TIDMRDL
RNS Number : 5370C
RDL Realisation PLC
18 June 2019
RDL REALISATION PLC (Formerly RANGER DIRECT LING FUND PLC)
(Registered No. 09510201)
LEI: 549300VGZSKYQ7C2U221
Annual Report for the year ended 31 December 2018
RDL Realisation Plc (the "Company") announces that it has
published its Annual Report and Accounts for the year ended 31
December 2018. The full Annual Report and consolidated financial
statements and the Notice of the 2019 Annual General Meeting are
available to view on the Company's website at
www.rdlrealisationplc.co.uk/documents or by contacting the Company
Secretary on 01392 477500.
They have also been submitted to the National Storage Mechanism
and will shortly be available for inspection at
www.morningstar.co.uk/NSM.
The financial information set out below does not constitute the
Company's statutory accounts for the year ended 31 December 2018
but is derived from those accounts.
The unaudited full text of those parts of the annual report and
accounts for the year ended 31 December 2018, which require to be
published are set out below.
The Company also announces that it will hold its Annual General
Meeting at 2.00pm on 12 July 2019 at the offices of Travers Smith
LLP, 10 Snow Hill, London, EC1A 2AL.
Performance Summary
Highlights Ordinary Shares
-------------------------------------
31 Dec 2018 31 Dec 2017
Net Asset Value(1) (Cum Loss/Income) GBP 5.88(3) /USD GBP 9.90(3) /
per share 7.49 USD 13.38
Net Asset Value(2) (Ex Loss/Income) GBP 7.62(3) /USD GBP 10.19(3) /USD
per share 9.71 13.79
Total dividends per share 288.21 pence 101.76 pence
Share Price(4) GBP 6.70(3) /USD GBP 7.19(3) /USD
8.41 9.72
The Company's market capitalisation as at 31 December 2018 was
USD 137,686,929 (GBP 108,023,638 based on a Share Price of GBP 6.70
and based on 16,122,931 outstanding Ordinary Shares).
The Group's total comprehensive loss for the year ended 31
December 2018 amounted to USD 35,046,160 (31 December 2017: USD
6,614,025 loss).
Further details of the Group's performance for the year are
included in the Executive Directors' Report below which includes a
review of the progress of the asset realisation, impact of
applicable regulations and adherence to investment
restrictions.
Ongoing Charges Information (5)
2018 2017
Annualised ongoing changes (6) 2.97% 2.07%
Performance fee (7) 0.00% 0.01%
Annualised ongoing charges plus
performance fee 2.97% 2.08%
(1) Net Asset Value ("NAV") (cum income) includes all current
year income, less the value of any dividends paid in respect of the
period together with the value of the dividends which have been
declared and marked ex-dividend but not yet paid, see below.
(2) Net Asset Value (ex income) is the Net Asset Value
cum/income excluding net current year income.
(3) Translated at USD to GBP foreign exchange rate of 1.2746
(2017: 1.3524).
(4) Share price taken from Bloomberg Professional.
(5) Ongoing charges are set out as a percentage of annualised
ongoing charge over average reported Net Asset Value.
(6) Ongoing charges are those expenses of a type which are
likely to recur in the foreseeable future. The annualised ongoing
charge is calculated using the Association of Investment Companies
recommended methodology.
(7) Performance fee is calculated based on the terms of the
Investment Management Agreement. Further information is provided in
note 17 of the Notes to the Consolidated Financial Statements.
Key Performance Indicators
The Company's Key Performance Indicators ("KPIs") are described
in the Analysis of KPIs and Investment Restrictions below.
Investment Positions
Below is a list of the Company's investments as at 31 December
2018.
(Shown as aggregate Debt Investments acquired from individual
Direct Lending Platform)
31 Dec 2018
Investment/Direct Country Principal Activity NAV % of NAV
Lending Platform
----------------------- ----------- ------------------------- ------------ ---------
Loans/advances
United to small/medium
SME Loans Platform States size businesses 40,446,802 33.45%
----------------------- ----------- ------------------------- ------------ ---------
Vehicle Services United Vehicle service
Contract Platform States contract financing 39,375,565 32.56%
----------------------- ----------- ------------------------- ------------ ---------
Real Estate Loans United Bridge loans to
Platform States real estate developers 36,836,583 30.46%
----------------------- ----------- ------------------------- ------------ ---------
Loans/advances
International MCA United to small/medium
Platform* Kingdom size businesses 20,999,389 17.37%
----------------------- ----------- ------------------------- ------------ ---------
Loans/advances
International MCA to small/medium
Platform* Australia size businesses 17,008,569 14.07%
----------------------- ----------- ------------------------- ------------ ---------
SME Credit Line United Credit lines to
Platform (Princeton) States finance companies 15,000,000 12.41%
----------------------- ----------- ------------------------- ------------ ---------
Loans to businesses
International SME with government
Lending Platform Canada grants 4,974,099 4.11%
----------------------- ----------- ------------------------- ------------ ---------
United
Equipment Financing States Equipment Financing 669,641 0.55%
----------------------- ----------- ------------------------- ------------ ---------
Consumer, improving United Consumer, improving
credit States credit 299,655 0.25%
----------------------- ----------- ------------------------- ------------ ---------
United
Factoring States Factoring 175,477 0.15%
----------------------- ----------- ------------------------- ------------ ---------
Loans/advances
United to small/medium
MCA Platform States size businesses 21,296 0.02%
----------------------- ----------- ------------------------- ------------ ---------
Loans to consumers
Consumer Loans United with improving
Platform States credit 7,587 0.01%
----------------------- ----------- ------------------------- ------------ ---------
Cayman
Crowdnetic Islands Equity Investment 300,000 0.25%
----------------------- ----------- ------------------------- ------------ ---------
176,114,663 145.65%
============ =========
* The International MCA Platform was refinanced and realised at
approximately USD 38 million post year-end.
CHAIRMAN'S STATEMENT
2018 was another disappointing and difficult year for the
Company. Adjusted for capital returns and dividends the NAV return
was -6.41% in USD terms. After three years of dismal performance
and as a result of Shareholder pressure, there were wholesale Board
changes immediately prior to and following the Annual General
Meeting on 19 June 2018 (the "AGM"). The Company's Shareholders
endorsed the wind- down of the Company in accordance with the
procedures adopted by the Company. These actions were ratified at
the General Meeting held on 16 November 2018, at which the
investment policy and investment objective were formally amended to
pursue a wind-down of RDL. Following these developments, the RDL
share price rose by 11.7% in GBP terms during the year. Late in
2018, the external investment manager Ranger Alternative Management
II, LP ("Ranger") based in Dallas (USA) gave notice of its intent
to terminate their contract on 12 February 2019. This was prior to
the expiry of the 12 months' notice which had been previously
delivered to Ranger under the terms of the investment management
agreement between Ranger and the Company (the "IMA"). The Company
has appointed IFM as its replacement Alternative Investment Fund
Manager ("AIFM") and with effect from 26 February 2019, the Company
has changed its name to RDL Realisation Plc.
Following the appointment of IFM, the Executive Directors of the
Company continue performing the functions they have been carrying
out. In particular, any investment or divestment decisions relating
to the Company's portfolio will not be implemented without prior
Board approval. In preparation for these changes, and as announced
on 15 January 2019, the Company's Executive Board has been
strengthened with the appointment of Joe Kenary who is a senior
credit executive based in the US. Dominik Dolenec and Brett Miller
continue to act as Executive Chairman and Executive Director of the
Company, respectively. Since the year end, Nick Paris has been
appointed to the Board as a Non-Independent Non-Executive
Director.
Wind-down and Capital Returns
Since the AGM on 19 June 2018, the Company has returned 264p per
share in the form of dividend payments. This amounts to
approximately 26% of the published NAV as of 30 June 2018.
The new investment strategy seeks to maximise risk-adjusted IRRs
to our Shareholders. To this end, the Company had adopted a
three-pronged approach to winding down its portfolio of 12
platforms. The first category consisted of portfolios that could be
sold outright. Having run a sale process, only three portfolios and
a small equity position could be exited in this way without
accepting a material discount. The second category consisted of two
sizeable positions where the Company was the sole platform capital
provider. One was successfully refinanced at par in December 2018.
The second recently entered a forbearance agreement in light of its
many contractual breaches and is now working with the Company on a
plan to return the capital. The third category consisted of
portfolios that are best run off. We are working to ensure that the
overwhelming majority of this category will be repaid by late 2019.
However, there can be no guarantee that the Company will be
successful in accomplishing this objective. Some residual positions
will only be liquidated once various bankruptcy proceedings are
completed, with Princeton being the most notable, and it is
expected that these will take longer.
The Company's subsidiary RDLZ has issued Zero Dividend
Preference Shares ("ZDPs") that require the Company to meet a 2.75x
asset cover ratio after any capital distribution, save for
dividends required to maintain the Investment Trust status. The ZDP
Shares mature on 31 July 2021 and accrue an annualised return of 5%
per year. In light of the wind-down, the Company has been in active
discussions with ZDP Shareholders about an early retirement of
their instruments. This would allow the Company to then return all
excess cash to the Company's Shareholders. To date, the Company has
bought back almost 14% of the originally issued ZDP Shares.
Portfolio Performance
Aside from the widely publicised Princeton bankruptcy, the new
Board was disappointed to discover that a number of other platform
exposures were not monitored or managed in what the new Board would
consider a prudent manner by Ranger. This was the case in at least
two lending platforms which are among the largest positions in the
Fund. In both cases, in our opinion, many established practices in
the lending industry were not followed, such as diligent
monitoring, appropriate cash controls, detailed, frequent and
timely reporting and the retention of back-up servicers. Certain
legal agreements required by the loan documentation and agreed to
by borrowers, for example cash control agreements, were also not
implemented and enforced, and this may have been to the detriment
of the Company's Shareholders. The new Board is endeavouring to
rectify many of these deficiencies and preserve capital.
A detailed analysis of the Company's portfolio is provided in
the Executive Directors' Report.
Princeton
The Company announced on 7 November 2018 that a Chapter 11
Trustee had been appointed in relation to the bankruptcy
proceedings of Princeton Alternative Income Fund, LP and its former
general partner Princeton Alternative Funding, LLC (together,
"Princeton"). This is a major milestone in the recovery of our
Princeton investment. Since that time the Company has continued to
actively engage with the Trustee and its other advisers in
connection with its investment in Princeton.
Based on the information provided to date by the Trustee (which
the Company has not been able to independently validate or verify),
the Company is currently estimating a potential recovery of
approximately USD 15 million from the Princeton bankruptcy. The net
asset value published by the Company as at 30 November 2018
attributed a value of approximately USD 28.5 million to the
Company's investment in Princeton. Princeton is now carried at USD
15m in the audited accounts.
The Company emphasises that this remains an unverified estimate
and is subject to a number of potential variables. In particular,
the amount that the Company will recover will be dependent upon the
final structure of the creditor and investor waterfall and
distribution scheme and the actual net amount available for
distribution. A final determination of these issues is not expected
for a number of months and it is not possible to predict the
precise structure of the distribution scheme which will be approved
by the bankruptcy court. In addition, other factors that will
impact the Company's ultimate recovery amount include (but are not
limited to): the actual recoveries in respect of both performing
and delinquent payday loans in the Princeton portfolio - currently
these recovery rates are based on assumptions using historical
sector benchmarks which may not prove to be accurate in respect of
the actual portfolio performance; certain restricted cash balances
in the Princeton portfolio may not be released to the Company; no
valuation of potential litigation claims has currently been made;
and other, unforeseen factors or information may subsequently occur
or be discovered. As such, no reliance can be placed on the
estimated potential recovery amount and it is likely that such
estimate will change in the future as additional information is
received from the Trustee.
The Company has been engaged in discussions with the Trustee
regarding the content of a Chapter 11 Plan of Liquidation (the
"Plan") proposed by the Trustee. The Plan was filed on 19 April
2019 and provides for the prompt and orderly liquidation of fund
assets by approved professionals and the pursuit of possible
third-party litigation claims under the direction of a liquidating
trustee to be appointed under the Plan. The Plan also contemplates
the Company being treated in the same way as other Princeton
investors. However, in light of the arbitration findings that have
previously been announced by the Company, the Company has agreed
with the Trustee that it will be paid USD 2.5 million out of the
liquidation proceeds in priority to other investors. This amount
will cover part of the costs of the legal proceedings that were
incurred by the Company.
The disclosure and confirmation process in a Chapter 11 case
after the filing of a plan typically requires a period of two to
four months. The Company understands that the Trustee will be
reaching out to investors to explain the Plan and respond to
questions regarding its content, structure and implementation. The
Company will continue to work closely with the Trustee and his
professionals to complete this process.
Recently, Microbilt Corporation recruited an informal group of
minority investors to support its alternative Chapter 11 plan,
which is vague in structure and content. Among other things, the
Microbilt plan leaves the fund in bankruptcy for an indeterminate
period of time. The Company believes that the Microbilt plan is not
in the best interest of the Company or other investors. The Company
will support the Plan filed by the Chapter 11 Trustee and seek its
confirmation before the Bankruptcy Court.
Operational Transition and Reporting Arrangements
The operational transition away from Ranger as external
investment manager of the Company has now been completed. This
involved considerable effort on our part as we implemented many of
the operational practices and controls that we believe are normally
expected from a credit fund manager responsible for third party
capital. Moreover, in the transition, Ranger also was not fully
cooperative with the Company's requests and continues to withhold
certain information related to the portfolio from the Company.
Late last year, the Company retained a senior credit
professional and financial controller based in Dallas to assist
with the day to day management of the Company's remaining credit
portfolios. This professional reports directly to the Board. The
Company has recently also retained the services of MCA Financial
Group as the new accounting and servicing provider. They replace
the functions previously provided by Ranger's accounting
department. For the purposes of these accounts and going forward,
the Company has engaged an independent third-party valuation agent
for the purposes of assisting the Board in valuing the Company's
portfolio.
Given the realisation process currently being undertaken, the
Directors of the Company are of the view that it is appropriate to
carry out half-yearly rather than monthly valuations with immediate
effect, such calculations being carried out as at 30 June and 31
December in each year. The Company will announce its net asset
value and net asset value per Ordinary Share as soon as practicable
following each half year valuation date. The Company may undertake
additional valuations in respect of part or all of the portfolio in
connection with potential sales or material changes of circumstance
of its investments to the extent it deems it appropriate to do
so.
The Company will continue to comply with its obligations under
the ZDP Share Undertaking and, in particular, will continue to
calculate the cover in respect of ZDP Shares monthly using all
applicable information relevant to that calculation, including
items such as currency movements and disposals of investments which
arise subsequent to any valuation.
Outlook
A great deal of effort has gone into prudently winding down the
portfolio and transitioning the management away from Ranger and
implementing the procedures and controls we believe are appropriate
for the Company. Whilst much work still remains to be done, we are
pleased with our team's efforts in spite of the challenges we have
faced in the portfolio we have inherited.
In 2019, we hope to realise a substantial part of the remaining
assets and return the proceeds to our Shareholders. We will also
continue to streamline management and other administrative costs.
With that in mind, we might also delist our Shares in the
future.
It is our goal to maximize the return to Shareholders in a
prudent and cost-effective manner.
Dominik Dolenec
Chairman
17 June 2019
EXECUTIVE DIRECTORS' REPORT
It has been a busy period since the new Board was appointed. As
you know, immediately prior to the AGM on 19 June 2018, Christopher
Waldron, Matthew Mulford and Scott Canon resigned. Dominik Dolenec,
Greg Share and Brendan Hawthorne were appointed to the Board at the
AGM. Brett Miller and Joe Kenary were subsequently appointed on 6
July 2018 and 4 December 2018 respectively. Nick Paris has
subsequent to the year end, been appointed to the Board. On 27 July
2018, Dominik Dolenec and Brett Miller assumed executive
responsibilities as the scale of the task facing the new Board
became apparent. Of the "old" Board only Jonathan Schneider
remained for a period of continuity until he stepped down in
November 2018. The Board would like to express their thanks to Mr
Schneider for his assistance during this period of transition. In
December 2018, the Board was further strengthened with the
appointment of Joe Kenary, who subsequent to the year-end has also
assumed an executive role. Since the year end, Nick Paris has been
appointed to the Board as a Non-Independent Non-Executive Director.
The Board is thus comprised of six Directors of whom three are
executive and three are non-executive, although it should be noted
that the non-executive Directors have been called on to assist in a
much more active role than typically to be expected of a
non-executive Director.
The new Board was entrusted by Shareholders with a mandate to
realise assets and return capital to Shareholders. This new
investment policy was set out in a circular to Shareholders and
formally approved by Shareholders at a general meeting in November
2018 and can be found below.
The Executive Directors have spent considerable time in the USA
this year, reviewing the portfolio, meeting investee platforms,
working with Ranger and transitioning away from Ranger as described
in the Chairman's Statement. This work is ongoing and whilst
considerable headway has been achieved there remains much to do.
The implementation of the new investment policy has got off to a
good start, some of the highlights of which are:
-- In October 2018, the Company sold the current receivables
held by it that were originated by the Consumer Receivables
Platform (the "Receivables"), achieving a sales price of 96.5 per
cent. of par for all Receivables held by the Company (in addition
to all accrued but unpaid interest attributable to such
Receivables) which at that time were either current or up to 30
days delinquent. The carrying value for the Receivables was USD
18,942,415 and the loss on sale was USD 658,539.
-- Subsequent to the year end, in January 2019 the Company's
exposure to the International MCA Platform was refinanced and our
promissory notes paid off. We realised USD 38,007,945 (at carrying
value) pursuant to this transaction, the entirety of which has been
paid to the Company.
-- The Company has continued to work with the Real Estate
platform to offer individual performing loans to the platform's
existing and new investors. The investment balance for this
platform at 1 January 2018 was USD 71,848,345, of which the
defaulted loans in recovery constituted USD 16,396,547. At the year
end, we had sold or received payment of loans amounting to USD
66,254,440, leaving a net balance exposure to this platform of USD
36,836,584.
-- Significant progress has been made in the Princeton
litigation and bankruptcy procedure, and whilst the information
forthcoming has not been good, we have significantly more clarity
on the value of this investment compared to when we were appointed
to the Board. However, much work remains to be done on this
unfortunate investment.
-- One smaller portfolio was disposed of at 77c on the dollar
but a small premium to our carrying NAV due to some conservative
default provisioning.
-- The small equity interest was disposed of for USD 300,000,
being the carrying value at the time.
As a result of the above actions the Company has returned 264p
in cash to Shareholders by way of dividend. This amounts to
approximately 26% of the published NAV as of 30 June 2018.
Whilst we are delighted with the above results achieved to date,
and in particular the refinancing of the International MCA platform
at par, we cannot be certain that we will achieve similar pricing
for the remainder of the portfolio and Shareholders would be
counselled to exercise caution in making any predictions based on
these past results.
Notwithstanding the above, Shareholders should take note that a
mandate requiring the active sale or timed liquidation of
portfolios presents an inherent risk which does not present itself
with the run-off of a portfolio, in that such assets may not be
realised at their fair value. Although the Company is not currently
considering offers which fall materially below the values referred
to below, the inherent risk of attracting opportunistic buyers must
be managed with the optionality to run down a short-term portfolio
in order to ensure the realisation of appropriate value. It is also
important for Shareholders to recognise that a material amount of
the future value for the Company will be tied to current claims in
litigation.
Transition arrangements
On 12 October 2018, Ranger informed the Board that it would
terminate the IMA between it and the Company with effect from 12
February 2019 and the agreement was indeed terminated on that date.
Shareholders are reminded that the Company had previously served a
termination notice on Ranger with effect from 1 May 2019 to the
extent the agreement has not already been terminated.
The Company has, since the year end, appointed IFM as its
replacement Alternative Investment Fund Manager.
Following the appointment of IFM, the Executive Directors of the
Company will continue performing the functions they have been
carrying out during the current management arrangements. In
particular, any investment or divestment decisions relating to the
Company's portfolio will not be implemented without prior Board
approval. In preparation for these changes, and as announced on 15
January 2019, the Company's Executive Board has been strengthened
with the appointment of Joe Kenary who is a senior credit executive
based in the US. Dominik Dolenec and Brett Miller continue to act
as Executive Chairman and Executive Director of the Company,
respectively. The Company has also appointed a senior credit
professional and a financial controller, both based in Dallas, USA,
to assist with the management and realisation of the portfolio. A
huge amount of time has been spent by the Executive Directors in
the run up to 12 February 2019 to ensure a smooth transition of
management responsibilities and to avert any disruption to the
portfolio management role. It was also a considerable task
transitioning over the accounting function to the new service
provider. The difficulty of the task was compounded by Ranger, at
the transition, withholding essential information that we assert is
the property of the Company. Whilst much work still remains, we are
satisfied with the significant progress the team has made since
Ranger's termination. In spite of all the challenges, the bulk of
the work has been done to plan and the Board are pleased with the
new arrangements.
