TIDMAXI
RNS Number : 5965H
Axiom European Financial Debt Fd Ld
19 August 2016
19 August 2016
Axiom European Financial Debt Fund Limited
Results for the period from 7 October 2015 (date
of incorporation) to 30 June 2016
Highlights
30 June
2016
(unaudited)
Net assets attributable to Ordinary Shares GBP50,319,000
Net asset value ("NAV") per Ordinary Share 92.02p
Share price at 30 June 2016 95.50p
Premium to NAV 3.78%
Loss for the period ([1]) GBP(2,166,000)
Dividend per Share declared in respect of
the period 2.85p
Total return per Ordinary Share (based on
NAV) -4.70%
Total return per Ordinary Share (based on
Share price) -3.15%
Only 1.35p of the 2.85p per Ordinary Share dividends
([1]) declared for the period ended 30 June 2016 has
been paid. The dividend of 1.50p per Ordinary
Share announced on 19 July 2016, payable to shareholders
on record at 5 August 2016, and which will be
paid on 26 August 2016, has not been paid or provided
for in these financial statements as at 30 June
2016 as, in accordance with IFRS, it was not deemed
to be liability of the Company at that date.
For further information please visit www.axiom-ai.com
Elysium Fund Management Liberum Capital MHP Communications
Limited Limited 6 Agar Street
PO Box 650 Level 12, Ropemaker London
1(st) Floor Place WC2N 4HN
Royal Chambers 25 Ropemaker Street
St Julian's Avenue London
St Peter Port EC2Y 9LY Reg Hoare
Guernsey Giles Robinson
GY1 3JX Richard Bootle Ollie Hoare
Henry Freeman
axiom@elysiumfundman.com Tel: +44 20 3128
Tel: +44 1481 810 Tel: +44 20 3100 8100
100 2232
CHAIRMAN'S STATEMENT
This is the first half-yearly report since the Company
was launched in November 2015.
It was a challenging period, with the market falling
sharply in February, as explained in the Investment
Manager's Report, before recovering somewhat and
ending with the unexpected outcome of the Brexit
vote towards the end of June. Against this unhelpful
background, the Company generated a relatively small
loss of 4.1% of the capital raised (net of issue
costs of 2.0%).
In this environment, the Company's managers performed
creditably and they give a detailed insight into
their management of the Company's portfolio and
the market influences in the Investment Manager's
Report.
Results
The Company reported a net loss after tax for the
period ended 30 June 2016 of GBP2.2 million, representing
a loss per Ordinary Share of 4.11p. This loss comprised
a revenue profit of GBP1.5 million and a capital
loss on investments and foreign exchange of GBP3.7
million. The Company's non-Sterling investments
are fully hedged. The Company's portfolio is liquid
with approximately 80% capable of being realised
within ten days in normal market circumstances.
The liquidity risks arising from the hedging policy
are therefore considered to be low.
The Company's NAV at 30 June 2016 was GBP50.3 million
(92.02p per Ordinary Share).
From listing until 30 June 2016, the Company's shares
traded at an average price of 95.96p per Ordinary
Share, with a price of 95.50p at 30 June 2016 -
a premium of 3.8% to NAV.
Placings
On 3 November 2015 the Company issued 50,737,677
Ordinary Shares for GBP1 each, raising proceeds
of GBP50.74 million. On 5 November 2015, the Company's
IPO was successfully completed and its Ordinary
Shares were admitted to trading on the Specialist
Fund Segment (formerly known as the Specialist Fund
Market) of the London Stock Exchange.
Notwithstanding the challenging markets, the Company
was able to grow its capital base incrementally
with a modest placing of 3,945,555 new Ordinary
Shares at 90.00p per new Ordinary Share to raise
GBP3.55 million gross proceeds at a small premium
to the then prevailing NAV in early March.
Borrowings
The Company uses sale and repurchase agreements
to increase the gearing of the Company. As at 30
June 2016 the Company had three open sale and repurchase
agreements committing the Company to make a total
repayment of GBP2,515,000 including interest of
GBP2,000 post the period end. This compares to shareholder
funds of GBP50,319,000 as at the period end. Further
details are set out in notes 17 and 20 of the financial
statements.
Dividends
As set out in the Prospectus, the Company intends
to distribute all of its income from investments,
net of expenses, by way of dividends on a quarterly
basis. The Company may retain income for distribution
in a subsequent quarter to that in which it arises
in order to smooth dividend amounts or for the purposes
of efficient cash management.
The Company is seeking to pay dividends totalling
at least 6.00p per share in respect of the period
from Admission to 31 December 2016. During the period
the Company declared and paid two dividends totalling
1.35p per share and a further dividend of 1.50p
per share was declared on 19 July 2016. With the
payment of further dividends in October and January,
the Company is on track to meet this intention.
Outlook
There is still much work to do in the European financial
industry to reorganise liability structures to meet
new regulatory rules even if the overall capital
requirements have stabilised for now, according
to the European Central Bank ("ECB"). Brexit may,
in time, lead to divergence in regulatory capital
regimes between the UK and the European Union and
may create additional investment and trading opportunities.
However, in a process which is yet to start, it
is too early to say precisely what these opportunities
will be or when they will present themselves. New
instruments will still be issued and legacy ones
retired. Some individual banks are yet to complete
their balance sheet clean-up. The opportunity set
for investment in regulatory capital instruments
described in our Prospectus remains as rich as it
was then and the Company having weathered this heightened
volatility now represents a compelling value proposition
for investors looking at the banking sector. We
look forward to exploiting the opportunities presented
by the regulatory transition process with a skilled
and specialist manager.
William Scott
18 August 2016
INVESTMENT MANAGER'S REPORT
Axiom European Financial Debt Fund Limited (AEFD)
was launched on 5 November 2015; following a successful
listing on the Specialist Fund Segment of the LSE
raising gross proceeds of GBP50.7 million. On 4
March 2016 additional gross proceeds of GBP3.55
million were raised in a secondary placing.
1- Market developments
The first month provided a relatively benign environment.
After a strong reporting season showing more capital
build-up and asset quality improvements, the banking
sector had received clean bills of health both by
the European Single Supervisor with its 2015 Asset
Quality Review and the UK Prudential Regulation
Authority with its stress tests.
Mid-December 2015 saw the start of market volatility
when banks were notified of new capital requirements
under the Supervisory Review and Evaluation Process
("SREP"). Italian banks were the first under scrutiny,
in particular those with high Non Performing Loan
("NPL") ratios. The focus moved quickly to companies
with large balance sheets in core EU countries,
such as BNP Paribas, and investor confidence took
a further hit with the decision by the Bank of Portugal
on 29 December 2015 to re-transfer senior bonds
back to Banco Espirito Santo.
With this challenging regulatory backdrop, Q1 2016
proved to be a perfect storm for bank valuations
as investors expressed further caution in the wake
of low oil prices, Chinese economic slowdown, potential
US rate hikes and EU uncertainty from the UK's pending
referendum. Despite strong capital updates from
banks like Crédit Agricole, the earnings season
showed how banks struggled to maintain revenues
and how costs, whether operational, conduct-related
or regulatory, ultimately dragged down the profitability
outlook. In addition to NPLs, investors added negative
interest rates to the list of concerns for the sector.
Investor sentiment was hit further when very negative
headlines were reported about Deutsche Bank and
the risks of its business model.
The segment that suffered the most was the Additional
Tier 1 ("AT1") market which fell to an all-time
low on
11 February 2016. This new format of hybrids was
impacted by the combination of disappointing updates
in their results from banks including Société
Générale and Royal Bank of Scotland, and
an increasing awareness of investors towards the
regulatory risk attached to the coupon payments.
Regulatory authorities tried to alleviate investor
concerns themselves. Mrs Nouy, Chair of the Supervisory
Board at the ECB, reiterated that banks could count
on capital requirements staying at current levels
as the regulatory requirements have reached "steady
state". At the end of February, in a remarkable
initiative of disclosure and transparency, the ECB
published a booklet detailing its approach towards
go-to capital ratios and organised a Q&A session
with analysts, where it suggested a change to the
legislation, in particular Article 141 that defines
the restrictions on Maximum Distributable Amounts
under the new Capital Requirements Directive.
