TIDMRDL
RNS Number : 7808B
Ranger Direct Lending Fund PLC
25 September 2018
HALF YEARLY FINANCIAL REPORT ANNOUNCEMENT
(Registered No. 09510201)
RANGER DIRECT LING FUND PLC
For the period from 1 January 2018 to 30 June 2018
Ranger Direct Lending Fund Plc (the "Company") announces that it
has published its Half Yearly Report and Accounts for the period
from 1 January 2018 to 30 June 2018. Copies of the Half Yearly
Report and Accounts for the period from 1 January 2018 to 30 June
2018 are available to view on the Company's website at
http://www.rangerdirectlending.uk/ . They have also been submitted
to the National Storage Mechanism and will shortly be available for
inspection at www.morningstar.co.uk/NSM.
The Directors of the Company declare an interim dividend of
14.28 pence per ordinary share (USD equivilent 18.72 cents per
ordinary share) for the three month period to 30 June 2018. The
Dividend will be paid on 8 November 2018 to shareholders on the
register as of
5 October 2018. The ex-dividend date is 4 October 2018.
The financial information set out below does not constitute the
Company's statutory accounts for the period ended 30 June 2018 but
is derived from those accounts.
IMPORTANT EVENTS AND FINANCIAL PERFORMANCE
Highlights Ordinary Shares
-----------------------------------------------------
30 June 2018 31 Dec 2017
Net Asset Value(1) (Cum Income) per share GBP 9.67(3) /USD 12.75 GBP 9.90(2) /USD 13.38
Net Asset Value(2) (Ex Income) per share GBP 9.70(3) /USD 12.79 GBP 10.19(2) /USD 13.79
Total dividends per share 43.93 pence 101.76 pence
Share Price(4) GBP 8.00(3) /USD 10.56 GBP 7.19(2) /USD 9.72
Actual annualised return on the principal amount
invested(5) 0.71% (2.95)%
% of Capital deployed(6) 95.21% 95.5%(7)
(1) Net Asset Value ("NAV") (cum income) includes all current
year income, less the value of any dividends paid in respect of the
period together with the value of the dividends which have been
declared and marked ex-dividend but not year paid, see page 34.
(2) Net Asset Value (ex income) is the Net Asset Value
cum/income excluding net current year income
(3) Translated at USD to GBP foreign exchange rate of 1.3194
(2017: 1.3524)
(4) Share price taken from Bloomberg Professional
(5) Annualized return based on monthly performance shown in the
next page
(6) Capital deployed amount used is the net proceeds from IPO,
tap issue and C Shares (from date of conversion during the
period)
CHAIRMAN'S STATEMENT
The Company's disappointing performance since the Princeton
issues arose in the first Quarter of 2016 continued in H1 2018. In
the first six months of 2018 the cum-income NAV contracted by 3.7%
in US dollar terms on the back of deteriorating performance at a
number of platforms, persistent uncertainty over the Princeton
investment and escalation of litigation and other advisory costs.
The Company continued to pay dividends, but they declined from
55.4p for the half year to 30 June 2017 to 14.28p for the current
half year even as sterling depreciated against the US dollar by
2.4%. The share price did recover by 11.3% in sterling terms and
hence the published NAV discount narrowed from 27.3% on 31 December
2017 to 18.1% on 30 June 2018.
At the AGM on 19 June 2018 the Company's ordinary Shareholders
overwhelmingly voted to change the Board by entrusting the
stewardship of the Company to three new directors with only one
pre-existing director remaining on the Board. Leading up to the
AGM, and as previously announced, the new directors had been
nominated by two major Shareholders who also wished for the Company
to realise its assets and return capital to Shareholders.
Subsequently, Brett Miller was also appointed to the Board as
announced on 6 July 2018.
The reconstituted Board now has the relevant specialty finance,
closed-end fund restructuring and litigation expertise, all of
which will be needed to execute an orderly wind-down that maximises
shareholder value.
Princeton
The resolution of the ongoing Princeton litigation is one of the
top priorities for the new Board. It is extremely disappointing
that after more than a year of litigation and the expenditure of
significant sums that the Company still lacks control and detailed
information on the investments underlying the Company's holding in
the Princeton fund. Notwithstanding that, we are now determined to
step up our efforts and will vigorously pursue all legal and
commercial means at our disposal to achieve maximum efficient
recovery for our Shareholders.
As we announced on 3 August 2018, the arbitration panel has
rendered a "Partial Final Award" on Phase I of the arbitration as
follows:
1) Princeton breached the investment documents by failing to
provide the required opt out rights on investments.
2) Princeton breached the investment documents by suspending the
Company's redemption and withdrawal rights in circumstances where
it was not permitted to do so.
3) Princeton breached the investment documents by failing to
provide the information required under the terms of the investment
documents.
4) Princeton breached its fiduciary duties.
5) The arbitration panel found insufficient evidence to find
Princeton liable on the Company's claim of fraud and certain other
violations.
The arbitration panel awarded gross damages in the amount
invested by the Company and the US domestic fund which is managed
by the Company's Investment Manager, which is USD 61.8 million, and
adjusted that award to net damages totaling USD 30.7 million, plus
pre-judgment interest accruing from 30 November 2016. The damages
award is attributable to both the Company's investment in Princeton
as well as the investment by the US fund managed by the Investment
Manager, less income distributions previously received by the fund
(USD 9.1 million), less the amount the Panel attributed to the
Argon side pocket in Princeton (USD 22 million). In addition, the
arbitration panel found that the Company and the US domestic fund
are entitled to 99 per cent. of any distributions from the Argon
side pocket in Princeton.
Because the Bankruptcy Court limited its grant of relief from
the automatic bankruptcy stay to the entry of a final award by the
arbitration panel on these matters, the Company cannot presently
seek confirmation and/or enforcement of the award without further
relief from the Bankruptcy Court. The Company is also unable at
this time to determine whether Princeton's assets are sufficient to
pay the entire judgment.
The Company will continue to pursue its claims in full against
Princeton through the bankruptcy proceedings and it views the
arbitration panel decision as a positive development that gives
independent confirmation of the failings of Princeton and the
General Partner to abide by their contractual and legal
obligations. The Company is evaluating whether to seek relief from
the automatic bankruptcy stay to pursue Phase II of the arbitration
- which seeks damages against certain individuals and entities
other than Princeton. The bankruptcy court previously ruled that
the automatic bankruptcy stay applies to Phase II, so that
additional relief will be required to proceed.
The Company's holding in Princeton is held on the balance sheet
at historical valuation of US$28.5million, following two write
downs in 2017. The Company intends to make adjustments to this
valuation, if necessary, as soon as more information becomes
available and our recovery efforts progress.
Manager Arrangements
In January 2018, the previous Board appointed Kinmont Advisory
as its independent external advisor and initiated a formal process
to conduct a review and resolve the management arrangements for the
Company beyond May 2018. This process resulted in the previous
Board's recommendation of Ares Capital Management III LLC ("Ares")
as new manager and a 12-month notice being served to the existing
Investment Manager, Ranger Alternative Management II LP, ("Ranger")
as of 1 May 2018. However, it became increasingly clear that
Shareholders had lost faith in the stewardship of the previous
Board and Kinmont, eventually causing Ares to abandon discussions,
despite the previous Board having incurred costs of about USD
900,000 for this futile exercise.
Shortly after its appointment the new Board formed two new
working committees to provide the necessary oversight of and
guidance to Ranger. The first committee is tasked with engaging
with Ranger concerning the wind-down and realisation of the
Company's existing portfolio (excluding Princeton) with the
specific aim of maximising returns for stakeholders. This committee
has also conducted an in-depth review of the Company's service
providers and their contractual agreements as well as other
corporate matters. The second committee is liaising with Ranger and
acts as a point of contact in respect of the Princeton proceedings
and the strategic decisions associated with those proceedings. Any
final decisions regarding the approach to the investment portfolio
and any other proposals to be put to Shareholders will be decided
by the Board as a whole. Transparency, accountability and
stakeholder engagement will be paramount, as the Company moves into
the next phase.
In addition, my fellow director Brett Miller and I have taken on
certain executive duties until further notice. This allows us to
exercise more control and increase both the intensity and the
cadence of the Company's wind-down efforts. This was partly also
necessitated by the departure of certain members of the Ranger
investment team. Both myself and Mr. Miller have spent considerable
time already with Ranger in Dallas working with the Investment
Manager commencing the orderly realisation of assets, engaging with
both investee platforms and potential buyers of our interests and
kick-starting the realisation process. We have also commenced a
dialogue with the note holders of Ranger Direct Lending ZDP PLC and
will further engage with these stakeholders in due course.
Portfolio
The previous Board commissioned an independent valuation report
of the Company's portfolio as of 31 December 2017. When this report
was finally completed in April, it identified no major deviations
from the reported NAV. Nevertheless, a number of adverse
developments occurred in two major platforms starting in Q1
2018.
First, the President of the Company's International SME lending
platform departed unexpectedly in January. The subsequent onsite
review of the platform's operations that the platform had not been
adequately servicing the loans sold to the Company. This
necessitated the write-off in March of $1.2 million for two loans
and a write-off a loan in June for $615k (plus $170k in accrued
interest), all due to loans in default status. To be conservative,
the Board also approved a general reserve of 10% for all remaining
SME loans on this specific platform of approximately $1.3 million.
To prevent further deterioration of the International SME Lending
Platform portfolio, actions have been underway for the Investment
Manager to temporarily take over the servicing of these
investments.
Second, the Company provided the International LOC Partner with
guidance that, pursuant to potential changes in its long-term
investment objectives, the Company may seek to amend or unwind its
credit facility within the foreseeable future. As a result, the
International LOC Partner is currently in discussions with
alternative credit providers. The platform is in compliance with
the terms of the credit facility and based on its representations
its cash flow and operations indicated have not deteriorated.
However, if the manager is instructed to unwind the credit
facility, the International LOC Partner's ability to immediately
pay maturing notes as they come due would be dependent on its
ability to secure replacement financing under terms which are
acceptable to the Company. It should be noted that the Company is a
material source of capital for this platform. Although, with the
exception of one note amounting to USD 1.0 million, the Company has
no legal obligations to forward fund any investments. However,
Shareholders should be aware that in some instances the Company may
need to advance sums even though the new Board would rather it
would not, in order to preserve stability and value during the
period in which we evaluate the wind down of such assets.
Outlook
The Board plans to commence capital returns in the coming
months. These will be generated on the back of orderly asset
disposals and re-financings are currently being negotiated. We are
encouraged by the progress of our discussions with interested
parties. The positive credit market backdrop further aids our
efforts and adds to our resolve to exit the majority of the
Company's portfolio before year end. We have also commenced
discussions with ZDP holders about an early redemption of their
instruments.
Our newly intensified efforts on Princeton may not yield
immediate results, but we remain confident in the merits of our
case. We are also starting to make plans for adequate management of
any future stub portfolio and the Executive Directors have taken
steps to put in place a team to manage such stub should the
arrangements with the Investment Manager terminate early or expire
in May 2019 according to the notice that has been served.
I would like to thank the investment management team for their
perseverance and support during a period of uncertainty. The new
Board has endeavored to create a positive and stable working
environment with the existing management team and think this has
been a positive development in stabilising the Company.
Finally, on behalf of the entire Board I would like to thank our
Shareholders for the immense trust they have placed in us.
Dominik Dolenec
Chairman
24 September 2018
INVESTMENT MANAGER'S REPORT
The Investment Manager would like to thank Shareholders for
their ongoing support of the Company. As you can imagine, the last
few months have been a trying time for the Investment Manager as
the Company has endured a failed management review process,
reconstruction in Board leadership and fundamental changes to the
investment strategy. During this time, there has been little to no
comment from the Investment Manager over these actions, and we
would like to use this Investment Manager report to express our
continued commitment to the Company and all of its Shareholders as
we look toward the new mandate of unwinding the portfolio of the
Company.
