TIDMRMII TIDMTTM
RNS Number : 4463X
RM Infrastructure Income PLC
26 April 2023
RM INFRASTRUCTURE INCOME PLC
(the "Company" or "RMII")
ANNUAL REPORT AND ACCOUNTS
For the year ended 31 December 2022
LEI: 213800RBRIYICC2QC958
About us
RM Infrastructure Income plc ("RMII" or the "Company") aims to
generate attractive and regular dividends through investment in
secured debt instruments of UK Small and Medium sized Enterprises
("SMEs") and mid-market corporates including any loan, promissory
notes, lease, bond, or preference share (such debt instruments,
being "Loans") sourced or originated by RM Capital Markets Limited
(the "Investment Manager") with a degree of inflation protection
through index-linked returns where appropriate.
PORTFOLIO AT A GLANCE
Operational highlights
-- Diversified portfolio with gross assets of GBP126.1 million
invested across 37 loans and one wholly owned asset, across 12
sectors and 16 sub-sectors
-- RM Funds further accreditation by the British Business Bank
as an accredited lender for the RLS with RMII as a funding partner:
28% of the portfolio invested into partially government guaranteed
CBILS & RLS eligible loans
-- Approximately 59.1% of the portfolio NAV is committed to
Social & Environmental Infrastructure sectors reflecting an
increase of 8.3% over 2022, with a strong pipeline and expectation
that further allocations to these areas in 2023 will continue to
increase as the portfolio's maturing investments are recycled
within those core sectors
-- A short dated, high yielding portfolio that has outperformed
many other fixed income comparables during 2022
Financial highlights
Financial information Year ended Year ended
31 December 2022 31 December
2021
======================================== ================= ==============
Gross asset value (GBP'000) 1 GBP126,076 GBP130,821
======================================== ================= ==============
Net Asset Value ("NAV") (GBP'000) GBP108,805 GBP111,250
======================================== ================= ==============
NAV per Ordinary Share (pence) 92.49p 94.41p
======================================== ================= ==============
Ordinary Share price (pence) 85.00p 95.00p
======================================== ================= ==============
Ordinary Share price (discount)/premium
to NAV 1 (8.1%) 0.6%
======================================== ================= ==============
Ongoing charges 1 1.86% 1.92%
======================================== ================= ==============
Gearing (net) 1 13.1% 14.6%
======================================== ================= ==============
Performance summary
% change 2,4 % change 3,4
======================================== ================= ==============
Total return - Ordinary Share NAV and
dividends 1 +5.0% + 7.6%
======================================== ================= ==============
Total return - Ordinary Share price
and dividends 1 +3.7% + 16.7%
======================================== ================= ==============
1. These are Alternative Performance Measures ("APMs").
2. Total returns for the year to 31 December 2022, including
dividend reinvestment.
3. Total returns for the year to 31 December 2021, including
dividend reinvestment.
4. Source: Bloomberg
As at 20 April 2023, the latest date prior to the publication of
this document, the Ordinary Share price was 79p per share and the
latest published NAV was 92.10p per share as at 31 March 2023.
Alternative Performance Measures ("APMs")
The financial information and performance summary data
highlighted in the footnote to the above tables are considered to
represent APMs of the Company.
Portfolio (as at 31 December 2022)
Largest 10 loans by drawn amounts across the entire
portfolio
Business activity Investment type Valuation(+) Percentage
(Private/Public/Bond) GBP'000 of
gross asset
(%)
================================= ================================= ============ ============
Asset finance Private Loans 12,690 10.10
================================= ================================= ============ ============
Hotel Private Loans 9,630 7.60
================================= ================================= ============ ============
Automotive parts manufacturing Private Loans 8,410 6.70
================================= ================================= ============ ============
Care home Private Loans 8,118 6.40
================================= ================================= ============ ============
Gym franchise Private Loans 7,820 6.20
================================= ================================= ============ ============
Hotel Private Loans 5,479 4.30
================================= ================================= ============ ============
Student Accommodation Private Loans 4,955 3.90
================================= ================================= ============ ============
Care home Private Loans 4,943 3.90
================================= ================================= ============ ============
Hotel Private Loans 4,589 3.60
================================= ================================= ============ ============
Healthcare Bond 4,429 3.50
================================= ================================= ============ ============
Ten largest holdings 71,063 56.20
==================================================================== ============ ============
Other private loan investments 41,105 32.70
==================================================================== ============ ============
Wholly owned asset 3,593 2.90
==================================================================== ============ ============
Bond investments 4,208 3.30
==================================================================== ============ ============
Total holdings 119,969 95.10
==================================================================== ============ ============
Other net current assets 6,110 4.90
==================================================================== ============ ============
Gross assets* 126,079 100.00
==================================================================== ============ ============
*the Company's gross assets comprise the net asset values of the
Company's Ordinary Shares and the Bank loan.
(+) Valuation conducted by external Valuation Agent
Full portfolio (as at 31 December 2022)
Loan Borrower Business Market
ref# name Deal type Sector description Nominal value Valuer Payment
(GBP) (GBP)
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral
88 - SPV Loan Healthcare Care home 12,833,220 12,689,910 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Syndicated Auto Parts
39 Beinbauer Loan Manufacturing Manufacturer 9,663,522 9,629,584 V Agent PIK/Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Hotel &
66 - SPV Loan Leisure Hotel 8,504,440 8,410,122 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Asset Backed Asset Backed
60 - SPV Loan Lending Lending 8,193,916 8,117,971 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Gym Bilateral Health and
76 Franchise Loan Healthcare Well-being 7,962,055 7,820,003 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Hotel &
67 - SPV Loan Leisure Hotel 5,540,560 5,479,113 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Specialist
15 Voyage Care Bond Healthcare Care 5,000,000 4,208,334 External Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Hotel &
80 - SPV Loan Leisure Hotel 5,000,000 4,085,178 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral
82 - SPV Loan Healthcare Care home 5,000,000 4,954,904 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Hotel &
86 - SPV Loan Leisure Hotel 5,000,000 4,942,918 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Student
89 - SPV Loan Accommodation accommodation 5,000,000 4,589,466 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral
79 - SPV Loan Construction Construction 4,500,000 3,676,660 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Asset Backed Asset Backed
61 - SPV Loan Lending Lending 4,469,939 4,428,509 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Student
12 - SPV Loan Accommodation accommodation 4,422,500 4,422,500 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Hotel &
73 - SPV Loan Leisure Hotel 4,000,000 3,938,378 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Student
84 - SPV Loan Accommodation accommodation 4,000,000 3,958,630 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Student
68 Equity Equity Accommodation accommodation 3,600,000 3,592,800 V Agent N/A
===== ============== =========== ============== ============== ============ ============= ========= ==========
Trent Bilateral Energy Energy
62 Capital Loan Efficiency Efficiency 3,011,643 2,859,658 V Agent PIK
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral
83 - SPV Loan Healthcare Care home 2,796,462 2,771,240 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Hotel &
92 - SPV Loan Leisure Hotel 2,458,629 2,008,787 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Hotel &
58 - SPV Loan Leisure Hotel 2,401,638 1,746,076 V Agent PIK
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Childcare
95a - SPV Loan & Education Childcare 2,381,061 2,376,299 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Syndicated Transport Ports
71 Euroports Loan Assets business 1,770,695 1,664,453 External Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Hotel &
69 - SPV Loan Leisure Hotel 937,500 889,924 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Student
74 - SPV Loan Accommodation accommodation 930,000 915,870 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Commercial
87 - SPV Loan Property Restaurant 782,623 773,253 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Other
96 - SPV Loan Manufacturing Manufacturing 700,000 695,881 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Trent
Capital Bilateral Energy Energy
63 (Fusion) RF Loan Efficiency Efficiency 699,545 199,972 V Agent PIK
===== ============== =========== ============== ============== ============ ============= ========= ==========
Gym Bilateral Health and
76.1 Franchise Loan Healthcare Well-being 660,838 649,048 V Agent PIK
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral
97a - SPV Loan Healthcare Care home 680,460 680,460 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Energy Energy
78 - SPV Loan Efficiency Efficiency 500,000 398,748 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Wealth
81 - SPV Loan Finance Management 500,000 494,848 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Childcare
95b - SPV Loan & Education Childcare 476,212 475,260 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral Childcare
91 - SPV Loan & Education School 450,000 450,000 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Private Loan Bilateral
97b - SPV Loan Healthcare Care home 420,115 420,115 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Gym Bilateral Health and
94a Franchise Loan Healthcare Well-being 286,391 276,920 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Renewable
Private Loan Bilateral heat
52 - SPV Loan Clean Energy incentive 165,121 164,256 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Renewable
Private Loan Bilateral heat
9 - SPV Loan Clean Energy incentive 114,218 113,604 V Agent Cash
===== ============== =========== ============== ============== ============ ============= ========= ==========
Total 125,813,302 119,969,650
===== ============== =========== ============== ============== ============ ============= ========= ==========
MARKET
Market environment
A very challenging macro environment persisted throughout the
year. The key driver was inflationary pressure which was
exacerbated by the Russian invasion of Ukraine in the spring.
Central banks then started their tightening phase with the Bank of
England raising interest rates 9 times during the year to the
highest levels seen in 14 years. Credit spreads were also volatile
with two spikes during the year seen after the initial days of the
Russian invasion and then after the poorly received "mini-budget"
in September. In conjunction with widening credit spreads
underlying government bond yields rose dramatically with 5 year UK
Gilt yields rising from 0.80% to finish the year at circa 3.6%,
280bps higher. This caused fixed income as an asset class to have a
very poor year as the absolute level of spread and yield widening
from such a low initial base meant that any instrument with
duration and any credit exposure saw material declines in
value.
Market opportunities
The focus of the strategy remains on relatively short-dated
lending. The widening seen over the last 12 months in credit
spreads combined with the increase in underlying UK Gilt yields
means there are opportunities to increase the coupons charged. Such
new lending is also targeting senior secured loans thus seeking to
improve the overall credit quality of the portfolio.
CHAIR'S STATEMENT
Introduction
On behalf of the Board of Directors ("the Board"), I am pleased
to present RM Infrastructure Income plc's ("RMII" or "the Company")
Annual Report & Accounts for the year ended 31 December
2022.
This year marks the sixth year since the Company's Initial
Public Offering ("IPO") on the London Stock Exchange in December
2016 and was particularly challenging given significant movements
seen in credit and interest rate markets. The rise in energy prices
over parts of the year, due to the Russian invasion of Ukraine, was
staggering and it is welcome that we are now seeing prices
normalise, albeit at elevated levels. Further pressure was put on
the UK gilt market in late September by the "mini-budget" and
risk-free rates, as represented by UK government bond yields, rose
significantly. Our portfolio was structured to mitigate against
such interest rate risk, and it is therefore very pleasing to see
significant outperformance of the share price percentage total
return versus more liquid loan and bond market benchmarks.
The year saw the Net Asset Value ("NAV") per Ordinary Share of
the Company fall slightly as fair value markdowns were taken during
the period. As in 2020 during the Covid period, we believed it was
sensible to take fair value markdowns given the heightened levels
of risk and the increase in risk free rates as well as credit
spreads over the year. Our expectations are that some of these fair
value markdowns, will be released during 2023 as the Investment
Manager has made good progress with the enhanced monitoring loans,
which have reduced over the period from three to one.
Income generation and NAV performance
In the six years since listing, the Company has returned to
Shareholders 37.225 pence per Ordinary Share in dividends which
have been entirely covered by earnings. During 2022 the dividend
was covered by 0.975x with income, and we dipped into accrued
revenue reserves in order to pay the dividend. This dividend cover
is forecast to increase, as a higher net interest income from the
portfolio is expected during 2023. Given the increase in government
bond yield and credit spreads the Company can now make new loans at
higher coupon rates which will feed through into higher gross
revenue. This means that absent of any increase in credit losses,
the Company is seeking to pay a higher dividend than the previous
stated target of 6.5 pence per Ordinary Shares for 2023 and beyond
whilst these favourable conditions persist. The current range that
the Investment Manager is indicating to the Board is that there
will be sufficient income to pay a dividend of at least 7 pence per
Ordinary Share which will equate to a current yield of 8.24% versus
the year end share price.
On the 1 March 2023, the Company declared a fourth interim
dividend for the year of 1.625 pence per Ordinary Share paid on the
31 March 2023, thus total dividends of 6.5 pence per Ordinary Share
were paid for the year ended 31 December 2022.
At 31 December 2022, the published NAV per share was 92.49 pence
per Ordinary Share (31 December 2021: 94.41 pence). The NAV
percentage per Ordinary Share Total Return for the year was +5.0%
(2021: 7.6%) and annualised over 2021 and 2022 gives a +6.29% per
annum NAV Total Return. Since inception the NAV percentage Total
Return on an annualised basis has been +5.49%.
Returns to Shareholders
The closing mid-market share price on 31 December 2022 was 85
pence per Ordinary Share compared with 95 pence per Ordinary Share
as of 31 December 2021. The 10 pence per Ordinary Share decrease,
combined with dividends, means the total percentage share price
return for the year was +3.75% (2021: +16.7% and since IPO to date
+24.74%).
On 31 December 2022, the share price discount to NAV was 8.1%
which is slightly higher than the 6% maximum target and as a result
there were share buy backs conducted in December totalling 204,629
Ordinary Shares all of which were bought back at 85 pence per
Ordinary Share. After the period end a further 50,000 shares were
bought back at 85.5 pence per Ordinary Share. Over the life of the
Company a total of 4,638,222 Ordinary Shares have been acquired
through buy backs, all which are held in treasury. It is our target
during 2023 and the medium term to regain the premium rating of the
shares to NAV; and then the Company will divest these treasury
shares at a premium to NAV.
Portfolio overview
The overall portfolio size remained largely unchanged during the
year, closing out at GBP126 million of invested capital (2021:
GBP131 million) across 37 loans and 1 wholly owned asset (2021: 34
loans and 1 wholly owned asset).
