TIDMHONY
RNS Number : 8207Y
Honeycomb Investment Trust PLC
14 September 2020
Honeycomb Investment Trust plc
Interim Report and Unaudited Financial Statements
For the period from 1 January 2020 to 30 June 2020
14 September 2020
Honeycomb Investment Trust plc today announces its Interim
Report and Unaudited Financial Statements for the period ended 30
June 2020.
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") and its subsidiaries (together, the "Group") is to
provide shareholders with an attractive level of dividend income
and capital growth primarily through investing in asset secured
loans ("Credit Assets") and selected equity investments that are
aligned with the Group's strategy and that present opportunities to
enhance the Group's returns from its investments ("Equity
Assets").
Financial and Operational Highlights
30 June 2020 30 June 2019 31 December
(Unaudited) (Unaudited) 2019 (Audited)
================================= ============= ============= ================
NET ASSET VALUE
NET ASSET VALUE (CUM INCOME)
(GBP'000) (1) 371,126 400,050 400,361
NET ASSET VALUE (EX INCOME)
(GBP'000) (2) (3) 369,772 393,784 393,784
MARKET CAPITALISATION (GBP'000)
(4) 274,775 437,894 383,650
================================= ============= ============= ================
PER SHARE METRICS
SHARE PRICE (AT CLOSE) (5) 753.0p 1,110.0p 972.5p
NAV PER SHARE (CUM INCOME)
(1) 1,016.4p 1,014.1p 1,014.9p
NAV PER SHARE (EX INCOME)
(2) 1,012.7p 998.2p 998.2p
SHARES IN ISSUE 36,514,919 39,449,919 39,449,919
================================= ============= ============= ================
PERFORMANCE INDICATORS AND
KEY RATIOS
PREMIUM / (DISCOUNT) (3) (6) (26.0)% 9.5% (4.2)%
ANNUALISED NAV PER SHARE RETURN
(3) (7) 8.2% 7.5% 7.8%
ITD TOTAL NAV PER SHARE RETURN
(3) (8) (9) 37.4% 29.0% 33.2%
DEBT TO EQUITY (10) 51.9% 44.9% 51.7%
REVENUE RETURN (11) 5.0% 7.5% 7.8%
DIVID RETURN (12) 8.0% 8.0% 8.0%
ONGOING CHARGES (13) 1.8% 1.7% 1.8%
================================= ============= ============= ================
(1) NET ASSET VALUE (CUM INCOME): includes 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): is 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 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 Group'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 annualised.
(12) DIVID RETURN: is calculated as the total declared dividends
for the period divided by IPO issue price annualised.
(13) 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
annualised. 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 pleased to present the 2020 interim results for Honeycomb
Investment Trust plc, covering the period 1 January 2020 to 30 June
2020.
The Company is a UK listed company dedicated to providing
investors with access to UK lending opportunities which Pollen
Street Capital Limited, the Company's appointed investment manager
(the "Manager"), believes have potential to provide attractive and
consistent risk-adjusted returns throughout the cycle.
Performance
The first six months of 2020 have been some of the most
challenging in recent memory. The Coronavirus pandemic ("Covid-19")
has disrupted much of the UK economy significantly, leading the
government to introduce a wide range of stimulus programmes, the
majority of which are unprecedented. Over this period, the Company
has focused on prudently managing the existing assets, deleveraging
the portfolio and returning cash to shareholders through share
buybacks. This strategy has delivered an annualised NAV return of
8.2 per cent (H1 2019: 7.5 per cent) for the period. The Board is
very pleased that the Company has continued to deliver its targeted
returns in this environment.
Asset portFolio
The performance of the underlying Credit Assets has remained
stable throughout the Covid-19 crisis, with the underlying returns
increasing through Q2 2020 as many customers are ending their
forbearance plans and returning to full payments across all
sectors. The stable performance is driven by the consistent
application of our business model and a focus on senior secured
credit investments which has provided a strong base of investments
made in the past which offer attractive risk-adjusted returns. In
August 2020, the Company disposed of a portfolio of unsecured
loans. This has accelerated the reduction of the unsecured book and
further strengthens the resilience of the portfolio.
The Manager has worked very closely with borrowers to mitigate
the impact of Covid-19 on the portfolio. Cash collections and
forbearance statistics are tracked daily for both the whole loan
portfolio, where the Company owns loans directly, and the
underlying loan portfolios of structured loan facilities.
Impairments & Asset Valuations
The interim result includes an elevated level of expected credit
loss ("ECL") provisions under IFRS 9. This relates to anticipated
potential losses as opposed to realised losses as the Manager has
prudently built additional coverage on loans that have entered
forbearance or reduced payment plans, in line with Bank of England
and regulatory guidance. The ECL modelling has been aligned to the
latest economic forecasts produced by Oxford Economics in June
2020.
ECL expense recognised in H1 2020, was 72 per cent higher than
in H1 2019. The strategy of selecting only the assets that meet the
strict risk adjusted returns criteria and maintaining strong credit
quality through predominantly lending on secured assets supported
by specialist underwriting expertise has supported the
portfolio.
Gearing
The Company has reduced the Net Investment Assets from a high of
GBP595 million at 29 February 2020 to GBP551 million at 30 June
2020, and consequently de-levered the Company.
Cash generated by the Company in the period has been used to
reduce the outstanding debt from GBP221 million to GBP193 million
from 29 February 2020 to 30 June 2020. The debt to equity ratio
decreased from 58.2 per cent to 51.9 per cent over the same
period.
Dividends
Our business and balance sheet have shown resilience during the
first several months of the Covid-19 pandemic. We have acted
prudently and taken into consideration all of our stakeholders. The
dividend has remained at 20.00 pence per share for Q1 2020 and Q2
2020, which is in line with prior years. This provides the targeted
8.0 per cent annualised dividend on the original issuance price and
a point of stability in an uncertain economic environment.
SHARE PRICE AND BUYBACKS
The Company's share price at 30 June was 753.0 pence per share,
representing a discount to NAV of 26.0 per cent. The discount to
NAV was in the range of 8.9 per cent to 28.1 per cent over the
course of the six months to 30 June 2020. As part of its ongoing
discount management policy, the Company bought back 2,935,000
shares during the first 6 months of 2020. This had the effect of
increasing the NAV return by 2.9 per cent. The underlying NAV
return was 5.3 per cent. On 10 August the Company initiated a
further share buyback program. It is anticipated that this active
share price discount management strategy will work in the best
interest of the Company's shareholders and will be value accretive
to the Company.
Outlook
The Company's strong performance through the challenging
environment has positioned it well for the remainder of 2020. The
Board continues to monitor the economy and the portfolio very
closely but expects the Group to be in a position to capitalise on
some compelling new opportunities over the coming months.
Following consultation with certain of its largest shareholders,
on 6 August 2020 the Company announced a possible merger with
Pollen Street Secured Lending plc ("PSSL"). On 3 September 2020, an
announcement was made whereby the Board confirmed it did not intend
to make a potential offer under Rule 2.7 of the takeover code (the
"Code").
The Board has continued its share buyback program with the aim
of reducing the discount between the NAV and share price. As at 10
September 2020 this has seen the Board buyback 558,289 shares
representing 1.4 per cent of the total share capital this has
bought the total buybacks in the calendar year to 10 September 2020
to 3,493,289 or 8.9 per cent of the total share capital. The Board
is committed to continuing this buyback program until the share
price is less than a 5 per cent discount to NAV. The share price
has increased from 753 pence at 30 June to 893 pence at 10
September.
Robert Sharpe
Chairman
13 September 2020
Investment Manager's Report
The Investment Manager is a member of the Pollen Street Capital
Group ("PSC"). PSC is an independent asset manager with private
equity and credit strategies. The Group was formed in 2013 and
possesses a strong and consistent track record within the financial
and business services sectors.
PSC has significant experience in lending markets. It works with
the specialty finance market, which the Investment Manager believes
is underserved by the banking industry, capital markets and more
generalist credit funds. The strategy is supported by changes in
the focus of mainstream lenders together with the implementation of
new models that utilise data, analytics and technology more
effectively. It provides an opportunity to generate attractive
returns for investors whilst maintaining a prudent approach to
risk.
The Investment Manager partners with the highest quality
originators in order to access exciting credit opportunities with a
focus on asset backed investments. In addition, where there is an
aligned strategic opportunity, certain minority equity stakes are
held.
This Investment Manager provides the Group with access to an
established network of specialist lenders, market leading
underwriting capabilities and strategic insight into the optimal
collection strategy. The relationship with the platforms extends
beyond Pollen Street being simply providers of access to capital.
Pollen Street leverages its expertise to enable the platforms it
partners with to outperform across all stages of the credit cycle.
The relationships and expertise created are difficult to replicate
and help provide more stable and attractive returns. The Investment
Manager is deeply involved in the underwriting decisions, the
customer journey, and collections.
H1 2020 HIGHLIGHTS
The Company has delivered 8.2 per cent annualised NAV return for
the first six months of the year (30 June 2019: 7.5 per cent),
which is in excess of the 8.0 per cent target. This is an
impressive result in this environment.
Since the onset of Covid-19 the manager has been monitoring the
impact of this on the portfolio carefully and has tracked cash
collections and forbearance statistics daily from both the whole
loan portfolio that the Company owns directly and the underlying
loan portfolios of structured loan clients, which forms the
collateral supporting the Honeycomb loan.
The portfolio has remained stable throughout the Covid-19
crisis, with the underlying returns increasing in Q2 2020. The
portfolio has seen the majority of underlying customer loans (both
owned directly and financed through structured facilities) now out
of Covid-19 forbearance and making repayments. We are also seeing
non-bank lenders tentatively re-enter the lending market with
restricted scorecards as the economy has started to re-open.
The stable performance is driven by the consistent application
of our business model which has provided a strong base of
investments made in the past that offer attractive risk-adjusted
returns.
Quarterly NAV return - graph available on page 8 of the full
Interim Report
Earnings for the 6 months under review were GBP9.5 million (30
June 2019: GBP15.1 million). These earnings translated into basic
earnings per share of 25.4 pence (30 June 2019: 38.3 pence). This
is the equivalent of an underlying annualised NAV return of 5.3 per
cent, which has been enhanced to 8.2 per cent through buybacks.
