We could not find any results for:
Make sure your spelling is correct or try broadening your search.
Customisable watchlists with full streaming quotes from leading exchanges, such as LSE, NASDAQ, NYSE, AMEX, Bovespa, BIT and more.
| 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 May 2019 to May 2024
TIDMSSIF
RNS Number : 8073S
SQN Secured Income Fund PLC
14 March 2019
14 March 2019
SQN Secured Income Fund plc
("SSIF" or the "Company")
Half-Yearly Financial Report
For the six months ended 31 December 2018
Hot Features
Premium
A copy of the Company's Half-Yearly Report and Condensed Financial
Statements for the six months ended 31 December 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:
Ken Hillen, Chairman c/o finnCap Ltd.
SQN Asset Management Limited tel: +44 1932 575 888
Neil Roberts/Jeremiah Silkowski/Dawn
Kendall
finnCap Ltd. tel: +44 20 7220 0500
Corporate Finance:
William Marle / Giles Rolls
Sales:
Mark Whitfeld
Kepler Partners LLP tel: +44 20 3384 8790
Hugh van Cutsem
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 Half-Yearly Report and Unaudited
Condensed Financial Statements of the Company for the six months
ended 31 December 2018.
Strategic Report
Key Points
31 December 31 December
2018 2017
(unaudited) (unaudited) 30 June
2018 (audited)
Net assets ([1]) GBP51,468,000 GBP51,893,000 GBP51,539,000
NAV per Ordinary Share 97.64p 98.45p 97.78p
Share price at 31 December 2018 92.25p 93.625p 91.50p
Discount to NAV 5.5% 4.9% 6.4%
Profit for the period GBP1,227,000 GBP1,503,000 GBP2,809,000
Dividend per share declared in
respect of the period 3.50p 3.15p 6.30p
Dividend cover 0.78 1.13 0.99
Total return per Ordinary Share
(based on NAV) +3.3% +2.9% +5.4%
Total return per Ordinary Share
(based on share price) +4.5% -1.0% 0.0%
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 19).
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 first Chairman's statement,
covering the period from 1 July 2018 to 31 December 2018. Over the
six months covering this interim reporting period, SQN Secured Income
Fund plc (LSE: SSIF) (the "Company" or "SSIF")has continued to make
excellent progress in repositioning the asset base to increasingly
reflect the secured and more structured nature of the Manager's core
credit focus. Despite continued macro uncertainty caused by Brexit
and wider geopolitical issues, income and a steady NAV performance
have been delivered for Shareholders.
The Company is a UK-listed specialist investment trust with a focus
on secured investments that produce regular, collateralised income
from investments in a diversified portfolio of loans to SME's primarily
in the UK.
Performance and Markets
The second half of 2018 proved challenging for investors in the global
markets, with many leading equity indices falling noticeably, despite
growth in developed markets remaining positive. Bond markets offered
little to dampen down the greater volatility in equity markets with
UK Gilts also offering limited returns.
Despite this backdrop, the Company maintained a steady income and
NAV performance. This is testament to the uncorrelated nature of
the assets that the Company targets and the strong foundation provided
by the security associated with the loans underwritten based on the
strategy employed by the Manager. All loans underwritten since April
2017 are performing at least in line with expectations and with zero
impairments. The Manager has also been successful in limiting impairment
risk from legacy loans via platforms, reducing this portion of the
overall portfolio to 0.3% of the total.
For the reporting period ended 31 December 2018, the Company generated
a net profit of GBP1.2 million. The Company's NAV as at 31 December
2018 was GBP51.47 million (97.64p (cum income) per ordinary share
compared to GBP51.54 million (97.78p per Ordinary Share) as at 30
June 2018. The total return for the reporting period was 3.3%.
Foreign exchange exposure on the 26.1% of non-Sterling loans is fully
hedged and any liquidity calls arising from the hedging strategy
are considered manageable within the Company's cash flow.
Note that all returns are net of all fees and no gearing was applied
to the portfolio during the reporting period.
Corporate Activity
The Company has a growth strategy and in anticipation of raising
new capital via tap issue or C share mechanisms, the decision to
appoint new corporate and legal advisors was taken. From December
2018, finnCap, Kepler Partners and Dickson Minto were duly appointed
in their respective roles. This has had a positive impact with new
momentum and investor interest from retail and offshore sources,
enabling the Company to embark on a marketing campaign to attract
fresh interest from investors who had been unaware of the radical
transformation that the Company has undergone over the last eighteen
months.
Earnings and Dividends
Total earnings per Ordinary share for the reporting period were 2.33p.
The Company elected to designate all dividends for the period ended
31 December 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.
As set out in the Prospectus, the Company intends to continue to
distribute at least 85% of its distributable income by way of dividends
on a monthly basis. During any year, the Company may retain some
of the distributable income as a loss reserve to smooth future dividend
flows.
The Company reached its dividend target of 7.00p in July 2018 and
is on target to deliver a total return of at least 8.00% in the medium
term. During the reporting period, dividend cover has fluctuated
due to specific transaction flows and the decision not to apply leverage
to the portfolio until more platform and peer to peer investments
had been reduced within the portfolio. By the end of the reporting
period, the Company can report that income flow from new underwriting
and committed deals has stabilised with dividend cover at sustainable
levels.
Discount
Immediately upon SQN Asset Management taking over management of the
portfolio, the discount narrowed as the transformation away from
alternative credit, peer-to-peer lending, and crowd-funding platforms
began to be implemented. Despite a successful eighteen months of
rebalancing the portfolio in line with this strategy (reducing credit
risk, improving dividend cover, and lowering costs), shares are again
trading in a discount range more appropriate for a peer group that
does not fit the revised traditional credit underwriting, direct
lending strategy. As the market comes to this realisation and the
consistent performance continues, the discount is expected to narrow,
if not eliminated. Until then, the share price offers an even more
attractive income opportunity with a dividend yield close to 7.5%
annually.
Board of Directors
After serving as Chairman for 2 years and 6 months during which time
he oversaw the transition to a new management team and commencement
of a change of investment focus, Richard Hills retired from his role
at the AGM on 18 December 2018. I have since assumed the role of
Chairman and Gay Coley has taken the role of Audit Committee Chair.
