as defined in s833 of the
Companies Act 2006.
Investment objective
The investment objective of the Company, together
with its subsidiary, GLI Alternative Finance Guernsey
Limited (together the "Group"), is to provide Shareholders
with attractive risk adjusted returns through investment,
principally via a portfolio of Investee Platforms,
in a range of SME loan assets, diversified by way
of asset class, geography and duration. The Group
may invest directly or indirectly into available
opportunities, including by making investments in,
or acquiring interests held by, third party alternative
lending Platforms and other lending related opportunities
as identified by the Investment Manager, Amberton
Asset Management Limited, in accordance with the
Group's investment policy.
Investment policy
The Group intends to achieve its investment objective
by investing in a range of loans originated principally
through the Investee Platforms. The Group may also
make investments through other third party alternative
lending Platforms that present suitable investment
opportunities by the Investment Manager.
The Group seeks to ensure that diversification of
its portfolio is maintained, with the aim of spreading
investment risk.
Geography - The Group seeks investments in SME loan
assets in a broad range of jurisdictions (although
weighted towards the UK) in order to build a global
portfolio of loan assets.
Asset classes - The Group invests in a wide range
of SME loan assets including short-term lending
such as invoice and supply chain financing; mid-term
lending such as trade or short-term bridge finance;
and long-term lending such as the provision of fixed
term loans with standard covenants and subject to
monthly interest payments.
Duration - The Group holds a portfolio of loans
with broad terms of duration to maturity. However,
the Group's loan portfolio is weighted towards short-term
financing to ensure an adequate degree of liquidity.
This is intended to provide the Group with both
a liquid pool of assets ready for realisation, as
well as a reliable stream of longer-term income.
Security - The Group will seek to invest in loan
assets with a range of different types of security.
Funds invested by the Group are secured, as and
when required, over a range of assets including
property, intellectual property or other specific
assets, personal guarantees or via credit insurance.
Loans are unsecured only in the case of short-term,
low ticket size lending, where the perceived level
of risk in respect of the particular asset is low.
The Group is indifferent to sector when allocating
funds via the Investee Platforms, alternative third
party lending Platforms and in respect of any direct
loan investments. It instead adheres to the investment
restrictions which apply to the Group's loan portfolio
as a whole.
Note: Words and expressions defined in the prospectus
relating to the Company dated 1 September 2015 (a
copy of which is available on the Company's website)
have the same meanings when used in the "Investment
objective" and "Investment policy" sections above.
Chairman's Statement
Welcome to my first Chairman's statement covering
the period from the launch of The SME Loan Fund
plc to its year end, 30 June 2016.
The Group was formed to provide Shareholders with
a high income of circa 8% per annum, derived primarily
from a portfolio of loans to SMEs and arranged through
a number of specialist platforms acting as intermediaries
between the Group and the ultimate borrower.
The Company was listed on the Specialist Fund Segment
of the London Stock Exchange on 23 September 2015
raising gross proceeds of GBP52.7 million (GBP51.7
million net of issue costs). The initial assets
comprised of cash of GBP12.4 million and a seed
portfolio of loans valued at GBP40.3 million which
were provided by GLI Finance Limited ("GLIF") in
exchange for Ordinary Shares of the Company. At
launch the Company raised around half of the anticipated
proceeds, this was in part due to our being at the
end of the queue following three successful launches
in the sector which in total absorbed a considerable
proportion of available demand for this type of
product. Stock markets at the time of our launch
were also going through a volatile phase that hindered
fund raising too.
Nevertheless, post the launch the general trend
remains very positive and the Alternative Finance
("AltFi") sector has continued to grow apace. New
loans origination in UK, as measured by Liberum
AltFi, for the period 31 December 2015 to 30 June
2016 rose from GBP5.5 billion to GBP7.3 billion.
Performance and markets
Since launch the Investment Manager has performed
credibly, and a detailed insight into the management
of the Group's portfolio and market influences is
provided in the Investment Manager's Report.
The Group has produced a net profit after tax for
the period ended 30 June 2016 of GBP3.7 million,
representing earnings per Ordinary Share of 6.94p.
The Group's NAV at 30 June 2016 was GBP53.4 million
(101.31p per Ordinary Share) compared to GBP51.7
million (98.15p per Ordinary Share) at launch. The
total return for the Group for the period was 7.1%
on the opening NAV.
The Group's portfolio is fairly liquid with approximately
18% realisable within 90 days in normal market conditions.
The Group's non-Sterling investments are fully-hedged
and any liquidity risks arising from the hedging
policy are considered to be low.
Growth and Corporate Activity
The Board aims to establish the Company as one of
the leading funds in the AltFi sector and to grow
current assets significantly in the years ahead.
In the short term this is likely to be achieved by
small, ongoing issues of shares to new or existing
investors. Once the Fund has added to its existing
performance record and demonstrated the ability of
the Investment Manager to generate a consistently
high yield on the shares, a larger fund raise may
be possible. At all times the Board will take into
account the interests of existing Shareholders before
increasing the share capital of the Company.
The Company came into existence largely as a result
of a spin-out of GLIF. This company held a portfolio
of investments in platforms that match borrowers
and lenders together, with a portfolio of loans that
had been arranged through these platforms. Your Group's
portfolio was seeded with a significant number, but
not all, of these loans. Hence the two companies
now have clearly different investment strategies.
GLIF invests primarily into the equity of the platforms
and seeks to achieve capital growth as the value
of these platforms rises while SMEF aims to produce
a high ongoing yield for its investors with limited
capital growth.
In March 2016 the Somerston Group made a significant
investment into SMEF by buying 15 million Ordinary
Shares from GLIF. It is the wish of the Boards of
SMEF, GLIF and Somerston that SMEF is a truly independent
company. Recent name changes, referred to in more
detail below, seek to reinforce this evolution.
SMEF is investing in loans originated by platforms
that our Investment Manager considers to have a high
level of credit experience, that undertake significant
due diligence and originate loans that are amply
secured and attractively priced. We also require
these platforms to be open and transparent with us
in all their dealings. The platforms we use are constantly
reviewed and the Board believes that it is in Shareholders'
interests to contain the number of platforms used,
by concentrating investments in loans originated
via platforms that come up to our expectations. At
a general meeting held on 3 August 2016, the investment
policy of the Group was amended to allow greater
exposure to high quality, alternative finance loans.
Earnings and Dividends
Total earnings per Ordinary Share from listing to
30 June 2016 were 6.94p.
The Company elected to designate all of the dividends
for the period ended 30 June 2016 as interest distributions
to its Shareholders. In doing so, the Company took
advantage of UK tax treatment by "streaming" income
from interest-bearing investments into dividends
that will be taxed in the hands of Shareholders as
interest income.
As set out in the Prospectus, the Company intends
to distribute at least 85% of its distributable income
by way of dividends on a monthly basis. During any
year the Company may retain some of the distributable
income and use these to smooth future dividend flows.
The Company announced dividends of 4.95p per Ordinary
Share for the period ended 30 June 2016, of which
3.75p per Ordinary Share were provided for in the
30 June 2016 financial statements. In accordance
with IFRS, dividends are only provided for when they
become a contractual liability of the Company. Therefore,
during the period a total of GBP1,975,000 was incurred
in respect of dividends, none of which was outstanding
at the reporting date, but the eighth and ninth dividends
of GBP316,000 each had not been provided for at 30
June 2016 as, in accordance with IFRS, they were
not deemed to be liabilities of the Company at that
date.
In the Prospectus we advised that we were targeting
a net dividend yield of 8% per annum. Although it
is still early in the Company's life, if we were
to continue to pay dividends of 0.6p per month, the
Company would meet this target, based on the 30 June
2016 share price of 89.75p. On a par share price
of 100.00p the yield would be 7.2p.
Discount
During the recent period the Company's Ordinary Shares
traded at an average price of 98.42p and at 89.75p
at 30 June 2016 - a discount of 11.4% to its NAV.
At 30 September 2016, the NAV and share price had
risen to 101.30p and 96.00p respectively - a discount
of 5.2% to NAV.
The Board would ideally wish the Company's share
to trade closer to par and will consider any means
at its disposal so that the discount does not remain
at an inappropriate level. One of the mechanisms
for managing this process is the periodic tender
offers. In March 2017 the first tender offer becomes
available where Shareholders may tender all or part
of their shareholding at the Dealing Value. Moreover,
SMEF's maturity profile is short and cash is constantly
being generated to allow the Directors latitude to
exercise other means to close the discount if the
Board deems it appropriate and in Shareholders' best
interest.
Change of names
As part of the process of formally splitting the
historic links between SMEF, GLIF and GLI Asset Management
Limited (which manages the assets of SMEF), in March
2016, the Investment Manager changed its name from
GLI Asset Management Limited to Amberton Asset Management
Limited ("Amberton" or the "Investment Manager").
