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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Twentyfour Income Fund Limited | LSE:TFIF | London | Ordinary Share | GG00B90J5Z95 | ORD RED 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -0.20 | -0.19% | 103.20 | 103.20 | 103.80 | 104.00 | 103.20 | 104.00 | 1,012,047 | 16:29:48 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Finance Services | -1.38M | -22.6M | -0.0353 | -29.24 | 660.42M |
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TWENTYFOUR INCOME FUND LIMITED
ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS
For the year ended 31 March 2018
LEI:549300CCEV00IH2SU369
(Classified Regulated Information under DTR 6 Annex 1 section 1.1)
The Company has today, in accordance with DTR 6.3.5, released its Report and
Audited Financial Statements for the year ended 31 March 2018. The Report will
shortly be available via the Company's Portfolio Manager's website
www.twentyfouram.com and will shortly be available for inspection online at
www.morningstar.co.uk/uk/NSM website.
SUMMARY INFORMATION
The Company
TwentyFour Income Fund Limited (the "Company") was incorporated with limited
liability in Guernsey, as a closed-ended investment company on 11 January 2013.
The Company's shares were listed with a Premium Listing on the Official List of
the UK Listing Authority and admitted to trading on the Main Market of the
London Stock Exchange on 6 March 2013.
Investment Objective and Investment Policy
The Company's investment objective is to generate attractive risk adjusted
returns principally through income distributions.
The Company's investment policy is to invest in a diversified portfolio of UK
and European Asset Backed Securities.
The Company will maintain a Portfolio diversified by issuer, it being
anticipated that the Portfolio will comprise at least 50 Asset Backed
Securities at all times.
The Portfolio must comply, as at each date an investment is made, with the
following restrictions:
(i) no more than 20% of the Portfolio value will be backed by
collateral in any single country (save that this restriction will not apply to
Northern European countries); and
(ii) no more than 5% of the Portfolio value will be exposed to any
single Asset Backed Security or issuer of Asset Backed Securities; and
(iii) no more than 10% of the Portfolio value will be exposed in
aggregate to instruments not deemed securities for the purposes of FSMA.
As an exception to the requirements set out above the Portfolio Manager is
permitted to purchase new investments at any time when the Portfolio does not
comply with one or more of those restrictions so long as, at the time of
investment:
* the asset purchased will be compliant with the single country restriction
above (even where following the purchase more than 20% of the Portfolio
will be backed by collateral in another single country due to market
movements);
* the asset purchased will be compliant with the single Asset Backed Security
/issuer exposure restriction above (even where following the purchase more
than 5% of the Portfolio value will be exposed to another single Asset
Backed Security or issuer due to market movements); and
* such purchase does not make the Portfolio, in aggregate, less compliant
with any of (i), (ii) and (iii) above.
The Company will not employ gearing or derivatives for investment purposes. The
Company may use borrowing for short-term liquidity purposes, which could be
achieved through a loan facility or other types of collateralised borrowing
instruments including repurchase transactions and stock lending. The Directors
will restrict the borrowings of the Company to 10% of the Company's Net Asset
Value ("NAV") at the time of drawdown.
In accordance with the Listing Rules, the Company can only make a material
change to its investment policy with the approval of its Shareholders by
Ordinary Resolution
Target Returns
The Company has a target annual net total return on the Company's NAV of
between 6% and 9% per annum, which includes quarterly dividends with a target
yield each financial year of 6% or higher, of the Issue Price.*
Shareholder Information
Northern Trust International Fund Administration Services (Guernsey) Limited
(the "Administrator") is responsible for calculating the NAV per share of the
Company. The unaudited NAV per ordinary redeemable share will be calculated as
at the close of business on the last business day of every week and the last
business day of every month by the Administrator and will be announced by a
Regulatory News Service the following business day.
Financial Highlights
31.03.18 31.03.17
Total Net Assets GBP470,013,131 GBP452,612,049
Net Asset Value per share 118.75p 114.35p
Share price 119.50p 119.25p
Premium to Net Asset Value 0.63% 4.29%
Dividends declared in respect of the 7.23p 6.99p
year
As at 2 July 2018, the premium had moved to 3.10%. The estimated NAV per share
and mid-market share price stood at 116.39p and 120.00p respectively.
Ongoing Charges
Ongoing charges for the year ended 31 March 2018 have been calculated in
accordance with the Association of Investment Companies (the "AIC") recommended
methodology. The ongoing charges for the year ended 31 March 2018 were 0.94%
(31 March 2017: 0.97%).
* The Issue Price being GBP1.00. This is a target only and not a profit forecast.
There can be no assurance that this target will be met or that the Company will
make any distributions at all. This target return should not be taken as an
indication of the Company's expected or actual current or future results. The
Company's actual return will depend upon a number of factors, including the
number of Ordinary Shares outstanding and the Company's total expense ratio.
Potential investors should decide for themselves whether or not the return is
reasonable and achievable in deciding whether to invest in or retain or
increase their investment in the Company. See note 16 for further detail.
CHAIRMAN'S STATEMENT
for the year ended 31 March 2018
I am pleased to present my report on the Company's progress for the year ending
31 March 2018.
For the majority of the period the Company's shares continued to trade at a
premium, as they had done since launch, with the average premium during the
period being 2.30%, although this narrowed during the second quarter, trading
briefly at a discount in September, and again towards the end of the year.
However, I note that the share price has rallied strongly, to trade back at a
premium of 3.10% at the time of writing. The Board is willing to continue to
authorise the issuance of further shares as a premium management mechanism,
subject to the Portfolio Manager confirming that attractive investment
opportunities are available in the market. Despite market demand for the
issuance of shares, and sufficient market activity for the existing portfolio,
the Portfolio Manager has not been prepared to support the issuance of further
shares in the current market and potentially dilute the portfolio returns.
The Net Asset Value ("NAV") total return on the shares from launch to 31 March
2018 was 60.24% (including dividends). The NAV per share rose 10.35% (including
dividends) during the period, and the income component of the return to
investors remained strong as the Company declared three dividends of 1.5p per
share, to cover the pro-rata minimum return of 6p per share, with a final
dividend covering all excess returns of 2.73p per share in respect of the year
paid on 30th April. The Company has seen an increase in portfolio holdings
deemed as Level 3 during the period, which has been driven purely by price
sources as at the period end, and does not indicate a change to level of risk.
The NAV performance of the Company has been pleasingly consistent over the
twelve months, benefitting from the strong fundamental performance across the
markets the Company invests in, stable ratings, and the strong technical
support provided by the mismatch between demand and supply of new issuance.
In particular the recent volatility that most markets felt in February, as a
result of the changes in expectations around rate changes by the major central
banks, has been largely ignored by the European ABS market, which benefits from
its floating rate nature, and through the more defensive positioning of the
portfolio. The Company may benefit from an increase in yield on the portfolio
following any upward moves in LIBOR as a result of market expectations of
changes in the UK Base Rate.
While there has been some contraction of spreads in European ABS, the ongoing
investment opportunity remains attractive, particularly in light of the lower
yield environment in most comparable asset classes and the floating rate
exposure it offers. While risks to market sentiment do exist, these appear
largely to be external to the European ABS market, and as we have seen before,
when they become significant enough to push volatility into the ABS market this
tends to be short-lived and the Company's NAV typically enjoys a strong
recovery. I remain confident of the Company's ability to fulfil its objectives.
Trevor Ash
Chairman
3 July 2018
PORTFOLIO MANAGER'S REPORT
for the year ended 31 March 2018
Market Commentary
The year ending 31 March 2018 was largely benign in terms of performance,
characterised by low relative levels of volatility, and consistent NAV
appreciation. During the year the Company's NAV per Share and Share Price
increased 4.40p and 0.25p respectively, and dividends for the period totalled
7.23p per share.
Throughout the period most markets have been principally focussed on politics,
central banks and market technicals. The trend of populist politics has been at
the forefront of the mind since mid-2016 with the Brexit referendum and then
the US presidential election. As the period opened, elections had been held in
the Netherlands, and while the potential for a far-right government was
avoided, the subsequent elections in France saw a greater chance of a victory
for Marine Le Pen's Front National. Again, the eventual Macron result was
favourable for markets, but the uncertainty caused by such events dominated the
headlines and the minds of investors.
In contrast the snap election in the UK did not bring the expected outcome, and
the precarious nature of the Conservative Party's hold on power, plus the
infighting within the party, will continue to create headlines. Electoral focus
continued until the period end with elections in Italy resulting in a hung
parliament and with two populist parties leading the results. Again markets
largely took the unexpected result in their stride, mainly as both parties had
dampened their rhetoric around leaving the single currency mechanism.
Political events were not limited to electoral risk however; Brexit
negotiations started following the triggering of Article 50 in March 2017, with
slow progress over the following six months, and while a framework for a
transition agreement has been reached, the continuing negotiations will
continue to occupy investors' minds. On a global front the ongoing issues of
the Trump administration have included Russian interference in the election,
the sacking of the head of the FBI, the initial inability to pass any major
legislation, significant turnover in senior personnel at the White House, and
the escalating conflict with North Korea over its nuclear missile capability.
However it was toward the period end that the President had a more direct
impact on markets as he ramped up the pressure on China and other key trading
economies with the threat of tariffs and the prospect of a global trade war.
Central bank policy has also been a material driver of some markets over the
period, principally driven by changing expectations around the tightening of
monetary policy and the reduction of stimulus measures. The coordinated global
recovery, low levels of unemployment and bullish markets have pushed the
Federal Reserve to raise rates and start shrinking the size of their balance
sheet, with the Bank of England following suit by raising rates in November and
the European Central Bank ("ECB") tapering Quantitative Easing.
In late January, materially stronger than expected economic data led to markets
substantially increasing their expectations of future rate moves by the major
central banks, introducing significant volatility to most markets, most keenly
felt with interest rate duration sensitive assets. This volatility was mostly
ignored by ABS markets, with the exception of sub-investment grade rated CLOs
which saw some spread widening during the last two months of the period.
While 2017 started with relatively light numbers of issuance, volumes picked up
as the year progressed and continued to do so through the first quarter of
2018. This has been driven in part by the re-entry of banks into the RMBS space
as the Term Funding Scheme drew to a close in February, but also thanks to a
wider range of issuance types, most notably the re-emergence of Commercial
Mortgage Backed Securities following a long hiatus.
This increase in supply has been more than covered by an increase in demand
however, evidenced by the levels of material over-subscription of most tranches
that have been placed. With expected reductions in capital requirements for
insurance investors at the senior part of the capital structure, and further
iterations of more moderate capital weightings expected, there would appear to
be growing demand looking forward.
Market Outlook
Sentiment in the ABS market is positive, and the expectation is for performance
to continue in this manner for the remainder of 2018.
There is an expectation that new issuance volume for the year will surpass that
of 2017, and looking forward to the end of the ECB ABS Purchase Programme,
European banks will likely have further appetite to issue additional supply
into the market.
External events continue to occupy the mind of the Portfolio Managers, and
while the impact on the portfolio's underlying asset pools of issues such as
geopolitical risk, global trade wars, electoral risk and Brexit, are likely to
be minimal, the resulting change in market sentiment can create market
volatility.
The ongoing strong demand for European ABS is expected to continue to provide
support for pricing through most market events, with the increased attraction
of floating rate bonds adding to this, particularly in the event of further
inflation or rate driven volatility.
Foreign Exchange Accounting
The Company's policy is to hedge foreign exchange risk. During the year, the
Company held Euro and Sterling denominated assets and while the EUR/GBP
exchange rate finished 3.0% higher at the end of the year, the exchange rate
was relatively volatile and experienced moves in the range of 11.2% during the
year.
Currency risk is hedged using "rolling forwards" with a one month maturity,
selling forward a notional amount equivalent to the market value of the assets.
Any movements in foreign exchange rates are monitored daily and the hedge is
adjusted when necessary to ensure that currency exposure remains within strict
limits. The Company operates to a tolerance of +/-0.50% exposure to the NAV on
each non-GBP currency. The Company has significant exposure to Euro assets,
representing 59% of the Investment Portfolio at the end of the year, and which
remained fully hedged within these tolerances during this time. Foreign
Exchange hedging is used to manage the portfolio's currency risk efficiently
and not to enhance investment returns. The Company does not, however, apply
hedge accounting as set out in IAS 39.
The net foreign currency gain on the portfolio (recorded within net gains on
financial assets at fair value through profit or loss) and the net foreign
currency losses on the forward currency contracts (included within net foreign
currency losses) are recognised in accordance with the hedging policy and
International Financial Reporting Standards, within the Statement of
Comprehensive Income.
TwentyFour Asset Management
3 July 2018
TOP TWENTY HOLDINGS
As at 31 March 2018
Percentage of
Nominal/ Asset Backed Fair Net Asset
Security Value
Security Shares Sector GBP Value
SCGC 2015-1 E 18,000,000 Consumer ABS 17,364,431 3.69
CBFLU 1 MEZZ 14,000,000 Buy-to-Let RMBS 14,070,000 2.99
OPTOM 3 MEZZ 12,000,000 Non-Conforming RMBS 12,000,000 2.55
PARGN 15X CB 13,300,000 Buy-to-Let RMBS 10,825,054 2.30
WARW 1 E 10,500,000 Non-Conforming RMBS 10,554,351 2.25
WARW 2 E 9,250,000 Non-Conforming RMBS 9,318,873 1.98
TPMF 2016-GR1X E 9,000,000 Prime RMBS 9,148,953 1.95
RMS 28 E 8,550,000 Non-Conforming RMBS 8,823,771 1.88
WARW 1 D 8,200,000 Non-Conforming RMBS 8,244,444 1.75
SCGC 2016-1 E 7,500,000 Consumer ABS 7,241,174 1.54
PMF 2018-2B A 7,000,000 Buy-to-Let RMBS 7,006,615 1.49
ALME 3X FRNE 7,500,000 Leveraged Loan CLO 6,739,897 1.43
AVOCA 16X E 7,250,000 Leveraged Loan CLO 6,480,560 1.38
AURUS 2017-1 G 7,000,000 Consumer ABS 6,195,118 1.32
EMACP 2007-NL4 D 9,000,000 Prime RMBS 6,193,962 1.32
CASTE 2017-1 F 6,000,000 Non-Conforming RMBS 6,094,720 1.30
HWKSM 2016-1 D 6,000,000 Non-Conforming RMBS 6,085,020 1.29
DRYD 2015-44X F 6,800,000 Leveraged Loan CLO 6,058,421 1.29
RMACS 2006-NS3X 6,702,943 Non-Conforming RMBS 5,433,928 1.16
B1C
HLAE 2016-1X E 6,000,000 Leveraged Loan CLO 5,394,402 1.15
BOARD MEMBERS
Biographical details of the Directors are as follows:
Trevor Ash - (Chairman) (age 72)
Mr Ash is a resident of Guernsey and has over 30 years of investment
experience. He is a Fellow of the Chartered Institute for Securities and
Investment. He was formerly a managing director of Rothschild Asset Management
(CI) Limited. Mr Ash retired as a director of NM Rothschild & Sons (CI)
Limited, the banking arm of the Rothschild Group in the Channel Islands in
1999. Since retirement, he has acted as a director of a number of hedge funds,
fund of hedge funds, venture capital, derivative and other offshore funds
including several managed or advised by Insight, JP Morgan and Merrill Lynch.
Mr Ash was appointed to the Board on 11 January 2013.
Ian Burns - (Non-executive Director, Senior Independent Director and Chairman
of the Audit Committee) (age 58)
Mr Burns is a resident of Guernsey and a fellow of the Institute of Chartered
Accountants in England and Wales and a member of the Society of Trust and
Estate Planners. He is a founder and Executive Director of Via Executive
Limited, a specialist management consulting company and managing director of
Regent Mercantile Holdings Limited, a privately owned investment company. Mr
Burns is currently a non-executive director of London listed River and
Mercantile UK Micro Cap Limited and FastForward Innovations Limited (AIM) and a
number of private investment funds. Mr Burns was appointed to the Board on 17
January 2013.
Richard Burwood - (Non-executive Director) (age 50)
Mr Burwood is a resident of Guernsey with over 25 years' experience in banking
and investment management. During 18 years with Citibank London, Mr Burwood
spent 11 years as a fixed income portfolio manager spanning both banks/finance
investments and Asset Backed Securities. He gained direct experience as a
portfolio manager of securities backed by mortgages, auto loans and
collateralised loan obligations. Mr Burwood has lived in Guernsey since 2010,
initially working as a portfolio manager for EFG Financial Products (Guernsey)
Ltd, managing the treasury department's ALCO Fixed Income portfolio. From 2011
to 2013, Mr Burwood worked as the Business and Investment Manager for the
Guernsey branch of Man Investments (CH) AG. This role involved overseeing all
aspects of the business including operations and management of proprietary
investments. In January 2014, Mr Burwood joined the board of RoundShield Fund I
GP Ltd, a Guernsey private equity fund, focused on European small to mid-cap
opportunities. In August 2015, he became a Board Member of Funding Circle SME
Income Fund Ltd, a Guernsey company, offering investors access to a diversified
pool of SME loans originated through Funding Circle's marketplaces in the UK,
US and Europe. Mr Burwood was appointed to the Board on 17 January 2013.
Jeannette (Jan) Etherden - (Non-executive Director) (age 58)
Ms Etherden is a resident of the United Kingdom, with over 30 years' experience
in the investment industry as an analyst, a fund manager, then a non-executive
director. Previously head of UK equities for Confederation Life / Sun Life of
Canada, she joined Newton in 1996 as a director specialising in multi-asset
segregated portfolios and was also their Investment COO from 1999 to 2001.
