TIDMFCIF
RNS Number : 0545L
Funding Circle SME Income Fund Ltd
14 July 2017
Funding Circle SME Income Fund Limited (FCIF) - Publication of
Annual Report
NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION, IN WHOLE OR IN
PART, IN OR INTO THE UNITED STATES
*****
14 July 2017
Funding Circle SME Income Fund Limited (the "Company") which
provides investors with access to a diversified pool of loans to
small businesses through the Funding Circle Marketplaces has
published its results for the year ended 31 March 2017. The Annual
Report and Accounts 2017 are attached to this release and are
available on the Company's website (www.fcincomefund.com).
Highlights
-- NAV increased to GBP164.8m from GBP148.3m, including GBP14.5m
in additional capital raised in July 2016
-- Participated in a joint project with the European Investment
Bank providing indirect exposure to a pool of GBP125m of UK SME
loans at attractive commercial terms
-- Paid 5.875 pence per ordinary share for this first full year
of operation, covered 1.16 times by earnings
-- The last four quarterly dividends declared total 6.5 pence
per ordinary share, in line with the dividend target of 6 to 7
pence per ordinary share
-- Raised c.GBP142m through a C share issue in April 2017, which will provide expanded funding opportunities to SMEs in the UK, US and Continental Europe
Richard Boléat, Chairman of the Company, said: "Over its first
full year of operation, the Company's performance has been pleasing
and in line with expectations. We remain focused on providing
investors with an attractive risk-adjusted return profile and
consistent and sustainable dividend distributions."
CONTACTS
Richard Boléat, Chairman
+44 (0) 1534 615 656
Richard.Boleat@fcincomefund.com
Secretary and Administrator
Sanne Group (Guernsey) Limited
FundingCircle@sannegroup.com
+44 (0) 1481 739810
Media Contact
David de Koning
Natasha Jones
+44 (0) 20 3667 2245
press@fundingcircle.com
Corporate Brokers
Numis Securities
Nathan Brown
+44 (0) 207 260 1000
n.brown@numis.com
Investor Relations
Ritchie Oriol
+44 (0) 20 3667 2242
ir@fcincomefund.com
Website
www.fcincomefund.com
*****
ABOUT FUNDING CIRCLE SME INCOME FUND
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 2015 issued by the Guernsey
Financial Services Commission ("GFSC").
The Company's investment objective is to provide shareholders
with a sustainable and attractive level of dividend income,
primarily by way of investment in Credit Assets as defined in the
Company's Prospectus.
*****
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.
*****
FUNDING CIRCLE SME INCOME FUND Limited
ANNUAL REPORT and AUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 31 MARCH 2017
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
-- NAV increased to GBP164.8m from GBP148.3m, including GBP14.5m
in additional capital raised in July 2016
-- Participated in a joint project with the European Investment
Bank providing indirect exposure to a pool of GBP125m of UK SME
loans at attractive commercial terms
-- Paid 5.875 pence per ordinary share for this first full year
of operation, covered 1.16 times by earnings
-- The last four quarterly dividends declared total 6.5 pence
per ordinary share, in line with the dividend target of 6 to 7
pence per ordinary share
-- Raised c.GBP142m through a C share issue in April 2017, which will provide expanded funding opportunities to SMEs in the UK, US and Continental Europe
The information below are presented as at 31 March 2017 unless
expressly stated to cover a period.
Description Performance
----------------------------- ------------
NAV per Ordinary Share 99.87p
----------------------------- ------------
Total Net Assets GBP165mil
----------------------------- ------------
Ordinary Share Price 103.75p
----------------------------- ------------
Market Capitalisation GBP171mil
----------------------------- ------------
Premium on Share Price 3.9%
----------------------------- ------------
Dividend per Ordinary Share 5.875p
----------------------------- ------------
Earnings per Share 6.93p
----------------------------- ------------
Share Price Total Return
(inception to date) 9.9%
----------------------------- ------------
NAV Total Return 7.9%
----------------------------- ------------
SUMMARY INFORMATION
About the Company
Funding Circle SME Income 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.
The Company issued 150 million Ordinary Shares of no par value
each at an issue price of GBP1 per Ordinary Share. On 30 November
2015, these shares were admitted to the Premium Segment of the
Official List of the UK Financial Conduct Authority and to trading
on the London Stock Exchange's main market (the "IPO").
In June 2016, the Company participated in a structured finance
transaction with the European Investment Bank "EIB" ("the EIB
Transaction"). The transaction involved the set up of an Irish
domiciled special purpose vehicle (SPV). The Company invested GBP25
million into the Class B Note issued by the Irish SPV whilst the
EIB has committed to invest up to GBP100 million in a senior loan
to the Irish SPV.
On 20 July 2016, the Company issued a further 14,285,000
Ordinary Shares at a price of GBP1.0153 per Ordinary Share raising
net proceeds of GBP14,213,490 after direct issue costs of
GBP290,071. The Ordinary Shares were admitted to the Premium
Segment of the Official List of the UK Financial Conduct Authority
and to trading on the London Stock Exchange's main market on 25
July 2016.
In February 2017, the Company issued a revised prospectus which
established a programme by which the Directors are able to issue up
to 500 million ordinary shares and/or C shares in aggregate.
In April 2017, the Company issued 142 million C Shares at a
price of GBP1 per C share raising net proceeds of GBP139,870,000
after issue costs of GBP2,130,000. The C shares were admitted to
the Premium Segment of the Official List of the UK Financial
Conduct Authority and to trading on the London Stock Exchange on 12
April 2017.
The investment objective of the Company is to provide
shareholders with a sustainable and attractive level of dividend
income by lending, both directly and indirectly, to small
businesses through Funding Circle's Marketplaces. The Board
believes that lending platforms with established infrastructure and
scale of origination volumes are well placed to compete for loan
originations against traditional financial institutions. The
Company has identified Funding Circle, which operates in various
Marketplaces, as a leader in the growing industry of alternative
lending to small and medium sized entities ("SMEs").
In accordance with the Company's investment policy, the Company
holds a number of its investments in loans through SPVs. This
annual report for the year ended 31 March 2017 (the "Annual
Report") includes the results of Basinghall Lending Designated
Activity Company ("Basinghall") and Tallis Lending Designated
Activity Company ("Tallis"). The Company, Basinghall and Tallis are
collectively referred to in this report as the "Group".
CHAIRMAN'S STATEMENT
Dear Shareholder,
I am pleased to be able to make this statement at the end of a
period of solid progress for the Company. When I last wrote to you,
in support of the interim financial statements for the period to 30
September 2016, I set out the steps that were being taken in order
to meet the Company's objectives as set out at IPO. Since that
time, all of the key actions have been completed, and thus the
Company was operating on a fully invested basis from September
2016.
Performance and Distributions
Performance during the year to 31 March 2017 has been pleasing,
and in line with expectations. The Company's allocation to UK, US
and CE credit assets broadly reflects origination volumes across
the respective Funding Circle marketplaces, in accordance with the
Allocation Limits set out in the Prospectus. The preponderance of
UK credit asset exposure is slightly higher than initially expected
at IPO, owing to the mix of Funding Circle originations during the
first half of 2016. There was a slight reduction in average returns
arising from higher cash levels required to be held in support of
the Company's currency hedging programme given the movements in the
Sterling / US Dollar exchange rate. These effects have been offset
by an above target return from the Company's exposure to the
structured finance transaction with the EIB as set out in earlier
statements and announcements. After taking account of slightly
higher expense levels than anticipated, net profit to dividend
cover for the year ended 31 March 2017 stood at 1.16x.
Delinquencies across the Company's portfolio continue to track
within the range of expected outcomes. Quarterly dividends declared
during the year amounted to 5.875 pence per ordinary share,
comprising of one dividend of 1 pence per ordinary share
(reflecting the stage of portfolio ramp up at that time) and 3
dividends of 1.625 pence per ordinary share. The Company's currency
hedging program provided effective and efficient management of
currency risk. Details of the Company's portfolio as analysed
between markets and industries is shown elsewhere in this
report.
Performance in Context
Consistent with earlier assessments, changes in administration
and political volatility in the Company's key markets have, to
date, had no material impact on the Company's portfolio or the
level of returns derived therefrom. That having been said,
politically driven instability in both the UK and the US, albeit
for starkly different reasons, appears likely to be a continuing
feature for the near term at least. Such factors are highlighted in
the board's consideration of risk generally, and the board is
particularly mindful of the risk posed to certain industry
subsectors in the UK from the country's ongoing process of
withdrawal from the European Union. The Board is also keeping a
close eye on monetary policy and policy divergence in the Company's
chosen markets, particularly the US, which have the potential to
both increase portfolio returns over time, and also impact
negatively on the costs of the Company's foreign exchange hedging
programme.
In terms of peer group analysis, the Board assesses the
performance of the Company as against a universe of direct lenders
and listed and unlisted funds investing purely in high yield debt
instruments in developed markets. In that regard, the Board notes
that the Company's investment strategy continues to provide an
attractive positive differential over returns available in
performing sub-investment grade corporate debt in both the US and
the UK.
Capital Management
The Company fully invested the funds raised at IPO during the
period. As a result, and as envisaged in my earlier statements, the
Company published a prospectus on 6(th) February 2017 establishing
a twelve month placing programme in respect of both ordinary and C
Class Shares. By virtue thereof, a C class issuance was closed on
7(th) April 2017, raising GBP142million of fresh capital, which was
above target. The Company envisages further capital raising prior
to the expiry of the programme, once the capital raised in the C
class issue has been fully deployed and the shares converted to
ordinary shares, should market conditions support such an offering.
The current pace of deployment of the funds raised in the C class
offering indicates that the C Class Shares will be converted to
ordinary shares by 31(st) December 2017. The significantly larger
market capitalisation of the Company has had the effect of bringing
down the total expense ratio.
Risk Management and Future Prospects
To supplement the Company's risk management programme
established at IPO, the Board has worked closely with Funding
Circle to develop an enhanced risk model which has allowed the
Board of Directors to examine the effects of a number of stress
scenarios to the Company's base case return expectations. These
scenarios consider, for example, reasonably foreseeable changes to
macro and microeconomic conditions, changes in monetary and fiscal
policy in the markets where the Company invests, and the ability of
the Company to conservatively re-lever its portfolio up to the
level where the Board of Directors feels comfortable, once the
funds raised in the recent C class issue have been fully deployed.
This scenario analysis programme considers impacts on gross
interest rates earned, delinquency rates, leverage funding costs
and hedging costs arising from our US loans exposure. The model
does not seek to address the impact of potential tail risk events
which we believe have a relatively small probability of
happening.
As a result of this analysis, the Board of Directors assesses
that the Company will continue to be able to deliver the current
level of quarterly dividends at least until 31st March 2018[1],
which represents the future time period to which the Directors have
adequate visibility of market conditions to enable them to provide
such guidance. The Company's base case scenario indicates that
dividend cover will also continue to be maintained at current
levels[1]. I intend to report to shareholders in a similar vein at
each semi-annual reporting period, so as to provide suitable
forward guidance to the market and shareholders as a whole.
IFRS 9
In July 2014, the International Accounting Standards Board
published a new accounting standard known as IFRS 9, effective for
annual periods beginning on or after 1 January 2018. In common with
its peer group, this standard has a direct effect on the Company,
and in particular the manner in which it recognises impairment
losses - moving from an "as incurred" model to an "expected credit
loss" model. The Company is working with its advisors and Funding
Circle to determine the future effects of the implementation of
this standard on the Company's reported net asset value per share,
and I will report to you further as the outcome of this work is
determined.
As is both traditional and appropriate, I would like to express
my thanks to my fellow directors, the team at Funding Circle and
our professional and financial advisors for their support,
diligence and hard work during the period. I would also like to
record my thanks to all of the Company's shareholders for
entrusting us with your capital. I have enjoyed direct interactions
with a number of you over the period under review, and look forward
to expanding those contacts in the future.
RICHARD BOLÉAT
Chairman of the Board of Directors
13 July 2017
[1] This is a target only and not a profit forecast. There can
be no assurance that the target can or will be met and it should
not be taken as an indication of the Company's expected or actual
future results. Accordingly, shareholders or potential investors in
the Company should not place any reliance on this target in
deciding whether or not to invest in the Company or assume that the
Company will make any distributions at all and should decide for
themselves whether or not the target dividend is reasonable or
achievable.
STRATEGIC REPORT
Strategy and Business Model
The Group has been 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 Marketplaces operated by Funding Circle and indirectly, in each
case as detailed in the Company's investment policy. The Group has
identified Funding Circle as a leader in the growing marketplace
lending space with its established infrastructure, scale of
origination volumes and expertise in accurately assessing loan
applications.
Investment Policy
The Company intends to achieve its investment objective by
investing in a diversified portfolio of Credit Assets, both
directly and indirectly. The Company intends to hold loans through
to maturity (subject to the making of indirect investments as
described below).
Credit Assets
Credit Assets are loans, debt or credit instruments of any type
originated through any of the Marketplaces. The type of loans or
debt or credit instruments available through the Marketplaces may
vary from time to time, and Funding Circle may in the future
acquire, establish and/or operate Marketplaces in addition to its
existing Marketplaces. When Funding Circle determines that any new
Marketplace may be suitable for receiving investments from the
Company (for example, when any such Marketplace is operational and
is able to facilitate investment in Credit Assets by the Company in
a manner consistent with this Prospectus), then Funding Circle may
propose to the Company the terms and documentation on which
investments in Credit Assets originated through such Marketplace
shall be made (subject always to the Allocation Limits defined in
note 15). The determination as to whether to proceed with
investment in Credit Assets originated through a Marketplace other
than the existing Marketplaces will be made by the Board (subject
to the working capital requirements of the Company), and may be
subject to other requirements to the extent that the relevant
origination and servicing arrangements constitute "related party
transactions" for the purposes of the Listing Rules (it being noted
that it is currently intended that the aggregate remuneration
payable to Funding Circle (or other persons which are "related
parties" of the Company for the purposes of the Listing Rules) will
not exceed 5 per cent. of the Company's NAV per annum, such that
the modified requirements for smaller related party transactions
will be applicable).
Direct Investments
Pursuant to the Origination Agreements, the Company receives a
random allocation of Qualifying Assets originated through the
Marketplaces on each business day (as defined for the purposes of
each Origination Agreement).
Subject to the Allocation Limits, the borrowing limitation and
the other limitations described below, the Company is obliged to
invest in all Credit Assets allocated to the Company without
resulting in a breach of the Investment Policy (or any Portfolio
Limits), in each case subject to the Group having sufficient
Available Cash.
Indirect Investments
In addition to direct investments in Credit Assets the Company
may, where the Board specifically determines and approves, invest
indirectly in Credit Assets by means of the creation of, or
participation in, securitisation or similar structures or
instruments alongside third parties (which may include, without
limitation, collective investment vehicles, institutional
investors, commercial banks or supra-national agencies and
government institutions).
The Board may determine to pursue indirect investment in Credit
Assets for such reasons as it deems appropriate having regard to
the Investment Objective. Indirect investment in Credit Assets may
be undertaken by such means, and through investment in such
instruments or securities, as the Board may approve. This may
include (without limitation) the following techniques:
-- The acquisition, alongside one or more third parties, of debt
or equity securities of whatever type or class (including in junior
tranches) issued by special purpose vehicles or issuers established
by any person (including Funding Circle and/or its Affiliates) in
respect of the securitisation of underlying Credit Assets which
have not previously been funded or held by the Group.
-- The securitisation by the Group of Credit Assets initially
funded or held by the Group through the formation of a bankruptcy
remote SPV and the issuance by the Group of certain asset backed
securities secured on the assets within that SPV. Those asset
backed securities may be acquired by one or more third parties, as
well as by the Group which may acquire debt or equity securities of
whatever type or class (including in junior tranches) so
issued.
In either of the above scenarios, the relevant SPV used for
securitisation will be ring-fenced from other SPVs or entities
investing in or holding Credit Assets, and there will be no cross
collateralisation between SPVs in which the Company invests.
The Board will only approve the making of any indirect
investment, however structured, if it is first satisfied that the
making of such indirect investment will not result at the time of
making the investment in a breach, on a "look-through" basis, of
the Investment Policy (including the Allocation Limits, the
borrowing limitation and the other restrictions described herein)
or any Portfolio Limits.
Indirect investments proposed to be made by the Basinghall or
Tallis will also require the approval of the relevant Board of
those entities. Where indirect investment in Credit Assets is made
alongside third party participants, such that the Company is not
the sole (indirect) owner of the relevant Credit Assets, the
Investment Policy and any Portfolio Limits will be applied to the
relevant indirect investments on a pro rata basis, proportionate to
the Company's indirect interest in the underlying Credit Assets.
Investment in indirect investments is also subject to the Group
having sufficient Available Cash.
As noted above, Funding Circle may (where it is lawfully able so
to do) participate in the structuring, establishment and operation
of vehicles established in connection with indirect investment in
Credit Assets and may earn and retain remuneration or profits for
performing any such role or service. It is anticipated that each
relevant SPV will enter into service agreements with Funding Circle
for the provision of services similar to those contemplated by the
Servicing Agreements in the context of the Company's portfolio of
Credit Assets.
Funding Circle does not currently arrange, advise on or manage
any indirect investment in Credit Assets by the Group but the Board
may agree (subject to applicable law and regulation at the time,
and to any requirements of the Listing Rules including those
governing related party transactions) to appoint Funding Circle to
provide services in connection with indirect investments in future
(where it is lawfully able to do so).
As at 31 March 2017, the Company holds indirect investments in
loans through the following investing companies:
Investing Company Jurisdiction
---------------------- ---------------------
Basinghall United Kingdom
Tallis Spain*, Germany and
the Netherlands
Irish SPV (structured
finance transaction United Kingdom
with the EIB)
---------------------- ---------------------
*From January 2017, Tallis discontinued further lending to
Spain.
Allocation Limits and Other Limitations
The Company will invest in Credit Assets originated through the
various Marketplaces in each case (whether directly or indirectly)
subject to the Allocation Limits and other limitations described in
Note 15.
