TIDMSCRF
RNS Number : 2276J
SME Credit Realisation Fund Limited
18 December 2020
NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION, IN WHOLE OR IN
PART, IN OR INTO THE UNITED STATES OR TO US PERSONS
*****
18 December 2020
SME Credit Realisation Fund Limited
(the "Company")
Publication of Half-Yearly Financial Report and Condensed
Consolidated Financial Statements
SME Credit Realisation Fund Limited (the "Company") has
published its results for the financial period from 1 April 2020 to
30 September 2020. The Half-Yearly Financial Report and Condensed
Consolidated Financial Statements are attached to this release and
are also available on the Company's website
(www.smecreditrealisation.com).
CONTACTS
Richard Boleat, Chairman
+44 (0) 1534 615 656
Richard.Boleat@smecreditrealisation.com
Secretary and Administrator
Sanne Group ( Guernsey ) Limited
+44 (0) 1481 739810
smecreditrealisation@sannegroup.com
Corporate Broker
Numis Securities
Nathan Brown
George Shiel
+44 (0) 207 260 1000
n.brown@numis.com
Investor Relations
IR@smecreditrealisation.com
Website
www.smecreditrealisation.com
The ISIN number of the Ordinary Shares is GG00BMF75J31 , the
SEDOL code is BMF75J3 and the TIDM is SCRF.
The LEI number of the Company is 549300ZQIYQVNIZGOW60.
*****
ABOUT SME Credit Realisation Fund Limited
The Company is a registered closed-ended collective investment
scheme registered pursuant to the Protection of Investors
(Bailiwick of Guernsey ) Law, 1987, as amended and the Registered
Collective Investment Scheme Rules 2018 issued by the Guernsey
Financial Services Commission ("GFSC").
*****
IMPORTANT NOTICES
This announcement contains "forward-looking" statements, beliefs
or opinions. These forward-looking statements involve known and
unknown risks and uncertainties, many of which are beyond the
control of the Company and all of which are based on its directors'
current beliefs and expectations about future events.
Forward-looking statements are sometimes identified by the use of
forward-looking terminology such as "believes", "expects", "may",
"will", "could", "should", "shall", "risk", "intends", "estimates",
"aims", "plans", "predicts", "projects", "continues", "assumes",
"positioned" or "anticipates" or the negative thereof, other
variations thereon or comparable terminology, or by discussions of
strategy, plans, objectives, goals, future events, assumptions or
intentions. These forward-looking statements include all matters
that are not historical facts. Forward-looking statements may and
often do differ materially from actual results. They appear in a
number of places throughout this announcement and include
statements regarding the intentions, beliefs or current
expectations of the Board or the Company with respect to future
events and are subject to risks relating to future events and other
risks, uncertainties and assumptions relating to the Company's
business concerning, amongst other things, the financial
performance, liquidity, prospects, growth and strategies of the
Company. These forward-looking statements and other statements
contained in this announcement regarding matters that are not
historical facts involve predictions. No assurance can be given
that such future results will be achieved; actual events or results
may differ materially as a result of risks and uncertainties facing
the Company. Such risks and uncertainties could cause actual
results to vary materially from the future results indicated,
expressed or implied in such forward-looking statements. The
forward-looking statements contained in this announcement speak
only as of the date of this announcement. Nothing in this
announcement is, or should be relied on as, a promise or
representation as to the future. The Company disclaims any
obligation or undertaking to release publicly any updates or
revisions to any forward-looking statements contained in this
announcement to reflect any change in its expectations or any
change in events, conditions or circumstances on which such
statements are based unless required to do so by applicable law,
the Prospectus Rules, the Listing Rules or the Disclosure Rules and
Transparency Rules of the FCA. No statement in this announcement is
intended as a forecast or profit estimate.
Neither this announcement nor any copy of it may be made or
transmitted into the United States of America (including its
territories or possessions, any state of the United States of
America and the District of Columbia ) ( the "United States "), or
distributed, directly or indirectly, in the United States or to US
Persons (as such term is defined in Regulation S under the US
Securities Act of 1933, as amended (the "Securities Act"). Neither
this announcement nor any copy of it may be taken or transmitted
directly or indirectly into Australia , Canada , Japan or South
Africa or to any persons in any of those jurisdictions, except in
compliance with applicable securities laws. Any failure to comply
with this restriction may constitute a violation of United States ,
Australian, Canadian, Japanese or South African securities laws.
The distribution of this announcement in other jurisdictions may be
restricted by law and persons into whose possession this
announcement comes should inform themselves about, and observe, any
such restrictions. This announcement does not constitute or form
part of any offer or invitation to sell or issue, or any
solicitation of any offer to purchase or subscribe for securities
in the United States , Australia , Canada , Japan or South Africa
or in any jurisdiction to whom or in which such offer or
solicitation is unlawful.
SME CREDIT REALISATION FUND LIMITED
HALF-YEARLY FINANCIAL REPORT AND CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
for the six-month PERIOD ended 30 sEPTEMBER 2020
FORWARD-LOOKING STATEMENTS
This report includes statements that are, or may be considered,
"forward-looking statements". The forward-looking statements can be
identified by the use of forward-looking terminology, including the
terms "believes", "estimates", "anticipates", "expects", "intends",
"may", "will" or "should" or, in each case, their negative, or
other variations or comparable terminology. 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.
FINANCIAL HIGHLIGHTS
Total comprehensive loss for the period amounted to GBP6.32
million (2019: profit of GBP3.61 million).
-- Aggregate dividends of 2.625 pence per Ordinary share
declared for the period ended 30 September 2020 (30 September 2019:
2.626 pence).
-- The Company redeemed a total of 44,551,554 shares for a total
amount of GBP38,499,854 during the period.
-- All of the Group's leverage facilities have now been fully repaid.
-- In October 2020, Basinghall sold a pool of UK non-performing
loans to a third party at a modest premium to carrying value ,
receiving proceeds of GBP2,203,183.
The information below is presented for the period ended or as at
30 September 2020 unless expressly stated to cover a different
period.
Description Performance
NAV per Ordinary Share 83.86p
------------
Total Net Assets GBP179.3mil
------------
Ordinary Share Price 51.25p
------------
Market Capitalisation GBP110mil
------------
Share Price Premium/(Discount) to
NAV at period end (38.9 %)
------------
Annualised dividend per Ordinary
Share 5.25p
------------
Earnings per Ordinary Share (3.37p)
------------
Share Price Total Return (inception
to date) (31.9 %)
------------
NAV Total Return (inception to date) 9.8%
------------
SUMMARY INFORMATION
About the Company
SME Credit Realisation Fund Limited (the "Company" or the
"Fund") is a closed-ended investment company incorporated with
liability limited by shares in Guernsey under The Companies
(Guernsey) Law, 2008 (as amended), on 22 July 2015.
Group Structure
The Company holds a number of its investments in loans through
Special Purpose Vehicles ("SPVs"). This interim report for the
period ended 30 September 2020 (the "Half-Yearly Report") includes
the results of Basinghall Lending Designated Activity Company
("Basinghall"), Tallis Lending Designated Activity Company
("Tallis"), Lambeth Lending Designated Activity Company
("Lambeth"), and Queenhithe Lending Designated Activity Company
("Queenhithe"). The Company, Basinghall, Tallis, Lambeth and
Queenhithe are collectively referred to in this report as the
"Group".
Capital Management
As at 30 September 2020 the total number of shares in issue was
213,739,800 (31 March 2020: 258,301,354 ) with no shares held in
treasury (31 March 2020: 586,243 ) .
The scrip dividend programme has been discontinued by the
Company in line with the change in the Company's Investment
Objective and Policy as discussed below.
On 21 May 2019, the Company published a circular and notice of
an Extraordinary General Meeting ("EGM") which set out details of,
and sought shareholder approval for, certain Proposals. The
Proposals involved modifying the Company's Investment Objective and
Policy to reflect a realisation strategy, for the detailed reasons
set out in that circular, and amending its Articles to include a
mechanism to enable the Company to redeem shares in the Company
compulsorily so as to return cash to shareholders.
On 11 June 2019, the Proposals were approved at the EGM.
The Company is in the process of returning capital via a
combination of share buybacks, compulsory redemptions of shares and
distribution of dividends, as the Company's portfolio of Credit
Assets amortises.
As at 30 September 2020, the Company has repurchased a total of
43,746,667 shares (31 March 2020: 43,736,667) of which nil (31
March 2020: 586,243) remain held in treasury. During the period, a
total of 596,243 (31 March 2020: 43,150,424 ) shares held in
treasury were cancelled and formally discharged. The directors
resolved to suspend the programme of repurchases of its own shares
on 2 April 2020 until further notice.
The Company redeemed a total of 44,551,554 (31 March 2020:
32,245,772 ) shares for a total amount of GBP38,499,854 (31 March
2020: GBP30,499,833 ) throughout the period.
CHAIRMAN'S STATEMENT
Dear Shareholder,
I am pleased to write to you to provide an update on the
Company's progress for the half-year ended 30 September 2020. The
Company continues to conduct a managed wind-down of its activities,
with the objective of returning capital to shareholders promptly
whilst seeking to maximise returns.
COVID-19 Pandemic
Readers will be well aware of the evolution of the pandemic
through the course of the reporting period and to date. Impacts on
the Company's portfolio continue to be felt as the non-standard
market environment remains in place for many businesses, and
appears likely to remain so through the reasonably foreseeable
future. However, the combination of continuing governmental and
central bank support to businesses in the Company's markets,
alongside the very real prospects of a vaccine-driven solution to
the business environment impediments over the medium term, provide
a more positive outlook than was the case when I last wrote to you
in July.
Performance Review and Net Asset Value ("NAV")
This report presents the financial position of the Company as at
30 September 2020.
On 21 October 2020, the Company announced its NAV at 30
September 2020 at GBP179 million (30 June 2020: GBP191 million) and
NAV per Share at that date at 83.86 pence (30 June 2020: 80.18
pence. The improvement in NAV per share was driven principally by a
better than anticipated credit market environment and the
demonstrably resilient performance of the Company's investments,
augmented by elevated prepayments arising from businesses
refinancing with governmental credit support initiatives.
An analysis of the performance of the Company for the 6 month
period to 30 September 2020 (with the 6 month period to 31 March
2020 for comparative purposes) is set out below:
Return Attribution
---------------------------------------------------------------
1 Apr 1 Oct
2020 to 2019 to
30 Sep 31 Mar
2020 2020
Gross Income 3.95% 4.53%
Impairment & FV Adj. (IFRS 9 basis)(1) (6.39%) (6.63%)
FVTOCI Adjustment(2) 0.66% -
Servicing Fees (0.34%) (0.38%)
--------- ----------
(2.12%) (2.48%)
Operating Expenses (0.71%) (0.56%)
FX Hedging Costs 0.11% 0.01%
Loan Interest Expense (0.03%) (0.11%)
Share Buybacks 0.00% 0.27%
(0.14%) (0.43%)
Net NAV Return (2.88%) (3.30%)
---------------------------------------- --------- ----------
( (1) FVTPL Adjustment includes fair value through profit or
loss movements on the Fund's interest in the EIB transaction.
(2) FVTOCI Adjustment includes fair value through other
comprehensive income movements on the portfolio of Credit Assets
held by the Fund, which moved to fair value accounting from 1 April
2020.
Performance Since 30 September 2020
The Board continues to closely monitor data trends within its
portfolio. Positive trends identified in my previous report have
been sustained, and the recent announcements from pharmaceutical
companies of apparently highly effective vaccines have given a
significant fillip to financial markets, particularly credit
markets. The Company will next report its quarterly NAV mid-January
2021.
Return of Capital
The Company continues to make distributions to shareholders as
free cash flow becomes available through interest payments,
repayments, prepayments and recoveries. In the 6 month period to 30
September 2020, GBP38.5 million was distributed to shareholders
through compulsory share redemptions and GBP5.9 million through
dividend payments. After the period end, a further GBP42 million
was distributed to shareholders through compulsory share
redemptions and GBP2.1 million through dividend payments.
