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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Sqn Asset Finance Income Fund Limited | LSE:SQN | London | Ordinary Share | GG00BN56JF17 | ORD NPV |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 25.50 | 25.50 | 28.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMSQN
RNS Number : 9389T
SQN Asset Finance Income Fund Ltd
26 March 2019
26 March 2019
FOR IMMEDIATE RELEASE
INTERIM FINANCIAL RESULTS ANNOUNCEMENT
THE BOARD OF DIRECTORS OF SQN Asset Finance Income Fund Limited ANNOUNCES THE INTERIM REPORT AND UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHSED 31 DECEMBER 2018
GROUP HIGHLIGHTS FOR THE SIX MONTHSED
31 DECEMBER 2018
The investment objective of SQN Asset Finance Income Fund Limited (the "Company" and together with its subsidiaries, the "Group") is to provide its Shareholders with regular, sustainable dividends and to generate capital appreciation through investment, directly or indirectly, in business-essential, revenue-producing (or cost saving) equipment and other physical assets. The Group's base currency is Sterling.
-- Earnings per share for the period ended 31 December 2018
2.84p per Ordinary Share
3.12p per 2016 C Share
-- Share price discount to NAV as at 31 December 2018
0.52% Ordinary Share
7.25% 2016 C Share
-- Combined market capitalisation of Ordinary Shares and 2016 C Shares as at 31 December 2018
GBP471 million
-- Average weighted yield of invested portfolio as at 31 December 2018
9.41%
-- Dividend yield for the period based on the share price as at 31 December 2018
7.49% Ordinary Share
7.53% 2016 C Share
-- Weighted average remaining term of invested portfolio (in months)
84
FINANCIAL HIGHLIGHTS AND PERFORMANCE SUMMARY
Financial Highlights
NAV Total Return
The NAV total return details the change in NAV from the start of the relevant period and assumes that dividends paid to shareholders are reinvested at NAV. The NAV total return achieved by SQN Asset Finance Income Fund Limited is detailed in the table below:
Period Ordinary shares 2016 C shares
Year to 31 December 2018 5.6% 4.5% 3 year annualised(1) 6.7% -
Since inception 31.7% 5.3%
Dividend History
The Company targets an annual dividend of 7.25 pence per Ordinary Share. Please refer to note 15 for details on dividends paid during the period.
(1) NAV total return annualised over a 3 year period from 1 January 2016 to 31 December 2018.
Performance Summary
Hot Features
Premium
Sterling in millions, except 31 December 2018 30 June 2018 31 December 2017
per share data and number
of shares in issue
Number of shares in issue
- Ordinary Shares 356,263,825 356,585,141 357,707,507
- 2016 C Shares 138,924,222 138,924,222 180,000,000
NAV
- Ordinary Shares GBP346.69 GBP348.47 GBP354.97
- 2016 C Shares GBP136.35 GBP135.62 GBP176.11
NAV per share
- Ordinary Shares 97.31p 97.72p 99.24p
- 2016 C Shares 98.14p 97.62p 97.84p
Share price(1)
- Ordinary Shares 96.80p 90.80p 90.25p
- 2016 C Shares 91.02p 93.79p 93.50p
Market capitalisation(1)
- Ordinary Shares GBP344.86 GBP323.78 GBP322.83
- 2016 C Shares GBP126.45 GBP130.30 GBP168.30
Earnings per share
- Ordinary Shares 2.84p 5.92p 3.23p
- 2016 C Shares 3.12p 1.96p 0.65p
Dividend paid per share
- Ordinary Shares 3.02p 7.85p 3.63p
- 2016 C Shares 2.56p 2.31p 0.87p
Comprehensive income before GBP14.44 GBP24.63 GBP12.72
dividends
Investments GBP430.54 GBP398.81 GBP373.39
Cash and cash equivalents GBP40.84 GBP76.80 GBP149.12
Weighted average yield(2) 9.41% 9.50% 9.50%
(in excess (in excess of)
of)
Weighted average remaining 84.19 months 77.34 months 77.35 months
term(2)
(1) Source: Bloomberg
(2) Of the invested portfolio
COMPANY OVERVIEW
Company SQN Asset Finance Income Fund Limited
Incorporated in Guernsey on 28 May 2014.
Registered Guernsey Closed-ended Collective Investment Scheme.
Admitted to the Premium Segment of the UK Listing Authority's Official List and to trading on the Main Market of the London Stock Exchange on 14 July 2014 for Ordinary Shares and 12 December 2016 for the C Shares (the "2016 C Shares").
Registration number 58519.
Investment Managers SQN Capital Management, LLC (the "US Investment Manager")
Incorporated in the United States of America on 7 December 2007.
A Registered Investment Adviser with the United States Securities and Exchange Commission.
File number 4466472.
SQN Capital Management (UK) Limited (the "UK Investment Manager")
Incorporated in England & Wales on 12 May 2014.
A wholly owned subsidiary of the US Investment Manager.
Registration number 09033846.
(together the "Investment Managers")
CHAIRMAN'S STATEMENT
I am once again pleased to report at the half year to 31 December 2018 that the Group continues to produce consistent, non-correlated positive performance and regular income on the underlying portfolio of business-essential assets and is positioned well for this to continue.
Some highlights of the last six months of 2018 are that GBP67.4 million of new investments were acquired, the 2016 C Shares achieved their target of paying a fully covered monthly dividend of 7.25p annually, and the Group realised a 9.95% compounded return on the marine vessel transaction that had previously been reported as being behind schedule on payments.
Dividend cover on the Ordinary Shares remains our primary focus and we anticipate this being restored in the coming months as our investment schedule continues, which includes in excess of GBP15 million from the marine vessel repayment. The Board is also in the process of negotiating a working capital facility which will further improve income and therefore dividend cover.
At year-end, the Ordinary Shares were trading close to par while the 2016 C Shares, paying the fully covered dividend with no material delinquencies, traded at a discount. Since then, however, there has been some convergence between the two as we approach the June 2019 conversion date.
Significant progress has been made on the Suniva issue, although some challenges still remain due to the counterparties involved. A settlement agreement has largely been reached which, if concluded, would minimise the moving parts and lay out a multi-faceted plan for recovery. In addition, legal action is also underway to enforce and collect on the parental guarantee. The Investment Managers' Report contains additional details on this matter.
Total Comprehensive Income was up 13.5% against the same period in the prior year despite a slight drop in the weighted average yield on the portfolio which is still commendable at 9.41%.
NAV per 2016 C Share grew with the net income exceeding distributions and expenses while the NAV per Ordinary Share experienced a decline following the necessary IFRS 9 impairment adjustments and shortfalls in dividend cover in certain periods. This situation should however be viewed in the context of the longer-term investment strategy where investments, once made, have a weighted average term of 7 years over which period the excess income will make up for prior shortfalls. This can be seen when looking at the weighted average yield on the almost GBP80 million transactions that have been concluded to date which is 11.7%; well in excess of the 9.41% running rate on which the dividend cover is calculated.
At the end of 2018, the Group's investments were spread over 20 industries and 17 asset classes. The average investment size was just short of GBP8m and, currently, the average investment size in the Ordinary Shares is almost GBP8.5m and GBP6.6m in the 2016 C Shares.
Overall, the Group has increased its exposure to the Waste Processing and Environmental industries as attractive investments have been made around recycling as landfill taxes are increasing and other government incentives are drawing attention to this area. Together, the two industries account for approximately 20% of the Group's investments at year end.
As has been the case in previous years, anaerobic digestion ("AD") plants, which are classified as assets in the agricultural industry, remain the single largest asset class constituting approximately 27% of the portfolio. These long-lived assets are typically subject to leases of 10 to 15 years at rates between 9.5% and 10.5%.
Two of the Group's AD positions have already been refinanced delivering premiums over the booked yields. Further refinancings are expected to occur over the next 18 months which will reduce the Group's exposure to this asset class generating excess returns that will contribute to NAV growth. Further uplift can be potentially achieved through the Group's equity holdings in some of these plants that are currently held at no value in the financial statements. Due to the nature of these assets there may, at times, be interruptions in cash flows but this does not undermine the long-term value or income generating potential these investments have for the Group.
The portfolio consists primarily of finance leases and secured asset financings with more than 95% of expected revenue from fixed term contracts where generally early repayment provides for a yield uplift similar to the AD plants.
The portfolio is geographically diverse. The majority, 67.7%, of assets are in the United Kingdom. The US has the second largest concentration of assets, but that exposure has been reduced from 17.2% of the portfolio to 16.5%. This is due to natural run-off and the increased hedging cost associated with making new US Dollar-based investments which distort the risk profile.
As at 31 December 2018, the Group also held direct investments in France (6.6%), Ireland (3.2%), the Netherlands (1.9%), and Iceland (1.3%) and investments through US or UK counterparties in Brazil (1.0%), Mexico (0.9%), and the UAE (0.9%). The capital value of all non-UK investments continues to be hedged back into Sterling.
Conclusion
The Group's investment strategy in equipment leasing and asset finance has been proven over decades and through multiple cycles. The individually constructed security packages provide downside protection for investments which are spread over many different asset classes, industries, and geographies. The Group's focus on the middle market, where there is limited competition, has allowed it to build a portfolio with an attractive weighted average yield relative to its risk profile based on the tangible underlying collateral. Workouts are an expected part of the process but results such as with Snoozebox and the marine vessels have proven the effectiveness of the strategy.
Looking forward; with the forthcoming conversion of the 2016 C Shares and a path to recovery laid out for Suniva, this should ensure that investors can rely on consistent performance and regular income, together with the bonus of the occasional realisation of embedded value.
INVESTMENT MANAGERS' REPORT
During the six months to 31 December 2018, the share prices for both the Ordinary and 2016 C Shares have stabilised as the 2016 C Share began paying a fully covered dividend, progress continued on the Suniva recovery and a number of previously identified investments requiring attention came to positive resolutions. The loans and leases in the portfolio continue to perform consistently with the investment strategy.
Dividend cover in the Ordinary Shares remains tight, in part because of the non-performance of Suniva and the overlap of several of the previously identified work-outs. Also contributing to the tightness was the off-schedule return of more than GBP15 million that resulted from the sale of four vessels subject to a delinquent loan. That transaction brought a satisfactory resolution to the issue and netted the portfolio a 9.95% IRR but left significant cash on-hand at the end of 2018. Four courses of action are intended to improve the dividend cover; i) reinvestments are being made at attractive rates; ii) nominal cash proceeds are expected from Suniva; iii) cash reserves related to hedging contracts have been materially reduced releasing additional funds for investment; and iv) returns on early terminated and matured investments consistently outperform the book income on which the dividend cover is calculated. In addition to this, negotiations are in process for a working capital facility to ensure an optimal amount of cash is consistently deployed.
While Suniva continues to be a drag on the Ordinary Share portfolio, it is worth noting that the portfolio has generated income significantly in excess of the Suniva position. To date, more than GBP78 million of transactions have either matured or repaid with a weighted average yield of 11.7%. As referenced above, the running rate on which dividend cover is calculated is in the 9.5% range. Actual results have proven that measuring dividend cover month to month (or even year to year) does not necessarily capture the true economic performance especially given the additional distortion created by hedging positions that shift income and losses into different periods.
Investments repaid since 30 June 2018
Wind Turbines
The Group entered into separate leases for four 250 kW wind turbines in a single, cross-collateralised transaction. Each of the leases was for a term of 10 years against 20-year power purchase agreements and Northern Ireland Renewable Obligation Certificates.
As part of the same vendor programme in Northern Ireland, the Group entered into a second transaction for the lease of three additional 250 kW wind turbines. These three leases are cross-collateralised amongst themselves for a term of 10 years with the same structure as the first set of wind turbines.
Both of these investments were settled in July 2018. The return on investment across the seven wind turbines ranged from 12.0% to 14.6%.
Marine Support Equipment (Reel Drive System) - (used in subsea flexible pipe and cable laying)
The Group entered into a transaction to refinance a 400-ton reel drive system along with a spares container and a control van. The Group provided GBP1.0 million against the equipment and paid off the outstanding debt. The proceeds were then used to complete the construction of a new 85-ton reel drive system which also became part of the Group's collateral package. This investment was settled in August 2018, yielding a return of 11.1%.