Over the past few months, the Investment Manager has been
working with and educating the new Board on our portfolio
investments and processes. To advance the Board's desire to
liquidate the fund, and to maximize shareholder value within that
objective, the Investment Manager has been instrumental in
spearheading productive conversations between our platform partners
and potential buyers. The Investment Manager believes that the
quality of many of these platform portfolios is the primary reason
these portfolios are receiving strong interest from outside
buyers.
In addition, the Company's investment strategy has primarily
focused on short-duration investments. As such, we anticipate that
assets which are too small to sell will run-off relatively quickly
and provide cash to shareholders within an acceptable duration of
time. As mentioned in the Chairman's Statement, the Investment
Manager has been working diligently on the Company's International
SME lending platform with the unexpected departure of the
platform's President. While it is not our expertise, the Investment
Manager has subsequently, and temporarily, taken over the servicing
of such portfolio and is working hand in hand with the Board to
minimize potential write-offs.
Notwithstanding the above, Shareholders should take note that a
mandate requiring the active sale or timed liquidation of
portfolios presents an inherent risk which does not present itself
with the run-off of a portfolio, in that the such assets may not be
realized at their fair value. Although the Company is not currently
considering offers which fall materially below par, the inherent
risk of attracting opportunistic buyers must be managed with the
optionality to run down a short-term portfolio in order to ensure
the realization of appropriate value. It is also important for
shareholders to recognize that a material amount of the future
value for the Company will be tied to current claims in litigation.
In balancing such interests, the Investment Manager recognizes that
the interests of certain shareholders who purchased shares at a
discount to the NAV, may diverge from the interest of long term
shareholders. To that end, the Investment Manager advocates, and
the Board agrees, that the interest of any one group of investors
will not be given priority in consideration, but rather the Company
shall seek the best resolution on behalf of all shareholders, even
if such result will require the consideration of a reasonably
longer time horizon.
The Investment Manager will continue to work closely with the
Board towards the goal of realising returns for all Ordinary and
ZDP shareholders. Finally, we want to again thank all the
shareholders for your support over these past few years. We have
enjoyed working with all of you.
Company Portfolio
As at 30 June 2018, all proceeds originating from the Company's
IPO in May 2015, tap issue completed in December 2015, both ZDP
offerings, and Open Offer and Initial Placing of C Shares in
December 2016 (converted into Ordinary Shares in April 2017) remain
deployed, less an amount for general fund operations, foreign
exchange settlements and surplus cash. With the leverage provided
by the ZDP shares, gearing is at 36.7% as at 30 June 2018.
In accordance with the Board's instructions, the Investment
Manager in June 2018 has discontinued making investments through
normal course of business with the following exceptions, each of
which are made with the Board's prior written approval.
1) Investments that protects the value of the collateral attributable to prior investment(s).
2) Investments to company with the Company's pre-existing contractual obligations.
From January to June 2018 the Company continued to invest
through several Direct Lending Platforms in the US, UK, Australia,
and Canada, focused primarily on secured Debt Instruments. Per the
Board's direction, no additional platforms will be on boarded.
While the Company has successfully on boarded 13 platforms since
inception, all active facilities and/or debt instruments, except as
noted above are in run-off mode such that any payments received
will be held in cash until such time as when cash is distributed to
shareholders.
Investments with the International SME Lending Platform were
suspended earlier this year following the departure of its
President and pending a review of its operations. The ongoing
review of its operations unfortunately revealed that the company
had not been adequately servicing the loans sold to the Company.
This necessitated the write-off in March of USD 1.2 million for two
loans and a write-off a loan in June for USD 615k (plus USD 170k in
accrued interest), all due to loans in default status. To be
conservative, the Board also approved a general reserve of 10% for
all remaining SME loans on this specific platform of approximately
USD 1.3 million. To prevent further deterioration of the
International SME Lending Platform portfolio, actions have been
underway for the Investment Manager to temporarily take over the
servicing of these investments.
As directed by the Board, the Investment Manager has contacted
several parties who may have an interest in purchasing various
portions of the investment portfolio. Bids for portions of the
portfolio are being received and evaluated by the Board, and
additional bids are expected to be received in September.
The investments have been made into eight categories and 18
different sub-categories of Debt Instruments spanning the 13
different Direct Lending Platforms. At 30 June 2018, 89% of the
portfolio was invested in secured Debt Instruments (including
loans, cash advances, and receivables financing) to mainly SME
borrowers, and 11% of the portfolio consisted of unsecured consumer
loans. For this purpose, a secured Debt Instrument is defined by
the Company as a payment obligation in which property, revenue
(including receivables), or a payment guaranty has been pledged,
mortgaged or sold to the Company as partial or full security with
respect to such obligation.
The Company will continue to comply with its investment
restrictions set out in investment policy, together with the
subsequent directions issued by the Board, and which apply at the
time of investment when making investments in Debt Instruments
(whether directly or indirectly).
In addition to investing in Debt Instruments, the Company may
also invest up to 10% of gross assets in the equity of Direct
Lending Platforms and/or organizations serving the direct lending
industry. As at 30 June 2018, one such equity investment was made
for USD 300,000 in June 2017.
Independent valuation of the portfolio
For the half-yearly financial report ended 30 June 2018, an
independent valuation firm was retained to perform fair valuation
consulting services on the 4 largest platforms for the Company's
portfolio. This excludes the investment in Princeton, owing to a
lack of available information for that investment. The consulting
services consisted of certain limited procedures that the Company
identified and requested the independent valuation firm to
perform.
A copy of the report from the independent valuation firm has now
been delivered to the Company's Board and Investment Manager.
The Company is ultimately and solely responsible for determining
fair value of the investments in good faith, and following its
review of the report, the Company, in its sole determination,
following consultation with its advisers, has not made any
adjustment to the values of the portion of the portfolio reviewed
as compared to the values used as at 30 June 2018 for the purposes
of calculating the unaudited net asset value as at that date.
Princeton Update
As announced on 3 August 2018, the Company notes the following
developments in the ongoing bankruptcy proceedings relating to
Princeton Alternative Income Fund, LP ("Princeton") and its former
general partner Princeton Alternative Funding, LLC.
As previously announced and as disclosed in the Chairman's
Statement, the bankruptcy court ruled that portions of the
Company's claims against Princeton and the general partner in
pending arbitration proceedings could proceed and be fully
adjudicated. The arbitration panel has now rendered a "Partial
Final Award" on Phase I of the arbitration as follows:
1) Princeton breached the investment documents by failing to
provide the required opt out rights on investments.
2) Princeton breached the investment documents by suspending the
Company's redemption and withdrawal rights in circumstances where
it was not permitted to do so.
3) Princeton breached the investment documents by failing to
provide the information required under the terms of the investment
documents.
4) Princeton breached its fiduciary duties.
5) The arbitration panel found insufficient evidence to find
Princeton liable on the Company's claim of fraud and certain other
violations.
The arbitration panel awarded gross damages in the amount
invested by the Company and the US domestic fund which is managed
by the Company's investment manager, which is US$61.8 million, and
adjusted that award to net damages totaling US$30.7 million, plus
pre-judgment interest accruing from 30 November 2016. The damages
award is attributable to both the Company's investment in Princeton
as well as the US investment by the US fund managed by the
Investment Manager, less income distributions previously received
by the fund (US$9.1 million), less the amount the Panel attributed
to the Argon side pocket in Princeton (US$22 million). In addition,
the arbitration panel found that the Company and the US domestic
fund are entitled to 99 per cent. of any distributions from the
Argon side pocket in Princeton.
Because the Bankruptcy Court limited its grant of relief from
the automatic bankruptcy stay to the entry of a final award by the
arbitration panel on these matters, the Company cannot presently
seek confirmation and/or enforcement of the award without further
relief from the Bankruptcy Court. The Company is unable at this
time to determine whether Princeton's assets are sufficient to pay
the entire judgment.
The Company will continue to pursue its claims in full against
Princeton through the bankruptcy proceedings and it views the
arbitration panel decision as a positive development that gives
independent confirmation of the failings of Princeton and its
General Partner to abide by their contractual and legal
obligations. The Company is evaluating whether to seek relief from
the automatic bankruptcy stay to pursue of Phase II of the
arbitration - which seeks damages against certain individuals and
entities other than Princeton. The bankruptcy court previously
ruled that the automatic bankruptcy stay applies to Phase II, so
that additional relief will be required to proceed.
Previously, the Court extended Princeton's exclusive statutory
right to file a chapter 11 plan through 24 September. However,
based on developments in the case, on 13 August 2018, the Court
terminated Princeton's plan exclusivity rights. This allows the
Company to prepare and file a chapter 11 plan. The Company is
presently conducting discovery in order to prepare and file a
chapter 11 plan to liquidate the Princeton Fund under the
supervision of an independent Liquidating Trustee. The Company will
move to have its plan approved by the Bankruptcy Court. The
Company's motion to appoint a chapter 11 Trustee remains pending
before the Court as well.
As at 30 June 2018, the portfolio (excluding cash and cash
equivalents) was diversified across different sectors as
follows:
Allocation
Sector 30 Jun 2018 31 Dec 2017 Change
Platform Debt 29% 20% 45%
Commercial Real Estate Loans 19% 18% 6%
Business Loans/Merchant
Cash Advances 17% 18% (6)%
Consumer Loans 11% 17% (35%)
Business Letter of Credit 9% 9% 0%
Multi-family Real Estate
Loans 8% 9% (11%)
Mixed-use Real Estate Loans 5% 5% 0%
Residential Real Estate
Loans 2% 2% 0%
Factoring 0% 1% (100%)
Equipment Loans 0% 1% (100%)
------------ ------------ -------
Total (excluding cash and
cash equivalents) 100% 100%
------------ ------------ -------
The following KPIs are being tracked for the Group, and values
for each as at 30 June 2018 are shown in the table below.
Indicator Criteria As of 30 Jun 2018
------------------- ------------------------------------
Target Return(10) 12% to 13% Targeted net annualized
unlevered returns (after
annual net Princeton-Argon
returns impairment) are 8%
to the Company to 11% to the Company
on loan before fund expenses,
investments management and
performance
fees.
----------------------------------------------------------- ----------------- ------------------------------------
Capital Deployed USD 311 million USD 279.0 million
(net of relevant principal (net of
issue costs) relevant issue costs)
available amount invested
for deployment
----------------------------------------------------------- ----------------- ------------------------------------
Total dividends for the At least 85% of Interim dividends
period Net Profit of 90% of Net Profit
----------------------------------------------------------- ----------------- ------------------------------------
Investment restrictions 5 years No Debt Instrument references
* Maximum term loan for investment a loan agreement with
a term in excess of
5 years
----------------- --------------------------------------
180 days No Debt Instrument references
* Maximum term for trade receivable investment a trade receivable in
excess of 180 days
----------------- --------------------------------------
25% of gross The Company has invested
* Maximum investment to any single asset class assets 16.3% of gross assets
sub-category in the commercial real
estate loans sub-category
----------------- --------------------------------------
25% of gross The Company has invested
* Maximum investment to loans originated by any single assets 21.2% of gross assets
lending platform in the Direct Lending
Platform which issues
real estate loans
2% of gross No single Debt Instrument
* Maximum investment to any Debt Instrument assets in which the Company
has an interest exceeds
1.9% of gross assets
20% of gross assets No single Debt Instrument
* Maximum allocation to any Debt Instrument to an asset originated or issued
sub-class by a single Direct
Lending Platform
represents more than
20% of gross assets
allocated to the
asset class sub-category
that the relevant
Debt Instrument forms
part of
65% of gross assets 85.8% of the gross
* Minimum investment to loans secured by assets or assets is invested
personal guarantee in Debt Instruments
which are secured
by assets or personal
guarantee
75% of portfolio 89.2% of the portfolio
* Target allocation to loans secured by assets or are secured by assets
personal guarantee or personal guarantee
MANAGEMENT REVIEW PROCESS
On 25 January, 2018, the Board approved an initial engagement
with an investment banker (Kinmont) to perform specific duties in
collaboration with the Management Engagement Committee. This
agreement was amended on 1 June, 2018, to reflect changes and
enhancements in the scope of the engagement. Ultimately, GBP853,698
(in USD: $1,126,881) was spent on the management review process to
various service providers:
GBP USD*
Kinmont - Retainer
fees GBP 192,000 $ 253,440
Kinmont - Transaction
fee GBP 240,000 $ 316,800
Travers Smith GBP 394,698 $ 521,001
BDO GBP 27,000 $ 35,640
GBP 853,698 $ 1,126,881
============== ============
* Exchange rate of 1.32 USD to GBP. Above amounts also include
VAT of 20%
INTERIM MANAGEMENT REPORT AND DIRECTORS' RESPONSIBILITY
STATEMENT
For the period from 1 January 2018 to 30 June 2018
CAUTIONARY STATEMENT
This interim management report has been prepared solely to
provide additional information to Shareholders to assess the
strategies of the Group. The interim management report should not
be relied upon by any other party or for any other purpose.