With effect from 31 August 2016, the Board decided
to change the name of the Company from GLI Alternative
Finance plc to The SME Loan Fund plc. The ticker
for the Ordinary Shares changed from GLAF:LN to SMEF:LN
on 31 August 2016.
Equity shareholdings in SMEF (GLAF), GLIF and Amberton
The following information is shown to allow Shareholders
of SMEF to understand the shareholding structure
of the above entities as at 30 June 2016.
SMEF - GLIF holds 47.99% and the Somerston Group
(through its wholly owned subsidiary Somerston Golf
GP Limited ("GOLF")) holds 28.48% of the Ordinary
Share capital.
GLIF - Somerston/GOLF own 22.2% of the ordinary share
capital of GLIF.
Amberton - GLIF and GOLF each own 50% of the ordinary
share capital of Amberton.
SMEF has no equity or loan interest in either GLIF
or Amberton.
Board of Directors
During the period two Directors who were appointed
on incorporation resigned from the Board, Norman
Crighton and Nick Brind, on 21 June and 22 July 2016
respectively. I would like to thank Norman and Nick
for their hard work during the challenging early
life of the Company. Both dedicated a considerable
amount of time and effort to ensure that the Company
was put on a firm footing for which the Board is
grateful. Following Norman's resignation, I was appointed
Chairman and Ken Hillen, who was appointed a Director
on 21 June 2016, took over my responsibilities as
chairman of the Audit Committee. Ken has considerable
banking experience having held senior positions at
the Royal Bank of Scotland, Anglo Irish Bank and
Bank of Ireland and his skills will be very useful
as we continue to augment our control procedures.
In due course it is likely that we shall add another
Director to the Board but for now we have a dedicated
and hard working Board with the necessary experience
to drive the Company forward.
Outlook
The Company is well positioned with a solid track
record and an attractive dividend yield. The Board
will attempt to increase the Company's assets over
the coming year against a background of a sector
that is growing at an extraordinary rate. Returns
to Shareholders, as always, are the most important
metric but we believe that a larger investment portfolio
would lead to better risk adjusted returns and a
lower expense ratio. The Board is confident that
further progress can and will be made in the year
ahead.
Richard Hills
Chairman
14 October 2016
Investment Manager's Report
The SME Loan Fund plc was established in September
2015 with a portfolio of 25% cash and 75% loans.
A series of investments into quality loans took place
during October reducing the cash levels down to 13%
by the end of the month. Investments were made into
a variety of sectors including renewable energy loans
which offered good cashflow characteristics. The
reduction in cash continued throughout November with
a focus on non-UK based lending. This resulted in
cash levels falling to 8.7% and the portfolio's gross
yield rising to 8.7% by the end of the month. Solar
energy projects were a focus for investment during
December, taking renewable energy exposure from 13.8%
to 14.6%, whilst the allocation to property was also
increased, taking exposure from 14.2% to 15.9%. Cash
levels stood at 4.4% by the calendar year end with
a gross indicated fund yield of 9.7%.
Loan origination around the new year was seasonally
weak but with the Company already well established,
a low cash level of 5% ensured that the Fund's gross
yield remained close to 10%. The yield fell slightly
during February as mainstream investment markets
suffered from considerable volatility, leading investors
to seek out the relative safety of Alternative Finance
markets, pushing yields lower. New loan origination
then picked up significantly and we increased exposure
to Spanish SME loans and property based loans resulting
in cash levels declining from 5.6% to 4%.
Investment activity within the Group continued during
March 2016 as exposure to the BMS Group was increased
via an allocation to their Irish investment structure,
itself part funded by the Irish Strategic Investment
Fund. With extremely high quality credit analysis
work being carried out by BMS on these loans, the
Company was delighted to be invited to be a 10% holder
of the structure. Due to some refinancing of loans
within the Group, cash levels closed Q1 at 8.9%,
increasing to 11.7% by the end of April. A strong
pipeline of loan origination was forecast for the
remaining two months of the quarter resulting in
cash falling to 4.7% by the end of June 2016.
The defensive qualities of the Company were severely
tested during May as evidence of poor management
control at the largest AltFi platform, Lending Club,
in the U.S. came to light which saw the CEO Renaud
Laplanche leave the company that he created. Investment
trusts were hit particularly hard with share prices
falling to, in some cases, substantial discounts
to net asset values. The Company suffered a fall
in its share price which saw the discount register
a low level of 12.0% by month end; this had recovered
somewhat to a discount of 11.4% as at 30 June 2016.
Income production within the Company has been in
line with expectations with monthly dividend equating
to a yield of 7.48% as at the end of the reporting
period. The first half of 2016 will be remembered
for significant market volatility, particularly within
the AltFi sector, exacerbated by the shock decision
of the UK electorate to leave the European Union.
The Group has weathered these storms well and continues
to provide a low risk strategy within the sector,
exactly in keeping with its objectives. It remains
unleveraged and this stance is likely to continue
for the foreseeable future. Throughout the period
the Company has pursued a policy of hedging all non-sterling
exposure back into sterling as outlined in the Prospectus.
Post the end of the reporting period, the Board of
GLI Alternative Finance plc proposed a name change
to The SME Loan Fund plc to better identify its core
investment allocation; this became effective on 31
August 2016 and the ticker also changed from GLAF:LN
to SMEF:LN. A new website was also launched, www.thesmeloanfund.com
to provide investors, and potential investors with
detailed information about the Company. An EGM in
August adjusted the investment restrictions slightly,
allowing the Investment Manager to allocate capital
more efficiently to investment into loans originated
through Alternative Finance platforms.
Outlook
The Company was launched in September 2015 during
a period of significant equity market volatility.
Whilst the initial launch proceeds were disappointing,
the proof of concept has been established with the
NAV performance being impressive without resorting
to leverage. As the appointed investment manager,
Amberton is focussing on SME lending and the impairment
rate is one of the lowest within the asset class.
This is a reflection of the due diligence carried
out, not only on the Platforms, but also our strict
manual underwriting processes on credit.
It is clear that the past six months have seen testing
times for Alternative Finance investment trusts.
The NAV performance of the Company has been in line
with expectations and the share price, although having
risen from its lows, offers a discount to the NAV.
With the flexibility offered to Shareholders to request
a redemption of 20% of their holding at a price equal
to NAV less 1/2 % in March 2017, we feel that the
investment attraction of the Company is at a high
level. Your Company is in a prime position, continuing
to benefit from high quality loan origination from
its many platform relationships. We remain focused
on providing an unleveraged exposure to SME AltFi
loans whilst maintaining low impairment rates. There
is no doubt that the Brexit vote caused upset within
investment markets but since then, equity markets
have powered on to new highs and global government
bond yields are now at unattractive new lows. In
contrast the high, single digit yield produced by
the Group has now become an attractive option for
a wide variety of investors.
Graham Glass
Amberton Asset Management Limited
14 October 2016
Principal Risks
Risk is inherent in the Group's activities, but it
is managed through an ongoing process of identifying
and assessing risks and ensuring that appropriate
controls are in place. The key risks faced by the
Group, along with controls employed to mitigate those
risks, are set out below.
Macroeconomic risk
Adverse macroeconomic conditions may have a material
adverse effect on the Group's yield on investments,
default rate and cash flows. The Board and the Investment
Manager keep abreast of market trends and information
to try to prepare for any adverse impact.
The Group's assets are diversified by geography,
asset class, and duration, thereby reducing the impact
that macroeconomic risk may have on the overall portfolio.
Interest rate risk arises from the possibility that
changes in interest rates will affect future cash
flows and/or fair values of the Group's investments.
Exposure to interest rate risk is limited by the
use of fixed rate interest on the majority of the
Group's loans, thereby giving security over future
loan interest cash flows.
Currency risk is the risk that changes in foreign
exchange rates will impact future profits and net
assets. Currency risk is mitigated to a certain extent
through the use of forward foreign exchange contracts
to hedge movements in foreign currency exchange rates.
Credit risk
The Group invests in a range of loans originated
principally through Alternative Finance Platforms
with which the Investment Manager is familiar. The
Group has investment restrictions in place. Therefore,
as mentioned above, the Group's assets are diversified
by geography, asset class, and duration, thereby
reducing the impact that investment risk may have
on the overall portfolio.
The credit risk associated with the investments is
reduced not only by diversification but also by the
use of security. Despite the use of security, credit
risk is not reduced entirely and so the Investment
Manager monitors the recoverability of the loans
(on an individual loan basis) each month and impairs
loans where appropriate.
Platform risk
The Group is dependent on Platforms to operate the
loan portfolio (to bring new loans to the Group's
attention; to effectively monitor those loans; and
to pay and receive monies as necessary). If a Platform
were no longer able to operate effectively this could
put at risk loans made with/through such a Platform
and increase credit risk.
