TIDMGABI
RNS Number : 3879C
GCP Asset Backed Income Fund Ltd
13 April 2017
GCP Asset Backed Income Fund Limited (the "Company")
(formerly Project Finance Investments Limited)
13 April 2017
Annual report and financial statements for the period 7
September 2015 to 31 December 2016
The Directors of the Company are pleased to announce the
Company's annual results for the period to 31 December 2016. The
full annual report and financial statements can be accessed via the
Company's website at
http://www.gcpuk.com/gcp-asset-backed-income-fund-ltd/ and will be
posted to shareholders over the course of the next few weeks.
For further information, please contact:
Gravis Capital Partners LLP +44 (0)20 7518 1490
David Conlon david.conlon@gcpuk.com
Philip Kent philip.kent@gcpuk.com
Dion Di Miceli dion.dimiceli@gcpuk.com
Cenkos Securities plc +44 (0)20 7397 8900
Tom Scrivens tscrivens@cenkos.com
Sapna Shah sshah@cenkos.com
Oliver Packard opackard@cenkos.com
Buchanan +44 (0)20 7466 5000
Charles Ryland charlesr@buchanan.uk.com
Victoria Watkins victoriaw@buchanan.uk.com
Notes to Editors
The Company is a closed ended investment company traded on the
Main Market of the London Stock Exchange. Its investment objective
is to generate attractive risk-adjusted returns primarily through
regular, growing distributions and modest capital appreciation over
the long term.
About us
The Company seeks to meet its investment objective by making
investments in a diversified portfolio of predominantly UK based
asset backed loans which have contracted, predictable medium to
long-term cash flows and/or physical assets.
The Company is a listed investment company focused primarily on
asset-backed loans across a range of sectors predominantly in the
UK.
The Company's investment objective is to generate attractive
risk adjusted returns through regular, growing distributions and
modest capital appreciation over the long term.
The Company is a closed-ended investment company incorporated in
Jersey. It was admitted to the premium listing segment of the
Official List and to trading on the LSE's Main Market on 23 October
2015, and since then it has grown to a market capitalisation of
GBP175.9 million as at 31 December 2016.
AT A GLANCE AS AT 31 DECEMBER 2016
GBP175.9m
Market capitalisation
106.88p
Ordinary share price
14
Number of investments
GBP165.2m
Value of investments (including cash)
100p
NAV per ordinary share
11.2%
Total shareholder return for the period
GBP7.2m
Profit for the period
5.82p
Dividends for the period(1)
(1) Includes a dividend of 1.5 pence per share for the quarter
to 31 December 2016 which was declared post period end.
HIGHLIGHTS FOR THE PERIOD
-- GBP106 million raised at IPO in October 2015
-- IPO proceeds deployed quicker than anticipated resulting in
the first dividend being brought forward by three months and
first-year target annualised dividend being increased from 4 pence
per share to 5 pence per share
-- GBP44.1 million raised through the issuance of C shares in
May 2016 and a further GBP15.6 million though a placing of ordinary
shares in November 2016
-- Profit for the period of GBP7.2 million
-- Dividends of 4.32 pence per share paid for the period from
IPO to 30 September 2016 and 1.5 pence per share for the quarter to
31 December 2016, paid on 21 February 2017
-- Diversified portfolio of 14 asset-backed loans with a third
party valuation of GBP158.3 million
-- Fair value valuation of the Company's investment in the
Subsidiaries' portfolio, of GBP158.4 million, with cash balances of
GBP6.8 million at 31 December 2016
-- Company NAV per ordinary share of 100 pence as at 31 December 2016
-- Ordinary shares trading at a 6.9% premium to NAV as at 31 December 2016
-- Total loans of GBP14.7 million advanced post period end
-- Post period end, a further GBP79.3 million raised through the
issuance of C shares in February 2017
-- Total shareholder return for the period of 11.2%
INVESTMENT OBJECTIVES
The Group invests in a diversified portfolio of fixed and
floating rate loans secured against contracted, predictable medium
to long-term cash flows and/or physical assets to meet the
following key objectives:
Attractive risk adjusted returns
To provide shareholders with returns that are attractive with
regard to both the level of return achieved and the risk taken.
The Company invests in a diversified portfolio of loans secured
against contracted medium to long-term cash flows and/or physical
assets.
The Company has invested in a diversified portfolio of loans
secured against contracted medium to long-term cash flows and/or
physical assets.
Regular, growing distributions
To provide shareholders with regular and growing dividend
distributions.
The Company exceeded its target dividend yield of 4% as set out
at IPO, met its revised target dividend yield of 5% for the first
full financial year and has established a run-rate over the
previous three quarters of an annualised dividend yield of
6%.(1)
Capital appreciation
To achieve modest appreciation in shareholder value over the
long term.
Since inception, the Company's ordinary shares have traded at a
premium to NAV. The Company's NAV per share has grown from 98 pence
at IPO to 100 pence at the period end. The Company's ordinary
shares were trading at 106.88 pence at the period end.
Key performance highlights
Number of investments as at 31 December 2016 14
Weight adjusted average annualised yield on investment portfolio 8.2%
Dividend for period ended 31 December 2016 5.82p
Percentage of portfolio with interest rate protection and/or inflation linkage c.60%
Share price of ordinary shares as at 31 December 2016 106.88p
Total shareholder return for the period 11.2%
------------------------------------------------------------------------------- -------
(1) Information in relation to dividends set out above is for
illustrative purposes only and is not intended to be, and should
not be taken as, a profit forecast or estimate.
CHAIRMAN'S STATEMENT
Introduction
On behalf of the Board, I am pleased to present the Company's
first annual report and financial statements following a successful
period since IPO in October 2015. In the period, the Company raised
c.GBP166 million through equity issuances and invested GBP159.6
million in 14 loans that continue to perform in line with
expectations. It is pleasing to note that the Investment Manager
deployed capital raised expeditiously and at attractive rates
enabling the Company to exceed its stated IPO dividend target in
respect of this first initial period by 25%, with dividends
totalling 5.82 pence per ordinary share paid and declared for the
period.
The Company was established to meet a market need for bespoke
lending products that are tailored to a borrower's specific
requirements in areas of the market that are currently underserved
by mainstream lenders. It invests in a diversified portfolio of
investments which are secured against contracted, predictable
medium to long-term cash flows and/or physical assets. The
Investment Manager focuses primarily on loans secured against
assets that are integral to society in sectors such as energy,
waste, social infrastructure and property.
The Board is grateful for shareholders' support for the Company
and is pleased to have established a broad and diversified
shareholder register. Inclusion in the FTSE All-Share Index in June
2016 has further enhanced market liquidity of the Company's
ordinary shares in the secondary market.
Market overview
Market conditions remain supportive to the Company's strategy
with the low interest rate environment continuing to make the
Company's ability to generate regular income attractive for
investors. Approximately 60% of the Company's investment portfolio
benefits from either inflation linkage or interest rate protection,
a characteristic that acts as a mitigation against concerns
regarding inflation and interest rates.
Tightening regulatory capital controls are forcing mainstream
lenders to hold more equity capital against their risk-weighted
assets or to reduce the value of these assets on their balance
sheets. This has resulted in bank lenders becoming more restricted
regarding the sectors that they will lend against and the loan
covenants, term and size they are prepared to accept. These lending
decisions, driven by regulatory factors and not based on an
analysis of the credit quality of end borrowers, have created
opportunities for alternative lenders.
Furthermore, bespoke lending opportunities that sit outside of
standard credit products tend to require significant expertise to
analyse investment risk and to structure transactions that address
specific borrower requirements. The investment process can be
resource intensive and mainstream lenders generally prefer to focus
on simpler areas of the market. The Company on the other hand has
the required experience and personnel to understand comprehensively
relatively complicated investment opportunities, perform the
necessary due diligence and tailor a flexible lending product to
meet a borrower's needs.
This approach to lending means the Company and its shareholders
can continue to benefit from the many gaps left by mainstream
lenders. The Investment Manager continues to see substantial
asset-backed finance investment opportunities with a pipeline of
suitable investments in the near term of c.GBP168 million.
NAV and share price performance
At the period end, the net assets of the Company were GBP164.6
million. The NAV per ordinary share increased from 98 pence
immediately following the Company's IPO to 100 pence at 31 December
2016. The Company's ordinary shares have traded at a premium to NAV
since inception, with an average premium over the period of 7.1%.
At 31 December 2016, the share price for the ordinary shares was
106.88 pence.
Dividend policy
The Company paid dividends in respect of the financial period to
31 December 2016 of 5.82 pence per ordinary share, thereby meeting
its revised IPO target annualised yield of 5% for that period.
Looking forward, the Company is targeting an annual dividend of 6
pence per ordinary share.(1)
(1) Information in relation to dividends set out above is for
illustrative purposes only and is not intended to be, and should
not be taken as, a profit forecast or estimate.
Scrip dividend facility
A resolution will be put to shareholders at the forthcoming AGM
to propose the introduction of a scrip dividend facility. The
proposed scrip dividend facility will give ordinary shareholders
the opportunity to elect to receive new ordinary shares, these
being scrip shares, in the Company in place of their cash dividend
payments.
The scrip dividend facility will enable ordinary shareholders to
increase their holding in the Company without incurring dealing
costs, while the Company benefits from the retention of cash, which
would otherwise be paid out as a dividend. Shareholders should
consult their own professional tax advisers in relation to the tax
consequences of electing to receive any scrip shares.
Subject to approval of the relevant resolution by shareholders,
it is intended that the scrip dividend facility will enable
ordinary shareholders to elect for scrip shares in place of their
cash dividend with effect from the quarterly dividend for the
period ended 30 June 2017. Further details will be published by the
Company at the appropriate time.
Company name change
With effect from 12 October 2016, the Company changed its name
to GCP Asset Backed Income Fund Limited following approval by
shareholders at the 2016 AGM. The Board believes that the revised
name more accurately reflects the Company's investment approach of
making loans secured against a diversified portfolio of
asset-backed, income generative investments.
Governance and compliance
The Board recognises the importance of a strong corporate
governance culture and continues to maintain principles of good
corporate governance as set out in the UK Code, which was updated
in April 2016. A copy of the UK Code is available at
www.frc.org.
Alex Ohlsson
Chairman
12 April 2017
STRATEGIC OVERVIEW
Investment objectives and policies
The Company's investment objective is to generate attractive
risk adjusted returns through regular, growing distributions and
capital appreciation over the long term.
The Company will seek to meet its investment objective by making
investments in a diversified portfolio of asset-backed loans. The
Company's investments are predominantly in the form of medium to
long-term fixed or floating rate loans which are secured against
cash flows and/or physical assets which are predominantly UK
based.
The Company's asset-backed investments will typically be
unquoted and will include, but not be limited to, senior loans,
subordinated loans, mezzanine loans, bridge loans and other debt
instruments. The Company may also make limited investments in
equities, equity-related derivative instruments such as warrants,
controlling equity positions (directly or indirectly) and/or
directly in physical assets.
The Company currently anticipates that it will make investments
directly or indirectly through one or more underlying special
purpose vehicles which will typically be wholly owned by the
Company and over which the Company will exercise control as regards
to investment decisions. The Company may from time to time invest
through vehicles which are not wholly owned by it. In such
circumstances, the Company will seek to secure controlling rights
over such vehicles through loan agreements or other legal
arrangements.
The Company will at all times invest and manage its assets in a
manner which is consistent with the objective of spreading
investment risk.
Investment restrictions
The Company will observe the following investment
restrictions:
-- any single investment, or any investments with a single
counterparty, will be limited to 20% of the gross assets of the
Company;
-- investments in equities and equity-related derivative
instruments including controlling equity positions and any direct
investments in physical assets will be limited to 10% of the gross
assets of the Company;
-- no more than 20% of the gross assets of the Company will be
invested in projects and assets outside the UK; and
-- the Company will not invest in other listed closed-ended funds.
The limits set out above shall all apply as at the time of
investment, as appropriate.
Non-financial objectives of the Company
The key non-financial objectives of the Company are:
-- to maintain strong and positive working relationships with
all stakeholders, including shareholders and borrowers; and
-- to promote the development of emerging asset-backed sectors
by developing financial products that match the requirements of the
sector.
Key policies
Borrowing and gearing policy
The Company may, from time to time, use borrowings for
investment purposes, to manage its working capital requirements or
in order to fund the market purchase of its own shares. Gearing,
represented by borrowings, will not exceed 25% of NAV, calculated
at the time of borrowing.
Hedging and derivatives
The Company may invest through derivatives for investment
purposes and efficient portfolio management. In particular, the
Company may engage in interest rate hedging or otherwise seek to
mitigate the risk of interest rate changes as part of the Company's
efficient portfolio management.
Dividend policy
The Company intends to pay dividends on a quarterly basis with
dividends declared in January, April, July and October and paid in
February, May, August and November in each financial year.
Target returns
The Company will target an IRR of between 7% and 8% (net of
expenses and fees) on the IPO price over the long term.(1)
Conflicts of interest
Where there is any overlap for a potential investment with GCP
Infrastructure (a third-party company advised by the Investment
Manager), GCP Infrastructure has a right of first refusal over such
investment.
In the event that the Investment Manager or any partners,
directors, officers or employees of the Investment Manager are
directly or indirectly interested in any entity or asset in
relation to any investment proposal, the potential investment is
presented to the Board for its approval.
As disclosed in the prospectus published on 20 January 2017, the
partners of the Investment Manager indirectly own an equity
interest in two of the Company's investments, details of which can
be found on page 19 under the heading 'Conflicts of interest'.
(1) Information in relation to the IRR set out above is for
illustrative purposes only and is not intended to be, and should
not be taken as, a profit forecast or estimate.
Delivery of investment objectives through implementation of
investment strategy
Investment objective Implementation of investment strategy
------------------------ ----------------------------------------------
Attractive risk Investments in sectors being underserviced
adjusted returns by mainstream lenders
To provide shareholders The Company targets investments
with returns that in asset classes that are not serviced
are attractive by mainstream lenders, for which
with regard to there exists a surplus of capital
both the level demand over supply. This may be
of return achieved due to scale, sector, tenure or
and the risk taken. other restrictions driven by internal
lender policies and/or regulatory
constraints. Less competition to
service these sectors means the
Company can demand a premium over
the risk being taken.
----------------------------------------------
Creation of bespoke lending products
The Company focuses on addressing
a borrower's needs through designing
lending products that meet a specific
financing requirement. The origination
and structuring activities associated
with this approach is resource intensive,
requiring specific risk analysis,
the development of documentation
and bespoke financial analysis in
each case. The Company's ability
to invest such resource to meet
a borrower's requirements justifies
an additional premium relative to
the underlying risk of an asset.
----------------------------------------------
Diversification of sectors
The Company benefits from having
a wide investment mandate, allowing
it to be flexible in seeking investments
in sectors that produce the most
attractive risk/return profile.
This means that to the extent particular
sectors mature and the cost of capital
available to such sectors falls,
the Company is able to seek new
areas that meet its return targets.
----------------------------------------------
Established investment process and
due diligence
The Investment Manager has significant
experience in identifying, reviewing
and conducting due diligence on
new investment opportunities. Where
appropriate, the Company engages
third-party, independent, specialist
advisers on each transaction to
complement the Investment Manager's
analysis in order to ensure the
legal, market, credit, technical,
insurance, finance, tax and regulatory
aspects of each transaction are
correctly considered.
----------------------------------------------
Structural separation of risks in
investment structure
The Company uses an established
model of structuring investments,
taken from project finance. This
approach involves the detailed identification
of the risks associated with owning
an asset and the monetisation of
the goods and/or services produced
by an asset. The asset, together
with the key licences and consents
required to monetise such asset,
are owned by a newly formed company
with the specific purpose of holding
this asset. Where appropriate, third
party service providers are engaged
to manage these risks through contractual
arrangements with the Project Company.
This results in a structure where
the residual risks associated with
investing in the asset company are
clearly delineated and are well
understood.
----------------------------------------------
Investments in debt
The Company's investments are primarily
in debt structures secured against
the value of the physical asset
and contractual relationships generating
revenues from the sale of services
and/or goods produced by such asset.
Secured debt structures give the
Company layers of protection in
the event an asset underperforms,
with the ultimate ability to take
control over an asset or the company
with asset ownership to protect
the value of an investment.
----------------------------------------------
Delivery of investment objective
The Company has generated risk-weighted
returns to shareholders in excess
of investments with an equivalent
risk profile.
8%
Weighted average discount rate(1)
11.2%
Total shareholder return for the
period
------------------------ ----------------------------------------------
Regular, growing Cash flows from assets that create
distributions goods or services for which a structural
To provide shareholders demand exists
with regular and The Company's ability to pay a regular
growing dividend dividend is supported by investments
distributions. in assets that create medium to
long-term cash flows. These cash
flows are supported by a structural
demand for the goods or services
produced by an asset. For example,
the Company's investment in social
housing creates a regular income
underpinned by an asset providing
a service to society for which there
is a structural and enduring demand.
Similarly, the domestic boilers
funded by the Company produce a
regular income supported by the
critical nature of a boiler in an
individual's home.
----------------------------------------------
Medium to long-term capital
When making investments, the Company
ensures capital is deployed effectively
and remains income generating for
the duration of an investment. The
Company intends to balance amortising
loans with bullet repayments, to
allow capital repayments and associated
reinvestment requirements to be
predictable. Further, the Company
typically restricts early or "voluntary"
repayment of loans. To ensure the
higher income levels are maintained
for as long as possible, the Company
has the ability to secure through
investment of resource in an emerging
sector or to create bespoke products.
----------------------------------------------
Delivery of investment objective
The Company has increased its annualised
dividend target for the first year
from 4 pence per share to 5 pence
per share and generated positive
profitability in the period.
5.82p
Dividends paid or declared for the
period ended 31 December 2016
GBP7.2 million
Profit for the period
------------------------ ----------------------------------------------
Capital appreciation Income generation in excess of dividends
To achieve modest and costs
appreciation in In the 14 months since the Company's
shareholder value IPO, the Company has established
over the long term. a run-rate of income generation
in excess of its aggregate costs
and target dividend payment. This
has been shown in the growth of
the NAV since IPO.
----------------------------------------------
Inflation linkage
Approximately 60% of the Company's
portfolio has an element of inflation
linkage, creating income that grows
either directly with inflation or
in the event that inflation exceeds
a particular level. Long-term inflation
assumptions are not factored into
quarterly valuations and therefore
there is potential for NAV growth
in the medium to long-term.
----------------------------------------------
Equity upsides
Where possible, the Company seeks
to build equity upside into its
investments. Whilst the primary
investment in all cases remains
debt based, maintaining the investment
disciplines and downside protection
this provides, where such debt is
materially contributing to the growth
of a business it is reasonable for
the Company to seek additional equity
style upside. This may be achieved
through nominal equity holdings,
share warrants, or profit sharing
mechanisms on interest rates.
----------------------------------------------
Delivery of investment objective
The Company's NAV per share has
grown from 98 pence at IPO to 100
pence as at the period end.
100p
NAV per ordinary share as at 31
December 2016
2%
NAV growth since IPO
------------------------ ----------------------------------------------
(1) The weighted average discount rate is the weighted average
of the discount rates adopted by the independent Valuation Agent to
value the portfolio of assets, taking into account the various
factors that may impact the risk profile of the loan.
