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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Rdl Realisation Plc | LSE:RDL | London | Ordinary Share | GB00BW4NPD65 | ORD GBP0.01 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 59.70 | 56.20 | 63.20 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMRDL
RNS Number : 5370C
RDL Realisation PLC
18 June 2019
RDL REALISATION PLC (Formerly RANGER DIRECT LING FUND PLC)
(Registered No. 09510201)
LEI: 549300VGZSKYQ7C2U221
Annual Report for the year ended 31 December 2018
RDL Realisation Plc (the "Company") announces that it has published its Annual Report and Accounts for the year ended 31 December 2018. The full Annual Report and consolidated financial statements and the Notice of the 2019 Annual General Meeting are available to view on the Company's website at www.rdlrealisationplc.co.uk/documents or by contacting the Company Secretary on 01392 477500.
They have also been submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/NSM.
The financial information set out below does not constitute the Company's statutory accounts for the year ended 31 December 2018 but is derived from those accounts.
The unaudited full text of those parts of the annual report and accounts for the year ended 31 December 2018, which require to be published are set out below.
The Company also announces that it will hold its Annual General Meeting at 2.00pm on 12 July 2019 at the offices of Travers Smith LLP, 10 Snow Hill, London, EC1A 2AL.
Performance Summary
Hot Features
Premium
Highlights Ordinary Shares
-------------------------------------
31 Dec 2018 31 Dec 2017
Net Asset Value(1) (Cum Loss/Income) GBP 5.88(3) /USD GBP 9.90(3) /
per share 7.49 USD 13.38
Net Asset Value(2) (Ex Loss/Income) GBP 7.62(3) /USD GBP 10.19(3) /USD
per share 9.71 13.79
Total dividends per share 288.21 pence 101.76 pence
Share Price(4) GBP 6.70(3) /USD GBP 7.19(3) /USD
8.41 9.72
The Company's market capitalisation as at 31 December 2018 was USD 137,686,929 (GBP 108,023,638 based on a Share Price of GBP 6.70 and based on 16,122,931 outstanding Ordinary Shares).
The Group's total comprehensive loss for the year ended 31 December 2018 amounted to USD 35,046,160 (31 December 2017: USD 6,614,025 loss).
Further details of the Group's performance for the year are included in the Executive Directors' Report below which includes a review of the progress of the asset realisation, impact of applicable regulations and adherence to investment restrictions.
Ongoing Charges Information (5)
2018 2017
Annualised ongoing changes (6) 2.97% 2.07%
Performance fee (7) 0.00% 0.01%
Annualised ongoing charges plus
performance fee 2.97% 2.08%
(1) Net Asset Value ("NAV") (cum income) includes all current year income, less the value of any dividends paid in respect of the period together with the value of the dividends which have been declared and marked ex-dividend but not yet paid, see below.
(2) Net Asset Value (ex income) is the Net Asset Value cum/income excluding net current year income.
(3) Translated at USD to GBP foreign exchange rate of 1.2746 (2017: 1.3524).
(4) Share price taken from Bloomberg Professional.
(5) Ongoing charges are set out as a percentage of annualised ongoing charge over average reported Net Asset Value.
(6) Ongoing charges are those expenses of a type which are likely to recur in the foreseeable future. The annualised ongoing charge is calculated using the Association of Investment Companies recommended methodology.
(7) Performance fee is calculated based on the terms of the Investment Management Agreement. Further information is provided in note 17 of the Notes to the Consolidated Financial Statements.
Key Performance Indicators
The Company's Key Performance Indicators ("KPIs") are described in the Analysis of KPIs and Investment Restrictions below.
Investment Positions
Below is a list of the Company's investments as at 31 December 2018.
(Shown as aggregate Debt Investments acquired from individual Direct Lending Platform)
31 Dec 2018
Investment/Direct Country Principal Activity NAV % of NAV
Lending Platform
----------------------- ----------- ------------------------- ------------ ---------
Loans/advances
United to small/medium
SME Loans Platform States size businesses 40,446,802 33.45%
----------------------- ----------- ------------------------- ------------ ---------
Vehicle Services United Vehicle service
Contract Platform States contract financing 39,375,565 32.56%
----------------------- ----------- ------------------------- ------------ ---------
Real Estate Loans United Bridge loans to
Platform States real estate developers 36,836,583 30.46%
----------------------- ----------- ------------------------- ------------ ---------
Loans/advances
International MCA United to small/medium
Platform* Kingdom size businesses 20,999,389 17.37%
----------------------- ----------- ------------------------- ------------ ---------
Loans/advances
International MCA to small/medium
Platform* Australia size businesses 17,008,569 14.07%
----------------------- ----------- ------------------------- ------------ ---------
SME Credit Line United Credit lines to
Platform (Princeton) States finance companies 15,000,000 12.41%
----------------------- ----------- ------------------------- ------------ ---------
Loans to businesses
International SME with government
Lending Platform Canada grants 4,974,099 4.11%
----------------------- ----------- ------------------------- ------------ ---------
United
Equipment Financing States Equipment Financing 669,641 0.55%
----------------------- ----------- ------------------------- ------------ ---------
Consumer, improving United Consumer, improving
credit States credit 299,655 0.25%
----------------------- ----------- ------------------------- ------------ ---------
United
Factoring States Factoring 175,477 0.15%
----------------------- ----------- ------------------------- ------------ ---------
Loans/advances
United to small/medium
MCA Platform States size businesses 21,296 0.02%
----------------------- ----------- ------------------------- ------------ ---------
Loans to consumers
Consumer Loans United with improving
Platform States credit 7,587 0.01%
----------------------- ----------- ------------------------- ------------ ---------
Cayman
Crowdnetic Islands Equity Investment 300,000 0.25%
----------------------- ----------- ------------------------- ------------ ---------
176,114,663 145.65%
============ =========
* The International MCA Platform was refinanced and realised at approximately USD 38 million post year-end.
CHAIRMAN'S STATEMENT
2018 was another disappointing and difficult year for the Company. Adjusted for capital returns and dividends the NAV return was -6.41% in USD terms. After three years of dismal performance and as a result of Shareholder pressure, there were wholesale Board changes immediately prior to and following the Annual General Meeting on 19 June 2018 (the "AGM"). The Company's Shareholders endorsed the wind- down of the Company in accordance with the procedures adopted by the Company. These actions were ratified at the General Meeting held on 16 November 2018, at which the investment policy and investment objective were formally amended to pursue a wind-down of RDL. Following these developments, the RDL share price rose by 11.7% in GBP terms during the year. Late in 2018, the external investment manager Ranger Alternative Management II, LP ("Ranger") based in Dallas (USA) gave notice of its intent to terminate their contract on 12 February 2019. This was prior to the expiry of the 12 months' notice which had been previously delivered to Ranger under the terms of the investment management agreement between Ranger and the Company (the "IMA"). The Company has appointed IFM as its replacement Alternative Investment Fund Manager ("AIFM") and with effect from 26 February 2019, the Company has changed its name to RDL Realisation Plc.
Following the appointment of IFM, the Executive Directors of the Company continue performing the functions they have been carrying out. In particular, any investment or divestment decisions relating to the Company's portfolio will not be implemented without prior Board approval. In preparation for these changes, and as announced on 15 January 2019, the Company's Executive Board has been strengthened with the appointment of Joe Kenary who is a senior credit executive based in the US. Dominik Dolenec and Brett Miller continue to act as Executive Chairman and Executive Director of the Company, respectively. Since the year end, Nick Paris has been appointed to the Board as a Non-Independent Non-Executive Director.
Wind-down and Capital Returns
Since the AGM on 19 June 2018, the Company has returned 264p per share in the form of dividend payments. This amounts to approximately 26% of the published NAV as of 30 June 2018.
The new investment strategy seeks to maximise risk-adjusted IRRs to our Shareholders. To this end, the Company had adopted a three-pronged approach to winding down its portfolio of 12 platforms. The first category consisted of portfolios that could be sold outright. Having run a sale process, only three portfolios and a small equity position could be exited in this way without accepting a material discount. The second category consisted of two sizeable positions where the Company was the sole platform capital provider. One was successfully refinanced at par in December 2018. The second recently entered a forbearance agreement in light of its many contractual breaches and is now working with the Company on a plan to return the capital. The third category consisted of portfolios that are best run off. We are working to ensure that the overwhelming majority of this category will be repaid by late 2019. However, there can be no guarantee that the Company will be successful in accomplishing this objective. Some residual positions will only be liquidated once various bankruptcy proceedings are completed, with Princeton being the most notable, and it is expected that these will take longer.
The Company's subsidiary RDLZ has issued Zero Dividend Preference Shares ("ZDPs") that require the Company to meet a 2.75x asset cover ratio after any capital distribution, save for dividends required to maintain the Investment Trust status. The ZDP Shares mature on 31 July 2021 and accrue an annualised return of 5% per year. In light of the wind-down, the Company has been in active discussions with ZDP Shareholders about an early retirement of their instruments. This would allow the Company to then return all excess cash to the Company's Shareholders. To date, the Company has bought back almost 14% of the originally issued ZDP Shares.
Portfolio Performance
Aside from the widely publicised Princeton bankruptcy, the new Board was disappointed to discover that a number of other platform exposures were not monitored or managed in what the new Board would consider a prudent manner by Ranger. This was the case in at least two lending platforms which are among the largest positions in the Fund. In both cases, in our opinion, many established practices in the lending industry were not followed, such as diligent monitoring, appropriate cash controls, detailed, frequent and timely reporting and the retention of back-up servicers. Certain legal agreements required by the loan documentation and agreed to by borrowers, for example cash control agreements, were also not implemented and enforced, and this may have been to the detriment of the Company's Shareholders. The new Board is endeavouring to rectify many of these deficiencies and preserve capital.
A detailed analysis of the Company's portfolio is provided in the Executive Directors' Report.
Princeton
The Company announced on 7 November 2018 that a Chapter 11 Trustee had been appointed in relation to the bankruptcy proceedings of Princeton Alternative Income Fund, LP and its former general partner Princeton Alternative Funding, LLC (together, "Princeton"). This is a major milestone in the recovery of our Princeton investment. Since that time the Company has continued to actively engage with the Trustee and its other advisers in connection with its investment in Princeton.
Based on the information provided to date by the Trustee (which the Company has not been able to independently validate or verify), the Company is currently estimating a potential recovery of approximately USD 15 million from the Princeton bankruptcy. The net asset value published by the Company as at 30 November 2018 attributed a value of approximately USD 28.5 million to the Company's investment in Princeton. Princeton is now carried at USD 15m in the audited accounts.
The Company emphasises that this remains an unverified estimate and is subject to a number of potential variables. In particular, the amount that the Company will recover will be dependent upon the final structure of the creditor and investor waterfall and distribution scheme and the actual net amount available for distribution. A final determination of these issues is not expected for a number of months and it is not possible to predict the precise structure of the distribution scheme which will be approved by the bankruptcy court. In addition, other factors that will impact the Company's ultimate recovery amount include (but are not limited to): the actual recoveries in respect of both performing and delinquent payday loans in the Princeton portfolio - currently these recovery rates are based on assumptions using historical sector benchmarks which may not prove to be accurate in respect of the actual portfolio performance; certain restricted cash balances in the Princeton portfolio may not be released to the Company; no valuation of potential litigation claims has currently been made; and other, unforeseen factors or information may subsequently occur or be discovered. As such, no reliance can be placed on the estimated potential recovery amount and it is likely that such estimate will change in the future as additional information is received from the Trustee.
The Company has been engaged in discussions with the Trustee regarding the content of a Chapter 11 Plan of Liquidation (the "Plan") proposed by the Trustee. The Plan was filed on 19 April 2019 and provides for the prompt and orderly liquidation of fund assets by approved professionals and the pursuit of possible third-party litigation claims under the direction of a liquidating trustee to be appointed under the Plan. The Plan also contemplates the Company being treated in the same way as other Princeton investors. However, in light of the arbitration findings that have previously been announced by the Company, the Company has agreed with the Trustee that it will be paid USD 2.5 million out of the liquidation proceeds in priority to other investors. This amount will cover part of the costs of the legal proceedings that were incurred by the Company.
The disclosure and confirmation process in a Chapter 11 case after the filing of a plan typically requires a period of two to four months. The Company understands that the Trustee will be reaching out to investors to explain the Plan and respond to questions regarding its content, structure and implementation. The Company will continue to work closely with the Trustee and his professionals to complete this process.
Recently, Microbilt Corporation recruited an informal group of minority investors to support its alternative Chapter 11 plan, which is vague in structure and content. Among other things, the Microbilt plan leaves the fund in bankruptcy for an indeterminate period of time. The Company believes that the Microbilt plan is not in the best interest of the Company or other investors. The Company will support the Plan filed by the Chapter 11 Trustee and seek its confirmation before the Bankruptcy Court.
Operational Transition and Reporting Arrangements
The operational transition away from Ranger as external investment manager of the Company has now been completed. This involved considerable effort on our part as we implemented many of the operational practices and controls that we believe are normally expected from a credit fund manager responsible for third party capital. Moreover, in the transition, Ranger also was not fully cooperative with the Company's requests and continues to withhold certain information related to the portfolio from the Company.
Late last year, the Company retained a senior credit professional and financial controller based in Dallas to assist with the day to day management of the Company's remaining credit portfolios. This professional reports directly to the Board. The Company has recently also retained the services of MCA Financial Group as the new accounting and servicing provider. They replace the functions previously provided by Ranger's accounting department. For the purposes of these accounts and going forward, the Company has engaged an independent third-party valuation agent for the purposes of assisting the Board in valuing the Company's portfolio.
Given the realisation process currently being undertaken, the Directors of the Company are of the view that it is appropriate to carry out half-yearly rather than monthly valuations with immediate effect, such calculations being carried out as at 30 June and 31 December in each year. The Company will announce its net asset value and net asset value per Ordinary Share as soon as practicable following each half year valuation date. The Company may undertake additional valuations in respect of part or all of the portfolio in connection with potential sales or material changes of circumstance of its investments to the extent it deems it appropriate to do so.
The Company will continue to comply with its obligations under the ZDP Share Undertaking and, in particular, will continue to calculate the cover in respect of ZDP Shares monthly using all applicable information relevant to that calculation, including items such as currency movements and disposals of investments which arise subsequent to any valuation.
Outlook
A great deal of effort has gone into prudently winding down the portfolio and transitioning the management away from Ranger and implementing the procedures and controls we believe are appropriate for the Company. Whilst much work still remains to be done, we are pleased with our team's efforts in spite of the challenges we have faced in the portfolio we have inherited.
In 2019, we hope to realise a substantial part of the remaining assets and return the proceeds to our Shareholders. We will also continue to streamline management and other administrative costs. With that in mind, we might also delist our Shares in the future.
It is our goal to maximize the return to Shareholders in a prudent and cost-effective manner.
Dominik Dolenec
Chairman
17 June 2019
EXECUTIVE DIRECTORS' REPORT
It has been a busy period since the new Board was appointed. As you know, immediately prior to the AGM on 19 June 2018, Christopher Waldron, Matthew Mulford and Scott Canon resigned. Dominik Dolenec, Greg Share and Brendan Hawthorne were appointed to the Board at the AGM. Brett Miller and Joe Kenary were subsequently appointed on 6 July 2018 and 4 December 2018 respectively. Nick Paris has subsequent to the year end, been appointed to the Board. On 27 July 2018, Dominik Dolenec and Brett Miller assumed executive responsibilities as the scale of the task facing the new Board became apparent. Of the "old" Board only Jonathan Schneider remained for a period of continuity until he stepped down in November 2018. The Board would like to express their thanks to Mr Schneider for his assistance during this period of transition. In December 2018, the Board was further strengthened with the appointment of Joe Kenary, who subsequent to the year-end has also assumed an executive role. Since the year end, Nick Paris has been appointed to the Board as a Non-Independent Non-Executive Director. The Board is thus comprised of six Directors of whom three are executive and three are non-executive, although it should be noted that the non-executive Directors have been called on to assist in a much more active role than typically to be expected of a non-executive Director.
The new Board was entrusted by Shareholders with a mandate to realise assets and return capital to Shareholders. This new investment policy was set out in a circular to Shareholders and formally approved by Shareholders at a general meeting in November 2018 and can be found below.
The Executive Directors have spent considerable time in the USA this year, reviewing the portfolio, meeting investee platforms, working with Ranger and transitioning away from Ranger as described in the Chairman's Statement. This work is ongoing and whilst considerable headway has been achieved there remains much to do. The implementation of the new investment policy has got off to a good start, some of the highlights of which are:
-- In October 2018, the Company sold the current receivables held by it that were originated by the Consumer Receivables Platform (the "Receivables"), achieving a sales price of 96.5 per cent. of par for all Receivables held by the Company (in addition to all accrued but unpaid interest attributable to such Receivables) which at that time were either current or up to 30 days delinquent. The carrying value for the Receivables was USD 18,942,415 and the loss on sale was USD 658,539.
-- Subsequent to the year end, in January 2019 the Company's exposure to the International MCA Platform was refinanced and our promissory notes paid off. We realised USD 38,007,945 (at carrying value) pursuant to this transaction, the entirety of which has been paid to the Company.
-- The Company has continued to work with the Real Estate platform to offer individual performing loans to the platform's existing and new investors. The investment balance for this platform at 1 January 2018 was USD 71,848,345, of which the defaulted loans in recovery constituted USD 16,396,547. At the year end, we had sold or received payment of loans amounting to USD 66,254,440, leaving a net balance exposure to this platform of USD 36,836,584.
-- Significant progress has been made in the Princeton litigation and bankruptcy procedure, and whilst the information forthcoming has not been good, we have significantly more clarity on the value of this investment compared to when we were appointed to the Board. However, much work remains to be done on this unfortunate investment.
-- One smaller portfolio was disposed of at 77c on the dollar but a small premium to our carrying NAV due to some conservative default provisioning.
-- The small equity interest was disposed of for USD 300,000, being the carrying value at the time.
As a result of the above actions the Company has returned 264p in cash to Shareholders by way of dividend. This amounts to approximately 26% of the published NAV as of 30 June 2018.
Whilst we are delighted with the above results achieved to date, and in particular the refinancing of the International MCA platform at par, we cannot be certain that we will achieve similar pricing for the remainder of the portfolio and Shareholders would be counselled to exercise caution in making any predictions based on these past results.
Notwithstanding the above, Shareholders should take note that a mandate requiring the active sale or timed liquidation of portfolios presents an inherent risk which does not present itself with the run-off of a portfolio, in that such assets may not be realised at their fair value. Although the Company is not currently considering offers which fall materially below the values referred to below, the inherent risk of attracting opportunistic buyers must be managed with the optionality to run down a short-term portfolio in order to ensure the realisation of appropriate value. It is also important for Shareholders to recognise that a material amount of the future value for the Company will be tied to current claims in litigation.
Transition arrangements
On 12 October 2018, Ranger informed the Board that it would terminate the IMA between it and the Company with effect from 12 February 2019 and the agreement was indeed terminated on that date. Shareholders are reminded that the Company had previously served a termination notice on Ranger with effect from 1 May 2019 to the extent the agreement has not already been terminated.
The Company has, since the year end, appointed IFM as its replacement Alternative Investment Fund Manager.
