TIDMTFIF
TWENTYFOUR INCOME FUND LIMITED
ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS
For the year ended 31 March 2020
LEI: 549300CCEV00IH2SU369
(Classified Regulated Information, under DTR 6 Annex 1 section 1.1)
The Company has today, in accordance with DTR 6.3.5, released its Report and
Audited Financial Statements for the year ended 31 March 2020. The Report will
shortly be available via the Company's Portfolio Manager's website
www.twentyfouram.com and will shortly be available for inspection online at
www.morningstar.co.uk/uk/NSM website.
SUMMARY INFORMATION
The Company
TwentyFour Income Fund Limited (the "Company") was incorporated with limited
liability in Guernsey, as a closed-ended investment company on 11 January 2013.
The Company's shares were listed with a Premium Listing on the Official List of
the UK Listing Authority and admitted to trading on the Main Market of the
London Stock Exchange on 6 March 2013.
Investment Objective and Investment Policy
The Company's investment objective is to generate attractive risk adjusted
returns principally through income distributions.
The Company's investment policy is to invest in a diversified portfolio of
predominantly UK and European Asset Backed Securities.
At an Extraordinary General Meeting held on 10 May 2019, Shareholders agreed to
pass a resolution to update the Company's Investment Policy. Amended Investment
Policy details are outlined below. Details of the prior Investment Policy can
be found in the Company's Annual Financial Statements for the year ended 31
March 2019.
The Company will maintain a Portfolio diversified by issuer, it being
anticipated that the Portfolio will comprise at least 50 Asset Backed
Securities at all times.
The Portfolio must comply, as at each date an investment is made, with the
following restrictions:
(i) no more than 20 per cent. of the Portfolio value will be backed by
collateral in any single country (save that this restriction will not apply to
Northern European countries);
(ii) no more than 10 per cent. of the Portfolio value will be exposed to
any single Asset Backed Security or issuer of Asset Backed Securities, but
provided that where more than 5 per cent. of the Portfolio value is exposed to
a single Asset Backed Security, these Asset Backed Securities in respect of
which more than 5 per cent. of the Portfolio value is exposed, may not, in
aggregate, make up more than 40 per cent. of the total Portfolio value of the
Company;
(iii) no more than 15 per cent. of the Portfolio value will be exposed in
aggregate to instruments not deemed securities for the purposes of FSMA,
provided that no more than 3 per cent. of the Portfolio value will be exposed
to any single such instrument; and
(iv) up to 10 per cent. of the Portfolio value may be exposed to Asset
Backed Securities backed by collateral from several countries where, in
addition to countries within the UK and Europe, one or more of the countries is
outside of the UK and Europe.
As an exception to the requirements set out above the Portfolio Manager will be
permitted to purchase new investments at any time when the Portfolio does not
comply with one or more of those restrictions so long as, at the time of
investment:
· the asset purchased would be compliant with the single country
restriction above (even where following the purchase more than 20 per cent. of
the Portfolio will be backed by collateral in another single country due to
market movements);
· the asset purchased would be compliant with the single Asset
Backed Security/issuer exposure restriction above (even where following the
purchase more than 10 per cent. of
the Portfolio value will be exposed to any single Asset Backed Security or
issuer of Asset Backed Securities, provided that Asset Backed Securities within
the Portfolio to which more than 5 per cent. of the Portfolio value is exposed,
may not make up more than 40 per cent. of the total Portfolio value of the
Company); and
· such purchase does not make the Portfolio, in aggregate, less
compliant with any of (i), (ii), (iii) and (iv) above.
Uninvested cash or surplus capital or assets may be invested on a temporary
basis in:
· cash or cash equivalents, namely money market funds or short term
money market funds (as defined in the 'Guidelines on a Common Definition of
European Money Market Funds' published by the Committee of European Securities
Regulators (CESR) and adopted by the European Securities and Markets Authority
(ESMA)) and other money market instruments (including certificates of deposit,
floating rate notes and fixed rate commercial paper of banks or other
counterparties having a "single A" or higher credit rating as determined by any
internationally recognised rating agency selected by the Board which, may or
may not be registered in the EU); and
· any "government and public securities" as defined for the
purposes of the FCA Rules.
The Company may employ gearing or derivatives for investment purposes.
The Company may, from time to time, use borrowing for investment opportunities
and short-term liquidity purposes, which could be achieved through a loan
facility or other types of collateralised borrowing instruments including
repurchase transactions or stock lending. The Company may have more than one,
loan, repurchase or stock loan facility in place. The Company is permitted to
provide security to lenders in order to borrow money, which may be by way of
mortgages, charges or other security interests or by way of outright transfer
of title to the Company's assets. In this case, the Directors will restrict
borrowing to an amount not exceeding 25 per cent. of the Company's Net Asset
Value at the time of drawdown. Derivatives may be used for currency hedging
purposes as set out below and for efficient portfolio management.
In accordance with the Listing Rules, the Company can only make a material
change to its investment policy with the approval of its Shareholders by
Ordinary Resolution.
Target Returns
The Company has a target annual net total return on the Company's NAV of
between 6% and 9% per annum, which includes quarterly dividends with a target
yield each financial year of 6% or higher, of the Issue Price.*
Ongoing Charges
Ongoing charges for the year ended 31 March 2020 have been calculated in
accordance with the Association of Investment Companies (the "AIC") recommended
methodology. The ongoing charges for the year ended 31 March 2020 were 0.96%
(31 March 2019: 0.95%).
* The Issue Price being GBP1.00. This is a target only and not a profit forecast.
There can be no assurance that this target will be met or that the Company pay
any dividends at all. This target return should not be taken as an indication
of the Company's expected or actual current or future results. The Company's
actual return will depend upon a number of factors, including the number of
Ordinary Shares outstanding and the Company's total expense ratio. Potential
investors should decide for themselves whether or not the return is reasonable
and achievable in deciding whether to invest in or retain or increase their
investment in the Company. Further details on the Company's financial risk
management can be found in note 17 for further detail.
Shareholder Information
Northern Trust International Fund Administration Services (Guernsey) Limited
(the "Administrator") is responsible for calculating the NAV per share of the
Company. The unaudited NAV per ordinary redeemable share will be calculated as
at the close of business on the last business day of every week and the last
business day of every month by the Administrator and will be announced by a
Regulatory News Service the following business day.
Financial Highlights
31.03.20 31.03.19
Total Net Assets GBP475,369,856 GBP500,465,449
Net Asset Value per share 94.19p 113.28p
Share 88.00p 115.28p
price
(Discount)/premium to Net Asset Value -6.57% 1.77%
Dividends declared in respect of the year 6.40p 6.45p
As at 21 July 2020, the discount had moved to -0.18%. The estimated NAV per
share and mid-market share price stood at 103.44p and 103.25p respectively.
CHAIRMAN'S STATEMENT
for the year ended 31 March 2020
I am pleased to present my report on the Company's progress for the year ended
31 March 2020.
The Company's shares have typically traded at a premium since launch, and
continued to do so during the first four months of the year, switching to a
discount during the autumn due to a softening of the ABS market. This discount
persisted until November 2019, due to a combination of NAV performance and a
number of investors electing to participate in the three year exit facility,
subsequently moving back to a premium. This premium continued into year-end and
until the COVID-19 market sell-off in the latter part of the year. The large
disparity between the Net Asset Value ("NAV") and the share price during March
pushed the average discount during the year to 0.68%, and it moved in a range
of +3.0% to -23.8% during the year. As at 21 July 2020, the discount had moved
to -0.18%. The estimated NAV per share and mid-market share price stood at
103.44p and 103.25p respectively.
The Board is willing to continue to authorise the issuance of further shares
based on the Portfolio Manager's confirmation that attractive investment
opportunities are available in the market that enhance the portfolio.
The NAV total return on the shares from launch to 31st March 2020 was 43.22%
(including dividends paid). The NAV per share dropped 12.03% (including
dividends paid) by year end largely driven by COVID-19 and the timing of the
market sell-off relative to the Company's year-end. The income component of the
return to investors remained strong; the Company declared three dividends of
1.5p per share to cover the pro-rata minimum return of 6p per share, and
announced a final dividend for the previous period covering all excess returns
in respect of the year of 1.9p per share.
The NAV performance of the Company has varied during the year. It was broadly
positive during the first three months as European ABS spread performance
caught up with corporate credit after a slow start to 2019, before some
weakness was felt during August and September 2019, though prices rebounded
strongly into the end of the year. However this has been completely
overshadowed by the volatility felt across all financial markets since late
February, as a result of the implications of a global shutdown in response to
the COVID-19 pandemic. Fundamental performance of the asset pools and
structures remained strong and stable at the period end, and ratings remained
stable. However, a global recession is now expected and this will lead to an
increase in arrears and loan defaults generally in both consumer and corporate
lending markets, as well as a current increase in bonds being put on review for
downgrade, which will likely lead to an increase in credit ratings downgrades
in future. As an indication of the size of the move in spreads during the COVID
market disruption, I understand that single-B rated CLOs, which are very much
at the most volatile end of the Company's holdings, widened from a spread of
795 basis points to over 2,000 basis points. They have since recovered to
around 1,200 basis points. The impact of these kind of movements was a 20%
reduction in the Company's NAV, with a subsequent ongoing recovery.
As a result of the market moves seen at the end of the financial year, spreads
in European ABS are now wider than they have generally been since the Company
was launched. While underlying performance of the sector is expected to
deteriorate, the dislocation between the performance implied by current pricing
and what is expected means that the current opportunity set has become as, or
more, interesting than it has been during the life of the Company. This will
allow for additional capital to be issued should investor appetite demand it.
Towards the end of the year I discussed with the Manager their transition to
working from home, and was pleased to note, and observe from our ongoing
interactions with them, that their systems were robust and allowed them to
continue to manage the Portfolio with minimum impact as a result. I understand
that from an early stage they planned to have the ability to work from home for
the long term, albeit returning to their office once the effects of COVID-19
have reduced to make it safe, efficient and optimal to do so.
While I recognise the potential for volatility, in particular as the global
lockdown and its impact on economic performance plays out, I believe the
Company's structure remains an appropriate way for investors to invest in such
assets. I remain confident of the Company's ability to fulfil its objectives.
Although the market and portfolio have seen significant price volatility, we do
not expect to see any of the investments default and so the loss to date is
expected to be recovered as the portfolio's investments mature over subsequent
periods. The Company's target continues to be to pay an annual dividend equal
to the income generated by the portfolio. Short-term unrealised losses do not
impact the Company's ability to pay a dividend. Should these losses endure for
a longer period and should they subsequently be realised, it may be necessary
to adjust the dividend target. The recovery of the Company's NAV post-year end
has reduced the likelihood of this occurring. There has been no loss of
expected income either, so the Company expects to pay dividends in line with
its policy.
Trevor Ash
Chairman
21 July 2020
PORTFOLIO MANAGER'S REPORT
For the year ended 31 March 2020
Market Commentary
The key themes that drove broader market sentiment through 2019 continued
throughout the year, with central bank policy and the trade tariff dispute
dominating the markets, while Brexit uncertainty remained heightened. A
resolution to the US-China trade conflict emerged towards the end of the year,
as did a convincing victory for the Conservative Party in the UK, which
provided more certainty around the path of Brexit negotiations. These allowed
for a more positive end to 2019 and start to 2020. However, shortly before the
end of the period, the COVID-19 pandemic created significant market volatility
as investors sold assets to create liquidity, and a global lockdown created the
prospect of a global recession of uncertain length and severity.
In April 2019, the Board of TwentyFour Income Fund announced the intention to
issue new ordinary redeemable shares in response to ongoing demand, and due to
the belief of both the Board and TwentyFour Asset Management that there was an
opportunity to deploy additional funds with favourable returns. The capital
raising of GBP80m saw significant demand, which was very successful against a
backdrop of equity and wider market volatility during the subscription period.
Sentiment in the European ABS market continued to improve throughout April
2019, with the Brexit extension adding to the support following the successful
refinancing of the large legacy Northern Rock mortgage portfolio transaction in
March 2019. This strong technical support remained in contrast to the very
limited amount of issuance in Q1, the market saw a healthy amount of
well-diversified issuance. The UK market also saw its first Prime STS RMBS deal
from Nationwide, which generated very strong demand. The deal was also notable
in that it was the first publicly placed deal in the market referencing Sonia
as its index, as opposed to Libor. The transition of UK issuers to the Sonia
index increased during the period as expected, as the Bank of England continued
to encourage a move away from fixing to Libor, which is due to be phased out at
the end of 2021.
May 2019 saw spreads perform initially on light supply, however as the pipeline
built and corporate credit markets widened, the market started to see a little
weakness seep into ABS performance. CLO issuance slowed but overall
year-to-date performance, particularly in the AAA and mezzanine space, remained
positive. Some of the focus on primary deals was at the shorter end, and there
was a pick-up in CLO refinancing deals and continuation of the development of
steeper tiering on a spread basis by manager, maturity and tranche rating.
Markets rallied across the board in June 2019, with both risk-off and risk-on
assets posting positive returns, as the Fed seemed to pacify the markets' call
for lower rates, and as the outgoing ECB president, Mario Draghi, delivered a
particularly dovish speech stating the ECB stood ready to act with additional
stimulus if the outlook in Europe didn't improve. This naturally led to a
strong rally in both European government bonds and credit, which filtered
through to the European ABS market and later in the month we saw a compression
in spreads.
The momentum of primary ABS issuance continued unabated throughout July 2019
against a fairly benign macro backdrop. With low levels of volatility, most
deals were placed at the tighter end of guidance, with decent levels of
oversubscription in mezzanine bonds in particular. Heavy issuance in CLOs led
to spreads being a little weaker in the mezzanine tranches, which was
understandable given the amount of supply. The deeper mezzanine spreads had
been driven more by the manager and the quality of the underlying portfolio.
Secondary spreads in the wider ABS market generally held in well over the
month, trending sideways as opposed to widening in the face of heightened
primary supply.
Escalating trade wars, geopolitical events and deteriorating economic data
combined to create a more vulnerable backdrop to risk markets through August
2019, however the European ABS market was typically very quiet with virtually
no primary public issuance. The market bounced back in September 2019 with a
wide range of deals priced. Issuance over the month grossed around EUR9bn,
subscription levels were very strong across all transactions, particularly in
mezzanine bonds, and all tranches were priced at the tighter end of initial
guidance.
This positive tone continued through the autumn, buoyed by easing from the Fed
and the announcement of a December 2019 general election in the UK to break the
impasse in UK politics. The outlier in terms of spread performance continued to
be BB and B rated CLOs, as supply continued to push spreads wider; however they
later saw some reversal on a relative value basis to other markets. In contrast
mezzanine consumer ABS performed well through autumn as dealers were low on
inventory.