The Investment Manager undertakes due diligence on
all the Platforms and part of this work is to confirm
that the Platforms have disaster recovery policies
in place whereby a third party administrator would
step in to manage the loans in the event the Platform
could no longer do so. If such an event were to occur,
the Group's approach would vary depending on the
Platform and the circumstances, and would be determined
by the Board after discussion with the Investment
Manager and other advisers. Graham Glass (the managing
director of the Investment Manager and, as of 21
March 2016, Lead Investment Manager to the Group)
has close contacts with the Platform owners and Andy
Whelan/Emma Stubbs (directors of the Investment Manager)
are on the boards of most of the Platforms themselves.
Regulatory risk
The Group's operations are subject to wide ranging
regulations, which continue to evolve and change.
Failure to comply with these regulations could result
in losses and damage to the Group's reputation.
The Group employs third party service providers to
ensure that regulations are complied with.
Reputational risk
The Company has been incorporated with an unlimited
life. However, in the event that the Ordinary Shares
have been trading at a discount to NAV of greater
than 10% for three consecutive months (calculated
on a rolling three monthly average of daily numbers),
the Company shall convene a general meeting to propose
a continuation resolution. If such a continuation
resolution is not passed, the Board will draw up
proposals for the winding-up or reconstruction of
the Company for submission to Shareholders. Any adverse
impact on the Company's reputation would likely result
in a fall in its share price, thereby increasing
the possibility of a continuation vote being proposed.
Brexit
Brexit may, in time, lead to divergence in regulatory
regimes between the UK and the European Union and
may create additional investment and trading opportunities.
However, in a process which is yet to start, it is
too early to say precisely what these opportunities
will be or when they will present themselves.
Environment, Employee, Social and Community Issues
As an investment company, the Company does not have
any employees or physical property, and most of its
activities are performed by other organisations.
Therefore, the Company does not combust fuel and
does not have any greenhouse gas emissions to report
from its operations, nor does it have responsibility
for any other emissions producing sources under the
Companies Act 2006 (Strategic Report and Directors'
Report) Regulations 2013.
The Board believes that the Company does not have
a direct impact on the community or environment and,
as a result, does not maintain policies in relation
to these matters.
Gender Diversity
The Board of Directors of the Company currently comprises
three male Directors. Further information in relation
to the Board's policy on diversity can be found in
the Directors' Remuneration Report in the Company's
Annual Report and Consolidated Financial Statements.
Key Performance Indicators
The Board uses the following key performance indicators
("KPIs") to help to assess the Group's performance
against its objectives. Further information on the
Group's performance is provided in the Chairman's
Statement and the Investment Manager's Report.
Dividend yield
As set out in the Prospectus, the Company intends
to distribute at least 85% of its distributable income
by way of dividends on a monthly basis. During any
year the Company may retain some of the distributable
income and use these to smooth future dividend flows.
The target is for the Ordinary Shares to yield an
8% dividend.
The Company announced dividends of GBP2,607,000 (4.95p
per Ordinary Share) for the period ended 30 June
2016, being 87.25% of distributable income for the
period (see notes 5 and 22 for further details).
NAV and total return
The Directors regard the Company's NAV as a key component
to delivering value to Shareholders, but believe
that total return (which includes dividends) is the
best measure for shareholder value.
Premium/discount of share price to NAV
The Board regularly monitors the premium/discount
of the price of the Ordinary Shares to the NAV per
share. As mentioned in Principal Risks above, in
the event that the Ordinary Shares have been trading
at a discount to NAV of greater than 10% for three
consecutive months (calculated on a rolling three
monthly average of daily numbers), the Company shall
convene a general meeting to propose a continuation
resolution. If such a continuation resolution is
not passed, the Board will draw up proposals for
the winding-up or reconstruction of the Company for
submission to Shareholders.
At 30 June 2016 the shares were trading at 89.75p,
an 11.4% discount to NAV. However, the three month
average share price is a 6.4% discount to NAV.
Richard Hills
Chairman
14 October 2016
Consolidated Statement of Comprehensive Income
for the period from 13 July 2015 (incorporation) to
30 June 2016
Period from
13 July
2015
(incorporation)
to 30 June
Note 2016
GBP'000
Revenue
Investment income 3,764
Other income 1
------------
Total revenue 3,765
------------
Operating expenses
Management fees 7a (295)
Administration fees 7b (129)
Directors' remuneration 8 (89)
Legal and professional fees (71)
Other expenses 11 (69)
Broker fee (61)
Audit fees 10 (44)
Custodian fee (19)
Registrar fees (17)
Auditors' non-audit and taxation fees 10 (15)
------------
Total operating expenses (809)
------------
Investment gains and losses
Movement in unrealised gains on loans 15 1,551
Movement in unrealised gain on investments
at fair value through profit or loss 16 307
Movement in unrealised gain on derivative
financial instruments 18 23
Realised loss on derivatives 18 (1,214)
------------
Total investment gains and losses 667
------------
Net profit from operating activities
before gain on foreign currency exchange 3,623
Net foreign exchange gain 34
------------
Net profit before taxation 3,657
Taxation
Withholding tax 12 (2)
------------
Profit and total comprehensive income
for the period attributable to the owners
of the parent 3,655
------------
Earnings per Ordinary Share (basic and
diluted) 13 6.94p
------------
All of the items in the above statement are derived
from continuing operations.
There were no other comprehensive income items in
the period.
Except for investment gains and losses, all of the
Company's profit and loss items are distributable.
The accompanying notes form an integral part of the
consolidated financial statements.
Consolidated and Parent Company Statements of Changes
in Equity
for the period from 13 July 2015 (incorporation) to
30 June 2016
Consolidated and Called Share Profit
Parent up share premium Distributable and loss
Company Note capital account reserves account Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Opening balance at
13 July 2015 - - - - -
Profit for the
period 22 - - - 3,655 3,655
Transactions with Owners in their capacity as owners:
Share capital
issued 21 577 52,133 - - 52,710
Share issue costs 22 - (990) - - (990)
Dividends paid 5,22 - - - (1,975) (1,975)
Cancellation of
share
premium account 22 - (51,143) 51,143 - -
------------ ------------ ------------ ------------ -----------
Total transactions
with Owners in
their
capacity as owners 577 - 51,143 (1,975) 49,745
------------ ------------ ------------ ------------ -----------
At 30 June 2016 577 - 51,143 1,680 53,400
------------ ------------ ------------ ------------ -----------
There were no other comprehensive income items in
the period.
The above amounts are all attributable to the owners
of the Parent Company.
The accompanying notes form an integral part of the
consolidated financial statements .
Consolidated and Parent Company Statements of Financial
Position
as at 30 June 2016
Parent
Consolidated Company
30 June 30 June
Note 2016 2016
GBP'000 GBP'000
Non-current assets
Loans 15 28,449 28,449
Investments at fair value through
profit or loss 16 1,981 1,981
------------ ------------
Total non-current assets 30,430 30,430
------------ ------------
Current assets
Loans 15 17,625 17,625
Cash held on client accounts with
Platforms 15 359 359
Investment in subsidiary 14 - 41,088
Derivative financial instruments 18 23 23
Other receivables and prepayments 19 3,163 3,163
Cash and cash equivalents 2,192 2,192
------------ ------------
Total current assets 23,362 64,450
------------ ------------
Total assets 53,792 94,880
------------ ------------
Current liabilities
Amount due to subsidiary 14 - (41,088)
Other payables and accruals 20 (392) (392)
------------ ------------
Total liabilities (392) (41,480)
------------ ------------
------------ ------------
Net assets 53,400 53,400
------------ ------------
Capital and reserves attributable
to owners of the Company
Called up share capital 21 577 577
Distributable reserve 22 51,143 51,143
Profit and loss account 22 1,680 1,680
------------ ------------
Equity attributable to the owners
of the Parent Company 53,400 53,400
------------ ------------
Net asset value per Ordinary Share 23 101.31p 101.31p
------------ ------------
These consolidated and Parent Company financial statements
of The SME Loan Fund plc (registered number 09682883)
were approved by the Board of Directors on 14 October
2016 and were signed on its behalf by:
Richard Hills Ken Hillen
Chairman Director
14 October 2016 14 October 2016
The accompanying notes form an integral part of the
consolidated financial statements.
