UK Mortgages Limited
INTERIM MANAGEMENT REPORT AND UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
For the period from 1 July 2020 to
31 December 2020
Legal Entity Identifier: 549300388LT7VTHCIT59
(Classified Regulated Information, under DTR 6 Annex 1 section
1.2)
The Company has today released its Interim Management Report and
Unaudited Condensed Consolidated Financial Statements for the
period ended 31 December 2020. The
Report will shortly be available from the Company’s Portfolio
Manager’s website: www.ukmortgageslimited.com and will shortly be
available for inspection online at
www.morningstar.co.uk/uk/NSM.
SUMMARY INFORMATION
The Company
UK Mortgages Limited (“UKML”, the “company”) was incorporated
with limited liability in Guernsey
as a closed-ended investment company on 10
June 2015. The company’s shares were admitted to trading on
the Specialist Fund Segment of the London Stock Exchange (“LSE”) on
7 July 2015. UKML and the affiliate
structure have been designed to ensure the most efficient structure
for regulatory and tax purposes. UKML established a Dublin domiciled Acquiring Entity, UK
Mortgages Corporate Funding Designated Activity Company (“DAC”) for
the purpose of acquiring and securitising mortgages via Special
Purpose Vehicles (“SPVs”). The company, the Acquiring Entity, the
Issuer SPVs (Malt Hill No.1 Plc (dissolved on 7 January 2020), Malt Hill No. 2 Plc, Oat Hill
No.1 Plc (currently dormant), Barley Hill No.1 Plc, Oat Hill No. 2
Plc (incorporated 25 February 2020)
and the Warehouse SPVs Cornhill Mortgages No.2 Limited (dissolved
on 27 February 2020), Cornhill
Mortgages No. 4 Limited, Cornhill Mortgages No. 5 Limited and
Cornhill Mortgages No. 6 Limited (collectively, the “Company”) are
treated on a consolidated basis for financial reporting.
Investment Objective
The Company’s investment objective is to provide Shareholders
with access to stable income returns through the application of
relatively conservative risk adjusted levels of leverage to
portfolios of UK mortgages. In accordance with Chapter 15 of the
LSE Listing Rules, the Company can only make a material change to
its investment policy with the approval of its Shareholders by
Ordinary Resolution. At an EGM held on 16
August 2019, the Company’s investment policy was revised to
allow investment into third party “triple A” (Standard and Poor’s
AAA/Moody’s Aaa) rated RMBS for cash management purposes and to
allow additional leverage in the Company’s securitisations via the
issuance of mezzanine notes. Following an EGM in December 2020 the company’s mandate was further
modified to enhance shareholder liquidity by requiring the Company
to dispose of a securitisation portfolio if the Company’s share
price is not trading at a discount of less than 5% to NAV when the
securitisation is due to be re-financed.
The Company expects that income will constitute the vast
majority of the return to Shareholders and that the return to
Shareholders will have relatively low volatility and demonstrate a
low level of correlation with broader markets.
Shareholders’ Information
Maitland Institutional Services Limited (“Maitland”) is
responsible for calculating the Net Asset Value (“NAV”) per share
of the Company. Maitland has delegated this responsibility to
Northern Trust International Fund Administration Services
(Guernsey) Limited (the
“Administrator”); however Maitland still performs an oversight
function. The unaudited NAV per Ordinary Share is calculated as at
the last business day of every month by the Administrator and is
announced through a Regulatory Information Service approximately 2
weeks after the last business day of the following month.
Financial Highlights
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For
the period |
For
the |
For
the period |
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|
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from
01.07.2020 |
year
ended |
from
01.07.2019 |
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|
|
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to
31.12.2020 |
30.06.2020 |
to
31.12.2019 |
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Total Net Assets at
period/year end |
|
£189,845,974 |
£220,076,963 |
£221,350,060 |
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Net Asset Value per
ordinary share at period/year end |
81.78p |
80.59p |
81.06p |
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Share price at
period/year end |
|
66.00p |
49.30p |
69.00p |
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|
|
|
Discount to Net Asset
Value at period/year end |
(19.30%) |
(38.83%) |
(14.88%) |
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|
|
|
|
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Net Asset Value Total
Return |
|
7.65% |
2.72% |
0.15% |
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|
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Dividends declared and
paid in the period/year |
3.00p* |
3.75p |
2.25p |
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|
|
|
|
|
Total dividends declared
in relation to the period/year |
2.25p* |
4.50p |
2.25p |
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|
|
|
|
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Earnings per share |
|
|
1.90p |
2.30p |
1.30p |
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Ongoing Charges
** |
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|
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|
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- UKML |
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|
0.82% |
0.81% |
0.85% |
- DAC and subsidiaries |
|
2.40% |
2.34% |
2.42% |
Total ongoing charges
for the Company |
|
3.22% |
3.15% |
3.28% |
*In September dividends declared included 1.5p catch up fifth
interim dividend in relation to 30 June
2020.
**Ongoing charges are an Alternative Performance Measure
calculated in accordance with the AIC methodology.
Net Asset Value Total return is an Alternative Performance
Measure which aggregates the percentage movement in the Company’s
Net Asset Value with dividends paid since inception.
CHAIRMAN’S STATEMENT
for the period from 1 July 2020 to
31 December 2020
I am pleased to report the results of the Company for the six
months from 1 July 2020 to
31 December 2020, a period of intense
activity, which has significantly improved the future prospects of
UKML.
At the time of my last Chairman’s Statement in October, the
Company had only recently rejected the final indicative bid
approach from M&G Specialty Finance Fund and was about to begin
a strategic review process. This was intended to address the
recurring issues of liquidity, the discount to NAV, future expected
returns and dividend coverage. Consequently, during late October
and early November the Board and the Portfolio Manager held
meetings with the majority of our significant shareholders to
outline what was described as “UKML 2.0”.
This is reviewed in much greater detail below in the Portfolio
Manager’s Report, but in short it envisaged securitising the
initial Keystone pool, selling lower yielding portfolios to provide
liquidity events as well as allocating resources to new origination
at Keystone – effectively maximising the risk-adjusted returns from
UKML’s mortgage pools. It also committed the Company to not
refinancing a mortgage securitisation if the share price discount
to NAV was greater than 5% and to propose a managed wind down of
the Company, should its shares not be trading at a premium on the
second anniversary of the December
2020 EGM.
UKML 2.0 was approved at that EGM by over 80% of shareholders
and it is pleasing to report that excellent and swift progress has
been made on the new strategy. The first Keystone securitisation
was priced in January and in February we reached agreement on
selling our two pools of mortgages issued by Coventry Building
Society. Importantly, all three transactions have been priced on
better terms than modelled in the UKML 2.0 presentations.
The next step is to use a proportion of the funds raised from
the Coventry sales to finance
further share buybacks in the form of two tender offers and a
circular to shareholders detailing the terms of these tenders was
published on 26 February 2021. At the
same time, we will be funding the second Keystone pool through a
new warehouse funding arrangement, which will be immediately
accretive to earnings.
The overall effect of these transactions is to leave UKML as
well positioned as it has ever been to deliver returns uncorrelated
to bond or equity markets and this has been reflected in the
improvement in the share price from the lows of around 40p a year
or so ago to over 70p at the time of writing. This still represents
a meaningful discount of approximately 11%, but it is a far cry
from the near 50% discount of March last year. Narrowing this
discount further is central to the success of our strategy and
remains a prime focus of the Board.
Clearly, since those early days of the COVID-19 pandemic our
worst fears over the extent of mortgage holidays and the
consequences of other forbearance measures have not materialised
and, although the pandemic may not be over, with the pace of
vaccinations we can see a likely path to recovery through 2021.
Despite the general lockdown, house prices have remained resilient
and with interest rates unlikely to rise for some time and mortgage
lending margins being maintained, the economic background for the
Company is positive.
Thank you for your continuing support.
Christopher Waldron
Chairman
16 March 2021
PORTFOLIO MANAGER’S REPORT
for the period from 1 July 2020 to
31 December 2020
Commentary
As many of the events of last summer were covered in detail in
the Portfolio Manager’s Report for the financial statements for the
year ending June 2020, this statement
will focus primarily on developments since that report was
published in late October 2020.
Having consulted extensively with shareholders during the
summer, the Company’s Board was at that time moving ahead with its
strategic review. This review identified two potential options;
either to continue operating under a revised mandate offering
increased focus on enhancing liquidity and returns or to proceed
with an orderly wind-down and return capital to
shareholders.
Given the improved and improving outlook for the UK mortgage and
housing markets, the success of the Oat Hill No.2 securitisation
three months previously and the subsequent planned share buybacks
which totalled 40.832m shares at
prices between 65p and 68p, the ongoing improvements in RMBS
markets and therefore the potential for further successful
securitisation issues, but bearing in mind the uncertain future
prospects with a resurgence of COVID-19, rising unemployment and at
that time the planned ending of the stamp duty relief period in
March 2021, the Board concluded that
there was a case to be made for both options. They therefore
embarked on a further round of shareholder consultations with
a view to ascertaining the appetite for each of those two options,
and with the stated intention to subsequently make a firm
recommendation to shareholders.
Following those consultation meetings and having considered
shareholders’ input, the Board convened an Extraordinary General
Meeting in early December with the recommendation that the Company
should continue operating as a publicly traded investment company
under a revised mandate offering increased focus on enhancing
liquidity and returns whilst continuing to seek to narrow the share
price discount to NAV.
This proposal – dubbed “UKML 2.0” – included three specific
objectives. To securitise the existing Keystone pool of BTL loans
to lock-in the attractive returns (estimated in the low-mid teens
over three years at that time), to take advantage of the
foreseeable future favourable origination and funding conditions by
funding and ultimately securitising a second Keystone portfolio
(estimated to yield in the mid-high teens), and to realise the two
lower yielding Coventry pools and
use the proceeds, net of commitments, to return capital to
shareholders by way of tender at a price materially above the 70p
price of the M&G approach in the previous August. The size of
the tender was estimated to be in the range of £35m - £40m.
Furthermore, the proposal included two shareholder protection
mechanisms such that should the share price be at an average
discount of more than 5% to the NAV at the consideration of a
future securitisation then the Board would pursue a realisation of
those assets with the proceeds intended to be returned to
shareholders, and should the average share price not be above the
NAV at the two-year anniversary of the EGM then the board would
place the company into a managed wind-down.
The combination of these objectives and protections offered
significant optionality to shareholders, giving them the
opportunity to benefit from the anticipated higher returns going
forward, both from locking in and building further on the higher
yielding assets whilst also disposing of lower yielding assets and
using the proceeds to increase liquidity and thus reducing the
dividend requirement, and at the same time protecting shareholders
against share price underperformance without significantly
extending the timeframe to return cash (given that the recent 3
year Oat Hill securitisation couldn’t be unwound until it’s third
anniversary) should that be required.
Furthermore, the proposals were intended to enhance the dividend
coverage with the Company now essentially fully invested and boost
future returns, thereby enhancing NAV progression.
As such, the EGM saw overwhelming support from shareholders,
receiving 80.5% of votes in favour from a high turnout of almost
75%.
What followed has since proved to be an extremely busy and
productive two months or so, with all three of those objectives
essentially achieved, or at least in place.
By mid-late November the vast majority of the structuring work
for the first Keystone transaction had already been completed.
Whilst it would have been possible to proceed directly with the
securitisation, a number of factors, including the likely slowdown
in market activity due to the impending year-end and the
at-that-time unresolved Brexit Withdrawal Agreement and looming
deadline, meant that the Portfolio Manager and the Board, having
consulted with the deal’s appointed arrangers and syndicate
managers, took the decision to hold back until the New Year. This
was also in the expectation that the market improvement seen since
the peak of the COVID-19 pandemic would continue and that with
markets reopened in January broader investment focus from
potential securitisation investors could be achieved thereby
improving execution terms.
This proved to be a wise decision as markets began the New Year
strongly and consequently the Hops Hill No. 1 transaction was
announced on Monday 11 January 2021 –
the market’s first deal of the year. Not only did it allow for a
larger pool to be built, but also allowed the incorporation of a
£63m pre-funding feature to the deal – boosting the pool size from
the £337m of loans originated by the end of December to a deal size
of £400m. This enabled the Company to dilute the costs of the
securitisation over a larger pool of assets and to immediately lock
in attractive financing terms.
Following several days of investor meetings and book building,
the deal was launched and priced on Friday 15 January 2021 and proved to be a resounding
success. Books were 3.4x oversubscribed on the senior notes and
between 6x and 8x oversubscribed on the mezzanine tranches. We were
also able to tighten the pricing on the senior notes by around
15bps from initial guidance and around 25bps or more on the
mezzanine bonds. The headline spread on the senior notes priced at
SONIA+95bps. On a weighted average basis, the overall deal pricing
was around 20bps tighter than the level indicated to investors
during the investor consultations prior to the EGM and over 35bps
better than the pricing on the Oat Hill No.2 transaction last
summer. The deal saw the broadest distribution of any UKML
securitisation so far with investors from the bank, asset
management, insurance and central bank sectors and not just in the
UK but also from a number of European states, the US and
Australia.
Much of this success – particularly impressive for a debut
issuer/originator with loans not previously seen as an entire
transaction by securitisation investors – was down to the quality
of the asset pool, as exemplified by its performance through the
peak of the COVID-19 pandemic last summer when payment holidays
reached just over 3% compared to the market average for BTL loans
in the 15% to 20% range, and for some originators significantly
higher than that. This led to exceptional investor engagement, as
evidenced by the eventual distribution, subscription and pricing.
The resultant outcome therefore being a significant positive for
the returns and the value of the Company.
Throughout this time, preparations were also ongoing for the
second Keystone warehouse, with pricing and structuring discussions
taking place with a number of potential bank partners. In early
February a mandate was awarded and documentation is being completed
at the time of writing to allow the new warehouse to seamlessly
absorb future Keystone origination once the pre-funding period for
Hops Hill No.1 is completed by the May Interest Payment Date.
Moreover, this warehouse will also benefit from the pricing success
of the Hops Hill No.1 deal, and will therefore use less capital,
further enhancing returns for the Company and benefitting the
valuation.
The third objective from December’s EGM was to realise the two
lower yielding Coventry pools, and
use the net proceeds to create more liquidity. These pools are high
quality and have performed exceptionally over the last five years
or more. However, the environment has changed significantly since
the first one was purchased – nine months before the original
Brexit vote.
Whilst a number of potential third party buyers for these pools
were considered, it was clear that the original lender, and ongoing
servicer, of the loans, Coventry
themselves would have a strong appetite and the cost and time
savings from a documentation and due diligence perspective were
significant, outweighing any possible pricing differential. In fact
whilst it had been highlighted to investors during the
consultations last December that the Malt Hill No.2 pool was locked
into its securitisation at least until the first optional
redemption date in May this year, and therefore it was expected
that sales of the portfolios would need to be timed to coincide
with that event, Coventry, with
their knowledge of the portfolios, were in a position to be able to
act more quickly on the loans in the Cornhill No.6 warehouse, and
hence in early February we were able to conclude negotiations and
documentation with them and announce that an agreement had been
reached to sell both portfolios to Coventry’s BTL subsidiary Godiva
at their respective Interest Payment Dates in February and May.
This early execution on the Cornhill No.6 portfolio will allow
two tenders for stock to take place rather than one – the first
three months earlier than expected following the settlement of the
Cornhill No.6 sale, thereby returning capital to shareholders
faster and enhancing value for the company by reducing the outgoing
dividend sooner, improving dividend cover. In addition, the
execution achieved on the sales exceeded the levels indicated to
shareholders in late 2020, and therefore the expected total return
of capital is now likely to be in the region of £40m – the upper
end of the £35m-40m range indicated
in the autumn, with the first of the two tenders announced to take
place at an EGM on 23 March 2021
comprising a capital return of £20m. However, it should be noted
that whilst the expected results from realising these portfolios
are not expected to be materially different to their amortised cost
at the date of sale, there are likely to be costs associated with
unwinding the swap hedges. When the proposed sales were presented
to shareholders in late 2020, it was highlighted that an early
realisation may result in a negative impact on the NAV. The
improved execution will reduce that impact significantly, but not
eradicate it.
Also, whilst not part of the objectives from the EGM, the
ramp-up of the second TML warehouse had been completed with the
funding locked in on good terms allowing flexibility on timing for
optimising that value.
In summary, in just two months since the EGM, the income
cashflow of the Company has been secured and at highly attractive
levels, which will enhance dividend cover going forward, and
further exceed that once the two Coventry portfolio sales and the subsequent
tenders are completed. This will increase as the second Keystone
pool is built.
This also effectively means the Company’s assets, and therefore
the Company itself, are worth more in an environment where high
quality, yielding assets are difficult to source, as evidenced by
the approach from M&G in 2020. Furthermore, with markets
significantly recovered from the COVID-19 induced shock of last
summer, those assets are now cheaper to fund, further enhancing
value and returns for the Company which will flow into the NAV and
also hopefully into the share price going forward, allowing further
growth in the longer term.
Portfolio Review
At the time of writing the overall portfolio has approximately
£1.7bn of mortgages, although that will fall by around £480m once
the two Coventry portfolios have
been sold. That said, we expect Keystone’s origination to add
around £25m per month on average going forward.
The payment holiday scheme, which was introduced by the
government during the pandemic has all but disappeared, with only a
small residual amount still to roll off, and the FCA have confirmed
that the scheme officially closes to new requests at the end of
March, and any extensions must be completed by July.
So far the residual impact from either payment holidays or the
anticipated unwinding of the government’s other COVID-19 support
schemes – in particular the furlough scheme and the spectre for
higher unemployment in the near term – has been relatively
negligible. In fact only the Barley Hill No.1 portfolio has
so far shown any noticeable uptick in arrears (see below).
