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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Secured Income Fund Plc | LSE:SSIF | London | Ordinary Share | GB00BYMK5S87 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 6.00 | 4.00 | 8.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMSSIF
RNS Number : 2843Q
SQN Secured Income Fund PLC
11 September 2017
11 September 2017
SQN Secured Income Fund plc
("SSIF" or the "Company")
Annual Financial Report
For the year ended 30 June 2017
Hot Features
Premium
A copy of the Company's Annual Report and Financial
Statements for the year ended 30 June 2017 will
shortly be available to view and download from the
Company's website, www.thesmeloanfund.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.
Enquiries to:
Richard Hills, Chairman c/o Cantor Fitzgerald Europe
SQN Asset Management tel: +44 1932 575 888
Limited
Neil Roberts/Jeremiah
Silkowski/Dawn Kendall
Cantor Fitzgerald Europe tel: +44 20 7894 8016
Sue Inglis
Buchanan Communications tel: +44 20 7466 5000
Charles Ryland/Vicky
Hayns/Henry Wilson
www.thesmeloanfund.com
The following text is extracted from the Annual
Report and Financial Statements of the Company for
the year ended 30 June 2017.
Strategic Report
Highlights
30 June 30 June
2017 2016
Net assets [1] GBP52,048,000 GBP53,400,000
NAV per Ordinary Share 98.74p 101.31p
Share price at 30 June 2017 97.75p 89.75p
Discount to NAV 1.0% 11.4%
Profit for the year GBP2,440,000 GBP3,655,000
Dividend per share declared in respect
of the period [2] 6.375p 4.95p
Total return per Ordinary Share
(based on NAV) +4.6% +7.1%
Total return per Ordinary Share
(based on share price) +16.0% -6.5%
Ordinary Shares in issue 52,660,350 52,660,350
[1] In addition to the Ordinary Shares in issue,
50,000 Management Shares of GBP1 each are in
issue (see Note 21).
[2] Only 5.33p of the 6.375p per Ordinary Share dividends
declared out of the profits for the year ended
30 June 2017 had been deducted from the 30 June
2017 NAV as the twentieth and twenty first dividends
of 0.525p per Ordinary Share each had not been
provided for at 30 June 2017 as, in accordance
with IFRS, they were not deemed to be liabilities
of the Company at that date.
On 21 August 2017, the Company declared a dividend
of 0.525p per Ordinary Share for the period from
1 July 2017 to 31 July 2017. This dividend will
be paid on 29 September 2017.
Overview and Investment Strategy
General information
SQN Secured Income Fund plc (the "Company" or "SSIF")
was incorporated in England and Wales under the Companies
Act 2006 on 13 July 2015 with registered number 09682883.
It is an investment company, as defined in s833 of
the Companies Act 2006. Its shares were listed on
the London Stock Exchange Specialist Fund Segment
on 23 September 2015 ("Admission"). On 28 April 2017,
the Company changed its name from The SME Loan Fund
plc to SQN Secured Income Fund plc. In order to reflect
the new name of the Company, the ticker for the Ordinary
Shares was changed to SSIF, with effect from 2 May
2017.
Following the passing of resolutions at a general
meeting held on 27 April 2017, the investment objective
and investment policy was changed to the following:
Investment objective
The investment objective of the Company is to provide
Shareholders with attractive risk adjusted returns,
principally in the form of regular, sustainable dividends,
through investment predominantly in a range of secured
loans and other secured loan-based instruments originated
through a variety of channels and diversified by
way of asset class, geography and duration.
Investment policy
The Company intends to achieve its investment objective
by investing in a range of secured loan assets mainly
through wholesale secured lending opportunities,
secured trade and receivable finance and other collateralised
lending opportunities. Loan assets will include both
direct loans as well as other instruments with loan-based
investment characteristics (for example, but not
limited to, bonds, loan participations, syndicated
loans, structured notes, collateralised obligations
or hybrid securities) and may include (subject to
the limit set out below) other types of investment
(for example, equity or revenue- or profit-linked
instruments). The Company may make investments through
alternative lending platforms that present suitable
investment opportunities identified by the Manager.
The Company will seek to ensure that diversification
of its portfolio is maintained, with the aim of spreading
investment risk.
Geography
The Company will invest in loan assets in a broad
range of jurisdictions (although weighted towards
the UK, Continental Europe and North America) in
order to build a global portfolio of loan assets.
Asset classes
The Company will invest in a wide range of loan assets,
including: short-term lending such as invoice and
supply chain financing; mid-term lending such as
trade or short-term bridge finance; and long-term
lending such as the provision of fixed term loans
with standard covenants and subject to monthly or
quarterly interest payments.
Duration
The Company will hold a portfolio of loans and other
loan-based instruments with a range of durations
to maturity. This is intended to provide the Company
with both a liquid pool of assets ready for realisation,
as well as a reliable stream of longer-term income.
Security
The Company will seek to invest in loan assets with
a range of different types of security. Typically,
such security will be over a range of assets, including,
but not limited to, property, intellectual property,
tax credits, receivables, future income streams,
pledges of shares or other specific assets, ownership
of special purpose vehicles, personal or group company
guarantees or via credit insurance, or a combination
of these. Loan assets will be unsecured only in the
case of short-term lending or investment, where the
perceived level of risk in respect of the particular
asset is low given the quality of the counterparty,
credit assessment and design of the credit contract.
Sector
The Company will be indifferent to sector when allocating
funds for investment and, instead, will adhere to
the investment restrictions which apply to the Company's
loan portfolio as a whole in order to spread investment
risk.
Investment restrictions
The following investment restrictions (calculated
based on the Company's gross assets at the time of
investment or, if earlier, the date on which the
Company commits to making the relevant investment)
in respect of the deployment of the Company's capital
have been established in pursuit of its aim to maintain
a diversified investment portfolio and thus mitigate
concentration risks:
-- Geography
* Minimum exposure to loan assets invested in UK 60%
* Minimum exposure to loan assets in other
jurisdictions around the world 20%
-- Duration
* Minimum exposure to loan assets with a duration of
less than 18 months 10%
* Maximum exposure to loan assets with a duration of
more than 36 months 50%
-- Maximum single investment 10%
-- Maximum exposure to a single borrower or group 10%
Maximum exposure to loan assets sourced through
a single alternative lending platform or other
-- third party originator 25%
Maximum exposure to any individual wholesale
-- loan arrangement 25%
Maximum exposure to working capital loans
-- to alternative lending platforms 5%
Maximum exposure to loan asset which are neither
-- sterling-denominated nor hedged back to sterling 15%
-- Maximum exposure to unsecured loan assets 25%
Maximum exposure to assets (excluding cash
and cash-equivalent investments) which are
not loans or investments with loan-based investment
-- characteristics 10%
The Company will not invest in other listed closed-end
investment funds.
Borrowing
The Company (including, for this purpose, any special
purpose vehicles that may be established by the Company
in connection with obtaining leverage against any
of its assets) may employ borrowings (through bank
or other facilities) of up to 35% of the Company's
net asset value (calculated at the time of draw down),
which includes, on a look-through basis, borrowings
of any investee entity.
Hedging
The Company intends, to the extent it is able to
do so on terms that the Manager considers to be commercially
acceptable, to seek to arrange suitable hedging contracts,
such as currency swap agreements, futures contracts,
options and forward currency exchange and other derivative
contracts (including, but not limited to, interest
rate swaps and credit default swaps) with the sole
intention of hedging the Company's non-Sterling currency
exposure back to Sterling.
Cash management
The Company's un-invested or surplus capital or assets
may be invested in cash or cash equivalents (including
government or public securities (as defined in the
rules of the FCA), money market instruments, bonds,
commercial paper or other debt obligations with banks
or other counterparties having a "single A" (or equivalent)
or higher credit rating as determined by any internationally
recognised rating agency selected by the Board (which
may or may not be registered in the EU)). There is
no limit on the amount of cash or cash equivalents
that the Company may hold.
Changes to the investment policy
No material change will be made to the investment
policy without the approval of Shareholders by ordinary
resolution.
Chairman's Statement
Introduction
SQN Secured Income Fund plc is an investment company
listed on the LSE and domiciled in the UK. It invests
on a secured basis in and through small and medium
sized companies in the UK and the rest of the world
using fundamental credit skills.
I am pleased to update Shareholders with my second
Chairman's statement, covering the period under review
from 1 July 2016 to 30 June 2017. Over the last year,
the Company has undergone significant change, following
a strategic review. These changes include diversifying
the Shareholder base through a successful secondary
placing of the Ordinary Shares previously held by
GLI Finance Limited, the appointment of SQN Capital
Management, LLC and its UK subsidiary, SQN Asset
Management Limited, (together "SQN"), as manager
of the Company from 1 April 2017, a change of name
and changes to the Company's investment objective
and policy/strategy. Under SQN's stewardship, the
Company has been re-energised with the commencement
of a direct lending programme.
Performance and Markets
During the early part of the reporting period, despite
continuing to make platform investments, the Board
acknowledged that dividend income would not be able
to meet our previous expectations. In April 2017,
after the appointment of SQN as manager, we took
steps to adjust the dividend policy for a short period
whilst amendments were made to the portfolio. By
the end of the reporting period, SQN had made progress
in rebalancing the portfolio and committing the surplus
cash with the majority of investments being direct
rather than via platforms, and with sufficient earnings
from interest payments to support a regular dividend
payment of 6.25p for the current financial year.
For the reporting period ended 30 June 2017, the
Company generated a net profit of GBP2.4 million
and earnings per Ordinary Share of 4.63p. The Company's
NAV at 30 June 2017 was GBP52.0 million and NAV per
ordinary share 98.74p (cum income) compared with
GBP53.4 million and 101.31p as at 30 June 2016. The
total return for the reporting period was 4.6%.
Foreign exchange exposure on the 21.4% of non-Sterling
assets, as a percentage of total assets, was fully
hedged and any liquidity calls arising from the hedging
strategy are considered manageable within the Company's
cash flow.
Corporate Activity
On 1 April 2017, management of the investment portfolio
was transferred to SQN. Details of SQN's strong credentials
for performing this role are included in the Investment
Manager's report. In conjunction with the changes
to the Company's investment management arrangements,
our corporate broker also completed a successful
secondary placing of the Ordinary Shares previously
owned by GLI Finance Limited (representing 48% of
the issued share capital) substantially with new
investors.