The interim management report contains forward looking
statements. These statements are made by the Directors in good
faith based on the information available to them up to the time of
their approval of this report but such statements should be treated
with caution due to the inherent uncertainties, including both
economic and business risk factors, underlying any such
forward-looking information.
RISK AND UNCERTAINTIES
There are a number of potential risks and uncertainties which
could have a material impact on the Group's performance and could
cause actual results to differ materially from expected and
historical results.
The Board of Directors has overall responsibility for risk
management and internal control within the context of achieving the
Company's objectives. The Board agrees the strategy for the
Company, approves the Company's risk appetite and monitors the risk
profile of the Company. The Company also maintains a risk register
to identify, monitor and control risk concentration.
The Board's responsibility for conducting a robust assessment of
the principal risks is embedded in the Company's risk map and
stress testing which helps position the Company to ensure
conformance with the Association of Investment Companies ("AIC")
Corporate Governance Code's requirements.
The Board does not consider that the principal risks and
uncertainties have changed since the publication of the Group's
2017 annual report. The principal risks to which the Group will be
exposed in the remaining six months of the financial year, being
macroeconomic, legal and compliance, investment, taxation risks and
cyber security risk, are substantially the same as those described
on pages 18 to 21 of the 2017 annual report, a copy of which is
available at www.rangerdirectlending.uk.
The Company has considered Brexit's current and potential impact
on the Company. With the majority of the Group's portfolio
denominated in currencies other than Sterling, and with the Group's
functional currency being the United States Dollar, the Board
continues to believe that Brexit is unlikely to have a significant
impact on the Group's performance in the next six months. It should
also be noted that the Company has entered into derivative
contracts to manage the exposure to non-US Dollar denominated
assets.
The table below provides monthly performance information:
Ordinary
Shares
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
% NAV 2015 (0.17%) 0.26% 0.18% 0.25% 0.40% 0.52% 0.45% 0.53% 2.45%
2016 0.48% 0.75% 0.77% 0.78% 0.82% 0.74% 0.79% 0.72% 0.75% 0.82% 0.83% (2.80%) 5.53%
2017 0.87% 0.66% 0.74% 0.60% 0.58% 0.54% 0.41% 0.42% 0.22% (8.32%) 0.20% 0.48% (2.95%)
2018 0.43% 0.31% 0.01% 0.17% (0.07%) (0.14%) 0.71%
----------------- -------- -------- -------- --------- -------- -------- -------- -------- ------ -------- -------- -------- ---------
Return
on Share
Price 2015 4.30% 1.63% (0.71%) 0.05% 0.66% (0.66%) (1.23%) (1.44%) 2.50%
2016 (6.15%) (0.31%) (2.50%) 2.14% 2.62% (1.02%) 6.19% 3.69% 3.56% 5.97% (3.50%) (6.72%) 2.93%
2017 (0.19%) 1.61% 3.27% (17.90%) (5.46%) (4.61%) (0.58%) (5.84%) 4.96% (4.23%) (5.91%) (0.76%) (31.85%)
2018 5.70% (3.95%) (0.82%) 10.64% (0.87%) 0.76% 11.27%
----------------- -------- -------- -------- --------- -------- -------- -------- -------- ------ -------- -------- -------- ---------
The net profit for the period amount to USD 1.41 million (period
ended 30 June 2017: USD 9.39 million; and year ended 31 December
2017: loss of USD 6.44 million). The Group declared a total
dividend per share of 43.93 pence per share during the period
(period ended 30 June 2017: 55.44 pence per share; and year ended
31 December 2017: 24.14 pence per share).
Further details of the Group's performance for the period are
included in the Investment Manager's Report above which includes a
review of investment activity, impact of applicable regulations and
adherence to investment restrictions.
Premium/Discount
The Board monitors the price of the Company's Ordinary Shares in
relation to the NAV to determine the premium/discount at which the
shares trade. The following table shows the premium/discount
through the period:
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Premium/
(discount)
to NAV at
end of
each
month 2015 5.17% 9.97% 8.28% 6.15% 4.95% 5.75% 2.16% (2.01%)
2016 (11.52%) (13.33%) (13.25%) (10.75%) (8.01%) (17.38%) (13.21%) (9.23%) (7.89%) (8.75%) (8.74%) (13.52%)
2017 (12.83%) (11.00%) (7.95%) (22.48%) (27.47%) (28.82%) (28.63%) (33.16%) (27.26%) (24.72%) (26.51%) (27.34%)
2018 (19.83%) (25.36%) (22.81%) (16.30%) (19.80%) (18.03%)
------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
GOING CONCERN
As announced on 6 July 2018, and disclosed within the Chairman's
Statement on pages 4 to 6, the Board has established two new
committees that both aim to quickly and efficiently wind down the
Company. These committees are focusing on the Princeton proceedings
and the associated strategic decisions and the wind-down and
realisation of the Company's existing portfolio (excluding
Princeton) with the specific aim of maximising returns for
stakeholders.
Plans are still currently being formulated by the Board, but the
intention is to dispose of the Company's assets in an orderly
manner and return shareholders' capital to them and adequately
reimburse the ZDP shareholders by the end of March 2020.
Given these developments and the intention to wind down the
Company, the use of the going concern basis in preparing the
financial statements of the Group is not appropriate. As such the
financial statements have been prepared on a basis other than that
of a going concern, which requires assets to be measured at their
net realisable value. There were no adjustments made to the
carrying values of the assets and liabilities of the Group as a
result of this change in the basis of preparation, because the
Directors' consider the carrying value of assets to approximate the
net realisable value.
The Directors believe that the Company and Group have adequate
resources to continue in operational existence until the
anticipated liquidation of the Company. The Board will ensure that
sufficient liquidity is held back at all times to ensure all
liabilities, including those to ZDP shareholders are at all times
adequately covered.
RELATED PARTY TRANSACTIONS
Details of related party transactions are given in note 12 to
the consolidated financial statements.
DIRECTORS
The Directors who held office during the financial period and up
to the date of approval of this report were:
Dominik Dolenec, Executive Chairman
Mr. Dolenec was appointed on 19 June 2018 at the Company's
Annual General Meeting and was further appointed by the Board as
Executive Chairman of the Company on 26 July 2018. He is Managing
Partner and Founder of Emona Capital LLP, a London-based investment
and advisory firm focusing on special situation and disruptive
technology investments. Mr. Dolenec has over 20 years of investment
and advisory experience, including assisting principals in complex
restructurings, turnarounds, financings and other corporate
events.
Mr. Dolenec was appointed to the Audit Committee and the
Remuneration and Nomination Committee on 5 July 2018.
Brendan Hawthorne, Non-Executive Director
Mr. Hawthorne was appointed on 19 June 2018 at the Company's
Annual General Meeting. He has more than 20 years experience as a
specialist in financial investigations and asset recovery. He has
extensive multi-jurisdictional experience including acting as an
independent director of substantial onshore and offshore investment
funds. He is a Chartered Accountant and Certified Fraud Examiner.
His forensic accounting, asset recovery and litigation experience
will be especially helpful in supervising the Princeton assets and
recovery process.
Mr Hawthorne was appointed to the Audit Committee and the
Remuneration and Nomination Committee on 5 July 2018.
Brett Miller, Executive Director
Mr. Miller was appointed on 5 July 2018 and was further
appointed by the Board as Executive Director on 26 July 2018. He
currently serves as a non-executive director of a number of listed
investment companies and previously served as an executive director
of Damille Investments Ltd and Damille Investments II Ltd (both
closed end funds listed on the specialist funds segment of the
London Stock Exchange). Mr. Miller has considerable experience in
corporate finance, corporate governance issues, corporate
restructurings and optimising financial capital structures, and has
been instrumental in a number of fund realisations in recent years
for closed end funds listed on the London Stock Exchange and
AIM.
Mr. Miller was appointed to the Remuneration and Nomination
Committee on 5 July 2018.
Greg Share, (Independent)
Mr. Share was appointed on 19 June 2018 at the Company's Annual
General Meeting. He is Managing Partner and Co-Founder of Ambina
Partners, LLC, an investment firm focused on investing in software
and financial services companies. Mr. Share also has over twenty
years of private equity experience in the U.S. and Europe, which
included leadership positions at Moelis Capital Partners LLC,
Fortress Investment Group LLC and Madison Dearborn Partners, LLC
where he focused on the software and financial services
sectors.
Mr. Share was appointed to the Remuneration and Nomination
Committee on 5 July 2018.
Jonathan Schneider, (Independent)
Mr. Schneider was appointed to the Board on 2 April 2015. He is
a Chartered Accountant and an active entrepreneur and investor.
From 2006 to 2012, he was the co-founder and managing partner of
the Novator Credit Opportunities Fund, a UK based credit special
situations hedge fund. He is the Executive Chairman of Capital Step
a UK based mid-market lender. Mr. Schneider currently has a
portfolio of alternative lending interests which he actively
supports and manages, the majority of which he conceived and
co-founded. Some of these include Jumo, a pan African consumer
finance business, Iwoca.com an SME lender (of which he is chairman)
and Mode, an emerging market airtime credit provider. Mr. Schneider
has held numerous previous directorships, including serving on the
boards of publicly listed Talon Metals Inc. and Aqua Online
Limited.
Mr. Schneider is considered by the Board to have the necessary
recent and relevant financial experience for his role as Audit
Committee Chairman. He was appointed Chairman of the Audit
Committee and the Remuneration and Nomination Committee on 10 April
2015.
All Directors are members of the Management Engagement
Committee.
Christopher Waldron (Chairman) (Independent) appointed on 2
April 2015, resigned on 19 June 2018
Dr Matthew Mulford (Independent) appointed on 2 April 2015,
resigned on 19 June 2018
K. Scott Canon (Non-Independent) appointed on 25 March 2015,
resigned on 19 June 2018
DIRECTORS' RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
a) The condensed consolidated financial statements ("condensed
financial statements") have been prepared in accordance with IAS 34
'Interim Financial Reporting' as adopted by the European Union;
b) The interim management report includes a fair review of the
information required by the Disclosure Guidance and Transparency
Rules ("DTR") 4.2.7R (indication of important events during the
first six months of the current financial year and their impact on
the condensed financial statements; and a description of principal
risks and uncertainties for the remaining six months of the year);
and
c) The interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related parties'
transactions and any changes in the related party transactions
described in the last annual report that could do so).