We do expect to see some performance deterioration as the unwind
of the furlough scheme and other government aid comes to an end
later in the year, and forecasts are for unemployment to grow which
will undoubtedly lead to some arrears in the near-term. How long
this lasts is clearly uncertain, with positive growth forecasts
from the Bank of England for the
latter part of the year and into 2022, but some borrowers will
undoubtedly become stressed and in some cases this may even lead to
foreclosures in the future, which could in turn result in some loan
losses, which we continue to stress severely in our ECL
calculations. However, the current performance position is healthy
and the level of any deterioration difficult to assess, albeit
given the level of government support afforded to the economy so
far plus the FCA directed aid to the mortgage market, we would
expect that future performance will be characterised more through
forbearance (whether in the form of payment arrangements, term
extensions, product amendments etc.) than through a significant
increase in foreclosures.
Purchased Buy-to-Let – All portfolios have continued to
perform well, and in general the key performance metrics are not
dissimilar to where they were a year ago, prior to the outbreak of
the pandemic. The two Coventry
portfolios have just 5 loans in arrears at the period end and given
the subsequently announced portfolio sales, no impact on portfolio
performance is expected. The Oat Hill No.2 portfolio has 3 months
or more arrears at 0.81% at year-end, just 35 loans from a pool of
almost 3,700, up slightly from a range between 25-30 in the early
part of 2020 but consistent with a range between 32-37 loans in the
second half of last year.
Forward Flow Buy-to-Let – The Keystone (now Hops Hill
No.1) portfolio had no loans 3 months or more in arrears at the
period-end, albeit 1 loan was more than 1 month in arrears with an
arrears balance of £634.
Owner Occupied – The two TML portfolios saw by far the
most significant impact from the payment holiday scheme last year.
In the market as a whole owner-occupied loans saw a larger take-up
than BTL and whilst like most other lenders in the market these
have subsequently reduced to very low levels, there has been an
increase in arrears, primarily in the Barley Hill No.1 portfolio,
as a number of those borrowers have struggled to resume payments
following their payment holiday period.
At period end, 20 loans (from a pool of 867) in the Barley Hill
pool were 3 months or more in arrears or 2.75% by balance. Almost a
third of these loans are actually making regular payments but built
up arrears over the last year, primarily as a result of the
pandemic. A further three properties are actually on the market for
sale – not because they are in repossession but typically where
there has been a relationship breakdown. This includes the property
securing the largest of the loans in arrears – almost 20% of the
total amount – and this loan currently has a LTV of just 37% so it
highly unlikely that there might be a resultant loss once the
property is sold. Overall the LTVs of all the loans in arrears is
just 59.5% - again giving a significant level of buffer should a
repossession become necessary in the future. These loans are
monitored on a line-by-line basis every month with the servicing
team at TML to ensure the most up to date information, and to
discuss recommended action. It should also be noted that the number
of loans 1 month or more in arrears has increased in recent months
with 39 loans in that bucket at period end compared to a steady
state of around 25 loans prior to the pandemic. We would
expect that some of these loans (many of which are also making
payments) will migrate into the 3 months or more in arrears
category in the future. However, we remain confident that overall
arrears levels are very manageable and well within modelled
levels.
Outlook
With both RMBS and housing/mortgage markets performing strongly,
the outlook for origination remains positive. Whilst a slowdown at
least in housing markets is inevitable later in the year when the
stamp duty relief period comes to an end, following its recent
extension by the Chancellor to June and then tapering at half the
current level until September. It should also be borne in mind that
this comes on the back of sustained growth since last summer which
provides significant protection for existing stock.
Furthermore, the RMBS supply-demand imbalance, as evidenced by
the very high levels of oversubscription for all primary deals so
far in 2021 and the demand for secondary bonds, remains very much
in play and that will be supportive for spreads in the near term.
The UK RMBS new issue pipeline is most likely to be
predominantly from ongoing non-bank financial issuers, with a
mixture of refinancings due in 2021 and recently originated
collateral, with central bank schemes such as TFSME likely to be
the preferred funding choice for most banks. This will keep supply
well below historical levels and therefore support ongoing
demand.
On the asset performance side, we do expect deterioration as the
lockdown measures are loosened and government support is gradually
removed. We believe the generally high quality of the portfolios
will mean these arrears will perform well within modelled stresses
and in particular well within the levels reserved in our IFRS 9 ECL
provisioning, in which we further increased default and stress
levels in this reporting period.
TwentyFour Asset Management LLP
16 March
2021
BOARD MEMBERS
Biographical details of the Directors are as follows:
Christopher
Waldron (Chairman) - Independent Non-Executive Director –
Guernsey resident
Mr Waldron is the Chairman of Crystal Amber Fund Limited and a
director of a number of unlisted companies. He has over 30 years'
experience as an investment manager, specialising in fixed income,
hedging strategies and alternative investment mandates and until
2013 was Chief Executive of the Edmond de Rothschild Group in the
Channel Islands. Prior to joining
the Edmond de Rothschild Group in 1999, Mr Waldron held investment
management positions with Bank of Bermuda, the Jardine Matheson Group and
Fortis. From 2014 until 2020, Mr Waldron was a non-political member
of the States of Guernsey’s Investment and Bond Sub-Committee. He
is a Fellow of the Chartered Institute of Securities and
Investment. Mr Waldron was appointed to the Board on 10 June
2015.
Richard
Burrows (Risk Committee Chairman) - Senior Independent
Non-Executive Director – UK resident
Mr Burrows works as Treasurer of British Arab Commercial Bank
plc in London. He has previously
held senior Treasury related roles at Bank of China, London
Branch (2015 – 2018), Co-operative Bank (2012 – 2015), Northern
Rock (2009 – 2010) and Citi Alternative Investments (1994 – 2008).
From 2010 to 2012, Mr Burrows worked in the Prudential Risk
Division of the Financial Services Authority as the UK regulator
rolled out its post-crisis requirements with specific focus on the
liquidity regime. Mr Burrows was appointed to the Board on
12 June 2015.
Paul Le
Page (Audit Committee Chairman) - Independent Non-Executive
Director – Guernsey resident
Paul Le Page was formerly an
Executive Director and Senior Portfolio Manager of FRM Investment
Management Limited, a subsidiary of Man Group. In this capacity he
managed alternative investment portfolios for institutional clients
and was a director of a number of group funds and structures. Prior
to joining FRM, he was employed by Collins Stewart Asset
Management, a firm which was subsequently acquired by Canaccord
Genuity where he was responsible for managing the firm’s hedge fund
portfolios and reviewing both traditional and alternative fund
managers in his capacity as Head of Fund Research following
completion of his MBA. He originally qualified as Chartered
Electrical Engineer following a successful career in industrial
R&D where he led the development of robotic immunoassay
diagnostic equipment and software as R&D Director for Dynex
Technologies Guernsey. In addition to his private directorship
roles, Mr Le Page has chaired Audit
and Risk Committees for a number of London Stock Exchange-listed
Investment Companies since January
2004. Mr Le Page was
appointed to the Board on 10 June
2015.
Helen
Green - Independent Non-Executive Director - Guernsey resident
Mrs Green is a chartered accountant and has been employed by
Saffery Champness, a top 20 firm of chartered accountants, since
1984. She qualified as a chartered accountant in 1987 and became a
partner in the London office in
1998. Since 2000, she has been based in the Guernsey office where she is client liaison
director responsible for trust and company administration. Mrs
Green serves as a Non-Executive Director on the boards of a number
of companies in various jurisdictions, including Aberdeen Emerging
Markets Investment Company Limited, Landore Resources Limited, CQS
Natural Resources Growth and Income plc and JPMorgan Global Core
Real Assets Limited. Mrs Green was appointed to the Board on
16 June 2016.
The Directors named above were the directors of the Company,
and held this office during the period and up to the date of
signing the Unaudited Condensed Consolidated Interim
Financial Statements.
STATEMENT OF PRINCIPAL RISKS AND
UNCERTAINTIES
Principal Risks and Uncertainties
In respect to the Company’s system of Internal Controls and
reviewing its effectiveness, the Directors:
· are satisfied that they
have carried out a robust assessment of the principal risks facing
the Company, including those that would threaten its business
model, future performance, solvency or liquidity; and
· have reviewed the
effectiveness of the risk management and Internal Control systems
including material financial, operational and compliance controls
(including those relating to the financial reporting process) and
no significant failings or weaknesses were identified.
When considering the total return of the Company, the Board
takes account of the risk which has been taken in order to achieve
that return. The Board considers the following principal risks to
be relevant for the next six months:
· The risk of the Company being
unable to pay target dividends to investors due to a shortfall in
income received on the portfolio. The risk is monitored by the
Board receiving quarterly reports from the Portfolio Manager, in
conjunction with the Company’s Administrator, which monitor the
Company’s current and projected cash flow and income position, as
well as the macro economic environment, paying particular attention
to movements in the house price index, unemployment levels and
interest rates as well as loan level and portfolio attributes such
as prepayment rates, mortgage holidays, forbearance requests and
the possibility and timing of defaults, all of which could reduce
cash flow to the Company. The Company has paid dividends from
capital with Board agreement, to the extent that the Board has
assessed the factors indicating that future income flows will be
sufficient to restore any distributed capital. In August 2019, a change to the Company’s investment
policy was approved by a majority of the Company’s shareholders
with a view to expediting progress to a fully covered dividend
despite falling net interest rate margins. The portfolio changes
implemented as a result of the strategic review in December 2020 also improve the risk-adjusted
returns of the Company and will improve dividend cover.
· The risk of the Company being
unable to invest or reinvest capital repaid from mortgage loans to
purchase additional mortgage assets in a timely manner. The risk is
mitigated by the Board monitoring the portfolio pipeline in regular
communication with the Portfolio Manager, and in quarterly and ad
hoc Board meetings.
· The risk of investor
dissatisfaction leading to a weaker share price, causing the
Company to trade at a discount to its underlying asset value and a
potential lack of market liquidity. The risk is managed by regular
updates to Shareholders from the Portfolio Manager, and regular
shareholder engagement both directly and via the Company’s brokers.
The Board has formalised a Share Buyback Policy and conducted a
Strategic Review involving extensive consultation with
shareholders, which includes the undertaking to tender for shares
at future liquidity events, with the intention of mitigating the
risk of long-term share price discounts.
· The risk of failing to
securitise purchased mortgage portfolios. If there is any
significant delay in the ability to securitise a portfolio, the
interest rates payable through warehouse funding arrangements are
likely to increase over time which will impact the yield of the
Company. In addition, the underlying portfolios will need to be
re-financed periodically in order to maintain optimal levels of
leverage. Failure to re-securitise at a suitable rate and/or
reinvest the proceeds of subsequent securitisations may also
adversely impact the yield of the Company. The risk is mitigated by
the Portfolio Manager who retains team members with extensive
securitisation experience who are engaged with the UK RMBS market
and service providers. The Company may also use short term
financing where needed to enable it to optimise the timing of its
securitisation transactions.
Emerging Risks and Uncertainties
In order to recognise any emerging risks that may impact the
Company and to ensure that appropriate controls are in place to
manage those risks, the Audit Committee undertakes regular reviews
of the Company’s Risk Matrix. An overview of emerging risks is set
out below:
· The risks associated with the
COVID-19 global pandemic. The UK government in common with its
European neighbours has implemented unprecedented measures to
restrict the possibility of transmission of the COVID-19 virus by
limiting personal contact and international travel. Whilst the
ultimate scope and duration of these measures is currently unclear,
they are likely to have a severe impact on the UK Economy, which
the government and the Bank of England are attempting to offset with both
traditional and unconventional fiscal and monetary policy measures.
The Company’s mortgage portfolios are solely focused within the
United Kingdom and as such the
payment profiles of the underlying loans will be impacted by the
crystallisation of risks emerging from changes in the macroeconomic
environment. The likely removal of direct support measures,
particularly the financial support given to firms to furlough
staff, will inevitably lead to an increase in unemployment, a key
metric in determining mortgage arrears data. Adjustments to the
overall level and precise application of tax increases will likely
reduce disposable income levels that could affect the first time
buyer mortgage market disproportionately. Furthermore, monetary
policy measures taken internationally affect the absolute
level of interest rates and therefore the spread that can be
achieved between financial assets and liabilities.
· The risks associated with the
UK’s withdrawal from the European Union. The UK left the EU on
31 January 2020 and entered into a
transition period ending 31 December
2020. During this period, the UK’s arrangements with the EU
remained unchanged. The Company needs to comply with
financial services regulations which may differ between the two
jurisdictions.
· The risks associated with UK
Base Rates moving to a negative rate. The likelihood of UK Base
Rates moving to a negative rate (from the current 0.10%) has
arguably increased as the Bank of England has asked some UK banks to report on
the operational implications of implementing a negative or zero
policy rate. The direct impact on the Company is assessed as
minimal as whilst some of the Company’s underlying assets do
directly reference the base rate, particularly the majority of the
CHL portfolio, this risk is offset by the Company’s funding
arrangements which are linked to SONIA which is closely correlated
to the base rate. Negative interest rates for some GBP Sterling
denominated products already exist as some Gilts trade at effective
negative interest rates in the secondary market. Longer term
interest rates relating to mortgage assets and securitisation
liabilities may adjust downwards but the risk for the Company
remains the spread between the funding and the lending. This risk
is already factored into the ongoing assessment of the Company.
Other risks and uncertainties
The Board has identified the following other risks and
uncertainties along with the steps taken to mitigate them:
Operational risks
The Company is exposed to the risk arising from any failures of
systems and controls in the operations of the Portfolio Manager,
Administrator, AIFM, Custodian and the Depositary amongst others.
The Board and its Audit Committee regularly review reports from the
Portfolio Manager, AIFM, the Administrator, Custodian and
Depositary on their internal controls. The Administrator, Custodian
and Depositary will report to the Portfolio Manager any operational
issues which will be brought to the Board for final approval as
required.
Accounting, legal and regulatory
risks
The Company is exposed to the risk that it may fail to maintain
accurate accounting records or fail to comply with requirements of
its Admission document and fail to meet listing obligations. The
accounting records prepared by the Administrator are reviewed by
the Portfolio Manager. The Portfolio Manager, Administrator, AIFM,
Custodian, Depositary and Corporate Broker provide regular updates
to the Board on compliance with the Admission document and changes
in regulation. Changes in the legal or the regulatory environment
can have a major impact on some classes of debt. The Portfolio
Manager monitors this and takes appropriate action.
Income recognition risk
The Board considers income recognition to be a principal risk
and uncertainty of the Company as the Portfolio Manager estimates
the pre-payment rates for the underlying mortgage portfolios, which
has an impact on the effective interest rate of the Asset Backed
Securities which in turn impacts the calculation of interest
income. As a result of the work undertaken by the Audit Committee,
the Board is satisfied that income is appropriately stated in all
material respects in the Unaudited Condensed Consolidated Interim
Financial Statements.
Cyber security risks
The Company is exposed to risk arising from a successful
cyber-attack through its service providers. The Company requests of
its service providers that they have appropriate safeguards in
place to mitigate the risk of cyber-attacks (including minimising
the adverse consequences arising from any such attack), that they
provide regular updates to the Board on cyber security, and conduct
ongoing monitoring of industry developments in this area. The Board
is satisfied that the Company’s service providers have the relevant
controls in place to mitigate this risk.
Going Concern
As a Specialist Fund Segment entity, the Company has voluntarily
chosen to comply with the disclosure requirements of Premium
Listing rules and as such applies the Association of Investment
Companies Code (“AIC Code”) and applicable regulations. Under this
code, the Directors are required to satisfy themselves that it is
reasonable to assume that the Company is a going concern and to
identify any material uncertainties to the Company’s ability to
continue as a going concern for at least 12 months from the date of
approving these Unaudited Condensed Consolidated Interim Financial
Statements.
Having reviewed the Company’s current portfolio and pipeline of
investment transactions, the Board of Directors believe that it is
appropriate to adopt a going concern basis in preparing the
Unaudited Condensed Consolidated Interim Financial Statements given
the Company’s holdings of cash and cash equivalents and the income
deriving from those investments, meaning the Company has adequate
financial resources to meet its liabilities as they fall due over a
period of 12 months from the approval of the Unaudited Condensed
Consolidated Interim Financial Statements.
The Company undertook a strategic review consultation with its
shareholders which concluded in December
2020 with an EGM vote in which the majority of the Company’s
shareholders participated. Over 80% of the voting
shareholders voted in favour of the Board’s proposals that were
intended to increase dividend cover and enhance liquidity and
returns for shareholders. Had the Board’s proposals not been
accepted the Company would have been required to liquidate its
portfolio, which would have taken approximately three years to
complete. In either scenario the Board was satisfied that the
Company would continue to operate for more than 12 months after
signing these statements.
Related Parties
Other than fees payable in the ordinary course of business,
there have been no material transactions with related parties which
have affected the financial position or performance of the Company
in the financial period. Please refer to note 13 for further
details.
RESPONSIBILITY STATEMENT
The Directors confirm that to the best of their knowledge:
· these Unaudited Condensed
Consolidated Interim Financial Statements have been prepared in
accordance with International Accounting Standard 34, "Interim
Financial Reporting" and give a true and fair view of the assets,
liabilities, financial position and profit or loss of UKML and its
subsidiaries included in the consolidation taken as a whole, as
required by the UK Listing Authority’s Disclosure and Transparency
Rule (“DTR”) 4.2.4R.
· the interim management report
includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules,
being an indication of important events that have occurred during
the period from 1 July 2020 to
31 December 2020 and their impact on
the Unaudited Condensed Consolidated Interim Financial Statements;
and a description of the principal risks and uncertainties for the
remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules,
being related party transactions that have taken place during the
period from 1 July 2020 to
31 December 2020 and that have
materially affected the financial position or performance of the
Company during that period as included in note 13.