At a general meeting held on 27 April 2017, the investment
objective and the policy of the Company were adjusted
to allow for greater concentration of investments
in quality, secured direct loans. In addition, the
Board was authorised to allot up to 250 million Ordinary
Shares and/or C Shares pursuant to a share issuance
programme. This share issuance programme will enable
the Company to raise additional capital promptly,
enabling it to take advantage of new investment opportunities,
thereby expanding and diversifying its investment
portfolio. In turn, an increase in the market capitalisation
of the Company should help to improve secondary market
liquidity in the Ordinary Shares and attract a larger,
more diversified Shareholder base. The Company will
be required to publish a prospectus before it can
issue Shares pursuant to any Share Issuance Programme.
SQN committed to achieving a number of milestones
(see Investment Manager's report) following their
appointment and I am pleased to report that these
have been achieved. This leaves the Company at the
end of this reporting period with a solid foundation
on which to support future capital raisings.
Strategic Review
Following its appointment in April 2017 SQN completed
a thorough strategic review of the Company's platform
investments, resulting in a rationalisation of platform-originated
or related investments.
At the time of SQN's appointment, approximately 31%
of the Company's assets were in cash with the remainder
already invested via platforms and through working
capital loans to platforms. Following the review,
a decision was taken by your Board, in conjunction
with the Manager, to cease making working capital
loans to platforms and to reduce the number of platforms
through which the Company conducts business. The
selection of preferred platforms has been made after
an in-depth analysis of their credit processes and
sector preferences, with a focus on diversification,
"best in class" and transparency. The Company is
confident that relationships with these remaining
platforms are strong and will continue to provide
consistent attractive deal flow. In the future, the
Company expects the percentage of the Company's portfolio
represented by platform-originated loans to reduce
in favour of direct lending. However, as the Company
grows, it will continue to allocate to platforms
meaningfully.
Earnings and Dividends
Dividends per Ordinary Share declared in respect
of the reporting period were 6.375p (see Note 5).
The Company elected to designate all dividends for
the year ended 30 June 2017 as interest distributions
to its Shareholders. In doing so, the Company took
advantage of UK tax treatment by "streaming" income
from interest-bearing investments into dividends
that will be taxed in the hands of Shareholders as
interest income.
The Company intends to distribute at least 85% of
its distributable income by way of dividends on a
monthly basis. During any year the Company may retain
some of the distributable income to smooth future
dividend flows.
The Company expects to achieve its annual dividend
target of 6.25p, rising to at least 7.00p from July
2018, and a total return target of at least 8.0%.
Discount
From the commencement of the reporting period and
until the announcement of SQN's appointment and the
secondary placing of the Ordinary Share held by GLI
Finance Limited on 8 March 2017, the Company traded
at an average discount to NAV of 6.9%. Since then,
this discount has closed materially. Given the substantial
improvement in outlook for the performance of the
Company and the radical changes undertaken, it is
hoped that this discount will continue to narrow.
Change of Name
With effect from 28 April 2017, further to the appointment
of SQN as the Company's manager and the change of
focus to direct loans, it was considered appropriate
to change the name of the Company from The SME Loan
Fund plc to SQN Secured Income Fund plc. The ticker
for the Ordinary Shares changed from SMEF LN to SSIF
LN on 2 May 2017.
Board of Directors
I am pleased to report that, after the changes made
to the Board in the last reporting period, its composition
has remained stable and no changes were made during
the current reporting period.
The Board has made good progress in engaging with
the new management team and have established regular
communications in line with governance guidelines.
As the Board expects the size of the Company to increase
substantially over the coming years it has decided
to appoint an additional director. An independent
search firm has been employed to find a suitable
individual.
Outlook
The Board has made significant progress towards both
improving corporate governance and the Company's
internal control processes. Rationalisation of platform
investments and increased secured direct lending
have also been addressed. Meanwhile the outlook for
direct lending opportunities remains very promising
and the Company has an abundant pipeline of investment
opportunities to consider over the coming months.
After a period of turbulence, I anticipate that following
the appointment of SQN as our Investment Manager,
the Company will now fulfil its mandate of delivering
stable income and a healthy risk-adjusted total return.
Richard Hills
Chairman
8 September 2017
Investment Manager's Report
Introduction
Welcome to the first Investment Manager's report
under the stewardship of SQN Asset Management Limited
("SQN AM"). We assumed responsibility for this mandate
on 1 April 2017 and I am delighted to report that
we have already made meaningful progress. We are
confident that after a thorough strategic review
and making our first few investments, the outlook
for the Company is good.
SQN Secured Income Fund plc is an investment company
listed on the LSE and domiciled in the UK. It invests
on a secured basis in and through small and medium
sized companies in the UK and the rest of the world
using fundamental credit skills.
SQN is a credit fund manager with a successful track
record in managing assets within an investment company
structure having launched the SQN Asset Finance Fund
in July 2014. The SQN Group has a total of circa
GBP750 million of assets under management and has
a core competency in credit management and we are
suitably resourced to deliver income and total return
in line with expectations. Most significantly, we
retain our own origination team within the SQN Group
which enables us to build a good pipeline of new
investment opportunities. We have offices in the
UK and the US.
The addition of SQN Secured Income Fund plc under
the SQN umbrella is a perfect complement to the existing
strategies managed by SQN, all focused on secured,
credit-driven investments with security provided
by underlying assets. Deal flow for SQN Secured Income
Fund plc is a natural progression of the existing
SQN business lines which has historically been captured
by entities with limited UK-focused capacity. SQN
Secured Income Fund plc now provides the opportunity
to target these investments that we believe will
produce above market, risk-adjusted returns and regular
income.
In the short window since our appointment:
* Dawn Kendall was appointed as managing director of
SQN AM.
* Amberton Asset Management Limited ("Amberton") was
appointed as sub-manager to ensure continuity of
relationships and smooth transition.
* A review of the platforms has been completed with
solid platforms retained.
* Performance of remaining platforms has improved.
* The remaining cash of 31% of the portfolio has been
invested under the Company's revised mandate,
focussed on direct investments.
* A new business pricing structure has been created at
rates between 9.5% and 11.5%, sufficient to increase
overall portfolio yield to meet the return targets.
* The majority of cash has been committed with a
healthy pipeline of new opportunities supporting a
future capital raise.
With the introduction of direct lending to the Company's
portfolio, an enhanced risk management regime has
been introduced. SQN AM's investment approach recognises
the significance of strong processes and a robust
governance regime and, accordingly, each drawdown
requires a "triple lock" sign off from its legal,
credit and portfolio management teams. This is in
addition to the extensive portfolio management and
platform relationship capabilities SQN AM inherited
within Amberton.
With the revision of the investment objective and
policy of the Company, we have pursued investments
in four core areas: secured trade finance, receivable
finance, wholesale lending and secured commercial
opportunities, including development loans and commercial
property in growth sectors. As is consistent with
other SQN AM programmes, we aim to avoid consumer
credit exposure. We consider this to be a prudent
approach that reduces risk of correlated performance
with any macro-economic headwinds.
At the time of SQN AM's appointment, approximately
a third of the Company's assets were in cash with
the remainder invested via platforms and through
working capital loans to platforms. Following a review,
a decision was taken to cease making working capital
loans to platforms and to reduce the number of platforms
through which the Company conducts business. The
selection of preferred platforms was made after an
in-depth analysis of their credit processes, sector
preferences and pricing structures, with an emphasis
on diversification, "best in class" and transparency.
The Company is confident that relationships with
these remaining platforms are strong and will continue
to provide good loan deal flow. In the future, the
percentage of the Company's portfolio represented
by platform-originated loans is expected to reduce
in favour of direct investments. However, it is intended
that platform-originated loans will continue to be
an important part of the portfolio and, as the Company
grows, should be of a meaningful size in the market.
Available cash has been primarily deployed into direct
lending opportunities originated by SQN AM. The nature
of these direct investments is diverse and provides
high levels of security with regard to covenant provision.
Each loan has been established making use of SQN
AM's extensive network of industry contacts and all
loans have been extended at rates of interest commensurate
with exceeding the Company's target returns (a target
annual dividend of 6.25p per share for the current
financial year, increasing to at least 7.00p per
share with effect from July 2018, and a target annual
return of at least 8%). Most pleasing is that loans
are with businesses where the Company expects to
nurture long term relationships as they grow.
In addition to targeting higher average yields, the
investments made since the change of manager have
also been of a longer duration keeping capital at
work and reducing reinvestment risk and drag. As
at July 2017, a little more than 35% of the portfolio
positions had investment terms of three years or
longer with just under 20% between one and two years.
The current average term is less than two years but
is targeted to increase now that the restrictive
provisions in the operating documents have been revised
and now allow for concentrations of more than 2.5%
for any single exposure. We believe, given the high-touch
nature of direct investments and the extensive due
diligence performed, appropriate diversification
can be achieved with an average transaction size
of circa 5% of the value of the Company.
Investment Outlook
Annual borrowing by UK SMEs is GBP75 billion and
is used to fund various things including business
expansion, purchase of premises, fixed assets or
capital expense to develop new products and markets.
As reported by the Bank of England and the British
Bankers' Association this demand is unlikely to diminish
given the contraction of total bank lending to this
segment of circa 15% over the last five years (2011
- GBP189 billion v 2016 - GBP164 billion). High Street
lenders (six banks) own more than 70% of this current
lending pool. Challenger banks have filled some of
the void, increasing their loan exposure by 31.5%
over the same period. However, their target market
is different to ours - their typical customers tend
to be either much smaller or much larger. This represents
a significant gap in the market for the Company,
as our preferred pool is providing flexible and sensible
financing to businesses with GBP5-20 million turnover
per year. We consider that we are well placed, when
compared with our peers, to make material positive
progress in this market.
Dawn Kendall
Managing Director
SQN Asset Management Limited
8 September 2017
Principal Risks
Risk is inherent in the Company's activities, but
it is managed through an ongoing process of identifying
and assessing risks and ensuring that appropriate
controls are in place. The key risks faced by the
Company, along with controls employed to mitigate
those risks, are set out below.
Macroeconomic risk
Adverse macroeconomic conditions may have a material
adverse effect on the Company's yield on investments,
default rate and cash flows. The Board and the Investment
Manager keep abreast of market trends and information
to try to prepare for any adverse impact.
The Company's assets are diversified by geography,
asset class, and duration, thereby reducing the impact
that macroeconomic risk may have on the overall portfolio.
