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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Rm Infrastructure Income Plc | LSE:RMII | London | Ordinary Share | GB00BYMTBG55 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -0.50 | -0.66% | 75.50 | 75.00 | 76.00 | 76.00 | 75.00 | 76.00 | 98,788 | 11:57:21 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Svcs Allied W/exchanges, Nec | 9.18M | 5.39M | 0.0476 | 15.86 | 85.47M |
From Apr 2023 to Apr 2024
TIDMRMII TIDMTTM
RNS Number : 4463X
RM Infrastructure Income PLC
26 April 2023
RM INFRASTRUCTURE INCOME PLC
(the "Company" or "RMII")
ANNUAL REPORT AND ACCOUNTS
For the year ended 31 December 2022
LEI: 213800RBRIYICC2QC958
About us
RM Infrastructure Income plc ("RMII" or the "Company") aims to generate attractive and regular dividends through investment in secured debt instruments of UK Small and Medium sized Enterprises ("SMEs") and mid-market corporates including any loan, promissory notes, lease, bond, or preference share (such debt instruments, being "Loans") sourced or originated by RM Capital Markets Limited (the "Investment Manager") with a degree of inflation protection through index-linked returns where appropriate.
PORTFOLIO AT A GLANCE
Operational highlights
-- Diversified portfolio with gross assets of GBP126.1 million invested across 37 loans and one wholly owned asset, across 12 sectors and 16 sub-sectors
-- RM Funds further accreditation by the British Business Bank as an accredited lender for the RLS with RMII as a funding partner: 28% of the portfolio invested into partially government guaranteed CBILS & RLS eligible loans
-- Approximately 59.1% of the portfolio NAV is committed to Social & Environmental Infrastructure sectors reflecting an increase of 8.3% over 2022, with a strong pipeline and expectation that further allocations to these areas in 2023 will continue to increase as the portfolio's maturing investments are recycled within those core sectors
-- A short dated, high yielding portfolio that has outperformed many other fixed income comparables during 2022
Financial highlights
Hot Features
Premium
Financial information Year ended Year ended
31 December 2022 31 December
2021
======================================== ================= ==============
Gross asset value (GBP'000) 1 GBP126,076 GBP130,821
======================================== ================= ==============
Net Asset Value ("NAV") (GBP'000) GBP108,805 GBP111,250
======================================== ================= ==============
NAV per Ordinary Share (pence) 92.49p 94.41p
======================================== ================= ==============
Ordinary Share price (pence) 85.00p 95.00p
======================================== ================= ==============
Ordinary Share price (discount)/premium
to NAV 1 (8.1%) 0.6%
======================================== ================= ==============
Ongoing charges 1 1.86% 1.92%
======================================== ================= ==============
Gearing (net) 1 13.1% 14.6%
======================================== ================= ==============
Performance summary
% change 2,4 % change 3,4
======================================== ================= ==============
Total return - Ordinary Share NAV and
dividends 1 +5.0% + 7.6%
======================================== ================= ==============
Total return - Ordinary Share price
and dividends 1 +3.7% + 16.7%
======================================== ================= ==============
1. These are Alternative Performance Measures ("APMs").
2. Total returns for the year to 31 December 2022, including dividend reinvestment.
3. Total returns for the year to 31 December 2021, including dividend reinvestment.
4. Source: Bloomberg
As at 20 April 2023, the latest date prior to the publication of this document, the Ordinary Share price was 79p per share and the latest published NAV was 92.10p per share as at 31 March 2023.
Alternative Performance Measures ("APMs")
The financial information and performance summary data highlighted in the footnote to the above tables are considered to represent APMs of the Company.
Portfolio (as at 31 December 2022)
Largest 10 loans by drawn amounts across the entire portfolio
Business activity Investment type Valuation(+) Percentage
(Private/Public/Bond) GBP'000 of
gross asset
(%)
================================= ================================= ============ ============
Asset finance Private Loans 12,690 10.10
================================= ================================= ============ ============
Hotel Private Loans 9,630 7.60
================================= ================================= ============ ============
Automotive parts manufacturing Private Loans 8,410 6.70
================================= ================================= ============ ============
Care home Private Loans 8,118 6.40
================================= ================================= ============ ============
Gym franchise Private Loans 7,820 6.20
================================= ================================= ============ ============
Hotel Private Loans 5,479 4.30
================================= ================================= ============ ============
Student Accommodation Private Loans 4,955 3.90
================================= ================================= ============ ============
Care home Private Loans 4,943 3.90
================================= ================================= ============ ============
Hotel Private Loans 4,589 3.60
================================= ================================= ============ ============
Healthcare Bond 4,429 3.50
================================= ================================= ============ ============
Ten largest holdings 71,063 56.20
==================================================================== ============ ============
Other private loan investments 41,105 32.70
==================================================================== ============ ============
Wholly owned asset 3,593 2.90
==================================================================== ============ ============
Bond investments 4,208 3.30
==================================================================== ============ ============
Total holdings 119,969 95.10
==================================================================== ============ ============
Other net current assets 6,110 4.90
==================================================================== ============ ============
Gross assets* 126,079 100.00
==================================================================== ============ ============
*the Company's gross assets comprise the net asset values of the Company's Ordinary Shares and the Bank loan.
(+) Valuation conducted by external Valuation Agent
Full portfolio (as at 31 December 2022)
Loan Borrower Business Market
ref# name Deal type Sector description Nominal value Valuer Payment
(GBP) (GBP)
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral
88 - SPV Loan Healthcare Care home 12,833,220 12,689,910 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Syndicated Auto Parts
39 Beinbauer Loan Manufacturing Manufacturer 9,663,522 9,629,584 V Agent PIK/Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Hotel &
66 - SPV Loan Leisure Hotel 8,504,440 8,410,122 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Asset Backed Asset Backed
60 - SPV Loan Lending Lending 8,193,916 8,117,971 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Gym Bilateral Health and
76 Franchise Loan Healthcare Well-being 7,962,055 7,820,003 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Hotel &
67 - SPV Loan Leisure Hotel 5,540,560 5,479,113 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Specialist
15 Voyage Care Bond Healthcare Care 5,000,000 4,208,334 External Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Hotel &
80 - SPV Loan Leisure Hotel 5,000,000 4,085,178 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral
82 - SPV Loan Healthcare Care home 5,000,000 4,954,904 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Hotel &
86 - SPV Loan Leisure Hotel 5,000,000 4,942,918 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Student
89 - SPV Loan Accommodation accommodation 5,000,000 4,589,466 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral
79 - SPV Loan Construction Construction 4,500,000 3,676,660 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Asset Backed Asset Backed
61 - SPV Loan Lending Lending 4,469,939 4,428,509 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Student
12 - SPV Loan Accommodation accommodation 4,422,500 4,422,500 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Hotel &
73 - SPV Loan Leisure Hotel 4,000,000 3,938,378 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Student
84 - SPV Loan Accommodation accommodation 4,000,000 3,958,630 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Student
68 Equity Equity Accommodation accommodation 3,600,000 3,592,800 V Agent N/A
===== ============== =========== ============== ============== ============ ============= ========= ==========
Trent Bilateral Energy Energy
62 Capital Loan Efficiency Efficiency 3,011,643 2,859,658 V Agent PIK
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral
83 - SPV Loan Healthcare Care home 2,796,462 2,771,240 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Hotel &
92 - SPV Loan Leisure Hotel 2,458,629 2,008,787 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Hotel &
58 - SPV Loan Leisure Hotel 2,401,638 1,746,076 V Agent PIK
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Childcare
95a - SPV Loan & Education Childcare 2,381,061 2,376,299 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Syndicated Transport Ports
71 Euroports Loan Assets business 1,770,695 1,664,453 External Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Hotel &
69 - SPV Loan Leisure Hotel 937,500 889,924 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Student
74 - SPV Loan Accommodation accommodation 930,000 915,870 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Commercial
87 - SPV Loan Property Restaurant 782,623 773,253 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Other
96 - SPV Loan Manufacturing Manufacturing 700,000 695,881 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Trent
Capital Bilateral Energy Energy
63 (Fusion) RF Loan Efficiency Efficiency 699,545 199,972 V Agent PIK
===== ============== =========== ============== ============== ============ ============= ========= ==========
Gym Bilateral Health and
76.1 Franchise Loan Healthcare Well-being 660,838 649,048 V Agent PIK
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral
97a - SPV Loan Healthcare Care home 680,460 680,460 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Energy Energy
78 - SPV Loan Efficiency Efficiency 500,000 398,748 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Wealth
81 - SPV Loan Finance Management 500,000 494,848 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Childcare
95b - SPV Loan & Education Childcare 476,212 475,260 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Childcare
91 - SPV Loan & Education School 450,000 450,000 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral
97b - SPV Loan Healthcare Care home 420,115 420,115 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Gym Bilateral Health and
94a Franchise Loan Healthcare Well-being 286,391 276,920 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Renewable
Private Loan Bilateral heat
52 - SPV Loan Clean Energy incentive 165,121 164,256 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Renewable
Private Loan Bilateral heat
9 - SPV Loan Clean Energy incentive 114,218 113,604 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Total 125,813,302 119,969,650
===== ============== =========== ============== ============== ============ ============= ========= ==========
MARKET
Market environment
A very challenging macro environment persisted throughout the year. The key driver was inflationary pressure which was exacerbated by the Russian invasion of Ukraine in the spring. Central banks then started their tightening phase with the Bank of England raising interest rates 9 times during the year to the highest levels seen in 14 years. Credit spreads were also volatile with two spikes during the year seen after the initial days of the Russian invasion and then after the poorly received "mini-budget" in September. In conjunction with widening credit spreads underlying government bond yields rose dramatically with 5 year UK Gilt yields rising from 0.80% to finish the year at circa 3.6%, 280bps higher. This caused fixed income as an asset class to have a very poor year as the absolute level of spread and yield widening from such a low initial base meant that any instrument with duration and any credit exposure saw material declines in value.
Market opportunities
The focus of the strategy remains on relatively short-dated lending. The widening seen over the last 12 months in credit spreads combined with the increase in underlying UK Gilt yields means there are opportunities to increase the coupons charged. Such new lending is also targeting senior secured loans thus seeking to improve the overall credit quality of the portfolio.
CHAIR'S STATEMENT
Introduction
On behalf of the Board of Directors ("the Board"), I am pleased to present RM Infrastructure Income plc's ("RMII" or "the Company") Annual Report & Accounts for the year ended 31 December 2022.
This year marks the sixth year since the Company's Initial Public Offering ("IPO") on the London Stock Exchange in December 2016 and was particularly challenging given significant movements seen in credit and interest rate markets. The rise in energy prices over parts of the year, due to the Russian invasion of Ukraine, was staggering and it is welcome that we are now seeing prices normalise, albeit at elevated levels. Further pressure was put on the UK gilt market in late September by the "mini-budget" and risk-free rates, as represented by UK government bond yields, rose significantly. Our portfolio was structured to mitigate against such interest rate risk, and it is therefore very pleasing to see significant outperformance of the share price percentage total return versus more liquid loan and bond market benchmarks.
The year saw the Net Asset Value ("NAV") per Ordinary Share of the Company fall slightly as fair value markdowns were taken during the period. As in 2020 during the Covid period, we believed it was sensible to take fair value markdowns given the heightened levels of risk and the increase in risk free rates as well as credit spreads over the year. Our expectations are that some of these fair value markdowns, will be released during 2023 as the Investment Manager has made good progress with the enhanced monitoring loans, which have reduced over the period from three to one.
Income generation and NAV performance
In the six years since listing, the Company has returned to Shareholders 37.225 pence per Ordinary Share in dividends which have been entirely covered by earnings. During 2022 the dividend was covered by 0.975x with income, and we dipped into accrued revenue reserves in order to pay the dividend. This dividend cover is forecast to increase, as a higher net interest income from the portfolio is expected during 2023. Given the increase in government bond yield and credit spreads the Company can now make new loans at higher coupon rates which will feed through into higher gross revenue. This means that absent of any increase in credit losses, the Company is seeking to pay a higher dividend than the previous stated target of 6.5 pence per Ordinary Shares for 2023 and beyond whilst these favourable conditions persist. The current range that the Investment Manager is indicating to the Board is that there will be sufficient income to pay a dividend of at least 7 pence per Ordinary Share which will equate to a current yield of 8.24% versus the year end share price.
On the 1 March 2023, the Company declared a fourth interim dividend for the year of 1.625 pence per Ordinary Share paid on the 31 March 2023, thus total dividends of 6.5 pence per Ordinary Share were paid for the year ended 31 December 2022.
At 31 December 2022, the published NAV per share was 92.49 pence per Ordinary Share (31 December 2021: 94.41 pence). The NAV percentage per Ordinary Share Total Return for the year was +5.0% (2021: 7.6%) and annualised over 2021 and 2022 gives a +6.29% per annum NAV Total Return. Since inception the NAV percentage Total Return on an annualised basis has been +5.49%.
Returns to Shareholders
The closing mid-market share price on 31 December 2022 was 85 pence per Ordinary Share compared with 95 pence per Ordinary Share as of 31 December 2021. The 10 pence per Ordinary Share decrease, combined with dividends, means the total percentage share price return for the year was +3.75% (2021: +16.7% and since IPO to date +24.74%).