By order of the Board
Christopher
Waldron
Chairman
Paul Le
Page
Director
16 March
2021
INDEPENDENT REVIEW REPORT TO UK MORTGAGES LIMITED
We have been engaged by UK Mortgages Limited (the “Company”) to
review the condensed set of consolidated financial statements in
the half-yearly financial report for the six months ended
31 December 2020 which comprises the
condensed consolidated statement of comprehensive income, the
condensed consolidated statement of financial position, the
condensed consolidated statement of changes in equity, the
condensed consolidated statement of cash flows and related notes 1
to 21. We have read the other information contained in the
half-yearly financial report and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of consolidated financial
statements.
Directors’ responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom’s Financial Conduct Authority.
As disclosed in note 2, the annual consolidated financial
statements of the Company are prepared in accordance with IFRSs as
adopted by the European Union. The condensed set of consolidated
financial statements included in this half-yearly financial report
has been prepared in accordance with International Accounting
Standard 34 “Interim Financial Reporting” as adopted by the
European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of consolidated financial statements in the
half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 “Review of Interim Financial
Information Performed by the Independent Auditor of the Entity”
issued by the Financial Reporting Council for use in the
United Kingdom. A review of
interim financial information consists of making inquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of consolidated
financial statements in the half-yearly financial report for the
six months ended 31 December 2020 is
not prepared, in all material respects, in accordance with
International Accounting Standard 34 as adopted by the European
Union and the Disclosure Guidance and Transparency Rules of the
United Kingdom’s Financial Conduct Authority.
Use of our report
This report is made solely to the Company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410 “Review of Interim Financial
Information Performed by the Independent Auditor of the Entity”
issued by the Financial Reporting Council. Our work has been
undertaken so that we might state to the Company those matters we
are required to state to it in an independent review report and for
no other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the Company,
for our review work, for this report, or for the conclusions we
have formed.
Deloitte LLP
Recognised Auditor
Guernsey, Channel Islands
16 March 2021
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the period from 1 July 2020 to
31 December 2020
|
|
|
For
the period from 01.07.2020 to 31.12.2020 |
|
For
the period from 01.07.2019 to 31.12.2019 |
|
|
|
Unaudited |
|
Unaudited |
|
|
Note |
£ |
|
£ |
Income |
|
|
|
|
|
|
|
|
|
|
|
Interest income on
mortgage loans |
|
|
25,721,097 |
|
23,065,087 |
Net gain
from derivative financial instruments |
7 |
385,713 |
|
347,375 |
Total
income |
|
|
26,106,810 |
|
23,412,462 |
|
|
|
|
|
|
Interest expense on
loan notes |
|
11 |
4,704,502 |
|
7,299,398 |
Net interest expense
on financial liabilities at fair value through profit and loss |
|
7 |
4,650,721 |
|
1,838,958 |
Interest expense on
borrowings |
|
10 |
3,561,093 |
|
2,931,409 |
Loan note issue fees
and borrowing costs amortised |
|
10 &
11 |
1,679,377 |
|
1,895,985 |
Mortgage loans
servicing fees |
|
|
1,660,182 |
|
1,432,150 |
Trail fees |
|
|
1,276,028 |
|
1,301,582 |
Amortisation of
discount on loan notes |
|
11 |
676,905 |
|
413,499 |
Legal and professional
fees |
|
|
507,338 |
|
322,770 |
Mortgage loan write
offs |
|
5 |
562,875 |
|
542,446 |
Portfolio management
fees |
|
13 |
475,478 |
|
577,466 |
Expected credit loss
provision |
|
5 |
329,716 |
|
134,997 |
Administration and
secretarial fees |
|
14 |
123,822 |
|
134,401 |
Corporate broker
fees |
|
|
339,072 |
|
20,166 |
Audit fees |
|
|
238,203 |
|
199,306 |
General expenses |
|
|
392,357 |
|
780,045 |
Borrowings facility
fees |
|
10 |
71,531 |
|
24,712 |
Directors' fees |
|
13 |
67,500 |
|
67,500 |
AIFM fees |
|
14 |
48,199 |
|
48,666 |
Depositary fees |
|
14 |
30,250 |
|
27,818 |
Custody fees |
|
14 |
12,940 |
|
9,962 |
Total
expenses |
|
|
21,408,089 |
|
20,003,236 |
Total comprehensive
gain for the period |
|
|
4,698,721 |
|
3,409,226 |
Gain per ordinary
share - |
|
|
0.019 |
|
0.013 |
basic &
diluted |
|
3 |
|
All items in the above statement derive from continuing
operations.
The notes form an integral part of these Unaudited Condensed
Consolidated Interim Financial Statements.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31 December 2020
|
|
31.12.2020 |
|
30.06.2020 |
|
|
Unaudited |
|
Audited |
Assets |
Note |
£ |
|
£ |
Non-current
assets |
|
|
|
|
Mortgage loans |
5 |
1,648,004,875 |
|
1,619,485,743 |
Reserve fund |
6 |
20,946,569 |
|
6,683,000 |
Total non-current
assets |
|
1,668,951,444 |
|
1,626,168,743 |
|
|
|
|
|
Current
assets |
|
|
|
|
Mortgage loans |
5 |
21,007,203 |
|
19,466,645 |
Reserve fund |
6 |
- |
|
13,521,519 |
Trade and other
receivables |
8 |
2,677,929 |
|
4,260,753 |
Cash and cash
equivalents |
|
45,465,111 |
|
37,905,366 |
Total current
assets |
|
69,150,243 |
|
75,154,283 |
Total
assets |
|
1,738,101,687 |
|
1,701,323,026 |
Liabilities |
|
|
|
|
Non-current
liabilities |
|
|
|
|
Borrowings |
10 |
668,035,345 |
|
604,296,701 |
Loan notes |
11 |
854,270,997 |
|
848,876,889 |
Total non-current
liabilities |
|
1,522,306,342 |
|
1,453,173,590 |
Current
liabilities |
|
|
|
|
Financial liabilities
at fair value through profit and loss |
7 |
19,622,581 |
|
21,477,899 |
Trade and other
payables |
9 |
6,326,790 |
|
6,594,574 |
Total current
liabilities |
|
25,949,371 |
|
28,072,473 |
Total
liabilities |
|
1,548,255,713 |
|
1,481,246,063 |
Net assets |
|
189,845,974 |
|
220,076,963 |
|
|
|
|
|
Equity |
|
|
|
|
Share capital
account |
12 |
236,937,773 |
|
264,749,999 |
Other reserves |
|
(47,091,799) |
|
(44,673,036) |
Total
equity |
|
189,845,974 |
|
220,076,963 |
Ordinary shares in
issue |
|
232,132,888 |
|
273,065,390 |
Net Asset Value per
ordinary share |
4 |
0.8178 |
|
0.8059 |
The Unaudited Condensed Consolidated Interim Financial
Statements were approved and authorised for issue by the Board on
16 March 2021 and signed on its
behalf by:
Christopher Waldron
Chairman
Paul Le Page
Director
The notes form an integral part of these Unaudited Condensed
Consolidated Interim Financial Statements.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the period from 1 July 2020 to
31 December 2020
|
|
|
Share
capital |
|
Other |
|
Total |
|
|
|
account |
|
reserves |
|
equity |
|
|
|
Unaudited |
|
Unaudited |
|
Unaudited |
|
|
Note |
£ |
|
£ |
|
£ |
Balance
at 30 June 2020 |
|
264,749,999 |
|
(44,673,036) |
|
220,076,963 |
|
|
|
|
|
|
|
|
Share
buybacks |
12 |
(27,812,226) |
|
- |
|
(27,812,226) |
Dividends
paid |
18 |
- |
|
(7,117,484) |
|
(7,117,484) |
Total
comprehensive gain for the period |
|
- |
|
4,698,721 |
|
4,698,721 |
Balance
at 31 December 2020 |
|
236,937,773 |
|
(47,091,799) |
|
189,845,974 |
|
|
|
|
|
|
|
|
|
|
|
Share
capital |
|
Other |
|
Total |
|
|
|
account |
|
reserves |
|
equity |
|
|
|
Unaudited |
|
Unaudited |
|
Unaudited |
|
|
|
£ |
|
£ |
|
£ |
Balance
at 1 July 2019 |
|
264,749,999 |
|
(40,665,194) |
|
224,084,805 |
Dividends
paid |
18 |
- |
|
(6,143,971) |
|
(6,143,971) |
Total
comprehensive gain for the period |
|
- |
|
3,409,226 |
|
3,409,226 |
Balance
at 31 December 2019 |
|
264,749,999 |
|
(43,399,939) |
|
221,350,060 |
The notes form an integral part of these Unaudited Condensed
Consolidated Interim Financial Statements.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the period from 1 July 2020 to
31 December 2020
|
|
For the period from 01.07.2020 to 31.12.2020 |
|
For the period from 01.07.2019 to 31.12.2019 |
|
|
|
|
|
Unaudited |
|
Unaudited |
|
Note |
£ |
|
£ |
|
|
|
|
|
Cash flows from
operating activities |
|
|
|
|
Total comprehensive
gain for the period |
|
4,698,721 |
|
3,409,226 |
|
|
|
|
|
Adjustments for: |
|
|
|
|
Amortised mortgage acquisition fees
released |
5 |
34,601 |
|
68,441 |
Expected credit loss provision |
5 |
329,716 |
|
134,997 |
Mortgage loan write offs |
5 |
562,875 |
|
677,443 |
Net gain from derivative financial
instruments |
7 |
(385,713) |
|
(347,375) |
Interest on derivative
financial instruments |
7 |
38,851 |
|
253,008 |
Amortisation adjustment under
effective
interest rate method |
5 |
(3,525,033) |
|
(3,722,470) |
Loan note issue fees amortised |
11 |
918,587 |
|
790,091 |
Borrowings issue fees
amortised |
10 |
760,790 |
|
916,891 |
Amortisation of discount on loan
notes |
11 |
676,905 |
|
413,499 |
Capitalised
interest |
5 |
(1,647,406) |
|
- |
Purchase of mortgage
loans |
5 |
(100,116,598) |
|
(279,825,649) |
Mortgage loans
repaid |
5 |
72,793,699 |
|
122,616,631 |
Increase in reserve
fund |
6 |
(742,050) |
|
(1,900,000) |
(Decrease)/Increase in
trade and other payables |
|
(267,784) |
|
1,582,829 |
Decrease in trade and
other receivables |
|
1,582,824 |
|
228,579 |
Net cash outflow from
operating activities |
|
(24,287,015) |
|
(154,703,859) |
|
|
|
|
|
Cash flows from
financing activities |
|
|
|
|
Proceeds from
borrowings |
10 |
86,000,000 |
|
221,000,000 |
Repayment of
borrowings |
10 |
(23,010,146) |
|
(16,033,199) |
Increase in borrowing
fees capitalised |
10 |
(12,000) |
|
(1,498,018) |
Increase in loan note
issue fees capitalised |
11 |
(2,668,343) |
|
- |
Proceeds from issue of
loan notes |
11 |
430,137,043 |
|
- |
Repayments of loan
notes |
11 |
(423,670,084) |
|
(40,924,570) |
Share buybacks |
12 |
(27,812,226) |
|
- |
Dividends paid |
18 |
(7,117,484) |
|
(6,143,971) |
Net cash inflow from
financing activities |
|
31,846,760 |
|
156,400,242 |
Increase in cash
and cash equivalents |
|
7,559,745 |
|
1,696,383 |
Cash and cash
equivalents at beginning of period |
|
37,905,366 |
|
51,521,524 |
Cash and cash
equivalents at end of period |
|
45,465,111 |
|
53,217,907 |
The notes form an integral part of these Unaudited Condensed
Consolidated Interim Financial Statements.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
for the period from 1 July 2020 to
31 December 2020
1. General
Information
UK Mortgages Limited (the “company”) was incorporated with
limited liability in Guernsey, as
a closed-ended investment company on 10 June
2015. The Company’s Shares were listed with the UK Listing
Authority and admitted to trading on the Specialist Fund Segment of
the London Stock Exchange on 7 July
2015.
These Unaudited Condensed Consolidated Interim Financial
Statements comprise the financial statements of UK Mortgages
Limited, UK Mortgages Corporate Funding Designated Activity
Company, Malt Hill No.1 Plc (dissolved on 7
January 2020), Malt Hill No. 2 Plc, Oat Hill No.1 Plc
(currently dormant), Barley Hill No.1 Plc , Oat Hill No. 2
Plc (incorporated 25 February 2020)
and the Warehouse SPVs; Cornhill Mortgages No.2 Limited (dissolved
on 27 February 2020), Cornhill
Mortgages No. 4 Limited Cornhill Mortgages No. 5 Limited and
Cornhill Mortgages No. 6 Limited as at 31
December 2020, together referred to as the “Company”. The
Warehousing SPVs are placed into liquidation upon the transfer of
the mortgage loans to the Issuer SPVs.
The Company’s investment objective is to provide Shareholders
with access to stable income returns through the application of
relatively conservative levels of leverage to portfolios of UK
mortgages.
The Company expects that income will constitute the vast
majority of the return to Shareholders and that the return to
Shareholders will have relatively low volatility and demonstrate a
low level of correlation with broader markets.
The Portfolio Manager to the Company and Portfolio Adviser to
the UK Mortgages Corporate Funding Designated Activity Company is
TwentyFour Asset Management LLP.
2. Accounting
Policies
a) Statement of compliance
The Unaudited Condensed Consolidated Interim Financial
Statements for the period from 1 July 2020 to
31 December 2020 have been prepared
on a going concern basis in accordance with IAS 34 “Interim
Financial Reporting”, the Listing Rules of the London Stock
Exchange and applicable legal and regulatory requirements.
The Unaudited Condensed Consolidated Interim Financial
Statements should be read in conjunction with the Annual
Consolidated Financial Statements for the year ended
30 June 2020 which were prepared in accordance with
International Financial Reporting Standards as issued by the IASB
(“IFRS”) and which received an unqualified audit report.
b) New accounting standards
In the current financial period, there have been no other
changes to the accounting policies from new accounting standards
applied in the most recent audited annual financial statements with
the exception of the below due to the adoption of new accounting
standards.
Amendments to IAS1, ‘Presentation of
financial statements and IAS8, ‘Accounting policies, changes in
accounting estimates and errors’ (Definition of Material)
(Effective 1 January 2020)
The amendments in Definition of Material clarify the definition
of ‘material’ and align the definition used in the Conceptual
Framework and the standards.
The amended definition is ‘Information is material if omitting,
misstating or obscuring it could reasonably be expected to
influence decisions that the primary users of general purpose
financial statements make on the basis of those financial
statements, which provide financial information about a specific
reporting entity.’
The amendments to IFRS 9, IAS 39 and
IFRS 7 ‘Interest Rate Benchmark Reform’ (Effective 1 January 2020)
The amendments amend requirements for hedge accounting to
support the provision of useful financial information during the
period of uncertainty caused by the phasing out of interest-rate
benchmarks such as interbank offered rates (IBORs) on hedge
accounting.
• The amendments modify some specific hedge
accounting requirements to provide relief from potential effects of
the uncertainty caused by the IBOR reform.
• In addition, the amendments require the Company to
provide additional information to investors about their hedging
relationships which are directly affected by these
uncertainties
The adoption of these new and amended standards did not impact
the Company’s financial statements.
No other new accounting standards were effected or adopted
during the period having an effect on the financial statements.
c) Critical judgements and
estimates
In the current financial period, there have been no changes to
the significant critical accounting judgements, estimates and
assumptions from those applied in the most recent audited annual
financial statements.
d) Standards, amendments and
interpretations issued but not yet effective
A number of new standards, amendments to standards and
interpretations are effective for annual periods beginning after
1 July 2020, and have not been early
adopted in preparing these financial statements. None of these are
expected to have a material effect on the financial statements of
the Company.
IFRS 17 Insurance Contracts (Effective
1 July 2023)
The Company expects that the adoption of IFRS 17 in the future
period will not have an impact on the Company’s Unaudited Condensed
Consolidated Interim Financial Statements, as it does not hold any
insurance contracts.
3. Gain per Ordinary Share - basic
& diluted
The gain per Ordinary Share of £0.019 (31
December 2019: £0.013) - basic and diluted have been
calculated based on the weighted average number of Ordinary Shares
of 253,736,096 (31 December 2019: 273,065,390) and a net gain
of £4,698,721 (31 December 2019:
£3,409,226).
4. Net Asset Value per Ordinary
Share
The Net Asset Value of each share of £0.8178 (30 June 2020: £0.8059) is determined by dividing
the net assets of the Company £189,845,974 (30 June 2020: £220,076,963) by the number of
shares in issue at 31 December 2020
of 232,132,888 (30 June 2020:
273,065,390).
5. Mortgage
loans
|
|
|
|
|
|
|
For
the period from 01.07.2020 to 31.12.2020 |
|
For
the year from 01.07.2019 to 30.06.2020 |
|
|
|
|
|
|
|
Unaudited |
|
Audited |
|
|
|
|
|
|
|
£ |
|
£ |
Mortgage
loans at start of the period/year |
|
1,638,952,388 |
|
1,323,721,509 |
Mortgage
loans purchased |
|
|
|
100,116,598 |
|
474,740,452 |
Effective
interest rate adjustment |
|
3,525,033 |
|
5,227,777 |
Mortgage loans
repaid |
|
|
|
|
|
|
(72,793,699) |
|
(175,465,726) |
Capitalised interest |
|
|
|
|
|
1,647,406 |
|
- |
Amortised
mortgage acquisition fees released |
(34,601) |
|
(130,580) |
Fair value adjustment
for hedged risk* |
|
|
|
|
|
|
(1,508,456) |
|
13,598,454 |
Expected
credit loss provision |
|
(329,716) |
|
(1,195,954) |
Mortgage
loan write offs |
|
|
|
|
(562,875) |
|
(1,543,544) |
Mortgage
loans at end of the period/year |
|
1,669,012,078 |
|
1,638,952,388 |
|
|
|
|
|
|
|
|
|
|
Amounts
falling due within one year |
|
21,007,203 |
|
19,466,645 |
Amounts
falling due after more than one year |
1,648,004,875 |
|
1,619,485,743 |
|
|
|
|
|
|
|
1,669,012,078 |
|
1,638,952,388 |
* Please refer to note 7 which explains how the fair value
adjustment is calculated and note 15 sets out the liquidity and
credit risk profile of the mortgage loans.
