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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% | 103.40 | 103.20 | 104.00 | 104.40 | 103.20 | 103.60 | 1,270,859 | 16:35:20 |
| 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 2019
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 2019. 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 the
Financial Services and Markets Act, 2000 (the "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.
At the Extraordinary General Meeting of the Company held on 10 May 2019,
Shareholders voted to amend the Company's investment policy. Details of these
amendments can be found on Note 21 to the Financial Statements.
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.
31.03.19 31.03.18
Total Net Assets GBP500,465,449 GBP470,013,131
Net Asset Value per share 113.28p 118.75p
Share price 115.28p 119.50p
Premium to Net Asset Value 1.77% 0.63%
Dividends declared in respect of the 6.45p 7.23p
year
As at 10 July 2019, the premium had moved to 0.79%. The estimated NAV per share
and mid-market share price stood at 113.11p and 114.00p respectively.
Ongoing Charges
Ongoing charges for the year ended 31 March 2019 have been calculated in
accordance with the Association of Investment Companies (the "AIC") recommended
methodology. The ongoing charges for the year ended 31 March 2019 were 0.95%
(31 March 2018: 0.94%).
* 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 2019
I am pleased to present my report on the Company's progress for the financial
year ending 31 March 2019.
The Company's shares continued to trade at a premium during the year, as they
have typically done since launch, with the average premium during the year
being 3.39%. The range of premium has been relatively wide, from 0.63% at the
start of the year, reaching 7.51% in the last quarter of 2018, and which ended
at 1.77%. The Board is willing to continue to authorise the issuance of further
shares as a premium management mechanism, while the Portfolio Managers can
confirm that attractive investment opportunities are available in the market.
The Net Asset Value ("NAV") total return on the shares from launch to 31 March
2019 was 62.81% (including dividends paid). The NAV per Share rose 1.57%
(including dividends paid) during the year, 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, and a
final dividend covering all excess returns in respect of the year of 1.95p per
share. The Board is pleased to confirm the Company continued to meet the
dividend payout target in accordance with the dividend policy.
The NAV performance of the Company has varied during the year, and while NAV
performance was consistent over the first six months of the year, the factors
that had driven material levels of volatility in equity, corporate bond and
high yield markets since January 2018 finally spilled over into European ABS
markets during the last six weeks of 2018. Since the start of 2019 the NAV has
been recovering, though European ABS has lagged the recovery seen in other
markets. Fundamental performance of the asset pools and structures remains
strong and stable.
The change in the spread opportunity continues to provide the Portfolio
Managers with attractive opportunities, and so, being consistent with the
ongoing messaging around capital raising, the Company has continued to issue
equity to satisfy investor demand. During the year the Company issued 46
million Ordinary shares, at an average premium of 2.37%, raising a total of GBP
52.4 million. Following the year ended 31 March 2019, an additional 81.25
million Ordinary shares were issued, raising a total of GBP93.1 million. The
investor demand demonstrates the relative value of the asset class versus
mainstream credit, and the Board is very pleased with the result of recent
capital raises in a period with increased volatility witnessed in the capital
markets.
While the imminent chance of any change in monetary policy is now more balanced
globally, there remains an expectation that the Bank of England's Monetary
Policy Committee would favour a hike in rates subject to a resolution of the
UK's future relationship with the European Union.
The Company's investment strategy continues to offer an attractive opportunity
to investors in terms of a greater credit spread, the ability to remove
duration risk and to achieve these through investing in high quality assets.
While I recognise the potential for volatility, I believe the Company's
structure remains an appropriate way for investors to invest in such assets. I
remain confident of the Company's ability to fulfil its objectives.
Trevor Ash
Chairman
11 July 2019
PORTFOLIO MANAGER'S REPORT
for the year ended 31 March 2019
Market Commentary
The year to 31 March 2019 saw periods of spread stability, interspersed with
two periods of widening, ending with consistent positive performance through
the first quarter of 2019. During the period the Company's NAV per Share
increased 1.57% (including dividends paid), whilst the Share Price had an
increase of 2.21% (including dividends paid), and dividends for the period
totalled 6.45p.
The Company declared dividends totalling 6.45p during the year, noting that the
percentage of income being generated from amortisations fell compared to
previous years, due in part to an increase in the number of securities being
purchased closer to par and maturities of those purchased at a significant
discount to par in prior years.
As the Company's financial year started, themes emerged in financial markets
that were to remain through the period, and which were to drive performance of
almost all markets. In April both Treasuries and Gilts experienced volatility
as expectations of future monetary policy changed, and with continued rhetoric
around trade tariffs.
While this drove volatility across fixed income, the European ABS market was
largely isolated, with pricing stable and a range of new issue transactions
seeing strong levels of investor participation. As summer approached,
speculation concerning an inversion of the US yield curve, driven by continued
flattening, continued to prove problematic for markets. The combative style of
Italy's populist coalition also helped push corporate spreads wider, and to a
limited extent spreads in peripheral ABS and CLOs moved wider in sympathy,
though this was not reflected generally across the asset class and investor
demand remained strong.
Corporate bonds, high yield and ABS markets saw spreads move wider into the
summer, and where for most that was driven by an extension of the previous
issues, as well as a weakening political position for Germany's Angela Merkel,
in ABS it was more to do with short-term primary market indigestion as issuers
looked to fund themselves before the summer break. This increase in supply
continued into July as more deals were added to the pipeline, and with
investors starting to drift off for summer holidays, deals had to compete for
investor focus based on spreads paid, which filtered through into portfolio
pricing. As the pipeline cleared towards month-end, spreads regained stability,
and largely traded sideways through August.
ABS spreads enjoyed a positive autumn while geopolitics, esoteric emerging
market events in Turkey and Argentina, and Brexit developments in the UK
continued to roil markets. Primary markets came back to life after the summer,
but in a more measured manner with issuers pragmatically pricing at attractive
levels to engage investors and subsequently receiving the levels of
oversubscription seen earlier in the year.
While the first six months of the period were largely stable, the Portfolio
Managers took the opportunity to gradually de-risk the portfolio, recognising
that the pressures in wider markets have previously spilled over into ABS
performance during similar periods of volatility.
This strong performance continued through October and the first half of
November, though at that point investors' risk tolerance became bound up in the
ongoing risk-off move seen across other markets. This was driven by multiple
factors: the prospect of the UK's Brexit withdrawal agreement being rejected;
the Italian government battling the EU over deficit control; the US Federal
Reserve being materially at odds with financial markets on the direction of
monetary policy; and China and the US failing to make any material progress on
a trade deal. The deteriorating sentiment ultimately leaked into ABS, where
spreads started exhibiting similar negative performance that other markets had
exhibited all year.
This spread widening continued into year-end with the last remnants of price
moves filtering through as markets opened in January, at which point ABS prices
again de-correlated from most other markets. This time, however, it was
equities and credit spreads exhibiting positive performance as Fed Chair Jerome
Powell performed a material volte-face, aligning himself with a more dovish
outlook for US rates. With the risk of a 'no-deal' Brexit seemingly taken off
the table once various attempts to pass the withdrawal agreement failed, the
Italian Government agreeing a deficit plan with the EU before Christmas and
both the US and China making more friendly noises, further impetus was given to
pricing.
In contrast the European ABS markets remained quiet, principally as a mix of
wider spreads and uncertainty over the technical implication of new regulation
stopped issuers from coming to market. Without seeing new deals being priced,
and therefore no idea as to investors' appetite for risk, it was impossible for
the market to rally in line with others. This vacuum continued until
mid-February, since when issuance has picked up, and as expected this has
driven spreads tighter and prices upwards.
Since the spread widening in November the Portfolio Managers have seen an
opportunity to add risk in a measured manner, however their outlook recognises
that risks to stability in financial market pricing are still present.
Market Outlook
As the Company's financial year came to an end, ABS pricing was enjoying a
degree of the positive performance that equities and corporate bonds had seen
for several months, while continuing to materially lag those markets.
While equities are now breaking new highs and credit spreads are at multi-year
lows, the negative drivers of the last 12 months are still present. The UK
still has not resolved its future relationship with the EU, and while the
threat of a 'hard' Brexit has reduced, it has not disappeared and the risk of a
general election also remains. In addition the upcoming EU elections, ongoing
domestic issues in US politics and the aftermath of elections in Spain remain
issues for markets to contemplate.
The US-China trade war continues with no sign of resolution one week, and talks
of strong progress the next. The next governor of the ECB remains to be
identified, the Fed continues to confuse markets, and the BoE's MPC still finds
it impossible to do anything.
With these elements still present in the background the Portfolio Managers
remain balanced in their appreciation of future spread performance. Recognising
the material spread premium available in European ABS and the conviction around
expected credit performance based on strong performance in both consumer and
corporate loan markets, they continue to find opportunities to invest and
achieve the Company's objective despite this outlook.
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 whilst the EUR/GBP
exchange rate finished 1.43% lower at the end of the year, it experienced moves
in the range of 5.17% during the 12 month period.