Loans by geographical region
UK Investment % US Investment % CE Investment %
----------------- --- --------------- --- ---------------- ---
South East 24 California 17 The Netherlands 51
----------------- --- --------------- --- ---------------- ---
London 18 Florida 10 Germany 46
----------------- --- --------------- --- ---------------- ---
North West 12 Texas 9 Spain 3
----------------- --- --------------- --- ---------------- ---
Midlands 12 New York 8
----------------- --- --------------- --- ---------------- ---
South West 11 Georgia 5
----------------- --- --------------- --- ---------------- ---
North East 9 Illinois 5
----------------- --- --------------- --- ---------------- ---
Scotland 5 New Jersey 4
----------------- --- --------------- --- ---------------- ---
East Anglia 4 Virginia 4
----------------- --- --------------- --- ---------------- ---
Wales 3 North Carolina 3
----------------- --- --------------- --- ---------------- ---
Norther Ireland 2 Other 35
----------------- --- --------------- --- ---------------- ---
Loans by Industry Sector
UK Investment % US Investment % CE Investment %
--------------------------- --- ------------------- --- -------------------- ---
Wholesale and Wholesale and
retail 15 Retail trade 19 retail trade 33
--------------------------- --- ------------------- --- -------------------- ---
Professional,
scientific
Property and and technical Other service
construction 15 services 18 activities 18
--------------------------- --- ------------------- --- -------------------- ---
Manufacturing
and engineering 12 Construction 13 Construction 14
--------------------------- --- ------------------- --- -------------------- ---
Professional Healthcare Accomodation
and business and social and food service
support 11 assistance 10 activities 6
--------------------------- --- ------------------- --- -------------------- ---
Wholesale
Property development 8 trade 7 Manufacturing 5
--------------------------- --- ------------------- --- -------------------- ---
Other services Administrative
(except public and support
IT and telecommunications 8 administration 7 service activities 5
--------------------------- --- ------------------- --- -------------------- ---
Accomodation Transportation
Leisure and hospitality 7 and food services 6 and storage 4
--------------------------- --- ------------------- --- -------------------- ---
Professional,
scientific
Transportation and technical
Automotive 5 and warehousing 5 activities 3
--------------------------- --- ------------------- --- -------------------- ---
Administrative Information
Healthcare 4 and support 4 and communication 3
--------------------------- --- ------------------- --- -------------------- ---
Other 15 Other 11 Other 9
--------------------------- --- ------------------- --- -------------------- ---
Basinghall and Tallis have been formed solely in connection with
the implementation of the investment policy of the Company.
Loans acquired by Basinghall and Tallis (subject to the
investment policy, any Portfolio Limits and Available Cash) are
funded by advances made by the Company under note programmes. The
notes issued by Basinghall and Tallis are listed on the Irish Stock
Exchange.
The assets held by each of Basinghall and Tallis are ring-fenced
from other entities or special purpose vehicles and there is no
cross-collateralisation between special purpose vehicles in which
the Company invests.
Borrowing Limitation
In pursuit of the investment objective, the Company may borrow
or use leverage, and may guarantee the borrowings of its Affiliates
and Near Affiliates. Such borrowings or leverage will be used for
the acquisition (directly or indirectly) of Credit Assets in
accordance with the Investment Policy, or for the re-financing of
Credit Assets previously acquired (such that the Company will
thereafter have an indirect exposure to such Credit Assets).
Borrowing may be effected at the level of the Company or any of its
Affiliates or Near Affiliates. In this regard, it should be noted
that the Company may establish SPVs, whether as Affiliates, Near
Affiliates or otherwise in connection with obtaining leverage
against any of its assets or in connection with the securitisation
of its Credit Assets. Such SPVs may be retained as Affiliates, but
independently owned SPVs which are not Affiliates of the Company
may be used to seek to protect the levered portfolio from group
level bankruptcy or financing risks.
The aggregate leverage or borrowings of the Company, its
Affiliates and any Near Affiliates (including Basinghall and/or
Tallis) and guarantees of such borrowing or leverage by such
person(s), shall not exceed (at the time the relevant indebtedness
is incurred or guarantee given) 0.25 times the then current NAV, or
up to 0.5 times the then current NAV with the specific further
approval of the Board (which approval has been obtained).
Notwithstanding the foregoing, no borrowing or debt financing
arrangements made between or among any of the Company, any
Affiliate of the Company or any Near Affiliate (including, without
limitation, the borrowings of Basinghall and/or Tallis under the
relevant note) shall count as borrowings, leverage or guarantees by
any such person for the purposes of the foregoing limit.
There will be no obligation to alter the Company's (or any other
relevant person's) borrowing or guarantee arrangements as a result
of any subsequent variation in NAV. The Company may also, in
connection with seeking such leverage or securitising Credit
Assets, seek to assign existing assets to one or more SPVs and/or
seek to acquire loans using an SPV.
The Company, its Affiliates or its Near Affiliates may employ
leverage by borrowing funds from brokerage firms, banks and other
financial institutions and/or through the use of derivatives and
other non-fully funded instruments. Leverage obtained through
borrowing will be obtained from the relevant lender. Leverage
obtained through the use of derivatives and other non-fully funded
instruments is obtained from the relevant counterparty.
The Company does not currently grant any guarantee under any
leveraging arrangement. The grant of any such guarantee will be
disclosed to Shareholders in accordance with the AIFM
Directive.
Save as described above, there are no restrictions on the use of
leverage by the Company except for those imposed by applicable law,
rules and/or regulations. Funding Circle UK shall (to the extent it
may lawfully do so) negotiate and implement all borrowing on behalf
of the Company, as contemplated by the Services Agreement (subject
to the requirement for the specific approval of the Board in
respect of borrowings in excess of 0.25 times the then current NAV,
and the restrictions and requirements in respect of indirect
investments as described above).
Uninvested Cash
The Company may invest cash held for working capital purposes
and pending investment or distribution in cash or cash equivalents,
government or public securities, money market instruments, bonds,
commercial paper or other debt securities with banks or other
counterparties having a "BBB" (or equivalent) or higher credit
rating as determined by any internationally recognised rating
agency selected by the Board (which may or may not be registered in
the EU).
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
performance and could cause actual results to differ materially
from expected and historical results.
The Board of Directors has overall responsibility for risk
management and internal control within the context of achieving the
Company's 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.
The Company established a risk matrix during the initial public
offering process, consisting of the key risks and 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
assessment of the principal risks 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 will continue 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 year and up to the
date of this Annual 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 15 of the consolidated
financial statements.
Principal risk Mitigation and update Company's financial
of risk assessment KPI affected
by risk
-------------------------- -------------------------------- --------------------
Default risk
The Board has set Capital deployed
Borrowers' ability portfolio limits Net return target
to comply with their and monitors information Share price vs
payment obligations provided by the Administrator NAV per share
in respect of loans and Funding Circle Default rate
may deteriorate on a regular basis.
due to adverse changes
in economic and The impact of the
political factors. uncertainties facing
the UK and the EU
Actual defaults as they enter negotiations
may be greater than over the United Kingdom's
indicated by historical withdrawal from the
data and the timing European Union cannot
of defaults may be quantified. The
vary significantly Board has assessed
from historical that this risk may
observations. have been impacted
but the magnitude
and direction of
the change is not
clear at this stage.
Economic uncertainties
or developments including
increases in interest
rates may also impact
upon default rates.
Increases in interest
rates is considered
before Funding Circle
offers loan facilities
and all loans have
a fixed interest
rate.
-------------------------- -------------------------------- --------------------
Insufficient loans
originated The Board monitors
deployment on a regular Capital deployed
The Group may not basis and is in close Net return target
achieve its target dialogue with Funding
return due to lack Circle.
of or reduction
to loans available The risk remains
for the Group to unchanged during
invest in. the year.
The Group is only
able to acquire
Credit Assets originated
by the Marketplaces
to the extent that
a sufficient number
of Credit Asset
requests are received
by the Marketplaces
which satisfy the
Marketplaces' credit
processes.
-------------------------- -------------------------------- --------------------
In addition to the principal risks considered above, the Board
also considers other key operational risks as part of its ongoing
risk monitoring process.
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
objectives 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. 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 the
Company acquiring 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.
Risk models
The Company may invest (directly or indirectly) in Credit Assets
originated on the Marketplaces based upon inaccurate borrower
credit information. Additionally, the interest rate for a Credit
Asset may not be reflective of its risk profile, which may result
in lower returns than might be expected in relation to the actual
credit risk which is borne by the Company.
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.
Hedging
The Board's policy is to seek to fully hedge currency exposure
between Sterling and any other currency in which the Group's assets
are denominated. During the year ended 31 March 2017, the Company
entered into forward foreign exchange contracts to minimise the
risk of loss due to fluctuation of the Sterling to US Dollar
exchange rate and the Sterling to Euro exchange rate in pursuance
of this policy. Foreign currency hedging activity is carried out by
a specialist third party on behalf of the Company, in accordance
with the hedging policy that the Board established.
Financial Performance
The Board has continued to focus on delivering on the targets
set out in the Company's Prospectus during the year. Following the
successful admission of the Company's shares to trading on the Main
Market of the London Stock Exchange at IPO, deployment of capital
raised in that process in accordance with the Company's investment
policy has been completed. In line with the Group's investment
strategy, the Company participated in a structured finance
transaction with the EIB during the year and has now fully deployed
the funds raised through direct and indirect investment in
loans.
The Board considers the following as the key performance
indicators of the Group's financial performance:
-- Total return on share price
-- Total return on NAV per share
-- Share price premium or discount to NAV
-- Capital deployed
-- Dividend per share
-- Credit losses
A review of the key metrics utilised by the Board to measure and
monitor the performance of the Company are summarised below.
Total return and share price premium/(discount)
For the period from inception to 31 March 2017, the total return
on the ordinary share price was 9.9% and the NAV total return was
7.9%. The ordinary share was trading at a premium of 3.9% to NAV
per ordinary share as at 31 March 2017.
Capital deployed
As at 31 March 2017, the Company had deployed 96% of the issued
capital in direct and indirect loans to SMEs in the US, UK and CE.
These were funds raised from the IPO dated 30 November 2015 funds
raised from the additional shares issued on 25 July 2016 and scrip
dividends during the year.
In accordance with the Company's investment policy, the Company
will hold sufficient cash for working capital purposes.
In respect of the EIB Transaction, the Group's indirect
investment in loans within the unconsolidated Irish domiciled SPV
has been included in the below asset allocation as if the loans
were held directly by the Group.
Asset Percentage
---------- -----------
UK loans 76%
US loans 17%
CE loans 3%
Cash 4%
Dividend per share
The Company aims to provide investors with an annual dividend of
between 6 pence to 7 pence per Ordinary Share once the Company's
portfolio is fully deployed. The Company has generated positive net
returns on capital invested since inception of its lending activity
soon after the IPO on 30 November 2015 and further capital raised
as above. The Company's performance to the date of this report and
the projected earnings in the next twelve months enabled the Board
to declare interim dividends totalling 5.875 pence per Ordinary
Share during the year. The first interim dividend declared on 17
June 2016 was 1 pence per Ordinary Share, which exceeded the 0.75
pence expected at IPO.
After the financial year-end, the Company declared a dividend of
1.625 pence per Ordinary share
Credit losses
The Board carefully monitors the level of defaults arising
within the Group's portfolio. As the Group's portfolio ramps up and
matures, an increase in credit losses is to be expected. The credit
loss provision as at 31 March 2017 was GBP3.2m against an
outstanding principal and interest amounts of the loan portfolio of
GBP156m (31 March 2016: provision of GBP0.03m against an
outstanding principal and interest amounts of the loan porfolio of
GBP95m) which is in line with expectations.
Viability Statement
In accordance with the relevant codes, the Directors have
assessed the prospects of the Company over a three year period. The
Directors believe this period to be appropriate because it reflects
the weighted average life of the loans advanced by the Company to
SMEs.
In their assessment of the viability of the Company, the
Directors have considered each of the principal risks and
uncertainties listed above. The Board believes that the primary
risks, other than tail risks beyond its control, that may impact on
the Company's ability to continue as a viable business are:
-- Default risk; and
-- Insufficient loans originated.
The Directors have also considered the Company's income,
expenditure and cash flow projections and the fact that the
Company's investments held directly or through its subsidiaries do
not comprise readily realisable securities which can be sold to
meet funding requirements if necessary. The Company maintains a
risk register to identify, monitor and control risk concentration.
In addition, overall credit and economic conditions are monitored
to provide insight with respect to potential warnings on adverse
changes at a macroeconomic level. In particular, the Directors
highlight the uncertainties facing the UK and the EU as they enter
negotiations over the United Kingdom's withdrawal from the European
Union and the impact these may have on defaults within the Group's
existing loan portfolio as well as on the Group's ability to
originate new loans.
Based on the Directors' evaluation of the Company's current
position and the results of the stress test performed on the base
assumptions used for their viability assessment, the Directors have
concluded that there is a reasonable expectation that the Company
will be able to continue in operation and meet its liabilities as
they fall due over a three year period.
Employees, Social, Human Rights and Environmental Issues
The Company has no employees and the Board comprises five
Directors, all of whom, except Sachin Patel (appointed on 18 May
2017), are non-executive and independent of Funding Circle. As an
investment company, the Company has no direct impact on the
community and as a result does not maintain specific policies in
relation to these matters.
The Company has no greenhouse gas emissions to report from its
operations, nor does it have responsibility for any other
emissions-producing sources, including those within its underlying
investment portfolio. However, the Company believes that high
standards of corporate social responsibility ("CSR") such as the
recycling of paper waste will support its strategy and make good
business sense.
In carrying out its investment activities and in relationships
with suppliers, the Company aims to conduct itself responsibly,
ethically and fairly.
Gender Diversity
The Board of Directors of the Company comprises five male
directors.
The Remuneration and Nominations Committee and the Board are
committed to diversity at Board level and is supportive of
increased gender diversity but recognises that it may not always be
in the best interest of shareholders to prioritise this above other
factors. The Remuneration and Nominations Committee regularly
reviews the structure, size and composition required of the Board,
taking into account the challenges and opportunities facing the
Company. In considering future candidates, appointments will be
made with regard to a number of different criteria, including
diversity of gender, background and personal attributes, alongside
appropriate skills, experience and expertise.
DIRECTORS' REPORT
The Directors present their annual report and audited
consolidated financial statements for the year ended 31 March 2017.
In the opinion of the Directors, the annual report and audited
consolidated financial statements are fair, balanced and
understandable and provide the information necessary for
Shareholders to assess the Company's performance, business model
and strategy.
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. The
primary activity of the Company is 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.
Results and dividends
The total comprehensive income for the year, determined under
International Financial Reporting Standards ("IFRS"), amounted to
GBP11.1 million. The Directors consider the declaration of a
dividend on a quarterly basis. 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).
Dividends declared during the year are disclosed in note 12 of the
annual financial statements.
Business review
The Company's Ordinary Shares commenced trading on 30 November
2015 after successfully completing the admission of 150 million
Ordinary Shares to the Premium Segment of the Official List of the
UK Financial Conduct Authority and to trading on the London Stock
Exchange plc's Main Market.
In June 2016, the Company participated in a structured finance
transaction with the EIB. The transaction involved the set-up of an
Irish SPV. The Company invested GBP25 million into the Class B Note
issued by the Irish SPV whilst the EIB has committed to invest up
to GBP100 million in a senior loan to the Irish SPV.
On 20 July 2016, the Company issued a further 14,285,000
Ordinary Shares at a price of GBP1.0153 per Ordinary Share raising
net proceeds of GBP14,213,490 after direct issue costs of
GBP290,071.
In February 2017, the Company issued an updated prospectus which
established a programme by which the Directors are able to issue up
to 500 million ordinary shares and/or C shares in aggregate. In
April 2017, the Company issued 142 million C Shares at a price of
GBP1 per C Share raising net proceeds of GBP139,870,000 after
direct issue costs of GBP2,130,000.
The Strategic Report includes further information about the
Company's principal activities, financial performance during the
year and indications of likely future developments.
Alternative Investment Fund Managers Directive ("AIFMD")
The AIFMD requires Alternative Investment Fund Managers ("AIFM")
to comply with certain disclosure, reporting and transparency
obligations for Alternative Investment Funds ("AIF") that it
markets in the EU. The Company is a self-managed AlF for the
purpose of the AIFMD and therefore has to comply with the
disclosure requirements of the AIFMD.
The Company's Prospectus (both the original Prospectus issued in
connection with Admission and the updated Prospectus issued and
published on 6 February 2017) contained a schedule of disclosures
prepared by the Directors for the purposes of AIFMD. In addition,
the AIFMD requires the Company's annual report to include details
of any material changes to the information contained in that
schedule. The Directors confirm that no material changes have
occurred in relation to the information contained in the
schedule.
In making this confirmation, the Directors consider that any
change in respect of which a reasonable investor, becoming aware of
such information, would reconsider its investment in the Company,
including because the information could impact on the investor's
ability to exercise its rights in relation to its investment, or
otherwise prejudice that investor's (or any other investor's)
interest in the Company should be considered material. In setting
this threshold, the Directors have had regard to the current risk
profile of the Company which outlines the relevant measures to
assess the Company's exposure or potential exposure to those risks,
as well as with due regard to the Company's investment restrictions
set out in the Company's Prospectus. As required by the Listing
Rules, any material change to the investment policy of the Company
will be made only with the approval of the shareholders.
The AIFMD also requires the Company to disclose the remuneration
of its investment manager (if any) providing analysis between fixed
and variable fees along with the information of how much of such
remuneration was paid to senior management at the investment
manager and how much was paid to members of staff. As a
self-managed AIF, the Company has no investment manager and thus
has no information to report.
United States of America Foreign Account Tax Compliance Act
("FATCA")
Guernsey has entered into an Intergovernmental Agreement ("IGA")
with the US Treasury in order to comply with FATCA and has also
entered into an IGA with the UK in order to comply with the UK's
requirements for enhanced reporting of tax information in
accordance with FATCA principles. Under such IGAs, the Company is
regarded as a Foreign Financial Institution ("FFI") resident in
Guernsey. The Board continues to monitor developments in the rules
and regulations arising from the implementation of FATCA in
conjunction with its tax advisors.