Mortgage loan write offs relates to mortgages that have been
written off during the period while the expected credit loss
provision relates to mortgages that are still outstanding.
|
|
|
|
|
|
|
As
at |
|
As
at |
|
|
|
|
|
|
|
31.12.2020 |
|
30.06.2020 |
|
|
|
|
|
|
|
Unaudited |
|
Audited |
|
|
|
|
|
|
|
£ |
|
£ |
Non-current mortgage loans |
|
|
|
|
|
Mortgage loans |
|
|
|
|
|
|
1,650,809,955 |
|
1,621,967,037 |
Impairment
allowance |
|
|
|
|
(2,805,080) |
|
(2,481,294) |
|
1,648,004,875 |
|
1,619,485,743 |
Current
mortgage loans |
|
|
|
|
|
|
|
Mortgage loans |
|
|
|
|
|
|
21,042,959 |
|
19,496,471 |
Impairment
allowance |
|
|
|
|
(35,756) |
|
(29,826) |
|
21,007,203 |
|
19,466,645 |
Mortgage loans at 31 December 2020
comprise of three securitised mortgage portfolios legally held in
Malt Hill No.2 Plc, Oat Hill No.2 Plc (re-securitised vehicle for
Oat Hill No. 1 Plc’s portfolio) and Barley Hill No. 1 Plc
(securitised vehicle for part of the Cornhill Mortgages No. 2
Limited’s portfolio) and three mortgage portfolios held with
Cornhill Mortgages No.4 Limited, Cornhill Mortgages No. 5 Limited
and Cornhill Mortgages No. 6 Limited (portfolio for this entity was
previously held by Malt Hill No. 1 Plc). The portfolio previously
held by Cornhill No. 2 Limited was transferred to Barley Hill No. 1
Plc. The Company does not experience any seasonality or cyclicality
in its investment activities.
6. Reserve funds
The reserve funds are held with Citibank N.A. London Branch. The Company is required to
maintain this reserve for both the securitised entities, for which
these funds may only be used in accordance with the Issue and
Programme Documentation, and for the unsecuritised entities, as a
contractual requirement for the senior debt facility. These funds
are therefore not readily available to the Company.
7. Financial
liabilities held at fair value through profit and loss
Derivative instruments
Cornhill Mortgages No. 6 Limited /
Malt Hill No.1 Plc
On 3 November 2015, the Company
entered into an Interest Rate Swap (under an ISDA agreement) at the
point of the initial mortgage loan portfolio purchase to convert
the fixed rate loan exposure back into 3 Month LIBOR. The notional
value of the swap is balance guaranteed in order to track the
principal balance of the mortgage loan portfolio and changes
thereto quarterly in line with the movement in the mortgage loan
portfolio. In May 2019, the Interest
Rate Swap was novated to Cornhill Mortgages No. 6 Limited on the
refinancing of Malt Hill No. 1 Plc.
Cornhill Mortgages No.2 Limited /
Barley Hill No. 1 Plc
On 7 July 2016, the Company
entered into an Interest Rate Swap (under an ISDA agreement) to
hedge the fixed rate loan exposure of the mortgages in the
portfolio into 3 Month LIBOR. The notional value of the swap is
balance guaranteed in order to track the new originations and the
amortisation of the mortgage loan portfolio and changes on a
monthly basis to reflect the principal balance of the portfolio. In
April 2019, the Interest Rate Swap
was novated to Barley Hill No. 1 Plc on the securitisation of the
Cornhill Mortgages No.2 Limited portfolio.
Malt Hill No.2 Plc
On 29 June 2018, the Company
entered into an Interest Rate Swap (under an ISDA agreement) at the
point of the initial mortgage loan portfolio purchase to convert
the fixed rate loan exposure back into 3 Month LIBOR. The notional
value of the swap is balance guaranteed in order to track the
principal balance of the mortgage loan portfolio and changes
thereto quarterly in line with the movement in the mortgage loan
portfolio.
Cornhill Mortgages No. 4 Limited
The Company has entered into a series of vanilla Interest Rate
Swaps (under an ISDA agreement) to convert the fixed rate loan
exposure into 3 Month LIBOR. Swaps are added on a regular basis, at
varying maturities, in order to align with the fixed rate reset
profile of new originations. After the period end, upon novation to
Hops Hill No. 1 the reference rate on these swaps will be moved to
SONIA.
Cornhill Mortgages No. 5 Limited
The Company has entered into a series of vanilla Interest Rate
Swaps (under an ISDA agreement) to convert the fixed rate loan
exposure into 1 Month LIBOR. Swaps are added on a regular basis, at
varying maturities, in order to align with the fixed rate reset
profile of new originations.
Notional and fair value balances:
|
|
|
|
|
|
Cornhill Mortgages No. 6 Limited |
Barley
Hill No. 1 Plc |
Malt
Hill No. 2 Plc |
Cornhill Mortgages No. 4 Limited |
Cornhill Mortgages No. 5 Limited |
31.12.2020
Total |
|
|
|
|
|
|
Unaudited |
Unaudited |
Unaudited |
Unaudited |
Unaudited |
Unaudited |
|
|
|
|
|
|
£ |
£ |
£ |
£ |
£ |
£ |
Notional
amount of Interest Rate Swap |
134.0m |
101.6m |
334.9m |
336.1m |
238.6m |
1,145.2m |
Fair value
of Interest Rate Swap |
(1,440,713) |
(1,922,538) |
(8,258,997) |
(5,751,551) |
(2,248,782) |
(19,622,581) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cornhill Mortgages No. 6 Limited |
Barley
Hill No. 1 Plc |
Malt
Hill No. 2 Plc |
Cornhill Mortgages No. 4 Limited |
Cornhill Mortgages No. 5 Limited |
30.06.2020
Total |
|
|
|
|
|
|
Audited |
Audited |
Audited |
Audited |
Audited |
Audited |
|
|
|
|
|
|
£ |
£ |
£ |
|
£ |
£ |
Notional
amount of Interest Rate Swap |
152.3m |
132.5m |
339.9m |
248.3m |
232.2m |
1,105.2m |
Fair value
of Interest Rate Swap |
(1,561,269) |
(2,386,002) |
(9,144,159) |
(5,679,631) |
(2,706,838) |
(21,477,899) |
On 1 July 2017, the Directors
designated the Malt Hill No.1 Plc and Cornhill No.2 Limited
derivatives as fair value hedges and applied hedge accounting from
that date. The swaps on Malt Hill No. 1 and Cornhill No. 2 were
subsequently novated into Cornhill No. 6 and Barley Hill No.1,
respectively upon refinancing. Hedge accounting in relation to Malt
Hill No.2 Plc derivative commenced on 1 July
2018. The vanilla swaps on Cornhill No. 4 and Cornhill No. 5
were designated as fair value hedges since June 2019 and June
2020, respectively. Additional vanilla swaps are added to
each of the portfolios on an ongoing basis as the portfolios
grow.
Interest income and expense on derivative financial instruments
is based on the net settlement of the periodic interest using
contracted notional principals and the relevant interest rates.
|
|
|
|
|
|
Cornhill Mortgages No. 6 Limited |
|
Barley
Hill No. 1 Plc |
|
Malt
Hill No. 2 Plc |
|
Cornhill Mortgages No. 4 Limited |
|
Cornhill Mortgages No. 5 Limited |
|
31.12.2020
Total |
|
|
|
|
|
|
Unaudited |
|
Unaudited |
|
Unaudited |
|
Unaudited |
|
Unaudited |
|
Unaudited |
|
|
|
|
|
|
£ |
|
£ |
|
£ |
|
£ |
|
£ |
|
£ |
Movement
on derivatives in designated fair value hedge relationships* |
128,822 |
|
405,848 |
|
957,213 |
|
(83,798) |
|
464,677 |
|
1,872,762 |
Adjustment
to mortgage loans in fair value hedge relationship |
(117,698) |
|
(433,392) |
|
(948,756) |
|
347,743 |
|
(334,946) |
|
(1,487,049) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
ineffectiveness |
11,124 |
|
(27,544) |
|
8,457 |
|
263,945 |
|
129,731 |
|
385,713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cornhill Mortgages No. 6 Limited |
|
Barley
Hill No. 1 Plc |
|
Malt
Hill No. 2 Plc |
|
Cornhill Mortgages No. 4 Limited |
|
Cornhill Mortgages No. 5 Limited |
|
31.12.2019
Total |
|
|
|
|
|
|
Unaudited |
|
Unaudited |
|
Unaudited |
|
Unaudited |
|
Unaudited |
|
Unaudited |
|
|
|
|
|
|
£ |
|
£ |
|
£ |
|
£ |
|
£ |
|
£ |
Movement
on derivatives in designated fair value hedge relationships* |
(58,298) |
|
252,812 |
|
223,280 |
|
197,698 |
|
292,883 |
|
908,375 |
Adjustment
to mortgage loans in fair value hedge relationship |
43,187 |
|
(211,029) |
|
(239,880) |
|
(153,278) |
|
- |
|
(561,000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
ineffectiveness |
(15,111) |
|
41,783 |
|
(16,600) |
|
44,420 |
|
292,883 |
|
347,375 |
*The movement on derivative financial instruments in designated
fair value hedge relationships includes £38,851 (31 December 2019: £253,008) of interest on
derivative financial instruments.
The net gain from derivative financial instruments represents
the net fair value movement on derivative instruments that are
matching risk exposure on an economic basis. Some accounting
volatility arises on these items due to accounting ineffectiveness
on designated hedges.
The net ineffectiveness is primarily due to timing differences
in income recognition between derivative instruments and the hedged
assets. This gain or loss will trend to zero over time and this is
taken into account by the Board when considering the Company’s
underlying performance.
8. Trade and other
receivables
|
|
|
|
|
|
|
As
at |
|
As
at |
|
|
|
|
|
|
|
31.12.2020 |
|
30.06.2020 |
|
|
|
|
|
|
|
Unaudited |
|
Audited |
|
|
|
|
|
|
|
£ |
|
£ |
Interest
receivable on mortgage loans |
|
2,620,852 |
|
3,563,076 |
Other
receivables and prepayments |
|
57,077 |
|
697,677 |
|
|
|
|
|
|
|
2,677,929 |
|
4,260,753 |
9. Trade and other
payables
|
|
|
|
|
|
|
As
at |
|
As
at |
|
|
|
|
|
|
|
31.12.2020 |
|
30.06.2020 |
|
|
|
|
|
|
|
Unaudited |
|
Audited |
|
|
|
|
|
|
|
£ |
|
£ |
Interest
due on loan notes and borrowings |
|
3,795,441 |
|
3,940,655 |
Loan notes
and borrowings issue fees payable |
788,285 |
|
909,660 |
Mortgage
loans servicing fees payable |
|
485,514 |
|
711,347 |
Portfolio
management fees payable |
|
475,548 |
|
444,763 |
General
expenses payable |
|
|
|
240,443 |
|
68,531 |
Legal and
professional fees payable |
|
211,611 |
|
219,668 |
Audit fees
payable |
|
|
|
|
|
178,222 |
|
115,357 |
Administration and secretarial fees payable |
|
102,297 |
|
105,507 |
AIFM fees
payable |
|
|
|
|
|
24,100 |
|
23,638 |
Depositary
fees payable |
|
|
|
|
19,042 |
|
16,263 |
Custody
fees payable |
|
|
|
|
6,287 |
|
5,435 |
Directors'
fees payable |
|
|
|
|
- |
|
33,750 |
|
|
|
|
|
|
|
6,326,790 |
|
6,594,574 |
10. Borrowings
Cornhill Mortgages No.4 Limited agreed a borrowing facility of
£200m from September 2018, with
National Australia Bank Limited, with the facility size increased
to £300m as part of amendments signed in March 2020. National Australia Bank Limited has
permitted Cornhill Mortgages No.4 Limited to dynamically change the
facility amount, which has resulted in no commitment fees being
incurred to date on the facility. This facility has a repayment
date of October 2022 and is
classified as a non-current liability.
Cornhill Mortgages No.5 Limited agreed a borrowing facility of
£250m from August 2019, with Regency
Assets Designated Activity Company, a bankruptcy remote asset
backed commercial paper conduit sponsored by HSBC Bank plc. This
facility has a repayment date of February
2022 and is classified as a non-current liability.
Cornhill Mortgages No.6 Limited agreed a borrowing facility of
£184m from May 2019, with Lloyds Bank
Corporate Markets Plc. The total facility was utilised on day one.
To date Cornhill Mortgages No.6 has a repaid £23m of the total
facility. This facility has a final repayment date of April 2056 and is classified as a non-current
liability.
The Company is subject to covenants, representations and
warranties commonly associated with corporate bank debt and credit
facilities. The Company was compliant with all covenants at the
period end.
|
|
|
|
|
|
|
As
at |
|
As
at |
|
|
|
|
|
|
|
31.12.2020 |
|
30.06.2020 |
|
|
|
|
|
|
|
Unaudited |
|
Audited |
|
|
|
|
|
|
|
£ |
|
£ |
Borrowings
at start of the period/year |
|
604,296,701 |
|
228,283,804 |
Borrowings issued |
|
|
|
|
|
|
86,000,000 |
|
401,000,000 |
Borrowings repaid |
|
|
|
|
|
|
(23,010,146) |
|
(24,926,646) |
Borrowings
issues fees incurred |
|
(12,000) |
|
(1,618,018) |
Borrowings
issue fees amortised |
|
760,790 |
|
1,557,561 |
Borrowings
at end of the period/year |
|
668,035,345 |
|
604,296,701 |
The facility fees of £71,531 (31 December
2019: £24,712) were expensed in the period. The interest
expense charged on borrowings of £3,561,093 (31 December 2019: £2,931,409) were expensed in
the period. Borrowing costs of £760,790 (31
December 2019: £630,729) were amortised during the
period.
11. Loan notes
The Malt Hill No.1 Plc, Oat Hill No.1 Plc, Malt Hill No. 2 Plc
and Barley Hill No. 1 Plc mortgage portfolio acquisitions are
partially financed by the issue of notes. The notes are repaid as
the underlying mortgage loans repay. The terms and conditions of
the notes provide that the note holders will receive interest and
principal only to the extent that sufficient funds are generated
from the underlying mortgage loans. The priority and amount of
claims on the portfolio proceeds are determined in accordance with
strict priority of payments. Note holders have no recourse to the
Company in any form.
Malt Hill No.1 Plc completed the public sale of £263.3m of
AAA-rated bonds on 26 May 2016. The
AAA notes were issued with a coupon of 3 month LIBOR plus 1.35%
which was payable quarterly and were listed on the Irish Stock
Exchange. The issue fees on loan notes were amortised over the
expected life of the loan notes, which is 3 years, being the period
up to the call date. On 7 June 2019,
the Company announced the redemption of the Portfolio Option on the
loans underlying the Malt Hill No.1 plc securitisation, and the
loans have been refinanced into a new warehouse SPV with Lloyds
Bank Corporate Markets plc, called Cornhill Mortgages No.6.
Limited.
Oat Hill No.1 Plc completed the public sale of £477.1m of
AAA-rated bonds on 26 June 2017. The
AAA notes were issued with a coupon of 3 month LIBOR plus 0.65% and
a step up margin of 1.30% which was payable quarterly and was
listed on the Irish Stock Exchange. In May
2020 the discount on the loan notes and issue costs were
amortised. The step up margin costs were incurred for the period
from 27 May 2020 until the
transaction call date of 27 August
2020. The issue fees on loan notes have been amortised over
the expected life of the loan notes, which is 3 years, being the
period up to the call date. These loan notes were repaid as part of
the re-securitisation of this portfolio in August 2020.
Oat Hill No.2 Plc completed the public sale of £436m of publicly
distributed bonds across 4 rated classes on 10 July 2020. On a weighted average basis,
the notes were issued with a coupon of SONIA plus 0.95%, which are
payable monthly and are listed on the Irish Stock Exchange. The
issue fees on loan notes will be amortised over the expected life
of the loan notes, which is 3 years, being the period up to the
call date. Loan notes have been classified as non-current based on
their contractual obligations.
Malt Hill No. 2 Plc completed the public sale of £317.5m of
AAA-rated bonds on 27 June 2018. The
AAA notes were issued with a coupon of 3 month LIBOR plus 0.75%
which is payable quarterly and are listed on the Irish Stock
Exchange. The issue fees on loan notes will be amortised over the
expected life of the loan notes, which is 3 years, being the period
up to the call date. Loan notes have been classified as non-current
based on their contractual obligations.
