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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Secured Income Fund Plc | LSE:SSIF | London | Ordinary Share | GB00BYMK5S87 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 6.00 | 4.00 | 8.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From May 2019 to May 2024
TIDMSSIF
RNS Number : 1072I
SQN Secured Income Fund PLC
31 March 2020
31 March 2020
SQN Secured Income Fund plc
("SSIF" or the "Company")
Half-Yearly Financial Report
For the six months ended 31 December 2019
Hot Features
Premium
A copy of the Company's Half-Yearly Report and Condensed Financial
Statements for the six months ended 31 December 2019 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
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 2019.
Strategic Report
Key Points
31 December 31 December
2019 2018
(unaudited) (unaudited) 30 June
2019 (audited)
Net assets ([1]) GBP48,686,000 GBP50,963,000 GBP50,129,000
NAV per Ordinary Share 92.36p 96.68p([2]) 95.10p
Share price 85.25p 92.25p 92.00p
Discount to NAV 7.7% 4.6%([2]) 3.3%
Profit for the period GBP399,000 GBP1,227,000 GBP2,236,000
Dividend per share declared in
respect of the period 3.50p 3.50p 7.00p
Dividend cover 0.67 0.81([2]) 0.79
Total return per Ordinary Share
(based on NAV) ([3]) +0.8% +2.3%([2]) +4.4%
Total return per Ordinary Share
(based on share price) ([3]) -3.5% +4.5% +8.2%
Ordinary Shares in issue 52,660,350 52,660,350 52,660,350
In addition to the Ordinary Shares in issue, 50,000 Management
([1]) Shares of GBP1 each are in issue (see note 19).
The 31 December 2018 NAV per Ordinary Share has been restated
([2]) from 97.64p (as reported in the 31 December 2018 half-yearly report
and unaudited condensed financial statements) to 96.68p. This
is the result of a change in the Company's approach to IFRS 9
provisioning, as disclosed in note 3i and the 30 June 2019 audited
annual report and financial statements.
Total return per Ordinary Share has been calculated by comparing
([3]) the NAV or share price, as applicable, at the start of the period
with the NAV or share price, as applicable, plus dividends paid,
at the period end.
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
Investment Manager (SQN Asset Management Limited ("SQN UK") and SQN
Capital Management, LLC ("SQN US")).
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 our Shareholders with my Chairman's statement,
covering the period from 1 July 2019 to 31 December 2019. Over this
interim period, the Company has continued to make excellent progress
in reorganising the asset base to better reflect the secured and
collateralised nature of the Investment Manager's core credit focus.
Despite continued macro uncertainty caused by Brexit and wider geopolitical
issues, income and steady NAV performance have been delivered for
our Shareholders. At the time of writing, the COVID -19 pandemic
is gripping the world and I shall comment on this development later
in my statement.
SQN Secured Income Fund plc (LSE: SSIF) (the "Company" or "SSIF"),
is a UK-listed specialist investment trust with a focus on secured
investments that produce regular, collateralised income from investments
made in a diversified portfolio of loans to lower middle market companies
predominantly in the UK but with significant exposure to other major
economies in the US and Europe.
I should begin my statement with a few words regarding the COVID
- 19 pandemic. During these turbulent times our priority is to focus
on preserving cash and maintenance of dividend cover for our Shareholders.
Equally, we are pleased that the Manager is conducting sensible and
cooperative conversation with our borrowers to set their minds at
rest with a priority given to protecting their financial health and
that of their people. This emergency period will pass and it is incumbent
on all stakeholders to behave in a responsible and fair manner. We
do expect the maturity profile of the loans to be extended but are
encouraged that updates from underlying businesses have been broadly
encouraging at this early stage.
Performance
During the reporting period, the Company was able to maintain steady
income and NAV performance. This is a testament to the uncorrelated
nature of the assets that the Company targets and the strong foundation
the security associated with the loans provides. Encouragingly, all
loans underwritten since April 2017 are performing in line with expectations
with zero impairments. The Investment Manager has also been successful
in limiting impairment risk from legacy loans via platforms, although
a decision was taken in September to begin impairing moribund positions.
For the reporting period ended 31 December 2019, the Company generated
a net profit of GBP0.4m comprised of earnings per Ordinary Share
of 0.76p. The Company's NAV at 31 December 2019 was GBP48.69m (92.36p
(cum income) per Ordinary Share) compared with GBP50.96m (96.68p
per Ordinary Share) as at 31 December 2018. The total return for
the six months to 31 December 2019 was +0.80%.
Foreign exchange exposure on non-Sterling loans is fully hedged and
any liquidity calls arising from the hedging strategy are considered
manageable within the Company's cash flow even with increased volatility
assigned to Brexit and COVID-19.
Note that all returns are net of all fees and no gearing was applied
to the portfolio during the reporting period.
Corporate Activity
Despite continued retail interest, the Company has been unable to
encourage large-scale purchasing interest from larger institutional
investors and in particular discretionary wealth managers, to narrow
the discount to NAV. Previously, this was due to increased concern
regarding the sector and as investors made strategic decisions to
divest from the UK due to Brexit concerns. However, a portfolio update
published by a fund managed by our investment manager's parent company
pursuing a different investment strategy has made marketing the fund
in its present form more challenging. The Board is in discussions
with the manager and other stakeholders to consider a practicable
way forward for a fund that has performed well while facing challenges
but associated with a management group which is experiencing difficulties
with another client.
Dividends
The Company elected to designate all dividends for the period ended
31 December 2019 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 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 2019 and
is on target to deliver a total return of at least 8.00% based on
the portfolio as it stands today. Further, during the reporting period,
dividend cover has been stable. At the end of the reporting period,
the Company can again report that income flow from new underwriting
and committed deals has stabilised with dividend cover at sustainable
levels for the first half of the year. Cash receipts from interest
income remain consistent but in order to maintain this, I am pleased
to note that no further deployment of cash shall be made to new counterparties.
This to be a prudent position until after the economic outlook becomes
clearer than at present.
Discount
During the reporting period, the Company traded at an average discount
to NAV of 3.92%.
In normal market conditions, stabilisation of dividend cover and
stable NAV performance would have resulted in a narrowing of discount
to NAV. However, overall market volatility and corporate uncertainty
during most of the reporting period has led to the Company's shares
continuing to trade at a discount to NAV.
Board of Directors
No changes to the Board composition were made during the reporting
period and there are no future 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 has regular
communications in line with governance guidelines.
Outlook
The Company has performed well and continues to make positive progress
in reassigning available cash to loans underwritten directly by the
management team. The focus on risk management of legacy positions
has been a particular focus for the Board and the Investment Manager
has reduced further allocations to platform investments. We are pleased
to see a further reduction in co-invested counterparty risk and some
apposite, forward looking sales of direct loan exposures.
As a Board, we have given consideration to the ways in which we can
support Shareholders to deliver the best outcome for their investment
in a period when regular, monthly, sustainable income is in even
shorter supply. As indicated in my last statement, there are two
paths forward. The first option is for the Board to present investors
with a wind down plan that will likely take two or three years to
execute with the objective of delivering investors total proceeds
as close to NAV as possible less the unavoidable expenses required
in the process. An addendum to this position is that given the current
COVID 19 pandemic, this time frame is likely to be extended by twelve
months or more, depending on the period of time that the COVID-19
pandemic continues.
Alternatively, the Board are considering a number of alternative
routes to strengthen our positioning including two identified options
that are being considered at the time of writing. One option has
a distribution channel to target a broader investor base eager to
invest in high yielding, uncorrelated loans. Another option is to
merge the fund with an existing similar vehicle to provide scale.
The Board will endeavour to pursue the right path for Shareholders
over the coming weeks. The Board's original intention to convene
an EGM to consider the future of the Company by the end of March
has been overtaken by events and we consider that it would be in
the best interests of our shareholders to defer a vote on continuation
in the short term in order to preserve capital and income until such
time that the macro environment has stabilised. A further announcement
will be made in the next few months.
We thank investors for their continued support and trust that the
ongoing consistent high level of income has been welcome as the Board
and the Investment Manager have continued to work to rebalance the
portfolio away from inherited assets classes that have now proven
to be problematic in other portfolios and sought to improve liquidity
with an intensive campaign to market the fund.
During this uncertain time, I would like to extend my warmest thoughts
to our Shareholders and their families, leaving you with the knowledge
that we are all working hard to achieve the best possible outcome
for all and continue to deliver a high level of consistent monthly
income.
