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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 : 3183B
SQN Secured Income Fund PLC
20 September 2018
20 September 2018
SQN Secured Income Fund plc
("SSIF" or the "Company")
Annual Financial Report
For the year ended 30 June 2018
Hot Features
Premium
A copy of the Company's Annual Report and Financial Statements for
the year ended 30 June 2018 will shortly be available to view and
download from the Company's website, http://www.sqncapital.com/managed-funds/sqn-secured-income-fund/about/.
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 Limited tel: +44 1932 575 888
Neil Roberts/Jeremiah Silkowski/Dawn
Kendall
Cantor Fitzgerald Europe tel: +44 44 20 7894 7719
Robert Peel
Buchanan Communications tel: +44 20 7466 5000
Charles Ryland/Henry Wilson
http://www.sqncapital.com/managed-funds/sqn-secured-income-fund/about/
The following text is extracted from the Annual Report and Financial
Statements of the Company for the year ended 30 June 2018.
Strategic Report
Key Points
30 June 2018 30 June 2017
Net assets [1] GBP51,539,000 GBP52,048,000
NAV per Ordinary Share 97.78p 98.74p
Share price at 30 June 2018 90.975p 97.75p
Discount to NAV 7.0% 1.0%
Profit for the year GBP2,809,000 GBP2,440,000
Dividend per share declared in respect of the
year 6.30p 6.375p
Dividend cover 0.99 1.16
Total return per Ordinary Share (based on NAV) +5.4% +4.6%
Total return per Ordinary Share (based on share
price) -0.5% +16.0%
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 22).
Overview and Investment Strategy
General information
SQN Secured Income Fund plc (the "Company", "Fund" 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 admitted to trading on the London Stock Exchange Specialist
Fund Segment on 23 September 2015 ("Admission").
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 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 ensures that diversification of its portfolio is maintained,
with the aim of spreading investment risk.
Geography
The Company invests 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 invests 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 holds 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 invests 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 is indifferent to sector when allocating funds for investment
and, instead, adheres 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:
Investment Restriction Investment Policy
Geography
* Exposure to UK loan assets
Minimum of 60%
* Minimum exposure to non-UK loan assets 20%
Duration to maturity
* Minimum exposure to loan assets with duration of less
than 6 months
* Maximum exposure to loan assets with duration of 6 -
18 months and 18 - 36 months
None
None
* Maximum exposure to loan assets with duration of more
than 36 months 50%
Maximum single investment 10%
Maximum exposure to single borrower or group 10%
Maximum exposure to loan assets sourced through single alternative lending platform or other
third party originator 25%
Maximum exposure to any individual wholesale loan arrangement 25%
Maximum exposure to loan assets 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
to 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
I am pleased to update Shareholders with my third Chairman's statement,
covering 1 July 2017 to 30 June 2018. After a period of significant
change, the Company has consolidated its position. Our investment
manager, SQN Asset Management Limited ("SQN"), has transformed the
Company into a much stronger and better placed investment vehicle.
The Company has now achieved dividend cover (boosted by its direct
lending activity) and is fulfilling its obligations to Shareholders
as set out in the strategic review undertaken by SQN at the time
of its appointment in April 2017.
Performance and Markets
The Company's NAV at 30 June 2018 was GBP51.5 million compared with
GBP52.0 million as at 30 June 2017. The total return achieved during
the period was 5.37%.
The foreign exchange exposure on non-Sterling assets (24.62% of NAV)
was fully hedged and any liquidity calls arising from the hedging
strategy are considered manageable within the Company's cash flow.
The underwriting discipline of SQN's investment management team has
been constant, with a number of new loans issued to strong businesses
in the UK and Europe. A fuller synopsis of these investments is provided
later, in the Investment Manager's report.
Development of the Company
On 1 April 2017, management of the investment portfolio was transferred
to SQN and at the same time a successful secondary placing of the
Ordinary Shares, previously owned by GLI Finance Limited, (48% of
the issued capital) was made, mainly to new investors.
At a general meeting held on 27 April 2017, the Board was authorised
to allot up to 250 million Ordinary Shares and/or C Shares pursuant
to a share issuance programme. This programme was designed to enable
the Company to raise additional capital to take advantage of investment
opportunities, thereby expanding and diversifying its investment
portfolio. In order to issue new shares the Company's shares are
required to trade at a premium to NAV and, as this was not the case
during this reporting period, no new shares were issued.
Given the passage of time, the Company is now required to publish
a new prospectus before it can issue further Shares pursuant to the
share issuance programme.
Investment 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 writing I am pleased to report that platform related
investments now represent less than 50% of the total investable capital
and by January 2019, it is expected that platform investments will
be reduced to below 30% of the portfolio. This represents a significant
improvement in the risk profile of the Company.
All of the Company's available cash is now committed to direct lending
opportunities originated by SQN through its extensive network of
industry contacts. The nature of these direct loans is diverse but
provides good levels of security through covenant provision and all
loans are at rates of interest exceeding the Company's target returns.
Earnings and Dividends
Earnings per Ordinary Share for the reporting period were 5.33p.