On 8 April 2019, the Company
announced that Barley Hill No.1 Plc had successfully completed the
public sale of £209.15m of senior notes. The securitisation is
backed by a pool of owner-occupied mortgages originated by The
Mortgage Lender (“TML”) completed between October 2016 and 8 April
2019 and purchased on a forward flow basis. The transaction
also contained a “Prefunding” feature which allowed for further
purchases of future completions by TML up until the
securitisation’s first Interest Payment Date in August 2019. Due to the nature of the origination
of the pool, which took place on a highly consistent basis over
more than two years, the loans that were originated with a two-year
fixed rate term are expected to pre-pay relatively quickly and
therefore the notes were split into two tranches - £202.2m of Class
A notes, rated Aaa/AAA by Moody’s and DBRS respectively, and £6.95m
of Class B notes rated Aa1/AA (high) respectively. The Class A
notes were issued with a coupon of 3m
GBP LIBOR plus 1.10%, with a 2.24yr Weighted Average Life
(“WAL”) to the refinancing date in February
2022, and the Class B notes carry a coupon of 3m GBP LIBOR plus 1.60% with a 2.89yr WAL. Loan
notes have been classified as non-current based on their
contractual obligations.
|
|
|
|
|
|
|
As
at |
|
As
at |
|
|
|
|
|
|
|
31.12.2020 |
|
30.06.2020 |
|
|
|
|
|
|
|
Unaudited |
|
Audited |
|
|
|
|
|
|
|
£ |
|
£ |
Loan notes
at start of the period/year |
|
848,876,889 |
|
932,982,970 |
Loan notes issued |
|
|
|
|
|
|
436,000,000 |
|
- |
Loan notes repaid |
|
|
|
|
|
|
(423,670,084) |
|
(86,627,803) |
Loan notes
discount capitalised |
|
(5,862,957) |
|
- |
Discount
on loan notes to be amortised |
|
676,905 |
|
752,837 |
Loan note
issues fees incurred |
|
(2,668,343) |
|
- |
Loan note
issue fees amortised |
|
918,587 |
|
1,768,885 |
Loan notes
at end of the period/year |
|
854,270,997 |
|
848,876,889 |
Interest expense on loan notes for the period amounted to
£4,704,502 (31 December 2019:
£7,299,398).
Any covenant breaches will be dealt with in line with the
documentation for each facility.
12. Share Capital
Authorised Share Capital
The share capital of the Company consists of an unlimited number
of shares with or without par value which, upon issue, the
Directors may designate as Ordinary Shares or C shares or such
other classes of shares as the Board shall determine, in each case
of such classes and denominated in such currencies as the Directors
may determine.
As at 30 June 2020, one share
class has been issued, being the Ordinary Shares of the
Company.
The Ordinary Shares carry the following rights:
a) are entitled to participate in dividends which the Company
declares from time to time proportionate to the amounts paid or
credited as paid on such Ordinary Shares.
b) all Ordinary Shares are entitled to a distribution of capital
in the same proportions as capital is attributable to them
(including on winding up).
c) every shareholder shall have one vote for each Ordinary Share
held by them.
|
|
|
|
|
|
|
As
at |
|
As
at |
|
|
|
|
|
|
|
31.12.2020 |
|
30.06.2020 |
|
|
|
|
|
|
|
Unaudited |
|
Audited |
Ordinary
shares |
|
|
|
|
|
|
£ |
|
£ |
Share
capital at the beginning of the period/year |
|
|
264,749,999 |
|
264,749,999 |
Share buybacks |
|
|
|
|
|
|
(27,812,226) |
|
- |
Total
share capital at the end of the period/year |
|
|
236,937,773 |
|
264,749,999 |
During September 2020, the Company
purchased ordinary shares of £0.01 each in the capital of the
company at prices per share as noted below in accordance with the
company’s share repurchase programme. These shares were cancelled
upon settlement.
|
|
|
|
|
|
|
|
|
Price per
share |
No. of
shares |
|
1 September 2020 |
|
|
|
|
|
|
|
|
£0.640 |
100,000 |
|
3 September 2020 |
|
|
|
|
|
|
|
|
£0.650 |
50,000 |
|
8 September 2020 |
|
|
|
|
|
|
|
|
£0.665 |
350,000 |
|
10 September 2020 |
|
|
|
|
|
|
|
|
£0.670 |
250,000 |
|
14 September 2020 |
|
|
|
|
|
|
|
|
£0.675 |
925,000 |
|
15 September 2020 |
|
|
|
|
|
|
|
|
£0.6775 |
1,600,000 |
|
16 September 2020 |
|
|
|
|
|
|
|
|
£0.680 |
4,390,000 |
|
17 September 2020 |
|
|
|
|
|
|
|
|
£0.680 |
2,311,920 |
|
18 September 2020 |
|
|
|
|
|
|
|
|
£0.680 |
1,735,000 |
|
21 September 2020 |
|
|
|
|
|
|
|
|
£0.680 |
18,123,000 |
|
22 September 2020 |
|
|
|
|
|
|
|
|
£0.680 |
11,097,582 |
|
|
|
|
|
|
|
|
|
|
|
40,932,502 |
|
The total number of shares outstanding is shown in the table
below.
|
|
|
|
|
|
|
As
at |
|
As
at |
|
|
|
|
|
|
|
31.12.2020 |
|
30.06.2020 |
|
|
|
|
|
|
|
Unaudited |
|
Audited |
Ordinary
shares |
|
|
|
|
|
|
shares |
|
shares |
Shares at
the beginning of the period/year |
|
|
273,065,390 |
|
273,065,390 |
Share buybacks |
|
|
|
|
|
|
(40,932,502) |
|
- |
Total
shares in issue at the end of the period/year |
|
|
232,132,888 |
|
273,065,390 |
13. Related Parties
a) Directors’ Remuneration &
Expenses
The Directors of the Company are remunerated for their services
at such a rate as the Directors determine. The aggregate fees of
the Directors will not exceed £200,000 per annum.
The annual Directors’ fees comprise £45,000 (30 June 2020: £40,000) payable to Mr Waldron, the
Chairman, £40,000 (30 June 2020:
£35,000) to Mr Le Page as Chairman
of the Audit Committee, and £35,000 (30 June
2020: £30,000) each to Mrs Green and Mr Burrows. During the
period ended 31 December 2020,
Directors’ fees of £67,500 (31 December
2019: £67,500) were charged to the Company, of which £Nil
remained payable at the end of the period (30 June 2020:
£33,750).
b) Shares held by
related parties
As at 31 December 2020, Directors
of the Company held the following shares in the Company
beneficially:-
|
|
|
|
Number
of Shares |
Number of Shares |
|
|
|
|
31.12.2020 |
30.06.2020 |
|
|
|
|
Unaudited |
Audited |
Christopher Waldron |
|
80,000 |
80,000 |
Richard
Burrows |
|
5,000 |
5,000 |
Paul Le
Page |
|
|
67,800 |
112,800 |
Helen
Green |
|
|
21,250 |
21,250 |
As at 31 December 2020, the
Portfolio Manager held Nil shares (30 June
2020: Nil) and partners and employees of the Portfolio
Manager held 7,275,084 shares (30 June
2020: 6,719,088), which is 3.134% of the issued share
capital (30 June 2020: 2.461%).
c) Portfolio Manager
With effect from 1 July 2017, the
portfolio management fee is payable to the Portfolio Manager
quarterly on the last business day of the quarter at a rate of
0.60% per annum of the lower of NAV or market capitalisation of
each class of shares. Prior to this date the portfolio management
fee per annum was 0.75%.
Total portfolio management fees for the period amounted to
£475,478 (31 December 2019: £577,466)
of which £475,548 (30 June 2020:
£444,763) remained payable at the period end.
The Portfolio Management Agreement dated 23 June 2015 remains in force until determined by
the Company or the Portfolio Manager giving the other party not
less than twelve months' notice in writing. Under certain
circumstances, the Company or the Portfolio Manager is entitled to
immediately terminate the agreement in writing.
d) Group entities
The Company’s subsidiaries are as disclosed under note 1.
14. Material Agreements
a) Alternative Investment Fund
Manager
The Company’s Alternative Investment Fund Manager (the “AIFM”)
is Maitland Institutional Services Limited (formerly Phoenix Fund
Services (UK) Limited). In consideration for the services provided
by the AIFM under the AIFM Agreement, the AIFM is entitled to
receive from the Company a minimum fee of £20,000 per annum and
fees payable quarterly in arrears at a rate of 0.07% of the NAV of
the Company below £50 million, 0.05% on Net Assets between £50
million and £100 million and 0.03% on Net Assets in excess of £100
million. During the period ended 31 December
2020, AIFM fees of £48,199 (31
December 2019: £48,666) were charged to the Company, of
which £24,100 (30 June 2020: £23,638) remained payable at the
end of the period.
b) Administrator and Secretary
Administration fees are payable to Northern Trust International
Fund Administration Services (Guernsey) Limited monthly in arrears at a rate
of 0.06% of the NAV of the Company below £100 million, 0.05% on net
assets between £100 million and £200 million and 0.04% on net
assets in excess of £200 million as at the last business day of the
month subject to a minimum £75,000 per annum. These NAV based fees
commenced from 19 November 2015 being
the date the Company acquired its initial investment.
In addition, an annual fee of £60,500 will be charged for
corporate governance and company secretarial services and
accounting services. Total administration and secretarial fees for
the period amounted to £123,822 (31 December
2019: £134,401) of which £102,297 (30
June 2020: £105,507) remained payable at the period end.
c) Depositary and Custodian
Depositary fees are payable to Northern Trust (Guernsey) Limited, monthly in arrears, at a
rate of 0.03% of the NAV of the Company as at the last business day
of the month subject to a minimum £40,000 per annum. Total
depositary fees and charges for the period amounted to £30,250
(31 December 2019: £27,818) of which
£19,042 (30 June 2020: £16,263)
remained payable at the period end.
The Depositary will charge an additional fee of £20,000 for
performing due diligence on each service provider/administrator
employed.
The Depositary is also entitled to a custody fee at a rate of
0.01% of the NAV of the Company as at the last business day of the
month subject to a minimum of £8,500 per annum. These NAV based
fees commenced on 19 November 2015
being the date the Company acquired its initial investment. Total
custody fees for the period amounted to £12,940 (31 December 2019: £9,962) of which £6,287
(30 June 2020: £5,435) remained
payable at the period end.
d) Auditor
In the previous year the Company changed auditors from PwC CI
LLP to Deloitte LLP. Audit fees paid to Deloitte LLP includes
amounts charged for the current period of £238,203 (31 December 2019: £199,306) and the under
accruals for previous periods of £Nil (31
December 2019: £Nil). For the period ended 31 December 2019, non audit fees of £12,000
pertaining to accounting advice received from PwC CI LLP are
included under legal and professional fees.
15. Financial Risk
Management
The Company’s objective in managing risk is the creation and
protection of shareholder value. Risk is inherent in the Company’s
activities, but it is managed through an ongoing process of
identification, measurement and monitoring.
The Company’s financial instruments include financial assets or
liabilities at fair value through profit and loss, loans and
receivables, and cash and cash equivalents, loan notes, borrowings
and trade payables. The main risks arising from the Company’s
financial instruments are market risk, liquidity risk, and credit
risk. The techniques and instruments utilised for the purposes of
portfolio management are those which are reasonably believed by the
Board to be economically appropriate to the efficient management of
the Company.
Market risk
Market risk embodies the potential for both losses and gains and
includes interest rate risk, price risk and currency risk. The
Company’s strategy on the management of market risk is driven by
the Company’s investment objective. The Company’s investment
objective is to provide investors with access to stable income
returns through the application of relatively conservative levels
of leverage to portfolios of UK mortgage loans.
1.1 Interest rate risk: Interest rate risk is the risk that the
value of financial instruments will fluctuate due to changes in
market interest rates. The current underlying mortgage portfolios
are payable on fixed and floating rates, meaning the current
exposure to interest rate fluctuations on the portfolios are
limited. However, floating rate interest is payable on the loan
notes. Where the mortgage portfolios are payable on fixed rates,
interest is hedged using swaps. Interest on all liabilities is
payable on floating rates. In order to hedge this differential,
interest rate swaps were transacted by the Warehouse SPVs with a
market counterparty to pay the fixed rate and receive the floating
rate payments. On securitisation, these swaps were novated to the
relevant Issuer SPV.
On 1 July 2017, the Directors
designated the derivatives as a fair value hedge and began hedge
accounting from that date therefore hedging the interest risk
exposure on the fixed rate mortgages shown in the following tables.
Refer to note 7 for further details.
The below table shows exposure to interest rate risk if the
portfolio was unhedged.
|
|
|
|
|
Non
interest |
|
Total
as at |
|
Floating rate |
|
Fixed
rate |
|
bearing |
|
31.12.2020 |
|
£ |
|
£ |
|
£ |
|
£ |
|
Unaudited |
|
Unaudited |
|
Unaudited |
|
Unaudited |
Assets |
|
|
|
|
|
|
|
Mortgage loans |
542,913,063 |
|
1,132,482,537 |
|
(6,383,522) |
|
1,669,012,078 |
Reserve fund |
20,946,569 |
|
- |
|
- |
|
20,946,569 |
Trade and other
receivables |
- |
|
- |
|
2,677,929 |
|
2,677,929 |
Cash and cash
equivalents |
45,465,111 |
|
- |
|
- |
|
45,465,111 |
Total
assets |
609,324,743 |
|
1,132,482,537 |
|
(3,705,593) |
|
1,738,101,687 |
Liabilities |
|
|
|
|
|
|
|
Financial liabilities
at fair value through profit and loss* |
1,145,247,114 |
|
(1,145,247,114) |
|
- |
|
- |
Trade and other
payables |
- |
|
- |
|
(6,326,790) |
|
(6,326,790) |
Borrowings |
(668,691,395) |
|
- |
|
656,050 |
|
(668,035,345) |
Loan notes (note
11) |
(862,981,998) |
|
- |
|
8,711,001 |
|
(854,270,997) |
|
(386,426,279) |
|
(1,145,247,114) |
|
3,040,261 |
|
(1,528,633,132) |
Total interest
sensitivity gap |
222,898,464 |
|
(12,764,577) |
|
(665,332) |
|
209,468,555 |
|
|
|
|
|
Non
interest |
|
Total
as at |
|
Floating rate |
|
Fixed
rate |
|
bearing |
|
30.06.2020 |
|
£ |
|
£ |
|
£ |
|
£ |
|
Audited |
|
Audited |
|
Audited |
|
Audited |
Assets |
|
|
|
|
|
|
|
Mortgage loans |
546,265,951 |
|
1,102,128,153 |
|
(9,441,716) |
|
1,638,952,388 |
Reserve fund |
20,204,519 |
|
- |
|
- |
|
20,204,519 |
Trade and other
receivables |
- |
|
- |
|
4,260,753 |
|
4,260,753 |
Cash and cash
equivalents |
37,905,366 |
|
- |
|
- |
|
37,905,366 |
Total
assets |
604,375,836 |
|
1,102,128,153 |
|
(5,180,963) |
|
1,701,323,026 |
Liabilities |
|
|
|
|
|
|
|
Financial liabilities
at fair value through profit and loss* |
1,105,147,058 |
|
(1,105,147,058) |
|
- |
|
- |
Trade and other
payables |
- |
|
- |
|
(6,594,574) |
|
(6,594,574) |
Borrowings |
(605,701,543) |
|
- |
|
1,404,842 |
|
(604,296,701) |
Loan notes (note
11) |
(850,652,082) |
|
- |
|
1,775,193 |
|
(848,876,889) |
|
(351,206,567) |
|
(1,105,147,058) |
|
(3,414,539) |
|
(1,459,768,164) |
Total interest
sensitivity gap |
253,169,269 |
|
(3,018,905) |
|
(8,595,502) |
|
241,554,862 |
* Financial liabilities at fair value through profit and loss is
shown as the notional amounts which represent the gross exposure to
interest rate risk and not the fair value of £19,622,581
(30 June 2020: £21,477,899).
If interest rates had been 50 basis points higher and all other
variables were held constant, the Company’s total comprehensive
gain for the period ended 31 December
2020 would have increased by approximately £1,114,492
(30 June 2020: £1,265,846) or 0.064%
(30 June 2020: 0.074%) of total
assets, due to an increase in the amount of interest
receivable.
If interest rates had been 50 basis points lower and all other
variables were held constant, the Company’s total comprehensive
gain for the period ended 31 December
2020 would have decreased by approximately £1,108,948
(30 June 2020: £1,259,549) or 0.064%
(30 June 2020: 0.074%) of total
assets, due to a decrease in the amount of interest receivable.
This 50 basis point range is applied as it is the maximum rate
change based on the recent movements of interest rates in the
market.
The Company’s exposure to interest rate risk on loans with fixed
interest rates is protected by virtue of the fact that there are
balance guarantee swaps and vanilla swaps in place to limit the
exposure on the fixed rate interest rates. For the exposure in
relation of floating interest rate risk, the Portfolio Manager is
managing this by matching the asset exposures to the liabilities
exposures using the interest rate swaps derivatives.
With the adoption of hedge accounting, the Company has reduced
its exposure to interest rate risk as changes in the fair value of
the interest rate swaps are offset by adjustments to the fair value
of the mortgage loans. Consequently, there is no material movement
in net assets of the Company arising from interest rate
fluctuations.
1.2 Price risk: An active market does not exist in the
underlying instruments based on the illiquidity of the mortgage
loans, and for this reason the mortgage portfolios are valued on an
amortised cost basis by an independent third party valuation
provider. Any such valuation may therefore differ from the actual
realisable market value of the relevant mortgage portfolio.
The interest rate swap is valued on a fair value mark-to-market
basis by the swap counterparty, using the observable information on
swap rates. The difference in fair value of the interest rate swap
and amortised cost valuation of the mortgage loans could lead to
volatility in the Company’s NAV, had hedge accounting not been
adopted.
The following details the Company’s sensitivity to an increase
and decrease of 50 basis points in the interest rate swap
valuations, with 50 basis points being the sensitivity rate used
when reporting price risk internally to key management personnel
and representing management’s assessment of the possible change in
market prices and is similar to the interest rate risk.
At 31 December 2020, if the
interest rate swap valuation had been 50 basis points higher with
all the other variables held constant, the return attributable to
shareholders for the period would have been £98,113 (30 June 2020: £107,389) greater. This would
represent an increase in Net Assets of 0.052% (30 June 2020: 0.049%).