Ken Hillen
Chairman
30 March 2020
Investment Manager's Report
We are pleased to report continued steady progress in delivering
our targeted 7p dividend and we achieved a stable NAV performance
throughout the remainder of 2019, despite making the decision to
commence the write-down of peer to peer assets. This steady state
belies an awful lot of work that has been done to invest a higher
allocation to traditional underwriting and considerable success in
the stabilisation of the legacy portfolio inherited in April 2017.
Background
SQN is a credit focussed alternative investment manager with a strong
track record in managing loans and asset backed financing to the
non-sponsored segment of the lower mid-market. For our borrowers
we provide transformational funding on a senior secured basis using
a traditional merchant banking model. For our investors, we provide
regular, covered income with a focus on risk mitigation and returns
uncorrelated to other asset classes.
Since January 2020, the larger of SQN's publicly listed funds, the
SQN Asset Finance Income Fund, has been subject to a strategic review
and a management tender process is being conducted by the non-executive
Board of the Company. The fund manager for this larger fund no longer
has an executive role at SQN and this has no impact on the management
of SQN Secured Income Fund (SSIF) as it is managed by a different
fund manager and team. Processes, governance and underwriting are
controlled under a different regime to that deployed elsewhere within
SQN and we have no problem assets in the direct lending segment of
the portfolio.
Portfolio
No leverage has been used throughout the reporting period. Given
the nature of the investments and the less predictable nature of
repayments from legacy positions, we continue to see this as a challenge
with regard to timing of reinvestments. Despite this, we have paid
close attention to delivering a covered dividend and can confirm
that this has been achieved and is now stable, with an expectation
that it will remain the case.
Direct Loans
No substantial changes were made to our portfolio positioning during
the reporting period apart from two transactions. In December we
sold our exposure to a company specialising in remote operating vehicles
for the oil and gas industry. Although performing according to expectation,
we were concerned at their overall level of leverage. By way of replacement,
we invested the proceeds into a loan to a health care business based
in Illinois, USA. One media financing position was repaid and proceeds
returned to the Company. This was replaced by another media transaction,
meeting all our prerequisites for investment.
All non-Sterling capital and income has been fully hedged. Fluctuations
in the value of Sterling during the reporting period made for some
significant moves in the cost of this hedging and this has been mitigated
by reducing brokerage costs and careful monitoring of timing of hedge
rolls. Note, the Company remains 100% hedged versus USD and EUR exposures
for both capital and income purposes. At present, costs of hedging
are manageable and we shall maintain our 100% hedging policy to protect
Sterling investors from currency fluctuations despite the significant
increase in volatility.
Legacy Portfolio
After a reclassification of the way in which we define the legacy
portfolio during the last reporting period, we are pleased to provide
the following update:
Co-Investments
UK Venture Debt - this remains our only co-invested exposure, having
reduced the counterparty count from six to one since April 2017.
The status of this borrower has stabilised over the reporting period
and the debt manager continues to make great efforts to return capital
to investors during the wind-down period. As the portfolio runs off,
we will receive cash earlier than the original maturity of the Loan
Note, allowing for accelerated reinvestment into traditionally underwritten
direct loans.
Small Company Bond Platform was a UK based debt platform for very
small businesses requiring circa GBP1m loans and represented the
highest risk to capital. As at December 2019, the last three loans
were repaid after successfully negotiating early repayment of a loan
to an Italian owned software company that represented the longest
maturity, a refinancing of a private school and a specialised car
hire business. One final 100% impaired loan remains outstanding and
we continue to work with the liquidator in recouping loan monies.
Irish Venture Debt - this investment has been converted into a fund
investment and is assessed as part of the direct loan portfolio.
These actions have reduced our overall exposure to co-invested legacy
loans to 15% of the portfolio and one counterparty.
Peer to Peer
Throughout SQN's tenor as manager of this portfolio, we have consistently
warned of the risks associated with peer to peer lending and have
endeavoured to diminish risk associated with this asset class for
our Shareholders. We have now reduced our peer to peer lending to
three counterparties as stated in the table below. The UK based peer
to peer lender continues to make progress with impaired loans and
other loans are amortising as expected. Progress is slow with the
US and Spanish platforms and we have aged this exposure to reflect
the time taken to recoup capital. Pure peer to peer lending is as
follows:
UK Peer to Peer 1.2% of portfolio via 22 loans
Spanish Peer to 0.8% of portfolio via 7 loans
Peer
US Peer to Peer 3.32% of portfolio via 16 loans
Total 5.32%
A further two loans representing 1% and 2.04% of the NAV respectively,
are expected to be repaid by end Q2, 2020.
Investment Outlook - the COVID-19 Pandemic
After a troubled start, SQN assumed management in April 2017. Since
then, the Company has been stabilised and is now delivering steady
dividend cover and the net asset value has reflected the careful
management of direct loans and legacy third party investments. At
the time of the last report and accounts, the focus had been on Brexit.
At the time of writing, the most pressing issue has become the global
Covid-19 pandemic. This will clearly have an impact on global GDP
and opinion on the period of time for this convulsion to pass ranges
between 3 to 18 months.
In light of the fluidity of the COVID-19 pandemic, we continue to
assess its potential effect on the portfolio. At the time of the
publication of this report, the manager has not observed any material
negative impact on the valuation of loans nor have we had any requests
for payment holidays. The manager and the Board are monitoring the
situation closely for any potential impact on the portfolio on an
ongoing basis. We expect that our direct loan exposure might be subject
to maturity extensions of up to 12 months and are preparing documentation
for our counterparties to reflect this. This will give them the space
to concentrate on the wellbeing of their staff and their economic
health. We consider there is a heightened risk to the dwindling peer
to peer exposures with potential for them to become moribund. We
have taken the decision to commence further impairment of the Spanish
and US exposures and this will be reflected in the IFRS9 data published
during Q1. This is a prudent decision based on our experience of
past crises and the nature of the counterparties involved.
We shall continue to pay dividends at 7p per Share for as long as
we remain confident that our borrowers can meet their financial obligations.
Recent updates from our borrower base have been encouraging and we
have had no cause to impair any loans underwritten under our robust
process and together with our security packages, we are confident
that these businesses will ride the current storm. Our core strategy
to lend to non-cyclical, non-retail companies has made this risk
assessment an easier task than it may have been for other alternative
lenders. We have enough cash at hand to stand by these commitments
in the medium term and have deferred any further commitment of capital
to new borrowers until we have greater clarity as to the extent and
the timescale for this emergency to pass and until the future of
the Company has been decided.
We are confident that loan origination opportunities will be very
attractive by the end of this calendar year as bank loans granted
under government schemes are required to be refinanced. Our focus
on uncorrelated, non-consumer growth businesses may pivot to a more
value orientated proposition, as we recalibrate our risk/ reward
expectations.
All processes and governance procedures remain strong. Our entire
team is working with remote access and the transition from office
to home working has been seamless.
Dawn Kendall
Managing Director
SQN Asset Management Limited
30 March 2020
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 2019.
The Board believes that these risks are applicable to the six month
period ended 31 December 2019 and the remaining six months of the
current financial year. However, while our economic scenarios last
year were used to calculate a range of outcomes, the potential economic
impact of the coronavirus was not explicitly considered then as the
outbreak had not commenced at that time.
Following the UK's exit from the EU on 31 January 2020, and until
trade agreements are signed, there may be some uncertainty in UK
and European markets as they adjust to the new relationship between
the UK and the EU and the rest of the world. Although the exact impact
of Brexit is not known, the Board believes that the Company is well
placed to deal with future impacts from it.
The coronavirus outbreak is a new emerging risk to the global economy.
The Company's business is likely to be materially impacted by loan
losses and crystallising losses on foreign currency hedges. The Company
currently has sufficient resources to cover margin calls on foreign
currency hedges, and the economic impact of coronavirus has led to
a significant increase in the loss allowance at the end of February,
resulting in a decrease in the NAV per share to 90.14p, compared
to 92.36p at 31 December 2019. The Investment Manager and Administrator
have invoked their business continuity plans to help ensure the safety
and well-being of their staff thereby retaining the ability to maintain
business operations. These actions help to ensure business resilience.
The situation is changing so rapidly that the full impact cannot
yet be understood, but the Company will continue to monitor the situation
closely.
On behalf of the Board.