Risk sentiment was positive in December 2019 as the US and China came to a
'phase one' agreement on trade, cancelling tariff increases scheduled for
mid-month. In addition a resounding success for the Conservatives in the UK
election gave investors greater clarity around the direction of the Brexit
negotiations. The ABS market was relatively quiet as expected.
As 2019 ended the portfolio had been incrementally moved to a lower risk
weighting, principally through a migration towards higher credit quality, and
to a lesser extent shorter maturities. This had been in recognition of the
continued build-up of risks external to the ABS market, including the Brexit
negotiations, the US-China trade dispute and weakening macro-economic data, all
of which had the potential to spill over into the ABS market as we had seen
with similar periods in 2018 and 2016.
For the first six weeks of 2020 the ABS market saw continued strong
performance, characterised by heavily oversubscribed deals coming in the
primary market and strong spread performance. However, this was against a
backdrop of the lockdown of several cities in China as a response to the spread
of COVID-19, and subsequently its spread on a global basis. By late February
the ABS market saw a material reversion in risk sentiment, having previously
lagged the negative moves seen in global equities and fixed income. Price
declines were experienced across all parts of the market and the Company's
portfolio. However there is a significant disconnect between the implied
deterioration in loan pool performance of such price moves, and the current and
expected performance of such pools.
The impact on the market was two-fold. Initially there was significant demand
for liquidity from portfolio managers who were experiencing outflows, and this
was followed by hedge funds experiencing margin calls, creating forced selling
and the depressing of prices immediately. As bank trading desks had come into
the year relatively light on inventory, and having found it hard to add product
in the competitive environment experienced at the start of the year, bid-offer
spreads were pushed materially wider and with a lower risk tolerance as a
result of regulatory capital requirements, material price declines were seen
over the space of the next two weeks and markets became materially less liquid.
The second effect was market pricing reflecting ongoing uncertainty around
whether bonds would be called at their optional call dates, or whether the
coupons would step-up and deals extend, which has the impact of further pushing
prices down as the discounted price has to cover the required additional yield
for a longer period of time. These moves were felt most strongly in the
European CLO market, which always tends to experience the most volatility given
its longer maturity profiles, its closer correlation with the European high
yield market and its more specialised investor base.
As the first quarter ended the market felt like it had found a degree of
stability, with a wider range of bonds trading in the secondary market and a
significant increase in liquidity as more participants, both bank trading desks
and investors, sought to take advantage of spreads that were wider than they
had been over the last decade.
At year end, despite experiencing material price volatility, there were no
defaulted assets nor any that were expected to default in future.
Market Outlook
The outlook is currently solely driven by the development of COVID-19 pandemic,
which is likely to result in a global recession. The extent of the impact will
be driven by the length of the global lockdown and the longevity of the impact
of the economy. Specifically for the ABS market the impact on fundamental
performance will be driven on the consumer side by obvious factors such as
unemployment rates, but also by the extent to which lenders permit forbearance
to distressed borrowers. It is worth noting that while headlines have made it
clear lenders are being encouraged to offer forbearance, this has typically
been lender policy anyway and is normally the first step in an arrears
management process. This results in a deferral of interest payments rather than
the permanent loss of interest or a default. It is for this reason that
liquidity and general reserves are structured into ABS deals.
Historically, in terms of corporate borrower risks, largely via allocation to
CLOs, we have stress-tested transactions based on a dual approach of a severe
recessionary scenario and assessing the level of underlying defaults that each
tranche can withstand. As a result of the COVID-19 pandemic we have added a
scenario that more specifically targets underperformance in sectors more
directly impacted, including retail, tourism, and transport, among others. The
modelling output points encouragingly towards the worst case scenarios being
interest deferral on a limited number of exposures within the portfolio, with
such interest accruing and subsequently being paid in full with all principal
also repaid. We do expect to the see the leveraged loan market experience a
material increase in CCC ratings, downgrades, which will hurt CLO equity, and
likely keep CLO spreads wider for longer.
While we are currently seeing an increase in primary market activity, these are
largely transactions postponed as a result of the recent market closure, and we
expect supply to be materially lower than in recent years during the second
half of the year. This is as a result of lower loan origination volumes in
consumer lending, and also as the cost of incubating CLOs on bank balance sheet
should become more expensive and harder to source. This lack of supply could
support prices over a medium-term timeframe. However, should market sentiment
become driven by either extension or gradual release from lockdown, we would
expect that to be a more immediate driver of ABS pricing. In addition it should
be expected that there will be ratings downgrades as economic performance
weakens.
Although coming into 2020 positioned for a degree of market volatility, the
Company was not positioned for the unforeseeable arrival of COVID-19 and its
effect on financial markets everywhere. As such, whilst benefiting to an extent
from the portfolio's lower risk position, like most in the sector, the company
was exposed to the ensuing price volatility. However, the opportunity set as it
currently exists is extremely attractive, and lagging performance seen in other
parts of fixed income. In markets such as those seen recently, the closed-ended
structure allows optimal support for the strategy to access strong credits
which we believe to be currently fundamentally mispriced.
TwentyFour Asset Management
21 July 2020
TOP TWENTY HOLDINGS
as at 31 March 2020
Nominal/ Asset Backed Fair Value Percentage
Security of Net
Asset
Security Shares Sector GBP Value
OPTIMUM THREE '3 MEZ' FRN 19/03/ 17,500,000 Non-Conforming 17,500,000 3.68
2021 RMBS
VSK HOLDINGS LIMITED SER 989,000 Prime RMBS 17,497,574 3.68
TULPENHUIS 0.0% 18/04/2051 19,531,679 Prime RMBS 17,283,870 3.64
CAP. BRIDGE FIN. NO1 '1 MEZZ' 14,000,000 Buy-to-Let RMBS 13,230,000 2.78
FRN 08/11/2018
TAURUS CMBS SER 2020-NL1X CLS E 17,000,000 CMBS 11,282,663 2.37
20/02/2030
EQTY. RELEASE FNDG. NO 5 '5 B' 14,550,000 Prime RMBS 10,506,415 2.21
FRN 14/07/2050
VSK HLDGS. '1 C4-1' VAR 01/10/ 1,250,000 Prime RMBS 10,057,719 2.12
2058
CHARLES STREET CONDUIT AST. B '1 9,500,000 Non-Conforming 9,595,000 2.02
C' FRN 08/12/2065 RMBS
TULPENHUIS SER 19-1 CL A 0.0% 13 10,000,000 Prime RMBS 8,981,884 1.89
/09/2053
SYON SECURITIES 19-1 B CLO FLT 8,979,281 Prime RMBS 8,609,155 1.81
19/07/2026
AUTOFLORENCE 1 SRL '1 F' 7.00% 12,000,000 Auto Loans 8,565,266 1.80
25/12/2042
AURORUS 2017 BV '1 G' FRN 11/8/ 9,200,000 Consumer ABS 8,201,468 1.73
2078
E-CARAT 11 '11 E' FRN 18/05/2028 8,000,000 Auto Loans 7,388,000 1.55
TRINI 2015-1X E '1X E' FRN 15/07 7,283,000 Non-Conforming 7,098,529 1.49
/2051 RMBS
SC GERMANY CONSUMER 2016-1 UG '1 7,500,000 Consumer ABS 6,537,617 1.38
E' FRN 13/09/2029
TAURUS 2019-1 FR DAC '1FR E' FRN 7,173,277 CMBS 6,387,983 1.34
02/02/2031
CASTELL 2017-1 '1 F' FRN 25/10/ 6,000,000 Non-Conforming 5,953,936 1.25
2044 RMBS
SYON SECS. 19-1 Z FRN 19/07/2026 6,485,095 Prime RMBS 5,660,126 1.19
MAN GLG EURO CLO V DAC '5X E' 9,700,000 CLO 5,598,292 1.18
FRN 15/12/2031
CHARLES STREET CONDUIT AST. B '1 5,500,000 Non-Conforming 5,541,250 1.17
B' FRN 08/12/2065 RMBS
The full portfolio listing as at 31 March 2020 can be obtained from the
Administrator on request.
* Definition of Terms
'ABS' - Asset Backed Securities
'CLO' - Collateralised Loan Obligations
'CMBS' - Commercial Mortgage-Backed Securities
'RMBS'- Residential Mortgage-Backed Securities
BOARD MEMBERS
Biographical details of the Directors are as follows:
Trevor Ash - (Chairman) (age 74)
Mr Ash is a resident of Guernsey and has over 30 years of investment
experience. He is a Fellow of the Chartered Institute for Securities and
Investment. He was formerly a managing director of Rothschild Asset Management
(CI) Limited. Mr Ash retired as a director of NM Rothschild & Sons (CI)
Limited, the banking arm of the Rothschild Group in the Channel Islands in
1999. Since retirement, he has acted as a director of a number of hedge funds,
fund of hedge funds, venture capital, derivative and other offshore funds
including several managed or advised by Insight, JP Morgan and Merrill Lynch.
Mr Ash was appointed to the Board on 11 January 2013.
Ian Burns - (Non-executive Director, Senior Independent Director and Chairman
of the Audit Committee) (age 60)
Mr Burns is a resident of Guernsey and a fellow of the Institute of Chartered
Accountants in England and Wales and a member of the Society of Trust and
Estate Planners. He is a founder and Executive Director of Via Executive
Limited, a specialist management consulting company and managing director of
Regent Mercantile Holdings Limited, a privately owned investment company. Mr
Burns is currently a non-executive director of London listed River and
Mercantile UK Micro Cap Limited and FastForward Innovations Limited (AIM) and a
number of private investment funds. Mr Burns was appointed to the Board on 17
January 2013.
Richard Burwood - (Non-executive Director) (age 52)
Mr Burwood is a resident of Guernsey with over 25 years' experience in banking
and investment management. During 18 years with Citibank London, Mr Burwood
spent 11 years as a fixed income portfolio manager spanning both banks/finance
investments and Asset Backed Securities. Mr Burwood has lived in Guernsey since
2010, initially working as a portfolio manager for EFG Financial Products,
managing the treasury department's ALCO Fixed Income portfolio. From 2011 to
2013, Mr Burwood worked as the Business and Investment Manager for Man
Investments, Guernsey. In January 2014, Mr Burwood joined the board of
RoundShield Fund, a Guernsey private equity fund, focused on European small to
mid-cap opportunities. In August 2015, he became a Board Member of Funding
Circle SME Income Fund, which provides investors access to a diversified pool
of SME loans originated through Funding Circle's marketplaces in the UK, US and
Europe. Mr Burwood also serves on the boards of Habrok, a hedge fund
specialising in Indian equities, and EFG International Finance, a structured
note issuance company based in Guernsey. Mr Burwood was appointed to the Board
on 17 January 2013.
Joanne Fintzen - (Non-executive Director) (age 50)
Ms Fintzen is a resident of the United Kingdom, with extensive experience of
the finance sector and the investment industry. She trained as a Solicitor with
Clifford Chance and worked in the Banking, Fixed Income and Securitisation
areas. She joined Citigroup in 1999 providing legal coverage to an asset
management division. She was subsequently appointed as European General Counsel
for Citigroup Alternative Investments where she was responsible for the
provision of legal and structuring support for vehicles which invested $100bn
across asset-backed securities as well as hedge funds investing in various
different strategies in addition to private equity and venture capital funds.
Ms Fintzen was appointed to the Board on 7 January 2019.
DISCLOSURE OF DIRECTORSHIPS IN PUBLIC COMPANIES LISTED ON RECOGNISED STOCK
EXCHANGES
The following summarises the Directors' directorships in other public
companies:
Company Name Stock Exchange
Trevor Ash (Chairman)
Sherbourne Investors (Guernsey) B Limited London
Sherbourne Investors (Guernsey) C Limited London
Ian Burns
FastForward Innovations Limited London and Berlin
River and Mercantile UK Micro Cap London
Limited
Richard Burwood
Funding Circle SME Income Fund Limited, and its associated funding London
vehicles:
- Basinghall Lending DAC Dublin
- Tallis Lending DAC Dublin
STRATEGIC REPORT
For the year ended 31 March 2020
The Directors submit to the Shareholders their Strategic Report for the year
ended 31 March 2020.
Business Model and Strategy
The Company is a closed-ended investment company, incorporated with limited
liability in Guernsey. The Company has been granted exemption from income tax
within Guernsey. It is the intention of the Directors to continue to operate
the Company so that each year this tax-exempt status is maintained.
Investment Objectives and Policy
The Company's investment objective and policy is set out in the Summary
Information.
High Income
The Ordinary Redeemable Shares are designed to offer a high dividend yield. The
Board intends to pay quarterly interim dividends with equal amounts paid in
June, September and December each year, with a final dividend paying the
remaining income being paid in March.
It is intended that the Company's income will consist wholly or mainly of
investment income. The Directors intend to distribute substantially all of the
Company's income after expenses and tax to the holders of the Ordinary Shares.
The full year dividend per share for 2020 totalled 6.40p (2019: 6.45p)
representing a yield of 97.65% on the total comprehensive income for the year.
This dividend is in accordance with the dividend policy approved by
shareholders at an extraordinary shareholders meeting in May 2019.
Long Term Growth in Capital Value
The asset value of the Company's portfolio is heavily influenced by external
macro-economic factors. The Directors meet with the Investment Manager and
Investment Advisers regularly to discuss the portfolio. Additional details are
covered in the Chairman's Statement and Investment Advisers' Report.
Business Environment
Principal Risks, Emerging Risks and Uncertainties
The Board is responsible for the Company's system of internal financial and
reporting controls and for reviewing its effectiveness. The Board is satisfied
that by using the Company's risk matrix as its core element in establishing the
Company's system, internal financial and reporting controls while monitoring
the investment limits and restrictions set out in the Company's investment
objective and policy, that the Board has carried out a robust assessment of the
principal risks and uncertainties facing the Company. The Board also regularly
meets to discuss any emerging risks affecting the Company and to establish
effective controls to manage them.
Market Risk
The underlying investments comprised in the portfolio are subject to market
risk. The Company is therefore at risk that market events may affect
performance and in particular may affect the value of the Company's investments
which are valued on a marked to market basis. Market risk is risk associated
with changes in market prices, including spreads, interest rates, economic
uncertainty, changes in laws and political (national and international)
circumstances. While the Company, through its investments in Asset Backed
Securities, intends to hold a diversified portfolio of assets, any of these
factors including specific market events, such as the global financial crisis
and levels of sovereign debt, the ongoing negotiations over the UK's exit from
the EU and the global COVID-19 pandemic, may have a material impact which could
be materially detrimental to the performance of the Company's investments. As
the process of the UK leaving the EU has no precedent, the Board and the
Portfolio Manager regularly assess the risks and ongoing uncertainties and
expect an ongoing period of market uncertainty as the implications are
processed.
The implications of the COVID-19 pandemic are discussed in further detail
below.
Under extreme market conditions the portfolio may not benefit from
diversification.
