TIDMGABI TIDMGABC
RNS Number : 8302F
GCP Asset Backed Income Fund Ltd
24 March 2022
GCP asset backed income fund limited
Annual report and financial statements for the year ended 31
December 2021
The Directors of the Company are pleased to announce the
Company's annual results for the year ended 31 December 2021. The
full financial report and audited financial statements can be
accessed via the Company's website at www.gcpassetbacked.com and
will be posted to shareholders who elected to receive full copy
statutory documents over the course of the next few weeks.
For further information please contact:
+44 (0)20 3405
Gravis Capital Management Limited 8500
David Conlon
Joanne Fisk
+44 (0)20 7597
Investec Bank plc 4000
Helen Goldsmith
Denis Flanagan
Neil Brierley
+44 (0)20 7466
Buchanan/Quill 5000
Helen Tarbet
Sarah Gibbons-Cook
Henry Wilson
GCP Asset Backed Income Fund Limited (the "Company") is a listed
investment company which focuses predominantly on investments in UK
asset backed loans.
The Company seeks to provide shareholders with attractive
risk-adjusted returns through regular, growing distributions and
modest capital appreciation over the long term.
The Group is currently invested in a diversified portfolio of
asset backed loans across the social infrastructure, property,
energy and infrastructure, and asset finance sectors, located
predominantly in the UK.
The Company is a closed-ended investment company incorporated in
Jersey. The Company has a premium listing on the Official List of
the FCA with its shares admitted to trading on the Premium Segment
of the Main Market of the LSE since 23 October 2015.
At 31 December 2021, its market capitalisation was GBP426.6
million. The Company is a constituent of the FTSE All-Share
Index.
AT A GLANCE - 31 DECEMBER 2021
2019 2020 2021
----------------------------- ------- ------- -----
Market capitalisation GBPm 479.1 401.9 426.6
Value of investments(1) GBPm 453.9 446.0 447.0
Dividends for the year p 6.20 6.225 6.30
Dividends for the year p 0.25(2) 0.25(2) -
Ordinary share price p 108.50 91.30 97.00
NAV per ordinary share p 102.33 102.18 99.29
Profit for the year GBPm 28.0 27.4 15.0
----------------------------- ------- ------- -----
Highlights for the year
- Dividends of 6.30 pence per share declared in respect of the
year, including a dividend of 1.575 pence per share for the quarter
to 31 December 2021, which was paid post year end.
- Total shareholder return(3) of 13.2%, total NAV return(3) of
3.4% (31 December 2020: -9.8% and 6.5%) and an annualised total
shareholder return(3) since IPO of 5.3%.
- Profit for the year of GBP15.0 million (31 December 2020:
GBP27.4 million). The decrease year-on-year reflects the impact of
the decrease in fair value of the Group's Co--living loan.
- Renewal of existing GBP50 million revolving credit
arrangements with RBSI to extend maturity from August 2021 to
August 2023.
- NAV per ordinary share of 99.29 pence at 31 December 2021, a
decrease from 102.18 pence in the prior year, predominantly due to
a 4.5 pence per share write-down of the Group's Co--living loan,
partially offset by valuation gains elsewhere in the portfolio and
excess income. Refer to the Investment Manager's report below for
further detail.
- Exposure to a diversified, partially inflation and/or interest
rate-protected portfolio of 60 asset backed loans with a third
party valuation of GBP443.64 million at 31 December 2021.
- Loans of GBP135.5 million (new and follow--on) advanced by the
Group during the year, secured against 35 projects with a further
GBP16.6 million secured against five projects, advanced post year
end.
- Repayments of GBP118.1 million during the year generating
repayment fees of GBP2.5 million, with a further GBP31.7 million of
repayments received post year end.
1. Includes the valuation of the Subsidiary.
2. Special dividend of 0.25 pence per share declared in respect
of the year.
3. Alternative performance measure - refer below for definitions
and calculation methodology.
4. Valuation of the portfolio held by the Subsidiary. The
Company makes its investments through its wholly owned Subsidiary.
Refer to note 1 for further information.
Alex Ohlsson, Chairman, commented:
"The Company remains resilient, despite a challenging year, with
a diversified portfolio of secured, income-producing loans which
offer a level of inflation and interest rate protection.
Following on from a challenging 2020, with the onset of the
Covid-19 pandemic, 2021 has seen two sectors in the portfolio face
the continued impact of Covid-19 restrictions placed on operating
businesses. However, we have seen strong performance in the
significant majority of the portfolio.
During the year, the Group advanced GBP135.5 million in the form
of 35 investments, 20 new and 15 follow--on transactions, improving
the diversification and risk profile of the portfolio. The
portfolio comprised 60 loans at 31 December 2021, 85% of which are
secured against physical assets offering strong downside and
capital protection.
The Company paid 6.30 pence in interim dividends, meeting the
target set by the Company for 2021 and fulfilling the Company's
stated aim to grow its annual dividend year-on-year, compared to
6.225 pence paid in interim dividends for 2020. In respect of the
forthcoming financial year, the Company is targeting an annual
dividend of 6.325 pence per ordinary share.
We believe that the Company is well placed for the year ahead
and would like to thank our investors for their continued
support."
INVESTMENT OBJECTIVES AND KPIs
The Company's purpose as a closed--ended investment company is
to meet its investment objective, which is to generate attractive
risk--adjusted returns through regular, growing distributions and
modest capital appreciation over the long term.
ATTRACTIVE RISK ADJUSTED REGULAR, GROWING DISTRIBUTIONS CAPITAL APPRECIATION
RETURNS
--------------------------- -------------------------------- ------------------------------
To provide shareholders To provide shareholders To achieve modest appreciation
with returns that are with regular, growing in shareholder value
attractive with regard dividend distributions. over the long term.
to the level of risk
taken.
KEY PERFORMANCE INDICATORS
--------------------------- -------------------------------- ------------------------------
The Company has generated The Company has grown The Company's shares
an annualised total its dividend year-on-year, were trading at 97.00
shareholder return(1) achieving its stated aim pence per share at the
since IPO of 5.3%. for the sixth consecutive year end.
year, with interim dividends
increasing from 6.225
pence.
13.2% 6.30p 97.00p
Total shareholder return(1) Dividends in respect Share price
for the year of the year at 31 December 2021
31 December 2020: -9.8% 31 December 2020: 6.475(2) 31 December 2020: 91.30p
p
7.3%(3) 46% 2.3%
Weighted average annualised Percentage of portfolio Discount(1) to NAV
yield(1) on investment by value with inflation at 31 December 2021
portfolio and/or interest rate protection
31 December 2020: 8.0% 31 December 2020: 45% 31 December 2020: 10.6%
(7.6% excl. Co-living discount(1)
loan)
--------------------------- -------------------------------- ------------------------------
1. Alternative performance measure - refer below for definitions
and calculation methodology.
2. Including special dividend of 0.25 pence per share.
3. Including the Company's Co-living loan which is held at 0%.
Excluding this loan, the weighted average annualised yield(1) is
8.0%.
Further information on Company performance can be found
below.
Portfolio at a Glance
Portfolio of 60 asset backed loans with an average life of five
years which are partially inflation and/or interest rate protected.
The loans fall within the following sectors and are secured
predominantly against assets and cash flows in the UK:
PROPERTY
18 loans within sector
GBP179.4m
41%
ASSET FINANCE
11 loans within sector
GBP69.3m
16%
ENERGY AND INFRASTRUCTURE
7 loans within sector
GBP28.7m
6%
SOCIAL INFRASTRUCTURE
24 loans within sector
GBP166.2m
37%
SENIOR RANKING SECURITY
69%
UK EXPOSURE
79%
SECURED AGAINST PHYSICAL ASSETS
85%
Chairman's statement
The Company remains resilient, despite a challenging year, with
a diversified portfolio of secured, income-producing loans which
offer a level of inflation and interest rate protection.
Introduction
The year has proved challenging for the Company with the default
of one of its largest loans. This annual report provides detailed
commentary on the actions we are taking to rectify the
position.
Whilst the defaulted Co-living loan is at the forefront of
everyone's minds, it is important to remember that the Group is
much more than just one loan.
Beyond this loan, the Company has once again proved its
resilience in a demanding market. It continues to focus on the
delivery of sustainable, long-term income to shareholders,
generated through its portfolio of secured loans. These investments
utilise debt investment protections and are secured against
high--quality assets and/or contracted cash flows.
Throughout the year, Government-issued Covid-19 restrictions
have continued to impact the normal flow of business, particularly
impacting retail and hospitality businesses. However, despite the
restrictions, the significant majority of the portfolio has
continued to perform well. The Group received GBP118.1 million in
repayments in the year and was able to deploy GBP135.5 million. We
are particularly pleased with the levels of repayments received by
the Company, as this is a strong indicator of a healthy loan
portfolio, providing opportunities for investment into new and
attractive loans.
Ten full repayments were received by the Company during the
year. These included loans such as those to a waste processing
facility, CHP engines and property bridging loans. These assets
were, in many cases, refinanced after a sale to a private equity or
infrastructure investor. This is the approach we have sought since
IPO, targeting attractive sectors before they become
commoditised.
The loans that fully repaid in the year generated strong
returns, with an average IRR(1) of 9.7%, against an average
interest rate of 8.1%. The IRR(1) consists not only of principal
and interest, but also includes a level of prepayment fees. This
year was a record for such fees, with the Company receiving GBP2.5
million, equating to c.12% of the Company's total income. We take a
conservative view and only recognise prepayment fees at the point
they are received. Therefore, none of these fees are factored into
expected returns or applied discount rates of the portfolio.
We continue to closely monitor the Company's share price, which
has predominantly traded at a discount(1) to NAV throughout the
year, as a result of continued market sentiment in response to the
Covid-19 pandemic and the write down of the Co-living loan.
Alongside the Investment Manager, the Company has engaged further
with shareholders to increase both the quality and detail of its
portfolio disclosures, including holding a separate webinar purely
focused on the Co--living loan. We continue to be pleased with the
feedback received on our portfolio disclosures. The Board and the
Investment Manager are keen to engage with shareholders to address
any questions they may have.
Going forward, we continue to maintain a high--quality pipeline
and are focusing on making investments into sectors and alongside
borrowers where the Company has strong established relationships.
The portfolio comprised 60 loans at 31 December 2021, 85% of which
are secured against physical assets offering strong downside and
capital protection. The remainder of the loans are secured against
contracted cash flows with robust underlying contractual protection
in place.
Net assets
At the year end, the net assets of the Company were GBP436.7
million. The NAV per share decreased from 102.18 pence at 31
December 2020 to 99.29 pence at 31 December 2021. The valuation of
investments increased during the year to GBP447.0 million from
GBP446.0 million at 31 December 2020, with the largest single asset
exposure comprising 5.4% of total portfolio by value. The decrease
in NAV per share is primarily as a result of the write-down taken
against the Co-living loan; however, the write down was partially
offset by the performance of the rest of the portfolio which
generated a positive NAV movement in the year.
Financing
During the year, the Company extended its existing GBP50 million
RCF with RBSI to August 2023 (previously August 2021), with an
additional one year extension option subject to lender approval.
All terms of the RCF are unchanged except for the interest rate
benchmark which changed from LIBOR to SONIA. The Company uses the
RCF to ensure it effectively utilises its cash resources to reduce
any cash drag which impacts dividend coverage. The Board believes
that the favourable terms on which the RCF has been extended are
due to the maturity and strong track record of the Company.
Investments
During the year, the Group advanced GBP135.5 million in the form
of 35 investments, 20 new and 15 follow--on transactions, improving
the diversification and risk profile of the portfolio. All of the
new investments were consistent with the Group's standard
investment approach.
We continue to closely monitor our two loans to multi--use
community facilities. These loans are public facing, consisting of
bars and restaurants as well as studio and co-working spaces. These
facilities, like all in the hospitality sector, have been severely
impacted by lockdowns during the year. However, we remain positive
for their long-term future with performance so far this year
showing good recovery.
KEY HIGHLIGHTS
135.5m
Investments made
118.1m
Principal repaid
32.9m
Interest received
27.7m
Dividends paid
22
Asset classes
Co-living loan
The Co-living loan was a significant disappointment during the
year, with the loan defaulting due to breaching a liquidity
covenant. The loan is a syndicated loan and we are part of a
consortium of lenders.
Since the loan defaulted in May 2021, the consortium of lenders
have been looking to sell the assets of the Co-living group to
recover as much value as possible. Significant progress has been
made in this regard, with a number of assets sold in the period and
exclusivity agreements in place to sell a number of others.
In terms of the remaining assets, the following current
positions are in place at the time of writing:
- US assets - exclusivity in place and working towards sales in
the coming weeks;
- UK HMO assets - sale process started and more than 50 parties
have expressed an interest and are reviewing the sales information;
and
- UK large assets - an exclusivity was entered into with a
proposed REIT; however, due to the situation in Ukraine, the IPO of
the REIT has been paused. The operating assets have both been
stabilised and are operating above 95% occupancy. We have had
significant interest from parties looking to acquire the assets and
if the REIT does not IPO, we will look to launch a sales process
for the assets in the coming months. We expect strong competition
for these assets and remain confident that they offer a defensive
and stable cashflow that will prove highly attractive to
investors.
As noted later in the report, the key features of this loan are
not present in any other loan in the portfolio. Further detail is
included below.
Share price performance
The Company's shares have largely traded at a discount(1) to NAV
throughout the year, with an average discount(1) of 3.5%. At 31
December 2021, the share price was 97.00 pence, representing a
discount(1) to NAV of 2.4%. Since IPO, the shares have traded at an
average premium(1) of 1.5%.
During the year, the Company repurchased 325,000 shares at a
weighted average price of 90.22 pence per share, a discount(1) to
the prevailing NAV. The Company will continue to look to make
opportunistic repurchases of shares where the Board considers there
to be a benefit for shareholders.
Dividend policy
The Company paid 6.30 pence in interim dividends, meeting the
target set by the Company for 2021 and fulfilling the Company's
stated aim to grow its annual dividend year-on-year, compared to
6.225(2) pence paid in interim dividends for 2020. In respect of
the forthcoming financial year, the Company is targeting an annual
dividend of 6.325 pence per ordinary share(3) .
Governance and compliance
The Board recognises the importance of a strong corporate
governance culture and continues to maintain principles of good
corporate governance as set out in the AIC Code. Refer below for
further details.
Key risks
Economic, political and regulatory risks are inherent in any
UK-focused business at present. At the time of writing, the full
impact of Brexit and the Covid-19 pandemic continues to remain
uncertain. Aside from the macro-economic impact, there is the risk
of an increase in operating costs for certain of the Group's
borrowers as challenges in staffing, supply chain management and
inflation are realised. Further details on the impact of inflation
is included below.
We also remain conscious of the impact of the conflict in
Ukraine. None of our borrowers are directly impacted by the
conflict or by imposed sanctions, however, we will continue to
monitor indirect impacts such as the increase in energy costs.
Across the loan portfolio, the Group has exposure to
fluctuations in UK house prices. The Board closely monitors
activity in the market and its current view on the UK property
market remains stable, with the Group's housing investments
performing well throughout the year. The Board believes the
fundamentals remain strong and the continued demand versus supply
dynamic provides comfort against a significant correction of
prices. The Group's residential loan portfolio has a large degree
of inbuilt protection due to being advanced against an average
LTV(1) of c.66%.
The Group has six fully hedged non-Sterling loans, representing
6.2% of the portfolio by value. All other overseas exposure is held
in Sterling loans. Any increased volatility in currency markets
should have a limited impact on the profitability of the
Company.
The Board and the Investment Manager are cognisant of these
risks and continue to carry out stress testing on loans during the
structuring process to ensure they remain viable in a variety of
possible scenarios.
However, modelling the impact of unexpected events of the nature
we have seen in recent years continues to be difficult. Whilst
easing of Covid-19 restrictions is positive for economic growth,
consumer behaviour is difficult to predict going forward. Our
borrowers and service providers continue to adhere to Government
guidelines and with the continued rollout of vaccines we remain
hopeful that we can move swiftly to a new normal with our borrowers
in a strong position to seize new opportunities for growth.
Responsible investment
The Board has been working closely with the Investment Manager
to ensure the principles of responsible investment are embedded
within the Company's operations. This work has included publishing
the Company's initial ESG policy which can be found on the
Company's website.
We are also delighted to publish details of our first ESG
incentive scheme under which the Company will be funding nursery
places for disadvantaged children in South London. The nursery is
part of a chain to which the Group has advanced loans. These places
will form part of a wider bursary scheme which the nursery group is
offering.
Fundamentally, the Investment Manager believes that investment
in assets which have a positive impact on society enhances the
security of the portfolio and brings wider benefits to the
communities which our assets operate in.
Further details on the work the Board and Investment Manager are
undertaking to strengthen the implementation, monitoring and
reporting on ESG are detailed below.
Outlook
Following on from a challenging 2020, with the onset of the
Covid-19 pandemic, 2021 has seen two sectors in the portfolio face
the continued impact of Covid-19 restrictions placed on operating
businesses. Work on both the Co-living group and multi-use
community facilities is ongoing and we remain committed to
realising value in these assets. We believe that the resilience
shown by the significant majority of the portfolio puts the Group
in a strong position moving forward.
As outlined above, headwinds in the economic environment could
increase operational costs for some assets in the portfolio.
However, we also recognise the opportunities presented by an
inflationary environment and are working closely with our borrower
management teams to identify where we can support them.
Despite the challenges faced by the Company through the year, we
believe that the Company is well placed for the year ahead.
We would like to thank our investors for their continued
support.
Alex Ohlsson
Chairman
23 March 2022
1. Alternative performance measure - refer below for definitions
and calculation methodology.
2. Excluding special dividend of 0.25 pence per share.
3. The target dividend set out above is a target only and not a
profit forecast or estimate and there can be no assurance that it
will be met.
Strategic Overview
The Company's investment objective is to generate attractive
risk-adjusted returns through regular, growing distributions and
modest capital appreciation over the long term.
Investment objective
The Company's investment objective is to generate attractive
risk-adjusted returns through regular, growing distributions and
modest capital appreciation over the long term.
Investment policy
The Company seeks to meet its investment objective through a
diversified portfolio of investments which are secured against, or
comprise, contracted, predictable medium to long-term cash flows
and/or physical assets. The Company's investments will
predominantly be in the form of medium to long-term fixed or
floating rate loans which are secured against cash flows and/or
physical assets which are predominantly UK based.
The Company's investments will typically be unquoted and will
include, but not be limited to, senior loans, subordinated loans,
mezzanine loans, bridge loans and other debt instruments. The
Company may also make limited investments in equities,
equity-related derivative instruments such as warrants, controlling
equity positions (directly or indirectly) and/or directly in
physical assets.
The Company will at all times invest and manage its assets in a
manner which is consistent with the objective of spreading
investment risk.
Investment restrictions
The Company observes the following investment restrictions:
- any single investment, or any investments with a single
counterparty, will be limited to 20% of the gross assets of the
Company;
- investments in equities and equity-related derivative
instruments, including controlling equity positions and any direct
investments in physical assets, will be limited to 10% of the gross
assets of the Company;
- no more than 30% of the gross assets of the Company will be
used to finance investments outside the UK; and
- the Company will not invest in other listed closed-ended
funds.
The limits set out above shall all apply at the time of
investment, as appropriate.
Structure of investments
The Company typically makes investments directly or indirectly
through one or more underlying special purpose vehicles which will
usually be wholly owned by the Company and over which the Company
will exercise control as regards investment decisions. The Company
may from time to time invest through vehicles which are not wholly
owned by it. In such circumstances, the Company will seek to secure
controlling rights over such vehicles through shareholder
agreements or other legal arrangements.
In the event of a breach of the investment restrictions set out
above, the Investment Manager shall inform the Directors upon
becoming aware of the same and if the Directors consider the breach
to be material, notification will be made to a regulatory
information service.
No material change will be made to the investment policy without
the approval of shareholders by ordinary resolution.
Non-financial objectives of the Company
The key non-financial objectives of the Company are:
- to maintain strong, long-term and positive working
relationships with all stakeholders, including shareholders and
borrowers; and
- to promote the development of emerging asset backed sectors by
developing financial products that match the requirements of these
sectors.
Key policies
Borrowing and gearing policy
The Company may, from time to time, use borrowings for
investment purposes, to manage its working capital requirements or
in order to fund the market purchase of its own shares. Gearing,
represented by borrowings, will not exceed 25% of NAV, calculated
at the time of borrowing.
Hedging and derivatives
The Company may invest through derivatives for investment
purposes and efficient portfolio management. In particular, the
Company may engage in interest rate hedging or otherwise seek to
mitigate the risk of interest rate changes as part of the Company's
efficient portfolio management.
Investments will be denominated primarily in Sterling. However,
the Company may make limited investments denominated in currencies
other than Sterling, including US Dollars, Euros and Australian
Dollars. In the event of the Company making such investments, the
Investment Manager will use its judgement, in light of the
Company's investment policy, in deciding whether or not to effect
any currency hedging in relation to any such investments. In
addition, the Company may do so where the Investment Manager
considers such hedging to be in the interests of efficient
portfolio management and may utilise derivative instruments to seek
to achieve this. The Company will not engage in currency trading
for speculative purposes.
Any use of derivatives for investment purposes will be made on
the basis of the same principles of risk spreading and
diversification that apply to the remainder of the Company's
investment portfolio and will be subject to the investment
restrictions described above.
Dividend policy
The Company pays dividends on a quarterly basis, with dividends
typically declared in January, April, July and October and paid in
or around February, May, August and November in each financial
year.
The Company has authority to offer a scrip dividend alternative
to shareholders. The offer of a scrip dividend alternative was
suspended at the Board's discretion, for all 2021 dividends, as a
result of the discount between the likely scrip dividend reference
price and the relevant quarterly NAV per share of the Company. The
Board intends to keep the payment of future scrip dividends under
review.
Conflicts of interest
Where there is any overlap for a potential investment with GCP
Infra, GCP Infra has a right of first refusal over such investment.
In the event that the Investment Manager or any shareholders,
directors, officers or employees of the Investment Manager are
directly or indirectly interested in any entity or asset in
relation to any investment proposal, the potential investment is
presented to the Board for its approval. Further details can be
found below.
Business model
The Group's purpose is to invest in a diversified portfolio of
asset backed loans to provide regular, growing distributions and
modest capital appreciation over the long term.
INVESTMENT INVESTMENT IMPLEMENTATION OF INVESTMENT KPI MEASUREMENT SUSTAINABILITY
SECTOR OBJECTIVES STRATEGY
ASSET BACKED Attractive INDEPENT STRONG GOVERNANCE Annualised Environmental
LOANS risk adjusted BOARD | Read more below total shareholder and social
Predetermined, returns return(1) Read about
asset backed To provide since IPO how the Company's
cash flows shareholders was 5.3%. activities
with returns 13.2% benefit the
that are Total shareholder environment
attractive return(1) and contribute
with regard for the to society
to the year in the
level of sustainability
risk taken. section below.
---------------- ------------------ --------------------- ------------------- ------------------
INVESTMENT MANAGER
---------------- ----------------------------------------- ------------------- ------------------
Regular, LOAN ORIGINATION OPERATIONAL The Company Governance
growing AND EXECUTION MANAGEMENT has increased Read how
distributions The Group invests The operations its dividend the Company
To provide in asset backed of the Company year-on-year. is governed
shareholders loans utilising are delegated 6.30p and the
with regular, the Investment to the Investment Dividends activities
growing Manager's expertise Manager and in respect of the Board
dividend and a proven overseen of the year during the
distributions. track record by the Board. year in the
in loan originating The Investment governance
and monitoring. Manager maintains section below.
The Group is a robust
able to provide control
bespoke lending environment
solutions where and undergoes
traditional lenders an internal
cannot due to controls
reasons other review from
than credit an external
quality. audit provider
on an annual
basis.
---------------- -------------------- ------------------- ------------------- ------------------
Capital FINANCIAL RISK MANAGEMENT The shares Financial
appreciation MANAGEMENT The Company have traded Read about
To achieve The Company operates at an average the Company's
modest operates a robust discount(1) financial
appreciation a disciplined risk management to NAV throughout performance
in shareholder approach to capital and mitigation the year. and dividend
value over raising, only process along 2.4% cover in
the long increasing its with active Discount(1) the financial
term. capital when controls to ordinary review below
it has a highly monitoring share NAV and its long-term
executable pipeline and stress at year viability
of investments. testing end below.
The Company uses procedures.
hedging where The Investment
appropriate to Manager is
manage foreign appointed
exchange exposure. as AIFM to
the Company
and is responsible
for the management
of risk alongside
the Board.
---------------- -------------------- ------------------- ------------------- ------------------
THIRD PARTY SERVICE ADVISORY
PROVIDERS AND ADMINISTRATION
---------------- -------------------- ------------------- ------------------- ------------------
1. Alternative performance measure - refer below for definitions and calculation methodology.
INVESTMENT MANAGER'S REPORT
The Company's target market remains underserviced by mainstream
lenders and therefore presents an opportunity for generating
attractive risk--adjusted returns.
Asset backed lending
Asset backed lending is an approach to structuring investments
used to fund infrastructure, industrial or commercial projects and
asset financing. Asset backed lending relies on the following to
create security against which investment can be provided:
- the intrinsic value of physical assets; and/or
- the value of long-term, contracted cash flows generated from
the sale of goods and/or services produced by an asset.
Asset backed lending is typically provided to a Project Company,
a corporate entity established with the specific purpose of owning,
developing and operating an asset. Financing is provided to the
Project Company with recourse solely to the shares held in, and
assets held by, that Project Company.
Cash generation to service loans and other financing relies on
the monetisation of the goods and/or services that a Project
Company's assets provide. Lenders implement a security structure
that allows them to take control of the Project Company and its
assets to optimise the monetisation of goods and/or services
associated with such assets if the Project Company has difficulties
complying with its financing terms.
The Investment Manager uses a 'covenant heavy' approach to
lending within these structures. This is an approach which tailors
loans to each borrower and requires the borrowers to meet well
defined and specific performance measurements or covenants. The
Investment Manager continues to see significant benefits in this
lending approach with extensive information reporting requirements
providing visibility of potential issues, if any.
Maturing portfolio
Over the year, GBP118.1 million has been returned to the Group
in repayments of loans. The Investment Manager views this repayment
as an indication of a healthy portfolio, providing opportunity for
reinvestment into new and attractive loans. The Investment Manager
seeks to match repayments with pipeline opportunities to make
efficient use of available capital.
The table below sets out a sample of full repayments received
during the year. Some key assets to highlight are as follows.
Recycling facility
The Group financed the construction and operation of a recycling
facility near Heathrow airport. The facility comprised high-end
plant and equipment to separate commercial and industrial waste.
The facility sorted waste into designated streams through a
combination of manual and mechanical sorting processes. After
sorting, materials with value were sold and the residue used to
make Refuse Derived Fuel ("RDF") used in cement kilns. Over the
life of the project, the plant has recycled over 430,000 tonnes of
waste.
The Group originally invested in this project in April 2016 with
a drawdown of GBP14.5 million and a further drawdown in December
2018 to support the purchase of additional plant. Full repayment of
the loan (totalling GBP15.8 million) was made in May 2021,
attracting a prepayment fee of GBP2.1 million due to non-call
periods in the loan documentation. Over the life of the loan,
GBP7.3 million was paid in interest and an IRR(1) of 12.6% was
achieved for the Group.
Property developments
Over the year, five property bridging or development loans were
repaid, totalling GBP24.8 million in repayments. These loans were
secured against the land value of property development sites across
the UK. On average, these loans achieved an IRR(1) of 9.1% against
an average interest rate of 8.0%, offering an attractive rate of
return for short-term lending against a secure asset base.
Residential property lending portfolio
The Group provided funding secured against a portfolio of
residential property loans. The original loan was for GBP5.0
million in June 2017 with a second drawdown of GBP5.0 million in
August 2017. The portfolio performed well, meeting covenants and
interest payments throughout the term. Full repayment of GBP10.0
million was made in August 2021.
CHP loan
As detailed below, the Group reached resolution on the defaulted
CHP loan in the period, with a final payment of GBP1.1 million made
in full in December 2021.
Repayment protections
The Investment Manager looks to include non-call periods and
repayment fees in investment documentation for longer dated loans
to maintain visibility of returning capital and ensure efficient
redeployment. The Investment Manager was able to redeploy all the
proceeds in the period, through strong pipeline management and
utilisation of the RCF. We are expecting significant repayments
over the coming year in addition to amortisation of loans in line
with the investment documentation across the portfolio.
FULL REPAYMENTS DURING THE YEAR (TOP FIVE BY VALUE)
Amount Interest Origination Type
Sector repaid rate IRR(1) date of loan Reason
---------------- --------- -------- ------ ----------- -------------------- -----------------
Various,
including
sales and
refinancing
Property November Bridging/development into development
(multiple) GBP24.8m 8.0% 9.1% 2020 - senior loans
---------------- --------- -------- ------ ----------- -------------------- -----------------
Repaid in
ordinary
Property GBP10.0m 5.3% 5.9% June 2017 Term - mezzanine course
---------------- --------- -------- ------ ----------- -------------------- -----------------
Acquired
by large
Energy and infrastructure
infrastructure GBP15.8m 9.5% 12.6% April 2016 Term - mezzanine investor
---------------- --------- -------- ------ ----------- -------------------- -----------------
Refinanced
into a mezzanine
development
Property GBP8.5m 8.5% 9.9% June 2021 Bridging - senior loan
---------------- --------- -------- ------ ----------- -------------------- -----------------
Acquired
by large
Energy and infrastructure
infrastructure GBP2.7m 7.8% 12.4% June 2018 Term - senior business
---------------- --------- -------- ------ ----------- -------------------- -----------------
Total/weighted
average GBP61.8m 8.0% 9.7%
---------------- --------- -------- ------ ----------- -------------------- -----------------
1. Alternative performance measure - refer below for definitions
and calculation methodology.
Active management
The Investment Manager continues to put an emphasis on active
management, with a dedicated portfolio management team working
closely with borrower management teams to ensure any potential
issues are flagged early and dealt with appropriately.
Over the year, this engagement has been crucial in navigating
the changing regulatory environment of Covid-19 restrictions which
have impacted across all sectors and assets, to differing extents.
This approach has also allowed for recognition of pipeline
opportunities for the Group by maintaining strong relationships
with management teams.
With the lifting of Covid-19 restrictions at certain times
through the year, the Investment Manager has been able to undertake
site visits to assets, which were on hold during much of 2020. This
forms an important part of the investment and monitoring of assets,
which is expected to increase over the forthcoming year.
Overseas investment
Following the increase in the investment restriction to allow
for up to 30% investment in overseas assets, the Investment Manager
has taken a cautious approach to expanding investment outside the
UK. At 31 December 2021, 21% of the portfolio was invested in
assets outside the UK. Some examples of these investments are:
- student accommodation project in Dublin which opened in
September 2021 and is currently, at the latest practical date, at
97% occupancy;
- residential co-living development in Boston which is expected
to open in the fourth quarter of 2022, offering 477 units of
high-quality accommodation in an underserved area of the city for
young professionals; and
- football finance deals secured against broadcasting income for
a club competing in La Liga, a Spanish football league.
The Investment Manager has primarily looked to use overseas
investments to support well-known borrowers as they expand their
operations outside of the UK. Since IPO, the Group has supported 14
projects outside of the UK. In general, these projects attract a
higher interest rate than comparable transactions in the UK, to
reflect the additional risk in operating across multiple
jurisdictions.
When considering overseas investments, the Investment Manager
uses appropriate external advisers, relevant to the jurisdiction of
the asset, to ensure thorough due diligence and documentation of
the loans. Equally, the Investment Manager conducts site visits of
overseas assets, with visits to projects in the US and Ireland
undertaken by the origination and portfolio management teams.
Currently, two identified pipeline projects are overseas
opportunities. Both are follow-on investments with borrowers well
known to the Investment Manager.
Investment pipeline
The Investment Manager is continuing to see positive
opportunities for investment, across a number of sectors.
Maintaining efficient use of capital through redeployment of
repayments made to the Company remains a key focus.
The current pipeline represents c.GBP46 million of opportunities
in social infrastructure, asset finance and property sectors. Since
the year end, GBP4.3 million has been successfully transacted in
the property sector.
The Investment Manager recognises the value in maintaining good
relationships with borrowers who are looking to grow their
businesses. As such, many of the portfolio loans and pipeline
transactions are follow--on deals with existing borrowers. This
allows for greater execution certainty and allows the Group to
build knowledge of the borrower's business.
Pipeline opportunities are 54% senior loans with a weighted
average yield of 8.0%, with c.40% overseas assets.
Investment analysis (by value GBP)
Investments made in the year
Existing borrowers 16%
New borrowers 84%
Pipeline
Existing borrowers 74%
New borrowers 26%
ASSET UPDATE - CHP LOAN
Background
The facility of GBP3.1 million was secured against two waste
energy projects. The SPVs had been awarded planning permission and
had applied for the RHI, a Government-backed financial incentive to
promote the use of renewables. At the time of funding, the
developer had a successful track record and was working with a
joint venture partner to move projects from development into
construction. After funding, the borrower unfortunately entered a
dispute with their JV partner and faced challenges from Ofgem on
the process through which they had applied for RHI. In March 2019,
the loan defaulted as the borrower was unable to meet covenants or
repay principal as it fell due.
Recovery process
Working closely with the borrower, the Investment Manager took
immediate steps to secure the Group's position, including ensuring
all information needed for a sale of the project was within its
control, minimising outgoings of the SPV and working to challenge
the Ofgem decision.
A sales process for the SPV was launched, with a detailed vendor
information memorandum, financial models and sale information
shared with a select list of prospective purchasers in the market.
This process elicited several bids from credible
counterparties.
Over the course of the year, two parties progressed to detailed
due diligence but both withdrew at a late stage. The Investment
Manager subsequently engaged with a team with backing from a large
infrastructure bank. This team was able to carry out extensive due
diligence on the projects, resulting in an agreed sale of one
project in April 2021.
Under the terms of the sale, GBP1.1 million was paid at
transaction close with GBP1.1 million retained by the purchaser to
meet any warranty claims, which together represent slightly more
than the fair value after it was revalued downwards.
Current position
In December 2021, the Group received the full GBP1.1 million
retention held pursuant to the sale. As expected, no warranty
claims were lodged against the project. Further payments in respect
of VAT claimed for the project (c.GBP65,000) are expected in early
2022. In addition, the second project remains within the Group's
security net. This asset has now been awarded RHI by Ofgem and has
received amended planning permission. However, no additional income
will be assumed for this project until development finance is in
place.
There is a possibility for further recovery on this position but
given the uncertainty over this recovery at present, the position
is being held at nil value.