On 31 December 2022, the share price discount to NAV was 8.1% which is slightly higher than the 6% maximum target and as a result there were share buy backs conducted in December totalling 204,629 Ordinary Shares all of which were bought back at 85 pence per Ordinary Share. After the period end a further 50,000 shares were bought back at 85.5 pence per Ordinary Share. Over the life of the Company a total of 4,638,222 Ordinary Shares have been acquired through buy backs, all which are held in treasury. It is our target during 2023 and the medium term to regain the premium rating of the shares to NAV; and then the Company will divest these treasury shares at a premium to NAV.
Portfolio overview
The overall portfolio size remained largely unchanged during the year, closing out at GBP126 million of invested capital (2021: GBP131 million) across 37 loans and 1 wholly owned asset (2021: 34 loans and 1 wholly owned asset).
Six new loans were made during the year, alongside further drawdowns from existing facilities, and there were repayments and divestments totalling c.GBP26m. The weighted average life of the portfolio reduced from 2.3 years to 1.5 years which is reflective of the desire to keep duration relatively short, providing the optionality to redeploy capital at higher yields. The average yield of the portfolio increased by 67bps, rising from 8.54% to 9.21%.
Overall, the credit quality of the portfolio improved as the above- mentioned capital received from repayments and divestments which was invested equally between senior secured and junior secured investments was redeployed entirely in senior secured investment loans. Further, these new investment loans generate an additional c.300bps which will increase the dividend cover in the near to medium term. The Investment Manager's report will go into further detail, however, it is pleasing to note that out of the three borrowers that were on the enhanced monitoring list as of the start of the year, two have reached successful resolutions with only one remaining. The Investment Manager is also seeking to monetise the equity stake in Energie Fitness which was received during the restructuring of the business post the initial Covid wave in 2020. This was always scheduled to be a 3-year investment horizon and despite a delayed real start due to extra lockdowns I am pleased to report that this objective is broadly on track.
During the year the Board took the opportunity, when Covid restrictions were relaxed, to visit several of the projects funded by Shareholders. In July the Directors visited Trianco (Trent), an energy efficiency manufacturer based in Rotherham and spent several hours with management, discussing the business and touring the factory.
Since the Company was launched in 2016, when we were able, the Board has made an annual visit to RM Funds' offices in Edinburgh to meet with staff and members of the investment committee who are responsible for finding and vetting opportunities. This year we took the opportunity to visit the development at Clyde Street in Glasgow and meet the site managers before going on to Edinburgh.
In January 2023 the Board made visits to Southport and Lytham to visit two purpose-built care homes managed by Athena Healthcare Group. These two care homes provide 277 beds and will help to address the significant shortfall in adequate bed capacity for the UK's elderly population.
The Board then travelled to Milton Keynes to visit the head office of Energie Fitness to discuss the company's performance and strategy. The Board also had the opportunity to visit two gym franchisees nearby, one being the first franchisee to have opened nearly 18 years ago and the second one being a recently opened franchise.
In all cases the Directors were impressed by the level of professionalism of all the managers of each of the businesses, their enthusiasm and the relationship they have with RM Funds. In 2023 the Board intends to visit many more of the projects funded by Shareholders.
Committed to responsible investing
The Board and the Investment Manager have long been committed to high ESG standards and to responsible investing. The refreshed investment focus towards social and environmental infrastructure sectors enhances this commitment through investment in assets at the forefront of providing essential services to society. RM Funds' Responsible Investing Investment Policy ensures that these considerations are integrated into each individual investment process and the alignment of the portfolio to achieving contributions towards outcomes linked to UN Sustainable Development Goals 3, 4, 7, 11, 12 & 13.
The Board and the Investment Manager seek to understand and report to investors on the impact their capital has made to society and the planet. We have therefore engaged The Good Economy ("TGE") as the impact reporting and assurance partner for RMII. The first Impact Report was released in the Spring of 2022 ( www.rm-funds.co.uk/ responsible-investing-4/responsible-investing-3/ ) and the second impact report is scheduled for release during Q2 of 2023.
The Company will continue to target social good, and it is pleasing to see new transactions being committed to over the period contained sustainability-linked lending covenants which incentivise the borrower to achieve social and environmental outcomes as measured against specific objectives for each loan.
Outlook
Due to the increase in credit spreads and higher government bond yields the Investment Manager is making new loans at higher levels increasing the average portfolio yield. The portfolio average yield rose by 67bps over 2022 and this is set to rise further over 2023 thus generating additional net interest income. We therefore expect this to increase the level of dividend cover allowing for higher distributions absent of an increase in credit losses.
We are therefore seeking to target distribution for 2023 to be at least 7 pence per Ordinary Share which is a 7.7% increase in income for Shareholders over the distributions received in 2022. Using the share price at the time of writing of 84 pence per share this would equate to a dividend yield more than 8.33% and represents an increase of 68bps over the dividend yield of 7.65% based on the closing share price as at 31 December 2022.
Over the course of the financial year, the Company has operated in very challenging conditions. The discount levels at which our shares have traded at have been a function of rising yields. We recognised the issues and are seeking to address them by increasing the portfolio yield to higher, more attractive levels. Given our portfolio and the market backdrop in which we operate, this will naturally take some time. As detailed above, we expect the income yield paid to Shareholders to be higher than previously paid and we hope this increases the attractiveness of the shares, goes some way to addressing the discount we currently trade at and help restore the premium rating I targeted in last year's report. Notwithstanding that, on the 12 May 2021 the Company announced that if the shares trade at more than an average of zero percent discount for the six-month period to 31 March 2023, that a liquidity consultation process will take place prior to the AGM to be held on 30 May 2023.
In preparing the financial statements we have considered the upcoming liquidity opportunity consultation. As this consultation will not conclude until after the approval of these financial statements it means that there is material uncertainty over the going concern of the Company. The Board will honour that commitment and our brokers will consult with Shareholders shortly. We hope that Shareholders can take a longer-term view, recognise the increased dividend target, see the value within the portfolio and allow the Investment Manager to continue to invest in attractive opportunities on your behalf.
I look forward to continued engagement with Shareholders. Please do not hesitate to contact me through our brokers Singer Capital Markets or Peel Hunt if any additional information is required.
Norman Crighton
Chair
25 April 2023
INVESTMENT MANAGER'S REPORT
Strong and sustainable NAV & income performance
Over the course of the year, the portfolio generated a NAV Total Return of 4.98%, with total dividend distributions attributable to Shareholders for the year totalling 6.5 pence per Ordinary Share. Overall, the NAV per Ordinary Share decreased from 94.41 pence per Ordinary Share at 31 December 2021 to 92.49 pence per Ordinary Share at 31 December 2022. Over the past two years from January 2021 the Company has generated annualized NAV percentage Total Returns of 12.98% per annum and since IPO 5.49%, demonstrating the stable income and capital preservation which the Company is seeking to deliver for Investors.
Following the year end, an interim dividend in respect of the period from 1 October 2022 to 31 December 2022 was declared on 1 March 2023 and was paid to Shareholders on the 31 March 2023. These dividends totalling 6.5 pence per Ordinary Share for the year ended 31 December 2022 bring the total distributions since the Company's launch in December 2016 to 37.225 pence per Ordinary Share, exceeding the target set at IPO.
The portfolio yield increased by 72bps over the period and this increase is expected to continue over 2023 as any new loans are made with higher coupons. The Investment Manager has recommended to the Board that, absent of any increase in credit losses, the dividend can be increased to at least 7 pence per share for the period of 2023 and beyond if these favourable lending conditions persist.
Financial performance
Total income of GBP10.8m (2021: GBP11.2m) was marginally ahead of budget whilst expenses at GBP2.20m were marginally below budget leading to a profit before interest and tax of GBP8.6m, GBP429,000 ahead of budget. Set against this OakNorth Bank RCF costs were higher than budget with high utilisation combined with an increase in the cost of funds due to Bank of England Base Rate increases. Overall this led to a Profit after Interest cost that was GBP172,000 behind budget, a negative variance of 2.2% to budget. Given the challenging year and the provisions recorded versus income recognition the Investment Manager believes this is a satisfactory result.
The split between cash interest and Payment-in-Kind interest was respectively GBP7.9m and GBP2.8m, or 74% / 26%. To note that the way construction facilities were underwritten during the reporting period, meant that drawdown under the allocated interest reserve accounts were considered PIK interest, which optically looks less favourable than in previous years, though providing significant benefits regarding the running yield on committed construction facilities. When these above-mentioned construction facilities are removed from the analysis, then the Cash / PIK split looks more favourable versus 2021.
For the year ended 31 December 2022
Income GBP10,768,337 --------------------------- ---------------- Total expenses (GBP2,201,431) =========================== ================ Finance costs (GBP1,102,169) =========================== ================ Total GBP7,464,737 =========================== ================ Dividends (GBP7,655,526) =========================== ================ Loss after interest costs (GBP190,789) & before tax =========================== ================
There were four dividends paid or declared in respect of the year ended 31 December 2022 totalling 6.5 pence per Ordinary Share.
Period Payment date Dividend proceeds ========= =================== =================== Q1 2022 24 June 2022 GBP1,914,916 ========= =================== =================== Q2 2022 30 September 2022 GBP1,914,916 ========= =================== =================== Q3 2022 30 December 2022 GBP1,914,916 ========= =================== =================== Q4 2022 31 March 2023 GBP1,910,778 ========= =================== ===================
During the year ended 31 December 2022, GBP376,949 was treated as income but written down as a bad debt provision, thus not included in the 2022 revenue line item. This provision was taken because the timing of the income receipt is uncertain and there is uncertainty over the recoverability of such income. In total the Company balance sheet now has GBP1.159m of income provisions.
Share price performance
Negative share price performance combined with the widening of the share price premium to NAV from 0.6% at the year ended 31 December 2021 to -8.10% at the year ended 31 December 2022 meant that there was a negative share price total return of -3.75%. Since IPO the Total percentage share return achieved is 24.74% which is annualised since inception at 3.81% per annum.
This performance needs to be set against the wider negative market backdrop for fixed income and comparables to the broader sector peers.
Market environment
In the 2021 annual report outlook we noted "as we look into 2022 it is likely that there will be further upwards pressure on government bond yields as inflationary pressures remain and central banks move into a tightening phase... negative outlook for general fixed income markets... credit spreads will likely move wider over the coming year." All of this played out over the course of 2022 which was indeed a very difficult environment for credit, rates, and equities. The RMII portfolio was appropriately positioned with short duration exposure that minimised these wider credit spreads and higher underlying government bond yields.
The ITRX Markit Crossover index widened from circa 250 to nearly 700 post the mini budget in September and ended the year materially wider than where it started at circa 450. 2-year UK government bond yields started the year comfortably under 1% and peaked at over 4.5% in late September and closed out the year at over 3.5%.
The RMII portfolio did not suffer the volatility seen within these markets, however general fair value mark downs were taken during the year to reflect the widening in credit spreads and the increase in government bond yields.
Portfolio performance
Portfolio credit metrics improved over the year as measured by the proportion of senior loans and CBILS/RLS versus junior debt. As at the year end the portfolio was 63% invested within these types of loans versus 61% at the year ended 31 December 2021. The average life of the loan book reduced to 1.5 years as at the year-end (2021: 2.3 years) reflecting the continued strategic decision for the duration of the portfolio to remain as short as practically possible. As described on the last annual report such short duration minimises exposure to these continued inflationary pressures described above and is a key reason why RMII should offer an attractive proposition as an alternative credit investment versus more traditional corporate bond funds that typically are lower yielding with longer durations.
As at 31 December 2022, the overall number of loans within the portfolio remained relatively stable with 37 loans and 1 wholly owned asset (2021: 34 loans and 1 wholly owned asset) and total invested capital of GBP126m (2021: GBP131m).
The weighted average yield of the portfolio stood at 9.21% as at 31 December 2022, which is a 67bps uplift versus the previous year of 8.54% as at 31 December 2021. This has been driven by the Company's ability to redeploy loan repayments into higher yielding investments, with new loans over the year earning an additional c.300bps versus the repaid loans. As most of these new investments were made in the second half of 2022 and is ongoing, investors should see the full effect over the course of 2023.
It was an active year for the portfolio with new investments totalling c.GBP5.6m, drawdowns to existing facilities and re-investments totalling c.GBP15.5m and several repayments and divestments that totalled c.GBP26m during the year.
During the year, the Company completed on its first ESG sustainability- linked investment via a c.GBP6.2m senior secured investment for the construction of a 45-bed modern purpose-built care home near London. The loan contains a margin ratchet, which is linked to environmental building standards, and operational and governance conditions which align with the Company's ESG reporting framework and its desire to address certain sustainable development goals. Going forward and where applicable, the Company will look to further introduce sustainability and other ESG considerations linkage to the applicable margin.
The Company has contributed meaningfully to the provision of modern, purpose built and fit for purpose aged care capacity as two new sites in the northwest of England totalling 277 beds, funded by RMII were satisfactorily completed or nearing completion at the year end.
The exposure to core sectors as measured by their commitments has increased to 59.1%. as at 31 December 2022 vs 47.5% as of 31 December 2021. This inevitably will further increase over the course of 2023 as non-core sector investments come to maturity and are prepaid, with the most imminent one being the Company's asset-backed investments (c.11% of capital invested as at 31 December 2022).