The Company will continue to return capital to investors
predominantly by way of compulsory redemption of shares as
liquidity arises through loan repayments or by other means. The
directors may also seek to apply free cash to on-market share
repurchases if such a strategy is deemed to be in the best
interests of shareholders as a whole.
Potential Portfolio Sales
The Company has continued to actively explore portfolio sales as
a means of accelerating the return of capital to investors. A small
pool of UK non-performing loans was sold at a modest premium to
carrying value in October 2020, and the Company continues to
explore potential disposals where pricing levels are
attractive.
Conclusion
The reporting period has, for the Company, been one of great
uncertainty, but that uncertainty is starting to be replaced with
guarded optimism in markets generally. Our borrowers have in many
cases experienced the greatest economic stress in a generation, and
the Company, through Funding Circle, has endeavoured to support
them through forbearance programs and refinancings, and as such,
our borrowers are largely weathering the effects on their
businesses successfully, and with fortitude. When taken alongside
the recent positive vaccine announcements, it is therefore
reasonable to cautiously conclude that the Company's wind-down
program will remain on track with decreasing downside risk to NAV
per share.
My thanks as always go to the team at Funding Circle, our
advisors and service providers, and my board colleagues for their
support and wise counsel.
RICHARD BOLÉAT
Chairman of the Board of Directors
18 December 2020
INTERIM REPORT
Incorporation
The Company is a limited liability company registered in
Guernsey under The Companies (Guernsey) Law, 2008 (as amended) with
registered number 60680.
Activities
The Company is registered as a closed-ended collective
investment scheme in Guernsey pursuant to The Protection of
Investors (Bailiwick of Guernsey) Law, 1987, as amended. Prior to
the amendment of the Company's Investment Objective and Policy, the
primary activity of the Company was investment in loans to small
and medium sized enterprises in the United Kingdom, the United
States and Continental Europe, in order to seek to provide
shareholders with a sustainable and attractive level of dividend
income. Following the result of the EGM on 11 June 2019, the
Company has ceased investment into Credit Assets as the Company's
Investment Objective and Policy were updated to facilitate the
managed wind-down of the Company .
Defined Terms
Definitions appearing in this Interim Report used are shown at
the end of the report. The Company's prospectus, which may be found
on the Company's website at www.smecreditrealisation.com contains a
more comprehensive list of defined terms.
Strategy and Business Model
The Group was established to provide shareholders with a
sustainable and attractive level of dividend income, primarily by
way of investment in Credit Assets originated both directly through
the platform operated by Funding Circle and indirectly, in each
case as detailed in the Company's original investment policy. The
Group identified the Funding Circle platform as a leader in the
growing direct lending space to SMEs with its established
infrastructure, scale of origination volumes and expertise in
accurately assessing loan applications.
On 11 June 2019, the Company changed its Investment Objective
and Policy to facilitate a managed wind-down of the Company in a
prudent manner consistent with the principles of good investment
management as required by the Listing Rules.
Investment Objective and Policy
In order to implement the managed wind-down, it was necessary to
amend the Company's Investment Objective and Policy to reflect the
objective of realising the Company's portfolio, as follows:
"The Company will be managed with the intention of realising all
remaining assets in the portfolio in a prudent manner which
achieves a balance between maximising the value from the
realisation of the Company's investments and making timely returns
of capital to shareholders."
The managed wind-down is being affected with a view to the
Company realising all of its investments in accordance with the
Investment Objective. Such realisations comprise natural
amortisation of the Company's investments in Credit Assets as well
as potentially opportunistic portfolio sales.
During the prior financial year, the Company ran an auction
process as the Board explored a potential sale of a portion of the
Company's assets during which it received a high level of interest
from potential buyers. The Company continues to engage with
potential buyers, however given the ongoing market volatility and
uncertainty caused by COVID-19, it is likely any material asset
sales shall be delayed, or may not proceed at all.
In October 2020, Basinghall sold a pool of UK non-performing
loans to a third party at a modest premium to carrying value,
receiving proceeds of GBP2,203,183.
The Directors continue to explore potential portfolio disposals
where pricing levels are attractive.
As a result of the Company's change in investment objective and
policy, for the purposes of accounting, the Company's business
model was deemed to have changed from "hold to collect" to "hold to
collect and sell" during the prior financial year. The Company is
therefore required to report under fair value accounting for the
valuation of Credit Assets from 1 April 2020. This change in
methodology is discussed further in note 2 and 14.
The Company will not allocate further capital to Credit Assets,
directly or indirectly via leveraged transactions or SPVs, or
undertake capital expenditure except where necessary in the
reasonable opinion of the Board in order to protect or enhance the
value of any existing investments or to facilitate orderly
disposals.
As at 30 September 2020, the Company held indirect investments
in loans through the following investing companies:
Investing Company Jurisdiction of Loans
------------------ -------------------------
Basinghall United Kingdom
Tallis Germany, the Netherlands
and Spain*
EIB SPV United Kingdom
*From January 2017, Tallis discontinued further lending to
Spain. The Company retains a small portfolio of loans in Spain.
The following analyses of the Group's investments in Credit
Assets are provided as reference.
Loans by geographical region
UK Investment % US Investment % CE Investment %
South East 26 Other 39 Germany 55
--- -------------- --- ---------------- ---
London 17 California 15 The Netherlands 45
--- -------------- --- ---------------- ---
Midlands 13 Florida 10 Spain 0
--- -------------- --- ---------------- ---
North West 10 Texas 9
--- -------------- --- ---------------- ---
South West 10 Illinois 7
--- -------------- --- ---------------- ---
North East 8 New York 6
--- -------------- --- ---------------- ---
Scotland 5 Michigan 4
--- -------------- --- ---------------- ---
East Anglia 5 Ohio 4
--- -------------- --- ---------------- ---
Wales 4 Georgia 3
--- -------------- --- ---------------- ---
Northern Ireland 2 Colorado 3
--- -------------- --- ---------------- ---
Industry split
UK Investment % US Investment % CE Investment %
Professional,
Scientific and Wholesale and retail
Property and construction 20 Technical Services 17 trade 33
--- ------------------------ --- ------------------------- ---
Professional, Scientific
Wholesale and retail 18 Retail Trade 17 and Technical Services 13
--- ------------------------ --- ------------------------- ---
Professional and Healthcare and
business support 11 Social Assistance 11 Construction 11
--- ------------------------ --- ------------------------- ---
Manufacturing and Accommodation
engineering 11 and Food Services 11 Manufacturing 8
--- ------------------------ --- ------------------------- ---
Administrative
IT and Telecommunications 7 Construction 9 and Support Activities 7
--- ------------------------ --- ------------------------- ---
Other Services
(except Public Transporting and
Leisure and Hospitality 6 Administration) 8 Storage 6
--- ------------------------ --- ------------------------- ---
Administrative Accommodation and
Healthcare 5 and Support Activities 8 Food Services 6
--- ------------------------ --- ------------------------- ---
Information and
Transport and Logistics 4 Wholesale Trade 3 Communication 4
--- ------------------------ --- ------------------------- ---
Automotive 4 Manufacturing 3 Other Service Activities 2
--- ------------------------ --- ------------------------- ---
Other 14 Other 13 Other 10
--- ------------------------ --- ------------------------- ---
Basinghall, Tallis, Lambeth, Queenhithe and the EIB SPV were
formed solely in connection with the implementation of the previous
investment policy of the Company.
Loans acquired by Basinghall, Tallis and the EIB SPV (subject to
the investment policy, any Portfolio Limits and Available Cash)
were funded, in whole or in part, by advances made by the Company
under the note programmes. The notes issued by Basinghall and
Tallis to the Company are listed on the Irish Stock Exchange. Loans
acquired by Lambeth and Queenhithe were funded in part by
Basinghall.
The assets held by each of Basinghall, Tallis and the EIB SPV
are ring-fenced from other entities or SPV'-s and there is no
cross-collateralisation between the SPV's in which the Company
invests.
Borrowing Limitation
In pursuit of the original investment objective, the Company was
able to borrow or use leverage, and also guarantee the borrowings
of its Affiliates and Near Affiliates. The aggregate leverage or
borrowings of the Company, its Affiliates and any Near Affiliates
(including Basinghall, Tallis, Lambeth and/or Queenhithe) and
guarantees of such borrowing or leverage by such person(s), was not
permitted to exceed (at the time the relevant indebtedness is
incurred or guarantee given) 0.5 times the then current NAV.
Following the approval of the resolution to execute a managed
wind-down of the Company in its EGM on 11 June 2019, the leverage
limit as described above no longer applies to the Company.
All of the Group's leverage facilities have now been fully
repaid.
Results and dividends
The total comprehensive loss for the period, determined under
International Financial Reporting Standards ("IFRS"), amounted to
GBP 6.32 million (30 September 2019: profit of GBP3.61 million).
The payment of any dividend by the Company is subject to the
satisfaction of a solvency test as required by The Companies
(Guernsey) Law, 2008 (as amended). Following the result of the EGM,
the Directors expect to maintain quarterly dividend payments of
1.3125 pence per Ordinary Share on an annualised basis, which may
be partially uncovered by income . Dividends declared during the
period are disclosed in note 13.
Business review
On 21 May 2019, the Company published a circular and notice of
EGM which sets out details of, and sought shareholder approval for,
certain Proposals. Those Proposals involved modifying the Company's
Investment Objective and Policy to reflect a realisation strategy
and amending its Articles to include a mechanism to enable the
Company to redeem shares in the Company compulsorily so as to
return cash to shareholders.
On 11 June 2019, the Proposals were approved at the EGM.
As at 30 September 2020, the Company has purchased a total of
43,746,667 shares (31 March 2020: 43,736,667) of which nil (31
March 2020: 586,243) remain held in treasury. During the period, a
total of 596,243 (31 March 2020: 43,150,424 ) shares held in
treasury were cancelled and formally discharged.
The directors resolved to suspend the programme of repurchases
of its own shares on 2 April 2020 until further notice.
The Company redeemed a total of 44,551,554 shares (year ended 31
March 2020: 32,245,772) for a total amount of GBP38,499,854 (year
ended 31 March 2020: GBP30,499,833) during the period.
On 11 April 2020, Lambeth fully repaid the remaining amount owed
on its senior loan to Citibank. The remaining portfolio of Credit
Assets held were transferred to Basinghall on 17 June 2020 for an
amount equal to the principal and interest outstanding at 31 May
2020 being the economic cut-off date for the transaction. Shortly
after the period end, liquidators were formally appointed and
commenced proceedings to wind up Lambeth in an orderly manner.
On 17 August 2020, Queenhithe fully repaid the remaining amount
owed on its loan with Fleetbank. The remaining portfolio of Credit
Assets held were transferred to Basinghall on the same date for an
amount equal to the principal and interest outstanding at 31 July
2020 being the economic cut-off date for the transaction. The
process is underway to put Queenhithe into formal liquidation in
the coming months.
The World Health Organisation declared COVID-19 as a global
pandemic on 11 March 2020. The Board continues to closely monitor
the situation and the impact on the performance of the loan
portfolios held by the Group.
The Board receives updates on a monthly basis from Funding
Circle on current delinquency and default trends by geographic
exposure. The Risk Committee also reviews a comprehensive range of
other risks that may be impacted by COVID-19.
During H1 2020, the impact of COVID-19 led to the use of
forbearance measures for eligible borrowers, including short term
payment plans and payment holidays, to assist creditworthy
borrowers whose businesses suffered a short-term liquidity shock as
a result of the ongoing pandemic environment. Forbearance measures
began to expire towards the end of the period with an encouraging
proportion of borrowers returning to making full repayments.
In the UK, as at 30 September 2020, over 90% of non-defaulted
borrowers were making full payments, with an additional 6% still on
forbearance plans. In the US, over 82% of non-defaulted borrowers
were making full payments, with an additional 12% still on
forbearance plans. In CE, over 96% of non-defaulted borrowers were
making full payments.