Common Reporting Standard ("CRS")
On 13 February 2014, the Organisation for Economic Co-operation
and Development released the Common Reporting Standard ("CRS")
designed to create a global standard for the automatic exchange of
financial account information, similar to the information to be
reported under FATCA. On 29 October 2014, 51 jurisdictions signed
the multilateral competent authority agreement ("Multilateral
Agreement") that activates this automatic exchange of FATCA-like
information in line with the CRS.
Pursuant to the Multilateral Agreement, certain disclosure
requirements may be imposed in respect of certain investors in the
Company who are, or are entities that are controlled by one or
more, residents of any of the signatory jurisdictions. It is
expected that, where applicable, information that would need to be
disclosed will include certain information about investors, their
ultimate beneficial owners and/or controllers, and their investment
in and returns from the Company and its subsidiaries.
Guernsey, along with 60 other jurisdictions, including some EU
Member States, has adopted the CRS with effect from 1 January 2016,
with the first reporting taking place in 2017.
Going concern
The Directors have considered the financial performance of the
Group and the impact of the market conditions at the financial
year-end date and subsequently. During the financial year the
Group's NAV rose (prior to the declaration and payment of interim
dividends) by GBP11.08 million or approximately 7.1%. The Company's
current cash holdings and projected cash flows are sufficient to
cover current liabilities and projected liabilities. The Directors
are therefore of the opinion that the Company and Group are a going
concern and the financial statements have been prepared on this
basis.
Directors
The Directors who held office during the financial year end and
up to the date of approval of this report were:
Date of Date of
appointment resignation
-------------------- ------------- -------------
Frederic Hervouet 12 August
2015
Jonathan Bridel 19 August
2015
Richard Boléat 19 August
2015
Richard Burwood 12 August
2015
Samir Desai 19 August 18 May
2015 2017
Sachin Patel 18 May
2017
Sachin Patel was appointed as Director on 18 May 2017. Sachin
Patel is the Chief Capital Officer at Funding Circle, leads the
Global Capital Markets group and is responsible for investor
strategy. With effect from 31 May 2017, Phillip Hyett, who is a
director of Capital Markets at Funding Circle was approved to act
as alternate director for Sachin Patel.
Directors' shares and interests
A list of all Directors who served during the year and up to the
date of this report and their biographies are included at the end
of this 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 31 March 2017, the Directors held the following Ordinary
Shares of the Company:
Number of shares
2017 2016
--------------------- --------- --------
Frederic Hervouet 107,000 5,000
Jonathan Bridel 5,000 5,000
Richard Boléat 5,000 5,000
Richard Burwood 5,000 5,000
Samir Desai 148,138 148,138
Sachin Patel - -
270,138 168,138
--------------------- --------- --------
During the year, no Director had a material interest in a
contract to which the Company was a party (other than their own
letter of appointment), except for Mr Desai who is a substantial
shareholder in, director of and an employee of Funding Circle
Limited which provides loan origination and servicing services to
the Company. Mr Desai resigned as director subsequent to the
year-end on 18 May 2017.
Substantial shareholdings
As at 31 March 2017, the Company had been informed of the
following notifiable interests of 5% or more in the Company's
voting rights in accordance with Disclosure and Transparency Rule
5.1.2:
Shareholder Number of Percentage
Ordinary holding
Shares
--------------------------- ----------- -----------
Invesco Limited 48,131,639 29.18
Railway Pension Trustee
Company Limited 33,258,275 20.16
Aberdeen Asset Management
Limited 18,214,596 11.04
SG Hambros Bank Limited 15,317,886 9.29
Significant agreements
The Company is not party to any significant agreements which
take effect after or terminate upon a change of control of the
Company, nor has the Company entered into any agreements with its
Directors to provide for compensation for loss of office as a
result of a takeover bid.
Acquisition of Company's own shares
The Company has not bought any of its Ordinary Shares during the
year.
Information to be disclosed in accordance with UK Listing Rule
9.8.4
A statement of the amount The Company has not capitalised
of interest capitalised any interest in the year
by the Company during under review.
the period under review
with an indication of
the amount and treatment
of any related tax relief.
----------------------------------- ----------------------------------
Any information required Not applicable.
in relation to the publication
of unaudited financial
information.
----------------------------------- ----------------------------------
Details of any long-term Not applicable.
incentive schemes
----------------------------------- ----------------------------------
Details of any arrangements Samir Desai (resigned
under which a director on 18 May 2017) has waived
of the Company has waived his remuneration - please
or agreed to waive any refer to the Directors'
emoluments from the Company. Remuneration Report.
Sachin Patel who was appointed
as a director of the Company
after the year-end has
waived his remuneration.
----------------------------------- ----------------------------------
Details of any pre-emptive Not applicable.
issues of equity not for
cash.
----------------------------------- ----------------------------------
Details of any non-pre-emptive Not applicable.
issues of equity for cash
by any unlisted major
subsidiary undertaking.
----------------------------------- ----------------------------------
Details of parent participation Not applicable.
in a placing by a listed
subsidiary
----------------------------------- ----------------------------------
Details of any contract Samir Desai (resigned
of significance in which on 18 May 2017) is a substantial
a director is or was materially shareholder in, and a
interested. director and employee
of, Funding Circle Limited.
Richard Burwood is a Director
of Basinghall and Tallis.
Sachin Patel (appointed
on 18 May 2017) is an
employee of Funding Circle
Limited.
Phillip Hyett is an employee
of Funding Circle Limited.
----------------------------------- ----------------------------------
Details of any contract Not applicable.
of significance between
the Company (or one of
its subsidiaries) and
a controlling shareholder.
----------------------------------- ----------------------------------
Details of waiver of dividends Not applicable.
by a shareholder.
----------------------------------- ----------------------------------
Board statement in respect Not applicable.
of relationship agreement
with the controlling shareholder.
----------------------------------- ----------------------------------
Disclosure of information to the Auditors
The Directors who held office at the date of approval of this
Directors' Report confirm that, so far as they are each aware,
there is no relevant audit information of which the Company's
Auditors are unaware and each Director has taken all the steps that
he ought to have taken as a Director to make himself aware of any
relevant audit information and to establish that the Company's
Auditors are aware of that information.
Auditor
PricewaterhouseCoopers CI LLP ("PwC") served as auditor during
the financial year and have expressed their willingness to continue
in office. A resolution to re-appoint PwC as auditors will be put
to the forthcoming Annual General Meeting.
The maintenance and integrity of the Group and Company's website
is the responsibility of the Directors. The work carried out by the
independent auditors does not involve consideration of these
matters and accordingly, the auditors accept no responsibility for
any changes that may have occurred to the 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.
Company Secretary
The Company Secretary is Sanne Group (Guernsey) Limited of Third
Floor, La Plaiderie Chambers, La Plaiderie, St Peter Port, Guernsey
GY1 1WG, Channel Islands.
By order of the Board
Authorised Signatory
Sanne Group (Guernsey) Limited, Company Secretary
CORPORATE GOVERNANCE REPORT
The Company became a member of the Association of Investment
Companies ("AIC") in November 2015 and has applied the AIC Code
from that date.
The Financial Reporting Council ("FRC"), the UK's independent
regulator for corporate reporting and governance responsible for
the Corporate Governance Code, has endorsed the AIC Code meaning
that companies who report in accordance with the AIC Code fully
meet their obligations under the UK Corporate Governance Code (the
"Code") and the related disclosure requirements contained in the
Listing Rules.
Statement of how the principles of the AIC Code are applied
Throughout the financial year ended 31 March 2017 the Company
has been in compliance with the relevant provisions set out in the
AIC Code and the relevant provisions of the Code. The Code includes
provisions relating to: the roles of the chief executive; executive
directors' remuneration; and the need for an internal audit
function, each of which is not considered by the Board to be
relevant to the Company. The Company has therefore not reported
further in respect of these provisions.
Board of Directors
The Board is comprised of five Directors, all of whom are
non-executive. All the Directors are independent except for Samir
Desai (resigned on 18 May 2017) and Sachin Patel (appointed on 18
May 2017) rewho are employees of Funding Circle Limited. Richard
Boléat is the Chairman of the Board and Jonathan Bridel is the
Senior Independent Director. The Company did not use an external
search consultancy nor any open advertising in the selection of the
Chairman and the non-executive Directors. The Company was satisfied
that the formal selection process from a pool of candidates with
the relevant expertise and skills was appropriate for the needs of
the Company. Biographies of the Directors are shown at the end of
this report and demonstrate the range and depth of skills and
experience each brings to the Board.
The Directors ensure that, at all times, the Board is composed
of members who, as a whole, have the required knowledge, abilities
and expert experience to properly complete their tasks and are
sufficiently independent. A Board member is considered independent
if he has no business or personal relations which cause a conflict
of interest with those of the Company. Every member of the Board
ensures that he has sufficient time to perform his mandate. The
Board considers the skills, competence and independence of
candidates in the context of the overall board composition. The
Board has put in place appropriate insurance cover in respect of
any legal action against the Directors.
The Company does not have a policy on length of service of
Directors. In view of the long-term nature of the Company's
investments, the Board believes that a stable board composition is
fundamental to the proper operation of the Company. The Board has
not stipulated a maximum term of any directorship.
Copies of the letters of appointment are available on request
from the Company Secretary.
Independence of Directors
In accordance with the AIC Code, the Board has reviewed the
independence of the individual directors and the Board as a whole.
Each of the Directors except Samir Desai (resigned on 18 May 2017)
and Sachin Patel (appointed on 18 May 2017) is considered
independent.
Board evaluation
A formal Board evaluation process has been put in place in line
with the Board's policy to monitor and improve performance of the
Directors. The Board carries out a formal evaluation process on an
annual basis. The Directors complete self-assessment forms which
are reviewed and discussed with the Chairman. The Senior
Independent Director performs an annual review of the Chairman's
performance. The Directors carry out an annual review of the Board
as a whole discussing its composition, size and structure and
ensuring that there is a good balance of skills and experience. The
answers to these questionnaires will be discussed by the
Remuneration and Nominations Committee.
The Board shall offer induction training to new Directors about
the Company, its key service providers, the Directors' duties and
obligations and other matters as may be relevant from time to time.
A regular review will be undertaken by the Board to ensure that the
Directors' ongoing training and development needs are met.
Election/Re-election of Directors
At each Annual General Meeting of the Company any Director who
has been appointed pursuant to a nomination from Funding Circle UK,
and any other Director for whom it is the second Annual General
Meeting following the Annual General Meeting at which he was
elected or last re-elected, shall retire from office but, subject
to the Articles, shall be eligible for re-appointment. At the
second Annual General Meeting of the Company, all directors will be
standing for re-election.
Committees of the Board
Audit, Risk, Management Engagement and Remuneration and
Nominations Committees have been established by the Board and each
Committee has formally delegated duties, responsibilities and terms
of reference, which are available from the Company Secretary upon
request.
An outline of the responsibilities of each of the Committees is
set out below.
Audit Committee
The Board has established the Audit Committee comprising of all
the Directors except for Samir Desai (resigned on 18 May 2017) and
Sachin Patel (appointed on 18 May 2017) and is chaired by Jonathan
Bridel. The Audit Committee meets at least three times a year and
is responsible for ensuring, inter alia, that the financial
performance of the Company is properly reported on and monitored
and provides a forum through which the Company's external auditors
may report to the Board. The Audit Committee reviews and recommends
to the Board the adoption and approval of the annual and half
yearly financial statements, results, internal control systems and
procedures and accounting policies of the Company.
Risk Committee
The Company has established a risk committee, which will
comprise all of the Directors, of which Frederic Hervouet is
chairman. The risk committee meets approximately four times a year
or more often if required. The risk committee will take
responsibility for the risk management policies of the Company's
operations and oversight of the operation of the Company's risk
management framework as well as completing all risk reporting for
regulatory purposes.
Management Engagement Committee
The Company has established a Management Engagement Committee
which is chaired by Richard Burwood and comprises all of the
Directors except for Samir Desai (resigned on 18 May 2017) and
Sachin Patel (appointed on 18 May 2017). The Management Engagement
Committee meets at least once a year or more often if required. The
principal duties of the Committee are to review the actions and
judgments of Funding Circle UK, Funding Circle US and Funding
Circle CE and also the terms of agreements appointing each of them.
The Committee is also responsible for monitoring the compliance of
other service providers with the terms of their respective
agreements.
Remuneration and Nominations Committee
The Company has established a Remuneration and Nominations
Committee which is chaired by Richard Boléat and comprises all of
the Directors. The Remuneration and Nominations Committee meets at
least once a year or more often if required. The duties of the
Committee include:
-- determining and agreeing with the Board the framework or
broad policy for the remuneration of the Company's Chairman and
non-executive Directors pursuant to the Company's articles of
association;
-- reviewing the structure, size and composition (including the
skills, knowledge and experience) required of the Board compared to
its current position and make recommendations to the Board with
regard to any changes necessary; and
-- giving full consideration to succession planning of
Directors, taking into account the challenges and opportunities
facing the Company.
Meetings and attendance
There were 12 Board meetings held during the financial year
ended 31 March 2017. The attendance record of each of the Directors
was as follows:
Number
of attendances
during
the year
--------------------- ----------------
Frederic Hervouet 11
Jonathan Bridel 12
Richard Boléat 10
Richard Burwood 12
Samir Desai 8
----------------------- ----------------
There were 5 Risk Committee meetings, 3 Audit Committee
meetings, 1 Management Engagement meeting and 2 Remuneration and
Nominations Committee meetings held during the financial year ended
31 March 2017. The attendance record of each of the Committee
members was as follows:
Number of attendances during the year
Management Remuneration
Engagement and Nominations
Audit Committee Risk Committee Committee Committee
--------------------- ---------------- --------------- ------------ -----------------
Frederic Hervouet 3 5 1 2
Jonathan Bridel 3 5 1 2
Richard Boléat 3 4 1 2
Richard Burwood 3 5 1 2
Samir Desai N/A 4 N/A 2
--------------------- ---------------- --------------- ------------ -----------------
Board Observers
Funding Circle UK has the right (pursuant to the Services
Agreement) to nominate up to two observers to attend meetings of
the Board. Those nominees may (other than in limited circumstances)
attend each such meeting as observers, but do not have any rights
to participate in the conduct of the business of the Company or to
vote on any matter.
The Board may require that those nominees not attend the part of
any Board meeting which considers (i) the termination of any
agreement to which Funding Circle is party, or (ii) any dispute or
litigation between Funding Circle and the Company.
Company Secretary
The Board appointed Sanne Group (Guernsey) Limited to act as
Company Secretary on 22 July 2015. The principal duties of the
Company Secretary are to monitor compliance with the established
corporate governance framework, report to the Board and to arrange
and host Board and Committee meetings.
Internal Control Review
The Board is responsible for ensuring the maintenance of a
robust system of internal control and risk management and for
reviewing the effectiveness of the Company's overall internal
control arrangements and processes following recommendations from
the Audit Committee.
The Directors may delegate certain functions to other parties
such as Funding Circle UK, Funding Circle US, Funding Circle CE,
the Administrator and other service providers. In particular, the
Directors have appointed Funding Circle UK, Funding Circle US and
Funding Circle CE to originate and service the Company's
investments in loans. Notwithstanding these delegations, the
Directors have responsibility for exercising overall control and
supervision of the services provided by Funding Circle UK, Funding
Circle US and Funding Circle CE, for the risk management of the
Company and otherwise for the Company's management and
operations.
The Management Engagement Committee carries out regular reviews
of the performance of Funding Circle UK, Funding Circle US and
other service providers appointed by the Company.
Investor Relations
All shareholders have the opportunity to attend and vote, in
person or by proxy, at the AGM. The notice of the AGM, which is
sent out at least twenty days in advance, sets out the business of
the meeting. Shareholders are encouraged to attend the AGM and to
participate in proceedings. The Chairman of the Board and the
Directors, together with representatives of Funding Circle, will be
available to answer shareholders' questions at the AGM.
Shareholders and other interested parties are able to contact
the Company through a dedicated investor relations function.
Contact details are as follows :
Ritchie Oriol
Tel: +44 (0) 20 3667 2242
Email: ir@fcincomefund.com
Shareholders are also able to contact the Company via the
Chairman or Company Secretary as follows:
Richard Boléat
Tel: +44 (0) 1534 615 656
Email: Richard.Boleat@fcincomefund.com
Sanne Group (Guernsey) Limited
Tel: +44 (0) 1481 739 810
Email: FundingCircle@sannegroup.com
AUDIT COMMITTEE REPORT
Membership
Jonathan Bridel - Chairman (Independent non-executive
Director)
Richard Burwood (Independent non-executive Director)
Fred Hervouet (Independent non-executive Director)
Richard Boléat (Company Chairman* and Independent non-executive
Director)
* The Board believes it is appropriate for the Company Chairman
to be a member of the Audit Committee as he is a Fellow of the
Institute of Chartered Accountants in England & Wales and is an
independent Director.
Key Objectives
The provision of effective governance over the appropriateness
of the Company's financial reporting including the adequacy of
related disclosures, the performance of the external auditors and
the management of the Company's systems of internal controls and
business risks.
Responsibilities
The primary responsibilities of the Audit Committee are:
-- reviewing the Company's financial results announcements and
financial statements and monitoring compliance with relevant
statutory and listing requirements;
-- reporting to the Board on the appropriateness of the
Company's accounting policies and practices including critical
accounting policies and practices;
-- advising the Board on whether the Committee believes the
annual report and financial statements, taken as a whole, is fair,
balanced and understandable and provides the information necessary
for shareholders to assess the Company's performance, business
model and strategy;
-- scrutiny of the loans held at amortised cost;
-- compiling a report on its activities to be included in the Company's annual report;
-- overseeing the relationship with and appointment of the external auditors;
-- agreeing with the external auditors the audit plan including
discussions on the key risk areas within the financial
statements;
-- considering the financial and other implications on the
independence of the auditors arising from any non-audit services to
be provided by the auditors; and
-- considering the appropriateness of appointing the auditors for non-audit services.
The Audit Committee members have a wide range of financial and
commercial expertise necessary to fulfil the Committee's duties.