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 58% of the Investment Portfolio at the year end, 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 IFRS 9.
The net foreign currency gain on the portfolio (recorded within net losses on
financial assets at fair value through profit or loss) and the net foreign
currency gain on the forward currency contracts (included within net foreign
currency gains) are recognised in accordance with the hedging policy and
International Financial Reporting Standards, within the Statement of
Comprehensive Income.
TwentyFour Asset Management
11 July 2019
TOP TWENTY HOLDINGS
As at 31 March 2019
Percentage of
Asset Backed Fair Value Net Asset
Nominal/ Security Sector GBP Value
Shares
Security
SC GERMANY CONSUMER SRS 15-1 CLS Consumer ABS 16,201,776 3.24
E DUE 13/12/2028 18,000,000
TULPENHUIS 0.0% 18/04/2051 Prime RMBS 14,649,053 2.93
17,000,000
CAP. BRIDGE FIN. NO.1 '1 MEZZ' Buy-to-Let RMBS 2.81
FRN 03/07/2018 14,000,000 14,070,000
WARWICK FIN. RESD. '1 E' FRN 21/ Non-Conforming RMBS 2.10
09/2049 10,500,000 10,491,301
WARWICK FIN. RESD. MORTGAGES '2 Non-Conforming RMBS 1.85
E' FRN 21/09/2049 9,250,000 9,252,262
CASTELL 2018-1 '1 X' FRN 25/01/ Non-Conforming RMBS 1.83
2046 9,136,785 9,158,578
OPTIMUM THREE '3 MEZR' FRN 25/05 Non-Conforming RMBS 1.80
/2021 9,000,000 9,000,000
RESIDENTIAL MORTGAGE 28 '28 E' Non-Conforming RMBS 1.72
FRN 15/06/2046 8,550,000 8,623,821
AURORUS 2017 BV '1 G' FRN 11/8/ Consumer ABS 7,985,421 1.60
2078 9,200,000
TAURUS 2019-1 FR DAC '1FR E' FRN CMBS 1.57
02/02/2031 9,100,000 7,865,077 EQTY. RELEASE FNDG. NO 5 '5 B' Prime RMBS 1.46 FRN 14/07/2050 9,050,000 7,330,500 AVOCA CLO XVI DAC '16X ER' FRN CLO 1.43 15/07/2031 8,750,000 7,173,437 MAN GLG EURO CLO V DAC '5X E' CLO 1.43 FRN 15/12/2031 8,700,000 7,159,509 SC GERMANY CONSUMER 2016-1 UG '1 Consumer ABS 1.37 E' FRN 13/09/2029 7,500,000 6,867,497 VSK HLDGS. '1 C4-1' VAR 01/10/ Prime RMBS 6,340,767 1.27 2058 375,000 VSK HLDGS. '1 C4-2' VAR 01/10/ Prime RMBS 6,340,767 1.27 2058 375,000 HAYFIN EMERALD CLO II DAC '2X E' CLO 1.25 FRN 27/05/2032 7,500,000 6,236,619 ALME LOAN FNDG. III DESIG '3X CLO 1.23 FRNE' FRN 15/04/2030 7,500,000 6,168,103 CASTELL 2017-1 '1 F' FRN 25/10/ Non-Conforming RMBS 6,096,600 1.22 2044 6,000,000 PARAGON MORTGAGES NO 15 '15X CB' Buy-to-Let RMBS 1.15 FRN 15/12/2039 7,600,000 5,763,110 The full portfolio listing as at 31 March 2019 can be obtained from the Administrator on request. BOARD MEMBERS Biographical details of the Directors are as follows: Trevor Ash - (Chairman) (age 73) 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 59) 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 anumber of private investment funds. Mr Burns was appointed to the Board on 17 January 2013. Richard Burwood - (Non-executive Director) (age 51) 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. Joanne Fintzen - (Non-executive Director) (age 49) Ms Fintzen is a resident of the United Kingdom, with extensive experience of the finance sector and the investment industry. She trained as a Solicitor with Clifford Chance and worked in the Banking, Fixed Income and Securitisation areas. She joined Citigroup in 1999 providing legal coverage to an asset management division. She was subsequently appointed as European General Counsel for Citigroup Alternative Investments where she was responsible for the provision of legal and structuring support for vehicles which invested $100bn across asset-backed securities as well as hedge funds investing in various different strategies as well as private equity and venture capital funds. Ms Fintzen was appointed to the Board on 7 January 2019. 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 Limited London Ian Burns FastForward Innovations London and Limited Berlin River and Mercantile UK Micro Cap Limited London Richard Burwood Funding Circle SME Income Fund Limited, and its associated London funding vehicles: - Basinghall Lending Dublin DAC - Tallis Lending DAC Dublin DIRECTORS' REPORT The Directors present their Annual Report and Audited Financial Statements for the year ended 31 March 2019. 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 also achieved its dividend target of 6% of the issue price for the year ended 31 March 2019, meaning that as per the Company's Articles, no Continuation Vote is required. 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. 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, income flows, its
likely ability to pay dividends and analysis of the portfolio 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 of the underlying securities by the
main rating agencies, as well as sufficient diversification across sectors; 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 2019.
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, as disclosed in note 19, during the three-year period 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 just after 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 GBP26,946,387 in respect of income
available for distribution earned during the year ended 31 March 2019, a
breakdown of which can be found in note 19. Distributions declared during the
year amount to GBP28,917,363, as recognised in the Statement of Changes in
Equity.
Income available for distribution in any quarter 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, less (d) total expenditure
for the period.
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
· Dividends Declared
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 section.
Directors' and Other Interests
As at 31 March 2019, Directors of the Company held the following numbers of
Ordinary Redeemable Shares beneficially:
Number of Number of
Shares Shares
31.03.19 31.03.18
Trevor Ash 50,000 50,000
Ian Burns 29,242 29,242
Richard Burwood 5,000 5,000
Joanne Fintzen1 - N/A
Jeannette Etherden2 N/A 25,000
1 Joanne Fintzen was appointed to the board on 7 January 2019. Subsequent to
the year end, Ms Fintzen purchased 17,476 Ordinary Redeemable Shares in the
Company.
2 Jeanette Etherden retired from the board on 14 March 2019.
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, 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 2016 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 updated its Code on 5 February 2019 to reflect revised Principles and
Provisions included in the UK Corporate Governance Code which was revised in
2018. These changes apply to financial years beginning on or after 1 January
2019 and the Directors intend to report on the Company's compliance with the
changes in the Annual Report for the year ended 31 March 2020.
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 2019, 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;
· Remuneration Committee; and
· Nomination Committee.
For the reasons set out in the AIC Guide, the Board considers the first three
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 Board is satisfied that any
relevant issues can be properly considered by the Board. The Board, as a whole,
fulfils the function of a Nomination and Remuneration Committee and therefore
no separate Nomination or Remuneration Committees are considered necessary.
Details of compliance with the AIC Code are noted below. 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, the 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 Meetings Audit Committee Meetings Management Engagement Ad hoc
Committee Meetings Committee Meetings
Held Attended Held Attended Attended Held Attended
Held
Trevor Ash 4 4 2 2 1 1 8 6
Ian Burns 4 4 2 2 1 1 8 7
Richard Burwood 4 4 2 2 1 1 8 7
Joanne Fintzen1 1 1 1 1 - - 2 1
Jeannette Etherden2 4 4 2 2 1 1 8 5
1 Joanne Fintzen was appointed to the board on 7 January 2019
2 Jeanette Etherden retired from the board on 14 March 2019
The number of meetings held indicate the meetings held during each Director's
membership of the relevant Board or Committee during the year ended 31 March
2019.
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 20 September 2018 Annual
General Meeting, Trevor Ash 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.
Election of Directors
The election of Directors is set out in the Directors' Remuneration Report.
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.
There are no findings to report at year end.
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. Jan Etherden was appointed as
Chairperson until her retirement from the Board on 14 March 2019, after which,
Richard Burwood was appointed 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 20
September 2018 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.
The Company engaged Cornforth Consulting in the process of identifying a
replacement for Jeanette Etherden.
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. The
Board as a whole fulfils the functions of the Remuneration Committee, although
the Board has included a separate Directors' Remuneration Report of 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 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 2019 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 Investment Policy in the Summary Information
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 GBP45m 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 11 June 2019 (latest available) were as follows:
Number of Percentage of
shares issued share
capital
Investec Wealth & Investment 47,626,397 9.11%
Aviva Investors 42,612,286 8.15%
Brewin Dolphin, stockbrokers 32,331,706 6.18%
Premier Asset Management 31,035,113 5.93%
Fidelity International 28,316,197 5.41%
Baillie Gifford 25,589,169 4.89%
Charles Stanley 20,458,903 3.91%
BMO Global Asset Management (UK) 17,823,074 3.41%
Killik, stockbrokers 17,703,217 3.38%
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 11 July 2019 by:
Trevor Ash
Chairman
Ian Burns
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 auditor does not involve consideration of
these matters and, accordingly, the auditor accepts 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 2019; and
(b) The Annual Report includes information detailed in the 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 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
Chairman
Ian Burns
Director
11 July 2019
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 19 September 2019.