Ken Hillen
Chairman
30 March 2020
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
30 March 2020
Unaudited Condensed Statement of Comprehensive Income
for the six months ended 31 December 2019
Year ended
Period from Period from
1 July 2019 1 July 2018
to 31 December to 31 December
2019 2018 30 June 2019
Note (unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Income
Investment income 2,468 1,886 4,026
Other income - - 30
------------ ------------ ------------
Total revenue 2,468 1,886 4,056
------------ ------------ ------------
Operating expenses
Management fees 7a (250) (259) (513)
Transaction fees (107) (35) (81)
Other expenses 10 (91) (72) (169)
Broker fees (69) (9) (79)
Administration fees 7b (57) (56) (117)
Directors' remuneration 8 (48) (60) (108)
Legal and professional fees (48) (14) (51)
------------ ------------ ------------
Total operating expenses (670) (505) (1,118)
------------ ------------ ------------
Investment gains and losses
Movement in unrealised gains and
losses on loans due to movement
in foreign exchange on non-Sterling
loans 13 (490) 18 110
Movement in unrealised gains and
losses on loans due to movement
in impairments 13 (875) 63 (415)
Movement in unrealised gain on investments
at fair value through profit or
loss 14 12 11 1
Movement in unrealised gain/(loss)
on derivative financial instruments 16 522 (307) (319)
Realised (loss)/gain on disposal
of loans (443) 82 16
Realised gain on disposal of investments
at fair value through profit or
loss - - 3
Realised loss on disposal of investments
held for sale - - (51)
Realised loss on derivative financial
instruments 16 (112) (120) (206)
------------ ------------ ------------
Total investment gains and losses (1,386) (253) (861)
------------ ------------ ------------
Net profit from operating activities
before (loss)/gain on foreign currency
exchange 412 1,128 2,077
Net foreign exchange (loss)/gain (13) 99 159
------------ ------------ ------------
Profit and total comprehensive income
for the period/year attributable
to the owners of the Company 399 1,227 2,236
------------ ------------ ------------
Earnings per Ordinary Share (basic
and diluted) 12 0.76p 2.33p 4.25p
------------ ------------ ------------
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 2019
Called Special Profit
up share distributable and loss
Unaudited Note capital reserve account Total
GBP'000 GBP'000 GBP'000 GBP'000
At 1 July 2019 577 50,253 (701) 50,129
Profit for the period 21 - - 399 399
Transactions with Owners in their capacity as owners:
Dividends paid 5, 21 - (612) (1,230) (1,842)
------------ ------------ ------------ ------------
Total transactions with Owners
in their capacity as owners - (612) (1,230) (1,842)
------------ ------------ ------------ ------------
At 31 December 2019 577 49,641 (1,532) 48,686
------------ ------------ ------------ ------------
Unaudited Condensed Statement of Changes in Equity
for the six months ended 31 December 2018
Profit
Called Special and loss
Unaudited and restated up share distributable account Total
Note capital reserve (as restated) (as restated)
GBP'000 GBP'000 GBP'000 GBP'000
At 1 July 2018 577 50,942 20 51,539
Impact of transition to IFRS
9 (as restated) 3i - - (23) (23)
------------ ------------ ------------ ------------
At 1 July 2018 - revised for
the application of IFRS 9 577 50,942 (3) 51,516
Profit for the period 21 - - 1,227 1,227
Transactions with Owners in their capacity as owners:
Dividends paid 5, 21 - (263) (1,517) (1,780)
------------ ------------ ------------ ------------
Total transactions with Owners
in their capacity as owners - (263) (1,517) (1,780)
------------ ------------ ------------ ------------
At 31 December 2018 577 50,679 (293) 50,963
------------ ------------ ------------ ------------
Audited Statement of Changes in Equity
for the year ended 30 June 2019
Called Special Profit
up share distributable and loss
Audited Note capital reserve account Total
GBP'000 GBP'000 GBP'000 GBP'000
At 1 July 2018 577 50,942 20 51,539
Impact of transition to IFRS
9 3i - - (23) (23)
------------ ------------ ------------ ------------
At 1 July 2018 - revised for
the application of IFRS 9 577 50,942 (3) 51,516
Profit for the year 21 - - 2,236 2,236
Transactions with Owners in their capacity as owners:
Dividends paid 5, 21 - (689) (2,934) (3,623)
------------ ------------ ------------ ------------
Total transactions with Owners
in their capacity as owners - (689) (2,934) (3,623)
------------ ------------ ------------ ------------
At 30 June 2019 577 50,253 (701) 50,129
------------ ------------ ------------ ------------
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 2019
31 December
2018
31 December 30 June
2019 (as restated) 2019
Note (unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Non-current assets
Loans at amortised cost 13 41,025 37,262 36,614
Investments at fair value through
profit or loss 14, 15 244 291 232
------------ ------------ ------------
Total non-current assets 41,269 37,553 36,846
------------ ------------ ------------
Current assets
Loans at amortised cost 13 3,305 3,372 10,642
Cash held on client accounts with
platforms 13 25 272 48
Derivative financial instruments 15, 16 171 - -
Other receivables and prepayments 17 1,528 964 1,141
Cash and cash equivalents 2,502 9,265 1,987
------------ ------------ ------------
Total current assets 7,531 13,873 13,818
------------ ------------ ------------
Total assets 48,800 51,426 50,664
------------ ------------ ------------
Current liabilities
Other payables and accruals 18 (114) (124) (184)
Derivative financial instruments 15, 16 - (339) (351)
------------ ------------ ------------
Total liabilities (114) (463) (535)
------------ ------------ ------------
------------ ------------ ------------
Net assets 48,686 50,963 50,129
------------ ------------ ------------
Capital and reserves attributable to owners of the Company
Called up share capital 20 577 577 577
Other reserves 21 48,109 50,386 49,552
------------ ------------ ------------
Equity attributable to the owners
of the Company 48,686 50,963 50,129
------------ ------------ ------------
Net asset value per Ordinary Share 22 92.36p 96.68p 95.10p
------------ ------------ ------------
These unaudited condensed half-yearly financial statements of SQN
Secured Income Fund plc (registered number 09682883) were approved
by the Board of Directors on 30 March 2020 and were signed on its
behalf by:
Ken Hillen Gaynor Coley
Chairman Director
30 March 2020 30 March 2020
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 2019
Period from Period from
1 July 2019 1 July 2018
to 31 December to 31 December Year ended
2019 2018 30 June
(unaudited) (unaudited) 2019 (audited)
GBP'000 GBP'000 GBP'000
Cash flows from operating activities
Net profit before taxation 399 1,227 2,236
Adjustments for:
Movement in unrealised gains and losses
on loans due to movement in foreign exchange
on non-Sterling loans 490 (18) (110)
Movement in unrealised gains and losses
on loans due to movement in impairments 875 (63) 415
Movement in unrealised gain on investments
at fair value through profit or loss (12) (11) (1)
Movement in unrealised (gain)/loss on derivative
financial instruments (522) 307 319
Realised loss/(gain) on disposal of loans 443 (82) (16)
Realised gain on disposal of investments
at fair value through profit or loss - - (3)
Realised loss on disposal of investments
held for sale - - 51
Realised loss on derivative financial instruments 112 120 206
Amortisation of transaction fees 107 35 81
Interest received and reinvested by platforms (43) (174) (287)
Capitalised interest (735) (467) (915)
Decrease/(increase) in investments 1,700 4,279 (2,141)
------------ ------------ ------------
Net cash inflow/(outflow) from operating
activities before working capital changes 2,814 5,153 (165)
Increase in other receivables and prepayments (387) (193) (369)
(Decrease)/increase in other payables and
accruals (70) (40) 19
------------ ------------ ------------
Net cash inflow/(outflow) from operating
activities 2,357 4,920 (515)
Cash flows from financing activities
Dividends paid (1,842) (1,780) (3,623)
------------ ------------ ------------
Net cash outflow from financing activities (1,842) (1,780) (3,623)
------------ ------------ ------------
Increase/(decrease) in cash and cash equivalents
in the period/year 515 3,140 (4,138)
Cash and cash equivalents at the beginning
of the period/year 1,987 6,125 6,125
------------ ------------ ------------
Cash and cash equivalents at 31 December
2019 2,502 9,265 1,987
------------ ------------ ------------
Supplemental cash flow information
Non-cash transaction - interest received 778 641 1,202
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 2019
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 2019.