BY ORDER OF THE BOARD
Dominik Dolenec
Chairman
24 September 2018
INDEPENT REVIEW REPORT TO RANGER DIRECT LING FUND PLC
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2018 which comprises the Condensed
Consolidated Statement of Financial Position, the Condensed
Consolidated Statement of Comprehensive Income, the Condensed
Consolidated Statement of Changes in Shareholders' Equity, the
Condensed Consolidated Statement of Cash Flows and related notes 1
to 16. We have read the other information contained in the
half-yearly financial report and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the company those matters we are required to state to it
in an independent review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company, for our review
work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the Directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the
company are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34 "Interim
Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
Except as explained in the following section, we conducted our
review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 "Review of Interim Financial
Information Performed by the Independent Auditor of the Entity"
issued by the Financial Reporting Council for use in the United
Kingdom. A review of interim financial information consists of
making inquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK) and consequently does not enable us to obtain assurance that
we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
Basis for Qualified Conclusion
As described in note 3, and consistent with the Annual Report
for the year ended 31 December 2017, the Directors have been unable
to provide us with sufficient appropriate supporting information in
relation to the investment in Princeton recorded at a value of USD
28.5m at 30 June 2018. Princeton filed for bankruptcy in the USA in
March 2018 and recent developments are discussed in the Chairman's
Statement. We were therefore unable to complete our review of
investments. Had we been able to complete our review of
investments, matters might have come to our attention indicating
that adjustments might be necessary to the interim financial
information.
Qualified Conclusion
Except for the adjustments to the interim financial information
that we might have become aware of had it not been for the
situation described above, based on our review, nothing has come to
our attention that causes us to believe that the condensed set of
financial statements in the half-yearly financial report for the
six months ended 30 June 2018 is not prepared, in all material
respects, in accordance with International Accounting Standard 34
as adopted by the European Union and the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
Emphasis of matter - Financial statements prepared other than on
a going concern basis
We draw attention to note 2 in the financial statements, which
indicates that the financial statements have been prepared on a
basis other than that of a going concern. Our conclusion is not
modified in respect of this matter.
Deloitte LLP
Statutory Auditor
London, United Kingdom
24 September 2018
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2018
(Unaudited) (Audited)
Notes 30 Jun 18 31 Dec 17
ASSETS
Non-current assets USD USD
Financial assets at fair value
through profit or loss 3 28,834,657 29,621,483
Loans held at amortised cost 4 248,386,018 250,993,296
Deferred tax asset 80,669 80,669
----------------------------
Total non-current assets 277,301,344 280,695,448
------------------------------------------- ----------------------------
Current assets
Derivative assets 9 581,887 1,110,329
Advances to/funds receivable
from direct lending platforms 5,008,672 3,782,916
Prepayments and other receivables 1,077,735 192,635
Cash and cash equivalents 11 5,574,050 9,699,799
----------------------------
Total current assets 12,242,344 14,785,679
------------------------------------------- ----------------------------
TOTAL ASSETS 289,543,688 295,481,127
------------------------------------------- ----------------------------
Non-current liabilities
Zero dividend preference shares 6 76,263,513 76,222,019
----------------------------
Total non-current liabilities 76,263,513 76,222,019
------------------------------------------- ----------------------------
Current liabilities
Accrued expenses and other
liabilities 5 6,378,032 2,619,586
Income tax liability 406,909 290,496
Derivative liabilities 9 877,917 545,126
----------------------------
Total current liabilities 7,662,859 3,455,208
------------------------------------------- ----------------------------
TOTAL LIABILITIES 83,926,372 79,677,227
NET ASSETS 205,617,316 215,803,900
=========================================== ============================
SHAREHOLDERS' EQUITY
Capital and reserves
Share capital 7 427,300 427,300
Share premium account 7 40,346,947 40,346,947
Other reserves 7 204,225,570 204,225,570
Revenue reserves 1,388,325 4,484,858
Realised capital losses (40,606,966) (30,035,108)
Unrealised capital losses (79,848) (3,480,486)
Foreign currency translation
reserves (84,012) (165,181)
TOTAL SHAREHOLDERS' EQUITY 205,617,316 215,803,900
=========================================== ============================
NAV per Ordinary Share 12.75 13.38
=========================================== ============================
The accompanying notes are an integral part of these condensed
financial statements.
The financial statements for the period ended 30 June 2018 of
Ranger Direct Lending Fund Plc, a public listed company limited by
shares and incorporated in England and Wales with the registered
number 09510201, were approved and authorized for issue by the
Board of Directors on 24 September 2018.
Signed on behalf of the Board of Directors:
Dominik Dolenec
Chairman
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE PERIOD FROM 1 JANUARY 2018 TO 30 JUNE 2018
(Unaudited) (Unaudited) (Audited)
1 Jan to 30 Jun 18 1 Jan to 30 Jun 17 1 Jan to 31 Dec 17
Notes Revenue Capital Total Revenue Capital Total Revenue Capital Total
Income (USD) (USD) (USD) (USD) (USD) (USD) (USD) (USD) (USD)
----------- ------------ ------------ ----------- ------------ ----------- ----------- ------------- ------------
Investment
income 12,593,352 - 12,593,352 13,806,785 - 13,806,785 26,511,977 - 26,511,977
Net gain on
financial
assets at fair
value
through profit
or loss 3 - - - - 3,540,225 3,540,225 - - -
Foreign
exchange gain - - - - 4,844 4,844 - - -
Other income 2,817,392 - 2,817,392 4,388,560 - 4,388,560 8,213,322 - 8,213,322
Gain on
revaluation
of derivative
contracts - - - - 1,494,291 1,494,291 - 2,184,162 2,184,162
Bank interest
income 3,350 - 3,350 111 - 111 115 - 115
----------- -------------
15,414,094 - 15,414,094 18,195,456 5,039,360 23,234,816 34,725,414 2,184,162 36,909,576
----------- ------------ ----------- ------------ ----------- ------------- ------------
Operating
expenditure
Net loss on
financial
assets at fair
value
through profit
or loss 3 - 759,589 759,589 - - - - 12,558,687 12,558,687
Investment
Manager
Performance
Fees 12 - - - 1,036,774 15,585 1,052,359 (1,822) 15,585 13,763
Investment
Management
Fees 12 1,413,428 - 1,413,428 1,566,601 - 1,566,601 3,054,733 - 3,054,733
Service and
premium
fees 1,220,822 - 1,220,822 1,912,022 - 1,912,022 2,964,697 - 2,964,697
Provision for /
(Reversal
of) default - (1,002,222) (1,002,222) - 52,528 52,528 - 3,073,240 3,073,240
Loans written
off 4 - 7,091,372 7,091,372 - 4,708,913 4,708,913 - 10,730,543 10,730,543
Company
secretarial,
administration
and registrar
fees 181,583 - 181,583 205,150 - 205,150 494,475 - 494,475
Finance costs 1,984,050 - 1,984,050 1,724,303 - 1,724,303 3,604,530 - 3,604,530
Foreign
exchange loss - 315,594 315,594 - 1,517,211 1,517,211 - 2,591,408 2,591,408
Other expenses 3,981,717 - 3,981,717 992,184 - 992,184 4,107,794 - 4,107,794
Loss on
revaluation
of derivative
contracts - 6,887 6,887 - - - - - -
------------ ------------ ----------- ------------ ----------- ----------- ------------- ------------
8,781,600 7,171,220 15,952,820 7,437,034 6,294,237 13,731,271 14,224,407 28,969,463 43,193,870
----------- ------------ ------------ ----------- ------------ ----------- ----------- ------------- ------------
Profit/(loss)
before
tax 6,632,494 (7,171,220) (538,726) 10,758,422 (1,254,877) 9,503,545 20,501,007 (26,785,301) (6,284,294)
----------- ------------ ------------ ----------- ------------ ----------- ----------- ------------- ------------
Taxation (128,872) - (128,872) (115,192) - (115,192) (571,923) 419,751 (152,172)
----------- ------------ ------------ ----------- ------------ ----------- ----------- ------------- ------------
Profit/(loss)
after
tax 6,503,622 (7,171,220) (667,598) 10,643,230 (1,254,877) 9,388,353 19,929,084 (26,365,550) (6,436,466)
=========== ============ ============ =========== ============ =========== =========== ============= ============
The accompanying notes are an integral part of these condensed
financial statements.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(continued)
FOR THE PERIOD FROM 1 JANUARY 2018 TO 30 JUNE 2018
(Unaudited) (Unaudited) (Audited)
1 Jan to 30 Jun 18 1 Jan to 30 Jun 17 1 Jan to 31 Dec 17
Notes Revenue Capital Total Revenue Capital Total Revenue Capital Total
(USD) (USD) (USD) (USD) (USD) (USD) (USD) (USD) (USD)
---------- ------------ ---------- ----------- ------------ ---------- ----------- ------------- ------------
Basic Earnings
Per Ordinary
Share
- USD 10 0.40 (0.44) (0.04) 0.68 (0.08) 0.60 1.25 (1.66) (0.41)
Basic Earnings
Per Ordinary
Share
- GBP 10 0.31 (0.34) (0.03) 0.52 (0.06) 0.46 0.93 (1.23) (0.30)
Diluted
Earnings
Per Ordinary
Share
- USD 0.40 (0.44) (0.04) 0.66 (0.08) 0.58 1.24 (1.64) (0.40)
Diluted
Earnings
Per Ordinary
Share
- GBP 0.31 (0.34) (0.03) 0.51 (0.06) 0.45 0.91 (1.21) (0.30)
Profit for the
period/year 6,503,622 (7,171,220) (667,598) 10,643,230 (1,254,877) 9,388,353 19,929,084 (26,365,550) (6,436,466)
--------------- ------ ---------- ------------ ---------- ----------- ------------ ---------- ----------- ------------- ------------
Other
comprehensive
income:
Items that may
be
reclassified
subsequently
to
profit and
loss:
Exchange
differences
on
translation
of net assets
of
subsidiary - - 81,169 - - (167,269) - - (177,559)
---------- ----------- ------------ ---------- ----------- -------------
Total
comprehensive
income/loss
for
the
period/year 6,503,622 (7,171,220) (586,429) 10,643,230 (1,254,877) 9,221,084 19,929,084 (26,365,550) (6,614,025)
========== ============ ========== =========== ============ ========== =========== ============= ============
The accompanying notes are an integral part of these condensed
financial statements.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS'
EQUITY
FOR THE PERIOD FROM 1 JANUARY 2018 TO 30 JUNE 2018
(Unaudited)
----------------------------------------------------------------------------------------------------------
Unrealised Foreign
Realised Capital currency
Share Share Other Capital Profits/ Revenue translation
Note Capital Premium Reserves Losses (Losses) Reserves reserves Total
(USD) (USD) (USD) (USD) (USD) (USD) (USD) (USD)
Balance at
1 January
2018 427,300 40,346,947 204,225,570 (30,035,108) (3,480,486) 4,484,858 (165,181) 215,803,900
Dividends 8 - - - - - (9,600,155) - (9,600,155)
Reclassification
of capital
losses - - - (3,480,486) 3,480,486 - - -
Profit/(loss)
for the period - - - (7,091,372) (79,848) 6,503,622 - (667,598)
Other
comprehensive
income for
the period - - - - - - 81,169 81,169
Balance at
30 June 2018 427,300 40,346,947 204,225,570 (40,606,966) (79,848) 1,388,325 (84,012) 205,617,316
======== =========== ============ ============= ============ ============ ============ ============
(Unaudited)
---------------------------------------------------------------------------------------------------------------
Unrealised Foreign
Realised Capital currency
Share Share Other Capital Profits/ Revenue translation
Note Capital Premium Reserves Profits/(Losses) (Losses) Reserves reserves Total
(USD) (USD) (USD) (USD) (USD) (USD) (USD) (USD)
Balance at 1
January 2017 427,300 40,346,947 204,225,570 (6,682,162) (388,953) 5,077,791 12,378 243,018,871
Dividends 8 - - - (78,929) - (10,734,568) - (10,813,497)
Reclassification
of capital
losses - - - (388,953) 388,953 - - -
Profit/(loss)
for the period - - - (1,184,273) (70,604) 10,643,230 - 9,388,353
Other
comprehensive
income for the
period - - - - - - (167,269) (167,269)
Balance at 30
June 2017 427,300 40,346,947 204,225,570 (8,334,317) (70,604) 4,986,453 (154,891) 241,426,458
======== =========== ============ ================= =========== ============= ============ =============
The accompanying notes are an integral part of these condensed
financial statements.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS'
