TIDMSEQI
RNS Number : 5799E
Sequoia Economic Infra Inc Fd Ld
05 July 2019
Sequoia Economic Infrastructure Income Fund Limited
(the "Company" or "SEQI")
2019 FINAL RESULTS
CONTINUED PORTFOLIO GROWTH AND PERFORMANCE - INCREASED DIVID
TARGET
SEQI, the specialist investor in economic infrastructure debt,
announces its results for the year ended 31 March 2019.
HIGHLIGHTS
-- Annualised portfolio yield-to-maturity of 8.6% as at 31 March 2019
-- Dividend of 6p per Ordinary Share paid during the year in
line with target. Increased annual target dividend of 6.25p per
Ordinary Share per annum announced in May 2019
-- Over 2p per Ordinary Share NAV accretion achieved during the
year after payment of dividends
-- Raised gross proceeds of GBP75.7 million through an
over-subscribed capital raise in May 2018
-- Announced an additional capital raise in August 2018 which
closed, significantly over-subscribed, in October 2018 with gross
proceeds of GBP253 million
o Proceeds used to repay the outstanding balance of
approximately GBP116 million of the GBP150 million multi-currency
revolving credit facility ("RCF")
o Remaining proceeds have since been fully deployed into the
strong pipeline of attractive investment opportunities
-- Diversified portfolio of 69 investments across 8 sectors, 26
sub-sectors and 13 mature jurisdictions
o 85% of investments in private debt
o 69% floating rate investments, capturing short-term rate
rises
o Short weighted average life of 4.4 years creating
re-investment opportunities
o Weighted average equity cushion of 35%
-- Ongoing charges ratio of 1.02% (calculated in accordance with AIC guidance)(1)
(1) See appendix
Post-year-end
-- Successful oversubscribed capital raise in June 2019 raised
gross proceeds of GBP216 million
-- Revolving credit facility ("RCF") increased to GBP200 million
from GBP150 million in August 2018
-- In line with the Company's commitment to implementing an ESG
policy, the Investment Adviser signed up to the United Nations
Principles of Responsible Investment ("UNPRI")
Financial Highlights to 31 March 31 March
2019 2018
Total net assets GBP1,097,139,421 GBP758,170,202
Net Asset Value ("NAV") per Ordinary
Share * 103.41p 101.32p
Ordinary Share price * 113.00p 106.00p
Ordinary Share premium to NAV 9.3% 4.6%
----------------- ---------------
* Cum dividend
Robert Jennings, Chairman of the Company, said:
"The Board is pleased to report another strong set of results
for the year, underpinned by the continued portfolio performance.
In light of ongoing confidence in the Company's portfolio and
strong NAV growth to 103.41p, the Board has increased the target
dividend to 6.25p per Share per annum. We are appreciative of the
continuing support of Shareholders, demonstrated by our recent
successful fund raises. As a result, we were able to use the funds
raised to pay down debt and execute on the pipeline of
opportunities."
"Economic infrastructure debt remains an underinvested and
attractive asset class, given its low correlation to the volatility
of the wider equity markets and statistically higher recovery
rates. The balance of floating rate and shorter term fixed
investments means that the portfolio is also well positioned to
benefit from a rising interest rate environment over time. The
Board has confidence in the long-term direction of SEQI and in the
Investment Adviser's ability to grow the diversified portfolio and
source high quality, stable, cash-generative economic
infrastructure debt investment opportunities."
Annual General Meeting
The Annual General Meeting ("AGM") of the Company will be held
at Sarnia House, Le Truchot, St Peter Port, Guernsey on 5 August
2019 at 3:30 p.m. The Notice of AGM will be posted to shareholders
in due course and copies are available on the Company's website at
https://www.seqifund.com/investors/documents-circulars/
For further information, please contact:
Sequoia Investment Management Company Limited +44 (0)20 7079 0480
Steve Cook
Dolf Kohnhorst
Randall Sandstrom
Greg Taylor
Stifel Nicolaus Europe Limited +44 (0)20 7710 7600
Neil Winward
Mark Bloomfield
Gaudi Le Roux
Tulchan Communications (Financial PR) +44 (0)20 7353 4200
Elizabeth Snow
Martin Pengelley
Deborah Roney
Praxis Fund Services Limited (Company Secretary) +44 (0) 1481 755530
Matt Falla
About Sequoia Economic Infrastructure Income Fund Limited
The Company seeks to provide investors with regular, sustained,
long-term distributions and capital appreciation from a diversified
portfolio of senior and subordinated economic infrastructure debt
investments. The Company is advised by Sequoia Investment
Management Company Limited.
LEI: 2138006OW12FQHJ6PX91
COMPANY SUMMARY
Principal Activity
Sequoia Economic Infrastructure Income Fund Limited (the
"Company") invests in a diversified portfolio of senior and
subordinated economic infrastructure debt investments through its
subsidiary Sequoia IDF Asset Holdings S.A. (the "Subsidiary",
together the "Group" or the "Fund"). The Company controls the
Subsidiary through a holding of 100% of its shares.
Investment Objective
The Company's investment objective is to provide investors with
regular, sustained, long--term distributions and capital
appreciation from a diversified portfolio of senior and
subordinated economic infrastructure debt investments. This
objective is subject to the Fund having a sufficient level of
investment capital from time to time and the ability of the Fund to
invest its cash in suitable investments.
Investment Policy
The Company's principal investment policy is to invest in a
portfolio of loans, notes and bonds where all or substantially all
of the associated underlying revenues are from business activities
in the following market sectors: transport, transportation
equipment, utilities, power, renewable energy, accommodation and
telecommunications infrastructure. The revenues should derive from
certain eligible jurisdictions, as defined in the Company's
Prospectus. In addition, in excess of 50% of the portfolio should
be floating rate or inflation-linked debt, and not more than 10% by
value of the Fund's investments (at the time of investment) should
relate to any one individual infrastructure asset.
Dividend Policy
In the absence of any significant restricting factors, the Board
expects to pay dividends totalling 6.25p per Ordinary Share per
annum with effect from the quarter ended 30 June 2019 (increased
from 6p per Ordinary Share) for the foreseeable future. The Company
pays dividends on a quarterly basis.
CHAIRMAN'S STATEMENT
Dear Shareholder,
It is my pleasure to present to you the Annual Report and
Audited Financial Statements of the Company for the financial year
of operations ended 31 March 2019.
Consistent growth and performance
Since the Company's initial public offering ("IPO"), in March
2015, the Company's market capitalisation has grown from
approximately GBP150 million to approximately GBP1.2 billion, with
a net asset value ("NAV") of approximately GBP1.1 billion as at 31
March 2019. This growth has enabled the Company to build an
increasingly diversified portfolio of investments, reducing the
Company's exposure to any one single asset from approximately 10%
at the time of the IPO, to approximately 5% at 31 March 2019.
The Company's Shares have consistently traded at a premium to
its NAV, averaging 9.2% over the last year and also standing at
9.3% on 31 March 2019. The Board of Directors of the Company (the
"Board") believes that this is a re ection of the Company's strong
and consistent dividend policy and the uniqueness of its investment
proposition to investors.
Investors in the IPO have received total dividends of 21.5p per
Share and have seen the Share price increase from 100.0p to 113.0p
as at 31 March 2019, representing a total gain of 34.5p per Share
and an annualised return ("IRR") of 8.2% (6.7% calculated on a NAV
basis, based on an IPO NAV of 98.0p per Share).
Net Asset Value performance
Over the year, the Company's NAV per Share has increased from
101.32p to 103.41p. Over the same period, the Company has paid
dividends of 6p per Share, resulting in a total return of 8.0%.
This performance is predominantly the result of five factors: the
portfolio consists of stable, cash generative assets which generate
an annual return of over 8%; costs and expenses are moderate with
an ongoing charges ratio of just over 1%; growing fee income
resultant from originated investments; positive market movements on
many of the Company's investments; and a contribution of 0.78p from
the issuance of Shares at a premium during the year.
The Board continues to be pleased with the progress made by
Sequoia Investment Management Company, our Investment Adviser, in
building a portfolio of attractive infrastructure debt investments.
As at 31 March 2019, the invested portfolio comprised 69
investments, diversi ed by borrower, jurisdiction, sector and
sub-sector, and generating an average yield-to-maturity of 8.6%
from a portfolio of loans and bonds with an average equity cushion
of 35%. The yield on the portfolio has the potential to increase if
LIBOR increases, since 69% of the assets have oating-rate interest
income.
I would now like to address certain risk factors which have the
potential to affect Shareholders' returns to a significant extent,
and to comment on how we seek to address these.
Credit risk
As with any fund that invests in the debt markets, credit risk
is arguably the single largest risk factor in our investment
strategy. I am pleased to say that since the IPO, the Company has
not had a single loan default, but we fully recognise that we
cannot be complacent about credit risk.
Prior to making any new loan, our Investment Adviser undertakes
thorough due diligence and credit analysis, culminating in a review
of the proposed loan by their Investment Committee. Loans which are
recommended by the Investment Committee and supporting reports are
then forwarded to International Fund Management ("IFM"), our
Investment Manager, who, if they consider it appropriate, will
authorise the investment. However, in any case where the proposed
investment falls outside pre-determined parameters as to size,
credit quality and other considerations, IFM will invite the views
of the full Board, supported by Tim Drayson and Kate Thurman, our
independent consultants, before reaching a conclusion on whether
the transaction should proceed.
The Board also feels strongly that thorough investment
monitoring by the Investment Adviser and regular engagement of the
Directors, independent consultants and our Investment Manager in
this process further mitigates credit risk. To this end we hold
portfolio review days semi-annually. These provide an invaluable
forum for the Investment Adviser to present updates on each
investment in the portfolio to our full team, and for considered
discussion of market conditions, trends and other strategic
considerations. In addition, at its quarterly meetings the Risk
Committee reviews any individual investments and issues that merit
its consideration.
Bearing in mind the long period of relatively benign credit
conditions we have seen since the Company's IPO, it has recently
been agreed amongst our full team that, over the first half of the
2019/20 financial year, our Investment Adviser will seek to
rebalance the portfolio marginally toward higher credit quality
investments within our investment spectrum.
Liquidity risk
Liquidity is a further matter to which we pay close attention.
We recognise that a large proportion of our investments, currently
some 85%, are private debt investments. Private debt typically
enjoys a higher yield (an "illiquidity premium") compared to rated,
listed bonds. This illiquidity premium is a significant source of
alpha for the Company.
In addition, in order to mitigate the potentially adverse impact
of cash drag, we typically draw on our RCF on a short-term basis,
and in theory such drawings, all of which are repayable by 6
December 2021, could amount to GBP200 million.
To mitigate the potential risk of holding a high proportion of
our portfolio in illiquid assets, and at times borrowing on our RCF
for a finite period, we hold approximately 15 per cent of our
portfolio in listed bonds, which are usually more liquid than
private debt, should a need for cash arise. But we also have to
plan for more extreme circumstances, and our main defence against
illiquidity is our diversified and highly cash-generative
portfolio. The cash generated by the portfolio arises from not just
the investments' regular, contractual and therefore predictable
interest payments, but also as a result of the portfolio's short
duration, which means that many of the underlying loans in our
portfolio mature over a short time frame.
Our Investment Adviser estimates that the portfolio will, over
the next twelve months and twenty-four months respectively,
generate over GBP109 million (c. 10% of NAV) and GBP158 million of
free cash based on contractual repayments and excluding
prepayments, after payment of its operating expenses and our target
dividend to our Shareholders. This affords us considerable comfort
that even if credit markets were to deteriorate and to turn
illiquid for an extended period of time, we would have sufficient
cash flow to meet our obligations to our advisers, our banks and
our shareholders. Our status as a closed end fund further protects
us against unexpected redemption pressure that from time to time
afflicts other structures.
Our cash-generative portfolio also positions the Company well to
reinvest principle at higher rates in a rising interest
environment.
Environmental risk
The issue of climate change and carbonisation of the World's
atmosphere is one which has become a greater concern even over the
relatively short period since our IPO. It naturally impacts our
credit assessment processes but, more importantly, it also impacts
the way we believe our capital should be deployed. Accordingly, at
the end of 2018, we invited our Investment Adviser to implement a
thorough ESG review of our policies and procedures for future
investments, as well as a one-off review or our current portfolio.
The process of this programme is described more fully in the
Investment Adviser's report.
In general, our investment portfolio has strong environmental
credentials, with a meaningful allocation to renewable energy and
related sectors such as electricity grid stabilisation and even
highly-specialised ships needed for the maintenance of offshore
windfarms. We have historically avoided assets such as the
infrastructure for oil and gas exploration and production (oil
rigs, for example). However, it would be fair to say that we have
not to date had as comprehensive an ESG framework as we are now
putting in place.
We are delighted that just after our year end, our Investment
Adviser signed up to the United Nations Principles of Responsible
Investments
Currency risk
Currently, only about 19% of the portfolio consists of UK assets
denominated in Sterling, with the balance diversi ed across assets
denominated in US Dollars, Australian Dollars, Euros, Norwegian
Kroner, and Polish Z oty. In order to reduce the potential for NAV
volatility arising from movements in the exchange rates, the
Company has a large currency hedging position, which is designed to
rise in value when Sterling strengthens and fall in value when
Sterling weakens. The net effect is that the NAV behaves as though
approximately 100% of the Company's assets were denominated in
Sterling.
Ongoing charges ratio ("OCR")
It is pleasing to report that our OCR in the year to 31 March
2019 was 1.02%. The single largest cost we face is the fee charged
by our Investment Adviser. During the year we agreed a streamlined
fee arrangement, which shareholders approved at our Annual General
Meeting, and which provided for a significantly lower charge on
funds under management of over GBP1 billion. The benefits of the
new arrangement are now beginning to become apparent. At 31 May
2019, approximately GBP227 million of our assets under management
were subject to investment advisory charges of 0.56%, so reducing
the blended rate of the entire portfolio to 0.71%. If assets under
management continue to increase, the blended rate payable to our
Investment Adviser will fall further.
Events after the end of the reporting period
The Company announced on 14 May 2019 that it was proposing an
additional capital raise to repay existing debt and acquire assets
from the strong pipeline of potential investments for the Company,
which will maintain the portfolio's yield at 8% or higher, without
taking an undue level of credit risk. In general, the market for
infrastructure debt remains strong, especially in the US and in
mezzanine lending opportunities in the UK and Europe, across a
range of sectors including transportation, power and utilities. On
25 June 2019, the Company announced that the capital raise, which
was significantly over-subscribed, had been successfully completed,
raising gross proceeds of GBP216 million.
The Company also announced on 14 May 2019 that it has increased
its Revolving Credit Facility ("RCF") to GBP200 million (from
GBP150 million previously). This increase is in line with the
growth of the Company since the RCF was originally executed. In
addition to its increase, the tenor of the RCF was also increased
by twelve months. These changes will allow the Company to reduce
the risk of cash holdings reducing its performance. There remains
no intention though to run any structural leverage on the Fund.
In April 2019, the Investment Adviser signed the United Nations
Principles of Responsible Investment (UNPRI) and is in the process
of thoroughly incorporating these principles into its investment
processes.
Finally, on 22 May 2019, the Company announced that it had
increased the Company's dividend target from 6 pence to 6.25p per
Share per annum. It is expected that the first dividend to be
declared under the new target will be in respect of the quarter
ending 30 June 2019.
The Board
We have now worked together as a Board for four years. I have in
previous years commented on how it has seemed to me that our Board
and advisers have pulled together as a well balanced team, a
circumstance which I am pleased to report is still as present today
as it has ever been. I believe that this has and will continue to
benefit Shareholder returns to a significant extent.
In 2018 we used the services of Duncan Read, an expert external
Board effectiveness reviewer, to assess the performance of our
Board and to advise us where we might beneficially make changes.
Generally the feedback from that review was very positive, and it
confirmed our suspicion that, with the growth of the Company's
asset base, it would be appropriate to appoint Sandra Platts as our
Senior Independent Director.
This year we have undertaken an internal review of our
effectiveness, led by Sandra, which has again shown the Board to be
functioning effectively.
The Board supports the recommendations of the Davies Report and
notes the recommendations of the Parker Review into ethnic
diversity, and the Hampton-Alexander Review on gender balance in
FTSE leadership. The Board supports the widening of its diversity
whilst ensuring the capabilities, experience and background of each
member remains appropriate to the Company and continues to
contribute to overall Board effectiveness. During 2018, the Board
appointed Kate Thurman and Tim Drayson as Independent Consultants.
Kate and Tim have a specific mandate to the Board on the overall
approach to risk management across the portfolio. The appointment
of the Independent Consultants to the Board means further
strengthening the Board's governance framework, in both skills and
diversity.
Having considered all aspects of the recent Board reviews, the
Board is confident that it is functioning effectively and that it
would not be in the interests of the Company's shareholders to
change the Boards composition at this point in time, after only
four years of the Company's existence.
The Board recently made a statement on Board Composition and
Diversity, which can be found on the Company's website
https://www.seqifund.com/investors/documents-circulars.
Shareholder communications
The Company has recently revamped its website
(www.seqifund.com), at which Shareholders can find news and
information on the Company. We also post our monthly factsheets on
our website. These are usually issued by the 10th working day of
each month, and provide updates on the portfolio's performance to
the end of each preceding month. It is our intention to continue
providing these regular and timely monthly updates. In addition,
the Board, in conjunction with the Company's key advisers,
maintains regular dialogue with major Shareholders.
Positive outlook
Since the Company's listing over four years ago, the portfolio
has faced bouts of volatility in global capital markets resulting
from circumstances including the Brexit vote, uncertainty in US
politics, the rise of populist political movements in Europe, and
heightened tensions in East Asia and the Middle East. Many of these
risks continue to be present, but it is in such periods of
volatility that the stability of infrastructure debt has
historically demonstrated its real value to investors. For example,
in the fourth quarter of 2018, the global corporate bond and loan
markets declined, caused by a flight of capital to lower risk
investments. During that quarter, the Bloomberg Barclays Global
High Yield Total Return Index fell by approximately 3.5%. However,
over the same period, the Company's NAV total return was 1.5%, an
outperformance of 5%. Moreover, the Investment Adviser was able to
acquire a number of cheap investments in the secondary markets
during that period of weakness.
Nevertheless, at some point in the future there is a high
probability that market circumstances could deteriorate and we
would not be immune from a severe general market sell off. The
Board regularly assesses such risk and, were such circumstances to
hit us in the near future, the Board believes that the Company is
well placed and that its portfolio and investment pipeline should,
over the long term, continue to deliver an attractive risk-adjusted
return with a relatively low correlation to the broader nancial
markets.
I would like to close by thanking you for your commitment and
support.
Robert Jennings
Chairman
4 July 2019
INVESTMENT ADVISER'S REPORT
The Investment Advisor's Objectives for the Year
Over the course of the financial year ended 31 March 2019,
Sequoia Investment Management Company Limited ("Sequoia") has had a
number of objectives for the Company:
Goal Commentary
----------------------- -----------------------------------------------
Gross portfolio return The Company is fully invested with a portfolio
of 8-9% that yields in excess of 8%
----------------------- -----------------------------------------------
Capital growth to Gross proceeds of GBP328.7 million raised
deliver economies during the year across two over-subscribed
of scale and broader capital raises
benefits
----------------------- -----------------------------------------------
Timely and transparent Factsheet, commentary, and the full portfolio
investor reporting are provided monthly for full transparency
----------------------- -----------------------------------------------
Dividends of 6p per The Company paid 6p of dividends per Ordinary
Share Share during the year
----------------------- -----------------------------------------------
Capital Raised and Share Performance
The Company completed two capital raises during the financial
year ended 31 March 2019, both of which were very significantly
oversubscribed: an Ordinary Share placing in May 2018 which raised
gross proceeds of GBP75.7 million, and an Ordinary Share open
offer, placing and offer for subscription in October 2018 which
raised gross proceeds of GBP253.0 million.
As at 31 March 2019, the Company had 1,060,975,849 Ordinary
Shares in issue. The closing Share price on that day was 113.0p per
Share, implying a market capitalisation for the Company of
approximately GBP1.2 billion, compared to GBP793.2 million a year
previously.
The Company announced on 20 August 2018 that it was proposing an
additional capital raise to repay existing debt and acquire assets
from the strong pipeline of potential investments for the Company.
The open offer, placing and offer for subscription, which closed in
October, was signi cantly oversubscribed and the Shares were issued
at a premium to NAV, resulting in total gross proceeds of GBP253.0
million. Of the total gross proceeds raised, approximately GBP116.0
million was subsequently used to repay all the sums drawn under the
RCF and the accordion facility. The remaining proceeds have since
been fully deployed to acquire investments from the attractive
pipeline of opportunities.
NAV Performance
Over the financial year, the Company's NAV increased from
101.32p per Share to 103.41p per Share, driven by the following
effects:
Factor NAV
effect
Interest income on the Company's investments 8.70p
Losses on foreign exchange movements, net of the effect
of hedging (0.44)p
Positive market movements 1.08p
IFRS adjustment from mid-price at acquisition to bid
price (0.63)p
Operating costs (1.40)p
Gains from issuing Shares at a premium to NAV 0.78p
========
Gross increase in NAV 8.09p
Less: Dividends paid (6.00)p
========
Net increase in NAV after payments of dividends 2.09p
The Company made a loss of 0.44p from foreign exchange
movements, largely due to the cost of hedging nearly 100% of
non-GBP assets back into Sterling. On 31 March 2019, approximately
100% of the Company's NAV consisted of either Sterling assets or
was hedged into Sterling through foreign exchange forward contracts
(up from 94% as at 31 March 2018). The values of these contracts
are marked-to-market along with the investments on a monthly basis
in order to reduce the potential for foreign exchange rate
volatility in the Company's NAV over the longer term.
After the payment of 6.0p of dividends, and accounting for the
0.44p loss from foreign exchange movements, the Company's NAV
increased by 2.09p per Share.
The market environment during the year
The Company has operated in a volatile environment over the last
six months, with the liquid credit markets especially experiencing
wider lending margins and bond spreads in the fourth quarter of
2018, followed by a swift recovery in the first quarter of 2019.
While the private debt markets did not in general see the same
volatility, the Investment Adviser was able to make some
investments in infrastructure bonds at historically attractive
prices.
Primary market issuance in the infrastructure loan markets has
been exceptionally strong, with deal volumes of USD111 billion over
the last six months, split approximately 32.2% in North America,
36.5% in Europe, 11.2% in Asia and 20.1% in the rest of the
world(2) . In addition, there were significant amounts of
infrastructure debt issued in the bond markets, and through
bilateral loans and private placements that are not always captured
in the market data. The opportunity for the Company to deploy
capital, therefore, is exceedingly large.