Subsequently she worked with Olympus Capital Management as business development
manager for specialist hedge fund product. She is a director of Miton UK
MicroCap Trust plc and of LXI REIT plc. Ms Etherden was appointed to the Board
on 17 January 2013.
DISCLOSURE OF DIRECTORSHIPS IN PUBLIC COMPANIES LISTED ON RECOGNISED STOCK
EXCHANGES
The following summarises the Directors' directorships in other public
companies:
Company Name Stock Exchange
Trevor Ash (Chairman)
Sherbourne Investors(Guernsey) B Limited London
Sherbourne Investors (Guernsey) C London
Limited
Ian Burns
FastForward Innovations Limited London and
Berlin
River and Mercantile UK Micro Cap London
Limited
Richard Burwood
Funding Circle SME Income Fund Limited, and its associated funding London
vehicles:
- Basinghall Lending DAC Dublin
- Tallis Lending DAC Dublin
Jeannette Etherden
Miton UK MicroCap Trust plc London
LXI REIT plc London
DIRECTORS' REPORT
The Directors present their Annual Report and Audited Financial Statements for
the year ended 31 March 2018.
Business Review
The Company
TwentyFour Income Fund Limited (the "Company") was incorporated with limited
liability in Guernsey, as a closed-ended investment company on 11 January 2013.
The Company's Shares were listed with a Premium Listing on the Official List of
the UK Listing Authority and admitted to trading on the Main Market of the
London Stock Exchange on 6 March 2013.
Investment Objective and Policy
The Company's investment objective and policy is set out in the Summary
Information.
Discount/Premium to Net Asset Value
The Board monitors and manages the level of the share price discount/premium to
NAV. In managing this, the Company operates a share buyback facility whereby it
may purchase, subject to various terms as set out in its Articles and in
accordance with the Companies (Guernsey) Law, 2008, up to 14.99% of the
Company's Ordinary Redeemable Shares in issue immediately following Admission
for trading on the London Stock Exchange. On 1 February 2016, the first three
year anniversary of the Company, investors were offered a realisation
opportunity to realise all or part of their Shareholding in the Company.
Subsequently, the realisation opportunity will be offered as at the date of the
annual general meeting of the Company in each third year subject to the
aggregate NAV of the continuing Ordinary Redeemable Shares on the last Business
Day before Reorganisation being not less than GBP100 million. The next
realisation opportunity will take place in September 2019.
Shareholder Information
Shareholder information is set out in the Summary Information.
Going Concern
The Directors believe that it is appropriate to adopt the going concern basis
in preparing the Financial Statements in view of the Company's holdings in cash
and cash equivalents and the liquidity of investments and the income deriving
from those investments, meaning the Company has adequate financial resources
and suitable management arrangements in place to continue as a going concern
for at least twelve months from the date of approval of the Financial
Statements.
The Company's continuing ability to meet dividend target and the expected
outcome of the upcoming realisation opportunity has been considered as part of
the viability assessment. No material doubts to going concern have been
identified.
The Company also achieved its dividend target of 6% of the issue price for the
year ended 31 March 2018, meaning that as per the Company's Articles, no
Continuation Vote is required.
Viability Statement
Under the UK Corporate Governance Code, the Board is required to make a
"viability statement" which considers the Company's current position and
principal risks and uncertainties combined with an assessment of the prospects
of the Company in order to be able to state that they have a reasonable
expectation that the Company will be able to continue in operation over the
period of their assessment. The Board considers that three years is an
appropriate period to assess the viability of the Company given the uncertainty
of the investment world and the strategy period. In selecting this period the
Board considered the environment within which the Company operates and the
risks associated with the Company.
The Company's prospects are driven by its business model and strategy. The
Company's aim is to provide investors with an attractive level of income with a
high degree of certainty around that income and a focus on capital preservation
in uncertain times, by investing in less liquid, high yielding asset backed
securities.
The Board's assessment of the Company over the three year period has been made
with reference to the Company's current position and prospects, the Company's
strategy, and the Board's risk appetite having considered each of the Company's
principal risks and uncertainties summarised below.
The Board has also considered the Company's cash flows and income flows, its
likely ability to pay dividends and the portfolio analysis, with reference to:
* liquidity analysis, including but not limited to, the changes in liquidity
of the Company over time based on the liquidity of the underlying assets;
* foreign exchange analysis, including but not limited to, monitoring the
effectiveness of the Company's foreign exchange hedging strategy;
* credit analysis, including but not limited to, analysing the current credit
ratings and credit rating outlooks by the main rating agencies, as well as
sufficient diversification across groups; and
* valuation analysis, including but not limited to, assessing the pricing
accuracy of the underlying securities.
In this context, the Board's central case is that, the prospects for economic
activity will remain such that the investment objective, policy and strategy of
the Company will be viable for the foreseeable future through a period of at
least three years from the year end, 31 March 2018.
In making this judgement, the Board has assessed that the main risks to the
viability of the Company are key global and market uncertainties driven by
factors external to the Company which in turn can impact on the liquidity and
NAV of the investment portfolio. A simulation has been designed to estimate the
impact of these uncertainties on the NAV of the Company at times of stress,
such as the UK's exit from the EU, based on historical performance data, using
techniques which analyse how changes in the Company's ability to generate
income (by assessing different levels of reinvestment rates available as well
as changes in FX income generation, over a 3-year period) would impact the
annual dividend the Company is able to generate. All of the foregoing has been
considered against the background of the Company's dividend target and
consideration of the upcoming realisation opportunity.
Key assumptions covered by the Board in relation to the viability of the
Company include:
Dividend Target
The ongoing viability of the Company and the validity of the going concern
basis depend on the Company meeting its dividend target annually during the
three-year period. In the event that the Company does not meet the dividend
target annually during the three-year period as disclosed in note 19, an
Ordinary Resolution will be put to the Shareholders, at the AGM following any
reporting period in which the dividend target is not met, with the continuation
vote requirements set out in note 16.
Realisation Opportunity
The realisation opportunity (full details are set out in note 16) is due to
occur at the AGM in 2019. Based on the strong NAV per Share performance, with
the Company trading at a premium for the majority of the year, and with no
feedback from investors suggesting otherwise, it is believed the realisation
opportunity is a low risk to the viability prospects of the Company.
Results
The results for the year are set out in the Statement of Comprehensive Income.
The Directors proposed income distributions of GBP28,617,362 in respect of income
available for distribution earned during the year ended 31 March 2018, a
breakdown of which can be found in note 19. Distributions declared during the
year amount to GBP27,667,409, as recognised in the Statement of Changes in
Equity.
Income available for distribution in any income period comprises (a) the
accrued income of the portfolio for the period, and (b) an additional amount to
reflect any income purchased in the course of any share subscriptions that took
place during the period (so as to ensure that the income yield of the shares is
not diluted as a consequence of the issue of new shares during an income
period) and (c) any income on the foreign exchange contracts created by the
LIBOR differentials between each foreign currency pair.
Key Performance Indicators (KPIs)
At each Board meeting, the Directors consider a number of performance measures
to assess the Company's success in achieving its objectives. Below are the main
KPIs which have been identified by the Board for determining the progress of
the Company:
* Net Asset Value
* Share Price
* Discount/Premium
* Ongoing Charges
* Quarterly Dividends
A record of these measures is disclosed in the Summary Information.
Portfolio Manager
The Company entered into a Portfolio Management Agreement with TwentyFour Asset
Management LLP, the Portfolio Manager, on 29 May 2014. Pursuant to this
agreement, the Portfolio Manager is entitled to a portfolio management fee paid
monthly in arrears, at a rate of 0.75% per annum of the lower of Net Asset
Value, which is calculated as of the last business day of each month, or market
capitalisation of each class of shares. For additional information refer to
note 14.
The Board considers that the interests of Shareholders, as a whole, are best
served by the continued appointment of the Portfolio Manager to achieve the
Company's investment objectives.
Alternative Investment Fund Manager
Alternative investment fund management services have been provided by Maitland
Institutional Services Limited ("Maitland") since their appointment as
Alternative Investment Fund Manager ("AIFM") on 29 May 2014. The AIFM fee is
payable quarterly in arrears at a rate of 0.07% of the Net Asset Value of the
Company below GBP50 million, 0.05% on Net Assets between GBP50 million and GBP100
million and 0.03% on Net Assets in excess of GBP100 million. For additional
information refer to note 15.
Custodian and Depositary
Custodian and Depositary services are provided by Northern Trust (Guernsey)
Limited. The terms of the Depositary agreement, allow Northern Trust (Guernsey)
Limited to receive professional fees for services rendered. For additional
information refer to note 15.
Directors
The Directors of the Company during the year and at the date of this Report are
set out in the Corporate Information.
Directors' and Other Interests
As at 31 March 2018, Directors of the Company held the following numbers of
Ordinary Redeemable Shares beneficially:
Number Number
of of
Shares Shares
31.03.18 31.03.17
Trevor Ash 50,000 50,000
Ian Burns 29,242 29,242
Richard Burwood 5,000 5,000
Jeannette Etherden 25,000 25,000
Corporate Governance
The Board is committed to high standards of corporate governance and has
implemented a framework for corporate governance which it considers to be
appropriate for an investment company in order to comply with the principles of
the UK Corporate Governance Code (the "UK Code"). The Company is also required
to comply with the Code of Corporate Governance (the "GFSC Code") issued by the
Guernsey Financial Services Commission.
The UK Listing Authority requires all UK premium listed companies to disclose
how they have complied with the provisions of the UK Code. This Corporate
Governance Statement, together with the Going Concern Statement, Viability
Statement and the Statement of Directors' Responsibilities set out below,
indicate how the Company has complied with the principles of good governance of
the UK Code and its requirements on Internal Control.
The Company is a member of the AIC and by complying with the AIC Code of
Corporate Governance ("the AIC Code") is deemed to comply with both the UK Code
and the GFSC Code.
The Board has considered the principles and recommendations of the AIC Code, by
reference to the guidance notes provided by the AIC Guide, and considers that
reporting against these will provide appropriate information to shareholders.
To ensure ongoing compliance with these principles the Board reviews a report
from the Corporate Secretary at each quarterly meeting, identifying how the
Company is in compliance and identifying any changes that might be necessary.
The AIC Code and the AIC Guide are available on the AIC's website,
www.theaic.co.uk. The UK Code is available in the Financial Reporting Council's
website, www.frc.org.uk.
Throughout the year ended 31 March 2018, the Company has complied with the
recommendations of the AIC Code and thus the relevant provisions of the UK
Code, except as set out below.
The UK Code includes provisions relating to:
* the role of the Chief Executive;
* Executive Directors' remuneration;
* Annually assessing the need for an internal audit function;
* the whistle blowing policy;
* Remuneration Committee; and
* Nomination Committee
For the reasons set out in the AIC Guide and as explained in the UK Code, the
Board considers these provisions are not relevant to the position of the
Company as it is an externally managed investment company. The Company has
therefore not reported further in respect of these provisions. The Directors
are all non-executive and the Company does not have employees, hence no Chief
Executive or whistle-blowing policy is required for the Company. The key
service-providers all have whistleblowing policies in place. The Board is
satisfied that any relevant issues can be properly considered by the Board. The
Board, as a whole, fulfills the function of a Nomination and Remuneration
Committee.
Details of compliance with the AIC Code are noted below and in the following
pages. There have been no other instances of non-compliance, other than those
noted above.
The Company's risk exposure and the effectiveness of its risk management and
internal control systems are reviewed by the Audit Committee at its meetings
and annually by the Board. The Board believes that the Company has adequate and
effective systems in place to identify, mitigate and manage the risks to which
it is exposed.
Role, Composition and Independence of the Board
The Board is the Company's governing body and has overall responsibility for
maximising the Company's success by directing and supervising the affairs of
the business and meeting the appropriate interests of shareholders and relevant
stakeholders, while enhancing the value of the Company and also ensuring
protection of investors. A summary of the Board's responsibilities is as
follows:
* statutory obligations and public disclosure;
* strategic matters and financial reporting;
* risk assessment and management including reporting compliance, governance,
monitoring and control; and
* other matters having a material effect on the Company.
The Board's responsibilities for the Annual Report and Audited Financial
Statements are set out in the Statement of Directors' Responsibilities.
The Board currently consists of four non-executive Directors, all of whom are
considered to be independent of the Portfolio Manager and as prescribed by the
Listing Rules.
The Board considers it has the appropriate balance of diverse skills and
experience, independence and knowledge of the Company and the wider sector, to
enable it to discharge its duties and responsibilities effectively and that no
individual or group of individuals dominates decision making. The Chairman is
responsible for leadership of the Board and ensuring its effectiveness. On 5
June 2017, Ian Burns was appointed as the Senior Independent Director.
Chairman
The Chairman is Trevor Ash. The Chairman of the Board must be independent for
the purposes of Chapter 15 of the Listing Rules. Trevor Ash is considered
independent because he:
* has no current or historical employment with the Portfolio Manager; and
* has no current directorships in any other investment funds managed by the
Portfolio Manager.
Biographies of all the Directors can be found in the Board Members section.
Board Role and Composition
The Board is required to ensure that the Annual Report and Audited Financial
Statements, taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Company's position and
performance, business model and strategy. In seeking to achieve this, the
Directors have set out the Company's investment objective and policy and have
explained how the Board and its delegated Committees operate and how the
Directors review the risk environment within which the Company operates and set
appropriate risk controls. Furthermore, throughout the Annual Report and
Audited Financial Statements the Board has sought to provide further
information to enable shareholders to have a fair, balanced and understandable
view
The Board has contractually delegated responsibility for the management of its
investment portfolio, the arrangement of custodial and depositary services and
the provision of accounting and company secretarial services.
The Board is responsible for the appointment and monitoring of all service
providers to the Company.
The Directors are kept fully informed of investment and financial controls and
other matters by all services providers that are relevant to the business of
the Company and should be brought to the attention of the Directors.
The Company has adopted a policy that the composition of the Board of
Directors, which is required by the Company's Articles, comprises of at least
two persons, that at all times a majority of the Directors are independent of
the Portfolio Manager and any company in the same group as the Portfolio
Manager; the Chairman of the Board of Directors is free from any conflicts of
interest and is independent of the Portfolio Manager and of any company in the
same group as the Portfolio Manager; and that no more than one director,
partner, employee or professional adviser to the Portfolio Manager or any
company in the same group as the Portfolio Manager may be a Director of the
Company at any one time.
The Board has also given careful consideration to the recommendations of the
Davies Review. The Board has reviewed its composition and believes that the
current appointments provide an appropriate range of skills, experience and
diversity. In order to maintain its diversity, the Board is committed to
continuing its implementation of the recommendations of the Davies Review as
part of its succession planning over future years and by complying with the
disclosure requirement of DTR 7.2.8 in terms of the Company's diversity policy.
Directors' Attendance at Meetings
The Board holds quarterly Board meetings, to discuss general management,
structure, finance, corporate governance, marketing, risk management,
compliance, asset allocation and gearing, contracts and performance. The
quarterly Board meetings are the principal source of regular information for
the Board enabling it to determine policy and to monitor performance,
compliance and controls but these meetings are also supplemented by
communication and discussions throughout the year.
A representative of the Portfolio Manager, AIFM, Administrator, Custodian and
Depositary and Corporate Broker attends each Board meeting either in person or
by telephone thus enabling the Board to fully discuss and review the Company's
operation and performance. Each Director has direct access to the Portfolio
Manager and Company Secretary and may, at the expense of the Company, seek
independent professional advice on any matter.
Both appointment and removal of these parties is to be agreed by the Board as a
whole.
The Audit Committee meets at least twice a year, Management Engagement
Committee meets at least once a year and a dividend meeting is held quarterly.
In addition, ad hoc meetings of the Board to review specific items between the
regular scheduled quarterly meetings can be arranged.
Between formal meetings there is regular contact with the Portfolio Manager,
AIFM, Administrator, Custodian and Depositary and the Corporate Broker.
Attendance at the Board and Committee meetings during the year was as follows:
Quarterly Board Audit Committee Management Ad hoc Committee
Meetings Meetings Engagement Meetings
Committee
Meetings
Held Attended Held Attended Held Attended Held Attended
Trevor Ash 4 4 3 3 1 1 5 4
Ian Burns 4 4 3 3 1 1 5 4
Richard Burwood 4 4 3 3 1 1 5 5
Jeannette Etherden 4 4 3 3 1 1 5 5
Board Performance and Training
During the prior year, the Board commissioned a review of its performance by
external evaluation practitioner Trust Associates Limited. The review
determined the Board's approach to corporate governance and its supervision of
its regulatory compliance to be good. The review also determined the Board to
be effective with independent thought and action with the right balance of
skills and experience necessary for its proper functioning and the safeguarding
of shareholders' interests.
Retirement by Rotation
Under the terms of their appointment, each Director is required to retire by
rotation and be subject to re-election at least every three years. The
Directors are required to seek re-election on an annual basis if they have
already served for more than nine years. At the 21 September 2017 Annual
General Meeting, Richard Burwood was re-elected to the Board. The Company may
terminate the appointment of a Director immediately on serving written notice
and no compensation is payable upon termination of office as a director of the
Company becoming effective.
UK Criminal Finances Act 2017
In respect of the UK Criminal Finances Act 2017 which has introduced a new
Corporate Criminal Offence of 'failing to take reasonable steps to prevent the
facilitation of tax evasion', the Board confirms that it is committed to zero
tolerance towards the criminal facilitation of tax evasion.
The Board also keeps under review developments involving other social and
environmental issues, such as the General Data Protection Regulation ("GDPR"),
which came into effect on 25 May 2018, and Modern Slavery and will report on
those to the extent they are considered relevant to the Company's operations.