Following the appointment of IFM, the Executive Directors of the Company will continue performing the functions they have been carrying out during the current management arrangements. In particular, any investment or divestment decisions relating to the Company's portfolio will not be implemented without prior Board approval. In preparation for these changes, and as announced on 15 January 2019, the Company's Executive Board has been strengthened with the appointment of Joe Kenary who is a senior credit executive based in the US. Dominik Dolenec and Brett Miller continue to act as Executive Chairman and Executive Director of the Company, respectively. The Company has also appointed a senior credit professional and a financial controller, both based in Dallas, USA, to assist with the management and realisation of the portfolio. A huge amount of time has been spent by the Executive Directors in the run up to 12 February 2019 to ensure a smooth transition of management responsibilities and to avert any disruption to the portfolio management role. It was also a considerable task transitioning over the accounting function to the new service provider. The difficulty of the task was compounded by Ranger, at the transition, withholding essential information that we assert is the property of the Company. Whilst much work still remains, we are satisfied with the significant progress the team has made since Ranger's termination. In spite of all the challenges, the bulk of the work has been done to plan and the Board are pleased with the new arrangements.
Investment Portfolio
In accordance with the Board's instructions, Ranger, in June 2018 discontinued making investments through normal course of business with the following exceptions:
-- the investment is a follow-on investment made in connection with an existing Investment made in order to comply with the Company's pre-existing obligations; or
-- failure to make the follow-on investment may result in a breach of contract or applicable law or regulation by the Company; or
-- the investment is considered necessary by the Board to protect or enhance the value of any existing investments or to facilitate orderly disposals.
In accordance with the above, new investments after June 2018 were made to:
-- Second SME Loans Platform for USD 5,412,606 in July 2018 -- International LOC Partner for USD 510,169 in September 2018 -- Real Estate Lending Partner for USD 300,000 in September 2018
At 31 December 2018, 91.3% of the portfolio was invested in secured Debt Instruments (including loans, cash advances, and receivables financing) to mainly SME borrowers, and 8.7% of the portfolio consisted of unsecured consumer loans. For this purpose, a secured Debt Instrument is defined by the Company as a payment obligation in which property, revenue (including receivables), or a payment guaranty has been pledged, mortgaged or sold to the Company as partial or full security with respect to such obligation.
In addition to investing in Debt Instruments, the Company was previously able to invest up to 10% of gross assets in the equity of Direct Lending Platforms and/or organisations serving the direct lending industry. As at 31 December 2018, one such equity investment had been made for USD 300,000 in June 2017. As mentioned above, this investment has been sold subsequent to the year end for USD 300,000.
Below is a brief summary of each investment platform / partner which provides:
-- Net balance at 31 December 2018 (estimated fair value) -- Commentary summarising primary activity and expected disposition of the investments -- All amounts shown below are in USD
SME/CRE Loans Platform
Net Balance at Net Balance at
31 December 2017 31 December 2018
51,414,447 40,446,802
------------------
Since June 2018, there has been a regular run-off of all performing investments. The Executive Directors are in weekly contact with this platform who are trying to assist in the sale of some investments to its other investors throughout 2019, and remaining investments will be run off.
Note: Included in the balance above is USD 4.5m which is an acquisition loan extended to the Second SME Loans Platform - see below.
Second SME Loans Platform
Net Balance at Net Balance at
31 December 2017 31 December 2018
26,703,908 39,375,565
------------------
Due to the combination of the loss in volume from the reduced number of new vehicle service contracts generated by the platform and cash drain from losses at affiliated entities, the platform failed to make a series of mandatory pre-payments, and the platform has failed to meet the required loan to value requirements. These factors entitled the Company to declare an event of default pursuant to its Master Loan Agreement. The platform has recently found a new funding source for new vehicle service contracts going forward and is making payments under a revised repayment schedule. The Company has since the year end executed a Forbearance Agreement and Cash Control Agreement which will bring credit monitoring and cash controls to a standard customary for financing structures of this type.
The platform has engaged an investment banker to assist in the refinancing efforts and there are ongoing communications with prospective new lenders. The refinancing of the notes as a portfolio has been complicated by the fact that in May (prior to the appointment of the new board of Directors), the Company also extended a USD 4.5M enterprise value loan to this platform to finance an acquisition of a loss-making business and unlike the previous loan, there is no advance rate based on discrete collateral. This loan falls due in May 2019 and is reported in the balance of the SME/CRE Lending Platform. The investment balance secured by vehicle service contracts at 31 December 2018 was USD 44m. The Board continues to investigate why this loan was made. The LTV, which as at 31 December 2018 was 103% and at 31 March 2019 was 129%, representing a significant breach of the LTV requirement. As a result, taking into consideration the Duff & Phelps Report, the report of another independent third party, and internal credit analysis, an additional reserve of approximately USD 9m to reflect the estimated impairment to the loan value has been recognised as of 31 December 2018. The combined balance of the two loans at the VSC platform as 31 December 2018 was USD 48.5m. The total balance after the impairment charge is USD 39m. Restructuring efforts are continuing.
Real Estate Lending Partner
Net Balance at Net Balance at
31 December 2017 31 December 2018
71,848,345 36,836,583
------------------
There has been a combination of sales of some investments with help of the platform and regular run-off of all performing investments, particularly during the latter part of the year. The platform will continue to assist with the sale of some investments to its other investors throughout 2019, and the remaining investments will be run-off.
Princeton Alternative Income Fund
Net Balance at Net Balance at
31 December 2017 31 December 2018
29,321,483 15,000,000
------------------
Subsequent to the year end and as announced on 11 February 2019 the Company is currently estimating a potential recovery of approximately USD 15m from the Princeton bankruptcy. A Princeton further update is provided below.
Canadian SME Lending Platform
Net Balance at Net Balance at
31 December 2017 31 December 2018
15,919,670 4,974,099
------------------
The ongoing review of the platform's operations unfortunately revealed that the platform had not been adequately servicing the loans sold to the Company. To prevent further deterioration of the Canadian SME Lending Platform portfolio, the former Investment Manager temporarily took over the servicing of these investments. These are now serviced directly by the Company. Using the information from the former Investment Manager's direct contact with the borrowers, the Company continued its servicing and re-structuring of payment obligations with individual borrowers whose loans were originated by the platform. These loans are venture loans to mainly small and early stage companies with underdeveloped profit profiles which bear certain risks common to venture lending. The remaining investments are expected to be run off in due course under a variety of collection efforts. Current collection efforts include litigation and realisation of collateral proceeds, restructured pay out terms with longer amortisation, and participation in royalty streams from future company sales to be applied to the outstanding loans.
Equipment Loans Platform
Net Balance at Net Balance at
31 December 2017 31 December 2018
1,915,580 669,641
------------------
Since June 2018, there has been a regular run-off of all performing investments. The remaining investments are expected to be run-off.
Second Consumer Loans Platform
Net Balance at Net Balance at
31 December 2017 31 December 2018
3,277,167 299,655
------------------
Since June 2018, there has been a regular run-off of all performing investments. Platform will try to assist in the sale of some or all remaining loans to its other investors in 2019, and remaining investments (if any) will be run-off.
Invoice Factoring Platform
Net Balance at Net Balance at
31 December 2017 31 December 2018
1,811,185 175,477
------------------
Since June 2018, there has been a regular run-off of all performing investments. The remaining investments are expected to be run-off.
Third SME Loans Platform
Net Balance at Net Balance at
31 December 2017 31 December 2018
3,853,550 21,296
------------------
Since June 2018, there has been a regular run-off of all performing investments. The remaining investments are expected to be run-off.
Consumer Loans Platform
Net Balance at Net Balance at
31 December 2017 31 December 2018
37,789,106 7,587
------------------
From June to October 2018, there has been a regular run-off of all performing investments. In October, all performing loans were sold to a third party which left the non-performing loans to run-off.
Independent valuation of the portfolio
Duff & Phelps, an independent valuation firm was engaged to perform valuation consulting services on the four largest platforms for the Company's portfolio. This excludes the investment in Princeton, owing to a lack of available information for this investment. The consulting services consisted of certain limited procedures that the Company identified and requested the independent valuation firm to perform.
A copy of the report from Duff & Phelps (the "DP Report") has now been delivered to the Board.
The Company is ultimately and solely responsible for determining fair value of the investments in good faith, and following its review of the report, the values at December 2018 were updated based on the Duff & Phelps valuation with the exception of the Vehicle Service Contract (VSC) platform. The VSC platform, including the holding company loan, was valued taking into consideration the DP Report, the report of another independent third party, and internal credit analysis. Based on a thorough review of the collateral at the VSC enterprise including the holding company loan, it indicates a substantial reduction in collateral security for RDL's outstanding principal amount due to a variety of factors. In order to accurately reflect the risk and the appropriate cost of capital for the portion of the loan that is not directly secured by collateral, the Company has applied a risk adjusted discount rate more appropriate for an unsecured loan, resulting in an impairment to the loan value.
Princeton Update
On 6 November 2018, the United States Bankruptcy Court for the District of New Jersey granted the Company's motion for the appointment of a Chapter 11 Trustee in the bankruptcy cases of Princeton and directed the United States Trustee to appoint a Chapter 11 Trustee. Among other things, the Court found that the existence of irreconcilable conflicts of interest between the Princeton fund and its insider management and the existence of an outstanding claim filed in the cases by the Securities and Exchange Commission required an independent Trustee to be appointed.
The United States Trustee appointed Matthew Cantor as chapter 11 Trustee and the Bankruptcy Court entered an order approving the appointment. Mr. Cantor, the Trustee, is an experienced financial professional and served as Chief Counsel for Lehman Brothers Holdings, Inc. Upon his appointment, the Trustee displaced current management and assumed control over Princeton and its assets. The Trustee has retained legal and financial professionals and is currently evaluating the fund assets and formulating a plan of liquidation. The Company and its legal counsel are working closely with the Trustee to formulate a plan of liquidation and effectuate an orderly recovery of our Shareholders' capital. It is hoped that in the coming months Princeton can exit bankruptcy under a liquidation plan with a liquidation trustee who will oversee distributions to investors and run off the remaining assets.
Subsequent to the year end and based on the information provided to date by the Trustee (which the Company has not been able to independently validate or verify), the Company announced on 11 February 2019 that it was currently estimating a potential recovery of approximately USD 15 million from the Princeton bankruptcy. Prior to this, it had attributed a value of approximately USD 28.5 million to the Company's investment in Princeton in calculating the NAV. Accordingly, the Company resolved to impair the carrying value of its investment in Princeton by a further USD 13.5 million.
The Company emphasises that this remains an unverified estimate and is subject to a number of potential variables, in particular the amount that the Company will recover will be dependent upon the final structure of the creditor and investor waterfall and distribution scheme and the actual net amount available for distribution. A final determination of these issues is not expected for a number of months and it is not possible to predict the precise structure of the distribution scheme which will be approved by the bankruptcy court. In addition, other factors that will impact the Company's ultimate recovery amount include (but are not limited to): the actual recoveries in respect of both performing and delinquent payday loans in the Princeton portfolio - currently these recovery rates are based on assumptions using historic sector benchmarks which may not prove to be accurate in respect of the actual portfolio performance; certain restricted cash balances in the Princeton portfolio may not be released to the Company; no valuation on potential litigation claims has currently been made; and other, unforeseen factors or information may subsequently occur or be discovered. As such, no reliance can be placed on the estimated potential recovery amount and it is likely that such estimate will change in the future as additional information is received from the Trustee.
As referenced in the Chairman's Statement, the Company has been engaged in active discussions with the Trustee regarding the content of a Chapter 11 Plan of Liquidation (the "Plan") proposed by the Trustee. The Plan was filed on 19 April 2019 and provides for the prompt and orderly liquidation of fund assets by approved professionals and the pursuit of possible third-party litigation claims under the direction of a liquidating trustee to be appointed under the Plan. The Plan also contemplates the Company being treated in the same way as other Princeton investors. However, in light of the arbitration findings that have previously been announced by the Company, the Company has agreed with the Trustee that it will be paid USD 2.5 million out of the liquidation proceeds in priority to other investors. This amount will cover part of the costs of the legal proceedings that were incurred by the Company.
Recently, Microbilt Corporation recruited an informal group of minority investors to support its alternative Chapter 11 plan, which is vague in structure and content. Among other things, the Microbilt plan leaves the fund in bankruptcy for an indeterminate period of time. The Company believes that the Microbilt plan is not in the best interest of the Company or other investors. The Company will support the Plan filed by the Chapter 11 Trustee and seek its confirmation before the Bankruptcy Court.
Sector Reporting
As at 31 December 2018, the portfolio (excluding cash and cash equivalents) was diversified across different sectors as follows:
Allocation
Sector 31 Dec 2018 31 Dec 2017 Change
Bridge loans to real estate
developers 21% 26% (19%)
Consumer, improving credit 0% 1% (100%)
Credit lines to finance companies 9% 10% (10%)
Equipment Financing 0% 1% (100%)
Factoring 0% 1% (100%)
Loans to businesses with government
grants 3% 6% (50%)
Loans to consumers with improving
credit 0% 13% (100%)
Loans/advances to small/medium
size businesses 45% 33% 36%
Vehicle service contract financing 22% 8% 175%
Consumer Medical 0% 1% (100%)
------------ ------------ -------
Total (excluding cash and
cash equivalents) 100% 100%
------------ ------------ -------
ZDP Update
As of 14 December 2018, the Company held 7,278,193 Zero Dividend Preference Shares ("ZDP Shares") in RDLZ. The Board of the Company has passed a resolution to waive the Company's entitlement to the accrued principal on its ZDP holdings up to 14 December 2018. The calculation of the Cover has been adjusted to deduct 7,278,193 ZDP Shares held by RDL from the total outstanding ZDP Shares to determine the ZDP redemption amount due on 31 July 2021.
This has been reflected in the below calculation of the Estimated ZDP Cover (8) .
Ticker RDLZ Shares in Issue 45,721,807 Accrued Capital Entitlement (IFRS 9) GBP 1.1184 Accrued Capital Entitlement (legal GBP 1.1260 entitlement without issue cost) Share Price GBP 1.16
As announced on 3 June 2019, a proposal to bring forward the winding up of RDLZ and amend the amounts payable in respect of the ZDP Shares has been proposed. Please see note 25 below.
The Board would like to draw attention to the above Accrued Capital Entitlement calculated in accordance with the IFRS 9 accounting standard. The figure differs from the legal Accrued Capital Entitlement (also shown above) due to the amortisation of issuance costs of approximately GBP1.1m over the life of the ZDPs.
(8) Cover of the ZDP Shares shall represent a fraction where the numerator is equal to the Net Asset Value of RDL and its Group on a consolidated basis (adjusted to: (i) add back any liability to ZDP Shareholders; and (ii) deduct the estimated liquidation costs of the Company) and the denominator is equal to the amount which would be paid on the ZDP Shares as a class (and on all ZDP Shares ranking as to capital in priority thereto or pari passu therewith, save to the extent already taken into account in the calculation of the Net Asset Value) in a winding up of the Company on the ZDP Repayment Date. The calculation of the Cover has been adjusted to deduct 7,278,193 ZDP Shares held by RDL from the total outstanding ZDP Shares to determine the ZDP redemption amount due on 31 July 2021.
GROUP STRATEGIC REPORT
Cautionary Statement
This Group Strategic Report has been prepared solely to provide information to Shareholders to assess how the Directors have performed their duty to promote the success of the Company. It has been prepared for the Group as a whole and therefore gives greater emphasis to those matters which are significant to the Company and its subsidiaries when viewed as a whole.
The Group Strategic Report contains certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.
OBJECTIVE AND INVESTMENT POLICY
Investment Objective
The Company will be managed, either by a third party non-EEA investment manager or internally by the Company's Board of Directors, with the intention of realising all remaining assets in the portfolio in a prudent manner consistent with the principles of good investment management, with a view to returning cash to its Shareholders in an orderly manner and meeting the obligations of the Company to RDLZ in respect of the ZDP Shares or purchasing ZDP Shares to reduce those obligations in advance of the final date for payments on the ZDP Shares.
Investment Policy
The Company will pursue its new Investment Objective by effecting a managed wind-down with a view to realising all of the investments in a manner that achieves a balance between maximising the value received from investments and making timely returns to Shareholders. The Company may sell its investments either to co-investors in the relevant investment or to third parties, but in all cases with the objective of achieving the best available price in a reasonable time scale.
As part of the realisation process, the Company may also exchange existing debt instruments issued by any direct lending platform for equity securities in such direct lending platform where, in the reasonable opinion of the Board, the Company is unlikely to be able to otherwise realise such debt instruments or will only be able to realise them at a material discount to the outstanding principal balance of that debt instrument.
The following investment restrictions will apply to the Company:
The Company will cease to make any new investments or to undertake capital expenditure except, with the prior written consent of the Board and where:
-- the investment is a follow-on investment made in connection with an existing investment made in order to comply with the Company's pre-existing obligations; or
-- failure to make the follow-on investment may result in a breach of contract or applicable law or regulation by the Company; or
-- the investment is considered necessary by the Board to protect or enhance the value of any existing investments or to facilitate orderly disposals.
Any cash received by the Company as part of the realisation process prior to its distribution to Shareholders will be held by the Company as cash on deposit and/or as cash equivalents.
The Company will not undertake new borrowing other than for short-term working capital purposes. RDLZ, the Company's subsidiary, has ZDP Shares in issue which are repayable on 31 July 2021. In order to facilitate the Company's realisation strategy, the Company will be permitted to purchase ZDP Shares at the discretion of the Board.
Business Model
The Company is an Investment Trust within the meaning of Chapter 4 of Part 24 of the Corporation Tax Act 2010.
Following the Company's announcement on 11 June 2018 that it will move to realise its assets and proceed with the wind-down process, the Company's business model has changed from holding financial assets to collect their contractual cash flows to realising assets, in a prudent manner consistent with the principles of good investment management with a view to returning cash to its Shareholders in on orderly manner. As at 30 June 2018, the carrying value of the financial instruments reclassified from amortised cost to fair value through profit or loss was USD 248,386,018 (notes 3 and 4).
The Directors expect that the process of realisation will result in a transition to voluntary liquidation to preserve the Company's Investment Trust status. The timing of such move is uncertain as the Directors progress the orderly realisation of the portfolio as soon as practicable and with regard to cost efficiency, working capital requirements of the Company and the rights of the ZDP Shareholders.
The Board has formed three working committees to provide the necessary oversight of the Company's Investments.
The first committee, which comprises of Dominik Dolenec, Brendan Hawthorne, Joe Kenary and Brett Miller is responsible for the wind-down and realisation of the Company's existing portfolio (excluding Princeton) with the specific aim of maximising returns for Shareholders. The second committee, which comprises all Board members, has been tasked with management of the Princeton Proceedings and the strategic decisions associated with those proceedings.
The third committee was formed to consider proposals relating to retiring the ZDP Shares issued by the Company's subsidiary, RDLZ. Brendan Hawthorne and Joe Kenary as Directors of RDLZ are not members of this committee. Any final decisions regarding the approach to the investment portfolio and any other proposals to be put to Shareholders are decided by the Board as a whole.
IFM is now the Alternative Investment Fund Manager of the Company (following the termination of Ranger) and is subject to the AIFMD only to the limited extent applicable when a non-EEA Alternative Investment Fund Manager (an "AIFM") offers or markets an EEA Alternative Investment Fund (an "AIF") in the EEA. For the purposes of the AIFMD, the Company is the AIF and IFM is the AIFM.