EQUITY (continued)
FOR THE PERIOD FROM 1 JANUARY 2018 TO 30 JUNE 2018
Note (Audited)
----------------------------------------------------------------------------------------------------------------
Unrealised Foreign
Realised Capital currency
Share Share Other Capital Profits/ Revenue translation
Capital Premium Reserves Profits/(Losses) (Losses) Reserves reserves Total
(USD) (USD) (USD) (USD) (USD) (USD) (USD) (USD)
Balance at 1
January 2017 427,300 40,346,947 204,225,570 (6,682,162) (388,953) 5,077,791 12,378 243,018,871
Dividends 8 - - - (78,929) - (20,476,385) - (20,555,314)
Reclassification
of capital losses - - - (388,953) 388,953 - - -
Tax relating to
capital
contribution - - - - - (45,632) - (45,632)
Profit/(loss)
for the year - - - (22,885,064) (3,480,486) 19,929,084 - (6,436,466)
Other
comprehensive
income for the
year - - - - - - (177,559) (177,559)
Balance at 31
December 2017 427,300 40,346,947 204,225,570 (30,035,108) (3,480,486) 4,484,858 (165,181) 215,803,900
======== =========== ============ ================= ============ ============= ============ =============
The accompanying notes are an integral part of these condensed
financial statements.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM 1 JANUARY 2018 TO 30 JUNE 2018
(Unaudited) (Unaudited) (Audited)
1 Jan to 1 Jan to 1 Jan to
30 Jun 18 30 Jun 17 31 Dec 17
Notes (USD) (USD) (USD)
(Loss)/profit for the period/year (667,598) 9,388,353 (6,436,466)
Adjustments for:
Provision for income tax
expense 128,872 115,192 152,172
Tax paid - - (58,163)
Utilisation/benefit of
deferred taxes - - (80,669)
Net loss/(gain) on financial
assets at fair value through
profit or loss 3 759,589 (3,540,225) 12,558,687
Investment income (12,593,352) (13,806,785) (26,511,977)
Interest expense on ZDP
Shares 6 1,899,670 1,662,595 3,486,353
Amortisation of transaction
fees - net 23,209 198,672 253,554
Amortisation of issue costs 84,379 61,708 118,177
Foreign exchange loss 229,796 1,902,502 2,610,088
(Gain)/loss on revaluation
of derivative financial
instruments 6,887 (1,494,291) (2,184,162)
Loans written off 4 7,091,372 4,708,913 10,730,543
Reversal of provision for
default 4 (719,736) 52,528 3,638,263
------------- -------------- --------------
Operating cash flows before
movements in working capital (3,756,911) (750,838) (1,723,599)
(Increase)/decrease in
other current assets and
prepaid expenses (885,102) 366,876 765,817
Increase/(decrease) in
accrued expenses and other
liabilities 3,758,446 4,744,299 (1,080,483)
(Increase) in funds receivable
from direct lending platforms
- net (1,225,756) (7,034,694) (2,782,353)
------------- -------------- --------------
Net cash flows used in
operating activities (2,109,323) (2,674,357) (4,820,619)
------------- -------------- --------------
Investing activities
Acquisition of financial
assets at fair value through
profit or loss 3 - (300,000) (300,000)
Acquisition of loans 4 (91,163,256) (136,554,741) (220,006,567)
Principal repayments 4 85,852,639 122,833,887 199,083,681
Proceeds from partial redemption
of financial assets at
fair value through profit
or loss 3 27,237 3,734,186 4,767,069
Investment income received 11,950,287 12,394,613 24,780,203
Net settlement on derivative
positions 854,348 60,647 1,047,170
-------------
Net cash flows generated
from investing activities 7,521,255 2,168,592 9,371,556
------------- -------------- --------------
Financing activities
Dividends paid 8 (9,600,155) (10,813,497) (20,555,314)
------------- -------------- --------------
Net cash (used in)/flows
from financing activities (9,600,155) (10,813,497) (20,555,314)
------------- -------------- --------------
Net change in cash and
cash equivalents (4,188,224) (11,319,262) (16,004,377)
Effect of foreign exchange 62,475 198,221 883,796
Cash and cash equivalents
at the beginning of the
period/year 9,699,799 24,820,380 24,820,380
------------- -------------- --------------
Cash and cash equivalents
at the end of the period/year 11 5,574,050 13,699,339 9,699,799
============= ============== ==============
The accompanying notes are an integral part of these condensed
financial statements.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM 1 JANUARY 2018 TO 30 JUNE 2018
1. GENERAL INFORMATION
The Company was incorporated and registered in England and Wales
on 25 March 2015 and commenced operations on 1 May 2015 following
its admission to the London Stock Exchange Main Market. The
registered office of the Company is 6th Floor, 65 Gresham Street,
London, EC2V 7NQ.
The condensed financial statements ("condensed financial
statements") include the results of the Trust and ZDPco. The
investment objective of the Group is to seek to provide
Shareholders with an attractive return, principally in the form of
quarterly income distributions, by acquiring a portfolio of debt
obligations (such as loans, invoice receivables and asset financing
arrangements) that have been originated or issued by Direct Lending
Platforms.
The half year results for the six months ended 30 June 2018 are
unaudited. The comparative figures for the year ended 31 December
2017 have been extracted from the Group's 31 December 2017
financial statements and do not constitute statutory accounts as
defined in section 434 of the Companies Act 2006. Those financial
statements have been delivered to the Registrar of Companies. The
auditor reported on those accounts; their report was qualified in
respect of insufficient appropriate audit evidence as described in
note 3, did not draw attention to any matters by way of emphasis
and did not contain a statement under section 498(2) of the
Companies Act 2006. The comparative figures for the period ended 30
June 2017 have been extracted from the Group's 30 June 2017
half-yearly financial report which were reviewed by the
auditor.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of accounting and preparation
These condensed financial statements have been prepared in
compliance with IAS 34 'Interim Financial Reporting' as adopted by
the European Union ("EU"). The annual financial statements were
prepared with International Financial Reporting Standards ("IFRS")
as adopted by the EU. The financial statements were also prepared
in accordance with the Statement of Recommended Practice ("SORP")
for investment trusts issued by the AIC, where this guidance is
consistent with IFRS.
New Accounting Standards, amendments to existing Accounting
Standards and/or interpretations of existing Accounting Standards
(separately or together, "New Accounting Requirements") not yet
adopted
In the Directors' opinion, all non-mandatory New Accounting
Requirements are either not yet permitted to be adopted, or would
have no material effect on the reported performance, financial
position or disclosures of the Group and consequently have neither
been adopted nor listed.
New Accounting Requirements endorsed for use in the EU
IFRS 9 - "Financial Instruments" (Replacement of IAS 39 -
"Financial Instruments: Recognition and Measurement") - effective
from 1 January 2018
The Group is required to adopt IFRS 9 from 1 January 2018. The
Group has assessed the estimated impact that the initial
application of IFRS 9 will have on its consolidated financial
statements.
Estimated impact of adoption of IFRS 9:
Estimated Estimated
As reported adjustments adjusted
at 31 December due to adoption opening
2017 of IFRS balance
9 at 1 Jan
2018
USD USD USD
Unrealised capital losses (3,480,486) 7,480 (3,473,006)
================ ================= ============
The total estimated adjustment (net of tax) to the opening
balance of the Group's equity at 1 January 2018 is USD 7,480 which
arises from over accrual of provision of default in previous years.
No adjustment was made on the opening balance of the Company as the
impact of adopting IFRS 9 is not material.
IFRS 9 Financial Instruments
IFRS 9 Financial Instruments sets out requirements for
recognising and measuring financial assets, financial liabilities
and some contracts to buy or sell non-financial items. This
standard replaces IAS 39 Financial Instruments: Recognition and
Measurement.
i - Classification - Financial assets
IFRS 9 contains three principal classification categories for
financial assets: measured at amortised cost, Fair Value through
Other Comprehensive Income ("FVOCI") and Fair Value through Profit
or Loss ("FVTPL"). The standard eliminates the existing IAS 39
categories of held to maturity, loans and receivables and available
for sale.
Under IFRS 9, derivatives embedded in contracts where the host
is a financial asset in the scope of the standard are never
bifurcated. Instead, the hybrid financial instrument as a whole is
assessed for classification.
Based on its assessment, the Group does not believe that the new
classification requirements will have a material impact on its
accounting for loans held at amortised cost and investments in
equity securities that are managed on a fair value basis.
ii - Impairment - Financial assets and contract assets
IFRS 9 replaces the 'incurred loss' model in IAS 39 with a
forward-looking 'expected credit loss' (ECL) model. This will
require considerable judgement about how changes in economic
factors affect ECLs, which will be determined on a
probability-weighted basis.
The new impairment model will apply to financial assets measured
at amortised cost or FVOCI, except for investments in equity
instruments, and to contract assets.
Under IFRS 9, loss allowances will be measured on either of the
following bases:
- 12 month ECL: these are ECLs that result from possible default
events within the 12 months after the reporting date; and
- lifetime ECL: these are ECLs that result from all possible
default events over the expected life of a financial
instrument.
Lifetime ECL measurement applies if the credit risk of a
financial asset at the reporting date has increased significantly
since initial recognition and 12-month ECL measurement applies if
it has not. An entity may determine that a financial asset's credit
risk has not increased significantly if the asset has low credit
risk at the reporting date.
The Group believes that impairment losses are likely to become
more volatile for assets in the scope of the IFRS 9 impairment
model. Based on the impairment methodology described below, the
Group has estimated the application of IFRS 9's impairment
requirements at 1 January 2018 results in reduction of impairment
losses in loans held at amortised cost of USD 9,263 and a
corresponding adjustment to equity with an increase in unrealized
capital losses by USD 7,480.
Under IFRS 9, the Group has to classify all financial
instruments in scope for impairment into 3 Stages - stage 1, stage
2 or 3, depending on the change in credit quality since initial
recognition.
Investments in equity instruments and financial assets at FVTPL
are out of scope of the impairment requirement.
Stage 1
This includes loans where there is no significant increase in
credit risk since initial recognition or loans that have low credit
risk on reporting date. For loans in stage 1, interest is accrued
on the gross carrying amount of the loans and a 12-month expected
credit loss ("ECL") is factored in the profit and loss ("P&L")
calculations.
Stage 2
This consists of loans with significant increase in credit risk
since initial recognition but not credit impaired. Interest for
loans in stage 2 is accrued on the gross carrying amount, however,
a lifetime ECL is factored into the profit and loss
calculations.
Stage 3
Includes loans which demonstrate evidence of impairment on the
reporting date. Interest is accrued on the net carrying amount of
the loans and a lifetime ECL is factored into the profit and loss
calculations.
For the Group's loan investments, the assessment is performed on
a collective basis per platform as the underlying loans have shared
risk characteristics however individual assessment may be performed
depending on the magnitude and available information from the
platform providers.
For short-term receivables and cash and cash equivalents, the
ECL model is not likely to result in a material change of the
balance due to their short-term nature therefore the Group will
apply the simplified approach for contracts that have a maturity of
one year or less.
iii - Classification - Financial liabilities
IFRS 9 largely retains the existing requirements in IAS 39 for
the classification of financial liabilities. However, under IAS 39
all fair value changes of liabilities designated as at FVTPL are
recognised in profit or loss, whereas under IFRS 9 these fair value
changes are generally presented as follows:
- the amount of change in fair value that is attributable to
changes in the credit risk of the liability is presented in the
OCI; and
- the remaining amount of change in the fair value is presented
in profit or loss.