Interest rate risk arises from the possibility that
changes in interest rates will affect future cash
flows and/or fair values of the Company's investments.
Exposure to interest rate risk is limited by the
use of fixed rate interest on the majority of the
Company's loans, thereby giving security over future
loan interest cash flows.
Currency risk is the risk that changes in foreign
exchange rates will impact future profits and net
assets. Currency risk is mitigated to a certain extent
through the use of forward foreign exchange contracts
to hedge movements in foreign currency exchange rates.
Credit risk
The Company invests in a range of secured loan assets
mainly through wholesale secured lending opportunities,
secured trade and receivable finance and other collateralised
lending opportunities. Prior to the change in Investment
Objective, which was approved at the general meeting
held on 27 April 2017, the Company invested in a
range of loans originated principally through investee
platforms with which the Sub-Investment Adviser is
familiar. Since the appointment of the new Investment
Manager and the change in the Investing Policy, the
Company has also increased its exposure to direct
loans. Significant due diligence is undertaken on
the borrowers of these loans and security taken to
cover the loans and to mitigate the credit risk on
such loans.
The key factor in underwriting secured loans is the
predictability of cash flow to allow the borrower
to perform as per the terms of the contract.
The Company has investment restrictions in place.
Therefore, as mentioned above, the Company's assets
are diversified by geography, asset class, and duration,
thereby reducing the impact that investment risk
may have on the overall portfolio.
The credit risk associated with the investments is
reduced not only by diversification but also by the
use of security. Despite the use of security, credit
risk is not reduced entirely and so the Investment
Manager and Sub-Investment Adviser monitor the recoverability
of the loans (on an individual loan basis) each month
and impairs loans where appropriate.
Platform risk
The Company is dependent on platforms, for that reducing
part of the loan portfolio originated through platforms,
to operate the loan portfolio (to bring new loans
to the Company's attention; to effectively monitor
those loans; and to pay and receive monies as necessary).
If a platform were no longer able to operate effectively
this could put at risk loans made with/through such
a platform and increase credit risk.
The Investment Manager and Sub-Investment Adviser
undertake due diligence on all the platforms and
part of this work is to confirm that the platforms
have disaster recovery policies in place whereby
a third party administrator would step in to manage
the loans in the event the platform could no longer
do so. If such an event were to occur, the Company's
approach would vary depending on the platform and
the circumstances, and would be determined by the
Board after discussion with the Investment Manager,
Sub-Investment Adviser and other advisers.
Regulatory risk
The Company's operations are subject to wide ranging
regulations, which continue to evolve and change.
Failure to comply with these regulations could result
in losses and damage to the Company's reputation.
The Company employs third party service providers
to ensure that regulations are complied with.
Reputational risk
The Company has been incorporated with an unlimited
life. However, in the event that the Ordinary Shares
have been trading at a discount to NAV of greater
than 10% for three consecutive months (calculated
on a rolling three monthly average of daily numbers),
the Company shall convene a general meeting to propose
a continuation resolution. If such a continuation
resolution is not passed, the Board will draw up
proposals for the winding-up or reconstruction of
the Company for submission to Shareholders. Any adverse
impact on the Company's reputation would likely result
in a fall in its share price, thereby increasing
the possibility of a continuation vote being proposed.
Details of the premium/discount of the share price
to NAV are disclosed below.
Environment, Employee, Social and Community Issues
As an investment company, the Company does not have
any employees or physical property, and most of its
activities are performed by other organisations.
Therefore, the Company does not combust fuel and
does not have any greenhouse gas emissions to report
from its operations, nor does it have responsibility
for any other emissions producing sources under the
Companies Act 2006 (Strategic Report and Directors'
Report) Regulations 2013.
The Board believes that the Company does not have
a direct impact on the community or environment and,
as a result, does not maintain policies in relation
to these matters.
Gender Diversity
The Board of Directors of the Company currently comprises
three male Directors. Further information in relation
to the Board's policy on diversity can be found in
the Directors' Remuneration Report.
Key Performance Indicators
The Board uses the following key performance indicators
("KPIs") to help to assess the Company's performance
against its objectives. Further information on the
Company's performance is provided in the Chairman's
Statement and the Investment Manager's Report.
Dividend yield
The Company distributes at least 85% of its distributable
income by way of dividends on a monthly basis. During
any year the Company may retain some of the distributable
income and use these to smooth future dividend flows.
Following discussions with the Investment Manager
regarding the anticipated returns from the Company's
portfolio (both in the shorter and longer terms),
the Company rebased its annual dividend target to
6.25p per Share, increasing to at least 7.00p per
Share with effect from July 2018. The monthly dividend
at the new rate of 0.525p per Share was first paid
in June 2017. Over the longer term, the Company will
be targeting an annual net asset value total return
of at least 8%.
The Company has (to date) announced dividends of
GBP3,356,000 (6.375p per Ordinary Share) for the
year ended 30 June 2017, being 86.0% of distributable
income for the year (see Notes 5 and 22 for further
details). To ensure the tax efficient streaming of
qualifying interest income, the Company may announce
an additional dividend out of the profits for the
year ended 2017, once the tax advisers have finalised
the tax computations.
NAV and total return
The Directors regard the Company's NAV as a key component
to delivering value to Shareholders, but believe
that total return (which includes dividends) is the
best measure for shareholder value.
Premium/discount of share price to NAV
The Board regularly monitors the premium/discount
of the price of the Ordinary Shares to the NAV per
share. As mentioned in Principal Risks above, in
the event that the Ordinary Shares have been trading
at a daily discount to NAV of greater than 10% for
three consecutive months (calculated on a rolling
three monthly average of daily numbers), the Board
will convene a general meeting to propose a continuation
resolution. If such a continuation resolution is
not passed, the Board will draw up proposals for
the winding-up or reconstruction of the Company for
submission to Shareholders. The adoption of the new
Articles of Association which include, amongst other
things, a provision for the continuation resolution
(by way of an ordinary resolution) if the Company's
net assets at 31 December 2019 are less than GBP250
million.
At 30 June 2017 the shares were trading at 97.75p,
a 1.00% discount to NAV. However, the three month
average share price was a 1.12% discount to NAV.
Richard Hills
Chairman
8 September 2017
Statement of Comprehensive Income
for the year ended 30 June 2017
Period
from
13 July
Year ended 2015 (incorporation)
30 June to 30 June
Note 2017 2016
GBP'000 GBP'000
Revenue
Investment income 4,462 3,762
Other income 4 1
------------ ------------
Total revenue 4,466 3,763
------------ ------------
Operating expenses
Management fees 7a (408) (295)
Other expenses 11 (209) (164)
Legal and professional fees (172) (71)
Administration fees 7b (144) (129)
Directors' remuneration 8 (128) (89)
Broker fee (119) (61)
------------ ------------
Total operating expenses (1,180) (809)
------------ ------------
Investment gains and losses
Movement in unrealised gains on
loans 15 (718) 939
Movement in unrealised gain on
investments at fair value through
profit or loss 16 (193) 242
Movement in unrealised gain on
investment in subsidiary (677) 677
Movement in unrealised gain on
derivative financial instruments 18 127 23
Realised gain on disposal of loans 782 -
Realised gain on disposal of investments
at fair value through profit or
loss 16 260 -
Realised gain on disposal of subsidiary 673 -
Realised loss on derivatives 18 (1,008) (1,214)
------------ ------------
Total investment gains and losses (754) 667
------------ ------------
Net profit from operating activities
before gain on foreign currency
exchange 2,532 3,621
Net foreign exchange (loss)/gain (87) 34
------------ ------------
Net profit before taxation 2,445 3,655
Taxation
Corporation tax 12 (5) -
------------ ------------
Profit and total comprehensive
income for the year/period attributable
to the owners of the Company 2,440 3,655
------------ ------------
Earnings per Ordinary Share (basic
and diluted) 13 4.63p 6.94p
------------ ------------
All of the items in the above statement are derived
from continuing operations.
There were no other comprehensive income items in
the year/period.
Except for unrealised investment gains and losses,
all of the Company's profit and loss items are distributable.
The accompanying notes form an integral part of the
financial statements.
Statement of Changes in Equity
for the year ended 30 June 2017
Called Share Special Profit
up share premium distributable and loss
Note capital account reserve account Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Opening balance at
13 July 2015 - - - - -
Profit for the period 22 - - - 3,655 3,655
Transactions with Owners in their capacity as owners:
Share capital issued 21 577 52,133 - - 52,710
Share issue costs 22 - (990) - - (990)
Dividends paid 5,22 - - (201) (1,774) (1,975)
Cancellation of share
premium account 22 - (51,143) 51,143 - -
------------ ------------ ------------ ------------ ------------
Total transactions
with Owners in their
capacity as owners 577 - 50,942 (1,774) 49,745
------------ ------------ ------------ ------------ ------------
At 30 June 2016 577 - 50,942 1,881 53,400
Profit for the year 22 - - - 2,440 2,440
Transactions with Owners in their capacity as owners:
Dividends paid 5,22 - - - (3,792) (3,792)
------------ ------------ ------------ ------------ ------------
Total transactions
with Owners in their
capacity as owners - - - (3,792) (3,792)
------------ ------------ ------------ ------------ ------------
At 30 June 2017 577 - 50,942 529 52,048
------------ ------------ ------------ ------------ ------------
There were no other comprehensive income items in
the year/period.
The above amounts are all attributable to the owners
of the Company.
The accompanying notes form an integral part of the
financial statements.
Statement of Financial Position
as at 30 June 2017
30 June 30 June
Note 2017 2016
GBP'000 GBP'000
Non-current assets
Loans at amortised cost 15 32,450 28,449
Investments at fair value through
profit or loss 16,17 258 1,981
------------ ------------
Total non-current assets 32,708 30,430
------------ ------------
Current assets
Loans at amortised cost 15 7,008 17,625
Cash held on client accounts
with platforms 15 1,144 359
Investment in subsidiary 14,17 - 41,088
Derivative financial instruments 17,18 150 23
Other receivables and prepayments 19 733 3,163
Cash and cash equivalents 13,376 2,192
------------ ------------
Total current assets 22,411 64,450
------------ ------------
Total assets 55,119 94,880
------------ ------------
Current liabilities
Amount due to subsidiary 14 - (41,088)
Other payables and accruals 20 (3,071) (392)
------------ ------------
Total liabilities (3,071) (41,480)
------------ ------------
------------ ------------
Net assets 52,048 53,400
------------ ------------
Capital and reserves attributable
to owners of the Company
Called up share capital 21 577 577
Other reserves 22 51,471 52,823
------------ ------------
Equity attributable to the owners
of the Company 52,048 53,400
------------ ------------
Net asset value per Ordinary
Share 23 98.74p 101.31p
------------ ------------
These financial statements of SQN Secured Income
Fund plc (registered number 09682883) were approved
by the Board of Directors on 8 September 2017 and
were signed on its behalf by:
Richard Hills Ken Hillen
Chairman Director
8 September 2017 8 September 2017
The accompanying notes form an integral part of the
financial statements.