Consolidated and Parent Company Statements of Cash
Flows
for the period from 13 July 2015 (incorporation)
to 30 June 2016
Parent
Consolidated Company
Period from 13
July 2015 (incorporation)
to 30 June 2016
GBP'000 GBP'000
Cash flows from operating activities
Net profit before taxation 3,657 3,655
Adjustments for:
Movement in unrealised gains on loans (1,551) (939)
Movement in unrealised gain on investment
at fair value through profit or loss (307) (919)
Movement in unrealised gain on derivatives (23) (23)
Realised loss on derivatives 1,214 1,214
Interest received and reinvested by
Platforms (1,505) (1,505)
Capitalised interest (23) (23)
Increase in investments (9,439) (9,439)
------------ ------------
Net cash outflow from operating activities
before working capital changes (7,977) (7,979)
Increase in other receivables and prepayments (624) (624)
Increase in other payables and accruals 260 260
------------ ------------
Net cash outflow from operating activities (8,341) (8,343)
Cash flows from financing activities
Proceeds from issue of Management Shares 50 50
Proceeds from issue of Ordinary Shares 12,801 12,801
Share issue costs paid (473) (473)
Dividend paid (1,843) (1,843)
------------ ------------
Net cash inflow from financing activities 10,535 10,535
Taxation paid (2) -
------------ ------------
Increase in cash and cash equivalents
in the period 2,192 2,192
Cash and cash equivalents at the beginning
of the period - -
------------ ------------
Cash and cash equivalents at 30 June
2016 2,192 2,192
------------ ------------
Supplemental cash flow information
Non-cash transaction - receipt of seed
portfolio for issue of Ordinary Shares 40,271 40,271
Non-cash transaction - interest received
and reinvested by Platforms 1,505 1,505
The accompanying notes form an integral part of the
consolidated financial statements.
Notes to the Consolidated and Parent Company Financial
Statements
for the period from 13 July 2015 (incorporation) to
30 June 2016
1. General information
The Company was incorporated in England and Wales
under the Companies Act 2006 on 13 July 2015 with
registered number 09682883 and its shares were listed
on the London Stock Exchange Specialist Fund Segment
on 23 September 2015 ("Admission").
The Company is an investment company as defined in
s833 of the Companies Act 2006.
Investment objective
The investment objective of the Company, together
with its subsidiary (the "Group"), is to provide Shareholders
with attractive risk adjusted returns through investment,
principally via a portfolio of Investee Platforms,
in a range of SME loan assets, diversified by way
of asset class, geography and duration. The Group
may invest directly or indirectly into available opportunities,
including by making investments in, or acquiring interests
held by, third party alternative lending Platforms
and other lending related opportunities as identified
by Amberton Asset Management Limited (the "Investment
Manager") in accordance with the Group's investment
policy.
Investment policy
The Group intends to achieve its investment objective
by investing in a range of loans originated principally
through the Investee Platforms. The Group may also
make investments through other third party alternative
lending Platforms that are identified as suitable
investment opportunities by the Amberton Asset Management
Limited.
Note: Words and expressions defined in the prospectus
relating to the Company dated 1 September 2015 (a
copy of which is available on the Company's website)
have the same meanings when used in the "Investment
objective" and "Investment policy" sections above.
The Group will seek to ensure that diversification
of its portfolio is maintained, with the aim of spreading
investment risk.
Change of name
In March 2016, the investment manager of the Group
underwent a rebranding exercise from GLI Asset Management
Limited to Amberton Asset Management Limited. Furthermore,
the investment policy of the Group was being amended
to bring greater exposure to high quality alternative
finance loans, with such changes due to be voted upon
at the General Meeting to be held on 3 August 2016.
In order to reflect this change in strategy, the Board
decided to change the name of the Company from GLI
Alternative Finance plc to The SME Loan Fund plc with
effect from 31 August 2016. The ticker for the Ordinary
Shares was also changed to SMEF:LN.
2. Statement of compliance
a) Basis of preparation
These financial statements present the results of
the Company and its subsidiary (together the "Group")
for the period from 13 July 2015 (incorporation) to
30 June 2016. These financial statements have been
prepared in accordance with International Financial
Reporting Standards ("IFRS"), as adopted by the European
Union.
These financial statements have not been prepared
in full accordance with the Statement of Recommended
Practice ("SORP") for investment trusts issued by
the AIC in January 2009, as the main driver of the
SORP is to disclose the allocation of expenses between
revenue and capital, thereby enabling a user of the
financial statements to determine distributable reserves.
However, with the exception of investment gains and
losses, all of the Group's and Company's profit and
loss items are of a revenue nature as it does not
allocate any expenses to capital. Therefore, the Directors
believe that full compliance with the SORP would not
be of benefit to users of the financial statements.
Further details on the distributable reserves are
provided in note 22.
b) Basis of measurement
The financial statements have been prepared on a historical
cost basis, except for financial assets (including
derivative instruments), which are measured at fair
value through profit or loss. The financial statements
have been prepared on a going concern basis (note
4i).
c) Segmental reporting
The Directors are of the opinion that the Group is
engaged in a single economic segment of business,
being investment in a range of SME loan assets.
d) Use of estimates and judgements
The preparation of financial statements in conformity
with IFRSs requires management to make judgements,
estimates and assumptions that affect the application
of policies and the reported amounts of assets and
liabilities, income and expenses. The estimates and
associated assumptions are based on historical experience
and various other factors that are believed to be
reasonable under the circumstances, the results of
which form the basis of making the judgements about
carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results
may differ from these estimates.
The estimates and underlying assumptions are reviewed
on an ongoing basis. Revisions to accounting estimates
are recognised in the period in which the estimate
is revised, if the revision affects only that period,
or in the period of the revision and future periods,
if the revision affects both current and future periods.
Judgements made by management in the application of
IFRSs that have a significant effect on the financial
statements and estimates with a significant risk of
material adjustment in the next year are discussed
in note 4.
e) Basis of consolidation
The financial statements incorporate the financial
statements of the Company and its wholly-owned subsidiary.
Control is achieved when the Company is exposed, or
has rights, to variable returns from its involvement
with the investee and has the ability to affect those
returns through its power over the investee.
Subsidiaries are those entities, including special
purpose entities, controlled by the Company. Control
is achieved when the Company is exposed, or has rights,
to variable returns from its involvement with the
investee and has the ability to affect those returns
through its power over the investee. In assessing
control, potential voting rights that presently are
exercisable are taken into account.
The financial statements of the subsidiary are included
in the consolidated financial statements from the
date that control commenced to the date that control
ceases. The accounting policies of the subsidiary
are aligned with the policies adopted by the Company.
All intercompany balances and transactions are eliminated
on consolidation.
A separate income statement for the Parent Company
is omitted from the group financial statements by
virtue of section 408 of the Companies Act 2006.
3. Significant accounting policies
a) Foreign currency
Foreign currency transactions are translated into
Sterling using the exchange rates prevailing at the
dates of the transactions. Foreign exchange gains
and losses resulting from the settlement of such transactions
and from the translation at period-end exchange rates
of monetary assets and liabilities denominated in
foreign currencies are recognised in the Consolidated
Statement of Comprehensive Income. Translation differences
on non-monetary financial assets and liabilities are
recognised in the Consolidated Statement of Comprehensive
Income.
b) Financial assets and liabilities
The financial assets and liabilities of the Group
are defined as loans, bonds with loan type characteristics,
investments at fair value through profit or loss,
cash and cash equivalents, other receivables and other
payables.
Recognition
The Group recognises a financial asset or a financial
liability when, and only when, it becomes a party
to the contractual provisions of the instrument. Purchases
and sales of financial assets that require delivery
of assets within the time frame generally established
by regulation or convention in the marketplace are
recognised on the trade date, i.e. the date that the
Group commits to purchase or sell the asset.
Initial measurement
Financial assets and financial liabilities at fair
value through profit or loss are recorded in the Consolidated
Statement of Financial Position at fair value. All
transaction costs for such instruments are recognised
directly in profit or loss.
Financial liabilities not designated as at fair value
through profit or loss, such as loans, are initially
recognised at fair value, being the amount issued
less transaction costs.
Subsequent measurement
After initial measurement, the Group measures financial
assets designated as loans and receivables, and financial
liabilities not designated as at fair value through
profit or loss, at amortised cost using the effective
interest rate method, less impairment allowance. Gains
and losses are recognised in the Consolidated Statement
of Comprehensive Income when the asset or liability
is derecognised or impaired. Interest earned on these
instruments is recorded separately as interest income.
After initial measurement, the Group measures financial
instruments which are classified at fair value through
profit or loss at fair value. Subsequent changes in
the fair value of those financial instruments are
recorded in net gain or loss on financial assets and
liabilities at fair value through profit or loss.
Interest and dividend earned or paid on these instruments
are recorded separately in interest income or expense
and dividend income or expense.
Derecognition
A financial asset (or, where applicable, a part of
a financial asset or part of a group of similar assets)
is derecognised where:
* The rights to receive cash flows from the asset have
expired; or
* The Group has transferred its rights to receive cash
flows from the asset or has assumed an obligation to
pay the received cash flows in full without material
delay to a third party under a "pass-through"
arrangement; and
* Either (a) the Group has transferred substantially
all the risks and rewards of the asset, or (b) the
Group has neither transferred nor retained
substantially all the risks and rewards of the asset,
but has transferred control of the asset.