The reduction in earnings has been influenced by three key
drivers:
- A reduction of income: In the first half of 2020, investment
income was GBP29.3 million (FY19 H1: GBP30.3 million), a decrease
of 3 per cent, which has been driven by a reduction of net
investment assets to GBP550.9 million at the period end (FY19 H1:
GBP570.7 million), as a result of the Investment Manager prudently
focusing on cash collections. With this focus the cash generated
has been re-invested very selectively during the period of
uncertainty with the majority of cash going to reduce net debt.
Investment Assets and Debt to Equity Ratio - graph available on
page 9 of the full Interim Report
- Increase in Expected Credit Losses ("ECL") provision: The ECL
charge under IFRS 9 was GBP6.7 million (30 June 2019: GBP3.9
million), an increase of 72 per cent. Under IFRS 9, the Company
calculates the ECL on its Credit Assets using forward looking
estimates that are based on a range of economic scenarios. The
economic outlook has materially changed following the onset of the
Coronavirus Disease ("Covid-19") crisis so the Company has updated
its estimate of ECL to reflect the latest available base forecasts
for the UK economy produced by Oxford Economics. The ECL charge in
the period is in relation to expected losses in the whole loan
portfolio as opposed to realised losses, as the Manager prudently
builds additional coverage on loans that are on forbearance and
payment plans in line with Bank of England and regulatory
guidance.
- Increase in leverage costs: The Company signed a new GBP125.0
million debt facility in May having extended its existing facility
in March. There were one off costs associated with this and a
higher margin than was being paid under the old facility.
Dividend Per Share and Annualised Dividend Yield - graph
available on page 9 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 1,016.4 pence per ordinary share
at 30 June 2020, which, including dividends declared or paid, is
equivalent to a NAV return of 37.4 per cent since inception.
Share BuyBack Programme
The share price of the Company at 30 June 2020 was 753.0 pence
per share, representing a 26.0 per cent discount to NAV (cumulative
of income).
The Investment Manager is acutely aware of the continued
dislocation between the current share price and the underlying
value of the portfolio. On this basis the Company has actively
undertaken a share price discount management strategy through the
buyback of 2,935,000 ordinary shares in issue being repurchased at
an average price of 807.4 pence per ordinary share. This
contributed 2.9 per cent to the NAV return. As well as being
accretive to NAV, it is expected to assist in reducing the
magnitude of the discount.
Portfolio
Since the onset of the Covid-19 crisis the Investment Manager
has prudently been focusing on cash collections. The portfolio
remains highly diversified across two types of facilities,
structured loans and whole loans, and three sectors, consumer,
property and SME and the Manager is now seeing a number of
attractive opportunities.
As at 30 June 2020, the portfolio of structured loans consisted
of 21 facilities with an average balance outstanding per facility
of GBP12.9 million. The facilities have an average effective
advance rate of 66 per cent and typically benefit from robust
covenants. The facilities are collateralised by over 400,000
underlying loans and receivables. The Group's portfolio of whole
loans consists of 23 deals with an average balance outstanding per
relationship c.GBP11.8 million, 66 per cent of whole loans are
secured on property, average loan to value ("LTV") c70 per cent. 33
per cent are consumer unsecured and 1 per cent are SME.
Outlook
Honeycomb has a long track record of consistent credit
performance and dividends. The prudent approach over the course of
the Covid-19 related macroeconomic downturn has preserved capital.
The Investment Manager has now developed a strong pipeline of
opportunities with attractive risk adjusted returns. These are
being reviewed over the coming months.
Following consultation with certain of its largest shareholders,
on 6 August 2020 the Company announced a possible merger with
Pollen Street Secured Lending plc ("PSSL") to create the leading UK
specialty finance investment trust. On 3 September 2020, an
announcement was made whereby the Board confirmed it did not intend
to make a potential offer under Rule 2.7 of the Code.
The Manager will continue to work with the Board to support the
active discount management programme which is aiming to reduce the
discount between the NAV and share price. As at 10 September 2020
this has seen the Board buyback 558,289 shares representing 1.4 per
cent of the total share capital, this has bought the total buybacks
to 10 September 2020 to 3,493,289 or 8.9 per cent of the total
share capital. The Board is committed to continuing this buyback
program until the share price is less than a 5 per cent discount to
NAV. The share price has increased from 763 pence at 31 July to 893
pence at 10 September.
Conclusion
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). We are proud to
have met their guidance in this environment.
Top Ten Holdings
Country Asset Type Sector Value of Percentage
holding of assets(1)
at 30 June
2020 (GBP'm)
=== ======================== ========= ============ ============ ============== ==============
United
1 Creditfix Limited Kingdom Structured Consumer 50.7 9.20%
=== ======================== ========= ============ ============ ============== ==============
United
2 Sancus Loans Limited Kingdom Structured Real Estate 40.8 7.41%
=== ======================== ========= ============ ============ ============== ==============
Oplo Funding Limited
(Formally 1st United
3 Stop Group Limited)(2) Kingdom Structured Consumer 30.0 5.45%
=== ======================== ========= ============ ============ ============== ==============
Madison CF UK United
4 Limited Kingdom Structured Consumer 21.3 3.86%
=== ======================== ========= ============ ============ ============== ==============
United
5 Duke Royalty Limited Kingdom Structured SME 18.0 3.27%
=== ======================== ========= ============ ============ ============== ==============
PF Capital Finance United
6 Limited Kingdom Structured Real Estate 14.2 2.58%
=== ======================== ========= ============ ============ ============== ==============
Caledonian Consumer
Finance Limited
& Carnegie Consumer United
7 Finance Limited Kingdom Structured Consumer 13.4 2.44%
=== ======================== ========= ============ ============ ============== ==============
Secured
Loan to
Zorin Real Estate United underlying
8 Loan Kingdom borrower Real Estate 11.9 1.15%
=== ======================== ========= ============ ============ ============== ==============
United
9 IWOCA Limited Kingdom Structured SME 11.0 1.99%
=== ======================== ========= ============ ============ ============== ==============
Amigo Loans Limited United
10 Bond Security Kingdom Bond Consumer 10.0 1.82%
=== ======================== ========= ============ ============ ============== ==============
(1) Percentage of total investment assets of the Group
(investment assets calculated as the carrying balance of all Credit
Assets and related investments).
(2) Oplo Funding Limited (formally 1st Stop Group Limited) is
also a portfolio company of funds managed or advised by the
Investment Manager.
As at 30 June 2020 the value of the top 10 assets totalled
GBP221.3 million (30 June 2019: GBP197.4 million, 31 December 2019:
231.5 million) which equated to 40.2 per cent (30 June 2019: 34.6
per cent, 31 December 2019: 39.3 per cent) of investment assets
(investment assets calculated as the carrying balance of all Credit
Assets at amortised cost and equity investments held at fair value
through profit or loss).
Portfolio Composition
The composition of the Group's portfolio split by NAV excluding
working capital and debt as at 30 June 2020 is set out on page 12
of the full Interim Report.
Investment Restriction
The Group 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 Group 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 Group will not invest, in aggregate, more than 10 per cent
of the aggregate value of total assets of the Group ("Gross
Assets"), at the time of investment, in other investment funds that
invest in Credit Assets.
The Group 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 Group:
-- 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
Group) shall exceed 20 per cent of Gross Assets. For the avoidance
of doubt, this restriction shall not prevent the Group from
directly acquiring portfolios of Credit Assets which comply with
the other investment restrictions described in this section;
and
-- The Group will not invest in Equity Assets to the extent that
such investment would, at the time of investment, result in the
Group controlling more than 35 per cent of the issued and voting
share capital of the issuer of such Equity Assets.
Other restrictions
The Group 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 Group 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.
These restrictions were not breached in the period ended 30 June
2020, 30 June 2019 or the year ended 31 December 2019.
Principal Risks and Uncertainties
The Group 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 Group faces a number of risks both principal and emerging
and as a result, the management of the risks we face is central to
everything we do. 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 Board has carried out a robust assessment of its principal
and emerging risks and the controls to help mitigate the risks. It
has established a robust process which involves the maintenance of
a risk register, which identifies the risks facing the Group 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 Group. The risk register was last reviewed by the Board
on 2 September 2020 and is reviewed as part of the Audit and Risk
Committee meetings during the year. The day-to-day risk management
functions of the Group have been delegated to the Investment
Manager, which reports to the Audit and Risk Committee
Investment Risks
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 Group's investment decisions are delegated to the Investment
Manager. Performance of the Group 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. The Investment Manager has adopted a prudent approach
given the uncertain economic environment with the focus on the
existing portfolio and ensuring cash collections remain robust and
the appropriate strategies are put in place. We expect the economic
environment to create some compelling new opportunities for the
Group which the Investment Manager will selectively review and
deploy capital into, however the priority has been to reduce net
debt during this period of uncertainty.
Fluctuations in the market price of Issue Shares
The market price of the Group's shares may fluctuate widely in
response to different factors and there can be no assurance that
the Group's shares will be repurchased by the Group 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 Group'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
2020 the Company's shares were trading at a discount to Net Asset
Value.
The last published NAV statement at the date of signing these
accounts was the NAV for 31 July 2020. At this point the share
price was at a discount of 25.4 per cent to the NAV. On 10 August
2020 the Board introduced a buyback programme.
Exposure to Credit Risk
As a lender to small businesses and individuals, the Group is
exposed to credit losses if customers or counterparties are unable
to repay loans and outstanding interest and fees or through fraud.
The Group 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 Group to invest in
Credit Assets. Additionally, competition could serve to reduce
yields and lower the volume of loans generated by the Group.
The outbreak of Covid-19 has caused major disruption across the
globe. At the time of writing the portfolio has seen some impact in
payment performance as customers requested and were granted
forbearance plans. Many customers are now beginning to end their
forbearance plans and are returning to full payments across all
sectors. Given the Group's UK focus, its performance is linked to
the health of the UK economy. The Group could experience further
impairments and consequently reduced profits, particularly if
economic expectations deteriorate further from the base case. The
overall effect of this cannot be quantified reliably because of
uncertainty surrounding a second wave, the impact of the various
government initiatives and the behaviour of customers as they reach
the end of their payment holidays. The government has also launched
a number of initiatives aimed at providing finance to SMEs. Two of
our largest borrowers are in the process of lending under the CBIL
government guarantee scheme which will also refinance part of their
exposure with the benefit of the government guarantee. The
Investment Manager has adopted a prudent approach with the focus on
the existing portfolio and ensuring cash collections remain robust
as the appropriate strategies are in place.