ASSET-BACKED LING
Asset-backed lending overview
Asset-backed lending is an approach to structuring investment
that is used to fund infrastructure, industrial or commercial
projects, asset financing and equipment leases. Asset-backed
lending relies on (i) the intrinsic value of physical assets;
and/or (ii) the value of long-term, contracted cash flows generated
from the sale of goods and/or services produced by an asset; to
create security against which investment can be provided.
Asset-backed lending is typically provided to a Project Company,
which is a special purpose company established with the specific
purpose of owning and operating an asset. Financing is provided to
the Project Company with recourse solely to the assets of that
Project Company and distributions to service loans or other
financing relies on the monetisation of the goods and/or services
such asset provides. Lenders implement a security structure that
allows them to take control of the Project Company and assume the
benefits of the asset and service contracts if the Project Company
has difficulties complying with financing terms.
Typically, an asset-backed lending structure involves a number
of counterparties, who enter into contractual relationships with
the Project Company that apportion value and risk through providing
services (e.g. operations and maintenance) associated with the
development, ownership and/or operations of an asset. In
structuring an asset-backed loan, the Project Company will seek to
ensure risks (and associated value) are apportioned to those
counterparties best able to manage them. This ensures the effective
pricing and management of risks inherent in the asset.
The benefits associated with asset-backed debt investments
Investment in asset-backed loans offers relatively secure and
predictable returns to their lenders, when compared with corporate
lending. Further, the reduction since 2007 in the availability of
mainstream debt (primarily from banks) has created the potential
for more attractive pricing on debt investments particularly where
such investments have been originated and structured to accommodate
the borrowers' specific requirements. In particular, where
borrowers may not have access to mainstream financing for reasons
other than the creditworthiness of the relevant project, such as
loan size, tenure, structure or an understanding of the underlying
cash flows and/or asset, attractive rates are available for those
willing to commit the resource, innovation and time to
understanding and identifying a solution for a specific borrower's
requirements.
A key benefit arising from the Investment Manager's approach to
asset-backed lending is transparency. A loan secured against a
specific asset (within a company established specifically for that
asset) is capable of analysis broadly by reference to a set of
known variables such as:
-- how an asset generates cash flow;
-- its current value;
-- expected future value;
-- the competence of its service providers; and
-- the availability of alternative service providers in the event of operator failure.
By contrast, a corporate loan tends to be analysed by reference
to its last reporting date, and thus such an analysis is out of
date by definition; moreover, the impact of unforeseeable variables
(such as the leveraged buyout of a previously investment grade
credit), any off balance sheet liabilities or specific business
risks may render any such analysis wholly irrelevant in a short
space of time.
The need to fully understand the risks associated with a given
asset, and structure arrangements with experienced service
providers to effectively manage those risks, requires specialist
skills and resources. For this reason, the Company's target market
remains underserviced by mainstream lenders therefore offering an
attractive risk-adjusted return for parties with relevant
experience and access to the required resources.
The increased volatility in equity markets seen post the Brexit
vote, and the uncertainty the Brexit process creates, is expected
to reinforce the attractiveness of investing in assets that have
the ability to generate contracted, long-term, predictable cash
flows over the medium and long term.
MARKET OUTLOOK
Target sector updates
Social infrastructure
The Company continues to see opportunities in assets that
provide a core service to society, such as social housing, care for
the elderly and student accommodation. These investments are
supported by a structural excess of demand for a service over the
supply in a certain geography. For example, London is estimated to
have c.70,000 dedicated student beds compared with c.370,000
students. Similarly, local authorities continue to have an
obligation to provide housing for vulnerable adults, and the
Company has financed a number of developments with housing
associations in locations with an undersupply of such provision.
Due to the high quality nature of the credit opportunity in these
sectors, the Company has seen increased competition for new
opportunities, with significant capital raised in funds targeting
social housing and large institutions committing financing to this
sector. The Company's response will be to continue to seek
attractive opportunities in the social infrastructure space where
such competition is not occurring due to the stage of maturity or
scale of investment required, such as the provision of temporary
emergency accommodation for local councils and short-term community
developments in under-utilised inner-city locations.
Energy and associated infrastructure
The UK continues to experience a number of pressures on energy
generation and consumption, driven by the "trilema" of balancing
cost, energy security and the green agenda. Reductions in
feed-in-tariffs and the move to the contract for difference
mechanism will favour certain technologies, with nuclear and
offshore wind expected to be the main beneficiaries of future
direct government support.
Alongside this, the UK government continues to promote renewable
heat and the evolution of a 'smart grid', through the deployment of
smart meters and the promotion of generation and demand side
services through the system operator (National Grid), such as grid
frequency response and energy storage. Energy efficiency continues
to be an economically viable investment for commercial and
industrial enterprises in the absence of subsidies where sufficient
scale can be aggregated across a number of sites. Further, the UK
continues to lag behind its European counterparts in the volume of
waste sent to landfill, creating opportunities to generate income
as an alternative to paying landfill tax in waste uses for energy
generation or other recycling and recovery applications.
Asset finance
The asset finance sector continues to be competitive, with
established finance providers active in the financing of well
understood and common assets, such as vehicles and electronic
goods. The Company targets opportunities in more niche assets that
require bespoke analysis due to the asset type or the circumstances
of the asset, such as domestic boiler financing.
Property
The Company has identified certain areas of the residential
mortgage sector that are being underserved by mainstream lenders
for reasons other than credit quality. In particular, short-term
bridge finance for property purchases and developments has been an
area the Company has been able to secure attractive interest rates
at conservative LTV ratios against a diverse pool of assets. The
Company has developed strong relationships with a number of bridge
finance providers.
Specialist lending
The specialist lending market has experienced a reduction in the
lending activity of mainstream credit providers. This reduction has
been driven by requirements on banks to increase equity capital
ratios as part of legislation such as Basel III and the periodic
stress testing of the banking sector. Improvements to equity ratios
are achieved either through building additional equity reserves, by
attracting investment or through reducing dividends; or reducing
the risk-weighted assets on a bank's balance sheet, achieved
through:
(i) the realisation of impairments;
(ii) a move to investments in lower risk assets (demonstrated by
reductions in investment banking activities); or
(iii) a reduction in lending activities in certain sectors
and/or tightening of financial covenants (such as LTV ratios) in
remaining sectors.
It is this final area that has created, and will continue to
create, an opportunity for the Company. The withdrawal of
mainstream lenders from certain sectors, or a tightening of lending
terms, has led to these credit opportunities facing a surplus of
demand for capital over supply for reasons other than the credit
quality of the lending proposition. The market response has been
the emergence of challenger banks, peer-to-peer lenders and
investment companies (such as the Company) seeking to redress this
imbalance.
Investment pipeline
The Investment Manager maintains a pipeline of potential
investments on behalf of the Company. At the end of the period, the
pipeline represented c.GBP168 million of new opportunities. The
Investment Manager continues to market and originate new
opportunities through its network of developers and advisers and
the Investment Manager continues to see attractive investment
opportunities across a variety of sectors, including energy, social
infrastructure, waste and specialist property.
REVIEW OF THE PERIOD
Financial performance
The Company has prepared its annual report and financial
statements in accordance with IFRS.
In the period to 31 December 2016, the Company's portfolio
generated investment income of GBP9.7 million. Total profit for the
period was GBP7.2 million, with earnings per ordinary share of 6.91
pence and diluted earnings per ordinary share of 6.12 pence. The
Company's ongoing charges percentage, a measure expressed as a
percentage of NAV, of the regular, recurring costs of running an
investment company was 1.03% for the period from IPO to 31 December
2016.
The Company paid dividends totalling 4.32 pence per share for
the period from IPO to 30 September 2016 with a further dividend of
1.5 pence per share for the quarter to 31 December 2016 paid on 21
February 2017.
Cash position
The Company received interest payments of GBP8.4 million from
investments and capital repayments of GBP1.8 million in the period,
in line with expectations. The Company paid dividends of GBP5.2
million during the period and a further GBP2.5 million post period
end.
The Company raised GBP165.7 million of equity capital and made
investments of GBP159.6 million. Total cash reserves at the period
end were GBP6.8 million.
Capital raised
The Company raised GBP106 million at IPO issuing 106,000,000
ordinary shares at an issue price of 100 pence per share. On 24 May
2016, the Company raised GBP44.1 million by way of an open offer,
placing and offer for subscription of 44,086,270 C shares at an
issue price of 100 pence per share. On 2 November 2016, the Company
raised a further GBP15.6 million by way of a non-pre-emptive
placing of 14,964,734 ordinary shares at an issue price of 104.5
pence per share. Post period end, on 10 February 2017, the Company
raised GBP79.3 million by way of an open offer, placing and offer
for subscription of 79,250,000 C shares at a price of 100 pence per
share.
NAV and share price performance
Net assets attributable to equity holders at 31 December 2016
were GBP164.6 million, up from GBP105.4 million at 30 June 2016.
The Company's NAV per ordinary share has increased from 98 pence at
IPO to 100 pence per ordinary share as at 31 December 2016, a 2%
increase since IPO.
The Company's ordinary shares have traded at a premium to the
latest published prevailing NAV since IPO, with an average premium
over the financial period of 7.1%. At 31 December 2016, there were
164,612,083 ordinary shares in issue.
Conflicts of interest
On 24 August 2016, the Company announced an investment of
GBP13.5 million to finance the construction project of a private
student residential accommodation development located adjacent to
Queen Mary University of London.
On 16 December 2016, the Company announced an investment of
GBP15 million to finance the construction project of six private
student accommodation developments in Australia.
As set out in the prospectus published on 20 January 2017, the
partners of the Investment Manager indirectly own an equity
interest in these two development projects. In accordance with the
Company's investment approval process, these investments were
reviewed and approved by the Board.
Key investment highlights
The Company made 14 investments during the period totalling
GBP159.6 million: three investments in the energy and
infrastructure sector; one in asset finance; three property
investments and seven investments in social infrastructure
projects. The Company received capital repayments of GBP1.8
million, in line with expectations for the period. The Company made
a further four investments totalling GBP14.7 million post period
end.
Investments made during the period
Investment Loan Project
--------------------- --------- --------------------- ----------------------------
Bridging Co 1 ("BC1") Amount GBP20.3 million Bridge financing
Term 7 years for the purchase
Security Senior of UK residential
Status Operational property.
--------------------- --------- --------------------- ----------------------------
Boiler Co ("BC") Amount GBP15.6 million The financing of
Term 10 years new domestic gas
Security Senior boilers in residential
Status Operational properties across
the UK.
--------------------- --------- --------------------- ----------------------------
Waste Infra. Co Amount GBP14.5 million The construction
("WIC") Term 15 years of a materials
Security Senior recovery facility
Status Construction near Heathrow,
London.
--------------------- --------- --------------------- ----------------------------
Bridging Co 2 ("BC2") Amount GBP13.0 million Bridge financing
Term 5 years for the purchase
Security Senior of UK residential
Status Operational property.
--------------------- --------- --------------------- ----------------------------
Development Finance Amount GBP12.0 million Short-term financing
Co ("DF") Term 5 years for the development
Security Senior of UK residential
Status Operational property.
--------------------- --------- --------------------- ----------------------------
Care Homes Co 1 Amount GBP11.3 million The construction
("CHC1") Term 20 years of a care home
Security Senior providing high-end
Status Construction nursing and dementia
care in the UK.
--------------------- --------- --------------------- ----------------------------
O&M Co ("O&M") Amount GBP10.7 million The financing of
Term 15 years the operations
Security Senior and maintenance
Status Operational contracts for a
portfolio of small
rooftop solar installations
based in the UK.
--------------------- --------- --------------------- ----------------------------
Asset Finance Co Amount GBP11.5 million The financing of
("AFC") Term 18 years small distributed
Security Senior assets such as
Status Operational wind turbines and
biomass boilers
based in the UK.
--------------------- --------- --------------------- ----------------------------
Social Housing Co Amount GBP10.5 million The acquisition
("SH") Term 21 years and refurbishment
Security Senior of residential
Status Operational housing in the
UK to accommodate
high-dependency
adults through
an "assisted living"
model.
--------------------- --------- --------------------- ----------------------------
Student Accom Co Amount GBP14.0 million Financing of a
1 ("SA1") Term 2 years construction project
Security Subordinated for a private student
Status Construction residential accommodation
in London.
--------------------- --------- --------------------- ----------------------------
Care Homes Co 2 Amount GBP12.8 million The construction
("CHC2") Term 20 years of a UK based care
Security Senior home providing
Status Construction high-end nursing
and dementia care.
--------------------- --------- --------------------- ----------------------------
Social Co 1 ("S1") Amount GBP2.6 million Financing of multi-use
Term 3.5 years social infrastructure
Security Senior development in
Status Construction London.
--------------------- --------- --------------------- ----------------------------
Student Accom Co Amount GBP8.0 million Financing of a
2 ("SA2") Term 5 years portfolio of six
Security Subordinated private student
Status Construction accommodation developments
in Australia.
--------------------- --------- --------------------- ----------------------------
Property Co ("PC") Amount GBP2.8 million Financing of three
Term 20 years supported living
Security Senior developments and
Status Construction a high-specification
complex care facility
in the UK.
--------------------- --------- --------------------- ----------------------------
Investments totalling
GBP159.6 million
--------------------- --------- --------------------- ----------------------------
Capital repayments in the period
Investment Loan Project
---------------- ------ ------------------ ----------------------------
Boiler Co ("BC") Amount GBP1.2 million The financing of
new domestic gas
boilers in residential
properties across
the UK.
---------------- ------ ------------------ ----------------------------
O&M Co ("O&M") Amount GBP0.4 million The financing of
the operations
and maintenance
contracts for a
portfolio of small
rooftop solar installations
based in the UK.
---------------- ------ ------------------ ----------------------------
Asset Finance Co Amount GBP0.2 million The financing of
("AFC") small distributed
assets such as
wind turbines and
biomass boilers
in the UK.
---------------- ------ ------------------ ----------------------------
Capital repayments
totalling GBP1.8
million
---------------- ------ ------------------ ----------------------------
Investments made post period end
Investment Loan Project
--------------------- --------- ----------------- ----------------------
Social Housing Co Extension GBP3.1 million The acquisition
("SHC") and refurbishment
of residential
housing based in
the UK to accommodate
high-dependency
adults through
an "assisted living"
model.
--------------------- --------- ----------------- ----------------------
Bridging Co 3 ("BC3") Amount GBP2.5 million Bridge financing
Term 5 years for the purchase
Security Senior of UK residential
Status Operational property.
--------------------- --------- ----------------- ----------------------
Property Co 2 ("PC2") Amount GBP5.3 million The financing of
Term 3 years a portfolio of
Security Subordinated co-living properties
Status Construction in London.
--------------------- --------- ----------------- ----------------------
Property Co 3 ("PC3") Amount GBP3.8 million The financing of
Term 3 years a portfolio of
Security Subordinated buy-to-let mortgages
Status Operational in the UK.
--------------------- --------- ----------------- ----------------------
Investments
made post period
end totalling
GBP14.7 million
--------------------- --------- ----------------- ----------------------
INVESTMENT PORTFOLIO
Investment portfolio
The valuation of the Group's 14 investments at 31 December 2016
was GBP158.3 million.
The Group's investments are supported by assets geographically
located across the UK and Australia and exposed to a diverse range
of asset types and sectors. As at 31 December 2016, the
weight-adjusted average annualised yield was 8.2% across the
portfolio with a weighted average expected term of twelve years.
Seven of the loans have been advanced to companies with operating
assets. The remaining seven loans have been advanced to companies
with assets under construction.
Key exposures
Top ten investments
-------------------- -------------------------- ---------------------- ----------
Loan Sector Asset % of total
assets
-------------------- -------------------------- ---------------------- ----------
Bridging Co 1
("BC1") Property Residential property 12.3%
Waste Infra. Material recovery
Co ("WIC") Energy and infrastructure facility 8.8%
Boiler Co ("BC") Asset finance Domestic boilers 8.8%
Student Accom
1 ("SA1") Social infrastructure Student accommodation 8.5%
Bridging Co 2
("BC2") Property Residential property 7.9%
Care Homes Co
2 ("CHC2") Social infrastructure Care home 7.8%
Development Fin
("DF") Property Residential property 7.3%
Asset Finance
Co ("AFC") Energy and infrastructure Various 7.0%
Care Homes Co
1 ("CHC1") Social infrastructure Care home 6.9%
Property Co ("PC") Social infrastructure Social housing 6.5%
-------------------- -------------------------- ---------------------- ----------
Investment valuation
The Valuation Agent carries out a fair market valuation of the
Company's investments on behalf of the Board on a quarterly basis.
The valuation principles used by the Valuation Agent are based on a
discounted cash flow methodology. A fair value for each asset
acquired by the Company is calculated by applying a discount rate
(determined by the Valuation Agent) to the cash flow expected to
arise from each asset.
The weighted average annualised discount rate across the
portfolio as at 31 December 2016 was 8%. The valuation of
investments is sensitive to changes in discount rates applied.
Sensitivity analysis detailing the impact of a change in discount
rates is given in note 17.3.
Portfolio performance
All investments are closely monitored by the Investment Manager,
against strict reporting and information requirements as set out in
the investment documentation.
The portfolio is performing well and there are no material
issues to report. The assets under construction are all proceeding
materially on time and budget, with a number of important
milestones in relation to the completion of ground works passed in
the period.
Brexit has been seen to impact upon the valuations of a number
of UK-based property funds. As a result, the Investment Manager has
closely reviewed those loans in the portfolio with property
exposure, such as the bridge and development finance loans. The low
LTVs and the type of property investment in these structures mean
that the Investment Manager does not expect these loans to be
impacted by Brexit-related factors, as demonstrated by the
continued performance of these loans since the Brexit vote.
Company exposure
The Company's exposure to seven projects that have not yet
completed construction with reference to total portfolio assets as
at 31 December 2016 was 42%.
Elsewhere in the portfolio, the Company has exposure to the
supply of commercial and industrial waste and the demand for
high-end care beds (and the associated pricing of these income
streams). The Investment Manager believes that conservative
assumptions have been used for these factors as part of the
financial model on which debt service of the Company's loans has
been based, and contracting for these elements since financial
close has been in line with or more favourable than the base case
assumptions.
The bridging and development investments have exposure to UK
residential property prices. However, the low LTV of these
investments means that there is significant headroom in the
underlying asset values to absorb movements in property valuations.
Further, the tenor of any particular loan is short relative to the
duration of the facility, offering further protection from any
market changes over the medium and long term.
PRINCIPAL RISKS AND UNCERTAINTIES
Risk management
Role of the Board
The Board has the ultimate responsibility for risk management
and internal control within the Company. The Board recognises the
existence of inherent risks within the Company's operation and that
effective risk management is critical to the success of the
organisation. When setting the risk management strategy, the Board
also determines the nature and extent of the principal risks they
are willing to take to achieve the Company's strategic
objectives.
The Board, with the assistance of the Audit Committee,
undertakes a formal risk review twice a year to assess the
effectiveness of the Company's risk management process and internal
control systems. The review covers the operational, compliance and
financial risks facing the Company. During the course of such
review, the Board has not identified, nor been advised of any
failings or weaknesses which it has determined to be of a material
nature.
Role of the AIFM
The AIFM is required to operate an effective and suitable risk
management framework to allow the identification, monitoring and
management of the risks that the AIFM and the AIFs under its
management are exposed.