Six new loans were made during the year, alongside further
drawdowns from existing facilities, and there were repayments and
divestments totalling c.GBP26m. The weighted average life of the
portfolio reduced from 2.3 years to 1.5 years which is reflective
of the desire to keep duration relatively short, providing the
optionality to redeploy capital at higher yields. The average yield
of the portfolio increased by 67bps, rising from 8.54% to
9.21%.
Overall, the credit quality of the portfolio improved as the
above- mentioned capital received from repayments and divestments
which was invested equally between senior secured and junior
secured investments was redeployed entirely in senior secured
investment loans. Further, these new investment loans generate an
additional c.300bps which will increase the dividend cover in the
near to medium term. The Investment Manager's report will go into
further detail, however, it is pleasing to note that out of the
three borrowers that were on the enhanced monitoring list as of the
start of the year, two have reached successful resolutions with
only one remaining. The Investment Manager is also seeking to
monetise the equity stake in Energie Fitness which was received
during the restructuring of the business post the initial Covid
wave in 2020. This was always scheduled to be a 3-year investment
horizon and despite a delayed real start due to extra lockdowns I
am pleased to report that this objective is broadly on track.
During the year the Board took the opportunity, when Covid
restrictions were relaxed, to visit several of the projects funded
by Shareholders. In July the Directors visited Trianco (Trent), an
energy efficiency manufacturer based in Rotherham and spent several
hours with management, discussing the business and touring the
factory.
Since the Company was launched in 2016, when we were able, the
Board has made an annual visit to RM Funds' offices in Edinburgh to
meet with staff and members of the investment committee who are
responsible for finding and vetting opportunities. This year we
took the opportunity to visit the development at Clyde Street in
Glasgow and meet the site managers before going on to
Edinburgh.
In January 2023 the Board made visits to Southport and Lytham to
visit two purpose-built care homes managed by Athena Healthcare
Group. These two care homes provide 277 beds and will help to
address the significant shortfall in adequate bed capacity for the
UK's elderly population.
The Board then travelled to Milton Keynes to visit the head
office of Energie Fitness to discuss the company's performance and
strategy. The Board also had the opportunity to visit two gym
franchisees nearby, one being the first franchisee to have opened
nearly 18 years ago and the second one being a recently opened
franchise.
In all cases the Directors were impressed by the level of
professionalism of all the managers of each of the businesses,
their enthusiasm and the relationship they have with RM Funds. In
2023 the Board intends to visit many more of the projects funded by
Shareholders.
Committed to responsible investing
The Board and the Investment Manager have long been committed to
high ESG standards and to responsible investing. The refreshed
investment focus towards social and environmental infrastructure
sectors enhances this commitment through investment in assets at
the forefront of providing essential services to society. RM Funds'
Responsible Investing Investment Policy ensures that these
considerations are integrated into each individual investment
process and the alignment of the portfolio to achieving
contributions towards outcomes linked to UN Sustainable Development
Goals 3, 4, 7, 11, 12 & 13.
The Board and the Investment Manager seek to understand and
report to investors on the impact their capital has made to society
and the planet. We have therefore engaged The Good Economy ("TGE")
as the impact reporting and assurance partner for RMII. The first
Impact Report was released in the Spring of 2022 (
www.rm-funds.co.uk/
responsible-investing-4/responsible-investing-3/ ) and the second
impact report is scheduled for release during Q2 of 2023.
The Company will continue to target social good, and it is
pleasing to see new transactions being committed to over the period
contained sustainability-linked lending covenants which incentivise
the borrower to achieve social and environmental outcomes as
measured against specific objectives for each loan.
Outlook
Due to the increase in credit spreads and higher government bond
yields the Investment Manager is making new loans at higher levels
increasing the average portfolio yield. The portfolio average yield
rose by 67bps over 2022 and this is set to rise further over 2023
thus generating additional net interest income. We therefore expect
this to increase the level of dividend cover allowing for higher
distributions absent of an increase in credit losses.
We are therefore seeking to target distribution for 2023 to be
at least 7 pence per Ordinary Share which is a 7.7% increase in
income for Shareholders over the distributions received in 2022.
Using the share price at the time of writing of 84 pence per share
this would equate to a dividend yield more than 8.33% and
represents an increase of 68bps over the dividend yield of 7.65%
based on the closing share price as at 31 December 2022.
Over the course of the financial year, the Company has operated
in very challenging conditions. The discount levels at which our
shares have traded at have been a function of rising yields. We
recognised the issues and are seeking to address them by increasing
the portfolio yield to higher, more attractive levels. Given our
portfolio and the market backdrop in which we operate, this will
naturally take some time. As detailed above, we expect the income
yield paid to Shareholders to be higher than previously paid and we
hope this increases the attractiveness of the shares, goes some way
to addressing the discount we currently trade at and help restore
the premium rating I targeted in last year's report.
Notwithstanding that, on the 12 May 2021 the Company announced that
if the shares trade at more than an average of zero percent
discount for the six-month period to 31 March 2023, that a
liquidity consultation process will take place prior to the AGM to
be held on 30 May 2023.
In preparing the financial statements we have considered the
upcoming liquidity opportunity consultation. As this consultation
will not conclude until after the approval of these financial
statements it means that there is material uncertainty over the
going concern of the Company. The Board will honour that commitment
and our brokers will consult with Shareholders shortly. We hope
that Shareholders can take a longer-term view, recognise the
increased dividend target, see the value within the portfolio and
allow the Investment Manager to continue to invest in attractive
opportunities on your behalf.
I look forward to continued engagement with Shareholders. Please
do not hesitate to contact me through our brokers Singer Capital
Markets or Peel Hunt if any additional information is required.
Norman Crighton
Chair
25 April 2023
INVESTMENT MANAGER'S REPORT
Strong and sustainable NAV & income performance
Over the course of the year, the portfolio generated a NAV Total
Return of 4.98%, with total dividend distributions attributable to
Shareholders for the year totalling 6.5 pence per Ordinary Share.
Overall, the NAV per Ordinary Share decreased from 94.41 pence per
Ordinary Share at 31 December 2021 to 92.49 pence per Ordinary
Share at 31 December 2022. Over the past two years from January
2021 the Company has generated annualized NAV percentage Total
Returns of 12.98% per annum and since IPO 5.49%, demonstrating the
stable income and capital preservation which the Company is seeking
to deliver for Investors.
Following the year end, an interim dividend in respect of the
period from 1 October 2022 to 31 December 2022 was declared on 1
March 2023 and was paid to Shareholders on the 31 March 2023. These
dividends totalling 6.5 pence per Ordinary Share for the year ended
31 December 2022 bring the total distributions since the Company's
launch in December 2016 to 37.225 pence per Ordinary Share,
exceeding the target set at IPO.
The portfolio yield increased by 72bps over the period and this
increase is expected to continue over 2023 as any new loans are
made with higher coupons. The Investment Manager has recommended to
the Board that, absent of any increase in credit losses, the
dividend can be increased to at least 7 pence per share for the
period of 2023 and beyond if these favourable lending conditions
persist.
Financial performance
Total income of GBP10.8m (2021: GBP11.2m) was marginally ahead
of budget whilst expenses at GBP2.20m were marginally below budget
leading to a profit before interest and tax of GBP8.6m, GBP429,000
ahead of budget. Set against this OakNorth Bank RCF costs were
higher than budget with high utilisation combined with an increase
in the cost of funds due to Bank of England Base Rate increases.
Overall this led to a Profit after Interest cost that was
GBP172,000 behind budget, a negative variance of 2.2% to budget.
Given the challenging year and the provisions recorded versus
income recognition the Investment Manager believes this is a
satisfactory result.
The split between cash interest and Payment-in-Kind interest was
respectively GBP7.9m and GBP2.8m, or 74% / 26%. To note that the
way construction facilities were underwritten during the reporting
period, meant that drawdown under the allocated interest reserve
accounts were considered PIK interest, which optically looks less
favourable than in previous years, though providing significant
benefits regarding the running yield on committed construction
facilities. When these above-mentioned construction facilities are
removed from the analysis, then the Cash / PIK split looks more
favourable versus 2021.
For the year ended 31 December 2022
Income GBP10,768,337
--------------------------- ----------------
Total expenses (GBP2,201,431)
=========================== ================
Finance costs (GBP1,102,169)
=========================== ================
Total GBP7,464,737
=========================== ================
Dividends (GBP7,655,526)
=========================== ================
Loss after interest costs (GBP190,789)
& before tax
=========================== ================
There were four dividends paid or declared in respect of the
year ended 31 December 2022 totalling 6.5 pence per Ordinary
Share.
Period Payment date Dividend proceeds
========= =================== ===================
Q1 2022 24 June 2022 GBP1,914,916
========= =================== ===================
Q2 2022 30 September 2022 GBP1,914,916
========= =================== ===================
Q3 2022 30 December 2022 GBP1,914,916
========= =================== ===================
Q4 2022 31 March 2023 GBP1,910,778
========= =================== ===================
During the year ended 31 December 2022, GBP376,949 was treated
as income but written down as a bad debt provision, thus not
included in the 2022 revenue line item. This provision was taken
because the timing of the income receipt is uncertain and there is
uncertainty over the recoverability of such income. In total the
Company balance sheet now has GBP1.159m of income provisions.
Share price performance
Negative share price performance combined with the widening of
the share price premium to NAV from 0.6% at the year ended 31
December 2021 to -8.10% at the year ended 31 December 2022 meant
that there was a negative share price total return of -3.75%. Since
IPO the Total percentage share return achieved is 24.74% which is
annualised since inception at 3.81% per annum.
This performance needs to be set against the wider negative
market backdrop for fixed income and comparables to the broader
sector peers.
Market environment
In the 2021 annual report outlook we noted "as we look into 2022
it is likely that there will be further upwards pressure on
government bond yields as inflationary pressures remain and central
banks move into a tightening phase... negative outlook for general
fixed income markets... credit spreads will likely move wider over
the coming year." All of this played out over the course of 2022
which was indeed a very difficult environment for credit, rates,
and equities. The RMII portfolio was appropriately positioned with
short duration exposure that minimised these wider credit spreads
and higher underlying government bond yields.
The ITRX Markit Crossover index widened from circa 250 to nearly
700 post the mini budget in September and ended the year materially
wider than where it started at circa 450. 2-year UK government bond
yields started the year comfortably under 1% and peaked at over
4.5% in late September and closed out the year at over 3.5%.
The RMII portfolio did not suffer the volatility seen within
these markets, however general fair value mark downs were taken
during the year to reflect the widening in credit spreads and the
increase in government bond yields.
Portfolio performance
Portfolio credit metrics improved over the year as measured by
the proportion of senior loans and CBILS/RLS versus junior debt. As
at the year end the portfolio was 63% invested within these types
of loans versus 61% at the year ended 31 December 2021. The average
life of the loan book reduced to 1.5 years as at the year-end
(2021: 2.3 years) reflecting the continued strategic decision for
the duration of the portfolio to remain as short as practically
possible. As described on the last annual report such short
duration minimises exposure to these continued inflationary
pressures described above and is a key reason why RMII should offer
an attractive proposition as an alternative credit investment
versus more traditional corporate bond funds that typically are
lower yielding with longer durations.
As at 31 December 2022, the overall number of loans within the
portfolio remained relatively stable with 37 loans and 1 wholly
owned asset (2021: 34 loans and 1 wholly owned asset) and total
invested capital of GBP126m (2021: GBP131m).
The weighted average yield of the portfolio stood at 9.21% as at
31 December 2022, which is a 67bps uplift versus the previous year
of 8.54% as at 31 December 2021. This has been driven by the
Company's ability to redeploy loan repayments into higher yielding
investments, with new loans over the year earning an additional
c.300bps versus the repaid loans. As most of these new investments
were made in the second half of 2022 and is ongoing, investors
should see the full effect over the course of 2023.
It was an active year for the portfolio with new investments
totalling c.GBP5.6m, drawdowns to existing facilities and
re-investments totalling c.GBP15.5m and several repayments and
divestments that totalled c.GBP26m during the year.
During the year, the Company completed on its first ESG
sustainability- linked investment via a c.GBP6.2m senior secured
investment for the construction of a 45-bed modern purpose-built
care home near London. The loan contains a margin ratchet, which is
linked to environmental building standards, and operational and
governance conditions which align with the Company's ESG reporting
framework and its desire to address certain sustainable development
goals. Going forward and where applicable, the Company will look to
further introduce sustainability and other ESG considerations
linkage to the applicable margin.
The Company has contributed meaningfully to the provision of
modern, purpose built and fit for purpose aged care capacity as two
new sites in the northwest of England totalling 277 beds, funded by
RMII were satisfactorily completed or nearing completion at the
year end.
The exposure to core sectors as measured by their commitments
has increased to 59.1%. as at 31 December 2022 vs 47.5% as of 31
December 2021. This inevitably will further increase over the
course of 2023 as non-core sector investments come to maturity and
are prepaid, with the most imminent one being the Company's
asset-backed investments (c.11% of capital invested as at 31
December 2022).
The Company's approach regarding the conservative valuation of
its investments remains unchanged with fair value mark downs worth
approximately GBP5.8m or c.5 pence per Ordinary Share. These
provisions are driven by what is defined as market risk and
idiosyncratic risk. For market risk during 2022 as risk free rates
rose and credit spreads widened it was sensible to widen yields
across the portfolio to reflect such public market moves.
Idiosyncratic risk refers to loan specific information which is
reflected within specific loan pricing. Over 2022 provisions were
increased to reflect the wider markets and idiosyncratic risks and
this was in line with our approach during the Covid Pandemic of
2020 - our view is that fair value mark downs are likely to
partially reverse over the course of 2023 as market conditions
stabilise.
These fair value mark downs are in addition to the income
provisions totalling GBP1.159m, or c.1 pence per Ordinary Share,
described above.