Liquidity Risk
Investments made by the Company may be relatively illiquid and this may limit
the ability of the Company to realise its investments and in turn pay
dividends. Substantially all of the assets of the Company are invested in Asset
Backed Securities. There may be no active market in the Company's interests in
Asset Backed Securities. The Company does not have redemption rights in
relation to any of its investments. As a consequence, the value of the
Company's investments may be materially adversely affected. This risk is
mitigated by active cash management and close monitoring.
Credit Risk
The Company may not achieve the Dividend Target and investors may not get back
the full value of their investment because it is invested in Asset Backed
Securities comprising debt securities issued by companies, trusts or other
investment vehicles which, compared to bonds issued or guaranteed by
governments, are generally exposed to greater risk of default in the repayment
of the capital provided to the issuer or interest payments due to the Company.
The amount of credit risk is indicated by the issuer's credit rating which is
assigned by one or more internationally recognised rating agencies. This does
not amount to a guarantee of the issuer's creditworthiness but generally
provides a strong indicator of the likelihood of default. Securities which have
a lower credit rating are generally considered to have a higher credit risk and
a greater possibility of default than more highly rated securities. There is a
risk that an internationally recognised rating agency may assign incorrect or
inappropriate credit ratings to issuers. Issuers often issue securities which
are ranked in order of seniority which, in the event of default, would be
reflected in the priority in which investors might be paid back. The level of
defaults in the portfolio and the losses suffered on such defaults may increase
in the event of adverse financial or credit market conditions.
In the event of a default under an Asset Backed Security, the Company's right
to recover under the Asset Backed Security will depend on the ability of the
Company to exercise any rights that it has against the borrower under the
insolvency legislation of the jurisdiction in which the borrower is
incorporated. As a creditor, the Company's level of protection and rights of
enforcement may therefore vary significantly from one country to another, may
change over time and may be subject to rights and protections which the
relevant borrower or its other creditors might be entitled to exercise. Refer
to the Investment Objective and Investment Policy for information regarding
investment restrictions currently in place in order to manage credit risk. The
credit ratings on the Company's underlying investments are disclosed in note
17.
Foreign Currency Risk
The Company is exposed to foreign currency risk through its investments in
predominantly Euro denominated assets. The Company's share capital is
denominated in Sterling and its expenses are incurred in Sterling. The
Company's financial statements are maintained and presented in Sterling.
Amongst other factors affecting the foreign exchange markets, events in the
Eurozone may have an impact upon the value of the Euro which in turn will
impact the value of the Company's Euro denominated investments. The Company
manages its exposure to currency movements by using spot and forward foreign
exchange contracts, which are rolled forward periodically.
Reinvestment Risk
The Portfolio Manager is conscious of the challenge to reinvest any monies that
result from principal and income payments and to minimise reinvestment risk as
much as possible. Cash flow analysis is conducted on an ongoing basis and is an
important part of the Portfolio Management process, ensuring such proceeds can
be invested efficiently and in the best interests of the Company.
The Portfolio Manager expects amortisations of around GBP45m over the next 12
months, however, while market conditions are always subject to change, the
Portfolio Manager does not currently foresee reinvestment risk significantly
impacting the yield and affecting each quarter's minimum dividend. The
Portfolio Manager also recognises the need to be opportunistic as and when
market conditions are particularly favourable in order to reinvest any
proceeds.
Operational risks
The Company is exposed to the risk arising from any failures of systems and
controls in the operations of the Portfolio Manager, Administrator, AIFM,
Custodian and the Depositary amongst others. The Board and its Audit Committee
regularly review reports from the Portfolio Manager, AIFM, the Administrator,
Custodian and Depositary on their internal controls, in particular, focussing
on changes in working practices arising from the present COVID-19 pandemic. The
Administrator, Custodian and Depositary will report to the Portfolio Manager
any operational issues which will be brought to the Board for final approval as
required. Since the COVID-19 pandemic outbreak, service providers have deployed
business resilience policies to good effect and thus enabled continued business
support with limited disruption to service.
Accounting, legal and regulatory risks
The Company is exposed to the risk that it may fail to maintain accurate
accounting records or fail to comply with requirements of its Admission
document and fail to meet listing obligations. The accounting records prepared
by the Administrator are reviewed by the Portfolio Manager. The Portfolio
Manager, Administrator, AIFM, Custodian, Depositary and Corporate Broker
provide regular updates to the Board on compliance with the Admission document
and changes in regulation. Changes in the legal or the regulatory environment
can have a major impact on some classes of debt. The Portfolio Manager monitors
this and takes appropriate action.
Income recognition risk
The Board considers income recognition to be a principal risk and uncertainty
of the Company as the Portfolio Manager estimates the remaining expected life
of the security and its likely terminal value, which has an impact on the
effective interest rate of the Asset Backed Securities which in turn impacts
the calculation of interest income. The Board asked the Audit Committee to
consider this risk with work undertaken by the Audit Committee as discussed in
the Audit Committee Report. As a result of the work undertaken by the Audit
Committee, the Board is satisfied that income is appropriately stated in all
material aspects in the Financial Statements.
Cyber security risks
The Company is exposed to risk arising from a successful cyber-attack through
its service providers. The Company requests of its service providers that they
have appropriate safeguards in place to mitigate the risk of cyber-attacks
(including minimising the adverse consequences arising from any such attack),
that they provide regular updates to the Board on cyber security, and conduct
ongoing monitoring of industry developments in this area. The Board is
satisfied that the Company's service providers have the relevant controls in
place to mitigate this risk.
Coronavirus Risk (COVID-19)
Given recent events, COVID-19 changed from being an emerging risk to a
principal risk, which has impacted global commercial activities.
The Board has been monitoring the development of COVID-19 outbreak and has
considered the impact it has had to date on the Company, and will continue to
have on the future of the Company and the performance of the Portfolio.
Notwithstanding the impact the outbreak has already caused on the Company's
share price and NAV performance, there remains continued uncertainty about the
development and scale of the COVID-19 outbreak.
From an operational perspective, the Company uses a number of service
providers. These providers have established, documented and regularly tested
Business Resiliency Policies in place, to cover various possible scenarios
whereby staff cannot turn up for work at the designated office and conduct
business as usual. Since the COVID-19 pandemic outbreak, service providers have
deployed these alternative working policies to ensure continued business
service.
Future Prospects
The Board's main focus is to generate attractive risk adjusted returns
principally through income distributions. The future to the Company is
dependent upon the success of the investment strategy. The investment outlook
and future developments are discussed in both the Chairman's Statement and the
Portfolio Managers' report.
Board Diversity
When appointing new Directors and reviewing the Board composition, the
Nomination Committee considers, amongst other factors, diversity, balance of
skills, knowledge, gender, social and ethnic background and experience. The
Nomination Committee however does not consider it appropriate to establish
targets or quotas in this regard. As at 31 March 2020, the Board comprised of
one female and three male Directors. The Company has no employees.
Environmental, Social and Governance
The Board") recognises the importance of Environmental, Social and Governance
("ESG") factors in the investment management industry and the wider economy as
whole. The Company is a closed-ended investment company with a limited purpose
and without employees. As such, it is the view of the Board that the direct
environmental and social impact of the Company is limited and that ESG
considerations are most applicable in respect of the asset allocation decisions
made for its portfolio. The Board is of the view that ESG factors should be
considered when making an investment decision. The Company has appointed the
Portfolio Manager to advise it in relation to all aspects relevant to the
Investment Portfolio. The Portfolio Manager has a formal ESG framework which
incorporates ESG factors into its investment process. The Portfolio Manager has
an ESG steering group representing all areas of its business, which is governed
by its Executive Committee.
The Company does not have executive directors or employees. It has entered into
contractual arrangements with a network of third parties (the "Service
Providers") who provide services to it. The Service Providers, all have ESG
policies in place. The Board undertakes annual due diligence on, and ongoing
monitoring of, all such Service Providers including obtaining a confirmation
that each such Service Provider complies with relevant laws regulations and
good practice.
Engagement and Voting
Wherever possible, on behalf its investors, the Company is committed to
actively engaging at a corporate, industry and regulatory level. The Company
has contracted the Portfolio Manager to do this. It is noted that the
Investment Portfolio is comprised primarily of fixed income assets. The voting
rights attributable to these types of securities are usually limited in scope,
and the opportunity to engage at a corporate level shall therefore in most
cases be via interaction with senior management of companies during the due
diligence process.
The Company engages on behalf of its investors at industry and regulatory level
primarily through its Service Providers, including the Portfolio Manager, the
administrator, and through the TFIF membership of the Association of Investment
Companies.
Further details of the ESG policies and practices of the Portfolio Manager can
be found at:
https://twentyfouram.com/about/our-responsible-investment-policy/
https://twentyfouram.com/about/
our-corporate-and-social-responsibility-statement/
https://twentyfouram.com/2019/09/11/esg-at-twentyfour/
Position and Performance
PRIIPs KIDs
The Company has published a Key Information Document ("KID") in compliance with
the Packaged Retail and Insurance-based Investment Products ("PRIIPs")
Regulation. The KID can be found on the Company website at the below web
address:
https://twentyfouram.com/funds/twentyfour-income-fund/fund-literature/
The process for calculating the risks, cost and potential returns are
prescribed by regulation. The figures in the KID may not reflect the expected
returns for the Company and anticipated returns cannot be guaranteed.
Key Performance Indicators ("KPIs")
At each Board meeting, the Directors consider a number of performance measures
to assess the Company's success in achieving its objectives. Below are the main
KPIs which have been identified by the Board for determining the progress of
the Company:
· Net Asset Value
· (Losses)/Earnings Per Share
· Share Price
· Discount/Premium to Net Asset Value
· Ongoing Charges
· Dividends Declared
Net Asset Value
The Net Asset Value ("NAV") per Ordinary Redeemable Share, including revenue
reserve, at 31 March 2020 was 94.19p, based on net assets as at this date of GBP
475,369,856 divided by number of Ordinary Redeemable Shares in issue of
504,714,809 (31 March 2019: 113.28p based on net assets of GBP500,465,449 divided
by number of Ordinary Redeemable Shares in issue of 441,814,151).
Share Price
The Share Price is the price per share per Ordinary Redeemable Share trading on
the London Stock Exchange.
On 31 March 2020, the share price was 88.00p (31 March 2019: 115.28p).
(Loss)/Earnings per Share per Ordinary Redeemable Share - Basic and Diluted
Losses/earnings per Ordinary Redeemable Share is calculated by dividing the net
loss for the year of GBP64,860,249 (31 March 2019: net gain of GBP6,968,851) by the
weighted average number of shares for the year of 503,905,681 (31 March 2019:
402,734,014).
Discount/Premium to NAV
The discount/premium to NAV is a percentage difference in share price per share
to the net asset value per share. It is calculated by subtracting the share
price from the NAV per share and dividing it by the NAV per share. If the share
price is lower than the NAV per share, the shares are trading at a discount. If
the share price is higher than the NAV per Share, the shares are trading at a
premium.
On 31 March 2020, the discount to NAV was 6.57% (31 March 2019: premium of
1.77%).
Ongoing Charges
Ongoing charges for the year ended 31 March 2020 have been calculated in
accordance with the Association of Investment Companies (the "AIC") recommended
methodology. The ongoing charges represent the Company's management fee and all
other operating expenses, excluding finance costs, share issue or buyback costs
and non-recurring legal and professional fees, expressed as a percentage of the
average of the weekly net assets during the year.
The ongoing charges for the year ended 31 March 2020 were 0.96% (31 March 2019:
0.95%). The ongoing charges were calculated as follows:
31.03.2020 31.03.2019
GBP GBP
Ongoing Charges
Average NAV for the year (a) 562,229,359 461,023,317
Total expenses 5,775,322 4,733,417
Less: Expenses not recognised as part of
the
AIC Ongoing Charges Methodology (378,898) (291,371)
Total recognised expenses (b) 5,396,424 4,442,046
Ongoing Charges (b/a) 0.96% 0.95%
Dividends
The Company maintains a dividend target of 6% of the issue price of 100.00p per
year. If the target for the year is not met, a Continuation Vote is required.
The dividend yield for the year ended 31 March 2020 was 6.40% (31 March 2019:
6.45%) meaning that the Company met its dividend target for the current year.
During the year the following dividends were paid:
Period to Dividend Net Record date Ex-dividend Pay date
rate per dividend date
Share payable
(pence) (GBP)
28 June 2019 0.0150 7,845,962 19 July 2019 18 July 2019 31 July 2019
30 September 2019 0.0150 7,570,722 18 October 2019 17 October 2019 31 October 2019
31 December 2019 0.0150 7,570,722 16 January 2020 17 January 2020 31 January 2020
29 March 2020 0.0190 9,589,581 16 April 2020 17 April 2020 30 April 2020
The Directors will continue to monitor the appropriateness of the dividend
policy.
Viability Statement
Under the UK Corporate Governance Code, the Board is required to make a
"viability statement" which considers the Company's current position and
principal risks and uncertainties combined with an assessment of the prospects
of the Company in order to be able to state that they have a reasonable
expectation that the Company will be able to continue in operation over the
period of their assessment. The Board considers that three years is an
appropriate period to assess the viability of the Company given the uncertainty
of the investment world and the strategy period. In selecting this period the
Board considered the environment within which the Company operates and the
risks associated with the Company.
The Company's prospects are driven by its business model and strategy. The
Company's aim is to provide investors with an attractive level of income with a
high degree of certainty around that income and a focus on capital preservation
in uncertain times, by investing in less liquid, high yielding asset backed
securities.
The Board's assessment of the Company over the three year period has been made
with reference to the Company's current position and prospects, the Company's
strategy, and the Board's risk appetite having considered each of the Company's
principal risks, emerging risks and uncertainties summarised in Strategic
Report Principal Risks and Uncertainties.
The Board has also considered the Company's expected cash flows, income flows,
its likely ability to pay dividends and analysis of the portfolio with
reference to:
· liquidity analysis, including but not limited to, the changes in
liquidity of the Company over time based on the liquidity of the underlying
assets;
· foreign exchange analysis, including but not limited to, monitoring the
effectiveness of the Company's foreign exchange hedging strategy;
· credit analysis, including but not limited to, analysing the current
credit ratings and credit rating outlooks of the underlying securities by the
main rating agencies, as well as sufficient diversification across sectors;
· valuation analysis, including but not limited to, assessing the pricing
accuracy of the underlying securities; and
· Significant accounting judgements, estimates and assumptions, including
but not limited to, the fair value of securities not quoted in an active
market, estimated life of asset backed securities and determination of
observable inputs.
In this context, the Board's central case is that the prospects for economic
activity will remain such that the investment objective, policy and strategy of
the Company will be viable for the foreseeable future through a period of at
least three years from the year end, 31 March 2020.