(2) Preqin Quarterly Infrastructure Update: Q1 2019 Data
Pack
Diversified portfolio
The Company has taken advantage of these favourable market
conditions to assemble a diversified portfolio of infrastructure
loans and bonds over its four-and-a-half years of operations. These
investments are capable of providing the regular, sustained, and
long-term distributions of income which is the primary stated
investment objective of the Company. In addition, the Company has
acquired in the secondary loan markets a number of assets at a
material discount to their par value which offer the potential for
appreciation over time.
The Company's focus is in economic infrastructure, which
includes transportation, utility, power, telecommunication,
renewable and other related sectors that exhibit infrastructure
characteristics and typically have demand exposure. Sequoia
believes that lending into these sectors is more attractive than
lending into availability-based PFI/PPP projects, which are often
hotly contested among lenders and therefore offer lower yields.
Moreover, economic infrastructure projects usually have much more
conservative capital structures than availability-based PFI/PPP
projects, with equity cushions of typically 20-30% rather than 10%,
and in Sequoia's opinion this compensates for the potentially
higher revenue risk. Lending into the economic infrastructure
sector has delivered an investment portfolio with equity-like
returns but with the protections of debt, including lower
volatility and less downside risk than equity. None of the loans or
bonds acquired has defaulted and were selected, in part, based on
their prospects for high recovery in the event of a default. Each
loan and bond in the portfolio is to a borrower with an adequate
equity cushion which helps to protect the Company from credit
losses. Sequoia believes that diversification is an important risk
management tool for an infrastructure debt portfolio, since a large
component of credit risk in infrastructure is idiosyncratic or
project-specific risk and is typically not highly correlated to
exogenous factors such as the broader economy. As such, a properly
diversified portfolio ought to have a more stable performance than
one which is concentrated in one jurisdiction or sector, e.g. a
debt portfolio that was largely focused on financing UK renewable
projects might be highly exposed to specific risks such as
regulatory changes.
The Company's investment portfolio is therefore diversified by
borrower, jurisdiction, sector and sub-sector, with strict
investment limits in place to ensure that this remains the
case.
Geographically, the Company invests in stable low-risk
jurisdictions. Under the terms of its investment criteria, the
Company is limited to investment-grade countries, and has chosen to
pursue selected opportunities in Spain, but not in Portugal or
Italy, where in addition to the obvious economic challenges,
infrastructure projects have also been exposed to regulatory and
legal risks. The Company has been focused on the United States,
Canada, Australia, the UK, and Northern and Western Europe.
The Company focuses predominantly on private debt, which on 31
March 2019 represented approximately 85% of its portfolio (compared
to 79% a year previously). This is because, typically, private debt
enjoys an illiquidity premium: i.e. a higher yield than a liquid
bond with otherwise similar characteristics. Since the Fund's main
investment strategy is "buy and hold", it makes sense to capture
this illiquidity premium. Sequoia's research indicates that
infrastructure private debt instruments yield approximately 1% more
than public, rated bonds. However, in some cases, bonds can also be
an attractive investment for three reasons. Firstly, some bonds are
"private placements" which, whilst in bond format, have an
attractive yield that is comparable to loans. Secondly, some
sectors, such as US utility companies, predominantly borrow through
the bond markets, and therefore having an allocation to bonds can
improve the diversification of the portfolio. Thirdly, having some
liquid assets in the portfolio enables the Company to take
advantage of future opportunities and can also be used to satisfy
the Company's potential tender obligations.
The Company remains committed to limiting exposure to greenfield
construction risk in the portfolio. Whilst up to 20% of the NAV can
consist of lending to such projects, the actual exposure to assets
in construction on 31 March 2019 was 16.2% of the portfolio.
Sequoia is careful to select projects where it believes the Company
is well compensated for taking a moderate level of construction
risk, and where the underlying strength of the borrower's business
or project mitigates the risk.
ESG 2020
The Company has begun a comprehensive programme of establishing
and incorporating broad ESG considerations into its approach to
investment.
The Board and the Investment Adviser takes their corporate and
social responsibilities seriously. The Company already has strong
ESG credentials. For example, it is invested in a number of
renewable energy assets, such as solar panels and wind turbines, as
well as specialist vessels used in the maintenance of offshore wind
turbines. It is also invested in assets necessary for the
transition to a lower-carbon world such as natural gas pipelines in
the United States, which are needed to reduce the amount of
coal-fired electricity generation. Other investments have societal
benefits such as the provision of healthcare or education.
The Board and Investment Adviser therefore intend to establish a
number of appropriate policies to demonstrate to shareholders how
the Company takes into account the risks associated with climate
change when deploying its capital.
The intention is for 2019 to be a year of implementation, with
the goal of the programme being fully in place by 2020.
As a first step in this process, the Investment Adviser signed
up to the United Nations Principles of Responsible Investments in
April 2019. These principles now cover investments in private debt,
and as such are highly relevant to the Company's business. In
addition, the Investment Adviser has started incorporating these
principles into all stages of its investment process:
-- The origination of new investments will include enhanced negative and positive screening.
-- Due diligence and credit analysis will include assessing
thoroughly the potential impact of climate change, enhanced
environmental impact and technical assessments, and ESG
questionnaires for borrowers.
-- Loan documentation can include, where appropriate, ESG
considerations. For example, these could include enhanced reporting
by borrowers in relation to their environmental impact.
-- The Company's reporting to its shareholders will be expanded
to cover ESG. In particular, it will take account of the
recommendations of the Task Force on Climate-related Disclosures
(TCFD), including those recommendations specific to the banking
sector, and the Company aims to provide best-in-class
disclosure.
In parallel with this, the Investment Adviser will
retrospectively review the Company's existing portfolio and assess
whether it is currently holding investments which, had these
policies been in place at the time, would not have made. These "red
flag" investments will then either be sold or, if a satisfactory
price in the secondary market cannot be found, put into a
segregated part of the portfolio and allowed to run off over their
natural life. Based on its preliminary review, the Investment
Adviser does not believe this process will materially change the
investment portfolio's yield or diversification given the
portfolio's existing ESG credentials and lack of investments in oil
& gas E&P investments, military or tobacco, gambling and
alcohol.
The Company therefore views its ESG 2020 initiative as building
upon solid foundations and being an evolutionary change, rather
than revolutionary.
The Company's ESG policy comprises the following guidelines:
Guidelines Considerations
Alignment with community
goals * Health & safety of residents: pollution & noise
* Historical and cultural elements preservation and
project's visual impact
Commitment to sustainability
goals * Counterparties' commitment to sustainability,
including an adequate maintenance plan
* Other indicators of commitment to sustainability
Efficient use of resources
* Materials recycling, reduction of energy & water
consumption and limitation on use of landfills
* Alternative water sources usage and consumption of
renewable energy
Reduced environmental footprint
* Emissions of greenhouse gasses and air pollutants
* Usage of environmentally friendly and biodegradable
materials
* Use of farmland and natural buffer zones
Sustainable economic development
* Job creation and workforce skills development
* Support of local social and business community
--------------------------------- -----------------------------------------------------------
In connection with the Company's commitment to ESG, the
Investment Adviser successfully signed up to the United Nations
Principles of Responsible Investment ("UNPRI") in April 2019.
Whilst these have historically been tailored towards equity
investors, their scope has expanded to private debt. The UNPRI
encompass all stages of the private debt process (origination, due
diligence, documentation, holding period and exit decisions).
Origination activities
The Company's strategy is to invest in both the primary and
secondary debt markets. Sequoia believes that this combination
delivers a number of benefits: participating in the primary markets
allows the Company to generate upfront lending fees and to
structure investments to meet its own requirements; and buying
investments in the secondary markets can permit the rapid
deployment of capital into seasoned assets with a proven track
record. As the Company grows in size, Sequoia expects to source an
increasing number of opportunities from the primary market.
Primary market origination
The primary loan markets are an increasingly important
opportunity for the Company. The Investment Adviser has sourced
bilateral loans and participated in "club" deals, where a small
number of lenders join together. The Company has also participated
in more widely-syndicated infrastructure loans. Primary market
loans often have favourable economics because the Company, as
lender, benefits from upfront lending fees. As the Company has
grown, primary market investment activity has grown to surpass
secondary market investments, with 70% of the portfolio comprising
primary investments as at 31 March 2019.
Secondary market origination
Some of the Company's investments were acquired from banks or
other lenders in the secondary markets. This enabled a relatively
rapid deployment of capital, since primary market transactions in
infrastructure debt can often take a considerable time to execute.
In addition, secondary market loans have performance history that
permits credit analysis on actual results rather than financial
forecasts. Finally, research(3) shows that infrastructure loans
improve in credit quality over time so secondary loans in many
cases have improved in credit quality from the time of their
initial origination.
(3) Average annual European broad infrastructure and global
project finance default rates. Moody's, "Default and Recovery Rates
for Project Finance Bank Loans 1983-2016," March 2018 and 1983-2016
Addendum, September 2018.
Fund performance
31 March 30 September 31 March
2019 2018 2018
Net asset
value per Ordinary Share 103.41p 101.86p 101.32p
---------------------------
GBP million GBP1,097.1 GBP837.1 GBP758.2
--------------------------- ------------------------ -------------- --- ------------- --- ---------
Invested percentage of net
portfolio asset value 103.8% 109.2% 94.4%
including investments
Total portfolio in settlement 112.9% 123.4% 108.6%
--------------------------- ------------------------ -------------- --- ------------- --- ---------
Portfolio characteristics
31 March 30 September 31 March
2019 2018 2018
Number of investments 69 58 56
----------------------------------------------------- ---- --------- --- ------------- --- ---------
Single largest investment GBP56.4 GBP54.5 GBP49.2
Average investment
size GBP million
----------------------------
percentage
of NAV 5.1% 6.5% 6.5%
GBP million GBP16.5 GBP15.8 GBP12.8
--------------------------- ----------------------- ---- --------- --- ------------- --- ---------
by number
of invested
Sectors assets 8 8 8
Sub-sectors 26 25 23
Jurisdictions 13 13 10
---------------------------- --------- ------------- ---------
Private debt percentage 85.1% 86.6% 79.3%
of invested
assets
Senior debt 64.3% 53.8% 56.5%
Floating rate 69.4% 66.5% 64.3%
Construction risk 16.2% 11.2% 17.9%
---------------------------- ----------------------- --------- ------------- ---------
Weighted-average
maturity years 5.8 7.0 7.3
Weighted-average
life years 4.4 5.0 5.1
Yield-to-maturity 8.6% 8.4% 8.2%
Modified duration 1.3 1.4 1.6
---------------------------- ---------------------------- --------- --- ------------- --- ---------
Strong pipeline of opportunities
Sequoia has developed a very strong pipeline of mostly private
debt infrastructure lending opportunities, which are expected to
become executable mostly over the next three to nine months.
Pricing on these opportunities is consistent with the Company
generating a gross return in excess of 8%. The potential
investments are widely spread across a range of sectors and
jurisdictions. Sequoia is especially excited about potential
investments in the renewables, accommodation and TMT
(Telecommunications, Media and Technology) sectors where the
current portfolio is arguably underweight, lending opportunities
are often attractive and additional investments into these sectors
would be desirable.
Sequoia expects project finance senior lending margins,
especially in the UK and Europe and for "core" infrastructure
projects and availability-based PFI/PPP projects to remain tight,
driven by sustained commercial bank appetite for these types of
assets and by increasing demand from institutional investors such
as continental European insurance companies. However spreads in the
mezzanine market, and for senior debt in the US and some asset
classes in the UK and Europe, are expected to remain more
attractive.
Overall, the opportunity for the Company in economic
infrastructure debt is strong and the asset class remains
under-invested and attractive. Sequoia is optimistic about the
prospects for growing the Company while maintaining its track
record of sourcing suitable investments and delivering to
Shareholders a total return of 7-8% over the long term.
Sequoia Investment Management Company Limited
Investment Adviser
4 July 2019
THE SEQUOIA INVESTMENT MANAGEMENT COMPANY TEAM
Sequoia Investment Management Company Limited ("Sequoia") is an
experienced investment adviser, which has acted as Investment
Adviser to the Company from its inception. The key members of the
team, all of whom were founders of Sequoia, are as follows:
Randall Sandstrom - CEO/CIO
27 years of experience in the international and domestic credit
markets and infrastructure debt markets.
Has managed global high yield and investment grade bonds,
leveraged loans, ABS and money market securities.
Board of Directors, LCF Rothschild and MD of Structured Finance.
Former CEO/CIO, Eiger Capital.
Head of Euro Credit Market Strategy, Morgan Stanley.
Institutional Investors "All-American" senior Industrial Credit
Analyst, CS First Boston (energy and transportation). Has worked in
London, New York and Tokyo.
Dolf Kohnhorst - Chief Risk Officer
35 years of experience in investment banking, debt capital
markets and project finance commercial lending.
Head of Société Générale's Financial Institutions Group covering
UK, Irish, Benelux and Scandinavian banks, insurance companies,
pension funds and investment management companies.
16 years at Morgan Stanley heading Benelux and Scandinavian
sales teams and DCM Structured Solutions Group.
Commercial lending to shipping, construction and project finance
sectors.
Greg Taylor - Head of Infrastructure, Portfolio Manager
29 years of infrastructure experience.
Head of Infrastructure Finance at Merrill Lynch and Co-Head of
Infrastructure Finance at UBS.
Developed Moody's methodology for rating regulated
infrastructure companies.
Broad perspective as bond arranger, direct lender, credit
analyst and financial adviser to both borrowers and public sector.
Includes lending in Europe, the UK, North America and Latin
America.
Steve Cook - Portfolio Manager
18 years of infrastructure experience.
European Head of Whole Business Securitisation and CMBS and
Co-Head of Infrastructure Finance at UBS.
Head of European Corporate Securitisation at Morgan Stanley with
lending and balance sheet responsibility.
Wide variety of infrastructure projects in the UK and across
Europe as a lender, arranger and adviser.
BOARD OF DIRECTORS
The Directors of Sequoia Economic Infrastructure Income Fund
Limited, all of whom are non-executive and independent, are as
follows:
Robert Jennings, CBE (Chairman)
Robert Jennings is a resident of the United Kingdom and
qualified as a Chartered Accountant in 1979. He has over 30 years'
experience in the infrastructure sector. Mr Jennings was a managing
director of UBS Investment Bank and was joint head of the Bank's
Infrastructure Group until 2007. He has twice acted as a special
senior adviser to HM Treasury; in 2001/02 during Railtrack's
administration and again in 2007/08 in relation to Crossrail.
Mr Jennings served as one of the Department for Transport
appointed non-executives on the Board of Crossrail, and was Chair
of Southern Water until February 2017. He was appointed to the
Board of 3i Infrastructure plc in a non-executive role with effect
from 1 February 2018, which is ongoing. In June 2019, he became one
of the founding directors of Chapter Zero, whose aim is to provide
non-executive directors and other parties a forum by which they can
conveniently access guidance on carbonisation, climate change and
the role of boards in responding to these challenges, having been a
member of its executive committee since November 2018.
Sandra Platts (Senior Independent Director)
Sandra Platts is a resident of Guernsey and holds a Masters in
Business Administration. Mrs Platts joined Kleinwort Benson (CI)
Ltd in 1986 and was appointed to the board in 1992. She undertook
the role of Chief Operating Officer for the Channel Islands
business and in 2000 for the Kleinwort Benson Private Bank Group -
UK and Channel Islands. In January 2007, she was appointed to the
position of Managing Director of the Guernsey Branch of Kleinwort
Benson and led strategic change programmes as part of her role as
Group Chief Operating Officer. Mrs Platts also held directorships
on the strategic holding board of the KB Group, as well as sitting
on the Bank, Trust Company and Operational Boards. She resigned
from these boards in 2010. Mrs Platts is a non--executive director
of NB Global Floating Rate Income Fund Limited and UK Commercial
Property REIT (both listed on the Main Market of the London Stock
Exchange) and Investec Bank (Channel Islands) Limited, plus a
number of other investment companies. She is a member of the
Institute of Directors.
Jan Pethick
Jan Pethick is a resident of the United Kingdom and has over 35
years' experience in the debt sector. Mr Pethick was Chair of
Merrill Lynch International Debt Capital Markets for 10 years, from
2000 to 2010. He had previously been Head of Global Debt
Origination at Dresdner Kleinwort Benson which had acquired the
credit research boutique, Luthy Baillie which he had co--founded in
1990. Prior to that, he worked for 12 years at Lehman Brothers
where he was a member of the Executive Management Committee in
Europe. Mr Pethick is currently also Chair of Troy Asset Management
and an independent member of the Supervisory Board of Moody's
Investor Services Europe.
Jonathan (Jon) Bridel
Jon Bridel is a resident of Guernsey. Mr Bridel is currently a
non--executive director of a number of London-listed investment
funds. Mr Bridel was previously Managing Director of Royal Bank of
Canada's investment businesses in the Channel Islands.
After qualifying as a Chartered Accountant in 1987, Mr Bridel
worked with Price Waterhouse Corporate Finance in London. He
subsequently held senior positions in banking, credit and corporate
finance, investment management and private international businesses
where he was Chief Financial Officer.
Mr Bridel holds a Master of Business Administration and also
holds qualifications from the Institute of Chartered Accountants in
England and Wales, where he is a Fellow, the Chartered Institute of
Marketing, where he is a Chartered Marketer, and the Australian
Institute of Company Directors. He is also a Chartered Director and
Fellow of the Institute of Directors and is a Chartered Fellow of
the Chartered Institute for Securities and Investment.
INDEPENT CONSULTANTS
The independent consultants of Sequoia Economic Infrastructure
Income Fund Limited are as follows:
Tim Drayson
Tim Drayson has over thirty years' experience in the US and
European debt capital markets. He was most recently Global Head of
Corporate Sales & Deputy Head of the European Corporate Debt
Platform at BNP Paribas and had been a member of the Fixed Income
Transaction Approval Committee, screening complex transactions and
interacting with the bank's credit committee. He joined BNP Paribas
as Global Head of Securitization in 2005, with responsibility for
managing all origination and structuring teams, including
infrastructure. Prior to joining BNP Paribas, Tim held senior roles
at Morgan Stanley in London as Head of Securitized Products
Distribution and Paine Webber in New York.
Kate Thurman
Kate Thurman is a highly experienced and respected credit market
professional having spent over 30 years identifying and analysing
credit risk in bond and loan instruments for institutional
portfolios. Kate has broad experience across industry sectors,
credit grades, legal structures and jurisdictions, having special
expertise in the assessment of quantitative and qualitative credit
factors and downside risks. She is a board and audit committee
member of Colne Housing Society, a not-for-profit Housing
Association with 3,000 units under management and ca. GBP150
million of commercial debt. Her former executive career included
senior roles in asset management and investment banking
organisations.
DISCLOSURE OF DIRECTORSHIPS IN PUBLIC COMPANIES LISTED ON
RECOGNISED STOCK EXCHANGES
The Directors hold the following directorships in other public
companies:
Company Name Stock Exchange
Robert Jennings, CBE
3i Infrastructure plc London Stock Exchange - Main Market
Sandra Platts
NB Global Floating Rate Income Fund London Stock Exchange - Main Market
Limited
UK Commercial Property REIT London Stock Exchange - Main Market
Marble Point Loan Financing Limited London Stock Exchange - SFS
Jan Pethick
None
Jon Bridel
DP Aircraft 1 Limited London Stock Exchange - SFS
Fair Oaks Income Limited London Stock Exchange - SFS
SME Credit Realisation Fund Limited London Stock Exchange - Main Market
(in wind-down) London Stock Exchange - Main Market
Starwood European Real Estate Finance London Stock Exchange - Main Market
Limited
The Renewables Infrastructure Group
Limited
DIRECTORS' REPORT
The Directors of Sequoia Economic Infrastructure Income Fund
Limited (the "Company") are pleased to submit their Annual Report
and the Audited Financial Statements (the "Financial Statements")
for the year ended 31 March 2019.
Going Concern
The Company has been incorporated with an unlimited life. In
accordance with the Company's Articles of Incorporation, the
Directors were required to propose an ordinary resolution (the
"Continuation Resolution") on or before 3 September 2016 that the
Company continues as a registered closed-ended collective
investment scheme, and to propose further Continuation Resolutions
within every three years thereafter. The first Continuation
Resolution was passed by Shareholders at an Extraordinary General
Meeting of the Company on 25 May 2016, and the second on 16 August
2018 at the Company's Annual General Meeting ("AGM"). Should a
Continuation Resolution not be passed, the Directors are required
to put forward proposals within six months for the reconstruction
or reorganisation of the Company to the Shareholders for their
approval. These proposals may or may not involve winding up the
Company and, accordingly, failure to pass a Continuation Resolution
will not necessarily result in the winding up of the Company.
The Directors have considered the possibility that the next
Continuation Resolution, to be proposed at the 2021 AGM, may not be
passed by Shareholders, however they noted the overwhelming
majority vote in favour of the Continuation Resolutions passed in
May 2016 and August 2018, the consistently strong appetite for the
Company's investment proposition, evidenced by a number of
successful share issues, and that the Company's Shares have
consistently traded at a premium since launch.
After a review of the Company's holdings in cash and cash
equivalents, investments and a consideration of the income deriving
from those investments and the likelihood that future Continuation
Resolutions will be passed, the Directors believe that it is
appropriate to adopt the going concern basis in preparing the
Financial Statements as the Company has adequate financial
resources to meet its liabilities as they fall due.
Viability Statement
The Directors have assessed the viability of the Company over a
five year period to May 2024, taking account of the Company's
current position and the potential impact of the principal risks
outlined in this statement.
In making this statement, the Directors have considered the
resilience of the Company, taking into account its current
position, the principal risks facing the Company in severe but
reasonable scenarios and the effectiveness of any mitigating
actions. This assessment has considered the potential impacts of
these risks on the business model, future performance, solvency and
liquidity over the period.
The Directors have determined that the five year period to May
2024 is an appropriate period over which to provide its viability
statement as the average remaining life to maturity of the Group's
portfolio of investments has historically generally fallen within
the range of 4 to 5 years. In making their assessment, the
Directors have taken into account the Company's NAV, net income,
cash flows, dividend cover, regulatory compliance and other key
financial ratios over the period. These metrics are subject to
sensitivity analysis, which involves flexing a number of main
assumptions underlying the forecast. This analysis is carried out
to evaluate the potential impact of the Company's principal risks
actually occurring, primarily the following: severe changes in
macro-economic conditions, including a Sterling FX shock; inability
to refinance leverage facilities; increased defaults; deterioration
in underlying credit ratings; and downgrading or illiquidity of
loans. This analysis included stress-testing to simulate the
combined effects of the recession of the early 2000s and the 2008
global financial crisis.
