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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Secured Income Fund Plc | LSE:SSIF | London | Ordinary Share | GB00BYMK5S87 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 6.00 | 4.00 | 8.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2022 to Apr 2024
TIDMSSIF
RNS Number : 1145T
Secured Income Fund PLC
16 March 2023
16 March 2023
Secured Income Fund plc
("SSIF" or the "Company")
Half-Yearly Financial Report
For the six months ended 31 December 2022
Hot Features
Premium
A copy of the Company's Half-Yearly Report and Condensed Financial
Statements for the six months ended 31 December 2022 will shortly
be available to view and download from the Company's website, http://www.securedincomefundplc.co.uk/
. Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on the Company's website
(or any other website) is incorporated into or forms part of this
announcement.
Enquiries to:
Directors
David Stevenson (Chair) tel: +44 7973 873785
Susan Gaynor Coley tel: +44 7977 130673
Brett Miller tel: +44 7770 447338
finnCap Ltd. tel: +44 20 7220 0500
Corporate Finance: William Marle
Sales: Mark Whitfeld
http://www.securedincomefundplc.co.uk/
The following text is extracted from the Half-Yearly Report and Unaudited
Condensed Financial Statements of the Company for the six months
ended 31 December 2022.
Strategic Report
Key Points
31 December 31 December
2022 2021
(unaudited) (unaudited) 30 June
2022 (audited)
Net assets ([1]) GBP9,686,000 GBP13,218,000 GBP10,916,000
NAV per Ordinary Share 18.39p 25.10p 20.73p
Share price 12.00p 18.50p 12.00p
Discount to NAV (34.8)% (26.3)% (42.1)%
Profit/(loss) for the period GBP745,000 GBP(1,412,000) GBP(554,000)
Dividend per share declared in
respect of the period 0.75p - 0.75p
B Share issue and redemption per
Ordinary Share declared in respect
of the period 3.00p 8.50p 14.50p
Total return per Ordinary Share
(based on NAV) ([2]) 6.8% -7.4% -2.9%
Total return per Ordinary Share
(based on share price) ([2]) 31.3% -36.5% -37.6%
Ordinary Shares in issue 52,660,350 52,660,350 52,660,350
In addition to the Ordinary Shares in issue, 1 Management Share
([1]) of GBP1 is in issue (31 December 2021 and 30 June 2022: 1) (see
note 18).
Total return per Ordinary Share has been calculated by comparing
([2]) the NAV or share price, as applicable, at the start of the period
with the NAV or share price, as applicable, plus dividends and
B Share redemptions paid, at the period end.
Chairman's Statement
Introduction
I am pleased to provide Shareholders with my Chairman's Statement,
covering the interim period from 1 July 2022 to 31 December 2022.
Secured Income Fund plc (the "Company") has continued to focus on
returning capital to Shareholders efficiently and in a timely manner.
Since the wind down proposals were adopted on 17 September 2020,
the Company has maintained regular distributions to Shareholders
and has returned GBP24.4 million (equivalent to 46.25p per Ordinary
Share) through a combination of dividends and a B Share Scheme.
Performance
For the interim period ended 31 December 2022, the Company generated
a net profit of GBP0.7 million and earnings per Ordinary Share of
1.41p (compared to a loss of GBP1.4 million and loss per Ordinary
Share of 2.68p for the period ended 31 December 2021).
The Company's NAV at 31 December 2022 was GBP9.7 million (18.39p
(cum income) per Ordinary Share) compared to GBP10.9 million (20.73p
per Ordinary Share) as at 30 June 2022. The change in the NAV relates
to the GBP1.6 million B Share distribution and GBP0.4 million dividend
payment made during the period, with the balance being attributable
to the net profit of GBP0.7 million.
During the reporting period, the IFRS 9 provision for the SME loan
company has been increased as the Borrower has failed to secure a
refinance of the facility thus far. The Borrower entered administration
on 19 December 2022, however it is noted that the Company continues
to receive monthly capital repayments along with interest payments.
This position will be closely monitored by the Company through regular
dialogue to assess the ongoing status.
Further information about the status of the remaining loans along
with the respective assigned provisions is provided within the Investment
Report.
During the reporting period, the Company traded at an average discount
to NAV of 41.6%.
No foreign exchange hedging has been employed during the reporting
period. Non-Sterling cash balances are converted into Sterling at
the earliest opportunity. A table showing the FX exposure in the
portfolio as at 31 December 2022 has been included in note 21.
The portfolio exposure by maturity, geography, type and currency
are presented in the Company Analytics on.
Corporate Activity
The Company has focused on the expeditious return of capital to investors.
Costs have been monitored carefully.
As part of its ongoing management of the Company's running costs,
a Special Resolution was proposed and approved at the Company's General
Meeting held on 16 December 2021. Once the Company's NAV falls below
GBP7 million, the Board will notify the London Stock Exchange of
its intention to cancel the Company's admission to trading on the
Specialist Fund Segment of the Main Market (the "Cancellation of
Trading").
On 15 December 2022, a further Special Resolution was proposed and
approved at the Company's General Meeting which involved the cancellation
of the Company's capital redemption reserve (the "Reduction of Capital").
This was approved by the High Court of Justice in London and the
Reduction of Capital taking effect on 28 February 2023, the amount
cancelled was credited to the Company's distributable reserves on
10 March 2023. This improves the Company's distributable reserves
position and will allow the Company to continue to operate the B
Share scheme.
Dividends
Following the decision to proceed with a managed wind-down, the Board
reviewed the dividend policy and decided to cease paying monthly
dividends and is instead returning excess capital as and when the
Company has excess cash reserves available for distribution. However,
it is the Board's intention that the Company will pay sufficient
dividends each financial year to maintain investment trust status
under the Corporation Tax Act 2010 for so long as the Company remains
listed. In line with this, on 2 September 2022, the Board declared
a dividend of 0.75p per Ordinary Share for the year ended 30 June
2022, which was paid on 7 October 2022.
Capital Distributions
The Company adopted a B Share scheme, following approval by Shareholders
at the General Meeting held on 23 March 2021. The Company is therefore
able to issue redeemable B Shares to Shareholders which are subsequently
redeemed for cash, this allows the capital returns to be made in
a more tax efficient manner for some Shareholders.
During this reporting period, the Board distributed GBP1.6 million
using the B Share Scheme, which is equivalent to 3.0p per Ordinary
Share.
To date, a total of GBP19.5 million has been distributed to Shareholders
via the B share scheme since the commencement of the managed wind
down, this is equivalent to 37p per Ordinary Share. Moreover, an
additional GBP4.9 million, equivalent to 9.25p per Ordinary Share,
had been distributed in the form of dividends.
The quantum and timing of a Return of Capital to Shareholders following
receipt by the Company of the net proceeds of realisations of investments
will be dependent on the Company's liabilities and general working
capital requirements. Accordingly, any future Return of Capital will
continue to be at the discretion of the Board, which will announce
details of each Return of Capital, including the relevant Record
Date, Redemption Price and Redemption Date, through an RNS Announcement,
whilst the Company remains listed, a copy of which will be posted
to Shareholders. The Board intends for a further capital return to
be made within the next three months.
Shareholder Engagement
The Board has engaged with Shareholders over the reporting period,
taking feedback and responding to their recommendations where appropriate.
Brett Miller has led this activity and will continue to do so as
we continue to wind down the Company.
Outlook
Achieving a balance between maximising the value of the remaining
assets and ensuring timely returns of capital to Shareholders remains
at the forefront for the Company. With the cancellation of the Company's
capital redemption reserve, improving the Company's distributable
reserves position, the Board remains committed to the progressive
return of capital through the B Share scheme. The Company is efficiently
positioned to finalise the realisation of the remaining assets, which
the Board expects to be largely achieved within the next 12 to 18
months.
It is noted that the Company will shortly be approaching the GBP7
million NAV target which will activate the Special Resolution approved
in December 2021 that triggers the cancellation of the Company's
admission to trading on the Specialist Fund Segment of the Main Market.
We thank investors for their continued support throughout this period
and hope to deliver investors total proceeds as close as possible
for the remaining NAV. The Board will keep Shareholders updated regarding
any upcoming changes over the next few months.
David Stevenson
Chairman
15 March 2023
Investment Report
Overview
The Company is continuing to work closely with Borrowers, whilst
optimising the return of capital to Shareholders in as expeditious
a way as possible. Since the wind-down of the Company commenced in
September 2020, 9.25 pence per Ordinary share has been returned to
Shareholders via dividend distribution and 37 pence per Ordinary
share via a B Share Scheme, which was adopted to ensure more tax
efficient capital distributions for Shareholders.
Portfolio
There were ten direct loans in the portfolio as at 31 December 2022,
with an average carrying value of GBP0.6 million per loan. A direct
secured term loan to a LED manufacturer in Ireland that had been
in place since May 2017 was fully repaid in December 2022.
A follow-on direct investment was made in October 2022 for a loan
formerly classified as a legacy loan in previous reports. This broadband
company merged with its competitor and the Company believe that this
combined entity will yield superior results than the original standalone
company and therefore hope to recoup some of the initial investment
that was previously fully impaired in the process.
The IFRS 9 impairment provision for the SME loan company increased
during the period due to further delays in obtaining refinancing.
There have been marginal changes in provision across the remaining
direct loans.
The legacy loans are fully impaired under IFRS 9 and therefore have
zero carrying value assigned to them. This is due to various factors
such as continuous delays in repayment and depleted borrower assets.
The Company has continued to engage with each of these Borrowers
for updates and will reassess the positions should there be any changes
in circumstances.
Direct Loans
Loan Carrying
Principal Value at
Balance Amortised
Outstanding ECL provision Cost ([1])
as at 31 at 31 at 31 Amortisation/
December December December Bullet
2022 2022 2022 repayment/
Borrower GBP GBP GBP other Asset Type Currency Yield
Borrower GBP2,555,019 GBP7,665 GBP2,547,354 Pass-through SME and EUR Variable
1 amortisation Leasing
Fund
Borrower Bullet Wholesale
2 GBP2,721,318 GBP1,089,233 GBP1,632,085 repayment/other Lending GBP 10%
Interest
only for
12 months,
Borrower then Medical
3 GBP2,482,827 GBP1,241,414 GBP1,241,413 amortisation Services USD 12%
Film
Borrower Production
4 GBP1,630,082 GBP1,309,241 GBP320,841 Cash sweep Financing USD 12%
Borrower
5 GBP413,805 GBP115,865 GBP297,940 Bullet repayment Technology USD 5%
Film
Borrower Production
6 GBP1,624,925 GBP1,482,702 GBP142,223 Cash sweep Financing GBP 11%
Film
Borrower Production
7 GBP506,945 GBP445,703 GBP61,242 Cash sweep Financing GBP 12%
Film
Borrower Production
8 GBP632,877 GBP594,209 GBP38,668 Cash sweep Financing GBP 12%
Film
Borrower Production
9 GBP1,418,401 GBP1,380,057 GBP38,344 Cash sweep Financing GBP 11%
Film
Borrower Production
10 GBP2,395,295 GBP2,363,437 GBP31,858 Cash sweep Financing GBP 12%
--------------- --------------- --------------
Direct GBP16,381,494 GBP10,029,526 GBP6,351,968
Loans
Total
--------------- --------------- ------------------------------------------------------------
([1]) The carrying values of loans at amortised cost disclosed in
the table above do not include capitalised transaction fees, which
totalled GBP6,133 at 31 December 2022.
The following provides a narrative relating to our direct loan investments.
Names of counterparties have been omitted for commercial and business
sensitivity reasons.
Irish SME and Leasing Fund investment (Borrower 1) - 26.3% of NAV
This portfolio of 17 underlying loans has continued to perform well.
