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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 : 9972H
SQN Secured Income Fund PLC
16 March 2018
16 March 2018
SQN Secured Income Fund plc
("SSIF" or the "Company")
Half-Yearly Financial Report
For the six months ended 31 December 2017
Hot Features
Premium
A copy of the Company's Half-Yearly Report and Condensed
Financial Statements for the six months ended 31
December 2017 will shortly be available to view
and download from the Company's website, www.sqnsecuredincome.com.
Neither the contents of the Company's website nor
the contents of any website accessible from hyperlinks
on the Company's website (or any other website)
is incorporated into, or forms part of, this announcement.
Enquiries to:
Richard Hills, Chairman c/o Cantor Fitzgerald Europe
SQN Asset Management tel: +44 1932 575 888
Limited
Neil Roberts/Jeremiah
Silkowski/Dawn Kendall
Cantor Fitzgerald Europe tel: +44 20 7894 8016
Sue Inglis
Buchanan Communications tel: +44 20 7466 5000
Charles Ryland/Vicky
Hayns/Henry Wilson
www.sqnsecuredincome.com
The following text is extracted from the Half-Yearly
Report and Unaudited Condensed Financial Statements
of the Company for the six months ended 31 December
2017.
Strategic Report
Highlights
31 December 31 December
2017 2016
(unaudited) (unaudited) 30 June
2017 (audited)
Net assets ([1]) GBP51,893,000 GBP52,932,000 GBP52,048,000
NAV per Ordinary Share 98.45p 100.42p 98.74p
Share price at 31 December
2017 93.625p 93.50p 97.75p
Discount to NAV 4.9% 6.9% 1.0%
Profit for the period GBP1,503,000 GBP1,428,000 GBP2,440,000
Dividend per share declared
in respect of the period
([2]) 3.15p 3.60p 6.375p
Total return per Ordinary
Share (based on NAV) +2.9% +2.7% +4.6%
Total return per Ordinary
Share (based on share price) -1.0% +8.2% +16.0%
Ordinary Shares in issue 52,660,350 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 20).
([2]) Only 2.10p of the 3.15p per Ordinary Share dividends
declared out of the profits for the period ended
31 December 2017 had been deducted from the 31
December 2017 NAV as the dividends of 0.525p per
Ordinary Share each, which were declared on 21
December 2017 and 19 January 2018, had not been
provided for at 31 December 2017 as, in accordance
with IFRS, they were not deemed to be liabilities
of the Company at that date.
On 20 February 2018, the Company declared a dividend
of 0.525p per Ordinary Share for the period from
1 January 2018 to 31 January 2018. This dividend
will be paid on 23 March 2018.
Chairman's Statement
Introduction
I am pleased to update Shareholders with this interim
statement for SQN Secured Income Fund plc (the "Company"
or "SSIF"), covering the period from 1 July 2017
to 31 December 2017. The last six months have been
more productive and more settled than recent times.
SQN Asset Management Limited took over the management
of the Company on 1 April 2017 and has made good
progress in achieving the Board's strategic goal
of rebalancing the portfolio away from investment
platforms and towards direct loans.
Performance and markets
For the reporting period ended 31 December 2017,
the Company generated a net profit of GBP1.5 million
and earnings per ordinary share of 2.85p. The Company's
NAV at 31 December 2017 was GBP51.8 million (98.45p
(cum income) per ordinary share) compared with GBP52.0
million on a similar basis as at 30 June 2017. The
total return for the reporting period was 2.9%.
Direct loans have increased and now represent 36%
of the portfolio and I am delighted to note that
the pipeline of transactions and the maturity profile
of our platform loans are both consistent with the
planned strategy to reduce platform exposure to 20%
of the overall portfolio.
Foreign exchange exposure on the 22.5% of non-Sterling
loans was fully hedged and any liquidity calls arising
from the hedging strategy are considered comfortably
manageable within the Company's cash flow.
Earnings and dividends
Dividends per Ordinary Share for the reporting period
were 3.15p (see note 5).
The Board elected to designate all dividends for
the period ended 31 December 2017 as interest distributions
to Shareholders. In doing so, the Company took advantage
of UK tax treatment by "streaming" income from interest-bearing
investments into dividends that will be taxed in
the hands of Shareholders as interest income.
The Board intends to distribute at least 85% of the
Company's distributable income by way of dividends
on a monthly basis. During any year the Company may
retain some of the distributable income as a loss
reserve to smooth future dividend flows.
The Board expects the Company to achieve its annual
fully covered dividend target of 6.25p by the year-end,
rising to 7.00p thereafter.
Discount
For the reporting period, the Company traded at an
average discount to NAV of 2.4%. The directors would
prefer to see the Company's shares trade at a premium
to net asset value and we believe this is warranted
given the progress made in reducing platform loan
exposure coupled with the very low default and impairment
performance.
Board of Directors
I am pleased to report that we have appointed a fourth
director to the Board. Gay Coley is a chartered accountant
with considerable business experience including holding
posts as the finance director of the University of
Plymouth and Chief Executive of the Eden Project
in Cornwall. She is currently a non-executive director
and chair of the audit committee of the Lowland Investment
Trust plc. This appointment strengthens our capability
as a board and we welcome Gay's hands on experience
in management and finance.
Outlook
The Investment Manager's focus remains on Europe
and the US and it will continue to rationalise both
the number of platforms and the holdings within them
while increasing investment in secured direct lending.
The outlook for direct lending opportunities remains
very promising with interest rates stable, albeit
likely slowly to increase.
The Board's strategy remains in line with the Company's
investment guidelines - our goal is to produce a
stable income stream for our Shareholders from a
diversified portfolio of loans to SME businesses.
Richard Hills
Chairman
15 March 2018
Investment Manager's Report
SQN Secured Income Fund plc is an investment company
listed on the London Stock Exchange and domiciled
in the United Kingdom. It invests on a largely secured
basis, both directly and indirectly through investment
platforms, in small and medium sized companies in
the United Kingdom and the rest of the world using
fundamental credit skills to assess potential opportunities.
The Company's objective is to deliver regular income
and an attractive overall return to investors through
a diverse portfolio of collateralized investments.
In the nine months since SQN Asset Management Limited
("SQN" or the "Manager") has had responsibility for
managing the portfolio, we are pleased to report
that we continue to make meaningful progress under
the revised investment guidelines. Specifically,
we have reduced the Company's unsecured positions,
we have exited certain platform relationships which
we did not believe met our more rigid underwriting
standards, and renegotiated terms on other platform
investments in order to enhance the level of security
and/or returns on investment.