Outsourced principal service providers include the following:
Function Provider
Alternative Investment Fund Manager International Fund Management
Limited
---------------------------------
English and US (as to Securities Travers Smith LLP and Sidley
Law) Legal Adviser Austin LLP
---------------------------------
General Accounting and Administration Sanne Fiduciary Services Limited
---------------------------------
Accounting and Servicing MCA Financial Group
---------------------------------
Company Secretarial Link Company Matters Limited
---------------------------------
Company Registrar Link Asset Services
---------------------------------
Borrowing policy
As at 31 December 2018, the Company has a loan payable to RDLZ of USD 70,979,233 (2017: USD 73,835,016). In accordance with the Company's investment policy, the Company will not undertake new borrowing other than for short-term working capital purposes. However, in order to facilitate the Company's realisation strategy, the Company will be permitted to purchase RDLZ Shares at the discretion of the Board.
Principal Risks and Uncertainties
There are a number of potential risks and uncertainties which could have a material impact on the Group's performance and could cause actual results to differ materially from expected and historical results. The Board of Directors has overall responsibility for risk management and internal control within the context of achieving the Company's new investment objective. The Board agrees the strategy for the Company, approves the Company's risk appetite and monitors the risk profile of the Company.
The Company has a risk map which consists of the key risks and controls in place to mitigate those risks. The risk map, which is reassessed regularly by the Audit Committee, provides a basis for the Audit Committee and the Board to regularly monitor the effective operation of the controls and to update the matrix when new risks are identified. The Board's responsibility for conducting a robust assessment of the principal risks is embedded in the Company's risk map and stress testing. The Board, through delegation to the Audit Committee, undertakes this robust annual assessment and review of the principal risks facing the Company, together with a review of any new risks which may have arisen during the year.
The Company's investment management and administration functions have historically been outsourced to external service providers. In February 2019, Ranger's contract expired, and the Company appointed IFM as its AIFM working with the Board. In addition, the Company continues to rely on external service providers for a number of management and administrative functions. Any failure of any external service provider to carry out its obligations could have a materially detrimental impact on the effective operation, reporting and monitoring of the Company's financial position. This is likely to have an effect on the Company's ability to meet its new investment objective successfully. The Company receives and reviews internal control reports from its key external service providers on an annual basis and receives a third party independently reviewed control report on its Administrator and Registrar. The Audit Committee has reviewed and considered the guidance supplied by the Financial Reporting Council ("FRC") on Risk Management, Internal Control, and Related Finance and Business Reporting. Information regarding the Company's internal control and risk management procedures can be found in the Corporate Governance Statement.
The Board will continue to keep the Company's system of risk management and internal control under review and will continue to ensure that the principal risks and challenges faced by the Group are fully understood and managed appropriately.
An overview of the principal risks and the main uncertainties that the Board considers to be currently faced by the Company are provided below, together with the mitigating actions being taken.
Risks arising due to Managed Wind-Down
In a Managed Wind-Down, the value of the Portfolio will be reduced and concentrated in fewer holdings, and the mix of asset exposure will be affected accordingly.
The Company might experience increased volatility in its Net Asset Value and/or its Share price as a result of possible changes to the Portfolio structure.
The Company's assets may not be realised at their fair market value, and it is possible that the Company may not be able to realise some assets at any value.
Sales commissions, liquidations cost, taxes and other costs associated with the realisation of the Company's assets will reduce the cash available for distribution to Shareholders.
Due to the time it would typically take to repatriate the proceeds from the sale of assets to the UK, it is expected that there could be potentially significant time lags between sales made by the Company and any subsequent returns of capital to Shareholders.
The timing and ultimate amount of any returns will be impacted by the tax regimes of the countries in which the Company invests.
The liquidity profile of the Portfolio is such that Shareholders may have to wait a considerable period of time before receiving all of their distributions pursuant to the Managed Wind-Down. During that time, the concentration of the value of the Portfolio in fewer holdings will reduce diversification and the spread of risk. This may adversely affect the Portfolio's performance.
The maintenance of the Company as an ongoing listed vehicle will entail administrative, legal and listing costs, which will decrease the amount ultimately distributed to Shareholders. Although the Board intends to maintain the Company's listing for as long as the Directors believe it to be practicable during the Managed Wind-Down period, the Directors shall immediately notify the Financial Conduct Authority ("FCA") and may seek suspension of the listing of the Shares pursuant to the requirements of the Listing Rules (which may include Shareholder approval prior to any suspension or de-listing) if the Company can no longer satisfy the continuing obligations for listing set out therein including, but not limited to, the requirements in respect of Shares held in "public hands" (as such phrase is defined in the Listing Rules) and in relation to spreading investment risk, and consequently the listing of the Shares may be suspended and/or cancelled. Once suspended and/or cancelled, the Shares would no longer be capable of being traded on the London Stock Exchange, which would materially reduce market liquidity in the Shares. The Company would also lose its "Investment Trust" tax status in the UK as a result of such suspension or cancellation which may impact on the returns to investors.
It should also be noted that there may be other matters or factors which affect the availability, amount or timing of receipt of the proceeds of realisation of some or all of the Company's investments. In particular, ongoing redemptions will decrease the size of the Company's assets, thereby increasing the impact of fixed costs incurred by the Company on the remaining assets. In determining the size of any distributions, the Directors will take into account the Company's ongoing running costs, however, should these costs be greater than expected or should cash receipts for the realisations of investments be less than expected, this will reduce the amount available for Shareholders in future distributions.
Declarations of dividends will be made at the Directors' sole discretion, as and when they deem that the Company has sufficient distributable reserves available to make a distribution and which complies with the undertakings made to RDLZ and the ZDP Holders. Shareholders, therefore, have little certainty as to whether or not the Company will make a declaration of dividend.
Mitigation
The Board have designated a number of its members as "Executive Directors" who are focused on addressing the risks associated with the Managed Wind-Down.
Legal and compliance risk
Laws applicable to Debt Instruments may govern the terms of such instruments and subject the Company to legal and regulatory examination or enforcement action.
Further, any proceeding brought by the federal or state regulatory authorities to any of the Direct Lending Platforms could result in cases against the Company itself and could affect whether the Debt Instruments are enforceable in accordance with their terms.
Mitigation
To manage this risk the Directors are regularly briefed by the Company's legal counsel on legal and regulatory developments. Further, regulatory risk is a standing item at Board meetings.
Investment risk
The Group has substantial investments remaining in Debt Instruments and the major risks include market and credit risks.
On 22 December 2016, the Company announced the bankruptcy of Argon Credit, LLC ("Argon") to which it has indirectly provided credit lines through its investment in Princeton.
On 7 November 2018, a chapter 11 Trustee was appointed in relation to the bankruptcy proceedings of Princeton Alternative Income Fund, LP and its former general partner Princeton Alternative Funding, LLC (together, "Princeton").
Based on the information provided to date by the Trustee (which the Company has not been able to independently validate or verify), the Company is currently estimating a potential recovery of approximately USD 15 million from the Princeton bankruptcy.
This remains an unverified estimate and is subject to a number of potential variables, in particular that the amount that the Company will recover will be dependent upon the final structure of the creditor and investor waterfall and distribution scheme and the actual net amount available for distribution
Link to KPI
Target Return
Mitigation
The number of investments held and sector diversity enable the Group to spread the risks with regard to market volatility, currency movements, revenue streams and credit exposure.
The Company has continued to actively engage with the Trustee and its other advisers in connection with its investment in Princeton.
Taxation risk
As an investment company, the Company needs to comply with sections 1158/1159 of the Corporation Tax Act 2010.
Link to KPI
Total dividends for the year
Mitigation
The Administrator prepares quarterly management accounts which allow the Board to assess the Company's compliance with Investment Trust conditions. Further, contractual arrangements with third party external service providers are in place, to ensure compliance with tax and regulatory requirements.
Cyber security risk
The Company relies on services provided by its external service providers and is therefore dependent on the effective operation of their systems in place. Likewise, the Company is dependent on the Direct Lending Platforms' ability to effectively manage vulnerabilities to technological failure and cyber-attacks.
Any weakness in their information security could result in a disruption to the dealing procedures, accounting and payment process.
Mitigation
The Company performs a due diligence review before entering into contracts with any external service provider and also prior to investing in a Debt Instrument. Subsequently, the Company receives a controls performance report such as ISAE 3402 report on key service providers which is subject to the Audit Committee's review.
Brexit risk
The Company has also considered Brexit's current and potential impact on the Company. The majority of the Group's portfolio is denominated in USD and the Company has entered into derivative contracts to manage the exposure to foreign currency on existing assets. Therefore, the Board has concluded that this event does not represent a principal risk to the Company.
Viability Statement
Given the change in Investment Policy and in accordance with the AIC Code, the Directors have assessed the prospects of the Company over its expected realisation timeframe, taking into account the final repayment date of the RDLZ Shares in 2021.
The Company has sufficient liquidity to redeem the ZDP Shareholders at any time.
The Directors also considered the requirement in the Articles of Association (the "Articles") to put a proposal for the continuance of the Company at the AGM in 2020 and have reviewed the potential impact that this may have on the Company's viability.
In their assessment of the viability of the Company, the Directors have considered each of the principal risks and uncertainties above. The Directors have also reviewed the Company's income and expenditure projections and the fact the Company's investments (including those held through the Trust) do not comprise readily realisable securities which can be sold to meet funding requirements if necessary. The Company maintains a risk register for its stress test to identify, monitor and control risk concentration.
The Company has processes for monitoring operating costs, share price discount, compliance with the investment objective and policy, asset allocation, the portfolio risk profile, counterparty exposure, liquidity risk, financial controls and stress-testing based assessment of the Company's prospects.
The Directors confirm that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the Managed Wind-Down period. The Directors note that the Company has sufficient liquidity to repay the ZDP Holders from existing cash reserves without any recourse to further leverage, further details are shown in the notes below to the consolidated financial statements.
Going Concern
As announced on 6 July 2018 and disclosed within the Chairman's Statement above, the Board established three new committees that aim to quickly and efficiently wind down the Company. These committees focus on the Princeton proceedings and the associated strategic decisions and the Managed Wind-Down and realisation of the Company's existing portfolio (excluding Princeton) with the specific aim of maximising returns for Shareholders.
The Board are in the process of disposing of the Company's assets in an orderly manner and returning Shareholders' capital to them and fully intend to adequately reimburse the ZDP Shareholders by the end of July 2021, or earlier if an agreement is reached with the ZDP Shareholders.
Given these developments and the intention to wind down the Company, the use of the going concern basis in preparing the financial statements of the Group is not considered to be appropriate. As such the financial statements have been prepared on a basis other than that of a going concern, under which assets are measured at their net realisable value. There were no adjustments made to the carrying values of the assets and liabilities of the Group as a result of this change in the basis of preparation, because the Directors consider the carrying value of assets to approximate their net realisable value.
No provision has been made for the costs of winding up the Company as these will be charged to the income statement on an accruals basis as they are incurred or as the Company becomes obligated to make such payments in the future.
The Directors believe that the Company and Group have adequate resources to continue in operational existence until the anticipated liquidation of the Company. The Board will ensure that sufficient liquidity is held back at all times to ensure all liabilities, including those to ZDP Shareholders are at all times adequately covered.
Performance
The table below provides monthly performance information:
Ordinary
Shares
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
2017 0.87% 0.66% 0.74% 0.60% 0.58% 0.54% 0.41% 0.42% 0.22% (8.32%) 0.20% 0.48% (2.95%)
% NAV 2018 0.43% 0.31% 0.01% 0.17% (0.07%) (0.14%) (0.19%) 0.13% 0.15% (0.26%) (4.36%) (15.71%) (17.00%)
--------- ----- ------- ------- ------- -------- ------- ------- ------- ------- ----- ------- -------- -------- --------
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
2017 (0.19%) 1.61% 3.27% (17.90%) (5.46%) (4.61%) (0.58%) (5.84%) 4.96% (4.23%) (5.91%) (0.76%) (31.85%)
Return
on Share
Price 2018 (5.70%) (3.95%) (0.82%) 10.64% (0.87%) 0.76% (2.50%) (0.51%) 0.52% 2.05% (13.82%) (3.79%) (6.82%)
--------- ----- ------- ------- ------- -------- ------- ------- ------- ------- ----- ------- -------- -------- --------
C Shares
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
2017 0.31% 0.46% - - - - - - - - - - 0.77%
----------
% NAV 2018 - - - - - - - - - - - - -
---------- ------------ ----- ----- --- --- --- --- --- --- --- --- --- --- -----
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
2017 2.05% - - - - - - - - - - - 2.05%
----------
Return
on Share
Price 2018 - - - - - - - - - - - - -
---------- ------------ ----- ----- --- --- --- --- --- --- --- --- --- --- -----
Premium/Discount
The Board monitors the price of the Company's Ordinary Shares in relation to their NAV and the premium/discount at which the shares trade. The following table shows the premium/discount through the year:
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Premium/
(discount)
to NAV at
end of
each month 2017 (12.83%) (11.00%) (7.95%) (22.48%) (27.47%) (28.82%) (28.63%) (33.16%) (27.26%) (24.72%) (26.51%) (27.34%)
------------
2018 (24.67%) (33.97%) (29.55%) (19.43%) (24.69%) (22.04%) (24.32%) (26.74%) (23.63%) (12.80%) (25.17%) (11.79%)
------------------- ---------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Analysis of Key Performance Indicators and Investment Restrictions
The Company's new investment policy calls for an orderly wind-down of the Company's investments with the aim of maximising risk-adjusted IRRs to Shareholders. New investments are restricted only to existing exposures and are subject to a number of pre-conditions.
Indicator Criteria As at 31 Dec 2018
Target Return (8) 12% to 13% unlevered Targeted net annualised
annual net returns returns (after Princeton-Argon
to the Company on loan impairment) are 10%
investments to 11% to the Company
before fund expenses,
management and performance
fees.
-------------------- ------------------------ -------------------------------------------
Total dividends for At least 85% of Net Interim dividends of
the year Profit 85% of Net Profit
-------------------- ------------------------ -------------------------------------------
(8) This includes return on investments including provision for loan losses but excluding expenses and Investment Manager fees
Environmental, Human Rights, Employee, Social and Community Issues
The Company has no employees and the Board consists of Non-Executive and Executive Directors. As an Investment Trust, the Company's own direct environmental impact is minimal, and it has no direct impact on the community and as a result does not maintain specific policies in relation to these matters.
The Company falls outside the scope of the Modern Slavery Act 2015 as it does not meet the turnover requirements under that act. The Company operates by outsourcing significant parts of its operations to reputable professional companies, who are required to comply with all relevant laws and regulations and take account of social, environmental, ethical and human rights factors, where appropriate.
The Company has no 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, including those within its underlying investment portfolio.
In carrying out the realisation of the portfolio, the Company aims to conduct itself responsibly and ethically.
Board Diversity
The Board consists entirely of male Directors. A description of the Company's Board diversity is set out in the Directors' Report.
Non-Financial Information Statement
The Board has considered the requirements of the non-financial information statement in accordance with section 414CB of the Companies Act 2006 and do not consider them to be relevant to the Company, it being an Investment Trust with no employees and minimal environmental impact, with the exception of a description of the principal risks and description of the business model. These can be found above.
The Group Strategic Report was approved by the Board of Directors on 17 June 2019 and signed on its behalf by:
Dominik Dolenec
Chairman
Board of Directors
Dominik Dolenec - Chairman
Brendan Hawthorne - Non-executive director and Chairman of the Audit Committee
Brett Miller - Executive Director
Gregory Share - Non-executive Director and Chairman of the Remuneration and Nomination Committee
Joseph Kenary - Executive Director
Nick Paris - Non-executive Director
EXTRACTS FROM THE DIRECTORS' REPORT
Current Share Capital
As at 31 December 2018 and as at the date of this Report, the Company had 16,122,931 Ordinary Shares of GBP 0.01 each in issue, all of which are admitted to the official list maintained by the Financial Conduct Authority and admitted to trading on the London Stock Exchange. No shares were held in treasury during the year or at the year end. During the year, there were no purchases of Ordinary Shares made by the Company.
The rights attaching to the Company's Ordinary Shares are set out in the Company's Articles. Further details are shown in note 10 to the consolidated financial statements.
The Shareholders granted the Directors the following authorities at the Annual General Meeting of the Company held on 18 June 2018 until the forthcoming Annual General Meeting of the Company:
-- authority to allot equity securities up to an aggregate nominal value of GBP 16,122.93, being approximately 10% of the Company's issued share capital, on a non-pre-emptive basis; and
-- authority to make market purchases of up to 2,416,827 Ordinary Shares, representing 14.99% of the Company's issued share capital.
Resolutions to renew the above authorities in respect of the allotment (and associated pre-emption approvals) and buyback of Ordinary Shares will be sought at the 2019 AGM on 12 July 2019.
Dividends
The declaration of interim dividends can be made at the Directors' sole discretion, as and when they deem that the Company has sufficient distributable reserves available to make a distribution, however, the Board does not intend to make quarterly dividends, other than when required to maintain its investment trust status.
For the year ended 31 December 2018, the Company declared dividends of 85.00% (2017: 91.83%) of its earned distributable income.
Dividend Policy
As advised to Shareholders in the Company's circular dated 29 October 2018, the Board does not intend to make quarterly dividends and will instead make payments by way of ad-hoc special dividends, where appropriate, during the course of the managed wind-down process so that the Company is able to return available cash to Shareholders as soon as reasonably practicable after cash becomes available in the portfolio whilst ensuring compliance with its obligations to RDLZ and the ZDP Shareholders.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and financial statements in accordance with United Kingdom applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial period. Under that law they have elected to prepare the financial statements in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS").
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 the Company and of the profit or loss of the Group and the Company for that period. In preparing these financial statements, the Directors are required to:
-- properly select and apply accounting policies consistently; -- make judgement and estimates which are reasonable and prudent;
-- present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
-- provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and
-- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business. As explained in note 2 to the financial statements, the Directors do not believe the going concern basis to be appropriate for the preparation of the financial statements of the Group and accordingly the financial statements of the Group have not been prepared on a going concern basis. No provision has been made for the costs of winding up the Company as these will be charged to the income statement on an accruals basis as they are incurred or as the Company becomes obligated to make such payments in the future.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and Company and to prevent and detect fraud and other irregularities.
The Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with relevant laws and regulations, and for ensuring that the Annual Report includes information required by the Disclosure and Transparency Rules of the UK Listing Authority.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's and Stock Exchange websites. Legislation in the UK governing the preparation and dissemination of financial statements may differ from the legislation in other jurisdictions.
Responsibility statement
We, the Directors listed above, being the persons responsible, hereby confirm to the best of our knowledge that:
-- the financial statements, have been prepared in accordance with IFRS, give a true and fair view of the assets, liabilities, financial positions and profit or loss of the Group and the Company; and
-- the Group Strategic Report and the Executive Director's Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties the Company faces.
The Directors consider that the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Group's and Company's position and performance, business model and strategy.
This responsibility statement was approved by the Board of Directors on 17 June 2019 and is signed on behalf of the Board.
Dominik Dolenec
Chairman
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the Company's statutory accounts for the year ended 31 December 2018 but is derived from those accounts. Statutory accounts for the year ended 31 December 2018 will be delivered in due course.
