TIDMGABI TIDMGABC
RNS Number : 1088T
GCP Asset Backed Income Fund Ltd
23 March 2021
GCP Asset Backed Income Fund Limited
("GCP Asset Backed" or the "Company")
LEI 213800FBBZCQMP73A815
Annual report and financial statements for the year ended 31
December 2020
23 March 2021
The Directors of the Company are pleased to announce the
Company's annual results for the year ended 31 December 2020. The
full annual report and financial statements can be accessed via the
Company's website at
www.graviscapital.com/funds/gcp-asset-backed/literature and will be
posted to shareholders who elected to receive full copy statutory
documents over the course of the next few weeks.
For further information, please contact:
Gravis Capital Management Limited +44 (0) 20 3405 8500
David Conlon
Joanne Fisk
Investec Bank plc +44 (0)20 7597 4000
Helen Goldsmith
Denis Flanagan
Neil Brierley
Buchanan/Quill +44 (0)20 7466 5000
Helen Tarbet
Sarah Gibbons-Cook
Henry Wilson
GCP ASSET BACKED INCOME FUND LIMITED
Annual report and financial statements for the year ended 31
December 2020
GCP Asset Backed Income Fund Limited is a listed investment
company which focuses predominantly on investments in UK asset
backed loans.
The Company seeks to provide shareholders with attractive
risk-adjusted returns through regular, growing distributions and
modest capital appreciation over the long term.
The Group is currently invested in a diversified portfolio of
asset backed loans across the social infrastructure, property,
energy and infrastructure, and asset finance sectors, located
predominantly in the UK.
The Company is a closed-ended investment company incorporated in
Jersey. The Company has a premium listing on the Official List of
the FCA with its shares admitted to trading on the Premium Segment
of the Main Market of the LSE since 23 October 2015.
At 31 December 2020, its market capitalisation was GBP401.9
million. The Company is a constituent of the FTSE All-Share
Index.
AT A GLANCE - 31 DECEMBER 2020
2018 2019 2020
--------------------------- ------ ------ --------
Market capitalisation GBPm 397.1 479.1 401.9
Value of investments GBPm 378.4 453.9 446.0
Dividends for the year p 6.35 6.45 6.475(1)
Ordinary share price p 104.50 108.50 91.30
NAV per ordinary share p 101.74 102.33 102.18
Profit for the year GBPm 21.6 28.0 27.4
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HIGHLIGHTS FOR THE YEAR
- Dividends of 6.475(1) pence per share in respect of the year,
including a special dividend of 0.25 pence. Achieving the Company's
stated aim to grow the dividend year-on-year, for the fifth
consecutive year.
- Total shareholder return(2) of -9.8%, total NAV return(2) of
6.5% (31 December 2019: 10.2% and 7.2%) and an annualised total
shareholder return(2) since IPO of 3.8%.
- Profit for the year of GBP27.4 million (31 December 2019:
GBP28.0 million), with total income of GBP33.9 million generated
from the investment portfolio (31 December 2019: GBP34.0
million).
- NAV per ordinary share of 102.18 pence at 31 December 2020, a
marginal decrease from 102.33 pence in the prior year, reflecting
adjustments to discount rates on some of the loans. See below for
further detail. Excluding these adjustments the NAV would have
increased in the year by 1%.
- Exposure to a diversified, partially inflation and/or interest
rate-protected portfolio of 50 asset backed loans with a third
party valuation of GBP444.2 million at 31 December 2020.
- Loans of GBP126.8 million advanced by the Group, secured
against 28 projects with a further GBP14.5 million secured against
five projects, advanced post year end.
- Loans of GBP131.0 million repaid in the year generating
repayment fees of GBP1.8 million, with a further GBP1.0 million of
repayments received post year end.
1. Includes a dividend of 1.575 pence per share for the quarter
to 31 December 2020, which was paid post year end.
2. Alternative performance measure - refer below for definitions and calculation methodology.
Alex Ohlsson, Chairman, commented:
"In a challenging year, the Company has proven its resilience,
collecting all expected interest and principal payments, whilst
growing its dividend for the fifth consecutive year.
This year the Covid-19 pandemic tested the resilience of the
portfolio through the significant macro-economic uncertainty this
event created. I am pleased to report that despite these
significant headwinds, the Investment Manager's focus on assets
that are integral to society continues to deliver a portfolio that
is performing strongly for the Group. The portfolio comprised 50
loans at 31 December 2020, 89% of which are secured against
physical assets offering strong downside and capital protection.
The remainder of the loans are secured against contracted cash
flows with robust underlying contractual protection in place.
As a Board we remain confident that the Company's investment
strategy and business model remains well placed to continue to
deliver for investors even in these uncertain times. We would like
to thank our investors for their continued support."
INVESTMENT OBJECTIVES AND KPIs
The Company's purpose as a closed--ended investment company is
to meet its investment objective, which is to generate attractive
risk--adjusted returns through regular, growing distributions and
modest capital appreciation over the long term.
ATTRACTIVE RISK ADJUSTED REGULAR, GROWING DISTRIBUTIONS CAPITAL APPRECIATION
RETURNS
--------------------------- ------------------------------ ------------------------------
To provide shareholders To provide shareholders To achieve modest appreciation
with returns that are with regular, growing in shareholder value
attractive with regard dividend distributions. over the long term.
to the level of risk
taken.
KEY PERFORMANCE INDICATORS
--------------------------- ------------------------------ ------------------------------
The Company has generated The Company has grown The Company's ordinary
an annualised total its dividend year-on-year, shares were trading at
shareholder return(1) achieving its stated 91.30 pence per share
since IPO of 3.8%. aim for the fifth consecutive at the year end.
year.
-9.8% 6.475p 91.30p
Total shareholder return(1) Dividends in respect Ordinary share price
for the year of the year at 31 December 2020
31 December 2019: 10.2% 31 December 2019: 6.45p 31 December 2019: 108.50p
8.0% 45% 10.6%
Weighted average annualised Percentage of portfolio Discount(1) to NAV at
yield(1) on investment by value with inflation 31 December 2020
portfolio and/or interest rate
protection
31 December 2019: 8.2% 31 December 2019: 41% 31 December 2019: 6.0%
premium(1)
--------------------------- ------------------------------ ------------------------------
Further information on Company performance can be found
below.
1. Alternative performance measure - refer below for definitions and calculation methodology.
PORTFOLIO AT A GLANCE
Portfolio of 50 asset backed loans with an average life of six
years which are partially inflation and/or interest rate protected.
The loans fall within the following sectors and are secured
predominantly against assets and cash flows in the UK:
PROPERTY
- 19 loans within sector
- GBP215.0m
- 49%
ASSET FINANCE
- 6 loans within sector
- GBP45.5m
- 10%
ENERGY AND INFRASTRUCTURE
- 8 loans within sector
- GBP37.2m
- 8%
SOCIAL INFRASTRUCTURE
- 17 loans within sector
- GBP146.5m
- 33%
SENIOR RANKING SECURITY
71%
UK EXPOSURE
82%
SECURED AGAINST PHYSICAL ASSETS
89%
CHAIRMAN'S STATEMENT
In a challenging year, the Company has proven its resilience,
collecting all expected interest and principal payments, whilst
growing its dividend for the fifth consecutive year.
Introduction
The Company is focused on the delivery of sustainable, long-term
income to shareholders, generated through its portfolio of secured
loans. These investments utilise debt investment protections whilst
offering reliable income, secured against high--quality assets
and/or contracted cash flows.
This year the Covid-19 pandemic tested the resilience of the
portfolio through the significant macro-economic uncertainty this
event created. I am pleased to report that despite these
significant headwinds, the Group and its portfolio of loans
performed throughout the period. The Company received all expected
payments(1) of interest and significant repayments in the year. It
has redeployed these repayments into projects with existing strong
counterparties, as well as into some new and exciting areas that
have become available as a result of market uncertainty.
Whilst the performance of the portfolio has been strong,
allowing the Company to grow its dividend for the fifth consecutive
year, we continue to be mindful of the potential impact of economic
uncertainty on the Company's loans. The Board, with advice from the
Valuation Agent, took the conservative decision in March 2020 to
reflect a number of downward revaluations against the Company's
loans, due to the increased pricing of risk which was prevailing in
the market.
These revaluations have gradually been released throughout the
year as assets continued to perform. We remain cautious and at the
year end a number of these revaluations are still in place,
reflecting an impact of 1.19 pence per share on the earnings and
NAV of the Company.
We continue to closely monitor the Company's share price, which
has predominantly traded at a discount(2) to NAV throughout the
year, on the back of both the market sentiment and the significant
issues that a number of our peers have experienced. Alongside the
Investment Manager, the Company has looked to engage further with
shareholders and increase both the quality and detail of our
portfolio disclosures. Feedback on the disclosures has been
positive and both the Board and the Investment Manager are
delighted to engage with shareholders and address any questions or
concerns they may have.
The Investment Manager's focus on assets that are integral to
society continues to deliver a portfolio that is performing
strongly for the Group. The portfolio comprised 50 loans at 31
December 2020, 89% of which are secured against physical assets
offering strong downside and capital protection. The remainder of
the loans are secured against contracted cash flows with robust
underlying contractual protection in place.
During the year eleven loans were repaid in full. Whilst the
Board does not like to lose high--quality borrowers, we believe
these repayments highlight the quality of our asset base and the
attractiveness of the book. A significant proportion of our assets
were refinanced as a result of being sold to institutional
investors or pension funds. We have maintained excellent
relationships with these borrowers and hope to be able to complete
more transactions with them over time.
1. As previously reported by the Company, the CHP loan remains
in default and as such no payments are expected until the
anticipated sale completes.
2. Alternative performance measure - refer below for definitions and calculation methodology.
Net assets
At the year end, the net assets of the Company were GBP449.8
million. The NAV per share decreased from 102.33 pence at 31
December 2019 to 102.18 pence at 31 December 2020. The valuation of
investments decreased during the year to GBP446.0 million from
GBP453.9 million at 31 December 2019, with the largest single asset
exposure reducing to 5.4% of total assets. The decrease to NAV is
primarily as a result of the downward market revaluations taken
against assets as detailed above. Excluding these revaluations, the
Company's NAV would have increased in the year by 1.0%.
Financing
The Company has in place an RCF of GBP50 million with RBSI. The
Company uses this RCF to ensure that it effectively uses its cash
to reduce any cash drag which would impact its dividend coverage.
The Board believes the use of the facility is a benefit of the
maturity and strong track record of the Company. The RCF was
extended in the year until August 2021, with all terms remaining
the same as the previous GBP40 million facility.
FIVE YEAR ANNIVERSARY
The Company celebrated its fifth anniversary this year. This
milestone presented the opportunity to look back on what has been
achieved over the past five years:
GBP625.5m
INVESTMENTS MADE
GBP151.3m
PRINCIPAL REPAID
GBP98.3m
PROFITS GENERATED
GBP91.4m
DIVIDS PAID
23
ASSET CLASSES
Investments
During the year, the Group advanced GBP126.8 million in the form
of 28 investments, 16 new and twelve follow-on transactions,
improving the diversification and risk profile of the portfolio.
All the new investments were consistent with the Group's standard
investment approach.
In March 2019, the Group experienced a default on a loan which
was secured against CHP grid entry units. The Investment Manager
has been working to dispose of the asset since default and has been
engaging with a large infrastructure investment bank since October
2020. It is expected that the Company will ultimately recover
slightly more than the written down value with a conclusion
expected on this transaction in the coming weeks. The disposal of
this asset has proved complex with two previous transactions
falling away at the eleventh hour and the sale being delayed by
Covid-19 and the subsequent fall in gas prices. The Board and the
Investment Manager have learnt significant lessons from this loan
which have been included in origination and monitoring
processes.
The Company's focus remains on financing assets and contracted
cash flows supported by a structural demand for the goods and
services provided. The Group invests using a project finance,
'covenant--heavy' approach to debt. The Board believes this method,
along with a stringent borrower selection process, contributes
significantly to the strength of the loan portfolio.
The Board is aware that the attractiveness of investments is
sensitive to interest rate and inflation changes. As a result, the
Group has sought partial inflation and/or interest rate protection
where possible and has achieved this on approximately 45% of
investments by value.
Share price performance and share repurchase
The Company's shares have predominantly traded at a discount to
NAV throughout the year, with an average discount(1) of 9.5%. At 31
December 2020, the ordinary share price was 91.30 pence,
representing a discount(1) to NAV of 10.6%.
During the year the Company repurchased 1,875,000 shares at a
weighted average price of 80.67 pence per share, a significant
discount to the prevailing NAV. The Company will continue to look
to make opportunistic repurchases of shares where the Board
considers there to be a benefit for shareholders.
Dividend policy
The Company paid 6.225 pence in interim dividends and a special
dividend of 0.25 pence, giving a total dividend of 6.475 pence per
share. The Board did not set a dividend target for 2020 due to the
onset of Covid-19. However, the Company met its stated aim to grow
its annual dividend year-on-year with the final interim dividend
increasing to 1.575 pence per share. The total dividend was 96%
covered by EPS of 6.21 pence for the period and 114% covered by an
adjusted EPS(1) of 7.40 pence. In respect of the forthcoming
financial year the Company is targeting an annual dividend of 6.3
pence per ordinary share.(2)
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 AIC Code. Refer below for
further details.
Key risks
Economic, political and regulatory risks are inherent in any UK
focused business at present. At the time of writing, the full
impact of Brexit and the Covid-19 pandemic remain uncertain. Aside
from the macro-economic impact, there is the risk of an increase in
operating costs for certain of the Group's borrowers.
Across the loan portfolio, the Group has exposure to UK house
prices. The Board closely monitors activity in the market and its
current view on the UK property market remains stable, with the
Group's housing investments performing well throughout the year.
The Board believes the fundamentals remain relatively strong and
the continued demand versus supply dynamic provides comfort against
a significant correction of prices. The Group's loan portfolio has
a large degree of inbuilt protection due to being advanced against
an average LTV of c.63%.
The Group has two fully hedged non-Sterling loans, representing
less than 3% of the portfolio by value. Any increased volatility in
currency markets should have a limited impact on the profitability
of the Company.
The Board and the Investment Manager are cognisant of these
risks and continue to carry out stress testing on loans during the
structuring process to ensure they remain viable in a variety of
possible scenarios. To date all expected payments of interest and
principal have been received(3) .
The times we live in remain uncertain and the modelling of
impacts continues to be difficult, with the UK continuing to be in
lockdown; restrictions easing and consumer behaviour are difficult
to predict going forward. Our borrowers and service providers
continue to adhere to Government guidelines and with the continued
rollout of vaccines we remain hopeful that we can move swiftly to a
new normal.
Responsible investment
The Board believes that a commitment to strong principles of
responsible investment should be embedded within and complement all
investment decisions. The Group intends to continue supporting
borrowers who have a positive impact on society.
Fundamentally, the Investment Manager believes that such
positive impact enhances the security of the portfolio.
Outlook
We remain cautious on the macro--economic outlook and this
continues to be reflected in our prudent approach to discount
rates. We do, however, remain positive on the performance of our
loans in the medium term and believe market conditions remain
favourable for the assets we lend against. We will continue the
Company's core investment strategy of lending against assets that
are integral to society and capable of delivering high-quality
risk-adjusted cash flows.
During the year, the Company's overseas exposure rose to 17.2%
of gross assets. The Company currently has an investment
restriction on its maximum exposure outside of the UK of 20% of
gross assets. The Investment Manager is increasingly seeing
potential, attractive lending opportunities in overseas
jurisdictions, primarily in countries, sectors, and with
counterparties, in or with which it has experience of lending. The
Investment Manager and the Company's Broker will be reaching out to
discuss with shareholders whether they would be supportive of
increasing this non-UK limit to 30% at the next AGM.
As a Board we remain confident that we and our borrowers can
continue to adapt and that the Company's investment strategy and
business model remains well placed to continue to deliver for
investors even in these uncertain times.
We would like to thank our investors for their continued
support.
Alex Ohlsson
Chairman
22 March 2021
1. Alternative performance measure - refer below for definitions and calculation methodology.
2. The target dividend set out above is a target only and not a
profit forecast or estimate and there can be no assurance that it
will be met.
3. As previously reported by the Company, the CHP loan remains
in default and as such no payments are expected until the
anticipated sale completes.
For more information, please refer to the strategic report
below.
HIGH-QUALITY ASSETS
The portfolio is secured against high-quality assets with
secure, identifiable valuations, across a range of sectors and
geographies.
Throughout the year a number of mature loans have been repaid
through the sale of the secured assets to institutional investors,
achieving prices in excess of valuation. These transactions
demonstrate the demand for the assets the Company invests in, even
in adverse market conditions.
CARE HOMES
A group of purpose-built care homes offering stylish
accommodation, quality facilities and gold standard care to
vulnerable people.
OAKLEAF RECYCLING
A recycling facility using the latest technology to sort waste
and recycle a variety of usable materials.
OLD OAK CO-LIVING
One of a portfolio of market-leading co--living projects
providing bespoke living, working and leisure facilities to
residents.
SCAPE AUSTRALIA
A portfolio of high-end student accommodation assets across
Australia.
CNG STATIONS
CNG stations powering haulage vehicles with a low-carbon
alternative to diesel fuels to support the transport of essential
goods across the UK.
BATTERY STORAGE
Energy storage projects supporting the growth in renewable
energy sources by providing flexibility to the National Grid.
NURSERIES
A group of new and operational nurseries providing a high
standard of care and education to children across London in
purpose-built facilities.
RESIDENTIAL PROPERTY
Portfolios of property development projects providing
high-quality new homes in areas of undersupply.
STRATEGIC OVERVIEW
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 Group will at all times invest and manage its assets in a
manner which is consistent with the objective of spreading
investment risk.
Investment objective
The Company's investment objective is to generate attractive
risk-adjusted returns through regular, growing distributions and
modest capital appreciation over the long term.
Investment policy
The Company seeks to meet its investment objective through a
diversified portfolio of investments which are secured against, or
comprise, contracted, predictable medium to long-term cash flows
and/or physical assets. 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.
The Company's 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 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 observes 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
used to finance investments 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.
As stated above the Investment Manager and the Company's Broker
will be reaching out to discuss with shareholders whether they
would be supportive of increasing the non-UK limit to 30% at the
next AGM.
Structure of investments
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
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 shareholder agreements or other legal
arrangements.
In the event of a breach of the investment restrictions set out
above, the Investment Manager shall inform the Directors upon
becoming aware of the same and if the Directors consider the breach
to be material, notification will be made to a regulatory
information service.
No material change will be made to the investment policy without
the approval of shareholders by ordinary resolution.
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 these
sectors.
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.
Investments will be denominated primarily in Sterling. However,
the Company may make limited investments denominated in currencies
other than Sterling, including US Dollars, Euros and Australian
Dollars. In the event of the Company making such investments, the
Investment Manager will use its judgement, in light of the
Company's investment policy, in deciding whether or not to effect
any currency hedging in relation to any such investments. In
addition, the Company may do so where the Investment Manager
considers such hedging to be in the interests of efficient
portfolio management and may utilise derivative instruments to seek
to achieve this. The Company will not engage in currency trading
for speculative purposes.
Any use of derivatives for investment purposes will be made on
the basis of the same principles of risk spreading and
diversification that apply to the remainder of the Company's
investment portfolio and will be subject to the investment
restrictions described above.
Dividend policy
The Company pays dividends on a quarterly basis, with dividends
typically declared in January, April, July and October and paid in
or around February, May, August and November in each financial
year.
The Company has authority to offer a scrip dividend alternative
to shareholders. The offer of scrip dividend alternative was
suspended at the Board's discretion, for all 2020 dividends, as a
result of the discount between the likely scrip dividend reference
price and the relevant quarterly NAV per share of the Company. The
Board intends to keep the payment of future scrip dividends under
review.
Conflicts of interest
Where there is any overlap for a potential investment with GCP
Infra, GCP Infra has a right of first refusal over such
investment.
In the event that the Investment Manager or any shareholders,
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. Further details can be
found below.
BUSINESS MODEL
The Group's purpose is to invest in a diversified portfolio of
asset backed loans to provide regular, growing distributions and
modest capital appreciation over the long term.
INVESTMENT INVESTMENT IMPLEMENTATION OF INVESTMENT MEASUREMENT SUSTAINABILITY
SECTOR OBJECTIVES STRATEGY
ASSET BACKED Attractive INDEPENT STRONG GOVERNANCE Annualised Environmental
LOANS risk adjusted BOARD Read more total shareholder and social
Predetermined, returns below return(1) Read how
asset backed To provide since IPO the Company's
cash flows shareholders was 3.8%. activities
with returns -9.8% benefit
that are Total shareholder the environment
attractive return(1) and contribute
with regard for the to society
to the year in the
level of sustainability
risk taken. section
below.
---------------- ------------------ --------------------- ------------------- ------------------
INVESTMENT MANAGER
---------------- ------------------- ------------------
Regular, LOAN ORIGINATION OPERATIONAL The Company Governance
growing AND EXECUTION MANAGEMENT has increased Read how
distributions The Group invests its dividend the Company
To provide in asset backed The operations year-on-year. is governed
shareholders loans utilising of the Company and the
with regular, the Investment are delegated 6.475p activities
growing Manager's expertise to the Investment Dividends of the Board
dividend and a proven Manager and in respect during the
distributions. track record overseen of the year year in
in loan originating by the Board. the governance
and monitoring. The Investment section
The Group is Manager maintains below.
able to provide a robust
bespoke lending control
solutions where environment
traditional and undergoes
lenders cannot an internal
due to reasons controls
other than credit review from
quality. an external
audit provider
on an annual
basis.
---------------- ------------------ ------------------- ------------------
Capital FINANCIAL MANAGEMENT RISK MANAGEMENT The shares Financial
appreciation have traded Read about
To achieve The Company The Company at an average the Company's
modest operates a operates discount(1) financial
appreciation disciplined a robust to NAV throughout performance
in shareholder approach to risk management the year. and dividend
value over capital raising, and mitigation 10.6% cover in
the long only increasing process along Discount(1) the financial
term. its capital with active to ordinary review and
when it has controls share NAV its long-term
a highly executable monitoring at year viability
pipeline of and stress end below.
investments. testing
The Company procedures.
uses hedging The Investment
where appropriate Manager is
to manage foreign appointed
exchange exposure. as AIFM to
the Company
and is
responsible
for the
management
of risk alongside
the Board.
---------------- --------------------- ------------------ ------------------- ------------------
THIRD PARTY ADVISORY
SERVICE PROVIDERS AND
ADMINISTRATION
---------------- --------------------- ------------------ ------------------- ------------------
1. Alternative performance measure - refer below for definitions and calculation methodology.
INVESTMENT MANAGER'S REPORT
The Company's target market remains underserviced by mainstream
lenders and therefore presents an opportunity for generating
attractive risk--adjusted returns.
Asset backed lending
Asset backed lending is an approach to structuring investments
used to fund infrastructure, industrial or commercial projects and
asset financing. Asset backed lending relies on the following to
create security against which investment can be provided:
- the intrinsic value of physical assets; and/or
- the value of long-term, contracted cash flows generated from
the sale of goods and/or services produced by an asset.
Asset backed lending is typically provided to a Project Company,
a corporate entity established with the specific purpose of owning,
developing and operating an asset. Financing is provided to the
Project Company with recourse solely to the shares held in, and
assets held by, that Project Company.
Cash generation to service loans and other financing relies on
the monetisation of the goods and/or services that a Project
Company's assets provide. Lenders implement a security structure
that allows them to take control of the Project Company and its
assets to optimise the monetisation of goods and/or services
associated with such assets if the Project Company has difficulties
complying with its financing terms.
The Investment Manager uses a 'covenant heavy' approach to
lending within these structures. This is an approach which tailors
loans to each borrower and requires the borrowers to meet well
defined and specific performance measurements or covenants. The
Investment Manager continues to see significant benefits in this
lending approach with extensive information reporting requirements
providing visibility of potential issues.
Maturing portfolio
Entering into the sixth year since inception, the Group is
starting to see material levels of loan repayment as loans reach
maturity and are repaid to the Company. Throughout the year
GBP131.0 million of capital was repaid to the Group, significantly
more than all previous years combined.
The number of repayments made by borrowers throughout 2020 is
particularly noteworthy given the economic and societal impact of
Covid-19 felt through the year. The ability for borrowers to adapt
their businesses to continue operations and meet principal and
interest payments as well as the continued interest of
institutional investors in the assets of the portfolio,
demonstrates the quality of the loan book and the projects that the
Company supports.
The table below shows a selection of repayments received to
settle loans in full during the year and their respective reasons
for repayment. As can be seen, these include refinancing by
supportive equity, new finance or through excess cash flow built
from operations. These exit routes demonstrate the institutional
quality of the underlying assets.
In addition to providing capital to fund new investments, many
of these repayments attracted prepayment fees, with GBP1.8 million
generated during the year.
The Investment Manager looks to include non-call periods and
repayment fees in new investments with longer dated loans to
maintain good visibility of returning capital and ensure efficient
redeployment. The Investment Manager was effectively able to
redeploy the proceeds in the period, through strong pipeline
management in addition to the use of the RCF. We are expecting
significant repayments during the course of the coming year and the
RCF has already been drawn down in anticipation of these cash
inflows.
FULL REPAYMENTS DURING THE YEAR (SAMPLE)
Sector Amount Interest IRR(1) Origination date Type of Reason
repaid rate loan
-------------------------- ---------- --------- ------- ----------------- ------------- ------------------------
Term - Underlying asset sold
Social infrastructure GBP21.1m 9.5% 10.0% August 2016 mezzanine to a pension fund
Development Underlying asset sold
Social infrastructure GBP21.8m 9.5% 10.0% November 2018 - mezzanine to a pension fund
Energy and infrastructure GBP7.6m 7.5% 8.7% March 2018 Development Underlying asset sold
- senior to an infrastructure
fund
Energy and infrastructure GBP5.4m 7.5% 8.4% July 2018 Term - Underlying asset sold
senior to an infrastructure
fund
Energy and infrastructure GBP0.7m 8.0% 9.0% November 2017 Term - Underlying asset sold
senior to infrastructure
operator
Term - Repaid using available
Asset finance GBP1.5m 10.8% 14.4% September 2020 senior cash flows
Development Refinanced by project
Property GBP3.3m 8.1% 8.1% March 2019 - senior co-lender
-------------------------- ---------- --------- ------- ----------------- ------------- ------------------------
Total/weighted average GBP61.4m 9.0% 9.7%
-------------------------- ---------- --------- ------- ----------------- ------------- ------------------------
1. Alternative performance measure - refer below for definitions and calculation methodology.
Quality portfolio
As outlined above, the exit routes of loans maturing through the
year demonstrate the institutional quality of assets which the
Company is invested in.
Further examples of the type of high-quality assets can be found
across the portfolio, including:
- four high-end purpose-built care homes;
- two operational co-living developments with c.1,300 residential units;
- two CNG stations;
- a group of six high-quality children's nurseries; and
- four purpose-built student accommodation projects with units for c.4,000 students.
The Investment Manager anticipates c.GBP70 million will be
received in repayments throughout 2021 as assets mature and reach
scheduled repayment, with a number of further assets in active
discussion with new equity investors. In all instances, the
Investment Manager works to build and maintain strong relationships
with the Company's borrowers. This is evident in the number of
follow-on transactions completed with existing counterparties and
in the investment pipeline. This includes one completed transaction
with the sponsor of an asset listed in the table below, redeploying
funds into a new project within the same three month period as the
repayment.
Active management
In addition to the project-finance approach taken to
origination, the Investment Manager works to be an active asset
manager. This has been particularly valuable for the Group's
borrowers throughout the period who are facing unique challenges
brought on by rapidly evolving regulatory change resulting from
Brexit and Covid-19.
One of the key considerations during the due diligence process
on new investments is the quality of the borrower's management
team. The Investment Manager looks to invest in experienced and
knowledgeable management teams to ensure that when challenges
arise, the borrower company has the resources and know-how to
manage their business effectively.
Through active management and co-operation with borrowers, the
Investment Manager is able to build strong relationships, ensuring
information is shared early to flag any potential issues and
involving the Company in any key decisions impacting on the loan
portfolio. This relationship building has proven invaluable in
understanding the challenges presented by Covid-19 throughout 2020
and has contributed to the strong performance of the portfolio over
the year.
Investment pipeline
The Investment Manager notes the current economic climate with
regard to Covid-19 and the impact that this has had on the market.
Therefore, following discussion with the Board, the Investment
Manager's primary focus at this time is the redeployment of
returning capital through an active pipeline of transactions
available to complete.
The Investment Manager maintains an attractive pipeline of
potential investments on behalf of the Group. At the year end, the
pipeline represented c.GBP41 million of new opportunities. Since
the year end, c.GBP13 million has been successfully transacted with
borrowers.