Investment Manager's view
The default on this loan was disappointing and we have sought to
take on board the lessons learned from this asset. This has
included restricting investment into projects which do not have a
clear route to development funding and producing detailed exit
strategies within our investment papers to plan for an event of
default.
However, we believe that there are some positive points to take
from the resolution of this situation, including a final positive
outcome and that our initial assessment of inherent value in the
assets can be proven in a market sales process.
ASSET UPDATE - CO-LIVING LOAN
Background
Co-living is a maturing sector in the private residential rental
market which provides studio apartments with high-quality shared
living facilities at a price point below comparable market rent.
The product typically targets young professionals or people on
secondment.
The Company first advanced a loan to the Co-living group in
March 2017 with an initial investment of GBP5.3 million with
investment growing over time to support the Co-living group's
growth across multiple properties.
In late 2019, the Investment Manager was approached with a
proposal to enter into a larger facility alongside Deutsche Bank,
the 'Lender group'. The new facility transacted in February 2020,
under which the Company held c.38% of the total facility (GBP52.8
million) comprising three tranches up to GBP140 million (only the
first tranche of this facility was drawn due to the impact of
Covid-19). Upon entering the loan agreement, the Company's total
exposure to the Co-living group was reduced from GBP48.5 million to
GBP30 million, although the Co-living group's total borrowing
(across multiple lenders) increased as a result of the
transaction.
The intention of the facility was to provide development funding
for new projects, subject to fixed criteria and a loan-to-NAV test
across the portfolio, to support growth. In addition, the facility
included stringent drawdown criteria and additional covenants,
including equity contributions, loan--to--NAV tests and liquidity
covenants.
The facility initially performed well and the additional funds
provided the Co-living group with a financial buffer to help them
navigate the first year of the pandemic and move developments
through the planning and design stages.
Unfortunately, secondary funding, which is provided to assets
through the construction phase and into operation, became harder to
source during the pandemic. This meant assets which should have
generated development and operational income, became stalled and
required additional funding.
The Co-living group took a number of active measures to secure
additional equity, however, these collapsed as additional lockdowns
were brought in and the pandemic continued to impact.
Default issues
The impact of holding development assets and the failure to
raise additional equity investment, led to a breach of a liquidity
covenant in May 2021. At this point, the Lender group took action,
determining that the best course of action was to move towards a
sale of the entire Co-living group. This decision was made after
extensive consultation with an investment bank who had been
advising the Co-living group prior to the default and had been
liaising with potential investors.
A number of bids were received in the first round with three
bidders advanced to the second round. Three bidders submitted final
bids. A large private equity house was appointed as preferred
bidder, however, they withdrew from the process shortly after, as
they were unable to reach agreement with some of the Co-living
group's co-investors.
The second place bidder was then appointed preferred bidder,
however, their bid materially reduced throughout the process, due
to the following challenges:
Covid-19 impact
Lockdowns in both the UK and US had an immediate impact on the
ability of the three operational assets to operate as normal,
particularly on short-stay accommodation. Development projects were
stalled as funding for projects became more difficult to secure
which resulted in expensive project-level bridging and construction
debt. Further, the main exit route for the projects, being a sale
to their core fund, stopped as the fund was unable to raise the
required funds to acquire the projects. It was not apparent at the
time of the bidding when and if these challenges would be
overcome.
Communication
The borrower was reluctant to share information with the Lender
group at a crucial time for the business, which prevented the
Lender group from engaging in a proactive resolution early in the
process. This equally meant that information was difficult to
obtain or not as originally presented when it came to due
diligence.
Multiple jurisdictions
The Co-living group had projects in the UK, US and Germany,
which presented additional challenges through the sales
process.
Multiple stakeholders
The Co-living group was complex, containing multiple different
asset level lenders and partners. Through the sales process,
negotiations with some lenders/partners in the group became
difficult, with parties trying to apply leverage to enhance their
position. This ultimately led to the withdrawal of the first
preferred bidder and was the main reason driving the material
reduction in the bid price from a second bidder.
Conclusion
The above challenges resulted in a material reduction in the bid
price from the second bidder from the start of their appointment to
their best and final offer. It was determined by the Lender group
that the final offer undervalued the Co-living group and that a
simple realisation strategy would ensure a higher recovery.
Adviser fees
Due to the default issues listed above, the recovery available
to the Lender group was significantly impacted in this transaction
by the level of advisers' fees.
Prior to the breach of the liquidity covenant, the board of the
Co-living group instructed a number of advisers (legal, insolvency,
accounting) before engaging with the Lender group .
This action unfortunately led to the Lender group incurring a
substantial increase in the quantum of fees. The fees had a
significant and detrimental impact on value within the Co-living
group. The significant quantum of fees was due to the number of
parties involved in the process and the complexity of the
organisation's structure.
Recovery process
As a result of the reduction in the final offer to a level that
the Lender group thought was unacceptable, the Lender group decided
to pursue a credit bid strategy, believing this maximised the
recoverability available. The credit bid strategy effectively
consisted of the following:
Objectives Progress
---------- ---------------------------------------------------- ----------------------------------------------------
1. Stabilise the core management team of the Co-living This has been achieved.
group and bring in a new and experienced
property manager to oversee this team.
2. Put the Co-living group into administration to This has been achieved.
ensure costs could be controlled.
3. Reach agreement with the asset level lenders and This has been achieved.
co-investors for a clear realisation strategy.
4. Set up a Bidco to transfer certain strategic assets. This has been achieved with two transferred during
the year and two post year end.
5. Stabilise the core operational assets and ensure This has been achieved.
that occupancy and average weekly rentals
increased.
6. Seek to sell the non-core assets from the Co-living This is ongoing.
group in administration.
7. Seek to sell the core assets from Bidco, the special This is ongoing, with two now sold and two assets
purpose company established to hold assets being held by Bidco.
for sale.
8. Review the assets and consider what additional This is ongoing.
enhancements could be achieved and what steps
can be taken to increase value.
---------- ---------------------------------------------------- ----------------------------------------------------
Current position
Progress continues to be made on the sale of the assets and it
is expected that a significant number will be disposed of in the
coming months.
The assets have proved to be highly attractive with significant
interest shown by potential buyers. The UK HMO assets are currently
under a sales process and more than 50 bidders have expressed an
interest. It is anticipated offers will be received by the end of
March 2022 with a sale completing by the end of May 2022.
The Bidco is hoping to sell the UK large assets to a new
proposed REIT, GCP Co-Living REIT plc, an entity which following
its launch, will be managed by the Investment Manager. However, due
to the situation in Ukraine, the IPO of the REIT was paused in
February 2022. Should this transaction not complete, the Investment
Manager is confident that a sale can be completed following a short
marketing process. The assets continue to perform, with the two
operational assets at more than 95% occupancy and in a position to
increase rents above inflation, with an average rate increase of
5.2% since October 2021.
Investment Manager's view
This loan has clearly been a significant disappointment for the
Group. We have been working hard to maximise the recovery available
to the Company and continue to hope that modest upside exists
beyond the current fair valuation.
target sector updates
SOCIAL INFRASTRUCTURE
Assets such as homes for the elderly, student accommodation and
nurseries.
This sector remains core to the Group's investment strategy in
targeting assets which are long-term in nature and have structural
demand within society. Assets in this sector include care homes,
student accommodation, nurseries, supported living and community
facilities.
Due diligence includes analysis of existing market participants,
the potential future competitive landscape, demand demographics,
affordability and legislative impact as well as considering ESG
impacts of the project. The Investment Manager is targeting areas
where demand for an asset is:
- not supported by existing infrastructure; and
- where structural issues exist that present barriers to entry
for future competitors.
As reported previously, the Investment Manager has been working
closely with management teams across this sector of the portfolio
to deal with the challenges presented by the Covid-19 pandemic. In
2020, this concentrated on dealing with lockdown restrictions. More
recently, the focus has shifted to managing staff shortages due to
isolation requirements and demand for hospitality venues as
restrictions are lifted.
The two multi-use community facilities have been particularly
impacted by the Covid-19 pandemic due to their reliance on the
opening of public spaces as well as food and beverage income.
In December 2021, both projects were transferred into new
ownership and the Investment Manager is working with the new owners
to build a business plan for the coming year as consumer confidence
builds.
Care homes in the portfolio have performed well over the period
with steady occupancy. The rise in cases linked to the Covid-19
'omicron' variant at the end of 2021 meant requirements for
isolation and testing presented challenges in staff scheduling. At
the time of writing, the care homes are no longer reporting
challenges from staffing and are anticipating an increase in
occupancy across the portfolio. The Investment Manager is pleased
to report that a further investment for the development of a new
care home serving an underserved population in Wales was finalised
in December 2021, with further drawdowns completed post period
end.
Other assets in this portfolio sector continue to perform, with
strong performance seen in particular across the nursery projects,
which have seen growth over the year and are demonstrating demand
in excess of available places across all mature sites.
The Investment Manager is looking for further investment in the
social infrastructure space and working with borrowers in the
current portfolio to identify appropriate projects.
This sector includes loans secured against assets located in the
UK (27%), Europe (5%) and Australia (5%).
STRUCTURAL CHARACTERISTICS
- Provide core services
- Generate stable cash flows
- Require longer-term funding solutions
- Can benefit from RPI protections
- Benefit from supply/demand imbalances in particular
geographies
CURRENT INVESTMENTS
- Supported living
- Care homes
- Student accommodation
- Nursery facilities
- Multi-use community facilities
GBP166.2m
Valuation of sector within the portfolio
37%
Percentage of portfolio by value
ENERGY AND INFRASTRUCTURE
Assets such as waste management facilities, battery storage and
CNG stations.
The Investment Manager targets assets in this sector which meet
a structural need in society, providing downside protection and
supporting a sustainable future. This area has become increasingly
competitive in terms of investment, with many lenders looking to
support projects in this space. As such, achieving appropriate
risk--adjusted returns in this space has become more challenging
for the Group.
During the period, the Investment Manager supported the
development of a third CNG fuel station, providing an alternative
fuelling solution for haulage vehicles used by major UK businesses
and logistics providers. This project continues to support the UK
Government's strategy to target net zero carbon emissions by
2050.
The three stations supported by the Group have displaced 6.2
million litres of diesel fuel over the last year with 100%
renewable waste-derived biomethane. Biomethane emits c.80% less
CO(2) than diesel, meaning they contribute significantly to
reducing the impact diesel has on the environment.
The waste recycling facility financed by the Group was repaid in
the period, attracting prepayment fees of GBP2.1 million. The
project has been supported by the Group since 2016, throughout
construction, operation as well as the challenges that Covid-19
presented in a variation of fuel source. Over the life of the
project, the plant has recycled over 430,000 tonnes of waste. The
Investment Manager maintained a positive relationship with the
borrower throughout this time and is pleased that the project has
been a success.
All investments in this sector of the portfolio have performed
well over the year, with the backdrop of rising energy prices and
increased volatility being particularly beneficial to the battery
storage projects which have been able to take advantage of the
volatility in their energy trading and balancing activities.
The Investment Manager is keen to identify emerging areas where
the Group's bespoke financing solutions can provide support.
This sector includes loans secured against assets in the UK
(6%).
STRUCTURAL CHARACTERISTICS
- Provide core services
- Generate stable cash flows
- Rapidly changing energy system drives need for ancillary
investment
- Capital intensive sector
CURRENT INVESTMENTS
- Solar O&M
- Water infrastructure
- Battery storage
- Material recovery facility
- CNG fuel stations
GBP28.7m
Valuation of sector within the portfolio
6%
Percentage of portfolio by value
ASSET FINANCE
Assets such as solar panel O&M servicing, FX contracts and
football finance.
Asset finance represents a variety of sectors for the Group,
encompassing investments in football finance, O&M service
contracts, FX contracts and boiler servicing.
Typically, loans in this sector are secured against longer-term
contracted income streams, instead of physical assets, so there is
a greater focus on counterparty risk and understanding of the
underlying contracts. Whilst some areas of this market are well
served, the Investment Manager continues to look for underserved
sectors which could benefit from bespoke asset financing
solutions.
The Group's investments in football finance continue to perform
well, with all interest and principal payments made to date. Post
period end, the Company received partial early repayment on the
first investment in this sector, due to signing of a deal by La
Liga to sell broadcasting rights to a third party. The repayment
attracted additional prepayment fees of GBP0.2 million. This
prepayment does not impact on the overall security of the remaining
loan which is secured against the remaining income rights. In
addition, the sale will improve the asset position of the borrower
immediately, further reducing risk.
At present, the pipeline includes one additional loan to the
football finance sector but it is not expected that this sector
will grow significantly as a percentage of the portfolio over the
next year. Further details on how these loans are structured is
included below.
Elsewhere in the portfolio, loans secured against FX contracts,
O&M servicing and boiler contracts continue to perform.
This sector includes loans secured against assets located in the
UK (10%) and Europe (6%).
STRUCTURAL CHARACTERISTICS
- Strong contractual protections
- Stable cash flows from fixed contracts
- RPI/CPI linkage
CURRENT INVESTMENTS
- Boiler servicing
- Management fees
- Credit margins against trades
- Football finance
GBP69.3m
Valuation of sector within the portfolio
16%
Percentage of portfolio by value
Property
Assets such as financing for property purchases or development
and co-living spaces.
The Investment Manager seeks to provide bespoke financing
solutions to support underserved areas of the property market and
invests in a range of different property assets. Across the
portfolio, property assets include residential portfolios,
buy-to-let mortgage portfolios, development land, bridging loans
and property development loans.
The Group's investment in a buy-to-let warehousing facility has
continued to show a strong performance with a further
securitisation in June 2021. The facility operates by building up
until it reaches sufficient scale to be securitised. The security
and quality rating of the portfolio was high, with c.88% rated AAA
in the most recent securitisation. Once securitisation is
completed, the Group's financing is reinvested into the warehousing
facility as it builds up again to securitisation, providing an
attractive 7.8% return against a high-quality loan book with an
exit into regular securitisations.
As investors will be aware, the Group's facility to a co-living
developer experienced a default in the period. A more detailed
update on this loan is included above.
The Investment Manager maintains strong relationships with
brokers, developers and specialist lenders in this sector which has
allowed the Group to make further investments in residential
development projects delivering new homes in the UK. Over the
period, the Group has received GBP33.3 million in repayments
relating to short-term loans provided to property developers at
various stages of development.
Additionally, the Investment Manager's relationships with
specialist lenders have given the Group access to aggregated
portfolios of bridging and development loans, secured against
properties with easily realisable value. Whilst the market for
residential property remains uncertain, it has been encouraging to
see both continued demand for development and improving house
prices.
During the year, the Group made its first investment in airspace
development, of GBP5.5 million, which will provide 30 new
affordable housing apartments in a London borough with an acute
need for housing. The development is using a modular build approach
to install units on the rooftop of existing affordable housing
owned and operated by the local authority, as well as carrying out
remediation and improvement works on the existing development. The
development is supported by a loan from the Group and a grant from
the Greater London Authority, both of which will be repaid through
sale of the units to the local authority on completion. This
project represents a new investment area for the Group and it is
hoped that following successful delivery of this project, there
will be further developments in this sector.
This sector includes loans secured against assets based in the
UK (36%), Europe (2%) and the US (3%).
STRUCTURAL CHARACTERISTICS
- Secured against physical assets
- Generate stable cash flows
- Short-term financing
- Well understood and valued sector
CURRENT INVESTMENTS
- Bridging loans
- Buy-to-let
- Co-living
- Land
- Warehousing of buy-to-let
- Social housing
GBP179.4m
Valuation of sector within the portfolio
41%
Percentage of portfolio by value
PORTFOLIO SUMMARY
Portfolio
The Group's investments are supported by a diverse range of
assets located predominantly in the UK. At 31 December 2021, the
weighted average annualised yield(1) was 7.3%(2) across the
portfolio with a weighted average expected term of five years (31
December 2020: 8.0% (7.6% excluding the Co-living loan) and six
years, respectively). In total, 52 loans have been advanced to
companies with operating assets. The remaining eight loans have
been advanced to companies with assets under construction (31
December 2020: 42 operating and eight construction loans
respectively).
Investment valuation
The Valuation Agent carries out a fair market valuation of all
the Group's investments on behalf of the Board on a semi-annual
basis. Any assets which may be subject to discount rate changes are
valued on a quarterly basis. The valuation principles used by the
Valuation Agent are based on a discounted cash flow methodology. A
fair value for each asset acquired by the Group is calculated by
applying a discount rate (determined by the Valuation Agent) to the
cash flow expected to arise from each asset. At the year end, all
assets were valued using a discounted cash flow basis apart from
the Co-living loan. Further detail on the valuation methodology is
given in note 17.
The weighted average discount rate(1) across the portfolio at 31
December 2021 was 7.5% (31 December 2020: 8.5%). The valuation of
investments is sensitive to changes in discount rates applied.
There are two investments that remain subject to discount rate
adjustments to reflect the uncertainties associated with the
Covid-19 pandemic; see below for further information. Sensitivity
analysis detailing the impact of a change in discount rates is
given in note 17.
Portfolio by sector type
Property 41%
Social infrastructure 37%
Asset finance 16%
Energy and infrastructure 6%
Portfolio by security ranking
Senior 69%
Mezzanine 31%
Portfolio by term profile
+5 yrs 73%
5-10 yrs 10%
>10 yrs 17%
Portfolio by interest rate profile
<7% 29%
7-8% 41%
>8% 30%
Portfolio by location
UK 79%
Europe 13%
Rest of World 8%
1. Alternative performance measure - refer below for definitions
and calculation methodology.
2. Including the Co-living loan which is held at 0%. Excluding
this loan, the weighted average annualised yield(1) is 8.0%.
INVESTMENT PORTFOLIO
TOP TEN INVESTMENTS BY VALUE
Key
1 Sector type
2 % of portfolio by value
3 Asset class
4 Multi/single asset exposure
Bridging Co 1
1 Property
2 5.6%
3 Residential property
4 Multi asset
Student Accom 3
1 Social infrastructure
2 5.4%
3 Student accommodation
4 Single asset
Development Fin Co 6
1 Property
2 4.7%
3 Residential property
4 Multi asset
Student Accom 2
1 Social infrastructure
2 4.7%
3 Student accommodation
4 Single asset
Co-living Co 3
1 Property
2 4.2%
3 Co-living
4 Multi asset
Property Co 2
1 Social infrastructure
2 3.9%
3 Social housing
4 Multi asset
Contract Income 3
1 Asset finance
2 3.4%
3 Contract income
4 Single asset
Property Co 7
1 Property
2 3.3%
3 Residential property
4 Multi asset
Property Co
1 Property
2 3.3%
3 Residential property
4 Multi asset
Care Homes Co 3
1 Social infrastructure
2 3.3%
3 Care home
4 Single asset
Further information on the Group's portfolio can be found on the
Company's website.
Portfolio performance
The portfolio currently consists of 60 loans across 22 discrete
asset classes, providing a diversified portfolio to investors.
Managing this portfolio is crucial to the continued performance of
these loans, with close monitoring by the Investment Manager
against comprehensive information and reporting requirements.
Three loans in the period have proved challenging; the
investments in a Co-living group and the multi--use community
facilities. Further information is given in the Chairman's
statement and on asset update above.
Despite the ongoing challenges presented by the Covid-19
pandemic and the macro-economic environment, performance has been
strong across the rest of the portfolio with all payments of
interest and principal received as expected. The Investment Manager
believes that this demonstrates the strength of the underlying
assets.
Repayments of property loans throughout the year have
demonstrated the robust residential property market in the UK, with
increases in house prices supporting the development of new homes.
Property assets represent 41% of the portfolio and continue to be a
core strategic area of investment for the Group.
Positively, in the period, an historic defaulted loan secured
against a CHP unit was resolved with final payments for the sale of
the asset received in full. There is a possibility for further
recovery on this position but given the uncertainty over this
recovery at present, the position is held at nil value. Further
details are given above.
Equally, the performance across the Group's social
infrastructure assets has improved through the period with new
investments made into care homes and nurseries. Operationally, it
has been a challenging year for the sector with continued Covid-19
restrictions and the associated impact on staffing. However, the
Investment Manager recognises the societal benefit in these assets
which is supported by high demand in the areas where they operate.
Further information on this sector is included above.
Across the asset finance, energy and infrastructure sectors,
loans have continued to perform well. In particular, the Investment
Manager has seen positive performance for the battery storage
assets in light of the increased energy prices and market
volatility which have benefited wholesale electricity trading for
the projects. In addition, loans in the football finance space
continue to perform. Further details are included above.
The dividend continues to be fully covered on an adjusted EPS(1)
basis and the regular repayment of loans indicates a robust
secondary market for the Group's underlying investments.
The dividend was 54% covered by EPS of 3.40 pence and 115%
covered by an adjusted EPS(1) of 7.22 pence.
1. Alternative performance measure - refer below for definitions
and calculation methodology.
Key investment highlights
The Group made 35 advances during the year totalling GBP135.5
million, comprising 20 new loans and 15 extensions to existing
facilities. From these advances, four were in the energy and
infrastructure sector; five in asset finance; 13 in property; and
13 in social infrastructure projects. The Group received capital
repayments of GBP118.1 million, along with prepayment fees of
GBP2.5 million. Post year end, the Group made a further eight
advances totalling GBP16.6 million and received ten repayments
totalling GBP31.7 million.
INVESTMENTS MADE DURING THE YEAR(1)
SECTOR AVERAGE TERM SECURITY STATUS INVESTMENTS REPAYMENTS
--------------------- ------------ ------------------- ------------------------ ---------------- ----------------
Asset finance 4 years Senior Operational GBP29.2 million GBP6.0 million
Energy and
infrastructure 3 years Senior Operational/construction GBP27.8 million GBP36.6 million
Property(2) 1 year Senior/subordinated Operational/construction GBP56.4 million GBP73.3 million
Social infrastructure 8 years Senior/subordinated Operational/construction GBP22.1 million GBP2.2 million
--------------------- ------------ ------------------- ------------------------ ---------------- ----------------
Total GBP135.5 million GBP118.1 million
--------------------- ------------ ------------------- ------------------------ ---------------- ----------------
INVESTMENTS MADE POST YEAR(1)
SECTOR AVERAGE TERM SECURITY STATUS INVESTMENTS REPAYMENTS
--------------------- ------------ ------------------- ------------------------ ---------------- ----------------
Asset finance 4 years Senior Operational - GBP11.3 million
Energy and
infrastructure 1 year Senior Construction GBP0.6 million -
Social infrastructure 8 years Senior/subordinated Operational/construction GBP11.2 million GBP13.9 million
Property 1 year Senior/subordinated Operational/construction GBP4.8 million GBP6.5 million
--------------------- ------------ ------------------- ------------------------ ---------------- ----------------
Total GBP16.6 million GBP31.7 million
--------------------- ------------ ------------------- ------------------------ ---------------- ----------------
INVESTMENT COMMITMENTS AT THE DATE OF THE REPORT(1)
SECTOR AVERAGE TERM SECURITY STATUS AMOUNT
--------------------- ------------ ------------------- ------------------------ ---------------- ----------------
Energy and
infrastructure 1 year Senior Construction GBP2.3 million
Social infrastructure 8 years Senior Operational/construction GBP8.5 million
Property 1 year Mezzanine Operational GBP3.1 million
--------------------- ------------ ------------------- ------------------------ ---------------- ----------------
Total GBP13.9 million
--------------------- ------------ ------------------- ------------------------ ---------------- ----------------
1.The Company makes its investments through its wholly owned
Subsidiary. Refer to note 1 for further information.
2.Includes development projects that were subject to review by
the Board under the Company's investment approval process; refer
below.
featured assets
Football Finance
Financing to five football teams in this new investment asset
class.
The asset
The first investment by the Group into this asset class was a
EUR10 million loan to a high-profile club playing in La Liga, a
Spanish football league. The Group's investment was through a
sub-participation in a larger facility of EUR30 million provided by
a leading investment bank operating in this sector.
The financing is secured against payments due under La Liga
regulations to each club in respect of broadcasting contracts for
the league. The proportion of revenues due to a club is determined
under a set formula taking into account performance in the league,
a club's ticket revenue and the league which they compete in, with
each club receiving a minimum percentage.
Even in a worst-case scenario, where the team is relegated from
the league, the debt payments would be met in full from parachute
payments made under the same regulations, which comprise funds paid
to the club as compensation for the loss of revenue on
relegation.
Under the loan documentation issued by the Group, direct
payments from La Liga are made to the lender (rather than the club)
and passed to the Group as sub--participant in repayment of the
loan.
To participate in La Liga, clubs are required to meet a set of
financial covenants and regulations. In addition, the loan
documentation sets out further tests which would act as early
warning signs of any financial difficulty for the club.
Accessing loans through sub-participation has several benefits
to the Group:
- allows the Group access to loans which can only be provided by
certain regulated entities under the financial rules of the
football leagues;
- enables the Group to utilise the existing relationships and
knowledge of the sponsor bank; and
- the administration of payments and information provision is
managed by the lead sponsor.
Post period end, the Group received a partial repayment on this
loan as a result of a sale of broadcasting rights by La Liga to a
third party. This has improved the borrower's asset position and
resulted in payment of prepayment fees totalling GBP0.2
million.
There are inherent risks in lending through a sub--participation
structure. However, the Investment Manager believes that these are
well mitigated through controls in the participation documentation
and a strong relationship with the counterparty.
Overall, the investment offers a good return through payments of
regulated cash flow from strong counterparties.
Student ACCOMMODATION
Mezzanine funding of high-end student accommodation in Central
London.
The asset
In January 2020, the Group provided GBP6.3 million to fund the
construction of high-end student accommodation in Central London.
The Group supported the acquisition and development of a site near
King's Cross, London for a 60-bed, premium student accommodation
offering. This site is ideally located for leading universities,
including University College London, SOAS and Central St.
Martins.
As with the Group's previous investments in this sector, the
site is operated by Scape, a leading student accommodation provider
with assets in the UK, Australia and the US. The development of
this project was strategically important for the borrower, given
the site's proximity to another of their assets, their flagship
432-bedroom Scape Bloomsbury building. As developers, they had seen
exceptional demand for the premium rooms on offer at this site and
identified this project as a way to expand this offering with 60
premium student accommodation units.
The mezzanine financing was provided alongside a supportive
senior bank lender who is well known to the Investment Manager,
having worked on a number of similar transactions. As such, the
Group benefited from strong inter-creditor protections including
restrictions on changes to key terms and limits on increases to the
senior debt.
The project completed construction in September 2021 with the
site now at full occupancy and receiving bookings for the academic
year 2022/23. The current LTV of the loan is c.70%, although we are
awaiting revaluation of the project and anticipate a higher
valuation given the positive movement in the market. Given the
strong performance of the asset, the Investment Manager anticipates
refinancing of the loan by the developer ahead of the expiry in
January 2023.
The Group has supported eleven student accommodation projects
since IPO, with two loans having repaid in full. We continue to see
this as an attractive sector and are working with the borrower on
the expansion of their business model overseas.
Inflation
Inflation in the UK has reached its highest rate for 30 years,
rising by 5.4% in the twelve months to December 2021. Higher
prices, driven by a faster global recovery from the Covid-19
pandemic and higher commodity prices, particularly in Europe, have
increased the rate of inflation substantially, impacting on all
sectors of the economy.
Given this high inflationary environment, the Investment Manager
is cognisant that the Bank of England may look to increase interest
rates further. A higher interest rate environment has two main
impacts on the Company, both with potential positive and negative
impacts:
- higher interest rates and corresponding base lending rates for
banks means that the Company's cost of capital may become more
competitive with traditional commercial lenders, potentially
introducing new asset classes or more seniority to transactions;
and
- a higher interest rate environment would potentially lead to
increases to the risk-free rate, with a corresponding increase in
discount rates and reduction in valuations. However, given the
significant difference between the risk-free rate (UK six-year gilt
is trading at c.1.3%) and the Company yield (at 7.3%(1) ) and the
fact that there is typically a lag between rate movements and deal
pricing, there would be built-in protection for the Company.
In total, 46% of the portfolio by value has inflation and
interest rate protection in three different mechanisms:
- direct interest rate linkage to CPI, RPI (primarily for social
housing assets) or Bank of England base rate (for property assets
with senior lending lines);
- indirect linkage through principal indexation (strike price on
indexation that causes step up in principal when RPI/CPI spikes
above a certain level); and
- share of any upside generated in project SPVs through
profit-sharing mechanisms or share warrant structures.
More generally, higher inflation is likely to drive an element
of margin inflation in some borrowers, positively impacting on debt
coverage.
One area of potential concern is around construction assets. The
impact on construction costs is likely to be negative, with
borrowers reporting increased pressure on contractors. The
Company's exposure to construction projects at the year end was
c.13% of the portfolio by value. All construction projects are
within fixed price contracts but significant underlying cost
increases can impact negatively on these projects.
Overall, inflation is an area the Investment Manager is
monitoring closely, however it is not expected to impact the Group
negatively over the coming year.
1. Including the Co-living loan which is held at 0%. Excluding
this loan, the weighted average annualised yield(2) is 8.0%.
2. Alternative performance measure - refer below for definitions
and calculation methodology.
Covid-19 impact
Since the onset of the Covid-19 pandemic, the Board, on advice
from its Valuation Agent and Investment Manager, sought to quantify
the change in risk in the year by adjusting the discount rate of a
number of the loans in the portfolio. When assessing changes to
discount rates, the Board, on advice, takes account of the
movements in pricing of risk across the market as a whole, such as
those caused by the uncertainties associated with the Covid-19
pandemic.
It also considers an asset specific approach to the assessment
of residual risk which takes into account a number of other
variables that can impact the discount rate, such as:
- the underlying loan structure (senior or mezzanine);
- the operational stage (construction or operational);
- risk rating factors, such as each project's revenue and cost
drivers which could impact the debt service loan cover ratios;
and
- the value of the underlying security structure.
Throughout 2020 and much of 2021, the loans were classified as
high, medium or low impact depending on their specific exposure to
Covid-19. The Investment Manager is pleased to report that the
Company has moved away from this classification given the minimal
impact across the majority of the portfolio. The table below sets
out a summary of the discount rate adjustments that are in place at
the year end for each relevant asset class.
As noted below, two asset classes have discount rate adjustments
in place which reflect risk factors associated with Covid-19. It
should be noted that where this prudent approach to value
adjustment (through the increasing of discount rates) has been
taken in respect of the portfolio, the principal amount of debt
owed by the underlying borrowers has not changed.
In the event of non-payment of interest by a borrower,
outstanding amounts would be added to the principal owed and
therefore become recoverable in final repayments or against any
enforcement proceeds, taking into account the value of the
underlying security structure for each loan.
Changes to discount rates result in a revaluation of
investments, which is reflected through fair value movements in the
statement of comprehensive income.
The discount rate adjustments set out below had a net negative
impact of 0.04 pence per share on the earnings and NAV of the
Company.
DISCOUNT RATE ADJUSTMENTS IN PLACE AT YEAR
% of portfolio
at Discount Valuation
Impacted 31 December rate differential
to par
asset class 2021 adjustment (GBP) Rationale
------------------------------- -------------- ---------- ------------ -------------------------------------------
Multi-use community facilities 1.5% 12.0% (996,000) Discount rate increased due to challenging
operating conditions and uncertainty from
the Covid-19
pandemic.
Overseas student accommodation 4.7% 1.0% (102,000) Discount rate increased due to continuing
Covid-19 restrictions in Australia
impacting on
student market.
Social housing 3.3% 0.4% (364,000) Slight increase in discount rate by the
Valuation Agent due to comparable market
transactions
and impact of inflation.
Contract income 1.2% (2.0)% 807,000 Decreased discount rate based on positive
operational performance and comparables in
the market.
O&M contracts 1.7% (1.8)% 486,000 Decreased discount rate (since 2018) to
reflect higher coverage ratios and
comparable markets
transactions.
------------------------------- -------------- ---------- ------------ -------------------------------------------
Total 12.4% (169,000)
------------------------------- -------------- ---------- ------------ -------------------------------------------
FINANCIAL REVIEW OF THE YEAR
The Company has generated total income of GBP21.4 million and
paid dividends of 6.30 pence per share. The total shareholder
return(1) for the year was 13.2% and total NAV return(1) was
3.4%.
Financial performance
In the year to 31 December 2021, the Company's portfolio
generated interest payments of GBP32.9 million and fee income of
GBP2.9 million (including prepayment fees of GBP2.5 million in
respect of loans prepaid in the year). This was offset by net
unrealised valuation losses of GBP15.7 million primarily in respect
of write--downs on the Company's Co-living loan. Further
information is given in note 3.
The Company incurred total expenses of GBP5.6 million (31
December 2020: GBP5.8 million) which include the Investment
Manager's fee, Directors' remuneration and other third party
service provider costs. Further information is given in notes 4, 6
and 18.
Finance costs have remained broadly static for the year with the
Company utilising its RCF throughout the year. At the year end
GBP19.9 million was drawn (31 December 2020: GBP5.0 million).
Further information on the RCF is given in note 14.
Total profit and comprehensive income for the year was GBP15.0
million (31 December 2020: GBP27.4 million).
Dividends
The Company paid 6.30 pence per share in interim dividends,
meeting the target set by the Board for 2021. The Company met its
stated aim of growing the dividend year-on-year, with interim
dividends increasing from 6.225(1) pence per share in the prior
year. Further information is given in note 9.
The total dividend was 54% covered by EPS of 3.40 pence for the
period and 115% covered by an adjusted EPS(2) of 7.22 pence. In
respect of the forthcoming financial year, the Company is targeting
an annual dividend of 6.325 pence per ordinary share(3) .
Earnings
The Company generated EPS of 3.40 pence. Earnings for the year
were impacted by the write--down of the Co-living loan partially
offset by the unwinding of discount rate adjustments to reflect
market uncertainties associated with the Covid-19 pandemic. EPS
excluding the write-down and discount rate adjustments (adjusted
EPS(1) ) for the period was 7.22 pence per share, which would have
more than fully covered the dividend for the period of 6.30 pence
per share.
Adjustments to discount rates result in the revaluation of
investments, which are reflected through fair value movements in
the statement of comprehensive income, in accordance with IFRS.
Ongoing charges
The Company's ongoing charges ratio(2) , calculated in
accordance with the AIC methodology, was 1.2% (31 December 2020:
1.2%) for the year to 31 December 2021.
31 December 31 December
2021 2020
Ongoing charges GBP'000 GBP'000
------------------------- ----------- -----------
Investment Manager 3,916 3,891
Directors' fees 200 201
Administration expenses 1,439 1,661
------------------------- ----------- -----------
Total expenses 5,555 5,753
Non-recurring expenses (209) (470)
------------------------- ----------- -----------
Total 5,346 5,283
Average NAV(2) 443,608 445,830
Ongoing charges ratio(2) 1.2 1.2
------------------------- ----------- -----------
1. Excluding special dividend of 0.25 pence per share.
2. Alternative performance measure - refer to below for
definitions and calculation methodology.
