TIDMHONY
RNS Number : 7288L
Honeycomb Investment Trust PLC
10 September 2019
Honeycomb Investment Trust plc
Interim Report and Unaudited Financial Statements
For the period from 1 January 2019 to 30 June 2019
10 September 2019 - Honeycomb Investment Trust plc today
announces its Interim Report and Unaudited Financial Statements for
the period ended 30 June 2019.
Copies of the interim report can be obtained from the following
website: www.honeycombplc.com
1 Strategic Report
Investment Objective
The investment objective of Honeycomb Investment Trust plc (the
"Company") is to provide shareholders with an attractive level of
dividend income and capital growth through investing in primarily
asset secured loans ("Credit Assets") and selected equity
investments that are aligned with the Company's strategy and that
present opportunities to enhance the Company's returns from its
investments ("Equity Assets").
Financial and Operational Highlights
30 June 2019 30 June 2018 31 December
(Unaudited) (Unaudited) 2018 (Audited)
================================= ============= ============= ================
NET ASSET VALUE
NET ASSET VALUE (CUM INCOME)
(GBP'000) (1) 400,050 400,867 400,710
NET ASSET VALUE (EX INCOME)
(GBP'000) (2) (3) 393,784 394,407 394,405
MARKET CAPITALISATION (GBP'000)
(4) 437,894 439,867 445,784
================================= ============= ============= ================
PER SHARE METRICS
SHARE PRICE (AT CLOSE) (5) 1,110.0p 1,115.0p 1,130.0p
NAV PER SHARE (CUM INCOME)
(1) 1,014.1p 1,016.1p 1015.7p
NAV PER SHARE (EX INCOME)
(2) 998.2p 999.8p 999.8p
SHARES IN ISSUE 39,449,919 39,449,919 39,449,919
================================= ============= ============= ================
PERFORMANCE INDICATORS AND
KEY RATIOS
PREMIUM / (DISCOUNT) (3)
(6) 9.5% 9.7% 11.3%
ANNUAL NAV PER SHARE RETURN
(3) (7) 7.5% 9.0% 8.4%
ITD TOTAL NAV PER SHARE RETURN
(3) (8) (9) 29.0% 21.1% 25.1%
DEBT TO EQUITY (10) 44.9% 25.1% 47.2%
REVENUE RETURN (11) 7.5% 7.8% 7.8%
DIVID RETURN (12) 8.0% 8.0% 8.0%
ONGOING CHARGES (13) 1.7% 1.5% 1.6%
================================= ============= ============= ================
(1) NET ASSET VALUE (CUM INCOME): will include all income not
yet moved to reserves (both revenue and capital income), less the
value of (i) any dividends paid in respect of that income and (ii)
any dividends in respect of that income which have been declared
and marked ex dividend but not yet paid. NAV per share is
calculated by dividing the calculated figure by the total number of
shares.
(2) NET ASSET VALUE (EX INCOME): will be the NAV (Cum Income)
excluding net income (both revenue and capital income) that is yet
to be transferred to reserves as described below. For this purpose
net income will comprise all income not yet moved to reserves (both
revenue and capital income), less the value of (i) any dividends
paid in respect of that income and (ii) any dividends in respect of
that income which have been declared and marked ex dividend but not
yet paid. Any income in respect of a financial year, which is
intended to remain undistributed will be moved to reserves on the
first business day of the immediately following year, meaning that
each figure for NAV (Ex-Income) reported during a financial year
will equate to the NAV (Cum Income) less undistributed income which
has not been moved to reserves. NAV per share is calculated by
dividing the calculated figure by the total number of shares.
(3) ALTERNATIVE PERFORMANCE MEASURES: Alternative Performance
Measures ("APMs") are used to improve the comparability of
information between reporting periods, either by adjusting for
uncontrollable or one-off factors which impact upon IFRS measures
or, by aggregating measures, to aid the user understand the
activity taking place. The Strategic Report includes both statutory
and adjusted measures, the latter of which, reflects the underlying
performance of the business and provides a more meaningful
comparison of how the business is managed. APMs are not considered
to be a substitute for IFRS measures but provide additional insight
on the performance of the business. Reconciliations to amounts
appearing in the financial statements can be found in section
5.
((4) MARKET CAPITALISATION: the closing mid-market share price
multiplied by the number of shares outstanding at month end.
(5) SHARE PRICE (AT CLOSE): closing mid-market share price at
month end (excluding dividends reinvested).
(6) PREMIUM / (DISCOUNT): the amount by which the price per
share of an investment trust is either higher (at a premium) or
lower (at a discount) than the net asset value per share (cum
income), expressed as a percentage of the net asset value per
share.
(7) ANNUAL NAV PER SHARE RETURN: is calculated as Net Asset
Value (Cum Income) at the end of the period, plus dividends
declared during the period, divided by NAV (Cum Income) calculated
on a per share basis at the start of the year annualised.
((8) ITD: inception to date - excludes issue costs.
(9) TOTAL NAV PER SHARE RETURN: is calculated as Net Asset Value
(Cum Income) at the end of the year, plus dividends declared during
the period, divided by NAV (Cum Income) calculated on a per share
basis at the start of the year. There was a 1.06 per cent uplift on
the inception to date total NAV per share return due to the effect
of shares being issued at a premium during May-17 capital raise and
0.73 per cent in relation to the April-18 capital raise.
((10) DEBT TO EQUITY: is calculated as the Company's interest
bearing debt divided by the Net Asset Value.
((11) REVENUE RETURN: based on revenue account net income
divided by average Net Asset Value during the period .
(12) DIVID RETURN: is calculated as the total declared dividends
for the period divided by IPO issue price.
(1(3) ONGOING CHARGES RATIO: The Annualised Ongoing Charge is
calculated using the Association of Investment Companies
recommended methodology. It is calculated as a percentage of
annualised ongoing charge over average reported Net Asset Value.
Ongoing charges are those expenses of a type which are likely to
recur in the foreseeable future, whether charged to capital or
revenue, and which relate to the operation of the investment
company as a collective fund, excluding the costs of
acquisition/disposal of investments, financing charges and
gains/losses arising on investments. Ongoing charges are based on
costs incurred in the year as being the best estimate of future
costs. The AIC excludes performance fees from the Ongoing Charges
calculation.
Chairman's Statement
I am delighted to present the 2019 interim results for Honeycomb
Investment Trust plc (the "Company"), covering the period 1 January
2019 to 30 June 2019.
The Board has been pleased with the continued strong performance
delivered in the first half of 2019. The Company has managed to
achieve continued targeted returns as a result of executing on its
published strategy and maintaining a disciplined risk position.
Performance
The Company has performed well in the first 6 months of the year
driven by the consistent application of our business model which
has provided a strong base of investments made in the past along
with the ability to carefully select assets with attractive
risk-adjusted returns.
A detailed assessment of the progress of the Company follows in
the Investment Manager's review. At 30 June 2019, the Company's net
assets were GBP400.1 million (cumulative of income), with market
capitalisation of GBP437.9 million. NAV per share (cumulative of
income) was 1,014.1 pence, with the share price (at close) 1,110.0
pence, representing a premium of 9.5 per cent. Total NAV per share
return since inception is 29.02 per cent (1) .
The Company established a 12 month placing programme in December
2018, allowing for further issuances of Ordinary Shares in
accordance with authorities granted at its latest annual general
meeting.
Dividend
The dividend has remained at 20.00 pence per share for Q1 2019
and Q2 2019 to provide the targeted 8.0 per cent annualised
dividend and provide a point of stability in an uncertain economic
environment.
Gearing
The Company has GBP179.0 million drawn debt from its GBP200.0
million committed facility.
Outlook
Despite competition in specialist lending markets, the Company
continued to maintain its disciplined approach to lending and its
vigorous approach to underwrite each opportunity.
We believe that the retrenchment of mainstream lenders from our
target markets continues to present attractive opportunities to
allow us to grow and diversify our portfolio. As at 30 June 2019 45
per cent of the portfolio is composed of structured loans. These
are facilities provided to lenders where the lender retains the
first loss. The Company has built a diversified portfolio of 21
structured facilities and these are seen as key to delivering
stable returns to the fund aligned with downside mitigation.
The Company is in a strong position after a solid first half of
2019 and the Board remains confident of the long-term prospects for
the Company with the Investment Manager continuing to exercise
robust discipline in assessing risk adjusted returns and is well
positioned to manage a range of different market conditions, and to
make the most of any opportunities which may arise.
We have a clear strategy and our approach remains unchanged as
we continue to closely monitor the political and economic
uncertainty created by the continuing Brexit process. While the UK
economic performance has remained resilient as a predominantly UK
focused fund, our performance and lending growth will broadly
reflect its economy. In addition, were there to be a general
election, the Company may also face new risks as a result of a
change in government policy. Although current market conditions
remain benign, the longer-term economic outlook and impact of
Brexit on our customers and wider markets continues to remain
uncertain.
Following the introduction of the Director rotation policy by
the Nominations Committee, Ravi Takhar kindly consented to stand
down from the Board at the 2019 AGM. I would like to thank Ravi for
his significant contribution to the growth and success of the
business since December 2015. As a result of Ravi's resignation I
would like to welcome Richard Rowney to the Board. He brings a
wealth of experience to the role and is currently CEO of LV=.
Robert Sharpe
Chairman
9 September 2019
(1) This has been impacted by a 0.65 per cent reduction in NAV
per share due to the recognition of the expected credit loss model
introduced by IFRS 9 in 2018. The inception to date figure also
includes 1.50 per cent benefit due to the May 2017 and April 2018
share placings being completed at a premium to NAV.
Investment Manager's Report
The Company is dedicated to providing investors with access to
specialist lending opportunities which the Investment Manager
believes have potential to provide attractive and consistent
risk-adjusted returns throughout the cycle especially in the
current investment climate of low yields and volatile markets.
The Investment Manager is a member of the Pollen Street Capital
Group ("PSC") which has significant experience in specialist
lending, providing the Company with both deep insight to high
quality underwriting and access to the Investment Manager's
established eco-system, enabling broad market access, high-quality
origination flow and portfolio acquisition opportunities.
Attractive and consistent risk-adjusted returns are delivered
through the Investment Manager's focus on high-quality underwriting
of borrowers in markets that are underserved by mainstream finance
providers. The Company accesses credit investment opportunities
through specialist Origination Platforms, direct origination, and
via the acquisition by the Company of interests in portfolios of
Credit Assets from third parties.
H1 2019 Highlights
The Company has delivered a strong return in the period to date.
Annualised NAV returns (cumulative of income) were 7.5 per cent.
Underlying investment asset yield and bad debt performance of 10.8
per cent and 1.4 per cent, with risk adjusted yield of 9.4 per
cent, provides the Company with significant coverage of bad debts
and a stable and attractive portfolio from which it can continue to
grow. This performance is as a result of the successful
implementation of the strategy to focus on specialist markets and
loans with either downside protection or seasoning which exhibit
stable performance.
The Company has used its debt facility and the cash generated
from the run off of its portfolio positions to maintain its
originations across the three sectors the Company focuses on;
Consumer, Property and SME. Q1 2019 saw the Company enter four new
structured facilities secured on consumer and SME portfolios. These
facilities are secured on a granular pool of performing loans and
structured such that the Origination Platform and / or borrower
bears the first loss risk, and the Company finances the senior
risk.
During Q2 2019 the Company focused on deploying cash in the
property sector, where the lending is supported by physical assets,
four new partnerships were created.
Investment Assets and Debt to Equity Ratio - Graph available on
page 7 of the full Interim Report
Portfolio
The Company continued to focus on building a robust portfolio of
assets in line with our investment mandate and at 30 June 2019, had
built a total portfolio of net investment assets of GBP597.3(1)
million, with a strong pipeline of further opportunities to provide
an attractive mix of assets combining both strong yields with low
bad debt rates.
The current portfolio overview is as follows:
Consumer lending represents 47 per cent of the total credit
assets. This segment of the Portfolio comprises approximately
59,000 loans with an average balance of approximately GBP3,050
(excluding structured facilities). Within the Consumer portfolio 62
per cent of the total represent loans which either have structural
protection from platforms, having first loss equity ahead of our
loan or are a seasoned portfolio exhibiting predictable cashflows
has been acquired. The remaining 38 per cent of the portfolio is
loans which have been organically originated through selected
partners underwritten using proprietary scorecards with a
predictable flow of opportunities. The Consumer portfolio mix is
expected to remain weighted towards structured and seasoned loans
which should provide lower volatility in a more challenging
economic environment.
(1) Investment asset made up of GBP587.3 million of loans at
amortised cost (Note 9 to the financial statements) and GBP10
million of investments at fair value (Note 10 to the financial
statements).
Property lending represents 42 per cent of the total credit
assets. The Property portfolio primarily consists of relatively
small balance residential and commercial mortgages, bridging loans,
and second charge residential mortgages. The portfolio benefits
from conservative loan to value ("LTV") levels with an average LTV
of less than 70 per cent. The majority of the exposure is from
acquired loan portfolios that were acquired from banks and
specialist lenders which have significant seasoning and where the
underlying customers have been making repayments for some time. The
Property portfolio has performed well as the loans have the benefit
of the underlying property security which can be realised in a
default scenario to repay a significant proportion (if not all) of
the outstanding balance. Cash collection from borrowers has been
stable as the loans were originated several years ago and borrowers
have been paying the instalments for some time. This segment of the
portfolio comprises approximately 8,800 loans on an underlying look
through basis with an average balance of approximately GBP22,400
(excluding structured facilities).
SME loans only represent 10 per cent of the portfolio with the
exposure predominately in senior structured facilities with
additional originator-provided protection. The structure of these
facilities provides significant protection should the credit
performance of the underlying assets deteriorate.
To further enhance investor returns, the Company has made
selected investments in companies which are aligned with the
Company's strategy, such as brokers and originators of loans and
strategic providers of data and technology related to consumers and
SME's. These make up 2 per cent of the portfolio. All five
businesses which the Company has equity stakes in have faced
different challenges in the first half of 2019 but continue to see
new partnerships develop as well as continued investments in
technology and management capabilities. The Investment Manager
continues to selectively assess potential additional equity stakes
in key suppliers to allow for growth in originations.
Expected credit loss performance
As at 30 June 2019 the Expected Credit Loss ("ECL") balance was
GBP26.7 million (30 June 2018: GBP16.0 million, 31 December 2018
GBP22.8 million). The consumer portfolio makes up 61.9 per cent of
this total split GBP16.5 million, property GBP10.0 million and SME
GBP0.2 million. The key driver for the increase in the ECL on the
prior year is a GBP3.9 million charge in the period, with the
consumer lending contributing GBP3.8 million and property GBP0.1
million. Assets moving to Stage 3 were the key driver behind
this.