If the interest rate swap valuation had been 50 basis points
lower with all the other variables held constant, the return
attributable to shareholders for the period would have been £97,625
(30 June 2020: £106,855) lower. This
would represent a decrease in Net Assets of 0.051% (30 June 2020: 0.049%).
1.3 Currency risk: As at 31 December
2020, the Company had no material exposure to foreign
exchange fluctuations or changes in foreign currency interest
rates. Consequently, there is no material movement in assets and
liabilities arising from foreign exchange fluctuations.
Liquidity risk
Liquidity risk is the risk that the Company will not have
sufficient resources available to meet its liabilities as they fall
due. The Company makes its investments by purchasing Profit
Participating Notes issued by the Acquiring Entity, using the funds
raised from equity issuances. The Acquiring Entity is bound by
EU securities law and will be unable to fully liquidate, sell,
hedge or otherwise mitigate its credit risk under or associated
with the Retention Notes issued by the Warehouse SPVs or Issuer
SPVs until such time as the securities of the relevant SPVs have
been redeemed in full (whether at final maturity or early
redemption). This places limitations on the Company’s ability to
redeem the Profit Participating Notes issued by the Acquiring
Entity. It is not expected that any party will make a secondary
market in relation to the Retention Notes, and that there will
usually be a limited market for the Retention Notes. Any partial
sales of Retention Notes would need to be negotiated on a private
counterparty to counterparty basis and could result in a liquidity
discount being applied. There may be additional restrictions
on divestment in the terms and conditions of the underlying
investments. The illiquidity of the Retention Notes may therefore
adversely affect the value of the Profit Participating Notes in the
event of a forced sale which would, in turn, adversely affect the
Company’s business, business prospects, financial condition,
returns to Shareholders including dividends, NAV and/or the market
price of the shares.
During the warehousing phase, the Company’s mortgage loans
advanced are illiquid and may be difficult or impossible to realise
for cash at short notice. At the period end, Cornhill Mortgages No.
4 Limited, Cornhill Mortgages No. 5 Limited and Cornhill Mortgages
No. 6 Limited portfolios were in the warehousing phase.
The Company manages its liquidity risk through short term and
long term cash flow forecasts to ensure it is able to meet its
obligations. In addition, the Company is permitted to borrow up
to 20% of NAV for short term liquidity purposes, including
financing share repurchases or redemptions, making investments or
satisfying working capital requirements. This can be through a loan
facility or other types of collateralised borrowing instruments
including stock lending or repurchase transactions.
The Company's funding providers are entitled to receive
repayment of principal from principal funds generated by the
mortgage loans, but their right to the repayment of principal is
limited to the cash available in the relevant SPV. Similarly,
payment of accrued interest to the funding providers is limited to
cash generated within the relevant SPV. There is no requirement for
any group company other than the issuing SPV to make principal or
interest payments in respect of the loan notes or borrowings. This
matching of the maturities of the assets and the related funding
substantially reduces the Group’s exposure to liquidity risk. Due
to the contractual nature of the funding, the Directors do not
consider there to be any difference between the Company's
discounted and the undiscounted liquidity position in relation to
the loan notes and borrowings.
The following liquidity analysis is based on contractual payment
terms and maturity dates. Expected cash flows are expected to be
different to these contractual cash flows.
|
|
|
Less
than |
|
More
than |
|
More
than |
|
Total
as at |
|
|
|
one
year |
|
one year |
|
five
years |
|
31.12.2020 |
|
|
|
£ |
|
£ |
|
£ |
|
£ |
Assets |
|
|
Unaudited |
|
Unaudited |
|
Unaudited |
|
Unaudited |
Mortgage loans |
|
|
21,007,203 |
|
106,865,304 |
|
1,541,139,571 |
|
1,669,012,078 |
Reserve fund |
|
|
- |
|
2,500,000 |
|
18,446,569 |
|
20,946,569 |
Trade and
other receivables |
2,677,929 |
|
- |
|
- |
|
2,677,929 |
Cash and
cash equivalents |
45,465,111 |
|
- |
|
- |
|
45,465,111 |
Total
assets |
|
|
69,150,243 |
|
109,365,304 |
|
1,559,586,140 |
|
1,738,101,687 |
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
Financial
liabilities at fair value through profit and loss |
19,622,581 |
|
- |
|
- |
|
19,622,581 |
Trade and
other payables |
6,326,790 |
|
- |
|
- |
|
6,326,790 |
Borrowings |
|
|
- |
|
530,245,772 |
|
138,445,623 |
|
668,691,395 |
Loan notes |
|
|
- |
|
- |
|
862,981,998 |
|
862,981,998 |
Total
liabilities |
|
|
25,949,371 |
|
530,245,772 |
|
1,001,427,621 |
|
1,557,622,764 |
|
|
|
Less
than |
|
More
than |
|
More
than |
|
Total
as at |
|
|
|
one
year |
|
one year |
|
five
years |
|
30.06.2020 |
|
|
|
£ |
|
£ |
|
£ |
|
£ |
Assets |
|
|
Audited |
|
Audited |
|
Audited |
|
Audited |
Mortgage loans |
|
|
19,466,645 |
|
104,896,456 |
|
1,514,589,287 |
|
1,638,952,388 |
Reserve fund |
|
|
13,521,519 |
|
6,683,000 |
|
- |
|
20,204,519 |
Trade and
other receivables |
4,260,753 |
|
- |
|
- |
|
4,260,753 |
Cash and
cash equivalents |
37,905,366 |
|
- |
|
- |
|
37,905,366 |
Total
assets |
|
|
75,154,283 |
|
111,579,456 |
|
1,514,589,287 |
|
1,701,323,026 |
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
Financial
liabilities at fair value through profit and loss |
21,477,899 |
|
- |
|
- |
|
21,477,899 |
Trade and
other payables |
6,594,574 |
|
- |
|
- |
|
6,594,574 |
Borrowings |
|
|
- |
|
604,296,701 |
|
- |
|
604,296,701 |
Loan notes |
|
|
- |
|
- |
|
848,876,889 |
|
848,876,889 |
Total
liabilities |
|
|
28,072,473 |
|
604,296,701 |
|
848,876,889 |
|
1,481,246,063 |
Credit risk
Credit risk is the risk that a counterparty to a financial
instrument will fail to discharge an obligation or commitment that
it has entered into with the Company.
The Company’s primary fundamental credit risk exposure is to
borrowers of the underlying mortgages, with the risk of borrowers
defaulting on interest and principal payments. The Portfolio
Manager manages the reduction of borrower credit risk with
extensive due diligence on portfolios conducted by internal and
external analysts and stress testing.
The Company also has credit risk to the counterparty with which
the Warehouse or Issuer SPVs transact the derivative trades for
hedging purposes, or to gain, increase or decrease exposure to
mortgages. Default by any hedging counterparty in the performance
of its obligations could subject the investments to unwanted credit
risks. The Portfolio Manager manages the reduction of credit risk
exposure to the derivative counterparty through ongoing credit
analysis of the counterparty in addition to implementing clauses
into derivative transactions whereby collateral is required to be
posted upon a downgrade of the counterparty’s credit rating. The
current credit rating of the counterparty is A+ (per Standards and
Poor). At period end, there is no such exposure in place as they
are in a liability position.
The Company’s exposure to the credit risk of cash and deposit
holders defaulting is managed through the use of investments into
money market funds, to diversify cash holdings away from single
custodians. Money market fund vehicles are chosen after extensive
due diligence focusing on manager performance, controls and track
record. Currently, the cash is held with Northern Trust London
(credit rating A+ per Standards and Poor). The reserve fund is held
with Citibank N.A. London Branch
(credit rating A+ per Standards and Poor).
The following table shows the maximum exposure to credit
risk:
|
|
|
|
|
|
|
|
|
As
at |
|
As
at |
|
|
|
|
|
|
|
|
|
31.12.2020 |
|
30.06.2020 |
|
|
|
|
|
|
|
|
|
£ |
|
£ |
|
|
|
|
|
|
|
|
|
Unaudited |
|
Audited |
Mortgage
loans |
|
|
|
|
|
|
|
1,675,395,600 |
|
1,648,394,104 |
Cash and
cash equivalents |
|
|
|
|
|
45,465,111 |
|
37,905,366 |
Reserve fund |
|
|
|
|
|
|
|
|
20,946,569 |
|
20,204,519 |
Trade and
other receivables |
|
|
|
|
2,677,929 |
|
4,260,753 |
|
|
|
|
|
|
|
|
|
1,744,485,209 |
|
1,710,764,742 |
Mortgage loans written off during the period amounted to
£562,875 (30 June 2020:
£1,543,544),with an expected credit loss provision of £329,716
(30 June 2020: £1,195,954). In order
to give an indication of credit quality the below table, shown as
book value, is the current indexed loan to value ratio:
|
|
|
|
|
|
|
|
|
As
at |
|
As
at |
|
|
|
|
|
|
|
|
|
31.12.2020 |
|
30.06.2020 |
|
|
|
|
|
|
|
|
|
Unaudited |
|
Audited |
Loan to
value |
|
|
|
|
|
|
|
£ |
|
£ |
0-49% |
|
|
|
|
|
|
|
|
222,334,524 |
|
211,966,217 |
50-75% |
|
|
|
|
|
|
|
|
971,124,981 |
|
954,101,240 |
75-100%+ |
|
|
|
|
|
|
|
|
481,936,094 |
|
482,326,647 |
|
|
|
|
|
|
|
|
|
1,675,395,599 |
|
1,648,394,104 |
The value of the loans past due but not yet impaired and their
respective collateral value at the period/year end are shown in the
table below. In accordance with the Company’s policy, the credit
impaired loans amounted £10,163,111 as at 31
December 2020 (30 June 2020:
£7,445,962) with underlying collateral value of £17,392,980
(30 June 2020: £14,093,217).
|
|
|
|
Book value |
|
Collateral value |
|
|
|
|
As
at |
|
As
at |
|
As
at |
|
As
at |
|
|
|
|
31.12.2020 |
|
30.06.2020 |
|
31.12.2020 |
|
30.06.2020 |
|
|
|
|
£ |
|
£ |
|
£ |
|
£ |
|
|
|
|
Unaudited |
|
Audited |
|
Unaudited |
|
Audited |
>1
month but <2 months |
11,914,911 |
|
3,216,112 |
|
20,222,453 |
|
4,795,785 |
>2
months but <3 months |
3,692,547 |
|
4,801,137 |
|
6,494,881 |
|
7,063,327 |
>3
months but <6 months |
4,416,491 |
|
3,525,284 |
|
6,573,869 |
|
6,728,027 |
>6 months |
|
|
|
5,746,621 |
|
3,920,678 |
|
10,819,110 |
|
7,365,190 |
|
|
|
|
25,770,570 |
|
15,463,211 |
|
44,110,313 |
|
25,952,329 |
The table below discloses the maximum exposure to credit risk at
31 December 2020 of mortgage loans
with exposure to credit risk, the exposures transfers between the
credit stages during the period ended 31
December 2020, and the allowance for ECL allowance for each
stage at 31 December 2020. Refer to
the annual report note 2(f) for further information regarding the
measurement of credit loss allowances according to a three-stage
expected credit loss impairment model.
|
|
|
|
Principal balance |
|
Principal balance |
|
Principal balance |
|
Principal balance |
|
|
|
|
Mortgage Loans |
|
Mortgage Loans |
|
Mortgage Loans |
|
Total |
|
|
|
|
ECL
Stage 1 |
|
ECL
Stage 2 |
|
ECL
Stage 3 |
|
|
|
|
|
|
£ |
|
£ |
|
£ |
|
£ |
|
|
|
|
Unaudited |
|
Unaudited |
|
Unaudited |
|
Unaudited |
Principal balance at 1 July 2020 |
1,625,843,619 |
|
15,104,524 |
|
7,445,962 |
|
1,648,394,105 |
Increase
due to new loans purchased |
99,286,986 |
|
- |
|
- |
|
99,286,986 |
Transfers
between stages |
|
(11,483,290) |
|
6,867,380 |
|
4,615,910 |
|
- |
Decrease
in mortgage loans |
|
(70,245,883) |
|
(140,847) |
|
(1,352,257) |
|
(71,738,987) |
Mortgage
loans written off during the period |
- |
|
- |
|
(546,504) |
|
(546,504) |
Principal balance at 31 December 2020 |
1,643,401,432 |
|
21,831,057 |
|
10,163,111 |
|
1,675,395,600 |
Allowance
for impairment losses |
|
1,455,870 |
|
114,365 |
|
1,270,601 |
|
(2,840,836) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal balance |
|
Principal balance |
|
Principal balance |
|
Principal balance |
|
|
|
|
Mortgage Loans |
|
Mortgage Loans |
|
Mortgage Loans |
|
Total |
|
|
|
|
ECL
Stage 1 |
|
ECL
Stage 2 |
|
ECL
Stage 3 |
|
|
|
|
|
|
Audited |
|
Audited |
|
Audited |
|
Audited |
|
|
|
|
£ |
|
£ |
|
£ |
|
£ |
Principal balance at 1 July 2019 |
1,342,553,680 |
|
6,089,662 |
|
7,488,103 |
|
1,356,131,445 |
Increase
due to new loans purchased |
417,197,938 |
|
253,861 |
|
371,525 |
|
417,823,324 |
Transfers
between stages |
|
(14,228,164) |
|
9,274,137 |
|
4,954,027 |
|
- |
Decrease
in mortgage loans |
|
(119,679,835) |
|
(513,136) |
|
(3,824,640) |
|
(124,017,611) |
Mortgage
loans written off during the year |
- |
|
- |
|
(1,543,053) |
|
(1,543,053) |
Principal balance at 30 June 2020 |
1,625,843,619 |
|
15,104,524 |
|
7,445,962 |
|
1,648,394,105 |
Allowance
for impairment losses |
|
(747,441) |
|
(104,298) |
|
(463,427) |
|
(1,315,166) |
16. Analysis of Financial Assets
and Liabilities by Measurement Basis
|
|
|
|
|
|
|
Financial Assets |
|
Financial Assets |
|
|
31
December 2020 |
|
|
|
|
|
|
at
fair value through |
|
at
amortised |
|
|
|
|
|
|
|
|
profit and loss |
|
cost |
|
Total |
Financial Assets as per Unaudited Consolidated Statement
of Financial Position |
£ |
|
£ |
|
£ |
Unaudited |
|
Unaudited |
|
Unaudited |
Mortgage loans |
|
|
|
|
|
|
- |
|
1,669,012,078 |
|
1,669,012,078 |
Reserve fund |
|
|
|
|
|
|
- |
|
20,946,569 |
|
20,946,569 |
Cash and
cash equivalents |
|
- |
|
45,465,111 |
|
45,465,111 |
Trade and
other receivables |
|
- |
|
2,677,929 |
|
2,677,929 |
|
|
|
|
|
|
|
- |
|
1,738,101,687 |
|
1,738,101,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities |
|
Financial Liabilities |
|
|
|
|
|
|
|
|
|
at
fair value through |
|
at
amortised |
|
|
|
|
|
|
|
|
|
profit and loss |
|
cost |
|
Total |
Financial Liabilities as per Unaudited Consolidated
Statement of Financial Position |
£ |
|
£ |
|
£ |
Unaudited |
|
Unaudited |
|
Unaudited |
Financial
liabilities at fair value through profit and loss |
19,622,581 |
|
- |
|
19,622,581 |
Trade and
other payables |
|
- |
|
6,326,790 |
|
6,326,790 |
Borrowings |
|
|
|
|
|
|
- |
|
668,035,345 |
|
668,035,345 |
Loan notes |
|
|
|
|
|
|
- |
|
854,270,997 |
|
854,270,997 |
|
|
|
|
|
|
|
19,622,581 |
|
1,528,633,132 |
|
1,548,255,713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets |
|
Financial Assets |
|
|
30 June
2020 |
|
|
|
|
|
|
at
fair value through |
|
at
amortised |
|
|
|
|
|
|
|
|
profit and loss |
|
cost |
|
Total |
Financial Assets as per Audited Consolidated Statement of
Financial Position |
£ |
|
£ |
|
£ |
Audited |
|
Audited |
|
Audited |
|
|
|
|
|
Mortgage loans |
|
|
|
|
|
|
- |
|
1,638,952,388 |
|
1,638,952,388 |
Reserve fund |
|
|
|
|
|
|
- |
|
20,204,519 |
|
20,204,519 |
Cash and
cash equivalents |
|
|
|
|
- |
|
37,905,366 |
|
37,905,366 |
Trade and other
receivables |
|
|
|
|
|
|
- |
|
4,260,753 |
|
4,260,753 |
|
|
|
|
|
|
|
- |
|
1,701,323,026 |
|
1,701,323,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities at |
|
Financial |
|
|
|
|
|
|
|
|
|
fair
value through |
|
Liabilities at |
|
|
|
|
|
|
|
|
|
profit and loss |
|
amortised cost |
|
Total |
Financial Liabilities as per Audited Consolidated
Statement of Financial Position |
£ |
|
£ |
|
£ |
Audited |
|
Audited |
|
Audited |
Financial
liabilities at fair value through profit and loss |
|
21,477,899 |
|
- |
|
21,477,899 |
Trade and
other payables |
|
|
- |
|
6,594,574 |
|
6,594,574 |
Borrowings |
|
|
|
|
|
|
- |
|
604,296,701 |
|
604,296,701 |
Loan notes |
|
|
|
|
|
|
- |
|
848,876,889 |
|
848,876,889 |
|
|
|
|
|
|
|
21,477,899 |
|
1,459,768,164 |
|
1,481,246,063 |
17. Fair Value Measurement
IFRS 13 requires the Company to classify fair value measurements
using a fair value hierarchy that reflects the significance of the
inputs used in making the measurements. The fair value hierarchy
has the following levels:
(i) Quoted prices (unadjusted) in active markets for
identical assets or liabilities (Level 1).