The Chairman of the Committee, Jonathan Bridel, is a Fellow of the
Institute of Chartered Accountants in England and Wales, and has
recent and relevant financial experience, as required by the AIC
Code. He serves as Audit Chairman on other listed companies and
previously worked in senior positions in banking and finance and
investment management including SME lending. The Board is satisfied
he has recent and relevant financial experience and has designated
him as its financial expert on the Committee. The qualification of
the members of the committee are noted in the biographies section
at the end of this report.
Committee Meetings
The Committee meets formally at least three times a year. Only
members of the Audit Committee have the right to attend Audit
Committee meetings. However, other Directors and representatives of
Funding Circle and the Administrator are invited to attend Audit
Committee meetings on a regular basis and other non-members may be
invited to attend all or part of the meetings as and when
appropriate and necessary. The Company's external auditors,
PricewaterhouseCoopers CI LLP ("PwC"), are also invited to meetings
as is appropriate.
Main Activities during the year
The Committee assists the Board in carrying out its
responsibilities in relation to financial reporting requirements,
risk management and the assessment of internal controls and key
procedures adopted by the Company's service providers. The
Committee also manages the Company's relationship with the external
auditors and considers the appointment of external auditors,
discusses with the external auditors the nature and scope of the
audit, keeps under review the scope, results, cost and
effectiveness of the audit and reviews the independence of the
external auditors. The Committee also considers the objectivity of
the auditors and reviews the external auditors' letter of
engagement and management letter.
Meetings of the Committee generally take place prior to a
Company Board meeting. The Committee reports to the Board, as part
of a separate agenda item, on the activity of the Committee and
matters of particular relevance to the Board in the conduct of
their work. The Board requires that the Committee advise it on
whether it believes the annual report and financial statements,
taken as a whole, are fair, balanced and understandable and provide
the information necessary for shareholders to assess the Company's
performance, business model and strategy.
At its meetings during the year, the Committee focused on:
Financial reporting
The primary role of the Committee in relation to financial
reporting is to review with Funding Circle, the Administrator and
the External Auditors the appropriateness of the half-year and
annual financial statements concentrating on, amongst other
matters:
-- The quality and acceptability of accounting policies and practices;
-- The clarity of the disclosures and compliance with financial
reporting standards and relevant financial and governance reporting
requirements including the implication of IFRS 9;
-- Material areas in which significant judgments have been
applied or where there has been discussion with the external
auditors;
-- Whether the annual report and consolidated financial
statements, taken as a whole, are fair, balanced and understandable
and provide the information necessary for shareholders to assess
the Company's performance, business model and strategy; and
-- Any correspondence from regulators and listing authorities in
relation to financial reporting.
To aid its review, the Committee considers reports from Funding
Circle and the Administrator.
Significant risks
In relation to the annual report and financial statements for
the year ended 31 March 2017, the following significant risks were
considered by the Audit Committee:
-- Impairment and carrying values of loans advanced
The measurement of loans advanced is in accordance with the
accounting policy set out in Note 3 of the financial statements. A
formal policy has been developed by the Board using data provided
by Funding Circle to estimate the impairment on loans. The Audit
Committee regularly reviews this policy and the underlying loan
models and has satisfied itself as to the impairment and carrying
values of loans advanced in the financial statements.
-- Fraud risk in income recognition
Mitigating factors were reviewed through the risk register and
internal controls framework which is reviewed and approved by the
Committee on a regular basis. The Committee has considered and
challenged as appropriate the assessment of risks within these
documents and obtained evidence about the effective operation of
the internal controls in place, including critically assessing
reporting provided by Funding Circle. The Audit Committee has
received a report from the Administrator that shows a comparison of
the income recognised using the Funding Circle platform data to the
revenue recognition requirements of IFRS. The Audit Committee is
satisfied that the accounting policy for recognition of the
interest earned on loans is in line with the relevant accounting
standards.
Internal Control and Risk Management
The Committee along with the Risk Committee has established a
process for identifying, evaluating and managing all major risks
faced by the Group. The process is subject to regular review by the
Board and accords with the AIC Code of Corporate Governance. The
Board is responsible overall for the Group's system of internal
control and for reviewing its effectiveness. However, such a system
is designed to manage rather than eliminate risks of failure to
achieve the Company's business objectives and can only provide
reasonable and not absolute assurance against material misstatement
or loss.
The Committee receives reports from the Risk Committee on the
Group's risk evaluation process and reviews changes to significant
risks identified. The Committee has undertaken a full review of the
Group's business risks, which have been analysed and recorded in a
risk report, which is reviewed and updated regularly. Each quarter
a Funding Circle report outlines the steps taken to monitor the
areas of risk including those that are not directly the
responsibility of Funding Circle and reports the details of any
known internal control failures.
Separately, Funding Circle has established an internal control
framework to provide reasonable but not absolute assurance on the
effectiveness of the internal controls operated on behalf of its
clients. The effectiveness of the internal controls is assessed by
Funding Circle's compliance and risk department on an on-going
basis. Funding Circle's controls processes have also been outlined
to the Board. The Board's assessment of the Company's principal
risks and uncertainties is set out in the Strategic Report. By
means of the procedures set out above, the Board confirms that it
has reviewed the effectiveness of the Group's system of internal
controls for the year ended 31 March 2017 and subsequently and that
no material issues have been noted.
External Audit
The effectiveness of the external audit process is dependent on
appropriate audit risk identification at the start of the audit
cycle. The Committee received a detailed audit plan from PwC,
identifying their assessment of these key risks. For the year ended
31 March 2017 significant risks were identified in relation to
impairment and the carrying values of loans advanced and the risk
of fraud in revenue recognition (in addition to the risk of
management override of controls). These risks are tracked through
the year and the Committee challenged the work done by the auditors
to test management's assumptions and estimates around these areas.
The Committee has assessed the effectiveness of the audit process
addressing these matters through the reporting received for the
year-end financial statements. In addition the Committee will seek
feedback from the Administrator on the effectiveness of the audit
process. For the year ended 31 March 2017, the Committee was
satisfied that there had been appropriate focus and challenge on
the primary areas of audit risk and assessed the quality of the
audit process to be good.
Appointment and Independence
The Committee considers the reappointment of PwC, including the
rotation of the Audit Engagement Partner, and assesses their
independence on an annual basis. The external auditors are required
to rotate the Audit Engagement Partner responsible for the
Company's audit every five years. The current Audit Engagement
Partner has been in place since appointment for the period ended 31
March 2016 and is considered to be independent. In its assessment
of the independence of the auditors, the Committee receives details
of any relationships between the Company and PwC that may have a
bearing on their independence and receives confirmation that they
are independent of the Company. The Committee approved the fees for
audit services for the year ended 31 March 2017 after a review of
the level and nature of work to be performed and after being
satisfied that the fees were appropriate for the scope of the work
required.
Non Audit Services
To safeguard the objectivity and independence of the external
auditors from becoming compromised, the Committee has a formal
policy governing the engagement of the external auditors to provide
non-audit services. No material changes have been made to this
policy during the year. The auditors and the Directors have agreed
that all non-audit services require the pre-approval of the Audit
Committee prior to commencing any work. Fees for non-audit services
are tabled annually so that the Audit Committee can consider the
impact on auditors' objectivity. The auditors (and their affiliated
network firms) were remunerated GBP184,309 (2016: GBP110,315) for
their audit and non audit services rendered for the year ended 31
March 2017. The Committee assessed whether PwC should be appointed
in relation to certain transaction related services and concluded
that it would be in the best interest of the Company to do so.
PwC were remunerated as follows for the year ended 31 March
2017:
1 April 2016 to 22 July 2015 to
31 March 2017 31 March 2016
---------------------- ----------------------
Type of service PwC CI PwC Ireland PwC CI PwC Ireland
GBP GBP GBP GBP
----------------------- -------- ------------ -------- ------------
Audit of the Group 107,564 30,763 60,000 28,515
Review of half yearly 20,000 - - -
financial statements
Tax compliance review - 10,981 6,750 15,050
Transaction related
services 15,000 - 100,000 -
142,564 41,744 166,750 43,565
----------------------- -------- ------------ -------- ------------
The Committee is satisfied with the effectiveness of the audit
provided by PwC, and is satisfied with the auditors' independence.
The Committee has therefore recommended to the Board that PwC be
reappointed as external auditors for the year ending 31 March 2018,
and to authorise the Directors to determine their remuneration and
terms of engagement. Accordingly a resolution proposing the
reappointment of PwC as auditors will be put to the shareholders at
the 2017 AGM.
Committee Evaluation
The Committee's activities form part of the performance
evaluation that will be carried out by the Board.
Jonathan Bridel
Chairman of the Audit Committee
13 July 2017
DIRECTORS' REMUNERATION REPORT
The Board has established a Remuneration and Nominations
Committee which met once during the current financial year.
Composition
The Remuneration and Nominations Committee was formed on 28
September 2015, comprising all the members of the Board. The Board
has appointed Richard Boléat as Chairman of the Committee.
The Directors and Company Secretary are the only officers of the
Company. Copies of the Directors' letters of appointment are
available upon request from the Company Secretary at the registered
office and will be available for inspection at the AGM. The Company
Secretary is engaged under a Company Secretarial Agreement with the
Company. The Company has no employees.
The Directors are each entitled to serve as non-executive
Directors on the boards of other companies and to retain any
earnings from such appointments.
Responsibilities
The primary responsibilities of the Committee are:
-- determine and agree with the Board the framework or broad
policy for the remuneration of the Company's Chairman and
non-executive directors pursuant to the Company's articles of
association;
-- review the ongoing appropriateness and relevance of the remuneration policy;
-- ensure that contractual terms on termination, and any
payments made, are fair to the individual and the Company, that
failure is not rewarded and that the duty to mitigate loss is fully
recognised;
-- annually review the structure, size and composition
(including the skills, knowledge and experience) required of the
Board compared to its current position and make recommendations to
the Board with regard to any changes as necessary;
-- give full consideration to succession planning of directors,
taking into account the challenges and opportunities facing the
Company, and what skills and expertise are therefore needed on the
Board in the future; and
-- keep under review the leadership needs of the Company with a
view to ensuring the continued ability of the Company to compete
effectively in the marketplace.
Remuneration Policy
In setting the Company's remuneration policy, the Remuneration
and Nominations Committee has sought (so far as it considers
appropriate for a company with a non-executive Board) to align the
interests of the Board with those of the Company and to incentivise
the Directors to help the Company to achieve its investment
objective.
The Directors shall be paid such remuneration by way of fees for
their services as is defined in each of the Directors' letters of
appointment. Under the terms of their appointments as non-executive
Directors of the Company, the Directors (other than Sachin Patel
who has waived his entitlement to an annual fee) are entitled to
the following annual fees:
Annual fee Notes
GBP
--------------------- ----------- -------------------------
Frederic Hervouet *40,000 Chairman of the
Risk Committee
Jonathan Bridel 40,000 Chairman of the
Audit Committee
Richard Boléat 50,000 Chairman of the
Board and Chairman
of the Remuneration
and Nominations
Committee
Richard Burwood **40,000 Chairman of the
Management Engagement
Committee
Sachin Patel*** - Waived annual Director's
fee
--------------------- ----------- -------------------------
170,000
--------------------- ----------- -------------------------
* - The annual fee for Frederic Hervouet was increased from
GBP35,000 to GBP40,000 with effect from 1 January 2017.
** - The annual fee for Richard Burwood includes GBP5,000 of
director's fee for Tallis Designated Lending Activity Company and
GBP5,000 of director's fee for Basinghall Designated Lending
Activity Company.
*** - Sachin Patel was appointed on 18 May 2017. Samir Desai who
was a director up to 18 May 2017 also waived his entitlement to a
director's fee for the period of his directorship.
The Directors are not be entitled to any other fixed or variable
remuneration.
No Director has a service contract with the Company, nor are any
such contracts proposed. The retirement, disqualification and
removal provisions relating to the Directors (in their capacity as
Directors) are set out in their letters of appointment.
No annual bonus will be paid to any Director and the Company
does not operate a long term incentive plan.
The Directors are entitled to be repaid by the Company all
properly incurred out-of-pocket expenses reasonably incurred in the
execution of their duties.
In setting the level of each non-executive Director's fees, the
Company has had regard to: the time commitments expected, the level
of skill and experience of each Director, the current market, the
fee levels of companies of similar size and complexity.
On termination of their appointment, Directors shall only be
entitled to such fees as may have accrued to the date of
termination, together with reimbursement in the normal way of any
expenses properly incurred prior to that date. If the Board
considers it appropriate to appoint a new director, the new
director remuneration will comply with the current policy.
Directors' remuneration and Share interests
The total remuneration of the Directors for the year ended 31
March 2017 was as follows:
31 March 31 March
2017 2016
GBP GBP
-------------------------- --------- ---------
Frederic Hervouet 56,250 21,635
Jonathan Bridel 60,000 24,674
Richard Boléat 70,696 32,010
Richard Burwood 65,019 22,271
Samir Desai (resigned on - -
18 May 2017)*
Sachin Patel (appointed - -
on 18 May 2017)*
-------------------------- --------- ---------
251,965 100,590
-------------------------- --------- ---------
*Director's fee waived
All the Directors, with the exception of Samir Desai (resigned
on 18 May 2017), received GBP10,000 each as one-off fees for
services in connection with the issue of a new prospectus and
associated matters during the year and a further GBP10,000 each as
one-off fees in relation to their work on the EIB transaction.
Richard Burwood also received a one-off fee of GBP5,000 during the
year for additional work carried out for the Management Engagement
Committee.
Richard Burwood is also a Director of Basinghall and Tallis. The
total remuneration to Richard Burwood disclosed in the above table
includes GBP10,018 (2016: GBP9,185) representing Director's fees
charged to Basinghall and Tallis. There were no other items in the
nature of remuneration, pension entitlements or incentive scheme
arrangements which were paid or accrued to the Directors during
this year.
As at 31 March 2017 each of Richard Boléat, Jonathan Bridel, and
Richard Burwood has a share interest in the Company, in the form of
5,000 (2016: 5,000) Ordinary Shares, representing 0.0031% interest
in voting rights. Samir Desai (resigned on 18 May 2017) and
Frederic Hervouet have a share interest in the Company in the form
of 148,138 (2016: 148,138) and 107,000 (2016: 5,000) Ordinary
Shares, representing 0.0927% and 0.0669%, respectively in the
voting rights as at 31 March 2017. There have been no changes to
the shares held by the Directors up to the date of this report.
During the year no remuneration was received by any Director in
a form other than cash. Furthermore, no payments were made for loss
of office, other benefits or other compensation for extra services
to any Director or former Director of the Company.
The Company has no employees other than its Directors who are
all non-executive. When periodically considering the level of fees,
the Remuneration and Nominations Committee evaluates the
contribution and responsibilities of each Director and the time
spent on the Company's affairs. Following this evaluation, the
Committee will determine whether the fees as set out in the
Remuneration Policy continue to be appropriate. Although the
Company has not to date consulted shareholders on remuneration
matters, it has reviewed the remuneration of Directors of other
investment companies of similar size and complexity and to the
limits set out in the Company's Articles of Association. The
Company welcomes any views the shareholders may have on its
remuneration policy.
Richard Boléat
Chairman of the Remuneration and Nominations Committee
13 July 2017
STATEMENT OF DIRECTORS' RESPONSIBILITIES
IN RESPECT OF THE FINANCIAL STATEMENTS
The Directors are responsible for preparing the Directors'
Report and the financial statements in accordance with applicable
law and regulations.
The Companies (Guernsey) Law, 2008 (as amended) requires the
Directors to prepare financial statements for each financial year
and under that law they have elected to prepare the financial
statements in accordance with IFRS as issued by the International
Accounting Standards Board ("IASB").
The financial statements are required by law to give a true and
fair view of the state of affairs of the Group and of the profit or
loss of the Group for that year.
In preparing these financial statements, the Directors are
required to:
-- Select suitable accounting policies and then apply them consistently;
-- Make judgements and estimates that are reasonable and prudent;
-- State whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
-- Prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group will continue
in business.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Group and to enable them to ensure that
the financial statements comply with The Companies (Guernsey) Law,
2008 (as amended). They have general responsibility for taking such
steps as are reasonably open to them to safeguard the assets of the
Group and to prevent and detect fraud and other irregularities.
The Directors confirm that they have complied with the above
requirements in preparing the financial statements and that to the
best of their knowledge and belief:
-- This annual report includes a fair review of the development
and performance of the business and the position of the Group
together with a description of the principal risks and
uncertainties that the Group faces;
-- The financial statements, prepared in accordance with IFRS
adopted by the IASB and interpretations issued by the International
Financial Reporting Interpretations Committee ("IFRIC"), give a
true and fair view of the assets, liabilities, financial position
and results of the Group; and
-- The annual report and financial statements, taken as a whole,
provide the information necessary to assess the Group's position
and performance, business model and strategy and is fair, balanced
and understandable.
Richard Boléat Jonathan Bridel
Chairman Chairman of the Audit Committee
13 July 2017 13 July 2017
INDEPENT AUDITOR'S REPORT
TO THE MEMBERS OF FUNDING CIRCLE SME INCOME FUND LIMITED
Report on the audit of the consolidated financial statements
Our opinion
In our opinion, the consolidated financial statements give a
true and fair view of the consolidated financial position of
Funding Circle SME Income Fund Limited (the "Company") and its
subsidiaries (together the "Group") as at 31 March 2017, and of
their consolidated financial performance and their consolidated
cash flows for the year then ended in accordance with International
Financial Reporting Standards and have been properly prepared in
accordance with the requirements of The Companies (Guernsey) Law,
2008.
What we have audited
The Group's consolidated financial statements comprise:
-- the consolidated statement of financial position as at 31
March 2017;
-- the consolidated statement of comprehensive income for the
year then ended;
-- the consolidated statement of changes in shareholders' equity
for the year then ended;
-- the consolidated statement of cash flows for the year then
ended; and
-- the notes to the consolidated financial statements, which
include a summary of significant accounting policies.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing ("ISAs"). Our responsibilities under those
standards are further described in the Auditor's responsibilities
for the audit of the consolidated financial statements section of
our report.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Group in accordance with the
International Ethics Standards Board for Accountants' Code of
Ethics for Professional Accountants ("IESBA Code"). We have
fulfilled our other ethical responsibilities in accordance with the
IESBA Code.
