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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Rm Secured Direct Lending Plc | LSE:RMDL | 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 | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 90.00 | 88.00 | 92.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMRMDL TIDMTTM
RNS Number : 4149K
RM Secured Direct Lending PLC
22 April 2020
RM SECURED DIRECT LING PLC
ANNUAL FINANCIAL REPORT
For the year ended 31 December 2019
INVESTMENT OBJECTIVE, FINANCIAL INFORMATION AND PERFORMANCE SUMMARY
INVESTMENT OBJECTIVE
RM Secured Direct Lending Plc ("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 and/or individuals 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.
Hot Features
Premium
Financial Information
Group Group
Year ended Year ended
31 December 31 December
2019 2018
Gross asset value (GBP'000)(1) GBP131,069 GBP106,875
Net asset value ("NAV") (GBP'000) GBP119,528 GBP95,720
NAV per Ordinary Share (pence) 97.79p 96.96p
Ordinary Share price (pence) 99.50p 101.50p
Ordinary Share price premium to NAV(1) 1.7% 4.7%
Ongoing charges(1) 1.77% 1.93%
Accrued entitlement of Zero Dividend Preference
('ZDP') Share (pence)(2) 106.18 102.62
Performance Summary
% change(3,5) % change(4,5)
Total return - Ordinary Share NAV and dividends(1) +8.2% +5.5%
Total return - Ordinary Share price and dividends(1) +4.9% +6.9%
(1) These are Alternative Performance Measures
("APMs").
(2) Based on the net assets attributable to the ZDP Shares as at
31 December 2018 and 2019.
(3) Total returns for the year to 31 December 2019, including dividend
reinvestment.
(4) Total returns for the year to 31 December 2018, including dividend
reinvestment.
(5) Source: Bloomberg.
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 Group and the Company.
Chairman's Statement
Introduction
On behalf of the Board, I am pleased to present RM Secured Direct Lending plc's ("RMDL" or "the Company") third annual report and financial statements for the year ended 31 December 2019.
Consistent growth and performance
Since the Company listed in December 2016, RMDL has continued to grow its portfolio, increase the spread of its investments, and deliver against the objectives set out at IPO, generating excellent risk adjusted returns for investors.
It is pleasing that the Company has continued to grow its capital base, utilising its placing programme twice during the year, to issue 13.5 million new Ordinary Shares in March 2019 and 10 million new Ordinary Shares during November 2019, to both new and existing investors. The proceeds were deployed into the Investment Manager's attractive pipeline of opportunities.
These successful placings help achieve the twin aims of seeking to reduce the ongoing charges ratio and diversifying the Company's portfolio. Including the Zero Dividend Preference shares, the revolving credit facility and the net assets of the Company, RMDL has investments and investible assets of GBP140 million. The total number of shares in issue has increased to 122.2 million.
As at 31 December 2019, the Company had a NAV return of 8.2% (dividends re-invested at NAV) and since inception the NAV total return for investors has been 17.6%.
Returns to Shareholders and portfolio outperformance
Our distribution targets have been met and during the year there was continued outperformance of the Company versus its stated objectives.
The year saw the continuation of relatively benign conditions across the credit markets. Quantitative easing has been responsible for such benign credit conditions which imply weaker actual fundamentals if this central bank support were to be withdrawn.
The successful execution of the business strategy is evidenced by the number of Loans repaid in the year and the deployment of fresh capital to new Loans - whilst the total number of investments has remained largely static (34 as at 31 December 2019 versus 35 as at 31 December 2018) the portfolio dynamics are active. The portfolio has grown from GBP103million to GBP131million with 13 new investments during the year totalling GBP53million, drawdowns to previously documented facilities of GBP29million and repayments and divestments totalling GBP53million. These portfolio turnover statistics are useful in so far as it shows the dynamism within the portfolio and demonstrates that invested capital is repaid.
Highly resilient, well diversified portfolio
The Investment Manager has remained focused on creating a diverse portfolio but has moved strategically towards less cyclical sectors such as social infrastructure and real estate lending, including areas such as student accommodation, childcare and health care businesses, and mid-market branded hotels. Overall this has resulted in a stable, well secured, income generative portfolio where the Investment Manager can obtain additional risk adjusted returns due to their ability to source private credit transactions which are not available in the public markets.
Income generation and NAV Performance
The Company has paid or declared regular dividends during the year totalling 6.5 pence per Ordinary Share, as well as special dividends totalling 0.45 pence per Ordinary Share. The ability of the Company to pay dividends in excess of its target during a year when our peer group has struggled is testament to the ability of the Investment Manager to structure Loans for the benefit of Shareholders, whilst maintaining strict credit controls.
On the 25 February 2020 the Company declared a fourth interim dividend in respect of the period from 1 October 2019 to 31 December 2019 of 1.625 pence per Ordinary Share and an additional special dividend of 0.075 pence per Ordinary Share to be paid on the 27 March 2020.
The dividends paid in 2019 were covered by the net income generated in the portfolio. The retained revenue gives the Company flexibility to absorb credit losses whilst maintaining, and perhaps even growing, the NAV or to smooth dividend income in more difficult years.
The 8.2% NAV return (dividends re-invested at NAV) for 2019 in excess of the percentage distributed to Shareholders net of credit movements has seen the NAV grow over the year from 96.98 pence to 97.79 pence. It is the Board and the Investment Manager's goal to continue to grow this figure by having a well-covered dividend and by minimising credit losses.
Carefully managed credit risk and valuations
Credit risk is the most important risk factor within the portfolio. This is managed carefully by the Investment Manager, the AIFM (International Fund Management Limited) and overseen by the Board. Exposure is mitigated by having clear borrower/issuer risk limits and industry risk limits which are detailed in the Company's prospectus. These limits reflect a maximum borrower/issuer limit of 10% of the portfolio and are across a range of sectors to ensure sufficient sector diversity.
The Company's Loans are measured at fair value and this valuation is carried out by a third-party valuation agent, Mazars LLP. This independent valuation is conducted monthly and constitutes part of the NAV announcement released on or around the 16(th) of each month. The Board and the Investment Manager believe that this methodology accurately reflects the portfolio valuations and leads to an independent NAV valuation which investors and the Board can rely upon. The Investment Manager's report breaks out the portfolio of investments and details the marks which allows investors to better understand how this works in practice.
The Board and the Investment Manager recognise the problems in the wider sector and in our view the current wide discounts are reflective of the market not having confidence in the published NAV figures combined with reactive and often limited portfolio disclosures. We are committed to adhere to the highest standards of corporate governance and trust that the market will appreciate these efforts.
Shareholder communications
The Board and the Investment Manager believe that RMDL is leading the way when it comes to investor disclosures and since inception RM Funds has provided detailed monthly factsheets. These factsheets are released on or around the 16(th) of each month alongside the NAV and describe specific investments, net interest income and mark to mark movements.
Revolving Credit Facility
During the year, the Company extended the Revolving Credit Facility ("RCF") with OakNorth Bank, with an expiry date of 5 November 2020. As at the end of the year there was no drawn down of the RCF (2018: GBPNil). Under the terms of the amended RCF, the Company may draw down loans up to an aggregate value of GBP10.5 million. Aside from setup costs, there is no additional cost to maintaining the facility, unless utilised.
Committed to responsible investing
The Board and the Investment Manager believe that responsible investment involves the integration of Environmental, Social and Governance ("ESG") factors within the investment process. Since inception the Company has had strict restrictions, laid out in its prospectus including the explicit exclusion of any investments to borrowers whose principle business is defence, weapons, munitions, pornography, tobacco, alcohol or gambling. In addition, the Investment Manager is a signatory to the Principles for Responsible Investment ("PRI"), supported by the United Nations, a framework of six principles, which RM Funds has incorporated into its business:
1. Incorporate ESG issues into investment analysis and decision-making processes; 2. Be active owners and incorporate ESG issues into our ownership policies and practices; 3. Seek appropriate disclosure on ESG issues by the entities in which we invest; 4. Promote acceptance and implementation of the Principles within the investment industry; 5. Work together to enhance our effectiveness in implementing the Principles; 6. Report on our activities and progress towards implementing the Principles.
Such ESG factors which are traditionally not part of financial analysis are currently incorporated and prioritised as part of the investment process and the Board will seek to review this quarterly going forward.
It is notable that the Investment Manager and the Board are focused on investments within Social Infrastructure. Such investments meet our core investment criteria and have a positive social output. This Company is aiming to increase the provision of funding for children's nurseries, student accommodation and aged care during 2020.
Annual General Meeting ("AGM")
The Company intends to hold its AGM at 11 a.m. on 27 May 2020 at the offices of RM Capital Markets Limited, 7 Melville Crescent, Edinburgh, EH3 7JA.
The well-being and safety of Shareholders and service providers is a primary concern for the directors of the Company. Due to the restrictions on gatherings and travel, save for very limited purposes, under the regulations and guidance issued by the UK Government relating to the Coronavirus (COVID-19) the Directors have (pursuant to powers granted to them by the Company's Articles of Association) determined that Shareholders should not attend the AGM in person. Arrangements have been made to ensure that the AGM is quorate and at the AGM only the formal business of the AGM will be considered.
As Shareholders are not able to attend the AGM in person they are strongly encouraged to vote online or submit their proxy forms remotely to ensure their vote counts at the AGM. Votes can be lodged in advance of the AGM through any of the following means:
-- online at www.signalshares.com - You will need to log in to your share portal account. If you don't have an account you can register on the share portal using your investor code (shown on your share certificate) and you will be able to vote straightaway;
-- postal voting; or
-- via the CREST System if shares are held in CREST.
The Company will continue to update Shareholders on material developments in the usual way, via the Regulatory News Service. Any investor relations enquiries or questions related to the Company or the AGM can be emailed to info@rm-capital.co.uk. The Board and the Investment Manager will respond to emailed questions via the monthly newsletter where appropriate.
Price performance and discount to NAV
In common with almost all closed-end funds, and especially with our peer group, the share price of RMDL has declined significantly since the end of February 2020 due to the impact on financial markets and investors of COVID-19. In common with other market corrections (the 2007-8 Global Financial Crisis, the September 2001 attacks leading to the 2002 stock market correction, the 2000 bursting of the dot com bubble, the 1998 Russia crisis, the 1997 Asia crisis, the 1990 Japan correction, the 1987 stock market correction etc) much of the fall in share prices seems to be down to investors being forced to sell positions due to deleveraging, and not, as yet, due to a fundamental economic change. RMDL is no exception with much of the fall, I believe, due to a few forced sellers. The Board is monitoring the situation closely and will respond appropriately. I would like to remind shareholders that in the Prospectus issued in November 2016, the Board ensured that a clause protecting shareholders from a prolonged discount was included. Although it is human nature to focus on the negatives, it is important to remember that the UK government has announced cuts in interest rates, an emergency rescue package of GBP350bn and numerous other measures designed to protect and stimulate the economy (as have other governments around the world), the impact of which has yet to be felt.
Coronavirus
The impact of the Coronavirus has been felt around the world but the economic and financial implications in the medium to long term are unclear. The Board and the Investment Manager continue to monitor and evaluate the situation. We will endeavour to keep Shareholders informed but we expect the situation to be highly volatile over the coming months.
Outlook
I have noted in previous years that credit conditions are likely to worsen - it is our view that this post global financial crisis credit cycle has been long and elongated by actions taken by policy makers and central bankers. The Investment Manager's strategy to focus on defensive sectors which are uncorrelated to wider equity markets is relevant to investors at this stage of the cycle for two specific reasons.