The AIFM's permanent risk management function has a primary role
alongside the Board in shaping the risk policy of the Company, in
addition to responsibility for risk monitoring and risk measuring
in order to ensure that the risk level complies on an ongoing basis
with the Company's risk profile.
Principal risks faced by the Company include (but are not
limited to) economic risk, financial risk, key resource risk,
regulatory risk and execution risk.
The following items are the key components which the Company has
in place to provide effective internal control:
Risk Impact How the risk Link with strategy
is managed
--------------------------- ------------------------ ------------------------ ------------------------------------
Economic risk
--------------------------- ------------------------ ------------------------ ------------------------------------
Property If the market The Company's
The Company's value of any property investments * Risk adjusted returns
investment portfolio property investments are at a low
includes loans for which the LTV level. In
to projects Company has addition, the * Capital appreciation
involved in provided finance credit risk
property, including is found to associated with
development be materially each Project
property. Such lower than assumed Company is mitigated
investments or projected, as the cash
are indirectly this may adversely flows receivable
exposed to the impact the Company's are secured
performance ability to recover over the assets
of the underlying the value of of the Project
real estate its investments Company, which
market in the in the event in turn has
relevant area. of a borrower security over
default or sale the assets of
process. the underlying
projects.
Valuation Material increases The Company * Capital appreciation
The value of in interest invests in investments
the investments rates and reductions with stable
made by the in real estate pre-determined,
Company will prices may adversely medium-term,
change from impact the value asset or cash-flow
time to time of the Company's backed revenues.
according to investment portfolio. Where possible
a variety of the Investment
factors, including Manager ensures
movements in that each loan
interest rates carries an element
and inflation of inflation
and general protection.
market pricing
of similar investments.
--------------------------- ------------------------ ------------------------ ------------------------------------
Financial risk
--------------------------- ------------------------ ------------------------ ------------------------------------
Sufficiency
of due diligence
and assumptions
Subject to due Errors in the Where appropriate, * Regular growing distributions
diligence, the due diligence the Investment
Company makes and these financial Manager complements
investments models, or in its analysis
which rely on the methodology through the
detailed financial used in such use of professional
models that financial models, third-party
are based on or in the analysis advisers, including
certain assumptions, of the models technical built
estimates and or their assumptions, asset consultants,
projections may mean that financial and
of each investment's the return on legal advisers,
future cash an investment expert market
flows (which in consultants,
primarily consist a project is independent
of less than expected. valuers and
interest and insurance experts.
principal receipts). When modelling
The Investment future cash
Manager's due flows and structuring
diligence process debt profiles,
may not reveal the Investment
all facts that Manager uses
may be relevant assumptions
in connection considered to
with an investment. be conservative
There can be by third-party
no assurance experts. The
that the assumptions, Investment Manager
estimates and constantly monitors
projections the actual performance
used turn out of projects,
to be accurate takes action
and hence that where appropriate,
an investment's and reports
actual cash each quarter
flows will equal on such performance
or exceed those to the Board.
that are expected
or that the
targeted return
on such investment
will be achieved.
--------------------------- ------------------------ ------------------------ ------------------------------------
Key resource
risk
--------------------------- ------------------------ ------------------------ ------------------------------------
Reliance on
key personnel
at the Investment
Manager An inability The Company * Risk adjusted returns
The Company by the Investment has entered
is heavily reliant Manager to retain into a contractual
on the Investment and recruit engagement with
Manager to implement the required the Investment
the Company's level of resources Manager. The
strategy and with the required performance
investment policy skills and of the Investment
to deliver its experience may Manager is
objectives through adversely monitored by
the recruitment impact its ability the Board along
and retention to service the with the Company's
of key resources needs of the other key service
at the Investment Company. providers on
Manager. an ongoing basis.
The Investment
Manager provides
regular updates
to the Board
on its resource
and succession
plans.
--------------------------- ------------------------ ------------------------ ------------------------------------
Regulatory risk
--------------------------- ------------------------ ------------------------ ------------------------------------
Change in laws,
regulation
and/or policy
The Company, Any change in The Board monitors * Regular growing distributions
its operations the laws, regulations compliance information
and the underlying and/or government provided by
Project Companies policy affecting the Administrator, * Capital appreciation
are subject the Company Company Secretary,
to changes in or the underlying Investment Manager
laws and Project Companies and legal counsel
regulations may have a and monitors
enacted by national material adverse ongoing compliance
and local governments. effect on the developments
ability of the in the Channel
Company to successfully Islands and
pursue its investment Europe along
policy, to meet with regulatory
its investment developments
objective and in the UK as
therefore on well as listing
the value of rules and FCA
the Company. marketing rules.
The Company
has a comprehensive
compliance monitoring
programme to
ensure full
compliance with
legislation/regulation
relevant to
the Company's
operations.
--------------------------- ------------------------ ------------------------ ------------------------------------
Execution risk
--------------------------- ------------------------ ------------------------ ------------------------------------
Availability
of suitable
investments
and reinvestment
risk If the Company The Investment * Risk adjusted returns
There is no cannot invest Manager is constantly
guarantee that capital in suitable in touch with
the Company assets in a the market seeking
will be able timely manner, new deals and
to make suitable the uninvested builds a specifically
investments cash balance identified investment
with risk will have a pipeline before
and return characteristics negative impact raising additional
that fit within on the Company's finance in an
the investment returns. attempt to ensure
strategy that capital
of the Company, is deployed
or that suitable in a timely
investments fashion at the
that can be Company's target
identified will return level.
be made in a
timely manner.
--------------------------- ------------------------ ------------------------ ------------------------------------
Going concern and viability statement
In accordance with the requirements of the UK Code, the
Directors have assessed the financial prospects of the Company for
the foreseeable future and made an assessment of the Company's
ability to continue as a going concern. The Directors are satisfied
that the Company has the resources to continue in business for the
foreseeable future and furthermore are not aware of any material
uncertainties that may cast significant doubt upon the Company's
ability to continue as a going concern.
Twice a year, the Board carries out a robust assessment of the
principal risks facing the Company, including those that would
threaten its business model, future performance, solvency and
liquidity. The Board also assesses the Company's policies and
procedures for monitoring, managing and mitigating its exposure to
these risks. The Directors have considered each of the Company's
principal risks and uncertainties detailed on pages 25 and 26, in
particular the risk of impact of changes in the external
environment including macroeconomic, political, social,
technological and regulatory changes that could materially affect
the cash flows of the underlying investments. The Directors have
also assessed the prospects of the Company over a longer period
than the twelve months required by the going concern provision of
the UK Code. The Board has determined that a five-year period to 31
December 2021 constitutes an appropriate period to provide its
viability statement. Whilst the weighted average term of the loans
within the investment portfolio is twelve years, the Company's
experience is such that the financial forecasts to support the
strategy will be subject to further capital raises for which the
impact beyond a five-year term is difficult to assess. In addition,
the extent to which macroeconomic, political, social, technological
and regulatory changes beyond a five-year term may have a plausible
impact on the Company are difficult to envisage. The assessment
involved an evaluation of the potential impact on the Company of
these risks occurring.
Where appropriate, the Company's financial model was subject to
sensitivity analysis that involved flexing a number of key
assumptions in the underlying financial forecasts for the current
capital base in order to analyse the effect on the Company's net
cash flows and other key financial ratios. This analysis included
modelling the aggregated impact of significant reductions in
interest income received, capital re-investment levels achieved and
significant increases in the Company's operating expenses and debt
financing costs that would be impacted by severe but plausible
downside scenarios that incorporate the principal risks.
Based on this assessment of the principal risks facing the
Company and the aggregated stress testing performed on the
Company's prospects, the Directors confirm that they have a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the
five-year period of their assessment to 31 December 2021.
By order of the Board
Alex Ohlsson
Chairman
12 April 2017
BOARD OF DIRECTORS
Alex Ohlsson
Chairman - 47
Mr Ohlsson is the managing partner of the law firm Carey Olsen,
and is recognised as an expert in corporate and finance law in
Jersey with a particular focus on international real estate finance
and structures. Mr Ohlsson joined Carey Olsen in 1991, became a
Jersey solicitor in 1994 and an Advocate of the Royal Court of
Jersey and a partner of Carey Olsen in 1995. He was educated at
Queens' College, Cambridge, where he obtained an MA (Hons) in law.
He is the independent chairman of the States of Jersey's audit
committee and an advisory board member of Jersey Finance, Jersey's
financial services promotional body. He acts as a non-executive
director of a number of companies. He is also chairman of the LSE
Main Market-listed company Foresight Solar Fund Limited. Mr Ohlsson
was appointed to the Board on 14 September 2015.
Colin Huelin
Non-executive Director - 56
Mr Huelin graduated in mechanical engineering with a first class
honours BSc degree and Diploma at Southampton University in June
1982. Mr Huelin completed his graduate management development and
monitored professional development scheme with Shell UK and the
Institute of Mechanical Engineers in 1986. Mr Huelin qualified as a
Chartered Accountant with Ernst & Young in 1989 and was
appointed Finance Director for Computer Patent Annuities (CPA) in
February 1990. Mr Huelin was appointed CEO for CPA in 1995. In
November 1998, he joined Abbey National Offshore as Head of
Financial Planning, was promoted to Finance Director in 2003 and
then Managing Director of Santander Private Banking in Jersey in
November 2007, a position he held until 31 May 2015 when the
business transferred to a Jersey branch of Santander UK plc under
Article 48D of the Banking Business (Jersey) Law. Mr Huelin was
appointed to the Board on 7 September 2015.
Joanna Dentskevich
Non-executive Director - 52
Mrs Dentskevich has over 25 years of risk, finance and
investment banking experience gained in leading global banks
worldwide, alternative investments and the offshore fiduciary
industry. Mrs Dentskevich currently runs her own risk management
advisory company providing advice and resourcing to offshore trust,
fund and investment businesses. Previously, she was a Director at
Morgan Stanley heading up its Global Customer Valuation Group,
Director of Risk at Deutsche Bank and Chief Risk Officer of a
London based hedge fund. Mrs Dentskevich has a BSc Hons in Maths
& Accounting and is a Member of the Chartered Institute of
Securities & Investments and a member of the Institute of
Directors. She is also a non-executive director of the LSE
(Specialist Fund Segment) traded company Blackstone/GSO Loan
Financing Ltd. Mrs Dentskevich was appointed to the Board on 7
September 2015.
THE INVESTMENT MANAGER
David Conlon
Partner
Mr Conlon has overall responsibility for the provision of
investment advice to the Company. Mr Conlon qualified as a
chartered accountant with PwC before moving into project finance at
KPMG where he focused on PFI transactions.
Mr Conlon has acted as a financial adviser to project finance
transactions, as well as working for firms that have invested debt
and equity into project finance opportunities. He has 14 years of
experience in the sector. Over recent years, Mr Conlon has
continued to focus on investments using project finance techniques
in multiple sectors, including PFI and renewables. He is part of
the origination and transaction team at the Investment Manager.
Philip Kent
Director
Mr Kent is responsible for asset sourcing and acquisition for
the Company. Mr Kent joined GCP from Foresight Group where he was
responsible for investments in the waste and renewable sectors,
including large waste wood combustion projects and a pipeline of
anaerobic digestion projects across the UK, since joining in
2012.
Mr Kent has been involved in the energy sector for ten years,
working initially as a consultant within PA Consulting's Energy
practice, focusing on energy markets and energy asset valuations.
In 2008 he moved to Gazprom Marketing and Trading, working in risk
management across a number of commodities before moving into the
Clean Energy team. Mr Kent graduated with a degree in Geography
from Oxford University.
Dion Di Miceli
Head of Investment Companies
Mr Di Miceli has responsibility for liaising with client boards,
investors and advisers and leading product development alongside
the fund managers. A member of the Chartered Institute for
Securities & Investment since 2005, Mr Di Miceli qualified as a
chartered accountant with Arthur Andersen LLP in 2002 and
subsequently spent four years in the Investment Funds practice at
Ernst & Young LLP. He joined the Investment Companies Team at
Cenkos Securities plc in 2007 where, as a senior corporate adviser,
he worked with investment company boards and their managers
advising on and structuring a broad range of transactions covering
IPOs, secondary issuance, mergers and corporate reconstructions. Mr
Di Miceli joined the Investment Manager in February 2016.
Chloe Marlow
Head of Operations and Risk
Ms Marlow is responsible for reporting and monitoring of the
ongoing performance of the Group. Before joining the Investment
Manager in 2013, she worked in a broad range of financial services
roles over ten years. Ms Marlow began her career at Lloyds Banking
Group where she qualified as a chartered management accountant.
After holding a number of roles at the bank, she went on to work
for a large IFA before joining fund administrator Capita Sinclair
Henderson Limited in 2011, where she was responsible for a
portfolio of alternative real estate and infrastructure funds.
CORPORATE GOVERNANCE STATEMENT
Corporate Governance Code
The DTRs of the UKLA require certain listed companies to
disclose how they have applied the principles and complied with the
provisions of the UK Code to which the issuer is subject. The Board
has considered the principles and recommendations of the UK Code
issued by the FRC. A copy of the UK Code is available at
www.frc.org.
Statement of compliance with the UK Code
The Board recognises the importance of a strong corporate
governance culture that meets the requirements of the Listing Rules
and DTRs of the UKLA. The Board has put in place a framework for
corporate governance which it believes is appropriate for the
Company. All Directors contribute to Board discussions and debates.
The Board believes in providing as much transparency for
shareholders as is reasonably possible. It should be noted that
most of the Company's day-to-day responsibilities are delegated to
third parties, the Company has no employees and the Directors are
non-executive.
The Company has complied with the relevant provisions of the UK
Code, except as set out below:
-- the role of the chief executive: the Board considers that the
post of chief executive is not relevant for the Company, being an
externally managed investment company;
-- the appointment of a senior independent Director: given the
size and composition of the Board it is not felt necessary to
separate the roles of Chairman and senior independent Director. The
Board considers that the independent Directors have different
qualities and areas of expertise on which they may lead where
issues arise and to whom concerns can be conveyed;
-- executive Directors' remuneration: as the Board has no
executive Directors, it is not required to comply with the
principles of the UK Code in respect of executive Directors'
remuneration and does not have a remuneration committee. A
remuneration report is included on pages 40 and 41;
-- establishment of a nomination committee: the Board does not
consider it necessary to establish a nomination committee since all
of the Directors are non-executive and are considered independent
as explained in more detail in the section of this report titled:
Composition of the Board below. As the Board was appointed in
September 2015, the Board does not yet have a policy on tenure. An
explanation is detailed in the section of this report titled
"Appointment and re-election of Directors" on page 32;
-- internal audit function: the Company delegates the majority
of its operations to third parties and has no employees. The
majority of these third parties have their own internal audit
function and the Board has therefore determined that there is no
need for the Company to have its own internal audit function but
this is reviewed on an annual basis. The Directors consider
semi-annually the principal risks relating to the operations of the
Company. Such a review includes the consideration of whether the
Company's third parties have adequate internal controls in place;
and
-- the Chairman of the Company, Mr Alex Ohlsson is also a member
of the Audit Committee: the Board believes it is appropriate for Mr
Ohlsson to be a member of the committee as he is considered to be
independent.
The Board considers that these provisions are not relevant to
the position of the Company, being an externally managed investment
company. The Company has therefore not reported further in respect
of these provisions.
The Board's responsibilities and processes
The Board is responsible to shareholders for the overall
management of the Company, and may exercise all the powers of the
Company subject to the relevant laws, the Company's Articles and
any directions given by special resolution of the shareholders. The
Company's Articles empower the Board to offer, allot, grant options
over or otherwise deal with or dispose of the Company's shares.
Companies Law authorises the Company to make market purchases of
its own shares if such purchase has first been authorised by a
resolution of the Company.
At the AGM on 12 October 2016, the shareholders renewed the
Board's authority to allot ordinary shares and to repurchase
ordinary shares on behalf of the Company subject to certain limits.
Details of the authorities which the Board will be seeking at the
2017 AGM are set out in the 2017 notice of AGM.
At each quarterly meeting of the Board, the Directors follow a
formal agenda which includes a review of the Company's investments
and associated matters such as gearing, asset allocation, principal
risks, marketing and investor relations and economic and sector
issues.
The Board is also active in ensuring any regulatory developments
which may affect the operations of the Company are considered. The
Board regularly considers the Company's investment policy,
objective and strategy. In order to enable the Directors to
discharge their responsibilities effectively, they have full and
timely access to all relevant information.
Matters reserved for the Board
The Board has approved a formal schedule of matters reserved
which is available upon request from the Company Secretary.
Composition of the Board
As at 31 December 2016, the Board comprised three Directors, all
of whom are non-executive and are considered to be independent.
-- Alex Ohlsson is the Chairman of the Board;
-- Colin Huelin is the Chairman of the Audit Committee; and
-- Joanna Dentskevich is the Chair of the Management Engagement Committee.
Each Director has signed a letter of appointment which sets out
the terms and conditions of their appointment. These letters are
available for inspection at the Company's registered office. No
Director has any contract or arrangement in place between
themselves and the Company. Further details as to the terms of
appointment of the Directors are set out in the remuneration report
on page 40.
Overview of Board
Appointments to the Board continue to be based on merit,
regardless of gender, ethnic group or background. The Board
comprises two male Directors and one female Director. The Company
has no other employees.
Diversity
The Board recognises the recommendations made by the UKLA
regarding Board diversity and acknowledges that gender diversity is
a key element to broaden the contribution made to Board
deliberations and aid the Board's effectiveness. However, as the
Board is small, comprising only three members, the Board continues
to believe that diversity quotas are not appropriate. The Board
also accepts that there are many different aspects to diversity,
including professional and industry specific knowledge and
experience, understanding of geographical markets, different
cultures as well as gender, all of which are/will be considered
when making appointments to the Board. Board appointments will be
made based on merit and calibre.
Appointment and re-election of Directors
The appointment and re-election of Directors is detailed in the
remuneration report on page 40.
As the Board was appointed in September 2015, the Board does not
yet have a policy regarding tenure of service however the Board
recognises that any decisions regarding tenure should balance the
need to maintain continuity, knowledge, experience and
independence, against the need to periodically review the Board
composition in order to have the appropriate mix of skills,
experience, age and length of service.
Each Director was subject to election at the first AGM held on
12 October 2016 and one-third of the Directors (excluding any
Director who has been appointed by the Board since the previous
AGM) shall be subject to re-election annually. Mr Alex Ohlsson will
stand for re-election by shareholders at the forthcoming AGM of the
Company.
Directors' independence
The Board has reviewed the independence of each Director in
accordance with the guidance set out under principle B.1 and Code
B.1.1 of the UK Code. The Board acknowledges that all Board members
have holdings of ordinary shares in the Company as at 31 December
2016. Further details are provided in the statement of Directors'
shareholding and share interests within the remuneration report on
page 41.
The Board has discussed the interests in the Company held by all
three Board members and it is satisfied that it does not materially
impact their ability to exercise independent judgement on the
Company. Accordingly, the Board considers all Directors on the
Board to be independent.