In making this judgement, the Board has assessed that the main risks to the
viability of the Company are key global and market uncertainties driven by
factors external to the Company which in turn can impact on the liquidity and
NAV of the investment portfolio. A simulation has been designed to estimate the
impact of these uncertainties on the NAV of the Company at times of stress,
such as the UK's exit from the EU and the expected impact of COVID-19, based on
historical performance data, using techniques which analyse how changes in the
Company's ability to generate income (by assessing different levels of
reinvestment rates available as well as changes in FX income generation, over a
3-year period) would impact the annual dividend the Company is able to
generate. All of the foregoing has been considered against the background of
the Company's dividend target.
Key assumptions covered by the Board in relation to the viability of the
Company include:
Dividend Target
The ongoing viability of the Company and the validity of the going concern
basis depend on the Company meeting its dividend target annually during the
three-year period. In the event that the Company does not meet the dividend
target annually, as disclosed in note 20, during the three-year period an
Ordinary Resolution will be put to the Shareholders, at the AGM following any
reporting period in which the dividend target is not met, with the continuation
vote requirements set out in note 17.
The Company's ability to continue to meet its dividend target is further
disclosed in the Chairman's Statement.
Realisation Opportunity
The most recent realisation opportunity (full details are set out in note 17)
occurred on
12 September 2019. The next realisation opportunity is due to occur in
September 2022.
Loss for the Year
During the year, the Company made a total comprehensive loss of GBP64,860,249
(year ended 31st March 2019: a gain of GBP6,968,851). The majority of these
losses were unrealised, were incurred between 21 February 2020 and 31 March
2020 and resulted in an overall fall in the Company's NAV per share of -16.98%.
Subsequent to year end, the drop in NAV per share between 21 February 2020 and
30 June 2020 had recovered to -6.81%, evidencing some signs of recovery in the
market.
Market Uncertainty
In the period 21 February 2020 to 31 March 2020, the largest contributor to the
drop in market value was the Collateralised Loan Obligations ("CLOs") which
contributed to a NAV per Share reduction of approximately -12.5% and a total
return on the asset class of approximately -36.9%. This class of investment
did, however, see the highest level of recovery post year end with the CLOs
held by the Company delivering a total return of approximately +40.7% from 31
March 2020 to 30 June 2020, which contributed approximately +11.6% to the
overall NAV per Share total return during this post year-end period.
Risk of Credit Losses
The Portfolio Manager acknowledges that the risk of credit impairment and
losses has increased due to the Covid-19 pandemic and continues to stress test
the holdings of the Company, under new scenarios that specifically address the
impact of the pandemic on individual loan pools, and analyse the performance of
the underlying investments. Whilst future coupon interest deferrals may be seen
on some specific deals, primarily CLOs, to date the Company expects any
deferrals to be fully paid during the lifetime of each deal and that no credit
losses are expected to occur , based on current information, on all
investments that the Company holds.
Between 31 March 2020 and the date of signing, the Company's portfolio
witnessed no defaults and no deferrals of interest payments.
Section 172 statement
Although the Company is domiciled in Guernsey, the Board has considered the
guidance set out in the AIC Code in relation to Section 172 of the Companies
Act 2006 in the UK. Section 172 of the Companies Act requires that the
Directors of the Company act in the way they consider, in good faith, is most
likely to promote the success of the Company for the benefit of all
stakeholders, including suppliers, customers and shareholders.
Further information as to how the Board has had regard to the S172 factors:
Section 172 factor Key examples Location
Consequences of Investment Objectives and Summary Information
decisions in Policy
the long term Future Prospects Strategic Report
Dividend policy Note 20
Viability Statement Strategic Report
Fostering business Shareholders; Key Service Strategic Report;
relationships with Providers AGM; Monthly
suppliers, customers and Factsheet and
other stakeholders Commentary
Impact of operations on Environmental, Social and Strategic Report
the community and the Governance
environment
Maintaining high Corporate Governance Directors' Report
standard of business
conduct
Key Service Providers
The Company does not have any employees and as such the Board delegates
responsibility for its day to day operations to a number of key service
providers. The activities of each service provider are closely monitored by the
Board and they are required to report to the Board at set intervals.
The Board also meets at least annually to consider the long- term strategy of
the business, incorporating presentations and discussion on longer-term
opportunities and threats to the business. Focus is placed on emerging risks
which have the potential to disrupt the business model.
Signed on behalf of the Board of Directors on 21 July 2020 by:
Trevor Ash
Chairman
Ian Burns
Director
DIRECTORS' REPORT
The Directors present their Annual Report and Audited Financial Statements for
the year ended 31 March 2020.
Business Review
The Company
TwentyFour Income Fund Limited (the "Company") was incorporated with limited
liability in Guernsey, as a closed-ended investment company on 11 January 2013.
The Company's Shares were listed with a Premium Listing on the Official List of
the UK Listing Authority and admitted to trading on the Main Market of the
London Stock Exchange on 6 March 2013.
Investment Objective and Policy
The Company's investment objective and policy is set out in the Summary
Information.
Discount/Premium to NAV
The Board monitors and manages the level of the share price discount/premium to
NAV. In managing this, the Company operates a share buyback facility whereby it
may purchase, subject to various terms as set out in its Articles and in
accordance with The Companies (Guernsey) Law, 2008, up to 14.99% of the
Company's Ordinary Redeemable Shares in issue immediately following Admission
for trading on the London Stock Exchange. On 12 September 2019, a realisation
opportunity was made under which investors were offered an opportunity to
realise all or part of their Shareholding in the Company, with Shareholders
opting to redeem 18,349,342 shares for a consideration of GBP20,050,326.
Subsequently, the realisation opportunity, where shareholders may apply to
redeem shares up to 56 days before the relevant annual general meeting date of
the Company (the "Reorganisation Date"), will be offered at the annual general
meeting of the Company every three years subject to the aggregate NAV of the
continuing Ordinary Redeemable Shares on the last Business Day before
Reorganisation being not less than GBP100 million.
The next realisation opportunity is due to take place in September 2022.
Following the publication of the updated AIC Code in February 2019, in the
event that 20% or more of the Shareholder votes have been cast against a Board
recommendation for a resolution, the Company should explain, when announcing
the voting results, what actions it intends to take to consult Shareholders in
order to understand the reasons behind the result. An update on the views
received from Shareholders and actions taken should be published no later than
six months after the Shareholder meeting. The Board should then provide a final
summary in the annual report and, if applicable, in the explanatory notes to
resolutions at the next Shareholder meeting on what impact the feedback has had
on any decision, action or resolution subsequently proposed. There were no
Board recommendations during the year which received such voting.
Shareholder Information
Shareholder information is set out in the Summary Information.
Going Concern
The Directors believe that it is appropriate to adopt the going concern basis
in preparing the Financial Statements in view of the Company's holdings in cash
and cash equivalents and the liquidity of investments and the income deriving
from those investments, meaning the Company has adequate financial resources
and suitable management arrangements in place to continue as a going concern
for at least twelve months from the date of approval of the Financial
Statements.
The Company also achieved its dividend target of 6% of the issue price for the
year ended
31 March 2020, meaning that as per the Company's Articles, a Continuation Vote
is not required.
The Company's continuing ability to continue meeting its dividend target, along
with the Company's ability to continue as a going concern, in light of the
COVID-19 pandemic has been considered as part of the Viability Statement
assessment. No material doubts to going concern have been identified.
On 31 March 2020, the Company's cash balance was 0.30% of total net assets
(2019: 7.29%).
Post-year end, the Company has maintained a positive cash balance and continues
to meet liabilities when they fall due. The Portfolio Manager considers that
cash management plays a key part in the management of the fund and continuingly
monitors such liabilities, such as the Company's quarterly dividends.
Results
The results for the year are set out in the Statement of Comprehensive Income.
The Directors proposed dividends of GBP32,576,987 in respect of income available
for distribution earned during the year ended 31 March 2020, a breakdown of
which can be found in note 20. Dividends declared during the year amount to GBP
31,822,157 as recognised in the Statement of Changes in Equity.
Income available for distribution in any quarter comprises (a) the accrued
income of the portfolio for the period, and (b) an additional amount to reflect
any income purchased in the course of any share subscriptions that took place
during the period (so as to ensure that the income yield of the shares is not
diluted as a consequence of the issue of new shares during an income period)
and (c) any income on the foreign exchange contracts created by the LIBOR
differentials between each foreign currency pair, less (d) total expenditure
for the period.
The Company pays a dividend based on income earned, therefore even though the
retained earnings balance as at 31 March 2020 was negative, this was caused by
unrealised losses incurred towards the end of the year. These losses started to
recover post year-end and have not affected the Company's ability to meet its
dividend target.
Portfolio Manager
The Company entered into a Portfolio Management Agreement with TwentyFour Asset
Management LLP, the Portfolio Manager, on 29 May 2014. Pursuant to this
agreement, the Portfolio Manager is entitled to a portfolio management fee paid
monthly in arrears, at a rate of 0.75% per annum of the lower of NAV, which is
calculated as of the last business day of each month, or market capitalisation
of each class of shares. For additional information, refer to note 15.
The Board considers that the interests of Shareholders, as a whole, are best
served by the continued appointment of the Portfolio Manager to achieve the
Company's investment objectives.
Alternative Investment Fund Manager
Alternative investment fund management services have been provided by Maitland
Institutional Services Limited ("Maitland") since their appointment as
Alternative Investment Fund Manager ("AIFM") on 29 May 2014. The AIFM fee is
payable quarterly in arrears at a rate of 0.07% of the NAV of the Company below
GBP50 million, 0.05% on Net Assets between GBP50 million and GBP100 million and 0.03%
on Net Assets in excess of GBP100 million. For additional information refer to
note 16.
Custodian and Depositary
Custodian and Depositary services are provided by Northern Trust (Guernsey)
Limited. The terms of the Depositary agreement, allow Northern Trust (Guernsey)
Limited to receive professional fees for services rendered. For additional
information, refer to note 16.
Directors
The Directors of the Company during the year and at the date of this Report are
set out in Corporate Information.
Directors' and Other Interests
As at 31 March 2020, Directors of the Company held the following numbers of
Ordinary Redeemable Shares beneficially:
Directors' and Other Interests
Number Number
of of
Shares Shares
31.03.20 31.03.19
Trevor Ash 58,734 50,000
Ian Burns 29,242 29,242
Richard 22,476 5,000
Burwood
Joanne Fintzen 17,476 -
Corporate Governance
The Board is committed to high standards of corporate governance and has
implemented a framework for corporate governance which it considers to be
appropriate for an investment company in order to comply with the principles of
the UK Corporate Governance Code (the "UK Code"). The Company is also required
to comply with the Code of Corporate Governance (the "GFSC Code") issued by the
Guernsey Financial Services Commission.
The UK Listing Authority requires all UK premium listed companies to disclose
how they have complied with the provisions of the UK Code. This Corporate
Governance Statement, together with the Going Concern Statement, Viability
Statement and the Statement of Directors' Responsibilities, indicate how the
Company has complied with the principles of good governance of the UK Code and
its requirements on Internal Control.
The Company is a member of the AIC and by complying with the 2019 AIC Code of
Corporate Governance ("the AIC Code") is deemed to comply with both the UK Code
and the GFSC Code.
The Board has considered the principles and recommendations of the AIC Code and
considers that reporting against these will provide appropriate information to
Shareholders. To ensure ongoing compliance with these principles the Board
reviews a report from the Corporate Secretary at each quarterly meeting,
identifying how the Company is in compliance and identifying any changes that
might be necessary.
The AIC updated its Code on 5 February 2019 to reflect revised Principles and
Provisions included in the UK Corporate Governance Code which was revised in
2018. These changes applied from
March 2019 onwards
The AIC Code and the AIC Guide are available on the AIC's website,
www.theaic.co.uk. The UK Code is available in the Financial Reporting Council's
website, www.frc.org.uk.
Throughout the year ended 31 March 2020, the Company has complied with the
recommendations of the 2019 AIC Code and thus the relevant provisions of the UK
Code, except as set out below.
The UK Code includes provisions relating to:
· the role of the Chief Executive;
· Executive Directors' remuneration;
· Annually assessing the need for an internal audit function;
· The means for the workforce to raise concerns
· Remuneration Committee; and
· Nomination Committee.
For the reasons set out in the AIC Guide, the Board considers the first three
provisions are not relevant to the position of the Company as it is an
externally managed investment company. The Company has therefore not reported
further in respect of these provisions. The Board is satisfied that any
relevant issues can be properly considered by the Board.
The fourth point is not applicable to the Company, as it has no employees.
The Board, as a whole, fulfils the function of a Nomination and Remuneration
Committee and therefore no separate Nomination or Remuneration Committees are
considered necessary, as disclosed in the Directors' Report.
Details of compliance with the AIC Code are noted below. There have been no
other instances of non-compliance, other than those noted above.
The Company's risk exposure and the effectiveness of its risk management and
internal control systems are reviewed by the Audit Committee at its meetings
and annually by the Board. The Board believes that the Company has adequate and
effective systems in place to identify, mitigate and manage the risks to which
it is exposed.
Role, Composition and Independence of the Board
The Board is the Company's governing body and has overall responsibility for
maximising the Company's success by directing and supervising the affairs of
the business and meeting the appropriate interests of Shareholders and relevant
stakeholders, while enhancing the value of the Company and also ensuring
protection of investors. A summary of the Board's responsibilities is as
follows:
· statutory obligations and public disclosure;
· strategic matters and financial reporting;
· risk assessment and management including reporting compliance,
governance,
monitoring and control; and
· other matters having a material effect on the Company.
The Board's responsibilities for the Annual Report and Audited Financial
Statements are set out in the Statement of Directors' Responsibilities.
The Board currently consists of four non-executive Directors, all of whom are
considered to be independent of the Portfolio Manager and as prescribed by the
Listing Rules.
The Board considers it has the appropriate balance of diverse skills and
experience, independence and knowledge of the Company and the wider sector, to
enable it to discharge its duties and responsibilities effectively and that no
individual or group of individuals dominates decision making. The Chairman is
responsible for leadership of the Board and ensuring its effectiveness. Ian
Burns served as Senior Independent Director throughout the year.
Chairman
The Chairman is Trevor Ash. The Chairman of the Board must be independent for
the purposes of Chapter 15 of the Listing Rules. Trevor Ash is considered
independent because he:
· has no current or historical employment with the Portfolio Manager; and
· has no current directorships in any other investment funds managed by the
Portfolio Manager;
The current Company policy for the maximum tenure of Chairman is nine years,
which is in accordance with the AIC Code.
Biographies of all the Directors can be found in Board Members.
Board Role and Composition
The Board is required to ensure that 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 position and
performance, business model and strategy. In seeking to achieve this, the
Directors have set out the Company's investment objective and policy and have
explained how the Board and its delegated Committees operate, and how the
Directors review the risk environment within which the Company operates and set
appropriate risk controls. Furthermore, throughout the Annual Report and
Audited Financial Statements the Board has sought to provide further
information to enable Shareholders to have a fair, balanced and understandable
view.