Firstly, the ability to manage duration risk within the portfolio investments; Central Bank actions have lowered "risk free" government rates to such a level that traditional corporate bond funds have significant risk to any future increases to interest rate expectations. RMDL has actively mitigated this risk by investing in Loans reference to Libor referenced loans (or equivalent) or fixed coupon Loans.
The second reason is the active management and approach to the taking of credit risk; as credit spreads and government yields have compressed, covenants and lender protections have become weaker at a time when yields have fallen. RMDL seeks to mitigate this risk by finding those opportunities in private credit, offering investor protections that are not widely available in public markets and which offer above average returns.
While the recent performance by the wider Debt Investment Companies peer group may have dented investor sentiment, we remain confident in our Investment Manager's ability to deliver against our strategy. It is our view that the Company offers investors access to stable, long term, above average returns which has been demonstrated by the first three years of trading. Investors will take comfort in the demonstrable track record of accurate portfolio valuations, clear investor disclosure and an approach to lending that has high quality underwriting standards combined with professional due diligence, monitoring and control.
The Board is delighted to have such a broad investor base and is grateful for the support of Shareholders. We would also like to thank RM Funds and the other professional advisors for their hard work and support throughout the year.
Norman Crighton
Chairman
21 April 2020
INVESTMENT MANAGER'S REPORT
Strong and sustainable performance
Over the course of the year, the portfolio generated a NAV Total Return of 8.2%, with total dividend distributions attributable for the year totalling 6.5 pence per Ordinary Share as well as special dividends totalling 0.45 pence per Ordinary Share. Following the year end an Interim Dividend relating to the final quarter of the year was declared on 25 February 2020 and paid to Shareholders on 27 March 2020. These dividends of 1.625 pence per Ordinary Share and an additional special dividend of 0.075 pence per Ordinary Share bring the total attributable to income generated in 2019 to in excess of the 6.50 pence per share distribution target which reflects portfolio outperformance. The additional dividend income was classified as a special dividend and paid over 3 quarters. Furthermore, the Investment Manager and the Board have taken a conservative approach by retaining a percentage of income net of credit losses which has allowed additional NAV growth over the year. The published NAV figures show growth from 96.98 pence per share at the beginning of the year to 97.79 pence per share at the end of 2019.
The share price performance of the Company over the year has been largely stable, trading in a narrow range within 99.50 pence and 103 pence per share during the year.
Ongoing commitment to transparency and regular investor communications
Whilst 2019 was a year of outperformance for RMDL Shareholders with income distributions above target and overall NAV growth for the Company, it is clear that there are a number of issues within our peer group. This has led some companies to trade at significant discounts to NAV.
Since the IPO, the Board and the Investment Manager at RMDL have been very clear that investor disclosures should be substantial and robust and that the portfolio valuations, which make up the NAV, are independently produced by an external valuation agent and reflect perceived or actual risks. It is our objective as the Investment Manager to ensure that all investor communications are clear enabling all Shareholders to understand the full Company portfolio clearly. Such investor communications are monthly on or around the 16th of each month when the factsheet is released.
Alignment to investor interests
In line with the prospectus, the Investment Manager has continued to purchase shares of the Company during the year. The Investment Manager now own directly over 1,199,825 shares; the management team and related parties' also own additional shares. Since IPO the Investment Manager has purchased 699,825 shares directly in the secondary market. By purchasing RMDL shares, the Investment Manager has shown a significant alignment of its interests with Shareholders and it is our intention to continue to invest part of the management fee during 2020.
The Market Environment
The macro-economic picture was mixed during 2019, however there was ultimately a firm tone over the year for risk assets which masks mini bouts of volatility seen over the period. Concerns over the US/China trade war abated and no solution to Brexit for the majority of the year hampered UK business investment and confidence. The election win for the Conservatives in December provided clarity and a firm tone to end the year for the UK market.
Within Europe, quantitative easing restarted which provided stimulus to underperforming economies and supported Eurozone equity and bond markets.
Our view at RM is that the market is susceptible to weakness, as the rally seen during 2019 was not underpinned by positive economic news but relief that the trade war has not escalated, that Brexit will be done (in whatever form that may take) and signs that any further weakness in Europe will see continued Central Bank support to the markets.
As a result, we believe that Social Infrastructure and Real Estate backed lending offers the best place for capital at this point of the cycle. For the year we successfully deployed capital to mid-market branded hotels and student accommodation investments. Looking forward to 2020, our focus is on healthcare, childcare and additional investments within the student accommodation space. These sectors offer tangible asset backed lending and stable cash flows which are not directly correlated to the wider business cycle.
Key Risks
As we look forward and try to understand the key risks, we identify the following;
Market: at RM Funds we break this down into three areas as we look forward to 2020:
-- Weaker growth - the global synchronizations of trade means that the current US/China trade wars could have unintended consequences for global growth and economic activity which ultimately could lead to economic contraction. The impact of the coronavirus also will have an, as yet, unquantifiable impact on global growth.
-- Whilst absolute default rates are low any slow-down in economic activity will put pressure on corporates who have already seen the ratio of rating's downgrades to upgrades increase. We see such credit risks as being higher than in previous cycles as a larger part of the market is now being taken up by single B or C rated issuers as investors have moved down the rating scale in an effort to find yield. Such issuers are less able to withstand losses and typically losses in default would be higher than previous cycles.
-- Finally, the marginal impact from monetary policy makers especially within the Eurozone is getting less and less. Fiscal stimulus would be required to boost growth at a time when government debt levels are elevated. This in turn could lead to a negative feedback loop if European government debt values fall as banks have been encouraged to buy such assets by central banks and hold them on their balance sheets. This scenario perhaps poses the most risk as it becomes systemic.
Credit - The idiosyncratic credit risk is the risk attached to a specific investment rather than the broader market sentiment detailed above. In effect this is the risk that the borrower is unable to repay or service the loan. Within the portfolio this is the largest risk and is mitigated by the following actions by the Investment manager:
-- Strict underwriting standards which relate to industry selections and risk concentrations, leverage and lender security.
-- Careful due diligence and extensive initial credit work. -- Effective ongoing monitoring and the ability to recover capital in a downside scenario.
Currency - the risks here are that USD and EUR currencies depreciate and RMDL investments in local currency lose value versus our base currency in GBP. The Company has mitigated this risk by using currency forwards to hedge the majority of any currency exposures within the portfolio. At the end of the year the only non-GBP assets held were in EUR.
Interest Rates - should rates rise the present value of the current loans could decline as higher discount rates are used. This has been mitigated by investing predominantly in Loans that have coupons which are linked to Libor. Portfolio fixed rate investments usually have relatively short maturities to mitigate this risk.
Responsible Investing
RM Funds is a signatory to the Principals for Responsible Investment ("PRI"). The PRI defines responsible investment as a strategy and practice to incorporate environmental, social and governance factors (ESG) 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 principals; 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; 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 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 its efforts to integrate ESG considerations in investments and annually report on its progress towards implementing the above principles, comply with national and other applicable laws; 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 our portfolio companies.
Investing in attractive asset backed lending opportunities
The Company is focused on middle market corporate and real asset lending. The focus is on private Loans which are secured over company assets or property as in our view real asset lending provides downside protection for investor's capital. The Investment Manager looks for strong management teams, contracted cash flows and real assets.
The Investment Manager specialises in corporate, asset finance and project finance lending and has built up a portfolio of 34 investments. The Investment Manager believes that such transactions offer a spread pick up versus such credit opportunities in the public markets and additional protections for investor's capital in the form of typically enhanced covenants and borrower security. Many traditional corporate bonds which offer any yield are unsecured or deeply structurally subordinated and offer fewer investors protections to mitigate any downside scenarios. In addition, the RMDL portfolio has been created to reduce duration risk by having a significant exposure to floating rate coupons.
The portfolio is well diversified across sectors and borrowers, with a broad mix of funding across the capital structure. Investment Manager target transactions with appropriate borrower equity, appropriate risk adjusted spreads and security which is recoverable so that in a downside scenario there is capital protection.
Geographically all of the investments are currently within the UK or Europe although the mandate is to invest within developed global markets. Investment Manager aim to mitigate any currency exposure by hedging any non-UK investments back to GBP.
The Company breaks down the type of Loan into three areas; bilateral loans, syndicated loans and public bonds. As at 31 December 2019 the split was Bilateral 58%, Syndicated 37%, Bond 5%. The advantages for each type are as follows:
-- Bilateral loans - RMDL as the sole lender, given the bespoke nature of the financing, the Company receives enhanced yield to compensate for the illiquidity and enhanced investor protections via the transaction covenants. Valued by the Valuation agent.
-- Syndicated facilities - as a member of a lending syndicate typically the Investment Manager is working with borrowers who have larger financing needs that need to be supplied by more than one debt funder. Sponsor backed transactions with significant equity sitting below lenders, enhanced yield due to less liquidity than public bonds usually with enhanced security and covenants. Typically valued by external pricing source.
-- Public Bonds - some issuers prefer to issue a bond as a private placement rather than a syndicated loan and in addition some large corporate issues meet the RMDL investment criteria and offer appropriate risk adjusted returns. Smaller more liquid part of the portfolio. Valued by external pricing source.
Having various degrees of liquidity within the portfolio is useful especially when it comes to managing cash resources. Typically, bilateral loans can take a number of months to structure so having the ability to raise cash at the point of funding is critical without suffering cash drag should the transaction not proceed, or conversely managing cash balances if there is an unexpected repayment.
Increasing portfolio diversification and dividend cover
Over the period investment activity has meaningfully increased both the diversity and scale of the portfolio with 13 new investments totalling GBP53million and drawdowns to previously documented facilities of GBP29million. Against this there have been repayments and divestments totalling GBP53million which means overall the Loan book has grown from circa GBP103million of invested capital at year end 2018 to GBP131million at 31 December 2019.
Dividend cover has increased from 0.96x to 1.30x. This is important as this gives the Company capacity to absorb any credit losses whilst maintaining the dividend target and growing NAV.
Average price Bilateral (p) 98.4 Average price Syndicated (p) 96.9 Average price Bond (p) 97.0 Average Portfolio Running Yield 8.57% Average Portfolio YTM 9.68% Average portfolio LTV 67.6%
The largest and most significant repayments were from two borrowers:
-- The first was ICP Nurseries who in April 2019 repaid a loan with prepayment penalties attached to it, along with the sale of some equity warrants which the Company took for facilitating the growth financing to ICP.
-- The second repayment was from Satcom Global who repaid a USD Loan facility in December. This facility had a minimum term to it which meant again additional interest was due and paid.
Both showcase the types of borrowers we target and demonstrate how such flexible financing offered by the Company when appropriately structured can yield above average returns.
The Company's Loans are measured at Fair Value and this valuation is carried out monthly by a third-party Valuation agent, Mazars LLP. For loans of sufficient liquidity, third party pricing is delivered by Markit Group to Mazars LLP, and these valuations are quoted in bid prices. Pricing sources are detailed on the portfolio breakdown detailing the breakdown between Markit Group reference prices and Mazars LLP as the Valuation Agent.
The key points are; the book has valuations which are GBP2.9 million less than the par value. These marks reflect the perceived or actual risk within the investments at year end and are the equivalent of circa 2.3% of NAV. Where there are actual risks the workout and recovery processes are actioned to maximise value and the return of capital. Where it is perceived risk we expect full repayment as Loans are refinanced or repaid.