Mitigation
The Group will invest in a granular portfolio of assets,
diversified by the number of borrowers, the type, and the credit
risk (ranked A-E) of each borrower. Each loan is subject to,
amongst other restrictions, a maximum single loan exposure limit.
Additionally, the Group 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 Group also provides structured lending facilities to
Corporate entities which can be larger value loans. Please see Note
12 to the financial statements for more details on Credit Risk.
Origination rates and performance of the underlying assets of
the Group are closely monitored on an ongoing basis by the
Investment Manager and the Board and are reviewed in detail at each
Board meeting. The Manager has access to a diversified range of
sources from which to select attractive assets. For structured
lending facilities the Group 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
Group operates within the Investment policy guidelines and lends on
a secured basis against identifiable and accessible assets.
In relation to Covid-19 the impact is being mitigated where
possible through the Investment Manager proposing not to re-invest
the cash generated by the portfolio in new investments at the
height of the crisis, although as we return to some level of
normality in the economy this stance will change. In the structured
portfolio where the Group provides finance to non-bank lenders, the
Investment Manager is working with the borrowers to help them
navigate the difficult environment.
Borrowing
The Group 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 Group 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 Group's issued shares when the
value of the Group'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 Group's income falls for whatever
reason, the use of borrowings will increase the impact of such a
fall on the Group's return and accordingly will have an adverse
effect on the Group's ability to pay dividends to shareholders.
Mitigation
The Investment Manager and the Board closely monitors the level
of gearing of the Group. The Group 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.
In May 2020 the Group's main topco debt facility was refinanced
with a 1-year term and revolving facility with extension options at
the lender's consent. The Group retains the flexibility to
refinance the facility.
Interest Rate Risk
The Group 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 Group 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 Group 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
Group may use derivative instruments, including interest rate
swaps, to reduce its exposure to fluctuations in interest rates,
however some unmatched risk may remain.
The current Covid-19 outbreak has seen the Bank of England lower
interest rates on 19 March 2020 to 0.1 per cent, the lowest they
have been in its 325-year history. The Board will continue to
monitor this development.
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. The Group is assessing the
potential effects of these 'Libor replacement' and has the
intention of minimising disruption through appropriate mitigating
actions.
Liquidity of Investments
The Group may invest in Equity Assets that are aligned with the
Group's strategy and that present opportunities to enhance the
Group'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 Group 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.
Operational Risks
Third Party Service Providers
The Group has no employees and the Directors have all been
appointed on an independent non-executive basis. Whilst the Group
has taken all reasonable steps to establish and maintain adequate
procedures, systems and controls to enable it to comply with its
obligations, the Group 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 Group.
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 Group, 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 Group, or to carry out its obligations to
the Group in accordance with the terms of its appointment, could
have a material adverse effect on the Group's operations and its
ability to meet its investment objective.
Mitigation
The Group has appointed third party service providers who are
experienced in their field and have a reputation for high standards
of business conduct. Further, day-today 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 Group is subject to
ongoing review by the Board on a quarterly basis as well as formal
annual review by the Group'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 Group.
As part of the response to Covid-19 all outsourced third party
service providers have successfully implemented business continuity
processes such as working from home. This has meant that the
service levels received by the Group have been maintained in this
difficult time.
Reliance on key individuals
The Group 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 Group. 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 Group's business prospects and results of operations.
Accordingly, the ability of the Group 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 Group 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 Group is subject to ongoing review by the
Board on a quarterly basis as well as formal annual review by the
Group's Management Engagement Committee.
Regulatory Risks
Tax
Any changes in the Group's tax status or in taxation legislation
could affect the value of investments held by the Group, affect the
Group's ability to provide returns to shareholders and affect the
tax treatment for shareholders of their investments in the
Group.
Mitigation
The Group 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 Group to maintain its
investment trust status. The conditions required to satisfy the
investment trust criteria are monitored by the Investment Manager
and performance of the same shall be reported to the Board on a
quarterly basis.
Breach of applicable legislative obligations
The Group 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 Group and impact returns to
shareholders.
Mitigation
The Group 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 Group 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
Group 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
Group. 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 Group is subject to ongoing
review by the Board on a quarterly basis as well as formal annual
review by the Group'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 Group;
b) the Interim Management Report [1] 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
13 September 2020
3 Financial Statements
Consolidated Statement of Comprehensive Income
For the period from 1 January 2020 to 30 June 2020
(Unaudited)
For the period from 1 For the period from 1
January 2020 to 30 June January 2019 to 30 June
2020 (Unaudited) 2019 (Re-presented)(A)
(Unaudited)
Notes Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=== ========================== ======== ======== ======== ======== ======== ========
Income
Interest income
on Credit Assets
at amortised cost 4 29,338 - 29,338 30,341 - 30,341
Income / (loss) - - - - - -
on Equity Assets
at fair value
through profit
and loss
Credit impairment
losses 9 (6,714) - (6,714) (3,908) - (3,910)
Third party servicing (1,914) - (1,914) (1,994) - (1,992)
=========================== ======== ======== ======== ======== ======== ========
Net operating
income before
financing and
fund costs 20,710 - 20,710 24,439 - 24,439
Finance costs 16 (6,537) - (6,537) (3,994) - (3,994)
=========================== ======== ======== ======== ======== ======== ========
Net operating
income before
fund costs 14,173 - 14,173 20,445 - 20,445
Management fee 5 (2,928) (42) (2,970) (2,956) (51) (3,007)
Performance fee 5 (1,059) - (1,059) (1,680) - (1,680)
Fund expenses 6 (614) - (614) (638) - (638)
Total operating
expenses (4,601) (42) (4,643) (5,274) (51) (5,325)
Profit / (loss)
before taxation 9,572 (42) 9,530 15,171 (51) 15,120
Tax expense - - - - - -
Profit / (loss)
after taxation 9,572 (42) 9,530 15,171 (51) 15,120
=========================== ======== ======== ======== ======== ======== ========
Earnings per share
(basic and diluted) 8 25.67p (0.11)p 25.56p 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 Group 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 27 to 49 form an integral part of these
financial statements.
(A) See note 25 for further detail on the re-presentation
Consolidated Statement of Comprehensive Income (continued)
For the year ended 31 December 2019 (Audited)
For the year ended 31 December 2019
(Audited)
Notes Revenue GBP'000 Capital Total
GBP'000 GBP'000
========================== ===== ================= ========= =========
Income
Interest income on Credit
Assets at amortised cost 4 62,697 - 62,697
Income / (loss) on Equity
Assets at fair value
through profit and loss - 30 30
Credit impairment losses 11 (7,372) - (7,372)
Third party servicing (3,739) - (3,739)
========================== ===== ================= ========= =========
Net operating income
before financing and
fund costs 51,586 30 51,616
Finance costs 16 (8,417) - (8,417)
========================== ===== ================= ========= =========
Net operating income
before fund costs 43,169 30 43,199
Management fee 5 (5,971) (95) (6,066)
Performance fee 5 (3,468) - (3,468)
Fund expenses 6 (2,454) - (2,454)
Total operating expenses (11,893) (95) (11,988)
Profit / (loss) before
taxation 31,276 (65) 31,211
Tax expense - - -
Profit / (loss) after
taxation 31,276 (65) 31,211
========================== ===== ================= ========= =========
Earnings per share (basic
and diluted) 8 79.3p (0.2)p 79.1p
========================== ===== ================= ========= =========
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 Group 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 27 to 49 form an integral part of these
financial statements.
Consolidated Statement of Financial Position
As at 30 June 2020
30 June 2019 31 December
(Unaudited) 2019
30 June 2020 GBP'000
(Unaudited) (Audited)
Notes GBP'000 GBP'000
=========================== ====== ============= ============= ============
Non-current assets
Equity Investments
held at fair value
through profit or
loss 10 7,840 9,980 8,390
Credit Assets at
amortised cost 9 543,076 560,604 580,998
Fixed assets 13 7 102 41
=========================== ====== ============= ============= ============
550,923 570,686 589,429
Current assets
Cash and cash equivalents 13 9,253 7,575 15,154
Receivables 9,168 6,423 8,875
=========================== ====== ============= ============= ============
18,421 13,998 24,029
Total assets 569,344 584,684 613,458
Current liabilities
Management fee payable (2,458) (986) (511)
Performance fee payable (1,059) (1,680) (3,468)
Other payables 15 (2,034) (2,196) (2,326)
Interest bearing
borrowings (124,798) (179,772) (130,741)
=========================== ====== ============= ============= ============
(130,349) (184,634) (137,046)
Total assets less
current liabilities 438,995 400,050 476,412
Interest bearing
borrowings 16 (67,869) - (76,051)
Total net assets 371,126 400,050 400,361
=========================== ====== ============= ============= ============
Shareholders' funds
Ordinary share capital 17 365 394 394
Share premium 299,599 299,599 299,599
Revenue reserves 89 4,945 5,270
Capital reserves (1,072) (1,016) (1,030)
Special distributable
reserves 18 72,145 96,128 96,128
=========================== ====== ============= ============= ============
Total shareholders'
funds 371,126 400,050 400,361
=========================== ====== ============= ============= ============
Net asset value per
share 20 1,016.4p 1,014.1p 1,014.9p
=========================== ====== ============= ============= ============
The notes on pages 27 to 49 form an integral part of the
financial statements.
Consolidated Statement of Changes in Shareholders' Funds
For the period from 1 January 2020 to 30 June 2020
(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 2020 394 299,599 5,270 (1,030) 96,128 400,361
====================== ===== ========= ========== ========== =============== =========
Profit / (loss)
after taxation - - 9,572 (42) - 9,530
====================== ===== ========= ========== ========== =============== =========
Amounts paid on
buyback
of Ordinary Shares (29) - - - (23,983) (24,012)
====================== ===== ========= ========== ========== =============== =========
Dividends paid
in the period - - (14,753) - - (14,753)
====================== ===== ========= ========== ========== =============== =========
Shareholders' funds
at 30 June 2020 365 299,599 89 (1,072) 72,145 371,126
====================== ===== ========= ========== ========== =============== =========
As at 30 June 2020 the Group had distributable reserves of
GBP71.1 million for the payment of future dividends. The
distributable reserves are the revenue reserves (GBP0.1 million),
realised capital reserves (-GBP1.1 million) and the special
distributable reserves (GBP72.1 million).