Performance evaluation
During the period, the Directors carried out an internal
evaluation process of the Board's and committees' performance. The
evaluation process included the completion of two separate
questionnaires by the Directors. The areas under review included an
assessment of the Chairman, Board and committee processes and
effectiveness, overall strategy, corporate governance, investment
management, communications with shareholders, training requirements
and personal development. A report summarising the conclusions is
due to be presented to and discussed by the Board at a meeting
scheduled on 25 April 2017. The Company intends to carry out an
evaluation of its Audit Committee in June 2017.
The Company intends to carry out an external performance review
every three years and the first external review is due to take
place in 2019.
Additionally, the Board undertakes annual anti-money laundering
training and undertakes the required hours of continuing
professional development in accordance with their professions and
Jersey regulations including training on areas relating to the
Company's activities.
The Board attempts to ensure that it has the appropriate balance
of skills, experience, knowledge and independence in order to
remain effective. Biographical details of the Directors are shown
on page 28.
Board operation
The Board holds formal meetings on a quarterly basis and
additional ad-hoc meetings are held when necessary. Attendance at
the quarterly Board and committee meetings is detailed in the table
on page 33 under the heading "Meetings".
Committees
The structure includes an Audit Committee and a Management
Engagement Committee.
Audit Committee
The membership and activities of the Audit Committee are
described in its report on pages 36 to 39.
Management Engagement Committee
Due to the size of the Board, the Management Engagement
Committee comprises all Directors of the Company. The committee
meets at least once a year to consider the performance of the
Investment Manager and other third party service providers; the
terms of their engagement and continued appointment. The committee
met once during the period to independently evaluate the Investment
Manager and third party service providers and no material issues
were raised.
The terms of reference for each of the committees are available
upon request from the Company Secretary.
Meetings
The number of meetings of the Board and committees held during
the period and the attendance of individual Directors are shown
below:
Number of meetings
attended during the period
-----------------------------------------
Number of Joanna
Meetings meetings held Alex Ohlsson Colin Huelin Dentskevich
---------------- -------------- ------------- ------------ ------------
Quarterly
Board 4 4 4 4
Audit Committee 4 3 4 4
Management
Engagement
Committee 1 1 1 1
---------------- -------------- ------------- ------------ ------------
Total number
of meetings
attended 9 8 9 9
---------------- -------------- ------------- ------------ ------------
During the period, 23 additional ad-hoc Board meetings were
held. These meetings were in respect of capital raising, the issue
of a prospectus, C share conversion, allotment of shares,
conflicted investments, a revolving credit facility and
regulatory/procedural matters such as the adoption of revised
procedures following the implementation of MAR.
Conflicts of interest
The Directors have declared any conflicts or potential conflicts
of interest to the Board which has the authority to approve such
situations. The Company Secretary maintains the register of
Directors' conflicts of interests which is reviewed quarterly by
the Board and whenever changes are notified. The Directors advise
the Company Secretary and Board as soon as they become aware of any
conflicts of interest. Directors who have conflicts of interest do
not take part in discussions which relate to any of their
conflicts.
It is the responsibility of each individual Director to avoid a
conflict arising. In the event that a conflict of interest does
arise, the Director(s) must request authorisation from the Board as
soon as they become aware of the possibility of a situational
conflict arising.
The Board is responsible for considering Directors' requests for
authorisation of situational conflicts and for deciding whether or
not the situational conflict should be authorised. The factors to
be considered will include whether the situational conflict could
prevent the Director from properly performing his duties, whether
it has, or could have, any impact on the Company and whether it
could be regarded as likely to affect the judgement and/or actions
of the Director in question. When the Board is deciding whether to
authorise a conflict or potential conflict, only Directors who have
no interest in the matter being considered are able to take the
relevant decision, and in taking the decision the Directors must
act in a way they consider, in good faith, will be most likely to
promote the Company's success. The Directors are able to impose
limits or conditions when giving authorisation if they believe this
is appropriate in the circumstances.
The Directors must also comply with the statutory rules
requiring company Directors to declare any interest in an actual or
proposed transaction or arrangement with the Company.
Dialogue with shareholders
The Board recognises the importance of maintaining a purposeful
relationship with shareholders. The Company, through its Directors,
Investment Manager, Financial Adviser and Broker, engages in
ongoing communication with its shareholders. The Board encourages
shareholders to attend and vote at general meetings of the Company
in order that they may discuss governance and strategy and to
understand shareholders' issues and concerns. The Chairman of the
Board and the Chair of each of the committees attend general
meetings of the Company to answer any questions posed by the
shareholders.
The Company's annual and interim reports are dispatched to
shareholders by post and are also available to download from the
Company's website at
https://www.gcpuk.com/gcp-asset-backed-income-fund-ltd/investor-relations/publications/all.
This information is supplemented by the quarterly calculation and
publication of the NAV of the Company's shares on the LSE and the
publication of a quarterly factsheet by the Investment Manager.
In the annual report and financial statements, the Directors
seek to provide shareholders with information in sufficient detail
to allow them to obtain a reasonable understanding of recent
developments affecting the business and the prospects for the
Company in the year ahead. The various sections of the strategic
report on pages 10 to 27 provide further information.
Communication of up-to-date information is provided through the
Company's website at
https://www.gcpuk.com/gcp-asset-backed-income-fund-ltd/investor-relations/announcements.
Internal controls and risk management review
The Directors acknowledge that they have overall responsibility
for ensuring that there are in place systems of internal control,
both financial and non-financial, and for reviewing their
effectiveness. The purpose of the internal financial controls is to
ensure that proper accounting records are maintained, the Company's
assets are safeguarded and the financial information used within
the business and information for publication is accurate and
reliable; such a system can provide only reasonable and not
absolute assurance against material misstatement or loss.
The Board reviews the effectiveness of its risk management
systems and all financial performance and results notifications
together with the Investment Manager. Non-financial internal
controls include the systems of operational and compliance controls
maintained by the Administrator and the Investment Manager in
relation to the Company's business as well as the management of key
risks as referred to in the strategic report. Please refer to pages
24 to 26 for a more detailed overview of the principal risks that
have been assessed. There were no matters arising from this review
that required further investigation and no significant failings or
weaknesses were identified.
Responsibility for accounting and company secretarial services
has been contractually delegated to the Administrator. The
Administrator has established its own system of internal controls
in relation to these matters, details of which have been reviewed
by the Board as part of the semi-annual risk assessment.
Internal control assessment process
The Board conducts a risk assessment on a semi-annual basis. The
review covers the operational, compliance and financial risks
facing the Company. The Directors confirm that by means of the
procedures, and in accordance with the UK Code, they have
established a continuing process for identifying, evaluating and
managing the significant potential risks faced by the Company and
have reviewed the effectiveness of the internal control systems.
The Board has identified risk management controls in the following
key areas:
-- economic risk (property and valuation);
-- financial risk (sufficiency of due diligence and assumptions);
-- key resource risk (reliance on key personnel at the Investment Manager);
-- regulatory risk (change in laws, regulation and/or policy); and
-- execution risk (availability of suitable investments and reinvestment risk.)
In arriving at its judgement of what risks the Company faces,
the Board has considered the Company's operations in the light of
the following factors:
-- the nature and extent of risks which it regards as acceptable
for the Company to bear within its overall business objective;
-- the threat of such risks becoming reality;
-- the Company's ability to reduce the incidence and impact of risk on its performance;
-- the cost to the Company and benefits related to the review of
risk associated controls of the Company; and
-- the extent to which the third parties operate the relevant controls.
This process has been in place throughout and subsequent to the
period under review.
Market Abuse Regulation
Following the implementation of MAR on 3 July 2016, the Board
formally adopted revised procedures in relation to the management,
identification and disclosure of inside information and share
dealing in accordance with MAR.
AIFMD
The Company is classed as an externally-managed AIF under the
Directive. The Board appointed the Investment Manager as the
authorised AIFM to the Company and Capita Trust Company (Jersey)
Limited as the Company's Depositary under the Directive.
AIFM remuneration
The Company's Investment Manager is authorised as an AIFM by the
FCA under the AIFMD regulations. The Company has provided
disclosures on its website,
http://www.gcpuk.com/gcp-asset-backed-income-fund-ltd/investor-relations/publications/all
incorporating the requirements of the AIFMD regulations.
The total annual fee paid to the Investment Manager by the
Company is disclosed in note 18 to the financial statements.
Annual General Meeting
The AGM of the Company will be held on 23 May 2017 at 12 Castle
Street, St Helier, Jersey JE2 3RT.
By order of the Board
Alex Ohlsson
Chairman
12 April 2017
AUDIT COMMITTEE REPORT
Summary
This is the Company's first annual external audit by PwC.
Revised versions of the UK Code were published in April 2016 with
the amended provisions having a specific impact on Audit Committee
reporting. The Board has adopted the provisions set out in the
revised UK Code.
The Audit Committee operates within clearly defined terms of
reference, a copy of which is available on request from the Company
Secretary. The terms of reference require the Audit Committee to
monitor the Company's financial reporting, internal financial
controls and risk management and external audit process. In
December 2016, following discussions with the Board, the Audit
Committee reviewed and agreed updates to its terms of reference in
line with the revisions to the UK Code.
The Audit Committee is responsible for making recommendations to
the Board in respect of appointment, re-appointment, and
remuneration of the Auditor and the Auditor's plan for the
period.
Composition
At 31 December 2016, the Audit Committee comprised the Audit
Committee Chairman, Colin Huelin, Alex Ohlsson and Joanna
Dentskevich. All members of the Audit Committee are independent
Directors; have no links with PwC; and are independent of the
Investment Manager.
The Board considers that the independence and diverse
backgrounds of the members, taken with their combined skills and
experience enables the Audit Committee to discharge its
responsibilities fully.
The Audit Committee meets at least twice a year. Details of
meetings held in the period under review are set out on page
33.
Although not members of the Audit Committee, the Company
Secretary, the lead partner and representatives from the Company's
Auditors are invited to attend committee meetings at which the
Auditor may have the opportunity to meet with the Audit Committee
without representatives of the Investment Manager being present.
The Audit Committee Chairman meets when appropriate with the
external Auditor ahead of the meetings to review key audit areas
for discussion with the Audit Committee. The Auditor is not present
when their performance and/or remuneration is discussed. As set out
on page 31, the Board has determined that there is no need for the
Company to have an internal audit function, but this is reviewed on
an annual basis.
The Board has agreed that the Audit Committee chairman has
recent and relevant financial experience as required by the
provisions of the UK Code, refer to the Directors' biographies on
page 28.
After each meeting, the Audit Committee Chairman reports to the
Board on the main issues discussed.
The Audit Committee has complied with relevant audit committee
requirements under the UK Code.
Financial reporting
The Audit Committee considered the requirements of the UK
Companies Act 2006 (Strategic Report and Directors' Report)
Regulation 2013 with which it is complying voluntarily, in line
with best practice reporting. The Audit Committee specifically
reviewed the Company's first annual report and financial statements
to conclude whether the financial reporting is fair, balanced,
understandable, comprehensive and consistent with how the Board
assesses the performance of the Company's business during the
financial period, as required for companies with a Premium Listing
under the UK Code.
As part of this review, the Audit Committee considered if the
annual report and financial statements provided the information
necessary to shareholders to assess the Company's performance,
strategy and business model and reviewed the description of the
Company's key performance indicators.
The Audit Committee presented its conclusions to the Board and
the Board concluded that it considered the annual report and
financial statements, taken as a whole, to be fair, balanced and
understandable and provides the information necessary for the
shareholders to assess the Company's performance, business model
and strategy.
In addition to the above matters, the Audit Committee's work was
focused on the following areas:
-- reviewing the effectiveness of the internal financial control
environment of the Company and the Company's compliance with its
regulatory requirements which is further explained on page 34 of
the corporate governance statement;
-- reviewing and recommending to the Board significant
accounting matters and accounting disclosures in the half yearly
and annual financial statements of the Company including matters of
judgement in relation to valuation;
-- overseeing the Company's relations with its Auditor including
assessing the conduct and effectiveness of the audit process and
the Auditor's independence and objectivity, recommending the
Auditor's reappointment and approving the Auditor's fees; and
-- reviewing the Company's compliance with its regulatory obligations in Jersey.
The Audit Committee has direct access to the Auditor and to the
key senior staff of the Investment Manager and reports its findings
and recommendations to the Board which retains the ultimate
responsibility for the financial statements of the Company. All
recommendations were accepted by the Board.
In September and December 2016, the Audit Committee met with the
Auditor and reviewed and agreed the Auditor's audit plan.
Significant issues considered
After discussions with the Investment Manager and the Auditor,
the Audit Committee identified two significant risks. The first
related to management override of controls within the Company. The
second related to risk of material misstatement of the Company's
financial statements attributed to the valuation of
investments.
Valuation of investments
As outlined in note 12, the total carrying value of financial
assets at fair value at 31 December 2016, was GBP158.4 million.
Market quotations are not available for these financial assets such
that their valuation is undertaken using a discounted cash flow
methodology. This requires a series of material judgements to be
made as further explained in note 17.
The Board discussed the valuation process with the Valuation
Agent in April 2016 and the Audit Committee Chairman discussed the
valuation process in respect of a specific investment in December
2016. The Board and the Audit Committee concluded that the
methodology adopted was appropriate and in accordance with the
terms of engagement.
The Valuation Agent performs a quarterly financial asset
valuation and provides a detailed valuation report to the Company
which is discussed with the Investment Manager at each quarterly
Board meeting. Further discussions were undertaken with the
Investment Manager throughout the period as part of the review of
the interim financial report and financial statements.
In order to provide further assurance regarding the basis of
valuation, the Company intends to meet with the Valuation Agent at
least once a year to discuss this as well as reviewing the formal
reports from the Valuation Agent on a regular basis.
The discount rates adopted to determine the valuation are
selected and recommended by the Valuation Agent. The discount rate
is applied to the expected future cash flows for each investment's
financial forecasts, to arrive at a valuation (discounted cash flow
valuation). The resulting valuation is sensitive to the discount
rate selected. The Valuation Agent is experienced and active in the
area of valuing these investments and adopts discount rates
reflecting their current and extensive experience of the market.
The discount rate assumptions and the sensitivity of the valuation
of the investments to this discount rate are disclosed in note
17.3.
The Audit Committee discussed the material estimates and
judgements and also compared this to feedback from the Investment
Manager. After discussion with the Auditor, the Audit Committee was
satisfied that the range of discount rates were appropriate for the
valuation carried out by the Valuation Agent.
The Auditor explained the results of their audit and that on the
basis of their audit work there were no adjustments proposed that
were material in the context of the financial statements as a
whole.
Accounting policies, critical accounting estimates and key
judgements
The Audit Committee reviewed the accounting policies, including
a paper on disclosures from the Administrator and note 2.2 and 2.3
to the annual financial statements that relate to critical
accounting estimates and key judgements, and reconfirmed that they
remain appropriate for the Company.
Going concern and viability statement
The Audit Committee considered the Investment Manager's
forecasts of cash flows and net debt as well as the financing
facilities available to the Company. Following this review and a
discussion of the sensitivities, the Audit Committee confirmed that
it continues to be appropriate to follow the going concern basis of
accounting in the annual report and financial statements. Further
detail on the basis of the going concern assessment and viability
by the Directors is set out on page 27 of the strategic report.
External audit
Audit fees for the period amounted to GBP100,000 and fees for
non-audit related services amounted to GBP70,000. Mr Karl Hairon is
the partner from PwC responsible for the audit.
To fulfil its responsibility regarding the independence of the
Auditor, the Audit Committee considered:
-- a report from the Auditor describing its arrangements for maintaining independence; and
-- the extent and nature of the non-audit services provided by the Auditor.
During the period from IPO on 23 October 2015 to 31 December
2016, PwC provided non-audit related services in relation to
reporting accountant services on IPO and the issuance and
conversion of C shares. At the Audit Committee meeting in December
2016, PwC confirmed this had not impacted their independence and
outlined the reasons for this. The Audit Committee considered this
and is satisfied that these non-audit related services had no
bearing on the independence of the Auditor.
The following table summarises the remuneration paid to PwC for
audit and non-audit related services during the period ended 31
December 2016:
For the period
from
23 October
2015
(date of
IPO) to
31 December
PricewaterhouseCoopers CI 2016
LLP GBP'000
------------------------------- --------------
Annual audit of the Company 55
Reporting accountant services
- LSE Main Market listing 45
Reporting accountant services
- issuance of C shares 20
Audit of financial information
for prospectus - issuance
of C shares 45
C share conversion 5
------------------------------- --------------
Total 170
------------------------------- --------------
The Audit Committee reviewed the effectiveness of the Audit
process during the period considering performance, objectivity,
independence, relevant experience and materiality with PwC
throughout the period. To assess the effectiveness of the Auditor,
the Audit Committee reviewed:
-- the Auditor's fulfilment of the agreed audit plan and variations from it;
-- the Auditor's report to the Audit Committee highlighting any
issues that arose during the course of the audit; and
-- feedback from the Investment Manager and Administrator
evaluating the performance of the audit team.
Where non-audit related services are to be provided to the
Company by the Auditor, full consideration of the financial and
other implications on independence of the Auditor arising from any
such engagement will be considered before proceeding. All non-audit
related services are pre-approved by the Audit Committee if it is
satisfied that relevant safeguards are in place to protect the
Auditors' independence and objectivity.
Following this review, the Audit Committee has recommended the
re-appointment of PwC as the Company's Auditor at the forthcoming
AGM.
Colin Huelin ACA
Chairman of the Audit Committee
12 April 2017
REMUNERATION REPORT
The Company does not have a remuneration committee as the Board
agreed that the size and nature of the Board does not warrant
establishing a separate committee.
The Company's report on remuneration will be subject to an
advisory shareholder vote at the 2017 AGM. Although it is not a
requirement under the Companies Law to have the report on
remuneration approved by shareholders, the Board believes that as a
company whose shares are listed on the Main Market of the LSE, it
is good practice to do so. Accordingly a resolution to approve the
report on remuneration will be proposed at the forthcoming AGM.
This report is not subject to audit.
The Chairman is entitled to annual remuneration of GBP29,500.
The other Directors are entitled to annual remuneration of
GBP24,000, with Colin Huelin receiving an additional annual fee of
GBP3,500 for acting as Chairman of the Audit Committee. The
aggregate of such fees shall not exceed GBP300,000 per annum (or
such larger sum that the Company may, by ordinary resolution,
determine).
The fees paid to the Directors in the period 7 September 2015 to
31 December 2016 are set out in the table below:
Audit Total fees
Directors' Committee paid
fees fees to Directors
GBP'000 GBP'000 GBP'000
----------------------- ---------- ---------- -------------
Mr Alex Ohlsson 38 - 38
Mr Colin Huelin 32 4 36
Mrs Joanna Dentskevich 32 - 32
----------------------- ---------- ---------- -------------
Total 106
----------------------- ---------- ---------- -------------
Directors' expenses for the period totalled GBP2,000.
Relative importance of the spend on pay
The table below sets out Directors fees for the Company in
respect of the period ended 31 December 2016 as a relative
proportion of the Company's total expenses for the period:
31 December
2016
----------------------- -----------
Percentage of expenses 4.7%
----------------------- -----------
Directors' and Officers' liability insurance cover is maintained
by the Company on behalf of the Directors. No other remuneration or
compensation was paid or was payable by the Company during the
period to any of the Directors, nor does any Director have any
entitlement to bonuses, pensions, share options or any long-term
incentive plans or any other benefits in respect of their services
as non-executive Directors of the Company.