Ten Largest Investments as at 31 December 2018
At 31 December 2018, the ten largest positions held by the Group, on a combined basis are as follows:
Principal Balance
Asset Outstanding (GBP) % of NAV Net Yield(1) Industry Region Share Class
---- ------------------ --------- ------------- --------------- -------
AD Plant at
1 Hartlepool(2) GBP 34,220,518 7.08% 9.80% Agricultural UK Ordinary
------------------ ---- ------------------ --------- ------------- --------------- ------- ---------------
2 Marine Vessels USD 33,073,369 6.85% 10.28% Transportation US Ordinary and C
------------------ ---- ------------------ --------- ------------- --------------- ------- ---------------
Diversified
3 Portfolios USD 31,838,037 6.59% 9.55% Diversified US Ordinary
------------------ ---- ------------------ --------- ------------- --------------- ------- ---------------
AD Plant at
4 Imperial Park(2) GBP 27,928,287 5.78% 9.65% Agricultural UK Ordinary
------------------ ---- ------------------ --------- ------------- --------------- ------- ---------------
Solar
Manufacturing
Equipment
5 (Suniva) USD 24,698,747(3) 5.11% N/A Solar US Ordinary
------------------ ---- ------------------ --------- ------------- --------------- ------- ---------------
Glass
Manufacturing
6 Plant EUR 22,774,991 4.71% 9.14% Glassware France Ordinary
------------------ ---- ------------------ --------- ------------- --------------- ------- ---------------
AD Plant at
7 Donegal(2) GBP 21,081,148 4.36% 10.00% Agricultural UK Ordinary
------------------ ---- ------------------ --------- ------------- --------------- ------- ---------------
AD Plant at
8 Peterhead(2) GBP 20,330,152 4.21% 10.00% Agricultural UK Ordinary
------------------ ---- ------------------ --------- ------------- --------------- ------- ---------------
Waste Processing
9 Equipment GBP 19,397,050 4.02% 9.45% Environment UK C
------------------ ---- ------------------ --------- ------------- --------------- ------- ---------------
Combined Heat and
10 Power Units GBP 17,372,386 3.60% 9.41% Agricultural UK Ordinary
------------------ ---- ------------------ --------- ------------- --------------- ------- ---------------
Total 252,714,685 52.31%
--- ------------------ ---- ------------------ --------- ------------- --------------- ------- ---------------
(1) In local currency
(2) Anaerobic Digestion Plants
(3) Includes GBP3.7 million of debtor in possession financing and is net of a GBP2.5 million impairment
AD Plants
The Group's largest exposure to a single asset class continues to be in AD Plants which includes the first, fourth, seventh and eighth largest investments. The Group has invested approximately GBP115.0 million which, with rolled up accrued interest, represents 27.3% of the NAV in leases and project financings for AD Plants. An AD Plant is a closed system that processes organic material to produce methane which can be used as a fuel source or fed into a combined heat and power unit to create electricity and heat. The AD Plants that have been financed run on a combination of agricultural and food waste as the primary feedstocks. The majority of the cash flow generated from operations is derived from long-term, non-cancellable government subsidies related to the production of electricity or the volume of gas delivered to the grid. Each investment carries performance warranties tracked by guarantees and performance bonds to ensure a minimum level of production. The typical term of the Group's investments in AD Plants is around 12 years at rates of approximately 10%. To date, the Group has monetised three of these plants which resulted in attractive premiums over the book yields. It is anticipated that as these plants mature, more of these holdings will be sold or refinanced to capture the yield enhancement and to reduce the concentration of large investments in the portfolio.
1. AD Plant at Hartlepool
The Group's initial investment was GBP27.5 million in a 5 MW waste to energy project in Hartlepool in the North East of England. This plant is capable of treating up to 110,000 tonnes of commercially-sourced food waste per year. The Group also holds equity in the underlying operating company which is currently held at nil value but which has the potential to provide a further additional return on the investment.
2. Marine Vessels
This investment in marine vessels combined with a structured helicopter financing makes up the largest exposure to any one group of companies, amounting to an initial investment of GBP38.2 million. The counterparty is a privately-held international business group that controls 30 subsidiaries active in 35 countries across six continents. It is focused on six core sectors: aviation, energy, finance, hospitality, real estate, and shipping.
The Group initially provided financing of GBP14.1 million secured by two Supramax bulk carriers and the strong balance sheet of related companies providing additional support. After two years of a four-year term with steady performance and amortisation, the borrower sought additional financing at a lower advance rate for the acquisition of a fleet of 6 container feeder marine vessels through two 48-month transactions totalling GBP18.6 million.
In December 2018, the Group also entered into a single master loan agreement, consolidating the three existing loans and resulting in a reduced loan to value on the investment. This agreement currently covers one Supramax bulk carrier, one chemical tanker and four container feeder vessels. The Investment Managers have reset the target LTV to be reached within the next six months; this could be via an appreciation in the value of the asset pool over time or via an asset swap.
3. Diversified Portfolio
The Group made an initial investment of GBP29.8 million that is classified as Diversified Portfolios. The investment is backed by diversified portfolios of equipment lease and asset financing transactions within larger portfolios held by insurance companies and further collateralised by the broader portfolios of investment-grade securities. The equipment assets in these portfolios include traditional transportation assets, manufacturing equipment, construction cranes, IT equipment, medical equipment, furniture, fixtures and equipment, earth moving equipment, machine tools, and a wood pellet mill. The investments are structured as secured notes with 11-year full payout terms. The notes individually have been rated BBB+ by Egan-Jones.
4. AD Plant at Imperial Park
The Group's initial investment was GBP27.3 million in a 5 MW waste to energy project in Imperial Park, Middlesbrough, UK. The fully operational plant has recently been granted the first commercial licence to process treated urban waste and is being transitioned to this new feedstock. The economics that will result from this change should be very positive over the investment term. The Group also holds equity, carried at nil value, in the underlying operating company which has the potential to further enhance the investment return.
5. Solar Manufacturing Equipment
The Group's initial investment in Suniva was GBP21.4 million. In order to secure the equipment, take control of the company, and ensure that the petition filed with the United States Trade Commission was properly prosecuted, the Group agreed to provide up to an additional $4.75 million in the form of a super-senior secured loan and in exchange for, among other considerations, warrants representing a majority equity ownership in the company. Subsequent to the Group's year-end, an additional $0.75 million was approved and drawn down under the secured loan facility. This was to cover the legal cost associated with protecting the Group's assets.
Under normal circumstances, a work-out would involve either repossessing the equipment or finding a new operator to lease the equipment in-place. The Suniva situation is highly unusual in that it involves an entire domestic industry that was destroyed in an extremely short period of time by questionable trade practices. The Group then had to take the extraordinary action to petition the United States Government for specific relief which was ultimately granted. The high-profile nature of the undertaking along with the amount of money at stake drew numerous well-financed adversaries into the fray who otherwise would not be a party to a simple recovery in a traditional loan or lease.
Despite having reached a settlement agreement with numerous parties led by the co-DIP (debtor in possession) lender, whose investment strategy is litigation-based, the Group is yet to finalise the documentation that will allow it to move forward. The current impediment stems from a dispute over who is responsible for certain property taxes related to the equipment which amount to approximately $1.6 million.
Assuming the property tax matter can be resolved, the settlement agreement includes the following:
- A sale of the DIP loan to an investor group comprised of three hedge funds.
- A lease for a two-year term at a nominal rental amount while distribution of the already-collected tariffs are pursued.
- A commitment from the investor group to infuse $15 million to $20 million to secure the distribution of the tariffs to Suniva.
- A second lease for which rental payments are determined by the amount of the distribution of tariffs received by Suniva.
- An agreement for SQN to bring in a third-party operator to restart the factory to generate recovery proceeds.
Separate and in addition to the above, the Group is actively pursuing the guarantee from the parent company with a trial date in late April 2019 or early May 2019 following the conclusion of depositions.
Inevitably, there will be additional legal fees incurred on both fronts before material recovery proceeds are expected. However, the combination of the multiple avenues enabled by the settlement agreement along with the guarantee should generate sufficient proceeds to recover the Group's current principal balance outstanding over time. On 30 June 2018, the Group applied an impairment of GBP2.4 million, and has since also made an additional impairment of GBP0.1 million and provided for legal costs incurred.
6. Glass Manufacturing Plant
The Group's initial investment was GBP27.2 million through a sale and lease back of 7 furnaces, 10 production lines and ancillary equipment for one of the largest plate and glassware manufacturers in the world with over 3,000 separate products and speciality contracts with some of the world's most recognised brands. The 84 month fully amortising financing was provided in conjunction with an acquisition and recapitalisation of the company. Headquartered in France where the equipment is located, the company was formed in 1825 and has operations in 160 countries.
7. AD Plant in Donegal
The Group's initial investment was GBP18.5 million in a 4 MW AD Plant located in Donegal in the Republic of Ireland. The assets include gas clean up, compression, and CO(2) capture equipment, together with 14 hexagon gas road tanker trailers and two Volvo tractor units to transport gas to five sites in Belfast utilising combined heat and power units and site transformers for grid connection. The plant commissioning was delayed by the collapse of the lead Engineering Procurement Construction contractor, but the calling of bonds and the cooperation of the joint contractor means the plant will be operating at full performance in the near term, at which point the owner intends to refinance the lease. The Group holds warrants in the underlying operating company, currently held at nil value, which have the potential to further enhance the investment return.
8. AD Plant at Peterhead
The Group's initial investment was GBP16.3 million in a 2.5 MW gas to grid AD Plant in Peterhead, Scotland. The plant converts merchant waste, grass silage, and crops into bio-methane which is sold to Total Gas and injected into the national gas grid through Scotia Gas Networks' grid connection. The construction and commissioning has encountered some delays and missed milestones related to the financial difficulties experienced by the Engineering Procurement Construction contractor as with 7 above. The plant is now operating though not yet at the warrantied level but the guarantees will enable satisfactory performance levels to be achieved. The Group also holds warrants in the underlying operating company, carried at nil value, which may provide some upside return once the plant is fully commissioned and operational.
9. Waste Processing Equipment
The Group entered into a GBP19.4 million secured loan for a 10-year term to support the acquisition of an organic waste management and waste processing business based in Belfast. The company acquired was the largest organic waste company in Northern Ireland, processing 176k tonnes of organic waste per year. The company's services include the collection, recycling and treatment of a variety of waste streams including source-segregated food, brown bin and green waste collected from households, civic amenity sites, councils and commercial customers across Northern Ireland.
Following the acquisition, the Group made an additional investment in four new composting tunnels and a biomass boiler to expand the business operations and establish a fully integrated organic waste group.
10. Combined Heat and Power Units
The Group initially provided GBP17.0 million for the construction and lease financing of two (non-renewable) 11 MW natural gas-based energy generation plants. The equipment includes four Rolls-Royce 5.5 MW combined heat and power units at two sites on the Isle of Wight on the UK's largest tomato farm. The equipment is used to produce heat and CO(2) to aid the growth of tomatoes in glasshouses. The Group advanced 62.5% against the value of the equipment and took full title subject to a 13-year full payout lease.
Other Assets in the Portfolio
Remotely Operated Vehicles ("ROVs")
ROVs are a widely used type of underwater robotics that have applications across multiple industries in high-value operations ranging from scientific research to the laying of undersea cables and pipelines. ROVs are crucial in building, inspecting, and maintaining major bridges all over the world.
In the second half of 2018, the Group made a 7-year secured term loan of approximately GBP16.5 million to refinance a temporary funding arrangement which enabled the acquisition of 11 ROVs plus spare parts.
Principal balance outstanding as at 31 December 2018: GBP16,665,000 Share class: C
The Group made a smaller investment of GBP1.3 million in ROVs with the same operator in April 2015.
Principal balance outstanding as at 31 December 2018: GBP289,253 Share class: Ordinary
The Group made an unrelated investment in two ROVs that were originally subject to a lease with a company engaged in oil field services in the North Sea for a term of 60 months at a fixed rate. In the first quarter of 2015, the original end-user went into administration, and, as a result, the Investment Managers decided to take possession of the assets and re-lease them directly to the company on whose vessel the launch and recovery systems servicing the ROVs were mounted. The new operating lease was for a term of 36 months with a variable rate based on utilisation. These repositioned assets continue to perform satisfactorily.
Principal balance outstanding as at 31 December 2018: GBP3,752,128 Share class: Ordinary
Paper Mill
The Group's initial investment was GBP21.6 million through a sale and leaseback of a paper mill in Scotland operated by a well-known speciality paper company that was consolidating operations from multiple international plants into the Scottish facility. The equipment being financed includes industrial reel wrappers, speciality and colour paper manufacturing machines, bespoke paper production equipment and business stationery and watermarking tools. The fully amortising lease term is 84 months with the company that was originally founded in 1761 and was a constituent of the FTSE 100 on the London Stock Exchange until it was taken private in 2000.
The Scottish company has been put up for sale following financial difficulties for its French parent. A suitable offer has been accepted and the Group expects to be repaid under the terms of the original investment.
Principal balance outstanding as at 31 December 2018: GBP14,012,958 Share class: Ordinary
Medical Equipment
The Group made an investment secured by medical equipment for a new hospital in Green Valley, Arizona in the United States. The initial investment was divided between two equipment-secured notes: one with a term of 4 years and the other with a term of 5 years. The investment was further collateralised by a lien on unencumbered property owned by the hospital. The hospital encountered delays in securing crucial insurance reimbursements and, as a consequence, was unable to attract specialist doctors whose services were a meaningful component of the projected income of the hospital. As a result, the hospital filed for bankruptcy protection in order to reorganise while the insurance issues were resolved and specialist doctors were on-boarded. Given the crucial nature of the equipment financed by the Group and its long economic life, the Group and the hospital were able to reach an agreement within the bankruptcy court that keeps the equipment in place and protects the principal of the investment.