The Group has surplus cash reserves in addition to access to its
RCF, which expires in August 2021. The Investment Manager has
approached RBSI regarding an extension and the initial feedback was
positive. The Company will provide an update on progress later in
the year, however in the meantime the Group remains well
capitalised and has the capacity to fund the current pipeline of
transactions as well as cover operating expenses out of existing
cash flows.
The Investment Manager continues to focus on borrowers and
sectors where there is potential to complete follow-on
transactions. This enables the Investment Manager to obtain
significant sector knowledge and confidence over the certainty of
the investment pipeline, ensuring new capital raised and capital
returned to the Company is deployed efficiently.
Currently c.95% of the pipeline consists of transactions with
existing borrowers; these transactions can be scheduled to complete
on a timetable which matches the repayment profile of existing
loans.
Investment analysis
Investments made in the year
Existing borrowers 50%
New borrowers 50%
Pipeline
Existing borrowers 95%
New borrowers 5%
TARGET SECTOR UPDATES
SOCIAL INFRASTRUCTURE
Assets such as homes for the elderly, student accommodation and
nurseries.
33%
Percentage of portfolio by value
GBP146.5m
Valuation of sector within the portfolio
This sector provides a core element of the Group's investments.
Social infrastructure as a sector is long--term in nature and
requires significant amounts of upfront due diligence to determine
the quality and long-term structural demand position for the
asset.
Due diligence includes analysis of existing market participants,
the potential future competitive landscape, demand demographics,
affordability and legislative impact. The Investment Manager is
targeting areas where demand for an asset is:
- not supported by existing infrastructure; and
- where structural issues exist that present barriers to entry for future competitors.
Assets in this sector have, by their nature, been impacted by
the Covid-19 pandemic and associated restrictions throughout the
year.
However, the management teams in place have been able to act
decisively and manage their businesses effectively despite the
challenging environment.
The Group has continued to support a group of care homes caring
for vulnerable people with dedicated staff working to minimise risk
of Covid-19 infection. The assets have proven resilient, with the
high--quality purpose-built accommodation designed with en-suite
bathrooms and separated wings allowing for isolation to manage and
reduce infection. With the introduction of vaccines to the
vulnerable population in early 2021, it is hoped that the occupancy
of the projects will continue to increase and operations return to
normal.
Two of the Group's student accommodation assets in this sector
repaid in full in 2020, providing an IRR(1) of 10.0%. In addition,
the Company's portfolio de--risked through completing construction
of three student assets.
The Investment Manager continues to look at opportunities for
development in this sector. As the Company typically supports the
construction phase of the projects, LTV coverage on these assets
remains strong as they benefit from a valuation uplift on
completion.
The nursery assets have also proven resilient with the
borrower's management team supporting children of key workers
through each lockdown and are continuing to provide services as the
sites remain open. All of the projects in the portfolio are now
operational and maintain good levels of attendance. The Investment
Manager sees further opportunities in the nursery sector with the
development assets in the portfolio entering their operational
phase and experiencing high demand for places.
This sector includes loans secured against assets located in the
UK (23%), Europe (5%), Australia (4%) and the US (1%).
Structural characteristics
- Provide core services
- Generate stable cash flows
- Require longer-term funding solutions
- Can benefit from RPI protections
- Benefit from supply/demand imbalances in particular geographies
Current investments
- Supported living
- Care homes
- Student accommodation
- Nursery facilities
- Multi-use community facilities
New investment asset classes
- Private schools
1. Alternative performance measure - refer below for definitions and calculation methodology.
ENERGY AND INFRASTRUCTURE
Assets such as waste management facilities, battery storage and
CNG stations.
8%
Percentage of portfolio by value
GBP37.2m
Valuation of sector within the portfolio
The Investment Manager targets assets in this sector which meet
a structural need in society, providing downside protection and
supporting a sustainable future. Financing for core energy and
infrastructure assets remains competitive. However, there are
opportunities for smaller, bespoke investments in this space.
The Investment Manager is pleased to have supported an
additional CNG fuel station during the year. The station will
provide further capacity for CNG and dual--fuel haulage vehicles
for major UK businesses and hauliers. The switch to low carbon fuel
forms part of the UK Government's strategy to target net zero
carbon emissions by 2050.
The first station supported by the Group has displaced 4.5
million litres of diesel fuel over the last year with 100%
renewable waste-derived biomethane. Biomethane emits c.80% less
CO(2) than diesel, meaning the trucks contribute significantly to
lowering CO(2) emissions.
The recycling facility financed by the Group has been well
managed through the impact of Covid-19. The plant experienced a
change in waste material at the start of the first lockdown as
commercial waste reduced and domestic waste increased. It was also
required to manage its offtake arrangements by increasing storage
capacity to ensure efficient operations of the plant.
The Investment Manager is looking to identify new asset classes
in this sector where the Company can provide support.
This sector includes loans secured against assets in the UK (7%)
and Hong Kong (1%).
Structural characteristics
- Provide core services
- Generate stable cash flows
- Rapidly changing energy system drives need for ancillary investment
- Capital intensive sector
Current investments
- Solar O&M
- Water infrastructure
- Battery storage
- Material recovery facility
- CNG fuel stations
New investment asset classes
- Electric vehicle infrastructure
ASSET FINANCE
Assets such as solar panel O&M servicing, FX contracts and
football finance.
10%
Percentage of portfolio by value
GBP45.5m
Valuation of sector within the portfolio
Asset finance has seen a number of new investments through the
year, including football finance which represents a new asset class
for the Group.
During the year, the Group advanced two loans, one to a Spanish
football club competing in La Liga, and one to a Premier League
football club in the UK. In both instances, the loans were secured
against contractual income due to the clubs, under league
broadcasting contracts which is paid directly to the lender.
The structuring of the loans allows for acceleration under a
relegation of the clubs to match cash flows received by the
borrowers in each scenario and provide debt coverage. The
Investment Manager continues to see opportunities in this sector
which meet the risk and return requirements of the Company whilst
having strong contractual protections in place.
Elsewhere in the portfolio, the Group's investments in rooftop
solar panel O&M servicing, FX contracts and boiler servicing
continue to perform well, with borrower companies adapting their
operations to manage the Covid-19 risk in their business whilst
maintaining a good service to their clients.
This sector includes loans secured against assets located in the
UK (7%) and Europe (3%).
Structural characteristics
- Physical assets
- Stable cash flows from fixed contracts
- RPI/CPI linkage
Current investments
- Boiler servicing
- Management fees
- Credit margins against trades
- Football finance
New investment asset classes
- Royalty finance
PROPERTY
Assets such as financing for property purchases or development
and co-living spaces.
49%
Percentage of portfolio by value
GBP215.0m
Valuation of sector within the portfolio
The Investment Manager seeks to provide bespoke financing
solutions to support underserved areas of the property market.
The Group has invested into a buy-to-let warehousing facility.
The facility operates by building up over a six month period until
it has the scale to be securitised. Three securitisations have now
completed, including one in March 2020 and one in September 2020.
The security and quality rating of the of the portfolio was high,
with 85% rated AAA in the most recent securitisation. Once
securitisation is completed, the Group's financing is reinvested
into the warehousing facility as it builds up again to
securitisation, providing an attractive 7.8% return against a
high-quality loan book with an exit into regular
securitisations.
In February 2020, the Group refinanced a GBP39.6 million
investment to a group developing and operating market-leading
co-living accommodation, alongside another lender. Following a
strong start to the year, the co-living sector has been impacted by
the restrictions on travel, particularly across the short-stay
market. However, the borrower has consistently improved occupancy
at their co-living projects throughout the year and sold one
project to a co-living fund backed by institutional capital,
demonstrating the particular value of these assets in the
market.
Elsewhere in the portfolio, the Group has made further
investments in residential development projects to experienced
developers, supporting the supply of new homes across the UK.
Despite a backdrop of uncertainty in the market, it has been
pleasing to note that requests for payment deferrals or holidays
have been minimal and there has been no impact on any borrower's
ability to meet expected debt and interest payments to the
Company.
The Investment Manager has strong relationships with brokers,
developers and specialist lenders in the sector. We anticipate
further follow-on transactions in this space over the coming year
as our existing loans repay.
This sector includes loans secured against assets based in the
UK (45%), Europe (2%) and the US (2%).
Structural characteristics
- Secured against physical assets
- Generate stable cash flows
- Short-term financing
- Well understood and valued sector
Current investments
- Bridging loans
- Buy-to-let
- Co-living
- Land
- Warehousing of buy-to-let
New investment asset classes
- Social housing
PORTFOLIO SUMMARY
Portfolio
The Group's investments are supported by a diverse range of
assets located predominantly in the UK. At 31 December 2020, the
weighted average annualised yield(1) was 8.0% across the portfolio
with a weighted average expected term of six years (31 December
2019: 8.2% and six years respectively). In total, 42 loans have
been advanced to companies with operating assets. The remaining
eight loans have been advanced to companies with assets under
construction (31 December 2019: 38 operating and seven construction
loans respectively).
Investment valuation
The Valuation Agent carries out a fair market valuation of all
the Group's investments on behalf of the Board on a semi-annual
basis. Any assets which may be subject to discount rate changes are
valued 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 Group is calculated by
applying a discount rate (determined by the Valuation Agent) to the
cash flow expected to arise from each asset. Further detail on the
valuation methodology is given in note 17.
The weighted average discount rate(1) across the portfolio at 31
December 2020 was 8.5% (31 December 2019: 8.1%). The valuation of
investments is sensitive to changes in discount rates applied.
There were a number of investments subject to discount rate changes
during the year; these were made to reflect the uncertainties
associated with the Covid-19 pandemic, see below for further
information. Sensitivity analysis detailing the impact of a change
in discount rates is given in note 17.
Portfolio by sector type
Property 49%
Social infrastructure 33%
Asset finance 10%
Energy and infrastructure 8%
Portfolio by security ranking
Senior 71%
Mezzanine 29%
Portfolio by term profile
<5 yrs 71%
5-10 yrs 8%
>10 yrs 21%
Portfolio by interest rate profile
<7% 17%
7-8% 46%
>8% 37%
Portfolio by location
UK 82%
Europe 10%
Rest of World 8%
1. Alternative performance measure - refer below for definitions and calculation methodology.
INVESTMENT PORTFOLIO
TOP TEN INVESTMENTS BY VALUE
Key
1. Sector type
2. % of portfolio by value
3. Asset class
4. Multi/single asset exposure
Development Fin Co 6
1. Property
2. 9.2%
3. Residential property
4. Multi asset
Co-living Co 3
1. Property
2. 7.2%
3. Co-living
4. Multi asset
Student Accom 3
1. Social infrastructure
2. 5.4%
3. Student accommodation
4. Single asset
Bridging Co 1
1. Property
2. 4.9%
3. Residential property
4. Multi asset
Bridging Co 2
1. Property
2. 4.8%
3. Residential property
4. Multi asset
Student Accom 2
1. Social infrastructure
2. 4.6%
3. Student accommodation
4. Single asset
Property Co 2
1. Social infrastructure
2. 3.9%
3. Social housing
4. Multi asset
Waste Infra. Co
1. Energy and infrastructure
2. 3.6%
3. Material recovery facility
4. Single asset
Contract Income 3
1. Asset finance
2. 3.4%
3. Contract income
4. Single asset
Property Co 7
1. Property
2. 3.3%
3. Residential property
4. Multi asset
Further information on the Group's portfolio can be found on the
Company's website.
Portfolio performance
All investments are closely monitored by the Investment Manager
against strict reporting and information requirements as set out in
the loan documentation.
During the year, the Group experienced a high level of
investment activity despite the ongoing Covid-19 pandemic,
including GBP131.0 million of principal repayments offset by
GBP126.8 million of investments. The return of these principal
repayments is indicative of a high-quality loan book able to meet
scheduled repayments as the loans reach maturity. The Investment
Manager is pleased to confirm that the Group's portfolio performed
particularly well during a volatile year.
The operational performance of the assets has been in line with,
or better than, the Investment Manager's expectations. Interest and
principal payments have been received from the underlying
investments in accordance with expectations(1) . The dividend
continues to be fully covered on an adjusted EPS(2) basis and the
regular repayment of loans indicates a robust secondary market for
the Group's underlying investments. Moreover, two of the Group's
student accommodation investments were sold during the year to a
large pension fund, signalling strong institutional demand for this
asset class.
Many of the asset valuations have recovered to pre-Covid-19
levels on the back of strong operating performance throughout a
year of severely reduced economic activity. The weighted-average
discount rate(2) as at the end of the financial year was 8.5%. This
discount rate reflects a number of market adjustments made as a
result of Covid-19.
Property represented the largest sector at year end with c.34%
of the portfolio comprising residential and co-living investments.
The low average LTV of c.64% against the property assets continues
to provide significant security against market downturns and
financial covenants across the residential and commercial property
assets have largely remained robust.
The Investment Manager has been particularly pleased with the
performance of the assets in the social infrastructure sector,
despite a challenging year. Social infrastructure comprised 33% of
the portfolio at year end. The Group's social infrastructure assets
are led by experienced management teams who prudently manage their
businesses and acted decisively to preserve cash flows and manage
occupancy/attendance levels to support debt service during the
pandemic.
The portfolio also includes three assets which are currently of
principal focus to the Investment Manager: two loans to separate
multi-use community facilities and the CHP loan which defaulted in
the prior year(1) .
The multi-use community facilities host food outlets, community
spaces, artist studios, bars, and event and co-working areas. The
Investment Manager is working closely with these borrowers as they
prepare to relaunch in the spring in the hope that the Government's
road map out of lockdown restrictions will remain as currently
planned. The facilities represent a combined 1.2% of the portfolio
by value.
The Investment Manager has been working to dispose of the CHP
asset since default and has been engaging with a large
infrastructure investment bank since October 2020. It is expected
that the Company will ultimately recover slightly more than the
written down value with a conclusion expected on this transaction
in the coming weeks.
Notwithstanding the focus loans mentioned above, the portfolio
remained highly cash-generative during the year despite eight
investments, or 12.0% of the portfolio, being development loans at
year end, the majority of which are capitalising interest. The
total dividend was 96% covered by EPS of 6.21 pence and 114%
covered by an adjusted EPS(2) of 7.40 pence.
Assets under construction are proceeding materially on time and
budget, with a number of investments completing construction in the
first half of the year. One of the Group's larger student
development loans funding the construction of two sites is expected
to achieve practical completion in the first half of 2021, ahead of
schedule. This will reduce the Group's overall construction
exposure by approximately 4.6% and significantly de-risk the
portfolio.
The bridging and development finance 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 to long term.
1. As previously reported by the Company, the CHP loan remains
in default and as such no payments are expected until the
anticipated sale completes.
2. Alternative performance measure - refer below for definitions and calculation methodology.
Covid-19 impact
Whilst the categories of principal risks and uncertainties of
the Company have not changed, similar to many businesses, the risk
profile and the residual risk profile of the Company continues to
be impacted by the Covid-19 pandemic.
The Board, on advice from its Valuation Agent and Investment
Manager, has sought to quantify this increase in risk in the year
by increasing the discount rate of a number of the loans in the
portfolio. When assessing changes to discount rates, the Board, on
advice from its Valuation Agent and Investment Manager, takes
account of the movements in pricing of risk across the market as a
whole, such as those caused by the uncertainties associated with
the Covid-19 pandemic.
It also considers an asset specific approach to the assessment
of residual risk which takes into account a number of other
variables that can impact the discount rate, such as:
- the underlying loan structure (senior or mezzanine);
- the operational stage (construction or operational);
- risk rating factors, such as each project's revenue and cost
drivers which could impact the debt service loan cover ratios;
and
- the value of the underlying security structure.
The Investment Manager has continued to monitor the portfolio by
classifying investments depending on the impact of Covid-19 on the
investments. The table below sets out a summary of the risk rating
factors and discount rate movements for each asset class at 31
December 2020 experiencing a 'high', 'medium' or 'low' impact.
Since the publication of the Company's half--yearly report, the
percentage of the portfolio at 31 December 2020 that experienced a
'medium' impact from the Covid-19 pandemic decreased from 60.1% to
39.1% primarily due to the reclassification of the care homes, some
student accommodation and boiler investments as 'low' and the
refinancing of a number of assets previously held as medium risk.
The ongoing impact of the pandemic and any enforced restrictions on
each asset class continues to be monitored closely.
It should be noted that whilst this prudent approach to value
adjustment (through the increasing of discount rates) has been
taken in respect of the portfolio, the principal amount of debt
owed by the underlying borrowers has not changed.
In the event of non-payment of interest by a borrower,
outstanding amounts would be added to the principal owed and
therefore become recoverable in final repayments or against any
enforcement proceeds, taking into account the value of the
underlying security structure for each loan.
Changes to discount rates result in a revaluation of
investments, which is reflected through fair value movements in the
statement of comprehensive income. The impact of discount rate
changes on the portfolio and their impact on dividend cover
ratio(1) is explained further in the financial review below.
The discount rate adjustments set out below had a negative
impact of 1.19 pence per share on the earnings and NAV of the
Company.
CHANGES TO DISCOUNT RATES DURING THE YEAR
Covid-19 impact on Impacted asset 31 December 2020 Average % discount
borrower % of portfolio class GBP'000 Risk rating factors rate change
--------------------- -------------- ------------------- ---------------- ------------------- -------------------
Gas prices and
impact on asset
High 8.8% CHP 1,900 sale 51.0%
Occupancy levels
Co-living 32,064 and LTV 1.5%
Multi-use community Regulatory risk and
facility 5,157 occupancy 8.8%
--------------------- -------------- ------------------- ---------------- ------------------- -------------------
Total 39,121
--------------------- -------------- ------------------- ---------------- ------------------- -------------------
Medium 39.1% Student Occupancy,
accommodation operating costs and
construction
25,909 timetables 1.0%
Residential Default rates and
property 129,435 LTV 0.3%
Occupancy and
Nurseries 9,650 operating costs 0.4%
Buy-to-let Underlying default
mortgages 8,729 risk 0.3%
--------------------- -------------- ------------------- ---------------- ------------------- -------------------
Total 173,723
--------------------- -------------- ------------------- ---------------- ------------------- -------------------
Various asset
Low 52.1% classes 231,391 Multiple factors (0.1)%
--------------------- -------------- ------------------- ---------------- ------------------- -------------------
Total 231,391
--------------------- -------------- ------------------- ---------------- ------------------- -------------------
Valuation of
portfolio 444,235
--------------------- -------------- ------------------- ---------------- ------------------- -------------------
1. Alternative performance measure - refer below for definitions and calculation methodology.
Key investment highlights
The Group made 28 advances during the year totalling GBP126.8
million, comprising 16 new loans and twelve extensions to existing
facilities. From these advances, two were in the energy and
infrastructure sector; three in asset finance; eight in property;
and three in social infrastructure projects. The Group received
capital repayments of GBP131.0 million, along with prepayment fees
of GBP1.8 million. Post year end, the Group made a further six
advances totalling GBP14.5 million and received six repayments
totalling GBP1.0 million.
Investments made during the year(1)
SECTOR AVERAGE TERM SECURITY STATUS INVESTMENTS REPAYMENTS
----------------------- ------------ ------------------- ------------------------ ---------------- --------------
Asset finance 7 years Senior Operational GBP25.5 million GBP5.4 million
Energy and GBP15.9
infrastructure 6 years Senior Operational/construction GBP5.0 million million
GBP61.6
Property(2) 2 years Senior/subordinated Operational/construction GBP73.5 million million
GBP48.1
Social infrastructure 9 years Senior/subordinated Operational/construction GBP22.8 million million
----------------------- ------------ ------------------- ------------------------ ---------------- --------------
GBP131.0
Total GBP126.8 million million
----------------------- ------------ ------------------- ------------------------ ---------------- --------------
Investments made post year end(1)
SECTOR AVERAGE TERM SECURITY STATUS INVESTMENTS REPAYMENTS
--------------------- ------------ ------------ ----------- --------------- --------------
Asset finance 2 years Senior Operational GBP6.8 million -
Social infrastructure 7 years Senior Operational GBP6.3 million -
Property(2) 1 year Subordinated Operational GBP1.4 million GBP1.0 million
--------------------- ------------ ------------ ----------- --------------- --------------
Total GBP14.5 million GBP1.0 million
--------------------- ------------ ------------ ----------- --------------- --------------
Investment commitments at the date of the report(1)
SECTOR AVERAGE TERM SECURITY STATUS AMOUNT
------------------------- ------------ -------- ------------ --------------
Energy and infrastructure 3 years Senior Construction GBP4.6 million
------------------------- ------------ -------- ------------ --------------
Total GBP4.6 million
------------------------- ------------ -------- ------------ --------------
1. The Company makes its investments through its wholly owned
Subsidiary. Refer to note 1 for further information.
2. Includes projects that were subject to review by the Board
under the Company's investment approval process, refer below.
FEATURED ASSETS
BATTERY STORAGE
The Group has supported two companies in the development and
operation of battery storage facilities across the UK.
The asset
Battery storage projects are infrastructure assets supporting
the growth of renewable energy facilities in the UK. The assets
comprise large units connected to the electricity grid and
containing battery units which charge from the grid, store
electricity and release stored energy back into the grid as
required.
The Group financed two borrowers in developing a total capacity
of 30MW across three projects. All three projects have Firm
Frequency Response and Capacity Market contracts for the assets
which provide a baseline of contracted revenue for activities of
the batteries during operation. The contracted cash flows and asset
protection from the grid-connected projects provide downside
protection against the debt investment in these projects.
The projects were able to secure additional revenue through:
- exporting power or avoiding charging during three most
demanding half-hour periods over the winter period (known as
'Triads');
- providing balancing services to the National Grid; and
- trading on the intra-day and day-ahead electricity markets to
achieve the best price differential between charging and
discharging.
Since the Company's first investment in these projects in 2017,
the market has evolved substantially with more understanding around
the technology and optimisation strategies of the batteries.
Utility companies and institutional investors are recognising the
value in these projects with two projects entering into asset
management contracts with contractually guaranteed floor prices
(minimum prices) from a strong, creditworthy counterparty.
Demonstrating the strength of these assets, two of the original
projects have now repaid their debt in full (incurring prepayment
fees) and providing an 8.6% total return to the Company, following
a sale to an infrastructure fund.
CARE HOMES
In 2016 and 2017, the Group financed the development of four
high-quality care homes in the UK all owned and operated by a
single operator.
The assets
In April 2016, the Investment Manager was approached by the
business owners who required funding to build the first of six new
care homes that would provide purpose-built, high-end facilities.
The operating company is comprised of individuals who have a long
track record of successfully funding and building quality care
homes and have generated excellent returns for shareholders since
first investing in this sector in 1998.
The market for high-end care homes is growing alongside the UK's
ageing population. With the consistent increases in life
expectancy, existing services have become strained due to chronic
underfunding and lack of land availability which have both
contributed to supply bottlenecks.
The management team have been able to secure sites across the UK
from a number of sellers including a local authority whose own
budget was too constrained to finance additional facilities.
The care home sector has had a challenging year. The dedicated
staff of the care homes supported by the Group have worked
tirelessly throughout the year to minimise the risk of infection
and provide a safe, comfortable home for their vulnerable
residents. With the prioritisation of care home staff and residents
in the vaccine roll-out, there is cause for cautious optimism for
re-opening of the homes to visitors and a relaxation of
restrictions.
Looking to the future, the Investment Manager is comforted by
the strength of the management team, the favourable supply and
demand dynamics, as well as the resilient market valuations
underpinning the Group's security pool. The Investment Manager is
actively looking at new transactions in this sector with the same
management team.
On a loan-to-value basis the loans remain well secured, with an
average LTV of less than 60%.
FINANCIAL REVIEW OF THE YEAR
The Company has generated total income of GBP33.9 million and
paid dividends of 6.475 pence per share. The total shareholder
return(1) for the year was -9.8% and total NAV return(1) was
6.5%.
Financial performance
In the year to 31 December 2020, the Company's portfolio
generated interest payments of GBP35.5 million and fee income of
GBP2.6 million (including prepayment fees of GBP1.8 million in
respect of loans prepaid in the year). This was offset by net
unrealised valuation losses of GBP5.2 million in respect of
discount rate adjustments to the market value of loans as a result
of Covid-19. Further
information is given in note 3.
The Company incurred total expenses of GBP5.8 million (31
December 2019: GBP5.0 million) which include the Investment
Manager's fee and other third party service provider costs. Further
information is given in notes 4 and 18.
Finance costs have remained broadly static for the year with the
Company utilising its RCF throughout the year. At the year end
GBP5.0 million was drawn (31 December 2019: GBP9.5 million).
Further information on the RCF is given in note 14.
Total profit and comprehensive income for the year was GBP27.4
million (31 December 2019: GBP28.0 million).
Dividends
The Company paid 6.225 pence per share in interim dividends and
a special dividend of 0.25 pence, giving a total dividend of 6.475
pence. The Board did not set a dividend target for 2020 due to the
onset of Covid-19. However, the Company met its stated aim to grow
its annual dividend year-on-year with the final interim dividend
increasing to 1.575 pence per share. The total dividend was 96%
covered by EPS of 6.21 pence for the period and 114% covered by an
adjusted EPS(1) of 7.40 pence. In respect of the forthcoming
financial year, the Company is targeting an annual dividend of 6.3
pence per ordinary share.(2)
Earnings
The Company generated EPS of 6.21 pence, which includes an
adjustment to discount rates of 1.19 pence per share to reflect the
market uncertainties associated with the Covid-19 pandemic, as
detailed above. EPS excluding these discount rate adjustments
(adjusted EPS(1) ) for the period was 7.40 pence per share, which
more than fully covered the dividend for the period of 6.475 pence
per share.
Adjustments to discount rates result in the revaluation of
investments, which are reflected through fair value movements in
the statement of comprehensive income, in accordance with IFRS.
Where discount rate adjustments result in a downward
revaluation, as the loans approach their maturity dates, income
recognised in future years will be higher than the interest accrued
on the loan due to a phenomenon known as 'pull--to--par' where
loans converge on their par value at maturity (see below). This
phenomenon leads to an increase in the Company's dividend cover
ratio(1) on an earnings basis (under IFRS) which the Investment
Manager estimates to be c.GBP0.8 million per annum over the coming
years. The opposite effect is noted on any loans which have been
revalued upwards. The Board and the Investment Manager consider
these pull-to-par movements when setting dividend targets and
declaring dividends.
Pull-to-par
The valuation principles used by the Valuation Agent are based
on a discounted cash flow methodology calculated by applying a
relevant discount rate to the contractual cash flows expected to
arise from each asset.
At acquisition, the value of an investment will be equal to its
nominal par value, expressing the fact that it has been priced in
accordance with prevailing market conditions with a relevant
discount rate.
As time progresses and market conditions change - and with that
discount rates - the valuation will also change, meaning it will no
longer be equal to the nominal par value.
At maturity of the loan, the calculated valuation will converge
on the nominal par value, reflecting the fact that the borrower's
loan is repayable at par despite the discount rate.
1. Alternative performance measure - refer below for definitions and calculation methodology.
2. The target dividend set out above is a target only and not a
profit forecast or estimate and there can be no assurance that it
will be met
Ongoing charges
The Company's ongoing charges percentage(1) , calculated in
accordance with the AIC methodology, was 1.2% (31 December 2019:
1.2%) for the year to 31 December 2020.
31 December 31 December
2020 2019
Ongoing charges GBP'000 GBP'000
------------------------ ----------- -----------
Investment Manager 3,917 3,740
Directors' fees(2) 201 136
Administration expenses 1,635 1,173
------------------------ ----------- -----------
Total expenses 5,753 5,049
Non-recurring expenses (470) (23)
------------------------ ----------- -----------
Total 5,283 5,026
Average NAV(3) 445,830 435,594
Ongoing charges ratio 1.18 1.15
------------------------ ----------- -----------
NAV and share price performance
Net assets attributable to equity holders at 31 December 2020
were GBP449.8 million, down from GBP451.8 million at 31 December
2019. The Company's NAV per ordinary share has decreased from
102.33 pence at 31 December 2019 to 102.18 pence per ordinary share
at 31 December 2020. Refer to the chart below for further
analysis.
The Company's share price has predominantly traded at an average
premium(1) to NAV since IPO of the Company in 2015, with an average
premium(1) of 2.5% over this period. The Covid-19 pandemic has
negatively impacted the Company's share price this financial year
with the shares trading at an average discount(1) of 9.5%.
Share repurchases
The Company commenced a share buyback scheme during the year.
The Company's share price discount to NAV offered value to
shareholders. A total of 1,875,000 shares at a weighted average
price of 80.67 pence per share were repurchased during the year. At
31 December 2020, there were 442,033,518 ordinary shares in issue,
of which 1,875,000 were held in treasury.
Post year end, the Company repurchased an additional 325,000
ordinary shares at a weighted average price of 90.22 pence per
share, all of which are held in treasury.