The Company elected to designate all dividends for the period ended
30 June 2018 as interest distributions to its Shareholders. By doing
so, it 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.
The Company achieved and covered its annual dividend target of 6.25p
for the period under review and has announced an increased annual
dividend target of 7.00p from July 2018, with a total return target
of at least 8.00%. This is in line with previous guidance provided
by the Board and the investment manager.
Discount
During the period, the Ordinary Shares traded at an average discount
to NAV of 4.27%. This is frustrating but the platform originated
SME sector is currently suffering from a negative perception in investors'
eyes due to poor investment practices followed by some of our competitors.
This has led to a general widening of discounts across the sector.
While this is disappointing we believe that good communication with
our existing and new investors will encourage stronger support for
our direct strategy. We are also working with the investment manager
to identify other potential measures to eradicate the discount.
Gearing
The Company has maintained its policy of operating without a banking
loan facility. This policy is periodically reviewed by the Board
in conjunction with the investment manager. As the percentage of
direct loans increases, giving SQN more control over the quality
of loans accepted, the Board may decide to incorporate a modest level
of gearing into the investment structure.
Board developments
After three years in the role of Chairman and following considerable
progress on many fronts, some of which are outlined in this report,
I have decided to step down as a Director of the Company and will
not seek re-election at the forthcoming AGM. Ken Hillen has been
asked by the Board to replace me and I am pleased to say that he
has agreed to take over as Chairman post the AGM. This, of course,
in turn creates a vacancy for the position of Chairman of the Audit
and Valuation Committee. Again I am pleased to report that Gay Coley
will take over this role post the AGM.
Outlook
The Manager has made good progress in eliminating the riskier elements
of the portfolio and has gone a long way towards building a diversified,
good quality direct lending book of business.
SQN is now fulfilling its original task of delivering stable income
from the Company's assets. The Board believes that the portfolio
now offers sound, risk-adjusted total returns and as SQN has a substantial
pipeline of deals waiting for funding the Board is keen to support
your manager over the coming year and hopes that the size of the
Company can be increased considerably.
I wish the Board and SQN well for the coming year and I hope to see
further positive developments in the Company.
Richard Hills
Chairman
19 September 2018
Investment Manager's Report
Overview
We are pleased to write our second Investment Manager's report in
respect of SQN Secured Income Fund plc.
We began management of this mandate on 1 April 2017, as defined in
a strategic review following our appointment. We are pleased to report
swift progress in restructuring the portfolio away from platform
investments into our own directly originated loans, implementation
of a cost saving programme and most importantly, confirmation that
dividend cover will be achieved within the time frame we outlined
upon assuming management of the Fund. We have achieved this without
gearing, whilst maintaining a keen eye on the risk management of
legacy positions and our newly imposed underwriting standards for
direct loans.
Background
SQN is a credit based alternative fund manager with a successful
track record in managing assets in an investment company structure.
The SQN Group has a total of GBP800 million assets under management
and a further GBP1 billion in advisory portfolios. Our core competency
is in credit management and we are suitably resourced to deliver
income and total return in line with the expectations we have set.
Most significantly, we retain our own origination team within the
SQN Group. This has enabled us to build a strong diversified pipeline
of new investment opportunities. We have offices in the UK and the
US and furthermore, we have started building an investment capability
in Ireland.
Over the course of the year, we have made very good progress on key
commitments made to the Board and Shareholders since our appointment.
These are:
* A covered dividend of 7p per Ordinary Share per annum,
to be achieved by July 2018, in line with Board and
investment manager guidance.
* Half of the portfolio has now been reinvested into
direct loans originated by SQN using our rigorous
underwriting process.
* Reduced exposure to platform investments, originally
100% of the portfolio, with an expectation that this
exposure will fall to circa 30% of the portfolio by
calendar year end 2018.
* Robust risk management of impairment reporting from
platforms.
* Timely implementation of IFRS 9 methodology, with the
lowest loss provisions in the peer group.
* Cost review and roll out of budgetary savings for
2018/19.
* Successful final transition from the Company's
previous sub-advisor.
* New hires to the team at SQN have included
relationship and origination staff.
* All cash as it becomes available is committed in a
timely fashion and we continue to see a healthy
pipeline of new opportunities.
Although it is a disappointment that the Ordinary Shares traded at
a discount to NAV during the reporting period, we have concluded
that the reasons are mostly external to SQN and beyond our control.
The alternative lending sector is very diverse and other funds have
had mixed performances leading to a trend for widening discounts
across the board. We acknowledge legitimate investor concern for
highly geared, platform-based strategies.
Comparison of our highly disciplined, diversified approach to underwriting
with a platform led strategy is difficult to justify due to an historic
overhang of market perception of the Fund's core activity. We stand
by our intention to reduce higher risk third party exposures to a
manageable 20% of the portfolio and are working hard to achieve this
by July 2019. Additionally, we are considering further measures to
eradicate the discount, which would enable the Company the opportunity
to raise further capital over the coming year.