The Board has contractually delegated responsibility for the management of its
investment portfolio, the arrangement of custodial and depositary services and
the provision of accounting and company secretarial services.
The Board is responsible for the appointment and monitoring of all service
providers to the Company.
The Directors are kept fully informed of investment and financial controls and
other matters by all services providers that are relevant to the business of
the Company and should be brought to the attention of the Directors.
The Company has adopted a policy that the composition of the Board of
Directors, which is required by the Company's Articles, comprises of at least
two persons, that at all times a majority of the Directors are independent of
the Portfolio Manager and any company in the same group as the Portfolio
Manager; the Chairman of the Board of Directors is free from any conflicts of
interest and is independent of the Portfolio Manager and of any company in the
same group as the Portfolio Manager; and that no more than one director,
partner, employee or professional adviser to the Portfolio Manager or any
company in the same group as the Portfolio Manager may be a Director of the
Company at any one time.
The Board has also given careful consideration to the recommendations of the
Davies Review. The Board has reviewed its composition and believes that the
current appointments provide an appropriate range of skills, experience and
diversity. In order to maintain its diversity, the Board is committed to
continuing its implementation of the recommendations of the Davies Review as
part of its succession planning over future years and by complying with the
disclosure requirement of DTR 7.2.8 in terms of the Company's diversity policy.
Directors' Attendance at Meetings
The Board holds quarterly Board meetings, to discuss general management,
structure, finance, corporate governance, marketing, risk management,
compliance, asset allocation and gearing, contracts and performance. The
quarterly Board meetings are the principal source of regular information for
the Board enabling it to determine policy and to monitor performance,
compliance and controls but these meetings are also supplemented by
communication and discussions throughout the year.
A representative of the Portfolio Manager, AIFM, Administrator, Custodian and
Depositary and Corporate Broker attends each Board meeting either in person or
by telephone thus enabling the Board to fully discuss and review the Company's
operation and performance. Each Director has direct access to the Portfolio
Manager and Company Secretary and may, at the expense of the Company, seek
independent professional advice on any matter.
Both appointment and removal of these parties is to be agreed by the Board as a
whole.
The Audit Committee meets at least twice a year, the Management Engagement
Committee meets at least once a year and a dividend meeting is held quarterly.
In addition, ad hoc meetings of the Board to review specific items between the
regular scheduled quarterly meetings can be arranged.
Between formal meetings there is regular contact with the Portfolio Manager,
AIFM, Administrator, Custodian and Depositary and the Corporate Broker.
Attendance at the Board and Committee meetings during the year was as follows:
Quarterly Board Audit Committee Management Ad hoc Committee
Meetings Meetings Engagement Meetings
Committee
Meetings
Held Attended Held Attended Held Attended Held Attended
Trevor Ash 4 4 3 3 1 1 7 6
Ian Burns 4 4 3 3 1 1 7 5
Richard Burwood 4 4 3 3 1 1 7 5
Joanne Fintzen 4 4 3 3 1 1 7 6
The number of meetings held indicates the meetings held during each Director's
membership of the relevant Board or Committee during the year ended 31 March
2020.
Board Performance and Training
During the prior year, the Board commissioned a review of its performance by
external evaluation practitioner Trust Associates Limited. The review
determined the Board's approach to corporate governance and its supervision of
its regulatory compliance to be good. The review also determined the Board to
be effective with independent thought and action with the right balance of
skills and experience necessary for its proper functioning and the safeguarding
of Shareholders' interests.
Retirement and Re-Election
Under the terms of their appointment, each Director is required to seek
re-election on an annual basis. At the 19 September 2019 Annual General
Meeting, Trevor Ash, Ian Burns and Richard Burwood were re-elected to the
Board. At the same Annual General Meeting, Joanne Fintzen was elected to the
Board for the first time, having been appointed Director on 7 January 2019. 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.
Election of Directors
The election of Directors is set out in the Directors' Remuneration Report.
UK Criminal Finances Act 2017
In respect of the UK Criminal Finances Act 2017 which has introduced a new
Corporate Criminal Offence of 'failing to take reasonable steps to prevent the
facilitation of tax evasion', the Board confirms that it is committed to zero
tolerance towards the criminal facilitation of tax evasion.
The Board also keeps under review developments involving other social and
environmental issues, such as the General Data Protection Regulation ("GDPR"),
which came into effect on 25 May 2018, and Modern Slavery, and will report on
those to the extent they are considered relevant to the Company's operations.
There are no findings to report at year end.
Board Committees and their Activities
Terms of Reference
All Terms of Reference of the Board's Committees are available from the
Administrator upon request.
Management Engagement Committee
The Board has established a Management Engagement Committee with formal duties
and responsibilities. The Management Engagement Committee commits to meeting at
least once a year and comprises the entire Board, with Richard Burwood serving
as Chairperson. These duties and responsibilities include the regular review of
the performance of and contractual arrangements with the Portfolio Manager and
other service providers and the preparation of the Committee's annual opinion
as to the Portfolio Manager's services.
The Management Engagement Committee carried out a review of the performance and
capabilities of the Portfolio Manager and other service providers at its 19
September 2019 meeting and recommended the continued appointment of TwentyFour
Asset Management LLP as Portfolio Manager is in the interest of Shareholders.
The Committee also recommended that the appointment of all the Company's
current service providers should continue.
Audit Committee
An Audit Committee has been established consisting of all Directors with Ian
Burns appointed as Chairman. Trevor Ash, the Chairman of the Board is a member
of the Audit Committee, as he is an independent, non-executive Director. The
terms of reference of the Audit Committee provide that the committee shall be
responsible, amongst other things, for reviewing the Interim and Annual
Financial Statements, considering the appointment and independence of external
auditors, discussing with the external auditors the scope and results from the
audit and reviewing the Company's compliance with the AIC Code.
Further details on the Audit Committee can be found in the Audit Committee
Report.
Nomination Committee
There is no separate Nomination Committee, as all Directors are considered
non-executive and independent. The Board as a whole fulfils the function of a
Nomination Committee. Whilst the Directors take the lead in the appointment of
new Directors, any proposal for a new Director will be discussed and approved
by all members of the Board.
Remuneration Committee
In view of its non-executive and independent nature, the Board considers that
it is not appropriate for there to be a separate Remuneration Committee. The
Board as a whole fulfils the functions of the Remuneration Committee, although
the Board has included a separate Directors' Remuneration Report of these
Financial Statements.
International Tax Reporting
For purposes of the US Foreign Account Tax Compliance Act, the Company
registered with the US Internal Revenue Service ("IRS") as a Guernsey reporting
Foreign Financial Institution ("FFI"), received a Global Intermediary
Identification Number (8V9U53.99999.SL.831), and can be found on the IRS FFI
list.
The Common Reporting Standard ("CRS") is a global standard developed for the
automatic exchange of financial account information developed by the
Organisation for Economic Co-operation and Development ("OECD"), which has been
adopted in Guernsey and which came into effect on 1 January 2016.
The Board ensures that the Company is compliant with Guernsey regulations and
guidance in this regard.
Strategy
The strategy for the Company is to target less liquid, higher yielding asset
backed securities. These securities, whilst fundamentally robust, do not offer
enough liquidity for use in the typical daily mark-to-market UCITs funds, but
are well suited to a traded closed-ended vehicle, where investors can obtain
liquidity by trading shares on the London Stock Exchange. This part of the
fixed income market has been largely overlooked and therefore represents
attractive relative value. The strategy aims to generate a dividend in the
Reporting Period ending 31 March 2020 of 6 pence per Ordinary Share and in each
subsequent Reporting Period such Dividend Target as the Directors determine at
their absolute discretion from time to time, with all excess income being
distributed to investors at the year-end of the Company.
Internal Controls
The Board is ultimately responsible for establishing and maintaining the
Company's system of internal financial and operating control and for
maintaining and reviewing its effectiveness. The Company's risk matrix
continues to be the core element of the Company's risk management process in
establishing the Company's system of internal financial and reporting control.
The risk matrix is prepared and maintained by the Board which initially
identifies the risks facing the Company and then collectively assesses the
likelihood of each risk, the impact of those risks and the strength of the
controls operating over each risk. The system of internal financial and
operating control is designed to manage rather than to eliminate the risk of
failure to achieve business objectives and by their nature can only provide
reasonable and not absolute assurance against misstatement and loss.
These controls aim to ensure that assets of the Company are safeguarded, proper
accounting records are maintained and the financial information for publication
is reliable. The Board confirms that there is an ongoing process for
identifying, evaluating and managing the significant risks faced by the
Company.
This process has been in place for the year under review and up to the date of
approval of this Annual Report and Audited Financial Statements and is reviewed
by the Board and is in accordance with the AIC Code.
The AIC Code requires Directors to conduct at least annually a review of the
Company's system of internal financial and operating control, covering all
controls, including financial, operational, compliance and risk management. The
Board has evaluated the systems of internal controls of the Company. In
particular, it has prepared a process for identifying and evaluating the
significant risks affecting the Company and the policies by which these risks
are managed. The Board also considers whether the appointment of an internal
auditor is required and has determined that there is no requirement for a
direct internal audit function.
The Board has delegated the day to day responsibilities for the management of
the Company's investment portfolio, the provision of depositary services and
administration, registrar and corporate secretarial functions including the
independent calculation of the Company's NAV and the production of the Annual
Report and Financial Statements which are independently audited.
Formal contractual agreements have been put in place between the Company and
providers of these services. Even though the Board has delegated responsibility
for these functions, it retains accountability for these functions and is
responsible for the systems of internal control. At each quarterly Board
meeting, compliance reports are provided by the Administrator, Company
Secretary, Portfolio Manager, AIFM and Depositary. The Board also receives
confirmation from the Administrator of its accreditation under its Service
Organisation Controls 1 report.
The Company's risk exposure and the effectiveness of its risk management and
internal control systems are reviewed by the Audit Committee at its meetings
and annually by the Board. The Board believes that the Company has adequate and
effective systems in place to identify, mitigate and manage the risks to which
it is exposed. Principal Risks and Uncertainties are set out below.
Shareholder Engagement
The Board welcomes Shareholders' views and places great importance on
communication with its Shareholders. Shareholders wishing to meet the Chairman
and other Board members should contact the Company's Administrator.
The Portfolio Manager and Listing Sponsor maintain a regular dialogue with
institutional Shareholders, the feedback from which is reported to the Board.
The Company's Annual General Meeting ("AGM") provides a forum for Shareholders
to meet and discuss issues of the Company and Shareholders with the opportunity
to vote on the resolutions as specified in the Notice of AGM. The Notice of the
AGM and the results are released to the London Stock Exchange in the form of an
announcement. Board members will be available to respond to Shareholders'
questions at the AGM.
In addition, the Company maintains a website, www.twentyfourincomefund.com,
which contains comprehensive information, including links to regulatory
announcements, share price information, financial reports, investment objective
and investor contacts.
Significant Shareholdings
Shareholders with holdings of more than 3.0% of the Ordinary Shares of the
Company at 4 June 2020 (latest available) were as follows:
Those invested directly or indirectly in 3.0% or more of the issued share
capital of the Company will have the same voting rights as other holders of
Shares.
Disclosure of Information to Auditors
The Directors who held office at the date of approval of these Financial
Statements confirm that, so far as they are each aware, there is no relevant
audit information of which the Company's auditor is unaware; and each Director
has taken all the steps that they ought to have taken as a Director to make
themselves aware of any relevant audit information and to establish that the
Company's auditor is aware of that information.
Independent Auditors
A resolution for the reappointment of PricewaterhouseCoopers CI LLP will be
proposed at the forthcoming AGM.
Signed on behalf of the Board of Directors on 21 July 2020 by:
Trevor Ash
Chairman
Ian Burns
Director
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the Financial
Statements in accordance with applicable Guernsey law and regulations.
Guernsey company law requires the Directors to prepare Financial Statements for
each financial year. Under that law they have elected to prepare the Financial
Statements in accordance with International Financial Reporting Standards
("IFRS") and applicable law.
The Financial Statements are required by law to give a true and fair view of
the state of affairs of the Company and of the profit or loss of the Company
for that period.
In preparing these Financial Statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- state whether applicable accounting standards have been followed,
subject to any material departures disclosed and explained in the Financial
Statements; and
- prepare the Financial Statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors confirm that they have complied with these requirements in
preparing the Financial Statements.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and to enable them to ensure that the Financial Statements have been
properly prepared in accordance with The Companies (Guernsey) Law, 2008. They
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 oversight of the maintenance and
integrity of the corporate and financial information in relation to the Company
website; the work carried out by the auditor does not involve consideration of
these matters and, accordingly, the auditor accepts no responsibility for any
changes that may have occurred to the financial statements since they were
initially presented on the website.
Legislation in Guernsey governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
The Directors confirm that to the best of their knowledge:
(a) The Financial Statements have been prepared in accordance with IFRS and
give a true and fair view of the assets, liabilities, financial position and
profit or loss of the Company as at and for the year ended 31 March 2020; and
(b) The Annual Report includes information detailed in the Corporate
Information, Summary Information, Chairman's Statement, Portfolio Manager's
Report, Top Twenty Holdings, Board Members, Disclosure of Directorships in
Public Companies Listed on Recognised Stock Exchanges, Strategic Report,
Directors' Report, Statement of Directors' Responsibilities, Directors'
Remuneration Report, Audit Committee Report, Alternative Investment Fund
Manager's Report and Depositary Statement and provides a fair review of the
information required by:
(i) DTR 4.1.8 and DTR 4.1.9 of the Disclosure and Transparency Rules,
being a fair review of the Company business and a description of the principal
risks and uncertainties facing the Company; and
(ii) DTR 4.1.11 of the Disclosure and Transparency Rules, being an
indication of important events that have occurred since the end of the
financial year and the likely future development of the Company.
In the opinion of the Board, the Financial Statements taken as a whole, are
fair, balanced and understandable and provide the information necessary to
assess the Company's performance, business model and strategy.
By order of the Board
Trevor Ash
Chairman
Ian Burns
Director
21 July 2020
DIRECTORS' REMUNERATION REPORT
The Directors' remuneration report has been prepared on behalf of the Directors
in accordance with the UK Code as issued by the UK Listing Authority. An
ordinary resolution for the approval of the annual remuneration report will be
put to the Shareholders at the AGM to be held on
23 September 2020.
Remuneration Policy
The Company's policy in regard to Directors' remuneration is to ensure that the
Company maintains a competitive fee structure in order to recruit, retain and
motivate non-executive Directors of excellent quality in the overall interests
of shareholders.
The Directors do not consider it necessary for the Company to establish a
separate Remuneration Committee. All of the matters recommended by the UK Code
that would be delegated to such a committee are considered by the Board as a
whole.
It is the responsibility of the Board as a whole to determine and approve the
Directors' fees, following a recommendation from the Chairman who will have
given the matter proper consideration, 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. The Chairman's remuneration is
decided and approved separately by the Board as a whole.