(ii) Inputs other than quoted prices included within Level
1 that are observable for the asset or liability, either directly
(that is, as prices) or indirectly (that is, derived from prices
including interest rates, yield curves, volatilities, prepayment
speeds, credit risks and default rates) or other market
corroborated inputs (Level 2).
(iii) Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs) (Level
3).
The following tables analyse within the fair value hierarchy the
Company’s financial assets and liabilities (by class) measured at
fair value for the period ended 31 December
2020 and the year ended 30 June
2020.
|
|
Level
1 |
|
Level
2 |
|
Level
3 |
|
Total |
|
|
£ |
|
£ |
|
£ |
|
£ |
|
|
Unaudited |
|
Unaudited |
|
Unaudited |
|
Unaudited |
Liabilities |
|
|
|
|
|
|
|
|
Financial liabilities
at fair value through profit and loss |
|
- |
|
(8,000,333) |
|
(11,622,248) |
|
(19,622,581) |
Total liabilities
as at |
|
|
|
|
|
|
|
|
31 December
2020 |
|
- |
|
(8,000,333) |
|
(11,622,248) |
|
(19,622,581) |
|
|
|
|
|
|
|
|
|
|
|
Level
1 |
|
Level
2 |
|
Level
3 |
|
Total |
|
|
£ |
|
£ |
|
£ |
|
£ |
|
|
Audited |
|
Audited |
|
Audited |
|
Audited |
Liabilities |
|
|
|
|
|
|
|
|
Financial liabilities
at fair value through profit and loss |
|
- |
|
(8,386,469) |
|
(13,091,430) |
|
(21,477,899) |
Total liabilities
as at |
|
|
|
|
|
|
|
|
30 June
2020 |
|
- |
|
(8,386,469) |
|
(13,091,430) |
|
(21,477,899) |
Vanilla swaps have been classified as Level 2. Balance guarantee
swaps have been classified as Level 3 as they are based on
unobservable market data such as counterparty’s assumptions of
prepayments and the Company’s creditworthiness. Please refer to
note 7 for a reconciliation of the movement for the period on the
interest rate swaps.
|
|
|
|
|
For
the period |
|
For
the year |
|
|
|
|
|
31.12.2020 |
|
30.06.2020 |
|
|
|
|
|
Unaudited |
|
Audited |
Financial liabilities at fair value through profit and loss -
Level 3 |
£ |
|
£ |
Balance at
start of the period/year |
|
|
(13,091,430) |
|
(7,775,666) |
Movement
on derivatives in designated fair value hedge relationships |
1,469,182 |
|
(5,315,764) |
Balance at
end of the period/year |
|
|
|
(11,622,248) |
|
(13,091,430) |
The following details the Company’s sensitivity to an increase
and decrease of 50 basis points in the interest rate, with 50 basis
points being the sensitivity rate used when reporting price risk
internally to key management personnel and representing
management’s assessment of the possible change in market prices and
is similar to the interest rate risk.
At 31 December 2020, if interest
rate had been 50 basis points higher with all the other variables
held constant, the return attributable to shareholders for the
period would have been £58,111 (30 June
2020: £65,457) greater. This would represent an increase in
Net Assets of 0.031% (30 June 2020:
0.030%).
The following table analyses within the fair value hierarchy the
Company’s assets and liabilities not measured at fair value at
31 December 2020 but for which fair
value is disclosed.
|
|
|
Level
1 |
|
Level
2 |
|
Level
3 |
|
Total |
|
|
|
31.12.2020 |
|
31.12.2020 |
|
31.12.2020 |
|
31.12.2020 |
|
|
|
£ |
|
£ |
|
£ |
|
£ |
Assets |
|
|
Unaudited |
|
Unaudited |
|
Unaudited |
|
Unaudited |
Mortgage loans |
|
|
- |
|
- |
|
1,722,653,698 |
|
1,722,653,698 |
Reserve fund |
|
|
20,946,569 |
|
- |
|
- |
|
20,946,569 |
Cash and
cash equivalents |
45,465,111 |
|
- |
|
- |
|
45,465,111 |
Trade and
other receivables |
2,677,929 |
|
- |
|
- |
|
2,677,929 |
Total |
|
|
69,089,609 |
|
- |
|
1,722,653,698 |
|
1,791,743,307 |
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
Trade and
other payables |
6,326,790 |
|
- |
|
- |
|
6,326,790 |
Borrowings |
|
|
- |
|
668,035,345 |
|
- |
|
668,035,345 |
Loan notes |
|
|
- |
|
854,270,997 |
|
- |
|
854,270,997 |
Total |
|
|
6,326,790 |
|
1,522,306,342 |
|
- |
|
1,528,633,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Level
1 |
|
Level
2 |
|
Level
3 |
|
Total |
|
|
|
30.06.2020 |
|
30.06.2020 |
|
30.06.2020 |
|
30.06.2020 |
|
|
|
£ |
|
£ |
|
£ |
|
£ |
Assets |
|
|
Audited |
|
Audited |
|
Audited |
|
Audited |
Mortgage loans |
|
|
- |
|
- |
|
1,680,454,116 |
|
1,680,454,116 |
Reserve fund |
|
|
20,204,519 |
|
- |
|
- |
|
20,204,519 |
Cash and
cash equivalents |
37,905,366 |
|
- |
|
- |
|
37,905,366 |
Trade and
other receivables |
4,260,753 |
|
- |
|
- |
|
4,260,753 |
Total |
|
|
62,370,638 |
|
- |
|
1,680,454,116 |
|
1,742,824,754 |
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
Trade and
other payables |
|
6,594,574 |
|
- |
|
- |
|
6,594,574 |
Borrowings |
|
|
- |
|
604,296,701 |
|
- |
|
604,296,701 |
Loan notes |
|
|
- |
|
848,876,889 |
|
- |
|
848,876,889 |
Total |
|
|
6,594,574 |
|
1,453,173,590 |
|
- |
|
1,459,768,164 |
The fair value of the mortgage loans is calculated through an
appropriate proxy securitisation structure based on existing deals
with current and transparent pricing. For movement from opening to
closing of the mortgage loans classified as Level 3 see note 5.
The fair value of borrowings and loan notes is deemed to equate
to their notional amounts, as they are at an entirely variable rate
and have been secured within the last three years on an arm’s
length basis.
The other assets and liabilities included in the above table are
carried at amortised cost; their carrying values are a reasonable
approximation of fair value. Loan notes and borrowings approximate
fair value as the underlying interest rates are linked to the
market rates. During the period there were no transfers between the
levels. Cash and cash equivalents include cash in hand and
short-term deposits with original maturities of three months or
less.
Trade and other receivables includes collateral due and interest
receivable due within three months. Their fair value is deemed to
approximate their book value, due to their short duration.
Trade and other payables represent the contractual amounts and
obligations due by the Company for settlement of trades and
expenses. Their fair value is deemed to approximate their book
value, due to their short duration.
Reserve fund includes cash held as part of the securitisation
structure and so can only be used in accordance with the Issue and
Programme Documentation.
18. Dividend Policy
The Company declared the following interim dividends in relation
to the period to 31 December 2020:
Period to |
Dividend rate per Share (pence) |
Net
dividend payable (£) |
Record date |
Ex-dividend date |
Pay
date |
30 September 2020
* |
2.625 |
6,093,488 |
16
October 2020 |
15
October 2020 |
30
October 2020 |
31 December 2020 |
1.125 |
2,611,495 |
22
January 2021 |
21
January 2021 |
5
February 2021 |
*The Company declared a dividend of 1.125p in relation to the 3
month period to 30 September 2020
plus a catch up fifth interim dividend of 1.5p in relation to
30 June 2020.
The total dividend declared and paid during the period was
£7,117,484 (31 December 2019:
£6,143,971)The original dividend policy for the Company was
for dividends on the Ordinary Shares to be payable quarterly, all
in the form of interim dividends (the Company does not intend to
pay any final dividends). It was intended that the first three
interim dividends of each financial year was to be paid at a
minimum of 1.5p per Ordinary Share with the fourth interim dividend
of each financial year including an additional amount such that a
significant majority of the Company’s net income for that financial
year is distributed to Shareholders. Following the EGM on the
16 August 2019, the Company made the
decision that in order rebuild the NAV, improve the Company’s cash
flow and reconstitute capital to generate returns in excess of the
required divided, to reduce the annual dividend to 4.5p per annum
(the “new dividend policy”). The dividend paid on 31 March 2020 reflected this new dividend policy.
A temporary reduction to 1.5p per annum was implemented in
April 2020 in the light of the
uncertainty caused by the COVID-19 pandemic. However, on
8 October 2020, the Company declared
a dividend of 1.125p in relation to the 3 month period to
30 September 2020 plus a catch up
fifth interim dividend of 1.5p in relation to 30 June 2020.
The Board reserves the right to retain within a revenue reserve
a proportion of the Company’s net income in any financial year,
such reserve then being available at the Board’s absolute
discretion for subsequent distribution to Shareholders. The Company
may offer Shareholders the opportunity to elect to receive
dividends in the form of further Ordinary Shares.
Under Guernsey law, companies
can pay dividends in excess of accounting profit provided they
satisfy the solvency test prescribed by The Companies (Guernsey) Law, 2008. The solvency test
considers whether a company is able to pay its debts when they fall
due, and whether the value of a company’s assets is greater than
its liabilities. The Board confirms that the Company passed the
solvency test for each dividend paid.
19. Segment reporting
Operating segments are reported in a manner consistent with the
internal reporting used by the chief operating decision-maker. The
chief operating decision-maker, who is responsible for allocating
resources and assessing performance of the operating segments, has
been identified as the Portfolio Manager. The Portfolio Manager
makes the strategic resource allocations on behalf of the Company.
The Company has determined the operating segments based on the
reports reviewed by the Portfolio Manager that are used to make
strategic decisions. The reports are measured in a manner
consistent with IFRS for all operating segments.
The Portfolio Manager considers the business as two segments
which are categorised as Buy-to-Let and Owner Occupied. These are
further sub-divided into Forward Flow and Purchased with each being
managed by separate specialist teams at the Portfolio Manager. The
Buy to Let Forward Flow contains Cornhill No. 4 and Cornhill No. 5.
The Buy to Let Purchased contains Malt Hill No.2, Oat Hill No.1 and
Cornhill No. 6. Owner Occupied Forward Flow contains Barley Hill
No. 1.
The reportable operating segments derive their income by seeking
investments to achieve targeted returns consummate with an
acceptable level of risk within each portfolio. These returns
consist of interest and the release of the discount/premium.
The segment information provided to the Portfolio Manager for
the reportable segments is as follows:
|
Buy-to-Let |
|
Owner Occupied |
|
Total
as at |
|
Forward Flow |
|
Purchased |
|
Forward Flow |
|
Purchased |
|
31.12.2020 |
|
£ |
|
£ |
|
£ |
|
£ |
|
£ |
|
Unaudited |
|
Unaudited |
|
Unaudited |
|
Unaudited |
|
Unaudited |
Interest income on
mortgage loans |
5,380,168 |
|
12,801,015 |
|
7,539,914 |
|
- |
|
25,721,097 |
Net interest expense
on financial liabilities at fair value through profit and loss |
(770,674) |
|
(2,645,243) |
|
(1,234,804) |
|
- |
|
(4,650,721) |
Net gain from
derivative financial instruments |
263,945 |
|
19,581 |
|
102,187 |
|
- |
|
385,713 |
Interest expense on
borrowings |
(1,324,228) |
|
(827,730) |
|
(1,409,135) |
|
- |
|
(3,561,093) |
Interest expense on
loan notes |
- |
|
(3,768,615) |
|
(935,887) |
|
- |
|
(4,704,502) |
Servicer fees |
(266,529) |
|
(1,098,451) |
|
(295,202) |
|
- |
|
(1,660,182) |
Other expenses |
(1,349,406) |
|
3,857,520 |
|
(6,799,164) |
|
- |
|
(4,291,050) |
Total net segment
income |
1,933,276 |
|
8,338,077 |
|
(3,032,091) |
|
- |
|
7,239,262 |
|
|
|
|
|
|
|
|
|
|
|
Buy-to-Let |
|
Owner Occupied |
|
Total
as at |
|
Forward Flow |
|
Purchased |
|
Forward Flow |
|
Purchased |
|
31.12.2019 |
|
£ |
|
£ |
|
£ |
|
£ |
|
£ |
|
Unaudited |
|
Unaudited |
|
Unaudited |
|
Unaudited |
|
Unaudited |
Interest income on
mortgage loans |
4,032,197 |
|
15,355,525 |
|
3,677,365 |
|
- |
|
23,065,087 |
Net gain from
derivative financial instruments |
(27,990) |
|
(1,297,449) |
|
(513,519) |
|
- |
|
(1,838,958) |
Net interest expense
on financial liabilities at fair value through profit and loss |
337,303 |
|
(31,711) |
|
41,783 |
|
- |
|
347,375 |
Interest expense on
borrowings |
(1,350,760) |
|
(1,580,649) |
|
- |
|
- |
|
(2,931,409) |
Interest expense on
loan notes |
- |
|
(5,302,952) |
|
(1,996,446) |
|
- |
|
(7,299,398) |
Servicer fees |
(222,849) |
|
(1,042,359) |
|
(166,942) |
|
- |
|
(1,432,150) |
Other expenses |
(3,204,034) |
|
(5,677,976) |
|
(2,568,257) |
|
- |
|
(11,450,267) |
Total net segment
income |
(436,133) |
|
422,429 |
|
(1,526,016) |
|
- |
|
(1,539,720) |
A reconciliation of total net segmental income to total
comprehensive gain is provided as follows.
|
|
|
|
|
|
|
31.12.2020 |
|
31.12.2019 |
|
|
|
|
|
|
|
Unaudited |
|
Unaudited |
|
|
|
|
|
|
|
£ |
|
£ |
Total net segment
income |
|
|
|
|
|
|
7,239,262 |
|
(1,539,720) |
Other fees and
expenses |
|
|
|
|
|
|
(2,540,541) |
|
4,948,946 |
|
|
|
|
|
|
|
4,698,721 |
|
3,409,226 |
There are no transactions between the reportable segments.
Total segment assets include:
|
Buy-to-Let |
|
Owner Occupied |
|
Total
as at |
|
Forward Flow |
|
Purchased |
|
Forward Flow |
|
Purchased |
|
31.12.2020 |
|
Unaudited |
|
Unaudited |
|
Unaudited |
|
Unaudited |
|
Unaudited |
|
£ |
|
£ |
|
£ |
|
£ |
|
£ |
Mortgage loans |
349,582,094 |
|
930,948,029 |
|
388,481,957 |
|
- |
|
1,669,012,080 |
Reserve fund |
- |
|
14,263,569 |
|
6,683,000 |
|
- |
|
20,946,569 |
Other |
10,037,285 |
|
10,695,813 |
|
15,997,226 |
|
- |
|
36,730,324 |
|
359,619,379 |
|
955,907,411 |
|
411,162,183 |
|
- |
|
1,726,688,973 |
|
|
|
|
|
|
|
|
|
|
|
Buy-to-Let |
|
Owner Occupied |
|
Total
as at |
|
Forward Flow |
|
Purchased |
|
Forward Flow |
|
Purchased |
|
30.06.2020 |
|
Audited |
|
Audited |
|
Audited |
|
Audited |
|
Audited |
|
£ |
|
£ |
|
£ |
|
£ |
|
£ |
Mortgage loans |
496,014,014 |
|
964,506,625 |
|
178,431,751 |
|
- |
|
1,638,952,390 |
Reserve fund |
2,500,000 |
|
13,521,519 |
|
4,183,000 |
|
- |
|
20,204,519 |
Other |
13,353,469 |
|
7,781,642 |
|
10,600,291 |
|
- |
|
31,735,402 |
|
511,867,483 |
|
985,809,786 |
|
193,215,042 |
|
- |
|
1,690,892,311 |
|
|
|
|
|
|
|
31.12.2020 |
|
30.06.2020 |
|
|
|
|
|
|
|
£ |
|
£ |
|
|
|
|
|
|
|
Unaudited |
|
Audited |
Segment
assets for reportable segments |
|
|
|
|
1,726,688,973 |
|
1,690,892,311 |
Other |
|
|
|
|
|
|
11,412,714 |
|
10,430,715 |
Total assets |
|
|
|
|
|
|
1,738,101,687 |
|
1,701,323,026 |
Total segment liabilities include:
|
Buy-to-Let |
|
Owner Occupied |
|
Total
as at |
|
Forward Flow |
|
Purchased |
|
Forward Flow |
|
Purchased |
|
31.12.2020 |
|
£ |
|
£ |
|
£ |
|
£ |
|
£ |
|
Unaudited |
|
Unaudited |
|
Unaudited |
|
Unaudited |
|
Unaudited |
Borrowings |
311,400,808 |
|
138,288,860 |
|
218,345,677 |
|
- |
|
668,035,345 |
Loan notes |
- |
|
720,875,456 |
|
133,395,541 |
|
- |
|
854,270,997 |
Financial liabilities
at fair value through profit and loss |
5,751,552 |
|
9,699,710 |
|
4,171,319 |
|
- |
|
19,622,581 |
Other |
3,221,948 |
|
636,319 |
|
1,325,726 |
|
- |
|
5,183,993 |
|
320,374,308 |
|
869,500,345 |
|
357,238,263 |
|
- |
|
1,547,112,916 |
|
Buy-to-Let |
|
|
|
Owner
Occupied |
|
|
Total
as at |
|
Forward Flow |
|
Purchased |
|
Forward Flow |
|
Purchased |
|
30.06.2020 |
|
£ |
|
£ |
|
£ |
|
£ |
|
£ |
|
Audited |
|
Audited |
|
Audited |
|
Audited |
|
Audited |
Borrowings |
449,911,285 |
|
154,385,416 |
|
- |
|
- |
|
604,296,701 |
Loan notes |
- |
|
689,925,877 |
|
158,951,012 |
|
- |
|
848,876,889 |
Financial liabilities
at fair value through profit and loss |
8,365,062 |
|
10,705,428 |
|
2,386,002 |
|
- |
|
21,456,492 |
Other |
3,681,808 |
|
1,710,646 |
|
432,871 |
|
- |
|
5,825,325 |
|
461,958,155 |
|
856,727,367 |
|
161,769,885 |
|
- |
|
1,480,455,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.12.2020 |
|
30.06.2020 |
|
|
|
|
|
|
|
£ |
|
£ |
|
|
|
|
|
|
|
Unaudited |
|
Audited |
Segment liabilities for
reportable segments |
|
|
|
|
|
1,547,112,916 |
|
1,480,455,407 |
Trade and other
payables |
|
|
|
|
|
|
1,142,797 |
|
790,656 |
Total liabilities |
|
|
|
|
|
|
1,548,255,713 |
|
1,481,246,063 |
|
|
|
|
|
|
|
|
|
|
20. Ultimate Controlling
Party
In the opinion of the Directors on the basis of shareholdings
advised to them, the Company has no ultimate controlling party.