Across the portfolio there is a running yield of 8.57%. The running yield is the annual income on an investment divided by its current market value.
Portfolio update and outlook for 2020
Over recent days and weeks there have been significant changes to equity and credit market valuations caused by the global effects of the spread of the Coronavirus. This sell off has increased in pace over this recent period and become a major market shock which might equal or exceed the previous and infamous periods such as the dot com, global financial crisis and the eurozone crisis. The speed of the sell-off has been astonishing with equity markets experiencing recent highs in mid-February and then by mid -March multi year lows. The unusual nature of this potential market shock affects both demand and supply and both equity and credit markets have moved in tandem. For a number of years, the Investment Management team has been extolling the virtue of secured private credit and have made favourable valuation comparisons to unsecured high yield bonds. We are therefore not surprised to see wider credit spreads; however, we are astounded to see where these spreads have moved to and also where secured Loans have been trading.
It is the stated aim of the Company to mark the portfolio to market - such marks give investors real-time accurate information as to the Net Asset Value of the portfolio. This allows them to make informed decisions with regards to the share price and the value of the Company on a monthly basis on or around the 16th of each month. These valuations are temporal as the markets are clearly constantly moving, and in addition they are exacerbated by the fact that the underling instruments are generally relatively illiquid and therefore price movements can be exacerbated by extreme changes in sentiment.
The recent market movements are considered a significant post balance sheet event. The Company's most recently published post year end NAV, prepared as at 31 March 2020, showed that total net assets of the Company fell by 11.4% to GBP105.9 million. This was primarily driven by the value of investments falling from GBP131.2 million as at 31 December to GBP119.7 million as at 31 March 2020. The valuation was prepared by the Company's independent valuer. This portfolio revaluation is driven by all of the investments being marked reflect that perceived or actual risks have increased where visible price points are available these reference prices have been used. We expect these marks to return to normality as we move through this current crisis and as the "fear" levels subside.
Looking ahead to the rest of 2020, opportunities will arise. However, first and foremost will be the management of the existing portfolio. Largely the overall credit environment will be dictated by other global events - the Investment Manager will focus on the monitoring of the portfolio and ensuring scheduled payments are received. Given the unique nature of this event, and the almost wholesale shut down to industry, we expect monthly trading performance of a number of our borrowers to be impacted, the degree and severity will be subject to both sector specific factors, macro "health" factors and any structural credit support mechanisms built into the transaction/investment (for example funded interest reserve accounts). The Investment Manager in partnership with financial sponsors and borrowers will provide guidance and advice to holdings experiencing temporal stress, and aid in any workout situation as the case maybe.
The core investment theme of RMDL remains focused on lending to real assets and businesses which do not have direct correlations to the economic cycle. Such assets offer stable cashflows and downside protection to the Company and therefore investors. Overall, the Investment Management team believe that despite the recent market volatility the portfolio is well positioned to continue to deliver the stable returns which investors are seeking and in addition there will be greater NAV growth as we target a return to the opening NAV.
RM Capital Markets Limited
21 April 2020
Principal risks and uncertainties
Together with the issues discussed in the Chairman's Statement and the Investment Manager's Report, the Board considers that the principal risks and uncertainties faced by the Group fall into the following main categories:
(i) Market risks
Availability of appropriate investments
There is no guarantee that loans will be made in a timely manner.
Before the Group 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 Group may become subject to competition in sourcing and making investments. Some of the Group's competitors may have greater financial, technical and marketing resources or a lower cost of capital and the Group 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 Group'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 Group's assets will be held in cash for longer than anticipated and the Group's ability to achieve its investment objective will be adversely affected. To the extent that any investments to which the Group is exposed prepay, mature or are sold it will seek to reinvest such proceeds in further investments in accordance with the Group'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.
UK exit from the European Union
Following the exit of the UK from the EU on 31 January 2020 under the Withdrawal Agreement the UK is currently subject to a transition period which will run until the end of 2020 (unless extended). During the transition period the UK remains in the Single Market and the Customs Union of the EU while the terms of a new trade agreement are negotiated. If those negotiations are not completed and ratified before the end of the Transition Period, World Trade Organisation rules may apply.
The extent of the impact on the Group will depend in part on the new trade agreement that is put in place between the UK and the EU and the extent to which the UK continues to apply laws that are based on EU legislation. In addition, the macroeconomic effect on the value of investments in the lending market and, by extension, the value of investments in the portfolio is unknown. As such, it is not possible to state the impact that Brexit will have on the Group and its investments. It could also potentially make it more difficult for the Group to raise capital in the EU and/or increase the regulatory compliance burden on the Group. This could restrict the Group's future activities and thereby negatively affect returns.
Management of risks
The Group has appointed an experienced Investment Manager who directly sources loans. The Group is investing in a wide range of loan types and sectors and therefore benefits from diversification. Investment restrictions are relatively flexible giving the advisor ability to take advantage of diverse loan opportunities.
The Investment Manager, AIFM, Broker and the Board review market conditions on an ongoing basis.
The Company expects uncertainty around Brexit to continue during this transition period and until the terms of a new trade agreement are negotiated. The position is, however, being monitored as negotiations continue and the impact on the Company will be reassessed accordingly.
(ii) Risks associated with meeting the Group's investment objective or target dividend yield
The Group'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 Group will be subject to the discretion of the Directors and will depend upon, amongst other things, the Group successfully pursuing the investment policy and the Group's earnings, financial position, cash requirements, level and rate of borrowings and availability of profit, as well 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 Group. The Board reviews the position at board meetings.
(iii) Financial risks
The Group'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 21 to the financial statements.
(iv) Corporate governance and internal control risks (including cyber security)
The Group has no employees and the Directors have all been appointed on a non-executive basis. The Group 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 Group Secretary and the Registrar will perform services that are integral to the Group's operations and financial performance.
Poor performance of the above service providers could lead to various consequences including the loss of the Group'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 Group. 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 Group's key service providers report periodically to the Board on their procedures to mitigate cyber security risks.
(v) Regulatory risks
The Group 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 Group or any changes to current accountancy regulations and practice in the UK may have a material adverse effect on the ability of the Group to successfully pursue its investment policy and meet its investment objective and/or on the value of the Group and the shares. In such event, the performance of the Group, the Net Asset Value, the Group's earnings and returns to Shareholders may be materially adversely affected.
Management of risks
The Group 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.
(vi) Emerging risks and uncertainties
The Group periodically carries out a robust assessment of the Company's emerging and principal risks and the procedures in place to identify these risks. 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 Adviser. The following is a description of the emerging risks that each service provider highlights to the Board on a regular basis to aid in the identification of emerging risks.
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 Group;
2. Alternative Investment Fund Manager: following advice from the Investment Manager and other service providers, the AIFM maintains a register of identified risks including emerging risks likely to impact the Company;
3. Broker: provides 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 and Auditor: briefs the Board on forthcoming legislation and regulatory change that might impact on the Company. The Auditor also has specific briefings at least annually;
5. AIC: The Company is a member of the AIC, which provides regular technical updates as well as drawing members' attention to forthcoming industry and regulatory issues.
COVID-19 has been met by a large stimulus by the Government, an injection of GBP350 billion, with the intention of protecting the economy against the coronavirus impact, however at this point in time it is difficult to know how this will be translated in the economy and the outcome is uncertain. It may be the case that it will have a beneficiary effect on the economy and be inflationary, however the situation is unknown. The operational risks as a result of the COVID-19 pandemic were discussed by the Board. Updates on operational resilience were received from the Investment Manager, Administrator and other key service providers. The board were satisfied that the key service providers have the ability to continue to operate.
The impact of Covid-19 on the markets and the Company's financial position are closely monitored by the Investment Manager and the Board. Please refer to the Chairman's statements and Investment Manager for their assessment.
Management of risks
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 Group operates in line with the risk management policy, 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.
PORTFOLIO
Largest 10 loans by drawn amounts across the entire portfolio as at 31 December 2019
Investment type Valuation Percentage
Business activity (Private/Public/Bond) GBP'000 of net asset
Asset Lending Private loan 10,194 7.8
Hotels Private loan 8,504 6.5
Hotels Private loan 8,296 6.3
Automotive Parts Manufacturing Private loan 6,684 5.1
Forecourt Operator Private loan 6,624 5.1
Gym franchise Private loan 6,300 4.8
Business Services Private loan 6,296 4.8
Student Accommodation Private loan 5,969 4.6
Student Accommodation Private loan 5,930 4.5
Healthcare Private loan 5,620 4.3
-------------------------------- ----------------------- ----------- -------------
Ten largest holdings 70,417 53.8
Other private loan investments 54,462 41.6
Bond investments 6,322 4.8
--------------------------------------------------------- ----------- -------------
Total holdings 131,201 100.2
Other net liabilities (132) (0.2)
Gross assets* 131,069 100.0
--------------------------------------------------------- ----------- -------------
*The above is based on the Group's net assets before deduction of ZDP Shares capital entitlement.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the consolidated financial statements in accordance with applicable laws and regulations.
Company law requires the Directors to prepare accounts for each financial year. Under that law, the Directors have elected to prepare the consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS") and applicable law. Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group as at the end of the year and of the net return for In preparing these accounts, the Directors are required to:
-- select suitable accounting policies and then apply them consistently; -- make judgements and estimates, which are reasonable and prudent;
-- present information including accounting policies and additional disclosures as required to ensure the report is presented in a manner that provides relevant, reliable, comparable and understandable information;
-- state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the accounts; and
-- prepare the consolidated financial statements on a going concern basis unless it is inappropriate to presume that the Group will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's transactions and which disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the accounts comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The accounts are published on the Group's website at https://rmdl.co.uk/ which is maintained by the Group's Investment Manager. The work carried out by the auditors does not involve consideration of the maintenance and integrity of these websites and, accordingly, the auditors accept no responsibility for the website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Directors' confirmation statement
The Directors each confirm to the best of their knowledge that:
(a) the accounts, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
(b) this Annual Report includes a fair review of the development and performance of the business and position of the Group, together with a description of the principal risks and uncertainties that it faces.
The Directors consider that the consolidated financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Group's performance, business model and strategy.
For and on behalf of the Board
Norman Crighton
Director
21 April 2020
Consolidated Statement of Comprehensive Income
For the year ended 31 December
2019
Year ended 31 December Year ended 31 December
2019 2018
Revenue Capital Total Revenue Capital Total
NOTES GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Losses on investments 3 - (1,161) (1,161) - (807) (807)
Income 5 12,541 - 12,541 8,199 - 8,199
Investment management fee 6 (1,062) - (1,062) (894) - (894)
Other expenses 7 (1,080) (145) (1,225) (978) (156) (1,134)
-------------------------------- ------ -------- -------- -------- -------- -------- --------
Return before finance costs
and taxation 10,399 (1,306) 9,093 6,327 (963) 5,364
Finance costs 8 (541) - (541) (380) (657) (1,037)
-------------------------------- ------ -------- -------- -------- -------- -------- --------
Return on ordinary activities
before taxation 9,858 (1,306) 8,552 5,947 (1,620) 4,327
Taxation 9 (42) 18 (24) (37) 17 (20)
-------------------------------- ------ -------- -------- -------- -------- -------- --------
Return on ordinary activities
after taxation 9,816 (1,288) 8,528 5,910 (1,603) 4,307
---------------------------------------- -------- -------- -------- -------- -------- --------
Return per Ordinary Share
(pence) 16 8.85p (1.16p) 7.69p 6.83p (1.85p) 4.98p
-------------------------------- ------ -------- -------- -------- -------- -------- --------
The total column of this statement is the profit and loss account of
the Group.