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.
Remuneration
The Directors of the Company are remunerated for their services at such a rate
as the Directors determine, provided that the aggregate amount of such fees
does not exceed GBP150,000 per annum.
Directors are remunerated in the form of fees, payable quarterly in arrears, to
the Director personally. No Directors have been paid additional remuneration
outside the normal Directors' fees and expenses.
In the year ended 31 March 2020, the Directors received the following annual
remuneration in the form of Directors' fees:
Annual Additional Total
Fee Fees Fees
GBP GBP GBP
Trevor Ash (Chairman of the Board) 40,000 5,000 45,000
Ian Burns (Audit Committee Chairman) 37,500 5,000 42,500
Richard Burwood 35,000 5,000 40,000
Joanne Fintzen 35,000 5,000 40,000
Total 147,500 20,000 167,500
The annual fees are GBP40,000 for the Chairman, GBP37,500 for Audit Committee
Chairman, and GBP35,000 for all other Directors.
In May 2019, each Director received a further GBP5,000 each in relation to
additional work carried out on the issue of new shares.
The remuneration policy set out above is the one applied for the year ended 31
March 2020 and is not expected to change in the foreseeable future.
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 of
appointment. Each Director's appointment letter provides that, upon the
termination of his/her appointment, he/she 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. There is
no notice period specified in the Articles for the removal of Directors. 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 six 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 is required to seek
re-election on an annual basis. At the 19 September 2019 Annual General
Meeting, Trevor Ash, Ian Burns and Richard Burwood were re-elected to the
Board. At the same Annual General Meeting, Joanne Fintzen was elected to the
Board for the first time, having been appointed Director on 7 January 2019. 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 shown in note 15 were for services as
non-executive Directors.
No Director has a service contract with the Company, nor are any such contracts
proposed.
Signed on behalf of the Board of Directors on 21 July 2020 by:
Trevor Ash
Chairman
Ian Burns
Director
AUDIT COMMITTEE REPORT
We present the Audit Committee's Report, setting out the responsibilities of
the Audit Committee and its key activities for the year ended 31 March 2020.
The Audit Committee has continued its detailed scrutiny of the appropriateness
of the Company's system of risk management and internal controls, the
robustness and integrity of the Company's financial reporting, along with the
external audit process. The Committee has devoted time to ensuring that the
internal financial and operating controls and processes have been properly
established, documented and implemented.
During the course of the year, the information that the Audit Committee has
received has been timely and clear and has enabled the Audit Committee to
discharge its duties effectively.
The Audit Committee supports the aims of the UK Code and the best practice
recommendations of other corporate governance organisations such as the AIC,
and believes that reporting against the revised AIC Code allows the Audit
Committee to further strengthen its role as a key independent oversight
Committee.
Role and Responsibilities
The primary function of the Audit Committee is to assist the Board in
fulfilling its oversight responsibilities. This includes reviewing the
financial reports and other financial information and any significant financial
judgement contained therein, before publication.
In addition, the Audit Committee reviews the systems of internal financial and
operating controls on a continuing basis that the Administrator, Portfolio
Manager, AIFM, and Custodian Depositary and the Board have established with
respect to finance, accounting, risk management, compliance, fraud and audit.
The Audit Committee also reviews the accounting and financial reporting
processes, along with reviewing the roles, independence and effectiveness of
the external auditor.
The ultimate responsibility for reviewing and approving the Annual and Interim
Financial Statements remains with the Board.
The Audit Committee's full terms of reference can be obtained by contacting the
Company's Administrator.
Risk Management and Internal Control
The Board, as a whole, considers the nature and extent of the Company's risk
management framework and the risk profile that is acceptable in order to
achieve the Company's strategic objectives. As a result, it is considered that
the Board has fulfilled its obligations under the AIC Code.
The Audit Committee continues to be responsible for reviewing the adequacy and
effectiveness of the Company's ongoing risk management systems and processes.
Its system of internal controls, along with its design and operating
effectiveness, is subject to review by the Audit Committee through reports
received from the Portfolio Manager, AIFM and Custodian and Depositary, along
with those from the Administrator and external auditor.
Fraud, Bribery and Corruption
The Audit Committee, in conjunction with the Management Engagement Committee,
has relied on the overarching requirement placed on the service providers under
the relevant agreements to comply with applicable law, including anti-bribery
laws. A review of the service provider policies took place at the Management
Engagement Committee Meeting, held on 19 September 2019. The Board receives
regular confirmation from all service providers that there has been no fraud,
bribery or corruption.
Financial Reporting and Significant Financial Issues
The Audit Committee assesses whether suitable accounting policies have been
adopted and whether the Portfolio Manager has made appropriate estimates and
judgements. The Audit Committee reviews accounting papers prepared by the
Portfolio Manager and Administrator which provide details on the main financial
reporting judgements.
The Audit Committee also reviews reports by the external auditors which
highlight any issues with respect to the work undertaken on the audit.
The significant issues considered during the year by the Audit Committee in
relation to the Financial Statements and how they were addressed are detailed
below:
(i) Valuation of investments:
The Company's investments had a fair value of GBP481,313,740 as at 31 March 2020
(31 March 2019: GBP491,596,605) and represent a substantial portion of net assets
of the Company. As such this is the largest factor in relation to the
consideration of the Financial Statements. These investments are valued in
accordance with the accounting policies set out in note 2 to the Financial
Statements. In March 2020, the committee carried out an on-site review of the
revaluation processes, systems and controls at the London offices of the
Portfolio Manager. By this and through regular reporting during the year by the
Portfolio Manager, AIFM, Administrator, Custodian and Depositary the Audit
Committee satisfied itself that both the sources of price information and
valuation process itself are robust and reliable, and considered the valuation
of the investments held by the Company as at 31 March 2020 to be reasonable.
(ii) Income Recognition:
The Audit Committee considered the calculation of income from investments
recorded in the Financial Statements as at 31 March 2020. As disclosed in note
3(ii)(b) of the Notes to the Financial Statements, the estimated life of Asset
Backed Securities is determined by the Portfolio Manager, impacting the
effective interest rate of the Asset Backed Securities which in turn impacts
the calculation of income from investments. The Audit Committee reviewed the
Portfolio Manager's process for determining the expected life of the Company's
investments and found it to be reasonable based on the explanations provided
and information obtained from the Portfolio Manager. The Audit Committee is
therefore satisfied that income is correctly stated in the Financial
Statements.
As the extent of COVID-19 and its impact become ever more apparent the Audit
Committee has also been working very closely with the Portfolio Manager to
ensure the annual report and accounts remain valid and reflect Company's
position as at the date of signing.
Following a review of the presentations and reports from the Portfolio Manager
and Administrator and consulting where necessary with the external auditor, the
Audit Committee is satisfied that the Financial Statements appropriately
address the critical judgements and key estimates (both in respect to the
amounts reported and the disclosures). The Audit Committee is also satisfied
that the significant assumptions used for determining the value of assets and
liabilities have been appropriately scrutinised, challenged and are
sufficiently robust.
The Company's reporting currency is Sterling while a significant proportion of
the investments owned are denominated in foreign currencies. The Company
operates a hedging strategy designed to mitigate the impact of foreign currency
rate changes on the performance of the fund. The Audit Committee has used
information from the Administrator and Portfolio Manager to satisfy itself
concerning the effectiveness of the hedging process, as well as to confirm that
realised and unrealised foreign currency gains and losses have been correctly
recorded.
At the request of the Audit Committee, the Administrator confirmed that it was
not aware of any material misstatements including matters relating to Financial
Statement presentation. At the Audit Committee meeting to review the Annual
Report and Audited Financial Statements, the Audit Committee received and
reviewed a report on the audit from the external auditors. On the basis of its
review of this report, the Audit Committee is satisfied that the external
auditor has fulfilled its responsibilities with diligence and professional
scepticism. The Audit Committee advised the Board that these Annual Financial
Statements, taken as a whole, are fair, balanced and understandable.
The Audit Committee is satisfied that the judgements made by the Portfolio
Manager and Administrator are reasonable, and that appropriate disclosures have
been included in the Financial Statements.
Going Concern
The going concern basis can be found in the Directors' Report.
External Auditors
The Audit Committee has responsibility for making a recommendation on the
appointment, re-appointment and removal of the external auditors.
PricewaterhouseCoopers CI LLP ("PwC") was appointed as the first auditors of
the Company. During the year, the Audit Committee received and reviewed audit
plans and reports from the external auditors. It is standard practice for the
external auditors to meet privately with the Audit Committee without the
Portfolio Manager and other service providers being present at each Audit
Committee meeting.
To assess the effectiveness of the external audit process, the auditors were
asked to articulate the steps that they have taken to ensure objectivity and
independence, including where the auditor provides non-audit services. The
Audit Committee monitors the auditors' performance, behaviour and effectiveness
during the exercise of their duties, which informs the decision to recommend
reappointment on an annual basis.
During the year, the Committee performed its annual review of the independence,
effectiveness and objectivity of the external auditor and considered the
Financial Reporting Council's ("FRC") Audit Quality Review of PwC's previous
audit work. The Committee concluded that the effectiveness of the external
auditor and the audit process were satisfactory and recommend to the Board the
reappointment of PwC as external auditor for the 2020 financial year. Roland
Mills became engagement partner for the 31 March 2019 audit.
As a general rule, the Company does not utilise external auditors for internal
audit purposes, secondments or valuation advice. Services which do not
compromise auditor independence, such as tax compliance, tax structuring,
private letter rulings, accounting advice, quarterly reviews and disclosure
advice are normally permitted but will be pre-approved by the Audit Committee.
The following tables summarise the remuneration paid to PwC and to other PwC
member firms for audit and non-audit services during the year ended 31 March
2020 and the year ended 31 March 2019.
01.04.19 to 01.04.18 to
31.03.20 31.03.19
PricewaterhouseCoopers CI LLP - Assurance work GBP GBP
- Annual 66,000 57,000
audit
- Interim 19,000 17,550
review
PricewaterhouseCoopers CI LLP - Non-assurance work
- Report accountant services for the new share 60,000 -
issue on
12 September 2019
- Reportable Income 8,000 8,000
calculation
Ratio of audit to non-audit work 1 : 1.32 1 : 0.5
The Audit committee has regular discussions with the auditor regarding their
ongoing independence. The Audit Committee have noted the Revised Ethical
Standard 2019 issued by the FRC in December 2019 have confirmed with the
auditor that the impact on the current relationship with the auditor will
remain largely unaffected with the largest impact being that the Reportable
Income Distribution work undertaken above will have to be undertaken in future
periods by a separate service provider and the Audit Committee will nominate
and appoint a new service provider in due course.
For any questions on the activities of the Audit Committee not addressed in the
foregoing, a member of the Audit Committee remains available to attend each AGM
to respond to such questions.
The Audit Committee Report was approved by the Audit Committee on 21 July 2020
and signed on behalf by:
Ian Burns
Chairman, Audit Committee
21 July 2020
ALTERNATIVE INVESTMENT FUND MANAGER'S REPORT
Maitland Institutional Services Ltd acts as the Alternative Investment Fund
Manager ("AIFM") of TwentyFour Income Fund Limited ("the Company") providing
portfolio management and risk management services to the Company.
The AIFM has delegated the following of its alternative investment fund
management functions:
· It has delegated the portfolio management function for listed investments
to TwentyFour Asset Management LLP.
· It has delegated the portfolio management function for unlisted
investments to TwentyFour Asset Management LLP.
The AIFM is required by the Alternative Investment Fund Managers Directive
2011, 61/EU (the "AIFM Directive") and all applicable rules and regulations
implementing the AIFM Directive in the UK (the "AIFM" Rules):
· to make the annual report available to investors and to ensure that the
annual report is prepared in accordance with applicable accounting standards,
the Company's articles of incorporation and the AIFM Rules and that the annual
report is audited in accordance with International Standards on Auditing;
· be responsible for the proper valuation of the Company's assets, the
calculation of the Company's net asset value and the publication of the
Company's net asset value;
· to make available to the Company's shareholders, a description of all
fees, charges and expenses and the amounts thereof, which have been directly or
indirectly borne by them; and
· ensure that the Company's shareholders have the ability to redeem their
share in the capital of the Company in a manner consistent with the principle
of fair treatment of investors under the AIFM Rules and in accordance with the
Company's redemption policy and its obligations.
The AIFM is required to ensure that the annual report contains a report that
shall include a fair and balanced review of the activities and performance of
the Company, containing also a description of the principal risks and
investment or economic uncertainties that the Company might face.
AIFM Remuneration
The AIFM is subject to a staff remuneration policy which meets the requirements
of the AIFMD. The policy is designed to ensure remuneration practices are
consistent with, and promote, sound and effective risk management. It does not
encourage risk-taking which is inconsistent with the risk profiles, rules or
instrument of incorporation of the funds managed, and does not impair the
AIFM's compliance with its duty to act in the best interests of the funds it
manages.
The AIFM has reviewed the Remuneration Policy and its application in the last
year which has resulted in no material changes to the policy or irregularities
to process.
This disclosure does not include staff undertaking portfolio management
activities as these are undertaken by TwentyFour Asset Management LLP. The
investment manager is required to make separate public disclosure as part of
their obligations under the Capital Requirements Directive.
The AIFM also acts as Authorised Corporate director (ACD) for non-AIFs. It is
required to disclose the total remuneration it pays to its staff during the
financial year of the fund, split into fixed and variable remuneration, with
separate aggregate disclosure for staff whose actions may have a material
impact to the risk profile of a fund or the AIFM itself. This includes
executives, senior risk and compliance staff and certain senior managers.
AIFM Remuneration
Number of Fixed Variable
Beneficiaries
Total remuneration 85 GBP5,516,000 GBP42,920
paid by the ACD
during the year
Remuneration paid to 4 GBP909,000 GBP2,500
employees who are
material risk takers
Further information is available in the AIFM's Remuneration Policy Statement
which can be obtained from www.maitlandgroup.com or, on request free of charge,
by writing to the registered office of the AIFM.
In so far as the AIFM is aware:
· there is no relevant audit information of which the Company's auditors or
the Company's board of directors are unaware; and
· the AIFM has taken all steps that it ought to have taken to make itself
aware of any relevant audit information and to establish that the auditors are
aware of that information.
We hereby certify that this report is made on behalf of the AIFM, Maitland
Institutional Services Ltd.
C O'Keeffe
P.F. Brickley
Directors
Maitland Institutional Services Ltd
21 July 2020
REPORT OF THE DEPOSITARY TO THE SHAREHOLDERS
for the year ended 31 March 2020
Northern Trust (Guernsey) Limited has been appointed as Depositary to
TwentyFour Income Fund Limited (the "Company") in accordance with the
requirements of Article 36 and Articles 21(7), (8) and (9) of the Directive
2011/61/EU of the European Parliament and of the Council of 8 June 2011 on
Alternative Investment Fund Managers and amending Directives 2003/41/EC and
2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 (the "AIFM
Directive").