Board Committees and their Activities
Terms of Reference
All Terms of Reference of the Board's Committees are available from the
Administrator upon request.
Management Engagement Committee
The Board has established a Management Engagement Committee with formal duties
and responsibilities. The Management Engagement Committee commits to meeting at
least once a year and comprises the entire Board with Jan Etherden appointed as
Chairperson. These duties and responsibilities include the regular review of
the performance of and contractual arrangements with the Portfolio Manager and
other service providers and the preparation of the Committee's annual opinion
as to the Portfolio Manager's services.
The Management Engagement Committee carried out a review of the performance and
capabilities of the Portfolio Manager and other service providers at its
September 2017 meeting and recommended the continued appointment of TwentyFour
Asset Management LLP as Portfolio Manager is in the interest of shareholders.
The Committee also recommended that the appointment of all the Company's
current service providers should continue.
Audit Committee
An Audit Committee has been established consisting of all Directors with Ian
Burns appointed as Chairman. The terms of reference of the Audit Committee
provide that the committee shall be responsible, amongst other things, for
reviewing the Interim and Annual Financial Statements, considering the
appointment and independence of external auditors, discussing with the external
auditors the scope and results from the audit and reviewing the Company's
compliance with the AIC Code.
Further details on the Audit Committee can be found in the Audit Committee
Report.
Nomination Committee
There is no separate Nomination Committee. The Board as a whole fulfils the
function of a Nomination Committee. Whilst the Directors take the lead in the
appointment of new Directors, any proposal for a new Director will be discussed
and approved by all members of the Board.
Remuneration Committee
In view of its non-executive and independent nature, the Board considers that
it is not appropriate for there to be a separate Remuneration Committee as
anticipated by the AIC Code. The Board as a whole fulfils the functions of the
Remuneration Committee, although the Board has included a separate Directors'
Remuneration Report in these Financial Statements.
International Tax Reporting
For purposes of the US Foreign Account Tax Compliance Act, the Company
registered with the US Internal Revenue Service ("IRS") as a Guernsey reporting
Foreign Financial Institution ("FFI"), received a Global Intermediary
Identification Number (8V9U53.99999.SL.831), and can be found on the IRS FFI
list.
The Common Reporting Standard ("CRS") is a global standard developed for the
automatic exchange of financial account information developed by the
Organisation for Economic Co-operation and Development ("OECD"), which has been
adopted in Guernsey and which came into effect on 1 January 2016. The CRS has
replaced the inter-governmental agreement between the UK and Guernsey to
improve international tax compliance that had previously applied in respect of
2014 and 2015.
The Board ensures that the Company is compliant with Guernsey regulations and
guidance in this regard.
Strategy
The strategy for the Company is to target less liquid, higher yielding asset
backed securities. These securities, whilst fundamentally robust, do not offer
enough liquidity for use in the typical daily mark-to-market UCITs funds, but
are well suited to a traded closed-ended vehicle, where investors can obtain
liquidity by trading shares on the London Stock Exchange. This part of the
fixed income market has been largely overlooked and therefore represents
attractive relative value. The strategy aims to generate a dividend in the
Reporting Period ending 31 March 2018 of 6 pence per Ordinary Share and in each
subsequent Reporting Period such Dividend Target as the Directors determine at
their absolute discretion from time to time, with all excess income being
distributed to investors at the year-end of the Company.
Internal Controls
The Board is ultimately responsible for establishing and maintaining the
Company's system of internal financial and operating control and for
maintaining and reviewing its effectiveness. The Company's risk matrix
continues to be the core element of the Company's risk management process in
establishing the Company's system of internal financial and reporting control. The risk matrix is prepared and maintained by the Board which initially identifies the risks facing the Company and then collectively assesses the likelihood of each risk, the impact of those risks and the strength of the controls operating over each risk. The system of internal financial and operating control is designed to manage rather than to eliminate the risk of failure to achieve business objectives and by their nature can only provide reasonable and not absolute assurance against misstatement and loss. These controls aim to ensure that assets of the Company are safeguarded, proper accounting records are maintained and the financial information for publication is reliable. The Board confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. This process has been in place for the year under review and up to the date of approval of this Annual Report and Audited Financial Statements and is reviewed by the Board and is in accordance with the AIC Code. The AIC Code requires Directors to conduct at least annually a review of the Company's system of internal financial and operating control, covering all controls, including financial, operational, compliance and risk management. The Board has evaluated the systems of internal controls of the Company. In particular, it has prepared a process for identifying and evaluating the significant risks affecting the Company and the policies by which these risks are managed. The Board also considers whether the appointment of an internal auditor is required and has determined that there is no requirement for a direct internal audit function. The Board has delegated the day to day responsibilities for the management of the Company's investment portfolio, the provision of depositary services and administration, registrar and corporate secretarial functions including the independent calculation of the Company's NAV and the production of the Annual Report and Financial Statements which are independently audited. Formal contractual agreements have been put in place between the Company and providers of these services. Even though the Board has delegated responsibility for these functions, it retains accountability for these functions and is responsible for the systems of internal control. At each quarterly Board meeting, compliance reports are provided by the Administrator, Company Secretary, Portfolio Manager, AIFM and Depositary. The Board also receives confirmation from the Administrator of its accreditation under its Service Organisation Controls 1 report. The Company's risk exposure and the effectiveness of its risk management and internal control systems are reviewed by the Audit Committee at its meetings and annually by the Board. The Board believes that the Company has adequate and effective systems in place to identify, mitigate and manage the risks to which it is exposed. Principal Risks and Uncertainties are set out below. Principal Risks and Uncertainties The Board is responsible for the Company's system of internal financial and reporting controls and for reviewing its effectiveness. The Board is satisfied that by using the Company's risk matrix as its core element in establishing the Company's system, internal financial and reporting controls while monitoring the investment limits and restrictions set out in the Company's investment objective and policy, that the Board has carried out a robust assessment of the principal risks and uncertainties facing the Company. The principal risks which have been identified and the steps which are taken by the Board to mitigate them are as follows: Market risk The underlying investments comprised in the portfolio are subject to market risk. The Company is therefore at risk that market events may affect performance and in particular may affect the value of the Company's investments which are valued on a marked to market basis. Market risk is risk associated with changes in market prices, including spreads, interest rates, economic uncertainty, changes in laws and political (national and international) circumstances. While the Company, through its investments in Asset Backed Securities, intends to hold a diversified portfolio of assets, any of these factors including specific market events, such as the global financial crisis and levels of sovereign debt and the UK's exit from the EU, may have a material impact which could be materially detrimental to the performance of the Company's investments. As the process of a major country leaving the EU has no precedent, the Board and the Portfolio Manager regularly assess the risks and ongoing uncertainties and expect an ongoing period of market uncertainty as the implications are processed. Under extreme market conditions the portfolio may not benefit from diversification. Liquidity risk Investments made by the Company may be relatively illiquid and this may limit the ability of the Company to realise its investments and in turn pay dividends. Substantially all of the assets of the Company are invested in Asset Backed Securities. There may be no active market in the Company's interests in Asset Backed Securities. The Company does not have redemption rights in relation to any of its investments. As a consequence, the value of the Company's investments may be materially adversely affected. Credit risk The Company may not achieve the Dividend Target and investors may not get back the full value of their investment because it is invested in Asset Backed Securities comprising debt securities issued by companies, trusts or other investment vehicles which, compared to bonds issued or guaranteed by governments, are generally exposed to greater risk of default in the repayment of the capital provided to the issuer or interest payments due to the Company. The amount of credit risk is indicated by the issuer's credit rating which is assigned by one or more internationally recognised rating agencies. This does not amount to a guarantee of the issuer's creditworthiness but generally provides a strong indicator of the likelihood of default. Securities which have a lower credit rating are generally considered to have a higher credit risk and a greater possibility of default than more highly rated securities. There is a risk that an internationally recognised rating agency may assign incorrect or inappropriate credit ratings to issuers. Issuers often issue securities which are ranked in order of seniority which, in the event of default, would be reflected in the priority in which investors might be paid back. The level of defaults in the portfolio and the losses suffered on such defaults may increase in the event of adverse financial or credit market conditions. In the event of a default under an Asset Backed Security, the Company's right to recover under the Asset Backed Security will depend on the ability of the Company to exercise any rights that it has against the borrower under the insolvency legislation of the jurisdiction in which the borrower is incorporated. As a creditor, the Company's level of protection and rights of enforcement may therefore vary significantly from one country to another, may change over time and may be subject to rights and protections which the relevant borrower or its other creditors might be entitled to exercise. Refer to the Investment Objective and Policy for information regarding investment restrictions currently in place in order to manage credit risk. The credit ratings on the Company's underlying investments are disclosed in note 16. Foreign currency risk The Company is exposed to foreign currency risk through its investments in predominantly Euro denominated assets. The Company's share capital is denominated in Sterling and its expenses are incurred in Sterling. The Company's financial statements are maintained and presented in Sterling. Amongst other factors affecting the foreign exchange markets, events in the Eurozone may have an impact upon the value of the Euro which in turn will impact the value of the Company's Euro denominated investments. The Company manages its exposure to currency movements by using spot and forward foreign exchange contracts, which are rolled forward periodically. Reinvestment risk The Portfolio Manager is conscious of the challenge to reinvest any monies that result from principal and income payments and to minimise reinvestment risk as much as possible. Cash flow analysis is conducted on an ongoing basis and is an important part of the Portfolio Management process, ensuring such proceeds can be invested efficiently and in the best interests of the Company. The Portfolio Manager expects amortisations of around GBP103m over the next 12 months, however, while market conditions are always subject to change, the Portfolio Manager does not currently foresee reinvestment risk significantly impacting the yield and affecting each quarter's minimum dividend. The Portfolio Manager also recognises the need to be opportunistic as and when market conditions are particularly favourable in order to reinvest any proceeds. Other risks and uncertainties The Board has identified the following other risks and uncertainties along with the steps taken to mitigate them: Operational risks The Company is exposed to the risk arising from any failures of systems and controls in the operations of the Portfolio Manager, Administrator, AIFM, Custodian and the Depositary amongst others. The Board and its Audit Committee regularly review reports from the Portfolio Manager, AIFM, the Administrator, Custodian and Depositary on their internal controls. The Administrator, Custodian and Depositary will report to the Portfolio Manager any operational issues which will be brought to the Board for final approval as required. Accounting, Legal and Regulatory risks The Company is exposed to the risk that it may fail to maintain accurate
accounting records or fail to comply with requirements of its Admission
document and fail to meet listing obligations. The accounting records prepared
by the Administrator are reviewed by the Portfolio Manager. The Portfolio
Manager, Administrator, AIFM, Custodian, Depositary and Corporate Broker
provide regular updates to the Board on compliance with the Admission document
and changes in regulation. Changes in the legal or the regulatory environment
can have a major impact on some classes of debt. The Portfolio Manager monitors
this and takes appropriate action.
Income Recognition risk
The Board considers income recognition to be a principal risk and uncertainty
of the Company as the Portfolio Manager estimates the remaining expected life
of the security and its likely terminal value, which has an impact on the
effective interest rate of the Asset Backed Securities which in turn impacts
the calculation of interest income. The Board asked the Audit Committee to
consider this risk with work undertaken by the Audit Committee as discussed in
the Audit Committee report. As a result of the work undertaken by the Audit
Committee, the Board is satisfied that income is appropriately stated in all
material aspects in the Financial Statements.
Cyber security risks
The Company is exposed to risk arising from a successful cyber-attack through
its service providers. The Company requests of its service providers that they
have appropriate safeguards in place to mitigate the risk of cyber-attacks
(including minimising the adverse consequences arising from any such attack),
that they provide regular updates to the Board on cyber security, and conduct
ongoing monitoring of industry developments in this area. The Board is
satisfied that the Company's service providers have the relevant controls in
place to mitigate this risk.
Shareholder Engagement
The Board welcomes shareholders' views and places great importance on
communication with its shareholders. Shareholders wishing to meet the Chairman
and other Board members should contact the Company's Administrator.
The Portfolio Manager and Listing Sponsor maintain a regular dialogue with
institutional shareholders, the feedback from which is reported to the Board.
The Company's Annual General Meeting ("AGM") provides a forum for shareholders
to meet and discuss issues of the Company and shareholders with the opportunity
to vote on the resolutions as specified in the Notice of AGM. The Notice of the
AGM and the results are released to the London Stock Exchange in the form of an
announcement. Board members will be available to respond to shareholders'
questions at the AGM.
In addition, the Company maintains a website, www.twentyfourincomefund.com,
which contains comprehensive information, including links to regulatory
announcements, share price information, financial reports, investment objective
and investor contacts.
Significant Shareholdings
Shareholders with holdings of more than 3.0% of the Ordinary Shares of the
Company at 8 June 2018 (latest available) were as follows:
Number of Percentage of
shares issued share
capital
Investec Wealth & Investment 46,335,633 11.71%
Brewin Dolphin, stockbrokers 33,194,696 8.39%
Sarasin & Partners 24,549,294 6.20%
Premier Asset Management 22,635,113 5.72%
Fidelity International 19,939,602 5.04%
Charles Stanley 17,271,508 4.36%
BMO Global Asset Management (UK) 15,814,862 4.00%
Killik, stockbrokers 14,310,774 3.62%
Baillie Gifford 13,620,584 3.44%
East Riding of Yorkshire 12,500,000 3.16%
Those invested directly or indirectly in 3.0% or more of the issued share
capital of the Company will have the same voting rights as other holders of
Shares.
Disclosure of Information to Auditors
The Directors who held office at the date of approval of these Financial
Statements confirm that, so far as they are each aware, there is no relevant
audit information of which the Company's auditor is unaware; and each Director
has taken all the steps that they ought to have taken as a Director to make
themselves aware of any relevant audit information and to establish that the
Company's auditor is aware of that information.
Independent Auditors
A resolution for the reappointment of PricewaterhouseCoopers CI LLP will be
proposed at the forthcoming AGM.
Signed on behalf of the Board of Directors on 3 July 2018 by:
Trevor Ash
Ian Burns
Chairman
Director
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the Financial
Statements in accordance with applicable Guernsey law and regulations.
Guernsey company law requires the Directors to prepare Financial Statements for
each financial year. Under that law they have elected to prepare the Financial
Statements in accordance with International Financial Reporting Standards
("IFRS") and applicable law.
The Financial Statements are required by law to give a true and fair view of
the state of affairs of the Company and of the profit or loss of the Company
for that period.
In preparing these Financial Statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- state whether applicable accounting standards have been followed,
subject to any material departures disclosed and explained in the Financial
Statements; and
- prepare the Financial Statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors confirm that they have complied with these requirements in
preparing the Financial Statements.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and to enable them to ensure that the Financial Statements have been
properly prepared in accordance with The Companies (Guernsey) Law, 2008. They
have general responsibility for taking such steps as are reasonably open to
them to safeguard the assets of the Company and to prevent and detect fraud and
other irregularities.
The Directors are responsible for the oversight of the maintenance and
integrity of the corporate and financial information in relation to the Company
website; the work carried out by the auditors does not involve consideration of
these matters and, accordingly, the auditors accept no responsibility for any
changes that may have occurred to the financial statements since they were
initially presented on the website.
Legislation in Guernsey governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
The Directors confirm that to the best of their knowledge:
(a) The Financial Statements have been prepared in accordance with IFRS and
give a true and fair view of the assets, liabilities, financial position and
profit or loss of the Company as at and for the year ended 31 March 2018; and
(b) The Annual Report includes information detailed in the Chairman's
Statement, Portfolio Manager's Report, Directors' Report, Directors'
Remuneration Report, Audit Committee Report, Alternative Investment Fund
Manager's Report and Depositary Statement provides a fair review of the
information required by:
(i) DTR 4.1.8 and DTR 4.1.9 of the Disclosure and Transparency Rules,
being a fair review of the Company business and a description of the principal
risks and uncertainties facing the Company; and
(ii) DTR 4.1.11 of the Disclosure and Transparency Rules, being an
indication of important events that have occurred since the end of the
financial year and the likely future development of the Company.
In the opinion of the Board, the Financial Statements taken as a whole, are
fair, balanced and understandable and provide the information necessary to
assess the Company's performance, business model and strategy:
By order of the Board
Trevor
Ash
Ian Burns
Chairman
Director
3 July 2018
DIRECTORS' REMUNERATION REPORT
The Directors' remuneration report has been prepared on behalf of the Directors
in accordance with the UK Code as issued by the UK Listing Authority. An
ordinary resolution for the approval of the annual remuneration report will be
put to the shareholders at the AGM to be held on 20 September 2018.
Remuneration Policy
The Company's policy in regard to Directors' remuneration is to ensure that the
Company maintains a competitive fee structure in order to recruit, retain and
motivate non-executive Directors of excellent quality in the overall interests
of shareholders.
The Directors do not consider it necessary for the Company to establish a
separate Remuneration Committee. All of the matters recommended by the UK Code
that would be delegated to such a committee are considered by the Board as a
whole.
It is the responsibility of the Board as a whole to determine and approve the
Directors' fees, following a recommendation from the Chairman who will have
given the matter proper consideration, having regard to the level of fees
payable to non-executive Directors in the industry generally, the role that
individual Directors fulfil in respect of Board and Committee responsibilities
and the time committed to the Company's affairs. The Chairman's remuneration is
decided and approved separately by the Board as a whole.