The Company's approach regarding the conservative valuation of its investments remains unchanged with fair value mark downs worth approximately GBP5.8m or c.5 pence per Ordinary Share. These provisions are driven by what is defined as market risk and idiosyncratic risk. For market risk during 2022 as risk free rates rose and credit spreads widened it was sensible to widen yields across the portfolio to reflect such public market moves. Idiosyncratic risk refers to loan specific information which is reflected within specific loan pricing. Over 2022 provisions were increased to reflect the wider markets and idiosyncratic risks and this was in line with our approach during the Covid Pandemic of 2020 - our view is that fair value mark downs are likely to partially reverse over the course of 2023 as market conditions stabilise.
These fair value mark downs are in addition to the income provisions totalling GBP1.159m, or c.1 pence per Ordinary Share, described above.
During the year the number of investments on the enhanced monitoring list dropped from three to one, as outlined below:
1.Removed from enhanced monitoring: Trent Capital
(Loan reference 62 & 63)
Reduced leverage with c.GBP2.2m recovered via revenues from residential properties against which the Company had a secured charge with further modest deleveraging expected over 2023. Performance wise, the operating business Trianco has been performing profitably since the restructuring and is well positioned to thrive on the UK's agenda to meet its net zero objectives.
Although the performance of the business has been encouraging, the full credit provisions worth c.GBP0.7m, or c.0.8 pence per ordinary share have been retained.
2.Removed from enhanced monitoring: Coventry PBSA property
(Loan reference 68)
This Coventry-based student accommodation property is fully owned by the Company, post its lender-led administration in 2021. Cladding remedial works have now been fully completed with occupancy at c.65% and expected near full occupancy for the next academic year of 2023/24. Now that this has been rehabilitated the Company is pursuing a legal claim against the former main contractor to recover all costs and loss of income incurred to date, these claims have not been accounted for within the NAV of RMII.
3. Still under enhanced monitoring: Hotel Development & Contractor Glasgow
(Loan reference 58, 79, 80 & 92)
This hotel was scheduled to open in June 2022 and has been delayed to April 2023 and is to be operated by Virgin Hotels under a 35-year Hotel Management Agreement. The total market value exposure that is correlated to the outcome of this asset is currently 10.6% of Company net assets. Credit provisions of GBP2.8m or c.2.4 pence per ordinary share were made.
Responsible investing
RM Funds is a signatory to the Principles for Responsible Investment ("PRI"). The PRI defines responsible investment as a strategy and practice to incorporate environmental, social and governance factors in investment decisions.RM Funds incorporates ESG criteria early on as part of the investment process and in addition there is active engagement wherever possible with portfolio Companies to help them improve their ESG processes. In practice this is delivered by the RM Funds Responsible Investing Investment Policy which is integral to RM's business philosophy as we believe we can make a difference. This policy framework applies to all investment made by RM Funds and is governed by our principals and our commitments:
Our principles
> Respect for the internationally proclaimed human rights principles, equal opportunity independent of gender, race or religion; freedom of association and the right to bargain collectively;
> Working conditions that surpass basic health and safety standards;
> The conduct of good governance practices, in particular in relation to bribery and conflicts
of interest; and
> Environmental responsibility and responsibility to active climate change engagement.
Our commitments
> Integrate the above principles into our decision-making process, by carefully considering ESG issues associated with any potential investment during the due diligence phase;
> Encourage portfolio companies to follow the above principles by implementing governance structures that provide appropriate level of oversight and by seeking disclosure on ESG issues;
> Provide ESG training and support to RM Fund's employees involved in the investment process, so that they may perform their work in accordance with the above principles and with this policy;
> Seek to be transparent in our efforts to integrate ESG considerations in investments and annually report on progress towards implementing the above principles;
> Comply with national and other applicable laws; and
> Help promote the implementation of the above principles; consider our alignment with other related conventions and standards set by Invest Europe, the UN Global Compact Initiative and the UN Principles for Responsible Investment (PRI); continuously strive to improve ESG performance within RM and our portfolio companies.
Investment Manager aligned to investor interests
At the IPO RM Funds purchased 500,000 Ordinary Shares and in line with the commitment to investors made at IPO has made an ongoing commitment and by purchasing RMII shares, the Investment Manager has shown a significant alignment of its interests with Shareholders. In addition to this the management team own additional shares in a personal capacity.
RM Funds has continued to purchase Ordinary Shares of the Company during the year and at the year-end RM Funds own 1,316,625 Ordinary Shares, which is an increase of 37,500 Ordinary Shares over the year.
Outlook for 2023
As described earlier in the report, 2022 was a very poor year for fixed income markets. The stage is set for a better 2023 and with 2-year UK government bond yields touching 4% and wider credit spreads and corporate bond yields look appealing in the short end. The Company is now able to recycle its capital and earn higher returns which absent of an increase in credit losses should allow for greater distributions for investors. This is therefore a promising outlook with potentially higher dividends and set against uncertain equity valuations such a stable income and NAV as targeted by RMII should appeal to a wide number of investors.
RM Capital Markets Limited
25 April 2023
INVESTMENT POLICY, RESULTS AND OTHER INFORMATION
Investment objective
The Company aims to generate attractive and regular dividends through investment in secured debt instruments of UK SMEs and midmarket corporates and/or individuals including any loan, promissory notes, lease, bond, or preference share (such debt instruments, as further described below, being "Loans") sourced or originated by the Investment Manager with a degree of inflation protection through index-linked returns where appropriate.
Investment policy
The Company will seek to meet its investment objective by making investments in a diversified portfolio of Loans to UK SMEs and mid market corporates, special purpose vehicles and/or to individuals. These Loans will generally be, but not limited to, senior, subordinated, uni-tranche and mezzanine debt instruments, documented as loans, notes, leases, bonds or convertible bonds. Such Loans shall typically have a life of 210 years. In certain limited cases, Loans in which the Company invests may have equity instruments attached, ordinarily any such equity interests would come in the form of warrants or options attached to a Loan. Typically the Loans will have coupons which may be fixed, index-linked or LIBOR linked.
For the purposes of this investment policy, UK SMEs include entities incorporated outside of the UK provided their assets and/ or principal operations are within the UK. The Company is permitted to make investments outside of the UK to midmarket corporates.
Loans will be directly originated or sourced by the Investment Manager who will not invest in Loans sourced via or participations through, peer to peer lending platforms.
Loans in which the Company invests will be predominantly secured against assets such as real estate or plant and machinery and/or income streams such as account receivables.
The Company will make Loans to borrowers in a range of Market Sectors within certain exposure limits which will vary from time to time, according to market conditions and as determined by the Board, subject to the Investment Restrictions set out below.
The Company will at all times invest and manage its assets in a manner which is consistent to the spreading of investment risk.
Investment restrictions
The following investment limits and restrictions will apply to the Company's Loans and business which, where appropriate, shall be measured at the time of investment or once the Company is fully invested:
> the amount of no single Loan shall exceed 10% of Gross Assets; > exposure to a single borrower shall not exceed 10% of Gross Assets; > loans will be made across not less than four Market Sectors;
> not less than 70% of Gross Assets will be represented by Loans denominated in sterling or hedged back to sterling;
> loans made to borrowers in any one Market Sector shall not exceed 40% of Gross Assets;
> loans with exposure to project development/construction assets shall not exceed 20% of Gross Assets;
> the Company will not provide Loans to borrowers whose principal business is defence, weapons, munitions or gambling;
> the Company will not provide Loans to borrowers which generate their annual turnover predominantly from tobacco, alcohol or pornography; and
> the Company will not invest in other listed closed-ended funds.
In the event of a breach of the investment guidelines and restrictions set out above, the Investment Manager shall inform the Board upon becoming aware of the same and if the Board considers the breach to be material, notification will be made to a Regulatory Information Service and the Investment Manager will look to resolve the breach with the agreement of the Board.
The Company intends to conduct its affairs so as to qualify as an investment trust for the purposes of section 1158 of the Corporation Tax Act 2010, and its investment activities will therefore be subject to the restrictions set out above.
Borrowing and gearing
The Company intends to utilise borrowings for investment purposes as well as for share buybacks and short term liquidity purposes. Gearing represented by borrowings, including any obligations owed by the Company in respect of an issue of zero dividend preference shares (whether issued by the Company or any other member of its group) or any third party borrowings, will not, in aggregate exceed 20% of Net Asset Value calculated at the time of drawdown.
Hedging and derivatives
The Company may invest in derivatives for efficient portfolio management purposes. In particular the Company can engage in interest rate hedging. Loans will primarily be denominated in sterling, however the Company may make limited Loans denominated in currencies other than sterling and the Board, at the recommendation of the Investment Manager, may look to hedge any other currency back to sterling should they see fit.
In accordance with the requirements of the UK Listing Authority, any material change to the Company's investment policy will require the approval of Shareholders by way of an ordinary resolution at a general meeting.
Dividend policy
Dividends are expected to be declared by the Directors in May, August, November and February of each year in respect of the preceding quarter with dividends being paid in June, September, December and March.
The last dividend in respect of any financial year is declared prior to the relevant annual general meeting. Therefore, it is declared as a fourth interim dividend and no final dividend is payable. The Board understands that this means that Shareholders will not be given the opportunity to vote on the payment of a final dividend. However, the Board believe that the payment of a fourth interim dividend as opposed to a final dividend is in the best interests of Shareholders as it provides them with regularity on the frequency of dividend payments and avoids the delay to payment which would result from the declaration of a final dividend. A resolution will be put forward at the Annual General Meeting to approve the policy of declaring and paying all dividends of the Company as interim dividends.
The Company targeted an annualised dividend yield in excess of 6.5% for the financial year to 31 December 2022.
Investors should note that the targeted annualised dividends are targets only and not profit forecasts and there can be no assurance that either will be met or that any dividend growth will be achieved.
Results and dividend
The Company's revenue return after tax for the year ended 31 December 2022 amounted to GBP7,462,000 (2021: GBP7,742,000). The Company made a capital loss after tax of GBP2,072,000 (2021: capital profit of GBP1,263,000). Therefore, the total return after tax for the Company was GBP5,390,000 (2021: GBP9,005,000).
The first interim dividend of 1.625p per Ordinary Share was declared on 25 May 2022 in respect of the period from January to March 2022. The second interim dividend of 1.625p per Ordinary Share for the quarter ended 30 June 2022 was declared on 3 August 2022 and the third interim dividend of 1.625p per Ordinary Share for the quarter ended 30 September 2022 was declared on 1 November 2022. On 1 March 2023, the Board declared a fourth interim dividend of 1.625 pence per Ordinary Share for the quarter to 31 December 2022.
Key performance indicators ("KPIs")
The Board measures the Company's success in attaining its investment objective by reference to the following KPIs:
(i) Dividends
A fourth interim dividend for the quarter ending 31 December 2022 of 1.625p per share was paid to Shareholders on the 31 March 2023 bringing total payments for the year to 6.5p per share, thus meeting the annual target.
(ii) Total return
The Company's total return is monitored by the Board. The Ordinary Shares generated a NAV total return of +4.98% (2021: +7.6%) in the year ended 31 December 2022.
(iii) Discount/premium to NAV
The discount/premium relative to the NAV per share represented by the share price is closely monitored by the Board. The Ordinary Share price closed at a 8.1% discount (2021: premium of 0.6%) to the NAV as at 31 December 2022. To address the discount, 204,629 shares were bought back during the year at 85 pence per share. This added 0.15 pence per Ordinary Share to the NAV. Following the Company's year end, 50,000 shares have been bought back.
(iv) Control of the level of ongoing charges
The Board monitors the Company's operating costs. Based on the Company's average net assets for the year ended 31 December 2022, the Company's ongoing charges figure calculated in accordance with the AIC methodology was 1.86% (2021: 1.92%).
RISK AND RISK MANAGEMENT
Principal and emerging risks and uncertainties
The Board is responsible for the management of risks faced by the Company and delegates this role to the Audit and Management Engagement Committee (the "Committee"). The Committee periodically carries out a robust assessment of principal and emerging risks and uncertainties and monitors the risks on an ongoing basis. The Committee considers both the impact and the probability of each risk occurring and ensures appropriate controls are in place to reduce risk to an acceptable level. The experience and knowledge of the Board is invaluable to these discussions, as is advice received from the Board's service providers, specifically the AIFM who is responsible for the risk and portfolio management services and outsources the portfolio management to the Investment Manager. The Committee has a dynamic risk matrix in place to help identify key risks in the business and oversee the effectiveness of internal controls and processes.
During the year under review the Committee was particularly concerned with the increase in geopolitical risk following the outbreak of war in the Ukraine. The subsequent rise in global energy prices, inflation and rising interest rates worldwide have led to a more uncertain investment environment. The Committee continues to review the processes in place to mitigate risk; and to ensure that these are appropriate and proportionate in the current market environment.
The principal and emerging risks, together with a summary of the processes and internal controls used to manage and mitigate risks where possible are outlined in the following paragraphs.
(i) Market risks
Availability of appropriate investments
There is no guarantee that loans will be made in a timely manner.
Before the Company is able to make or acquire loans, the Investment Manager is required to complete necessary due diligence and enter into appropriate legal documentation. In addition, the Company may become subject to competition in sourcing and making investments. Some of the Company's competitors may have greater financial, technical and marketing resources or a lower cost of capital and the Company may not be able to compete successfully for investments. Competition for investments may lead to the available interest coupon on investments decreasing, which may further limit the Company's ability to generate its desired returns.
If the Investment Manager is not able to source a sufficient number of suitable investments within a reasonable time frame whether by reason of lack of demand, competition or otherwise, a greater proportion of the Company's assets will be held in cash for longer than anticipated and the Company's ability to achieve its investment objective will be adversely affected. To the extent that any investments to which the Company is exposed prepay, mature or are sold it will seek to reinvest such proceeds in further investments in accordance with the Company's investment policy.