The Directors have also considered the possibility that a
Continuation Resolution, to be proposed at the 2021 AGM, may not be
passed by Shareholders. The Directors noted the overwhelming
majority vote in favour of the Continuation Proposals passed in May
2016 and August 2018 and the strong appetite for the Company's
investment proposition evidenced by the successful launch in March
2015, two subsequent well-supported C Share issues, the
significantly over-subscribed Placing in December 2016, Open Offer,
Placing and Offer for Subscription in May 2017, Placing in May 2018
and Open Offers, Placings and Offers for Subscription in October
2018 and June 2019. They also noted that the rejection of a
Continuation Proposal by Shareholders does not necessarily oblige
the Directors to wind up the Company.
Based on this assessment, the Directors 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 to May
2024.
Principal Risks and Uncertainties
The Board has established a Risk Committee, which is responsible
for reviewing the Company's overall risks and monitoring the risk
control activity designed to mitigate these risks. The Risk
Committee has carried out a robust assessment of the principal
risks facing the Company, including those that would threaten the
Company's business model, future performance, solvency or
liquidity. The Board has appointed International Fund Management
Limited ("IFML" or the "Investment Manager") as the Alternative
Investment Fund Manager ("AIFM") to the Company. IFML is also
responsible for providing risk management services compliant with
that defined in the Alternative Investment Fund Managers Directive
("AIFMD") and as deemed appropriate by the Board.
Under the instruction of the Risk Committee, IFML is responsible
for the implementation of a risk management policy and ensuring
that appropriate risk mitigation processes are in place; for
monitoring risk exposure; preparing quarterly risk reports to the
Risk Committee; and otherwise reporting on an ad hoc basis to the
Board as necessary.
Since their appointment on 30 January 2018, Tim Drayson and Kate
Thurman, independent consultants to the Company, have provided
guidance to the Board on the overall approach to risk management
across the Company's portfolio. Part of their focus has been to
assist the Investment Manager in scrutinising certain of the
Investment Adviser's credit evaluations.
The principal risks associated with the Company are as
follows:
Market risk
The value of the investments made and intended to be made by the
Company will change from time to time according to a variety of
factors, including the performance of the underlying borrowers,
expected and unexpected movements in interest rates, exchange
rates, inflation and bond ratings and general market pricing of
similar investments will all impact the Company and its Net Asset
Value.
Credit risk
Borrowers in respect of loans or bonds in which the Group has
invested may default on their obligations. Such default may
adversely affect the income received by the Company and the value
of the Company's assets.
Liquidity risk
Infrastructure debt investments in loan form are not likely to
be publicly-traded or freely marketable, and debt investments in
bond form may have limited or no secondary market liquidity. Such
investments may therefore be difficult to value or sell and
therefore the price that is achievable for the investments might be
lower than the valuation of these assets.
Counterparty risk
Counterparty risk can arise through the Company's exposure to
particular counterparties for executing transactions and the risk
that the counterparties will not meet their contractual
obligations.
Leverage risk
Leverage risk arises where the Company takes on additional
exposure to other risks because of the leverage of exposures, along
with the specific potential for loss arising from a leverage
counterparty being granted a charge over assets. The Board monitors
the level of leverage on an ongoing basis as well as the credit
ratings of any leverage counterparties.
Compliance & regulatory risk
Compliance and regulatory risk can arise where processes and
procedures are not followed correctly or where incorrect judgement
causes the Company to be unable to fulfil its objectives or
obligation, exposing the Company to the risk of loss, sanction or
action by Shareholders, counterparties or regulators. The
Investment Adviser and the Administrator monitor compliance with
regulatory requirements and the Administrator presents a report at
quarterly Board meetings.
Operational risk
This is the risk of loss resulting from inadequate or failed
internal processes, people and systems or from external events.
This can include, but is not limited to, internal/external fraud,
business disruption and system failures, data entry errors and
damage to physical assets.
Political and economic risk
The Risk Committee reviews risks as they relate to Brexit and
the impact of Brexit on the above risks.
A detailed review of the main financial risks faced by the
Company, and how they are managed or mitigated, is set out in note
5 to the Financial Statements.
Results and Dividends
The results for the year are shown in the Statement of
Comprehensive Income on page 40.
The Directors have declared and paid dividends of GBP55,365,515
during the year ended 31 March 2019 (2018: GBP42,584,207). Further
details of dividends declared or paid are detailed in note 4 to the
Financial Statements.
Further to the Company's announcement of 22 May 2019, its
dividend policy, in the absence of any significant restricting
factors, is to pay dividends totalling 6.25p per Ordinary Share per
annum with effect from the quarter ended 30 June 2019 (increased
from 6p per Ordinary Share) for the foreseeable future. The Company
pays dividends on a quarterly basis.
Independent Auditor
KPMG Channel Islands Limited was appointed as Auditor on 28
January 2015. A resolution to re-appoint KPMG Channel Islands
Limited as Auditor will be put to the forthcoming AGM.
Investment Manager and Investment Adviser
The Directors are responsible for the determination of the
Company's investment policy and have overall responsibility for the
Company's activities. The Company has entered into an Investment
Management Agreement with the Investment Manager with effect from
28 January 2015. On the same date, the Investment Manager, with the
consent of the Company, entered into an Investment Advisory
Agreement with Sequoia Investment Management Company Limited (the
"Investment Adviser") to manage the assets of the Company in
accordance with the Company's investment policy. The Investment
Adviser is responsible for the day-to-day management of the
Company's portfolio and the provision of various other management
services to the Company, subject to the overriding supervision of
the Directors.
The Directors consider that the interests of Shareholders, as a
whole, are best served by the continued appointment of the
Investment Manager and the Investment Adviser to achieve the
Company's investment objectives. A summary of the terms of their
appointments, including the investment management and advisory fees
and notice of termination periods, is set out in note 10 to the
Financial Statements.
Custody Arrangements
The Company's assets are held in custody by The Bank of New York
Mellon (the "Custodian") pursuant to a Custody Agreement dated 27
February 2015. A summary of the terms, including fees and notice of
termination period, is set out in note 10 to the Financial
Statements.
The Company's assets are registered in the name of the Custodian
within a separate account designation and may not be appropriated
by the Custodian for its own account.
The Board conducts an annual review of the custody arrangements
as part of its general internal control review and is pleased to
confirm that the Company's custody arrangements continue to operate
satisfactorily. The Board also monitors the credit rating of the
Custodian, to ensure the financial stability of the Custodian is
being maintained to acceptable levels. As at 31 March 2019, the
long-term credit rating of the Custodian as reported by Standard
and Poor's is AA- (2018: AA-), which is deemed to be an acceptable
level.
Directors and Directors' Interests
The Directors, all of whom are independent and non-executive,
are listed on page 18.
None of the Directors has a service contract with the Company
and no such contracts are proposed. During the year, Robert
Jennings received a fee of GBP65,000 per annum for his services as
Chairman of the Board of Directors. The remaining Directors each
received a fee of GBP43,000 per annum for their services as
Directors.
Robert Jennings serves as Chair of the Nomination Committee; Jan
Pethick as Chair of the Management Engagement Committee; Jon Bridel
as Chair of the Risk Committee; and Sandra Platts as Chair of the
Audit Committee and the Remuneration Committee. Jan Pethick, Jon
Bridel and Sandra Platts are each entitled to an additional fee of
GBP7,000 per annum in relation to their roles as Committee
Chair.
During the year, Robert Jennings, Jan Pethick, Jon Bridel and
Sandra Platts each received a listing fee of GBP6,000, which was
subject to admission, in connection with the Open Offer, Ordinary
Share Placing and Offer for Subscription on 12 October 2018.
For further information related to Directors' remuneration,
please refer to the Directors' Remuneration Report on page 32.
As at 31 March 2019, the Directors had the following interests
in the Shares of the Company:
Name Percentage of
Number of Ordinary Shares
Ordinary Shares in issue
---------------------------------------- ----------------- -----------------
Robert Jennings (Chairman) (with other
members of his family) 240,000 0.02%
Jan Pethick (with his spouse) 263,820 0.02%
Jon Bridel (with his spouse) 10,452 0.00%
Sandra Platts (in a family RATS) 19,073 0.00%
---------------------------------------- ----------------- -----------------
During the year, Jan Pethick acquired 30,380 Ordinary Shares in
the Placing of Ordinary Shares on 9 May 2018, and Robert Jennings
and Sandra Platts acquired 22,800 Ordinary Shares and 2,934
Ordinary Shares respectively in the Open Offer, Placing and Offer
for Subscription on 12 October 2018.
Subsequent to the year end, Sandra Platts acquired 2,384
Ordinary Shares in the Open Offer, Placing and Offer for
Subscription on 27 June 2019.
Substantial Shareholdings
As at 31 March 2019, the Company had the following Shareholdings
in excess of 5% of the issued Share capital:
Name Number of Ordinary Shares Percentage
------------------------------------------ -------------------------- -----------
Smith & Williamson Investment Management 90,520,467 8.53%
Investec Wealth & Investment 83,075,260 7.83%
SEB Pensionsforsikring 66,236,639 6.24%
------------------------------------------ -------------------------- -----------
Related Parties
Details of transactions with related parties are disclosed in
note 10 to the Financial Statements.
Listing Requirements
Since its listing on the Main Market of the London Stock
Exchange and admission to the premium segment of the Official List
of the UK Listing Authority, the Company has complied with the
Prospectus Rules, the Disclosure Guidance and Transparency Rules
("DTR") and the European Union's Market Abuse Regulation (as
implemented in the UK through the Financial Services and Markets
Act 2000 (Market Abuse) Regulations 2016).
Foreign Account Tax Compliance Act
The Foreign Account Tax Compliance Act ("FATCA") became
effective on 1 January 2013. The legislation is aimed at
determining the ownership of US assets in foreign accounts and
improving US tax compliance with respect to those assets. On 13
December 2013, the States of Guernsey entered into an
intergovernmental agreement ("IGA") with US Treasury, in order to
facilitate the requirements of FATCA. The Company registered with
the Internal Revenue Service ("IRS") on 25 February 2015 as a
Foreign Financial Institution ("FFI") and a Sponsoring Entity.
Common Reporting Standard
The Common Reporting Standard ("CRS"), formerly the Standard for
Automatic Exchange of Financial Account Information, became
effective on 1 January 2016, and is an information standard for the
automatic exchange of information developed by the Organisation for
Economic Co-operation and Development ("OECD"). CRS is a measure to
counter tax evasion and it builds upon other information sharing
legislation, such as FATCA and the European Union Savings
Directive, and has superseded the UK-Guernsey IGA for the Automatic
Exchange of Information with effect from 1 January 2016. The first
reporting under CRS for Guernsey was made during 2017.
Alternative Investment Fund Managers Directive
The Company is categorised as a non-EU Alternative Investment
Fund ("AIF"). The AIFMD seeks to regulate managers of AIFs, such as
the Company. It imposes obligations on AIFMs who manage AIFs in a
member state of the European Economic Area ("EEA state"), or who
market shares in AIFs to investors who are domiciled, or with a
registered office, in an EEA state. Under the AIFMD, an AIFM must
be appointed and must comply with various organisational,
operational and transparency requirements.
On 28 January 2015, the Company appointed the Investment Manager
to act as AIFM on behalf of the Company. The Investment Manager is
responsible for fulfilling the role of the AIFM and ensuring the
Company complies with the AIFMD requirements. Details of the total
amount of remuneration for the financial year, split into fixed and
variable remuneration, paid by the AIFM to its staff, and the
number of beneficiaries, are made available to Shareholders on
request to the Investment Manager.
By order of the Board
Sandra Platts
Director
4 July 2019
CORPORATE GOVERNANCE
Compliance
The Board has taken note of the Finance Sector Code of Corporate
Governance issued by the Guernsey Financial Services Commission
(the "Guernsey Code"). The Guernsey Code provides a governance
framework for GFSC licensed entities, authorised and registered
collective investment schemes. Companies reporting against the UK
Code or the AIC Code, as updated in July 2016, are deemed to
satisfy the provisions of the Guernsey Code.
The Board places a high degree of importance on ensuring that
high standards of corporate governance are maintained, and has
considered the principles and recommendations of the AIC Code by
reference to the AIC Corporate Governance Guide for Investment
Companies (the "AIC Guide"). The AIC Code, as explained in the AIC
Guide, addresses all the principles set out in the UK Code. The
Board considers that reporting against the principles and
recommendations of the AIC Code, and by reference to the AIC Guide
(which incorporates the UK Code), will provide better information
to Shareholders.
The Board also acknowledges the new AIC Code of Corporate
Governance which was issued in February 2019 (the "2019 AIC Code")
and notes that the 2019 AIC Code is effective for financial periods
beginning on or after 1 January 2019. During the coming financial
year, the Board intends to review its policies and procedures
against the 2019 AIC Code and comply or explain against the
relevant provisions in the Company's annual report for the year
ended 31 March 2020.
For the year ended 31 March 2019, the Company has complied with
the recommendations of the AIC Code and the relevant provisions of
the UK Code. Issues that are not reported on in detail here are
excluded because they are deemed to be irrelevant to the Company,
as explained in the AIC Guide.
Composition of the Board and Independence of Directors
As at 31 March 2019, the Board of Directors comprised four
non-executive and independent Directors as set out below. The
Company has no executive Directors or any employees. The Directors'
biographies are disclosed on page 18.
Robert Jennings is the Chair of the Board and of the Nomination
Committee.
Jan Pethick is the Chair of the Management Engagement
Committee.
Jon Bridel is the Chair of the Risk Committee.
Sandra Platts is the Chair of the Audit Committee and of the
Remuneration Committee.
Sandra Platts is appointed to act as the Company's Senior
Independent Director ("SID"). The role of the SID is primarily to
provide support to the Chairman and assisting with setting the
Board agenda, and to be available to Shareholders as an additional
point of contact or to communicate any concerns to the Board. The
Board expects that the role and duties of the SID will be continued
to be embedded in the Company's governance framework over time.
In considering the independence of the Chairman, the Board has
taken note of the provisions of the AIC Code relating to
independence and has determined that Robert Jennings is an
Independent Director.
Under the terms of their appointment, all non-executive
Directors were subject to re-election at the first AGM. Thereafter,
in accordance with the Company's Articles of Incorporation, two
Directors shall retire each year and may offer themselves for
re-election. In accordance with the AIC Code, when a Director has
served for nine years or more, the Board shall review whether that
Director can be considered to remain independent, however there is
no formal finite limit to the length of tenure of the
Directors.
Although no formal training is given to Directors by the
Company, the Directors are kept up to date on various matters such
as Corporate Governance issues through bulletins and training
materials provided from time to time by the Company Secretary, the
AIC and other professional firms.
The Board receives quarterly reports and meets at least
quarterly to review the overall business of the Company and to
consider matters specifically reserved for its disposal. At these
meetings the Board monitors the investment performance of the
Company. The Directors also review the Company's activities every
quarter to ensure that it adheres to the Company's investment
policy. Additional ad hoc reports are received as required and
Directors have access at all times to the advice and services of
the Company Secretary, who is responsible for ensuring that the
Board procedures are followed and that applicable rules and
regulations are complied with.
The Board monitors the level of the Share price premium or
discount to determine what action, if any, is required.
The Board and relevant personnel of our Investment Adviser and
our other advisers acknowledge and adhere to the Market Abuse
Regulation, which was implemented on 3 July 2016.
Directors' Performance Evaluation
The Board has established an informal system for the evaluation
of its own performance and that of the Company's individual
Directors, which is led by the Chairman and, as regards the
Chairman's performance evaluation, by the Senior Independent
Director. It considers this to be appropriate having regard to the
non-executive role of the Directors and the significant outsourcing
of services by the Company to external providers.
The Directors undertake, on an annual basis, an assessment of
the effectiveness of the Board particularly in relation to its
oversight and monitoring of the performance of the Investment
Manager, Investment Adviser and other key service providers. The
evaluations consider the balance of skills, experience,
independence and knowledge of the Company. The Board also evaluates
the effectiveness of each of the Directors.
To augment this process, on 28 November 2017, the Board engaged
Condign Board Consulting Limited to conduct a review of the Board's
performance, including such aspects as the quality of the Board's
engagement with the Investment Advisory team concerning investment
strategy, and the monitoring of performance; the balance of
Shareholder returns with other measures of success, including
yields, assets under management and NAV; the ongoing cohesiveness
of the Board and its key advisers; its oversight of Shareholder
relationships and communications; and to look at issues of
transitioning and long-term succession planning.
The findings from the independent performance evaluation were
presented to the Board in May 2018 and it was concluded that the
Company maintained high standards of corporate governance practice
and, in the context of the Company, the main principles of the AIC
Code continued to be applied effectively. Whilst the findings from
the independent review did not raise any areas for concern, the
Board remains cognisant of the need to anticipate and respond to
evolving challenges, and therefore the governance framework in
place by the Company is subject to regular review to ensure it
remains appropriate in the context of the Company.
Directors' Remuneration
It is the responsibility of the Remuneration Committee to debate
and make recommendations to the Board in relation to the Directors'
remuneration, having regard to the level of fees payable to
non-executive Directors in the industry generally, the role that
individual Directors fulfil in respect of Board and Committee
responsibilities and the time committed to the Company's affairs.
No Director who is a member of the Committee takes part in
discussions relating to his own remuneration. The Directors
periodically benchmark the remuneration policy of the Company
against comparable information on listed investment companies,
particularly those operating in similar or adjacent market sectors,
in addition to giving due regard to the individual circumstances of
the Company which may warrant a departure from industry norms.
No Director has a service contract with the Company and details
of the Directors' remuneration, and changes thereto reflecting the
increased time commitment required of the Board, can be found in
the Directors' Remuneration Report on page 32.
Directors' and Officers' Liability Insurance
The Company maintains insurance in respect of directors' and
officers' liability in relation to the Directors' actions on behalf
of the Company.
Relations with Shareholders
The Company reports to Shareholders twice a year by way of the
Interim and Annual Reports. In addition, net asset values are
published monthly and the Investment Adviser publishes monthly
reports to Shareholders on its website www.seqifund.com.
The Board receives quarterly reports on the Shareholder profile
of the Company and regular contact with major Shareholders is
undertaken by the Company's corporate brokers and the executives of
the Investment Adviser. Any issues raised by major Shareholders are
reported to the Board on a regular basis.
The Chairman and individual Directors are willing to meet major
Shareholders to discuss any particular items of concern regarding
the performance of the Company. Members of the Board, including the
Chairman and the Audit Committee Chair, and the Investment Adviser,
are also available to answer any questions which may be raised by
any Shareholder at the Company's Annual General Meeting.
Votes against 2018 AGM resolutions
The Board is aware that a number of votes (approximately 17.57%
of those voting) was received against Resolution 12 at the 2018 AGM
which related to the change in the Investment Adviser's fee basis
(the "Resolution"). As already explained in the Chairman's
Statement, the Investment Adviser's fee is the largest fee borne by
the Company and the revised fee basis provides for a significantly
lower charge on funds under management of over GBP1.0 billion. On
the basis of the Company's assets under management of c. GBP1.4
billion as at 30 June 2019 (relative to c. GBP0.9 billion at the
time of the last AGM), this difference is already becoming
apparent, and if assets under management continue to increase, the
percentage payable to the Investment Adviser will continue to fall
over time.
The majority of the votes against the resolution were
attributable to two institutional investors, with whom the Board
has engaged following the 2018 AGM. The Board explained its
position to them and is hopeful that, given the increase in the AUM
since then, all Shareholders now feel that real benefits are
accruing to the Company from the reduced marginal rate on advisory
fees payable.
Directors' Meetings and Attendance
The table below shows the Directors' attendance at Board and
Committee meetings during the year.
Board - Management
Board - ad hoc/ Audit Risk Nomination Remuneration Engagement
Name scheduled committee Committee Committee Committee Committee Committee
-------------- ----------- ----------- -------------- -------------- -------------- ------------- -------------
Number of
meetings
held 4 11 3 4 1 1 1
-------------- ----------- ----------- -------------- -------------- -------------- ------------- -------------
Robert
Jennings* 4 9 3 4 1 1 1
Jan Pethick* 4 9 3 4 1 1 1
Jon Bridel 4 11 3 4 1 1 1
Sandra Platts 4 10 3 4 1 1 1
-------------- ----------- ----------- -------------- -------------- -------------- ------------- -------------
* Onshore resident Directors
Kate Thurman and Tim Drayson, the Company's independent
consultants, attended a number of Risk Committee and other meetings
with the Directors during the year.
Board Committees
Audit Committee
As at 31 March 2019, the Audit Committee comprised Sandra
Platts, Jon Bridel, Jan Pethick and Robert Jennings, and was
chaired by Sandra Platts. The Committee meets at least three times
a year.
The key objectives of the Audit Committee include a review of
the Financial Statements to ensure they are prepared to a high
standard and comply with all relevant legislation and guidelines,
where appropriate, and to maintain an effective relationship with
the Auditor. The Audit Committee also reviews, considers and, if
appropriate, recommends for the purposes of the Company's Financial
Statements the valuations prepared by the Investment Manager and
Investment Adviser. With respect to the Auditor, the Audit
Committee's role will include the assessment of their independence
and the effectiveness of the audit, and a review of the Auditor's
engagement letter and remuneration and any non-audit services
provided by the Auditor. For the principal duties and report of the
Audit Committee please refer to the Report of the Audit Committee
on pages 33 to 35.
Risk Committee
As at 31 March 2019, the Risk Committee comprised Jon Bridel,
Robert Jennings, Jan Pethick and Sandra Platts, and was chaired by
Jon Bridel. The Committee meets quarterly.
The principal function of the Risk Committee is to identify,
assess, monitor and, where possible, oversee the management of
risks to which the Company's investments are exposed, principally
to enable the Company to achieve its target investment objective of
regular, sustained, long-term distributions over the planned life
of the Company, with regular reporting to the Board. As the Company
is an externally managed non-EU AIF for the purposes of AIFMD, the
Directors have appointed the Investment Manager as AIFM to manage
the additional risks faced by the Company as well as the relevant
disclosures to be made to investors and the necessary regulators.
On 30 January 2015, the FCA confirmed that the Company was eligible
to be marketed via the FCA's National Private Placement Regime and
the Company has complied with Article 22 and 23 of the AIFMD for
the year ended 31 March 2019.
The Risk Committee works closely with IFML and, as required, the
independent consultants, and provides oversight of the Company's
risk management function. During the year a high volume of
transactions were completed which, particularly in certain cases
where the profile of the transaction met the internally agreed
criteria for escalation, required extensive liaison between the
Directors, the independent consultants and IFML to ensure the
investment proposition was appropriately scrutinised and did not
expose the Company to undue credit risk.
Nomination Committee
As at 31 March 2019, the Nomination Committee comprised Jon
Bridel, Robert Jennings, Jan Pethick and Sandra Platts, and was
chaired by Robert Jennings. The Committee meets at least once a
year.