Investment Portfolio
In accordance with the Board's instructions, Ranger, in June
2018 discontinued making investments through normal course of
business with the following exceptions:
-- the investment is a follow-on investment made in connection
with an existing Investment made in order to comply with the
Company's pre-existing obligations; or
-- failure to make the follow-on investment may result in a
breach of contract or applicable law or regulation by the Company;
or
-- the investment is considered necessary by the Board to
protect or enhance the value of any existing investments or to
facilitate orderly disposals.
In accordance with the above, new investments after June 2018
were made to:
-- Second SME Loans Platform for USD 5,412,606 in July 2018
-- International LOC Partner for USD 510,169 in September 2018
-- Real Estate Lending Partner for USD 300,000 in September 2018
At 31 December 2018, 91.3% of the portfolio was invested in
secured Debt Instruments (including loans, cash advances, and
receivables financing) to mainly SME borrowers, and 8.7% of the
portfolio consisted of unsecured consumer loans. For this purpose,
a secured Debt Instrument is defined by the Company as a payment
obligation in which property, revenue (including receivables), or a
payment guaranty has been pledged, mortgaged or sold to the Company
as partial or full security with respect to such obligation.
In addition to investing in Debt Instruments, the Company was
previously able to invest up to 10% of gross assets in the equity
of Direct Lending Platforms and/or organisations serving the direct
lending industry. As at 31 December 2018, one such equity
investment had been made for USD 300,000 in June 2017. As mentioned
above, this investment has been sold subsequent to the year end for
USD 300,000.
Below is a brief summary of each investment platform / partner
which provides:
-- Net balance at 31 December 2018 (estimated fair value)
-- Commentary summarising primary activity and expected disposition of the investments
-- All amounts shown below are in USD
SME/CRE Loans Platform
Net Balance at Net Balance at
31 December 2017 31 December 2018
51,414,447 40,446,802
------------------
Since June 2018, there has been a regular run-off of all
performing investments. The Executive Directors are in weekly
contact with this platform who are trying to assist in the sale of
some investments to its other investors throughout 2019, and
remaining investments will be run off.
Note: Included in the balance above is USD 4.5m which is an
acquisition loan extended to the Second SME Loans Platform - see
below.
Second SME Loans Platform
Net Balance at Net Balance at
31 December 2017 31 December 2018
26,703,908 39,375,565
------------------
Due to the combination of the loss in volume from the reduced
number of new vehicle service contracts generated by the platform
and cash drain from losses at affiliated entities, the platform
failed to make a series of mandatory pre-payments, and the platform
has failed to meet the required loan to value requirements. These
factors entitled the Company to declare an event of default
pursuant to its Master Loan Agreement. The platform has recently
found a new funding source for new vehicle service contracts going
forward and is making payments under a revised repayment schedule.
The Company has since the year end executed a Forbearance Agreement
and Cash Control Agreement which will bring credit monitoring and
cash controls to a standard customary for financing structures of
this type.
The platform has engaged an investment banker to assist in the
refinancing efforts and there are ongoing communications with
prospective new lenders. The refinancing of the notes as a
portfolio has been complicated by the fact that in May (prior to
the appointment of the new board of Directors), the Company also
extended a USD 4.5M enterprise value loan to this platform to
finance an acquisition of a loss-making business and unlike the
previous loan, there is no advance rate based on discrete
collateral. This loan falls due in May 2019 and is reported in the
balance of the SME/CRE Lending Platform. The investment balance
secured by vehicle service contracts at 31 December 2018 was USD
44m. The Board continues to investigate why this loan was made. The
LTV, which as at 31 December 2018 was 103% and at 31 March 2019 was
129%, representing a significant breach of the LTV requirement. As
a result, taking into consideration the Duff & Phelps Report,
the report of another independent third party, and internal credit
analysis, an additional reserve of approximately USD 9m to reflect
the estimated impairment to the loan value has been recognised as
of 31 December 2018. The combined balance of the two loans at the
VSC platform as 31 December 2018 was USD 48.5m. The total balance
after the impairment charge is USD 39m. Restructuring efforts are
continuing.
Real Estate Lending Partner
Net Balance at Net Balance at
31 December 2017 31 December 2018
71,848,345 36,836,583
------------------
There has been a combination of sales of some investments with
help of the platform and regular run-off of all performing
investments, particularly during the latter part of the year. The
platform will continue to assist with the sale of some investments
to its other investors throughout 2019, and the remaining
investments will be run-off.
Princeton Alternative Income Fund
Net Balance at Net Balance at
31 December 2017 31 December 2018
29,321,483 15,000,000
------------------
Subsequent to the year end and as announced on 11 February 2019
the Company is currently estimating a potential recovery of
approximately USD 15m from the Princeton bankruptcy. A Princeton
further update is provided below.
Canadian SME Lending Platform
Net Balance at Net Balance at
31 December 2017 31 December 2018
15,919,670 4,974,099
------------------
The ongoing review of the platform's operations unfortunately
revealed that the platform had not been adequately servicing the
loans sold to the Company. To prevent further deterioration of the
Canadian SME Lending Platform portfolio, the former Investment
Manager temporarily took over the servicing of these investments.
These are now serviced directly by the Company. Using the
information from the former Investment Manager's direct contact
with the borrowers, the Company continued its servicing and
re-structuring of payment obligations with individual borrowers
whose loans were originated by the platform. These loans are
venture loans to mainly small and early stage companies with
underdeveloped profit profiles which bear certain risks common to
venture lending. The remaining investments are expected to be run
off in due course under a variety of collection efforts. Current
collection efforts include litigation and realisation of collateral
proceeds, restructured pay out terms with longer amortisation, and
participation in royalty streams from future company sales to be
applied to the outstanding loans.
Equipment Loans Platform
Net Balance at Net Balance at
31 December 2017 31 December 2018
1,915,580 669,641
------------------
Since June 2018, there has been a regular run-off of all
performing investments. The remaining investments are expected to
be run-off.
Second Consumer Loans Platform
Net Balance at Net Balance at
31 December 2017 31 December 2018
3,277,167 299,655
------------------
Since June 2018, there has been a regular run-off of all
performing investments. Platform will try to assist in the sale of
some or all remaining loans to its other investors in 2019, and
remaining investments (if any) will be run-off.
Invoice Factoring Platform
Net Balance at Net Balance at
31 December 2017 31 December 2018
1,811,185 175,477
------------------
Since June 2018, there has been a regular run-off of all
performing investments. The remaining investments are expected to
be run-off.
Third SME Loans Platform
Net Balance at Net Balance at
31 December 2017 31 December 2018
3,853,550 21,296
------------------
Since June 2018, there has been a regular run-off of all
performing investments. The remaining investments are expected to
be run-off.
Consumer Loans Platform
Net Balance at Net Balance at
31 December 2017 31 December 2018
37,789,106 7,587
------------------
From June to October 2018, there has been a regular run-off of
all performing investments. In October, all performing loans were
sold to a third party which left the non-performing loans to
run-off.
Independent valuation of the portfolio
Duff & Phelps, an independent valuation firm was engaged to
perform valuation consulting services on the four largest platforms
for the Company's portfolio. This excludes the investment in
Princeton, owing to a lack of available information for this
investment. The consulting services consisted of certain limited
procedures that the Company identified and requested the
independent valuation firm to perform.
A copy of the report from Duff & Phelps (the "DP Report")
has now been delivered to the Board.
The Company is ultimately and solely responsible for determining
fair value of the investments in good faith, and following its
review of the report, the values at December 2018 were updated
based on the Duff & Phelps valuation with the exception of the
Vehicle Service Contract (VSC) platform. The VSC platform,
including the holding company loan, was valued taking into
consideration the DP Report, the report of another independent
third party, and internal credit analysis. Based on a thorough
review of the collateral at the VSC enterprise including the
holding company loan, it indicates a substantial reduction in
collateral security for RDL's outstanding principal amount due to a
variety of factors. In order to accurately reflect the risk and the
appropriate cost of capital for the portion of the loan that is not
directly secured by collateral, the Company has applied a risk
adjusted discount rate more appropriate for an unsecured loan,
resulting in an impairment to the loan value.
Princeton Update
On 6 November 2018, the United States Bankruptcy Court for the
District of New Jersey granted the Company's motion for the
appointment of a Chapter 11 Trustee in the bankruptcy cases of
Princeton and directed the United States Trustee to appoint a
Chapter 11 Trustee. Among other things, the Court found that the
existence of irreconcilable conflicts of interest between the
Princeton fund and its insider management and the existence of an
outstanding claim filed in the cases by the Securities and Exchange
Commission required an independent Trustee to be appointed.
The United States Trustee appointed Matthew Cantor as chapter 11
Trustee and the Bankruptcy Court entered an order approving the
appointment. Mr. Cantor, the Trustee, is an experienced financial
professional and served as Chief Counsel for Lehman Brothers
Holdings, Inc. Upon his appointment, the Trustee displaced current
management and assumed control over Princeton and its assets. The
Trustee has retained legal and financial professionals and is
currently evaluating the fund assets and formulating a plan of
liquidation. The Company and its legal counsel are working closely
with the Trustee to formulate a plan of liquidation and effectuate
an orderly recovery of our Shareholders' capital. It is hoped that
in the coming months Princeton can exit bankruptcy under a
liquidation plan with a liquidation trustee who will oversee
distributions to investors and run off the remaining assets.
Subsequent to the year end and based on the information provided
to date by the Trustee (which the Company has not been able to
independently validate or verify), the Company announced on 11
February 2019 that it was currently estimating a potential recovery
of approximately USD 15 million from the Princeton bankruptcy.
Prior to this, it had attributed a value of approximately USD 28.5
million to the Company's investment in Princeton in calculating the
NAV. Accordingly, the Company resolved to impair the carrying value
of its investment in Princeton by a further USD 13.5 million.
The Company emphasises that this remains an unverified estimate
and is subject to a number of potential variables, in particular
the amount that the Company will recover will be dependent upon the
final structure of the creditor and investor waterfall and
distribution scheme and the actual net amount available for
distribution. A final determination of these issues is not expected
for a number of months and it is not possible to predict the
precise structure of the distribution scheme which will be approved
by the bankruptcy court. In addition, other factors that will
impact the Company's ultimate recovery amount include (but are not
limited to): the actual recoveries in respect of both performing
and delinquent payday loans in the Princeton portfolio - currently
these recovery rates are based on assumptions using historic sector
benchmarks which may not prove to be accurate in respect of the
actual portfolio performance; certain restricted cash balances in
the Princeton portfolio may not be released to the Company; no
valuation on potential litigation claims has currently been made;
and other, unforeseen factors or information may subsequently occur
or be discovered. As such, no reliance can be placed on the
estimated potential recovery amount and it is likely that such
estimate will change in the future as additional information is
received from the Trustee.
As referenced in the Chairman's Statement, the Company has been
engaged in active discussions with the Trustee regarding the
content of a Chapter 11 Plan of Liquidation (the "Plan") proposed
by the Trustee. The Plan was filed on 19 April 2019 and provides
for the prompt and orderly liquidation of fund assets by approved
professionals and the pursuit of possible third-party litigation
claims under the direction of a liquidating trustee to be appointed
under the Plan. The Plan also contemplates the Company being
treated in the same way as other Princeton investors. However, in
light of the arbitration findings that have previously been
announced by the Company, the Company has agreed with the Trustee
that it will be paid USD 2.5 million out of the liquidation
proceeds in priority to other investors. This amount will cover
part of the costs of the legal proceedings that were incurred by
the Company.
Recently, Microbilt Corporation recruited an informal group of
minority investors to support its alternative Chapter 11 plan,
which is vague in structure and content. Among other things, the
Microbilt plan leaves the fund in bankruptcy for an indeterminate
period of time. The Company believes that the Microbilt plan is not
in the best interest of the Company or other investors. The Company
will support the Plan filed by the Chapter 11 Trustee and seek its
confirmation before the Bankruptcy Court.
Sector Reporting
As at 31 December 2018, the portfolio (excluding cash and cash
equivalents) was diversified across different sectors as
follows:
Allocation
Sector 31 Dec 2018 31 Dec 2017 Change
Bridge loans to real estate
developers 21% 26% (19%)
Consumer, improving credit 0% 1% (100%)
Credit lines to finance companies 9% 10% (10%)
Equipment Financing 0% 1% (100%)
Factoring 0% 1% (100%)
Loans to businesses with government
grants 3% 6% (50%)
Loans to consumers with improving
credit 0% 13% (100%)
Loans/advances to small/medium
size businesses 45% 33% 36%
Vehicle service contract financing 22% 8% 175%
Consumer Medical 0% 1% (100%)
------------ ------------ -------
Total (excluding cash and
cash equivalents) 100% 100%
------------ ------------ -------
ZDP Update
As of 14 December 2018, the Company held 7,278,193 Zero Dividend
Preference Shares ("ZDP Shares") in RDLZ. The Board of the Company
has passed a resolution to waive the Company's entitlement to the
accrued principal on its ZDP holdings up to 14 December 2018. The
calculation of the Cover has been adjusted to deduct 7,278,193 ZDP
Shares held by RDL from the total outstanding ZDP Shares to
determine the ZDP redemption amount due on 31 July 2021.
This has been reflected in the below calculation of the
Estimated ZDP Cover (8) .
Ticker RDLZ
Shares in Issue 45,721,807
Accrued Capital Entitlement (IFRS 9) GBP 1.1184
Accrued Capital Entitlement (legal GBP 1.1260
entitlement without issue cost)
Share Price GBP 1.16
As announced on 3 June 2019, a proposal to bring forward the
winding up of RDLZ and amend the amounts payable in respect of the
ZDP Shares has been proposed. Please see note 25 below.
The Board would like to draw attention to the above Accrued
Capital Entitlement calculated in accordance with the IFRS 9
accounting standard. The figure differs from the legal Accrued
Capital Entitlement (also shown above) due to the amortisation of
issuance costs of approximately GBP1.1m over the life of the
ZDPs.
(8) Cover of the ZDP Shares shall represent a fraction where the
numerator is equal to the Net Asset Value of RDL and its Group on a
consolidated basis (adjusted to: (i) add back any liability to ZDP
Shareholders; and (ii) deduct the estimated liquidation costs of
the Company) and the denominator is equal to the amount which would
be paid on the ZDP Shares as a class (and on all ZDP Shares ranking
as to capital in priority thereto or pari passu therewith, save to
the extent already taken into account in the calculation of the Net
Asset Value) in a winding up of the Company on the ZDP Repayment
Date. The calculation of the Cover has been adjusted to deduct
7,278,193 ZDP Shares held by RDL from the total outstanding ZDP
Shares to determine the ZDP redemption amount due on 31 July
2021.
GROUP STRATEGIC REPORT
Cautionary Statement
This Group Strategic Report has been prepared solely to provide
information to Shareholders to assess how the Directors have
performed their duty to promote the success of the Company. It has
been prepared for the Group as a whole and therefore gives greater
emphasis to those matters which are significant to the Company and
its subsidiaries when viewed as a whole.
The Group Strategic Report contains certain forward-looking
statements. These statements are made by the Directors in good
faith based on the information available to them up to the time of
their approval of this report and such statements should be treated
with caution due to the inherent uncertainties, including both
economic and business risk factors, underlying any such
forward-looking information.
OBJECTIVE AND INVESTMENT POLICY
Investment Objective
The Company will be managed, either by a third party non-EEA
investment manager or internally by the Company's Board of
Directors, with the intention of realising all remaining assets in
the portfolio in a prudent manner consistent with the principles of
good investment management, with a view to returning cash to its
Shareholders in an orderly manner and meeting the obligations of
the Company to RDLZ in respect of the ZDP Shares or purchasing ZDP
Shares to reduce those obligations in advance of the final date for
payments on the ZDP Shares.
Investment Policy
The Company will pursue its new Investment Objective by
effecting a managed wind-down with a view to realising all of the
investments in a manner that achieves a balance between maximising
the value received from investments and making timely returns to
Shareholders. The Company may sell its investments either to
co-investors in the relevant investment or to third parties, but in
all cases with the objective of achieving the best available price
in a reasonable time scale.
As part of the realisation process, the Company may also
exchange existing debt instruments issued by any direct lending
platform for equity securities in such direct lending platform
where, in the reasonable opinion of the Board, the Company is
unlikely to be able to otherwise realise such debt instruments or
will only be able to realise them at a material discount to the
outstanding principal balance of that debt instrument.
The following investment restrictions will apply to the
Company:
The Company will cease to make any new investments or to
undertake capital expenditure except, with the prior written
consent of the Board and where:
-- the investment is a follow-on investment made in connection
with an existing investment made in order to comply with the
Company's pre-existing obligations; or
-- failure to make the follow-on investment may result in a
breach of contract or applicable law or regulation by the Company;
or
-- the investment is considered necessary by the Board to
protect or enhance the value of any existing investments or to
facilitate orderly disposals.
Any cash received by the Company as part of the realisation
process prior to its distribution to Shareholders will be held by
the Company as cash on deposit and/or as cash equivalents.
The Company will not undertake new borrowing other than for
short-term working capital purposes. RDLZ, the Company's
subsidiary, has ZDP Shares in issue which are repayable on 31 July
2021. In order to facilitate the Company's realisation strategy,
the Company will be permitted to purchase ZDP Shares at the
discretion of the Board.
Business Model
The Company is an Investment Trust within the meaning of Chapter
4 of Part 24 of the Corporation Tax Act 2010.
Following the Company's announcement on 11 June 2018 that it
will move to realise its assets and proceed with the wind-down
process, the Company's business model has changed from holding
financial assets to collect their contractual cash flows to
realising assets, in a prudent manner consistent with the
principles of good investment management with a view to returning
cash to its Shareholders in on orderly manner. As at 30 June 2018,
the carrying value of the financial instruments reclassified from
amortised cost to fair value through profit or loss was USD
248,386,018 (notes 3 and 4).
The Directors expect that the process of realisation will result
in a transition to voluntary liquidation to preserve the Company's
Investment Trust status. The timing of such move is uncertain as
the Directors progress the orderly realisation of the portfolio as
soon as practicable and with regard to cost efficiency, working
capital requirements of the Company and the rights of the ZDP
Shareholders.
The Board has formed three working committees to provide the
necessary oversight of the Company's Investments.
The first committee, which comprises of Dominik Dolenec, Brendan
Hawthorne, Joe Kenary and Brett Miller is responsible for the
wind-down and realisation of the Company's existing portfolio
(excluding Princeton) with the specific aim of maximising returns
for Shareholders. The second committee, which comprises all Board
members, has been tasked with management of the Princeton
Proceedings and the strategic decisions associated with those
proceedings.
The third committee was formed to consider proposals relating to
retiring the ZDP Shares issued by the Company's subsidiary, RDLZ.
Brendan Hawthorne and Joe Kenary as Directors of RDLZ are not
members of this committee. Any final decisions regarding the
approach to the investment portfolio and any other proposals to be
put to Shareholders are decided by the Board as a whole.
IFM is now the Alternative Investment Fund Manager of the
Company (following the termination of Ranger) and is subject to the
AIFMD only to the limited extent applicable when a non-EEA
Alternative Investment Fund Manager (an "AIFM") offers or markets
an EEA Alternative Investment Fund (an "AIF") in the EEA. For the
purposes of the AIFMD, the Company is the AIF and IFM is the
AIFM.
Outsourced principal service providers include the
following:
Function Provider
Alternative Investment Fund Manager International Fund Management
Limited
---------------------------------
English and US (as to Securities Travers Smith LLP and Sidley
Law) Legal Adviser Austin LLP
---------------------------------
General Accounting and Administration Sanne Fiduciary Services Limited
---------------------------------
Accounting and Servicing MCA Financial Group
---------------------------------
Company Secretarial Link Company Matters Limited
---------------------------------
Company Registrar Link Asset Services
---------------------------------
Borrowing policy
As at 31 December 2018, the Company has a loan payable to RDLZ
of USD 70,979,233 (2017: USD 73,835,016). In accordance with the
Company's investment policy, the Company will not undertake new
borrowing other than for short-term working capital purposes.