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 2019 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 investments at fair
value through profit or loss and derivative instruments, which are
measured at fair value through profit or loss.
The Company's Articles of Association require the Directors to convene
a general meeting to propose to Shareholders a NAV Continuation Resolution
as the Company did not have a NAV of at least GBP250 million as at
31 December 2019. The outcome of a NAV Continuation Resolution is
not known and, given that Shareholders have generally been supportive
of the Company's plans to date, the Directors do not consider that
this adversely affects the Company's going concern at this stage.
The coronavirus outbreak is a new emerging risk to the global economy.
The Company's business is likely to be materially impacted by loan
losses and crystallising losses on foreign currency hedges (see note
25). The Investment Manager and Administrator have invoked their business
continuity plans to help ensure the safety and well-being of their
staff thereby retaining the ability to maintain business operations.
These actions help to ensure business resilience. The situation is
changing so rapidly that the full impact cannot yet be understood.
However, the Directors believe that the Company is well placed to
survive the impact of the coronavirus outbreak and will continue to
monitor the situation closely.
Therefore, the unaudited condensed half-yearly financial statements
have been prepared on a going concern basis. Should the NAV Continuation
Resolution not be passed, the financial statements will have to be
prepared on a break-up basis. The Directors do not consider the impact
of this to be material.
c) Segmental reporting
The Directors are of the opinion that the Company is engaged in a
single economic segment of business, being investment in a range of
SME loan assets.
d) Use of estimates and judgements
The preparation of unaudited condensed half-yearly financial statements
in conformity with International Financial Reporting Standards ("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,
derivative instruments 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 assets and 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 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 investment income.
After initial measurement, the Company measures financial instruments
which are classified at fair value through profit or loss at fair
value. Subsequent changes in the fair value of those financial instruments
are recorded in net gain or loss on financial assets and liabilities
at fair value through profit or loss.
Derecognition
A financial asset (or, where applicable, a part of a financial asset
or part of a group of similar assets) is derecognised where:
* The rights to receive cash flows from the asset have
expired; or
* The Company has transferred its rights to receive
cash flows from the asset or has assumed an
obligation to pay the received cash flows in full
without material delay to a third party under a
"pass-through" arrangement; and
* Either (a) the Company has transferred substantially
all the risks and rewards of the asset, or (b) the
Company has neither transferred nor retained
substantially all the risks and rewards of the asset,
but has transferred control of the asset.
When the Company has transferred its rights to receive cash flows
from an asset (or has entered into a pass-through arrangement) and
has neither transferred nor retained substantially all the risks and
rewards of the asset nor transferred control of the asset, the asset
is recognised to the extent of the Company's continuing involvement
in the asset.
The Company derecognises a financial liability when the obligation
under the liability is discharged, cancelled or expires.
Impairment
A financial asset is 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.
Each direct loan is assessed on a continuous basis by the Investment
Manager's own underwriting team with peer review occurring on a regular
basis.
Each platform loan is monitored via the company originally deployed
to conduct underwriting and management of the borrower relationship.
When a potential impairment is identified, the Investment Manager
requests data and management information from the platform. The Investment
Manager will then actively pursue collections, giving guidance to
the platforms on acceptable levels of impairment. In some cases, the
Investment Manager will proactively take control of the process.
Impairment of financial assets is recognised on a loan-by-loan basis
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. This stage is triggered by scrutiny of management accounts
and information gathered from regular updates from the borrower
by way of email exchange or face-to-face meetings. The Investment
Manager extends specific queries to borrowers if they acquire
market intelligence or channel-check the data received. A covenant
breach may be a temporary circumstance due to a one-off event
and will not trigger an immediate escalation in risk profile
to stage 2.
At all times, the Investment Manager considers the risk of impairment
relative to the cash flows and general trading conditions of
the company and the industry in which the borrower resides.
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. This stage is triggered
by a marked deterioration in the management information received
from the borrower and a view taken on the overall credit conditions
for the sector in which the company resides. A permanent breach
of covenants and a deterioration in the valuation of security
would also merit a move to stage 3.
The Investment Manager also takes into account the level of security
to support each loan and the ease with which this security can
be monetised. This has a meaningful impact of the way in which
impairments are assessed, particularly as the Investment Manager
has a very strong track record in managing write-downs and reclaim
of assets.
c) Cash and cash equivalents
Cash and cash equivalents are defined as cash in hand, demand deposits
and short-term, highly liquid investments readily convertible to known
amounts of cash and subject to insignificant risk of changes in value.
d) Receivables and prepayments
Receivables are carried at the original invoice amount, less impairments,
as discussed above.
e) Transaction costs
Transaction costs incurred on the acquisition of loans are capitalised
upon recognition of the financial asset and amortised over the term
of the respective loan.
f) Income and expenses
Interest income and bank interest are recognised on a time-proportionate
basis using the effective interest rate method.
Dividend income is recognised when the right to receive payment is
established.
All expenses are recognised on an accruals basis. All of the Company's
expenses (with the exception of share issue costs, which are charged
directly to the distributable reserve) are charged through the Unaudited
Condensed Statement of Comprehensive Income in the period in which
they are incurred.
g) Taxation
The Company is exempt from UK corporation tax on its chargeable gains
as it satisfies the conditions for approval as an investment trust.
The Company is, however, liable to UK corporation tax on its income.
However, the Company has elected to take advantage of modified UK
tax treatment in respect of its "qualifying interest income" in order
to deduct all, or part, of the amount it distributes to Shareholders
as dividends as an "interest distribution".
h) Changes in accounting policy and disclosures
New and amended standards and interpretations
The accounting policies adopted are consistent with those of the previous
financial year, except as outlined below. The Company adopted the
following new and amended relevant IFRS in the period:
IFRIC Uncertainty over income tax treatment
23
i) Impact of adoption of IFRS 9 and 31 December 2018 restatement
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 assessed the classification of financial instruments as
at the date of initial application and 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 and restatement
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 originally led to a one-off increase in the Company's
NAV of 0.94% from 1 July 2018 when the impairments decreased by GBP483,000
from GBP699,000 to GBP217,000 (0.42% of the 30 June 2018 NAV). Since
then, the Company's approach to IFRS 9 provisioning has changed. In
these financial statements, an approach (consistent with that adopted
at 30 June 2019) has been followed from 1 July 2018. As reported in
the 30 June 2019 audited financial statements, this resulted in a
decrease in the Company's NAV at 1 July 2018 from the adoption of
IFRS 9 of GBP23,000, instead of the 0.94% increase as originally announced
.
The figures in the 31 December 2018 half-yearly report and unaudited
condensed financial statements were based on the Company's original
approach to IFRS 9 provisioning. The 31 December 2018 comparative
figures disclosed in these unaudited condensed financial statements
have been restated to reflect the revised approach to IFRS 9 provisioning.
The impact is as follows:
Per 31 December 31 December
2018 unaudited 2018
condensed half-yearly as restated
financial statements (unaudited)
GBP'000 GBP'000
Unaudited condensed statement of comprehensive
income (no impact)
Profit and total comprehensive income for
the period 1,227 1,227
Unaudited condensed statement of changes
in equity
Impact of transition to IFRS 9 483 (23)
Opening net assets at 1 July 2018 - revised
for the application of IFRS 9 52,022 51,516
Unaudited condensed statement of financial
position
Current assets: Loans at amortised cost 3,877 3,372
Net assets 51,468 50,963
Net assets per Ordinary Share (pence) 97.64p 96.68p
Unaudited condensed statement of cash flows
No impact
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 30%, 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.
j) 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
IAS 1 Presentation of Financial Statements - amendments
regarding the definition of materiality 1 January 2020
IAS 1 Presentation of Financial Statements - amendments
regarding the classification of liabilities 1 January 2022
IAS 8 Accounting Policies, Changes in Accounting Estimates
and Errors - amendments regarding the definition 1 January 2020
of materiality
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 2018, the impairment of loans
and other receivables has been assessed as described in note 3b. When
assessing the credit loss on a loan, and the stage of impairment of
that loan, the Company considers whether t here is an indicator of
credit risk 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 classified
as a loan at amortised cost is credit-impaired and whether a loan's
credit risk or the expected loss rate has changed significantly. As
part of this process:
* Platforms are contacted to determine default and
delinquency levels of individual loans; and
* Recovery rates are estimated.