Shortly after 30 September 2020, the UK went back into a
national lockdown due to a second wave of COVID-19. Similar
governmental measures being implemented in both CE and the US
following the period end are also a possibility. The full impact of
COVID-19 on the Group's UK portfolios is uncertain, however the
Directors continue to monitor the delinquency and default data
available to them closely.
In October 2020, Basinghall sold a pool of UK non-performing
loans to a third party at a modest premium to carrying value,
receiving proceeds of GBP2,203,183.
On 21 October 2020, the Company announced that it has declared a
quarterly dividend of 1.3125 pence per share payable on 20 November
2020 and will also be returning approximately GBP42m to
shareholders by way of a compulsory partial redemption of shares
payable on 10 November 2020.
Going concern
The Directors have considered the financial performance of the
Group and the impact of market conditions at the financial period
end date and subsequently.
Whilst the managed wind-down of the Company continues to
progress, there is no definite and final plan in place for the
timing of liquidation of the Company's assets and the process of
returning capital to shareholders.
The Company will therefore continue to redeem shares, pay
dividends and where appropriate execute further share buy-backs.
The Company has prepared cashflow forecasts and liquidity analyses
reviewing likely scenarios that are stress tested to support
further distributions and to monitor the ongoing solvency of the
Company. This is reviewed on a regular basis in light of new
information received.
The Directors confirm that they have a reasonable expectation
that the Company will pay its liabilities as they fall due over the
period of the managed wind-down and as the ongoing COVID-19
pandemic progresses. As a result, the Directors continue to present
the condensed consolidated financial statements on a going concern
basis.
Principal Risk and Risk Management
There are a number of actual and potential risks and
uncertainties which could have a material impact on the Group's
actual results which may differ materially from expected and
historical results, particularly given the implementation of the
managed wind-down and the impact of COVID-19.
The Board of Directors has overall responsibility for risk
management and internal control within the context of achieving the
Company's objectives. The Board agrees the strategy for the
Company, approves the Company's risk appetite and monitors the risk
profile of the Company. The Company also maintains a risk register
to identify, monitor and control risk concentration, which has been
updated to reflect the managed wind-down.
The Company has established a risk matrix, consisting of the
principal and emerging risks and the controls in place to mitigate
those risks. The risk matrix 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
risk assessment are embedded in the Company's risk matrix and
stress testing which helps position the Company to ensure
compliance with The Association of Investment Companies Code of
Corporate Governance's ("the AIC Code") requirements.
The Board continues to monitor the Company's systems of risk
management and internal control and will continue to receive
updates from the Company's external service providers to ensure
that the principal risks and challenges faced by the Group are
fully understood and managed appropriately. The Board did not
identify any significant weaknesses during the period and up to the
date of this Interim Report.
An overview of the principal risks and uncertainties that the
Board considers to be currently faced by the Company are provided
below, together with the mitigating actions being taken. The
Directors have also linked the key performance indicators to the
risks where relevant. Risks arising from the Group's use of
financial instruments are set out in note 14 of the condensed
consolidated financial statements.
Principal risk Mitigation and update of Company's financial
risk assessment KPI affected
by risk
COVID-19
The COVID-19 pandemic has had The directors continue Total distributions
a significant economic impact to monitor delinquency to the shareholders.
across the world. As at 30 September and default levels on each
2020, the pandemic has caused of the separate loan portfolios Credit losses
an increase in delinquencies closely, as well as the
across the Group's portfolio impact of government initiatives
during the period. However, it and forbearance measures
is still uncertain how performance implemented by Funding
will be affected in the mid to Circle.
long term as forbearance measures
continue to expire after the Total distributions
period end and government initiatives to the shareholders.
continue to be implemented.
The directors have limited Credit losses
Default risk options available to them
Borrowers' ability to comply that will minimise the
with their payment obligations impact of the risk as the
in respect of loans may deteriorate measures and initiatives
due to adverse changes in economic being put in place are
and political factors, including outside of their control.
the COVID-19 pandemic discussed
above. Economic uncertainties
or developments as well
Actual defaults may be greater as unemployment may impact
than indicated by historical upon default rates.
data and the timing of defaults Total distributions
may vary significantly from historical to the shareholders.
observations.
NAV total return
Future wind-down risk
Below are the key risks associated
with the managed wind-down of
the Company, beyond those inherent The Board will continue
in the holding of amortising to monitor the impact of
Credit Assets. Further details the COVID-19 pandemic and
are available within the Circular changes in the valuation
published on 21 May 2019: of the different loan portfolios
before considering pursuing Total distributions
The Company has conducted a price further price discovery to the shareholders.
discovery process for the purpose processes and opportunistic
of determining whether it is portfolio sales. The Board
in the interests of the Company will actively monitor and
and shareholders as a whole to control the preparation
dispose of certain portions of and price discovery process
the Company's loan portfolios, to seek to ensure that .
"en bloc". The Company's price it is operationally and
discovery process has not resulted economically optimised.
in a material consummated transaction
or transactions. Following the
COVID-19 pandemic, any price The Board will actively
discovery process undertaken seek to "right size" the
again in the future is likely Company's overhead base
to be impacted by the pandemic as net asset value reduces,
and its effects on the perceived through renegotiation with
value of the Company's loan portfolios. counterparties and potential
restructuring of the Group
As the managed wind-down proceeds, to minimise unnecessary
and capital is returned to shareholders, fixed and variable costs.
the Company's fixed and variable
costs, some of which are not
capable of material mitigation
due to the publicly listed status
of the Company, are likely to
rise as a proportion of the Company's
net asset value, prior to dissolution
of the Company.
----------------------------------- --------------------------
The Company deploys surplus liquidity The Board will actively Share price
arising from portfolio amortisation seek to manage the use volatility.
and, potentially, portfolio sales, of various capital return
by way of capital return to shareholders. techniques so as to seek
This capital return may take to fairly balance the differing
the form of dividends, share outcomes of those techniques.
buybacks and compulsory redemptions
of shares or any combination
of these techniques. The balance
of techniques used may result
in greater or lesser share price Total distributions
volatility and varied tax treatments The Board will seek to to the shareholders
for investors. maintain and enhance banking
counterparty relationships
As the size of the Company's to seek to retain access
non-UK portfolios decrease through to institutional pricing. Share price
amortisation (in the absence volatility
of portfolio sales), the Company's The Board will review any and total distributions
ability to deploy foreign currency adjustment required to to shareholders.
hedges at appropriate cost may the values of the Group's
be impaired. assets and liabilities
when the basis of accounting
As the Company moves through changed to non-going concern.
the winddown process, accounting
standards will require the Company
to prepare its accounts on a
basis other than going concern
in the future.
As part of the process of evaluating principal risks, the Board
also identifies emerging risks and how they impact on the Group's
managed wind down process. The likelihood of occurrence of each
risk and the extent of financial effect to the Group are considered
when the Board makes economic decisions. Along with the update on
the principal risks to take into account the impact of the COVID-19
pandemic to the Group, the Board identified the following as
emerging and other key operational risks:
Changes in the tax regulation in jurisdictions where the Group
operates could have an impact on the treatment of income generated
from loans held in subsidiaries
The Company holds assets indirectly through subsidiaries
established in Ireland.
There is currently no indication that this will become a
principal risk to the Group but the Board will continue to monitor.
Refer to note 11 for further information on taxation payable by
Basinghall due to a change in tax regulation.
The Company has no employees and is reliant on the performance
of third party service providers
The Company's investment administration functions have been
outsourced to external service providers. Any failure by 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 may have
an effect on the Company's ability to meet its investment objective
successfully. The Board receives and reviews reports from its
principal external service providers. The Board may request a
report on the operational effectiveness of controls in place at the
service providers as part of the annual quality review performed by
the Board on the services provided by the external service
providers. The results of the Board's review are reported to the
Audit Committee.
Cybersecurity breaches
The Company is reliant on the functionality of Funding Circle's
software and IT infrastructure to facilitate the process of
servicing the Company's remaining credit assets. The Company is
also reliant on the functionality of the IT infrastructure of its
other service providers. These systems may be prone to operational,
information security and related risks resulting from failures of,
or breaches in, cybersecurity.
Along with other holders of risk assets generally, the Group is
exposed to a range of macroeconomic, geopolitical and regulatory
factors which could, in certain circumstances either individually
or in combination have a negative effect on carrying values,
portfolio returns, delinquencies and operating costs. These factors
are kept under review by the Board and relevant Board committees as
appropriate.
Directors
The Directors who held office during the financial period end
and up to the date of approval of this report were:
Date of appointment
-------------------- --------------------
Frederic Hervouet 12 August
2015
Jonathan Bridel 19 August
2015
Richard Boléat 19 August
2015
Richard Burwood 12 August
2015
Sachin Patel 18 May 2017
Tom Parachini, Global Head of Legal and Regulatory at Funding
Circle Ltd is appointed as an Alternate Director for Sachin
Patel.
Directors' shares and interests
A list of all Directors who served during the period and up to
the date of this report and their biographies are included at the
end of the report.
The appointment and replacement of Directors is governed by the
Company's Articles of Incorporation, The Companies (Guernsey) Law
2008 (as amended) and related legislation. The Articles of
Incorporation themselves may be amended by special resolution of
the Shareholders.
As at 30 September 2020, the Directors held the following
Ordinary shares of the Company:
Number of shares
30 September 31 March
2020 2020
--------------------- -------------------- -------------
Frederic Hervouet 7 8,760 95,176
Jonathan Bridel 2 6,069 4,448
Richard Boléat 2 1,591 4,448
Richard Burwood 3 9,482 4,448
Sachin Patel - -
1 65,902 108,520
--------------------- -------------------- -------------
During the period, no Director had a material interest in a
contract to which the Company was a party (other than his own
letter of appointment). Mr. Patel is an employee of Funding Circle
Ltd.
Related party transactions
The related parties of the Group, the transactions with those
parties during the period and the outstanding balances as at 30
September 2020 are disclosed in Note 15 to the condensed
consolidated financial statements.
Company Secretary
The Company Secretary is Sanne Group (Guernsey) Limited of De
Catapan House, Grange Road, St Peter Port, Guernsey GY1 2QG.
On behalf of the Board
RICHARD BOLÉAT
Chairman of the Board of Directors
STATEMENT OF DIRECTORS' RESPONSIBILITIES
IN RESPECT OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
To the best of their knowledge and belief, the Directors confirm
that:
-- the Condensed Consolidated Financial Statements have been
prepared in accordance with IAS 34, "Interim Financial Reporting";
and
-- the Half-Yearly Financial Report, comprising the Financial
Highlights, the Summary Information, the Chairman's Statement, and
the Interim Report, meets the requirements of an interim management
report and includes a fair review of the information required by
DTR 4.2.4R;
o DTR 4.2.7R of the UK Disclosure Guidelines and Transparency
Rules, being an indication of important events that have occurred
during the first six months and their impact on the Condensed
Consolidated Financial Statements, and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
o DTR 4.2.8R of the UK Disclosure Guidelines and Transparency
Rules, being related party transactions that have taken place in
the first six months and that have materially affected the
financial position or performance of the Group during the period,
and any material changes in the related party transactions
disclosed in the last Annual Report.
The maintenance and integrity of the Group and Company's website
is the responsibility of the Directors. The work carried out by the
independent auditor does not involve consideration of these matters
and accordingly, the auditor accepts no responsibility for any
changes that may have occurred to the condensed consolidated
financial statements since they were initially presented on the
website. Legislation in Guernsey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Richard Boléat Jonathan Bridel
Chairman Chairman of the Audit Committee
INDEPENT REVIEW REPORT TO SME CREDIT REALISATION FUND
LIMITED
Report on the Condensed Consolidated Financial Statements
_________________________________________________________________________
Our conclusion
We have reviewed SME Credit Realisation Fund Limited's Condensed
Consolidated Financial Statements (the "interim financial
statements") in the Half-Yearly Financial Report of SME Credit
Realisation Fund Limited for the 6-month period ended 30 September
2020. Based on our review, nothing has come to our attention that
causes us to believe that the interim financial statements are not
prepared, in all material respects, in accordance with
International Accounting Standard 34, 'Interim Financial Reporting'
and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority.