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'.
Company Statement of Comprehensive Income
For the year ended 31 December
2019
Year ended 31 December Year ended 31 December
2019 2018
Revenue Capital Total Revenue Capital Total
NOTES GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Losses on investments 3 - (1,264) (1,264) - (865) (865)
Income 5 12,541 - 12,541 8,199 - 8,199
Investment management fee 6 (1,062) - (1,062) (894) - (894)
Other expenses 7 (1,002) (164) (1,166) (920) (156) (1,076)
-------------------------------- ------ -------- -------- -------- -------- -------- --------
Return before finance costs
and taxation 10,477 (1,428) 9,049 6,385 (1,021) 5,364
Finance costs 8 (541) - (541) (380) (657) (1,037)
-------------------------------- ------ -------- -------- -------- -------- -------- --------
Return on ordinary activities
before taxation 9,936 (1,428) 8,508 6,005 (1,678) 4,327
Taxation 9 (15) 15 - (17) 17 -
-------------------------------- ------ -------- -------- -------- -------- -------- --------
Return on ordinary activities
after taxation 9,921 (1,413) 8,508 5,988 (1,661) 4,327
-------------------------------- ------ -------- -------- -------- -------- -------- --------
Return per Ordinary Share
(pence) 16 8.94p (1.27p) 7.67p 6.92p (1.92p) 5.00p
-------------------------------- ------ -------- -------- -------- -------- -------- --------
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'.
Consolidated Statement of Financial Position
As at 31 As at 31
December December
2019 2018
Notes GBP'000 GBP'000
------------------------------------------- ------ ---------- -------------
Fixed assets
Investments at fair value through profit
or loss 3 131,201 102,581
Current assets
Receivables 10 2,266 2,602
Cash and cash equivalents 8,390 8,138
------------------------------------------- ------ ---------- -------------
10,656 10,740
Payables: amounts falling due within
one year
Payables 11 (10,788) (6,446)
Net current (liabilities)/assets (132) 4,294
------------------------------------------- ------ ---------- -------------
Non-current liabilities
Zero Dividend Preference Shares 12 (11,541) (11,155)
Total assets less current liabilities 119,528 95,720
------------------------------------------- ------ ---------- -------------
Net assets 119,528 95,720
------------------------------------------- ------ ---------- -------------
Capital and reserves: equity
Share capital 14 1,222 987
Share premium 15 70,146 47,351
Special reserve 48,304 48,304
Capital reserve (3,874) (2,586)
Revenue reserve 3,730 1,664
Total Shareholders' funds 119,528 95,720
------------------------------------------- ------ ---------- -------------
NAV per share - Ordinary Shares (pence) 17 97.79p 96.96p
------------------------------------------- ------ ---------- -------------
The financial statements of the Group were approved and authorised
for issue by the Board of Directors on 21 April 2020 and signed
on their behalf by:
Norman Crighton
Director
Company Statement of Financial Position
As at 31 As at 31
December December
2019 2018
Notes GBP'000 GBP'000
------------------------------------------ ------ ---------- ------------
Fixed assets
Investments at fair value through profit
or loss 3 131,201 102,581
Investments in subsidiary 4 50 50
Current assets
Receivables 10 2,210 2,543
Cash and cash equivalents 8,372 8,120
------------------------------------------ ------ ---------- ------------
10,582 10,663
Payables: amounts falling due within
one year
Payables 11 (10,764) (6,399)
Net current (liabilities)/assets (182) 4,264
------------------------------------------ ------ ---------- ------------
Non-current liabilities
Intercompany loan payable 13 (11,541) (11,155)
Total assets less current liabilities 119,528 95,740
------------------------------------------ ------ ---------- ------------
Net assets 119,528 95,740
------------------------------------------ ------ ---------- ------------
Capital and reserves: equity
Share capital 14 1,222 987
Share premium 15 70,146 47,351
Special reserve 48,304 48,304
Capital reserve (4,057) (2,644)
Revenue reserve 3,913 1,742
Total Shareholders' funds 119,528 95,740
------------------------------------------ ------ ---------- ------------
NAV per share - Ordinary Shares (pence) 17 97.79p 96.98p
------------------------------------------ ------ ---------- ------------
The financial statements of the Company were approved
and authorised for issue by the Board of Directors
on 21 April 2020 and signed on their behalf by:
Norman Crighton
Director
Registered in England and Wales with registered
number 10449530.
Consolidated Statement of Changes in Equity
For the year ended 31 December
2019
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 987 47,351 48,304 (2,586) 1,664 95,720
Return on ordinary activities - - - (1,288) 9,816 8,528
Issue of shares 14 235 23,265 - - - 23,500
Ordinary share issue costs - (470) - - - (470)
Dividend paid 18 - - - - (7,750) (7,750)
Balance as at 31 December
2019 1,222 70,146 48,304 (3,874) 3,730 119,528
-------------------------------- ------ --------- --------- --------- ---------- ---------- ------------
For the year ended 31 December 2018
Share Share Special Capital Revenue
capital premium reserve reserves reserves Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- ------ --------- --------- --------- ---------- ---------- ------------
Balance as at beginning
of the year 573 6,845 48,502 (983) 1,332 56,269
Return on ordinary activities - - - (1,603) 5,910 4,307
C Share conversion to Ordinary
shares 414 40,770 - - - 41,184
Ordinary shares issue cost - (264) - - - (264)
Dividend paid 18 - - (198) - (5,578) (5,776)
Balance as at 31 December
2018 987 47,351 48,304 (2,586) 1,664 95,720
-------------------------------- ------ --------- --------- --------- ---------- ---------- ------------
Distributable reserves comprise: the revenue reserve; capital reserves attributable
to realised profits; and the special reserve.
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.
Company Statement of Changes in Equity
For the year ended 31 December 2019
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 987 47,351 48,304 (2,644) 1,742 95,740
Return on ordinary activities - - - (1,413) 9,921 8,508
Issue of shares 14 235 23,265 - - - 23,500
Ordinary share issue
costs - (470) - - - (470)
Dividend paid 18 - - - - (7,750) (7,750)
Balance as at 31 December
2019 1,222 70,146 48,304 (4,057) 3,913 119,528
------------------------------- ------ --------- --------- --------- ---------- ---------- --------
For the year ended 31 December 2018
Share Share Special Capital Revenue
capital premium reserve reserves reserves Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance as at beginning
of the year 573 6,845 48,502 (983) 1,332 56,269
Return on ordinary activities - - - (1,661) 5,988 4,327
C Share conversion to
Ordinary shares 414 40,770 - - - 41,184
Ordinary shares issue
cost - (264) - - - (264)
Dividend paid 18 - - (198) - (5,578) (5,776)
Balance as at 31 December
2018 987 47,351 48,304 (2,644) 1,742 95,740
------------------------------- ------ --------- --------- --------- ---------- ---------- --------
Distributable reserves comprise: the revenue reserve; capital reserves
attributable to realised profits; and the special reserve.
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.
Consolidated Statement of Cash Flows
For the year ended 31 December 2019
Year ended Year ended
31 December 31 December
2019 2018
Notes GBP'000 GBP'000
----------------------------------------------- ------ ------------- -------------
Operating activities
Return on ordinary activities before finance
costs and taxation* 9,093 5,364
Adjustment for losses on investments 1,161 807
Increase in debtors (1,189) (1,533)
Increase in creditors 247 1,023
Net cash flow from operating activities 9,312 5,661
----------------------------------------------- ------ ------------- -------------
Investing activities
Private loan repayments/ bonds sales proceeds 3 56,450 60,111
Private loans issued/ bonds purchases 3 (80,636) (88,580)
Net cash flow used in investing activities (24,186) (28,469)
----------------------------------------------- ------ ------------- -------------
Financing activities
Finance costs (154) (95)
Zero Dividend Preference Shares issue
proceeds - 10,870
Ordinary Share issue proceeds 14 23,500 -
Ordinary Share issue costs 14 (470) -
C Share issue proceeds - 11,329
C Share issue costs - (264)
ZDP Shares issue costs - (156)
Payments on forward currency contracts - (403)
Oaknorth loan facility drawdown 16,900 -
Oaknorth loan facility repaid (16,900) -
Equity dividends paid 18 (7,750) (5,776)
Net cash flow from financing activities 15,126 15,505
----------------------------------------------- ------ ------------- -------------
Increase/(decrease) in cash 252 (7,303)
Opening balance at beginning of the year 8,138 15,441
----------------------------------------------- ------ ------------- -------------
Balance as at 31 December 2019 8,390 8,138
----------------------------------------------- ------ ------------- -------------
* Cash inflow from interest on investment holdings was GBP10,680,000
(2018: GBP7,295,000).
Company Statement of Cash Flows
For the year ended 31 December 2019
Year ended Year ended
31 December 31 December
2019 2018
Notes GBP'000 GBP'000
----------------------------------------------- ------ ------------- -------------
Operating activities
Return on ordinary activities before finance
costs and taxation* 9,049 5,364
Adjustment for losses on investments 1,239 865
Increase in debtors (1,192) (1,474)
Increase in creditors 216 938
Net cash flow from operating activities 9,312 5,693
----------------------------------------------- ------ ------------- -------------
Investing activities
Private loan repayments/ bonds sales proceeds 3 56,450 60,111
Private loans issued/ bonds purchases 3 (80,636) (88,580)
Purchase of investments - (50)
Net cash flow used in investing activities (24,186) (28,519)
----------------------------------------------- ------ ------------- -------------
Financing activities
Finance costs (154) (95)
Zero Dividend Preference Shares issue
proceeds - 10,870
Ordinary Share issue proceeds 14 23,500 -
Ordinary Share issue costs 14 (470) -
C Share issue proceeds - 11,329
C Share issue costs - (264)
ZDP Shares issue costs - (156)
Payments on forward currency contracts - (403)
Oaknorth loan facility drawdown 16,900 -
Oaknorth loan facility repaid (16,900) -
Equity dividends paid 18 (7,750) (5,776)
Net cash flow from financing activities 15,126 15,505
----------------------------------------------- ------ ------------- -------------
Increase/(decrease) in cash 252 (7,321)
Opening balance at beginning of the year 8,120 15,441
----------------------------------------------- ------ ------------- -------------
Balance as at 31 December 2019 8,372 8,120
----------------------------------------------- ------ ------------- -------------
* Cash inflow from interest on investment holdings was GBP10,680,000
(2018: GBP7,295,000).