During the year the number of investments on the enhanced
monitoring list dropped from three to one, as outlined below:
1.Removed from enhanced monitoring: Trent Capital
(Loan reference 62 & 63)
Reduced leverage with c.GBP2.2m recovered via revenues from
residential properties against which the Company had a secured
charge with further modest deleveraging expected over 2023.
Performance wise, the operating business Trianco has been
performing profitably since the restructuring and is well
positioned to thrive on the UK's agenda to meet its net zero
objectives.
Although the performance of the business has been encouraging,
the full credit provisions worth c.GBP0.7m, or c.0.8 pence per
ordinary share have been retained.
2.Removed from enhanced monitoring: Coventry PBSA property
(Loan reference 68)
This Coventry-based student accommodation property is fully
owned by the Company, post its lender-led administration in 2021.
Cladding remedial works have now been fully completed with
occupancy at c.65% and expected near full occupancy for the next
academic year of 2023/24. Now that this has been rehabilitated the
Company is pursuing a legal claim against the former main
contractor to recover all costs and loss of income incurred to
date, these claims have not been accounted for within the NAV of
RMII.
3. Still under enhanced monitoring: Hotel Development &
Contractor Glasgow
(Loan reference 58, 79, 80 & 92)
This hotel was scheduled to open in June 2022 and has been
delayed to April 2023 and is to be operated by Virgin Hotels under
a 35-year Hotel Management Agreement. The total market value
exposure that is correlated to the outcome of this asset is
currently 10.6% of Company net assets. Credit provisions of GBP2.8m
or c.2.4 pence per ordinary share were made.
Responsible investing
RM Funds is a signatory to the Principles for Responsible
Investment ("PRI"). The PRI defines responsible investment as a
strategy and practice to incorporate environmental, social and
governance factors in investment decisions.RM Funds incorporates
ESG criteria early on as part of the investment process and in
addition there is active engagement wherever possible with
portfolio Companies to help them improve their ESG processes. In
practice this is delivered by the RM Funds Responsible Investing
Investment Policy which is integral to RM's business philosophy as
we believe we can make a difference. This policy framework applies
to all investment made by RM Funds and is governed by our
principals and our commitments:
Our principles
> Respect for the internationally proclaimed human rights
principles, equal opportunity independent of gender, race or
religion; freedom of association and the right to bargain
collectively;
> Working conditions that surpass basic health and safety standards;
> The conduct of good governance practices, in particular in
relation to bribery and conflicts
of interest; and
> Environmental responsibility and responsibility to active climate change engagement.
Our commitments
> Integrate the above principles into our decision-making
process, by carefully considering ESG issues associated with any
potential investment during the due diligence phase;
> Encourage portfolio companies to follow the above
principles by implementing governance structures that provide
appropriate level of oversight and by seeking disclosure on ESG
issues;
> Provide ESG training and support to RM Fund's employees
involved in the investment process, so that they may perform their
work in accordance with the above principles and with this
policy;
> Seek to be transparent in our efforts to integrate ESG
considerations in investments and annually report on progress
towards implementing the above principles;
> Comply with national and other applicable laws; and
> Help promote the implementation of the above principles;
consider our alignment with other related conventions and standards
set by Invest Europe, the UN Global Compact Initiative and the UN
Principles for Responsible Investment (PRI); continuously strive to
improve ESG performance within RM and our portfolio companies.
Investment Manager aligned to investor interests
At the IPO RM Funds purchased 500,000 Ordinary Shares and in
line with the commitment to investors made at IPO has made an
ongoing commitment and by purchasing RMII shares, the Investment
Manager has shown a significant alignment of its interests with
Shareholders. In addition to this the management team own
additional shares in a personal capacity.
RM Funds has continued to purchase Ordinary Shares of the
Company during the year and at the year-end RM Funds own 1,316,625
Ordinary Shares, which is an increase of 37,500 Ordinary Shares
over the year.
Outlook for 2023
As described earlier in the report, 2022 was a very poor year
for fixed income markets. The stage is set for a better 2023 and
with 2-year UK government bond yields touching 4% and wider credit
spreads and corporate bond yields look appealing in the short end.
The Company is now able to recycle its capital and earn higher
returns which absent of an increase in credit losses should allow
for greater distributions for investors. This is therefore a
promising outlook with potentially higher dividends and set against
uncertain equity valuations such a stable income and NAV as
targeted by RMII should appeal to a wide number of investors.
RM Capital Markets Limited
25 April 2023
INVESTMENT POLICY, RESULTS AND OTHER INFORMATION
Investment objective
The Company aims to generate attractive and regular dividends
through investment in secured debt instruments of UK SMEs and
midmarket corporates and/or individuals including any loan,
promissory notes, lease, bond, or preference share (such debt
instruments, as further described below, being "Loans") sourced or
originated by the Investment Manager with a degree of inflation
protection through index-linked returns where appropriate.
Investment policy
The Company will seek to meet its investment objective by making
investments in a diversified portfolio of Loans to UK SMEs and mid
market corporates, special purpose vehicles and/or to individuals.
These Loans will generally be, but not limited to, senior,
subordinated, uni-tranche and mezzanine debt instruments,
documented as loans, notes, leases, bonds or convertible bonds.
Such Loans shall typically have a life of 210 years. In certain
limited cases, Loans in which the Company invests may have equity
instruments attached, ordinarily any such equity interests would
come in the form of warrants or options attached to a Loan.
Typically the Loans will have coupons which may be fixed,
index-linked or LIBOR linked.
For the purposes of this investment policy, UK SMEs include
entities incorporated outside of the UK provided their assets and/
or principal operations are within the UK. The Company is permitted
to make investments outside of the UK to midmarket corporates.
Loans will be directly originated or sourced by the Investment
Manager who will not invest in Loans sourced via or participations
through, peer to peer lending platforms.
Loans in which the Company invests will be predominantly secured
against assets such as real estate or plant and machinery and/or
income streams such as account receivables.
The Company will make Loans to borrowers in a range of Market
Sectors within certain exposure limits which will vary from time to
time, according to market conditions and as determined by the
Board, subject to the Investment Restrictions set out below.
The Company will at all times invest and manage its assets in a
manner which is consistent to the spreading of investment risk.
Investment restrictions
The following investment limits and restrictions will apply to
the Company's Loans and business which, where appropriate, shall be
measured at the time of investment or once the Company is fully
invested:
> the amount of no single Loan shall exceed 10% of Gross Assets;
> exposure to a single borrower shall not exceed 10% of Gross Assets;
> loans will be made across not less than four Market Sectors;
> not less than 70% of Gross Assets will be represented by
Loans denominated in sterling or hedged back to sterling;
> loans made to borrowers in any one Market Sector shall not exceed 40% of Gross Assets;
> loans with exposure to project development/construction
assets shall not exceed 20% of Gross Assets;
> the Company will not provide Loans to borrowers whose
principal business is defence, weapons, munitions or gambling;
> the Company will not provide Loans to borrowers which
generate their annual turnover predominantly from tobacco, alcohol
or pornography; and
> the Company will not invest in other listed closed-ended funds.
In the event of a breach of the investment guidelines and
restrictions set out above, the Investment Manager shall inform the
Board upon becoming aware of the same and if the Board considers
the breach to be material, notification will be made to a
Regulatory Information Service and the Investment Manager will look
to resolve the breach with the agreement of the Board.
The Company intends to conduct its affairs so as to qualify as
an investment trust for the purposes of section 1158 of the
Corporation Tax Act 2010, and its investment activities will
therefore be subject to the restrictions set out above.
Borrowing and gearing
The Company intends to utilise borrowings for investment
purposes as well as for share buybacks and short term liquidity
purposes. Gearing represented by borrowings, including any
obligations owed by the Company in respect of an issue of zero
dividend preference shares (whether issued by the Company or any
other member of its group) or any third party borrowings, will not,
in aggregate exceed 20% of Net Asset Value calculated at the time
of drawdown.
Hedging and derivatives
The Company may invest in derivatives for efficient portfolio
management purposes. In particular the Company can engage in
interest rate hedging. Loans will primarily be denominated in
sterling, however the Company may make limited Loans denominated in
currencies other than sterling and the Board, at the recommendation
of the Investment Manager, may look to hedge any other currency
back to sterling should they see fit.
In accordance with the requirements of the UK Listing Authority,
any material change to the Company's investment policy will require
the approval of Shareholders by way of an ordinary resolution at a
general meeting.
Dividend policy
Dividends are expected to be declared by the Directors in May,
August, November and February of each year in respect of the
preceding quarter with dividends being paid in June, September,
December and March.
The last dividend in respect of any financial year is declared
prior to the relevant annual general meeting. Therefore, it is
declared as a fourth interim dividend and no final dividend is
payable. The Board understands that this means that Shareholders
will not be given the opportunity to vote on the payment of a final
dividend. However, the Board believe that the payment of a fourth
interim dividend as opposed to a final dividend is in the best
interests of Shareholders as it provides them with regularity on
the frequency of dividend payments and avoids the delay to payment
which would result from the declaration of a final dividend. A
resolution will be put forward at the Annual General Meeting to
approve the policy of declaring and paying all dividends of the
Company as interim dividends.
The Company targeted an annualised dividend yield in excess of
6.5% for the financial year to 31 December 2022.
Investors should note that the targeted annualised dividends are
targets only and not profit forecasts and there can be no assurance
that either will be met or that any dividend growth will be
achieved.
Results and dividend
The Company's revenue return after tax for the year ended 31
December 2022 amounted to GBP7,462,000 (2021: GBP7,742,000). The
Company made a capital loss after tax of GBP2,072,000 (2021:
capital profit of GBP1,263,000). Therefore, the total return after
tax for the Company was GBP5,390,000 (2021: GBP9,005,000).
The first interim dividend of 1.625p per Ordinary Share was
declared on 25 May 2022 in respect of the period from January to
March 2022. The second interim dividend of 1.625p per Ordinary
Share for the quarter ended 30 June 2022 was declared on 3 August
2022 and the third interim dividend of 1.625p per Ordinary Share
for the quarter ended 30 September 2022 was declared on 1 November
2022. On 1 March 2023, the Board declared a fourth interim dividend
of 1.625 pence per Ordinary Share for the quarter to 31 December
2022.
Key performance indicators ("KPIs")
The Board measures the Company's success in attaining its
investment objective by reference to the following KPIs:
(i) Dividends
A fourth interim dividend for the quarter ending 31 December
2022 of 1.625p per share was paid to Shareholders on the 31 March
2023 bringing total payments for the year to 6.5p per share, thus
meeting the annual target.
(ii) Total return
The Company's total return is monitored by the Board. The
Ordinary Shares generated a NAV total return of +4.98% (2021:
+7.6%) in the year ended 31 December 2022.
(iii) Discount/premium to NAV
The discount/premium relative to the NAV per share represented
by the share price is closely monitored by the Board. The Ordinary
Share price closed at a 8.1% discount (2021: premium of 0.6%) to
the NAV as at 31 December 2022. To address the discount, 204,629
shares were bought back during the year at 85 pence per share. This
added 0.15 pence per Ordinary Share to the NAV. Following the
Company's year end, 50,000 shares have been bought back.
(iv) Control of the level of ongoing charges
The Board monitors the Company's operating costs. Based on the
Company's average net assets for the year ended 31 December 2022,
the Company's ongoing charges figure calculated in accordance with
the AIC methodology was 1.86% (2021: 1.92%).
RISK AND RISK MANAGEMENT
Principal and emerging risks and uncertainties
The Board is responsible for the management of risks faced by
the Company and delegates this role to the Audit and Management
Engagement Committee (the "Committee"). The Committee periodically
carries out a robust assessment of principal and emerging risks and
uncertainties and monitors the risks on an ongoing basis. The
Committee considers both the impact and the probability of each
risk occurring and ensures appropriate controls are in place to
reduce risk to an acceptable level. The experience and knowledge of
the Board is invaluable to these discussions, as is advice received
from the Board's service providers, specifically the AIFM who is
responsible for the risk and portfolio management services and
outsources the portfolio management to the Investment Manager. The
Committee has a dynamic risk matrix in place to help identify key
risks in the business and oversee the effectiveness of internal
controls and processes.
During the year under review the Committee was particularly
concerned with the increase in geopolitical risk following the
outbreak of war in the Ukraine. The subsequent rise in global
energy prices, inflation and rising interest rates worldwide have
led to a more uncertain investment environment. The Committee
continues to review the processes in place to mitigate risk; and to
ensure that these are appropriate and proportionate in the current
market environment.
The principal and emerging risks, together with a summary of the
processes and internal controls used to manage and mitigate risks
where possible are outlined in the following paragraphs.
(i) Market risks
Availability of appropriate investments
There is no guarantee that loans will be made in a timely
manner.
Before the Company is able to make or acquire loans, the
Investment Manager is required to complete necessary due diligence
and enter into appropriate legal documentation. In addition, the
Company may become subject to competition in sourcing and making
investments. Some of the Company's competitors may have greater
financial, technical and marketing resources or a lower cost of
capital and the Company may not be able to compete successfully for
investments. Competition for investments may lead to the available
interest coupon on investments decreasing, which may further limit
the Company's ability to generate its desired returns.
If the Investment Manager is not able to source a sufficient
number of suitable investments within a reasonable time frame
whether by reason of lack of demand, competition or otherwise, a
greater proportion of the Company's assets will be held in cash for
longer than anticipated and the Company's ability to achieve its
investment objective will be adversely affected. To the extent that
any investments to which the Company is exposed prepay, mature or
are sold it will seek to reinvest such proceeds in further
investments in accordance with the Company's investment policy.
Market sectors
Loans will be made to borrowers that operate in different market
sectors each of which will have risks that are specific to that
particular market sector.
Valuation
The Company's approach regarding the conservative valuation of
its investments remains unchanged, with fair value write downs
driven by market risk and idiosyncratic risk, with idiosyncratic
risk relating to loan specific information which is reflected
within specific loan pricing.