Our audit approach
Overview
Materiality
* Overall materiality was GBP3.7 million which
represents 2.25% of consolidated net assets
------------------------------------------------------------
Audit scope
* The Company is based in Guernsey with underlying
subsidiaries located in Ireland and engages Funding
Circle Ltd (the "Portfolio Administrator") to
administer its loan portfolio. The consolidated
financial statements are a consolidation of the
Company and all of the underlying subsidiaries.
* We conducted our audit of the consolidated financial
statements from information provided by Sanne Group
(Guernsey) Limited (the "Administrator") to whom the
board of directors has delegated the provision of
certain functions. We also had significant
interaction with the Portfolio Administrator in
completing aspects of our overall audit work.
* We conducted our audit work in Guernsey and we
tailored the scope of our audit taking into account
the types of investments within the Group, the
involvement of the third parties referred to above,
the accounting processes and controls, and the
industry in which the Group operates.
------------------------------------------------------------
Key audit matters
* Impairment and carrying value of loans advanced
Audit scope
As part of designing our audit, we determined materiality and
assessed the risks of material misstatement in the consolidated
financial statements. In particular, we considered where the
directors made subjective judgements; for example, in respect of
significant accounting estimates that involved making assumptions
and considering future events that are inherently uncertain. As in
all of our audits, we also addressed the risk of management
override of internal controls, including among other matters,
consideration of whether there was evidence of bias that
represented a risk of material misstatement due to fraud.
We tailored the scope of our audit in order to perform
sufficient work to enable us to provide an opinion on the
consolidated financial statements as a whole, taking into account
the structure of the Group, the accounting processes and controls,
and the industry in which the Group operates.
The Company is based in Guernsey with two underlying
subsidiaries located in Ireland. The consolidated financial
statements are a consolidation of the Company and both underlying
subsidiaries.
Scoping was performed at the Group level, irrespective of
whether the underlying transactions took place within the Company
or within the subsidiaries. The Group audit was led, directed and
controlled by PricewaterhouseCoopers CI LLP and all audit work for
material items within the consolidated financial statements was
performed in Guernsey by PricewaterhouseCoopers CI LLP. Both
subsidiaries and the parent that make up the Group were in scope
for our audit procedures over the consolidated financial
statements.
Materiality
The scope of our audit was influenced by our application of
materiality. An audit is designed to obtain reasonable assurance
whether the financial statements are free from material
misstatement. Misstatements may arise due to fraud or error. They
are considered material if individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users
taken on the basis of the consolidated financial statements.
Based on our professional judgement, we determined certain
quantitative thresholds for materiality, including the overall
Group materiality for the consolidated financial statements as a
whole as set out in the table below. These, together with
qualitative considerations, helped us to determine the scope of our
audit and the nature, timing and extent of our audit procedures and
to evaluate the effect of misstatements, both individually and in
aggregate on the financial statements as a whole.
Overall Group materiality GBP3,700,000
------------------------------ ----------------------------------
How we determined it 2.25% of consolidated
net assets
------------------------------ ----------------------------------
Rationale for the materiality We believe consolidated
benchmark net assets to be the appropriate
basis for determining
materiality since this
is a key consideration
for investors when assessing
financial performance.
It is also a generally
accepted measure used
for companies in this
industry.
------------------------------ ----------------------------------
We agreed with the Audit Committee that we would report to them
misstatements identified during our audit above GBP185,000, as well
as misstatements below that amount that, in our view, warranted
reporting for qualitative reasons.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
consolidated financial statements of the current period. These
matters were addressed in the context of our audit of the
consolidated financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these
matters.
Key audit matter How our audit addressed the
Key audit matter
------------------------------ -------------------------------------------------------------
Impairment and carrying We understood and assessed
value of loans of loans the methodology and assumptions
advanced applied by the Group in determining
the amortised cost of loans
Refer to note 2d Use and receivables, by reference
of estimates and judgements, to accounting standards and
note 3b Significant industry practice.
accounting policies We tested the techniques
and note 4 Loans advanced. used in determining the carrying
value of loans advanced measured
Loans advanced are in accordance with amortised
recorded at amortised cost and the recognition
cost in the Consolidated of any impairment allowance.
Statement of Financial Our testing included:
Position and amounted * detailed testing over the loan models used by
to GBP155.9m as at management to value the loans at amortised cost using
31 March 2017. This the effective interest rate method;
amount is net of an
impairment allowance
and loans written-off * validating the inputs in the loan models, including
of GBP3.3m (refer to interest rates and loan maturity, and agreeing to the
note 4 Loans advanced). legal loan documentation on a sample basis;
The impairment assessment
requires estimates * obtaining management's impairment reviews for the
and significant judgements loan portfolios and assessing whether any indicators
to be applied. Changes of impairment existed at the year-end, including
to the key inputs of testing a sample of loans to confirm where payments
the estimates and judgements of principle and interest were overdue;
can result in a material
change to the carrying
value of loans advanced. * obtaining supporting analysis for the assumptions
used in management's impairment review which were
derived from historical data and the performance of
the Group's loan portfolios;
* testing the calculation of the impairment allowance
by re-performing the calculation using the loan
inputs and management's impairment assumptions;
* we also performed the above procedures in relation to
the Class B Note, and the underlying loan portfolio
which determines the returns of the Class B Note, to
test its carrying value in accordance with amortised
cost; and
* reviewing the underlying legal agreements of the
Class B Note which detail the loan terms to assess
whether any indicators of impairment existed at the
year-end.
We found that the recording
of loans advanced at amortised
cost was consistent with
the Group's accounting policies
and that the assumptions
used to calculate the impairment
allowance were supported
by appropriate evidence.
------------------------------ -------------------------------------------------------------
Other information
The directors are responsible for the other information. The
other information comprises the Summary Information, the Chairman's
Statement, the Strategic Report, the Directors' Report, the
Corporate Governance Report, the Audit Committee Report, the
Directors' Remuneration Report, the Statement of Directors'
Responsibilities, the Board of Directors, the Agents and Advisors
and the Glossary (but does not include the consolidated financial
statements and our auditor's report thereon).
Other than as specified in our report, our opinion on the
consolidated financial statements does not cover the other
information and we do not express any form of assurance conclusion
thereon.
In connection with our audit of the consolidated financial
statements, our responsibility is to read the other information
identified above and, in doing so, consider whether the other
information is materially inconsistent with the consolidated
financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated. If, based on the work
we have performed, we conclude that there is a material
misstatement of this other information, we are required to report
that fact. We have nothing to report in this regard.
Responsibilities of the directors for the consolidated financial
statements
The directors are responsible for the preparation of the
consolidated financial statements that give a true and fair view in
accordance with International Financial Reporting Standards, the
requirements of Guernsey law and for such internal control as the
directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the consolidated financial statements, the
directors are responsible for assessing the Group's ability to
continue as a going concern, disclosing, as applicable, matters
relating to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the
Group or to cease operations, or have no realistic alternative but
to do so.
Auditor's responsibilities for the audit of the consolidated
financial statements
Our objectives are to obtain reasonable assurance about whether
the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue
an auditor's report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of these consolidated
financial statements.
As part of an audit in accordance with ISAs, we exercise
professional judgement and maintain professional scepticism
throughout the audit. We also:
-- Identify and assess the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide
a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal
control.
-- Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Group's internal control.
-- Evaluate the appropriateness of accounting policies used and
the reasonableness of accounting estimates and related disclosures
made by the directors.
-- Conclude on the appropriateness of the directors' use of the
going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Group's
ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in
our auditor's report to the related disclosures in the consolidated
financial statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our auditor's report. However, future
events or conditions may cause the Group to cease to continue as a
going concern.
-- Evaluate the overall presentation, structure and content of
the consolidated financial statements, including the disclosures,
and whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves fair
presentation.
-- Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities within
the Group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and
performance of the Group audit. We remain solely responsible for
our audit opinion.
We communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with those charged with
governance, we determine those matters that were of most
significance in the audit of the consolidated financial statements
of the current period and are therefore the key audit matters. We
describe these matters in our auditor's report unless law or
regulation precludes public disclosure about the matter or when, in
extremely rare circumstances, we determine that a matter should not
be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
Report on other legal and regulatory requirements
Under The Companies (Guernsey) Law, 2008 we are required to
report to you if, in our opinion:
-- we have not received all the information and explanations we require for our audit;
-- proper accounting records have not been kept; or
-- the consolidated financial statements are not in agreement with the accounting records.
-- we have no exceptions to report arising from this responsibility.
-- we have nothing to report in respect of the following matters which we have reviewed:
-- the directors' statement in relation to going concern. As
noted in the directors' statement, the directors have concluded
that it is appropriate to adopt the going concern basis in
preparing the financial statements. The going concern basis
presumes that the Group has adequate resources to remain in
operation, and that the directors intend it to do so, for at least
one year from the date the financial statements were signed. As
part of our audit we have concluded that the directors' use of the
going concern basis is appropriate. However, because not all future
events or conditions can be predicted, these statements are not a
guarantee as to the Group's ability to continue as a going
concern;
-- the directors' statement that they have carried out a robust
assessment of the principal risks facing the Group and the
directors' statement in relation to the longer-term viability of
the Group. Our review was substantially less in scope than an audit
and only consisted of making inquiries and considering the
directors' process supporting their statements; checking that the
statements are in alignment with the relevant provisions of the UK
Corporate Governance Code; and considering whether the statements
are consistent with the knowledge acquired by us in the course of
performing our audit; and
-- the part of the Corporate Governance Statement relating to
the Group's compliance with the ten further provisions of the UK
Corporate Governance Code specified for our review.
This report, including the opinion, has been prepared for and
only for the members as a body in accordance with Section 262 of
The Companies (Guernsey) Law, 2008 and for no other purpose. We do
not, in giving this opinion, accept or assume responsibility for
any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
Nicholas John Vermeulen
For and on behalf of PricewaterhouseCoopers CI LLP
Chartered Accountants and Recognised Auditor
Guernsey, Channel Islands
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 MARCH 2017
1 April 22 July
2016 to 2015 (date
31 March of incorporation)
2017 to 31 March
2016
Notes GBP
------------------------------ ------ ------------ -------------------
Operating income
Interest income on loans
advanced 4 17,326,262 1,864,930
Bank interest income 18,695 120,701
------------------------------- ------ ------------ -------------------
17,344,957 1,985,631
------------------------------ ------ ------------ -------------------
Operating expenditure
Net realised and unrealised
loss on foreign exchange 15 196,849 18,768
Loan servicing fees 14 1,212,411 170,381
Audit, audit-related
and non-audit related
fees 184,309 110,315
Directors' remuneration
and expenses 13 258,410 103,239
Legal fees 366,442 99,820
Company administration
and secretarial fees 14 224,985 92,767
Unrealised fair value
movement on currency
derivatives 7 - 2,432
Impairment of loans 4 3,282,919 30,192
Corporate services fees 145,670 -
Regulatory fees 60,590 13,157
Corporate broker services 68,003 12,326
Other operating expenses 263,357 55,617
------------------------------- ------ ------------ -------------------
6,263,945 709,014
------------------------------ ------ ------------ -------------------
Operating profit for
the year before taxation 11,081,012 1,276,617
Taxation 10 (500) -
------------------------------- ------ ------------ -------------------
Total comprehensive income
for the year/period 11,080,512 1,276,617
------------------------------- ------ ------------ -------------------
Earnings per share
Basic and diluted 11 6.93p 0.85p
------------------------------- ------ ------------ -------------------
Number Number
of shares of shares
------------------------------ ------ ------------ -------------------
Weighted average number
of shares outstanding
Basic and diluted 11 159,874,926 150,000,000
Other comprehensive income
There were no items of other comprehensive income in the current
year or the prior period.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 MARCH 2017
2017 2016
Notes GBP GBP
------------------------------------ ------ -------------- --------------
ASSETS
Cash and cash equivalents 6 12,331,519 56,757,244
Margin account held with bank 7 270,000 610,000
Other receivables and prepayments 371,919 225,683
Fair value of currency derivatives 7 239,253 -
Loans advanced 4 155,881,911 94,764,065
TOTAL ASSETS 169,094,602 152,356,992
------------------------------------ ------ -------------- --------------
EQUITY AND LIABILITIES
Capital and reserves
Share capital 9 161,916,399 147,000,000
Retained earnings 2,835,892 1,276,617
------------------------------------ ------ -------------- --------------
TOTAL SHAREHOLDERS' EQUITY 164,752,291 148,276,617
------------------------------------ ------ -------------- --------------
LIABILITIES
Fair value of currency derivatives 7 - 2,432
Accrued expenses and other
liabilities 8 4,342,311 4,077,943
------------------------------------ ------ -------------- --------------
TOTAL LIABILITIES 4,342,311 4,080,375
------------------------------------ ------ -------------- --------------
TOTAL EQUITY AND LIABILITIES 169,094,602 152,356,992
------------------------------------ ------ -------------- --------------
NAV per share outstanding
Basic and diluted 99.87p 98.85p
------------------------------------ ------ -------------- --------------
The financial statements were approved and authorised for issue
by the Board of Directors on 13 July 2017 and were signed on its
behalf by:
Richard Boléat Jonathan Bridel
Chairman Chairman of the Audit Committee
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARED 31 MARCH 2017
Share Retained
capital earnings Total
Notes GBP GBP GBP
------------------------ ------ ------------ ------------ ------------
Balance at 1 April
2016 147,000,000 1,276,617 148,276,617
Issue of Ordinary
Shares 9 14,503,561 - 14,503,561
Ordinary Shares issue
costs 9 (290,071) - (290,071)
Scrip dividends issued 9,12 702,909 - 702,909
Dividends declared 12 - (9,521,237) (9,521,237)
Total comprehensive
income for the year - 11,080,512 11,080,512
Balance at 31 March
2017 161,916,399 2,835,892 164,752,291
------------------------ ------ ------------ ------------ ------------
Balance at 22 July - - -
2015 (date of incorporation)
Issue of Ordinary
Shares 9 150,000,000 - 150,000,000
Ordinary Shares issue
costs 9 (3,000,000) - (3,000,000)
Total comprehensive
income for the period - 1,276,617 1,276,617
Balance at 31 March
2016 147,000,000 1,276,617 148,276,617
------------------------------- ------------ ---------- ------------
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARED 31 MARCH 2017
1 April 22 July
2016 to 2015 (date
of incorporation)
to
31 March 31 March
2017 2016
Notes GBP GBP
-------------------------------------- ------ -------------- -------------------
Operating activities
Total comprehensive income
for the year/period 11,080,512 1,276,617
Adjustments for:
Tax expense 500 -
Interest income on loans advanced (17,326,262) (1,864,930)
Net foreign currency gain 15 (6,160,023) -
Impairment of loans 4 3,282,919 30,192
Fair value movement of currency
derivatives 7 (241,685) 2,432
-------------------------------------- ------ -------------- -------------------
Operating cash flows before
movements in working capital (9,364,039) (555,689)
Loans advanced 4 (112,660,710) (95,380,470)
Principal and interest collections
on loans advanced 4 67,311,190 6,236,746
Increase in other receivables
and prepayments (146,236) (225,683)
Increase in accrued expenses
and other liabilities 85,031 292,340
Decrease/(increase) in collateral
for currency derivatives 7 340,000 (610,000)
Net cash used in operating
activities (54,434,764) (90,242,756)
-------------------------------------- ------ -------------- -------------------
Financing activities
Proceeds from issue of Ordinary
Shares 9 14,503,561 147,450,000
Initial costs of issue of
Ordinary Shares 9 (290,071) (450,000)
Dividends paid (6,137,564) -
Net cash from financing activities 8,075,926 147,000,000
-------------------------------------- ------ -------------- -------------------
Net (decrease)/increase in
cash and cash equivalents (46,358,838) 56,757,244
Cash and cash equivalents 56,757,244 -
at the beginning of the year/period
Foreign exchange gain on cash 1,933,113 -
and cash equivalents
-------------------------------------- ------ -------------- -------------------
Cash and cash equivalents
at the end of the year/period 12,331,519 56,757,244
-------------------------------------- ------ -------------- -------------------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARED 31 MARCH 2017
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 its Ordinary Shares
are listed on the premium segment of the London Stock Exchange's
Main Market for listed securities. 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 Third Floor, La Plaiderie Chambers, La Plaiderie, St
Peter Port, Guernsey GY1 1WG, Channel Islands.
The Company has been established to provide shareholders with
sustainable and attractive levels of dividend income, primarily by
way of investment in loans originated both directly through the
Marketplaces operated by Funding Circle and indirectly, in each
case as detailed in the investment policy. The Company has
identified Funding Circle as a leader in the growing marketplace
lending space with its established infrastructure, scale of
origination volumes and expertise in accurately assessing loan
applications.
The Company publishes monthly net asset value statements.
2. Basis of preparation
a) Statement of compliance
The financial statements, which give a true and fair view, have
been prepared in accordance with International Financial Reporting
Standards ("IFRS") and are in compliance with The Companies
(Guernsey) Law, 2008 (as amended).
The Directors of the Company have adopted the exemption in
Section 244 of The Companies (Guernsey) Law 2008 (as amended) and
have therefore elected to only prepare consolidated financial
statements for the year.
Assets and liabilities of the Group have been presented in the
Statement of Financial Position in their order of liquidity as
permitted by International Accounting Standards 1, Presentation of
Financial Statements.
New Accounting Standards, amendments to existing Accounting
Standards and/or interpretations of existing Accounting Standards
(separately or together, "New Accounting Requirements") not yet
adopted
In the Directors' opinion, except for the standards referred to
below, all non-mandatory New Accounting Requirements are either not
yet permitted to be adopted, or would have no material effect on
the reported performance, financial position or disclosures of the
Group and consequently have neither been adopted nor listed.
IFRS 9 - "Financial Instruments" (Replacement of IAS 39 -
"Financial Instruments: Recognition and Measurement") - effective
for accounting periods beginning on or after 1 January 2018.
IFRS 9 requires financial assets to be classified into the
following measurement categories: (i) those measured at fair value
through profit or loss; (ii) those measured at fair value through
other comprehensive income; and, (iii) those measured at amortised
cost. The determination is made at initial recognition. Unless the
option to designate a financial asset as measured at fair value
through profit or loss is applicable, the classification depends on
the entity's business model for managing its financial instruments
and the contractual cash flow characteristics of the
instrument.