In July 2018, the investment was restructured as a $5 million equipment lease and a 15% equity holding in the hospital which is held at fair value. All payments under the restructured note have been made on time.
Principal balance outstanding as at 31 December 2018: GBP10,285,606 Share class: Ordinary
Wholesale Lending Arrangements
Wholesale lending arrangements are an efficient way for the Group to make asset-secured investments through lenders that specialise in those specific asset classes or segments, with additional credit enhancements that would not be available if the Group invested directly.
The Group provided financing under a programme with the lessor of domestic central heating/hot water system boilers. The Group's advance rate is between 92.5% and 94% of a seasoned portfolio but has an assignment of 100% of the underlying leases and service agreements. The investment is further secured by floating and fixed charges over all of the assets of the lessor.
Principal balance outstanding as at 31 December 2018: GBP8,590,004 Share class: Ordinary
The Group made two investments through a firm that specialises in providing financing to small and medium-sized enterprises throughout the UK. The financing is secured by all the assets of the borrowers including business-essential equipment. The structure of the Group's investment is that it lends against a portfolio of loans at a 90% advance rate. Under the terms of the agreement, any loan that is more than 30 days delinquent is either bought out or replaced with a performing loan from an unencumbered pool of loans held directly by the Group's borrower. All activity within the portfolio is reviewed monthly by a third-party accounting firm which provides reports to the Investment Managers. This facility has a one year rolling term.
Principal balance outstanding as at 31 December 2018: GBP8,516,900 Share class: C Principal balance outstanding as at 31 December 2018: GBP4,040,000 Share class: Ordinary
AD Plants in Nottinghamshire and Ireland
The Group is a co-investor in a 2 MW AD Plant in Nottinghamshire which was voted the 2017 AD Plant of the Year by the Anaerobic Digestion and Bio-Resources Association. The Group's investment is in a 15-year full payout lease.
Principal balance outstanding as at 31 December 2018: GBP7,957,882 Share class: Ordinary
The Group invested in the construction and lease of waste water processing equipment that includes a 1 MW AD Plant located in the Republic of Ireland. The lessee provides a full life cycle service to clients operating in the municipal and private sectors including collection, transportation and disposal/reuse of their sludges which are in turn processed into a fully certified alternative to expensive chemical fertilisers. The initial term of this investment is 12 years with a 3-year extension that, if exercised, would enhance the Group's return on investment.
Principal balance outstanding as at 31 December 2018: GBP7,532,428 Share class: Ordinary
The Group has invested in two additional AD Plants that are both co-investments alongside the Green Investment Bank in farm-based 500 kW AD Plants in Northern Ireland. The lease on one of the AD Plants commenced in March 2018, whilst the other commenced in December 2018. Each is subject to a 15-year lease with the expectation that they will be refinanced before the end of the term.
Principal balance outstanding as at 31 December 2018: GBP2,014,971 Share class: Ordinary Principal balance outstanding as at 31 December 2018: GBP1,980,857 Share class: Ordinary
AD Plants in Nottinghamshire and Ireland (Continued)
The Group has made four additional investments in 500 kW farm-based AD Plants in Northern Ireland on similar terms as the above. Those investments range from GBP1.6 million to GBP3.4 million. All four plants are currently operating. Three of the plants are already commissioned, whilst the fourth is on course to begin commissioning.
Principal balance outstanding as at 31 December 2018: GBP8,988,125 Share class: Ordinary
Modular Building
The Group initially provided financing to Snoozebox Limited secured by mobile, modular buildings used in the hospitality industry to serve as hotel rooms at different events throughout Europe. The investment was made in coordination with the operator's plan to transition its business towards semi-permanent arrangements like remote worker accommodations and away from short-term rentals. The transition was intended to be completed over a period of two years. Failing to meet the projected schedule, the company entered administration in November 2017.
In April 2018, the Investment Manager successfully completed the restructuring of this investment into a new 5-year operating lease, with the option to extend the term for a further 5 years, with part fixed and part variable rentals. It is expected that the new lease will result in full amortisation of capital and payment of interest. The Group also holds warrants equal to 10% of the fully diluted equity, currently held at nil value.
Principal balance outstanding as at 31 December 2018: GBP7,543,496 Share class: Ordinary
Helicopters
The Group has provided 70% deposit financing for the acquisition of seven newly built helicopters for an affiliate of the company identified above (Number 2. Marine Vessels)as the largest exposure to a single group of companies. The investment is structured as a 24-month revolving term loan with quarterly interest-only payments and a balloon payment at maturity. The loan is guaranteed by the borrower's immediate parent company with a net worth of more than $46 million and available credit facilities of over $100 million.
Principal balance outstanding as at 31 December 2018: GBP6,345,679 Share class: C
In July 2018, the Group provided a short-term loan facility for the acquisition of a newly built helicopter, the demand for which is two times the current order book. The state-of-the-art helicopter can be operated by either civil or government contractors for different applications including passenger transport and tourism, border control and firefighting. The advance rate on the facility is approximately 70%. The financing is now converting, as planned, to a long-term lease now that a suitable sub-lessee has been contracted.
Principal balance outstanding as at 31 December 2018: GBP5,738,037 Share class: Ordinary
The Group has also invested in the senior portion of a portfolio of helicopters on lease to three separate lessees who in turn sub-lease the fully serviced helicopters to end-users that include military, government, medical, and corporate clients. This investment is now in the residual realisation phase and proceeds will be received as the helicopters are sold or re-leased.
Principal balance outstanding as at 31 December 2018: GBP3,148,808 Share class: Ordinary
IT and Telecommunications Equipment
The Group provided financing secured by a portfolio of Integrated Set Top Cable and Internet Boxes (and all related receivables) on lease or under service agreements with 1,400 different customers representing approximately 2,200 hotels and 230,000 hotel rooms. The investment is further secured by an investment grade insurance policy for all principal and interest.
During the first half of 2018, the company entered into an agreement to sell a majority interest to a private investor. The private investor failed to close on the acquisition despite actively participating in the decisions made by the company during the prolonged closing process. As a result of this, the company became the target of multiple hostile takeover bids. As a protective measure, the operating subsidiary of the company was put into Administration to manage the sale process. The company has over EUR20 million of annual revenue securing the Group's debt which is expected to be assumed in its entirety by whichever group prevails in the bidding process.
Principal balance outstanding as at 31 December 2018: GBP6,302,660 Share class: Ordinary
Automotive Manufacturing Equipment
The Group entered a sale and leaseback with an award-winning Tier One/Two automotive supplier, based in France. The supplier started as a general mechanics workshop in the early 1940s, however in 1948 the plant was converted to an aluminium die-casting foundry. The assets that comprise the Group's security include new high-pressure die-casting machines, moulding presses, hydraulic presses, handling robots and radioscopy equipment subject to a 7-year lease.
Principal balance outstanding as at 31 December 2018: GBP6,111,433 Share class: C
Combined Heat and Power Unit
In addition to the two combined heat and power units financed on the Isle of Wight, the Group provided financing for a third non-renewable unit for the UK's largest tomato grower which is used in their glasshouses in Teesside, Middleborough, UK. The 6.6 MW natural gas-based energy generation plant includes two Jenbacher combine heat and power units subject to a 13.25 year fully amortising lease.
Principal balance outstanding as at 31 December 2018: GBP6,060,332 Share class: Ordinary
Infrastructure and Construction Equipment
The Group made a total investment of GBP4.7 million for the construction and operation of a composting plant for a consortium of 27 mushroom growers across Northern Ireland and the Republic of Ireland. The 10 year fully-amortising investment was made through a leveraged facility with senior debt provided by a lower cost traditional bank. The plant will be fully commissioned in April 2019 and will be able to process 65k tonnes of mushroom compost annually.
Principal balance outstanding as at 31 December 2018: GBP5,069,761 Share class: C
In June 2018, the Group entered into a 48-month sale and lease back with an international civil engineering and building company based in Swansea for a variety of construction equipment and machinery, including dump trucks, generators, excavators and tower lights. The mission-critical equipment, which was originally financed by Caterpillar, is being used for the company's large on-going projects in Western Africa.
Principal balance outstanding as at 31 December 2018: GBP3,022,813 Share class: C
The Group purchased two existing leases and their respective assets which are comprised of 51 portable battery power units. The battery power units are an alternative to temporary diesel generators used by construction companies, utilities, and large-scale outdoor event management companies each of which creates emissions equivalent to 100 automobiles. The remaining lease terms at the time of acquisition were 41 and 43 months.
Principal balance outstanding as at 31 December 2018: GBP786,419 Share class: C
Waste Processing Equipment
The Group entered into a lease of a new automated waste material recovery system for a successful waste collection company located in the Midlands in the UK. The lessee was formed in 1986 and, for the last ten years, has been focusing on modernising the plant, increasing efficiency, and creating a zero-carbon footprint. The lessee has historically been engaged solely in waste collection and has had to pay to dispose of the waste. With the addition of the waste recovery system, the lessee is able to sort the waste and sell portions for recycling and greatly reduce the cost of disposal. The investment will be repaid over a lease term of 60 months.
Principal balance outstanding as at 31 December 2018: GBP4,981,837 Share class: C
The Group provided 8 year senior financing for the construction and operation of a state-of-the-art refrigerator recycling plant in Gateshead in the UK. The borrower specialises in collecting and recycling electrical products once they have been discarded. In 2016, the company set up its own in-house fully automated Waste Electrical and Electronic Equipment plant, which can process five tonnes of material per hour. The company collects over 100,000 refrigerators a year and will be able to process 100 an hour once the plant is commissioned in April 2019.
Principal balance outstanding as at 31 December 2018: GBP4,758,799 Share class: C
Infrastructure
The Group provided a 5-year secured term loan to a construction and property development company based in Newry, Northern Ireland. The investment is secured by the receivables from seven Private Public Partnership contracts for the construction and maintenance of schools and a medical centre which includes all the heating systems and equipment.
Principal balance outstanding as at 31 December 2018: GBP4,950,610 Share class: C
In June 2018, the Group made an investment in the senior portion of a diversified portfolio of US dollar manufacturing and industrial leases which includes leases in the United States and Mexico. The investment has 30% subordinated equity below it and the investment term is 58 months.
Principal balance outstanding as at 31 December 2018: GBP3,998,576 Share class: C
Telephone Towers
The Group made an investment in the construction and lease of a portfolio of telecommunication towers located in Brazil for a company based in Florida in the United States. The investment was secured by an investment grade insurance policy with a reputable reinsurance syndicate that includes Hanover Re, PartnerRe, QatarRe, and Lloyd's of London. Following the death of the company's president and primary equity holder, there has been a delay in the sale of the portfolio of assets beyond the maturity date of the loan. The Investment Manager has prioritised this asset for resolution before 31 December 2019. Based on the strength of the assets and the insurance arrangement, there is no reason for impairment.
Principal balance outstanding as at 31 December 2018: GBP4,239,837 Share class: Ordinary
Marine Equipment
The Group provided financing for a successful marine services business based in the United Arab Emirates. The business has remained profitable over a period where many others have failed as a result of its strategic decision early on to diversified away from pure oil and gas customers and focus instead mainly on Utilities, Renewables and Civil Construction. The equipment, which is used for a diversified range of subsea services, includes a multipurpose site investigation vessel, two Remote Operated Vehicles and a vessel-mounted deep water drilling rig. The investment term is 60 months.
Subsequent to the Group's investment, the company was purchased by a much larger competitor which enhanced the credit profile of the exposure.
Principal balance outstanding as at 31 December 2018: GBP3,713,477 Share class: C
Material Handling Equipment
In conjunction with large equity investments made by two Fortune 100 Companies, the Group financed material handling equipment located at Walmart Distribution Centres throughout the United States. The counterparty in the five-year investment is a publicly traded company on the NASDAQ with a market capitalisation in excess of $400 million.
Principal balance outstanding as at 31 December 2018: GBP2,953,122 Share class: C
Marine Vessel
In May 2016, the Group entered into a sale and lease back for a brand new, state-of-the-art crew transport vessel equal to 80% of the vessel's cost. As part of the transaction, a three-month rental reserve was deposited by the lessee with the Group. Despite the high demand for this vessel from offshore wind farm developers, the new vessel was under-utilised. By November 2016, the three-month rental reserve was exhausted and the lessee voluntarily surrendered the vessel to the Group. Under the remarketing agreement with the manufacturer, a new lessee that was already operating a sister vessel was quickly identified. A new lease was entered into in early 2017 for a rolling 6 month term which has been continuously renewed. The vessel has been fully utilised since being repositioned and has been repainted and officially made part of the new lessee's fleet.
Principal balance outstanding as at 31 December 2018: GBP1,728,599 Share class: Ordinary
Wind Turbines
The Group provided lease financing for 250 kW and 225 kW wind turbines located on a dairy farm in Northern Ireland. The lease term is 12 years with a power purchase agreement in place and qualified for 20 years of Northern Ireland Renewable Obligation Certificates.