Most of the underlying loans are delivering income and the manager
has continued to make healthy distributions to the Company during
the reporting period. As the Fund is in its harvest phase, the capital
distributions are expected to accelerate as the loans mature or are
refinanced.
During the reporting period, the Company has received EUR560,041
in capital repayments.
SME Loan company (Borrower 2) - 16.8% of NAV
This loan has been in place since May 2017 and is secured against
a wholesale portfolio of working capital SME loans.
The Borrower was initially due to make a bullet repayment at the
end of September 2021. An extension was granted until the end of
2021 so the Borrower could source new funding to refinance the facility,
however at the time of writing nothing has come to fruition. There
has been an increase in the IFRS 9 provision assigned to the loan
over the period.
The portfolio is in run off as the Borrower entered administration
in December 2022. The Company is currently working with the administrator
to collect the outstanding loan.
During the period, the Company received GBP1,280,186 by way of capital
repayments as a result of active collection efforts undertaken. A
further GBP216,946 has been received in capital repayments post year
end whilst monthly interest on the loan continues to be serviced.
US healthcare services company (Borrower 3) - 12.8% of NAV
This loan was made to a company specialising in ancillary medical
services to a number of hospitals in the American Midwest including
optometry, audiology, dentistry and podiatry. A key aspect of the
security package is that there is a parent company guarantee in place
over all scheduled interest and principal repayments.
The Borrower is in default as it sold its core business assets in
June 2021, rendering the business economically unviable. Several
Reservations of Rights letters have been issued to the Borrower and
Guarantor in relation to this.
The latest monthly payments of principal and interest have been made
in line with the schedule by the Guarantor. At the time of writing,
payments are up to date but we will be continuing to monitor these
receivables very closely. Whilst there is necessarily a sizeable
IFRS 9 provision against this position as it is in unremedied default,
we believe it is in the Guarantor's best interest to ensure the loan
is repaid in full as per the schedule. All rights over the Guarantor
have been reserved.
Media financing (Borrowers 4, 6, 7, 8, 9 and 10) - 6.5% of NAV
The Film Production Financing portfolio, comprising of six film financings,
has been heavily impacted by the changes in operating practises resulting
from the Covid-19 pandemic. This has resulted in significant delays
in recouping the outstanding balances within the "contracted cash
flow" element (comprising Tax Credit, Receipts and Presold Income),
hampered further by the political uncertainty across some of the
remaining territories. Moreover, the level of uncertainty across
the "non-contractual Future Sales" element, which is considered mezzanine
in nature and carries a higher risk profile, has continued to increase.
The Company remains in regular dialogue with the borrower to closely
monitor receipts, expectations of future sales and assess any changes
to the cashflows.
External specialists have been engaged by the Company to independently
value these positions and provide assistance in identifying the best
approach in realising maximum value for Shareholders given the specialist
nature of the sector.
UK Venture Debt (Borrower 5) - 3.1% of NAV
This loan note is assigned to a merged entity; a previous Borrower
within the portfolio (Borrower 11 as at June 2022) and its competitor.
This entity leverages from the existing customer base gathered over
time and with experience combined with the development of a new generation
product, which together should accelerate sales. The Company has
made a follow-on loan with an 18 month term in this combined entity
in the hope of achieving a positive resolution for its Shareholders
with regards to both the legacy and follow-on investments.
Legacy portfolio
Loan Carrying
Value at
Principal Amortised
Balance Outstanding ECL provision Cost at 31
at 31 December at 31 December December
2022 2022 2022
Borrower GBP GBP GBP Currency Yield
Borrower 11 GBP1,000,000 GBP1,000,000 - GBP -
Borrower 12 GBP415,714 GBP415,714 - GBP -
Borrower 13 GBP329,705 GBP329,705 - EUR -
--------------------- ---------------- --------------
Legacy Loans GBP1,745,419 GBP1,745,419 -
Total
--------------------- ---------------- --------------
The following provides a narrative relating to the legacy loans within
the portfolio.
UK Offshore platform (Borrower 11) - 0.0% of NAV
The final credit from this offshore platform has been in place since
early 2017 and is a real estate linked loan to a developer in Gibraltar.
Despite continued assurances, we have not been repaid, and the position
(including the accrued penalty interest) remains fully impaired,
given the continuous delays. The platform has recently instructed
legal counsel to pursue the Company's claim and press for repayment.
We remain uncertain of the balance that will be recovered.
Small company bond platform (Borrower 12) - 0.0% of NAV
The only outstanding debt from this platform was a recruitment business
that had undergone a protracted recovery process through the courts.
This loan is fully impaired.
Spanish peer to peer loan platform (Borrower 13) - 0.0% of NAV
We have assigned zero probability of any further collections on the
remaining loans within the portfolio. The platform is engaged in
ongoing legal proceedings with the borrowers of the four remaining
loans on the platform.
Outlook
The Company has continued to make good progress with the realisation
of the portfolio to date. We expect that within the next 12-18 months
the wind down will be largely complete.
The Company is working closely with the relevant borrowers to ensure
all parties remain aligned to our objective of achieving the maximum
returns for Shareholders from the outstanding loans. The Company
has also engaged specialists to enhance returns where possible for
the remaining loans.
We would like to thank Shareholders for their continued support and
will share any updates on the progress over the upcoming months.
Brett Miller
Director
15 March 2023
Principal Risks and Uncertainties
Risk is inherent in the Company's activities, but it is managed through
an ongoing process of identifying and assessing risks and ensuring
that appropriate controls are in place. The key risks faced by the
Company, are set out below:
* macroeconomic risk;
* Russian invasion of Ukraine and the subsequent energy
crisis;
* credit risk;
* platform risk;
* regulatory risk; and
* reputational risk.
Further details of each of these risks and how they are mitigated
are discussed in the Principal Risks and Uncertainties section of
the Strategic Report within the Company's Annual Report for the year
ended 30 June 2022. The Board believes that these risks are applicable
to the six month period ended 31 December 2022 and the remaining
six months of the current financial year.
COVID-19
COVID-19 was a principal risk in the Company's Annual Report for
the year ended 30 June 2022, and although the impact of COVID-19
continues to be seen across the world, the Directors do not believe
that COVID-19 continues to pose a significant threat to the Company
and therefore, it is no longer classified as a principal risk. Should
another new variant lead to further lockdowns, however, this could
change again.
On behalf of the Board.
David Stevenson
Chairman
15 March 2023
Governance
Statement of Directors' Responsibilities
The Directors are responsible for preparing the half-yearly report
and condensed financial statements and are required to:
* prepare the condensed half-yearly financial
statements in accordance with UK-adopted
International Accounting Standard 34: Interim
Financial Reporting, which gives a true and fair view
of the assets, liabilities, financial position and
profit for the period of the Company, as required by
Disclosure and Transparency Rules ("DTR") 4.2.4 R;
* include a fair review of the information required by
DTR 4.2.7 R, being important events that have
occurred during the period and their impact on the
half-yearly report and condensed financial statements
and a description of the principal risks and
uncertainties for the remaining six months of the
financial year ; and
* include a fair review of information required by DTR
4.2.8 R, being related party transactions that have
taken place during the period which have had a
material effect on the financial position or
performance of the Company.
The Directors confirm that the half-yearly report and condensed financial
statements comply with the above requirements.
On behalf of the Board.
David Stevenson
Chairman
15 March 2023
Unaudited Condensed Statement of Comprehensive Income
for the six months ended 31 December 2022
Year ended
Period from Period from
1 July 2022 1 July 2021
to 31 December to 31 December 30 June
2022 2021 2022
Note (unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Income
Investment income 607 1,354 2,600
Impairment of interest income (2) (591) (1,195)
Other income 4 - -
------------ ------------ ------------
Net interest income 609 763 1,405
------------ ------------ ------------
Total revenue 609 763 1,405
------------ ------------ ------------
Operating expenses
Directors' remuneration 8 (122) (72) (195)
Other expenses 10 (119) (146) (243)
Legal and professional fees (107) (69) (109)
Consultancy fees 7c (70) (23) (71)
Administration fees 7b (59) (56) (118)
Management fees 7a - (133) (133)
------------ ------------ ------------
Total operating expenses (477) (499) (869)
------------ ------------ ------------
Investment gains and losses
Movement in unrealised gains and
losses on loans due to movement
in foreign exchange on non-Sterling
loans 13 (77) (210) 363
Movement in impairment losses on
financial assets (or loans) 13 1,599 715 720
Realised loss on disposal of loans (936) (2,183) (2,186)
Movement in carrying value of other
receivables 13 - -
------------ ------------ ------------
Total investment gains and losses 599 (1,678) (1,103)
------------ ------------ ------------
Net profit/(loss) from operating
activities before gain on foreign
currency exchange 731 (1,414) (567)
Net foreign exchange gain 14 2 13
------------ ------------ ------------
Profit/(loss) and total comprehensive
income for the period/year attributable
to the owners of the Company 745 (1,412) (554)
------------ ------------ ------------
Earnings/(loss) per Ordinary Share
(basic and diluted) 12 1.41p (2.68)p (1.05)p
------------ ------------ ------------
There were no other comprehensive income items in the period/year.
Except for unrealised gains and losses, all of the Company's profit
and loss items are distributable.
The accompanying notes form an integral part of the unaudited condensed
half-yearly financial statements .
Unaudited Condensed Statement of Changes in Equity
for the six months ended 31 December 2022
Called Capital Special Profit
up share redemption distributable and loss
Unaudited Note capital reserve reserve account Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 July 2022 527 17,955 7,997 (15,563) 10,916
Profit for the period 19 - - - 745 745
Transactions with Owners in their capacity as owners:
Dividends paid 5, 19 - - (395) - (395)
B Shares issued during 5, 18,
the period 19 1,580 - (1,580) - -
B Shares redeemed during 5, 18,
the period 19 (1,580) 1,580 (1,580) - (1,580)
------------ ------------ ------------ ------------ ------------
At 31 December 2022 527 19,535 4,442 (14,818) 9,686
------------ ------------ ------------ ------------ ------------
Unaudited Condensed Statement of Changes in Equity
for the six months ended 31 December 2021
Called Capital Special Profit
up share redemption distributable and loss
Unaudited Note capital reserve reserve account Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 July 2021 527 10,319 23,269 (15,009) 19,106
Loss for the period 19 - - - (1,412) (1,412)
Transactions with Owners in their capacity as owners:
B Shares issued during 5, 18,
the period 19 4,476 - (4,476) - -
B Shares redeemed during 5, 18,
the period 19 (4,476) 4,476 (4,476) - (4,476)
------------ ------------ ------------ ------------ ------------
At 31 December 2021 527 14,795 14,317 (16,421) 13,218
------------ ------------ ------------ ------------ ------------
Audited Statement of Changes in Equity
for the year ended 30 June 2022
Called Capital Special Profit
up share redemption distributable and loss
Audited Note capital reserve reserve account Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 July 2021 527 10,319 23,269 (15,009) 19,106
Loss for the year 19 - - - (554) (554)
Transactions with Owners in their capacity as owners:
B Shares issued during 5, 18,
the year 19 7,636 - (7,636) - -
B Shares redeemed during 5, 18,
the year 19 (7,636) 7,636 (7,636) - (7,636)
------------ ------------ ------------ ------------ ------------
At 30 June 2022 527 17,955 7,997 (15,563) 10,916
------------ ------------ ------------ ------------ ------------
There were no other comprehensive income items in the period/year.
The above amounts are all attributable to the owners of the Company.
The accompanying notes form an integral part of the unaudited condensed
half-yearly financial statements .