The market reaction was subdued with AT1 valuations
gaining back only half of what they had lost, while
UK banks were dragged down by the launch of the
UK's EU Leave and Remain campaigns following Prime
Minister Cameron's revised EU deal.
In March 2016 financial institutions saw a number
of positive developments. In the Netherlands, Delta
Lloyd's EUR650 million rights issue was approved.
In the UK, Old Mutual confirmed the break-up of
the group. In Italy, Popolare and Milano finally
agreed on their merger after lengthy negotiations
with the ECB and Vicenza started its equity raise.
At the instrument level, issuers launched opportunistic
tenders (Barclays, Standard Chartered, Crédit
Agricole), called at their first call date (BNP
Paribas), and re-opened the primary market for AT1s
(UBS).
The real support came on 10 March 2016 from Mario
Draghi himself when he spontaneously referred to
a note from the ECB, in his closing comments of
a press conference. This note, prepared for the
Banking Union in discussion with the European Parliament,
recommends a favourable treatment of AT1s relative
to dividends and bonuses, alongside a split of capital
demands between requirement (mandatory) and guidance
(non-binding).
In April and May 2016, the Q1 results season was
mixed as weaker revenues were offset by lower loan
losses and further capital strengthening. However,
the sentiment towards the banking sector improved
as oil prices rebounded above US$50 per barrel,
Brexit risks receded in polls, and Italy launched
Atlante, its sector-wide fund set up for smaller
bank recapitalisations and securitisation of non-performing
loans, with EUR4.25 billion in private sector capital.
On the back of this, five new AT1 deals printed
(Rabobank, BBVA, Bankinter, HSBC, Erste Bank) and,
in a surprisingly coordinated manner, Global Systemically
Important Banks announced a series of calls (Santander
UK, Barclays, UBS, RBS, HSBC) and tenders (Unicredit).
Finally, in reaction to the regulatory pressure
on NPLs, Banco Popular announced a surprise EUR2.5
billion capital raise.
The month of June 2016 saw investors polarised on
political risk: in the UK, with the polls driving
an ever increasing uncertainty closer to the Brexit
vote date, in Spain where the new round of elections
failed to deliver a majority, and in Italy investors
look towards the Italian constitutional referendum
in October 2016. At the end of the month bank valuations
across the UK and EU dropped sharply on the back
of British voters choosing to leave the EU. Notwithstanding
these risks, bank fundamentals saw significant improvements
with successful capital raises of Banco Popolare
and Veneto Banca and more liability management exercises
from Lloyds, Novo banco and Pfandbriefbank.
2- Investment Strategy
AEFD is a closed-ended fund investing in liabilities
issued by European financial institutions, predominantly
legacy Tier 1s, Tier 2s, and Additional Tier 1s
across five sub-strategies:
* Liquid Relative Value: instruments issued by large
and strong quality institutions, with significant
liquidity. These can be purchased on either primary
or secondary markets.
* Less Liquid Relative Value: instruments issued by
large and strong quality institutions, with limited
liquidity due to past tenders or complex features
(secondary market).
* Restructuring: instruments issued by institutions in
preparation or implementation of a restructuring
process (secondary market).
* Special Situations: instruments issued by entities in
run-off, under a merger process or split between
several entities (secondary market).
* Midcap Origination: instruments issued by small
institutions or small subsidiaries of larger
institutions (primary market).
3- Fund deployment
On the day following the listing, AEFD deployed
40% of its capital across the full range of its
strategies (including 22% in the Liquid Relative
Value strategy). This increased to 82%, as of 30
November 2015, deployed across 40 instruments.
Prior to launch, the Investment Manager guided that
it would invest predominantly in the Liquid Relative
Value strategy and re-allocate over a six-month
period into opportunities in the other strategies.
However, given the uncertainty on capital rules
mostly affecting AT1s, the Investment Manager reduced
the portion of Liquid Relative Value instruments
(consisting essentially of AT1s) and kept it high
in the second quarter to benefit from the price
normalisation. See below the chart showing the ramp-up
as realised (dotted lines) vs. intended (squares).
1(st) 2(nd) 4(th) 6(th)
Month Month Month Month
Liquid Relative
Value 80% 49% 50% 53% 30% 50% 25% 37%
Less Liquid
Relative Value 5% 16% 15% 21% 25% 25% 30% 27%
Restructuring 5% 10% 10% 13% 15% 14% 15% 16%
Special Situations 5% 5% 10% 5% 15% 6% 15% 9%
Midcap Origination 5% 4% 10% 4% 15% 5% 15% 4%
---- ---- ---- ------
Number of
Positions 40 53 66 72
==== ==== ==== =====
Allocation Phase-in Period Target
Strategies portfolio
Source: AEFD Monthly Fact Sheets.
4- Trading activity
November 2015: ramping up cautiously
The Company continued its ramp-up on less liquid
instruments including fixed-to-fixed Tier 1s (6%
of capital) and two bonds recently issued by Irish
banks (3% of capital). A strong position was also
built on Delta Lloyd old-style Tier 2 bonds (5%)
ahead of its capital increase. This position was
reduced to 3.5% after contributing 0.15p to the
NAV.
December 2015: volatility begins
The Company completed its ramp-up by adding 4% of
UK AT1s and 2% of Italian sub debt, benefiting from
the lower valuations. Still the correction impacted
negatively on positions held in Italian old style
Tier 1s and Tier 2s, which reduced the NAV by 0.18p.
Positions held on insurers gave back some of their
recent gains, negatively impacting the NAV by 0.3p.
In Portugal, the Company took some marginal exposures
in seniors and legacy Tier 1s across three issuers
that negatively impacted the NAV by 0.85p overall.
The Company invested in legacy Tier 1s less prone
to the increasing market volatility: one step-up
floater issued by Société Générale
offering more than 8% to the call in 2017, and one
old-style UK "Permanent Interest Bearing Shares"
instrument offering more than 13% to its call in
2017.
January 2016: Lightening up into sell-off
While the Company started the month 97% invested,
early in the month it sold some of its most liquid
positions:
* 4% in the 1st week: Société
Générale 6.75 AT1 at 102.71 and LivVic 6.5
2043-23 at 99.00;
* 4% in the 2nd week on Irish banks: Bank of Ireland
AT1 at 103.75 and AIB T2 at 99.25; and
* 3% in the 3rd week: KBC AT1 and Erste Bank T1 (with
accrued).
Meanwhile the Company continued the sourcing of
legacy Tier 1s and bought Italian subordinated bonds
at all-time lows benefiting from the market overreaction
to NPL concerns in the sector.
The Company did not hold any instruments issued
by Deutsche Bank.
February 2016: Seeking opportunities into historical
stress
The Company started the month with 6% cash which
was fully deployed over the month. In the first
two weeks, it bought selectively AT1s at historically
low prices: BNP Eur AT1 below 90.00, Santander Eur
AT1 at 82.25, AIB Eur AT1 at 84.50.
Less Liquid Relative Value: the Company bought Credit
Logement legacy Tier 1s, after a 10pt drop, some
legacy Tier 1 issued by PostBank at 11% yield to
call; some high coupon hybrid by Banca Popolare
di Milano; and very short dated Tier 2 by Carige.
Restructuring: it trimmed down senior exposures
to small Popolari banks raising capital in Italy
(Veneto Banco and Vicenza), realising gains from
the entry levels in mid-January.
Towards the end of the month, it reduced its exposure
to UK AT1s before Brexit concerns were priced in,
selling some Coventry Building Society and Nationwide
AT1s.
March 2016: Positioning into the rebound
In the Liquid Relative Value strategy, the Company
bought higher beta AT1s (UniCredit 8, Deutsche Bank
6) ahead of the ECB press conference and sold bonds
in Old Mutual and Delta Lloyd after their capital
updates. It also added AT1s with dividend stoppers
(CS and new UBS) as defensive plays pending new
legislation around AT1 format.
In the Less Liquid Relative Value strategy, the
Company reduced exposure to UniCredit Cashes in
front of adverse technicals and sourced further
Société Générale step-up floaters
as well as a new RBS fixed-to-fixed US$ Tier 1 position.
The Company also built a small (1%) position on
a BNP Paribas non-step GBP legacy Tier 1 whose call
was just announced (bought at 96.10 and sold at
100.25).