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF RDL REALISATION PLC (FORMERLY KNOWN AS RANGER DIRECT LING FUND PLC)
Report on the audit of the financial statements
Qualified opinion
=============================================================================
In our opinion, except for the possible effects of the matters
described in the basis for qualified opinion section of our
report:
* the financial statements of RDL Realisation Plc
(formerly known as Ranger Direct Lending Fund Plc)
give a true and fair view of the state of the group's
and of the parent company's affairs as at 31 December
2018 and of the group's and the parent company's loss
for the year then ended;
* the group financial statements have been properly
prepared in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the
European Union;
* the parent company financial statements have been
properly prepared in accordance with IFRSs as adopted
by the European Union 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 and, as regards the group financial statements,
Article 4 of the IAS Regulation.
We have audited the financial statements which comprise:
* the consolidated and parent company statements of
comprehensive income;
* the consolidated and parent company statements of
financial position;
* the consolidated and parent company statements of
changes in equity;
* the consolidated and parent company cash flow
statements; and
* the related notes 1 to 25.
The financial reporting framework that has been applied in their
preparation is applicable law and IFRSs as adopted by the European
Union and, as regards the parent company financial statements,
as applied in accordance with the provisions of the Companies
Act 2006.
Basis for qualified opinion
=============================================================================
1. Limitation of scope in respect of the investment in Princeton
As described in the Annual Report, the directors have been unable
to provide us with sufficient appropriate audit evidence in
relation to the investment in Princeton recorded at a value
of $15.0 million. We were unable to obtain sufficient appropriate
audit evidence regarding this investment by using other audit
procedures. The audit report was qualified in the 2 previous
years in respect of the same matter.
Princeton filed for bankruptcy in the USA in March 2018. On
November 7, 2018, the United States Bankruptcy Court for the
District of New Jersey granted the Company's motion for the
appointment of a chapter 11 Trustee in the bankruptcy cases
of Princeton and directed the United States Trustee to appoint
a chapter 11 Trustee. Further information is provided in the
Chairman's Statement.
2. Disagreement in respect of the estimation of fair value of
non-current loan investments held at fair value through profit
or loss
The balance of non-current loan investments (financial assets
held through profit or loss) was $122.8m (excluding the Princeton
equity investment which was held at a valuation of $15.0m).
In estimating the fair value of a number of these investments,
management used valuation reports provided by an external expert
and made adjustments to the valuations where they considered
this to be appropriate.
In order to assess the fair values of these investments, we
used internal valuation specialists to form an independent estimation
of the fair values based on cash flow forecasts provided by
management, discounted at an appropriate rate. In our opinion,
the fair value of these investments should be increased by $1.8m
and the loss for the year and the unrealised capital losses
should be decreased by $1.8m. This misstatement is the net effect
of valuation differences identified over several investments;
the absolute values of the individual differences ranged up
to $1.4m.
We reported to the Audit Committee that there is a weakness
in internal control relating to the valuation of loan investments,
as, in our opinion, management's estimation was not sufficiently
precise in several instances to identify a material misstatement.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our qualified opinion.
We conducted our audit in accordance with International Standards
on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the auditor's
responsibilities for the audit of the financial statements section
of our report.
We are independent of the group and the parent company in accordance
with the ethical requirements that are relevant to our audit
of the financial statements in the UK, including the Financial
Reporting Council's (the 'FRC's') Ethical Standard as applied
to listed public interest entities, and we have fulfilled our
other ethical responsibilities in accordance with these requirements.
We confirm that the non-audit services prohibited by the FRC's
Ethical Standard were not provided to the group or the parent
company.
Summary of our audit approach
=============================================================================
Key audit The key audit matters that we identified in the current
matters year were:
* Valuation of non-current loan assets held as
investments at fair value through profit and loss;
and
* Valuation of investment in the Princeton fund (see
the basis for qualified opinion section above).
------------ ===============================================================
Materiality The materiality that we used in the current year was
$1.2 million (2017: $2.1 million) which was determined
on the basis of 1% of net assets.
------------ ===============================================================
Scoping We performed a full scope audit on 2 (2017: 2) components
as identified in the prior year.
Together, this accounts for 100% (2017: 100%) of the
Group's income and 100% (2017: 100%) of the Group's
loss before tax.
------------ ===============================================================
Significant Following the announcement in June 2018 that the Company
changes would move to realise its assets and proceed with a
in our wind down process, the group reclassified its loan
approach investments from financial assets held at amortised
cost to financial assets held at fair value through
profit or loss. As a result, we removed one of our
key audit matters, being valuation of investments held
at amortised cost.
In addition, given the reduction in factoring income
in the year, we no longer considered accuracy of factoring
income to be a key audit matter. We also identified
an additional key audit matter relating to the estimation
of fair value of non-current loan investments held
at fair value through profit or loss (see the basis
for qualified opinion section above).
===============================================================
Emphasis of matter - Financial statements prepared other than
on a going concern basis
================================================================
We draw attention to note 2 in the financial statements, which
indicates that the financial statements have been prepared on
a basis other than that of a going concern. Our opinion is not
modified in respect of this matter.
Conclusions relating to principal risks and viability statement
Based solely on reading the directors' statements We confirm that we
and considering whether they were consistent have nothing material
with the knowledge we obtained in the course to report, add or
of the audit, including the knowledge obtained draw attention to
in the evaluation of the directors' assessment in respect of these
of the group's and the company's ability matters.
to continue as a going concern, we are required
to state whether we have anything material
to add or draw attention to in relation
to:
-- the disclosures on pages 19-22 of the
full Annual Report that describe the principal
risks and explain how they are being managed
or mitigated;
-- the directors' confirmation on page 19
of the full Annual Report that they have
carried out a robust assessment of the principal
risks facing the group, including those
that would threaten its business model,
future performance, solvency or liquidity;
or
-- the directors' explanation on page 22
of the full Annual Report as to how they
have assessed the prospects of the group,
over what period they have done so and why
they consider that period to be appropriate,
and their statement as to whether they have
a reasonable expectation that the group
will be able to continue in operation and
meet its liabilities as they fall due over
the period of their assessment, including
any related disclosures drawing attention
to any necessary qualifications or assumptions.
We are also required to report whether the
directors' statement relating to going concern
and the prospects of the group required
by Listing Rule 9.8.6R(3) is materially
inconsistent with our knowledge obtained
in the audit.
Key audit matters
====================================================================================
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due
to fraud) that we identified. These matters included 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.
Apart from the two matters described in the Basis for qualified
opinion section above, we have not determined any other matters
to be key audit matters.
Our application of materiality
================================================================================
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed
or influenced. We use materiality both in planning the scope
of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
Group financial statements Parent company financial
statements
==============================
Materiality $1,221,000 (2017: $2,157,000) $1,209,000 (2017: $2,135,000)
-------------- ============================== ==============================
Basis for 1% of net asset value (NAV) 1% of NAV, capped at 99%
determining of group materiality
materiality
-------------- ============================== ==============================
Rationale Group and parent company financial statements:
for the
benchmark As the investment objective of the Group is primarily
applied to achieve a net return from investments during
the orderly wind down of the Group, we consider
the net assets of the Group to be a key performance
indicator for shareholders. Partner judgement was
applied in the determination of an appropriate percentage.
The materiality was significantly reduced during
the year due to the net asset value reduction linked
to the wind down strategy mentioned above.
==============================================================
We agreed with the Audit Committee that we would report to
the Committee all audit differences in excess of $55k (2017:
$107k) for the group and $50k (2017: $106k) for the parent
company, as well as differences below that threshold that,
in our view, warranted reporting on qualitative grounds. We
also report to the Audit Committee on disclosure matters that
we identified when assessing the overall presentation of the
financial statements.
An overview of the scope of our audit
==========================================================================
Our group audit was scoped by obtaining an understanding of
the group and its environment, including group-wide controls,
and assessing the risks of material misstatement at the group
level.
For the purposes of scoping our group audit, we determined two
key audit components:
1. RDL Realisation Plc, the parent company which includes financial
information relating to RDL Fund Trust Trust which is used to
hold a number of the group's investments; and
2. RDLZ Realisation Plc, a subsidiary of RDL Realisation Plc
that was incorporated to raise funds for the wider group to
realise its investment objectives. For this we performed separate
risk assessment procedures based on the component's activities.
These components account for all of the operations and net assets
as represented within the group financial statements. A full
scope audit has been performed for both components directly
by the audit engagement team.
Other information
============================================================================================
The directors are responsible for the other As described in the
information. The other information comprises basis for qualified
the information included in the annual opinion section of
report, other than the financial statements our report, our audit
and our auditor's report thereon. opinion is qualified
in relation to the
Our opinion on the financial statements valuation of investments.
does not cover the other information and,
except to the extent otherwise explicitly This is also not disclosed
stated in our report, we do not express in the Executive Directors'
any form of assurance conclusion thereon. report or the Strategic
report and accordingly
In connection with our audit of the financial we have concluded that
statements, our responsibility is to read the other information
the other information and, in doing so, is materially misstated
consider whether the other information for the same reason.
is materially inconsistent with the financial
statements or our knowledge obtained in
the audit or otherwise appears to be materially
misstated.
If we identify such material inconsistencies
or apparent material misstatements, we
are required to determine whether there
is a material misstatement in the financial
statements or a material misstatement of
the other information. If, based on the
work we have performed, we conclude that
there is a material misstatement of this
other information, we are required to report
that fact.
In this context, matters that we are specifically
required to report to you as uncorrected
material misstatements of the other information
include where we conclude that:
* Fair, balanced and understandable - the statement
given by the directors that they consider the annual
report and financial statements taken as a whole is
fair, balanced and understandable and provides the
information necessary for shareholders to assess the
group's position and performance, business model and
strategy, is materially inconsistent with our
knowledge obtained in the audit; or
* Audit committee reporting - the section describing
the work of the audit committee does not
appropriately address matters communicated by us to
the audit committee; or
* Directors' statement of compliance with the UK
Corporate Governance Code - the parts of the
directors' statement required under the Listing Rules
relating to the company's compliance with the UK
Corporate Governance Code containing provisions
specified for review by the auditor in accordance
with Listing Rule 9.8.10R(2) do not properly disclose
a departure from a relevant provision of the UK
Corporate Governance Code.
Responsibilities of directors
==========================================================================
As explained more fully in the directors' responsibilities statement,
the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and
fair view, and for such internal control as the directors determine
is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud
or error.
In preparing the financial statements, the directors are responsible
for assessing the group's and the 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 the directors 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 for the audit of the financial statements
==========================================================================
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 an auditor's report
that includes our opinion. Reasonable assurance is a high level
of assurance, but is not a 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 the aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
Details of the extent to which the audit was considered capable
of detecting irregularities, including fraud are set out below.
A further description of our responsibilities for the audit
of the financial statements is located on the Financial Reporting
Council's website at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor's report.
Extent to which the audit was considered capable of detecting
irregularities, including fraud
==========================================================================
We identify and assess the risks of material misstatement of
the financial statements, whether due to fraud or error, and
then design and perform audit procedures responsive to those
risks, including obtaining audit evidence that is sufficient
and appropriate to provide a basis for our opinion.
Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement
in respect of irregularities, including fraud and non-compliance
with laws and regulations, our procedures included the following:
* enquiring of the Alternative Investment Fund Manager,
the Company Secretary, external legal counsel, the
administrator and the Audit Committee, including
obtaining and reviewing supporting documentation,
concerning the group's policies and procedures
relating to:
o identifying, evaluating and complying with laws and regulations
and whether they were aware of any instances of non-compliance;
o detecting and responding to the risks of fraud and whether
they have knowledge of any actual, suspected or alleged fraud;
o the internal controls established to mitigate risks related
to fraud or non-compliance with laws and regulations;
* discussing among the engagement team and involving
relevant internal specialists, including tax
specialists regarding how and where fraud might occur
in the financial statements and any potential
indicators of fraud. As part of this discussion, we
identified potential for fraud in the valuation of
investments at fair value through profit or loss.
* obtaining an understanding of the legal and
regulatory frameworks that the group operates in,
focusing on those laws and regulations that had a
direct effect on the financial statements or that had
a fundamental effect on the operations of the group.
The key laws and regulations we considered in this
context included the UK Companies Act, the Listing
Rules and the Investment Trust regime within the
meaning of Chapter 4 of part 24 of the Corporation
Tax Act 2010.
Audit response to risks identified
As a result of performing the above, we identified valuation
of investments held at fair value through profit or loss as
a key audit matter. In addressing the potential risk of fraud
in this area, we reviewed and challenged the valuation reports
provided by the directors' expert in estimating the fair value
of the loan investments, agreed material inputs to underlying
supporting documentation and challenged the other valuation
adjustments made by management.
In addition to the above, our procedures to respond to risks
identified included the following:
* reviewing the financial statement disclosures and
testing to supporting documentation to assess
compliance with relevant laws and regulations
discussed above;
* enquiring of the Alternative Investment Fund Manager,
the Company Secretary, external legal counsel, the
administrator and the Audit Committee concerning
actual and potential litigation and claims;
* performing analytical procedures to identify any
unusual or unexpected relationships that may indicate
risks of material misstatement due to fraud;
* reading minutes of meetings of those charged with
governance and reviewing correspondence with HMRC;
and
* in addressing the risk of fraud through management
override of controls, testing the appropriateness of
journal entries and other adjustments; assessing
whether the judgements made in making accounting
estimates are indicative of a potential bias; and
evaluating the business rationale of any significant
transactions that are unusual or outside the normal
course of business.
We also communicated relevant identified laws and regulations
and potential fraud risks to all engagement team members including
internal specialists, and remained alert to any indications
of fraud or non-compliance with laws and regulations throughout
the audit.
Report on other legal and regulatory requirements
Statement pursuant to section 837(4) of the Companies Act 2006
======================================================================
Respective responsibilities of directors and the auditor
In addition to their responsibilities described above, the directors
are also responsible for considering whether the group, subsequent
to the balance sheet date, has sufficient distributable profits
to make a distribution at the time the distribution is made.
Our responsibility is to report whether, in our opinion, the
subject matter of our qualification of our auditor's report
on the group financial statements for the year ended 31 December
2017 is material for determining, by reference to those financial
statements, whether distributions proposed by the company are
permitted under section 830, section 831 and section 832 of
the Companies Act 2006. We are not required to form an opinion
on whether the company has sufficient distributable reserves
to make the distribution proposed at the time the distribution
is made.
Opinion on proposed distributions
In our opinion the subject matter of the above qualification
is not material for determining by reference to these financial
statements whether any distributions of not more than
$60,000,000 in aggregate as may be proposed by the company
(being an amount with sufficient headroom for the Company to
pay dividends over the next 12 months) are permitted under section
830, section 831 and section 832 of the Companies Act 2006.
Opinions on other matters prescribed by the Companies Act 2006
======================================================================
In our opinion the part of the directors' remuneration report
to be audited has been properly prepared in accordance with
the Companies Act 2006.
In our opinion, based on the work undertaken in the course of
the audit except for the effects of the matters discussed in
the basis of qualified opinion section of our report:
* the information given in the strategic report and the
executive directors' report for the financial year
for which the financial statements are prepared is
consistent with the financial statements; and
* the strategic report and the directors' report have
been prepared in accordance with applicable legal
requirements.
Except for the effects of the matters described in the basis
for qualified opinion section of our report, in the light of
the knowledge and understanding of the group and the parent
company and their environment obtained in the course of the
audit, we have not identified any material misstatements in
the strategic report or the executive directors' report.
Matters on which we are required to report by exception
=================================================================================
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you
if, in our opinion:
* we have not received all the information and
explanations we require for our audit; or
* 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 and returns.
We have nothing to report in respect of these matters.
Directors' remuneration
Under the Companies Act 2006 we are We have nothing to report
also required to report if in our opinion in respect of these matters.
certain disclosures of directors' remuneration
have not been made or the part of the
directors' remuneration report to be
audited is not in agreement with the
accounting records and returns.
Other matters
=================================================================
Auditor tenure
Following the recommendation of the audit committee, we were
appointed by the board of directors in April 2015 to audit the
financial statements for the period ending 9 April 2015 and
subsequent financial periods. The period of total uninterrupted
engagement including previous renewals and reappointments of
the firm is 5 financial periods covering the periods ending
9 April 2015 to 31 December 2018.
Consistency of the audit report with the additional report to
the audit committee
Our audit opinion is consistent with the additional report to
the audit committee we are required to provide in accordance
with ISAs (UK).
Use of our report
===================================================================
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.
Garrath Marshall, ACA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
17 June 2019
CONSOLIDATED AND COMPANY STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2018
Notes 2018 2017 2018 2017
ASSETS Group Company
Non-current assets (USD) (USD)
Financial assets at fair
value through profit
or loss 3 137,806,709 29,621,483 4,974,099 300,000
Loans held at amortised
cost 4 - 250,993,296 - 50,793,341
Deferred tax asset 12 - 80,669 - 80,669
Investment in subsidiaries 6 - - 195,784,147 195,780,355
------------- -------------
Total non-current assets 137,806,709 280,695,448 200,758,246 246,954,365
-------------- ------------- -------------------------------- -------------
Current assets
Financial assets at fair
value through profit
or loss 3 38,307,954 - 38,307,954 -
Derivative assets 13 412,297 1,110,329 412,297 1,110,329
Amounts owed by subsidiary
undertakings 16 - - 6,434,803 44,712,526
Receivable from broker 5,825,498 - 5,825,498 -
Advances to/funds
receivable
from direct lending
platforms 5 908,917 3,782,916 - -
Prepayments and other
receivables 790,379 192,635 790,382 101,488
Cash and cash equivalents 15 35,634,844 9,699,799 20,809,196 1,304,277
------------- -------------
Total current assets 81,879,889 14,785,679 72,580,130 47,228,620
-------------- ------------- -------------------------------- -------------
TOTAL ASSETS 219,686,598 295,481,127 273,338,376 294,182,985
-------------- ------------- -------------------------------- -------------
Non-current liabilities
Zero dividend preference
shares 9 65,180,787 76,222,019 - -
Amounts due to subsidiary
undertaking 16 - - 126,059,851 73,835,016
------------- -------------
Total non-current
liabilities 65,180,787 76,222,019 126,059,851 73,835,016
-------------- ------------- -------------------------------- -------------
Current liabilities
Accrued expenses and
other liabilities 8 32,154,477 2,619,586 30,825,243 1,335,155
Income tax liability 1,508,612 290,496 1,270,363 -
Derivative liabilities 13 6,101 545,126 6,101 545,126
------------- -------------
Total current liabilities 33,669,190 3,455,208 32,101,707 1,880,281
-------------- ------------- -------------------------------- -------------
TOTAL LIABILITIES 98,849,977 79,677,227 158,161,558 75,715,297
NET ASSETS 120,836,621 215,803,900 115,176,818 218,467,688
============== ============= ================================ =============
SHAREHOLDERS' EQUITY
Capital and reserves
Share capital 10 427,300 427,300 427,300 427,300
Share premium account 10 40,346,947 40,346,947 40,346,947 40,346,947
Other reserves 10 156,922,734 204,225,570 156,922,734 204,225,570
Revenue reserves 1,421,278 4,484,858 8,737,669 8,647,515
Realised capital profits (76,365,105) (30,035,108) (72,020,922) (36,982,537)
Unrealised capital losses (2,475,418) (3,480,486) (19,236,910) 1,802,893
Foreign currency
translation
reserves 558,885 (165,181) - -
TOTAL SHAREHOLDERS' EQUITY 120,836,621 215,803,900 115,176,818 218,467,688
============== ============= ================================ =============
NAV per Ordinary Share 7.49 13.38 7.14 13.55
============== ============= ================================ =============
The accompanying notes below are an integral part of these financial statements.