Principal balance outstanding as at 31 December 2018: GBP1,391,861 Share class: Ordinary
The Group entered into a sale and lease back for a 500 kW wind turbine and a 50 meter tower. The equipment is located 100 miles north of London in a business park owned by the principals of the lessee. The lease term is 10 years which is coterminous with a power purchase agreement with a major Dow Chemical subsidiary.
Principal balance outstanding as at 31 December 2018: GBP1,288,936 Share class: Ordinary
The Group entered into a 10-year lease for two 225 kW wind turbines located in the south of Wales. The lessee is a specialist in developing community scale wind turbines between 300 kW and 800 kW in rural, commercial, and brownfield sites. The project is supported by 20 years of Feed-in-Tariffs.
Principal balance outstanding as at 31 December 2018: GBP799,212 Share class: Ordinary
Each of the investments made by the Group in wind turbines had a construction phase during which the lessee made interest-only payments at a higher rate than the long-term lease rate. Construction was completed in each case without incident and all of the investments are performing as anticipated.
Marine Support Equipment
In two phases, the Group entered into a lease for a "flexi-coil" subsea flow unit which is an updated version of pipe-unblocking technology. The lease has a 60-month term while the useful life of the equipment is 20 years when properly maintained.
Principal balance outstanding as at 31 December 2018: GBP897,362 Share class: C
In a separate and unrelated transaction, the Group invested in the sale and leaseback of a patented Modular Pipelay System. The system takes advantage of special joints to reduce installation time which results in significant cost savings in offshore pipeline construction. The lease has a term of 36 months.
Principal balance outstanding as at 31 December 2018: GBP762,658 Share class: C
VAT Receivables
On certain transactions the funding amount will include VAT. When this occurs, the amount advanced accrues interest at the same rate as the rest of the transaction.
At 31 December 2018, the Group had an outstanding VAT receivable of GBP357,182 accruing interest at 12%.
Plastics Reprocessing Equipment
The Group entered into a 5-year lease for one infrared rotary drum and two twin screw compounder extruders used by a specialty engineering and plastics company. The equipment is used to reprocess polymer-based products into forms reused by a number of industries. The company won the 2014 Plastics Industry Award for the UK's Best Supplier Partnership.
Principal balance outstanding as at 31 December 2018: GBP288,585 Share class: Ordinary
IT & Software
The Group provided financing for IT systems and software used by a major hospital group in Australia. This fully amortising 60-month investment is Sterling-denominated and made through the borrowers UK parent company. Subsequent to the year-end, the lease matured and paid-out in full netting the Group a 9.4% IRR.
Principal balance outstanding as at 31 December 2018: GBP214,984 Share class: Ordinary
Plant Hire Equipment
The Group purchased the receivables associated with a 5-year lease of dump trucks, excavators, bulldozers, and other heavy earth moving machinery. An unrelated leasing company holds the subordinated residual interest in this investment.
Principal balance outstanding as at 31 December 2018: GBP212,528 Share class: Ordinary
Outlook
The portfolio is solid with an attractive risk profile despite the unique circumstances surrounding Suniva and taking into account the expected volume of reworked transactions. The Investment Manager's focus remains on improving dividend cover and growing NAV. This will be assisted immediately through greater utilisation of equity capital once a working capital facility which is presently in negotiation is put in place.
There are no additional capital raises planned for the near future as the portfolio has achieved a critical mass that enables sufficient liquidity and low operating expenses. Should larger opportunities present themselves, the size of the Group also enables the ability to tap the market in meaningful increments.
The natural run-off of investments combined with strategic trades and early terminations should result in GBP50 million to GBP75 million of reinvestment per year which will keep the portfolio fresh and able to respond to changes in interest rates.
For the balance of the year to 30 June 2019, it is expected that a number of the assets requiring attention will be resolved. Of course, others currently performing may require attention but, overall, the proportion of this activity is consistent with the Investment Managers' long-term experience and expectations when it set the return targets.
Maturities and early terminations are expected to continue to outperform book yields. In addition, as certain individual positions become seasoned, equity and warrant values could become significant enhancements to NAV which should provide evidence of the strength of the investment strategy over time.
SQN Capital Management, LLC SQN Capital Management (UK) Limited 25 March 2019 25 March 2019
DIRECTORS' STATEMENT OF RESPONSIBILITIES
The principal risks and uncertainties of the Group remain unchanged from those disclosed in the Annual Report and Audited Consolidated Financial Statements for the year ended 30 June 2018. The Board's view is that these risks and uncertainties remain unchanged as at 31 December 2018.
We confirm to the best of our knowledge that:
-- the Unaudited Condensed Consolidated Financial Statements within the Interim Report have been prepared in accordance with International Accounting Standard 34 - "Interim Financial Reporting" ("IAS 34") as adopted by the European Union ("EU"); and
-- the Chairman's Statement, the Investment Managers' Report and the notes to the Unaudited Condensed Consolidated Financial Statements include a fair view of the information required by:
a) Rule 4.2.7R of the Disclosure Guidance and Transparency Rules of the UK's Financial Conduct Authority ("DTR"), being an indication of important events that have occurred during the first six months of the financial year and their impact on the set of Unaudited Condensed Consolidated Financial Statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and
b) Rule 4.2.8R of the DTR, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Group during that period; and any changes in the related party transactions described in the last Annual Report that could have a material effect on the financial position or performance of the Group in the first six months of the current financial year.
Signed on behalf of the Board of Directors on 25 March 2019 by:
Peter Niven Christopher Spencer Chairman Director
INDEPENT REVIEW REPORT TO SQN ASSET FINANCE INCOME FUND LIMITED
Introduction
We have been engaged by SQN Asset Finance Income Fund Limited (referred to as the "Company" and together with its subsidiaries as "the Group") to review the unaudited condensed consolidated financial statements in the interim report of the Group for the six months to 31 December 2018 ("interim financial information"), which comprise the unaudited condensed consolidated statement of comprehensive income, unaudited condensed consolidated statement of financial position, unaudited condensed consolidated statement of changes in equity, unaudited condensed consolidated statement of cash flows and the related explanatory notes to the unaudited condensed consolidated financial statements.
We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the unaudited condensed consolidated financial statements.
Directors' responsibilities
The interim report is the responsibility of, and has been approved, by the directors. The directors are responsible for preparing the interim report in accordance with the letter of engagement, the London Stock Exchange's Rules for Premium Listed companies and other applicable legislation and regulations.
As disclosed in note 2 of the interim financial information, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS"). The unaudited condensed consolidated financial statements included in the interim report have been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union ("IAS 34").
Our responsibility
Our responsibility is to express to the Group a conclusion on the unaudited condensed consolidated financial statements in the interim report based on our review.
Our report has been prepared in accordance with the terms of our engagement and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity", issued by the Auditing Practices Board for use in the United Kingdom and Ireland. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the unaudited condensed consolidated financial statements in the interim report for the six months to 31 December 2018 are not prepared, in all material respects, in accordance with IAS 34 as adopted by the European Union and other applicable legislation and regulations.
Baker Tilly CI Audit Limited
Chartered Accountants
St. Sampsons, Guernsey
Date: 25 March 2019
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 31 December 2018
Notes Six months Six months
ended ended
31 December 31 December
2018 2017
(Unaudited) (Unaudited)
GBP GBP
Income
Finance income 19,472,582 16,654,603
Interest on cash and cash equivalents 42,584 157,065
Other income 557,630 227,899
--------------- -------------
Total income 20,072,796 17,039,567
--------------- -------------
Net unrealised loss on revaluation
of investments (1,123,881) (199,300)
Net unrealised foreign exchange
loss on investments (4,776,319) (4,250,794)
Net unrealised foreign exchange
gain on forward contracts 6,779,376 1,009,034
Net realised gain on investments 501,899 536,437
Net realised foreign exchange gain
on investments 9,630,995 801,003
Net realised foreign exchange (loss)/gain
on forward contracts (12,294,092) 1,136,648
---------------
Net realised and unrealised loss (1,282,022) (966,972)
--------------- -------------
Expenses
Investment management fees (2,347,577) (2,549,561)
Directors' fees and travel expenses (140,562) (110,919)
Other operating expenses 5 (1,031,274) (446,849)
Depreciation 8 (764,203) (245,958)
Impairment expected credit loss (67,392) -
provision
--------------- -------------
Total expenses (4,351,008) (3,353,287)
--------------- -------------
Total comprehensive income for
the period 14,439,766 12,719,308
=============== =============
Total comprehensive income for
the period analysed as follows:
Attributable to Ordinary shareholders 10,112,235 11,543,114
Attributable to 2016 C shareholders 4,327,531 1,176,194
--------------- -------------
Total 14,439,766 12,719,308
=============== =============
Basic and diluted earnings per
Ordinary Share 6 2.84p 3.23p
Basic and diluted earnings per
2016 C Share 6 3.12p 0.65p
All results are derived from continuing operations.
The Group has no items of other comprehensive income, and therefore the profit for the period is also the total comprehensive income.
The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.
UNAUDITED Condensed CONSOLIDATED Statement of Financial Position
As at 31 December 2018
Notes 31 December 30 June 2018
2018
(Unaudited) (Audited)
GBP GBP
Non-current assets
Property, plant and equipment 8 13,017,711 13,761,155
Residual value of finance lease
investments 9.2 322,647 517,558
Investments designated at fair value
through profit
or loss 9.2 3,140,935 3,402,690
Finance lease and hire-purchase
investments 10 96,664,945 102,015,428
Loans and other investments 9.1 311,819,766 278,772,166
Equity 9.2 5,577,269 -
430,543,273 398,468,997
Current assets
Cash and cash equivalents 40,837,133 76,795,524
Interest receivables 4,825,899 4,488,981
Other receivables and prepayments 11 5,335,952 12,125,032
Investment receivables 3,278,920 2,202,754
54,277,904 95,612,291
Total assets 484,821,177 494,081,288
------------ -------------
Current liabilities
Other payables and accrued expenses 12 (1,141,749) (3,654,113)
Investment payables (81,233) (154,312)
Derivative financial liabilities 9.2,18 (564,938) (6,184,723)
------------ -------------
(1,787,920) (9,993,148)
Net assets 483,033,257 484,088,140
============ =============
Equity
Share capital 14 488,893,790 489,189,319
Retained earnings (5,860,533) (5,101,179)
------------ -------------
483,033,257 484,088,140
============ =============
NAV per Share
* Ordinary Shares 7 97.31p 97.72p
* 2016 C Shares 7 98.14p 97.62p
These Condensed Consolidated Financial Statements were approved and authorised for issue by the Board of Directors on 25 March 2019, and signed on its behalf by:
Peter Niven Christopher Spencer Director Director
The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.
UNAUDITED CONDENSED CONSOLIDATED Statement of Changes in Equity
For the six months ended 31 December 2018 (Unaudited)
Note Share Retained
Capital Earnings Total
GBP GBP GBP
As at 1 July 2018 489,189,319 (5,101,179) 484,088,140
Impact of transition to IFRS
9 2.1 - (876,318) (876,318)
-------------- -------------- --------------
As at 1 July 2018 - revised
for the application of IFRS
9 489,189,319 (5,977,497) 483,211,822
Total comprehensive income
for the period - 14,439,766 14,439,766
Transactions with shareholders
Ordinary Shares repurchased (295,529) - (295,529)
Dividends paid 15 - (14,322,802) (14,322,802)
Total transactions with shareholders (295,529) (14,322,802) (14,618,331)
-------------- -------------- --------------
As at 31 December 2018 488,893,790 (5,860,533) 483,033,257
============== ============== ==============
For the six months ended 31 December 2017 (Unaudited)
Note Share Retained
Capital Earnings Total
GBP GBP GBP
As at 1 July 2017 530,606,210 2,297,355 532,903,565
Total comprehensive income
for the period - 12,719,308 12,719,308
Transactions with shareholders
Dividends paid 15 - (14,535,233) (14,535,233)
Total transactions with shareholders - (14,535,233) (14,535,233)
------------ ------------- -------------
As at 31 December 2017 530,606,210 481,430 531,087,640
============ ============= =============
The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.