The Group has not designated any financial liabilities at FVTPL
and it has no current intention to do so. The Group's assessment
did not indicate any material impact regarding the classification
of financial liabilities at 1 January 2018.
Basis of measurement and consolidation
The condensed financial statements have been prepared on a
historical cost basis as modified for the revaluation of certain
financial assets. The Group controls an entity when the Group is
exposed to, or has rights to, variable returns from its involvement
with the entity and has the ability to affect those returns through
its power over the entity. The Trust is fully consolidated from the
date on which control is transferred to the Group and
deconsolidated from the date that control ceases.
Intra-group transactions, balances and unrealized gains/losses
on transactions within the Group are eliminated.
Going concern
As announced on 6 July 2018, and discussed within the Chairman's
Statement above, the Board has established two new committees that
both aim to quickly and efficiently wind down the Company. These
committees are focusing on the Princeton proceedings and the
associated strategic decisions and the wind-down and realisation of
the Company's existing portfolio (excluding Princeton) with the
specific aim of maximizing returns for stakeholders.
Plans are still currently being formulated by the Board, but the
intention is to dispose of the Company's assets in an orderly
manner and return shareholders' capital to them and adequately
reimburse the ZDP shareholders by the end of March 2020.
Given these developments and the intention to wind down the
Company, the use of the going concern basis in preparing the
financial statements of the Group is not appropriate. As such the
financial statements have been prepared on a basis other than that
of a going concern, which require assets to be measured at their
net realisable value. There were no adjustments made to the
carrying values of the assets and liabilities of the Group as a
result of this change in the basis of preparation, because the
Directors' consider the carrying value of assets to approximate the
net realisable value.
The Directors believe that the Company and Group have adequate
resources to continue in operational existence until the
anticipated liquidation of the Company. The Board will ensure that
sufficient liquidity is held back at all times to ensure all
liabilities, including those to ZDP shareholders are at all times
adequately covered.
Use of estimates, judgements and assumptions
The following are areas of particular significance to the
Group's financial statements and include the use of estimates and
the application of judgement, which is fundamental to the
preparation of these financial statements. Actual results could
differ from those estimates.
Key source of estimation uncertainty - impairment of loans
Information about significant areas of estimation uncertainty
and critical judgements in relation to the impairment of loans are
described under Impairment section below and in note 4.
Key source of estimation uncertainty - fair value of financial
assets at fair value through profit or loss
The determination of fair values based on available market data
requires significant judgement by the Group. See note 3 for the
fair value estimation.
Functional and presentation currency
The financial statements are presented in US Dollars ("USD"),
the currency of the primary economic environment in which the
Company operates, the Company's functional currency.
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign currency assets and liabilities are
translated into the functional currency using the exchange rate
prevailing at the statement of financial position date.
Loans and receivables
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. Loans and receivables are included in current assets,
except for maturities greater than 12 months after the end of the
reporting period. These are classified as non-current assets.
Loans and receivables are measured at amortised cost using the
effective interest method, less any impairment. The effective
interest method calculates the amortised cost by allocating
interest income over the relevant period. The effective interest
rate is the rate that exactly discounts estimated future cash
receipts (including all fees paid or received that form an integral
part of the effective interest rate, transaction costs and other
premiums or discounts) through the expected life of the loans to
the net carrying amount on initial recognition.
Impairment
In evaluating the portfolio and estimating the default
allowance, management takes into consideration numerous factors,
including current economic conditions, prior loan loss experience,
composition of the loan portfolio and management's estimate of
credit losses. Such evaluation, which includes a review of all
loans on which full collectability may not be reasonably assured,
also considers among other matters, the estimated net realisable
value or the fair value of the underlying collateral, economic
conditions, historical loss experience, and other factors that
warrant recognition in providing for an adequate allowance for loan
losses. Management establishes an allowance for loan losses that it
believes is adequate to reflect incurred impairment losses in the
existing portfolio. In the event that management's evaluation of
the level of the allowance for loan losses is inadequate, the Group
would need to increase its provision for loan losses.
If, in a subsequent period, the amount of the default allowance
decreases and the decrease can be related objectively to an event
occurring after the impairment was recognised (such as an
improvement in the debtor's credit rating), the reversal of the
previously recognised default allowance is recognised in the
Statement of Comprehensive Income.
Financial assets held at fair value through profit or loss
The Group's financial assets consist of equity investments in
funds and an investment in a Cayman SPV. The Group designated its
investment as financial assets at fair value through profit or loss
in accordance with International Accounting Standards 39 Financial
Instruments: Recognition and Measurement ("IAS 39"), as the fund is
managed and its performance is evaluated on a fair value basis.
Purchases and sales of financial assets are recognised on the
trade date, the date which the Group commits to purchase or sell
the assets and are derecognised when the rights to receive cash
flows from the financial assets have expired or the Group has
transferred substantially all risks and rewards of ownership.
Financial instruments are initially recognised at fair value, and
transaction costs for financial assets carried at fair value
through profit or loss are expensed. Gains and losses arising from
changes in the fair value of the Group's financial instruments are
included in the Statement of Comprehensive Income in the period
which they arise.
Financial liabilities at amortised cost - Zero Dividend
Preference Shares
These are initially recognised at cost, being the fair value of
the consideration received associated with the borrowing net of
direct issue costs. Zero Dividend Preference Shares are
subsequently measured at amortised cost using the effective
interest method. Direct issue costs are amortised using the
effective interest method and are added to the carrying amount of
the Zero Dividend Preference Shares.
Derivative financial instruments
Derivative financial instruments, including short-term forward
currency and swap contracts are classified as held at fair value
through profit or loss, and are classified in current assets or
current liabilities in the statement of financial position.
Derivatives are entered into to reduce the exposure on the foreign
currency loans. Changes in the fair value of derivative financial
instruments are recognised in the Statement of Comprehensive Income
as a capital item. The Group's derivatives are not used for
speculative purposes and hedge accounting is not applied.
Taxation
Investment trusts which have approval as such under section 1158
of the Corporation Taxes Act 2010 are not liable for taxation on
capital gains. The Company has taken advantage of modified UK tax
treatment in respect of its qualifying interest income for an
accounting period and has chosen to designate as an "interest
distribution" all or part of any amount it distributes to the
Shareholders as dividends, to the extent that it has qualifying
interest income for the accounting period. As such, the Company is
able to deduct such interest distributions from its income in
calculating its taxable profit for the relevant accounting period.
It is expected that the Company will have material amounts of
qualifying interest income and therefore may decide to designate
some or all of the dividends payable as interest distributions.
The current tax payable is based on the taxable profit for the
year. Taxable profit differs from net profit as reported in the
Statement of Comprehensive Income because it excludes items of
income or expense that are taxable or deductible in other years and
it further excludes items that are never taxable or deductible. The
Company's liability for current tax is calculated using tax rates
that have been enacted or substantively enacted at the statement of
financial position date.
Deferred tax is the tax expected to be payable or recoverable on
temporary differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax
bases used in the computation of taxable profit, and is accounted
for using the liability method. Deferred tax liabilities are
recognised for all taxable temporary differences and deferred tax
assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible
temporary differences can be utilised.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised based on tax rates that have been enacted or substantively
enacted at the statement of financial position date.
The carrying amount of deferred tax assets is reviewed at each
statement of financial position date and reduced to the extent that
it is no longer probable that sufficient taxable profits will be
available to allow all or part of the asset to be recovered.
Investment and other income
Investment income and other income are recognised when it is
probable that the economic benefits will flow to the Group and the
amount of revenue can be measured reliably. Income for all interest
bearing financial instruments is accrued on a time basis, by
reference to the principal outstanding and at the effective
interest rate applicable, which is the rate that exactly discounts
estimated future cash receipts through the expected life of the
financial asset to that asset's net carrying amount on initial
recognition.
Dividend income
Dividend income from investments is recognised when the
Shareholders' rights to receive payment have been established.
Dividends payable
Dividends payable on ordinary shares are recognised in the
Statement of Changes in Equity when approved by the Directors in
respect of interim dividends and by the Shareholders if declared as
a final dividend by the Directors at the AGM. The Directors intend
to recommend a dividend on a quarterly basis, having regard to
various considerations including the financial position of the
Company.
Cash and cash equivalents
Cash and cash equivalents include cash at bank and in hand and
highly liquid interest-bearing securities with original maturities
of three months or less.
Segmental reporting
An operating segment is a component of the Group that engages in
business activities from which it may earn revenues and incur
expenses. The Directors perform regular reviews of the operating
results of the Group and make decisions using financial information
at the Group level only. Accordingly, the Directors believe that
the Group has only one reportable operating segment.
The Directors are responsible for ensuring that the Group
carries out business activities in line with the transaction
documents. They may delegate some or all of the day-to-day
management of the business, including the decisions to purchase and
sell securities, to other parties both internal and external to the
Group. The decisions of such parties are reviewed on a regular
basis to ensure compliance with the policies and legal
responsibilities of the Directors, therefore the Directors retain
full responsibility as to the major allocation decisions of the
Group.
Earnings per share
The Company presents basic and diluted earnings per share
("EPS") data for its ordinary shares. Basic EPS is calculated by
dividing the profit or loss attributable to ordinary Shareholders
by the weighted average number of ordinary shares outstanding
during the period. The diluted EPS is the same as the Basic EPS as
there is currently no arrangement which could have a dilutive
effect on the Company's ordinary shares.
Share capital and share premium
Ordinary Shares are not redeemable and are classified as equity.
Incremental costs directly attributable to the issue of new shares
are shown in equity as a deduction, net of tax, from the
proceeds.
Expenses (including finance costs)
Expenses are accounted for on an accruals basis and are
recognised in the Statement of Comprehensive Income. Investment
management fee is 100% allocated to revenue. Except for provision
of default and performance fee associated with financial assets at
fair value through profit or loss, which are allocated into capital
and revenue in accordance with SORP, all other expenses are charged
through revenue.
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
The Group's financial asset at fair value through profit or loss
represents its investment in Princeton and in Crowdnetic.
(Unaudited) (Audited)
30 Jun 18 31 Dec 17
(Group) (Group)
USD USD
Opening fair value 29,621,483 46,647,239
Purchases - 300,000
Redemptions (27,237) (4,767,069)
Net gain
- net (loss)/gain allocation (759,589) 4,424,451
- Argon impairment allocation - (16,983,138)
Closing balance 28,834,657 29,621,483
============ =============
Fair value estimation
Princeton
The Investment Manager has not been provided enough data to make
its own determination of the value of this asset. As such the
Investment Manager, as a practical expedient, is relying upon the
NAV provided by Princeton as at 30 June 2018, subject to certain
adjustments made. As announced by the Company on 15 December 2017,
the Company took a unilateral protective impairment of USD 9.1
million; and as of June 30, 2018, the difference between
Princeton's valuation and the Company's valuation amounts to USD
11.3 million.
As noted in the Company's announcement on 12 March 2018,
Princeton and its General Partner filed voluntary chapter 11
bankruptcy petitions on 9 March 2018 in the United Stated
Bankruptcy Court for the District of New Jersey. The Company is
seeking to obtain discovery from Princeton, pursuant to the
bankruptcy process, relating to the valuation and value of
Princeton's assets. It is also, through its legal representatives,
actively participating in the bankruptcy cases with a particular
focus on, to the extent possible in the circumstances, seeking to
protect its capital invested.