Unaudited Condensed Statement of Financial Position
as at 31 December 2022
31 December 31 December 30 June
2022 2021 2022
Note (unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Non-current assets
Loans at amortised cost 13 2,845 4,743 3,440
Other receivables and prepayments 15 277 - -
------------ ------------ ------------
Total non-current assets 3,122 4,743 3,440
------------ ------------ ------------
Current assets
Loans at amortised cost 13 3,513 5,974 4,807
Other receivables and prepayments 15 155 152 65
Cash and cash equivalents 3,041 2,592 2,770
------------ ------------ ------------
Total current assets 6,709 8,718 7,642
------------ ------------ ------------
Total assets 9,831 13,461 11,082
------------ ------------ ------------
Current liabilities
Other payables and accruals 16 (145) (243) (166)
------------ ------------ ------------
Total liabilities (145) (243) (166)
------------ ------------ ------------
------------ ------------ ------------
Net assets 9,686 13,218 10,916
------------ ------------ ------------
Capital and reserves attributable to owners of the Company
Called up share capital 18 527 527 527
Other reserves 19 9,159 12,691 10,389
------------ ------------ ------------
Equity attributable to the owners
of the Company 9,686 13,218 10,916
------------ ------------ ------------
Net asset value per Ordinary Share 20 18.39p 25.10p 20.73p
------------ ------------ ------------
These unaudited condensed half-yearly financial statements of Secured
Income Fund plc (registered number 09682883) were approved by the
Board of Directors on 15 March 2023 and were signed on its behalf
by:
David Stevenson Gaynor Coley
Chairman Director
15 March 2023 15 March 2023
The accompanying notes form an integral part of the unaudited condensed
half-yearly financial statements .
Unaudited Condensed Statement of Cash Flows
for the six months ended 31 December 2022
Period Period
from 1 July from 1 July
2022 to 2021 to Year
31 December 31 December ended
2022 2021 30 June
(unaudited) (unaudited) 2022 (audited)
GBP'000 GBP'000 GBP'000
Cash flows from operating activities
Net profit/(loss) before taxation 745 (1,412) (554)
Adjustments for:
Movement in unrealised gains and losses
on receivables (13) - -
Movement in unrealised gains and losses
on loans due to movement in foreign exchange
on non-Sterling loans 77 210 (363)
Movement in impairment losses on financial
assets (or loans) (1,599) (715) (720)
Realised loss on disposal of loans 936 2,183 2,186
Amortisation of transaction fees 10 17 28
Decrease in investments 2,465 2,258 5,291
------------ ------------ ------------
Net cash inflow from operating activities
before working capital changes 2,621 2,541 5,868
(Increase)/decrease in other receivables
and prepayments (354) 36 124
(Decrease)/increase in other payables and
accruals (21) 95 18
------------ ------------ ------------
Net cash inflow from operating activities 2,246 2,672 6,010
Cash flows from financing activities
B Share scheme redemptions (1,580) (4,476) (7,636)
Dividends paid (395) - -
------------ ------------ ------------
Net cash outflow from financing activities (1,975) (4,476) (7,636)
------------ ------------ ------------
Increase/(decrease) in cash and cash equivalents
in the period/year 271 (1,804) (1,626)
Cash and cash equivalents at the beginning
of the period/year 2,770 4,396 4,396
------------ ------------ ------------
Cash and cash equivalents at 31 December
2022 3,041 2,592 2,770
------------ ------------ ------------
Supplemental cash flow information
Non-cash transaction - interest income - - -
The accompanying notes form an integral part of the unaudited condensed
half-yearly financial statements .
Notes to the Unaudited Condensed Half-Yearly Financial Statements
for the six months ended 31 December 2022
1. General information
The Company is a public company (limited by shares) and was incorporated
and registered in England and Wales under the Companies Act 2006 on
13 July 2015 with registered number 09682883. The Company's shares
were admitted to trading on the London Stock Exchange Specialist Fund
Segment on 23 September 2015 ("Admission"). The Company is domiciled
in England and Wales.
The Company is an investment company as defined in s833 of the Companies
Act 2006.
The Investment Management Agreement between the Company and KKV Investment
Management Ltd was terminated on 31 December 2021. There was a smooth
transition of management back to the Company, which had been facilitated
by retaining key personnel. Furthermore, with effect from 1 January
2022, the Company was approved by the FCA as a Small Registered UK
AIFM .
Investment objective and policy
The Company is managed with the intention of realising all remaining
assets in the Portfolio in a prudent manner consistent with the principles
of good investment management and with a view to returning cash to
Shareholders in an orderly manner.
The Company pursues its investment objective by effecting an orderly
realisation of its assets in a manner that seeks to achieve a balance
between maximising the value received from those assets and making
timely returns of capital to Shareholders. This process might include
sales of individual assets, mainly structured as loans, or running
off the Portfolio in accordance with the existing terms of the assets,
or a combination of both.
As part of the realisation process, the Company may also exchange
existing debt instruments for equity securities where, in the opinion
of the Board, the Company is unlikely to be able to otherwise realise
such debt instruments or will only be able to realise them at a material
discount to the outstanding principal balance of that debt instrument.
The Company has ceased to make any new investments or to undertake
capital expenditure except where, in the opinion of the Board:
* the investment is a follow-on investment made in
connection with an existing asset in order to comply
with the Company's pre-existing obligations; or
* failure to make the follow-on investment may result
in a breach of contract or applicable law or
regulation by the Company; or
* the investment is considered necessary to protect or
enhance the value of any existing investments or to
facilitate orderly disposals.
Any cash received by the Company as part of the realisation process
prior to its distribution to Shareholders is held by the Company as
cash on deposit and/or as cash equivalents.
The Company will not undertake new borrowing.
Any material change to the investment policy would require Shareholder
approval.
2. Statement of compliance
a) Basis of preparation
These unaudited condensed half-yearly financial statements present
the results of the Company for the six months ended 31 December 2022.
These unaudited condensed half-yearly financial statements have been
prepared in accordance with UK-adopted International Accounting Standard
("IAS") 34: Interim Financial Reporting.
The unaudited condensed half-yearly financial statements for the period
ended 31 December 2022 do not constitute statutory financial statements,
as defined in s434 of the Companies Act 2006. The unaudited condensed
half-yearly financial statements have been prepared on the same basis
as the Company's annual financial statements.
Financial statements prepared on a non-going concern basis
On 19 June 2020, the Company held a continuation vote (the "Continuation
Vote") that, in line with the Directors' recommendation, did not pass.
This vote was required under the Articles as the Company did not have
a Net Asset Value of at least GBP250 million as at 31 December 2019.
As this vote did not pass, the Directors (as required under the Articles)
convened a further general meeting of the Company on 17 September
2020 at which a special resolution approved the managed wind-down
of the Company and the adoption of the new investment policy of the
Company to carry out an orderly realisation of the Company's portfolio
of assets and distribution of cash to Shareholders .
This has had no significant impact on the accounting policies, judgements
or recognition of and carrying value of assets and liabilities within
the financial statements as the loans are included net of their expected
credit loss provision ("ECL") and are expected to be realised in an
orderly manner, and the estimated costs of winding up the Company
are immaterial and therefore have not been provided for in the unaudited
condensed half-yearly financial statements .
The Russian invasion of Ukraine and the subsequent energy crisis is
a risk to the global economy. Details of the impact, as they may affect
the Company, are provided in the Chairman's Statement, Investment
Report and note 4. The Directors believe that the Company is well
placed to survive the impact of the Russian invasion of Ukraine and
the subsequent energy crisis, thereby enabling the Company to realise
its assets in an orderly manner.
b) Basis of measurement
The unaudited condensed half-yearly financial statements have been
prepared on a historical cost basis, except for investments at fair
value through profit or loss, which are measured at fair value through
profit or loss.
Given the Company's investment policy to carry out an orderly realisation
of the Company's portfolio of assets and distribution of cash to Shareholders,
the financial statements have been prepared on a non-going concern
basis.
c) Segmental reporting
The Directors are of the opinion that the Company is engaged in a
single economic segment of business, being investment in a range of
SME loan assets. Consequently, no segmental analysis is required.
d) Use of estimates and judgements
The preparation of unaudited condensed half-yearly financial statements
in conformity with UK-adopted International Accounting Standards requires
management to make judgements, estimates and assumptions that affect
the application of policies and the reported amounts of assets and
liabilities, income and expenses. The estimates and associated assumptions
are based on historical experience and various other factors that
are believed to be reasonable under the circumstances, the results
of which form the basis of making the judgements about carrying values
of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the period
in which the estimate is revised, if the revision affects only that
period, or in the period of the revision and future periods, if the
revision affects both current and future periods.
Judgements made by management in the application of UK-adopted International
Accounting Standards that have a significant effect on the unaudited
condensed half-yearly financial statements and estimates with a significant
risk of material adjustment in the next year are discussed in note
4.
3. Significant accounting policies
a) Foreign currency
Foreign currency transactions are translated into Sterling using the
exchange rates prevailing at the dates of the transactions. Foreign
exchange gains and losses resulting from the settlement of such transactions
and from the translation at period-end exchange rates of monetary
assets and liabilities denominated in foreign currencies are recognised
in the Unaudited Condensed Statement of Comprehensive Income. Translation
differences on non-monetary financial assets and liabilities are recognised
in the Unaudited Condensed Statement of Comprehensive Income.
b) Financial assets and liabilities
The financial assets and liabilities of the Company are defined as
loans, bonds with loan type characteristics, investments at fair value
through profit or loss, cash and cash equivalents, other receivables
and other payables.
Classification
IFRS 9 requires the classification of financial assets to be determined
on both the business model used for managing the financial assets
and the contractual cash flow characteristics of the financial assets.
Loans have been classified at amortised cost as:
* they are held within a "hold to collect" business
model with the objective to hold the assets to
collect contractual cash flows; and
* the contractual terms of the loans give rise on
specified dates to cash flows that are solely
payments of principal and interest on the principal
amount outstanding.
Although there has been a change in the investment objective and policy,
there has been no change in the business model as the loans continued
to be held under a 'hold to collect' model.
The Company's unquoted investments have been classified as held at
fair value through profit or loss as they are held to realise cash
flows from the sale of the investments.
Recognition
The Company recognises a financial asset or a financial liability
when, and only when, it becomes a party to the contractual provisions
of the instrument. Purchases and sales of financial assets that require
delivery of assets within the time frame generally established by
regulation or convention in the marketplace are recognised on the
trade date, i.e. the date that the Company commits to purchase or
sell the asset.
Derecognition
A financial asset (or, where applicable, a part of a financial asset
or part of a group of similar assets) is derecognised where:
* The rights to receive cash flows from the asset have
expired; or
* The Company has transferred its rights to receive
cash flows from the asset or has assumed an
obligation to pay the received cash flows in full
without material delay to a third party under a
"pass-through" arrangement; and
* Either (a) the Company has transferred substantially
all the risks and rewards of the asset, or (b) the
Company has neither transferred nor retained
substantially all the risks and rewards of the asset,
but has transferred control of the asset.
When the Company has transferred its rights to receive cash flows
from an asset (or has entered into a pass-through arrangement) and
has neither transferred nor retained substantially all the risks and
rewards of the asset nor transferred control of the asset, the asset
is recognised to the extent of the Company's continuing involvement
in the asset.
The Company derecognises a financial liability when the obligation
under the liability is discharged, cancelled or expires.
Initial measurement
Financial assets and financial liabilities at fair value through profit
or loss are recorded in the Unaudited Condensed Statement of Financial
Position at fair value. All transaction costs for such instruments
are recognised directly in profit or loss.
Financial assets and financial liabilities not designated as at fair
value through profit or loss, such as loans, are initially recognised
at fair value, being the amount issued less transaction costs.