However, in order to facilitate the Company's realisation strategy,
the Company will be permitted to purchase RDLZ Shares at the
discretion of the Board.
Principal Risks and Uncertainties
There are a number of potential risks and uncertainties which
could have a material impact on the Group's performance and could
cause actual results to differ materially from expected and
historical results. The Board of Directors has overall
responsibility for risk management and internal control within the
context of achieving the Company's new investment objective. The
Board agrees the strategy for the Company, approves the Company's
risk appetite and monitors the risk profile of the Company.
The Company has a risk map which consists of the key risks and
controls in place to mitigate those risks. The risk map, which is
reassessed regularly by the Audit Committee, provides a basis for
the Audit Committee and the Board to regularly monitor the
effective operation of the controls and to update the matrix when
new risks are identified. The Board's responsibility for conducting
a robust assessment of the principal risks is embedded in the
Company's risk map and stress testing. The Board, through
delegation to the Audit Committee, undertakes this robust annual
assessment and review of the principal risks facing the Company,
together with a review of any new risks which may have arisen
during the year.
The Company's investment management and administration functions
have historically been outsourced to external service providers. In
February 2019, Ranger's contract expired, and the Company appointed
IFM as its AIFM working with the Board. In addition, the Company
continues to rely on external service providers for a number of
management and administrative functions. Any failure of any
external service provider to carry out its obligations could have a
materially detrimental impact on the effective operation, reporting
and monitoring of the Company's financial position. This is likely
to have an effect on the Company's ability to meet its new
investment objective successfully. The Company receives and reviews
internal control reports from its key external service providers on
an annual basis and receives a third party independently reviewed
control report on its Administrator and Registrar. The Audit
Committee has reviewed and considered the guidance supplied by the
Financial Reporting Council ("FRC") on Risk Management, Internal
Control, and Related Finance and Business Reporting. Information
regarding the Company's internal control and risk management
procedures can be found in the Corporate Governance Statement.
The Board will continue to keep the Company's system of risk
management and internal control under review and will continue to
ensure that the principal risks and challenges faced by the Group
are fully understood and managed appropriately.
An overview of the principal risks and the main uncertainties
that the Board considers to be currently faced by the Company are
provided below, together with the mitigating actions being
taken.
Risks arising due to Managed Wind-Down
In a Managed Wind-Down, the value of the Portfolio will be
reduced and concentrated in fewer holdings, and the mix of asset
exposure will be affected accordingly.
The Company might experience increased volatility in its Net
Asset Value and/or its Share price as a result of possible changes
to the Portfolio structure.
The Company's assets may not be realised at their fair market
value, and it is possible that the Company may not be able to
realise some assets at any value.
Sales commissions, liquidations cost, taxes and other costs
associated with the realisation of the Company's assets will reduce
the cash available for distribution to Shareholders.
Due to the time it would typically take to repatriate the
proceeds from the sale of assets to the UK, it is expected that
there could be potentially significant time lags between sales made
by the Company and any subsequent returns of capital to
Shareholders.
The timing and ultimate amount of any returns will be impacted
by the tax regimes of the countries in which the Company
invests.
The liquidity profile of the Portfolio is such that Shareholders
may have to wait a considerable period of time before receiving all
of their distributions pursuant to the Managed Wind-Down. During
that time, the concentration of the value of the Portfolio in fewer
holdings will reduce diversification and the spread of risk. This
may adversely affect the Portfolio's performance.
The maintenance of the Company as an ongoing listed vehicle will
entail administrative, legal and listing costs, which will decrease
the amount ultimately distributed to Shareholders. Although the
Board intends to maintain the Company's listing for as long as the
Directors believe it to be practicable during the Managed Wind-Down
period, the Directors shall immediately notify the Financial
Conduct Authority ("FCA") and may seek suspension of the listing of
the Shares pursuant to the requirements of the Listing Rules (which
may include Shareholder approval prior to any suspension or
de-listing) if the Company can no longer satisfy the continuing
obligations for listing set out therein including, but not limited
to, the requirements in respect of Shares held in "public hands"
(as such phrase is defined in the Listing Rules) and in relation to
spreading investment risk, and consequently the listing of the
Shares may be suspended and/or cancelled. Once suspended and/or
cancelled, the Shares would no longer be capable of being traded on
the London Stock Exchange, which would materially reduce market
liquidity in the Shares. The Company would also lose its
"Investment Trust" tax status in the UK as a result of such
suspension or cancellation which may impact on the returns to
investors.
It should also be noted that there may be other matters or
factors which affect the availability, amount or timing of receipt
of the proceeds of realisation of some or all of the Company's
investments. In particular, ongoing redemptions will decrease the
size of the Company's assets, thereby increasing the impact of
fixed costs incurred by the Company on the remaining assets. In
determining the size of any distributions, the Directors will take
into account the Company's ongoing running costs, however, should
these costs be greater than expected or should cash receipts for
the realisations of investments be less than expected, this will
reduce the amount available for Shareholders in future
distributions.
Declarations of dividends will be made at the Directors' sole
discretion, as and when they deem that the Company has sufficient
distributable reserves available to make a distribution and which
complies with the undertakings made to RDLZ and the ZDP Holders.
Shareholders, therefore, have little certainty as to whether or not
the Company will make a declaration of dividend.
Mitigation
The Board have designated a number of its members as "Executive
Directors" who are focused on addressing the risks associated with
the Managed Wind-Down.
Legal and compliance risk
Laws applicable to Debt Instruments may govern the terms of such
instruments and subject the Company to legal and regulatory
examination or enforcement action.
Further, any proceeding brought by the federal or state
regulatory authorities to any of the Direct Lending Platforms could
result in cases against the Company itself and could affect whether
the Debt Instruments are enforceable in accordance with their
terms.
Mitigation
To manage this risk the Directors are regularly briefed by the
Company's legal counsel on legal and regulatory developments.
Further, regulatory risk is a standing item at Board meetings.
Investment risk
The Group has substantial investments remaining in Debt
Instruments and the major risks include market and credit
risks.
On 22 December 2016, the Company announced the bankruptcy of
Argon Credit, LLC ("Argon") to which it has indirectly provided
credit lines through its investment in Princeton.
On 7 November 2018, a chapter 11 Trustee was appointed in
relation to the bankruptcy proceedings of Princeton Alternative
Income Fund, LP and its former general partner Princeton
Alternative Funding, LLC (together, "Princeton").
Based on the information provided to date by the Trustee (which
the Company has not been able to independently validate or verify),
the Company is currently estimating a potential recovery of
approximately USD 15 million from the Princeton bankruptcy.
This remains an unverified estimate and is subject to a number
of potential variables, in particular that the amount that the
Company will recover will be dependent upon the final structure of
the creditor and investor waterfall and distribution scheme and the
actual net amount available for distribution
Link to KPI
Target Return
Mitigation
The number of investments held and sector diversity enable the
Group to spread the risks with regard to market volatility,
currency movements, revenue streams and credit exposure.
The Company has continued to actively engage with the Trustee
and its other advisers in connection with its investment in
Princeton.
Taxation risk
As an investment company, the Company needs to comply with
sections 1158/1159 of the Corporation Tax Act 2010.
Link to KPI
Total dividends for the year
Mitigation
The Administrator prepares quarterly management accounts which
allow the Board to assess the Company's compliance with Investment
Trust conditions. Further, contractual arrangements with third
party external service providers are in place, to ensure compliance
with tax and regulatory requirements.
Cyber security risk
The Company relies on services provided by its external service
providers and is therefore dependent on the effective operation of
their systems in place. Likewise, the Company is dependent on the
Direct Lending Platforms' ability to effectively manage
vulnerabilities to technological failure and cyber-attacks.
Any weakness in their information security could result in a
disruption to the dealing procedures, accounting and payment
process.
Mitigation
The Company performs a due diligence review before entering into
contracts with any external service provider and also prior to
investing in a Debt Instrument. Subsequently, the Company receives
a controls performance report such as ISAE 3402 report on key
service providers which is subject to the Audit Committee's
review.
Brexit risk
The Company has also considered Brexit's current and potential
impact on the Company. The majority of the Group's portfolio is
denominated in USD and the Company has entered into derivative
contracts to manage the exposure to foreign currency on existing
assets. Therefore, the Board has concluded that this event does not
represent a principal risk to the Company.
Viability Statement
Given the change in Investment Policy and in accordance with the
AIC Code, the Directors have assessed the prospects of the Company
over its expected realisation timeframe, taking into account the
final repayment date of the RDLZ Shares in 2021.
The Company has sufficient liquidity to redeem the ZDP
Shareholders at any time.
The Directors also considered the requirement in the Articles of
Association (the "Articles") to put a proposal for the continuance
of the Company at the AGM in 2020 and have reviewed the potential
impact that this may have on the Company's viability.
In their assessment of the viability of the Company, the
Directors have considered each of the principal risks and
uncertainties above. The Directors have also reviewed the Company's
income and expenditure projections and the fact the Company's
investments (including those held through the Trust) do not
comprise readily realisable securities which can be sold to meet
funding requirements if necessary. The Company maintains a risk
register for its stress test to identify, monitor and control risk
concentration.
The Company has processes for monitoring operating costs, share
price discount, compliance with the investment objective and
policy, asset allocation, the portfolio risk profile, counterparty
exposure, liquidity risk, financial controls and stress-testing
based assessment of the Company's prospects.
The Directors confirm that they have a reasonable expectation
that the Group will be able to continue in operation and meet its
liabilities as they fall due over the Managed Wind-Down period. The
Directors note that the Company has sufficient liquidity to repay
the ZDP Holders from existing cash reserves without any recourse to
further leverage, further details are shown in the notes below to
the consolidated financial statements.
Going Concern
As announced on 6 July 2018 and disclosed within the Chairman's
Statement above, the Board established three new committees that
aim to quickly and efficiently wind down the Company. These
committees focus on the Princeton proceedings and the associated
strategic decisions and the Managed Wind-Down and realisation of
the Company's existing portfolio (excluding Princeton) with the
specific aim of maximising returns for Shareholders.
The Board are in the process of disposing of the Company's
assets in an orderly manner and returning Shareholders' capital to
them and fully intend to adequately reimburse the ZDP Shareholders
by the end of July 2021, or earlier if an agreement is reached with
the ZDP Shareholders.
Given these developments and the intention to wind down the
Company, the use of the going concern basis in preparing the
financial statements of the Group is not considered to be
appropriate. As such the financial statements have been prepared on
a basis other than that of a going concern, under which assets are
measured at their net realisable value. There were no adjustments
made to the carrying values of the assets and liabilities of the
Group as a result of this change in the basis of preparation,
because the Directors consider the carrying value of assets to
approximate their net realisable value.
No provision has been made for the costs of winding up the
Company as these will be charged to the income statement on an
accruals basis as they are incurred or as the Company becomes
obligated to make such payments in the future.
The Directors believe that the Company and Group have adequate
resources to continue in operational existence until the
anticipated liquidation of the Company. The Board will ensure that
sufficient liquidity is held back at all times to ensure all
liabilities, including those to ZDP Shareholders are at all times
adequately covered.
Performance
The table below provides monthly performance information:
Ordinary
Shares
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
2017 0.87% 0.66% 0.74% 0.60% 0.58% 0.54% 0.41% 0.42% 0.22% (8.32%) 0.20% 0.48% (2.95%)
% NAV 2018 0.43% 0.31% 0.01% 0.17% (0.07%) (0.14%) (0.19%) 0.13% 0.15% (0.26%) (4.36%) (15.71%) (17.00%)
--------- ----- ------- ------- ------- -------- ------- ------- ------- ------- ----- ------- -------- -------- --------
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
2017 (0.19%) 1.61% 3.27% (17.90%) (5.46%) (4.61%) (0.58%) (5.84%) 4.96% (4.23%) (5.91%) (0.76%) (31.85%)
Return
on Share
Price 2018 (5.70%) (3.95%) (0.82%) 10.64% (0.87%) 0.76% (2.50%) (0.51%) 0.52% 2.05% (13.82%) (3.79%) (6.82%)
--------- ----- ------- ------- ------- -------- ------- ------- ------- ------- ----- ------- -------- -------- --------
C Shares
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
2017 0.31% 0.46% - - - - - - - - - - 0.77%
----------
% NAV 2018 - - - - - - - - - - - - -
---------- ------------ ----- ----- --- --- --- --- --- --- --- --- --- --- -----
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
2017 2.05% - - - - - - - - - - - 2.05%
----------
Return
on Share
Price 2018 - - - - - - - - - - - - -
---------- ------------ ----- ----- --- --- --- --- --- --- --- --- --- --- -----
Premium/Discount
The Board monitors the price of the Company's Ordinary Shares in
relation to their NAV and the premium/discount at which the shares
trade. The following table shows the premium/discount through the
year:
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Premium/
(discount)
to NAV at
end of
each month 2017 (12.83%) (11.00%) (7.95%) (22.48%) (27.47%) (28.82%) (28.63%) (33.16%) (27.26%) (24.72%) (26.51%) (27.34%)
------------
2018 (24.67%) (33.97%) (29.55%) (19.43%) (24.69%) (22.04%) (24.32%) (26.74%) (23.63%) (12.80%) (25.17%) (11.79%)
------------------- ---------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Analysis of Key Performance Indicators and Investment
Restrictions
The Company's new investment policy calls for an orderly
wind-down of the Company's investments with the aim of maximising
risk-adjusted IRRs to Shareholders. New investments are restricted
only to existing exposures and are subject to a number of
pre-conditions.
Indicator Criteria As at 31 Dec 2018
Target Return (8) 12% to 13% unlevered Targeted net annualised
annual net returns returns (after Princeton-Argon
to the Company on loan impairment) are 10%
investments to 11% to the Company
before fund expenses,
management and performance
fees.
-------------------- ------------------------ -------------------------------------------
Total dividends for At least 85% of Net Interim dividends of
the year Profit 85% of Net Profit
-------------------- ------------------------ -------------------------------------------
(8) This includes return on investments including provision for
loan losses but excluding expenses and Investment Manager fees
Environmental, Human Rights, Employee, Social and Community
Issues
The Company has no employees and the Board consists of
Non-Executive and Executive Directors. As an Investment Trust, the
Company's own direct environmental impact is minimal, and it has no
direct impact on the community and as a result does not maintain
specific policies in relation to these matters.
The Company falls outside the scope of the Modern Slavery Act
2015 as it does not meet the turnover requirements under that act.
The Company operates by outsourcing significant parts of its
operations to reputable professional companies, who are required to
comply with all relevant laws and regulations and take account of
social, environmental, ethical and human rights factors, where
appropriate.
The Company has no greenhouse gas emissions to report from its
operations, nor does it have responsibility for any other emissions
producing sources under the Companies Act 2006 (Strategic Report
and Directors' Report) Regulations 2013, including those within its
underlying investment portfolio.
In carrying out the realisation of the portfolio, the Company
aims to conduct itself responsibly and ethically.
Board Diversity
The Board consists entirely of male Directors. A description of
the Company's Board diversity is set out in the Directors'
Report.
Non-Financial Information Statement
The Board has considered the requirements of the non-financial
information statement in accordance with section 414CB of the
Companies Act 2006 and do not consider them to be relevant to the
Company, it being an Investment Trust with no employees and minimal
environmental impact, with the exception of a description of the
principal risks and description of the business model. These can be
found above.
The Group Strategic Report was approved by the Board of
Directors on 17 June 2019 and signed on its behalf by:
Dominik Dolenec
Chairman
Board of Directors
Dominik Dolenec - Chairman
Brendan Hawthorne - Non-executive director and Chairman of the
Audit Committee
Brett Miller - Executive Director
Gregory Share - Non-executive Director and Chairman of the
Remuneration and Nomination Committee
Joseph Kenary - Executive Director
Nick Paris - Non-executive Director
EXTRACTS FROM THE DIRECTORS' REPORT
Current Share Capital
As at 31 December 2018 and as at the date of this Report, the
Company had 16,122,931 Ordinary Shares of GBP 0.01 each in issue,
all of which are admitted to the official list maintained by the
Financial Conduct Authority and admitted to trading on the London
Stock Exchange. No shares were held in treasury during the year or
at the year end. During the year, there were no purchases of
Ordinary Shares made by the Company.
The rights attaching to the Company's Ordinary Shares are set
out in the Company's Articles. Further details are shown in note 10
to the consolidated financial statements.
The Shareholders granted the Directors the following authorities
at the Annual General Meeting of the Company held on 18 June 2018
until the forthcoming Annual General Meeting of the Company:
-- authority to allot equity securities up to an aggregate
nominal value of GBP 16,122.93, being approximately 10% of the
Company's issued share capital, on a non-pre-emptive basis; and
-- authority to make market purchases of up to 2,416,827
Ordinary Shares, representing 14.99% of the Company's issued share
capital.
Resolutions to renew the above authorities in respect of the
allotment (and associated pre-emption approvals) and buyback of
Ordinary Shares will be sought at the 2019 AGM on 12 July 2019.
Dividends
The declaration of interim dividends can be made at the
Directors' sole discretion, as and when they deem that the Company
has sufficient distributable reserves available to make a
distribution, however, the Board does not intend to make quarterly
dividends, other than when required to maintain its investment
trust status.
For the year ended 31 December 2018, the Company declared
dividends of 85.00% (2017: 91.83%) of its earned distributable
income.
Dividend Policy
As advised to Shareholders in the Company's circular dated 29
October 2018, the Board does not intend to make quarterly dividends
and will instead make payments by way of ad-hoc special dividends,
where appropriate, during the course of the managed wind-down
process so that the Company is able to return available cash to
Shareholders as soon as reasonably practicable after cash becomes
available in the portfolio whilst ensuring compliance with its
obligations to RDLZ and the ZDP Shareholders.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report
and financial statements in accordance with United Kingdom
applicable law and regulations.
Company law requires the Directors to prepare financial
statements for each financial period. Under that law they have
elected to prepare the financial statements in accordance with
International Financial Reporting Standards as adopted by the
European Union ("IFRS").
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and the Company and of
the profit or loss of the Group and the Company for that period. In
preparing these financial statements, the Directors are required
to:
-- properly select and apply accounting policies consistently;
-- make judgement and estimates which are reasonable and prudent;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the entity's financial position and financial
performance; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group will continue
in business. As explained in note 2 to the financial statements,
the Directors do not believe the going concern basis to be
appropriate for the preparation of the financial statements of the
Group and accordingly the financial statements of the Group have
not been prepared on a going concern basis. No provision has been
made for the costs of winding up the Company as these will be
charged to the income statement on an accruals basis as they are
incurred or as the Company becomes obligated to make such payments
in the future.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group's
transactions and disclose with reasonable accuracy at any time the
financial position of the Group and Company and enable them to
ensure that the financial statements comply with the Companies Act
2006. They have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Group and
Company and to prevent and detect fraud and other
irregularities.
The Directors are also responsible for preparing a Strategic
Report, Directors' Report, Directors' Remuneration Report and
Corporate Governance Statement that comply with relevant laws and
regulations, and for ensuring that the Annual Report includes
information required by the Disclosure and Transparency Rules of
the UK Listing Authority.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's and Stock Exchange websites. Legislation in the UK
governing the preparation and dissemination of financial statements
may differ from the legislation in other jurisdictions.
Responsibility statement
We, the Directors listed above, being the persons responsible,
hereby confirm to the best of our knowledge that:
-- the financial statements, have been prepared in accordance
with IFRS, give a true and fair view of the assets, liabilities,
financial positions and profit or loss of the Group and the
Company; and
-- the Group Strategic Report and the Executive Director's
Report includes a fair review of the development and performance of
the business and the position of the Company and the undertakings
included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties the Company
faces.
The Directors consider that the Annual Report, taken as a whole,
is fair, balanced and understandable and provides the information
necessary for Shareholders to assess the Group's and Company's
position and performance, business model and strategy.
This responsibility statement was approved by the Board of
Directors on 17 June 2019 and is signed on behalf of the Board.
Dominik Dolenec
Chairman
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the
Company's statutory accounts for the year ended 31 December 2018
but is derived from those accounts. Statutory accounts for the year
ended 31 December 2018 will be delivered in due course.