No element of the Directors' remuneration is performance related, nor does any Director have any entitlement to pensions, share options or any long term incentive plans from the Company. Remuneration The Directors of the Company are remunerated for their services at such a rate as the Directors determine, provided that the aggregate amount of such fees does not exceed GBP150,000 per annum. Directors are remunerated in the form of fees, payable quarterly in arrears, to the Director personally. No Directors have been paid additional remuneration outside the normal Directors' fees and expenses. In the year ended 31 March 2018, the Directors received the following annual remuneration in the form of Directors' fees: Trevor Ash (Chairman of the Board) GBP35,000 Ian Burns (Audit Committee Chairman) GBP32,500 Richard Burwood GBP30,000 Jeannette Etherden GBP30,000 Total GBP127,500 The remuneration policy set out above is the one applied for the year ended 31 March 2018 and is not expected to change in the foreseeable future. Directors' and Officers' liability insurance cover is maintained by the Company on behalf of the Directors. The Directors were appointed as non-executive Directors by letters issued in January 2013. Each Director's appointment letter provides that, upon the termination of his/her appointment, he/she must resign in writing and all records remain the property of the Company. The Directors' appointments can be terminated in accordance with the Articles and without compensation. There is no notice period specified in the Articles for the removal of Directors. The Articles provide that the office of director shall be terminated by, among other things: (a) written resignation; (b) unauthorised absences from board meetings for six months or more; (c) unanimous written request of the other directors; and (d) an ordinary resolution of the Company. Under the terms of their appointment, each Director is required to retire by rotation and be subject to re-election at least every three years. The Directors are required to seek re-election on an annual basis if they have already served for more than nine years. At the 21 September 2017 Annual General Meeting, Richard Burwood was re-elected. The Company may terminate the appointment of a Director immediately on serving written notice and no compensation is payable upon termination of office as a director of the Company becoming effective. The amounts payable to Directors shown in note 14 were for services as non-executive Directors. No Director has a service contract with the Company, nor are any such contracts proposed. Signed on behalf of the Board of Directors on 3 July 2018 by: Trevor Ash Ian Burns Chairman Director AUDIT COMMITTEE REPORT On the following pages, we present the Audit Committee's Report, setting out the responsibilities of the Audit Committee and its key activities for the year ended 31 March 2018. The Audit Committee has continued its detailed scrutiny of the appropriateness of the Company's system of risk management and internal controls, the robustness and integrity of the Company's financial reporting, along with the external audit process. The Committee has devoted time to ensuring that the internal financial and operating controls and processes have been properly established, documented and implemented. During the course of the year, the information that the Audit Committee has received has been timely and clear and has enabled the Audit Committee to discharge its duties effectively. The Audit Committee supports the aims of the UK Code and the best practice recommendations of other corporate governance organisations such as the AIC, and believes that reporting against the revised AIC Code allows the Audit Committee to further strengthen its role as a key independent oversight Committee. Role and Responsibilities The primary function of the Audit Committee is to assist the Board in fulfilling its oversight responsibilities. This includes reviewing the financial reports and other financial information and any significant financial judgement contained therein, before publication. In addition, the Audit Committee reviews the systems of internal financial and operating controls on a continuing basis that the Administrator, Portfolio Manager, AIFM, and Custodian Depositary and the Board have established with respect to finance, accounting, risk management, compliance, fraud and audit. The Audit Committee also reviews the accounting and financial reporting processes, along with reviewing the roles, independence and effectiveness of the external auditor. The ultimate responsibility for reviewing and approving the Annual and Interim Financial Statements remains with the Board. The Audit Committee's full terms of reference can be obtained by contacting the Company's Administrator. Risk Management and Internal Control The Board, as a whole, considers the nature and extent of the Company's risk management framework and the risk profile that is acceptable in order to achieve the Company's strategic objectives. As a result, it is considered that the Board has fulfilled its obligations under the AIC Code. The Audit Committee continues to be responsible for reviewing the adequacy and effectiveness of the Company's ongoing risk management systems and processes. Its system of internal controls, along with its design and operating effectiveness, is subject to review by the Audit Committee through reports received from the Portfolio Manager, AIFM and Custodian and Depositary, along with those from the Administrator and external auditor. Fraud, Bribery and Corruption The Audit Committee, in conjunction with the Management Engagement Committee, has relied on the overarching requirement placed on the service providers under the relevant agreements to comply with applicable law, including anti-bribery laws. A review of the service provider policies took place at the Management Engagement Committee Meeting, held on 21 September 2017. The Board receives regular confirmation from all service providers that there has been no fraud, bribery or corruption. Financial Reporting and Significant Financial Issues The Audit Committee assesses whether suitable accounting policies have been adopted and whether the Portfolio Manager has made appropriate estimates and judgements. The Audit Committee reviews accounting papers prepared by the Portfolio Manager and Administrator which provide details on the main financial reporting judgements. The Audit Committee also reviews reports by the external auditors which highlight any issues with respect to the work undertaken on the audit. The significant issues considered during the period by the Audit Committee in relation to the Financial Statements and how they were addressed are detailed below: (i) Valuation of investments: The Company's investments had a fair value of GBP457,332,017 as at 31 March 2018 (31 March 2017: GBP429,399,068) and represent a substantial portion of net assets of the Company. As such this is the largest factor in relation to the consideration of the Financial Statements. These investments are valued in accordance with the Accounting Policies set out in note 2 to the Financial Statements. In March 2018 the committee carried out an on-site review of the revaluation processes, systems and controls at the London offices of the Portfolio Manager. By this and through regular reporting during the year by the Portfolio Manager, AIFM, Administrator, Custodian and Depositary the Audit Committee satisfied itself that both the sources of price information and valuation process itself are robust and reliable, and considered the valuation of the investments held by the Company as at 31 March 2018 to be reasonable. (ii) Income Recognition: The Audit Committee considered the calculation of income from investments recorded in the Financial Statements as at 31 March 2018. As disclosed in note 3(ii)(b) of the Notes to the Financial Statements, the estimated life of Asset Backed Securities is determined by the Portfolio Manager, impacting the effective interest rate of the Asset Backed Securities which in turn impacts the calculation of income from investments. The Audit Committee reviewed the Portfolio Manager's process for determining the expected life of the Company's investments and found it to be reasonable based on the explanations provided and information obtained from the Portfolio Manager. The Audit Committee is therefore satisfied that income is correctly stated in the Financial Statements. Following a review of the presentations and reports from the Portfolio Manager and Administrator and consulting where necessary with the external auditor, the Audit Committee is satisfied that the Financial Statements appropriately address the critical judgements and key estimates (both in respect to the amounts reported and the disclosures). The Audit Committee is also satisfied that the significant assumptions used for determining the value of assets and liabilities have been appropriately scrutinised, challenged and are sufficiently robust. The Company's reporting currency is Sterling while a significant proportion of the investments owned are denominated in foreign currencies. The Company operates a hedging strategy designed to mitigate the impact of foreign currency rate changes on the performance of the fund. The Audit Committee has used information from the Administrator and Portfolio Manager to satisfy itself concerning the effectiveness of the hedging process, as well as to confirm that realised and unrealised foreign currency gains and losses have been correctly recorded. At the request of the Audit Committee, the Administrator confirmed that it was
not aware of any material misstatements including matters relating to Financial
Statement presentation. At the Audit Committee meeting to review the Annual
Report and Audited Financial Statements, the Audit Committee received and
reviewed a report on the audit from the external auditors. On the basis of its
review of this report, the Audit Committee is satisfied that the external
auditor has fulfilled its responsibilities with diligence and professional
scepticism. The Audit Committee advised the Board that these Annual Financial
Statements, taken as a whole, are fair, balanced and understandable.
The Audit Committee is satisfied that the judgements made by the Portfolio
Manager and Administrator are reasonable, and that appropriate disclosures have
been included in the Financial Statements.
Going Concern
The going concern basis can be found in the Directors' Report.
External Auditors
The Audit Committee has responsibility for making a recommendation on the
appointment, re-appointment and removal of the external auditors.
PricewaterhouseCoopers CI LLP ("PwC") was appointed as the first auditors of
the Company. During the year the Audit Committee received and reviewed audit
plans and reports from the external auditors. It is standard practice for the
external auditors to meet privately with the Audit Committee without the
Portfolio Manager and other service providers being present at each Audit
Committee meeting.
To assess the effectiveness of the external audit process, the auditors were
asked to articulate the steps that they have taken to ensure objectivity and
independence, including where the auditor provides non-audit services. The
Audit Committee monitors the auditors' performance, behaviour and effectiveness
during the exercise of their duties, which informs the decision to recommend
reappointment on an annual basis.
During the year, the Committee performed its annual review of the independence,
effectiveness and objectivity of the external auditor and considered the
Financial Reporting Council's ("FRC") Audit Quality Review of PwC's previous
audit work. The Committee concluded that the effectiveness of the external
auditor and the audit process were satisfactory and recommend to the Board the
reappointment of PwC as external auditor for the 2019 financial year.
As a general rule, the Company does not utilise external auditors for internal
audit purposes, secondments or valuation advice. Services which do not
compromise auditor independence, such as tax compliance, tax structuring,
private letter rulings, accounting advice, quarterly reviews and disclosure
advice are normally permitted but will be pre-approved by the Audit Committee.
The following tables summarise the remuneration paid to PwC and to other PwC
member firms for audit and non-audit services during the year ended 31 March
2018 and the year ended 31 March 2017.
01.04.17 to 01.04.16 to
31.03.18 31.03.17
PricewaterhouseCoopers CI LLP - Assurance work GBP GBP
- Annual 55,000 51,700
audit
- Interim 16,995 16,500
review
PricewaterhouseCoopers CI LLP - Non-assurance
work
- Reportable Income 8,000 8,000
calculation
Ratio of assurance to non-assurance 90% / 10% 90% / 10%
work
The Company does not qualify as an EU Public Interest Entity and is therefore
not subject to the restrictions on non-audit services provided by its auditor
under this regime.
For any questions on the activities of the Audit Committee not addressed in the
foregoing, a member of the Audit Committee remains available to attend each AGM
to respond to such questions.
The Audit Committee Report was approved by the Audit Committee on 3 July 2018
and signed on behalf by:
Ian Burns
Chairman, Audit Committee
3 July 2018
ALTERNATIVE INVESTMENT FUND MANAGER'S REPORT
Maitland Institutional Services Ltd acts as the Alternative Investment Fund
Manager ("AIFM") of TwentyFour Income Fund Limited (the "Company") providing
portfolio management and risk management services to the Company.
The AIFM has delegated the following of its alternative investment fund
management functions:
* It has delegated the portfolio management function for listed investments
to TwentyFour Asset Management LLP.
* It has delegated the portfolio management function for unlisted investments
to TwentyFour Asset Management LLP.
The AIFM is required by the Alternative Investment Fund Managers Directive
2011, 61/EU (the "AIFM Directive") and all applicable rules and regulations
implementing the AIFM Directive in the UK (the "AIFM" Rules):
* to make the annual report available to investors and to ensure that the
annual report is prepared in accordance with applicable accounting
standards, the Company's articles of incorporation and the AIFM Rules and
that the annual report is audited in accordance with International
Standards on Auditing;
* be responsible for the proper valuation of the Company's assets, the
calculation of the Company's net asset value and the publication of the
Company's net asset value; and,
* to make available to the Company's shareholders, a description of all fees,
charges and expenses and the amounts thereof, which have been directly or
indirectly borne by them,
* ensure that the Company's shareholders have the ability to redeem their
share in the capital of the Company in a manner consistent with the
principle of fair treatment of investors under the AIFM Rules and in
accordance with the Company's redemption policy and its obligations.
The AIFM is required to ensure that the annual report contains a report that
shall include a fair and balanced review of the activities and performance of
the Company, containing also a description of the principal risks and
investment or economic uncertainties that the Company might face.
AIFM Remuneration
Under the Alternative Investment Fund Managers Directive, acting as the AIFM,
Maitland Institutional Services Ltd is required to disclose how those whose
actions have a material impact on the Company are remunerated.
Due to the nature of the activities conducted by Maitland Institutional
Services Ltd, it has deemed itself as a lower risk firm in accordance with SYSC
19B and the remuneration code. The only employees at Maitland Institutional
Services Ltd permitted to have a material impact on the risk profile of the AIF
are the Board and the Head of Risk and Compliance.
The delegated Portfolio Manager, TwentyFour Asset Management LLP, is subject to
regulatory requirements on remuneration that are broadly equivalent to those
detailed in the Alternative Investment Fund Managers Directive, which include
the Capital Requirements Directive or Markets in Financial Instruments
Directive. While a portion of the remuneration paid by the Portfolio Manager
is variable and based, in part, on the performance of the investment portfolio,
the investment discretion of the Portfolio Manager is strictly controlled
within certain pre-defined parameters as detailed in the prospectus of the
Company.
Under the AIFM Directive, the AIFM is required to stipulate how much it pays to
its staff, in relation to fixed and variable remuneration and how much, in
relation to the Company, is firstly attributed to all staff and those that are
deemed, under the directive, to have an impact on the risk profile of the
Company. Maitland Institutional Services Ltd does not pay any form of variable
remuneration.
March 2018 Number of Total remuneration Fixed remuneration
Beneficiaries paid
Total remuneration 67 GBP166,851 GBP166,851
paid by the AIFM
during the year
Remuneration paid 5 GBP29,721.78 GBP29,721.78
to employees of
the AIFM who have
a material impact
on the risk
profile of the AIF
In so far as the AIFM is aware:
* there is no relevant audit information of which the Company's auditors or
the Company's board of directors are unaware; and
* the AIFM has taken all steps that it ought to have taken to make itself
aware of any relevant audit information and to establish that the auditors
are aware of that information.
We hereby certify that this report is made on behalf of the AIFM, Maitland
Institutional Services Ltd.
D. Jones
R.W. Leedham
Directors
Maitland Institutional Services Ltd
3 July 2018
REPORT OF THE DEPOSITORY TO THE SHAREHOLDERS
for the year ended 31 March 2018
Northern Trust (Guernsey) Limited has been appointed as Depositary to
TwentyFour Income Fund Limited (the "Company") in accordance with the
requirements of Article 36 and Articles 21(7), (8) and (9) of the Directive
2011/61/EU of the European Parliament and of the Council of 8 June 2011 on
Alternative Investment Fund Managers and amending Directives 2003/41/EC and
2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 (the "AIFM
Directive").
We have enquired into the conduct of Maitland Institutional Services Limited
(the "AIFM") and the Company for the year ended 31 March 2018, in our capacity
as Depositary to the Company.
This report including the review provided below has been prepared for and
solely for the Shareholders in the Company. We do not, in giving this report,
accept or assume responsibility for any other purpose or to any other person to
whom this report is shown.
Our obligations as Depositary are stipulated in the relevant provisions of the
AIFM Directive and the relevant sections of Commission Delegated Regulation
(EU) No 231/2013 (collectively the "AIFMD legislation") and The Authorised
Closed Ended Investment Scheme Rules 2008.
Amongst these obligations is the requirement to enquire into the conduct of the
AIFM and the Company and their delegates in each annual accounting period.
Our report shall state whether, in our view, the Company has been managed in
that period in accordance with the AIFMD legislation. It is the overall
responsibility of the AIFM and the Company to comply with these provisions. If
the AIFM, the Company or their delegates have not so complied, we as the
Depositary will state why this is the case and outline the steps which we have
taken to rectify the situation.
The Depositary and its affiliates are or may be involved in other financial and
professional activities which may on occasion cause a conflict of interest with
its roles with respect to the Company. The Depositary will take reasonable care
to ensure that the performance of its duties will not be impaired by any such
involvement and that any conflicts which may arise will be resolved fairly and
any transactions between the Depositary and its affiliates and the Company
shall be carried out as if effected on normal commercial terms negotiated at
arm's length and in the best interests of Shareholders.
Basis of Depositary Review
The Depositary conducts such reviews as it, in its reasonable discretion,
considers necessary in order to comply with its obligations and to ensure that,
in all material respects, the Company has been managed (i) in accordance with
the limitations imposed on its investment and borrowing powers by the
provisions of its constitutional documentation and the appropriate regulations
and (ii) otherwise in accordance with the constitutional documentation and the
appropriate regulations. Such reviews vary based on the type of fund, the
assets in which a fund invests and the processes used, or experts required, in
order to value such assets.
Review
In our view, the Company has been managed during the period, in all material
respects:
(i) in accordance with the limitations imposed on the investment and borrowing
powers of the
Company by the constitutional documents and by the AIFMD legislation; and
(ii) otherwise in accordance with the provisions of the principal documents and
the AIFMD
legislation.
For and on behalf of
Northern Trust (Guernsey) Limited
3 July 2018
INDEPENT AUDITOR'S REPORT
TO THE MEMBERS OF TWENTYFOUR INCOME FUND LIMITED
Report on the audit of the financial statements
_________________________________________________________________________
___________
Our opinion
In our opinion, the financial statements give a true and fair view of the
financial position of TwentyFour Income Fund Limited (the "Company") as at 31
March 2018, and of its financial performance and its cash flows for the year
then ended in accordance with International Financial Reporting Standards and
have been properly prepared in accordance with the requirements of The
Companies (Guernsey) Law, 2008.
_________________________________________________________________________
___________
What we have audited
The Company's financial statements comprise:
* the Statement of Financial Position as at 31 March 2018;
* the Statement of Comprehensive Income for the year then ended;
* the Statement of Changes in Equity for the year then ended;
* the Statement of Cash Flows for the year then ended; and
* the Notes to the Financial Statements, which include a summary of
significant accounting policies.
____________________________________________________________________________________
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
("ISAs"). Our responsibilities under those standards are further described in
the Auditor's responsibilities for the audit of the financial statements
section of our report.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
_________________________________________________________________________
___________
Independence
We are independent of the Company in accordance with the International Ethics
Standards Board for Accountants' Code of Ethics for Professional Accountants
("IESBA Code"). We have fulfilled our other ethical responsibilities in
accordance with the IESBA Code.