Management of risks
The Company has appointed an experienced Investment Manager who
directly sources loans. The Company is investing in a wide range of
loan types and sectors and therefore benefits from
diversification.
Investment restrictions are relatively flexible giving the
Manager ability to take advantage of diverse loan
opportunities.
For market risk during 2022 as risk free rates rose and credit
spreads widened, yields were widened across the portfolio to
reflect such public market moves.
Provisions were increased to reflect the wider market and
idiosyncratic risks and this was in line with the Company's
approach during the Covid-19 pandemic of 2020. Fair value mark
downs are expected to partially reverse over the course of 2023 as
market conditions stabilise.
The Investment Manager, AIFM, Brokers and the Board review
market conditions on an ongoing basis.
(ii) Risks associated with meeting the Company's investment
objective or target dividend yield
The Company's investment objective is to generate attractive and
regular dividends through investment in loans sourced or originated
by the Investment Manager and to generate capital appreciation by
virtue of the fact that the returns on some loans will be
index-linked. The declaration, payment and amount of any future
dividends by the Company will be subject to the discretion of the
Directors and will depend upon, amongst other things, the Company
successfully pursuing the investment policy and the Company's
earnings, financial position, cash requirements, level and rate of
borrowings and availability of profit, as well as the provisions of
relevant laws or generally accepted accounting principles from time
to time.
Management of risks
The Investment Manager has a well-defined investment policy and
process which is regularly and rigorously reviewed by the
independent Board of Directors and performance is reviewed at
quarterly Board meetings. The Investment Manager is experienced and
employs its expertise in making investments in a diversified
portfolio of loans. The Investment Manager has a target portfolio
yield which covers the level of dividend targeted by the Company.
The Board reviews the position at Board meetings.
(iii) Financial risks
The Company's investment activities expose it to a variety of
financial risks which include liquidity, currency, leverage,
interest rate and credit risks.
Further details on financial risks and the management of those
risks can be found in note 19 to the financial statements.
(iv) Corporate governance and internal control risks
The Company has no employees, and the Directors have all been
appointed on a non-executive basis. The Company must therefore rely
upon the performance of third-party service providers to perform
its executive functions. In particular, the AIFM, the Investment
Manager, the Administrator, the Company Secretary and the
Registrar, will perform services that are integral to the Company's
operations and financial performance.
Poor performance of the above service providers could lead to
various consequences including the loss of the Company's assets,
inadequate returns to Shareholders and loss of investment trust
status. Cyber security risks could lead to breaches of
confidentiality, loss of data records and inability to make
investment decisions.
Management of risks
Each of the above contracts was entered into after full and
proper consideration of the quality and cost of services offered,
including the financial control systems in operation in so far as
they relate to the affairs of the Company. All of the above
services are subject to ongoing oversight of the Board and the
performance of the principal service providers is reviewed on a
regular basis. The Company's key service providers report
periodically to the Board on their procedures to mitigate cyber
security risks.
(v) Regulatory risks
The Company and its operations are subject to laws and
regulations enacted by national and local governments and
government policy. Compliance with, and monitoring of, applicable
laws and regulations may be difficult, time consuming and costly.
Any change in the laws, regulations and/or government policy
affecting the Company or any changes to current accountancy
regulations and practice in the UK may have a material adverse
effect on the ability of the Company to successfully pursue its
investment policy and meet its investment objective and/or on the
value of the Company and the shares. In such event, the performance
of the Company, the NAV, the Company's earnings and returns to
Shareholders may be materially adversely affected.
Management of risks
The Company has contracted out relevant services to
appropriately qualified professionals. The Secretary and AIFM
report on compliance matters to the Board on a quarterly basis and
the Board has access to the advice of its Corporate Broker on a
continuing basis. The assessment of regulatory risks forms part of
the Board's risk assessment programme.
Emerging risks
The Board also has robust processes in place to identify and
evaluate emerging risks.
(vi) Business interruption
Failure in services provided by key service providers, meaning
information is not processed correctly or in a timely manner,
resulting in regulatory investigation or financial loss, failure of
trade settlement, or potential loss of investment trust status.
Failure to identify emerging risks may cause reactive actions
rather than being proactive and the Company could be forced to
change its structure, objective or strategy and, in worst case,
could cause the Company to become unviable or otherwise fail.
The ongoing impact of COVID-19 on the markets and the Company's
financial position continue to be monitored by the Investment
Manager and the Board.
During the year under review the Committee was particularly
concerned with the increase in geopolitical risk following the
outbreak of war in the Ukraine. The subsequent rise in global
energy prices, inflation and rising interest rates worldwide have
led to a more uncertain investment environment. The Company's
portfolio has no direct exposure to Russia or Ukraine and the
Company's cash position remains robust, however the impact of
sanctions and exposure via the underlying businesses of
multinational companies can have a material impact on investment
returns.
Management of risks
Each service provider has business continuity policies and
procedures in place to ensure that they are able to meet the
Company's needs and all breaches of any nature are reported to the
Board.
The following is a description of the Company's service
providers who assist in identifying the Company's emerging risks to
the Board.
1. Investment Manager: the Investment Manager provides a report
to the Board at least quarterly on industry trends, insight to
future challenges in the sector, including the regulatory,
political and economic changes likely to impact the Company. The
Chair also has contact with the Investment Manager on a regular
basis to discuss any pertinent issues;
2. Alternative Investment Fund Manager: the AIFM maintains a
register of identified risks including emerging risks likely to
impact the Company, which is updated quarterly following
discussions with the Investment Manager and other service
providers. The risks are documented on a risk register, and
classified in the following categories: Market Risks; Risks
associated with Investment Objective; Financial Risks; Corporate
Governance Risks; Regulatory Risks and Emerging Risks. Any changes
and amendments to the risk register are highlighted to the Board on
a quarterly basis;
3. Brokers: provide advice periodically, specific to the Company
on the Company's sector, competitors and the investment company
market whilst working with the Board and Investment Manager to
communicate with Shareholders;
4. Company Secretary: briefs the Board on forthcoming
legislation and regulatory change that might impact the Company.
The Secretary also liaises with the Company's Legal Adviser,
Auditor and the AIC (including other regulatory bodies) to ensure
that industry and regulatory updates are brought to the Board's
attention.
The Board regularly reviews the Company's risk matrix, focussing
on risk mitigation and ensuring that the appropriate controls are
in place. Regular review ensures that the Company operates in line
with the risk matrix, prospectus and investment strategy. Emerging
risks are actively discussed throughout the year to ensure that
risks are identified and managed so far as practicable. The
experience and knowledge of the Board is invaluable to these
discussions, as is advice received from the Board's service
providers.
All key service providers produce annual internal control
reports for review by the Audit and Management Engagement
Committee. These reviews include consideration of their business
continuity plans and the associated cyber security risks. Service
providers report on cyber risk mitigation and management at least
annually, which includes confirmation of business continuity
capability in the event of a cyberattack. Penetration testing is
carried out by the Investment Manager and key service providers at
least annually. Details of the Directors' assessment of the going
concern status of the Company, including consideration of the
uncertainty resulting from the upcoming consultation on a liquidity
opportunity consultation, is given in the Annual Report. The
Investment Manger complies with all sanctioning regimes and
presently views Russia as uninvestable.
(vii) ESG and Climate Change
The impact of climate change has come increasingly into focus
and is considered an emerging risk by both the Board and its
Investment Manager. While the Company itself faces limited direct
risk from climate change, the Company's underlying holdings
selected by the Investment Manger are impacted. While efforts to
mitigate climate change continue, the physical impacts are already
emerging in the form of changing weather patterns. Extreme weather
events can result in flooding, drought, fires, storm damage,
potentially impairing the operations of a portfolio company at a
certain location, or impacting locations of companies within their
supply chain. Significant changes in climate, or the Government
measures to combat it, could present a material risk to the
Company. There is also potential reputational damage from
non-compliance with regulations or incorrect disclosures.
Management of risks
The Company incorporates ESG considerations into its investment
process and more detail can be found in the Annual Report. The
Investment Manager also uses its position to engage with and
influence companies towards taking positive steps to contribute to
ESG and against climate change. The Company's ESG Policy, which is
updated annually is also published on the Company's website and the
AIC website. The Board have considered the impact of climate change
on the financial statements as documented in the Notes to the
financial statements.
The Company released its first annual Impact Report provided by
The Good Economy, an independent advisory firm specialising in
impact measurement and management. The Report, covering the
12-month period to end March 2022, assesses the Company's 12-month
performance against its stated impact objectives relating to UN
Sustainable Development Goals: Healthcare, Education, Housing,
Affordable and clean energy, Climate action and Responsible
consumption and production.
RM Funds is a signatory to the Principles of Responsible
Investment Initiative ("PRI") and reports annually according to the
PRI reporting framework.
Investment trusts are currently exempt from the Task Force on
Climate-Related Financial Disclosures ("TCFD") disclosure, however
the Board will continue to monitor the situation.
DIRECTORS' RESPONSIBILITY STATEMENT
The Directors are responsible for preparing the annual report
and the financial statements in accordance with applicable United
Kingdom law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have elected to prepare the company financial statements in
accordance with UK- adopted international accounting standards.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of the profit or
loss of the Company for that period.
In preparing these financial statements the Directors are
required to:
> select suitable accounting policies in accordance with IAS
8 Accounting Policies, Changes in Accounting Estimates and Errors
and then apply them consistently;
> make judgements and accounting estimates that are reasonable and prudent;
> present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
> provide additional disclosures when compliance with the
specific requirements of UK-adopted international accounting
standards is insufficient to enable users to understand the impact
of particular transactions, other events and conditions on the
financial position and financial performance;
> in respect of the financial statements, state whether
UK-adopted international accounting standards, have been followed,
subject to any material departures disclosed and explained in the
financial statements; and
> prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the Companies' Act 2006. They
are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a strategic report, Directors' report,
Directors' remuneration report and corporate governance statement
that comply with that law and those regulations. The Directors are
responsible for the maintenance and integrity of the corporate and
financial information included on the Company's website.
Directors' responsibility statement
The Directors each confirm to the best of their knowledge
that:
(a) the financial statements, prepared in accordance with
applicable accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit of the Company;
and
(b) this Annual Report, including the strategic report, includes
a fair review of the development and performance of the business
and position of the Company, together with a description of the
principal risks and uncertainties that it faces.
The Directors consider that the financial statements are fair,
balanced and understandable and provide the information necessary
for Shareholders to assess the Company's performance, business
model and strategy.
For and on behalf of the Board
Norman Crighton
Chair
25 April 2023
FINANCIAL STATEMENTS
Company statement of comprehensive income
For the year ended 31 December 2022
Year ended 31 December 2022 Year ended 31 December 2021
Revenue Capital Total Revenue Capital Total
==============================
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============================== ===== ======= ======= ======= ======= ======= =======
(Losses)/gains on investments 3 - (2,072) (2,072) - 1,263 1,263
Income 4 10,768 - 10,768 11,164 - 11,164
Investment management fee 5 (971) - (971) (1,013) - (1,013)
Other expenses 6 (1,230) - (1,230) (1,598) - (1,598)
============================== ===== ======= ======= ======= ======= ======= =======
Return before finance costs
and taxation 8,567 (2,072) 6,495 8,553 1,263 9,816
Finance costs 7 (1,102) - (1,102) (797) - (797)
============================== ===== ======= ======= ======= ======= ======= =======
Return on ordinary activities
before taxation 7,465 (2,072) 5,393 7,756 1,263 9,019
Taxation 8 (3) - (3) (14) - (14)
============================== ===== ======= ======= ======= ======= ======= =======
Return on ordinary activities
after taxation 7,462 (2,072) 5,390 7,742 1,263 9,005
============================== ===== ======= ======= ======= ======= ======= =======
Return per ordinary share
(pence) 14 6.33p (1.76p) 1.15p 6.56p 1.07p 7.63p
============================== ===== ======= ======= ======= ======= ======= =======
The total column of this statement is the profit and loss
account of the Company.
All the revenue and capital items in the above statement derive
from continuing operations.
'Return on ordinary activities after taxation' is also the Total
comprehensive income for the year.
The notes form an integral part of these financial
statements.
Statement of financial position
As at 31 As at 31
December 2022 December
Notes GBP'000 2021
GBP'000
====================================== ======= ============== =========
Fixed assets
Investments at fair value through
profit or loss 3 119,970 126,674
Current assets
Cash and cash equivalents 2,993 3,310
Receivables 9 5,421 2,684
====================================== ======= ============== =========
8,414 5,994
Payables: amounts falling due within
one year
Payables 10 (2,308) (1,847)
Bank loan - Credit facility 11 (17,271) (19,571)
====================================== ======= ============== =========
(19,579) (21,418)
====================================== ======= ============== =========
Net current liabilities (11,165) (15,424)
====================================== ======= ============== =========
Total assets less current liabilities 108,805 111,250
====================================== ======= ============== =========
Net assets 108,805 111,250
====================================== ======= ============== =========
Capital and reserves: equity
Share capital 12 1,176 1,178
Share premium 13 70,168 70,168
Special reserve 44,640 44,813
Capital reserve (10,221) (8,149)
Revenue reserve 3,042 3,240
====================================== ======= ============== =========
Total shareholders' funds 108,805 111,250
====================================== ======= ============== =========
NAV per share - Ordinary Shares
(pence) 15 92.49p 94.41p
====================================== ======= ============== =========
The financial statements of the Company were approved and
authorised for issue by the Board of Directors on 25 April 2023 and
signed on their behalf by:
Norman Crighton
Chair
Registered in England and Wales with registered number
10449530.
The notes form an integral part of these financial
statements.