The Committee's key duties include, but are not limited to,
reviewing the structure, size and composition of the Board, to
consider the succession planning for Directors and senior
executives, reviewing the leadership needs of the organisation and
identifying candidates for appointment to the Board.
During the review undertaken by the Nomination Committee during
the year of the size, structure and composition and effectiveness
of the Board, it was concluded by the Nomination Committee that the
incumbent Board, together with its Independent Consultants,
continues to provide the breadth of skills, knowledge and
experience to discharge its duties effectively, and to meet the
leadership needs of the Company.
In order to avoid undue disruption from the departure of
multiple directors in the same year, and for reasons of continuity,
the Nomination Committee confirmed the Board's approach to an
orderly and gradual phasing of its membership, as set out in its
formal succession plan, whereby the first of those Directors
appointed at the Company's launch would retire without seeking
re-appointment at the 2021 AGM. Shareholders will be asked to
approve the appointment of his or her successor at this
meeting.
The Board welcomes the appointment of Mrs Platts as the
Company's SID during the year as a means of further strengthening
the governance framework employed by the Board.
Board Diversity
The Board supports the recommendations of the Davies Report and
notes the recommendations of the Parker review into ethnic
diversity and the Hampton-Alexander review on gender balance in
FTSE leadership. The Board supports the widening of its diversity,
whilst ensuring the capabilities, experience and background of each
member remain appropriate to the Company and continue to contribute
to overall Board effectiveness.
The Board believes that it is currently functioning in a highly
effective manner, and that it would not currently be in
Shareholders' best interests to change the structure or composition
of the Board at this point in time. In addition, the Board notes
the role played by Kate Thurman as Independent Consultant to the
Board, and that including Sandra Platts' role as SID, a third of
the overall independent oversight of the Company is provided by
women.
Remuneration Committee
As at 31 March 2019, the Remuneration Committee comprised Jon
Bridel, Robert Jennings, Jan Pethick and Sandra Platts, and was
chaired by Sandra Platts. The Committee meets at least once a
year.
The Committee is responsible for considering the remuneration of
the Directors and determining the Company's remuneration policy.
For details of the remuneration of the Directors during the year,
please refer to the Directors' Remuneration Report on page 32.
Management Engagement Committee
As at 31 March 2019, the Management Engagement Committee
comprised Jon Bridel, Robert Jennings, Jan Pethick and Sandra
Platts, and was chaired by Jan Pethick. The Committee meets at
least once a year.
The Committee is responsible for the regular review of the terms
of the Investment Advisory and Investment Management Agreements,
along with the performance of the Administrator, Investment Adviser
and the Investment Manager and the Group's other key service
providers. A detailed assessment of the performance and the terms
of engagement of the Company's service providers is undertaken on
at least an annual basis to ensure each remains fair and
reasonable. In addition, the Management Engagement Committee is
actively involved in monitoring and reviewing the overall basis of
remuneration for the Investment Adviser, particularly to ensure
this continues to motivate and incentivise the level of performance
expected of the Investment Adviser.
Internal Control Review and Risk Management System
The Board of Directors is responsible for putting in place a
system of internal controls relevant to the Company and for
reviewing the effectiveness of those systems. The review of
internal controls is an ongoing process for identifying and
evaluating the risks faced by the Company, and which are designed
to manage risks rather than eliminate the risk of failure to
achieve the Company's objectives.
It is the responsibility of the Board to undertake risk
assessment and review of the internal controls in the context of
the Company's objectives that cover business strategy, operational,
compliance and financial risks facing the Company. These internal
controls are implemented by the Company's four main service
providers, the Investment Adviser, the Investment Manager, the
Administrator and the Custodian. The Board receives periodic
updates from these main service providers at the quarterly Board
meetings of the Company. The Board is satisfied that each service
provider has effective controls in place to control the risks
associated with the services that they are contracted to provide to
the Company and are therefore satisfied with the internal controls
of the Company.
The Board of Directors considers the arrangements for the
provision of Investment Advisory, Investment Management,
Administration and Custody services to the Company on an on-going
basis and a formal review is conducted annually. As part of this
review the Board considered the quality of the personnel assigned
to handle the Company's affairs, the investment process and the
results achieved to date.
Anti-bribery and Corruption
The Board acknowledge that the Company's international
operations may give rise to possible claims of bribery and
corruption. In consideration of The Bribery Act 2010, enacted in
the UK, at the date of this report the Board had conducted an
assessment of the perceived risks to the Company arising from
bribery and corruption to identify aspects of business which may be
improved to mitigate such risks. The Board has adopted a zero
tolerance policy towards bribery and has reiterated its commitment
to carry out business fairly, honestly and openly.
Criminal Finances Act
The Board has a zero tolerance commitment to preventing persons
associated with it from engaging in criminal facilitation of tax
evasion and will not work with any service provider who does not
demonstrate the same commitment. The Board has satisfied itself in
relation to its key service providers that they have reasonable
provisions in place to prevent the criminal facilitation of tax
evasion by their own staff or any associated persons.
UK Modern Slavery Act
The Board acknowledges the requirement to provide information
about human rights in accordance with the UK Modern Slavery Act.
The Board conducts the business of the Company ethically and with
integrity, and has a zero tolerance policy towards modern slavery
in all its forms. As the Company has no employees, all its
Directors are non-executive and all its functions are outsourced,
there are no further disclosures to be made in respect of employees
and human rights.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Directors'
Report and Financial Statements in accordance with applicable law
and regulations. The Companies (Guernsey) Law, 2008 (the "Company
law") requires the Directors to prepare financial statements for
each financial year. Under that law they are required to prepare
the Financial Statements in accordance with International Financial
Reporting Standards ("IFRS") as issued by the IASB and applicable
law.
Under the Company law, the Directors must not approve the
Financial Statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Company and its
profit or loss for that year.
In preparing these Financial Statements, the Directors are
required to:
-- select suitable accounting policies and apply them
consistently;
-- make judgements and estimates that are reasonable, relevant
and reliable;
-- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the Financial Statements;
-- assess the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern;
and
-- use the going concern basis of accounting, unless they either
intend to liquidate the Company or cease operations, or have no
realistic alternative but to do so.
The Directors are responsible for keeping proper accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and to enable them to ensure that
the Financial Statements comply with the Company Law. They are
responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error,
and have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Company and
to prevent and detect fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the United Kingdom and Guernsey
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
The Directors who hold office at the date of approval of this
Directors' Report confirm that, so far as they are aware, there is
no relevant audit information of which the Company's Auditor is
unaware, and that each Director has taken all the steps they ought
to have taken as a director to make themselves aware of any
relevant audit information and for establishing that the Company's
Auditor is aware of that information.
Responsibility Statement of the Directors in respect of the
Annual Report
Each of the Directors, who are listed on page 18, confirms to
the best of their knowledge and belief:
-- the Financial Statements, prepared in accordance with IFRS as
issued by the IASB, give a true and fair view of the assets,
liabilities, financial position and profit of the Company, as
required by DTR 4.1.12R; and
-- the Management Report (comprising the Chairman's Statement,
the Investment Adviser's Report, the Directors' Report and other
Committee Reports) includes a fair review of the development and
performance of the business during the year, and the position of
the Company at the end of the year, together with a description of
the principal risks and uncertainties that the Company faces, as
required by DTR 4.1.8R and DTR 4.1.9R.
The Directors consider that the Annual Report, comprising the
Financial Statements and the Management Report, taken as a whole,
is fair, balanced and understandable and provides the information
necessary for Shareholders to assess the Company's position and
performance, business model and strategy.
Sandra Platts
Director
4 July 2019
DIRECTORS' REMUNERATION REPORT
The Company's policy in regard to Directors' remuneration is to
ensure that the Company maintains a transparent and competitive fee
structure in order to recruit, retain and motivate non-executive
Directors of excellent quality in the overall interests of
Shareholders and the long-term success of the Company.
No element of the Directors' remuneration is performance
related, nor does any Director have any entitlement to pensions,
share options or any long term incentive plans from the
Company.
The Directors received the following remuneration in the form of
Directors' fees:
Year ended 31 March 2019 Year ended 31 March 2018
Per annum Actual Actual
GBP GBP GBP
Robert Jennings (Chairman of the Board and the
Nomination Committee) 65,000 65,000 56,000
Jan Pethick (Chair of the Management Engagement
Committee) 50,000 50,000 43,500
Jon Bridel (Chair of the Risk Committee) 50,000 50,000 43,500
Sandra Platts (Chair of the Audit and Remuneration
Committees) 50,000 50,000 43,500
Total 215,000 215,000 186,500
---------- ------------------------- -------------------------
In addition, Robert Jennings, Jan Pethick, Jon Bridel and Sandra
Platts each received a listing fee of GBP6,000, subject to
admission, in connection with the Open Offer, Ordinary Share
Placing and Offer for Subscription on 12 October 2018.
The remuneration policy set out above is the one applied for the
year ended 31 March 2019.
In consultation with the Company's advisers during March 2019,
the Remuneration Committee undertook an internal review of the
Company's remuneration policy, which included receiving reports
benchmarking the Company's position relative to peers and other
vehicles in the listed infrastructure and debt sectors. Having
reviewed the level of activity over the prior year and the time
requirement placed on the Directors in attending to matters as the
Company continued to gain scale, it was agreed that a marginal
increase should be applied to the base fees payable to each of the
Directors. The change in aggregate represents an increase of less
than 5%, and was considered by the Remuneration Committee to be
reasonable in the circumstances. No Director was involved in
determining his or her own remuneration.
Accordingly, with effect from 1 April 2019 and conditional on
receiving Shareholder approval to the Remuneration Report at the
2019 AGM, Robert Jennings' annual fee increased to GBP66,800 per
annum; the annual fees for Jan Pethick, Jon Bridel and Sandra
Platts increased to GBP51,300 each, comprising a basic fee of
GBP44,300 per annum and a fee for their services as Committee Chair
of GBP7,000 per annum; and Sandra Platts will receive an additional
fee of GBP5,000 per annum for her additional time commitment of 5
days per annum as Senior Independent Director.
Directors' and officers' liability insurance cover is maintained
by the Company on behalf of the Directors.
The Directors were appointed as non-executive Directors by
letters issued on 6 January 2015. Each Director's appointment
letter provides that, upon the termination of their appointment,
they must resign in writing and all records remain the property of
the Company. The Directors' appointments can be terminated in
accordance with the Articles and without compensation. The notice
period for the removal of Directors is two months as specified in
the Director's appointment letter. The Articles provide that the
office of director shall be terminated by, among other things: (a)
written resignation; (b) unauthorised absences from board meetings
for twelve months or more; (c) unanimous written request of the
other directors; and (d) an ordinary resolution of the Company.
Under the terms of their appointment, each Director was subject
to re-election at the first AGM and annually thereafter. The
Company may terminate the appointment of a Director immediately on
serving written notice and no compensation is payable upon
termination of office as a director of the Company becoming
effective.
The amounts payable to Directors as at 31 March 2019 are shown
in note 10 to the Financial Statements and related to services
provided as non-executive Directors.
No Director has a service contract with the Company, nor are any
such contracts proposed.
Sandra Platts
Remuneration Committee Chair
4 July 2019
REPORT OF THE AUDIT COMMITTEE
The Company has established an Audit Committee with formally
delegated duties and responsibilities within written terms of
reference (which are available from the Company's Secretary).
Chairman and Membership
As at 31 March 2019, the Audit Committee comprised Jon Bridel,
Robert Jennings, Jan Pethick and Sandra Platts, and was chaired by
Sandra Platts. The Board believes that it is appropriate for the
Chairman of the Company to be a member of the Audit Committee as it
feels that the breadth of his financial experience is of great
value to the work of the Committee in the discharge of its
responsibilities. All members of the Committee are independent
Directors; have no links with KPMG Channel Islands Limited, the
Company's Auditor (the "Auditor" or "KPMG"); and are independent of
the Investment Manager and Investment Adviser. The membership of
the Audit Committee and its terms of reference are kept under
review. The relevant qualifications and experience of each member
of the Audit Committee are detailed on page 18 of these Financial
Statements. The Audit Committee's intention is to meet three times
a year in any full year and to meet with the Auditor as
appropriate.
Duties
The Audit Committee's main role and responsibility is to provide
advice to the Board on whether the Annual Report and Audited
Financial Statements, taken as a whole, are fair, balanced and
understandable and provide the information necessary for
Shareholders to assess the Company's performance, business model
and strategy. The Audit Committee gives full consideration and
recommendation to the Board for the approval of the contents of the
Interim and Annual Financial Statements of the Company, which
includes reviewing the Auditor's report.
The other principal duties of the Committee are to consider the
appointment of the Auditor; to discuss and agree with the Auditor
the nature and scope of the audit; to keep under review the scope,
results and effectiveness of the audit and the independence and
objectivity of the Auditor; and to review the Auditor's letter of
engagement, planning report for the financial period and management
letter, as applicable.
The Audit Committee is responsible for monitoring the financial
reporting process and the effectiveness of the Company's internal
control and risk management systems. The Audit Committee also
focuses particularly on compliance with legal requirements,
accounting standards and the relevant Listing Rules and ensuring
that an effective system of internal financial control is
maintained.
The Audit Committee also reviews, considers and, if appropriate,
recommends for the purposes of the Company's Financial Statements
the valuations prepared by the Investment Manager and Investment
Adviser. These valuations are the most critical element in the
Company's Financial Statements and the Audit Committee considers
them carefully.
Financial Reporting and Audit
The Audit Committee has an active involvement and oversight in
the preparation of both the interim and annual Financial Statements
and in doing so is responsible for the identification and
monitoring of the principal risks associated with the preparation
of the Financial Statements. The principal risk identified in the
preparation of these Financial Statements is the valuation of the
Company's investment in Sequoia IDF Asset Holdings S.A., its
subsidiary company (the "Subsidiary").
The Company's investment in the Subsidiary had a fair value of
GBP1,118,045,818 as at 31 March 2019, representing a substantial
proportion of the net assets of the Company, and as such is the
biggest factor in relation to the accuracy of the Financial
Statements. PricewaterhouseCoopers LLP was engaged as Valuation
Agent throughout the year and was responsible for carrying out a
fair market valuation review of the Subsidiary's investments on a
monthly basis. Draft pricing for the Subsidiary's investments is
provided by the Investment Adviser to the Valuation Agent, who in
turn produces a final valuation report for review by the Investment
Adviser and the Investment Manager. Final responsibility for the
valuation of the Subsidiary's investments, subject to Board
approval, rests with the Investment Manager. This report is then
submitted to TMF Luxembourg S.A. (the "Sub-Administrator"), for
inclusion in the Subsidiary's NAV.
The Audit Committee, on an ongoing basis, discusses with the
Investment Manager and Investment Adviser the methods of valuation
used, and may challenge them on their methodologies, and reviews
the controls and processes in the valuation methods used to value
the Subsidiary's investments. The Audit Committee regularly reviews
the valuations prepared by the Investment Adviser for investments
where market prices are not readily available. At the year end
these represented 68.9% (2018: 66.0%) of total investments. Where
appropriate these valuations are scrutinised and compared against
valuations of investments with similar characteristics or subject
to a sensitivity analysis based on changes in key assumptions. The
Audit Committee has also considered the Auditor's approach to their
audit of the valuation of the Subsidiary's investments and
discussed with the Auditor their approach to testing the
appropriateness and robustness of the valuation methodologies
applied. The Auditor has not reported any significant differences
between the valuations used and the results of the work performed
during their testing process.
Based on the review and analysis described above, the Audit
Committee is satisfied that, as at 31 March 2019, the fair value of
the Subsidiary's investments, and therefore the fair value of the
Company's investment in the Subsidiary, as stated in the Financial
Statements, is reasonable.
The Audit Committee reviewed the Company's accounting policies
applied in the preparation of the Annual Financial Statements,
together with the relevant critical judgements, estimates and
assumptions made by the Board and, having discussed matters with
the Auditor, determined that these were in compliance with
International Financial Reporting Standards ("IFRS") as issued by
the IASB and were reasonable. The Audit Committee reviewed the
materiality levels applied by the Auditor to the financial
statements as a whole and was satisfied that these materiality
levels were appropriate. The Auditor reports to the Audit Committee
all material corrected and uncorrected differences. The Auditor
explained the results of their audit and that on the basis of their
audit work, there were no adjustments proposed that were material
in the context of the Financial Statements as a whole.
The Audit Committee also reviews the Company's financial reports
as a whole to ensure that such reports appropriately describe the
Company's activities and that all statements contained in such
reports are consistent with the Company's financial results and
projections. Accordingly, the Audit Committee was able to advise
the Board that the Annual Report and Audited Financial Statements
are fair, balanced and understandable and provide the information
necessary for Shareholders to assess the Company's performance,
business model and strategy.
External Auditor
The Audit Committee has responsibility for making a
recommendation on the appointment, re-appointment or removal of the
Auditor. KPMG was appointed as the first Auditor of the Company.
During the year, the Audit Committee received and reviewed the
audit plan and report from the Auditor.
To assess the effectiveness of the Auditor, the Audit Committee
reviewed:
-- The Auditor's fulfilment of the agreed audit plan and variations from it, if any;
-- The Auditor's assessment of its objectivity and independence as auditor of the Company;
-- The Auditor's report to the Audit Committee highlighting
their significant areas of focus in the conduct of their audit and
findings thereon that arose during the course of the audit; and
-- Feedback from the Investment Manager, Investment Adviser and
Administrator evaluating the performance of the audit team.
For the year ended 31 March 2019, the Audit Committee was
satisfied that there had been appropriate focus and challenge on
the primary areas of audit risk and assessed the quality of the
audit process as good.
Where non-audit services are to be provided to the Company by
the Auditor, full consideration of the financial and other
implications on the independence of the Auditor arising from any
such engagement will be considered before proceeding. All non-audit
services are pre-approved by the Audit Committee if it is satisfied
that relevant safeguards are in place to protect the Auditor's
objectivity and independence.
To fulfil its responsibility regarding the independence of the
Auditor, the Audit Committee considered:
-- a report from the Auditor describing its arrangements to
identify, report and manage any conflicts of interest; and
-- the extent of non-audit services provided by the Auditor.
During the year ended 31 March 2019, other than the Interim
review, no non-audit services were provided by KPMG.
The following table summarises the remuneration paid to KPMG and
to other KPMG member firms for audit and non-audit services.
For the year For the year
ended 31 March ended 31 March
2019 2018
GBP GBP
Annual audit of the Company 95,000 67,000
Interim review of the Company 25,750 25,000
Annual audit of the Subsidiary 28,000 25,000
-------------------------------- ---------------- ----------------
Internal Controls
As the Company's investment objective is to invest all of its
assets into the Subsidiary, the Audit Committee, after consultation
with the Investment Manager, Investment Adviser and Auditor,
considers the key risk of misstatement in its Financial Statements
to be the valuation of its investment in the Subsidiary, but are
also mindful of the risk of the override of controls by its service
providers, the Investment Manager, the Investment Adviser, the
Administrator and the Sub-Administrator.
The Investment Manager, Investment Adviser and Administrator
together maintain a system of internal control on which they report
to the Board. The Board has reviewed the need for an internal audit
function and has decided that the systems and procedures employed
by the Investment Manager, Investment Adviser and Administrator
provide sufficient assurance that a sound system of risk management
and internal control, which safeguards Shareholders' investment and
the Company's assets, is maintained. An internal audit function
specific to the Company is therefore considered unnecessary.
The Audit Committee is responsible for reviewing and monitoring
the effectiveness of the internal financial control systems and
risk management systems on which the Company is reliant. These
systems are designed to ensure proper accounting records are
maintained, that the financial information on which the business
decisions are made and which is issued for publication is reliable,
and that the assets of the Company are safeguarded. Such a system
of internal financial controls can only provide reasonable and not
absolute assurance against misstatement or loss.
In accordance with the guidance on risk management, internal
control and financial and business reporting published by the
Financial Reporting Council (the "FRC") in September 2014, which
integrated the earlier guidance of the Turnbull Report, the Audit
Committee has reviewed the Company's internal control procedures.
These internal controls are implemented by the Company's four main
service providers, the Investment Manager, the Investment Adviser,
the Administrator and the Custodian. The Audit Committee has
performed reviews of the internal financial control systems and
risk management systems during the year. The Audit Committee is
satisfied with the internal financial control systems of the
Company.
Sandra Platts
Audit Committee Chair
4 July 2019
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF SEQUOIA ECONOMIC
INFRASTRUCTURE INCOME FUND LIMITED
Our opinion is unmodified
We have audited the financial statements of Sequoia Economic
Infrastructure Income Fund Limited (the "Company"), which comprise
the statement of financial position as at 31 March 2019, the
statements of comprehensive income, changes in shareholder's equity
and cash flows for the year then ended, and notes, comprising
significant accounting policies and other explanatory
information.
In our opinion, the accompanying financial statements:
- give a true and fair view of the financial position of the
Company as at 31 March 2019, and of the Company's financial
performance and the Company's cash flows for the year then
ended;
- are prepared in accordance with International Financial
Reporting Standards (IFRS); and
- comply with the Companies (Guernsey) Law, 2008.
Basis for Opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our
responsibilities are described below. We have fulfilled our ethical
responsibilities under, and are independent of the Company in
accordance with, UK ethical requirements including FRC Ethical
Standards as applied to listed entities. We believe that the audit
evidence we have obtained is a sufficient and appropriate basis for
our opinion.
Key Audit Matters: our assessment of the risks of material
misstatement
Key audit matters are those matters that, in our professional
judgment, were of most significance in the audit of the financial
statements and include the most significant assessed risks of
material misstatement (whether or not due to fraud) identified by
us, 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 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. In arriving at our
audit opinion above, the key audit matter was as follows (unchanged
from 2018):
Non-derivative financial assets at fair value through profit or loss
GBP1,118,045,818 (2018: GBP774,427,676)
Refer to pages 33 to 35 of Report of the Audit Committee, note 2 (significant accounting policies),
note 3 (use of judgements and estimates) and note 6 (non-derivative financial assets at fair
value through profit or loss)
The risk Our response
Basis: Our audit procedures included, but were not limited
The Company's investment to:
in its Subsidiary is
carried at fair value Internal Controls:
through profit or loss We evaluated the design, implementation and operating
and represents a significant effectiveness of the key controls over the valuation
proportion of the Company's of the Portfolio.
net assets. The fair
value of the Subsidiary Evaluating experts engaged by management:
reflects its net asset We assessed the objectivity, capabilities and competence
value, the most significant of the third party valuation expert engaged by the
component of which Company to review the reasonableness of the valuation
is its underlying portfolio of the Portfolio. With the support of our KPMG valuation
of senior and subordinated specialist we considered the methodology applied
economic infrastructure by the third party valuation expert in performing
debt investments valued their work. We obtained and assessed the third party
at GBP1.1bn, namely valuation expert's findings, held discussions with
private loans ("Private them and considered the impact, if any, on our audit
Debt") with a fair work.
value of GBP969m and
publicly traded bonds Assessing fair value of infrastructure debt investments:
("Public Debt") with With the support of our KPMG valuation specialists,
a fair value of GBP170m we assessed the appropriateness of the valuation
(together, the "Portfolio"). methodology applied against our own expectations
based on our knowledge of the asset class and experience
Private Debt is primarily in the industry. With the support of our KPMG valuation
valued using third specialist, we held discussions with the Investment
party broker quotes Advisor in relation to all Private Debt positions
and syndication desks. to identify credit or other operational issues, if
Where such market information any, that may impact on the valuation of those positions.
is not externally available,
the valuations are For 100% by fair value of the Public Debt and 25%
based on yields derived by fair value of the Private Debt our KPMG valuation
from comparable loans specialist either independently obtained prices from
and bonds taking into pricing vendors or, where this pricing information
consideration the instrument's was not available, derived an independent mark to
project type and structural model valuation based on market inputs for comparable
and credit characteristics. instruments with similar structural and credit characteristics.