Statement of Cash Flows
for the year ended 30 June 2017
Period
from 13
Year ended July 2015
30 June (incorporation)
2017 to 30 June
2016
GBP'000 GBP'000
Cash flows from operating activities
Net profit before taxation 2,445 3,655
Adjustments for:
Movement in unrealised gains on loans 718 (939)
Movement in unrealised gain on investment
at fair value through profit or loss 193 (242)
Movement in unrealised gain on investment
in subsidiary 677 (677)
Movement in unrealised gain on derivatives (127) (23)
Realised gain on disposal of loans (782) -
Realised gain on disposal of investments
at fair value through profit or loss (260) -
Realised gain on disposal of subsidiary (673) -
Realised loss on derivatives 1,008 1,214
Interest received and reinvested by
platforms (1,596) (1,505)
Capitalised interest - (23)
Decrease/(increase) in investments 11,710 (9,439)
------------ ------------
Net cash inflow/(outflow) from operating
activities before working capital
changes 13,313 (7,979)
Increase in other receivables and
prepayments (1,011) (624)
Increase in other payables and accruals 2,806 260
------------ ------------
Net cash inflow/(outflow) from operating
activities 15,108 (8,343)
Cash flows from financing activities
Proceeds from issue of Management
Shares - 50
Proceeds from issue of Ordinary Shares - 12,801
Share issue costs paid - (473)
Dividends paid (3,924) (1,843)
------------ ------------
Net cash (outflow)/inflow from financing
activities (3,924) 10,535
------------ ------------
Increase in cash and cash equivalents
in the year/period 11,184 2,192
Cash and cash equivalents at the beginning
of the year/period 2,192 -
------------ ------------
Cash and cash equivalents at 30 June
2017 13,376 2,192
------------ ------------
Supplemental cash flow information
Non-cash transaction - receipt of
seed portfolio for issue of Ordinary
Shares - 40,271
Non-cash transaction - interest received
and reinvested by platforms 1,596 1,505
The accompanying notes form an integral part of the
financial statements.
Notes to the Financial Statements
for the year ended 30 June 2017
1. General information
The Company was incorporated in England and Wales
under the Companies Act 2006 on 13 July 2015 with
registered number 09682883 and its shares were listed
on the London Stock Exchange Specialist Fund Segment
on 23 September 2015 ("Admission").
The Company is an investment company as defined in
s833 of the Companies Act 2006.
Investment objective
A change to the investment objective and investment
policy were approved by Shareholders at an general
meeting held on 27 April 2017. The new investment
objective and investment policy are as below.
The investment objective of the Company is to provide
Shareholders with attractive risk adjusted returns,
principally in the form of regular, sustainable dividends,
through investment predominantly in a range of secured
loans and other secured loan-based instruments originated
through a variety of channels and diversified by
way of asset class, geography and duration.
Investment policy
The Company achieves its investment objective by
investing in a range of secured loan assets mainly
through wholesale secured lending opportunities,
secured trade and receivable finance and other collateralised
lending opportunities. Loan assets include both direct
loans as well as other instruments with loan-based
investment characteristics (for example, but not
limited to, bonds, loan participations, syndicated
loans, structured notes, collateralised obligations
or hybrid securities) and may include (subject to
the limit set out below) other types of investment
(for example, equity or revenue- or profit-linked
instruments). The Company may make investments through
alternative lending platforms that present suitable
investment opportunities identified by the Manager.
The Company will seek to ensure that diversification
of its portfolio is maintained, with the aim of spreading
investment risk.
2. Statement of compliance
a) Basis of preparation
These financial statements present the results of
the Company for the year ended 30 June 2017. These
financial statements have been prepared in accordance
with International Financial Reporting Standards
("IFRS"), as adopted by the European Union.
The financial statements for the period ended 30
June 2016 were consolidated as, as at 30 June 2016,
the Company held a wholly owned subsidiary. The subsidiary
was liquidated during the current year (see note
14 for further details). Therefore, the information
presented within these financial statements, including
the comparative information, represents the Company
only position.
These financial statements have not been prepared
in full accordance with the Statement of Recommended
Practice ("SORP") for investment trusts issued by
the AIC in November 2014 and updated in January 2017
with consequential amendments, as the main driver
of the SORP is to disclose the allocation of expenses
between revenue and capital, thereby enabling a user
of the financial statements to determine distributable
reserves. However, with the exception of investment
gains and losses, all of the Company's profit and
loss items are of a revenue nature as it does not
allocate any expenses to capital. Therefore, the
Directors believe that full compliance with the SORP
would not be of benefit to users of the financial
statements. Further details on the distributable
reserves are provided in note 22.
b) Basis of measurement
The financial statements have been prepared on a
historical cost basis, except for financial assets
(including derivative instruments), which are measured
at fair value through profit or loss. The financial
statements have been prepared on a going concern
basis.
c) Segmental reporting
The Directors are of the opinion that the Company
is engaged in a single economic segment of business,
being investment in a range of SME loan assets.
d) Use of estimates and judgements
The preparation of financial statements in conformity
with IFRSs requires management to make judgements,
estimates and assumptions that affect the application
of policies and the reported amounts of assets and
liabilities, income and expenses. The estimates and
associated assumptions are based on historical experience
and various other factors that are believed to be
reasonable under the circumstances, the results of
which form the basis of making the judgements about
carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results
may differ from these estimates.
The estimates and underlying assumptions are reviewed
on an ongoing basis. Revisions to accounting estimates
are recognised in the period in which the estimate
is revised, if the revision affects only that period,
or in the period of the revision and future periods,
if the revision affects both current and future periods.
Judgements made by management in the application
of IFRSs that have a significant effect on the financial
statements and estimates with a significant risk
of material adjustment in the next year are discussed
in note 4.
3. Significant accounting policies
a) Foreign currency
Foreign currency transactions are translated into
Sterling using the exchange rates prevailing at the
dates of the transactions. Foreign exchange gains
and losses resulting from the settlement of such transactions
and from the translation at period-end exchange rates
of monetary assets and liabilities denominated in
foreign currencies are recognised in the Statement
of Comprehensive Income. Translation differences on
non-monetary financial assets and liabilities are
recognised in the Statement of Comprehensive Income.
b) Financial assets and liabilities
The financial assets and liabilities of the Company
are defined as loans, bonds with loan type characteristics,
investments at fair value through profit or loss,
cash and cash equivalents, other receivables and other
payables.
Recognition
The Company recognises a financial asset or a financial
liability when, and only when, it becomes a party
to the contractual provisions of the instrument. Purchases
and sales of financial assets that require delivery
of assets within the time frame generally established
by regulation or convention in the marketplace are
recognised on the trade date, i.e. the date that the
Company commits to purchase or sell the asset.
Initial measurement
Financial assets and financial liabilities at fair
value through profit or loss are recorded in the Statement
of Financial Position at fair value. All transaction
costs for such instruments are recognised directly
in profit or loss.
Financial liabilities not designated as at fair value
through profit or loss, such as loans, are initially
recognised at fair value, being the amount issued
less transaction costs.
Subsequent measurement
After initial measurement, the Company measures financial
assets designated as loans and receivables, and financial
liabilities not designated as at fair value through
profit or loss, at amortised cost using the effective
interest rate method, less impairment allowance. Gains
and losses are recognised in the Statement of Comprehensive
Income when the asset or liability is derecognised
or impaired. Interest earned on these instruments
is recorded separately as investment income.
After initial measurement, the Company measures financial
instruments which are classified at fair value through
profit or loss at fair value. Subsequent changes in
the fair value of those financial instruments are
recorded in net gain or loss on financial assets and
liabilities at fair value through profit or loss.
Derecognition
A financial asset (or, where applicable, a part of
a financial asset or part of a group of similar assets)
is derecognised where:
* The rights to receive cash flows from the asset have
expired; or
* The Company has transferred its rights to receive
cash flows from the asset or has assumed an
obligation to pay the received cash flows in full
without material delay to a third party under a
"pass-through" arrangement; and
* Either (a) the Company has transferred substantially
all the risks and rewards of the asset, or (b) the
Company has neither transferred nor retained
substantially all the risks and rewards of the asset,
but has transferred control of the asset.
When the Company has transferred its rights to receive
cash flows from an asset (or has entered into a pass-through
arrangement) and has neither transferred nor retained
substantially all the risks and rewards of the asset
nor transferred control of the asset, the asset is
recognised to the extent of the Company's continuing
involvement in the asset.
The Company derecognises a financial liability when
the obligation under the liability is discharged,
cancelled or expires.
Impairment
A financial asset is impaired when the recoverable
amount is estimated to be less than its carrying amount.
An impairment loss is recognised immediately in the
Statement of Comprehensive Income, unless the relevant
asset is carried at a revalued amount, in which case
the reversal of the impairment is treated as a revaluation
decrease.
b) Cash and cash equivalents
Cash and cash equivalents are defined as cash in hand,
demand deposits and short-term, highly liquid investments
readily convertible to known amounts of cash and subject
to insignificant risk of changes in value.
c) Receivables and prepayments
Receivables are carried at the original invoice amount,
less allowance for doubtful receivables. Provision
is made when there is objective evidence that the
Company will be unable to recover balances in full.
Balances are written-off when the probability of recovery
is assessed as being remote.
d) Transaction costs
Transaction costs incurred on the acquisition of loans
are capitalised upon recognition of the financial
asset.
e) Income and expenses
Bank interest and loan interest are recognised on
a time-proportionate basis using the effective interest
rate method.
Dividend income is recognised when the right to receive
payment is established.
All expenses are recognised on an accruals basis.