The analysis of credit risk is based on a number of factors and a
degree of uncertainty is inherent in the estimation process . 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. 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. Events that the Company will assess when deciding if
a financial asset is credit impaired include:
* significant financial difficulty of the borrower;
* a breach of contract, such as a default or past-due
event; and
* it becoming probable that the borrower will enter
bankruptcy or other financial reorganisation.
Although it may not always be the case (e.g. if discussions with a
borrower are ongoing), generally a loan is deemed to be in default
if the borrower has missed a payment of principal or interest by more
than 90 days, unless the Company has good reason not to apply this
rule. If the Company has evidence to the contrary, it may make an
exception to the 90 day rule to deem that a borrower is, or is not,
in default. Therefore the definitions of credit impaired and default
are aligned as far as possible so that stage 3 represents all loans
that are considered defaulted or otherwise credit impaired.
At present no direct loans to SMEs fall within Stage 2 or Stage 3.
However, 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.
IFRS 9 confirms that a Probability of Default ("PD") must never be
zero as everything is deemed to have a risk of default; this has been
incorporated by the Company. All PDs will be assessed against historic
data as well as the prevailing economic conditions at the reporting
date, adjusted to account for estimates of future economic conditions
that are likely to impact the risk of default. 12-month PD will be
applied across the collective as a cumulative in Stage 1, currently
set at 2% in line with the Investment Manager's historic performance
data, market knowledge, and credit enhancements (this is equivalent
to there being 1 default for an average portfolio of 50 unique borrowers).
Once an investment moves to Stage 2 then PD will be calculated on
an individual basis (and adjusted for Stage 3 if appropriate). All
assessment is based on reasonable and supportive information available
at the time.
Lifetime ECL will be applied across the collective as a cumulative
in Stage 1, split according to the investment's classification. For
direct loan investments this is calculated as 2% of the individual
investment's Contracted Cash Flows ("CCF"), and 2% of the investment's
CCF for platform investments. These Stage 1 Lifetime ECL amounts are
taken to be the investments' floor amounts- the Lifetime ECL for any
investment can never be less than its floor amount. Once an investment
moves to Stage 2 then Lifetime ECL will be calculated on an individual
basis. Lifetime ECL will be reviewed at each reporting date based
on reasonable and supportive information available at the time.
LiftForward impairment
The Company's largest peer to peer investment is a junior position
and represents a risk of write-down. In March 2019, the Investment
Manager met with the owner/founder and agreed an incentive plan to
expedite collections of the underlying portfolio and agreed a three
month period to show improvement. They informed the Company that they
had written down a large proportion of this portfolio in their accounts
due to a sales process underway at the time. They were advised that
if no improvement was forthcoming, the Investment Manager would take
over collections and it was explained that the Investment Manager
has a good track record, together with its partners, in achieving
better recoveries.
With effect from 30 June 2019, the Company has impaired this platform
exposure by 25% with a 100% expectation of write-down for this part
of the portfolio. This is a pre-emptive move and takes into account
a best estimate of loans that are now being managed out by attorneys.
The decision to use a 25% impairment rate is based upon the Investment
Manager's past experience of platform performance.
Whilst a 25% impairment is based on past experience, the amount finally
received may be higher or lower than this. A 10% increase or decrease
in the impairment on this loan would result in a (-) /(+) GBP217,000
(30 June 2019: (-) /(+) GBP226,000) change in the net asset value
of the Company.
Further details of the judgements applied in assessing the recoverability
of loans can be found in the IFRS 9 section of the Investment Manager's
Report.
Collateral
While the presence of collateral is not a key element in the assessment
of whether there has been a significant increase in credit risk, it
is of great importance in the measurement of ECL. IFRS 9 states that
estimates of cash shortfalls reflect the cash flows expected from
collateral and other credit enhancements that are integral to the
contractual terms. Due to the business nature of the Investment Manager,
this is a key component of its ECL measurement and interpretation
of IFRS 9, as any investment would include elements of (if not all):
a fully collateralised position, fixed and floating charges, a corporate
guarantee, a personal guarantee, coverage ratios between 130% to 150%,
and an average LTV of 85%.
Loans written off
Financial assets (and the related impairment allowances) are normally
written off, either partially or in full, when there is no realistic
prospect of recovery. Where loans are secured, this is generally after
receipt of any proceeds from the realisation of security. In circumstances
where the net realisable value of any collateral has been determined
and there is no reasonable expectation of further recovery, write-off
may be earlier. Platform loans of GBP179,000 were written off in the
period (31 December 2018: GBP126,000; 30 June 2019: GBP126,000).
Renegotiated loans
A loan is classed as renegotiated when the contractual payment terms
of the loan are modified because the Company has significant concerns
about a borrower's ability to meet payments when due. On renegotiation,
the loan will also be classified as credit impaired, if it is not
already. Renegotiated loans will continue to be considered to be credit
impaired until there is sufficient evidence to demonstrate a significant
reduction in the risk of non-payment of future payments.
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.
There were no new assets originated during the period that were credit-impaired
at the point of initial recognition. There were no financial assets
that have been modified since initial recognition at a time when the
loss allowance was measured at an amount equal to lifetime expected
credit losses and for which the loss allowance changed during the
period to an amount equal to 12-month expected credit losses.
There were no financial assets for which cash flows were modified
in the period while they had a loss allowance measured at an amount
equal to the lifetime expected credit loss.
Please see note 3b, note 13 and note 22 for further information on
the loans at amortised cost and credit risk.
5. Dividends
The Company distributes at least 85% of its distributable income earned
in each financial year by way of dividends. The Company's annual dividend
target is 7.00p per Share. 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.
T he Company elected to designate all of the dividends for the period
ended 31 December 2019 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 2019:
Total dividend
declared in respect
of earnings in Amount per
Announcement date Pay date the period Ordinary Share
GBP'000
29 August 2019 27 September 2019 307 0.583p
25 September 2019 25 October 2019 307 0.583p
31 October 2019 29 November 2019 307 0.583p
27 November 2019 27 December 2019 307 0.583p
18 December 2019 24 January 2020 307 0.583p
30 January 2020 28 February 2020 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 614 1.17p
------------ ------------
Dividends paid in
the period 1,842 3.50p
------------ ------------
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 GBP1,842,000 (31 December 2018: GBP1,780,000, 30
June 2019: GBP3,623,000) was incurred in respect of dividends, none
of which was outstanding at the reporting date (31 December 2018 and
30 June 2019: none). The dividends of GBP307,010 each, which were
declared on 18 December 2019 and 30 January 2020, had not been provided
for at 31 December 2019 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 27 February 2020, the Company declared a dividend of 0.583p per
Share for the period from 1 July 2019 to 31 January 2020. This dividend
was paid on 27 March 2020.
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 GBP43,000 was earned in the period (31 December 2018:
GBP55,000, 30 June 2019: GBP104,000), GBP2,000 of which was outstanding
at 31 December 2019 (31 December 2018: GBP3,000, 30 June 2019: GBP2,000).
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 2019, the balance of the loan was GBP775,000 (31 December
2018: GBP1,035,000; 30 June 2019 GBP909,000).
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.
During the period, a total of GBP250,000 (31 December 2018: GBP259,000,
30 June 2019: GBP513,000) was incurred in respect of management fees,
of which GBP41,000 was payable at the reporting date (31 December
2018: GBP43,000, 30 June 2019: 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 GBP57,000 (31 December 2018: GBP56,000, 30
June 2019: GBP117,000) was incurred in respect of administration fees,
of which GBP29,000 (31 December 2018: GBP30,000, 30 June 2019: GBP30,000)
was payable at the reporting date.
8. Directors' remuneration
The Directors are paid such remuneration for their services as determined
by the Remuneration and 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.
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 GBP48,000 (31 December 2018: GBP60,000,
30 June 2019: GBP108,000) was incurred in respect of Directors' remuneration,
none of which was payable at the reporting date (31 December 2018
and 30 June 2019: 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 2018 and
30 June 2019: none). Therefore, there were no key management (except
for the Directors) or employees during the period (31 December 2018
and 30 June 2019: none).