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF RDL REALISATION PLC
(FORMERLY KNOWN AS RANGER DIRECT LING FUND PLC)
Report on the audit of the financial statements
Qualified opinion
=============================================================================
In our opinion, except for the possible effects of the matters
described in the basis for qualified opinion section of our
report:
* the financial statements of RDL Realisation Plc
(formerly known as Ranger Direct Lending Fund Plc)
give a true and fair view of the state of the group's
and of the parent company's affairs as at 31 December
2018 and of the group's and the parent company's loss
for the year then ended;
* the group financial statements have been properly
prepared in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the
European Union;
* the parent company financial statements have been
properly prepared in accordance with IFRSs as adopted
by the European Union and as applied in accordance
with the provisions of the Companies Act 2006; and
* the financial statements have been prepared in
accordance with the requirements of the Companies Act
2006 and, as regards the group financial statements,
Article 4 of the IAS Regulation.
We have audited the financial statements which comprise:
* the consolidated and parent company statements of
comprehensive income;
* the consolidated and parent company statements of
financial position;
* the consolidated and parent company statements of
changes in equity;
* the consolidated and parent company cash flow
statements; and
* the related notes 1 to 25.
The financial reporting framework that has been applied in their
preparation is applicable law and IFRSs as adopted by the European
Union and, as regards the parent company financial statements,
as applied in accordance with the provisions of the Companies
Act 2006.
Basis for qualified opinion
=============================================================================
1. Limitation of scope in respect of the investment in Princeton
As described in the Annual Report, the directors have been unable
to provide us with sufficient appropriate audit evidence in
relation to the investment in Princeton recorded at a value
of $15.0 million. We were unable to obtain sufficient appropriate
audit evidence regarding this investment by using other audit
procedures. The audit report was qualified in the 2 previous
years in respect of the same matter.
Princeton filed for bankruptcy in the USA in March 2018. On
November 7, 2018, the United States Bankruptcy Court for the
District of New Jersey granted the Company's motion for the
appointment of a chapter 11 Trustee in the bankruptcy cases
of Princeton and directed the United States Trustee to appoint
a chapter 11 Trustee. Further information is provided in the
Chairman's Statement.
2. Disagreement in respect of the estimation of fair value of
non-current loan investments held at fair value through profit
or loss
The balance of non-current loan investments (financial assets
held through profit or loss) was $122.8m (excluding the Princeton
equity investment which was held at a valuation of $15.0m).
In estimating the fair value of a number of these investments,
management used valuation reports provided by an external expert
and made adjustments to the valuations where they considered
this to be appropriate.
In order to assess the fair values of these investments, we
used internal valuation specialists to form an independent estimation
of the fair values based on cash flow forecasts provided by
management, discounted at an appropriate rate. In our opinion,
the fair value of these investments should be increased by $1.8m
and the loss for the year and the unrealised capital losses
should be decreased by $1.8m. This misstatement is the net effect
of valuation differences identified over several investments;
the absolute values of the individual differences ranged up
to $1.4m.
We reported to the Audit Committee that there is a weakness
in internal control relating to the valuation of loan investments,
as, in our opinion, management's estimation was not sufficiently
precise in several instances to identify a material misstatement.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our qualified opinion.
We conducted our audit in accordance with International Standards
on Auditing (UK) (ISAs (UK)) and applicable law. 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 are independent of the group and the parent company in accordance
with the ethical requirements that are relevant to our audit
of the financial statements in the UK, including the Financial
Reporting Council's (the 'FRC's') Ethical Standard as applied
to listed public interest entities, and we have fulfilled our
other ethical responsibilities in accordance with these requirements.
We confirm that the non-audit services prohibited by the FRC's
Ethical Standard were not provided to the group or the parent
company.
Summary of our audit approach
=============================================================================
Key audit The key audit matters that we identified in the current
matters year were:
* Valuation of non-current loan assets held as
investments at fair value through profit and loss;
and
* Valuation of investment in the Princeton fund (see
the basis for qualified opinion section above).
------------ ===============================================================
Materiality The materiality that we used in the current year was
$1.2 million (2017: $2.1 million) which was determined
on the basis of 1% of net assets.
------------ ===============================================================
Scoping We performed a full scope audit on 2 (2017: 2) components
as identified in the prior year.
Together, this accounts for 100% (2017: 100%) of the
Group's income and 100% (2017: 100%) of the Group's
loss before tax.
------------ ===============================================================
Significant Following the announcement in June 2018 that the Company
changes would move to realise its assets and proceed with a
in our wind down process, the group reclassified its loan
approach investments from financial assets held at amortised
cost to financial assets held at fair value through
profit or loss. As a result, we removed one of our
key audit matters, being valuation of investments held
at amortised cost.
In addition, given the reduction in factoring income
in the year, we no longer considered accuracy of factoring
income to be a key audit matter. We also identified
an additional key audit matter relating to the estimation
of fair value of non-current loan investments held
at fair value through profit or loss (see the basis
for qualified opinion section above).
===============================================================
Emphasis of matter - Financial statements prepared other than
on a going concern basis
================================================================
We draw attention to note 2 in the financial statements, which
indicates that the financial statements have been prepared on
a basis other than that of a going concern. Our opinion is not
modified in respect of this matter.
Conclusions relating to principal risks and viability statement
Based solely on reading the directors' statements We confirm that we
and considering whether they were consistent have nothing material
with the knowledge we obtained in the course to report, add or
of the audit, including the knowledge obtained draw attention to
in the evaluation of the directors' assessment in respect of these
of the group's and the company's ability matters.
to continue as a going concern, we are required
to state whether we have anything material
to add or draw attention to in relation
to:
-- the disclosures on pages 19-22 of the
full Annual Report that describe the principal
risks and explain how they are being managed
or mitigated;
-- the directors' confirmation on page 19
of the full Annual Report that they have
carried out a robust assessment of the principal
risks facing the group, including those
that would threaten its business model,
future performance, solvency or liquidity;
or
-- the directors' explanation on page 22
of the full Annual Report as to how they
have assessed the prospects of the group,
over what period they have done so and why
they consider that period to be appropriate,
and their statement as to whether they have
a reasonable expectation that the group
will be able to continue in operation and
meet its liabilities as they fall due over
the period of their assessment, including
any related disclosures drawing attention
to any necessary qualifications or assumptions.
We are also required to report whether the
directors' statement relating to going concern
and the prospects of the group required
by Listing Rule 9.8.6R(3) is materially
inconsistent with our knowledge obtained
in the audit.
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 and include the most significant
assessed risks of material misstatement (whether or not due
to fraud) that we identified. These matters included those which
had the greatest effect on: the overall audit strategy, the
allocation of resources in the audit; and directing the efforts
of the engagement team.
These matters were addressed in the context of our audit of
the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
Apart from the two matters described in the Basis for qualified
opinion section above, we have not determined any other matters
to be key audit matters.
Our application of materiality
================================================================================
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed
or influenced. We use materiality both in planning the scope
of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
Group financial statements Parent company financial
statements
==============================
Materiality $1,221,000 (2017: $2,157,000) $1,209,000 (2017: $2,135,000)
-------------- ============================== ==============================
Basis for 1% of net asset value (NAV) 1% of NAV, capped at 99%
determining of group materiality
materiality
-------------- ============================== ==============================
Rationale Group and parent company financial statements:
for the
benchmark As the investment objective of the Group is primarily
applied to achieve a net return from investments during
the orderly wind down of the Group, we consider
the net assets of the Group to be a key performance
indicator for shareholders. Partner judgement was
applied in the determination of an appropriate percentage.
The materiality was significantly reduced during
the year due to the net asset value reduction linked
to the wind down strategy mentioned above.
==============================================================
We agreed with the Audit Committee that we would report to
the Committee all audit differences in excess of $55k (2017:
$107k) for the group and $50k (2017: $106k) for the parent
company, as well as differences below that threshold that,
in our view, warranted reporting on qualitative grounds. We
also report to the Audit Committee on disclosure matters that
we identified when assessing the overall presentation of the
financial statements.
An overview of the scope of our audit
==========================================================================
Our group audit was scoped by obtaining an understanding of
the group and its environment, including group-wide controls,
and assessing the risks of material misstatement at the group
level.
For the purposes of scoping our group audit, we determined two
key audit components:
1. RDL Realisation Plc, the parent company which includes financial
information relating to RDL Fund Trust Trust which is used to
hold a number of the group's investments; and
2. RDLZ Realisation Plc, a subsidiary of RDL Realisation Plc
that was incorporated to raise funds for the wider group to
realise its investment objectives. For this we performed separate
risk assessment procedures based on the component's activities.
These components account for all of the operations and net assets
as represented within the group financial statements. A full
scope audit has been performed for both components directly
by the audit engagement team.
Other information
============================================================================================
The directors are responsible for the other As described in the
information. The other information comprises basis for qualified
the information included in the annual opinion section of
report, other than the financial statements our report, our audit
and our auditor's report thereon. opinion is qualified
in relation to the
Our opinion on the financial statements valuation of investments.
does not cover the other information and,
except to the extent otherwise explicitly This is also not disclosed
stated in our report, we do not express in the Executive Directors'
any form of assurance conclusion thereon. report or the Strategic
report and accordingly
In connection with our audit of the financial we have concluded that
statements, our responsibility is to read the other information
the other information and, in doing so, is materially misstated
consider whether the other information for the same reason.
is materially inconsistent with the financial
statements or our knowledge obtained in
the audit or otherwise appears to be materially
misstated.
If we identify such material inconsistencies
or apparent material misstatements, we
are required to determine whether there
is a material misstatement in the financial
statements or a material misstatement of
the other information. 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.
In this context, matters that we are specifically
required to report to you as uncorrected
material misstatements of the other information
include where we conclude that:
* Fair, balanced and understandable - the statement
given by the directors that they consider the annual
report and financial statements taken as a whole is
fair, balanced and understandable and provides the
information necessary for shareholders to assess the
group's position and performance, business model and
strategy, is materially inconsistent with our
knowledge obtained in the audit; or
* Audit committee reporting - the section describing
the work of the audit committee does not
appropriately address matters communicated by us to
the audit committee; or
* Directors' statement of compliance with the UK
Corporate Governance Code - the parts of the
directors' statement required under the Listing Rules
relating to the company's compliance with the UK
Corporate Governance Code containing provisions
specified for review by the auditor in accordance
with Listing Rule 9.8.10R(2) do not properly disclose
a departure from a relevant provision of the UK
Corporate Governance Code.
Responsibilities of directors
==========================================================================
As explained more fully in the directors' responsibilities statement,
the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and
fair view, 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 group's and the parent 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
group or the parent 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 (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
Details of the extent to which the audit was considered capable
of detecting irregularities, including fraud are set out below.
A further description of our responsibilities for the audit
of the financial statements is located on the Financial Reporting
Council's website at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor's report.
Extent to which the audit was considered capable of detecting
irregularities, including fraud
==========================================================================
We identify and assess the risks of material misstatement of
the financial statements, whether due to fraud or error, and
then design and perform audit procedures responsive to those
risks, including obtaining audit evidence that is sufficient
and appropriate to provide a basis for our opinion.
Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement
in respect of irregularities, including fraud and non-compliance
with laws and regulations, our procedures included the following:
* enquiring of the Alternative Investment Fund Manager,
the Company Secretary, external legal counsel, the
administrator and the Audit Committee, including
obtaining and reviewing supporting documentation,
concerning the group's policies and procedures
relating to:
o identifying, evaluating and complying with laws and regulations
and whether they were aware of any instances of non-compliance;
o detecting and responding to the risks of fraud and whether
they have knowledge of any actual, suspected or alleged fraud;
o the internal controls established to mitigate risks related
to fraud or non-compliance with laws and regulations;
* discussing among the engagement team and involving
relevant internal specialists, including tax
specialists regarding how and where fraud might occur
in the financial statements and any potential
indicators of fraud. As part of this discussion, we
identified potential for fraud in the valuation of
investments at fair value through profit or loss.
* obtaining an understanding of the legal and
regulatory frameworks that the group operates in,
focusing on those laws and regulations that had a
direct effect on the financial statements or that had
a fundamental effect on the operations of the group.
The key laws and regulations we considered in this
context included the UK Companies Act, the Listing
Rules and the Investment Trust regime within the
meaning of Chapter 4 of part 24 of the Corporation
Tax Act 2010.
Audit response to risks identified
As a result of performing the above, we identified valuation
of investments held at fair value through profit or loss as
a key audit matter. In addressing the potential risk of fraud
in this area, we reviewed and challenged the valuation reports
provided by the directors' expert in estimating the fair value
of the loan investments, agreed material inputs to underlying
supporting documentation and challenged the other valuation
adjustments made by management.
In addition to the above, our procedures to respond to risks
identified included the following:
* reviewing the financial statement disclosures and
testing to supporting documentation to assess
compliance with relevant laws and regulations
discussed above;
* enquiring of the Alternative Investment Fund Manager,
the Company Secretary, external legal counsel, the
administrator and the Audit Committee concerning
actual and potential litigation and claims;
* performing analytical procedures to identify any
unusual or unexpected relationships that may indicate
risks of material misstatement due to fraud;
* reading minutes of meetings of those charged with
governance and reviewing correspondence with HMRC;
and
* in addressing the risk of fraud through management
override of controls, testing the appropriateness of
journal entries and other adjustments; assessing
whether the judgements made in making accounting
estimates are indicative of a potential bias; and
evaluating the business rationale of any significant
transactions that are unusual or outside the normal
course of business.
We also communicated relevant identified laws and regulations
and potential fraud risks to all engagement team members including
internal specialists, and remained alert to any indications
of fraud or non-compliance with laws and regulations throughout
the audit.
Report on other legal and regulatory requirements
Statement pursuant to section 837(4) of the Companies Act 2006
======================================================================
Respective responsibilities of directors and the auditor
In addition to their responsibilities described above, the directors
are also responsible for considering whether the group, subsequent
to the balance sheet date, has sufficient distributable profits
to make a distribution at the time the distribution is made.
Our responsibility is to report whether, in our opinion, the
subject matter of our qualification of our auditor's report
on the group financial statements for the year ended 31 December
2017 is material for determining, by reference to those financial
statements, whether distributions proposed by the company are
permitted under section 830, section 831 and section 832 of
the Companies Act 2006. We are not required to form an opinion
on whether the company has sufficient distributable reserves
to make the distribution proposed at the time the distribution
is made.
Opinion on proposed distributions
In our opinion the subject matter of the above qualification
is not material for determining by reference to these financial
statements whether any distributions of not more than
$60,000,000 in aggregate as may be proposed by the company
(being an amount with sufficient headroom for the Company to
pay dividends over the next 12 months) are permitted under section
830, section 831 and section 832 of the Companies Act 2006.
Opinions on other matters prescribed by the Companies Act 2006
======================================================================
In our opinion the part of the directors' remuneration report
to be audited has been properly prepared in accordance with
the Companies Act 2006.
In our opinion, based on the work undertaken in the course of
the audit except for the effects of the matters discussed in
the basis of qualified opinion section of our report:
* the information given in the strategic report and the
executive directors' report for the financial year
for which the financial statements are prepared is
consistent with the financial statements; and
* the strategic report and the directors' report have
been prepared in accordance with applicable legal
requirements.
Except for the effects of the matters described in the basis
for qualified opinion section of our report, in the light of
the knowledge and understanding of the group and the parent
company and their environment obtained in the course of the
audit, we have not identified any material misstatements in
the strategic report or the executive directors' report.
Matters on which we are required to report by exception
=================================================================================
Adequacy of explanations received and accounting records
Under the Companies Act 2006 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; or
* adequate accounting records have not been kept by the
parent company, or returns adequate for our audit
have not been received from branches not visited by
us; or
* the parent company financial statements are not in
agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
Directors' remuneration
Under the Companies Act 2006 we are We have nothing to report
also required to report if in our opinion in respect of these matters.
certain disclosures of directors' remuneration
have not been made or the part of the
directors' remuneration report to be
audited is not in agreement with the
accounting records and returns.
Other matters
=================================================================
Auditor tenure
Following the recommendation of the audit committee, we were
appointed by the board of directors in April 2015 to audit the
financial statements for the period ending 9 April 2015 and
subsequent financial periods. The period of total uninterrupted
engagement including previous renewals and reappointments of
the firm is 5 financial periods covering the periods ending
9 April 2015 to 31 December 2018.
Consistency of the audit report with the additional report to
the audit committee
Our audit opinion is consistent with the additional report to
the audit committee we are required to provide in accordance
with ISAs (UK).
Use of our report
===================================================================
This report is made solely to the company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state
to the company's members those matters we are required to state
to them in an auditor's report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company's
members as a body, for our audit work, for this report, or for
the opinions we have formed.
Garrath Marshall, ACA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
17 June 2019
CONSOLIDATED AND COMPANY STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2018
Notes 2018 2017 2018 2017
ASSETS Group Company
Non-current assets (USD) (USD)
Financial assets at fair
value through profit
or loss 3 137,806,709 29,621,483 4,974,099 300,000
Loans held at amortised
cost 4 - 250,993,296 - 50,793,341
Deferred tax asset 12 - 80,669 - 80,669
Investment in subsidiaries 6 - - 195,784,147 195,780,355
------------- -------------
Total non-current assets 137,806,709 280,695,448 200,758,246 246,954,365
-------------- ------------- -------------------------------- -------------
Current assets
Financial assets at fair
value through profit
or loss 3 38,307,954 - 38,307,954 -
Derivative assets 13 412,297 1,110,329 412,297 1,110,329
Amounts owed by subsidiary
undertakings 16 - - 6,434,803 44,712,526
Receivable from broker 5,825,498 - 5,825,498 -
Advances to/funds
receivable
from direct lending
platforms 5 908,917 3,782,916 - -
Prepayments and other
receivables 790,379 192,635 790,382 101,488
Cash and cash equivalents 15 35,634,844 9,699,799 20,809,196 1,304,277
------------- -------------
Total current assets 81,879,889 14,785,679 72,580,130 47,228,620
-------------- ------------- -------------------------------- -------------
TOTAL ASSETS 219,686,598 295,481,127 273,338,376 294,182,985
-------------- ------------- -------------------------------- -------------
Non-current liabilities
Zero dividend preference
shares 9 65,180,787 76,222,019 - -
Amounts due to subsidiary
undertaking 16 - - 126,059,851 73,835,016
------------- -------------
Total non-current
liabilities 65,180,787 76,222,019 126,059,851 73,835,016
-------------- ------------- -------------------------------- -------------
Current liabilities
Accrued expenses and
other liabilities 8 32,154,477 2,619,586 30,825,243 1,335,155
Income tax liability 1,508,612 290,496 1,270,363 -
Derivative liabilities 13 6,101 545,126 6,101 545,126
------------- -------------
Total current liabilities 33,669,190 3,455,208 32,101,707 1,880,281
-------------- ------------- -------------------------------- -------------
TOTAL LIABILITIES 98,849,977 79,677,227 158,161,558 75,715,297
NET ASSETS 120,836,621 215,803,900 115,176,818 218,467,688
============== ============= ================================ =============
SHAREHOLDERS' EQUITY
Capital and reserves
Share capital 10 427,300 427,300 427,300 427,300
Share premium account 10 40,346,947 40,346,947 40,346,947 40,346,947
Other reserves 10 156,922,734 204,225,570 156,922,734 204,225,570
Revenue reserves 1,421,278 4,484,858 8,737,669 8,647,515
Realised capital profits (76,365,105) (30,035,108) (72,020,922) (36,982,537)
Unrealised capital losses (2,475,418) (3,480,486) (19,236,910) 1,802,893
Foreign currency
translation
reserves 558,885 (165,181) - -
TOTAL SHAREHOLDERS' EQUITY 120,836,621 215,803,900 115,176,818 218,467,688
============== ============= ================================ =============
NAV per Ordinary Share 7.49 13.38 7.14 13.55
============== ============= ================================ =============
The accompanying notes below are an integral part of these
financial statements.