Financial Performance
The financial performance of the Company has been strong. In the
first half, investment income was GBP28.3 million (FY18 H1: GBP21.7
million), an increase of 30 per cent, which has been driven by
balances of net investment assets increasing to GBP570.6 million at
the period end (FY18 H1: GBP483.3 million). Earnings for the first
half were GBP15.1 million (FY18 H1: GBP12.6 million), an increase
of 20 per cent on the same period last year which has been driven
by low levels of impairments and leverage of the fixed cost base.
This reflects the high levels of deployment and strong underlying
asset performance.
This translated into earnings per share of 38.3 pence (FY18 H1:
37.6 pence), and a year to date NAV return of 3.77% (FY18 H1: 4.51
per cent, which benefited by 0.73 per cent from the issuance of
shares)
Quarterly NAV return - Graph available on page 8 of the full
Interim Report
In our guidance issued at the time of the Company's initial
public offering, we stated that we were targeting a dividend yield
of at least 8.0 per cent (based on issue price). As shown in the
chart below, we have outperformed this guidance.
Dividend Per Share and Annualised Fully Diluted Yield (LHS
dividend per share (pence) RHS dividend yield) - Graph available on
page 8 of the full Interim Report
After initial listing costs, the Company had a NAV of 982 pence
per share at the time of listing, with the NAV per share
(cumulative of income) growing to 1,014.1 pence per ordinary share
at 30 June 2019, which, including dividends declared or paid, is
equivalent to a NAV return of 29.0 per cent since inception.
Additionally, the share price of the Company at 30 June 2019 was
1,110.0 pence per share, representing a 9.5 per cent premium to NAV
(cumulative of income). We are pleased that the Company is trading
ahead of its net asset position, which we feel reflects the
underlying performance seen so far this year. Performance and
dividend history can be seen below.
Outlook
Looking ahead, the Company has continued to have seen minimal
direct impact from the UK referendum vote to leave the European
Union. While we cannot remove political uncertainties we do
continue to position ourselves to address the economic challenges
and opportunities that may arise as the long-term effects of the UK
leaving the European Union become clearer. We believe that the
Company's business model, combined with our approach to risk,
stands it in good stead to find suitable pockets of risk adjusted
return so that we can continue to deliver the target returns to
shareholders. The Company's continued focus on increasing the
proportion of the portfolio that benefits from structural
protection or seasoning will provide downside protection and
protect the Company from economic shock. We believe that our
ability to invest in structured facilities, combined with our focus
on specialist markets where we expect enhanced credit performance,
will allow us to continue to deploy the Company's funds and deliver
returns to shareholders in line with the prospectus.
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD ITD
(1)
=============== ===== ======= ====== ====== ======== ======== ======= ====== ====== ======= ======= ======= ======= ======= =========
NAV per
share
Return(2) 2016 0.04% 0.13% 0.19% 0.92% 0.60% 0.79% 0.68% 0.70% 0.88% 0.89% 0.92% 0.94% 7.85% 7.83%
=============== ===== ======= ====== ====== ======== ======== ======= ====== ====== ======= ======= ======= ======= ======= =========
NAV per
share
Return(2) 2017 0.69% 0.69% 0.78% 0.62% 1.80%(3) 0.55% 0.65% 0.62% 0.63% 0.61% 0.61% 0.79% 9.11% 17.24%
=============== ===== ======= ====== ====== ======== ======== ======= ====== ====== ======= ======= ======= ======= ======= =========
NAV per
share
Return(2) 2018 0.66% 0.59% 0.72% 1.36%(4) 0.56% 0.60% 0.63% 0.67% 0.67% 0.67% 0.65% 0.60% 8.43% 25.12%(5)
=============== ===== ======= ====== ====== ======== ======== ======= ====== ====== ======= ======= ======= ======= ======= =========
NAV per
share
Return(2) 2019 0.58% 0.54% 0.67% 0.67% 0.64% 0.65% 3.77% 29.02%
=============== ===== ======= ====== ====== ======== ======== ======= ====== ====== ======= ======= ======= ======= ======= =========
Share
Price
Performance(6) 2016 1.50% - - - - - - - - - - 0.54% 2.05% 2.05%
=============== ===== ======= ====== ====== ======== ======== ======= ====== ====== ======= ======= ======= ======= ======= =========
Share
Price
Performance(6) 2017 3.92% 3.72% 0.45% 1.81% (0.89%) 4.93% 2.78% 0.42% (1.24%) (0.84%) (0.63%) (1.49%) 13.42% 15.75%
=============== ===== ======= ====== ====== ======== ======== ======= ====== ====== ======= ======= ======= ======= ======= =========
Share
Price
Performance(6) 2018 (1.94%) - - (1.76%) - - 0.90% - 0.89% (0.44%) - - (2.38%) 13.00%
=============== ===== ======= ====== ====== ======== ======== ======= ====== ====== ======= ======= ======= ======= ======= =========
Share
Price
Performance(6) 2019 - - - - (1.33%) (0.45%) (1.33%) 11.50%
=============== ===== ======= ====== ====== ======== ======== ======= ====== ====== ======= ======= ======= ======= ======= =========
Dividend
Per
Share
(Pence)(7) 2016 - - - - 2.11 - - - 19.66 - 23.13 - 44.90 44.90
=============== ===== ======= ====== ====== ======== ======== ======= ====== ====== ======= ======= ======= ======= ======= =========
Dividend
Per
Share
(Pence)(7) 2017 - - 23.50 - 24.50(8) - - - 20.00 - - 20.00 88.00 132.90
=============== ===== ======= ====== ====== ======== ======== ======= ====== ====== ======= ======= ======= ======= ======= =========
Dividend
Per
Share
(Pence)(7) 2018 - - 20.00 20.00 - - - - 20.00 - - 20.00 80.00 212.90
=============== ===== ======= ====== ====== ======== ======== ======= ====== ====== ======= ======= ======= ======= ======= =========
Dividend
Per
Share
(Pence)(7) 2019 - - 20.00 - - 20.00 40.00 252.90
=============== ===== ======= ====== ====== ======== ======== ======= ====== ====== ======= ======= ======= ======= ======= =========
(1) ITD: inception to date - excludes IPO Issue Costs
(2) NAV per share return is an alternative performance measure, please see page 5.
(3) NAV per share return excluding effect of capital raise and
issuance at a premium would have been 0.77%
(4) NAV per share return excluding effect of capital raise and
issuance at a premium would have been 0.63%
(5) Inception to date NAV return affected by IFRS 9 initial
recognition on 2018 bought forward retained earnings
(6) Based on IPO issue price of 1000p
(7) Recognised in the month when marked ex-dividend date
(8) Based upon the number of shares at the ex-dividend date.
Top Ten Holdings
Country Asset Type Sector Value of Percentage
holding of assets(1)
at 30 June
2019 (GBP'm)
=== ================== =============== =========== ========= ============== ==============
1 Creditfix Limited United Kingdom Structured Consumer 45.2 7.93%
=== ================== =============== =========== ========= ============== ==============
Sancus Loans
2 Limited United Kingdom Structured Property 32.6 5.72%
=== ================== =============== =========== ========= ============== ==============
D&B Finance
3 Limited United Kingdom Structured Property 22.3 3.91%
=== ================== =============== =========== ========= ============== ==============
Madison CF
4 UK Limited United Kingdom Structured Consumer 21.8 3.82%
=== ================== =============== =========== ========= ============== ==============
1st Stop Group
5 Limited(2) United Kingdom Structured Consumer 20.0 3.50%
=== ================== =============== =========== ========= ============== ==============
Caledonian
Consumer Finance
6 Limited United Kingdom Structured Consumer 12.4 2.18%
=== ================== =============== =========== ========= ============== ==============
7 IWOCA Limited United Kingdom Structured SME 12.2 2.14%
=== ================== =============== =========== ========= ============== ==============
Amigo Loans
Limited Bond
8 Security United Kingdom Bond Consumer 10.5 1.84%
=== ================== =============== =========== ========= ============== ==============
Capital Step
9 Funding Limited United Kingdom Structured SME 10.5 1.83%
=== ================== =============== =========== ========= ============== ==============
Dynamic Aerospace
and Defense
10 Limited United Kingdom Structured SME 9.9 1.74%
=== ================== =============== =========== ========= ============== ==============
(1) Percentage of total investment assets of the Company
(investment assets calculated as the carrying balance of all credit
assets and related investments).
(2) 1st Stop Group Limited is also a portfolio company of funds
managed or advised by the Investment Manager.
As at 30 June 2019 the value of the top 10 assets totalled
GBP197.4 million (30 June 2018: GBP167.8 million) which equated to
34.6 per cent (30 June 2018: 34.7 per cent) of assets.
Portfolio Composition
The composition of the Company's portfolio as at 30 June 2019 is
set out on page 11 of the full Interim Report.
Stratification by structure
Stratification by weighted average remaining term (by
balances)
Stratification by weighted average interest rate (by
balances)
Interim Management Report
Investment restrictions
The Company will invest in Credit Assets originated across
various sectors to ensure diversification and to seek to mitigate
concentration risks. The following investment limits and
restrictions apply to the Company to ensure that the
diversification of the portfolio is maintained, that concentration
risk is limited and that limits are placed on risk associated with
borrowings.
The Company will not invest, in aggregate, more than 10 per cent
of the aggregate value of total assets of the Company ("Gross
Assets"), at the time of investment, in other investment funds that
invest in Credit Assets.
The Company will not invest, in aggregate, more than 50 per cent
of Gross Assets, at the time of investment, in Credit Assets
comprising investments in loans (alongside or in conjunction with
Shawbrook Bank ("Shawbrook")) referred to the Origination Partner
by Shawbrook. Shawbrook is a portfolio company of funds managed or
advised by Pollen Street Capital Limited.
The following restrictions apply, in each case at the time of
the investment by the Company:
-- no single Credit Asset comprising a consumer credit asset
shall exceed 0.15 per cent of Gross Assets;
-- no single SME or corporate loan, or trade receivable, shall
exceed 5.0 per cent of Gross Assets;
-- no single facility, security or other interest backed by a
portfolio of loans, assets or receivables (excluding any borrowing
ring-fenced within any SPV which would be without recourse to the
Company) shall exceed 20 per cent of Gross Assets. For the
avoidance of doubt, this restriction shall not prevent the Company
from directly acquiring portfolios of Credit Assets which comply
with the other investment restrictions described in this section;
and
-- The Company will not invest in Equity Assets to the extent
that such investment would, at the time of investment, result in
the Company controlling more than 35 per cent of the issued and
voting share capital of the issuer of such Equity Assets.
Other restrictions
The Company may invest in cash, cash equivalents, money market
instruments, money market funds, bonds, commercial paper or other
debt obligations with banks or other counterparties having single-A
(or equivalent) or higher credit rating as determined by an
internationally recognised agency or systemically important bank,
or any "governmental and public securities" (as defined for the
purposes of the Financial Conduct Authority's Handbook of rules and
guidance) for cash management purposes and with a view to enhancing
returns to shareholders or mitigating credit exposure.
The Company will not invest in Collateralised Loan Obligations
("CLO") or Collateralised Debt Obligations ("CDO"). CLO's are a
form of securitisation whereby payments from multiple loans are
pooled together and passed on to different classes of owners in
various tranches. CDO's are pooled debt obligations where pooled
assets serve as collateral.
Principal Risks and Uncertainties
The Company is exposed to a number of potential risks and
uncertainties. These risks could have a material impact on
financial performance and position and could cause actual results
to differ materially from expected and historical results.
The Company faces a number of risks in the normal course of
business and as a result the management of the risks we face is
central to everything we do. The Board has carried out a robust
assessment of its risks and controls and in doing so, has
established a robust process to identify and monitor the risks
faced by the Company. The process involves the maintenance of a
risk register, which identifies the risks facing the Company and
assesses each risk on a scale, classifying the probability of the
risk and the potential impact that an occurrence of the risk could
have on the Company. The risk register was last reviewed by the
Board on 26 April 2019. The day-to-day risk management functions of
the Company have been delegated to the Investment Manager, which
reports to the Audit and Risk Committee.
Operational Risks
Third Party Service Providers
The Company has no employees and the Directors have all been
appointed on an independent non-executive basis. Whilst the Company
has taken all reasonable steps to establish and maintain adequate
procedures, systems and controls to enable it to comply with its
obligations, the Company is reliant upon the performance of
third-party service providers for its executive function. In
particular, the Investment Manager, Depositary, Custodian,
Administrator, Registrar and servicers, amongst others, will be
performing services which are integral to the day-to-day operation
of the Company.
As part of this, the operations of the third-party service
providers are highly dependent on IT systems. Any critical system
failure, prolonged loss of service availability or material breach
of data security could cause serious damage to the third-party's
ability to provide services to the Company, which could result in
significant compensation costs or regulatory sanctions or a breach
of applicable regulations. In particular, failures or breaches
resulting in the loss or publication of confidential customer data
could cause long-term damage to reputation and could affect
regulatory approvals and competitive position which could undermine
their ability to attract and retain customers.
The termination of service provision by any service provider, or
failure by any service provider to carry out its obligations either
by fraud or error to the Company, or to carry out its obligations
to the Company in accordance with the terms of its appointment,
could have a material adverse effect on the Company's operations
and its ability to meet its investment objective.
Mitigation
The Company has appointed third party service providers who are
experienced in their field and have a reputation for high standards
of business conduct. Further, day-to-day oversight of third-party
service providers is exercised by the Investment Manager and
reported to the Board on a quarterly basis. As appropriate to the
function being undertaken, each of the service providers is subject
to regular performance and compliance monitoring. The performance
of the Investment Manager in its duties to the Company is subject
to ongoing review by the Board on a quarterly basis as well as
formal annual review by the Company's Management Engagement
Committee.
The appointment of each service provider is governed by
agreements which contain the ability to terminate each of these
counterparties with limited notice should they continually or
materially breach any of their obligations to the Company.
Reliance on key individuals
The Company will rely on key individuals at the Investment
Manager to identify and select investment opportunities and to
manage the day-to-day affairs of the Company. There can be no
assurance as to the continued service of these key individuals at
the Investment Manager. The departure of key individuals from the
Investment Manager without adequate replacement may have a material
adverse effect on the Company's business prospects and results of
operations. Accordingly, the ability of the Company to achieve its
investment objective depends heavily on the experience of the
Investment Manager's team, and more generally on the ability of the
Investment Manager to attract and retain suitable staff.