Subsequent measurement
After initial measurement, the Company measures financial assets and
financial liabilities not designated as at fair value through profit
or loss, at amortised cost using the effective interest rate method,
less impairment allowance. Gains and losses are recognised in the
Unaudited Condensed Statement of Comprehensive Income when the asset
or liability is derecognised or impaired. Interest earned on these
instruments is recorded separately as investment income.
After initial measurement, the Company measures financial instruments
which are classified at fair value through profit or loss at fair
value. Subsequent changes in the fair value of those financial instruments
are recorded in net gain or loss on financial assets and liabilities
at fair value through profit or loss.
The carrying value of cash and cash equivalents and other receivables
and payables equals fair value due to their short-term nature.
Impairment
A financial asset is credit-impaired when one or more events that
have occurred have a significant impact on the expected future cash
flows of the financial asset. It includes observable data that has
come to the attention of the holder of a financial asset about the
following events:
* Significant financial difficulty of the issuer or
borrower;
* A breach of contract, such as a default or past-due
event;
* The lenders for economic or contractual reasons
relating to the borrower's financial difficulty
granted the borrower a concession that would not
otherwise be considered;
* It becoming probable that the borrower will enter
bankruptcy or other financial reorganisation;
* The disappearance of an active market for the
financial asset because of financial difficulties; or
* The purchase or origination of a financial asset at a
deep discount that reflects incurred credit losses.
Each direct loan is assessed on a continuous basis by the Board and,
prior to 31 December 2021, the Former Investment Manager's own underwriting
team with peer review occurring on a regular basis.
Each platform loan is monitored via the company originally deployed
to conduct underwriting and management of the borrower relationship.
When a potential impairment is identified, the Board (prior to 31
December 2021, the Former Investment Manager) requests data and management
information from the platform. The Board (prior to 31 December 2021,
the Former Investment Manager) will then actively pursue collections,
giving guidance to the platforms on acceptable levels of impairment.
In some cases, the Board (prior to 31 December 2021, the Former Investment
Manager) will proactively take control of the process.
Impairment of financial assets is recognised on a loan-by-loan basis
in stages:
Stage As soon as a financial instrument is originated or purchased,
1: 12-month expected credit losses are recognised in profit or loss
and a loss allowance is established. This serves as a proxy for
the initial expectations of credit losses. For financial assets,
interest revenue is calculated on the gross carrying amount (i.e.
without deduction for expected credit losses).
Stage If the credit risk increases significantly and is not considered
2: low, full lifetime expected credit losses are recognised in profit
or loss. The calculation of interest revenue is the same as for
Stage 1. This stage is triggered by scrutiny of management accounts
and information gathered from regular updates from the borrower
by way of email exchange or face-to-face meetings. The Board
(prior to 31 December 2021, the Former Investment Manager) extends
specific queries to borrowers if they acquire market intelligence
or channel-check the data received. A covenant breach may be
a temporary circumstance due to a one-off event and will not
trigger an immediate escalation in risk profile to Stage 2.
At all times, the Board (prior to 31 December 2021, the Former
Investment Manager) considers the risk of impairment relative
to the cash flows and general trading conditions of the company
and the industry in which the borrower resides.
Stage If the credit risk of a financial asset increases to the point
3: that it is considered credit-impaired, interest revenue is calculated
based on the amortised cost (i.e. the gross carrying amount less
the loss allowance). Financial assets in this stage will generally
be assessed individually. Lifetime expected credit losses are
recognised on these financial assets. This stage is triggered
by a marked deterioration in the management information received
from the borrower and a view taken on the overall credit conditions
for the sector in which the company resides. A permanent breach
of covenants and a deterioration in the valuation of security
would also merit a move to Stage 3.
The Board (prior to 31 December 2021, the Former Investment Manager)
also takes into account the level of security to support each
loan and the ease with which this security can be monetised.
For more details in relation to judgements, estimates and uncertainty
see note 4.
c) Cash and cash equivalents
Cash and cash equivalents are defined as cash in hand, demand deposits
and short-term, highly liquid investments readily convertible to known
amounts of cash and subject to insignificant risk of changes in value.
The carrying values of cash and cash equivalents are deemed to be
a reasonable approximation of their fair values.
d) Receivables and prepayments
Receivables are carried at the original invoice amount, less impairments,
as discussed above.
The carrying values of the accrued interest and other receivables
are deemed to be reasonable approximations of their fair values.
e) Transaction costs
Transaction costs incurred on the acquisition of loans are capitalised
upon recognition of the financial asset and amortised over the term
of the respective loan.
f) Income and expenses
Interest income and bank interest are recognised on a time-proportionate
basis using the effective interest rate method.
Dividend income is recognised when the right to receive payment is
established.
All expenses are recognised on an accruals basis. All of the Company's
expenses (with the exception of share issue costs, which are charged
directly to the distributable reserve) are charged through the Unaudited
Condensed Statement of Comprehensive Income in the period in which
they are incurred.
g) Taxation
The Company is exempt from UK corporation tax on its chargeable gains
as it satisfies the conditions for approval as an investment trust.
The Company is, however, liable to UK corporation tax on its income.
However, the Company has elected to take advantage of modified UK
tax treatment in respect of its "qualifying interest income" in order
to deduct all, or part, of the amount it distributes to Shareholders
as dividends as an "interest distribution".
h) B Shares
B Shares are redeemable at the Company's option and are classified
as equity as the potential indicator of a liability, being the fixed
rate cumulative dividend, is immaterial given the shares are allotted
and redeemed on the same day. B Shares, which are redeemed immediately
following issue, are measured at the redemption amount.
i) Reserves
Under the Company's articles of association, the Directors may, having
obtained the relevant authority of Shareholders pursuant to the implementation
of the B share scheme, capitalise any sum standing to the credit of
any reserve of the Company for the purposes of paying up, allotting
and issuing B Shares to Shareholders.
(i) Capital Redemption Reserve
The nominal value of Ordinary Shares if bought back and cancelled
and the nominal value of B Shares redeemed and subsequently cancelled
are added to this reserve. This reserve is non-distributable.
(ii) Special Distributable Reserve
During the period ended 30 June 2016, and following the approval of
the Court, the Company cancelled the share premium account and transferred
GBP51,143,000 to a special distributable reserve, being premium on
issue of shares of GBP52,133,000 less share issue costs of GBP990,000.
The special distributable reserve is available for distribution to
Shareholders, including the payment of dividends, return capital to
shareholders, buy back of Ordinary Shares or redemption of B Shares.
(iii) Profit and loss account - distributable
The net profit/loss arising from realised revenue (income, expenses,
foreign exchange gains and losses and taxation) in the Unaudited Condensed
Statement of Comprehensive Income is added to this reserve, along
with realised gains and losses on the disposal of financial assets.
Dividends paid during the period are deducted from this reserve, where
sufficient reserves are available.
(iv) Profit and loss accounts - non-distributable
Unrealised gains and losses on receivables and financial assets are
taken to this reserve.
j) Changes in accounting policy and disclosures
New and amended standards and interpretations
The accounting policies adopted are consistent with those of the previous
financial year, except as outlined below. The Company adopted the
following new and amended relevant IFRS in the period:
IFRS 9 Financial Instruments - Amendments resulting from Annual Improvements
to IFRS Standards 2018-2020 (fees in the "10 per cent" test
for derecognition of financial liabilities)
IAS 37 Provisions, Contingent Liabilities and Contingent Assets - Amendments
regarding the costs to include when assessing whether a contract
is onerous
The adoption of these accounting standards did not have any impact
on the Company's Unaudited Condensed Statement of Comprehensive Income,
Unaudited Condensed Statement of Financial Position or equity.
k) Accounting standards issued but not yet effective
The International Accounting Standards Board ("IASB") has issued/revised
a number of relevant standards with an effective date after the date
of these unaudited condensed half-yearly financial statements. Any
standards that are not deemed relevant to the operations of the Company
have been excluded. The Directors have chosen not to early adopt these
standards and interpretations and they do not anticipate that they
would have a material impact on the Company's financial statements
in the period of initial application.
Effective date
IAS 1 Presentation of Financial Statements - amendments
regarding the classification of liabilities 1 January 2024
Presentation of Financial Statements - amendments
regarding the disclosure of accounting policies 1 January 2023
Presentation of Financial Statements - amendments
regarding the classification of debt and covenants 1 January 2024
IAS 8 Accounting Policies, Changes in Accounting Estimates
and Errors - Amendments regarding the definition 1 January 2023
of accounting estimate
4. Use of Judgements and estimates
The preparation of the Company's unaudited condensed half-yearly financial
statements requires the Directors to make judgements, estimates and
assumptions that affect the reported amounts recognised in the unaudited
condensed half-yearly financial statements . However, uncertainty
about these assumptions and estimates could result in outcomes that
could require a material adjustment to the carrying amount of the
asset or liability in future periods.
Judgements
In the process of applying the Company's accounting policies, management
made the following judgements, which have had a significant effect
on the amounts recognised in the unaudited condensed half-yearly financial
statements:
COVID-19
The impact of COVID-19 continues to be seen across the world. However,
the Directors do not believe that COVID-19 continues to pose a significant
threat to the Company. Should another new variant lead to further
lockdowns, however, this could change again.
Russian Invasion of Ukraine and the subsequent energy crisis
Russia's invasion of Ukraine is a risk to the global economy. The
invasion itself and resulting international sanctions on Russia are
believed to have already caused substantial economic damage to that
country, which is likely to worsen the longer the sanctions are in
place, and has had some wider global effect on the supply and prices
of certain commodities and consequently on inflation and general economic
growth of the global economy. The effects vary from country to country,
depending, for example, on their dependence on Russian energy supplies,
particularly gas, which cannot be so easily transported and substituted
as oil. The full effects will take time to flow through fully and
manifest themselves in the balance sheets of companies and impact
their ability to repay loans. In this context, we can only express
reservations on the near-term impact on credit risk and the impairment
of securities, which may be more volatile as a result of the Russian
invasion and the subsequent energy crisis.
Classification of B Shares
The B Shares pay a fixed rate cumulative preferential cash dividend
of 1% per annum of the nominal value of GBP1, and have limited rights,
including that: the holders of the B Shares shall not be entitled
to any further right of participation in the profits or assets of
the Company; and the B Shares are redeemable at the Company's option.
However, as the potential indicator of a liability, being the fixed
rate cumulative dividend, is immaterial given the B Shares are allotted
and redeemed on the same day, the B Shares are classified as equity.
B Shares, which are redeemed immediately following issue, are measured
at the redemption amount.
Estimates and assumptions
The Company based its assumptions and estimates on parameters available
when the unaudited condensed half-yearly financial statements were
approved. However, existing circumstances and assumptions about future
developments may change due to market changes or circumstances arising
beyond the control of the Company. Such changes are reflected in the
assumptions when they occur.
The current economic uncertainty (and the frequent changes in outlook
for different economic sectors) has created increased volatility and
uncertainty (as mentioned above and in the Investment Report). In
such circumstances the level of estimation uncertainty and judgement
of expected credit losses has increased. As noted in the Investment
Report, there are uncertainties about the need for future provisions
that may need to be made against individual loans and receivables.
Notwithstanding the best endeavours of management to obtain full repayment
there is an inherent uncertainty in relation to the level of provisioning
made in these unaudited condensed half-yearly financial statements.
The Board has updated the expected credit loss assessment (as set
out in note 3b) to the best of its knowledge at the time of signing
these financial statements to reflect the likely impact on the Company's
loan portfolio.
i) Recoverability of loans and other receivables
In accordance with IFRS 9, the impairment of loans and other receivables
has been assessed as described in note 3b. When assessing the credit
loss on a loan, and the stage of impairment of that loan, the Company
considers whether t here is an indicator of credit risk for a loan
when the borrower has failed to make a payment, either capital or
interest, when contractually due and upon assessment. The Company
assesses at each reporting date (and at least on a monthly basis)
whether there is objective evidence that a loan classified as a loan
at amortised cost is credit-impaired and whether a loan's credit risk
or the expected loss rate has changed significantly. As part of this
process:
* Platforms are contacted to determine default and
delinquency levels of individual loans; and
* Recovery rates are estimated.