21. Subsequent Events
The second interim dividend for period ending 31 December 2020 of 1.125p per Ordinary Share was
declared on 14 January 2021 and paid
on 5 February 2021.
On 19 January 2021, the Company
securitised the Keystone portfolio through Hops Hill No. 1 PLC.
In early February a mandate was awarded and documentation is
currently being completed to allow the new warehouse to absorb
future Keystone origination once the pre-funding period for Hops
Hill No.1 PLC is completed by the May Interest Payment Date.
On 5 February 2021, the Company
has agreed to sell the portfolios held by Cornhill Mortgages No. 6
Limited and Malt Hill No. 2 Plc to fund two tender offers to
shareholders and a second Keystone transaction. The sale of
Cornhill Mortgages No. 6 Limited was completed on 25 February 2021 and subject to successful
completion, the Malt Hill No.2 PLC delivery is anticipated on the
interest payment date in May 2021.
The sale price of these two portfolios is not materially different
from the amortised cost valuation once the expected interest income
prior to the transaction closing date is taken into consideration.
It should be noted however that the termination of the swaps is
expected to have an impact on the NAV, the quantum of which will be
reflected by the swap unwind costs at their respective terminations
in February and May 2021. In
aggregate, the capital release from the two sales is expected to be
in the upper end of the £35-40m range
indicated to investors as part of the strategic review in 2020.
On the 26 February 2021 the
Company issued a tender circular to shareholders which proposed to
return up to £40m of capital in tenders linked to the planned sales
of the Cornhill No. 6 and Malt Hill No 2 portfolios in February and
May respectively. The Board has recommended that shareholders
approve the tender at an EGM scheduled for 23 March 2021.
The UK completed its Withdrawal Agreement from the EU on
31 December 2020 (Brexit). Given that
the Company’s sole objective is to invest in portfolios of
residential mortgages in the UK, Brexit is not expected to have an
impact on UK mortgage lenders’ ability to originate UK borrowers or
therefore the Company's ability to purchase portfolios of such
loans. Bonds issued from the Company’s securitisations can continue
be sold to non-UK investors as evidenced by the Company's most
recent transaction, Hops Hill No. 1 completed post-Brexit in
January 2021, which included
investors not just from the UK but from several European
geographies as well as the US and Australia.
These Unaudited Condensed Consolidated Interim Financial
Statements were approved for issuance by the Board on 16 March 2021. There were no subsequent events,
apart from those mentioned above until this date.
SUBSIDIARY DETAILS
Company
UK Corporate Funding Designated Activity Company
Cornhill Mortgages No.4 Limited
Cornhill Mortgages No.5 Limited
Cornhill Mortgages No.6 Limited
Malt Hill No.2 Plc
Oat Hill No.1 Plc
Oat Hill No.2 Plc
Barley Hill No.1 Plc |
Registered Office
5 George’s Dock, IFSC, Dublin 1, Ireland.
35 Great St. Helen's, London, EC3A 6AP, United Kingdom.
35 Great St. Helen's, London, EC3A 6AP, United Kingdom.
35 Great St. Helen's, London, EC3A 6AP, United Kingdom.
35 Great St. Helen's, London, EC3A 6AP, United Kingdom.
35 Great St. Helen's, London, EC3A 6AP, United Kingdom.
35 Great St. Helen's, London, EC3A 6AP, United Kingdom.
35 Great St. Helen's, London, EC3A 6AP, United Kingdom. |
GLOSSARY OF TERMS
ABS |
Asset-backed security whose income
payments and hence value are derived from and collateralised (or
“backed”) by a specified pool of underlying assets |
Acquiring
Entity |
means UK Mortgages Corporate Funding
Designated Activity Company, a designated activity company
incorporated in Ireland qualifying within the meaning of section
110 of the Taxes Consolidation Act 1997 to acquire mortgage
portfolios for on-selling to Warehouse SPVs and issuing PPNs |
Administrator |
Northern Trust International Fund
Administration Services (Guernsey) Limited (a non-cellular company
limited by shares incorporated in the Island of Guernsey with
registered number 15532) |
AIC |
Association of Investment
Companies |
AIC Code |
the AIC Code of Corporate Governance
for companies incorporated in Guernsey |
AIC Guide |
the AIC Guide to Corporate
Governance |
AIFM
Directive |
Alternative Investment Fund Managers
Directive 2011, 61/EU |
AIFM or
Maitland |
Maitland Institutional Services
Limited, the Company’s alternative investment fund manager for the
purposes of regulation 4 of the AIFM Regulations |
Amortised Cost
Accounting |
The process by which mortgages in
the Company’s portfolio are valued at cost less capital repayments
and any provisions required for impairment |
Audit
Committee |
an operating committee of the Board
of Directors charged with oversight of financial reporting and
disclosure |
Audited Consolidated
Financial Statements |
Audited Consolidated Financial
Statements of the Company |
BoAML |
the Bank of America Merrill
Lynch |
BTL |
Buy-to-let |
BoE |
Bank of England |
Board of Directors or
Board or Directors |
the Directors of the Company |
CCJs |
County Court Judgements |
CHL |
Capital Home Loans |
Class A
Notes |
means the Class A Mortgage Backed
Floating Rate Notes issued by the Issuer and admitted to trading on
the Irish Stock Exchange |
company |
UK Mortgages Limited |
Company |
means UKML, Acquiring Entity, Issuer
SPV and Warehouse SPVs |
Company's Articles or
Articles |
the articles of incorporation of the
Company |
Continuation
Vote |
an ordinary resolution that gives
shareholders the ability to instruct the board to prepare a
proposal to restructure or wind up a company by means of a simple
majority vote |
Corporate
Broker |
Numis Securities Limited |
CRS |
The Common Reporting Standard, a
global standard for the automatic exchange of financial account
information developed by OECD |
Custodian and
Depositary |
Northern Trust (Guernsey) Limited (a
non-cellular company limited by shares incorporated in the Island
of Guernsey with registered number 2651) |
Derivative
Instruments |
means instruments used to gain
leveraged exposure to mortgage portfolios, including but not
limited to Credit Linked Notes and Credit Default Swaps |
DAC |
UK Mortgages Corporate Funding
Designated Activity Company an independently managed, Dublin based,
section 110 designated activity company that is responsible for the
warehousing and securitisation of mortgage portfolios under the
supervision of TFAM the investment adviser. DAC is wholly financed
by the Company via Profit Participating Notes and distributes
substantially all of its profits to the Company thereby qualifying
for a reduced rate of taxation, commonly known as a Eurobond
exemption. From a financial reporting perspective DAC is
consolidated with the Company as it provides its services
exclusively to the Company |
DSCR |
Debt Service Coverage Ratio |
ECL |
Expected Credit Loss |
EGM |
Extraordinary general meeting. An
extraordinary general meeting (EGM) is a meeting other than a
company’s annual general meeting (AGM) |
FFI |
Foreign Financial Institution |
FLS |
Funding for Lending Scheme |
Forward Flow
transaction |
Forward flow transactions involve
the appointment of a third party to originate mortgages that meet
criteria defined by the investment manager with the intention of
securitising these mortgages at a future date. These transactions
have the advantage that they can be customised with a view to
meeting desired levels of risk and return. The disadvantage
of this type of transaction is that the timing of loan origination
is a function of the market demand for the mortgages and the size
and quality of the originator’s sales infrastructure. |
FRC |
the Financial Reporting Council |
FTBs |
First Time Buyers |
FVTPL |
Fair value through profit or
loss |
GFSC Code |
Code of Corporate Governance issued
by the Guernsey Financial Services Commission |
Government and Public
Securities |
means per
the FCA definition, the investment, specified in article 78 of the
Regulated Activities Order (Government and public securities),
which is in summary: a loan stock, bond government and public
security FCA PRA or other instrument creating or acknowledging
indebtedness, issued by or on behalf of:
(a) the government of the United Kingdom; or
(b) the Scottish Administration; or
(c) the Executive Committee of the Northern Ireland Assembly;
or
(d) the National Assembly of Wales; or
(e) the government of any country or territory outside the United
Kingdom; or
(f) a local authority in the United Kingdom or elsewhere; or
(g) a body the members of which comprise:
(i) States including the United Kingdom or another EEA State;
or
(ii) bodies whose members comprise States including the United
Kingdom or another EEA State; but excluding: (A) the instruments
specified in article 77(2)(a) to (d) of the Regulated Activities
Order; (B) any instrument creating or acknowledging indebtedness in
respect of: (I) money received by the Director of Savings as
deposits or otherwise in connection with the business of the
National Savings Bank; or (II) money raised under the National
Loans Act 1968 under the auspices of the Director of Savings or
treated as so raised under section 11(3) |
Hedge Accounting |
This is the process by
which the change in fair value of a hedging instrument is offset by
a proportionate change in the fair value of the company’s portfolio
to neutralise the volatility of the company’s net asset
value. It requires initial proof and ongoing monitoring of
the hedge effectiveness |
ICR |
Interest Coverage Ratio,
a debt ratio and profitability ratio used to determine how easily a
company can pay interest on its outstanding debt |
IFRS |
International Financial
Reporting Standards |
Investment Company |
a company whose main
business is holding securities for investment purposes |
Internal Control |
a process for assuring
achievement of an organisation's objectives in operational
effectiveness and efficiency, reliable financial reporting, and
compliance with laws, regulations and policies |
IPO, Initial Public
Offering |
means the initial public
offering of shares in the Company on the specialist fund segment of
the London Stock Exchange |
IPD |
Interest Payment
Date |
IRR |
Internal Rate of
Return |
IRS |
the US Internal Revenue
Service |
Issue |
means together the
Placing and the Offer (or as the context requires both of them |
Issuer SPVs |
means special purpose vehicles
established for the specific purpose of securitisation and issuing
Retention Notes for purchase by the Acquiring Entity |
Junior Note |
These notes have the lowest priority
claim on capital and income from the Issuer SPV and offer the
highest potential returns in exchange for bearing the first loss
experienced by the SPV |
Loan Financing
Facility |
means a facility in terms of which
ongoing finance is provided by Bank of America Merrill Lynch
International Limited for a period of up to two-years |
LSE |
London Stock Exchange plc (a company
registered in England and Wales with registered number
2075721) |
LTV |
means Loan to Value |
Mortgage Pool/
Mortgage Portfolio |
The underlying mortgage loans that
produce the income for the securitised portfolios |
NAV |
means net asset value |
Net Asset Value Total
Return |
the total return is calculated by
adding dividends since inception to the absolute change in NAV and
dividing it by the NAV on the starting date |
OECD |
the Organisation for Economic
Co-operation and Development |
Offer |
means the offer for subscription of
Ordinary Shares at 1.000p each to the public in the United Kingdom
on the terms and conditions set out in Part 12 of the Prospectus
and the Application Form |
Official
List |
in reference to DAC and
Issuer SPV refers to the official list of the Irish Stock Exchange
p.l.c.
In reference to the Company refers to the official list of the
London Stock Exchange |
Ordinary
Shares |
ordinary shares of 100p each in the
capital of the Company |
Placing |
means the conditional placing by the
Corporate Broker, as agent for the Company, of up to 250 million
ordinary shares at 1 pence each on the terms and conditions set out
or referred to in the placing documents, being the Prospectus, the
Presentation, the P Proof, the flyer, the press announcements, the
contract note, any other document prepared in connection with the
pre-marketing of the issue or the placing programme |
Portfolio
Manager |
TwentyFour Asset Management LLP (a
limited liability partnership incorporated in England and Wales
with registered number OC335015) |
Profit Participating
Notes/PPN |
these are Eurobond notes issued by
DAC to the Company. The capital paid by the Company to DAC to buy
the notes is invested in mortgage pools and DAC in turn pays income
to the Company via coupon payments on the notes |
Purchased
portfolio |
A purchased portfolio is the
purchase of a large group of related financial assets in a single
transaction |
QE |
Quantitative easing (QE), also known
as Large Scale Assets Purchases, is an expansionary monetary policy
whereby a central bank buys predetermined amounts of government
bonds or other financial assets in order to stimulate the
economy |
Rating
Agency |
companies that assess the
creditworthiness of both debt securities and their issuers, for
these purposes Standard and Poor’s, Moody’s and Fitch |
Retention
Notes |
means a Subordinated tranche of
securities which as part of the warehouse or securitisation
issuance structure are issued for purchase by the Acquiring
Entity |
RMBS |
Residential Mortgage-Backed
Security |
RNS |
Regulatory News Service |
Section 110 |
Section 110 of the Irish Taxes
Consolidation Act 1997 (as amended). A Section 110 company is an
Irish resident special purpose vehicle (“SPV”) which holds and/or
manages “qualifying assets” and usually distributes substantially
all of its income net of a fixed annual tax payment |
Seasoning |
The weighted average age of a
mortgage portfolio |
Securitisation
Vehicle |
special purpose vehicle incorporated
in the UK established for the purpose of issuing notes
collateralised by an underlying mortgage pool |
Senior Note |
Senior note holders receive first
priority with respect to income and capital distributions and
effectively provide long term leverage finance to the Junior note
holders |
Servicer |
means the entity that maintains the
relationship with the underlying mortgage borrower to answer
questions, collect payments and refinance existing loans if
required |
Share
Buyback |
the Company purchases shares in the
market |
Shareholders |
holders of Shares |
Specialist Fund
Segment |
the Specialist Fund Segment of the
London Stock Exchange |
SONIA |
the Sterling Overnight Interest
Average rate which is replacing LIBOR as a cost of interbank
funding |
SPV |
means a special purpose vehicle |
SVR |
Standard variable rate |
TFS |
Term Funding Scheme |
TML |
The Mortgage Lender |
UK Code |
The UK Corporate Governance Code
2018 (published in July 2018) applies to accounting periods
beginning on or after 1 January 2019. It places greater emphasis on
relationships between companies, shareholders and stakeholders. It
also promotes the importance of establishing a corporate culture
that is aligned with the company purpose, business strategy,
promotes integrity and values diversity. All companies with a
Premium Listing of equity shares in the UK are required under the
Listing Rules to report in their annual report and accounts on how
they have applied the Code. The UK Corporate Governance Code
2016 |
UKML |
UK Mortgages Limited |
Valuation
Agent |
Kinson Advisors LLP |
WA LTV |
Weighted average loan-to-value |
|
|
|
Warehousing |
the process by which mortgages are
acquired in a portfolio prior to securitisation. The portfolio is
typically leveraged by borrowing from a warehouse credit facility.
Five warehouse SPVs; Cornhill Mortgages No. 1 Limited, Cornhill
Mortgages No. 2 Limited, Cornhill Mortgages No. 3 Limited, Cornhill
Mortgages No. 4 Limited, Cornhill Mortgages No. 5 Limited, Cornhill
Mortgages No. 6 Limited have been established for the purpose of
warehousing |
Warehouse SPV |
a special purpose vehicle,
incorporated in the UK, established for the purpose of warehousing
the mortgage portfolio |
CORPORATE INFORMATION
Directors
Christopher Waldron - Chairman
Richard Burrows
Paul Le Page
Helen Green
|
Custodian, Principal Banker and Depositary
Northern Trust (Guernsey) Limited
PO Box 71
Trafalgar Court
Les Banques
St Peter Port
Guernsey, GY1 3DA |
Registered Office
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey, GY1 3QL
|
Secretary and Administrator
Northern Trust International Fund Administration
Services (Guernsey) Limited
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey, GY1 3QL |
Alternative Investment Fund Manager
Maitland Institutional Services Limited
Hamilton Centre
Rodney Way
Chelmsford, Essex, CM1 3BY
Portfolio Manager
TwentyFour Asset Management LLP
8th Floor
The Monument Building
11 Monument Street
London, EC3R 8AF |
Corporate Broker
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London, EC4M 7LT
Independent Auditor
Deloitte LLP
PO Box 137
Regency Court
Glategny Esplanade
St Peter Port
Guernsey, GY1 3HW
|
UK Legal Advisers to the Company
Eversheds Sutherland LLP
One Wood Street
London, EC2V 7WS |
Receiving Agent
Computershare Investor Services plc
The Pavilions
Bridgwater Road
Bristol, BS99 6ZZ |
Guernsey Legal Advisers to the Company
Carey Olsen
Carey House
Les Banques
St Peter Port
Guernsey, GY1 4BZ
|
Registrar
Computershare Investor Services
(Guernsey) Limited
1st Floor
Tudor House
Le Bordage
St Peter Port
Guernsey, GY1 1DB
|
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