As previously reported, we have pursued investments in three core
areas; secured trade finance, receivables finance and wholesale lending.
We have avoided consumer credit exposure by focussing on secured
commercial opportunities including development loans and commercial
property in growth sectors. We consider this a prudent approach which
diminishes the risk of exposure to macro-economic headwinds. In addition,
we have made loan commitments to European businesses benefitting
from opportunities created by the Brexit vote in the UK and despite
our strong presence in the U.S., we have demurred from adding to
our U.S. allocation for the time being until foreign exchange hedging
costs are less economically prohibitive. Our strategy is uncorrelated
to conventional asset markets and their consequent risks.
At the time of writing this report the Fund is positioned with a
ratio of 52%:48% in loans versus platforms compared to an allocation
of 100% to platforms when we assumed management of the Fund. We consider
this a significant boost to a favourable assessment of the portfolio.
It has also contributed to a reduction in duration as all new debt
facilities have been underwritten at between two and five year maturities.
All loans have been negotiated at good commercial rates meeting the
Company's requirements after fees and expenses for its target returns
to shareholders. Most pleasing is that the loans are with high quality
businesses with whom the Company expects to nurture long term relationships.
The SQN investment approach recognises the significance of strong
processes and robust governance. Accordingly, each drawdown requires
a "triple lock" sign off from our legal, credit and portfolio management
teams. With the introduction of direct lending to the Company's portfolio,
we implemented an enhanced risk management regime with a "red flag"
check list for each facility. This process has been further enhanced
during the reporting period and we have made significant progress
in developing this more refined risk model.
In accordance with IFRS 9 regulations, our portfolio reported the
lowest loss provision in the sector of 42 basis points, which we
expect to reduce further upon establishment of an 80:20 ratio of
loans to platform investments. This is testament to our continued
commitment to the highest credit underwriting standards.
Investment Outlook
As was noted last year, borrowers in the SME sector continued to
seek alternative lenders as high street banks have withdrawn from
the market. Our preferred investment size is in the GBP1 million
to GBP20 million range but as the Fund remains small, we are mainly
placing transactions of between GBP1 million and GBP5 million into
the portfolio. Our preferred maturity of between three and five years
is also attractive to these companies as it gives them breathing
space to grow and to focus on their core activities.
In July, the Bank of England raised the base rate, for the first
time since the global financial crisis started but this had very
little impact on our market and we expect to maintain rate discipline
on new underwriting. As the Brexit negotiations unfold, we are careful
to assess this risk for new loan business and we will avoid sectors
with significant exposure to a UK recession and sharp FX movements.
We have been encouraged by new business generated in Europe and will
continue to consider management buyout and acquisition finance deals
as they are presented to us. Demographic and valuation multiples
are still very attractive for debt financing of these companies.
In the US, we observe a similar opportunity as baby boomer owned
companies transition to the next generation. However, our appetite
for US deals is dampened given the costs associated with USD hedging,
arising from the dollar's continued strength versus our base currency
of Sterling.
As the peer to peer platform market matures with many deals reaching
their first refinancing period, we expect to observe continued write
downs from less disciplined competition. Consolidation in the sector
has already begun and we have already observed significant developments
that confirm this, having been offered mature loan books at significant
discount to par. By rapidly reducing our exposure to this part of
the market, we expect our loss provisions to be lower for longer.
This will ensure SQN maintains a high degree of integrity for our
Shareholders and deliver on our commitment to a 7p income and 8%
total return from September 2018 for the long term.
We are confident that our investment strategy remains valid and stand
by our decision to implement this approach. We look forward to engaging
with our investors over the coming months and an appreciation of
our share price closer to net asset value, which would lay the basis
for us to increase the capital base of the Fund.
Dawn Kendall
Managing Director
SQN Asset Management Limited
19 September 2018
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. The Company
is also exposed 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 monitors 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 undertakes 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
and other advisers.
The Company's exposure to platform risk is decreasing as it realises
platform loans and exits positions on certain platforms entirely.
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.
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 and one female Director. 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. The Company's annual dividend target for the
period under review was 6.25p per Share, and this is increased to
7.00p per Share with effect from July 2018.
The Company has announced dividends of GBP3,318,000 (6.30p per Ordinary
Share) for the year ended 30 June 2018, being 101.0% of distributable
income for the year (see Notes 5 and 23 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 2018, 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 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 2018 the shares were trading at 90.975p, a 6.96% discount
to NAV. However, the three month average share price was a 7.14%
discount to NAV.