The analysis of credit risk is based on a number of factors and a
degree of uncertainty is inherent in the estimation process . As mentioned
above, due to the impact of the Russian invasion of Ukraine and the
resultant energy crisis, future cashflows and valuations are more
uncertain at the current time, and may be more volatile than in recent
years. Indeed, the level of estimation uncertainty and judgement for
the calculation of expected credit losses has increased as a result
of the economic effects of the the Russian invasion of Ukraine and
the subsequent energy crisis.
The determination of whether a specific factor is relevant and its
weight compared with other factors depends on the type of product,
the characteristics of the financial instrument and the borrower,
and the geographical region. It is not possible to provide a single
set of criteria that will determine what is considered to be a significant
increase in credit risk. Events that the Company will assess when
deciding if a financial asset is credit impaired include:
* significant financial difficulty of the borrower;
* a breach of contract, such as a default or past-due
event; and
* it becoming probable that the borrower will enter
bankruptcy or other financial reorganisation.
Although it may not always be the case (e.g. if discussions with a
borrower are ongoing), generally a loan is deemed to be in default
if the borrower has missed a payment of principal or interest by more
than 180 days, unless the Company has good reason not to apply this
rule. If the Company has evidence to the contrary, it may make an
exception to the 180 day rule to deem that a borrower is, or is not,
in default. Therefore, the definitions of credit impaired and default
are aligned as far as possible so that Stage 3 represents all loans
that are considered defaulted or otherwise credit impaired.
IFRS 9 confirms that a Probability of Default ("PD") must never be
zero as everything is deemed to have a risk of default; this has been
incorporated into the assessment of expected credit losses . All PDs
will be assessed against historic data as well as the prevailing economic
conditions at the reporting date, adjusted to account for estimates
of future economic conditions that are likely to impact the risk of
default.
12-month PD is calculated based on a 10 level grading system, where:
* levels 1 to 6 fall into Stage 1, with 12-month PD
ranging from 0.01% to 10%;
* levels 7 to 9 fall into Stage 2, with 12-month PD
ranging from 20% to 60%, and
* level 10 falls into Stage 3, with a 12-month PD of
100%.
All assessment is based on reasonable and supportive information available
at the time.
12-month ECL is calculated based on the following categorisation:
Category Loss given default ("LGD") approach
Easily Realisable Asset value less 10% haircut discounted at 10%
IRR for 12 months to recovery
Realisable Asset value less 20% discounted at 20% IRR for
2 years to recovery
Highly Specialised/Unsecured 70% LGD
Subordinated Debt 100% LGD
Lifetime ECL is reviewed at each reporting date based on reasonable
and supportive information available at the time.
The following borrower information should be read in conjunction with
the current economic environment and, in particular, the impact of
the Russian invasion of Ukraine and the subsequent energy crisis .
Collateral
While the presence of collateral is not a key element in the assessment
of whether there has been a significant increase in credit risk, it
is of great importance in the measurement of ECL. IFRS 9 states that
estimates of cash shortfalls reflect the cash flows expected from
collateral and other credit enhancements that are integral to the
contractual terms. This is a key component of the Company's ECL measurement
and interpretation of IFRS 9, as any investment would include elements
of (if not all): a fully collateralised position, fixed and floating
charges, a corporate guarantee, and a personal guarantee.
Loans written off
Financial assets (and the related impairment allowances) are normally
written off, either partially or in full, when there is no realistic
prospect of recovery. Where loans are secured, this is generally after
receipt of any proceeds from the realisation of security. In circumstances
where the net realisable value of any collateral has been determined
and there is no reasonable expectation of further recovery, write-off
may be earlier. No platform loans were written off in the period (31
December 2021: GBP1,878,000; 30 June 2022: GBP1,880,000), but the
carrying value of the remaining platform loans was GBPnil at 31 December
2022 (31 December 2021 and 30 June 2022: GBPnil).
Renegotiated loans
A loan is classed as renegotiated when the contractual payment terms
of the loan are modified because the Company has significant concerns
about a borrower's ability to meet payments when due. On renegotiation,
the loan will also be classified as credit impaired, if it is not
already. Renegotiated loans will continue to be considered to be credit
impaired until there is sufficient evidence to demonstrate a significant
reduction in the risk of non-payment of future payments.
In addition to the methodology used, the Company has taken impairment
data from platforms for the assessment of loans with third party exposure,
which was consistent with the approach the Board would have expected
to take in those circumstances as at 31 December 2022.
There were no new assets originated during the period that were credit-impaired
at the point of initial recognition. There were no financial assets
that have been modified since initial recognition at a time when the
loss allowance was measured at an amount equal to lifetime expected
credit losses and for which the loss allowance changed during the
period to an amount equal to 12-month expected credit losses.
There were no financial assets for which cash flows were modified
in the period while they had a loss allowance measured at an amount
equal to the lifetime expected credit loss.
Please see note 3b, note 13 and note 21 for further information on
the loans at amortised cost and credit risk.
5. Dividends
The Company distributes at least 85% of its distributable income earned
in each financial year by way of dividends.
T he Company elected to designate all of the dividends for the period
ended 31 December 2022 as interest distributions to its Shareholders.
In doing so, the Company took advantage of UK tax treatment by "streaming"
income from interest-bearing investments into dividends that will
be taxed in the hands of Shareholders as interest income.
To date, the Company has declared the following dividends in respect
of earnings for the period ended 31 December 2022:
Total dividend
declared in respect
of earnings in Amount per
the year Ordinary Share
GBP'000 pence
Dividends declared (to date) for the - -
period
Add, dividends paid in the period in
respect of the prior year 395 0.75p
------------ ------------
Dividends paid in
the period 395 0.75p
------------ ------------
In accordance with UK-adopted International Accounting Standards ,
dividends are only provided for when they become a contractual liability
of the Company. Therefore, during the period a total of GBP395,000
(31 December 2021 and 30 June 2022: GBPnil) was incurred in respect
of dividends, none of which was outstanding at the reporting date
(31 December 2021 and 30 June 2022: none).
All dividends in the year were paid out of revenue (and not capital)
profits.
Mechanics for returning cash to Shareholders
The Board carefully considered the potential mechanics for returning
cash to Shareholders and the Company's ability to do so. The Board
believes it is in the best interests of Shareholders as a whole to
make distributions to Shareholders without a significant delay following
realisations of a material part of the Portfolio (whether in a single
transaction or through multiple, smaller transactions concluded on
similar timing), whether by dividend or other method.
After careful consideration and discussions with a number of Shareholders,
the Board believes that one of the fairest and most cost-efficient
ways of returning substantial amounts of cash to Shareholders is by
adopting a B Share Scheme, whereby the Company will be able to issue
redeemable B Shares to Shareholders. These are then redeemed on a
Redemption Date without further action being required by Shareholders.
The B Shares are issued out of the special distributable reserve,
then the special distributable reserve is utilised again when the
B Shares are redeemed - the B Share capital is cancelled and an equal
amount credited to the capital redemption reserve.
The Company made one B Share Scheme redemption in the period, totalling
GBP1,580,000 (31 December 2021: GBP4,476,000, 30 June 2022: GBP7,636,000),
equivalent to 3.00p per Ordinary Share (31 December 2021: 8.50p, 30
June 2022: 14.50p).
The Board also intends to make quarterly dividend payments, where
possible, in accordance with the Company's dividend policy and to
maintain investment trust status for so long as the Company remains
listed.
6. Related parties
As a matter of best practice and good corporate governance, the Company
has adopted a related party policy that applies to any transaction
which it may enter into with any Director, the Investment Consultant
and (prior to 1 January 2022), the Former Investment Manager, or any
of their affiliates which would constitute a "related party transaction"
as defined in, and to which would apply, Chapter 11 of the Listing
Rules. In accordance with its related party policy, the Company obtained:
(i) the approval of a majority of the Directors; and (ii) a third-party
valuation in respect of these transactions from an appropriately qualified
independent adviser.
See notes 7 and 8 for further details.
7. Key contracts
a) Former Investment Manager
The Former Investment Manager had responsibility for managing the
Company's portfolio until 31 December 2021, and was entitled to a
management fee and performance fee for their services.
On 20 August 2021, the Company agreed with the Former Investment Manager
and its AIFM to amend the Investment Management Agreement and for
the agreement to terminate with effect from midnight on 31 December
2021. The Board believed that the revised Agreement provided the Company
with certainty over the level of future management fees payable to
the Former Investment Manager with the added flexibility of facilitating
the Company becoming self-managed, whilst providing for the ongoing
management of the portfolio to 31 December 2021. Overall, it allowed
for an orderly transition of the management of the portfolio to the
Company.
During the period, no management fees were incurred (31 December 2021:
GBP133,000, 30 June 2022: GBP133,000) and nothing was payable in respect
of management fees at the reporting date (31 December 2021: GBP21,000,
30 June 2022: GBPnil).
The performance fee ceased with effect from 1 January 2022, following
the termination of the Investment Management Agreement on 31 December
2021, and during the period, no performance fee was paid, or payable,
to the Former Investment Manager (31 December 2021 and 30 June 2022:
none).
Transaction costs
Prior to the change in the investment policy, the Company incurred
transaction costs for the purposes of structuring investments for
the Company. These costs formed part of the overall transaction costs
that were capitalised at the point of recognition and were taken into
account when pricing a transaction. When structuring services were
provided by the Investment Manager (incumbent at the time of the transaction)
or an affiliate of them, they were entitled to charge an additional
fee to the Company equal to up to 1.0% of the cost of acquiring the
investment (ignoring gearing and transaction expenses). This cost
was not charged in respect of assets acquired from the Investment
Manager (incumbent at the time of the transaction), the funds they
managed or where they or their affiliates did not provide such structuring
advice.
During the period, transaction costs of GBP10,000 (31 December 2021:
GBP17,000, 30 June 2022 GBP28,000) were amortised.
b) Administration fees
Elysium Fund Management Limited ("Elysium") is entitled to an administration
fee in respect of the services provided in relation to the administration
of the Company, together with time-based fees in relation to work
on investment transactions. During the period, a total of GBP59,000
(31 December 2021: GBP56,000, 30 June 2022: GBP118,000) was incurred
in respect of administration fees, of which GBP29,000 (31 December
2021: GBP28,000, 30 June 2022: GBP33,000) was payable at the reporting
date.
c) Consultancy fees
With effect from 1 January 2022, the Company entered into a consultancy
agreement to secure the services of one of the individuals previously
employed by KKV.
During the period, a total of GBP70,000 (31 December 2021: GBP23,000,
30 June 2022: GBP71,000) was incurred in respect of consultancy fees,
of which GBP7,000 (31 December 2021: GBPnil, 30 June 2022: GBP7,000)
was payable at the reporting date and a further GBP27,000 (31 December
2021: GBP23,000, 30 June 2022: GBP18,000) had been accrued but was
not yet payable at the reporting date.
8. Directors' remuneration
The Directors are paid such remuneration for their services as determined
by the Remuneration and Nomination Committee, which comprises all
of the Directors of the Company and is chaired by Gaynor Coley. Under
the terms of their appointments, the Chairman of the Company receives
GBP45,000 per annum, the chairman of the Audit and Valuation Committee
receives GBP40,000 per annum, and other non-executive Directors receive
GBP40,000 per annum.