Statement of changes in equity
For the year ended 31 December
2022
Share Share Special Capital Revenue
capital premium reserve reserve reserve Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=============================== ===== ======= ======= ======= ======== ======= =======
Balance as at beginning
of the year 1,178 70,168 44,813 (8,149) 3,240 111,250
Return on ordinary activities - - - (2,072) 7,462 5,390
Buy back of shares 12 (2) 2 (173) - - (173)
Share buy back costs - (2) - - - (2)
Transfer to capital reserves - - - - - -
reserve
Dividend paid 16 - - - - (7,660) (7,660)
=============================== ===== ======= ======= ======= ======== ======= =======
Balance as at 31 December
2022 1,176 70,168 44,640 (10,221) 3,042 108,805
=============================== ===== ======= ======= ======= ======== ======= =======
For the year ended 31 December
2021
Share
Share premium Special Capital Revenue
capital account reserve reserve reserve Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=============================== ===== ======= ======= ======= ======= ======= =======
Balance as at beginning
of the year 1,184 70,168 45,277 (9,412) 3,167 110,384
Return on ordinary activities - - - 1,263 7,742 9,005
Buy back of shares 12 (6) 6 (464) - - (464)
Shares buy back costs - (6) - - - (6)
Dividend paid 16 - - - - (7,669) (7,669)
=============================== ===== ======= ======= ======= ======= ======= =======
Balance as at 31 December
2021 1,178 70,168 44,813 (8,149) 3,240 111,250
=============================== ===== ======= ======= ======= ======= ======= =======
Distributable reserves comprise: the revenue reserve; capital
reserve attributable to realised profits; and the special
reserve.
The capital reserves attributable to realised profits for the
year ended 31 December 2021 and 2022 are in a net loss
position.
Share capital represents the nominal value of shares that have
been issued. The share premium includes any premiums received on
the issue of share capital. Any transaction costs associated with
the issuing of shares are deducted from share premium.
The notes form an integral part of these financial
statements.
Statement of cash flows
For the year ended 31 December 2022
Year ended
31 December Year ended
Notes 2022 31 December
GBP'000 2021
GBP'000
============================================== ======= ============= =============
Operating activities
Return on ordinary activities before finance
costs and taxation* 6,495 9,816
Adjustments for movements not generating
an operating cash flow:
Adjustment for losses/(gains) on investments 1,802 (823)
Adjustment to amortisation costs - 114
PIK adjustments to the operating cash flow (2,466) (2,539)
Adjustments for balance sheet movements:
(Increase)/decrease in receivables (2,737) 484
Increase/(decrease) in payables 458 (812)
============================================== ======= ============= =============
Net cash flow from operating activities 3,552 6,240
============================================== ======= ============= =============
Investing activities
Private loan repayments/bonds sales proceeds 25,784 56,292
Realisation of investment in subsidiary
- non cash adjustment - 50
Private loans issued/bonds purchases (18,416) (44,582)
Purchase of equity investments - (5,100)
============================================== ======= ============= =============
Net cash flow from investing activities 7,368 6,660
============================================== ======= ============= =============
Financing activities
Finance costs (1,102) (684)
ZDP loan principal and accumulated interest
paid - (12,056)
Ordinary Share bought back 12 (173) (464)
Ordinary Share buyback costs (2) (6)
OakNorth loan facility drawdown 12,550 30,071
OakNorth loan facility repaid (14,850) (21,000)
Equity dividends paid 16 (7,660) (7,669)
============================================== ======= ============= =============
Net cash flow used in financing activities (11,237) (11,808)
============================================== ======= ============= =============
(Decrease)/Increase in cash (317) 1,092
Opening balance at beginning of the year 3,310 2,218
============================================== ======= ============= =============
Balance as at 31 December 2022 2,993 3,310
============================================== ======= ============= =============
* Cash inflow from interest on investment
holdings was GBP8,396,000 (31 December 2021:
GBP9,561,000).
The notes form an integral part of these
financial statements.
Changes in financing liabilities
Movement in financial liabilities OakNorth Intercompany OakNorth Intercompany
facility loan facility loan
--------- ------------ --------- ------------
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- --------- ------------ --------- ------------
Balance as at beginning of the
year 19,571 - 10,500 11,942
Facility drawdowns during the
year 12,550 - 30,071 -
Facility interest payable during
the year 1,102 - 595 -
Facility and interest repayments
during the year (15,952) - (21,595) -
Intercompany finance cost- noncash
flow - - - 114
Repayment of intercompany loan - - (12,056)
----------------------------------- --------- ------------ --------- ------------
Balance as at 31 December 2022 17,271 - 19,571 -
----------------------------------- --------- ------------ --------- ------------
NOTES TO THE FINANCIAL STATEMENTS
1. General information
RM Infrastructure Income plc (the "Company") was incorporated in
England and Wales on 27 October 2016 with registered number
10449530, as a closed-ended investment company. The Company
commenced its operations on 15 December 2016. The Company intends
to carry on business as an investment trust within the meaning of
Chapter 4 of Part 24 of the Corporation Tax Act 2010.
The Company's investment objective is to generate attractive and
regular dividends through investment in secured debt instruments of
UK SMEs and mid-market corporates including any loan, promissory
notes, lease, bond or preference share sourced or originated by the
Investment Manager with a degree of inflation protection through
index-linked return where appropriate.
The registered office is 6th Floor, 125 London Wall, Barbican,
London EC2Y 5AS.
2. Accounting policies
The principal accounting policies followed by the Company are
set out below:
(a) Basis of accounting
The financial statements have been prepared in accordance with
UK-adopted international accounting standards. The financial
statements have been prepared on a historical basis, except for
investments measured at fair value.
In preparing these financial statements the directors have
considered the impact of climate change as a risk as set out in the
Annual Report and have concluded that there was no further impact
of climate change to be taken into account. In line with IAS,
investments are valued at fair value and climate change risk is
taken into consideration in the valuation of the investments we
hold.
The Board has determined by having regard to the currency of the
Company's share capital and the predominant currency in which the
Company operates, that sterling is the functional and
presentational currency. Where presentational recommendations set
out in the Statement of Recommended Practice "Financial Statements
of Investment Trust Companies and Venture Capital Trusts" ("SORP"),
issued in the UK by the AIC in April 2021, do not conflict with the
requirements of UK-adopted international accounting standards
("IFRS"), the directors have prepared the financial statements on a
basis consistent with the recommendations of the SORP, in the
belief that this will aid comparison with similar investment
companies incorporated in the United Kingdom.
In accordance with the SORP, the Statement of Comprehensive
Income has been analysed between a revenue return (dealing with
items of a revenue nature) and a capital return (relating to items
of a capital nature). Revenue returns include, but are not limited
to, investment related income, operating expenses, income related
finance costs and taxation (insofar as they are not allocated to
capital). Net revenue returns are allocated via the revenue return
to the Revenue reserve.
Capital returns include, but are not limited to, profits and
losses on the disposal and the valuation of non-current
investments, derivative instruments, cash (including effect on
foreign currency translation), operating costs and finance costs
(insofar as they are not allocated to revenue). Net capital returns
are allocated via the capital return to Capital reserves.
Dividends on Ordinary Shares may be paid out of Revenue reserve,
Capital reserve and Special reserve.
(b) Adoption of new IFRS standards
New standards, interpretations and amendments adopted from 1
January 2022
A number of new standards, amendments to standards and
interpretations are effective for the annual periods beginning
after 1 January 2022. None of these are expected to have a
significant effect on the measurement of the amounts recognised in
the financial statements of the Company.
New standards and amendments issued but not yet effective
The relevant new and amended standards and interpretations that
are issued, but not yet effective, up to the date of issuance of
the Company's financial statements are disclosed below. These
standards are not expected to have a material impact on the entity
in future reporting periods and on foreseeable future
transactions.
Amendments to IAS 1: Classification of Liabilities as Current or
Non-current
In January 2020, the IASB issued amendments to paragraphs 69 to
76 of IAS 1 to specify the requirements for classifying liabilities
as current or non-current. The amendments are effective for annual
reporting periods beginning on or after 1 January 2023.
Definition of Accounting Estimates - Amendments to IAS 8
In February 2021, the IASB issued amendments to IAS 8, in which
it introduces a definition of 'accounting estimates'. The
amendments are effective for annual reporting periods beginning on
or after 1 January 2023.
Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS
Practice Statement 2
In February 2021, the IASB issued amendments to IAS 1 and IFRS
Practice Statement 2 Making Materiality Judgements. The amendments
to IAS 1 are applicable for annual periods beginning on or after 1
January 2023.
(c) Going concern
The Directors have adopted the going concern basis in preparing
the financial statements. In forming this opinion, the directors
continue to consider the ongoing impact of the Covid-19 pandemic,
the conflict in Ukraine that has impacted markets throughout the
world and the rise in interest rates, however the portfolio remains
well positioned through the Investment Manager's focus on creating
a portfolio of high yielding and short duration loans that do not
hold significant exposure to interest rate movements. The Board
does not believe that these situations will affect the Company's
viability or going concern status.
Material uncertainty regarding liquidity opportunity
consultation
In making their assessment, the Directors have also reviewed
income and expense projections and the liquidity of the investment
portfolio. The Directors have also considered that should the
Company's shares trade at an average discount of more than zero per
cent. as measured over the six-month period commencing on 1 October
2022 and ending on 31 March 2023, the Board will seek to bring
forward a liquidity opportunity consultation by 12 months i.e.
prior to the AGM in 2023. In preparing the financial statements we
have considered the upcoming liquidity opportunity consultation. As
this consultation will not conclude until after the approval of
these financial statements means that there is material uncertainty
over the going concern of the Company. Details of the Directors
assessment of the going concern status of the Company are given in
the Annual Report. The material uncertainty has not resulted in any
adjustments.
The Directors have a reasonable expectation that the Company has
adequate resources to continue in operational existence for at
least twelve months from the date of this document. In reaching
this conclusion, the Directors have considered the Company's
portfolio of loan investments of GBP120.0 million (2021: GBP126.7
million) and the cash position of GBP3.0 million (2021: GBP3.3
million). The Company's net assets at 31 December 2022 were
GBP108.8 million (2021: GBP111.3 million). The total expenses
(excluding finance costs and taxation) for the year ended 31
December 2022 were GBP2.2 million (2021: GBP2.6 million), which
represented approximately 1.86% (2021: 1.92%) of average net assets
during the year. At the date of approval of this document, based on
the aggregate of investments and cash held, the Company has
substantial operating expenses cover.
The Directors have concluded that there is a reasonable
expectation that the Company will have adequate liquidity and cash
balances to meet its liabilities as they fall due and continue in
operational existence for the foreseeable future and continue as a
going concern for the period to 31 March 2024.
(d) Assessment as an Investment Entity
The Company meets the definition of an investment entity on the
basis of the following criteria:
1. the Company obtains funds from multiple investors for the
purpose of providing those investors with investment management
services;
2. the Company commits to its investors that its business
purpose is to invest funds solely for returns from capital
appreciation, investment income, or both; and
3. the Company measures and evaluates the performance of
substantially all of its investments on a fair value basis.
To determine that the Company meets the definition of an
investment entity, further consideration is given to the
characteristics of an investment entity, which are that:
> it should have more than one investment, to diversify the
risk portfolio and maximise returns;
> it should have multiple investors, who pool their funds to
maximise investment opportunities;
> it should have investors that are not related parties of
the entity; and
> it should have ownership interests in the form of equity or
similar interests.
The Directors are of the opinion that the Company meets the
essential criteria and typical characteristics of an Investment
Entity.
(e) Investments
Investments consist of private loans and bonds, which are
classified as fair value through profit or loss as they are
included in the Company's financial assets that are managed and
their performance evaluated on a fair value basis. They are
initially and subsequently measured at fair value and gains and
losses are attributed to the capital column of the Statement of
Comprehensive Income. Investments are recognised on the date that
the Company becomes a party to the contractual provisions of the
instrument and are derecognised when their term expires, or on the
date they are sold, repaid or transferred.
Unquoted investments are valued at fair value by the Board which
is established with regard to the International Private Equity and
Venture Capital Valuation Guidelines by using, where appropriate,
latest dealing prices, valuations from reliable sources and other
relevant factors.
(f) Foreign currency
Transactions denominated in foreign currencies are translated
into sterling at actual exchange rates as at the date of the
transaction. Monetary assets and liabilities and non-monetary
assets held at fair value denominated in foreign currencies are
translated into sterling using London closing foreign exchange
rates at the year end. Any gain or loss arising from a change in
exchange rates is included as an exchange gain or loss to capital
or revenue in the Statement of Comprehensive Income as appropriate.
Foreign exchange movements on investments are included in the
Statement of Comprehensive Income within gains and losses on
investments.
(g) Income
Interest income (cash interest) is recognised in the revenue
column of the Statement of Comprehensive Income on an effective
interest rate basis. Payment-in-kind ("PIK") interest income is
recognised on an accruals basis and capitalised to the principal
value of the loan.
All other income including deposit interest is accounted for on
an accruals basis and early settlement fees received are recognised
upon the early repayment of the loan.
Arrangement fees earned on private loan investments are
recognised as an income over the term of the private loans.
For any income which has an uncertainty, a provision should be
considered by the Company to reflect this income as a bad debt. The
income is written down and excluded from the Profit & Loss
account. This methodology ensures large balances should not accrue
with counterparties who are unable to pay. The uncertainty is due
to:
> Timing - when is this income likely to be received? If the
receipt is likely to be paid in the medium to long term due to cash
flow issues with the borrower then a provision should be
considered.
> Collateral - if there is strong collateral then this
provision can be reviewed as it would increase the probability of
being paid the income over the period being considered. Should
there be weak collateral then this would reinforce the provision to
be taken.
When a bad debt provision is attached to an income line item,
the next step is determining the amount of provision as a
percentage of revenue due over the period. This is reviewed on a
monthly basis including discussion with independent valuers (Mazars
LLP) whether the written down amounts and percentage used remain
appropriate.
(h) Cash and cash equivalents
Cash and cash equivalents include deposits held at call with
banks and other short-term deposits with original maturities of
three months or less.