I would like to thank Richard for his significant input, with the
Board, management and administration teams thanking him for his transformational
influence in the successful turnaround in the fortunes of the business.
No further changes have been made to the Board and there are no imminent
plans to increase the number of directors until such time that we
have sufficient funds under management to warrant such appointments.
The Board continues to engage with the management team and have regular
communications in line with generally accepted governance practice.
Outlook
The Company performed well and continues to make progress in reassigning
available cash to loans underwritten directly by the management team.
The remaining exposure to platform investments are in transactions
which have been deemed to provide an appropriate risk balance and
an opportunity for diversification over a wider range of SMEs.
The Company is now at a pivotal time in its history, having experienced
a turbulent start, it has been refocused, de-risked and now warrants
a reassessment of its potential for investors as an attractive component
of a balanced portfolio in need of regular income and uncorrelated
returns. I look forward to seeing the discount to NAV narrow to a
point where we are able to implement a capital raising, to allow
the Manager to deploy more money into this underserved sector of
the market.
Ken Hillen
Chairman
13 March 2019
Investment Manager's Report
Overview
We are pleased to report significant progress in the continuing transformation
of SQN Secured Income Fund plc into a lending vehicle specialising
in direct loans to SMEs using our significant expertise in credit
underwriting and origination. It is now the only investment company
in the sector that delivers a majority of the portfolio held in direct
loans and dividend cover without the use of leverage.
The Company has successfully reduced peer to peer and crowd funded
investments to only 7.7% of the portfolio and has continued to reduce
legacy exposure to 32.6%. This percentage continues to fall and we
are confident that we will reach a target of circa 20% in wholesale
lending programmes, including those sourced by SQN, by the time of
the next full year's report and accounts. Impairment data remains
very low despite the introduction of IFRS 9 provisions. We have engaged
new advisers and legal representatives to inject fresh enthusiasm
into the Company which is one of the few investment trust companies
with assets that are uncorrelated to all major asset classes including
high yield bonds and leveraged loans. The downside protection now
embedded at the core of the portfolio gives the Company's Shareholders
multiple avenues to realise value.
Background
SQN is a credit focussed alternative investment manager with a successful
track record in managing direct loans and asset back financing. As
at December 2018, the SQN Group had over $1 billion under management
and a further $1 billion of assets in advisory portfolios. We manage
ten funds over five jurisdictions and have recently acquired Investment
Manager status in Ireland under the regulatory supervision of the
Central Bank of Ireland. Our core competency is credit management
and we are suitably resourced to deliver income and total return
in-line with the expectation we have set.
Portfolio
We have been focussed on underwriting of the highest quality with
eleven loans now underwritten by SQN, with an average size of GBP2.2
million at an average rate of 10.6%. Each loan has bespoke legal
documentation and is designed to fit to the Company's and the borrower's
requirements. There have been no defaults in the portion of the portfolio
underwritten by SQN and the outlook for the performance of these
loans is very good.
We have made a change to the way in which we report legacy positions.
With 32.6% now held in platform investments, we have differentiated
between peer to peer loans and those that are held in loan note structures
where we have far greater influence, the loans are larger, and we
have closer relationships with the underlying companies. The total
number of loans via these third parties has been reduced from 213
to 72. Peer to peer loans are now 62 in number with each individual
loan representing 0.1% average of the NAV, giving us a significant
degree of comfort with regard to the risk posed to the portfolio.
Throughout the process of restructuring the Company, we demurred
from taking leverage as we considered it folly to apply gearing to
a portfolio that already had a higher risk profile than we would
ordinarily adopt. A decision was made to only use a working capital
facility after we had significantly de-risked exposures and we estimated
this to be circa 50% platform investments. Restructuring a portfolio
without gearing whilst also striving to maintain consistent dividend
cover is a challenge, yet despite fluctuations during the reporting
period, we have been able to build a portfolio yield of 9.3% including
committed cash by December 2018.
Since August 2018, the Company has paid an increased 7p dividend.
The Company has been able to do this as loans were underwritten at
rates sufficient to achieve a covered dividend. However, this cover
has varied during the reporting period due to higher levels of cash
accumulated within the portfolio as a result of the positive event
of cash returned from platform investments and our decision to withdraw
from a transaction we had previously committed to due to lack of
transparency in the finer detail of the loan. Again, this is testament
to our high underwriting standards, and as already reported, full
dividend cover was achieved in August 2018.
There have been no breaches of investment guidelines during the reporting
period and all non-Sterling capital and income has been fully hedged.
Risk Management
Brexit dominates the investment landscape as we still await clarity
on the outcome of UK/EU negotiations. We have had to consider the
risks associated with our current and future investments very carefully
and have approached this work from four dimensions:
Underwriting
* The Company's loans are stress tested for a 10% fall
in cash flows with de minimis impact.
* All loans are senior, all collateralised and
underwritten with focus on debt service ratios.
* Each loan has a bespoke legal structure allowing us
to take management or bank account control in the
event of default.
Currency
* All non-Sterling currency exposure is fully hedged.
Interest Rates
* All loans are fixed rate.
* Interest rate sensitivity from our borrowers is very
low due to demand and supply dynamics.
* The overall portfolio has no gearing and so has nil
sensitivity to rates as a whole.
Duration
* An active effort to reduce duration from platform
exposures has been successful.
* Overall duration of the portfolio is now 2.9 years
with no maturity extensions permitted.
From a risk management perspective, we consider that we have positioned
the portfolio to sustain a steady NAV and income distribution despite
any significant economic downturn. We also have suitable controls
in place to highlight early warning signs for stressed assets.
Investment Outlook
After an extensive rebalancing which has transformed the portfolio
from an array of alternative finance structures to a predominately
direct loan book, we are confident that the hyper-intense focus on
traditional credit underwriting, the ability to control relationships
with the borrowers, and the strong collateral packages will deliver
attractive through-cycle performance. We are eager for the market
to reassess the underwriting practices and composition of the portfolio
to distinguish the Company from its currently associated peer group
with non-traditional and/or algorithmic credit underwriting standards,
limited control of loans, volume-driven modelling, and consumer-credit-like
exposures.
Building on the progress already made, expenses in the Company are
expected to continue to drop as average yields increase. This will
add to improved dividend cover and incremental NAV growth over the
medium term.