All of the Company's expenses (with the exception
of share issue costs, which are charged directly to
the distributable reserve) are charged through the
Statement of Comprehensive Income in the period in
which they are incurred.
f) Taxation
The Company is exempt from UK corporation tax on its
chargeable gains as it satisfies the conditions for
approval as an investment trust. The Company is, however,
liable to UK corporation tax on its income. However,
the Company has elected to take advantage of modified
UK tax treatment in respect of its "qualifying interest
income" in order to deduct all, or part, of the amount
it distributes to Shareholders as dividends as an
"interest distribution".
g) Changes in accounting policy and disclosures
New and amended standards and interpretations
The accounting policies adopted are consistent with
those of the previous financial year. The Company
adopted the following new and amended relevant IFRS
in the year:
IFRS Financial Instruments: Disclosures - annual
7 improvements.
IFRS Disclosure of Interests in Other Entities -
12 amendments regarding the application of the
consolidation exception.
IAS 1 Presentation of Financial Statements - amendments
resulting from the disclosure initiative.
The adoption of the above standards did not have an
impact on the financial position or performance of
the Company.
h) Accounting standards issued but not yet effective
The International Accounting Standards Board ("IASB")
has issued/revised a number of relevant standards
with an effective date after the date of these financial
statements. Any standards that are not deemed relevant
to the operations of the Company have been excluded.
The Directors have chosen not to early adopt these
standards and interpretations and they do not anticipate
that they, with the exception of IFRS 9, would have
a material impact on the Company's financial statements
in the period of initial application.
Effective date
IFRS Share-based payments
2 1 January 2018
IFRS Financial Instruments
9 1 January 2018
IFRS Revenue from Contracts with Customers
15 1 January 2018
IAS Statement of Cash Flows
7 1 January 2017
Annual improvements to IFRSs 2014-2016
Cycle 1 January 2017
IFRIC Foreign Currency Transactions
22 and Advance Consideration 1 January 2018
In July 2014, the IASB issued the final version of
IFRS 9, Financial Instruments that replaces IAS 39,
Financial Instruments: Recognition and Measurement
and all previous versions of IFRS 9. IFRS 9 brings
together all three aspects of the accounting for financial
instruments project: classification and measurement,
impairment and hedge accounting. IFRS 9 is effective
for annual periods beginning on or after 1 January
2018, with early application permitted. Except for
hedge accounting, retrospective application is required
but providing comparative information is not compulsory.
For hedge accounting, the requirements are generally
applied prospectively, with some limited exceptions.
The Company plans to adopt the new standard on the
required effective date. The Company has performed
a high-level impact assessment of all three aspects
of IFRS 9. This preliminary assessment is based on
currently available information and may be subject
to changes arising from further detailed analyses
or additional reasonable and supportable information
being made available to the Company in the future.
Overall, the Company expects no significant impact
on its balance sheet and equity, and will perform
a more detailed assessment in 2017.
i) Classification and measurement
The classification of financial assets will be based
on the Company's business model and the contractual
cash flow characteristics of its investments. The
Company does not expect a significant impact on its
Statement of Financial Position or equity on applying
the classification and measurement requirements of
IFRS 9. The Board expects to continue measuring loans
and receivables at amortised cost, and at fair value
all financial assets and liabilities currently held
at fair value.
ii) Impairment
IFRS 9 changes the basis of recognition of impairment
on financial assets from an incurred loss to an expected
credit loss approach for assets held at amortised
cost. This introduces a number of new concepts and
changes to the approach to provisioning compared with
the current methodology under IAS 39:
* Expected credit losses are based on an assessment of
the probability of default, loss given default and
exposure at default, discounted to give a net present
value. The expected credit loss should be probability
weighted and take into account all reasonable and
supportable information.
iii) Hedge accounting
The Company does not currently designate any hedges
as effective hedging relationships which qualify for
hedge accounting. Therefore, the Company does not
expect there to be any impact with respect to hedge
accounting on the Company as a result of applying
IFRS 9.
The Directors are currently evaluating the impact
of IFRS 9 upon the Company. However, it is noted that
the measurement of impairment will involve increased
complexity and judgement, including estimation of
probabilities of default. The use of security on a
large (and increasing) proportion of the Company's
loans will limit the impact of adopting IFRS 9. Therefore,
it is not expected to have a material financial impact.
However, it will not be practical to disclose reliable
financial impact estimates until the implementation
programme is further advanced.
The impact that IFRS 15 will have on the Company's
financial statements is also considered to be immaterial
because the Company does not have any contracts with
customers which meet the definition under IFRS 15.
4. Use of Judgements and estimates
The preparation of the Company's financial statements
requires the Directors to make judgements, estimates
and assumptions that affect the reported amounts recognised
in the financial statements and disclosure of contingent
liabilities. However, uncertainty about these assumptions
and estimates could result in outcomes that could
require a material adjustment to the carrying amount
of the asset or liability in future periods.
Estimates and assumptions
The Company based its assumptions and estimates on
parameters available when the financial statements
were approved. However, existing circumstances and
assumptions about future developments may change due
to market changes or circumstances arising beyond
the control of the Company. Such changes are reflected
in the assumptions when they occur.
i) Recoverability of loans and other receivables
The Directors assess the recoverability of the Company's
loans to determine whether any impairment provision
is required. There is an indicator of impairment for
a loan when the borrower has failed to make a payment,
either capital or interest, when contractually due
and, upon assessment, the Company feels that full
recovery is not expected. The Company assesses at
each reporting date (and at least on a monthly basis)
whether there is objective evidence that a loan, or
group of loans, classified as loans at amortised cost,
is impaired. As part of this process:
* Platforms are contacted to determine default and
delinquency levels of individual loans;
* Consideration is given as to whether payment has been
received after the balance sheet date or whether
loans are secured; and
* Recovery rates are estimated.
At 30 June 2017, the Company's financial instruments
at fair value through profit or loss comprised unlisted
equity shares and derivative financial instruments.
See note 17 for details of the bases of valuation.
5. Dividends
The Company distributes at least 85% of its distributable
income earned in each financial year by way of dividends.
Following discussions with the Investment Manager
regarding the anticipated returns from the Company's
portfolio (both in the shorter and longer terms),
with effect from May 2017, the Company rebased its
annual dividend target to 6.25p per Share, increasing
to at least 7.0p per Share with effect from July 2018.
The monthly dividend at the new rate of 0.525p per
Share was first paid in June 2017. Over the longer
term, the Company will be targeting an annual net
asset value total return of at least 8%. The Company
intends to continue to pay monthly dividends to Shareholders.
The Company elected to designate all of the dividends
for the year ended 30 June 2017 as interest distributions
to its Shareholders. In doing so, the Company took
advantage of UK tax treatment by "streaming" income
from interest-bearing investments into dividends that
will be taxed in the hands of Shareholders as interest
income.
To date, the Company has declared the following dividends
in respect of earnings for the year ended 30 June
2017:
Total dividend
declared in
respect of
Announcement earnings in Amount per
date Pay date the year Ordinary Share
GBP'000
23 August 2016 23 September 2016 316 0.60p
21 September
2016 28 October 2016 316 0.60p
25 October 2016 28 November 2016 316 0.60p
21 November
2016 23 December 2016 316 0.60p
12 December
2016 27 January 2017 316 0.60p
12 January 2017 24 February 2017 316 0.60p
15 February
2017 24 March 2017 316 0.60p
24 March 2017 28 April 2017 316 0.60p
19 May 2017 23 June 2017 276 0.525p
23 June 2017 28 July 2017 276 0.525p
21 July 2017 25 August 2017 276 0.525p
------------ ------------
Dividends declared (to date)
for the year 3,356 6.375p
Less, dividends paid after
the year end (552) (1.05)p
Add, dividends paid in the
year in respect of the prior
period 988 1.876p
------------ ------------
Dividends paid
in the year 3,792 7.201p
------------ ------------
In accordance with IFRS, dividends are only provided
for when they become a contractual liability of the
Company. Therefore, during the year a total of GBP3,792,000
(2016: GBP1,975,000) was incurred in respect of dividends,
none of which was outstanding at the reporting date
(2016: none). The twentieth and twenty first dividends
of GBP276,000 each had not been provided for at 30
June 2017 as, in accordance with IFRS, they were not
deemed to be liabilities of the Company at that date.
All dividends in the year were paid out of revenue
(and not capital) profits.
On 21 August 2017, the Company declared a dividend
of 0.525 pence per share for the period from 1 July
2017 to 31 July 2017. This dividend will be paid on
29 September 2017.
6. Related parties
As a matter of best practice and good corporate governance,
the Company has adopted a related party policy which
applies to any transaction which it may enter into
with any Director, the Investment Manager, Amberton
Asset Management Limited ("Amberton" or the "Sub-Investment
Adviser") or any of their affiliates which would constitute
a "related party transaction" as defined in, and to
which would apply, Chapter 11 of the Listing Rules.
In accordance with its related party policy, the Company
obtained: (i) the approval of a majority of the Directors;
and (ii) a third-party valuation in respect of these
transactions from an appropriately qualified independent
adviser.
Transactions with GLI Finance Limited ("GLIF")
In September 2016, as payment of the balance due from
GLIF, the Company conducted a transaction with GLIF
that combined the novation of platform loans and equity
in platforms, both to and from GLIF, with a cash transfer
to GLIF of GBP1,049,000.
In January 2017, the Company sold a further two platform
loans to GLIF, for a combined total of GBP685,000.
In the previous period, the Company purchased GLI
Alternative Finance Guernsey Limited from GLIF, on
Admission, in return for 40,270,763 Ordinary Shares
in the Company. In addition, during the previous period
the Company purchased loans and associated interest
of GBP4,675,000 from GLIF.
The Company also purchased a loan from Sancus Limited
(a subsidiary of GLIF) of GBP1,250,000 as part of
a co-investment agreement, for which GLIF was the
borrowing party of the original loan. As at 30 June
2016, the outstanding balance of the loan was GBP1,250,000
and during the period ended 30 June 2016, the Company
earned interest on the loan of GBP84,000, of which
GBP4,000 was outstanding as at 30 June 2016.
Further, on 23 December 2015, GLIF agreed to buy back
a loan and associated accrued interest from the Company.
GLIF agreed that interest would continue to accrue
to the Company, on the same terms, until such time
that GLIF repaid the loan.
As at 30 June 2016, GLIF owed the Company GBP2,392,000,
which related solely to the above mentioned loan and
accrued interest.
On 30 June 2016, GLIF guaranteed 100% of the outstanding
principal of a GBP1,200,000 loan from the Company
to one of the platforms and all of the associated
interest.