UNAUDITED Condensed CONSOLIDATED Statement of Cash Flows
For the six months ended 31 December 2018
Notes Six months Six months
ended ended
31 December 31 December
2018 2017
(Unaudited) (Unaudited)
GBP GBP
Operating activities:
Total comprehensive income for
the period 14,439,766 12,719,308
Adjustments for:
Unrealised loss on investments 1,123,881 199,300
Net unrealised foreign exchange
(gain)/loss in the period (2,003,057) 3,241,760
Depreciation 8 764,203 245,958
Realised gain on investments (501,899) (536,437)
Realised foreign exchange gain
on investments (9,630,995) (801,003)
Increase in interest receivable (336,918) (757,296)
Decrease/(increase) in investment
receivables 6,789,080 (763,871)
Increase in other receivables
and prepayments (1,076,166) (1,014,631)
Decrease in investment payables (73,079) (34,709)
Decrease in other payables and
accrued expenses 12 (2,512,364) (12,220)
Acquisition of investments 8,9,10 (67,425,017) (25,319,466)
Amortisation of investment principal
during the period 9,10 37,775,204 22,492,478
Impairment/expected credit loss
provision 8,9,10 167,708 -
Net cash outflow (used in)/provided
by operating activities (22,499,653) 9,659,171
Cash flow from financing activities
Ordinary Shares repurchased 14 (295,529) -
Dividends paid 15 (14,322,802) (14,535,233)
--------------- -------------
Net cash flows used in financing
activities (14,618,331) (14,535,233)
Net decrease in cash and cash
equivalents (37,117,984) (4,876,062)
Cash and cash equivalents at start
of the period 76,795,524 154,568,616
Effect of exchange rate changes
on cash and cash equivalents 1,159,593 (574,887)
--------------- -------------
Cash and cash equivalents at end
of the period 40,837,133 149,117,667
=============== =============
The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.
NOTES TO THE UNAUDITED Condensed CONSOLIDATED FINANCIAL STATEMENTS
1. General Information
The Company was incorporated on 28 May 2014 and registered in Guernsey as a Closed-ended Collective Investment Scheme. The Company's registered office is BNP Paribas House, St Julian's Avenue, St Peter Port, Guernsey, GY1 1WA. The Company's Ordinary Shares were admitted to the Official List of the UK Listing Authority and to trading on the Main Market of the London Stock Exchange on 14 July 2014.
In December 2016, the Group raised additional capital by the issuance of the 2016 C Shares. Net proceeds of GBP176,889,776 were raised through the issue of 180,000,000 2016 C Shares. The 2016 C Shares are listed separately on the Main Market of the London Stock Exchange and were admitted on 12 December 2016.
The investments made with 2016 C Shares net proceeds are accounted for and managed as a separate pool of assets in accordance with the Company's investment policy until the conversion of the 2016 C Shares to Ordinary Shares. The terms and timing of the conversion of the 2016 C Shares to Ordinary Shares will be announced at a later date. Expenses are split between Ordinary Shares and 2016 C Shares in proportion to their respective NAV.
On 1 May 2018, the Company announced that the speed of deployment on the investment of the 2016 C Share proceeds had been slower than anticipated and a capital return would be made to shareholders. On 25 May 2018, the Group made a compulsory redemption of 41,075,778 2016 C Shares on a pro rata basis amongst all the holders on the 2016 C Share register. The Investment Managers made a contribution to the capital return of GBP425,455, which was equivalent to the management fees earned on the excess capital since admission of the 2016 C Share to 31 March 2018. The contribution is payable in equal instalments over a 12 month period from May 2018 to April 2019 (no management fee was paid on the excess capital in April 2018).
1,443,682 Ordinary Shares have been repurchased and are being held in treasury.
The Company's subsidiaries, SQN Asset Finance (Guernsey) Limited, SQN AFIF (AMBER) Limited, SQN AFIF (BRONZE) Limited, SQN AFIF (Cobalt) Limited and SQN AFIF (Diamond) Limited (the "Subsidiaries") are wholly owned Subsidiaries incorporated in Guernsey and established for the primary purpose of acting as investment holding companies. The Subsidiaries' registered office is BNP Paribas House, St Julian's Avenue, St Peter Port, Guernsey, GY1 1WA.
2. Accounting Policies
The preparation of the Unaudited Condensed Consolidated Financial Statements in accordance with IAS 34 requires the application of certain critical accounting estimates and also requires the Directors to exercise judgement in applying its accounting policies. The areas where significant judgements and estimates have been used are included in note 3.
The Group has applied the same accounting policies as in its Annual Report and Audited Consolidated Financial Statements for the year ended 30 June 2018, except the new standards described in note 2.1.
2.1 Basis of Preparation
The Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with IAS 34. They do not include all the disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the Annual Report and Audited Consolidated Financial Statements for the year ended 30 June 2018, which were prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the EU.
These financial statements have been prepared on a going concern basis. After reviewing the Group's projections and cash flow forecast for the next financial period, the Directors are satisfied that, at the time of approving these financial statements, it is appropriate to adopt the going concern basis.
The Company applies, for the first time, IFRS 15 - Revenue from Contracts with Customers ("IFRS 15") and IFRS 9 - Financial Instruments ("IFRS 9") that became effective on 1 January 2018. These standards do not result in a restatement of previous financial statements. As required by IAS 34, the nature and effect of these changes are disclosed below.
IFRS 15 replaces IAS 11 - Construction Contracts, IAS 18 - Revenue and Related Interpretations
The Board has undertaken an assessment of the impact of IFRS 15 on the Group's financial statements and concluded there is no material impact on the Group's Consolidated Financial Statements.
IFRS 9 replaces IAS 39 - Financial Instruments: Recognition and Measurement
IFRS 9 addresses the classification, measurement and recognition of financial assets and financial liabilities and requires financial assets to be classified into two categories: those measured at fair value and those measured at amortised cost. The determination is made on initial recognition. The classification depends on the entity's business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, IFRS 9 retains most of the IAS 39 requirements. The main change is that, in cases where the fair value is taken for financial liabilities, the part of a fair value change due to an entity's own credit risk is recorded in other comprehensive income rather than in profit or loss.
IFRS 9 Impairment Requirements
The new impairment requirements in IFRS 9 are based on an expected credit loss model and replace the IAS 39 incurred loss model and was applicable from 1 July 2018. The expected credit loss model applies to financial assets that are debt instruments (such as bank deposits, loans, debt securities and trade receivables) recorded at amortised cost or at fair value through other comprehensive income, plus lease receivables under IAS 17, contract assets and loan commitments and financial guarantee contracts that are not measured at fair value through profit or loss.
The guiding principle of the expected credit loss model is to reflect the general pattern of deterioration or improvement in the credit quality of financial instruments.
The Standard considers credit risk low if there is a low risk of default, the borrower has a strong capacity to meet its contractual cash flow obligations in the near term and adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the borrower to fulfil its contractual cash flow obligations. The assessment of whether there has been a significant increase in credit risk is based on an increase in the probability of a default occurring since initial recognition.
Under IFRS 9 a financial asset is credit-impaired when one or more events that have occurred and 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.
Impairment of financial assets is recognised in stages:
Stage 1 - as soon as a financial instrument is originated or purchased, 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 2 - if the credit risk increases significantly and is not considered low, full lifetime expected credit losses are recognised in profit or loss. The calculation of interest revenue is the same as for Stage 1.
Stage 3 - if the credit risk of a financial asset increases to the point that it is considered credit-impaired, interest revenue is calculated based on the amortised cost (ie 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.
Loans, receivables and construction finance continue to be measured at amortised cost. Residual value, equity and lease participation continue to be measured at fair value through profit or loss. Derivative assets are measured at fair value through profit or loss and not held for trading. Finance lease and hire purchase receivables are subject to the IFRS 9 impairment model.
The Group has not restated prior periods, however the classification and measurement requirements of IFRS 9 have been adopted retrospectively as of the date of initial application on 1 July 2018. The difference between the carrying amounts in the 30 June 2018 consolidated financial statements and those determined under IFRS 9 at the date of initial application have been included in opening retained earnings in these condensed consolidated financial statements.
The Board and the Investment Managers reviewed each the Group's investment for signs of impairment using the IFRS 9 impairment model as at 30 June 2018 and during the period ended 31 December 2018. Below is a summary of the impairment/expected credit loss provision:
Impairment as at 30 June 2018 GBP2.4 million
Impact of transition to IFRS 9 GBP0.9 million
Impairment / movement in expected credit loss provision
during the period ended 31 December 2018 GBP0.2 million Impairment/expected credit loss provision as at 31 December 2018 GBP3.5 million 3. Use of Estimates and Judgements
There have been no material revisions to the estimates and judgements reported in the Annual Report and Audited Consolidated Financial Statements for the year ended 30 June 2018.
4. Changes to Material Agreements
There were no changes to any material agreements during the six month period ended 31 December 2018.
5. Other Operating Expenses
31 December 31 December
2018 2017
(Unaudited) (Unaudited)
GBP GBP
Administration and secretarial fees 228,074 238,027
Audit fees(1) 33,488 30,890
Brokerage fees 27,282 23,516
Public relation fees 25,000 20,112
Registrar fees 32,689 38,989
Professional fees 57,039 18,556
Legal fees(2) 536,478 -
Transaction fees - 7,464
Other expenses 91,224 69,295
Total 1,031,274 446,849
============ ============
(1) The Group's auditor, Baker Tilly CI Audit Limited ("Baker Tilly"), provided no non-audit services for the six months ended 31 December 2018 or during the six months ended 31 December 2017.
(2) The legal fees related to expensed legal fees in regard to the Suniva investment and are in addition to the DIP financing detailed in note 13.
6. Basic and Diluted Earnings per Share 31 December 2018 Ordinary Shares 2016 C Share Total comprehensive income for the period GBP10,112,235 GBP4,327,531 Weighted average number of shares in issue during the period 356,270,151 138,924,222 Basic and diluted earnings per share 2.84p 3.12p 31 December 2017 Ordinary Shares 2016 C Share Total comprehensive income for the period GBP11,543,114 GBP1,176,194 Weighted average number of shares in issue during the period 357,707,507 180,000,000 Basic and diluted earnings per share 3.23p 0.65p 7. NAV per Share 31 December 2018 Ordinary Shares 2016 C Shares NAV GBP346,687,078 GBP136,346,179 Number of shares in issue at period end 356,263,825 138,924,222 NAV per share 97.31p 98.14p 30 June 2018 Ordinary Shares 2016 C Shares NAV GBP348,466,944 GBP135,621,196 Number of shares in issue at year end 356,585,141 138,924,222 NAV per share 97.72p 97.62p 8. Property, Plant and Equipment
Property, Plant and Equipment comprises plant and machinery originally subject to:
a) a hire purchase agreement which was re-leased to an alternative third party under an operating lease. The asset has a remaining useful life of 11 years (30 June 2018: 11.5 years).
b) a finance lease which was re-leased to an alternative third party under an operating lease. The asset has a remaining useful life of 12.5 years (30 June 2018: 13 years).
c) a finance lease which was re-leased to an alternative third party under an operating lease. The asset has a remaining useful life of 7.5 years (30 June 2018: 8 years).
The carrying amount is detailed in the table below:
31 December 30 June 2018
2018
(Unaudited) (Audited)
Cost GBP GBP
Opening balance 15,422,228 7,130,681
Additions during the period/year 27,271 674,824
Reclassified investments(1) - 7,616,723
Closing balance 15,449,499 15,422,228
------------ -------------
Impairment
Opening balance - -
Impairment during the period/year (6,512) -
Closing balance (6,512) -
------------ -------------
Accumulated depreciation
Opening balance (1,661,073) (912,080)
Depreciation during the period/year (764,203) (748,993)
------------ -------------
Closing balance (2,425,276) (1,661,073)
------------ -------------
Net book value 13,017,711 13,761,155
============ =============
(1) This item relates to an investment that has been reclassified from the Finance Lease investments category (as detailed in note 8(c) above). Please refer to note 10 for additional information.
9. Financial Instruments 9.1 Loans and Other Investments
The following table summarises the changes in investments measured at amortised cost using the effective interest method:
31 December 2018 Loans Construction Receivables Total
Finance
(Unaudited)
GBP GBP GBP GBP
Opening balance 155,259,686 125,483,865 466,491 281,210,042
Advances and purchases
during the period 41,152,477 24,219,469 - 65,371,946
Principal amortisation
during the period (23,684,184) (3,948,243) (38,979) (27,671,406)
Reclassified investments(1) 12,726,000 (14,668,525) - (1,942,525)
Reclassified investments(2) (6,244,482) - - (6,244,482)
Realised foreign exchange
gain on investments 6,389,342 3,189,580 - 9,578,922
Realised gain on investments (181,187) - - (181,187)
Unrealised foreign exchange
loss on investments (3,095,397) (1,954,246) - (5,049,643)
--------------- -------------- ------------ ---------------
Closing balance 182,322,255 132,321,900 427,512 315,071,667
--------------- -------------- ------------ ---------------
(1) This item relates to advances in the Construction Finance investments category that were reclassified as additions in the Loans and Hire-Purchase investment categories in the sum of GBP12,726,000 and GBP1,942,525 respectively, as detailed in the table and note 10.
(2) This item relates to an investment that has been reclassified to the Equity investments category following a restructuring. Please refer to notes 9.2 and 17 (d) for additional information.