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 2019, the Directors received the following annual
remuneration in the form of Directors' fees:
Trevor Ash (Chairman of the Board) GBP36,250
Ian Burns (Audit Committee Chairman) GBP33,750
Richard Burwood GBP31,250
Jeannette Etherden1 GBP29,500
Joanne Fintzen2 GBP8,167
Total GBP138,917
1 Jeanette Etherden retired from the board on 14 March 2019
2 Joanne Fintzen was appointed to the board on 7 January 2019
Until 31 December 2018, the annual fees were GBP35,000 for the Chairman, GBP32,500
for the Audit Committee Chairman and GBP30,000 for all other Directors.
Effective from 1 January 2019, the annual fees are GBP40,000 for the Chairman, GBP
37,500 for Audit Committee Chairman, and GBP35,000 for all other Directors.
The remuneration policy set out above is the one applied for the year ended 31
March 2019 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 of
appointment. 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 20 September 2018 Annual
General Meeting, Trevor Ash 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 11 July 2019 by:
Trevor Ash
Chairman
Ian Burns
Director
AUDIT COMMITTEE REPORT
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 2019.
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 20 September 2018. 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 year 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 GBP491,596,605 as at 31 March 2019
(31 March 2018: GBP457,332,017) 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 January 2019 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 2019 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 2019. 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. Evelyn
Brady had been the audit engagement partner since 2014. Under FRC Ethical
Standards, the audit opinion for the 31 March 2018 year-end was the final audit
opinion that she could sign. Roland Mills replaced her as engagement partner
for the 31 March 2019 audit.
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
2019 and the year ended 31 March 2018.
01.04.18 to 01.04.17 to
31.03.19 31.03.18
PricewaterhouseCoopers CI LLP - Assurance GBP GBP
work
- Annual audit 57,000 55,000
- Interim review 17,550 16,995
PricewaterhouseCoopers CI LLP - Non-assurance work
- Reportable Income 8,000 8,000
calculation
Ratio of audit to non-audit 1 : 0.5 1 : 0.5
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 11 July 2019
and signed on behalf by:
Ian Burns
Chairman, Audit Committee
11 July 2019
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;
· 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; and
· 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.
The table provided below has been calculated in accordance with the Maitland
remuneration policy taking into account fees charged during the year for the
TwentyFour Income Fund Limited as Alternative Investment Manager. Our most
recent remuneration policy which contains further information on the fees
charged for all funds for which we act as Alternative Investment Manager, are
available from our website www.maitlandgroup.com.
March 2019 Number of Total remuneration Fixed remuneration
Beneficiaries paid
Total remuneration 85 GBP174,555 GBP174,555
paid by the AIFM
during the year
Remuneration paid 5 GBP20,205 GBP20,205
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.
R. Ackermann
P.F. Brickley
Directors
Maitland Institutional Services Ltd
11 July 2019
REPORT OF THE DEPOSITORY TO THE SHAREHOLDERS
for the year ended 31 March 2019
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 2019, 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 is 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 constitutional
documents; and the AIFMD legislation.
For and on behalf of
Northern Trust (Guernsey) Limited
11 July 2019
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 2019, 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 2019;
· 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 ethical requirements
that are relevant to our audit of the financial statements of the Company, as
required by the Crown Dependencies' Audit Rules and Guidance. We have fulfilled
our other ethical responsibilities in accordance with these requirements.
____________________________________________________________________________________________________
Our audit approach
Materiality
· Overall Company materiality was GBP11.3 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 both the Administrator and
Portfolio Manager in completing aspects of our audit work.
· We conducted all of our audit work in Guernsey. Furthermore, we also had
a meeting with Portfolio Manager in London during the planning stage of audit.
____________________________________________________________________________________________________
Key audit matters
· Risk of fraud in interest income on financial assets at fair value
through profit or loss
· 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 GBP11.3 million (2018: GBP10.6 million)
How we determined it 2.25% 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 GBP563,000, 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 interest · We assessed the accounting policy for the
income on financial assets at recognition of interest income for compliance
fair value through profit or with International Financial Reporting Standards
loss and ensured that interest income had been
Interest income earned in accounted for in accordance with the stated
respect of financial assets accounting policy.
designated as at fair value · We held discussions with the Portfolio
through the profit or loss is Manager to understand and evaluate the processes
recognised in the Statement in place for recognising interest income and to
of Comprehensive Income using understand the estimates required by the
the effective interest rate Portfolio Manager in respect of the expected
method (GBP27.2 million) as set life of the Asset Backed Securities,
out in note 2(h). expectations on prepayments and expected losses.
· We tested the effective interest rate
The requirement to estimate models prepared by the Portfolio Manager and
the expected cash flows when adopted by the Company, and verified key inputs
forming an effective interest into the models on a sample basis. We also
rate model is subject to verified the arithmetical accuracy of the models
significant management and the interest income summary prepared by the
estimate and judgement, as Portfolio Manager.
detailed in note 3(ii)(b), · In assessing the Portfolio Manager's
and could be open to estimates with respect to the expected life of
manipulation by management. the Asset Backed Securities, expectations on
prepayments and expected losses, we obtained
As a result, we have supporting documentation to corroborate the
designated the risk of fraud Portfolio Manager's estimates.
in interest income on · We also selected a targeted sample of
financial assets at fair securities to assess if there had been any
value through profit or loss significant changes to the expected repayment
as a significant audit risk. dates from the prior year. Where there had been
changes, we obtained supporting explanation and
analysis to support those changes.
No matters or material differences were
identified in our testing which required
reporting to those charged with governance.
Valuation of investments · We understood and evaluated the internal
Investments are designated as control environment in place at the
financial instruments at fair Administrator and the Portfolio Manager over the
value through the profit or valuation of the investment portfolio.
loss and are disclosed · We assessed the accounting policy
separately on the Statement applicable to the valuation of investments for
of Financial Position (GBP491.6 compliance with International Financial
million). Investments Reporting Standards. During our substantive
comprise of a diverse audit testing noted below, we also determined
portfolio of Asset Backed that the valuation of investments had been
Securities and are fair accounted for and applied consistently in
valued in accordance with the accordance with the stated accounting policy.
policies set out in note 2 · We tested the valuation of investments by
(e), and the fair value of using an independent third party price provider
investments and movements to reprice the portfolio. Prices were obtained
therein are further disclosed from a range of sources, including exchange
in notes 17 and 9 traded and consensus prices. We sought to
respectively. reprice the entire portfolio, however, where
there were investments for which we were unable
Investments represent the to be obtain such audit evidence, or for where
most significant balance on there were investments that were repriced but
the Statement of Financial exceeded a tolerable variance threshold from the
Position and, due to the Company's own final year end prices, the
market liquidity and engagement team sought supporting evidence for
assumptions underlying each these prices from the Administrator and/or the
security, the valuations are Portfolio Manager. We assessed the independence,
subject to management reputation and reliability of the source of the
estimate and judgment, as supporting evidence provided in these instances.
detailed under note 3(ii) · In order to determine the ongoing
(a). reliability of the investments valuations from
period to period, we also, for a sample of
Owing to the level of disposals, compared the sales transaction price
subjectivity that could be to the most recently recorded valuation prior to
applied in fair valuing the disposal, which allowed us to assess the
investments, the risk of reliability of the valuation data at that point.
manipulation or error could No matters or material differences were
be material and as a result identified in our testing which required
we have designated the reporting to those charged with governance.
valuation of investments as a
significant audit risk.
____________________________________________________________________________________________________
Other information
The directors are responsible for the other information. The other information
comprises all the information included in the Annual Report and Audited
Financial Statements but does not include the financial statements and our
auditor's report thereon.
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 the 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 judgement
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. For example, the terms on which the
United Kingdom may withdraw from the European Union are not clear, and it is
difficult to evaluate all of the potential implications on the Group and the
wider economy.
· 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 on page 12 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.