(i) Capital reserves
Realised and unrealised gains and losses on the Company's
investments are recognised in the capital column of the Statement
of Comprehensive Income and allocated to the capital reserve.
(j) Expenses
All expenses are accounted for on an accruals basis.
Management fees and finance costs
The Company is expecting to derive its returns predominantly
from interest income. Therefore, the Board has adopted a policy of
allocating all management fees and finance costs to the revenue
column of the Statement of Comprehensive Income.
Other expenses are recognised in the revenue column of the
Statement of Comprehensive Income, unless they are incurred in
order to enhance or maintain capital profits.
(k) Taxation
The charge for taxation is based upon the net revenue for the
year. The tax charge is allocated to the revenue and capital
columns of the Statement of Comprehensive Income according to the
marginal basis whereby revenue expenses are first matched against
taxable income arising in the revenue account.
Deferred taxation will be recognised as an asset or a liability
if transactions have occurred at the initial reporting date that
give rise to an obligation to pay more taxation in the future, or a
right to pay less taxation in the future. An asset will not be
recognised to the extent that the transfer of economic benefit is
uncertain.
(l) Financial liabilities
Bank loan facility and overdrafts are initially recorded at the
proceeds received net of direct issue costs and subsequently
measured at amortised cost using the effective interest rate. The
associated costs of bank loan facility are treated as revenue and
amortised over the period of the bank loan facility.
(m) Dividends
Interim dividends to the holders of shares are recorded in the
Statement of Changes in Equity on the date that they are paid.
Final dividends would be recorded in the Statement of Changes in
Equity when they are approved by Shareholders, however the Company
currently declares four interim dividends as opposed to any final
dividends
(n) Judgements, estimates and assumptions
The preparation of financial statements requires the directors
to make estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets,
liabilities, income and expenses. Although these estimates are
based on management's best knowledge of current facts,
circumstances and, to some extent, future events and actions, the
Company's actual results may ultimately differ from those
estimates, possibly significantly.
The Company recognises loan investments at fair value through
profit or loss and disclosed in note 3 to the financial statements.
The significant assumptions made at the point of valuation of loans
are the discounted cash flow analysis and/or benchmarked
discount/interest rates, which are deemed appropriate to reflect
the risk of the underlying loan. These assumptions are monitored to
ensure their ongoing appropriateness. The sensitivity impact on the
measurement of fair value of loan investments due to price is
discussed in Note 19.
3. Investment at fair value through profit or loss
(a) Summary of valuation 31 December 2022 31 December
GBP'000 2021
GBP'000
========================================= ================ ============
Financial assets held:
Equity investments 3,593 3,600
Bond investments 4,208 7,346
Private loan investments 112,169 115,728
========================================= ================ ============
119,970 126,674
========================================= ================ ============
Year ended Year ended
(b) Movements 31 December 2022 31 December
GBP'000 2021
GBP'000
========================================= ================ ============
Opening valuation 126,674 122,705
Opening gains on investments 5,803 8,276
========================================= ================ ============
Book cost at the beginning of the year 132,477 130,981
Private loans issued/bonds purchased
at cost 18,415 44,582
Purchase in kind interest (PIK) 2,690 3,126
Purchase of equity investments - 5,100
Sales:
- Private loans repayments/bonds sales
proceeds (25,784) (48,962)
- losses on investment (298) (1,763)
- Purchase in kind interest (PIK) (224) (587)
Unrealised losses on investments held (7,306) (5,803)
========================================= ================ ============
Closing valuation at year end 119,970 126,674
========================================= ================ ============
Book cost at end of the year 127,276 132,477
Unrealised losses on investment holdings
at the year end (7,306) (5,803)
========================================= ================ ============
Closing valuation at year end 119,970 126,674
========================================= ================ ============
The Company received GBP25.5million (2021: GBP49.5 million) from
investments sold in the year. The book cost of these investments
when they were purchased was GBP25.8million (2021: GBP41.6
million). These investments have been revalued over time and until
they were sold any unrealised gains/losses were included in the
fair value of the investments. The Company's investments are
UK-based with the exception of Beinbauer which is based in
Germany.
(c) Gains/(losses) on investments 31 December 2022 31 December
GBP'000 2021
GBP'000
========================================= ================ ===========
Realised (losses)/gains on investments (298) (1,763)
Unrealised gains/(losses) on investments
held (1,503) 2,473
Other capital gains 217 -
Foreign exchange gains/(losses) (488) 553
========================================= ================ ===========
Total gains/(losses) on investments (2,072) 1,263
========================================= ================ ===========
At the year end, the Company had three unquoted investments,
these equity investments meet the criteria within IFRS 10 as an
investment entity and are therefore held at fair value.
-- Esprit Holdco Limited (Energie Fitness). The Company
participated in a management buyout during 2020 and owns 28% of the
business, the registered office and principal of business of
Energie Fitness is 1 Pitfield Kiln Farm, Milton Keynes, United
Kingdom, MK11 3LW. The Investment Manager valued holdings in
Energie Fitness at nil.
-- Trent Capital Limited. The Company structured a Loan in 2019,
which also offered equity within Trent Capital Limited. The Company
has a 70% net equity holding within the business which is
registered at 17 Walkergate, Berwick Upon Tweed, Northumberland,
TD15 1DJ and the principal business address is Unit 7 Newton
Chambers Way, Thornecliffe Industrial Estate, Chapeltown,
Sheffield, S35 2PH. The Investment Manager valued holdings in Trent
Capital Limited at nil.
-- Coventry Student Accommodation 1 Limited ("Coventry", wholly
owned asset). The Company holds an unquoted investment in Coventry.
As at 31 December 2022, the Company owns 100% of the business. The
registered office and principal place of business of Coventry is
6th Floor, 125 London Wall, London, EC2Y 5AS. The Investment
Manager's valuation of the holdings in Coventry is GBP3.6 million
as at 31 December 2022 (2021: GBP3.6 million).
4. Income
Year ended Year ended
31 December 31 December
2022 2021
GBP'000 GBP'000
=================================== ========================================================= ======================
Income from investments
Bond and loan - cash interest 7,895 8,581
Bond and loan - PIK interest 2,767 2,277
Arrangement fees 43 102
Delayed Compensation fees received 2 19
Other income 61 185
=================================== ========================================================= ======================
Total 10,768 11,164
=================================== ========================================================= ======================
5. Investment management fee
Year ended 31 December Year ended
2022 31 December
GBP'000 2021
GBP'000
======================== ================================================================ ======================
Basic fee:
100% charged to revenue 971 1,013
======================== ================================================================ ======================
Total 971 1,013
======================== ================================================================ ======================
The Company's Investment Manager is RM Capital Markets Limited.
Under the amended Investment Management Agreement, effective 1
April 2020, the Investment Manager is entitled to receive a
management fee payable monthly in arrears or as soon as practicable
after the end of each calendar month an amount one-twelfth of;
(a) 0.875 per cent. of the prevailing NAV in the event that the
prevailing NAV is up to or equal to GBP250 million; or
(b) 0.800 per cent. of the prevailing NAV in the event that the
prevailing NAV is above GBP250 million but less than GBP500
million; or
(c) 0.750 per cent. of the prevailing NAV in the event that the
prevailing NAV is above GBP500 million.
The management fee shall be payable in Sterling on a pro-rata
basis in respect of any period which is less than a complete
calendar month.
There is no performance fee payable to
the Investment Manager.
6. Other expenses
Year ended 31 December Year ended
2022 31 December
GBP'000 2021
GBP'000
============================== ==================================================== ======================
Basic fee charged to revenue:
Administration Fees 226 246
Auditor's remuneration:
Statutory audit fee 161 112
Broker Fees 146 141
Consultancy Fees 72 138
Directors' Fees 99 99
AIFM fees 144 151
Registrars fees 32 41
Valuation Fees 81 87
Other Expenses 269 583
============================== ==================================================== ======================
Total revenue expenses 1,230 1,598
============================== ==================================================== ======================
7. Finance costs
Year ended 31 December 2022 Year ended 31 December 2021
Revenue Capital Total Revenue Capital Total
=========================
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
========================= ======= ======= ======= ======= ======= =======
Loan arrangement fees - - - 89 - 89
Loan Interest paid 1,102 - 1,102 595 - 595
ZDP Shares finance costs - - - 113 - 113
========================= ======= ======= ======= ======= ======= =======
1,102 - 1,102 797 - 797
========================= ======= ======= ======= ======= ======= =======
The Company has a GBP10.5 million revolving credit facility with
OakNorth Bank. On 9 April 2021, the Company renewed and amended its
revolving credit facility with OakNorth Bank. Under the terms of
the amended revolving credit facility, the Company may draw down
loans up to an aggregate value of GBP10.5 million, on materially
similar terms as the Company's previous revolving credit facility.
The revolving credit facility expires on 26 March 2024.
8. Taxation
Year ended 31 December 2022 Year ended 31 December 2021
Revenue Capital Total Revenue Capital Total
================================
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================================ ======= ======= ======= ======= ======= =======
Analysis of tax charge/(credit)
for the year:
Corporation tax - - - 14 - 14
Corporation tax - prior
year adjustment 3 - 3
================================ ======= ======= ======= ======= ======= =======
Total current tax charge
(see note 6 (b)) 3 - 3 14 - 14
================================ ======= ======= ======= ======= ======= =======
(b) Factors Affecting the tax charge for the year:
The effective UK corporation tax rate for the period is 19.00%
(2021:19.00%).
Changes to the UK corporation tax rates were substantively
enacted as part of Finance Bill 2021 (on 24 May 2021). These
include increases to the rate to 25% from 1 April 2023.
The tax charge differs from the charge resulting from applying
the standard rate of UK corporation tax for an investment trust
company. The differences are explained below:
Year ended 31 December 2022 Year ended 31 December 2021
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============================== ================ ======= ======= ======= ======= =======
Return on ordinary activities
before taxation 7,465 (2,072) 5,393 7,756 1,263 9,019
============================== ================ ======= ======= ======= ======= =======
UK corporation tax at
19.00% (2021:19.00%) 1,418 (394) 1,024 1,474 240 1,714
Effects of:
Fair value losses/(gains)
not deductible - 394 394 - (240) (240)
Interest distributions
paid/payable (1,455) - (1,455) (1,460) - (1,460)
Excess management expenses
carried forward 37 - 37 - - -
Prior year adjustment 3 - 3
============================== ================ ======= ======= ======= ======= =======
Total tax charge 3 - 3 14 - 14
============================== ================ ======= ======= ======= ======= =======
The Company is not liable to tax on capital gains due to its
status as an investment trust.
(c) Deferred tax assets/(liabilities)
As at 31 December 2022, the Company had net surplus excess
management expenses of GBP194,927 (2021: GBPnil) in respect of
which a deferred tax asset has not been recognised. This is because
the Company is not expected to generate taxable income in a future
period in excess of deductible expenses of deductible expenses of
that future period and, accordingly, it is unlikely that the
Company will be able to reduce future liabilities.
9. Receivables
Year Year ended
ended 31 31 December
December 2021
2022 GBP'000
GBP'000
===================================== ======================================================= ======================
Amounts falling due within one year:
Bond and loan interest receivable 2,372 1,603
Provided for interest 1,160 783
Loan to non-consolidated subsidiary 1,673 -
Prepayments and other receivables 216 298
===================================== ======================================================= ======================
Total 5,421 2,684
===================================== ======================================================= ======================
Provided for interest and Bad debt provisions
Provided for interest account is an interest receivable in
relation to the loans of the Company but are not guaranteed. The
total amount is offset against the bad debt provisions under the
liability account (see note 10).
10. Payables
Year ended Year ended
31 31 December
December 2021
2022 GBP'000
GBP'000
====================================== ====================================================== ======================
Amounts falling due within one year :
Loan reserves retained 270 454
Taxation payable 3 14
Bad debt provision 1,160 783
Other creditors 875 596
====================================== ====================================================== ======================
Total 2,308 1,847
====================================== ====================================================== ======================
11. Bank loan credit facilities
Year ended 31 Year ended
December 31 December
2022 2021
GBP'000 GBP'000
================================== ========================================================== ======================
OakNorth Bank - Credit facilities 17,271 19,571
================================== ========================================================== ======================
Total 17,271 19,571
================================== ========================================================== ======================
On 26 March 2021, the Company renewed and amended its revolving
credit facility with OakNorth. The Company had entered into an
uncommitted 90-day notice revolving loan of GBP10,500,000
("Facility A") and a committed term revolving loan of GBP11,942,000
("Facility B"), together with Facility A the ("Facilities") with
OakNorth for the purposes set out in the credit facility
agreement.
Facility A will be provided to be applied in or towards:
repaying all amounts due from the Company to the OakNorth under
its existing loan agreement;
funding by the Company of customer loans;
refinancing (where applicable) any customer loans made by the
Company;
purchasing investments by the Company;
the provision of liquidity to the Company; and
payment of finance costs (including fees) payable under the
loan.
Facility B will be provided to be applied in or towards:
repaying sums due from the Company to RM ZDP plc;
funding by the Company of customer loans;
refinancing (where applicable) any customer loans made by the
Company;
purchasing investments by the Company;
the provision of liquidity to the Company; and
payment of finance costs (including fees) payable under the loan
agreement.
The rate of interest on the Facilities are the aggregate of the
applicable margin and base rate (subject to a base rate floor of
0.10%). The margin is 4.65% p.a. The Facilities expire on 26 March
2024.
During the year, the Company drew cumulative amount of GBP12.6
million (2021: GBP30.1 million) from the revolving credit
facilities and repaid cumulative amount of GBP14.9 million (2021:
GBP20.0 million). The remaining balance as at 31 December 2022
amounts to GBP17.3million (2021: GBP19.6 million).