Mitigation
The interests of the Investment Manager are closely aligned with
the performance of the Company through the management and
performance fee structures in place and direct investment by
certain key individuals of the Investment Manager. Furthermore,
investment decisions are made by a team of professionals,
mitigating the impact loss of any single key professional within
the Investment Manager's organisation. The performance of the
Investment Manager in its duties to the Company is subject to
ongoing review by the Board on a quarterly basis as well as formal
annual review by the Company's Management Engagement Committee.
Fluctuations in the market price of Issue Shares
The market price of the Company's shares may fluctuate widely in
response to different factors and there can be no assurance that
the Company's shares will be repurchased by the Company even if
they trade materially below their Net Asset Value. Similarly, the
shares may trade at a premium to Net Asset Value whereby the shares
can trade on the open market at a price that is higher than the
value of the underlying assets. There can be no assurance, express
or implied, that shareholders will receive back the amount of their
investment in the Company's shares.
Mitigation
The Investment Manager and the Board closely monitor the level
of discount or premium at which the Company's shares trade on the
open market. The Company may purchase the shares in the market with
the intention of enhancing the Net Asset Value per ordinary share.
However, there can be no assurance that any repurchases will take
place or that any repurchases will have the effect of narrowing any
discount to Net Asset Value at which the ordinary shares may trade.
When the Company's shares trade at a premium the Company may issue
shares to reduce the premium at which shares trade. As at 30 June
2019 the Company's shares were trading at a premium to Net Asset
Value.
Investments
Achievement of the Investment Objective
There can be no assurance that the Investment Manager will
continue to be successful in implementing the Company's investment
objective.
Mitigation
The Company's investment decisions are delegated to the
Investment Manager. Performance of the Company against its
investment objectives is closely monitored on an ongoing basis by
the Investment Manager and the Board and is reviewed in detail at
each Board meeting. The Board has set investment restrictions and
guidelines which the Investment Manager monitors and reports on
quarterly to the Board. In the event it is required, any action
required to mitigate underperformance is taken as deemed
appropriate by the Investment Manager.
Borrowing
The Company may use borrowings in connection with its investment
activities including, where the Investment Manager believes that it
is in the interests of shareholders to do so, for the purposes of
seeking to enhance investment returns. Such borrowings may subject
the Company to interest rate risk and additional losses if the
value of its investments fall. Whilst the use of borrowings should
enhance the Net Asset Value of the Company's issued shares when the
value of the Company's underlying assets is rising, it will have
the opposite effect where the underlying asset value is falling. In
addition, in the event that the Company's income falls for whatever
reason, the use of borrowings will increase the impact of such a
fall on the Company's return and accordingly will have an adverse
effect on the Company's ability to pay dividends to
shareholders.
Mitigation
The Investment Manager and the Board closely monitors the level
of gearing of the Company. The Company has a maximum limitation on
borrowings of 100 per cent of Net Asset Value (calculated at the
time of draw down) which the Investment Manager may affect at its
discretion. As at the date of this report, the Company had a target
leverage ratio of 50 to 75 per cent of Net Asset Value and had
GBP179 million drawn representing 45.0 per cent of Net Asset
Value.
Exposure to Credit Risk
As a lender to small businesses and individuals, the Company is
exposed to credit losses if customers or counterparties are unable
to repay loans and outstanding interest and fees or through fraud.
The Company is expected to invest a significant proportion of its
assets in Credit Assets which, by their nature, are exposed to
credit risk and may be impacted by adverse economic and market
conditions, including through higher impairment charges, increased
capital losses and reduced opportunities for the Company to invest
in Credit Assets. Additionally, competition could serve to reduce
yields and lower the volume of loans generated by the Company. The
Origination Partner has not guaranteed to provide a minimum number
of Credit Assets.
Mitigation
The Company will invest in a granular portfolio of assets,
diversified by the number of borrowers, the type, and the credit
risk of each borrower. Each loan is subject to, amongst other
restrictions, a maximum single loan exposure limit. Additionally,
the Company has made assumptions around loss and arrears rates
within the portfolio in its financial projections. Further, the
Investment Manager has established stringent underwriting criteria
which includes credit referencing, income verification and
affordability testing, identity verification and various
forward-looking indicators of a borrower's likely financial
strength. The Company also provides structured lending facilities
to Corporate entities which can be larger value loans. Please see
Note 14 to the financial statements for more details on Credit
Risk.
Origination rates and performance of the underlying assets of
the Company are closely monitored on an ongoing basis by the
Investment Manager and the Board and are reviewed in detail at each
Board meeting. The Company has entered agreements with a number of
referral partners to provide a diversified range of sources from
which to select attractive assets. The Company looks to add
additional referral partners on an ongoing basis in order to
further diversify its origination sources. For structured lending
facilities the Company undertakes a robust process. Facilities are
secured and typically structured with minimum asset coverage ratios
and covenants to provide early warning of credit deterioration and
adequate asset cover in the event of stress. The Company operates
within the Investment policy guidelines and lends on a secured
basis against identifiable and accessible assets.
Interest Rate Risk
The Company intends to invest in Credit Assets which may be
subject to a fixed rate of interest, or a floating rate of interest
(which may be linked to base rates or LIBOR) and expects that its
borrowings will be subject to a floating rate of interest. Any
mismatches the Company has between the income generated by its
Credit Assets, on the one hand, and the liabilities in respect of
its borrowings, on the other hand, may subject the Company to
interest rate risk.
Mitigation
Interest rate risk exposures may be managed, in part, by
matching any floating rate borrowings with investments in Credit
Assets that are also subject to a floating rate of interest. The
Company may use derivative instruments, including interest rate
swaps, to reduce its exposure to fluctuations in interest rates,
however some unmatched risk may remain.
Following the recommendations of the Financial Stability Board,
a fundamental review and reform of the major interest rates
benchmarks, including Interbank offered rate ("Ibors"), are
underway across the world's largest financial markets. In some
cases, the reform will include replacing interest rate benchmarks
with alternative risk-free rates ('RFRs'). This replacement process
is at different stages, and is progressing at different speeds,
across several major currencies. There is therefore uncertainty as
to the basis, method and timing of transition and their
implications on the participants in the financial markets. Until
there is market acceptance on the form of alternative RFRs for
different products, the legal mechanisms to effect transition
cannot be confirmed, and the impact cannot be determined nor any
associated costs accounted for. Going forward the Company needs to
assess the potential effects of these 'Libor replacement' and has
the intention of minimising disruption through appropriate
mitigating actions.
Liquidity of Investments
The Company may invest in Equity Assets that are aligned with
the Company's strategy and that present opportunities to enhance
the Company's return on its investments. Such Equity Assets are
likely to be predominantly in the form of unquoted equity
securities. Investments in unquoted equity securities, by their
nature, involve a higher degree of valuation and performance
uncertainties and liquidity risks than investments in listed
securities and therefore may be more difficult to realise.
Mitigation
The Company has established investment restrictions on the
extent to which it can invest in Equity Assets, such that no more
than 10 per cent of the net proceeds of any placing are invested in
Equity Assets. Compliance with these restrictions is monitored by
the Investment Manager on an ongoing basis and by the Board
quarterly.
Regulations
Tax
Any changes in the Company's tax status or in taxation
legislation could affect the value of investments held by the
Company, affect the Company's ability to provide returns to
shareholders and affect the tax treatment for shareholders of their
investments in the Company.
Mitigation
The Company intends at all times to conduct its affairs so as to
enable it to qualify as an investment trust for the purposes of
Section 1158 of the Corporation Tax Act 2010. Both the Board and
the Investment Manager are aware of the requirements which are to
be fulfilled in any accounting period for the Company to maintain
its investment trust status. The conditions required to satisfy the
investment trust criteria are monitored by the Administrator and
performance of the same shall be reported to the Board on a
quarterly basis.
Breach of applicable legislative obligations
The Company and its third-party service providers are subject to
various legislative and regulatory regimes, including, but not
limited to, the Consumer Credit Act General Data Protection
Regulation and the Data Protection Act 2018. Any breach of
applicable legislative and/or regulatory obligations could have a
negative impact on the Company and impact returns to
shareholders.
Mitigation
The Company engages only with third party service providers
which hold the appropriate regulatory approvals for the function
they are to perform and can demonstrate that they can adhere to the
regulatory standards required of them. Each appointment is governed
by agreements which contain the ability for the Company to
terminate the arrangements with each of these counterparties with
limited notice should such counterparty continually or materially
breach any of their legislative obligations, or their obligations
to the Company more broadly. Additionally, each of the
counterparties is subject to regular performance and compliance
monitoring by the Investment Manager, as appropriate to their
function, to ensure that they are acting in accordance with
applicable regulations and are aware of any upcoming regulatory
changes which may affect the Company. Performance of third-party
service providers is reported to the Board on a quarterly basis,
whilst the performance of the Investment Manager in its duties to
the Company is subject to ongoing review by the Board on a
quarterly basis as well as formal annual review by the Company's
Management Engagement Committee.
2 Statement of Directors' Responsibilities
Statement of Directors' Responsibilities
The Directors, being the persons responsible, confirm that to
the best of their knowledge:
a) the condensed set of Unaudited Financial Statements contained
within the half-yearly financial report have been prepared in
accordance with International Accounting Standard ("IAS") 34,
Interim Financial Reporting, as adopted by the European Union, as
required by the Disclosure and Transparency Rule 4.2.4R, and gives
a true and fair view of the assets, liabilities and financial
position of the Company;
b) the Interim Management Report includes a fair review, as
required by Disclosure and Transparency Rule 4.2.7R, of important
events that have occurred during the first six months of the
financial year, their impact on the condensed set of unaudited
Financial Statements, and a description of the principal risks and
perceived uncertainties for the remaining six months of the
financial year; and
c) the Interim Management Report includes a fair review of the
information concerning related parties' transactions as required by
Disclosure and Transparency Rule 4.2.8R.
Signed on behalf of the board by
Robert Sharpe
Chairman
9 September 2019
3 Financial Statements
Statement of Comprehensive Income
For the period from 1 January 2019 to 30 June 2019
(Unaudited)
Notes Revenue Capital Total
GBP'000 GBP'000 GBP'000
================================= ====== ========= ========= =========
Income
Investment interest 4 28,347 - 28,347
Other income 4 1 - 1
================================= ====== ========= ========= =========
28,348 - 28,348
Expenses
Management fee 5 (2,956) (51) (3,007)
Performance fee 5 (1,680) - (1,680)
Change in expected credit
losses 9 (3,908) - (3,908)
Other expenses 6 (639) - (639)
================================= ====== ========= ========= =========
(9,183) (51) (9,234)
Profit / (loss) before finance
costs and taxation 19,165 (51) 19,114
Finance costs 16 (3,994) - (3,994)
Profit / (loss) before taxation 15,171 (51) 15,120
Taxation on ordinary activities - - -
Profit / (loss) after taxation 15,171 (51) 15,120
================================= ====== ========= ========= =========
Earnings per share (basic
and diluted) 8 38.46p (0.13)p 38.33p
================================= ====== ========= ========= =========
The total column of this statement represents the Statement of
Comprehensive Income prepared in accordance with International
Financial Reporting Standards ("IFRS") as adopted by the European
Union. The supplementary revenue return and capital return columns
are both prepared under guidance issued by the Association of
Investment Companies.
No operations were acquired during this period.
The Company does not have any income or expense that is not
included in net profit for the period. Accordingly, the net profit
for the period is also the Total Comprehensive Income for the
period, as defined in IAS1 (revised).
The notes on pages 26 to 42 form an integral part of these
financial statements.
Statement of Comprehensive Income (continued)
For the period from 1 January 2018 to 30 June 2018
(Unaudited)
Notes Revenue GBP'000 Capital Total
GBP'000 GBP'000
============================ ===== =============== ======== ========
Income
Investment interest 4 22,474 - 22,474
Other income 4 1 - 1
============================ ===== =============== ======== ========
22,475 - 22,475
Expenses
Management fee 5 (2,107) (42) (2,149)
Performance fee 5 (1,398) - (1,398)
Changes in estimated
credit losses 9 (2,777) - (2,777)
Other expenses 6 (605) - (605)
============================ ===== =============== ======== ========
(6,887) (42) (6,929)
Other net changes in
investments held at
fair value through
profit and loss 10 - (750) (750)
Profit / (loss) before
finance costs and taxation 15,588 (792) 14,796
Finance costs 16 (2,224) - (2,224)
Profit / (loss) before
taxation 13,364 (792) 12,572
Taxation on ordinary - - -
activities
Profit / (loss) after
taxation 13,364 (792) 12,572
============================ ===== =============== ======== ========
Earnings per share
(basic and diluted) 8 40.01p (2.37)p 37.64p
============================ ===== =============== ======== ========
The total column of this statement represents the Statement of
Comprehensive Income prepared in accordance with International
Financial Reporting Standards ("IFRS") as adopted by the European
Union. The supplementary revenue return and capital return columns
are both prepared under guidance issued by the Association of
Investment Companies.
The Company does not have any income or expense that is not
included in net profit for the period. Accordingly, the net profit
for the period is also the Total Comprehensive Income for the
period, as defined in IAS1 (revised).
The notes on pages 26 to 42 form an integral part of the
financial statements.
Statement of Comprehensive Income (continued)
For the year ended 31 December 2018 (Audited)
Notes Revenue GBP'000 Capital Total
GBP'000 GBP'000
============================ ===== =============== ======== ========
Income
Investment interest 4 50,921 - 50,921
Other income 4 1 - 1
============================ ===== =============== ======== ========
50,922 - 50,922
Expenses
Management fee 5 (4,907) (90) (4,997)
Performance fee 5 (2,873) - (2,873)
Changes in estimated
credit losses 9 (7,467) - (7,467)
Other expenses 6 (1,209) - (1,209)
============================ ===== =============== ======== ========
(16,456) (90) (16,546)
Other net changes in
investments held at
fair value through
profit and loss 10 - (750) (750)
Profit / (loss) before
finance costs and taxation 34,466 (840) 33,626
Finance costs 16 (5,429) - (5,429)
Profit / (loss) before
taxation 29,037 (840) 28,197
Taxation on ordinary - - -
activities
Profit / (loss) after
taxation 29,037 (840) 28,197
============================ ===== =============== ======== ========
Earnings per share
(basic and diluted) 8 79.6p (2.3)p 77.3p
============================ ===== =============== ======== ========
The total column of this statement represents the Statement of
Comprehensive Income prepared in accordance with International
Financial Reporting Standards ("IFRS") as adopted by the European
Union. The supplementary revenue return and capital return columns
are both prepared under guidance issued by the Association of
Investment Companies.