As previously announced by the Company on 3 August 2018, the
Company has concluded the first phase of its arbitration
proceedings against Princeton and its General Partner. As
previously reported, the arbitration process includes a second
phase consisting of claims against various individuals and entities
(including MicroBilt Corporation) who, as specified in the claims,
are alleged to have controlled the Princeton funds, and to have
acted improperly in connection with its activities, or improperly
benefitted from misconduct. Although the bankruptcy filing may stay
some of the claims in the second phase, the Company intends to
proceed with the second phase claims against the individuals and
entities that are not subject to the bankruptcy stay and/or when
such stay is lifted. These claims continue to be conducted by the
Company's attorneys on a contingency basis.
The Arbitration Award entered at the conclusion of Phase 1
liquidated the amount due from Princeton with respect to the
group's investment. The Arbitration Award calculated the amount due
by determining that the Company was entitled to a full redemption
of its USD 61.8 million investment as of November 30, 2016, less
certain adjustment detailed in the Arbitration Award, plus
statutory pre-judgment interest calculated under Delaware law from
November 30, 2016 to the date of the entry of the Arbitration Award
on July 20, 2018. The Company has calculated the total award at USD
65,425,030 and calculated the award, net of all adjustments, at USD
34,325,030; and has filed amended proofs of claim in the Princeton
bankruptcy case in that amount. Princeton has filed an objection to
these proofs of claim and the Company has responded to such
objections. A hearing on these objections before the Bankruptcy
Court is presently scheduled on October 22, 2018. The actual amount
of recovery cannot be determined since the above stated claim is
subject to objections in the Bankruptcy Court; and Princeton has
not yet provided the Company with sufficiently disclosure through
discovery to independently evaluate the value of the Princeton
assets.
FinMkt, Inc. (formerly Crowdnetic Corporation)
("Crowdnetic")
The Group's investment in Crowdnetic, a Cayman SPV, is valued
based on the 2nd equity financing in October 2017. The Group held
600,000 fully diluted Series A preferred share at a price of USD
0.50 per share.
4. LOANS HELD AT AMORTISED COST
(Unaudited) (Audited)
30 Jun 18 31 Dec 17
(Group) (Group)
USD USD
Opening balance 250,993,296 240,015,255
Purchases 91,163,256 220,006,567
Principal repayments (85,852,639) (199,083,681)
Amortisation of transaction fees (23,209) (253,554)
Accrued interest 643,065 1,731,774
Loans written-off (7,091,372) (10,730,543)
Effect of foreign exchange (2,166,115) 2,945,742
------------- --------------
247,666,282 254,631,559
Utilisation of /(provision for)
default allowance - net 719,736 (3,638,263)
Closing balance 248,386,018 250,993,296
============= ==============
The Group's loans are accounted for using the effective interest
method. The carrying value of such instruments includes assumptions
that are based on market conditions existing at each statement of
financial position date. Such assumptions include application of
default rate and identification of effective interest rate taking
into account the credit standing of each borrower as assessed by
each direct lending platform. At period end, the Directors estimate
that the carrying value approximates the fair value and net
realisable value.
While every investment always has some chance of charge-off, the
table below indicates those amounts which may have a heightened
risk of charge-off. The table indicates those investments that are
approximately one to three payments late or are more than three
payments late. In certain cases, the risk of charge off may be
fully or partially mitigated by collateral that may be securing the
investment.
(Unaudited) (Audited)
30 Jun 18 31 Dec 17
(Group) (Group)
USD USD
Up to 3 months 9,430,065 9,710,030
3 to 6 months 32,713,966 22,901,269
-----------
42,144,031 32,611,299
============ ===========
The above table does not include late payment by the Second SME
Loans Platform with respect to partial mandatory principal
prepayments required in accordance with the terms of their Master
Loan Agreement. The facility advanced to the Second SME Loans
Platform is in the process of being refinanced by the Borrower
under terms which provide a premium payment to the Company.
The movement in the provision for allowance for loan losses is
as follows:
(Unaudited) (Audited)
30 Jun 18 31 Dec 17
USD USD
Balance at the beginning of the period/year 4,299,102 660,839
Provision for the period/year 6,371,636 14,368,806
Amount written-off during the period/year (7,091,372) (10,730,543)
------------ -------------
Balance at end of the period/year 3,579,366 4,299,102
============ =============
5. ACCRUED EXPENSES AND OTHER LIABILITIES
(Unaudited) (Audited)
30 Jun 18 31 Dec 17
(Group) (Group)
USD USD
Investment Management fees payable - note
12 507,723 853,887
Other payables 5,870,309 1,765,699
--------------------- ---------------------
6,378,032 2,619,586
===================== =====================
6. ZERO DIVID PREFERENCE SHARES
(Unaudited) (Audited)
30 Jun 18 31 Dec 17
(Group) (Group)
USD USD
Opening balance 76,222,019 66,096,829
Amortisation of issue costs during the
period/year 187,480 296,551
Amortisation of premium during the period/year (103,097) (178,374)
Interest expense during the period/year 1,899,670 3,486,353
Effect of foreign exchange (1,942,559) 6,520,660
Closing balance 76,263,513 76,222,019
============ ===========
Under the ZDPco's Articles of Association, the Directors are
authorised to issue up to 55 million zero dividend preference
shares ("ZDP Shares") for a period of five years from 25 July 2016.
The ZDPco issued 53 million ZDP Shares at GBP 0.01 each (the "ZDP
Shares") in 2016. On 1 November 2016, the ZDPco passed a resolution
to authorise Directors to issue up to 75 million ZDP shares, such
authority to expire on 26 July 2021, unless revoked sooner or
varied by the Company in general meeting. The ZDP Shares will have
a term of five years and a final capital entitlement of GBP 127.63
pence per ZDP share on 31 July 2021, being the ZDP Repayment Date.
The total amount repayable on the ZDP repayment date is GBP
67,643,900.
The ZDP Shares do not carry the right to vote at general
meetings of the Company, although they carry the right to vote as a
class on certain proposals which would be likely to materially
affect their position. Further ZDP Shares (or any shares or
securities which rank in priority to or pari passu with the ZDP
Shares) may be issued without the separate class approval of the
ZDP Shareholders provided that the Directors determine that the ZDP
Shares would have a Cover of not less than 2.75 times immediately
following such issue. The Cover for ZDP Shares as at 30 June 2018
is 3.26 times (31 December 2017: 3.19 times).
7. SHARE CAPITAL AND SHARE PREMIUM
The table below shows the total issued share capital as at 30
June 2018 and 31 December 2017:
Number of
Nominal value Nominal value shares
GBP USD Number
Ordinary Shares 309,591 427,300 16,122,931
====================== ====================== ====================
Ordinary Shares
The IPO of 13,500,000 Ordinary Shares on 1 May 2015 was priced
at GBP 10 each resulting in a share premium amount of USD
204,225,570 (GBP 132,665,694) net of direct issue costs.
Shareholder's approval was given on 2 April 2015 for the Company's
share premium account to be cancelled immediately after admission
and this permission was confirmed by a court order on 1 July
2015.
On 16 December 2015, the Company issued a total of 1,348,650 new
Ordinary Shares at GBP 10.45 per share resulting in a share premium
amount of USD 20,989,992 (GBP 13,889,694) net of direct issue costs
of USD 287,555 pursuant to a tap issue.
C Shares
On 16 December 2016, the Company issued 1,611,041 C Shares
pursuant to the Open Offer and Initial Placing at an issue price of
GBP 10 per C Share each resulting in a share premium amount of USD
19,356,955 (GBP 15,666,299) net of direct issue costs. The
Company's C Shares were subsequently converted into 274,281
Ordinary Shares on 6 April 2017, following full investment of the
net proceeds of the issue of the C Shares in accordance with the
Company's investment policy.
Rights attaching to the shares
The holders of the C shares and 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 holders of Ordinary Shares shall be entitled to all of the
Company's remaining net assets after taking into account any net
assets attributable to the C shares.
The Ordinary Shares and C Shares shall carry the right to
receive notice of, attend and vote at general meetings of the
Company.
On a winding-up or a return of capital by the Company, if there
are C shares in issue, the net assets of the Company attributable
to the C shares shall be divided pro rata among the holders of the
C shares. For so long as C shares are in issue, and without
prejudice to the Company's obligations under the Act, the assets
attributable to the C shares shall, at all times, be separately
identified and shall have allocated to them such proportion of the
expenses or liabilities of the Company as the Directors fairly
consider to be attributable to the C 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 he is 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 holder who tenders a vote, whether
in person or by proxy, 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 be entitled to vote at any general meeting
or at any separate general meeting of the holders of any class of
shares in the Company, 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 Winding 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,
unless otherwise provided by the terms of issue of the Shares of
that Class, be varied or abrogated, whether or not the Company is
being wound up, either with the consent in writing of the holders
of not less than three-quarters in nominal value amount of the
issued shares of the affected class, or with the sanction of a
special resolution passed at a separate general meeting of the
holders of the shares of that class (but not otherwise).
At every such separate general meeting the necessary quorum,
other than an adjourned meeting, shall be two persons holding or
representing by proxy at least one-third in nominal amount of the
issued shares of the class in question, and at an adjourned meeting
one person holding shares of the class in questions or his proxy;
any holder of shares of the class in question present in person or
by proxy may demand a poll and the holder of shares of the class in
question shall, on a poll, have one vote in respect of every share
of such class held by him. Where the rights of some only of the
shares of any class are to be varied, the foregoing provisions as
if each group of shares of the class differently treated formed a
separate class whose rights are to be varied.
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 AGM of the Company to be held in 2020 and, if
passed, every five years thereafter. Upon any such resolution not
being passed, proposals will be put forward within three months
after the date of the resolution to the effect that the Company be
wound up, liquidated, reorganised 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.
8. DIVIDS
Set out below is the total dividend paid in respect of the
financial period:
(Unaudited) (Unaudited)
1 Jan to 1 Jan to
Per share 30 Jun 18 30 Jun 17
GBP pence USD USD
/ USD cents
Ordinary Shares dividends declared
and paid:
Interim dividends in 2018 (in respect 19.79 / 4,180,729 -
of 31 March 2018 results) 25.93
Interim dividends in 2018 (in respect 24.14 / 5,419,426 -
of 31 Dec 2017 results) 33.61
Interim dividends in 2018 (in respect 26.93 /
of 31 Mar 2017 results) 34.33 - 5,534,376
Interim dividends in 2018 (in respect 28.51 /
of 31 Dec 2016 results) 35.55 - 5,275,612
Total dividends paid during the period 9,600,155 10,809,988
========================= ========================
The Company intends to distribute at least 85% of its
distributable income earned in each financial year by way of
dividends. The Company intends to pay dividends on a quarterly
basis with dividends declared in February, May, August and November
and paid in April, June, September and December in each year. On 24
September 2018, the Directors declared an interim dividend of 14.28
pence per share for the three-month period ended 30 June 2018.
It is the current intention of the Board to move towards a
policy of balancing the quarterly dividend payments as soon as the
revenue position of the Company permits this approach. The Board,
in its sole discretion, may choose not to adopt a dividend
balancing policy if it considers this is desirable to minimise the
effects of cash drag on the Company's performance.
9. DERIVATIVE FINANCIAL INSTRUMENTS
(Unaudited) (Audited)
30 Jun 18 31 Dec 17
Notional (Group) (Group)
Amount USD USD
Derivative assets/(liabilities)
Forward foreign currency
contracts 11,359,410 (662,968) (157,109)
Forward currency swap
contracts 58,167,460 366,938 722,312
69,526,870 (296,030) 565,203
===================== ======================= =======================
(Unaudited) (Audited)
30 Jun 18 31 Dec 17
(Group) (Group)
USD USD
Derivative assets 581,887 1,110,329
Derivative liabilities (877,917) (545,126)
(296,030) 565,203
======================= ========================
The Company has entered into various swap and forward contracts
to manage exposure to foreign currency on existing assets. The
notional amounts provided in the table above reflect the aggregate
of individual derivative positions on a gross basis.