In addition to the above and most significantly,
we have increased direct secured investments. Investments
originated directly by the Manager have a higher
degree of transparency, come with reduced intermediary
costs, and are structured to maximize the security
position and access to collateral. Central to our
investment process is the application of a disciplined
and traditional credit underwriting approach to all
assets in the portfolio. We believe this is the only
appropriate method to invest in this asset class
and we believe by doing so, very attractive portfolios
can be constructed to deliver the Company's investment
objective.
As Manager, we are confident that this investment
strategy is highly scalable. We are currently experiencing
a great deal of demand that cannot be met by the
current size of the Company. It remains our goal
to support the Board in growing the Company to a
multiple of today's size over the next few years.
The Company's shares continue to trade at a discount,
which is a consistent theme across the sector. However,
we expect that following an extended period of positive
performance and a growing awareness of the attractiveness
of our strategy investor enthusiasm may lead to a
higher share price and subsequent capital raisings.
Progress
During the period covered by this interim report,
we have achieved the following:
* Continued reinvestment of available cash in directly
originated loans. Direct loans now represent 36% of
the portfolio, an increase of 5% since June 2017.
* Impairments - are circa 1%, significantly lower than
the sector average.
* When appropriate, SQN has re-traded loans with
existing platforms, providing further opportunity for
the Company to increase direct loan exposure.
* Performance of platform investments has, with a few
exceptions, remained consistent and we have
repositioned asset allocation in favour of those
platforms that we consider have the strongest credit
and origination capability combined with acceptable
pricing parameters.
* Cash levels have been reduced to a practical minimum
and excess cash has been committed to new direct
investments.
* Risk management remains a key focus for the
investment management team and we have spent
significant time on improving risk reporting.
* The KID was successfully published before the
regulatory year end deadline and although IFRS 9
reporting is not due until the financial year
commencing on 1 July 2018, planning for this event is
well under way.
* All new underwriting has been made at rates between
9.5% and 11.5%, sufficient to increase overall
portfolio yield to meet the return target of 8.0% per
annum.
* Our banking arrangements have been reorganised and
the Company has moved its principle banking
relationship to Royal Bank of Scotland International
Limited.
* Upon our appointment on 1 April 2017, we agreed that
the previous investment manager, Amberton Asset
Management Limited, would act as our sub-manager for
a period of 12 months. We have extended this contract
for a further two months but will assume total
control of the investment management for the
portfolio from 1 June 2018. The continuity and smooth
transition that was anticipated by this interim
arrangement has worked well for all parties.
Investment Outlook
We continue to see a significant demand for borrowing
from the SME sector in the UK, Europe and the US
at both attractive interest rates and under terms
suitable for investments by the Company. We consider
this environment presents a very strong opportunity
to the Company.
We expect the dynamics of the alternative finance
sector to change in the medium term, as the first
cycle of refinancing deals start to take place and
the poor quality of some previous credit underwriting
becomes apparent, evidenced by published default
and impairment data. We anticipate that there will
be a widening of the performance achieved between
sector participants. We also envisage that consolidation
within the sector will accelerate. The stronger companies,
backed by their shareholders and with more robust
risk and credit management processes, are likely
to grow at the expense of the poorly performing funds
largely through corporate activity. We monitor the
sector closely, in both private and public markets
and remain alert to opportunities as they arise.
Dawn Kendall
Managing Director
SQN Asset Management Limited
15 March 2018
Governance
Statement of Directors' Responsibilities
The Directors are responsible for preparing the half-yearly
report and condensed financial statements, which
have not been audited or reviewed by an independent
auditor, and are required to:
* prepare the condensed half-yearly financial
statements in accordance with International
Accounting Standard 34: Interim Financial Reporting,
as adopted by the European Union, which give a true
and fair view of the assets, liabilities, financial
position and profit for the period of the Company, as
required by Disclosure and Transparency Rules ("DTR")
4.2.4 R;
* include a fair review of the information required by
DTR 4.2.7 R, being important events that have
occurred during the period and their impact on the
half-yearly report and condensed financial statements
and a description of the principal risks and
uncertainties for the remaining six months of the
financial year; and
* include a fair review of information required by DTR
4.2.8 R, being related party transactions that have
taken place during the period which have had a
material effect on the financial position or
performance of the Company.
The Directors confirm that the half-yearly report
and condensed financial statements comply with the
above requirements.
On behalf of the Board.
Richard Hills
Chairman
15 March 2018
Unaudited Condensed Statement of Comprehensive Income
for the six months ended 31 December 2017
Year ended
Period Period
from 1 from 1
July 2017 July 2016
to 31 December to 31 December 30 June
2017 2016 2017
Note (unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Income
Investment income 2,363 2,601 4,462
Other income 2 - 4
------------ ------------ ------------
Total revenue 2,365 2,601 4,466
------------ ------------ ------------
Operating expenses
Management fees 7a (262) (187) (408)
Other expenses 10 (96) (119) (209)
Broker fees (80) (33) (119)
Administration fees 7b (60) (69) (144)
Directors' remuneration 8 (54) (75) (128)
Legal and professional fees (53) (54) (172)
Transaction fees (23) - -
------------ ------------ ------------
Total operating expenses (628) (537) (1,180)
------------ ------------ ------------
Investment gains and losses
Movement in unrealised (loss)/gain
on loans 14 (254) 286 (718)
Movement in unrealised gain
on investments at fair value
through profit or loss 15 20 (45) (193)
Movement in unrealised gain
on investment in subsidiary - - (677)
Movement in unrealised gain
on derivative financial
instruments 17 (141) 37 127
Realised (loss)/gain on
disposal of loans (40) (12) 782
Realised gain on disposal
of investments at fair value
through profit or loss - 85 260
Realised gain on disposal
of subsidiary - - 673
Realised gain/(loss) on
derivative financial instruments 17 227 (1,022) (1,008)
------------ ------------ ------------
Total investment gains and
losses (188) (671) (754)
------------ ------------ ------------
Net profit from operating
activities before (loss)/gain
on foreign currency exchange 1,549 1,393 2,532
Net foreign exchange (loss)/gain (46) 35 (87)
------------ ------------ ------------
Net profit before taxation 1,503 1,428 2,445
------------ ------------ ------------
Taxation
Corporation tax 11 - - (5)
------------ ------------ ------------
Profit and total comprehensive
income for the period/year
attributable to the owners
of the Company 1,503 1,428 2,440
------------ ------------ ------------
Earnings per Ordinary Share
(basic and diluted) 12 2.85p 2.71p 4.63p
------------ ------------ ------------
All of the items in the above statement are derived
from continuing operations.
There were no other comprehensive income items in
the period/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
unaudited condensed half-yearly financial statements.