With the aforementioned improvements in the portfolio, eliminating
the current trading discount and increasing the size of the Company
has become a main priority. A suitable pipeline of direct loans has
already been identified to deploy efficiently with new capital raised.
As Managers, we have been able to effectively reduce unwanted exposures,
improve dividend cover, reduce costs, and increase the average yields
on the underlying loans all in the face of Brexit. Capital raising
was the only challenge outside of our control to date. We are optimistic
that in the coming months, this situation will improve and we will
be able to fully execute the strategy that was outlined when we took
over management of the Company in April of 2017.
Dawn Kendall
Managing Director
SQN Asset Management Limited
13 March 2019
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, are set out below:
* macroeconomic risk;
* credit risk;
* platform risk;
* regulatory risk; and
* reputational risk.
Further details of each of these risks and how they are mitigated
are discussed in the Principal Risks section of the Strategic Report
within the Company's Annual Report for the year ended 30 June 2018.
The Board believes that these risks are applicable to the six month
period ended 31 December 2018 and the remaining six months of the
current financial year.
On behalf of the Board.
Ken Hillen
Chairman
13 March 2019
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.
Ken Hillen
Chairman
13 March 2019
Unaudited Condensed Statement of Comprehensive Income
for the six months ended 31 December 2018
Year ended
Period from Period from
1 July 2018 1 July 2017
to 31 December to 31 December
2018 2017 30 June 2018
Note (unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Income
Investment income 1,886 2,363 4,466
Other income - 2 1
------------ ------------ ------------
Total revenue 1,886 2,365 4,467
------------ ------------ ------------
Operating expenses
Management fees 7a (259) (262) (518)
Other expenses 10 (72) (96) (154)
Directors' remuneration 8 (60) (54) (114)
Administration fees 7b (56) (60) (116)
Transaction fees (35) (23) (59)
Legal and professional fees (14) (53) (72)
Broker fees (9) (80) (123)
------------ ------------ ------------
Total operating expenses (505) (628) (1,156)
------------ ------------ ------------
Investment gains and losses
Movement in unrealised gain/loss
on loans 13 81 (254) (315)
Movement in unrealised gain on investments
at fair value through profit or
loss 14 11 20 22
Movement in unrealised loss on derivative
financial instruments 16 (307) (141) (182)
Realised gain/(loss) on disposal
of loans 82 (40) (40)
Realised (loss)/gain on derivative
financial instruments 16 (120) 227 21
------------ ------------ ------------
Total investment gains and losses (253) (188) (494)
------------ ------------ ------------
Net profit from operating activities
before gain/(loss) on foreign currency
exchange 1,128 1,549 2,817
Net foreign exchange gain/(loss) 99 (46) (8)
------------ ------------ ------------
Profit and total comprehensive income
for the period/year attributable
to the owners of the Company 1,227 1,503 2,809
------------ ------------ ------------
Earnings per Ordinary Share (basic
and diluted) 12 2.33p 2.85p 5.33p
------------ ------------ ------------
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 2018
Special Profit
Called up distributable and loss
Unaudited Note share capital reserve account Total
GBP'000 GBP'000 GBP'000 GBP'000
At 1 July 2018 577 50,942 20 51,539
Impact of transition to IFRS
9 3h - - 483 483
------------ ------------ ------------ ------------
At 1 July 2018 - revised for
the application of IFRS 9 577 50,942 503 52,022
Profit for the period 20 - - 1,227 1,227
Transactions with Owners in their capacity as owners:
Dividends paid 5, 20 - (264) (1,517) (1,781)
------------ ------------ ------------ ------------
Total transactions with Owners
in their capacity as owners - (264) (1,517) (1,781)
------------ ------------ ------------ ------------
At 31 December 2018 577 50,678 213 51,468
------------ ------------ ------------ ------------
Unaudited Condensed Statement of Changes in Equity
for the six months ended 31 December 2017
Special Profit
Called up distributable and loss
Unaudited Note share 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 20 - - 1,503 1,503
Transactions with Owners in their capacity as owners:
Dividends paid 5, 20 - - (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
------------ ------------ ------------ ------------
Audited Statement of Changes in Equity
for the year ended 30 June 2018
Special Profit
Called up distributable and loss
Audited Note share 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 year 20 - - 2,809 2,809
Transactions with Owners in their capacity as owners:
Dividends paid 5, 20 - - (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 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 2018
31 December 31 December 30 June
2018 2017 2018
Note (unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Non-current assets
Loans at amortised cost 13 37,262 39,684 31,918
Investments at fair value through
profit or loss 14 291 278 280
------------ ------------ ------------
Total non-current assets 37,553 39,962 32,198
------------ ------------ ------------
Current assets
Loans at amortised cost 13 3,877 7,748 12,445
Cash held on client accounts with
platforms 13 272 149 196
Derivative financial instruments 16 - 9 -
Other receivables and prepayments 17 964 1,159 772
Cash and cash equivalents 24 9,265 3,343 6,125
------------ ------------ ------------
Total current assets 14,378 12,408 19,538
------------ ------------ ------------
Total assets 51,931 52,370 51,736
------------ ------------ ------------
Current liabilities
Other payables and accruals 18 (124) (477) (165)
Derivative financial instruments 16 (339) - (32)
------------ ------------ ------------
Total liabilities (463) (477) (197)
------------ ------------ ------------
------------ ------------ ------------
Net assets 51,468 51,893 51,539
------------ ------------ ------------
Capital and reserves attributable to owners of the Company
Called up share capital 19 577 577 577
Other reserves 20 50,891 51,316 50,962
------------ ------------ ------------
Equity attributable to the owners
of the Company 51,468 51,893 51,539
------------ ------------ ------------
Net asset value per Ordinary Share 21 97.64p 98.45p 97.78p
------------ ------------ ------------
These unaudited condensed half-yearly financial statements of SQN
Secured Income Fund plc (registered number 09682883) were approved
by the Board of Directors on 13 March 2019 and were signed on its
behalf by:
Ken Hillen Gaynor Coley
Chairman Director
13 March 2019 13 March 2019
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 2018
Period from Period from
1 July 2018 1 July 2017
to 31 December to 31 December Year ended
2018 2017 30 June
(unaudited) (unaudited) 2018 (audited)
GBP'000 GBP'000 GBP'000
Cash flows from operating activities
Net profit before taxation 1,227 1,503 2,809
Adjustments for:
Movement in unrealised gain/loss on loans (81) 254 315
Movement in unrealised gain on investments
at fair value through profit or loss (11) (20) (22)
Movement in unrealised loss on derivative
financial instruments 307 141 182
Realised (gain)/loss on disposal of loans (82) 40 40
Realised loss/(gain) on derivative financial
instruments 120 (227) (21)
Amortisation of transaction fees 35 23 59
Interest received and reinvested by platforms (174) (320) (595)
Capitalised interest (467) (47) (312)
Decrease/(increase) in investments 4,279 (6,702) (3,443)
Taxation paid - - (5)
------------ ------------ ------------
Net cash inflow/(outflow) from operating
activities before working capital changes 5,153 (5,355) (993)
Increase in other receivables and prepayments (192) (426) (39)
Decrease in other payables and accruals (40) (2,589) (2,901)
------------ ------------ ------------
Net cash inflow/(outflow) from operating
activities 4,921 (8,370) (3,933)
Cash flows from financing activities
Dividends paid (1,781) (1,658) (3,318)
------------ ------------ ------------
Net cash outflow from financing activities (1,781) (1,658) (3,318)
------------ ------------ ------------
Increase/(decrease) in cash and cash equivalents
in the period/year 3,140 (10,033) (7,251)
Cash and cash equivalents at the beginning
of the period/year 6,125 13,376 13,376
------------ ------------ ------------
Cash and cash equivalents at 31 December
2018 9,265 3,343 6,125
------------ ------------ ------------
Supplemental cash flow information
Non-cash transaction - interest received 641 367 907
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 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 in note 22) 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 2018.