3. The target dividend set out above is a target only and not a
profit forecast or estimate and there can be no assurance that it
will be met.
NAV and share price performance
Net assets attributable to equity holders at 31 December 2021
were GBP436.7 million, down from GBP449.8 million at 31 December
2020. The Company's NAV per ordinary share has decreased from
102.18 pence at 31 December 2020 to 99.29 pence per ordinary share
at 31 December 2021.
The Company's share price has predominantly traded at a
premium(1) to NAV since the IPO of the Company in 2015, with an
average premium(1) of 1.50% over this period. The Covid-19 pandemic
has continued to negatively impact the Company's share price this
financial year with the shares trading at an average discount(1) of
3.5%.
Share repurchases
The Company continued its share buyback scheme during the year.
The Company's share price discount(1) to NAV offered value to
shareholders. A total of 325,000 shares were repurchased during the
year at a weighted average price of 90.22 pence per share. At 31
December 2021, there were 439.8 million ordinary shares in issue,
of which 2.2 million were held in treasury.
Conflicts of interest
The Company has continued to finance existing construction
projects of a number of private student accommodation developments
in Australia, the US and the UK, with GBP2.8 million drawn during
the year. The Company also financed the development of two
co-living sites in the UK, with GBP13.1 million drawn during the
year. Certain of the directors and/or shareholders of the
Investment Manager directly or indirectly own an equity interest in
these development projects. In accordance with the Company's
investment approval process, these investments were reviewed and
approved by the Board.
Exclusivity has been granted in respect of the sale of three
Co-living assets to a proposed REIT, GCP Co-Living REIT plc, an
entity which following its launch, will be managed by the
Investment Manager. However, due to the situation in Ukraine, the
IPO of the REIT was paused in February 2022.
As the Investment Manager is classed as a related party, these
arrangements fall within the related party transaction rules under
Listing Rule 11.1.10R. The Board has taken steps to manage this
conflict, including overseeing all commercial and price discussions
alongside the other Co-living group lenders and the co-investors of
two of the assets.
Where there is any overlap for a potential investment with GCP
Infra, a third party company advised by the Investment Manager, GCP
Infra has a right of first refusal over such investment. GCP Infra
has not exercised this right of first refusal since the Company's
IPO.
Cash position
The Company received interest payments of GBP32.9 million and
capital repayments of GBP117.7 million from its Subsidiary in the
year. The Company paid cash dividends of GBP27.7 million during the
year and a further GBP6.9 million post year end. The Company
advanced GBP134.5 million to the Subsidiary to make investments in
accordance with the Group's investment policy. Post year end, the
Group made a further eight advances totalling GBP16.6 million and
received ten repayments totalling GBP31.7 million. At the date of
the report, investment commitments were GBP13.9 million. Total cash
reserves at the year end were GBP10.1 million.
1. Alternative performance measure - refer below for definitions
and calculation methodology.
SUSTAINABILITY
The Company aims to operate a long-term, viable business model
which does not detrimentally impact the environment and provides
benefits to society where possible.
CORPORATE SUSTAINABILITY
Introduction
ESG is an increasingly important topic in both the assessment of
its impact on investments in the future and investor assessment of
opportunities. With the impact that Covid-19 has had on escalating
climate change priorities, there is also considerable new ESG
legislation, regulation and stakeholder requirements for the
Company to consider. These changes influence not only the Company's
governance, but also the sectors it invests in, the parties it
engages with and how it reports to investors.
For accounting periods beginning on or after 1 January 2022,
companies with a UK premium listing are required to report, on a
comply or explain basis, against the recommendations of the TCFD.
Although the Company, as an investment company, is excluded from
such requirement, the Directors have committed to improving
disclosure in this area to ensure compliance when the applicable
regulation comes into force. The move to report under TCFD is part
of the first wave of the Government's phased roadmap for mandatory
climate risk disclosures, due by the end of 2025. It also reflects
legislation introduced in 2019 to achieve net-zero greenhouse gas
emissions by 2050.
In addition, IFRS have turned their attention to sustainability
disclosure standards with the ISSB. The goal is to drive globally
consistent, comparable and reliable sustainability reporting. A
climate--related disclosure standard is expected to be the first of
a proposed suite of sustainability disclosure standards issued by
the ISSB, including standards on broader sustainability topics.
Governance
The Investment Manager is a signatory to the PRIs, as set out
below, and has established a responsible investment policy and a
dedicated responsible investment committee to monitor and implement
ESG initiatives across its organisation. ESG considerations have
been integrated into its investment management processes to enable
the creation of more sustainable businesses over the long term.
PRI
Principle 1:
We will incorporate ESG issues into investment analysis and
decision-making processes.
Principle 2:
We will be active owners and incorporate ESG issues into our
ownership policies and practices.
Principle 3:
We will seek appropriate disclosure on ESG issues by the
entities in which we invest.
Principle 4:
We will promote acceptance and implementation of the Principles
within the investment industry.
Principle 5:
We will work together to enhance our effectiveness in
implementing the Principles.
Principle 6:
We will each report on our activities and progress towards
implementing the Principles.
More information can be found on the PRI website:
www.unpri.org.
The Company does not have an investment objective of sustainable
investing nor does it use ESG criteria to evaluate investments or
assess their societal impact within its stated investment appetite.
On this basis, the Company has been classified as being subject to
Article 6 of the SFDR (the Company's SFDR sustainability disclosure
can be found on its website). The Directors do, however, believe in
the integration of responsible investment principles across all
aspects of the Company's operations including the application of
negative and positive screening to ensuring its long-term success
and the success of sectors within which it operates.
The Company has delegated investment management in accordance
with the investment mandate to the Investment Manager; as such, the
key decisions made by the Board in the ordinary course of business
relate to the Company's strategy, stakeholder engagement and
oversight of risk management. These decisions are governed by the
matters reserved for the Board and the terms of reference of the
Board's committees. Ownership of ESG, including the oversight of
climate-related risks and opportunities, is the responsibility of
the Board, with the Board's committees delegated responsibility for
specific ESG areas that fall within the remit of their terms of
reference.
During the year, the Directors developed an ESG policy and
framework, as detailed further below. The policy is based upon the
PRIs to ensure alignment across its business and with its
stakeholders. Whilst ownership of ESG remains the responsibility of
the Board, a Director has been allocated responsibility for ESG to
further facilitate the development of the Company's ESG strategy,
policy and framework, to ensure the Company's ESG focus remains
current and considered by the Board in their decisions, processes
and policies.
Strategy
Whilst the investment objective of the Company is not that of
sustainable investing, it aims to operate a long term, viable
business model, which does not detrimentally impact the environment
and provides tangible benefits to society.
The Investment Manager has been working on ways to improve
collection and analysis of data to help inform assessment of ESG
impacts and climate risk within the portfolio; further information
on this assessment can be found below.
When evaluating and approving new investments, the Investment
Manager directly and/or indirectly addresses climate-related
physical and transition risks and opportunities. An analysis of the
potential physical climate change impacts and opportunities by
sector is included below.
As part of the Company's viability statement process (refer
below) the Investment Manager carried out an analysis of climate
risk across the physical assets in the portfolio and the impact on
income generation. The analysis was based on varying degrees of
flood risk with downside climate risk scenarios that included
increasing frequency and severity of adverse weather events.
Integration of responsible investment
The Investment Manager believes that integrating ESG
considerations into its investment management processes and
ownership practices creates successful and viable businesses over
the long term and generates enhanced value for stakeholders, and
society at large.
The Investment Manager has a dedicated section of its website
containing its responsible investment policy, its annual report on
ESG initiatives and relevant documents for each managed investment
fund. In addition, it has a dedicated fund representative for the
Company on its responsible investment committee. This ensures that
the Board is kept informed on developments at the Investment
Manager and that best practice can be shared across the different
managed investment funds.
Deal screening
The Investment Manager has implemented processes to identify
investments that promote sustainability or benefit society,
including, but not limited to:
- climate change mitigation and adaptation;
- energy transition;
- critical infrastructure;
- affordable living;
- social housing;
- education; and
- healthcare.
Investments which focus on animal testing, armaments, alcohol
production, pornography, tobacco, coal production and power and
nuclear fuel production are excluded. Investments with ongoing or
persistent involvement in human rights abuses are also
excluded.
The diversification of investments in the Company's portfolio
presents a challenge in allocating any form of quantitative grading
against ESG criteria. As such, the Investment Manager does not seek
to grade investments but will consider each on a case--by--case
basis.
Due diligence processes
The Investment Manager has implemented a responsible investment
checklist for new investments, which assesses how the investment
fares against key relevant ESG criteria. The checklist covers the
counterparty's commitment and capability to effectively identify,
monitor and manage potential ESG-related risks and opportunities,
and, to the extent applicable, the availability of relevant
policies and procedures, alignment with industry or
investment-specific standards and ratings; and compliance to
relevant ESG-related regulation and legislation.
ESG POLICY AND FRAMEWORK
The Board has developed an ESG framework, in line with the PRIs,
to guide the processes and policies of the Group. A Director has
been allocated responsibility for ESG to further facilitate the
development of ESG strategy and to ensure the Company's ESG focus
remains current and considered by the Board in their decisions,
processes and policies. Further information can be found in the ESG
policy on the Company's website.
1. DECISION MAKING 2. OWNERSHIP 3. PARTNERSHIP
----------------------------------- --------------------------- ------------------------------
ESG considerations are part We will include ESG We will consider
of our decision--making issues in our policies the ESG approach
process and procedures of those we chose
to engage with and
invest in
The Company The Company The Company
----------------------------------- --------------------------- ------------------------------
Decisions are governed by A full review of Prior to appointment
the terms of reference of the key operating of each service provider,
the Board and its committees manual and policies full due diligence
which include ESG considerations. is to be carried is carried out which
out to ensure ESG includes a summary
requirements and of approach to environmental
considerations are and social and governance
fully incorporated. issues.
The portfolio The portfolio The portfolio
----------------------------------- --------------------------- ------------------------------
The Investment Manager takes The Investment Manager Through relationships
ESG considerations into has put in place with borrowers and
account in its decision--making a responsible investment appropriate provisions
processes in line with its policy which includes in key agreements,
responsible investment policy. deal screening and the Investment Manager
ESG due diligence. will seek access
to appropriate disclosure
on ESG issues.
4. ACCEPTANCE 5. ENHANCEMENT 6. REPORTING
----------------------------------- --------------------------- ------------------------------
We will promote acceptance We will ensure our We will report on
and implementation of ESG ESG framework is our progress against
considerations maintained our ESG framework
The Company The Company The Company
----------------------------------- --------------------------- ------------------------------
The Board promotes acceptance The Directors will The Directors will
and implementation of ESG develop and improve provide regular and
considerations through engagement the ESG framework transparent reporting
with the Company's stakeholders by engaging with to investors on specific
and review of its service stakeholders and ESG considerations.
providers. advisers and through
their annual professional
development obligations.
The portfolio The portfolio The portfolio
----------------------------------- --------------------------- ------------------------------
Through reporting and investor The Investment Manager The Investment Manager
engagement, the Investment will continue to will report on how
Manager will share progress engage with stakeholders, investment activities
on implementation of the including borrowers, have incorporated
PRIs and look to utilise to seek feedback ESG, including incentive
examples of best practice on ways in which mechanisms that are
in the market. they can be supported used to encourage
to meet their ESG ESG activities and
goals. any new transactions
in social or energy
infrastructure.
----------------------------------- --------------------------- ------------------------------
Risk management
The Directors recognise that risk is inherent in the operation
of the Company and are committed to effective risk management to
protect and maximise shareholder value. When setting the Company's
risk management strategy, the Board considers the nature of the
financial and non--financial risks they are willing to take and the
appetite they have for those risks to achieve the Company's
strategic objective.
Risk assessment
The Investment Manager directly and/or indirectly addresses
climate-related risks and opportunities when evaluating and
approving new investments. This includes the completion of a
responsible investment checklist for each new investment. Given the
diversity of sectors which the Company invests in, the approach to
assessing and measuring ESG risks (including climate risks)
naturally needs to reflect the unique characteristics of each
investment. Ongoing due diligence is carried out during the life of
each asset to identify any new risks and changes to existing risks.
This includes changes to Government and industry legal and
regulatory requirements and assessment, the impact of flooding and,
currently, the impact of the Covid-19 pandemic.
The Board and the Investment Manager intend to continue to
engage with stakeholders, including borrowers, to seek feedback on
ways in which the Company can support them to meet their ESG goals.
Further information on ESG initiatives is included below.
Monitoring and engagement
Following the investment, investments are monitored in
accordance with the relevant covenants and information requirements
for the project. The requirements are tailored to manage risks
specific to each project and typically include financial,
regulatory, operational and construction reporting, where relevant.
Through the responsible investment checklist process, the
Investment Manager seeks to identify ESG indicators to include in
reporting and monitoring of borrowers to inform the way in which
the investment is managed.
The Investment Manager has demonstrated that building and
maintaining strong relationships with investors and borrowers is
vital to ensure the long-term success of the Company. Through these
relationships and appropriate provisions in key agreements (e.g.
service provision agreements and loan agreements) the Investment
Manager seeks access to appropriate disclosure on ESG issues,
recognising that this approach may not be relevant for all sectors
in which the Company invests. The Board uses this information to
inform how ESG risks in the portfolio can be managed and monitors
investments accordingly.
Where the Company engages with third party providers, the Board
takes steps to ensure that identified risks are appropriately
managed. The Investment Manager also carries out ongoing
performance monitoring, including site visits (when possible) by
experienced personnel. Detailed reports on asset performance are
provided to the Board. Further information on site visits is
included below.
Metrics and targets
Greenhouse gas emissions
As an externally managed investment company, the Company has no
employees, does not own any property, and it does not purchase
electricity, heat, steam or cooling for its own use and is
therefore exempt from the new Streamlined Energy and Carbon
Reporting disclosure requirements (Scope 1 and Scope 2 emissions).
The Company outsources all services on a fee basis and, as such, it
is currently not measuring or quantifying emissions in respect of
any outsourced energy use (Scope 3 emissions). However, with the UK
introducing legislation to achieve net-zero greenhouse gas
emissions by 2050, it is important that Scope 3 emissions are
quantified, and with the assistance of the Investment Manager, the
Company is exploring methods of measuring energy generation and GHG
emissions from the investment portfolio.
Reporting
The Investment Manager reports to the Directors on a regular
basis on how investment activities have incorporated ESG, including
where incentive mechanisms are used to encourage ESG activities and
any new transactions in social or energy infrastructure.
Through quarterly reporting to the Board, the Investment Manager
addresses any due diligence issues raised on new transactions
through the responsible investment checklist and ongoing
monitoring.
To provide confidence on the Company's approach and progress
made on ESG considerations, the Directors intend to provide regular
and transparent reporting to investors on specific ESG
considerations.
LOOKING FORWARD
The Company is making good progress with developing its approach
to ESG, as detailed below. The Board is committed to full
compliance with applicable reporting standards in line with
regulatory requirements. This will include compliance with TCFD
once it becomes applicable to investment companies and the proposed
sustainability disclosure standards issued by the ISSB.
ACHIEVEMENTS IN 2020 ACHIEVEMENTS IN 2021 AIMS FOR 2022 AND BEYOND
------------------------------- -------------------------------- ---------------------------------
The Board and the Investment ESG policy and framework ESG policy and framework
Manager initiate development finalised, which can be to be further developed
of an ESG policy and found on the Company's to reflect results of
framework for the Company. website. impact analysis on its
identified risks.
The Investment Manager First new investments The Investment Manager
initiates project to transacted that include to explore further incentive
include ESG incentive ESG incentive schemes mechanisms at the portfolio
schemes in loan documentation. in loan documentation. level, to promote ESG.
Climate impact considerations The Investment Manager Undertake a project to
incorporated in due commenced an assessment examine how climate change
diligence processes of flood risk across physical (both physical and transitional
at the Investment Manager. assets and analysed data risks) as a transverse
for available EPC ratings. risk impacts the principal
risks of the Company.
The Company commits Consideration of appropriate ESG metrics and targets
to adopt the recommendations portfolio metrics and to be further developed
of the TCFD where appropriate. targets in relation to and finalised, to be
ESG including reporting reported by the Company.
GHG emissions.
The Investment Manager ESG considerations formally Further development by
commences work to integrate integrated into investment the Investment Manager
responsible investment processes in accordance of ESG indicators to
criteria into its investment with the PRIs. monitor and report ESG
processes. impacts and progress.
The Investment Manager The Investment Manager Obtaining third party
publishes responsible publishes its first responsible assurance to ensure transparency
investment policy outlining investment report for on ESG-related data in
its commitments as a the financial year. its reporting.
business.
The Investment Manager's The Investment Manager The Investment Manager
GHG emissions data collated implements carbon reduction to continue to work towards
and CO(2) outputs for initiatives and launches achieving carbon neutrality
the business quantified. carbon offsetting scheme by 2023.
to offset the impact of
its business activities.
------------------------------- -------------------------------- ---------------------------------
PORTFOLIO SUSTAINABILITY
Environmental
Green energy projects
The Group has invested in a number of green energy projects,
including three operational CNG stations. The three stations are
located in strategically important hubs, providing fuelling
services to a variety of UK businesses and logistics providers. As
a form of transportation, CNG trucks play a significant part in
reducing the negative impact of diesel consumption on air quality
and the environment, emitting c.80% less CO(2) than diesel trucks.
In total, 6.2 million litres of diesel have been displaced during
the year by vehicles fuelling at this station.
The Company has also invested in battery storage projects which
support the deployment of renewable energy projects throughout the
UK by providing flexible capacity and balancing services to the
National Grid. The assets comprise large units connected to the
electricity grid and contain battery units which charge from the
grid, store electricity and release stored energy back into the
grid as required. The Group continues to support one project which
has benefited from increased volatility in energy markets, by
providing balancing services and market demand through wholesale
trading.
Further, the Company has invested in companies providing
operation and maintenance services for rooftop solar panels, in
turn contributing to increased renewable capacity in the UK, and
has exposure to anaerobic digestion facilities.
CLIMATE RISK ASSESSMENT
Over the year, the Investment Manager has been working on ways
to improve collection and analysis of data to help inform
assessment of climate risk within the portfolio. This has included
a project to assess short-term and long-term flood risk across
physical assets. To date, data covering c.70% of the portfolio has
been collected, with any assets identified as being at a higher
risk of flooding having appropriate mitigants in place. The
Investment Manager hopes to report more fully on this analysis to
shareholders over the coming year and has included collection of
this data in due diligence process for new investments.
In addition, the Investment Manager recognises the transitional
risk in regulatory changes to improve energy efficiency standards.
As such, it is collating data on EPC ratings across relevant
properties. Where EPC ratings are below a 'C' rating, it will be
working with the property owners to understand how the Company can
support any work to improve energy efficiency of their
properties.
CLIMATE CHANGE IMPACT
The Investment Manager directly and/or indirectly addresses
climate-related physical and transition risks and opportunities
when evaluating and approving new investments. A summary of the
potential physical impact on the portfolio is included below, along
with opportunities these impacts may present to the Company.
Portfolio sector
---------------------------- ---------------------------- ---------------------------- ----------------------------
PROPERTY ASSET ENERGY AND INFRASTRUCTURE SOCIAL
FINANCE INFRASTRUCTURE
---------------------------- ---------------------------- ---------------------------- ----------------------------
Potential climate impact Potential climate impact Potential climate impact Potential climate impact
---------------------------- ---------------------------- ---------------------------- ----------------------------
Higher temperatures leading Higher incidence of extreme More frequent floods and More frequent floods and
to overheating in homes. weather events impacting more intense and frequent other extreme weather
More frequent floods and businesses. storms impacting energy events impacting
more intense provision. infrastructure.
and frequent storms causing
damage.
Potential portfolio
impact(1)
---------------------------- ---------------------------- ---------------------------- ----------------------------
Short term Short term Short term Short term
---------------------------- ---------------------------- ---------------------------- ----------------------------
Higher temperatures during Potential to impact Energy and fuel supply Floods increase the risk of
the summer months are businesses, leading to chains impacted. Inability contaminated water and
likely to make the short--term loss of to service customers. related diseases; fires and
inhabitants less revenue. other extreme
comfortable. weather events cause
potential damage to
buildings.
---------------------------- ---------------------------- ---------------------------- ----------------------------
Long term Long term Long term Long term
---------------------------- ---------------------------- ---------------------------- ----------------------------
More frequent extreme Potential to have impact on Closure of services Significant impacts on this
events may cause damage to business model, leading to impacting energy provision sector by putting localised
buildings and pose a risk loss of revenues and to customers, leading to strain on businesses and
to inhabitants. possible financial loss of revenues. potentially
difficulty. leading to closure.
---------------------------- ---------------------------- ---------------------------- ----------------------------
Climate opportunity
---------------------------- ---------------------------- ---------------------------- ----------------------------
Funding energy-efficient Funding for businesses Increased demand for Funding energy-efficient
buildings which contribute focused on achieving alternative fuel sources buildings which contribute
to the avoidance of GHG climate--positive outcomes, such as CNG fuels and to the avoidance of GHG
emissions. including contracts battery storage. emissions.
for service provision to
renewable energy providers.
Identifying improvements to
existing housing stock for
insulation and flood
defence provisions.
---------------------------- ---------------------------- ---------------------------- ----------------------------
1. The Company defines short and long-term risk time horizons as
follows: short term: zero to three years; medium: four to eight
years; long term: more than eight years.
Social
Societal benefits
The Company's business model targets assets for which there is a
structural demand within society. The Group provides benefits to
society through its investing activities, by providing funding for
assets, such as housing for vulnerable adults, care for the elderly
and urban regeneration, in addition to assets that meet a
structural demand for producing or managing energy and/or
processing waste. The Group also provides finance for property
purchases or developments which mainstream lenders cannot serve,
for reasons other than credit quality.
One such investment the Company supports is run by a leading
national provider of non-government grant funded supported
accommodation, Inclusion Housing, which is designed to meet a range
of housing needs for adults with physical disabilities and/or
mental disabilities.
The provision of this accommodation makes a meaningful
difference to the quality of life for vulnerable and disabled
residents, the majority of whom would be faced with hospitalisation
or registered care. They assist tenants to take up, manage and
maintain their tenancies, provide support in their applications for
welfare benefits, and ensure they are aware of their rights under
their tenancy agreements.
Inclusion Housing also liaises with statutory and voluntary
agencies on the tenant's behalf to ensure they are supported to
manage their tenancy. They deliver involvement activities to assist
tenants to engage with the wider community, obtain new skills,
build confidence and improve wellbeing. The service delivers real
independent living within the community in quality refurbished or
new-build accommodation financed by the Company.
Furthermore, during the year, the Group invested in a flagship
project developing existing affordable housing stock to improve
accommodation and provide 30 additional units in an under-supplied
London borough. This project is supported by a facility from the
Group and by grants from the Greater London Authority, to deliver
new homes to those who need them.
Since IPO, the Group's investment activities have facilitated
the creation of c.1,500 jobs, of which c.300 have been created at
care homes, c.300 at urban regeneration projects, c.600 at
nurseries, with the remainder at student accommodation schemes. The
Group intends to continue to support borrowers that have a positive
impact on society, as it enhances the security of the portfolio and
brings wider benefits to the communities that the assets operate
in.
FEE INCENTIVE MECHANISM
Recognising the Company's role as a responsible debt provider,
the Board and Investment Manager are trialling ESG target
incentives with selected loans. Through this mechanism, agency fees
(typically between GBP10,000 to GBP20,000 per annum for each loan)
can be waived if agreed ESG targets or schemes are implemented by
the borrower. The first of these schemes has been put in place to
provide scholarship places at a nursery in South London for
qualifying 2--5 year olds, removing barriers to accessing
high-quality early years education. The Investment Manager is
looking forward to reporting on this scheme and others it plans to
put in place over the coming year.
Governance
The Investment Manager's designated portfolio monitoring team
engages with borrowers on an ongoing basis. Engagement is in the
form of regular interaction with the borrowers. With the lifting of
Covid-19 restrictions at certain times through the year, the
Investment Manager has been able to undertake site visits to
assets, which were on hold during much of 2020. Visits to the US
and Ireland were undertaken by the origination and portfolio
monitoring teams. The regular monitoring of information and
financial covenant obligations is also carried out to ensure
compliance with financial covenants to ensure the early
identification of potential issues.
Site visits are an important aspect of the portfolio management
role and can facilitate both technical and commercial benefits.
They allow the Investment Manager to assess the performance of both
asset and operator, and investigate any important project issues.
Further, site visits give the Investment Manager an opportunity to
understand the operations and relationships important to each asset
and its long-term success.
The Board and the Investment Manager value relationships with
borrowers, ensuring time is spent building and maintaining these
relationships. By engaging with borrowers and understanding their
needs, the Group is able to provide bespoke lending solutions which
reflect the contractual fundamentals and inherent risks of the
underlying assets and cash flows.
STAKEHOLDERS
The Board values the importance of maintaining a high standard
of business conduct and stakeholder engagement and ensuring a
positive impact on the environment in which the Group operates.
Stakeholders
The Company engages with its stakeholders in different ways.
This section outlines the key stakeholder groups, the importance of
engagement and how the Company and the Board interacts.
Stakeholders have been grouped into six key categories, with an
overview of why and how the Company engages including, where
relevant, key Board decisions which impacted these groups and the
ways in which the Board considered their interests.
All Board discussions involve careful consideration of the
longer-term consequences of any decisions and their implications
for stakeholders. The Board values the importance of maintaining a
high standard of business conduct and stakeholder engagement and
ensuring a positive impact on the environment in which the Group
operates.
SECTION 172: PROMOTING THE SUCCESS OF THE COMPANY
As a member of the AIC, the Company reports against the AIC Code
on a comply or explain basis. Whilst the Company is not domiciled
in the UK, by reporting against the AIC Code, the Company
voluntarily meets any obligations in relation to the 2018 UK
Corporate Governance Code and specifically section 172 of the
Companies Act 2006.
The Board of Directors consider, both individually and together,
that they have acted in the way they consider, in good faith, would
be most likely to promote the success of the Company for the
benefit of its members as a whole (having regard to the
stakeholders and matters set out in section 172 of the Companies
Act 2006) in the decisions taken during the year as set out
below.
The interests of the Company's employees
The Company has no employees but has close working relationships Refer to stakeholder
with the employees of the Investment Manager and the engagement
Administrator to which it outsources its main functions. and
governance
sections
below.
The impact of the Company's operations on the community
and the environment
During the year, the Directors developed an ESG policy Refer to sustainability
and framework, as detailed further above. The policy section above.
is based upon the PRIs to ensure alignment across its
business and with stakeholders.
The need to foster the Company's business relationships
with suppliers, customers and others
The Board has a close working relationship with all Refer to stakeholder
its advisers and regularly engages with all parties. engagement
section
below.
The desirability of the Company maintaining a reputation
for high standards of business conduct
Under the leadership of the Chairman, the Board operates Refer to Board
with core values of integrity and impartiality with culture
an aim of maintaining a reputation for high standards and purpose
in all areas of the business it conducts. below of the
corporate
governance
statement.
The need to act fairly between shareholders of the Company
The Board actively engages with shareholders and considers Refer to stakeholder
their interests when setting the Company's future strategy. engagement
section
below.
The stakeholder model below demonstrates how the Company
interacts with all of its stakeholders.
SHAREHOLDERS
All investors in the Company, be they institutional, such as
pension funds or wealth managers, or retail, such as private
individuals.
Why engage
Through the provision of capital, shareholders enable the
Company to pursue its investment objective. In return, the Company
generates earnings for shareholders as well as growing the capital
value of the portfolio over the long term.
How the Company engages
The Company, primarily through its Investment Manager and
Broker, engages in ongoing communication with its shareholders via
market interactions, webinars and shareholder, analyst and
marketing presentations.
Shareholder engagement is reported to the Board on a quarterly
basis. Feedback obtained through this engagement is taken into
consideration when setting the future strategy of the Company and
any Board decisions which may impact shareholders. The Board
encourages shareholders to attend and vote at general meetings of
the Company so they may discuss governance and strategy and to
understand shareholders' issues and concerns.
The Investment Manager has been engaging with shareholders
throughout the year by holding meetings, hosting webinars and
portfolio updates for investors, including holding a separate
webinar purely focused on the Co--living loan.
Alongside the Investment Manager, the Company has looked to
engage further with shareholders by increasing both the quality and
detail of its portfolio disclosures. Feedback on the disclosures
has been positive and both the Board and the Investment Manager are
keen to engage with shareholders to address any questions or
concerns they may have.
KEY BOARD DECISION: CHANGE IN INVESTMENT POLICY
Decision:
In January 2021, the Board considered a proposal from the
Investment Manager to change the investment policy to reflect an
increase in the overseas exposure from 20% to 30% of gross assets.
The recommendation of the Board was approved by the shareholders at
the Annual General Meeting held in May 2021, by way of an ordinary
resolution.
Process:
Investment Manager presented the Board with a paper which
highlighted that the Company was approaching the overseas
investment limit (being 20%) and without extension it would not be
able to pursue any future overseas investment opportunities on
behalf of the Group.
The Investment Manager proposed increasing the Company's
overseas exposure limit from 20% to 30% of gross assets based on
the following rationale in four areas:
- it would help to mitigate risks that Brexit posed on the
Company as it would give more opportunities to diversify the
portfolio;
- an increase in the overseas limit would introduce additional
flexibility in managing the Group's pipeline of investments;
- increasing the overseas exposure would encourage NAV growth by
benefiting from additional risk premia from opportunities outside
of the UK; and
- increasing the overseas limit would help enable borrower
growth where invested.
The Investment Manager, along with the Broker, consulted with
certain of the Company's largest shareholders and gauged their
support for amending the Company's investment policy to increase
the maximum exposure.
Following consultation with shareholders and a review of the
immediate pipeline, the Board, as advised by the Investment
Manager, concluded that an amendment to the investment policy would
be in the best interests of the Company and its shareholders.
The Board recommended the investment policy be amended to
increase the maximum exposure by way of an ordinary resolution
included in the AGM notice sent to shareholders along with the
Company's 2020 annual report.
Outcomes:
In May 2021, shareholders approved the ordinary resolution at
the AGM amending the Company's investment policy, thereby
increasing the maximum exposure to financing investments outside of
the UK to 30% of the Company's gross assets at the time of
investment (up from 20%).
SUPPLIERS
Suppliers across the UK and Jersey who provide services to the
Company.
Why engage
The Company's suppliers include third party service providers
engaged to provide corporate or administration services, in
addition to the investment management services provided by the
Investment Manager. These services are critical to the ongoing
operational performance of the Company.
How the Company engages
The Board has a close working relationship with all its advisers
and regularly engages with all parties. The Management Engagement
committee regularly monitors the performance and reviews the terms
of each service contract annually. To ensure suppliers meet the
Company's high level of conduct, all suppliers are required to
confirm on an annual basis, in the form of a questionnaire, that
they have adequate policies and procedures in place for ensuring
business continuity planning; cyber security; and prevention of
corruption and bribery.
This informs decision making at Board level in regard to the
continuing appointment of service providers.
The annual Management Engagement committee meeting was held on 2
December 2021 where the committee reviewed the performance, and
considered the continued appointment, of the Company's service
providers.
In addition, the Board typically attends the offices of the
Investment Manager at least once a year to perform an oversight
review and consider matters such as strategy, portfolio performance
and principal risks. This year the review was held on 10 November
2021; further information is given below.
The Board also attended the offices of the Administrator to
perform an oversight review of systems and controls on 1 December
2021.
BORROWERS
Owners of the Project Companies to which the Group advances
loans.
Why engage
By engaging with borrowers and understanding their needs, the
Group is able to offer bespoke lending solutions which reflect the
contractual fundamentals and inherent risks of the underlying
assets and cash flows. Borrower contact enables direct feedback and
informs strategic decision making at Board level.
How the Company engages
The Investment Manager's designated portfolio monitoring team
engages with borrowers on an ongoing basis. Engagement is in the
form of regular interaction with the borrowers. With the lifting of
Covid-19 restrictions at certain times through the year, the
Investment Manager has been able to undertake site visits to assets
which were on hold during much of 2020. Visits to projects in the
US and Ireland were undertaken by the origination and portfolio
management teams.
The Investment Manager reports to the Board on asset performance
on a quarterly basis. The regular monitoring of information and
financial covenant obligations is also carried out to ensure
compliance with financial covenants to ensure the early
identification of potential issues.
In May 2021, the Company's loan to a Co-living developer and
operator breached a liquidity covenant, leading to the Co-living
group appointing a large investment bank to run a sales
process.
Further information on how the Company engaged with the borrower
during this process is given above.
The Board engages with the Investment Manager with regard to
'conflicted investments', where the Investment Manager or any
shareholders, directors or employees of the Investment Manager are
directly or indirectly interested in any entity or asset in
relation to the investment.
LER
Provider of the Company's credit facilities.
Why engage
The Company's lender, RBSI, provides a credit facility used in
the making of investments in accordance with the investment policy,
access to which creates an efficient method of investing capital
and minimises the effect of cash drag.
How the Company engages
The day-to-day management of the credit facility is delegated to
the Investment Manager, who engages with lenders to ensure that
they remain fully informed on all relevant business of the Company.
This high level of engagement helps to support the relationship
with lenders.
The Investment Manager reports to the Board on a quarterly basis
on current and future financing requirements, as well as the
quantum and duration of the RCF. This information forms the basis
of decision making at Board level.
In August 2021, the Company extended its existing GBP50 million
RCF with RBSI to August 2023 (previously August 2021), with the
same terms except for the interest rate benchmark which changed
from LIBOR to SONIA. The Board believes that the favourable terms
on which the RCF has been extended are due to the maturity and
strong track record of the Company.
GOVERNMENT AND REGULATORS
Governmental organisations providing public services for
society, or financial services regulators.
Why engage
Good governance and compliance with applicable regulations is
vital in ensuring the continued success of the Company and the
regimes within which it operates.
How the Company engages
The Board encourages openness and transparency and promotes
proactive compliance with new regulation. The Company engages with
local government and regulatory bodies at regular intervals and
participates in focus groups and research projects where
relevant.
The Company, through its Investment Manager and Administrator,
files UK AIFM Regime and Jersey regulatory statistics on a
quarterly basis and assists the JFSC in collecting data to conduct
a national risk assessment of money laundering and terrorist
financing threats to Jersey.
Government and regulatory policy informs strategic decision
making at Board level with consideration given to the impact the
Company has on the sector.
SOCIETY
The Company positively impacts society through its investing
activities, providing funding for assets which are integral to
society.