Unaudited Condensed Statement of Changes in Equity
for the six months ended 31 December 2017
Called Special Profit
up share distributable and loss
Unaudited Note capital reserve account Total
GBP'000 GBP'000 GBP'000 GBP'000
At 1 July 2017 577 50,942 529 52,048
Profit for the period 21 - - 1,503 1,503
Transactions with Owners in their capacity as owners:
5,
Dividends paid 21 - - (1,658) (1,658)
------------ ------------ ------------ ------------
Total transactions with
Owners in their capacity
as owners - - (1,658) (1,658)
------------ ------------ ------------ ------------
At 31 December 2017 577 50,942 374 51,893
------------ ------------ ------------ ------------
Unaudited Condensed Statement of Changes in Equity
for the six months ended 31 December 2016
Called Special Profit
up share distributable and loss
Unaudited Note capital reserve account Total
GBP'000 GBP'000 GBP'000 GBP'000
At 1 July 2016 577 50,942 1,881 53,400
Profit for the period 21 - - 1,428 1,428
Transactions with Owners in their capacity as owners:
5,
Dividends paid 21 - (746) (1,150) (1,896)
------------ ------------ ------------ ------------
Total transactions with
Owners in their capacity
as owners - (746) (1,150) (1,896)
------------ ------------ ------------ ------------
At 31 December 2016 577 50,196 2,159 52,932
------------ ------------ ------------ ------------
Audited Statement of Changes in Equity
for the year ended 30 June 2017
Called Special Profit
up share distributable and loss
Audited Note capital reserve 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 21 - - 2,440 2,440
Transactions with Owners in their capacity as owners:
5,
Dividends paid 21 - - (3,792) (3,792)
------------ ------------ ------------ ------------
Total transactions with
Owners in their capacity
as owners - - (3,792) (3,792)
------------ ------------ ------------ ------------
At 30 June 2017 577 50,942 529 52,048
------------ ------------ ------------ ------------
There were no other comprehensive income items in
the period/year.
The above amounts are all attributable to the owners
of the Company.
The accompanying notes form an integral part of the
unaudited condensed half-yearly financial statements.
Unaudited Condensed Statement of Financial Position
as at 31 December 2017
31 December 31 December 30 June
2017 2016 2017
Note (unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Non-current assets
Loans at amortised cost 14 39,684 26,042 32,450
Investments at fair value
through profit or loss 15 278 1,547 258
------------ ------------ ------------
Total non-current assets 39,962 27,589 32,708
------------ ------------ ------------
Current assets
Loans at amortised cost 14 7,748 17,761 7,008
Cash held on client accounts
with platforms 14 149 1,059 1,144
Investment in subsidiary 13 - 41,088 -
Derivative financial instruments 17 9 60 150
Other receivables and prepayments 18 1,159 824 733
Cash and cash equivalents 3,343 6,015 13,376
------------ ------------ ------------
Total current assets 12,408 66,807 22,411
------------ ------------ ------------
Total assets 52,370 94,396 55,119
------------ ------------ ------------
Current liabilities
Amount due to subsidiary 13 - (41,088) -
Other payables and accruals 19 (477) (376) (3,071)
------------ ------------ ------------
Total liabilities (477) (41,464) (3,071)
------------ ------------ ------------
------------ ------------ ------------
Net assets 51,893 52,932 52,048
------------ ------------ ------------
Capital and reserves attributable to owners of the
Company
Called up share capital 20 577 577 577
Other reserves 21 51,316 52,355 51,471
------------ ------------ ------------
Equity attributable to the
owners of the Company 51,893 52,932 52,048
------------ ------------ ------------
Net asset value per Ordinary
Share 22 98.45p 100.42p 98.74p
------------ ------------ ------------
These unaudited condensed half-yearly financial statements
of SQN Secured Income Fund plc (registered number
09682883) were approved by the Board of Directors
on 15 March 2018 and were signed on its behalf by:
Richard Hills Ken Hillen
Chairman Director
15 March 2018 15 March 2018
The accompanying notes form an integral part of the
unaudited condensed half-yearly financial statements.
Unaudited Condensed Statement of Cash Flows
for the six months ended 31 December 2017
Period Period
from 1 from 1
July 2017 July 2016 Year
to 31 to 31 ended
December December 30 June
2017 2016 2017
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Cash flows from operating activities
Net profit before taxation 1,503 1,428 2,445
Adjustments for:
Movement in unrealised loss/(gain)
on loans 254 (286) 718
Movement in unrealised gain on
investment at fair value through
profit or loss (20) 45 193
Movement in unrealised gain on
investment in subsidiary - - 677
Movement in unrealised gain on
derivative financial instruments 141 (37) (127)
Realised loss/(gain) on disposal
of loans 40 12 (782)
Realised gain on disposal of
investments at fair value through
profit or loss - (85) (260)
Realised gain on disposal of
subsidiary - - (673)
Realised (gain)/loss on derivative
financial instruments (227) 1,022 1,008
Amortisation of transaction fees 23 - -
Interest received and reinvested
by platforms (320) (1,010) (1,596)
Capitalised interest (47) - -
(Increase)/decrease in investments (6,702) 5,747 11,710
------------ ------------ ------------
Net cash (outflow)/inflow from
operating activities before working
capital changes (5,355) 6,836 13,313
Increase in other receivables
and prepayments (426) (1,102) (1,011)
(Decrease)/increase in other
payables and accruals (2,589) (81) 2,806
------------ ------------ ------------
Net cash (outflow)/inflow from
operating activities (8,370) 5,653 15,108
Cash flows from financing activities
Dividends paid (1,658) (1,830) (3,924)
------------ ------------ ------------
Net cash outflow from financing
activities (1,658) (1,830) (3,924)
Taxation paid (5) - -
------------ ------------ ------------
(Decrease)/increase in cash and
cash equivalents in the period/year (10,033) 3,823 11,184
Cash and cash equivalents at
the beginning of the period/year 13,376 2,192 2,192
------------ ------------ ------------
Cash and cash equivalents at
31 December 2017 3,343 6,015 13,376
------------ ------------ ------------
Supplemental cash flow information
Non-cash transaction - interest
received 367 1,010 1,596
The accompanying notes form an integral part of the
unaudited condensed half-yearly financial statements.
Notes to the Unaudited Condensed Half-Yearly Financial
Statements
for the six months ended 31 December 2017
1. General information
The Company was incorporated in England and Wales
under the Companies Act 2006 on 13 July 2015 with
registered number 09682883 and its shares were listed
on the London Stock Exchange Specialist Fund Segment
on 23 September 2015 ("Admission").
The Company is an investment company as defined in
s833 of the Companies Act 2006.
Investment objective
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 in note 23) 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 unaudited condensed half-yearly financial statements
present the results of the Company for the six months
ended 31 December 2017. These unaudited condensed
half-yearly financial statements have been prepared
in accordance with International Accounting Standard
34 ("IAS 34"), Interim Financial Reporting, as adopted
by the European Union.