The Company does not have any income or expense that is not
included in net profit for the period. Accordingly, the net profit
for the period is also the Total Comprehensive Income for the
period, as defined in IAS1 (revised).
The notes on pages 26 to 42 form an integral part of the
financial statements.
Statement of Financial Position
As at 30 June 2019
30 June 2019 30 June 2018 31 December
(Unaudited) (Unaudited) 2018 (Audited)
Notes GBP'000 GBP'000 GBP'000
============================= ====== ============= ============= ================
Non-current assets
Investments at amortised
cost 9 560,604 475,324 576,530
Investments held at
fair value through
profit or loss 10 9,980 7,980 9,980
Fixed assets 13 102 253 217
============================= ====== ============= ============= ================
570,686 483,557 586,727
Current assets
Receivables 14 6,423 6,398 3,375
Cash and cash equivalents 7,575 15,662 5,559
============================= ====== ============= ============= ================
13,998 22,060 8,394
Total assets 584,684 505,617 595,661
Current liabilities
Management fee payable (986) (760) (985)
Performance fee payable (1,680) (1,398) (2,873)
Other payables 15 (2,196) (1,939) (1,830)
============================= ====== ============= ============= ================
(4,862) (4,097) (5,688)
Total assets less
current liabilities 579,822 501,520 589,973
Interest bearing borrowings 16 (179,772) (100,653) (189,263)
Total net assets 400,050 400,867 400,710
============================= ====== ============= ============= ================
Shareholders' funds
Ordinary share capital 17 394 394 394
Share premium 299,599 299,601 299,599
Revenue reserves 4,945 5,041 4,934
Capital reserves (1,016) (917) (965)
Special distributable
reserves 18 96,128 96,748 96,748
============================= ====== ============= ============= ================
Total shareholders'
funds 400,050 400,867 400,710
============================= ====== ============= ============= ================
Net asset value per
share 20 1,014.1p 1,016.1p 1,015.7p
============================= ====== ============= ============= ================
The notes on pages 26 to 42 form an integral part of the
financial statements.
Statement of Changes in Shareholders' Funds
For the period from 1 January 2019 to 30 June 2019
(Unaudited)
Ordinary Special
Share Share Revenue Capital Distributable Total
Capital Premium Reserves Reserves Reserves Equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=========================== ========= ========== ========== =============== =========
Shareholders' funds
at 1 January 2019 394 299,599 4,934 (965) 96,748 400,710
====================== ==== ========= ========== ========== =============== =========
Ordinary shares - - - - - -
issued
====================== ==== ========= ========== ========== =============== =========
Ordinary shares - - - - - -
issue costs
====================== ==== ========= ========== ========== =============== =========
Profit / (loss)
after taxation - - 15,171 (51) - 15,120
====================== ==== ========= ========== ========== =============== =========
Dividends paid
in the period - - (15,160) - (620) (15,780)
====================== ==== ========= ========== ========== =============== =========
Shareholders' funds
at 30 June 2019 394 299,599 4,945 (1,016) 96,128 400,050
====================== ==== ========= ========== ========== =============== =========
As at 30 June 2019 the Company had distributable reserves of
GBP100.1 million for the payment of future dividends. The
distributable reserves are the revenue reserves (GBP4.9 million),
realised capital reserves (-GBP1.0 million) and the special
distributable reserves (GBP96.1 million).
For the period from 1 January 2018 to 30 June 2018
(Unaudited)
Ordinary Special
Share Share Revenue Capital Distributable Total
Capital Premium Reserves Reserves Reserves Equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=========================== ========= ========== ========== =============== =========
Shareholders' funds
at 1 January 2018 299 201,852 5,133 (125) 97,600 304,759
====================== ==== ========= ========== ========== =============== =========
Changes on initial
application of
IFRS 9 - - (2,338) - - (2,338)
====================== ==== ========= ========== ========== =============== =========
Updated balance
at 1 January 2018 299 201,852 2,795 (125) 97,600 302,421
====================== ==== ========= ========== ========== =============== =========
Ordinary shares
issued 95 99,905 - - - 100,000
====================== ==== ========= ========== ========== =============== =========
Ordinary shares
issue costs - (2,156) - - - (2,156)
====================== ==== ========= ========== ========== =============== =========
Profit / (loss)
after taxation - - 13,364 (792) - 12,572
====================== ==== ========= ========== ========== =============== =========
Dividends paid
in the period - - (11,118) - (852) (11,970)
====================== ==== ========= ========== ========== =============== =========
Shareholders' funds
at 30 June 2017 394 299,601 5,041 (917) 96,748 400,867
====================== ==== ========= ========== ========== =============== =========
As at 30 June 2018 the Company had distributable reserves of
GBP100.9 million for the payment of future dividends. The
distributable reserves are the revenue reserves (GBP5.0 million),
realised capital reserves (-GBP0.9 million) and the special
distributable reserves (GBP96.8 million).
Statement of Changes in Shareholders' Funds (continued)
For the year ended 31 December 2018 (Audited)
Ordinary Special
Share Share Revenue Capital Distributable Total
Capital Premium Reserves Reserves Reserves Equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
====================== ======== ======== ========= ========= ============== ========
Shareholders'
funds at 1 January
2018 299 201,852 5,133 (125) 97,600 304,759
====================== ======== ======== ========= ========= ============== ========
Changes on initial
application of
IFRS 9 - - (2,338) - - (2,338)
====================== ======== ======== ========= ========= ============== ========
Updated balance
at 1 January 2018 299 201,852 2,795 (125) 97,600 302,421
====================== ======== ======== ========= ========= ============== ========
Ordinary shares
issued 95 99,905 - - - 100,000
====================== ======== ======== ========= ========= ============== ========
Ordinary shares
issue costs - (2,158) - - - (2,158)
====================== ======== ======== ========= ========= ============== ========
Profit / (loss)
after taxation - - 29,037 (840) - 28,197
====================== ======== ======== ========= ========= ============== ========
Dividends paid
in the year - - (26,898) - (852) (27,750)
====================== ======== ======== ========= ========= ============== ========
Shareholders'
funds at 31 December
2018 394 299,599 4,934 (965) 96,748 400,710
====================== ======== ======== ========= ========= ============== ========
As at 31 December 2018 the Company had distributable reserves of
GBP100.7 million for the payment of future dividends. The
distributable reserves are the net of the revenue reserves (GBP4.9
million), realised capital reserves (-GBP1.0 million) and the
special distributable reserves (GBP96.8 million).
The notes on pages 26 to 42 form an integral part of the
financial statements.
Statement of Cash Flows
For the period to 30 June 2019
30 June 2019 30 June 2018 31 December
(Unaudited) (Unaudited) 2018 (Audited)
Notes GBP'000 GBP'000 GBP'000
================================ ====== ============= ============= ================
Cash flows from operating
activities:
Profit after taxation 15,120 12,572 28,197
Adjustments for:
Changes on initial application
of IFRS 9 - (2,338) (2,338)
Change in expected credit
loss 9 3,908 2,027 7,467
Net change in unrealised
losses/(gains) - 750 750
Finance costs 3,994 2,224 5,429
Amortisation 13 115 138 275
(Increase)/Decrease in
receivables 14 (3,048) (2,920) 102
(Decrease)/Increase in
payables (826) (700) 892
Net cash inflow from operating
activities 19,263 11,753 40,774
Cash flows from investing
activities:
Decrease/(Increase) in
Investments at amortised
cost 12,019 (131,785) (238,431)
(Purchase) of investments 10 - (1,000) (3,000)
Disposal of investments 10 - 3,497 3,497
Purchase of fixed assets 13 - (49) (150)
Net cash (outflow) from
investing activities 12,019 (129,337) (238,084)
Cash flows from financing
activities:
Proceeds from issue of
ordinary shares 17 - 100,000 100,000
Share issue costs - (2,156) (2,158)
Proceeds from interest
bearing borrowings 16 448,000 108,700 366,900
Repayments of interest
bearing borrowings 16 (458,000) (65,200) (234,400)
Interest paid on financing
activities (3,485) (1,858) (5,453)
Dividends declared and
paid 7 (15,780) (11,970) (27,750)
Net cash inflow from financing
activities (29,265) 127,516 197,139
Net change in cash and
cash equivalents 2,017 9,932 (171)
Cash and cash equivalents
at the beginning of the
period 5,559 5,730 5,730
Net cash and cash equivalents 7,576 15,662 5,559
================================ ====== ============= ============= ================
The notes on pages 26 to 42 form an integral part of the
financial statements.
Notes to the Financial Statements
1. General Information
Honeycomb Investment Trust plc (the "Company") is a closed-ended
investment company incorporated in England and Wales on 2 December
2015 with registered number 09899024. The Company commenced
operations on 23 December 2015 and carries on business as an
investment trust within the meaning of chapter 4 of Part 24 of the
Corporation Tax Act 2010.
The Company's investment objective is to provide shareholders
with an attractive level of dividend income and capital growth
through the acquisition of loans made to consumers and small
businesses as well as other counterparties, together with related
investments and selected equity investments that are aligned with
the Company's strategy and that present opportunities to enhance
the Company's returns from its investments.
The Company's investment manager is Pollen Street Capital
Limited a UK-based company authorised and regulated by the FCA, who
also acts as the Alternative Investment Fund Manager (the "AIFM")
under the Alternative Investment Fund Managers Directive (the
"AIFMD"). The Company is defined as an Alternative Investment Fund
and is subject to the relevant articles of the AIFMD.
The Investment Manager, on behalf of the Company, actively
identifies sub-segments of the large consumer, property and SME
lending market that it believes delivers attractive net returns. It
then targets channels, origination partners and loan portfolio
vendors through which it can access Credit Assets while
diversifying the Company's investment opportunities.
Each lending opportunity is underwritten by the Investment
Manager or Honeycomb Finance Limited (the "Origination Partner") to
assess whether the risk of the borrower is acceptable. There are
various processes undertaken to underwrite each opportunity to
ensure a consistent approach to risk-based pricing to ensure the
weighted risk adjusted return provides an attractive level of
dividend income with an acceptable risk profile for shareholders of
the Company.
The Company, directly or via the Origination Partner, has
arrangements with a number of referral partners, including the
referenced Platforms below, through which the Company acquires
Credit Assets, either individually; as portfolios; or via
structured facilities. These facilities are secured on a granular
pool of performing loans and structured such that the Origination
Platform and or borrower bears the first loss risk, and the Company
finances the senior risk.
The Directors believe that the Company has attractive access to
diverse investment opportunities across its market segments of
consumer, property and SME lending, each with different borrower
profiles and different risk return characteristics. Through
relationships with multiple referral partners and other
counterparties, the Company will reduce its dependence on any one
single source of opportunities to acquire Credit Assets and expects
to gain strong access to high quality assets.
The Company believes it is important to provide best-in-class
loan servicing to ensure that Credit Assets within the portfolio
are managed efficiently throughout their lifecycle. As such, the
Company optimises its collection strategy across the different
asset classes by appointing servicers best placed to service the
respective investment assets, as well as utilising the Investment
Manager's industry experts for high value-add activities.
The Company may invest in Equity Assets that are aligned with
its strategy and that present opportunities to enhance the
Company's returns. The Company expects, that most of its
investments in Equity Assets will take the form of minority
interests in referral partners, in alignment with the Company's
investment policy.
As at 30 June 2019 the Company's share capital comprised
39,449,919 ordinary shares. These shares are listed and trade on
the London Stock Exchange's Specialist Fund Market.
2. Basis of accounting
The Company's financial statements are prepared in accordance
with International Accounting Standard 34 - Interim Financial
Reporting ("IAS 34"). They comprise standards and interpretations
approved by the International Accounting Standards Board ("IASB")
and International Financial Reporting Committee ("IFRC"),
interpretations issued by the International Accounting Standard
Committee ("IASC") that remain in effect, to the extent they have
been adopted by the European Union. The financial statements are
also in compliance with relevant provisions of the Companies Act
2006 as applicable to companies reporting under IAS 34. The results
for the half year ended 30 June 2019 constitute non-statutory
accounts within the meaning of Section 435 of the Companies Act
2006 and have not been audited by the Company's Auditor. They do
not include all financial information required for full annual
financial statements. The latest published accounts which have been
delivered to the Registrar of companies are for the year ended 31
December 2018; the report of the Auditor thereon was unqualified
and did not contain a statement under Section 498(2) or (3) of the
Companies Act 2006. The comparative figures for the year ended 31
December 2018 have been extracted from those accounts.
The financial statements have been prepared on a going concern
basis under the historical cost convention, as modified by the
valuation of investments at fair value. The Directors consider that
the Company has adequate financial resources to enable it to
continue operations for a period no less than 12 months from the
reporting date. Accordingly, the Directors believe that it is
appropriate to adopt the going concern basis in preparing the
company's financial statements.
The principal accounting policies adopted by the Company are
consistent with those set out on pages 62 - 79 of the Annual report
2018. Where presentational guidance set out in the Statement of
Recommended Practice ("SORP") for investment trusts issued by the
Association of Investment Companies ("AIC") in November 2014 is
consistent with the requirements of IFRS, the Directors have sought
to prepare the financial statements on a basis compliant with the
recommendations of the SORP.
Critical accounting estimates and judgements
The preparation of the half yearly report requires management to
make estimates and assumptions that affect the reported income and
expense, assets and liabilities and disclosure of contingencies at
the date of the half yearly report. Although these estimates and
assumptions are based on the management's best judgement at that
date, actual results may differ from these estimates. There have
been no significant changes in the basis upon which estimates have
been determined compared to that applied at 31 December 2018.
All values are rounded to the nearest thousand pounds unless
otherwise indicated.
3. Segmental Reporting
The Board and Investment Manager consider investment activity in
Credit Assets and selected Equity Assets as the single operating
segment of the Company, being the sole purpose for its existence.
No other activities are performed.
Whilst visibility over originations, portfolios, structured
facilities and equity assets is afforded at an operational level,
all are considered 'routes to market' for acquiring interests in
credit assets, and thus act merely as indicators of the key drivers
of financial performance and position of the Company.
The four routes to market are not determinants of resource
allocations, rather each investment opportunity is considered on
its own merits. Additionally, there are no segment managers
directly accountable for the individual routes to market.
The Directors are of the opinion that the Company is engaged in
a single segment of business and operations of the Company are
wholly in the United Kingdom.