Market sectors
Loans will be made to borrowers that operate in different market sectors each of which will have risks that are specific to that particular market sector.
Valuation
The Company's approach regarding the conservative valuation of its investments remains unchanged, with fair value write downs driven by market risk and idiosyncratic risk, with idiosyncratic risk relating to loan specific information which is reflected within specific loan pricing.
Management of risks
The Company has appointed an experienced Investment Manager who directly sources loans. The Company is investing in a wide range of loan types and sectors and therefore benefits from diversification.
Investment restrictions are relatively flexible giving the Manager ability to take advantage of diverse loan opportunities.
For market risk during 2022 as risk free rates rose and credit spreads widened, yields were widened across the portfolio to reflect such public market moves.
Provisions were increased to reflect the wider market and idiosyncratic risks and this was in line with the Company's approach during the Covid-19 pandemic of 2020. Fair value mark downs are expected to partially reverse over the course of 2023 as market conditions stabilise.
The Investment Manager, AIFM, Brokers and the Board review market conditions on an ongoing basis.
(ii) Risks associated with meeting the Company's investment objective or target dividend yield
The Company's investment objective is to generate attractive and regular dividends through investment in loans sourced or originated by the Investment Manager and to generate capital appreciation by virtue of the fact that the returns on some loans will be index-linked. The declaration, payment and amount of any future dividends by the Company will be subject to the discretion of the Directors and will depend upon, amongst other things, the Company successfully pursuing the investment policy and the Company's earnings, financial position, cash requirements, level and rate of borrowings and availability of profit, as well as the provisions of relevant laws or generally accepted accounting principles from time to time.
Management of risks
The Investment Manager has a well-defined investment policy and process which is regularly and rigorously reviewed by the independent Board of Directors and performance is reviewed at quarterly Board meetings. The Investment Manager is experienced and employs its expertise in making investments in a diversified portfolio of loans. The Investment Manager has a target portfolio yield which covers the level of dividend targeted by the Company. The Board reviews the position at Board meetings.
(iii) Financial risks
The Company's investment activities expose it to a variety of financial risks which include liquidity, currency, leverage, interest rate and credit risks.
Further details on financial risks and the management of those risks can be found in note 19 to the financial statements.
(iv) Corporate governance and internal control risks
The Company has no employees, and the Directors have all been appointed on a non-executive basis. The Company must therefore rely upon the performance of third-party service providers to perform its executive functions. In particular, the AIFM, the Investment Manager, the Administrator, the Company Secretary and the Registrar, will perform services that are integral to the Company's operations and financial performance.
Poor performance of the above service providers could lead to various consequences including the loss of the Company's assets, inadequate returns to Shareholders and loss of investment trust status. Cyber security risks could lead to breaches of confidentiality, loss of data records and inability to make investment decisions.
Management of risks
Each of the above contracts was entered into after full and proper consideration of the quality and cost of services offered, including the financial control systems in operation in so far as they relate to the affairs of the Company. All of the above services are subject to ongoing oversight of the Board and the performance of the principal service providers is reviewed on a regular basis. The Company's key service providers report periodically to the Board on their procedures to mitigate cyber security risks.
(v) Regulatory risks
The Company and its operations are subject to laws and regulations enacted by national and local governments and government policy. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly. Any change in the laws, regulations and/or government policy affecting the Company or any changes to current accountancy regulations and practice in the UK may have a material adverse effect on the ability of the Company to successfully pursue its investment policy and meet its investment objective and/or on the value of the Company and the shares. In such event, the performance of the Company, the NAV, the Company's earnings and returns to Shareholders may be materially adversely affected.
Management of risks
The Company has contracted out relevant services to appropriately qualified professionals. The Secretary and AIFM report on compliance matters to the Board on a quarterly basis and the Board has access to the advice of its Corporate Broker on a continuing basis. The assessment of regulatory risks forms part of the Board's risk assessment programme.
Emerging risks
The Board also has robust processes in place to identify and evaluate emerging risks.
(vi) Business interruption
Failure in services provided by key service providers, meaning information is not processed correctly or in a timely manner, resulting in regulatory investigation or financial loss, failure of trade settlement, or potential loss of investment trust status.
Failure to identify emerging risks may cause reactive actions rather than being proactive and the Company could be forced to change its structure, objective or strategy and, in worst case, could cause the Company to become unviable or otherwise fail.
The ongoing impact of COVID-19 on the markets and the Company's financial position continue to be monitored by the Investment Manager and the Board.
During the year under review the Committee was particularly concerned with the increase in geopolitical risk following the outbreak of war in the Ukraine. The subsequent rise in global energy prices, inflation and rising interest rates worldwide have led to a more uncertain investment environment. The Company's portfolio has no direct exposure to Russia or Ukraine and the Company's cash position remains robust, however the impact of sanctions and exposure via the underlying businesses of multinational companies can have a material impact on investment returns.
Management of risks
Each service provider has business continuity policies and procedures in place to ensure that they are able to meet the Company's needs and all breaches of any nature are reported to the Board.
The following is a description of the Company's service providers who assist in identifying the Company's emerging risks to the Board.
1. Investment Manager: the Investment Manager provides a report to the Board at least quarterly on industry trends, insight to future challenges in the sector, including the regulatory, political and economic changes likely to impact the Company. The Chair also has contact with the Investment Manager on a regular basis to discuss any pertinent issues;
2. Alternative Investment Fund Manager: the AIFM maintains a register of identified risks including emerging risks likely to impact the Company, which is updated quarterly following discussions with the Investment Manager and other service providers. The risks are documented on a risk register, and classified in the following categories: Market Risks; Risks associated with Investment Objective; Financial Risks; Corporate Governance Risks; Regulatory Risks and Emerging Risks. Any changes and amendments to the risk register are highlighted to the Board on a quarterly basis;
3. Brokers: provide advice periodically, specific to the Company on the Company's sector, competitors and the investment company market whilst working with the Board and Investment Manager to communicate with Shareholders;
4. Company Secretary: briefs the Board on forthcoming legislation and regulatory change that might impact the Company. The Secretary also liaises with the Company's Legal Adviser, Auditor and the AIC (including other regulatory bodies) to ensure that industry and regulatory updates are brought to the Board's attention.
The Board regularly reviews the Company's risk matrix, focussing on risk mitigation and ensuring that the appropriate controls are in place. Regular review ensures that the Company operates in line with the risk matrix, prospectus and investment strategy. Emerging risks are actively discussed throughout the year to ensure that risks are identified and managed so far as practicable. The experience and knowledge of the Board is invaluable to these discussions, as is advice received from the Board's service providers.
All key service providers produce annual internal control reports for review by the Audit and Management Engagement Committee. These reviews include consideration of their business continuity plans and the associated cyber security risks. Service providers report on cyber risk mitigation and management at least annually, which includes confirmation of business continuity capability in the event of a cyberattack. Penetration testing is carried out by the Investment Manager and key service providers at least annually. Details of the Directors' assessment of the going concern status of the Company, including consideration of the uncertainty resulting from the upcoming consultation on a liquidity opportunity consultation, is given in the Annual Report. The Investment Manger complies with all sanctioning regimes and presently views Russia as uninvestable.
(vii) ESG and Climate Change
The impact of climate change has come increasingly into focus and is considered an emerging risk by both the Board and its Investment Manager. While the Company itself faces limited direct risk from climate change, the Company's underlying holdings selected by the Investment Manger are impacted. While efforts to mitigate climate change continue, the physical impacts are already emerging in the form of changing weather patterns. Extreme weather events can result in flooding, drought, fires, storm damage, potentially impairing the operations of a portfolio company at a certain location, or impacting locations of companies within their supply chain. Significant changes in climate, or the Government measures to combat it, could present a material risk to the Company. There is also potential reputational damage from non-compliance with regulations or incorrect disclosures.
Management of risks
The Company incorporates ESG considerations into its investment process and more detail can be found in the Annual Report. The Investment Manager also uses its position to engage with and influence companies towards taking positive steps to contribute to ESG and against climate change. The Company's ESG Policy, which is updated annually is also published on the Company's website and the AIC website. The Board have considered the impact of climate change on the financial statements as documented in the Notes to the financial statements.
The Company released its first annual Impact Report provided by The Good Economy, an independent advisory firm specialising in impact measurement and management. The Report, covering the 12-month period to end March 2022, assesses the Company's 12-month performance against its stated impact objectives relating to UN Sustainable Development Goals: Healthcare, Education, Housing, Affordable and clean energy, Climate action and Responsible consumption and production.
RM Funds is a signatory to the Principles of Responsible Investment Initiative ("PRI") and reports annually according to the PRI reporting framework.
Investment trusts are currently exempt from the Task Force on Climate-Related Financial Disclosures ("TCFD") disclosure, however the Board will continue to monitor the situation.
DIRECTORS' RESPONSIBILITY STATEMENT
The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable United Kingdom law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the company financial statements in accordance with UK- adopted international accounting standards. 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 Company and of the profit or loss of the Company for that period.
In preparing these financial statements the Directors are required to:
> select suitable accounting policies in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently;
> make judgements and accounting estimates that 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 of UK-adopted international accounting standards is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the financial position and financial performance;
> in respect of the financial statements, state whether UK-adopted international accounting standards, have been followed, subject to any material departures disclosed and explained in the financial statements; and
> prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies' Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a strategic report, Directors' report, Directors' remuneration report and corporate governance statement that comply with that law and those regulations. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website.
Directors' responsibility statement
The Directors each confirm to the best of their knowledge that:
(a) the financial statements, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and
(b) this Annual Report, including the strategic report, includes a fair review of the development and performance of the business and position of the Company, together with a description of the principal risks and uncertainties that it faces.
The Directors consider that the financial statements are fair, balanced and understandable and provide the information necessary for Shareholders to assess the Company's performance, business model and strategy.
For and on behalf of the Board
Norman Crighton
Chair
25 April 2023
FINANCIAL STATEMENTS
Company statement of comprehensive income
For the year ended 31 December 2022
Year ended 31 December 2022 Year ended 31 December 2021
Revenue Capital Total Revenue Capital Total
==============================
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============================== ===== ======= ======= ======= ======= ======= =======
(Losses)/gains on investments 3 - (2,072) (2,072) - 1,263 1,263
Income 4 10,768 - 10,768 11,164 - 11,164
Investment management fee 5 (971) - (971) (1,013) - (1,013)
Other expenses 6 (1,230) - (1,230) (1,598) - (1,598)
============================== ===== ======= ======= ======= ======= ======= =======
Return before finance costs
and taxation 8,567 (2,072) 6,495 8,553 1,263 9,816
Finance costs 7 (1,102) - (1,102) (797) - (797)
============================== ===== ======= ======= ======= ======= ======= =======
Return on ordinary activities
before taxation 7,465 (2,072) 5,393 7,756 1,263 9,019
Taxation 8 (3) - (3) (14) - (14)
============================== ===== ======= ======= ======= ======= ======= =======
Return on ordinary activities
after taxation 7,462 (2,072) 5,390 7,742 1,263 9,005 ============================== ===== ======= ======= ======= ======= ======= ======= Return per ordinary share (pence) 14 6.33p (1.76p) 1.15p 6.56p 1.07p 7.63p ============================== ===== ======= ======= ======= ======= ======= =======
The total column of this statement is the profit and loss account of the Company.
All the revenue and capital items in the above statement derive from continuing operations.
'Return on ordinary activities after taxation' is also the Total comprehensive income for the year.
The notes form an integral part of these financial statements.
Statement of financial position
As at 31 As at 31
December 2022 December
Notes GBP'000 2021
GBP'000
====================================== ======= ============== =========
Fixed assets
Investments at fair value through
profit or loss 3 119,970 126,674
Current assets
Cash and cash equivalents 2,993 3,310
Receivables 9 5,421 2,684
====================================== ======= ============== =========
8,414 5,994
Payables: amounts falling due within
one year
Payables 10 (2,308) (1,847)
Bank loan - Credit facility 11 (17,271) (19,571)
====================================== ======= ============== =========
(19,579) (21,418)
====================================== ======= ============== =========
Net current liabilities (11,165) (15,424)
====================================== ======= ============== =========
Total assets less current liabilities 108,805 111,250
====================================== ======= ============== =========
Net assets 108,805 111,250
====================================== ======= ============== =========
Capital and reserves: equity
Share capital 12 1,176 1,178
Share premium 13 70,168 70,168
Special reserve 44,640 44,813
Capital reserve (10,221) (8,149)
Revenue reserve 3,042 3,240
====================================== ======= ============== =========
Total shareholders' funds 108,805 111,250
====================================== ======= ============== =========
NAV per share - Ordinary Shares
(pence) 15 92.49p 94.41p
====================================== ======= ============== =========
The financial statements of the Company were approved and authorised for issue by the Board of Directors on 25 April 2023 and signed on their behalf by:
Norman Crighton
Chair
Registered in England and Wales with registered number 10449530.
The notes form an integral part of these financial statements.