The unaudited condensed half-yearly financial statements
for the period ended 31 December 2017 have not been
audited or reviewed by the Company's auditors and
do not constitute statutory financial statements,
as defined in section 434 of the Companies Act 2006.
The unaudited condensed half-yearly financial statements
have been prepared on the same basis as the Company's
annual financial statements.
b) Basis of measurement
The unaudited condensed half-yearly 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 unaudited condensed half-yearly 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 unaudited condensed half-yearly
financial statements in conformity with International
Financial Reporting Standards ("IFRSs") requires management
to make judgements, estimates and assumptions that
affect the application of policies and the reported
amounts of assets and liabilities, income and expense.
The estimates and associated assumptions are based
on historical experience and various other factors
that are believed to be reasonable under the circumstances,
the results of which form the basis of making the
judgements about carrying values of assets and liabilities
that are not readily apparent from other sources.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed
on an ongoing basis. Revisions to accounting estimates
are recognised in the period in which the estimate
is revised, if the revision affects only that period,
or in the period of the revision and future periods,
if the revision affects both current and future periods.
Judgements made by management in the application of
IFRSs that have a significant effect on the unaudited
condensed half-yearly financial statements and estimates
with a significant risk of material adjustment in
the next year are discussed in note 4.
3. Significant accounting policies
a) Foreign currency
Foreign currency transactions are translated into
Sterling using the exchange rates prevailing at the
dates of the transactions. Foreign exchange gains
and losses resulting from the settlement of such transactions
and from the translation at period-end exchange rates
of monetary assets and liabilities denominated in
foreign currencies are recognised in the Unaudited
Condensed Statement of Comprehensive Income. Translation
differences on non-monetary financial assets and liabilities
are recognised in the Unaudited Condensed Statement
of Comprehensive Income.
b) Financial assets and liabilities
The financial assets and liabilities of the Company
are defined as loans, bonds with loan type characteristics,
investments at fair value through profit or loss,
cash and cash equivalents, other receivables and other
payables.
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 Unaudited
Condensed 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 Unaudited Condensed
Statement of Comprehensive Income when the asset or
liability is derecognised or impaired. Interest earned
on these instruments is recorded separately as interest
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
Unaudited Condensed 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
Unaudited Condensed Statement of Comprehensive Income
in the period in which they are incurred.
g) Taxation
The Company is exempt from UK corporation tax on its
chargeable gains as it satisfies the conditions for
approval as an investment trust. The Company is, however,
liable to UK corporation tax on its income. However,
the Company has elected to take advantage of modified
UK tax treatment in respect of its "qualifying interest
income" in order to deduct all, or part, of the amount
it distributes to Shareholders as dividends as an
"interest distribution".
h) 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 period:
IAS Statement of Cash Flows - Disclosure initiative
7
The Company has applied these amendments for the first
time in the current period. 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 19, the
application of these amendments has had no impact
on the Company's unaudited condensed half-yearly 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 unaudited
condensed half-yearly financial statements. Any standards
that are not deemed relevant to the operations of
the Company have been excluded. The Directors have
chosen not to early adopt these standards and interpretations
and they do not anticipate that they, with the exception
of IFRS 9, would have a material impact on the Company's
financial statements in the period of initial application.
Effective date
IFRS Share-based payments
2 1 January 2018
IFRS Financial Instruments
9 1 January 2018
IFRS Revenue from Contracts with Customers
15 1 January 2018
IFRIC Foreign Currency Transactions
22 and Advance Consideration 1 January 2018
In July 2014, the IASB issued the final version of
IFRS 9, Financial Instruments that replaces IAS 39,
Financial Instruments: Recognition and Measurement
and all previous versions of IFRS 9. IFRS 9 brings
together all three aspects of the accounting for financial
instruments project: classification and measurement,
impairment and hedge accounting. IFRS 9 is effective
for annual periods beginning on or after 1 January
2018, with early application permitted. Except for
hedge accounting, retrospective application is required
but providing comparative information is not compulsory.
For hedge accounting, the requirements are generally
applied prospectively, with some limited exceptions.
The Company plans to adopt the new standard with effect
from 1 July 2018. The Company has performed a high-level
impact assessment of all three aspects of IFRS 9.
This preliminary assessment is based on currently
available information and may be subject to changes
arising from further detailed analyses or additional
reasonable and supportable information being made
available to the Company in the future. Overall, the
Company expects no significant impact on its Statement
of Financial Position or equity, and will finalise
its assessment in the first half of 2018, in readiness
for the adoption of the standard on 1 July 2018.
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 will be probability
weighted and take into account all reasonable and
supportable information.
iii) Hedge accounting
The Company does not currently designate any hedges
as effective hedging relationships which qualify for
hedge accounting. Therefore, the Company does not
expect there to be any impact with respect to hedge
accounting on the Company as a result of applying
IFRS 9.
The Directors will continue to evaluate the impact
of IFRS 9 upon the Company. However, it is noted that
the measurement of impairment will involve increased
complexity and judgement, including estimation of
probabilities of default. The use of security on a
large (and increasing) proportion of the Company's
loans will limit the impact of adopting IFRS 9. Therefore,
it is not expected to have a material financial impact.
However, it will not be practical to disclose reliable
financial impact estimates until the implementation
programme is further advanced.
The impact that IFRS 15 will have on the Company's
financial statements is also considered to be immaterial
because the Company does not have any contracts with
customers which meet the definition under IFRS 15.
4. Use of Judgements and estimates
The preparation of the Company's unaudited condensed
half-yearly financial statements requires the Directors
to make judgements, estimates and assumptions that
affect the reported amounts recognised in the unaudited
condensed half-yearly financial statements 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 unaudited condensed
half-yearly financial statements were approved. However,
existing circumstances and assumptions about future
developments may change due to market changes or circumstances
arising beyond the control of the Company. Such changes
are reflected in the assumptions when they occur.
i) Recoverability of loans and other receivables
The Directors assess the recoverability of the Company's
loans to determine whether any impairment provision
is required. There is an indicator of impairment for
a loan when the borrower has failed to make a payment,
either capital or interest, when contractually due
and, upon assessment, the Company feels that full
recovery is not expected. The Company assesses at
each reporting date (and at least on a monthly basis)
whether there is objective evidence that a loan, or
group of loans, classified as loans at amortised cost,
is impaired. As part of this process:
* Platforms are contacted to determine default and
delinquency levels of individual loans;
* Consideration is given as to whether payment has been
received after the balance sheet date or whether
loans are secured; and
* Recovery rates are estimated.
At 31 December 2017, the Company's financial instruments
at fair value through profit or loss comprised unlisted
equity shares and derivative financial instruments.
See note 16 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 with effect from July
2018. The monthly dividend at the new rate of 0.525p
per Share was first paid in June 2017. Over the longer
term, the Company will be targeting an annual net
asset value total return of at least 8%. The Company
intends to continue to pay monthly dividends to Shareholders.