The financial statements for the year ended 31 December 2018 of
RDL Realisation Plc , a public company limited by shares and
incorporated in England and Wales with registered number 09510201,
were approved and authorised for issue by the Board of Directors on
17 June 2019.
Signed on behalf of the Board of Directors:
Dominik Dolenec
Chairman
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2018
Notes 1 Jan to 31 Dec 18 1 Jan to 31 Dec 17
Income Revenue Capital Total Revenue Capital Total
(USD) (USD) (USD) (USD) (USD) (USD)
Investment income 22,647,763 - 22,647,763 26,511,977 - 26,511,977
Gain on revaluation
of derivative
contracts - 203,869 203,869 - 2,184,162 2,184,162
Other income 4,844,030 - 4,844,030 8,213,322 - 8,213,322
Bank interest
income 3,765 - 3,765 115 - 115
---------------------- ------------- ------------- ------------ ------------- -------------
27,495,558 203,869 27,699,427 34,725,414 2,184,162 36,909,576
---------------------- ------------- ------------- ------------ ------------- -------------
Operating expenditure
Net loss on
financial assets
at fair value
through profit
or loss 3 - 15,830,398 15,830,398 - 12,558,687 12,558,687
Foreign exchange
loss - 1,677,065 1,677,065 - 2,591,408 2,591,408
Investment Manager
Performance
Fees 16,17 - - - (1,822) 15,585 13,763
Investment Management
Fees 16,17 2,675,643 - 2,675,643 3,054,733 - 3,054,733
Service and
premium fees 1,980,905 - 1,980,905 2,964,697 - 2,964,697
Provision for
/ (Reversal
of) default 7 - 1,002,222 1,002,222 - 3,073,240 3,073,240
Realised loss
on financial
assets through
profit or loss - 19,199,453 19,199,453
Loans written 4,
off 7 - 7,091,372 7,091,372 - 10,730,543 10,730,543
Company secretarial,
administration
and registrar
fees 421,019 - 421,019 494,475 - 494,475
Finance costs 9 3,934,484 - 3,934,484 3,604,530 - 3,604,530
Other expenses 20 8,056,722 - 8,056,722 4,107,794 - 4,107,794
---------------------- ------------- ------------- ------------ ------------- -------------
17,068,773 44,800,510 61,869,283 14,224,407 28,969,463 43,193,870
---------------------- ------------- ------------- ------------ ------------- -------------
Profit/(loss)
before tax 10,426,785 (44,596,641) (34,169,856) 20,501,007 (26,785,301) (6,284,294)
---------------------- ------------- ------------- ------------ ------------- -------------
Taxation 12 (872,082) (728,288) (1,600,370) (571,923) 419,751 (152,172)
---------------------- ------------- ------------- ------------ ------------- -------------
Profit/(loss)
after tax 9,554,703 (45,324,929) (35,770,226) 19,929,084 (26,365,550) (6,436,466)
====================== ============= ============= ============ ============= =============
Basic Earnings
Per Ordinary
Share - USD 14 0.60 (2.81) (2.21) 1.25 (1.66) (0.40)
Basic Earnings
Per Ordinary
Share - GBP 14 0.47 (2.21) (1.74) 0.93 (1.23) (0.30)
Diluted Earnings
Per Ordinary
Share - USD 14 0.60 (2.81) (2.21) 1.24 (1.64) (0.40)
Diluted Earnings
Per Ordinary
Share - GBP 14 0.47 (2.21) (1.74) 0.91 (1.21) (0.30)
Profit/(loss)
for the year 9,554,703 (45,324,929) (35,770,226) 19,929,084 (26,365,550) (6,436,466)
---------------------- ------------- ------------- ------------ ------------- -------------
(Other comprehensive
income:
Items that may
be reclassified
subsequently
to profit and
loss:
Exchange differences
in translation
of net assets
of subsidiary - - 724,066 - - (177,559)
Total comprehensive
(loss)/income
for the year/period 9,554,703 (45,324,929) (35,046,160) 19,929,084 (26,365,550) (6,614,025)
====================== ============= ============= ============ ============= =============
The accompanying notes below are an integral part of these
financial statements.
The total column of this Statement of Comprehensive Income was
prepared in accordance with International Financial Reporting
Standards ("IFRS"). The supplementary revenue and capital columns
are both prepared under the guidance published by the Association
of Investment Companies ("AIC"). All items in the above Statement
derive from continuing operations.
COMPANY STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2018
Notes 1 Jan to 31 Dec 18 1 Jan to 31 Dec 17
Revenue Capital Total Revenue Capital Total
Income (USD) (USD) (USD) (USD) (USD) (USD)
Investment
income 6,416,459 - 6,416,459 4,988,423 - 4,988,423
Gain on
revaluation
of derivative
contracts - 203,869 203,869 - 2,184,162 2,184,162
Dividend and
other income 3,347 - 3,347 75 - 75
Bank interest
income 419 - 419 39 - 39
--------------- ------------ -------------
6,420,225 203,869 6,624,094 4,988,537 2,184,162 7,172,699
------------ --------------- ------------ ------------- ------------
Operating
expenditure
Net loss on
financial
assets
at fair value
through profit
or loss - 8,299,062 8,299,062 - - -
Investment
Manager
Performance
Fees 16,17 - - - (1,822) 15,585 13,763
Investment
Management
Fees 16,17 2,675,643 - 2,675,643 3,054,733 - 3,054,733
Foreign exchange
loss - 1,233,184 1,233,184 - 2,624,171 2,624,171
Service and
premium fees 143,674 - 143,674 105,036 - 105,036
Provision for
default - 68,311 68,311 - 155,552 155,552
Realised loss
on financial
assets through
profit or loss - 1,827,807 1,827,807 - - -
Loans
written-off - 1,145,493 1,145,493
Company
secretarial,
administration
and registrar
fees 320,414 - 320,414 389,478 - 389,478
Impairment loss
on investment
in subsidiaries 6 - 11,073,406 11,073,406 - 225,717 225,717
Finance costs 1,451,834 - 1,451,834 1,393,469 - 1,393,469
Other expenses 2,549,269 123,737 2,673,006 1,071,800 - 1,071,800
------------ --------------- --------------- ------------ -------------
7,140,834 23,771,000 30,911,834 6,012,694 3,021,025 9,033,719
------------ --------------- --------------- ------------ ------------- ------------
Operating loss (720,609) (23,567,130) (24,287,740) (1,024,157) (836,863) (1,861,020)
Income from
shares in group
undertaking 14,051,791 (31,782,770) (17,730,979) 23,903,821 (26,206,917) (2,303,096)
------------ --------------- --------------- ------------ ------------- ------------
Profit before
tax 13,331,182 (55,349,901) (42,018,719) 22,879,664 (27,043,780) (4,164,116)
------------ --------------- --------------- ------------ ------------- ------------
Taxation (622,745) (728,287) (1,351,032) (339,084) 419,753 80,669
------------ --------------- --------------- ------------ ------------- ------------
Profit after
tax and total
comprehensive
income for the
year 12,708,437 (56,078,188) (43,369,751) 22,540,580 (26,624,027) (4,083,447)
============ =============== =============== ============ ============= ============
Basic Earnings
per Ordinary
Share - USD 14 0.79 (3.48) (2.69) 1.42 (1.67) 0.25
============ =============== =============== ============ ============= ============
Basic Earnings
per Ordinary
Share - GBP 14 0.62 (2.73) (2.11) 1.05 (1.24) (0.19)
============ =============== =============== ============ ============= ============
Diluted Earnings
per Ordinary
Share - USD 14 0.79 (3.48) (2.69) 1.40 (1.65) (0.25)
============ =============== =============== ============ ============= ============
Diluted Earnings
per Ordinary
Share - GBP 14 0.62 (2.73) (2.11) 1.03 (1.22) 0.19
============ =============== =============== ============ ============= ============
The accompanying notes on pages below are an integral part of
these financial statements.
The total column of this Statement of Comprehensive Income was
prepared in accordance with International Financial Reporting
Standards ("IFRS"). The supplementary revenue and capital columns
are both prepared under guidance published by the Association of
Investment Companies ("AIC"). All items in the above Statement
derive from continuing operations.
Other comprehensive income
There were no items of other comprehensive income in the current
year or prior year.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARED DECEMBER 2018
Unrealised Foreign
Realised Capital currency
Share Share Other Capital Profits/ Revenue translation
Notes Capital Premium Reserves Profits (Losses) Reserves reserves Total
Balance at 1
January
2017 427,300 40,346,947 204,225,570 (6,682,162) (388,953) 5,077,791 12,378 243,018,871
Dividends 11 - - - (78,929) - (20,476,385) - (20,555,314)
Reclassification
of capital
losses - - - (388,953) 388,953 - - -
Tax relating to
capital
contribution - - - - - (45,632) - (45,632)
Profit/(loss) for
the year - - - (22,885,064) (3,480,486) 19,929,084 - (6,436,466)
Other
comprehensive
income/(loss)
for
the year - - - - - - (177,559) (177,559)
Balance at 31
December
2017 427,300 40,346,947 204,225,570 (30,035,108) (3,480,486) 4,484,858 (165,181) 215,803,900
======== =========== ============= =============== ============== =============== ============ ===============
Balance at 1
January
2018 427,300 40,346,947 204,225,570 (30,035,108) (3,480,486) 4,484,858 (165,181) 215,803,900
Dividends 11 - - (47,302,836) - - (12,618,283) - (59,921,119)
Reclassification
of capital
losses - - - (3,480,486) 3,480,486 - - -
(Loss)/profit for
the year - - - (42,849,511) (2,475,418) 9,554,703 - (35,770,226)
Other
comprehensive
income for the
year - - - - - - 724,066 724,066
Balance at 31
December
2018 427,300 40,346,947 156,922,734 (76,365,105) (2,475,418) 1,421,278 558,885 120,836,621
======== =========== ============= =============== ============== =============== ============ ===============
COMPANY STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARED 31 DECEMBER 2018
Unrealised
Realised Capital
Share Capital Profits/ Revenue
Share Capital Premium Other Reserves Profits (Losses) Reserves Total
Notes (USD) (USD) (USD) (USD) (USD) (USD) (USD)
Balance at
1 January
2017 427,300 40,346,947 204,225,570 (6,952,782) (1,523,906) 6,583,320 243,106,449
Dividends 11 - - - (78,929) - (20,476,385) (20,555,314)
Reclassification
of capital
losses - - - (1,523,906) 1,523,906 - -
Total
comprehensive
income/(loss)
for the year - - - (28,426,920) 1,802,893 22,540,580 (4,083,447)
-------------- ---------------- --------------- -------------- --------------- ---------------
Balance at
31 December
2017 427,300 40,346,947 204,225,570 (36,982,537) 1,802,893 8,647,515 218,467,688
============== ================ =============== ============== =============== =============== ===============
Balance at
1 January
2018 427,300 40,346,947 204,225,570 (36,982,537) 1,802,893 8,647,515 218,467,688
Dividends 11 - - (47,302,836) - - (12,816,283) (59,921,119)
Reclassification
of capital
losses - - - 1,802,893 (1,802,893) - -
Total
comprehensive
income/(loss)
for the year - - - (36,841,278) (19,236,910) 12,708,437 (43,369,751)
-------------- ---------------- --------------- -------------- --------------- ---------------
Balance at
31 December
2018 427,300 40,346,947 156,922,734 (72,020,922) (19,236,910) 8,737,669 115,176,818
============== ================ =============== ============== =============== =============== ===============
The accompanying notes below are an integral part of these
financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARED DECEMBER 2018
1 Jan to 31 Dec 1 Jan to 31 Dec
2018 2017
Notes (USD) (USD)
Loss for the year (35,770,226) (6,436,466)
Adjustments for:
Provision for income tax expense 1,600,370 152,172
Tax paid (280,094) (58,163)
Benefit for deferred taxes 12 - (80,669)
Net loss on financial assets
at fair value through profit
or loss 11,714,842 12,558,687
Impairment 13,534,657 -
Interest impairment 465,284 -
Investment income (22,647,763) (26,511,977)
Interest expense on ZDP Shares 9 3,770,242 3,486,353
Amortisation of transaction
fees - net 23,209 253,554
Amortisation of issue costs 9 164,242 118,177
Foreign exchange loss 971,835 2,610,088
Gain on revaluation of derivative
financial instruments (203,869) (2,184,162)
Loans written off 4,7 7,091,372 10,730,543
Provision for/(reversal of)
default (719,736) 3,638,263
----------------- -----------------
Operating cash flows before
movements in working capital (20,285,635) (1,723,599)
(Increase) / decrease in other
current assets and prepaid expenses (6,423,242) 765,817
Increase / (decrease) in accrued
expenses and other liabilities 29,534,891 (1,080,483)
Decrease / (increase) in funds
receivable from direct lending
platforms - net 2,873,999 (2,782,353)
----------------- -----------------
Net cash flows generated by/(used
in) operating activities 5,700,013 (4,820,619)
----------------- -----------------
Investing activities
Acquisition of financial assets
at fair value through profit
or loss 3 (6,222,775) (300,000)
Acquisition of loans 4 (91,163,256) (220,006,567)
Principal repayments 4 85,852,639 199,083,681
Proceeds from partial redemption
of financial assets at fair
value through profit or loss 3 68,349,705 4,767,069
Investment income received 24,076,643 24,780,203
Net settlement on derivative
positions 362,877 1,047,170
Net cash flows used in investing
activities 81,255,833 9,371,556
----------------- -----------------
Financing activities
Dividends paid 11 (59,921,119) (20,555,314)
----------------- -----------------
Net cash flows (used in)/from
financing activities (59,921,119) (20,555,314)
----------------- -----------------
Net change in cash and cash
equivalents 27,034,727 (16,004,377)
Effect of foreign exchange (1,099,682) 883,796
Cash and cash equivalents at
the beginning of the year 9,699,799 24,820,380
----------------- -----------------
Cash and cash equivalents at
the end of the year 15 35,634,844 9,699,799
================= =================
The accompanying notes below are an integral part of these
financial statements.
COMPANY STATEMENT OF CASH FLOWS
FOR THE YEARED DECEMBER 2018
1 Jan to 31 1 Jan to 31
Dec 2018 Dec 2017
Notes (USD) (USD)
Loss for the year (43,369,751) (4,083,447)
Adjustments for:
Dividend income/income from shares
in group undertaking 17,730,980 2,303,096
Investment income (6,416,459) (4,988,423)
Foreign exchange loss 1,239,392 2,396,785
Impairment loss on investment in
subsidiaries 6 11,077,198 225,717
Benefit for deferred taxes 12 - (80,669)
Net loss on financial assets at fair
value through profit or loss 8,299,062 -
Realised loss on financial asset
at fair value through profit or loss 3,028,981
Interest expense on loan with subsidiary
undertaking 1,451,834 1,393,469
(Gain) / loss on revaluation of derivative
contracts (203,869) (2,184,162)
Provision for income tax expense 1,351,032 -
Provision for default 4,7 68,311 155,552
Operating cash flows before movements
in working capital (5,753,289) (4,862,082)
(Increase) / decrease in other current
assets and prepaid expenses (6,514,392) 32,857
Increase in amounts owed by subsidiary
undertaking (1,200,000) (13,227,729)
Increase / (decrease) in accrued
expenses and other liabilities 29,490,087 (1,726,337)
Net cash flows generated by / (used
in) operating activities 16,022,406 (19,783,291)
--------------- --------------
Investing activities
Acquisition of loans 4 - (16,473,130)
Acquisition of financial assets at
fair value through profit or loss 4 (7,706,752) (300,000)
Principal repayments 4 1,276,943 5,280,919
Investments in subsidiary undertaking 6 (10,804,162) (225,717)
Investment income received 4,756,408 4,099,890
Dividend income received 76,618,000 31,922,326
Net settlement on derivative positions 362,877 1,047,168
--------------- --------------
Net cash flows from investing activities 64,503,314 25,351,456
--------------- --------------
Financing activities
Dividends paid 11 (59,921,119) (20,555,314)
--------------- --------------
Net cash flows used in financing
activities (59,921,119) (20,555,314)
--------------- --------------
Net change in cash and cash equivalents 20,604,601 (14,987,149)
Effect of foreign exchange (1,099,682) 883,796
Cash and cash equivalents at the
beginning of the year 1,304,277 15,407,630
--------------- --------------
Cash and cash equivalents at the
end of the year 15 20,809,196 1,304,277
--------------- --------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2018
1. GENERAL INFORMATION
The Company was incorporated and registered in England and Wales
on 25 March 2015 and commenced operations on 1 May 2015 following
its admission to the London Stock Exchange Main Market. The
registered office of the Company is 6(th) Floor, 65 Gresham Street,
London, EC2V 7NQ.
The consolidated financial statements ("financial statements")
include the results of the Trust and RDLZ. The Company will be
managed, either by a third party non-EEA investment manager or
internally, by the Company's Board of Directors with the intention
of realising all remaining assets in the portfolio, in a prudent
manner consistent with the principles of good investment management
with a view to returning cash to its Shareholders in an orderly
manner and meeting the obligations of the Company to RDLZ in
respect of the ZDP Shares or purchasing ZDP Shares to reduce those
obligations in advance of the final date for payments on the ZDP
Shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of
these financial statements are set out below.
Basis of accounting and preparation
These financial statements have been prepared in compliance with
International Financial Reporting Standards ("IFRS") as adopted by
the European Union ("EU"). The financial statements were also
prepared in accordance with the Statement of Recommended Practice
("SORP") for Investment Trusts issued by the AIC (as issued in
November 2014 and updated in January 2017), where this guidance is
consistent with IFRS.
Basis of measurement and consolidation
The financial statements have been prepared on a historical cost
basis as modified for the revaluation of certain financial assets.
The Group controls an entity when the Group is exposed to, or has
rights to, variable returns from its involvement with the entity
and has the ability to affect those returns through its power over
the entity. The Trust and RDLZ are fully consolidated from the date
on which control is transferred to the Group and deconsolidated
from the date that control ceases.
Going concern and Viability statement
As announced on 6 July 2018 and disclosed within the Directors'
Report in the full Annual Report, the Board has established two
committees that both aim to quickly and efficiently wind down the
Company. These committees are focusing on the Princeton proceedings
and the associated strategic decisions and the wind-down and
realisation of the Company's existing portfolio (excluding
Princeton) with the specific aim of maximising returns for
stakeholders.
Plans are still currently being formulated by the Board, but the
intention is to dispose of the Company's assets in an orderly
manner and return Shareholders' capital to them and adequately
reimburse the ZDP Shareholders by the end of July 2021, further
details are shown in note 25 to the consolidated financial
statements.
Given these developments and the intention to wind down the
Company, the use of the going concern basis in preparing the
financial statements of the Group is not appropriate. As such the
financial statements have been prepared on a basis other than that
of a going concern, which require assets to be measured at their
net realisable value. There were no adjustments made to the
carrying values of the assets and liabilities of the Group as a
result of this change on the basis of preparation, because the
Directors' consider the carrying value of assets to approximate the
net realisable value.
No provision has been made for the costs of winding up the
Company as these will be charged to the income statement on an
accruals basis as they are incurred or as the Company becomes
obligated to make such payments in the future.
The Directors believe that the Company and Group have adequate
resources to continue in operational existence until the
anticipated liquidation of the Company. The Board will ensure that
sufficient liquidity is held back at all times to ensure all
liabilities, including those to ZDP Shareholders are at all times
adequately covered.
The Directors confirm that they have a reasonable expectation
that the Group will be able to continue in operation and meet its
liabilities as they fall due over the Managed Wind-Down period. The
Directors note that the Company has sufficient liquidity to repay
the ZDP Holders from existing cash reserves without any recourse to
further leverage.
New Accounting Standards, amendments to existing Accounting
Standards and/or interpretations of existing Accounting Standards
(separately or together, "New Accounting Requirements") not yet
adopted
In the Directors' opinion, all non-mandatory New Accounting
Requirements are either not yet permitted to be adopted, or would
have no material effect on the reported performance, financial
position or disclosures of the Group and consequently have neither
been adopted nor listed.
IFRS 9 Financial Instruments
IFRS 9 Financial Instruments sets out requirements for
recognising and measuring financial assets, financial liabilities
and some contracts to buy or sell non-financial items. This
standard replaces IAS 39 Financial Instruments: Recognition and
Measurement.
i - Classification - Financial assets
IFRS 9 contains three principal classification categories for
financial assets: measured at amortised cost, Fair Value through
Other Comprehensive Income ("FVOCI") and Fair Value through Profit
or Loss ("FVTPL"). The standard eliminates the existing IAS 39
categories of held to maturity, loans and receivables and available
for sale.
Under IFRS 9, derivatives embedded in contracts where the host
is a financial asset in the scope of the standard are never
bifurcated. Instead, the hybrid financial instrument as a whole is
assessed for classification.