The Remuneration and Nominations Committee agreed to pay Brett Miller
an additional GBP10,000 per month, with effect from 1 January 2022,
when he took over management of the Company's portfolio and became
an Executive Director. The additional fee is reviewed every six months
and, to date, has been extended on the same terms.
During the period, a total of GBP122,000 (31 December 2021: GBP72,000,
30 June 2022: GBP195,000) was incurred in respect of Directors' remuneration,
none of which was payable at the reporting date (31 December 2021
and 30 June 2022: none). No bonus or pension contributions were paid
or payable on behalf of the Directors.
9. Key management and employees
The Company had no employees during the period (31 December 2021 and
30 June 2022: none). Therefore, there were no key management (except
for the Directors) or employees during the period (31 December 2021
and 30 June 2022: none).
The following distributions were paid to the Directors during the
period by virtue of their holdings of Ordinary Shares (these distributions
were not additional remuneration):
Period from
1 July 2022 Period from
to 31 December 1 July 2021 Year ended
2022 to 31 December 30 June 2022
(unaudited) 2021 (unaudited) (audited)
Dividends GBP GBP GBP
David Stevenson 152 - -
Gaynor Coley 16 - -
Brett Miller - - -
B Share Scheme Redemptions
David Stevenson 608 1,722 2,937
Gaynor Coley 64 181 310
Brett Miller - - -
10. Other expenses
Period from
1 July 2022 Period from
to 31 December 1 July 2021 Year ended
2022 to 31 December 30 June 2022
(unaudited) 2021 (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Registrar fees 29 25 42
Audit fees 24 45 71
Broker fees 18 18 36
Directors' national insurance 18 10 24
Other expenses 20 31 42
Transaction fees (note 7a) 10 17 28
------------ ------------ ------------
119 146 243
------------ ------------ ------------
11. Taxation
The Company has received confirmation from HMRC that it satisfied
the conditions for approval as an investment trust, subject to the
Company continuing to meet the eligibility conditions in s.1158 of
the Corporation Tax Act 2010 and the ongoing requirements for approved
investment trust companies in Chapter 3 of Part 2 of the Investment
Trust (approved Company) Tax Regulations 2011 (Statutory Instrument
2011.2999). The Company intends to retain this approval and self-assesses
compliance with the relevant conditions and requirements.
As an investment trust the Company is exempt from UK corporation tax
on its chargeable gains. The Company is, however, liable to UK corporation
tax on its income. However, the Company has elected to take advantage
of modified UK tax treatment in respect of its "qualifying interest
income" in order to deduct all, or part, of the amount it distributes
to Shareholders as dividends as an "interest distribution".
Period from
1 July 2022 Period from
to 31 1 July 2021
December to 31 December Year ended
2022 2021 30 June 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Reconciliation of tax charge:
Profit/(loss) before taxation 745 (1,412) (554)
------------ ------------ ------------
Tax at the standard UK corporation tax
rate of 19% 142 (268) (105)
Effects of:
* Non-taxable gains and losses (114) 319 209
* Adjustments for disallowable expenses - - 6
* Interest distributions ([1]) (28) (51) (75)
* Relief claimed for carried forward losses - - (35)
------------ ------------ ------------
Total tax expense - - -
------------ ------------ ------------
([1]) On 2 September 2022, the Board declared a dividend of 0.75p per
Ordinary Share for the year ended 30 June 2022, which was paid on
7 October 2022.
Domestic corporation tax rates in the jurisdictions in which the Company
operated were as follows:
Period from
1 July 2022 Period from
to 31 December 1 July 2021 Year ended
2022 to 31 December 30 June 2022
(unaudited) 2021 (unaudited) (audited)
United Kingdom 19% 19% 19%
Guernsey nil nil nil
Due to the Company's status as an investment trust and the intention
to continue to meet the required conditions, the Company has not provided
for deferred tax on any capital gains and losses.
12. Earnings/(loss) per Ordinary Share
The earnings per Ordinary Share of 1.41p (31 December 2021: loss per
Ordinary Share of 2.68p, 30 June 2022: loss per Ordinary Share of
1.05p) is based on a profit attributable to the owners of the Company
of GBP745,000 (31 December 2021: loss of GBP1,412,000, 30 June 2022:
loss of GBP554,000) and on a weighted average number of 52,660,350
(31 December 2021 and 30 June 2022: 52,660,350) Ordinary Shares in
issue since Admission . There is no difference between the basic and
diluted earnings per share.
13. Loans at amortised cost
31 December 31 December 30 June
2022 2021 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Loans 18,004 24,463 21,415
Unrealised loss* (11,646) (13,746) (13,168)
------------ ------------ ------------
Balance at period/year end 6,358 10,717 8,247
------------ ------------ ------------
Loans: Non-current 2,845 4,743 3,440
Current 3,513 5,974 4,807
------------ ------------ ------------
Loans at amortised cost 6,358 10,717 8,247
------------ ------------ ------------
*Unrealised loss:
Foreign exchange on non-Sterling loans 128 (368) 205
Impairments of financial assets (11,774) (13,378) (13,373)
------------ ------------ ------------
Unrealised loss (11,646) (13,746) (13,168)
------------ ------------ ------------
The movement in unrealised gain/loss on loans comprised:
31 December 31 December 30 June
2022 2021 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Movement in foreign exchange on non-Sterling
loans (77) (210) 363
Movement in i mpairment losses on financial
assets (or loans) 1,599 715 720
------------ ------------ ------------
Movement in unrealised gains and losses
on loans 1,522 505 1,083
------------ ------------ ------------
The movement in the impairment for the period/year comprised:
31 December 31 December 30 June
2022 2021 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Impairment of interest income (2) (591) (1,195)
Impairment losses on financial assets
(or loans) 1,599 715 720
------------ ------------ ------------
Total movement in impairment in the
year 1,597 124 (475)
------------ ------------ ------------
The weighted average interest rate of the loans as at 31 December
2022 was 10.40% (31 December 2021: 10.18%, 30 June 2022: 10.68%).
The table below details expected credit loss provision ("ECL") of
financial assets in each stage at 31 December 2022:
Stage 1 Stage 2 Stage 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
31 December 2022
Direct loans ([1]) 2,555 413 13,413 16,381
ECL on direct loans (8) (115) (9,906) (10,029)
------------ ------------ ------------ ------------
Direct loans net of the
ECL 2,547 298 3,507 6,352
------------ ------------ ------------ ------------
Platform loans ([1]) - - 1,745 1,745
ECL on platform loans - - (1,745) (1,745)
------------ ------------ ------------ ------------
Platform loans net of the - - - -
ECL
------------ ------------ ------------ ------------
Accrued interest 124 4 25 153
------------ ------------ ------------ ------------
Total loans ([1]) 2,555 413 15,158 18,126
Total ECL (8) (115) (11,651) (11,774)
------------ ------------ ------------ ------------
Total net of the ECL 2,547 298 3,507 6,352
------------ ------------ ------------ ------------
([1]) These are the principal amounts outstanding at 31 December 2022
and do not include the capitalised transaction fees, which are
not subject to credit risk. At 31 December 2022, the amortised
cost of the capitalised transaction fees totalled GBP6,000.
The table below details the movements in the period of the principal
amounts outstanding and the ECL on those loans:
Non-credit impaired Credit impaired
Stage 1 Stage 2 Stage 3 Total
Principal Allowance Principal Allowance Principal Allowance Principal Allowance
outstanding for outstanding for outstanding for outstanding for
([1]) ECL ([1]) ECL ([1]) ECL ([1]) ECL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 July 2022 3,245 (9) - - 18,359 (13,364) 21,604 (13,373)
Net new and further
lending/repayments,
and foreign exchange
movements (690) 1 413 (115) (3,201) 1,713 (3,478) 1,599
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
At 31 December
2022 2,555 (8) 413 (115) 15,158 (11,651) 18,126 (11,774)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
([1]) These are the principal amounts outstanding at 31 December 2022
and do not include the capitalised transaction fees, which are
not subject to credit risk. At 31 December 2022, the amortised
cost of the capitalised transaction fees totalled GBP6,000.
The table below details expected credit loss provision ("ECL") of
financial assets in each stage at 31 December 2021:
Stage 1 Stage 2 Stage 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
31 December 2021
Direct loans ([1]) 3,819 - 17,299 21,118
ECL on direct loans (11) - (10,417) (10,428)
------------ ------------ ------------ ------------
Direct loans net of the
ECL 3,808 - 6,882 10,690
------------ ------------ ------------ ------------
Platform loans ([1]) - - 2,950 2,950
ECL on platform loans - - (2,950) (2,950)
------------ ------------ ------------ ------------
Platform loans net of the - - - -
ECL
------------ ------------ ------------ ------------
Accrued interest 117 - 6 123
------------ ------------ ------------ ------------
Total loans ([1]) 3,819 - 20,249 24,068
Total ECL (11) - (13,367) (13,378)
------------ ------------ ------------ ------------
Total net of the ECL 3,808 - 6,882 10,690
------------ ------------ ------------ ------------
([1]) These are the principal amounts outstanding at 31 December 2021
and do not include the capitalised transaction fees, which are
not subject to credit risk. At 31 December 2021, the amortised
cost of the capitalised transaction fees totalled GBP27,000.
The table below details the movements in the period of the principal
amounts outstanding and the ECL on those loans:
Non-credit impaired Credit impaired
Stage 1 Stage 2 Stage 3 Total
Principal Allowance Principal Allowance Principal Allowance Principal Allowance
outstanding for outstanding for outstanding for outstanding for
([1]) ECL ([1]) ECL ([1]) ECL ([1]) ECL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 July 2021 4,940 (14) 5,633 (451) 18,145 (13,628) 28,718 (14,093)
Transfers from
Stage 2 to Stage
3 - - (5,633) 451 5,633 (451) - -
Net new and further
lending/repayments,
and foreign exchange
movements (1,121) 3 - - (1,651) (1,166) (2,772) (1,163)
Loans written-off
in the period - - - - (1,878) 1,878 (1,878) 1,878
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
At 31 December
2021 3,819 (11) - - 20,249 (13,367) 24,068 (13,378)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
([1]) These are the principal amounts outstanding at 31 December 2021
and do not include the capitalised transaction fees, which are
not subject to credit risk. At 31 December 2021, the amortised
cost of the capitalised transaction fees totalled GBP27,000.
The table below details expected credit loss provision ("ECL") of
financial assets in each stage at 30 June 2022:
Stage 1 Stage 2 Stage 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
30 June 2022
Direct loans ([1]) 3,245 - 15,405 18,650
ECL on direct loans (9) - (10,410) (10,419)
------------ ------------ ------------ ------------
Direct loans net of the
ECL 3,236 - 4,995 8,231
------------ ------------ ------------ ------------
Platform loans ([1]) - - 2,954 2,954
ECL on platform loans - - (2,954) (2,954)
------------ ------------ ------------ ------------
Platform loans net of the - - - -
ECL
------------ ------------ ------------ ------------
Accrued interest 57 - 2 59
------------ ------------ ------------ ------------
Total loans ([1]) 3,245 - 18,359 21,604
Total ECL (9) - (13,364) (13,373)
------------ ------------ ------------ ------------
Total net of the ECL 3,236 - 4,995 8,231
------------ ------------ ------------ ------------
([1]) These are the principal amounts outstanding at 30 June 2022 and
do not include the capitalised transaction fees, which are not
subject to credit risk. At 30 June 2022, the amortised cost of
the capitalised transaction fees totalled GBP16,000.