4. Income
30 Jun 30 Jun 31 Dec
2019 (Unaudited) 2018 (Unaudited) 2018 (Audited)
GBP'000 GBP'000 GBP'000
================= ================= ================= ===============
Investment
income
Interest
income 27,273 21,774 49,425
Commitment
fee income 465 286 534
Arrangement
fee income 609 414 962
Total investment
income 28,347 22,474 50,921
Other income
Deposit
interest 1 1 1
Total investment
income 28,348 22,475 50,922
================= ================= ================= ===============
5. Management and
Performance Fee
Under the terms of the management agreement, the Investment
Manager is entitled to a management fee and a performance fee
together with reimbursement of reasonable expenses incurred by it
in the performance of its duties.
Management Fee
The management fee is calculated and payable monthly in arrears
at a rate equal to 1/12 of 1.0 per cent. per month of Gross Asset
Value (the "Management Fee"). The aggregate fee payable on this
basis must not exceed 1.0 per cent of the gross assets of the
Company and its group in any year.
In respect of any issue of Ordinary Shares or C Shares, until
the date on which 80 per cent of the net proceeds of such issue
have been invested or committed to be invested in Credit Assets or
Equity Assets, the Net Asset Value attributable to such Ordinary
Shares or C Shares shall, for the purposes of the Management Fee,
exclude any portion of the issue proceeds in cash, or invested in
cash deposits or cash equivalent investments. Where there are C
Shares in issue, the Management Fee will be calculated separately
on the gross assets attributable to the Ordinary Shares and the C
Shares.
For so long as the Origination Partner is part of the same group
as the Investment Manager, the amount of all fees payable by the
Company to the Origination Partner shall be deducted from the
Management Fee.
Performance Fee
The Investment Manager is also entitled to a performance fee,
which is calculated in respect of each twelve-month period starting
on 1 January and ending on 31 December in each calendar year
("Calculation Period"), and the nal Calculation Period shall end on
the day on which the management agreement is terminated or, if
earlier, the business day immediately preceding the day on which
the Company goes into liquidation.
The performance fee will only be payable if the Adjusted Net
Asset Value at the end of a Calculation Period exceeds a hurdle
threshold, equal to the Adjusted Net Asset Value immediately
following admission to trading on the London Stock Exchange,
compounded at a rate equal to 5 per cent per annum (the
"Hurdle").
If, on the last day of a Calculation Period (each a "Calculation
Date"), the Adjusted Net Asset Value exceeds the Hurdle, the
Investment Manager shall be entitled to a performance fee equal to
the lower of:
a) the amount by which the Adjusted Net Asset Value exceeds the
Hurdle, in each case as at the Calculation Date; and
b) 10 per cent of the amount by which total growth in Adjusted
Net Asset Value since first admission (being the aggregate of the
growth in Adjusted Net Asset Value in the relevant Calculation
Period and in each previous Calculation Period), after adding back
any performance fees paid to the Investment Manager, exceeds the
aggregate of all performance fees payable to the Investment Manager
in respect of all previous Calculation Periods.
'Adjusted Net Asset Value' means the Net Asset Value after: (i)
excluding any increases or decreases in net asset value
attributable to the issue or repurchase of any ordinary shares;
(ii) adding back the aggregate amount of any dividends paid or
distributions made in respect of any ordinary shares; (iii)
excluding the aggregate amount of any dividends or distributions
accrued but unpaid in respect of any ordinary shares; and (iv)
excluding the amount of any performance fees accrued but unpaid, in
each case without double counting.
In the event that C Shares are in issue, the Investment Manager
shall be entitled to a performance fee in respect of the net assets
referable to the C Shares on the same basis as summarised above,
except that a Calculation Period shall be deemed to end on the date
of the conversion of the relevant tranche of C Shares into Ordinary
Shares.
Fee payable to Origination Partner
The Origination Partner is entitled to be paid a fee calculated
on the purchase price for each Credit Asset acquired by the Company
from the Origination Partner. For so long as the Origination
Partner is part of the same group as the Investment Manager, the
amount of all fees payable by the Company to the Origination
Partner shall be deducted from the Management Fee payable to the
Investment Manager.
The Company reimburses the Origination Partner for the fees of
Referral Partners, and Servicers (to the extent paid by the
Origination Partner) in connection with Credit Assets in which the
Company acquires an interest. The amount of such fees are agreed
between the Origination Partner and the relevant counterparties on
arm's length commercial terms, taking account of the strength of
the relationship between the Origination Partner, the Investment
Manager and each relevant counterparty. There was GBPnil payable to
the Origination Partner at 30 June 2019 (June 2018: GBPnil).
6. Other Expenses
30 Jun 30 Jun 31 Dec
2019 (Unaudited) 2018 (Unaudited) 2018 (Audited)
GBP'000 GBP'000 GBP'000
================ ================= ================= ===============
Directors'
fees 81 68 145
Administrator's
fees 96 96 199
Auditors'
remuneration 65 40 129
Amortisation 115 138 275
Other expenses 282 263 461
Total other
expenses 639 605 1,209
================ ================= ================= ===============
All expenses are inclusive of VAT where applicable. Directors'
fees above include GBP64,750 (June 2018: GBP60,500) paid to
Directors' and GBP10,800 (June 2018: GBP7,735) of employment taxes
and valid business expenses.
During the period, the auditor has not provided reporting
accountant services, (June 2018: GBP3,966 in relation to April 2018
equity raise). These costs were deducted from the proceeds from the
issuance of ordinary shares in line with IAS 32.
Company Secretary
Link Company Matters Limited (the "Company Secretary") has been
appointed under the terms of the agreement, the annual fee for the
provisions of the Company Secretary's services will be GBP52,500
(with VAT thereon).
Administrator
Apex Fund Services (UK) Ltd (the 'Administrator'), a company
authorised and regulated by the FCA, has been appointed as the
administrator of the Company. The Administrator provides the
day-to-day administration of the Company. The Administrator is also
responsible for the Company's general administrative functions,
such as the calculation of the Net Asset Value and maintenance of
the Company's accounting records and ensures that the Company
complies with its continuing obligations as an investment
trust.
Under the terms of the administration agreement, the
Administrator charges a fee for its fund administration services
equal to the greater of: (i) GBP5,150 per month (increased by 3 per
cent on 1 January in each year); and (ii) an amount equal to the
sum of 1/12 of 0.06 per cent of the portion of Net Asset Value up
to GBP150 million, and 1/12 of 0.05 per cent of the excess of Net
Asset Value above GBP150 million. The Administrator is also
entitled to reimbursement of all reasonable out of pocket expenses
incurred by it in connection with the performance of its duties.
The administration agreement can be terminated by either party by
providing 90 days' written notice.
The Administrator invoices the Company monthly in arrears in
respect of the periodic fee (together, if applicable, with any VAT
thereon), which is payable by the Company within 30 days of the
relevant invoice.
Depositary
The Company's depositary is Indos Financial Limited (the
"Depositary"), a company authorised and regulated by the FCA. Under
the terms of the depositary services agreement the Depositary is
entitled to a periodic fee calculated as follows:
(A) where NAV is less than or equal to GBP200 million, 0.02 per
cent. of NAV per annum, subject to a minimum monthly fee of
GBP2,500; and
(B) where NAV is greater than GBP200 million, 0.02 per cent. of
NAV per annum in respect of the first GBP200 million of NAV
and:
i. 0.0175 per cent. per annum of that part of NAV which is in
excess of GBP200 million but less than or equal to GBP400 million;
plus
ii. 0.015 per cent. per annum of that part of NAV which is in excess of GBP400 million.
The Depositary invoices the Company monthly in arrears in
respect of the periodic fee (together, if applicable, with any VAT
thereon), which is payable by the Company within 30 days of the
relevant invoice.
The Depositary is entitled to charge an additional fee where the
Company undergoes a lifecycle event (e.g. a reorganisation or a
distribution) which entails additional work for the Depositary.
Such a fee is agreed with the Company on a case by case basis.
All charges may be subject to change from time to time, with the
agreement of the Depositary and the Company. All charges are
exclusive of VAT, if applicable.
The Depositary is entitled to be reimbursed for certain expenses
properly incurred in performing or arranging for the performance of
functions conferred upon it under the agreement.
The Company may terminate the depositary services agreement for
convenience on nine months' written notice. If the Depositary
wishes to retire and stop providing the services under the
agreement, it must give the Company not less than nine months'
written notice of its wish to do so. To the extent that the Company
is required to have a depositary under applicable law, the
Depositary may not retire until a successor is appointed. The
depositary agreement may be terminated immediately by either the
Company or the Depositary on the occurrence of certain events,
including: (i) if the other party has committed a material and
continuing breach of the terms of the agreement; or (ii) in the
case of the other's insolvency.
Corporate broker and financial adviser
Liberum Capital Limited ("Liberum"), a company authorised and
regulated in the United Kingdom by the FCA, has been appointed as
the Company's corporate broker and financial adviser. Liberum is
entitled to a retainer fee of GBP1 per annum (exclusive of VAT and
out of pocket expenses). Liberum was also appointed as the placing
agent for the Company's initial public offering and subsequent
share issues. The broker agreement between Liberum and the Company
can be terminated by either party providing three months' written
notice.
7. Ordinary Dividends
The following table summarises the interim dividends paid to
equity shareholders:
30 Jun 30 Jun 31 Dec
2019 (Unaudited) 2018 (Unaudited) 2018
GBP'000 GBP'000 (Audited)
GBP'000
=============== ================= ================= ==========
20.00p Interim
dividend
for the
period to
31 Dec 2017
(paid 29
Mar 2018) - 5,985 5,985
20.00p Interim
dividend
for the
period to
31 Mar 2018
(paid 29
Jun 2018) - 5,985 5,985
20.00p Interim
dividend
for the
period to
30 Jun 2018
(paid 28
Sep 2018) - - 7,890
20.00p Interim
dividend
for the
period to
30 Sep 2018
(paid 28
Dec 2018) - - 7,890
20.00p Interim
dividend
for the
period to
31 Dec 2018
(paid 29
Mar 2019) 7,890 - -
20.00p Interim
dividend
for the
period to
31 Mar 2019
(paid 29
Jun 2019) 7,890 - -
Total dividend
paid in
period 15,780 11,970 27,750
=============== ================= ================= ==========
20.00p Interim
dividend
for the
period to
31 Dec 2018
(paid 29
Mar 2019) - - 7,890
=============== ================= ================= ==========
Total dividend 15,780 11,970 35,640
=============== ================= ================= ==========
8. Earnings per Share
30 Jun 30 Jun 31 Dec
2019 (Unaudited) 2018 (Unaudited) 2018 (Audited)
=============== ================== ================== ================
Revenue
pence 38.46p 41.4p 81.5p
Capital
pence (0.13)p (0.2)p (0.3)p
Earnings
per ordinary
share 38.33p 41.2p 81.2p
=============== ================== ================== ================
The calculation at 30 June 2019 is based on revenue returns of
GBP15.2 million, capital returns of GBP(0.05) million and total
returns of GBP15.1 million and a weighted average number of
ordinary shares of 39,449,919.
The calculation at 30 June 2018 is based on revenue returns of
GBP13.4 million, capital returns of GBP(0.8) million and total
returns of GBP12.6 million and a weighted average number of
ordinary shares of 33,398,880.
The calculation at 31 December 2018 is based on revenue returns
of 29.0 million, capital returns of GBP(0.8) million and total
returns of GBP28.2 million and a weighted average number of
ordinary shares of 36,475,359.
9. Investments at amortised cost
(a) Investments at amortised cost
The disclosure below presents the gross carrying amount of
financial instruments to which the impairment requirements in IFRS
9 are applied and the associated allowance for expected credit
losses ("ECL"). The following table analyse loans by industry
sector and represent the concentration of exposures on which credit
risk is managed.
30 June 2019 (Unaudited) 1 January 2019
============== ======================================= =======================================
Investments Gross Carrying Allowance Net Carrying Gross Carrying Allowance Net Carrying
at amortised Amount for ECL Amount Amount for ECL Amount
cost GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============== ============== ========= ============ ============== ========= ============
Consumer 284,655 (16,535) 268,120 294,467 (12,724) 281,743
Property 247,906 (9,968) 237,938 237,310 (9,880) 227,430
SME 54,734 (188) 54,546 67,536 (179) 67,357
Total Assets 587,294 (26,691) 560,604 599,313 (22,783) 576,530
============== ============== ========= ============ ============== ========= ============
30 June 2018 (Unaudited) 1 January 2018
============== ======================================= =======================================
Investments Gross Carrying Allowance Net Carrying Gross Carrying Allowance Net Carrying
at amortised Amount for ECL Amount Amount for ECL Amount
cost GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============== ============== ========= ============ ============== ========= ============
Consumer 294,270 (8,225) 286,045 233,644 (6,416) 227,228
Property 158,548 (7,747) 150,801 106,926 (5,665) 101,261
SME 38,512 (34) 38,478 14,739 - 14,739
Total Assets 491,330 (16,006) 475,324 355,309 (12,081) 343,228
============== ============== ========= ============ ============== ========= ============
31 December 2018 (Audited) 1 January 2018
============== ======================================= =======================================
Investments Gross Carrying Allowance Net Carrying Gross Carrying Allowance Net Carrying
at amortised Amount for ECL Amount Amount for ECL Amount
cost GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============== ============== ========= ============ ============== ========= ============
Consumer 294,467 (12,724) 281,743 233,644 (6,416) 227,228
Property 237,310 (9,880) 227,430 106,926 (5,665) 101,261
SME 67,536 (179) 67,357 14,739 - 14,739
Total Assets 599,313 (22,783) 576,530 355,309 (12,081) 343,228
============== ============== ========= ============ ============== ========= ============
(b) Expected Credit Loss allowance for IFRS 9
Under Expected credit loss model credit losses are driven by
changes in credit risk of instruments, with a provision for
lifetime expected credit losses recognised where the risk of
default of an instrument has increased significantly since initial
recognition.