Why engage
Through responsible investing the Company can ensure the
long-term success of not only itself but also of the environments
within which it operates. As part of the investment process, ESG
due diligence is carried out by the Investment Manager to ensure
that sustainability and impact on society is considered.
How the Company engages
Indirectly, the Company engages with society through its social
infrastructure investing, providing funding for housing for
vulnerable adults, care for the elderly and urban regeneration, in
addition to funding assets that manage energy and/or process
waste.
The Company reports on the benefits to society through its
normal methods of shareholder engagement. Since IPO, the Group's
investment activities have facilitated the creation of c.1,500
jobs, of which c.300 have been created at care homes, c.300 at
urban regeneration projects, c.600 at nurseries, with the remainder
at student accommodation schemes.
The Company has published an ESG policy and framework in line
with good governance and social responsibility. The policy can be
found on the Company's website. Further information can be found in
the sustainability section above.
RISK MANAGEMENT
The Board and the Investment Manager recognise that risk is
inherent in the operation of the Group and are committed to
effective risk management to protect and maximise shareholder
value.
Risk management strategy and risk appetite
The Board has the ultimate responsibility for risk management
and internal controls within the Company. The Board and the
Investment Manager recognise that risk is inherent in the operation
of the Group and are committed to effective risk management to
protect and maximise shareholder value. When setting the Company's
risk management strategy, the Board also considers the nature of
the risks they are willing to take and the appetite they have for
those risks to achieve the Company's strategic objective.
Risk management process
At least twice a year, the Board, with the assistance of the
Risk committee, undertakes a robust assessment of the principal and
emerging risks facing the Company, including those that might
threaten its business model, future performance, solvency and
liquidity.
The Board also reviews the effectiveness of the Company's risk
management process and internal control systems. Refer to the Risk
committee report below for further information. This review covers
the strategy, investment, financial, operational and financial
crime risks facing the Company, as well as any emerging risks.
During the year, the Board did not identify, nor has been advised
of, any failings or weaknesses which it has determined to be of a
material nature.
The Board will continue to assess these risks on an ongoing
basis. In relation to the AIC Code, the Board is confident that the
procedures that the Company has put in place are sufficient to
ensure that the necessary monitoring of risks and controls has been
carried out throughout the year under review.
Role of the AIFM
The Investment Manager has been appointed as AIFM to the
Company. The AIFM is required to operate an effective and suitable
risk management framework to allow the identification, monitoring
and management of the risks to which the AIFM and the AIFs under
its management are exposed.
The AIFM's permanent risk management function has a primary role
alongside the Board in shaping the risk policy of the Company. In
addition, it has responsibility for risk monitoring and risk
measuring to ensure that the level of risk remains within the
Company's risk profile and tolerance.
PRINCIPAL RISKS AND UNCERTAINTIES
Principal uncertainties
The Board considers the principal uncertainties faced by the
Company during the year, to be as detailed below.
UNCERTAINTY 1: COVID-19
-------------------------------------------------------------------------
The Board continues to monitor the impact of the Covid-19 pandemic
on the Company's portfolio.
As noted in this report, the impact has been most acute with respect
to the Co-living group and multi-use community facilities within
the portfolio due to their limited ability to operate whilst UK
Government imposed restrictions were in place. Positively, the
restrictions on operations have now been lifted, with increasing
consumer confidence meaning that operations across these assets
are showing signs of improvement.
Whilst the likelihood of further restrictions has reduced with
the rollout of the vaccination programme, the threat of more serious
variants means that this remains a principal uncertainty for the
Company. In particular, the impact on student accommodation assets
in Australia remains closely monitored.
Over the period, the wider economic impact of the Covid-19 pandemic
continues to be seen in staffing levels, supply chain management
and the inflationary environment. To date, there has been no impact
on the portfolio, but this is an area of focus for the Company,
in particular with regard to projects under construction or reliant
on a large workforce.
-------------------------------------------------------------------------
UNCERTAINTY 2: BREXIT
-------------------------------------------------------------------------
Whilst the transition period following the UK leaving the EU in
January 2020 officially ended on 31 December 2020, there remains
significant uncertainty around the future relationship between
the UK and the EU.
In the period, the dual impact of the Covid-19 pandemic and Brexit
legislation meant that staffing and supply chain issues have been
reported across the economy. No issues have been seen in the portfolio
to date. However, projects under construction or reliant on a
migrant workforce are being closely monitored.
Therefore, the Board believes that Brexit should remain a principal
uncertainty for the Company.
-------------------------------------------------------------------------
UNCERTAINTY 3: CONFLICT IN UKRAINE
-------------------------------------------------------------------------
Following Russia's invasion of Ukraine on 24 February 2022, the
Board and Investment Manager are closely monitoring the conflict
for any impact it may have on the Company and its borrowers.
To date, no material impact has been noted on the Company or its
borrowers nor have the Company or its borrowers been directly
impacted by the sanctions imposed due to the conflict.
The conflict has impacted oil and gas prices and volatility in
markets globally and has created uncertainty for future energy
prices, inflation and interest rates. The potential future impact
on the Company and its borrowers will continue to be closely monitored.
-------------------------------------------------------------------------
Principal risks
The Board considers the principal risks faced by the Company
during the year, together with the potential effects, controls and
mitigating factors, to be as detailed below.
CATEGORY 1: CREDIT
RISK
------------------------- ------------------------- --------------------------- ---------------------------
RISK IMPACT HOW THE RISK IS CHANGE IN RESIDUAL
MANAGED RISK OVER THE YEAR
------------------------- ------------------------- --------------------------- ---------------------------
Borrower default, The success of The Investment Stable
loan non -- performance the Group is Manager continuously During the period,
and collateral dependent upon monitors the actual the Group's investment
risks borrowers fulfilling performance of portfolio experienced
Borrowers to whom their payment projects and their defaults in respect
the Group has obligations when borrowers, taking of the Co-living
provided loans they fall due. action where appropriate, and multi-use community
default or become Failure of the and reports on facilities. These
insolvent. Group to receive performance of assets were most
payments or to the Group's portfolio negatively impacted
recover part to the Board each by the Covid-19
or all amounts quarter. pandemic and associated
owed together restrictions. Further
with potential information on
additional costs these loans is
incurred from provided above.
the renegotiation The remaining loans
and/or restructuring in the portfolio
of loans can have not been impacted
result in substantial and continue to
irrecoverable report good performance.
costs being incurred. As noted above,
This could have the combination
a material adverse of Brexit and the
effect on the Covid-19 pandemic
NAV of the Company could present further
and its ability challenges for
to meet its stated projects reliant
target returns on migrant labour
and dividend. or imported goods.
These assets are
being monitored
for any ongoing
impact.
CATEGORY 2: ECONOMIC RISK
--------------------------------------------------------------------------------------------------------------
RISK IMPACT HOW THE RISK IS CHANGE IN RESIDUAL
MANAGED RISK OVER THE YEAR
------------------------- ------------------------- --------------------------- ---------------------------
Property If the market The Group's property Stable
Loans made by value of any investments are The Investment
the Group to projects property investments at a low average Manager has not
involved in property to which the LTV(1) level. seen any material
or the development Group has provided In addition, the revaluation of
of property are finance is found credit risk associated assets in property
indirectly exposed to be materially with each Project investments through
to the performance lower than assumed Company is mitigated the period. Equally,
of the underlying or projected, as the cash flows the residential
real estate market this may adversely receivable are property market
in the relevant impact the Group's secured over the saw price increases
area. ability to recover assets of the over the year.
the value of Project Company, However, the Investment
its investments which in turn Manager remains
in the event have security conscious of the
of a borrower over multiple impact of Covid-19
default or sale assets at the and the wider economy
process. underlying project on the property
level. market so will
continue to monitor
trends in this
sector.
Valuation risk Uncertainty about The Company has Stable
Due to the nature valuation assumptions engaged an experienced The economic impact
of the investments and estimates Valuation Agent of Covid-19 is
made by the Group, could result to carry out the continuing to be
observable market in outcomes that valuation of investments seen across a variety
data or comparable require a material on a regular basis. of sectors. In
prices may not adjustment to In addition, the this environment,
exist for some the carrying Investment Manager, comparable market
of the assumptions amount of the as part of its data can change
used in their assets in the due diligence more rapidly and
valuation. portfolio in process, uses be harder to estimate.
the future. market--recognised
professionals
to provide initial
valuations where
possible.
Since the onset
of the pandemic,
the Board, together
with the Investment
Manager and Valuation
Agent, have taken
a prudent approach
by increasing discount
rates on investments
which could be
negatively impacted
by Covid-19. These
revaluations have
been gradually
unwound over the
period, with adjustments
remaining in place
for two asset classes.
Further information
is provided above.
CATEGORY 3: KEY RESOURCE RISK
--------------------------------------------------------------------------------------------------------------
RISK IMPACT HOW THE RISK IS CHANGE IN RESIDUAL
MANAGED RISK OVER THE YEAR
------------------------- ------------------------- --------------------------- ---------------------------
Reliance on key An inability The Company has Increase
personnel at the by the Investment entered into a The Investment
Investment Manager Manager to retain contractual engagement Manager continues
The Company is and recruit the with the Investment to provide adequate
dependent on key required level Manager. The performance resources and acts
people within of personnel of the Investment with due skill,
the Investment with the appropriate Manager is monitored care and diligence
Manager to meet skills and experience by the Board along in its responsibilities
its investment may adversely with the Company's as Investment Manager
objective. impact its ability other key service and AIFM to the
to service the providers on an Company. However,
needs of the ongoing basis. the complex recovery
Company. The Investment process for the
Manager provides Co-living group
regular updates loan, as set out
to the Board on above, has increased
its resourcing the reliance on
plans and has key personnel at
a competitive the Investment
remuneration plan Manager. This increase
focused on key in reliance is
employees. expected to continue
longer than originally
anticipated if
the proposed sale
of the UK large
assets to GCP Co-living
REIT plc does not
complete and the
Investment Manager
continues to work
closely with the
Lender group to
maximise recovery
via an alternative
marketing process.
For further information
on the responsibilities
of the Investment
Manager, refer
to note 18.
CATEGORY 4: REGULATORY RISK
--------------------------------------------------------------------------------------------------------------
RISK IMPACT HOW THE RISK IS CHANGE IN RESIDUAL
MANAGED RISK OVER THE YEAR
------------------------- ------------------------- --------------------------- ---------------------------
Change in laws, Any change in The Company has Decrease
regulation and/or the laws, regulations a comprehensive Regulatory risk
policy and/or Government compliance monitoring as a result of
The Company, its policy affecting programme relevant changing policy
operations and the Company or to its operations to manage the Covid-19
the underlying the underlying that ensures compliance pandemic continues.
Project Companies Project Companies with developments However, there
are subject to may have a material and changes in is more certainty
laws and regulations adverse effect legislation and than in earlier
enacted by national on the ability regulation in periods as the
and local governments. of the Company the Channel Islands UK Government has
to successfully and the UK, including removed all existing
pursue the investment monitoring the restrictions. The
policy and meet impact of Brexit Investment Manager
its investment in the jurisdictions will continue to
objective, which in which the Group monitor the impact
therefore may invests. The programme of any changes
impact the value also monitors in policy across
of the Company. compliance with the portfolio.
listing and FCA As noted above,
marketing rules. the continued uncertainty
around Brexit also
poses risks to
the underlying
borrower businesses,
particularly where
those businesses
rely on migrant
labour or imported
materials from
the EU. To date,
no impact has been
seen as a result
of changing regulation
due to Brexit.
The Investment
Manager will continue
to monitor the
impact of any changes
in policy on these
borrowers.
------------------------- ------------------------- --------------------------- ---------------------------
CATEGORY 5: EXECUTION RISK
--------------------------------------------------------------------------------------------------------------
RISK IMPACT HOW THE RISK IS CHANGE IN RESIDUAL
MANAGED RISK OVER THE YEAR
------------------------- ------------------------- --------------------------- ---------------------------
Reinvestment risk The decline or The Investment Stable
and availability lack of availability Manager is continuously The Investment
of suitable investments of suitable investments in contact with Manager continues
The Company is meeting the risk the market, seeking to see attractive
not able to deploy and return profile new deals, and investment opportunities
capital in a timely of the Company's builds a specific across a variety
manner. investment strategy investment pipeline of sectors, including
within the required before recommending energy, social
timescales may the raising of infrastructure,
have a negative additional finance waste and specialist
impact on the to ensure that property. At the
Company's returns capital is deployed year end, the Group
as a result of in a timely manner. had a significant
holding uninvested pipeline of investment
cash balances. opportunities of
which c.GBP4.3
million has been
transacted post
year end. For further
information, refer
to the Investment
Manager's report
above.
------------------------- ------------------------- --------------------------- ---------------------------
Emerging risks
Emerging risks include trends which are characterised by a high
degree of uncertainty in terms of their occurrence, probability and
their potential impact. As part of the Company's risk management
processes, emerging risks are considered at the formal reviews of
the Company's risks, described above and in the Risk committee
report below.
During the year, to support the development of the Company's ESG
policy and framework, risks relating to ESG, including climate risk
that had previously been identified as an emerging risk, were
concluded to be transverse risks and as such will be managed within
the existing risk categories identified in the Company's risk
register. The Directors have committed to carry out a gap analysis
in the coming year to understand the impact and required mitigants
of ESG, including climate risk, on each of its risks categories. On
conclusion of this, the Company believes that climate risk will no
longer be an emerging risk for the Company, being addressed
throughout its normal course of business.
For the years ended 31 December 2021 and 2020, the Board has not
identified any new emerging risks that they believe the Company to
be exposed to.
Going concern and viability assessment
Assessment
The Directors have assessed the financial prospects of the
Company for the foreseeable future, being a period of at least
twelve months from the date these financial statements were
approved, and made an assessment of the Company's ability to
continue as a going concern. The Directors are satisfied that the
Company has the resources to continue in business for the
foreseeable future and furthermore are not aware of any material
uncertainties that may cast significant doubt upon the Company's
ability to continue as a going concern. Refer to note 2.1 for
further details on the assessment.
The Board regularly reviews the principal risks facing the
Company, including those that would threaten its strategy. The
Board also assesses the Company's policies and procedures for
monitoring, managing and mitigating its exposure to these
risks.
The Directors have carried out a robust assessment of each of
the Company's principal risks, including those that would threaten
its business model, future performance, solvency or liquidity,
uncertainty, as detailed above and, through stress testing as
described below, have also assessed the prospects of the Company
over a longer period than the twelve months required by the going
concern provision.
Stress testing
In order to analyse the effect of the principal risks and
uncertainties on the Company's net cash flows, key financial
ratios, viability and dividend cover, the Investment Manager has
stress tested the Company's financial model by flexing a number of
key assumptions used in order to model the aggregated impact of
plausible scenarios, including:
- significant reductions in interest income received;
- new and reinvested capital levels;
- borrower default and recovery rates;
- significant increases in the Company's operating expenses and
debt financing costs;
- the impact on the portfolio of downside stress tests on a
sector-by-sector basis; and
- climate risk scenarios and analysis.
The Investment Manager believes that the above scenarios
represent a robust sensitivity analysis. The Company's principal
activity is investing in loans to third parties supported by the
value of physical assets and contracted cash flows. The Company is
reliant on the performance of interest and principal repayment
obligations as part of these loans in order to meet its overheads,
service its borrowings and to pay the discretionary dividends.
Time period
The Board has determined that a five year period constitutes an
appropriate period over which to provide its viability statement.
The weighted average term of the loans within the investment
portfolio is five years and in the view of the Board and the
Investment Manager, financial forecasts that support the analysis
may be subject to further capital raises for which the impact
beyond a five year term is difficult to assess. In addition, the
extent to which macro-economic, political, social, technological
and regulatory changes beyond a five year term may have a plausible
impact on the Company are difficult to forecast. The assessment
involved an evaluation of the potential impact on the Company of
these risks occurring through the use of stress testing as detailed
above.
Conclusion
Based on this assessment and the stress testing performed on the
Company's prospects, the Directors confirm that they have a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the five
year period of their assessment to 31 December 2026.
Approval of strategic report
The strategic report has been approved by the Board and is
signed on its behalf by the Chairman.
Alex Ohlsson
Chairman
23 March 2022
Governance
BOARD OF DIRECTORS
The Directors are responsible for the effective stewardship of
the Company's activities in order to ensure its long-term success
in the interest of stakeholders.
Alex Ohlsson
Chairman
Alex Ohlsson, a Jersey resident, is the managing partner of the
law firm Carey Olsen, and is recognised as an expert in corporate
and finance law in Jersey with a particular focus on international
real estate finance and structures. Mr Ohlsson joined Carey Olsen
in 1991, became a Jersey solicitor in 1994 and an Advocate of the
Royal Court of Jersey and a partner of Carey Olsen in 1995. He was
educated at Queens' College, Cambridge, where he obtained an MA
(Hons) in Law. Mr Ohlsson served as the independent chairman of the
States of Jersey's audit committee from 2009 until 2018. He is an
advisory board member of Jersey Finance, Jersey's financial
services promotional body. He acts as a non--executive director of
a number of companies. He is also chairman of the LSE Main Market
listed company Foresight Solar Fund Limited.
Skills and experience:
Substantial board level and legal experience in the corporate
and finance sectors in Jersey.
Date of appointment:
14 September 2015
Joanna Dentskevich
Senior Independent Director and chair of the Risk committee
Joanna Dentskevich, a Jersey resident, has over 30 years of
risk, finance and investment banking experience gained in leading
global banks worldwide, alternative investments and the offshore
funds industry. Previously, she was a director at Morgan Stanley
heading up its Global Customer Valuation Group, a director of risk
at Deutsche Bank and chief risk officer of a London-based hedge
fund. Mrs Dentskevich has a BSc (Hons) in Maths and Accounting. Mrs
Dentskevich is also chair of the board of the LSE listed company
EJF Investments Limited.
Skills and experience:
Substantial relevant risk, finance and board level experience in
the investment sector.
Date of appointment:
7 September 2015
Colin Huelin FCA
Chair of the Audit committee
Colin Huelin, a Jersey resident, graduated in mechanical
engineering with a first class honours BSc degree and Diploma at
Southampton University in June 1982. He completed his graduate
management development and monitored professional development
scheme with Shell UK and the Institute of Mechanical Engineers in
1986. Mr Huelin qualified as a chartered accountant with Ernst
& Young in 1989 and was appointed finance director for Computer
Patent Annuities ("CPA") in February 1990. He was appointed CEO for
CPA in 1995. In November 1998, he joined Abbey National Offshore as
head of financial planning, was promoted to finance director in
2003 and then managing director of Santander Private Banking in
Jersey in November 2007, a position he held until 31 May 2015.
Skills and experience:
Substantial board level and financial experience in the banking
and private sectors in Jersey.
Date of appointment:
7 September 2015
Marykay Fuller
Chair of the Management Engagement committee and the
Remuneration and Nomination committee
Marykay Fuller, a UK resident, is a banking and finance
professional with 30 years' experience in debt and equity markets,
working with a broad range of businesses across a variety of
jurisdictions including the UK, US, Europe, South America and Asia.
Most recently, she was a senior deal advisory partner at KPMG LLP
where she also represented the firm on the board of the trade
group, British American Business. Ms Fuller is currently the chair
of Intu Milton Keynes Limited and the senior independent director
of the UK Civil Aviation Authority, where she is a member of the
audit committee and sits on the CAA International management board.
She is the chair of the Air Travel Trust and serves on the Alumni
Advisory Board of Heinz College, Carnegie Mellon University in the
US.
Skills and experience:
Substantial business and debt experience across a variety of
jurisdictions.
Date of appointment:
6 November 2019
The Investment Manager
The Board of Directors has appointed the Investment Manager to
provide day-to-day investment management services to the Group.
INVESTMENT TEAM
David Conlon
Director
David Conlon is a director of the Investment Manager and the
lead fund manager for the Company.
David is a qualified chartered accountant, having trained at PwC
before moving to the project finance team at KPMG. He has
significant experience in project finance investment and has been
involved in investing and arranging both debt and equity in a wide
range of projects in the PFI, renewable and social infrastructure
sectors. David joined the Investment Manager in 2013.
David has an LLB in Law from Nottingham Trent University.
Joanne Fisk
Associate director
Jo Fisk is an associate director of the Investment Manager,
focusing on origination for the Company across all sectors.
Prior to joining the Investment Manager, Jo qualified as a
lawyer in the project finance team of UK based law firm Burges
Salmon, where she specialised in UK renewables project finance. Jo
is experienced in a wide range of sectors including onshore wind,
fuelled renewables and solar. She has particular expertise in
portfolio--financing transactions. Jo joined the Investment Manager
in 2017.
Jo has a degree in Neuroscience from the University of
Sussex.
Kyle Bajtos
Senior portfolio manager
Kyle Bajtos is a senior portfolio manager of the Investment
Manager and is responsible for monitoring the ongoing performance
of the Company.
Originally from California, Kyle started his career in London
working at Sequoia Investment Management Company as a credit
analyst for two years before settling into his role as assistant
portfolio manager. In this role, Kyle was primarily responsible for
portfolio valuations, offering documentation, ongoing portfolio
monitoring and data analysis. Kyle joined the Investment Manager in
2020.
Kyle has a Bachelor of Arts in Political Science from Yale
University.
PORTFOLIO ADMINISTRATION
Luther Ward-Faint
Portfolio manager
William Parry-Jones
Fund financial controller
Martie Chawla
Assistant fund financial controller
Kate Arnold
Portfolio administrator
Justyna Kolarovic
Portfolio administrator
FINANCIAL AND CORPORATE ADVISORY
Saira Johnston
Chief financial officer
Chloe Marlow
Head of corporate reporting
Sarah Bowe
Compliance and risk officer
BOARD LEADERSHIP AND PURPOSE
CORPORATE GOVERNANCE STATEMENT
I am pleased to present the Company's corporate governance
statement for the year ended 31 December 2021.
Introduction from the Chairman
In this corporate governance statement, the Company reports on
its compliance with the AIC Code, sets out how the Board and its
committees have operated during the year and describes how the
Board exercises effective stewardship over the Company's activities
for the benefit of its members as a whole.
The Board recognises the importance of a strong corporate
governance culture and has established a framework for corporate
governance which it considers to be appropriate to the business of
the Company. All Directors contribute to Board discussions and
debates. The Board believes in providing as much transparency for
shareholders as is reasonably possible.
The AIC Code
As a member of the AIC, the Company reports against the
principles and provisions of the AIC Code.
The Board has considered the principles and provisions of the
AIC Code. The AIC Code addresses the relevant principles and
provisions set out in the UK Code, as well as setting out
additional provisions on issues that are of specific relevance to
the Company. The AIC Code can be found on the AIC website at
www.theaic.co.uk. The AIC Code includes an explanation of how it
adapts the principles and provisions set out in the UK Code to make
them relevant for investment companies. The UK Code is available at
www.frc.org.uk.
The Board considers that reporting against the principles and
provisions of the AIC Code, which has been endorsed by the FRC and
supported by the JFSC, provides better and more relevant
information to shareholders.
Alex Ohlsson
Chairman
Statement of compliance with the AIC Code
The Board has made the appropriate disclosures in this report to
ensure that the Company meets its continuing obligations. It should
be noted that, as an investment company, most of the Company's
day-to-day responsibilities are delegated to third party service
providers. The Company has no employees and the Directors are all
non--executive, therefore not all of the provisions of the UK Code
are directly applicable to the Company. The Board considers that
the Company has complied with the recommendations of the AIC
Code.
The Board
At 31 December 2021, the Board comprised four Directors, all of
whom are non-executive and are considered independent. Biographical
details of the Directors are shown above.
Under the leadership of the Chairman, the Board is responsible
for the long-term success of the Company. It provides overall
leadership, sets the strategic aims of the Company and ensures that
the necessary resources are in place for the Company to meet its
objectives and fulfil its obligations to shareholders within a
framework of high standards of corporate governance and effective
internal controls. The Board has overall responsibility for the
Company's investment policy, investment strategy and activities,
including the review of investment activity and performance and
control of the Investment Manager.
Matters reserved for the Board
The Board has approved a formal schedule of matters reserved for
its approval which is available on the Company's website and upon
request from the Company Secretary. The principal matters
considered by the Board during the year included:
- the declaration of dividends;
- change in investment policy;
- share buybacks;
- the Company's annual expenditure budget;
- conflicted investments;
- extending the RCF;
- ESG; and
- recommendations from its committees.
Culture and purpose
The Chairman leads the Board and is responsible for its overall
effectiveness in directing the Company. He demonstrates objective
judgement, promotes a culture of openness and debate and
facilitates constructive Board relations and the effective
contribution of all Directors. In liaison with the Company
Secretary, he ensures that the Directors receive accurate, timely
and clear information. The Directors are required to act with
integrity, lead by example and promote this culture within the
Company.
The Board seeks to ensure the alignment of its purpose, values
and strategy with this culture of openness, debate and integrity
through ongoing dialogue and engagement with its service providers,
principally the Investment Manager. The culture of the Board is
considered as part of the annual performance evaluation process
which is undertaken by each Director. The culture of the Company's
service providers, including their policies, practices and
behaviour, is considered by the Board as a whole during the annual
review of the performance and continuing appointment of all service
providers.
DIVISION OF RESPONSIBILITIES
The Board is responsible for the effective stewardship of the
Company's affairs, including corporate strategy, corporate
governance, risk management and overall investment policy.
THE BOARD
PURPOSE:
Responsible for the long-term success of the Company.
Provides overall leadership, sets out the strategic aims of the Company and ensures that the
necessary resources are in place for the Company to meet its objective and fulfil its obligations
to shareholders within a framework of high standards of corporate governance and effective
internal controls.
Composition at 31 December 2021:
Chairman: Alex Ohlsson
Colin Huelin FCA
Joanna Dentskevich
Marykay Fuller
BOARD COMMITTEES
---------------------------- ---------------------------- ---------------------------- ----------------------------
Remuneration and Nomination Audit committee Risk committee Management Engagement
committee committee
---------------------------- ---------------------------- ---------------------------- ----------------------------
PURPOSE: PURPOSE: PURPOSE: PURPOSE:
Considers appointments to Ensures that the Company's Reviews, monitors and Reviews the performance and
the Board and its individual financial performance is assesses the risks the continuing appointment of
committees, makes properly monitored, Company is exposed to, its the Investment Manager and
recommendations in controlled and reported, risk appetite and other service
regard to changes to in addition to engaging with the effectiveness of the providers.
maintain a balanced and the Company's external risk management framework.
effective Board and reviews Auditor.
the remuneration
of the Directors.
---------------------------- ---------------------------- ---------------------------- ----------------------------
COMPOSITION AT 31 DECEMBER 2021
----------------------------------------------------------------------------------------------------------------------
Chair: Marykay Fuller Chair: Colin Huelin FCA Chair: Joanna Dentskevich Chair: Marykay Fuller
Joanna Dentskevich Joanna Dentskevich Alex Ohlsson Joanna Dentskevich
Alex Ohlsson Marykay Fuller Colin Huelin FCA Alex Ohlsson
Colin Huelin FCA Marykay Fuller Colin Huelin FCA
See Remuneration and See Audit committee report See Risk committee report
Nomination committee report below. below.
below.
---------------------------- ---------------------------- ---------------------------- ----------------------------
On 19 January 2021, Ms Fuller replaced Mrs Dentskevich as chair
of the Remuneration and Nomination committee.
The terms of reference of the Board committees can be found on
the Company's website.
Chairman and Senior Independent Director
The Chairman, Alex Ohlsson, is deemed by his fellow independent
Board members to be independent in character and judgement and free
of any conflicts of interest.
He considers himself to have sufficient time to spend on the
affairs of the Company. He has no significant commitments other
than those disclosed in his biography above. The Chairman's
independence has previously been noted by Institutional Shareholder
Services, a proxy adviser which publishes voting recommendations
for its clients in respect of listed issuers, in their report for
the Company's AGM due to his position as managing partner of Carey
Olsen, the Company's advisers on Jersey law. The relationship
between the Company and Carey Olsen is not material in nature and
is not considered to present a conflict of interest. The fees paid
to Carey Olsen in the financial year ended 31 December 2021
represented 0.1% of the total expenses of the Company. Furthermore,
the Company and Carey Olsen, a firm of over 50 partners, maintain
procedures to ensure that the Chairman has no involvement in either
the decisions concerning the engagement of Carey Olsen or the
provision of legal services to the Company.
Joanna Dentskevich was appointed Senior Independent Director of
the Company with effect from 21 January 2020. She acts as a
sounding board for the Chairman, meets with major shareholders as
appropriate, provides a channel for any shareholder concerns
regarding the Chairman and takes the lead in the annual evaluation
of the Chairman by the Directors.
In the event the Company experiences a period of stress, the
Senior Independent Director would work with the Chairman, the other
Directors and/or shareholders to resolve any issues.
A schedule of responsibilities of the Chairman and the Senior
Independent Director is available on the Company's website.
Committees
At the year end, the structure included an Audit committee, a
Risk committee, a Management Engagement committee and a
Remuneration and Nomination committee. The terms of reference for
each of the committees are available on the Company's website or
upon request from the Company Secretary.
Audit committee
The membership and activities of the Audit committee are
described in its report below.
Risk committee
The membership and activities of the Risk committee are
described in its report below.
Management Engagement committee
The Management Engagement committee comprises all Directors. It
meets at least once a year to consider the performance of the
Company's key service providers, including the Investment Manager,
the terms of their engagement and their continued appointment. This
was undertaken at the annual committee meeting held in December
2021. As with previous years, it included consideration of a
questionnaire completed by the Investment Manager, the
Administrator and the Depositary rating the services provided by
each service provider and giving feedback where necessary.
The committee discussed the questionnaire, the overall
performance of the Investment Manager and the terms of the
investment management agreement, as set out in note 18, and, based
on results, the continued appointment of the Investment Manager is
considered to be in the best interests of the shareholders as a
whole.
In addition, the continued engagement of the third party service
providers whom the committee independently evaluates was
recommended to, and approved by, the Board.
Remuneration and Nomination committee
The membership and activities of the Remuneration and Nomination
committee are described in its report below.
Meetings
The Board holds meetings on a quarterly basis and additional
meetings are held when necessary. The number of scheduled meetings
of the Board and committees held during the year and the attendance
of individual Directors are shown below:
Quarterly Board Audit Risk
------------------- ------------------- -------------------
Number Number Number
entitled Number entitled Number entitled Number
Meetings to attend attended to attend attended to attend attended
------------------- --------- -------- --------- -------- --------- --------
Alex Ohlsson 4 4 - - 4 3
Joanna Dentskevich 4 4 3 3 4 4
Colin Huelin FCA 4 4 3 3 4 4
Marykay Fuller 4 4 3 3 4 3
------------------- --------- -------- --------- -------- --------- --------
Management Engagement Remuneration and
Nomination
----------------------- -------------------
Number Number
entitled Number entitled Number
Meetings to attend attended to attend attended
------------------- ------------ --------- --------- --------
Alex Ohlsson 2 2 2 2
Joanna Dentskevich 2 2 2 2
Colin Huelin FCA 2 2 2 2
Marykay Fuller 2 2 2 2
------------------- ------------ --------- --------- --------
During the year, nine additional Board meetings were held. These
meetings were in respect of:
- share buybacks;
- extending the RCF;
- approval of the half-yearly and annual financial statements;
and
- conflicted investments.
Directors are encouraged when they are unable to attend a
meeting to give the chair their views and comments on matters to be
discussed, in advance. In addition to their meeting commitments,
the non--executive Directors also liaise with the Investment
Manager whenever required and there is regular contact outside the
Board meeting schedule.
At each Board and committee meeting, the Directors follow a
formal agenda, circulated in advance by the Company Secretary,
which may include a review of the Group's investments and
associated matters such as gearing, dividend policy, asset
allocation, risks, marketing and investor relations, economic and
sector issues, regulatory changes and corporate governance best
practice. The Company's service providers also provide the Board
with relevant information to support each formal agenda.
The Board also considers the Company's investment policy,
objective and strategy at these meetings.
In November 2021, the Directors visited the offices of the
Investment Manager.
During this visit, the Directors and the Investment Manager
considered the following:
- the Company's strategy, existing and future opportunities;
- update on the risk management and compliance monitoring
plans;
- update on causal analysis from specific higher risk loans and
results of review of implications for the entire portfolio;
- debt market overview;
- ESG policy and procedural developments;
- key controls to mitigate the principal risks and assurance
work undertaken to test their effectiveness (including valuation
risk, credit risk, key resource risk, execution risk), Investment
Manager internal audit procedures; and
- conflicted investments process.
Company Secretary
The Board has access to the Company Secretary to advise on
governance and day-to-day administrative matters. The Company
Secretary is also responsible to the Board for ensuring the timely
delivery of the information and reports which the Directors require
and that the statutory obligations of the Company are met.
Market Abuse Regulation
Following the implementation of MAR on 3 July 2016, the Board
formally adopted revised procedures in relation to the management,
identification and disclosure of inside information and share
dealing in accordance with MAR.
Anti-bribery and tax evasion
The Company has developed appropriate anti--bribery policies and
procedures. The Company has a zero-tolerance policy towards bribery
and is committed to carry out its business fairly, honestly and
openly.
The Company does not tolerate tax evasion in any of its forms in
its business. The Company complies with the relevant UK law and
regulation in relation to the prevention of facilitation of tax
evasion and supports efforts to eliminate the facilitation of tax
evasion worldwide. The Company works to make sure its stakeholders
share this commitment.
UK AIFM Regime
The Company is classed as an externally managed AIF under the UK
AIFM Regime. The Board has appointed the Investment Manager as the
authorised AIFM to the Company and Apex Financial Services
(Corporate) Limited as the Company's Depositary under the UK AIFM
Regime.
AIFM remuneration
The Investment Manager is authorised as an AIFM by the FCA under
the UK AIFM Regime. The Company has provided disclosures on its
website incorporating the requirements of the UK AIFM Regime.
The total remuneration paid to the Investment Manager by the
Company is disclosed in note 18 to the financial statements.
MiFID II
The ordinary shares and C shares (while in issue) of the Company
are considered as 'non-complex' in accordance with MiFID II.
Non-mainstream pooled investments
The Board notes the rules of the FCA on the promotion of
non-mainstream pooled investments.
The Board confirms that it conducts the Company's affairs, and
intends to continue to conduct its affairs, so that the Company's
shares will be 'excluded securities' under the FCA's rules. This is
on the basis that the Company would qualify for approval as an
investment trust by the Commissioners for HM Revenue and Customs
under Sections 1158 and 1159 of the Corporation Tax Act 2010 if
resident and listed in the UK. Therefore, the Company's shares will
not amount to non--mainstream pooled investments. Accordingly,
promotion of the Company's shares will not be subject to the FCA's
restriction on the promotion of non-mainstream pooled
investments.