The Directors were appointed as non-executive Directors under
letters of appointment issued on 28 September 2015. The Directors'
appointments can be terminated in accordance with the Company's
Articles and without compensation. A copy of the Articles is
available upon request from the Company Secretary.
Statement of Directors' shareholding and share interests
At the period end, Alex Ohlsson had a holding of 50,000 ordinary
shares in the Company. Colin Huelin had a holding of 19,900
ordinary shares in the Company and Joanna Dentskevich had a holding
of 39,800 ordinary shares in the Company.(1)
Accordingly, the Board is satisfied that the interests in the
Company held by Directors does not materially impact their ability
to exercise independent judgement on the Company and considers all
Directors on the Board to be independent.
Statement of voting at general meeting
The Company is committed to ongoing shareholder dialogue and
takes an active interest in voting outcomes. Where there are
substantial votes against any resolution at the AGM, the Company
will liaise with investors and agree on the actions it intends to
take going forward.
Approval
This remuneration report was approved by the Board on 12 April
2017 and signed on its behalf by:
By order of the Board
Alex Ohlsson
Chairman
12 April 2017
(1) The Directors' shareholdings are either direct and/or
indirect holdings of ordinary shares in the Company.
DIRECTORS' REPORT
The Directors are pleased to present their annual report and
financial statements for the period 7 September 2015 to 31 December
2016. The corporate governance statement set out on pages 30 to 35
forms part of this report.
Principal activity and business review
The strategic report has been prepared by the Directors and
should be read in conjunction with the Chairman's statement and
forms part of the annual report to shareholders.
Greenhouse gas emissions reporting
The Company has no employees or property, and it does not
purchase electricity, heat, steam or cooling for its own use. The
Company outsources all services on a fee basis, and, as such it is
not practical to attempt to measure or quantify emissions in
respect of any outsourced energy use.
General information
The Company is a registered public company incorporated and
domiciled in Jersey on 7 September 2015, with registration number
119412. The Company is governed by the Companies Law and the CIF
Law.
The Company is a closed-ended investment company. The ordinary
shares of the Company, and the C shares when in issue, are listed
on the LSE's Main Market.
On 12 October 2016, the Company changed its name from Project
Finance Investments Limited to GCP Asset Backed Income Fund
Limited, following shareholder approval at the 2016 AGM.
Dividends
Details of the dividends paid and declared during the period are
set out on page 18 and in note 10.
Share capital
During the period, the Company issued i) 2 ordinary shares on
incorporation, ii) 106,000,000 ordinary shares at IPO, iii)
44,086,270 C shares in April 2016, (which were converted to
43,647,347 ordinary shares in October 2016); and iv) 14,964,734
ordinary shares in November 2016. Details of the movements in share
capital during the period are set out in the statement of changes
in equity on page 54 and in note 16.
At 31 December 2016, the Company's issued share capital
comprised 164,612,083 ordinary shares of no par value, none of
which were held in treasury.
At general meetings of the Company, every holder shall have one
vote in respect of every ordinary share. When C shares are in
issue, every C shareholder shall have one vote in respect of every
C share.
Significant voting rights
As at 31 December 2016, the Company had received notification of
the following disclosable interests in the voting rights of the
Company:
% of total
Name Shares held voting rights
----------------------- ----------- --------------
City of Bradford
Metropolitan DC 11,940,088 7.25
CCLA Investment
Management 11,011,478 6.69
Bank of Montreal 11,000,000 6.68
Brewin Dolphin 10,812,979 6.57
Premier Fund Managers
Limited 9,893,334 6.01
Close Brother Asset
Management 9,053,139 5.5
EFG Harris Allday 8,656,921 5.26
Smith & Williamson
Investment Management 6,619,852 4.02
----------------------- ----------- --------------
The following changes have been notified to the Company between
31 December 2016 and the date of this report:
% of total
Name Shares held voting rights
------------------------------ ----------- --------------
Bank of Montreal 12,000,000 4.92
Premier Fund Managers Limited 9,464,084 3.88
------------------------------ ----------- --------------
The table of significant shareholders disclosed above forms part
of note 2.3(c) in the financial statements.
Directors' interests
At the period end, none of the Directors or any persons
connected with them have had a material interest in the Company's
transactions or agreements during the period.
Details of the ordinary shares held by the Directors as at 31
December 2016 are set out within the remuneration report on page
41.
None of the Directors or the Chairman sit on the Boards of any
other Companies managed by the Investment Manager and do not have
any close family ties with any of the Company's advisers.
There are no agreements between the Company and its Directors
concerning compensation for loss of office.
There has been no change to the interests of each Director
between 31 December 2016 and the date of this report.
Directors' and officers' liability insurance and indemnity
agreements
The Company has purchased insurance to cover Directors' and
officers' liability, as permitted by the Companies Law.
Key service providers
Investment Manager
Gravis Capital Partners LLP is the Investment Manager and AIFM
to the Company. The Investment Manager was incorporated in England
and Wales on 14 October 2007 under the Limited Liability
Partnership Act 2000 (registered number OC332060) and is authorised
and regulated by the FCA (registration number 487393). The partners
of the Investment Manager formed Gravis Capital Partners LLP in May
2008 as a specialist advisory boutique offering fund management
services, providing investors access to income generating defensive
sectors in the UK.
The Investment Manager provides advice to the Directors to
enable them to make informed decisions for the Company's funding
requirements (including advice and assistance in any equity/further
fund raising process) and also borrowing/gearing requirements. The
Investment Manager also provides discretionary portfolio management
services to the Company, subject to the overall control and
supervision of the Directors.
The Investment Manager recommends and regularly reviews the
Company's investment policy and performs and/or procures all due
diligence in relation to potential investments for the Company.
In addition, the Investment Manager is responsible, inter alia,
for the following:
-- maintaining a website showing the NAV of the shares;
-- presenting to meetings of the Board in relation to: (i)
performance of existing investments; and (ii) opportunities in
relation to new investments;
-- monitoring the credit market generally;
-- providing the Company's Valuation Agent or its delegates with
such information as any of them may from time to time require to
provide an independent fair value of the investment portfolio;
and
-- conducting investor relationship management activities,
including making presentations to existing and potential investors
and intermediaries.
The role of the AIFM is explained in the principal risk and
uncertainties report on page 24.
The senior management members of the Investment Manager have
extensive experience of originating, structuring and managing
project finance transactions across the energy, infrastructure,
property and asset finance sectors. This experience has informed
the Investment Manager's investment approach since its inception,
offering market access to its asset backed finance approach and
expertise applied to the UK public infrastructure sector.
The Company is party to an investment management agreement with
the Investment Manager, dated 28 September 2015 pursuant to which
the Company has appointed the Investment Manager to provide
discretionary portfolio and risk management services relating to
the assets on a day-to-day basis in accordance with its investment
objectives and policies, subject to the overall control and
supervision of the Board.
The fee for the provision of these services during the period
was GBP1,154,328 in respect of investment management and advisory
fees. Additional arrangement fees amounting to GBP185,000 were paid
to the Investment Manager in relation to the issuance of the C
shares. The investment management agreement continues until
terminated by either party giving twelve months' written notice.
Such notice must not be given prior to the fifth anniversary of
admission. The Investment Manager has also been appointed as AIFM
for an annual fee of GBP22,500. During the period, the fee for the
provision of these services was GBP28,000. Further information is
set out in note 18.
The Investment Manager is also the Investment Adviser to GCP
Infrastructure. The Investment Manager has agreed with GCP
Infrastructure that where it identifies an investment which, in its
opinion acting reasonably and in good faith, falls within the remit
of GCP Infrastructure's investment policy, GCP Infrastructure will
have a right of first refusal.
The Board has been notified of the Investment Manager's
intention, subject to regulatory approval, to transfer its fund
management and advisory business from the existing limited
liability partnership to a newly incorporated management company
under substantially the same ownership as the current limited
liability partnership. Accordingly, it is currently anticipated
that the investment management agreement will be novated to the new
management company in Q2 2017. Under the novation agreement, the
new management company will assume liability for all acts and
omissions of the existing limited liability partnership vehicle
under the investment management agreement.
Administrator and Company Secretary
Fund accounting, administration services and company secretarial
services are provided to the Company by Capita Financial
Administrators (Jersey) Limited pursuant to an agreement dated 29
September 2015. The fee for the provision of these services during
the period was GBP220,000. The agreement with Capita Financial
Administrators (Jersey) Limited continues until terminated by
either party on giving not less than six months' written
notice.
Depositary
Depositary services are provided to the Company by Capita Trust
Company (Jersey) Limited pursuant to an agreement dated 29
September 2015. The fee for the provision of these services during
the period was GBP50,000. The agreement with Capita Trust Company
(Jersey) Limited continues until terminated by either party on
giving not less than six months' written notice.
Registrar
Registrar services are provided to the Company by Capita
Registrars (Jersey) Limited pursuant to an agreement dated 29
September 2015. The fee for the provision of these services during
the period was GBP38,000. The agreement with Capita Registrars
(Jersey) Limited continues until terminated by either party on
giving not less than six months' written notice.
The Management Engagement Committee undertakes an annual review
of the effectiveness of all third-party service providers.
Following the first review in September 2016, it is the Management
Engagement Committee's opinion that the continuing appointment of
the Investment Manager, the Administrator, the Company Secretary,
the Depositary and the Registrar, on the terms agreed, is in the
best interests of the Company and its shareholders.
Political donations
The Company made no donations to political parties or
organisations during the period and no political expenditure was
incurred.
Annual general meetings
The Company's annual report and financial statements for the
period will be tabled for approval at the Company's 2017 AGM. The
AGM will be held on 23 May 2017 at 12 Castle Street, St Helier,
Jersey JE2 3RT.
Share repurchases
No shares have been bought back in the period. The latest
authority to purchase ordinary shares for cancellation was granted
to the Directors on 12 October 2016 and expires on the date of the
next AGM. The Directors are proposing that their authority to buy
back shares be renewed at the forthcoming AGM on 23 May 2017.
Treasury shares
The Company may hold any ordinary shares that it purchases as
treasury shares or cancel them, in accordance with the Articles and
the Companies Law. The Directors believe that it is desirable for
the Company to have this choice. Holding the shares purchased as
treasury shares will give the Company the ability to re-sell or
transfer them quickly and cost-effectively and will provide the
Company with additional flexibility in the management of its
capital base. The decision whether to cancel any shares purchased
by the Company or hold such shares as treasury shares will be made
by the Directors at the time of purchase, on the basis of the
Company's and shareholders' best interests.
The Company does not hold any shares in treasury at the period
end.
Disclosure of information to the Auditor
Each of the persons who is a Director at the date of approval of
this annual report confirms that:
-- so far as they are aware, there is no relevant audit
information of which the Company's Auditor is unaware; and
-- they have taken all the steps that they ought to have taken
as a Director in order to make themselves aware of any relevant
audit information and to establish that the Company's Auditor is
aware of that information.
External audit
Resolutions to appoint PwC as Auditor to the Company and for the
Directors to determine the Auditors' remuneration will be proposed
at the forthcoming AGM on 23 May 2017.
Financial risk management
Information about the Company's financial risk management
objectives is set out in note 17 to the financial statements.
Non-mainstream pooled investments
The Board notes the rules of the UK FCA on the promotion of
non-mainstream pooled investments, effective from 1 January 2014.
The Board confirms that it conducts the Company's affairs, and
intends to continue to conduct its affairs, so that the Company's
shares will be "excluded securities" under the FCA's new rules.
This is on the basis that the Company, which is resident outside
the EEA, would qualify for the approval as an investment trust by
the Commissioners for HM Revenue and Customs under Sections 1158
and 1159 of the Corporation Tax Act 2010 if resident and listed in
the UK. Therefore, the Company's shares will not amount to
non-mainstream pooled investments. Accordingly, promotion of the
Company's shares will not be subject to the FCA's restriction on
the promotion of non-mainstream pooled investments.
Requirements of the Listing Rules
Listing Rule 9.8.4 requires the Company to include specified
information in a single identifiable section of the annual report
or a cross reference table indication where the information is set
out. The Directors confirm that there are no disclosures required
in relation to Listing Rule 9.8.4.
By order of the Board
Alex Ohlsson
Chairman
12 April 2017
STATEMENT OF DIRECTORS' RESPONSIBILITIES
Under the terms of the DTRs of the UKLA, the Directors are
responsible for preparing the annual report and financial
statements in accordance with applicable law and IFRS.
Companies Law requires the Directors to prepare financial
statements for each year, which give a true and fair view of the
state of affairs of the Company and the profit and loss for that
year.
The Directors are required to:
-- properly select suitable accounting policies and apply them consistently;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements of IFRS are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the Company's financial position and financial
performance;
-- make judgements and estimates that are reasonable and prudent; and
-- make an assessment of the Company's ability to continue as a going concern.
The Directors are responsible for keeping proper accounting
records that disclose with reasonable accuracy at any time the
financial position of the Company. They are also responsible for
safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
The Directors have overall responsibility for the maintenance
and integrity of the corporate and financial information included
on the Company's website.
Legislation in Jersey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Directors' responsibility statement
In accordance with the UKLA's DTRs, each of the Directors, whose
names are set out on page 28 confirms that to the best of his or
her knowledge that:
-- the annual report and financial statements have been prepared
in accordance with IFRS, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company;
and
-- the strategic report, including the Directors' report,
includes a fair and balanced review of the development and
performance of the business, and the position of the Company,
together with a description of the principal risks and
uncertainties that the Company faces.
The annual report and financial statements, taken as a whole, is
considered by the Board to be fair, balanced and understandable,
and provides the information necessary for shareholders to assess
the Company's position, performance, business model and
strategy.
By order of the Board
Alex Ohlsson
Chairman
12 April 2017
Colin Huelin
Director
12 April 2017
INDEPENT AUDITOR'S REPORT
To the members of GCP Asset Backed Income Fund Limited
Our opinion
In our opinion, the financial statements give a true and fair
view of the financial position of GCP Asset Backed Income Fund
Limited (the "Company") as at 31 December 2016, and of its
financial performance and its cash flows for the period then ended
in accordance with International Financial Reporting Standards and
have been properly prepared in accordance with the requirements of
the Companies (Jersey) Law 1991.
What we have audited
The Company's financial statements comprise:
-- the statement of financial position as at 31 December 2016;
-- the statement of comprehensive income for the period then ended;
-- the statement of changes in equity for the period then ended;
-- the statement of cash flows for the period then ended; and
-- the notes to the financial statements, which include a
summary of significant accounting policies.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing ("ISAs"). Our responsibilities under those
standards are further described in the Auditor's responsibilities
for the audit of the financial statements section of our
report.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Company in accordance with the
International Ethics Standards Board for Accountants' Code of
Ethics for Professional Accountants ("IESBA Code"). We have
fulfilled our other ethical responsibilities in accordance with the
IESBA Code.
Our audit approach
Materiality
-- Overall materiality was GBP3.2 million, which represents 2% of net assets.
Audit scope
-- The Company is based in Jersey and the financial statements
include its investments in Subsidiaries as financial assets through
profit or loss, in accordance with the IFRS 10 requirements for
investment companies.
-- Our audit work was performed solely in Jersey and included
the audit of the financial statements of the Company.
-- We tailored the scope of our audit taking into account the
types of investments within the Company, the involvement of the
third parties and the accounting processes and controls.
Key audit matters
-- Valuation of investments.
-- Acquisition of investments.
Audit scope
As part of designing our audit, we determined materiality and
assessed the risks of material misstatement in the financial
statements. In particular, we considered where the Directors made
subjective judgements; for example, in respect of significant
accounting estimates that involved making assumptions and
considering future events that are inherently uncertain. As in all
of our audits, we also addressed the risk of management override of
internal controls, including among other matters, consideration of
whether there was evidence of bias that represented a risk of
material misstatement due to fraud.
We tailored the scope of our audit in order to perform
sufficient work to enable us to provide an opinion on the financial
statements as a whole, taking into account the structure of the
Company, the accounting processes and controls, and the industry in
which the Company operates.
Materiality
The scope of our audit was influenced by our application of
materiality. An audit is designed to obtain reasonable assurance
whether the financial statements are free from material
misstatement. Misstatements may arise due to fraud or error. They
are considered material if individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users
taken on the basis of the financial statements.
Based on our professional judgement, we determined certain
quantitative thresholds for materiality, including the overall
Company materiality for the financial statements as a whole as set
out in the table below. These, together with qualitative
considerations, helped us to determine the scope of our audit and
the nature, timing and extent of our audit procedures and to
evaluate the effect of misstatements, both individually and in
aggregate on the financial statements as a whole.
Overall Company materiality
GBP3.2 million
How we determined it
2% of net assets
Rationale for the materiality benchmark
We believe that net assets is the most appropriate benchmark
because this is the key metric of interest to investors. It is also
a generally accepted measure used for companies in this
industry.
We agreed with the Audit Committee that we would report to them
misstatements identified during our audit above 5% of overall
materiality, being GBP160,000 as well as misstatements below that
amount that, in our view, warranted reporting for qualitative
reasons.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period. These matters were addressed in
the context of our audit of the financial statements as a whole,
and in forming our opinion thereon, and we do not provide a
separate opinion on these matters.
Key audit matter How our audit addressed
the key audit matter
------------------------------------ -------------------------------------
Valuation of investments Our audit procedures with
in Subsidiaries respect to the valuation
Refer to page 37 (Audit of underlying loans included,
Committee report), page understanding the controls
62 (note 12 to the financial over the process and approval
statements) and page 67 of the valuation.
(note 17 to the financial We evaluated the competency
statements). of the Company's external
The valuation of investments valuation agent in the context
in Subsidiaries drives a of their ability to generate
number of key performance a reliable estimate of the
indicators, such as Net fair value, by assessing
Asset Value, which is of their professional qualifications,
significant interest to experience and independence
investors and the market. from the Company.
The fair value of the investment We held discussions with
in Subsidiaries is derived the external valuation agent
from the fair value of the and considered if the findings
underlying loans to the are consistent with the
end borrower. results of the audit work
The valuations are performed we performed.
using contractual cash flows We communicated directly
generated by each loan facility with the Investment Manager
over a medium to long-term to understand the monitoring
period and by selecting process of the borrowers'
key assumptions such as payments and financial performance,
the discount rate and macroeconomic in identifying circumstances
assumptions such as inflation, that can materially impact
interest and tax rates. the recoverability of the
The nature of the discounted contractual cash flows.
cash flow is inherently We agreed a sample of the
subjective due to key assumptions contractual cash flows used
used for the discount rate in the discounted cash flow
and the amount or timing to the contractual payment
of cash flows supporting schedule of the loan facility
the interest and capital agreements and checked the
repayments on debt positions mathematical accuracy of
held. the discounted cash flow
The existence of significant calculation. We challenged
estimation uncertainty, the assumptions used in
coupled with the fact that the valuations model.
small percentage differences We considered the adequacy
in assumptions to the valuations of the Company's disclosures
when aggregated could result in respect of the fair value
in material misstatement, of the unlisted investments,
are the reasons for our specifically the estimates
specific audit focus and and judgements taken by
attention to this area. the Company in arriving
at the fair value of the
unlisted investments. We
also considered the disclosure
of the degree of sensitivity
when a reasonably possible
change in a key assumption
could give rise to a change
in the fair value of the
unlisted investments.