As at 30 June 2019 (Unaudited) Consumer Property SME Total
GBP'000 GBP'000 GBP'000 GBP'000
================================ ========= ========= ========= =========
Opening balance 1 January
2019 12,724 9,880 179 22,783
Charge for the period -
Stage 1 (499) 74 - (425)
Charge for the period -
Stage 2 (72) (176) - (248)
Charge for the period -
Stage 3 4,382 190 9 4,581
Total charge for expected
credit losses 3,811 88 9 3,908
Expected Credit Losses 16,535 9,968 188 26,691
================================ ========= ========= ========= =========
As at 30 June 2018 (Unaudited) Consumer Property SME Total
GBP'000 GBP'000 GBP'000 GBP'000
================================ ========= ========= ========= =========
At 1 January 2018 4,675 5,068 - 9,743
Changes on initial application
of IFRS 9 1,741 597 - 2,338
Revised opening balance
1 January 2018 6,416 5,665 - 12,081
Charge for the period -
Stage 1 568 (69) 34 533
Charge for the period -
Stage 2 182 260 - 442
Charge for the period -
Stage 3 1,181 621 - 1,802
Total charge for expected
credit losses 1,931 812 34 2,777
POCI - 1,270 - 1,270
Amounts written off during
the period (122) - - (122)
Expected Credit Losses 8,225 7,747 34 16,006
================================ ========= ========= ========= =========
As at 31 December 2018 (Audited) Consumer Property SME Total
GBP'000 GBP'000 GBP'000 GBP'000
================================== ========= ========= ========= =========
At 1 January 2018 4,675 5,068 - 9,743
Changes on initial application
of IFRS 9 1,741 597 - 2,338
Revised opening balance
1 January 2018 6,416 5,665 - 12,081
Charge for the period -
Stage 1 587 (43) 126 670
Charge for the period -
Stage 2 469 264 29 762
Charge for the period -
Stage 3 5,252 759 24 6,035
Total charge for expected
credit losses 6,308 980 179 7,467
POCI - 3,235 - 3,235
Expected Credit Losses 12,724 9,880 179 22,783
================================== ========= ========= ========= =========
Measurement uncertainty and sensitivity analysis of ECL
The recognition and measurement of expected credit losses
('ECL') is highly complex and involves the use of significant
judgement and estimation. This includes the formulation and
incorporation of multiple forward-looking economic conditions into
ECL to meet the measurement objective of IFRS 9.
For most portfolios, the Company has adopted the use of three
economic scenarios, representative of Oxford Economics view of
forecast economic conditions, sufficient to calculate unbiased ECL.
They represent a 'most likely outcome' (the Base scenario) and two,
less likely, 'outer' scenarios, referred to as the 'Upside' and
'Downside' scenarios. The Company has developed a shortlist of the
upside and downside economic and political risks most relevant to
the Company and the IFRS 9 measurement objective. These include
economic and political risks which together affect economies that
materially matter to the Company.
The ECL recognised in the financial statements reflect the
effect on expected credit losses of a range of possible outcomes,
calculated on a probability-weighted basis, based on the economic
scenarios described in Note 2 to the financial statement, including
management overlays where required. The probability-weighted amount
is typically a higher number than would result from using only the
Base (most likely) economic scenario. ECLs typically have a
non-linear relationship to the many factors which influence credit
losses, such that more favourable macroeconomic factors do not
reduce defaults as much as less favourable macroeconomic factors
increase defaults. The ECL calculated for each of the scenarios
represent a range of possible outcomes that have been evaluated to
estimate ECL. As a result, the ECL calculated for the Upside and
Downside scenarios should not be taken to represent the upper and
lower limits of possible actual ECL outcomes. There is a high
degree of estimation uncertainty in numbers representing tail risk
scenarios when assigned a 100 per cent. A wider range of possible
ECL outcomes reflects uncertainty about the distribution of
economic conditions and does not necessarily mean that credit risk
on the associated loans is higher than for loans where the
distribution of possible future economic conditions is
narrower.
For stage 3 impaired loans, LGD estimates take into account
independent recovery valuations provided by external consultants
where available, or internal forecasts corresponding to anticipated
economic conditions.
10. Investments at Fair Value Through Profit or Loss
(a) Movements in the period
(Unaudited) 30 Jun 2019
GBP'000
================================ ====================================
Opening cost at 1 January
2019 9,980
Opening fair value 9,980
Purchases at cost -
Disposal at cost -
Closing fair value at
30 June 2019 9,980
Comprising:
Valued using transaction
price 6,980
Valued using earnings
multiple 3,000
Closing fair value as
at 30 June 2019 9,980
=================================================== =================
(Unaudited) 30 Jun 2018
GBP'000
================================ ====================================
Opening cost at 1 January
2018 11,227
Opening fair value 11,227
Purchases at cost 1,000
Disposal at cost (3,497)
Net change in unrealised
(losses)/gains (750)
Closing fair value at
30 June 2017 7,980
Comprising:
Closing cost as at 30
June 2018 7,980
Closing fair value as
at 30 June 2018 7,980
=================================================== =================
(Audited) 31 Dec
2018
GBP'000
=================================================== =================
Opening cost at 1 January
2018 11,227
Opening fair value 11,227
Purchases at cost 3,000
Disposal at cost (3,497)
Net change in unrealised
(losses)/gains (750)
Closing fair value at 31
December 2018 9,980
Comprising:
Valued using transaction
price 6,980
Valued using earnings
multiple 3,000
Closing fair value as at
31 December 2018 9,980
=================================================== =================
30 Jun 30 Jun 31 Dec
2019 (Unaudited) 2018 (Unaudited) 2018 (Audited)
GBP'000 GBP'000 GBP'000
============= ================= ================= ===============
Loss on
Investment
in unlisted
equities - (750) (750)
Total
loss on
investment - (750) (750)
============= ================= ================= ===============
(b) Fair value of financial instruments
IFRS 13 requires the Company to classify its financial
instruments held at fair value using a hierarchy that reflects the
significance of the inputs used in the valuation methodologies.
These are as follows:
-- Level 1 - quoted prices in active markets for identical investments;
-- Level 2 - other significant observable inputs (including
quoted prices for similar investments, interest rates, prepayments,
credit risk, etc.); and
-- Level 3 - significant unobservable inputs (including the
Company's own assumptions in determining the fair value of
investments).
An investment is always categorised as Level 1, 2 or 3 in its
entirety. In certain cases, the fair value measurement for an
investment may use a number of different inputs that fall into
different levels of the fair value hierarchy. In such cases, an
investment's level within the fair value hierarchy is based on the
lowest level of input that is significant to the fair value
measurement. The assessment of the significance of a particular
input to the fair value measurement requires judgement and is
specific to the investment.
The following sets out the classifications used in valuing the
Company's investments:
Closing Closing Closing
fair value fair value fair value
as at as at as at
30 Jun 30 Jun 31 Dec
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
======= ============= ============= ============
Level - - -
1
Level - - -
2
Level
3 9,980 7,980 9,980
======= ============= ============= ============
Total 9,980 7,980 9,980
======= ============= ============= ============
The investments in unlisted equities are valued using several
different techniques, primarily recent transactions and recent
rounds of funding by the investee entities. Sensitivity analysis is
not considered appropriate at this stage as there are not multiple
inputs used for valuation.
11. Financial Risk Management
The Company's investing activities undertaken in pursuit of its
investment objective, as set out on page 4, involve certain
inherent risks. The main financial risks arising from the Company's
financial instruments are market risk, credit risk and liquidity
risk. The Board reviews and agrees policies for managing each of
these risks as summarised below.
Market risk
The fair value or future cash flows of a financial instrument or
investment property held by the Company may fluctuate because of
changes in market prices. Market risk can be summarised as
comprising three types of risk:
-- Price risk - the risk that the fair value or future cash
flows of financial instruments will fluctuate because of changes in
market prices (other than those arising from interest rate risk or
currency risk);
-- Interest rate risk - the risk that the fair value or future
cash flows of financial instruments will fluctuate because of
changes in market interest rates; and
-- Currency risk - the risk that the fair value or future cash
flows of financial instruments will fluctuate because of changes in
foreign exchange rates.
The Company's exposure, sensitivity to and management of each of
these risks is described in further detail below. Management of
market risk is fundamental to the Company's investment objective.
The investment portfolio is continually monitored to ensure an
appropriate balance of risk and reward. The Board has also
established a series of investment parameters, which are reviewed
annually, designed to limit the risk inherent in managing a
portfolio of investments.
(a) Price risk
Price risk arises mainly from uncertainty about future prices of
financial instruments used in the Company's business. It represents
the potential loss the Company might suffer through holding market
positions in the face of price movements (other than those arising
from interest rate risk or currency risk).
The Company is exposed to price risk arising from its equity
investments. Given the Company's equity assets are unquoted, the
fair value has been determined to be the transaction price.
Sensitivity analysis is not considered appropriate at this stage as
there are not multiple inputs used for valuation.
(b) Interest rate risk
The Company invests in Credit Assets which may be subject to a
fixed rate of interest, or a floating rate of interest (which may
be linked to base rates or LIBOR). The Company's borrowings may be
subject to a floating rate of interest.
The Company intends to manage the mismatch it has in respect of
the income generated by its Credit Assets, on the one hand, with
the liabilities in respect of its borrowings, on the other hand, by
matching any floating rate borrowings with investments in Credit
Assets that are also subject to a floating rate of interest. To the
extent that the Company is unable to match its funding in this way,
it may use derivative instruments, including interest rate swaps,
to reduce its exposure to fluctuations in interest rates, however
some unmatched risk may remain.
The Company finances its operations mainly through its share
capital and reserves, including realised gains on investments. As
at 30 June 2019 the Company had GBP179 million (June 2018: GBP100.0
million) drawn-down under this facility.
Exposure of the Company's financial assets and liabilities to
floating interest rates (giving cash flow interest rate risk when
rates are reset) and fixed interest rates (giving fair value risk)
as at 30 June 2019 is shown below:
Fixed or
Financial Floating Administered
instrument Rate Rate Total
(Unaudited) GBP'000 GBP'000 GBP'000
================== ========= ============= =========
Investments
at amortised
cost 137,895 422,709 560,604
Cash and
cash equivalents 7,575 - 7,575
Interest
bearing
borrowings (179,000) - (179,000)
================== ========= ============= =========
Total
exposure (33,530) 422,709 389,179
================== ========= ============= =========
As at 30 June 2018 is shown below:
Fixed or
Financial Floating Administered
instrument Rate Rate Total
(Unaudited) GBP'000 GBP'000 GBP'000
================== ========= ============= =========
Investments
at amortised
cost 83,719 391,605 475,324
Cash and
cash equivalents 15,662 - 15,662
Interest
bearing
borrowings (100,000) - (100,000)
================== ========= ============= =========
Total exposure (619) 391,605 390,985
================== ========= ============= =========
As at 31 December 2018 is shown below:
Fixed or
Financial Floating Administered
instrument Rate Rate Total
(Audited) GBP'000 GBP'000 GBP'000
================== ========= ============= =========
Investments
at amortised
cost 106,387 470,143 576,530
Cash and
cash equivalents 5,559 - 5,559
Interest
bearing
borrowings (189,000) - (189,000)
================== ========= ============= =========
Total exposure (77,054) 470,143 393,089
================== ========= ============= =========
An administered rate is not like a floating rate, movements in
which are directly linked to LIBOR. The administered rate can be
changed at the discretion of the lender.
(c) Currency risk
Currency risk is the risk that the value of net assets will
fluctuate due to changes in foreign exchange rates. Relevant risk
variables are generally movements in the exchange rates of
non-functional currencies in which the Company holds financial
assets and liabilities.
The assets of the Company are invested in Credit Assets which
are denominated in Pounds Sterling and Euros. Accordingly, the
value of such assets may be affected favourably or unfavourably by
fluctuations in currency rates. The Company hedges currency
exposure between Pounds Sterling and Euros.
(d) Concentration of foreign currency exposure
The Investment Manager monitors the fluctuations in foreign
currency exchange rates and may use forward foreign exchange
contracts to hedge the currency exposure of the Company's non GBP
denominated investments. The Investment Manager re-examines the
currency exposure on a regular basis in each currency and manages
the Group's currency exposure in accordance with market
expectations. HIT's exposure as at 30 June 2019 was EUR11.9
million.
12. Credit risk
Credit risk is the risk that one party to a financial instrument
will cause a financial loss for the other party by failing to
discharge an obligation.
The Company's credit risks arise principally through exposures
to loans originated or acquired by the Company and cash deposited
with banks, both of which are subject to risk of borrower
default.
The Investment Manager and the Origination Partner establishes
and adheres to stringent underwriting criteria as set out in the
appropriate credit policies. For consumer loans, underwriting
includes credit referencing, income verification and affordability
testing, identity verification and various forward-looking
indicators of a borrower's likely financial strength. The Company
invests in a granular portfolio of assets, diversified at the
underlying borrower level, with each loan being subject to a
maximum single loan exposure limit. This helps mitigate credit
concentrations in relation to an individual customer, a borrower
group or a collection of related borrowers.
The credit quality of loans is assessed through evaluation of
various factors, including credit scores, payment data, collateral
available from the borrower and other information.
The Company further mitigates its exposure to Credit Risk
through structuring facilities whereby the facilities are secured
on a granular pool of performing loans and structured so that the
Origination Platform and or borrower provides the first loss, and
the Company finances the senior risk.
Further risk is mitigated in the property sector as the Company
takes collateral in the form of property to mitigate the credit
risk arising from residential mortgage lending and commercial real
estate.
Set out below is the analysis of the closing balances of the
Company's credit assets split by the type of loan and the credit
risk band as at 30 June 2019 (unaudited):
Credit Unsecured Secured Total
Risk Band GBP'000 GBP'000 GBP'000
=========== ========= ======== ========
A & B 88,457 428,936 517,393
C 19,517 169 19,686
D & E 23,525 - 23,525
=========== ========= ======== ========
Total 131,499 429,104 560,604
=========== ========= ======== ========
Set out below is the analysis of the closing balances of the
Company's credit assets split by the type of loan and the credit
risk band as at 30 June 2018 (unaudited):
Credit Unsecured Secured Total
Risk Band GBP'000 GBP'000 GBP'000
=========== ========= ======== ========
A & B 173,004 297,948 470,952
C D &
E 18,323 2,164 20,487
Total 191,327 300,112 491,439
=========== ========= ======== ========
Set out below is the analysis of the closing balances of the
Company's credit assets split by the type of loan and the credit
risk band as at 31 December 2018 (audited):
Credit Unsecured Secured Total
Risk Band GBP'000 GBP'000 GBP'000
=========== ========= ======== ========
A & B 129,264 429,034 558,298
C 23,896 223 24,119
D & E 16,896 - 16,896
=========== ========= ======== ========
Total 170,056 429,257 599,313
=========== ========= ======== ========
Each credit risk band is defined below:
Credit
Risk Band Definition
========== =========================
A Highest quality with
minimal indicators of
credit risk
B High quality, with minor
adverse indicators
C Medium-grade, moderate
credit risk, may have
some adverse credit risk
indicators
D/E Elevated credit risk,
adverse indicators (e.g.
lower borrowing ability,
credit history, existing
debt)
========== =========================
The Company ensures that it only deposits cash balances with
institutions with appropriate financial standing or those deemed to
be systemically important.