Loan to Medical Equipment Solutions Limited ("MESL")
In June 2017, the Company loaned GBP1,380,000 to MESL,
whose Chairman is Neil Roberts, who is also chairman
of SQN Capital Management, LLC. Loan interest of GBP3,000
was earned in the year, all of which was outstanding
at 30 June 2017. The loan bears interest at 10.0%
per annum and is for a period of five years from the
date of drawdown. The loan is to be repaid via 60
monthly payments.
Loan to Amberton Properties (Oxford) Limited
In December 2016, the Group loaned GBP1,300,000 to
Amberton Properties (Oxford) Limited via Sancus Group
and received interest of 8% per annum, in advance,
being GBP46,000 for the duration of the loan. The
loan was repaid in full in May 2017.
Transactions with subsidiary undertaking
Details of the transactions with the Company's previous
subsidiary undertaking are disclosed in note 14.
7. Key contracts
a) Investment Manager
With effect from 1 April 2017, SQN Asset Management
Limited ("SQN UK") and SQN Capital Management, LLC
("SQN US") were appointed as the Investment Manager
and Amberton ceased to act as investment manager.
Amberton was appointed as Sub-Investment Adviser to
the Investment Manager with effect from 1 April 2017.
The Investment Manager has responsibility for managing
the Company's portfolio. For their services, the Investment
Manager is entitled to a management fee at a rate
equivalent to the following schedule (expressed as
a percentage of NAV per annum, before deduction of
accruals for unpaid management fees for the current
month):
* 1.0% per annum for NAV lower than or equal to GBP250
million;
* 0.9% per annum for NAV greater than GBP250 million
and lower than or equal to GBP500 million; and
* 0.8% per annum for NAV greater than GBP500 million.
The management fee is payable monthly in arrears on
the last calendar day of each month. No performance
fee is payable by the Company to the Investment Manager.
The Company may also incur transaction costs for the
purposes of structuring investments for the Company.
These costs form part of the overall transaction costs
that are capitalised at the point of recognition and
are taken into account by the Investment Manager when
pricing a transaction. When structuring services are
provided by the Investment Manager or an affiliate
of them, they shall be entitled to charge an additional
fee to the Company equal to up to 1.0% of the cost
of acquiring the investment (ignoring gearing and
transaction expenses). This cost will not be charged
in respect of assets acquired from the Investment
Manager, the funds they manage or where they or their
affiliates do not provide such structuring advice.
The Investment Manager has agreed to bear all the
broken and abortive transaction costs and expenses
incurred on behalf of the Company. Accordingly, the
Company has agreed that the Investment Manager may
retain any commitment commissions received by the
Investment Manager in respect of investments made
by the Company save that if such commission on any
transaction were to exceed 1.0% of the transaction
value, the excess would be paid to the Company.
With effect from 1 April 2017, Amberton was no longer
directly appointed by the Company and was not entitled
to a fee from the Company. The fees of the Sub-Investment
Adviser are borne by the Investment Manager.
During the year, a total of GBP408,000 (2016: GBP295,000)
was incurred in respect of management fees (GBP278,000
to Amberton and GBP130,000 to SQN UK (2016: GBP295,000
to Amberton)), of which GBP43,000 (2016: GBP93,000
to Amberton) was payable at the reporting date.
b) Administration fees
Elysium Fund Management Limited ("Elysium") is entitled
to an administration fee of GBP100,000 per annum in
respect of the services provided in relation to the
administration of the Company, together with time
based fees in relation to work on investment transactions.
During the year, a total of GBP144,000 (2016: GBP129,000)
was incurred in respect of administration fees, of
which GBP31,000 (2016: GBP35,000) was payable at the
reporting date.
A set-up fee of GBP25,000 was also paid to Elysium
in the period ended 30 June 2016.
8. Directors' remuneration
During the year, a total of GBP128,000 (2016: GBP89,000)
was incurred in respect of Directors' remuneration,
GBP9,000 of which was payable at the reporting date
(2016: none). No bonus or pension contributions were
paid or payable on behalf of the Directors. Further
details can be found in the Directors' Remuneration
Report.
9. Key management and employees
The Company had no employees during the year (2016:
none). Therefore, there were no key management (except
for the Directors) or employee costs during the year.
10. Auditor's remuneration
For the year ended 30 June 2017, total fees, plus
VAT, charged by RSM UK Audit LLP, together with amounts
accrued at 30 June 2017, amounted to GBP45,000 (2016:
GBP121,000), of which GBP42,000 (2016: GBP44,000)
related to audit services, GBP3,000 (2016: GBP15,000)
was in respect of tax services, and GBPnil (2016:
GBP62,000) (included in Share issue costs) related
to reporting accountant and tax work on the IPO. As
at 30 June 2017, GBP38,000 (2016: GBP23,000) was due
to RSM UK Audit LLP.
11. Other expenses
Period
from 13
July 2015
Year ended (incorporation)
30 June to 30
2017 June 2016
GBP'000 GBP'000
Audit fees (note 10) 42 44
Accountancy and taxation fees 37 -
Registrar fees 30 17
Custodian fee 25 19
Listing fees 22 14
Website costs 17 18
Other expenses 15 15
Travel costs 6 13
Directors' liability insurance 6 6
Printing costs 6 3
Auditors' non-audit and taxation fees
(note 10) 3 15
------------ ------------
209 164
------------ ------------
12. Taxation
The Company has received confirmation from HMRC that
it satisfied the conditions for approval as an investment
trust, subject to the Company continuing to meet the
eligibility conditions in s.1158 of the Corporation
Tax Act 2010 and the ongoing requirements for approved
investment trust companies in chapter 3 or part 2
of the Investment Trust (approved Company) Tax Regulations
2011 (Statutory Instrument 2011.2999). The Company
intends to retain this approval and self-assesses
compliance with the relevant conditions and requirements.
As an investment trust the Company is exempt from
UK corporation tax on its chargeable gains. The Company
is, however, liable to UK corporation tax on its income.
However, the Company has elected to take advantage
of modified UK tax treatment in respect of its "qualifying
interest income" in order to deduct all, or part,
of the amount it distributes to Shareholders as dividends
as an "interest distribution".
Period from
13 July
Year ended 2015 (incorporation)
30 June to 30 June
2017 2016
GBP'000 GBP'000
Corporation tax:
- -
* Current year
* Adjustments in relation to prior period ([1]) 5 -
------------ ------------
Total tax expense for the year/period 5 -
------------ ------------
[1] The Company made interest distributions in relation
to the prior year based on estimated taxable profit
for that period. The adjustment of GBP5,000 relates
to the corporation tax charge on the residual taxable
profit which transpired upon finalisation of the
corporation tax return.
Period from
13 July
Year ended 2015 (incorporation)
30 June to 30 June
2017 2016
GBP'000 GBP'000
Reconciliation of tax charge:
Profit before taxation 2,445 3,655
------------ ------------
Tax at the standard UK corporation
tax rate of 20% 489 731
Effects of:
* Non-taxable investment gains and losses 150 (133)
* Interest distributions (671) (598)
* Tax losses carried forward 32 -
* Adjustments in relation to prior period 5 -
------------ ------------
Total tax expense 5 -
------------ ------------
Domestic corporation tax rates in the other jurisdictions
in which the Company operated were as follows:
Period from
13 July
Year ended 2015 (incorporation)
30 June to 30 June
2017 2016
GBP'000 GBP'000
United Kingdom 20% 20%
Guernsey nil nil
Due to the Company's status as an investment trust
and the intention to continue to meet the required
conditions, the Company has not provided for deferred
tax on any capital gains and losses.
13. Earnings per Ordinary Share
The earnings per Ordinary Share of 4.63p (2016: 6.94p)
is based on a profit attributable to the owners of
the Company of GBP2,440,000 (2016: GBP3,655,000) and
on a weighted average number of 52,660,350 (2016:
52,660,350) Ordinary Shares in issue since Admission.
There is no difference between the basic and diluted
earnings per share.
14. Investment in subsidiary undertaking
The Company's previously wholly-owned subsidiary,
GLI Alternative Finance Guernsey Limited, was liquidated
on 16 May 2017. Before this date, the subsidiary,
which had been incorporated in Guernsey, had been
dormant for several months.
As at 30 June 2016, the investment in the subsidiary,
carried at fair value through profit or loss, was
held at GBP41,088,000, and the Company owed GBP41,088,000
to the subsidiary.
15. Loans at amortised cost
Period
from 13
July 2015
Year ended (incorporation)
30 June to 30 June
2017 2016
GBP'000 GBP'000
Loans 40,381 45,494
Unrealised gain* 221 939
------------ ------------
Balance at year/period end 40,602 46,433
------------ ------------
Loans: Current 7,008 17,625
Non-current 32,450 28,449
Cash held on client accounts with
platforms 1,144 359
------------ ------------
Loans at amortised cost 40,602 46,433
------------ ------------
*Unrealised gain
Foreign exchange on non-Sterling
loans 651 1,334
Impairments (430) (395)
------------ ------------
Unrealised gain 221 939
------------ ------------
The weighted average interest rate of the loans as
at 30 June 2017 was 8.58% (2016: 9.49%).
There is an indicator of impairment for a loan when
the borrower has failed to make a payment, either
capital or interest, when contractually due. The Company
assesses at each reporting date (and at least on a
monthly basis) whether there is objective evidence
that a loan or group of loans, classified as loans
at amortised cost, is impaired. As part of this process:
* Platforms are contacted to determine default and
delinquency levels of individual loans; and
* Recovery rates are estimated.
At 30 June 2017, repayments of GBP1,031,000 (2016:
GBP181,000) were past due, aged as below. However,
the Company assessed the recoverability of the loans
and did not consider any impairment necessary.
30 June 2017 30 June 2016
GBP'000 GBP'000
Less than 30 days overdue 385 16
More than 30 days but less
than 90 days overdue - 165
More than 90 days but less
than a year overdue 646 -
------------ ------------
1,031 181
------------ ------------
At 30 June 2017, the Board considered GBP430,000 (2016:
GBP395,000) of loans to be impaired as, following
routine investigation of loan performance, the Investment
Manager received evidence of delayed and missed interest
payments in respect of the below loans. This evidence
indicated that the loans' recoverability would be
less than their carrying value and by liaising directly
with the platforms to establish a recovery rate, Amberton
had estimated a recoverable amount as at 30 June 2017.