When the Group has transferred its rights to receive
cash flows from an asset (or has entered into a pass-through
arrangement) and has neither transferred nor retained
substantially all the risks and rewards of the asset
nor transferred control of the asset, the asset is
recognised to the extent of the Group's continuing
involvement in the asset.
The Group derecognises a financial liability when
the obligation under the liability is discharged,
cancelled or expires.
Impairment
A financial asset is impaired when the recoverable
amount is estimated to be less than its carrying amount.
An impairment loss is recognised immediately in the
Consolidated Statement of Comprehensive Income, unless
the relevant asset is carried at a revalued amount,
in which case the reversal of the impairment is treated
as a revaluation decrease.
b) Cash and cash equivalents
Cash and cash equivalents are defined as cash in hand,
demand deposits and short-term, highly liquid investments
readily convertible to known amounts of cash and subject
to insignificant risk of changes in value.
c) Receivables and prepayments
Receivables are carried at the original invoice amount,
less allowance for doubtful receivables. Provision
is made when there is objective evidence that the
Group will be unable to recover balances in full.
Balances are written-off when the probability of recovery
is assessed as being remote.
d) Transaction costs
Transaction costs incurred on the acquisition of loans
are capitalised upon recognition of the financial
asset.
e) Income and expenses
Bank interest and loan interest are recognised on
a time-proportionate basis using the effective interest
rate method.
Dividend income is recognised when the right to receive
payment is established.
All expenses are recognised on an accruals basis.
All of the Group's expenses (with the exception of
share issue costs, which are charged directly to the
distributable reserve) are charged through the Consolidated
Statement of Comprehensive Income in the period in
which they are incurred.
f) Taxation
The Company is exempt from UK corporation tax on its
chargeable gains as it satisfies the conditions for
approval as an investment trust. The Company is, however,
liable to UK corporation tax on its income. However,
the Company has elected to take advantage of modified
UK tax treatment in respect of its "qualifying interest
income" in order to deduct all, or part, of the amount
it distributes to Shareholders as dividends as an
"interest distribution".
g) Accounting standards issued but not yet effective
The International Accounting Standards Board ("IASB")
has issued/revised a number of relevant standards
with an effective date after the date of these financial
statements. Any standards that are not deemed relevant
to the operations of the Group have been excluded.
The Directors have chosen not to early adopt these
standards and interpretations and they do not anticipate
that they, with the exception of IFRS 9, would have
a material impact on the Group's financial statements
in the period of initial application. A full assessment
of the impact of IFRS 9 and IFRS 15 has not yet been
performed.
Effective date
IFRS Financial Instruments: Disclosures
7 1 January 2016
IFRS Financial Instruments
9 1 January 2018
IFRS Revenue from Contracts with Customers
15 1 January 2018
IAS Presentation of Financial Statements
1 1 January 2016
IAS Statement of Cash Flows
7 1 January 2017
IAS Separate Financial Statements
27 1 January 2016
Annual improvements to IFRSs 2012-2014
Cycle 1 January 2016
4. Use of Judgements and estimates
The preparation of the Group's financial statements
requires the Directors to make judgements, estimates
and assumptions that affect the reported amounts recognised
in the financial statements and disclosure of contingent
liabilities. However, uncertainty about these assumptions
and estimates could result in outcomes that could
require a material adjustment to the carrying amount
of the asset or liability in future periods.
Judgements
In the process of applying the Group's accounting
policies, management has made the following judgements,
which have had the most significant effects on the
amounts recognised in the financial statements:
i) Going concern
After making reasonable enquiries, and assessing all
data relating to the Group's liquidity, the Directors
have a reasonable expectation that the Group has adequate
resources to continue in operational existence for
the foreseeable future and do not consider there to
be any threat to the going concern status of the Company
or Group. Therefore, financial statements have been
prepared on a going concern basis.
Estimates and assumptions
The Group based its assumptions and estimates on parameters
available when the financial statements were approved.
However, existing circumstances and assumptions about
future developments may change due to market changes
or circumstances arising beyond the control of the
Group. Such changes are reflected in the assumptions
when they occur.
i) Recoverability of loans and other receivables
The Directors assess the recoverability of the Group's
loans to determine whether any impairment provision
is required. A loan is impaired when the borrower
has failed to make a payment, either capital or interest,
when contractually due. The Group assesses at each
reporting date (and at least on a monthly basis) whether
there is objective evidence that a loan, or group
of loans, classified as loans at amortised cost, is
impaired. As part of this process:
* Platforms are contacted to determine default and
delinquency levels of individual loans; and
* Recovery rates are estimated.
At 30 June 2016, the Group's financial instruments
at fair value through profit or loss comprised unlisted
preference shares, unlisted equity shares and derivative
financial instruments. See note 17 for details of
the bases of valuation.
ii) Valuation of unlisted preference shares
The Directors assess the fair value of the Group's
unlisted preference shares, making estimates and assumptions
regarding future interest and/or capital payment defaults
and cost of capital in formulating Present Value calculations.
5. Dividends
The Company intends to distribute at least 85% of
its distributable income earned in each financial
year by way of dividends. The Company is targeting
a net dividend yield of 8% per annum of the Issue
Price per Ordinary Share as at Admission. The Company
intends to continue to pay monthly dividends to Shareholders.
As stated in the Company's Prospectus, the Company
has elected to designate all of the dividends for
the period ended 30 June 2016 as interest distributions
to its Shareholders. In doing so, the Company is taking
advantage of UK tax treatment by "streaming" income
from interest-bearing investments into dividends that
will be taxed in the hands of Shareholders as interest
income.
The Company has declared the following dividends in
respect of earnings for the period from incorporation
to 30 June 2016:
Total dividend
declared in
respect of
Announcement earnings in Amount per
date Pay date the period Ordinary Share
GBP'000
25 November
2015 30 December 2015 316 0.60p
24 December
2015 29 January 2016 210 0.40p
25 January 2016 26 February 2016 290 0.55p
16 February
2016 30 March 2016 290 0.55p
15 March 2016 26 April 2016 290 0.55p
22 April 2016 27 May 2016 290 0.55p
25 May 2016 24 June 2016 290 0.55p
28 June 2016 29 July 2016 316 0.60p
14 July 2016 26 August 2016 316 0.60p
------------ ------------
2,608 4.95p
------------ ------------
In accordance with IFRS, dividends are only provided
for when they become a contractual liability of the
Company. Therefore, during the period a total of GBP1,975,000
was incurred in respect of dividends, none of which
was outstanding at the reporting date. The eighth
and ninth dividends of GBP316,000 each had not been
provided for at 30 June 2016 as, in accordance with
IFRS, they were not deemed to be liabilities of the
Company at that date.
All dividends in the period were paid out of revenue
(and not capital) profits.
On 23 August 2016, the Company declared a dividend
of 0.60 pence per share for the period from 1 July
2016 to 31 July 2016. This dividend will be paid on
23 September 2016.
On 21 September 2016, the Company declared a dividend
of 0.60 pence per share for the period from 1 July
2016 to 31 August 2016. This dividend will be paid
on 28 October 2016.
6. Related parties
As a matter of best practice and good corporate governance,
the Company has adopted a related party policy which
applies to any transaction which it may enter into
with any Director, the Investment Manager, or any
of their affiliates which would constitute a "related
party transaction" as defined in, and to which would
apply, Chapter 11 of the Listing Rules. In accordance
with its related party policy, the Company obtained:
(i) the approval of a majority of the Directors; and
(ii) a third-party valuation in respect of these transactions
from an appropriately qualified independent adviser.
Transactions with GLIF
The Company purchased the subsidiary (see note 14)
from GLIF, a significant Shareholder of the Company
and a 50% shareholder of the Investment Manager, on
Admission, in return for 40,270,763 Ordinary Shares
in the Company. In addition, during the period the
Group purchased loans and associated interest of GBP4,675,000
from GLIF.
The Group also purchased a loan from Sancus Limited
(a subsidiary of GLIF) of GBP1,250,000 as part of
a co-investment agreement, for which GLIF was the
borrowing party of the original loan. As at 30 June
2016, the outstanding balance of the loan was GBP1,250,000
and during the period ended 30 June 2016, the Group
earned interest on the loan of GBP84,000, of which
GBP4,000 was outstanding as at 30 June 2016.
Further, on 23 December 2015, GLIF agreed to buy back
a loan and associated accrued interest from the Group.
GLIF agreed that interest would continue to accrue
to the Group, on the same terms, until such time that
GLIF repaid the loan.
As at 30 June 2016, GLIF owed the Group GBP2,392,000,
which related solely to the above mentioned loan and
accrued interest.
On 30 June 2016, GLIF guaranteed 100% of the outstanding
principal of a GBP1,200,000 loan from the Group to
one of the Platforms and all of the associated interest.