Impairment/expected
credit loss provision
Opening balance (2,437,876) - - (2,437,876)
Impact of transition
to IFRS 9 (124,085) (531,045) (233) (655,363)
Impairment / movement
of expected credit loss
provision during the
period (111,915) (46,766) 19 (158,662)
------------ ------------ -------- ------------
Closing balance (2,673,876) (577,811) (214) (3,251,901)
------------ ------------ -------- ------------
Closing balance 179,648,379 131,744,089 427,298 311,819,766
============ ============ ======== ============
30 June 2018 Loans Construction Receivables Total
Finance
(Audited)
GBP GBP GBP GBP
Opening balance 143,465,130 109,273,777 5,555,907 258,294,814
Advances and purchases
during the year 34,263,467 31,494,301 - 65,757,768
Principal amortisation
during the year (18,625,872) (6,501,915) (5,200,159) (30,327,946)
Reclassified investments(2) - (8,408,584) - (8,408,584)
Realised foreign exchange
loss on
investments (3,030,426) 299,112 639,819 (2,091,495)
Realised gain on investments 83,906 - 90,975 174,881
Unrealised foreign exchange
loss on revaluation (896,519) (672,826) (620,051) (2,189,396)
--------------- -------------- -------------- ---------------
Closing balance 155,259,686 125,483,865 466,491 281,210,042
--------------- -------------- -------------- ---------------
Impairment(1) (2,437,876) - - (2,437,876)
------------ ------------
Closing balance (2,437,876) - - (2,437,876)
------------ ------------
Closing balance 152,821,810 125,483,865 466,491 278,772,166
============ ============ ======== ============
(1) This item relates to an impairment made against one of the investments held by the Group, please refer to note 17 for further details.
(2) This item relates to advances in the Construction Finance investments category that were reclassified as additions in the Finance Lease and Hire-Purchase investment categories in the sum of GBP5,649,673 and GBP2,758,911 respectively, as detailed in note 10.
Construction Finance investments comprise initial drawings or advances made under loan agreements, finance leases or hire-purchase agreements during a period of procurement or construction of underlying assets (the "Construction Period"). During the Construction Period, interest or similar service payments on the advances may be paid or (more usually) rolled-up and capitalised on expiry of the Construction Period, typically when the assets have been commissioned and (if applicable) commercial operations have commenced.
The amortisation period (in the case of a loan) or lease/hire term (in the case of a finance lease or hire-purchase) commences at the end of the Construction Period and the service payments or lease/hire payments rentals are calculated by reference to the total advances during the Construction Period plus interest accrued (if not paid). In the case of a finance lease, the advances (and accrued interest) are repayable in full if a default or insolvency event occurs or if the Construction Period has not ended by a specified long-stop date.
Receivables comprise the legal right to streams of contracted payments arising under lease, hire, licence or similar agreements made between an end-user, lessee or licensee and lessor, owner or licensor of goods or other assets, in respect of which the right to receive payment has been sold or assigned absolutely to the Group by a third party, but legal title to the goods or other assets lies with that third party.
9 .2 Fair Value Investments
Investments held at fair value comprise the Group's share of financial assets and financial liabilities designated at fair value through profit and loss.
The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:
Level 1: Inputs that reflect unadjusted price quotes in active markets for identical assets or liabilities that the Group has the ability to access at the measurement date;
Level 2: Inputs that reflect price quotes of similar assets and liabilities in active markets, and price quotes of identical assets and liabilities in markets that are considered to be less than active as well as inputs other than price quotes that are observable for the asset or liability either directly or indirectly; and
Level 3: Inputs that are unobservable for the asset or liability and reflect the Investment Managers' own assumptions based upon experience of similar assets and/or on third party appraised values. This category includes instruments that are valued based on price quotes for which the inputs are unobservable or price quotes for similar instruments for which significant unobservable adjustments or assumptions are required to reflect differences between the instruments.
The fair values of derivative instruments are calculated using quoted prices. Foreign currency forward contracts are measured using quoted forward exchange rates and yield curves derived from quoted interest rates matching maturities of the contracts.
For financial assets not carried at amortised cost, the Investment Managers determine fair value using valuation techniques approved by the Directors.
The following table details the Company's fair value hierarchy.
31 December 2018 (Unaudited) Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Financial assets
Designated at fair value through
profit
or loss (Lease Participation) - - 3,140,935 3,140,935
Residual value of finance
lease investments - - 322,647 322,647
Equity holding - - 5,577,269 5,577,269
--------- ---------- ------------ ------------
Total financial assets - - 9,040,851 9,040,851
========= ========== ============ ============
Financial liabilities
Derivative liabilities - (564,938) - (564,938)
--------- ---------- ------------ ------------
Total financial liabilities - (564,938) - (564,938)
========= ========== ============ ============
30 June 2018 (Audited) Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Financial assets
Designated at fair value through
profit
or loss (Lease Participation) - - 3,402,690 3,402,690
Finance lease residual value - - 517,558 517,558
Equity holding - - - -
--------- ------------ ------------ ------------
Total financial assets - - 3,920,248 3,920,248
========= ============ ============ ============
Financial liabilities
Derivative liabilities - (6,184,723) - (6,184,723)
--------- ------------ ------------ ------------
Total financial liabilities - (6,184,723) - (6,184,723)
========= ============ ============ ============
The following table summarises the changes in the fair value of the Group's Level 3 investments:
31 December 30 June 2018
2018
(Unaudited) (Audited)
GBP GBP
Opening balance 3,920,248 5,863,402
Additions during the period/year 73,992 46,429
Principal amortisation during the period/year (585,898) (2,034,980)
Reclassified investments(1) 6,244,482 -
Unrealised loss on revaluation (168,509) (742,152)
Unrealised foreign exchange loss on revaluation (682,050) (215,417)
Realised gain on investments 186,513 894,126
Realised foreign exchange gain on investments 52,073 108,840
Closing balance 9,040,851 3,920,248
============ =============
(1) This item relates to an investment that has been reclassified from the Loans investments category following a restructuring. Please refer to notes 9.1 and 17 (d) for additional information.
Transfers between levels are deemed to have occurred at the date of the event or change in circumstances that caused the transfer. There were no transfers of investments between the Levels during the period ended 31 December 2018 or the year ended 30 June 2018.
The Lease Participation investments represent a single participation investment in a portfolio of leases. The carrying value of GBP3,140,935 (30 June 2018: GBP3,402,690) represents the value attributable to the 'principal' element of the participation interest, determined in accordance with the participation agreement.
The participation agreement entitles the Group to receive interest on the principal balance at the rate of 10.5%. Payment amounts are not fixed and are dependent on the actual proceeds received on the Lease Portfolio each month. Any shortfall in interest payments is added to the principal balance and accrues interest at the same rate. The Group does not have any rights to any amounts received on the portfolio over and above the repayment of their principal plus any interest accrued at the rates stated above.
The Directors and the Investment Managers believe this is a reasonable approximation of the fair value. The Group has therefore not presented quantitative information on the valuation of the Lease Participation investments.
Information about the Secondary Market for Level 3 Investments
The Board, as advised by the Investment Managers, make assumptions about the residual value of certain assets and equipment. As determined by the Board, the residual value is a function of the in-place value and/or the secondary market value of the equipment or assets.
The in-place value is an assessment of the value of the equipment or assets if the equipment or assets were to continue to operate and provide value to the end-user. This takes into account the marginal cost of keeping the asset in place as well as the cost to the end-user of decommissioning, redelivering, and replacing the equipment. In some cases, this amount (or a maximum value) is negotiated in advance with the end-user.
The secondary market value is determined utilising the Investment Managers' historical experience, quotes from dealers, third party appraisals and recent sales. The secondary market value also takes into account the geography of the equipment or assets, the timeframe required to conduct a sale, and the associated costs that are not passed on to the end-user.
Equity Holdings
The equity holdings are valued by the Board, taking into consideration a range of factors including the NAV of the investee, (if available), the existence of the Call Option exercisable on the holding and other relevant available information, including the price of recent transactions of equity holdings, (if any), and advice received from the Investment Managers and such other factors as the Board, in their sole discretion, deem relevant in considering a positive or negative adjustment to the valuation.
The estimated fair values of the equity holdings may differ from the values that would have been realised had a ready market existed and the difference could be material.
The fair value of the equity holdings is reassessed on an ongoing basis by the Board.
9.3 Valuation Process
The following table provides information about fair value measurements using significant unobservable inputs:
31 December 2018 (Unaudited)
Description Fair Value Valuation Techniques Unobservable Inputs
GBP
Lease participation 3,140,935 Principal balance Third party appraisal
In place value / secondary
Finance lease residual 322,647 Market approach market value
value
Equity holding 5,577,269 Adjusted cost -
Equity holding(1) - Market approach Market value
30 June 2018 (Audited)
Description Fair Value Valuation Techniques Unobservable Inputs
GBP
Lease participation 3,402,690 Principal balance Third party appraisal
In place value / secondary
Finance lease residual 517,558 Market approach market value
value
Equity holding(1) - Market approach Market value
10. Finance Lease and Hire-Purchase Investments
The Group's investments include a portfolio of leases of plant and machinery leased under finance lease agreements that transfer substantially all the risks and rewards incidental to ownership to the lessee and in hire-purchase agreements that include a purchase option exercisable by the lessee upon fulfilment of specified conditions. Under these agreements, the lessee pays periodic rent for the use of the assets for a fixed or minimum initial term of typically 3 to 10 years. At the end of the fixed or minimum term, the lessee can typically elect to:
-- return the asset to the Group;
-- in the case of hire-purchase, exercise an option to purchase the assets, typically at a 'bargain' price;
-- extend the lease for a further minimum term or from year to year on payment of a pre-agreed rent (which is typically substantially lower than the rent paid during the initial term); or
-- arrange a sale of the asset to a third party and (typically) receive all or the majority of the proceeds of sale. Legal title to the leased assets remains with the Group at all times prior to such sale.
(1) Equity investments held at nil value.
The following tables summarise the changes in finance lease and hire-purchase investments:
31 December 2018 (Unaudited) Finance Lease Hire-Purchase Total
GBP GBP GBP
Opening balance 48,306,606 53,708,822 102,015,428
Additions during the period 3,337,797 889,271 4,227,068
Reclassified Construction Finance
investments(1) - 1,942,525 1,942,525
Realised gain on investment 496,573 - 496,573
Principal amortisation during
the period (9,264,416) (2,528,744) (11,793,160)
-------------- -------------- -------------
Closing balance 42,876,560 54,011,874 96,888,434
-------------- -------------- -------------
Impairments / expected credit
loss provision
Opening balance - - -
Impact of transition to IFRS
9 (188,860) (32,095) (220,955)
Impairment / movement of expected
credit loss provision during
the period (4,778) 2,244 (2,534)
Closing balance (193,638) (29,851) (223,489)
-------------- -------------- -------------
Closing balance 42,682,922 53,982,023 96,664,945
============== ============== =============
30 June 2018 (Audited) Finance Lease Hire-Purchase Total
GBP GBP GBP
Opening balance 51,287,178 52,262,047 103,549,225
Additions during the year 4,935,621 7,981,213 12,916,834
Reclassified Construction Finance
investments(2) 5,649,673 2,758,911 8,408,584
Reclassified Property, Plant
and Equipment investment(3) (7,616,723) - (7,616,723)
Realised gain on investment 151,927 (23,131) 128,796
Principal amortisation during
the year (6,101,070) (9,270,218) (15,371,288)
-------------- -------------- --------------
Closing balance 48,306,606 53,708,822 102,015,428
============== ============== ==============
(1) This item relates to advances that previously appeared in the Construction Finance investment category in note 9.1 and have been reclassified as Hire-Purchase Investments. The item has been reclassified as construction was completed during the period.
(2) This item relates to advances that previously appeared in the Construction Finance investment category in note 9.1 and have been reclassified as Finance Lease or Hire-Purchase Investments. The item has been reclassified as construction was completed during the year.
(3) This item relates to an investment that has been reclassified to the Property, Plant and Equipment investments category. Please refer to note 8 for additional information.
Assets leased to third parties under finance leases had an unguaranteed residual value at the end of the period of GBP322,647 (30 June 2018: GBP517,558).
During the period, seven residual investments were sold for GBP212,915. During the year ended 30 June 2018, a residual investment was sold for GBP178,376.
11. Other Receivables and Prepayments
31 December 30 June 2018
2018
(Unaudited) (Audited)
GBP GBP
Funds transferred for new investment - 5,385,692
Debtor-in-possession financing (refer
to note 13) 3,676,862 3,547,077
UK VAT 16,940 1,288,393
Prepaid transaction fees 682,126 669,002
Restructuring costs 199,790 374,670
Investment management fees(1) 177,273 390,000
Other receivables 582,961 470,198
5,335,952 12,125,032
============= =============
(1) As detailed in note 1 and in regard to the 2016 C Share capital return, GBP425,455 of management fees were receivable from the Investment Managers, payable in 12 equal instalments from May 2018 to April 2019.