These unaudited condensed half-yearly financial statements have been
prepared in accordance with International Accounting Standard ("IAS")
34: Interim Financial Reporting, as adopted by the European Union.
The unaudited condensed half-yearly financial statements for the period
ended 31 December 2018 have not been audited or reviewed by the Company's
auditors and do not constitute statutory financial statements, as
defined in s434 of the Companies Act 2006. The unaudited condensed
half-yearly financial statements have been prepared on the same basis
as the Company's annual financial statements.
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.
The preparation of unaudited condensed half-yearly financial statements
in conformity with International Financial Reporting Standards ("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 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
Policy effective from 1 July 2018
A financial asset is credit-impaired when one or more events that
have occurred have a significant impact on the expected future cash
flows of the financial asset. It includes observable data that has
come to the attention of the holder of a financial asset about the
following events:
* Significant financial difficulty of the issuer or
borrower;
* A breach of contract, such as a default or past-due
event;
* The lenders for economic or contractual reasons
relating to the borrower's financial difficulty
granted the borrower a concession that would not
otherwise be considered;
* It becoming probable that the borrower will enter
bankruptcy or other financial reorganisation;
* The disappearance of an active market for the
financial asset because of financial difficulties; or
* The purchase or origination of a financial asset at a
deep discount that reflects incurred credit losses.
Impairment of financial assets is recognised in stages:
Stage As soon as a financial instrument is originated or purchased,
1: 12-month expected credit losses are recognised in profit or loss
and a loss allowance is established. This serves as a proxy for
the initial expectations of credit losses. For financial assets,
interest revenue is calculated on the gross carrying amount (i.e.
without deduction for expected credit losses).
Stage If the credit risk increases significantly and is not considered
2: low, full lifetime expected credit losses are recognised in profit
or loss. The calculation of interest revenue is the same as for
Stage 1.
Stage If the credit risk of a financial asset increases to the point
3: that it is considered credit-impaired, interest revenue is calculated
based on the amortised cost (i.e. the gross carrying amount less
the loss allowance). Financial assets in this stage will generally
be assessed individually. Lifetime expected credit losses are
recognised on these financial assets.
Policy effective before 1 July 2018
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.
b) Cash and cash equivalents
Cash and cash equivalents are defined as cash in hand, demand deposits
and short-term, highly liquid investments readily convertible to known
amounts of cash and subject to insignificant risk of changes in value.
c) Receivables and prepayments
Receivables are carried at the original invoice amount, less allowance
for doubtful receivables. Provision is made when there is objective
evidence that the Company will be unable to recover balances in full.
Balances are written-off when the probability of recovery is assessed
as being remote.
d) Transaction costs
Transaction costs incurred on the acquisition of loans are capitalised
upon recognition of the financial asset and amortised over the term
of the respective loan.
e) Income and expenses
Bank interest and loan interest are recognised on a time-proportionate
basis using the effective interest rate method.
Dividend income is recognised when the right to receive payment is
established.
All expenses are recognised on an accruals basis. All of the Company's
expenses (with the exception of share issue costs, which are charged
directly to the distributable reserve) are charged through the Unaudited
Condensed Statement of Comprehensive Income in the period in which
they are incurred.
f) Taxation
The Company is exempt from UK corporation tax on its chargeable gains
as it satisfies the conditions for approval as an investment trust.
The Company is, however, liable to UK corporation tax on its income.
However, the Company has elected to take advantage of modified UK
tax treatment in respect of its "qualifying interest income" in order
to deduct all, or part, of the amount it distributes to Shareholders
as dividends as an "interest distribution".
g) Changes in accounting policy and disclosures
New and amended standards and interpretations
The accounting policies adopted are consistent with those of the previous
financial year, except as outlined below and in note 3b (impairment).
The Company adopted the following new and amended relevant IFRS in
the period:
IFRS 2 Share-based payments
IFRS 9 Financial Instruments
IFRS 15 Revenue from Contracts with Customers
IFRIC Foreign Currency Transactions and Advance Consideration
22
With the exception of IFRS 9, the adoption of the above standards
did not have a significant impact on the financial position or performance
of the Company. The impact of the adoption of IFRS 9 on the financial
position or performance of the Company is described below, but in
summary:
* The Company has continued to measure loans and
receivables at amortised cost, and at fair value for
all financial assets and liabilities currently held
at fair value;
* Expected credit losses are not materially different
from incurred losses previously provided due to the
use of security on a large portion of the Company's
loans; and
* The Company does not designate any hedges as
effective hedging relationships.