The following dividends were paid to the Directors during the period
by virtue of their holdings of Ordinary Shares (these dividends were
not additional remuneration):
Ken Hillen GBP175 (31 December 2018: GBP169; 30 June
2019: GBP344)
David Stevenson GBP709 (31 December 2018: GBP685; 30 June
2019: GBP1,394)
Gaynor Coley GBP70 (31 December 2018: GBP0; 30 June
2019: GBP12)
Richard Hills (resigned 18 GBP0 (31 December 2018: GBP428; 30 June
December 2018) 2019: GBP428)
10. Other expenses
Period from
1 July 2019 Period from
to 31 December 1 July 2018 Year ended
2019 to 31 December 30 June 2019
(unaudited) 2018 (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Directors' national insurance 23 - 28
Audit fees 20 21 42
Other expenses 20 22 34
Registrar fees 13 18 37
Accountancy and taxation fees 8 3 11
Listing fees 7 8 17
------------ ------------ ------------
91 72 169
------------ ------------ ------------
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 2019 Period from
to 31 December 1 July 2018 Year ended
2019 to 31 December 30 June 2019
(unaudited) 2018 (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Reconciliation of tax charge:
Profit before taxation 399 1,227 2,236
------------ ------------ ------------
Tax at the standard UK corporation tax
rate of 19% 76 233 425
Effects of:
* Non-taxable investment gains and losses 263 48 164
* Interest distributions (339) (281) (589)
------------ ------------ ------------
Total tax expense - - -
------------ ------------ ------------
Domestic corporation tax rates in the jurisdictions in which the Company
operated were as follows:
Period from
1 July 2019 Period from
to 31 December 1 July 2018 Year ended
2019 to 31 December 30 June 2019
(unaudited) 2018 (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 0.76p (31 December 2018: 2.33p,
30 June 2019: 4.25p) is based on a profit attributable to the owners
of the Company of GBP399,000 (31 December 2018: GBP1,227,000, 30 June
2019: GBP2,236,000) and on a weighted average number of 52,660,350
(31 December 2018 and 30 June 2019: 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
2018
31 December
2019 (as restated) 30 June 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Loans 46,142 40,941 47,726
Unrealised loss* (1,787) (35) (422)
------------ ------------ ------------
Balance at period/year end 44,355 40,906 47,304
------------ ------------ ------------
Loans: Non-current 41,025 37,262 36,614
Current 3,305 3,372 10,642
Cash held on client accounts with platforms 25 272 48
------------ ------------ ------------
Loans at amortised cost and cash held
on client accounts with platforms 44,355 40,906 47,304
------------ ------------ ------------
*Unrealised loss:
Foreign exchange on non-Sterling loans 225 624 715
Impairments (2,012) (659) (1,137)
------------ ------------ ------------
Unrealised loss (1,787) (35) (422)
------------ ------------ ------------
The movement in unrealised gain/loss on loans comprises:
31 December
2018
31 December
2019 (as restated) 30 June 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Movement in foreign exchange on non-Sterling
loans (490) 18 110
Movement in impairments (875) 63 (415)
------------ ------------ ------------
Movement in unrealised gains and losses
on loans (1,365) 81 (305)
Impact of transition to IFRS 9 - (23) (23)
------------ ------------ ------------
Total movement in unrealised gains and
losses on loans (1,365) 58 (328)
------------ ------------ ------------
The weighted average interest rate of the loans as at 31 December
2019 was 9.67% (31 December 2018: 9.79%, 30 June 2019: 10.31%).
The table below details expected credit loss provision ("ECL") of
financial assets in each stage at 31 December 2019:
Stage 1 Stage 2 Stage 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
31 December 2019
Direct loans ([1]) 33,554 - - 33,554
ECL on direct loans (16) - - (16)
------------ ------------ ------------ ------------
Direct loans net of the
ECL 33,538 - - 33,538
------------ ------------ ------------ ------------
Platform loans ([1]) 7,579 3,018 2,060 12,657
ECL on platform loans (8) (711) (1,277) (1,996)
------------ ------------ ------------ ------------
Platform loans net of the
ECL 7,571 2,307 783 10,661
------------ ------------ ------------ ------------
Accrued interest 1,095 290 113 1,498
------------ ------------ ------------ ------------
Total loans ([1]) 41,133 3,018 2,060 46,211
Total ECL (24) (711) (1,277) (2,012)
------------ ------------ ------------ ------------
Total net of the ECL 41,109 2,307 783 44,199
------------ ------------ ------------ ------------
([1]) These are the principal amounts outstanding at 31 December 2019
and do not include the capitalised transaction fees, which are
not subject to credit risk. At 31 December 2019, the amortised
cost of the capitalised transaction fees totalled GBP131,000.
The table below details the movements in the period of the principal
amounts outstanding and the ECL on those loans:
Non-credit impaired Credit impaired
Stage 1 Stage 2 Stage 3 Total
Principal Principal Principal Principal
outstanding Allowance outstanding Allowance outstanding Allowance outstanding Allowance
([1]) for ECL ([1]) for ECL ([1]) for ECL ([1]) for ECL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 July 2019 44,617 (28) 3,117 (735) 426 (374) 48,160 (1,137)
Transfers from:
* stage 1 to stage 3 (1,846) (2) - - 1,846 2 - -
Net re-measurement
of ECL arising
from transfer
of stage - - - - - (1,074) - (1,074)
Net new and further
lending/repayments,
and foreign exchange
movements (1,638) 6 (99) 24 (37) (6) (1,774) 24
Loans written-off
in the period - - - - (175) 175 (175) 175
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
At 31 December
2019 41,133 (24) 3,018 (711) 2,060 (1,277) 46,211 (2,012)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
([1]) These are the principal amounts outstanding at 31 December 2019
and do not include the capitalised transaction fees, which are
not subject to credit risk. At 31 December 2019, the amortised
cost of the capitalised transaction fees totalled GBP131,000.
The table below details expected credit loss provision ("ECL") of
financial assets in each stage at 31 December 2018:
Stage 1 Stage 2 Stage 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
31 December 2018
Direct loans ([1]) 21,054 - - 21,054
ECL on direct loans (11) - - (11)
------------ ------------ ------------ ------------
Direct loans net of the
ECL 21,043 - - 21,043
------------ ------------ ------------ ------------
Platform loans ([1]) 18,794 854 426 20,074
ECL on platform loans (17) (258) (373) (648)
------------ ------------ ------------ ------------
Platform loans net of the
ECL 18,777 596 53 19,426
------------ ------------ ------------ ------------
Accrued interest 924 2 1 927
------------ ------------ ------------ ------------
Total loans ([1]) 39,848 854 426 41,128
Total ECL (28) (258) (373) (659)
------------ ------------ ------------ ------------
Total net of the ECL 39,820 596 53 40,469
------------ ------------ ------------ ------------
([1]) These are the principal amounts outstanding at 31 December 2018
and do not include the capitalised transaction fees, which are
not subject to credit risk. At 31 December 2018, the amortised
cost of the capitalised transaction fees totalled GBP165,000.
The table below details the movements in the period of the principal
amounts outstanding and the ECL on those loans:
Non-credit impaired Credit impaired
Stage 1 Stage 2 Stage 3 Total
Principal Principal Principal Principal
outstanding Allowance outstanding Allowance outstanding Allowance outstanding Allowance
([1]) for ECL ([1]) for ECL ([1]) for ECL ([1]) for ECL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 July 2018 28,735 (19) 15,679 (310) 535 (393) 44,949 (722)
Transfers from:
* stage 2 to stage 1 14,801 (52) (14,801) 52 - - - -
Net re-measurement
of ECL arising
from transfer
of stage - 41 - (41) - - - -
Net new and further
lending/repayments,
and foreign exchange
movements (3,688) 2 (19) 41 12 (8) (3,695) 35
Loans written-off
in the period - - (5) - (121) 28 (126) 28
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
At 31 December
2018 39,848 (28) 854 (258) 426 (373) 41,128 (659)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
([1]) These are the principal amounts outstanding at 31 December 2018
and do not include the capitalised transaction fees, which are
not subject to credit risk. At 31 December 2018, the amortised
cost of the capitalised transaction fees totalled GBP165,000.
The table below details expected credit loss provision ("ECL") of
financial assets in each stage at 30 June 2019:
Stage 1 Stage 2 Stage 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
30 June 2019
Direct loans ([1]) 33,032 - - 33,032
ECL on direct loans (16) - - (16)
------------ ------------ ------------ ------------
Direct loans net of the
ECL 33,016 - - 33,016
------------ ------------ ------------ ------------
Platform loans ([1]) 11,585 3,117 426 15,127
ECL on platform loans (12) (735) (374) (1,121)
------------ ------------ ------------ ------------
Platform loans net of the
ECL 11,573 2,382 52 14,007
------------ ------------ ------------ ------------
Accrued interest 799 288 3 1,090
------------ ------------ ------------ ------------
Total loans ([1]) 44,617 3,117 426 48,160
Total ECL (28) (735) (374) (1,137)
------------ ------------ ------------ ------------
Total net of the ECL 44,589 2,382 52 47,023
------------ ------------ ------------ ------------
([1]) These are the principal amounts outstanding at 30 June 2019 and
do not include the capitalised transaction fees, which are not
subject to credit risk. At 30 June 2019, the amortised cost of
the capitalised transaction fees totalled GBP233,000.