Statement of changes in equity
For the year ended 31 December
2022
Share Share Special Capital Revenue
capital premium reserve reserve reserve Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=============================== ===== ======= ======= ======= ======== ======= =======
Balance as at beginning
of the year 1,178 70,168 44,813 (8,149) 3,240 111,250
Return on ordinary activities - - - (2,072) 7,462 5,390
Buy back of shares 12 (2) 2 (173) - - (173)
Share buy back costs - (2) - - - (2)
Transfer to capital reserves - - - - - -
reserve
Dividend paid 16 - - - - (7,660) (7,660)
=============================== ===== ======= ======= ======= ======== ======= =======
Balance as at 31 December
2022 1,176 70,168 44,640 (10,221) 3,042 108,805
=============================== ===== ======= ======= ======= ======== ======= =======
For the year ended 31 December
2021
Share
Share premium Special Capital Revenue
capital account reserve reserve reserve Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=============================== ===== ======= ======= ======= ======= ======= =======
Balance as at beginning
of the year 1,184 70,168 45,277 (9,412) 3,167 110,384
Return on ordinary activities - - - 1,263 7,742 9,005
Buy back of shares 12 (6) 6 (464) - - (464)
Shares buy back costs - (6) - - - (6)
Dividend paid 16 - - - - (7,669) (7,669)
=============================== ===== ======= ======= ======= ======= ======= =======
Balance as at 31 December
2021 1,178 70,168 44,813 (8,149) 3,240 111,250
=============================== ===== ======= ======= ======= ======= ======= =======
Distributable reserves comprise: the revenue reserve; capital reserve attributable to realised profits; and the special reserve.
The capital reserves attributable to realised profits for the year ended 31 December 2021 and 2022 are in a net loss position.
Share capital represents the nominal value of shares that have been issued. The share premium includes any premiums received on the issue of share capital. Any transaction costs associated with the issuing of shares are deducted from share premium.
The notes form an integral part of these financial statements.
Statement of cash flows
For the year ended 31 December 2022
Year ended
31 December Year ended
Notes 2022 31 December
GBP'000 2021
GBP'000
============================================== ======= ============= =============
Operating activities
Return on ordinary activities before finance
costs and taxation* 6,495 9,816
Adjustments for movements not generating
an operating cash flow:
Adjustment for losses/(gains) on investments 1,802 (823)
Adjustment to amortisation costs - 114
PIK adjustments to the operating cash flow (2,466) (2,539)
Adjustments for balance sheet movements:
(Increase)/decrease in receivables (2,737) 484
Increase/(decrease) in payables 458 (812)
============================================== ======= ============= =============
Net cash flow from operating activities 3,552 6,240
============================================== ======= ============= =============
Investing activities
Private loan repayments/bonds sales proceeds 25,784 56,292
Realisation of investment in subsidiary
- non cash adjustment - 50
Private loans issued/bonds purchases (18,416) (44,582)
Purchase of equity investments - (5,100)
============================================== ======= ============= =============
Net cash flow from investing activities 7,368 6,660
============================================== ======= ============= =============
Financing activities
Finance costs (1,102) (684)
ZDP loan principal and accumulated interest
paid - (12,056)
Ordinary Share bought back 12 (173) (464)
Ordinary Share buyback costs (2) (6)
OakNorth loan facility drawdown 12,550 30,071
OakNorth loan facility repaid (14,850) (21,000)
Equity dividends paid 16 (7,660) (7,669)
============================================== ======= ============= =============
Net cash flow used in financing activities (11,237) (11,808)
============================================== ======= ============= =============
(Decrease)/Increase in cash (317) 1,092
Opening balance at beginning of the year 3,310 2,218
============================================== ======= ============= ============= Balance as at 31 December 2022 2,993 3,310 ============================================== ======= ============= ============= * Cash inflow from interest on investment holdings was GBP8,396,000 (31 December 2021: GBP9,561,000). The notes form an integral part of these financial statements.
Changes in financing liabilities
Movement in financial liabilities OakNorth Intercompany OakNorth Intercompany
facility loan facility loan
--------- ------------ --------- ------------
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- --------- ------------ --------- ------------
Balance as at beginning of the
year 19,571 - 10,500 11,942
Facility drawdowns during the
year 12,550 - 30,071 -
Facility interest payable during
the year 1,102 - 595 -
Facility and interest repayments
during the year (15,952) - (21,595) -
Intercompany finance cost- noncash
flow - - - 114
Repayment of intercompany loan - - (12,056)
----------------------------------- --------- ------------ --------- ------------
Balance as at 31 December 2022 17,271 - 19,571 -
----------------------------------- --------- ------------ --------- ------------
NOTES TO THE FINANCIAL STATEMENTS
1. General information
RM Infrastructure Income plc (the "Company") was incorporated in England and Wales on 27 October 2016 with registered number 10449530, as a closed-ended investment company. The Company commenced its operations on 15 December 2016. The Company intends to carry on business as an investment trust within the meaning of Chapter 4 of Part 24 of the Corporation Tax Act 2010.
The Company's investment objective is to generate attractive and regular dividends through investment in secured debt instruments of UK SMEs and mid-market corporates including any loan, promissory notes, lease, bond or preference share sourced or originated by the Investment Manager with a degree of inflation protection through index-linked return where appropriate.
The registered office is 6th Floor, 125 London Wall, Barbican, London EC2Y 5AS.
2. Accounting policies
The principal accounting policies followed by the Company are set out below:
(a) Basis of accounting
The financial statements have been prepared in accordance with UK-adopted international accounting standards. The financial statements have been prepared on a historical basis, except for investments measured at fair value.
In preparing these financial statements the directors have considered the impact of climate change as a risk as set out in the Annual Report and have concluded that there was no further impact of climate change to be taken into account. In line with IAS, investments are valued at fair value and climate change risk is taken into consideration in the valuation of the investments we hold.
The Board has determined by having regard to the currency of the Company's share capital and the predominant currency in which the Company operates, that sterling is the functional and presentational currency. Where presentational recommendations set out in the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" ("SORP"), issued in the UK by the AIC in April 2021, do not conflict with the requirements of UK-adopted international accounting standards ("IFRS"), the directors have prepared the financial statements on a basis consistent with the recommendations of the SORP, in the belief that this will aid comparison with similar investment companies incorporated in the United Kingdom.
In accordance with the SORP, the Statement of Comprehensive Income has been analysed between a revenue return (dealing with items of a revenue nature) and a capital return (relating to items of a capital nature). Revenue returns include, but are not limited to, investment related income, operating expenses, income related finance costs and taxation (insofar as they are not allocated to capital). Net revenue returns are allocated via the revenue return to the Revenue reserve.
Capital returns include, but are not limited to, profits and losses on the disposal and the valuation of non-current investments, derivative instruments, cash (including effect on foreign currency translation), operating costs and finance costs (insofar as they are not allocated to revenue). Net capital returns are allocated via the capital return to Capital reserves.
Dividends on Ordinary Shares may be paid out of Revenue reserve, Capital reserve and Special reserve.
(b) Adoption of new IFRS standards
New standards, interpretations and amendments adopted from 1 January 2022
A number of new standards, amendments to standards and interpretations are effective for the annual periods beginning after 1 January 2022. None of these are expected to have a significant effect on the measurement of the amounts recognised in the financial statements of the Company.
New standards and amendments issued but not yet effective
The relevant new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company's financial statements are disclosed below. These standards are not expected to have a material impact on the entity in future reporting periods and on foreseeable future transactions.
Amendments to IAS 1: Classification of Liabilities as Current or Non-current
In January 2020, the IASB issued amendments to paragraphs 69 to 76 of IAS 1 to specify the requirements for classifying liabilities as current or non-current. The amendments are effective for annual reporting periods beginning on or after 1 January 2023.
Definition of Accounting Estimates - Amendments to IAS 8
In February 2021, the IASB issued amendments to IAS 8, in which it introduces a definition of 'accounting estimates'. The amendments are effective for annual reporting periods beginning on or after 1 January 2023.
Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice Statement 2
In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice Statement 2 Making Materiality Judgements. The amendments to IAS 1 are applicable for annual periods beginning on or after 1 January 2023.
(c) Going concern
The Directors have adopted the going concern basis in preparing the financial statements. In forming this opinion, the directors continue to consider the ongoing impact of the Covid-19 pandemic, the conflict in Ukraine that has impacted markets throughout the world and the rise in interest rates, however the portfolio remains well positioned through the Investment Manager's focus on creating a portfolio of high yielding and short duration loans that do not hold significant exposure to interest rate movements. The Board does not believe that these situations will affect the Company's viability or going concern status.
Material uncertainty regarding liquidity opportunity consultation
In making their assessment, the Directors have also reviewed income and expense projections and the liquidity of the investment portfolio. The Directors have also considered that should the Company's shares trade at an average discount of more than zero per cent. as measured over the six-month period commencing on 1 October 2022 and ending on 31 March 2023, the Board will seek to bring forward a liquidity opportunity consultation by 12 months i.e. prior to the AGM in 2023. In preparing the financial statements we have considered the upcoming liquidity opportunity consultation. As this consultation will not conclude until after the approval of these financial statements means that there is material uncertainty over the going concern of the Company. Details of the Directors assessment of the going concern status of the Company are given in the Annual Report. The material uncertainty has not resulted in any adjustments.
The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for at least twelve months from the date of this document. In reaching this conclusion, the Directors have considered the Company's portfolio of loan investments of GBP120.0 million (2021: GBP126.7 million) and the cash position of GBP3.0 million (2021: GBP3.3 million). The Company's net assets at 31 December 2022 were GBP108.8 million (2021: GBP111.3 million). The total expenses (excluding finance costs and taxation) for the year ended 31 December 2022 were GBP2.2 million (2021: GBP2.6 million), which represented approximately 1.86% (2021: 1.92%) of average net assets during the year. At the date of approval of this document, based on the aggregate of investments and cash held, the Company has substantial operating expenses cover.
The Directors have concluded that there is a reasonable expectation that the Company will have adequate liquidity and cash balances to meet its liabilities as they fall due and continue in operational existence for the foreseeable future and continue as a going concern for the period to 31 March 2024.
(d) Assessment as an Investment Entity
The Company meets the definition of an investment entity on the basis of the following criteria:
1. the Company obtains funds from multiple investors for the purpose of providing those investors with investment management services;
2. the Company commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and
3. the Company measures and evaluates the performance of substantially all of its investments on a fair value basis.
To determine that the Company meets the definition of an investment entity, further consideration is given to the characteristics of an investment entity, which are that:
> it should have more than one investment, to diversify the risk portfolio and maximise returns;
> it should have multiple investors, who pool their funds to maximise investment opportunities;
> it should have investors that are not related parties of the entity; and
> it should have ownership interests in the form of equity or similar interests.
The Directors are of the opinion that the Company meets the essential criteria and typical characteristics of an Investment Entity.
(e) Investments
Investments consist of private loans and bonds, which are classified as fair value through profit or loss as they are included in the Company's financial assets that are managed and their performance evaluated on a fair value basis. They are initially and subsequently measured at fair value and gains and losses are attributed to the capital column of the Statement of Comprehensive Income. Investments are recognised on the date that the Company becomes a party to the contractual provisions of the instrument and are derecognised when their term expires, or on the date they are sold, repaid or transferred.
Unquoted investments are valued at fair value by the Board which is established with regard to the International Private Equity and Venture Capital Valuation Guidelines by using, where appropriate, latest dealing prices, valuations from reliable sources and other relevant factors.
(f) Foreign currency
Transactions denominated in foreign currencies are translated into sterling at actual exchange rates as at the date of the transaction. Monetary assets and liabilities and non-monetary assets held at fair value denominated in foreign currencies are translated into sterling using London closing foreign exchange rates at the year end. Any gain or loss arising from a change in exchange rates is included as an exchange gain or loss to capital or revenue in the Statement of Comprehensive Income as appropriate. Foreign exchange movements on investments are included in the Statement of Comprehensive Income within gains and losses on investments.
(g) Income
Interest income (cash interest) is recognised in the revenue column of the Statement of Comprehensive Income on an effective interest rate basis. Payment-in-kind ("PIK") interest income is recognised on an accruals basis and capitalised to the principal value of the loan.
All other income including deposit interest is accounted for on an accruals basis and early settlement fees received are recognised upon the early repayment of the loan.
Arrangement fees earned on private loan investments are recognised as an income over the term of the private loans.
For any income which has an uncertainty, a provision should be considered by the Company to reflect this income as a bad debt. The income is written down and excluded from the Profit & Loss account. This methodology ensures large balances should not accrue with counterparties who are unable to pay. The uncertainty is due to:
> Timing - when is this income likely to be received? If the receipt is likely to be paid in the medium to long term due to cash flow issues with the borrower then a provision should be considered.
> Collateral - if there is strong collateral then this provision can be reviewed as it would increase the probability of being paid the income over the period being considered. Should there be weak collateral then this would reinforce the provision to be taken.
When a bad debt provision is attached to an income line item, the next step is determining the amount of provision as a percentage of revenue due over the period. This is reviewed on a monthly basis including discussion with independent valuers (Mazars LLP) whether the written down amounts and percentage used remain appropriate.
(h) Cash and cash equivalents
Cash and cash equivalents include deposits held at call with banks and other short-term deposits with original maturities of three months or less.
(i) Capital reserves
Realised and unrealised gains and losses on the Company's investments are recognised in the capital column of the Statement of Comprehensive Income and allocated to the capital reserve.
(j) Expenses
All expenses are accounted for on an accruals basis.
Management fees and finance costs
The Company is expecting to derive its returns predominantly from interest income. Therefore, the Board has adopted a policy of allocating all management fees and finance costs to the revenue column of the Statement of Comprehensive Income.