_________________________________________________________________________
___________
Our audit approach
Materiality
Overall Company materiality was GBP10.6 million which represents 2.25% of net
assets.
________________________________________________________________________
___________
Audit scope
* The Company is incorporated and based in Guernsey.
* We conducted our audit of the financial statements from information
provided by Northern Trust International Fund Administration Services
(Guernsey) Limited (the "Administrator") to whom the board of directors has
delegated the provision of certain functions. The Company engages
TwentyFour Asset Management LLP (the "Portfolio Manager") to manage the
investment portfolio. We had significant interaction with the Portfolio
Manager in completing aspects of our audit work.
* We conducted all of our audit work in Guernsey, with the exception of our
on-site visit to the Portfolio Manager in London at the planning stage of
the audit.
_________________________________________________________________________
___________
Key audit matters
* Risk of fraud in interest income
* Valuation of investments
_________________________________________________________________________
___________
Audit scope
As part of designing our audit, we determined materiality and assessed the
risks of material misstatement in the financial statements. In particular, we
considered where the directors made subjective judgements; for example, in
respect of significant accounting estimates that involved making assumptions
and considering future events that are inherently uncertain. As in all of our
audits, we also addressed the risk of management override of internal controls,
including among other matters, consideration of whether there was evidence of
bias that represented a risk of material misstatement due to fraud.
We tailored the scope of our audit in order to perform sufficient work to
enable us to provide an opinion on the financial statements as a whole, taking
into account the structure of the Company, the accounting processes and
controls, and the industry in which the Company operates.
_________________________________________________________________________
___________
Materiality
The scope of our audit was influenced by our application of materiality. An
audit is designed to obtain reasonable assurance whether the financial
statements are free from material misstatement. Misstatements may arise due to
fraud or error. They are considered material if individually or in aggregate,
they could reasonably be expected to influence the economic decisions of users
taken on the basis of the financial statements.
Based on our professional judgement, we determined certain quantitative
thresholds for materiality, including the overall Company materiality for the
financial statements as a whole as set out in the table below. These, together
with qualitative considerations, helped us to determine the scope of our audit
and the nature, timing and extent of our audit procedures and to evaluate the
effect of misstatements, both individually and in aggregate on the financial
statements as a whole.
Overall Company materiality GBP10.6 million (2017: GBP11.3 million)
How we determined it 2.25% of net assets (2017: 2.5% of net assets)
Rationale for the materiality We believe that net assets is the most
benchmark appropriate benchmark because this is the key
metric of interest to members of the Company.
We agreed with the Audit Committee that we would report to them misstatements
identified during our audit above GBP525,000, as well as misstatements below that
amount that, in our view, warranted reporting for qualitative reasons.
_________________________________________________________________________
___________
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of
most significance in our audit of the financial statements of the current
period. These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters.
Key audit matter How our audit addressed the Key audit matter
Risk of fraud in · We assessed the accounting policy for the
interest income recognition of interest income for compliance with
Interest income for the International Financial Reporting Standards and
year, GBP29.5 million, as ensured that interest income had been accounted for
reflected within the in accordance with the stated accounting policy.
Statement of
Comprehensive Income · We held discussions with the Portfolio
Statement, is measured Manager to understand and evaluate the processes in
in accordance with the place for recognising interest income and to
effective interest rate understand the estimates required by the Portfolio
method. Manager in respect of prepayments and expected
losses. We tested the effective interest rate models
The requirement to and verified key inputs into the models, on a sample
estimate the expected basis, and verified the arithmetical accuracy of the
cash flows when forming models and the interest income summary spreadsheet.
an effective interest
rate model is subject to · Through discussions with the Portfolio
significant management Manager, we have assessed the expected losses and
estimate and judgement, prepayment assumptions applied for a sample of
as detailed under note 3 securities selected. We obtained supporting
(ii)(b), and could be documentation to corroborate the Portfolio Manager's
open to manipulation by estimates.
management.
· We selected a sample of securities to assess
if there had been any significant changes to the
expected repayment dates from the prior year. Where
there had been changes, we obtained supporting
explanation and analysis to support those changes.
· No matters were noted which required
reporting to those charged with governance.
Valuation of investments · We understood and evaluated the internal
Investments, valued at GBP control environment in place at the Administrator and
457.3 million at year the Portfolio Manager over the valuation of the
end, as shown within investment portfolio.
note 9 and covered
within note 17, are · We assessed the accounting policy for
measured at fair value investment valuation for compliance with
through profit or loss International Financial Reporting Standards. We
and comprise a diverse performed testing to check that the investment
portfolio of asset valuation had been accounted for and applied
backed securities. consistently in accordance with the stated accounting
policy.
Investments represent
the most significant · We tested the valuation of investments using
balance on the Statement an independent third party price provider to reprice
of Financial Position the portfolio. Prices were obtained from a range of
and, due to the market sources, including exchange traded and consensus
liquidity and prices. We sought to reprice the entire portfolio,
assumptions underlying however all investments which we were unable to be
each security, the reprice, or investments that were repriced yet
valuations are subject exceeded a tolerable variance threshold from the
to management estimate Company's own final year end prices, were followed up
and judgment, as by the engagement team and supporting evidence for
detailed under note 3 these prices was obtained from the Administrator and/
(ii) (a). or the Portfolio Manager. We assessed the
independence, reputation and reliability of the
providers of the supporting evidence provided in
these instances.
· For a sample of disposals, we compared the
sales transaction price to the most recently recorded
valuation prior to the disposal, which allowed us to
assess the reliability of the valuation data at that
point.
· No matters were noted which required
reporting to those charged with governance.
Other information
The directors are responsible for the other information. The other information
comprises Corporate Information, Summary Information, Chairman's Statement,
Portfolio Manager's Report, Top Twenty Holdings, Board Members, Disclosure of
Directorships in Public Companies Listed on Recognised Stock Exchanges,
Directors' Report, Statement of Directors' Responsibilities, Directors'
Remuneration Report, Audit Committee Report, Alternative Investment Fund
Manager's Report and the Report of the Depositary to the Shareholders (but
does not include the financial statements and our auditor's report thereon).
Other than as specified in our report, our opinion on the financial statements
does not cover the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is
to read the other information identified above and, in doing so, consider
whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the audit, or otherwise appears to be
materially misstated. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
_________________________________________________________________________
___________
Responsibilities of the directors for the financial statements
The directors are responsible for the preparation of financial statements that
give a true and fair view in accordance with International Financial Reporting
Standards, the requirements of Guernsey law and for such internal control as
the directors determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or
error.
In preparing the financial statements, the directors are responsible for
assessing the Company's ability to continue as a going concern, disclosing, as
applicable, matters relating to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the Company or to
cease operations, or have no realistic alternative but to do so.
_________________________________________________________________________
___________
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to fraud
or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of
these financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment
and maintain professional scepticism throughout the audit. We also:
* Identify and assess the risks of material misstatement of the financial
statements, whether due to fraud or error, design and perform audit
procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than
for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal
control.
* Obtain an understanding of internal control relevant to the audit in order
to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control.
* Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made by the
directors.
* Conclude on the appropriateness of the directors' use of the going concern
basis of accounting and, based on the audit evidence obtained, whether a
material uncertainty exists related to events or conditions that may cast
significant doubt on the Company's ability to continue as a going concern.
If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor's report to the related disclosures in the
financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the
date of our auditor's report. However, future events or conditions may
cause the Company to cease to continue as a going concern.
* Evaluate the overall presentation, structure and content of the financial
statements, including the disclosures, and whether the financial statements
represent the underlying transactions and events in a manner that achieves
fair presentation.
We communicate with those charged with governance regarding, among other
matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide those charged with governance with a statement that we have
complied with relevant ethical requirements regarding independence, and to
communicate with them all relationships and other matters that may reasonably
be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with those charged with governance, we determine
those matters that were of most significance in the audit of the financial
statements of the current period and are therefore the key audit matters. We
describe these matters in our auditor's report unless law or regulation
precludes public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be communicated in our
report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
_________________________________________________________________________
___________
Report on other legal and regulatory requirements
Under The Companies (Guernsey) Law, 2008 we are required to report to you if,
in our opinion:
* we have not received all the information and explanations we require for
our audit;
* proper accounting records have not been kept; or
* the financial statements are not in agreement with the accounting records.
We have no exceptions to report arising from this responsibility.
We have nothing to report in respect of the following matters which we have
reviewed:
* the directors' statement set out in the Directors' Report in relation to
going concern. As noted in the directors' statement, the directors have
concluded that it is appropriate to adopt the going concern basis in
preparing the financial statements. The going concern basis presumes that
the Company has adequate resources to remain in operation, and that the
directors intend it to do so, for at least one year from the date the
financial statements were signed. As part of our audit we have concluded
that the directors' use of the going concern basis is appropriate. However,
because not all future events or conditions can be predicted, these
statements are not a guarantee as to the Company's ability to continue as a
going concern;
* the directors' statement that they have carried out a robust assessment of
the principal risks facing the Company and the directors' statement in
relation to the longer-term viability of the Company. Our review was
substantially less in scope than an audit and only consisted of making
inquiries and considering the directors' process supporting their
statements; checking that the statements are in alignment with the relevant
provisions of the UK Corporate Governance Code; and considering whether the
statements are consistent with the knowledge acquired by us in the course
of performing our audit; and
* the part of the Corporate Governance Statement relating to the Company's
compliance with the ten further provisions of the UK Corporate Governance
Code specified for our review.
This report, including the opinion, has been prepared for and only for the
members as a body in accordance with Section 262 of The Companies (Guernsey)
Law, 2008 and for no other purpose. We do not, in giving this opinion, accept
or assume responsibility for any other purpose or to any other person to whom
this report is shown or into whose hands it may come save where expressly
agreed by our prior consent in writing.
Evelyn Brady
For and on behalf of PricewaterhouseCoopers CI LLP
Chartered Accountants and Recognised Auditor
Guernsey, Channel Islands
3 July 2018
STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 March 2018
01.04.17 to 01.04.16 to
31.03.18 31.03.17
Note GBP GBP
Income
Interest income 29,489,045 26,091,603
Net foreign currency losses 8 (5,773,678) (14,196,044)
Net gains on financial assets
at fair value through profit or 9 25,585,816 47,358,575
loss
Total income 49,301,183 59,254,134
Portfolio management fees 14 (3,425,378) (2,984,744)
Directors' fees 14 (127,500) (127,151)
Administration and secretarial 15 (237,384) (214,152)
fees
Audit fees (55,000) (51,700)
Custody fees 15 (45,672) (41,021)
Broker fees (25,167) (76,074)
AIFM management fees 15 (166,851) (150,719)
Depositary fees 15 (64,549) (57,277)
Legal and professional fees (29,325) (25,482)
Listing fees (24,034) (56,254)
Registration fees (28,415) (31,163)
Other expenses (3,417) (194,753)
Total expenses (4,232,692) (4,010,490)
Total comprehensive income for 45,068,491 55,243,644
the year
Earnings per Ordinary Redeemable
Share -
Basic & Diluted 4 0.114 0.152
All items in the above statement derive from continuing operations.
The notes form an integral part of these Financial Statements.
STATEMENT OF FINANCIAL POSITION
as at 31 March 2018
31.03.2018 31.03.2017
Assets Note GBP GBP
Current assets
Financial assets at fair value through
profit and loss
- Investments 9 457,332,017 429,399,068
- Derivative assets: Forward currency 17 4,135,400 4,173,555
contracts
Amounts due from broker 2,607,294 6,117,241
Other receivables 10 2,844,683 3,177,504
Cash and cash equivalents 11,624,245 24,561,068
Total current assets 478,543,639 467,428,436
Liabilities
Current liabilities
Financial liabilities at fair value through
profit and loss
- Derivative liabilities: Forward currency 17 202,337 163,495
contracts
Amounts due to brokers 7,560,754 14,072,249
Other payables 11 767,417 580,643
Total liabilities 8,530,508 14,816,387
Net current assets 470,013,131 452,612,049
Equity
Share capital account 12 407,509,059 407,509,059
Retained earnings 62,504,072 45,102,990
Total equity 470,013,131 452,612,049
Ordinary Redeemable Shares in issue 12 395,814,151 395,814,151
Net Asset Value per Ordinary Redeemable 6 118.75 114.35
Share (pence)
The Financial Statements were approved by the Board of Directors on 3 July 2018
and signed on its behalf by:
Trevor
Ash
Ian Burns
Chairman
Director
The notes form an integral part of these Financial Statements.
STATEMENT OF CHANGES IN EQUITY
for the year ended to 31 March 2018
Share Retained
capital
account earnings Total
Note GBP GBP GBP
Balances at 1 April 2017 407,509,059 45,102,990 452,612,049
Distributions paid - (27,667,409) (27,667,409)
Total comprehensive gain for the - 45,068,491 45,068,491
year
Balances at 31 March 2018 407,509,059 62,504,072 470,013,131
Share Retained
capital
account earnings Total
Note GBP GBP GBP
Balances at 1 April 2016 327,589,440 5,821,364 333,410,804
Issue of shares 125,024,470 - 125,024,470
Repurchase of own shares to hold (43,083,300) - (43,083,300)
in treasury
Share issue costs (1,293,088) - (1,293,088)
Distributions paid - (16,690,481) (16,690,481)
Income equalisation on new issues 5 (728,463) 728,463 -
Total comprehensive gain for the - 55,243,644 55,243,644
year
Balances at 31 March 2017 407,509,059 45,102,990 452,612,049
The notes form an integral part of these Financial Statements.
STATEMENT OF CASH FLOWS
for the year ended 31 March 2018
Note 01.04.17 to 01.04.16 to
31.03.18 31.03.17
GBP GBP
Cash flows from operating activities
Total comprehensive income for the year 45,068,491 55,243,644
Adjustments for:
Net gain on investments 9 (25,585,816) (47,358,575)
Amortisation adjustment under effective 9 (9,424,396) (10,247,547)
interest rate method
Decrease/(increase) in other receivables 332,821 (1,087,705)
Increase/(decrease) other payables 186,774 (24,731)
Unrealised losses/(gains) on forward currency 8 76,997 (9,816,835)
contracts
Purchase of investments (383,161,384) (308,078,505)
Sale of investments 387,237,099 284,581,705
Net cash generated from/(used in) operating 14,730,586 (36,788,549)
activities
Cash flows from financing activities
Proceeds from issue of Ordinary Redeemable - 81,941,170
Shares
Share issue costs - (1,293,088)
Dividend distribution (27,667,409) (24,212,071)
Net cash (outflow)/inflow from financing (27,667,409) 56,436,011
activities
(Decrease)/increase in cash and cash (12,936,823) 19,647,462
equivalents
Cash and cash equivalents at beginning of the 24,561,068 4,913,606
year
Cash and cash equivalents at end of the year 11,624,245 24,561,068
The notes form an integral part of these Financial Statements.
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 March 2018
1. General Information
TwentyFour Income Fund Limited (the "Company") was incorporated with limited
liability in Guernsey, as a closed-ended investment company on 11 January 2013.
The Company's Shares were listed with a Premium Listing on the Official List of
the UK Listing Authority and admitted to trading on the Main Market of the
London Stock Exchange on 6 March 2013.
The Company's investment objective and policy is set out in the Summary
Information.
The Portfolio Manager of the Company is TwentyFour Asset Management LLP (the
"Portfolio Manager").
2. Principal Accounting Policies
a) Statement of compliance
The Financial Statements have been prepared in accordance with International
Financial Reporting Standards ("IFRS") as issued by the International
Accounting Standards Board ("IASB") and are in compliance with The Companies
(Guernsey) Law, 2008.
b) Presentation of information
The Financial Statements have been prepared on a going concern basis under the
historical cost convention adjusted to take account of the revaluation of the
Company's financial assets and liabilities at fair value through profit or
loss.
c) Standards, amendments and interpretations issued but not yet effective
At the reporting date of these Financial Statements, the following standards,
interpretations and amendments, which have not been applied in these Financial
Statements, were in issue but not yet effective:
- IFRS 9 Financial Instruments (Effective 1 January 2018)
- IFRS 15 Revenue from Contracts with Customers (Effective 1 January 2018)
IFRS 9 'Financial Instruments' amends IAS 39. IFRS 9 specifies how an entity
should classify and measure financial assets. The standard requires all
financial assets to be classified on the basis of the entity's business model
for managing the financial assets and the contractual cash flow characteristics
of the financial asset. These requirements improve and simplify the approach
for classification and measurement of financial assets compared with the
requirements of IAS 39.
The standard also results in one impairment method, replacing the numerous
impairment methods in IAS 39 that arise from the different classification.
Material Financial Instruments have been reviewed and it is not anticipated
that there will be a material impact on the Company's financial statements.
IFRS 15 'Revenue from Contracts with Customers' was published in May 2016 and
specifies how and when to recognise revenue as well as requiring entities to
provide users of financial statements with more informative, relevant
disclosures. The standard provides a single, principles based five-step model
to be applied to all contracts with customers. IFRS 15 is effective for annual
reporting periods beginning on or after 1 January 2018. Material revenue
streams have been reviewed and it is not anticipated that there will be a
material impact on timing of recognition or gross up for principal/agent
considerations. There will be no material impact on the Company's financial
statements.
No new accounting standards were effective or adopted during the year having an
effect on the financial statements.
d) Financial assets at fair value through profit or loss
Classification
The Company classifies its investments in debt securities and derivatives as
financial assets at fair value through profit or loss.
This category has two sub-categories: financial assets or financial liabilities
held for trading; and those designated at fair value through profit or loss at
inception.