Movement in financial liabilities - Group
Year ended 31 December
2019 Year ended 31 December 2018
------------------------- -------------------------------------
OakNorth OakNorth
facility ZDP Shares facility C Shares ZDP Shares
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ---------- ------------- ---------- ---------- -------------
Balance as at beginning
of the year - 11,155 - 29,574 -
Facility drawdowns
during the year 16,900 - 2,500 - -
Facility interest
payable 106 - 8 - -
Facility and interest
repayments during
the year (17,006) - (2,508) - -
Shares issued during
the year - - - 11,329 10,870
Share conversions
during the year - - - (41,425) -
Return on C Shares
prior to conversion - - - 522 -
Return on ZDP Shares
during the year - 386 - - 285
---------------------------- ---------- ------------- ---------- ---------- -------------
Balance as at 31 December
2019 - 11,541 - - 11,155
---------------------------- ---------- ------------- ---------- ---------- -------------
Movement in financial
liabilities - Company
Year ended 31 December Year ended 31 December 2018
2019
------------------------- -------------------------------------
OakNorth Intercompany OakNorth Intercompany
facility loan facility C Shares loan
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ---------- ------------- ---------- ---------- -------------
Balance as at beginning
of the year - 11,155 - 29,574 -
Facility drawdowns
during the year 16,900 - 2,500 - -
Facility interest
payable 106 - 8 -
Facility and interest
repayments during
the year (17,006) - (2,508) - -
Shares issued during
the year - - - 11,329 10,870
Share conversions
during the year - - - (41,425) -
Intercompany loan
proceeds - - - 522 -
Return on C Shares
prior to conversion - - - - -
Intercompany finance
cost - 386 - - 285
Balance as at 31 December
2018 - 11,541 - - 11,155
---------------------------- ---------- ------------- ---------- ---------- -------------
Notes to the financial statements
1. General information
RM Secured Direct Lending 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 consolidated financial information of the Company comprises that
of the Company and its subsidiary RM ZDP Plc (together referred to
as the "Group") for the year ended 31 December 2019. RM ZDP was incorporated
in England and Wales on 21 February 2018, with registered number 11217952
as a public company limited by shares under the Companies Act.
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 Mermaid House, 2 Puddle Dock, London, EC4V
3DB.
2. Accounting policies
The principal accounting policies followed by the Group and the Company
are set out below:
(a) Basis of accounting
The financial statements have been prepared on a going concern basis
in accordance with IFRS, which comprise standards and interpretations
approved by the IASB and International Accounting Standards and Standing
Interpretations Committee interpretations approved by the IASC that
remain in effect and to the extent that they have been adopted by the
European Union, and in accordance with Article 4 of the IAS Regulation
and the
Companies Act 2006 as applicable to companies using IFRS. The financial
statements have been prepared on a historical cost basis, except for
the measurement at fair value of investments.
The Board has determined by having regard to the currency of the Company's
share capital and the predominant currency in which its shareholders
operate, that sterling is the functional and reporting 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 October 2019,
do not conflict with the requirements of 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 and on cash and borrowings, 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
A number of new standards, amendments to standards and interpretations
are effective for the annual periods beginning after 1 January 2019.
None of these are expected to have a significant effect on the measurement
of the amounts recognised in the financial statements of the Group.
IFRS 16 - Leases (effective 1 January 2019) specifies accounting for
leases and removes the distinction between operating and finance leases.
This standard is not applicable to the Group as it has no leases.
IFRIC 23 - Uncertainty over Income Tax Treatments seeks to provide
clarity on how to account for uncertainty over income tax treatments
and specifies that an entity must consider whether it is probable that
the relevant tax authority will accept each tax treatment or group
of tax treatments, that it plans to use in its income tax filing. The
interpretation also requires companies to reassess the judgements and
estimates applied if facts and circumstances change. The interpretation
would require the Group to recognise uncertain tax positions which
are more than probable within its financial statements. The interpretation
is unlikely to have any impact on the financial statements of the Company
given its status as an investment trust with no significant tax liabilities.
A number of new standards, amendments to standards and interpretations
are not effective for the annual periods beginning after 1 January
2019 and have not been applied in preparing these financial statements
and not expected to have a significant effect on the financial statements
of the Group.
(c) Basis of consolidation
The consolidated financial statements comprise the financial information
of the Group as at the year-end date. A Subsidiary is an entity over
which the Company has control. The Group controls an entity when the
Group is exposed to, or has rights to, variable returns from its involvement
with the entity and has the ability to affect those returns through
its power to direct the activities of the entity. The financial information
of the subsidiary is included in the consolidated financial statements
from the date that control commences until the date that control ceases.
Accounting policies of the subsidiary are consistent with the policies
adopted by the Company. All intra-group transactions, balances, income
and expenses are eliminated on consolidation.
(d) Going concern
The Directors have adopted the going concern basis in preparing the
financial statements. The Directors have a reasonable expectation that
the Group has adequate operational resources to continue in operational
existence for at least twelve months from the date of approval of these
financial statements.
(e) Investment entity status
The Company meets the criteria within IFRS 10 as an investment entity
and should therefore hold investments in subsidiaries at fair value
rather than consolidate them, unless those subsidiaries are not themselves
investment entities and their main purpose is to provide services related
to the group's investment activities. The Group's subsidiary, RM ZDP
is not an investment entity and its main purpose is to provide finance
for the group through the issue of zero dividend preference shares
and therefore this subsidiary has been consolidated.
(f) Investments
Investments consist of private loans and bonds, which are classified
as fair value through profit or loss as they are included in a group
of 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 Group 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.
(g) 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 loss on investments.
(h) Income
Interest income is recognised in the revenue column of the Statement
of Comprehensive Income on a time-apportioned basis.
All other income including deposit interest are accounted on an accrual
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.
(i) Capital reserves
Realised and unrealised gains and losses on the Group'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.
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.
Management fees and finance costs
The Group 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.
ZDP Shares finance cost
The ZDP Shares are designed to provide a pre-determined capital growth
from their original issue price of 100p on 3 April 2018 to a final
capital entitlement of 110.91p on 6 April 2021, on which date the RM
ZDP is planned to be wound up. The provision for the capital growth
entitlement of the ZDP Shares is included as a finance cost and charged
to revenue within the Statement of Comprehensive Income
(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 loans 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. C shares are treated as debt on
issue and reclassified as equity upon conversion to the Company's Ordinary
Shares. The associated costs of issuing C shares are treated as capital
and amortised over the period between issue and conversion of C shares.
Financial liabilities at amortised cost - Zero Dividend Preference
Shares
These are initially recognised at cost, being the fair value of the
consideration received associated with the borrowing net of direct
issue costs. ZDP Shares are subsequently measured at amortised cost
using the effective interest method. Direct issue costs are amortised
using the effective interest method and are added to the carrying amount
of the ZDP Shares. The final capital entitlement to ZDP share holders
will rank in priority to the capital entitlement of the Ordinary Shares
of RM ZDP as such ZDP Shares are treated as debt.
(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
are recorded in the Statement of Changes in Equity when they are approved
by Shareholders.
(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 Group's actual results may ultimately differ from
those estimates, possibly significantly.
The Group 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 21.
(o) Investments in subsidiary
The investments in subsidiary company is included in the Company's
Statement of Financial Position
at cost less provision for impairment.
3.INVESTMENT AT FAIR VALUE THROUGH PROFIT OR LOSS
Group
(a) Summary of valuation
As at 31 December As at 31 December
2019 2018
GBP'000 GBP'000
---------------------------------------- ------------------ ------------------
Financial assets held:
Bond investments 6,322 10,023
Private loan investments 124,879 92,558
131,201 102,581
---------------------------------------- ------------------ ------------------
(b) Movements
As at 31 December As at 31 December
2019 2018
GBP'000 GBP'000
---------------------------------------- ------------------ ------------------
Opening valuation 102,581 76,957
Opening losses on investments 438 155
---------------------------------------- ------------------ ------------------
Book cost at the beginning of
the year 103,019 77,112
Private loans issued/bonds purchases
at cost 84,785 86,417
Purchase in kind interest(PIK) 1,244 -
Sales:
- Private loans repayments/bonds
sales proceeds (55,511) (60,111)
- gains/(losses) on investment 698 (399)
-Purchase in kind interest (PIK) (115) -
Unrealised losses on investments
held (2,919) (438)
Closing valuation at year end 131,201 102,581
---------------------------------------- ------------------ ------------------
Book cost at end of the year 134,120 103,019
Unrealised losses on investment
holdings at the year end (2,919) (438)
Closing valuation at year end 131,201 102,581
---------------------------------------- ------------------ ------------------
(c) Losses on investments
Year ended 31 Year ended 31
December 2019 December 2018
GBP'000 GBP'000
---------------------------------------- ------------------ ------------------
Realised gains/(losses) on investments 698 (399)
Unrealised losses on investments
held (2,481) (283)
Foreign exchange gains/(losses) 622 (125)
Total losses on investments (1,161) (807)
---------------------------------------- ------------------ ------------------
Company
(a) Summary of valuation
As at 31 December As at 31 December
2019 2018
GBP'000 GBP'000
---------------------------------------- ------------------ ------------------
Financial assets held:
Bond investments 6,322 10,023
Private loan investments 124,879 92,558
131,201 102,581
---------------------------------------- ------------------ ------------------
(b) Movements
As at 31 December As at 31 December
2019 2018
GBP'000 GBP'000
---------------------------------------- ------------------ ------------------
Opening valuation 102,581 76,957
Opening losses on investments 438 155
---------------------------------------- ------------------ ------------------
Book cost at the beginning of the
year 103,019 77,112
Private loans issued/bonds purchases
at cost 84,785 86,417
Purchase in kind interest(PIK) 1,244 -
Sales:
- Private loans repayments/bonds
sales proceeds (55,408) (60,111)
- gains/(losses) on investment 595 (399)
- Purchase in kind interest(PIK) (115) -
Unrealised losses on investments
held (2,919) (438)
Closing valuation at year end 131,201 102,581
---------------------------------------- ------------------ ------------------
Book cost at end of the year 134,120 103,019
Unrealised losses on investment
holdings at the year end (2,919) (438)
Closing valuation at year end 131,201 102,581
---------------------------------------- ------------------ ------------------
(c) Losses on investments
Year ended
Year ended 31 31 December
December 2019 2018
GBP'000 GBP'000
---------------------------------------- ------------------ ------------------
Realised gains/(losses) on investments 595 (457)
Unrealised losses on investments
held (2,481) (283)
Foreign exchange gains/(losses) 622 (125)
Total losses on investments (1,264) (865)
---------------------------------------- ------------------ ------------------
4. INVESTMENT IN SUBSIDIARY
Company Company
As at 31
December
As at 31 December 2019 2018
GBP'000 GBP'000
------------ ----------- --------------------------- ----------------
Investment in subsidiary 50 50 50
------------------------------ ----------------------
Total 50 50
------------------------- --------------------------- ----------------
Effective
Subsidiary ownership Principal
name % Country of incorporation activity
------------ ----------- --------------------------- ----------------
Issuance of
zero
Mermaid House, 2 Puddle dividend
Dock, London, EC4V 3DB, preference
RM ZDP plc 100 United Kingdom shares
5. INCOME
Year ended 31 December Year ended 31 December
2019 2018
Group and Company GBP'000 GBP'000
--------------------------- ----------------------- -----------------------
Income from investments
Bond and loan interest 11,529 7,547
Bank interest 4 7
Arrangement fees 190 354
Loan redemption fees 451 228
Delayed Compensation fees
received 148 -
Other income 219 63
----------------------- -----------------------
Total 12,541 8,199
--------------------------- ----------------------- -----------------------
6. INVESTMENT MANAGEMENT FEE
Year ended 31 December Year ended 31
2019 December 2018
Group and Company GBP'000 GBP'000
------------------------- ----------------------- ---------------
Basic fee:
100% charged to revenue 1,062 894
----------------------- ---------------
Total 1,062 894
------------------------- ----------------------- ---------------
The Company's Investment Manager is RM Capital Markets Limited. The
Investment Manager is entitled to receive a management fee payable
monthly in arrears and is at a rate of one-twelfth of 0.5% if the
Company's net assets are less than GBP75 million. If the Company's
net assets are in excess of GBP75 million then they are entitled
to receive a management fee one twelfth of 0.875% per calendar month
of net assets payable a month in arrears. In calculating Net Asset
Value for these purposes all assets referable to the issue of ZDP
Shares shall be counted as though they were assets of the Company
but, for the avoidance of doubt, no liabilities referable to the
issue of any ZDP Shares shall be deducted.