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
====================== ==== ========= ========== ========== =============== =========
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 Group 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).
Consolidated Statement of Changes in Shareholders' Funds
(continued)
For the year ended 31 December 2019 (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
2019 394 299,599 4,934 (965) 96,748 400,710
======================== ==== ========= ========== ========== =============== =========
Profit / (loss)
after taxation - - 31,276 (65) - 31,211
======================== ==== ========= ========== ========== =============== =========
Dividends paid
in the period - - (30,940) - (620) (31,560)
======================== ==== ========= ========== ========== =============== =========
Shareholders'
funds at 31 December
2019 394 299,599 5,270 (1,030) 96,128 400,361
======================== ==== ========= ========== ========== =============== =========
As at 31 December 2019 the Group had distributable reserves of
GBP100.4 million for the payment of future dividends. The
distributable reserves are the revenue reserves (GBP5.3 million),
realised capital reserves (-GBP1.0 million) and the special
distributable reserves (GBP96.1 million).
Consolidated Statement of Cash Flows
For the period to 30 June 2020
30 June 2020 30 June 2019 31 December
(Unaudited) (Unaudited) 2019 (Audited)
Notes GBP'000 GBP'000 GBP'000
================================ ====== ============= ============= ================
Cash flows from operating
activities:
Profit after taxation 9,530 15,120 31,211
Adjustments for:
Change in expected credit
loss 9 6,714 3,908 7,372
Net change in unrealised
losses/(gains) - - (30)
Finance costs 6,537 3,994 8,418
Amortisation 13 34 115 176
(Increase) in receivables 14 (293) (3,048) (5,500)
(Decrease)/Increase in
payables (754) (826) 617
Net cash inflow from operating
activities 21,768 19,263 42,264
Cash flows from investing
activities:
Decrease/(Increase) in
Investments at amortised
cost 31,208 12,019 (11,840)
(Purchase) of investments 10 - - (380)
Disposal of investments 10 550 - 2,000
Net cash (outflow) from
investing activities 31,758 12,019 (10,220)
Cash flows from financing
activities:
Proceeds from interest
bearing borrowings 16 290,000 448,000 272,463
Repayments of interest
bearing borrowings 16 (303,477) (458,000) (255,517)
Interest paid on financing
activities (7,185) (3,485) (7,835)
Dividends declared and
paid 7 (14,753) (15,780) (31,560)
Amounts paid on buyback (24,012) - -
of Ordinary Shares
Net cash inflow from financing
activities (59,427) (29,265) (22,449)
Net change in cash and
cash equivalents (5,901) 2,017 9,595
Cash and cash equivalents
at the beginning of the
period 15,154 5,559 5,559
Net cash and cash equivalents 9,253 7,576 15,154
================================ ====== ============= ============= ================
The notes on pages 27 to 49 form an integral part of the
financial statements.
Notes to the Financial Statements
1. General Information
Honeycomb Investment Trust plc (the "Company") and its
subsidiaries (together, the "Group") is a closed-ended investment
company incorporated in England and Wales on 2 December 2015 with
registered number 09899024. The registered office is 6th Floor, 65
Gresham Street, London, EC2V 7NQ, United Kingdom. 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 Group's investment objective is to provide shareholders with
an attractive level of dividend income and capital growth through
the acquisition of Credit Assets, together with selected equity
investments that are aligned with the Group's strategy and that
present opportunities to enhance the Group's returns from its
investments.
The Group seeks to acquire Credit Assets which meet the
specified underwriting criteria through two routes; (1) providing
structured loans to specialist finance companies whereby the Group
takes security on the assets originated by the borrower with the
borrower also providing 'first loss' in the form of 'real capital'
whilst the Group provides the senior capital; and (2) acquiring
portfolios of whole loans whereby the Group is exposed to the
underlying risk and rewards of the loan that have the potential to
provide attractive returns for investors on a risk-adjusted
basis.
The Group accesses commercial and consumer borrowers who are
underserved by traditional banking channels primarily by financing
loans generated by the Investment Manager's network of non-bank
lenders.
The Group'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 Group is defined as an Alternative Investment Fund and is
subject to the relevant articles of the AIFMD.
As at 30 June 2020 the Company's share capital comprised
36,514,919 ordinary shares (30 June 2019: 39,449,919 ordinary
shares, 31 December 2019: 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 Group'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 2020 constitute non-statutory
accounts within the meaning of Section 435 of the Companies Act
2006 and have not been audited by the Group'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 2019; 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 2019 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 Group has adequate financial resources to enable it to continue
operations for a period no less than 12 months from the reporting
date. The Directors will be required by the Articles of Association
to put a proposal for the continuation of the Company at the 2021
AGM, based on the current position, performance and prospects of
the Company, and the fact that the earlier vote in December 2019
was passed they have no reason to believe that shareholders will
vote against this continuation. Accordingly, the Directors believe
that it is appropriate to adopt the going concern basis in
preparing the Group's financial statements.
The principal accounting policies adopted by the Group are
consistent with those set out on pages 71 - 81 of the Annual report
2019. 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 has
been one significant change in the basis upon which estimates have
been determined compared to that applied at 31 December 2019 in
relation to the forward-looking information used to calculate
expected credit loses under IFRS 9.
The Group uses a model to project a number of key variables to
generate future economic scenarios. These are ranked according to
severity of loss and three economic scenarios have been selected to
represent an unbiased and full loss distribution. They represent a
'most likely outcome' (the Base case scenario) and two, less
likely, 'outer' scenarios, referred to as the 'Upside' and
'Downside' scenarios. These scenarios are used to produce a
weighted average PD for each product grouping which is used to
determine stage allocation and calculate the related ECL allowance.
This weighting scheme is deemed appropriate for the computation of
unbiased ECL. Key scenario assumptions are set using the average of
forecasts from external economists, helping to ensure the IFRS 9
scenarios are unbiased and maximise the use of independent
information. Using externally available forecast distributions
helps ensure independence in scenario construction. While key
economic variables are set with reference to external
distributional forecasts, we also align the overall narrative of
the scenarios to the macroeconomic risks faced by the Group at the
30 June 2020. The choice of alternative scenarios and probability
weighting is a combination of quantitative analysis and judgemental
assessments, designed to ensure that the full range of possible
outcomes and material non-linearity are captured. Paths for the two
outer scenarios are benchmarked to the Base scenario and reflect
the economic risk assessment. Scenario probabilities reflect
management judgement and are informed by data analysis of past
recessions, transitions in and out of recession, and the current
economic outlook. The key assumptions made, and the accompanying
paths, represent our 'best estimate' of a scenario at a specified
probability. The Base case, Upside and Downside scenarios have been
generated to align them to the latest economic forecasts produced
by Oxford Economics.
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 Group.
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 Group is engaged in a
single segment of business and operations of the Group are wholly
in the United Kingdom.
4. Income
30 Jun 30 Jun 31 Dec
2020 (Unaudited) 2019 (Unaudited) 2019 (Audited)
GBP'000 GBP'000 GBP'000
================= ================= ================= ===============
Investment
income
Interest
income 27,677 29,266 59,953
Commitment
fee income 945 465 1,326
Arrangement
fee income 715 609 1,416
Total investment
income 29,337 30,340 62,695
Other income
Deposit
interest 1 1 2
Total investment
income 29,338 30,341 62,697
================= ================= ================= ===============
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
Group to the Origination Partner shall be deducted from the
Management Fee.
Management fees charged for the period ended 30 June 2020
totalled GBP3.0 million (30 June 2019: GBP3.0 million, 31 December
2019 GBP6.1 million) of which GBP2.5 million was payable at the 30
June 2020 (30 June 2019: GBP1.0 million, 31 December 2019: GBP0.5
million).
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.
Performance fees for the period ended 30 June 2020 totalled
GBP1.1 million (30 June 2019: GBP1.7 million, 31 December 2019:
GBP3.5 million) of which GBP1.1 million was payable at the
period-end (30 June 2019: GBP1.7 million 31 December 2019: GBP3.5
million).
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 Group
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 Group to the Origination Partner
shall be deducted from the Management Fee payable to the Investment
Manager.
The Group 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
Group 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 2020 (June 2019: GBPnil, 31
December 2019: GBPnil).
6. Other Expenses
30 Jun 30 Jun 31 Dec
2020 (Unaudited) 2019 (Unaudited) 2019 (Audited)
GBP'000 GBP'000 GBP'000
================ ================= ================= ===============
Directors'
fees 75 81 149
Administrator's
fees 93 96 192
Auditors'
remuneration 80 65 160
Amortisation 34 115 176
Capital
raise and
project
costs - - 671
Other expenses 332 281 1,106
Total other
expenses 614 638 2,454
================ ================= ================= ===============
All expenses are inclusive of VAT where applicable. Directors'
fees above include GBP66,500 (June 2019: GBP64,750, 31 December
2019: GBP131,834) paid to Directors' and GBP8,582 (June 2019:
GBP10,800, December 2020 GBP16,910) of employment taxes and valid
business expenses.
The capital raise and project costs are in relation to the third
base prospectus that the Company released on 21 December 2018.
These costs were expensed in 2019 on the expiration of this
placement programme. This is a one-off cost incurred in the
year.
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 Group. The Administrator provides the
day-to-day administration of the Group. The Administrator is also
responsible for the Group's general administrative functions, such
as the calculation of the Net Asset Value and maintenance of the
Group's accounting records.
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 Group monthly in arrears in
respect of the periodic fee (together, if applicable, with any VAT
thereon), which is payable by the Group within 30 days of the
relevant invoice.
Depositary
The Group'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 Group monthly in arrears in respect
of the periodic fee (together, if applicable, with any VAT
thereon), which is payable by the Group within 30 days of the
relevant invoice.