Richard Hills
Chairman
19 September 2018
Statement of Comprehensive Income
for the year ended 30 June 2018
Year ended Year ended
Note 30 June 2018 30 June 2017
GBP'000 GBP'000
Revenue
Investment income 4,466 4,462
Other income 1 4
------------ ------------
Total revenue 4,467 4,466
------------ ------------
Operating expenses
Management fees 7a (518) (408)
Other expenses 11 (154) (209)
Broker fee (123) (119)
Administration fees 7b (116) (144)
Directors' remuneration 8 (114) (128)
Legal and professional fees (72) (172)
Transaction fees (59) -
------------ ------------
Total operating expenses (1,156) (1,180)
------------ ------------
Investment gains and losses
Movement in unrealised loss on loans 15 (315) (718)
Movement in unrealised gain on investments
at fair value through profit or loss 16 22 (193)
Movement in unrealised gain on investment
in subsidiary 14 - (677)
Movement in unrealised (loss)/gain on derivative
financial instruments 18 (182) 127
Realised (loss)/gain on disposal of loans (40) 782
Realised gain on disposal of investments
at fair value through profit or loss 16 - 260
Realised gain on disposal of subsidiary 14 - 673
Realised gain/(loss) on derivative financial
instruments 18 21 (1,008)
------------ ------------
Total investment gains and losses (494) (754)
------------ ------------
Net profit from operating activities before
loss on foreign currency exchange 2,817 2,532
Net foreign exchange loss (8) (87)
------------ ------------
Net profit before taxation 2,809 2,445
Taxation
Corporation tax 12 - (5)
------------ ------------
Profit and total comprehensive income for
the year attributable to the owners of the
Company 2,809 2,440
------------ ------------
Earnings per Ordinary Share (basic and diluted) 13 5.33p 4.63p
------------ ------------
All of the items in the above statement are derived from continuing
operations.
There were no other comprehensive income items in the year.
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 2018
Called up Special distributable Profit and
Note share capital reserve loss account Total
GBP'000 GBP'000 GBP'000 GBP'000
At 1 July 2016 577 50,942 1,881 53,400
Profit for the year 23 - - 2,440 2,440
Transactions with Owners in their capacity as owners:
Dividends paid 5,23 - - (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
Profit for the year 23 - - 2,809 2,809
Transactions with Owners in their capacity as owners:
Dividends paid 5,23 - - (3,318) (3,318)
------------ ------------ ------------ ------------
Total transactions with Owners
in their capacity as owners - - (3,318) (3,318)
------------ ------------ ------------ ------------
At 30 June 2018 577 50,942 20 51,539
------------ ------------ ------------ ------------
There were no other comprehensive income items in the year.
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 2018
30 June
Note 2018 30 June 2017
GBP'000 GBP'000
Non-current assets
Loans at amortised cost 15 31,918 32,450
Investments at fair value through profit
or loss 16,17 280 258
------------ ------------
Total non-current assets 32,198 32,708
------------ ------------
Current assets
Loans at amortised cost 15 12,445 7,008
Cash held on client accounts with platforms 15 196 1,144
Derivative financial instruments 17,18 - 150
Other receivables and prepayments 19 772 733
Cash and cash equivalents 6,125 13,376
------------ ------------
Total current assets 19,538 22,411
------------ ------------
Total assets 51,736 55,119
------------ ------------
Current liabilities
Other payables and accruals 20 (165) (3,071)
Derivative financial instruments 17,18 (32) -
------------ ------------
Total liabilities (197) (3,071)
------------ ------------
------------ ------------
Net assets 51,539 52,048
------------ ------------
Capital and reserves attributable to owners
of the Company
Called up share capital 22 577 577
Other reserves 23 50,962 51,471
------------ ------------
Equity attributable to the owners of the
Company 51,539 52,048
------------ ------------
Net asset value per Ordinary Share 24 97.78p 98.74p
------------ ------------
These financial statements of SQN Secured Income Fund plc (registered
number 09682883) were approved by the Board of Directors on 19 September
2018 and were signed on its behalf by:
Richard Hills Ken Hillen
Chairman Director
19 September 2018 19 September 2018
The accompanying notes form an integral part of the financial statements.
Statement of Cash Flows
for the year ended 30 June 2018
Year ended Year ended
30 June 30 June 2017
2018
GBP'000 GBP'000
Cash flows from operating activities
Net profit before taxation 2,809 2,445
Adjustments for:
Movement in unrealised loss on loans 315 718
Movement in unrealised gain on investments at
fair value through profit or loss (22) 193
Movement in unrealised gain on investment in
subsidiary - 677
Movement in unrealised loss/(gain) on derivative
financial instruments 182 (127)
Realised loss/(gain) on disposal of loans 40 (782)
Realised gain on disposal of investments at fair
value through profit or loss - (260)
Realised gain on disposal of subsidiary - (673)
Realised (gain)/loss on derivative financial
instruments (21) 1,008
Amortisation of transaction fees 59 -
Interest received and reinvested by platforms (595) (1,596)
Capitalised interest (312) -
(Increase)/decrease in investments (3,443) 11,710
Taxation paid (5) -
------------ ------------
Net cash (outflow)/inflow from operating activities
before working capital changes (993) 13,313
Increase in other receivables and prepayments (39) (1,011)
(Decrease)/increase in other payables and accruals (2,901) 2,806
------------ ------------
Net cash (outflow)/inflow from operating activities (3,933) 15,108
Cash flows from financing activities
Dividends paid (3,318) (3,924)
------------ ------------
Net cash outflow from financing activities (3,318) (3,924)
------------ ------------
(Decrease)/increase in cash and cash equivalents
in the year (7,251) 11,184
Cash and cash equivalents at the beginning of
the year 13,376 2,192
------------ ------------
Cash and cash equivalents at 30 June 2018 6,125 13,376
------------ ------------
Supplemental cash flow information
Non-cash transaction - interest received 907 1,596
The accompanying notes form an integral part of the financial statements.