12. Other Payables and Accrued Expenses
31 December 30 June 2018
2018
(Unaudited) (Audited)
GBP GBP
Investment management fees 395,004 383,035
Administration and secretarial fees 74,499 76,396
Audit fees 31,114 42,900
Printing fees 29,945 19,945
Brokerage fees 11,250 7,375
Rental reserve 157,290 452,998
Other payables 442,647 93,270
Director fees - 47,500
Dividend payable - 2,530,694
1,141,749 3,654,113
============ =============
The Group has financial risk management policies in place to ensure that all payables are paid within the credit time frame.
The Directors consider that the carrying amount of all payables approximates to their fair value.
13. Commitments and Contingent Liabilities
As at 31 December 2018, the Group had committed to invest a further GBP21,351,890 (30 June 2018: GBP64,673,807). These commitments are classified as 'hard commitments' of GBP10,851,890 (30 June 2018: GBP38,968,807) which represent investments for which the documentation is finalised and 'soft commitments' of GBP10,500,000 (30 June 2018: GBP25,705,000) which represent investments at varying stages of documentation.
The Group has committed up to US$4.75 million as part of a debtor-in-possession financing for a US solar manufacturing company, in order to protect the Group's interest in the equipment that secures its loan. As at 31 December 2018, US$4.68 million (30 June 2018: US$4.68 million) was drawn as part of a senior priority loan facility. During the period, an additional $0.75 million was approved and drawn down under the secured loan facility, to cover the legal cost associated with protecting the Group's assets.
The Group did not have any contingent liabilities as at 31 December 2018 and 30 June 2018.
14. Share Capital
The authorised share capital of the Company is represented by an unlimited number of shares of no par value which may be designated as Ordinary Shares, C Shares or otherwise as the Directors may from time to time determine. All shares hold equal rights with no restrictions and no shares carry special rights with regard to the control of the Company. There are no special rights attached to the shares in the event that the Company is wound up.
The 2016 C Share net proceeds and the investments made with the net proceeds will be accounted for and managed as a separate pool of assets in accordance with the Company's investment policy until the conversion of 2016 C Shares to Ordinary Shares. The terms and timing of the conversion of 2016 C Shares to Ordinary Shares will be announced at a later date. The un-invested proceeds were held in cash and on fixed deposit as at 31 December 2018. Expenses are split pro-rata between Ordinary Shares and 2016 C Shares.
Ordinary Share Buybacks
On 20 November 2018 the Directors were granted authority to repurchase 53,403,947 Ordinary Shares and 20,824,741 2016 C Shares (being equal to 14.99% of the number of Ordinary Shares and 2016 C Shares in issue) for cancellation or to be held as treasury shares. This authority will expire at the forthcoming AGM. The Directors intend to seek annual renewal of this authority from shareholders. Pursuant to this authority, and subject to Companies Law and the discretion of the Directors, the Company may purchase Ordinary Shares and 2016 C Shares in the market if they believe it to be in shareholders' interests; in particular, as a means of correcting any imbalance between the supply and demand for Ordinary Shares and 2016 C Shares.
During the period, 321,316 Ordinary Shares were repurchased and are being held in treasury. Nil 2016 C Shares were repurchased during the period. As at 31 December 2018, 1,443,682 shares are held in treasury.
The Company's share capital is denominated in Sterling.
Number of Shares Stated Capital Number of Shares Stated Capital
31 December 31 December
2018 2018 30 June 2018 30 June 2018
(Unaudited) (Unaudited) (Audited) (Audited)
GBP GBP
Ordinary Shares(1) 356,263,825 352,389,718 356,585,141 352,685,247
2016 C Shares 138,924,222 136,504,072 138,924,222 136,504,072
----------------- --------------- ----------------- ---------------
Total 495,188,047 488,893,790 495,509,363 489,189,319
================= =============== ================= ===============
Issued Share Movements
31 December 2018 30 June 2018
Number Stated Capital Number Stated Capital
GBP GBP
Balance at the start
of the period 495,509,363 489,189,319 537,707,507 530,606,210
Ordinary Shares repurchased(1) (321,316) (295,529) (1,122,366) (1,031,187)
Redemption of 2016 C
Shares - - (41,075,778) (40,385,704)
------------ --------------- ------------- ---------------
Balance at the end of
the period 495,188,047 488,893,790 495,509,363 489,189,319
============ =============== ============= ===============
(1) The number of shares in issue does not include 1,443,682 treasury shares.
15. Dividends
The Company targets a dividend of 7.25 pence per Ordinary Share. The dividend target is a target only and there can be no guarantee that this will continue to be achieved or that any dividends will be paid. Dividend payments to Shareholders will be subject to the Company being able to satisfy the solvency test immediately after payment of such dividend.
The table below details the dividends declared and paid by the Company to its shareholders each month from June 2018 to October 2018. The dividend for May 2018 went ex-dividend on 28 June 2018 and was paid to shareholders on 16 July 2018.
Period Announcement Payment Date Amount per Amount
Date Share
Ordinary Shares GBP
1 to 30 June 2018 23 July 2018 16 August 2018 0.6042p 2,152,546
17 September
1 to 31 July 2018 21 August 2018 2018 0.6042p 2,152,546
1 to 31 August 21 September 17 October
2018 2018 2018 0.6042p 2,152,546
1 to 30 September 19 November
2018 19 October 2018 2018 0.6042p 2,152,546
1 to 31 October 17 December
2018 21 November 2018 2018 0.6042p 2,152,546
Total 10,762,730
-----------
2016 C Shares GBP
1 to 30 June 2018 23 July 2018 16 August 2018 0.3333p 463,035
17 September
1 to 31 July 2018 21 August 2018 2018 0.4167p 578,897
1 to 31 August 21 September 17 October
2018 2018 2018 0.6042p 839,380
1 to 30 September 19 November
2018 19 October 2018 2018 0.6042p 839,380
1 to 31 October 17 December
2018 21 November 2018 2018 0.6042p 839,380
Total 3,560,072
-----------
Grand Total 14,322,802
===========
The dividends for November 2018 and December 2018 had an ex-dividend date after the period end and are detailed in note 20.
The Company declared and paid the following dividends to its shareholders during the period ended 31 December 2017:
Period Announcement Payment Date Amount per Amount
Date Share
Ordinary Shares GBP
1 to 31 May 2017 21 June 2017 19 July 2017 0.6042p 2,161,269
1 to 30 June 2017 21 July 2017 18 August 2017 0.6042p 2,161,269
19 September
1 to 31 July 2017 21 August 2017 2017 0.6042p 2,161,269
1 to 31 August 21 September 19 October
2017 2017 2017 0.6042p 2,161,269
1 to 30 September 17 November
2017 20 October 2017 2017 0.6042p 2,161,269
1 to 31 October 19 December
2017 21 November 2017 2017 0.6042p 2,161,269
Total 12,967,614
-----------
2016 C Shares GBP
1 April to 30 June
2017 21 July 2017 18 August 2017 0.3000p 540,000
19 September
1 to 31 July 2016 21 August 2017 2017 0.1042p 187,559
1 to 31 August 21 September 19 October
2016 2017 2017 0.1500p 270,000
1 to 30 September 17 November
2017 20 October 2017 2017 0.1500p 270,000
1 to 31 October 19 December
2017 21 November 2017 2017 0.1667p 300,060
Total 1,567,619
-----------
Grand Total 14,535,233
===========
16. Segmental Reporting
There are two reportable segments as at 31 December 2018: Ordinary Shares and 2016 C Shares. Each Share Class has its own portfolio, is listed separately on the Main Market of the London Stock Exchange and the Directors review internal management reports for each segment separately on a quarterly basis.
The Directors view the operations of the two reportable segments as one operating segment, being investment business and both segments have the same investment objectives. All significant operating decisions are based upon analysis of the Group's investments as one segment. The financial results from this segment are equivalent to the financial results of the Group as a whole.
The tables below provide a breakdown of the condensed Consolidated Statement of Comprehensive Income between the reportable segments:
31 December 2018 (Unaudited) Ordinary Shares 2016 C Shares Total
GBP GBP GBP
Total income 14,766,763 5,306,033 20,072,796
Net realised and unrealised
loss (1,157,709) (124,313) (1,282,022)
Total expenses (3,496,819) (854,189) (4,351,008)
Total comprehensive income
for the period 10,112,235 4,327,531 14,439,766
================ ============== ============
31 December 2017 (Unaudited) Ordinary Shares 2016 C Shares Total
GBP GBP GBP
Total income 14,538,544 2,501,023 17,039,567
Net realised and unrealised
loss (645,546) (321,426) (966,972)
Total expenses (2,349,884) (1,003,403) (3,353,287)
Total comprehensive income
for the period 11,543,114 1,176,194 12,719,308
================ ============== ============
The tables below provide a breakdown of the condensed Consolidated Statement of Financial Position between the reportable segments:
31 December 2018 (Unaudited) Ordinary Share 2016 C Share Total
GBP GBP GBP
Non-current assets 317,855,137 112,688,136 430,543,273
Current assets 30,183,615 24,094,289 54,277,904
Total assets 348,038,752 136,782,425 484,821,177
--------------- ------------- ------------
Current liabilities (1,351,679) (436,241) (1,787,920)
Net assets 346,687,073 136,346,184 483,033,257
=============== ============= ============
Equity 346,687,073 136,346,184 483,033,257
=============== ============= ============
30 June 2018 (Audited) Ordinary Share 2016 C Share Total
GBP GBP GBP
Non-current assets 328,478,714 69,990,283 398,468,997
Current assets 29,084,959 66,527,332 95,612,291
Total assets 357,563,673 136,517,615 494,081,288
--------------- ------------- ------------
Current liabilities (9,096,729) (896,419) (9,993,148)
Net assets 348,466,944 135,621,196 484,088,140
=============== ============= ============
Equity 348,466,944 135,621,196 484,088,140
=============== ============= ============
17. Credit Risk
The Group has applied IFRS 9 from 1 July 2018 and this is the first set of financial statements where IFRS 9 has been applied. Changes in accounting policies resulting from the adoption of IFRS 9 have not been applied retrospectively.
The IFRS 9 impairment requirements are based on an expected credit loss model. Impairment of financial assets is recognised in stages:
Stage 1 - as soon as a financial instrument is originated or purchased, 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 2 - if the credit risk increases significantly and is not considered low, full lifetime expected credit losses are recognised in profit or loss. The calculation of interest revenue is the same as for Stage 1.
Stage 3 - if the credit risk of a financial asset increases to the point 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.
The effect of the Group adopting IFRS 9 on the carrying amounts of financial assets as at 1 July 2018 relates solely to the new impairment requirements.
The tables below detail the impairment/expected credit loss provision of financial assets in each stage:
Ordinary Share
31 December 2018 (Unaudited) Stage 1 Stage Stage Total
2 3
GBP GBP GBP GBP
Property, Plant and Equipment 6,512 - - 6,512
Finance Lease and Hire
Purchase 35,900 179,589 - 215,489
Loans and Other Investments 48,170 3,145,458 - 3,193,628
-------- ---------- ------ ----------
Total 90,582 3,325,047 - 3,415,629
-------- ---------- ------ ----------
2016 C Share
31 December 2018 (Unaudited) Stage Stage Stage Total
1 2 3
GBP GBP GBP GBP
Property, Plant and Equipment - - - -
Finance Lease and Hire Purchase 5,757 2,243 - 8,000
Loans and Other Investments 58,273 - - 58,273
------- ------ ------ -------
Total 64,030 2,243 - 66,273
------- ------ ------ -------
Grand Total 154,612 3,327,290 - 3,481,902
======== ========== ==========
The tables below detail the impairment/expected credit loss provision of financial assets in each stage if IFRS 9 had been applied for the year ended 30 June 2018:
Ordinary Share
30 June 2018 (Unaudited) Stage 1 Stage Stage Total
2 3
GBP GBP GBP GBP
Property, Plant and Equipment 6,863 - - 6,863
Finance Lease and Hire
Purchase 38,008 174,755 - 212,763
Loans and Other Investments 49,752 3,009,212 - 3,058,964
-------- ---------- ------ ----------
94,623 3,183,967 - 3,278,590
-------- ---------- ------ ----------
2016 C Share
30 June 2018 (Unaudited) Stage Stage Stage Total
1 2 3
GBP GBP GBP GBP
Property, Plant and Equipment - - - -
Finance Lease and Hire Purchase 8,192 - - 8,192
Loans and Other Investments 34,276 - - 34,276
------- ------ ------ -------
42,468 - - 42,468
------- ------ ------ -------
Grand Total 137,091 3,183,967 - 3,321,058
======== ========== ==========
(a) Stage 1
The Directors, after taking advice from and consulting with the Investment Managers, consider these financial assets to have a low probably of default.
During the period, two investments were restructured and would have moved from Stage 2 to Stage 1 (based on classifications if IFRS 9 had been applied as at 30 June 2018).
Ref Industry Carrying Description
Amount
(GBP 000)
(a) Medical 3,759 This finance investment (a secured loan),
1 under IRFS 9 would have been classified
as stage 2 as at 30 June 2018, it was restructured
during the period and split into two new
investments, a secured loan and equity.
The secured loan has been classified stage
1 as at 31 December 2018 and is now performing.