Based on the above procedures,
we found the fair values
adopted by the Company and
the disclosures to be appropriate
and the assumptions used
to be supportable and within
a reasonable range.
------------------------------------ -------------------------------------
Acquisition of investments Our audit procedures with
Refer to page 62 and 63 respect to the acquisition
(note 12 to the financial of the new underlying loans
statements). included understanding the
During the period, the Company controls over the process
has acquired 14 new secured and approval of the new
loan notes to the value loan notes.
of GBP157,797,000 through For the new loan notes advanced
its wholly owned subsidiaries. during the period, we tested
The acquisition of the new the movement to facility
Secured Loan Notes were agreements, note certificates
the most prominent investment and cash payments.
activity for the Company For the loan notes repaid
during the year and represents during the period, we tested
a significant balance on the movement to facility
the statement of financial agreements and cash payments.
position, as a result this We tested the existence
was an areas of audit focus. of the loans to independent
confirmations from the entities
to which loan has been advanced
to confirm the outstanding
balance at period end.
Based on the above procedures,
no differences were identified
by our testing which required
reporting to those charged
with governance.
------------------------------- ---------------------------------
Other information
The Directors are responsible for the other information. The
other information comprises all sections of the introduction,
strategic report, corporate governance statement, statement of
Directors' responsibilities, glossary of key terms and Company
information (but does not include the financial statements and our
Auditor's report thereon).
Other than as specified in our report, our opinion on the
financial statements does not cover the other information and we do
not express any form of assurance conclusion thereon.
In our opinion the information given in the Directors' report is
consistent with the financial statements and the information given
in the corporate governance statement set out on pages 30 to 35 in
the annual report with respect to internal control and risk
management systems is consistent with the financial statements.
In connection with our audit of the financial statements, our
responsibility is to read the other information identified above
and, in doing so, consider whether the other information is
materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be
materially misstated. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
information; we are required to report that fact. We have nothing
to report in this regard.
Responsibilities of the Directors for the financial
statements
The Directors are responsible for the preparation of financial
statements that give a true and fair view in accordance with
International Financial Reporting Standards, the requirements of
Jersey Law and for such internal control as the Directors determine
is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or
error.
In preparing the financial statements, the Directors are
responsible for assessing the Company's ability to continue as a
going concern, disclosing, as applicable, matters relating to going
concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
Auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial
statements.
As part of an audit in accordance with ISAs, we exercise
professional judgement and maintain professional scepticism
throughout the audit. We also:
-- identify and assess the risks of material misstatement of the
financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal
control;
-- obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company's internal control;
-- evaluate the appropriateness of accounting policies used and
the reasonableness of accounting estimates and related disclosures
made by the Directors;
-- conclude on the appropriateness of the Directors' use of the
going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Company's
ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in
our auditor's report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained
up to the date of our auditor's report. However, future events or
conditions may cause the Company to cease to continue as a going
concern; and
-- evaluate the overall presentation, structure and content of
the financial statements, including the disclosures, and whether
the financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with those charged with
governance, we determine those matters that were of most
significance in the audit of the financial statements of the
current period and are therefore the key audit matters. We describe
these matters in our Auditor's report unless law or regulation
precludes public disclosure about the matter or when, in extremely
rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
Report on other legal and regulatory requirements
Under the Companies (Jersey) Law 1991 we are required to report
to you if, in our opinion:
-- we have not received all the information and explanations we require for our audit;
-- proper accounting records have not been kept; or
-- the financial statements are not in agreement with the accounting records.
We have no exceptions to report arising from this
responsibility.
We have nothing to report in respect of the following matters
which we have reviewed:
-- the Directors' report set out on page 42 to 46 in relation to
going concern. As noted in the Directors' report, the Directors
have concluded that it is appropriate to adopt the going concern
basis in preparing the financial statements. The going concern
basis presumes that the Company has adequate resources to remain in
operation, and that the Directors intend it to do so, for at least
one year from the date the financial statements were signed. As
part of our audit we have concluded that the Directors' use of the
going concern basis is appropriate. However, because not all future
events or conditions can be predicted, these statements are not a
guarantee as to the Company's ability to continue as a going
concern;
-- the Directors' statement that they have carried out a robust
assessment of the principal risks facing the Company and the
Directors' statement in relation to the longer-term viability of
the Company. Our review was substantially less in scope than an
audit and only consisted of making inquiries and considering the
Directors' process supporting their statements; checking that the
statements are in alignment with the relevant provisions of the UK
Corporate Governance Code; and considering whether the statements
are consistent with the knowledge acquired by us in the course of
performing our audit; and
-- the part of the Corporate Governance Statement relating to
the Company's compliance with the ten further provisions of the UK
Corporate Governance Code specified for our review.
This report, including the opinion, has been prepared for and
only for the members as a body in accordance with Article 113A of
the Companies (Jersey) Law 1991 and for no other purpose. We do
not, in giving this opinion, accept or assume responsibility for
any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
Karl Hairon
For and on behalf of PricewaterhouseCoopers CI LLP
Chartered Accountants and Recognized Auditor
Jersey, Channel Islands
12 April 2017
STATEMENT OF COMPREHENSIVE INCOME
For the period 7 September 2015 to 31 December 2016
Period
ended
31 December
2016
Notes GBP'000
-------------------------------------- ----- ------------
Income
Net income/gains on financial assets
at fair value through profit or loss 3 9,029
Arrangement fee income 3 729
Interest income 3 121
-------------------------------------- ----- ------------
Total income 9,879
-------------------------------------- ----- ------------
Expenses
Investment management fees 18 (1,154)
Directors' remuneration 6 (108)
Operating expenses 4 (1,007)
-------------------------------------- ----- ------------
Total expenses (2,269)
-------------------------------------- ----- ------------
Total operating profit before finance
costs 7,610
-------------------------------------- ----- ------------
Finance costs
Finance income 7 685
Finance expense 8 (1,084)
-------------------------------------- ----- ------------
Total profit and comprehensive income 7,211
-------------------------------------- ----- ------------
Basic earnings per share (pence) 11 6.91
-------------------------------------- ----- ------------
Diluted earnings per share (pence) 11 6.12
-------------------------------------- ----- ------------
All items in the above statement are derived from continuing
operations.
STATEMENT OF FINANCIAL POSITION
As at 31 December 2016
As at
31 December
2016
Notes GBP'000
----------------------------------------- ----- ------------
Current assets
Financial assets at fair value through
profit or loss 12 158,418
Other receivables and prepayments 13 140
Cash and cash equivalents 14 6,819
----------------------------------------- ----- ------------
Total assets 165,377
----------------------------------------- ----- ------------
Current liabilities
Other payables and accrued expenses 15 (803)
----------------------------------------- ----- ------------
Total liabilities (803)
----------------------------------------- ----- ------------
Net assets 164,574
----------------------------------------- ----- ------------
Capital and reserves
Share capital 16 162,597
Retained earnings 1,977
----------------------------------------- ----- ------------
Total capital and reserves 164,574
----------------------------------------- ----- ------------
Ordinary shares in issue 16 164,612,083
----------------------------------------- ----- ------------
NAV per ordinary share (pence per share) 100
----------------------------------------- ----- ------------
Signed and authorised for issue on behalf of the Board of
Directors
Mr Alex Ohlsson Mr Colin Huelin
Director Director
12 April 2017 12 April 2017
STATEMENT OF CHANGES IN EQUITY
For the period 7 September 2015 to 31 December 2016
Share Retained Total
capital earnings equity
Notes GBP'000 GBP'000 GBP'000
------------------------------- ----- -------- --------- --------
At 7 September 2015 - - -
------------------------------- ----- -------- --------- --------
Total profit and comprehensive
income for the period - 7,211 7,211
------------------------------- ----- -------- --------- --------
Equity shares issued 16 165,039 - 165,039
Share issue costs 16 (2,442) - (2,442)
Dividends paid 10 - (5,234) (5,234)
------------------------------- ----- -------- --------- --------
At 31 December 2016 162,597 1,977 164,574
------------------------------- ----- -------- --------- --------
STATEMENT OF CASH FLOWS
For the period 7 September 2015 to 31 December 2016
Period
ended
31 December
2016
Notes GBP'000
---------------------------------------------- ----- ------------
Cash flows from operating activities
Total operating profit before finance
costs 7,610
Unrealised gain on financial asset at
fair value through profit or loss 12 (620)
Increase in other payables and accrued
expenses 15 803
Increase in other receivables and prepayments 13 (140)
Investment in Subsidiaries 17.7 (159,602)
Capital repayments from Subsidiaries 17.7 1,804
---------------------------------------------- ----- ------------
Net cash flow used in operating activities (150,145)
---------------------------------------------- ----- ------------
Cash flows from financing activities
Proceeds from issue of ordinary shares 16 121,638
Ordinary share issue costs 16 (2,442)
Proceeds from issue of C shares 16 44,086
C share issue costs 16 (1,084)
Dividends paid 10 (5,234)
---------------------------------------------- ----- ------------
Net cash flow generated from financing
activities 156,964
---------------------------------------------- ----- ------------
Net increase in cash and cash equivalents 6,819
Cash and cash equivalents at beginning -
of the period
---------------------------------------------- ----- ------------
Cash and cash equivalents at end of
the period 14 6,819
---------------------------------------------- ----- ------------
Net cash generated in operating activities
includes:
Interest received from deposits 121
Loan interest received from Subsidiaries 8,409
---------------------------------------------- ----- ------------
NOTES TO THE FINANCIAL STATEMENTS
For the period 7 September 2015 to 31 December 2016
1. General information
The Company is a registered public company incorporated and
domiciled in Jersey on 7 September 2015, with registration number
119412. The Company is governed by the Companies Law and the CIF
Law.
The Company is a closed-ended investment company incorporated
under the laws of Jersey. The ordinary shares (and the C shares
when in issue) of the Company are listed on the LSE's Main
Market.
On 12 October 2016, the Company changed its name from Project
Finance Investments Limited to GCP Asset Backed Income Fund Limited
following shareholder approval at the 2016 AGM.
The Company makes its investments through its wholly owned
Subsidiaries, by subscribing for the Secured Loan Notes issued by
the Subsidiaries, who on-lend the funds to an end borrower. At the
period end, the Subsidiaries comprise GABI UK, a private limited
company incorporated in the UK on 23 October 2015 (registration
number 9838893) and GABI Housing, a private limited company
incorporated in the UK on 25 November 2016 (registration number
10497254). The Company, through its Subsidiaries, seeks to make
investments in a diversified portfolio of projects which have
contracted predictable medium to long-term cash flows and/or
physical assets, such investments being asset backed lending. The
asset backed debt investments are mainly in the form of medium to
long- term fixed or floating rate loans which are secured against
or comprised contracted cash flows and/or physical assets which are
predominantly UK based. Where possible, investments are structured
to benefit from partial inflation protection.
2. Significant accounting policies
The principal accounting policies applied in the preparation of
these financial statements are set out below. These policies have
been consistently applied throughout the period presented.
2.1 Basis of preparation
The annual report and financial statements for the period 7
September 2015 to 31 December 2016 have been prepared on a going
concern basis in accordance with IFRS issued by IASB and
interpretations issued by IFRIC as approved by IASC, which remain
in effect. The annual report and financial statements give a true
and fair view of the Company's affairs and comply with the
requirements of the Companies Law.
The annual report and financial statements have been prepared
under the historical cost convention, as modified by the
revaluation of financial assets and financial liabilities held at
fair value through profit or loss. The financial report and
financial statements are presented in Pound Sterling and all values
have been rounded to the nearest thousand pounds (GBP'000) except
where otherwise indicated.
In accordance with the investment entities exemption contained
in IFRS 10 (Consolidated Financial Statements) the Directors have
determined that the Company meets the definition of an investment
entity and as a result the Company is not required to prepare
consolidated financial statements. The Company measures its
investment in its Subsidiaries at fair value and it is treated as a
financial asset through profit or loss in the statement of
financial position (refer to note 2.3).
The Company raised its initial capital on 23 October 2015
through a placing of ordinary shares, and raised further capital
through the issue of C shares on 31 May 2016 and a placing of
ordinary shares on 10 November 2016. The C shares converted into
ordinary shares on 18 October 2016 in accordance with the C share
prospectus. When in issue, the net assets attributable to the C
share class are accounted for and managed by the Company as a
distinct pool of assets, with the Company ensuring that separate
cash accounts are created and maintained. Invested C share capital
is managed as a distinct pool by the Company, whereas expenses are
either specifically invoiced to the individual share class or split
proportionally to the NAV of each share class (refer to note 16).
Under IFRS, equity capital raised by way of the issuance of C
shares is treated as debt for accounting purposes.
New standards, amendments and interpretations
There are a number of new standards and amendments to existing
standards which have been published that are mandatory for the
Company's accounting periods beginning after 1 January 2016 or
later periods, which the Company has decided not to early adopt.
The following are the most relevant to the Company:
-- Amendment to IAS 1 (Presentation of Financial Statements) -
amendments 1 January 2016 resulting from the disclosure
initiative;
-- IFRS 7 (Financial Instruments) Disclosures: amendments
regarding additional hedge accounting disclosures (applied when
IFRS 9 is applied);
-- IFRS 9 (Financial Instruments) effective for annual periods
beginning on or after 1 January 2018;
-- IFRS 15 (Revenue from Contracts with Customers) was issued in
May 2014 and applies to an annual reporting period beginning in or
after 1 January 2018; and
-- IFRS 16 (Leases) was issued in January 2016 and is effective
for annual periods beginning on or after 1 January 2019.
In addition to the above, there are no new IFRS or IFRIC
interpretations that are effective that would be expected to have a
material impact on the Company's annual report and financial
statements.
Going concern
The Directors have made an assessment of the Company's ability
to continue as a going concern and are satisfied that the Company
has the resources to continue in business for the foreseeable
future. Furthermore, the Directors are not aware of any material
uncertainties that may cast significant doubt upon the Company's
ability to continue as a going concern. Therefore, the financial
information has been prepared on a going concern basis. In addition
to a going concern statement, the Directors have undertaken a
longer term assessment of the Company, the result of which can be
seen on page 27 in the viability statement.
2.2 Significant accounting estimates and assumptions
The preparation of financial statements, in accordance with
IFRS, requires the Directors to make estimates and assumptions that
affect the reported amounts recognised in the financial statements.
However, uncertainty about these assumptions and estimates could
result in outcomes that require a material adjustment to the
carrying amount of the asset or liability in the future.
Fair value of instruments not quoted in an active market
The Subsidiaries' assets consist of investments held by the
Subsidiaries and loan notes issued to the Company. The fair value
of the Subsidiaries' investments are not quoted in an active market
and therefore the fair value is determined using a discounted cash
flow methodology adjusted as appropriate for market, credit and
liquidity risk factors, refer to notes 17.3, 17.5 and 17.6
respectively.
The investments held by the Subsidiaries are valued by a
third-party Valuation Agent on a quarterly basis using the
discounted cash flow methodology.
The models used by the Valuation Agent use observable data to
the extent practicable. However, areas such as credit risk (both
own and counterparty), volatilities and correlations require
estimates to be made. Changes in assumptions about these factors
could affect the reported fair value of financial instruments.
The determination of what constitutes "observable" requires
significant judgement by the Company. The Company considers
observable data to be market data that is readily available,
regularly distributed or updated, reliable and verifiable, not
proprietary, and provided by independent sources that are actively
involved in the relevant market.
The investment in Subsidiaries is held at fair value through
profit or loss with income distributions and interest payments from
the Subsidiaries included as part of the fair value movement
calculation together with any unrealised movement in the fair value
of the holding in the Subsidiaries.
2.3 Significant judgements
2.3 (a) Assessment as an investment entity
The Directors have concluded that the Company meets the
definition of an investment entity.
Entities that meet the definition of an investment entity within
IFRS 10 (Consolidated Financial Statements) are required to measure
their Subsidiaries at fair value through profit or loss rather than
consolidate. The criteria which defines an investment entity are as
follows:
-- an entity that obtains funds from one or more investors for
the purpose of providing those investors with investment
services;
-- an entity that commits to its investors that its business
purpose is to invest funds solely for returns from capital
appreciation, investment income or both; and
-- an entity that measures and evaluates the performance of
substantially all of its investments on a fair value basis.
The Directors have concluded that the Company has met the
additional characteristics of an investment entity, in that it
indirectly holds a portfolio of investments by investing in
Subsidiaries which hold a portfolio of investments; the Company's
ownership interest in the investment entity is in the form of
equity. The Company has more than one investor and its investors
are not related parties, other than those disclosed in note 18.
The Company reports to its investors via quarterly investor
information, and to its management, via internal management
reports, on a fair value basis. All investments are reported at
fair value in the Company's reports to the extent allowed by
IFRS.
The Company has two wholly owned Subsidiaries as at 31 December
2016. The investments in the Subsidiaries are valued at fair value
through profit or loss and are not consolidated, in accordance with
IFRS 10 (Consolidated Financial Statements).
2.3 (b) Functional and presentation currency
The primary objective of the Company is to generate returns in
Pound Sterling, its capital-raising currency. The Company's
performance is evaluated in Pound Sterling. Therefore, the
Directors consider Pound Sterling as the currency that most
faithfully represents the economic effects of the underlying
transactions, events and conditions.
2.3 (c) Segmental information
The Directors view the operations of the Company as one
operating segment, being the investment in the Subsidiaries, which
are registered UK companies. All significant operating decisions
are based upon analysis of the Subsidiaries' investments as one
segment. The financial results from this segment are equivalent to
the financial results of the Company as a whole, which are
evaluated regularly by the Directors.
The following table analyses the Company's operating income per
geographical location. The basis for attributing the operating
income is the place of incorporation of the counterparty.
Period
ended
31 December
2016
GBP'000
---------------- ------------
Channel Islands 121
United Kingdom 9,758
---------------- ------------
Total 9,879
---------------- ------------
Significant shareholders are disclosed in the Directors' report
on page 42.
3. Operating income
The table below analyses the Company's operating income per
investment category:
Period
ended
31 December
2016
GBP'000
--------------------------------------------- ------------
Net income/gains on financial assets at fair
value through profit or loss 9,029
Arrangement fee income 729
Interest income 121
--------------------------------------------- ------------
Total 9,879
--------------------------------------------- ------------
The table below analyses the operating income derived from the
Company's financial assets at fair value through profit or
loss:
Period
ended
31 December
2016
GBP'000
--------------------------------------------- ------------
Loan interest realised 8,409
--------------------------------------------- ------------
Unrealised gain on investments at fair value
through profit and loss 664
Unrealised loss on investments at fair value
through profit and loss (44)
--------------------------------------------- ------------
Total 9,029
--------------------------------------------- ------------
Accounting policy
Interest income and interest expense other than
interest received on financial assets held at fair
value through profit or loss are recognised on
an accruals basis in the statement of comprehensive
income.
Net movement in fair value of financial assets
at fair value through profit or loss includes changes
in the fair value of the investment in the Subsidiaries
held at fair value through profit or loss.
Arrangement fee income comprises fees relating
to the issue and set up of Secured Loan Notes,
as detailed in note 18. The Investment Manager
is entitled to receive from the Company an arrangement
fee of up to 1% of the cost of each investment
made by the Company. To the extent any arrangement
fee negotiated by the Investment Manager with a
borrower exceeds 1%, the benefit of any such excess
shall be paid to the Company.