_________________________________________________________________________
What we have reviewed
The interim financial statements comprise:
-- the Condensed Consolidated Statement of Financial Position as at 30 September 2020;
-- the Condensed Consolidated Statement of Comprehensive Income for the period then ended;
-- the Condensed Consolidated Statement of Cash Flows for the period then ended;
-- the Condensed Consolidated Statement of Changes in
Shareholders' Equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the Half-Yearly
Financial Report have been prepared in accordance with
International Accounting Standard 34, 'Interim Financial Reporting'
and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority.
As disclosed in note 2 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Company
is The Companies (Guernsey) Law, 2008 and International Financial
Reporting Standards (IFRSs).
_________________________________________________________________________
Responsibilities for the interim financial statements and the
review
_________________________________________________________________________
Our responsibilities and those of the directors
The Half-Yearly Financial Report, including the interim
financial statements, is the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the Half-Yearly Financial Report in accordance with
International Accounting Standard 34, 'Interim Financial Reporting'
and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the Half-Yearly Financial Report based on
our review. This report, including the conclusion, has been
prepared for and only for the Company for the purpose of complying
with the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority and for no other
purpose. We do not, in giving this conclusion, accept or assume
responsibility for any other purpose or to any other person to whom
this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
____________________________________________________________________________
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements 2410, 'Review of Interim Financial
Information Performed by the Independent Auditor of the Entity'
issued by the International Auditing and Assurance Standards Board.
A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Half-Yearly
Financial Report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers CI LLP
Chartered Accountants
Guernsey, Channel Islands
18 December 2020
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX-MONTH PERIODED 30 SEPTEMBER 2020
(Unaudited) (Unaudited)
1 April 2020 1 April 2019
to 30 September to 30 September
2020 2019
Notes GBP GBP
---------------------------------------- --- -------- --------------------- --------------------
Operating income
Interest income on loans advanced 3 9,073,630 16,659,332
Net realised and unrealised gain
on foreign exchange - 912,489
Bank interest income 12,028 40,875
--------------------------------------------- -------- --------------------- --------------------
Total operating income 9,085,658 17,612,696
--------------------------------------------- -------- --------------------- --------------------
Operating expenditure
Impairment of loans 3 13,364,498 10,355,873
Net realised and unrealised loss 1,085,544 -
on foreign exchange
Net loss on financial asset at
fair value through profit or loss 4 - 120,107
Loan servicing fees 15 792,640 1,453,665
Loan interest expense 9 63,600 731,813
Commitment fee 9 187,500 337,500
Company administration and secretarial
fees 190,141 210,335
Audit, audit-related and non-audit
related fees 118,965 149,917
Corporate broker services 25,000 147,173
Corporate services fees 15 105,582 149,019
Legal and professional fees 254,343 126,973
Directors' remuneration and expenses 87,447 89,539
Regulatory fees 6,545 9,709
Other operating expenses 297,302 119,514
--------------------------------------------- -------- --------------------- --------------------
Total operating expenditure 16,579,107 14,001,137
Operating (loss) / profit for the
period before taxation (7,493,449) 3,611,559
--------------------------------------------- -------- --------------------- --------------------
Taxation for the period 11 (348,117) -
--------------------------------------------- -------- --------------------- --------------------
Operating (loss) / income after
taxation for the period (7,841,566) 3,611,559
--------------------------------------------- -------- --------------------- --------------------
Other comprehensive income:
Items that may be reclassified to profit or loss
Gain on movement in fair value of loans advanced 3 1,525,785 -
Total comprehensive (loss) / income
for the period (6,315,781) 3,611,559
Earnings per share
-------------------------------------------------- --- -------- ---------------- ---------------
Basic 12 (3.37p) 1.17p
-------------------------------------------------- --- -------- ---------------- ---------------
Diluted 12 (3.37p) 1.17p
-------------------------------------------------- --- -------- ---------------- ---------------
Weighted average number of shares
outstanding
Basic 12 232,346,512 308,851,445
Diluted 12 232,346,512 308,851,445
Other comprehensive income
The other comprehensive income recognised above relates to the
unrealised gain on the movement in fair valuation of the Group's
portfolio of loans advanced.
There were no other items of other comprehensive income in the
current or prior period.
The Notes below form part of these condensed consolidated
financial statements.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 SEPTEMBER 2020
(Unaudited) (Audited)
30 September 31 March 2020
2020
Notes GBP GBP
---------------------------------------- ------ -------------- ---------------
ASSETS
Cash and cash equivalents 6 52,209,665 46,602,238
Other receivables and prepayments 14,404 48,533
Loans advanced 3 128,197,082 200,094,130
TOTAL ASSETS 180,421,151 246,744,901
---------------------------------------- ------ -------------- ---------------
EQUITY AND LIABILITIES
Capital and reserves
Share capital 10 224,513,012 263,017,723
Retained deficit (45,260,859) (33,007,021)
---------------------------------------- ------ -------------- ---------------
TOTAL SHAREHOLDERS' EQUITY 179,252,153 230,010,702
---------------------------------------- ------ -------------- ---------------
LIABILITIES
Liability fair value of currency
derivatives 7 158,218 3,400,699
Loans payable 9 - 11,531,076
Accrued expenses and other liabilities 8 1,010,780 1,802,424
---------------------------------------- ------ -------------- ---------------
TOTAL LIABILITIES 1,168,998 16,734,199
---------------------------------------- ------ -------------- ---------------
TOTAL EQUITY AND LIABILITIES 180,421,151 246,744,901
---------------------------------------- ------ -------------- ---------------
NAV per share 83.86p 89.05p
---------------------------------------- ------ -------------- ---------------
The condensed consolidated financial statements were approved
and authorised for issue by the Board of Directors on 18 December
2020 and were signed on its behalf by:
Richard Boléat Jonathan Bridel
Chairman Chairman of the Audit Committee
The Notes below form part of these condensed consolidated
financial statements.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS'
EQUITY
FOR THE SIX-MONTH PERIODED 30 SEPTEMBER 2020
Other Reserves Retained
Share capital deficit Total
Notes GBP GBP GBP GBP
----------------------------- -------- -------------- -------------- ------------- -------------
Balance at 1 April 2020 263,017,723 - (33,007,021) 230,010,702
Redemption of ordinary
shares 10 (38,499,854) - - (38,499,854)
Share repurchases 10 (4,857) - - (4,857)
Dividends declared 13 - - (5,938,057) (5,938,057)
Operating loss after
taxation for the period - - (7,841,566) (7,841,566)
Other comprehensive
income - 1,525,785 - 1,525,785
Balance at 30 September
2020 (unaudited) 224,513,012 1,525,785 (46,786,644) 179,252,153
----------------------------- -------- -------------- -------------- ------------- -------------
Balance at 1 April
2019 320,944,247 - (12,596,119) 308,348,128
Share repurchases 10 (21,822,290) - - (21,822,290)
Dividends declared 13 - - (8,150,378) (8,150,378)
Total comprehensive
income for the period - - 3,611,559 3,611,559
Balance at 30 September
2019 (unaudited) 299,121,957 - (17,134,938) 281,987,019
------------------------- ------- ------------------- -------------- ------------- -------------
The Notes below form part of these condensed consolidated
financial statements.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX-MONTH PERIODED 30 SEPTEMBER 2020
(Unaudited) (Unaudited)
1 April 2020 1 April 2019
to to
30 September 30 September
2020 2019
Notes GBP GBP
------------------------------------------------ ------ ------------------- ------------------
Operating activities
Total comprehensive (loss)/income
for the period (6,315,781) 3,611,559
Adjustments for:
Foreign exchange loss/(gain) 1,660,721 (6,770,315)
Interest income on loans advanced (9,073,630) (16,659,332)
Impairment of loans 3 13,364,498 10,355,873
Net loss on financial asset at fair
value through profit or loss or loss 4 - 120,107
Net gain on loans advanced at fair
value through other comprehensive
income (1,525,785) -
Fair value movement of currency derivatives 7 (3,242,481) (364,350)
------------------------------------------------ ------ ------------------- ------------------
Operating cash flows before movements
in working capital (5,132,458) (9,706,458)
Loans advanced - (9,145,982)
Principal and interest collections
on loans advanced 3 68,109,328 89,116,743
Principal and interest collections
on financial asset at fair value
through profit or loss 4 - 5,777,707
Decrease / (increase) in other receivables
and prepayments 34,129 (2,218,556)
Decrease in accrued expenses and
other liabilities (791,644) (11,272)
Net cash generated from operating
activities 62,219,355 73,812,182
------------------------------------------------ ------ ------------------- ------------------
Financing activities
Loans issued - 2,636,618
Loan repayments 9 (11,531,076) (35,017,165)
Dividends paid 13 (5,938,057) (8,150,378)
Repurchase of Shares (4,857) (21,822,290)
Redemption of Shares 10 (38,499,854) -
------------------------------------------------ ------ ------------------- ------------------
Net cash used in financing activities (55,973,844) (62,353,215)
------------------------------------------------ ------ ------------------- ------------------
Net increase in cash and cash equivalents 6,245,511 11,458,967
Cash and cash equivalents at the
beginning of the period 46,602,238 29,408,480
Foreign exchange (loss)/gain on cash
and cash equivalents (638,084) 114,763
Cash and cash equivalents at the
end of the period 52,209,665 40,982,210
------------------------------------------------ ------ ------------------- ------------------
The Notes below form part of these condensed consolidated
financial statements.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX-MONTH PERIODED 30 SEPTEMBER 2020
1. GENERAL INFORMATION
The Company is a closed-ended limited liability company
registered under The Companies (Guernsey) Law, 2008 (as amended)
with registered number 60680. The Company is a registered
collective investment scheme in Guernsey and admitted to trading on
the London Stock Exchange's Main Market and listed on the UKLA's
premium segment. The Company's home member state for the purposes
of the EU Transparency Directive is the United Kingdom. As such,
the Company is subject to regulation and supervision by the
Financial Conduct Authority, being the financial markets supervisor
in the United Kingdom. The registered office of the Company is De
Catapan House, Grange Road, St Peter Port, Guernsey GY1 2QG.
The Company was established to provide shareholders with
sustainable and attractive levels of dividend income, primarily by
way of investment in loans originated both directly through the
Platforms operated by Funding Circle and indirectly, in each case
as detailed in the investment policy. The Company identified
Funding Circle as a leader in the growing Platform lending space
with its established infrastructure, scale of origination volumes
and expertise in accurately assessing loan applications.
On 21 May 2019, the Company published a circular and notice of
extraordinary general meeting ("EGM") which sets out details of,
and sought shareholder approval for, certain Proposals. The
Proposals involved modifying the Company's Investment Objective and
Policy to reflect a realisation strategy and amending its Articles
to include a mechanism to enable the Company to redeem shares in
the Company compulsorily so as to return cash to shareholders.
On 11 June 2019, the Proposals were approved at the EGM as
discussed in detail in the most recent Annual Report. The Company
publishes net asset value statements on its website at
www.smecreditrealisation.com .
2. Basis of preparation
The Company has prepared these Condensed Consolidated Financial
Statements on a going concern basis in accordance with the
Disclosure Guidance and Transparency Rules of the United Kingdom
Financial Conduct Authority and prepared in accordance with
International Financial Reporting Standard ('IFRS') IAS 34 'Interim
Financial Reporting'. This Half-Yearly Report does not comprise
statutory financial statements within the meaning of The Companies
(Guernsey) Law, 2008 (as amended) and should be read in conjunction
with the audited Consolidated Financial Statements of the Group for
the year ended 31 March 2020, which have been prepared in
accordance with IFRS. The statutory financial statements for the
year ended 31 March 2020 were approved by the Board of Directors on
28 July 2020. The opinion of the auditor on those financial
statements was unqualified. Other than the policy described below
relating to fair value through other comprehensive income, the
accounting policies adopted in these condensed consolidated
financial statements are unchanged since 31 March 2020. The Company
does not have seasonal or cyclical interim business operations.