Liquidity risk
Liquidity risk is the risk that the Company will have difficulty
in meeting its obligations in respect of financial liabilities as
they fall due.
The Company manages its liquid resources to ensure sufficient
cash is available to meet its expected contractual commitments. It
monitors the level of short-term funding and balances the need for
access to short-term funding, with the long-term funding needs of
the Company.
Liquidity risk is not viewed as significant as a substantial
proportion of the Company's net assets are in loans, whose cash
collections could be utilised to meet funding requirements if
necessary. The Company has the power, under its Articles of
Association, to take out both short and long-term borrowings
subject to a maximum value of one times its share capital and
reserves.
The Company has a committed debt facility totalling GBP200.0
million (details of which is disclosed in Note 18 to the financial
statements).
Assets and liabilities not carried at fair value but for which
fair value is disclosed
For the Company for the period ended 30 June 2019:
(Unaudited) Level Level Level
1 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
================== ======== ======== ======== ========
Assets
Investments
at amortised
cost 15,888 - 544,716 560,604
Receivables - 6,423 - 6,423
Cash and
cash equivalents 7,575 - - 7,575
================== ======== ======== ======== ========
Total assets 23,463 6,423 544,716 574,602
================== ======== ======== ======== ========
Liabilities
Management
fee payable - 986 - 986
Performance
fee payable - 1,680 - 1,680
Other payables - 2,196 - 2,196
Interest
bearing
borrowings - 179,772 - 179,772
================== ======== ======== ======== ========
Total liabilities - 184,634 - 184,634
================== ======== ======== ======== ========
For the Company for the period ended 30 June 2018:
(Unaudited) Level Level Level
1 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
================== ======== ======== ======== ========
Assets
Investments
at amortised
cost 13,218 - 462,106 475,324
Receivables - 6,398 - 6,398
Cash and
cash equivalents 15,662 - - 15,662
================== ======== ======== ======== ========
Total assets 28,880 6,398 462,106 497,384
================== ======== ======== ======== ========
Liabilities
Management
fee payable - 760 - 760
Performance
fee payable - 1,398 - 1,398
Other payables - 1,938 - 1,938
Interest
bearing
borrowings - 100,653 - 100,653
================== ======== ======== ======== ========
Total liabilities - 104,749 - 104,749
================== ======== ======== ======== ========
For the year ended 31 December 2018:
(Audited) Level Level Level
1 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
================== ======== ======== ======== ========
Assets
Investments
at amortised
cost 16,589 - 558,338 574,927
Receivables - 3,375 - 3,375
Cash and
cash equivalents 5,559 - - 5,559
================== ======== ======== ======== ========
Total assets 22,148 3,375 558,338 583,861
================== ======== ======== ======== ========
Liabilities
Management
fee payable - 985 - 985
Performance
fee payable - 2,873 - 2,873
Other payables - 1,830 - 1,830
Interest
bearing
borrowings - 189,263 - 189,263
================== ======== ======== ======== ========
Total liabilities - 194,951 - 194,951
================== ======== ======== ======== ========
Categorisation within the hierarchy has been determined based on
the lowest level input that is significant to the fair value
measurement of the relevant asset or liability (see Note 12
Investments at Fair Value Through Profit or Loss for details).
Further details of the loans at amortised cost held by the Company
can be found in Note 11 to the financial statements.
Capital Management
The Company's primary objectives in relation to the management
of capital are:
-- To ensure its ability to continue as a going concern; and
-- To maximise the long-term capital growth for its shareholders
through an appropriate balance of equity capital and gearing.
The Company has met these objectives through a successful share
offering where the Company raised GBP100 million excluding issue
costs and through increasing the size of the Company debt facility
to GBP200.0 million. The Company's debt to equity ratio was 47.7
per cent at 31 December 2018.
The Company is subject to externally imposed capital
requirements:
-- The Company's Articles of Association restrict borrowings to
the value of its share capital and reserves;
-- As a public company, the Company has a minimum share capital of GBP50,000;
-- To be able to pay dividends out of profits available for
distribution by way of dividends, the Company must be able to meet
one of the two capital restriction tests imposed on investment
companies by company law; and
-- The Company's borrowings are subject to covenants limiting
the total exposure based on interest cover ratios, a minimum total
net worth and a cap of borrowings as a percentage of the eligible
borrowing base.
The Company has complied with all the above requirements during
this financial year.
13. Fixed Assets
Period ended 30 IT Development Total
June 2019 (Unaudited) and Software GBP'000
GBP'000
========================= ============== ========
Opening net book
amount 217 217
Additions - -
Depreciation charge (115) (115)
Closing net book
amount 102 102
As at 30 June
2019
Cost 831 831
Accumulated depreciation (729) (729)
========================= ============== ========
Net book amount
(Unaudited) 102 102
========================= ============== ========
Period ended 30 IT Development Total
June 2018 (Unaudited) and Software GBP'000
GBP'000
========================= ============== ========
Opening net book
amount 342 342
Additions 49 49
Depreciation charge (138) (138)
Closing net book
amount 253 253
As at 30 June
2018
Cost 729 729
Accumulated depreciation (476) (476)
========================= ============== ========
Net book amount
(Unaudited) 253 253
========================= ============== ========
Period ended 31 IT Development Total
December 2018 and Software GBP'000
(Audited) GBP'000
========================= ============== ========
Opening net book
amount 342 342
Additions 150 150
Depreciation charge (275) (275)
Closing net book
amount 217 217
As at 31 December
2018
Cost 831 831
Accumulated depreciation (613) (613)
========================= ============== ========
Net book amount
(Audited) 217 217
========================= ============== ========
14. Receivables
30 Jun 30 Jun 31 Dec
2019 (Unaudited) 2018 (Unaudited) 2018 (Audited)
GBP'000 GBP'000 GBP'000
================== ================= ================= ===============
Prepayments 2,167 3,091 2,145
Other receivables 4,256 3,307 1,230
Total receivables 6,423 6,398 3,375
================== ================= ================= ===============
The above receivables do not carry any interest and are short
term in nature. The Directors consider that the carrying values of
these receivables approximate their fair value.
15. Other Payables
30 Jun 30 Jun 31 Dec
2018 (Unaudited) 2018 (Unaudited) 2018 (Audited)
GBP'000 GBP'000 GBP'000
============== ================= ================= ===============
Accruals
and deferred
income 2,196 1,939 1,830
Total
other
payables 2,196 1,939 1,830
============== ================= ================= ===============
The above payables do not carry any interest and are short term
in nature. The Directors consider that the carrying values of these
payables approximate their fair value.
16. Interest Bearing Borrowings
30 Jun 30 Jun 31 Dec
2019 (Unaudited) 2018 (Unaudited) 2018 (Audited)
GBP'000 GBP'000 GBP'000
======================= ================= ================= ===============
Term and
revolving
credit
facility 179,000 100,000 189,000
Interest
and commitment
fees payable 772 653 263
======================= ================= ================= ===============
Total interest-bearing
borrowings 179,772 100,653 189,263
======================= ================= ================= ===============
On 17 June 2016, the Company entered into a two-year, GBP37.5
million credit facility for which The Royal Bank of Scotland plc
was agent. The credit facility is secured upon the assets of the
Company, has a term of two years and interest is charged at one,
three- or six-month LIBOR plus a margin. Loans drawn under the
credit facility may be repaid and redrawn during its term. The
two-year term was reset on 20 June 2017 and the amount under the
facility was increased to GBP80 million. On 20 March 2018, the
amount committed under the facility was further increased to GBP150
million, and the term of the facility was further extended to 20
March 2020. On 31 July 2018, the accordion option under the
facility was partially exercised, taking the total amount committed
under the facility to GBP180 million, and on 1 October 2018, the
accordion option under the facility was further exercised, taking
the total amount committed to GBP200 million. This facility was
GBP179.0 million drawn at 30 June 2019 (30 June 2018: GBP100.0
million). The credit facility is syndicated, and other lenders may
in the future accede to the facility. The size of the facility may,
with the agreement of the lenders, increase in the future and the
term may be extended and the Company retains the flexibility to
refinance the facility.
30 Jun 30 Jun 31 Dec
2019 (Unaudited) 2018 (Unaudited) 2018 (Audited)
GBP'000 GBP'000 GBP'000
================ ================= ================= ===============
Interest
and commitment
fees paid 2,991 1,259 3,373
Other finance
charges 1,003 965 2,056
Total finance
costs 3,994 2,224 5,429
================ ================= ================= ===============
As part of the amendments made to IAS 7, "Statement of cash
flows", effective 1 January 2017, an entity is required to disclose
changes in liabilities arising from financing activities, including
both changes arising from cash flows and non-cash changes.
As at the 30 June 2019 the below changes occurred for the
Company:
30 June 2019 Total
(Unaudited) GBP'000
============================= ==========
At 1 January 2019 189,263
Interest bearing borrowings 448,000
Repayments of interest
bearing borrowing (458,000)
Finance costs 3,994
Interest paid on financing
activities (3,485)
At 30 June 2019 179,772
============================= ==========
As at the 30 June 2018 the below changes occurred for the
Company:
30 June 2018 Total
(Unaudited) GBP'000
============================= ==========
At 1 January 2018 56,787
Interest bearing borrowings 108,700
Repayments of interest
bearing borrowing (65,200)
Finance costs 2,224
Interest paid on financing
activities (1,858)
At 30 June 2018 100,653
============================= ==========
As at the 31 December 2018 the below changes occurred for the
Company:
31 December 2018 Total
(Audited) GBP'000
============================= ==========
At 1 January 2018 56,787
Interest bearing borrowings 366,900
Repayments of interest
bearing borrowing (234,400)
Finance costs 5,429
Interest paid on financing
activities (5,453)
At 31 December 2018 189,263
============================= ==========
The below table analyses the Company's financial liabilities
into relevant maturity groupings as well as expected future
interest costs based on the remaining period at the Statement of
Financial Position date to the final scheduled maturity date.
30 June < 1 year 1 - 5 Total
2019 years
(Unaudited) GBP'000 GBP'000 GBP'000
================ ========= ========= =========
Credit facility 179,000 - 179,000
Interest
and commitment
fees payable 5,382 - 5,382
================ ========= ========= =========
Total exposure 184,382 - 184,382
================ ========= ========= =========
30 June < 1 year 1 - 5 Total
2018 years
(Unaudited) GBP'000 GBP'000 GBP'000
================ ========= ========= =========
Credit facility - 100,000 100,000
Interest
and commitment
fees payable 653 - 653
================ ========= ========= =========
Total exposure 653 100,000 100,653
================ ========= ========= =========
31 December < 1 year 1 - 5 Total
2018 years
(Audited) GBP'000 GBP'000 GBP'000
================ ========= ========= =========
Credit facility - 189,000 189,000
Interest
and commitment
fees payable 6,745 1,437 8,182
================ ========= ========= =========
Total exposure 6,745 190,437 197,182
================ ========= ========= =========
17. Ordinary Share Capital
The table below details the issued share capital of the Company
as at the 30 June 2018.
30 Jun 30 Jun 31 Dec
2019 (Unaudited) 2018 (Unaudited) 2018 (Audited)
============= ================= ================= ===============
No. Issued,
allotted
and fully
paid shares 39,449,919 39,449,919 39,449,919
GBP'000 394 394 394
============= ================= ================= ===============
On incorporation, the issued share capital of the Company was
GBP50,000.01 represented by one ordinary share of 1p and 50,000
management shares of GBP1 each, all of which were held by Honeycomb
Holdings Limited as subscriber to the Company's memorandum of
association. The ordinary share and management shares were fully
paid up.
The management shares, which were issued to enable the Company
to obtain a certificate of entitlement to conduct business and to
borrow under Section 761 of the Companies Act 2006, were redeemed
immediately following admission of 23 December 2015 out of the
proceeds of the issue.
On 23 December 2015, 10,000,000 ordinary shares of 1p each were
issued to shareholders as part of the placing and offer for
subscription in accordance with the Company's prospectus dated 18
December 2015.
During 2016 a further 9,926,109 ordinary shares were issued. The
price paid per share ranged from 1,000 pence to 1,015 pence and the
total paid for the shares during the period amounted to GBP98.8
million.
On 31 May 2017 the Company announced the successful completion
of a placing of a further 10,000,000 ordinary shares. The price
paid per share was 1,050p and the total paid for the shares during
the year amounted to GBP103.3 million net of issue costs.
On 25 April 2018 the Company announced the successful completion
of a placing of a further 9,523,809 ordinary shares. The price paid
per share was 1,050p and the total paid for the shares during the
year amounted to GBP97.8 million net of issue costs. Rights
attaching to the
Ordinary Shares
The holders of Ordinary Shares shall be entitled to all of the
Company's net assets.
The holders of Ordinary Shares are only entitled to receive, and
to participate in, any dividends declared in relation to the
relevant class of shares that they hold.
The Ordinary Shares shall carry the right to receive notice of,
attend and vote at general meetings of the Company.
The consent of the holders of Ordinary Shares will be required
for the variation of any rights attached to the relevant class of
shares.
Voting rights
Subject to any rights or restrictions attached to any shares, on
a show of hands every Shareholder present in person has one vote
and every proxy present who has been duly appointed by a
Shareholder entitled to vote has one vote, and on a poll every
Shareholder (whether present in person or by proxy) has one vote
for every share of which they are the holder.
A Shareholder entitled to more than one vote need not, if he
votes, use all his votes or cast all the votes he uses the same
way. In the case of joint holders, the vote of the senior who
tenders a vote shall be accepted to the exclusion of the vote of
the other joint holders, and seniority shall be determined by the
order in which the names of the holders stand in the Register.
No Shareholder shall have any right to vote at any general
meeting or at any separate meeting of the holders of any class of
shares, either in person or by proxy, in respect of any share held
by him unless all amounts presently payable by him in respect of
that share have been paid.
Variation of rights and distribution on wind up
If at any time the share capital of the Company is divided into
different classes of shares, the rights attached to any class may
be varied either in writing of the holders of three-quarters in
nominal value of the issued shares of that class or with the
sanction of an extraordinary resolution passed at a separate
meeting of the holders of the shares of that class.
The Company has no fixed life but, pursuant to the Articles, an
ordinary resolution for the continuation of the Company will be
proposed at the annual general meeting of the Company to be held in
2021 and, if passed, every five years thereafter. Upon any such
resolution not being passed, proposals will be put forward to the
effect that the Company be wound up, liquidated, reconstructed or
unitised.