There is no performance fee payable to the Investment Manager.
7. OTHER EXPENSES
Year ended 31 Year ended 31
December 2019 December 2018
Group GBP'000 GBP'000
------------------------------------------- -------------------- ------------------------
Basic fee charged to revenue:
Administration Fees 263 210
Auditor's remuneration*:
Statutory audit fee 75 74
Non-audit fees - 27
Broker Fees 90 91
Consultancy Fees 100 72
Directors' Fees 99 99
AIFM Fees 164 146
Registrars fee 46 40
Valuation Fees 118 80
Other Expenses 125 139
------------------------
Total revenue expenses 1,080 978
Expenses charged to capital:
Prospectus issue and capital
transaction costs 145 156
--------------------
Total expenses 1,225 1,134
------------------------------------------- -------------------- ------------------------
Year ended 31 Year ended 31
December 2019 December 2018
Company GBP'000 GBP'000
------------------------------------------- -------------------- ------------------------
Basic fee charged to revenue:
Administration Fees 221 186
Auditor's remuneration*:
Statutory audit fee 64 66
Non-audit fees - 27
Broker Fees 90 91
Consultancy Fees 100 72
Directors' Fees 99 99
AIFM fees 164 144
Registrars fees 34 40
Valuation Fees 118 80
Other Expenses 112 115
------------------------
Total revenue expenses 1,002 920
Expenses charged to capital:
Prospectus issue and capital
transaction costs 164 156
Total expenses 1,166 1,076
------------------------------------------- -------------------- ------------------------
*Auditor's remuneration includes VAT of GBP12,000 (2018:
GBP12,000) on statutory audit fees and GBPnil (2018: GBP5,000)
on non-audit fees.
8. FINANCE COSTS
Year ended 31 December Year ended 31 December
2019 2018
Revenue Capital Total Revenue Capital Total
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------- ----------- --------- ------------- ---------- ----------
Loan arrangement
fees 48 - 48 95 - 95
Loan Interest
paid 107 - 107 - - -
ZDP Shares finance
costs 386 - 386 285 - 285
C Share finance
costs - - - - 657 657
541 - 541 380 657 1,037
---------------------- ---------- ----------- --------- ------------- ---------- ----------
Year ended 31 December Year ended 31 December
2019 2018
Revenue Capital Total Revenue Capital Total
Company GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------- ----------- --------- ------------- ---------- ----------
Loan arrangement
fees 48 - 48 95 - 95
Loan Interest
paid 107 - 107 - - -
ZDP inter-company
loan finance costs 386 - 386 285 - 285
C Share finance
costs - - - - 657 657
541 - 541 380 657 1,037
---------------------- ---------- ----------- --------- ------------- ---------- ----------
The Company has a GBP10.5 million revolving credit facility with OakNorth Bank. This will facilitate the tactical use of borrowings ahead of any known investment redemptions or capital raises. Aside from setup costs and an arrangement fee, there is no additional cost to maintaining the facility. Interest will accrue on each Loan at the annual at the annual percentage of which is the aggregate of three-month LIBOR and 3.65% per annum.
There had been no drawdown of the facility as at the year end. During the year, the Company drew down GBP16.9million from the credit facility, which was subsequently fully repaid before the year end.
9. TAXATION
Year ended 31 December Year ended 31 December
2019 2018
Revenue Capital Total Revenue Capital Total
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- -------- -------- -------- -------- -------- --------
Analysis of tax charge / (credit) the
year:
Corporation tax 42 (18) 24 37 (17) 20
-------- -------- -------- -------- -------- --------
Total current tax charge (see
note 9 (b)) 42 (18) 24 37 (17) 20
------------------------------- -------- -------- -------- -------- -------- --------
Year ended 31 December Year ended 31 December
2019 2018
Revenue Capital Total Revenue Capital Total
Company GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- --------- --------- -------- ------------ -------- ----------
Analysis of tax charge / (credit)
the year:
Corporation tax 15 (15) - 17 (17) -
--------- --------- -------- ------------ -------- ----------
Total current tax charge (see
note 9 (b)) 15 (15) - 17 (17) -
------------------------------- --------- --------- -------- ------------ -------- ----------
(b) Factors Affecting the tax charge for the
year:
The effective UK corporation tax rate for the year is 19.00% (2018:19.00
%). 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 Year ended 31 December
2019 2018
Revenue Capital Total Revenue Capital Total
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------------- -------- -------------- -------- -------- -------- --------
Return on ordinary activities
before taxation 9,858 (1,306) 8,552 5,947 (1,620) 4,327
----------------------------------------------- -------- -------------- -------- -------- -------- --------
UK corporation tax at 19.00%
(2018:19.00%) 1,873 (248) 1,625 1,130 (308) 822
Effects of:
Capital contribution not (taxable)/deductible 31 - 31 - - -
Fair value losses not deductible - 221 221 - 153 153
Effect of management expenses
not utilised - (15) (15) - 20 20
Interest distributions paid/payable (1,908) - (1,908) (1,147) (38) (1,185)
Finance costs not allowable 42 - 42 54 125 179
Management expenses not allowable 4 24 28 - 31 31
Total tax charge 42 (18) 24 37 (17) 20
----------------------------------------------- -------- -------------- -------- -------- -------- --------
The Group is not liable to tax on capital gains due to its status as
an investment trust.
Year ended 31 December Year ended 31 December
2019 2018
Revenue Capital Total Revenue Capital Total
Company GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- -------- -------- -------- -------- -------- ----------
Return on ordinary activities
before taxation 9,936 (1,428) 8,508 6,005 (1,678) 4,327
------------------------------------- -------- -------- -------- -------- -------- ----------
UK corporation tax at 19.00%
(2018:19.00%) 1,888 (271) 1,617 1,141 (319) 822
Effects of:
Intercompany income not deductible 31 - 31 23 - 23
Fair value losses not deductible - 221 221 - 164 164
Effect of management expenses
not utilised - (15) (15) - 20 20
Interest distributions paid/payable (1,908) - (1,908) (1,147) (37) (1,184)
Finance costs not allowable - - - - 125 125
Management expenses not allowable 4 50 54 - 30 30
Total tax charge 15 (15) - 17 (17) -
------------------------------------- -------- -------- -------- -------- -------- ----------
The Company is not liable to tax on capital gains due to its status as an investment trust.
(c) Deferred tax assets/(liabilities)
The Group and Company had no recognised or unrecognised deferred
asset/liability as at the year end.
10. RECEIVABLES
As at 31 December As at 31 December
2019 2018
Group GBP'000 GBP'000
----------------------------------- ------------------ ------------------
Amounts falling due within one
year:
Loans receivable - 1,525
Bond and loan interest receivable 1,861 904
Prepayments and other receivables 405 173
------------------
2,266 2,602
----------------------------------- ------------------ ------------------
As at 31 December As at 31 December
2019 2018
Company GBP'000 GBP'000
----------------------------------- ------------------ ------------------
Amounts falling due within one
year:
Loans receivable - 1,525
Bond and loan interest receivable 1,861 904
Intercompany receivables - 43
Prepayments and other receivables 349 71
------------------
2,210 2,543
----------------------------------- ------------------ ------------------
11. PAYABLES
As at 31 December
As at 31 December 2019 2018
Group GBP'000 GBP'000
--------------------------------- ----------------------- ------------------
Amounts falling due within
one year:
Unsettled investments purchases 8,846 4,697
Taxation payable 24 20
Other creditors 1,918 1,729
-----------------------
10,788 6,446
--------------------------------- ----------------------- ------------------
As at 31 December 2019 As at 31 December 2018
Company GBP'000 GBP'000
--------------------------------- ----------------------- -----------------------
Amounts falling due within
one year:
Unsettled investments purchases 8,846 4,697
Intercompany payable 50 -
Other creditors 1,868 1,702
-----------------------
10,764 6,399
--------------------------------- ----------------------- -----------------------
12. ZERO DIVID PREFERENCE SHARES
Group Group
As at 31 December As at 31 December
2019 2018
GBP'000 GBP'000
-------------------------------------- -------------------- --------------------
Zero Dividend Preference Shares 11,155 10,870
ZDP Shares finance costs 386 285
11,541 11,155
-------------------------------------- -------------------- --------------------
Authorised
The maximum number of ZDP Shares to be issued pursuant to the Initial
ZDP Placing, as disclosed in the Prospectus dated 12 March 2018, has
been set at 20 million. At a general meeting of the RM ZDP held on
7 March 2018, a special resolution was passed to issue up to 60 million
ZDP Shares. On 3 April 2018, the Group issued 10,869,950 ZDP Shares
of a nominal value of 1 pence each at a placing price of 100 pence
each to raise gross proceeds of GBP10,869,950, which were allotted
and fully paid up.
The Parent Company incurred ZDP Share issue costs of GBP129,000, which
has been amortised over the life of ZDP Shares. Amortised cost for
this year amounts to GBP43,000 (2018:GBP32,000) and is included under
other expenses in note 7.
Rights attaching to the ZDP Shares
The ZDP Shares carry no right to receive dividends or other distributions
out of revenue or any other profits of the Group. The ZDP Shares will
have a life of 3 years and, on that basis, a Final Capital Entitlement
of GBP12,055,000 (110.91 pence per ZDP Share) on the ZDP Repayment
Date of 6 April 2021, equivalent to a Redemption Yield of 3.5% per
annum (compounded annually) on the Issue Price. Under the obligations
of Loan Agreement, the Ordinary Shares and the C Shares of the Parent
rank behind the ZDP Shares.
Voting rights of ZDP Shares
The ZDP Shareholders shall have the right to receive notice of all
general meetings of RM ZDP for information purposes, but shall have
no right to attend or vote at any such meeting of RM ZDP. For the
avoidance of doubt:
-- any resolution to alter, modify or abrogate the special rights
or privileges attached to the ZDP Shares shall require separate class
consent (by special resolution) at a class meeting of ZDP Shareholders
convened and held in accordance with the ZDP Articles; and
-- any ZDP Recommended Resolution or any resolution to approve a ZDP
Reconstruction Proposal (if required) shall only be approved by RM
ZDP Ordinary Shareholders provided they have first been approved by
way of a ZDP Class Consent.
Variation of rights and Distribution on winding up
Subject to the Companies Act, on a return of capital, on a winding-up
or otherwise, ZDP Shareholders will be entitled to receive an amount
equal to the Initial Capital Entitlement of 100 pence per ZDP Share,
increased at such daily accrual rate as compounds annually to give
a Final Capital Entitlement of 110.91 pence per ZDP Shares at the
ZDP Repayment Date of 6 April 2021, which is equivalent to a Redemption
Yield of 3.5% per annum (compounded annually).
The Final Capital Entitlement will rank behind any liabilities of
the Group. The ZDP Shares carry no entitlement to income and the whole
of their return accordingly takes the form of capital. The ZDP Shareholders
are not entitled to receive any part of the revenue profits (including
any accumulated revenue reserves) of the Company on a winding-up,
even if the accrued capital entitlement of the ZDP Shares will not
be met in full.