Impact of adoption of IFRS 9
The Company adopted IFRS 9 with effect from 1 July 2018. IFRS 9 replaces
IAS 39: Financial Instruments: Recognition and Measurement and introduces
new requirements for classification and measurement, impairment and
hedge accounting. IFRS 9 is not applicable to items that had already
been derecognised at 1 July 2018, the date of initial application.
a) Classification and measurement
The Company has assessed the classification of financial instruments
as at the date of initial application and has applied such classification
retrospectively. Based on that assessment:
* All financial assets previously held at fair value
continue to be measured at fair value;
* Financial assets previously classified as loans and
receivables are held to collect contractual cash
flows and give rise to cash flows representing solely
payments of principal and interest. Thus, such
instruments continue to be measured at amortised cost
under IFRS 9; and
* The classification of financial liabilities to which
the Company is exposed remains broadly the same under
IFRS 9 as under IAS 39.
b) Impairment
IFRS 9 requires the Company to record expected credit losses on all
of its debt securities, loans and trade receivables, either on a 12-month
or lifetime basis.
IFRS 9 provisioning led to a one-off increase in the Company's NAV
of 0.94% 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.
The classification and measurement requirements of IFRS 9 have been
adopted retrospectively as of the date of initial application on 1
July 2018. However, the Company has chosen to take advantage of the
option not to restate comparatives. Therefore, the 30 June 2018 and
31 December 2017 figures are presented and measured under IAS 39.
The following table shows the original measurement categories in accordance
with IAS 39 and the new measurement categories under IFRS 9 for the
Company's financial assets and financial liabilities as at 1 July
2018:
IAS 39 classification IAS 39 measurement IFRS 9 classification IFRS 9 measurement
GBP'000 GBP'000
Loans at amortised cost Loans and receivables 44,363 Amortised cost 44,846
Investments at fair
value through profit Financial assets
or loss ("FVTPL") at FVTPL 280 FVTPL 280
Cash held on client
accounts with platforms Loans and receivables 196 Amortised cost 196
Other receivables and
prepayments Loans and receivables 772 Amortised cost 772
Cash and cash equivalents Loans and receivables 6,125 Amortised cost 6,125
Other financial
Other payables and accruals liabilities (165) Amortised cost (165)
Derivative financial Designated at
instruments FVTPL (32) FVTPL (32)
------------ ------------
Net assets 51,539 52,022
------------ ------------
In line with the characteristics of the Company's financial instruments,
as well as its approach to their management, the Company neither revoked
nor made any new designations on the date of initial application.
IFRS 9 has not resulted in changes in the carrying amount of the Company's
financial instruments due to changes in measurement categories. All
financial assets that were classified as fair value through profit
or loss under IAS 39 are still classified as fair value through profit
or loss under IFRS 9. All financial assets that were classified as
loans and receivables and measured at amortised cost continue to be.
In addition, the application of the expected credit loss model under
IFRS 9 decreased the impairment of the loans at amortised cost by
GBP483,000 as at 1 July 2018, but has not changed the carrying amounts
of any of the Company's other assets or liabilities.
The carrying amounts of amortised cost instruments continued to approximate
those instruments' fair values on the date of transition after transitioning
to IFRS 9.
Impact of adoption of IFRS 15
The Company adopted IFRS 15 with effect from 1 July 2018. IFRS 15
replaces IAS 18: Revenue and establishes a five-step model to account
for revenue arising from contracts with customers. In addition, guidance
on interest and dividend income have been moved from IAS 18 to IFRS
9 without significant changes to the requirements. Therefore, there
was no impact of adopting IFRS 15 for the Company.
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
would have a material impact on the Company's financial statements
in the period of initial application.
Effective date
IFRS 9 Financial Instruments - amendments regarding prepayment 1 January 2019
features with negative compensation and modifications
of financial liabilities
IAS 1 Presentation of Financial Statements - amendments
regarding the definition of materiality 1 January 2020
IAS 8 Accounting Policies, Changes in Accounting Estimates
and Errors - amendments regarding the definition 1 January 2020
of materiality
IAS 12 Income Taxes - amendments resulting from annual 1 January 2019
improvements
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
In accordance with IFRS 9, from 1 July 2019, the impairment of loans
and other receivables has been assessed as described in note 3b. When
assessing the lifetime expected credit loss on a loan, and the stage
of impairment of that loan, the Company considers whether 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 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 and whether a loan's credit risk has changed significantly.
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.
The analysis of credit risk is based on a number of factors. The determination
of whether a specific factor is relevant and its weight compared with
other factors depends on the type of product, the characteristics
of the financial instrument and the borrower, and the geographical
region. Therefore, it is not possible to provide a single set of criteria
that will determine what is considered to be a significant increase
in credit risk.
From 1 July 2018, the following expected lifetime credit losses and
probabilities of default have been applied to the Company's loan portfolio:
Probability of default Lifetime expected credit
loss
Direct loan Loan via Platform Direct loan Loan via Platform
to SME to SME
Stage 1 2.0% 2.0% 2.5% 5.0%
Stage 2 10.0% 15.0% 3.5% *
Stage 3 20.0% 25.0% 5.0% *
At present no direct loans to SMEs fall within Stage 2 or Stage 3,
however, values have been assigned in the table above in respect of
the probability of default and lifetime expected credit loss for Stage
2 and Stage 3 direct loans to SMEs. If a situation were to arise where
a direct loan to an SME were reclassified as Stage 2 or Stage 3, the
probability of default and lifetime expected credit loss would be
assessed on a case by case basis and would be pertinent to the probability
of recovery.
* All data calculated for IFRS 9 purposes is consistent with the overall
methodology employed by SQN across all of its UK public funds. In
addition to the methodology used, the Company has taken impairment
data from Platforms for the assessment of loans with third party exposure.
Again, this is consistent with the approach SQN would expect to take
in these circumstances.