COMPOSITION, SUCCESSION AND EVALUATION
REMUNERATION AND NOMINATION COMMITTEE REPORT
I am pleased to present the Remuneration and Nomination
committee report for the year ended 31 December 2021.
Marykay Fuller
Chair of the Remuneration and Nomination committee
Statement from the chair
At 31 December 2021, the committee comprised all four Directors
of the Company, all of whom are considered independent.
The committee met twice during the year. The main duties of the
committee include:
- to review the structure, size and composition, including
skills, knowledge, experience and diversity, of the Board and its
committees and make recommendations to the Board to ensure a
balanced, independent and effective board in the context of the
requirements of the Company;
- to assist the Board in developing a fair and transparent
framework for setting the levels of Directors' remuneration while
having regard to the Company's financial position and performance,
remuneration in other companies of comparable scale and complexity
and market statistics generally; and
- to regularly review the policies of the Company on
remuneration, appointments, diversity, succession planning and
tenure.
A copy of the terms of reference within which the committee
operates is available on the Company's website or from the Company
Secretary upon request.
Board and committee composition
The Board believes that it and its committees have an
appropriate composition and blend of skills, experience,
independence and diversity of backgrounds to discharge their duties
and responsibilities effectively. The Board is of the view that no
one individual or small group dominates decision making. The Board,
via its Remuneration and Nomination committee, keeps its
membership, and that of its committees, under review to ensure that
an acceptable balance is maintained, and that the collective skills
and experience of its members continue to be refreshed. On 19
January 2021, Ms Fuller replaced Mrs Dentskevich as chair of the
Remuneration and Nomination committee.
Following the internal Board evaluation for 2021, no adverse
comments were reported, and the Board and committee composition was
considered to be satisfactory. Directors' attendance at all
committee meetings held during the year and their relevant
experience is detailed above.
Induction of new Directors and training
The Chairman, in conjunction with the Company Secretary, ensures
that all new Directors receive a full, formal and tailored
induction on joining. An induction pack is provided to new
Directors containing relevant information about the Company, its
constitutional documents, terms of reference, policies, processes
and procedures. New Directors meet with relevant persons at the
Investment Manager and the Chairman provides guidance and mentoring
as appropriate. A programme of induction training is agreed with
each new Director.
The Directors are encouraged to keep up to date and attend
training courses on relevant matters. The Company has a continuing
professional development policy which is reviewed annually.
Independence
The committee has reviewed the conflicts, relationships, other
positions and tenure of all the Board members and continues to be
satisfied that no material interests exist which would materially
impact the ability of each Director to exercise independent
judgement.
Accordingly, the Board considers all Directors on the Board to
be independent in character and judgement and entirely independent
of the Investment Manager. The Directors' conflicts of interest are
detailed in note 18.
Tenure
The Board's policy regarding tenure of service, including in
respect of the Chairman, is that any decisions regarding tenure
will balance the need to provide and maintain continuity,
knowledge, experience and independence, against the need to
periodically refresh the Board composition in order to maintain an
appropriate mix of the required skills, experience, age and length
of service.
Succession
The Board does not consider that lengthy service in itself
necessarily undermines a Director's independence nor that each
Director, including the Chairman, should serve for a finite fixed
period. However, based on the principles of the AIC Code, the
committee reviewed and recommended to the Board, subject to annual
re-election, the staged rotation of Directors to ensure the
continuity and stability of experience remains.
Diversity
Diversity is an important consideration in ensuring that the
Board and its committees have the right balance of skills,
experience, independence and knowledge necessary to discharge their
responsibilities. The right blend of perspectives is critical to
ensuring an effective board and a successful company.
Board diversity, including, but not limited to, gender,
ethnicity, professional and industry specific knowledge and
expertise, understanding of geographic markets and different
cultures, is taken into account when evaluating the skills,
knowledge and experience desirable to fill vacancies on the Board
as and when they arise.
Board appointments are made based on merit and calibre with the
most appropriate candidate, who is the best fit for the Company,
being nominated for appointment and as a result no measurable
targets in relation to Board diversity have been set. At the date
of this report, the Board consists of two males and two
females.
The committee believes the Directors provide, individually and
collectively, the breadth of skill and experience to manage the
Company.
Overboarding
The Directors consider that as an investment company, the
Company demands less time commitment than would be required of
a
non-executive director of an operating company. The Directors
also believe that a formulaic approach to assessing whether a
director is able to effectively discharge their duties is not
appropriate given the nature of the Company and directorships.
Prior to appointment to the Board, a Director must disclose
existing significant commitments and confirm that they are able to
allocate sufficient time to the business of the Company. In
addition, a Director must consult with the Chairman or Senior
Independent Director prior to taking on any listed company,
conflicted, time-consuming or otherwise material board appointment
and promptly notify the Company Secretary of any new board
appointments which they take on.
On an annual basis, through the Board's internal evaluation, as
described below, each Director's continuing ability to meet the
time requirements of the role is assessed by considering, amongst
other things, their attendance at Board, committee and other ad hoc
meetings and events of the Company held during the year as well as
the nature and complexity of other, both public and private, roles
held.
Directors' attendance at all Board and committee meetings held
during the year is detailed above. None of the Directors hold an
executive position of a public company or chair a public operating
company.
The committee believes all the Directors have sufficient time to
meet their Board responsibilities.
Performance evaluation
The Directors are aware and believe that they need to
continually monitor and improve performance and recognise that
regular Board evaluation provides a valuable feedback mechanism for
improving Board effectiveness.
The AIC Code recommends FTSE 350 companies carry out an external
evaluation every three years. Although the Company currently does
not fall into this category, as a member of the AIC, it aims to
follow this recommendation. An external evaluation was due to be
carried out in 2021 (with the last one being in 2018), however, due
to the circumstances around Covid-19 during the year, such as
restrictions on travel and gatherings, the Board agreed it would be
more effective to carry out an external evaluation during 2022 when
Board proceedings such as in-person Board and committee meetings
will hopefully have returned to normality.
In the years intervening the external evaluation, the Board
conducts an internal evaluation by means of a questionnaire. The
questionnaire is specifically designed to assess the strengths and
independence of the Board, the Chairman and the individual
Directors, the performance and focus of Board and committee
meetings, the need for additional information required to
facilitate Board discussions and each Director's continuing
capacity.
During the year, all Directors undertook an internal evaluation
to review the effectiveness of the Board, its committees and the
individual Directors.
The results of the internal evaluation were presented to the
Remuneration and Nomination committee with the following
recommendations being approved by the Board on 23 March 2022:
- to consider enhancements to the requested reporting by the
Company's third party suppliers to increase the level of detail and
visibility of their work for the Company;
- to increase the number of Management Engagement committee
meetings during the year to facilitate this consideration;
- to continue the work started in 2020 with the Investment
Manager to enhance its reporting to the Board; and
- to undertake a benchmarking exercise related to the level of
fees paid to Directors relative to the Board commitments required
by the Company's portfolio.
Re-election
Beyond the requirements of the Articles, and in accordance with
the AIC Code, the Board has agreed a policy whereby all Directors
will seek annual re-election at the Company's AGM. Any Director not
re-elected would resign in accordance with applicable Jersey
regulatory requirements.
Accordingly, all of the Directors who held office throughout the
year will offer themselves for re--election at the AGM.
Having considered the Directors' performance within the annual
Board performance evaluation process, the Board believes that it
continues to be effective and the Directors bring extensive
knowledge and commercial experience together with demonstrating a
range of business, financial, and asset management skills. The
Board therefore believes that it would be in the Company's best
interests for the Directors to be proposed for re-election at the
AGM given their material level of contribution and commitment to
the role and, hence, recommends that shareholders vote in favour of
each Director's proposed re-election.
Remuneration
In March 2022, the committee discussed the level of commitment
and time required for ESG matters and recommended that Ms Joanna
Dentskevich be appointed as the "ESG representative" and a fee of
GBP5,000 per annum (effective 1 January 2022) be recommended to the
Board.
The Directors' remuneration report below details the
remuneration policy and the Directors' remuneration during the
year.
Marykay Fuller
Chair of the Remuneration and Nomination committee
23 March 2022
AUDIT, RISK AND INTERNAL CONTROL
AUDIT COMMITTEE REPORT
I am pleased to present the Audit committee report for the year
ended 31 December 2021.
Colin Huelin FCA
Chair of the Audit committee
Statement from the chair
The Board is supported by the Audit committee, with written
terms of reference which are available on the Company's website or
on request from the Company Secretary. The committee's primary role
is to monitor the integrity of the Company's financial reporting to
ensure it is fair, balanced and understandable and provides the
information necessary for shareholders and other users to assess
the Company's position and performance, business model and
strategy.
The committee is responsible for monitoring internal controls,
in conjunction with the Risk committee, and the external audit
process, which includes making recommendations to the Board in
respect of the appointment, re--appointment and remuneration of the
Auditor.
Composition and meetings
At 31 December 2021, the committee comprised three of the
Company's independent Directors.
The Board has agreed that the committee chair, Colin Huelin, a
chartered accountant, has recent and relevant financial experience
as required by the provisions of the AIC Code.
The committee formally met three times during the year ended 31
December 2021. Details of attendance at meetings held during the
year under review are set out above.
Although not members of the committee, the Company Secretary,
the Investment Manager, the lead audit partner and representatives
from the Company's Auditor are invited to attend committee
meetings. The Auditor has the opportunity to meet with the
committee without representatives of the Investment Manager being
present.
The Auditor is not present when their performance and/or
remuneration is discussed.
The committee has reviewed and evaluated its own performance as
part of the Board's annual evaluation process, as explained in the
Remuneration and Nomination committee report above.
Financial reporting
The committee considered the requirements of the UK Companies
Act 2006 (Strategic Report and Directors' Report) Regulations 2013
with which it is complying voluntarily, in line with best practice
reporting. The committee specifically reviewed the Company's annual
report and financial statements to conclude whether it is fair,
balanced, understandable, comprehensive and consistent with prior
year reporting and how the Board assesses the performance of the
Company's business during the financial year, as required under the
AIC Code.
As part of this review, the committee considered if the annual
report and financial statements provided the information necessary
to shareholders to assess the Company's performance, strategy and
business model, and reviewed the description of the Company's key
performance indicators, alternative performance measures, as well
as updating the governance section of the annual report. As part of
this review, and in conjunction with the Risk committee, the
committee considered the new sustainability disclosures above to
ensure that they reflect a fair and balanced view of the impact of
climate change on the performance of the Company's business.
The committee presented its recommendations to the Board and the
Board concluded that it considered the annual report and financial
statements, taken as a whole, to be fair, balanced and
understandable and to provide the information necessary for the
shareholders to assess the Company's position and performance,
business model and strategy.
In addition to the above matters, the committee's work was
focused on the following areas:
- the significant accounting matters to recommend to the Board,
and other narrative disclosures in the half--yearly and annual
financial statements of the Company, including matters of judgement
in relation to the valuation of financial assets at fair value
through profit or loss. The committee discussed these matters with
the Valuation Agent, the Investment Manager and the Auditor;
- the effectiveness of the Company's internal control
environment;
- challenge to the results of the Investment Manager's stress
tests for the purpose of the going concern and viability
statements;
- overseeing the Company's relations with its Auditor, including
assessing the conduct and effectiveness of the audit process and
the Auditor's independence and objectivity and recommending the
Auditor's re--appointment and approval of the Auditor's fees;
and
- the committee's own terms of reference.
The committee has direct access to the Auditor and to the key
senior staff of the Investment Manager and reports its findings and
recommendations to the Board, which retains the ultimate
responsibility for the financial statements of the Company. All
recommendations during the year were accepted by the Board.
Significant issues considered
After discussions with the Investment Manager and the Auditor,
the committee determined that the key risks of material
misstatement of the Company's financial statements are related to
the fair valuation of the investments.
Valuation of investments
As outlined in notes 11 and 17 to the financial statements, the
total value of financial assets at fair value at 31 December 2021
was GBP447.0 million. (31 December 2020: GBP446.0 million). Market
quotations are not available for these financial assets such that
their valuation is undertaken using a discounted cash flow
methodology, with exception during the period to the methodology
adopted for valuing the Company's Co-living loan, for which detail
is provided in notes 2.2 and 17.9.
These valuation methods require a series of material judgements
and estimates to be made, as further explained in note 17 to the
financial statements.
The discount rates adopted to determine the valuation are
selected and recommended by the Valuation Agent. The discount rates
are applied to the expected future cash flows for each investment's
financial forecasts, to arrive at a valuation (discounted cash flow
valuation). The resulting valuation is sensitive to the discount
rate selected. The Valuation Agent is experienced and active in the
area of valuing these investments and adopts discount rates
reflecting their current and extensive experience.
The Valuation Agent performs semi--annual financial asset
valuations and provides valuation reports to the Board. Any assets
which may be subject to discount rate changes are valued and
reported to the Board on a quarterly basis. The performance of the
individual investments and the fair value of the financial assets
is discussed with the Investment Manager at each quarterly Board
meeting.
In addition, the committee met with the Valuation Agent in July
2021 and in January 2022, to discuss the half--year and year--end
valuation process and methodology. In particular, the committee
considered the ongoing impact of Covid-19 and Brexit on the
portfolio and its potential impact on the valuation of the
investments. The committee also examined and challenged the
valuation methodology applied by the Investment Manager and the
Valuation Agent to the Company's Co-living loan.
The committee discussed the material estimates and judgements
applied in the valuation process with the Investment Manager and
the Valuation Agent, including the estimates and judgements applied
in the different valuation approach to the Co-living loan. The
committee was satisfied that the range of discount rates and the
inherent assumed recovery rate to support the valuation of the
Co-living loan was appropriate for the valuation carried out by the
Valuation Agent.
Other matters considered
Other matters reviewed by the committee during the year are
noted below.
Accounting policies, narrative reporting, critical accounting
estimates and key judgements
The committee reviewed the narrative reporting, accounting
policies and note 2.2 to the financial statements that relate to
critical accounting estimates and key judgements and confirmed that
they are appropriate for the Company.
Internal control
The committee monitored and reviewed the internal controls of
the Company during the year, which included:
- review of independent ISAE 3402 report on the effectiveness of
specific control objectives within the operations of the Investment
Manager;
- conducting an on-site visit of the Administrator in December
2021 to discuss its control systems and operational policies and
procedures; and
- review of the Investment Manager's investment due diligence
operational control procedures.
Based on the results of these reviews, the committee was
satisfied that the internal controls remained effective.
Going concern and viability statement
The committee considered the Investment Manager's forecasts of
cash flows and net debt as well as the financing facilities
available to the Company. Following this review, and a discussion
of the sensitivities, including the risks and uncertainties
associated with Covid-19 and Brexit, the committee concluded that
it continues to be appropriate to follow the going concern basis of
accounting for the preparation of the annual report and financial
statements.
The committee also reviewed the Investment Manager's five year
stress test analyses for the purpose of assessing the Company's
viability.
This review challenged the assumptions applied, including the
impact of Covid--19 on the equity financing, debt financing and
investment portfolio of the Group, as well as being satisfied with
the rationale for selecting the duration of five years for the
viability period. In addition, the committee considered how the
Investment Manager had assessed the impact of climate risk across
the physical assets in the portfolio and the impact on income
generation. The analysis was based on varying degrees of flood risk
with downside climate risk scenarios that included increasing
frequency and severity of adverse weather events.
Further detail on the basis of the going concern and viability
assessment by the Directors is set out in the strategic report
above.
External audit
The committee met with the Auditor in December 2021 to review,
challenge and agree their audit plan, and in particular their
approach to the valuation of investments.
Independence and objectivity of the Auditor
Subject to mandatory rotation at the end of the 2020 audit
process, Lisa McClure replaced Karl Hairon as the partner from PwC
responsible for the audit of the 2021 annual report and financial
statements.
In accordance with the statutory requirements relating to the
appointment of auditors, the Company would need to conduct an audit
tender no later than for the accounting period beginning 1 January
2026.
To fulfil its responsibility regarding the independence and
objectivity of the Auditor, the Audit committee considered:
- a report from the Auditor describing its arrangements for
maintaining independence; and
- the extent and nature of the non-audit services provided by
the Auditor.
The committee has agreed a policy whereby, in order to avoid any
potential impact on the independence and objectivity of the
Auditor, the Company will not seek to obtain any non-audit services
from the Auditor, with the exception of the review of the
half-yearly report and financial statements which is included in
the FRC's whitelist of permitted non--audit services.
The following table summarises the remuneration paid to PwC for
audit and non-audit services during the year ended 31 December
2021:
Year ended Year ended
31 December 31 December
2021 2020
GBP'000 GBP'000
----------------------------- ----------- -----------
Audit fees
Annual audit of the Company 95 90
Non-audit services
Review of half-yearly report 39 28
----------------------------- ----------- -----------
Total 134 118
----------------------------- ----------- -----------
External audit results
The committee met with the Auditor again in March 2022 to
discuss their audit report and opinion, after the conclusion of
their audit.
The Auditor explained the results of their audit and confirmed
that there were no adjustments proposed that were material in the
context of the financial statements as a whole.
Effectiveness of the external audit
The committee reviewed the effectiveness of the external audit
process during the year, considering the performance, objectivity,
independence and relevant experience of the Auditor. Following this
review, the committee concluded that the audit was effective.
Re-appointment of the Auditor
The committee continues to be satisfied with the performance of
the Auditor and has recommended the re-appointment of PwC as the
Company's Auditor at the 2022 AGM.
Colin Huelin FCA
Chair of the Audit committee
23 March 2022
RISK COMMITTEE REPORT
I am pleased to present the Risk committee report for the year
ended 31 December 2021.
Joanna Dentskevich
Chair of the Risk committee
Statement from the chair
The Risk committee was established in October 2019 with the
purpose to assist the Board in its oversight and assessment of the
risks that the Company is exposed to, its risk appetite, the
effectiveness of the risk management framework and ensuring the
external reporting of the Company gives a fair, balanced and
understandable reflection of risk having due regard to the
Company's investment objective and policy.
Composition and meetings
The committee comprises all four Directors of the Company, all
of whom are considered independent. The committee met formally four
times during the year. Details of attendance at meetings held
during the year under review are set out above.
Responsibilities
The committee's key responsibilities, amongst others, are
to:
- review the risks the Company is exposed to and consider their
likelihood and impact if they were to materialise;
- review, in conjunction with the Audit committee, the
effectiveness of the internal controls;
- review the risk management framework;
- carry out a robust assessment of the principal and emerging
risks facing the Company, including those that would threaten its
business model, future performance, solvency or liquidity and
ability to deliver its strategy;
- review the report of the risk officer of the AIFM prior to
consideration of the principal and emerging risks and the principal
uncertainties to be included in the half-yearly and annual reports
and financial statements; and
- include in the annual report of the Company a description of
the principal and emerging risks along with explanations on how
they are being managed or mitigated and any change from previous
years.
A copy of the terms of reference within which the committee
operates is available on the Company's website or from the Company
Secretary upon request.
Risk management and monitoring
The Company has in place a risk register to manage and track
identified risks and uncertainties and potential emerging risks
that the committee believes the Company is exposed to. For each
risk, the committee considers, inter alia, their impact on the
Company achieving its investment objective along with the nature
and extent of the risk, their mitigants and any driving factors
which may increase the risk.
The level of residual risk determined as part of this analysis
assists the Board (on the committee's recommendation) to determine
whether it is within the Company's risk appetite and any actions
required. The register is reviewed at least twice a year by the
committee and serves as a useful component in tracking the
principal and emerging risks of the Company.
Details of the Company's risk management framework, including
the role of the AIFM, are set out above.
Principal risks and uncertainties
Post year end, the Risk committee met, with the Investment
Manager present, to review and recommend for approval by the Board
the principal risks and uncertainties of the Company. As a result
of this review and supporting their assessment in the half-yearly
report and unaudited interim condensed financial statements for the
period ended 30 June 2021, the committee confirmed that it did not
consider there to be any new principal risks for the year. However,
the committee did identify the conflict in Ukraine and its
potential global impact as a Principal uncertainty for the year.
Descriptions of the principal risks and uncertainties, along with
explanations on how they are being managed and mitigated and any
change in risk from the previous year, are detailed above.
Emerging risks and uncertainties
As part of its review of risks during the year, the committee
did not identify any new emerging risks or uncertainties.
During the year, to support the development of the Company's ESG
policy and framework, risks relating to ESG, including climate risk
that had previously been identified as an emerging risk, were
concluded to be transverse risks and, as such, will be managed
within the existing risk categories identified in the Company's
risk register.
The Directors have committed to carry out a gap analysis in the
coming year to understand the impact and required mitigants of ESG,
including climate risk, on each of its risks categories. On
conclusion of this, the Company believes that climate risk will no
longer be an emerging risk for the Company, being addressed
throughout its normal course of business.
Joanna Dentskevich
Chair of the Risk committee
23 March 2022
REMUNERATION
DIRECTORS' REMUNERATION REPORT
Marykay Fuller
Chair of the Remuneration and Nomination committee
The Directors' remuneration report provides details on
remuneration in the year. Although it is not a requirement under
the Jersey Company Law to have the Directors' remuneration report
or the Directors' remuneration policy approved by shareholders, the
Board believes that as a company whose shares are admitted to
trading on the LSE, it is good practice for it to do so.
The Directors' remuneration policy will be put to a shareholder
vote at least once every three years and in any year if there is to
be a change in the Directors' remuneration policy.
Accordingly, resolutions will be put to shareholders at the
forthcoming AGM to be held on 17 May 2022 to receive and approve
the Directors' remuneration report and Directors' remuneration
policy. To date, no shareholders have commented in respect of
remuneration.
This report is not subject to audit.
Voting at AGM
The Directors' remuneration report for the year ended 31
December 2020 and the Directors' remuneration policy were approved
by shareholders at the AGMs held on 17 May 2021 and 23 May 2019,
respectively. The votes cast by proxy were as follows:
Directors' remuneration Directors' remuneration
report policy
------------------------- -------------------------
Number % of Number % of
of o
votes cast votes cast votes cast votes cast
----------------------------- ------------- ---------- ------------- ----------
For 269,856,274 99.97 147,074,473 99.65
Against 61,683 0.02 - -
At the Chairman's discretion 12,000 0.01 523,935 0.35
----------------------------- ------------- ---------- ------------- ----------
Total votes cast 269,937,189 100 147,598,408 100
----------------------------- ------------- ---------- ------------- ----------
Number of votes withheld 7,232 - 6,232 -
----------------------------- ------------- ---------- ------------- ----------
Performance of the Company
The Board is responsible for the Company's investment strategy
and performance. The management of the Group's investment portfolio
is delegated to the Investment Manager through the investment
management agreement, as referred to in note 18.
The tables below illustrate the total shareholder return(1) for
a holding in the Company's shares as compared to the GBP Corporate
Bond Index. The Company considers this to be an appropriate index
against which to measure the Company's performance, in the absence
of a meaningful quoted benchmark index.
Cumulative performance to 31 December 2021
Three Six Two One Four Since
Period months months years year years launch
------------------------------------- ------ ------ ------ ---- ----- ------
GCP Asset Backed Income Fund Limited 0.8% (2.4)% 13.2% 2.1% 22.8% 37.7%
GBP Corporate Bond Index 0.6% (0.5)% (3.3)% 5.5% 14.5% 35.3%
------------------------------------- ------ ------ ------ ---- ----- ------
Annual performance to 31 December 2021
Year ended Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December 31 December
2021 2020 2019 2018 2017
------------------------------------- ----------- ----------- ----------- ----------- -----------
GCP Asset Backed Income Fund Limited 13.2% (9.8)% 10.2% 9.1% 4.4%
GBP Corporate Bond Index (3.3)% 9.1% 11.0% (2.2)% 4.9%
------------------------------------- ----------- ----------- ----------- ----------- -----------
Basis: percentage growth, shareholder total return with net
income reinvested.
Past performance is not a guide to future performance.
Directors' remuneration
The fees paid to the Directors in the years ended 31 December
2021 and 31 December 2020 are set out below.
Directors' Chairman Committee
fee fee chair fee Expenses Total
GBP GBP GBP GBP GBP
---------------- -------------- -------------- ---------- ----------------
2021 2020 2021 2020 2021 2020 2021 2020 2021 2020
------------- ------- ------- ------ ------ ------ ------ ---- ---- ------- -------
Alex
Ohlsson 40,000 40,000 15,000 15,000 - - - - 55,000 55,000
Colin
Huelin
FCA 40,000 40,000 - - 10,000 10,000 - 104 50,000 50,104
Joanna
Dentskevich 40,000 40,000 - - 10,000 10,000 397 - 50,397 50,000
Marykay
Fuller 40,000 40,000 - - 5,000 5,000 - 463 45,000 45,463
------------- ------- ------- ------ ------ ------ ------ ---- ---- ------- -------
Total 160,000 160,000 15,000 15,000 25,000 25,000 397 567 200,397 200,567
------------- ------- ------- ------ ------ ------ ------ ---- ---- ------- -------
The fees paid to the Directors were in relation to non-executive
Director services. At 31 December 2021, liabilities in respect of
these services amounted to GBP57,500. No variable remuneration,
discretionary payments or payments for loss of office were made
during the year.
Directors' remuneration was increased with effect from 1 July
2019 so that each Director receives GBP40,000, with an additional
GBP15,000 paid to the Chairman and an additional GBP10,000 paid to
the chairs of the Audit committee and the Risk committee. In
January 2020, the Board approved that an additional GBP5,000 be
paid to the chair of the Management Engagement committee and the
Remuneration and Nomination committee. As shown in the table above,
there was no change in the Directors' remuneration from prior
year.
Five year fee comparison
Over the last five years, Directors' remuneration has increased
as set out in the table below:
Year ended Year ended
31 December 31 December
2021 2016 Change
GBP'000 GBP'000 %
------------------------------------------------------------------------------------ ----------- ----------- ------
Chairman 55 38 44.7
Director 40 32 25.0
Additional fee for chair of the Audit committee 10 4 150.0
Additional fee for chair of the Risk committee 10 - -
Additional fee for chair of the Management Engagement committee and the Remuneration
and Nomination
committee 5 - -
------------------------------------------------------------------------------------ ----------- ----------- ------
As previously noted, the Company does not have any employees and
hence no comparisons are given in respect of the comparison between
Directors' and employees' pay increases.
Relative importance of spend on pay
The table below sets out, in respect of the year ended 31
December 2021:
- total income;
- the remuneration paid to the Directors;
- the distributions made to shareholders by way of dividend;
and
- share repurchases.
Year ended Year ended
31 December 31 December Change
2021 2020 %
GBP'000 GBP'000
--------------------------------------------------------------------------- ----------- ----------- ------
Total income 21,414 33,919 (36.9)
Directors' remuneration(1) 200 200 -
Dividends paid to shareholders (including dividends settled in shares(2) ) 27,715 28,463 (2.6)
Share repurchases 293 1,514 (80.7)
--------------------------------------------------------------------------- ----------- ----------- ------
1. Excluding Directors' expenses.
2. Dividends settled in shares are where shareholders have
elected to take the scrip dividend alternative.
Directors' interests
There is no requirement under the Company's Articles for
Directors to hold shares in the Company. At 31 December 2021, the
interests of the Directors in the ordinary shares of the Company
are as set out below(3) :
31 December 31 December
2021 2020
Number Number
of shares of shares
------------------- ----------- -----------
Alex Ohlsson 50,000 50,000
Colin Huelin FCA 34,142 34,142
Joanna Dentskevich 57,379 57,379
Marykay Fuller 19,650(4) -
------------------- ----------- -----------
3. The Directors' shareholdings are either direct and/or
indirect holdings of the ordinary shares in the Company.
4. Marykay Fuller purchased 19,650 ordinary shares through
series of transactions in April 2021.
There have been no changes to any of the above holdings between
31 December 2021 and the date of this report.
In accordance with the AIC Code, no Director is involved in
deciding his/her own remuneration.
The Board considers that Directors' fees should reflect duties,
responsibilities and the value of their time spent and, as such,
the Chairman and the chairs of the Board committees receive
additional remuneration for these roles.
Directors are not eligible for bonuses, pension benefits, share
options, long-term incentive schemes or other benefits in respect
of their services as non--executive Directors of the Company. In
addition, no payment will be made to a Director for loss of office,
or as consideration for or in connection with his/her retirement
from office.
The Board may, however, allow for additional remuneration to be
paid where Directors, at the request of the Company, are involved
in ad hoc duties beyond those normally expected as part of the
appointment.
The remuneration of each of the Directors is subject to fixed
fee arrangements, paid quarterly in arrears. Part of the Directors'
fee may be paid in the form of fully paid shares in the capital of
the Company.
The aggregate of all the Directors' remuneration is subject to
an annual cap of GBP300,000 in accordance with the Articles and
shall be reviewed annually.
The Company will reimburse the Directors all reasonable
travelling, hotel and other expenses properly incurred by them in
or about the proper performance of their duties and the taking of
reasonable independent legal advice concerning matters relating to
their directorship, provided that if and when required by the
Company, they produce to the Company receipts or other evidence of
actual payment of expenses.
The Company is committed to ongoing shareholder dialogue and any
views expressed by shareholders on the fees being paid to Directors
would be taken into consideration by the Board when reviewing the
Directors' remuneration policy and in the annual review of
Directors' fees.
Directors' fee levels
The Board has set four fee levels: one for the Chairman, one for
the other Directors, an additional fee for the chairs of the Audit
and Risk committees and an additional fee for the chair of the
Management Engagement committee and the Remuneration and Nomination
committee. Fees are reviewed annually in accordance with the above
policy. The fee for any new Director appointed will be determined
on the same basis.
Post year end, in March 2022, the Board approved an ESG
representative fee of GBP5,000 per annum to reflect the level of
commitment and time required for ESG matters.
The fees payable to Directors in respect of the year ended 31
December 2021 and the expected fees payable in respect of the year
ending 31 December 2022 are set out in the table below.
Expected annual Annual fees
fees for the year for the year
to 31 December to 31 December
2022 2021
GBP GBP
----------------------------------------------------------------------------------- ----------------- --------------
Chairman 55,000 55,000
Chair of the Audit committee 50,000 50,000
Chair of the Risk committee 50,000 50,000
Chair of the Management Engagement committee and the Remuneration and Nomination
committee 45,000 45,000
ESG representative fee 5,000 n/a
----------------------------------------------------------------------------------- ----------------- --------------
Total remuneration paid to Directors 205,000 200,000
----------------------------------------------------------------------------------- ----------------- --------------
Approval
The Directors' remuneration report was approved by the Board and
signed on its behalf by:
Marykay Fuller
Chair of the Remuneration and Nomination committee
23 March 2022
DIRECTORS' REPORT
The corporate governance statement set out above forms part of
this report.
Principal activity and business review
The strategic report has been prepared by the Directors and
should be read in conjunction with the Chairman's statement and
forms part of the annual report to shareholders.
Directors
The Directors in office during the year and at 31 December 2021
are shown above.
The terms and conditions of the appointment of the Directors are
formalised in letters of appointment, copies of which are available
for inspection at the Company's registered office. None of the
Directors have a contract of service with the Company nor has there
been any other contract or arrangement between the Company and any
Director at any time during the year.
The Company has Directors' and Officers' liability insurance and
civil liability insurance. Under the Company's Articles, the
Directors are provided, subject to the provisions of the Jersey
legislation, with an indemnity in respect of liabilities which they
may sustain or incur in connection with their appointment.
Director conflicts of interest
It is the responsibility of each individual Director to avoid a
conflict-of-interest situation arising. The Director must inform
the Board as soon as he or she is aware of the possibility of an
interest that might possibly conflict with the interests of the
Company. The Company's articles of association authorise the Board
to approve such situations, where deemed appropriate. A register of
conflicts is maintained by the Company Secretary and is reviewed at
Board meetings, to ensure that any authorised conflicts remain
appropriate. The Directors are required to confirm at these
meetings whether there has been any change to their position.
The Directors must also comply with the statutory rules
requiring company directors to declare any interest in an actual or
proposed transaction or arrangement with the Company.
Further details of the Directors' conflicts of interest can be
found in note 18.
2021 Annual General Meeting
The 2021 AGM of the Company was held on 17 May 2021. Resolutions
1 to 11 related to ordinary business. Resolutions 12 and 13 related
to special business as follows:
- that the Company be authorised to purchase up to 14.99% of its
own ordinary shares; and
- that the Directors be authorised to allot and issue up to
44,203,351 ordinary shares (representing approximately 10% of the
ordinary shares in issue at the date of the AGM notice), as if the
pre-emption rights in the Articles did not apply.
- All resolutions put to shareholders at the AGM were passed
with in excess of 90% of votes cast in favour.
2022 Annual General Meeting
The 2022 AGM will be held on 17 May 2022 at the registered
office of the Company: 12 Castle Street, St Helier, Jersey JE2
3RT.
A separate notice convening the AGM will be distributed to
shareholders with the annual report and financial statements on or
around 6 April 2022, which includes an explanation of the items of
business to be considered at the meeting. A copy of the notice will
also be published on the Company's website.
Share capital
As detailed above, at the Annual General Meeting held on 17 May
2021, the Company was granted the authority to allot ordinary
shares up to 10% of its total issued share capital at that date on
a non-pre--emptive basis, amounting to 44,203,351 ordinary shares.
No ordinary shares have been allotted under this authority during
the year. Details of the movements in share capital during the
period are set out in the statement of changes in equity below and
in note 16.
The Company will be seeking shareholder approval at the
Company's AGM scheduled to be held on 17 May 2022 to renew its
authority in respect of the disapplication of pre-emption rights
over 10% of its ordinary shares in issue which it may then be able
to issue by way of placings. This will provide the Company with the
ability to take advantage of investment opportunities as they arise
and further broaden its investor base over time.
As previously mentioned, at the AGM held on 17 May 2021, the
Company was granted the authority to purchase up to 14.99% of the
Company's ordinary share capital in issue at the date on which the
notice of the AGM was published, amounting to 65,931,044 ordinary
shares. This authority will expire at the conclusion of, and
renewal will be sought at, the AGM to be held on 17 May 2022.
The Company may hold any ordinary shares that it purchases in
treasury or cancel them, in accordance with the Articles and the
Companies Law. The Directors believe that it is desirable for the
Company to have this choice. Holding the shares purchased in
treasury gives the Company the ability to re-sell or transfer them
quickly and cost effectively and provides the Company with
additional flexibility in the management of its capital base.
The decision whether to cancel any shares purchased by the
Company or hold such shares in treasury will be made by the
Directors at the time of purchase, on the basis of the Company's
and shareholders' best interests.