---------------------------------------------------------
4. Operating expenses
Period
ended
31 December
2016
GBP'000
----------------------------------- ------------
Administration and depositary fees 270
AIFMD fees 28
Audit fees 55
Bank charges 1
Broker's fees 58
Compliance fees 13
Directors' insurance 27
FATCA fees 4
Financial advisory fees 8
Legal and professional fees 240
Printing fees 17
Public relations fees 30
Registrar's fees 38
Regulatory fees 8
Stock exchange announcement fees 7
Stock exchange listing fee 13
Sundry expenses 18
Valuation agent fees 172
----------------------------------- ------------
Total 1,007
----------------------------------- ------------
Accounting policy
Operating and investment management expenses in
the statement of comprehensive income are recognised
on an accruals basis.
------------------------------------------------------
5. Auditor's remuneration
Period
ended
31 December
2016
GBP'000
-------------------------- ------------
Audit fees 100
Non-audit related fees(1) 70
-------------------------- ------------
Total 170
-------------------------- ------------
(1) The Auditor provided non-audit related services during the
period in the form of services provided as reporting accountant
during the IPO of the ordinary shares and the subsequent issue of C
shares. A fee of GBP45,000 was charged in relation to the issue of
the ordinary shares, a fee of GBP20,000 was charged in relation to
the issue of the C shares in the period and a fee of GBP5,000 was
charged in relation to the conversion of the C shares to ordinary
shares in the period, refer to note 16 and pages 38 to 39 of the
Audit Committee report.
6. Directors' remuneration
The Directors of the Company were remunerated as follows:
Period
ended
31 December
2016
GBP'000
-------------------- ------------
Alex Ohlsson 38
Colin Huelin 36
Joanna Dentskevich 32
Directors' expenses 2
-------------------- ------------
Total 108
-------------------- ------------
7. Finance income
Period
ended
31 December
2016
GBP'000
-------------------------------------- ------------
Return on C share financial liability 685
-------------------------------------- ------------
Total 685
-------------------------------------- ------------
Accounting policy
Finance income in the statement of comprehensive
income represents the return on the conversion
of the C shares, refer to note 16. The return on
the C shares represents an increase in the net
assets attributable to the C shares over and above
the funds raised from their issue.
----------------------------------------------------
8. Finance expenses
Period
ended
31 December
2016
GBP'000
------------------------------------ ------------
Amortisation of C share issue costs 1,084
------------------------------------ ------------
Total 1,084
------------------------------------ ------------
Accounting policy
Finance expense in the statement of comprehensive
income comprises the C share amortisation and commitment
fees which are expensed in the period they occur.
The C shares issued during the period represented
contracts for conversion into a variable number
of ordinary shares and therefore the C shares were
classified as liabilities under IFRS. The classification
resulted in the C share issue costs being presented
as finance costs in the statement of comprehensive
income.
----------------------------------------------------------
9. Taxation
Profits arising in the Company for the period 7 September 2015
to 31 December 2016 are subject to tax at the standard rate of 0%
in accordance with the Income Tax Law.
10. Dividends
Period
ended
Pence 31 December
per 2016
share GBP'000
------------------------------------------- ------ ------------
First interim dividend paid on 25 May
2016 1.32 1,399
Second interim dividend paid on 22
August 2016 1.50 1,590
Third interim dividend paid on 22 November
2016 1.50 2,245
------------------------------------------- ------ ------------
Dividends paid during the period 4.32 5,234
Fourth interim dividend paid on 21
February 2017 1.50 2,469
------------------------------------------- ------ ------------
Total 5.82 7,703
------------------------------------------- ------ ------------
As the fourth interim dividend was declared after the period
end, it is not accrued as a provision in the financial
statements.
Accounting policy
In accordance with the Company's Articles, in respect
of the ordinary shares and the C shares when in
issue, the Company will distribute the income it
receives to the fullest extent that is deemed appropriate
by the Directors. Dividends due to the Company's
shareholders are recognised when they become payable.
The Company intends to pay dividends on a quarterly
basis with dividends declared in January, April,
July and October and paid in February, May, August
and November in each financial year.
-----------------------------------------------------------
11. Earnings per share
Basic earnings per share are calculated by dividing profit for
the period attributable to ordinary equity holders of the Company
by the weighted average number of ordinary shares in issue during
the period. Diluted earnings per share are calculated by dividing
the profit attributable to ordinary equity holders by the diluted
weighted average number of ordinary shares, which includes the C
shares issued in the period up to the date of conversion based on
their value at issue.
Weighted
average
number
of Pence
Profit ordinary per
GBP'000 shares share
---------------------------------- -------- ----------- ------
Period ended 31 December 2016
Basic earnings per ordinary share 7,211 104,289,872 6.91
---------------------------------- -------- ----------- ------
Diluted earnings per ordinary
share 7,211 117,735,270 6.12
---------------------------------- -------- ----------- ------
12. Financial assets at fair value through profit or loss:
Investment in Subsidiaries
The Company's financial assets consist solely of the investment
in Subsidiaries, which represent amounts advanced to finance the
Group's investment portfolio. The Company's investment in
Subsidiaries as at 31 December 2016 comprised:
Investment Unrealised Fair value
at cost gain/(loss) GBP'000
GBP'000 GBP'000
------------------------------------------ ---------- ------------ ----------
Debt
Secured Loan Notes up to GBP1,000,000,000 157,797 427 158,224
------------------------------------------ ---------- ------------ ----------
Equity
GABI UK ordinary share - representing
1 ordinary share (GBP1) - 237 237
GABI Housing ordinary shares -
representing 1,000 ordinary shares
(GBP1 each) 1 (44) (43)
------------------------------------------ ---------- ------------ ----------
Total investment in Subsidiaries 157,798 620 158,418
------------------------------------------ ---------- ------------ ----------
The above represents a 100% interest in the Subsidiaries.
Secured Loan Notes
GABI UK has issued a loan note instrument to the Company for a
programme of up to GBP1 billion variable funding notes limited to
the cash available by the Company. Each series of loan notes issued
has a maximum nominal amount, fixed at the date of issue, a base
amount and a subscribed amount. The loan notes are secured and
listed on the TISE (formerly the Channel Islands Securities
Exchange).
Accounting policy
The Company classifies its financial assets into
the categories below in accordance with IAS 39
(Financial Instruments: Recognition and Measurement).
This category consists of financial instruments
that have been designated at fair value through
profit or loss upon initial recognition. These
financial assets are designated on the basis that
they are part of a group of financial assets which
are managed and have their performance evaluated
on a fair value basis, in accordance with the risk
management and investment strategies of the Company,
as set out in the prospectus dated 20 January 2017.
The financial information about the financial assets
of the Company is provided by the Investment Manager
to the Directors with the valuation model being
supplied by the Valuation Agent.
The Company recognises a financial asset when,
and only when, it becomes a party to the contractual
provisions of the instrument. Purchases or sales
of financial assets that require delivery of assets
within the time frame generally established by
regulation or convention in the marketplace are
recognised on the trade date, i.e. the date that
the Company commits to purchase or sell the asset.
A financial asset (or, where applicable a part
of a financial asset or part of a group of similar
financial assets) is derecognised where:
* the rights to receive cash flows from the asset have
expired; or
* the Company has transferred its rights to receive
cash flows from the asset or has assumed an
obligation to pay the received cash flows in full
without material delay to a third party under a
pass-through arrangement; and
* either (a) the Company has transferred substantially
all the risks and rewards of the asset, or (b) the
Company has neither transferred nor retained
substantially all the risks and rewards of the asset,
but has transferred control of the asset.
When the Company transfers its rights to receive
cash flows from an asset or has entered into a
pass-through arrangement, and has neither transferred
nor retained substantially all the risks and rewards
of the asset nor transferred control of the asset,
the asset is recognised to the extent of the Company's
continuing involvement in the asset.
Financial assets at fair value through profit or
loss are recorded in the statement of financial
position at fair value. All transaction costs for
such instruments are recognised directly in the
statement of comprehensive income.
After initial measurement, the Company measures
financial instruments which are classified at fair
value through profit or loss at fair value. Subsequent
changes in the fair value of those financial instruments
are recorded in the statement of comprehensive
income.
Fair value is the price that would be received
to sell an asset in an orderly transaction between
market participants at the measurement date. For
all other financial instruments not traded in an
active market, the fair value is determined by
using appropriate valuation techniques. Valuation
techniques include using recent arm's length market
transactions, referenced to appropriate current
market data, and discounted cash flow analysis,
at all times making as much use of available and
supportable market data as possible.
An analysis of fair values of financial instruments
and further details as to how they are measured
are provided in note 17.7.
------------------------------------------------------------------
13. Other receivables and prepayments
31 December
2016
GBP'000
----------------- -----------
Arrangement fees 117
Prepayments 23
----------------- -----------
Total 140
----------------- -----------
Accounting policy
Other receivables and prepayments are recognised
and carried at the lower of their original invoiced
value and recoverable amount. Where the time value
of money is material, receivables are carried at
amortised cost.
A provision for impairment is made when there is
objective evidence that the Company will not be
able to recover balances in full. Balances are
written off when the probability of recovery is
assessed as being remote.
-----------------------------------------------------
14. Cash and cash equivalents
31 December
2016
GBP'000
-------------------------- -----------
Cash and cash equivalents 6,819
-------------------------- -----------
Total 6,819
-------------------------- -----------
Accounting policy
Cash and cash equivalents in the statement of financial
position and statement of cash flows comprise cash
on hand, demand deposits, short-term deposits in
banks with original maturities of three months
or less and short-term, highly liquid investments
that are readily convertible to known amounts of
cash and which are subject to an insignificant
risk of changes in value.
---------------------------------------------------------
15. Other payables and accrued expenses
31 December
2016
GBP'000
---------------------------- -----------
Investment management fees 359
Amounts due to Subsidiaries 233
Accruals 211
---------------------------- -----------
Total 803
---------------------------- -----------
Accounting policy
Other payables and accrued expenses are recognised
initially at fair value and subsequently stated
at amortised cost using the effective interest
method where appropriate.
----------------------------------------------------
16. Authorised and issued share capital
31 December
Number 2016
Share capital of shares GBP'000
------------------------------------------ ----------- -----------
Ordinary shares issued at no par value
and fully paid
Shares issued upon incorporation at
7 September 2015 2 -
Issued in the period 120,964,734 121,638
Shares issued upon conversion of C shares 43,647,347 43,401
------------------------------------------ ----------- -----------
Total shares issued 164,612,083 165,039
Share issue costs - (2,442)
------------------------------------------ ----------- -----------
At 31 December 2016 164,612,083 162,597
------------------------------------------ ----------- -----------
The Company's share capital is represented by ordinary shares
and C shares when in issue. Quantitative information about the
Company's capital is provided in the statement of changes in
equity.
The authorised share capital of the Company on incorporation was
represented by an unlimited number of no par value ordinary
shares.
On 7 September 2015, the Company was incorporated with two
ordinary shares issued to the Investment Manager. These shares
continue to be owned by the Investment Manager.
On 23 October 2015, the Company issued 106,000,000 new ordinary
shares following its IPO.
On 24 May 2016, the Company announced the issue of 44,086,270 C
shares, issued at 100 pence per share. C shares are no par value
shares. The C shares were listed on the Main Market of the LSE and
dealing in the C shares commenced on 31 May 2016.
On 18 October 2016, the Company issued 43,647,347 new ordinary
shares following the conversion of the C shares on the basis of a
conversion ratio of 0.9901 ordinary shares for every C share held.
After conversion of the C shares to ordinary shares, the C shares
were delisted on 18 October 2016.
On 8 November 2016, the Company announced the issue of
14,964,734 ordinary shares following a placing. The ordinary shares
were listed on the Main Market of the LSE and dealing commenced on
10 November 2016.
As at 31 December 2016, the Company's issued share capital
comprised 164,612,083 ordinary shares, none of which were held in
treasury.
The ordinary shares carry the right to dividends out of the
profits available for distribution as determined by the Board. Each
holder of an ordinary share is entitled to attend meetings of
shareholders and, on a poll, to one vote for each share held. When
in issue, the C shares carry the right to receive notice of, attend
and vote at general meetings of the Company and, on a poll, to one
vote for each C share held.
C share financial liability
31 December
2016
GBP'000
-------------------------------------------------- -----------
Proceeds from the issue of C shares 44,086
Issue costs (1,084)
-------------------------------------------------- -----------
Net proceeds from C shares 43,002
-------------------------------------------------- -----------
Amortisation of C share issue costs 1,084
Return on C share financial liability (685)
-------------------------------------------------- -----------
Extinguishment of C share liability on conversion
to ordinary shares (43,401)
-------------------------------------------------- -----------
Value of C shares at period end -
-------------------------------------------------- -----------
The tables below give a summary of the results of the C share
pool up to the date of conversion and value of the C share pool
assets on the date of conversion:
For the period from issue to conversion
GBP'000
-------------------------------------------- -------
Proceeds from the issue of C shares 44,086
C share issue costs (1,084)
Deposit interest income 17
Change in fair value on financial assets at
fair value through profit or loss 381
Arrangement fee income 168
Administration expenses (167)
-------------------------------------------- -------
Value of C shares on conversion 43,401
-------------------------------------------- -------
30 September
2016
GBP'000
----------------------------------------------------- ------------
Represented by the following assets and liabilities:
Financial assets held at cost 26,890(1)
Trade and other receivables 551
Cash and cash equivalents 16,078
Other payables and accrued expenses (118)
----------------------------------------------------- ------------
Value of C shares on conversion 43,401
----------------------------------------------------- ------------
1. Following an announcement made by the Company on 3 October
2016, in respect of investment completions of GBP16.8 million, the
Company had invested substantially all of the proceeds of the C
share issue and consequently the conversion of C shares occurred on
14 October 2016.
Accounting policy
Upon issuance of equity shares, the consideration
received is included in equity.
Transaction costs incurred by the Company in issuing,
acquiring or reselling its own equity instruments
are accounted for as a deduction from equity to
the extent that they are incremental costs directly
attributable to the equity transaction that otherwise
would have been avoided.
No gain or loss is recognised in the statement
of comprehensive income in respect of the purchase,
sale, issuance or cancellation of the Company's
own equity instruments.
In accordance with IFRS, C shares were recognised
on issue as a liability at fair value, less directly
attributable transaction costs. After initial recognition
C shares were measured at amortised cost using
the effective interest method. Amortisation was
credited or charged to finance income or finance
costs in the statement of comprehensive income.
Transaction costs were amortised up until the conversion
point.
The C shares were converted into ordinary shares
once at least 90% of all the assets representing
the net proceeds or such other percentage as the
Board and Investment Manager agreed had been invested
in accordance with the Company's investment policy
or, if earlier, six months after the date of issue
of the C shares. On conversion, each holder of
C shares received such number of ordinary shares
as equalled the number of C shares held by them
multiplied by the NAV per C share and divided by
the NAV per ordinary share, in each case as at
a date shortly prior to conversion.
-----------------------------------------------------------
17. Financial instruments
The table below sets out the classifications of the carrying
amounts of the Company's financial assets and financial liabilities
into categories of financial instruments.
31 December
2016
Financial assets GBP'000
---------------------------------------------- -----------
Cash and cash equivalents 6,819
Other receivables and prepayments 140
Loans and receivables 6,959
---------------------------------------------- -----------
Financial assets at fair value through profit
or loss 158,418
---------------------------------------------- -----------
Total 165,377
---------------------------------------------- -----------
Financial liabilities
Other payables and accrued expenses 803
---------------------------------------------- -----------
Financial liabilities measured at amortised
cost 803
---------------------------------------------- -----------
17.1 Capital management
The Company is wholly funded from equity balances, comprising
issued ordinary share capital as detailed in note 16.
The Company may seek to raise additional capital from time to
time to the extent that the Directors and the Investment Manager
believe the Company will be able to make suitable investments. The
Company raises capital only when it has a clear view of a robust
pipeline of highly advanced investment opportunities to ensure the
rapid deployment of capital.
As detailed in the Company's prospectus dated 20 January 2017,
the Company may borrow up to 25% of its NAV as at such time any
such borrowings are drawn down. During the period the Company did
not have a debt facility.
17.2 Financial risk management objectives
The Company has an investment policy and strategy as summarised
within its prospectus dated 20 January 2017, that sets out its
overall investment strategy and its general risk management
philosophy and has established processes to monitor and control
these in a timely and accurate manner. These guidelines are the
subject of regular operational reviews undertaken by the Investment
Manager to ensure that the Company's policies are adhered to as it
is the Investment Manager's duty to identify and assist in the
management of risk. The Investment Manager reports regularly to the
Directors who have ultimate responsibility for the overall risk
management approach.
The Investment Manager and the Directors ensure that all
investment activity is performed in accordance with investment
guidelines. The Company's investment activities expose it to
various types of risks that are associated with the financial
instruments and markets in which it invests. Risk is inherent in
the Company's activities and it is managed through a process of
ongoing identification, measurement and monitoring. The financial
risks to which the Company is exposed include market risk, interest
rate risk, credit risk and liquidity risk.
As explained in note 2.3, the Company's financial assets at fair
value through profit or loss are investments in the Subsidiaries.
The Subsidiaries are a holding vehicle used solely to hold the
Company's investments and therefore, the market risk, interest rate
risk, credit risk and liquidity risk is highly dependent on the
performance of the Subsidiaries' investments.
17.3 Market risk
The investments that the Company holds in the Subsidiaries are
valued based on the NAV of the Subsidiaries.
The Subsidiaries' portfolio of assets is held at fair value, and
their values are monitored on a quarterly basis by the Valuation
Agent. There is a risk that market movements may decrease or
increase the value of the Company's assets without regard to the
assets underlying performance.
The Valuation Agent considers the movements in comparable credit
markets and publicly available information around each project in
assessing the expected future cash flows from each of the
Subsidiaries' investments.
The valuation principles used are based on a discounted cash
flow methodology. A fair value for each asset acquired by the
Company is calculated by applying a relevant market discount rate
to the contractual cash flow expected to arise from each asset.
The Valuation Agent determines the discount rate that it
believes the market would reasonably apply to each underlying
investment taking, inter alia, into account the following
significant inputs:
-- Pound Sterling interest rates;
-- movements of comparable credit markets; and
-- observable yield on other comparable instruments.
-- In addition, the following are also considered as part of the overall valuation process:
-- market activity and investor sentiment; and
-- changes to the economic, legal, taxation or regulatory environment.
The Valuation Agent exercises its judgement in assessing the
expected future cash flows from each investment. Given that the
investments of the Company are generally fixed income debt
instruments (in some cases with elements of inflation protection)
or other investments with a similar economic effect, the focus of
the Valuation Agent is on assessing the likelihood of any
interruptions to the debt service payments, in light of the
operational performance of the underlying asset.
The valuations are reviewed by the Investment Manager and the
Directors and the subsequent NAV is reviewed by the Investment
Manager and the Directors on a quarterly basis.
The key driver of the Subsidiaries' NAV is the valuation of
their portfolio of Secured Loan Notes.