In the Restructuring strategy, the Company added
slightly more exposure to Monte dei Paschi legacy
non-paying Tier 1s at distressed level (38.00 cash
price).
April 2016: maximising exposure
The Company continued its ramp-up towards the other
less liquid strategies while remaining exposed to
the AT1 segment, ahead of the upcoming change to
coupon rules.
* Liquid Relative Value: the Company sold down its
remaining positions on Old Mutual and Delta Lloyd to
increase its exposure to AT1s. On 12 April 2016, the
Company bought AT1s issued by BNP, Santander, Bank of
Ireland and AIB. It added more AIB AT1s, dismissing
the whistleblower's warning about NPL write-backs,
and new BBVA 8.875 and Rabobank 6.625 at levels that
discounted heavily any extension risk.
* Less Liquid Relative Value: the Company's allocation
in the new Bankinter 8.625 AT1 went under this
sub-strategy given the small outstanding amount
(EUR200 million). It also bought discounted UBS Prefs
and RBS Fixed-to-Fixed instruments ahead of potential
liability management exercises. To fund these
purchases, it sold some of its BFCM CMS position
because of its longer-term catalyst.
* Restructuring: the Company sold its Monte dei Paschi
Tier 2 position at 92.50 (bought at 65.00 in January)
and started trimming down exposures to Popolari di
Vicenza into the launch of its capital increase and
the Atlante announcements. It replaced these
exposures with rare short-dated BCP Tier 2s sourced
at 87.00 from a liquidation auction.
The Company ended the month with 1% cash, with the
capacity to borrow 5% at short notice.
May 2016: when expected calls happened
* Liquid Relative Value: the Company took part in the
new Erste Bank AT1 but passed on HSBC for relative
value considerations. Four large AT1 positions were
sold in the final week of the month where the
valuations reached their peaks taking the
sub-strategy down from 45% to 42%.
* Less Liquid Relative Value: the Company added on
three fixed-to-fixed instruments and lightened up on
a legacy Tier 1 above par. It benefited strongly from
two calls. The first one on UBS discounted Prefs saw
valuations jumping from 65.00 to 100.00 and the
second one on HSBC from 89.00 to 100.40 overnight,
contributing 0.56p into the NAV.
* Restructuring: the Company sold its residual position
on Vicenza following the completion of the capital
raise and switched it partly into Veneto Banca. It
bought some Banco Popular legacy Tier 1 early in the
month and later sold its Banco Popular AT1 position
on the announcement of the capital raise.
June 2016: preparing for all political outcomes
The Company started the month with 7% cash and increased
the cash position to 13% ahead of the Brexit vote.
Liquid AT1s stood at 36%, stable vs. end of May,
down from 48% at the end of April, and the portion
of UK AT1s was limited to 8.5%. At the end of the
Brexit week, the NAV dropped by 1.22%.
Activity across sub-strategies was as follows:
* Liquid Relative Value: the Company bought a defensive
position in Tier 2s, in anticipation of a potential
capital increase.
* Less Liquid Relative Value: a position in Banca
Carige Tier 2 matured and two positions, Spanish AT1
and Italian legacy Tier 1, were sold, both above par.
* Special Situations: the Company bought a hybrid
instrument issued by an insurance holding in the
process of splitting its group entities.
* Restructuring: the Company bought two legacy Tier 1s
issued by two banks under stress in Italy and
Germany.
The Company ended the month with 6% cash.
5- Portfolio (as at 30 June 2016) Strategy Allocation
(as a % of investments
held)
Liquid Relative
Value 37%
Less Liquid Relative
Value 27%
Restructuring 16%
Special Situations 9%
Midcap Origination 4%
Cash 6%
Denomination (as a % of investments held,
excluding cash)
EUR 36%
GBP 22%
USD 20%
DKK 2%
Portfolio Breakdown (as a % of non-cash investments
held, excluding cash)
By rating By subordination
A 0.4% Legacy Tier 1 45%
Additional Tier
BBB 18% 1 41%
BB 49% Tier 2 13%
B 20% Senior 1%
<B 12%
By maturity By country
<1 year 14% UK 29%
1-3 20% France 19%
3-5 28% Italy 11%
5-7 12% Spain 9%
7-10 18% Ireland 7%
>10 8% Austria 7%
Germany 7%
Denmark 5%
Portugal 4%
Netherlands 2%
Belgium 1%
Main Positions
(top ten)
Instruments Strategy % of
NAV
RBS Capital Trust Less Liquid
$6.8 Perp-03/2008 Rel. Val. 4.42%
Société
Générale Less Liquid
$L+75 Perp-04/2017 Rel. Val. 4.37%
Credit Agricole Liquid Relative
GBP7.5 Perp-06/2026 Value 3.57%
Barclays PLC GBP7 Liquid Relative
Perp-06/2019 Value 3.51%
Lloyds Bank PLC Less Liquid
GBP11.75 Perp Rel. Val. 3.50%
UniCredit SpA Eur Liquid Relative
6.75 Perp-09/2021 Value 3.35%
Hypo RE Intl Trust Liquid Relative
5.864 Perp-06/2017 Value 3.24%
Fortis Eur+200 Special
Perp Situations 3.23%
RBS Group PLC Eur Less Liquid
5.5 Perp-12/2009 Rel. Val. 3.05%
Less Liquid
Lloyds $6.85 Perp-03/2009 Rel. Val. 2.97%
Sub-strategy Yield-to-Maturity Yield-to-Call
Liquid Relative
Value 7.00% 9.47%
Less Liquid Relative
Value 5.59% 8.41%
Restructuring 6.72% 17.40%
Special Situations 7.22% 19.23%
Midcap Origination 10.04% 9.02%
Total Portfolio 7.51% 12.13%
6- Company metrics Accounting data Portfolio information
Net assets: 50,318,872.06 Modified duration*: 2.9
NAV per share Sensitivity
(GBp): 92.02 to credit: 3.7
Net gearing 109.2% Positions: 72
Share price (mid): 95.50 Yield to call*: 12.1%
(Discount) /
Premium 3.78% Yield to perpetuity*: 7.5%
==================== ============== ====================== ======
As of 30 June 2016:
*"Modified duration" measures the sensitivity of
bond prices to interest rates.
"Sensitivity to credit" measures the sensitivity
of bond prices to credit spreads.
"Yield to call" is the yield of the portfolio at
the expected repayment date of the bonds.
"Yield to perpetuity" is the yield of the portfolio
assuming that securities are not repaid but kept
outstanding to perpetuity.
Performance - Total Shareholder Return (NAV plus
dividends, per share)
1 month 3 months 6 months YTD 1 year 3 years Since inception
-1.94% 1.78% -3.48% -3.48% n.a. n.a. -4.72%
Monthly Performance - Total Shareholder Return (NAV
plus dividends, per share)
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Annual
perf.
2015 - - - - - - - - - - 0.19% -1.48% -1.29%
2016 -4.02% -4.59% 3.56% 1.16% 2.61% -1.94% - - - - - - -3.48%
7- NAV evolution Share price
Share price (mid) +
Date NAV (mid) NAV + dividends dividends
05/11/2015 97.97 101.50 97.97 101.50
27/11/2015 98.19 101.50 98.19 101.50
31/12/2015 96.74 101.50 96.74 101.50
29/01/2016 92.85 101.50 92.85 101.50
26/02/2016 88.24 101.25 88.59 101.60
24/03/2016 91.39 96.50 91.74 96.85
29/04/2016 92.45 96.50 92.80 96.85
27/05/2016 93.87 95.50 95.22 96.85
30/06/2016 92.02 95.50 93.37 96.85
8- Outlook
The recent volatility in the banking sector shows
how the transition to the new regulatory framework
is still taking time. Issuers, investors and also
newly-empowered supervisors have to learn how to
deal with capital instruments, in both old and new
formats. This continues to create an environment
that offers significant opportunities for the Company,
in particular through renewed periods of volatility.
Overall, our outlook remains constructive on the
European banking sector, despite uncertainties related
to macroeconomic environment or political stability.
In the short term, we expect prices to continue
to normalise as authorities coordinate their use
of new regulatory tools in the restructuring process
of banking sectors across Europe, as we see in Italy
and Austria. In the medium term, we expect some
significant forbearance from the ECB as it moves
from capital requirements to softer capital guidance
for next year, giving more flexibility for coupon
payments on hybrids to continue or resume. Finally,
in the longer run, we expect new investors to continue
to enter the AT1 market, especially in this environment
of low rates for longer. We expect this to benefit
the entire asset class, new formats as well as legacy
instruments.