At 31 December 2021, the Company's issued share capital
comprised 442,033,518 ordinary shares of no par value, 2,200,000 of
which had been repurchased by the Company and were held in
treasury. The total voting rights of the Company at 31 December
2021 were 439,833,518, being the issued share capital minus the
shares held in treasury.
At general meetings of the Company, every ordinary shareholder
shall have one vote in respect of every ordinary share and every C
shareholder, if any, shall have one vote in respect of every C
share.
The total voting rights of the Company at the date of this
report are 439,833,518. All shares repurchased are held in
treasury.
Details of the dividends paid and declared during the period are
set out in note 9. As the last dividend in respect of any financial
period is payable prior to the relevant AGM, it is declared as an
interim dividend and, accordingly, there is no final dividend
payable.
The Board is conscious that this means that shareholders will
not be given the opportunity to vote on the payment of a final
dividend. Accordingly, it has been decided that shareholders will
be asked to confirm their approval of the Company's dividend policy
at the forthcoming AGM.
Greenhouse gas emissions reporting
The Company has no employees and does not own any property, and
it does not purchase electricity, heat, steam or cooling for its
own use. Refer above for further information.
Significant voting rights
At 31 December 2021, the Company had been informed of the
following holdings representing more than 3% of the voting rights
of the Company:
Percentage
of total
voting
Name Shares rights
held
---------------------------------- ---------- ----------
Valu-Trac Investment Management 43,034,277 9.78%
CCLA Investment Management 36,894,752 8.39%
Close Asset Management 30,746,353 6.99%
Foresight Group 21,133,304 4.80%
Raymond James Investment Services 17,711,760 4.03%
West Yorkshire Pension Fund 17,421,098 3.96%
Waverton Investment Management 14,772,453 3.36%
Canopius 13,544,656 3.08%
---------------------------------- ---------- ----------
The table of significant shareholders disclosed forms part of
note 2.2 to the financial statements.
The Company has not been informed of any changes to the
interests between 31 December 2021 and the date of this report.
Auditor
PwC has expressed its willingness to continue as Auditor of the
Company and resolutions for its re--appointment and to authorise
the Audit committee to determine its remuneration will be proposed
at the forthcoming AGM.
The Directors holding office at the date of this annual report
confirm that, so far as they are each aware, there is no relevant
audit information of which the Company's Auditor is unaware.
Each Director has taken all the steps that they ought to have
taken as a Director to make themselves aware of any relevant audit
information and to establish that the Company's Auditor is aware of
that information.
Financial risk management
Information about the Company's financial risk management
objectives and policies is set out in note 17 to the financial
statements.
Requirements of the Listing Rules
Listing Rule 9.8.4 requires the Company to include specified
information in a single identifiable section of the annual report
or a cross reference table indicating where the information is set
out.
The information required under Listing Rule 9.8.4(7) in relation
to allotments of shares is set out under the heading 'Share
capital' above. The Directors confirm that there are no other
disclosures required in relation to Listing Rule 9.8.4.
On behalf of the Board
Alex Ohlsson
Chairman
23 March 2022
STATEMENT OF DIRECTORS' RESPONSIBILITIES
IN RESPECT OF THE ANNUAL REPORT AND FINANCIAL STATEMENTS
Under the terms of the DTRs of the FCA, the Directors are
responsible for preparing the annual report and financial
statements in accordance with applicable law and IFRS.
Companies Law requires the Directors to prepare financial
statements for each year, which give a true and fair view of the
state of affairs of the Company and the profit and loss for that
year.
The Directors are required to:
- properly select suitable accounting policies and apply them
consistently;
- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
- provide additional disclosures when compliance with the
specific requirements of IFRS are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the Company's financial position and financial
performance;
- make judgements and estimates that are reasonable and prudent;
and
- make an assessment of the Company's ability to continue as a
going concern.
The Directors are responsible for keeping adequate accounting
records that disclose with reasonable accuracy at any time the
financial position of the Company. They are also responsible for
safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
The Directors have overall responsibility for the maintenance
and integrity of the corporate and financial information included
on the Company's website.
Legislation in Jersey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Directors' responsibility statement
In accordance with the FCA's DTRs, each of the Directors, whose
names are set out above, confirms that to the best of his or her
knowledge:
- the annual report and financial statements have been prepared
in accordance with IFRS, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company;
and
- the strategic report, including the Directors' report,
includes a fair and balanced review of the development and
performance of the business, and the financial position of the
Company, together with a description of the principal risks and
uncertainties that the Company faces.
The annual report and financial statements, taken as a whole,
are considered by the Board to be fair, balanced and
understandable, and provide the information necessary for
shareholders to assess the Company's position, performance,
business model and strategy.
On behalf of the Board
Alex Ohlsson
Chairman
23 March 2022
INDEPENT AUDITOR'S REPORT
TO THE MEMBERS OF GCP ASSET BACKED INCOME FUND LIMITED
Report on the audit of the financial statements
Our opinion
In our opinion, the financial statements give a true and fair
view of the financial position of GCP Asset Backed Income Fund
Limited (the "Company") as at 31 December 2021, and of its
financial performance and its cash flows for the year then ended in
accordance with International Financial Reporting Standards and
have been properly prepared in accordance with the requirements of
the Companies (Jersey) Law 1991.
What we have audited
The Company's financial statements comprise:
- the statement of financial position as at 31 December
2021;
- the statement of comprehensive income for the year then
ended;
- the statement of changes in equity for the year then
ended;
- the statement of cash flows for the year then ended; and
- the notes to the financial statements, which include
significant accounting policies and other explanatory
information.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing ("ISAs"). Our responsibilities under those
standards are further described in the Auditor's responsibilities
for the audit of the financial statements section of our
report.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Company in accordance with the ethical
requirements that are relevant to our audit of the financial
statements of the Company, as required by the Crown Dependencies'
Audit Rules and Guidance. We have fulfilled our other ethical
responsibilities in accordance with these requirements.
Our audit approach
Overview
Audit scope
- The Company is based in Jersey and the financial statements
include its investments in the subsidiary and other investments as
financial assets through profit or loss rather than consolidated in
accordance with IFRS 10 requirements for investment entities.
- Our audit work was performed solely in Jersey for the audit of
the financial statements of the Company.
- We tailored the scope of our audit taking into account the
types of investments within the Company, the accounting processes
and controls, and the industry in which the Company operates.
- We conducted our audit of the financial statements based on
information provided by the appointed service providers to the
Company to whom the Board of Directors has delegated the provision
of certain functions, including Gravis Capital Management Limited
(the "Investment Manager and AIFM") and Apex Financial Services
(Alternative Funds) Limited (the "Administrator").
Key audit matters
- Valuation of financial assets at fair value through profit or
loss: investment in Subsidiary - Fair value of secured loan
notes.
Materiality
- Overall materiality: GBP10.9 million (31 December 2020:
GBP11.2 million) based on 2.5% of Net Assets.
- Performance materiality: GBP8.1 million.
The scope of our audit
As part of designing our audit, we determined materiality and
assessed the risks of material misstatement in the financial
statements. In particular, we considered where the Directors made
subjective judgements; for example, in respect of significant
accounting estimates that involved making assumptions and
considering future events that are inherently uncertain. As in all
of our audits, we also addressed the risk of management override of
internal controls, including among other matters, consideration of
whether there was evidence of bias that represented a risk of
material misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) identified by the auditors, including those which had the
greatest effect on: the overall audit strategy; the allocation of
resources in the audit; and directing the efforts of the engagement
team. These matters, and any comments we make on the results of our
procedures thereon, were addressed in the context of our audit of
the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters.
This is not a complete list of all risks identified by our
audit.
Key audit matter How our audit addressed the key
audit matter
-------------------------------------------- -----------------------------------------------------------------
Valuation of financial assets at We have performed the following
fair value through profit or loss: procedures:
investment in Subsidiary - Fair
value of secured loan notes * Discussions were held with the Directors of the
Refer to note 11 and note 17 of Company and the Investment Manager to enable us to
the financial statements understand and evaluate the controls in place over
The valuation of financial assets the valuation process. We obtained a summary of the
at fair value through profit or portfolio movements during the year.
loss: investment in Subsidiary ("investment
in Subsidiary") drives a number
of key performance indicators, such * We assessed the Company's external valuation agents'
as net asset value, which is of independence, qualifications and expertise and read
significant interest to investors their terms of engagement with the Company to
and the market. determine whether there were any matters that might
The fair value of the investment have affected their objectivity or may have imposed
in Subsidiary is substantially derived scope limitations upon their work.
from the fair value of secured loan
notes to the end borrower.
The valuations of secured loan notes * We read the valuation report issued by the external
are performed using contractual Valuation Agent and understood the valuation approach
cash flows generated by each loan used.
facility over a medium to long-term
period and by selecting key assumptions
such as the discount rate adjusted * We engaged valuation experts from PwC UK London to
as appropriate for market, credit assess the reasonableness of the methodology applied
and liquidity risk factors. by the external valuation agent with regards to a
The nature of discounted cash flow sample of investments and the reasonableness of key
("DCF") is inherently subjective assumptions used.
due to key assumptions used for
the discount rate and the amount
or timing of cash flows supporting * We held discussions with the Investment Manager to
the interest and capital repayments understand the monitoring process of the borrowers'
on debt positions held. payments and financial performance, in identifying
The existence of significant estimation circumstances that can materially impact the
uncertainty, coupled with the fact recoverability of the contractual cash flows.
that small percentage differences
in assumptions to the valuations
when aggregated could result in * We agreed a sample of the contractual cash flows used
material misstatement, are the reasons in the DCF calculation to the contractual payment
for our specific audit focus and schedule of the loan facility agreements and tested
attention to this area. the mathematical accuracy of the DCF calculation. As
As a result of the inherent nature part of these procedures, we performed these:
of the key assumptions used in the
DCF model, the Directors appointed
an external Valuation Agent to support
them in ascertaining the fair value * for a sample of new secured loans, we tested the
of secured loan notes. drawdowns to signed facility agreements, note
certificates and bank payments;
* for a sample of secured loan notes repaid during the
year, we tested the movement to signed facility
agreements and cash payments;
* for a sample of interest paid during the year, we
agreed the amounts to bank payments; and
* for a sample of interest accrued during the year, we
recomputed the amounts using the interest rates as
per the facility agreements and the outstanding
balances of the loan amounts at the relevant period.
* We challenged the assumptions used in the valuation
models.
* We considered the adequacy of the Company's
disclosures in respect of the fair value of the
investment in Subsidiary.
* We also considered the disclosure of the degree of
sensitivity when a reasonably possible change in a
key assumption could give rise to a change in the
fair value of the investment in Subsidiary.
Based on the above procedures, we
have not identified any matters
to report to those charged with
governance.
-------------------------------------------- -----------------------------------------------------------------
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed
enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the
Company, the accounting processes and controls, and the industry in
which the Company operates.
Materiality
The scope of our audit was influenced by our application of
materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations,
helped us to determine the scope of our audit and the nature,
timing and extent of our audit procedures on the individual
financial statement line items and disclosures and in evaluating
the effect of misstatements, both individually and in aggregate on
the financial statements as a whole.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
Overall materiality GBP10.9 million (31 December 2020: GBP11.2 million).
How we determined it 2.5% of net assets
Rationale for benchmark We believe that net assets is the most appropriate benchmark because this is the key metric
applied of interest to investors. It is also a generally accepted measure used for companies in this
industry.
----------------------- ---------------------------------------------------------------------------------------------
We use performance materiality to reduce to an appropriately low
level the probability that the aggregate of uncorrected and
undetected misstatements exceeds overall materiality. Specifically,
we use performance materiality in determining the scope of our
audit and the nature and extent of our testing of account balances,
classes of transactions and disclosures, for example in determining
sample sizes. Our performance materiality was 75% (31 December
2020: 75%) of overall materiality, amounting to GBP8.1 million (31
December 2020: GBP8.4 million) for the Company's financial
statements.
In determining the performance materiality, we considered a
number of factors - risk assessment and aggregation risk and the
effectiveness of controls - and concluded that an amount at the
upper end of our normal range was appropriate.
We agreed with the Audit committee that we would report to them
misstatements identified during our audit above GBP545,000 (31
December 2020: GBP562,000) as well as misstatements below that
amount that, in our view, warranted reporting for qualitative
reasons.
Reporting on other information
The Directors are responsible for the other information. The
other information comprises all the information included in the
annual report and financial statements (the "annual report") but
does not include the financial statements and our Auditor's report
thereon.
Our opinion on the financial statements does not cover the other
information and we do not express any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated. If, based
on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report
that fact. We have nothing to report based on these
responsibilities.
Responsibilities for the financial statements and the audit
Responsibilities of the Directors for the financial
statements
As explained more fully in the Statement of Directors'
responsibilities, the Directors are responsible for the preparation
of the financial statements that give a true and fair view in
accordance with International Financial Reporting Standards, the
requirements of Jersey law and for such internal control as the
Directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Company's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial
statements.
Our audit testing might include testing complete populations of
certain transactions and balances, possibly using data auditing
techniques. However, it typically involves selecting a limited
number of items for testing, rather than testing complete
populations. We will often seek to target particular items for
testing based on their size or risk characteristics. In other
cases, we will use audit sampling to enable us to draw a conclusion
about the population from which the sample is selected.
As part of an audit in accordance with ISAs, we exercise
professional judgement and maintain professional scepticism
throughout the audit. We also:
- identify and assess the risks of material misstatement of the
financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal
control;
- obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company's internal control;
- evaluate the appropriateness of accounting policies used and
the reasonableness of accounting estimates and related disclosures
made by the Directors;
- conclude on the appropriateness of the Directors' use of the
going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Company's
ability to continue as a going concern over a period of at least
twelve months from the date of approval of the financial
statements. If we conclude that a material uncertainty exists, we
are required to draw attention in our Auditor's report to the
related disclosures in the financial statements or, if such
disclosures are inadequate, to modify our opinion. Our conclusions
are based on the audit evidence obtained up to the date of our
auditor's report. However, future events or conditions may cause
the Company to cease to continue as a going concern; and
- evaluate the overall presentation, structure and content of
the financial statements, including the disclosures, and whether
the financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with those charged with
governance, we determine those matters that were of most
significance in the audit of the financial statements of the
current period and are therefore the key audit matters. We describe
these matters in our Auditor's report unless law or regulation
precludes public disclosure about the matter or when, in extremely
rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
Use of this report
This report, including the opinions, has been prepared for and
only for the members as a body in accordance with Article 113A of
the Companies (Jersey) Law 1991 and for no other purpose. We do
not, in giving these opinions, accept or assume responsibility for
any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
Report on other legal and regulatory requirements
Company Law exception reporting
Under the Companies (Jersey) Law 1991 we are required to report
to you if, in our opinion:
- we have not received all the information and explanations we
require for our audit;
- proper accounting records have not been kept; or
- the financial statements are not in agreement with the
accounting records.
We have no exceptions to report arising from this
responsibility.
Corporate governance statement
The Listing Rules require us to review the Directors' statements
in relation to going concern, longer--term viability and that part
of the corporate governance statement relating to the Company's
compliance with the provisions of the UK Corporate Governance Code
specified for our review. Our additional responsibilities with
respect to the corporate governance statement as other information
are described in the reporting on other information section of this
report.
The Company has reported compliance against the 2019 AIC Code of
Corporate Governance (the "Code") which has been endorsed by the UK
Financial Reporting Council as being consistent with the UK
Corporate Governance Code for the purposes of meeting the Company's
obligations, as an investment company, under the Listing Rules of
the FCA.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the corporate
governance statement, included within the governance section is
materially consistent with the financial statements and our
knowledge obtained during the audit, and we have nothing material
to add or draw attention to in relation to:
- the Directors' confirmation that they have carried out a
robust assessment of the emerging and principal risks;
- the disclosures in the annual report that describe those
principal risks, what procedures are in place to identify emerging
risks and an explanation of how these are being managed or
mitigated;
- the Directors' statement in the financial statements about
whether they considered it appropriate to adopt the going concern
basis of accounting in preparing them, and their identification of
any material uncertainties to the Company's ability to continue to
do so over a period of at least twelve months from the date of
approval of the financial statements;
- the Directors' explanation as to their assessment of the
Company's prospects, the period this assessment covers and why the
period is appropriate; and
- the Directors' statement as to whether they have a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the period of its
assessment, including any related disclosures drawing attention to
any necessary qualifications or assumptions.
Our review of the Directors' statement regarding the longer-term
viability of the Company was substantially less in scope than an
audit and only consisted of making inquiries and considering the
Directors' process supporting their statements; checking that the
statements are in alignment with the relevant provisions of the
Code; and considering whether the statement is consistent with the
financial statements and our knowledge and understanding of the
Company and its environment obtained in the course of the
audit.
In addition, based on the work undertaken as part of our audit,
we have concluded that each of the following elements of the
corporate governance statement is materially consistent with the
financial statements and our knowledge obtained during the
audit:
- the Directors' statement that they consider the annual report,
taken as a whole, is fair, balanced and understandable, and
provides the information necessary for the members to assess the
Company's position, performance, business model and strategy;
- the section of the annual report that describes the review of
effectiveness of risk management and internal control systems;
and
- the section describing the work of the Audit committee.
We have nothing to report in respect of our responsibility to
report when the Directors' statement relating to the Company's
compliance with the Code does not properly disclose a departure
from a relevant provision of the Code specified under the Listing
Rules for review by the auditors.
Lisa McClure
For and on behalf of
PricewaterhouseCoopers CI LLP
Chartered Accountants and Recognized Auditor
Jersey, Channel Islands
23 March 2022
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2021
Year ended Year ended
31 December 31 December
2021 2020
Notes GBP'000 GBP'000
------------------------------------------------------------------------------------- ----- ----------- -----------
Income
Loan interest realised 3 32,931 35,544
Net unrealised loss on investments at fair value through profit or loss 3 (15,742) (3,850)
Net gain/(loss) on derivative financial instruments 3 1,328 (394)
------------------------------------------------------------------------------------- ----- ----------- -----------
Net changes in fair value of financial assets and financial liabilities at fair value
through
profit or loss 18,517 31,300
------------------------------------------------------------------------------------- ----- ----------- -----------
Fee income 3 2,897 2,615
Deposit interest income - 4
------------------------------------------------------------------------------------- ----- ----------- -----------
Total income 21,414 33,919
------------------------------------------------------------------------------------- ----- ----------- -----------
Expenses
Investment management fees 18 (3,916) (3,891)
Operating expenses 4 (1,439) (1,661)
Directors' remuneration 6 (200) (201)
------------------------------------------------------------------------------------- ----- ----------- -----------
Total expenses (5,555) (5,753)
------------------------------------------------------------------------------------- ----- ----------- -----------
Total operating profit before finance costs 15,859 28,166
------------------------------------------------------------------------------------- ----- ----------- -----------
Finance costs
Finance expense 7 (887) (772)
------------------------------------------------------------------------------------- ----- ----------- -----------
Total profit and comprehensive income 14,972 27,394
------------------------------------------------------------------------------------- ----- ----------- -----------
Basic and diluted earnings per share (pence) 10 3.40 6.21
------------------------------------------------------------------------------------- ----- ----------- -----------
All items in the above statement are derived from continuing
operations.
The accompanying notes below form an integral part of these
financial statements.
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2021
As at As at
31 December 31 December
2021 2020
Notes GBP'000 GBP'000
---------------------------------------------- ----- ----------- -----------
Assets
Financial assets at fair value through profit
or loss 11 446,989 445,962
Other receivables and prepayments 12 128 108
Derivative financial instruments 17 492 158
Cash and cash equivalents 13 10,108 9,994
---------------------------------------------- ----- ----------- -----------
Total assets 457,717 456,222
---------------------------------------------- ----- ----------- -----------
Liabilities
Other payables and accrued expenses 15 (1,445) (1,604)
Revolving credit facilities 14 (19,546) (4,856)
---------------------------------------------- ----- ----------- -----------
Total liabilities (20,991) (6,460)
---------------------------------------------- ----- ----------- -----------
Net assets 436,726 449,762
---------------------------------------------- ----- ----------- -----------
Equity
Share capital 16 442,607 442,900
Retained (losses)/earnings (5,881) 6,862
---------------------------------------------- ----- ----------- -----------
Total equity 436,726 449,762
---------------------------------------------- ----- ----------- -----------
Ordinary shares in issue (excluding treasury
shares) 16 439,833,518 440,158,518
---------------------------------------------- ----- ----------- -----------
NAV per ordinary share (pence per share) 99.29 102.18
---------------------------------------------- ----- ----------- -----------
The financial statements were approved and authorised for issue
by the Board of Directors on 23 March 2022 and signed on its behalf
by:
Alex Ohlsson Colin Huelin FCA
Chairman Director
The accompanying notes below form an integral part of these
financial statements.
STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2021
Share Retained Total
capital earnings/(losses) equity
Notes GBP'000 GBP'000 GBP'000
-------------------------------------- ----- ------- ----------------- --------
Balance as at 1 January 2021 442,900 6,862 449,762
Total profit and comprehensive income
for the year - 14,972 14,972
Share repurchases 16 (293) - (293)
Dividends 9 - (27,715) (27,715)
-------------------------------------- ----- ------- ----------------- --------
Balance as at 31 December 2021 442,607 (5,881) 436,726
-------------------------------------- ----- ------- ----------------- --------
STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2020
Share Retained Total
capital earnings/(losses) equity
Notes GBP'000 GBP'000 GBP'000
-------------------------------------- ----- ------- ----------------- --------
Balance as at 1 January 2020 443,915 7,931 451,846
Total profit and comprehensive income
for the year - 27,394 27,394
Equity shares issued 16 518 - 518
Share issue costs 16 (19) - (19)
Share repurchases 16 (1,514) - (1,514)
Dividends 9 - (28,463) (28,463)
-------------------------------------- ----- ------- ----------------- --------
Balance as at 31 December 2020 442,900 6,862 449,762
-------------------------------------- ----- ------- ----------------- --------
The accompanying notes below form an integral part of these
financial statements.
STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2021
Year ended Year ended
31 December 31 December
2021 2020
Notes GBP'000 GBP'000
-------------------------------------------------- ----- ----------- -----------
Cash flows from operating activities
Total operating profit before finance costs 15,859 28,166
Adjustments for:
Net changes in fair value of financial assets
at fair value through profit or loss 3 (18,517) (31,300)
Realised gain/(loss) on derivative financial
instruments 3 994 (548)
(Decrease)/increase in other payables and
accrued expenses (174) 139
Increase in other receivables and prepayments (21) (45)
-------------------------------------------------- ----- ----------- -----------
Total (1,859) (3,588)
Interest received from Subsidiary 3 32,931 35,544
Investment in Subsidiary 11 (134,504) (126,545)
Capital repayments from Subsidiary 11 117,735 130,610
-------------------------------------------------- ----- ----------- -----------
Net cash flow generated from operating activities 14,303 36,021
-------------------------------------------------- ----- ----------- -----------
Cash flows from financing activities
Proceeds from revolving credit facilities 14 40,250 54,599
Repayment of revolving credit facilities 14 (25,351) (59,075)
Share issue costs - (19)
Share repurchases 16 (293) (1,514)
Finance costs paid (1,080) (760)
Dividends paid 9 (27,715) (27,945)
-------------------------------------------------- ----- ----------- -----------
Net cash flow used in financing activities (14,189) (34,714)
-------------------------------------------------- ----- ----------- -----------
Net increase in cash and cash equivalents 114 1,307
Cash and cash equivalents at beginning of
the year 9,994 8,687
-------------------------------------------------- ----- ----------- -----------
Cash and cash equivalents at end of the year 10,108 9,994
-------------------------------------------------- ----- ----------- -----------
Net cash flow used in operating activities
includes:
Interest received from bank deposits - 4
Interest received from Subsidiary 3 32,931 35,544
-------------------------------------------------- ----- ----------- -----------
Non-cash items:
Purchase of financial assets: indexation (24) (304)
Interest received from Subsidiary 24 304
Scrip dividend 9 - (518)
Equity issue in respect of scrip dividend 16 - 518
-------------------------------------------------- ----- ----------- -----------
The accompanying notes below form an integral part of these
financial statements.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2021
1. General information
The Company is a public closed-ended investment company
incorporated on 7 September 2015 and domiciled in Jersey, with
registration number 119412. The Company is governed by the
provisions of the Jersey Company Law and the CIF Law.
The ordinary shares and C shares (when in issue) of the Company
are admitted to the Official List of the FCA and are traded on the
Premium Segment of the Main Market of the LSE.
The Company makes its investments through its wholly owned
Subsidiary, by subscribing for the Secured Loan Notes issued by the
Subsidiary. The Subsidiary subsequently on-lends the funds to
borrowers.
At 31 December 2021, the Company had one wholly owned
Subsidiary, GABI UK (31 December 2020: one), incorporated in
England and Wales on 23 October 2015 (registration number 9838893).
GABI UK has two subsidiaries (2020: two): GABI Housing
(registration number 10497254) incorporated in England and Wales on
25 November 2016, and GABI GS (registration number 10546087)
incorporated in England and Wales on 4 January 2017. GABI UK
acquired ownership of GABI Housing on 20 March 2020. The Company,
GABI UK, GABI Housing (including its subsidiary, GABI Blyth) and
GABI GS comprises the Group. The registered office address for GABI
UK, GABI Housing, GABI Blyth and GABI GS is 24 Savile Row, London
W1S 2ES.
The Company, through its Subsidiary, seeks to meet its
investment objective through a diversified portfolio of investments
which are secured against, or comprise, contracted, predictable
medium to long--term cash flows and/or physical assets.
The Group's investments will predominantly be in the form of
medium to long--term fixed or floating rate loans which are secured
against cash flows and/or physical assets which are predominantly
UK based.
The Group's investments will typically be unquoted and will
include, but not be limited to, senior loans, subordinated loans,
mezzanine loans, bridge loans and other debt instruments. The Group
may also make limited investments in equities, equity--related
derivative instruments such as warrants, controlling equity
positions (directly or indirectly) and/or directly in physical
assets.
The Group will at all times invest and manage its assets in a
manner which is consistent with the objective of spreading
investment risk.
Where possible, investments are structured to benefit from
partial inflation and/or interest rate protection.
GABI GS was set up to hold shares as security for loans issued
to underlying borrowers, where required. Its purpose is to isolate
any potential liabilities that may arise from holding shares as
security, from the Company.
GABI Housing was set up for the sole purpose of investing in
five underlying properties, one of which was held by its
subsidiary, GABI Blyth, and the social income stream derived from
these properties through letting them to specialist housing
associations. On 30 June 2021, the property held by GABI Blyth was
transferred to its parent, GABI Housing. GABI Blyth is now dormant
and the company is in the process of being wound up.
2. Significant accounting policies
The principal accounting policies applied in the preparation of
these financial statements are set out below and in the subsequent
notes. These policies, except for those changes discussed in this
note, have been consistently applied throughout the years
presented.
2.1 Basis of preparation
The annual report and financial statements for the year ended 31
December 2021 have been prepared on a going concern basis and in
accordance with IFRS, which includes standards and interpretations
approved by the IASB, and as applied in accordance with the Jersey
Company Law.
In accordance with the investment entities exemption contained
in IFRS 10 Consolidated Financial Statements, the Directors have
determined that the Company continues to meet the definition of an
investment entity and as a result the Company is not required to
prepare consolidated financial statements. The Company's investment
in its Subsidiary is measured at fair value and treated as a
financial asset through profit or loss in the statement of
financial position (refer to note 2.2(b)).
The Company raises capital through the issue of ordinary shares
and C shares. The net assets attributable to the C share class,
when in issue, are accounted for and managed by the Company as a
distinct pool of assets, with the Company ensuring that separate
cash accounts are created and maintained. Expenses are either
specifically allocated to an individual share class or split
proportionately by the NAV of each share class. When in issue, C
shares are classified as a financial liability.
New standards, amendments and interpretations adopted in the
year
In the year under review, the Company has applied amendments to
IFRS issued by the IASB. These include annual improvements to IFRS,
changes in standards including IBOR 'phase 2' (amendments to IFRS
9, IAS 39 and IFRS 7), legislative and regulatory amendments,
changes in disclosure and presentation requirements including
updates relating to Covid-19.
The adoption of the changes to accounting standards has had no
material impact on these or prior years' financial statements.
Further to the above, there are no new IFRS or IFRIC
interpretations that are issued but not effective that would be
expected to have a material impact on the Company's financial
statements.
Going concern
The financial statements have been prepared on a going concern
basis. The Directors have made an assessment of the Company's
ability to continue as a going concern and are satisfied that the
Company has adequate resources to continue in operational existence
for a period of at least twelve months from the date when these
financial statements were approved.
In making the assessment, the Directors have considered the
likely impacts of the current Covid-19 pandemic on the Company,
operations and the investment portfolio.
The Directors noted the cash balance exceeds any short-term
liabilities and the Company is able to meet the obligations of the
Company as they fall due. The surplus cash reserves in addition to
the RCF enable the Company to meet any funding requirements and
finance future additional investments. The Company is a
closed-ended investment company, where assets are not required to
be liquidated to meet day-to-day redemptions.
The Directors have reviewed stress tests carried out by the
Investment Manager which assess the impact of changes in valuation
of the underlying investment portfolio and/or income. In making
this assessment, they have considered plausible downside scenarios.
The conclusion was that in these plausible downside scenarios the
Company could continue to meet its liabilities as they fall due.
Whilst the economic future is uncertain, and the Directors believe
that it is possible the Company could experience further reductions
in income and/or valuation of the underlying investment portfolio,
this should not be to a level which would threaten the Company's
ability to continue as a going concern.
The Directors, the Investment Manager and other service
providers have put in place contingency plans to minimise
disruption from the Covid-19 pandemic. Furthermore, the Directors
are not aware of any material uncertainties that may cast
significant doubt on the Company's ability to continue as a going
concern, having taken into account the liquidity of the Group's
investment portfolio and the Company's financial position in
respect of its cash flows, borrowing facilities and investment
commitments. Therefore, the financial statements have been prepared
on the going concern basis. In addition to a going concern
statement, the Directors have undertaken a longer--term assessment
of the Company, the result of which can be seen in the viability
statement above.
2.2 Significant accounting estimates and judgements
The preparation of financial statements, in accordance with
IFRS, requires the Directors to make estimates and judgements that
affect the reported amounts recognised in the financial statements.
However, uncertainty about these assumptions and judgements could
result in outcomes that require a material adjustment to the
carrying amount of the asset or liability in the future. There are
no changes in estimates reported in prior financial statements that
require disclosure in these financial statements.
(a) Critical accounting estimates and assumptions
Fair value of instruments not quoted in an active market
The Company's investments are made by subscribing for the
Secured Loan Notes issued by the Subsidiary. The Subsidiary's
assets consist of investments held by the Subsidiary, which
represent secured loan facilities issued to the Project Companies.
The Subsidiary's assets are not quoted in an active market;
therefore, the fair value is determined using a discounted cash
flow methodology where applicable (excluding the Co-living loan)
adjusted as appropriate for market, credit and liquidity risk
factors (refer to note 17.9 for further information). This requires
assumptions to be made regarding future cash flows and the discount
rate applied to these cash flows. The Subsidiary's investments are
valued by a third party Valuation Agent on a semi-annual basis.
Investments which may be subject to discount rate changes are
valued on a quarterly basis.
The models used by the Valuation Agent use observable data to
the extent practicable. However, areas such as credit risk (both
own and counterparty), volatilities and correlations require
estimates to be made. Changes in assumptions about these factors
could affect the reported fair value of the financial
instruments.
The determination of what constitutes 'observable' requires
significant judgement by the Company. The Company considers
observable data to be market data that is readily available,
regularly distributed or updated, reliable and verifiable, not
proprietary, and provided by independent sources that are actively
involved in the relevant market.
The investment in the Subsidiary is held at fair value through
profit or loss, with income distributions and interest payments
from the Subsidiary included as part of the fair value movement
calculation together with any unrealised movement in the fair value
of the holding in the Subsidiary.
The value of the investment in the Subsidiary is based on the
aggregate of the NAV of the Subsidiary and the value of the Secured
Loan Notes issued by the Subsidiary. Refer to note 11 for further
details.
The valuation of the Co-living loan
The Group's Co-living loan was valued at an estimate of
recoverability of amounts secured against six key underlying
properties and four other underlying properties. The estimates were
based on independent valuation reports and discussions with
potential buyers. Further, adjustments to reflect transaction risk
involved with the sale of these assets of up to 10% were applied to
the expected recovery amounts for the key properties. In addition,
assumptions were applied for the refinancing of one asset loan and
the additional professional fees required to complete the
successful delivery of the credit bid transactions. Further
information is given in note 17.9.
(b) Critical judgements
Assessment as an investment entity
The Directors have concluded that the Company continues to meet
the definition of an investment entity.
Entities that meet the definition of an investment entity within
IFRS 10 Consolidated Financial Statements are required to measure
their subsidiaries at fair value through profit or loss rather than
consolidate. The criteria which define an investment entity are as
follows:
- an entity that obtains funds from one or more investors for
the purpose of providing those investors with investment
services;
- an entity that commits to its investors that its business
purpose is to invest funds solely for returns from capital
appreciation, investment income or both; and
- an entity that measures and evaluates the performance of
substantially all of its investments on a fair value basis.
The Directors have concluded that the Company continues to meet
the characteristics of an investment entity in that it:
- raises funds from investors through the issue of equity, has
more than one investor and its investors are not related parties
other than those disclosed in note 18;
- invests in a portfolio of investments held by the Subsidiary
for the purpose of generating risk--adjusted returns through
regular distributions and capital appreciation; and
- the Company's investments are held at fair value through
profit or loss with the performance of its portfolio evaluated on a
fair value basis.
Accordingly, the Company's Subsidiary is not consolidated, but
rather the investment in the Subsidiary is accounted for at fair
value through profit or loss. The value of the investment in the
Subsidiary is based on the aggregate of the NAV of the Subsidiary
and the value of the Secured Loan Notes issued by the
Subsidiary.
(c) Functional and presentation currency
The primary objective of the Company is to generate returns in
Pound Sterling, its capital--raising currency. The Company's
performance is evaluated in Pound Sterling. Therefore, the
Directors consider Pound Sterling as the currency that most
faithfully represents the economic effects of the underlying
transactions, events and conditions.
The financial statements are presented in Pound Sterling and all
values have been rounded to the nearest thousand pounds (GBP'000),
except where otherwise indicated.
(d) Segmental information
The Directors view the operations of the Company as one
operating segment, being the investment portfolio of asset backed
loans held through the Subsidiary, which is a registered UK
company. All significant operating decisions are based upon
analysis of the Subsidiary's investments as one segment. The
financial results from this segment are equivalent to the financial
results of the Company as a whole, which are evaluated regularly by
the Directors.