85% of the principal, plus all associated interest
to 30 September 2016, was paid to the Group by GLIF,
as part of a larger transaction, on 30 September 2016.
Transactions with subsidiary undertaking
Details of the transactions with the Company's subsidiary
undertaking are disclosed in note 14.
7. Key contracts
a) Investment Manager
The Group pays the Investment Manager a fee at the
below rates expressed as a percentage of the Company
Value, where the Company Value shall mean the lower
of Net Asset Value and Market Capitalisation:
* 0.75% per annum of the Company Value up to GBP100
million; and
* 0.50% per annum of the Excess, being such part of the
Company Value in excess of GBP100 million.
For the period from Admission until 6 November 2015
(the date on which the Investment Manager confirmed
in writing that 90% of the net proceeds of the Issue
had been invested or committed for investment), any
cash instruments were excluded from the calculation
of the Net Asset Value for the purposes of determining
the management fee.
During the period, a total of GBP295,000 was incurred
in respect of management fees, of which GBP93,000
was payable at the reporting date.
b) Administration fees
Elysium is entitled to an administration fee of GBP100,000
per annum in respect of the services provided in relation
to the administration of the Company, together with
time based fees in relation to work on investment
transactions. During the period, a total of GBP129,000
was incurred in respect of administration fees, of
which GBP35,000 was payable at the reporting date.
A set-up fee of GBP25,000 was also paid to Elysium.
8. Directors' remuneration
The Directors are paid such remuneration for their
services as determined by the Board. Under the terms
of their appointments, the Chairman of the Company
receives GBP35,000 per annum, the chairman of the
Audit and Valuation Committee receives GBP30,000 per
annum and other non-executive Directors receive GBP25,000
per annum.
During the period, a total of GBP89,000 was incurred
in respect of Directors' remuneration, none of which
was payable at the reporting date. No bonus or pension
contributions were paid or payable on behalf of the
Directors.
9. Key management and employees
The Group had no employees during the period. Therefore,
there were no key management (except for the Directors)
or employee costs during the period.
10. Auditor's remuneration
For the period ended 30 June 2016, total fees, plus
VAT, charged by RSM UK Audit LLP, together with amounts
accrued at 30 June 2016, amounted to GBP121,000, of
which GBP44,000 related to audit services, GBP15,000
was in respect of tax services, and GBP62,000 (included
in Share issue costs) related to reporting accountant
and tax work on the IPO. As at 30 June 2016, GBP23,000
was due to RSM UK Audit LLP.
11. Other expenses
Period
from 13
July 2015
(incorporation)
to 30 June
2016
GBP'000
Website costs 18
Other expenses 15
Listing fees 14
Travel costs 13
Directors' liability insurance 6
Printing costs 3
------------
69
------------
12. Taxation
The Company is exempt from UK corporation tax on its
chargeable gains as it satisfies the conditions for
approval as an investment trust. The Company is, however,
liable to UK corporation tax on its income. However,
the Company has elected to take advantage of modified
UK tax treatment in respect of its "qualifying interest
income" in order to deduct all, or part, of the amount
it distributes to Shareholders as dividends as an
"interest distribution".
Withholding tax of GBP2,000 was incurred by the Company's
Guernsey subsidiary as a result of interest on certain
loans to UK individuals/entities. The Company only
owned the Guernsey subsidiary from Admission and all
loans made by the subsidiary were transferred to the
Company on 1 October, so withholding tax only arose
for a short period of time. It is intended that all
future loans in the UK will be made by the Company
and therefore, unless tax laws change, it is not expected
that UK withholding tax will be suffered by the Company
in the future.
13. Earnings per Ordinary Share
The earnings per Ordinary Share of 6.94p is based
on a profit attributable to the owners of the Company
of GBP3,655,000 and on a weighted average number of
52,660,350 Ordinary Shares in issue since Admission.
There is no difference between the basic and diluted
earnings per share.
14. Investment in subsidiary undertaking
Details of the subsidiary undertaking held by the
Company at 30 June 2016 were as follows:
% of ordinary
Name of subsidiary Country of Principal shares
undertaking incorporation activity held
GLI Alternative Finance Dormant (previously
Guernsey Limited Guernsey lending) 100%
During the period, loans and associated interest of
GBP41,178,000 were novated from the subsidiary undertaking
to the Company. As at 30 June 2016, the investment
in the subsidiary, designated as an investment at
fair value through profit or loss, was held at GBP41,088,000.
As at 30 June 2016, the Company owed GBP41,088,000
to the subsidiary.
15. Loans
Parent
Consolidated Company
Period from 13
July 2015 (incorporation)
to 30 June 2016
GBP'000 GBP'000
Amortised cost 44,882 45,494
Unrealised gain* 1,551 939
------------ ------------
Balance at period end 46,433 46,433
------------ ------------
Loans: Current 17,625 17,625
Non-current 28,449 28,449
Cash held on client accounts with Platforms 359 359
------------ ------------
46,433 46,433
------------ ------------
*Unrealised gain
Foreign exchange on non-Sterling loans 1,946 1,334
Impairments (395) (395)
------------ ------------
Unrealised gain 1,551 939
------------ ------------
The weighted average interest rate of the loans as
at 30 June 2016 was 9.49%.
A loan is impaired when the borrower has failed to
make a payment, either capital or interest, when contractually
due. The Group assesses at each reporting date (and
at least on a monthly basis) whether there is objective
evidence that a loan or group of loans, classified
as loans at amortised cost, is impaired. As part of
this process:
* Platforms are contacted to determine default and
delinquency levels of individual loans; and
* Recovery rates are estimated.
At 30 June 2016, repayments of GBP181,000 were past
due but not impaired, aged as follows:
GBP'000
Less than 30 days overdue 16
More than 30 days but less
than 90 days overdue 165
------------
181
------------
At 30 June 2016, the Board considered GBP395,000 of
loans to be impaired as, following routine investigation
of loan performance, Amberton received evidence of
delayed and missed interest payments in respect of
the below loans. This evidence indicated that the
loans' recoverability would be less than their carrying
value and by liaising directly with the platforms
to establish a recovery rate, Amberton had estimated
a recoverable amount as at 30 June 2016.
GBP'000
Funding Knight 285
Liftforward 110
------------
Total impairment 395
------------
16. Investments at fair value through profit or loss
Consolidated
and Parent
Company
Period
from 13
July 2015
(incorporation)
to 30 June
2016
GBP'000
Additions in the period 1,674
Unrealised gain 307
------------
Balance at period end 1,981
------------
For further information on the investments at fair
value through profit or loss, see note 17.
17. Fair value of financial instruments at fair value
through profit or loss
The following table shows financial instruments recognised
at fair value, analysed between those whose fair
value is based on:
* Quoted prices in active markets for identical assets
or liabilities (Level 1);
* Those involving inputs other than quoted prices
included in Level 1 that are observable for the asset
or liability, either directly (as prices) or
indirectly (derived from prices) (Level 2); and
* Those with inputs for the asset or liability that are
not based on observable market data (unobservable
inputs) (Level 3).
At 30 June 2016, the financial instruments designated
at fair value through profit or loss were as follows:
30 June 2016
Level Level Level Total
1 2 3
Financial assets GBP'000 GBP'000 GBP'000 GBP'000
Unlisted preference shares - - 1,940 1,940
Unlisted equity shares - - 41 41
Derivative financial instruments
(note 18) - 23 - 23
------------ ------------ ------------ ------------
Total financial assets designated
as at fair value through profit
or loss - 23 1,981 2,004
------------ ------------ ------------ ------------
The Group holds unlisted 25% preference shares, unlisted
equity shares and derivative financial instruments.
The fair value of the unlisted preference shares has
been calculated using a Present Value formula, based
on estimates and assumptions regarding future interest
and/or capital payment defaults and cost of capital.
The unlisted equity shares are carried at the net
asset value of the underlying entity, and derivative
financial instruments, being foreign currency forward
contracts, are valued at the exchange rate at the
reporting date.
The Group's holding of unlisted 25% preference shares
is categorised as Level 3. The valuation of investment
is subject to certain unobservable inputs used in
the fair value measurement and valuation process.
At 30 June 2016, the unobservable input and sensitivity
of this input was as follows:
* Impairment of investment's underlying loan portfolio
If the impairment of the investment's underlying loan
portfolio, which directly affects the return of the
25% preference shares and was applied in the valuation,
increased from 4% per annum to 8% per annum, the valuation
of the investment would decrease by GBP38,793. A 4%
decrease in the impairment would increase the valuation
by GBP38,793.
Level 2 financial instruments include foreign currency
forward contracts. They are valued using observable
inputs (in this case foreign currency spot rates).
Transfers between levels
There were no transfers between levels in the period.