Roland Mills
For and on behalf of PricewaterhouseCoopers CI LLP
Chartered Accountants and Recognised Auditor
Guernsey, Channel Islands
11 July 2019
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2019
01.04.18 to 01.04.17 to
31.03.19 31.03.18
Note GBP GBP
Income
Interest income on financial 27,168,323 29,489,045
assets at fair value through
profit and loss
Net foreign currency gains/ 8 7,321,109 (5,773,678)
(losses)
Net (losses)/gains on financial
assets
at fair value through profit or 9 (22,787,164) 25,585,816
loss
Total income 11,702,268 49,301,183
Portfolio management fees 14 (3,462,140) (3,425,378)
Directors' fees 14 (138,917) (127,500)
Administration and secretarial 15 (236,007) (237,384)
fees
Audit fees (57,000) (55,000)
Custody fees 15 (46,696) (45,672)
Broker fees (45,895) (25,167)
AIFM management fees 15 (174,555) (166,851)
Depositary fees 15 (65,143) (64,549)
Legal and professional fees (337,373) (29,325)
Listing fees (59,300) (24,034)
Registration fees (26,857) (28,415)
Other expenses (83,534) (3,417)
Total expenses (4,733,417) (4,232,692)
Total comprehensive income for 6,968,851 45,068,491
the year
Earnings per Ordinary Redeemable Share
-
Basic & Diluted 4 0.0173 0.114
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 2019
31.03.2019 31.03.2018
Note GBP GBP
Assets
Current assets
Financial assets at fair value through profit
and loss
- Investments 9 491,596,605 457,332,017
- Derivative assets: Forward currency 17 52,575 4,135,400
contracts
Amounts due from broker 3,908,529 2,607,294
Amounts due from shares issued 3,456,600 -
Other receivables 10 3,112,577 2,844,683
Cash and cash equivalents 36,505,984 11,624,245
Total assets 538,632,870 478,543,639
Liabilities
Current liabilities
Financial liabilities at fair value through
profit and loss
- Derivative liabilities: Forward currency 17 1,919,402 202,337
contracts
Amounts due to brokers 35,401,772 7,560,754
Other payables 11 846,247 767,417
Total liabilities 38,167,421 8,530,508
Net assets 500,465,449 470,013,131
Equity
Share capital account 12 459,436,544 407,509,059
Retained earnings 41,028,905 62,504,072
Total equity 500,465,449 470,013,131
Ordinary Redeemable Shares in issue 12 441,814,151 395,814,151
Net Asset Value per Ordinary Redeemable Share 6 113.28 118.75
(pence)
The Financial Statements were approved by the Board of Directors on 11 July
2019 and signed on its behalf by
Trevor Ash
Chairman
Ian Burns
Director
The notes form an integral part of these Financial Statements.
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2019
Share Retained Total
capital earnings
account
Note GBP GBP GBP
Balances at 1 April 2018 407,509,059 62,504,072 470,013,131
Issue of shares 12 53,010,450 - 53,010,450
Share issue costs 12 (609,620) - (609,620)
Dividend distributions paid - (28,917,363) (28,917,363)
Income equalisation on new issues 5 (473,345) 473,345 -
Total comprehensive gain for the - 6,968,851 6,968,851
year
Balances at 31 March 2019 459,436,544 41,028,905 500,465,449
Share Retained Total
capital earnings
account
GBP GBP GBP
Balances at 1 April 2017 407,509,059 45,102,990 452,612,049
Dividend 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
The notes form an integral part of these Financial Statements.
STATEMENT OF CASH FLOWS
For the year ended 31 March 2019
Note 01.04.18 to 01.04.17 to
31.03.19 31.03.18
GBP GBP
Cash flows from operating activities
Total comprehensive income for the year 6,968,851 45,068,491
Adjustments for:
Net losses/(gains) on investments 9 22,787,164 (25,585,816)
Amortisation adjustment under effective interest (4,906,589) (9,424,396)
rate method
Unrealised losses on forward currency contracts 8 5,799,890 76,997
Exchange (gains)/losses on cash and cash (6,700) 1,352
equivalents
Increase/(decrease) in other receivables (267,894) 332,821
(Decrease)/increase other payables (662) 186,774
Purchase of investments 9 (303,568,916) (383,161,384)
Sale of investments 9 277,963,536 387,237,099
Net cash generated from operating activities 4,768,680 14,731,938
Cash flows from financing activities
Proceeds from issue of Ordinary Redeemable Shares 49,553,850 -
Share issue costs (530,128) -
Dividend distribution (28,917,363) (27,667,409)
Net cash inflow/(outflow) from financing 20,106,359 (27,667,409)
activities
Increase/(decrease) in cash and cash equivalents 24,875,039 (12,935,471)
Cash and cash equivalents at beginning of the year 11,624,245 24,561,068
Exchange gains/(losses) on cash and cash 6,700 (1,352)
equivalents
Cash and cash equivalents at end of the year 36,505,984 11,624,245
The notes form an integral part of these Financial Statements.
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 March 2019
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 effective during the year
At the reporting date of these Financial Statements, the following standards,
interpretations and amendments, were adopted for the year ended 31 March 2019:
- IFRS 9 Financial Instruments
- IFRS 15 Revenue from Contracts with Customers
i) IFRS 9 'Financial Instruments'
IFRS 9 'Financial Instruments' ("IFRS 9") replaces IAS 39 'Financial
Instruments: Recognition and Measurement' ("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.
As a result of the adoption of IFRS 9, the Company has adopted consequential
amendments to IAS 1 'Presentation of Financial Statements', which require:
* impairment of financial assets to be presented in a separate line item in the
Statement of Comprehensive Income. Under IAS 39, impairment was recognised when
losses were incurred. The Company did not previously report any incurred
losses; and
* separate presentation in the Statement of Comprehensive Income of interest
revenue calculated using the effective interest method.
The adoption of IFRS 9 had no material impact on the net assets attributable to
holders of Ordinary Redeemable Shares of the Company.
Classification and measurement of financial assets and financial liabilities
IFRS 9 contains three principal classification categories for financial assets:
measured at amortised cost, at fair value through other comprehensive income
and at fair value through profit or loss ("FVTPL"). The classification of
financial assets under IFRS 9 is generally based on the business model in which
a financial asset is managed and its contractual cash flow characteristics.
IFRS 9 eliminates the previous IAS 39 categories of held to maturity, loans and
receivables and available for sale.
IFRS 9 largely retains the existing requirements in IAS 39 for the
classification and measurement of financial liabilities.
The adoption of IFRS 9 has not had a significant effect on the Company's
accounting policies related to financial liabilities and derivative financial
instruments.
The following table and the accompanying notes below explain the original
measurement categories under IAS 39 and the new measurement categories under
IFRS 9 for each class of the Company's financial assets and liabilities as at 1
April 2018.
There was no effect of adopting IFRS 9 on the carrying amounts of the financial
assets as at 1 April 2018 which would relate solely to the new impairment
requirements.
Original New Original New carrying
classification Classification carrying amount under
under IAS 39 under IFRS 9 amount under IFRS 9
IAS 39
Financial Assets
Financial assets at fair value GBP GBP
through profit or loss:
- Investments* Assets at Mandatorily 457,332,017 457,332,017
FVTPL at FVTPL
- Derivative assets: Forward Assets at Mandatorily 4,135,400 4,135,400
currency contracts FVTPL at FVTPL
Amounts due from Broker Loans and Amortised 2,607,294 2,607,294
receivables cost
Other receivables (excluding Loans and Amortised 2,825,071 2,825,071
prepayments) receivables cost
Cash and cash equivalents Loans and Amortised 11,624,245 11,624,245
receivables cost
Total Financial Assets 478,524,027 478,524,027
Financial
Liabilities
Financial liabilities at fair value GBP GBP
through profit or loss:
- Derivative liabilities: Forward Liabilities Liabilities 202,337 202,337
currency contracts at FVPTL at FVPTL
Amounts due to Other Amortised 7,560,754 7,560,754
brokers financial cost
liabilities
Other payables Other Amortised 767,417 767,417
financial cost
liabilities
Total Financial Liabilities 8,530,508 8,530,508
* Under IAS 39, these financial assets were designated as at FVTPL because they
were managed on a fair value basis and their performance was monitored on this
basis. These assets have been classified as mandatorily measured at FVTPL under
IFRS 9.
There were no changes to the carrying amounts of the financial assets on
transition from IAS 39 to IFRS 9.
Impairment of financial assets
IFRS 9 replaces the 'incurred loss' model in IAS 39 with an expected credit
loss ("ECL") model. Therefore, the carrying amount of other receivables remains
the same under IFRS 9 as the expected credit losses on the financial assets
have been assessed as immaterial.
The new impairment model applies to financial assets measured at amortised cost
and the standard mandates the use of the simplified approach to calculating the
expected credit losses for trade receivables. The impairment calculation is
based on the Company's historical default rates over the expected life of the
trade receivables and is adjusted for forward-looking estimates. Given the
historical level of defaults and the credit risk of the investment portfolio,
there is a negligible impact because of the lifetime expected credit loss to be
recognised versus the previous impairment model applied by the Company.
Cash and cash equivalents are also subject to the impairment requirements of
IFRS 9 and the identified impairment loss is also assessed as immaterial.
Transition
The Company applied IFRS 9 prospectively, with an initial application date of 1
April 2018. The Company has not restated the comparative information, which
continue to be reported under IAS 39.
ii) IFRS 15 'Revenue from Contracts with Customers'
IFRS 15 'Revenue from Contracts with Customers' 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 there has
not been a material impact on timing of recognition or gross up for principal/
agent considerations.
The Company has undertaken a review of its revenue streams and concluded that
there is no impact on the way in which the Company recognises its revenues as
all revenues are earned on financial instruments. The Company has applied IFRS
15 retrospectively although no restatements were required.
d) 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 16 Leases (Effective 1 January 2019)
The Company expects that the adoption of IFRS 16 in the future period will not
have an impact on the Company's Financial Statements, as it does not hold any
leases.
e) 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.