The Depositary is entitled to charge an additional fee where the
Group 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 Group 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 Group. 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 Group 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 Group not less than nine months'
written notice of its wish to do so. To the extent that the Group
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
Group 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.
7. Ordinary Dividends
The following table summarises the interim dividends paid to
equity shareholders:
30 Jun 30 Jun 31 Dec
2020 (Unaudited) 2019 (Unaudited) 2019
GBP'000 GBP'000 (Audited)
GBP'000
================= ================= ================= ==========
20.00p Interim
dividend
for the
period to
31 Dec 2018
(paid 29
Mar 2019) - 7,890 7,890
20.00p Interim
dividend
for the
period to
31 Mar 2019
(paid 29
Jun 2019) - 7,890 7,890
20.00p Interim
dividend
for the
period to
30 June
2019 (paid
on 30 September
2019) - - 7,890
20.00p Interim
dividend
for the
period to
30 September
2019 (paid
27 December
2019) - - 7,890
20.00p Interim
dividend
for the
period to
31 Dec 2019
(paid 27
Mar 2020) 7,450 - -
20.00p Interim
dividend
for the
period to
31 Mar 2020
(paid 26
Jun 2020) 7,303 - -
Total dividend
paid in
period 14,753 11,970 31,560
================= ================= ================= ==========
20.00p Interim
dividend
for the
period to
31 Dec 2019
(paid 27
Mar 2020) - - 7,890
================= ================= ================= ==========
20.00p Interim
dividend
for the
period to
30 Jun 2020
(paid 30
Sep 2020)* 7,201 - -
================= ================= ================= ==========
Total dividend 21,954 11,970 39,450
================= ================= ================= ==========
*The dividend for the period to 30 June 2020 will be paid from a
combination of the revenue reserves and the special distributable
reserve
8. Earnings per Share
30 Jun 30 Jun 31 Dec
2020 (Unaudited) 2019 (Unaudited) 2019 (Audited)
=============== ================== ================== ================
Revenue
pence 25.67p 38.46p 79.3p
Capital
pence (0.11)p (0.13)p (0.2)p
Earnings
per ordinary
share 25.56p 38.33p 79.1p
=============== ================== ================== ================
The calculation at 30 June 2020 is based on revenue returns of
GBP9.6 million, capital returns of GBP(0.04) million and total
returns of GBP9.5 million and a weighted average number of ordinary
shares of 37,290,799.
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 31 December 2019 is based on revenue returns
of GBP31.3 million, capital returns of GBP(0.1) million and total
returns of GBP31.2 million and a weighted average number of
ordinary shares of 39,449,919.
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 of IFRS
9 are applied. The following table represents the exposures on
which credit risk is managed as at 30 June 2020.
Group 30 June 2020 (Unaudited) 1 January 2020
=============== ================================================= =======================================
Credit Gross Carrying Allowance Net Carrying Gross Carrying Allowance Net Carrying
Assets Amount for ECL Amount Amount for ECL Amount
at amortised GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
cost
=============== ======================== ========= ============ ============== ========= ============
Consumer 282,981 (21,499) 261,482 320,108 (19,844) 300,264
Property 251,016 (12,791) 238,225 246,846 (10,051) 236,795
SME 43,634 (265) 43,369 44,198 (259) 43,939
Total Assets 577,631 (34,555) 543,076 611,152 (30,154) 580,998
=============== ======================== ========= ============ ============== ========= ============
Group (Unaudited) Stage 1 Stage 2 Stage 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
========================================= ========= ============ ============== =========
At 1 January 2020 3,217 2,606 24,331 30,154
Movement from stage 1
to stage 2 (120) 3,247 - 3,127
Movement from stage 1
to stage 3 (245) - 2,445 2,200
Movement from stage 2
to stage 1 42 (545) - (503)
Movement from stage 2
to stage 3 - (1,269) 2,277 1,008
Movement from stage 3
to stage 2 - 123 (199) (76)
Movement from stage 3
to stage 1 5 - (376) (371)
Remeasurements due to
modelling 703 693 42 1,438
Decreases due to repayments (1,339) (1,152) (1,273) (3,764)
Increases due to origination 489 - - 489
Increases within Stage 905 598 1,663 3,166
Loans Written Off (3) - (2,310) (2,313)
Carrying Value at 30
June 2020 3,654 4,301 26,600 34,555
========================================= ========= ============ ============== =========
The following table analyse loans by industry sector and
represent the concentration of exposures on which credit risk is
managed for the Group as at 30 June 2019.
Group 30 June 2019 (Unaudited) 1 January 2019
============== ======================================= =======================================
Credit Gross Carrying Allowance Net Carrying Gross Carrying Allowance Net Carrying
Assets Amount for ECL Amount Amount for ECL Amount
at amortised GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
cost
============== ============== ========= ============ ============== ========= ============
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
============== ============== ========= ============ ============== ========= ============
Group (Unaudited) Stage 1 Stage 2 Stage 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
============================== ========= ========= ========= =========
At 1 January 2019 3,526 2,927 16,330 22,783
Movement from stage 1
to stage 2 (63) 1,417 - 1,354
Movement from stage 1
to stage 3 (512) - 3,674 3,162
Movement from stage 2
to stage 1 10 (578) - (568)
Movement from stage 2
to stage 3 - (1,173) 1,806 633
Movement from stage 3
to stage 2 - 176 (461) (285)
Movement from stage 3
to stage 1 18 - (343) (325)
Remeasurements due to - - - -
modelling
Decreases due to repayments (966) (115) (627) (1,708)
Increases due to origination 525 - - 525
Increases within Stage 563 25 532 1,120
Carrying Value at 30
June 2019 3,101 2,679 20,911 26,691
============================== ========= ========= ========= =========
The following table analyse loans by industry sector and
represent the concentration of exposures on which credit risk is
managed for the Group as at 31 December 2019.
Group 31 December 2019 (Audited) 1 January 2019
============== ======================================= =======================================
Credit Gross Carrying Allowance Net Carrying Gross Carrying Allowance Net Carrying
Assets Amount for ECL Amount Amount for ECL Amount
at amortised GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
cost
============== ============== ========= ============ ============== ========= ============
Consumer 320,107 (19,844) 300,264 294,467 (12,724) 281,743
Property 246,846 (10,051) 236,795 237,310 (9,880) 227,430
SME 44,198 (259) 43,939 67,536 (179) 67,357
Total Assets 611,152 (30,154) 580,998 599,313 (22,783) 576,530
============== ============== ========= ============ ============== ========= ============
Group (Audited) Stage 1 Stage 2 Stage 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
============================== ========= ========= ========= =========
At 1 January 2019 3,526 2,927 16,330 22,783
Movement from stage 1
to stage 2 (66) 1,905 - 1,839
Movement from stage 1
to stage 3 (505) - 7,065 6,560
Movement from stage 2
to stage 1 5 (905) - (900)
Movement from stage 2
to stage 3 - (1,274) 2,028 754
Movement from stage 3
to stage 2 - 128 (465) (337)
Movement from stage 3
to stage 1 8 - (502) (494)
Remeasurements due to
modelling 640 332 (672) 300
Decreases due to repayments (2,208) (521) (673) (3,402)
Increases due to origination 1,189 - - 1,189
Increases within Stage 628 14 1,220 1,862
Carrying Value at 31
December 2019 3,217 2,606 24,331 30,154
============================== ========= ========= ========= =========
(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.
The following table analyses Group loans by stage and sector for
the year ended 30 June 2020:
As at 30 June 2020 (Unaudited) Consumer Property SME Total
GBP'000 GBP'000 GBP'000 GBP'000
================================ ========= ========= ========= =========
Opening balance 1 January
2020 19,844 10,051 259 30,154
Charge for the period -
Stage 1 298 137 4 439
Charge for the period -
Stage 2 538 1,146 10 1,694
Charge for the period -
Stage 3 3,132 1,457 (8) 4,581
Total charge for expected
credit losses 3,968 2,740 6 6,714
Amounts Written Off (2,313) - - (2,313)
Expected Credit Losses 21,499 12,791 265 34,555
================================ ========= ========= ========= =========
The following table analyses Group loans by stage and sector for
the year ended 30 June 2019:
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
================================ ========= ========= ========= =========
The following table analyses Group loans by stage and sector for
the year ended 31 December 2019:
As at 31 December 2019 Consumer Property SME Total
(Audited) 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 (526) 181 36 (309)
Charge for the period -
Stage 2 278 (588) (11) (321)
Charge for the period -
Stage 3 7,368 578 55 8,001
=============================== ========= ========= ========= =========
Total charge for expected
credit losses 7,120 171 80 7,371
=============================== ========= ========= ========= =========
Carrying Value at 31 December
2019 19,844 10,051 259 30,154
=============================== ========= ========= ========= =========
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 Group 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 Group has developed a shortlist of the
upside and downside economic and political risks most relevant to
the Group and the IFRS 9 measurement objective. These include
economic and political risks which together affect economies that
materially matter to the Group.
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 economic
scenarios, 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 independent third
parties where available, or internal forecasts corresponding to
anticipated economic conditions.
The table below shows a sensitivity analysis for ECL based on
changing the weighting of the scenarios to allocate a 100 per cent
weight to the downside scenario. The scenarios are applicable to 30
June 2020. The analysis shows that the ECL would have been GBP2.9
million higher under this sensitivity.
2020 (unaudited) Weighted 100% Downside
Year end Scenario
ECL GBP'000
GBP'000
================= ================== =============
Consumer 21,499 22,302
Property 12,791 14,863
SME 265 265
Total 34,555 37,430
================= ================== =============
At 31 December 2019 if the weightings used represented a 100 per
cent downside scenario the ECL would have been GBP2.1 million
higher as split below:
2019 (Audited) Weighted 100% Downside
Year end Scenario
ECL GBP'000
GBP'000
=============== ========= =============
Consumer 19,844 20,749
Property 10,051 11,282
SME 259 260
Total 30,154 32,291
=============== ========= =============
At 30 June 2020 the ECL has been further sensitised by assessing
the impact of GBP10.0 million of credit assets at amortised cost
moving from Stage 1 to Stage 2. The analysis shows that the ECL
would have been GBP2.7 million higher under this sensitivity.