For further details refer to the description
in ref (d) 1.
(a) Transportation 1,121 This finance investment (a loan), under
2 IRFS 9 would have been classified as stage
2 as at 30 June 2018, the underlying investments
were sold during the period and the loan
was substantially repaid. As part of the
sale, a new loan was entered into by the
Group. The loan has been classified stage
1 as at 31 December 2018 as it is now performing.
For further details refer to the description
in ref (d) 2.
(b) Stage 2
The Directors, after taking advice from and consulting with the Investment Managers, consider these financial assets to have a higher probably of default than stage 1.
Ref Industry Carrying Description
Amount
(GBP 000)
(b) Manufacturing 24,699 An investee business to which the Group
1 has provided a secured loan entered chapter
11 bankruptcy in the USA as a result of
being unable to compete with an overcapacity
of foreign imports. The investee business
sought relief under the Trade Act of 1974,
Import Relief for Domestic Industries and
on 8 February 2018, the US government implemented
protective tariffs intended to restore
the viability of the investee's industry
and of the investee in particular.
This finance investment (a secured loan)
has been classified as stage 2 as at 31
December 2018. The Directors, after taking
advice from and consulting with the Investment
Managers, have applied an IFRS 9 impairment/expected
credit loss provision of GBP2,527,076 as
at 31 December 2018. There is no income
accruing on the investment.
(b) IT & Telecom 4,203 This finance investment (a variable loan)
2 has been classified as stage 2 as at 31
December 2018. The Directors, after taking
advice from and consulting with the Investment
Managers, have applied an IFRS 9 impairment/expected
credit loss provision of GBP36,960 as at
31 December 2018.
(b) Anaerobic 34,007 This finance investment (construction finance)
3 Digestion has been classified as stage 2 as at 31
December 2018. The Directors, after taking
advice from and consulting with the Investment
Managers, have applied an IFRS 9 impairment/expected
credit loss provision of GBP213,878 as
at 31 December 2018.
(b) Anaerobic 20,203 This finance investment (construction finance)
4 Digestion has been classified as stage 2 as at 31
December 2018. The Directors, after taking
advice from and consulting with the Investment
Managers, have applied an IFRS 9 impairment/expected
credit loss provision of GBP127,063 as
at 31 December 2018.
(b) Anaerobic 21,193 This finance investment (construction finance)
5 Digestion has been classified as stage 2 as at 31
December 2018. The Directors, after taking
advice from and consulting with the Investment
Managers, have applied an IFRS 9 impairment/expected
credit loss provision of GBP133,990 as
at 31 December 2018.
Ref Industry Carrying Description
Amount
(GBP 000)
(b) Anaerobic 27,749 This finance investment (a finance lease)
6 Digestion has been classified as stage 2 as at 31
December 2018. The Directors, after taking
advice from and consulting with the Investment
Managers, have applied an IFRS 9 impairment/expected
credit loss provision of GBP179,589 as
at 31 December 2018.
(b) Anaerobic 3,964 This finance investment (construction finance)
7 Digestion has been classified as stage 2 as at 31
December 2018. The Directors, after taking
advice from and consulting with the Investment
Managers, have applied an IFRS 9 impairment/expected
credit loss provision of GBP24,933 as at
31 December 2018.
(b) Anaerobic 7,908 This finance investment (construction finance)
8 Digestion has been classified as stage 2 as at 31
December 2018. The Directors, after taking
advice from and consulting with the Investment
Managers, have applied an IFRS 9 impairment/expected
credit loss provision of GBP49,737 as at
31 December 2018.
During the period, two financial assets would have moved from Stage 1 to Stage 2 (based on classifications if IFRS 9 had been applied as at 30 June 2018).
(b) Hospitality 6,271 This finance investment (a variable loan)
9 under IRFS 9 would have been classified
as stage 1 as at 30 June 2018 and moved
to stage 2 as at 31 December 2018. The
Directors, after taking advice from and
consulting with the Investment Managers,
have applied an IFRS 9 impairment/expected
credit loss provision of GBP31,821 as at
31 December 2018.
(b) Marine 895 This finance investment (a finance lease)
10 under IRFS 9 would have been classified
as stage 1 as at 30 June 2018 and moved
to stage 2 as at 31 December 2018. The
Directors, after taking advice from and
consulting with the Investment Managers,
have applied an IFRS 9 impairment/expected
credit loss provision of GBP2,243 as at
31 December 2018.
(c) Stage 3
The Directors, after taking advice from and consulting with the Investment Managers, consider that none of the Group's financial assets are stage 3.
(d) Restructurings
During the period, 3 investments totalling GBP15,434 (30 June 2018: 5 investments totalling GBP41,052,100) were restructured resulting in repayment terms being amended. As at year end, the Group continues to hold them at the carrying value in the financial statements.
The table below details the investments that have been restructured:
Ref Industry Carrying Description
Amount
(GBP 000)
(d) Medical 9,336 This finance investment (a secured loan)
1 was restructured during the period and
split into two new investments, a secured
loan and equity. The secured loan has
been classified stage 1 as at 31 December
2018 and is now performing.
(d) Transportation 1,121 As at 30 June 2018, the Group held a loan
2 which was past due but not impaired, underlying
investments were sold during the period
and the loan was substantially repaid.
As part of the sale, a new loan was entered
into by the Group. The loan has been classified
stage 1 as at 31 December 2018 and is
now performing. For further details refer
to the description in ref (a) 2.
(d) Environment 4,977 This finance investment (a finance lease)
3 was restructured during the period, resulting
in payment terms being amended. The finance
lease has been classified stage 1 as at
31 December 2018 and is now performing.
15,434
===========
18. Derivative Financial Liabilities
As at 31 December 2018, the Group had the following open forward foreign exchange contracts:
Notional
Buy/Sell Fair Value / GBP Settlement Date
Currency Foreign Currency GBP Equivalent Month/Year
GBP/EUR 15,522,418 13,758,474 (181,972) January 2019
GBP/USD 105,982,571 84,005,718 1,143,017 March 2019
GBP/EUR 7,070,000 6,315,319 (46,890) March 2019
GBP/EUR 41,697,847 36,839,367 (725,619) April 2019
GBP/USD 40,550,000 30,921,153 (753,474) April 2019
-----------------
(564,938)
=================
As at 30 June 2018, the Group had the following open forward foreign exchange contracts:
Notional
Buy/Sell Fair Value / GBP Settlement Date
Currency Foreign Currency GBP Equivalent Month/Year
GBP/USD 105,521,498 74,806,700 (5,086,049) July 2018
GBP/EUR 57,470,940 50,429,935 (407,636) July 2018
GBP/USD 14,600,724 10,749,659 (290,718) August 2018
GBP/USD 6,186,957 4,661,661 (6,536) September 2018
GBP/EUR 13,160,000 11,650,079 (15,765) September 2018
GBP/USD 27,689,331 20,677,843 (198,000) October 2018
GBP/EUR 15,192,238 13,296,758 (180,019) October 2018
(6,184,723)
-----------------
19. Related Party Transactions
Below are details of any significant updates to the related party disclosure in the Annual Report and Audited Consolidated Financial Statements for the year ended 30 June 2018.
During the period, the management fees due to the Investment Managers amounted to GBP2,347,577 (31 December 2017: GBP2,549,561). At 31 December 2018, GBP395,004 (30 June 2018: GBP383,035) of the management fees was payable to the Investment Managers and GBP177,273 (30 June 2018: GBP390,000) was receivable from the Investment Managers, refer to notes 1 and 11 for further information.
Under the Investment Management Agreement, the Investment Managers are also entitled to structuring fees, which are based on the value of new investments (these are not paid by the Group). During the period, structuring fees of GBP11,702 (31 December 2017: GBP176,690) were received by the Investment Managers.
The Investment Managers also receive commitment fees, that are paid by investees direct (these are not paid by the Group). During the period, commitment fees of GBP476,339 (31 December 2017: GBP111,914) were received by the Investment Managers.
SQN Asset Finance (Ireland) DAC
The Group holds the following bonds issued by SQN Asset Finance (Ireland) DAC ("SQN Ireland"), an unconsolidated structured entity in the Republic of Ireland:
31 December 2018 30 June 2018
EUR denominated bonds EUR45,894,303 EUR41,873,813(1)
USD denominated bonds $42,259,745 $22,273,980(1)
GBP denominated bonds GBP50,574,335 GBP25,089,897(1)
The UK Investment Manager acts as investment advisor to SQN Ireland.
(1) Comparatives were restated to disclose the principal balance and not the total drawings.
Share Interest
The table below details the Ordinary Shares and 2016 C Shares held by directors of the UK Investment Manager in the Company:
31 December 2018 30 June 2018
Director Number of Number of Number of Ordinary Number of
Ordinary Shares 2016 C Shares Shares 2016 C Shares
Neil Roberts 149,645 45,734 149,645 45,734
Tim Spring 162,816 61,802 162,816 61,802
The table below details the Ordinary Shares and 2016 C Shares held by the Directors in the Company:
31 December 2018 30 June 2018
Director Number of Number of Number of Ordinary Number of
Ordinary Shares 2016 C Shares Shares 2016 C Shares
Peter Niven 79,858 3,860 79,858 3,860
John Falla 19,637 3,829 19,637 3,829
Christopher
Spencer 19,929 3,845 19,929 3,845
Paul Meader(1) 47,000 - 47,000 -
(1) The shares are held in the name of Sarah Kingwell, the spouse of Paul Meader.
20. Events after the Reporting Period
On 21 December 2018, the Company declared a dividend of 0.6042p per Ordinary Share and per 2016 C Share, for the month ended 30 November 2018. The dividends were paid to shareholders on 21 January 2019.
On 28 January 2019, the Company declared a dividend of 0.6042p per Ordinary Share and per 2016 C Share, for the month ended 31 December 2018. The dividends were paid to shareholders on 1 March 2019.
On 25 February 2019, the Company declared a dividend of 0.6042p per Ordinary Share and per 2016 C Share, for the month ended 31 January 2019. The dividends will be paid to shareholders on 29 March 2019.
On 21 March 2019, the Company declared a dividend of 0.6042p per Ordinary Share and per 2016 C Share, for the month ended 28 February 2019. The dividends will be paid to shareholders on 26 April 2019.
21. Ultimate Controlling Party
In the opinion of the Directors, there is no single ultimate controlling party.
COMPANY INFORMATION
Non-Executive Directors
Peter Niven Christopher Spencer (Chairman) (Chairman of Audit and Risk Committee) John Falla Paul Meader (Chairman of Management Engagement (Chairman of Remuneration and Nomination Committee) Committee)
Registered Office
BNP Paribas House, St Julian's Avenue, St Peter Port, Guernsey, GY1 1WA
US Investment Manager
SQN Capital Management, LLC, 100 Wall Street, 28(th) Floor, New York, New York, 10005, USA
UK Investment Manager
SQN Capital Management (UK) Limited, Melita House, 124 Bridge Road, Chertsey, Surrey, KT16 8LA
Financial Adviser and Broker
Winterflood Securities Limited, The Atrium Building, Cannon Bridge House, 25 Dowgate, Hill, London, EC4R 2GA
Auditor
Baker Tilly CI Audit Limited, Mont Crevelt House, Bulwer Avenue, St Sampsons, Guernsey, GY2 4LH
Registrar
Link Market Services (Guernsey) Limited, Mont Crevelt House, Bulwer Avenue, St Sampsons, Guernsey, GY2 4LH (formerly Capita Registrars (Guernsey) Limited)
Principal Bankers
BNP Paribas Securities Services S.C.A., BNP Paribas House, St Julian's Avenue, St Peter Port, Guernsey, GY1 1WA
Designated Administrator, Custodian and Secretary
BNP Paribas Securities Services S.C.A., Guernsey Branch, BNP Paribas House, St Julian's Avenue, St. Peter Port, Guernsey, GY1 1WA
Receiving Agent
Link Asset Services Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU (formerly Capita Asset Services Corporate Actions)
Legal Advisers to the Group (English Law)
Stephenson Harwood LLP, 1 Finsbury Circus, London EC2M 7SH
Legal Advisers to the Group (Guernsey Law)
Mourant Ozannes, PO Box 186, 1 Le Marchant Street, St Peter Port, , Guernsey, GY1 4HP
Website www.sqnassetfinance.com
-ENDS-
Enquiries:
BNP Paribas Securities Services S.C.A., Guernsey Branch 01481 750 853
Company Secretary
Sharon Williams
A copy of the Company's Interim Report and Unaudited Condensed Consolidated Financial Statements will be posted to the shareholders of the Company. Copies are also available from the Company Secretary, BNP Paribas Securities Services S.C.A., Guernsey Branch at BNP Paribas House, St Julian's Avenue, St Peter Port, Guernsey, GY1 1WA, or on the Company's website www.sqnassetfinance.com.
Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
IR BLGDXXUDBGCU
(END) Dow Jones Newswires
March 26, 2019 03:00 ET (07:00 GMT)
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