Gildas Surry
18 August 2016
Unaudited Condensed Statement of Comprehensive Income
for the period from 7 October 2015 (date of incorporation)
to 30 June 2016
From 7 October
2015 to 30
June 2016
(unaudited)
Note Total
GBP'000
Income
Bond income 2,067
Credit default swap income 18
----------
Total income 2,085
----------
Investment gains and losses on investments
held at fair value through profit
or loss
Realised gains on disposal of bonds 9 71
Movement in unrealised gain on bonds 9 1,637
Realised losses on derivative financial
instruments 12 (2,016)
Movement in unrealised loss on derivative
financial instruments 12 (2,979)
----------
Total investment gains and losses (3,287)
----------
Expenses
Investment management fee 6 (210)
Administration fee 6 (80)
Directors' fees 6 (62)
Broker fees 6 (49)
PR expenses (43)
Depositary fees 6 (26)
Bank charges and interest (26)
Audit fees (14)
Other expenses (56)
----------
Total expenses (566)
----------
Loss from operating activities before
gains and losses on foreign currency
transactions (1,768)
Loss on foreign currency (385)
----------
Net loss from operating activities
after gains and losses on foreign
currency transactions and before taxation (2,153)
Taxation 7 (13)
----------
Loss for the period attributable to
the Owners of the Company (2,166)
----------
Loss per Ordinary Share - basic and
diluted 8 (4.11)p
All of the items in the above statement are derived
from continuing operations.
There was no other comprehensive income in the period.
The accompanying notes form an integral part of this
announcement.
Unaudited Condensed Statement of Changes in Equity
for the period from 7 October 2015 (date of incorporation)
to 30 June 2016
Distributable
Share capital reserves Total
Note (unaudited) (unaudited) (unaudited)
GBP'000 GBP'000 GBP'000
Opening balance at 7
October 2015 - - -
Loss for the period
from incorporation to
30 June 2016 - (2,166) (2,166)
Contributions by and
distributions to owners
Share capital issued 15 - 54,289 54,289
Share issue costs - (1,080) (1,080)
Dividends paid 5 - (724) (724)
---------- ---------- ----------
At 30 June 2016 - 50,319 50,319
---------- ---------- ----------
There was no other comprehensive income in the period.
The accompanying notes form an integral part of this
announcement.
Unaudited Condensed Statement of Financial Position
as at 30 June 2016
As at 30
June 2016
Note (unaudited)
GBP'000
Non-current assets
Investments in bonds at fair value
through profit or loss 9 50,662
----------
Current assets
Collateral accounts for derivative
financial instruments at fair value
through profit or loss 10 1,714
Other receivables and prepayments 11 815
Cash and cash equivalents 3,489
----------
Total current assets 6,018
----------
Total assets 56,680
----------
Current liabilities
Derivative financial liabilities at
fair value through profit or loss 12 (6,125)
Other payables and accruals 14 (236)
----------
Total liabilities (6,361)
----------
Net assets 50,319
----------
Share capital and reserves
Share capital 15 -
Distributable reserves 50,319
----------
Total equity holders' funds 50,319
----------
Net asset value per Ordinary Share:
basic and diluted 16 92.02p
The accompanying notes form an integral part of this
announcement.
Unaudited Condensed Statement of Cash Flows
for the period from 7 October 2015 (date of incorporation)
to 30 June 2016
From 7 October
2015 to
30 June
2016
Notes (unaudited)
GBP'000
Net cash outflow from operating activities
Net loss before taxation (2,153)
Adjustments for:
Realised gain on bonds (71)
Movement in unrealised gains on bonds (1,637)
Realised loss on derivative financial
instruments 2,016
Movement in unrealised loss on derivative
financial instruments 2,979
Increase in operating assets:
Payment to collateral accounts for
derivative financial instruments (1,714)
Purchase of bonds 9 (85,517)
Sale of bonds 9 36,563
Increase in operating liabilities:
Premiums received from credit default
swap agreements 12 634
Purchase of foreign currency derivatives 12 (73,920)
Closing of foreign currency derivatives 12 72,018
Net proceeds from purchase and closure
of bond futures 34
Proceeds from sale and repurchase
agreements 12 5,918
Payments to close out sale and repurchase
agreements 12 (3,554)
------------
Net cash outflow from operating activities
before working capital changes (48,404)
Increase in other receivables and
prepayments (815)
Increase in other payables and accruals 236
------------
Net cash outflow from operating activities (48,983)
Cash flows from financing activities
Proceeds from issue of Ordinary Shares 54,289
Share issue costs paid (1,080)
Dividends paid (724)
------------
Net cash inflow from financing activities 52,485
Taxation paid (13)
------------
Increase in cash and cash equivalents 3,489
Cash and cash equivalents brought -
forward
------------
Cash and cash equivalents carried
forward 3,489
------------
The accompanying notes form an integral part of this
announcement.
Notes to the Results
for the period from 7 October 2015 (date of incorporation)
to 30 June 2016
1. General Information
The Company is an authorised closed-ended, non-cellular
investment company domiciled and incorporated as
a limited liability company on 7 October 2015 under
the laws of Guernsey. The registered office of the
Company is
PO Box 650, 1(st) Floor, Royal Chambers, St Julian's
Avenue, St Peter Port, Guernsey, GY1 3JX.
At the initial placing, on 3 November 2015 the Company
issued 50,737,677 Ordinary Shares of no par value
for GBP1 each, raising proceeds of GBP50.74 million.
The Company's Ordinary Shares were admitted to trading
on the Specialist Fund Segment of the London Stock
Exchange on 5 November 2015.
On 4 March 2016 the Company raised GBP3.55 million
through the placing of 3,945,555 new Ordinary Shares
of no par value. The Ordinary Shares were issued
at a price of 90p per share bringing the total number
of Ordinary Shares in issue at the period end date
to 54,683,222.
Investment objective
The investment objective of the Company is to provide
Shareholders with an attractive return, while limiting
downside risk, through investment in the following
Financial Institution Investment Instruments:
* Regulatory Capital Instruments, being financial
instruments issued by a European Financial
Institution which constitute regulatory capital for
the purposes of Basel I, Basel II or Basel III or
Solvency I or Solvency II;
* Other Financial Institution Investment Instruments,
being financial instruments issued by a European
Financial Institution, including without limitation
senior debt, which do not constitute Regulatory
Capital Instruments; and
* Derivative Instruments, being CDOs, securitisations
or derivatives, whether funded or unfunded, linked or
referenced to Regulatory Capital Instruments or Other
Financial Institution Investment Instruments.
Investment policy
The Company will seek to invest in a diversified
portfolio of Financial Institution Investment Instruments.
The Company will focus primarily on investing in
the secondary market although instruments may also
be subscribed in the primary market where the Investment
Manager identifies attractive opportunities.
The Company will invest its assets with the aim
of spreading investment risk.
2. Statement of compliance
a) Basis of preparation
These are the results of the Company for the period
from 7 October 2015 (incorporation) to 30 June 2016.
These results have been prepared in accordance with
the Disclosure and Transparency Rules of the Financial
Conduct Authority and International Accounting Standard
34, Interim Financial Reporting, as adopted by the
European Union.
The results for the period ended 30 June 2016 have
not been audited or reviewed by the Company's auditors
and do not constitute statutory financial statements.
They have been prepared on the same basis as will
be used to prepare the Company's annual financial
statements.
These results were authorised for issuance by the
Board of Directors on 18 August 2016.
b) Basis of measurement
These results have been prepared on a historical
cost basis, except for investments, including derivative
financial instruments, which are measured at fair
value. These results have been prepared on a going
concern basis (note 3i).
c) Functional and presentation currency
These results are presented in Sterling, which is
also the Company's functional currency as this is
the currency of the primary economic environment
within which the Company operates. All financial
information presented in Sterling has been rounded
to the nearest thousand except when otherwise indicated.
d) Use of judgements and estimates
Judgements made by the Directors in the application
of International Financial Reporting Standards ("IFRSs")
that have a significant effect on the results and
estimates with a significant risk of material adjustment
in the next year are discussed in note 3.