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 business model per IFRS 9.
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. f) 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. g) 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. h) 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. i) 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. j) 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. k) 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. l) 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. m) 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. n) 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. o) 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 any expected credit losses. p) 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. q) 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. r) 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. s) 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(k), 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 402,734,014 (31 March 2018: 395,814,151) and a net gain of GBP6,968,851 (31
March 2018: net gain of GBP45,068,491).
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 GBP473,345
(31 March 2018: GBPNil).
6. Net Asset Value per Ordinary Redeemable Share
The net asset value of each Share of GBP1.13 (31 March 2018: GBP1.19) is determined
by dividing the net assets of the Company attributed to the Shares of GBP
500,465,449 (31 March 2018: GBP470,013,131) by the number of Shares in issue at
31 March 2019 of 441,814,151 (31 March 2018: 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 (2018: GBP
1,200).
8. Net foreign currency gains/(losses)
01.04.18 to 01.04.17 to
31.03.19 31.03.18
GBP GBP
Movement on unrealised loss on forward currency contracts (5,799,890) (76,997)
Realised gain/(loss) on foreign currency contracts 13,239,682 (5,577,904)
Unrealised foreign currency loss on receivables/payables (123,865) (117,892)
Unrealised foreign currency exchange gain/(loss) on interest 5,182 (885)
receivable
7,321,109 (5,773,678)
9. Investments
01.04.18 to 01.04.17 to
31.03.19 31.03.18
Financial assets at fair value through profit or loss: GBP GBP
Unlisted Investments:
Opening book cost 434,416,774 400,893,973
Purchases at cost 331,409,934 376,649,889
Proceeds on sale/principal repayment (279,264,771) (383,727,152)
Amortisation adjustment under effective interest rate method 4,906,587 9,424,396
Realised gains on sale/principal 11,564,064 33,089,087
repayment
Realised losses on sale/principal (8,303,251) (1,913,419)
repayment
Closing book cost 494,729,337 434,416,774
Unrealised gains on investments 9,778,665 24,351,361
Unrealised losses on investments (12,911,397) (1,436,118)
Fair value 491,596,605 457,332,017
01.04.18 to 01.04.17 to
31.03.19 31.03.18
GBP GBP
Realised gains on sale/principal 11,564,064 33,089,087
repayment
Realised losses on sales/principal repayment (8,303,251) (1,913,419)
Movement in unrealised gains (14,572,696) (6,754,132)
Movement in unrealised losses (11,475,279) 1,164,280
Net (losses)/gains on financial assets at fair value through (22,787,162) 25,585,816
profit or loss
10. Other receivables
As at As at
31.03.19 31.03.18
GBP GBP
Coupon interest receivable 3,100,037 2,825,071
Prepaid expenses 12,540 19,612
3,112,577 2,844,683
11. Other payables
As at As at
31.03.19 31.03.18
GBP GBP
Portfolio management fees payable 560,933 546,666
Custody fee payable 3,806 2,957
Administration and secretarial fees 58,542 60,044
payable
Directors' fee payable - 31,875
Audit fee payable 57,000 55,000
AIFM management fee payable 41,194 35,991
Depositary fees 5,353 5,257
payable
Share issue costs payable 79,492 -
General expenses payable 39,927 29,627
846,247 767,417
12. Share Capital
Authorised Share Capital
Unlimited number of Ordinary Redeemable Shares at no par value.
Issued Share Capital
As at As at
31.03.19 31.03.18
GBP GBP
Ordinary Redeemable Shares
Share Capital at the beginning of the year 407,509,059 407,509,059
Issued Share Capital 53,010,450 -
Share issue costs (609,620) -
Income equalisation on new issues (473,345) -
Total Share Capital at the end of the 459,436,544 407,509,059
year
As at As at
31.03.19 31.03.18
Shares Shares
Ordinary Redeemable Shares
Shares at the beginning of the year 395,814,151 395,814,151
Issue of Shares 46,000,000 -
Total Shares in issue at the end of 441,814,151 395,814,151
the year
As at As at
31.03.19 31.03.18
GBP GBP
Treasury Shares
Treasury share capital at the beginning of the year 43,083,300 43,083,300
Total Treasury Share capital in issue at the end of the 43,083,300 43,083,300
year
As at As at
31.03.19 31.03.18
Shares Shares
Treasury Shares
Treasury shares at the beginning of the year 39,000,000 39,000,000
Total Shares in issue at the end of the year 39,000,000 39,000,000
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 2019, 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 Amortised
profit and cost Total
loss
GBP GBP GBP
31 March 2019
Financial Assets as per Statement of Financial
Position
Financial assets at fair value through profit or
loss:
- Investments 491,596,605 - 491,596,605
- Derivative assets: Forward currency contracts 52,575 - 52,575
Amounts due from broker - 3,908,529 3,908,529
Amounts due from shares - 3,456,600 3,456,600
issued
Other receivables (excluding prepayments) - 3,100,037 3,100,037
Cash and cash - 36,505,984 36,505,984
equivalents
491,649,180 46,971,150 538,620,330
Liabilities at
fair
value through Amortised
profit and loss cost Total
GBP GBP GBP
Financial Liabilities as per Statement of
Financial Position
Financial liabilities at fair value through profit
or loss:
- Derivative liabilities: Forward currency 1,919,402 - 1,919,402
contracts
Amounts due to brokers - 35,401,772 35,401,772
Other payables - 846,247 846,247
1,919,402 36,248,019 38,167,421
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 at Other
fair
value through financial
profit and loss liabilities Total
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
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.
Until 31 December 2018, the annual fees were GBP35,000 payable to Mr Ash, the
Chairman, GBP32,500 to Mr Burns as Chairman of the Audit Committee and GBP30,000
for all other Directors.
Effective from 1 January 2019, the annual fees are GBP40,000 for the Chairman, GBP
37,500 for Chairman of the Audit Committee, and GBP35,000 for all other
Directors.
During the year ended 31 March 2019, Directors fees of GBP138,917 (31 March 2018:
GBP127,500) were charged to the Company, of which GBPNil (31 March 2018: GBP31,875)
remained payable at the end of the year.
b) Shares held by related parties
As at 31 March 2019, Directors of the Company held the following shares
beneficially:
Number of Number of
Shares Shares
31.03.19 31.03.18
Trevor Ash 50,000 50,000
Ian Burns 29,242 29,242
Richard 5,000 5,000
Burwood
Joanne - N/A
Fintzen1
Jeannette Etherden2 N/A 25,000
1 Joanne Fintzen was appointed to the board on 7 January 2019. Subsequent to
the year end, Ms Fintzen purchased 17,476 Ordinary Redeemable Shares in the
Company.
2 Jeanette Etherden retired from the board on 14 March 2019.
As at 31 March 2019, the Portfolio Manager held Nil Shares (31 March 2018: Nil
Shares) and partners and employees of the Portfolio Manager held 1,797,760
Shares (31 March 2018: 1,689,670 Shares), which is 0.41% (31 March 2018: 0.43%)
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 GBP3,462,140 (31 March 2018: GBP3,425,378) of which GBP
560,933 (31 March 2018: GBP546,666) is due and payable at the year 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 GBP79,516 (31 March 2018: GBPNil) 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 2019, AIFM
fees of GBP174,555 (31 March 2018: GBP166,851) were charged to the Company, of
which GBP41,194 (31 March 2018: GBP35,991) 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 is charged for
corporate governance and company secretarial services. Total administration and
secretarial fees for the year amounted to GBP236,007 (31 March 2018: GBP237,384) of
which GBP58,542 (31 March 2018: GBP60,044) is due and payable at end of the year.