(i) Financial assets and liabilities held for trading
A financial asset or financial liability is classified as held for trading if
it is acquired or incurred principally for the purpose of selling or
repurchasing in the near term or if on initial recognition is part of a
portfolio of identifiable financial investments that are managed together and
for which there is evidence of a recent actual pattern of short-term profit
taking. Derivatives are categorised as held for trading. The Company does not
classify any derivatives as hedges in a hedging relationship.
(ii) Financial assets and financial liabilities designated at fair value
through profit or loss: Financial assets and financial liabilities designated
at fair value through profit or loss at inception are financial instruments
that are not classified as held for trading but are managed, and their
performance is evaluated on a fair value basis in accordance with the Company's
documented investment strategy.
The Company's policy requires the Portfolio Manager and the Board of Directors
to evaluate the information about these financial assets and liabilities on a
fair value basis together with other related financial information.
Recognition, derecognition and measurement
Regular purchases and sales of investments are recognised on the trade date -
the date on which the Company commits to purchase or sell the investment.
Financial assets and financial liabilities at fair value through profit or loss
are initially recognised at fair value. Transaction costs are expensed as
incurred in the Statement of Comprehensive Income. Financial assets are
derecognised when the rights to receive cash flows from the investments have
expired or the Company has transferred substantially all risks and rewards of
ownership.
Investments in Asset Backed Securities are the purchase of an interest in pools
of loans. The investment characteristics of Asset Backed Securities are such
that principal payments are made more frequently than traditional debt
securities. The principal may be repaid at any time because the underlying debt
or other assets generally may be repaid at any time.
The Company records these principal repayments as they arise and realises a
gain or loss in the net gains on financial assets at fair value through profit
or loss in the Statement of Comprehensive Income in the period in which they
occur.
The interest income arising on these securities is recognised within income in
the Statement of Comprehensive Income.
Fair value estimation
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. Investments in Asset Backed Securities are fair valued in
accordance with either i) or ii) below and the change in fair value, if any, is
recorded as net gains/(losses) on financial assets/(liabilities) at fair value
through profit or loss in the Statement of Comprehensive Income.
i) Asset Backed Securities traded or dealt on an active market or exchange.
Asset Backed Securities that are traded or dealt on an active market or
exchange are valued by reference to their quoted mid-market price as at the
close of trading on the reporting date as management deem the mid-market price
to be a reasonable approximation of an exit price.
ii) Asset Backed Securities not traded or dealt on an active market or
exchange.
Asset Backed Securities which are not traded or dealt on active markets or
exchanges are valued by reference to their price, as at the close of business
on the reporting date as determined by an independent price vendor. If a price
cannot be obtained from an independent price vendor, or where the Portfolio
Manager determines that the provided price is not an accurate representation of
the fair value of the Asset Backed Security, the Portfolio Manager will source
prices at the close of business on the reporting date from third party broker/
dealer quotes for the relevant security.
In cases where no third party price is available (either from an independent
price vendor or third party broker/dealer quotes), or where the Portfolio
Manager determines that the provided price is not an accurate representation of
the fair value of the Asset Backed Security, the Portfolio Manager will
determine the valuation based on the Portfolio Manager's valuation policy. This
may include the use of a comparable arm's length transaction, reference to
other securities that are substantially the same, discounted cash flow analysis
and other valuation techniques commonly used by market participants making the
maximum use of market inputs and relying as little as possible on
entity-specific inputs.
Forward foreign currency contracts
Forward foreign currency contracts are derivative contracts and as such are
recognised at fair value on the date on which they are entered into and
subsequently measured at their fair value. Fair value is determined by rates in
active currency markets. All forward foreign currency contracts are carried as
assets when fair value is positive and as liabilities when fair value is
negative. Gains and losses on forward currency contracts are recognised as part
of net foreign currency gains in the Statement of Comprehensive Income.
Impairment
Financial assets that are stated at cost or amortised cost are reviewed at each
reporting date to determine whether there is objective evidence of impairment.
If any such indication exists, an impairment loss is recognised in the
Statement of Comprehensive Income as the difference between the asset's
carrying amount and the present value of estimated future cash flows discounted
at the financial asset's effective interest rate.
e) Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the
Statement of Financial Position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. f) Amounts due from and due to brokers Amounts due from and to brokers represent receivables for securities sold and payables for securities purchased that have been contracted for but not yet settled or delivered on the statement of financial position date respectively. These amounts are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. g) Income Interest income is recognised on a time-proportionate basis using the effective interest method. Discounts received or premiums paid in connection with the acquisition of Asset Backed Securities are amortised into interest income using the effective interest method over the estimated life of the related security. The effective interest rate method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts throughout the expected life of the financial instrument, or, when appropriate (see note 3(ii)(b)), a shorter period, to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Company estimates cash flows considering the expected life of the financial instrument but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate and all other premiums or discounts. h) Cash and cash equivalents Cash and cash equivalents comprises cash in hand and deposits held at call with banks and other short-term investments in an active market with original maturities of three months or less and bank overdrafts. Bank overdrafts are shown in current liabilities in the Statement of Financial Position. i) Share capital As there are only Ordinary Redeemable Shares in issue, which are redeemable at the discretion of the Board, the shares are presented as equity in accordance with IAS 32 - "Financial Instruments: Disclosure and Presentation". Incremental costs directly attributable to the issue of ordinary redeemable shares are shown in equity as a deduction, net of tax, from the proceeds and disclosed in the Statement of Changes in Equity. j) Foreign currency translation Functional and presentation currency Items included in the financial statements are measured using Sterling, the currency of the primary economic environment in which the Company operates (the "functional currency"). The Financial Statements are presented in Sterling, which is the Company's presentation currency. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign currency assets and liabilities are translated into the functional currency using the exchange rate prevailing at the statement of financial position date. Foreign exchange gains and losses relating to the financial assets and liabilities carried at fair value through profit or loss are presented in the Statement of Comprehensive Income. k) Transaction costs Transaction costs on financial assets at fair value through profit or loss include fees and commissions paid to agents, advisers, brokers and dealers. Transaction costs, when incurred, are immediately recognised in the Statement of Comprehensive Income. l) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board. The Directors are of the opinion that the Company is engaged in a single segment of business, being investments in Asset Backed Securities. The Directors manage the business in this way. Additional information can be found in note 18. m) Expenses All expenses are included in the Statement of Comprehensive Income on an accruals basis. Expenses incurred on the acquisition of investments at fair value through profit or loss are charged to the Statement of Comprehensive Income. All other expenses are recognised through profit or loss in the Statement of Comprehensive Income. n) Other receivables Other receivables are amounts due in the ordinary course of business. If collection is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets. Other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. o) Other payables Other payables are obligations to pay for services that have been acquired in the ordinary course of business. Other payables are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. p) Dividend distribution Dividend distribution to the Company's shareholders is recognised as a liability in the Company's financial statements and disclosed in the Statement of Changes in Equity in the period in which the dividends are approved by the Board. q) Income equalisation on new issues In order to ensure there are no dilutive effects on earnings per share for current shareholders when issuing new shares, a transfer is made between share capital and income to reflect that amount of income included in the purchase price of the new shares. r) Treasury Shares The Company has the right to issue and purchase up to 14.99% of the total number of its own shares, as disclosed in note 12. Shares held in Treasury are excluded from calculations when determining Earnings/(loss) per Ordinary Redeemable Share or Net Asset Value per Ordinary Redeemable Share as detailed in notes 4 and 6. 3. Significant accounting judgements, estimates and assumptions The preparation of the Company's Financial Statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the accompanying disclosures. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. (i) Judgements In the process of applying the Company's accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the Financial Statements: Functional currency As disclosed in note 2(j), the Company's functional currency is Sterling. Sterling is the currency in which the Company measures its performance and reports its results, as well as the currency in which it receives subscriptions from its investors. Dividends are also paid to its investors in Sterling. The Directors believe that Sterling best represents the functional currency. (ii) Estimates and assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Company based its assumptions and estimates on parameters available when the Financial Statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising which are beyond the control of the Company. Such changes are reflected in the assumptions when they occur. (a) Fair value of securities not quoted in an active markets The Company carries its investments in Asset Backed Securities at fair value, with changes in value being recognised in the Statement of Comprehensive Income. In cases where prices of Asset Backed Securities are not quoted in an active market, the Portfolio Manager will obtain prices determined at the close of business on the reporting date from an independent price vendor. The Portfolio Manager exercises its judgement on the quality of the independent price vendor and information provided. If a price cannot be obtained from an independent price vendor or where the Portfolio Manager determines that the provided price is not an accurate representation of the fair value of the Asset Backed Security, the Portfolio Manager will source prices from third party broker or dealer quotes for the relevant security. Where no third party price is available, or where the Portfolio Manager determines that the third party quote is not an accurate representation of the fair value, the Portfolio Manager will determine the valuation based on the Portfolio Manager's valuation policy. This may include the use of a comparable arm's length transaction, reference to other securities that are substantially the same, discounted cash flow analysis and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity-specific inputs. (b) Estimated life of Asset Backed Securities In determining the estimated life of the Asset Backed Securities held by the Company, the Portfolio Manager estimates the remaining life of the security with respect to expected prepayment rates, default rates and loss rates together with other information available in the market underlying the
security. The estimated life of the Asset Backed Securities as determined by
the Portfolio Manager, impacts the effective interest rate of the Asset Backed
Securities which in turn impacts the calculation of income as discussed in note
2(g).
(c) Determination of observable inputs
In note 17, Fair Value Measurement, when determining the levels of investments
within the fair value hierarchy, the determination of what constitutes
'observable' requires significant
judgement by the Company. The Company considers observable data to be market
data that is readily available, regularly distributed or updated, reliable and
verifiable, not proprietary, and provided by independent sources that are
actively involved in the relevant market.
4. Earnings per Ordinary Redeemable Share - Basic & Diluted
The earnings per Ordinary Redeemable Share - Basic and Diluted has been
calculated based on the weighted average number of Ordinary Redeemable Shares
of 395,814,151 (31 March 2017: 364,078,267) and a net gain of GBP45,068,491 (31
March 2017: net gain of GBP55,243,644).
5. Income equalisation on new issues
In order to ensure there are no dilutive effects on earnings per share for
current shareholders when issuing new shares, earnings are calculated in
respect of accrued income at the time of purchase and a transfer is made from
share capital to income to reflect this. The transfer for the year is GBPNil as
there were no share issues (31 March 2017: GBP728,463).
6. Net Asset Value per Ordinary Redeemable Share
The net asset value of each Share of GBP1.19 (31 March 2017: GBP1.14) is determined
by dividing the net assets of the Company attributed to the Shares of GBP
470,013,131 (31 March 2017: GBP452,612,049) by the number of Shares in issue at
31 March 2018 of 395,814,151 (31 March 2017: 395,814,151).
7. Taxation
The Company has been granted Exempt Status under the terms of The Income Tax
(Exempt Bodies) (Guernsey) Ordinance, 1989 to income tax in Guernsey. Its
liability for Guernsey taxation is limited to an annual fee of GBP1,200 (2017: GBP
1,200).
8. Net foreign currency losses
01.04.17 to 31.03.18 01.04.16 to
31.03.17
GBP GBP
Movement on unrealised (loss)/gain on forward currency (76,997) 9,816,835
contracts
Realised loss on foreign currency (5,577,904) (24,122,732)
contracts
Unrealised foreign currency (loss)/gain on receivables/ (117,892) 168,631
payables
Unrealised foreign currency exchange loss on interest (885) (58,778)
receivable
(5,773,678) (14,196,044)
9. Investments
01.04.17 to 01.04.16 to
31.03.18 31.03.17
Financial assets at fair value through profit or loss: GBP GBP
Unlisted Investments:
Opening book cost 400,893,973 339,411,981
Purchases at 376,649,889 316,045,880
cost
Proceeds on sale/principal repayment (383,727,152) (277,600,058)
Amortisation adjustment under effective interest rate 9,424,396 10,247,547
method
Realised gains on sale/principal 33,089,087 21,558,885
repayment
Realised losses on sale/principal (1,913,419) (8,770,262)
repayment
Closing book 434,416,774 400,893,973
cost
Unrealised gains on investments 24,351,361 31,105,493
Unrealised losses on investments (1,436,118) (2,600,398)
Fair value 457,332,017 429,399,068
01.04.17 to 01.04.16 to
31.03.18 31.03.17
GBP GBP
Realised gains on sale/principal 33,089,087 21,558,885
repayment
Realised losses on sales/principal repayment (1,913,419) (8,770,262)
Movement in unrealised gains (6,754,132) 23,119,798
Movement in unrealised losses 1,164,280 11,450,154
Net gains on financial assets at fair value through profit 25,585,816 47,358,575
or loss
10. Other receivables
As at As at
31.03.18 31.03.17
GBP GBP
Coupon interest receivable 2,825,071 3,174,960
Prepaid expenses 19,612 2,544
2,844,683 3,177,504
11. Other payables
As at As at
31.03.18 31.03.17
GBP GBP
Portfolio management fees payable 546,666 284,428
Custody fee payable 2,957 2,424
Administration and secretarial fees 60,044 58,314
payable
Directors' fee payable 31,875 31,526
Audit fee payable 55,000 51,700
AIFM management fee payable 35,991 36,751
Depositary fees 5,257 5,413
payable
General expenses payable 29,627 110,087
767,417 580,643
1. Share Capital
Authorised Share Capital
Unlimited number of Ordinary Redeemable Shares at no par value.
Issued Share Capital
As at As at
31.03.18 31.03.17
GBP GBP
Ordinary Redeemable Shares
Share Capital at the beginning of the 407,509,059 327,589,440
year
Issued Share Capital - 81,941,170
Share issue costs - (1,293,088)
Shares issued for repurchase - 43,083,300
Purchase of own shares to hold in - (43,083,300)
treasury
Income equalisation on new issues - (728,463)
Total Share Capital at the end of the 407,509,059 407,509,059
year
As at As at
31.03.18 31.03.17
Shares Shares
Ordinary Redeemable Shares
Shares at the beginning of the year 395,814,151 321,420,417
Issue of Shares - 74,393,734
Shares issued for repurchase - 39,000,000
Repurchase of own shares to hold - (39,000,000)
in treasury
Total Shares in issue at the end of the year 395,814,151 395,814,151
As at As at
31.03.18 31.03.17
Shares Shares
Treasury Shares
Treasury shares at the beginning of the year 39,000,000 -
Purchased shares - 39,000,000
Total Shares in issue at the end of 39,000,000 39,000,000
the year
The Share Capital of the Company consists of an unlimited number of Shares with
or without par value which, upon issue, the Directors may designate as:
Ordinary Redeemable Shares; Realisation Shares or such other class as the Board
shall determine and denominated in such currencies as shall be determined at
the discretion of the Board.
As at 31 March 2018, one share class has been issued, being the Ordinary
Redeemable Shares of the Company.
The Ordinary Redeemable Shares carry the following rights:
a) the Ordinary Redeemable Shares carry the right to receive all income of the
Company attributable to the Ordinary Redeemable Shares.
b) the Shareholders present in person or by proxy or present by a duly
authorised representative at a general meeting has, on a show of hands, one
vote and, on a poll, one vote for each Share held.
c) 56 days before the annual general meeting date of the Company in each third
year (the "Reorganisation Date"), the Shareholders are entitled to serve a
written notice (a "Realisation Election") requesting that all or a part of the
Ordinary Redeemable Shares held by them be redesignated to Realisation Shares,
subject to the aggregate NAV of the continuing Ordinary Redeemable Shares on
the last business day before the Reorganisation Date being not less than GBP100
million. A Realisation Notice, once given is irrevocable unless the Board
agrees otherwise. If one or more Realisation Elections be duly made and the
aggregate NAV of the continuing Ordinary Redeemable Shares on the last business
day before the Reorganisation Date is less than GBP100 million, the Realisation
will not take place. Shareholders do not have a right to have their shares
redeemed and shares are redeemable at the discretion of the Board. The next
realisation opportunity is due to occur at the end of the next three year term,
at the date of the AGM in September 2019.
The Company has the right to issue and purchase up to 14.99% of the total
number of its own shares at GBP0.01 each, to be classed as Treasury Shares and
may cancel those Shares or hold any such Shares as Treasury Shares, provided
that the number of Shares held as Treasury Shares shall not at any time exceed
10% of the total number of Shares of that class in issue at that time or such
amount as provided in the Companies Law.
On 24 January 2017, the Company issued and purchased 39,000,000 Ordinary Shares
of GBP0.01 at a price of 110.47p, to be held in treasury. The total amount paid
to purchase these shares was GBP43,083,300 and has been deducted from the
shareholders' equity. The Company has the right to re-issue these shares at a
later date. All shares issued were fully paid.
Shares held in Treasury are excluded from calculations when determining
Earnings per Ordinary Redeemable Share or Net Asset Value per Ordinary
Redeemable Share, as detailed in notes 4 and 6.