3. Use of judgements and estimates
The preparation of the Company's results requires
the Directors to make judgements, estimates and
assumptions that affect the reported amounts recognised
in the results. However, uncertainty about these
could result in outcomes that could require a material
adjustment to the carrying amount of the assets
or liabilities in future periods.
Judgements
In the process of applying the Company's accounting
policies, the Directors have made the following
judgements, which have had the most significant
effects on the amounts recognised in the results:
i) Going concern
After making reasonable enquiries, and assessing
all data relating to the Company's liquidity, the
Directors have a reasonable expectation that the
Company has adequate resources to continue in operational
existence for the foreseeable future and do not
consider there to be any threat to the going concern
status of the Company. Therefore, these results
have been prepared on a going concern basis.
Estimates and assumptions
The Company based its estimates on information available
when the results were approved. However, existing
circumstances and assumptions about future developments
may change due to market changes or circumstances
arising beyond the control of the Company. Such
changes may impact any estimates used in the preparation
of the accounts and are therefore reflected in the
assumptions as and when they occur.
The estimates and underlying assumptions are reviewed
on an ongoing basis. Revisions to accounting estimates
are recognised in the period in which the estimate
is revised, if the revision affects only that period;
or in the period of the revision and future periods,
if the revision affects both current and future
periods.
i) Valuation of financial assets and liabilities
The Company relies on the expertise of the Investment
Manager to assess the prices of investments at the
valuation date. The majority of the prices can be
independently verified with reference to external
data sources, however a minority of investments
cannot be verified by reference to an external source
and reliance is placed on the Investment Manager
to secure an independent valuation with reference
to the latest prices traded within the market place.
ii) Determination of functional currency
The performance of the Company is measured and reported
to investors in Sterling. The Directors consider
Sterling to be the currency that most accurately
represents the economic effects of the underlying
transactions, events and conditions.
4. Segmental reporting
In accordance with IFRS 8: Operating Segments, it
is mandatory for the Company to present and disclose
segmental information based on the internal reports
that are regularly reviewed by the Board in order
to assess each segment's performance.
Management information for the Company as a whole
is provided internally for decision making purposes.
The Company does compartmentalize different investments
in order to monitor compliance with investment restrictions,
however the performance of these allocations does
not drive the investment decision process. The Directors'
decisions are based on a single integrated investment
strategy and the Company's performance is evaluated
on an overall basis. Therefore, the Directors are
of the opinion that the Company is engaged in a
single economic segment of business for all decision
making purposes. The financial results of this segment
are equivalent to the results of the Company as
a whole.
5. Dividends
As stated in the Company's Prospectus, the Company
is targeting a net total return on invested capital
in excess of 10% per annum over a seven year period.
Returns to Shareholders will predominantly comprise
dividends.
The Company intends to distribute all of its income
from investments, net of expenses, by way of dividends
on a quarterly basis, with dividends declared in
January, April, July and October and paid in February,
May, August and November in each year. The Company
may retain income for distribution in a subsequent
quarter to that in which it arises in order to smooth
dividend amounts or for the purposes of efficient
cash management.
The Company will seek to pay dividends totalling
at least 6.00p per share in respect of the period
from Admission to 31 December 2016. The Company
has declared the following dividends for the period
from incorporation to 30 June 2016:
Total dividend Dividend
declared per Ordinary
Announcement date Pay date in the period Share
GBP'000
26 February
26 January 2016 2016 177 0.35p
25 April 2016 27 May 2016 547 1.00p
------------
Total dividends declared and
paid 724
26 August
19 July 2016 2016 820 1.50p
------------
Total dividends declared 1,544
------------
On 19 July 2016, the Company declared a dividend
of 1.50p per Share, which will be paid on
26 August 2016. This dividend was not provided
for at 30 June 2016 as, in accordance with IFRS,
the dividend payment was not deemed to be a liability
of the Company at that date.
6. Related parties and key contracts
a) Investment Manager
The Company has entered into an Investment Management
Agreement with Axiom under which the Company receives
investment advice and management services.
Management fee
Under the terms of the Investment Management Agreement,
a management fee will be paid to the Investment
Manager quarterly in arrears. The quarterly fee
will be calculated by reference to the following
sliding scale:
i. where NAV is less than or equal to GBP250 million,
1% per annum of NAV;
ii. where NAV is greater than GBP250 million but
less than or equal to GBP500 million, 1% per annum
of NAV on the first GBP250 million and 0.8% per
annum of NAV on the balance; and
iii. where NAV is greater than GBP500 million, 0.8%
per annum of NAV, in each case, plus applicable
VAT.
If in any quarter (other than the final quarter)
of any accounting period the aggregate expenses
of the Company during such quarter exceed an amount
equal to one-quarter of 1.5% of the average NAV
of the Company during such quarter (such amount
being a "Quarterly Expenses Excess"), then the management
fee payable in respect of that quarter shall be
reduced by the amount of the Quarterly Expenses
Excess, provided that the management fee shall not
be reduced to an amount that is less than zero and
no sum will be payable by the Investment Manager
to the Company in respect of the Quarterly Expenses
Excess.
During the period, a total of GBP210,000 was incurred
in respect of Investment Management fees, of which
GBP137,000 was payable at the reporting date.
In addition, the Investment Manager was paid GBP183,000
for its work on the placings.
Performance fee
The Investment Manager shall be entitled to receive
from the Company a performance fee subject to certain
performance benchmarks.
The fee will be payable as a share of Total Shareholder
Return ("TSR") where TSR is defined as growth in
NAV per share plus dividends per share paid.
The performance fee, if any, will be equal to 15%
of TSRs in excess of a hurdle equal to a
7% per annum cumulative return since Admission,
compounded annually. The performance fee is subject
to a high watermark.
The fee, if any, will be payable annually and calculated
on the basis of audited annual accounts.
50% of the performance fee will be settled in cash.
The balance will be satisfied in shares, subject
to certain exceptions where settlement in shares
would be prohibited by law or would result in the
Investment Manager or any person acting in concert
with it incurring an obligation to make an offer
under Rule 9 of the City Code, in which case the
balance will be settled in cash.
Assuming no such requirement, the balance of the
performance fee will be settled either by the allotment
to the Investment Manager of such number of new
shares credited as fully paid as is equal to 50%
of the performance fee (net of VAT) divided by the
most recent practicable NAV per share (rounded down
to the nearest whole share) or by the acquisition
of shares in the market, as required under the terms
of the Investment Management Agreement. All shares
allotted to (or acquired for) the Investment Manager
in part satisfaction of the performance fee will
be subject to a lock-up until the date that is 12
months from the end of the accounting period to
which the award of such shares related.
Any applicable VAT will be paid in cash.
During the period, no performance fee was incurred
by the Company and there was no balance accrued
at the period end date.
b) Administrator and Company Secretary
Elysium Fund Management Limited has been appointed
by the Company to provide day to day administration
services to the Company, to calculate the NAV per
Share on a weekly basis and to provide company secretarial
functions required under the Companies Law.
Under the terms of the Administration Agreement,
the Administrator is entitled to receive a fee of
GBP110,000 per annum, which is subject to an annual
adjustment upwards to reflect any percentage change
in the retail prices index over the preceding year.
In addition, the Company shall pay the Administrator
a time-based fee for any work undertaken in connection
with the calculation of the weekly NAV, up to a
maximum of GBP400 per NAV calculation, subject to
a maximum aggregate amount of GBP10,000 per annum.
The Administrator was also paid a one-off establishment
fee of GBP25,000 on Admission.
During the period, a total of GBP80,000 was incurred
in respect of Administration fees, of which GBP31,000
was payable at the reporting date.
c) Broker
Liberum Capital Limited ("Liberum") has been appointed
to act as Corporate Broker ("Broker") for the Company.
In consideration of Liberum agreeing to act as Broker
the Company pays Liberum an annual retainer fee
of GBP75,000 per annum, paid equally in two instalments
on 1 January and 1 July each year. For the period
from incorporation to
30 June 2016, the Company had paid GBP49,000 in
respect of Brokers fees. At the period end date
there was no outstanding balance due to or from
Liberum.