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 GBP65,143 (31 March 2018: GBP64,549) of which GBP
5,353 (31 March 2018: GBP5,257) 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 GBP46,696 (31 March 2018: GBP45,672) of which GBP3,806 (31 March
2018: GBP2,957) 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 rate Fixed rate Non-interest Total
bearing
As at 31 March 2019 GBP GBP GBP GBP
Financial assets at fair value through 491,596,605 491,596,605
profit or loss - -
Derivative assets 52,575 52,575
- -
Amounts due from broker - - 3,908,529 3,908,529
Other receivables 3,112,577 3,112,577
- -
Cash and cash equivalents 36,505,984 36,505,984
- -
Capital Shares sold receivable - 3,456,600 3,456,600
-
Amounts due to broker - - (35,401,772) (35,401,772)
Other payables (846,247) (846,247)
- -
Derivative (1,919,402)
liabilities - - (1,919,402)
Net current assets 528,102,589 (27,637,140) 500,465,449
-
Floating rate Fixed rate Non-interest Total
bearing
As at 31 March 2018 GBP GBP GBP GBP
Financial assets at fair value through 457,332,017 457,332,017
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 11,624,245
equivalents - - 11,624,245
Amounts due to (7,560,754)
broker - - (7,560,754)
Other payables (767,417)
- - (767,417)
Derivative (202,337)
liabilities - - (202,337)
Net current assets 468,956,262 1,056,869 470,013,131
-
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 (losses)/
equivalent gains
Contract
values
31.03.2019 31.03.2019 31.03.2019 31.03.2019
EUR GBP GBP GBP
Eight Sterling forward foreign
currency
contracts
totalling:
Settlement date 18 April 323,454,001 276,923,458 278,836,592 (1,913,134)
2019
Five Euro forward foreign
currency
contracts
totalling:
Settlement date 2 April 2019 (3,409,319) (2,901,682) (2,937,841) 36,159
Settlement date 18 April (768,162) (658,623) (662,201) 3,578
2019
Spot Contracts Receivable 6,570
(1,866,827)
(iii) Foreign currency risk
Mark to Unrealised
market gains/
equivalent (losses)
Contract Outstanding
values contracts
31.03.2018 31.03.2018 31.03.2018 31.03.2018
EUR GBP GBP GBP
Two Sterling forward foreign currency
contracts totalling:
Settlement date 13 April 322,894,014 287,255,340 283,125,370 4,129,970
2018
Three Euro forward foreign currency
contracts totalling:
Settlement date 13 April (17,853,633) (15,846,967) (15,654,723) (192,244)
2018
Spot Contracts Payable (4,663)
3,933,063
As at 31 March 2019 and as at 31 March 2018, the Company held the following
assets and liabilities denominated in Euro:
As at As at
31.03.2019 31.03.2018
Assets: GBP GBP
Investments 291,455,842 271,324,285
Cash and cash equivalents 345,503 682,980
Other receivables 2,402,677 2,319,599
Amounts due from - 2,607,294
broker
Amounts due to broker (22,186,772) (7,560,754)
Less: Open forward currency contracts (275,236,551) (267,470,647)
(3,219,301) 1,902,757
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 2019 and 31 March 2018. 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
31.03.2019 31.03.2018
GBP GBP
Impact on Statement of Comprehensive Income in response
to a:
- 10% increase 395,422 (138,041)
- 10% decrease (232,137) 254,059
Impact on Statement of Changes in Equity in response to
a:
- 10% increase 395,422 (138,041)
- 10% decrease (232,137) 254,059
(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 2019, 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 GBP24,579,830 (31 March 2018: GBP22,866,601). 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
2018: 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"):
31.03.19 31.03.18
AAA 2.03% 3.31%
AA+ 0.00% 1.21%
AA 0.29% 0.81%
AA- 1.49% 1.15%
A+ 1.59% 0.69%
A 4.78% 7.38%
A- 3.96% 4.52%
BBB+ 6.18% 5.40%
BBB 5.40% 8.88%
BBB- 7.04% 3.90%
BB+ 2.52% 2.75%
BB 14.88% 14.60%
BB- 1.62% 1.98%
B+ 3.86% 4.11%
B 21.73% 22.90%
B- 1.73% 1.42%
CCC+ 1.24% 1.33%
CCC 0.38% 0.27%
NR* 19.28% 13.39%
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
31.03.19 31.03.18
GBP GBP
Investments 491,596,605 457,332,017
Cash and cash equivalents 36,505,984 11,624,245
Unrealised gains on derivative assets 52,575 4,135,400
Capital Shares sold receivable 3,456,600 -
Amounts due from 3,908,529 2,607,294
broker
Other receivables 3,112,577 2,844,683
538,632,870 478,543,639
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 2019 GBP GBP GBP GBP
Financial
liabilities
Amounts due to brokers - (35,401,772) - (35,401,772)
Unrealised loss on derivative (1,919,402) - - (1,919,402)
liabilities
Share issue costs payable (79,492) - - (79,492)
Other payables (709,755) (57,000) - (766,755)
Total
(2,708,649) (35,458,772) - (38,167,421)
Up to 1 1-6 months 6-12 months Total
month
As at 31 March 2018 GBP GBP GBP GBP
Financial
liabilities
Amounts due to brokers - (7,560,754) - (7,560,754)
Unrealised loss on derivatives (202,337) - - (202,337)
Share issue costs payable - - - -
Other payables (712,417) (55,000) - (767,417)
Total
(914,754) (7,615,754) - (8,530,508)
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 and when
considering and approving dividend payments. 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 years ended 31 March 2019 and 31 March 2018.
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 - 7,497,786 - 7,497,786
Buy-to-Let RMBS - 33,617,638 4,274,394 37,892,032
CLO - 146,496,116 22,634,620 169,130,736
CMBS - 19,075,885 - 19,075,885
Consumer ABS - 23,338,586 23,069,273 46,407,859
Non-Conforming RMBS - 140,656,997 5,738,296 146,395,293
Prime RMBS - 58,566,061 4,964,961 63,531,022
Student Loans - 1,665,992 - 1,665,992
Forward currency - 52,575 - 52,575
contracts
Total assets as at 31 March
2019 - 430,967,636 60,681,544 491,649,180
Liabilities
Financial liabilities at
fair value through
profit or loss:
Forward currency contracts - 1,919,402 - 1,919,402
Total liabilities as at 31
March 2019 - 1,919,402 - 1,919,402
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
CLO - 137,037,519 26,925,077 163,962,596
CMBS - 4,376,846 - 4,376,846
Consumer ABS - 44,719,647 4,624,151 49,343,798
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 - 4,135,400 - 4,135,400
contracts
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 - 202,337 - 202,337
March 2018
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 are 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 2019 and 31 March 2018 by class of financial instrument.
Opening Net Net realised gain for Net unrealised (loss)/ Transfer Transfer out Closing
balance purchases / the period included gain for the period into Level Level 3 balance
(sales) in the Statement of included in the 3
Comprehensive Income Statement of
for level 3 Comprehensive Income
Investments held at for level 3 Investments
31 March 2019 held at 31 March 2019
GBP GBP GBP GBP GBP GBP GBP
Buy-to-Let 11,415,545 (8,065,099) 28,579 (35,795) 2,532,194 (1,601,030) 4,274,394
RMBS
CLO 26,925,077 (9,451,515) 686,952 (2,306,438) 12,393,095 (5,612,551) 22,634,620
Consumer ABS 4,624,151 (4,623,230) (38,963) (1,498,289) 24,605,604 - 23,069,273
Non-Conforming 56,869,802 (17,570,445) 195,998 (220,758) 5,785,031 (39,321,332) 5,738,296
RMBS
Prime RMBS 27,739,640 (3,856,534) 1,847,870 (1,615,836) 2,685,927 (21,836,106) 4,964,961
Student Loans 1,605,746 - - - - (1,605,746) -
Total at 31 129,179,961 (43,566,823) 2,720,436 (5,677,116) 48,001,851 (69,976,765) 60,681,544
March 2019
Opening Net Net realised gain/ Net unrealised gain/ Transfer Transfer out Closing
balance purchases (loss) for the year (loss) for the year into Level Level 3 balance
/(sales) included in the included in the 3
Statement of Statement of
Comprehensive Income Comprehensive Income
for level 3 for level 3
Investments held at Investments held at
31 March 2018 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
CLO 11,236,233 11,744,605 1,105,869 340,083 9,539,914 (7,041,627) 26,925,077
Consumer ABS 19,375,719 (7,371,112) 955,419 (179,095) - (8,156,780) 4,624,151
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
The following tables analyse within the fair value hierarchy the Company's
assets and liabilities not measured at fair value at 31 March 2019 and 31 March
2018 but for which fair value is disclosed.
The assets and liabilities included in the below 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.
Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Assets
Cash and cash 36,505,984 - - 36,505,984
equivalents
Amounts due from - 3,908,529 - 3,908,529
broker
Amounts due from shares issued - 3,456,600 - 3,456,600
Other - 3,112,577 - 3,112,577
receivables
Total assets as at 31 March 2019 36,505,984 10,477,706 - 46,983,690
Liabilities
Amounts due to - 35,401,772 - 35,401,772
brokers
Other payables - 846,247 - 846,247
Total liabilities as at 31 March 2019 - 36,248,019 - 36,248,019
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 brokers - 2,607,294 - 2,607,294
Other - 2,844,683 - 2,844,683
receivables
Total assets as at 31 March 2018 11,624,245 5,451,977 - 17,076,222
Liabilities
Amounts due to - 7,560,754 - 7,560,754
brokers
Other payables - 767,417 - 767,417
Total liabilities as at 31 March 2018 - 8,328,171 - 8,328,171
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 income available for distribution 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 quarter 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, less (d) total expenditure for the period.
The Board expects that dividends will constitute the principal element of the
return to the holders of Ordinary Redeemable Shares.
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.