1. Alternative performance measure - refer below for definitions and calculation methodology.
2. The costs for the current year include four Directors compared to three in the prior year.
3. Based on average NAV for the twelve month period to 31 December 2020.
Conflicts of interest
During the year, the Group committed to an investment of up to
GBP11.6 million to finance the development of co-living
accommodation in Boston, USA, of which GBP9.8 million was drawn.
The Company also committed to finance up to GBP8.1 million for the
development of student accommodation in London, UK, of which GBP6.7
million was drawn. The Company has continued to finance existing
construction projects of a number of private student accommodation
developments in Australia, USA and the UK.
During the year two conflicted investments to finance student
accommodation projects repaid in full, returning GBP42.9 million of
capital to the Company and generating an IRR(1) on investment of
10%.
The directors and/or shareholders of the Investment Manager
directly or indirectly own an equity interest in these development
projects. In accordance with the Company's investment approval
process, these investments were reviewed and approved by the
Board.
Where there is any overlap for a potential investment with GCP
Infra, a third party company advised by the Investment Manager, GCP
Infra has a right of first refusal over such investment. GCP Infra
has not exercised this right of first refusal since the Company's
IPO.
Cash position
The Company received interest payments of GBP35.5 million and
capital repayments of GBP130.6 million from its Subsidiary in the
year. The Company paid dividends of GBP27.9 million (excluding
dividends settled in shares(2) ) during the year and a further
GBP6.9 million post year end. The Company advanced GBP126.5 million
to the Subsidiary to make investments in accordance with the
Group's investment policy. Post year end, the Group has made a
further six advances totalling GBP14.5 million and received six
repayments totalling GBP1.0 million. At the date of the report,
investment commitments were GBP4.6 million. Total cash reserves at
the year end were GBP10.0 million.
1. Alternative performance measure - refer below for definitions and calculation methodology.
2. Dividends settled in shares are where shareholders have
elected to take the scrip dividend alternative.
STAKEHOLDERS
Stakeholders
The Company engages with its stakeholders in different ways.
This section outlines the key stakeholder groups, the importance of
engagement and how the Company and the Board interacts.
The Board values the importance of maintaining a high standard
of business conduct and stakeholder engagement and ensuring a
positive impact on the environment in which the Group operates.
Stakeholders in this section have been grouped into six key
categories with an overview of why and how the Company engages
including, where relevant, key Board decisions made which impacted
these groups and the ways in which the Board considered their
interests. All Board discussions involve careful consideration of
the longer-term consequences of any decisions and their
implications for stakeholders.
Section 172:
PROMOTING THE SUCCESS OF THE COMPANY
As a member of the AIC, the Company reports against the AIC Code
on a comply or explain basis. Whilst the Company is not domiciled
in the UK, by reporting against the AIC Code, the Company
voluntarily meets any obligations in relation to the 2018 UK
Corporate Governance Code and specifically section 172 of the
Companies Act 2006.
The Board of Directors consider, both individually and together,
that they have acted in the way they consider, in good faith, would
be most likely to promote the success of the Company for the
benefit of its members as a whole (having regard to the
stakeholders and matters set out in section 172 of the Companies
Act 2006) in the decisions taken during the year as set out
below.
The interests of the Company's employees
The Company has no employees but has close working relationships
with the employees of the Investment Manager and the Administrator
to which it outsources its main functions.
Refer to stakeholder engagement and governance sections
below.
The impact of the Company's operations on the community and the
environment
The Investment Manager has integrated ESG considerations into
its investment management processes during the year as it believes
this creates a more sustainable businesses over the long term.
Refer to sustainability section below.
The need to foster the Company's business relationships with
suppliers, customers and others
The Board has a close working relationship with all its advisers
and regularly engages with all parties.
Refer to stakeholder engagement section below.
The desirability of the Company maintaining a reputation for
high standards of business conduct
Under the leadership of the Chairman, the Board operates with
core values of integrity and impartiality with an aim of
maintaining a reputation for high standards in all areas of the
business it conducts.
Refer to Board values and culture within the corporate
governance statement below.
The need to act fairly between shareholders of the Company
The Board actively engages with shareholders and considers their
interests when setting the Company's future strategy.
Refer to stakeholder engagement section below.
The stakeholder model below demonstrates how the Company
interacts with all of its stakeholders.
SOCIETY
The Company positively impacts society through its investing
activities, providing funding for assets which are integral to
society.
SHAREHOLDERS
All investors in the Company, be these institutional, such as
pension funds or wealth managers, or retail, such as private
individuals.
SUPPLIERS
Suppliers across the UK and Jersey who provide services to the
Company.
BORROWERS
Owners of the Project Companies to which the Group advances
loans.
LER
Provider of the Company's credit facilities.
GOVERNMENT AND REGULATORS
Governmental organisations providing public services for
society, or financial services regulators.
SOCIETY
The Company positively impacts society through its investing
activities, providing funding for assets which are integral to
society.
Why engage
Through responsible investing the Company can ensure the
long-term success of not only itself but also of the environments
within which it operates. As part of the investment process, ESG
due diligence is carried out by the Investment Manager to ensure
that sustainability and impact on society is considered.
How the Company engages
Indirectly, the Company engages with society through its social
infrastructure investing, providing funding for housing for
vulnerable adults, care for the elderly and urban regeneration, in
addition to funding assets that manage energy and/or process waste.
The Company reports on the benefits to society through its normal
methods of shareholder engagement.
Since IPO, the Group's investment activities have facilitated
the creation of c.900 jobs, of which c.300 have been created at
care homes, c.250 at urban regeneration projects, c.250 at
nurseries, with the remainder at student accommodation schemes.
SHAREHOLDERS
All investors in the Company, be they institutional, such as
pension funds or wealth managers, or retail, such as private
individuals.
Why engage
Through the provision of capital, shareholders enable the
Company to pursue its investment objective. In return, the Company
generates earnings for shareholders as well as safeguarding and
growing the capital value of the portfolio.
How the Company engages
The Company, primarily through its Investment Manager and
Broker, engages in ongoing communication with its shareholders via
market interactions, webinars and shareholder, analyst and
marketing presentations.
Shareholder engagement is reported to the Board on a quarterly
basis. Feedback obtained through this engagement is taken into
consideration when setting the future strategy of the Company and
any Board decisions which may impact shareholders. The Board
encourages shareholders to attend and vote at general meetings of
the Company so they may discuss governance and strategy and to
understand shareholders' issues and concerns.
The Investment Manager has been working to increase shareholder
engagement throughout the year by holding more meetings, hosting
webinars and portfolio updates for investors.
Alongside the Investment Manager, the Company has looked to
engage further with shareholders by increasing both the quality and
detail of its portfolio disclosures. Feedback on the disclosures
has been positive and both the Board and the Investment Manager are
delighted to engage with shareholders to address any questions or
concerns they may have.
KEY BOARD DECISION:
Share buybacks
Decision:
In March 2020, the Company commenced a series of share buybacks
in response to market volatility experienced due to the Covid-19
pandemic and its subsequent impact on the Company's share
price.
The Directors can consider repurchasing the Company's shares in
the market if they believe it to be in shareholders' interests as a
whole and as a means of correcting any imbalance between supply of
and demand for the shares. The authority to repurchase up to 14.99%
of share capital was granted at the 2020 AGM.
At the date of commencement of the scheme, the share price
offered value to shareholders with a significant discount(1) to
NAV.
Process:
In March 2020, the Investment Manager asked the Board to
consider a potential buyback of the Company's shares.
A Board meeting was held to discuss the proposal with the
Investment Manager and Broker present, to decide whether it would
be in the best interests of shareholders. Furthermore, it was
considered whether this would have an impact on the NAV and the
share price discount.
The Board also considered the current investment pipeline, a
potential slowdown in investment activity and the total funding
availability.
Outcomes:
It was concluded by the Board that a share repurchase scheme was
clearly in the interest of shareholders as it would have a positive
impact on the NAV. Whilst it was concluded that the scheme would
not have a significant impact on the share price, it was felt that
it would be positively perceived by shareholders.
The Board authorised the Broker to commence the scheme. During
the year the Company bought back 1,875,000 shares which are
currently held in treasury. The repurchase of shares has
contributed to a NAV uplift of 0.09 pence per share for the
year.
SUPPLIERS
Suppliers across the UK and Jersey who provide services to the
Company.
Why engage
The Company's suppliers include third party service providers
engaged to provide corporate or administration services, in
addition to the investment management services provided by the
Investment Manager. These services are critical to the ongoing
operational performance of the Company.
How the Company engages
The Board has a close working relationship with all its advisers
and regularly engages with all parties. The Management Engagement
committee regularly monitors the performance and reviews the terms
of each service contract annually. To ensure suppliers meet the
Company's high level of conduct, all suppliers are required to
confirm on an annual basis, in the form of a questionnaire, that
they have adequate policies and procedures in place. This informs
decision making at Board level in regard to the continuing
appointment of service providers.
The annual Management Engagement committee meeting was held on
12 November 2020 where the committee reviewed the performance, and
considered the continued appointment, of the Company's service
providers. In addition, the Board usually attends the offices of
the Investment Manager at least once a year to perform an oversight
review and consider matters such as strategy, portfolio performance
and principal risks. As a result of Covid-19 travel restrictions,
this year the review was held virtually post year end on 23
February 2021; refer below for further information.
KEY BOARD DECISIONS:
Change in corporate broker
Decision:
In January 2020, the Company announced a change in corporate
Broker and financial adviser to the Company.
The change followed a comprehensive review by the Board, with
assistance from the Investment Manager, of the Company's corporate
broking arrangements.
Process:
The change in corporate Broker included a selection process of
potential service providers who were requested to submit a proposal
document. Three parties were shortlisted from a possible six based
on their credentials who were then invited to present to the
Board.
The Board considered each proposal and which appointment would
be in the best interests of the Company and its stakeholders. This
was supplemented by advice from the Investment Manager.
Outcomes:
It was concluded that Investec Bank plc offered the best fit in
terms of achieving the Company's strategic objectives. Investec has
strong relationships with the Company's existing shareholders and
were appointed with a view to improving shareholder engagement and
introducing the Company to new investors, therefore widening its
investor base. Investec were appointed with effect from 28 January
2020.
Investment Manager change of control
Decision:
In December 2020, the Company announced that the Investment
Manager had entered into a strategic partnership with ORIX
Corporation, whereby ORIX would acquire a 70% equity stake in the
Investment Manager's business.
Process:
Upon notification of the intended transaction, a sub-committee
was formed, comprised of all members of the Board, with the purpose
of overseeing the change of control within the Investment Manager.
During this time, the Board and sub-committee met six times to
formally discuss the change of control with certain individuals
from the Investment Manager, Broker and UK Legal Counsel.
The sub-committee undertook due diligence and attended
discussions with ORIX on 28 October 2020 to understand the extent
of ORIX's involvement and to obtain clarifications such as:
- that the Company's investment objective or service levels
would not be affected by the change of control; and
- that there would be no personnel changes within the Investment Manager.
Outcomes:
The change of control was announced on 4 December 2020. The
sub--committee and the Board believe that the change of control to
ORIX is in the best interests of the Company and its stakeholders,
by expanding the global presence of the Investment Manager and,
over the long term, providing it with additional experience,
expertise and access in areas such as asset sourcing, financing and
potential new investors.
BORROWERS
Owners of the Project Companies to which the Group advances
loans.
Why engage
By engaging with borrowers and understanding their needs, the
Group is able to offer bespoke lending solutions which reflect the
contractual fundamentals and inherent risks of the underlying
assets and cash flows. Borrower contact enables direct feedback and
informs strategic decision making at Board level.
How the Company engages
The Investment Manager's designated portfolio monitoring team
engages with borrowers on an ongoing basis. Engagement is in the
form of regular interaction with the borrowers. Ordinarily, this
would include periodic site visits to the underlying assets held by
Project Companies. However, given the Covid-19 restrictions, there
have been fewer opportunities for visits this year but these are
anticipated to recommence as soon as restrictions permit. The
regular monitoring of information and financial covenant
obligations is also carried out to ensure compliance with financial
covenants to ensure the early identification of potential
issues.
The Investment Manager reports to the Board on asset performance
on a quarterly basis.
As detailed in the Chairman's statement, the Group had a default
on one of its smaller loans in March 2019. The Group has been
working to dispose of the asset and it is hoped that a conclusion
will be reached on this transaction in the coming weeks.
The Board engages with the Investment Manager with regard to
'conflicted investments', where the Investment Manager or any
shareholders, directors or employees of the Investment Manager are
directly or indirectly interested in any entity or asset in
relation to the investment.
LER
Provider of the Company's credit facilities.
Why engage
The Company's lender, RBSI, provides a credit facility used in
the making of investments in accordance with the investment policy,
access to which creates an efficient method of investing capital
and minimises the effect of cash drag.
How the Company engages
The day-to-day management of the credit facility is delegated to
the Investment Manager who engages with RBSI to ensure that it
remains fully informed on all relevant business of the Company.
This high level of engagement helps to support the relationship
with RBSI. The Investment Manager reports to the Board on a
quarterly basis on current and future financing requirements, as
well as the quantum and duration of the RCF. This information forms
the basis of decision making at Board level.
GOVERNMENT AND REGULATORS
Governmental organisations providing public services for
society, or financial services regulators.
Why engage
Good governance and compliance with applicable regulations is
vital in ensuring the continued success of the Company and the
regimes within which it operates.
How the Company engages
The Board encourages openness and transparency and promotes
proactive compliance with new regulation. The Company engages with
local government and regulatory bodies at regular intervals and
participates in focus groups and research projects where relevant.
The Company, through its Investment Manager and Administrator,
files AIFMD and Jersey regulatory statistics on a quarterly basis
and assists the JFSC in collecting data to conduct a national risk
assessment of money laundering and terrorist financing threats to
Jersey. Government and regulatory policy informs strategic decision
making at Board level with consideration given to the impact the
Company has on the sector.
SUSTAINABILITY
The Company aims to operate a sustainable business model which
does not detrimentally impact the environment and provides benefits
to society where possible.
Introduction
ESG has become an increasingly important topic in both the
assessment of impact of investments in the future and investor
assessment of opportunities. In the last year, the UK Government
has brought in legislation to target net zero greenhouse gas
emissions by 2050 and introduced new ESG reporting requirements for
pension scheme trustees in recognition of the role investment plays
in policy change. In addition, the UK Stewardship Code 2020 and the
UN Principles for Responsible Investment ("UNPRI"), both of which
have been adopted by the Investment Manager, focus on the process
of incorporating ESG considerations into the investment process and
disclosures to investors to better inform investment decisions and
promote sustainable investment.
ESG strategy
During the year, the Board, with the assistance of the
Investment Manager, began the process of defining its policy on
sustainability and approach to ESG. This process is to be continued
during 2021 in order that the Company will have a clearly defined
approach regarding its ESG strategy, governance, risk management
and metrics and targets. The Company intends to adopt the
recommendations of the TCFD where appropriate and has made
additional disclosures in regard to climate change.
Investment process
The Investment Manager has enhanced its investment processes in
respect of the provision of investment management services to the
Company during the year. It believes that integrating ESG
considerations into investment management processes and ownership
practices can help to create more successful and sustainable
businesses over the long term and generate enhanced value for
clients and society at large. It has developed a responsible
investment process which incorporates the following:
Deal screening
The Investment Manager has implemented processes to positively
screen for investments that promote sustainability or benefit
society, including, but not limited to: the areas of climate change
mitigation and adaptation; energy transition; critical
infrastructure; affordable living; social housing; education and
healthcare. It excludes investments which focus on animal testing;
armaments; alcohol production; pornography; tobacco; coal
production and power; and nuclear fuel production.
ESG due diligence processes
The Investment Manager is working with the Board on the
implementation of its responsible investment checklist for new
investments which assesses how the investment fares against key
relevant ESG criteria. The checklist covers the counterparty's
commitment and capability to effectively identify, monitor and
manage potential ESG-related risks and opportunities, and, to the
extent applicable, the availability of relevant policies and
procedures; alignment with industry or investment specific
standards and ratings; and compliance to relevant ESG-related
regulation and legislation.
Monitoring and engagement
Following the investment, investments are monitored in
accordance with the relevant covenants and information requirements
for the project. The requirements are tailored to manage risks
specific to each project and typically include financial,
regulatory, operational and construction reporting, where relevant.
Through the new responsible investment checklist process, the
Investment Manager is seeking to identify ESG indicators to include
in reporting and monitoring of borrowers to inform the way in which
the investment is managed.
Reporting
The Investment Manager intends to report on its progress on
responsible investment on an annual basis. This information will be
made publicly available on its website: www.graviscapital.com.
The responsible investment policy can be found on its website.
The policy sets out its commitment to responsible investment and
investment processes within its organisation.
Responsible investment
The Investment Manager is a signatory to the UNPRI, a global
network of investors working together to incorporate responsible
investment into investment practice.
The principles were developed by an international group of
institutional investors reflecting the increasing relevance of ESG
issues. The Investment Manager recognises that applying these
principles better aligns investment activities with the broader
interests of society and has committed to the adoption and
implementation as follows:
- Principle 1: We will incorporate ESG issues into investment
analysis and decision-making processes.
- Principle 2: We will be active owners and incorporate ESG
issues into our ownership policies and practices.
- Principle 3: We will seek appropriate disclosure on ESG issues
by the entities in which we invest.
- Principle 4: We will promote acceptance and implementation of
the principles within the investment industry.
- Principle 5: We will work together to enhance our
effectiveness in implementing the principles.
- Principle 6: We will each report on our activities and
progress towards implementing the principles.
More information can be found on the UNPRI website:
www.unpri.org.
CLIMATE CHANGE IMPACT
The Investment Manager directly and/or indirectly addresses
climate-related risks and opportunities when evaluating and
approving new investments.
The Board intends to seek to adopt the recommendations of the
TCFD where appropriate and has made additional disclosures this
year in regard to climate change. The Board will seek to expand
these disclosures for future years as further guidance on adoption
is issued.
INVESTMENT PROCESS
GOVERNANCE STRATEGY RISK MANAGEMENT METRICS AND TARGETS
------------------------- --------------------------- -------------------------- -------------------------
Governance in regard Impacts of climate-related Risk identification, Metrics and targets
to climate--related risks and opportunities assessment and used to assess and
risks and opportunities. on the Company management. manage relevant
strategy(1) . climate-related
risks and opportunities.
------------------------- --------------------------- -------------------------- -------------------------
The Investment The portfolio is The Investment As an externally
Manager has established diversified across Manager directly managed investment
a responsible investment a number of asset and/or indirectly company, the Company
policy and a dedicated classes where the addresses climate-related has no employees,
responsible investment impact of climate risks and opportunities does not own any
committee to monitor change would vary when evaluating property, and it
and implement ESG across the portfolio. and approving new does not purchase
initiatives across Environmental impact investments. This electricity, heat,
its organisation. assessments are includes the completion steam or cooling
It has integrated carried out as of a responsible for its own use.
ESG considerations part of the due investment checklist The Company outsources
into its investment diligence process for each new investment. all services on
management processes to identify potential Ongoing due diligence a fee basis and,
during the year transition and is carried out as such, has no
as it believes physical short, during the life reportable emissions
this creates a medium and long of each asset to to which it can
more sustainable term impacts to identify any new measure or set targets
businesses over costs and viability risks and changes against.
the long term. across service to existing risks. During the coming
Further information providers and investments. This includes changes year, as part of
can be found above. Further information to Government and the development
The Investment can be found above. industry legal of the Company's
Manager also carries and regulatory approach to ESG,
out ongoing performance requirements and the Directors will
monitoring, including assessment, the consider the extent
site visits (when impact of flooding to which appropriate
possible) by experienced and the Covid-19 portfolio metrics
personnel. Detailed pandemic. and targets can
reports on asset be reported on.
performance are
provided to the
Board.
------------------------- --------------------------- -------------------------- -------------------------
1. The Company defines short, medium and long-term risk time
horizons as follows: short term: zero to three years; medium term:
three to eight years; long term: more than eight years.
MAKING A DIFFERENCE
ENVIRONMENTAL IMPACT
Green energy projects
The Group has invested in a number of green energy projects,
including an operational CNG station. The CNG station is located in
Lancashire, UK, within the immediate vicinity of the major
customer. The site has been operational since March 2016 and was
developed as a flagship project with National Grid/Cadent as the
first high--pressure gas fuel station in the UK.
As a form of transportation, CNG trucks have a significant
positive impact on air quality and the environment, emitting c.80%
less CO(2) than diesel trucks. In total 4.5 million litres of
diesel have been displaced during the year by vehicles fuelling at
this station. The Group is actively working with the developer to
support the project and has invested in a second station this year,
expanding the number of fuel dispensers supported from two to
six.
The Company has also invested in a number of battery storage
projects which support the deployment of renewable energy projects
throughout the UK by providing flexible capacity and balancing
services to the National Grid. Further information can be found
above. Further, the Company has invested in companies providing
operation and maintenance services for rooftop solar panels, in
turn contributing to increased renewable capacity in the UK.
SOCIAL IMPACT
Societal benefits
The Company's business model targets assets for which there is a
structural demand within society. The Group provides benefits to
society through its investing activities, by providing funding for
assets, such as housing for vulnerable adults, care for the elderly
and urban regeneration, in addition to assets that meet a
structural demand for producing or managing energy and/or
processing waste. The Group also provides finance for property
purchases or developments which mainstream lenders cannot serve,
for reasons other than credit quality.
Since IPO, the Group's investment activities have facilitated
the creation of c.900 jobs, of which c.300 have been created at
care homes, c.250 at urban regeneration projects, c.250 at
nurseries, with the remainder at student accommodation schemes.
The Group intends to continue to support borrowers that have a
positive impact on society, as it further enhances the security of
the portfolio.
RISK MANAGEMENT
The Board and the Investment Manager recognise that risk is
inherent in the operation of the Group and are committed to
effective risk management to protect and maximise shareholder
value.
Risk management strategy and risk appetite
The Board has the ultimate responsibility for risk management
and internal controls within the Company. The Board and the
Investment Manager recognise that risk is inherent in the operation
of the Group and are committed to effective risk management to
protect and maximise shareholder value. When setting the Company's
risk management strategy, the Board also considers the nature of
the risks they are willing to take and the appetite they have for
those risks to achieve the Company's strategic objective.
Risk management process
At least twice a year, the Board, with the assistance of the
Risk committee, undertakes a robust assessment of the principal and
emerging risks facing the Company, including those that might
threaten its business model, future performance, solvency and
liquidity.
The Board also reviews the effectiveness of the Company's risk
management process and internal control systems. Refer to the Risk
committee report below for further information. This review covers
the strategy, investment, financial, operational and financial
crime risks facing the Company, as well as any emerging risks.
During the year, the Board did not identify, nor has been advised
of, any failings or weaknesses which it has determined to be of a
material nature.
The Board will continue to assess these risks on an ongoing
basis. In relation to the AIC Code, the Board is confident that the
procedures that the Company has put in place are sufficient to
ensure that the necessary monitoring of risks and controls has been
carried out throughout the year under review.
Role of the AIFM
The Investment Manager has been appointed as AIFM to the
Company. The AIFM is required to operate an effective and suitable
risk management framework to allow the identification, monitoring
and management of the risks to which 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 uncertainties
The Board continues to consider Covid-19 and Brexit, as detailed
below, to be principal uncertainties for the Company.
UNCERTAINTY 1: COVID-19
------------------------------------------------------------
At the time of writing, the UK is
in its third lockdown due to an increase
in the number of diagnosed cases
of Covid-19 and the identification
of new, more transmissible variants.
The pandemic continues to cause significant
disruption in the global and national
economy.
Whilst there has been no impact on
the Company's cash flows to date,
the Board is continuing to monitor
the situation and has considered:
* the impact of a further prolonged period of lockdown
and any enforced restrictions on business or
operations;
* regulatory changes introduced by the Government to
manage Covid-19 risk on operations; and
* vulnerable populations supported by the Company's
investments (e.g. care homes).
The Company has BCPs in place through
its service providers. The Investment
Manager and the Administrator have
established BCPs to ensure they can
continue to service the Company.
The Investment Manager and Administrator
have both enacted these BCPs and
they are operating effectively.
The Board will continue to monitor
the development of the Covid-19 pandemic
and any potential impact on the portfolio.
UNCERTAINTY 2: BREXIT
------------------------------------------------------------
The UK officially left the EU on
31 January 2020, with the free trade
deal between the UK and EU coming
into force on 1 January 2021. There
remains a considerable amount of
uncertainty regarding the long-term
impact of the UK's exit from the
EU. A general and persistent weakening
of the UK economy and a general fall
in market sentiment caused by this
uncertainty has the potential to
impact the performance of the Group's
underlying investments.
The Board has considered the impact
of Brexit as a principal uncertainty
on its principal risks. Specifically,
in relation to any impact on the
Company's principal risks and uncertainties,
the Board has considered:
* the portfolio's reliance on the EU for materials
and/or labour;
* the potential impact on the Group's access to
pipeline transactions, financing and share price; and
* foreign exchange risk.
The Board will continue to monitor
the potential macro-economic and
political impacts of Brexit and the
detailed implications for the Group's
investments and wider impact on the
UK economy.
------------------------------------------------------------
Principal risks
The Board considers the principal risks faced by the Company
during the year, together with the potential effects, controls and
mitigating factors, to be as detailed below:
CATEGORY 1: CREDIT RISK
---------------------------- ---------------------------- ---------------------------- ----------------------------
Risk Impact How the risk is managed Change in residual risk
over the year
---------------------------- ---------------------------- ---------------------------- ----------------------------
Borrower default, loan non The success of the Group is The Investment Manager Increase
--performance and dependent upon borrowers continuously monitors the The Group's investment
collateral risks fulfilling their payment actual performance of portfolio has continued to
Borrowers to whom the Group obligations projects and their perform in line with
has provided loans default when they fall due. Failure borrowers, taking action expectations during
or become insolvent. of the Group to receive where appropriate, and the year.
payments or to recover part reports on performance of The Investment Manager has
or all amounts the Group's portfolio assessed the impact of
owed together with to the Board each quarter. Covid-19 on the investments
potential additional costs in the portfolio
incurred from the (as noted in the Chairman's
renegotiation and/or statement above). Across
restructuring the sectors which the
of loans can result in Company has provided
substantial irrecoverable finance to, the most
costs being incurred. This affected to date have been
could have a material public-facing projects
adverse effect on the NAV (such as multi-use
of the Company and its community facilities and
ability to meet its stated co-living projects).
target returns The Investment Manager is
and dividend. working closely with these
borrowers to ensure they
are taking steps
to minimise the impact to
their businesses. The
impact of Brexit remains a
risk, albeit that
the portfolio has not seen
any impact to date. The
Investment Manager will
continue to monitor
the impact of any changes
in Government policy on
these borrowers.
CATEGORY 2: ECONOMIC RISK
---------------------------- ---------------------------- ---------------------------- ----------------------------
Risk Impact How the risk is managed Change in residual risk
over the year
---------------------------- ---------------------------- ---------------------------- ----------------------------
Property If the market value of any The Group's property Increase
Loans made by the Group to property investments to investments are at a low Whilst there have not been
projects involved in which the Group has average LTV level. In any material revaluations
property or the development provided finance is addition, the credit risk of property investments in
of property are found to be materially associated with each the portfolio
indirectly exposed to the lower than assumed or Project Company is during the year, reduced
performance of the projected, this may mitigated as the cash flows transaction activity across
underlying real estate adversely impact the receivable are secured the property market and the
market in the relevant Group's over the assets of the current economic
area. ability to recover the Project Company, which in recession in the UK have
value of its investments in turn have security over increased the risk that
the event of a borrower multiple assets at assets may have reduced in
default or sale the underlying project value.
process. level. With Government incentives
on stamp duty expected to
end in 2021, transaction
volumes are
anticipated to reduce. The
Investment Manager and the
Board continue to monitor
the market.
Valuation risk Uncertainty about valuation The Company has engaged an Increase
Due to the nature of the assumptions and estimates experienced Valuation Agent During periods of market
investments made by the could result in outcomes to carry out the valuation uncertainty, valuations of
Group, observable market that require of investments assets can be more
data or comparable a material adjustment to on a regular basis. In difficult to estimate
prices may not exist for the carrying amount of the addition, the Investment due to a reduction in
some of the assumptions assets in the portfolio in Manager, as part of its due comparable market
used in their valuation. the future. diligence process, transactions. Both Brexit
uses market--recognised and Covid-19 have a
professionals to provide potential
initial valuations where impact on the volume of
possible. transactions in the market
and on certainty of
valuations.
During the year, the Board,
together with the
Investment Manager and
Valuation Agent, took
a prudent approach to
increase discount rates on
a number of investments in
the portfolio
which have experienced an
impact from Covid-19. These
revaluations have gradually
been released
throughout the year as
assets continued to
perform. We remain cautious
and at the year end
a number of these
revaluations are still in
place.