The table below details the movements in the year of the principal
amounts outstanding and the ECL on those loans:
Non-credit impaired Credit impaired
Stage 1 Stage 2 Stage 3 Total
Principal Allowance Principal Allowance Principal Allowance Principal Allowance
outstanding for outstanding for outstanding for outstanding for
([1]) ECL ([1]) ECL ([1]) ECL ([1]) ECL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 July 2021 4,940 (14) 5,633 (451) 18,145 (13,628) 28,718 (14,093)
Transfers from
Stage 2 to Stage
3 - - (5,633) 451 5,633 (451) - -
Net re-measurement
of ECL arising
from transfer
of stage - - - - - (1,239) - (1,239)
Net new and further
lending/repayments,
and foreign exchange
movements (1,695) 5 - - (3,539) 74 (5,234) 79
Loans written-off
in the year - - - - (1,880) 1,880 (1,880) 1,880
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
At 30 June 2022 3,245 (9) - - 18,359 (13,364) 21,604 (13,373)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
([1]) These are the principal amounts outstanding at 30 June 2022 and
do not include the capitalised transaction fees, which are not
subject to credit risk. At 30 June 2022, the amortised cost of
the capitalised transaction fees totalled GBP16,000.
An increase of 1% of total gross exposure into Stage 3 (from Stage
1) would result in an increase in ECL impairment allowance of GBP23,000
( 31 December 2021: GBP33,000, 30 June 2022: GBP29,000) based on applying
the difference in average impairment coverage ratios to the movement
in gross exposure.
At 31 December 2022, the Board considered GBP11,774,000 (31 December
2021: GBP13,378,000, 30 June 2022: GBP13,373,000) of loans to be impaired:
31 December 31 December 30 June
2022 2021 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Direct SME loans 10,029 10,428 10,419
Platform loans 1,745 2,950 2,954
------------ ------------ ------------
Total impairment 11,774 13,378 13,373
------------ ------------ ------------
During the period, no loans were written off and included within realised
loss on disposal of loans in the Unaudited Condensed Statement of
Comprehensive Income (31 December 2021: GBP1,878,000, 30 June 2022:
GBP1,880,000).
See note 3b and note 4i regarding the process of assessment of loan
impairment.
The carrying values of the loans at amortised cost (excluding capitalised
transaction costs) are deemed to be a reasonable approximation of
their fair values.
14. Fair value of financial instruments
Financial assets designated as at fair value through profit or loss
The carrying value of receivables are deemed to be a reasonable approximation
of their fair values.
Financial assets and liabilities not designated as at fair value
through profit or loss
The carrying values of the loans at amortised cost (excluding capitalised
transaction costs) are deemed to be a reasonable approximation of
their fair values. The carrying values of all other assets and liabilities
not designated as at fair value through profit or loss are deemed
to be a reasonable approximation of their fair values due to their
short duration.
15. Other receivables and prepayments
31 December 31 December 30 June
2022 2021 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Non-current
Other receivables 273 - -
Accrued interest 4 - -
------------ ------------ ------------
277 - -
------------ ------------ ------------
Current
Accrued interest 149 123 59
Prepayments 6 14 6
Other receivables - 15 -
------------ ------------ ------------
155 152 65
------------ ------------ ------------
The carrying values of the accrued interest and other receivables
are deemed to be reasonable approximations of their fair values.
16. Other payables and accruals
31 December 31 December 30 June
2022 2021 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Audit fee 40 78 64
Consultancy fee (note 7c) 34 23 25
Administration fee (note 7b) 29 28 33
Other payables and accruals 19 32 13
Legal fees 13 50 21
Directors' national insurance 10 11 10
Management fee (note 7a) - 21 -
------------ ------------ ------------
145 243 166
------------ ------------ ------------
The carrying values of the other payables and accruals are deemed
to be reasonable approximations of their fair values.
17. Reconciliation of liabilities arising from financing activities
IAS 7 requires the Company to detail the changes in liabilities arising
from financing activities, including both cash and non-cash changes.
Liabilities arising from financing activities are those for which
cash flows were, or future cash flows will be, classified in the Company's
statement of cash flows as cash flows from financing activities.
As at 31 December 2022, the Company had no liabilities that would
give rise to cash flows from financing activities (31 December 2021
and 30 June 2022: none).
18 . Share capital
31 December 31 December 30 June
2022 2021 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Authorised share capital:
Unlimited number of Ordinary Shares of - - -
1 pence each
43,857,133 B Shares of GBP1 each (31
December 2021 and 30 June 2022: 43,857,133) 43,857 43,857 43,857
Unlimited C Shares of 10 pence each - - -
Unlimited Deferred Shares of 1 pence - - -
each
50,000 Management Shares of GBP1 each 50 50 50
------------ ------------ ------------
Called up share capital:
52,660,350 Ordinary Shares of 1 pence
each 527 527 527
1 Management Share of GBP1 (31 December - - -
2021 and 30 June 2022: 1)
------------ ------------ ------------
527 527 527
------------ ------------ ------------
Management Shares
The Management Share is entitled (in priority to any payment of dividend
of any other class of share) to a fixed cumulative preferential dividend
of 0.01% per annum on the nominal amount of the Management Share.
The Management Share does not carry any right to receive notice of,
nor to attend or vote at, any general meeting of the Company unless
no other shares are in issue at that time. The Management Share does
not confer the right to participate in any surplus of assets of the
Company on winding-up, other than the repayment of the nominal amount
of capital.
During the period, no Management Shares were bought back or cancelled
(31 December 2021 and 30 June 2022: none).
B Shares
The B Shares are entitled (in priority to any payment of dividend
of any other class of share, with the exception of the Management
Shares) to a fixed cumulative preferential dividend of 1% per annum
on the nominal amount of the B Shares, such dividend to be paid annually
on the date falling six months after the date on which the B Shares
are issued and thereafter on each anniversary. The B Shares do not
confer the right to participate in any surplus of assets of the Company
on winding-up, other than the repayment of the nominal amount of
capital.
During the period, 1,580,000 (31 December 2021: 4,476,000, 30 June
2022: 7,636,000) B Shares of GBP1 each were issued and immediately
redeemed by the Company in accordance with the B Share Scheme approved
by Shareholders at a General Meeting held on 23 March 2021 (see note
5 for further details). As the B Shares were redeemed immediately
upon issue, no cumulative preferential dividend was earned on those
shares.
19. Other reserves
Special Capital Profit and loss account
distributable redemption ([2])
reserve reserve
([1] / ([3])
[3])
----------------------------------
Period ended 31 December Non-distributable
2022 (unaudited) Distributable Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 30 June 2022 7,997 17,955 (2,394) (13,169) 10,389
Realised revenue profit - - 146 - 146
Realised investment gains
and losses - - (936) - (936)
Unrealised gains and losses - - - 1,535 1,535
Dividends paid (395) - - - (395)
B Shares issued during
the period (notes 5 and
18) (1,580) - - - (1,580)
B Shares redeemed during
the period (notes 5 and
18) ([3]) (1,580) 1,580 - - -
------------ ------------ ------------ ------------ ------------
At 31 December 2022 4,442 19,535 (3,184) (11,634) 9,159
------------ ------------ ------------ ------------ ------------
Special Capital Profit and loss account
distributable redemption ([2])
reserve reserve
([1] / [3]) ([3])
----------------------------------
Period ended 31 December
2021 (unaudited) Distributable Non-distributable Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 30 June 2021 23,269 10,319 (757) (14,252) 18,579
Realised revenue profit - - 266 - 266
Realised investment gains
and losses - - (2,183) - (2,183)
Unrealised investment gains
and losses - - - 505 505
B Shares issued during
the period (notes 5 and
18) (4,476) - - - (4,476)
B Shares redeemed during
the period (notes 5 and
18) ([3]) (4,476) 4,476 - - -
------------ ------------ ------------ ------------ ------------
At 31 December 2021 14,317 14,795 (2,674) (13,747) 12,691
------------ ------------ ------------ ------------ ------------
Special Capital Profit and loss account
distributable redemption ([2])
reserve reserve
([1] / [3]) ([3])
----------------------------------
Non-distributable
Year ended 30 June 2022 Distributable Total
(audited)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 30 June 2021 23,269 10,319 (757) (14,252) 18,579
Realised revenue profit - - 549 - 549
Realised investment gains
and losses - - (2,186) - (2,186)
Unrealised investment gains
and losses - - - 1,083 1,083
B Shares issued during
the year (notes 5 and 18) (7,636) - - - (7,636)
B Shares redeemed during
the year (notes 5 and 18)
([3]) (7,636) 7,636 - - -
------------ ------------ ------------ ------------ ------------
At 30 June 2022 7,997 17,955 (2,394) (13,169) 10,389
------------ ------------ ------------ ------------ ------------
([1]) During the period ended 30 June 2016, and following the approval
of the Court, the Company cancelled the share premium account and
transferred GBP51,143,000 to a special distributable reserve, being
premium on issue of shares of GBP52,133,000 less share issue costs
of GBP990,000. The special distributable reserve is available for
distribution to Shareholders.
([2]) The profit and loss account comprises both distributable and non-distributable
elements, as defined by Company Law. Realised elements of the Company's
profit and loss account are classified as "distributable", whilst
unrealised investment gains and losses are classified as "non-distributable".
([3]) The B Shares were issued out of the special distributable reserve,
then the special distributable reserve was utilised again when
the B Shares were redeemed, the B Share capital cancelled and an
equal amount credited to the capital redemption reserve (see notes
5 and 18). On 28 February 2023, the Court approved the cancellation
of the Company's Capital Redemption Reserve, totalling GBP19,535,000.
The amount cancelled was credited to the Company's distributable
reserves with effect from 10 March 2023 (see note 23).
With the exception of investment gains and losses, all of the Company's
profit and loss items are of a revenue nature as it does not allocate
any expenses to capital.
20. Net asset value per Ordinary Share
The net asset value per Ordinary Share is based on the net assets
attributable to the owners of the Company of GBP9,686,000 (31 December
2021: GBP13,218,000, 30 June 2022: GBP10,916,000), less GBP1 (31 December
2021 and 30 June 2022: GBP1), being amounts owed in respect of Management
Shares, and on 52,660,350 (31 December 2021 and 30 June 2022: 52,660,350)
Ordinary Shares in issue at the period end.
21. Financial Instruments and Risk Management
The Board (prior to 31 December 2021, the Former Investment Manager)
manages the Company's portfolio to provide Shareholders with attractive
risk adjusted returns, principally in the form of regular, sustainable
dividends, through investment predominantly in a range of secured
loans and other secured loan-based instruments originated through
a variety of channels and diversified by way of asset class, geography
and duration.
Risk is inherent in the Company's activities, but it is managed through
a process of ongoing identification, measurement and monitoring. The
Company is exposed to market risk (which includes currency risk, interest
rate risk and price risk), credit risk and liquidity risk from the
financial instruments it holds. Risk management procedures are in
place to minimise the Company's exposure to these financial risks,
in order to create and protect Shareholder value.
Risk management structure
The Board (prior to 31 December 2021, the Former Investment Manager)
is responsible for identifying and controlling risks. Prior to 31
December 2021, the Board of Directors supervised the Former Investment
Manager and was ultimately responsible for the overall risk management
approach within the Company.
The Company has no employees and is reliant on the performance of
third party service providers. Failure by the Consultant, Administrator,
Broker, Registrar or any other third party service provider to perform
in accordance with the terms of its appointment could have a significant
detrimental impact on the operation of the Company.
The market in which the Company participates is competitive and rapidly
changing. The risks have not changed from those detailed on pages
20 to 30 in the Company's Prospectus, which is available on the Company's
website , and as updated in the circular of 20 August 2020 .