IFRS 9 also replaces the "incurred loss" model in IAS 39 with an
"expected credit loss" model in the measurement of impairment loss.
The new model applies to financial assets that are not measured at
fair value through profit or loss.
The mandatory effective date for application of IFRS 9 is for
accounting periods beginning on or after 1 January 2018. The
Directors are still evaluating the impact of IFRS 9 on the Group.
However, it is expected that the measurement of the amortised cost
amount of the loan portfolio will involve increased complexity and
judgement including assessment of change in credit risk and
estimation of expected credit loss.
IAS 7, "Statement of Cash Flows" (amendments) - effective
retrospectively for accounting periods commencing on or after 1
January 2017 (early adoption is permitted)
IAS 7 has been amended to improve disclosure on an entity's
liabilities. The amendments require disclosures that enable users
of financial statements to evaluate changes in liabilities arising
from financing activities, including both changes arising from cash
flow and non-cash changes. One way to meet this new disclosure
requirement is to provide a reconciliation between the opening and
closing balances for liabilities arising from financing
activities.
b) Basis of measurement and consolidation
These financial statements have been prepared on a historical
cost basis, as modified by the valuation of derivative financial
instruments at fair value. The methods used to measure fair value
are further disclosed in Note 15.
The Company owns all the Profit Participating Notes issued by
Basinghall Lending Designated Activity Company ("Basinghall") and
Tallis Lending Designated Activity Company ("Tallis"), companies
incorporated in the Republic of Ireland. The Directors believe that
the Company's ownership of the Profit Participating Notes
constitute control as it exposes the Company to variability of
returns from its involvement with the financial and operating
activities of Basinghall and Tallis. Therefore these financial
statements have been prepared on a consolidated basis. Intercompany
transactions including intercompany gains and losses on currency
translation between the Company and its subsidiaries were
eliminated in the consolidation process.
c) Functional and presentation currency
These financial statements are presented in Pound Sterling,
which is the functional currency of each of the entities in the
Group and the presentation currency of the Company. In the
Directors' opinion, the Pound Sterling is the functional currency
of the Company and Basinghall because substantially all their
financing and operating activities are carried out in Pound
Sterling. The Directors believe that the functional currency of
Tallis is the Pound Sterling as its operations are carried out as
an extension of the Company's operations. The Group hedges the
projected cash flows from its US dollar and Euro investments such
that its principal exposure is to the Pound Sterling.
d) Use of estimates and judgements
The preparation of financial statements in accordance with IFRS
requires the Board to make judgements, estimates and assumptions
that affect the application of policies and the reported amounts of
assets and liabilities and income and expenses. The estimates and
associated assumptions are based on historical experience and
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making the
judgements about carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ
from these estimates.
The estimates and underlying assumptions are reviewed on a
quarterly basis. Revisions to accounting estimates are recognised
in the period in which the estimate is revised if the revision
affects only that period, or in the period of the revision and
future periods if the revision affects both current and future
periods.
In particular, information about significant areas of estimation
uncertainty and critical judgements in applying accounting policies
that have the most significant effect on the amounts recognised in
the financial statements are included in the following:
-- Note 2(c) - One of the subsidiaries has its primary assets
and liabilities denominated in Euro. The Directors assessed whether
the functional currency is the Euro or Pound Sterling. The
subsidiary's operations are considered to be an extension of the
operations of the Company and therefore the Directors believe that
the appropriate functional currency for the subsidiary is Pound
Sterling, the functional currency of the Company.
-- Note 3(b) - The estimation of impairment of loans require
judgement in determining the present value of the expected future
cash flows after an impairment trigger has been identified. In
relation to the investment in the Class B Note issued by an Irish
SPV (see note 4), the receipt of and estimated timing of scheduled
and unscheduled repayments of loans advanced in the Irish SPV and
the impact on the carrying value and interest income of the Class B
Note.
-- Note 3(j) - The Directors assessed whether the Group had a
single operating segment based on its business model (origination
of loans) or several operating segments based on the jurisdictions
where loans are originated. After consideration of the financial
information that the Board regularly reviews in making economic
decisions, the Board concluded that operating segments based on
jurisdiction is a more appropriate basis.
-- Note 15 - The estimation of fair values of the Group's loans
and receivables require estimation of revised cash flows and
judgement on the appropriate market interest rate to apply. The
Directors considered that a discounted cash flow model using
appropriate market interest rates at the reporting date would not
result in any material difference to the amortised cost amount
reported on the Statement of Financial Position.
3. Significant accounting policies
The accounting policies set out below have been applied
consistently throughout the year and the prior period.
a) Foreign currencies
Transactions in foreign currencies are initially translated at
the foreign currency exchange rate ruling at the date of the
transaction. Monetary assets and monetary liabilities denominated
in foreign currencies are retranslated to Pound Sterling at the
foreign currency closing exchange rate ruling at the reporting
date.
None of the Group entities have a functional currency different
to presentation currency.
b) Financial instruments
i) Loans advanced
Loans advanced are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market.
Loans advanced are recognised when the funds are advanced to
borrowers or when the agreements with the borrowers have been
completed.
Loans advanced are measured at amortised cost using the
effective interest method, less any impairment. The effective
interest method calculates the amortised cost by allocating all
relevant cash flows over the relevant period. The effective
interest rate is the rate that exactly discounts estimated future
cash receipts (including all fees paid or received that form an
integral part of the effective interest rate, transaction costs and
other premiums or discounts) through the expected life of the loans
to the net carrying amount on initial recognition.
ii) Impairment of financial assets
The Directors assess at each reporting date whether, as a result
of one or more events that occurred after initial recognition,
there is objective evidence that a financial asset is impaired.
Evidence of impairment may include indications that a borrower is
experiencing significant financial difficulty, default or
delinquency in interest and/or principal payments or restructuring
of debt to reduce the burden on the borrower.
If there is no objective evidence of impairment for an
individually assessed asset it is included in a group of assets
with similar credit risk characteristics and collectively assessed
for impairment.
Impairment loss is measured as the difference between the
carrying amount of the asset and the present value of estimated
future cash flows discounted at the asset's original effective
interest rate. The methodology and assumptions used for estimating
future cash flows and impairment rates are reviewed by the Board on
a quarterly basis.
If, in a subsequent period, the amount of the default allowance
decreases and the decrease can be related objectively to an event
occurring after the impairment was recognised (such as an
improvement in the debtor's credit rating), the reversal of the
previously recognised default allowance is recognised in the
Consolidated Statement of Comprehensive Income.
Where a loan is not recoverable, it is written off against the
related provision for loan impairment. Subsequent recoveries of
amounts previously written off are reflected against the impairment
losses recorded in the Consolidated Statement of Comprehensive
Income.
iii) Derivative financial instruments
The Group holds derivative financial instruments to minimise its
exposure to foreign exchange risks. Derivatives are classified as
financial assets or financial liabilities (as applicable) at fair
value through profit or loss. They are initially recognised at fair
value with attributable transaction costs recognised in the
Consolidated Statement of Comprehensive Income when incurred.
Subsequent to initial recognition, derivatives are measured at fair
value and changes therein are recognised in the Consolidated
Statement of Comprehensive Income. The fair values of derivative
transactions are measured at their market prices at the reporting
date.
iv) Offsetting financial instruments
Financial assets and liabilities are offset and the net amount
is reported within assets and liabilities where there is a legally
enforceable right to set-off the recognised amounts and there is an
intention to settle on a net basis, or realise the asset and settle
the liability simultaneously.
c) Cash and cash equivalents
Cash and cash equivalents include cash at bank and in hand and
highly liquid interest-bearing securities with maturities of three
months or less.
d) Share capital
Ordinary Shares are classified as equity. Incremental costs
directly attributable to the issue of Ordinary Shares are
recognised as a deduction from the proceeds.
Shares issued under the scrip dividend scheme are recognised at
the reference price. The calculation of the reference price is
disclosed in more detail in Note 12.
e) Earnings per share
The Company presents basic and diluted earnings per share
("EPS") data for its Ordinary Shares. Basic EPS is calculated by
dividing the profit or loss attributable to Ordinary Shareholders
by the weighted average number of Ordinary Shares outstanding
during the year. The diluted EPS is calculated by adjusting the
profit or loss attributable to Ordinary Shareholders for the
effects of all dilutive potential Ordinary Shares. For further
details, please see Note 11.
f) Income
Income on loans held at amortised cost is recognised under the
effective interest rate method, by reference to the principal
outstanding and at the effective interest rate applicable, which is
the rate that exactly discounts estimated future cash receipts
through the expected life of the loan to its net carrying amount on
initial recognition.
In calculating the effective interest rate, the Group estimates
cash flows considering all contractual terms of the financial
instrument but does not consider future credit losses. The
calculation includes all fees received and paid and costs borne
that are an integral part of the effective interest rate and all
premiums or discounts above or below market rates.
Bank interest and other income receivable are accounted for on
an accruals basis.
g) Expenses and fees
Expenses are accounted for on an accruals basis and are
recognised in the Consolidated Statement of Comprehensive
Income.
h) Taxation
The Company is classified as exempt for taxation purposes under
the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 (as
amended) and as such incurs a flat fee (presently GBP1,200 per
annum). No other taxes are incurred in Guernsey.
Basinghall and Tallis are Irish resident companies that are
subject to corporation tax in Ireland at a rate of 25% on their
profits.
The tax currently payable by Basinghall and Tallis is based on
the taxable profit of the companies for the year. Taxable profit
differs from net profit as reported in the Consolidated Statement
of Comprehensive Income because it excludes items of income or
expense that are taxable or deductible in other years and it
further excludes items that are never taxable or deductible. The
Group's liability for current tax is calculated using tax rates
that have been enacted or substantively enacted at the reporting
date.
Deferred tax is the tax expected to be payable or recoverable on
temporary differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax
bases used in the computation of taxable profit, and is accounted
for using the liability method. Deferred tax liabilities are
recognised for all taxable temporary differences and deferred tax
assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible
temporary differences can be utilised.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised based on tax rates that have been enacted or substantively
enacted at the Consolidated Statement of Financial Position
date.
The carrying amount of deferred tax assets is reviewed at each
reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
i) Dividends payable
Dividends payable on the Company's shares are recognised in the
Consolidated Statement of Changes in Shareholders' Equity when
declared by the Directors or, where applicable, when approved by
the Shareholders. The Directors consider declaration of a dividend
on a quarterly basis, having regard to various considerations,
including the financial position of the Company. 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).
j) Segment reporting
An operating segment is a component of the Group that engages in
business activities from which it may earn revenues and incur
expenses. In the financial statements for the period ended 31 March
2016, the Directors reported the Group as a single operating
segment engaged in the activity of making loans. During the year
ended 31 March 2017, the Directors increased their use of financial
information for each jurisdiction where the loans were originated
from. Although this has not resulted in a change to the allocation
limits as set out in the Company's Prospectus, the Directors will
continue to monitor financial information for each jurisdiction and
will ensure this financial information is considered when decisions
of how to allocate the resources of the Group are being made.
Accordingly, the Directors have reconsidered the business segments
of the Group based on the jurisdiction where the loans are
originated from. The Directors decided to change their reporting to
reflect three operating segments: UK, US and Continental
Europe.
4. LOANS ADVANCED
31 March 2017 31 March
2016
GBP GBP
-------------------------------------- -------------- ------------
Balance at the beginning of the year 94,764,065 -
Advanced 110,193,869 99,166,073
Interest income 17,326,262 1,864,930
Principal and interest collections (67,345,776) (6,236,746)
Impairment allowance (3,282,919) (30,192)
Foreign exchange gains 4,226,410 -
-------------------------------------- -------------- ------------
Balance at the end of the year 155,881,911 94,764,065
--------------------------------------- -------------- ------------
The Group predominantly makes unsecured loans. As at 31 March
2017, the carrying value of loans secured by charges over
properties is GBP14,815,953 (March 2016: GBP12,075,105).
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.
The ageing analysis of the past due receivables along with the
amount recognised as an impairment allowance are as follows:
As at 31 March As at 31 March
2017 2016
--------------------------- ---------------------------
Principal Impairment Principal Impairment
and interest allowance and interest allowance
--------------------- -------------- ----------- -------------- -----------
Past due between 30
days and 60 days 711,376 255,566 43,970 9,998
Past due between 61
days to 90 days 263,985 164,067 - -
Past due for over
90 days 19,353 11,999 - -
Defaulted (net of
recoveries) 3,727,505 2,881,479 20,194 20,194
4,722,219 3,313,111 64,164 30,192
--------------------- -------------- ----------- -------------- -----------
The following table shows the movement in impairment allowance
during the year:
GBP
-------------------------------------- ----------
Impairment allowance as at beginning
of the year 30,192
Additional impairment allowance 3,282,919
Impairment allowance at
the end of the year 3,313,111
--------------------------------------- ----------
Structured Finance Transaction
In June 2016, the Company participated in a structured finance
transaction with the EIB, involving the set-up of an Irish
domiciled SPV. The Company invested GBP25 million into the Irish
SPV whilst the EIB committed to invest up to GBP100 million in a
senior loan to the Irish SPV. The loan has been accounted for as a
loans and receivables measured at amortised cost using the
effective interest rate basis. The underlying assets of the Irish
SPV are loans to UK SME which were originated through the UK
Marketplace.
The settlement of the Company's investment into the structured
finance transaction was completed through a Netting Agreement
between the Company, Basinghall and the Irish SPV. The key terms of
the Netting Agreement are:
- The Company redeems GBP25,000,000 of the notes previously issued to it by Basinghall;
- Basinghall transfers a portfolio of loans with an amortised
cost amount of GBP24,838,124 to the Irish SPV; and
- Basingall paid GBP161,876 cash to the Irish SPV.
The interest income earned on the structured finance transaction
through the Irish SPV during the year was GBP4,139,377 (included in
the total interest income within the Consolidated Statement of
Comprehensive Income), of which GBP3,134,573 (included in loans
advanced) was outstanding as at 31 March 2017.
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 Group stopped lending to Spanish companies during the
year.
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.
The Group's investment in the structured finance transaction in
the Irish SPV generated interest income that exceeds 10% of the
Group's total income. Except for this transaction, all of the
Group's investments are loans to small and medium-sized entities
("SMEs"). Each individual SME loan does not generate income that
exceeds 10% of the Group's total income.
The structured finance transaction in the Irish SPV 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 'Reconciling
items' column.
Segment performance for the year ended 31 March 2017
UK US CE Reconciling Consolidated
items
GBP GBP GBP GBP GBP
--------------- ----------- ---------- -------- ------------ -------------
Total revenue 11,794,954 5,233,194 298,114 18,695 17,344,957
Profit/(loss)
before tax 8,677,243 2,537,536 44,387 (178,154) 11,081,012
Segment assets and liabilities as at 31 March 2017
UK US CE Reconciling Consolidated
items
GBP GBP GBP GBP GBP
------------- ------------ ----------- ---------- ------------ -------------
Assets 111,142,766 42,909,326 8,152,819 6,889,691 169,094,602
Liabilities (1,375,391) (33,778) (30,748) (2,901,894) (4,341,811)
Segment performance for the period ended 31 March 2016
UK US CE Reconciling Consolidated
items
GBP GBP GBP GBP GBP
Total revenue 1,159,668 705,262 - 120,701 1,985,631
Profit before
tax 713,127 652,032 (48,080) (99,452) 1,276,617
Segment assets and liabilities as at 31 March 2016
UK US CE Reconciling Consolidated
items
GBP GBP GBP GBP GBP
------------- ------------ ----------- ---------- ------------ -------------
Assets 83,616,218 25,845,154 7,899,777 34,995,843 152,356,992
Liabilities (3,862,750) (11,452) (27,043) (179,130) (4,080,375)
The Company is domiciled in Guernsey whilst Basinghall and
Tallis are domiciled in Ireland. As disclosed in Note 4, the
Company invested in a note issued by an Irish SPV. Details of the
income earned during the year from this investment are disclosed in
Note 4. All other income was earned from SME borrowers in the UK,
US and CE.
6. cash and cash equivalents
31 March 2017 31 March
2016
GBP GBP
--------------------------- -------------- -----------
Cash at bank 4,548,149 22,483,253
Cash equivalents 7,783,370 34,273,991
Balance at the end of the
year 12,331,519 56,757,244
--------------------------- -------------- -----------
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 15). 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. Foreign exchange derivatives are
entered into with Royal Bank of Scotland International ("RBSI").
During the year, the Group also entered into foreign exchange
derivative contracts with Goldman Sachs International ("GS") with
terms similar to those entered into with RBSI. The contracts with
GS are collateralised by a cash deposit. During the year, the Group
renegotiated the terms of the contract with RBSI such that no
collateral is required on the initial transaction and in instances
of temporary negative fair value positions.
(a) Margin accounts held at bank
Fair value Fair value
31 March 2017 31 March
2016
GBP GBP
-------------------------- --------------- -----------
Margin account held with
RBSI - 610,000
Margin account held with 270,000 -
GS
-------------------------- --------------- -----------
270,000 610,000
-------------------------- --------------- -----------
(b) Fair value of currency derivatives
Fair value Fair value
31 March 2017 31 March
2016
GBP GBP
----------------------------------- --------------- -----------
Valuation of currency derivatives 239,253 (2,432)
239,253 (2,432)
----------------------------------- --------------- -----------
Fair value Nominal of outstanding
contracts
31 March 31 March 2017
2017
(GBP) (Currency)
------------------------ ------------ ------------------------
Euro (16,658) 6,415,686
USD 255,911 57,630,653
Total 239,253
------------------------ ------------ ------------------------
Fair value Nominal of outstanding
contracts
31 March 31 March 2016
2016
(GBP) (Currency)
------------------------ ------------ ------------------------
Euro (179,235) 10,005,000
USD 176,803 43,647,000
------------------------ ------------ ------------------------
Fair value of currency
derivatives (2,432)
------------------------ ------------ ------------------------
8. ACCRUED EXPENSES and other LIABILITIES
31 March 31 March
2017 2016
GBP GBP
------------------------------------------------ ---------- ----------
Dividends payable 2,680,764 -
Payable for loans committed but not yet funded 1,284,176 3,785,603
Service fees payable 104,773 65,635
Audit fees payable 128,831 110,315
Legal fees payable 54,724 95,165
Taxation payable 500 -
Other liabilities 88,543 21,225
------------------------------------------------- ---------- ----------
4,342,311 4,077,943
------------------------------------------------ ---------- ----------
The amount payable for loans committed but not yet funded
represents funds not released to borrowers but for which fully
executed loan agreements are in place. The Group has acquired the
rights to principal and interest repayments for these loans and
these are therefore included in the loans advanced with a
corresponding liability recognised for funds to be released to the
borrowers.