12. Share capital
As at 31 December As at 31 December
2022 2021
============================= ======= ============================ =======
No. of Shares GBP'000 No. of Shares GBP'000
=============================== ============================= ======= ============================ =======
Allotted, issued & fully paid:
Ordinary shares of 1p 117,636,359 1,176 117,840,988 1,178
=============================== ============================= ======= ============================ =======
Share movement
The table below sets out the share movement for the year ended
31 December 2022.
Shares in
Opening balance Shares issued Shares bought issue at
back 31 December
2022
================ ================= =============== =================== ================
Ordinary Shares 117,840,988 - (204,629) 117,636,359
================ ================= =============== =================== ================
At the year end, the Company has 117,636,359 Ordinary Shares in
issue with voting rights and 4,588,222 Ordinary Shares held in
Treasury.
Ordinary Share buy backs
During the year, the Company bought back 204,629 (2021: 523,294)
Ordinary Shares for an aggregate cost of GBP173,935 (2021:
GBP463,838). Since the year end, 50,000 Ordinary Shares have been
bought back for an aggregate cost of GBP42,750.
13. Share premium
As at 31 As at 31
December December
2022 2021
GBP'000 GBP'000
============================== ============================================================ ========================
Balance as at beginning of the
year 70,168 70,168
Share buybacks 2 6
Share buyback costs (2) (6)
============================== ============================================================ ========================
Balance as at 31 December 2022 70,168 70,168
============================== ============================================================ ========================
14. Return per ordinary share
Total return per Ordinary Share is based on the gain on ordinary
activities after taxation of GBP5,390,000 (2021: gain of
GBP9,005,000).
Based on the weighted average of number of 117,839,605 (2021:
117,976,668) Ordinary Shares in issue for the year ended 31
December 2022, the returns per share were as follows:
Year ended 31 December 2022 Year ended 31 December 2021
Revenue Capital Total Revenue Capital Total
========================== ======= ======= ===== ======= ============= =====
Return per Ordinary Share 6.33p (1.76p) 4.57p 6.56p 1.07p 7.63p
========================== ======= ======= ===== ======= ============= =====
There are no dilutive
shares in issue.
15. Net asset value per share
The NAV per share is based on Company's total shareholders'
funds of GBP108,805,000 (2021: GBP112,750,000), and on 117,636,359
(2021: 117,840,988) Ordinary Shares in issue at the year end.
Nav per ordinary share reconciliation
The table below is a reconciliation between the NAV per Ordinary
Share of the Company as announced on the London Stock Exchange and
the NAV per Ordinary Share disclosed in these financial
statements.
Net assets NAV per Ordinary Net assets NAV per
(GBP) share (p) (GBP) Ordinary
share (p)
=============================== ============= =========================== ================= ======================
2022 NAV as published on 16
January 2023
(2021 NAV: Published on 15
January
2022) 108,807,765 92.50 112,949,700 95.85
Prior year tax liability
adjustments (2,852) (0.01) - -
Income adjustment - - (199,500) (0.17)
Equity revaluation adjustment - - (1,500,000) (1.27)
Share buyback adjustments - - - -
=============================== ============= =========================== ================= ======================
NAV as disclosed in these
Financial
Statements 108,804,913 92.49 111,250,200 94.41
=============================== ============= =========================== ================= ======================
16. Dividend
Total dividends paid in the year
Year ended 31 December 2022 Year ended 31 December 2021
Pence per Revenue Capital Total Pence Revenue Capital Total
Ordinary per Ordinary
=====================
share GBP'000 GBP'000 GBP'000 share GBP'000 GBP'000 GBP'000
===================== =============== ======= ======= ======= ================ ======= ======= =======
2021 Interim - Paid
25 Mar 2022
(2020: 26 Mar 2021) 1.6250p 1,915 - 1,915 1.6250p 1,918 - 1,918
2022 Interim - Paid
24 Jun 2022
(2021: 25 Jun 2021) 1.6250p 1,915 - 1,915 1.6250p 1,917 - 1,917
2022 Interim - Paid
30 Sep 2022
(2021: 24 Sep 2021) 1.6250p 1,915 - 1,915 1.6250p 1,917 - 1,917
2022 Interim - Paid
30 Dec 2022
(2021: 30 Dec 2021) 1.6250p 1,915 - 1,915 1.6250p 1,917 - 1,917
===================== =============== ======= ======= ======= ================ ======= ======= =======
Total 6.5000p 7,660 - 7,660 6.5000p 7,669 - 7,669
===================== =============== ======= ======= ======= ================ ======= ======= =======
The dividend relating to the period ended 31 December 2022,
which is the basis on which the requirements of Section 1159 of the
Corporation Tax Act 2010 are considered is detailed below:
Total dividends declared in the year
Year ended 31 December 2022 Year ended 31 December 2021
Pence Revenue Capital Total Pence Revenue Capital Total
per Ordinary per Ordinary
S hare GBP'000 GBP'000 GBP'000 Share GBP'000 GBP'000 GBP'000
===================== =============== ======= ======= ======= ================ ======= ======= =======
2022 Interim - Paid
24 Jun 2022
(2021: 25 Jun 2021) 1.6250p 1,915 - 1,915 1.6250p 1,917 - 1,917
2022 Interim - Paid
30 Sep 2022
(2021: 24 Sep 2021) 1.6250p 1,915 - 1,915 1.6250p 1,917 - 1,917
2022 Interim - Paid
30 Dec 2022
(2021: 30 Dec 2021) 1.6250p 1,915 - 1,915 1.6250p 1,917 - 1,917
2022 Interim - Paid
31 March 2023
(2021: 25 Mar 2022) 1.6250p 1,911 - 1,911 1.6250p 1,915 - 1,915
===================== =============== ======= ======= ======= ================ ======= ======= =======
Total 6.5000p 7,656 - 7,656 6.5000p 7,666 - 7,666
===================== =============== ======= ======= ======= ================ ======= ======= =======
*Not included as a liability in the year ended 31 December 2022
financial statements.
17. Related party transactions
Fees are payable at an annual rate of GBP36,000 to the Chairman,
GBP33,000 to the Chairman of the Audit and Management Engagement
Committee and GBP30,000 to the other Director. As at 31 December
2022, there were no Directors' fees outstanding. The Directors'
fees are disclosed in note 7 and the Directors' shareholdings are
disclosed in the Directors Remuneration Report in the Annual Report
for the year ended 31 December 2022.
Fees payable to the Investment Manager are shown in the
Statement of Comprehensive Income. As at 31 December 2022 the fee
outstanding to the Investment Manager was GBP80,000 (2021:
GBP84,000).
Arrangement fees are paid by some borrowers to the Investment
Manager. The amount the Investment Manager can retain from
borrowers in most cases is capped at 1.25% and agreed with the
Board. The Company receives any arrangement fees from the
Investment Manager in excess of the 1.25% or otherwise agreed with
the borrower. During the year to 31 December 2022, the Company
received GBP43,000 (2021: GBP102,000) in arrangement fees from
RM.
Borrowers paid the Investment Manager arrangement fees during
the year totalling GBP175,051. The Investment Manager also provides
further work and Loan & Security Agency services to some
borrowers and during the year charged borrowers GBP357,298.
As at 31 December 2022, the Investment Manager held 1,316,625
(2021: 1,279,125) Ordinary Shares in the Company. Since the year
end, the Investment Manager purchased a further 12,500 Ordinary
Shares in the Company, and as of the date of this report, the
Investment Manager's total holding of Ordinary Shares is 1,329,125
(2021: 1,291,625).
During the year the Company has total investments of
GBP3,593,000 (2021: GBP3,593,000) in Coventry Student Accommodation
1 Limited for which investment details can be found in Note 3.
During the year, the Company provided Coventry Student
Accommodation 1 Limited an intercompany loan of GBP1,673,000 (2021:
GBPnil) as disclosed in note 9.
18. Classification of financial instruments
IFRS 13 requires the Company to classify its investments in a
fair value hierarchy that reflects the significance of the inputs
used in making the measurements. IFRS 13 establishes a fair value
hierarchy that prioritises the inputs to valuation techniques used
to measure fair value. The three levels of fair value hierarchy
under IFRS 13 are as follows:
Level 1
Using unadjusted quoted prices for identical instruments in an
active market.
Level 2
Using inputs, other than quoted prices included within Level 1,
that are directly or indirectly observable (based on market
data).
Level 3
Using inputs that are unobservable (for which market data is
unavailable).
The classification of the Company's investments held at fair
value through profit or loss is detailed in the table below :
31 December 31 December
2022 2021
============================ ======= ================ ============== ======= ================ =======
Level Level 2 Level Total Level Level 2 Level Total
1 3 1 3
============================
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============================ ======= ================ ============== ======= ================ =======
Financial assets:
Financial assets - Private
loans and bonds - 4,208 - 4,208 - 7,346 - 7,346
Financial assets - Private
loans - - 112,169 112,169 - - 115,728 115,728
Financial assets - Equity
investment - - 3,593 3,593 - - 3,600 3,600
Forward contract unrealised
(loss)/gain* - (162) - (162) 137 - 137
============================ ======= ================ ============== ======= ================ =======
Net financial assets - 4,046 115,762 119,808 - 7,483 119,328 126,811
============================ ======= ================ ============== ======= ================ =======
*The net unrealised loss of GBP162,475 (2021: net unrealised
gain of GBP136,729) on forwards is recognised within other
creditors whereas net unrealised gain on forwards is recognised
within prepayments and other debtors in the Statement of Financial
Position.
As at 31 December 2022, the fair value of the Company's loans is
materially equal to the carrying value.
The forward exchange contract has been presented in the fair
value hierarchy at net exposure with the net unrealised loss of
GBP162,475 (2021: gain of GBP136,729) recognised within prepayments
and other debtors in the Statement of Financial Position.
Investments that trade in markets that are not considered to be
active but are valued based on quoted market prices, dealer
quotations or alternative pricing sources supported by observable
inputs are classified within Level 2.
Level 3 holdings are valued using a discounted cash flow
analysis and benchmarked discount/interest rates appropriate to the
nature of the underlying loan and the date of valuation.
There have been no movements between levels during the reporting
period.
Reconciliation of the Level 3 classification investments during
the year to 31 December 2022 is shown below:
31 December 31 December
2022 2021
========================= ======= =============== ========= ======= ================== =========
Equity Loan Total Equity Loan Total
=========================
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
========================= ======= =============== ========= ======= ================== =========
Balance as at beginning
of the year 3,600 115,728 119,328 - 97, 692 97,692
New loans during the
year - 13,605 13,605 - 38,253 38,253
New equity investments
during the year - - - 3,600 - 3,600
Repayments during the
year - (15,978) (15,978) - (16,558) (16,558)
Realised gains during
the year - (190) (190) - (832) (832)
Unrealised losses during
the year on positions
held at year end (7) (996) (1,003) - (2,827) (2,827)
========================= ======= =============== ========= ======= ================== =========
Closing balance as at
31 December 3,593 112,169 115,762 3,600 115,728 119,328
========================= ======= =============== ========= ======= ================== =========
Valuation and existence of bonds and private loan
investments
The Company holds assets in bonds and private loan investments.
The valuation and existence of these bonds and private loan
investments are the most material matter in the production of the
financial statements .
The bonds and private loan investments are valued by an
independent valuer and the valuations at year end were agreed to
the valuers report. The valuation process has been comprehensively
reviewed during the year, and is monitored, by the Board, the
Manager and the AIFM. The process includes quantitative and
qualitative analysis, with the analysis performed on a loan-by-loan
basis and the valuation of each loan taking into account the
relevant risks and returns associated with that loan. The Audit and
Management Engagement Committee reviewed valuation reports and also
the procedures in place for ensuring accurate valuation and
existence of investments and recommended these to the Board for
review and approval.
The Board has appointed a third-party service provider (Mazars
LLP) to value the Company's loan investments on a monthly basis, in
accordance with IFRS. The Directors have satisfied themselves as to
the methodology used, the discount rates and key assumptions
applied and the overall valuation of the investments.
19. Financial instruments - risk profile
The Company invests in private loan and bond investments. The
following describes the risks involved and the applied risk
management.
The Investment Manager reports regularly both verbally and
formally to the Board, and its relevant committees, to allow them
to monitor and review all the risks noted below.
(i) Market risks
The Company is subject to a number of Market risks in relation
to economic conditions. The Company's approach regarding the
conservative valuation of its investments remains unchanged, with
fair value write downs driven by market risk and idiosyncratic
risk, with idiosyncratic risk relating to loan specific information
which is reflected within specific loan pricing. Further detail on
these risks and the management of these risks are included in the
Investment Manager's Report and the Risk and Risk Management
report.
The Company's financial assets and liabilities at 31 December
2022 comprised:
Year ended 31 December 2022 Year ended 31 December 2021
Investments Interest Non-interest Total Interest Non-interest Total
bearing bearing GBP'000 bearing bearing GBP'000
GBP'000 GBP'000 GBP'000 GBP'000
========================== ======== ============ ================ ======== ============ ================
Sterling 114,713 3,593 118,306 116,674 - 116,674
Euro 1,664 - 1,664 10,000 - 10,000
========================== ======== ============ ================ ======== ============ ================
Total investment 116,377 3,593 119,970 126,674 - 126,674
========================== ======== ============ ================ ======== ============ ================
Cash and cash equivalents 2,993 - 2,993 3,310 - 3,310
Receivables - 5,421 5,421 - 2,684 2,684
Payables* (17,271) (2,308) (19,579) - (21,418) (21,418)
========================== ======== ============ ================ ======== ============ ================
Total 102,099 6,706 108,805 129,984 (18,734) 111,250
========================== ======== ============ ================ ======== ============ ================
Price risk sensitivity
The effect on the portfolio of a 10.0% increase or decrease in
the value of the loans would have resulted in an increase or
decrease of GBP11,997,000 (2021: GBP12,667,000) in the investments
held at fair value through profit or loss at the period end date.
This analysis assumes that all other variables remain constant.