13. Analysis of Financial Assets and Liabilities by Measurement Basis
Assets at
fair
value through Loans and
profit and receivables Total
loss
GBP GBP GBP
31 March 2018
Financial Assets as per Statement of Financial
Position
Financial assets at fair value through profit or
loss:
- Investments 457,332,017 - 457,332,017
- Derivative assets: Forward currency contracts 4,135,400 - 4,135,400
Amounts due from broker - 2,607,294 2,607,294
Other receivables (excluding prepayments) - 2,825,071 2,825,071
Cash and cash - 11,624,245 11,624,245
equivalents
461,467,417 17,056,610 478,524,027
Liabilities Other
at fair
value through financial
profit and liabilities Total
loss
GBP GBP GBP
Financial Liabilities as per Statement of
Financial Position
Financial liabilities at fair value through
profit or loss:
- Derivative liabilities: Forward currency 202,337 - 202,337
contracts
Amounts due to brokers - 7,560,754 7,560,754
Other payables - 767,417 767,417
202,337 8,328,171 8,530,508
Assets at
fair
value through Loans and
profit and receivables Total
loss
GBP GBP GBP
31 March 2017
Financial Assets as per Statement of Financial
Position
Financial assets at fair value through profit or
loss:
- Investments 429,399,068 - 429,399,068
- Derivative assets: Forward currency contracts 4,173,555 - 4,173,555
Amounts due from - 6,117,241 6,117,241
broker
Other receivables (excluding prepayments) - 3,174,960 3,174,960
Cash and cash - 24,561,068 24,561,068
equivalents
433,572,623 33,853,269 467,425,892
Liabilities Other
at fair
value through financial
profit and liabilities Total
loss
GBP GBP GBP
Financial Liabilities as per Statement of
Financial Position
Financial liabilities at fair value through
profit or loss:
- Derivative liabilities: Forward currency 163,495 - 163,495
contracts
Amounts due to - 14,072,249 14,072,249
brokers
Other payables - 580,643 580,643
163,495 14,652,892 14,816,387
14. Related Parties
a) Directors' Remuneration & Expenses
The Directors of the Company are remunerated for their services at such a rate
as the Directors determine. The aggregate fees of the Directors will not exceed
GBP150,000.
The annual Directors' fees comprise GBP35,000 payable to Mr Ash, the Chairman, GBP
32,500 to Mr Burns as Chairman of the Audit Committee and GBP30,000 to Mr Burwood
and Ms Etherden for the year ended 31 March 2018. During the year ended 31
March 2018, Directors fees of GBP127,500 (31 March 2017: GBP127,151) were charged
to the Company, of which GBP31,875 (31 March 2017: GBP31,526) remained payable at
the end of the year.
b) Shares held by related parties
As at 31 March 2018, Directors of the Company held the following shares
beneficially:
Number of Number of
Shares Shares
31.03.18 31.03.17
Trevor Ash 50,000 50,000
Ian Burns 29,242 29,242
Richard Burwood 5,000 5,000
Jeannette Etherden 25,000 25,000
As at 31 March 2018, the Portfolio Manager held Nil Shares (31 March 2017: Nil
Shares) and partners and employees of the Portfolio Manager held 1,689,670
Shares (31 March 2017: 1,266,377 Shares), which is 0.43% (31 March 2017: 0.32%)
of the Issued Share Capital.
c) Portfolio Manager
The portfolio management fee is payable to the Portfolio Manager, TwentyFour
Asset Management LLP, monthly in arrears at a rate of 0.75% per annum of the
lower of Net Asset Value, which is calculated weekly on each valuation day, or
market capitalisation of each class of shares. Total portfolio management fees
for the year amounted to GBP3,425,378 (31 March 2017: GBP2,984,744) of which GBP
546,666 (31 March 2017: GBP284,428) is due and payable at the period end. The
Portfolio Management Agreement dated 29 May 2014 remains in force until
determined by the Company or the Portfolio Manager giving the other party not
less than twelve months' notice in writing. Under certain circumstances, the
Company or the Portfolio Manager is entitled to immediately terminate the
agreement in writing.
The Portfolio Manager is also entitled to a commission of 0.15% of the
aggregate gross offering proceeds plus any applicable VAT in relation to any
issue of new Shares, following admission, in consideration of marketing
services that it provides to the Company. During the year, the Portfolio
Manager received GBPNil (31 March 2017: GBP140,699) in commission.
15. Material Agreements
a) Alternative Investment Fund Manager
The Company's Alternative Investment Fund Manager (the "AIFM") is Maitland
Institutional Services Limited. In consideration for the services provided by
the AIFM under the AIFM Agreement the AIFM is entitled to receive from the
Company a minimum fee of GBP20,000 per annum and fees payable quarterly in
arrears at a rate of 0.07% of the Net Asset Value of the Company below GBP50
million, 0.05% on Net Assets between GBP50 million and GBP100 million and 0.03% on
Net Assets in excess of GBP100 million. During the year ended 31 March 2018, AIFM
fees of GBP166,851 (31 March 2017: GBP150,719) were charged to the Company, of
which GBP35,991 (31 March 2017: GBP36,751) remained payable at the end of the year.
b) Administrator and Secretary
Administration fees are payable to Northern Trust International Fund
Administration Services (Guernsey) Limited monthly in arrears at a rate of
0.06% of the Net Asset Value of the Company below GBP100 million, 0.05% on Net
Assets between GBP100 million and GBP200 million and 0.04% on Net Assets in excess
of GBP200 million as at the last business day of the month subject to a minimum GBP
75,000 each year. In addition, an annual fee of GBP25,000 will be charged for
corporate governance and company secretarial services. Total administration and
secretarial fees for the year amounted to GBP237,384 (31 March 2017: GBP214,152) of
which GBP60,044 (31 March 2017: GBP58,314) is due and payable at the year end.
c) Depositary
Depositary fees are payable to Northern Trust (Guernsey) Limited, monthly in
arrears, at a rate of 0.0175% of the Net Asset Value of the Company up to GBP100
million, 0.0150% on Net Assets between GBP100 million and GBP200 million and
0.0125% on Net Assets in excess of GBP200 million as at the last business day of
the month subject to a minimum GBP25,000 each year. Total depositary fees and
charges for the year amounted to GBP64,549 (31 March 2017: GBP57,277) of which GBP
5,257 (31 March 2017: GBP5,413) is due and payable at the year end.
The Depositary is also entitled to a Global Custody fee of a minimum of GBP8,500
per annum plus transaction fees. Total Global Custody fees and charges for the
year amounted to GBP45,672 (31 March 2017: GBP41,021) of which GBP2,957 (31 March
2017: GBP2,424) is due and payable at the year end.
16. Financial Risk Management
The Company's objective in managing risk is the creation and protection of
shareholder value. Risk is inherent in the Company's activities, but it is
managed through an ongoing process of identification, measurement and
monitoring.
The Company's financial instruments include investments designated at fair
value through profit or loss and cash and cash equivalents. The main risks
arising from the Company's financial instruments are market risk, credit risk
and liquidity risk. The techniques and instruments utilised for the purposes of
efficient portfolio management are those which are reasonably believed by the
Board to be economically appropriate to the efficient management of the
Company.
Market risk
Market risk embodies the potential for both losses and gains and includes
currency risk, interest rate risk, reinvestment risk and price risk. The
Company's strategy on the management of market risk is driven by the Company's
investment objective. The Company's investment objective is to generate
attractive risk adjusted returns principally through investment in Asset Backed
Securities.
(i) Price risk
The underlying investments comprised in the portfolio are subject to market
risk. The Company is therefore at risk that market events may affect
performance and in particular may affect the value of the Company's investments
which are valued on a mark to market basis. Market risk is risk associated with
changes in market prices or rates, including interest rates, availability of
credit, inflation rates, economic uncertainty, changes in laws, national and
international political circumstances such as the recent UK vote to leave the
EU. The Company's policy is to manage price risk by holding a diversified
portfolio of assets, through its investments in Asset Backed Securities.
The Company's policy also stipulates that no more than 5% of the Portfolio
value can be exposed to any single Asset Backed Security or issuer of Asset
Backed Securities.
The price of an Asset Backed Security can be affected by a number of factors,
including: (i) changes in the market's perception of the underlying assets
backing the security; (ii) economic and political factors such as interest
rates and levels of unemployment and taxation which can have an impact on the
arrears, foreclosures and losses incurred with respect to the pool of assets
backing the security; (iii) changes in the market's perception of the adequacy
of credit support built into the security's structure to protect against losses
caused by arrears and foreclosures; (iv) changes in the perceived
creditworthiness of the originator of the security or any other third parties
to the transaction; (v) the speed at which mortgages or loans within the pool
are repaid by the underlying borrowers (whether voluntary or due to arrears or
foreclosures).
(ii) Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates
will affect the fair value of financial assets at fair value through profit or
loss.
The tables below summarise the Company's exposure to interest rate risk:
Floating Fixed rate Non-interest Total
rate bearing
As at 31 March 2018 GBP GBP GBP GBP
Financial assets at fair 457,332,017 - - 457,332,017
value through profit or loss
Derivative assets - - 4,135,400 4,135,400
Amounts due from broker - - 2,607,294 2,607,294
Other receivables - - 2,844,683 2,844,683
Cash and cash equivalents 11,624,245 - - 11,624,245
Amounts due to broker - - (7,560,754) (7,560,754)
Other payables - - (767,417) (767,417)
Derivative liabilities - - (202,337) (202,337)
Net current assets 468,956,262 - 1,056,869 470,013,131
Floating Fixed rate Non-interest Total
rate bearing
As at 31 March 2018 GBP GBP GBP GBP
Financial assets at fair 429,399,068 - - 429,399,068
value through profit or loss
Derivative assets - - 4,173,555 4,173,555
Amounts due from broker - - 6,117,241 6,117,241
Other receivables - - 3,177,504 3,177,504
Cash and cash equivalents 24,561,068 - - 24,561,068
Amounts due to broker - - (14,072,249) (14,072,249)
Other payables - - (580,643) (580,643)
Derivative liabilities - - (163,495) (163,495)
Net current assets 453,960,136 - (1,348,087) 452,612,049
The Company only holds floating rate financial instruments and when short-term
interest rates increase, the interest rate on a floating rate will increase.
The time to re-fix interest rates ranges from 1 month to a maximum of 6 months
and therefore the Company has minimal interest rate risk. However the Company
may choose to utilise appropriate strategies to achieve the desired level of
interest rate exposure (the Company is permitted to use, for example, interest
rate swaps to accomplish this). The value of asset backed securities may be
affected by interest rate movements. Interest receivable on bank deposits or
payable on bank overdraft positions will be affected by fluctuations in
interest rates, however the underlying cash positions will not be affected.
The Company's continuing position in relation to interest rate risk is
monitored on a weekly basis by the Portfolio Manager as part of its review of
the weekly NAV calculations prepared by the Company's Administrator.
(iii) Foreign currency risk Foreign currency risk is the risk that the value of
a financial instrument will fluctuate due to changes in foreign exchange rates.
The Company invests predominantly in non-Sterling assets while its Shares are
denominated in Sterling, its expenses are incurred in Sterling. Therefore the
Statement of Financial Position may be significantly affected by movements in
the exchange rate between Euro and Sterling. The Company manages the exposure
to currency movements by using spot and forward foreign exchange contracts,
rolling forward on a periodic basis.
Outstanding Mark to Unrealised
contracts market gains/
equivalent (losses)
Contract
values
31.03.2018 31.03.2018 31.03.2018 31.03.2018
EUR GBP GBP GBP
Four Sterling forward foreign
currency
contracts totaling:
Settlement date 13 April 2018 322,894,014 287,255,340 283,125,370 4,129,970
Five Euro forward foreign
currency
contracts totaling:
Settlement date 13 April 2018 (17,853,633) (15,846,967) (15,654,723) (192,244)
Spot Contracts Payable (4,663)
3,933,063
Mark to Unrealised
market gains/
equivalent (losses)
Contract Outstanding
values contracts
31.03.2017 31.03.2017 31.03.2017 31.03.2017
EUR GBP GBP GBP
Two Sterling forward foreign currency
contracts
totaling:
Settlement date 25 April 2017 329,674,023 286,255,696 282,082,141 4,173,555
Three Euro forward foreign currency
contracts totaling:
Settlement date 18 April 2017 (10,625,413) (9,225,799) (9,090,178) (135,621)
Settlement date 25 April 2017 (3,017,167) (2,609,481) (2,581,607) (27,874)
4,010,060
As at 31 March 2018 and as at 31 March 2017 the Company held the following
assets and liabilities denominated in Euro:
As at As at
31.03.2018 31.03.2017
Assets: GBP GBP
Investments 271,324,285 277,225,290
Cash and cash equivalents 682,980 173,531
Other receivables 2,319,599 8,783,797
Amounts due from broker 2,607,294 6,117,241
Amounts due to broker (7,560,754) (9,088,257)
Less: Open forward currency contracts (267,470,647) (270,410,355)
1,902,757 12,801,247
The tables below summarise the sensitivity of the Company's assets and
liabilities to changes in foreign exchange movements between Euro and Sterling
at 31 March 2018 and 31 March 2017. The analysis is based on the assumption
that the relevant foreign exchange rate increased/decreased by the percentage
disclosed in the table, with all other variables held constant. This represents
management's best estimate of a reasonable possible shift in the foreign
exchange rates, having regard to historical volatility of those rates.
As at As at
31.03.2018 31.03.2017
GBP GBP
Impact on Statement of Comprehensive Income in
response to a:
- 10% increase (138,041) (65,178)
- 10% decrease 254,059 298,239
Impact on Statement of Changes in Equity in response
to a:
- 10% increase (138,041) (65,178)
- 10% decrease 254,059 298,239
(iv) Reinvestment risk
Reinvestment risk is the risk that future coupons from a bond will not be
reinvested at the prevailing interest rate when the bond was initially
purchased.
A key determinant of a bond's yield is the price at which it is purchased and,
therefore, when the market price of bonds generally increases, the yield of
bonds purchased generally decreases. As such, the overall yield of the
portfolio, and therefore the level of dividends payable to Shareholders, would
fall to the extent that the market prices of Asset Backed Securities generally
rise and the proceeds of Asset Backed Securities held by the Company that
mature or are sold are not able to be reinvested in Asset Backed Securities
with a yield comparable to that of the portfolio as a whole.
Price sensitivity analysis
The following details the Company's sensitivity to movement in market prices.
The analysis is based on a 5% increase or decrease in market prices. This
represents management's best estimate of a reasonable possible shift in market
prices, having regard to historical volatility.
At 31 March 2018, if the market prices had been 5% higher with all other
variables held constant, the increase in the net assets attributable to equity
Shareholders would have been GBP22,866,601 (31 March 2017: GBP21,469,953). An equal
change in the opposite direction would have decreased the net assets
attributable to equity Shareholders by the same amount.
Actual trading results may differ from the above sensitivity analysis and those
differences may be material.
Credit risk
Credit risk refers to the risk that a counterparty will default on its
contractual obligations resulting in financial loss to the Company. The Company
has a credit policy in place and the exposure to credit risk is monitored on an
on-going basis.
The main concentration of credit risk to which the Company is exposed arises
from the Company's investments in Asset Backed Securities. The Company is also
exposed to counterparty credit risk on forwards, cash and cash equivalents,
amounts due from brokers and other receivable balances. At the year end, one of
the Company's investments in Asset Backed Securities was impaired (31 March
2017: none).
The Company's policy to manage this risk is by no more than 20% of the
portfolio value being backed by collateral in any single country (save that
this restriction will not apply to Northern European countries). The Company
also manages this credit risk by no more than 5% of the portfolio being exposed
to any single Asset Backed Security or issuer of Asset Back Securities and no
more than 10% of the portfolio value being exposed to instruments not deemed
securities for the purposes of the Financial Services and Market Act 2000.
Portfolio of Asset Backed Securities by ratings category using the highest
rating assigned by Standard and Poor's ("S&P"), Moody's Analytics (Moody's") or
Fitch Ratings ("Fitch"):
31.03.18 31.03.17
AAA 3.31% 4.72%
AA+ 1.21% 0.00%
AA 0.81% 1.70%
AA- 1.15% 2.94%
A+ 0.69% 3.99%
A 7.38% 3.88%
A- 4.52% 4.50%
BBB+ 5.40% 6.21%
BBB 8.88% 10.37%
BBB- 3.90% 2.18%
BB+ 2.75% 0.00%
BB 14.60% 19.21%
BB- 1.98% 1.77%
B+ 4.11% 1.22%
B 22.90% 21.11%
B- 1.42% 1.38%
CCC+ 1.33% 0.00%
CCC 0.27% 0.00%
NR* 13.39% 14.82%
100.00% 100.00%
*The non-rated exposure within the Company is managed in exactly the same way
as the exposure to any other rated bond in the portfolio. A bond not rated by
any of Moody's, S&P or Fitch does not necessarily translate as poor credit
quality. Often smaller issues/tranches, or private deals which the Company
holds, won't apply for a rating due to the cost of doing so from the relevant
credit agencies. The Portfolio Managers have no credit concerns with the
unrated, or rated, bonds currently held.
To further minimise credit risk, the Portfolio Manager undertakes extensive due
diligence procedures on investments in Asset Backed Securities and monitors the
on-going investment in these securities. The Company may also use credit
default swaps to mitigate the effects of market volatility on credit risk.
The Company manages its counterparty exposure in respect of cash and cash
equivalents and forwards by investing with counterparties with a "single A" or
higher credit rating. All cash is currently placed with The Northern Trust
Company. The Company is subject to credit risk to the extent that this
institution may be unable to return this cash. The Northern Trust Company is a
wholly owned subsidiary of The Northern Trust Corporation. The Northern Trust
Corporation is publicly traded and a constituent of the S&P 500. The Northern
Trust Corporation has a credit rating of A+ from Standard & Poor's and A2 from
Moody's.
The Company's maximum credit exposure is limited to the carrying amount of
financial assets recognised as at the statement of financial position date, as
summarised below:
As at As at
31.03.18 31.03.17
GBP GBP
Investments 457,332,017 429,399,068
Cash and cash equivalents 11,624,245 24,561,068
Unrealised gains on derivative assets 4,135,400 4,173,555
Amounts due from 2,607,294 6,117,241
broker
Other receivables 2,844,683 3,177,504
478,543,639 467,428,436
Investments in Asset Backed Securities that are not backed by mortgages present
certain risks that are not presented by Mortgage-Backed Securities ("MBS").