CATEGORY 3: KEY RESOURCE
RISK
---------------------------- ---------------------------- ---------------------------- ----------------------------
Risk Impact How the risk is managed Change in residual risk
over the year
---------------------------- ---------------------------- ---------------------------- ----------------------------
Reliance on key personnel An inability by the The Company has entered Stable
at the Investment Manager Investment Manager to into a contractual The Investment Manager
The Company is dependent on retain and recruit the engagement with the continues to provide
key people within the required level of personnel Investment Manager. The adequate resources and act
Investment Manager to meet with the appropriate skills performance with due skill, care
its investment and experience may of the Investment Manager and diligence in its
objective. adversely impact its is monitored by the Board responsibilities as
ability to service the along with the Company's Investment Manager and AIFM
needs of the Company. other key service to the Company. The
providers on an ongoing Investment
basis. The Investment Manager has also continued
Manager provides regular to improve its systems and
updates to the Board to strengthen its control
on its resourcing plans and processes
has a competitive during the year. For
remuneration and retention further information on the
plan focused on key responsibilities of the
employees. Investment Manager
The Investment Manager has refer to note 18.
robust BCPs in place to
enable it to continue to
manage the Company
if and when circumstances
require.
CATEGORY 4: REGULATORY RISK
---------------------------- ---------------------------- ---------------------------- ----------------------------
Risk Impact How the risk is managed Change in residual risk
over the year
---------------------------- ---------------------------- ---------------------------- ----------------------------
Change in laws, regulation Any change in the laws, The Company has a Increase
and/or policy regulations and/or comprehensive compliance There is continued
The Company, its operations Government policy affecting monitoring programme uncertainty about the
and the underlying Project the Company or the relevant to its operations long-term impact of the
Companies are subject to underlying Project that ensures compliance UK's exit from the EU,
laws and regulations Companies may have a with developments and which
enacted by national and material adverse effect on changes in legislation and the Directors anticipate
local governments. the ability of the Company regulation in the will continue to be the
to successfully pursue the Channel Islands and the UK, case in the short to medium
investment policy and meet including monitoring the term.
its investment objective, impact of Brexit in the In the longer term, there
which therefore jurisdictions may be opportunities to
may impact the value of the in which the Group invests. streamline regulation, to
Company. The programme also monitors be more responsive
compliance with listing and to the needs of companies,
FCA marketing making it easier to do
rules. business in the UK. For
more information,
refer to the Chairman's
statement above.
In addition, Covid-19 has
required wide-ranging
legislative and regulatory
changes to be introduced
impacting on all facets of
society. The wide-ranging
changes and speed of
implementation have
introduced new regulatory
risk which the Investment
Manager continues to
monitor closely.
CATEGORY 5: EXECUTION RISK
---------------------------- ---------------------------- ---------------------------- ----------------------------
Risk Impact How the risk is managed Change in residual risk
over the year
---------------------------- ---------------------------- ---------------------------- ----------------------------
Reinvestment risk and The decline or lack of The Investment Manager is Stable
availability of suitable availability of suitable continuously in contact The Investment Manager
investments investments meeting the with the market, seeking continues to see attractive
The Company is not able to risk and return profile new deals, and investment opportunities
deploy capital in a timely of the Company's investment builds a specific across a variety
manner. strategy within the investment pipeline before of sectors, including
required timescales may recommending the raising of energy, social
have a negative impact additional finance infrastructure, waste and
on the Company's returns as to ensure that capital is specialist property. At the
a result of holding deployed in a timely year end, the Group had an
uninvested cash balances. manner. significant pipeline of
investment opportunities of
which c.GBP13
million has been transacted
post year end. For further
information refer to the
Investment
Manager's report above.
----------------------------
Emerging risks
Emerging risks include trends which are characterised by a high
degree of uncertainty in terms of their occurrence, probability and
their potential impact. As part of the Company's risk management
processes, emerging risks are considered at the formal reviews of
the Company's risks, described above and in the Risk committee
report below.
In the prior year's annual report, the Board and the Risk
committee identified emerging risks in the following areas: climate
change, global financial volatility, supply chain management and
Covid-19.
During the year, the Board, with the assistance of the
Investment Manager, began the process of defining its policy on
sustainability and approach to ESG which included climate change.
The emerging risks of supply chain and global financial volatility
were identified as an impact of Covid-19 due the considerable
uncertainty at the time of publication of the 2019 annual report.
As time has progressed, the impact on the Company has become
clearer and therefore the Board no longer considers these as
emerging risks.
For the year ended 31 December 2020, the Board has not
identified there to be any new emerging risks that they believe the
Company to be exposed to.
Going concern and viability assessment
Assessment
The Directors have assessed the financial prospects of the
Company for the foreseeable future, being a period of at least
twelve months from the date these financial statements were
approved, 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. Refer to note 2.1 for
further details on the assessment.
The Board regularly reviews the principal risks facing the
Company, including those that would threaten its strategy. The
Board also assesses the Company's policies and procedures for
monitoring, managing and mitigating its exposure to these
risks.
The Directors have carried out a robust assessment of each of
the Company's principal risks, including those that would threaten
its business model, future performance, solvency or liquidity,
uncertainty, as detailed above and, through stress testing as
described below, have also assessed the prospects of the Company
over a longer period than the twelve months required by the going
concern provision.
Stress testing
In order to analyse the effect of the principal risks and
uncertainties on the Company's net cash flows, key financial
ratios, viability and dividend cover, the Investment Manager has
stress tested the Company's financial model by flexing a number of
key assumptions used in order to model the aggregated impact of
plausible scenarios, including:
- significant reductions in interest income received;
- new and reinvested capital levels;
- borrower default and recovery rates;
- significant increases in the Company's operating expenses and debt financing costs;
- the impact on the portfolio of downside stress tests on a sector-by-sector basis; and
- Covid-19 pandemic recovery scenarios.
The Investment Manager believes that the above scenarios
represent a robust sensitivity analysis. The Company's principal
activity is investing in loans to third parties supported by the
value of physical assets and contracted cash flows. The Company is
reliant on the performance of interest and principal repayment
obligations as part of these loans in order to meet its overheads,
service its borrowings and to pay the discretionary dividends.
Time period
The Board has determined that a five year period constitutes an
appropriate period over which to provide its viability statement.
The weighted average term of the loans within the investment
portfolio is six years and in the view of the Board and the
Investment Manager, financial forecasts that support the analysis
may 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 macro-economic, political, social, technological
and regulatory changes beyond a five year term may have a plausible
impact on the Company are difficult to forecast. The assessment
involved an evaluation of the potential impact on the Company of
these risks occurring through the use of stress testing as detailed
above.
Conclusion
Based on this assessment and the 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 2025.
Approval of strategic report
The strategic report has been approved by the Board and is
signed on its behalf by the Chairman.
Alex Ohlsson
Chairman
22 March 2021
GOVERNANCE
BOARD OF DIRECTORS
The Board of Directors is responsible for the effective
stewardship of the Company's activities in order to ensure the
long-term success of the Company in the interest of
stakeholders.
Alex Ohlsson
Chairman
Alex Ohlsson, a Jersey resident, 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. Mr Ohlsson served as the independent chairman of the
States of Jersey's audit committee from 2009 until 2018. He is 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.
Skills and experience:
Substantial board level and legal experience in the corporate
and finance sectors in Jersey.
Date of appointment:
14 September 2015
Joanna Dentskevich
Senior Independent Director and chair of the Risk committee
Joanna Dentskevich, a Jersey resident, has over 30 years of
risk, finance and investment banking experience gained in leading
global banks worldwide, alternative investments and the offshore
funds industry. Previously, she was a director at Morgan Stanley
heading up its Global Customer Valuation Group, a director of risk
at Deutsche Bank and chief risk officer of a London-based hedge
fund. Mrs Dentskevich has a BSc (Hons) in Maths and Accounting. Mrs
Dentskevich also serves on the board of another LSE listed company,
EJF Investments Limited, where she is chair of the board.
Skills and experience:
Substantial relevant risk and board level experience in the
investment sector.
Date of appointment:
7 September 2015
Colin Huelin FCA
Chair of the Audit committee
Colin Huelin, a Jersey resident, graduated in mechanical
engineering with a first class honours BSc degree and Diploma at
Southampton University in June 1982. He 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. He 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.
Skills and experience:
Substantial board level and financial experience in the banking
and private sectors in Jersey.
Date of appointment:
7 September 2015
Marykay Fuller
Chair of the Management Engagement committee and the
Remuneration and Nomination committee
Marykay Fuller, a UK resident, is a banking and finance
professional with 30 years' experience in debt and equity markets,
working with a broad range of businesses across a variety of
jurisdictions including the UK, USA, Europe, South America and
Asia. Most recently, she was a senior deal advisory partner at KPMG
LLP where she also represented the firm on the board of the trade
group, British American Business. Ms Fuller is currently a
non-executive director of the UK Civil Aviation Authority, where
she is a member of the audit and remuneration committees. She is
chair of the Air Travel Trust and also serves on the Alumni
Advisory Board of Heinz College, Carnegie Mellon University in the
USA. Ms Fuller was appointed to the board of Southern Water on 15
June 2020.
Skills and experience:
Substantial business and debt experience across a variety of
jurisdictions.
Date of appointment:
6 November 2019
THE INVESTMENT MANAGER
The Board of Directors has appointed the Investment Manager to
provide day-to-day investment management services to the Group.
INVESTMENT TEAM
David Conlon
Director
David Conlon is a director of the Investment Manager and the
lead fund manager for the Company.
David is a qualified chartered accountant, having trained at PwC
before moving to the project finance team at KPMG. He has
significant experience in project finance investment and has been
involved in investing and arranging both debt and equity in a wide
range of projects in the PFI, renewable and social infrastructure
sectors. David joined the Investment Manager in 2013.
David has an LLB in Law from Nottingham Trent University.
Joanne Fisk
Associate director
Jo Fisk is an associate director of the Investment Manager,
focusing on origination for the Company across all sectors.
Prior to joining the Investment Manager, Jo qualified as a
lawyer in the project finance team of UK based law firm Burges
Salmon, where she specialised in UK renewables project finance. Jo
is experienced in a wide range of sectors including onshore wind,
fuelled renewables and solar. She has particular expertise in
portfolio--financing transactions. Jo joined the Investment Manager
in 2017.
Jo has a degree in Neuroscience from the University of
Sussex.
Kyle Bajtos
Senior portfolio manager
Kyle Bajtos is a senior portfolio manager of the Investment
Manager and is responsible for monitoring the ongoing performance
of the Company.
Originally from California, Kyle started his career in London
working at Sequoia Investment Management Company as a credit
analyst for two years before settling into his role as assistant
portfolio manager. In this role, Kyle was primarily responsible for
portfolio valuations, offering documentation, ongoing portfolio
monitoring and data analysis. Kyle joined the Investment Manager in
2020.
Kyle has a Bachelor of Arts in Political Science from Yale
University.
PORTFOLIO ADMINISTRATION
Luther Ward-Faint
Portfolio manager
William Parry-Jones
Fund financial controller
Martie Chawla
Assistant fund financial controller
Kate Arnold
Portfolio administrator
FINANCIAL AND CORPORATE ADVISORY
Saira Johnston
Chief financial officer
Dion Di Miceli
Funds corporate adviser
Chloe Marlow
Head of corporate reporting
Sarah Bowe
Compliance and risk officer
BOARD LEADERSHIP AND PURPOSE
CORPORATE GOVERNANCE STATEMENT
I am pleased to present the Company's corporate governance
statement for the year ended 31 December 2020.
Introduction from the Chairman
In this corporate governance statement the Company reports on
its compliance with the AIC Code, sets out how the Board and its
committees have operated during the year and describes how the
Board exercises effective stewardship over the Company's activities
for the benefit of its members as a whole.
The Board recognises the importance of a strong corporate
governance culture and has established a framework for corporate
governance which it considers to be appropriate to the business of
the Company. All Directors contribute to Board discussions and
debates. The Board believes in providing as much transparency for
shareholders as is reasonably possible.
The AIC Code
As a member of the AIC, the Company reports against the
principles and provisions of the AIC Code.
The Board has considered the principles and provisions of the
AIC Code. The AIC Code addresses the relevant principles and
provisions set out in the UK Code, as well as setting out
additional provisions on issues that are of specific relevance to
the Company. The AIC Code can be found on the AIC website at
www.theaic.co.uk. The AIC Code includes an explanation of how it
adapts the principles and provisions set out in the UK Code to make
them relevant for investment companies. The UK Code is available at
www.frc.org.uk.
The Board considers that reporting against the principles and
provisions of the AIC Code, which has been endorsed by the FRC and
supported by the JFSC, provides better and more relevant
information to shareholders.
Alex Ohlsson
Chairman
Statement of compliance with the AIC Code
The Board has made the appropriate disclosures in this report to
ensure that the Company meets its continuing obligations. It should
be noted that, as an investment company, most of the Company's
day-to-day responsibilities are delegated to third party service
providers. The Company has no executive employees and the Directors
are all non--executive, therefore not all of the provisions of the
UK Code are directly applicable to the Company. The Board considers
that the Company has complied with the recommendations of the AIC
Code.
The Board
At 31 December 2020, the Board comprised four Directors, all of
whom are non-executive and are considered independent. Biographical
details of the Directors are shown above.
Under the leadership of the Chairman, the Board is responsible
for the long-term success of the Company. It provides overall
leadership, sets the strategic aims of the Company and ensures that
the necessary resources are in place for the Company to meet its
objectives and fulfil its obligations to shareholders within a
framework of high standards of corporate governance and effective
internal controls. The Board has overall responsibility for the
Company's investment policy, investment strategy and activities,
including the review of investment activity and performance and
control of the Investment Manager.
Matters reserved for the Board
The Board has approved a formal schedule of matters reserved for
its approval which is available on the Company's website and upon
request from the Company Secretary. The principal matters
considered by the Board during the year included:
- the declaration of interim and special dividends;
- possible capital raises;
- share buybacks;
- Investment Manager change of control;
- the Company's annual expenditure budget;
- conflicted investments
- extending the RCF; and
- recommendations from its committees.
Culture and purpose
The Chairman leads the Board and is responsible for its overall
effectiveness in directing the Company. He demonstrates objective
judgement, promotes a culture of openness and debate and
facilitates constructive Board relations and the effective
contribution of all Directors. In liaison with the Company
Secretary, he ensures that the Directors receive accurate, timely
and clear information. The Directors are required to act with
integrity, lead by example and promote this culture within the
Company.
The Board seeks to ensure the alignment of its purpose, values
and strategy with this culture of openness, debate and integrity
through ongoing dialogue and engagement with its service providers,
principally the Investment Manager. The culture of the Board is
considered as part of the annual performance evaluation process
which is undertaken by each Director. The culture of the Company's
service providers, including their policies, practices and
behaviour, is considered by the Board as a whole during the annual
review of the performance and continuing appointment of all service
providers.
DIVISION OF RESPONSIBILITIES
The Board is responsible for the effective stewardship of the
Company's affairs, including corporate strategy, corporate
governance, risk management and overall investment policy.
THE BOARD
-----------------------------------------------------------------------------------------------------------------
PURPOSE:
Responsible for the long-term success of the Company.
-----------------------------------------------------------------------------------------------------------------
Provides overall leadership, sets out the strategic aims of the
Company and ensures that the necessary resources are in place
for the Company to meet its objective and fulfil its obligations
to shareholders within a framework of high standards of corporate
governance and effective internal controls.
Composition at 31
December 2020:
Chairman: Alex Ohlsson Colin Huelin FCA Joanna Dentskevich Marykay Fuller
----------------------------- -------------------------- ------------------------- ---------------------------
BOARD COMMITTEES
----------------------------- -------------------------- ------------------------- ---------------------------
Remuneration and Nomination Audit committee Risk committee Management Engagement
committee committee
----------------------------- -------------------------- ------------------------- ---------------------------
PURPOSE:
----------------------------- -------------------------- ------------------------- ---------------------------
Considers appointments Ensures that the Company's Reviews, monitors Reviews the performance
to the Board and its financial performance and assesses the risks and continuing appointment
individual committees, is properly monitored, the Company is exposed of the Investment
makes recommendations controlled and reported, to, its risk appetite Manager and other
in regard to changes in addition to engaging and the effectiveness service providers.
to maintain a balanced with the Company's of the risk management
and effective Board external auditor. framework.
and reviews the remuneration
of the Directors.
----------------------------- -------------------------- ------------------------- ---------------------------
COMPOSITION AT 31 DECEMBER 2020
--------------------------------------------------------- ------------------------- ---------------------------
Chair: Marykay Fuller Chair: Colin Huelin Chair: Joanna Dentskevich Chair: Marykay Fuller
FCA
Joanna Dentskevich Joanna Dentskevich Alex Ohlsson Joanna Dentskevich
Alex Ohlsson Marykay Fuller Colin Huelin FCA Alex Ohlsson
Colin Huelin FCA Marykay Fuller Colin Huelin FCA
See Remuneration and See Audit committee See Risk committee
Nomination committee report below. report below.
report below.
----------------------------- -------------------------- ------------------------- ---------------------------
On 21 January 2020, Alex Ohlsson resigned as a member of the
Audit committee and Marykay Fuller became chair of the Management
Engagement committee. Ms Fuller replaced Mrs Dentskevich as chair
of the Remuneration and Nomination committee post year end, on 19
January 2021.
The terms of reference of the Board committees can be found on
the Company's website.
Chairman and Senior Independent Director
The Chairman, Alex Ohlsson, is deemed by his fellow independent
Board members to be independent in character and judgement and free
of any conflicts of interest.
He considers himself to have sufficient time to spend on the
affairs of the Company. He has no significant commitments other
than those disclosed in his biography above. The Chairman's
independence has previously been noted by Institutional Shareholder
Services, a proxy adviser which publishes voting recommendations
for its clients in respect of listed issuers, in their report for
the Company's AGM due to his position as managing partner of Carey
Olsen, the Company's advisers on Jersey law. The relationship
between the Company and Carey Olsen is not material in nature and
is not considered to present a conflict of interest. The fees paid
to Carey Olsen in the financial year ended 31 December 2020
represented 0.3% of the total expenses of the Company. Furthermore,
the Company and Carey Olsen, a firm of over 50 partners, maintain
procedures to ensure that the Chairman has no involvement in either
the decisions concerning the engagement of Carey Olsen or the
provision of legal services to the Company.
Joanna Dentskevich was appointed Senior Independent Director of
the Company with effect from 21 January 2020. She acts as a
sounding board for the Chairman, meets with major shareholders as
appropriate, provides a channel for any shareholder concerns
regarding the Chairman and takes the lead in the annual evaluation
of the Chairman by the Directors.
In the event the Company experiences a period of stress, the
Senior Independent Director would work with the Chairman, the other
Directors and/or shareholders to resolve any issues.
A schedule of responsibilities of the Chairman and the Senior
Independent Director is available on the Company's website.
Committees
At the year end, the structure included an Audit committee, a
Risk committee, a Management Engagement committee and a
Remuneration and Nomination committee. The terms of reference for
each of the committees are available on the Company's website or
upon request from the Company Secretary.
Audit committee
The membership and activities of the Audit committee are
described in its report below.
Risk committee
The membership and activities of the Risk committee are
described in its report below.
Management Engagement committee
The Management Engagement committee comprises all Directors. It
meets at least once a year to consider the performance of the
Company's key service providers, including the Investment Manager;
the terms of their engagement and their continued appointment. This
was undertaken at the annual committee meeting held in November
2020. As with previous years, it included consideration of a
questionnaire completed by the Investment Manager, the
Administrator and the Depositary rating the services provided by
each service provider and giving feedback where necessary.
The committee discussed the questionnaire, the overall
performance of the Investment Manager and the terms of the
investment management agreement, as set out in note 18 below, and,
based on results, the continued appointment of the Investment
Manager is considered to be in the best interests of the
shareholders as a whole. It was recommended, and subsequently
approved by the Board, that Gravis Capital Management Limited be
retained as Investment Manager. Details on the Directors'
consideration of the Investment Manager's change of control can be
found above.
In addition, the continued engagement of the third party service
providers whom the committee independently evaluates was
recommended to, and approved by, the Board.
Towards the end of 2019, the Board decided it would be in the
best interests of shareholders to conduct a formal broker tender
process in order to assist in assessing the performance of the
existing Broker against other providers in the market and to
determine whether it was appropriate to seek a new firm as Broker.
As a result of this process, the Board found that the experience
within the sector as well as the strength of the overall team
demonstrated by Investec Bank plc would be more aligned to the
Company. Therefore, Investec Bank plc was appointed as sole Broker
with effect from 28 January 2020.
Remuneration and Nomination committee
The membership and activities of the Remuneration and Nomination
committee are described in its report below.
Meetings
The Board holds meetings on a quarterly basis and additional
meetings are held when necessary. The number of scheduled meetings
of the Board and committees held during the year and the attendance
of individual Directors are shown below:
Quarterly Board Audit Risk
-------------------------- -------------------------- --------------------------------
Number entitled Number Number entitled Number Number entitled
Meetings to attend attended to attend attended to attend Number attended
------------------- --------------- --------- --------------- --------- --------------- ---------------
Alex Ohlsson 4 4 - - 3 2
Joanna Dentskevich 4 4 3 3 3 3
Colin Huelin 4 4 3 3 3 3
Marykay Fuller 4 4 3 3 3 3
------------------- --------------- --------- --------------- --------- --------------- ---------------
Management Engagement Remuneration and Nomination
-------------------------- -----------------------------
Number entitled Number Number entitled Number
Meetings to attend attended to attend attended
------------------- --------------- --------- ----------------- ----------
Alex Ohlsson 1 1 1 1
Joanna Dentskevich 1 1 1 1
Colin Huelin 1 1 1 1
Marykay Fuller 1 1 1 1
------------------------ --------------- --------- ----------------- ----------
During the year, 13 additional Board meetings and four ad-hoc
sub-committee meetings were held. These meetings were in respect
of:
- possible capital raises;
- share buybacks;
- extending the RCF;
- Investment Manager change of control;
- amendments to the investment management agreement;
- approval of the half-yearly and annual financial statements;
- approval of special dividend;
- allotment of shares; and
- conflicted investments.
Directors are encouraged when they are unable to attend a
meeting to give the chair their views and comments on matters to be
discussed, in advance. In addition to their meeting commitments,
the non--executive Directors also liaise with the Investment
Manager whenever required and there is regular contact outside the
Board meeting schedule.
At each Board and committee meeting, the Directors follow a
formal agenda, circulated in advance by the Company Secretary,
which may include a review of the Group's investments and
associated matters such as gearing, dividend policy, asset
allocation, risks, marketing and investor relations, economic and
sector issues, regulatory changes and corporate governance best
practice. The Company's service providers also provide the Board
with relevant information to support each formal agenda.
The Board also considers the Company's investment policy,
objective and strategy at these meetings.
During the year, the Directors were unable to visit the offices
of the Investment Manager due to travel restrictions as a result of
Covid-19. Post year end, on 23 February 2021, the Directors held a
review meeting with the Investment Manager to obtain confirmations
that would usually be sought at the annual visit to the Investment
Manager's offices.
During this call, the Directors and the Investment Manager
considered the following:
- the Company's strategy;
- AIC Governance Code: plans for the Board's engagement with stakeholders;
- update on causal analysis and lessons learned from specific
higher risk loans and results of review of implications for the
entire portfolio;
- key controls to mitigate the principal risks and assurance
work undertaken to test their effectiveness, including valuation
risk, credit risk, key resource risk, execution risk, Investment
Manager internal audit procedures; and
- conflicted investments process.
Company Secretary
The Board has access to the Company Secretary to advise on
governance and day-to-day administrative matters. The Company
Secretary is also responsible to the Board for ensuring the timely
delivery of the information and reports which the Directors require
and that the statutory obligations of the Company are met.
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.
Anti-bribery and tax evasion
The Company has developed appropriate anti--bribery policies and
procedures. The Company has a zero-tolerance policy towards bribery
and is committed to carry out its business fairly, honestly and
openly.
The Company does not tolerate tax evasion in any of its forms in
its business. The Company complies with the relevant UK law and
regulation in relation to the prevention of facilitation of tax
evasion and supports efforts to eliminate the facilitation of tax
evasion worldwide. The Company works to make sure its stakeholders
share this commitment.
AIFMD
The Company is classed as an externally managed AIF under AIFMD.
The Board has appointed the Investment Manager as the authorised
AIFM to the Company and Apex Financial Services (Corporate) Limited
as the Company's Depositary under AIFMD.
AIFM remuneration
The Company's Investment Manager is authorised as an AIFM by the
FCA under the AIFMD Regulation. The Company has provided
disclosures on its website incorporating the requirements of the
AIFMD regulations.
The total remuneration paid to the Investment Manager by the
Company is disclosed in note 18 to the financial statements.
MiFID II
The ordinary shares and C shares (while in issue) of the Company
are considered as 'non-complex' in accordance with MiFID II.
Non-mainstream pooled investments
The Board notes the rules of the FCA on the promotion of
non-mainstream pooled investments.
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 rules. This is
on the basis that the Company would qualify for 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.
COMPOSITION, SUCCESSION AND EVALUATION
REMUNERATION AND NOMINATION COMMITTEE REPORT
I am pleased to present the Remuneration and Nomination
committee report for the year ended 31 December 2020.
Statement from the chair
At 31 December 2020, the committee comprised all four Directors
of the Company, all of whom are considered independent.
The committee met once during the year. The main duties of the
committee include:
- to review the structure, size and composition, including
skills, knowledge, experience and diversity, of the Board and its
committees and make recommendations to the Board to ensure a
balanced, independent and effective board in the context of the
requirements of the Company;
- to assist the Board in developing a fair and transparent
framework for setting the levels of Directors' remuneration while
having regard to the Company's financial position and performance,
remuneration in other companies of comparable scale and complexity
and market statistics generally; and
- to regularly review the policies of the Company on
remuneration, appointments, diversity, succession planning and
tenure.
A copy of the terms of reference within which the committee
operates is available on the Company's website or from the Company
Secretary upon request.
Board and committee composition
The Board believes that it and its committees have an
appropriate composition and blend of skills, experience,
independence and diversity of backgrounds to discharge their duties
and responsibilities effectively. The Board is of the view that no
one individual or small group dominates decision making. The Board,
via its Remuneration and Nomination committee, keeps its
membership, and that of its committees, under review to ensure that
an acceptable balance is maintained, and that the collective skills
and experience of its members continue to be refreshed.
As a result of the internal Board evaluation carried out in
2019, the following Board and committee changes were recommended
to, and subsequently approved by, the Board on 21 January 2020:
- Alex Ohlsson to resign as a member of the Audit committee;
- Marykay Fuller to become chair of the Management Engagement committee;
- Marykay Fuller to become chair of the Remuneration and Nomination committee; and
- Joanna Dentskevich to be appointed as Senior Independent Director.
All the recommendations were with immediate effect except for
the change to the chair of the Remuneration and Nomination
committee which became effective 19 January 2021, following Marykay
Fuller reaching one year's membership of the committee.
Directors' attendance at all committee meetings held during the
year and their relevant experience is detailed above.
Induction of new Directors and training
The Chairman, in conjunction with the Company Secretary, ensures
that all new Directors receive a full, formal and tailored
induction on joining. An induction pack is provided to new
Directors containing relevant information about the Company, its
constitutional documents, terms of reference, policies, processes
and procedures. New Directors meet with relevant persons at the
Investment Manager and the Chairman provides guidance and mentoring
as appropriate. A programme of induction training is agreed with
each new director.
The Directors are encouraged to keep up to date and attend
training courses on relevant matters. The Company has a continuing
professional development policy which is reviewed annually.
Independence
The committee has reviewed the conflicts, relationships, other
positions and tenure of all the Board members and continues to be
satisfied that no material interests exist which would materially
impact the ability of each Director to exercise independent
judgement.
Accordingly, the Board considers all Directors on the Board to
be independent in character and judgement and entirely independent
of the Investment Manager. The Directors' conflicts of interest are
detailed in note 18.
Tenure
The Board's policy regarding tenure of service, including in
respect of the Chairman, is that any decisions regarding tenure
will balance the need to provide and maintain continuity,
knowledge, experience and independence, against the need to
periodically refresh the Board composition in order to maintain an
appropriate mix of the required skills, experience, age and length
of service.
Succession
The Board does not consider that lengthy service in itself
necessarily undermines a Director's independence nor that each
Director, including the Chairman, should serve for a finite fixed
period. However, based on the principles of the AIC Code, the
committee reviewed and recommended to the Board, subject to annual
re-election, the staged rotation of Directors to ensure the
continuity and stability of experience remains.
Diversity
Diversity is an important consideration in ensuring that the
Board and its committees have the right balance of skills,
experience, independence and knowledge necessary to discharge their
responsibilities. The right blend of perspectives is critical to
ensuring an effective board and a successful company.