This Half-Yearly Report for the period ended 30 September 2020
has been reviewed by the auditor but not audited. PwC have been
performing the audit of the Company's year end financial statements
for five financial years, starting with the period ended 31 March
2016.
Reclassification of loans advanced from financial asset at
amortised cost to financial asset at fair value through other
comprehensive income
For financial assets, reclassification is required between fair
value through other comprehensive income ("FVTOCI") and amortised
cost, if and only if the entity's business model objective for its
financial assets changes so its previous model assessment would no
longer apply.
If reclassification is appropriate, it must be done
prospectively from the reclassification date which is defined as
the first day of the first reporting period following the change in
business model. An entity does not restate any previously
recognised gains, losses, or interest.
The Group's loans advanced have been reclassified and now fall
within this category due to the change in business model during the
prior financial year. This is the first reporting period showing
the loans advanced at fair value through other comprehensive
income.
31 March 2020 Reclassification 1 April
2020 2020
GBP GBP GBP
Loans advanced held at amortised
cost 200,094,130 (200,094,130) -
Loans advanced held at fair
FVTOCI - 200,094,130 200,094,130
Classification and measurement
Financial assets that are held for collection of contractual
cash flows and for selling the assets, where the assets' cash flows
represent solely payments of principal and interest, and that are
not designated at fair value through profit or loss, are measured
at fair value through other comprehensive income. Movements in the
carrying amount are taken through other comprehensive income,
except for the recognition of impairment gains or losses, interest
revenue and foreign exchange gains and losses on the instrument's
amortised cost which continue to be recognised in profit or
loss.
The fair value of the loans advanced has been estimated by
discounting expected future cash flows from the loans advanced
using a discount rate determined by the Directors based on
appropriate market comparatives and conditions. Refer to note 14
for further information.
Disposal
On disposal of any financial asset measured at FVTOCI, any
related balance within the FVTOCI reserve is reclassified to other
gains/(losses) within profit or loss.
In the Directors' opinion, all other 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.
3. LOANS ADVANCED
(Unaudited) (Audited)
30 September 31 March
2020 2020
At FVTOCI At amortised cost
GBP GBP
------------------------------------------------------------------- --- -------------- -------------------
Balance at the beginning of the period/year 200,094,130 340,222,868
Advanced - 8,838,632
Interest income 9,073,630 28,861,837
Principal and interest collections (68,109,328) (160,603,434)
Impairment allowance for the period/year (13,364,498) (22,454,031)
Foreign exchange (losses)/gains (1,022,637) 5,228,258
Gain on movement in fair value through other comprehensive income 1,525,785 -
------------------------------------------------------------------- --- -------------- -------------------
Balance at the end of the period/year 128,197,082 200,094,130
------------------------------------------------------------------------ -------------- -------------------
The Group predominantly made unsecured loans in previous periods
and prior to the modification of the Company's investment policy
during the prior year. As at 30 September 2020, the carrying value
of loans secured by charges over properties is GBP371,588 (31 March
2020: GBP647,606).
Each loan has a contractual payment date for principal and
interest. The Group considers a loan as past due when the
borrower's repayment has not been received for at least 30 days
from the scheduled payment date. A loan is classified as defaulted
when the borrower's repayment is late by 91 or more days, except
for those loans which are under forbearance measures which are
classified as defaulted when repayment is late by 180 or more
days.
The following table shows the movement in impairment allowance
during the period:
(Unaudited) (Audited)
30 September 31 March
2020 2020
GBP GBP
---------------------------------------------------- -------------- ------------
Impairment allowance at beginning of the
period/year - previously reported 59,019,908 36,565,877
Impairment allowance for the period/year
- additional allowance based on IFRS 9 model 13,364,498 22,454,031
Impairment allowance at the end of the period/year 72,384,406 59,019,908
---------------------------------------------------- -------------- ------------
As a result of the COVID-19 global pandemic, impairment
allowance has increased for the period due to an increased number
of delinquencies across the Group's portfolio of loans advanced.
Impairment losses increased by GBP13,364,498 during the period to
30 September 2020 (30 September 2019: GBP10,355,873).
The table below shows an analysis of the principal and interest
of the loans along with the amount recognised as an impairment
allowance analysed by the stages described within IFRS 9:
(Unaudited)
30 September 2020
---------------------------
Principal Impairment
and interest allowance
--------------------------------------------------- --- -------------- -----------
Stage 1 - no change in credit risk from inception 99,416,912 4,313,910
Stage 2 - significant increase in credit risk
but not yet defaulted 38,464,769 14,300,977
Stage 3 - defaulted 61,174,022 53,769,519
199,055,703 72,384,406
------------------------------------------------------- -------------- -----------
(Audited)
31 March 2020
----------------------------------------------------
Principal Impairment
and interest allowance
------------------ ---------- -------------------- -------------------- -----------
Stage 1 - no change in credit risk from inception 184,087,094 7,570,445
Stage 2 - significant increase in credit risk but
not yet defaulted 19,635,038 4,828,723
Stage 3 - defaulted 55,391,906 46,620,740
259,114,038 59,019,908
---------------------------- ------------ -----------
Loans in stage 2 have been separated into two groups for the
purposes of calculating expected credit losses, the first group
includes impairment relating to loans which are late, have recently
returned to making full repayments but have not yet caught up on
arrears, and loans which are on forbearance measures. The second
group includes loans which are late and have not been making any
recent repayments.
In October 2020, Basinghall sold a pool of UK non-performing
loans to a third party at a modest premium to carrying value,
receiving proceeds of GBP2,203,183.
Structured Finance Transactions
In June 2016, the Group entered into a structured finance
transaction with the European Investment Bank (the "EIB
transaction"). The transaction involved the Company participating
in the financing of an Irish domiciled special purpose vehicle
("EIB SPV"). The Company invested GBP25 million into the junior
Class B Note issued by the EIB SPV whilst the European Investment
Bank ("EIB") committed GBP100 million in a senior loan to the EIB
SPV. This transaction went into amortisation in June 2018. The EIB
SPV and its financial results are not consolidated into the
Group.
In August 2018, the Group entered into a transaction to provide
lending to a special purpose vehicle, Queenhithe, which made loans
to UK small businesses. The Group, through Basinghall, provided an
initial funding of approximately GBP9.2 million through
subscription into the Class B note issued by Queenhithe. Queenhithe
has been accounted for in these consolidated financial statements
as a subsidiary consolidated into the results of the Group.
In November 2018, the transaction was updated whereby the
Department for Business, Energy and Industrial Strategy ("BEIS") -
the British Business Bank's ("BBB") sole shareholder - agreed to
provide up to GBP150 million of funding via a senior floating rate
loan to Queenhithe.
Following the result of the EGM on 11 June 2019, the Group has
ceased any further investment through Queenhithe.
The transactions entered into by the Group in respect of the
structured financing arrangements for Lambeth are discussed in note
9.
4. FINANCIAL ASSET AT FAIR VALUE THROUGH PROFIT OR LOSS
(Unaudited) (Audited)
30 September 31 March
2020 2020
GBP GBP
------------------------------------------- --- --- ------------- -----------
Balance at the beginning of the period/year - 12,349,178
Principal and interest collections - (6,153,897)
Net loss on the change in fair value
of financial asset at fair value
through profit or loss during the
period/year - (6,195,281)
------------------------------------------------ --- ------------- -----------
Balance at the end of the period/year - -
----------------------------------------------------- ------------- -----------
The Group's financial asset at fair value through profit or loss
relates to the investment in the EIB transaction.
In October 2019, one of the financial covenants in respect of
the EIB transaction was breached resulting in a switch from
principal proceeds being distributed pari passu between the EIB and
the Company to being fully allocated to the EIB until such time as
the loan with the EIB has been fully repaid or the breach is no
longer continuing. Principal and interest collections in the
transaction are currently being applied to repay the loan with the
EIB.
It has been estimated that the Company will not receive any
future cashflows from its investment into the EIB transaction which
resulted in the full write down of the Company's interest in the
prior financial year causing the net loss on change in fair value
during the period of GBPnil (30 September 2019: GBP120,107) and a
fair value of GBPnil (31 March 2020: GBPnil) as at 30 September
2020.
The calculation of the fair value is discussed in note 14.
5. SEGMENTAL REPORTING
The Group operates in the UK, US, Germany, Spain and the
Netherlands. For financial reporting purposes, Germany, Spain and
the Netherlands combine to make up the Continental Europe operating
segment.
The measurement basis used for evaluating the performance of
each segment is consistent with the policies used for the Group as
a whole. Assets, liabilities, profits and losses for each
reportable segment are recognised and measured using the same
accounting policies as the Group.
Except for the EIB transaction, all of the Group's investments
are loans to SMEs. Each individual SME loan does not generate
income that exceeds 10% of the Group's total income.
The structured finance transaction and the corresponding income
have been reported under the 'UK' segment below. All items of
income and expenses not directly attributable to specific
reportable segments have been included in 'Other income and
expenses' column.
Segment performance for the period ended 30 September 2020 -
(unaudited)
UK US CE Other income Consolidated
and expenses
GBP GBP GBP GBP GBP
-------------------------- ------------- ------------ ------------ -------------- -------------
Total revenue 5,307,044 1,863,476 1,903,105 12,028 9,085,653
Impairment of loans (10,656,833) (1,171,094) (1,536,571) - (13,364,498)
Net gain/(loss) on
the change in fair
value of loans advanced 3,435,451 (1,049,861) (859,805) - 1,525,785
(Loss)/profit after
taxation (3,761,850) (1,119,015) (1,446,944) 12,028 (6,315,781)
Segment assets and liabilities as at 30 September 2020 -
(unaudited)
UK US CE Other assets Consolidated
and liabilities
GBP GBP GBP GBP GBP
---------------- --------------- ----------- ----------- ----------------- -------------
Assets 127,738,156 23,205,323 29,463,268 14,404 180,421,151
Liabilities (611,253) (247,423) (310,322) - (1,168,998)
Segmental performance for the period ended 30 September 2019 -
(unaudited)
UK US CE Other income Consolidated
and expenses
GBP GBP GBP GBP GBP
---------------------- ------------ ------------ ------------ -------------- -------------
Total revenue 9,282,678 4,068,099 3,229,323 912,489 17,492,589
Impairment of loans (4,922,023) (3,765,605) (1,668,245) - (10,355,873)
Profit/(loss) before
taxation 1,530,496 (51,325) 1,219,899 912,489 3,611,559
Segment assets and liabilities as at 31 March 2020 -
(audited)
UK US CE Other assets Consolidated
and liabilities
GBP GBP GBP GBP GBP
------------- ------------- ------------ ------------ ----------------- -------------
Assets 167,316,544 39,452,582 39,927,242 48,533 246,744,901
Liabilities (13,077,759) (1,885,154) (1,771,286) - (16,734,199)
6. cash and cash equivalents
(Unaudited) (Audited)
30 September 31 March
2020 2020
GBP GBP
--------------------------------------- -------------- -----------
Cash at bank 7,917,634 17,233,099
Cash equivalents 44,292,031 29,369,139
Balance at the end of the period/year 52,209,665 46,602,238
--------------------------------------- -------------- -----------
Cash equivalents are term deposits held with different banks
with maturities between overnight and 90 days.
7. Derivatives
Foreign exchange swaps are held to hedge the currency exposure
generated by US dollar assets and Euro assets held by the Group
(see note 14). The hedges have been put in place taking into
account the fact that derivative positions, such as simple foreign
exchange swaps, could cause the Group to require cash to fund
margin calls on those positions. The Group negotiated the terms of
the contracts with each counterparty such that no collateral is
required on the initial transaction and in instances of temporary
negative fair value positions.