Other expenses are recognised in the revenue column of the Statement of Comprehensive Income, unless they are incurred in order to enhance or maintain capital profits.
(k) Taxation
The charge for taxation is based upon the net revenue for the year. The tax charge is allocated to the revenue and capital columns of the Statement of Comprehensive Income according to the marginal basis whereby revenue expenses are first matched against taxable income arising in the revenue account.
Deferred taxation will be recognised as an asset or a liability if transactions have occurred at the initial reporting date that give rise to an obligation to pay more taxation in the future, or a right to pay less taxation in the future. An asset will not be recognised to the extent that the transfer of economic benefit is uncertain.
(l) Financial liabilities
Bank loan facility and overdrafts are initially recorded at the proceeds received net of direct issue costs and subsequently measured at amortised cost using the effective interest rate. The associated costs of bank loan facility are treated as revenue and amortised over the period of the bank loan facility.
(m) Dividends
Interim dividends to the holders of shares are recorded in the Statement of Changes in Equity on the date that they are paid. Final dividends would be recorded in the Statement of Changes in Equity when they are approved by Shareholders, however the Company currently declares four interim dividends as opposed to any final dividends
(n) Judgements, estimates and assumptions
The preparation of financial statements requires the directors to make estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Although these estimates are based on management's best knowledge of current facts, circumstances and, to some extent, future events and actions, the Company's actual results may ultimately differ from those estimates, possibly significantly.
The Company recognises loan investments at fair value through profit or loss and disclosed in note 3 to the financial statements. The significant assumptions made at the point of valuation of loans are the discounted cash flow analysis and/or benchmarked discount/interest rates, which are deemed appropriate to reflect the risk of the underlying loan. These assumptions are monitored to ensure their ongoing appropriateness. The sensitivity impact on the measurement of fair value of loan investments due to price is discussed in Note 19.
3. Investment at fair value through profit or loss
(a) Summary of valuation 31 December 2022 31 December
GBP'000 2021
GBP'000
========================================= ================ ============
Financial assets held:
Equity investments 3,593 3,600
Bond investments 4,208 7,346
Private loan investments 112,169 115,728
========================================= ================ ============
119,970 126,674
========================================= ================ ============
Year ended Year ended
(b) Movements 31 December 2022 31 December
GBP'000 2021
GBP'000
========================================= ================ ============
Opening valuation 126,674 122,705
Opening gains on investments 5,803 8,276
========================================= ================ ============
Book cost at the beginning of the year 132,477 130,981
Private loans issued/bonds purchased
at cost 18,415 44,582
Purchase in kind interest (PIK) 2,690 3,126
Purchase of equity investments - 5,100
Sales:
- Private loans repayments/bonds sales
proceeds (25,784) (48,962)
- losses on investment (298) (1,763)
- Purchase in kind interest (PIK) (224) (587)
Unrealised losses on investments held (7,306) (5,803)
========================================= ================ ============
Closing valuation at year end 119,970 126,674
========================================= ================ ============
Book cost at end of the year 127,276 132,477
Unrealised losses on investment holdings
at the year end (7,306) (5,803)
========================================= ================ ============
Closing valuation at year end 119,970 126,674
========================================= ================ ============
The Company received GBP25.5million (2021: GBP49.5 million) from investments sold in the year. The book cost of these investments when they were purchased was GBP25.8million (2021: GBP41.6 million). These investments have been revalued over time and until they were sold any unrealised gains/losses were included in the fair value of the investments. The Company's investments are UK-based with the exception of Beinbauer which is based in Germany.
(c) Gains/(losses) on investments 31 December 2022 31 December
GBP'000 2021
GBP'000
========================================= ================ ===========
Realised (losses)/gains on investments (298) (1,763)
Unrealised gains/(losses) on investments
held (1,503) 2,473
Other capital gains 217 -
Foreign exchange gains/(losses) (488) 553
========================================= ================ ===========
Total gains/(losses) on investments (2,072) 1,263
========================================= ================ ===========
At the year end, the Company had three unquoted investments, these equity investments meet the criteria within IFRS 10 as an investment entity and are therefore held at fair value.
-- Esprit Holdco Limited (Energie Fitness). The Company participated in a management buyout during 2020 and owns 28% of the business, the registered office and principal of business of Energie Fitness is 1 Pitfield Kiln Farm, Milton Keynes, United Kingdom, MK11 3LW. The Investment Manager valued holdings in Energie Fitness at nil.
-- Trent Capital Limited. The Company structured a Loan in 2019, which also offered equity within Trent Capital Limited. The Company has a 70% net equity holding within the business which is registered at 17 Walkergate, Berwick Upon Tweed, Northumberland, TD15 1DJ and the principal business address is Unit 7 Newton Chambers Way, Thornecliffe Industrial Estate, Chapeltown, Sheffield, S35 2PH. The Investment Manager valued holdings in Trent Capital Limited at nil.
-- Coventry Student Accommodation 1 Limited ("Coventry", wholly owned asset). The Company holds an unquoted investment in Coventry. As at 31 December 2022, the Company owns 100% of the business. The registered office and principal place of business of Coventry is 6th Floor, 125 London Wall, London, EC2Y 5AS. The Investment Manager's valuation of the holdings in Coventry is GBP3.6 million as at 31 December 2022 (2021: GBP3.6 million).
4. Income
Year ended Year ended
31 December 31 December
2022 2021
GBP'000 GBP'000
=================================== ========================================================= ======================
Income from investments
Bond and loan - cash interest 7,895 8,581
Bond and loan - PIK interest 2,767 2,277
Arrangement fees 43 102
Delayed Compensation fees received 2 19
Other income 61 185
=================================== ========================================================= ======================
Total 10,768 11,164
=================================== ========================================================= ======================
5. Investment management fee
Year ended 31 December Year ended
2022 31 December
GBP'000 2021
GBP'000
======================== ================================================================ ======================
Basic fee:
100% charged to revenue 971 1,013
======================== ================================================================ ======================
Total 971 1,013
======================== ================================================================ ======================
The Company's Investment Manager is RM Capital Markets Limited. Under the amended Investment Management Agreement, effective 1 April 2020, the Investment Manager is entitled to receive a management fee payable monthly in arrears or as soon as practicable after the end of each calendar month an amount one-twelfth of;
(a) 0.875 per cent. of the prevailing NAV in the event that the prevailing NAV is up to or equal to GBP250 million; or
(b) 0.800 per cent. of the prevailing NAV in the event that the prevailing NAV is above GBP250 million but less than GBP500 million; or
(c) 0.750 per cent. of the prevailing NAV in the event that the prevailing NAV is above GBP500 million.
The management fee shall be payable in Sterling on a pro-rata basis in respect of any period which is less than a complete calendar month.
There is no performance fee payable to the Investment Manager.
6. Other expenses
Year ended 31 December Year ended
2022 31 December
GBP'000 2021
GBP'000
============================== ==================================================== ======================
Basic fee charged to revenue:
Administration Fees 226 246
Auditor's remuneration:
Statutory audit fee 161 112
Broker Fees 146 141
Consultancy Fees 72 138
Directors' Fees 99 99
AIFM fees 144 151
Registrars fees 32 41
Valuation Fees 81 87
Other Expenses 269 583
============================== ==================================================== ======================
Total revenue expenses 1,230 1,598
============================== ==================================================== ======================
7. Finance costs
Year ended 31 December 2022 Year ended 31 December 2021
Revenue Capital Total Revenue Capital Total
=========================
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
========================= ======= ======= ======= ======= ======= =======
Loan arrangement fees - - - 89 - 89
Loan Interest paid 1,102 - 1,102 595 - 595
ZDP Shares finance costs - - - 113 - 113
========================= ======= ======= ======= ======= ======= =======
1,102 - 1,102 797 - 797
========================= ======= ======= ======= ======= ======= =======
The Company has a GBP10.5 million revolving credit facility with OakNorth Bank. On 9 April 2021, the Company renewed and amended its revolving credit facility with OakNorth Bank. Under the terms of the amended revolving credit facility, the Company may draw down loans up to an aggregate value of GBP10.5 million, on materially similar terms as the Company's previous revolving credit facility. The revolving credit facility expires on 26 March 2024.
8. Taxation
Year ended 31 December 2022 Year ended 31 December 2021
Revenue Capital Total Revenue Capital Total
================================
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================================ ======= ======= ======= ======= ======= =======
Analysis of tax charge/(credit)
for the year:
Corporation tax - - - 14 - 14
Corporation tax - prior
year adjustment 3 - 3
================================ ======= ======= ======= ======= ======= =======
Total current tax charge
(see note 6 (b)) 3 - 3 14 - 14
================================ ======= ======= ======= ======= ======= =======
(b) Factors Affecting the tax charge for the year:
The effective UK corporation tax rate for the period is 19.00% (2021:19.00%).
Changes to the UK corporation tax rates were substantively enacted as part of Finance Bill 2021 (on 24 May 2021). These include increases to the rate to 25% from 1 April 2023.
The tax charge differs from the charge resulting from applying the standard rate of UK corporation tax for an investment trust company. The differences are explained below:
Year ended 31 December 2022 Year ended 31 December 2021
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============================== ================ ======= ======= ======= ======= =======
Return on ordinary activities
before taxation 7,465 (2,072) 5,393 7,756 1,263 9,019
============================== ================ ======= ======= ======= ======= =======
UK corporation tax at
19.00% (2021:19.00%) 1,418 (394) 1,024 1,474 240 1,714
Effects of:
Fair value losses/(gains)
not deductible - 394 394 - (240) (240)
Interest distributions
paid/payable (1,455) - (1,455) (1,460) - (1,460)
Excess management expenses
carried forward 37 - 37 - - -
Prior year adjustment 3 - 3
============================== ================ ======= ======= ======= ======= =======
Total tax charge 3 - 3 14 - 14
============================== ================ ======= ======= ======= ======= =======
The Company is not liable to tax on capital gains due to its status as an investment trust.
(c) Deferred tax assets/(liabilities)
As at 31 December 2022, the Company had net surplus excess management expenses of GBP194,927 (2021: GBPnil) in respect of which a deferred tax asset has not been recognised. This is because the Company is not expected to generate taxable income in a future period in excess of deductible expenses of deductible expenses of that future period and, accordingly, it is unlikely that the Company will be able to reduce future liabilities.
9. Receivables
Year Year ended
ended 31 31 December
December 2021
2022 GBP'000
GBP'000
===================================== ======================================================= ======================
Amounts falling due within one year:
Bond and loan interest receivable 2,372 1,603
Provided for interest 1,160 783
Loan to non-consolidated subsidiary 1,673 -
Prepayments and other receivables 216 298
===================================== ======================================================= ======================
Total 5,421 2,684
===================================== ======================================================= ======================
Provided for interest and Bad debt provisions
Provided for interest account is an interest receivable in relation to the loans of the Company but are not guaranteed. The total amount is offset against the bad debt provisions under the liability account (see note 10).
10. Payables
Year ended Year ended
31 31 December
December 2021
2022 GBP'000
GBP'000
====================================== ====================================================== ======================
Amounts falling due within one year :
Loan reserves retained 270 454
Taxation payable 3 14
Bad debt provision 1,160 783
Other creditors 875 596
====================================== ====================================================== ======================
Total 2,308 1,847
====================================== ====================================================== ======================
11. Bank loan credit facilities
Year ended 31 Year ended
December 31 December
2022 2021
GBP'000 GBP'000
================================== ========================================================== ======================
OakNorth Bank - Credit facilities 17,271 19,571
================================== ========================================================== ======================
Total 17,271 19,571
================================== ========================================================== ======================
On 26 March 2021, the Company renewed and amended its revolving credit facility with OakNorth. The Company had entered into an uncommitted 90-day notice revolving loan of GBP10,500,000 ("Facility A") and a committed term revolving loan of GBP11,942,000 ("Facility B"), together with Facility A the ("Facilities") with OakNorth for the purposes set out in the credit facility agreement.
Facility A will be provided to be applied in or towards:
repaying all amounts due from the Company to the OakNorth under its existing loan agreement;
funding by the Company of customer loans;
refinancing (where applicable) any customer loans made by the Company;
purchasing investments by the Company;
the provision of liquidity to the Company; and
payment of finance costs (including fees) payable under the loan.
Facility B will be provided to be applied in or towards:
repaying sums due from the Company to RM ZDP plc;
funding by the Company of customer loans;
refinancing (where applicable) any customer loans made by the Company;
purchasing investments by the Company;
the provision of liquidity to the Company; and
payment of finance costs (including fees) payable under the loan agreement.
The rate of interest on the Facilities are the aggregate of the applicable margin and base rate (subject to a base rate floor of 0.10%). The margin is 4.65% p.a. The Facilities expire on 26 March 2024.
During the year, the Company drew cumulative amount of GBP12.6 million (2021: GBP30.1 million) from the revolving credit facilities and repaid cumulative amount of GBP14.9 million (2021: GBP20.0 million). The remaining balance as at 31 December 2022 amounts to GBP17.3million (2021: GBP19.6 million).
12. Share capital
As at 31 December As at 31 December
2022 2021
============================= ======= ============================ =======
No. of Shares GBP'000 No. of Shares GBP'000
=============================== ============================= ======= ============================ =======
Allotted, issued & fully paid:
Ordinary shares of 1p 117,636,359 1,176 117,840,988 1,178
=============================== ============================= ======= ============================ =======
Share movement
The table below sets out the share movement for the year ended 31 December 2022.