Notes to the Financial Statements
for the year ended 30 June 2018
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 admitted to trading 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
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 2018. These financial statements have been
prepared in accordance with International Financial Reporting Standards
("IFRS"), as adopted by the European Union.
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 23.
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 IFRS 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 IFRS 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.
c) Cash and cash equivalents
Cash and cash equivalents are defined as cash in hand, demand deposits
and short-term, highly liquid investments readily convertible to known
amounts of cash and subject to insignificant risk of changes in value.
d) 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.
e) Transaction costs
Transaction costs incurred on the acquisition of loans are capitalised
upon recognition of the financial asset and amortised over the term
of the respective loan.
f) Income and expenses
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.
g) Taxation
The Company is exempt from UK corporation tax on its chargeable gains
as it satisfies the conditions for approval as an investment trust.
The Company is, however, liable to UK corporation tax on its income.
However, the Company has elected to take advantage of modified UK
tax treatment in respect of its "qualifying interest income" in order
to deduct all, or part, of the amount it distributes to Shareholders
as dividends as an "interest distribution".
h) 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:
IAS 7 Statement of Cash Flows - Disclosure initiative
The Company has applied these amendments for the first time in the
current year. The amendments require an entity to provide disclosures
that enable users of financial statements to evaluate changes in liabilities
arising from financing activities, including both cash and non-cash
changes.
Apart from the additional disclosure in Note 21, the application of
these amendments has had no impact on the Company's financial statements.
i) 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 1 January
2 2018
IFRS Financial Instruments 1 January
9 2018
IFRS Revenue from Contracts with Customers 1 January
15 2018
IAS 12 Income Taxes (amendments resulting from Annual
Improvements 2015-2017 Cycle (income tax consequences 1 January
of dividends)) 2019
IAS 23 Borrowing Costs (amendments resulting from
Annual Improvements 2015-2017 Cycle (borrowing 1 January
costs eligible for capitalisation) 2019
IFRIC Foreign Currency Transactions and Advance Consideration 1 January
22 2018
IFRIC Uncertainty over Income Tax Treatments 1 January
23 2019
IFRS 9: Financial Instruments
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 with effect from 1 July
2018. The Company has performed an impact assessment of all three
aspects of IFRS 9:
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 will continue to
measure loans and receivables at amortised cost, and at fair value
for 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 is probability weighted and takes 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.
IFRS 9 provisioning will lead to a one-off decrease in the Company's
NAV of 0.42% from 1 July 2018. All material loss provisions are related
to platform impairments on investments made before the Investment
Manager took control of the portfolio. Since assuming management of
the Company on 1 April 2017, SQN Asset Management Limited has reduced
platform exposure from 100% to under 50%, delivering on the strategy
of providing income from direct lending originated and underwritten
solely by the Investment Manager. The Company has managed the risk
posed by peer to peer platform exposure effectively and will continue
to reduce the overall exposure to these platforms to the target weight
of 20% of the whole portfolio.
Given that the adjustment to NAV is driven purely by a revised accounting
methodology, it will have no impact on the Company's future cash flows.
Underlying performance is unaffected as this change is purely an accounting
adjustment and has no bearing on the loans held within the Company.
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.
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.
i) Recoverability of loans and other receivables
Following the adoption of IFRS 9 on 1 July 2018, the approach to recognising
impairment has changed slightly. This is explained in note 3(i). This
did not affect the carrying value of the loans at 30 June 2018.
At 30 June 2018, 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 7.00p per Share for dividends
paid out of reserves for the period from 1 July 2018 onwards, the
first dividend of which will be paid on 28 September 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 2018 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 2018:
Total dividend
declared in respect
of earnings in Amount per
Announcement date Pay date the year Ordinary Share
GBP'000
21 August 2017 29 September 2017 276 0.525p
22 September 2017 27 October 2017 276 0.525p
23 October 2017 24 November 2017 276 0.525p
22 November 2017 29 December 2017 276 0.525p
21 December 2017 26 January 2018 276 0.525p
19 January 2018 23 February 2018 276 0.525p
20 February 2018 23 March 2018 276 0.525p
16 March 2018 27 April 2018 276 0.525p
25 April 2018 25 May 2018 276 0.525p
29 May 2018 29 June 2018 276 0.525p
22 June 2018 27 July 2018 276 0.525p
25 July 2018 31 August 2018 276 0.525p
------------ ------------
Dividends declared (to date) for the
year 3,318 6.30p
Less, dividends paid after the year
end (553) (1.05)p
Add, dividends paid in the year in
respect of the prior year 553 1.05p
------------ ------------
Dividends paid in
the year 3,318 6.30p
------------ ------------
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 GBP3,318,000 (2017: GBP3,792,000) was incurred in
respect of dividends, none of which was outstanding at the reporting
date (2017: none). The dividends of GBP276,467 each, which were declared
on 22 June 2018 and 25 July 2018, had not been provided for at 30
June 2018 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 30 August 2018, the Company declared a dividend of 0.583p per Share
for the period from 1 July 2018 to 31 July 2018. This dividend will
be paid on 28 September 2018.