Board diversity, including, but not limited to, gender,
ethnicity, professional and industry specific knowledge and
expertise, understanding of geographic markets and different
cultures, is taken into account when evaluating the skills,
knowledge and experience desirable to fill vacancies on the Board
as and when they arise.
Board appointments are made based on merit and calibre with the
most appropriate candidate, who is the best fit for the Company,
being nominated for appointment and as a result no measurable
targets in relation to Board diversity have been set. As at the
date of this report, the Board consists of two males and two
females.
The committee believes the Directors provide, individually and
collectively, the breadth of skill and experience to manage the
Company.
Overboarding
The Directors consider that as an investment company, the
Company demands less time commitment than would be required of an
executive director of an operating company. The Directors also
believe that a formulaic approach to assessing whether a director
is able to effectively discharge their duties is not appropriate
given the nature of the Company and directorships.
Prior to appointment to the Board, a Director must disclose
existing significant commitments and confirm that they are able to
allocate sufficient time to the business of the Company. In
addition, a Director must consult with the Chairman or Senior
Independent Director prior to taking on any listed company,
conflicted, time-consuming or otherwise material board appointment
and promptly notify the Company Secretary of any new board
appointments which they take on. On an annual basis, through the
Board's internal evaluation, as described below, each Director's
continuing ability to meet the time requirements of the role is
assessed by considering, amongst other things, their attendance at
Board, committee and other ad hoc meetings and events of the
Company held during the year as well as the nature and complexity
of other, both public and private, roles held.
Directors' attendance at all Board and committee meetings held
during the year is detailed above. None of the Directors hold an
executive position of a public company or chair a public operating
company.
The committee believes all the Directors have sufficient time to
meet their Board responsibilities.
Performance evaluation
The Directors are aware that they need to continually monitor
and improve performance and recognise that regular Board evaluation
provides a valuable feedback mechanism for improving Board
effectiveness.
An external evaluation is carried out every three years with
intervening years seeing internal evaluations by means of a
questionnaire. The questionnaire is specifically designed to assess
the strengths and independence of the Board, the Chairman and the
individual Directors, the performance and focus of Board and
committee meetings, the need of additional information required to
facilitate Board discussions and each Director's continuing
capacity.
During the year, all Directors undertook an internal evaluation
to review the effectiveness of the Board, its committees and the
individual Directors. The results of the internal evaluation were
presented to the Remuneration and Nomination committee, with the
below recommendations being approved by the Board on 25 January
2021:
- to engage with the Company's Broker to gain a better
understanding of shareholders' thoughts on the Company from a
governance perspective; and
- to work with the Investment Manager to enhance their reporting to the Board.
As a result of the evaluation, the Board considers that all
Directors continue to make an effective contribution and have the
requisite skills and experience to continue to provide able
leadership and direction for the Company.
Re-election
Beyond the requirements of the Articles, and in accordance with
the AIC Code, the Board has agreed a policy whereby all Directors
will seek annual re-election at the Company's AGM. Any Director not
re-elected would resign in accordance with applicable Jersey
regulatory requirements.
Accordingly, all of the Directors who held office throughout the
year will offer themselves for re--election at the AGM. The Board
has considered the positions of the retiring Directors as part of
the evaluation process and believes that it would be in the
Company's best interests for the Directors to be proposed for
re-election at the AGM given their material level of contribution
and commitment to the role.
Having considered the Directors' performance within the annual
Board performance evaluation process, the Board believes that it
continues to be effective and the Directors bring extensive
knowledge and commercial experience together with demonstrating a
range of business, financial, and asset management skills. The
Board therefore recommends that shareholders vote in favour of each
Director's proposed re-election.
Remuneration
The Directors' remuneration report below details the
remuneration policy and the Directors' remuneration during the
year.
Marykay Fuller
Chair of the Remuneration and Nomination committee
22 March 2021
AUDIT, RISK AND INTERNAL CONTROL
AUDIT COMMITTEE REPORT
I am pleased to present the Audit committee report for the year
ended 31 December 2020.
Statement from the chair
The Board is supported by the Audit committee with formally
delegated duties and responsibilities, with written terms of
reference which are available on the Company's website or upon
request from the Company Secretary. The committee's primary role
and responsibility is to review and monitor the integrity of the
Company's financial reporting to ensure it is fair, balanced and
understandable and provides the information necessary for
shareholders and other users to assess the Company's position and
performance, business model and strategy.
The committee is also responsible for monitoring internal
controls, in conjunction with the Risk committee, and the external
audit process, which includes making recommendations to the Board
in respect of the appointment, re-appointment or removal of the
Auditor and to approve its remuneration and terms of engagement.
The committee met with the Auditor in December 2020 to review,
challenge and agree their audit plan, and again in March 2021 to
discuss their audit report and opinion, after the conclusion of the
audit.
Composition and meetings
At 31 December 2020, the committee comprised three of the
Company's independent Directors.
The Board has agreed that the committee chair, Colin Huelin, a
chartered accountant, has recent and relevant financial experience
as required by the provisions of the AIC Code.
The committee formally met three times during the year ended 31
December 2020. Details of attendance at meetings held during the
year under review are set out above.
Although not members of the committee, the Company Secretary,
the Investment Manager, the lead audit partner and representatives
from the Company's Auditor are invited to attend committee
meetings. The Auditor has the opportunity to meet with the
committee without representatives of the Investment Manager being
present.
The committee chair meets when appropriate with the Auditor
ahead of committee meetings to review key audit areas for
discussion with the committee.
The Auditor is not present when their performance and/or
remuneration is discussed.
Financial reporting
The committee considered the requirements of the UK Companies
Act 2006 (Strategic Report and Directors' Report) Regulations 2013
with which it is complying voluntarily, in line with best practice
reporting. The committee specifically reviewed the Company's annual
report and financial statements to conclude whether it is fair,
balanced, understandable, comprehensive and consistent with prior
year reporting and how the Board assesses the performance of the
Company's business during the financial year, as required under the
AIC Code.
As part of this review, the committee considered if the annual
report and financial statements provided the information necessary
to shareholders to assess the Company's position and performance,
strategy and business model, and reviewed the description of the
Company's key performance indicators as well as updating the
governance section of the annual report.
The committee presented its recommendations 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 to provide the information necessary for the
shareholders to assess the Company's position and performance,
business model and strategy.
A key area examined this year was matters of judgement in
relation to the discount rates applied in the valuation process and
the performance of the investments in light of the impact of
Covid-19 on the operations of the Group's borrowers. Additional
disclosures on this can be found in the Investment Manager's report
above.
In addition to the above matters, the committee's work was
focused on the following areas:
- reviewing and challenging the results of the Investment
Manager's stress tests for the purpose of the viability statement.
This included obtaining confirmation that the assumptions applied
were in accordance with those previously approved by the Board and
reflected the impact of Covid-19 on the equity financing, debt
financing and investment portfolio of the Group, as well as being
satisfied with the rationale for selecting the duration of five
years for the viability period;
- reviewing, in conjunction with the Risk committee, the
effectiveness of the internal control environment of the Company
and the Company's compliance with its legal and regulatory
requirements;
- reviewing and recommending to the Board significant accounting
matters and accounting disclosures in the half-yearly and annual
financial statements of the Company, including those relating to
the impact of Covid-19; and
- 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 and recommending the
Auditor's re-appointment.
The 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 during the year were accepted by the Board.
Significant issues considered
After discussions with the Investment Manager and the Auditor,
the committee determined that the key risk of material misstatement
of the Company's financial statements was in relation to the
valuation of investments.
Valuation of investments
As outlined in note 11, the total value of financial assets at
fair value at 31 December 2020 was GBP446.0 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 and
estimates to be made to the financial statements, as further
explained in note 17.
The Valuation Agent performs semi-annual financial asset
valuations and provides valuation reports to the Board. Any assets
which may be subject to discount rate changes are valued and
reported to the Board on a quarterly basis. The fair value of the
financial assets is discussed with the Investment Manager at each
quarterly Board meeting. The committee has given close
consideration to the continuing impact of Covid-19 on the valuation
of investments. Since the outbreak of Covid-19 in March 2020, the
committee has met with the Valuation Agent and the Investment
Manager prior to consideration of each quarterly NAV to discuss,
and to challenge the determination of, the discount rate of a
number of loans within the portfolio to reflect the movements in
pricing of risk across the market as a whole, caused by the
uncertainties associated with Covid-19. Further details on this
approach can be seen in the Investment Manager's report above.
In addition to the aforementioned quarterly discussions with the
Valuation Agent, the committee meets with the Valuation Agent twice
a year, in January and July, to discuss the half-year and year-end
valuation process and methodology.
In December 2020, the committee met with the Auditor to review
and agree their plan for the audit of the financial statements. As
part of this, the committee sought confirmation with the Auditor's
valuation technical specialists for the sample selection for the
valuation audit. Those loans that were particularly considered were
where the financial position of the underlying borrowers had been
impacted in light of the Covid-19 pandemic. Following discussions
with the Auditor in March 2021 regarding the findings and
conclusion of their audit, the committee concluded that the
methodology adopted for the valuation and the discount rates
applied were appropriate and in accordance with the terms of
engagement of the Valuation Agent.
The discount rates adopted to determine the valuation are
selected and recommended by the Valuation Agent. The discount rates
are 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 17.9 to the financial statements.
The committee discussed the material estimates and judgements
applied in the valuation process and also compared this to feedback
from the Investment Manager. After discussions with the Auditor,
the committee was satisfied that the range of discount rates was
appropriate for the valuation carried out by the Valuation
Agent.
Performance of investments
The Board discusses with the Investment Manager the performance
of individual investments within the portfolio each quarter. As
explained in the Chairman's statement and Investment Manager's
report, the Group has been working to dispose of its small CHP loan
since default in March 2019. The Group has been engaging with a
large infrastructure investment bank regarding the purchase of the
asset since October 2020 and it is hoped that a conclusion will be
reached on this transaction in the coming weeks. It is expected
that the Company will ultimately recover slightly more than the
written down value. The Board and the Investment Manager have
learnt significant lessons from this loan which have been included
in origination and monitoring processes.
Accounting policies, narrative reporting, critical accounting
estimates and key judgements
The committee reviewed the narrative reporting, accounting
policies and note 2.2 to the financial statements that relate to
critical accounting estimates and key judgements and confirmed that
they are appropriate for the Company.
Going concern and viability statement
The 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, including the risks and uncertainties associated
with Covid-19 and Brexit, the 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 and viability
assessment by the Directors is set out in the strategic report
above.
External audit
Independence and objectivity of the Auditor
Mr Karl Hairon is the partner from PwC responsible for the
audit. The first audit performed by Mr Hairon and PwC was in
respect of the annual report and financial statements for the
period ended 31 December 2016.
Mr Hairon is subject to mandatory rotation at the end of the
2020 audit process and will be replaced by Ms Lisa McClure for the
audit of the 2021 annual accounts and financial statements. In
accordance with the statutory requirements relating to the
appointment of auditors, the Company would need to conduct an audit
tender no later than for the accounting period beginning 1 January
2026.
To fulfil its responsibility regarding the independence and
objectivity 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.
The Audit committee reviews the scope and nature of all proposed
non-audit services before engagement, to seek to ensure that the
independence and objectivity of the Auditor is safeguarded. The
committee has agreed a policy whereby, in order to avoid any
potential impact on the independence and objectivity of the
Auditor, the Company will not seek to obtain any non-audit services
from the Auditor, with the exception of the review of the
half-yearly report and financial statements.
During the year under review, the Auditor carried out a review
of the half-yearly report and financial statements for the period
ended 30 June 2020. PwC confirmed that this had not impacted their
independence and outlined the reasons for this. The 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 services during the year ended 31 December
2020:
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
----------------------------- ----------- -----------
Audit fees
Annual audit of the Company 90 75
----------------------------- ----------- -----------
Non-audit services
Review of half-yearly report 28 24
----------------------------- ----------- -----------
Total 118 99
----------------------------- ----------- -----------
Effectiveness of the external audit
The Audit committee reviews the effectiveness of the external
audit process on an annual basis, considering performance, fees,
objectivity, independence, relevant experience and materiality with
PwC. To assess the effectiveness of the Auditor, the committee
reviewed:
-
- the Auditor's fulfilment of the agreed audit plan and variations from it;
- the Auditor's assessment of its objectivity and independence as auditor of the Company;
- the Auditor's report to the committee, highlighting any issues
that arose during the course of the audit; and
- feedback from the Investment Manager and the Administrator
evaluating the performance of the audit team.
In March 2021, 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.
Re-appointment of the Auditor
Following consideration of the performance of the Auditor, the
services provided during the year and a review of its independence
and objectivity, the Audit committee continues to be satisfied with
the performance of the Auditor and has therefore recommended the
re-appointment of PwC as the Company's Auditor at the 2021 AGM.
Colin Huelin FCA
Chair of the Audit committee
22 March 2021
RISK COMMITTEE REPORT
I am pleased to present the Risk committee report for the year
ended 31 December 2020.
Statement from the chair
The Risk committee was established in October 2019 to satisfy
the recommendation of the 2018 external Board evaluation.
The purpose of the committee is to assist the Board in its
oversight and assessment of the risks that the Company is exposed
to, its risk appetite, the effectiveness of the risk management
framework and ensuring the external reporting of the Company gives
a fair, balanced and understandable reflection of risk having due
regard to the Company's investment objective and policy.
Composition
The committee comprises all four Directors of the Company, all
of whom are considered independent. Details of attendance at
meetings held during the year are set out above.
Responsibilities
The committee's key responsibilities, amongst others, are
to:
- review the risks the Company is exposed to and consider their
likelihood and impact if they were to materialise;
- review, in conjunction with the Audit committee, the effectiveness of the internal controls;
- review the risk management framework;
- carry out a robust assessment of the principal and emerging
risks facing the Company, including those that would threaten its
business model, future performance, solvency or liquidity and
ability to deliver its strategy;
- review the report of the risk officer of the AIFM prior to
consideration of the principal and emerging risks and the principal
uncertainties to be included in the half-yearly and annual reports
and financial statements; and
- include in the annual report of the Company a description of
the principal and emerging risks along with explanations on how
they are being managed or mitigated and any change from previous
years.
A copy of the terms of reference within which the committee
operates is available on the Company's website or from the Company
Secretary upon request.
Risk management and monitoring
The Company has in place a risk register to manage and track
identified risks and uncertainties and potential emerging risks
that the committee believes the Company is exposed to. For each
risk, the committee considers, inter alia, their impact on the
Company achieving its investment policy along with the nature and
extent of the risk, their mitigants and any driving factors which
may increase the risk.
The level of residual risk determined as part of this analysis
assists the Board (on the committee's recommendation) to determine
whether it is within the Company's appetite and any actions needed
to be taken. The register is reviewed at least twice a year by the
committee and serves as a useful component in tracking the
principal and emerging risks of the Company.
Details of the Company's risk management framework, including
the role of the AIFM, are set out above.
Principal risks and uncertainties
Post year end, the Risk committee met, with the Investment
Manager present, to review and recommend for approval by the Board
the principal risks and uncertainties of the Company. As a result
of this review and supporting their assessment in the half-yearly
report and unaudited interim condensed financial statements for the
period ended 30 June 2020, the committee confirmed that although it
did not consider there to be any new principal risks or
uncertainties during the year, as a result of Covid-19 and the
ongoing uncertainty of Brexit, the residual risk of some of the
principal risks had increased over the year. Descriptions of these,
along with explanations on how they are being managed and mitigated
and the change from last year, are detailed above.
Emerging risks
Last year, the emerging risks of the Company were reported as
being climate change, global financial volatility, supply chain
management and Covid-19.
With respect to climate risk, during the year, as reported
above, with assistance from the Investment Manager, the Board began
a process of defining its policy on sustainability and ESG. The
Board looks forward to reporting on this further during this
upcoming year.
The emerging risks of global financial volatility, supply chain
management were identified as an impact of Covid-19 and along with
Covid-19, have been incorporated into the risk management processes
of the Company and captured within the principal risks and
uncertainties already identified by the committee and therefore are
not considered to now be emerging risks.
At the time of writing, the Risk committee, through the
procedures it has in place, has not identified any new emerging
risks to the Company.
Joanna Dentskevich
Chair of the Risk committee
22 March 2021
REMUNERATION
DIRECTORS' REMUNERATION REPORT
The Directors are pleased to present their remuneration report
for the year ended 31 December 2020.
The Directors' remuneration report provides details on
remuneration in the year. Although it is not a requirement under
Companies Law to have the Directors' remuneration report or the
Directors' remuneration policy approved by shareholders, the Board
believes that as a company whose shares are admitted to trading on
the LSE, it is good practice for it to do so.
The Directors' remuneration policy will be put to a shareholder
vote at least once every three years and in any year if there is to
be a change in the Directors' remuneration policy. The remuneration
policy was approved by shareholders in 2019 and as there will be no
change in the way in which the policy will be implemented during
the course of the next financial year, there is no requirement for
the policy to be put to shareholders at this year's AGM.
A resolution will be put to shareholders at the forthcoming AGM
to be held on 17 May 2021 to receive and approve the Directors'
remuneration report and shareholders will have the opportunity to
express their views and raise any queries in respect of the
remuneration policy at this meeting. To date, no shareholders have
commented in respect of remuneration.
This report is not subject to audit.
Voting at AGM
The Directors' remuneration report for the year ended 31
December 2019 and the Director's remuneration policy were approved
by shareholders at the AGMs held on 7 July 2020 and 23 May 2019
respectively. The votes cast by proxy were as follows:
Directors' remuneration Directors' remuneration
report policy
------------------------- -------------------------
Number of % of Number of % of
votes cast votes cast votes cast votes cast
----------------------------- ------------- ---------- ------------- ----------
For 222,469,546 92.71 147,074,473 99.65
Against 17,479,876 7.28 - -
At the Chairman's discretion 12,000 0.01 523,935 0.35
----------------------------- ------------- ---------- ------------- ----------
Total votes cast 239,961,422 100 147,598,408 100
----------------------------- ------------- ---------- ------------- ----------
Number of votes withheld 16,232 - 6,232 -
----------------------------- ------------- ---------- ------------- ----------
Performance of the Company
The Board is responsible for the Company's investment strategy
and performance. The management of the Group's investment portfolio
is delegated to the Investment Manager through the investment
management agreement, as referred to in note 18.
The tables below illustrate the total shareholder return(1) for
a holding in the Company's shares as compared to the GBP Corporate
Bond Index. The Company considers this to be an appropriate index
against which to measure the Company's performance, in the absence
of a meaningful quoted benchmark index.
Cumulative performance to 31 December 2020
Three Six One Two Four Since
Period months months year years years launch
------------------------------------- ------ ------ ------ ------ ----- ------
GCP Asset Backed Income Fund Limited 7.4% 7.4% (9.8)% (0.6)% 13.2% 21.6%
GBP Corporate Bond Index 4.0% 5.6% 9.1% 21.0% 24.1% 39.9%
------------------------------------- ------ ------ ------ ------ ----- ------
Annual performance to 31 December 2020
Year ended Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December 31 December
2020 2019 2018 2017 2016
------------------------------------- ----------- ----------- ----------- ----------- -----------
GCP Asset Backed Income Fund Limited (9.8)% 10.2% 9.1% 4.4% 6.7%
GBP Corporate Bond Index 9.1% 11.0% (2.2)% 4.9% 12.3%
------------------------------------- ----------- ----------- ----------- ----------- -----------
Source: Bloomberg. Basis: percentage growth, shareholder total
return with net income reinvested.
Past performance is not a guide to future performance.
Directors' remuneration for the year ended 31 December 2020
The fees paid to the Directors in the year ended 31 December
2020 are set out below.
Directors' Committee
fee Chairman fee chair fee Expenses Total
GBP GBP GBP GBP GBP
---------------- -------------- -------------- ----------- ----------------
2020 2019 2020 2019 2020 2019 2020 2019 2020 2019
------------------- ------- ------- ------ ------ ------ ------ ---- ----- ------- -------
Alex Ohlsson 40,000 35,000 15,000 11,000 - - - 442 55,000 46,442
Colin Huelin 40,000 35,000 - - 10,000 7,000 104 347 50,104 42,347
Joanna Dentskevich 40,000 35,000 - - 10,000 5,000 - 679 50,000 40,679
Marykay Fuller(1) 40,000 6,000 - - 5,000 - 463 120 45,463 6,120
------------------- ------- ------- ------ ------ ------ ------ ---- ----- ------- -------
Total 160,000 111,000 15,000 11,000 25,000 12,000 567 1,588 200,567 135,588
------------------- ------- ------- ------ ------ ------ ------ ---- ----- ------- -------
1. Appointed as a Director of the Company on 6 November 2019.
The fees paid to the Directors were in relation to non-executive
Director services. At 31 December 2020, liabilities in respect of
these services amounted to GBP50,000. No variable remuneration,
discretionary payments or payments for loss of office were made
during the year.
Directors' remuneration was increased with effect from 1 July
2019 so that each Director receives GBP40,000, with an additional
GBP15,000 paid to the Chairman and an additional GBP10,000 paid to
the chairs of the Audit committee and the Risk committee. In
January 2020, the Board approved the recommendation of the
Remuneration and Nomination committee for Marykay Fuller to receive
an additional GBP5,000 for her roles as chair of the Management
Engagement committee and the Remuneration and Nomination
committee.
1. Alternative performance measure - refer below for definitions and calculation methodology.
Five-year fee comparison
Over the last five years, Directors' pay has increased as set
out in the table below:
Year ended Year ended
31 December 31 December
2020 2015 Change
GBP'000 GBP'000 %
------------------------------------------------------------------------------------ ----------- ----------- ------
Chairman 55 38 44.7
Director 40 32 25.0
Additional fee for chair of the Audit committee 10 4 150.0
Additional fee for chair of the Risk committee 10 - -
Additional fee for chair of the Management Engagement committee and the Remuneration
and Nomination
committee 5 - -
------------------------------------------------------------------------------------ ----------- ----------- ------
As previously noted, the Company does not have any employees and
hence no comparisons are given in respect of the comparison between
Directors' and employees' pay increases.
Relative importance of spend on pay
The table below sets out, in respect of the year ended 31
December 2020:
a) total income;
b) the remuneration paid to the Directors;
c) the distributions made to shareholders by way of dividend;
and
d) share repurchases.
Year ended Year ended
31 December 31 December
2020 2019 Change
Period GBP'000 GBP'000 %
--------------------------------------------------------------------------- ----------- ----------- ------
Total income 33,919 33,961 0.1
Directors' remuneration 200 134 49.3
Dividends paid to shareholders (including dividends settled in shares(1) ) 28,463 26,461 7.6
Share repurchases 1,514 - -
--------------------------------------------------------------------------- ----------- ----------- ------
1. Dividends settled in shares are where shareholders have
elected to take the scrip dividend alternative.
Directors' interests
There is no requirement under the Company's Articles for
Directors to hold shares in the Company. At 31 December 2020, the
interests of the Directors in the ordinary shares of the Company
are as set out below(2) :
31 December 31 December
2020 2019
Number of Number of
Period shares shares
------------------- ----------- -----------
Alex Ohlsson 50,000 50,000
Colin Huelin 34,142 34,142
Joanna Dentskevich 40,379 40,379
Marykay Fuller - -
------------------- ----------- -----------
2. The Directors' shareholdings are either direct and/or
indirect holdings of the ordinary shares in the Company.
There have been no changes to any of the above holdings between
31 December 2020 and the date of this report.
DIRECTORS' REMUNERATION POLICY
In accordance with the AIC Code, no Director is involved in
deciding his/her own remuneration.
The Board considers that Directors' fees should reflect duties,
responsibilities and the value of their time spent and as such the
Chairman and the chairs of the Board committees receive additional
remuneration for these roles.
Directors are not eligible for bonuses, pension benefits, share
options, long-term incentive schemes or other benefits in respect
of their services as non--executive Directors of the Company. In
addition, no payment will be made to a Director for loss of office,
or as consideration for or in connection with his/her retirement
from office.
The Board may, however, allow for additional remuneration to be
paid where Directors, at the request of the Company, are involved
in ad hoc duties beyond those normally expected as part of the
appointment.
The remuneration of each of the Directors is subject to fixed
fee arrangements, paid quarterly in arrears. Part of the Directors'
fee may be paid in the form of fully paid shares in the capital of
the Company.
The aggregate of all the Directors' remuneration is subject to
an annual cap of GBP300,000 in accordance with the Articles and
shall be reviewed annually.
The Company will reimburse the Directors all reasonable
travelling, hotel and other expenses properly incurred by them in
or about the proper performance of their duties and the taking of
reasonable independent legal advice concerning matters relating to
their directorship, provided that if and when required by the
Company, they produce to the Company receipts or other evidence of
actual payment of expenses.
The Company is committed to ongoing shareholder dialogue and any
views expressed by shareholders on the fees being paid to Directors
would be taken into consideration by the Board when reviewing the
Directors' remuneration policy and in the annual review of
Directors' fees.
Directors' fee levels
The Board has set four fee levels: one for the Chairman, one for
the other Directors, an additional fee for the chairs of the Audit
and Risk committees and an additional fee for the chair of the
Management Engagement committee and the Remuneration and Nomination
committee. Fees are reviewed annually in accordance with the above
policy. The fee for any new Director appointed will be determined
on the same basis.
The fees payable to Directors in respect of the year ended 31
December 2020 and the expected fees payable in respect of the year
ending 31 December 2021 are set out in the table below.
Expected annual Annual fees
fees for the
year for the year
to 31 December to 31 December
2021 2020
GBP GBP
----------------------------------------------- --------------- --------------
Chairman 55,000 55,000
Chair of the Audit committee 50,000 50,000
Chair of the Risk committee 50,000 50,000
Chair of the Management Engagement committee
and the Remuneration and Nomination committee 45,000 45,000
----------------------------------------------- --------------- --------------
Total remuneration paid to Directors 200,000 200,000
----------------------------------------------- --------------- --------------
Approval
The Directors' remuneration report was approved by the Board and
signed on its behalf by:
Marykay Fuller
Chair of the Remuneration and Nomination committee
22 March 2021
DIRECTORS' REPORT
The corporate governance statement set out above 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.
Directors
The Directors in office during the year and at 31 December 2020
are shown above.
The terms and conditions of the appointment of the Directors are
formalised in letters of appointment, copies of which are available
for inspection at the Company's registered office. None of the
Directors have a contract of service with the Company nor has there
been any other contract or arrangement between the Company and any
Director at any time during the year.
The Company has Directors' and Officers' liability insurance and
civil liability insurance. Under the Company's Articles, the
Directors are provided, subject to the provisions of the Jersey
legislation, with an indemnity in respect of liabilities which they
may sustain or incur in connection with their appointment.
Director conflicts of interest
It is the responsibility of each individual Director to avoid a
conflict of interest situation arising. The Director must inform
the Board as soon as he or she is aware of the possibility of an
interest that might possibly conflict with the interests of the
Company. The Company's articles of association authorise the Board
to approve such situations, where deemed appropriate. A register of
conflicts is maintained by the Company Secretary and is reviewed at
Board meetings, to ensure that any authorised conflicts remain
appropriate. The Directors are required to confirm at these
meetings whether there has been any change to their position.
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.
Further details of the Directors' conflicts of interest can be
found in note 18.
2020 general meetings
The 2020 AGM of the Company was held on 7 July 2020. Resolutions
1 to 11 related to ordinary business. Resolutions 12 and 13 related
to special business as follows:
- that the Company be authorised to purchase up to 14.99% of its own ordinary shares; and
- that the Directors be authorised to allot and issue up to
44,203,351 ordinary shares (representing approximately 10% of the
ordinary shares in issue at the date of the AGM notice), as if the
pre-emption rights in the Articles did not apply.
An EGM of the Company was also held on 7 July 2020 where the
following resolution was put to shareholders:
- that in addition to resolution 13 passed at the AGM the
Directors be authorised to allot and issue up to 44,203,351
ordinary shares (representing approximately 10% of the ordinary
shares in issue at the date of the EGM notice), as if the
pre-emption rights in the Articles did not apply.
All resolutions put to shareholders at the AGM and EGM were
passed with in excess of 90% of votes cast in favour.
2021 Annual General Meeting
The 2021 AGM will be held on 17 May 2021 at the registered
office of the Company: 12 Castle Street, St Helier, Jersey JE2
3RT.
A separate notice convening the AGM will be distributed to
shareholders with the annual report and financial statements on or
around 7 April 2021, which includes an explanation of the items of
business to be considered at the meeting. A copy of the notice will
also be published on the Company's website.
Share capital
As detailed above, at the general meetings held on 7 July 2020,
the Company was granted the authority to allot ordinary shares up
to 20% of its total issued share capital at that date on a
non-pre--emptive basis, amounting to 88,406,702 ordinary shares. No
ordinary shares have been allotted under this authority during the
year. Details of the movements in share capital during the period
are set out in the statement of changes in equity below and in note
16.