We have enquired into the conduct of Maitland Institutional Services Limited
(the "AIFM") and the Company for the year ended 31 March 2020, in our capacity
as Depositary to the Company.
This report including the review provided below has been prepared for and
solely for the Shareholders in the Company. We do not, in giving this report,
accept or assume responsibility for any other purpose or to any other person to
whom this report is shown.
Our obligations as Depositary are stipulated in the relevant provisions of the
AIFM Directive and the relevant sections of Commission Delegated Regulation
(EU) No 231/2013 (collectively the "AIFMD legislation") and The Authorised
Closed Ended Investment Scheme Rules 2008.
Amongst these obligations is the requirement to enquire into the conduct of the
AIFM and the Company and their delegates in each annual accounting period.
Our report shall state whether, in our view, the Company has been managed in
that period in accordance with the AIFMD legislation. It is the overall
responsibility of the AIFM and the Company to comply with these provisions. If
the AIFM, the Company or their delegates have not so complied, we as the
Depositary will state why this is the case and outline the steps which we have
taken to rectify the situation.
The Depositary and its affiliates are or may be involved in other financial and
professional activities which may on occasion cause a conflict of interest with
its roles with respect to the Company. The Depositary will take reasonable care
to ensure that the performance of its duties will not be impaired by any such
involvement and that any conflicts which may arise will be resolved fairly and
any transactions between the Depositary and its affiliates and the Company
shall be carried out as if effected on normal commercial terms negotiated at
arm's length and in the best interests of Shareholders.
Basis of Depositary Review
The Depositary conducts such reviews as it, in its reasonable discretion,
considers necessary in order to comply with its obligations and to ensure that,
in all material respects, the Company has been managed (i) in accordance with
the limitations imposed on its investment and borrowing powers by the
provisions of its constitutional documentation and the appropriate regulations
and (ii) otherwise in accordance with the constitutional documentation and the
appropriate regulations. Such reviews vary based on the type of Fund, the
assets in which a Fund invests and the processes used, or experts required, in
order to value such assets.
Review
In our view, the Company has been managed during the period, in all material
respects:
(i) in accordance with the limitations imposed on the investment and
borrowing powers of the
Company by the constitutional documents; and by the AIFMD
legislation; and
(ii) otherwise in accordance with the provisions of the constitutional
documents; and the AIFMD
legislation.
For and on behalf of
Northern Trust (Guernsey) Limited
21 July 2020
INDEPENT AUDITOR'S REPORT
TO THE MEMBERS OF TWENTYFOUR INCOME FUND LIMITED
Report on the audit of the financial statements
______________________________________________________________________________________
Our opinion
In our opinion, the financial statements give a true and fair view of the
financial position of TwentyFour Income Fund Limited (the "company") as at 31
March 2020, and of its financial performance and its cash flows for the year
then ended in accordance with International Financial Reporting Standards and
have been properly prepared in accordance with the requirements of The
Companies (Guernsey) Law, 2008.
What we have audited
The company's financial statements comprise:
* the statement of financial position as at 31 March 2020;
* the statement of comprehensive income for the year then ended;
* the statement of changes in equity for the year then ended;
* the statement of cash flows for the year then ended; and
* the notes to the financial statements, which include a description of the
significant accounting policies.
______________________________________________________________________________________
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
("ISAs"). Our responsibilities under those standards are further described in
the Auditor's responsibilities for the audit of the financial statements
section of our report.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Independence
We are independent of the company in accordance with the ethical requirements
that are relevant to our audit of the financial statements of the company, as
required by the Crown Dependencies' Audit Rules and Guidance. We have fulfilled
our other ethical responsibilities in accordance with these requirements.
______________________________________________________________________________________
Our audit approach
Overview
______________________________________________________________________________________
Materiality
Overall materiality was GBP8.1 million which represents 1.75% of net
assets.
___________________________________________________________________
Audit scope
The company is incorporated and based in Guernsey.
We conducted our audit of the financial statements from information
provided by Northern Trust International Fund Administration Services
(Guernsey) Limited (the "Administrator") to whom the Board of
directors (the "Board") has delegated the administration function. The
company engages TwentyFour Asset Management LLP (the "Portfolio
Manager") to manage the investment portfolio. We had significant
interaction with both the Administrator and the Portfolio Manager
during our audit.
We conducted all of our audit work in Guernsey.
__________________________________________________________________
Key audit matters
Risk of fraud in interest income on financial assets at fair value
through profit or loss.
Valuation of investments.
The Board's consideration of the potential impact of COVID-19.
Audit scope
As part of designing our audit, we determined materiality and assessed the
risks of material misstatement in the financial statements. In particular, we
considered where the directors made subjective judgements; for example, in
respect of significant accounting estimates that involved making assumptions
and considering future events that are inherently uncertain. As in all of our
audits, we also addressed the risk of management override of internal controls,
including among other matters, consideration of whether there was evidence of
bias that represented a risk of material misstatement due to fraud.
We tailored the scope of our audit in order to perform sufficient work to
enable us to provide an opinion on the financial statements as a whole, taking
into account the structure of the company, the accounting processes and
controls, and the industry in which the company operates.
Materiality
The scope of our audit was influenced by our application of materiality. An
audit is designed to obtain reasonable assurance whether the financial
statements are free from material misstatement. Misstatements may arise due to
fraud or error. They are considered material if individually or in aggregate,
they could reasonably be expected to influence the economic decisions of users
taken on the basis of the financial statements.
Based on our professional judgement, we determined certain quantitative
thresholds for materiality, including the overall company materiality for the
financial statements as a whole as set out in the table below. These, together
with qualitative considerations, helped us to determine the scope of our audit
and the nature, timing and extent of our audit procedures and to evaluate the
effect of misstatements, both individually and in aggregate on the financial
statements as a whole.
Overall Company materiality GBP8.1 million (2019: GBP11.3 million)
How we determined it 1.75% of net assets (2019: 2.25% of net
assets)
Rationale for the materiality benchmark We believe that net assets is the most
appropriate benchmark because this is the
key metric of interest to investors. We
reduced materiality for the current year
end to reflect the increase in fraud and
other risks that uncertain and volatile
financial markets can have on businesses.
We agreed with the Audit Committee that we would report to them misstatements
identified during our audit above GBP404,500, as well as misstatements below that
amount that, in our view, warranted reporting for qualitative reasons.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of
most significance in our audit of the financial statements of the current
period. 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.
Key audit matter How our audit addressed the Key audit matter
Risk of fraud in interest We assessed the accounting policy for the
income on financial assets at recognition of interest income for compliance with
fair value through profit or International Financial Reporting Standards and
loss planned and executed our audit procedures to ensure
that interest income had been accounted for in
Interest income earned in accordance with the stated accounting policy.
respect of financial assets We held discussions with the Portfolio Manager to
designated as at fair value understand and evaluate the processes in place for
through profit or loss is recognising interest income and to understand the
recognised in the statement of estimates made by the Portfolio Manager in respect
comprehensive income using the of the expected life of the Asset Backed Securities,
effective interest rate method expected timing of prepayments and expected
(GBP33.0 million) as set out in defaults.
note 2(i) to the financial On a sample basis, we verified key inputs into the
statements. effective interest rate models prepared by the
Portfolio Manager and adopted by the company. We
The requirement to estimate the also verified through recalculation the arithmetic
expected cash flows when accuracy of the models and the resultant interest
forming an effective interest income summary prepared by the Portfolio Manager.
rate model is subject to In assessing the Portfolio Manager's estimates with
significant management estimate respect to the expected life of the Asset Backed
and judgement, as detailed in Securities, expectations on timing of prepayments,
note 3(ii)(b) to the financial expected defaults and the impact of COVID-19
statements and could be open to thereon, we obtained supporting documentation to
manipulation by management. corroborate the Portfolio Manager's estimates on a
sample basis.
As a result, we have designated We also selected a targeted sample of securities to
the risk of fraud in interest assess if there had been any significant changes to
income on financial assets at the expected repayment dates from the prior year.
fair value through profit or Where there had been changes, we obtained supporting
loss (the Asset Backed explanations and analysis to support those changes.
Securities) as a significant No significant issues or concerns were identified in
audit risk. our testing which required reporting to those
charged with governance.
Valuation of investments We understood and evaluated the internal control
environment in place at the Administrator and the
Investments are designated as Portfolio Manager over the valuation of the
financial assets at fair value investment portfolio.
through profit or loss and are We assessed the accounting policy for investment
disclosed separately on the valuation for compliance with International
statement of financial position Financial Reporting Standards and planned and
(GBP481.3 million). executed our audit procedures to ensure that the
valuation of investments were accounted for in
Investments comprise of a accordance with the stated accounting policy.
diverse portfolio of Asset We tested the valuation of investments by using PwC
Backed Securities and are fair UK's asset pricing team to reprice all of the
valued in accordance with the investment portfolio valuations. Prices were
policies set out in note 2(e) obtained by our pricing team from a range of
to the financial statements, sources, including exchange traded and consensus
and the fair value of prices.
investments and movement Where PwC UK's asset pricing team were unable to
therein are further disclosed obtain independent prices (either due to licensee
in notes 9 and 17 respectively. access restrictions or the fact that certain
investments are bespoke privately priced deals), or
Investments represent the most where the prices obtained by PwC UK's asset pricing
significant balance on the team exceeded our initial tolerable variance
statement of financial position threshold per investment (i.e. the initial threshold
and are not listed. Investment for differences between the values reported and the
valuations are subject to repricing obtained for which we undertake further
estimate based on management's investigation), the engagement team sought and
judgements and assumptions received supporting evidence for these specific
underlying each security, as prices from the Administrator and/or the Portfolio
detailed under note 3(ii)(a) to Manager.
the financial statements. In doing so, we also assessed the independence,
reputation and reliability of the sources of the
Owing to the level of supporting evidence provided in these instances.
subjectivity that could be All variances exceeding our tolerable threshold were
applied in fair valuing evaluated as being reasonable in light of the
investments, the risk of supporting evidence obtained and evaluated.
manipulation or error could be In executing our investment repricing testing, where
material and as a result we we noted that investments were based on prices
have designated the valuation published at dates prior to the reporting date, we
of investments as a significant performed additional audit procedures so as to
audit risk. ensure that updated prices had been received
subsequent to the year end, and that those prices
were not materially different to the prices used at
the reporting year end.
In order to determine the ongoing reliability of the
investment valuations from year to year, we also,
for a sample of disposals, compared the sales
transaction price to the most recently recorded
valuation prior to the disposal, which allowed us to
assess the reliability of the valuation data and
process for the previous valuation point.
During the year, the Board refined their investment
fair value hierarchy policy (the hierarchy
disclosure required by International Financial
Reporting Standards), which saw more granularity
applied in deciding about what observable inputs are
used in determining whether a price of an investment
is level 3 (based on unobservable data) or level 2
(unquoted but based on observable data for the same
/ similar instruments).
We obtained the Board's approved fair value
hierarchy policy and we engaged with the Board and
the Portfolio Manager to understand the drivers for
amending the principles therein. We also tested the
Portfolio Manager's year-end process for assigning
an appropriate level to each security in accordance
with the policy, by evaluating a sample of the fair
value hierarchy changes from Level 3 to Level 2.
We also discussed and evaluated management's
approach to assessing and, if necessary, measuring
the impact of COVID-19 on the fair value of the
investment portfolio.
No significant issues or concerns were noted with
regard to the valuation of financial assets at fair
value through profit or loss which required
reporting to those charged with corporate
governance.
The Board's consideration of We obtained from the Portfolio Manager and Board the
the potential impact of latest assessment and conclusions with respect to
COVID-19 the statements of going concern and viability
respectively.
The Board and the Portfolio We discussed with the Portfolio Manager and the
Manager have considered the Board the critical estimates and judgements applied
potential impact of events that in their latest assessments so we could understand
have been caused by the and challenge the rationale and underlying factors
pandemic, COVID-19, on the incorporated and the sensitivities applied as a
current and future operations result of COVID-19.
of the company. In doing so, We inspected the viability assessment provided to
the Board together with the evaluate its consistency with our understanding of
Portfolio Manager have made the operations of the company, the investment
estimates and judgements that portfolio and with any market commentary already
are critical to the outcomes of made by the Portfolio Manager.
these considerations with a We considered the appropriateness of the disclosures
particular focus on the made by the Portfolio Manager and the Board in
company's ability to continue respect of these assessments including the current
as a going concern for a period and potential impact of COVID-19.
of at least 12 months from the We confirmed that the directors have analysed and
date of approval of these are satisfied with the business continuity plans of
financial statements. all key service providers as part of their COVID-19
operational resilience review.
As a result of the impact of In discussing, challenging and evaluating the
COVID-19 on the wider financial estimates and judgments made by the Portfolio
markets and the company's share Manager and the Board, we noted the following
price, we have determined the factors that were considered to be fundamental in
Board's consideration of the their consideration of the potential impact of
potential impact of COVID-19 COVID-19 on the current and future operations of the
(including their associated company and which support the statements of going
estimates and judgements) to be concern and viability respectively:
a key audit matter.
In the period from 21 February to 31 March 2020, the
Board noted the company's NAV per share was
negatively impacted by the market volatility caused
by COVID-19, dropping by 17% in March 2020
(predominantly driven by the valuation of the
collateralised loan obligations ("CLOs") in the
portfolio,which contributed an overall drop of 13%
in the NAV). However, the Board considered the fact
that the NAV had largely recovered, increasing by
10% during the three months post year end (the CLOs
had recovered significantly, contributing a 11%
increase in NAV per share) as a positive indicator
to support both the viability and going concern
assessments of the company;
The Board have confirmed with the company's service
providers that they have appropriate business
continuity plans in place and that they have shifted
to working from home or other flexible working
arrangements. The Board have deemed these business
continuity plans to be operating effectively,
especially in Guernsey where there have been no new
cases of COVID-19 reported for over 70 days. The
Portfolio Manager, Board and Administrator do not
anticipate any issues and staff working from home
have access to all relevant systems and
functionalities;
As at 31 March 2020 the Board noted that the company
had cash and cash equivalents of 0.30% of total net
assets, and that post year end the company has
maintained a positive cash balance and continues to
meet liabilities when they fall due; and
Subsequent to the year end, the company has also
raised, with the authority of the Board, additional
capital of GBP3.5m by issuing 3.8m shares, which the
Board believes further demonstrates the company's
viability to investors.
Based on our procedures and the information
available at the time of the Board's approval of the
financial statements, we have not identified any
matters to report with respect to the Board's
consideration and disclosure of the impact of
COVID-19 on the current and future operations of the
company.
Other information
The directors are responsible for the other information. The other information
comprises all the information included in the Annual Report and Audited
Financial Statements (the "Annual Report") but does not include the financial
statements and our auditor's report thereon.