The Company declared the following dividends in respect of distributable profit
for the year ended 31 March 2019:
Period to Dividend Net Record date Ex-dividend Pay date
rate per dividend date
Share payable
(pence) (GBP)
29 June 2018 0.0150 5,937,212 20 July 2018 19 July 2018 31 July 2018
30 September 0.0150 5,937,212 19 October 2018 18 October 31 October
2018 2018 2018
31 December 2018 0.0150 6,237,212 17 January 2019 18 January 31 January
2019 2018
29 March 2019 0.0195 8,834,751 18 April 2019 23 April 2019 30 April 2019
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 11 July
2019. Subsequent events have been evaluated until this date.
On 10 April 2019, the Company issued 11.25 million Ordinary Redeemable Shares
for a gross consideration of GBP13 million.
On 30 April 2019, the Company paid a dividend as detailed in note 19.
At the Extraordinary General Meeting of the Company held on 10 May 2019, all
Resolutions set out in the Extraordinary General Meeting Notice sent to
Shareholders dated 15 April 2019 were duly passed. As such the Company's
Investment Policy and Articles of Incorporation were amended.
Amendments to the Investment Policy
The Company's investment policy is to invest in a diversified portfolio of
predominantly UK and European Asset Backed Securities.
2.1 Diversification
The Company will maintain a Portfolio diversified by issuer concentration, it
being anticipated that the Portfolio will comprise at least 50 Asset Backed
Securities at all times.
2.2 Investment restrictions
The Portfolio must comply, as at each date an investment is made, with the
following restrictions:
(i) no more than 20 per cent. of the Portfolio value will be backed by
collateral in any single country (save that this restriction will not apply to
Northern European countries);
(ii) no more than 10 per cent. of the Portfolio value will be exposed to any
single Asset Backed Security or issuer of Asset Backed Securities, but provided
that where more than 5 per cent. of the Portfolio value is exposed to a single
Asset Backed Security, these Asset Backed Securities in respect of which more
than 5 per cent. of the Portfolio value is exposed, may not, in aggregate, make
up more than 40 per cent. of the total Portfolio value of the Company;
(iii) no more than 15 per cent. of the Portfolio value will be exposed in
aggregate to instruments not deemed securities for the purposes of FSMA,
provided that no more than 3 per cent. of the Portfolio value will be exposed
to any single such instrument; and
(iv)up to 10 per cent. of the Portfolio value may be exposed to Asset Backed
Securities backed by collateral from several countries where, in addition to
countries within the UK and Europe, one or more of the countries is outside of
the UK and Europe.
As an exception to the requirements set out above the Portfolio Manager will be
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 would be compliant with the single country restriction
above (even where following the purchase more than 20 per cent. of the
Portfolio will be backed by collateral in another single country due to market
movements);
* the asset purchased would be compliant with the single Asset Backed Security/
issuer exposure restriction above (even where following the purchase more than
10 per cent. of
the Portfolio value will be exposed to any single Asset Backed Security or
issuer of Asset Backed Securities, provided that Asset Backed Securities within
the Portfolio to which more than 5 per cent. of the Portfolio value is exposed,
may not make up more than 40 per cent. of the total Portfolio value of the
Company); and
* such purchase does not make the Portfolio, in aggregate, less compliant with
any of (i), (ii), (iii) and (iv) above.
2.3 Cash management
Uninvested cash or surplus capital or assets may be invested on a temporary
basis in:
* cash or cash equivalents, namely money market funds or short term money
market funds (as defined in the 'Guidelines on a Common Definition of European
Money Market Funds published by the Committee of European Securities Regulators
(CESR) and adopted by the European Securities and Markets Authority (ESMA)) and
other money market instruments (including certificates of deposit, floating
rate notes and fixed rate commercial paper of banks or other counterparties
having a "single A" or higher credit rating as determined by any
internationally recognised rating agency selected by the Board which, may or
may not be registered in the EU); and
* any "government and public securities" as defined for the purposes of the FCA
Rules.
2.4 Gearing and derivatives
The Company may employ gearing or derivatives for investment purposes.
The Company may, from time to time, use borrowing for investment opportunities
and short-term liquidity purposes, which could be achieved through a loan
facility or other types of collateralised borrowing instruments including
repurchase transactions or stock lending. The Company may have more than one,
loan, repurchase or stock loan facility in place. The Company is permitted to
provide security to lenders in order to borrow money, which may be by way of
mortgages, charges or other security interests or by way of outright transfer
of title to the Company's assets. In this case, the Directors will restrict
borrowing to an amount not exceeding 25 per cent. of the Company's Net Asset
Value at the time of drawdown. Derivatives may be used for currency hedging
purposes as set out below and for efficient portfolio management.
Amendments to the Articles
1. Definitions
Realisation Sale Election - An instruction sent by a Member during the Election
Period in accordance with Article 8.1 requesting that all or part of the
Ordinary Shares held by such holder be placed out in the market by the
Company's broker, redeemed or repurchased or purchased out of the proceeds of a
Realisation Issue or such other cash sources as may be available to the Company
from time to time or purchased under a tender offer or by a market maker and if
not so redeemed or purchased shall be converted into Realisation Shares.
8. Realisation
8.1 The Company may at its discretion make available to Members during an
Election Period the opportunity to make a Realisation Sale Election on such
basis as the Company shall notify to Members before or at the time that the
Company sends to Members a reminder notice in accordance with Article 8.2
below.
8.2 Unless the Company makes available to Members a Realisation Sale Election
in accordance with Article 8.1, Members shall be entitled to serve a
Realisation Share Election in writing to the Company at such address as the
Company shall specify or if none is specified at the Office or in such other
manner as the Board may determine during the Election Period requesting that
all or a part, provided such part be rounded up to the nearest whole Ordinary
Share, of the Ordinary Shares held by them be redesignated to Realisation
Shares with effect from the Reorganisation Date together with, in the case of
Certificated shares, the certificates (if any) of such Ordinary Shares to be
redesignated and any other evidence that the Board may reasonably require to
prove the title of the holder and the due execution by him of the Realisation
Share Election or, if the Realisation Share Election is executed by some other
Person on his behalf, the authority of that other Person to do so and in the
case of Uncertificated shares in accordance with, and otherwise in compliance
with, the procedures prescribed by the Board.
8.3 The Company will not less than 56 days prior to the Reorganisation Date
remind Ordinary Share-holders of their right to make a Realisation Election
and, if required by applicable law or regulation, shall issue a prospectus to
enable the Company to issue Realisation Shares.
8.4 A Realisation Election, once given, is irrevocable, unless the Board agrees
otherwise.
8.5 Members who do not submit a valid and complete Realisation Election during
the Election Period in respect of their Ordinary Shares will be deemed not to
have made a Realisation Election in respect of such Ordinary Shares. Ordinary
Shares held by Members who do not submit a Realisation Election in respect of
those Ordinary Shares will remain Ordinary Shares.
8.6 Subject to the aggregate Net Asset Value of the Ordinary Shares held by
Members who do not submit Realisation Elections in respect of those Ordinary
Shares ("continuing Ordinary Shares") at the close of business on the last
Business Day before any Reorganisation Date being not less than GBP100 million
(or in the case of Realisation Sale Elections the aggregate of the Net Asset
Value of the continuing Ordinary Shares at the close of business on the last
Business Day before the Reorganisation Date and the gross proceeds of any
Realisation Issue), Ordinary Shares the holders of which have made the
Realisation Share Election (where this is available in accordance with Article
8.2) or any Ordinary Shares the holders of which have made Realisation Sale
Elections but which are not placed out in the market by the Company's broker,
redeemed or repurchased or purchased out of the proceeds of the Realisation
Issue or such other cash sources as may be available to the Company from time
to time or purchased under a tender offer or by a market maker will be
redesignated as Realisation Shares and the Portfolio will be split in
accordance with Article 8.7 into two separate and distinct Pools namely the
Continuation Pool comprising the assets attributable to the Continuing Ordinary
Shares and the Realisation Pool comprising the assets attributable to the
Realisation Shares (which assets will be managed in accordance with an orderly
realisation programme with the aim of making progressive returns of cash to
holders of Realisation Shares as soon as practicable) with effect from the
Reorganisation Date. In the event that some but not all of the Ordinary Shares
the holders of which have made Realisation Share Elections (where this is
available in accordance with Article 8.2) or any Ordinary Shares the holders of
which have made Realisation Sale Elections are placed or repurchased by the
Company or purchased by a market maker, the Company shall ensure that so far as
is practicable, those Ordinary Shares are placed or repurchased or purchased
pro rata to the number of Ordinary Shares in respect of which Shareholders have
made Realisation Elections.