Following the Company's announcement on 11 June 2018 that the
Company will move to realise its assets and proceed with the
wind-down process, the Company's business model has changed from
holding financial assets to collect their contractual cash flows to
realising assets, in a prudent manner consistent with the
principles of good investment management with a view to returning
cash to its Shareholders in an orderly manner. In accordance with
IFRS 9, the reclassification occurs on the first day of the first
reporting period following the change in business model. As the
company prepared interim accounts with a period ending 30 June
2018, the loans held at amortised cost were reclassified to FVTPL
on the 01 July 2018. No gain or loss was recognised upon
reclassification, as the directors considered the amortised cost
value to approximate fair value.
ii - Impairment - Financial assets and contract assets
IFRS 9 replaces the 'incurred loss' model in IAS 39 with a
forward-looking 'expected credit loss' (ECL) model. This will
require considerable judgement about how changes in economic
factors affect ECLs, which will be determined on a
probability-weighted basis.
The new impairment model will apply to financial assets measured
at amortised cost or FVOCI, except for investments in equity
instruments, and to contract assets.
Under IFRS 9, loss allowances will be measured on either of the
following bases:
- 12 month ECL: these are ECLs that result from possible default
events within the 12 months after the reporting date; and
- lifetime ECL: these are ECLs that result from all possible
default events over the expected life of a financial
instrument.
Lifetime ECL measurement applies if the credit risk of a
financial asset at the reporting date has increased significantly
since initial recognition and 12-month ECL measurement applies if
it has not. An entity may determine that a financial asset's credit
risk has not increased significantly if the asset has low credit
risk at the reporting date.
Under IFRS 9, the Group has to classify all financial
instruments in scope for impairment into 3 Stages - stage 1, stage
2 or 3, depending on the change in credit quality since initial
recognition.
Investments in equity instruments and financial assets at FVTPL
are out of scope of the impairment requirement.
Stage 1
This includes loans where there is no significant increase in
credit risk since initial recognition or loans that have low credit
risk on reporting date. For loans in stage 1, interest is accrued
on the gross carrying amount of the loans and a 12-month expected
credit loss ("ECL") is factored in the profit and loss ("P&L")
calculations.
Stage 2
This consists of loans with significant increase in credit risk
since initial recognition but not credit impaired. Interest for
loans in stage 2 is accrued on the gross carrying amount, however,
a lifetime ECL is factored into the profit and loss
calculations.
Stage 3
Includes loans which demonstrate evidence of impairment on the
reporting date. Interest is accrued on the net carrying amount of
the loans and a lifetime ECL is factored into the profit and loss
calculations.
For short-term receivables and cash and cash equivalents, the
ECL model is not likely to result in a material change of the
balance due to their short-term nature therefore the Group will
apply the simplified approach for contracts that have a maturity of
one year or less.
iii - Classification - Financial liabilities
IFRS 9 largely retains the existing requirements in IAS 39 for
the classification of financial liabilities. However, under IAS 39
all fair value changes of liabilities designated as at FVTPL are
recognised in profit or loss, whereas under IFRS 9 these fair value
changes are generally presented as follows:
- the amount of change in fair value that is attributable to
changes in the credit risk of the liability is presented in the
OCI; and
- the remaining amount of change in the fair value is presented
in profit or loss.
The Group has not designated any financial liabilities at FVTPL
and it has no current intention to do so.
Use of estimates, judgements and assumptions
The Company based its assumptions and estimates on parameters
available when the financial statements were prepared. However,
existing circumstances and assumptions about future developments
may change due to market changes or circumstances arising beyond
the control of the Group. Such changes are reflected in the
assumptions when they occur.
The following are areas of particular significance to the
Group's financial statements and include the use of estimates and
the application of judgement.
Key source of estimation uncertainty - fair value of financial
assets at fair value through profit or loss
The determination of fair values based on available market data
requires significant credit judgement by the Group.
Management has applied certain estimated potential impairments
to these financial instruments as of 31 December 2018. For the
material financial instrument positions at 31 December 2018, a
combination of factors was taken into consideration.
In addition to the credit judgement of management related to the
reserves for potential impairment, third party valuations and
analysis were also employed for the material financial instruments
for comparison and consideration. For these third-party valuations,
a weighted average IRR for each platform was used. Included in the
discount analysis by third parties were increased discount rates
for individual non-performing loans. Such valuations considered
actual and market default rate comparisons for the discount rate.
The key estimation uncertainty is considered to be the discount
rate applied to the Vehicle Services Contract platform, further
details are shown in note 18 below.
Functional and presentation currency
The financial statements are presented in US Dollars ("USD"),
the currency of the primary economic environment in which the
Company operates, the Company's functional currency.
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign currency assets and liabilities are
translated into the functional currency using the exchange rate
prevailing at the statement of financial position date.
Financial assets held at fair value through profit or loss
The Group's financial assets consist of loans at fair value
through profit or loss, equity investments in funds and an
investment in a Cayman SPV. The Group designated its investment as
financial assets at fair value through profit or loss in accordance
with International Reporting Standards 9: Financial Instruments
("IFRS 9 "), as the fund is managed and its performance is
evaluated on a fair value basis and the Group now holds the
investments with the intention to sell rather than to collect
contractual cash flows.
Purchases and sales of financial assets are recognised on the
trade date, the date which the Group commits to purchase or sell
the assets and are derecognised when the rights to receive cash
flows from the financial assets have expired or the Group has
transferred substantially all risks and rewards of ownership.
Financial instruments are initially recognised at fair value, and
transaction costs for financial assets carried at fair value
through profit or loss are expensed. Gains and losses arising from
changes in the fair value of the Group's financial instruments are
included in the Statement of Comprehensive Income in the period
which they arise.
Financial liabilities at amortised cost - Zero Dividend
Preference Shares
These are initially recognised at cost, being the fair value of
the consideration received associated with the borrowing net of
direct issue costs. Zero Dividend Preference Shares are
subsequently measured at amortised cost using the effective
interest method. Direct issue costs are amortised using the
effective interest method and are added to the carrying amount of
the Zero Dividend Preference Shares.
Derivative financial instruments
Derivative financial instruments, including short-term forward
currency and swap contracts are classified as held at fair value
through profit or loss, and are classified in current assets or
current liabilities in the statement of financial position.
Derivatives are entered into to reduce the exposure on the foreign
currency loans. Changes in the fair value of derivative financial
instruments are recognised in the Statement of Comprehensive Income
as a capital item. The Group's derivatives are not used for
speculative purposes and hedge accounting is not applied.
Taxation
Investment trusts which have approval as such under section 1158
of the Corporation Taxes Act 2010 are not liable for taxation on
capital gains. The Company has taken advantage of modified UK tax
treatment in respect of its qualifying interest income for an
accounting period and has chosen to designate as an "interest
distribution" all or part of any amount it distributes to the
Shareholders as dividends, to the extent that it has qualifying
interest income for the accounting period. As such, the Company is
able to deduct such interest distributions from its income in
calculating its taxable profit for the relevant accounting period.
It is expected that the Company will have material amounts of
qualifying interest income and therefore may decide to designate
some or all of the dividends payable as interest distributions.
The current tax payable is based on the taxable profit for the
year. Taxable profit differs from net profit as reported in the
Statement of Comprehensive Income because it excludes items of
income or expense that are taxable or deductible in other years and
it further excludes items that are never taxable or deductible. The
Company's liability for current tax is calculated using tax rates
that have been enacted or substantively enacted at the statement of
financial position date.
Deferred tax is the tax expected to be payable or recoverable on
temporary differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax
bases used in the computation of taxable profit, and is accounted
for using the liability method. Deferred tax liabilities are
recognised for all taxable temporary differences and deferred tax
assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible
temporary differences can be utilised.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised based on tax rates that have been enacted or substantively
enacted at the statement of financial position date.
The carrying amount of deferred tax assets is reviewed at each
statement of financial position date and reduced to the extent that
it is no longer probable that sufficient taxable profits will be
available to allow all or part of the asset to be recovered.
Investment and other income
Investment income and other income are recognised when it is
probable that the economic benefits will flow to the Group and the
amount of revenue can be measured reliably. Income for all interest
bearing financial instruments is accrued on a time basis, by
reference to the principal outstanding and at the effective
interest rate applicable, which is the rate that exactly discounts
estimated future cash receipts through the expected life of the
financial asset to that asset's net carrying amount on initial
recognition.
Dividend income
Dividend income from investments is recognised when the
Shareholders' rights to receive payment have been established.
Dividends payable
Dividends payable on ordinary shares are recognised in the
Statement of Changes in Equity when approved by the Directors in
respect of interim dividends and by the Shareholders if declared as
a final dividend by the Directors at the AGM. As advised to
Shareholders in the Company's circular dated 29 October 2018, the
Board does not intend to make quarterly dividends and will instead
make payments by way of ad-hoc special dividends, where
appropriate, during the course of the managed wind-down process so
that the Company is able to return available cash to Shareholders
as soon as reasonably practicable after cash becomes available in
the portfolio whilst ensuring compliance with its obligations to
RDLZ and ZDP Shareholders.
Cash and cash equivalents
Cash and cash equivalents include cash at bank and in hand and
highly liquid interest-bearing securities with original maturities
of three months or less.
Segmental reporting
An operating segment is a component of the Group that engages in
business activities from which it may earn revenues and incur
expenses. The Directors perform regular reviews of the operating
results of the Group and make decisions using financial information
at the Group level only. Accordingly, the Directors believe that
the Group has only one reportable operating segment.
The Directors are responsible for ensuring that the Group
carries out business activities in line with the transaction
documents. They may delegate some or all of the day-to-day
management of the business, including the decisions to purchase and
sell securities, to other parties both internal and external to the
Group. The decisions of such parties are reviewed on a regular
basis to ensure compliance with the policies and legal
responsibilities of the Directors, therefore the Directors retain
full responsibility as to the major allocation decisions of the
Group.
Earnings per share
The Company presents basic and diluted earnings per share
("EPS") data for its ordinary shares. Basic EPS is calculated by
dividing the profit or loss attributable to ordinary Shareholders
by the weighted average number of ordinary shares outstanding
during the period. The diluted EPS is the same as the Basic EPS as
there is currently no arrangement which could have a dilutive
effect on the Company's ordinary shares.
Share capital and share premium
Ordinary Shares are not redeemable and are classified as equity.
Incremental costs directly attributable to the issue of new shares
are shown in equity as a deduction, net of tax, from the
proceeds.
Expenses (including finance costs)
Expenses are accounted for on an accruals basis and are
recognised in the Statement of Comprehensive Income. Investment
management fee is 100% allocated to revenue. Except for provision
of default and performance fee associated with financial assets at
fair value through profit or loss, which are allocated into capital
and revenue in accordance with SORP, all other expenses are charged
through revenue.
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
The Group's financial assets at fair value through profit or
loss represents all its loan investments and investments in
Princeton and in Crowdnetic.
31 Dec 18 31 Dec 31 Dec 18 31 Dec
17 17
(Group) (Group) (Company) (Company)
USD USD USD USD
Opening fair value 29,621,483 46,647,239 300,000 -
Transfer in from Loans
held at amortised cost
arising from reclassification
on 1 July 2018 248,386,018 - 54,673,978 -
Purchases 6,222,775 300,000 510,168 300,000
Redemptions (68,349,705) (4,767,069) (790,841) -
Loss on financial assets
through profit or loss (39,765,908) - (11,411,252) -
Net gain - - - -
- net (loss) / gain - 4,424,451 - -
allocation
- Argon impairment allocation - (16,983,138) - -
Closing balance 176,114,663 29,621,483 43,282,053 300,000
=============== ============= =============== ==========
The financial assets amounting to USD 38,307,954 represents
assets sold subsequent to the year-end and therefore, are
classified as current assets. The remaining assets are classified
as non-current.
Following the Company's announcement on 11 June 2018, that it
will move to realise its assets and proceed with the wind-down
process, the Company's business model has changed from holding
financial assets to collect their contractual cash flows to
realising assets, in a prudent manner consistent with the
principles of good investment management with a view to returning
cash to its Shareholders in on orderly manner. Consequently, all
loans which were previously held at amortised cost have been
reclassified as at fair value through profit or loss.
Fair value estimation
Please refer to the Executive Directors' Report for Princeton
update, the Audit Committee Report and note 18 for the valuation of
financial assets at fair value through profit or loss.
4. LOANS HELD AT AMORTISED COST
31 Dec 18 31 Dec 17 31 Dec 31 Dec
18 17
(Group) (Group) (Company) (Company)
USD USD USD USD
Opening balance 250,993,296 240,015,255 50,793,341 35,757,090
Purchases 91,163,256 220,006,567 7,706,752 16,473,130
Principal repayments (85,852,639) (199,083,681) (1,276,943) (5,280,919)
Amortisation of transaction
fees (23,209) (253,554) - -
Accrued interest 643,065 1,731,774 855,865 888,532
Interest impaired - (218,854) -
Loans written-off (7,091,372) (10,730,543) (1,145,493) -
Effect of foreign exchange (2,166,115) 2,945,741 (2,055,538) 3,111,060
-------------- -------------- ------------- ------------
247,666,282 254,631,559 54,659,130 50,948,893
(Provision for) / utilisation
of default allowance - net 719,736 (3,638,263) 14,848 (155,552)
Transfer out to financial assets
at fair value through profit
or loss arising from reclassification
on 1 July 2018 (248,386,018) - (54,673,978) -
Closing balance - 250,993,296 - 50,793,341
============== ============== ============= ============
Following the Company's announcement on 11 June 2018, that it
will move to realise its assets and proceed with the wind-down
process, the Company's business model has changed from holding
financial assets to collect their contractual cash flows to
realising assets, in a prudent manner consistent with the
principles of good investment management with a view to returning
cash to its Shareholders in on orderly manner. Consequently, all
loans which were previously held at amortised cost have been
reclassified as at fair value through profit or loss.
In 2017, the Group's loans were accounted for using the
effective interest method. The carrying value of such instruments
includes assumptions that are based on market conditions existing
at each statement of financial position date. Such assumptions
include application of default rate and identification of effective
interest rate taking into account the credit standing of each
borrower as assessed by each direct lending platform. At 31
December 2017, the Directors estimate that the carrying value
approximates the fair value.
The main factor considered by the Board in determining whether
or not the amounts due are impaired is if the underlying borrowers'
source of income has decreased or is unlikely to continue. The
following table shows the age of the receivables which are
considered to be at risk of default:
30 Jun 18 31 Dec 17
(Group) (Group)
USD USD
Up to 3 months 9,430,065 9,710,030
3 to 6 months 32,713,966 4,415,793
Over 6 months - 18,485,476
----------- ----------------------
42,144,031 32,611,299
=========== ======================
The movement in the provision for allowance for loan losses is
as follows:
30 Jun 18 31 Dec 17
(Group) (Group)
USD USD
Balance at the beginning of the year 4,299,102 660,839
Provision for the period/year 6,371,636 14,368,806
Amount written-off during the period/year (7,091,372) (10,730,543)
------------ -------------
Balance at end of the period/year 3,579,366 4,299,102
============ =============
5. ADVANCES TO/FUNDS RECEIVABLE FROM DIRECT LING PLATFORMS
31 Dec 31 Dec 31 Dec 31 Dec
18 18 18 17
(Group) (Group) (Company) (Company)
USD USD USD USD
Other
direct
lending
platforms 908,917 3,782,916 - -
-------------------- --------------------- ---------------------- ----------------------
908,917 3,782,916 - -
==================== ===================== ====================== ======================
6. INVESTMENT IN SUBSIDIARIES
Investment in RDLZ 31 Dec 18(Company) 31 Dec 17(Company)
USD USD
Balance at the beginning of
the year - -
------------------------------ ------------------------------
Investment made during the
year 11,077,198 225,717
------------------------------ ------------------------------
Amount written-off during
the year (11,077,198) (225,717)
------------------------------ ------------------------------
Balance at the end of the
year - -
============================== ==============================
31 Dec 18 31 Dec 17
(Company) (Company)
Investment in RDL Trust USD USD
Balance at the beginning of
the year 195,780,355 195,780,355
Additions during the year 3,792 -
------------ ------------
Balance at the end of the
year 195,784,147 195,780,355
============ ============
Subsidiary Name Effective Country of Incorporation Principal activity
ownership and Place of Business
%
RDL Fund Trust 100% USA Invests in a portfolio
of Debt Instruments
through Direct Lending
Platforms
RDLZ Realisation 100% United Kingdom Issuance of Zero
Plc Dividend Preference
Shares
In the Company's statement of comprehensive income, an
impairment loss of USD 11,073,406 (2017: USD 225,717) was
recognised relating to the Company's investment in RDLZ, in respect
of expenses paid on behalf of RDLZ for USD 662,066 and in relation
to the Company's investment on RDLZ's Preference Shares amounting
to USD 10,415,132, the repayment of which was waived during the
year. The Company's investment in RDLZ was fully impaired due to
RDLZ's Shareholders' deficit position as at reporting date.
7. PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
Profit on ordinary activities before taxation is stated after
charging/(crediting):
31 Dec 18 31 Dec 31 Dec 31 Dec
17 18 17
(Group) (Group) (Company) (Company)
USD USD USD USD
Provision for/(Reversal
of) default 1,002,222 3,073,240 - 155,552
Revaluation loss on financial
assets through profit or
loss (39,765,908) - (14,848)
Loans written-off 7,091,372 10,730,543 - -
Foreign exchange loss/(gain)
- net 1,667,065 2,591,408 - -
----------------------------------- ----------- ---------- ----------
(29,995,249) 16,395,191 (14,848) 155,552
=================================== =========== ========== ==========
31 Dec 18 31 Dec 17
(Group) (Group)
USD USD
Audit fees for annual financial statements:
- RDL 165,739 129,880
- RDLZ 36,477 26,801
Additional audit fees in respect of
audit for the year ended 31 December
2016 - 69,321
Agreed-Upon procedure for C Share
conversion - 6,196
Fee for review of half-yearly financial
reporting - RDL 30,494 18,887
---------- ----------
232,710 251,085
========== ==========
8. ACCRUED EXPENSES AND OTHER LIABILITIES
31 Dec 18 31 Dec 31 Dec 31 Dec 17
17 18
(Group) (Group) (Company) (Company)
USD USD USD USD
Performance fees payable -
note 17 - - - -
Investment Management fees
payable - note 17 639,005 853,887 639,005 853,887
Withholding tax payable - - - -
Dividend payable 29,797,917 29,797,917
Other payables 1,717,555 1,765,699 388,320 481,268
----------- ---------- ----------- ----------
Legal fee payable 137,540 103,213 23,208 103,213
Interest received in advance 228,037 186,880 - -
Service and premium fee payable 439,471 491,907 - 111,234
Audit fee payable 184,988 156,900 152,689 123,144
Administration fee payable 82,429 114,541 57,128 93,578
Registrar fee and Secretary
fee payable 10,625 23,550 7,966 20,397
Payable to London Stock Exchange 3,606 - - -
Directors' fees payable (note
16) 128,577 27,809 128,577 27,809
Other payables 502,282 660,899 18,753 1,893
----------- ---------- ----------
32,154,477 2,619,586 30,825,243 1,335,155
=========== ========== =========== ==========
9. ZERO DIVID PREFERENCE SHARES
31 Dec 18 31 Dec 17
(Group) (Group)
USD USD
Opening balance 76,222,019 66,096,829
Amortisation of issue costs during the
year 371,437 296,551
Amortisation of premium during the year (207,195) (178,374)
Interest expense during the year 3,770,242 3,486,353
Purchased by Company (10,415,132) -
Effect of foreign exchange (4,560,584) 6,520,660
Closing balance 65,180,787 76,222,019
================================= ===========
Under RDLZ's Articles of Association, the Directors are
authorised to issue up to 55 million Zero Dividend Preference
shares ("ZDP Shares") for a period of five years from 25 July 2016.
RDLZ issued 53 million ZDP Shares at GBP 0.01 each (the "ZDP
Shares") in 2016. On 1 November 2016, RDLZ passed a resolution to
authorise Directors to issue up to 75 million ZDP Shares, such
authority to expire on 26 July 2021, unless revoked sooner or
varied by the Company in general meeting. The ZDP Shares will have
a term of five years and a final capital entitlement of GBP 127.63
pence per ZDP share on 31 July 2021 being the ZDP Repayment Date.
The total amount repayable on the ZDP repayment date is GBP
67,643,900.