The table below details the movements in the year of the principal
amounts outstanding and the ECL on those loans:
Non-credit impaired Credit impaired
Stage 1 Stage 2 Stage 3 Total
Principal Principal Principal Principal
outstanding Allowance outstanding Allowance outstanding Allowance outstanding Allowance
([1]) for ECL ([1]) for ECL ([1]) for ECL ([1]) for ECL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 July 2018 28,735 (19) 15,679 (310) 535 (393) 44,949 (722)
Transfers from:
* stage 1 to stage 2 (2,176) 2 2,176 (2) - - - -
* stage 2 to stage 1 14,801 (52) (14,801) 52 - - - -
Net re-measurement
of ECL arising
from transfer
of stage - 41 - (564) - - - (523)
Net new and further
lending/repayments,
and foreign exchange
movements 3,257 - 68 89 12 (9) 3,337 80
Loans written-off
in the year - - (5) - (121) 28 (126) 28
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
At 30 June 2019 44,617 (28) 3,117 (735) 426 (374) 48,160 (1,137)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
([1]) These are the principal amounts outstanding at 30 June 2019 and
do not include the capitalised transaction fees, which are not
subject to credit risk. At 30 June 2019, the amortised cost of
the capitalised transaction fees totalled GBP233,000.
At 31 December 2019, the Board considered GBP2,012,000 (31 December
2018: GBP659,000; 30 June 2019: GBP1,137,000) of loans to be impaired:
31 December
2018
31 December
2019 (as restated) 30 June 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
BMS UK 1,074 10 8
Liftforward 542 3 566
Sancus Funding 292 465 466
MyTripleA 71 64 62
Direct SME loans 17 11 15
UK Bond Network 15 105 17
Other 1 1 3
------------ ------------ ------------
Total impairment 2,012 659 1,137
------------ ------------ ------------
During the period, GBP175,000 (31 December 2018: GBP126,000, 30 June
2019: GBP126,000) of loans were written off and included within realised
(loss)/gain 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 2019 Period from
to 31 December 1 July 2018 Year ended
2019 to 31 December 30 June 2019
(unaudited) 2018 (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Balance brought forward 232 280 280
Disposals in the period/year - - (52)
Realised gain on disposal of investments
at fair value through profit or loss - - 3
Movement in unrealised gain on investments
at fair value through profit or loss 12 11 1
------------ ------------ ------------
Balance at period/year end 244 291 232
------------ ------------ ------------
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 2019, the financial instruments designated at fair value
through profit or loss were as follows:
31 December 2019 (unaudited)
Level Level Level Total
1 2 3
Financial assets GBP'000 GBP'000 GBP'000 GBP'000
Unlisted equity shares - - 244 244
Derivative financial instruments (note 16) - 171 - 171
------------ ------------ ------------ ------------
Total financial assets designated as at fair
value through profit or loss - 171 244 415
------------ ------------ ------------ ------------
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 assets/(liabilities) designated
as at fair value through profit or loss - (339) 291 (48)
------------ ------------ ------------ ------------
At 30 June 2019, the financial instruments designated at fair value through
profit or loss were as follows:
30 June 2019 (audited)
Level Level Level Total
1 2 3
Financial assets/(liabilities) GBP'000 GBP'000 GBP'000 GBP'000
Unlisted equity shares - - 232 232
Derivative financial instruments (note 16) - (351) - (351)
------------ ------------ ------------ ------------
Total financial assets/(liabilities) designated
as at fair value through profit or loss - (351) 232 (119)
------------ ------------ ------------ ------------
Level 2 financial instruments include foreign currency forward contracts.
They are valued using observable inputs (in this case foreign currency
spot rates).
Level 3 financial instruments include unlisted equity shares. Net
asset value is considered to be an appropriate approximation of fair
value as, if the Company were to dispose of these holdings, it would
expect to do so at, or around, net asset value.
Transfers between levels
There were no transfers between levels in the period (31 December
2018 and 30 June 2019: 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 GBP112,000 (31 December 2018: GBP120,000, 30 June
2019: GBP206,000) on forward foreign exchange contracts that settled
during the period.
As at 31 December 2019, the open forward foreign exchange contracts
were valued at GBP171,000 (31 December 2018: GBP(339,000), 30 June
2019: GBP(351,000)).
17. Other receivables and prepayments
31 December 31 December
2019 2018 30 June 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Accrued interest 1,498 927 1,090
Prepayments 30 13 27
Other receivables - 24 24
------------ ------------ ------------
1,528 964 1,141
------------ ------------ ------------
18. Other payables and accruals
31 December 31 December
2019 2018 30 June 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Management fee 41 43 42
Administration fee 29 30 30
Audit fee 20 19 40
Accountancy and taxation fees 10 10 -
Other payables and accruals 7 6 24
Directors' national insurance 5 5 23
Broker fee 2 11 -
Legal fees - - 25
------------ ------------ ------------
114 124 184
------------ ------------ ------------
19. 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 2019, the Company had no liabilities classified
as cash flows from financing activities (31 December 2018 and 30 June
2019: none).
20 . Share capital
31 December 31 December 30 June
2019 2018 2019
(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.
21. Other reserves
Profit and loss account
Special
distributable Non-distributable
reserve Distributable Total
GBP'000 GBP'000 GBP'000 GBP'000
Period ended 31 December 2019
(unaudited)
At 30 June 2019 50,253 - (701) 49,552
Realised revenue profit - 1,785 - 1,785
Realised investment gains and
losses - (555) - (555)
Unrealised investment gains and
losses - - (831) (831)
Dividends paid (612) (1,230) - (1,842)
------------ ------------ ------------ ------------
At 31 December 2019 49,641 - (1,532) 48,109
------------ ------------ ------------ ------------
Profit and loss account
Special
distributable Non-distributable Total
reserve Distributable (as restated) (as restated)
GBP'000 GBP'000 GBP'000 GBP'000
Period ended 31 December 2018 (as
restated) (unaudited)
At 30 June 2018 50,942 75 (55) 50,962
Impact of transition to IFRS 9 - - (23) (23)
------------ ------------ ------------ ------------
At 30 June 2018 - revised for the
application of IFRS 9 50,942 75 (78) 50,939
Realised revenue profit - 1,480 - 1,480
Realised investment gains and losses - (38) - (38)
Unrealised investment gains and
losses - - (215) (215)
Dividends paid (263) (1,517) - (1,780)
------------ ------------ ------------ ------------
At 31 December 2018 50,679 - (293) 50,386
------------ ------------ ------------ ------------
Profit and loss account
Special
distributable Non-distributable
reserve Distributable Total
GBP'000 GBP'000 GBP'000 GBP'000
Year ended 30 June 2019 (audited)
At 30 June 2018 50,942 75 (55) 50,962
Impact of transition to IFRS 9 - - (23) (23)
------------ ------------ ------------ ------------
At 30 June 2018 - revised for the
application of IFRS 9 50,942 75 (78) 50,939
Realised revenue profit - 3,097 - 3,097
Realised investment gains and losses - (238) - (238)
Unrealised investment gains and
losses - - (623) (623)
Dividends paid (689) (2,934) - (3,623)
------------ ------------ ------------ ------------
At 30 June 2019 50,253 - (701) 49,552
------------ ------------ ------------ ------------
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
18 December 2019 and 30 January 2020, will be paid out of the special
distributable reserve.
22. Net asset value per Ordinary Share
The net asset value per Ordinary Share is based on the net assets
attributable to the owners of the Company of GBP48,686,000 (31 December
2018 (as restated): GBP50,963,000, 30 June 2019: GBP50,129,000), less
GBP50,000 (31 December 2018 and 30 June 2019: GBP50,000), being amounts
owed in respect of Management Shares, and on 52,660,350 (31 December
2018 and 30 June 2019: 52,660,350) Ordinary Shares in issue at the
period end.