Public Debt is valued
using market pricing For 8% by fair value of Private Debt, we noted the
data sourced from approved proximity of transactions to the year end and considered
third party pricing whether these were an appropriate representation
vendors. of fair value.
Risk: For the remaining Private Debt positions:
The valuation of the
Company's investment * We assessed each loan for significant movements in
at fair value through valuation, which may indicate evidence of a credit
profit and loss is event, by evaluating changes in value since the
considered a significant previous reporting date or the date of acquisition
area of our audit, for those acquired in the current year and considered
given that it represents the impact, if any, on our audit work.
the majority of the
net assets of the Company.
Inherent in that valuation * We agreed key contractual terms such as coupon and
is the use of significant repayment terms to supporting documentation. We also
estimates and judgments compared all expected loan interest receipts versus
in determining the actual cash flows and evaluated the Investment
fair value of the Subsidiary's Advisor's credit memorandums, to assess whether there
Portfolio. There is had been any specific credit events which would
a risk of error through impact their fair value. We performed research to
the inappropriate selection publicly available information for contradictory
and application of evidence.
inputs and/or assumptions
in deriving a fair
value for debt instruments.
Assessing disclosures:
We also considered the Company's disclosures (see
note 3) in relation to the use of estimates and judgements
in determining the fair value of the Portfolio and
the Company's valuation policies adopted in note
2 and fair value disclosures in notes 5 and 6 for
compliance with IFRS.
-----------------------------------------------------------------------
Our application of materiality and an overview of the scope of
our audit
Materiality for the financial statements as a whole was set at
GBP32,700,000, determined with reference to a benchmark of Net
Assets, of which it represents approximately 3.0% (2018: 3.0%).
We reported to the Audit Committee any corrected or uncorrected
identified misstatements exceeding GBP1,635,000, in addition to
other identified misstatements that warranted reporting on
qualitative grounds.
Our audit of the Company was undertaken to the materiality level
specified above, which has informed our identification of
significant risks of material misstatement and the associated audit
procedures performed in those areas as detailed above.
We have nothing to report on going concern
We are required to report to you if we have anything material to
add or draw attention to in relation to the directors' statement in
note 2 to the financial statements on the use of the going concern
basis of accounting with no material uncertainties that may cast
significant doubt over the Company's use of that basis for a period
of at least twelve months from the date of approval of the
financial statements. We have nothing to report in this
respect.
We have nothing to report on the other information in the Annual
Report
The Directors are responsible for the other information
presented in the Annual Report together with the financial
statements. Our opinion on the financial statements does not cover
the other information and we do not express an audit opinion or any
form of assurance conclusion thereon.
Our responsibility is to read the other information and, in
doing so, consider whether, based on our financial statements audit
work, the information therein is materially misstated or
inconsistent with the financial statements or our audit knowledge.
Based solely on that work we have not identified material
misstatements in the other information.
Disclosures of principal risks and longer-term viability
Based on the knowledge we acquired during our financial
statements audit, we have nothing material to add or draw attention
to in relation to:
-- the Directors' confirmation within the viability statement on
page 21, that they have carried out a robust assessment of the
principal risks facing the Company, including those that would
threaten its business model, future performance, solvency or
liquidity;
-- the Principal Risks disclosures describing these risks and
explaining how they are being managed or mitigated;
-- the Directors' explanation in the viability statement on page
21, as to how they have assessed the prospects of the Company, over
what period they have done so and why they consider that period to
be appropriate, and their statement as to whether they have a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the period
of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
Corporate governance disclosures
We are required to report to you if:
-- we have identified material inconsistencies between the
knowledge we acquired during our financial statements audit and the
Directors' statement that they consider that the annual report and
financial statements taken as a whole is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Company's position and performance,
business model and strategy; or
-- the section of the annual report describing the work of the
Audit Committee does not appropriately address matters communicated
by us to the Audit Committee.
We are required to report to you if the Corporate Governance
Statement does not properly disclose a departure from the eleven
provisions of the 2016 UK Corporate Governance Code specified by
the Listing Rules for our review.
We have nothing to report to you in these respects.
We have nothing to report on other matters on which we are
required to report by exception
We have nothing to report in respect of the following matters
where the Companies (Guernsey) Law, 2008 requires us to report to
you if, in our opinion:
-- the Company has not kept proper accounting records; or
-- the financial statements are not in agreement with the accounting records; or
-- we have not received all the information and explanations,
which to the best of our knowledge and belief are necessary for the
purpose of our audit.
Respective responsibilities
Directors' responsibilities
As explained more fully in their statement set out on page 31,
the Directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair
view; such internal control as they determine is necessary to
enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error; 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 they either intend to liquidate
the Company or to cease operations, or have no realistic
alternative but to do so.
Auditor's responsibilities
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 our
opinion in an auditor's report. Reasonable assurance is a high
level of assurance, but does not guarantee that an audit conducted
in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial
statements.
A fuller description of our responsibilities is provided on the
FRC's website at www.frc.org.uk/auditorsresponsibilities.
The purpose of this report and restrictions on its use by
persons other than the Company's members as a body
This report is made solely to the Company's members, as a body,
in accordance with section 262 of the Companies (Guernsey) Law,
2008 and, in respect of any further matters on which we have agreed
to report, on terms we have agreed with the Company. Our audit work
has been undertaken so that we might state to the Company's members
those matters we are required to state to them in an auditor's
report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than
the Company and the Company's members, as a body, for our audit
work, for this report, or for the opinions we have formed.
Dermot Dempsey
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants and Recognised Auditors
Glategny Court
St Peter Port
Guernsey GY1 1WR
Channel Islands
4 July 2019
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2019
Year ended Year ended
31 March 2019 31 March 2018
Note GBP GBP
Revenue
Net gains/(losses) on non-derivative financial assets at fair value through
profit or loss 6 3,634,711 (17,293,682)
Net (losses)/gains on derivative financial assets at fair value through profit
or loss 7 (26,634,900) 24,288,499
Investment income 9 106,717,142 31,726,415
Net foreign exchange loss (1,593,178) (64,118)
Total revenue 82,123,775 38,657,114
-------------- --------------
Expenses
Investment Adviser fees 10 7,312,391 4,826,658
Investment Manager fees 10 320,000 319,119
Directors' fees and expenses 10 216,601 187,457
Administration fees 10 405,541 377,116
Auditor's fees 136,129 82,346
Legal and professional fees 280,542 181,395
Valuation fees 502,000 477,600
Custodian fees 215,114 167,378
Listing, regulatory and statutory fees 105,700 72,436
Loan finance costs 15 3,172,657 1,348,781
Other expenses 286,268 202,462
-------------- --------------
Total operating expenses 12,952,943 8,242,748
-------------- --------------
Profit and total comprehensive income for the year 69,170,832 30,414,366
-------------- --------------
Basic and diluted earnings per Ordinary Share 13 7.48p 4.21p
-------------- --------------
All items in the above statement are from continuing
operations.
The accompanying notes on pages 44 to 70 form an integral part
of the Financial Statements
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the year ended 31 March 2019
Share Retained
Year ended 31 March 2019 capital earnings Total
Note GBP GBP GBP
At 1 April 2018 746,867,128 11,303,074 758,170,202
Issue of Ordinary Shares during
the year, net of issue costs 12 325,163,902 - 325,163,902
Total comprehensive income for
the year - 69,170,832 69,170,832
Dividends paid during the year 4 - (55,365,515) (55,365,515)
At 31 March 2019 1,072,031,030 25,108,391 1,097,139,421
------------- ------------ -------------
Share Retained
Year ended 31 March 2018 capital earnings Total
Note GBP GBP GBP
At 1 April 2017 588,354,362 23,472,915 611,827,277
Issue of Ordinary Shares during
the year, net of issue costs 12 158,512,766 - 158,512,766
Total comprehensive income for
the year - 30,414,366 30,414,366
Dividends paid during the year 4 - (42,584,207) (42,584,207)
At 31 March 2018 746,867,128 11,303,074 758,170,202
----------- ------------ ------------
The accompanying notes on pages 44 to 70 form an integral part
of the Financial Statements.
STATEMENT OF FINANCIAL POSITION
At 31 March 2019
31 March 2019 31 March 2018
Note GBP GBP
Non-current assets
Non-derivative financial assets at fair value through profit or loss 6 1,118,045,818 774,427,676
Current assets
Cash and cash equivalents 8 27,633,414 2,393,742
Trade and other receivables 14 60,522,481 8,233,132
Derivative financial assets at fair value through profit or loss 7 10,598,250 14,432,392
------------- -------------
Total current assets 98,754,145 25,059,266
Total assets 1,216,799,963 799,486,942
Current liabilities
Loan payable 15 113,875,164 -
Trade and other payables 16 2,364,618 1,777,767
Derivative financial liabilities at fair value through profit or loss 7 3,420,760 300,905
------------- -------------
Total current liabilities 119,660,542 2,078,672
Non-current liabilities
Loan payable 15 - 39,238,068
------------- -------------
Total non-current liabilities - 39,238,068
Total liabilities 119,660,542 41,316,740
Net assets 1,097,139,421 758,170,202
------------- -------------
Equity
Share capital 12 1,072,031,030 746,867,128
Retained earnings 25,108,391 11,303,074
-------------
Total equity 1,097,139,421 758,170,202
------------- -------------
Number of Ordinary Shares 12 1,060,975,849 748,315,757
------------- -------------
Net asset value per Ordinary Share 103.41p 101.32p
------------- -------------
The Financial Statements on pages 40 to 70 were approved and
authorised for issue by the Board of Directors on
4 July 2019 and signed on its behalf by:
Sandra Platts
Director
STATEMENT OF CASH FLOWS
For the year ended 31 March 2019
Year ended Year ended
Note 31 March 2019 31 March 2018
GBP GBP
Cash flows from operating activities
Profit for the year 69,170,832 30,414,366
Adjustments for:
Net (gains)/losses on non-derivative financial assets at fair value through
profit or loss 6 (3,634,711) 17,293,682
Net losses/(gains) on derivative financial assets at fair value through
profit or loss 7 26,634,900 (24,288,499)
Investment Adviser fees settled through issue of Ordinary Shares 12 1,279,907 1,119,508
Net foreign exchange loss 1,593,178 64,118
Loan finance costs 15 3,172,657 1,348,781
(Increase)/decrease in trade and other receivables (excluding finance costs) 14 (52,430,820) 1,191,169
Increase in trade and other payables (excluding finance costs) 16 571,320 350,337
46,357,263 27,493,462
Cash received on settled forward contracts 17,278,070 14,935,862
Cash paid on settled forward contracts (36,958,973) (11,257,922)
Purchases of investments 6 (534,891,241) (252,978,738)
Sales of investments 6 194,907,810 66,058,998
-------------- --------------
Net cash outflow from operating activities (313,307,071) (155,748,338)
-------------- --------------
Cash flows from financing activities
Net proceeds from issue of Ordinary Shares 323,883,995 157,393,258
Proceeds from drawdown of loan 15 260,249,614 39,647,046
Repayment of loan 15 (186,730,072) (40,000,000)
Loan finance costs paid (3,022,861) (2,576,164)
Dividends paid 4 (55,365,515) (42,584,207)
-------------- --------------
Net cash inflow from financing activities 339,015,161 111,879,933
-------------- --------------
Net increase/(decrease) in cash and cash equivalents 25,708,090 (43,868,405)
Cash and cash equivalents at beginning of year 2,393,742 46,734,809
Effect of foreign exchange rate changes on cash and cash equivalents during
the year (468,418) (472,662)
Cash and cash equivalents at end of year 27,633,414 2,393,742
-------------- --------------
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 March 2019
1. GENERAL INFORMATION
Sequoia Economic Infrastructure Income Fund Limited (the
"Company") was incorporated and registered in Guernsey under the
Companies (Guernsey) Law, 2008 on 30 December 2014. The Company's
registration number is 59596 and it is regulated by the Guernsey
Financial Services Commission as a registered closed ended
collective investment scheme under The Registered Collective
Investment Scheme Rules 2015. The Company is listed and began
trading on the Main Market of the London Stock Exchange and was
admitted to the premium segment of the Official List of the UK
Listing Authority on 3 March 2015.
The Company makes its investments through Sequoia IDF Asset
Holdings S.A. (the "Subsidiary"). The Company controls the
Subsidiary through a holding of 100% of its shares. The Company
further invests in the Subsidiary through the acquisition of
Variable Funding Notes ("VFNs") issued by the Subsidiary. The
Subsidiary is domiciled in Luxembourg and has no underlying
subsidiaries.
Through its Subsidiary, the Company invests in a diversified
portfolio of senior and subordinated economic infrastructure debt
investments.
With effect from 28 January 2015, Sequoia Investment Management
Company Limited (the "Investment Adviser") was appointed as the
Investment Adviser and International Fund Management Limited (the
"Investment Manager") was appointed as the Investment Manager.
2. SIGNIFICANT ACCOUNTING POLICIES
Statement of compliance
The Annual Financial Statements (the "Financial Statements"),
which give a true and fair view, have been prepared in accordance
with International Financial Reporting Standards ("IFRS") issued by
the International Accounting Standards Board ("IASB") and
interpretations issued by the International Financial Reporting
Interpretations Committee ("IFRIC") and are in compliance with the
Companies (Guernsey) Law, 2008, the Prospectus Rules, the
Disclosure Guidance and Transparency Rules and the Market Abuse
Directive (as implemented in the UK through Financial Services and
Markets Authority).
Basis of preparation
The Company's Financial Statements have been prepared on a
historical cost basis, as modified by the revaluation of financial
instruments measured at fair value through profit or loss.
The preparation of financial statements in conformity with IFRS
requires the Directors to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date
of the Financial Statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates. Significant estimates and judgements
are discussed in note 3. The principal accounting policies adopted
are set out below.
The Directors believe that the Annual Report and Financial
Statements contain all of the information required to enable
Shareholders and potential investors to make an informed appraisal
of the investment activities and profits and losses of the Company
for the year to which it relates and does not omit any matter or
development of significance.
In accordance with the investment entities exemption contained
in IFRS 10, "Consolidated Financial Statements", the Board has
determined that the Company satisfies the criteria to be regarded
as an investment entity and that the Company provides investment
related services. As a result the Company is required to only
prepare individual Financial Statements under IFRS and measures its
investment in its Subsidiary at fair value. This determination
involves a degree of judgement (see note 3 for further
details).
Going concern
The Company has been incorporated with an unlimited life. In
accordance with the Company's Articles of Incorporation, the
Directors were required to propose an ordinary resolution (the
"Continuation Resolution") on or before 3 September 2016 that the
Company continues as a registered closed-ended collective
investment scheme, and to propose further Continuation Resolutions
within every three years thereafter. The first Continuation
Resolution was passed by Shareholders at an Extraordinary General
Meeting of the Company on 25 May 2016, and the second on 16 August
2018 at the Company's Annual General Meeting ("AGM"). Should a
Continuation Resolution not be passed, the Directors are required
to put forward proposals within six months for the reconstruction
or reorganisation of the Company to the Shareholders for their
approval. These proposals may or may not involve winding up the
Company and, accordingly, failure to pass a Continuation Resolution
will not necessarily result in the winding up of the Company.
The Directors have considered the possibility that the next
Continuation Resolution, to be proposed at the 2021 AGM, may not be
passed by Shareholders, however they noted the overwhelming
majority vote in favour of the Continuation Resolutions passed in
May 2016 and August 2018, the consistently strong appetite for the
Company's investment proposition, evidenced by a number of
successful Share issues, and that the Company's Shares have
consistently traded at a premium since launch.
After a review of the Company's holdings in cash and cash
equivalents, investments and a consideration of the income deriving
from those investments and the likelihood that future Continuation
Resolutions will be passed, the Directors believe that it is
appropriate to adopt the going concern basis in preparing the
Financial Statements as the Company has adequate financial
resources to meet its liabilities as they fall due.
New Accounting Standards effective and adopted
-- IFRS 2 (amended) "Share-based Payment" (amendments to clarify
the classification and measurement of share-based payment
transactions, effective for periods commencing on or after 1
January 2018);
-- IFRS 9, "Financial Instruments" (effective for periods
commencing on or after 1 January 2018);
In addition, the IASB completed its Annual Improvements
2014-2016 Cycle project in December 2016. This project has amended
certain existing standards and interpretations effective for
accounting periods commencing on or after 1 January 2018.
The adoption of these amended standards has had no material
impact on the Financial Statements of the Company.
The adoption of IFRS 2 has had no material impact on these
Financial Statements as the Company's share-based payments are
already classified as equity settled and are therefore not impacted
by the amendments to IFRS 2.
The adoption of IFRS 9 has had no material impact on these
Financial Statements, principally for the following reasons:
-- the classification and measurement methodology for all of the
Company's assets and liabilities has remained the same under IFRS 9
as under IAS 39;
-- the Company's VFN investments are measured at fair value, as
the Company is an investment entity and the performance of its
portfolio of VFN investments is assessed on a fair value basis, and
so the changes in IFRS 9 relating to the assessment of credit
losses do not apply to these instruments;
-- the Company does not apply hedge accounting, and is therefore
unaffected by the hedge accounting-related changes introduced in
IFRS 9.
Investment income
Investment income is recognised in profit or loss of the
Statement of Comprehensive Income on the effective interest rate
method basis and includes interest income from the Company's
investment in VFNs issued by the Subsidiary and from cash and cash
equivalents.
VFN interest
Interest on VFNs issued by the Subsidiary is paid to the Company
on a quarterly basis. VFN interest is calculated on an accruals
basis, as the amount of revenue receivable in the quarter by the
Subsidiary deriving from its investments and cash and cash
equivalents, less any expenses due or payable by the
Subsidiary.
Net gains/(losses) on financial assets at fair value through
profit or loss
Net gains/(losses) on financial assets at fair value through
profit or loss consists of realised and unrealised gains and losses
on both non-derivative and derivative financial assets at fair
value through profit or loss, and are recognised in profit or loss
in the Statement of Comprehensive Income. Gains or losses on
non-derivative financial instruments are calculated as described in
the section 'Non-derivative financial instruments - fair value and
subsequent measurement' within this note; gains or losses on
derivative financial instruments are calculated as described in the
section 'Derivative financial instruments - fair value and
subsequent measurement' within this note.
Expenses
Expenses of the Company are recognised in profit or loss of the
Statement of Comprehensive Income on an accruals basis.
Share-based payments (equity-settled)
In accordance with the terms of the Investment Advisory
Agreement, one tenth (up to 31 August 2018, one quarter) of the
Investment Adviser's fee is settled through the issue of Ordinary
Shares in the Company. Services received in exchange for the grant
of any share-based payments are measured indirectly by reference to
the fair value of the Ordinary Shares at the date of issue.
Share-based payments are recognised as an expense in profit or loss
of the Statement of Comprehensive Income.
Ordinary Shares
The Ordinary Shares of the Company are classified as equity
based on the substance of the contractual arrangements and in
accordance with the definition of equity instruments under IAS 32.
The proceeds from the issue of participating Shares are recognised
in the Statement of Changes in Shareholders' Equity, net of issue
costs.
Cash and cash equivalents
Cash comprises current deposits with banks. Cash equivalents are
short-term, highly liquid investments that are readily convertible
to known amounts of cash, are subject to an insignificant risk of
changes in value, and are held for the purpose of meeting
short-term cash commitments rather than for investments or other
purposes. Certain amounts of the Company's cash are held as
collateral against the Company's forward foreign exchange trading
facilities (see note 8).
Financial instruments
Classification
The Company classifies its financial assets and financial
liabilities into categories in accordance with IFRS 9, "Financial
Instruments".
Financial assets and liabilities at fair value through profit
and loss
Financial assets and liabilities classified in this category are
designated by management on initial recognition as part of a group
of financial assets and/or liabilities which are managed and their
performance evaluated on a fair value basis, in accordance with a
documented investment strategy. This category includes the
Company's investment in shares and VFNs issued by the Subsidiary
and forward foreign exchange contracts. The Investment Entities
exception to consolidation in IFRS 10, "Consolidated Financial
Statements" requires subsidiaries of an investment entity to be
accounted for at fair value through profit or loss in accordance
with IFRS 9.
Financial assets at amortised cost
This category comprises cash and cash equivalents and trade and
other receivables.
Financial liabilities at amortised cost
This category comprises loans payable and trade and other
payables.
Recognition and initial measurement
Financial assets and financial liabilities at fair value through
profit or loss are measured initially at fair value, being the
transaction price, on the trade date. Transaction costs on
financial assets at fair value through profit or loss are expensed
immediately. Financial assets or financial liabilities not at fair
value through profit or loss are initially recognised at fair value
plus transaction costs that are directly attributable to their
acquisition or issue.
Non-derivative financial instruments - fair value and subsequent
measurement
After initial measurement, the Company measures non-derivative
financial assets classified at fair value through profit or loss at
their fair values. Changes in fair value are recorded within "Net
gains/(losses) on non-derivative financial assets at fair value
through profit or loss" in the Statement of Comprehensive Income.
This account includes foreign exchange differences but excludes VFN
interest income.
"Fair value" is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date in the
principal or, in its absence, the most advantageous market to which
the Company has access at that date. The fair value of a liability
reflects its non-performance risk.
If there is no quoted price in an active market, the Company
uses valuation techniques that maximise the use of relevant
observable inputs and minimise the use of unobservable inputs. The
chosen valuation technique incorporates all of the factors that
market participants would take into account in pricing a
transaction. Please refer to note 6 for further details.
Non-derivative financial instruments - amortised cost
measurement
After initial measurement, other financial liabilities are
measured at amortised cost using the effective interest rate
method. The amortised cost of a financial asset or financial
liability is the amount at which the financial asset or financial
liability is measured on initial recognition, minus principal
repayments, plus or minus the cumulative amortisation using the
effective interest method of any difference between the initial
amount recognised and the maturity amount, minus any reduction for
impairment.