In addition, Liberum was paid GBP287,000 for its
work on the placings.
d) Registrar
Capita Registrars (Guernsey) Limited has been appointed
Registrar of the Company.
Under the terms of the Registrar Agreement, the
Registrar is entitled to receive from the Company
certain annual maintenance and activity fees, subject
to a minimum fee of GBP5,500 per annum.
During the period, a total of GBP12,000 was incurred
in respect of Registrar fees, of which GBP2,000
was payable at the reporting date.
e) Depositary
CACEIS Bank France has been appointed by the Company
to provide depositary, settlement and other associated
services to the Company.
Under the terms of the Depositary Agreement, the
Depositary is entitled to receive from the Company:
i. an annual depositary fee of 0.03% of NAV, subject
to a minimum annual fee of EUR25,000;
ii. a safekeeping fee calculated using a basis point
fee charge based on the country of settlement and
the value of the assets; and
iii. an administration fee on each transaction,
together with various other payment/wire charges
on outgoing payments.
During the period, a total of GBP12,000 was incurred
in respect of depositary fees, of which GBP7,000
was payable at the reporting date.
CACEIS Bank Luxembourg is entitled to receive a
monthly fee from the Company in respect of the provision
of certain accounting services which will, subject
to a minimum monthly fee of EUR1,800, be calculated
by reference to the following sliding scale:
i. where NAV is less than or equal to EUR50 million,
0.04% per annum of NAV;
ii. where NAV is greater than EUR50 million but
less than or equal to EUR100 million, 0.03% per
annum of NAV; and
iii. where NAV is greater than EUR100 million, 0.02%
per annum of NAV, in each case, plus applicable
VAT.
During the period, a total of GBP14,000 was incurred
in respect of fees paid to CACEIS Bank Luxembourg,
of which GBP3,000 was payable at the reporting date.
f) Directors' remuneration
Bill Scott (Chairman) is paid GBP35,000 per annum,
John Renouf (chairman of the Audit Committee) is
paid GBP32,500 per annum, and Max Hilton is paid
GBP27,500 per annum.
The Directors are also entitled to reimbursement
of all reasonable travelling and other expenses
properly incurred in the performance of their duties.
During the period, a total of GBP62,000 was incurred
in respect of Directors' fees, of which GBP24,000
was payable at the reporting date.
7. Taxation
The Company is exempt from taxation in Guernsey,
and it is the intention to conduct the affairs of
the Company to ensure that it continues to qualify
for exempt company status for the purposes of Guernsey
taxation. The Company pays a fixed fee for the exemption
of GBP1,200 per annum.
The Company has a number of investments in bonds
issued in Italy. The Company is a Guernsey registered
Company, and any income received on Italian bonds
suffers Italian withholding tax at 26%. In addition,
Italian withholding tax is calculated, by the Depositary,
and either charged or received on the purchase or
sale of bond interest bought or sold with bonds
at a rate of 26%.
During the period ended 30 June 2016, the Company
suffered a total of GBP13,000 in relation to Italian
withholding tax.
8. Loss per Ordinary Share
The loss per Ordinary Share of 4.11p is based on
a loss of GBP2,166,000 and on a weighted average
number of 52,702,190 Ordinary Shares in issue since
Admission. There is no difference between the basic
and diluted earnings per share.
9. Investments in bonds at fair value through profit
or loss
Period
from incorporation
to 30 June
2016
(unaudited)
GBP'000
Balance as at 7 October 2015 (date -
of incorporation)
Additions in the period 85,517
Sales in the period (36,563)
Movement in unrealised gains in
the period 1,637
Movement in realised gains in the
period 71
----------
Balance as at 30 June 2016 50,662
----------
Closing book cost 49,025
Closing unrealised gain on bonds
at fair value through profit or
loss 1,637
----------
Closing valuation 50,662
----------
10. Collateral accounts for derivative financial
instruments at fair value through profit or loss
30 June
2016
(unaudited)
GBP'000
CACEIS Bank France 116
Goldman Sachs International 1,598
----------
Total collateral held by
brokers 1,714
----------
11. Other receivables and prepayments
30 June
2016
(unaudited)
GBP'000
Accrued bond interest receivable 798
Interest due on credit default
swaps (note 12) 4
Other receivables and prepayments 13
----------
Total receivables and prepayments 815
----------
12. Derivative financial instruments
Credit default swap agreements
A credit default swap agreement represents an agreement
that one party, the protection buyer, pays a fixed
fee, the premium, in return for a payment by the
other party, the protection seller, contingent upon
a specified credit event relating to an underlying
reference asset. While there is no credit event,
the protection buyer pays the protection seller
a quarterly fixed premium. If a specified credit
event occurs, there is an exchange of cash flows
and/or securities designed so the net payment to
the protection buyer reflects the loss incurred
by holders of the referenced obligation in the event
of its default. The International Swaps and Derivatives
Association ("ISDA") establishes the nature of the
credit event and such events include bankruptcy
and failure to meet payment obligations when due.
Period
from incorporation
to 30 June
2016
(unaudited)
GBP'000
Balance as at 7 October 2015 (date -
of incorporation)
Premiums received (634)
Movement in unrealised losses in
the period (141)
----------
Outstanding liability due on credit
default swaps as at 30 June 2016 (775)
----------
Interest paid or received on the credit default
swap agreements has been accounted for in the Unaudited
Condensed Statement of Comprehensive Income as it
has been incurred or received. At the period end,
GBP4,000 of interest on credit default swap agreements
was due to the Company.
Foreign currency forwards
Foreign currency forward contracts are used for
trading purposes and are used to hedge the Company's
exposure to changes in foreign currency exchange
rates on its foreign portfolio holdings. A foreign
currency forward contract is a commitment to purchase
or sell a foreign currency on a future date and
a negotiated forward exchange rate.
Period
from incorporation
to 30 June
2016
(unaudited)
GBP'000
Balance as at 7 October 2015 -
(date of incorporation)
Purchase of foreign currency
derivatives 73,920
Closing of foreign currency
derivatives (72,018)
Movement in unrealised losses
in the period (2,840)
Realised losses in the period (1,902)
----------
Total liabilities on foreign
currency forwards as at 30
June 2016 (2,840)
----------
Bond futures
A bond future contract involves a commitment by
the Company to purchase or sell bond futures for
a predetermined price, with payment and delivery
of the bond future at a predetermined future date.
Period
from incorporation
to 30 June
2016
(unaudited)
Balance as at 7 October 2015 -
(date of incorporation)
Net purchase and sale of bond
futures (34)
Movement in unrealised gains
in the period 92
Realised losses in the period (53)
----------
Balance receivable on bond
futures as at 30 June 2016 5
----------
Sale and Repurchase agreements
Under the terms of a sale and repurchase agreement
("repo") one party in the agreement acts as a borrower
of cash, using a security held as collateral, and
the other party in the agreement acts as a lender
of cash. Almost any security may be employed in
the repo. Interest is paid by the borrower for the
benefit of having funds to use until a specified
date on which the effective loan needs to be repaid.
Period
from incorporation
to 30 June
2016
(unaudited)
GBP'000
Balance as at 7 October 2015 -
(date of incorporation)
Opening of sale and repurchase
agreements (5,918)
Closing-out of sale and repurchase
agreements 3,554
Movement in unrealised losses
in the period (90)
Realised losses in the period (61)
----------
Total liabilities on sale
and repurchase agreements
as at 30 June 2016 (2,515)
----------
Interest paid on sale and repurchase agreements
has been accounted for in the Unaudited Condensed
Statement of Comprehensive Income as it has been
incurred. At the period end date GBP2,000 of interest
on sale and repurchase agreements was payable by
the Company.
13. Fair value of financial instruments at fair
value through profit or loss
The following table shows financial instruments
recognised at fair value, analysed between those
whose fair value is based on:
* Quoted prices in active markets for identical assets
or liabilities (Level 1);
* Those involving inputs other than quoted prices
included in Level 1 that are observable for the asset
or liability, either directly (as prices) or
indirectly (derived from prices) (Level 2); and
* Those with inputs for the asset or liability that are
not based on observable market data (unobservable
inputs) (Level 3).