At 31 December 2018, the Company's financial instruments at fair value
through profit or loss comprised unlisted equity shares and derivative
financial instruments. See note 15 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), the
Company rebased its annual dividend target to 7.00p per Share, with
effect from July 2018. The monthly dividend at the new rate of 0.583p
per Share was first paid in September 2018. 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 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 period ended 31 December 2018:
Total dividend
declared in respect
of earnings in Amount per
Announcement date Pay date the period Ordinary Share
GBP'000
30 August 2018 28 September 2018 307 0.583p
25 September 2018 26 October 2018 307 0.583p
25 October 2018 23 November 2018 307 0.583p
29 November 2018 28 December 2018 307 0.583p
21 December 2018 25 January 2019 307 0.583p
30 January 2019 22 February 2019 307 0.583p
------------ ------------
Dividends declared (to date) for the
period 1,842 3.50p
Less, dividends paid after the period
end (614) (1.17)p
Add, dividends paid in the period in
respect of the prior year 553 1.05p
------------ ------------
Dividends paid in
the period 1,781 3.38p
------------ ------------
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 GBP1,781,000 (31 December 2017: GBP1,658,000, 30
June 2018: GBP3,318,000) was incurred in respect of dividends, none
of which was outstanding at the reporting date (31 December 2017 and
30 June 2018: none). The dividends of GBP307,010 each, which were
declared on 21 December 2018 and 30 January 2019, had not been provided
for at 31 December 2018 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 28 February 2019, the Company declared a dividend of 0.583p per
Share for the period from 1 July 2018 to 31 January 2019. This dividend
will be paid on 29 March 2019.
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 GBP55,000 was earned in the period (31 December 2017:
GBP67,000, 30 June 2018: GBP127,000), GBP3,000 of which was outstanding
at 31 December 2018 (31 December 2017: GBP4,000, 30 June 2018: 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 2018, the balance of the loan was GBP1,035,000 (31
December 2017: GBP1,271,000; 30 June 2018 GBP1,156,000).
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
Asset Management Limited ("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 period, a total of GBP259,000 (31 December 2017: GBP262,000,
30 June 2018: GBP518,000) was incurred in respect of management fees,
of which GBP43,000 was payable at the reporting date (31 December
2017: GBP44,000, 30 June 2018: GBP42,000).
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 GBP56,000 (31 December 2017: GBP60,000, 30
June 2018: GBP116,000) was incurred in respect of administration fees,
of which GBP30,000 (31 December 2017: GBP28,000, 30 June 2018: GBP28,000)
was payable at the reporting date.
8. Directors' remuneration
Following Richard Hills' retirement from the Board of Directors at
the Company's Annual General Meeting held on 18 December 2018, Kenneth
Hillen, who was Chairman of the Audit Committee, was appointed as
Chairman of the Company and Gaynor Coley was appointed as Chairman
of the Audit Committee.
The Directors are paid such remuneration for their services as determined
by the Remuneration and Nomination Committee, which comprises all
of the Directors of the Company and is chaired by 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 during that period, 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 being the chairman of the Remuneration and Nominations Committee.
During the period, a total of GBP60,000 (31 December 2017: GBP54,000,
30 June 2018: GBP114,000) was incurred in respect of Directors' remuneration,
none of which was payable at the reporting date (31 December 2017
and 30 June 2018: none). No bonus or pension contributions were paid
or payable on behalf of the Directors.
9. Key management and employees
The Company had no employees during the period (31 December 2017 and
30 June 2018: none). Therefore, there were no key management (except
for the Directors) or employees during the period (31 December 2017
and 30 June 2018: none).
10. Other expenses
Period from
1 July 2018 Period from
to 31 December 1 July 2017 Year ended
2018 to 31 December 30 June 2018
(unaudited) 2017 (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Audit fees 21 21 38
Registrar fees 18 15 30
Other expenses 14 5 14
Listing fees 8 4 13
Accountancy and taxation fees 3 7 8
Printing costs 3 4 7
Travel costs 2 6 7
Directors' liability insurance 2 3 5
Website costs 1 18 19
Custodian fee - 13 13
------------ ------------ ------------
72 96 154
------------ ------------ ------------
11. Taxation
The Company has received confirmation from HMRC that it satisfied
the conditions for approval as an investment trust, subject to the
Company continuing to meet the eligibility conditions in s.1158 of
the Corporation Tax Act 2010 and the ongoing requirements for approved
investment trust companies in Chapter 3 of Part 2 of the Investment
Trust (approved Company) Tax Regulations 2011 (Statutory Instrument
2011.2999). The Company intends to retain this approval and self-assesses
compliance with the relevant conditions and requirements.
As an investment trust the Company is exempt from UK corporation tax
on its chargeable gains. The Company is, however, liable to UK corporation
tax on its income. However, the Company has elected to take advantage
of modified UK tax treatment in respect of its "qualifying interest
income" in order to deduct all, or part, of the amount it distributes
to Shareholders as dividends as an "interest distribution".
Period from
1 July 2018 Period from
to 31 December 1 July 2017 Year ended
2018 to 31 December 30 June 2018
(unaudited) 2017 (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Reconciliation of tax charge:
Profit before taxation 1,227 1,503 2,809
------------ ------------ ------------
Tax at the standard UK corporation tax
rate of 19% 233 286 534
Effects of:
* Non-taxable investment gains and losses 48 36 94
* Interest distributions (338) (315) (630)
* Unrecognised deferred tax 57 (7) 2
------------ ------------ ------------
Total tax expense - - -
------------ ------------ ------------
Domestic corporation tax rates in the jurisdictions in which the Company
operated were as follows:
Period from
1 July 2018 Period from
to 31 December 1 July 2017 Year ended
2018 to 31 December 30 June 2018
(unaudited) 2017 (unaudited) (audited)
United Kingdom 19% 19% 19%
Guernsey nil nil nil
Due to the Company's status as an investment trust and the intention
to continue to meet the required conditions, the Company has not provided
for deferred tax on any capital gains and losses.
12. Earnings per Ordinary Share
The earnings per Ordinary Share of 2.33p (31 December 2017: 2.85p,
30 June 2018: 5.33p) is based on a profit attributable to the owners
of the Company of GBP1,227,000 (31 December 2017: GBP1,503,000, 30
June 2018: GBP2,809,000) and on a weighted average number of 52,660,350
(31 December 2017 and 30 June 2018: 52,660,350) Ordinary Shares in
issue since Admission. There is no difference between the basic and
diluted earnings per share.