At 31 December 2019 the ECL has been further sensitised by
assessing the impact of GBP10.0 million of credit assets at
amortised cost moving from Stage 1 to Stage 2. The analysis shows
that the ECL would have been GBP1.5 million higher under this
sensitivity.
10. Investments at Fair Value Through Profit or Loss
(a) Movements in the period
The table below sets out the movement in Investments at fair
value through profit or loss for the Group for the year ended 30
June 2020.
Group (Unaudited) 30 Jun
2020
GBP'000
=========================== =========
Opening cost at 1 January
2020
Valued using sales value 550
Valued using a revenue
multiple 7,840
Opening fair value 8,390
Purchases at cost -
Disposal at cost (550)
Closing fair value at
30 June 2020 7,840
Comprising:
Valued using a revenue
multiple 7,840
Closing fair value as
at 30 June 2020 7,840
=========================== =========
The table below sets out the movement in Investments at fair
value through profit or loss for the Group for the year ended 30
June 2019.
Group (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 a revenue
multiple 3,000
Closing fair value as
at 30 June 2019 9,980
=========================== =========
The table below sets out the movement in Investments at fair
value through profit or loss for the Group for the year ended 31
December 2019.
Group (Audited) 2019
GBP'000
================================= =========
Valued using transaction
price 3,000
Valued using a revenue multiple 6,980
Opening fair value 9,980
Purchases at cost 380
Disposal at cost (2,000)
Net change in unrealised
(losses)/gains 30
Closing fair value at 31
December 2019 8,390
Comprising:
Valued using sales value 550
Valued using a revenue multiple 7,840
Closing fair value as at
31 December 2019 8,390
================================= =========
(b) Fair value of financial instruments
IFRS 13 requires the Group 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
Group'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
Group's investments:
Closing Closing Closing
fair value fair value fair value
as at as at as at
30 Jun 30 Jun 31 Dec
2020 2019 2019
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
======= ============= ============= ============
Level - - -
1
Level - - -
2
Level
3 7,840 9,980 8,390
======= ============= ============= ============
Total 7,840 9,980 8,390
======= ============= ============= ============
The investments in unlisted equities are valued using several
different techniques, including revenue multiple, 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 Group'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 Group'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 Group 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 Group'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 Group'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 is the risk that the fair value of future cash flows
of a financial instrument will fluctuate because of changes in
market prices (other than those arising from interest rate risk or
currency risk), whether those changes are caused by factors
specific to the individual financial instrument or its issuer, or
factors affecting similar financial instruments traded in the
market. Local, regional or global events such as war, acts of
terrorism, the spread of infectious illness or other public health
issue, recessions, or other events could have a significant impact
on the Group and market prices of its investments.
The Group is exposed to price risk arising from its equity
investments. Covid-19 has caused disruption to businesses and
economic activity which has been reflected in recent fluctuations
in global stock markets. There are no comparable recent events
which may provide guidance as to the effect of the spread of
Covid-19 and a potential pandemic, and, as a result, the ultimate
impact of the Covid-19 outbreak or a similar health epidemic is
highly uncertain and subject to change. The Group has taken a 72
per cent increase in ECL's in the six months to June 2020 on the
same period in the prior year, however the Board do not believe
that the pricing of the group's equity investments has been
materially affected by Covid-19.
(b) Interest rate risk
Interest rate risk arises from the possibility that changes in
interest rates will affect future cash flows or the fair value of
financial instruments.
The Group 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 Group's borrowings may be
subject to a floating rate of interest.
The Group 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 Group 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 Group finances its operations mainly through its share
capital and reserves, including realised gains on investments. As
at 30 June 2020 the Group had GBP192.7 million (June 2019: GBP179.0
million, 31 December 2019: GBP206.8 million) drawn-down under its
facilities.
Exposure of the Group'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 2020 is shown below:
Fixed or
Financial Floating Administered
instrument Rate Rate Total
(Unaudited) GBP'000 GBP'000 GBP'000
================== ========= ============= =========
Credit
Assets
at amortised
cost 191,132 351,944 543,076
Cash and
cash equivalents 9,253 - 9,253
Interest
bearing
borrowings (192,667) - (192,667)
================== ========= ============= =========
Total
exposure 7,718 351,944 359,662
================== ========= ============= =========
As at 30 June 2019 is shown below:
Fixed or
Financial Floating Administered
instrument Rate Rate Total
(Unaudited) GBP'000 GBP'000 GBP'000
================== ========= ============= =========
Credit
Assets
at amortised
cost 137,895 422,709 560,604
Cash and
cash equivalents 7,575 - 7,575
Interest
bearing
borrowings (179,772) - (179,772)
================== ========= ============= =========
Total
exposure (34,302) 422,709 388,407
================== ========= ============= =========
As at 31 December 2019 is shown below:
Fixed or
Financial Floating Administered
instrument Rate Rate Total
(Audited) GBP'000 GBP'000 GBP'000
================== ========= ============= =========
Credit Assets
at amortised
cost 206,932 374,066 580,998
Cash and
cash equivalents 15,154 - 15,154
Interest
bearing
borrowings (206,792) - (206,792)
================== ========= ============= =========
Total exposure 15,294 374,066 389,360
================== ========= ============= =========
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 Group holds financial assets
and liabilities.
The assets of the Group are invested in Credit Assets and other
investments including unquoted equities 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 Group hedges currency exposure between Pounds
Sterling and Euros where material.
(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 Group'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. The Group's credit asset exposure as at 30 June 2020
was EURnil (30 June 2019: EUR11.9 million, 31 December 2019: EUR4.2
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 Group's credit risks arise principally through exposures to
loans originated or acquired by the Group and cash deposited with
banks, both of which are subject to risk of borrower default.
The Investment Manager 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 Group 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 Group 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 Group finances the senior risk.
Further risk is mitigated in the property sector as the Group
takes collateral in the form of property to mitigate the credit
risk arising from residential mortgage lending and commercial real
estate.
The outbreak of Covid-19 has caused major disruption across the
globe. At the time of writing the portfolio is beginning to see
many of those customers who originally requested payment holidays
return to full payment. The ultimate impacts of the government's
assistance to non-bank lenders and the continuation of the furlough
scheme to assist end borrowers are yet unknown, but they are
expected to reduce the potential expected credit loss impact.
Depending on the evolution of the Covid-19 situation, with the
potential of a second wave this could further result in changing
economic environment and a further material increase in credit
risk. This is being continually monitored.
Set out below is the analysis of the closing balances of the
Group's Credit Assets split by the type of loan and the credit risk
band as at 30 June 2020 (unaudited):
Credit Unsecured Secured Total
Risk Band GBP'000 GBP'000 GBP'000
=========== ========= ======== ========
A & B 90,294 462,584 552,878
C 14,352 141 14,493
D & E 10,260 - 10,260
=========== ========= ======== ========
Total 114,906 462,725 577,631
=========== ========= ======== ========
Set out below is the analysis of the closing balances of the
Group'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 99,938 438,500 538,438
C 22,193 186 22,379
D & E 26,477 - 26,477
=========== ========= ======== ========
Total 148,608 438,686 587,294
=========== ========= ======== ========
Set out below is the analysis of the closing balances of the
Group's Credit Assets split by the type of loan and the credit risk
band as at 31 December 2019 (audited):
Credit Unsecured Secured Total
Risk Band GBP'000 GBP'000 GBP'000
=========== ========= ======== ========
A & B 102,930 475,796 578,726
C 14,790 150 14,940
D & E 17,486 - 17,486
=========== ========= ======== ========
Total 135,206 475,946 611,152
=========== ========= ======== ========
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 Group 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 Group will have difficulty
in meeting its obligations in respect of financial liabilities as
they fall due.
The Group 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 Group.
Liquidity risk is not viewed as significant as a substantial
proportion of the Group's net assets are in loans, whose cash
collections could be utilised to meet funding requirements if
necessary. The Group 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.
Assets and liabilities not carried at fair value but for which
fair value is disclosed
For the Group for the period ended 30 June 2020:
(Unaudited) Level Level Level
1 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
================== ======== ======== ======== ========
Assets
Credit
Assets
at amortised
cost 9,328 - 528,019 537,347
Receivables - 9,168 - 9,168
Cash and
cash equivalents 9,253 - - 9,253
================== ======== ======== ======== ========
Total assets 18,581 9,168 528,019 555,768
================== ======== ======== ======== ========
Liabilities
Management
fee payable - 2,458 - 2,458
Performance
fee payable - 1,059 - 1,059
Other payables - 2,034 - 2,034
Interest
bearing
borrowings - 192,667 - 192,667
================== ======== ======== ======== ========
Total liabilities - 198,218 - 198,218
================== ======== ======== ======== ========
For the Group for the period ended 30 June 2019:
(Unaudited) Level Level Level
1 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
================== ======== ======== ======== ========
Assets
Credit
Assets
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 year ended 31 December 2019:
(Audited) Level Level Level
1 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
================== ======== ======== ======== ========
Assets
Credit Assets
at amortised
cost 14,492 - 565,820 580,312
Receivables - 8,875 - 8,875
Cash and
cash equivalents 15,154 - - 15,154
================== ======== ======== ======== ========
Total assets 29,646 8,875 565,820 604,341
================== ======== ======== ======== ========
Liabilities
Management
fee payable - 511 - 511
Performance
fee payable - 3,468 - 3,468
Other payables - 2,326 - 2,326
Interest
bearing
borrowings - 206,792 - 206,792
================== ======== ======== ======== ========
Total liabilities - 213,097 - 213,097
================== ======== ======== ======== ========
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 Group
can be found in Note 11 to the financial statements.
Capital Management
The Group'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 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
The tables below set out the movement in Fixed Assets for the
Group
Period ended 30 IT Development Total
June 2020 (Unaudited) and Software GBP'000
GBP'000
========================= ============== ========
Opening net book
amount 41 41
Additions - -
Depreciation charge (34) (34)
Closing net book
amount 7 7
As at 30 June
2020
Cost 831 831
Accumulated depreciation (824) (824)
========================= ============== ========
Net book amount
(Unaudited) 7 7
========================= ============== ========
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 31 IT Development Total
December 2019 and Software GBP'000
(Audited) GBP'000
========================= ============== ========
Opening net book
amount 217 217
Additions - -
Depreciation charge (176) (176)
Closing net book
amount 41 41
As at 31 December
2019
Cost 830 830
Accumulated depreciation (789) (789)
========================= ============== ========
Net book amount
(Audited) 41 41
========================= ============== ========
14. Receivables
The table below set out a breakdown of the Group
receivables.