Shares in
Opening balance Shares issued Shares bought issue at
back 31 December
2022
================ ================= =============== =================== ================
Ordinary Shares 117,840,988 - (204,629) 117,636,359
================ ================= =============== =================== ================
At the year end, the Company has 117,636,359 Ordinary Shares in issue with voting rights and 4,588,222 Ordinary Shares held in Treasury.
Ordinary Share buy backs
During the year, the Company bought back 204,629 (2021: 523,294) Ordinary Shares for an aggregate cost of GBP173,935 (2021: GBP463,838). Since the year end, 50,000 Ordinary Shares have been bought back for an aggregate cost of GBP42,750.
13. Share premium
As at 31 As at 31
December December
2022 2021
GBP'000 GBP'000
============================== ============================================================ ========================
Balance as at beginning of the
year 70,168 70,168
Share buybacks 2 6
Share buyback costs (2) (6)
============================== ============================================================ ========================
Balance as at 31 December 2022 70,168 70,168
============================== ============================================================ ========================
14. Return per ordinary share
Total return per Ordinary Share is based on the gain on ordinary activities after taxation of GBP5,390,000 (2021: gain of GBP9,005,000).
Based on the weighted average of number of 117,839,605 (2021: 117,976,668) Ordinary Shares in issue for the year ended 31 December 2022, the returns per share were as follows:
Year ended 31 December 2022 Year ended 31 December 2021
Revenue Capital Total Revenue Capital Total
========================== ======= ======= ===== ======= ============= =====
Return per Ordinary Share 6.33p (1.76p) 4.57p 6.56p 1.07p 7.63p
========================== ======= ======= ===== ======= ============= =====
There are no dilutive
shares in issue.
15. Net asset value per share
The NAV per share is based on Company's total shareholders' funds of GBP108,805,000 (2021: GBP112,750,000), and on 117,636,359 (2021: 117,840,988) Ordinary Shares in issue at the year end.
Nav per ordinary share reconciliation
The table below is a reconciliation between the NAV per Ordinary Share of the Company as announced on the London Stock Exchange and the NAV per Ordinary Share disclosed in these financial statements.
Net assets NAV per Ordinary Net assets NAV per
(GBP) share (p) (GBP) Ordinary
share (p)
=============================== ============= =========================== ================= ======================
2022 NAV as published on 16
January 2023
(2021 NAV: Published on 15
January
2022) 108,807,765 92.50 112,949,700 95.85
Prior year tax liability
adjustments (2,852) (0.01) - -
Income adjustment - - (199,500) (0.17)
Equity revaluation adjustment - - (1,500,000) (1.27)
Share buyback adjustments - - - -
=============================== ============= =========================== ================= ======================
NAV as disclosed in these
Financial
Statements 108,804,913 92.49 111,250,200 94.41
=============================== ============= =========================== ================= ======================
16. Dividend
Total dividends paid in the year
Year ended 31 December 2022 Year ended 31 December 2021
Pence per Revenue Capital Total Pence Revenue Capital Total
Ordinary per Ordinary
=====================
share GBP'000 GBP'000 GBP'000 share GBP'000 GBP'000 GBP'000
===================== =============== ======= ======= ======= ================ ======= ======= =======
2021 Interim - Paid
25 Mar 2022
(2020: 26 Mar 2021) 1.6250p 1,915 - 1,915 1.6250p 1,918 - 1,918
2022 Interim - Paid
24 Jun 2022
(2021: 25 Jun 2021) 1.6250p 1,915 - 1,915 1.6250p 1,917 - 1,917
2022 Interim - Paid
30 Sep 2022
(2021: 24 Sep 2021) 1.6250p 1,915 - 1,915 1.6250p 1,917 - 1,917
2022 Interim - Paid
30 Dec 2022
(2021: 30 Dec 2021) 1.6250p 1,915 - 1,915 1.6250p 1,917 - 1,917
===================== =============== ======= ======= ======= ================ ======= ======= =======
Total 6.5000p 7,660 - 7,660 6.5000p 7,669 - 7,669
===================== =============== ======= ======= ======= ================ ======= ======= =======
The dividend relating to the period ended 31 December 2022, which is the basis on which the requirements of Section 1159 of the Corporation Tax Act 2010 are considered is detailed below:
Total dividends declared in the year
Year ended 31 December 2022 Year ended 31 December 2021
Pence Revenue Capital Total Pence Revenue Capital Total
per Ordinary per Ordinary
S hare GBP'000 GBP'000 GBP'000 Share GBP'000 GBP'000 GBP'000
===================== =============== ======= ======= ======= ================ ======= ======= =======
2022 Interim - Paid
24 Jun 2022
(2021: 25 Jun 2021) 1.6250p 1,915 - 1,915 1.6250p 1,917 - 1,917
2022 Interim - Paid
30 Sep 2022
(2021: 24 Sep 2021) 1.6250p 1,915 - 1,915 1.6250p 1,917 - 1,917
2022 Interim - Paid
30 Dec 2022
(2021: 30 Dec 2021) 1.6250p 1,915 - 1,915 1.6250p 1,917 - 1,917
2022 Interim - Paid
31 March 2023
(2021: 25 Mar 2022) 1.6250p 1,911 - 1,911 1.6250p 1,915 - 1,915
===================== =============== ======= ======= ======= ================ ======= ======= =======
Total 6.5000p 7,656 - 7,656 6.5000p 7,666 - 7,666
===================== =============== ======= ======= ======= ================ ======= ======= =======
*Not included as a liability in the year ended 31 December 2022 financial statements.
17. Related party transactions
Fees are payable at an annual rate of GBP36,000 to the Chairman, GBP33,000 to the Chairman of the Audit and Management Engagement Committee and GBP30,000 to the other Director. As at 31 December 2022, there were no Directors' fees outstanding. The Directors' fees are disclosed in note 7 and the Directors' shareholdings are disclosed in the Directors Remuneration Report in the Annual Report for the year ended 31 December 2022.
Fees payable to the Investment Manager are shown in the Statement of Comprehensive Income. As at 31 December 2022 the fee outstanding to the Investment Manager was GBP80,000 (2021: GBP84,000).
Arrangement fees are paid by some borrowers to the Investment Manager. The amount the Investment Manager can retain from borrowers in most cases is capped at 1.25% and agreed with the Board. The Company receives any arrangement fees from the Investment Manager in excess of the 1.25% or otherwise agreed with the borrower. During the year to 31 December 2022, the Company received GBP43,000 (2021: GBP102,000) in arrangement fees from RM.
Borrowers paid the Investment Manager arrangement fees during the year totalling GBP175,051. The Investment Manager also provides further work and Loan & Security Agency services to some borrowers and during the year charged borrowers GBP357,298.
As at 31 December 2022, the Investment Manager held 1,316,625 (2021: 1,279,125) Ordinary Shares in the Company. Since the year end, the Investment Manager purchased a further 12,500 Ordinary Shares in the Company, and as of the date of this report, the Investment Manager's total holding of Ordinary Shares is 1,329,125 (2021: 1,291,625).
During the year the Company has total investments of GBP3,593,000 (2021: GBP3,593,000) in Coventry Student Accommodation 1 Limited for which investment details can be found in Note 3. During the year, the Company provided Coventry Student Accommodation 1 Limited an intercompany loan of GBP1,673,000 (2021: GBPnil) as disclosed in note 9.
18. Classification of financial instruments
IFRS 13 requires the Company to classify its investments in a fair value hierarchy that reflects the significance of the inputs used in making the measurements. IFRS 13 establishes a fair value hierarchy that prioritises the inputs to valuation techniques used to measure fair value. The three levels of fair value hierarchy under IFRS 13 are as follows:
Level 1
Using unadjusted quoted prices for identical instruments in an active market.
Level 2
Using inputs, other than quoted prices included within Level 1, that are directly or indirectly observable (based on market data).
Level 3
Using inputs that are unobservable (for which market data is unavailable).
The classification of the Company's investments held at fair value through profit or loss is detailed in the table below :
31 December 31 December
2022 2021
============================ ======= ================ ============== ======= ================ =======
Level Level 2 Level Total Level Level 2 Level Total
1 3 1 3
============================
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============================ ======= ================ ============== ======= ================ =======
Financial assets:
Financial assets - Private
loans and bonds - 4,208 - 4,208 - 7,346 - 7,346
Financial assets - Private
loans - - 112,169 112,169 - - 115,728 115,728
Financial assets - Equity
investment - - 3,593 3,593 - - 3,600 3,600
Forward contract unrealised
(loss)/gain* - (162) - (162) 137 - 137
============================ ======= ================ ============== ======= ================ =======
Net financial assets - 4,046 115,762 119,808 - 7,483 119,328 126,811
============================ ======= ================ ============== ======= ================ =======
*The net unrealised loss of GBP162,475 (2021: net unrealised gain of GBP136,729) on forwards is recognised within other creditors whereas net unrealised gain on forwards is recognised within prepayments and other debtors in the Statement of Financial Position.
As at 31 December 2022, the fair value of the Company's loans is materially equal to the carrying value.
The forward exchange contract has been presented in the fair value hierarchy at net exposure with the net unrealised loss of GBP162,475 (2021: gain of GBP136,729) recognised within prepayments and other debtors in the Statement of Financial Position.
Investments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2.
Level 3 holdings are valued using a discounted cash flow analysis and benchmarked discount/interest rates appropriate to the nature of the underlying loan and the date of valuation.
There have been no movements between levels during the reporting period.
Reconciliation of the Level 3 classification investments during the year to 31 December 2022 is shown below:
31 December 31 December
2022 2021
========================= ======= =============== ========= ======= ================== =========
Equity Loan Total Equity Loan Total
=========================
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
========================= ======= =============== ========= ======= ================== =========
Balance as at beginning
of the year 3,600 115,728 119,328 - 97, 692 97,692
New loans during the
year - 13,605 13,605 - 38,253 38,253
New equity investments
during the year - - - 3,600 - 3,600
Repayments during the
year - (15,978) (15,978) - (16,558) (16,558)
Realised gains during
the year - (190) (190) - (832) (832)
Unrealised losses during
the year on positions
held at year end (7) (996) (1,003) - (2,827) (2,827)
========================= ======= =============== ========= ======= ================== =========
Closing balance as at
31 December 3,593 112,169 115,762 3,600 115,728 119,328
========================= ======= =============== ========= ======= ================== =========
Valuation and existence of bonds and private loan investments
The Company holds assets in bonds and private loan investments. The valuation and existence of these bonds and private loan investments are the most material matter in the production of the financial statements .
The bonds and private loan investments are valued by an independent valuer and the valuations at year end were agreed to the valuers report. The valuation process has been comprehensively reviewed during the year, and is monitored, by the Board, the Manager and the AIFM. The process includes quantitative and qualitative analysis, with the analysis performed on a loan-by-loan basis and the valuation of each loan taking into account the relevant risks and returns associated with that loan. The Audit and Management Engagement Committee reviewed valuation reports and also the procedures in place for ensuring accurate valuation and existence of investments and recommended these to the Board for review and approval.
The Board has appointed a third-party service provider (Mazars LLP) to value the Company's loan investments on a monthly basis, in accordance with IFRS. The Directors have satisfied themselves as to the methodology used, the discount rates and key assumptions applied and the overall valuation of the investments.
19. Financial instruments - risk profile
The Company invests in private loan and bond investments. The following describes the risks involved and the applied risk management.
The Investment Manager reports regularly both verbally and formally to the Board, and its relevant committees, to allow them to monitor and review all the risks noted below.
(i) Market risks
The Company is subject to a number of Market risks in relation to economic conditions. The Company's approach regarding the conservative valuation of its investments remains unchanged, with fair value write downs driven by market risk and idiosyncratic risk, with idiosyncratic risk relating to loan specific information which is reflected within specific loan pricing. Further detail on these risks and the management of these risks are included in the Investment Manager's Report and the Risk and Risk Management report.
The Company's financial assets and liabilities at 31 December 2022 comprised:
Year ended 31 December 2022 Year ended 31 December 2021
Investments Interest Non-interest Total Interest Non-interest Total
bearing bearing GBP'000 bearing bearing GBP'000
GBP'000 GBP'000 GBP'000 GBP'000
========================== ======== ============ ================ ======== ============ ================
Sterling 114,713 3,593 118,306 116,674 - 116,674
Euro 1,664 - 1,664 10,000 - 10,000
========================== ======== ============ ================ ======== ============ ================
Total investment 116,377 3,593 119,970 126,674 - 126,674
========================== ======== ============ ================ ======== ============ ================
Cash and cash equivalents 2,993 - 2,993 3,310 - 3,310
Receivables - 5,421 5,421 - 2,684 2,684
Payables* (17,271) (2,308) (19,579) - (21,418) (21,418)
========================== ======== ============ ================ ======== ============ ================
Total 102,099 6,706 108,805 129,984 (18,734) 111,250
========================== ======== ============ ================ ======== ============ ================
Price risk sensitivity
The effect on the portfolio of a 10.0% increase or decrease in the value of the loans would have resulted in an increase or decrease of GBP11,997,000 (2021: GBP12,667,000) in the investments held at fair value through profit or loss at the period end date. This analysis assumes that all other variables remain constant.
(ii) Credit risks
The Company's investments will be predominantly in the form of private loans whose revenue streams are secured against contracted, predictable medium to long-term cash flows and/or physical assets, and whose debt service payments are dependent on such cash flows and/or the sale or refinancing of the physical assets. The key risks relating to the private loans include risks relating to counterparty default, senior debt covenant breach risk, bridge loans, delays in the receipt of anticipated cash flows and borrower default, and collateral risks.