8.7 The Board shall divide and allocate the assets and liabilities of the
Company on the Reorganisation Date in the following manner:
8.7.1 The assets of the Company, or on any Reorganisation Date (a "Subsequent
Reorganisation Date") on which Realisation Shares ("Preceding Realisation
Shares") redesignated with effect from a preceding Reorganisation Date are
still in issue, the assets attributable to the Ordinary Shares in issue immediately before the Subsequent Reorganisation Date, shall be divided as at the opening of business on the Reorganisation Date into two pools which will be accounted for as two separate sub-portfolios, being respectively the Continuation Pool and the Realisation Pool. Each of the Company's holdings of investments (excluding assets attributable to holders of Preceding Realisation Shares) shall be split between the Continuation Pool and the Realisation Pool pro rata as nearly as practicable to the numbers of Ordinary Shares and Realisation Shares (excluding any Preceding Realisation Shares) respectively in existence immediately following Realisation and the remainder of the assets and liabilities (excluding assets and liabilities attributable to holders of Preceding Realisation Shares) being apportioned to the Continuation Pool. Assets and liabilities shall be allocated between the Continuation Pool and the Realisation Pool in such manner as in the Board's opinion best achieves the objective of splitting the Company's assets fairly between the Continuation Pool and the Realisation Pool. 8.7.2 Costs and expenses of the realisation of assets comprising the Realisation Pool will be attributed to the Realisation Pool and the costs and expenses of reorganising the Company's assets into the Continuation Pool and the Realisation Pool (including without limitation the preparation and publication of any prospectus or other publication which may be required in connection with such reorganisation) may be apportioned as between the Continuation Pool and the Realisation Pool in the proportion that the Board in its sole discretion deems fair and reasonable. In particular, the Board may increase the proportion of cash to be allocated to a particular Pool if they consider it would be equitable to both the holders of Realisation Shares and the holders of Ordinary Shares to do so, or if they determine it is necessary or desirable to retain cash for the Company's working capital purposes, they may decrease the proportion of cash to be so allotted and the Board may choose an alternative allocation, or subsequently rebalance the Pools, in respect of non-cash assets if they consider a pro rata allocation to be impracticable or that to do so would be equitable to both holders of Realisation Shares and the holders of Ordinary Shares. 8.8 Ordinary Shares which are redesignated as Realisation Shares will not rank for any dividend or other distribution declared, paid or made on the Ordinary Shares after their redesignation. 8.9 The Board is authorised to cause the Company to repurchase, redeem, convert or otherwise acquire and hold all or any Realisation Shares in such manner and on such terms as the Board may determine, and to redeem any such Realisation Shares inter alia for any reason or for no reason at the Board's absolute discretion. The price of shares purchased by the Company may be paid out of the share capital, share premium or retained earnings to the fullest extent permitted under the Law. 8.10 A certificate for new Realisation Shares will be sent within two Months of the Reorganisation Date to each holder without charge, with a new certificate for any balance of Ordinary Shares comprised in the surrendered certificate. To the extent that the Realisation Shares are redeemed on Realisation, the Board need not issue or despatch any certificate in respect thereof. 8.11 Existing Certificates for Ordinary Shares that have been redesignated will cease to be valid. 8.12 If one or more Realisation Elections are duly made and the Net Asset Value of the continuing Ordinary Shares at the close of business on the last Business Day before the Reorganisation Date (and where applicable the gross proceeds of any Realisation Issue) is less than GBP100 million, the Realisation will not take place, no Ordinary Shares will be redesignated as Realisation Shares and the Portfolio will not be split into the Continuation Pool and the Realisation Pool and with effect from the Reorganisation Date, unless the Directors have previously been released from this obligation by an Extraordinary Resolution, the investment objective and investment policy of the Company will be to realise the Company's assets on a timely basis with the aim of making progressive returns of cash to Members as soon as practicable. The Directors will seek to liquidate the Company's assets as efficiently and at as much value as is possible. 8.13 The provisions of Articles 8 and 9 shall override all other provisions of the Articles that may be inconsistent with Articles 8 and 9. 8.14 The Board may make such alterations to the timetable and procedures as set out in Article 8 as it in its absolute discretion considers appropriate to give effect to the intent of Article 8. 9. Rights of shares following the realisation 9.2 The Realisation Shares shall have the following rights in the event that the Realisation takes place: 9.2.1 As to dividends All profits of the Company available for distribution by way of dividend and/or distribution from time to time and forming part of or derived from the Realisation Pool (including accumulated revenue reserves by way of dividend forming part of the Realisation Pool), and resolved to be distributed shall be distributed to the holders of Realisation Shares by way of dividend and, for the avoidance of doubt Ordinary Shares which are redesignated as Realisation Shares will not rank for any dividend declared or paid on the Ordinary Shares after their redesignation. 9.2.2 As to capital On a return of assets on a winding up of the Company, the Realisation Shares carry a right to a return of the nominal amount paid up in respect of such Realisation Shares and a right to share pari passu and in proportion to the number of Realisation Shares held, in the surplus assets of the Company remaining in the Realisation Pool after payment of the nominal amount paid up on the Realisation Shares and after payment of all liabilities attaching to the assets in the Realisation Pool and any excess of those liabilities over the amount of the assets in the Realisation Pool will be paid out of the assets in the Continuation Pool. 9.2.3 As to voting The holders of Realisation Shares shall, subject to any terms on which any new Realisation Shares may be issued, or may for the time being be held, and to the provisions of the Articles, receive notice of, attend and vote at general meetings and shall have one vote for each Realisation Share held, provided that they may not vote on any proposed resolutions other than any resolution proposed at any general meeting of the Company at any time at which Realisation Shares are listed on the Premium segment of the Official List (a) to give effect to the provisions of Article 9.2, and (b) in respect of any matter prescribed by the Listing Rules as requiring approval of the Shareholders of the Company. 9.2.4 As to class rights Other than with respect to the Realisation or a winding-up in the case of any proposals drawn up by the Board pursuant to Article 50.1, or if the Company is to be wound up pursuant to Article 8.12, separate approval of the holders of Realisation Shares as a class must be obtained in respect of any proposals which would modify, alter or abrogate the rights attaching to the Realisation Shares including for these purposes (a) any resolution to wind up the Company, or to approve a takeover of the Company or any material change to the investment policy applicable to the Realisation Pool and (b) any proposal to issue or create Realisation Shares other than pursuant to Realisation Elections (in respect of any Reorganisation Date), in which circumstances the prior approval of the holders of Realisation Shares as a class is required by the passing of a resolution at a separate class meeting. 9.2.5 As to redemption The cash received by the Company as a result of the realisation of assets comprised in the Realisation Pool will be returned to the holders of Realisation Shares as soon as practicable through any of the following means or a combination thereof, at the discretion of the Directors: capital distributions, and/or share repurchases and/or redemptions, and/or tender offers. For the purpose of giving effect to this provision the Board is authorised subject to the provisions of the Articles, to cause the Company to repurchase, redeem, convert or otherwise acquire and hold all or any Realisation Shares in such manner and on such terms as the Board may determine, and to redeem any such Realisation Share inter alia for any reason or no reason at the Board's discretion, provided that the price paid per Realisation Share is equal to or greater than the Net Asset Value per Realisation Share, calculated as at the close of business on the first Business Day following the date of the relevant Board decision, less any fiscal charges, fees and expenses incurred by the Company as a result of such purchase, redemption, conversion and/or acquisition. The price of shares purchased and/or redeemed by the Company may be paid out of share capital, share premium or retained earnings or any other reserve forming part of the Realisation Pool to the fullest extent permitted under the Companies Law. The Realisation Shares created by the redesignation of Ordinary Shares with respect to any Reorganisation Date shall be a separate class of shares which shall be distinct from any Reorganisation Shares created by the redesignation of Ordinary Shares with respect to any Subsequent Reorganisation Date, the Realisation Pool created on any Reorganisation Date shall be a separate pool of assets which shall be distinct from any Realisation Pool created on any Subsequent Reorganisation Date and accordingly each class of Realisation Shares shall as a class have mutatis mutandis the rights attributable to Realisation Shares under Article 9.2. 26. Borrowing powers of the board
The Directors may exercise all the powers of the Company to borrow money for
investment
opportunities and short-term liquidity purposes, to give guarantees,
hypothecate, mortgage, charge or pledge all or part of the Company's assets,
property present or future) or undertaking and uncalled capital, or any part
thereof for the purposes of financing capital distributions pursuant to the
Realisation, share repurchases or redemptions, making investments or satisfying
working capital requirements provided that borrowings of the Company may not
exceed 25 per cent. of the NAV of the Company as at the time of drawdown
(unless approved by the Company by an Ordinary Resolution), and, subject to
compliance with the Memorandum and these Articles, to issue debentures and
other securities whether outright or as collateral security for any debt,
liability or obligation of the Company or of any third party.
The provisions of Article 8, 9, and 26 otherwise remain unchanged. However,
further technical changes to Articles 1, 23 and 52 have been made so that the
Articles conform to Guernsey law, as currently in force and Guernsey and UK
current best practice.
On 14 May 2019, the Company issued 70 million shares for a gross consideration
of GBP80.1 million.
On 15 May 2019, Joanne Fintzen purchased 17,476 Ordinary Redeemable Shares in
the Company.
As at the date of this report, the Company had 523,064,151 Ordinary Redeemable
Shares in issue.
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
Joanne Fintzen (appointed 7 January Trafalgar Court
2019) Les Banques
Jeannette Etherden (retired 14 March St Peter Port
2019) 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
Hamilton Centre 10 Paternoster Square
Rodney Way London, EC4M 7LT
Chelmsford, CM1 3BY
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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