The Company elected to designate all of the dividends
for the period ended 31 December 2017 as interest
distributions to its Shareholders. In doing so, the
Company took advantage of UK tax treatment by "streaming"
income from interest-bearing investments into dividends
that will be taxed in the hands of Shareholders as
interest income.
To date, the Company has declared the following dividends
in respect of earnings for the period ended 31 December
2017:
Total dividend
declared in
respect of
Announcement earnings in Amount per
date Pay date the period 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
------------ ------------
Dividends declared (to date)
for the period 1,658 3.15p
Less, dividends paid after
the period end (553) (1.05)p
Add, dividends paid in the
period in respect of the prior
year 553 1.05p
------------ ------------
Dividends paid
in the period 1,658 3.15p
------------ ------------
In accordance with IFRS, dividends are only provided
for when they become a contractual liability of the
Company. Therefore, during the period a total of GBP1,658,000
(31 December 2016: GBP1,896,000, 30 June 2017: GBP3,792,000)
was incurred in respect of dividends, none of which
was outstanding at the reporting date (31 December
2016 and 30 June 2017: none). The dividends of GBP276,000
each, which were declared on 21 December 2017 and
19 January 2018, had not been provided for at 31 December
2017 as, in accordance with IFRS, they were not deemed
to be liabilities of the Company at that date.
All dividends in the period were paid out of revenue
(and not capital) profits.
On 20 February 2018, the Company declared a dividend
of 0.525p per Share for the period from 1 July 2017
to 31 January 2018. This dividend will be paid on
23 March 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, Amberton
Asset Management Limited ("Amberton" or the "Sub-Investment
Adviser") or any of their affiliates which would constitute
a "related party transaction" as defined in, and to
which would apply, Chapter 11 of the Listing Rules.
In accordance with its related party policy, the Company
obtained: (i) the approval of a majority of the Directors;
and (ii) a third-party valuation in respect of these
transactions from an appropriately qualified independent
adviser.
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 GBP67,000
was earned in the period (31 December 2016: none,
30 June 2017: GBP3,000), GBP4,000 of which was outstanding
at 31 December 2017 (31 December 2016: none, 30 June
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 31 December 2017, the balance of the loan was GBP1,271,000
(31 December 2016: none; 30 June 2017 GBP1,380,000).
Transactions with subsidiary undertaking
Details of the transactions with the Company's subsidiary
undertaking are disclosed in note 13.
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 are borne by the
Investment Manager.
During the period, a total of GBP262,000 (31 December
2016: GBP187,000, 30 June 2017: GBP408,000) was incurred
in respect of management fees (GBP262,000 to SQN UK
(31 December 2016: GBP187,000 to Amberton, 30 June
2017: GBP278,000 to Amberton and GBP130,000 to SQN
UK)), of which GBP44,000 was payable to SQN UK at
the reporting date (31 December 2016: GBP94,000 to
Amberton, 30 June 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 period, a total of GBP60,000 (31 December
2016: GBP69,000, 30 June 2017: GBP144,000) was incurred
in respect of administration fees, of which GBP28,000
(31 December 2016: GBP33,000, 30 June 2017: GBP38,000)
was payable at the reporting date.
8. Directors' remuneration
The Directors are paid such remuneration for their
services as determined by the Remuneration and Nominations
Committee, which comprises all of the Directors of
the Company and is chaired by David Stevenson. Under
the terms of their appointments, the Chairman of the
Company receives GBP37,500 per annum, the chairman
of the Audit and Valuation Committee receives GBP31,250
per annum, and other non-executive Directors receive
GBP25,000 per annum.
For the period from 1 July 2016 to 31 August 2017,
Ken Hillen, Chairman of the Audit and Valuation Committee,
received an additional GBP10,000 per annum as remuneration
relating to a number of additional responsibilities,
undertaken during that period, relating specifically
to the loans held within the Company's portfolio.
David Stevenson receives an additional GBP2,500 in
recognition of his increased time commitment and additional
responsibilities arising from taking over the chair
of the Remuneration and Nominations Committee.
During the period, a total of GBP54,000 (31 December
2016: GBP75,000, 30 June 2017: GBP128,000) was incurred
in respect of Directors' remuneration, none of which
was payable at the reporting date (31 December 2016:
GBP3,000, 30 June 2017: GBP9,000). No bonus or pension
contributions were paid or payable on behalf of the
Directors.
9. Key management and employees
The Company had no employees during the period (31
December 2016 and 30 June 2017: none). Therefore,
there were no key management (except for the Directors)
or employees during the period (31 December 2016 and
30 June 2017: none).
10. Other expenses
Period
from 1 Period
July 2017 from 1
to 31 December July 2016 Year ended
2017 to 31 December 30 June
(unaudited) 2016 (unaudited) 2017 (audited)
GBP'000 GBP'000 GBP'000
Audit fees 21 22 42
Website costs 18 14 17
Registrar fees 15 15 30
Custodian fee 13 13 25
Accountancy and taxation fees 7 30 37
Travel costs 6 3 6
Other expenses 5 7 15
Listing fees 4 9 22
Printing costs 4 3 6
Directors' liability insurance 3 3 6
Auditors' non-audit and taxation
fees - - 3
------------ ------------ ------------
96 119 209
------------ ------------ ------------
11. Taxation
The Company has received confirmation from HMRC that
it satisfied the conditions for approval as an investment
trust, subject to the Company continuing to meet the
eligibility conditions in s.1158 of the Corporation
Tax Act 2010 and the ongoing requirements for approved
investment trust companies in chapter 3 or part 2
of the Investment Trust (approved Company) Tax Regulations
2011 (Statutory Instrument 2011.2999). The Company
intends to retain this approval and self-assesses
compliance with the relevant conditions and requirements.
As an investment trust the Company is exempt from
UK corporation tax on its chargeable gains. The Company
is, however, liable to UK corporation tax on its income.
However, the Company has elected to take advantage
of modified UK tax treatment in respect of its "qualifying
interest income" in order to deduct all, or part,
of the amount it distributes to Shareholders as dividends
as an "interest distribution".