As part of the Board's assets realisation process and in meeting
the obligations of the Company to RDLZ, it has purchased ZDP Shares
to reduce those obligations in advance of the final date for
repayments on the ZDP Shares. As at 14 December 2018, the Company
held 7,278,193 ZDP Shares. The Board of the Company has passed a
resolution to waive the Company's entitlement to the acquired
principal and accrued interest on its ZDP holdings up to 14
December 2018.
The ZDP Shares do not carry the right to vote at general
meetings of the Company, although they carry the right to vote as a
class on certain proposals which would be likely to materially
affect their position. Further ZDP Shares (or any shares or
securities which rank in priority to or pari passu with the ZDP
Shares) may be issued without the separate class approval of the
ZDP Shareholders provided that the Directors determine that the ZDP
Shares would have a Cover of not less than 2.75 times immediately
following such issue. The Cover for ZDP Shares as at 31 December
2018 is 2.46 times (2017: 3.19 times).
Further details are whown in note 25 to the consolidated
financial statements.
10. SHARE CAPITAL AND SHARE PREMIUM
The table below shows the total issued share capital as at 31
December 2018 and 31 December 2017.
Ordinary Shares
Nominal Value Nominal Value Number of
GBP USD shares Number
Ordinary Shares 309,591 427,300 16,122,931
============== ============== ===============
The IPO of 13,500,000 Ordinary Shares on 1 May 2015 was priced
at GBP 10 each resulting in a share premium amount of USD
204,225,570 (GBP 132,665,694) net of direct issue costs.
Shareholder's approval was given on 2 April 2015 for the Company's
share premium account to be cancelled immediately after admission
and this permission was confirmed by court order on 1 July
2015.
On 16 December 2015, the Company issued a total of 1,348,650 new
Ordinary Shares at GBP 10.45 per share resulting in a share premium
amount of USD 20,989,992 (GBP 13,889,694) net of direct issue costs
of USD 287,555 pursuant to a tap issue.
C Shares
On 16 December 2016, the Company issued 1,611,041 C Shares
pursuant to the Open Offer and Initial Placing at an issue price of
GBP 10 per C Share each resulting in a share premium amount of USD
19,356,955 (GBP 15,666,299) net of direct issue costs. The
Company's C Shares were subsequently converted into 1,274,281
Ordinary Shares on 6 April 2017, following full investment of the
net proceeds of the issue of the C Shares in accordance with the
Company's investment policy.
Rights attaching to the shares
The holders of the C shares and Ordinary Shares are only
entitled to receive, and to participate in, any dividends declared
in relation to the relevant class of shares that they hold.
The holders of Ordinary Shares shall be entitled to all of the
Company's remaining net assets after taking into account any net
assets attributable to the C shares.
The Ordinary Shares and C Shares shall carry the right to
receive notice of, attend and vote at general meetings of the
Company.
On a winding-up or a return of capital by the Company, if there
are C shares in issue, the net assets of the Company attributable
to the C shares shall be divided pro rata among the holders of the
C shares. For so long as C shares are in issue, and without
prejudice to the Company's obligations under the Act, the assets
attributable to the C shares shall, at all times, be separately
identified and shall have allocated to them such proportion of the
expenses or liabilities of the Company as the Directors fairly
consider to be attributable to the C shares.
Voting Rights
Subject to any rights or restrictions attached to any shares, on
a show of hands every Shareholder present in person has one vote
and every proxy present who has been duly appointed by a
Shareholder entitled to vote has one vote, and on a poll every
Shareholder (whether present in person or by proxy) has one vote
for every share of which he is the holder. A Shareholder entitled
to more than one vote need not, if he votes, use all his votes or
cast all the votes he uses the same way. In the case of joint
holders, the vote of the senior holder who tenders a vote, whether
in person or by proxy, shall be accepted to the exclusion of the
vote of the other joint holders, and seniority shall be determined
by the order in which the names of the holders stand in the
Register.
No Shareholder shall be entitled to vote at any general meeting
or at any separate general meeting of the holders of any class of
shares in the Company, either in person or by proxy, in respect of
any share held by him unless all amounts presently payable by him
in respect of that share have been paid.
Variation of Rights and Distribution on Winding Up
If at any time, the share capital of the Company is divided into
different classes of shares, the rights attached to any class may,
unless otherwise provided by the terms of issue of the Shares of
that Class, be varied or abrogated, whether or not the Company is
being wound up, either with the consent in writing of the holders
of not less than three-quarters in nominal value amount of the
issued shares of the affected class, or with the sanction of a
special resolution passed at a separate general meeting of the
holders of the shares of that class (but not otherwise).
At every such separate general meeting the necessary quorum,
other than an adjourned meeting, shall be two persons holding or
representing by proxy at least one-third in nominal amount of the
issued shares of the class in question, and at an adjourned meeting
one person holding shares of the class in questions or his proxy;
any holder of shares of the class in question present in person or
by proxy may demand a poll and the holder of shares of the class in
question shall, on a poll, have one vote in respect of every share
of such class held by him. Where the rights of some only of the
shares of any class are to be varied, the foregoing provisions as
if each group of shares of the class differently treated formed a
separate class whose rights are to be varied.
The Company has no fixed life but, pursuant to the Articles, an
ordinary resolution for the continuation of the Company will be
proposed at the AGM of the Company to be held in 2020 and, if
passed, every five years thereafter. Upon any such resolution not
being passed, proposals will be put forward within three months
after the date of the resolution to the effect that the Company be
wound up, liquidated, reorganised or unitised. If the Company is
wound up, the liquidator may divide among the Shareholders in
specie the whole or any part of the assets of the Company and for
that purpose may value any assets and determine how the division
shall be carried out as between the Shareholders or different
classes of Shareholders.
There was no movement in shares or no shares converted during
the year (2017: 1,274,281 shares converted).
11. DIVIDS
Set out below is the total dividend paid in respect of the
financial year:
Per 1 Jan to 1 Jan to
share 31 Dec 2018 31 Dec 2017
Pence USD USD
Ordinary Shares dividends declared
and paid:
Interim dividends in 2017 (in respect
of 30 Sept 2017 results) 21.70 - 4,586,363
Interim dividends in 2017 (in respect
of 30 Jun 2017 results) 24.62 - 5,158,963
Interim dividends in 2017 (in respect
of 31 Mar 2017 results) 26.93 - 5,534,376
Interim dividends in 2017 (in respect
of 31 Dec 2017 results) 28.51 - 5,275,612
Special dividends on 21 December 2018 145 29,645,959 -
Special dividends on 24 October 2018 85 17,565,877 -
Interim dividends in 2018 (in respect
of 30 Jun 2018 results) 14.28 3,018,181 -
Interim dividends in 2018 (in respect
of 31 Mar 2018 results) 19.79 4,180,676 -
Interim dividends in 2018 (in respect
of 31 Dec 2017 results) 24.14 5,419,426 -
------- ------------- -------------
Total dividends paid during the year 59,921,119 20,555,314
======= ============= =============
The Company intends to distribute at least 85% of its
distributable income earned in each financial year by way of
dividends, in order to maintain its investment trust status.
As advised to Shareholders in the Company's circular dated 29
October 2018, the Board does not intend to make quarterly dividends
and will instead make payments by way of ad-hoc special dividends,
where appropriate, during the course of the managed wind-down
process so that the Company is able to return available cash to
Shareholders as soon as reasonably practicable after cash becomes
available in the portfolio whilst ensuring compliance with its
obligations to RDLZ and ZDP Shareholders.
12. TAXATION
In May 2015, the Company received confirmation from HM Revenue
& Customs as an approved Investment Trust in the UK for
accounting periods commencing on or after 1 May 2015, subject to
the Company continuing to meet the eligibility conditions at
Section 1158 Corporation Tax Act 2010 and the ongoing requirements
for approved Investment Trust companies in Chapter 3 of Part 2
Investment Trust (Approved Company) Tax Regulations 2011 (Statutory
Instrument 2011/2999). The Company intends to retain this approval
and self-assesses compliance with the relevant conditions and
requirements.
As an Investment Trust, the Company is exempt from UK
corporation tax on its chargeable gains. The Company's revenue
income from loans is taxable in the hands of the Company however,
to the extent that interest distributions are paid to Shareholders,
the Company may treat that amount as deductible from its taxable
profits.
31 Dec 18 31 Dec 18 31 Dec 18
Revenue Capital Total
USD USD USD
Corporation tax
Current year 791,413 728,288 1,519,701
Deferred tax expense 80,669 - 80,669
---------- ---------- ----------
Tax expense for
the year 872,082 728,288 1,600,370
========== ========== ==========
31 Dec 17 31 Dec 17 31 Dec 17
Revenue Capital Total
USD USD USD
Corporation tax - - -
Current year 652,592 (419,751) 232,841
Deferred tax (80,669) - (80,669)
---------- ---------- ----------
Tax expense for
the year 571,923 (419,751) 152,172
========== ========== ==========
31 Dec 18 31 Dec 17
Reconciliation of deferred
tax asset:
USD USD
Balance at the beginning
of the year 80,669 -
Increase in DTA, due
to change in tax rate* 9,491 -
(Decrease)/increase
in DTA during the year (90,160) 80,669
---------- ----------
Balance at end of the
year - 80,669
========== ==========
The tax reconciliation
is as follows:
31 Dec
18 31 Dec 18 31 Dec 18
Revenue Capital Total
USD USD USD
Profit/(loss) before
tax 10,426,785 (44,596,641) (34,169,856)
------------ ------------- -------------
Tax at the standard UK
corporation tax rate
of 19% 1,981,089 (8,473,362) (6,429,273)
Effects of:
- Non-deductible expenses 763,277 818,446 1,581,723
- Interest distributions (1,981,858) - (1,981,858)
- Loss brought forward (80,669) - (80,669)
- Difference in tax rate (9,491) - (9,491)
- Marginal relief 90,160 (90,160) -
- Foreign exchange difference
on consolidation 28,905 - 28,905
- Non-taxable fair value
adjustments - 8,473,364 8,473,364
- Deferred tax credit - - -
------------ ------------- -------------
Tax expense 791,413 728,288 1,519,701
============ ============= =============
31 Dec
18 31 Dec 18 31 Dec 18
Revenue Capital Total
USD USD USD
Profit/(loss) before
tax 20,501,007 (26,785,301) (6,284,294)
------------ ------------- ------------
Tax at the standard UK
corporation tax rate
of 19% 3,946,444 (5,156,170) (1,209,726)
Effects of:
- Non-deductible expenses 693,872 2,065,630 2,759,501
- Interest distributions (3,984,582) - (3,984,582)
- Loss brought forward (419,753) - (419,753)
- Marginal relief 419,753 (419,753) -
- Foreign exchange difference
on consolidation (3,141) - (3,141)
- Non-taxable fair value
adjustments - 3,090,542 3,090,542
- Deferred tax credit (80,669) - (80,669)
------------ ------------- ------------
Tax expense 571,923 (419,751) 152,172
============ ============= ============
As at 31 December 2018, income tax charge of USD 1,519,700
(2017: USD 152,172) was provided for in respect of the net profits
of the Company for the year. This amount will be payable within the
subsequent year subject to any potential adjustment as a result of
further distributions. The Board has taken into account the Group's
and Company's financial obligations and it is the intention of the
Board to distribute interest distributions in the foreseeable
future.
As of 31 December 2018, the Company had recognised a deferred
tax asset of USD nil (2017: USD 80,669).
13. DERIVATIVE FINANCIAL INSTRUMENTS
31 Dec 18 31 Dec 17
(Group and (Group and
Company) Company)
USD USD
Derivative assets 412,297 1,110,329
Derivative liabilities (6,101) (545,126)
406,196 565,203
====================== ========================
31 Dec 18 31 Dec 17
Notional (Group and (Group and
Amount Company) Company)
USD USD
Derivative assets/(liabilities)
Forward foreign currency
contracts 87,449 87,449 (157,109)
Forward currency swap
contracts 58,571,135 318,747 722,312
58,658,584 406,196 565,203
=========== =========== ===========
The Company has entered into various swap and forward contracts
to manage exposure to foreign currency on existing assets. The
notional amounts provided in the table above reflect the aggregate
of individual derivative positions on a gross basis.
14. BASIC AND DILUTED EARNINGS PER SHARE
The basic and diluted earnings per Ordinary Share is based on
the profit after tax and on 16,122,931 Ordinary Shares, being the
weighted average number of ordinary shares in issue throughout the
year. (31 December 2017: 15,910,551 Ordinary Shares for basic
earnings per share and 16,122,931 Ordinary Shares for diluted
earnings per share).
15. CASH AND CASH EQUIVALENTS
The components of the Group's cash and cash equivalents are:
31 Dec 18 31 Dec 31 Dec 31 Dec
17 18 17
(Group) (Group) (Company) (Company)
USD USD USD USD
Cash at bank 35,571,114 9,632,179 20,745,466 1,236,657
Cash equivalents 63,730 67,620 63,730 67,620
----------- ---------- ----------- ----------
35,634,844 9,699,799 20,809,196 1,304,277
=========== ========== =========== ==========
16. RELATED PARTIES
Transactions between the Group and its related parties are
disclosed below.
The Directors, who are the key management personnel of the
Group, are remunerated per annum as follows:
31 Dec 31 Dec
18 17
(Group) (Group)
USD USD
Chairman 130,056 38,976
Other directors 342,039 67,879
-------- --------
472,095 106,855
======== ========
As at 31 December 2018, USD 128,577 (2017: USD 27,809) was
accrued for Directors' remuneration.
Mr Waldron, until his resignation on 19 June 2018, had an
interest in the Company, in the form of 3,500 Ordinary Shares
representing 0.02% interest in the total voting rights (2017: 500
Ordinary Shares and 583 C Shares, representing 0.0066% interest in
the total voting rights). Mr Canon, until his resignation on 19
June 2018, indirectly owned 630 shares, as a limited partner of
Ranger Capital Company, representing 0.03% in the voting rights of
the Company. The remaining Directors do not have any interests in
the Company's shares. None of the Directors hold any share options
nor are any receivables due or payable to them under any long term
incentive plan.
The Company has not made any contribution, to any Directors'
pension scheme and no retirement benefits are otherwise accruing to
any of the Directors under any defined benefit or monthly purchase
scheme for which the Company is liable. There have been no changes
to the aforementioned holding between 31 December 2018 and the date
of this report.
The Group does not have any employees.
The Board has delegated responsibility for day-to-day management
of the loans held by Direct Lending Platforms to Ranger (until 12
February 2019). Under the terms of the Investment Management
Agreement, Ranger was entitled to a management fee and a
performance fee together with reimbursement of reasonable expenses
incurred by it in the performance of its duties. Total investment
management fees for the year amounted to USD 2,675,643 (31 December
2017: USD 3,054,733). As at 31 December 2018, the Investment
Management fees payable were USD 639,005 (31 December 2017: USD
853,887).
During the year, Ranger received a reimbursement amount of USD
209,812 for expenses (31 December 2017: USD 94,466). Performance
fee for the year amounted to USD nil (31 December 2017: USD
13,763). As at 31 December 2018, performance fee payable was USD
nil (31 December 2017: USD nil).
As at 31 December 2018, Ranger held 4,500 Ordinary Shares
representing 0.03% of the total interest in voting rights of the
Company (31 December 2017: 0.03%).
The Company entered into a Trust Agreement with the Trust on 22
April 2015. The Company, being the sole unitholder, has sole
discretion to declare distributions from the Trust. As at 31
December 2018, amounts owed by undertaking relating to the Trust's
net income was USD 6,434,803 (2017: USD 44,712,526).
The Company incorporated RDLZ on 23 June 2016 as a public
limited company with limited life and granted an undertaking to
(among other things) subscribe for such number of ordinary shares
in the capital of RDLZ as may be necessary or to otherwise ensure
that RDLZ has sufficient assets to satisfy its obligations to the
ZDP Shareholders and pay any operational costs incurred by RDLZ.
During the year, the Company paid RDLZ's expenses amounting to USD
416,971 (2017: USD 225,717 representing RDLZ's expenses and Share
issue costs).
On 25 July 2016, the Company entered into a Loan Agreement with
the RDLZ. Pursuant to the Loan Agreement, RDLZ immediately
following the admission of its ZDP Shares, on-lent the proceeds to
the Company which the latter have applied towards making
investments in accordance with its investment policy and working
capital purposes.
The amounts payable to RDLZ that is eliminated upon
consolidation are USD 71,212,418 and payable to the Trust is USD
54,847,439 (2017: USD 73,835,016 payable to RDL and USD nil payable
to the trust).
During the year, the Company purchased a total of 7,278,193 ZDP
Shares, to which its rights to interest income and accrued capital
entitlement have been waived.
17. FEES AND EXPENSES
Management fee
The management fees were payable monthly in arrears and is at
the rate of 1/12 of 1.0% per month of NAV (the "Management Fee").
For the period from Admission until the date on which 80% of the
Net Proceeds have been invested or committed for investment,
directly or indirectly, in Debt Instruments or Direct Lending
Company Equity, the value attributable to any assets of the Group
other than Debt Instruments or in investments in Direct Lending
Company Equity held for investment purposes (including any cash)
will be excluded from the calculation of Net Asset Value for the
purposes of determining the Management Fee.
Ranger may have charged a fee based on a percentage of gross
assets (such percentage not to exceed 1.0% and provided that the
aggregate Management Fee payable by the Group shall not exceed an
amount equal to 1.0% of the gross assets of the Company or its
group in aggregate (as applicable)) to any entity which is within
the Company's group (including the Company), provided that such
entity employs leverage for the purpose of its investment policy or
strategy.
Performance fee
Ranger was also entitled to a performance fee calculated by
reference to the movements in the Adjusted NAV since the end of the
Calculation Period (as defined below) in respect of which a
performance fee was last earned or Admission if no performance fee
has yet been earned (the Adjusted NAV at such earlier date being
the "High Water Mark").
The performance fee will be a sum equal to 10% of the amount by
which the Adjusted Net Asset Value at the end of a Calculation
Period exceeds the High Water Mark.
The performance fee will be calculated in respect of each twelve
month period starting on 1 January and ending on 31 December in
each calendar year (a "Calculation Period"), save that the first
Calculation Period was the period commencing on Admission and
ending on 31 December 2015 and the last Calculation Period shall
end on the date that the Investment Management Agreement is
terminated or, where the Investment Management Agreement has not
previously been terminated, the Business Day prior to the date on
which the Company enters into liquidation, and provided further
that if at the end of what would otherwise be a Calculation Period
no performance fee has been earned in respect of that period, the
Calculation Period shall carry on for the next 12 month period and
shall be deemed to be the same Calculation Period and this process
shall continue until a performance fee is next earned at the end of
the relevant period.
In the event that C shares are in issue, the Investment Manager
shall be entitled to a performance fee in respect of the net assets
referable to the C shares on the same basis as summarised above. A
Calculation Period shall be deemed to end on the date of their
conversion into Ordinary Shares.
The Management fee and Performance fee payable to the Investment
Manager were calculated and paid in US Dollars.
Termination Arrangements
The IMA was terminated on 12 February 2019. Accordingly, the
Executive Board will manage the activities of the Company and the
wind-down process. On the same day, IFM replaced the Investment
Manager as the Alternative Investment Fund Manager.
18. FINANCIAL RISK MANAGEMENT
Financial risk factors
The Company has an established management process to identify
the principal risks that it faces as a business. The risk
management process relies on the Board of Directors' assessment of
the risk likelihood and impact and also developing and monitoring
appropriate controls. The table below sets out the key financial
risks and examples of relevant controls and mitigating factors. The
Board considers these to be the most significant risks faced by the
Company that may impact the achievement of the Company's investment
objectives. They do not comprise all of the risks associated with
the Company's strategy and are not set out in priority order.
Currency risk Key controls and mitigating factors
The risk that exchange The administrator monitors the Company's exposure
rate volatility may to foreign currencies on a monthly basis and
have an adverse impact reports to the Board at each board meeting.
to the Company's The Board of Directors measure the risk to
financial position the Company of the foreign currency exposure
and result. by considering the effect on the Company's
net asset value and total return of a movement
in the exchange rate to which the Company's
assets, liabilities, income and expenses are
exposed.
The Company has entered into derivative contracts
to mitigate the effect of the currency risk
(see note 13). The Group does not enter into
or trade financial instruments, including
derivative financial instruments, for speculative
purposes.