13. Loans at amortised cost
31 December 31 December
2018 2017 30 June 2018
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Loans at amortised cost and cash held
on client accounts with platforms 40,941 47,614 44,653
Unrealised gain/(loss)* 470 (33) (94)
------------ ------------ ------------
Balance at period/year end 41,411 47,581 44,559
------------ ------------ ------------
Loans: Non-current 37,262 39,684 31,918
Current 3,877 7,748 12,445
Cash held on client accounts with platforms 272 149 196
------------ ------------ ------------
Loans at amortised cost and cash held
on client accounts with platforms 41,411 47,581 44,559
------------ ------------ ------------
*Unrealised gain/(loss):
Foreign exchange on non-Sterling loans 624 504 605
Impairments (154) (537) (699)
------------ ------------ ------------
Unrealised gain/(loss) 470 (33) (94)
------------ ------------ ------------
The movement in unrealised gain/loss on loans in the Unaudited Condensed
Statement of Comprehensive Income comprises:
31 December 31 December
2018 2017 30 June 2018
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Movement in foreign exchange on non-Sterling
loans 19 (147) (46)
Movement in impairments 62 (107) (269)
------------ ------------ ------------
Movement in unrealised gain/loss on
loans 81 (254) (315)
Impact of transition to IFRS 9 483 - -
------------ ------------ ------------
Total movement in unrealised gain/loss
on loans 564 (254) (315)
------------ ------------ ------------
The weighted average interest rate of the loans as at 31 December
2018 was 9.79% (31 December 2017: 9.07%, 30 June 2018: 9.24%).
See note 3b and note 4i regarding the process of assessment of loan
impairment.
At 31 December 2018, repayments of GBP1,502,000 (31 December 2017:
GBP1,410,000, 30 June 2018: GBP1,503,000) 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
2018 2017 30 June 2018
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Less than 30 days overdue 4 174 212
More than 30 days but less than 90 days
overdue - 184 1,023
More than 90 days but less than a year
overdue 1,225 140 165
More than one year overdue 273 912 103
------------ ------------ ------------
1,502 1,410 1,503
------------ ------------ ------------
At 31 December 2018, the Board considered GBP154,000 (31 December
2017: GBP537,000, 30 June 2018: GBP699,000) 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 31 December 2018.
31 December 31 December
2018 2017 30 June 2018
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Sancus Funding 96 367 515
UK Bond Network 17 104 104
MyTripleA 16 66 80
Direct SME loans 11 - -
BMS UK 10 - -
Other 4 - -
------------ ------------ ------------
Total impairment 154 537 699
------------ ------------ ------------
During the period, GBP126,000 (31 December 2017: GBP40,000, 30 June
2018: GBP40,000) of loans were written off and included within realised
gain/(loss) on disposal of loans in the Unaudited Condensed Statement
of Comprehensive Income.
14. Investments at fair value through profit or loss
Period from
1 July 2018 Period from
to 31 December 1 July 2017 Year ended
2018 to 31 December 30 June 2018
(unaudited) 2017 (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Balance brought forward 280 258 258
Movement in unrealised gain on investments
at fair value through profit or loss 11 20 22
------------ ------------ ------------
Balance at period/year end 291 278 280
------------ ------------ ------------
For further information on the investments at fair value through profit
or loss, see note 15.
15. 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 2018, the financial instruments designated at fair
value through profit or loss were as follows:
31 December 2018 (unaudited)
Level Level Level Total
1 2 3
Financial assets/(liabilities) GBP'000 GBP'000 GBP'000 GBP'000
Unlisted equity shares - - 291 291
Derivative financial instruments (note 16) - (339) - (339)
------------ ------------ ------------ ------------
Total financial (liabilities)/assets designated
at fair value through profit or loss - (339) 291 (48)
------------ ------------ ------------ ------------
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 16) - 9 - 9
------------ ------------ ------------ ------------
Total financial assets designated at fair value
through profit or loss - 9 278 287
------------ ------------ ------------ ------------
At 30 June 2018, the financial instruments designated at fair value
through profit or loss were as follows:
30 June 2018 (audited)
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 16) - (32) - (32)
------------ ------------ ------------ ------------
Total financial (liabilities)/assets designated
at fair value through profit or loss - (32) 280 248
------------ ------------ ------------ ------------
At 31 December 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 period (31 December
2017 and 30 June 2018: none).
16. Derivative financial instruments
During the period, the Company entered into foreign currency forward
contracts to hedge against foreign exchange fluctuations. The Company
realised a loss of GBP120,000 (31 December 2017: profit of GBP227,000,
30 June 2018: profit of GBP21,000) on forward foreign exchange contracts
that settled during the period.
As at 31 December 2018, the open forward foreign exchange contracts
were valued at GBP(339,000) (31 December 2017: GBP9,000, 30 June 2018:
GBP(32,000)).
17. Other receivables and prepayments
31 December 31 December
2018 2017 30 June 2018
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Accrued interest 927 1,122 759
Other receivables 24 - -
Prepayments 13 37 13
------------ ------------ ------------
964 1,159 772
------------ ------------ ------------
18. Other payables and accruals
31 December 31 December
2018 2017 30 June 2018
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Management fee 43 44 42
Administration fee 30 28 28
Audit fee 19 18 35
Other payables and accruals 11 20 12
Broker fee 11 - 2
Accountancy and taxation fees 10 13 7
Deferred investment income - 354 19
Transaction fees - - 20
------------ ------------ ------------
124 477 165
------------ ------------ ------------
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 2018, the Company had no liabilities classified
as cash flows from financing activities (31 December 2017 and 30 June
2018: none).
19. Share capital
31 December 31 December 30 June
2018 2017 2018
(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 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.
20. 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 2018
At 30 June 2018 50,942 75 (55) 50,962
Impact of transition to IFRS 9 - - 483 483
Realised revenue profit - 1,480 - 1,480
Realised investment gains and losses - (38) - (38)
Unrealised investment gains and
losses - - (215) (215)
Dividends paid (264) (1,517) - (1,781)
------------ ------------ ------------ ------------
At 31 December 2018 50,678 - 213 50,891
------------ ------------ ------------ ------------
Period ended 31 December 2017
At 30 June 2017 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
------------ ------------ ------------ ------------
Year ended 30 June 2018
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 GBP307,010 dividends (see note 5), which were declared on
21 December 2018 and 30 January 2019, will be paid from the special
distributable reserve.