At 30 June 2016, the financial assets and liabilities
designated at fair value through profit or loss
were as follows:
30 June 2016 (unaudited)
Level Level Level Total
1 2 3
GBP'000 GBP'000 GBP'000 GBP'000
Listed bonds 50,662 - - 50,662
Credit default swaps - (775) - (775)
Derivative financial instruments 5 (2,840) - (2,835)
Sale and repurchase agreements - (2,515) - (2,515)
----------- ----------- ----------- ------------
Total financial assets and liabilities
designated as at fair value through
profit or loss 50,667 (6,130) - 44,537
----------- ----------- ----------- ------------
Level 1 financial instruments include listed bonds
and bond future contracts which have been valued at
fair value by reference to quoted prices in active
markets. No unobservable inputs were included in determining
the fair value of these investments and, as such,
alternative carrying values for ranges of unobservable
inputs have not been provided.
Level 2 financial instruments include credit default
swap agreements, foreign currency forward contracts
and sale and repurchase agreements. Each of these
financial investments are valued by the Investment
Manager using market observable inputs. The fair value
of these securities may be based on, but are not limited
to, the following inputs: market price of the underlying
security, notional amount, expiration date, fixed
and floating interest rates, payment schedules and/or
dividends declared.
Transfers between levels
Transfers between levels during the period are determined
and deemed to have occurred at each financial reporting
date. There were no investments classified as Level
3 during the period, and no transfers between levels
in the period. See notes 9, 12 and 13 for movements
in instruments held at fair value through profit or
loss.
14. Other payables and accruals
30 June
2016
(unaudited)
GBP'000
Investment management fee 137
Administration fee 31
Directors' fees 24
Depositary fees 10
Registrar fees 2
Interest due on sale and
repurchase agreements (note
12) 2
Other accruals 30
----------
Total payables and accruals 236
----------
15. Share capital
30 June 2016
(unaudited)
Number GBP'000
Authorised:
Ordinary Shares of no par unlimited -
value
---------------
Allotted, called up and fully
paid:
Ordinary Shares of no par
value 54,683,222 -
--------------- ---------------
At the initial placing, on 3 November 2015 the Company
issued 50,737,677 Ordinary Shares of no par value
for GBP1 each, raising proceeds of GBP50.74 million.
On 4 March 2016 the Company raised GBP3.55 million
through the placing of 3,945,555 new Ordinary Shares
of no par value. The Ordinary Shares were issued
at a price of 90p per share, bringing the total
number of Ordinary Shares in issue at the period
end date to 54,683,222.
16. Net asset value per Ordinary Share
Basic and diluted
The NAV of 92.02p per Ordinary Share is based on
the net assets attributable to Equity Shareholders
of GBP50,319,000
and on 54,683,222 Ordinary Shares in issue at the
end of the period.
17. Capital commitments
The Company holds a number of derivative financial
instruments which, by their very nature, give rise
to capital commitments post 30 June 2016. These are
as follows:
* At the period end, the Company had sold four credit
default swap agreements for a total of GBP634,000,
each receiving quarterly interest. The exposure of
the Company in relation to these agreements at the
period end date was US$20,076,000 (GBP15,084,000).
Collateral of US$1,960,000 (GBP1,472,000) at 30 June
2016 for these agreements is held with Goldman Sachs
International.
* At the period end the Company had committed to three
foreign currency forward contracts dated 8 September
2016 to buy GBP41,797,000. At 30 June 2016, the
Company could have affected the same trades and
purchased GBP44,638,000, giving rise to a loss of
GBP2,841,000.
* At 30 June 2016, the Company had taken a long
position maturing on 28 September 2016, committing
the Company to a purchase of a gilt future for
GBP3,058,000.
* At the period end the Company held three open sale
and repurchase agreements committing the Company to
make a total repayment of GBP2,515,000 plus interest
of GBP2,000. The repayment dates for the debts were
GBP1,907,000 on 7 July 2016 and GBP609,000 on 20 July
2016. These payments were collateralised with the
equivalent of GBP126,000 being held on account at
Goldman Sachs International.
18. Events after the financial reporting date
On 19 July 2016, the Company announced a dividend
payment of 1.50p per Share to be paid on 26 August
2016. The payment of the dividend was in line with
the Company's dividend target of 6.00p per annum
as detailed in the Prospectus.
There were no other material events after 30 June
2016 that required disclosure as at 18 August 2016.
19. Related parties
Details of the relationships between the Company,
the Investment Manager, the Administrator, the Broker,
the Registrar, the Depositary and the Directors
are disclosed in note 6.
During the period, the Company purchased 2,910 units
in Axiom Contingent Capital for GBP2.12 million
and subsequently sold 910 units for GBP673,000 making
a realised gain on investment of GBP9,000. At the
period end, the Company held 2,000 units in Axiom
Contingent Capital valued at GBP1.64 million, generating
an unrealised gain of GBP185,000.
The Directors are not aware of any ultimate controlling
party.
20. Capital management policy and procedures
The Company's capital management objectives are:
-- to ensure that it will be able to meet its liabilities
as they fall due; and
-- to maximise its total return primarily through
the capital appreciation of its investments.
Pursuant to the Company's Articles of Incorporation,
the Company may borrow money in any manner. However,
the Board has determined that the Company should
borrow no more than 20% of direct investments.
The Board, with the assistance of the Investment
Manager, monitors and reviews the structure of the
Company's capital on an ad hoc basis. This review
includes:
-- how funds could be returned to Shareholders;
-- the current and future levels of gearing;
* the need to buy-back Ordinary Shares for cancellation
or to be held in treasury, which takes account of the
difference between the NAV per share and the share
price; and
-- the current and future dividend policy.
The Company uses sale and repurchase agreements to
increase the gearing of the Company. As at 30 June
2016 the Company had three open sale and repurchase
agreements committing the Company to make a total
repayment of
GBP2,515,000 including interest of GBP2,000 post
the period end.
As disclosed in the Unaudited Condensed Statement
of Financial Position, at 30 June 2016, the total
equity holders' funds were GBP50,319,000.
21. Significant accounting policies
a) Income and expenses
Bank interest, bond income and credit default swap
income is recognised on a time-proportionate basis
using the effective interest rate method.
Dividend income is recognised when the right to receive
payment is established.
All expenses are recognised on an accruals basis.
All of the Company's expenses (with the exception
of share issue costs, which are charged directly
to the distributable reserve) are charged through
the Unaudited Condensed Statement of Comprehensive
Income in the period in which they are incurred.
b) Transaction costs
Transaction costs incurred on the acquisition or
disposal of a financial investment designated at
fair value through profit or loss will be charged
through the Unaudited Condensed Statement of Comprehensive
Income in the period in which they are incurred.
c) Foreign currency
Foreign currency transactions are translated into
Sterling using the exchange rates prevailing at the
dates of the transactions. Foreign exchange gains
and losses resulting from the settlement of such
transactions and from the translation at period-end
exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised
in the Unaudited Condensed Statement of Comprehensive
Income. Translation differences on non-monetary financial
assets and liabilities are recognised in the Unaudited
Condensed Statement of Comprehensive Income.
The Company does not isolate that portion of gains
and losses on investments that is due to changes
in foreign exchange rates from the portion due to
changes in market prices of the investments. Such
fluctuations are included in gains/(losses) on financial
assets and liabilities at fair value through profit
or loss in the Unaudited Consolidated Statement of
Comprehensive Income.
The exchange rates used by the Company as at the
30 June 2016 were GBP1/EUR1.1984, GBP1/US$1.3311
and GBP1/DKK8.9153.
d) Taxation
The Directors intend to conduct the Company's affairs
such that the Company remains eligible for exemption
from Guernsey tax.
Investment income is recorded gross of applicable
taxes and any tax expenses are recognised through
the Unaudited Condensed Statement of Comprehensive
Income as incurred.
The Company holds investments in several European
countries, in some jurisdictions, investment income
and capital gains are subject to withholding tax
deducted at the source of the income. The Company
presents the withholding tax separately from the
gross investment income in the Unaudited Condensed
Statement of Comprehensive Income. For the purpose
of the Unaudited Condensed Statement of Cash Flows,
cash inflows from investments are presented net of
withholding taxes when applicable.
e) Dividends
The Company intends to distribute all of its income
from investments, net of expenses, by way of dividends
on a quarterly basis, with dividends declared in
January, April, July and October and paid in February,
May, August and November in each year. The Company
may retain income for distribution in a subsequent
quarter to that in which it arises in order to smooth
dividend amounts or for the purposes of efficient
cash management.
f) Bad debt provision
The Company differentiates between:
* bonds (senior debt) where coupons are due; and
* subordinated and hybrid instruments, where the
non-payment does not result in a credit event for the
issuer and tends to be fully discretionary in the
case of hybrids.