The financial statements for the year ended 31 December 2018 of RDL Realisation Plc , a public company limited by shares and incorporated in England and Wales with registered number 09510201, were approved and authorised for issue by the Board of Directors on 17 June 2019.
Signed on behalf of the Board of Directors:
Dominik Dolenec
Chairman
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2018
Notes 1 Jan to 31 Dec 18 1 Jan to 31 Dec 17
Income Revenue Capital Total Revenue Capital Total
(USD) (USD) (USD) (USD) (USD) (USD)
Investment income 22,647,763 - 22,647,763 26,511,977 - 26,511,977
Gain on revaluation
of derivative
contracts - 203,869 203,869 - 2,184,162 2,184,162
Other income 4,844,030 - 4,844,030 8,213,322 - 8,213,322
Bank interest
income 3,765 - 3,765 115 - 115
---------------------- ------------- ------------- ------------ ------------- -------------
27,495,558 203,869 27,699,427 34,725,414 2,184,162 36,909,576
---------------------- ------------- ------------- ------------ ------------- -------------
Operating expenditure
Net loss on
financial assets
at fair value
through profit
or loss 3 - 15,830,398 15,830,398 - 12,558,687 12,558,687
Foreign exchange
loss - 1,677,065 1,677,065 - 2,591,408 2,591,408
Investment Manager
Performance
Fees 16,17 - - - (1,822) 15,585 13,763
Investment Management
Fees 16,17 2,675,643 - 2,675,643 3,054,733 - 3,054,733
Service and
premium fees 1,980,905 - 1,980,905 2,964,697 - 2,964,697
Provision for
/ (Reversal
of) default 7 - 1,002,222 1,002,222 - 3,073,240 3,073,240
Realised loss
on financial
assets through
profit or loss - 19,199,453 19,199,453
Loans written 4,
off 7 - 7,091,372 7,091,372 - 10,730,543 10,730,543
Company secretarial,
administration
and registrar
fees 421,019 - 421,019 494,475 - 494,475
Finance costs 9 3,934,484 - 3,934,484 3,604,530 - 3,604,530
Other expenses 20 8,056,722 - 8,056,722 4,107,794 - 4,107,794
---------------------- ------------- ------------- ------------ ------------- -------------
17,068,773 44,800,510 61,869,283 14,224,407 28,969,463 43,193,870
---------------------- ------------- ------------- ------------ ------------- -------------
Profit/(loss)
before tax 10,426,785 (44,596,641) (34,169,856) 20,501,007 (26,785,301) (6,284,294)
---------------------- ------------- ------------- ------------ ------------- -------------
Taxation 12 (872,082) (728,288) (1,600,370) (571,923) 419,751 (152,172)
---------------------- ------------- ------------- ------------ ------------- -------------
Profit/(loss)
after tax 9,554,703 (45,324,929) (35,770,226) 19,929,084 (26,365,550) (6,436,466)
====================== ============= ============= ============ ============= =============
Basic Earnings
Per Ordinary
Share - USD 14 0.60 (2.81) (2.21) 1.25 (1.66) (0.40)
Basic Earnings
Per Ordinary
Share - GBP 14 0.47 (2.21) (1.74) 0.93 (1.23) (0.30)
Diluted Earnings
Per Ordinary
Share - USD 14 0.60 (2.81) (2.21) 1.24 (1.64) (0.40)
Diluted Earnings
Per Ordinary
Share - GBP 14 0.47 (2.21) (1.74) 0.91 (1.21) (0.30)
Profit/(loss)
for the year 9,554,703 (45,324,929) (35,770,226) 19,929,084 (26,365,550) (6,436,466)
---------------------- ------------- ------------- ------------ ------------- -------------
(Other comprehensive
income:
Items that may
be reclassified
subsequently
to profit and
loss:
Exchange differences
in translation
of net assets
of subsidiary - - 724,066 - - (177,559)
Total comprehensive
(loss)/income
for the year/period 9,554,703 (45,324,929) (35,046,160) 19,929,084 (26,365,550) (6,614,025)
====================== ============= ============= ============ ============= =============
The accompanying notes below are an integral part of these financial statements.
The total column of this Statement of Comprehensive Income was prepared in accordance with International Financial Reporting Standards ("IFRS"). The supplementary revenue and capital columns are both prepared under the guidance published by the Association of Investment Companies ("AIC"). All items in the above Statement derive from continuing operations.
COMPANY STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2018
Notes 1 Jan to 31 Dec 18 1 Jan to 31 Dec 17
Revenue Capital Total Revenue Capital Total
Income (USD) (USD) (USD) (USD) (USD) (USD)
Investment
income 6,416,459 - 6,416,459 4,988,423 - 4,988,423
Gain on
revaluation
of derivative
contracts - 203,869 203,869 - 2,184,162 2,184,162
Dividend and
other income 3,347 - 3,347 75 - 75
Bank interest
income 419 - 419 39 - 39
--------------- ------------ -------------
6,420,225 203,869 6,624,094 4,988,537 2,184,162 7,172,699
------------ --------------- ------------ ------------- ------------
Operating
expenditure
Net loss on
financial
assets
at fair value
through profit
or loss - 8,299,062 8,299,062 - - -
Investment
Manager
Performance
Fees 16,17 - - - (1,822) 15,585 13,763
Investment
Management
Fees 16,17 2,675,643 - 2,675,643 3,054,733 - 3,054,733
Foreign exchange
loss - 1,233,184 1,233,184 - 2,624,171 2,624,171
Service and
premium fees 143,674 - 143,674 105,036 - 105,036
Provision for
default - 68,311 68,311 - 155,552 155,552
Realised loss
on financial
assets through
profit or loss - 1,827,807 1,827,807 - - -
Loans
written-off - 1,145,493 1,145,493
Company
secretarial,
administration
and registrar
fees 320,414 - 320,414 389,478 - 389,478
Impairment loss
on investment
in subsidiaries 6 - 11,073,406 11,073,406 - 225,717 225,717
Finance costs 1,451,834 - 1,451,834 1,393,469 - 1,393,469
Other expenses 2,549,269 123,737 2,673,006 1,071,800 - 1,071,800
------------ --------------- --------------- ------------ -------------
7,140,834 23,771,000 30,911,834 6,012,694 3,021,025 9,033,719
------------ --------------- --------------- ------------ ------------- ------------
Operating loss (720,609) (23,567,130) (24,287,740) (1,024,157) (836,863) (1,861,020)
Income from
shares in group
undertaking 14,051,791 (31,782,770) (17,730,979) 23,903,821 (26,206,917) (2,303,096)
------------ --------------- --------------- ------------ ------------- ------------
Profit before
tax 13,331,182 (55,349,901) (42,018,719) 22,879,664 (27,043,780) (4,164,116)
------------ --------------- --------------- ------------ ------------- ------------
Taxation (622,745) (728,287) (1,351,032) (339,084) 419,753 80,669
------------ --------------- --------------- ------------ ------------- ------------
Profit after
tax and total
comprehensive
income for the
year 12,708,437 (56,078,188) (43,369,751) 22,540,580 (26,624,027) (4,083,447)
============ =============== =============== ============ ============= ============
Basic Earnings
per Ordinary
Share - USD 14 0.79 (3.48) (2.69) 1.42 (1.67) 0.25
============ =============== =============== ============ ============= ============
Basic Earnings
per Ordinary
Share - GBP 14 0.62 (2.73) (2.11) 1.05 (1.24) (0.19)
============ =============== =============== ============ ============= ============
Diluted Earnings
per Ordinary
Share - USD 14 0.79 (3.48) (2.69) 1.40 (1.65) (0.25)
============ =============== =============== ============ ============= ============
Diluted Earnings
per Ordinary
Share - GBP 14 0.62 (2.73) (2.11) 1.03 (1.22) 0.19
============ =============== =============== ============ ============= ============
The accompanying notes on pages below are an integral part of these financial statements.
The total column of this Statement of Comprehensive Income was prepared in accordance with International Financial Reporting Standards ("IFRS"). The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies ("AIC"). All items in the above Statement derive from continuing operations.
Other comprehensive income
There were no items of other comprehensive income in the current year or prior year.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARED DECEMBER 2018
Unrealised Foreign
Realised Capital currency
Share Share Other Capital Profits/ Revenue translation
Notes Capital Premium Reserves Profits (Losses) Reserves reserves Total
Balance at 1
January
2017 427,300 40,346,947 204,225,570 (6,682,162) (388,953) 5,077,791 12,378 243,018,871
Dividends 11 - - - (78,929) - (20,476,385) - (20,555,314)
Reclassification
of capital
losses - - - (388,953) 388,953 - - -
Tax relating to
capital
contribution - - - - - (45,632) - (45,632)
Profit/(loss) for
the year - - - (22,885,064) (3,480,486) 19,929,084 - (6,436,466)
Other
comprehensive
income/(loss)
for
the year - - - - - - (177,559) (177,559)
Balance at 31
December
2017 427,300 40,346,947 204,225,570 (30,035,108) (3,480,486) 4,484,858 (165,181) 215,803,900
======== =========== ============= =============== ============== =============== ============ ===============
Balance at 1
January
2018 427,300 40,346,947 204,225,570 (30,035,108) (3,480,486) 4,484,858 (165,181) 215,803,900
Dividends 11 - - (47,302,836) - - (12,618,283) - (59,921,119)
Reclassification
of capital
losses - - - (3,480,486) 3,480,486 - - -
(Loss)/profit for
the year - - - (42,849,511) (2,475,418) 9,554,703 - (35,770,226)
Other
comprehensive
income for the
year - - - - - - 724,066 724,066
Balance at 31
December
2018 427,300 40,346,947 156,922,734 (76,365,105) (2,475,418) 1,421,278 558,885 120,836,621
======== =========== ============= =============== ============== =============== ============ ===============
COMPANY STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARED 31 DECEMBER 2018
Unrealised
Realised Capital
Share Capital Profits/ Revenue
Share Capital Premium Other Reserves Profits (Losses) Reserves Total
Notes (USD) (USD) (USD) (USD) (USD) (USD) (USD)
Balance at
1 January
2017 427,300 40,346,947 204,225,570 (6,952,782) (1,523,906) 6,583,320 243,106,449
Dividends 11 - - - (78,929) - (20,476,385) (20,555,314)
Reclassification
of capital
losses - - - (1,523,906) 1,523,906 - -
Total
comprehensive
income/(loss)
for the year - - - (28,426,920) 1,802,893 22,540,580 (4,083,447)
-------------- ---------------- --------------- -------------- --------------- ---------------
Balance at
31 December
2017 427,300 40,346,947 204,225,570 (36,982,537) 1,802,893 8,647,515 218,467,688
============== ================ =============== ============== =============== =============== ===============
Balance at
1 January
2018 427,300 40,346,947 204,225,570 (36,982,537) 1,802,893 8,647,515 218,467,688
Dividends 11 - - (47,302,836) - - (12,816,283) (59,921,119)
Reclassification
of capital
losses - - - 1,802,893 (1,802,893) - -
Total
comprehensive
income/(loss)
for the year - - - (36,841,278) (19,236,910) 12,708,437 (43,369,751)
-------------- ---------------- --------------- -------------- --------------- ---------------
Balance at
31 December
2018 427,300 40,346,947 156,922,734 (72,020,922) (19,236,910) 8,737,669 115,176,818
============== ================ =============== ============== =============== =============== ===============
The accompanying notes below are an integral part of these financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARED DECEMBER 2018
1 Jan to 31 Dec 1 Jan to 31 Dec
2018 2017
Notes (USD) (USD)
Loss for the year (35,770,226) (6,436,466)
Adjustments for:
Provision for income tax expense 1,600,370 152,172
Tax paid (280,094) (58,163)
Benefit for deferred taxes 12 - (80,669)
Net loss on financial assets
at fair value through profit
or loss 11,714,842 12,558,687
Impairment 13,534,657 -
Interest impairment 465,284 -
Investment income (22,647,763) (26,511,977)
Interest expense on ZDP Shares 9 3,770,242 3,486,353
Amortisation of transaction
fees - net 23,209 253,554
Amortisation of issue costs 9 164,242 118,177
Foreign exchange loss 971,835 2,610,088
Gain on revaluation of derivative
financial instruments (203,869) (2,184,162)
Loans written off 4,7 7,091,372 10,730,543
Provision for/(reversal of)
default (719,736) 3,638,263
----------------- -----------------
Operating cash flows before
movements in working capital (20,285,635) (1,723,599)
(Increase) / decrease in other
current assets and prepaid expenses (6,423,242) 765,817
Increase / (decrease) in accrued
expenses and other liabilities 29,534,891 (1,080,483)
Decrease / (increase) in funds
receivable from direct lending
platforms - net 2,873,999 (2,782,353)
----------------- -----------------
Net cash flows generated by/(used
in) operating activities 5,700,013 (4,820,619)
----------------- -----------------
Investing activities
Acquisition of financial assets
at fair value through profit
or loss 3 (6,222,775) (300,000)
Acquisition of loans 4 (91,163,256) (220,006,567)
Principal repayments 4 85,852,639 199,083,681
Proceeds from partial redemption
of financial assets at fair
value through profit or loss 3 68,349,705 4,767,069
Investment income received 24,076,643 24,780,203
Net settlement on derivative
positions 362,877 1,047,170
Net cash flows used in investing
activities 81,255,833 9,371,556
----------------- -----------------
Financing activities
Dividends paid 11 (59,921,119) (20,555,314)
----------------- -----------------
Net cash flows (used in)/from
financing activities (59,921,119) (20,555,314)
----------------- -----------------
Net change in cash and cash
equivalents 27,034,727 (16,004,377)
Effect of foreign exchange (1,099,682) 883,796
Cash and cash equivalents at
the beginning of the year 9,699,799 24,820,380
----------------- -----------------
Cash and cash equivalents at
the end of the year 15 35,634,844 9,699,799
================= =================
The accompanying notes below are an integral part of these financial statements.
COMPANY STATEMENT OF CASH FLOWS
FOR THE YEARED DECEMBER 2018
1 Jan to 31 1 Jan to 31
Dec 2018 Dec 2017
Notes (USD) (USD)
Loss for the year (43,369,751) (4,083,447)
Adjustments for:
Dividend income/income from shares
in group undertaking 17,730,980 2,303,096
Investment income (6,416,459) (4,988,423)
Foreign exchange loss 1,239,392 2,396,785
Impairment loss on investment in
subsidiaries 6 11,077,198 225,717
Benefit for deferred taxes 12 - (80,669)
Net loss on financial assets at fair
value through profit or loss 8,299,062 -
Realised loss on financial asset
at fair value through profit or loss 3,028,981
Interest expense on loan with subsidiary
undertaking 1,451,834 1,393,469
(Gain) / loss on revaluation of derivative
contracts (203,869) (2,184,162)
Provision for income tax expense 1,351,032 -
Provision for default 4,7 68,311 155,552
Operating cash flows before movements
in working capital (5,753,289) (4,862,082)
(Increase) / decrease in other current
assets and prepaid expenses (6,514,392) 32,857
Increase in amounts owed by subsidiary
undertaking (1,200,000) (13,227,729)
Increase / (decrease) in accrued
expenses and other liabilities 29,490,087 (1,726,337)
Net cash flows generated by / (used
in) operating activities 16,022,406 (19,783,291)
--------------- --------------
Investing activities
Acquisition of loans 4 - (16,473,130)
Acquisition of financial assets at
fair value through profit or loss 4 (7,706,752) (300,000)
Principal repayments 4 1,276,943 5,280,919
Investments in subsidiary undertaking 6 (10,804,162) (225,717)
Investment income received 4,756,408 4,099,890
Dividend income received 76,618,000 31,922,326
Net settlement on derivative positions 362,877 1,047,168
--------------- --------------
Net cash flows from investing activities 64,503,314 25,351,456
--------------- --------------
Financing activities
Dividends paid 11 (59,921,119) (20,555,314)
--------------- --------------
Net cash flows used in financing
activities (59,921,119) (20,555,314)
--------------- --------------
Net change in cash and cash equivalents 20,604,601 (14,987,149)
Effect of foreign exchange (1,099,682) 883,796
Cash and cash equivalents at the
beginning of the year 1,304,277 15,407,630
--------------- --------------
Cash and cash equivalents at the
end of the year 15 20,809,196 1,304,277
--------------- --------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2018
1. GENERAL INFORMATION
The Company was incorporated and registered in England and Wales on 25 March 2015 and commenced operations on 1 May 2015 following its admission to the London Stock Exchange Main Market. The registered office of the Company is 6(th) Floor, 65 Gresham Street, London, EC2V 7NQ.
The consolidated financial statements ("financial statements") include the results of the Trust and RDLZ. The Company will be managed, either by a third party non-EEA investment manager or internally, by the Company's Board of Directors with the intention of realising all remaining assets in the portfolio, in a prudent manner consistent with the principles of good investment management with a view to returning cash to its Shareholders in an orderly manner and meeting the obligations of the Company to RDLZ in respect of the ZDP Shares or purchasing ZDP Shares to reduce those obligations in advance of the final date for payments on the ZDP Shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of these financial statements are set out below.
Basis of accounting and preparation
These financial statements have been prepared in compliance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU"). The financial statements were also prepared in accordance with the Statement of Recommended Practice ("SORP") for Investment Trusts issued by the AIC (as issued in November 2014 and updated in January 2017), where this guidance is consistent with IFRS.
Basis of measurement and consolidation
The financial statements have been prepared on a historical cost basis as modified for the revaluation of certain financial assets. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The Trust and RDLZ are fully consolidated from the date on which control is transferred to the Group and deconsolidated from the date that control ceases.
Going concern and Viability statement
As announced on 6 July 2018 and disclosed within the Directors' Report in the full Annual Report, the Board has established two committees that both aim to quickly and efficiently wind down the Company. These committees are focusing on the Princeton proceedings and the associated strategic decisions and the wind-down and realisation of the Company's existing portfolio (excluding Princeton) with the specific aim of maximising returns for stakeholders.
Plans are still currently being formulated by the Board, but the intention is to dispose of the Company's assets in an orderly manner and return Shareholders' capital to them and adequately reimburse the ZDP Shareholders by the end of July 2021, further details are shown in note 25 to the consolidated financial statements.
Given these developments and the intention to wind down the Company, the use of the going concern basis in preparing the financial statements of the Group is not appropriate. As such the financial statements have been prepared on a basis other than that of a going concern, which require assets to be measured at their net realisable value. There were no adjustments made to the carrying values of the assets and liabilities of the Group as a result of this change on the basis of preparation, because the Directors' consider the carrying value of assets to approximate the net realisable value.
No provision has been made for the costs of winding up the Company as these will be charged to the income statement on an accruals basis as they are incurred or as the Company becomes obligated to make such payments in the future.
The Directors believe that the Company and Group have adequate resources to continue in operational existence until the anticipated liquidation of the Company. The Board will ensure that sufficient liquidity is held back at all times to ensure all liabilities, including those to ZDP Shareholders are at all times adequately covered.
The Directors confirm that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the Managed Wind-Down period. The Directors note that the Company has sufficient liquidity to repay the ZDP Holders from existing cash reserves without any recourse to further leverage.
New Accounting Standards, amendments to existing Accounting Standards and/or interpretations of existing Accounting Standards (separately or together, "New Accounting Requirements") not yet adopted
In the Directors' opinion, all non-mandatory New Accounting Requirements are either not yet permitted to be adopted, or would have no material effect on the reported performance, financial position or disclosures of the Group and consequently have neither been adopted nor listed.