Significant shareholders are disclosed in the Directors' report
above.
3. Operating income
The table below analyses the operating income derived from the
Company's financial assets at fair value through profit or
loss:
Year ended Year ended
31 December 31 December
2021 2020
GBP'000 GBP'000
------------------------------------------------------------- ----------- -----------
Loan interest realised 32,931 35,544
Unrealised loss on financial assets at fair value
through profit or loss(1) :
Debt - Secured Loan Notes up to GBP1,000,000,000 (16,977)(2) (5,161)(2)
Equity - representing one ordinary share in the Subsidiary 1,235 1,311
------------------------------------------------------------- ----------- -----------
Net unrealised loss on financial assets at fair value
through profit or loss (15,742) (3,850)
------------------------------------------------------------- ----------- -----------
Unrealised gain on forward foreign exchange contracts 334 154
Realised gain on forward foreign exchange contracts 1,397 174
Realised loss on forward foreign exchange contracts (403) (722)
------------------------------------------------------------- ----------- -----------
Net gain/(loss) on derivative financial instruments 1,328 (394)
------------------------------------------------------------- ----------- -----------
Net changes in fair value of financial assets and
financial liabilities at fair value through profit
or loss 18,517 31,300
------------------------------------------------------------- ----------- -----------
1. Refer to note 11 for further information.
2. Comprises downward revaluation in respect of Co-living loan
partially offset by unrealised gains in respect of the unwind of
discount rate adjustments made to reflect the uncertainties
associated with the Covid-19 pandemic.
The table below analyses the fees and other income earned from
borrowers of the Company by type:
Year ended Year ended
31 December 31 December
2021 2020
GBP'000 GBP'000
----------------------- ----------- -----------
Arrangement fee income 293 173
Commitment fee income 129 677
Early repayment fees 2,475 1,762
Sundry income - 3
----------------------- ----------- -----------
Total 2,897 2,615
----------------------- ----------- -----------
Accounting policy
Interest income and interest expense other than interest
received on financial assets held at fair value through profit or
loss are recognised on an accruals basis in the statement of
comprehensive income.
Net movements in fair value of financial assets at fair value
through profit or loss includes changes in the fair value of the
investment in the Subsidiary held at fair value through profit or
loss, loan interest realised and net gain and loss on forward
foreign exchange contracts.
Arrangement fee income comprises fees relating to the issue and
set up of Secured Loan Notes. The Investment Manager, at its
discretion, is entitled to an arrangement fee of up to 1% of the
value of each investment made by the Group. The Investment Manager
expects the costs of any such fee to be covered by the borrowers,
and not the Company. Since IPO, such fees in respect of 14 of the
Group's investments have been met and paid by the Company. To the
extent any arrangement fee negotiated by the Investment Manager
with a borrower exceeds 1%, the benefit of any such excess is paid
to the Company.
Commitment fees are accounted for on an accruals basis and are
paid by the borrowers.
Early repayment fee income is income in relation to the
redemption of loans before maturity and is recognised in the
financial statements when contractual provisions are met and the
amounts become due.
The Company holds derivative financial instruments comprising
forward foreign exchange contracts to hedge its exposure to
movements in foreign currency exchange rates on loans denominated
in currency other than Pound Sterling. It is not the Company's
policy to trade in derivative financial instruments.
Forward foreign exchange contracts are stated at fair value,
being the difference between the agreed price of selling or buying
the financial instrument on a future date and the price quoted for
selling or buying the same or similar instrument on the statement
of financial position date. The Company does not apply hedge
accounting and consequently all gains or losses in fair value are
recognised in the statement of comprehensive income.
4. Operating expenses
Year ended Year ended
31 December 31 December
2021 2020
GBP'000 GBP'000
--------------------------------------------- ----------- -----------
Corporate administration and Depositary fees 613 620
Registrar fees 40 50
Audit fees 95 90
Legal and professional fees 38 103
Valuation Agent fees 178 150
Other 475 648
--------------------------------------------- ----------- -----------
Total 1,439 1,661
--------------------------------------------- ----------- -----------
Key service providers other than the Investment Manager (refer
to note 18 for disclosures of transactions with the Investment
Manager):
Administrator and Company Secretary
The Company has appointed Apex Financial Services (Alternative
Funds) Limited as Administrator and Company Secretary. Fund
accounting, administration and company secretarial services are
provided to the Company pursuant to an agreement dated 28 September
2015. All Directors have access to the Company Secretary, who
provides guidance to the Board, through the Chairman, on governance
and administrative matters. The fee for the provision of
administration and company secretarial services during the year was
GBP479,000 (31 December 2020: GBP486,000) of which GBP119,000
remains payable at year end (31 December 2020: GBP122,000).
Depositary
Depositary services are provided to the Company by Apex
Financial Services (Corporate) Limited pursuant to an agreement
dated 28 September 2015. The fee for the provision of these
services during the year was GBP134,000 (31 December 2020:
GBP134,000) of which GBP66,000 remains payable at year end (31
December 2020: GBP34,000).
Accounting policy
Operating expenses and investment management fees in the
statement of comprehensive income are recognised on an accruals
basis.
5. Auditor's remuneration
The following table summarises the remuneration paid to the
Auditor for audit and non-audit related services:
Year ended Year ended
31 December 31 December
2021 2020
GBP'000 GBP'000
--------------------------------- ----------- -----------
Audit fees
Annual audit of the Company 95 90
--------------------------------- ----------- -----------
Non-audit services
Review of the half-yearly report 39 28
--------------------------------- ----------- -----------
Total 134 118
--------------------------------- ----------- -----------
In order to maintain auditor independence, the Board appointed
BDO LLP as reporting accountant of the Company on 25 September
2017. Since BDO's appointment, no non-audit related services have
been carried out by PwC, with the exception of the review of the
half-yearly report and financial statements.
6. Directors' remuneration
The Directors of the Company were remunerated as follows:
Year ended Year ended
31 December 31 December
2021 2020
GBP'000 GBP'000
-------------------- ----------- -----------
Alex Ohlsson 55 55
Colin Huelin FCA 50 50
Joanna Dentskevich 50 50
Marykay Fuller 45 45
-------------------- ----------- -----------
200 200
-------------------- ----------- -----------
Directors' expenses - 1
-------------------- ----------- -----------
Total 200 201
-------------------- ----------- -----------
Full details of the Directors' remuneration policy can be found
in the Directors' remuneration report above.
7. Finance expenses
Year ended Year ended
31 December 31 December
2021 2020
GBP'000 GBP'000
------------------------------------------ ----------- -----------
Arrangement fees relating to the RCF 236 284
Commitment fees relating to the RCF 250 350
Early repayment costs relating to the RCF - 2
Interest expense relating to the RCF 401 136
------------------------------------------ ----------- -----------
Total 887 772
------------------------------------------ ----------- -----------
Accounting policy
Finance expenses in the statement of comprehensive income
comprise loan arrangement and commitment fees which are accounted
for on an accruals basis, along with interest accrued on the RCF
(refer to note 14) incurred in connection with the borrowing of
funds. Arrangement fees are amortised over the life of the RCF.
8. Taxation
Profits arising in the Company for the year ended 31 December
2021 are subject to tax at the standard rate of 0% (31 December
2020: 0%) in accordance with the Income Tax (Jersey) Law 1961, as
amended.
9. Dividends
Year ended Year ended
31 December 31 December
Pence 2021 2020
Quarter ended Dividend per share GBP'000 GBP'000
------------------------------- ---------------------- --------- ----------- -----------
Current year dividends
2021 fourth interim
31 December 2021(1) dividend 1.575 - -
2021 third interim
30 September 2021 dividend 1.575 6,927 -
2021 second interim
30 June 2021 dividend 1.575 6,927 -
2021 first interim
31 March 2021 dividend 1.575 6,927 -
------------------------------- ---------------------- --------- ----------- -----------
Total 6.300 20,781 -
------------------------------------------------------- --------- ----------- -----------
Prior year dividends
2020 fourth interim
31 December 2020 dividend 1.575 6,934 -
30 September 2020 2020 special dividend 0.250 - 1,100
2020 third interim
30 September 2020 dividend 1.550 - 6,832
2020 second interim
30 June 2020 dividend 1.550 - 6,843
2020 first interim
31 March 2020 dividend 1.550 - 6,844
------------------------------- ---------------------- --------- ----------- -----------
Total 6.475 6,934 21,619
------------------------------------------------------- --------- ----------- -----------
2019 fourth interim
31 December 2019 dividend 1.550 - 6,844
------------------------------- ---------------------- --------- ----------- -----------
Dividends in statement of
changes in equity 27,715 28,463
------------------------------------------------------- --------- ----------- -----------
Dividends settled in shares(2) - (518)
------------------------------------------------------- --------- ----------- -----------
Dividends in the statement
of cash flows 27,715 27,945
------------------------------------------------------- --------- ----------- -----------
On 27 January 2022, the Company announced a fourth interim
dividend of 1.575 pence per ordinary share amounting to
GBP6,927,000 which was paid on 4 March 2022 to ordinary
shareholders on the register at 4 February 2022.
Accounting policy
In accordance with the Company's Articles, in respect of the
ordinary shares, the Company will distribute the income it receives
to the fullest extent that is deemed appropriate by the Directors.
Dividends due to the Company's shareholders are recognised as a
liability in the period in which they are paid or approved by the
Directors and are reflected in the statement of changes in equity.
Dividends declared and approved by the Company after the statement
of financial position date have not been recognised as a liability
of the Company at the statement of financial position date.
The Company pays dividends on a quarterly basis with dividends
typically declared in January, April, July and October and paid in
or around February, May, August and November in each financial
year.
1. The current year fourth interim dividend was declared after
the year end and is therefore not accrued for as a provision in the
financial statements.
2. Dividends settled in shares are where shareholders have
elected to take the scrip dividend alternative. The Board, in its
discretion, has determined that the offer of a scrip dividend will
remain suspended as a result of the discount between the likely
scrip dividend reference price of the shares and the current NAV
per share of the Company. The Board will keep the payment of future
scrip dividends under review.
10. Earnings per share
Basic earnings per ordinary share are calculated by dividing
profit for the year attributable to ordinary shareholders of the
Company by the weighted average number of ordinary shares in issue
during the year. Diluted earnings per ordinary share are calculated
by dividing the profit attributable to ordinary shareholders by the
diluted weighted average number of ordinary shares.
Weighted
average
number
Profit of ordinary Pence per
GBP'000 shares share
------------------------------------ -------- ------------- ---------
Year ended 31 December 2021
Basic earnings per ordinary share 14,972 439,895,094 3.40
------------------------------------ -------- ------------- ---------
Diluted earnings per ordinary share 14,972 439,895,094 3.40
------------------------------------ -------- ------------- ---------
Year ended 31 December 2020
Basic earnings per ordinary share 27,394 441,287,075 6.21
------------------------------------ -------- ------------- ---------
Diluted earnings per ordinary share 27,394 441,287,075 6.21
------------------------------------ -------- ------------- ---------
11. Financial assets at fair value through profit or loss:
investment in Subsidiary
The Company's financial assets at fair value through profit or
loss comprise its investment in the Subsidiary, which represents
amounts advanced to finance the Group's investment portfolio in the
form of Secured Loan Notes issued by the Subsidiary to the Company
and equity. The Company's investment in the Subsidiary at 31
December 2021 comprised:
31 December 31 December
2021 2020
Debt - Secured Loan Notes up to GBP1,000,000,000 GBP'000 GBP'000
----------------------------------------------------------- ------------ -----------
Opening balance 443,855 453,081
Investment in Subsidiary 134,504(1) 126,545
Capital repayments from Subsidiary (117,735)(2) (130,610)
----------------------------------------------------------- ------------ -----------
Unrealised (loss)/gain on financial assets and liabilities
at fair value through profit or loss:
Unrealised valuation loss(3) (17,029) (5,233)
Unrealised foreign exchange (loss)/gain (983) 133
Other unrealised movements on investments(4) 1,035 (61)
----------------------------------------------------------- ------------ -----------
Total unrealised loss on investments at fair value
through profit or loss (16,977) (5,161)
----------------------------------------------------------- ------------ -----------
Total(5) 443,647 443,855
----------------------------------------------------------- ------------ -----------
1. Investment in Subsidiary does not include indexation applied
to certain investments held by the Subsidiary, as set out in the
table below.
2. Capital repayments from Subsidiary reflects principal
received from the Subsidiary in respect of an underlying
investment, as set out in the table below.
3. Comprises write-down of the Co-living loan offset by
unrealised gains in respect of the unwind of discount rate
adjustments made to reflect the uncertainties associated with the
Covid-19 pandemic.
4. Other unrealised movements on investments at fair value
through profit or loss are attributable to the timing of the debt
service payments and principal indexation applied.
5. Refer to the table below for further analysis.
The difference between the valuation of the Secured Loan Notes
issued by the Subsidiary to the Company and the underlying
investments held by the Subsidiary is as a result of payment
timings, differing application of the effective interest rate in
respect of the underlying investments and indexation, as set out in
the table below:
31 December 31 December
2021 2020
GBP'000 GBP'000
----------------------------------------------------- ----------- -----------
Valuation of the underlying investments held by the
Subsidiary 443,640 444,235
Principal received from the Subsidiary in respect
of an underlying investment - (400)
Principal received from underlying investments and
held by the Subsidiary - 12
Interest rate differential 7 8
Indexation applied to certain investments held by
Subsidiary (992) -
Unrealised gain on investments at fair value through
profit or loss 992 -
----------------------------------------------------- ----------- -----------
Fair value of Secured Loan Notes 443,647 443,855
----------------------------------------------------- ----------- -----------
31 December 31 December
2021 2020
Equity - representing one ordinary share in the Subsidiary GBP'000 GBP'000
----------------------------------------------------------- ----------- -----------
Opening balance 2,107 796
Unrealised gain on investment at fair value through
profit or loss 1,235 1,311
----------------------------------------------------------- ----------- -----------
Total 3,342 2,107
----------------------------------------------------------- ----------- -----------
Financial assets at fair value through profit or
loss 446,989 445,962
----------------------------------------------------------- ----------- -----------
The above represents a 100% interest in the Subsidiary at year
end 31 December 2021 (31 December 2020: 100%).
Secured Loan Notes
The Subsidiary has issued a loan note instrument to the Company
for a programme of up to GBP1 billion variable funding notes
limited to the cash available by the Company. Each series of loan
notes issued has a maximum nominal amount, fixed at the date of
issue; a base amount and a subscribed amount.
Accounting policy
The Company classifies its investment in the Subsidiary as
financial assets at fair value through profit or loss in accordance
with IFRS 9 Financial Instruments as set out below.
Financial assets at fair value through profit or loss
The category which includes financial assets at fair value
through profit or loss consists of financial instruments that have
been designated at fair value through profit or loss upon initial
recognition. These financial assets are designated on the basis
that they are part of a group of financial assets which are managed
and have their performance evaluated on a fair value basis, in
accordance with the risk management and investment strategies of
the Company.
Upon initial recognition, the Company designates the investment
in the Subsidiary as part of 'financial assets at fair value
through profit or loss'. The investment in the Subsidiary is
included initially at fair value, which is taken to be its cost
(excluding expenses incidental to the acquisition which are written
off in the statement of comprehensive income).
All financial assets for which fair value is measured or
disclosed in the financial statements are categorised within the
fair value hierarchy.
Financial information about the financial assets of the Company
is provided by the Investment Manager to the Directors with the
valuation of the portfolio being carried out by the Valuation
Agent.
The Company recognises a financial asset when, and only when, it
becomes a party to the contractual provisions of the instrument.
Purchases or sales of financial assets that require delivery of
assets within the timeframe generally established by regulation or
convention in the marketplace are recognised on the trade date,
i.e. the date that the Company commits to purchase or sell the
asset.
A financial asset (or, where applicable, a part of a financial
asset or part of a group of similar financial assets) is
derecognised when:
- the rights to receive cash flows from the asset have expired;
or
- the Company has transferred its rights to receive cash flows
from the asset or has assumed an obligation to pay the received
cash flows in full without material delay to a third party under a
pass-through arrangement; and
- either (a) the Company has transferred substantially all the
risks and rewards of the asset, or (b) the Company has neither
transferred nor retained substantially all the risks and rewards of
the asset but has transferred control of the asset.
When the Company transfers its rights to receive cash flows from
an asset or has entered into a pass-through arrangement, and has
neither transferred nor retained substantially all the risks and
rewards of the asset nor transferred control of the asset, the
asset is recognised to the extent of the Company's continuing
involvement in the asset.
After initial measurement, the Company measures financial
instruments classified at fair value through profit or loss at fair
value. Subsequent changes in the fair value of financial
instruments are recorded in the statement of comprehensive
income.
Fair value is the price that would be received to sell an asset
in an orderly transaction between market participants at the
measurement date. For all other financial instruments not traded in
an active market, the fair value is determined by using appropriate
valuation techniques. Valuation techniques used by the Valuation
Agent include using recent arm's length market transactions,
referenced to appropriate current market data, and discounted cash
flow analysis, at all times making as much use of available and
supportable market data as possible.
An analysis of fair values of financial instruments and further
details as to how they are measured are provided in note 17.9.
12. Other receivables and prepayments
31 December 31 December
2021 2020
GBP'000 GBP'000
--------------------- ----------- -----------
Arrangement fees 64 49
Other income debtors 6 6
Prepayments 58 53
--------------------- ----------- -----------
Total 128 108
--------------------- ----------- -----------
Accounting policy
Other receivables and prepayments are recognised and carried at
the lower of their original invoiced value and recoverable amount
or, where the time value of money is material, at amortised cost.
The Company recognises a loss allowance for expected credit loss on
other receivables where necessary.
13. Cash and cash equivalents
31 December 31 December
2021 2020
GBP'000 GBP'000
-------------------------- ----------- -----------
Cash and cash equivalents 10,108 9,994
-------------------------- ----------- -----------
Total 10,108 9,994
-------------------------- ----------- -----------
Accounting policy
Cash comprises cash in hand and demand deposits. Cash
equivalents are short-term with original maturities of three months
or less and highly liquid investments, that are readily convertible
to known amounts of cash and which are subject to an insignificant
risk of changes in value.
14. Revolving credit facilities
31 December 31 December
2021 2020
GBP'000 GBP'000
--------------------------------------- ----------- -----------
Opening balance 5,000 9,476
Proceeds from amounts drawn on the RCF 40,250 54,599
Repayment of amounts drawn on the RCF (25,351) (59,075)
--------------------------------------- ----------- -----------
RCF drawn at the year end 19,899 5,000
Loan arrangement fees unamortised (353) (144)
--------------------------------------- ----------- -----------
Total 19,546 4,856
--------------------------------------- ----------- -----------
Any amounts drawn under the RCF are to be used in, or towards,
the making of investments (including a reduction of available
commitment as an alternative to cash cover for entering into
forward foreign exchange contracts) in accordance with the
Company's investment policy.
On 19 August 2021, the Company entered into an agreement with
RBSI to extend the existing GBP50 million RCF by 24 months to
August 2023, with an additional one year extension option subject
to lender approval. All terms of the RCF are unchanged except for
interest rate benchmark which changed from LIBOR to SONIA.
The total costs incurred to extend the facility to August 2023
were GBP451,000, of which GBP425,000 was the arrangement fee and
GBP26,000 in associated legal fees. The legal fees are included as
arrangement fees for reporting purposes. GBP16,000 of these legal
costs are unpaid and are accrued for.
A total of GBP236,000 (31 December 2020: GBP284,000) of costs
were amortised as loan arrangement fees during the year and charged
through the statement of comprehensive income, refer to note 7.
The RCF with RBSI is secured against the investment in the
Subsidiary.
Total drawdowns of GBP19.9 million were repayable at 31 December
2021 (31 December 2020: GBP5.0 million).
Interest on amounts drawn under the RCF was charged at LIBOR
plus 2.10% per annum from 16 April 2019 until the facility was
refinanced in August 2021 before it was replaced with a facility
linked to SONIA with a credit adjustment spread of plus 2.10% from
that date. A commitment fee is payable on undrawn amounts at a rate
of 0.84% per annum.
In December 2021, utilisation requests for the sum of
GBP2,032,000 (31 December 2020: GBP845,000) were submitted to RBSI
in relation to five open forward foreign exchange contracts at year
end. This has restricted the amount available for drawdown on the
RCF to GBP48.0 million.
The RCF includes covenants which are measured in accordance with
the facility agreement. The covenants are as follows: loan to NAV
value of less than 15%, loan-to-value of eligible assets of less
than 25% and an interest cover ratio of six times. At 31 December
2021, the Company was in compliance all loan covenants in the RCF
agreement.
Leverage
For the purposes of the UK AIFM Regime, leverage is any method
which increases the Company's exposure, including the borrowing of
cash and the use of derivatives. It is expressed as a ratio between
the Company's exposure and its NAV and is calculated under the
gross and commitment methods, in accordance with the UK AIFM
Regime.
The Company is required to state its maximum and actual leverage
levels, calculated as prescribed by the UK AIFM Regime, at 31
December 2021; figures are as follows:
Maximum Actual
Leverage exposure limit exposure
------------------ ------- --------
Gross method 1.25 1.09
Commitment method 1.25 1.05
------------------ ------- --------
The leverage figures above represent leverage calculated under
the UK AIFM Regime methodology as follows:
Gross Commitment
Leverage exposure GBP'000 GBP'000
------------------------------------------------- ------- ----------
Investments at fair value through profit or loss 446,989 446,989
Cash and cash equivalents - 10,108
------------------------------------------------- ------- ----------
Total exposure under the UK AIFM Regime 446,989 457,097
Derivative financial instruments(1) 26,890 -
Total shareholders' funds 473,879 436,726
------------------------------------------------- ------- ----------
Leverage 1.09 1.05
------------------------------------------------- ------- ----------
The Company's leverage limit under the UK AIFM Regime is 1.25,
which equates to a gearing limit of 25% of NAV. The Company has
maintained significant headroom against the limit throughout the
year.
Accounting policy
All loans and borrowings are initially recognised at fair value
less directly attributable transaction costs. After initial
recognition, interest bearing loans and borrowings are subsequently
measured at amortised cost using the effective interest method.
Borrowing costs are amortised over the lifetime of the facility
through the statement of comprehensive income.
1. Equivalent position in the underlying assets of derivative
financial instruments using the conversion methodologies set out in
the UK AIFM regime.
15. Other payables and accrued expenses
31 December 31 December
2021 2020
GBP'000 GBP'000
---------------------------- ----------- -----------
Accruals 372 520
Loan commitment fee accrued 64 84
Loan interest accrued 39 2
Investment management fees 970 998
---------------------------- ----------- -----------
Total 1,445 1,604
---------------------------- ----------- -----------
Accounting policy
Other payables and accrued expenses are recognised initially at
fair value and subsequently stated at amortised cost using the
effective interest method where appropriate.
16. Authorised and issued share capital
31 December 2021 31 December 2020
-------------------- --------------------
Number Number
Share capital of shares GBP'000 of shares GBP'000
---------------------------------------- ----------- ------- ----------- -------
Ordinary shares issued at no par
value and fully paid
Shares in issue at beginning of
the year 442,033,518 444,414 441,544,019 443,915
---------------------------------------- ----------- ------- ----------- -------
Equity shares issued through:
Dividends settled in shares(1) - - 489,499 518
---------------------------------------- ----------- ------- ----------- -------
Total shares issued in the year - - 489,499 518
---------------------------------------- ----------- ------- ----------- -------
Share issue costs - - - (19)
---------------------------------------- ----------- ------- ----------- -------
Total shares in issue 442,033,518 444,414 442,033,518 444,414
---------------------------------------- ----------- ------- ----------- -------
Treasury shares
---------------------------------------- ----------- ------- ----------- -------
Shares repurchased and held in treasury
at beginning of the year (1,875,000) (1,514) - -
---------------------------------------- ----------- ------- ----------- -------
Shares repurchased in the year (325,000) (293) (1,875,000) (1,514)
---------------------------------------- ----------- ------- ----------- -------
Total shares repurchased and held
in treasury (2,200,000) (1,807) (1,875,000) (1,514)
---------------------------------------- ----------- ------- ----------- -------
Total ordinary share capital excluding
treasury shares 439,833,518 442,607 440,158,518 442,900
---------------------------------------- ----------- ------- ----------- -------
1. The offer of a scrip dividend alternative was suspended at
the Board's discretion, for all 2021 dividends, as a result of the
discount between the likely scrip dividend reference price and the
relevant quarterly NAV per share of the Company. The Board intends
to keep the payment of future scrip dividends under review.
The Company's authorised share capital is represented by an
unlimited number of no par value ordinary shares. At 31 December
2021, the Company's issued share capital comprised 442,033,518
ordinary shares (31 December 2020: 442,033,518), 2,200,000 of which
are held in treasury (31 December 2020: 1,875,000).
The ordinary shares carry the right to dividends out of the
profits available for distribution as determined by the Board. Each
holder of an ordinary share is entitled to attend meetings of
shareholders and, on a poll, to one vote for each share held.
The Company may issue C shares which, when in issue, are
classified as a financial liability.
Accounting policy
Upon issuance of equity shares, the consideration received is
included in equity.
Transaction costs incurred by the Company in issuing, acquiring
or reselling its own equity instruments are accounted for as a
deduction from equity to the extent that they are incremental costs
directly attributable to the equity transaction that otherwise
would have been avoided.
No gain or loss is recognised in the statement of comprehensive
income in respect of the purchase, sale, issuance or cancellation
of the Company's own equity instruments.
17. Financial instruments
The table below sets out the carrying amounts of the Company's
financial assets and financial liabilities into categories of
financial instruments.
31 December 31 December
2021 2020
GBP'000 GBP'000
---------------------------------------------------- ----------- -----------
Financial assets
Cash and cash equivalents 10,108 9,994
Other receivables 70 108
---------------------------------------------------- ----------- -----------
Financial assets at amortised cost(1) 10,178 10,102
---------------------------------------------------- ----------- -----------
Derivative financial instruments 492 158
Financial assets at fair value through profit or
loss 446,989 445,962
---------------------------------------------------- ----------- -----------
Total financial assets at fair value through profit
or loss 447,481 446,120
---------------------------------------------------- ----------- -----------
Total financial assets 456,659 456,222
---------------------------------------------------- ----------- -----------
Financial liabilities
Other payables and accrued expenses (1,445) (1,604)
Revolving credit facilities (19,546) (4,856)
---------------------------------------------------- ----------- -----------
Financial liabilities at amortised cost(1) (20,991) (6,460)
---------------------------------------------------- ----------- -----------
Total financial liabilities (20,991) (6,460)
---------------------------------------------------- ----------- -----------
1. The carrying value of the financial assets/liabilities stated
at amortised cost approximates their fair value.
17.1 Derivative financial instruments
Derivative financial assets and liabilities comprise forward
foreign exchange contracts for the purpose of hedging foreign
currency exposure of the Company to Euro and US Dollar denominated
loan investments made by the Subsidiary. The investments represent
6.2% of the portfolio by value at the year end. The Company intends
to utilise the forward foreign exchange contracts on either a
rolling one month basis or a rolling three month basis, for the
term of the investments.
The table below sets out the forward foreign exchange contracts
held by the Company at year end:
Principal Hedged Fair value
31 December 2021 Maturity amount amount GBP'000
----------------- ---------------- ---------------- ------------- ----------
Contract EUR/GBP 5 January 2022 (GBP3,548,328) EUR4,102,222 102
Contract EUR/GBP 13 January 2022 (GBP11,772,735) EUR13,800,000 176
Contract EUR/GBP 2 March 2022 (GBP8,094,808) EUR9,401,310 185
Contract EUR/GBP 22 March 2022 (GBP1,773,917) EUR2,080,449 22
----------------- ---------------- ---------------- ------------- ----------
Total EUR/GBP (GBP25,189,788) EUR29,383,981 485
----------------------------------- --------------- ------------- ----------
Contract USD/GBP 5 January 2022 (GBP2,218,241) $2,981,760 7
----------------- ---------------- ---------------- ------------- ----------
Total USD/GBP (GBP2,218,241) $2,981,760 7
----------------------------------- --------------- ------------- ----------
Total (GBP27,408,029) 492
----------------------------------- --------------- ------------- ----------
Principal Hedged Fair value
31 December 2020 Maturity amount amount GBP'000
----------------- ---------------- ---------------- ------------- ----------
Contract EUR/GBP 12 January 2021 (GBP9,931,464) EUR10,945,467 96
Contract EUR/GBP 22 March 2021 (GBP4,618,223) EUR5,064,806 62
Total (GBP14,549,687) EUR16,010,273 158
----------------------------------- --------------- ------------- ----------
Information on the forward foreign exchange contracts executed
post year end can be found in note 20.
Accounting policy
Recognition of derivative financial assets and liabilities takes
place when the hedging contracts are entered into. They are
initially recognised and subsequently measured at fair value;
transaction costs, where applicable, are included directly in
finance costs. The Company does not apply hedge accounting and
consequently all gains or losses are recognised in the statement of
comprehensive income in net change in fair value of financial
assets and financial liabilities through profit or loss.
17.2 Capital management
The Company's capital is represented by share capital comprising
issued ordinary share capital and its credit facilities, as
detailed in notes 16 and 14 respectively.
The Company may seek to raise additional capital from time to
time to the extent that the Directors and the Investment Manager
believe the Company will be able to make suitable investments. The
Company raises capital only when it has a clear view of a robust
pipeline of advanced investment opportunities to ensure the rapid
deployment of capital.
The Company may borrow up to 25% of its NAV at such time any
such borrowings are drawn down. Refer to note 14 for further
information.
17.3 Financial risk management objectives
The Company has an investment policy and strategy that sets out
the Company's overall investment strategy and general risk
management philosophy and has established processes to monitor and
control these in a timely and accurate manner. These guidelines are
subject to regular operational reviews undertaken by the Investment
Manager to ensure that the Company's policies are adhered to as it
is the Investment Manager's duty to identify and assist in the
management of risk. The Investment Manager reports regularly to the
Directors who have ultimate responsibility for the overall risk
management approach.
The Directors and the Investment Manager ensure that all
investment activity is performed in accordance with investment
guidelines. The Company's investment activities expose it to
various types of risks that are associated with the financial
instruments and markets in which it invests. Risk is inherent in
the Company's activities and it is managed through a process of
ongoing identification, measurement and monitoring. The financial
risks to which the Company is exposed include market risk (which
includes interest rate risk), credit risk, currency risk and
liquidity risk.
The Board and the Investment Manager note the continued impact
of Covid-19 and Brexit and the disruption that these events are
having on the overall economy. The impact has been most acute with
respect to the Co-living group and multi-use community facilities
within the portfolio due to their limited ability to operate whilst
UK Government imposed restrictions were in place. Positively, the
restrictions on operations have now been lifted, with increasing
consumer confidence meaning that operations across these assets are
showing signs of improvement.
All key suppliers have contingency plans in place to enable
ongoing service provision across all areas of the Company's
activities should restrictions recommence. The Directors and the
Investment Manager continue to assess the potential impact of
Covid-19 and Brexit across the business in order to instigate
mitigation plans as appropriate.
As explained in notes 11 and 17, the Company's financial assets
and liabilities at fair value through profit or loss comprise the
investment in the Subsidiary and derivatives used for the purpose
of hedging foreign currency exposure. The Subsidiary is a holding
vehicle existing solely to hold the Company's investments and,
therefore, exposure to market risk, interest rate risk, credit
risk, liquidity risk and credit and counterparty risk are highly
dependent on the performance of the Subsidiary's investments.
17.4 Market risk
The value of the investment in the Subsidiary is based on the
aggregate of the NAV of the Subsidiary and the value of the Secured
Loan Notes issued by the Subsidiary to the Company. The key driver
of the Subsidiary's NAV is the valuation of its portfolio of
secured loan facilities issued to the Project Companies.
There is a risk that market movements in interest rates, credit
markets, exchange rates and observable yields may decrease or
increase the value of the Subsidiary's assets without regard to the
assets' underlying performance. The Subsidiary's portfolio of
assets is held at fair value, and valued on a semi-annual basis by
the Valuation Agent. Investments subject to discount rate changes
are valued on a quarterly basis. The Company's assets are stable
with predictable cash flows and are not exchange traded.
In assessing the expected future cash flows from each of the
investments, the Valuation Agent considers the movements in
comparable credit markets and publicly available information around
each project.
The valuation principles used are based on a discounted cash
flow methodology where applicable (excluding the Co-living loan);
refer to note 17.9 for further information. A fair value for each
asset acquired by the Group is calculated by applying a relevant
market discount rate to the contractual cash flow expected to arise
from each asset.
The Valuation Agent determines the discount rate that it
believes the market would reasonably apply to each underlying
investment taking, inter alia, into account the following
significant inputs:
- Pound Sterling interest rates;
- movements of comparable credit markets; and
- observable yield on other comparable instruments.
In addition, the following are also considered as part of the
overall valuation process:
- market activity and investor sentiment; and
- changes to the economic, legal, taxation or regulatory
environment.
The Valuation Agent exercises its judgement in assessing the
expected future cash flows from each investment. Given that the
investments are generally fixed income debt instruments (in some
cases with elements of inflation and/or interest rate protection)
or other investments with a similar economic effect, the focus of
the Valuation Agent is on assessing the likelihood of any
interruptions to the debt service payments, in light of the
operational performance of the underlying asset.
The Covid-19 pandemic has impacted the global economy and has
led to significant volatility in comparable credit markets. In
light of the continued uncertainties caused by the pandemic, the
Board, Investment Manager and Valuation Agent have continued to be
prudent with regard to the discount rates applied to a number of
loans, reflecting the perceived market risk of assets in those
sectors. Two investments at the year end remain subject to discount
rate adjustments to reflect these uncertainties. Further analysis
on these discount rate adjustments is presented in the Investment
Manager's report above.
The valuations are reviewed by the Investment Manager and the
Directors and the subsequent NAV is reviewed by the Investment
Manager and the Directors on a quarterly basis.
The table below shows how changes in discount rates affect the
changes in the valuation of financial assets through profit or
loss. The range of discount rate changes has been determined with
reference to historic discount rate changes made by the Valuation
Agent.
31 December 2021
Change in discount rates (1.00%) (0.50%) 0.00% 0.50% 1.00%
-------------------------------- -------- -------- ---------- ------- --------
Valuation of financial assets
at fair value through profit
or loss (GBP'000) 459,795 453,246 446,989(1) 441,004 435,270
Change in value of financial
assets at fair value (GBP'000) 12,806 6,257 - (5,985) (11,719)
-------------------------------- -------- -------- ---------- ------- --------
31 December 2020
Change in discount rates (1.00%) (0.50%) 0.00% 0.50% 1.00%
-------------------------------- ------- ------- ------- ------- --------
Valuation of financial assets
at fair value through profit
or loss (GBP'000) 461,747 453,684 445,962 438,557 431,447
Change in value of financial
assets at fair value (GBP'000) 15,785 7,722 - (7,405) (14,515)
-------------------------------- ------- ------- ------- ------- --------
1. Balance includes the fair value of the Co-living loan which
is not valued on a discounted cash flow basis; see note 17.9 for
further details.