18. Derivative financial instruments
During the period, the Group entered into foreign
currency forward contracts to hedge against foreign
exchange fluctuations. The Group realised a loss
of GBP1,214,000 on forward foreign exchange contracts
that settled during the period.
As at 30 June 2016, the open forward foreign exchange
contracts were valued at GBP23,000.
19. Other receivables and prepayments
Consolidated
and Parent
Company
30 June
2016
GBP'000
Due from GLI Finance Limited (note 6) 2,392
Accrued interest 651
Other receivables 102
Prepayments 18
------------
3,163
------------
20. Other payables and accruals
Consolidated
and Parent
Company
30 June
2016
GBP'000
Withholding taxation on dividends 131
Management fee 93
Deferred investment income 62
Administration fee 35
Audit fee 23
Broker fee 23
Travel costs 13
Other payables and accruals 12
------------
392
------------
21. Share capital
Consolidated
and Parent
Company
30 June
2016
GBP'000
Authorised share capital:
Unlimited number of Ordinary Shares -
of 1 pence each
Unlimited C Shares of 10 pence each -
Unlimited Deferred Shares of 1 pence -
each
50,000 Management Shares of GBP1 each 50
------------
Called up share capital:
52,660,350 Ordinary Shares of 1 pence
each 527
50,000 Management Shares of GBP1 each 50
------------
577
------------
During the period, 52,660,350 Ordinary Shares were
issued at GBP1 each, together with 50,000 Management
Shares at GBP1 each.
The Management Shares, which are held by the Investment
Manager, are entitled (in priority to any payment
of dividend of any other class of share) to a fixed
cumulative preferential dividend of 0.01% per annum
on the nominal amount of the Management Shares.
The Management Shares do not carry any right to receive
notice of nor to attend or vote at any general meeting
of the Company unless no other shares are in issue
at that time. The Management Shares do not confer
the right to participate in any surplus of assets
of the Company on winding-up, other than the repayment
of the nominal amount of capital.
22. Reserves
The Profit and loss account is made up as follows:
Consolidated
and Parent
Company
30 June
2016
GBP'000
Realised revenue profit 2,988
Investment gains and losses 667
Dividends paid (1,975)
------------
1,680
------------
Distributable reserves 1,013
Non-distributable reserves 667
------------
1,680
------------
With the exception of investment gains and losses,
all of the Group's and Company's profit and loss
items are of a revenue nature as it does not allocate
any expenses to capital.
The two GBP316,000 dividends (see note 5), which
were declared on 28 June 2016 and 14 July 2016 respectively,
will be paid out of the GBP1,013,000 remaining realised
revenue profit.
During the period, and following the approval of
the Court, the Company cancelled the share premium
account and transferred GBP51,143,000 to a special
distributable reserve, being premium on issue of
shares of GBP52,133,000 less share issue costs of
GBP990,000.
23. Net asset value per Ordinary Share
The net asset value per Ordinary Share is based on
the net assets attributable to the owners of the Parent
Company of GBP53,400,000, less GBP50,000, being amounts
owed in respect of Management Shares, and on 52,660,350
Ordinary Shares in issue at the period end.
24. Financial Instruments and Risk Management
The Investment Manager manages the Group's portfolio
to provide Shareholders with attractive risk adjusted
returns through investment, principally via a portfolio
of Investee Platforms, in a range of SME loan assets,
diversified by way of asset class, geography and duration.
The Investment Manager seeks to achieve its investment
objective by investing in a range of loans originated
principally through the investee Platforms in which
the majority shareholder of the Investment Manager
(GLIF) holds a strategic equity investment. The Group
also makes investments through other third party alternative
lending Platforms that are identified as suitable
investment opportunities by the Investment Manager.
The Group will seek to ensure that diversification
of its portfolio is maintained, with the aim of spreading
investment risk.
Risk is inherent in the Group's activities, but it
is managed through a process of ongoing identification,
measurement and monitoring. The Group is exposed to
market risk (which includes currency risk, interest
rate risk and price risk), credit risk and liquidity
risk from the financial instruments it holds. Risk
management procedures are in place to minimise the
Group's exposure to these financial risks, in order
to create and protect Shareholder value.
Risk management structure
The Investment Manager is responsible for identifying
and controlling risks. The Board of Directors supervises
the Investment Manager and is ultimately responsible
for the overall risk management approach within the
Group.
The Group has no employees and is reliant on the performance
of third party service providers. Failure by the Investment
Manager, Administrator, Custodian, Registrar or any
other third party service provider to perform in accordance
with the terms of its appointment could have a significant
detrimental impact on the operation of the Group.
The market in which the Group participates is competitive
and rapidly changing. The risks have not changed from
those detailed on pages 20 to 30 in the Company's
Prospectus, which is available on the Company's website.
Risk concentration
Concentration indicates the relative sensitivity of
the Group's performance to developments affecting
a particular industry or geographical location. Concentrations
of risk arise when a number of financial instruments
or contracts are entered into with the same counterparty,
or where a number of counterparties are engaged in
similar business activities, or activities in the
same geographic region, or have similar economic features
that would cause their ability to meet contractual
obligations to be similarly affected by changes in
economic, political or other conditions. Concentrations
of liquidity risk may arise from the repayment terms
of financial liabilities, sources of borrowing facilities
or reliance on a particular market in which to realise
liquid assets. Concentrations of foreign exchange
risk may arise if the Group has a significant net
open position in a single foreign currency, or aggregate
net open positions in several currencies that tend
to move together.
With the aim of maintaining a diversified investment
portfolio, and thus mitigating concentration risks,
the Group has established the following investment
restrictions in respect of the general deployment
of assets.
Geographical
The Group makes loans to SMEs in a broad spread of
jurisdictions, but weighted towards the UK. The Group
intends to comply with the following restrictions
on its percentage holdings of loan assets in the following
jurisdictions:
* UK: no more than 70% of Gross Assets; and
* Rest of the World (being any jurisdiction outside the
UK): at least 30% of Gross Assets.
Duration
The Group diversifies its risk portfolio by limiting
the allocation of investments in terms of duration
to maturity, although weighted towards short-term
financing to ensure a degree of liquidity. The Group
limits the investment of Gross Assets (based on the
duration to maturity of the loans), as follows:
- Six months or less: between 10% and 40% of Gross
Assets; - Six to 18 months: between 10% and 40% of
Gross Assets; - 18 to 36 months: between 10% and 40%
of Gross Assets; and - 36 months or more: between
10% and 40% of Gross Assets.
Security
Loan assets have a range of different types of security.
However, no more than 50% of Gross Assets will be
held in unsecured loan assets.
Other restrictions
From time to time, the Group provides loans to the
Platforms themselves, to fund the general working
capital requirements of the Platform, rather than
for onward deployment in SME loan assets. At any time,
the provision of such working capital loans will be
limited to 5% of Gross Assets in aggregate (calculated
at the time of investment).
To avoid a concentration of risk, for the Group's
top ten investments (measured by Gross Assets), the
Group will invest no more than 2.5% of Gross Assets
(calculated at the time of investment) into an individual
credit risk. For investments outside the top ten,
the Group will invest no more than 1% of Gross Assets
(calculated at the time of investment) into an individual
credit risk. Where a loan finances a basket of underlying
credits, the exposure to any one underlying credit
will not be more than 2.5% of Gross Assets (calculated
at the time of investment) for the Group's top ten
investments, and not more than 1% of Gross Assets
(calculated at the time of investment) outside the
Group's top ten investments.
A number of positions contained in the seed portfolio
(as detailed in the Prospectus) breached these limits
and the Investment Manager has been working to ensure
that the Group's portfolio complies with the investment
restrictions going forward. In particular, the Group's
largest loan to a single issuer was in excess of the
2.5% limit, but this breach was rectified in the period,
and ten positions outside of the top ten were in excess
of the 1% limit. By 30 June 2016, only four positions
outside of the top ten were in breach of the 1% limit.
Market risk
(i) Price risk
Price risk exposure arises from the uncertainty about
future prices of financial instruments held. It represents
the potential loss that the Group may suffer through
holding market positions in the face of price movements.
The investments at fair value through profit or loss
(see notes 16 and 17) are exposed to price risk and
it is not the intention to mitigate the price risk.
At 30 June 2016, if the valuation of the investments
at fair value through profit or loss had moved by
5% with all other variables remaining constant, the
change in net assets would amount to approximately
+/- GBP99,000. The maximum price risk resulting from
financial instruments is equal to the GBP1,981,000
carrying value of the investments at fair value through
profit or loss.
(ii) Foreign currency risk
Foreign currency risk is the risk that the value of
a financial instrument will fluctuate because of changes
in foreign currency exchange rates. Currency risk
arises when future commercial transactions and recognised
assets and liabilities are denominated in a currency
that is not the Group's functional currency. The Group
invests in securities and other investments that are
denominated in currencies other than Sterling. Accordingly,
the value of the Group's assets may be affected favourably
or unfavourably by fluctuations in currency rates
and therefore the Group will necessarily be subject
to foreign exchange risks.