IFRS 9 Financial Instruments
IFRS 9 Financial Instruments sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement.
i - Classification - Financial assets
IFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, Fair Value through Other Comprehensive Income ("FVOCI") and Fair Value through Profit or Loss ("FVTPL"). The standard eliminates the existing IAS 39 categories of held to maturity, loans and receivables and available for sale.
Under IFRS 9, derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never bifurcated. Instead, the hybrid financial instrument as a whole is assessed for classification.
Following the Company's announcement on 11 June 2018 that the Company will move to realise its assets and proceed with the wind-down process, the Company's business model has changed from holding financial assets to collect their contractual cash flows to realising assets, in a prudent manner consistent with the principles of good investment management with a view to returning cash to its Shareholders in an orderly manner. In accordance with IFRS 9, the reclassification occurs on the first day of the first reporting period following the change in business model. As the company prepared interim accounts with a period ending 30 June 2018, the loans held at amortised cost were reclassified to FVTPL on the 01 July 2018. No gain or loss was recognised upon reclassification, as the directors considered the amortised cost value to approximate fair value.
ii - Impairment - Financial assets and contract assets
IFRS 9 replaces the 'incurred loss' model in IAS 39 with a forward-looking 'expected credit loss' (ECL) model. This will require considerable judgement about how changes in economic factors affect ECLs, which will be determined on a probability-weighted basis.
The new impairment model will apply to financial assets measured at amortised cost or FVOCI, except for investments in equity instruments, and to contract assets.
Under IFRS 9, loss allowances will be measured on either of the following bases:
- 12 month ECL: these are ECLs that result from possible default events within the 12 months after the reporting date; and
- lifetime ECL: these are ECLs that result from all possible default events over the expected life of a financial instrument.
Lifetime ECL measurement applies if the credit risk of a financial asset at the reporting date has increased significantly since initial recognition and 12-month ECL measurement applies if it has not. An entity may determine that a financial asset's credit risk has not increased significantly if the asset has low credit risk at the reporting date.
Under IFRS 9, the Group has to classify all financial instruments in scope for impairment into 3 Stages - stage 1, stage 2 or 3, depending on the change in credit quality since initial recognition.
Investments in equity instruments and financial assets at FVTPL are out of scope of the impairment requirement.
Stage 1
This includes loans where there is no significant increase in credit risk since initial recognition or loans that have low credit risk on reporting date. For loans in stage 1, interest is accrued on the gross carrying amount of the loans and a 12-month expected credit loss ("ECL") is factored in the profit and loss ("P&L") calculations.
Stage 2
This consists of loans with significant increase in credit risk since initial recognition but not credit impaired. Interest for loans in stage 2 is accrued on the gross carrying amount, however, a lifetime ECL is factored into the profit and loss calculations.
Stage 3
Includes loans which demonstrate evidence of impairment on the reporting date. Interest is accrued on the net carrying amount of the loans and a lifetime ECL is factored into the profit and loss calculations.
For short-term receivables and cash and cash equivalents, the ECL model is not likely to result in a material change of the balance due to their short-term nature therefore the Group will apply the simplified approach for contracts that have a maturity of one year or less.
iii - Classification - Financial liabilities
IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial liabilities. However, under IAS 39 all fair value changes of liabilities designated as at FVTPL are recognised in profit or loss, whereas under IFRS 9 these fair value changes are generally presented as follows:
- the amount of change in fair value that is attributable to changes in the credit risk of the liability is presented in the OCI; and
- the remaining amount of change in the fair value is presented in profit or loss.
The Group has not designated any financial liabilities at FVTPL and it has no current intention to do so.
Use of estimates, judgements and assumptions
The Company based its assumptions and estimates on parameters available when the financial statements were prepared. 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.
The following are areas of particular significance to the Group's financial statements and include the use of estimates and the application of judgement.
Key source of estimation uncertainty - fair value of financial assets at fair value through profit or loss
The determination of fair values based on available market data requires significant credit judgement by the Group.
Management has applied certain estimated potential impairments to these financial instruments as of 31 December 2018. For the material financial instrument positions at 31 December 2018, a combination of factors was taken into consideration.
In addition to the credit judgement of management related to the reserves for potential impairment, third party valuations and analysis were also employed for the material financial instruments for comparison and consideration. For these third-party valuations, a weighted average IRR for each platform was used. Included in the discount analysis by third parties were increased discount rates for individual non-performing loans. Such valuations considered actual and market default rate comparisons for the discount rate. The key estimation uncertainty is considered to be the discount rate applied to the Vehicle Services Contract platform, further details are shown in note 18 below.
Functional and presentation currency
The financial statements are presented in US Dollars ("USD"), the currency of the primary economic environment in which the Company operates, the Company's functional currency.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign currency assets and liabilities are translated into the functional currency using the exchange rate prevailing at the statement of financial position date.
Financial assets held at fair value through profit or loss
The Group's financial assets consist of loans at fair value through profit or loss, equity investments in funds and an investment in a Cayman SPV. The Group designated its investment as financial assets at fair value through profit or loss in accordance with International Reporting Standards 9: Financial Instruments ("IFRS 9 "), as the fund is managed and its performance is evaluated on a fair value basis and the Group now holds the investments with the intention to sell rather than to collect contractual cash flows.
Purchases and sales of financial assets are recognised on the trade date, the date which the Group commits to purchase or sell the assets and are derecognised when the rights to receive cash flows from the financial assets have expired or the Group has transferred substantially all risks and rewards of ownership. Financial instruments are initially recognised at fair value, and transaction costs for financial assets carried at fair value through profit or loss are expensed. Gains and losses arising from changes in the fair value of the Group's financial instruments are included in the Statement of Comprehensive Income in the period which they arise.
Financial liabilities at amortised cost - Zero Dividend Preference Shares
These are initially recognised at cost, being the fair value of the consideration received associated with the borrowing net of direct issue costs. Zero Dividend Preference Shares are subsequently measured at amortised cost using the effective interest method. Direct issue costs are amortised using the effective interest method and are added to the carrying amount of the Zero Dividend Preference Shares.
Derivative financial instruments
Derivative financial instruments, including short-term forward currency and swap contracts are classified as held at fair value through profit or loss, and are classified in current assets or current liabilities in the statement of financial position. Derivatives are entered into to reduce the exposure on the foreign currency loans. Changes in the fair value of derivative financial instruments are recognised in the Statement of Comprehensive Income as a capital item. The Group's derivatives are not used for speculative purposes and hedge accounting is not applied.
Taxation
Investment trusts which have approval as such under section 1158 of the Corporation Taxes Act 2010 are not liable for taxation on capital gains. The Company has taken advantage of modified UK tax treatment in respect of its qualifying interest income for an accounting period and has chosen to designate as an "interest distribution" all or part of any amount it distributes to the Shareholders as dividends, to the extent that it has qualifying interest income for the accounting period. As such, the Company is able to deduct such interest distributions from its income in calculating its taxable profit for the relevant accounting period. It is expected that the Company will have material amounts of qualifying interest income and therefore may decide to designate some or all of the dividends payable as interest distributions.
The current tax payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted at the statement of financial position date.
Deferred tax is the tax expected to be payable or recoverable on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on tax rates that have been enacted or substantively enacted at the statement of financial position date.
The carrying amount of deferred tax assets is reviewed at each statement of financial position date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Investment and other income
Investment income and other income are recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably. Income for all interest bearing financial instruments is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount on initial recognition.
Dividend income
Dividend income from investments is recognised when the Shareholders' rights to receive payment have been established.
Dividends payable
Dividends payable on ordinary shares are recognised in the Statement of Changes in Equity when approved by the Directors in respect of interim dividends and by the Shareholders if declared as a final dividend by the Directors at the AGM. As advised to Shareholders in the Company's circular dated 29 October 2018, the Board does not intend to make quarterly dividends and will instead make payments by way of ad-hoc special dividends, where appropriate, during the course of the managed wind-down process so that the Company is able to return available cash to Shareholders as soon as reasonably practicable after cash becomes available in the portfolio whilst ensuring compliance with its obligations to RDLZ and ZDP Shareholders.
Cash and cash equivalents
Cash and cash equivalents include cash at bank and in hand and highly liquid interest-bearing securities with original maturities of three months or less.
Segmental reporting
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses. The Directors perform regular reviews of the operating results of the Group and make decisions using financial information at the Group level only. Accordingly, the Directors believe that the Group has only one reportable operating segment.
The Directors are responsible for ensuring that the Group carries out business activities in line with the transaction documents. They may delegate some or all of the day-to-day management of the business, including the decisions to purchase and sell securities, to other parties both internal and external to the Group. The decisions of such parties are reviewed on a regular basis to ensure compliance with the policies and legal responsibilities of the Directors, therefore the Directors retain full responsibility as to the major allocation decisions of the Group.
Earnings per share
The Company presents basic and diluted earnings per share ("EPS") data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary Shareholders by the weighted average number of ordinary shares outstanding during the period. The diluted EPS is the same as the Basic EPS as there is currently no arrangement which could have a dilutive effect on the Company's ordinary shares.
Share capital and share premium
Ordinary Shares are not redeemable and are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.
Expenses (including finance costs)
Expenses are accounted for on an accruals basis and are recognised in the Statement of Comprehensive Income. Investment management fee is 100% allocated to revenue. Except for provision of default and performance fee associated with financial assets at fair value through profit or loss, which are allocated into capital and revenue in accordance with SORP, all other expenses are charged through revenue.
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
The Group's financial assets at fair value through profit or loss represents all its loan investments and investments in Princeton and in Crowdnetic.
31 Dec 18 31 Dec 31 Dec 18 31 Dec
17 17
(Group) (Group) (Company) (Company)
USD USD USD USD
Opening fair value 29,621,483 46,647,239 300,000 -
Transfer in from Loans
held at amortised cost
arising from reclassification
on 1 July 2018 248,386,018 - 54,673,978 -
Purchases 6,222,775 300,000 510,168 300,000
Redemptions (68,349,705) (4,767,069) (790,841) -
Loss on financial assets
through profit or loss (39,765,908) - (11,411,252) -
Net gain - - - -
- net (loss) / gain - 4,424,451 - -
allocation
- Argon impairment allocation - (16,983,138) - -
Closing balance 176,114,663 29,621,483 43,282,053 300,000
=============== ============= =============== ==========
The financial assets amounting to USD 38,307,954 represents assets sold subsequent to the year-end and therefore, are classified as current assets. The remaining assets are classified as non-current.
Following the Company's announcement on 11 June 2018, that it will move to realise its assets and proceed with the wind-down process, the Company's business model has changed from holding financial assets to collect their contractual cash flows to realising assets, in a prudent manner consistent with the principles of good investment management with a view to returning cash to its Shareholders in on orderly manner. Consequently, all loans which were previously held at amortised cost have been reclassified as at fair value through profit or loss.
Fair value estimation
Please refer to the Executive Directors' Report for Princeton update, the Audit Committee Report and note 18 for the valuation of financial assets at fair value through profit or loss.
4. LOANS HELD AT AMORTISED COST
31 Dec 18 31 Dec 17 31 Dec 31 Dec
18 17
(Group) (Group) (Company) (Company)
USD USD USD USD
Opening balance 250,993,296 240,015,255 50,793,341 35,757,090
Purchases 91,163,256 220,006,567 7,706,752 16,473,130
Principal repayments (85,852,639) (199,083,681) (1,276,943) (5,280,919)
Amortisation of transaction
fees (23,209) (253,554) - -
Accrued interest 643,065 1,731,774 855,865 888,532
Interest impaired - (218,854) -
Loans written-off (7,091,372) (10,730,543) (1,145,493) -
Effect of foreign exchange (2,166,115) 2,945,741 (2,055,538) 3,111,060
-------------- -------------- ------------- ------------
247,666,282 254,631,559 54,659,130 50,948,893
(Provision for) / utilisation
of default allowance - net 719,736 (3,638,263) 14,848 (155,552)
Transfer out to financial assets
at fair value through profit
or loss arising from reclassification
on 1 July 2018 (248,386,018) - (54,673,978) -
Closing balance - 250,993,296 - 50,793,341
============== ============== ============= ============
Following the Company's announcement on 11 June 2018, that it will move to realise its assets and proceed with the wind-down process, the Company's business model has changed from holding financial assets to collect their contractual cash flows to realising assets, in a prudent manner consistent with the principles of good investment management with a view to returning cash to its Shareholders in on orderly manner. Consequently, all loans which were previously held at amortised cost have been reclassified as at fair value through profit or loss.
In 2017, the Group's loans were accounted for using the effective interest method. The carrying value of such instruments includes assumptions that are based on market conditions existing at each statement of financial position date. Such assumptions include application of default rate and identification of effective interest rate taking into account the credit standing of each borrower as assessed by each direct lending platform. At 31 December 2017, the Directors estimate that the carrying value approximates the fair value.
The main factor considered by the Board in determining whether or not the amounts due are impaired is if the underlying borrowers' source of income has decreased or is unlikely to continue. The following table shows the age of the receivables which are considered to be at risk of default:
30 Jun 18 31 Dec 17
(Group) (Group)
USD USD
Up to 3 months 9,430,065 9,710,030
3 to 6 months 32,713,966 4,415,793
Over 6 months - 18,485,476
----------- ----------------------
42,144,031 32,611,299
=========== ======================
The movement in the provision for allowance for loan losses is as follows:
30 Jun 18 31 Dec 17
(Group) (Group)
USD USD
Balance at the beginning of the year 4,299,102 660,839
Provision for the period/year 6,371,636 14,368,806
Amount written-off during the period/year (7,091,372) (10,730,543)
------------ -------------
Balance at end of the period/year 3,579,366 4,299,102
============ =============
5. ADVANCES TO/FUNDS RECEIVABLE FROM DIRECT LING PLATFORMS
31 Dec 31 Dec 31 Dec 31 Dec
18 18 18 17
(Group) (Group) (Company) (Company)
USD USD USD USD
Other
direct
lending
platforms 908,917 3,782,916 - -
-------------------- --------------------- ---------------------- ----------------------
908,917 3,782,916 - -
==================== ===================== ====================== ======================
6. INVESTMENT IN SUBSIDIARIES
Investment in RDLZ 31 Dec 18(Company) 31 Dec 17(Company)
USD USD
Balance at the beginning of
the year - -
------------------------------ ------------------------------
Investment made during the
year 11,077,198 225,717
------------------------------ ------------------------------
Amount written-off during
the year (11,077,198) (225,717)
------------------------------ ------------------------------
Balance at the end of the
year - -
============================== ==============================
31 Dec 18 31 Dec 17
(Company) (Company)
Investment in RDL Trust USD USD
Balance at the beginning of
the year 195,780,355 195,780,355
Additions during the year 3,792 -
------------ ------------
Balance at the end of the
year 195,784,147 195,780,355
============ ============
Subsidiary Name Effective Country of Incorporation Principal activity
ownership and Place of Business
%
RDL Fund Trust 100% USA Invests in a portfolio
of Debt Instruments
through Direct Lending
Platforms
RDLZ Realisation 100% United Kingdom Issuance of Zero
Plc Dividend Preference
Shares
In the Company's statement of comprehensive income, an impairment loss of USD 11,073,406 (2017: USD 225,717) was recognised relating to the Company's investment in RDLZ, in respect of expenses paid on behalf of RDLZ for USD 662,066 and in relation to the Company's investment on RDLZ's Preference Shares amounting to USD 10,415,132, the repayment of which was waived during the year. The Company's investment in RDLZ was fully impaired due to RDLZ's Shareholders' deficit position as at reporting date.
7. PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
Profit on ordinary activities before taxation is stated after charging/(crediting):
31 Dec 18 31 Dec 31 Dec 31 Dec
17 18 17
(Group) (Group) (Company) (Company)
USD USD USD USD
Provision for/(Reversal
of) default 1,002,222 3,073,240 - 155,552
Revaluation loss on financial
assets through profit or
loss (39,765,908) - (14,848)
Loans written-off 7,091,372 10,730,543 - -
Foreign exchange loss/(gain)
- net 1,667,065 2,591,408 - -
----------------------------------- ----------- ---------- ----------
(29,995,249) 16,395,191 (14,848) 155,552
=================================== =========== ========== ==========
31 Dec 18 31 Dec 17
(Group) (Group)
USD USD
Audit fees for annual financial statements:
- RDL 165,739 129,880
- RDLZ 36,477 26,801
Additional audit fees in respect of
audit for the year ended 31 December
2016 - 69,321
Agreed-Upon procedure for C Share
conversion - 6,196
Fee for review of half-yearly financial
reporting - RDL 30,494 18,887
---------- ----------
232,710 251,085
========== ==========
8. ACCRUED EXPENSES AND OTHER LIABILITIES
31 Dec 18 31 Dec 31 Dec 31 Dec 17
17 18
(Group) (Group) (Company) (Company)
USD USD USD USD
Performance fees payable -
note 17 - - - -
Investment Management fees
payable - note 17 639,005 853,887 639,005 853,887
Withholding tax payable - - - -
Dividend payable 29,797,917 29,797,917
Other payables 1,717,555 1,765,699 388,320 481,268
----------- ---------- ----------- ----------
Legal fee payable 137,540 103,213 23,208 103,213
Interest received in advance 228,037 186,880 - -
Service and premium fee payable 439,471 491,907 - 111,234
Audit fee payable 184,988 156,900 152,689 123,144
Administration fee payable 82,429 114,541 57,128 93,578
Registrar fee and Secretary
fee payable 10,625 23,550 7,966 20,397
Payable to London Stock Exchange 3,606 - - -
Directors' fees payable (note
16) 128,577 27,809 128,577 27,809
Other payables 502,282 660,899 18,753 1,893
----------- ---------- ----------
32,154,477 2,619,586 30,825,243 1,335,155
=========== ========== =========== ==========
9. ZERO DIVID PREFERENCE SHARES
31 Dec 18 31 Dec 17
(Group) (Group)
USD USD
Opening balance 76,222,019 66,096,829
Amortisation of issue costs during the
year 371,437 296,551
Amortisation of premium during the year (207,195) (178,374)
Interest expense during the year 3,770,242 3,486,353
Purchased by Company (10,415,132) -
Effect of foreign exchange (4,560,584) 6,520,660
Closing balance 65,180,787 76,222,019
================================= ===========
Under RDLZ's Articles of Association, the Directors are authorised to issue up to 55 million Zero Dividend Preference shares ("ZDP Shares") for a period of five years from 25 July 2016. RDLZ issued 53 million ZDP Shares at GBP 0.01 each (the "ZDP Shares") in 2016. On 1 November 2016, RDLZ passed a resolution to authorise Directors to issue up to 75 million ZDP Shares, such authority to expire on 26 July 2021, unless revoked sooner or varied by the Company in general meeting. The ZDP Shares will have a term of five years and a final capital entitlement of GBP 127.63 pence per ZDP share on 31 July 2021 being the ZDP Repayment Date. The total amount repayable on the ZDP repayment date is GBP 67,643,900.
As part of the Board's assets realisation process and in meeting the obligations of the Company to RDLZ, it has purchased ZDP Shares to reduce those obligations in advance of the final date for repayments on the ZDP Shares. As at 14 December 2018, the Company held 7,278,193 ZDP Shares. The Board of the Company has passed a resolution to waive the Company's entitlement to the acquired principal and accrued interest on its ZDP holdings up to 14 December 2018.