The table below shows how changes in discount rate affect the
changes in the valuation of the Secured Loan Notes (refer to note
12):
31 December 2016
Change in discount rate (0.50%) 0.00% 0.50%
------------------------------------ -------- -------- -------
Value of financial assets at fair
value (GBP'000) 162,989 158,224 153,680
Change in value of financial assets
at fair value (GBP'000) 4,765 - (4,544)
------------------------------------ -------- -------- -------
17.4 Interest rate risk
Interest rate risk arises from the effects of fluctuations in
the prevailing level of market interest rates on the fair value of
financial assets and liabilities, future cash flows and
borrowings.
Interest rate risk has the following effect:
Fair value of financial assets and liabilities
Interest rates are one of the factors which the Valuation Agent
takes into account when valuing the financial assets.
Future cash flows
The Company primarily invests, via its Subsidiaries, in a
diversified portfolio of projects which have contracted predictable
medium to long-term cash flows and/or physical assets, such
investments being asset-backed. The Company's investments will
predominantly be in the form of medium to long-term fixed or
floating rate loans which are secured against cash flows and/or
physical assets which are predominantly UK based.
Interest rate hedging may be carried out to seek to provide
protection against falling interest rates in relation to assets
that do not have a minimum fixed rate of return acceptable to the
Company in line with its investment policy and strategy. The
Company has not entered into an interest rate hedging agreement in
the period.
Cash is held at a number of financial institutions to spread
interest rate risk and credit risk. Cash awaiting investment is
currently held on behalf of the Company at banks carrying a minimum
rating of A-2, P-2 or F-2 from Standard and Poor's, Moody's and
Fitch respectively.
Borrowings
During the period, the Company did not have a debt facility. As
disclosed in note 20, the Company entered into a two-year GBP15
million revolving credit facility with Royal Bank of Scotland
International Limited post period end.
17.5 Credit risk
Credit risk refers to the risk that the counterparty to a
financial instrument will fail to discharge an obligation or
commitment that it has entered into with the Company. Credit risk
is generally higher when a non-exchange traded financial instrument
is involved because the counterparty is not an exchange clearing
house. The assets classified at fair value through profit or loss
do not have a published credit rating, however the Investment
Manager monitors the financial position and performance of the
Project Companies on a regular basis to ensure that credit risk is
appropriately managed.
The Company is exposed to differing levels of credit risk on all
its assets. Per the statement of financial position, the Company's
total exposure to credit risk is GBP165.4 million represented by
its cash, receivables and investment assets.
As noted in section 17.4 above, cash is held at a number of
financial institutions to spread credit risk.
The Company's investment assets are debt and equity securities
in the Subsidiaries and therefore, the credit risk of the Company's
investment assets is highly dependent on the performance of the
Subsidiaries' investment portfolios, which are valued on a
quarterly basis by the Valuation Agent. The Valuation Agent takes
into account the credit risk associated with these investments when
valuing the financial assets.
Credit risk is considered by the Valuation Agent during both the
origination process and at quarterly valuation updates. Depending
on the nature of the underlying projects and the extent to which
due diligence was originally performed, residual credit risk is
considered by reference to a number of factors including, but not
limited to: relative benchmark analysis, comparable bond pricing,
market analysis such as the capital asset pricing model, and
fundamental credit analysis of a borrower's underlying performance
by reference to any applicable loan covenants.
After an investment is made, the forecasts are regularly updated
with information provided by the Project Companies in order to
monitor ongoing financial performance. In addition, the credit risk
associated with each Project Company is mitigated because the cash
flows receivable are secured either on a senior or subordinated
basis over the assets of the Project Company, which in turn have
security over the assets of the underlying projects. As at period
end, the concentration of credit risk to any Project Company did
not exceed 20% of the Company's total assets.
The Directors currently consider the fair value of the financial
instruments at par plus accumulated interest to be reasonable. The
impact of such fair value attributable to any change in credit risk
will continue to be reviewed at each quarter end and specifically
when investments mature and their ongoing performance can be
assessed. Therefore, no additional sensitivity analysis to that
disclosed in note 17.3 has been provided in this respect.
17.6 Liquidity risk
Liquidity risk is the risk that the Company may not be able to
generate sufficient cash resources to settle its obligations in
full as they fall due or can only do so on terms that are
materially disadvantageous. The Company ensures it maintains
adequate reserves by continuously monitoring forecast and actual
cash flows and matching the maturity profiles of financial assets
and liabilities. During the period ended 31 December 2016, all
investments made by the Company were funded solely by proceeds from
the IPO, the C share equity raise and the placing.
The financial assets held at fair value through profit or loss
are predominantly the investments in the Subsidiaries. Such
investments would take time to realise and there is no assurance
that the valuations placed on the investments would be achieved
from any such sale process. As at 31 December 2016, the Company
holds GBP6.8 million in cash and cash equivalents, which are
readily available and does not have any financial liabilities aside
from the standard trade payables and accrued expenses totalling
GBP0.8 million arising from the normal course of business, which
are all due within the year.
The Directors assessment of the Company's ability to continue as
a going concern, noted in note 2.1, included an assessment of
liquidity risk. The Board concluded that the Company will be able
to generate sufficient cash resources to settle its obligations in
full as they fall due. Therefore no additional sensitivity analysis
to liquidity risk has been provided in this respect.
17.7 Fair values of financial assets and liabilities
Basis of determining fair value
The Valuation Agent carries out quarterly fair valuations of the
financial assets of the Subsidiaries and the Secured Loan Notes.
These valuations are reviewed by the Investment Manager and the
subsequent NAV is reviewed by the Investment Manager and Directors
on a quarterly basis.
Fair value measurements
Investments measured and reported at fair value are classified
and disclosed in one of the following fair value hierarchy levels
depending on whether their fair value is based on:
-- Level 1: quoted prices in active markets for identical assets or liabilities;
-- Level 2: inputs other than quoted prices included in level
one that are observable for the asset or liability, either directly
(as prices) or indirectly (derived from prices) or;
-- Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
-- An investment is always categorised as Level 1, 2 or 3 in its
entirety. In certain cases the fair value measurement for an
investment may use a number of different inputs that fall into
different levels of the fair value hierarchy. In such cases, an
investment level within the fair value hierarchy is based on the
lowest level of input that is significant to the fair value
measurement. The assessment of the significance of a particular
input to the fair value measurement requires judgement and is
specific to the investment.
The table below summarises all securities held by the Company
based on the fair valuation technique adopted.
Financial asset
measured at fair Level Level Level
value through profit Date of 1 2 3 Total
or loss: valuation GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- ------------ -------- -------- -------- --------
31 December
Investment in Subsidiaries 2016 - - 158,418 158,418
--------------------------- ------------ -------- -------- -------- --------
The Directors have classified the financial instruments as Level
3 due to the limited number of comparable and observable market
transactions in this sector. The current input for the Level 3 at
period end is the discount rate for these investments which are
considered to be primarily modelled rather than market observed.
The debt securities that the Subsidiaries have invested in are also
classified as Level 3.
The following table shows a reconciliation of all movements in
the fair value of financial instruments categorised within Level 3
between the beginning and end of the period:
31 December
2016
GBP'000
---------------------------------------------- -----------
Opening balance -
Investment in Subsidiaries 159,602
Capital repayments from Subsidiaries (1,804)
Unrealised gains on investments at fair value
through profit or loss 620
---------------------------------------------- -----------
Closing balance 158,418
---------------------------------------------- -----------
Included within the investment in Subsidiaries figure of
GBP159,602,000 is an amount of unpaid share capital of GBP1,000
relating to the investment in GABI Housing, which is outstanding as
at 31 December 2016.
For the Company's financial instruments categorised as Level 3,
changing the discount rate used to value the underlying instruments
alters the fair value. As noted in note 17.3 in determining the
discount rate for calculating the fair value of financial assets at
fair value through profit or loss, reference is made to Pound
Sterling interest rates, movements of comparable credit markets and
observable yield on comparable instruments. Hence, movements in
these factors could give rise to changes in the discount rate. A
change in the discount rate used to value the Level 3 investments
would have the effect on profit before tax as shown in the table in
note 17.3.
The fair value of the investment in the Subsidiaries consists of
both debt (the Secured Loan Notes) and equity (1,001 ordinary
shares), refer to note 12.
The investments that the Company holds in the Subsidiaries are
valued based on the NAV of the Subsidiaries. As at 31 December
2016, the Subsidiaries NAVs were as follows:
31 December
2016
GBP'000
------------- -----------
GABI UK 237
GABI Housing (43)
------------- -----------
Total 194
------------- -----------
The Secured Loan Notes that the Company has subscribed for, are
valued on a discounted cash flow basis in line with the model used
by the Valuation Agent, which is also applied to the underlying
investments of GABI UK shown below:
Key
Fair value unobservable
GBP'000 Valuation technique inputs Range
----------------------- ---------- ------------------- ------------- -----
Financial assets
at fair value through Discounted cash Discount
profit or loss 158,224 flow rate 6-10%
----------------------- ---------- ------------------- ------------- -----
Total 158,224
----------------------- ---------- ------------------- ------------- -----
Refer to note 17.3 for the sensitivity analysis performed in
relation to fair value of the investment in the Subsidiaries.
The Directors review the quarterly valuation report provided by
the Valuation Agent which includes reference to the inputs used in
the valuation of investments and the appropriateness of their
classification in the fair value hierarchy. In particular, the
Directors are satisfied that the significant inputs into the
derivation of the discount rate adopted by the Valuation Agent are
pursuant to the Valuation Agent engagement letter as set out within
the prospectus dated 20 January 2017. Should the valuation approach
change causing an investment to meet the characteristics of a
different level of the fair value hierarchy, it will be
reclassified accordingly.
During the period there were no transfers of investments between
levels therefore no further disclosure is considered necessary
under IFRS.
18. Related party disclosures
As defined by IAS 24 (Related Party Disclosures), parties are
considered to be related if one party has the ability to control
the other party or exercise significant influence over the other
party in making financial or operational decisions. Subsidiary
companies are also deemed to be related parties as they are members
of the same group of companies.
Directors
The non-executive Directors of the Company are considered to be
the key management personnel of the Company. Directors'
remuneration for the period (including reimbursement of Company
related expenses) totalled GBP107,719. As at 31 December 2016,
liabilities in respect of these services amounted to GBP19,481. The
Directors did not receive any performance based fees in the period.
As at 31 December 2016, the Directors of the Company hold directly
or indirectly, and together with their family members, 109,700
ordinary shares in the Company.
Alex Ohlsson is the managing partner of Carey Olsen, the
Company's Jersey legal advisers. Carey Olsen has provided legal
services to the Company during the period. Carey Olsen maintains
procedures to ensure that Mr Ohlsson has no involvement in the
delivery of legal services to the Company.
During the period, the aggregate sum of GBP90,367 was paid to
Carey Olsen in respect of legal work undertaken in respect of the
incorporation of the Company, the IPO, the variable funding note
programme, the C share raise, the placing, the 2016 AGM and the
change of name of the Company.
Investment Manager
The Company is party to an investment management agreement with
the Investment Manager, pursuant to which the Company has appointed
the Investment Manager to provide discretionary portfolio and risk
management services relating to the assets on a day-to-day basis in
accordance with its investment objectives and policies, subject to
the overall control and supervision of the Directors.
For its services to the Company, the Investment Manager receives
an investment management fee which is calculated and paid quarterly
in arrears at an annual rate of 0.9% per annum of the prevailing
NAV of the Company less the value of the cash holdings of the
Company pro rata for the period for which such cash holdings have
been held.
During the period, the Company expensed GBP1,154,328 in respect
of investment management and advisory fees. Additional arrangement
fees amounting to GBP185,000 were paid to the Investment Manager in
relation to the issuance of the C shares. As at 31 December 2016,
liabilities in respect of these services amounted to
GBP359,065.
The Investment Manager receives an annual fee of GBP22,500 in
relation to its role as the Company's AIFM. During the period, the
Company expensed GBP28,000 in respect of AIFMD fees due to the
Investment Manager. As at 31 December 2016, liabilities in respect
of these services amounted to GBP5,656.
The Investment Manager, at its discretion, is entitled to an
arrangement fee of up to 1% of the cost of each investment made by
the Subsidiaries. The Investment Manager typically expects the cost
of any such fee to be covered by the borrowers, and not the
Company, and which may be paid by borrowers through the
Subsidiaries. To the extent any arrangement fee negotiated by the
Investment Manager with a borrower exceeds 1%; the benefit of any
such excess is paid to the Company.
Subsidiaries
As at 31 December 2016, the Company owns a 100% controlling
stake in the Subsidiaries. The Subsidiaries are considered to be a
related party by virtue of being part of the same group.
The tables below disclose the transactions and balances between
the Company and Subsidiaries:
31 December
2016
Transactions GBP'000
------------------------------ -----------
Intercompany income received
GABI UK
Arrangement fee income 729
Loan interest income received 8,409
------------------------------ -----------
Total 9,138
------------------------------ -----------
31 December
2016
Balances GBP'000
------------------------------------------------- -----------
Intercompany balances due
GABI UK (232)
GABI Housing (1)
------------------------------------------------- -----------
Total (233)
------------------------------------------------- -----------
Intercompany loan balance within book cost
of financial asset at fair value through profit
or loss
GABI UK - Secured Loan Notes 157,797
------------------------------------------------- -----------
19. Reconciliation of NAV
31 December
2016
GBP'000
-------------------------------------- -----------
Valuation per NAV calculation 164,625
Adjustments (51)
-------------------------------------- -----------
Valuation as per financial statements 164,574
-------------------------------------- -----------
20. Subsequent events after the report date
On 4 January 2017, the Company transferred 1,000 shares in GABI
Housing to GABI UK. These shares were transferred to a third party,
Mr David Rae Wylde Limited on 20 January 2017.
On 13 January 2017, the Company entered into a two-year GBP15
million revolving credit facility with Royal Bank of Scotland
International Limited. Interest on amounts drawn under the facility
is charged at LIBOR plus 2.75% per annum. A commitment fee is
payable on undrawn amounts. The total costs incurred to establish
the facility was GBP375,759 (including an arrangement fee of
GBP300,000).
On 27 January 2017, GBP5.3 million was drawn on the facility
which was repaid in full on 20 February 2017.
On 13 January 2017, the Company agreed a GBP3.1 million
extension to the GBP10.8 million social infrastructure loan
facility. The revised GBP13.9 million facility, which will be
issued in tranches, is secured on a senior basis against the
underlying units and leases and is subject to upward-only principal
indexation.
On 10 February 2017, the Company issued 79,250,000 C shares at
100 pence per share by way of an open offer, placing and offer for
subscription, raising gross proceeds of GBP79.25 million. Issue
costs incurred as part of the capital raise were GBP1.6
million.
On 10 March 2017, the Company announced two loans of up to
GBP17.5 million to finance UK residential property. The first loan
of up to GBP15 million, with a term of c.three years, will be
secured on a subordinated ranking basis and issued in tranches with
an initial amount advanced of GBP5.3 million. The second loan of
GBP2.5 million is to provide asset-backed finance to a specialist
lender active in the UK short-term finance market. The facility is
secured on a senior basis. These loans have been funded from the
net proceeds of the Company's recent issue of C shares.
On 24 March 2017, the Company committed to a loan of up to GBP7
million which will be used to finance a portfolio of buy-to-let
mortgages. The loan has a term of c.three years, will be secured on
a subordinated ranging basis and issued in tranches with an initial
amount of c.GBP3.8 million. The loan has been funded from the net
proceeds of the Company's recent issue of C shares.
21. Ultimate controlling party
It is the view of the Board that there is no ultimate
controlling party.
GLOSSARY OF KEY TERMS
ACA Associate of the Chartered Institute of Accountants
AGM The Annual General Meeting of the Company
AIF Alternative Investment Fund
AIFM Alternative Investment Fund Manager
AIFMD Alternative Investment Fund Managers Directive
Articles The Articles of Association of GCP Asset Backed Income Fund Limited
C shares The C shares of GCP Asset Backed Income Fund Limited
CET1 Common Equity Tier 1
CIF Law Collective Investment Funds (Jersey) Law 1988
Companies Law Companies (Jersey) Law 1991, as amended
The Company GCP Asset Backed Income Fund Limited
DTRs Disclosure Guidance and Transparency Rules of the UKLA
FATCA Foreign Account Tax Compliance Act
FCA Financial Conduct Authority
FRC Financial Reporting Council
GABI Housing GABI Housing Limited
GABI UK GCP Asset Backed Income (UK) Limited
GCP Infrastructure GCP Infrastructure Investments Limited
Group The Company and the Subsidiaries
IASB International Accounting Standards Board
IASC International Accounting Standards Committee
IESBA Code International Ethics Standards Board for Accountants Code of Ethics for Professional
Accountants
IFRIC International Financial Reporting Interpretations Committee
IFRS International Financial Reporting Standards
Income Tax Law Income Tax (Jersey) Law 1961, as amended
IPO Initial public offering
IRR Internal rate of return
ISA International Standards on Auditing
LSE London Stock Exchange
LTV Loan-to-value
MAR EU Market Abuse Regulation
NAV Net asset value
Ordinary shares The ordinary shares of GCP Asset Backed Income Fund Limited
Project Company A special purpose company which owns and operates an asset
Secured Loan Notes Loan notes issued to the Company
The Subsidiaries GABI UK and GABI Housing
TISE The International Stock Exchange
Total shareholder return The sum of the percentage increase return in the ordinary share price plus, dividends deemed
to be reinvested on the dividend payment date
UK United Kingdom
UK Code The UK Corporate Governance Code
UKLA United Kingdom Listing Authority
COMPANY INFORMATION
The Company
GCP Asset Backed Income Fund Limited
12 Castle Street
St Helier
Jersey JE2 3RT
Directors and/or the Board
Alex Ohlsson (Chairman)
Colin Huelin
Joanna Dentskevich
Administrator, secretary and
registered office of the Company
Capita Financial Administrators (Jersey) Limited
12 Castle Street
St Helier
Jersey JE2 3RT
Advisers on English law
Gowling WLG (UK) LLP
4 More London Riverside
London SE2 2AU
Advisers on Jersey law
Carey Olsen
47 Esplanade
St Helier
Jersey JE1 0BD
Depositary
Capita Trust Company (Jersey) Limited
12 Castle Street
St Helier
Jersey JE2 3RT
Financial adviser and broker
Cenkos Securities plc
6.7.8 Tokenhouse Yard
London EC2R 7AS
Financial PR
Buchanan Communications
107 Cheapside
London EC2V 6DN
Independent Auditor
PricewaterhouseCoopers CI LLP
37 Esplanade
St Helier
Jersey JE1 4XA
Investment Manager and AIFM
Gravis Capital Partners LLP
53/54 Grosvenor Street
London W1K 3HU
Operational bankers
Royal Bank of Scotland International Limited
71 Bath Street
St Helier
Jersey JE4 8PJ
Santander International
19-21 Commercial Street
St Helier
Jersey JE4 8XG
Barclays Private Client International Limited
13 Library Place
St Helier
Jersey JE4 8NE
Registrar
Capita Registrars (Jersey) Limited
12 Castle Street
St Helier
Jersey JE2 3RT
Valuation Agent
Mazars LLP
Tower Bridge House
St Katharine's Way
London E1W 1DD
The Subsidiaries
GCP Asset Backed Income (UK) Limited
Munro House
Portsmouth Road
Cobham KT11 1PP
GABI Housing Limited
Munro House
Portsmouth Road
Cobham KT11 1PP
This information is provided by RNS
The company news service from the London Stock Exchange
END
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