There are instruments in the portfolio that do not
pay any distribution because the payment remains
at the discretion of the issuer, or is under regulatory
or state aid restrictions. These are not classified
as "bad debts".
Principal amounts are not reviewed for debt recovery
purposes, as these are carried at fair value through
profit or loss and credit risk is built into the
prices on which the carrying values are based.
With respect to senior debt only:
* If bond interest has not been received within 30
calendar days of the expected pay date, unless there
is good reason, 50% of the interest will be provided
against; and
* If bond interest has not been received within 60
calendar days of the expected pay date, unless there
is good reason, 100% of the interest will be provided
against.
Bad debts will be considered on an investment by
investment basis and no general provision will be
made.
g) Financial assets and liabilities
The financial assets and liabilities of the Company
are defined as investments in bonds at fair value
through profit or loss, collateral accounts for derivative
financial instruments, cash and cash equivalents,
other receivables, derivative financial instruments,
and other payables.
Recognition
The Company recognises a financial asset or a financial
liability when, and only when, it becomes a party
to the contractual provisions of the instrument.
Purchases and sales of financial assets that require
delivery of assets within the time frame generally
established by regulation or convention in the marketplace
are recognised on the trade date, i.e. the date that
the Company commits to purchase or sell the asset.
Financial assets and financial liabilities at fair
value through profit or loss are recorded in the
Unaudited Condensed Statement of Financial Position
at fair value. All transaction costs for such instruments
are recognised directly in the Unaudited Condensed
Statement of Comprehensive Income.
After initial measurement, the Company measures financial
instruments which are classified at fair value through
profit or loss, at fair value. Subsequent changes
in the fair value of those financial instruments
are recorded in net gain or loss on financial assets
and liabilities at fair value through profit or loss.
Interest and dividend earned or paid on these instruments
are recorded separately in interest income or expense
and dividend income or expense.
Derecognition
A financial asset (or, where applicable, a part of
a financial asset or part of a group of similar assets)
is derecognised where:
* the rights to receive cash flows from the asset have
expired; or
* the Company has transferred its rights to receive
cash flows from the asset or has assumed an
obligation to pay the received cash flows in full
without material delay to a third party under a
"pass-through" arrangement; and
* either (a) the Company has transferred substantially
all the risks and rewards of the asset, or (b) the
Company has neither transferred nor retained
substantially all the risks and rewards of the asset,
but has transferred control of the asset.
When the Company has transferred its rights to receive
cash flows from an asset (or has entered into a pass-through
arrangement) and has neither transferred nor retained
substantially all the risks and rewards of the asset
nor transferred control of the asset, the asset is
recognised to the extent of the Company's continuing
involvement in the asset.
The Company derecognises a financial liability when
the obligation under the liability is discharged,
cancelled or expires.
Net gain or loss on financial assets and financial
liabilities at fair value through profit or loss
The Company records its transactions in bonds and
the related revenue and expenses on a trade date
basis. Unrealised gains and losses comprise changes
in the fair value of financial instruments at the
period end. These gains and losses represent the
difference between an instrument's initial carrying
amount and disposal amount, or cash payments on,
or receipts from derivative contracts.
Offsetting of financial instruments
Financial assets and financial liabilities are reported
net by counterparty on the Unaudited Condensed Statement
of Financial Position, provided that legal right
of offset exists, and is not offset by collateral
pledged to or received from counterparties.
h) Derivative financial instruments
Derivative financial instruments, including credit
default swap agreements, foreign currency forward
contracts, bond future contracts and sale and repurchase
agreements are recognised initially, and are subsequently
measured at fair value. Derivative financial instruments
are classified as assets when their fair value is
positive or as liabilities when their fair value
is negative. Derivative assets and liabilities arising
from different transactions are offset only if the
transactions are with the same counterparty, a legal
right of offset exists, and the parties intend to
settle the cash flows on a net basis. Fair value
movements on derivative financial instruments are
recognised in the Unaudited Condensed Statement
of Comprehensive Income in the period in which they
arise.
i) Offsetting of derivative assets and liabilities
International Financial Reporting Standard ("IFRS")
7, Financial Instruments: Disclosures, requires
an entity to disclose information about offsetting
rights and related arrangements. The disclosures
provide users with information to evaluate the effect
of netting arrangements on an entity's financial
position. The disclosures are required for all recognised
financial instruments that could be offset in accordance
with International Accounting Standard 32, Financial
Instruments Presentation, ("IAS32"). The disclosures
also apply to recognised financial instruments that
are subject to an enforceable master netting agreement
or similar agreement, irrespective of whether there
are offset in accordance with IAS32.
j) Collateral accounts for derivative financial
instruments at fair value through profit or loss
Collateral accounts for derivative financial instruments
at fair value through profit or loss comprises cash
balances held at the Company's depositary and the
Company's clearing brokers and cash collateral pledged
to counterparties related to derivative contracts.
Cash that is related to securities sold, not yet
purchased, is restricted until the securities are
purchased. Financial instruments held within the
margin account consist of cash received from brokers
to collateralize the Company's derivative contracts
and amounts transferred from the Company's bank
account.
k) Receivables and prepayments
Receivables are carried at the original invoice
amount, less allowance for doubtful receivables.
Provision is made when there is objective evidence
that the Company will be unable to recover balances
in full. Balances are written-off when the probability
of recovery is assessed as being remote.
l) Cash and cash equivalents
Cash in hand and in banks and short-term deposits
which are held to maturity will be carried at cost.
Cash and cash equivalents are defined as cash in
hand, demand deposits and short-term, highly liquid
investments readily convertible to known amounts
of cash and subject to insignificant risk of changes
in value.
m) Payables and accruals
Trade and other payables are carried at payment
or settlement amounts. Where the time value of money
is material, payables are carried at amortised cost.
When payables are received in currencies other than
the reporting currency, they are carried forward,
translated at the rate prevailing at the period
end date.
n) Share capital
Ordinary Shares are classified as equity. Incremental
costs directly attributable to the issue of Ordinary
Shares are recognised as a deduction from equity.
When share capital recognised as equity is repurchased,
the amount of the consideration paid, which includes
directly attributable costs, is recognised as a
deduction from equity. Repurchased shares that are
classified as Treasury Shares are presented as a
deduction from equity. When Treasury Shares are
sold or subsequently reissued, the amount received
is recognised as an increase in equity and the resulting
surplus or deficit is transferred to/from retained
earnings.
Funds received from the issue of Ordinary Shares
are allocated as a distributable reserve.
o) Distributable and non-distributable reserves
All income and expenses, foreign exchange gains
and losses and realised investment gains and losses
of the Company are allocated to the distributable
reserve.
p) NAV per share and loss per share
The NAV per share disclosed on the face of the Unaudited
Condensed Statement of Financial Position is calculated
by dividing the net assets by the number of Ordinary
Shares in issue at the period end.
Loss per share is calculated by dividing the loss
for the period by the weighted average number of
Ordinary Shares in issue during the period.
q) Accounting standards issued but not yet effective
The International Accounting Standards Board ("IASB")
has issued/revised a number of relevant standards
with an effective date after the date of these results.
Any standards that are not deemed relevant to the
operations of the Company have been excluded. The
Directors have chosen not to early adopt these standards
and interpretations and they do not anticipate that
they, with the exception of IFRS 9, Financial Instruments,
would have a material impact on the Company's financial
statements in the period of initial application.
A full assessment of the impact of IFRS 9 and IFRS
15, Revenue from Contracts with Customers, has not
yet been performed.
Effective
date
IFRS Share-based payments 1 January
2 2018
IFRS Financial Instruments 1 January
9 2018
IFRS Revenue from Contracts with Customers 1 January
15 2018
IAS 7 Statement of Cash Flows 1 January
2017
-- ENDS --
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR QVLFFQVFBBBZ
(END) Dow Jones Newswires
August 19, 2016 02:00 ET (06:00 GMT)
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