The Company will be seeking shareholder approval at the
Company's AGM scheduled to be held on 17 May 2021 to renew its
authority in respect of the disapplication of pre-emption rights
over 10% of its ordinary shares in issue which it may then be able
to issue by way of placings. This will provide the Company with the
ability to take advantage of investment opportunities as they arise
and further broaden its investor base over time.
As previously mentioned, at the AGM held on 7 July 2020, the
Company was granted the authority to purchase up to 14.99% of the
Company's ordinary share capital in issue at the date on which the
notice of the AGM was published, amounting to 66,260,824 ordinary
shares. This authority will expire at the conclusion of, and
renewal will be sought at, the AGM to be held on 17 May 2021.
The Company may hold any ordinary shares that it purchases in
treasury 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 in
treasury gives the Company the ability to re-sell or transfer them
quickly and cost effectively and provides 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 in treasury will be made by the Directors at the
time of purchase, on the basis of the Company's and shareholders'
best interests.
At 31 December 2020, the Company's issued share capital
comprised 442,033,518 ordinary shares of no par value, 1,875,000 of
which were repurchased by the Company and are held in treasury. The
total voting rights of the Company at 31 December 2020 were
440,158,518, being the issued share capital minus the shares held
in treasury. At general meetings of the Company, every ordinary
shareholder shall have one vote in respect of every ordinary share
and every C shareholder, if any, shall have one vote in respect of
every C share.
Since the year end and up until the date of this report, the
Company has repurchased an additional 325,000 ordinary shares.
Therefore, the total voting rights of the Company at the date of
this report are 439,833,518. All shares repurchased are held in
treasury
Dividends
Details of the dividends paid and declared during the period are
set out in note 9.
As the last dividend in respect of any financial period is
payable prior to the relevant AGM, it is declared as an interim
dividend and, accordingly, there is no final dividend payable. The
Board is conscious that this means that shareholders will not be
given the opportunity to vote on the payment of a final dividend.
Accordingly, it has been decided that shareholders will be asked to
confirm their approval of the Company's dividend policy at the
forthcoming AGM.
Greenhouse gas emissions reporting
The Company has no employees and does not own any 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.
Significant voting rights
At 31 December 2020, the Company had been informed of the
following holdings representing more than 3% of the voting rights
of the Company:
Percentage
of
total voting
Name Shares held rights
---------------------------------- ----------- ------------
Valu-Trac Investment Management 43,034,277 9.78%
CCLA Investment Management 39,153,674 8.90%
Close Asset Management 35,113,054 7.98%
Foresight Group 21,733,304 4.94%
West Yorkshire Pension Fund 17,421,098 3.96%
Raymond James Investment Services 14,743,195 3.35%
EFG Harris Allday 14,023,555 3.19%
Canopius 13,544,656 3.08%
Integrated Financial Arrangements 13,394,367 3.04%
---------------------------------- ----------- ------------
The table of significant shareholders disclosed forms part of
note 2.2 of the notes to the financial statements.
The Company has not been informed of any changes to the
interests between 31 December 2020 and the date of this report.
Auditor
The Directors holding office at the date of this annual report
confirm that, so far as they are each aware, there is no relevant
audit information of which the Company's Auditor is unaware. Each
Director has taken all the steps that they ought to have taken as a
Director to make themselves aware of any relevant audit information
and to establish that the Company's Auditor is aware of that
information.
PwC has expressed its willingness to continue as Auditor of the
Company and resolutions for its re--appointment and to authorise
the Audit committee to determine its remuneration will be proposed
at the forthcoming AGM.
Financial risk management
Information about the Company's financial risk management
objectives and policies is set out in note 17 to the financial
statements.
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 indicating where the information is set
out. The information required under Listing Rule 9.8.4(7) in
relation to allotments of shares is set out under the heading
'Share capital' above. The Directors confirm that there are no
other disclosures required in relation to Listing Rule 9.8.4.
Approved by the Board
Alex Ohlsson
Chairman
22 March 2021
STATEMENT OF DIRECTORS' RESPONSIBILITIES
IN RESPECT OF THE ANNUAL REPORT AND FINANCIAL STATEMENTS
Under the terms of the DTRs of the FCA, 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 adequate 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 FCA's DTRs, each of the Directors, whose
names are set out above, confirms that to the best of his or her
knowledge:
- 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 financial position of the
Company, together with a description of the principal risks and
uncertainties that the Company faces.
So far as the Directors are aware, there is no relevant audit
information of which the Auditor is unaware, and each Director has
taken all steps that he or she ought to have taken as a Director in
order to make himself or herself aware of any relevant audit
information and to establish that the Auditor is aware of that
information.
The Directors confirm that they have complied with the above
requirements in preparing the financial statements.
The annual report and financial statements, taken as a whole,
are considered by the Board to be fair, balanced and
understandable, and provide the information necessary for
shareholders to assess the Company's position, performance,
business model and strategy.
On behalf of the Board
Alex Ohlsson
Chairman
22 March 2021
INDEPENT AUDITOR'S REPORT
To the members of GCP Asset Backed Income Fund Limited
Report on the audit of the financial statements
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 2020, and of its
financial performance and its cash flows for the year 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 2020;
- the statement of comprehensive income for the year then ended;
- the statement of changes in equity for the year then ended;
- the statement of cash flows for the year then ended; and
- the notes to the financial statements, which include
significant accounting policies and other explanatory
information.
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 ethical
requirements that are relevant to our audit of the financial
statements of the Company, as required by the Crown Dependencies'
Audit Rules and Guidance. We have fulfilled our other ethical
responsibilities in accordance with these requirements.
Our audit approach
Overview
Audit scope
The Company is based in Jersey and the financial statements
include its investments in the Subsidiary and other investments as
financial assets through profit or loss rather than consolidated in
accordance with IFRS 10 requirements for investment companies.
Our audit work was performed solely in Jersey and London for 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 in the Subsidiary.
- Acquisition of investments in the Subsidiary.
- Directors' consideration of the impact of Covid-19.
Materiality
- Overall materiality: GBP11.2 million (2019: GBP11.3 million) based on 2.5% of net assets.
- Performance materiality: GBP8.4 million.
The scope of our audit
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.
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, and any comments
we make on the results of our procedures thereon, 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.
This is not a complete list of all risks identified by our
audit.
Key audit matter How our audit addressed the key audit matter
---------------------------------------------------------- ----------------------------------------------------------
Valuation of investments in the Subsidiary We have performed the following procedures:
Refer to Audit committee report, note 11 and note 17 of Discussions were held with the Directors and Investment
the financial statements Manager, as appropriate, to ascertain
The valuation of investments in the Subsidiary drives a the controls over valuations and gain understanding of the
number of key performance indicators, portfolio and movements during
such as net asset value, which is of significant interest the year.
to investors and the market. We evaluated the competency of the Company's external
The fair value of the investments in the Subsidiary is valuation agent in the context of their
derived from the fair value of the ability to generate a reliable estimate of the fair value,
underlying loans to the end borrower. by assessing their professional
The valuations are performed using contractual cash flows qualifications, experience and independence from the
generated by each loan facility Company.
over a medium to long term period and by selecting key We engaged valuation experts from PwC UK London to assess
assumptions such as the discount rate the reasonableness of the methodology
and macroeconomic assumptions. applied by management's expert with regards to a sample of
The nature of the discounted cash flow ("DCF") is investments and the reasonableness
inherently subjective due to key assumptions of key assumptions used.
used for the discount rate and the amount or timing of We held discussions with the Investment Manager to
cash flows supporting the interest understand the monitoring process of the
and capital repayments on debt positions held. borrowers' payments and financial performance, in
The existence of significant estimation uncertainty, identifying circumstances that can materially
coupled with the fact that small percentage impact the recoverability of the contractual cash flows.
differences in assumptions to the valuations when We agreed a sample of the contractual cash flows used in
aggregated could result in material misstatement, the DCF to the contractual payment
are the reasons for our specific audit focus and attention schedule of the loan facility agreements and tested the
to this area. mathematical accuracy of the DCF calculation.
We challenged the assumptions used in the valuation
models.
We considered the adequacy of the Company's disclosures in
respect of the fair value of the
unlisted investments, specifically the estimates and
judgements taken by 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 in the Subsidiary Our audit procedures with respect to the acquisition of
Refer to note 11 to the financial statements the new underlying loans included
During the year, the Company has acquired new secured loan understanding the controls over the process and approval
notes to the value of GBP126.5 of the new loan notes.
million through the Subsidiary. For a sample of secured loan notes repaid during the year,
The acquisition of the new secured loan notes were the we tested the movement to facility
most prominent investment activity agreements and cash payments.
for the Company during the year and represents a For a sample of new secured loan notes advanced during the
significant balance on the statement of financial year, we tested the movement to
position, as a result was an area of audit focus. facility agreements, note certificates and cash payments.
Based on the above procedure, no differences were
identified by our testing which required
reporting to those charged with governance.
Directors' consideration of the impact of Covid-19 In assessing the Directors' consideration of the impact of
Refer to note 2 to the financial statements Covid-19, we have performed the
The Directors have considered the impact of the events following procedures:
that have been caused by the pandemic,
Covid-19, on the current and future operations of the * we obtained the Directors' assessment of the
Company. In doing so, the Directors financial forecasts and liquidity analysis
have made estimates and judgements that are critical to underpinning their going concern assessment;
the outcomes of these considerations
with particular focus on the Company's ability to continue
as a going concern. * we held meetings with the investment manager and the
As a result of the impact of Covid-19 on the wider Directors to discuss their assessment of going
financial markets, we have determined the concern and challenged their estimates and
Directors' consideration of the impact of Covid-19 judgements; and
(including their associated estimates and
judgement) to be a key audit matter.
* we then considered the appropriateness of the
disclosures made by the Directors in respect to the
impact of Covid-19 on the current and future
operations of the Company.
Based on our procedures and the information available at
the time of the Directors' approval
of the financial statements, we have not identified any
matters to report with respect to
the directors' consideration of the impact of Covid-19 on
the operations of the Company, albeit
acknowledging that the situation continues to evolve.
---------------------------------------------------------- ----------------------------------------------------------
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed
enough work to be able to give 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. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations,
helped us to determine the scope of our audit and the nature,
timing and extent of our audit procedures on the individual
financial statement line items and disclosures and in evaluating
the effect of misstatements, both individually and in aggregate on
the financial statements as a whole.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
GBP11.2 million (2019: GBP11.3
Overall materiality million).
How we determined it 2.5% of net assets
Rationale for benchmark applied 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 use performance materiality to reduce to an appropriately low
level the probability that the aggregate of uncorrected and
undetected misstatements exceeds overall materiality. Specifically,
we use performance materiality in determining the scope of our
audit and the nature and extent of our testing of account balances,
classes of transactions and disclosures, for example in determining
sample sizes. Our performance materiality was 75% of overall
materiality, amounting to GBP8.4 million for the Company financial
statements.
In determining the performance materiality, we considered a
number of factors - risk assessment and aggregation risk and the
effectiveness of controls - and concluded that an amount at the
upper end of our normal range was appropriate.
We agreed with the Audit committee that we would report to them
misstatements identified during our audit above GBP562,000 (2019:
GBP565,000) as well as misstatements below that amount that, in our
view, warranted reporting for qualitative reasons.
Reporting on other information
The Directors are responsible for the other information. The
other information comprises all the information included in the
annual report and financial statements (the "annual report") but
does not include the financial statements and our auditor's report
thereon.
Our opinion on the financial statements does not cover the other
information and we do not express any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information 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 based on these
responsibilities.
Responsibilities for the financial statements and the audit
Responsibilities of the Directors for the financial
statements
As explained more fully in the statement of Directors'
responsibilities, the Directors are responsible for the preparation
of the 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 related 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.
Our audit testing might include testing complete populations of
certain transactions and balances, possibly using data auditing
techniques. However, it typically involves selecting a limited
number of items for testing, rather than testing complete
populations. We will often seek to target particular items for
testing based on their size or risk characteristics. In other
cases, we will use audit sampling to enable us to draw a conclusion
about the population from which the sample is selected.
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 over a period of at least
twelve months from the date of approval of the financial
statements. 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.
Use of this report
This report, including the opinions, 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 these opinions, 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.
Report on other legal and regulatory requirements
Company Law exception reporting
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.
Corporate governance statement
The Listing Rules require us to review the Directors' statements
in relation to going concern, longer-term viability and that part
of the corporate governance statement relating to the Company's
compliance with the provisions of the UK Corporate Governance Code
specified for our review. Our additional responsibilities with
respect to the corporate governance statement as other information
are described in the Reporting on other information section of this
report.
The Company has reported compliance against the 2019 AIC Code of
Corporate Governance (the "Code") which has been endorsed by the UK
Financial Reporting Council as being consistent with the UK
Corporate Governance Code for the purposes of meeting the Company's
obligations, as an investment company, under the Listing Rules of
the FCA.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the corporate
governance statement, included within the Governance section is
materially consistent with the financial statements and our
knowledge obtained during the audit, and we have nothing material
to add or draw attention to in relation to:
- the Directors' confirmation that they have carried out a
robust assessment of the emerging and principal risks;
- the disclosures in the Annual Report that describe those
principal risks, what procedures are in place to identify emerging
risks and an explanation of how these are being managed or
mitigated;
- the Directors' statement in the financial statements about
whether they considered it appropriate to adopt the going concern
basis of accounting in preparing them, and their identification of
any material uncertainties to the Company's ability to continue to
do so over a period of at least twelve months from the date of
approval of the financial statements;
- the Directors' explanation as to their assessment of the
Company's prospects, the period this assessment covers and why the
period is appropriate; and
- the Directors' statement as to whether 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 period of its
assessment, including any related disclosures drawing attention to
any necessary qualifications or assumptions.
Our review of the Directors' statement regarding the longer-term
viability of the Company 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
Code; and considering whether the statement is consistent with the
financial statements and our knowledge and understanding of the
Company and its environment obtained in the course of the
audit.
In addition, based on the work undertaken as part of our audit,
we have concluded that each of the following elements of the
corporate governance statement is materially consistent with the
financial statements and our knowledge obtained during the
audit:
- the Directors' statement that they consider the Annual Report,
taken as a whole, is fair, balanced and understandable, and
provides the information necessary for the members to assess the
Company's position, performance, business model and strategy;
- the section of the annual report that describes the review of
effectiveness of risk management and internal control systems;
and
- the section describing the work of the Audit Committee.
We have nothing to report in respect of our responsibility to
report when the Directors' statement relating to the Company's
compliance with the Code does not properly disclose a departure
from a relevant provision of the Code specified under the Listing
Rules for review by the auditors.
Karl Hairon
For and on behalf of
PricewaterhouseCoopers CI LLP
Chartered Accountants and Recognized Auditor
Jersey, Channel Islands
22 March 2021
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2020
Year ended Year ended
31 December 31 December
2020 2019
Notes GBP'000 GBP'000
------------------------------------------------------------------------------------- ----- ----------- -----------
Income
Loan interest realised 3 35,544 36,516
Net unrealised loss on investments at fair value through profit or loss 3 (3,850) (3,163)
Net (loss)/gain on derivative financial instruments 3 (394) 322
------------------------------------------------------------------------------------- ----- ----------- -----------
Net changes in fair value of financial assets and financial liabilities at fair value
through
profit or loss 31,300 33,675
------------------------------------------------------------------------------------- ----- ----------- -----------
Fee income 3 2,615 274
Deposit interest income 4 12
------------------------------------------------------------------------------------- ----- ----------- -----------
Total income 33,919 33,961
------------------------------------------------------------------------------------- ----- ----------- -----------
Expenses
Investment management fees 18 (3,891) (3,715)
Operating expenses 4 (1,661) (1,198)
Directors' remuneration 6 (201) (136)
------------------------------------------------------------------------------------- ----- ----------- -----------
Total expenses (5,753) (5,049)
------------------------------------------------------------------------------------- ----- ----------- -----------
Total operating profit before finance costs 28,166 28,912
------------------------------------------------------------------------------------- ----- ----------- -----------
Finance costs
Finance expense 7 (772) (875)
------------------------------------------------------------------------------------- ----- ----------- -----------
Total profit and comprehensive income 27,394 28,037
------------------------------------------------------------------------------------- ----- ----------- -----------
Basic and diluted earnings per share (pence) 10 6.21 6.81
------------------------------------------------------------------------------------- ----- ----------- -----------
All items in the above statement are derived from continuing
operations.
The accompanying notes below form an integral part of these
financial statements.
STATEMENT OF FINANCIAL POSITION
For the year ended 31 December 2020
As at As at
31 December 31 December
2020 2019
Notes GBP'000 GBP'000
------------------------------------------------------ ----- ----------- -----------
Assets
Financial assets at fair value through profit or loss 11 445,962 453,877
Other receivables and prepayments 12 108 63
Derivative financial instruments 17 158 4
Cash and cash equivalents 13 9,994 8,687
------------------------------------------------------ ----- ----------- -----------
Total assets 456,222 462,631
------------------------------------------------------ ----- ----------- -----------
Liabilities
Other payables and accrued expenses 15 (1,604) (1,473)
Revolving credit facilities 14 (4,856) (9,312)
------------------------------------------------------ ----- ----------- -----------
Total liabilities (6,460) (10,785)
------------------------------------------------------ ----- ----------- -----------
Net assets 449,762 451,846
------------------------------------------------------ ----- ----------- -----------
Equity
Share capital 16 442,900 443,915
Retained earnings 6,862 7,931
------------------------------------------------------ ----- ----------- -----------
Total equity 449,762 451,846
------------------------------------------------------ ----- ----------- -----------
Ordinary shares in issue (excluding treasury shares) 16 440,158,518 441,544,019
------------------------------------------------------ ----- ----------- -----------
NAV per ordinary share (pence per share) 102.18 102.33
------------------------------------------------------ ----- ----------- -----------
The financial statements were approved and authorised for issue
by the Board of Directors on 22 March 2021 and signed on its behalf
by:
Alex Ohlsson
Chairman
Colin Huelin FCA
Director
The accompanying notes below form an integral part of these
financial statements.
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2020
Share Retained Total
capital earnings equity
Notes GBP'000 GBP'000 GBP'000
--------------------------------------------------- ----- ------- -------- --------
Balance as at 1 January 2020 443,915 7,931 451,846
Total profit and comprehensive income for the year - 27,394 27,394
Equity shares issued 16 518 - 518
Share issue costs 16 (19) - (19)
Share repurchases 16 (1,514) - (1,514)
Dividends 9 - (28,463) (28,463)
--------------------------------------------------- ----- ------- -------- --------
Balance as at 31 December 2020 442,900 6,862 449,762
--------------------------------------------------- ----- ------- -------- --------
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2019
Share Retained Total
capital earnings equity
Notes GBP'000 GBP'000 GBP'000
--------------------------------------------------- ----- ------- -------- --------
Balance as at 1 January 2019 380,235 6,355 386,590
Total profit and comprehensive income for the year - 28,037 28,037
Equity shares issued 16 64,690 - 64,690
Share issue costs 16 (1,010) - (1,010)
Dividends 9 - (26,461) (26,461)
--------------------------------------------------- ----- ------- -------- --------
Balance as at 31 December 2019 443,915 7,931 451,846
--------------------------------------------------- ----- ------- -------- --------
The accompanying notes below form an integral part of these
financial statements.
STATEMENT OF CASH FLOWS
For the year ended 31 December 2020
Year ended Year ended
31 December 31 December
2020 2019
Notes GBP'000 GBP'000
------------------------------------------------------------------------------------ ----- ----------- -----------
Cash flows from operating activities
Total operating profit before finance costs 28,166 28,912
Adjustments for:
Net changes in fair value of financial assets at fair value through profit or loss 3 (31,300) (33,675)
Realised (losses)/gains on derivative financial instruments (548) 352
Increase/(decrease) in other payables and accrued expenses 139 (137)
(Increase)/decrease in other receivables and prepayments (45) 240
------------------------------------------------------------------------------------ ----- ----------- -----------
Total (3,588) (4,308)
Interest received from Subsidiary 35,544 36,929
Investment in Subsidiary (126,545) (89,865)
Capital repayments from Subsidiary 11 130,610 10,761
------------------------------------------------------------------------------------ ----- ----------- -----------
Net cash flow generated from/(used in) operating activities 36,021 (46,483)
------------------------------------------------------------------------------------ ----- ----------- -----------
Cash flows from financing activities
Proceeds from revolving credit facilities 14 54,599 48,808
Repayment of revolving credit facilities 14 (59,075) (39,332)
Proceeds from issue of ordinary shares 16 - 63,333
Share issue costs (19) (1,033)
Share repurchases 16 (1,514) -
Finance costs paid (760) (708)
Dividends paid 9 (27,945) (25,104)
------------------------------------------------------------------------------------ ----- ----------- -----------
Net cash flow (used in)/generated from financing activities (34,714) 45,964
------------------------------------------------------------------------------------ ----- ----------- -----------
Net increase/(decrease) in cash and cash equivalents 1,307 (519)
Cash and cash equivalents at beginning of the year 8,687 9,206
------------------------------------------------------------------------------------ ----- ----------- -----------
Cash and cash equivalents at end of the year 9,994 8,687
------------------------------------------------------------------------------------ ----- ----------- -----------
Net cash flow used in operating activities includes:
Interest received from bank deposits 4 12
Interest received from Subsidiary 35,544 36,929
------------------------------------------------------------------------------------ ----- ----------- -----------
Non-cash items:
Purchase of financial assets: indexation (304) (420)
Interest received from Subsidiary 304 420
Scrip dividend 9 (518) (1,357)
Equity issue in respect of scrip dividend 16 518 1,357
------------------------------------------------------------------------------------ ----- ----------- -----------
The accompanying notes below form an integral part of these
financial statements.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2020
1. General information
The Company is a public closed-ended investment company
incorporated on 7 September 2015 and domiciled in Jersey, with
registration number 119412. The Company is governed by the
provisions of the Companies Law and the CIF Law.
The ordinary shares and C shares (when in issue) of the Company
are admitted to the Official List of the FCA and are traded on the
Premium Segment of the Main Market of the LSE.
The Company makes its investments through its wholly owned
Subsidiary, by subscribing for the Secured Loan Notes issued by the
Subsidiary. The Subsidiary subsequently on-lends the funds to
borrowers.
At 31 December 2020, the Company had one wholly owned
Subsidiary, GABI UK (31 December 2019: one), incorporated in
England and Wales on 23 October 2015 (registration number 9838893).
GABI UK has two subsidiaries (2019: one): GABI Housing
(registration number 10497254) incorporated in England and Wales on
25 November 2016, and GABI GS (registration number 10546087)
incorporated in England and Wales on 4 January 2017. GABI UK
acquired ownership of GABI Housing on 20 March 2020. The Company,
GABI UK, GABI Housing (including its subsidiary, GABI Blyth) and
GABI GS comprises the Group. The registered office address for GABI
UK, GABI Housing, GABI Blyth and GABI GS is 24 Savile Row, London
W1S 2ES.
The Company, through its Subsidiary, seeks to meet its
investment objective through a diversified portfolio of investments
which are secured against, or comprise, contracted, predictable
medium to long--term cash flows and/or physical assets.
The Group'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.
The Group's 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 Group
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 Group will at all times invest and manage its assets in a
manner which is consistent with the objective of spreading
investment risk.
Where possible, investments are structured to benefit from
partial inflation and/or interest rate protection.
GABI GS was set up to hold shares as security for loans issued
to underlying borrowers, where required. Its purpose is to isolate
any potential liabilities that may arise from holding shares as
security, from the Company. During the year, one of the loans was
refinanced leaving one such arrangement in place.
GABI Housing was set up for the sole purpose of investing in the
five underlying properties and the social income stream that will
be derived from these properties through letting them to specialist
housing associations.
2. Significant accounting policies
The principal accounting policies applied in the preparation of
these financial statements are set out below and in the subsequent
notes. These policies, except for those changes discussed in this
note, have been consistently applied throughout the years
presented.
2.1 Basis of preparation
The annual report and financial statements for the year ended 31
December 2020 have been prepared on a going concern basis and in
accordance with IFRS, which includes standards and interpretations
approved by the IASB, and as applied in accordance with the
Companies Law.
In accordance with the investment entities exemption contained
in IFRS 10 Consolidated Financial Statements, the Directors have
determined that the Company continues to meet the definition of an
investment entity and as a result the Company is not required to
prepare consolidated financial statements. The Company's investment
in its Subsidiary is measured at fair value and treated as a
financial asset through profit or loss in the statement of
financial position (refer to note 2.2(b)).
The presentation of 'net changes in fair value of financial
assets and financial liabilities at fair value through profit or
loss' in the statement of comprehensive income has been expanded
as, in the Directors' view, the change in presentation is more
appropriate and provides a better understanding of the income
generated by the Company's portfolio to the users of financial
statements. The comparative period has been re--presented
accordingly.
The Company raises capital through the issue of ordinary shares
and C shares. The net assets attributable to the C share class,
when in issue, 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. Expenses are either
specifically allocated to an individual share class or split
proportionately by the NAV of each share class. When in issue, C
shares are classified as a financial liability.
New standards, amendments and interpretations adopted in the
year
In the current period, the Company has applied a number of
amendments to IFRS. These include annual improvements to IFRS,
changes in standards, legislative and regulatory amendments,
changes in disclosure and presentation requirements including
updates relating to Covid-19.
The adoption of these updates has not had any material impact on
these or prior years' financial statements.
Further to the above, there are no new IFRS or IFRIC
interpretations that are issued but not effective that would be
expected to have a material impact on the Company's financial
statements.
Going concern
The financial statements have been prepared on a going concern
basis and on the basis that approval as a closed-ended investment
company will continue to be met. The Directors have made an
assessment of the Company's ability to continue as a going concern
and are satisfied that the Company has adequate resources to
continue in operational existence for a period of at least twelve
months from the date when these financial statements were
approved.
In making the assessment, the Directors have considered the
likely impacts of the current Covid-19 pandemic on the Company,
operations and the investment portfolio.
The Directors noted the cash balance exceeds any short-term
liabilities and the Company is able to meet the obligations of the
Company as they fall due. The surplus cash reserves in addition to
the RCF enables the Company to meet any funding requirements and
finance future additional investments. The Company is a
closed-ended investment company, where assets are not required to
be liquidated to meet day-to-day redemptions.
The Directors have reviewed stress tests carried out by the
Investment Manager which assess the impact of changes in valuation
of the underlying investment portfolio and/or income. In making
this assessment, they have considered plausible downside scenarios.
These tests included analysis of possible recovery scenarios from
the Covid-19 pandemic. The conclusion was that in these plausible
downside scenarios the Company could continue to meet its
liabilities as they fall due. Whilst the economic future is
uncertain, and the Directors believe that it is possible the
Company could experience further reductions in income and/or
valuation of the underlying investment portfolio, this should not
be to a level which would threaten the Company's ability to
continue as a going concern.
The Directors, the Investment Manager and other service
providers have enacted BCPs to minimise disruption from the
Covid-19 pandemic. Furthermore, the Directors are not aware of any
material uncertainties that may cast significant doubt on the
Company's ability to continue as a going concern, having taken into
account the liquidity of the Group's investment portfolio and the
Company's financial position in respect of its cash flows,
borrowing facilities and investment commitments. Therefore, the
financial statements have been prepared on the 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 in the viability statement above.
2.2 Significant accounting estimates and judgements
The preparation of financial statements, in accordance with
IFRS, requires the Directors to make estimates and judgements that
affect the reported amounts recognised in the financial statements.
However, uncertainty about these assumptions and judgements could
result in outcomes that require a material adjustment to the
carrying amount of the asset or liability in the future. There are
no changes in estimates reported in prior financial statements that
require disclosure in these financial statements.
(a) Critical accounting estimates and assumptions
Fair value of instruments not quoted in an active market
The Company's investments are made by subscribing for the
Secured Loan Notes issued by the Subsidiary. The Subsidiary's
assets consist of investments held by the Subsidiary, which
represent secured loan facilities issued to the Project Companies.
The Subsidiary's assets are not quoted in an active market;
therefore, the fair value is determined using a discounted cash
flow methodology, adjusted as appropriate for market, credit and
liquidity risk factors (refer to note 17.4 for further
information). This requires assumptions to be made regarding future
cash flows and the discount rate applied to these cash flows. The
Subsidiary's investments are valued by a third party Valuation
Agent on a semi-annual basis. Investments which may be subject to
discount rate changes are valued on a quarterly basis.
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 the 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 the Subsidiary is held at fair value through
profit or loss, with income distributions and interest payments
from the Subsidiary included as part of the fair value movement
calculation together with any unrealised movement in the fair value
of the holding in the Subsidiary.