Fair value of currency derivatives
(Unaudited) (Audited)
Fair value Fair value
30 September 31 March
2020 2020
GBP GBP
----------------------------------- -------------- ------------
Valuation of currency derivatives (158,218) (3,400,699)
(158,218) (3,400,699)
----------------------------------- -------------- ------------
(Unaudited) (Audited)
Fair value Fair value
30 September 31 March
2020 2020
GBP GBP
------- -------------- ------------
Euro 23,022 47,402
USD 57,405 127,088
GBP (238,645) (3,575,189)
Total (158,218) (3,400,699)
------- -------------- ------------
8. ACCRUED EXPENSES and other LIABILITIES
(Unaudited) (Audited)
30 September 31 March
2020 2020
GBP GBP
------------------------------------ --- -------------- ----------
Service fees payable 109,105 158,864
Audit fees payable 245,687 254,745
Legal and advisory fees payable 80,462 19,166
Loan interest payable (see note 9) - 8,124
Taxation payable 348,117 1,000
Directors fee payable 11,895 -
Other liabilities 215,514 201,843
Amount payable to the EIB SPV - 1,158,682
----------------------------------------- -------------- ----------
1,010,780 1,802,424
---------------------------------------- -------------- ----------
9. loanS payable
(Unaudited) (Audited)
30 September 31 March
2020 2020
GBP GBP
------------------------------------------------ ----------------- ------------
Balance at the beginning of the period/year 11,531,076 73,651,620
Drawdown - 2,636,619
Repayment (11,531,076) (64,757,163)
Balance at the end of the period/year - 11,531,076
------------------------------------------------ ----------------- ------------
In January 2018, the Group entered into the Citibank transaction
to provide lending to a special purpose vehicle, Lambeth, which
made loans to UK small businesses. Under the terms of the Senior
Facility Agreement, Citibank provided GBP50 million into the
transaction, by entering into a senior floating rate loan.
In July 2018, the Citibank transaction was amended whereby the
senior loan from Citibank was increased to GBP66 million with a
corresponding net increase to the Group's lending to Lambeth. As a
result, Basinghall increased its investments into Lambeth to keep
the proportional exposure between Citibank and Basinghall. The
additional investment by Basinghall to Lambeth was settled by
transferring a portfolio of loans during that period.
The loan from Citibank was fully repaid by Lambeth on 11 April
2020. Total interest expense on this loan during the period was
GBP638 (30 September 2019: GBP529,167).
In August 2018, the Group entered into a transaction to provide
lending to Queenhithe. The Group provided initial funding of
approximately GBP9.2 million through subscription into the Class B
note issued by Queenhithe. In November 2018, the transaction was
updated whereby the Department for Business, Energy and Industrial
Strategy ("BEIS") - the British Business Bank's ("BBB") sole
shareholder - agreed to provide up to GBP150 million of funding via
a senior floating rate loan to Queenhithe. The facility came with a
12-year legal maturity. As at 30 September 2020, Queenhithe has
drawn GBP 20,378,043 (31 March 2020: GBP20,378,043) from the
facility.
Pursuant to the original loan agreement with BBB and the
relevant agreement supplement signed in November 2018, the total
commitment fee incurred for the period was GBP187,500 (30 September
2019: GBP337,500) with GBPnil (31 March 2020: GBP93,750)
outstanding as at 30 September 2020.
On 17 August 2020, Queenhithe fully repaid the remaining amount
owed on its loan with Fleetbank. The remaining portfolio of Credit
Assets held were transferred to Basinghall on the same date for an
amount equal to the principal and interest outstanding at 31 July
2020 being the economic cut-off date for the transaction. The
process is underway in order to put Queenhithe into formal
liquidation in the coming months.
The loan from BBB had a floating interest rate plus a margin.
Total interest expense on this loan during the period was GBP62,962
(30 September 2019: GBP202,646) with GBPnil (31 March 2020:
GBP6,964) outstanding as at 30 September 2020.
10. Share capital
Issued and fully paid Number of Shares issued Issue costs Net Shares
shares amount amount
Ordinary shares GBP GBP GBP
-------------------- ----------- ------------- -------------- ------------ -------------
At 31 March 2020 - (audited) 258,301,354 268,762,623 (5,744,900) 263,017,723
Share repurchases (10,000) (4,857) - (4,857)
Redemption of ordinary
shares (44,551,554) (38,499,854) - (38,499,854)
--------------------------------- ------------- -------------- ------------ -------------
At 30 September 2020
- (unaudited) 213,739,800 230,257,912 (5,744,900) 224,513,012
--------------------------------- ------------- -------------- ------------ -------------
Issued and fully paid Number of Shares Issue costs Net Shares
shares issued amount
amount
Ordinary GBP GBP GBP
shares
------------ -------- -------------------------------------------------------- ------------- ------------ -------------
At 31 March 2019 -
(audited) 323,044,293 326,689,147 (5,744,900) 320,944,247
Share repurchases (25,594,750) (21,822,290) - (21,822,290)
---------------------- -------------------------------------------------------- ------------- ------------ -------------
At 30 September 2019
- (unaudited) 297,449,543 304,866,857 (5,744,900) 299,121,957
---------------------- -------------------------------------------------------- ------------- ------------ -------------
As at 30 September 2020, the Company has purchased a total of
43,746,667 shares (31 March 2020: 43,736,667) of which nil (31
March 2020: 586,243) remain held in treasury. During the period, a
total of 596,243 (31 March 2020: 43,150,424) shares held in
treasury were cancelled and formally discharged.
Following the COVID-19 pandemic and the uncertainty around its
impact, the directors resolved to suspend the programme of
repurchases of its own shares on 2 April 2020 until further
notice.
The Company redeemed a total of 44,551,554 (31 March 2020:
32,245,772) shares for a total amount of GBP 38,499,854 (31 March
2020: GBP30,499,833) during the period.
Rights attaching to the Ordinary share class
All shareholders have the same voting rights in respect of the
share capital of the Company. Every member who is present in person
or by a duly authorised representative or proxy shall have one vote
on a show of hands and on a poll every member present shall have
one vote for each share of which he is the holder, proxy or
representative. All shareholders are entitled to receive notice of
the Annual General Meeting and any other General meetings.
Each Ordinary share will rank in full for all dividends and
distributions declared after their issue and otherwise pari passu
in all respects with each existing Ordinary share and will have the
same rights (including voting and dividend rights and rights on a
return of capital) and restrictions as each existing Ordinary
share.
11. TAXATION
(Unaudited) (Unaudited)
30 September 30 September
2020 2019
GBP GBP
--------------------------------------------- --- --------------------- --------------
Operating loss before taxation (7,493,449) 3,611,559
-------------------------------------------------- --------------------- --------------
Tax at the standard Guernsey income - -
tax rate of 0%
Effects of tax rates in other jurisdictions (348,117) -
Taxation expense (348,117) -
-------------------------------------------------- --------------------- --------------
The Group may be subject to taxation under the tax rules of the
jurisdictions in which it invests. During the period, Basinghall,
Tallis, Lambeth and Queenhithe which are consolidated into the
Group's results were subject to a corporation tax rate of 25% in
Ireland.
From 1 January 2020 new tax rules were applicable under the
legislative changes made to the Irish Finance Act 2019. These rules
included changes to the anti-hybrid and anti-avoidance rules in
section 110 TCA of the legislation.
Basinghall paid class B profit participating note interest to
SCRF in February 2020 totaling GBP1,392,467, which is considered
disallowable for tax purposes in Ireland following the legislative
changes discussed above and so a 25% tax charge will be levied
totaling GBP348,117. This charge relates to the prior financial
year ended 31 March 2020 and is accrued in the current period due
to the timing of the completion of the impact assessment. The Group
has been advised that changes made to its structural arrangements
have caused the relevant entity to fall outside the scope of the
legislative changes discussed above with effect from 1 April
2020.
12. Earnings per share ("EPS")
The calculation of the basic and diluted EPS is based on the
following information:
(Unaudited) (Unaudited)
30 September 30 September
2020 2019
GBP GBP
------------------------------------ --- -------------- --------------
Total comprehensive (loss)/income (6,315,781) 3,611,559
Adjustment for the effect of other
comprehensive income (1,525,785)
----------------------------------------- -------------- --------------
(Loss)/profit for the purposes of
basic and diluted EPS (7,841,566) 3,611,559
Weighted average number of shares
for the purposes of EPS:
Basic and diluted 232,346,512 308,851,445
Basic and diluted EPS (3.37p) 1.17p
----------------------------------------- -------------- --------------
13. Dividends
The following table shows a summary of dividends declared during
the period, and previous period, in relation to Ordinary
shares.
30 September Date declared Ex-dividend Per share Total Number of
2020 date shares issued
as
Pence GBP scrip dividend
------------------ --------------- ------ ---------- ------------ ---------- ---------------
Ordinary shares
Interim dividend 9 April 2020 23 April 2020 1.3125 3,132,722 -
Interim dividend 21 July 2020 30 July 2020 1.3125 2,805,335 -
Total 2.625 5,938,057 -
------------------------------------------------------- ---- ------ ---------- ---------------
30 September Date declared Ex-dividend Per share Total Number of
2019 date shares issued
as
Pence GBP scrip dividend
------------------ --------------- -------- --------- ------------- ---------- ---------------
Ordinary shares
Interim dividend 25 April 2019 02 May 2019 1.313 4,143,549 -
Interim dividend 22 July 2019 01 August 2019 1.313 4,006,829 -
Total 2.626 8,150,378 -
-------------------------------------------------------- ----- ------ ---------- ---------------
The Company's scrip offering programme has been discontinued
from 31 March 2019.
14. FINANCIAL RISK MANAGEMENT
Financial risk management and financial instruments
The Group's activities expose it to a variety of financial
risks: market risk (including currency risk, fair value rate risk,
cash flow interest rate risk and price risk), credit risk and
liquidity risk.
The condensed consolidated financial statements do not include
all financial risk management information and disclosures required
in the annual financial statements; they should be read in
conjunction with the Group's Annual Report and financial statements
as at 31 March 2020.
There have been no changes in the risk management or in any risk
management policies since the prior year end.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to
meet its financial obligations as they fall due. Compared to the
prior year end, there has been no material change in how the Board
of Directors manages liquidity risk.
Fair value measurement
The Group classifies fair value measurements using a fair value
hierarchy that reflects the significance of the inputs used in
making the measurements. The fair value hierarchy has the following
levels:
-- Level 1 - quoted prices (unadjusted) in active markets for
identical assets or liabilities. Investments, whose values are
based on quoted market prices in active markets and are therefore
classified within Level 1, include active listed equities. The
quoted price for these instruments is not adjusted;
-- Level 2 - inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly (that is, as prices) or indirectly (that is, derived from
prices). Financial instruments that trade in markets that are not
considered to be active but are valued based on quoted market
prices, dealer quotations or alternative pricing sources supported
by observable inputs are classified within Level 2. As Level 2
investments include positions that are not traded in active markets
and/or are subject to transfer restrictions, valuations may be
adjusted to reflect illiquidity and/or non-transferability, which
are generally based on available market information; and
-- Level 3 - inputs for the asset or liability that are not
based on observable market data (that is, unobservable inputs).
The level in the fair value hierarchy within which the fair
value measurement is categorised in its entirety is determined on
the basis of the lowest level input that is significant to the fair
value measurement in its entirety. For this purpose, the
significance of an input is assessed against the fair value
measurement in its entirety. If a fair value measurement uses
observable inputs that require significant adjustment based on
unobservable inputs, that measurement is a Level 3 measurement.
Assessing the significance of a particular input to the fair value
measurement in its entirety requires judgement, considering factors
specific to the asset or liability. The determination of what
constitutes "observable" requires significant judgement by the
Group. The Group considers observable data to be that market data
that is readily available, regularly distributed or updated,
reliable and verifiable, not proprietary and provided by
independent sources that are actively involved in the relevant
market.