Period
from 1
July 2017 Period
to 31 from 1
December July 2016 Year ended
2017 to 31 December 30 June
(unaudited) 2016 (unaudited) 2017 (audited)
GBP'000 GBP'000 GBP'000
Corporation tax:
- - -
* Current year
* Adjustments in relation to prior period - - 5
------------ ------------ ------------
Total tax expense for the period/year - - 5
------------ ------------ ------------
Period
from 1
July 2017 Period
to 31 from 1
December July 2016 Year ended
2017 to 31 December 30 June
(unaudited) 2016 (unaudited) 2017 (audited)
GBP'000 GBP'000 GBP'000
Reconciliation of tax charge:
Profit before taxation 1,503 1,428 2,445
------------ ------------ ------------
Tax at the standard UK corporation
tax rate of 19% (2016 and 2017:
20%) 286 286 489
Effects of:
* Non-taxable investment gains and losses 36 134 150
* Interest distributions (315) (379) (671)
* Tax losses brought forward (32) - -
* Tax losses/(gains) carried forward 25 (41) 32
* Adjustments in relation to prior period - - 5
------------ ------------ ------------
Total tax expense - - 5
------------ ------------ ------------
Domestic corporation tax rates in the other jurisdictions
in which the Company operated were as follows:
Period
from 1
July 2017 Period
to 31 from 1
December July 2016 Year ended
2017 to 31 December 30 June
(unaudited) 2016 (unaudited) 2017 (audited)
United Kingdom 19% 20% 20%
Guernsey nil nil nil
Due to the Company's status as an investment trust
and the intention to continue to meet the required
conditions, the Company has not provided for deferred
tax on any capital gains and losses.
12. Earnings per Ordinary Share
The earnings per Ordinary Share of 2.85p (31 December
2016: 2.71p, 30 June 2017: 4.63p) is based on a profit
attributable to the owners of the Company of GBP1,503,000
(31 December 2016: GBP1,428,000, 30 June 2017: GBP2,440,000)
and on a weighted average number of 52,660,350 (31
December 2016 and 30 June 2017: 52,660,350) Ordinary
Shares in issue. There is no difference between the
basic and diluted earnings per share.
13. Investment in subsidiary undertaking
The Company's previously wholly-owned subsidiary,
GLI Alternative Finance Guernsey Limited, was liquidated
on 16 May 2017. Before this date, the subsidiary,
which had been incorporated in Guernsey, had been
dormant for several months.
As at 31 December 2016, the investment in the subsidiary,
carried at fair value through profit or loss, was
held at GBP41,088,000, and the Company owed GBP41,088,000
to the subsidiary.
14. Loans at amortised cost
31 December 31 December 30 June
2017 2016 2017
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Loans 47,614 43,025 40,381
Unrealised (loss)/gain* (33) 1,837 221
------------ ------------ ------------
Balance at period/year end 47,581 44,862 40,602
------------ ------------ ------------
Loans: Non-current 39,684 26,042 32,450
Current 7,748 17,761 7,008
Cash held on client accounts
with platforms 149 1,059 1,144
------------ ------------ ------------
Loans at amortised cost 47,581 44,862 40,602
------------ ------------ ------------
*Unrealised (loss)/gain
Foreign exchange on non-Sterling
loans 504 2,523 651
Impairments (537) (686) (430)
------------ ------------ ------------
Unrealised (loss)/gain (33) 1,837 221
------------ ------------ ------------
The weighted average interest rate of the loans as
at 31 December 2017 was 9.07% (31 December 2016: 9.31%,
30 June 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 31 December 2017, repayments of GBP1,410,000 (31
December 2016: GBP2,759,000, 30 June 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.
31 December 31 December 30 June
2017 2016 2017
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Less than 30 days overdue 174 - 385
More than 30 days but less
than 90 days overdue 184 145 -
More than 90 days but less
than a year overdue 140 2,614 646
More than one year overdue 912 - -
------------ ------------ ------------
1,410 2,759 1,031
------------ ------------ ------------
At 31 December 2017, the Board considered GBP537,000
(31 December 2016: GBP686,000, 30 June 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, Amberton
had estimated a recoverable amount as at 31 December
2017.
31 December 31 December 30 June
2017 2016 2017
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Funding Knight 367 338 307
UK Bond Network 104 104 104
MyTripleA 66 6 19
Liftforward - 238 -
------------ ------------ ------------
Total impairment 537 686 430
------------ ------------ ------------
During the period, GBP40,000 (31 December 2016: GBPnil,
30 June 2017: GBP454,000) of loans were written off
and included within realised (loss)/gain on disposal
of loans in the Unaudited Condensed Statement of Comprehensive
Income.
15. Investments at fair value through profit or loss
Period
from 1 Period
July 2017 from 1
to 31 December July 2016 Year ended
2017 to 31 December 30 June
(unaudited) 2016 (unaudited) 2017 (audited)
GBP'000 GBP'000 GBP'000
Balance brought forward 258 1,981 1,981
Additions in the period/year - 141 181
Disposals in the period/year - (615) (1,971)
Realised gain on disposal of
investments at fair value through
profit or loss - 85 260
Movement in unrealised gain
on investments at fair value
through profit or loss 20 (45) (193)
------------ ------------ ------------
Balance at period/year end 278 1,547 258
------------ ------------ ------------
For further information on the investments at fair
value through profit or loss, see note 16.
16. 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 31 December 2017, the financial instruments designated
at fair value through profit or loss were as follows:
31 December 2017
(unaudited)
Level Level Level Total
1 2 3
Financial assets GBP'000 GBP'000 GBP'000 GBP'000
Unlisted equity shares - - 278 278
Derivative financial instruments
(note 17) - 9 - 9
------------ ------------ ------------ ------------
Total financial assets designated
as at fair value through profit
or loss - 9 278 287
------------ ------------ ------------ ------------
At 31 December 2016, the financial assets designated
at fair value through profit or loss were as follows:
31 December 2016
(unaudited)
Level Level Level Total
1 2 3
Financial assets GBP'000 GBP'000 GBP'000 GBP'000
Unlisted preference shares - - 1,341 1,341
Unlisted equity shares - - 206 206
Derivative financial instruments
(note 17) - 60 - 60
------------ ------------ ------------ ------------
Total financial assets designated
as at fair value through profit
or loss - 60 1,547 1,607
------------ ------------ ------------ ------------
At 30 June 2017, the financial assets designated
at fair value through profit or loss were as follows:
30 June 2017 (audited)
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 17) - 150 - 150
------------ ------------ ------------ ------------
Total financial assets designated
as at fair value through profit
or loss - 150 258 408
------------ ------------ ------------ ------------
At 31 December 2017, the Company held unlisted equity
shares and derivative financial instruments. The unlisted
equity shares are carried at the net asset value of
the underlying entity, and derivative financial instruments,
being foreign currency forward contracts, are valued
at the forward foreign currency exchange rate at the
reporting date.
Level 2 financial instruments include foreign currency
forward contracts. They are valued using observable
inputs (in this case foreign currency spot rates).
Transfers between levels
There were no transfers between levels in the period
(31 December 2016 and 30 June 2017: none).
17. Derivative financial instruments
During the period, the Company entered into foreign
currency forward contracts to hedge against foreign
exchange fluctuations. The Company realised a gain
of GBP227,000 (31 December 2016: loss of GBP1,022,000,
30 June 2017: loss of GBP1,008,000) on forward foreign
exchange contracts that settled during the period.