Derivative financial instruments - fair value and subsequent
measurement
The Company holds derivative financial instruments to minimise
its exposure to foreign exchange risks and from time to time may
also hold derivative financial instruments to minimise its exposure
to interest rate risks or for economic leveraging. Derivatives are
classified as financial assets or financial liabilities (as
applicable) at fair value through profit or loss and are initially
recognised at fair value; attributable transaction costs are
recognised in profit or loss in the Statement of Comprehensive
Income when incurred. Subsequent to initial recognition,
derivatives are measured at fair value and changes thereto are
recorded within 'Net gains/(losses) on derivative financial
instruments at fair value through profit or loss' in the Statement
of Comprehensive Income. This account includes foreign exchange
differences but excludes interest income. The fair values of
derivative transactions are measured using their market prices at
the reporting date.
Derecognition
A financial asset is derecognised when the contractual rights to
the cash flows from the financial asset expire or it transfers the
financial asset and the transfer qualifies for derecognition in
accordance with IFRS 9. A financial liability is derecognised when
the obligation specified in the contract is discharged, cancelled
or expires.
Foreign currency
Functional and presentation currency
The Financial Statements of the Company are presented in the
currency of the primary economic environment in which the Company
operates (its functional currency). The Directors have considered
the primary economic currency of the Company; the currency in which
the original finance was raised; the currency in which
distributions will be made; and ultimately what currency would be
returned to Shareholders if the Company was wound up. The Directors
have also considered the currency to which the Company's
investments are exposed. On balance, the Directors believe that
Sterling best represents the functional currency of the Company
during the year. Therefore, the books and records are maintained in
Sterling and, for the purpose of the Financial Statements, the
results and financial position of the Company are presented in
Sterling, which has been selected as the presentation currency of
the Company.
Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign currency balances at the year end are
translated into the functional currency at the exchange rates
prevailing at the year end date. Foreign exchange gains and losses
resulting from the settlement of such transactions and from the
translation at year end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognised in
profit or loss of the Statement of Comprehensive Income.
Non-monetary items measured at historical cost are translated
using the exchange rates at the date of the transaction.
Non-monetary items measured at fair value are translated using the
exchange rates at the date when fair value was determined.
Dividends
Interim dividends paid to Shareholders are recorded through the
Statement of Changes in Shareholders' Equity when they are declared
to Shareholders. Final dividends are recorded through the Statement
of Changes in Shareholders' Equity when they are approved by
Shareholders. The payment of any dividend by the Company is subject
to the satisfaction of a solvency test as required by the Companies
(Guernsey) Law, 2008.
Segmental reporting
The Board has considered the requirements of IFRS 8 - "Operating
Segments". The Company has entered into an Investment Management
and Investment Advisory Agreement with the Investment Manager and
Investment Adviser respectively, under which the Board has
delegated the day to day responsibility for the management of the
Company's investment portfolio to the Investment Manager, who has
then delegated that responsibility to the Investment Adviser per
the Investment Advisory Agreement, subject to the overall
supervision of the Board. Subject to its terms and conditions, the
Investment Advisory Agreement requires the Investment Adviser to
manage the Company's investment portfolio in accordance with the
Company's investment guidelines in effect from time to time,
including the authority to purchase and sell securities and other
investments and to carry out other actions as appropriate to give
effect thereto. However, the Board retains full responsibility to
ensure that the Investment Adviser adheres to its mandate.
Moreover, the Board is fully responsible for the appointment and/or
removal of the Investment Adviser. Accordingly, the Board is deemed
to be the "Chief Operating Decision Maker" of the Company. In the
Board's opinion, the Company is engaged in a single segment of
business, through its investment in the Subsidiary, being
investment in senior and subordinated infrastructure debt
instruments and related and/or similar assets.
The Company receives no revenues from external customers. Other
than the Subsidiary, which is a Luxembourg company, the Company
holds no non-current assets in any geographical area other than
Guernsey.
3. USE OF JUDGEMENTS AND ESTIMATES
The preparation of Financial Statements in accordance with IFRS
requires the Board to make judgements, estimates and assumptions
that affect the application of policies and the reported amounts of
assets and liabilities and income and expenses. The estimates and
associated assumptions are based on various factors that are
believed to be reasonable under the circumstances, the results of
which form the basis of making the judgements about carrying values
of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on a
semi-annual basis. Revisions to accounting estimates are recognised
in the period in which the estimate is revised if the revision
affects only that period, or in the period of the revision and
future periods if the revision affects both current and future
periods.
The principal judgements and estimates are as follows:
Judgements
Functional currency
Refer to note 2 'Functional and presentation currency'.
Investment Entity
The Board has determined that the Company has all the elements
of control as prescribed by IFRS 10 in relation to the Subsidiary
as the Company owns 100% of the equity of the Subsidiary, is
exposed and has rights to the returns of the Subsidiary and has the
ability either directly or through the Investment Adviser to affect
the amount of its returns from the Subsidiary.
The Company provides investment management services and has a
number of investors who pool their funds to gain access to these
services and investment opportunities that they might not have had
access to individually. The Company, being listed on the Main
Market of the London Stock Exchange, obtains funding from a diverse
group of external Shareholders, to whom it has committed that its
business purpose is to invest funds solely for the returns from
capital appreciation and investment income.
The Company has only one investment - the Subsidiary, in which
it holds 100% of the equity, however its investment in the
Subsidiary is used to acquire exposure to a portfolio comprising a
large number of investments. The fair value method is used to
represent the Subsidiary's performance in its internal reporting to
the Board, and to evaluate the performance of the Subsidiary's
investments and to make investment decisions for mature
investments. Those investments have documented maturity/redemption
dates, or will be sold if other investments with better risk/reward
profile are identified, which the Directors consider demonstrates a
clear exit strategy.
The Subsidiary serves as an asset holding company and does not
provide investment-related services.
Accordingly, when the Subsidiary is assessed based on the
structure of the Company and its Subsidiary as a whole as a means
of carrying out activities, the Board has concluded that the
Company satisfies sufficient of the criteria above to meet the
definition of an investment entity. As a result, under the terms of
IFRS 10, the Company is not permitted to consolidate the
Subsidiary, but must measure its investment in the Subsidiary at
fair value through profit or loss. The Company has determined that
the fair value of the Subsidiary is the Subsidiary's net asset
value and has concluded that the Subsidiary meets the definition of
an unconsolidated subsidiary under IFRS 12 and has made the
necessary disclosures.
Estimates
Fair value of non-derivative and derivative financial
instruments at fair value through profit or loss
The Company records its investment in the Subsidiary and in
forward foreign exchange contracts at fair value. The valuations of
the investments held by the Subsidiary, and thus the net asset
value of the Subsidiary itself, are prepared in accordance with the
methodologies described in note 6. The valuations of forward
foreign exchange contracts are prepared with reference to
prevailing exchange rates. The Directors consider that these
valuations represent the best estimate of the fair values of the
Company's investment in the Subsidiary and in forward foreign
exchange contracts.
4. DIVIDS
The Company's dividend policy, in the absence of any significant
restricting factors, is to pay dividends totalling 6p per Ordinary
Share per annum for the foreseeable future. The Company pays
dividends on a quarterly basis.
The Company paid the following dividends on its Ordinary Shares
during the year ended 31 March 2019:
Dividend
rate per Net
Ordinary dividend
Payment Share payable Record Ex-dividend
Period to date (pence) (GBP) date date
27
31 March 25 May April 26 April
2018 2018 1.5 11,224,736 2018 2018
30 June 24 August 27 July 26 July
2018 2018 1.5 12,321,526 2018 2018
30 22 26
September November October 25 October
2018 2018 1.5 15,907,343 2018 2018
31 22 25
December February January 24 January
2018 2019 1.5 15,911,910 2019 2019
---------------------- --------------------- -------------------- ---------------------- ------------------- -----------------------
The Company paid the following dividends on its Ordinary Shares
during the year ended 31 March 2018:
Dividend
rate per Net
Ordinary dividend
Payment Share payable Record Ex-dividend
Period to date (pence) (GBP) date date
28
31 March 24 May April 27 April
2017 2017 1.5 8,934,633 2017 2017
30 June 25 August 28 July 27 July
2017 2017 1.5 11,212,792 2017 2017
30 24 27
September November October 26 October
2017 2017 1.5 11,216,322 2017 2017
31 23 26
December February January 25 January
2017 2018 1.5 11,220,460 2018 2018
---------------------- --------------------- -------------------- ---------------------- ------------------- -----------------------
Under Guernsey law, the Company can pay dividends in excess of
its retained earnings provided it satisfies the solvency test
prescribed by the Companies (Guernsey) Law, 2008. The solvency test
considers whether the Company is able to pay its debts when they
fall due, and whether the value of the Company's assets is greater
than its liabilities. The Company satisfied the solvency test in
respect of all dividends declared or paid in the year.
On 22 May 2019, the Company announced that it had increased the
Company's dividend target from 6 pence to 6.25p per Ordinary Share
per annum. It is expected that the first dividend to be declared
under the new target will be in respect of the quarter ending 30
June 2019.
5. FINANCIAL RISK MANAGEMENT
The Board of Directors has overall responsibility for the
establishment and oversight of the Company's risk management
framework. The Company's risk management policies are established
to identify and analyse the risks faced by the Company, to set
appropriate risk limits and controls and to monitor risks and
adherence to limits. Risk management policies are reviewed
regularly to reflect changes in market conditions and the Company's
activities. Below is a non-exhaustive summary of the risks that the
Company is exposed to as a result of its use of financial
instruments:
Market Risk
Market risk is the risk that changes in market factors such as
foreign exchange rates, interest rates and equity prices will
affect the Company's income and/or the value of its holdings in
financial instruments.
The Company's exposure to market risk comes mainly from
movements in the value of its investment in the Subsidiary and on a
look-through basis to the underlying investments in the
Subsidiary's portfolio. Changes in credit spreads may further
affect the Subsidiary's net equity or net income, and hence the
value of the Company's investment in the Subsidiary.
The objective of market risk management is to manage and control
market risk exposures within acceptable parameters while optimising
the return on risk. The Company's strategy for the management of
market risk is driven by its investment objective to provide
investors with regular, sustained, long-term distributions and
capital appreciation from a diversified portfolio of senior and
subordinated economic infrastructure debt investments, which are
held in a portfolio at the Subsidiary level. The various components
of the Company's market risk are managed on a daily basis by the
Investment Manager in accordance with policies and procedures in
place, as detailed below.
In addition, the Company, through the underlying Subsidiary,
intends to mitigate market risk generally by not making investments
that would cause it to have exposure to any one individual
infrastructure asset exceeding 10% of the Group's investments at
the time of investment. The Subsidiary's market positions are
monitored on a quarterly basis by the Board of Directors and by the
Investment Manager at the point of investment and on an ongoing
basis.
Interest Rate Risk
Interest rate risk is the risk that the fair value or future
cash flows of a financial instrument will fluctuate because of
changes in market interest rates. The Subsidiary's interest-bearing
financial assets and liabilities expose it to risks associated with
the effects of fluctuations in the prevailing levels of market
interest rates on its financial position and cash flows.
The Company is exposed to cash flow interest rate risk in
respect of its cash and cash equivalents and the floating rate debt
investments held by the Subsidiary and to fair value interest rate
risk in respect of the fixed rate debt investments held by the
Subsidiary.
As the Company has no investment restrictions which would
confine its investment universe to short-dated issues, the
Investment Manager is mindful that fixed interest portfolios with
longer durations may be subject to relatively greater adverse
effects of a rising interest rate environment and inflationary
considerations.
Interest rate risk is mitigated through the diversification of
assets by duration and jurisdiction and with maintaining in excess
of 50% of its portfolio in floating rate or inflation-linked
debt.
Interest receivable on bank deposits or payable on bank
overdraft positions will be affected by fluctuations in interest
rates. Interest rate risk on cash and cash equivalents at Company
and Subsidiary level is not considered significant.
The following table shows the profile of the Subsidiary's
investment portfolio:
31 March 2019 31 March 2018
Range of interest rates GBP Range of interest rates GBP
Investments with floating interest
rates 0.00% to 12.60% 790,763,073 0.00% to 11.88% 460,434,982
Investments with fixed interest
rates 3.88% to 13.94% 348,515,119 0.00% to 10.50% 255,478,022
Financial assets at fair value through profit or loss (note
6) 1,139,278,192 715,913,004
-------------- ------------
The following table shows the Directors' best estimate of the
sensitivity of the Subsidiary's portfolio of investments to
stressed changes in interest rates, with all other variables held
constant. The table assumes parallel shifts in the respective
forward yield curves and is based on the modified duration of the
assets.
31 March 2019 effect on net assets 31 March 2018 effect on net assets
Possible reasonable change in and profit or loss and profit or loss
interest rate GBP GBP
+1% (18,292,303) (14,610,813)
-1% 20,139,211 16,458,592
-------------------------------------- ------------------------------------- -------------------------------------
The possible change in the interest rate of 1% is regarded as
reasonable in view of the current low level of global interest
rates.
Under the terms of the Prospectus, the Company is permitted to
use interest rate hedging instruments to protect against exposure
to interest rate risk. However, no such hedging arrangements were
entered into during the year and none were in place at the year
end.
Currency risk
Currency risk is the risk that the fair value or future cash
flows of a financial instrument will fluctuate because of changes
in foreign exchange rates.
The Company is directly exposed to currency risk in respect of
its cash and cash equivalents and derivatives denominated in
currencies other than Sterling, and indirectly through its
investment in the Subsidiary.
The functional and presentational currency of the Company is
Sterling. The Company invests in its Subsidiary through VFNs
denominated in various currencies other than the functional
currency, currently US Dollar, Euro, Australian Dollar, Polish Z
oty and Norwegian Krone. The Subsidiary in turn invests in
financial instruments and enters into transactions that are
denominated in currencies other than the functional currency.
Consequently, the Company is exposed to risk that the exchange rate
of its functional currency relative to other foreign currencies may
change in a manner that has an adverse effect on the fair value or
future cash flows of the Company's financial assets or
liabilities.
The Investment Manager monitors the exposure to foreign
currencies and reports to the Board on a regular basis. The
Investment Manager measures the risk of the foreign currency
exposure by considering the effect on the net asset value and
income of a movement in the rates of exchange to which the assets,
liabilities, income and expenses are exposed. A currency hedging
program is in place at the Company level, in line with the
intentions stated in the Prospectus, to protect against the effects
of currency exposure on the future income arising from the
underlying portfolio of investments held by the Subsidiary.
The total net foreign currency exposure of the Company and the
Subsidiary combined at the year end was as detailed in the
following table. These figures have been presented on a combined
basis, as there exist foreign currency assets and liabilities in
both the Company and the Subsidiary, and the forward foreign
exchange contracts held at the Company level are taken out to hedge
currency exposure existing at the Subsidiary level.
31 March 2019 31 March 2018
GBP GBP
USD Exposure
Financial assets at fair value through profit or loss 591,848,993 331,355,043
Forward foreign exchange contracts (564,652,969) (334,872,532)
Cash and cash equivalents 20,424,877 51,638,273
Trade and other receivables 4,166,767 1,929,801
Loan payable (53,875,164) (39,238,068)
Trade and other payables (34,141) (113,538)
-------------- --------------
Net USD Exposure (2,121,637) 10,698,979
-------------- --------------
EUR Exposure
Financial assets at fair value through profit or loss 248,240,364 156,183,277
Forward foreign exchange contracts (259,290,882) (128,370,005)
Cash and cash equivalents 1,420,495 588,176
Trade and other receivables 3,610,808 1,413,746
Trade and other payables (226,155) (43,694)
-------------- --------------
Net EUR Exposure (6,245,370) 29,771,500
-------------- --------------
NOK Exposure
Financial assets at fair value through profit or loss 12,584,566 12,225,698
Forward foreign exchange contracts (11,503,375) (11,954,858)
Cash and cash equivalents 1,236 1,332
Trade and other receivables 256,168 233,798
-------------- --------------
Net NOK Exposure 1,338,595 505,970
-------------- --------------
PLN Exposure
Financial assets at fair value through profit or loss 1,019,928 -
Forward foreign exchange contracts (4,515,099) -
Cash and cash equivalents 56,485 -
Trade and other receivables 6,112 -
-------------- --------------
Net PLN exposure (3,432,574) -
-------------- --------------
AUD Exposure
Financial assets at fair value through profit or loss 40,965,698 -
Forward foreign exchange contracts (40,141,297) -
Cash and cash equivalents 279 22
Trade and other receivables 894,261 -
-------------- --------------
Net AUD exposure 1,718,941 22
-------------- --------------
TOTAL EXPOSURE (8,742,045) 40,976,471
-------------- --------------
31 March 31 March
Possible 2019 effect Possible 2018 effect
reasonable 31 March on net assets reasonable 31 March on net assets
change 2019 net and profit change 2018 net and profit
in exchange exposure or loss in exchange exposure or loss
rate GBP GBP rate GBP GBP
USD/GBP +/- 5% (2,121,637) -/+ 106,082 +/- 10% 10,698,979 +/- 1,069,898
EUR/GBP +/- 5% (6,245,370) -/+ 312,269 +/- 10% 29,771,500 +/- 2,977,150
NOK/GBP +/- 5% 1,338,595 +/- 66,930 +/- 10% 505,970 +/- 50,597
PLN/GBP +/- 5% (3,432,574) -/+ 171,629 +/- 10% - -
AUD/GBP +/- 5% 1,718,941 +/- 85,947 +/- 10% 22 +/- 2
--------- ------------- ------------ --------------- ------------- ----------- ---------------
The decrease in the possible change in exchange rates from 10%
to 5% is regarded as reasonable in view of the decrease in the
volatility of Sterling against most major currencies during the
course of the year.
The following table details the split of currencies based on
fair value of bonds and loans in the Subsidiary's investment
portfolio:
31 March 31 March
2019 2018
Currency GBP GBP
Sterling 244,618,643 216,148,986
US Dollar 591,848,993 331,355,043
Euro 248,240,364 156,183,277
Norwegian Krone 12,584,566 12,225,698
Polish Zloty 1,019,928 -
Australian Dollar 40,965,698 -
-------------- ------------
Total 1,139,278,192 715,913,004
-------------- ------------
Credit and Counterparty Risk
Credit risk is the risk that a counterparty to a financial
instrument will fail to discharge an obligation or commitment that
it has entered into with the Company or the Subsidiary or a vehicle
in which the Company or Subsidiary invests, resulting in a
financial loss to the Company. It arises principally from debt
securities held, and also from derivative financial assets and cash
and cash equivalents. For risk management reporting purposes, the
Company considers and aggregates all elements of credit risk
exposure (such as individual obligation default risk, country risk
and sector risk).
In respect of the debt investments, credit risk is the risk that
the fair value of a loan (or more generally, a stream of debt
payments) will decrease due to a change in the borrower's ability
to make payments, whether that change is an actual default or a
change in the borrower's probability of default.
The Investment Manager's management of the Subsidiary's
portfolio is underpinned by the ongoing monitoring and mitigation
of credit risk in the portfolio to ensure that any credit events or
institutional ratings changes are identified in a timely
manner.
The following table analyses the external ratings of the
Subsidiary's portfolio investments, calculated using all available
ratings for the portfolio investments from Standard and Poor's,
Moody's and Fitch.
31 March 31 March
2019 2018
Standard & Poor's rating (or equivalent) GBP GBP
BBB- to BBB+ 50,865,441 32,894,090
BB- to BB+ 85,764,906 85,493,976
B- to B+ 157,143,472 99,695,875
Unrated 845,504,373 497,829,063
-------------- ------------
1,139,278,192 715,913,004
-------------- ------------
Prior to any investment purchase, the Investment Adviser
provides a credit memorandum to the Investment Manager which
includes a Sequoia Credit Rating (based on an in-house rating
system, which takes into account certain facets of the investment,
including the issuer's security, financial statements, debt
covenants and the type of debt) for the debt investment, along with
a recommendation to purchase the asset. The Investment Manager vets
the recommendation and liaises with the Risk Committee where
appropriate.
The mitigation of credit risk starts with the Investment
Adviser's Investment Committee, which monitors risks associated
with potential debt investments and makes recommendations for
acquisitions whilst allocating a Sequoia Credit Rating.
The Investment Adviser formally performs credit reviews of the
full portfolio at least semi-annually or as and when a particular
'Credit Event' occurs.
The table below analyses the Company's maximum exposure to
credit risk for the components of the Statement of Financial
Position.
31 March
31 March 2019 2018
GBP GBP
Non-derivative financial assets at fair value
through profit or loss 1,118,045,818 774,427,676
Cash and cash equivalents 27,633,414 2,393,742
Trade and other receivables 59,789,705 7,348,213
Derivative financial assets at fair value
through profit or loss 10,598,250 14,432,392
-------------- ------------
1,216,067,187 798,602,023
-------------- ------------
In line with the Company's original Prospectus a Cash Management
Policy has been put in place. Cash deposits will only be placed
with banks that hold a short-term rating of at least A-1, P-1 or F1
from Standard and Poor's, Moody's or Fitch respectively and no more
than 40% of net assets may be placed with any one bank at any time.
The Investment Manager carefully manages this process ensuring
uninvested cash is dispersed to adequately rated banks whilst
maximising interest received. The Bank of New York Mellon, as
Custodian, holds cash in relation to the portfolio operations and
in order to settle investment transactions. At 31 March 2018,
uninvested cash was held with BNP Paribas SA under a cash
management agreement with PraxisIFM Treasury Services Limited, with
other adequately-rated banks considered should cash levels require,
however there were no material amounts of such uninvested cash at
31 March 2019. At the year end the Standard and Poor's short-term
credit rating of Bank of New York Mellon was A-1+ (2018: BNP
Paribas A-1 and Bank of New York Mellon: A-1+).
For operational purposes, the Fund's policy is to utilise banks
with an investment grade rating or higher (A-3, P-3 or F3 from
Standard and Poor's, Moody's or Fitch respectively). The Company's
operational cash is held with The Royal Bank of Scotland
International Limited ("RBSI"). During the year, the Company has
used Monex Europe Limited ("Monex"), RBSI, Investec Bank (Channel
Islands) Limited ("IBCI"), Global Reach Partners ("Global Reach")
and TTT Moneycorp Limited ("Moneycorp") to undertake forward
foreign exchange transactions. Hedging collateral may be held with
these institutions if required, however no cash collateral was held
at the year end. At the year end the short-term credit ratings of
these institutions were as follows (Standard & Poors unless
otherwise specified): RBSI: A-2; IBCI: F2 (Fitch); Monex: B; Global
Reach and Moneycorp: no rating (2018: RBSI: A-2; IBCI: F2 (Fitch);
Monex: B; Global Reach and Moneycorp: no rating).