13. INTERCOMPANY LOAN
Company Company
As at 31 December As at 31 December
2019 2018
GBP'000 GBP'000
--------------------------------- ----------------------- -------------------
Intercompany loan payable
to RM ZDP 11,155 10,870
Finance costs and capital
contribution 386 285
-------------------
11,541 11,155
--------------------------------- ----------------------- -------------------
Intercompany Loan Agreement
On 29 March 2018, the Company entered into a Loan Agreement with RM
ZDP (the "Intercompany Loan"). Pursuant to the Loan Agreement, RM ZDP
lent the entirety of the gross proceeds of the issue of ZDP Shares
on 3 April 2018 to the Company, which has been applied towards making
investments in accordance with the Investment Policy and for working
capital purposes.
The Loan Agreement provides that, interest will accrue on the intercompany
loan daily at a rate of 2% per annum, compounded annually on each anniversary
of Admission of the ZDP Shares and will be rolled up and paid to RM
ZDP along with repayment of the principal amount of the intercompany
loan on the date falling 2 Business Days before the ZDP Repayment Date
of 6 April 2021, provided that the intercompany loan shall become repayable
by the Company immediately upon the passing of a winding-up resolution
of RM ZDP.
Deed of Undertaking
The Company also entered into an undertaking with RM ZDP, pursuant
to which, to the extent that the Final Capital Entitlement multiplied
by the number of outstanding ZDP Shares as at the ZDP Repayment Date
exceeds the aggregate principal amount and accrued interest due from
the Company to RM ZDP as at the Repayment Date, the Company shall:
(i) subscribe an amount equal to or greater than the additional funding
requirement for RM ZDP Ordinary Shares or (ii) make a capital contribution
or gift or otherwise pay an amount equal to or greater than the additional
funding requirement.
Further details in relation to the ZDP Shares can be found in note
12.
Finance costs comprises GBP221,000 (2018: GBP163,000) interest pursuant
to the loan agreement between the Company and RM ZDP and GBP165,000
(2018: GBP122,000) other finance costs in connection with the intercompany
loan.
14. SHARE CAPITAL (GROUP AND COMPANY)
As at 31 December 2019 As at 31 December 2018
--------------------------------------- ----------------------------------------
No. of Shares GBP'000 No. of Shares GBP'000
--------------------- ------------------- ------------------ -------------------- ------------------
Allotted, issued & fully paid:
Ordinary shares
of 1p 122,224,581 1,222 98,724,581 987
--------------------- ------------------- ------------------ -------------------- ------------------
Share movement
The table below sets out the share movement for the year ended 31
December 2019.
--------------------------------------------------------------------------------------------------------
Shares in issue
at
31 December
Opening balance Shares issued Share conversions 2019
--------------------- ------------------- ------------------ -------------------- ------------------
Ordinary Shares 98,724,581 23,500,000 - 122,224,581
--------------------- ------------------- ------------------ -------------------- ------------------
During the year there were 23.5 million Ordinary Shares issued as
a result of 2 Placing Programmes which raised aggregate proceeds of
GBP23.5 million. The first in February resulted in an issue of 13.5
million Ordinary shares with aggregate proceeds of GBP13.5 million
and a further in November which resulted in 10.0 million Ordinary
Shares being issued for aggregate proceeds of 10.0 million. Share
issue costs incurred during the year amounted GBP470,000 (2018: GBP264,000).
15. SHARE PREMIUM-(GROUP AND
COMPANY)
As at 31 December As at 31 December
2019 2018
GBP'000 GBP'000
----------------------------------------------- ----------------------- ------------------------
Balance as at beginning of the
year 47,351 6,845
C Shares conversion to Ordinary
shares - 30,574
Premium arising on issue of C
Shares - 10,196
C Share conversion costs - (264)
Issue Ordinary shares 23,265 -
Share issue costs (470) -
70,146 47,351
----------------------------------------------- ----------------------- ------------------------
16. RETURN PER ORDINARY SHARE-(GROUP AND COMPANY)
Based on the weighted average of number of 110,960,198 (2018: 86,484,141)
Ordinary Shares in issue for the year ended 31 December 2019, the
returns per share were as follows:
Year ended 31 December Year ended 31 December
2019 2018
Group Revenue Capital Total Revenue Capital Total
--------------------------- -------- --------- --------- -------- -------- --------------
Return per ordinary
share 8.85p (1.16p) 7.69p 6.83p (1.85p) 4.98p
--------------------------- -------- --------- --------- -------- -------- --------------
Year ended 31 December Year ended 31 December
2019 2018
Company Revenue Capital Total Revenue Capital Total
--------------------- --------- -------- ------ --------- -------- ------
Return per ordinary
share 8.94p (1.27p) 7.67p 6.92p (1.92p) 5.00p
--------------------- --------- -------- ------ --------- -------- ------
17. NET ASSET VALUE PER SHARE-(GROUP AND COMPANY)
The net asset value per share is based on total Group and Company shareholders' funds of GBP119,528,000 (2018:GBP95,720,000), and on 122,224,581 (2018: 98,724,581) Ordinary Shares in issue at the year end.
18. DIVID-GROUP AND COMPANY
Total dividends
paid
in the year Year ended 31 December 2019 Year ended 31 December 2018
---------------------------------------------- --------------------------------------------------
Pence per Pence
Ordinary Revenue Capital Total per Ordinary Revenue Capital Total
share GBP'000 GBP'000 GBP'000 share GBP'000 GBP'000 GBP'000
------------------ ---------- ---------- ---------- ---------- -------------- ---------- ---------- ----------
2018 Interim -
Paid 29
Mar 2019
(2018: 23 Mar
2018) 1.6250p 1,604 - 1,604 2.0000p 1,146 1,146
2019 Interim -
Paid 25
Jun 2019 (2018:
29 Jun
2018) 2.0000p 2,244 - 2,244 1.6250p 1,420 - 1,420
2019 Interim -
Paid 26
Sep 2019 (2018:
14 Sep
2018) 1.6250p 1,824 - 1,824 1.6250p 1,506 99 1,605
2019 Interim -
Paid 24
Dec 2019 (2018:
28 Dec
2018) 1.7000p 2,078 - 2,078 1.6250p 1,506 99 1,605
------------------ ---------- ---------- ---------- ---------- -------------- ---------- ---------- ----------
Total 6.9500p 7,750 - 7,750 6.8750p 5,578 198 5,776
------------------ ---------- ---------- ---------- ---------- -------------- ---------- ---------- ----------
The dividend relating to the year ended 31 December 2019, which
is the basis on which the requirements of Section 1159 of the Corporation
Tax Act 2010 are considered is detailed below:
Total dividends Year ended 31 December 2019 Year ended 31 December 2018
paid
in the year
------------------ ---------------------------------------------- --------------------------------------------------
Pence per Pence
Ordinary Revenue Capital Total per Ordinary Revenue Capital Total
share GBP'000 GBP'000 GBP'000 share GBP'000 GBP'000 GBP'000
------------------ ---------- ---------- ---------- ---------- -------------- ---------- ---------- ----------
2019 Interim -
Paid 25
Jun 2019* (2018:
29 Jun
2018) 2.0000p 2,244 - 2,244 1.6250p 1,420 - 1,420
2019 Interim -
Paid 26
Sep 2019 (2018:
14 Sep
2018) 1.6250p 1,824 - 1,824 1.6250p 1,506 99 1,605
2019 Interim -
Paid 24
Dec 2019**
(2018: 28
Dec 2018) 1.7000p 2,078 - 2,078 1.6250p 1,506 99 1,605
2019 Interim -
Payable
27 March 2020***
(2018:
29 Mar 2019) 1.700p 2,078 - 2,078 1.6250p 1,604 - 1,604
Total 7.025p 8,224 - 8,224 6.5000p 6,036 198 6,234
------------------ ---------- ---------- ---------- ---------- -------------- ---------- ---------- ----------
*Interim dividend of 2.000 pence per ordinary share includes an additional
special dividend of 0.375 pence per ordinary share in respect of the period
from 1 January 2019 to 31 March 2019.
**Interim dividend of 1.7000 pence per ordinary share includes an additional
special dividend of 0.075 pence per ordinary share in respect of the period
from 1 July 2019 to 30 September 2019.
*** Interim dividend of 1.7000 pence per ordinary share includes an additional
special dividend of 0.075 pence per ordinary share in respect of the period
from 1 October 2019 to 31 December 2019.Not included as a liability in the
year ended 31 December 2019 financial statements.
On the 25 February 2020, the Directors approved the payment of an interim
dividend for year ended 31 December 2019 to ordinary shareholders at the rate
of 1.625 pence per Ordinary Share and an additional special dividend of 0.075
pence per Ordinary Share. The dividend had a record date of 6 March 2020 and
was paid on 27 March 2020. The dividend was funded from the Company's revenue
reserve.
19. RELATED PARTY TRANSACTION
Fees payable to the Investment Manager are shown in the Statement
of Comprehensive Income. As at 31 December 2019 the fee outstanding
to the Investment Manager was GBP96,000 (2018: GBP78,000).
Fees are payable at an annual rate of GBP36,000 to the Chairman, GBP33,000
to the Chairman of the Audit Committee and GBP30,000 to the other
Directors. As at 31 December 2019, 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.
The principal amount and finance costs payable to RM ZDP are disclosed
in note 13.
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 2019, the Company received GBP190,000 (2018: GBP354,000)
in arrangement fees.
As at 31 December 2019, the Investment Manager held 1,199,825 (2018:
902,075) Ordinary Shares in the Company.
On the 16 January 2020, the Investment Manager purchased further Ordinary
Shares in the Company, and as of the date of this report, the Investment
Manager's total holding of Ordinary Shares is 1,199,825 (2018: 939,000).
20. CLASSIFICATION OF FINANCIAL INSTRUMENTS
IFRS 13 requires the Group/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
Inputs are quoted prices in active markets for identical assets or
liabilities that the entity can access at the measurement date.
Level 2
Inputs other than quoted market prices included within Level 1 that
are observable for the asset or liability, either directly or indirectly.
Level 3
Inputs are unobservable for the asset or liability.
The classification of the Group/Company's investments held at fair
value through profit or loss is detailed in the table below:
31 December 2019 31 December 2018
Level Level Level Level Level Level
1 2 3 Total 1 2 3 Total
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- -------- -------- -------- -------- -------- -------- -------- --------
Financial assets:
Financial assets - Private
loans and bonds - 43,323 - 43,323 - 44,568 - 44,568
Financial assets - Private
loans - - 87,878 87,878 - - 58,013 58,013
Total - 43,323 87,878 131,201 - 44,568 58,013 102,581
----------------------------- -------- -------- -------- -------- -------- -------- -------- --------
Financial liabilities:
Zero Dividend Preference
Shares (market value) 11,561 - - 11,561 11,142 - - 11,142
Total financial liabilities 11,561 - - 11,561 11,142 - - 11,142
----------------------------- -------- -------- -------- -------- -------- -------- -------- --------
31 December 2019 31 December 2018
Level Level Level Level Level Level
1 2 3 Total 1 2 3 Total
Company GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- -------- -------- -------- -------- -------- -------- -------- --------
Financial assets:
Financial assets - Private
loans and bonds - 43,323 - 43,323 - 44,568 - 44,568
Financial assets - Private
loans - - 87,878 87,878 - - 58,013 58,013
Total - 43,323 87,878 131,201 - 44,568 58,013 102,581
----------------------------- -------- -------- -------- -------- -------- -------- -------- --------
Financial liabilities:
Intercompany loan payable
(market value) 11,561 - - 11,561 11,142 - - 11,142
Total financial liabilities 11,561 - - 11,561 11,142 - - 11,142
----------------------------- -------- -------- -------- -------- -------- -------- -------- --------
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.