As at 31 December 2017, the open forward foreign
exchange contracts were valued at GBP9,000 (31 December
2016: GBP60,000, 30 June 2017: GBP150,000).
18. Other receivables and prepayments
31 December 31 December 30 June
2017 2016 2017
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Accrued interest 1,122 724 711
Prepayments 37 10 14
Other receivables - 90 8
------------ ------------ ------------
1,159 824 733
------------ ------------ ------------
19. Other payables and accruals
31 December 31 December 30 June
2017 2016 2017
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Deferred investment income 354 131 124
Management fee 44 94 43
Administration fee 28 33 31
Other payables and accruals 19 14 18
Audit fee 18 15 35
Accountancy and taxation fees 13 - 8
Legal and professional fees 1 - 53
Withholding taxation on dividends - 66 -
Broker fee - 20 13
Directors' remuneration - 3 9
Other payable ([1]) - - 2,692
Transaction fees - - 40
Taxation - - 5
------------ ------------ ------------
477 376 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.
Reconciliation of liabilities arising from financing
activities
IAS 7 requires the Company to detail the changes in
liabilities arising from financing activities, including
both cash and non-cash changes. Liabilities arising
from financing activities are those for which cash
flows were, or future cash flows will be, classified
in the Company's statement of cash flows as cash flows
from financing activities.
As at 31 December 2017, the Company had no liabilities
classified as cash flows from financing activities
(31 December 2016 and 30 June 2017: none).
20. Share capital
31 December 31 December 30 June
2017 2016 2017
(unaudited) (unaudited) (audited)
GBP'000 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 50
------------ ------------ ------------
Called up share capital:
52,660,350 Ordinary Shares
of 1 pence each 527 527 527
50,000 Management Shares of
GBP1 each 50 50 50
------------ ------------ ------------
577 577 577
------------ ------------ ------------
The Management Shares, which are held by Amberton,
are entitled (in priority to any payment of dividend
of any other class of share) to a fixed cumulative
preferential dividend of 0.01% per annum on the nominal
amount of the Management Shares.
The Management Shares do not carry any right to receive
notice of, nor to attend or vote at, any general
meeting of the Company unless no other shares are
in issue at that time. The Management Shares do not
confer the right to participate in any surplus of
assets of the Company on winding-up, other than the
repayment of the nominal amount of capital.
21. Other reserves
Profit and loss
account
Special
distributable Non-distributable
reserve Distributable Total
GBP'000 GBP'000 GBP'000 GBP'000
Period ended 31 December
2017
Brought forward 50,942 109 420 51,471
Realised revenue profit - 1,691 - 1,691
Realised investment gains
and losses - 187 - 187
Unrealised investment gains
and losses - - (375) (375)
Dividends paid - (1,658) - (1,658)
------------ ------------ ------------ ------------
At 31 December 2017 50,942 329 45 51,316
------------ ------------ ------------ ------------
Period ended 31 December
2016
Brought forward 50,942 - 1,881 52,823
Realised revenue profit - 2,099 - 2,099
Realised investment gains
and losses - (949) - (949)
Unrealised investment gains
and losses - - 278 278
Dividends paid (746) (1,150) - (1,896)
------------ ------------ ------------ ------------
At 31 December 2016 50,196 - 2,159 52,355
------------ ------------ ------------ ------------
Year ended 30 June 2017
Brought forward 50,942 - 1,881 52,823
Realised revenue profit - 3,194 - 3,194
Realised investment gains
and losses - 707 - 707
Unrealised investment gains
and losses - - (1,461) (1,461)
Dividends paid - (3,792) - (3,792)
------------ ------------ ------------ ------------
At 30 June 2017 50,942 109 420 51,471
------------ ------------ ------------ ------------
With the exception of investment gains and losses,
all of the Company's profit and loss items are of
a revenue nature as it does not allocate any expenses
to capital.
The two GBP276,000 dividends (see note 5), which
were declared on 21 December 2017 and 19 January
2018 respectively, will be partly paid from the GBP329,000
remaining realised revenue profit with the remaining
amount being paid from the special distributable
reserve.
22. 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 GBP51,893,000 (31 December 2016: GBP52,932,000,
30 June 2017: GBP52,048,000), less GBP50,000 (31 December
2016 and 30 June 2017: GBP50,000), being amounts owed
in respect of Management Shares, and on 52,660,350
(31 December 2016 and 30 June 2017: 52,660,350) Ordinary
Shares in issue at the period end.
23. 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, Custodian,
Registrar or any other third party service provider
to perform in accordance with the terms of its appointment
could have a significant detrimental impact on the
operation of the Company.
The market in which the Company participates is competitive
and rapidly changing. The risks have not changed from
those detailed on pages 20 to 30 in the Company's
Prospectus, which is available on the Company's website.
Risk concentration
Concentration indicates the relative sensitivity of
the Company's performance to developments affecting
a particular industry or geographical location. Concentrations
of risk arise when a number of financial instruments
or contracts are entered into with the same counterparty,
or where a number of counterparties are engaged in
similar business activities, or activities in the
same geographic region, or have similar economic features
that would cause their ability to meet contractual
obligations to be similarly affected by changes in
economic, political or other conditions. Concentrations
of liquidity risk may arise from the repayment terms
of financial liabilities, sources of borrowing facilities
or reliance on a particular market in which to realise
liquid assets. Concentrations of foreign exchange
risk may arise if the Company has a significant net
open position in a single foreign currency, or aggregate
net open positions in several currencies that tend
to move together.
With the aim of maintaining a diversified investment
portfolio, and thus mitigating concentration risks,
the Company has established the following investment
restrictions in respect of the general deployment
of assets.
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 complied with the investment restrictions
throughout the period from 1 July 2017 to 31 December
2017 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 15 and 16) are exposed to price risk. However,
the Company does not mitigate the price risk.