As at 30 June 2016 a proportion of the net financial
assets of the Group, excluding the foreign currency
forward contracts, were denominated in currencies
other than Sterling as follows:
Investments
at fair Loans and Cash and
value through receivables cash equivalents Net exposure
profit or
loss
30 June 30 June 30 June 30 June
2016 2016 2016 2016
GBP'000 GBP'000 GBP'000 GBP'000
US Dollars 1,940 7,144 318 9,402
Euros 25 5,467 10 5,502
--------------- --------------- --------------- ---------------
1,965 12,611 328 14,904
--------------- --------------- --------------- ---------------
In order to limit the exposure to foreign currency
risk, the Group entered into hedging contracts during
the period. At 30 June 2016, the Group held foreign
currency forward contracts to sell US$12,100,000 and
EUR6,300,000 with a settlement date of 15 July 2016.
Other future foreign exchange hedging contracts may
be employed, such as currency swap agreements, futures
contracts and options. There can be no certainty as
to the efficacy of any hedging transactions.
At 30 June 2016, if the exchange rates for US Dollars
and Euros had strengthened/weakened by 5% against
Sterling with all other variables remaining constant,
net assets at 30 June 2016 would have decreased/increased
by GBP(27,000)/GBP29,000.
(iii) Interest rate risk
Interest rate risk arises from the possibility that
changes in interest rates will affect future cash
flows or the fair values of financial instruments.
The Group is exposed to risks associated with the
effects of fluctuations in the prevailing levels of
market interest rates on its financial instruments
and cash flow. However, due to the fixed rate nature
of the majority of the loans, cash and cash equivalents
of GBP2,192,000 and loans of GBP1,700,000 through
two Platforms were the only interest bearing financial
instruments subject to variable interest rates at
30 June 2016. Therefore, if interest rates had increased/decreased
by 50 basis points, with all other variables held
constant, the change in value of interest cash flows
of these assets in the period would have been GBP19,000.
Fixed Variable Non-interest
interest interest bearing Total
GBP'000 GBP'000 GBP'000 GBP'000
Financial Assets
Loans 44,374 1,700 - 46,074
Cash held on client
accounts with Platforms - - 359 359
Investments at fair
value through profit
or loss - - 1,981 1,981
Derivative financial
instruments - - 23 23
Other receivables 2,317 - 828 3,145
Cash and cash equivalents - 2,192 - 2,192
------------ ------------ ------------ ------------
Total financial assets 46,691 3,892 3,191 53,774
------------ ------------ ------------ ------------
Financial Liabilities
Other payables - - (330) (330)
------------ ------------ ------------ ------------
Total financial liabilities - - (330) (330)
------------ ------------ ------------ ------------
Total interest sensitivity
gap 46,691 3,892 2,861 53,444
------------ ------------ ------------ ------------
The Investment Manager manages the Group's exposure
to interest rate risk, paying heed to prevailing interest
rates and economic conditions, market expectations
and its own views as to likely moves in interest rates.
Although it has not done so to date, the Group may
implement hedging and derivative strategies designed
to protect investment performance against material
movements in interest rates. Such strategies may include
(but are not limited to) interest rate swaps and will
only be entered into when they are available in a
timely manner and on terms acceptable to the Group.
The Group may also bear risks that could otherwise
be hedged where it is considered appropriate. There
can be no certainty as to the efficacy of any hedging
transactions.
Credit risk
Credit risk is the risk that a counterparty to a financial
instrument will fail to discharge an obligation or
commitment that it has entered into with the Group,
resulting in a financial loss to the Group.
At 30 June 2016, credit risk arose principally from
cash and cash equivalents of GBP2,192,000 and balances
due from the Platforms of GBP46,433,000. The Group
seeks to trade only with reputable counterparties
that the Investment Manager believes to be creditworthy.
The Group's credit risks principally arise through
exposure to loans provided by the Group to/through
Platforms. These loans are subject to the risk of
borrower default. Where a loan has been made by the
Group through a Platform, the Group will only receive
payments on those loans if the corresponding borrower
through that Platform makes payments on that loan.
The Investment Manager has sought to reduce the credit
risk by obtaining security on the majority of the
loans and by investing across various Platforms, geographic
areas and asset classes, thereby ensuring diversification
and seeking to mitigate concentration risks, as stated
in the "risk concentration" section earlier in this
note.
The cash pending investment or held on deposit under
the terms of an Investment Instrument may be held
without limit with a financial institution with a
credit rating of "single A" (or equivalent) or higher
to protect against counterparty failure.
The Group may implement hedging and derivative strategies
designed to protect against credit risk. Such strategies
may include (but are not limited to) credit default
swaps and will only be entered into when they are
available in a timely manner and on terms acceptable
to the Group. The Group may also bear risks that could
otherwise be hedged where it is considered appropriate.
There can be no certainty as to the efficacy of any
hedging transactions.
Liquidity risk
Liquidity risk is defined as the risk that the Group
will encounter difficulties in realising assets or
otherwise raising funds to meet financial commitments.
The principal liquidity risk is contained in unmatched
liabilities. The liquidity risk at 30 June 2016 was
low since the ratio of cash and cash equivalents to
unmatched liabilities was 6:1.
The Investment Manager manages the Group's liquidity
risk by investing primarily in a diverse portfolio
of loans, in line with the Prospectus and as stated
in the "risk concentration" section earlier in this
note. The maturity profile of the portfolio, as detailed
in the Investment Manager's Report, is as follows:
Percentage
0 to 6 months 24.1
6 months to 18 months 21.8
18 months to 3 years 30.1
Greater than 3 years 24.0
------------
100.0
------------
Capital management
The Board's policy is to maintain a strong capital
base so as to maintain investor, creditor and market
confidence and to sustain future development of the
Group. The Company's capital comprises issued share
capital, retained earnings and a distributable reserve
created from the cancellation of the Company's share
premium account.
To maintain or adjust the capital structure, the Company
may issue new Ordinary Shares and/or C Shares, buy
back shares for cancellation or buy back shares to
be held in treasury. During the period ended 30 June
2016, the Company did not issue any new Ordinary or
C shares, other than those shares issued at launch,
nor did it buy back any shares for cancellation or
to be held in treasury.
The Company is subject to externally imposed capital
requirements in relation to its statutory requirement
relating to dividend distributions to Shareholders.
25. Contingent assets and contingent liabilities
There were no contingent assets or contingent liabilities
in existence at the period end.
26. Events after the reporting period
Two dividends of 0.6p per Ordinary Share, which (in
accordance with IFRS) were not provided for at 30
June 2016, have been declared out of the profits for
the period ended 30 June 2016 (see note 5).
On 23 August 2016, the Company declared a dividend
of 0.6p per Ordinary Share for the period from 1 July
2016 to 31 July 2016. This dividend will be paid on
23 September 2016. On 21 September 2016, the Company
declared a dividend of 0.6p per Ordinary Share for
the period from 1 July 2016 to 31 August 2016. This
dividend will be paid on 28 October 2016.
On 22 July 2016, the Company announced a change of
name from GLI Alternative Finance plc to The SME Loan
Fund plc, to take effect from 31 August 2016.
On 3 August 2016, the Group changed its investment
restrictions, following a General Meeting, as per
the Circular dated 7 July 2016. In summary, the changes
were that:
* No more than 70% of the Company's gross assets will
be invested in UK loan assets, with at least 30 per
cent, of gross assets being invested in loan assets
from other jurisdictions around the world;
* The Group will invest at least 20% of gross assets in
loan assets where the duration to maturity of the
loan asset is less than six months. The Group will
invest no more than 40% of gross assets in loan
assets where the duration to maturity of the loan
asset is between six months and 18 months. The Group
will invest no more than 40% of gross assets in loan
assets where the duration to maturity is greater than
18 months but less than 36 months. The Group will
invest no more than 40% of gross assets in loan
assets where the duration to maturity is 36 months or
longer;
* No more than 50% of gross assets will be held in
unsecured loan assets;
* At any time, the total amount of working capital
loans will be limited to 5% of gross assets in
aggregate;
* The Group will invest no more than 2.5% of gross
assets into an individual credit risk for the Group's
top ten investments and no more than 2% of gross
assets for investments outside the top ten;
* The Group may employ borrowings of up to 150% of net
asset value; and
* The Group's un-invested or surplus capital or assets
may be invested in cash instruments for cash
management purposes.
There were no other significant events after the reporting
period.
27. Parent and Ultimate Parent Company
The Directors do not believe that the Company has
an individual Parent or Ultimate Parent.
--- ENDS ---
This information is provided by RNS
The company news service from the London Stock Exchange
END
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