---------------------------------------------------
The currency risk of the Group's monetary financial assets and
(liabilities) was:
31 Dec 18 31 Dec 17
(Group) (Group)
USD USD
United States Dollars 125,763,235 244,174,487
Great British Pounds (26,624,529) (56,629,319)
Canadian Dollars 3,506,705 12,153,250
Australian Dollars 18,191,210 16,105,482
------------- -------------
120,836,621 215,803,900
============= =============
Sensitivity analysis
31 Dec 18 31 Dec 17
(Group) (Group)
USD USD
Great British Pounds (1,331,226) (2,831,466)
Canadian Dollars 175,335 607,663
Australian Dollars 909,561 805,274
------------ ------------
Effect on Revenue return after taxation (246,330) (1,418,529)
============ ============
A 5% weakening of USD against the above currencies would have
resulted in an equal and opposite effect on the above amounts, on
the basis that all other variables remain constant. The Group's
exposure has been calculated as at the year end and may not be
representative of the period as a whole.
It is assumed that all exchange rates move by +/- 5% against US
Dollar.
This percentage is deemed reasonable based on the average market
volatility in exchange rates during the period. The sensitivity
analysis is based on the Group's foreign currency financial assets
and financial liabilities held at the Statement of Financial
Position date.
Funding and liquidity risk Key controls and mitigating factors
The risk of being unable to continue The Company finances its operations
to fund the Company's lending operation mainly from the issuance of Ordinary
on an ongoing basis. Shares and C Shares. There are no
redemption rights for the Shareholders
since the Company is closed-ended
investment company.
The ZDP Shares should have a minimum
Cover(11) of 2.75 times. The Administrator
calculates the Cover each calendar
month and reviewed by the Board of
Directors.
In managing the Company's financial
assets, the Board of Directors ensure
that the Company holds at all times
a portfolio of assets to enable the
Company to discharge its payment obligations.
The Group does not have any overdraft
or other borrowing facilities.
-----------------------------------------------
Maturity of financial assets and liabilities
The maturity profile of the Group's financial assets and
liabilities is as follows:
31 Dec 18 31 Dec 18 31 Dec 17 31 Dec
17
Financial Assets Financial Liabilities Financial Financial
Assets Liabilities
USD USD USD USD
Within one year 86,853,988 33,669,190 14,785,679 3,455,208
In more than one
year but not more
than five years 132,832,610 65,180,787 280,695,448 76,222,019
------------------- ----------------------
219,686,598 98,849,977 295,481,127 79,677,227
================= ====================== =================== ======================
(11) Cover represents a fraction where the numerator is equal to
the NAV of the Group on a consolidated basis adjusted to: (i) add
back any liability to ZDP Shareholders; and (ii) deduct the
estimated liquidation costs of the RDLZ, and the denominator is
equal to the amount which would be paid on the ZDP Shares as a
class and (ii) deduct the ZDP Shares held by the Company from the
outstanding ZDP Shares to determine the ZDP redemption amount due
in July 2021.
Interest rate risk Key controls and mitigating factors
The Company is exposed In the event that interest rate movements
to interest rate risk lower the level of income receivable on loan
due to fluctuations portfolios or cash deposits the dividend
in the prevailing required to be paid by the Company to the
market rates. Shareholders will also be reduced.
Interest rate risk is monitored by the Board.
The Company may also invest in other investment
funds that employ leverage with the aim of
enhancing returns to investors.
-------------------------------------------------
IFRS 7 requires disclosure of a sensitivity analysis for each
type of market risk to which the entity is exposed at the reporting
date, showing how profit or loss and equity would have been
affected by changes in the relevant risk variable that were
reasonably possible at that date.
The sensitivity to a reasonably possible 50 bps
decrease/increase in the interest rates, with all other variables
held constant, would have decreased/increased the Group's returns
after tax by the following:
31 Dec 18 31 Dec 17
USD USD
Effect on Revenue return 202,891 204,370
========== =================
The above changes are considered by the Directors to be
reasonable given the observation of prevailing market conditions in
the period. The average effective interest income rate during the
year is 9.5% (31 December 2017: 13.3%).
Credit and counterparty Key controls and mitigating factors
risk
Credit risk is the The Group seeks to mitigate the credit risk
risk of financial by actively monitoring the Group's loan direct
loss to the Group lending platform portfolio and the underlying
if the borrower fails credit quality of the borrowers.
to meet its contractual Further, cash is held at banks that are considered
obligations. The carrying to be reputable and high quality. Cash balances
amounts of financial are spread across a range of banks to reduce
assets best represent concentration risk.
the maximum credit
risk exposure at the
reporting date.
----------------------------------------------------
The maximum exposure to credit risk was as follows:
31 Dec 18 31 Dec 17
(Group) (Group)
USD USD
Financial assets at fair value through
profit or loss 176,114,663 29,621,483
Loan principal amount - 246,905,891
Accrued interest - 4,087,405
Derivative assets 412,297 1,110,329
Advances to/funds receivable from direct
lending platforms 908,917 3,782,916
Prepayments and other receivables 790,379 192,635
Receivable from broker 5,825,498 -
Cash and cash equivalents 35,634,844 9,699,799
219,686,598 295,400,458
====================== ====================
Credit and counterparty risk continued
The majority of the Group's cash and cash equivalents is with
Bank of America, N.A. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated. As at 31 December 2018, Bank of America, N.A. has a
long-term deposit credit rating of A+ (2017: A+) from Standard
& Poor's and Merrill Lynch, Pierce, Fenner & Smith
Incorporated has a long-term senior credit rating of A+ (2017: A+)
from Standard & Poor's. Given this rating, the Directors do not
expect this counterparty to fail to meet its obligations.
Fair value of groups of financial assets that are measured at
fair value on a recurring basis
Some of the Group's financial assets are measured at fair value
as at 31 December 2018. The following table gives information about
how the fair values of the material financial assets are
determined, in particular the valuation techniques and inputs
used.
Loan platform Valuation technique Significant Relationship and sensitivity
unobservable of unobservable inputs
input to fair value
Vehicle Three different DCF Discount rate The higher the discount
Services models were run for determined by rate, the lower the
Contract Ensurety. We broke reference to fair value.
Platform out the secured/in-formula Going Concern
portion of the loan portion of the If the discount rate
(Going Concern), the loan, ranging was 2 per cent higher/lower
under-collateralised from 9.95% to while all other variables
portion of the loan 13.95%. Discount were held constant,
(Junior Portion), rate determined the carrying amount
and the Driven Solutions by reference for the Going Concern
loan for different to Junior portion portion of the loan
DCF/FV analysis. Each of the loan, would decrease/increase
of the components ranging from by USD 545,000 approximately.
of Ensurety loans 23.0% to 43.0%. If the discount rate
have different risk was 10 per cent higher/lower
profiles due to the while all other variables
timing of the potential were held constant,
collection, or the the carrying amount
uncertainty associated for the Junior portion
with collection therefore of the loan would decrease/increase
we used different by USD 1,545,000 approximately.
discount rates for
each.
----------------------------- ------------------- -------------------------------------
SME Loans In estimating the Discount rate If the discount rate
Platform fair value of certain determined by was 2 per cent higher/lower
platform loans receivable, reference to while all other variables
RDL used market--observable SME Platform were held constant,
data to the extent loan, ranging the carrying amount
it is available. RDL from 14.6% to for the SME Platform
engaged third party 18.6%. loan would decrease/increase
qualified valuers by USD 562,000 approximately.
to perform the valuation.
Management and the
Board worked closely
with the qualified
external valuers to
establish the appropriate
valuation techniques
and inputs to the
model.
----------------------------- ------------------- -------------------------------------
Real Estate Each of the major Discount rate If the discount rate
Loans platform positions determined by was 2 per cent higher/lower
Platform were valued by a third reference to while all other variables
party using the DCF Real Estate were held constant,
method. Different Platform loan, the carrying amount
discount rates were ranging from for the Real Estate
used for each platform 8.7% to 12.7%. Platform loan would
and in some cases, decrease/increase by
a different discount USD 152,000 approximately.
rate was applied to
that portion of a
loan deemed to be
impaired. The higher
the discount rate,
the lower the fair
value. Certain additional
valuation adjustments
were made by management
to take into account
the uncertainty of
the performance of
the underlying loans
in the platforms.
----------------------------- ------------------- -------------------------------------
Fair value hierarchy
The fair values of the financial assets held at fair value
through profit and loss were derived from:
a) Loan Investments - A valuation report by a third party valuer
or proceeds received from sale post year-end or amount estimated to
be recoverable by the Board;
b) Princeton - estimated potential recovery from the investment; and
c) Crowdnetic - cash proceeds from sale post year-end.
The fair values of the derivative financial instruments have
been provided to the Directors by the counterparty, BNP Paribas
S.A. and RBC Capital Markets., on whom the Directors rely as expert
providers of such valuations.
The fair values of cash and cash equivalents, funds receivable
from/payable to Direct Lending Platforms, prepayments and other
receivables, and accrued expenses and other liabilities are
estimated to be approximately equal to their carrying values due to
their short-term nature.
The Directors based the fair value of the ZDP Shares disclosed
below on the traded price of GBP 1.16 per share which was observed
on the London Stock Exchange on 29 December 2018 (2017: GBP 1.019
per share which was observed on the London Stock Exchange on 29
December 2017) being the last observable traded price before
period-end. The fair value for the ZDP Shares of GBP 61,480,000 or
USD 78,362,408 (based on an exchange rate of 1.2746) is disclosed
in this note for disclosure purposes only under IFRS 13.
IFRS 13 "Fair Value Measurement" ("IFRS 13") defines a fair
value hierarchy that prioritises the inputs to valuation techniques
used to measure fair value. The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for
identical assets and liabilities (Level 1 measurements) and the
lowest priority to unobservable inputs (Level 3 measurements). The
three levels of fair value hierarchy under IFRS 13 are as
follows:
Level 1: Inputs that reflect unadjusted quoted prices in active
markets for identical assets and liabilities at the valuation
date;
Level 2: Inputs other than quoted prices included in Level 1
that are observable for the assets or liability either directly (as
prices) or indirectly (derived from prices), including inputs from
markets that are not considered to be active; and
Level 3: Inputs that are not based upon observable market
data.
Inputs are used in applying the various valuation techniques and
broadly refer to the assumptions that market participants use to
make valuation decisions, including assumptions about risk. The
main input parameters for this model are the default rate (the
value rises when the default rate is lower, and decreases when the
default rate is higher), the interest rate (the value rises when
the interest rate is higher, and drops when the interest rate is
lower), and the discount rate (the value rises when the discount
rate is lower, and drops when discount rate is higher). A financial
instrument's level within the fair value hierarchy is based on the
lowest level of any input that is significant to the fair value
measurement.
However, the determination of what constitutes "observable"
requires significant judgement by the Directors. The Directors
consider observable data to be market data which is readily
available, regularly distributed or updated, reliable and
verifiable, not proprietary, provided by multiple independent
sources that are actively involved in the relevant market.
The categorisation of a financial instrument within the
hierarchy is based upon the pricing transparency of the financial
instruments and does not necessarily correspond to the Group's
perceived risk inherent in such financial instruments.
The following tables include the fair value hierarchy of the
Group's financial assets and liabilities designated at fair value
through profit or loss:
31 Dec 18 Level
1 Level 2 Level 3 Total
(USD) (USD) (USD) (USD)
Financial
assets - 38,720,251 137,806,709 176,526,960
Financial
liabilities - 6,101 - 6,101
A reconciliation of financial instruments in Level 3 is set out
below:
31 Dec 18 31 Dec 17
(Group) (Group)
USD USD
Opening balance 29,621,483 46,647,239
Purchases / Addition 6,222,775 300,000
Disposals / Redemptions (68,349,705) (4,767,069)
Transfer out of Level
3 (38,307,954) -
Transfer into Level
3 248,386,018 -
Loss on financial assets (39,765,908) (12,558,687)
------------------------ ------------------------
Closing balance 137,806,709 29,621,483
======================== ========================
The ZDP Shares are classified within Level 1 of the fair value
hierarchy on the basis that the fair value was derived from an
observable traded price.
19. OTHER INCOME
31 Dec 18 31 Dec 17
(Group) (Group)
USD USD
Factor income 4,054,443 7,203,352
Fee income 715,365 850,102
Late fee income 72,970 158,541
Other income 1,252 1,327
--------------------- ---------------------
4,844,030 8,213,322
===================== =====================
20. OTHER EXPENSES
31 Dec 18 31 Dec 17
(Group) (Group)
USD USD
Legal fees 5,089,097 3,043,960
Auditors' remuneration 189,368 271,828
Amortisation of origination
fee 28,351 253,554
Directors fees 557,147 121,827
Regulatory fees 61,035 35,400
Consultancy fees 670,518 34,323
Other expenses 1,461,206 346,902
--------------------- ---------------------
8,056,722 4,107,794
===================== =====================
21. OPERATING SEGMENTS
Geographical information
The Group is managed as a single asset management business,
being the investment of the Group's capital in financial assets
comprising Debt Instruments and loans originated by Direct Lending
Platforms.
The chief operating decision maker is the Board of Directors.
Under IFRS 8 the Group is required to disclose the geographical
location of revenue and amounts of non-current assets other than
financial instruments.
Revenues
The Group's revenues are currently generated from United States
of America ("USA"), United Kingdom ("UK") and Canada. The total
investment income generated from USA, UK and Canada amounted to USD
16,266,025, USD 4,637,666 and USD 1,744,072, respectively (2017:
USA, UK and Canada amounted to USD 21,528,260, USD 3,606,532 and
USD 1,377,185 respectively).
Non-current assets
The Group does not have non-current assets other than the
financial assets at fair value through profit or loss.
22. CAPITAL MANAGEMENT
The Company's capital is represented by the Ordinary Shares, C
Shares, share premium account and retained earnings. The capital of
the Company is managed in accordance with its investment policy, in
pursuit of its investment objective.
The Company is subject to externally imposed capital
requirements in relation to its statutory requirement relating to
interest/dividend distributions to Shareholders.
Leverage
During 2016, the Company incorporated RDLZ which issued ZDP
Shares for trading on the London Stock Exchange's main market for
listed securities. The proceeds from the issuance of the ZDP Shares
were on-lent to the Company by way of an intercompany loan
agreement.
The Company's leverage limit under its Prospectus is 1.5. The
Company has not breached this limit anytime during the year, nor
has the Company made any changes to this maximum limit. The
Company's borrowing policy does not grant the Company any right to
reuse collateral.
Liquidity
As a closed ended investment company in which Shareholders have
no right of redemption, there are no assets of the Company which
are subject to special arrangements due to their illiquid nature,
nor have any new arrangements been implemented for managing the
liquidity of the Company.
23. COMMITMENTS
As at 31 December 2018, the Company had no outstanding
commitments (2017: none).
24. ULTIMATE CONTROLLING PARTY
It is the opinion of the Directors that there is no ultimate
controlling party.
25. SUBSEQUENT EVENTS
The Company's Investment Management Agreement ("IMA") with
Ranger Alternative Management II, LP ("Ranger") was terminated with
effect from 12 February 2019. The Company has appointed IFM as its
replacement Alternative Investment Fund Manager with effect from 12
February 2019.
As announced on 11 January 2019, the International MCA Platform
was refinanced and paid off such promissory notes as were issued by
the Company pursuant to the terms of the Company's Master Loan
Agreement. As of 11 January 2019, the effective date of the
refinancing and payoff, the outstanding obligations of the
International MCA Platform, including principal, interest and
reimbursable expenses, amounted to approximately USD 38 million the
entirety of which has been paid to the Company (at par).
As announced on the 11 February 2019, the Board agreed to impair
the carrying value of its investment in Princeton by USD 13.5m and
is currently estimating a potential recovery of approximately USD
15 million from the Princeton bankruptcy.
As announced on 12 April 2019, following a thorough review of
the collateral in respect of the loan facilities extended to the
Vehicle Services Contract ("VSC") platform, which includes a loan
to the holding company, the review indicated a substantial
reduction in collateral security for the Company's outstanding
principal amount due to a variety of factors. In order to
accurately reflect the risk and the appropriate cost of capital for
the portion of the loan that is not directly secured by collateral,
the Company has applied a risk adjusted discount rate which is
considered appropriate for an unsecured loan, resulting in an
impairment to the loan value. As a result, an additional reserve of
approximately USD 9 million to reflect the estimated impairment to
the loan value has been recognised as at 31 December 2018. The
combined balance of the two loans on the VSC platform as at 31
December 2018 was USD 48,484,720. The total balance after the
impairment charge is therefore USD 39,375,720. Restructuring
efforts are continuing.
Nick Paris was appointed as a Director of the Company with
effect from 20 May 2019.
On 22 May 2019, the Directors approved the payment of a dividend
of USD 21.71 cents (GBP 17.14 pence) per Ordinary Share at a total
amount of USD 3,500,000. The dividend will be paid in July 2019 and
charged from revenue reserves.
As announced by the Company on 3 June 2019, the ZDP Committee of
the Company and the Board of RDLZ have finalised the terms of a
proposal (the "Proposal") pursuant to which, subject to required
approvals by holders of RDLZ's ZDP Shares (the "ZDP
Shareholders"):
-- the Company and the Board of RDLZ will take the steps
necessary to place RDLZ into a members' voluntary winding up on the
new ZDP Repayment Date, which will be 20 June 2019; and
-- ZDP Shareholders will receive a Final Capital Entitlement of
121.8887 pence per ZDP Share (the "Revised Final Capital
Entitlement").
The Proposal is conditional upon the approval by ZDP
Shareholders of special resolutions at a class meeting. A circular
(the "Circular") convening such a class meeting of ZDP Shareholders
to be held on 20 June 2019 (the "ZDP Class Meeting") to consider,
and if thought fit, approve the special resolutions required to
implement the Proposal has been published and sent to the ZDP
Shareholders.
The Company and the Board of RDLZ have received undertakings to
vote in favour of the resolutions to be proposed at the ZDP Class
Meeting from holders of approximately 64.5 per cent. of the total
number of ZDP Shares in issue. The Company does not propose to vote
the 7,278,193 ZDP Shares held by it in relation to the Proposal,
representing approximately 13.7 per cent. of the total number of
ZDP Shares in issue.
As a result of the above early repayment, the Group is expected
to incur a realised loss on the ZDP Shares of $3 million.
ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE DISCLOSURES
(UNAUDITED)
Ranger Alternative Management II, L.P. was appointed as the
Investment Manager following the Company's Admission. The
Investment Management Agreement with the Investment Manager was
terminated on 12 February 2019. Consequently, IFM replaced the
Investment Manager as the Alternative Investment Fund Manager.
The Investment Manager and the Company are required in
accordance with Alternative Investment Fund Managers Directive to
make certain periodic disclosures as follows:
Changes to AIFMD disclosure schedule
The prospectus issued by the Company in connection with IPO
contained a schedule of disclosures prepared by the Investment
Manager for the purposes of AIFMD. In addition, the AIFMD requires
the Company's annual report to include details of any material
changes to the information contained in that Schedule. The
Investment Manager confirms that the schedule has been updated and
is available on the Company website.
The Investment Manager has had regard to the current risk
profile of the Company which outlines the relevant measures to
assess actual and potential exposure to those risks set out in the
prospectus and with taking in to account the revised investment
strategy of the Company as voted on by the Shareholders. As
required by the Listing Rules, the investment policy of the Company
was updated with the approval of Shareholders.
Liquidity Risk Profile and Management
As identified in the Company's prospectus in respect of IPO, the
Company identified that there is a risk that a position held by the
Company cannot be realised at a reasonable value sufficiently
quickly to meet the obligations (primarily, debt) of the Company as
they fall due. The current investment strategy is to realise the
portfolio at the best value possible. To assist with this executive
board members have been appointed.
Based on the Company's current portfolio, the Investment Manager
did not consider that the risk limits set by it are likely to be
breached. As a closed-ended investment company, Shareholders of the
Company have no right of redemption. Therefore in managing the
Company's financial assets, the Investment Manager ensures that the
Company holds at all times a sufficiently liquid portfolio of
assets to enable the Company to discharge its payment
obligations.
Investment Manager Remuneration
The Investment Manager is responsible for fulfilling the role of
the AIFM and ensuring the Company complies with the AIFMD
requirements. Details of the total amount of remuneration for the
financial year, split into fixed and variable remuneration, paid by
the AIFM to its staff, and the number of beneficiaries, may be made
available to Shareholders on request to the Investment Manager.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SFMFAWFUSELM
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