9. Share capital
Issued and fully Number Ordinary Issue costs Net Ordinary
paid of shares shares Shares
issued value
value
GBP GBP GBP
------------------ ------------ ------------ ------------ -------------
At 31 March
2016 150,000,000 150,000,000 (3,000,000) 147,000,000
Issue of
new shares 14,285,000 14,503,561 (290,071) 14,213,490
Scrip dividends 685,063 702,909 - 702,909
At 31 March
2017 164,970,063 165,206,470 (3,290,071) 161,916,399
------------------- ------------ ------------ ------------ -------------
On 20 July 2016, the Company issued 14,285,000 Ordinary Shares
at a price of GBP1.0153 per ordinary share raising net proceeds of
GBP14,213,490 after direct issue costs of GBP290,071.
Rights attaching to the shares
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 made or paid 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.
Rights attaching to C Shares Class
All shareholders of the same class have the same voting rights
in respect of the share capital of the Company. The C Shares shall
carry the right to receive notice of and to attend, speak and vote
at any general meeting of the Company. The voting rights of holders
of C Shares will be the same as those applying to holders of
Ordinary Shares as set out in the Articles, as if the C Shares and
Ordinary Shares were a single class.
Each class of C Shares shall carry the right to receive all
income of the Company attributable to that class of C Shares and to
participate in any distribution of such income.
The C Shares are issued on such terms that they shall be
redeemable by the Company in accordance with the terms set out in
the Articles.
10. taxation
01 April 22 July
2016 2015
to 31 March to 31 March
2017 2016
GBP GBP
---------------------------------- ------------- -------------
Operating profit before taxation 11,081,012 1,276,617
----------------------------------- ------------- -------------
Tax at the standard Guernsey - -
income tax rate of 0%
Effects of tax rates in other (500) -
jurisdictions
Taxation expense (500) -
----------------------------------- ------------- -------------
The Group may be subject to taxation under the tax rules of the
jurisdictions in which it invests. During the year ended 31 March
2017, Basinghall and Tallis which are consolidated into the Group's
results were subject to a corporation tax rate of 25%.
11. Earnings per share ("EPS")
The calculation of the basic and diluted EPS is based on the
following information:
31 March 31 March
2017 2016
GBP GBP
------------------------------------- ------------ ------------
Profit for the purposes of basic
and diluted EPS 11,080,512 1,276,617
Weighted average number of Ordinary
Shares for the purposes of EPS:
Basic and diluted 159,874,926 150,000,000
-------------------------------------- ------------ ------------
Basic and diluted EPS 6.93p 0.85p
-------------------------------------- ------------ ------------
12. Dividends
The following table shows a summary of dividends declared during
the year;
31 March 2017
----------------------------------------------------------
Date Ex-dividend Per Total
declared date share
Pence GBP
------------------ --- -------------- -------------- ------- ----------
17 June
Interim dividend 2016 30 June 2016 1 1,500,000
14 September 29 September
Interim dividend 2016 2016 1.625 2,669,623
29 December
2016
23 March
2017
15 December
Interim dividend 2016 1.625 2,670,850
15 March
Interim dividend 2017 1.625 2,680,764
Total 5.875 9,521,237
--------------------------------------------------------- ------- ----------
The Board offers shareholders a choice to receive dividends in
cash or in shares via a scrip dividend. The number of shares issued
is determined by using a Reference Share Price determined as the
higher of (i) the prevailing average of the middle market
quotations of the shares derived from the Daily Official List of
the London Stock Exchange for the ex-dividend date and the four
subsequent dealing days and (ii) the prevailing net asset value per
share.
On 31 October 2016 the Company issued 75,698 Ordinary Shares at
a reference share price of 103.45 pence per
Ordinary Share, in relation to the scrip dividend option.
On 31 January 2017 the Company issued 609,365 Ordinary Shares at
a reference price of 102.5 pence per Ordinary Share, in relation to
the scrip dividend option.
On 2 May 2017 the Company issued 612,236 Ordinary Shares at a
reference price of 102.675 pence per Ordinary Share, in relation to
the scrip dividend option.
13. Directors' remuneration and expenses
1 April 22 July
2016 2015
to 31 March to 31 March
2017 2016
GBP GBP
--------------------- ------------ ------------
Directors' fees 251,965 100,590
Directors' expenses 6,445 2,649
---------------------- ------------ ------------
258,410 103,239
--------------------- ------------ ------------
None of the Directors have any personal financial interest in
any of the Group's investments other than indirectly through their
shareholding in the Group.
14. FEES AND EXPENSES
Loan origination and servicing
Funding Circle UK has been appointed pursuant to the UK
Origination Agreement, UK Servicing Agreement and the Services
Agreement. Funding Circle US (as defined in the Prospectus) has
been appointed pursuant to the US Origination Agreement and the US
Servicing Agreement.
Funding Circle Nederlands B.V. ("Funding Circle Netherlands")
has been appointed pursuant to the Dutch Origination Agreement and
the Dutch Servicing Agreement. Funding Circle Espana SLU ("Funding
Circle Spain") has been appointed pursuant to the Spanish
Origination Agreement and the Spanish Servicing Agreement. Funding
Circle CE GmbH ("Funding Circle CE") has been appointed pursuant to
the German Origination Agreement and the German Servicing
Agreement. Each of Funding Circle Netherlands and Funding Circle
Spain has agreed to designate Funding Circle CE as sub-contracting
agent for the purposes of their respective Origination Agreements
and Servicing Agreements.
The Group does not pay Funding Circle any fees on the initial
origination of loans.
Funding Circle UK is entitled to receive loan servicing fees
equal to 1 per cent. per annum, calculated daily, on the aggregate
outstanding principal balance of the portfolio of loans held by
Basinghall excluding any loans which have been charged off as
defined in the Servicing Agreement. Servicing fees to Funding
Circle UK of GBP770,131 were incurred during the year (period ended
31 March 2016: GBP117,151). Servicing fees outstanding as at 31
March 2017 were GBP66,085 (2016: GBP54,183).
Funding Circle UK is also entitled to receive fees under the
Services Agreement at an annual rate of 0.1 per cent. of net asset
value of the Group. This fee shall accrue from the date on which
the Group has made investments in respect of loans in an amount
equal to 80 per cent. of the gross issue proceeds of GBP150.0
million. During the year ended 31 March 2017, GBP145,670 was
incurred under the Services Agreement.
Funding Circle US is entitled to receive loan servicing fees
equal to 1 per cent. per annum, calculated daily, on the aggregate
outstanding principal balance of the portfolio of loans held by the
Company which have been originated in the US excluding any loans
which have been charged off as defined in the Servicing Agreement.
Servicing fees to Funding Circle US of GBP410,762 were incurred
during the year (period ended 31 March 2016: GBP53,230). Servicing
fees outstanding as at 31 March 2017 were GBP33,778 (2016:
GBP11,452).
Funding Circle Netherlands is entitled to receive loan servicing
fees equal to 1 per cent. per annum, calculated daily, on the
aggregate outstanding principal balance of the portfolio of loans
held by Tallis excluding any loans which have been charged off as
defined in the Servicing Agreement.
Funding Circle Spain is entitled to receive loan servicing fees
equal to 1 per cent. per annum, calculated daily, on the aggregate
outstanding principal balance of the portfolio of loans held by
Tallis excluding any loans which have been charged off as defined
in the Servicing Agreement.
Funding Circle Deutschland GmbH is entitled to receive loan
servicing fees equal to 1 per cent. per annum, calculated daily, on
the aggregate outstanding principal balance of the portfolio of
loans held by Tallis excluding any loans which have been charged
off as defined in the Servicing Agreement.
Funding Circle CE receives servicing fees for Funding Circle
Netherlands, Funding Circle Spain and Funding Circle Deutschland
GmbH as per the sub-contracting agency agreement. Servicing fees to
Funding Circle CE during the year amounted to GBP31,518 (period
ended 31 March 2016: GBPnil). Servicing fees outstanding as at 31
March 2017 were GBP4,910 (2016: GBPnil).
Each of the Funding Circle entities is entitled to additional
fees of up to 40 per cent. of collections received on charged off
assets under each of the relevant Services Agreement. No such
additional fees were charged to the Group during the current year
or the prior period.
Administration, company secretarial and cash management
Sanne Group (Guernsey) Limited ("Sanne Guernsey") has been
appointed as Administrator to the Company pursuant to the
Administration Agreement. The Administrator will also act as
Company Secretary and Cash Manager of the Company.
Sanne Guernsey is entitled to receive an annual fee equal to
five basis points of the net asset value of the Group subject to a
minimum amount of GBP85,000. Administration fees of GBP120,172 were
incurred during the year (period ended 31 March 2016: GBP39,685).
There were no administration fees outstanding as at 31 March 2017
and 31 March 2016.
Sanne Capital Markets Ireland Limited ("Sanne Ireland") has been
appointed as Administrator to Basinghall and Tallis and is entitled
to receive an annual fee for each entity of GBP45,000.
Administration fees of GBP104,813 (including fees for additional
work performed) were incurred during the year (period ended 31
March 2016: GBP53,082). There were no administration fees
outstanding as at 31 March 2017 and 31 March 2016.
Registrar
Capita Asset Services (the "Registrar") has been appointed as
the Company's Registrar to undertake maintenance of the statutory
books of the Company and to perform such related activities as are
required to carry out the registrar function. The Registrar is
entitled to an annual maintenance fee per shareholder subject to a
minimum charge of GBP4,500 per annum. Registrar service fees of
GBP39,203 were incurred during the year (period ended 31 March
2016: GBP2,402). Registrar service fees outstanding as at 31 March
2017 amounted to GBPnil (2016: GBP700).
Currency management fee
Record Currency Management Limited has been appointed as
currency manager. The currency manager is entitled to fees
calculated based on the amount of US Dollar denominated exposure
being hedged within the Group's portfolio. Fees of GBP35,661 were
incurred during the year (period ended 31 March 2016: GBP7,801).
Fees outstanding as at 31 March 2017 amounted to GBPnil (2016:
GBP7,166).
Audit, audit related and non-audit related services
Remuneration for all work carried out for the Group by the
statutory audit firm in each of the following categories of work is
disclosed below:
1 April 2016 to 22 July 2015 to
31 March 2017 31 March 2016
---------------------- ----------------------
Type of service PwC CI PwC Ireland PwC CI PwC Ireland
GBP GBP GBP GBP
-------------------------- -------- ------------ -------- ------------
Audit of the financial
statements 107,564 30,763 60,000 28,515
Review of half-yearly 20,000 - - -
financial statements
Tax related services - 10,981 6,750 15,050
Other non-audit services 15,000 - 100,000 -
142,564 41,744 166,750 43,565
-------------------------- -------- ------------ -------- ------------
15. Financial risk management
The Board of Directors has overall responsibility for the
establishment and oversight of the Group's risk management
framework. The Group's risk management policies are established to
identify and analyse the risks faced by the Group, to set
appropriate risk limits and controls and to monitor risks and
adherence to limits. Risk management policies are reviewed
regularly to reflect changes in market conditions and the Group's
activities. Below is a summary of the risks that the Group is
exposed to as a result of its use of financial instruments.
i) Operational risk
The Group is dependent on Funding Circle's resources and on the
ability and judgement of the employees of Funding Circle and its
professional advisers to originate and service the loans purchased
by the Group. Failure of Funding Circle's platform or inconsistent
operational effectiveness of the internal controls at Funding
Circle may result in financial losses to the Group.
The Board manages this risk by performing regular evaluation of
Funding Circle's performance against the terms and conditions of
the Group's agreements with Funding Circle.
ii) Market risk
Market risk is the risk of changes in market rates, such as
interest rates, foreign exchange rates and equity prices, affecting
the Group's income and/or the value of its holdings in financial
instruments.
The Board of Directors regularly reviews the investment
portfolio and industry developments to ensure that any events which
impact the Group are identified and considered in a timely
manner.
Interest rate risk
Interest rate risk arises from the possibility that changes in
interest rates will affect future cash flows or the fair value of
financial instruments.
The Group is exposed to risks associated with the effect of
fluctuations in the prevailing levels of market interest rates on
its cash.
Loans are held by the Group at amortised cost and bear fixed
interest rates. The Board has not performed an interest rate
sensitivity analysis on these loans as they are intended to be held
until maturity and bear fixed interest rates. Financial instruments
with floating interest rates that reset as market rates change are
exposed to cash flow interest rate risk. As at 31 March 2017, the
Group had GBP12.33 million (2016: GBP56.76 million) of the total
assets classified as cash and cash equivalents with floating
interest rates. At 31 March 2017, had interest rates increased or
decreased by 25 basis points with all other variables held
constant, the change in the value of future expected cash flows of
these assets would have been GBP30,829 (2016: GBP141,893). The
Board of Directors believes that a change in interest rate of 25
basis points is a reasonable measure of sensitivity in interest
rates based on their assessment of market interest rates at the
year end.
Currency risk
Currency risk is the risk that the value of the net assets will
fluctuate due to changes in foreign exchange rates.
The Group invests in loans denominated in US Dollars and Euro,
and may invest in loans denominated in other currencies.
Accordingly, the value of such assets may be affected favourably or
unfavourably by fluctuations in currency rates. The Board of
Directors monitors the fluctuations in foreign currency exchange
rates and uses forward foreign exchange contracts to hedge the
currency exposure of the Group arising from US Dollar and Euro
denominated investments.
The currency risk of the Group's non-GBP monetary financial
assets and liabilities as at 31 March 2017 including the effect of
a change in exchange rates by 5% is shown below. The effect of a 5%
change shown below apply as increase (for favourable change in
currency rates) or decrease (for unfavourable change in currency
rates) to the reported amounts of the assets and liabilities of the
Group. The Directors believe that a change of 5% in currency
exchange rates is a reasonable measure of sensitivity based on
available data on currency rates at the year end.
Carrying Effect Carrying Effect
amount of a amount of a 5%
as at 5% change as at change
31 March in currency 31 March in currency
2017 rate 2016 rate
GBP GBP GBP GBP
----------- ----------- ------------- ----------- -------------
US Dollar 42,366,295 2,118,315 43,931,427 1,527,412
Euro 8,146,630 407,332 9,973,443 389,801
Total 50,512,925 2,525,647 53,904,870 1,917,213
----------- ----------- ------------- ----------- -------------
The Group's exposure has been calculated as at the year end and
may not be representative of the year as a whole. Furthermore, the
above currency risk estimate does not take into account the effect
of the foreign currency derivatives. The net foreign exchange loss
charged to the Statement of Comprehensive Income during the year
was GBP 196,849 (2016: GBP 18,768) which represents:
1 April 22 July
2016 2015
to 31 March to 31 March
2017 2016
GBP GBP
--------------------------------- ------------ ------------
Net unrealised foreign currency
gain 6,160,023 863,421
Realised loss on currency
derivatives (6,598,557) (882,189)
Unrealised fair value movement 241,685 -
on currency derivatives
--------------------------------- ------------ ------------
(196,849) (18,768)
--------------------------------- ------------ ------------
ii) Liquidity risk
Liquidity risk is the risk that the Group will not be able to
meet its financial obligations as they fall due. Many of the assets
in which the Company invests are illiquid.
The Board of Directors manages liquidity risk through active
monitoring of amortising cash flows and reviewing the cash flow
forecast on a regular basis. The Group may borrow up to 0.25 times
the then-current net asset value of the Group at the time of
borrowing or up to 0.5 times the then-current net asset value of
the Group at the time of borrowing with specific further approval
of the Board of Directors.
Maturity profile
The following tables show the contractual maturity of the
financial assets and financial liabilities of the Group:
As at 31 March 2017
Within one One to Over five Total
year five years years
GBP GBP GBP GBP
--------------------------- ----------- ------------ ---------- ------------
Financial assets
Cash and cash equivalents 12,331,519 - - 12,331,519
Loans advanced 51,549,919 104,331,992 - 155,881,911
Margin account
held with bank 270,000 - - 270,000
Fair value of currency
derivatives 239,253 - - 239,253
Other receivables
and prepayments 371,919 - - 371,919
64,762,610 104,331,992 - 169,094,602
--------------------------- ----------- ------------ ---------- ------------
Financial liabilities
Fair value of currency - - - -
derivatives
Taxation payable 500 500
--------------------------- ----------- ------------ ---------- ------------
Accrued expenses
and other liabilities 4,341,811 - - 4,341,811
--------------------------- ----------- ------------ ---------- ------------
4,342,311 - - 4,342,311
--------------------------- ----------- ------------ ---------- ------------
As at 31 March 2016
Within One to five Over five Total
one year years years
GBP GBP GBP GBP
--------------------------- ----------- ------------ ---------- ------------
Financial assets
Cash and cash equivalents 56,757,244 - - 56,757,244
Loans advanced 30,068,969 64,695,096 - 94,764,065
Margin account held
with bank 610,000 - - 610,000
Other receivables
and prepayments 225,683 - - 225,683
--------------------------- ----------- ------------ ---------- ------------
87,661,896 64,695,096 - 152,356,992
--------------------------- ----------- ------------ ---------- ------------
Financial liabilities
Financial liabilities
Fair value of currency
derivatives 2,432 - - 2,432
Accrued expenses
and other liabilities 4,077,943 - - 4,077,943
--------------------------- ----------- ------------ ---------- ------------
4,080,375 - - 4,080,375
--------------------------- ----------- ------------ ---------- ------------
iii) Credit risk and counterparty risk
Credit risk is the risk of financial loss to the Group if a
counterparty to a financial instrument fails to meet its
contractual obligations. The carrying amounts of financial assets
best represent the maximum credit risk exposure at the reporting
date. Impairment recognised on the loans advanced is disclosed in
note 4.