The ZDP Shares do not carry the right to vote at general meetings of the Company, although they carry the right to vote as a class on certain proposals which would be likely to materially affect their position. Further ZDP Shares (or any shares or securities which rank in priority to or pari passu with the ZDP Shares) may be issued without the separate class approval of the ZDP Shareholders provided that the Directors determine that the ZDP Shares would have a Cover of not less than 2.75 times immediately following such issue. The Cover for ZDP Shares as at 31 December 2018 is 2.46 times (2017: 3.19 times).
Further details are whown in note 25 to the consolidated financial statements.
10. SHARE CAPITAL AND SHARE PREMIUM
The table below shows the total issued share capital as at 31 December 2018 and 31 December 2017.
Ordinary Shares
Nominal Value Nominal Value Number of
GBP USD shares Number
Ordinary Shares 309,591 427,300 16,122,931
============== ============== ===============
The IPO of 13,500,000 Ordinary Shares on 1 May 2015 was priced at GBP 10 each resulting in a share premium amount of USD 204,225,570 (GBP 132,665,694) net of direct issue costs. Shareholder's approval was given on 2 April 2015 for the Company's share premium account to be cancelled immediately after admission and this permission was confirmed by court order on 1 July 2015.
On 16 December 2015, the Company issued a total of 1,348,650 new Ordinary Shares at GBP 10.45 per share resulting in a share premium amount of USD 20,989,992 (GBP 13,889,694) net of direct issue costs of USD 287,555 pursuant to a tap issue.
C Shares
On 16 December 2016, the Company issued 1,611,041 C Shares pursuant to the Open Offer and Initial Placing at an issue price of GBP 10 per C Share each resulting in a share premium amount of USD 19,356,955 (GBP 15,666,299) net of direct issue costs. The Company's C Shares were subsequently converted into 1,274,281 Ordinary Shares on 6 April 2017, following full investment of the net proceeds of the issue of the C Shares in accordance with the Company's investment policy.
Rights attaching to the shares
The holders of the C shares and Ordinary Shares are only entitled to receive, and to participate in, any dividends declared in relation to the relevant class of shares that they hold.
The holders of Ordinary Shares shall be entitled to all of the Company's remaining net assets after taking into account any net assets attributable to the C shares.
The Ordinary Shares and C Shares shall carry the right to receive notice of, attend and vote at general meetings of the Company.
On a winding-up or a return of capital by the Company, if there are C shares in issue, the net assets of the Company attributable to the C shares shall be divided pro rata among the holders of the C shares. For so long as C shares are in issue, and without prejudice to the Company's obligations under the Act, the assets attributable to the C shares shall, at all times, be separately identified and shall have allocated to them such proportion of the expenses or liabilities of the Company as the Directors fairly consider to be attributable to the C shares.
Voting Rights
Subject to any rights or restrictions attached to any shares, on a show of hands every Shareholder present in person has one vote and every proxy present who has been duly appointed by a Shareholder entitled to vote has one vote, and on a poll every Shareholder (whether present in person or by proxy) has one vote for every share of which he is the holder. A Shareholder entitled to more than one vote need not, if he votes, use all his votes or cast all the votes he uses the same way. In the case of joint holders, the vote of the senior holder who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the vote of the other joint holders, and seniority shall be determined by the order in which the names of the holders stand in the Register.
No Shareholder shall be entitled to vote at any general meeting or at any separate general meeting of the holders of any class of shares in the Company, either in person or by proxy, in respect of any share held by him unless all amounts presently payable by him in respect of that share have been paid.
Variation of Rights and Distribution on Winding Up
If at any time, the share capital of the Company is divided into different classes of shares, the rights attached to any class may, unless otherwise provided by the terms of issue of the Shares of that Class, be varied or abrogated, whether or not the Company is being wound up, either with the consent in writing of the holders of not less than three-quarters in nominal value amount of the issued shares of the affected class, or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of that class (but not otherwise).
At every such separate general meeting the necessary quorum, other than an adjourned meeting, shall be two persons holding or representing by proxy at least one-third in nominal amount of the issued shares of the class in question, and at an adjourned meeting one person holding shares of the class in questions or his proxy; any holder of shares of the class in question present in person or by proxy may demand a poll and the holder of shares of the class in question shall, on a poll, have one vote in respect of every share of such class held by him. Where the rights of some only of the shares of any class are to be varied, the foregoing provisions as if each group of shares of the class differently treated formed a separate class whose rights are to be varied.
The Company has no fixed life but, pursuant to the Articles, an ordinary resolution for the continuation of the Company will be proposed at the AGM of the Company to be held in 2020 and, if passed, every five years thereafter. Upon any such resolution not being passed, proposals will be put forward within three months after the date of the resolution to the effect that the Company be wound up, liquidated, reorganised or unitised. If the Company is wound up, the liquidator may divide among the Shareholders in specie the whole or any part of the assets of the Company and for that purpose may value any assets and determine how the division shall be carried out as between the Shareholders or different classes of Shareholders.
There was no movement in shares or no shares converted during the year (2017: 1,274,281 shares converted).
11. DIVIDS
Set out below is the total dividend paid in respect of the financial year:
Per 1 Jan to 1 Jan to
share 31 Dec 2018 31 Dec 2017
Pence USD USD
Ordinary Shares dividends declared
and paid:
Interim dividends in 2017 (in respect
of 30 Sept 2017 results) 21.70 - 4,586,363
Interim dividends in 2017 (in respect
of 30 Jun 2017 results) 24.62 - 5,158,963
Interim dividends in 2017 (in respect
of 31 Mar 2017 results) 26.93 - 5,534,376
Interim dividends in 2017 (in respect
of 31 Dec 2017 results) 28.51 - 5,275,612
Special dividends on 21 December 2018 145 29,645,959 -
Special dividends on 24 October 2018 85 17,565,877 -
Interim dividends in 2018 (in respect
of 30 Jun 2018 results) 14.28 3,018,181 -
Interim dividends in 2018 (in respect
of 31 Mar 2018 results) 19.79 4,180,676 -
Interim dividends in 2018 (in respect
of 31 Dec 2017 results) 24.14 5,419,426 -
------- ------------- -------------
Total dividends paid during the year 59,921,119 20,555,314
======= ============= =============
The Company intends to distribute at least 85% of its distributable income earned in each financial year by way of dividends, in order to maintain its investment trust status.
As advised to Shareholders in the Company's circular dated 29 October 2018, the Board does not intend to make quarterly dividends and will instead make payments by way of ad-hoc special dividends, where appropriate, during the course of the managed wind-down process so that the Company is able to return available cash to Shareholders as soon as reasonably practicable after cash becomes available in the portfolio whilst ensuring compliance with its obligations to RDLZ and ZDP Shareholders.
12. TAXATION
In May 2015, the Company received confirmation from HM Revenue & Customs as an approved Investment Trust in the UK for accounting periods commencing on or after 1 May 2015, subject to the Company continuing to meet the eligibility conditions at Section 1158 Corporation Tax Act 2010 and the ongoing requirements for approved Investment Trust companies in Chapter 3 of Part 2 Investment Trust (Approved Company) Tax Regulations 2011 (Statutory Instrument 2011/2999). The Company intends to retain this approval and self-assesses compliance with the relevant conditions and requirements.
As an Investment Trust, the Company is exempt from UK corporation tax on its chargeable gains. The Company's revenue income from loans is taxable in the hands of the Company however, to the extent that interest distributions are paid to Shareholders, the Company may treat that amount as deductible from its taxable profits.
31 Dec 18 31 Dec 18 31 Dec 18
Revenue Capital Total
USD USD USD
Corporation tax
Current year 791,413 728,288 1,519,701
Deferred tax expense 80,669 - 80,669
---------- ---------- ----------
Tax expense for
the year 872,082 728,288 1,600,370
========== ========== ==========
31 Dec 17 31 Dec 17 31 Dec 17
Revenue Capital Total
USD USD USD
Corporation tax - - -
Current year 652,592 (419,751) 232,841
Deferred tax (80,669) - (80,669)
---------- ---------- ----------
Tax expense for
the year 571,923 (419,751) 152,172
========== ========== ==========
31 Dec 18 31 Dec 17
Reconciliation of deferred
tax asset:
USD USD
Balance at the beginning
of the year 80,669 -
Increase in DTA, due
to change in tax rate* 9,491 -
(Decrease)/increase
in DTA during the year (90,160) 80,669
---------- ----------
Balance at end of the
year - 80,669
========== ==========
The tax reconciliation
is as follows:
31 Dec
18 31 Dec 18 31 Dec 18
Revenue Capital Total
USD USD USD
Profit/(loss) before
tax 10,426,785 (44,596,641) (34,169,856)
------------ ------------- -------------
Tax at the standard UK
corporation tax rate
of 19% 1,981,089 (8,473,362) (6,429,273)
Effects of:
- Non-deductible expenses 763,277 818,446 1,581,723
- Interest distributions (1,981,858) - (1,981,858)
- Loss brought forward (80,669) - (80,669)
- Difference in tax rate (9,491) - (9,491)
- Marginal relief 90,160 (90,160) -
- Foreign exchange difference
on consolidation 28,905 - 28,905
- Non-taxable fair value
adjustments - 8,473,364 8,473,364
- Deferred tax credit - - -
------------ ------------- -------------
Tax expense 791,413 728,288 1,519,701
============ ============= =============
31 Dec
18 31 Dec 18 31 Dec 18
Revenue Capital Total
USD USD USD
Profit/(loss) before
tax 20,501,007 (26,785,301) (6,284,294)
------------ ------------- ------------
Tax at the standard UK
corporation tax rate
of 19% 3,946,444 (5,156,170) (1,209,726)
Effects of:
- Non-deductible expenses 693,872 2,065,630 2,759,501
- Interest distributions (3,984,582) - (3,984,582)
- Loss brought forward (419,753) - (419,753)
- Marginal relief 419,753 (419,753) -
- Foreign exchange difference
on consolidation (3,141) - (3,141)
- Non-taxable fair value
adjustments - 3,090,542 3,090,542
- Deferred tax credit (80,669) - (80,669)
------------ ------------- ------------
Tax expense 571,923 (419,751) 152,172
============ ============= ============
As at 31 December 2018, income tax charge of USD 1,519,700 (2017: USD 152,172) was provided for in respect of the net profits of the Company for the year. This amount will be payable within the subsequent year subject to any potential adjustment as a result of further distributions. The Board has taken into account the Group's and Company's financial obligations and it is the intention of the Board to distribute interest distributions in the foreseeable future.
As of 31 December 2018, the Company had recognised a deferred tax asset of USD nil (2017: USD 80,669).
13. DERIVATIVE FINANCIAL INSTRUMENTS
31 Dec 18 31 Dec 17
(Group and (Group and
Company) Company)
USD USD
Derivative assets 412,297 1,110,329
Derivative liabilities (6,101) (545,126)
406,196 565,203
====================== ========================
31 Dec 18 31 Dec 17
Notional (Group and (Group and
Amount Company) Company)
USD USD
Derivative assets/(liabilities)
Forward foreign currency
contracts 87,449 87,449 (157,109)
Forward currency swap
contracts 58,571,135 318,747 722,312
58,658,584 406,196 565,203
=========== =========== ===========
The Company has entered into various swap and forward contracts to manage exposure to foreign currency on existing assets. The notional amounts provided in the table above reflect the aggregate of individual derivative positions on a gross basis.
14. BASIC AND DILUTED EARNINGS PER SHARE
The basic and diluted earnings per Ordinary Share is based on the profit after tax and on 16,122,931 Ordinary Shares, being the weighted average number of ordinary shares in issue throughout the year. (31 December 2017: 15,910,551 Ordinary Shares for basic earnings per share and 16,122,931 Ordinary Shares for diluted earnings per share).
15. CASH AND CASH EQUIVALENTS
The components of the Group's cash and cash equivalents are:
31 Dec 18 31 Dec 31 Dec 31 Dec
17 18 17
(Group) (Group) (Company) (Company)
USD USD USD USD
Cash at bank 35,571,114 9,632,179 20,745,466 1,236,657
Cash equivalents 63,730 67,620 63,730 67,620
----------- ---------- ----------- ----------
35,634,844 9,699,799 20,809,196 1,304,277
=========== ========== =========== ==========
16. RELATED PARTIES
Transactions between the Group and its related parties are disclosed below.
The Directors, who are the key management personnel of the Group, are remunerated per annum as follows:
31 Dec 31 Dec
18 17
(Group) (Group)
USD USD
Chairman 130,056 38,976
Other directors 342,039 67,879
-------- --------
472,095 106,855
======== ========
As at 31 December 2018, USD 128,577 (2017: USD 27,809) was accrued for Directors' remuneration.
Mr Waldron, until his resignation on 19 June 2018, had an interest in the Company, in the form of 3,500 Ordinary Shares representing 0.02% interest in the total voting rights (2017: 500 Ordinary Shares and 583 C Shares, representing 0.0066% interest in the total voting rights). Mr Canon, until his resignation on 19 June 2018, indirectly owned 630 shares, as a limited partner of Ranger Capital Company, representing 0.03% in the voting rights of the Company. The remaining Directors do not have any interests in the Company's shares. None of the Directors hold any share options nor are any receivables due or payable to them under any long term incentive plan.
The Company has not made any contribution, to any Directors' pension scheme and no retirement benefits are otherwise accruing to any of the Directors under any defined benefit or monthly purchase scheme for which the Company is liable. There have been no changes to the aforementioned holding between 31 December 2018 and the date of this report.
The Group does not have any employees.
The Board has delegated responsibility for day-to-day management of the loans held by Direct Lending Platforms to Ranger (until 12 February 2019). Under the terms of the Investment Management Agreement, Ranger was entitled to a management fee and a performance fee together with reimbursement of reasonable expenses incurred by it in the performance of its duties. Total investment management fees for the year amounted to USD 2,675,643 (31 December 2017: USD 3,054,733). As at 31 December 2018, the Investment Management fees payable were USD 639,005 (31 December 2017: USD 853,887).
During the year, Ranger received a reimbursement amount of USD 209,812 for expenses (31 December 2017: USD 94,466). Performance fee for the year amounted to USD nil (31 December 2017: USD 13,763). As at 31 December 2018, performance fee payable was USD nil (31 December 2017: USD nil).
As at 31 December 2018, Ranger held 4,500 Ordinary Shares representing 0.03% of the total interest in voting rights of the Company (31 December 2017: 0.03%).
The Company entered into a Trust Agreement with the Trust on 22 April 2015. The Company, being the sole unitholder, has sole discretion to declare distributions from the Trust. As at 31 December 2018, amounts owed by undertaking relating to the Trust's net income was USD 6,434,803 (2017: USD 44,712,526).
The Company incorporated RDLZ on 23 June 2016 as a public limited company with limited life and granted an undertaking to (among other things) subscribe for such number of ordinary shares in the capital of RDLZ as may be necessary or to otherwise ensure that RDLZ has sufficient assets to satisfy its obligations to the ZDP Shareholders and pay any operational costs incurred by RDLZ. During the year, the Company paid RDLZ's expenses amounting to USD 416,971 (2017: USD 225,717 representing RDLZ's expenses and Share issue costs).
On 25 July 2016, the Company entered into a Loan Agreement with the RDLZ. Pursuant to the Loan Agreement, RDLZ immediately following the admission of its ZDP Shares, on-lent the proceeds to the Company which the latter have applied towards making investments in accordance with its investment policy and working capital purposes.
The amounts payable to RDLZ that is eliminated upon consolidation are USD 71,212,418 and payable to the Trust is USD 54,847,439 (2017: USD 73,835,016 payable to RDL and USD nil payable to the trust).
During the year, the Company purchased a total of 7,278,193 ZDP Shares, to which its rights to interest income and accrued capital entitlement have been waived.
17. FEES AND EXPENSES
Management fee
The management fees were payable monthly in arrears and is at the rate of 1/12 of 1.0% per month of NAV (the "Management Fee"). For the period from Admission until the date on which 80% of the Net Proceeds have been invested or committed for investment, directly or indirectly, in Debt Instruments or Direct Lending Company Equity, the value attributable to any assets of the Group other than Debt Instruments or in investments in Direct Lending Company Equity held for investment purposes (including any cash) will be excluded from the calculation of Net Asset Value for the purposes of determining the Management Fee.
Ranger may have charged a fee based on a percentage of gross assets (such percentage not to exceed 1.0% and provided that the aggregate Management Fee payable by the Group shall not exceed an amount equal to 1.0% of the gross assets of the Company or its group in aggregate (as applicable)) to any entity which is within the Company's group (including the Company), provided that such entity employs leverage for the purpose of its investment policy or strategy.
Performance fee
Ranger was also entitled to a performance fee calculated by reference to the movements in the Adjusted NAV since the end of the Calculation Period (as defined below) in respect of which a performance fee was last earned or Admission if no performance fee has yet been earned (the Adjusted NAV at such earlier date being the "High Water Mark").
The performance fee will be a sum equal to 10% of the amount by which the Adjusted Net Asset Value at the end of a Calculation Period exceeds the High Water Mark.
The performance fee will be calculated in respect of each twelve month period starting on 1 January and ending on 31 December in each calendar year (a "Calculation Period"), save that the first Calculation Period was the period commencing on Admission and ending on 31 December 2015 and the last Calculation Period shall end on the date that the Investment Management Agreement is terminated or, where the Investment Management Agreement has not previously been terminated, the Business Day prior to the date on which the Company enters into liquidation, and provided further that if at the end of what would otherwise be a Calculation Period no performance fee has been earned in respect of that period, the Calculation Period shall carry on for the next 12 month period and shall be deemed to be the same Calculation Period and this process shall continue until a performance fee is next earned at the end of the relevant period.
In the event that C shares are in issue, the Investment Manager shall be entitled to a performance fee in respect of the net assets referable to the C shares on the same basis as summarised above. A Calculation Period shall be deemed to end on the date of their conversion into Ordinary Shares.
The Management fee and Performance fee payable to the Investment Manager were calculated and paid in US Dollars.
Termination Arrangements
The IMA was terminated on 12 February 2019. Accordingly, the Executive Board will manage the activities of the Company and the wind-down process. On the same day, IFM replaced the Investment Manager as the Alternative Investment Fund Manager.
18. FINANCIAL RISK MANAGEMENT
Financial risk factors
The Company has an established management process to identify the principal risks that it faces as a business. The risk management process relies on the Board of Directors' assessment of the risk likelihood and impact and also developing and monitoring appropriate controls. The table below sets out the key financial risks and examples of relevant controls and mitigating factors. The Board considers these to be the most significant risks faced by the Company that may impact the achievement of the Company's investment objectives. They do not comprise all of the risks associated with the Company's strategy and are not set out in priority order.
Currency risk Key controls and mitigating factors
The risk that exchange The administrator monitors the Company's exposure
rate volatility may to foreign currencies on a monthly basis and
have an adverse impact reports to the Board at each board meeting.
to the Company's The Board of Directors measure the risk to
financial position the Company of the foreign currency exposure
and result. by considering the effect on the Company's
net asset value and total return of a movement
in the exchange rate to which the Company's
assets, liabilities, income and expenses are
exposed.
The Company has entered into derivative contracts
to mitigate the effect of the currency risk
(see note 13). The Group does not enter into
or trade financial instruments, including
derivative financial instruments, for speculative
purposes.