17.5 Interest rate risk
Interest rate risk arises from the effects of fluctuations in
the prevailing level of market interest rates on the fair value of
financial assets, future cash flows and borrowings.
Interest rate risk has the following effect:
Fair value of financial assets
Interest rates are one of the factors which the Valuation Agent
takes into account when valuing the financial assets.
Future cash flows
The Company primarily invests, via its Subsidiary, in a
diversified portfolio of investments which are secured against, or
comprise, contracted, predictable medium to long--term cash flows
and/or physical assets. The Group's investments will predominantly
be in the form of medium to long-term fixed or floating rate loans
which are secured against cash flows and/or physical assets which
are predominantly UK based.
Interest rate hedging may be carried out to seek to provide
protection against falling interest rates in relation to assets
that do not have a minimum fixed rate of return acceptable to the
Company in line with its investment policy and strategy. The
Company has not entered into an interest rate hedging agreement
during the year, or in the prior year.
Borrowings
During the year the Company made use of its RCF, which was used
towards the making of investments in accordance with the Company's
investment policy. Details of the RCF are given in note 14.
Any potential financial impact of movements in interest rates on
the cost of borrowings to the Company is mitigated by the
short-term nature of such borrowings.
17.6 Credit risk
Credit risk refers to the risk that the counterparty to a
financial instrument will fail to discharge an obligation or
commitment that it has entered into with the Company. Credit risk
is generally higher when a non-exchange traded financial instrument
is involved because the counterparty is not an exchange clearing
house. The assets classified at fair value through profit or loss
do not have a published credit rating, however the Investment
Manager monitors the financial position and performance of the
Project Companies on a regular basis to ensure that credit risk is
appropriately managed.
The Company is exposed to differing levels of credit risk on all
its assets. Per the statement of financial position, the Company's
total exposure to credit risk is GBP457.7 million (31 December
2020: GBP456.2 million) represented by its investments,
receivables, financial derivatives and cash.
Cash is held at a number of financial institutions to spread
credit risk. Cash awaiting investment is currently held on behalf
of the Company at banks carrying a minimum rating of A-2, P-2 or F2
from Standard and Poor's, Moody's and Fitch respectively.
The Company's investments comprise debt and equity securities in
the Subsidiary and, therefore, the credit risk of the Company's
investments is highly dependent on the performance of the
Subsidiary's investment portfolio, which is valued on a semi-annual
basis by the Valuation Agent. Investments which may be subject to
discount rate changes are valued on a quarterly basis. The
Valuation Agent takes into account the credit risk associated with
these investments in their valuation. During the period, the
Group's investment portfolio experienced defaults in respect of the
Co-living and multi-use community facilities. These assets were
most negatively impacted by the Covid-19 pandemic and associated
restrictions. Further information on these loans is provided above.
The remaining loans in the portfolio have not been impacted and
continue to report good performance.
Credit risk is considered by the Valuation Agent both during the
origination process and at valuation updates. The Company's
investments are stable with predictable cash flows and are not
exchange traded. Depending on the nature of the underlying
projects, residual credit risk is considered by reference to a
number of factors including, but not limited to: relative benchmark
analysis, comparable bond pricing, market analysis such as the
capital asset pricing model, and fundamental credit analysis of a
borrower's underlying performance by reference to any applicable
loan covenants.
After an investment is made, the forecasts are regularly updated
with information provided by the borrowers in order to monitor
ongoing financial performance. In addition, the credit risk
associated with each borrower is mitigated by way of the assets of
the Project Company, being secured against the loan on either a
senior or subordinated basis. At year end, the concentration of
credit risk to any one counterparty did not exceed 20% (31 December
2020: <20%) of the Company's total assets, in line with its
investment restrictions.
The Directors currently consider the fair value of the financial
instruments at par plus accumulated interest to be reasonable. The
impact on fair value attributable to any change in credit risk will
continue to be reviewed at each quarter end and specifically when
investments mature and their ongoing performance can be assessed.
Credit risk is incorporated by the Valuation Agent into the
discount rate applied to the financial assets at fair value through
profit or loss. Discount rate sensitivity analysis is disclosed in
note 17.4.
17.7 Currency risk
The Group's investments at 31 December 2021 are denominated in
Sterling, except for five investments which are denominated in
Euros and one investment which is denominated in USD (31 December
2020: two Euro-denominated investments and nil USD-denominated
investments). The investments are secured against Euro-valued and
USD-valued contracted cash flows. The Company's only currency
exposure is through the trading activities of its investee
companies. The Company engages in currency hedging, in the form of
five forward foreign exchange contracts, to reduce the risk of
adverse movements in currency exchange rates in relation to its
non-Sterling denominated investments. Realised and unrealised gains
or losses on forward foreign exchange contracts are disclosed in
note 3.
As an alternative to cash cover/margin required on these forward
foreign exchange contracts, the Company has made use of its RCF, as
disclosed in note 14.
17.8 Liquidity risk
Liquidity risk is the risk that the Company may not be able to
generate sufficient cash resources to settle its obligations in
full as they fall due or can only do so on terms that are
materially disadvantageous. The Company ensures it maintains
adequate reserves by continuously monitoring forecast and actual
cash flows and matching the maturity profiles of financial assets
and liabilities. During the year ended 31 December 2021,
investments made by the Group were funded by Company cash reserves,
amounts received from repayments and the utilisation of the
RCF.
The table below analyses all of the Company's assets and
liabilities into relevant maturity groupings based on the remaining
period from 31 December 2021 to the contractual maturity date. The
Directors have elected to present both assets and liabilities in
the liquidity disclosure below to illustrate the net liquidity
exposure of the Company.
All cash flows in the table below are presented on an
undiscounted basis.
Less than One to Three to Greater
than
one month three months twelve twelve Total
months months
31 December 2021 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- --------- ------------ -------- -------- --------
Financial assets
Financial assets at fair value
through profit or loss 1,508 37,760 111,492 428,341 579,101
Other receivables and prepayments 70 7 51 - 128
Derivative financial instruments 285 207 - - 492
Cash and cash equivalents 10,108 - - - 10,108
---------------------------------- --------- ------------ -------- -------- --------
Total financial assets 11,971 37,974 111,543 428,341 589,829
---------------------------------- --------- ------------ -------- -------- --------
Financial liabilities
Other payables and accrued
expenses (39) (1,317) (89) - (1,445)
Revolving credit facilities - - - (19,546) (19,546)
---------------------------------- --------- ------------ -------- -------- --------
Total financial liabilities (39) (1,317) (89) (19,546) (20,991)
---------------------------------- --------- ------------ -------- -------- --------
Net exposure 11,932 36,657 111,454 408,975 568,838
---------------------------------- --------- ------------ -------- -------- --------
Less than One to Three to Greater
than
one month three months twelve twelve Total
months months
31 December 2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- --------- ------------ -------- ------- -------
Financial assets
Financial assets at fair value
through profit or loss - 10,409 94,589 516,071 621,069
Other receivables and prepayments 55 7 46 - 108
Derivative financial instruments 96 62 - - 158
Cash and cash equivalents 9,994 - - - 9,994
---------------------------------- --------- ------------ -------- ------- -------
Total financial assets 10,145 10,478 94,635 516,071 631,329
---------------------------------- --------- ------------ -------- ------- -------
Financial liabilities
Other payables and accrued
expenses (179) (1,378) (47) - (1,604)
Revolving credit facilities (4,856) - - - (4,856)
---------------------------------- --------- ------------ -------- ------- -------
Total financial liabilities (5,035) (1,378) (47) - (6,460)
---------------------------------- --------- ------------ -------- ------- -------
Net exposure 5,110 9,100 94,588 516,071 624,869
---------------------------------- --------- ------------ -------- ------- -------
The Directors' assessment of the Company's ability to continue
as a going concern, noted in note 2.1, includes an assessment of
liquidity risk. The Board has concluded that the Company will be
able to generate sufficient cash resources to settle its
obligations in full as they fall due.
17.9 Fair values of financial assets
Valuation of financial instruments
The Company measures fair values using the following fair value
hierarchy that reflects the significance of inputs used in making
the measurements. Categorisation within the hierarchy has been
determined on the basis of the lowest level input that is
significant to their fair value measurement of the relevant assets
as follows:
- Level 1 - valued using quoted prices unadjusted in active
markets for identical assets or liabilities;
- Level 2 - valued by reference to valuation techniques using
observable inputs for the asset or liability other than quoted
prices included in Level 1; and
- Level 3 - valued by reference to valuation techniques using
inputs that are not based on observable market data for the asset
or liability.
An investment is always categorised as Level 1, 2 or 3 in its
entirety. In certain cases the fair value measurement for an
investment may use a number of different inputs that fall into
different levels of the fair value hierarchy. In such cases, an
investment level within the fair value hierarchy is based on the
lowest level of input that is significant to the fair value
measurement. The assessment of the significance of a particular
input to the fair value measurement requires judgement and is
specific to the investment.
The Valuation Agent has carried out semi-annual fair valuations
of the financial assets of the Subsidiary (quarterly for
investments which may be subject to discount rate changes). The
same discount rates, determined by the Valuation Agent, are applied
to the future cash flows of the Secured Loan Notes issued by the
Subsidiary to the Company to determine the fair value of the assets
of the Company.
The Company recognises transfers between levels of the fair
value hierarchy at the end of the reporting period during which the
change has occurred.
The table below sets out fair value measurements of financial
instruments at the year end, by the level in the fair value
hierarchy into which the fair value measurement is categorised. The
amounts are based on the value recognised in the statement of
financial position. All fair value measurements are recurring.
Level 1 Level 2 Level 3 Total
31 December 2021 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- ------- ------- ------- -------
Financial assets at fair value through
profit or loss - - 446,989 446,989
Derivative financial instruments - 492 - 492
--------------------------------------- ------- ------- ------- -------
- 492 446,989 447,481
--------------------------------------- ------- ------- ------- -------
Level 1 Level 2 Level 3 Total
31 December 2020 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- ------- ------- ------- -------
Financial assets at fair value through
profit or loss - - 445,962 445,962
Derivative financial instruments - 158 - 158
--------------------------------------- ------- ------- ------- -------
- 158 445,962 446,120
--------------------------------------- ------- ------- ------- -------
The derivative financial instruments are classified as Level 2
as observable market data is used for valuation and pricing.
The Directors have classified the financial instruments relating
to 'Investments in Subsidiary' as Level 3 due to the limited number
of comparable and observable market transactions in this sector.
The primary input for Level 3 at year end is the discount rates for
these investments (excluding the Co-living loan; refer below for
further information); discount rates are considered to be primarily
modelled rather than market observed. The secured loan facilities
that the Subsidiary has invested in are also classified as Level
3.
The following table shows a reconciliation of all movements in
the fair value of financial instruments categorised within Level 3
between the beginning and end of the year:
31 December 31 December
2021 2020
GBP'000 GBP'000
------------------------------------------------------------- ----------- -----------
Opening fair value of financial instruments 445,962 453,877
Investment in Subsidiary 134,504 126,545
Capital repayments from Subsidiary (117,735) (130,610)
Unrealised (loss)/gain on financial assets at fair
value through profit or loss(1) :
Debt - Secured Loan Notes up to GBP1,000,000,000 (16,977) (5,161)
Equity - representing one ordinary share in the Subsidiary 1,235 1,311
------------------------------------------------------------- ----------- -----------
Closing fair value of financial instruments 446,989 445,962
------------------------------------------------------------- ----------- -----------
1. Refer to note 11 for further information.
For the Company's financial instruments categorised as Level 3,
changing the discount rate used to value the underlying instruments
alters the fair value. In determining the discount rate for
calculating the fair value of financial assets at fair value
through profit or loss, reference is made to Pound Sterling
interest rates, movements of comparable credit markets and
observable yield on comparable instruments. Hence, movements in
these factors could give rise to changes in the discount rate. A
change in the discount rate used to value the Level 3 investments
would have the effect on the valuation as shown in the table in
note 17.4.
The fair value of the investment in the Subsidiary is based on
the aggregate of the NAV of the Subsidiary and the value of the
Secured Loan Notes issued by the Subsidiary. At 31 December 2021,
the NAV of the Subsidiary was as follows:
31 December 31 December
2021 2020
GBP'000 GBP'000
----------- ----------- -----------
GABI UK(1) 3,342 2,107
----------- ----------- -----------
1. Refer to note 11 for further information.
The key driver of the NAV is the valuation of its portfolio of
secured loan facilities issued to the Project Companies.
The Secured Loan Notes issued by the Subsidiary that the Company
has subscribed for, are valued on a discounted cash flow basis in
line with the model used by the Valuation Agent, applying the
following discount rates:
Fair Key
value(2) Valuation unobservable Discount
GBP'000 technique inputs rate
------------------------------- ---------- --------------- ------------ --------
Financial assets at fair value
through profit or loss
Discounted cash Discount
- 31 December 2021 428,189(3) flow rate 7.5%(4)
------------------------------- ---------- --------------- ------------ --------
Financial assets at fair value
through profit or loss
Net realisable Discount
- 31 December 2021 18,800(5) value rate -
------------------------------- ---------- --------------- ------------ --------
Financial assets at fair value
through profit or loss
Discounted cash Discount
- 31 December 2020 445,962 flow rate 8.4% (4)
------------------------------- ---------- --------------- ------------ --------
1. Including the NAV of the Subsidiary.
2. Balance excludes the fair value of the Co-living loan
amounting to GBP18.8 million, which is not valued on a discounted
cash flow basis.
3. Weighted average discount rate(6) .
4. Fair value of the Co-living loan which is not valued on a
discounted cash flow basis, see below for further information.
5. Alternative performance measure - refer below for definitions
and calculation methodology.
The investments in Project Companies held by the Subsidiary
(excluding the Co-living loan) are valued on a discounted cash flow
basis, in line with the methodology used by the Valuation Agent. At
the year end, discount rates ranged from 5-13% (31 December 2020:
6-17%).
At 31 December 2021, the Group's Co-living loan was valued at
GBP18.8 million, which represents an estimate of recoverability of
amounts secured against six key underlying properties and four
other underlying properties. The estimates were based on valuation
reports from independent valuers in addition to discussions with
potential buyers. Adjustments to reflect potential transaction risk
involved with the sale of these assets of up to 10% were applied to
the expected recovery amounts for the key properties.
The Directors review the valuation report provided by the
Valuation Agent which includes reference to the inputs used in the
valuation of investments and the appropriateness of their
classification in the fair value hierarchy. In particular, the
Directors are satisfied that the significant inputs into the
determination of the discount rate adopted by the Valuation Agent
are pursuant to the Valuation Agent engagement letter. Should the
valuation approach change, causing an investment to meet the
characteristics of a different level of the fair value hierarchy,
it will be reclassified accordingly.
During the year, there were no transfers of investments between
levels.
18. Related party disclosures
As defined by IAS 24 Related Party Disclosures, parties are
considered to be related if one party has the ability to control
the other party or exercise significant influence over the other
party in making financial or operational decisions. Subsidiary
companies are also deemed to be related parties as they are members
of the same group of companies.
Directors
The non-executive Directors of the Company are considered to be
the key management personnel of the Company. Directors'
remuneration for the year (including reimbursement of
Company-related expenses) totalled GBP200,000 (31 December 2020:
GBP201,000).
At 31 December 2021, liabilities in respect of these services
amounted to GBP64,000 (31 December 2020: GBP50,000).
At 31 December 2021, the Directors of the Company held directly
or indirectly, and together with their family members, 161,171
ordinary shares (31 December 2020: 141,521).
Alex Ohlsson is the managing partner of Carey Olsen, the
Company's Jersey legal advisers. Carey Olsen has provided legal
services to the Company during the year. Carey Olsen maintains
procedures to ensure that the Chairman has no involvement in the
provision of legal services to the Company. The Company maintains
procedures to ensure that the Chairman takes no part in any
decision to engage the services of Carey Olsen. During the year,
the aggregate sum of GBP4,000 (31 December 2020: GBP15,000) was
paid to Carey Olsen in respect of legal work undertaken, of which
GBPnil (31 December 2020: GBPnil) is outstanding at year end.
Investment Manager
The Company is party to an investment management agreement with
the Investment Manager, which was most recently amended and
restated in December 2020, pursuant to which the Company has
appointed the Investment Manager to provide discretionary portfolio
and risk management services relating to the assets on a
day--to--day basis in accordance with its investment objective and
policies, subject to the overall control and supervision of the
Directors.
As a result of the responsibilities delegated under this
investment management agreement, the Company considers it to be a
related party by virtue of being 'key management personnel'. Under
the terms of the investment management agreement, the notice period
of the termination of the Investment Manager by the Company is
twelve months.
For its services to the Company, the Investment Manager receives
an investment management fee which is calculated and paid quarterly
in arrears at an annual rate of 0.9% per annum of the prevailing
NAV of the Company less the value of the cash holdings of the
Company pro rata for the period for which such cash holdings have
been held. The Investment Manager receives an annual fee of
GBP25,000 in relation to its role as the Company's AIFM, which has
been increased annually at the rate of the RPI since IPO.
During the year, the Company incurred GBP3,942,000 (31 December
2020: GBP3,917,000) in respect of the services outlined above;
GBP3,916,000 (31 December 2020: GBP3,891,000) in respect of
investment management services and GBP26,000 (31 December 2020:
GBP26,000) in respect of AIFM services provided by the Investment
Manager. At 31 December 2021, liabilities in respect of these
services amounted to GBP977,000 (31 December 2020:
GBP1,004,000).
The Investment Manager, at its discretion, is entitled to an
arrangement fee of up to 1% of the value of each investment made by
the Company. The Investment Manager typically expects the cost of
any such fee to be covered by the borrowers, and not the Company.
Since IPO, such fees in respect of 14 of the Group's investments
have been met and paid by the Company. During the year, the
Investment Manager received GBP506,000 (31 December 2020:
GBP216,000) from arrangement fees which had been met by the
borrowers and GBP171,000 (31 December 2020: GBP367,000) from
arrangement fees which had been met by the Company. To the extent
any arrangement fee negotiated by the Investment Manager with a
borrower exceeds 1%, the benefit of any such excess is paid to the
Company.
A number of the directors and employees of the Investment
Manager also sit on the board of the Subsidiary.
At 31 December 2021, the key management personnel of the
Investment Manager held directly or indirectly, and together with
their family members, 1,209,651 ordinary shares in the Company (31
December 2020: 1,244,982 ordinary shares).
At 31 December 2021, the directors and/or shareholders of the
Investment Manager, and their family members, directly or
indirectly own an equity interest in the Subsidiary's student
accommodation investments. These investments are valued by the
Valuation Agent in line with the rest of the portfolio and were
approved by the Board at the time of acquisition.
Subsidiary
At 31 December 2021, the Company owns a 100% (31 December 2020:
100%) controlling stake in the Subsidiary. The Subsidiary is
considered to be a related party by virtue of being part of the
same group. The Company indirectly owns 100% of GABI Housing
Limited, GABI GS Limited and GABI Blyth; for further information,
refer to note 1.
The following tables disclose the transactions and balances
between the Company and the Subsidiary:
31 December 31 December
2021 2020
Transactions GBP'000 GBP'000
------------------------------ ----------- -----------
Intercompany income received
Other income 2,604 2,442
Arrangement fee income 293 173
Loan interest income received 32,931 35,544
------------------------------ ----------- -----------
Total 35,828 38,159
------------------------------ ----------- -----------
31 December 31 December
2021 2020
Balances GBP'000 GBP'000
---------------------------------------------------------- ----------- -----------
Intercompany balances payable - -
Intercompany balances receivable 64 49
Principal value of intercompany holdings within financial
assets at fair value through profit or loss 464,425 447,657(1)
---------------------------------------------------------- ----------- -----------
1. The principal value of intercompany holdings includes amounts
advanced to GABI Housing of GBP17.5 million.
19. Reconciliation of NAV
This note reconciles the NAV reported in the financial
statements to the published NAV.
Total Per share
GBP'000 pence
-------------------------------------------------------- ------- ---------
NAV at 31 December 2021 as published on 25 January
2022 (unaudited) 436,726 99.29
NAV at 31 December 2021 as per the financial statements 436,726 99.29
-------------------------------------------------------- ------- ---------
Total Per share
GBP'000 pence
-------------------------------------------------------- ------- ---------
NAV at 31 December 2020 as published on 15 January
2021 (unaudited) 449,762 102.18
NAV at 31 December 2020 as per the financial statements 449,762 102.18
-------------------------------------------------------- ------- ---------
20. Subsequent events after the report date
On 27 January 2022, the Company announced a fourth interim
dividend of 1.575 pence per ordinary share amounting to
GBP6,927,000 which was paid on 4 March 2022 to ordinary
shareholders on the register at 4 February 2022.
In addition to the above, the following events occurred post
year end:
- the Group made eight advances totalling GBP16.6 million and
received ten repayments totalling GBP31.7 million;
- the Company drew down an aggregate amount of GBP11.5 million
on the RCF with RBSI and subsequently repaid the full GBP11.5
million, resulting in a total drawn amount of GBP19.9 million (not
including the amount drawn down as alternative to cash cover for
the forward exchange contracts);
- the Company's forward foreign exchange contracts shown in note
17.1 matured and were replaced on the same terms as the existing
contracts;
- exclusivity has been granted in respect of the sale of three
Co-living assets to a proposed REIT, GCP Co-Living REIT plc, an
entity which following its launch, will be managed by the
Investment Manager, a related party. However, due to the situation
in Ukraine, the IPO of the REIT was paused in February 2022. These
arrangements fall within the related party transaction rules under
Listing Rule 11.1.10R; and
- following Russia's invasion of Ukraine on 24 February 2022,
the unfolding conflict is being monitored closely. The Board and
the Investment Manager have concluded that this event has had no
material impact on the activities of the Company to date, nor on
the fair value of financial assets at 31 December 2021. At the time
of writing, the conflict and associated geopolitical uncertainty
have impacted oil and gas prices and increased volatility in
markets globally. The Investment Manager and the Board will
continue to monitor these events closely.
21. Ultimate controlling party
It is the view of the Board that there is no ultimate
controlling party.
SHAREHOLDER INFORMATION
Key dates
March
Payment of fourth interim dividend
March
Annual results announced
May
Annual General Meeting
June
Payment of first interim dividend
Company's half year end
August
Payment of second interim dividend
September
Interim results announced
December
Payment of third interim dividend
December
Company's year end
NAV publication
The Company's NAV is released to the LSE on a quarterly basis
and is published on the Company's website.
Further information
Copies of the Company's annual and half--yearly reports,
quarterly investor reports, stock exchange announcements and
further information on the Company can be obtained from the
Company's website.
Warning to users of this report
This report is intended solely for the information of the person
to whom it is provided by the Company, the Investment Manager or
the Administrator. This report is not intended as an offer or
solicitation for the purchase of shares in the Company and should
not be relied on by any person for the purpose of accounting, legal
or tax advice or for making an investment decision. The payment of
dividends and the repayment of capital are not guaranteed by the
Company. Any forecast, projection or target is indicative only and
not guaranteed in any way, and any opinions expressed in this
report are not statements of fact and are subject to change, and
neither the Company nor the Investment Manager is under any
obligation to update such opinions.
Past performance is not a reliable indicator of future
performance, and investors may not get back the original amount
invested. Unless otherwise stated, the sources for all information
contained in this report are the Investment Manager and the
Administrator. Information contained in this report is believed to
be accurate at the date of publication, but none of the Company,
the Investment Manager and the Administrator gives any
representation or warranty as to the report's accuracy or
completeness. This report does not contain and is not to be taken
as containing any financial product advice or financial product
recommendation. None of the Company, the Investment Manager and the
Administrator accepts any liability whatsoever for any loss
(whether direct or indirect) arising from any use of this report or
its contents.
ALTERNATIVE PERFORMANCE MEASURES ("APMS")
The Board and the Investment Manager assess the Company's
performance using a variety of measures that are not defined under
IFRS and are therefore classed as APMs. Where possible,
reconciliations to IFRS are presented from the APMs to the most
appropriate measure prepared in accordance with IFRS.
All items listed below are IFRS financial statement line items
unless otherwise stated. APMs should be read in conjunction with
the statement of comprehensive income, statement of financial
position, statement of changes in equity and statement of cash
flows, which are presented in the financial statements section of
this report. The APMs below may not be directly comparable with
measures used by other companies.
Adjusted EPS
EPS adjusted to remove the effect of discount rate adjustments
made to reflect the uncertainties associated with the Covid-19
pandemic and the write-down of the Company's Co-living loan.
For the
year ended
31 December
2021
Adjusted EPS (Pence per share)
--------------------------------------------------------- -----------------
Basic and diluted earnings 3.40
Adjustments to discount rates in respect of the Covid-19
pandemic (0.64)
Write-down of the Co-living loan 4.46
--------------------------------------------------------- -----------------
Adjusted EPS 7.22
--------------------------------------------------------- -----------------
Annualised total shareholder return since IPO
Total shareholder return(1) expressed as a time weighted annual
percentage.
Source: Bloomberg
Average LTV
The ratio of a loan or mortgage to a property valuation,
averaged across the Company's property investments, expressed as a
percentage. This ratio demonstrates the headroom in the underlying
asset values to absorb negative movements in property
valuations.
Average NAV
The average net asset value of the Company over the reporting
year.
For the For the
year ended year ended
NAV per 2021 2020
share
Quarter ended (pence) GBP'000 GBP'000
----------------------- -------------- ---------- ----------
31 March 2021/2020 102.49/99.93 450,804 441,189
30 June 2021/2020 102.71/100.83 451,737 445,172
30 September 2021/2020 98.94/101.29 435,165 447,197
31 December 2021/2020 99.29/102.18 436,726 449,762
----------------------- -------------- ---------- ----------
Average NAV 100.86/101.06 443,608 445,830
----------------------- -------------- ---------- ----------
1. Refer to relevant APM for further information.
Discount/average discount
The amount, expressed as a percentage, that the Company's shares
trade below the prevailing NAV per share. This metric is shown at a
point in time or as an average over the stated period.
Source: Bloomberg.
Dividend cover ratio
Ratio of earnings to dividends calculated as dividends per share
divided by EPS.
For the For the
year ended year ended
Dividend cover ratio 2021 2020
------------------------------------------------ ----------- ------------
Total profit and comprehensive income (GBP'000) 14,972 27,394
Weighted average number of shares 439,895,094 441,287,075
------------------------------------------------ ----------- ------------
Basic EPS (p) 3.40 6.21
Dividends (p) 6.30 6.475
------------------------------------------------ ----------- ------------
Dividend cover ratio 0.54 0.96
------------------------------------------------ ----------- ------------
IRR
IRR is the interest rate at which the net present value of all
the cash flows (both positive and negative) from a project or
investment equal zero.
The internal rate of return is used to evaluate the
attractiveness of a project or investment.
Ongoing charges ratio
Ongoing charges ratio (previously "total expense ratios" or
"TERs") is a measure of the annual percentage reduction in
shareholder returns as a result of recurring operational expenses
assuming markets remain static and the portfolio is not traded.
This is a standard performance metric across the investment
industry and allows comparability across the sector and it is
calculated in accordance with the AIC's recommended
methodology.
For the For the
year ended year ended
2021 2020
Ongoing charges GBP'000 GBP'000
------------------------ ---------- ----------
Investment Manager 3,916 3,917
Directors' fees 200 201
Administration expenses 1,439 1,635
------------------------ ---------- ----------
Total expenses 5,555 5,753
Non-recurring expenses (209) (470)
------------------------ ---------- ----------
Total 5,346 5,283
Average NAV(1) 443,608 445,830
Ongoing charges ratio 1.2 1.2
------------------------ ---------- ----------
1. Refer to relevant APM for further information.
Premium/average premium
The amount, expressed as a percentage, that the Company's shares
trade above the prevailing NAV per share. This metric is shown at a
point in time or as an average over the stated period.
Source: Bloomberg.
Total shareholder return
A measure of the performance of a company's shares over the
stated period. It combines share price movements and dividends to
show the total return to the shareholder expressed as a
percentage.
It assumes that dividends are reinvested in the shares at the
time the shares are quoted ex dividend.
This is a standard performance metric across the investment
industry and allows comparability across the sector.
Source: Bloomberg.
Total NAV return
A measure of the performance of a company's NAV over the stated
period. It combines NAV movements and dividends to show the total
return to the shareholder expressed as a percentage.
It assumes that dividends are reinvested in the shares at the
time the shares are quoted ex dividend.
This is a standard performance metric across the investment
industry and allows comparability across the sector.
Source: Bloomberg.
Weighted average annualised yield
The weighted average yield on the investment portfolio
calculated based on the yield of each investment weighted by the
principal balance outstanding on such investment, expressed as a
percentage.
The yield forms a component of investment cash flows used for
the valuation of financial assets at fair value through profit or
loss under IFRS 9.
Weighted average discount rate
A rate of return used in valuation to convert a series of future
anticipated cash flows to present value under a discounted cash
flow approach. This approach is used for the valuation of financial
assets at fair value through profit or loss under IFRS 9.
The average rate is calculated with reference to the relative
size of each investment.
GLOSSARY
Adjusted EPS
Refer to APMs section above
AGM
The Annual General Meeting of the Company
AIC
Association of Investment Companies
AIC Code
AIC Code of Corporate Governance
AIF
Alternative Investment Fund
AIFM
Alternative Investment Fund Manager
Annualised total shareholder return since IPO
Refer to APMs section above
APM
Alternative performance measure
Articles
The articles of association of the Company
Average LTV
Refer to APMs section above
BCP
Business continuity plan
Bidco
The special purpose company established to hold assets for sale
as part of Co-living restructure
Borrower
Owner of a Project Company to which the Group advances loans
Carey Olsen
Carey Olsen Jersey LLP
CHP loan
A loan secured against combined heat and power engines
CIF Law
Collective Investment Funds (Jersey) Law 1988
CNG
Compressed natural gas
Company
GCP Asset Backed Income Fund Limited
CPI
Consumer price index
Discount
Refer to APMs section above
Dividend cover ratio
Refer to APMs section above
DTRs
Disclosure Guidance and Transparency Rules of the FCA
EPC
Energy Performance Certificate
EPS
Earnings per share
ESG
Environmental, social and governance
FCA
Financial Conduct Authority
GABI Blyth
GABI (Blyth) Limited
GABI GS
GABI GS Limited
GABI Housing
GABI Housing Limited
GABI UK
GCP Asset Backed Income (UK) Limited
GCP Infra
GCP Infrastructure Investments Limited, a third party company
advised by the Investment Manager
Group
The Company, GABI UK, GABI GS, GABI Housing and GABI Blyth
HMO
Houses of multiple occupancy
IAS
International Accounting Standards
IASB
International Accounting Standards Board
IFRIC
International Financial Reporting Interpretations Committee
IFRS
International Financial Reporting Standards
IPO
Initial public offering
IRR
Internal rate of return
Refer to APMs section above
ISSB
International Sustainability Standards Board
Jersey Company Law
The Companies (Jersey) Law 1991, as amended
JFSC
Jersey Financial Services Commission
KPI
Key performance indicator
LIBOR
London inter-bank offered rate
Listing Rules
FCA Listing Rules
LSE
London Stock Exchange
LTV
Loan-to-value
MAR
EU Market Abuse Regulation
Market capitalisation
Value of a company traded on the LSE, calculated as total number
of shares multiplied by closing share price
MiFID II
The UK version of MiFID II which is part of UK law by virtue of
the European Union (Withdrawal) Act 2018
NAV
Net asset value
NAV total return
Refer to APMs section above
O&M
Operations and maintenance
Ongoing charges ratio
Refer to APMs section above
Premium
Refer to APMs section above
Project Company
A special purpose company which owns and operates an asset
RBSI
The Royal Bank of Scotland International Limited
RCF
Revolving credit facility
RHI
Renewable Heat Incentive
RPI
Retail price index
Secured Loan Notes
Loan notes issued to the Company
SFDR
EU Sustainable Finance Disclosure Regulation
SONIA
Sterling Overnight Index Average
Subsidiary and/or GABI UK
GCP Asset Backed Income Fund (UK) Limited
TCFD
Task Force on Climate-related Financial Disclosures
Total shareholder return
Refer to APMs section above
UK AIFM Regime
Together, The Alternative Investment Fund Managers Regulations
2013 (as amended by The Alternative Investments Fund Managers
(Amendment etc.) (EU Exit) Regulations 2019) and the Investment
Funds sourcebook forming part of the FCA Handbook, as amended from
time to time
UK Code
UK Corporate Governance Code
Weighted average annualised yield
Refer to APMs section below
Weighted average discount rate
Refer to APMs section below
CORPORATE INFORMATION
The Company
GCP Asset Backed Income Fund Limited
12 Castle Street
St Helier
Jersey JE2 3RT
Directors and/or the Board
Alex Ohlsson (Chairman)
Colin Huelin FCA
Joanna Dentskevich
Marykay Fuller
Administrator, secretary and registered office of the
Company
Apex Financial Services (Alternative Funds) Limited
12 Castle Street
St Helier
Jersey JE2 3RT
Advisers on English law
Gowling WLG (UK) LLP
4 More London Riverside
London SE1 2AU
Advisers on Jersey law
Carey Olsen Jersey LLP
47 Esplanade
St Helier
Jersey JE1 0BD
Broker
Investec Bank plc
30 Gresham Street
London EC2V 7QP
Depositary
Apex Financial Services (Corporate) Limited
12 Castle Street
St Helier
Jersey JE2 3RT
Independent Auditor
PricewaterhouseCoopers CI LLP
37 Esplanade
St Helier
Jersey JE1 4XA
Investment Manager and AIFM
Gravis Capital Management Limited
24 Savile Row
London W1S 2ES
Principal banker and lender
Royal Bank of Scotland International Limited
71 Bath Street
St Helier
Jersey JE4 8PJ
Public relations
Quill Communications
107 Cheapside
London EC2V 6DN
Registrar
Link Market Services (Jersey) Limited
12 Castle Street
St Helier
Jersey JE2 3RT
Security Trustee
GRVS Capital Partners LLP (formerly Gravis Capital Partners
LLP)
24 Savile Row
London W1S 2ES
Share Register Analyst
Orient Capital Limited
65 Gresham Street
London EC2V 7NQ
Valuation Agent
Mazars LLP
Tower Bridge House
St Katharine's Way
London E1W 1DD
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END
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