Primarily, these securities may not have the benefit of the same security
interest in the related collateral. Therefore, there is a possibility that
recoveries on defaulted collateral may not, in some cases, be available to
support payments on these securities. The risk of investing in these types of
Asset Backed Securities is ultimately dependent upon payment of the underlying
debt by the debtor.
Liquidity risk
Liquidity risk is the risk that the Company may not be able to generate
sufficient cash resources to settle its obligations in full as they fall due or
can only do so on terms that are materially disadvantageous.
Investments made by the Company in Asset Backed Securities may be relatively
illiquid and this may limit the ability of the Company to realise its
investments. Investments in Asset Backed Securities may also have no active
market and the Company also has no redemption rights in respect of these
investments. The Company has the ability to borrow to ensure sufficient cash
flows.
The Portfolio Manager considers expected cash flows from financial assets in
assessing and managing liquidity risk, in particular its cash resources and
trade receivables. Cash flows from trade and other receivables are all
contractually due within twelve months.
The Portfolio Manager maintains a liquidity management policy to monitor the
liquidity risk of the Company.
Shareholders have no right to have their shares redeemed or repurchased by the
Company, however Shareholders may elect to realise their holdings as detailed
under note 12 and the Capital Risk Management section of this note.
Shareholders wishing to release their investment in the Company are therefore
required to dispose of their shares on the market. Therefore there is no risk
that the Company will not be able to fund redemption requests.
The tables below analyse the Company's liabilities into relevant maturity
groupings based on the maturities at the statement of financial position date.
The amounts in the table are the undiscounted net cash flows on the financial
liabilities:
Up to 1 1-6 months 6-12 months Total
month
As at 31 March GBP GBP GBP GBP
2018
Financial
liabilities
Amounts due to brokers - (7,560,754) - (7,560,754)
Unrealised loss on derivative (202,337) - - (202,337)
liabilities
Other payables (712,417) (55,000) - (767,417)
Total
(914,754) (7,615,754) - (8,530,508)
Up to 1 1-6 months 6-12 Total
month months
As at 31 March GBP GBP GBP GBP
2017
Financial
liabilities
Amounts due to brokers - (14,072,249) - (14,072,249)
Unrealised loss on (163,495) - - (163,495)
derivatives
Other payables (528,943) (51,700) - (580,643)
Total (692,438) -
(14,123,949) (14,816,387)
Capital risk management
The Company manages its capital to ensure that it is able to continue as a
going concern while following the Company's stated investment policy. The
capital structure of the Company consists of Shareholders' equity, which
comprises share capital and other reserves. To maintain or adjust the capital
structure, the Company may return capital to Shareholders or issue new Shares.
There are no regulatory requirements to return capital to Shareholders.
(i) Share buybacks
The Company has been granted the authority to make market purchases of up to a
maximum of 14.99% of the aggregate number of Ordinary Redeemable Shares in
issue immediately following Admission at a price not exceeding the higher of
(i) 5% above the average of the mid-market values of the Ordinary Redeemable
Shares for the 5 business days before the purchase is made or, (ii) the higher
of the price of the last independent trade and the highest current investment
bid for the Ordinary Redeemable Shares.
In deciding whether to make any such purchases the Directors will have regard
to what they believe to be in the best interests of Shareholders as a whole, to
the applicable legal requirements and any other requirements in its Articles.
The making and timing of any buybacks will be at the absolute discretion of the
Board and not at the option of the Shareholders, and is expressly subject to
the Company having sufficient surplus cash resources available (excluding
borrowed moneys). The Listing Rules prohibit the Company from conducting any
share buybacks during close periods immediately preceding the publication of
annual and interim results.
(ii) Realisation opportunity
The realisation opportunity shall be at the annual general meeting of the
Company in each third year, with the next realisation opportunity being in
2019, subject to the aggregate NAV of the continuing Ordinary Redeemable Shares
on the last Business Day before Reorganisation being not less than GBP100
million.
It is anticipated that realisations will be satisfied by the assets underlying
the relevant shares being managed on a realisation basis, which is intended to
generate cash for distribution as soon as practicable and may ultimately
generate cash which is less than the published NAV per Realisation Share.
In the event that the Realisation takes place, it is anticipated that the
ability of the Company to make returns of cash to the holders of Realisation
Shares will depend in part on the ability of the Portfolio Manager to realise
the portfolio.
(iii) Continuation votes
In the event that the Company does not meet the dividend target in any
financial reporting period as disclosed in note 19, the Directors may convene a
general meeting of the Company where the Directors will propose a resolution
that the Company should continue as an Investment Company.
17. Fair Value Measurement
All assets and liabilities are carried at fair value or at carrying value which
equates to fair value.
IFRS 13 requires the Company to classify fair value measurements using a fair
value hierarchy that reflects the significance of the inputs used in making the
measurements. The fair value hierarchy has the following levels:
(i) Quoted prices (unadjusted) in active markets for identical assets or
liabilities (level 1).
(ii) Inputs other than quoted prices included within level 1 that are
observable for the asset or liability, either directly (that is, as prices) or
indirectly (that is, derived from prices including interest rates, yield
curves, volatilities, prepayment speeds, credit risks and default rates) or
other market corroborated inputs (level 2).
(iii) Inputs for the asset or liability that are not based on observable market
data (that is, unobservable inputs) (level 3).
The following tables analyse within the fair value hierarchy the Company's
financial assets and liabilities (by class) measured at fair value for the
period and year ended 31 March 2018 and 31 March 2017.
Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Assets
Financial assets at fair
value through profit or
loss:
Asset Backed Securities:
Auto Loans - 7,478,778 - 7,478,778
Buy-to-Let RMBS - 37,148,081 11,415,545 48,563,626
CMBS - 4,376,846 - 4,376,846
Consumer ABS - 44,719,647 4,624,151 49,343,798
Leveraged Loan CLO - 137,037,519 26,925,077 163,962,596
Non-Conforming RMBS - 88,225,309 56,869,802 145,095,111
Prime RMBS - 7,930,225 27,739,640 35,669,865
Student Loans - 1,235,651 1,605,746 2,841,397
Forward currency contracts - 4,135,400 - 4,135,400
Total assets as at 31 March 2018 - 332,287,456 129,179,961 461,467,417
Liabilities
Financial liabilities
at fair value through
profit or loss:
Forward currency contracts - 202,337 - 202,337
Total liabilities as at 31 March
2018 - 202,337 - 202,337
Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Assets
Financial assets at fair
value through profit or
loss:
Asset Backed Securities:
Buy-to-Let RMBS - 26,151,150 3,521,770 29,672,920
CMBS - 6,380,449 - 6,380,449
Consumer ABS - 17,381,807 19,375,719 36,757,526
Leveraged Loan CLO - 142,981,296 11,236,233 154,217,529
Non-Conforming RMBS - 115,564,375 3,800,826 119,365,201
Prime RMBS - 80,760,181 1,411,834 82,172,015
Student Loans - 833,428 - 833,428
Forward currency contracts - 4,173,555 - 4,173,555
Total assets as at 31 March 2017 - 394,226,241 39,346,382 433,572,623
Liabilities
Financial liabilities at
fair value through profit or
loss:
Forward currency contracts - 163,495 - 163,495
Total liabilities as at 31 March - 163,495 - 163,495
2017
Asset Backed Securities which have a value based on quoted market prices in
active markets are classified in level 1. At the end of the year, no Asset
Backed Securities held by the Company are classified as level 1.
Asset Backed Securities which are not traded or dealt on organised markets or
exchanges are classified in level 2 or level 3. Asset Backed securities priced
at cost are classified as level 3. Asset Backed securities with prices obtained
from independent price vendors, where the Portfolio Manager is able to assess
whether the observable inputs used for their modelling of prices is accurate
and the Portfolio Manager has the ability to challenge these vendors with
further observable inputs, are classified as level 2. Prices obtained from
vendors who are not easily challengeable or transparent in showing their
assumptions for the method of pricing these assets, are classified as level 3.
Asset Backed Securities priced at an average of two vendors' prices are
classified as level 3.
Where the Portfolio Manager determines that the price obtained from an
independent price vendor is not an accurate representation of the fair value of
the Asset Backed Security, the Portfolio Manager may source prices from third
party broker or dealer quotes and if the price represents a reliable and an
observable price, the Asset Backed Security is classified in level 2. Any
broker quote that is over 20 days old is considered stale and is classified as
level 3.
There were no transfers between level 1 and 2 during the year, however
transfers between level 2 and level 3 occur based on the Portfolio Manager's
ability to obtain a reliable and observable price as detailed above.
Due to the inputs into the valuation of Asset Backed Securities classified as
level 3 not being available or visible to the Company, no meaningful
sensitivity on inputs can be performed.
The following tables present the movement in level 3 instruments for the years
ended 31 March 2018 and 31 March 2017 by class of financial instrument.
Opening Net Net realised Net Transfer Transfer out Closing
balance Purchases gain/(loss) unrealised into Level Level 3 balance
/(sales) for the year (gain/(loss) 3
included in for the
the Statement period
of included in
Comprehensive the Statement
Income for of
level 3 Comprehensive
Investments Income for
held at 31 level 3
March 2018 Investments
held at 31
March 2018
GBP GBP GBP GBP GBP GBP GBP
Buy-to-Let 3,521,770 7,721,719 89,305 82,751 - - 11,415,545
RMBS
Consumer ABS 19,375,719 (7,371,112) 955,419 (179,095) - (8,156,780) 4,624,151
Leveraged Loan 11,236,233 11,744,605 1,105,869 340,083 9,539,914 (7,041,627) 26,925,077
CLO
Non-Conforming 3,800,826 36,741,849 (114,809) 1,154,226 19,088,536 (3,800,826) 56,869,802
RMBS
Prime RMBS 1,411,834 (2,295,001) 540,318 1,808,040 27,686,283 (1,411,834) 27,739,640
Student Loans - 1,553,260 17,700 34,786 - - 1,605,746
Total at 31 39,346,382 48,095,320 2,593,802 3,240,791 56,314,733 (20,411,067) 129,179,961
March 2018
Opening Net Net realised Net Transfer Transfer out Closing
balance Purchases gain/(loss) unrealised into Level Level 3 balance
/(sales) for the year gain/(loss) 3
included in for the year
the Statement included in
of the Statement
Comprehensive of
Income for Comprehensive
level 3 Income for
Investments level 3
held at 31 Investments
March 2017 held at 31
March 2017
GBP GBP GBP GBP GBP GBP GBP
Buy-to-Let - (2,017,018) 67,152 (8,113) 5,479,749 - 3,521,770
RMBS
CMBS - (973,931) (10,542) 24,400 960,073 - -
Consumer ABS - 19,165,711 8,746 201,262 - - 19,375,719
Leases - (8,154,565) 1,215,073 90,413 6,849,079 - -
Leveraged Loan 25,025,496 (60,120,439) 9,286,434 1,872,148 52,848,703 (17,676,109) 11,236,233
CLO
Non-Conforming - (21,409,645) 2,301,681 141,765 22,767,025 - 3,800,826
RMBS
Peripheral 1,786,704 (13,318,258) 1,434,630 (360,192) 10,457,116 - -
RMBS
Prime RMBS 2,263,309 1,047,225 367,356 (2,746) - (2,263,310) 1,411,834
Total at 31 29,075,509 (85,780,920) 14,670,530 1,958,937 99,361,745 (19,939,419) 39,346,382
March 2017
The following tables analyse within the fair value hierarchy the Company's
assets and liabilities not measured at fair value at 31 March 2018 and 31 March
2017 but for which fair value is disclosed.
Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Assets
Cash and cash equivalents 11,624,245 - - 11,624,245
Amounts due from broker - 2,607,294 - 2,607,294
Other receivables - 2,844,683 - 2,844,683
Total assets as at 31 March 2018 11,624,245 5,451,977 - 17,076,222
Liabilities
Amounts due to brokers - 7,560,754 - 7,560,754
Other payables - 767,417 - 767,417
Total liabilities as at 31 March 2018 - 8,328,171 - 8,328,171
Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Assets
Cash and cash equivalents 24,561,068 - - 24,561,068
Amounts due from broker - 6,117,241 - 6,117,241
Other receivables - 3,177,504 - 3,177,504
Total assets as at 31 March 2017 24,561,068 9,294,745 - 33,855,813
Liabilities
Amounts due to brokers - 14,072,249 - 14,072,249
Other payables - 580,643 - 580,643
Total liabilities as at 31 March 2017 - 14,652,892 - 14,652,892
The assets and liabilities included in the above table are carried at amortised
cost; their carrying values are a reasonable approximation of fair value.
Cash and cash equivalents include cash in hand and deposits held with banks.
Amounts due to brokers and other payables represent the contractual amounts and
obligations due by the Company for settlement of trades and expenses. Amounts
due from brokers and other receivables represent the contractual amounts and
rights due to the Company for settlement of trades and income.
18. Segmental Reporting
The Board is responsible for reviewing the Company's entire portfolio and
considers the business to have a single operating segment. The Board's asset
allocation decisions are based on a single, integrated investment strategy, and
the Company's performance is evaluated on an overall basis.
The Company invests in a diversified portfolio of Asset Backed Securities. The
fair value of the major financial instruments held by the Company and the
equivalent percentages of the total value of the Company, are reported in the
Top Twenty Holdings, included within the Directors' Report.
Revenue earned is reported separately on the face of the Statement of
Comprehensive Income as investment income being interest income received from
Asset Backed Securities.
19. Dividend Policy
The Board intends to distribute an amount at least equal to the value of the
Company's net income arising each quarter to the holders of Ordinary Redeemable
Shares. For these purposes, the Company's income will include the interest
payable by the Asset Backed Securities in the Portfolio and the amortisation of
any discount or premium to par at which an Asset Backed Security is purchased
over its remaining expected life, prior to its maturity, however there is no
guarantee that the dividend target for future financial years will be met or
that the Company will make any distributions at all.
Distributions made with respect to any income period comprise (a) the accrued
income of the portfolio for the period, and (b) an additional amount to reflect
any income purchased in the course of any share subscriptions that took place
during the period. Including purchased income in this way ensures that the
income yield of the shares is not diluted as a consequence of the issue of new
shares during an income period and (c) any income on the foreign exchange
contracts created by the LIBOR differentials between each foreign currency
pair.
The Board expects that dividends will constitute the principal element of the
return to the holders of Ordinary Redeemable Shares.
The Company declared the following dividends in respect of distributable profit
for the year ended 31 March 2018:
Period to Dividend Net Record date Ex-dividend Pay date
rate per dividend date
Share payable (GBP)
(pence)
30 June 2017 0.0150 5,937,212 21 July 2017 20 July 2017 31 July 2017
29 September 0.0150 5,937,212 20 October 19 October 2017 31 October
2017 2017 2017
29 December 2017 0.0150 5,937,212 18 January 19 January 2018 31 January
2018 2018
31 March 2018 0.0273 10,805,726 19 April 2018 20 April 2018 30 April 2018
Under the Companies (Guernsey) Law, 2008, the Company can distribute dividends
from capital and revenue reserves, subject to the net asset and solvency test.
The net asset and solvency test considers whether a company is able to pay its
debts when they fall due, and whether the value of a company's assets is
greater than its liabilities. The Board confirms that the Company passed the
net asset and solvency test for each dividend paid.
20. Ultimate Controlling Party
In the opinion of the Directors on the basis of shareholdings advised to them,
the Company has no ultimate controlling party.
21. Subsequent Events
These Financial Statements were approved for issuance by the Board on 3 July
2018. Subsequent events have been evaluated until this date.
On 30 April 2018, the Company paid a dividend as detailed in note 19.
CORPORATE INFORMATION
Directors Custodian, Principal Banker and
Trevor Ash (Chairman) Depositary
Ian Burns (Senior Independent Director) Northern Trust (Guernsey) Limited
Richard Burwood PO Box 71
Jeannette Etherden Trafalgar Court
Les Banques
St Peter Port
Guernsey, GY1 3DA
Registered Office Administrator and Company Secretary
PO Box 255 Northern Trust International Fund
Trafalgar Court Administration
Les Banques Services (Guernsey) Limited
St Peter Port PO Box 255
Guernsey, GY1 3QL Trafalgar Court
Les Banques
St Peter Port
Guernsey, GY1 3QL
Alternative Investment Fund Manager Broker and Financial Adviser
("AIFM") Numis Securities Limited
Maitland Institutional Services Limited The London Stock Exchange Building
Springfield Lodge 10 Paternoster Square
Colchester Road London, EC4M 7LT
Chelmsford, CM2 5PW
Portfolio Manager Independent Auditor
TwentyFour Asset Management LLP PricewaterhouseCoopers CI LLP
8th Floor, The Monument Building PO Box 321
11 Monument Street, Royal Bank Place
London, EC3R 8AF 1 Glategny Esplanade
St Peter Port
Guernsey, GY1 4ND
UK Legal Advisers to the Company Receiving Agent
Eversheds Sutherland (International) Computershare Investor Services PLC
LLP The Pavilions
One Wood Street Bridgwater Road
London, EC2V 7WS Bristol, BS13 8AE
Guernsey Legal Advisers to the Company Registrars
Carey Olsen Computershare Investor Services
Carey House (Guernsey) Limited
Les Banques 1st Floor
St Peter Port Tudor House
Guernsey, GY1 4BZ Le Bordage
St Peter Port
Guernsey, GY1 1DB
END
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July 04, 2018 05:12 ET (09:12 GMT)
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