Risk concentration
Concentration indicates the relative sensitivity of the Company's
performance to developments affecting a particular industry or geographical
location. Concentrations of risk arise when a number of financial
instruments or contracts are entered into with the same counterparty,
or where a number of counterparties are engaged in similar business
activities, or activities in the same geographic region, or have similar
economic features that would cause their ability to meet contractual
obligations to be similarly affected by changes in economic, political
or other conditions. Concentrations of liquidity risk may arise from
the repayment terms of financial liabilities, sources of borrowing
facilities or reliance on a particular market in which to realise
liquid assets. Concentrations of foreign exchange risk may arise if
the Company has a significant net open position in a single foreign
currency, or aggregate net open positions in several currencies that
tend to move together.
In a Managed Wind-Down, the value of the Portfolio will be reduced
as investments are realised and concentrated in fewer holdings, and
the mix of asset exposure will be affected accordingly.
Market risk
(i) Price risk
Price risk exposure arises from the uncertainty about future prices
of financial instruments held. It represents the potential loss that
the Company may suffer through holding market positions in the face
of price movements. At the period end, the Company did not hold any
financial instruments that were exposed to price risk (31 December
2021 and 30 June 2022: none) .
(ii) Foreign currency risk
Foreign currency risk is the risk that the value of a financial instrument
will fluctuate because of changes in foreign currency exchange rates.
Currency risk arises when future commercial transactions and recognised
assets and liabilities are denominated in a currency that is not the
Company's functional currency. The Company invests in securities and
other investments that are denominated in currencies other than Sterling.
Accordingly, the value of the Company's assets may be affected favourably
or unfavourably by fluctuations in currency rates and therefore the
Company will necessarily be subject to foreign exchange risks.
The impact of foreign currency fluctuations during the period comprised:
Period from Period from
1 July 2022 1 July 2021
to 31 December to 31 December Year ended
2022 2021 30 June 2022
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Movement in unrealised gains and losses
on loans due to movement in foreign
exchange on non-Sterling loans (77) (210) 363
Net foreign exchange gain 14 2 13
------------ ------------ ------------
Foreign currency loss in the period (63) (208) 376
------------ ------------ ------------
As at 31 December 2022, a proportion of the net financial assets of
the Company were denominated in currencies other than Sterling as
follows:
Loans and Cash and Other payables
receivables cash equivalents and accruals Exposure
GBP'000 GBP'000 GBP'000 GBP'000
31 December 2022 (unaudited)
US Dollars 2,139 - (12) 2,127
Euros 2,672 - - 2,672
--------------- --------------- --------------- ---------------
4,811 - (12) 4,799
--------------- --------------- --------------- ---------------
31 December 2021 (unaudited)
US Dollars 2,021 1 (11) 2,011
Euros 3,721 - - 3,721
--------------- --------------- --------------- ---------------
5,742 1 (11) 5,732
--------------- --------------- --------------- ---------------
30 June 2022 (audited)
US Dollars 1,836 451 (12) 2,275
Euros 3,188 - - 3,188
--------------- --------------- --------------- ---------------
5,024 451 (12) 5,463
--------------- --------------- --------------- ---------------
At 31 December 2022, if the exchange rates for US Dollars and Euros
had strengthened/weakened by 5% against Sterling with all other variables
remaining constant, net assets at 31 December 2022 and the profit/(loss)
for the period ended 31 December 2022 would have increased/(decreased)
by GBP253,000/GBP(229,000) (31 December 2021: GBP302,000/GBP(273,000),
30 June 2022: GBP288,000/GBP(260,000)).
(iii) Interest rate risk
Interest rate risk arises from the possibility that changes in interest
rates will affect future cash flows or the fair values of financial
instruments. The Company is exposed to risks associated with the effects
of fluctuations in the prevailing levels of market interest rates
on its financial instruments and cash flow. However, due to the fixed
rate nature of the majority of the loans, cash and cash equivalents
of GBP3,041,000 (31 December 2021: GBP2,592,000, 30 June 2022: GBP2,770,000)
were the only interest bearing financial instruments subject to variable
interest rates at 31 December 2022. Therefore, if interest rates had
increased/decreased by 150 basis points, with all other variables
held constant, the change in value of interest cash flows of these
assets in the period would have been GBP46,000 (31 December 2021:
GBP13,000, 30 June 2022: GBP14,000, both based on an increase/decrease
in interest rates of 50 basis points).
Variable Non-interest
31 December 2022 (unaudited) Fixed interest interest bearing Total
GBP'000 GBP'000 GBP'000 GBP'000
Financial assets
Loans ([1]) 6,358 - - 6,358
Other receivables - - 426 426
Cash and cash equivalents - 3,041 - 3,041
------------ ------------ ------------ ------------
Total financial assets 6,358 3,041 426 9,825
------------ ------------ ------------ ------------
Financial liabilities
Other payables - - (145) (145)
------------ ------------ ------------ ------------
Total financial liabilities - - (145) (145)
------------ ------------ ------------ ------------
Total interest sensitivity
gap 6,358 3,041 281 9,680
------------ ------------ ------------ ------------
31 December 2021 (unaudited)
Financial assets
Loans ([1]) 10,717 - - 10,717
Other receivables - - 138 138
Cash and cash equivalents - 2,592 - 2,592
------------ ------------ ------------ ------------
Total financial assets 10,717 2,592 138 13,447
------------ ------------ ------------ ------------
Financial liabilities
Other payables - - (243) (243)
------------ ------------ ------------ ------------
Total financial liabilities - - (243) (243)
------------ ------------ ------------ ------------
Total interest sensitivity
gap 10,717 2,592 (105) 13,204
------------ ------------ ------------ ------------
Variable Non-interest
30 June 2022 (audited) Fixed interest interest bearing Total
GBP'000 GBP'000 GBP'000 GBP'000
Financial assets
Loans ([1]) 8,247 - - 8,247
Other receivables - - 59 59
Cash and cash equivalents - 2,770 - 2,770
------------ ------------ ------------ ------------
Total financial assets 8,247 2,770 59 11,076
------------ ------------ ------------ ------------
Financial liabilities
Other payables - - (166) (166)
------------ ------------ ------------ ------------
Total financial liabilities - - (166) (166)
------------ ------------ ------------ ------------
Total interest sensitivity
gap 8,247 2,770 (107) 10,910
------------ ------------ ------------ ------------
([1]) Of the loans of GBP6,358,000 (31 December 2021: GBP10,717,000, 30
June 2022: GBP8,247,000), one loan amounting to GBP2,547,000 (31
December 2021: GBP3,605,000, 30 June 2022: GBP3,132,000) included
both fixed elements and variable elements, based on the performance
of the borrowers' underlying portfolios of loans.
The Board (prior to 31 December 2021, the Former Investment Manager)
manages the Company's exposure to interest rate risk, paying heed
to prevailing interest rates and economic conditions, market expectations
and its own views as to likely moves in interest rates.
Although it has not done so to date, t he Company may implement hedging
and derivative strategies designed to protect investment performance
against material movements in interest rates. Such strategies may
include (but are not limited to) interest rate swaps and will only
be entered into when they are available in a timely manner and on
terms acceptable to the Company. The Company may also bear risks that
could otherwise be hedged where it is considered appropriate. There
can be no certainty as to the efficacy of any hedging transactions
.
Credit risk
Credit risk is the risk that a counterparty to a financial instrument
will fail to discharge an obligation or commitment that it has entered
into with the Company, resulting in a financial loss to the Company.
At 31 December 2022, credit risk arose principally from cash and cash
equivalents of GBP3,041,000 (31 December 2021: GBP2,592,000, 30 June
2022: GBP2,770,000) and other receivables of GBP273,000 (31 December
2021 and 30 June 2022: GBPnil). The Company seeks to trade only with
reputable counterparties that the Board (prior to 31 December 2021,
the Former Investment Manager) believes to be creditworthy.
The Company's credit risks principally arise through exposure to loans
provided by the Company, either directly or through platforms. These
loans are subject to the risk of borrower default. Where a loan has
been made by the Company through a platform, the Company will only
receive payments on those loans if the corresponding borrower through
that platform makes payments on that loan. The Board (prior to 31
December 2021, the Former Investment Manager) has sought to reduce
the credit risk by obtaining security on the majority of the loans
and by investing across various platforms, geographic areas and asset
classes, thereby ensuring diversification and seeking to mitigate
concentration risks, a s stated in the "risk concentration" section
earlier in this note.
The cash pending investment or held on deposit under the terms of
an Investment Instrument may be held without limit with a financial
institution with a credit rating of "single A" (or equivalent) or
higher to protect against counterparty failure.
The Company may implement hedging and derivative strategies designed
to protect against credit risk. Such strategies may include (but are
not limited to) credit default swaps and will only be entered into
when they are available in a timely manner and on terms acceptable
to the Company. The Company may also bear risks that could otherwise
be hedged where it is considered appropriate. There can be no certainty
as to the efficacy of any hedging transactions .
Please see note 3b and note 4 for further information on credit risk
and note 13 for information on the loans at amortised cost.
Liquidity risk
Liquidity risk is defined as the risk that the Company will encounter
difficulties in realising assets or otherwise raising funds to meet
financial commitments. The principal liquidity risk is contained in
unmatched liabilities. The liquidity risk at 31 December 2022 was
low since the ratio of cash and cash equivalents to unmatched liabilities
was 21:1 (31 December 2021: 11:1, 30 June 2022: 17:1).
I n a Managed Wind-Down, the value of the Portfolio will be reduced
as investments are realised and concentrated in fewer holdings, and
the mix of asset exposure and liquidity will be affected accordingly.
The maturity profile of the portfolio is as follows:
31 December 31 December 30 June
2022 2021 2022
(unaudited) (unaudited) (audited)
Percentage Percentage Percentage
0 to 6 months 55.6 43.9 55.1
6 months to 18 months 29.0 21.7 31.0
18 months to 3 years 15.4 34.4 13.9
------------ ------------ ------------
100.0 100.0 100.0
------------ ------------ ------------
Capital management
During the period, the Board's policy was to maintain a strong capital
base so as to maintain investor, creditor and market confidence and
to sustain future operation of the Company. The Company's capital
comprises issued share capital, retained earnings, a capital redemption
reserve (see note 3(i)) and a distributable reserve created from the
cancellation of the Company's share premium account. To maintain or
adjust the capital structure, the Company could issue new Ordinary
Shares, B Shares and/or C Shares, buy back shares for cancellation,
buy back shares to be held in treasury or redeem B Shares. The Company
returned capital to Shareholders through the use of a B Share Scheme,
which was approved by Shareholders on 23 March 2021 (see note 5).
During the period ended 31 December 2022, the Company did not issue
any new Ordinary or C shares, nor did it buy back any Ordinary Shares
for cancellation or to be held in treasury (31 December 2021 and 30
June 2022: none).
During the period ended 31 December 2022, 1,580,000 B Shares were
issued and bought back for GBP1,580,000 (see note 5) (31 December
2021: 4,476,000 B Shares issued and bought back for GBP4,476,000,
30 June 2022: 7,636,000 B Shares issued and bought back for GBP7,636,000).
The Company is subject to externally imposed capital requirements
in relation to its statutory requirement relating to dividend distributions
to Shareholders. The Company meets the requirement by ensuring it
distributes at least 85% of its distributable income by way of dividend.
22. Contingent assets and contingent liabilities
There were no contingent assets or contingent liabilities in existence
at the period end (31 December 2021 and 30 June 2022: none).
23. Events after the reporting period
On 15 December 2022, shareholders approved the reduction of the Company's
share capital by cancelling the entire amount standing to the credit
of the Company's Capital Redemption Reserve. On 28 February 2023,
the Court approved the cancellation of the Company's Capital Redemption
Reserve, totalling GBP19,535,000. The amount cancelled was credited
to the Company's distributable reserves with effect from 10 March
2023.
There were no other significant events after the reporting period.
24. Parent and Ultimate Parent
The Directors do not believe that the Company has an individual Parent
or Ultimate Parent, or an ultimate controlling party.
--- ENDS ---
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