21. 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 GBP51,468,000 (31 December
2017: GBP51,893,000, 30 June 2018: GBP51,539,000), less GBP50,000
(31 December 2017 and 30 June 2018: GBP50,000), being amounts owed
in respect of Management Shares, and on 52,660,350 (31 December 2017
and 30 June 2018: 52,660,350) Ordinary Shares in issue at the period
end.
On 30 January 2019, the company announced that the net asset value
at 31 December 2018 was 96.73 pence per Ordinary Share. However, following
the reassessment of the impairment of the loans at amortised cost
in compliance with IFRS 9, the impairment on the loans was reduced
by GBP478,000 from GBP632,000 to GBP154,000, thereby increasing the
net assets from GBP51,453,000 to GBP51,931,000 and the reported net
asset value per Ordinary Share from 96.73 pence to 97.64 pence.
22. 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
period from 1 July 2018 to 31 December 2018 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 14 and 15) are exposed to price risk and it is not
the intention to mitigate the price risk.
At 31 December 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 +/-
GBP15,000 (31 December 2017: +/- GBP14,000, 30 June 2018: +/- GBP14,000).
The maximum price risk resulting from financial instruments is equal
to the GBP291,000 carrying value of the investments at fair value
through profit or loss (31 December 2017: GBP278,000, 30 June 2018:
GBP280,000).
(ii) Foreign currency risk
Foreign currency risk is the risk that the value of a financial instrument
will fluctuate because of changes in foreign 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 31 December 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 Foreign
at fair Cash and Other payables currency
value through Loans and cash and accruals forward
profit or receivables equivalents Exposure contract Net exposure
loss
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
31 December
2018
(unaudited)
US Dollars - 5,063 2,812 - 7,875 (7,533) 342
Euros 66 3,164 2,337 - 5,567 (5,461) 106
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
66 8,227 5,149 - 13,442 (12,994) 448
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
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
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
30 June
2018
(audited)
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)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
In order to limit the exposure to foreign currency risk, the Company
entered into hedging contracts during the period. At 31 December 2018,
the Company held foreign currency forward contracts to sell US$10,000,000
and EUR6,100,000 (31 December 2017: US$9,000,000 and EUR6,000,000,
30 June 2018: US$9,950,000 and EUR6,140,000) with a settlement date
of 31 January 2019.
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 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 31 December 2018 would have (decreased)/increased
by GBP(22,000)/GBP22,000 (31 December 2017: GBP(3,000)/GBP3,000, 30
June 2018: GBP13,000/GBP(15,000)), 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 GBP9,265,000 (31 December 2017: GBP3,343,000, 30 June 2018: GBP6,125,000)
were the only interest bearing financial instruments subject to variable
interest rates at 31 December 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 period would have been GBP46,000 (31 December 2017: GBP17,000,
30 June 2018: GBP31,000).
Non-interest
31 December 2018 (unaudited) Fixed interest Variable interest bearing Total
GBP'000 GBP'000 GBP'000 GBP'000
Financial assets
Loans 41,139 - - 41,139
Cash held on client accounts
with Platforms - - 272 272
Investments at fair value through
profit or loss - - 291 291
Other receivables - - 951 951
Cash and cash equivalents - 9,265 - 9,265
------------ ------------ ------------ ------------
Total financial assets 41,139 9,265 1,514 51,918
------------ ------------ ------------ ------------
Financial liabilities
Other payables - - (124) (124)
Derivative financial instruments - - (339) (339)
------------ ------------ ------------ ------------
Total financial liabilities - - (463) (463)
------------ ------------ ------------ ------------
Total interest sensitivity
gap 41,139 9,265 1,051 51,455
------------ ------------ ------------ ------------
Non-interest
31 December 2017 (unaudited) Fixed interest Variable 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
------------ ------------ ------------ ------------
Non-interest
30 June 2018 (audited) Fixed interest Variable interest bearing Total
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
------------ ------------ ------------ ------------
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 2018, credit risk arose principally from cash and cash
equivalents of GBP9,265,000 (31 December 2017: GBP3,343,000, 30 June
2018: GBP6,125,000) and balances due from the platforms and SMEs of
GBP41,411,000 (31 December 2017: GBP47,581,000, 30 June 2018: GBP44,559,000).
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 2018 was
low since the ratio of cash and cash equivalents to unmatched liabilities
was 20:1 (31 December 2017: 7:1, 30 June 2018: 31:1).
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
2018 2017 30 June 2018
(unaudited) (unaudited) (audited)
Percentage Percentage Percentage
0 to 6 months 26.1 15.6 17.0
6 months to 18 months 14.4 26.0 25.3
18 months to 3 years 22.0 18.7 16.6
Greater than 3 years 37.5 39.7 41.1
------------ ------------ ------------
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 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
(31 December 2017 and 30 June 2018: 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.
23. Contingent assets and contingent liabilities
There were no contingent assets or contingent liabilities in existence
at the period end (31 December 2017 and 30 June 2018: none).
24. Committed capital
At 31 December 2018, the Company had an undrawn commitment of GBP4
million under the terms of a loan facility agreement with a borrower.
The availability period whereby the borrower may utilise the remaining
undrawn facility ends on 31 July 2019.
The cash and cash equivalents, which were not formally restricted
by the undrawn loan commitment, were GBP9,265,000 at 31 December 2018
(31 December 2017: GBP6,125,000, 30 June 2018: GBP3,343,000). The
available cash after deduction of the undrawn loan commitment was
GBP5,265,000 at 31 December 2018 (31 December 2017: GBP125,000, 30
June 2018: (GBP657,000)).
25. Events after the reporting period
Two dividends of 0.583p per Ordinary Share, which (in accordance with
IFRS) were not provided for at 31 December 2018, have been declared
out of the profits for the period ended 31 December 2018 (see note
5).
On 28 February 2019, the Company declared a dividend of 0.583p per
Ordinary Share for the period from 1 July 2018 to 31 January 2019.
This dividend will be paid on 29 March 2019.
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 news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
IR LLFLTVDIVLIA
(END) Dow Jones Newswires
March 14, 2019 03:00 ET (07:00 GMT)
1 Year Secured Income Chart |
1 Month Secured Income Chart |
It looks like you are not logged in. Click the button below to log in and keep track of your recent history.
Support: +44 (0) 203 8794 460 | support@advfn.com
By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions