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,
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.
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 GBP127,000 was earned in the year (2017: GBP3,000),
GBP3,000 of which was outstanding at 30 June 2018 (2017: GBP3,000).
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.
At 30 June 2018, the balance of the loan was GBP1,156,000 (2017: GBP1,380,000).
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. Amberton Properties (Oxford)
Limited was a subsidiary of a 50% shareholder of the investment manager
at that time, Amberton Asset Management Limited.
Transactions with GLI Finance Limited ("GLIF")
In September 2016, as payment of the balance due from GLIF, the majority
shareholder at that time, 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.
7. Key contracts
a) Investment Manager
The Investment Manager, SQN Asset Management Limited ("SQN UK") and
SQN Capital Management, LLC ("SQN US"), 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, the former Investment Manager, Amberton,
was appointed as Sub-Investment Adviser to the Investment Manager.
From that date, 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 were borne by the Investment Manager. Amberton ceased to act
as Sub-Investment Adviser to the Investment Manager with effect from
1 June 2018.
During the year, a total of GBP518,000 (2017: GBP408,000) was incurred
in respect of management fees (GBP518,000 to SQN UK (2017: GBP278,000
to Amberton and GBP130,000 to SQN UK)), of which GBP42,000 was payable
to SQN UK at the reporting date (2017: GBP43,000 to SQN UK).
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 GBP116,000 (2017: GBP144,000) was incurred in
respect of administration fees, of which GBP28,000 (2017: GBP31,000)
was payable at the reporting date.
8. Directors' remuneration
During the year, a total of GBP114,000 (2017: GBP128,000) was incurred
in respect of Directors' remuneration, none of which was payable at
the reporting date (2017: GBP9,000). 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 (2017: 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 2018, total fees, plus VAT, charged by
RSM UK Audit LLP, together with amounts accrued at 30 June 2018, amounted
to GBP38,000 (2017: GBP45,000), of which GBP38,000 (2017: GBP42,000)
related to audit services and none (2017: GBP3,000) was in respect
of tax services. As at 30 June 2018, GBP35,000 (2017: GBP38,000) was
due to RSM UK Audit LLP.
11. Other expenses
Year ended Year ended
30 June 2018 30 June 2017
GBP'000 GBP'000
Audit fees (Note 10) 38 42
Registrar fees 30 30
Website costs 19 17
Other expenses 14 15
Custodian fee 13 25
Listing fees 13 22
Accountancy and taxation fees 8 37
Printing costs 7 6
Travel costs 7 6
Directors' liability insurance 5 6
Auditors' non-audit and taxation fees (Note 10) - 3
------------ ------------
154 209
------------ ------------
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 of Part 2 of the Investment
Trust (approved Company) Tax Regulations 2011 (Statutory Instrument
2011.2999). The Company intends to retain this approval and self-assesses
compliance with the relevant conditions and requirements.
As an investment trust the Company is exempt from UK corporation tax
on its chargeable gains. The Company is, however, liable to UK corporation
tax on its income. However, the Company has elected to take advantage
of modified UK tax treatment in respect of its "qualifying interest
income" in order to deduct all, or part, of the amount it distributes
to Shareholders as dividends as an "interest distribution".
Year ended Year ended
30 June 2018 30 June 2017
GBP'000 GBP'000
Corporation tax:
- -
* Current year
* Adjustments in relation to prior period - 5
------------ ------------
Total tax expense for the year - 5
------------ ------------
Year ended Year ended
30 June 2018 30 June 2017
GBP'000 GBP'000
Reconciliation of tax charge:
Profit before taxation 2,809 2,445
------------ ------------
Tax at the standard UK corporation tax rate
of 19% (2017: 20%) 534 489
Effects of:
* Non-taxable investment gains and losses 94 150
* Interest distributions (630) (671)
* Unrecognised deferred tax 2 32
* Adjustments in relation to prior period - 5
------------ ------------
Total tax expense - 5
------------ ------------
Domestic corporation tax rates in the jurisdictions in which the Company
operated were as follows:
Year ended Year ended
30 June 2018 30 June 2017
United Kingdom 19% 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 5.33p (2017: 4.63p) is based on
a profit attributable to the owners of the Company of GBP2,809,000
(2017: GBP2,440,000) and on a weighted average number of 52,660,350
(2017: 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.
15. Loans at amortised cost
Year ended Year ended
30 June 2018 30 June 2017
GBP'000 GBP'000
Loans 44,653 40,381
Unrealised (loss)/gain* (94) 221
------------ ------------
Balance at year end 44,559 40,602
------------ ------------
Loans: Non-current 31,918 32,450
Current 12,445 7,008
Cash held on client accounts with platforms 196 1,144
------------ ------------
Loans at amortised cost and cash held on client
accounts with platforms 44,559 40,602
------------ ------------
*Unrealised (loss)/gain
Foreign exchange on non-Sterling loans 605 651
Impairments (699) (430)
------------ ------------
Unrealised (loss)/gain (94) 221
------------ ------------
The movement in unrealised loss on loans in the Statement of Comprehensive
Income comprises:
Year ended Year ended
30 June 2018 30 June 2017
GBP'000 GBP'000
Movement in foreign exchange on non-Sterling
loans (46) (683)
Movement in impairments (269) (35)
------------ ------------
Movement in unrealised loss on loans (315) (718)
------------ ------------
The weighted average interest rate of the loans as at 30 June 2018
was 9.24% (2017: 8.58%).
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 2018, repayments of GBP1,503,000 (2017: GBP1,031,000) were
past due, aged as below. However, the Company assessed the recoverability
of the loans and did not consider any impairment necessary.
30 June 2018 30 June 2017
GBP'000 GBP'000
Less than 30 days overdue 212 385
More than 30 days but less than 90
days overdue 1,023 -
More than 90 days but less than a
year overdue 165 646
More than a year overdue 103 -
------------ ------------
1,503 1,031
------------ ------------
At 30 June 2018, the Board considered GBP699,000 (2017: GBP430,000)
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, the Investment Manager had estimated a recoverable
amount as at 30 June 2018.
30 June 2018 30 June 2017
GBP'000 GBP'000
Sancus Funding (previously Funding
Knight) 515 307
UK Bond Network 104 104
MyTripleA 80 19
------------ ------------
Total impairment 699 430
------------ ------------
During the year, GBP40,000 (2017: GBP454,000) 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
Year ended 30 Year ended 30 June
June 2018 2017
GBP'000 GBP'000
Balance brought forward 258 1,981
Additions in the year - 181
Disposals in the year - (1,971)
Realised gain on disposal of investments
at fair value through profit or loss - 260
Movement in unrealised gain on investments
at fair value through profit or loss 22 (193)
------------ ------------
Balance at year end 280 258
------------ ------------
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 2018, the financial instruments designated at fair value
through profit or loss were as follows:
30 June 2018
Level Level Level Total
1 2 3
Financial assets/(liabilities) GBP'000 GBP'000 GBP'000 GBP'000
Unlisted equity shares - - 280 280
Derivative financial instruments (Note 18) - (32) - (32)
------------ ------------ ------------ ------------
Total financial assets/(liabilities) designated
as at fair value through profit or loss - (32) 280 248
------------ ------------ ------------ ------------
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 2018, 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 (2017: 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 profit of GBP21,000 (2017: loss of GBP1,008,000) on forward
foreign exchange contracts that settled during the year.
As at 30 June 2018, the open forward foreign exchange contracts were
valued at GBP(32,000) (2017: GBP150,000).
19. Other receivables and prepayments
30 June 2018 30 June 2017
GBP'000 GBP'000
Accrued interest 759 711
Prepayments 13 14
Other receivables - 8
------------ ------------
772 733
------------ ------------
20. Other payables and accruals
30 June 2018 30 June 2017
GBP'000 GBP'000
Management fee 42 43
Audit fee 35 35
Administration fee 28 31
Transaction fees 20 40
Deferred investment income 19 124
Other payables and accruals 12 18
Accountancy and taxation fees 7 8
Broker fee 2 13
Other payable ([1]) - 2,692
Legal and professional fees - 53
Directors' remuneration - 9
Taxation - 5
------------ ------------
165 3,071
------------ ------------
([1]) 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 30 June 2017.
21. Reconciliation of liabilities arising from financing activities
IAS 7 requires the Company to detail the changes in liabilities arising
from financing activities, including both cash and non-cash changes.
Liabilities arising from financing activities are those for which
cash flows were, or future cash flows will be, classified in the Company's
statement of cash flows as cash flows from financing activities.
As at 30 June 2018, the Company had no liabilities classified as cash
flows from financing activities (2017: none).
22. Share capital
30 June 2018 30 June 2017
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 2018 30 June 2017
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 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.
23. Other reserves
Profit and loss
account
Special
distributable Non-distributable
reserve Distributable Total
GBP'000 GBP'000 GBP'000 GBP'000
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
Realised revenue profit - 3,303 - 3,303
Realised investment gains and losses - (19) - (19)
Unrealised investment gains and losses - - (475) (475)
Dividends paid - (3,318) - (3,318)
------------ ------------ ------------ ------------
At 30 June 2018 50,942 75 (55) 50,962
------------ ------------ ------------ ------------
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.
The two GBP276,000 dividends (see Note 5), which were declared on
22 June 2018 and 25 July 2018, will be partly paid out of the GBP75,000
remaining realised revenue profit with the balance being paid from
the special distributable reserve.
24. 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 GBP51,539,000 (2017:
GBP52,048,000), less GBP50,000 (2017: GBP50,000), being amounts owed
in respect of Management Shares, and on 52,660,350 (2017: 52,660,350)
Ordinary Shares in issue at the year end.