The value of the investment in the Subsidiary is based on the
aggregate of the NAV of the Subsidiary and the value of the Secured
Loan Notes issued by the Subsidiary. Refer to note 11 for further
details.
(b) Critical judgements
Assessment as an investment entity
The Directors have concluded that the Company continues to meet
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 define 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 continues to meet
the characteristics of an investment entity in that it:
- raises funds from investors through the issue of equity, has
more than one investor and its investors are not related parties
other than those disclosed in note 18;
- invests in a portfolio of investments held by the Subsidiary
for the purpose of generating risk--adjusted returns through
regular distributions and capital appreciation; and
- the Company investments are held at fair value through profit
or loss with the performance of its portfolio evaluated on a fair
value basis.
Accordingly, the Company's Subsidiary is not consolidated, but
rather the investment in the Subsidiary is accounted for at fair
value through profit or loss. The value of the investment in the
Subsidiary is based on the aggregate of the NAV of the Subsidiary
and the value of the Secured Loan Notes issued by the
Subsidiary.
(c) 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.
The financial statements are presented in Pound Sterling and all
values have been rounded to the nearest thousand pounds (GBP'000),
except where otherwise indicated.
(d) Segmental information
The Directors view the operations of the Company as one
operating segment, being the investment portfolio of asset backed
loans held through the Subsidiary, which is a registered UK
company. All significant operating decisions are based upon
analysis of the Subsidiary's 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.
Significant shareholders are disclosed in the Directors' report
above.
3. Operating income
The table below analyses the operating income derived from the
Company's financial assets at fair value through profit or
loss:
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
-------------------------------------------------------------------------------------------- ----------- -----------
Loan interest realised 35,544 36,516
Unrealised (loss)/gain on financial assets at fair value through profit or loss(1) :
Debt - Secured Loan Notes up to GBP1,000,000,000 (5,161)(2) (3,525)
Equity - representing one ordinary share in the Subsidiary 1,311 362
-------------------------------------------------------------------------------------------- ----------- -----------
Net unrealised loss on investments at fair value through profit or loss (3,850) (3,163)
-------------------------------------------------------------------------------------------- ----------- -----------
Unrealised gain on forward foreign exchange contracts 154 -
Unrealised loss on forward foreign exchange contracts - (30)
Realised gain on forward foreign exchange contracts 174 544
Realised loss on forward foreign exchange contracts (722) (192)
-------------------------------------------------------------------------------------------- ----------- -----------
Net (loss)/gain on derivative financial instruments (394) 322
-------------------------------------------------------------------------------------------- ----------- -----------
Net changes in fair value of financial assets and financial liabilities at fair value
through
profit or loss 31,300 33,675
-------------------------------------------------------------------------------------------- ----------- -----------
1. Refer to note 11 for further information.
2. Includes unrealised losses in respect of discount rate
adjustments made to reflect the uncertainties associated with the
Covid-19 pandemic.
The table below analyses the fees and other income earned from
borrowers of the Company by type:
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
----------------------- ----------- -----------
Arrangement fee income 173 200
Commitment fee income 677 44
Early repayment fees 1,762 30
Sundry income 3 -
----------------------- ----------- -----------
Total 2,615 274
----------------------- ----------- -----------
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 movements in fair value of financial assets at fair value
through profit or loss includes changes in the fair value of the
investment in the Subsidiary held at fair value through profit or
loss, loan interest realised and net gains and losses on forward
foreign exchange contracts.
Arrangement fee income comprises fees relating to the issue and
set up of Secured Loan Notes. The Investment Manager, at its
discretion, is entitled to an arrangement fee of up to 1% of the
value of each investment made by the Group. The Investment Manager
expects the costs of any such fee to be covered by the borrowers,
and not the Company. To date, such fee in respect of all but six of
the Group's investments has been met and paid by borrowers. 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.
Commitment fees are accounted for on an accruals basis and are
paid by the borrowers.
Early repayment fee income is income in relation to the
redemption of loans before maturity and is recognised in the
financial statements when contractual provisions are met and the
amounts become due.
The Company holds derivative financial instruments comprising
forward foreign exchange contracts to hedge its exposure to
movements in foreign currency exchange rates on loans denominated
in currency other than Pound Sterling. It is not the Company's
policy to trade in derivative financial instruments.
Forward foreign exchange contracts are stated at fair value,
being the difference between the agreed price of selling or buying
the financial instrument on a future date and the price quoted for
selling or buying the same or similar instrument on the statement
of financial position date. The Company does not apply hedge
accounting and consequently all gains or losses in fair value are
recognised in the statement of comprehensive income.
4. Operating expenses
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
--------------------------------------------- ----------- -----------
Corporate administration and Depositary fees 620 606
Registrar fees 50 48
Audit fees 90 75
Legal and professional fees 103 97
Valuation Agent fees 150 162
Other 648 210
--------------------------------------------- ----------- -----------
Total 1,661 1,198
--------------------------------------------- ----------- -----------
Key service providers other than the Investment Manager (refer
to note 18 for disclosures of transactions with the Investment
Manager):
Administrator and Company Secretary
The Company has appointed Apex Financial Services (Alternative
Funds) Limited as Administrator and Company Secretary. Fund
accounting, administration and company secretarial services are
provided to the Company pursuant to an agreement dated 28 September
2015. All Directors have access to the Company Secretary, who
provides guidance to the Board, through the Chairman, on governance
and administrative matters. The fee for the provision of
administration and company secretarial services during the year was
GBP486,000 (31 December 2019: GBP475,000) of which GBP122,000
remains payable at year end (31 December 2019: GBP123,000).
Depositary
Depositary services are provided to the Company by Apex
Financial Services (Corporate) Limited pursuant to an agreement
dated 28 September 2015. The fee for the provision of these
services during the year was GBP134,000 (31 December 2019:
GBP131,000) of which GBP34,000 remains payable at year end (31
December 2019: GBP34,000).
Accounting policy
Operating expenses and investment management fees in the
statement of comprehensive income are recognised on an accruals
basis.
5. Auditor's remuneration
The following table summarises the remuneration paid to the
Auditor for audit and non-audit related services:
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
--------------------------------- ----------- -----------
Audit fees
Annual audit of the Company 90 75
--------------------------------- ----------- -----------
Non-audit services
Review of the half-yearly report 28 24
--------------------------------- ----------- -----------
Total 118 99
--------------------------------- ----------- -----------
In order to maintain auditor independence, the Board appointed
BDO LLP as reporting accountant of the Company on 25 September
2017. Since BDO's appointment, no non-audit related services have
been carried out by PwC, with the exception of the review of the
half-yearly report and financial statements.
6. Directors' remuneration
The Directors of the Company were remunerated as follows:
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
-------------------- ----------- -----------
Alex Ohlsson 55 46
Colin Huelin 50 42
Joanna Dentskevich 50 40
Marykay Fuller 45 6
-------------------- ----------- -----------
200 134
-------------------- ----------- -----------
Directors' expenses 1 2
-------------------- ----------- -----------
Total 201 136
-------------------- ----------- -----------
Full details of the Directors' remuneration policy can be found
in the Directors' remuneration report above.
7. Finance expenses
Year ended Year ended
31 December 31 December
2020 2019
GBP'000 GBP'000
------------------------------------------ ----------- -----------
Arrangement fees relating to the RCF 284 243
Commitment fees relating to the RCF 350 254
Early repayment costs relating to the RCF 2 19
Interest expense relating to the RCF 136 359
------------------------------------------ ----------- -----------
Total 772 875
------------------------------------------ ----------- -----------
The presentation of arrangement fees relating to the RCF has
been expanded to note the early repayment costs relating to the
RCF. The comparative period has been re-presented accordingly.
Accounting policy
Finance expenses in the statement of comprehensive income
comprise loan arrangement and commitment fees which are accounted
for on an accruals basis, along with interest accrued on the RCF
(refer to note 14) incurred in connection with the borrowing of
funds. Arrangement fees are amortised over the life of the RCF.
8. Taxation
Profits arising in the Company for the year ended 31 December
2020 are subject to tax at the standard rate of 0% (31 December
2019: 0%) in accordance with the Income Tax (Jersey) Law 1961, as
amended.
9. Dividends
Year ended Year ended
Pence 31 December 31 December
Quarter ended Dividend per share 2020 2019
-------------------------------------------- ----------------------------- --------- ----------- -----------
Current year dividends GBP'000 GBP'000
31 December 2020(1) 2020 fourth interim dividend 1.575 - -
31 December 2020 2020 special dividend 0.250 1,100 -
30 September 2020 2020 third interim dividend 1.550 6,832 -
30 June 2020 2020 second interim dividend 1.550 6,843 -
31 March 2020 2020 first interim dividend 1.550 6,844 -
-------------------------------------------- ----------------------------- --------- ----------- -----------
Total 6.475 21,619 -
--------------------------------------------------------------------------- --------- ----------- -----------
Prior year dividends
31 December 2019 2019 fourth interim dividend 1.550 6,844 -
30 September 2019 2019 special dividend 0.250 - 1,103
30 September 2019 2019 third interim dividend 1.550 - 6,837
30 June 2019 2019 second interim dividend 1.550 - 6,833
31 March 2019 2019 first interim dividend 1.550 - 5,894
-------------------------------------------- ----------------------------- --------- ----------- -----------
Total 6.450 6,844 20,667
--------------------------------------------------------------------------- --------- ----------- -----------
31 December 2018 2018 fourth interim dividend 1.525 - 5,794
-------------------------------------------- ----------------------------- --------- ----------- -----------
Dividends in statement of changes in equity 28,463 26,461
--------------------------------------------------------------------------- --------- ----------- -----------
Dividends settled in shares(2) (518) (1,357)
--------------------------------------------------------------------------- --------- ----------- -----------
Dividends in the statement of cash flows 27,945 25,104
--------------------------------------------------------------------------- --------- ----------- -----------
On 26 January 2021, the Company announced a fourth interim
dividend of 1.575 pence per ordinary share amounting to
GBP6,932,000 which was paid on 5 March 2021 to ordinary
shareholders on the register at 5 February 2021.
Accounting policy
In accordance with the Company's Articles, in respect of the
ordinary shares, 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 as a
liability in the period in which they are paid or approved by the
Directors and are reflected in the statement of changes in equity.
Dividends declared and approved by the Company after the statement
of financial position date have not been recognised as a liability
of the Company at the statement of financial position date.
The Company pays dividends on a quarterly basis with dividends
typically declared in January, April, July and October and paid in
or around February, May, August and November in each financial
year.
1. The current year fourth interim dividend was declared after
the year end and is therefore not accrued for as a provision in the
financial statements.
2. Dividends settled in shares are where shareholders have
elected to take the scrip dividend alternative. The amount of
GBP518,000 above relates to the 2019 fourth interim dividend. The
offer of scrip dividend alternative was suspended at the Board's
discretion, for all 2020 dividends, as a result of the discount
between the likely scrip dividend reference price and the relevant
quarterly NAV per share of the Company. The Board intends to keep
the payment of future scrip dividends under review.
10. Earnings per share
Basic earnings per ordinary share are calculated by dividing
profit for the year attributable to ordinary shareholders of the
Company by the weighted average number of ordinary shares in issue
during the year. Diluted earnings per ordinary share are calculated
by dividing the profit attributable to ordinary shareholders by the
diluted weighted average number of ordinary shares.
Weighted
average
number of
Profit ordinary Pence per
GBP'000 shares share
----------------------- -------- ----------- ---------
Year ended 31 December
2020
Basic earnings
per ordinary share 27,394 441,287,075 6.21
----------------------- -------- ----------- ---------
Diluted earnings
per ordinary share 27,394 441,287,075 6.21
----------------------- -------- ----------- ---------
Year ended 31 December
2019
Basic earnings
per ordinary share 28,037 411,559,294 6.81
----------------------- -------- ----------- ---------
Diluted earnings
per ordinary share 28,037 411,559,294 6.81
----------------------- -------- ----------- ---------
11. Financial assets at fair value through profit or loss:
investment in Subsidiary
The Company's financial assets at fair value through profit or
loss comprise its investment in the Subsidiary, which represents
amounts advanced to finance the Group's investment portfolio in the
form of Secured Loan Notes and equity, in addition to derivatives
(see note 17.1) utilised for the purpose of hedging foreign
currency exposure. The Company's investment in the Subsidiary at 31
December 2020 comprised:
31 December 31 December
2020 2019
Debt - Secured Loan Notes up to GBP1,000,000,000 GBP'000 GBP'000
------------------------------------------------------------------------------- ----------- -----------
Opening balance 453,081 377,916
Purchase of financial assets 126,545 89,451
Repayment of financial assets (130,610) (10,761)
Unrealised (loss)/gain on investments at fair value through or profit or loss:
Unrealised valuation (loss)/gain(1) (5,233) (1,001)
Unrealised foreign exchange gain/(loss) 133 (386)
Other unrealised movements on investments(2) (61) (2,138)
------------------------------------------------------------------------------- ----------- -----------
Total unrealised loss on investments at fair value through profit or loss (5,161) (3,525)
------------------------------------------------------------------------------- ----------- -----------
Total(3) 443,855 453,081
------------------------------------------------------------------------------- ----------- -----------
1. Comprises downward revaluation in respect of defaulted loan
of GBP0.6 million and unrealised losses in respect of discount rate
adjustments made to reflect the uncertainties associated with the
Covid-19 pandemic.
2. Other unrealised movements on investments at fair value
through profit or loss are attributable to the timing of the debt
service payments and principal indexation applied.
3. Refer to the table below for further analysis.
The difference between the valuation of the Secured Loan Notes
and the underlying investments of the Subsidiary is as a result of
payment timings and differing application of the effective interest
rate in respect of the underlying investments, as set out in the
table below:
31 December 31 December
2020 2019
GBP'000 GBP'000
------------------------------------------------------------------------------ ----------- -----------
Valuation of the underlying investments held by the Subsidiary 444,235 453,439
Principal received from the Subsidiary in respect of an underlying investment (400) (400)
Principal received from underlying investments and held by the Subsidiary 12 1
Interest rate differential 8 41
------------------------------------------------------------------------------ ----------- -----------
Fair value of Secured Loan Notes 443,855 453,081
------------------------------------------------------------------------------ ----------- -----------
31 December 31 December
2020 2019
Equity - representing one ordinary share in the Subsidiary GBP'000 GBP'000
-------------------------------------------------------------------- ----------- -----------
Opening balance 796 434
Unrealised gains on investment at fair value through profit or loss 1,311 362
-------------------------------------------------------------------- ----------- -----------
Total 2,107 796
-------------------------------------------------------------------- ----------- -----------
Financial assets at fair value through profit or loss 445,962 453,877
-------------------------------------------------------------------- ----------- -----------
The above represents a 100% interest in the Subsidiary at year
end 31 December 2020 (31 December 2019: 100%).
Secured Loan Notes
The Subsidiary 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.
Accounting policy
The Company classifies its investment in the Subsidiary as
financial assets at fair value through profit or loss in accordance
with IFRS 9 Financial Instruments as set out below.
Financial assets at fair value through profit or loss
The category which includes financial assets at fair value
through profit or loss 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.
Upon initial recognition, the Company designates the investment
in the Subsidiary as part of 'financial assets at fair value
through profit or loss'. The investment in the Subsidiary is
included initially at fair value, which is taken to be its cost
(excluding expenses incidental to the acquisition which are written
off in the statement of comprehensive income).
All financial assets for which fair value is measured or
disclosed in the financial statements are categorised within the
fair value hierarchy.
The financial information about the financial assets of the
Company is provided by the Investment Manager to the Directors with
the valuation of the portfolio being carried out 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 timeframe 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 when:
- 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.
After initial measurement, the Company measures financial
instruments classified at fair value through profit or loss at fair
value. Subsequent changes in the fair value of 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 used by the Valuation
Agent 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 17.9.
12. Other receivables and prepayments
31 December 31 December
2020 2019
GBP'000 GBP'000
------------------------ ----------- -----------
Arrangement fees 49 2
Intercompany receivable - 7
Other income debtors 6 6
Prepayments 53 48
------------------------ ----------- -----------
Total 108 63
------------------------ ----------- -----------
Accounting policy
Other receivables and prepayments are recognised and carried at
the lower of their original invoiced value and recoverable amount
or, where the time value of money is material, at amortised cost.
The Company recognises a loss allowance for expected credit losses
on other receivables where necessary.
13. Cash and cash equivalents
31 December 31 December
2020 2019
GBP'000 GBP'000
-------------------------- ----------- -----------
Cash and cash equivalents 9,994 8,687
-------------------------- ----------- -----------
Total 9,994 8,687
-------------------------- ----------- -----------
Accounting policy
Cash comprises cash in hand and demand deposits. Cash
equivalents are short-term with original maturities of three months
or less and highly liquid investments, that are readily convertible
to known amounts of cash and which are subject to an insignificant
risk of changes in value.
14. Revolving credit facilities
31 December 31 December
2020 2019
GBP'000 GBP'000
--------------------------------------- ----------- -----------
Opening balance 9,476 -
Proceeds from amounts drawn on the RCF 54,599 48,808
Repayment of amounts drawn on the RCF (59,075) (39,332)
--------------------------------------- ----------- -----------
RCF drawn at the year end 5,000 9,476
Loan arrangement fees unamortised (144) (164)
--------------------------------------- ----------- -----------
Total 4,856 9,312
--------------------------------------- ----------- -----------
Any amounts drawn under the RCF are to be used in, or towards,
the making of investments (including a reduction of available
commitment as an alternative to cash cover for entering into
forward foreign exchange contracts) in accordance with the
Company's investment policy.
On 16 April 2019, the Company entered into an agreement with
RBSI to increase the existing RCF from GBP30 million to GBP50
million, represented by GBP40 million (tranche A) maturing in
August 2020 (plus a twelve month extension option, with lender
approval) and GBP10 million (tranche B) maturing in December
2019.
On 16 January 2020, the Company extended its RCF in respect of
the GBP10 million tranche B, such that it would also mature in
August 2020. The other terms of the RCF remained unchanged. The
total costs incurred to extend the facility were GBP33,000, of
which GBP25,000 was the arrangement fee and GBP8,000 in associated
legal fees. The legal fees are included as arrangement fees for
reporting purposes. An amount of GBP33,000 was amortised during the
period to 20 August 2020, charged through the statement of
comprehensive income, and forms part of the total of GBP284,000
amortised for the year.
On 20 August 2020, the Company exercised the twelve month
extension option of the GBP40 million tranche and increased it to
GBP50 million, maturing in August 2021. All terms of the RCF are
unchanged. The GBP10 million tranche ceased to exist after 20
August 2020.
The total costs incurred to extend the facility to August 2021
were GBP240,000, of which GBP230,000 was the arrangement fee and
GBP10,000 in associated legal fees. The legal fees are included as
arrangement fees for reporting purposes. GBP8,000 of these legal
costs are unpaid and are accrued for.
A total of GBP284,000 (2019: GBP243,000) of costs were amortised
as loan arrangement fees during the year and charged through the
statement of comprehensive income, refer to note 7.
The RCF with RBSI is secured against the investment in the
Subsidiary.
The amounts drawn down during the year are all related to the
tranche A facility. The tranche B facility, when in existence, was
undrawn during the year. Total drawdowns of GBP5.0 million were
repayable at 31 December 2020 (31 December 2019: GBP9.5
million).
Interest on amounts drawn under the RCF is charged at LIBOR plus
2.10% per annum. A commitment fee is payable on undrawn amounts at
a rate of 0.84% per annum.
A repayment on 17 February 2020 totalling GBP19.4 million
resulted in early repayment breakage costs of GBP2,000 on drawdowns
due to mature on 31 March 2020.
In December 2020, utilisation requests for the sum of GBP845,000
(31 December 2019: GBP358,000) were submitted to RBSI in relation
to two open forward foreign exchange contracts at year end. This
has restricted the amount available for drawdown on the RCF to
GBP49.2 million.
At 31 December 2020, the Company is in full compliance with all
loan covenants in the RCF agreement.
Leverage
For the purposes of the AIFMD, leverage is any method which
increases the Company's exposure, including the borrowing of cash
and the use of derivatives. It is expressed as a ratio between the
Company's exposure and its NAV and is calculated under the gross
and commitment methods, in accordance with the AIFMD.
The Company is required to state its maximum and actual leverage
levels, calculated as prescribed by the AIFMD, at 31 December 2020;
figures are as follows:
Maximum Actual
Leverage exposure limit exposure
------------------ ------- --------
Gross method 1.25 0.99
Commitment method 1.25 1.01
------------------- ------- --------
The leverage figures above represent leverage calculated under
the AIFMD methodology as follows:
Gross Commitment
Leverage exposure GBP'000 GBP'000
------------------------------------------------- ------- ----------
Investments at fair value through profit or loss 445,962 445,962
Cash and cash equivalents - 9,994
------------------------------------------------- ------- ----------
Total exposure under the AIFMD 445,962 455,956
------------------------------------------------- ------- ----------
Total shareholders' funds 449,762 449,762
------------------------------------------------- ------- ----------
Leverage 0.99 1.01
------------------------------------------------- ------- ----------
The Company's leverage limit under the AIFMD is 1.25, which
equates to a gearing limit of 25% of NAV. The Company has
maintained significant headroom against the limit throughout the
year.
Accounting policy
All loans and borrowings are initially recognised at fair value
less directly attributable transaction costs. After initial
recognition, interest bearing loans and borrowings are subsequently
measured at amortised cost using the effective interest method.
Borrowing costs are amortised over the lifetime of the facility
through the statement of comprehensive income.
15. Other payables and accrued expenses
31 December 31 December
2020 2019
GBP'000 GBP'000
---------------------------- ----------- -----------
Accruals 520 356
Amounts due to Subsidiary - 15
Loan commitment fee accrued 84 74
Loan interest accrued 2 20
Investment management fees 998 1,008
---------------------------- ----------- -----------
Total 1,604 1,473
---------------------------- ----------- -----------
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 2020 31 December 2019
-------------------- --------------------
Number Number GBP'000
Share capital of shares GBP'000 of shares
------------------------------------------------------- ----------- ------- ----------- -------
Ordinary shares issued at no par value and fully paid
Shares in issue at beginning of the year 441,544,019 443,915 379,962,298 380,235
------------------------------------------------------- ----------- ------- ----------- -------
Equity shares issued through:
Placing and offer for subscription - - 60,317,181 63,333
Dividends settled in shares(1) 489,499 518 1,264,540 1,357
------------------------------------------------------- ----------- ------- ----------- -------
Total shares issued in the year 489,499 518 61,581,721 64,690
------------------------------------------------------- ----------- ------- ----------- -------
Share issue costs - (19) - (1,010)
------------------------------------------------------- ----------- ------- ----------- -------
Total shares in issue 442,033,518 444,414 441,544,019 443,915
------------------------------------------------------- ----------- ------- ----------- -------
Treasury shares
Shares repurchased and held in treasury (1,875,000) (1,514) - -
------------------------------------------------------- ----------- ------- ----------- -------
Total ordinary share capital excluding treasury shares 440,158,518 442,900 441,544,019 443,915
------------------------------------------------------- ----------- ------- ----------- -------
1. Dividends settled in shares are where shareholders have
elected to take the scrip dividend alternative. The amount of
GBP518,000 above relates to the 2019 fourth interim dividend. The
offer of scrip dividend alternative was suspended at the Board's
discretion, for all 2020 dividends, as a result of the discount
between the likely scrip dividend reference price and the relevant
quarterly NAV per share of the Company. The Board intends to keep
the payment of future scrip dividends under review.
During the year, 1,875,000 (31 December 2019: nil) ordinary
shares of no par value and fully paid were repurchased and held in
treasury for an aggregate consideration of GBP1,514,000 (31
December 2019: nil).
The Company's authorised share capital is represented by an
unlimited number of no par value ordinary shares. At 31 December
2020, the Company's issued share capital comprised 442,033,518
ordinary shares (31 December 2019: 441,544,019), 1,875,000 of which
are held in treasury (31 December 2019: nil).
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.
The Company may issue C shares which, when in issue, are
classified as a financial liability.
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.
17. Financial instruments
The table below sets out the carrying amounts of the Company's
financial assets and financial liabilities into categories of
financial instruments.
31 December 31 December
2020 2019
GBP'000 GBP'000
------------------------------------------------------ ----------- -----------
Financial assets
Cash and cash equivalents 9,994 8,687
Other receivables and prepayments 108 63
------------------------------------------------------ ----------- -----------
Financial assets at amortised cost(1) 10,102 8,750
------------------------------------------------------ ----------- -----------
Derivative financial instruments 158 4
Investment in the Subsidiary 445,962 453,877
------------------------------------------------------ ----------- -----------
Financial assets at fair value through profit or loss 446,120 453,881
------------------------------------------------------ ----------- -----------
Total 456,222 462,631
------------------------------------------------------ ----------- -----------
Financial liabilities
Other payables and accrued expenses (1,604) (1,473)
Revolving credit facility (4,856) (9,312)
------------------------------------------------------ ----------- -----------
Financial liabilities at amortised cost (6,460) (10,785)
------------------------------------------------------ ----------- -----------
Total (6,460) (10,785)
------------------------------------------------------ ----------- -----------
1. The carrying value of the financial assets/liabilities stated
at amortised cost approximates their fair value.
17.1 Derivative financial instruments
Derivative financial assets and liabilities comprise forward
foreign exchange contracts for the purpose of hedging foreign
currency exposure of the Company to two Euro-denominated loan
investments made by the Subsidiary (for which the final repayment
dates are 5 April 2023 and 1 June 2025); the investments represent
c.3% of the portfolio by value at the year end. The Company intends
to utilise one of the forward foreign exchange contracts on a
rolling one month basis and the other on a rolling three month
basis, for the term of the investments.
The table below sets out the forward foreign exchange contracts
held by the Company at year end:
Principal Hedged Fair value
31 December 2020 Maturity amount amount GBP'000
----------------- ---------------- ---------------- ------------- ----------
Contract EUR/GBP 12 January 2021 (GBP9,931,464) EUR10,945,467 96
Contract EUR/GBP 22 March 2021 (GBP4,618,223) EUR5,064,806 62
----------------- ---------------- ---------------- ------------- ----------
Total (GBP14,549,687) EUR16,010,273 158
----------------------------------- --------------- ------------- ----------
Principal Hedged Fair value
31 December 2019 Maturity amount amount GBP'000
----------------- -------------- --------------- ------------ ----------
Contract EUR/GBP 23 March 2020 (GBP5,466,129) EUR6,401,384 4
----------------- -------------- --------------- ------------ ----------
Information on the forward foreign exchange contracts executed
post year end can be found in note 20.
Accounting policy
Recognition of derivative financial assets and liabilities takes
place when the hedging contracts are entered into. They are
initially recognised and subsequently measured at fair value;
transaction costs, where applicable, are included directly in
finance costs. The Company does not apply hedge accounting and
consequently all gains or losses are recognised in the statement of
comprehensive income in net change in fair value of financial
assets and financial liabilities through profit or loss.
17.2 Capital management
The Company's capital is represented by share capital comprising
issued ordinary share capital and its credit facilities, as
detailed in note 14.
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 advanced investment opportunities to ensure the rapid
deployment of capital.
The Company may borrow up to 25% of its NAV at such time any
such borrowings are drawn down. Refer to note 14 for further
information.
17.3 Financial risk management objectives
The Company has an investment policy and strategy that sets out
the Company's overall investment strategy and general risk
management philosophy and has established processes to monitor and
control these in a timely and accurate manner. These guidelines are
subject to 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 Directors and the Investment Manager 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 (which
includes interest rate risk), credit risk, currency risk and
liquidity risk.
The Board and the Investment Manager note the continued impact
of Covid-19 and Brexit and the disruption that these events are
having on the overall economy. The ability for borrowers to pivot
their businesses to continue operations and meet principal and
interest payments, as well as the continued interest of
institutional investors in the assets of the portfolio, shows the
quality of the loan book and the projects which the Company
supports. The BCPs of all key suppliers have enabled ongoing
service provision across all areas of the Company's activities. The
Directors and the Investment Manager continue to assess the
potential impact of Covid-19 and Brexit across the business in
order to instigate appropriate mitigation plans.
As explained in notes 11 and 17.1, the Company's financial
assets and liabilities at fair value through profit or loss
comprise the investment in the Subsidiary and derivatives used for
the purpose of hedging foreign currency exposure. The Subsidiary is
a holding vehicle existing solely to hold the Company's investments
and, therefore, exposure to market risk, interest rate risk, credit
risk, liquidity risk and credit and counterparty risk are highly
dependent on the performance of the Subsidiary's investments.
17.4 Market risk
The value of the investment in the Subsidiary is based on the
aggregate of the NAV of the Subsidiary and the value of the Secured
Loan Notes issued by the Subsidiary. The key driver of the
Subsidiary's NAV is the valuation of its portfolio of secured loan
facilities issued to the Project Companies.