At 31 December 2017, if the valuation of the investments
at fair value through profit or loss had moved by
5% with all other variables remaining constant, the
change in net assets would amount to approximately
+/- GBP14,000 (31 December 2016: +/- GBP77,000, 30
June 2017: +/- GBP13,000). The maximum price risk
resulting from financial instruments is equal to the
GBP278,000 carrying value of the investments at fair
value through profit or loss (31 December 2016: GBP1,547,000,
30 June 2017: GBP258,000).
(ii) Foreign currency risk
Foreign currency risk is the risk that the value of
a financial instrument will fluctuate because of changes
in foreign 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 31 December 2017, a proportion of the net financial
assets of the Company, excluding the foreign currency
forward contracts, were denominated in currencies
other than Sterling as follows:
Investments Foreign
at fair Cash Other currency
value Loans and cash payables forward
through and equivalents and accruals Exposure contract Net exposure
profit receivables
or loss
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
31 December
2017
(unaudited)
US Dollars - 5,344 1,412 - 6,756 (6,693) 63
Euros 64 4,928 304 (1) 5,295 (5,320) (25)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
64 10,272 1,716 (1) 12,051 (12,013) 38
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
31 December
2016
(unaudited)
US Dollars 1,341 7,310 737 - 9,388 (9,782) (394)
Euros 54 6,269 686 - 7,009 (6,992) 17
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
1,395 13,579 1,423 - 16,397 (16,774) (377)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
30 June
2017
(audited)
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 period. At 31 December 2017, the Company held
foreign currency forward contracts to sell US$9,000,000
and EUR6,000,000 (31 December 2016: US$12,000,000
and EUR8,200,000, 30 June 2017: US$8,800,000 and EUR5,550,000)
with a settlement date of 31 January 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 31 December 2017, if the exchange rates for US
Dollars and Euros had strengthened/weakened by 5%
against Sterling with all other variables remaining
constant, net assets at 31 December 2017 would have
decreased/increased by GBP(3,000)/GBP3,000 (31 December
2016: GBP(17,000)/GBP15,000, 30 June 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 GBP3,343,000 (31 December 2016: GBP6,015,000 and
loans of GBP873,000, 30 June 2017: GBP13,376,000)
were the only interest bearing financial instruments
subject to variable interest rates at 31 December
2017. Therefore, if interest rates had increased/decreased
by 50 basis points, with all other variables held
constant, the change in value of interest cash flows
of these assets in the period would have been GBP17,000
(31 December 2016: GBP34,000, 30 June 2017: GBP67,000).
Fixed Variable Non-interest
31 December 2017 (unaudited) interest interest bearing Total
GBP'000 GBP'000 GBP'000 GBP'000
Financial Assets
Loans 47,432 - - 47,432
Cash held on client
accounts with Platforms - - 149 149
Investments at fair
value through profit
or loss - - 278 278
Derivative financial
instruments - - 9 9
Other receivables - - 1,122 1,122
Cash and cash equivalents - 3,343 - 3,343
------------ ------------ ------------ ------------
Total financial assets 47,432 3,343 1,558 52,333
------------ ------------ ------------ ------------
Financial Liabilities
Other payables - - (123) (123)
------------ ------------ ------------ ------------
Total financial liabilities - - (123) (123)
------------ ------------ ------------ ------------
Total interest sensitivity
gap 47,432 3,343 1,435 52,210
------------ ------------ ------------ ------------
Fixed Variable Non-interest
31 December 2016 (unaudited) interest interest bearing Total
GBP'000 GBP'000 GBP'000 GBP'000
Financial Assets
Loans 42,930 873 - 43,803
Cash held on client
accounts with Platforms - - 1,059 1,059
Investments at fair
value through profit
or loss - - 1,547 1,547
Investment in subsidiary - - 41,088 41,088
Derivative financial
instruments - - 60 60
Other receivables - - 814 814
Cash and cash equivalents - 6,015 - 6,015
------------ ------------ ------------ ------------
Total financial assets 42,930 6,888 44,568 94,386
------------ ------------ ------------ ------------
Financial Liabilities
Amount due to subsidiary - - (41,088) (41,088)
Other payables - - (245) (245)
------------ ------------ ------------ ------------
Total financial liabilities - - (41,333) (41,333)
------------ ------------ ------------ ------------
Total interest sensitivity
gap 42,930 6,888 3,235 53,053
------------ ------------ ------------ ------------
Fixed Variable Non-interest
30 June 2017 (audited) interest interest bearing Total
GBP'000 GBP'000 GBP'000 GBP'000
Financial Assets
Loans 39,458 - - 39,458
Cash held on client
accounts with platforms - - 1,144 1,144
Investments at fair
value through profit
or loss - - 258 258
Derivative financial
instruments - - 150 150
Other receivables - - 719 719
Cash and cash equivalents - 13,376 - 13,376
------------ ------------ ------------ ------------
Total financial assets 39,458 13,376 2,271 55,105
------------ ------------ ------------ ------------
Financial Liabilities
Other payables - - (2,947) (2,947)
------------ ------------ ------------ ------------
Total financial liabilities - - (2,947) (2,947)
------------ ------------ ------------ ------------
Total interest sensitivity
gap 39,458 13,376 (676) 52,158
------------ ------------ ------------ ------------
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 31 December 2017, credit risk arose principally
from cash and cash equivalents of GBP3,343,000 (31
December 2016: GBP6,015,000, 30 June 2017: GBP13,376,000)
and balances due from the platforms and SMEs of GBP47,581,000
(31 December 2016: GBP44,862,000, 30 June 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 31 December 2017
was low since the ratio of cash and cash equivalents
to unmatched liabilities was 7:1 (31 December 2016:
16:1, 30 June 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:
31 December 31 December 30 June
2017 2016 2017
(unaudited) (unaudited) (audited)
Percentage Percentage Percentage
0 to 6 months 15.6 42.9 32.6
6 months to 18 months 26.0 14.1 11.0
18 months to 3 years 18.7 17.6 19.7
Greater than 3 years 39.7 25.4 36.7
------------ ------------ ------------
100.0 100.0 100.0
------------ ------------ ------------
Capital management
The Board's policy is to maintain a strong capital
base so as to maintain investor, creditor and market
confidence and to sustain future development of the
Company. The Company's capital comprises issued share
capital, retained earnings and a distributable reserve
created from the cancellation of the Company's share
premium account.
To maintain or adjust the capital structure, the Company
may issue new Ordinary and/or C Shares, buy back shares
for cancellation or buy back shares to be held in
treasury. During the period ended 31 December 2017,
the Company did not issue any new Ordinary or C shares,
nor did it buy back any shares for cancellation or
to be held in treasury (31 December 2016 and 30 June
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.
24. Contingent assets and contingent liabilities
There were no contingent assets or contingent liabilities
in existence at the period end (31 December 2016 and
30 June 2017: none).
25. Events after the reporting period
Two dividends of 0.525p per Ordinary Share, which
(in accordance with IFRS) were not provided for at
31 December 2017, have been declared out of the profits
for the period ended 31 December 2017 (see note 5).
On 20 February 2018, the Company declared a dividend
of 0.525p per Ordinary Share for the period from 1
January 2018 to 31 January 2018. This dividend will
be paid on 23 March 2018.
There were no other significant events after the reporting
period.
26. Parent and Ultimate Parent Company
The Directors do not believe that the Company has
an individual Parent or Ultimate Parent.
--- ENDS ---
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR LLFILVIIRLIT
(END) Dow Jones Newswires
March 16, 2018 07:06 ET (11:06 GMT)
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