30 June 2017 30 June 2016
GBP'000 GBP'000
Funding Knight 307 285
UK Bond Network 104 -
MyTripleA 19 -
Liftforward - 110
------------ ------------
Total impairment 430 395
------------ ------------
During the year, GBP454,000 (2016: nil) of loans were
written off and included within Realised gain on disposal
of loans in the Statement of Comprehensive Income.
16. Investments at fair value through profit or loss
Period from
13 July 2015
Year ended (incorporation)
30 June 2017 to 30 June 2016
GBP'000 GBP'000
Balance brought forward 1,981 -
Additions in the year/period 181 1,739
Disposals in the year/period (1,971) -
Realised gain on disposal
of investments at fair value 260 -
through profit or loss
Movement in unrealised gain
on investments at fair value
through profit or loss (193) 242
------------ ------------
Balance at year/period end 258 1,981
------------ ------------
For further information on the investments at fair
value through profit or loss, see note 17.
17. Fair value of financial instruments at fair value
through profit or loss
The following table shows financial instruments recognised
at fair value, analysed between those whose fair value
is based on:
* Quoted prices in active markets for identical assets
or liabilities (Level 1);
* Those involving inputs other than quoted prices
included in Level 1 that are observable for the asset
or liability, either directly (as prices) or
indirectly (derived from prices) (Level 2); and
* Those with inputs for the asset or liability that are
not based on observable market data (unobservable
inputs) (Level 3).
At 30 June 2017, the financial instruments designated
at fair value through profit or loss were as follows:
30 June 2017
Level Level Level Total
1 2 3
Financial assets GBP'000 GBP'000 GBP'000 GBP'000
Unlisted equity shares - - 258 258
Derivative financial instruments
(note 18) - 150 - 150
------------ ------------ ------------ ------------
Total financial assets designated
as at fair value through profit
or loss - 150 258 408
------------ ------------ ------------ ------------
At 30 June 2016, the financial instruments designated
at fair value through profit or loss were as follows:
30 June 2016
Level Level Level Total
1 2 3
Financial assets GBP'000 GBP'000 GBP'000 GBP'000
Unlisted equity shares - - 41,129 41,129
Unlisted preference shares - - 1,940 1,940
Derivative financial instruments
(note 18) - 23 - 23
------------ ------------ ------------ ------------
Total financial assets designated
as at fair value through profit
or loss - 23 43,069 43,092
------------ ------------ ------------ ------------
At 30 June 2017, the Company held unlisted equity
shares and derivative financial instruments. The unlisted
equity shares are carried at the net asset value of
the underlying entity, and derivative financial instruments,
being foreign currency forward contracts, are valued
at the forward foreign currency exchange rate at the
reporting date.
Level 2 financial instruments include foreign currency
forward contracts. They are valued using observable
inputs (in this case foreign currency spot rates).
Transfers between levels
There were no transfers between levels in the year
(2016: none).
18. Derivative financial instruments
During the year, the Company entered into foreign
currency forward contracts to hedge against foreign
exchange fluctuations. The Company realised a loss
of GBP1,008,000 (2016: loss of GBP1,214,000) on forward
foreign exchange contracts that settled during the
year.
As at 30 June 2017, the open forward foreign exchange
contracts were valued at GBP150,000 (2016: GBP23,000).
19. Other receivables and prepayments
30 June 2017 30 June 2016
GBP'000 GBP'000
Accrued interest 711 651
Prepayments 14 18
Due from GLI Finance Limited - 2,392
Other receivables 8 102
------------ ------------
733 3,163
------------ ------------
20. Other payables and accruals
30 June 2017 30 June 2016
GBP'000 GBP'000
Other payable (see below) 2,692 -
Deferred investment income 124 62
Legal and professional fees 53 -
Management fee 43 93
Transaction fees 40 -
Audit fee 35 23
Administration fee 31 35
Other payables and accruals 18 12
Broker fee 13 23
Directors' remuneration 9 -
Accountancy and taxation
fees 8 -
Taxation 5 -
Withholding taxation on dividends - 131
Travel costs - 13
------------ ------------
3,071 392
------------ ------------
At 30 June 2017, the Company had entered into a fully
signed agreement for a loan to a borrower. However,
the funds left the Company's bank account on 4 July
2017, creating a payable at the year end.
21. Share capital
30 June 2017 30 June 2016
GBP'000 GBP'000
Authorised share capital:
Unlimited number of Ordinary - -
Shares of 1 pence each
Unlimited C Shares of 10 - -
pence each
Unlimited Deferred Shares - -
of 1 pence each
50,000 Management Shares
of GBP1 each 50 50
------------ ------------
30 June 2017 30 June 2016
GBP'000 GBP'000
Called up share capital:
52,660,350 Ordinary Shares
of 1 pence each 527 527
50,000 Management Shares
of GBP1 each 50 50
------------ ------------
577 577
------------ ------------
The Management Shares, which are held by Amberton,
are entitled (in priority to any payment of dividend
of any other class of share) to a fixed cumulative
preferential dividend of 0.01% per annum on the nominal
amount of the Management Shares.
The Management Shares do not carry any right to receive
notice of, nor to attend or vote at, any general
meeting of the Company unless no other shares are
in issue at that time. The Management Shares do not
confer the right to participate in any surplus of
assets of the Company on winding-up, other than the
repayment of the nominal amount of capital.
22. Other reserves
Profit and
loss account
Special
distributable Non-distributable
reserve Distributable Total
GBP'000 GBP'000 GBP'000 GBP'000
Cancellation of share premium
account 51,143 - - 51,143
Realised revenue profit - 2,988 - 2,988
Realised investment gains
and losses - (1,214) - (1,214)
Unrealised investment gains
and losses - - 1,881 1,881
Dividends paid (201) (1,774) - (1,975)
------------ ------------ ------------ ------------
At 30 June 2016 50,942 - 1,881 52,823
Realised revenue profit - 3,194 - 3,194
Realised investment gains
and losses - 707 - 707
Unrealised investment gains
and losses - - (1,461) (1,461)
Dividends paid - (3,792) - (3,792)
------------ ------------ ------------ ------------
At 30 June 2017 50,942 109 420 51,471
------------ ------------ ------------ ------------
With the exception of investment gains and losses,
all of the Company's profit and loss items are of
a revenue nature as it does not allocate any expenses
to capital.
During the period ended 30 June 2016, and following
the approval of the Court, the Company cancelled
the share premium account and transferred GBP51,143,000
to a special distributable reserve, being premium
on issue of shares of GBP52,133,000 less share issue
costs of GBP990,000.
The two GBP276,000 dividends (see note 5), which
were declared on 23 June 2017 and 21 July 2017 respectively,
will be partly paid out of the GBP109,000 remaining
realised revenue profit with the balance being paid
from the special distributable reserve.
23. Net asset value per Ordinary Share
The net asset value per Ordinary Share is based on
the net assets attributable to the owners of the Company
of GBP52,048,000 (2016: GBP53,400,000), less GBP50,000
(2016: GBP50,000), being amounts owed in respect of
Management Shares, and on 52,660,350 (2016: 52,660,350)
Ordinary Shares in issue at the year end.
24. Financial Instruments and Risk Management
The Investment Manager manage the Company's portfolio
to provide Shareholders with attractive risk adjusted
returns, principally in the form of regular, sustainable
dividends, through investment predominantly in a range
of secured loans and other secured loan-based instruments
originated through a variety of channels and diversified
by way of asset class, geography and duration.
The Company will seek to ensure that diversification
of its portfolio is maintained, with the aim of spreading
investment risk.
Risk is inherent in the Company's activities, but
it is managed through a process of ongoing identification,
measurement and monitoring. The Company is exposed
to market risk (which includes currency risk, interest
rate risk and price risk), credit risk and liquidity
risk from the financial instruments it holds. Risk
management procedures are in place to minimise the
Company's exposure to these financial risks, in order
to create and protect Shareholder value.
Risk management structure
The Investment Manager is responsible for identifying
and controlling risks. The Board of Directors supervises
the Investment Manager and is ultimately responsible
for the overall risk management approach within the
Company.
The Company has no employees and is reliant on the
performance of third party service providers. Failure
by the Investment Manager, Administrator, Custodian,
Registrar or any other third party service provider
to perform in accordance with the terms of its appointment
could have a significant detrimental impact on the
operation of the Company.
The market in which the Company participates is competitive
and rapidly changing. The risks have not changed from
those detailed on pages 20 to 30 in the Company's
Prospectus, which is available on the Company's website.
Risk concentration
Concentration indicates the relative sensitivity of
the Company's performance to developments affecting
a particular industry or geographical location. Concentrations
of risk arise when a number of financial instruments
or contracts are entered into with the same counterparty,
or where a number of counterparties are engaged in
similar business activities, or activities in the
same geographic region, or have similar economic features
that would cause their ability to meet contractual
obligations to be similarly affected by changes in
economic, political or other conditions. Concentrations
of liquidity risk may arise from the repayment terms
of financial liabilities, sources of borrowing facilities
or reliance on a particular market in which to realise
liquid assets. Concentrations of foreign exchange
risk may arise if the Company has a significant net
open position in a single foreign currency, or aggregate
net open positions in several currencies that tend
to move together.
With the aim of maintaining a diversified investment
portfolio, and thus mitigating concentration risks,
the Company has established the following investment
restrictions in respect of the general deployment
of assets.
Geographical
The Company invests in a range of secured loan assets
in a broad spread of jurisdictions, but weighted towards
the UK, Continental Europe and North America.
At the 27 April 2017 general meeting, several changes
were approved by Shareholders to the Company's investment
restrictions (calculated based on the Company's gross
assets at the time of investment) to reflect the proposed
broader focus of its investment policy:
Investment Restriction Revised Investment Policy Prior Investment Policy
Geography
* Exposure to UK loan assets Minimum of 60% Maximum of 70%
* Minimum exposure to non-UK loan assets 20% 30%
Duration to maturity
* Minimum exposure to loan assets with duration of less
than 6 months None 20%
* Maximum exposure to loan assets with duration of 6 -
18 months and 18 - 36 months None 40% in each case
Maximum exposure to loan assets with duration of more than 36
months 50% 40%
Maximum single investment 10% 2.5%
Maximum exposure to single borrower or group 10% None
Maximum exposure to loan assets sourced through single
alternative lending platform or other
third party originator 25% None
Maximum exposure to any individual wholesale loan arrangement 25% None
Maximum exposure to loan assets which are neither
sterling-denominated nor hedged back to
sterling 15% None
Maximum exposure to unsecured loan assets 25% 50%
Maximum exposure to assets (excluding cash and cash-equivalent
investments) which are not
loans or investments with loan-based investment
characteristics 10% None
The Company complied with the investment restrictions
throughout the year up to 27 April 2017, when the
Company needed to increase the level of cash held
in order to meet the possible redemption facility.