There is a risk that market movements in interest rates, credit
markets, exchange rates and observable yields may decrease or
increase the value of the Subsidiary's assets without regard to the
assets' underlying performance. The Subsidiary's portfolio of
assets is held at fair value, and their values are monitored on a
semi-annual basis by the Valuation Agent. Investments subject to
discount rate changes are valued on a quarterly basis. The
Company's assets are stable with predictable cash flows and are not
exchange traded.
In assessing the expected future cash flows from each of the
investments, the Valuation Agent considers the movements in
comparable credit markets and publicly available information around
each project.
The valuation principles used are based on a discounted cash
flow methodology. A fair value for each asset acquired by the Group
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 are generally fixed income debt instruments (in some
cases with elements of inflation and/or interest rate 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 Covid-19 pandemic has impacted the global economy and has
led to significant volatility in comparable credit markets. The
Board and the Investment Manager, in conjunction with the Company's
independent Valuation Agent, adjusted the discount rates during the
year on a number of assets to reflect the increase in market
pricing of risk. Further analysis on the discount rate changes is
presented above.
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 table below shows how changes in discount rates affect the
changes in the valuation of financial assets through profit or
loss. The range of discount rate changes has been determined with
reference to historic discount rate changes made by the Valuation
Agent.
In March 2020, discount rates were adjusted on a number of
loans, giving an overall discount rate increase of 106 basis points
across the portfolio to reflect the uncertainties associated with
the Covid-19 pandemic. The analysis below has been updated to
include a bigger range than in previous years to reflect these
adjustments.
31 December 2020
Change in discount rates (1.00%) (0.50%) 0.00% 0.50% 1.00%
------------------------------------------------------------------------ ------- ------- ------- ------- --------
Valuation of financial assets at fair value through profit or loss
(GBP'000) 461,747 453,684 445,962 438,557 431,447
Change in value of financial assets at fair value (GBP'000) 15,785 7,722 - (7,405) (14,515)
------------------------------------------------------------------------ ------- ------- ------- ------- --------
31 December 2019
Change in discount rates (0.50%) 0.00% 0.50%
------------------------------------------------------------------------ ------- ------- ------- ------- --------
Valuation of financial assets at fair value through profit or loss
(GBP'000) 461,743 453,877 446,274
Change in value of financial assets at fair value (GBP'000) 7,866 - (7,603)
------------------------------------------------------------------------ ------- ------- ------- ------- --------
17.5 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, future cash flows and borrowings.
Interest rate risk has the following effect:
Fair value of financial assets
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 Subsidiary, in a
diversified portfolio of investments which are secured against, or
comprise, contracted, predictable medium to long--term cash flows
and/or physical assets. The Group'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
during the year, or in the prior year.
Borrowings
During the year the Company made use of its RCF, which was used
towards the making of investments in accordance with the Company's
investment policy. Details of the RCF are given in note 14.
Any potential financial impact of movements in interest rates on
the cost of borrowings to the Company is mitigated by the
short-term nature of such borrowings.
17.6 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 GBP456.2 million (31 December
2019: GBP462.6 million) represented by its cash, receivables and
investment assets.
Cash is held at a number of financial institutions to spread
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 F2
from Standard and Poor's, Moody's and Fitch respectively.
The Company's investments are debt and equity securities in the
Subsidiary and, therefore, the credit risk of the Company's
investments is highly dependent on the performance of the
Subsidiary's investment portfolio, which is valued on a semi-annual
basis by the Valuation Agent. Investments which may be subject to
discount rate changes are valued on a quarterly basis. The
Valuation Agent takes into account the credit risk associated with
these investments in their valuation.
Credit risk is considered by the Valuation Agent both during the
origination process and at valuation updates. The Company's
investments are stable with predictable cash flows and are not
exchange traded. Depending on the nature of the underlying
projects, 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 borrowers in order to monitor
ongoing financial performance. In addition, the credit risk
associated with each borrower is mitigated by way of the assets of
the Project Company, being secured on either a senior or
subordinated basis. At year end, the concentration of credit risk
to any one counterparty did not exceed 20% (31 December 2019:
<20%) of the Company's total assets, in line with its investment
restrictions.
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 has been provided in this respect.
17.7 Currency risk
All of the Group's investments at 31 December 2020 are
denominated in Sterling, save for two investments which are
denominated in Euros (31 December 2019: one Euro-denominated
investment) and secured against Euro-valued contracted cash flows.
The Company's only currency exposure is through the trading
activities of its investee companies. The Company engages in
currency hedging, in the form of two forward foreign exchange
contracts, to reduce the risk of adverse movements in currency
exchange rates in relation to its Euro-denominated investments.
Realised and unrealised gains or losses on forward foreign exchange
contracts are disclosed in note 3.
As an alternative to cash cover/margin required on these forward
foreign exchange contracts, the Company has made use of its RCF, as
disclosed in note 14.
17.8 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 year ended 31 December 2020,
investments made by the Group were funded by Company cash reserves,
amounts received from repayments and the utilisation of the
RCF.
The table below analyses all of the Company's assets and
liabilities into relevant maturity groupings based on the remaining
period from 31 December 2020 to the contractual maturity date. The
Directors have elected to present both assets and liabilities in
the liquidity disclosure below to illustrate the net liquidity
exposure of the Company.
All cash flows in the table below are presented on an
undiscounted basis.
Less than One to Three to Greater than
one month three months twelve months twelve months Total
31 December 2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------------------- ---------- ------------ ------------- ------------- --------
Financial assets
Financial assets at fair value through profit or
loss - 10,409 94,589 516,071 621,069
Other receivables and prepayments 55 7 46 - 108
Derivative financial instruments 96 62 - - 158
Cash and cash equivalents 9,994 - - - 9,994
---------------------------------------------------- ---------- ------------ ------------- ------------- --------
Total financial assets 10,145 10,478 94,635 516,071 631,329
---------------------------------------------------- ---------- ------------ ------------- ------------- --------
Financial liabilities
Other payables and accrued expenses (179) (1,378) (47) - (1,604)
Revolving credit facilities (4,856) - - - (4,856)
---------------------------------------------------- ---------- ------------ ------------- ------------- --------
Total financial liabilities (5,035) (1,378) (47) - (6,460)
---------------------------------------------------- ---------- ------------ ------------- ------------- --------
Net exposure 5,110 9,100 94,588 516,071 624,869
---------------------------------------------------- ---------- ------------ ------------- ------------- --------
Less than One to Three to Greater than
one month three months twelve months twelve months Total
31 December 2019 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------------------- ---------- ------------ ------------- ------------- --------
Financial assets
Financial assets at fair value through profit or
loss 16 34,637 70,616 508,092 613,361
Other receivables and prepayments 15 6 42 - 63
Derivative financial instruments - 4 - - 4
Cash and cash equivalents 8,687 - - - 8,687
---------------------------------------------------- ---------- ------------ ------------- ------------- --------
Total financial assets 8,718 34,647 70,658 508,092 622,115
---------------------------------------------------- ---------- ------------ ------------- ------------- --------
Financial liabilities
Other payables and accrued expenses (21) (1,395) (57) - (1,473)
Revolving credit facilities (9,312) - - - (9,312)
---------------------------------------------------- ---------- ------------ ------------- ------------- --------
Total financial liabilities (9,333) (1,395) (57) - (10,785)
---------------------------------------------------- ---------- ------------ ------------- ------------- --------
Net exposure (615) 33,252 70,601 508,092 611,330
---------------------------------------------------- ---------- ------------ ------------- ------------- --------
The Directors' assessment of the Company's ability to continue
as a going concern, noted in note 2.1, includes an assessment of
liquidity risk. The Board has 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 for liquidity risk has been provided in this
respect.
17.9 Fair values of financial assets
Valuation of financial instruments
The Company measures fair values using the following fair value
hierarchy that reflects the significance of inputs used in making
the measurements. Categorisation within the hierarchy has been
determined on the basis of the lowest level input that is
significant to their fair value measurement of the relevant assets
as follows:
- Level 1 - valued using quoted prices unadjusted in active
markets for identical assets or liabilities;
- Level 2 - valued by reference to valuation techniques using
observable inputs for the asset or liability other than quoted
prices included in Level 1; and
- Level 3 - valued by reference to valuation techniques using
inputs that are not based on observable market data for the asset
or liability.
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 Valuation Agent has carried out semi-annual fair valuations
of the financial assets of the Subsidiary (quarterly for
investments which may be subject to discount rate changes). The
same discount rates, determined by the Valuation Agent, are applied
to the future cash flows of the Secured Loan Notes, to determine
the fair value of the assets of the Company.
The Company recognises transfers between levels of the fair
value hierarchy at the end of the reporting period during which the
change has occurred.
The table below sets out fair value measurements of financial
instruments as at the year end, by the level in the fair value
hierarchy into which the fair value measurement is categorised. The
amounts are based on the value recognised in the statement of
financial position. All fair value measurements are recurring.
Date of Level 1 Level 2 Level 3 Total
valuation GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------------------------------- ----------------- ------- ------- ------- -------
Financial assets measured at fair value through profit or loss:
Assets:
Investment in Subsidiary 31 December 2020 - - 445,962 445,962
Derivative financial instruments 31 December 2020 - 158 - 158
--------------------------------------------------------------- ----------------- ------- ------- ------- -------
Investment in Subsidiary 31 December 2019 - - 453,877 453,877
Derivative financial instruments 31 December 2019 - 4 - 4
--------------------------------------------------------------- ----------------- ------- ------- ------- -------
The derivative financial instruments are classified as Level 2
as observable market data is used for valuation and pricing.
The Directors have classified the financial instruments relating
to 'Investments in Subsidiary' as Level 3 due to the limited number
of comparable and observable market transactions in this sector.
The current input for Level 3 at year end is the discount rates for
these investments which are considered to be primarily modelled
rather than market observed. The secured loan facilities that the
Subsidiary has 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 year:
31 December 31 December
2020 2019
GBP'000 GBP'000
------------------------------------------------------------------------------------- ----------- -----------
Opening fair value 453,877 378,350
Investment in Subsidiary 126,545 89,451
Capital repayments from Subsidiary (130,610) (10,761)
Unrealised (loss)/gain on financial assets at fair value through profit or loss(1) :
Debt - Secured Loan Notes up to GBP1,000,000,000 (5,161) (3,525)
Equity - representing one ordinary share in the Subsidiary 1,311 362
------------------------------------------------------------------------------------- ----------- -----------
Closing fair value 445,962 453,877
------------------------------------------------------------------------------------- ----------- -----------
1. Refer to note 11 for further information.
For the Company's financial instruments categorised as Level 3,
changing the discount rate used to value the underlying instruments
alters the fair value. 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 the valuation as shown in the table in
note 17.4.
The value of the investment in the Subsidiary is based on the
aggregate of the NAV of the Subsidiary and the value of the Secured
Loan Notes issued by the Subsidiary. At 31 December 2020, the NAV
was as follows:
31 December 31 December
2020 2019
GBP'000 GBP'000
-------- ----------- -----------
GABI UK 2,107 796
-------- ----------- -----------
The key driver of the NAV is the valuation of its portfolio of
secured loan facilities issued to the Project Companies.
The Secured Loan Notes issued by the Subsidiary that the Company
has subscribed for, are valued on a discounted cash flow basis in
line with the model used by the Valuation Agent, applying the
following discount rates:
Key
Fair value(1) Valuation unobservable Discount
GBP'000 technique inputs rate
----------------- ------------- ---------- ------------- --------
Financial assets
at fair value
through profit
or loss - 31 Discounted Discount
December 2020 445,962 cash flow rate 8.4%
----------------- ------------- ---------- ------------- --------
Financial assets
at fair value
through profit
or loss - 31 Discounted Discount
December 2019 453,877 cash flow rate 8.1%
----------------- ------------- ---------- ------------- --------
1. Including the NAV of the Subsidiary.
The investments held by the Subsidiary are valued on a
discounted cash flow basis, in line with the model used by the
Valuation Agent. At the year end, discount rates ranged from 6-17%
(31 December 2019: 6-10%).
The Directors review the 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
determination of the discount rate adopted by the Valuation Agent
are pursuant to the Valuation Agent engagement letter. 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 year, there were no transfers of investments between
levels.
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 year (including reimbursement of
Company-related expenses) totalled GBP201,000 (31 December 2019:
GBP136,000). At 31 December 2020, liabilities in respect of these
services amounted to GBP50,000 (31 December 2019: GBP42,000).
At 31 December 2020, the Directors of the Company held directly
or indirectly, and together with their family members, 141,521
ordinary shares (31 December 2019: 124,521).
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 year. Carey Olsen maintains
procedures to ensure that the Chairman has no involvement in the
provision of legal services to the Company. The Company maintains
procedures to ensure that the Chairman takes no part in any
decision to engage the services of Carey Olsen. During the year,
the aggregate sum of GBP15,000 (2019: GBP10,000) was paid to Carey
Olsen in respect of legal work undertaken, of which GBPnil (31
December 2019: GBPnil) is outstanding at year end.
Investment Manager
The Company is party to an investment management agreement with
the Investment Manager, which was most recently amended and
restated on 3 December 2020, 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 objective and
policies, subject to the overall control and supervision of the
Directors.
As a result of the responsibilities delegated under this
investment management agreement, the Company considers it to be a
related party by virtue of being 'key management personnel'. Under
the terms of the investment management agreement, the notice period
of the termination of the Investment Manager by the Company is
twelve months.
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. The Investment Manager receives an annual fee of
GBP25,000 in relation to its role as the Company's AIFM, which has
been increased annually at the rate of the RPI since IPO.
During the year, the Company incurred GBP3,917,000 (2019:
GBP3,899,000) in respect of the services outlined above:
GBP3,891,000 (2019: GBP3,715,000) in respect of investment
management services, GBPnil in relation to the issuance of ordinary
shares (2019: GBP158,000) and GBP26,000 (2019: GBP26,000) in
respect of AIFM services provided by the Investment Manager. At 31
December 2020, liabilities in respect of these services amounted to
GBP1,004,000 (2019: GBP1,014,000).
The Investment Manager, at its discretion, is entitled to an
arrangement fee of up to 1% of the value of each investment made by
the Company. The Investment Manager typically expects the cost of
any such fee to be covered by the borrowers, and not the Company.
To date, such fee in respect of all but six of the Group's
investments has been met and paid by borrowers. During the year,
the Investment Manager received GBP216,000 (2019: GBP358,000) from
arrangement fees which had been met by the borrowers and GBP367,000
(2019: GBP90,000) from arrangement fees which had been met 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 is paid to the Company.
A number of the directors and employees of the Investment
Manager also sit on the board of the Subsidiary.
At 31 December 2020, the key management personnel of the
Investment Manager held directly or indirectly, and together with
their family members, 1,244,982 ordinary shares in the Company (31
December 2019: 1,450,961 ordinary shares).
At 31 December 2020, the directors and/or shareholders of the
Investment Manager, and their family members, directly or
indirectly own an equity interest in the Subsidiary's student
accommodation investments. These investments are valued by the
Valuation Agent in line with the remaining portfolio and were
approved by the Board at the time of acquisition.
Subsidiary
At 31 December 2020, the Company owns a 100% (31 December 2019:
100%) controlling stake in the Subsidiary. The Subsidiary is
considered to be a related party by virtue of being part of the
same group. The Company indirectly owns GABI Housing, GABI Blyth
and GABI GS; for further information refer to note 1.
The following tables disclose the transactions and balances
between the Company and the Subsidiary:
31 December 31 December
2020 2019
Transactions GBP'000 GBP'000
------------------------------ ----------- -----------
Intercompany income received
Other income 2,442 74
Arrangement fee income 173 200
Loan interest income received 35,544 36,516
------------------------------ ----------- -----------
Total 38,159 36,790
------------------------------ ----------- -----------
31 December 31 December
2020 2019
Balances GBP'000 GBP'000
-------------------------------------------------------------------------------------------- ----------- -----------
Intercompany balances payable - (15)
-------------------------------------------------------------------------------------------- ----------- -----------
Intercompany balances receivable 49 9
-------------------------------------------------------------------------------------------- ----------- -----------
Principal value of intercompany holdings within financial assets at fair value through
profit
or loss 447,657(1) 451,722
-------------------------------------------------------------------------------------------- ----------- -----------
1. The principal value of intercompany holdings includes amounts
advanced to GABI Housing of GBP17.5 million.
19. Reconciliation of NAV
This note reconciles the NAV reported in the financial
statements to the published NAV.
Total Pence per
GBP'000 share
-------------------------------------------------------------------- ------- ---------
NAV at 31 December 2020 as published on 15 January 2021 (unaudited) 449,762 102.18
NAV at 31 December 2020 as per the financial statements 449,762 102.18
-------------------------------------------------------------------- ------- ---------
Total Pence per
GBP'000 share
-------------------------------------------------------------------- ------- ---------
NAV at 31 December 2019 as published on 16 January 2020 (unaudited) 451,846 102.33
NAV at 31 December 2019 as per the financial statements 451,846 102.33
-------------------------------------------------------------------- ------- ---------
20. Subsequent events after the report date
On 26 January 2021, the Company announced a fourth interim
dividend of 1.575 pence per ordinary share amounting to
GBP6,932,000 which was paid on 5 March 2021 to ordinary
shareholders on the register at 5 February 2021.
In addition to the above, post year end the following events
occurred:
- the Group made six advances totalling GBP14.5 million and
received six repayments totalling GBP1.0 million;
- The Company repurchased 325,000 ordinary shares in the capital
of the Company at a weighted average price of 90.22 pence, all of
which are held in treasury. Following this transaction, the Company
has in issue 442,033,518 ordinary shares of which 2,200,000 are
held in treasury. The total voting rights of the Company at the
date of the report is 439,833,518;the Company drew down an
aggregate amount of GBP13.7 million on the RCF with RBSI, resulting
in a total drawn amount of GBP18.7 million (not including the
amount drawn down as alternative to cash cover for the forward
exchange contracts); and
- the Company's forward foreign exchange contracts shown in note
17.1 matured and were replaced on the same terms as the existing
contracts.
21. Ultimate controlling party
It is the view of the Board that there is no ultimate
controlling party.
SHAREHOLDER INFORMATION
Key dates
March
Payment of fourth interim dividend
March
Annual results announced
May
Annual General Meeting
June
Payment of first interim dividend
Company's half year end
August
Payment of second interim dividend
September
Interim results announced
December
Payment of third interim dividend
December
Company's year end
NAV publication
The Company's NAV is released to the LSE on a quarterly basis
and is published on the Company's website.
Further information
Copies of the Company's annual and half--yearly reports,
quarterly investor reports, stock exchange announcements and
further information on the Company can be obtained from the
Company's website.
Warning to users of this report
This report is intended solely for the information of the person
to whom it is provided by the Company, the Investment Manager or
the Administrator. This report is not intended as an offer or
solicitation for the purchase of shares in the Company and should
not be relied on by any person for the purpose of accounting, legal
or tax advice or for making an investment decision. The payment of
dividends and the repayment of capital are not guaranteed by the
Company. Any forecast, projection or target is indicative only and
not guaranteed in any way, and any opinions expressed in this
report are not statements of fact and are subject to change, and
neither the Company nor the Investment Manager is under any
obligation to update such opinions.
Past performance is not a reliable indicator of future
performance, and investors may not get back the original amount
invested. Unless otherwise stated, the sources for all information
contained in this report are the Investment Manager and the
Administrator. Information contained in this report is believed to
be accurate at the date of publication, but none of the Company,
the Investment Manager and the Administrator gives any
representation or warranty as to the report's accuracy or
completeness. This report does not contain and is not to be taken
as containing any financial product advice or financial product
recommendation. None of the Company, the Investment Manager and the
Administrator accepts any liability whatsoever for any loss
(whether direct or indirect) arising from any use of this report or
its contents.
ALTERNATIVE PERFORMACE MEASURES (APMs)
The Board and the Investment Manager assess the Company's
performance using a variety of measures that are not defined under
IFRS and are therefore classed as APMs. Where possible,
reconciliations to IFRS are presented from the APMs to the most
appropriate measure prepared in accordance with IFRS.
All items listed below are IFRS financial statement line items
unless otherwise stated. APMs should be read in conjunction with
the statement of comprehensive income, statement of financial
position and statement of cash flows, which are presented in the
financial statements section of this report. The APMs below may not
be directly comparable with measures used by other companies.
Adjusted EPS
EPS adjusted to remove the effect of discount rate adjustments
made to reflect the uncertainties associated with the Covid-19
pandemic.
For the
year ended
31 December 2020
Adjusted EPS (Pence per share)
----------------------------------------- -----------------
Basic and diluted earnings 6.21
Adjustments to discount rates in respect
of the Covid-19 pandemic 1.19
----------------------------------------- -----------------
Adjusted EPS 7.40
----------------------------------------- -----------------
Annualised total shareholder return since IPO
Total shareholder return(1) expressed as a time weighted annual
percentage.
Source: Morningstar.
Average LTV
The ratio of a loan or mortgage to a property valuation,
averaged across the Company's property investments, expressed as a
percentage. This ratio demonstrates the headroom in the underlying
asset values to absorb negative movements in property
valuations.
Discount
The amount, expressed as a percentage, that the Company's shares
trade below the prevailing NAV per share.
Dividend cover ratio
Ratio of earnings to dividends calculated as dividends per share
divided by EPS.
For the For the
year ended year ended
31 December 31 December
Dividend cover ratio 2020 2019
------------------------------------------------ ------------ -----------
Total profit and comprehensive income (GBP'000) 27,394 28,037
Weighted average number of shares 441,287,075 411,559,294
------------------------------------------------ ------------ -----------
Basic EPS (p) 6.21 6.81
Dividends (p) 6.475 6.450
------------------------------------------------ ------------ -----------
Dividend cover ratio 0.96 1.06
------------------------------------------------ ------------ -----------
IRR
IRR is the interest rate at which the net present value of all
the cash flows (both positive and negative) from a project or
investment equal zero.
The internal rate of return is used to evaluate the
attractiveness of a project or investment.
Ongoing charges ratio
Ongoing charges ratio (previously "total expense ratios" or
"TERs") is a measure of the annual percentage reduction in
shareholder returns as a result of recurring operational expenses
assuming markets remain static and the portfolio is not traded.
This is a standard performance metric across the investment
industry and allows comparability across the sector and it is
calculated in accordance with the AIC's recommended
methodology.
31 December 31 December
2020 2019
Ongoing charges GBP'000 GBP'000
------------------------ ----------- -----------
Investment Manager 3,917 3,740
Directors' fees 201 136
Administration expenses 1,635 1,173
------------------------ ----------- -----------
Total expenses 5,753 5,049
Non-recurring expenses (470) (23)
------------------------ ----------- -----------
Total 5,283 5,026
Average NAV(2) 445,830 435,594
Ongoing charges ratio 1.18 1.15
------------------------ ----------- -----------
Premium
The amount, expressed as a percentage, that the Company's shares
trade above the prevailing NAV per share.
Total shareholder return
A measure of the performance of a company's shares over time. It
combines share price movements and dividends to show the total
return to the shareholder expressed as a percentage.
It assumes that dividends are reinvested in the shares at the
time the shares are quoted ex dividend.
This is a standard performance metric across the investment
industry and allows comparability across the sector.
Source: Bloomberg.
NAV total return
A measure of the performance of a company's NAV over time. It
combines NAV movements and dividends to show the total return to
the shareholder expressed as a percentage.
It assumes that dividends are reinvested in the shares at the
time the shares are quoted ex dividend.
This is a standard performance metric across the investment
industry and allows comparability across the sector.
Source: Bloomberg.
Weighted average annualised yield
The weighted average yield on the investment portfolio
calculated based on the yield of each investment weighted by the
principal balance outstanding on such investment, expressed as a
percentage.
The yield forms a component of investment cash flows used for
the valuation of financial assets at fair value through profit or
loss under IFRS 9.
Weighted average discount rate
A rate of return used in valuation to convert a series of future
anticipated cash flows to present value under a discounted cash
flow approach. This approach is used for the valuation of financial
assets at fair value through profit or loss under IFRS 9.
The average rate is calculated with reference to the relative
size of each investment.
1. Refer to relevant APM for further information.
2. Based on average NAV for the respective twelve month period.
GLOSSARY
Adjusted EPS
Refer to APMs section above.
AGM
The Annual General Meeting of the Company
AIC
Association of Investment Companies
AIC Code
AIC Code of Corporate Governance
AIF
Alternative Investment Fund
AIFM
Alternative Investment Fund Manager
AIFMD
The UK version of the Alternative Investment Fund Managers
Directive which is part of UK law by virtue of the European Union
(Withdrawal) Act 2018 and as amended by the Alternative Investment
Fund Managers (Amendment etc.) (EU Exit) Regulations 2019
Annualised total shareholder return since IPO
Refer to APMs section above
APM
Alternative performance measure
Articles
The articles of association of the Company
Average LTV
Refer to APMs section above.
BCP
Business continuity plan
Borrower
Owner of a Project Company to which the Group advances loans
Carey Olsen
Carey Olsen Jersey LLP
CHP
A loan secured against combined heat and power engines
CIF Law
Collective Investment Funds (Jersey) Law 1988
CNG
Compressed natural gas
Companies Law
Companies (Jersey) Law 1991, as amended
Company
GCP Asset Backed Income Fund Limited
CPI
Consumer price index
Discount
Refer to APMs section above
Dividend cover ratio
Refer to APMs section above
DTRs
Disclosure Guidance and Transparency Rules of the FCA
EGM
Extraordinary general meeting
EPS
Earnings per share
ESG
Environmental, social and governance
FCA
Financial Conduct Authority
GABI Blyth
GABI (Blyth) Limited
GABI GS
GABI GS Limited
GABI Housing
GABI Housing Limited
GABI UK
GCP Asset Backed Income (UK) Limited
GCP Infra
GCP Infrastructure Investments Limited, a third party company
advised by the Investment Manager
Group
The Company, GABI UK, GABI GS, GABI Housing and GABI Blyth
IAS
International Accounting Standards
IASB
International Accounting Standards Board
IFRIC
International Financial Reporting Interpretations Committee
IFRS
International Financial Reporting Standards
IPO
Initial public offering
IRR
Internal rate of return Refer to APMs section above
JFSC
Jersey Financial Services Commission
KPI
Key performance indicator
Listing Rules
FCA Listing Rules
LSE
London Stock Exchange
LTV
Loan-to-value
MAR
EU Market Abuse Regulation
Market capitalisation
Value of a company traded on the LSE, calculated as total number
of shares multiplied by closing share price
MiFID II
The UK version of MiFID II which is part of UK law by virtue of
the European Union (Withdrawal) Act 2018
NAV
Net asset value
NAV total return
Refer to APMs section above
O&M
Operations and maintenance
Ongoing charges ratio
Refer to APMs section above
Premium
Refer to APMs section above
Project Company
A special purpose company which owns and operates an asset
RBSI
Royal Bank of Scotland International Limited
RCF
Revolving credit facility
RPI
Retail price index
Secured Loan Notes
Loan notes issued to the Company
Subsidiary and/or GABI UK
GCP Asset Backed Income (UK) Limited
TCFD
Task Force on Climate-related Financial Disclosures
Total shareholder return
Refer to APMs section above
UK Code
UK Corporate Governance Code
Weighted average annualised yield
Refer to APMs section above
Weighted average discount rate
Refer to APMs section above
CORPORATE 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
Marykay Fuller
Administrator, secretary and registered office of the
Company
Apex Financial Services (Alternative Funds) Limited
12 Castle Street
St Helier
Jersey JE2 3RT
Advisers on English law
Gowling WLG (UK) LLP
4 More London Riverside
London SE1 2AU
Advisers on Jersey law
Carey Olsen Jersey LLP
47 Esplanade
St Helier
Jersey JE1 0BD
Broker
Investec Bank plc
(appointed 28 January 2020)
30 Gresham Street
London EC2V 7QP
Cenkos Securities plc
(resigned 28 January 2020)
6, 7, 8 Tokenhouse Yard
London EC2R 7AS
Depositary
Apex Financial Services (Corporate) Limited
12 Castle Street
St Helier
Jersey JE2 3RT
Independent Auditor
PricewaterhouseCoopers CI LLP
37 Esplanade
St Helier
Jersey JE1 4XA
Investment Manager and AIFM
Gravis Capital Management Limited
24 Savile Row
London W1S 2ES
Principal banker and lender
Royal Bank of Scotland International Limited
71 Bath Street
St Helier
Jersey JE4 8PJ
Registrar
Link Market Services (Jersey) Limited
12 Castle Street
St Helier
Jersey JE2 3RT
Security Trustee
Gravis Capital Partners LLP
24 Savile Row
London W1S 2ES
Share Register Analyst
Orient Capital Limited
65 Gresham Street
London EC2V 7NQ
Valuation Agent
Mazars LLP
Tower Bridge House
St Katharine's Way
London E1W 1DD
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END
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March 23, 2021 03:00 ET (07:00 GMT)
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