23. Financial Instruments and Risk Management
The Investment Manager manages the Company's portfolio to provide
Shareholders with attractive risk adjusted returns, principally in
the form of regular, sustainable dividends, through investment predominantly
in a range of secured loans and other secured loan-based instruments
originated through a variety of channels and diversified by way of
asset class, geography and duration.
The Company will seek to ensure that diversification of its portfolio
is maintained, with the aim of spreading investment risk.
Risk is inherent in the Company's activities, but it is managed through
a process of ongoing identification, measurement and monitoring. The
Company is exposed to market risk (which includes currency risk, interest
rate risk and price risk), credit risk and liquidity risk from the
financial instruments it holds. Risk management procedures are in
place to minimise the Company's exposure to these financial risks,
in order to create and protect Shareholder value.
Risk management structure
The Investment Manager is responsible for identifying and controlling
risks. The Board of Directors supervises the Investment Manager and
is ultimately responsible for the overall risk management approach
within the Company.
The Company has no employees and is reliant on the performance of
third party service providers. Failure by the Investment Manager,
Administrator, 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 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 2019, 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 +/-
GBP12,000 (31 December 2018: +/- GBP15,000, 30 June 2019: +/- GBP12,000).
The maximum price risk resulting from financial instruments is equal
to the GBP244,000 carrying value of the investments at fair value
through profit or loss (31 December 2018: GBP291,000, 30 June 2019:
GBP232,000).
(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 2019, 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 2019
(unaudited)
US
Dollars - 8,850 - - 8,850 (8,523) 327
Euros - 4,376 - - 4,376 (4,358) 18
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
- 13,226 - - 13,226 (12,881) 345
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
31 December 2018 (as
restated) (unaudited)
US
Dollars - 5,063 2,812 - 7,875 (7,533) 342
Euros 66 3,069 2,336 - 5,471 (5,461) 10
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
66 8,132 5,148 - 13,346 (12,994) 352
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
30 June 2019 (audited)
US
Dollars - 4,359 32 - 4,391 (4,625) (234)
Euros - 3,658 1 - 3,659 (3,583) 76
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
- 8,017 33 - 8,050 (8,208) (158)
--------------- --------------- --------------- --------------- --------------- --------------- ---------------
In order to limit the exposure to foreign currency risk, the Company
entered into hedging contracts during the period. At 31 December 2019,
the Company held foreign currency forward contracts to sell US$11,330,000
and EUR5,120,000 (31 December 2018: US$10,000,000 and EUR6,100,000,
30 June 2019: US$11,480,000 and EUR4,110,000) with a settlement date
of 29 May 2020.
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 2019, 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 2019 would have increased/(decreased)
by GBP17,000/GBP(17,000) (31 December 2018 (as restated): GBP(18,000)/GBP18,000,
30 June 2019: GBP(8,000)/GBP8,000), after accounting for the effects
of the hedging contracts mentioned above.
(iii) Interest rate risk
Interest rate risk arises from the possibility that changes in interest
rates will affect future cash flows or the fair values of financial
instruments. The Company is exposed to risks associated with the effects
of fluctuations in the prevailing levels of market interest rates
on its financial instruments and cash flow. However, due to the fixed
rate nature of the majority of the loans, cash and cash equivalents
of GBP2,502,000 (31 December 2018: GBP9,265,000, 30 June 2019: GBP1,987,000)
were the only interest bearing financial instruments subject to variable
interest rates at 31 December 2019. 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 GBP13,000 (31 December 2018: GBP46,000,
30 June 2019: GBP10,000).
Non-interest
31 December 2019 (unaudited) Fixed interest Variable interest bearing Total
GBP'000 GBP'000 GBP'000 GBP'000
Financial assets
Loans 44,330 - - 44,330
Cash held on client accounts
with Platforms - - 25 25
Investments at fair value through
profit or loss - - 244 244
Derivative financial instruments - - 171 171
Other receivables - - 1,498 1,498
Cash and cash equivalents - 2,502 - 2,502
------------ ------------ ------------ ------------
Total financial assets 44,330 2,502 1,938 48,770
------------ ------------ ------------ ------------
Financial liabilities
Other payables - - (114) (114)
------------ ------------ ------------ ------------
Total financial liabilities - - (114) (114)
------------ ------------ ------------ ------------
Total interest sensitivity
gap 44,330 2,502 1,824 48,656
------------ ------------ ------------ ------------
31 December 2018 (as restated) Non-interest
(unaudited) Fixed interest Variable interest bearing Total
GBP'000 GBP'000 GBP'000 GBP'000
Financial assets
Loans 40,634 - - 40,634
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 40,634 9,265 1,514 51,413
------------ ------------ ------------ ------------
Financial liabilities
Other payables - - (124) (124)
Derivative financial instruments - - (339) (339)
------------ ------------ ------------ ------------
Total financial liabilities - - (463) (463)
------------ ------------ ------------ ------------
Total interest sensitivity
gap 40,634 9,265 1,051 50,950
------------ ------------ ------------ ------------
Non-interest
30 June 2019 (audited) Fixed interest Variable interest bearing Total
GBP'000 GBP'000 GBP'000 GBP'000
Financial assets
Loans 47,256 - - 47,256
Cash held on client accounts
with Platforms - - 48 48
Investments at fair value through
profit or loss - - 232 232
Other receivables - - 1,114 1,114
Cash and cash equivalents - 1,987 - 1,987
------------ ------------ ------------ ------------
Total financial assets 47,256 1,987 1,394 50,637
------------ ------------ ------------ ------------
Financial liabilities
Other payables - - (184) (184)
Derivative financial instruments - - (351) (351)
------------ ------------ ------------ ------------
Total financial liabilities - - (535) (535)
------------ ------------ ------------ ------------
Total interest sensitivity
gap 47,256 1,987 859 50,102
------------ ------------ ------------ ------------
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, t he 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 2019, credit risk arose principally from cash and cash
equivalents of GBP2,502,000 (31 December 2018: GBP9,265,000, 30 June
2019: GBP1,987,000) and balances due from the platforms and SMEs of
GBP44,355,000 (31 December 2018 (as restated): GBP40,906,000, 30 June
2019: GBP47,304,000). 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, a s 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 .
Please see note 3b and note 4 for further information on credit risk.
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 2019 was
low since the ratio of cash and cash equivalents to unmatched liabilities
was 22:1 (31 December 2018: 20:1, 30 June 2019: 4:1).
The Investment Manager manages the Company's liquidity risk by investing
primarily in a diverse portfolio of loans, in line with the Prospectus
and as stated in the "risk concentration" section earlier in this
note. The maturity profile of the portfolio, as detailed in the Investment
Manager's Report, is as follows:
31 December 31 December
2019 2018 30 June 2019
(unaudited) (unaudited) (audited)
Percentage Percentage Percentage
0 to 6 months 16.7 26.1 11.6
6 months to 18 months 5.0 14.4 31.2
18 months to 3 years 46.0 22.0 24.8
Greater than 3 years 32.3 37.5 32.4
------------ ------------ ------------
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 2019, 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 2018 and 30 June 2019: none).
The Company is subject to externally imposed capital requirements
in relation to its statutory requirement relating to dividend distributions
to Shareholders. The Company meets the requirement by ensuring it
distributes at least 85% of its distributable income by way of dividend.
24. Contingent assets and contingent liabilities
There were no contingent assets or contingent liabilities in existence
at the period end (31 December 2018 and 30 June 2019: none).
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 2019, have been declared
out of the profits for the period ended 31 December 2019 (see note
5).
On 27 February 2020, the Company declared a dividend of 0.583p per
Ordinary Share for the period from 1 July 2019 to 31 January 2020.
This dividend was paid on 27 March 2020.
The coronavirus outbreak is a new emerging risk to the global economy.
The Company's business is likely to be materially impacted by loan
losses and crystallising losses on foreign currency hedges. The Company
currently has sufficient resources to cover margin calls on foreign
currency hedges, and the economic impact of coronavirus has led to
a significant increase in the loss allowance at the end of February,
resulting in a decrease in the NAV per share to 90.14p, compared to
92.36p at 31 December 2019. The Investment Manager and Administrator
have invoked their business continuity plans to help ensure the safety
and well-being of their staff thereby retaining the ability to maintain
business operations. These actions help to ensure business resilience.
The situation is changing so rapidly that the full impact cannot yet
be understood, but the Company will continue to monitor the situation
closely.
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
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