---------------------------------------------------
The currency risk of the Group's monetary financial assets and (liabilities) was:
31 Dec 18 31 Dec 17
(Group) (Group)
USD USD
United States Dollars 125,763,235 244,174,487
Great British Pounds (26,624,529) (56,629,319)
Canadian Dollars 3,506,705 12,153,250
Australian Dollars 18,191,210 16,105,482
------------- -------------
120,836,621 215,803,900
============= =============
Sensitivity analysis
31 Dec 18 31 Dec 17
(Group) (Group)
USD USD
Great British Pounds (1,331,226) (2,831,466)
Canadian Dollars 175,335 607,663
Australian Dollars 909,561 805,274
------------ ------------
Effect on Revenue return after taxation (246,330) (1,418,529)
============ ============
A 5% weakening of USD against the above currencies would have resulted in an equal and opposite effect on the above amounts, on the basis that all other variables remain constant. The Group's exposure has been calculated as at the year end and may not be representative of the period as a whole.
It is assumed that all exchange rates move by +/- 5% against US Dollar.
This percentage is deemed reasonable based on the average market volatility in exchange rates during the period. The sensitivity analysis is based on the Group's foreign currency financial assets and financial liabilities held at the Statement of Financial Position date.
Funding and liquidity risk Key controls and mitigating factors
The risk of being unable to continue The Company finances its operations
to fund the Company's lending operation mainly from the issuance of Ordinary
on an ongoing basis. Shares and C Shares. There are no
redemption rights for the Shareholders
since the Company is closed-ended
investment company.
The ZDP Shares should have a minimum
Cover(11) of 2.75 times. The Administrator
calculates the Cover each calendar
month and reviewed by the Board of
Directors.
In managing the Company's financial
assets, the Board of Directors ensure
that the Company holds at all times
a portfolio of assets to enable the
Company to discharge its payment obligations.
The Group does not have any overdraft
or other borrowing facilities.
-----------------------------------------------
Maturity of financial assets and liabilities
The maturity profile of the Group's financial assets and liabilities is as follows:
31 Dec 18 31 Dec 18 31 Dec 17 31 Dec
17
Financial Assets Financial Liabilities Financial Financial
Assets Liabilities
USD USD USD USD
Within one year 86,853,988 33,669,190 14,785,679 3,455,208
In more than one
year but not more
than five years 132,832,610 65,180,787 280,695,448 76,222,019
------------------- ----------------------
219,686,598 98,849,977 295,481,127 79,677,227
================= ====================== =================== ======================
(11) Cover represents a fraction where the numerator is equal to the NAV of the Group on a consolidated basis adjusted to: (i) add back any liability to ZDP Shareholders; and (ii) deduct the estimated liquidation costs of the RDLZ, and the denominator is equal to the amount which would be paid on the ZDP Shares as a class and (ii) deduct the ZDP Shares held by the Company from the outstanding ZDP Shares to determine the ZDP redemption amount due in July 2021.
Interest rate risk Key controls and mitigating factors
The Company is exposed In the event that interest rate movements
to interest rate risk lower the level of income receivable on loan
due to fluctuations portfolios or cash deposits the dividend
in the prevailing required to be paid by the Company to the
market rates. Shareholders will also be reduced.
Interest rate risk is monitored by the Board.
The Company may also invest in other investment
funds that employ leverage with the aim of
enhancing returns to investors.
-------------------------------------------------
IFRS 7 requires disclosure of a sensitivity analysis for each type of market risk to which the entity is exposed at the reporting date, showing how profit or loss and equity would have been affected by changes in the relevant risk variable that were reasonably possible at that date.
The sensitivity to a reasonably possible 50 bps decrease/increase in the interest rates, with all other variables held constant, would have decreased/increased the Group's returns after tax by the following:
31 Dec 18 31 Dec 17
USD USD
Effect on Revenue return 202,891 204,370
========== =================
The above changes are considered by the Directors to be reasonable given the observation of prevailing market conditions in the period. The average effective interest income rate during the year is 9.5% (31 December 2017: 13.3%).
Credit and counterparty Key controls and mitigating factors
risk
Credit risk is the The Group seeks to mitigate the credit risk
risk of financial by actively monitoring the Group's loan direct
loss to the Group lending platform portfolio and the underlying
if the borrower fails credit quality of the borrowers.
to meet its contractual Further, cash is held at banks that are considered
obligations. The carrying to be reputable and high quality. Cash balances
amounts of financial are spread across a range of banks to reduce
assets best represent concentration risk.
the maximum credit
risk exposure at the
reporting date.
----------------------------------------------------
The maximum exposure to credit risk was as follows:
31 Dec 18 31 Dec 17
(Group) (Group)
USD USD
Financial assets at fair value through
profit or loss 176,114,663 29,621,483
Loan principal amount - 246,905,891
Accrued interest - 4,087,405
Derivative assets 412,297 1,110,329
Advances to/funds receivable from direct
lending platforms 908,917 3,782,916
Prepayments and other receivables 790,379 192,635
Receivable from broker 5,825,498 -
Cash and cash equivalents 35,634,844 9,699,799
219,686,598 295,400,458
====================== ====================
Credit and counterparty risk continued
The majority of the Group's cash and cash equivalents is with Bank of America, N.A. and Merrill Lynch, Pierce, Fenner & Smith Incorporated. As at 31 December 2018, Bank of America, N.A. has a long-term deposit credit rating of A+ (2017: A+) from Standard & Poor's and Merrill Lynch, Pierce, Fenner & Smith Incorporated has a long-term senior credit rating of A+ (2017: A+) from Standard & Poor's. Given this rating, the Directors do not expect this counterparty to fail to meet its obligations.
Fair value of groups of financial assets that are measured at fair value on a recurring basis
Some of the Group's financial assets are measured at fair value as at 31 December 2018. The following table gives information about how the fair values of the material financial assets are determined, in particular the valuation techniques and inputs used.
Loan platform Valuation technique Significant Relationship and sensitivity
unobservable of unobservable inputs
input to fair value
Vehicle Three different DCF Discount rate The higher the discount
Services models were run for determined by rate, the lower the
Contract Ensurety. We broke reference to fair value.
Platform out the secured/in-formula Going Concern
portion of the loan portion of the If the discount rate
(Going Concern), the loan, ranging was 2 per cent higher/lower
under-collateralised from 9.95% to while all other variables
portion of the loan 13.95%. Discount were held constant,
(Junior Portion), rate determined the carrying amount
and the Driven Solutions by reference for the Going Concern
loan for different to Junior portion portion of the loan
DCF/FV analysis. Each of the loan, would decrease/increase
of the components ranging from by USD 545,000 approximately.
of Ensurety loans 23.0% to 43.0%. If the discount rate
have different risk was 10 per cent higher/lower
profiles due to the while all other variables
timing of the potential were held constant,
collection, or the the carrying amount
uncertainty associated for the Junior portion
with collection therefore of the loan would decrease/increase
we used different by USD 1,545,000 approximately.
discount rates for
each.
----------------------------- ------------------- -------------------------------------
SME Loans In estimating the Discount rate If the discount rate
Platform fair value of certain determined by was 2 per cent higher/lower
platform loans receivable, reference to while all other variables
RDL used market--observable SME Platform were held constant,
data to the extent loan, ranging the carrying amount
it is available. RDL from 14.6% to for the SME Platform
engaged third party 18.6%. loan would decrease/increase
qualified valuers by USD 562,000 approximately.
to perform the valuation.
Management and the
Board worked closely
with the qualified
external valuers to
establish the appropriate
valuation techniques
and inputs to the
model.
----------------------------- ------------------- -------------------------------------
Real Estate Each of the major Discount rate If the discount rate
Loans platform positions determined by was 2 per cent higher/lower
Platform were valued by a third reference to while all other variables
party using the DCF Real Estate were held constant,
method. Different Platform loan, the carrying amount
discount rates were ranging from for the Real Estate
used for each platform 8.7% to 12.7%. Platform loan would
and in some cases, decrease/increase by
a different discount USD 152,000 approximately.
rate was applied to
that portion of a
loan deemed to be
impaired. The higher
the discount rate,
the lower the fair
value. Certain additional
valuation adjustments
were made by management
to take into account
the uncertainty of
the performance of
the underlying loans
in the platforms.
----------------------------- ------------------- -------------------------------------
Fair value hierarchy
The fair values of the financial assets held at fair value through profit and loss were derived from:
a) Loan Investments - A valuation report by a third party valuer or proceeds received from sale post year-end or amount estimated to be recoverable by the Board;
b) Princeton - estimated potential recovery from the investment; and c) Crowdnetic - cash proceeds from sale post year-end.
The fair values of the derivative financial instruments have been provided to the Directors by the counterparty, BNP Paribas S.A. and RBC Capital Markets., on whom the Directors rely as expert providers of such valuations.
The fair values of cash and cash equivalents, funds receivable from/payable to Direct Lending Platforms, prepayments and other receivables, and accrued expenses and other liabilities are estimated to be approximately equal to their carrying values due to their short-term nature.
The Directors based the fair value of the ZDP Shares disclosed below on the traded price of GBP 1.16 per share which was observed on the London Stock Exchange on 29 December 2018 (2017: GBP 1.019 per share which was observed on the London Stock Exchange on 29 December 2017) being the last observable traded price before period-end. The fair value for the ZDP Shares of GBP 61,480,000 or USD 78,362,408 (based on an exchange rate of 1.2746) is disclosed in this note for disclosure purposes only under IFRS 13.
IFRS 13 "Fair Value Measurement" ("IFRS 13") defines a fair value hierarchy that prioritises the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of fair value hierarchy under IFRS 13 are as follows:
Level 1: Inputs that reflect unadjusted quoted prices in active markets for identical assets and liabilities at the valuation date;
Level 2: Inputs other than quoted prices included in Level 1 that are observable for the assets or liability either directly (as prices) or indirectly (derived from prices), including inputs from markets that are not considered to be active; and
Level 3: Inputs that are not based upon observable market data.
Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. The main input parameters for this model are the default rate (the value rises when the default rate is lower, and decreases when the default rate is higher), the interest rate (the value rises when the interest rate is higher, and drops when the interest rate is lower), and the discount rate (the value rises when the discount rate is lower, and drops when discount rate is higher). A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
However, the determination of what constitutes "observable" requires significant judgement by the Directors. The Directors consider observable data to be market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, provided by multiple independent sources that are actively involved in the relevant market.
The categorisation of a financial instrument within the hierarchy is based upon the pricing transparency of the financial instruments and does not necessarily correspond to the Group's perceived risk inherent in such financial instruments.
The following tables include the fair value hierarchy of the Group's financial assets and liabilities designated at fair value through profit or loss:
31 Dec 18 Level
1 Level 2 Level 3 Total
(USD) (USD) (USD) (USD)
Financial
assets - 38,720,251 137,806,709 176,526,960
Financial
liabilities - 6,101 - 6,101
A reconciliation of financial instruments in Level 3 is set out below:
31 Dec 18 31 Dec 17
(Group) (Group)
USD USD
Opening balance 29,621,483 46,647,239
Purchases / Addition 6,222,775 300,000
Disposals / Redemptions (68,349,705) (4,767,069)
Transfer out of Level
3 (38,307,954) -
Transfer into Level
3 248,386,018 -
Loss on financial assets (39,765,908) (12,558,687)
------------------------ ------------------------
Closing balance 137,806,709 29,621,483
======================== ========================
The ZDP Shares are classified within Level 1 of the fair value hierarchy on the basis that the fair value was derived from an observable traded price.
19. OTHER INCOME
31 Dec 18 31 Dec 17
(Group) (Group)
USD USD
Factor income 4,054,443 7,203,352
Fee income 715,365 850,102
Late fee income 72,970 158,541
Other income 1,252 1,327
--------------------- ---------------------
4,844,030 8,213,322
===================== =====================
20. OTHER EXPENSES
31 Dec 18 31 Dec 17
(Group) (Group)
USD USD
Legal fees 5,089,097 3,043,960
Auditors' remuneration 189,368 271,828
Amortisation of origination
fee 28,351 253,554
Directors fees 557,147 121,827
Regulatory fees 61,035 35,400
Consultancy fees 670,518 34,323
Other expenses 1,461,206 346,902
--------------------- ---------------------
8,056,722 4,107,794
===================== =====================
21. OPERATING SEGMENTS
Geographical information
The Group is managed as a single asset management business, being the investment of the Group's capital in financial assets comprising Debt Instruments and loans originated by Direct Lending Platforms.
The chief operating decision maker is the Board of Directors. Under IFRS 8 the Group is required to disclose the geographical location of revenue and amounts of non-current assets other than financial instruments.
Revenues
The Group's revenues are currently generated from United States of America ("USA"), United Kingdom ("UK") and Canada. The total investment income generated from USA, UK and Canada amounted to USD 16,266,025, USD 4,637,666 and USD 1,744,072, respectively (2017: USA, UK and Canada amounted to USD 21,528,260, USD 3,606,532 and USD 1,377,185 respectively).
Non-current assets
The Group does not have non-current assets other than the financial assets at fair value through profit or loss.
22. CAPITAL MANAGEMENT
The Company's capital is represented by the Ordinary Shares, C Shares, share premium account and retained earnings. The capital of the Company is managed in accordance with its investment policy, in pursuit of its investment objective.
The Company is subject to externally imposed capital requirements in relation to its statutory requirement relating to interest/dividend distributions to Shareholders.
Leverage
During 2016, the Company incorporated RDLZ which issued ZDP Shares for trading on the London Stock Exchange's main market for listed securities. The proceeds from the issuance of the ZDP Shares were on-lent to the Company by way of an intercompany loan agreement.
The Company's leverage limit under its Prospectus is 1.5. The Company has not breached this limit anytime during the year, nor has the Company made any changes to this maximum limit. The Company's borrowing policy does not grant the Company any right to reuse collateral.
Liquidity
As a closed ended investment company in which Shareholders have no right of redemption, there are no assets of the Company which are subject to special arrangements due to their illiquid nature, nor have any new arrangements been implemented for managing the liquidity of the Company.
23. COMMITMENTS
As at 31 December 2018, the Company had no outstanding commitments (2017: none).
24. ULTIMATE CONTROLLING PARTY
It is the opinion of the Directors that there is no ultimate controlling party.
25. SUBSEQUENT EVENTS
The Company's Investment Management Agreement ("IMA") with Ranger Alternative Management II, LP ("Ranger") was terminated with effect from 12 February 2019. The Company has appointed IFM as its replacement Alternative Investment Fund Manager with effect from 12 February 2019.
As announced on 11 January 2019, the International MCA Platform was refinanced and paid off such promissory notes as were issued by the Company pursuant to the terms of the Company's Master Loan Agreement. As of 11 January 2019, the effective date of the refinancing and payoff, the outstanding obligations of the International MCA Platform, including principal, interest and reimbursable expenses, amounted to approximately USD 38 million the entirety of which has been paid to the Company (at par).
As announced on the 11 February 2019, the Board agreed to impair the carrying value of its investment in Princeton by USD 13.5m and is currently estimating a potential recovery of approximately USD 15 million from the Princeton bankruptcy.
As announced on 12 April 2019, following a thorough review of the collateral in respect of the loan facilities extended to the Vehicle Services Contract ("VSC") platform, which includes a loan to the holding company, the review indicated a substantial reduction in collateral security for the Company's outstanding principal amount due to a variety of factors. In order to accurately reflect the risk and the appropriate cost of capital for the portion of the loan that is not directly secured by collateral, the Company has applied a risk adjusted discount rate which is considered appropriate for an unsecured loan, resulting in an impairment to the loan value. As a result, an additional reserve of approximately USD 9 million to reflect the estimated impairment to the loan value has been recognised as at 31 December 2018. The combined balance of the two loans on the VSC platform as at 31 December 2018 was USD 48,484,720. The total balance after the impairment charge is therefore USD 39,375,720. Restructuring efforts are continuing.
Nick Paris was appointed as a Director of the Company with effect from 20 May 2019.
On 22 May 2019, the Directors approved the payment of a dividend of USD 21.71 cents (GBP 17.14 pence) per Ordinary Share at a total amount of USD 3,500,000. The dividend will be paid in July 2019 and charged from revenue reserves.
As announced by the Company on 3 June 2019, the ZDP Committee of the Company and the Board of RDLZ have finalised the terms of a proposal (the "Proposal") pursuant to which, subject to required approvals by holders of RDLZ's ZDP Shares (the "ZDP Shareholders"):
-- the Company and the Board of RDLZ will take the steps necessary to place RDLZ into a members' voluntary winding up on the new ZDP Repayment Date, which will be 20 June 2019; and
-- ZDP Shareholders will receive a Final Capital Entitlement of 121.8887 pence per ZDP Share (the "Revised Final Capital Entitlement").
The Proposal is conditional upon the approval by ZDP Shareholders of special resolutions at a class meeting. A circular (the "Circular") convening such a class meeting of ZDP Shareholders to be held on 20 June 2019 (the "ZDP Class Meeting") to consider, and if thought fit, approve the special resolutions required to implement the Proposal has been published and sent to the ZDP Shareholders.
The Company and the Board of RDLZ have received undertakings to vote in favour of the resolutions to be proposed at the ZDP Class Meeting from holders of approximately 64.5 per cent. of the total number of ZDP Shares in issue. The Company does not propose to vote the 7,278,193 ZDP Shares held by it in relation to the Proposal, representing approximately 13.7 per cent. of the total number of ZDP Shares in issue.
As a result of the above early repayment, the Group is expected to incur a realised loss on the ZDP Shares of $3 million.
ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE DISCLOSURES (UNAUDITED)
Ranger Alternative Management II, L.P. was appointed as the Investment Manager following the Company's Admission. The Investment Management Agreement with the Investment Manager was terminated on 12 February 2019. Consequently, IFM replaced the Investment Manager as the Alternative Investment Fund Manager.
The Investment Manager and the Company are required in accordance with Alternative Investment Fund Managers Directive to make certain periodic disclosures as follows:
Changes to AIFMD disclosure schedule
The prospectus issued by the Company in connection with IPO contained a schedule of disclosures prepared by the Investment Manager for the purposes of AIFMD. In addition, the AIFMD requires the Company's annual report to include details of any material changes to the information contained in that Schedule. The Investment Manager confirms that the schedule has been updated and is available on the Company website.
The Investment Manager has had regard to the current risk profile of the Company which outlines the relevant measures to assess actual and potential exposure to those risks set out in the prospectus and with taking in to account the revised investment strategy of the Company as voted on by the Shareholders. As required by the Listing Rules, the investment policy of the Company was updated with the approval of Shareholders.
Liquidity Risk Profile and Management
As identified in the Company's prospectus in respect of IPO, the Company identified that there is a risk that a position held by the Company cannot be realised at a reasonable value sufficiently quickly to meet the obligations (primarily, debt) of the Company as they fall due. The current investment strategy is to realise the portfolio at the best value possible. To assist with this executive board members have been appointed.
Based on the Company's current portfolio, the Investment Manager did not consider that the risk limits set by it are likely to be breached. As a closed-ended investment company, Shareholders of the Company have no right of redemption. Therefore in managing the Company's financial assets, the Investment Manager ensures that the Company holds at all times a sufficiently liquid portfolio of assets to enable the Company to discharge its payment obligations.
Investment Manager Remuneration
The Investment Manager is responsible for fulfilling the role of the AIFM and ensuring the Company complies with the AIFMD requirements. Details of the total amount of remuneration for the financial year, split into fixed and variable remuneration, paid by the AIFM to its staff, and the number of beneficiaries, may be made available to Shareholders on request to the Investment Manager.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR SFMFAWFUSELM
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June 18, 2019 02:00 ET (06:00 GMT)
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