10. BASIC AND DILUTED EARNINGS PER SHARE
The basic earnings per Ordinary Share is based on each of the
profit after tax and on 16,122,931 Ordinary Shares, being the
weighted average number of ordinary shares in issue through the
year (31 December 2017: 15,910,551 Ordinary Shares).
The diluted earnings per Ordinary Share is based on each of the
profit after tax and on 16,122,931 Ordinary Shares, being the
weighted average number of ordinary shares in issue throughout the
year and the potential Ordinary Shares i.e. C Shares that were
converted to Ordinary Shares during the prior year (31 December
2017: 16,122,931 Ordinary Shares).
11. CASH AND CASH EQUIVALENTS
The components of the Group's cash and cash equivalents are:
(Unaudited) (Audited)
30 Jun 18 31 Dec 17
(Group) (Group)
USD USD
Cash at bank 5,574,050 9,632,179
Cash equivalents - 67,620
------------ ----------
5,574,050 9,699,799
============ ==========
12. RELATED PARTIES
Transactions between the Group and its related parties are
disclosed below.
The Directors, who are the key management personnel of the
Group, are remunerated as follows:
(Unaudited) (Unaudited) (Audited)
30 Jun 18 30 Jun 17 31 Dec 17
(Group) (Group) (Group)
USD USD USD
Chairman - C
Waldron
(Resigned
19 June
2018) 47,546 18,816 38,976
Chairman - D
Dolenec
(Appointed
19 June 2018) 1,084 - -
Other
directors 83,967 32,762 67,879
132,597 51,578 106,855
============================ ============================ ==========================
As at 30 June 2018, USD 101,397 (31 December 2017: USD 27,809)
was accrued for directors' remuneration.
As at 30 June 2018, no Directors held any shares in the Company.
None of the Directors hold any share options nor any receivable due
or payable to them under any long term incentive plan. As at 19th
June 2018, and at the time of his registration, Mr. Waldron held
3,500 Ordinary Shares and at the time of his resignation, Mr.
Cannon held indirectly 630 shares, as limited partner of Ranger
Capital Company.
Mr. Dolenec (through Emona Capital LLP) is party to an advisory
agreement with Oaktree pursuant to which he is entitled to receive
both (a) a fixed retainer fee and (b) a performance fee which is
directly linked to the IRR on Oaktree's investment in the Company.
With Mr. Dolenec abstaining, on 5 July 2018 the Board resolved that
Mr. Dolenec's interest in the agreement between Emona Capital LLP
and Oaktree be authorised for the purposes of section 175 of the
Act and Article 170.
The Group does not have any employees.
The Company has not made any contribution, to any Directors'
pension scheme and no retirement benefits are otherwise accruing to
any of the Directors under any defined benefit or monthly purchase
scheme for which the Company is liable. There have been no changes
to the aforementioned holding between 30 June 2018 and the date of
this report.
The Board has delegated responsibility for day-to-day management
of the loans held by Direct Lending Platforms to the Investment
Manager. Under the terms of the Investment 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. Total investment
management fees for the period amounted to USD 1,413,428 (31
December 2017: USD 3,054,733). As at 30 June 2018, the investment
management fees payable was USD 507,723 (31 December 2017: USD
853,887).
During the period, the Investment Manager received a
reimbursement amount of USD 102,197 for expenses (31 December 2017:
USD 94,466). Performance fee for the year amounted to USD nil (31
December 2017: USD 13,763). As at 30 June 2018, performance fee
payable was USD nil (31 December 2017: USD nil).
As at 30 June 2018, the Investment Manager holds 4,500 Ordinary
Shares representing 0.03% of the total interest in voting rights of
the Company (31 December 2017: 4,500 Ordinary Shares representing
0.03%).
The Company entered into a Trust Agreement with Ranger Direct
Lending Fund Trust on 22 April 2015. The Company, being the sole
unitholder, has sole discretion to declare distributions from the
Trust. As at 31 December 2017, amounts owed by undertaking relating
to the Trust's net income was USD 44,712,526 (31 December 2017: USD
44,712,526).
The Company incorporated the ZDPco on 23 June 2016 as a public
limited company with limited life and granted an undertaking to
(among other things) subscribe for such number of ordinary shares
in the capital of ZDPco as may be necessary or to otherwise ensure
that the ZDPco has sufficient assets to satisfy its obligations to
the ZDP Shareholders and pay any operational costs incurred by the
ZDPco. During the year, the Company paid ZDPco's expenses amounting
to USD 61,123 (2017: USD 225,717 representing ZDPco's expenses and
Share issue costs).
On 25 July 2016, the Company entered into a Loan Agreement with
the ZDPco. Pursuant to the Loan Agreement, the ZDPco immediately
following the admission of its ZDP Shares, on-lent the proceeds to
the Company which the latter have applied towards making
investments in accordance with its investment policy and working
capital purposes. The amount payable to the ZDPco which is
eliminated upon consolidation is USD 72,744,215 (31 December 2017:
USD 73,835,016).
Since the period end, with effect from 26 July 2018, Mr. Dolenec
receives a monthly fee of GBP15,000 for his Executive Chairman
duties and Mr. Miller receives a monthly fee of GBP15,000 for his
Executive Director duties. Mr. Dolenec is also party to an advisory
agreement with Oaktree pursuant to which he is entitled to receive
a fixed retainer fee and a performance fee, which was directly
linked to the IRR on Oaktree's investment in the Company.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value hierarchy
The fair values of the financial assets held at fair value
through profit and loss was derived from the NAV of Princeton as of
30 June 2018. The Group's investment in the Cayman SPV was derived
from the amount paid to acquire the investment on the basis that
only a short period has elapsed since the acquisition of the
investment in June 2018.
The fair values of the derivative financial instruments have
been provided to the Directors by the counterparty, BNP Paribas
S.A. and RBC Capital Markets, on whom the Directors rely as expert
providers of such valuations.
The fair values of cash and cash equivalents, funds receivable
from/payable to Direct Lending Platforms, prepayments and other
receivables, and accrued expenses and other liabilities are
estimated to be approximately equal to their carrying values due to
their short-term nature.
The three levels of fair value hierarchy under IFRS 13 are as
follows:
Level 1: Inputs that reflect unadjusted quoted prices in active
markets for identical assets and liabilities at the valuation
date;
Level 2: Inputs other than quoted prices included in Level 1
that are observable for the assets or liability either directly (as
prices) or indirectly (derived from prices), including inputs from
markets that are not considered to be active; and
Level 3: Inputs that are not based upon observable market
data.
Inputs are used in applying the various valuation techniques and
broadly refer to the assumptions that market participants use to
make valuation decisions, including assumptions about risk. The
main input parameters for this model are the default rate (the
value rises when the default rate is lower, and decreases when the
default rate is higher), the interest rate (the value rises when
the interest rate is higher, and drops when the interest rate is
lower), and the discount rate (the value rises when the discount
rate is lower, and drops when discount rate is higher). A financial
instrument's level within the fair value hierarchy is based on the
lowest level of any input that is significant to the fair value
measurement.
However, the determination of what constitutes "observable"
requires significant judgement by the Directors. The Directors
consider observable data to be market data which is readily
available, regularly distributed or updated, reliable and
verifiable, not proprietary, provided by multiple independent
sources that are actively involved in the relevant market.
The categorisation of a financial instrument within the
hierarchy is based upon the pricing transparency of the financial
instruments and does not necessarily correspond to the Group's
perceived risk inherent in such financial instruments.
The following tables include the fair value hierarchy of the
Group's financial assets and liabilities designated at fair value
through profit or loss:
Level 1 Level 2 Level 3 Total
30 Jun 18 (USD) (USD) (USD) (USD)
Financial assets - 581,887 28,834,657 29,416,544
Financial liabilities - 877,917 - 877,917
Level 1 Level 2 Level 3 Total
31 Dec 17 (USD) (USD) (USD) (USD)
Financial assets - 1,110,329 29,621,483 30,731,812
Financial liabilities - 545,126 - 545,126
There were no transfers between Levels during the period or in
the prior year.
As disclosed in note 4, the fair value of Loans held at
amortised cost approximate their carrying amounts and are
categorised as Level 2.
The ZDP Shares are classified within Level 1 of the fair value
hierarchy on the basis that the fair value was derived from an
observable traded price.
14. OPERATING SEGMENTS
Geographical information
The Group is managed as a single asset management business,
being the investment of the Group's capital in financial assets
comprising Debt Instruments and loans originated by Direct Lending
Platforms. The chief operating decision maker is the Board of
Directors. Under IFRS 8 the Group is required to disclose the
geographical location of revenue and amounts of non-current assets
other than financial instruments.
Revenues
The Group's revenues are currently generated from United States
of America ("USA"), United Kingdom ("UK") and Canada.
The total investment income generated from USA, UK and Canada
amounted to USD 9,289,989, USD 2,217,967 and USD 1,085,396,
respectively (2017: USA, UK and Canada amounted to USD 21,528,260,
USD 3,606,532 and USD 1,377,185 respectively).
Non-current assets
The Group does not have non-current assets other than the Loans
held at amortised cost and financial assets at fair value through
profit or loss.
15. SUBSEQUENT EVENTS
Subsequent to the year-end on the 24 September 2018, the
Directors proposed the payment of an interim dividend for the
second quarter of 2018 of USD 18.72 cents (GBP 14.28 pence) per
Ordinary Share at a total amount of USD 3,018,181.
As noted in the Company's announcement on 3 August 2018 the
Bankruptcy Court ruled that portions of the Company's claims
against Princeton and its former general partner, Princeton
Alternative Funding, LLC, in pending arbitration proceedings could
proceed and be fully adjudicated. The arbitration panel has now
rendered a "Partial Final Award" on Phase I of the arbitration. The
details of which is disclosed in the Chairman's Statement
above.
16. RECONCILIATION OF PUBLISHED NAV PER SHARE TO THE AUDITED NAV
The cum-income and ex-income NAV per share are published on a
monthly basis by the Company. The table below shows a
reconciliation between the NAV which is the basis for the
cum-income and the ex-income NAV per share published as at 30 June
2018 and that contained in these financial statements.
30-Jun-18
Ordinary Shares
USD
Unaudited NAV as at 30 June 2018 207,695,025
- Runway Impairment (2,077,709)
NAV per Statement of Financial Position
as at 30 June 2018 205,617,316
================
COMPANY INFORMATION
Directors
Dominik Dolenec (appointed 19 June 2018)
Brendan Hawthorne (appointed 19 June 2018)
Brett Miller (appointed 5 July 2018)
Jonathan Schneider (appointed 2 April 2015)
Gregory Share (appointed 19 June 2018)
Christopher Waldron (resigned 19 June 2018)
Matthew Mulford (resigned 19 June 2018)
K. Scott Canon (resigned 19 June 2018)
Company Secretary
Link Company Matters Limited
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
United Kingdom
Registrar
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
United Kingdom
Auditor
Deloitte LLP
Chartered Accountants and Statutory Auditor
2 New Street Square
London EC4A 3BZ
United Kingdom
Registered Office
6th Floor
65 Gresham Street
London EC2V 7NQ
United Kingdom
Investment Manager
Ranger Alternative Management II, LP
2828 N. Harwood Street
Suite 1900
Dallas, Texas
United States
info@rangercap.com
Sponsor, Broker and Placing Agent - Ordinary Shares
Liberum Capital Limited
Level 12, Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
United Kingdom
Administrator
Sanne Fiduciary Services Limited
IFC 5
St. Helier
Jersey JE1 1ST.
English and US Securities Law Legal Adviser
Travers Smith LLP
10 Snow Hill
London EC1A 2AL
United Kingdom
Cash Custodian
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
LEI: 549300VGZSKYQ7C2U221
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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