30 Jun 30 Jun 31 Dec
2020 (Unaudited) 2019 (Unaudited) 2019 (Audited)
GBP'000 GBP'000 GBP'000
================== ================= ================= ===============
Prepayments 2,746 2,167 2,656
Amounts
due from
platforms 6,320 4,067 5,889
Other receivables 102 189 330
Total receivables 9,168 6,423 8,875
================== ================= ================= ===============
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
The table below set out a breakdown of the Group payables.
30 Jun 30 Jun 31 Dec
2020 (Unaudited) 2019 (Unaudited) 2019 (Audited)
GBP'000 GBP'000 GBP'000
============== ================= ================= ===============
Accruals
and deferred
income 2,034 2,196 2,326
Total
other
payables 2,034 2,196 2,326
============== ================= ================= ===============
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
2020 (Unaudited) 2019 (Unaudited) 2019 (Audited)
GBP'000 GBP'000 GBP'000
======================= ================= ================= ===============
Current Liabilities
Term and
revolving
credit
facility 125,000 179,000 130,000
Prepaid
legal expenses,
Interest
and commitment
fees payable (202) 772 741
======================= ================= ================= ===============
Non-Current Liabilities
==============================================================================
Credit
facility 67,869 - 75,946
======================= ================= ================= ===============
Interest
and commitment
fees payable - - 105
======================= ================= ================= ===============
Total interest-bearing
borrowings 192,667 179,772 206,792
======================= ================= ================= ===============
At 30 June 2019 and 31 December 2019, the Group's main debt
facility was GBP150 million with The Royal Bank of Scotland plc as
agent. The facility is secured upon the assets of the Group and had
a maturity date of 20 March 2020. Interest is charged at one, three
or six-month LIBOR plus a margin. The credit facility is
syndicated, and other lenders may in the future accede to the
facility. This facility was subsequently extended to 19 June 2020
and then refinanced in May 2020 with another lender.
In May 2020 this facility was refinanced with a different lender
with GBP125.0 million capacity, and an extension in the maturity to
May 2021. Interest is charged at one, three or six-month LIBOR plus
a margin. The new facility also introduces an amortising element.
The Group retains the flexibility to refinance the facility.
In August 2019, the Group entered a two-year debt facility to
finance three residential mortgage portfolios, two commercial
mortgage pools and a small unsecured consumer pool. These
portfolios were previously leveraged through the Group level debt
facility but getting assets specific leverage on these provides a
lower cost of funding at a higher advance rate. The total debt
raised on day one of this facility was GBP81.0 million and comes
with a Libor floating cost. The facility has a 2-year term with a
1-year extension option and is structured as a run-off financing in
that the debt will paydown over the term of the facility.
Below is a breakdown of finance charges for the period:
30 Jun 30 Jun 31 Dec
2020 (Unaudited) 2019 (Unaudited) 2019 (Audited)
GBP'000 GBP'000 GBP'000
================ ================= ================= ===============
Interest
and commitment
fees paid 3,900 2,991 6,166
Other finance
charges 2,637 1,003 2,251
Total finance
costs 6,537 3,994 8,417
================ ================= ================= ===============
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 2020 the below changes occurred for the
Group:
30 June 2020 Total
(Unaudited) GBP'000
============================= ==========
At 1 January 2020 206,792
Interest bearing borrowings 290,000
Repayments of interest
bearing borrowing (303,477)
Finance costs 6,537
Interest paid on financing
activities (7,185)
At 30 June 2020 192,667
============================= ==========
As at the 30 June 2019 the below changes occurred for the
Group:
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 31 December 2019 the below changes occurred for the
Group:
31 December 2019 Total
(Audited) GBP'000
============================= ==========
At 1 January 2019 189,263
Interest bearing borrowings 272,463
Repayments of interest
bearing borrowing (255,517)
Finance costs 8,418
Interest paid on financing
activities (7,835)
At 31 December 2019 206,792
============================= ==========
The below table analyses the Group'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
2020 years
(Unaudited) GBP'000 GBP'000 GBP'000
================ ========= ========= =========
Credit facility 125,000 67,869 192,869
Interest
and commitment
fees payable 6,741 386 7,127
================ ========= ========= =========
Total exposure 131,741 68,255 199,996
================ ========= ========= =========
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
================ ========= ========= =========
31 December < 1 year 1 - 5 Total
2019 years
(Audited) GBP'000 GBP'000 GBP'000
================ ========= ========= =========
Credit facility 142,041 63,905 205,946
Interest
and commitment
fees payable 3,484 1,475 4,959
================ ========= ========= =========
Total exposure 145,525 65,380 210,905
================ ========= ========= =========
17. Ordinary Share Capital
The table below details the issued share capital of the Company
as at the 30 June 2020.
30 Jun 30 Jun 31 Dec
2020 (Unaudited) 2019 (Unaudited) 2019 (Audited)
============= ================= ================= ===============
No. Issued,
allotted
and fully
paid shares 36,514,919 39,449,919 39,449,919
GBP'000 365 394 394
============= ================= ================= ===============
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.
On 27 January 2020 the Company repurchased into treasury
2,200,000 Ordinary Shares at a price of 850 pence per Ordinary
Share.
On 2 June 2020 the Company repurchased into treasury 735,000
Ordinary Shares at a price of 680 pence per Ordinary Share.
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.
The table below shows the movement in shares during the period
30 June 2020:
Shares Shares
in issue in issue
at the Buyback at
beginning of the end
of the Ordinary of the
period Shares period
========= ========== =========== ==========
Ordinary
Shares 39,449,919 (2,935,000) 36,514,919
Treasury
Shares - 2,935,000 2,935,000
========= ========== =========== ==========
The table below shows the movement in shares during the period
30 June 2019:
Shares Shares
in issue in issue
at the Buyback at
beginning of the end
of the Ordinary of the
period Shares period
========= ========== ========= ==========
Ordinary
Shares 39,449,919 - 39,449,919
Treasury - - -
Shares
========= ========== ========= ==========
The table below shows the movement in shares during the year
ended 31 December 2019:
Shares Shares
in issue in issue
at the Buyback at
beginning of the end
of the Ordinary of the
year Shares year
========= ========== ========= ==========
Ordinary
Shares 39,449,919 - 39,449,919
Treasury - - -
Shares
========= ========== ========= ==========
Share Buyback
During the period ended 30 June 2020 the Company bought back two
tranches of shares. All shares bought back are held in treasury at
the end of the period. As at 30 June 2020, the Company had bought
back 2,935,000 (30 June 2019: nil, 31 December 2019: nil) ordinary
shares.
Average Lowest Highest
Ordinary price price price Total
shares per per per Treasury
purchased share share share Shares
==== ========== ======= ====== ======= =========
Jan 2,200,000 850p 850p 850p 2,200,000
Feb - - - - 2,200,000
Mar - - - - 2,200,000
Apr - - - - 2,200,000
May - - - - 2,200,000
Jun 735,000 680p 680p 680p 2,935,000
==== ========== ======= ====== ======= =========
As at 10 September 2020, 3,493,289 shares were held in treasury
following 558,289 buybacks in August and September at an average
price of 787 pence per share.
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 2020, the Group has a single associate, being a
34.6 per cent investment in Allium Lending Group Limited ("Allium")
(formally GDFC Group Limited, 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 Group'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 Group holds
Allium at a fair value of GBP3.4 million (June 2019: GBP3.0
million, 31 December 2019: GBP3.4 million).
The Group has also provided GBP8.7 million of debt funding to
the platform (June 2019: GBP8.3 million, 31 December 2019: GBP8.7
million).
The Group 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 Group.
20. Net Asset Value per Ordinary Share
30 Jun 30 Jun 31 Dec
2020 (Unaudited) 2019 (Unaudited) 2019 (Audited)
GBP'000 GBP'000 GBP'000
============== ================= ================= ===============
Net asset
value
per
ordinary
share
pence 1,016.4p 1,014.1p 1,014.9p
Net assets
attributable
GBP'000 371,125 400,050 400,361
============== ================= ================= ===============
The net asset value per ordinary share at 30 June 2020 is based
on net assets of GBP371.1 million and on 36,514,919 ordinary shares
in issue.
The net asset value per ordinary share at 30 June 2019 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 2019 is
based on net assets at the year-end of GBP400.4 million and on
39,449,919 ordinary shares in issue at the year-end.
21. Contingent Liabilities and Capital Commitments
As at 30 June 2020, 30 June 2019 and 31 December 2019 there were
no contingent liabilities or capital commitments for the Group.
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 Group and any
related parties. Accordingly, the disclosures required are set out
below:
Associates
At 30 June 2020 outstanding loan balance of GBP8.7 million (June
2019: GBP8.7 million, 31 December 2019: GBP8.7 million) and accrued
interest of GBP1.5 million (June 2019: GBP0.7 million, 31 December
2019: GBP1.1 million) with Allium Lending Group Limited (formally
GDFC Group Limited, Hiber Limited and The Green Deal Finance
Company Limited). The structured facilities are secured on a
granular pool of consumer loans.
Directors
At the start of 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 was
payable to the Chairman of the Audit and Risk Committee. The
Committee met on 21 February 2019 and considered the continued time
commitment required to carry out their duties and the development
and growing complexity of the business. The Committee recommended
to the Board an increase of the Board's fees by GBP3,000 for the
Chairman and GBP2,000 for all other members from 1 March 2019. The
Directors remuneration was therefore 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 and Risk Committee. The Committee met on 18
February 2020 and considered the continued time commitment required
to carry out their duties and recommended no change in Board
salaries.
There were no contracts subsisting during or at the end of the
year in which a Director of the Company is or was interested and
which are or were significant in relation to the Company's
business. There were no other transactions during the year with the
Directors of the Company. The Directors do not hold any ordinary
shares of the Company.
At 30 June 2020, 30 June 2019 and 31 December 2019, there was
GBPnil payable to the Directors for fees and expenses.
Investment Manager
Pollen Street Capital Limited (the 'Investment Manager'), a
UK-based company authorised and regulated by the FCA, 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 Note 6 to the
financial statements.