The Group's credit risks arise principally through exposures to
loans advanced by the Group, which are subject to the risk of
borrower default. As disclosed in note 4, the loans advanced by the
Group are predominantly unsecured, but the Group holds assets as
security for certain property-related loans.
Credit quality
The credit quality of loans is assessed on an ongoing basis
through evaluation of various factors, including credit scores,
payment data and other information related to counterparties. This
information is subject to stress testing on a regular basis.
Set out below is the analysis of the Group's loan investments by
internal grade rating:
Carrying % of Carrying % of Carrying
value Carrying value value
value
2017 2017 2016 2016
---------------- ------------ ---------- ----------- --------------
Internal grade GBP value GBP value
---------------- ------------ ---------- ----------- --------------
A+ 38,900,209 24.95 30,258,928 31.93
A 38,637,295 24.79 27,804,077 29.34
B 27,987,038 17.95 19,270,393 20.34
C 15,178,806 9.74 11,685,191 12.33
D 5,365,261 3.44 3,708,412 3.91
E 1,678,729 1.08 2,037,064 2.15
Not graded* 28,134,573 18.05 - -
155,881,911 100.00 94,764,065 100.00
---------------- ------------ ---------- ----------- --------------
* - This relates to an indirect investment into Credit Assets
through a structured finance transaction with the EIB involving the
setting up of an Irish SPV as described in note 4. The investments
of the Irish SPV are loans originated in the UK.
The risk rating assigned to a borrower is based on Funding
Circle's proprietary credit scoring methodology to evaluate each
loan application. Analysis will have regard to all the relevant
application data gathered so far as well as information obtained
from commercial and consumer credit bureaus. It will also include
analysis of the borrower's financial information.
The Board of Directors have put in place the following limits on
the portfolio to manage the concentration risk exposure of the
Group.
Allocation limits
The proportionate division between loans originated through the
various Marketplaces (as defined in the Prospectus) must fall
within the ranges set out below. The actual proportion within the
ranges will be determined by Funding Circle UK (and communicated by
Funding Circle UK to Funding Circle US, Funding Circle CE, and
other Funding Circle group entities, as appropriate) pursuant to
the Services Agreement:
-- originated through the UK Marketplace - between 50 per cent.
and 100 per cent. of the gross asset value of the Group
-- originated through the US Marketplace - between 0 per cent.
and 50 per cent. of the gross asset value of the Group
-- originated through the other Marketplaces - between 0 per
cent. and 15 per cent. of the gross asset value of the Group
Other limitations
In addition to the allocation limits described above, in no
circumstances will loans be acquired by the Group, nor will
indirect exposure to loans be acquired, if such acquisition or
exposure would result in:
-- in excess of 50 per cent. of the gross asset value being
represented by loans in respect of which the relevant borrower is
located in the US; or
-- the amount of the relevant loan or borrowing represented by
any one loan exceeding, or resulting in the Group's exposure to a
single borrower exceeding (at the time such investment is made)
0.75 per cent. of the net asset value.
The Group may invest cash held for working capital purposes and
pending investment or distribution in cash or cash equivalents,
government or public securities, money market instruments, bonds,
commercial paper or other debt obligations with banks or other
counterparties having a "BBB" (or equivalent) or higher credit
rating as determined by any internationally recognised rating
agency selected by the Board.
The Group held cash with the following financial
institutions:
Short Short
Amount term Amount term
as at credit as at credit
31 March rating 31 March rating
2017 (S&P) 2016 (S&P)
GBP GBP
----------- ----------- -------- ----------- --------
HSBC 647,039 A-1+ 5,841,564 A-1+
Santander 5,900,000 A-1 19,100,000 A-1
Barclays 4,336,269 A-2 17,393,508 A-2
Lloyds 1,448,211 A-1 14,422,172 A-1
------------ ----------- -------- ----------- --------
Total 12,331,519 56,757,244
------------ ----------- -------- ----------- --------
The Group uses forward foreign currency transactions to seek to
minimise the Group's exposure to changes in foreign exchange rates.
The Group is exposed to counterparty credit risk in respect of
these transactions. The Board of Directors employs various
techniques to limit actual counterparty credit risk, including the
requirement for cash margin payments or receipts for foreign
currency derivative transactions on a regular basis. As at the
financial year-end, the Group's derivative counterparties were RBSI
and GS. The long term-credit rating of RBSI as at 31 March 2017
assigned by Moody's was Ba1. The long term-credit rating of GS as
at 31 March 2017 assigned by Moody's was A1.
Fair value estimation
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 only financial instruments measured at fair value as
at 31 March 2017 are its currency derivatives. The fair value of
the currency derivatives held by RBSI was estimated by RBSI 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 31
March 2017. The fair value of the currency derivatives held by GS
was estimated by GS based on the GBP-EUR forward exchange rate and
the GBP-EUR spot rate as at 31 March 2017.
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 following table presents the fair value of the Group's
assets and liabilities not measured at fair value as at 31 March
2017 but for which fair value is disclosed:
31 March 2017
-----------------------------------------------------
Level Level 2 Level 3 Total
1
GBP GBP GBP GBP
------------------------ ----------- ------------ ------------ ------------
Loans held at
amortised cost - - 155,881,911 155,881,911
Cash and cash
equivalents 12,331,519 - - 12,331,519
Margin account
held with Bank 270,000 - - 270,000
Other receivables
and prepayments - 371,919 - 371,919
Taxation payable - (500) - (500)
Accrued expenses
and other liabilities - (4,341,811) - (4,341,811)
------------------------ ----------- ------------ ------------ ------------
12,601,519 (3,970,392) 155,881,911 164,513,038
------------------------ ----------- ------------ ------------ ------------
31 March 2016
----------------------------------------------------
Level Level 2 Level 3 Total
1
GBP GBP GBP GBP
------------------------ ----------- ------------ ----------- ------------
Loans held at
amortised cost - - 94,764,065 94,764,065
Cash and cash
equivalents 56,757,244 - - 56,757,244
Margin account 610,000 - - 610,000
Other receivables
and prepayments - 225,683 - 225,683
Accrued expenses
and other liabilities - (4,077,943) - (4,077,943)
------------------------ ----------- ------------ ----------- ------------
57,367,244 (3,852,260) 94,764,065 148,279,049
------------------------ ----------- ------------ ----------- ------------
The Board of Directors believe that the carrying values of the
above instruments approximate their fair values. The fair value of
loans advanced is estimated to be approximate to the carrying value
because the Directors believe that the effect of re-pricing between
origination date and the date of this report is not material. 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 year or the
prior period.
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 the Ordinary Shares 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 Alternative Investment Manager
Directive ("AIFMD"). As at 31 March 2017, the Group used leverage
through the structured finance transaction as disclosed in Note 4.
The level of the Group's leverage has not resulted in a change of
the reporting requirements as prescribed by the AIFMD.
16. Related party disclosure
The Directors, who are the key management personnel of the
Group, are remunerated per annum as follow:
GBP
-------------------------- --------
Chairman 50,000
Audit Committee Chairman 40,000
Risk Committee Chairman 40,000
Other directors 30,000
160,000
-------------------------- --------
Sachin Patel, who is a member of the Board of Directors from 18
May 2017, has waived his fees as a director of the Company. Samir
Desai, who was a director of the Company up to 18 May 2017, waived
his fees for the period of his tenure.
Richard Burwood is also a director of Basinghall and Tallis and
is entitled to receive GBP5,000 per annum as director's fees from
each of the companies.
As at 31 March 2017 each of Richard Boléat, Jonathan Bridel and
Richard Burwood has a share interest in the Company, in the form of
5,000 (2016: 5,000) Ordinary Shares, representing 0.0033% interest
in voting rights. Samir Desai (resigned on 18 May 2017) and
Frederic Hervouet each has a share interest in the Company as at 31
March 2017 of 148,138 (2016:148,138) and 107,000 (2016: 5,000)
representing 0.0927% and 0.0669% interest in voting rights,
respectively.
The Directors held the following number of shares as at 31 March
2017 and 31 March 2016:
As at 31 March As at 31 March
2017 2016
------------------------ ------------------------
Number % of total Number % of total
of shares shares of shares shares
in issue in issue
----------------------- ----------- ----------- ----------- -----------
Richard Boléat 5,000 0.0030 5,000 0.0033
Jonathan Bridel 5,000 0.0030 5,000 0.0033
Richard Burwood 5,000 0.0030 5,000 0.0033
Samir Desai (resigned
on 18 May 2017) 148,138 0.0927 148,138 0.0987
Frederic Hervouet 107,000 0.0669 5,000 0.0033
Sachin Patel - - - -
270,138 168,138
----------------------- ----------- ----------- ----------- -----------
The Group has no employees during the year or the prior
period.
The Directors delegate certain functions to other parties. In
particular, the Directors have appointed Funding Circle UK, Funding
Circle US, Funding Circle Netherlands, Funding Circle Spain and
Funding Circle CE to originate and service the Group's investments
in loans. 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 year and amounts
payable to each of Funding Circle UK, Funding Circle US and Funding
Circle CE are disclosed below.
Expense Payable Expense Payable
during as at 31 during as at
the year March 2017 the period 31 March
ended ended 31 2016
31 March March 2016
2017
Transaction GBP GBP GBP GBP
------------ --------------- ---------- ------------ ------------ ----------
Funding Servicing
Circle UK fee 770,131 66,085 117,151 54,183
Corporate
Funding services
Circle UK fee 145,670 14,138 - -
Funding Reimbursement
Circle UK of expenses 56,955 31,309 - -
Funding Servicing
Circle US fee 410,762 33,778 53,230 11,452
Funding Servicing
Circle CE fee 31,518 4,910 - -
------------ --------------- ---------- ------------ ------------ ----------
On 31 October 2016, Funding Circle purchased a loan from the
Group with an outstanding principal of $7,386 at par value.
During the period ended 31 March 2016, Funding Circle purchased
a loan from Basinghall with an outstanding principal and accrued
interest of GBP106,358 at par value. Funding Circle also purchased
a loan from Basinghall with an outstanding principal and accrued
interest of GBP454,167 at par value. The terms of these
transactions were approved by the respective Boards of the Company
and Basinghall. The proceeds from the sale of loans of GBP106,358
was outstanding as at 31 March 2016.
17. INVESTMENT IN SUBSIDIARIES
The Company had the following subsidiaries, in accordance with
the definition of subsidiaries and control set out in IFRS 10, as
at 31 March 2017, whose results were fully consolidated during the
year:
Country Principal Transactions Outstanding
of incorporation activity amount
GBP
Investing
Basinghall Lending in Credit Subscription
Designated Activity Assets originated of notes
Company Ireland in the UK issued 80,415,760
Investing
in Credit
Assets originated
in Spain,
Tallis Lending Germany Subscription
Designated Activity and the of notes
Company Ireland Netherlands issued 8,110,154
88,525,914
------------------------------------------------------------------------------ ------------
18. Subsequent events
In February 2017, the Company issued a revised prospectus which
established a programme by which the Directors are able to issue up
to 500 million ordinary shares and/or C shares in aggregate. In
April 2017, the Company issued 142 million C Shares at a price of
GBP1 per C Share raising net proceeds of GBP139,870,000 after issue
costs of GBP2,130,000.The Class C shares are listed separately on
the Premium section of the London Stock Exchange (ISIN:
GG00BYNV2672).
At 30 April 2017, the NAV attributable to the C Class Shares of
Funding Circle SME Income Fund Limited was GBP139.86 million and
the NAV per C Class Share was 98.49 pence. At 31 May 2017, the NAV
attributable to the C Class Shares was GBP139.92 million and the
NAV per C Class Share was 98.53.
On 18 May 2017, Samir Desai resigned as a director and Sachin
Patel was appointed as a director. Phillip Hyett was appointed on
31 May 2017 as an alternate director to Sachin Patel. Phillip Hyett
is also director of the Irish SPV set-up for the structured finance
transaction with the EIB and therefore the Irish SPV became a
related party on this date on the basis of the common directorship
of Phillip Hyett.
On 15 June 2017, the Board declared a dividend of 1.625 pence
per Ordinary Share payable on 31 July 2017 to shareholders on the
register as at the close of business on 23 June 2017 and the
corresponding ex-dividend date of 22 June 2017.
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, listed on the London Stock
Exchange, and Yatra Capital Limited, listed on Euronext, along with
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 and is a member of AIMA.
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 Alcentra European Floating
Rate Income Fund Limited, Starwood European Real Estate Finance
Limited, 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, 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.
Samir Desai
Non-executive Director
Mr Desai is Global CEO and co-founder of Funding Circle. Samir
is responsible for driving Funding Circle's strategy, overseeing
its finances and managing its day to day operations. Mr Desai has
worked extensively in the financial services sector. Before
co-founding Funding Circle, Mr Desai was an Executive at Olivant
Advisers Limited, a private equity investor in financial services
businesses in Europe, the Middle East and Asia. Prior to this, Mr
Desai was a management consultant at Boston Consulting Group
advising a number of major UK and global banks and insurers on
strategy, new product initiatives, and operational efficiency.
Samir resigned as a director of the Company on 18 May 2017.
Frederic Hervouet
Risk Committee Chairman, Non-executive Director
Mr. Hervouet is based in Guernsey and acts in a non-executive
directorship capacity for a number of hedge funds, private equity
& credit funds (including structured debt, distressed debt and
asset backed securities), for both listed (SFM on LSE, Euronext)
and unlisted vehicles.
Mr. Hervouet was Managing Director and Head of Commodity
Derivatives Asia for BNP Paribas including Trading, Structuring and
Sales. Mr. Hervouet has worked under different regulated financial
markets based 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).
Mr. Hervouet holds a Master Degree (DESS 203) in Financial
Markets, Commodity Markets and Risk Management from University
Paris Dauphine and an MSc in Applied Mathematics and International
Finance. He is a member of the UK Institute of Directors, a member
of the Guernsey Chamber of Commerce and a member of the Guernsey
Investment Fund Association. Mr. Hervouet is a resident of
Guernsey.
Sachin Patel
Non-executive Director
Sachin Patel was appointed as Director on 18 May 2017, replacing
Samir Desai who resigned on the same date. 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 Limited, 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
Funding Circle SME
Income Fund Limited
Company registration
number: 60680 (Guernsey,
Channel Islands)
Registered office Portfolio Administrator
Third Floor, La Plaiderie Funding Circle Ltd
Chambers 71 Queen Victoria
La Plaiderie Street
St Peter Port London EC4V 4AY
Guernsey GY1 1WG United Kingdom
Channel Islands
E-mail: ir@fcincomefund.com
Website: fcincomefund.com
Company Secretary and Corporate broker
Administrator and Bookrunner and
Sanne Group (Guernsey) Sponsor
Limited Numis Securities
Third Floor, La Plaiderie Limited
Chambers The London Stock
La Plaiderie Exchange Building
St Peter Port 10 Paternoster Square
Guernsey GY1 1WG London EC4M 7LT
Channel Islands United Kingdom
Legal advisors as to UK Transfer Agent
Guernsey Law and Receiving Agent
Mourant Ozannes Capita Registrars
1 Le Marchant Street Limited (trading
St Peter Port as Capita Asset Services)
Guernsey GY1 4HP The Registry
Channel Islands 34 Beckenham Road
Beckenham
Kent BR3 4TU
United Kingdom
Legal advisors as to Registrar
English Law Capita Registrars
Simmons & Simmons LLP (Guernsey) Limited
CityPoint Mont Crevelt House
One Ropemaker Street Bulwer Avenue
London EC2Y 9SS St Sampson
United Kingdom Guernsey GY2 4LH
Channel Islands
Legal advisors Independent Auditors
as to 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; and
(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 investment 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) to be available
for investment by Basinghall and Tallis
and excluding (without limitation) amounts
held as reserves or pending distribution
-------------------- ---------------------------------------------------------
"Company Secretary" Sanne Group (Guernsey) Limited
-------------------- ---------------------------------------------------------
"Credit Assets" loans or debt or credit instruments
of any type originated through any of
the Marketplaces
-------------------- ---------------------------------------------------------
"Funding Circle" Funding Circle UK, Funding Circle US
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 and Funding Circle
CE" Deutschland GmbH
-------------------- ---------------------------------------------------------
"Funding Circle Funding Circle Nederlands B.V.
Netherlands"
-------------------- ---------------------------------------------------------
"Funding Circle Funding Circle Espa a SLU
Spain"
-------------------- ---------------------------------------------------------
"Funding Circle Funding Circle Limited
UK"
-------------------- ---------------------------------------------------------
"Funding Circle FC Marketplace, LLC
US"
-------------------- ---------------------------------------------------------
"Marketplaces" the marketplace platforms operated in
the UK, US and CE respectively, by Funding
Circle, together with any similar or
equivalent marketplace platform established
or operated by Funding Circle in any
jurisdiction
-------------------- ---------------------------------------------------------
"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
Participating Activity Company and Tallis Lending
Note" Designated Activity Company under their
separate note programmes
-------------------- ---------------------------------------------------------
"Origination the German Origination Agreement, the
Agreements" Dutch Origination Agreement, the Spanish
Origination Agreement, the UK Origination
Agreement, the US Origination Agreement,
and the CE Origination Agreements
-------------------- ---------------------------------------------------------
"Portfolio Limits" One or more concentration limits, expressed
as a maximum percentage of the Company's
gross asset value which may be invested
in Credit Assets having the relevant
feature, in respect of any of the metrics
comprising the portfolio data
-------------------- ---------------------------------------------------------
"PwC" PricewaterhouseCoopers CI LLP and PricewaterhouseCoopers
Ireland
-------------------- ---------------------------------------------------------
"PwC CI" PricewaterhouseCoopers CI LLP
-------------------- ---------------------------------------------------------
"PwC Ireland" PricewaterhouseCoopers Ireland
-------------------- ---------------------------------------------------------
"Qualifying are those Credit Assets which the Company
Assets" has Available Cash to Purchase and which
would not breach the Company's Investment
Policy or any Portfolio Limits were
they to be randomly allocated and purchased
by the Company
-------------------- ---------------------------------------------------------
This information is provided by RNS
The company news service from the London Stock Exchange
END
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