The Group's financial instruments measured at fair value as at
30 September 2020 are its currency derivatives, the investment in
the EIB transaction and its loans advanced.
The fair value of the currency derivatives held by State Street
and Northern Trust were estimated by Record Currency Management
Limited based on the GBP-USD forward exchange rate, the GBP-EUR
forward exchange rate, the GBP-USD spot rate and the GBP-EUR spot
rate as at 30 September 2020.
In estimating the fair value of the EIB transaction, the
Directors believe that no further amounts will be available to be
paid in the future and that the estimated fair value was GBPnil as
at 30 September 2020 (31 March 2020: GBPnil).
As a result of the Company's managed wind-down and change in
business model, the Company is required to report under fair value
accounting for the valuation of Credit Assets from 1 April
2020.
The Company has appointed a third-party valuation expert to
provide quarterly valuations of its Credit Assets. The fair value
of the Credit Assets has been estimated by discounting expected
future cash flows from the loans advanced using a discount rate
determined by the Directors based on appropriate market
comparatives and conditions. The fair value of the Group's Credit
Assets as at 30 September was GBP128,197,082 (31 March 2020:
GBP200,094,130). The most relevant unobservable input to the fair
valuation was the discount rate, which has been summarised below
based on the geography of each of the Groups portfolios:
30 September 30 September 30 September 31 March 31 March 2020 31 March 2020
2020 2020 2020 2020
UK US CE UK US CE
------------- ------------- ------------- --------- -------------- --------------
7.890% 8.759% 7.360% 13.878% 14.191% 13.625%
The Board of Directors believe that the fair value of the
currency derivatives falls within Level 2 in the fair value
hierarchy described above. The fair value of the loans advanced and
the EIB transaction falls within Level 3 in the fair value
hierarchy due to the unobservable inputs used in the valuation
which include discount rate and timing and amounts of cash
flows.
The following table presents the fair value of the Group's
assets and liabilities not measured at fair value as at 30
September 2020 but for which fair value is disclosed:
30 September 2020 - (unaudited)
-------------------------------------------------
Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
----------------------------------- ----------- ------------ -------- ------------
Cash and cash equivalents 52,209,665 - - 52,209,665
Other receivables and prepayments - 14,404 - 14,404
Accrued expenses and other
liabilities - (1,010,780) - (1,010,780)
52,209,665 (996,376) - 51,213,289
----------------------------------- ----------- ------------ -------- ------------
31 March 2020 - (audited)
---------------------------------------------------------
Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
----------------------------------- ----------- ------------ ------------- -------------
Loans advanced - - 169,800,037 169,800,037
Cash and cash equivalents 46,602,238 - - 46,602,238
Other receivables and prepayments - 48,533 - 48,533
Loans payable - - (11,531,076) (11,531,076)
Accrued expenses and other
liabilities - (1,802,424) - (1,802,424)
46,602,238 (1,753,891) 158,268,961 203,117,308
----------------------------------- ----------- ------------ ------------- -------------
The Board of Directors believe that the carrying values for cash
and cash equivalents, other receivables and prepayments, loans
payable and accrued expenses and other liabilities approximate
their fair values.
In the case of cash and cash equivalents, other receivables and
prepayments, and accrued expenses and other liabilities the amount
estimated to be realised in cash are equal to their value shown in
the Consolidated Statement of Financial Position due to their
short-term nature.
There were no transfers between levels during the period or the
prior year.
The managed wind-down of the Company is being operated with a
view to the Company realising all of its investments in accordance
with the Investment Objective. Such realisations will comprise
natural amortisation of the Company's investments in Credit Assets
as well as potentially opportunistic portfolio sales.
During the prior financial year, the Company ran an auction
process as the Board explored a potential sale of a portion of the
Company's assets during which it received a high level of interest
from potential buyers. The Company continues to engage with
potential buyers, however given the recent market volatility and
uncertainty caused by COVID-19, it is likely the asset sales shall
be delayed, or may not proceed at all. The Directors continue to
explore potential portfolio disposals where pricing levels are
attractive.
Capital risk management
The Board's policy is to maintain a strong capital base so as to
maintain investor, creditor and market confidence and to sustain
future development of the Group. The Group's capital is represented
by Ordinary share capital and retained earnings. The capital of the
Group is managed in accordance with its investment policy, in
pursuit of its investment objectives.
The Group is not subject to externally imposed capital
requirements. However, certain calculations on the employment of
leverage are required under the AIFMD. This directive requires more
information to be reported if the Group's leverage exceeds three
times its net asset value. As at 30 September 2020, the Group used
leverage through the EIB only following the repayment of the
Queenhithe and Citibank transactions but did not exceed the
threshold within the directive and therefore did result in a change
of the reporting requirements as prescribed by AIFMD.
15. Related party disclosure
The Directors, who are the key management personnel of the
Group, are remunerated per annum as follows:
GBP
-------------------------- --------
Chairman 50,000
Audit Committee Chairman 40,000
Risk Committee Chairman 40,000
Other Directors 50,000
180,000
-------------------------- --------
Sachin Patel has waived his fees as a director of the
Company.
Richard Burwood is/was also a director of Basinghall, Tallis,
Lambeth and Queenhithe and is entitled to receive GBP5,000 (31
March 2020: GBP5,000) per annum as Director's fees from each of the
companies. Richard Burwood resigned as a director of Basinghall and
Tallis on 13 July 2020.
The Directors held the following number of shares as at 30
September 2020 and 31 March 2020:
(unaudited) (audited)
As at 30 September As at 31 March 2020
2020
----------------------- -----------------------
Number of % of total Number of % of total
shares shares in shares shares in
issue issue
--------------------- ---------- ----------- ---------- -----------
Richard Boléat 21,591 0.0101 4,448 0.0015
Jonathan Bridel 26,069 0.0122 4,448 0.0015
Richard Burwood 39,482 0.0185 4,448 0.0015
Frederic Hervouet 78,760 0.0368 95,176 0.0327
Sachin Patel - - - -
165,902 0.0776 108,520 0.0372
--------------------- ---------- ----------- ---------- -----------
During the period, each of the directors except for Sachin Patel
purchased a number of shares which contributed to the movement in
the number of shares held by each of the directors as well as
mandatory redemptions paid by the Company.
The Group had no employees during the period or the prior
year.
The Directors delegate certain functions to other parties. In
particular, the Directors have appointed Funding Circle UK ,
Funding Circle US and Funding Circle CE to originate and service
the Group's investments in loans and FCGPL to provide corporate
services. Notwithstanding these delegations, the Directors have
responsibility for exercising overall control and supervision of
the services provided by the Funding Circle entities, for risk
management of the Group and otherwise for the Group's management
and operations.
The transaction amounts incurred during the period and amounts
payable to each of Funding Circle UK, Funding Circle Global
Partners Limited ("FCGPL"), Funding Circle US and Funding Circle CE
are disclosed below.
Expense Payable as Expense Payable
during the at 30 during the as at 31
period September period ended March 2020
ended 2020 30 September
30 2019
September
2020
Transaction GBP GBP GBP GBP
------------- --------------- ------------ ----------- ----------------------------------- ----------------------
Funding
Circle
UK Servicing fee 415,584 56,641 799,185 56,860
Corporate
services
FCGPL fee 105,582 - 149,019 -
Reimbursement
FCGPL of expenses 12,647 - 19,015 1,549
Funding
Circle
US Servicing fee 193,416 26,102 357,435 36,748
Funding
Circle
CE Servicing fee 183,640 26,362 297,045 35,579
16. INVESTMENT IN SUBSIDIARIES
The Company accounts for its interest in the following entities
as subsidiaries, in accordance with the definition of subsidiaries
and control set out in IFRS 10:
Country Principal Transactions (unaudited) (audited)
of incorporation activity Outstanding Outstanding
amount as amount as
at 30 September at 31 March
2020 2020
GBP GBP
Basinghall Invested
Lending in Credit
Designated Assets Subscription
Activity originated of notes
Company Ireland in the UK issued 86,224,627 127,017,192
Invested
in Credit
Assets
Tallis Lending originated
Designated in Germany, Subscription
Activity the Netherlands of notes
Company Ireland and Spain* issued 29,716,585 39,421,897
Lambeth Lending Residual
Designated interest
Activity In process accrued prior
Company Ireland of liquidation to liquidation 53,749 66,216,309
Queenhithe
Lending Residual
Designated interest
Activity In process accrued prior
Company Ireland of liquidation to liquidation 65,682 31,720,795
116,060,643 264,376,193
------------------------------------------------------------------------- --------------------- -----------------
17. Subsequent events
In October 2020, Basinghall sold a pool of UK non-performing
loans to a third party at a modest premium to carrying value,
receiving proceeds of GBP2,203,183.
Shortly after 30 September 2020, the UK went back into a
national lockdown due to a second wave of COVID-19. Similar
governmental measures being implemented in both CE and the US
following the period end are also a possibility. The full impact of
COVID-19 on the Group's portfolios is uncertain, however the
Directors continue to monitor the delinquency and default data
available to them closely.
On 21 October 2020, the Company announced that it has declared a
quarterly dividend of 1.3125 pence per share payable on 20 November
2020 and will also be returning approximately GBP42m to
shareholders by way of a compulsory partial redemption of shares
payable on 10 November 2020.
In the opinion of the Directors, there are no other material
subsequent events that require adjustment to the balances as at the
period end or disclosure in the financial statements.
BOARD OF DIRECTORS
Richard Boléat
Chairman, Remuneration and Nominations Committee Chairman,
Non-executive Director
Richard Boléat was born in Jersey in 1963. He is a Fellow of the
Institute of Chartered Accountants in England & Wales, having
trained with Coopers & Lybrand in Jersey and the United
Kingdom. After qualifying in 1986, he subsequently worked in the
Middle East, Africa and the UK for a number of commercial and
financial services groups before returning to Jersey in 1991. He
was formerly a Principal of Channel House Financial Services Group
from 1996 until its acquisition by Capita Group plc ("Capita") in
September 2005. Mr Boléat led Capita's financial services client
practice in Jersey until September 2007, when he left to establish
Governance Partners, L.P., an independent corporate governance
practice. He currently acts as Chairman of CVC Credit Partners
European Opportunities Limited and Audit Committee Chairman of
M&G Credit Income Investment Trust plc, and also serves on the
boards of a number of other substantial collective investment and
investment management entities established in Jersey, the Cayman
Islands and Luxembourg. He is regulated in his personal capacity by
the Jersey Financial Services Commission.
Jonathan Bridel
Audit Committee Chairman, Non-executive Director
Mr Bridel is currently a non-executive Chairman or director of
various listed and unlisted investment funds and private equity
investment managers. Listings include Starwood European Real Estate
Finance Limited (until 31 December 2020), The Renewables
Infrastructure Group Limited and Sequoia Economic Infrastructure
Income Fund Limited which are listed on the premium segment of the
London Stock Exchange. He is also Chairman of DP Aircraft 1 Limited
and a director of Fair Oaks Income Fund Limited. He was until 2011
Managing Director of Royal Bank of Canada's investment businesses
in Guernsey and Jersey. This role had a strong focus on corporate
governance, oversight, regulatory and technical matters and risk
management. He is a Chartered Accountant and has specialised in
Corporate Finance and Credit. After qualifying as a Chartered
Accountant in 1987, Mr Bridel worked with Price Waterhouse
Corporate Finance in London and subsequently served in a number of
senior management positions in Australia and Guernsey in corporate
and offshore banking and specialised in credit. This included
heading up an SME Lending business for a major bank in South
Australia. He was also chief financial officer of two private
multi-national businesses, one of which raised private equity. He
holds qualifications from the Institute of Chartered Accountants in
England and Wales where he is a Fellow, the Chartered Institute of
Marketing and the Australian Institute of Company Directors. He
graduated with an MBA from Durham University in 1988. Mr Bridel is
a Chartered Marketer and a member of the Chartered Institute of
Marketing, a Chartered Director and a Fellow of the Institute of
Directors and is a Chartered Fellow of the Chartered Institute for
Securities and Investment.