During the period the Group paid GBP1.02 million (30 June 2019:
GBP2.0 million, 31 December 2019: GBP5.56 million) of management
fees and at 30 June 2020, there was GBP2.46 million (30 June 2019:
GBP0.99 million, 31 December 2019: GBP0.51 million) payable to the
Investment Manager. As at 30 June 2020 there were GBP1.06 million
of performance fees payable to the Investment Manager (30 June
2019: GBP1.68 million, 31 December 2019: GBP3.47 million).
The Group considers all transactions with the Manager or
companies that are controlled by the Manager as related party
transactions.
Oplo Funding Limited (referred to as "Oplo", formally 1(st) Stop
Group Limited), is an English based consumer lender. During the
year the Group provided a structured facility to Oplo secured on a
granular pool of consumer loans. Oplo is owned by a fund that is
managed by an affiliate of the Investment Manager. As at 30 June
2020 the facility was GBP30.0 million drawn (30 June 2019: GBP20.0
million, 31 December 2019: GBP28.0 million). The Group also had a
forward flow relationship in place with Oplo in which the Group
provided GBP18.7 million (30 June 2019: GBPnil, 31 December 2019:
GBP11.1 million) and these loans have an outstanding balance as at
30 June 2020 GBP17.4 million (30 June 2019: GBPnil, 31 December
2019: GBP10.6 million).
CapitalFlow Group ("CapitalFlow") is an Irish based SME lender.
During the prior period to the 30 June 2019 the Group provided a
short-term structured facility to CapitalFlow secured on a granular
pool of SME loans. The facility was fully repaid during the first 6
months of 2019. CapitalFlow is owned by a fund that is managed by
an affiliate of the Investment Manager.
In the prior year the Group also carried out FX hedging with
Infinity International Limited ("Infinity") in relation to Euro
development finance that it had entered during the prior period.
Infinity is owned by a fund that is managed by an affiliate of the
Investment Manager. There was no exposure as at 30 June 2020.
Origination Partner
The Origination Partner has been appointed as one of the Group'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 Group were deducted from the management
fee payable to the Investment Manager and totalled GBP9,352 (June
2019: GBP18,905), and at 30 June 2020, there was GBPnil (June 2019:
Nil, 31 December 2019: GBPnil) 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.
Following consultation with certain of its largest shareholders,
on 6 August 2020 the Company announced a possible merger with
Pollen Street Secured Lending plc ("PSSL"). On 3 September 2020, an
announcement was made whereby the Board confirmed it did not intend
to make a potential offer under Rule 2.7 of the Code.
On 10 August 2020 the Company announced the implementation of a
share buyback programme, pursuant to the authority granted at the
Company's Annual General Meeting held on 26 June 2020, to purchase
the Company's ordinary shares of GBP0.01 each. The Board believes
that implementation of an active share price discount management
strategy through this Buyback Programme works in the best interest
of the Company's shareholders and will be value accretive to the
Company. As at 10 September 2020, 3,493,289 shares were held in
treasury.
During August, the company disposed of GBP44.6 million of
consumer unsecured whole loans to Tandem Bank. This disposal is in
line with the Company's strategy of focusing on secured credit
assets with first loss protection from the borrower. This disposal
reduced the Company's exposure to unsecured consumer whole loans to
less than 9 per cent of investment assets (June 2020: 16 per cent,
December 2019: 17 per cent). Tandem Bank also acquired Allium
Lending Group ("ALG") in the period and the Company sold its equity
stake and structured loan in ALG in exchange for equity in the
Bank.
On 3 September 2020, a dividend of 20.00 pence per Ordinary
Share was declared with an ex-dividend date 10 September 2020 and a
payment date of 30 September 2020. A portion of this will be paid
from the special distributable reserve.
25. RE-PRESENTATION OF FINANCIAL STATEMENTS
Following a review of the Consolidated Statement of
Comprehensive Income and Consolidated Statement of Financial
Position and the associated knock on effect on the Cashflow
Statement, the Directors have decided to re-present these
statements for June 2019 and incorporate them in 2020. The changes
made to the face of these financial statements are to make them
easier to read and understand for the end user and to align with
how the Company monitors and reviews performance. There have been
no changes to the basis on which the items are estimated or
measured. The main change is reporting the credit asset servicing
costs on a separate line item. A number of other line items were
renamed, so they better reflect how these assets are reviewed. See
note 29 of the 2019 Annual Report and Audited Financial Statements
for further detail.
26. 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 13 September 2020.
4 Shareholders' Information
Directors, Portfolio Manager and Advisers
Directors Administrator
Robert Sharpe Apex Fund Services (UK) Ltd
Jim Coyle 5th Floor, Bastion House
Richard Rowney 140 London Wall
London EC2Y 5DN
all at the registered office below England
Registered Office Depositary
6th Floor Indos Financial Limited
65 Gresham Street 5(th) Floor 54 Fenchurch Street
London EC2V 7NQ London EC3M 3JY
England England
Investment Manager and AIFM Registrar
Pollen Street Capital Limited Computershare Investor Services PLC
11 - 12 Hanover Square The Pavilions, Bridgewater Road
London W1S 1JJ Bristol BS99 6ZZ
England England
Financial Adviser and Broker Company Secretary
Liberum Capital Limited Link Company Matters Limited
Level 12, Ropemaker Place 6th Floor
25 Ropemaker Place 65 Gresham Street
London EC2Y 9LY London EC2V 7NQ
England England
Custodian Independent Auditors
Sparkasse Bank Malta PLC PricewaterhouseCoopers LLP
101 Townsquare 7 More London Riverside
Sliema SLM3112 London SE1 2RT
Malta England
Website
http://www.honeycombplc.com/
Share Identifiers
ISIN: GB00BYZV3G25
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 2020 30 June 2019 31 December
2019
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
============================ ============ ============ ===========
Net asset value 371,126 400,050 400,361
Revenue Account (89) (4,945) (5,270)
Capital Account 1,072 1,016 1,030
IFRS 9 Adoption (2,337) (2,337) (2,337)
============================ ============ ============ ===========
Net Asset Value (ex-income) 369,772 393,784 393,784
============================ ============ ============ ===========
Net Asset Value (Ex Income) is calculated as 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.
Number of shares at 30 June 2020 36,514,919 (30 June 2019:
39,499,919, 31 December 2019: 39,499,919).
Premium / (Discount) to NAV per share
30 June 2020 30 June 2019 31 December
2019
(Unaudited) (Unaudited) (Audited)
=========================== ============ ============ ===========
NAV per share (Cum income) 1,016.4p 1,014.1p 1,014.9p
Share Price at Close 753.0p 1,110.0p 972.5p
Premium / (Discount) (26.0)% 9.5% (4.2)%
=========================== ============ ============ ===========
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.
Annualised NAV per Share Return
30 June 2020 30 June 2019 31 December
2019
(Unaudited) (Unaudited) (Audited)
=========================== ============ ============ ===========
NAV per share (Cum income)
at period end 1,016.4p 1,014.1p 1,014.9p
Opening NAV per share
(Cum income) 1,014.9p 1,015.7p 1,015.7p
Dividends per share paid
in the year 40.0p 40.0p 80.0p
Annualised NAV per Share
Return 8.2% 7.5% 7.8%
=========================== ============ ============ ===========
The annualised NAV per share return is calculated by taking the
total of the closing NAV per share (cum income) at period end,
adding the dividend per share paid in the year and subtracting the
opening NAV per share (Cum Income), divided by the opening NAV per
share (cum income). The result for the half year is annualised by
multiplying this result by the actual number of days in the year
and dividing by the actual number of days in the period.
Inception to Date ("ITD") NAV per Share Return
30 June 2020 30 June 2019 31 December 2019
(Unaudited) (Unaudited) (Audited)
=========================== ============ ============ ================
NAV per share (Cum income) 1,016.4p 1,014.1p 1,014.9p
Opening NAV per share
(Cum income) at inception 982.0p 982.0p 982.0p
Dividends per share paid
since inception 332.9p 252.9p 292.9p
ITD NAV per Share Return 37.4% 29.0% 33.2%
=========================== ============ ============ ================
The ITD NAV per share return is calculated by taking the total
of the closing NAV per share (cum income) at period end and adding
the dividend per share paid since inception and subtracting the
opening NAV per share (Cum Income) at inception, divided by the NAV
per share (cum income) at inception.
Debt to Equity
30 June 2020 30 June 2019 31 December 2019
(Unaudited) (Unaudited) (Audited)
===================== ============ ============ ================
Borrowings 192,667 179,772 400,361
NAV (GBP'000) 371,126 400,050 206,792
Debt to Equity ratio 51.9% 44.9% 51.7%
===================== ============ ============ ================
Debt to equity ratio is calculated as the Company's interest
bearing debt divided NAV expressed as a percentage.
Revenue Return
30 June 2020 30 June 2019 31 December 2019
(Unaudited) (Unaudited) (Audited)
====================== ============ ============ ================
Profit after taxation
(GBP'000) 9,572 15,171 31,276
Average NAV (GBP'000) 382,764 402,440 402,619
Revenue Return 5.0% 7.5% 7.8%
====================== ============ ============ ================
Revenue return is calculated as profit after taxation from
revenue divided by average NAV during the period, annualised.
Dividend Return
30 June 2020 30 June 2019 31 December 2019
(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 2020 30 June 2019 31 December
2019
(Unaudited) (Unaudited) (Audited)
========================== ============ ============ ===========
Auditors' remuneration
(GBP'000) 80 65 160
Administrator's fees
(GBP'000) 93 96 192
Directors' fees (GBP'000) 75 81 149
Management Fee (GBP'000) 2,970 3,007 6,066
Other costs (GBP'000) 283 265 673
Average NAV (GBP'000) 382,764 402,440 402,619
Ongoing Charges 1.8% 1.7% 1.8%
========================== ============ ============ ===========
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.
[1] The Interim Management Report includes the Chairman's
Statement, the Investment Manager's Report, the Investment
Restrictions, the Principal Risks and Uncertainties and the Notes
to the Financial Statements
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END
IR LJMFTMTJBBIM
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September 14, 2020 03:08 ET (07:08 GMT)
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