The Company is also exposed to the risk of default on cash held at the bank and other trade receivables. The maximum exposure to credit risk on cash at bank and other trade receivables at 31 December 2022 was GBP2,993,000 and GBP5,421,000 respectively (2021: GBP3,310,000 and GBP2,684,000). None of these amounts are considered past due or impaired and interest is based on the prevailing money market rates.
The table below shows the Company's exposure to credit risks as the year end.
As at 31 December 2022 As at 31 December 2021
Fair value Maximum exposure Fair value Maximum exposure
=========================
GBP'000 GBP'000 GBP'000 GBP'000
========================= ========== ================ ========== ================
Private loan investments 112,169 112,169 115,728 115,728
Bond investments 4,208 4,208 7,346 7,346
Cash and cash equivalent 2,993 2,993 3,310 3,310
Receivables 5,421 5,421 2,684 2,684
========================= ========== ================ ========== ================
Total 124,791 124,791 129,068 129,068
========================= ========== ================ ========== ================
Management of risks
The Investment Manager reports a number of key metrics on a monthly basis to its Credit Committee including pipeline project information, outstanding loan balances, lending book performance and early warning indicators. The Investment Manager monitors ongoing credit risks in respect of the loans. Typically, the Company's loan investments are private loans and would usually exhibit credit risk classified as 'non- investment grade' if a public rating agency was referenced.
The Company's main cash balances are held with The Royal Bank of Scotland plc ("RBS"). Bankruptcy or insolvency of the bank holding cash balances may cause the Company's rights with respect to the cash held by them to be delayed or limited. The Company manages its risk by monitoring the credit quality of RBS on an ongoing basis.
(iii) Interest rate risks
Private Loans
The Company may make loans based on estimates or projections of future interest rates because the Investment Manager expects that the underlying revenues and/or expenses of a borrower to whom the Company provides loans will be linked to interest rates, or that the Company's returns from a loan are linked to interest rates. If actual interest rates differ from such expectation, the net cash flows of the borrower or payable to the Company may be lower than anticipated.
Interest rate sensitivity
Interest Income earned by the Company is primarily derived from fixed interest rates. The interest earned from the floating element of loan and debt security investments is not significant. Based on the Company's private loan investments, bond investments, cash and cash equivalents as at 31 December 2022, a 1.00% increase/(decrease) (2021: 0.50% increase/(decrease)) in interest rates, all other things being equal, would lead to a corresponding increase/(decrease) in the Company's income as follows.
As at 31 December 2022 As at 31 December 2021
1.00% Increase 1.00% Decrease 0.50% Increase 0.50% Decrease
GBP'000 GBP'000 GBP'000 GBP'000
========================== ============== ============== ============== ==============
Private loans investments 1,122 (1,122) 579 (579)
Bond investments 42 (42) 37 (37)
Equity investments 36 (36) 18.00 (18.00)
Cash and cash equivalent 30 (30) 17 (17)
========================== ============== ============== ============== ==============
Total 1,230 (1,230) 651 (651)
========================== ============== ============== ============== ==============
Management of risks
The Investment Manager's investment process takes into account interest rate risk. The investment strategy is to invest in private loans with maturities typically between 2 and 10 years. Exposure to predominantly higher yielding loans and possible floating rate investments can mitigate interest rate risk to some extent. On a monthly basis, Investment Managers review fixed/floating and weighted average life of the portfolio for interest rate risk.
(iv) Liquidity risks
Liquidity risk is defined as the risk that the Company will encounter difficulties in realising assets or otherwise raising funds to meet financial commitments. The cash and cash equivalent balance at the year end was GBP2,993,000 (2021: GBP3,310,000).
Financial liabilities by maturity at the
period end are shown below:
31 December 2022 31 December
GBP'000 2021
GBP'000
========================================= ================ ===========
Within one month - -
Between one and three months 2,038 1,393
Between three months and one year - -
More than one year 17,541 20,025
========================================= ================ ===========
Total 19,579 21,418
========================================= ================ ===========
Notwithstanding the contractual maturity of the credit facilities, which is 26 March 2024, the loans have been presented as a current liability in the statement of financial position which reflects management's intentions to use the facilities for liquidity purposes and not long term gearing of the Company.
The Investment Manager manages the Company's liquidity risk by investing in a diverse portfolio of loans and secured debt instruments in line with the Company's Investment Policy and Investment restrictions. The Investment Manager may utilise other measures such as borrowing, share issues including treasury shares for liquidity purposes. The Investment Manager performs stress tests on the Company's income and expenses and the Directors, and the Manager remain comfortable that the Company has substantial operating expenses cover and adequate liquidity. A liquidity opportunity consultation will be implemented ahead of the Company's 2023 AGM, should the Company's shares trade at an average discount of more than zero per cent. as measured over the six-month period commencing on 1 October 2022 and ending on 31 March 2023. More information is included in the Annual Report.
The maturity profile of the Company's portfolio
as at the year-end is as follows:
31 December 2022 31 December
GBP'000 2021
GBP'000
================================================ ================ ===========
Within one month - 4,628
Between one and three months - -
Between three months and one year - 855
More than one year 119,970 121,191
================================================ ================ ===========
Total 119,970 126,674
================================================ ================ ===========
(v) Foreign currency risks
Foreign currency risk is the risk that the value of a financial instrument will fluctuate because of changes in foreign currency exchange rates. Currency risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the Company's functional currency. The Company invests in debt security instruments that are denominated in currencies other than sterling.
Accordingly, the value of the Company's assets may be affected favourably or unfavourably by fluctuations in currency rates and therefore the Company will necessarily be subject to foreign exchange risks.
Based on the financial assets and liabilities at 31 December 2022 and all other things being equal, if sterling had weakened against the local currencies by 10%, the impact on the Company's net assets at 31 December 2022 would have been as follows:
31 December 2022 31 December
GBP'000 2021
GBP'000
========== ================ ===========
Euro 230 167
US dollar - -
========== ================ ===========
Total 230 167
========== ================ ===========
Foreign currency risk profile
31 December 31 December
2022 2021
========== ============ ===================== =============== ============ ===================== ===============
Net Total Net Total
Investment monetary currency Investment monetary currency
==========
exposure exposure exposure exposure exposure exposure
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
========== ============ ===================== =============== ============ ===================== ===============
Euro 2,087 214 2,301 1,410 262 1,672
US dollar - 7 7 - 4 4
==========
Total 2,087 221 2,308 1,410 266 1,676
==========
Management of currency risks
The Company's Investment Manager monitors the currency risk of the Company's portfolio on a regular basis. Foreign currency exposure is regularly reported to the Board by the Investment Manager. The Investment Manager may hedge any currency back to sterling as they see fit.
Fair values of financial assets and liabilities
All financial assets and liabilities of the Company are included in the statement of financial position at fair value or a reasonable approximation of fair value with no material difference in the carrying amount.
Capital management
The Company considers its capital to consist of its share capital of Ordinary Shares of 1 pence each, its distributable reserves, which comprise Revenue reserve, Capital reserve and the Special reserve. In accordance with accounting standards, the Company's Ordinary Shares are considered to be equity.
The Company has a stated discount control policy. The Investment Manager and the Company's brokers monitor the demand for the Company's shares and the Directors review the position at Board meetings. Further details on share issues during the year and the Company's policies for issuing further shares and buying back shares (including the Company's discount management) can be found in the Directors' Report.
During the year the Company boug ht back 204,629 shares (2021: 523,294) which are held in treasury and bought back a further 50,000 shares following the year end.
The Company's policy on borrowing is detailed in the Directors' Report.
The details of the Company's OakNorth facilities are discussed in note 12.
20. Post balance sheet events
There are no other post period end events other than those disclosed in this report.
Alternative Performance Measures ("APMs")
APMs are often used to describe the performance of investment companies although they are not specifically defined under IFRS. APM calculations for the Company are shown below.
Gearing
A way to magnify income and capital returns, but which can also magnify losses. A bank loan is a common method of gearing.
31 December 31 December
2022 2021
GBP'000 GBP'000
Bank Loan - Credit facility 17,271 19,571
===========
Total borrowings 17,271 19,571
Cash and cash equivalents 2,993 3,310
===========
Total borrowings less cash
and cash equivalents a 14,278 16,261
Net assets b 108,805 111,250
===========
Gearing(net) (a÷b)*100 13.1% 14.6%
===========
Gross asset
The Company's gross assets comprise the net asset values of the Company's Ordinary Shares, and the Bank loan breakdown as follows:
As at 31 December 2022 GBP'000 Per Share
(Pence)
Ordinary Shares - NAV a 108,805 92.49
Bank Loan - Credit facility c 17,271 -
Gross asset value a+b+c 126,076 n/a
As at 31 December 2021
GBP'000 Per Share
(Pence)
Ordinary Shares - NAV a 111,250 94.41
Bank Loan - Credit facility c 19,571 -
Gross asset value a+b+c 130,821 n/a
Ongoing charges
A measure, expressed as a percentage of average net assets, of the regular, recurring annual costs of running an investment company.
Year ended 31 December 2022
Average NAV (GBP'000) a 111,126
Annualised recurring expenses b 2,067
b÷a 1.86%
Year ended 31 December 2021
GBP'000
Average NAV (GBP'000) a 112,891
Annualised recurring expenses* b 2,165
b÷a 1.92%
* Consists of investment management fees of GBP971,000 (2021: GBP1,012,000) and other recurring expenses of GBP1,096,000 (2021: GBP1,153,000) Prospectus issue and capital transactions are not considered to be recurring costs and therefore have not been included.
(Discount)/premium
The amount, expressed as a percentage, by
which the share price is (less)/more than
the NAV per share.
As at 31 December 2022
NAV per Ordinary Share (p) a 92.49
Share price (p) b 85.00
==============
Discount (b/a)- 1 (8.1%)
==============
As at 31 December 2021
NAV per Ordinary Share (p) a 94.41
Share price (p) b 95.00
==============
Premium (b/a)- 1 0.6%
Total return
A measure of performance that includes both income and capital returns. This takes into account capital gains and reinvestment of dividends paid out by the Company into its Ordinary Shares on the ex-dividend date.
As at 31 December 2022 NAV Share Price
Opening at 1 January 2021
(p) a 94.41 95.00
Closing at 31 December 2021
(p) b 92.49 85.00
Dividend payment c 1.0715 1.1588
Adjusted closing (d = b
x c) d 99.1 98.5
Total return (d/a)- 1 5.0% 3.7%
As at 31 December 2021
NAV Share Price
Opening at 1 January 2021
(p) a 93.26 87.00
Closing at 31 December 2021
(p) b 94.41 95.00
Dividend adjustment factor c 1.0631 1.0687
Adjusted closing (d = b
x c) d 100.37 101.53
Total return (d/a)- 1 7.6% 16.7%
Directors, Investment Manager and Advisers
Directors
Norman Crighton (Non-executive Chair)
Guy Heald
Marlene Wood
Investment Manager
RM Capital Markets Limited
4th Floor
7 Castle Street
Edinburgh EH2 3AH
Joint broker
Singer Capital Markets LLP
1 Bartholomew Lane
London
EC2N 2AX
Joint broker
Peel Hunt LLP
100 Liverpool Street
London
EC2M 2AT
Valuation agent
Mazars LLP
Tower Bridge House Katherine's Way London
E1W 1DD
Registered office*
6th Floor
125 London Wall London
EC2Y 5AS
* Registered in England and Wales No. 10449530
Custodian
US Bank Global Corporate Trust Services
125 Old Broad Street London
EC2N 1AR
Administrator and Company Secretary
Apex Listed Companies Services (UK) Limited
6th Floor
125 London Wall
London
EC2Y 5AS
AIFM
FundRock Management Company (Guernsey) Limited
Sarnia House
Le Truchot
St Peter Port Guernsey GY1 4NA
Auditors
Ernst & Young LLP
25 Churchill Place Canary Wharf
London
E14 5EY
Registrar
Link Group
Central Square
29 Wellington Street
Leeds
LS1 4DL
Legal advisers
Gowling WLG (UK) LLP
4 More London Riverside
London
SE1 2AU
FINANCIAL INFORMATION
This announcement does not constitute the Company's statutory accounts. The financial information is derived from the statutory accounts, which will be delivered to the registrar of companies and will be put forward for approval at the Company's Annual General Meeting. The statutory accounts for the year ended 31 December 2021 have been delivered to the registrar of companies. The auditors have reported on the accounts for the year ended 31 December 2022 and the year ended 31 December 2021, their reports were unqualified and did not include a statement under Section 498(2) or (3) of the Companies Act 2006.
The Annual Report for the year ended 31 December 2022 was approved on 25 April 2023. It will be made available on the Company's website at https://rm-funds.co.uk/rm-infrastructure-income/investor-relations/
The Annual Report will be submitted to the National Storage Mechanism and will shortly be available for inspection at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism
This announcement contains regulated information under the Disclosure Rules and Transparency Rules of the FCA.
ANNUAL GENERAL MEETING
The Annual General Meeting will be held on 30 May 2023 at 12.00 p.m. at 6th Floor, 125 London Wall, London, EC2Y 5AS.
For further information contact:
Brian Smith / Ciara McKillop
Apex Listed Companies Services (UK) Limited
Tel: 020 3327 9720
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.
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END
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