25. Financial Instruments and Risk Management
The Investment Manager manages the Company's portfolio to provide
Shareholders with attractive risk adjusted returns, principally in
the form of regular, sustainable dividends, through investment predominantly
in a range of secured loans and other secured loan-based instruments
originated through a variety of channels and diversified by way of
asset class, geography and duration.
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, Broker, Registrar or any other third party service
provider to perform in accordance with the terms of its appointment
could have a significant detrimental impact on the operation of the
Company.
The market in which the Company participates is competitive and rapidly
changing. The risks have not changed from those detailed on pages
20 to 30 in the Company's Prospectus, which is available on the Company's
website.
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.
Investment Restriction Investment Policy
Geography
* Exposure to UK loan assets
Minimum of 60%
* Minimum exposure to non-UK loan assets 20%
Duration to maturity
* Minimum exposure to loan assets with duration of less
than 6 months
* Maximum exposure to loan assets with duration of 6 -
18 months and 18 - 36 months
None
* Maximum exposure to loan assets with duration of more None
than 36 months 50%
Maximum single investment 10%
Maximum exposure to single borrower or group 10%
Maximum exposure to loan assets sourced through single alternative lending platform or other
third party originator 25%
Maximum exposure to any individual wholesale loan arrangement 25%
Maximum exposure to loan assets 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 complied with the investment restrictions throughout the
year and up to the date of signing this report.
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 2018, 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 +/-
GBP14,000 (2017: +/- GBP13,000). The maximum price risk resulting
from financial instruments is equal to the GBP280,000 carrying value
of the investments at fair value through profit or loss (2017: GBP258,000).
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 2018, 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 Foreign
value through currency
profit or Loans and Cash and Other payables forward
loss receivables cash equivalents and accruals Exposure contract Net exposure
30 June GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2018
US
Dollars - 5,235 1,921 - 7,156 (7,516) (360)
Euros 63 4,839 628 - 5,530 (5,417) 113
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
63 10,074 2,549 - 12,686 (12,933) (247)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
30 June
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)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
In order to limit the exposure to foreign currency risk, the Company
entered into hedging contracts during the year. At 30 June 2018, the
Company held foreign currency forward contracts to sell US$9,950,000
and EUR6,140,000 (2017: US$8,800,000 and EUR5,550,000) with a settlement
date of 26 September 2018.
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 2018, 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 2018 would have increased/(decreased)
by GBP13,000/GBP(15,000) (2017: GBP(7,000)/GBP8,000), 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 GBP6,125,000 (2017: GBP13,376,000) were the only interest bearing
financial instruments subject to variable interest rates at 30 June
2018. 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
GBP31,000 (2017: GBP67,000).
Non-interest
Fixed interest Variable interest bearing Total
30 June 2018 GBP'000 GBP'000 GBP'000 GBP'000
Financial Assets
Loans 44,363 - - 44,363
Cash held on client accounts
with platforms - - 196 196
Investments at fair value through
profit or loss - - 280 280
Other receivables - - 759 759
Cash and cash equivalents - 6,125 - 6,125
------------ ------------ ------------ ------------
Total financial assets 44,363 6,125 1,235 51,723
------------ ------------ ------------ ------------
Financial Liabilities
Other payables - - (146) (146)
Derivative financial instruments - - (32) (32)
------------ ------------ ------------ ------------
Total financial liabilities - - (178) (178)
------------ ------------ ------------ ------------
Total interest sensitivity
gap 44,363 6,125 1,057 51,545
------------ ------------ ------------ ------------
Non-interest
Fixed interest Variable interest bearing Total
GBP'000 GBP'000 GBP'000 GBP'000
30 June 2017
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
------------ ------------ ------------ ------------
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 2018, credit risk arose principally from cash and cash
equivalents of GBP6,125,000 (2017: GBP13,376,000) and balances due
from the platforms and SMEs of GBP44,559,000 (2017: GBP40,602,000).
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 2018 was low
since the ratio of cash and cash equivalents to unmatched liabilities
was 31:1 (2017: 4:1).
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, as detailed in the Investment
Manager's Report, is as follows:
30 June 2018 30 June 2017
Percentage Percentage
0 to 6 months 17.0 32.6
6 months to 18 months 25.3 11.0
18 months to 3 years 16.6 19.7
Greater than 3 years 41.1 36.7
------------ ------------
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
2018, 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
(2017: none).
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.
26. Contingent assets and contingent liabilities
There were no contingent assets or contingent liabilities in existence
at the year end (2017: none).
27. 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 2018, have been declared out
of the profits for the year ended 30 June 2018 (see Note 5).
On 30 August 2018, the Company declared a dividend of 0.583p per Ordinary
Share for the period from 1 July 2018 to 31 July 2018. This dividend
will be paid on 28 September 2018.
There were no other significant events after the reporting period.
28. 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 news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR SFIFMUFASESU
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September 20, 2018 02:00 ET (06:00 GMT)
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