Interest rates are a significant input into the Level 3 valuation
methodology. Interest rates used in the valuation range from 5.9%
to 24% (2018: 5.4% to 15.0%).
There have been no movements between levels during the reporting
year. The Company considers factors that may necessitate the transfers
between levels using the definition of the levels 1, 2 and 3 above.
Reconciliation of the Level 3 classification investments during the
year to 31 December 2019 is shown below:
31 December 31 December
2019 2018
GBP'000 GBP'000
------------------------ ------- -------------- ------ -------- ------------ --------------------
Balance as at beginning of the
year 58,013 40,883
New loans during the year 68,906 54,743
Repayments during the year (37,359) (37,226)
Realised gains during the year 195 (67)
Unrealised loss at the year end (1,877) (320)
-------------------------------------------------
Closing balance as at 31 December 87,878 58,013
------------------------------------------------- ------ -------- ------------ --------------------
21. FINANCIAL INSTRUMENT AND CAPITAL DISCLOSURES
The Group invests in private loan and bond investments. Financial instrument
and capital disclosures are only prepared on a Group basis as this is
the basis on which reports are made to the decision makers. 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 Group is subject to a number of Market risks in relation to economic
conditions of the investee companies. Further detail on these risks
and the management of these risks are included in the Directors' report.
The Group's financial assets and liabilities at the year-end
comprised:
Group 31 December 2019 Group 31 December 2018
Interest Non-interest Interest Non-interest
bearing bearing Total bearing bearing Total
Investments GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- ---------------- --------------- ----------- ----------- ----------------- -----------
GB sterling 118,293 - 118,293 80,931 - 80,931
Euro 12,908 - 12,908 14,253 - 14,253
US dollar - - - 7,397 - 7,397
Total
investment 131,201 - 131,201 102,581 - 102,581
--------------- ----------------
Assets and
liabilities
Cash and cash
equivalents 8,390 - 8,390 8,138 - 8,138
Receivables - 2,266 2,266 - 2,602 2,602
Payables - (10,788) (10,788) - (6,446) (6,446)
Zero Dividend
Preference
Shares (11,541) - (11,541) (11,155) - (11,155)
Total 128,050 (8,522) 119,528 99,564 (3,844) 95,720
--------------- ----------------
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 GBP13,120,000
(2018: GBP9,917,000) in the investments held at fair value through profit
or loss at the year-end date. This analysis assumes that all other variables
remain constant.
(ii) Credit risks
The Group'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 residual value, counterparty default, senior debt covenant breach
risk, bridge loans, delays in the receipt of anticipated cash flows
and borrower default, loan non-performance and collateral risks.
The Group 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 private loans and bonds, cash at bank and other trade receivables
at 31 December 2019 was GBP8,390,000 and GBP2,266,000 respectively
(2018: GBP9,308,000 and GBP1,472,000). Impairment incurred on the
balances is not considered material to the Group and Company.
The table below shows the Group's exposure to credit risks
at the year end.
Maximum Maximum
Fair value exposure Fair value exposure
GBP'000 GBP'000 GBP'000 GBP'000
Private loan investments 124,879 124,879 92,558 92,558
Bond investments 6,322 6,322 10,023 10,023
Cash and cash equivalent 8,390 8,390 8,138 8,138
Receivables 2,266 2,266 2,602 2,602
Total 141,857 141,857 113,321 113,321
-----------------------------------
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" if a public rating agency was referenced.
The Group'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 Group's rights with respect to the cash held by them
to be delayed or limited. The Group manages its risk by monitoring
the credit quality of RBS on an ongoing basis.
(iii) Interest rate risks
Private Loans
The Group may make private 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
Group provides loans will be linked to interest rates, or that the
Group's returns from a private 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 Group 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 Group's
private loan investments, bond investments, cash and cash equivalents
as at 31 December 2018, a 0.50% increase/(decrease) in interest rates,
all other things being equal, would lead to a corresponding increase/(decrease)
in the Group's income as follows.
Group Group
31 December 2019 31 December 2018
0.50% Increase 0.50% Decrease 0.50% Increase 0.50% Decrease
GBP'000 GBP'000 GBP'000 GBP'000
Private loans investments 439 (439) 463 (463)
Bond investments 217 (217) 50 (50)
Cash and cash equivalent 42 (42) 41 (41)
Total 698 (698) 554 (554)
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 Manager
reviews 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 Group 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 GBP8,390,000 (2018: GBP9,308,000).
Financial liabilities by maturity at the year-end are shown
below:
31 December 31 December
2019 2018
GBP'000 GBP'000
Within one month 9,052 4,697
Between one and three months 349 925
Between three months and
one year 869 -
More than one year* 12,059 12,879
Total 22,329 18,501
* Includes ZDP shares capital redemption value of GBP12,055,000.
The Investment Manager manages the Group's liquidity risk by investing
in a diverse portfolio of private loans and bonds in line with the
Investment Policy and Investment restrictions. The Investment Manager
may utilise other measures such as borrowing, share issues including
treasury shares for liquidity purposes.
The maturity profile of the Group's portfolio as at the year-end is
as follows:
31 December 31 December
2019 2018
GBP'000 GBP'000
Within one month 10,833 -
Between one and three months - 1,306
Between three months and
one year 15,626 11,547
More than one year 104,742 89,728
Total 131,201 102,581
(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
Group's functional currency. The Group invests in bond investments
that are denominated in currencies other than sterling. Accordingly,
the value of the Group's assets may be affected favourably or unfavourably
by fluctuations in currency rates and therefore the Group will necessarily
be subject to foreign exchange risks.
Based on the financial assets and liabilities at 31 December 2019
and all other things being equal, if sterling had weakened against
the local currencies by 10%, the impact on the Group's net assets
at 31 December 2019 would have been as follows:
31 December 31 December
2019 2018
GBP'000 GBP'000
Euro 211 64
US
dollar 16 32
Total 227 96
Foreign currency risk profile
31 December 2019 31 December 2018
Investment Net Total currency Investment Net monetary Total
exposure* monetary exposure exposure exposure currency
exposure exposure
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Euro 1,443 667 2,110 380 261 641
US
dollar - 158 158 312 12 324
Total 1,443 825 2,268 692 273 965
* As at the year end, the Group held forward instruments,
which has reduced the foreign exchange exposure to investment
in euros by the equivalent of GBP12,055,000 respectively.
Management of currency risks
The Group's Investment Manager monitors the currency risk of the Group'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 are recognised in the financial
statements at fair value, with the exception of short-term assets,
liabilities and Zero Dividend Preference Shares, which are held at
amortised cost for which fair value is given in note 20.
Capital management
The Group considers its capital to consist of its share capital of
Ordinary Shares of 1 pence each and Zero Dividend Preference Shares
of GBP1.00, its distributable reserves, which comprise Revenue reserve,
Capital reserve and the Special reserve. In accordance with IFRS,
the Group's Ordinary Shares are considered to be equity and ZDP Shares
are considered to financial liability.
The Group has a stated discount control policy. The Investment Manager
and the Group's broker monitor the demand for the Group's shares and
the Directors review the position at Board meetings. Further details
on share issues during the year and the Group's policies for issuing
further shares and buying back shares (including the Group's discount
management) can be found in the Directors' Report.
The Group did not buy back Ordinary Shares and had no shares in treasury
during the year.
The Group's policy on borrowing is detailed in the Directors' Report.
The Group has entered into a GBP10m revolving credit facility with
OakNorth Bank. The Group is required to comply with various covenants
contained in the facility agreement. In particular, the loan to net
asset value ratio must not exceed 20% of the Group's calculated at
the time of draw down. There were no draws down during the year to
31 December 2019 (2018: nil).
22. POST BALANCE SHEET EVENTS
The recent outbreak of a novel and highly contagious form of coronavirus
("COVID-19"), which the World Health Organization has declared to
constitute a pandemic, has resulted in numerous deaths, adversely
impacted global commercial activity and contributed to significant
volatility in certain equity and debt markets. The global impact of
the outbreak is rapidly evolving, and many countries have reacted
by instituting quarantines, prohibitions on travel and the closure
of offices, businesses, schools, retail stores and other public venues.
Businesses are also implementing similar precautionary measures. Such
measures, as well as the general uncertainty surrounding the dangers
and impact of COVID-19, are creating significant disruption in supply
chains and economic activity and are having a particularly adverse
impact on transportation, hospitality, tourism, entertainment and
other industries. The impact of COVID-19 has led to significant volatility
and declines in the global markets and it is uncertain how long this
volatility will continue. As explained in the Chairman's Statement
and the Investment Managers report, the economic and financial implications
in the medium to long term are unclear and a prolonged and deep market
decline could lead to falling values in underlying businesses or interruptions
to cash flow which will impact the fair value of investments. The
Board considers the emergence of the COVID-19 coronavirus pandemic
to be a non-adjusting post balance sheet event.
The NAV per share as at 31 March 2020, published by the Company on
16 April 2020, was 86.64p. As at 31 December 2019 the NAV per share
was 97.79p.
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.
Gross asset
The Group's gross assets comprise the net asset values of the Group's
Ordinary Shares and the accrued capital entitlement of the ZDP Shares,
with the breakdown as follows:
Per Share
As at 31 December 2019 GBP'000 (Pence)
Ordinary Shares - NAV A 119,528 97.79
RM ZDP plc - Accrued entitlement b 11,541 106.18
Gross asset value a+b 131,069 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 in
accordance with the AIC methodology
Year end 31 December 2019
Average NAV (GBP'000) a 112,302
Recurring expenses *('000) b 2,142
b÷a 1.77%
*Consists of investment management fees of GBP1,062,000 and other
recurring expenses of GBP1,080,000. Prospectus issue and capital transactions
are not considered to be recurring costs and therefore have not been
included.
Premium
The amount, expressed as a percentage, by which the share price is
more than the Net Asset Value per share.
As at 31 December 2019
NAV per Ordinary Share (p) a 97.79
Share price (p) b 99.50
Premium (b/a)-1 1.7%
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 Group into its Ordinary Shares on the ex-dividend
date.
As at 31 December 2019 NAV Share Price
Opening at 1 January 2019 (p) A 96.96 101.50
Closing at 31 December 2019 (p) b 97.79 99.50
Dividend adjustment factor c 1.0728 1.0701
Adjusted closing (d = b x c) d 104.91 106.47
Total return (d/a)-1 8.2% 4.9%
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 2018 have been delivered to the registrar of companies. The auditors have reported on the accounts for the year ended 31 December 2019 and the year ended 31 December 2018, 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 2019 was approved on 21 April 2020. It will be made available on the Company's website at https://rmdl.co.uk/
The Annual Report will be submitted to the National Storage Mechanism and will shortly be available for inspection at: http://www.morningstar.co.uk/uk/NSM
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 27 May 2020 at 11 a.m. at the offices of RM Capital Markets Limited, 7 Melville Crescent, Edinburgh, EH3 7JA
22 April 2020
Secretary and registered office:
PraxisIFM Fund Services (UK) Limited
Mermaid House
2 Puddle Dock
London
EC4V 3DB
For further information contact:
Brian Smith / Ciara McKillop
PraxisIFM Fund Services (UK) Limited
Tel: 020 7653 9690
END
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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