Richard Burwood
Management Engagement Committee Chairman, Non-executive
Director
Mr Burwood is a resident of Guernsey with 25 years' experience
in banking and investment management. During 18 years with Citibank
London Mr Burwood spent 4 years as a Treasury Dealer and 11 years
as a Fixed Income portfolio manager covering banks & finance
investments, corporate bonds and asset backed securities.
Mr Burwood moved to Guernsey in 2010, initially working as a
portfolio manager for EFG Financial Products (Guernsey) Ltd
managing the treasury department's ALCO Fixed Income portfolio.
From 2011 to 2013 Mr Burwood worked as the Business and Investment
manager for the Guernsey branch of Man Investments (CH) AG. This
role involved overseeing all aspects of the business including
operations and management of proprietary investments.
Mr Burwood serves as Non-Executive Director on the boards of the
Roundshield Fund, Guernsey (a European asset backed special
opportunities fund providing finance to small and mid-cap
businesses) since January 2014 and TwentyFour Income Fund (a UK and
European asset backed investments) since January 2013.
Frederic Hervouet
Risk Committee Chairman, Non-executive Director
Fred Hervouet (45) is a resident of Guernsey and has dual
nationality with both British and French citizenship. He has more
than 20 years of experience in Hedge Funds and Capital Markets
roles.
Until end of 2013, Fred was Managing Director and Head of
Commodity Derivatives Asia for BNP Paribas including Trading,
Structuring and Sales. Prior to BNP Paribas, he also worked for two
multi-billion, multi- strategy hedge funds including Quantitative
strategies (CTAs), Convertible Arbitrage, Event Driven, Fixed
Income Relative Value, Equity & Commodity Long-short, Global
Macro, Emerging Markets Debt Fund. In the last 20 years, Fred has
worked in different aspects of the Financial Markets and Asset
Management Industry. His experience includes Derivatives Markets,
Structured Finance, Structured Products and Hedge Funds, Trading
and Risk Management.
Fred has worked in Singapore, Switzerland, United Kingdom and
France. Most recently, Mr Hervouet was a member of BNP Paribas
Commodity Group Executive Committee and BNP Paribas Credit
Executive Committees on Structured Finance projects (structured
debt and Trade Finance).
Fred now acts as a full time dedicated Non-executive Director of
a number of listed and non-listed companies. He is the Chairman of
Chenavari Toro Income Fund listed on the SFM of the LSE and a
director of Crystal Amber Fund Limited. He is also a GP on a number
of Guernsey Private Equity Funds (Terra Firma, Lakestar, Telstra
Ventures, LCH Partners).
Fred graduated from the University of Paris Dauphine, France
achieving a Masters (DESS 203) in Financial Markets, Commodity
Markets and Risk Management and an MSc in Applied Mathematics and
International Finance.
Fred has provided investment and risk management services to
corporations and institutions worldwide and worked with CEOs, CFOs
and Head of Investment Divisions. Appearances on financial programs
include CNBC, Bloomberg and other networks. He is a member of
various financial services interest Groups including the UK
Institute of Directors, the UK Association of Investment Companies,
the Guernsey Chamber of Commerce and of the Guernsey Investment
Fund Association ("GIFA").
Sachin Patel
Non-executive Director
Sachin Patel is the Chief Capital Officer at Funding Circle,
leads the Global Capital Markets group and is responsible for
investor strategy. Previously, Sachin was Vice President in the
cross-asset structured products and solutions businesses at
Barclays Capital and, prior to this, at J.P. Morgan, advising a
wide variety of investors including insurance companies, pension
funds, discretionary asset managers and private banks.
By virtue of Sachin's role at Funding Circle Ltd, Sachin is not
an independent Director. Notwithstanding this, Sachin has
undertaken in his service contract with the Company to communicate
to the Board any actual or potential conflict of interest arising
out of his position as a Director and the other Directors have
satisfied themselves that procedures are in place to address
potential conflicts of interest.
Sachin is not entitled to any fee for the services provided and
to be provided in relation to his directorship, although the
Company shall, during the course of his appointment, reimburse all
properly incurred out-of-pocket expenses incurred in the execution
of his duties as a Director.
AGENTS AND ADVISORS
SME Credit Realisation
Fund Limited
Company registration
number: 60680 (Guernsey,
Channel Islands)
Registered office Portfolio Administrator
De Catapan House Funding Circle Ltd
Grange Road 71 Queen Victoria Street
St Peter Port London EC4V 4AY
Guernsey GY1 2QG United Kingdom
Channel Islands
E-mail: ir@smecreditrealisation.com
Website: smecreditrealisation.com
Corporate broker and Bookrunner
Company Secretary and and Sponsor
Administrator Numis Securities Limited
Sanne Group (Guernsey) The London Stock Exchange
Limited Building
De Catapan House 10 Paternoster Square
Grange Road London EC4M 7LT
St Peter Port United Kingdom
Guernsey GY1 2QG
Channel Islands
Legal advisors as to UK Transfer Agent and
Guernsey Law Receiving Agent
Mourant Ozannes Link Market Services
1 Le Marchant Street Limited
St Peter Port The Registry
Guernsey GY1 4HP 34 Beckenham Road
Channel Islands Beckenham
Kent BR3 4TU
United Kingdom
Registrar
Legal advisors as to Link Market Services (Guernsey)
English Law Limited
Herbert Smith Freehills Mont Crevelt House
LLP (London) Bulwer Avenue
Exchange House, Primrose St Sampson
Street, Guernsey GY2 4LH
London EC2A, 2EG Channel Islands
United Kingdom
Legal advisors as to Independent Auditor
Irish Law PricewaterhouseCoopers
Matheson CI LLP
70 Sir John Rogerson's Royal Bank Place
Quay 1 Glategny Esplanade
Dublin 2 St Peter Port
Ireland Guernsey GY1 4ND
Channel Islands
GLOSSARY
Definitions and explanations of methodologies used are shown
below. The Company's prospectus contains a more comprehensive list
of defined terms.
"Administrator" Sanne Group (Guernsey) Limited
"Affiliates" With respect to any specified person means:
(a) any person that directly or indirectly controls,
is directly or indirectly controlled by or is directly
or indirectly under common control with such specified
person;
(b) any person that serves as a director or officer
(or in any similar capacity) of such specified
person;
(c) any person with respect to which such specified
person serves as a general partner or trustee (or
in any similar capacity).
For the purposes of this definition, "control"
(including "controlling", "controlled by" and
"under common control with") means the possession,
direct or indirect, of the power to direct or cause
the direction of the management and policies of
a person, whether through the ownership of voting
securities, by contract or otherwise.
----------------------------------------------------------
"AGM" Annual General Meeting
----------------------------------------------------------
"AIC Code" The AIC Code of Corporate Governance
----------------------------------------------------------
"AIC" The Association of Investment Companies, of which
the Company is a member
----------------------------------------------------------
AIFM" Alternative Investment Fund Manager, appointed
in accordance with the AIFMD
----------------------------------------------------------
"AIFMD" The Alternative Investment Fund Managers Directive
----------------------------------------------------------
"Available Cash" Cash determined by the Board as being available
for use by the Company in accordance with the Investment
Objective, and, in respect of Basinghall and Tallis,
cash determined by the Board of each of Basinghall
and Tallis Board (having regard to the terms of
the Origination Agreement and the Note) for use
by Basinghall and Tallis and excluding (without
limitation) amounts held as reserves or pending
distribution
----------------------------------------------------------
"CE" Continental Europe
----------------------------------------------------------
"Company Secretary" Sanne Group (Guernsey) Limited
----------------------------------------------------------
"Credit Assets" Loans or debt or credit instruments of any type
originated through any of the Platforms
----------------------------------------------------------
"Credit Losses" A measure of performance showing the decrease in
carrying value of Credit Assets as a result of
actual or possible default events.
----------------------------------------------------------
"Dividend Per Share" A measure of performance showing dividend either
declared or paid for each share issued and outstanding
in the Company
----------------------------------------------------------
"EGM" The Extraordinary General Meeting on 11 June 2019
----------------------------------------------------------
"Funding Circle" FCGPL, Funding Circle UK, Funding Circle US, Funding
Circle CE or either of their respective Affiliates
(as defined in the Prospectus of the Company),
or any or all of them as the context may require
----------------------------------------------------------
"Funding Circle Funding Circle CE GmbH, Funding Circle Deutschland
CE" GmbH, Funding Circle Nederlands B.V. and Funding
Circle Espa a SLU
----------------------------------------------------------
"FCGPL" Funding Circle Global Partners Limited
----------------------------------------------------------
"Funding Circle Funding Circle Ltd
UK"
----------------------------------------------------------
"Funding Circle FC Platform, LLC
US"
----------------------------------------------------------
"NAV Total Return" A measure of performance showing how the NAV per
share has performed over a period of time. This
is calculated by comparing the NAV per share at
the beginning of a period to the NAV per share
at the end of a period removing the effect of capital
returns and dividend payments.
----------------------------------------------------------
"Near Affiliates" The relevant Irish subsidiary of the Company and
any other SPV or entity which, not being an Affiliate
of the Company, has been or will be formed in connection
with the Company's direct or indirect investment
in Credit Assets and which (save in respect of
any nominal amounts of equity capital) is or will
be financed solely by the Company or any Affiliate
of the Company
----------------------------------------------------------
"Note" or "Profit Notes issued by Basinghall Lending Designated Activity
Participating Note" Company and Tallis Lending Designated Activity
Company under their separate note programmes
----------------------------------------------------------
"Origination Agreements" The German Origination Agreement, the Dutch Origination
Agreement, the Spanish Origination Agreement, the
UK Origination Agreement, the US Origination Agreement,
and the CE Origination Agreements
----------------------------------------------------------
"Platforms" The platforms operated in the UK, US and CE by
Funding Circle, together with any similar or equivalent
platform established or operated by Funding Circle
in any jurisdiction.
"Proposals" The proposals contained in the circular issued
on 21 May 2019 which were subsequently approved
at the EGM on 11 June 2019.
These included the proposals to (1) modify the
Company's Investment Objective and Policy to reflect
a realisation strategy; (2) amend its Articles
of Incorporation (the "Articles") to include a
mechanism to enable the Company to redeem shares
in the Company compulsorily so as to return cash
to shareholders; (3) appoint Funding Circle Global
Partners Limited ("FCGPL") to facilitate potential
portfolio sales on behalf of the Company and to
(4) change the name of the Company into SME Credit
Realisation Fund Limited ("SCRF") consistent to
the proposed modification of the Company's Investment
Objective and Policy.
"Prospectus" The prospectus issued on the initial IPO on 30
November 2015 and subsequently revised in February
2017 and in August 2018
----------------------------------------------------------
"PwC" PricewaterhouseCoopers CI LLP, PricewaterhouseCoopers
Ireland
----------------------------------------------------------
"PwC CI" PricewaterhouseCoopers CI LLP
----------------------------------------------------------
"PwC Ireland" PricewaterhouseCoopers Ireland
----------------------------------------------------------
"PwC UK" PricewaterhouseCoopers LLP
----------------------------------------------------------
"Share Price Premium A measure of performance showing difference between
or Discount to NAV" the Group's NAV per share and the prevailing share
price.
----------------------------------------------------------
"Share Price Total A measure of performance showing how the share
Return" price has performed over a period of time. This
is calculated by comparing the change in NAV per
share (after removing the effect of capital returns
and dividend payments) over a period to the share
price of the Company.
----------------------------------------------------------
"Share Redemption" A mechanism to enable the Company to redeem shares
compulsorily so as to return cash to Shareholders
as disclosed in the EGM circular published on 21
May 2020.
----------------------------------------------------------
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END
IR BRBDDDXBDGGI
(END) Dow Jones Newswires
December 18, 2020 12:36 ET (17:36 GMT)
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