Since then, the Company has been redeploying the cash
and at the date of signing this report, the Company
met all of its investment restrictions.
Market risk
(i) Price risk
Price risk exposure arises from the uncertainty about
future prices of financial instruments held. It represents
the potential loss that the Company may suffer through
holding market positions in the face of price movements.
The investments at fair value through profit or loss
(see notes 16 and 17) are exposed to price risk and
it is not the intention to mitigate the price risk.
At 30 June 2017, if the valuation of the investments
at fair value through profit or loss had moved by
5% with all other variables remaining constant, the
change in net assets would amount to approximately
+/- GBP13,000 (2016: +/- GBP99,000). The maximum price
risk resulting from financial instruments is equal
to the GBP258,000 carrying value of the investments
at fair value through profit or loss (2016: GBP1,981,000).
Market risk
(ii) Foreign currency risk
Foreign currency risk is the risk that the value of
a financial instrument will fluctuate because of changes
in foreign currency exchange rates. Currency risk
arises when future commercial transactions and recognised
assets and liabilities are denominated in a currency
that is not the Company's functional currency. The
Company invests in securities and other investments
that are denominated in currencies other than Sterling.
Accordingly, the value of the Company's assets may
be affected favourably or unfavourably by fluctuations
in currency rates and therefore the Company will necessarily
be subject to foreign exchange risks.
As at 30 June 2017, a proportion of the net financial
assets of the Company, excluding the foreign currency
forward contracts, were denominated in currencies
other than Sterling as follows:
Investments
at fair
value Foreign
through Loans Cash and Other currency
profit and cash payables forward
or loss receivables equivalents and accruals Exposure contract Net exposure
30 June GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2017
US
Dollars - 5,467 1,413 (29) 6,851 (6,854) (3)
Euros 59 4,775 87 (2) 4,919 (4,925) (6)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
59 10,242 1,500 (31) 11,770 (11,779) (9)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
30 June
2016
US
Dollars 1,940 7,144 318 - 9,402 (9,122) 280
Euros 25 5,467 10 - 5,502 (5,248) 254
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
1,965 12,611 328 - 14,904 (14,370) 534
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
In order to limit the exposure to foreign currency
risk, the Company entered into hedging contracts during
the year. At 30 June 2017, the Company held foreign
currency forward contracts to sell US$8,800,000 and
EUR5,550,000 (2016: US$12,100,000 and EUR6,300,000)
with a settlement date of 31 July 2017.
Other future foreign exchange hedging contracts may
be employed, such as currency swap agreements, futures
contracts and options. There can be no certainty as
to the efficacy of any hedging transactions.
At 30 June 2017, if the exchange rates for US Dollars
and Euros had strengthened/weakened by 5% against
Sterling with all other variables remaining constant,
net assets at 30 June 2017 would have decreased/increased
by GBP(7,000)/GBP8,000 (2016: GBP(27,000)/GBP29,000),
after accounting for the effects of the hedging contracts
mentioned above.
(iii) Interest rate risk
Interest rate risk arises from the possibility that
changes in interest rates will affect future cash
flows or the fair values of financial instruments.
The Company is exposed to risks associated with the
effects of fluctuations in the prevailing levels of
market interest rates on its financial instruments
and cash flow. However, due to the fixed rate nature
of the majority of the loans, cash and cash equivalents
of GBP13,376,000 (2016: GBP2,192,000 and loans of
GBP1,700,000) were the only interest bearing financial
instruments subject to variable interest rates at
30 June 2017. Therefore, if interest rates had increased/decreased
by 50 basis points, with all other variables held
constant, the change in value of interest cash flows
of these assets in the year would have been GBP67,000
(2016: GBP19,000).
Fixed Variable Non-interest
30 June 2017 interest interest bearing Total
GBP'000 GBP'000 GBP'000 GBP'000
Financial Assets
Loans 39,458 - - 39,458
Cash held on client
accounts with platforms - - 1,144 1,144
Investments at fair
value through profit
or loss - - 258 258
Derivative financial
instruments - - 150 150
Other receivables - - 719 719
Cash and cash equivalents - 13,376 - 13,376
------------ ------------ ------------ ------------
Total financial assets 39,458 13,376 2,271 55,105
------------ ------------ ------------ ------------
Financial Liabilities
Other payables - - (2,947) (2,947)
------------ ------------ ------------ ------------
Total financial liabilities - - (2,947) (2,947)
------------ ------------ ------------ ------------
Total interest sensitivity
gap 39,458 13,376 (676) 52,158
------------ ------------ ------------ ------------
30 June 2016
Financial Assets
Loans 44,374 1,700 - 46,074
Cash held on client
accounts with platforms - - 359 359
Investments at fair
value through profit
or loss - - 1,981 1,981
Investment in subsidiary - - 41,088 41,088
Derivative financial
instruments - - 23 23
Other receivables 2,317 - 828 3,145
Cash and cash equivalents - 2,192 - 2,192
------------ ------------ ------------ ------------
Total financial assets 46,691 3,892 44,279 94,862
------------ ------------ ------------ ------------
Financial Liabilities
Amount due to subsidiary - - (41,088) (41,088)
Other payables - - (330) (330)
------------ ------------ ------------ ------------
Total financial liabilities - - (41,418) (41,418)
------------ ------------ ------------ ------------
Total interest sensitivity
gap 46,691 3,892 2,861 53,444
------------ ------------ ------------ ------------
The Investment Manager manages the Company's exposure
to interest rate risk, paying heed to prevailing interest
rates and economic conditions, market expectations
and its own views as to likely moves in interest rates.
Although it has not done so to date, the Company may
implement hedging and derivative strategies designed
to protect investment performance against material
movements in interest rates. Such strategies may include
(but are not limited to) interest rate swaps and will
only be entered into when they are available in a
timely manner and on terms acceptable to the Company.
The Company may also bear risks that could otherwise
be hedged where it is considered appropriate. There
can be no certainty as to the efficacy of any hedging
transactions.
Credit risk
Credit risk is the risk that a counterparty to a financial
instrument will fail to discharge an obligation or
commitment that it has entered into with the Company,
resulting in a financial loss to the Company.
At 30 June 2017, credit risk arose principally from
cash and cash equivalents of GBP13,376,000 (2016:
GBP2,192,000) and balances due from the platforms
and SMEs of GBP40,602,000 (2016: GBP46,433,000). The
Company seeks to trade only with reputable counterparties
that the Investment Manager believes to be creditworthy.
The Company's credit risks principally arise through
exposure to loans provided by the Company, either
directly or through platforms. These loans are subject
to the risk of borrower default. Where a loan has
been made by the Company through a platform, the Company
will only receive payments on those loans if the corresponding
borrower through that platform makes payments on that
loan. The Investment Manager has sought to reduce
the credit risk by obtaining security on the majority
of the loans and by investing across various platforms,
geographic areas and asset classes, thereby ensuring
diversification and seeking to mitigate concentration
risks, as stated in the "risk concentration" section
earlier in this note.
The cash pending investment or held on deposit under
the terms of an Investment Instrument may be held
without limit with a financial institution with a
credit rating of "single A" (or equivalent) or higher
to protect against counterparty failure.
The Company may implement hedging and derivative strategies
designed to protect against credit risk. Such strategies
may include (but are not limited to) credit default
swaps and will only be entered into when they are
available in a timely manner and on terms acceptable
to the Company. The Company may also bear risks that
could otherwise be hedged where it is considered appropriate.
There can be no certainty as to the efficacy of any
hedging transactions.
Liquidity risk
Liquidity risk is defined as the risk that the Company
will encounter difficulties in realising assets or
otherwise raising funds to meet financial commitments.
The principal liquidity risk is contained in unmatched
liabilities. The liquidity risk at 30 June 2017 was
low since the ratio of cash and cash equivalents to
unmatched liabilities was 4:1 (2016: 6:1).
The Investment Manager manages the Company's liquidity
risk by investing primarily in a diverse portfolio
of loans, in line with the Prospectus and as stated
in the "risk concentration" section earlier in this
note. The maturity profile of the portfolio (excluding
the amount due from subsidiary (see Note 14)), as
detailed in the Investment Manager's Report, is as
follows:
30 June 2017 30 June 2016
Percentage Percentage
0 to 6 months 32.6 24.1
6 months to 18 months 11.0 21.8
18 months to 3 years 19.7 30.1
Greater than 3 years 36.7 24.0
------------ ------------
100.0 100.0
------------ ------------
Capital management
The Board's policy is to maintain a strong capital
base so as to maintain investor, creditor and market
confidence and to sustain future development of the
Company. The Company's capital comprises issued share
capital, retained earnings and a distributable reserve
created from the cancellation of the Company's share
premium account.
To maintain or adjust the capital structure, the Company
may issue new Ordinary and/or C Shares, buy back shares
for cancellation or buy back shares to be held in
treasury. During the year ended 30 June 2017, the
Company did not issue any new Ordinary or C shares,
nor did it buy back any shares for cancellation or
to be held in treasury (2016: none, other than those shares issued at launch). The Company is subject to externally imposed capital requirements in relation to its statutory requirement relating to dividend distributions to Shareholders. The Company meets the requirement by ensuring it distributes at least 85% of its distributable income by way of dividend. 25. Contingent assets and contingent liabilities There were no contingent assets or contingent liabilities in existence at the year end (2016: none). 26. Events after the reporting period Two dividends of 0.525p per Ordinary Share, which (in accordance with IFRS) were not provided for at 30 June 2017, have been declared out of the profits for the year ended 30 June 2017 (see note 5). On 21 August 2017, the Company declared a dividend of 0.525p per Ordinary Share for the period from 1 July 2017 to 31 July 2017. This dividend will be paid on 29 September 2017. There were no other significant events after the reporting period. 27. Parent and Ultimate Parent Company The Directors do not believe that the Company has an individual Parent or Ultimate Parent.
--- ENDS ---
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR UWSVRBAAKRAR
(END) Dow Jones Newswires
September 11, 2017 02:00 ET (06:00 GMT)
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