If the Company is wound up, the liquidator may divide among the
shareholders in specie the whole or any part of the assets of the
Company and for that purpose may value any assets and determine how
the division shall be carried out as between the shareholders or
different classes of shareholders.
18. Special Distributable Reserve
At a general meeting of the Company held on 14 December 2015,
special resolutions were passed approving the cancellation of the
amount standing to the credit of the Company's share premium
account as at 23 December 2015.
Following the approval of the Court and the subsequent
registration of the Court order with the Registrar of Companies on
21 March 2016, the reduction became effective. Accordingly, GBP98.1
million, that was held in the share premium account, was
transferred to the special distributable reserve as disclosed in
the Statement of Financial Position.
During the period 2018 GBP0.6 million of the special
distributable reserve was used to pay the Q4 2018 Dividend on 29
March 2019.
The net balance of the special distributable reserve is
GBP96.1m.
19. Investments in Associates
As at 30 June 2019, the Company has a single associate, being a
34.6 per cent investment in GDFC Group Limited (formally Hiber
Limited and The Green Deal Finance Company Limited). The company
number is 10028311 its registered office is Imperial House, 15 - 19
Kingsway, London, WC2B 6UN. GDFC Group Limited is incorporated in
England and Wales.
This is a UK platform responsible for setting-up, financing and
administering Green Deal Plans in The Green Deal programme. As
permitted by IAS 28 'Investment in Associates' and in accordance
with the Company's accounting policy the investment is accounted
for at fair value through profit or loss. No dividends were
declared during the year in respect of the investment. The Company
holds GDFC Group Limited at a fair value of GBP3.0 million (June
2018: GBP3.0 million).
The Company has also provided GBP8.3 million of debt funding to
the platform (June 2018: GBP6.0 million).
The Company has entered into an agreement which gives it the
right to participate in qualifying loans originated by the
platform.
There are no significant restrictions on the ability of the
associate from repaying loans from, or distributing dividends to,
the Company.
20. Net Asset Value per Ordinary Share
30 Jun 30 Jun 31 Dec
2019 (Unaudited) 2018 (Unaudited) 2018 (Audited)
GBP'000 GBP'000 GBP'000
============== ================= ================= ===============
Net asset
value
per
ordinary
share
pence 1,014.1p 1,016.1p 1,015.7p
Net assets
attributable
GBP'000 400,050 400,867 400,710
============== ================= ================= ===============
The net asset value per ordinary share at 30 June 2019 is based
on net assets of GBP400.1 million and on 39,449,919 ordinary shares
in issue.
The net asset value per ordinary share at 30 June 2018 is based
on net assets of GBP400.9 million and on 39,449,919 ordinary shares
in issue.
The net asset value per ordinary share as at 31 December 2018 is
based on net assets at the year-end of GBP400.7 million and on
39,449,919 ordinary shares in issue at the year-end.
21. Contingent Liabilities and Capital Commitments
As at 30 June 2019 and 30 June 2018 there were no contingent
liabilities or capital commitments for the Company.
22. related party transactions and transaction with the
Investment manager
IAS 24 'Related party disclosures' requires the disclosure of
the details of material transactions between the Company and any
related parties. Accordingly, the disclosures required are set out
below:
Associates
At 30 June 2019 outstanding loan balance of GBP8.3 million (June
2018: GBP6.0 million) and accrued interest of GBP0.8 million (June
2018: GBP0.7 million) with the GDFC Group Limited.
Directors
From the 1 January 2019 until 28 February 2019 the Directors
remuneration was set at a rate of GBP45,000 per annum for the
Chairman and GBP38,000 per annum for the other Directors. A further
GBP5,000 per annum will be paid to the Chairman of the Audit
Committee. The Committee met on 21 February 2019 and considered the
continued time commitment required to carry out their duties and
approved an increase of the Board's fees by GBP3,000 for the
Chairman and GBP2,000 for all other member from 1 March 2019. The
Directors remuneration was set at a rate of GBP48,000 per annum for
the Chairman and GBP40,000 per annum for the other Directors. A
further GBP5,000 per annum will be paid to the Chairman of the
Audit Committee.
At 30 June 2019 and 30 June 2018, there was GBPnil payable to
the Directors for fees and expenses.
Investment Manager
The Investment Manager has been appointed the Company's
investment manager and AIFM for the purposes of the AIFMD. Details
of the services provided by the Investment Manager and the fees
paid are given on page 27 to 28.
During the period, the Company incurred GBP4.6 million (June
2018: GBP3.5 million) of fees and at 30 June 2019, there was GBP2.7
million (June 2018: GBP2.2 million) payable to the Investment
Manager.
Origination Partner
The Origination Partner has been appointed as one of the
Company's origination partners. Honeycomb Finance Limited is a
wholly owned subsidiary of the Investment Manager's parent
company.
During the period given that the Origination Partner was part of
the same group as the Investment Manager, the fees payable to the
Origination Partner by the Company were deducted from the
management fee payable to the Investment Manager and totalled
GBP18,905 (June 2018: GBP52,985), and at 30 June 2019, there was
GBPnil (June 2018: Nil) payable to the Origination Partner.
23. Ultimate Controlling Party
It is the opinion of the Directors that there is no ultimate
controlling party.
24. Subsequent Events
Save as noted below, there have been no important events to
disclose since the period end under review.
On 5 September 2019, a dividend of 20.00 pence per Ordinary
Share was declared with an ex-dividend date 12 September 2019 and a
payment date of 30 September 2019.
25. APPROVAL OF FINANCIAL STATEMENTS
The unaudited financial statements were approved by the board of
Directors of Honeycomb Investment Trust plc (a public limited
company incorporated in England and Wales with company number
09899024) and authorised for issue on 9 September 2019.
4 Shareholders' Information
Directors, Portfolio Manager and Advisers
Directors Administrator
Robert Sharpe Apex Fund Services (UK) Ltd
Jim Coyle 6th Floor
Richard Rowney (appointed 1 July 2019) 140 London Wall
Ravi Takhar (resigned 6 June 2019) London EC2Y 5DN
England
all at the registered office below
Registered Office Registrar
6th Floor Computershare Investor Services PLC
140 London Wall The Pavilions, Bridgewater Road
London EC2Y 5DN Bristol BS99 6ZZ
England England
Investment Manager and AIFM Depositary
Pollen Street Capital Limited Indos Financial Limited
11 - 12 Hanover Square 5(th) Floor 54 Fenchurch Street
London W1S 1JJ London EC3M 3JY
England England
Financial Adviser and Broker Independent Auditors
Liberum Capital Limited PricewaterhouseCoopers LLP
Level 12, Ropemaker Place 7 More London Riverside
25 Ropemaker Place London SE1 2RT
London EC2Y 9LY England
England Company Secretary
Custodian Link Company Matters Limited
Sparkasse Bank Malta PLC 6th Floor, 65 Gresham Street
101 Townsquare London EC2V 7NQ
Sliema SLM3112 England
Malta
Website
http://www.honeycombplc.com/
Share Identifiers
ISIN: GB00BYQDNR86
Sedol: BYZV3G2
Ticker: HONY
5 Definitions
Credit Assets Credit Assets are loans made to consumers and small
businesses as well as other counterparties, together
with related investments.
==================== ===========================================================
Equity Assets Equity Assets are selected equity investments that
are aligned with the Company's strategy and that
present opportunities to enhance the Company's
returns from its investments.
==================== ===========================================================
Net asset value Net asset value represents the total value of the
(NAV) Company's assets less the total value of its liabilities.
For valuation purposes, it is common to express
the net asset value on a per share basis.
==================== ===========================================================
Ongoing charges Ongoing charges is calculated as a percentage of
annualised ongoing charge over average reported
Net Asset Value. Ongoing charges are those expenses
of a type which are likely to recur in the foreseeable
future.
==================== ===========================================================
Premium If the share price of the Company is higher than
the net asset value per share, the Company's shares
are said to be trading at a premium. The premium
is shown as a percentage of the net asset value.
==================== ===========================================================
Discount If the share price of the Company is lower than
the net asset value per share, the Company's shares
are said to be trading at a discount. The discount
is shown as a percentage of the net asset value.
==================== ===========================================================
Fair Value The amount for which an asset could be exchanged,
or a liability settled, between willing parties
in an arm's length transaction.
==================== ===========================================================
Registrar An entity that manages the Company's shareholder
register. The Company's registrar is Computershare
Investor Services PLC.
==================== ===========================================================
AIF An Alternative Investment Fund, as defined in the
AIFM Directive 2011/61/EU on Alternative Investment
Fund Managers
==================== ===========================================================
LIBOR (London The interest rate participating banks offer to
Inter-Bank Offered other banks for loans on the London market.
Rate)
==================== ===========================================================
AIFM An Alternative Investment Fund Manager, as defined
in the AIFM Directive. Pollen Street Capital Limited
undertakes this role on behalf of the Company.
==================== ===========================================================
Neither past Loans that are not in arrears and which do not
due nor impaired meet the impaired asset definition. This segment
can include assets subject to forbearance solutions.
==================== ===========================================================
Consumer Loan An amount of money lent to an individual for personal,
family, or household purposes.
==================== ===========================================================
Servicers Comprehensive loan servicing to support the full
loan lifecycle, from origination, through account
servicing to arrears management.
==================== ===========================================================
Hedging An investment to reduce the risk of adverse price
movements in an asset.
==================== ===========================================================
RECOnciliation to Alternative performance measures
NET Asset Value (ex-income)
30 June 2019 30 June 2018 31 December 2018
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
============================ ============ ============ ================
Net asset
value 400,050 400,867 400,710
Revenue Account (4,945) (5,041) (4,934)
Capital Account 1,016 917 965
IFRS 9 Adoption (2,337) (2,337) (2,337)
============================ ============ ============ ================
Net Asset Value (ex-income) 393,784 394,406 394,404
============================ ============ ============ ================
Premium / (Discount) to NAV per share
30 June 2019 30 June 2018 31 December 2018
(Unaudited) (Unaudited) (Audited)
===================== ============ ============ ================
NAV per share (Cum
income) 1,014.1p 1,016.1p 1,015.7p
Share Price at Close 1,110.0p 1,115.0p 1,130.0p
Premium / (Discount) 9.5% 9.7% 11.3%
===================== ============ ============ ================
The premium / (discount) to NAV per share is calculated by
taking the difference between the share price at close and the NAV
per share (Cum income) and dividing it by the NAV per share.
Annual NAV per Share Return
30 June 2019 30 June 2018 31 December
2018
(Unaudited) (Unaudited) (Audited)
=========================== ============ ============ ===========
NAV per share (Cum income)
at period end 1,014.1p 1,016.1p 1,015.7p
Opening NAV per share
(Cum income) * 1,015.7p 1,010.6p 1,010.6p
Dividends per share paid
in the year 40.0p 40.0p 80.0p
Annual Nav per Share
Return 7.5% 9.0% 8.4%
=========================== ============ ============ ===========
*Opening balance adjusted for initial adoption of IFRS 9
The annual NAV per share return is calculated by taking the
closing NAV per share (cum income) at year end and adding the
dividend per share paid in the year divided by the opening NAV per
share (cum income).
Inception to Date ("ITD") NAV per Share Return
30 June 2019 30 June 2018 31 December 2018
(Unaudited) (Unaudited) (Audited)
=========================== ============ ============ ================
NAV per share (Cum income) 1,014.1p 1,016.1p 1,015.7p
Opening NAV per share
(Cum income) at inception 982.0p 982.0p 982.0p
Dividends per share paid
since inception 252.9p 172.9p 212.9p
ITD NAV per Share Return 29.0% 21.1% 25.1%
=========================== ============ ============ ================
The ITD NAV per share return is calculated by taking the closing
NAV per share (cum income) at year end and adding the dividend per
share paid since inception divided by the NAV per share (cum
income) at inception.
Debt to Equity
30 June 2019 30 June 2018 31 December 2018
(Unaudited) (Unaudited) (Audited)
===================== ============ ============ ================
Borrowings 179,772 100,653 189,263
NAV (GBP'000) 400,050 400,867 400,710
Debt to Equity ratio 44.9% 25.1% 47.2%
===================== ============ ============ ================
Debt to equity ratio is calculated as the Company's interest
bearing debt divided NAV expressed as a percentage.
Revenue Return
30 June 2019 30 June 2018 31 December 2018
(Unaudited) (Unaudited) (Audited)
====================== ============ ============ ================
Profit after taxation
(GBP'000) 15,171 13,364 29,037
Average NAV (GBP'000) 402,440 344,764 371,858
Revenue Return 7.5% 7.8% 7.8%
====================== ============ ============ ================
Revenue return is calculated as profit after taxation from
revenue divided by average NAV during the year.
Dividend Return
30 June 2019 30 June 2018 31 December 2018
(Unaudited) (Unaudited) (Audited)
========================== ============ ============ ================
Dividend declared (pence) 40 40 80
IPO issue price (pence) 1,000 1,000 1,000
Dividend Return 8.0% 8.0% 8.0%
========================== ============ ============ ================
Dividend return is calculated as the total declared dividends
for the period divided by IPO issue price annualised.
Ongoing Charges
30 June 2019 30 June 2018 31 December
2018
(Unaudited) (Unaudited) (Audited)
========================== ============ ============ ===========
Auditors' remuneration
(GBP'000) 65 40 129
Administrator's fees
(GBP'000) 96 96 199
Directors' fees (GBP'000) 81 68 145
Management Fee (GBP'000) 3,007 2,149 4,997
Other costs (GBP'000) 265 241 420
Average NAV 402,440 344,764 371,858
Ongoing Charges 1.7% 1.5% 1.6%
========================== ============ ============ ===========
Ongoing charges ratio: The Annualised Ongoing Charge is
calculated using the Association of Investment Companies
recommended methodology. It is calculated as a percentage of
annualised ongoing charge over average NAV. Ongoing charges are
those expenses of a type which are likely to recur in the
foreseeable future, whether charged to capital or revenue, and
which relate to the operation of the investment company as a
collective fund, excluding the costs of acquisition/disposal of
investments, financing charges and gains/losses arising on
investments. Ongoing charges are based on costs incurred in the
year as being the best estimate of future costs. The AIC excludes
performance fees from the Ongoing Charges calculation.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR LLMFTMBAMBPL
(END) Dow Jones Newswires
September 10, 2019 02:00 ET (06:00 GMT)
Honeycomb Investment (LSE:HONY)
Historical Stock Chart
From Jun 2024 to Jul 2024
Honeycomb Investment (LSE:HONY)
Historical Stock Chart
From Jul 2023 to Jul 2024