Bankruptcy or insolvency of any of the above financial
institutions may cause the Company's rights with respect to the
cash held to be delayed or limited. The Company monitors its risk
by regularly monitoring the credit ratings of these financial
institutions.
Credit risk arising on debt securities held by the Subsidiary is
constantly monitored by the Investment Manager. Credit risk is
mitigated by the diversification of assets by maturity profile and
jurisdiction.
The Subsidiary's exposure to credit risk in respect of its
investments, based on the country of registration, is summarised
below:
31 March 31 March
2019 2018
GBP GBP
United States of America/Canada 524,924,316 283,733,778
Europe 296,559,291 171,300,683
United Kingdom 213,564,143 205,023,986
Australia 104,230,442 55,854,557
-------------- ------------
Subsidiary financial assets at fair value through
profit or loss (note 6) 1,139,278,192 715,913,004
-------------- ------------
The table below summarises the Subsidiary's portfolio
concentrations:
Largest portfolio
holding of
a single asset Average portfolio
% of total holding
portfolio % of total portfolio
31 March 2019 4.95 1.45
--------------- ------------------ ----------------------
Largest portfolio
holding of
a single asset Average portfolio
% of total holding
portfolio % of total portfolio
31 March 2018 6.87 1.64
--------------- ------------------ ----------------------
The following table summarises the Subsidiary's exposure to
market risk, based on its concentration by industry:
31 March 31 March
2019 2018
GBP GBP
Accommodation 115,728,584 75,940,714
Power 157,481,970 67,400,226
Renewable Energy 116,822,042 76,560,995
Telecommunication, Media and Technology 138,676,788 74,067,749
Transport 209,451,538 126,463,248
Transportation Equipment 85,139,689 74,030,021
Utilities 189,437,264 102,632,449
Other 126,540,317 118,817,602
-------------- ------------
Subsidiary financial assets at fair value through
profit or loss (note 6) 1,139,278,192 715,913,004
-------------- ------------
Activities undertaken by the Company and its Subsidiary may give
rise to settlement risk. Settlement risk is the risk of loss due to
the failure of an entity to honour its obligations to deliver cash,
securities or other assets as contractually agreed.
For the majority of transactions, settlement risk is mitigated
by conducting settlements through a broker to ensure that a trade
is settled only when both parties have fulfilled their contractual
settlement obligations. Settlement limits form part of the credit
approval and limit monitoring processes. The Investment Manager
also conducts reviews of the settlement process and custodian to
ensure stringent settlement process is in place.
Liquidity Risk
Liquidity risk is the risk that the Company or the Subsidiary
will encounter difficulty in meeting the obligations associated
with its financial liabilities that are settled by delivering cash
or another financial asset.
The Company's policy and the Investment Manager's approach to
managing liquidity risk in both the Company and the Subsidiary is
to ensure, as far as possible, that it will always have sufficient
liquidity to meet its liabilities when due, under both normal and
stress conditions, without incurring unacceptable losses or risking
damage to the Company's reputation.
In accordance with the Alternative Investment Fund Managers
Directive ("AIFMD"), the Company has implemented a liquidity policy
that is consistent with its underlying obligations and redemption
policy, in accordance with the requirements relating to
quantitative and qualitative risk limits and which considers both
funding and trading liquidity.
The Investment Manager manages the Company's liquidity risk by
taking into account the liquidity profile and strategy of the
Company and at the Subsidiary level primarily through investing in
a diverse portfolio of assets. Liquidity risk mitigation will be
sought through careful selection of assets, asset duration, asset
liquidity profiling through loan market interaction, geographical
focus, currency allocations, cash management and other Company
considerations.
Given the Company's permanent capital structure as a
closed-ended fund, it is not exposed to redemption risk. However,
the financial instruments of the Company and the Subsidiary include
derivative contracts traded over-the-counter and debt investments,
which are not traded in an organised public market and which may be
illiquid.
The overall liquidity risk of the Company and the Subsidiary is
monitored on a quarterly basis by the Board of Directors and on an
ongoing basis by the Investment Manager. Shareholders will have no
right of redemption and must rely, in part, on the existence of a
liquid market in order to realise their investment.
There are no company assets subject to special arrangements
arising from their illiquid nature.
With the exception of the loan payable (see note 15) and certain
forward foreign exchange contracts (see note 7), the Company's
accounts receivable and financial liabilities at 31 March 2019 will
all mature within four months of the reporting date.
Operational Risk
Operational risk is the risk of direct or indirect loss arising
from a wide variety of causes associated with the processes,
technology and infrastructure supporting the Company's activities
relating to financial instruments, either internally or on the part
of service providers, and from external factors other than credit,
market and liquidity risks such as those arising from legal and
regulatory requirements and generally accepted standards of
investment management behaviour.
Operational risk is managed so as to balance the limiting of
financial losses and reputational damage with achieving the
investment objective of generating returns to investors.
The Investment Manager works with the Board to identify the
risks facing the Company and the Subsidiary. The key risks are
documented and updated in the Risk Matrix by the Investment
Manager.
The primary responsibility for the development and
implementation of controls over operational risk rests with the
Board. This responsibility is supported by the development of
overall standards for the management of operational risk, which
encompasses the controls and processes at the service providers and
the establishment of service levels with the service providers.
The Directors' assessment of the adequacy of the controls and
processes in place at service providers with respect to operational
risk is carried out through having discussions with and reviewing
reports from the Investment Manager, who conducts regular
discussions with the service providers.
Capital Management
The Board's policy is to maintain a strong capital base so as to
maintain investor, creditor and market confidence and to sustain
future development of the Company. The Company's capital is
represented by its Share capital. Capital is managed in accordance
with the investment policy, in pursuit of its investment
objectives. There are no duration restrictions on the investments
acquired by the Subsidiary. Target annual returns for investors in
the Company are an income return of 5% to 6% and a capital return
of 1% to 2%.
The Company may employ leverage for short term liquidity or
investment purposes. During the year, the Company has increased its
revolving credit facility with a consortium of three banks led by
Royal Bank of Scotland International Limited from GBP100 million to
GBP150 million (see note 15). Subsequent to the year end, the
facility was increased further to GBP200 million.
6. NON-DERIVATIVE FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Year ended Year ended
31 March 31 March
2019 2018
GBP GBP
Cost at the start of the year 738,117,560 548,018,390
VFNs purchased during the year 534,891,241 252,978,738
VFNs redeemed during the year (194,907,810) (66,058,998)
Realised gains on VFNs redeemed during the
year - 3,179,430
-------------- -------------
Cost at the end of the year 1,078,100,991 738,117,560
Net unrealised gains on non-derivative financial
assets at the end of the year 39,944,827 36,310,116
Non-derivative financial assets at fair value
through profit or loss at the end of the year 1,118,045,818 774,427,676
-------------- -------------
The following table provides a reconciliation of the financial
assets at fair value through profit or loss of the Subsidiary to
the Company's financial assets at fair value through profit or
loss:
31 March 31 March
2019 2018
GBP GBP
Subsidiary's non-derivative financial assets
at fair value through profit or loss 1,139,278,192 715,913,004
Subsidiary's net current (liabilities)/assets (21,232,374) 58,514,672
Company's non-derivative financial assets at
fair value through profit or loss 1,118,045,818 774,427,676
-------------- ------------
None of the Subsidiary's non-derivative financial assets at fair
value through profit or loss are subject to any special
arrangements arising from their illiquid nature.
The Company's net gains/(losses) on non-derivative financial
assets at fair value through profit or loss in the year comprises
the following:
Year ended Year ended
31 March 31 March
2019 2018
GBP GBP
Unrealised gains/(losses) on VFNs 24,351,316 (34,843,728)
Realised gains on VFNs redeemed - 3,179,430
Unrealised (loss)/gain on revaluation of the
Subsidiary (20,716,605) 14,370,616
Net gains/(losses) on non-derivative financial
assets at fair value through profit or loss 3,634,711 (17,293,682)
------------- -------------
On a look-through basis, the Group's cumulative net gains on
non-derivative financial assets at fair value through profit or
loss as at 31 March 2019 comprises the following:
Year ended Year ended
31 March 31 March
2019 2018
GBP GBP
Subsidiary
Investment income during the year 71,930,640 44,406,029
Net return on financial assets and liabilities
during the year, including foreign exchange
and VFN interest payable (100,983,218) (35,714,816)
Net other income during the year 8,335,973 5,679,403
------------------------- ------------------------
Subsidiary (losses)/gains during the year (20,716,605) 14,370,616
Subsidiary gains brought forward 23,377,889 9,007,273
------------------------- ------------------------
Subsidiary gains carried forward at the end
of the year 2,661,284 23,377,889
Company
Unrealised foreign exchange gains on VFNs
brought forward 12,933,227 47,775,955
Unrealised foreign exchange gains/(losses)
on VFNs during the year 24,351,316 (34,843,728)
Net gains on non-derivative financial assets
at fair value through profit or loss carried
forward at the end of the year 39,944,827 36,310,116
------------------------- ------------------------
Fair Value Measurement
IFRS 13 requires that a fair value hierarchy be established that
prioritises the inputs to valuation techniques used to measure fair
value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities
(Level 1 measurements) and the lowest priority to unobservable
inputs (Level 3 measurements). The three levels of the fair value
hierarchy under IFRS 13 are as follows:
- Level 1: inputs that are quoted market prices (unadjusted) in
active markets for identical instruments;
- Level 2: inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly (as
prices) or indirectly (derived from prices). This category includes
instruments valued using: quoted market prices in active markets
for similar instruments; quoted for identical or similar
instruments in markets that are considered less than active; or
other valuation techniques in which all significant inputs are
directly or indirectly observable from market data.
- Level 3: Inputs that are unobservable. This category includes
all instruments for which the valuation technique includes inputs
not based on observable data and the unobservable inputs have a
significant effect on the instrument's valuation. This category
includes instruments that are valued based on quoted prices for
similar instruments but for which significant unobservable
adjustments or assumptions are required to reflect differences
between the instruments.
The level in the fair value hierarchy within which the fair
value measurement is categorised in its entirety is determined on
the basis of the lowest level input that is significant to the fair
value measurement. For this purpose, the significance of an input
is assessed against the fair value measurement in its entirety. If
a fair value measurement uses observable inputs that require
significant adjustment based on unobservable inputs, that
measurement is a Level 3 measurement. Assessing the significance of
a particular input to the fair value measurement requires
judgement, considering factors specific to the asset or
liability.
The determination of what constitutes 'observable' requires the
exercise of judgement. Observable data is considered to be market
data that is readily available, regularly distributed or updated,
reliable, not proprietary, and provided by independent sources that
are actively involved in the relevant market.
The Company's investment in the Subsidiary, through the
acquisition of shares and the issue of VFNs, is classified within
Level 3, as it is not traded and contains unobservable inputs. The
Board considers that the NAV of the Subsidiary is representative of
its fair value.
31 March 2019
Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Assets
Non-derivative financial assets at fair value through profit
or loss - - 1,118,045,818 1,118,045,818
Derivative financial assets at fair value through profit or
loss - 10,598,250 - 10,598,250
--------- ----------- -------------- --------------
Total - 10,598,250 1,118,045,818 1,128,644,068
--------- ----------- -------------- --------------
Liabilities
Derivative financial liabilities at fair value through profit
or loss - 3,420,760 - 3,420,760
--------- ----------- -------------- --------------
Total - 3,420,760 - 3,420,760
--------- ----------- -------------- --------------
31 March 2018
Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Assets
Non-derivative financial assets at fair value through profit or
loss - - 774,427,676 774,427,676
Derivative financial assets at fair value through profit or loss - 14,432,392 - 14,432,392
--------- ----------- ------------ ------------
Total - 14,432,392 774,427,676 788,860,068
--------- ----------- ------------ ------------
Liabilities
Derivative financial liabilities at fair value through profit or
loss - 300,905 - 300,905
--------- ----------- ------------ ------------
Total - 300,905 - 300,905
--------- ----------- ------------ ------------
During the year there have been no transfers between Levels of
the fair value hierarchy. Such transfers are recognised at the end
of the reporting period in which the change has occurred.
Movements in the Company's Level 3 financial instruments during
the year were as follows:
Year ended Year ended
31 March 31 March
2019 2018
GBP GBP
Opening balance 774,427,676 604,801,618
Purchases 534,891,241 252,978,738
Sales (194,907,810) (66,058,998)
Net gains/(losses) on non-derivative financial
assets in the year 3,634,711 (17,293,682)
-------------- -------------
Closing balance 1,118,045,818 774,427,676
-------------- -------------
The investments held by the Subsidiary in the underlying
portfolio are classified within the fair value hierarchy as
follows:
31 March 2019
Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Assets
Non-derivative financial assets at fair value through profit
or loss 46,767,939 332,561,459 759,948,794 1,139,278,192
------------------------------------------------------------- ----------- ------------ ------------ --------------
31 March 2018
Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Assets
Non-derivative financial assets at fair value through profit
or loss 20,993,660 222,477,821 472,441,523 715,903,004
--------------------------------------------------------------- ----------- ------------ ------------ ------------
The Subsidiary's Level 3 investment valuations are calculated by
discounting future cashflows at a yield appropriate to comparable
infrastructure loans or bonds (with such yield assessed primarily
from publicly available sources and secondarily in consultation
with brokers and syndicate desks). Spread data will also be
cross-referenced to recently priced primary market transactions if
possible. When identifying comparable loans or bonds, for the
purpose of assessing market yields, structural and credit
characteristics and project type are also considered.
There were no transfers of investments between levels of the
fair value hierarchy during the year. Such transfers are recognised
at the end of the reporting period in which the change has
occurred.
The following table shows the Directors' best estimate of the
sensitivity of the Subsidiary's Level 3 investments to changes in
the principal unobservable input, with all other variables held
constant.
31 March 2019 31 March 2018
Possible effect on net effect on net
reasonable assets and assets and profit
change in profit or loss or loss
Unobservable input input GBP GBP
Yield +1% (10,241,221) (3,825,307)
-1% 11,266,545 4,211,632
-------------------- ------------- ---------------- -------------------
The possible changes in the yield of 1% are regarded as
reasonable in view of the current low level of global interest
rates.
Valuation techniques for the investment portfolio of the
Subsidiary
With effect from 18 April 2017, the Company engaged
PricewaterhouseCoopers LLP ("PwC") as Valuation Agent, with
responsibility for reviewing the valuations applied by the
Investment Adviser in relation to the acquisition of loans and
bonds. The principles and techniques utilised by the Investment
Adviser and reviewed by PwC during the year in calculating the
valuations are described below.
Performing Portfolio Loans and Bonds
Valuations of performing portfolio loans and bonds are based on
actual market prices (bid-side prices) obtained from third-party
brokers and syndicate desks if available (such brokers to be agreed
with the Investment Adviser); if such prices are not available,
then valuations are calculated by discounting future cashflows at a
yield appropriate to comparable infrastructure loans or bonds (with
such yield assessed primarily from publically available sources and
secondarily in consultation with brokers and syndicate desks).
Spread data will also be cross-referenced to recently-priced
primary market transactions if possible.
When identifying comparable loans or bonds, for the purpose of
assessing market yields, the following will be taken into
account:
-- Project type: jurisdiction, sector, project status,
transaction counterparties such as construction companies, facility
management providers;
-- Structural characteristics: maturity and average life,
seniority, secured/unsecured, amortisation profile, cash sweeps,
par versus discount; and
-- Credit characteristics: credit ratios (e.g. equity cushion,
asset cover/LTV, debt service coverage ratios or equivalent,
debt/EBITDA), ratings and ratings trajectory.
In calculating the net present value of future cashflows on
loans with uncertain cashflows (such as cash-sweep mechanisms),
"banking base case" cashflows are used unless there is clear
evidence that the market is using a valuation based upon another
set of cashflows.
In the case of discount loans with step-up margins, the
assumption will be that market discounts are calculated on a
yield-to-worst basis, unless there is clear evidence that the
market convention for that loan is different.
For variable rate loans and bonds, for the purposes of
projecting cashflows, the market convention of simple compounding
to the next interest payment date is used and swap rates for
subsequent interest payments, unless there is clear evidence that
the market convention for that loan or bond is different.
Non-performing Portfolio Loans and Bonds
Valuations of non-performing portfolio loans and bonds are based
on actual market prices obtained from third-party brokers if
available, otherwise the net present value of future expected loan
cashflows will be calculated, estimated on the basis of the median
outcome and discount rate that reflects the market yield of
distressed/defaulted loans or bonds.
In assessing the median outcome cashflows, a project/corporate
model that reflects the distressed state of the project will be
used in order to assess a range of potential outcomes for expected
future cashflows with regards to, for example, interest or
principal recoveries and timing. The Investment Adviser will work
closely with the Valuation Agent and they will have access to the
Investment Adviser's own model, analysis and internal valuations.
These valuations are subject to a high degree of management
oversight and ultimate approval by the Investment Manager.
As at 31 March 2019, there were no non-performing loans or bonds
in the portfolio.
Finalising the Net Asset Value
Once the appropriate position price has been determined to be
applied to each investment, the calculation of the Subsidiary's net
asset value is finalised through the following steps:
-- Conversion of each investment into GBP based on month end foreign exchange rates;
-- Reconciliation of any interest accrued since issue of the most recent coupon; and
-- Aggregation of the investments into a single Fund NAV
position statement (clean and dirty price).
7. DERIVATIVE FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
As at 31 March 2019, the Company had the following outstanding
commitments in respect of open forward foreign exchange contracts,
by currency and by counterparty.
31 March 2019
Selling Unrealised Unrealised Net unrealised
currency Currency amount Buying currency GBP amount gains losses gains/(losses)
GBP GBP GBP GBP
USD 735,967,700 GBP 564,652,969 4,617,878 (2,640,923) 1,976,955
EUR 293,600,000 GBP 259,290,881 5,743,006 (71,560) 5,671,446
NOK 129,900,000 GBP 11,503,375 24,025 (84,391) (60,366)
PLN 21,500,000 GBP 4,515,099 213,341 - 213,341
AUD 75,000,000 GBP 40,141,297 - (623,886) (623,886)
------------ ---------------- --------------- ---------------
880,103,621 10,598,250 (3,420,760) 7,177,490
------------ ---------------- --------------- ---------------
Unrealised Unrealised Net unrealised
Counterparty gains losses gains
GBP GBP GBP
Global Reach 1,070,672 (132,659) 938,013
Investec Bank 3,740,521 (150,498) 3,590,023
Monex 1,614,879 (223,915) 1,390,964
Moneycorp 1,053,554 (925,653) 127,901
RBSI 3,118,624 (1,988,035) 1,130,589
---------------- --------------- ---------------
10,598,250 (3,420,760) 7,177,490
---------------- --------------- ---------------
31 March 2018
Selling Unrealised Unrealised Net unrealised
currency Currency amount Buying currency GBP amount gains losses gains
GBP GBP GBP GBP
USD 455,367,700 GBP 334,872,532 13,020,231 (59,109) 12,961,122
EUR 144,600,000 GBP 128,370,005 1,260,816 (241,796) 1,019,020
NOK 129,900,000 GBP 11,954,858 151,345 - 151,345
------------ ---------------- --------------- ---------------
475,197,395 14,432,392 (300,905) 14,131,487
------------ ---------------- --------------- ---------------
Unrealised Unrealised Net unrealised
gains losses gains
Counterparty GBP GBP GBP
Investec Bank 2,698,811 (76,341) 2,622,470
Monex 3,529,601 (224,564) 3,305,037
Moneycorp 3,732,728 - 3,732,728
RBSI 4,471,252 - 4,471,252
---------------- --------------- ---------------
14,432,392 (300,905) 14,131,487
---------------- --------------- ---------------
All forward foreign exchange positions at the year end were held
with Investec Bank plc, Monex Europe Limited, the Royal Bank of
Scotland International, TTT Moneycorp Limited or Global Reach
Partners, as noted above. There are no master netting arrangements
in place.
The forward foreign exchange positions at the year end have
various maturity dates ranging from 8 April 2019 to 14 April 2020
(2018: 3 April 2018 to 16 December 2019).
The net (losses)/gains on forward foreign exchange contracts in
the year comprises both realised and unrealised losses as
follows:
Year ended Year ended
31 March 31 March
2019 2018
GBP GBP
Net realised (losses)/gains on forward foreign
exchange contracts during the year (19,680,903) 3,677,940
Net unrealised (losses)/gains on forward foreign
exchange contracts during the year (6,953,997) 20,610,559
------------- -----------
Net (losses)/gains on forward foreign exchange
contracts during the year (26,634,900) 24,288,499
------------- -----------
8. CASH AND CASH EQUIVALENTS
31 March 31 March
2019 2018
GBP GBP
Cash held on call or overnight deposit accounts 27,633,414 2,393,742
----------- ----------
27,633,414 2,393,742
----------- ----------
Under the terms of its forward foreign exchange trading
agreements with Investec Bank plc, Royal Bank of Scotland
International, Monex Europe, Global Reach Partners and TTT
Moneycorp Limited, the Company may be required in certain
circumstances to retain balances in collateral accounts
representing the applicable margin on each facility. As at 31 March
2019, no amounts (2018: GBPNil) were held in collateral
accounts.
9. INVESTMENT INCOME
Year ended Year ended
31 March 31 March
2019 2018
GBP GBP
Interest income on financial assets carried
at amortised cost:
Cash and cash equivalents 48,771 109,044
Interest income on the Company's non-derivative
financial assets at fair value through profit
and loss 106,668,371 31,617,371
----------------------- ----------------------
106,717,142 31,726,415
----------------------- ----------------------
10. RELATED PARTIES AND OTHER MATERIAL CONTRACTS
Directors' Fees
Robert Jennings is entitled to a fee in remuneration for his
services as Chairman of the Board of Directors at a rate payable of
GBP65,000 per annum (increasing to GBP66,800 per annum with effect
from 1 April 2019). The remaining Directors are entitled to a fee
in remuneration for their services as Directors at a rate of
GBP43,000 each per annum (increasing to GBP44,300 per annum with
effect from 1 April 2019).
Jan Pethick, Jon Bridel and Sandra Platts are also each entitled
to a fee of GBP7,000 per annum in respect of their roles as Chair
of the Management Engagement Committee, Chair of the Risk Committee
and Chair of the Audit and Remuneration Committees
respectively.
With effect from 1 April 2019, Sandra Platts is entitled to an
additional fee of GBP5,000 per annum for serving as the Senior
Independent Director.
During the year, Robert Jennings, Jan Pethick, Jon Bridel and
Sandra Platts each received a listing fee of GBP6,000, which was
subject to admission, in connection with the Open Offer, Ordinary
Share Placing and Offer for Subscription on 12 October 2018.