(ii) Credit risks
The Company's investments will be predominantly in the form of
private loans whose revenue streams are secured against contracted,
predictable medium to long-term cash flows and/or physical assets,
and whose debt service payments are dependent on such cash flows
and/or the sale or refinancing of the physical assets. The key
risks relating to the private loans include risks relating to
counterparty default, senior debt covenant breach risk, bridge
loans, delays in the receipt of anticipated cash flows and borrower
default, and collateral risks.
The Company is also exposed to the risk of default on cash held
at the bank and other trade receivables. The maximum exposure to
credit risk on cash at bank and other trade receivables at 31
December 2022 was GBP2,993,000 and GBP5,421,000 respectively (2021:
GBP3,310,000 and GBP2,684,000). None of these amounts are
considered past due or impaired and interest is based on the
prevailing money market rates.
The table below shows the Company's exposure to credit risks as
the year end.
As at 31 December 2022 As at 31 December 2021
Fair value Maximum exposure Fair value Maximum exposure
=========================
GBP'000 GBP'000 GBP'000 GBP'000
========================= ========== ================ ========== ================
Private loan investments 112,169 112,169 115,728 115,728
Bond investments 4,208 4,208 7,346 7,346
Cash and cash equivalent 2,993 2,993 3,310 3,310
Receivables 5,421 5,421 2,684 2,684
========================= ========== ================ ========== ================
Total 124,791 124,791 129,068 129,068
========================= ========== ================ ========== ================
Management of risks
The Investment Manager reports a number of key metrics on a
monthly basis to its Credit Committee including pipeline project
information, outstanding loan balances, lending book performance
and early warning indicators. The Investment Manager monitors
ongoing credit risks in respect of the loans. Typically, the
Company's loan investments are private loans and would usually
exhibit credit risk classified as 'non- investment grade' if a
public rating agency was referenced.
The Company's main cash balances are held with The Royal Bank of
Scotland plc ("RBS"). Bankruptcy or insolvency of the bank holding
cash balances may cause the Company's rights with respect to the
cash held by them to be delayed or limited. The Company manages its
risk by monitoring the credit quality of RBS on an ongoing
basis.
(iii) Interest rate risks
Private Loans
The Company may make loans based on estimates or projections of
future interest rates because the Investment Manager expects that
the underlying revenues and/or expenses of a borrower to whom the
Company provides loans will be linked to interest rates, or that
the Company's returns from a loan are linked to interest rates. If
actual interest rates differ from such expectation, the net cash
flows of the borrower or payable to the Company may be lower than
anticipated.
Interest rate sensitivity
Interest Income earned by the Company is primarily derived from
fixed interest rates. The interest earned from the floating element
of loan and debt security investments is not significant. Based on
the Company's private loan investments, bond investments, cash and
cash equivalents as at 31 December 2022, a 1.00%
increase/(decrease) (2021: 0.50% increase/(decrease)) in interest
rates, all other things being equal, would lead to a corresponding
increase/(decrease) in the Company's income as follows.
As at 31 December 2022 As at 31 December 2021
1.00% Increase 1.00% Decrease 0.50% Increase 0.50% Decrease
GBP'000 GBP'000 GBP'000 GBP'000
========================== ============== ============== ============== ==============
Private loans investments 1,122 (1,122) 579 (579)
Bond investments 42 (42) 37 (37)
Equity investments 36 (36) 18.00 (18.00)
Cash and cash equivalent 30 (30) 17 (17)
========================== ============== ============== ============== ==============
Total 1,230 (1,230) 651 (651)
========================== ============== ============== ============== ==============
Management of risks
The Investment Manager's investment process takes into account
interest rate risk. The investment strategy is to invest in private
loans with maturities typically between 2 and 10 years. Exposure to
predominantly higher yielding loans and possible floating rate
investments can mitigate interest rate risk to some extent. On a
monthly basis, Investment Managers review fixed/floating and
weighted average life of the portfolio for interest rate risk.
(iv) Liquidity risks
Liquidity risk is defined as the risk that the Company will
encounter difficulties in realising assets or otherwise raising
funds to meet financial commitments. The cash and cash equivalent
balance at the year end was GBP2,993,000 (2021: GBP3,310,000).
Financial liabilities by maturity at the
period end are shown below:
31 December 2022 31 December
GBP'000 2021
GBP'000
========================================= ================ ===========
Within one month - -
Between one and three months 2,038 1,393
Between three months and one year - -
More than one year 17,541 20,025
========================================= ================ ===========
Total 19,579 21,418
========================================= ================ ===========
Notwithstanding the contractual maturity of the credit
facilities, which is 26 March 2024, the loans have been presented
as a current liability in the statement of financial position which
reflects management's intentions to use the facilities for
liquidity purposes and not long term gearing of the Company.
The Investment Manager manages the Company's liquidity risk by
investing in a diverse portfolio of loans and secured debt
instruments in line with the Company's Investment Policy and
Investment restrictions. The Investment Manager may utilise other
measures such as borrowing, share issues including treasury shares
for liquidity purposes. The Investment Manager performs stress
tests on the Company's income and expenses and the Directors, and
the Manager remain comfortable that the Company has substantial
operating expenses cover and adequate liquidity. A liquidity
opportunity consultation will be implemented ahead of the Company's
2023 AGM, should the Company's shares trade at an average discount
of more than zero per cent. as measured over the six-month period
commencing on 1 October 2022 and ending on 31 March 2023. More
information is included in the Annual Report.
The maturity profile of the Company's portfolio
as at the year-end is as follows:
31 December 2022 31 December
GBP'000 2021
GBP'000
================================================ ================ ===========
Within one month - 4,628
Between one and three months - -
Between three months and one year - 855
More than one year 119,970 121,191
================================================ ================ ===========
Total 119,970 126,674
================================================ ================ ===========
(v) Foreign currency risks
Foreign currency risk is the risk that the value of a financial
instrument will fluctuate because of changes in foreign currency
exchange rates. Currency risk arises when future commercial
transactions and recognised assets and liabilities are denominated
in a currency that is not the Company's functional currency. The
Company invests in debt security instruments that are denominated
in currencies other than sterling.
Accordingly, the value of the Company's assets may be affected
favourably or unfavourably by fluctuations in currency rates and
therefore the Company will necessarily be subject to foreign
exchange risks.
Based on the financial assets and liabilities at 31 December
2022 and all other things being equal, if sterling had weakened
against the local currencies by 10%, the impact on the Company's
net assets at 31 December 2022 would have been as follows:
31 December 2022 31 December
GBP'000 2021
GBP'000
========== ================ ===========
Euro 230 167
US dollar - -
========== ================ ===========
Total 230 167
========== ================ ===========
Foreign currency risk profile
31 December 31 December
2022 2021
========== ============ ===================== =============== ============ ===================== ===============
Net Total Net Total
Investment monetary currency Investment monetary currency
==========
exposure exposure exposure exposure exposure exposure
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
========== ============ ===================== =============== ============ ===================== ===============
Euro 2,087 214 2,301 1,410 262 1,672
US dollar - 7 7 - 4 4
==========
Total 2,087 221 2,308 1,410 266 1,676
==========
Management of currency risks
The Company's Investment Manager monitors the currency risk of
the Company's portfolio on a regular basis. Foreign currency
exposure is regularly reported to the Board by the Investment
Manager. The Investment Manager may hedge any currency back to
sterling as they see fit.
Fair values of financial assets and liabilities
All financial assets and liabilities of the Company are included
in the statement of financial position at fair value or a
reasonable approximation of fair value with no material difference
in the carrying amount.
Capital management
The Company considers its capital to consist of its share
capital of Ordinary Shares of 1 pence each, its distributable
reserves, which comprise Revenue reserve, Capital reserve and the
Special reserve. In accordance with accounting standards, the
Company's Ordinary Shares are considered to be equity.
The Company has a stated discount control policy. The Investment
Manager and the Company's brokers monitor the demand for the
Company's shares and the Directors review the position at Board
meetings. Further details on share issues during the year and the
Company's policies for issuing further shares and buying back
shares (including the Company's discount management) can be found
in the Directors' Report.
During the year the Company boug ht back 204,629 shares (2021:
523,294) which are held in treasury and bought back a further
50,000 shares following the year end.
The Company's policy on borrowing is detailed in the Directors'
Report.
The details of the Company's OakNorth facilities are discussed
in note 12.
20. Post balance sheet events
There are no other post period end events other than those
disclosed in this report.
Alternative Performance Measures ("APMs")
APMs are often used to describe the performance of investment
companies although they are not specifically defined under IFRS.
APM calculations for the Company are shown below.
Gearing
A way to magnify income and capital returns, but which can also
magnify losses. A bank loan is a common method of gearing.
31 December 31 December
2022 2021
GBP'000 GBP'000
Bank Loan - Credit facility 17,271 19,571
===========
Total borrowings 17,271 19,571
Cash and cash equivalents 2,993 3,310
===========
Total borrowings less cash
and cash equivalents a 14,278 16,261
Net assets b 108,805 111,250
===========
Gearing(net) (a÷b)*100 13.1% 14.6%
===========
Gross asset
The Company's gross assets comprise the net asset values of the
Company's Ordinary Shares, and the Bank loan breakdown as
follows:
As at 31 December 2022 GBP'000 Per Share
(Pence)
Ordinary Shares - NAV a 108,805 92.49
Bank Loan - Credit facility c 17,271 -
Gross asset value a+b+c 126,076 n/a
As at 31 December 2021
GBP'000 Per Share
(Pence)
Ordinary Shares - NAV a 111,250 94.41
Bank Loan - Credit facility c 19,571 -
Gross asset value a+b+c 130,821 n/a
Ongoing charges
A measure, expressed as a percentage of average net assets, of
the regular, recurring annual costs of running an investment
company.
Year ended 31 December 2022
Average NAV (GBP'000) a 111,126
Annualised recurring expenses b 2,067
b÷a 1.86%
Year ended 31 December 2021
GBP'000
Average NAV (GBP'000) a 112,891
Annualised recurring expenses* b 2,165
b÷a 1.92%
* Consists of investment management fees of GBP971,000 (2021:
GBP1,012,000) and other recurring expenses of GBP1,096,000 (2021:
GBP1,153,000) Prospectus issue and capital transactions are not
considered to be recurring costs and therefore have not been
included.
(Discount)/premium
The amount, expressed as a percentage, by
which the share price is (less)/more than
the NAV per share.
As at 31 December 2022
NAV per Ordinary Share (p) a 92.49
Share price (p) b 85.00
==============
Discount (b/a)- 1 (8.1%)
==============
As at 31 December 2021
NAV per Ordinary Share (p) a 94.41
Share price (p) b 95.00
==============
Premium (b/a)- 1 0.6%
Total return
A measure of performance that includes both income and capital
returns. This takes into account capital gains and reinvestment of
dividends paid out by the Company into its Ordinary Shares on the
ex-dividend date.
As at 31 December 2022 NAV Share Price
Opening at 1 January 2021
(p) a 94.41 95.00
Closing at 31 December 2021
(p) b 92.49 85.00
Dividend payment c 1.0715 1.1588
Adjusted closing (d = b
x c) d 99.1 98.5
Total return (d/a)- 1 5.0% 3.7%
As at 31 December 2021
NAV Share Price
Opening at 1 January 2021
(p) a 93.26 87.00
Closing at 31 December 2021
(p) b 94.41 95.00
Dividend adjustment factor c 1.0631 1.0687
Adjusted closing (d = b
x c) d 100.37 101.53
Total return (d/a)- 1 7.6% 16.7%
Directors, Investment Manager and Advisers
Directors
Norman Crighton (Non-executive Chair)
Guy Heald
Marlene Wood
Investment Manager
RM Capital Markets Limited
4th Floor
7 Castle Street
Edinburgh EH2 3AH
Joint broker
Singer Capital Markets LLP
1 Bartholomew Lane
London
EC2N 2AX
Joint broker
Peel Hunt LLP
100 Liverpool Street
London
EC2M 2AT
Valuation agent
Mazars LLP
Tower Bridge House Katherine's Way London
E1W 1DD
Registered office*
6th Floor
125 London Wall London
EC2Y 5AS
* Registered in England and Wales No. 10449530
Custodian
US Bank Global Corporate Trust Services
125 Old Broad Street London
EC2N 1AR
Administrator and Company Secretary
Apex Listed Companies Services (UK) Limited
6th Floor
125 London Wall
London
EC2Y 5AS
AIFM
FundRock Management Company (Guernsey) Limited
Sarnia House
Le Truchot
St Peter Port Guernsey GY1 4NA
Auditors
Ernst & Young LLP
25 Churchill Place Canary Wharf
London
E14 5EY
Registrar
Link Group
Central Square
29 Wellington Street
Leeds
LS1 4DL
Legal advisers
Gowling WLG (UK) LLP
4 More London Riverside
London
SE1 2AU
FINANCIAL INFORMATION
This announcement does not constitute the Company's statutory
accounts. The financial information is derived from the statutory
accounts, which will be delivered to the registrar of companies and
will be put forward for approval at the Company's Annual General
Meeting. The statutory accounts for the year ended 31 December 2021
have been delivered to the registrar of companies. The auditors
have reported on the accounts for the year ended 31 December 2022
and the year ended 31 December 2021, their reports were unqualified
and did not include a statement under Section 498(2) or (3) of the
Companies Act 2006.
The Annual Report for the year ended 31 December 2022 was
approved on 25 April 2023. It will be made available on the
Company's website at
https://rm-funds.co.uk/rm-infrastructure-income/investor-relations/
The Annual Report will be submitted to the National Storage
Mechanism and will shortly be available for inspection at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
This announcement contains regulated information under the
Disclosure Rules and Transparency Rules of the FCA.
ANNUAL GENERAL MEETING
The Annual General Meeting will be held on 30 May 2023 at 12.00
p.m. at 6th Floor, 125 London Wall, London, EC2Y 5AS.
For further information contact:
Brian Smith / Ciara McKillop
Apex Listed Companies Services (UK) Limited
Tel: 020 3327 9720
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END
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