Ordinary Shares held by related parties
The Shareholdings of the Directors in the Company were as
follows:
31 March 2019 31 March 2018
Number of Number of
Name Ordinary Percentage of Ordinary Shares Ordinary Percentage of Ordinary Shares
Shares in issue Shares in issue
Robert Jennings (Chairman)
(with other members of his
family) 240,000 0.02% 217,200 0.03%
Jan Pethick (with his spouse) 263,820 0.02% 233,440 0.03%
Jon Bridel (with his spouse) 10,452 0.00% 10,452 0.00%
Sandra Platts (in a family
Retirement Annuity Trust
Scheme) 19,073 0.00% 16,139 0.00%
------------------------------ ---------- ------------------------------ ---------- ------------------------------
During the year, Jan Pethick acquired an additional holding of
30,380 Ordinary Shares in the Placing of Ordinary Shares on 9 May
2018; and Robert Jennings and Sandra Platts acquired additional
holdings of 22,800 Ordinary Shares and 2,934 Ordinary Shares
respectively in the Open Offer, Placing and Offer for Subscription
of Ordinary Shares on 12 October 2018.
Subsequent to the year end, Sandra Platts acquired 2.384
Ordinary Shares in the Open Offer, Placing and Offer for
Subscription on 27 June 2019.
As at 31 March 2019, the Investment Adviser held an aggregate of
3,073,079 Ordinary Shares (2018: 1,892,232 Ordinary Shares), which
is 0.28% (2018: 0.25%) of the issued share capital.
As at 31 March 2019, the members of the Investment Adviser's
founding team held an aggregate of 681,643 Ordinary Shares (2018:
681,643 Ordinary Shares), which is 0.06% (2018: 0.09%) of the
issued share capital.
As at 31 March 2019, the Investment Manager held an aggregate of
50,000 Ordinary Shares (2018: 50,000 Ordinary Shares), which is
0.00% (2018: 0.01%) of the issued share capital.
Transactions with Investment Manager and Investment Adviser
Investment Manager
International Fund Management Limited (the "Investment Manager")
was appointed as the Investment Manager with effect from 28 January
2015. With effect from 1 December 2016, the Investment Manager was
entitled to receive a management fee for AIFM services calculated
as follows:
-- if the Company's NAV is less than GBP200 million, 0.075% per
annum of the value of the Company's NAV; plus
-- if the Company's NAV is more than GBP200 million and less
than GBP400 million, 0.05% per annum of the Company's NAV not
included above; plus
-- if the Company's NAV is more than GBP400 million and less
than GBP500 million, 0.04% per annum of the Company's NAV not
included above; plus
-- if the Company's NAV is more than GBP500 million, 0.015% per
annum of the Company's NAV not included above.
The fee is subject to an annualised minimum of GBP80,000 applied
on a monthly basis and is payable monthly in arrears. With effect
from 2 May 2017, the management fee was capped at GBP320,000 per
annum.
During the year, the Investment Manager received a fee of
GBP2,500 for services rendered in connection with the Placing of
Ordinary Shares on 9 May 2018, and a fee of GBP10,000 for services
rendered in connection with the Open Offer, Placing and Offer for
Subscription of Ordinary Shares on 12 October 2018. During the
prior year, the Investment Manager received a fee of GBP7,500 for
services rendered in connection with the Open Offer, Placing and
Offer for Subscription of Ordinary Shares on 31 May 2017.
The Investment Management agreement can be terminated by either
party giving not less than 6 months written notice.
Investment Adviser
Sequoia Investment Management Company Limited (the "Investment
Adviser") was appointed as the Investment Adviser with effect from
28 January 2015. With effect from 1 September 2018, the Investment
Adviser is entitled to receive from the Company a base fee
calculated as follows:
-- 0.74% of the market value of the investments (excluding
committed but not yet invested investments and cash) owned by the
Subsidiary up to GBP1 billion; plus
-- 0.56% of the market value of the investments (excluding
committed but not yet invested investments and cash) owned by the
Subsidiary in excess of GBP1 billion.
Prior to 1 September 2018, and with effect from 5 May 2016, the
Investment Adviser was entitled to receive from the Company a base
fee calculated as follows:
-- 0.5% per annum of the value of the listed debt securities owned by the Subsidiary; plus
-- if the Company's NAV is less than GBP250 million, 0.9% per
annum of the value of the Company's other investments (excluding
listed debt securities and cash); plus
-- if the Company's NAV is more than GBP250 million and less
than GBP500 million, 0.8% per annum of the value of the Company's
other investments (excluding listed debt securities and cash) not
included above; plus
-- if the Company's NAV is more than GBP500 million and less
than GBP750 million, 0.7% per annum of the value of the Company's
other investments (excluding listed debt securities and cash) not
included above; plus
-- if the Company's NAV is more than GBP750 million, 0.6% per
annum of the value of the Company's other investments (excluding
listed debt securities and cash) not included above.
All such fees are payable quarterly. With effect from 1
September 2018, 10% of the Investment Adviser's fee (prior to 1
September 2018: 25%) is applied in subscribing for Ordinary Shares
in the Company, which the Investment Adviser shall retain with a
three-year rolling lock-up (such that those Ordinary Shares may not
be sold or otherwise disposed of by the Investment Adviser without
the prior consent of the Company before the third anniversary of
the date of issue of the relevant Ordinary Shares).
On 19 April 2018, the Company issued 319,310 Ordinary Shares to
the Investment Adviser in relation to fees payable for the quarter
ended 31 March 2018.
On 19 July 2018, the Company issued 375,200 Ordinary Shares of
no par value to the Investment Adviser, in relation to fees payable
for the period ended 30 June 2018.
On 18 October 2018, the Company issued 304,485 Ordinary Shares
of no par value to the Investment Adviser, in relation to fees
payable for the period ended 30 September 2018.
On 17 January 2019, the Company issued 181,852 Ordinary Shares
of no par value to the Investment Adviser, in relation to fees
payable for the period ended 31 December 2018.
As at 31 March 2019, the Investment Adviser held 3,073,079
Ordinary Shares (2018: 1,892,232 Ordinary Shares) in the
Company.
On 18 April 2019 the Company issued 177,165 Ordinary Shares to
the Investment Adviser in relation to fees payable for the quarter
ended 31 March 2019 under the Investment Advisory Agreement.
The Investment Advisory agreement can be terminated by either
party giving not less than 6 months written notice. The Investment
Adviser's appointment will be automatically terminated upon
termination of the Investment Manager's appointment under the
Investment Management Agreement.
Other Material Contracts
Administrator
With effect from 28 January 2015, Praxis Fund Services Limited
(the "Administrator") was appointed as the Administrator. With
effect from 1 June 2016, the Administrator is entitled to receive
from the Company a base fee calculated as follows and payable
monthly:
-- if the Company's NAV is less than GBP300 million, 0.07% per
annum of the value of the Company's NAV; plus
-- if the Company's NAV is more than GBP300 million and less
than GBP400 million, 0.05% per annum of the Company's NAV not
included above; plus
-- if the Company's NAV is more than GBP400 million, 0.04% per
annum of the Company's NAV not included above.
The base fee is subject to a minimum of GBP65,000 applied on a
monthly basis and is capped at GBP300,000 per annum. The
Administrator is also entitled to a fee for company secretarial
services based on time costs.
In addition, the Administrator received fees during the year of
GBP5,869 for services rendered in connection with the Placing of
Ordinary Shares on 9 May 2018 and GBP18,000 for services rendered
in connection with the Open Offer, Placing and Offer for
Subscription of Ordinary Shares on 12 October 2018.
The Administration agreement can be terminated by either party
giving not less than 90 days written notice.
Subsidiary Administrator
With effect from 28 January 2015, TMF Luxembourg S.A. (the
"Subsidiary Administrator") was appointed as the administrator of
the Subsidiary. With effect from 1 January 2019, the Subsidiary
Administrator is entitled to receive an annual fee of EUR25,434
(with effect from 1 January 2018: EUR24,935 per annum, prior to 1
January 2018 EUR24,600) and, in addition, a fee for NAV
reconciliation and reporting services based on time costs but
capped at EUR6,150 per annum.
Custodian
With effect from 27 February 2015, The Bank of New York Mellon
(the "Custodian") was appointed as the Custodian. The Custodian is
entitled to receive fees, as agreed from time to time, for services
provided as portfolio administrator, depositary, calculating agent,
account bank and custodian.
The amounts charged for the above-mentioned fees during the year
ended 31 March 2019 and outstanding at 31 March 2019 are as
follows:
Year ended 31 March 2019 Charge for the year Amounts outstanding at 31 March 2019
GBP GBP
Investment Adviser's fees 7,312,391 1,986,030
Administration fee 405,541 15,010
Investment Manager's fees 320,000 -
Directors' fees and expenses 216,601 -
Sub-administration fee* 32,852 10,683
Fees payable to the Custodian* 498,449 116,732
------------------- ------------------------------------
8,785,834 2,128,455
------------------- ------------------------------------
Year ended 31 March 2018 Charge for the year Amounts outstanding at 31 March 2018
GBP GBP
Investment Adviser's fees 4,826,658 1,318,754
Administration fee 377,116 8,453
Investment Manager's fees 319,119 -
Directors' fees and expenses 187,457 -
Sub-administration fee* 21,822 5,261
Fees payable to the Custodian* 365,164 77,043
------------------- ------------------------------------
6,097,336 1,409,511
------------------- ------------------------------------
* Includes expenses of the Subsidiary
Overdraft facility
On 15 February 2016 the Company entered into an overdraft
facility with the Royal Bank of Scotland International Limited with
a limit of GBP1,500,000. As at 31 March 2019, this facility had not
been utilised.
Loan collateral
With effect from 14 May 2019, security for a revolving credit
facility of GBP200 million (with effect from 9 August 2018, GBP150
million, with effect from 6 December 2017, GBP100 million) (see
note 15) with the Royal Bank of Scotland International Limited was
provided by, inter alia, a charge over the bank accounts of the
Company, a charge over the shares in the Subsidiary held by the
Company and a charge on the assets of the Subsidiary.
11. TAX STATUS
The Company is exempt from Guernsey income tax and is charged an
annual exemption fee of GBP1,200 under The Income Tax (Exempt
Bodies) (Guernsey) Ordinance 1989.
12. SHARE CAPITAL
The Company's Ordinary Shares and C Shares are classified as
equity. Incremental costs directly attributable to the issue of
Ordinary Shares and C Shares are recognised as a deduction in
equity and are charged to the relevant share capital account,
including the initial set up costs.
The Company undertakes that it shall ensure that its records and
bank accounts are operated in such a way that the assets
attributable to the Ordinary Shares and the C Shares can be
separately identified. On the conversion of C Shares to Ordinary
Shares, C Shareholders shall be allocated an appropriate number of
Ordinary Shares, calculated by reference to the conversion
ratio.
The authorised share capital of the Company is represented by an
unlimited number of Shares of nil par value, to which the following
rights are attached:
(a) Dividends: Ordinary Shareholders and C Shareholders are
entitled to receive, and participate in, any dividends or other
distributions resolved to be distributed from their respective
pools of assets in respect of any accounting period or other
period, provided that no calls or other sums due by them to the
Company are outstanding.
(b) Winding Up: On a winding up, the Ordinary Shareholders and C
Shareholders shall be entitled to the surplus assets remaining in
their respective pools of assets after payment of creditors.
(c) Voting: Ordinary Shareholders have the right to receive
notice of and to attend, speak and vote at general meetings of the
Company and each holder being present in person or by proxy shall
upon a show of hands have one vote and upon a poll one vote in
respect of every Ordinary Share held. C Shareholders have no right
to attend or vote at any meeting of the Company, except that the
consent of C Shareholders is required for any alteration to the
Memorandum or Articles of the Company; for the passing of any
resolution to wind up the Company; and for the variation or
abrogation of the rights attached to the C Shares.
The Company may acquire its own Ordinary Shares, up to a maximum
number of 14.99 per cent. per annum of the Ordinary Shares in
issue.
There were no C Shares in issue during either the current or
prior years.
Issued Share capital
Ordinary Shares
31 March 2019 31 March 2018
Ordinary Shares Ordinary Shares
Number Number
Share capital at the beginning of the year 748,315,757 595,642,196
Share capital issued and fully paid 312,660,092 152,673,561
Total Share capital at the end of the year 1,060,975,849 748,315,757
--------------- ---------------
Issued Share capital
Ordinary Shares
31 March 2019 31 March 2018
Ordinary Shares Ordinary Shares
GBP GBP
Share capital at the beginning of the year 746,867,128 588,354,362
Share capital issued and fully paid 329,991,907 161,119,508
Share issue costs (4,828,005) (2,606,742)
Total Share capital at the end of the year 1,072,031,030 746,867,128
--------------- ---------------
On 9 May 2018, 72,800,000 Ordinary Shares were issued through a
Placing of Ordinary Shares at an issue price of 104.0p per
Share.
On 12 October 2018, the Company issued 238,679,245 Ordinary
Shares at an issue price of 106.0p, of which 113,061,369 Ordinary
Shares were issued pursuant to an Open Offer (including the Excess
Application Facility) and 125,617,876 Ordinary Shares were issued
pursuant to a Placing and Offer for Subscription.
During the year, 1,180,847 Ordinary Shares have been issued to
the Investment Adviser in relation to fees payable for the period
from 1 January 2018 to 31 December 2018, at an average issue price
of 108.4p per Ordinary Share (see note 10). Subsequent to the year
end, 177,165 Ordinary Shares were issued to the Investment Advisor
at an issue price of 112.1p per Ordinary Share in relation to fees
payable for the quarter ended 31 March 2019.
Subsequent to the year end, 200,000,000 Ordinary Shares were
issued through an Open Offer, Placing and Offer for Subscription of
Ordinary Shares on 27 June 2019 at an issue price of 108.0p per
Share.
13. BASIC AND DILUTED EARNINGS PER SHARE
Year ended Year ended
31 March 2019 31 March 2018
Profit for the financial year GBP69,170,832 GBP30,414,366
-------------- --------------
Weighted average number of Ordinary Shares 925,240,797 722,505,738
-------------- --------------
Basic and diluted earnings per Ordinary Share 7.48p 4.21p
-------------- --------------
The weighted average number of Ordinary Shares is based on the
number of Ordinary Shares in issue during the year under review, as
detailed in note 12.
On 27 June 2019, the Company issued 200,000,000 Ordinary Shares
through an Open Offer, Placing and Offer for Subscription of
Ordinary Shares. Had these Ordinary Shares been issued during the
year, the basic and diluted earnings per Ordinary Share would have
been reduced.
There was no dilutive effect for potential Ordinary Shares for
the year ended 31 March 2019.
14. TRADE AND OTHER RECEIVABLES
31 March 2019 31 March 2018
GBP GBP
VFN interest receivable 59,789,705 6,967,757
Other receivables - 380,456
Prepaid finance costs 716,679 840,075
Other prepaid expenses 16,097 44,844
------------- -------------
60,522,481 8,233,132
------------- -------------
15. LOAN PAYABLE
On 6 December 2017, the Company executed a 36 month GBP100
million multi-currency revolving credit facility ("RCF") with the
Royal Bank of Scotland International Limited ("RBSI") as lead
arranger. On 9 August 2018, the Company exercised a GBP50 million
incremental accordion tranche of the RCF, with the same maturity
date as the initial RCF. Subsequent to the year end, the facility
was extended by a further GBP50 million and the maturity date
extended by a year to 6 December 2021. The proceeds of the loan are
to be used in or towards the making of investments in accordance
with the Company's investment policy. The loan is secured by, inter
alia, a charge over the bank accounts of the Company, a charge over
the shares in the Subsidiary held by the Company and a charge on
the assets of the Subsidiary. Should the value of the underlying
assets held in the Subsidiary fall below a certain level, further
margin calls may be made by RBSI, however no margin calls were made
during the year. Interest on the loan was charged at a rate of
LIBOR (or EURIBOR for any loan denominated in Euro) plus 2.1% per
annum. Loan interest of GBP2,713,261 (2018: GBP303,423) and
upfront, facility and break fees of GBP459,396 (2018: GBP97,425)
have been incurred on the loan during the year.
For the year ended 31 March 2019
GBP facility USD facility Total
GBP GBP GBP
Balance brought
forward - 39,238,068 39,238,068
Drawdowns 187,532,967 72,716,647 260,249,614
Repayments (127,532,967) (59,197,105) (186,730,072)
-------------- ------------- --------------
60,000,000 52,757,610 112,757,610
Foreign exchange revaluations - 1,117,554 1,117,554
-------------- ------------- --------------
Balance carried
forward 60,000,000 53,875,164 113,875,164
-------------- ------------- --------------
For the year ended 31 March 2018
GBP facility USD facility Total
GBP GBP GBP
Balance brought
forward 40,000,000 - 40,000,000
Drawdowns - 39,647,046 39,647,046
Repayments (40,000,000) - (40,000,000)
------------- ------------- -------------
- 39,647,046 39,647,046
Foreign exchange revaluations - (408,978) (408,978)
------------- ------------- -------------
Balance carried
forward - 39,238,068 39,238,068
------------- ------------- -------------
The carrying value of the loan is considered to be a reasonable
approximation of its fair value.
16. TRADE AND OTHER PAYABLES
31 March 2019 31 March 2018
GBP GBP
Investment Advisory fee payable 1,986,030 1,318,755
Loan interest payable 155,748 140,217
Bank overdraft - 137,904
Other payables 222,840 180,891
------------- -------------
2,364,618 1,777,767
------------- -------------
17. COMMITMENTS
As at 31 March 2019, GBP98.7 million (2018: GBP107.7 million)
was committed to new or existing investments. These commitments
will be settled from the existing cash reserves of the Company and
the Subsidiary and through drawdowns from the Company's revolving
credit facility.
18. SUBSEQUENT EVENTS
On 18 April 2019, the Company declared an interim dividend of
1.5p per Ordinary Share in respect of the quarter ended 31 March
2019. The dividend was paid on 30 May 2019.
On 18 April 2019, the Company issued 177,165 Ordinary Shares to
the Investment Adviser at an issue price of 112.1p per Share, in
relation to fees payable for the quarter ended 31 March 2019.
On 14 May 2019, the Company announced that it had increased the
size of its revolving credit facility ("RCF") from GBP150 million
to GBP200 million, and extended the term of the RCF by one year to
6 December 2021.
On 22 May 2019, the Company announced that it had increased the
Company's dividend target from 6 pence to 6.25p per Ordinary Share
per annum. It is expected that the first dividend to be declared
under the new target will be in respect of the quarter ending 30
June 2019.
On 27 June 2019, the Company raised net proceeds of
approximately GBP213.0 million through an Open Offer, Placing and
Offer for Subscription of Ordinary Shares. A total of 200,000,000
Ordinary Shares were issued at an Issue Price of 108.0p per
Share.
Following the Open Offer, Placing and Offer for Subscription of
Ordinary Shares on 27 June 2019, on 3 July 2019 the full
outstanding US Dollar revolving credit facility balance of US$70
million was repaid, as was GBP115 million of the outstanding
Sterling balance of GBP140 million (see note 15).
There have been no other significant events since the year end
which would require revision of the figures or disclosures in the
Financial Statements.
OFFICERS AND ADVISERS
Directors Registered Office
Robert Jennings, CBE (Independent non-executive
Chairman) Sarnia House
Sandra Platts (Senior Independent non-executive
Director) Le Truchot
Jan Pethick (Independent non-executive
Director) St Peter Port
Jon Bridel (Independent non-executive
Director) Guernsey GY1 1GR
Investment Manager Investment Adviser
Sequoia Investment Management Company
International Fund Management Limited Limited
Sarnia House Kent House, 6(th) Floor
Le Truchot 14-17 Market Place
St Peter Port London W1W 8AJ
Guernsey GY1 1GR
Administrator and Secretary Independent Auditor
Praxis Fund Services Limited KPMG Channel Islands Limited
Sarnia House Glategny Court
Le Truchot Glategny Esplanade
St Peter Port St Peter Port
Guernsey GY1 1GR Guernsey GY1 1WR
Subsidiary Administrator Broker
TMF Luxembourg S.A. Stifel Nicolaus Europe Limited
46A, Avenue JF Kennedy 150 Cheapside
L-1855 Luxembourg London EC2V 6ET
Valuation Agent Custodian
PricewaterhouseCoopers LLP Bank of New York Mellon
7 More London Riverside 1 Canada Square
London SE1 2RT London E14 5AL
Legal Adviser (as to Guernsey Law) Legal Adviser (as to UK Law)
Cameron McKenna Nabarro Olswang
Mourant LLP
Royal Chambers 78 Cannon Street
St Julian's Avenue London, EC4N 6AF
St Peter Port
Guernsey GY1 4HP
Registrar Communications Adviser
Computershare Investor Services (Guernsey)
Limited Tulchan Communications LLP
1(st) Floor Tudor House 85 Fleet Street
Le Bordage London EC4Y 1AE
St Peter Port
Guernsey GY1 1DB
Independent Consultants
Tim Drayson
Kate Thurman
APPENDIX
Alternative Performance Measures used in the Annual Report
-- Portfolio yield-to-maturity/Gross portfolio return
Portfolio yield-to-maturity is the total annualised return
anticipated on a portfolio of interest-bearing investments,
discounted for the time value of money and based on the assumption
that the investments are held to their maturity. This provides a
useful measure of likely projected returns on a portfolio.
-- Internal rate of return ("IRR")
Internal rate of return is a calculation of the prospective or
retrospective annualised profitability of an investment over a
number of years, the IRR being the discount rate that would make
the net present value of the actual or potential cashflows from the
investment equal to zero. This provides a useful measure of the
profitability of an investment, on either a NAV or share price
basis.
-- Ongoing charges ratio ("OCR")
The ongoing charges ratio of an investment company is the annual
percentage reduction in shareholder returns as a result of
recurring operational expenditure. Ongoing charges are classified
as those expenses which are likely to recur in the foreseeable
future, and which relate to the operation of the company, excluding
investment transaction costs, financing charges and gains or losses
on investments. The OCR is calculated as the total ongoing charges
for a period divided by the average net asset value over that
period.
Year ended 31 March 2019 Year ended 31 March 2018
The Company The Subsidiary Total The Company The Subsidiary Total
GBP GBP GBP GBP GBP GBP
Total expenses 12,952,943 391,096 13,344,039 8.242.748 356,726 8,599,474
Non-recurring expenses (3,642,374) - (3,642,374) (1,717,302) - (1,717,302)
------------ --------------- ------------ ------------ --------------- ------------
Total ongoing expenses 9,310,569 391,096 9,701,665 6,525,446 356.726 6,882,172
------------ --------------- ------------ ------------ --------------- ------------
Average NAV 951,775,752 733,409,172
Ongoing charges
ratio (using AIC
methodology) 1.02% 0.94%
------------------------ ------------ --------------- ------------ ------------ --------------- ------------
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR EAFXLESPNEAF
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