Our opinion on the financial statements does not cover the other information
and we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is
to read the other information identified above and, in doing so, consider
whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the audit, or otherwise appears to be
materially misstated. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to
report that fact. We have nothing to report in this regard.
______________________________________________________________________________________
Responsibilities of the directors for the financial statements
The directors are responsible for the preparation of the financial statements
that give a true and fair view in accordance with International Financial
Reporting Standards, the requirements of Guernsey law and for such internal
control as the directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are responsible for
assessing the company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the company or to
cease operations, or have no realistic alternative but to do so.
______________________________________________________________________________________
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to fraud
or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of
these financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgement
and maintain professional scepticism throughout the audit. We also:
· Identify and assess the risks of material misstatement of the financial
statements, whether due to fraud or error, design and perform audit procedures
responsive to those risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control;
· Obtain an understanding of internal control relevant to the audit in
order to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
company's internal control;
· Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made by the
directors;
· Conclude on the appropriateness of the directors use of the going concern
basis of accounting and, based on the audit evidence obtained, whether a
material uncertainty exists related to events or conditions that may cast
significant doubt on the company's ability to continue as a going concern over
a period of at least twelve months from the date of approval of the financial
statements. If we conclude that a material uncertainty exists, we are required
to draw attention in our auditor's report to the related disclosures in the
financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the
date of our auditor's report. However, future events or conditions may cause
the company to cease to continue as a going concern, and
· Evaluate the overall presentation, structure and content of the financial
statements, including the disclosures, and whether the financial statements
represent the underlying transactions and events in a manner that achieves fair
presentation.
We communicate with those charged with governance regarding, among other
matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide those charged with governance with a statement that we have
complied with relevant ethical requirements regarding independence, and to
communicate with them all relationships and other matters that may reasonably
be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with those charged with governance, we determine
those matters that were of most significance in the audit of the financial
statements of the current period and are therefore the key audit matters. We
describe these matters in our auditor's report unless law or regulation
precludes public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be communicated in our
report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
______________________________________________________________________________________
Use of this report
This independent auditor's report, including the opinions, has been prepared
for and only for the members as a body in accordance with Section 262 of The
Companies (Guernsey) Law, 2008 and for no other purpose. We do not, in giving
these opinions, accept or assume responsibility for any other purpose or to any
other person to whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.
______________________________________________________________________________________
Report on other legal and regulatory requirements
Company Law exception reporting
Under The Companies (Guernsey) Law, 2008 we are required to report to you if,
in our opinion:
· we have not received all the information and explanations we require for
our audit;
· proper accounting records have not been kept; or
· the financial statements are not in agreement with the accounting
records.
We have no exceptions to report arising from this responsibility.
Listing Rules of the Financial Conduct Authority (FCA)
The company has reported compliance against the 2019 AIC Code of Corporate
Governance (the "Code") which has been endorsed by the UK Financial Reporting
Council as being consistent with the UK Corporate Governance Code for the
purposes of meeting the company's obligations, as an investment company, under
the Listing Rules of the FCA.
We have nothing material to add or draw attention to in respect of the
following matters which we have reviewed based on the requirements of the
Listing Rules of the FCA:
· The directors' confirmation that they have carried out a robust
assessment of the principal and emerging risks facing the company, including a
description of the principal risks, what procedures are in place to identify
emerging risks, and an explanation of how those risks are being managed or
mitigated, and
· The directors' explanation 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.
We have nothing to report having performed a review of the directors' statement
that they have carried out a robust assessment of the principal and emerging
risks facing the company and the directors' statement in relation to the
longer-term viability of the company. Our review was substantially less in
scope than an audit and only consisted of making inquiries and considering the
directors' process supporting their statements; checking that the statements
are in alignment with the relevant provisions of the Code; and considering
whether the statements are consistent with the knowledge and understanding of
the company and its environment obtained in the course of the audit.
Additionally, we have nothing to report in respect of our responsibility to
report when:
· The directors' statement relating to Going Concern in accordance with
Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained
in the audit;
· The statement given by the directors that they consider the Annual Report
taken as a whole to be fair, balanced and understandable, and provides the
information necessary for the members to assess the company's position and
performance, business model and strategy is materially inconsistent with our
knowledge of the company obtained in the course of performing our audit;
· 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, and
· The directors' statement relating to the company's compliance with the
Code does not properly disclose a departure from a relevant provision of the
Code specified, under the Listing Rules, for review by the auditors.
Roland Mills
For and on behalf of PricewaterhouseCoopers CI LLP
Chartered Accountants and Recognised Auditor
Guernsey, Channel Islands
21 July 2020
STATEMENT OF COMPREHENSIVE INCOME
for the year ended from 31 March 2020
01.04.19 to 01.04.18 to
31.03.20 31.03.19
Note GBP GBP
Income
Interest income on financial assets at fair 32,730,424 27,168,323
value through profit and loss
Net foreign currency (losses)/gains 8 (7,819,207) 7,321,109
Net losses on financial assets at fair value 9 (83,996,144) (22,787,164)
through profit or loss
Total income (59,084,927) 11,702,268
Portfolio management fees 15 (4,228,263) (3,462,140)
Directors' fees 15 (167,500) (138,917)
Administration and secretarial fees 16 (280,875) (236,007)
Audit fees (66,000) (57,000)
Custody fees 16 (56,377) (46,696)
Broker fees (54,167) (45,895)
AIFM management fees 16 (199,294) (174,555)
Depositary fees 16 (78,012) (65,143)
Legal and professional fees (55,911) (337,373)
Listing fees (92,079) (59,300)
Registration fees (45,635) (26,857)
Other expenses (451,209) (83,534)
Total expenses (5,775,322) (4,733,417)
Total comprehensive (loss)/income for the year (64,860,249) 6,968,851
(Loss)/Earnings per Ordinary Redeemable Share -
Basic & Diluted 4 (0.1287) 0.0173
All items in the above statement derive from continuing operations.
The notes form an integral part of these Financial Statements.
STATEMENT OF FINANCIAL POSITION
as at 31 March 2020
31.03.2020 31.03.2019
Note GBP GBP
Assets
Current assets
Financial assets at fair value through
profit and loss
- Investments 9 481,313,740 491,596,605
- Derivative assets: Forward currency 18 14,398,192 52,575
contracts
Amounts due from broker 3,908,529
-
Amounts due from shares issued 3,456,600
-
Other receivables 10 3,737,798 3,112,577
Cash and cash equivalents 1,409,267 36,505,984
Total assets 500,858,997 538,632,870
Liabilities
Current liabilities
Financial liabilities at fair value through
profit and loss
- Derivative liabilities: Forward currency 18 1,374,030 1,919,402
contracts
Amounts payable under repurchase agreements 12 23,175,944 -
Amounts due to brokers 35,401,772
-
Other payables 11 939,167 846,247
Total liabilities 25,489,141 38,167,421
Net assets 475,369,856 500,465,449
Equity
Share capital account 13 530,491,915 459,436,544
Retained earnings (55,122,059) 41,028,905
Total equity 475,369,856 500,465,449
Ordinary Redeemable Shares in issue 13 504,714,809 441,814,151
Net Asset Value per Ordinary Redeemable 6 94.19 113.28
Share (pence)
The Financial Statements were approved by the Board of Directors on 21 July
2020 and signed on its behalf by
Trevor Ash
Chairman
Ian Burns
Director
The notes form an integral part of these Financial Statements.
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2020
Share Retained
capital
account earnings Total
Note GBP GBP GBP
Balances at 1 April 2019 459,436,544 41,028,905 500,465,449
Issue of shares 13 93,123,125 - 93,123,125
Redemption of shares 13 (20,050,326) - (20,050,326)
Share issue costs 13 (1,485,986) - (1,485,986)
Dividend paid - (31,822,157) (31,822,157)
Income equalisation on new issues 5 (531,442) 531,442 -
Total comprehensive loss for the - (64,860,249) (64,860,249)
year
Balances at 31 March 2020 530,491,915 (55,122,059) 475,369,856
Share Retained
capital
account earnings Total
GBP GBP GBP
Balances at 1 April 2018 407,509,059 62,504,072 470,013,131
Issue of shares 53,010,450 - 53,010,450
Share issue costs (609,620) - (609,620)
Dividend paid - (28,917,363) (28,917,363)
Income equalisation on new issues 5 (473,345) 473,345 -
Total comprehensive gain for the - 6,968,851 6,968,851
year
Balances at 31 March 2019 459,436,544 41,028,905 500,465,449
The notes form an integral part of these Financial Statements.
STATEMENT OF CASH FLOWS
for the year ended 31 March 2020
Note 01.04.19 to from 01.04.18
31.03.20 to 31.03.19
GBP GBP
Cash flows from operating activities
Total comprehensive income for the year (64,860,249) 6,968,851
Adjustments for:
Net losses on investments 9 84,217,916 22,787,164
Amortisation adjustment under effective interest 9 (4,951,929) (4,906,589)
rate method
Unrealised (gains)/losses on forward currency 8 (14,890,989) 5,799,890
contracts
Exchange gains on cash and cash equivalents (28,227) (6,700)
Decrease in other receivables (625,221) (267,894)
Increase/(decrease) other payables 172,412 (662)
Purchase of investments (467,441,266) (303,568,916)
Sale of investments 366,964,901 277,963,536
Net cash (used in)/generated from operating (101,442,652) 4,768,680
activities
Cash flows from financing activities
Proceeds from issue of Ordinary Redeemable 96,579,725 49,553,850
Shares
Redemption of Ordinary Redeemable Shares (20,050,326) -
Share issue costs (1,565,478) (530,128)
Dividend paid (31,822,157) (28,917,363)
Increase in amounts payable under repurchase 23,175,944 -
agreements
Net cash inflow from financing activities 66,317,708 20,106,359
(Decrease)/Increase in cash and cash equivalents (35,124,944) 24,875,039
Cash and cash equivalents at beginning of the 36,505,984 11,624,245
year
Exchange gains on cash and cash equivalents 28,227 6,700
Cash and cash equivalents at end of the year 1,409,267 36,505,984
The notes form an integral part of these Financial Statements.
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 March 2020
1. General Information
TwentyFour Income Fund Limited (the "Company") was incorporated with limited
liability in Guernsey, as a closed-ended investment company on 11 January 2013.
The Company's Shares were listed with a Premium Listing on the Official List of
the UK Listing Authority and admitted to trading on the Main Market of the
London Stock Exchange on 6 March 2013.
The Company's investment objective and policy is set out in the Summary
Information.
The Portfolio Manager of the Company is TwentyFour Asset Management LLP (the
"Portfolio Manager").
2. Principal Accounting Policies
a) Statement of Compliance
The Financial Statements have been prepared in accordance with International
Financial Reporting Standards ("IFRS") as issued by the International
Accounting Standards Board ("IASB") and are in compliance with The Companies
(Guernsey) Law, 2008.
b) Presentation of Information
The Financial Statements have been prepared on a going concern basis under the
historical cost convention adjusted to take account of the revaluation of the
Company's financial assets and liabilities at fair value through profit or
loss.
c) Standards, Amendments and Interpretations Effective during the Year
At the reporting date of these Financial Statements, the following standards,
interpretations and amendments, were adopted for the year ended 31 March 2020:
- IFRS 16 Leases
The Company expects that the adoption of IFRS 16 in the future period will not
have an impact on the Company's Financial Statements, as it does not hold any
leases.
d) Standards, Amendments and Interpretations Issued but not yet Effective
At the reporting date of these Financial Statements, the following standards,
interpretations and amendments, which have not been applied in these Financial
Statements, were in issue but not yet effective:
- IFRS 17 Insurance Contracts (Effective 1 January 2021)
The Company expects that the adoption of IFRS 17 in the future period will not
have an impact on the Company's Financial Statements, as it does not hold any
insurance contracts.
e) Financial Assets at Fair Value through Profit or Loss
Classification
The Company classifies its investments in debt securities and derivatives as
financial assets at fair value through profit or loss.
Financial assets and financial liabilities designated at fair value through
profit or loss at inception are financial instruments that are not classified
as held for trading but are managed and their performance is evaluated on a
fair value basis in accordance with the Company's business model per IFRS 9.
The Company's policy requires the Portfolio Manager and the Board of Directors
to evaluate the information about these financial assets and liabilities on a
fair value basis together with other related financial information.
Recognition, Derecognition and Measurement
Regular purchases and sales of investments are recognised on the trade date -
the date on which the Company commits to purchase or sell the investment.
Financial assets and financial liabilities at fair value through profit or loss
are initially recognised at fair value. Transaction costs are expensed as
incurred in the Statement of Comprehensive Income. Financial assets are
derecognised when the rights to receive cash flows from the investments have
expired or the Company has transferred substantially all risks and rewards of
ownership.
Investments in Asset Backed Securities are the purchase of an interest in pools
of loans. The investment characteristics of Asset Backed Securities are such
that principal payments are made more frequently than traditional debt
securities. The principal may be repaid at any time because the underlying debt
or other assets generally may be repaid at any time.
The Company records these principal repayments as they arise and realises a
gain or loss in the net gains on financial assets at fair value through profit
or loss in the Statement of Comprehensive Income in the period in which they
occur.
The interest income arising on these securities is recognised within income in
the Statement of Comprehensive Income.
Fair Value Estimation
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. Investments in Asset Backed Securities are fair valued in
accordance with either i) or ii) below and the change in fair value, if any, is
recorded as net gains/(losses) on financial assets/(liabilities) at fair value
through profit or loss in the Statement of Comprehensive Income.
i) Asset Backed Securities Traded or Dealt on an Active Market or Exchange
Asset Backed Securities that are traded or dealt on an active market or
exchange are valued by reference to their quoted mid-market price as at the
close of trading on the reporting date as management deem the mid-market price
to be a reasonable approximation of an exit price.
ii) Asset Backed Securities not Traded or Dealt on an Active Market or Exchange
Asset Backed Securities which are not traded or dealt on active markets or
exchanges are valued by reference to their price, as at the close of business
on the reporting date as determined by an independent price vendor. If a price
cannot be obtained from an independent price vendor, or where the Portfolio
Manager determines that the provided price is not an accurate representation of
the fair value of the Asset Backed Security, the Portfolio Manager will source
prices at the close of business on the reporting date from third party broker/
dealer quotes for the relevant security.
Forward foreign currency contracts
Forward foreign currency contracts are derivative contracts and as such are
recognised at fair value on the date on which they are entered into and
subsequently measured at their fair value. Fair value is determined by rates in
active currency markets. All forward foreign currency contracts are carried as
assets when fair value is positive and as liabilities when fair value is
negative. Gains and losses on forward currency contracts are recognised as part
of net foreign currency gains in the Statement of Comprehensive Income.
f) Offsetting Financial Instruments
Financial assets and liabilities are offset and the net amount reported in the
Statement of Financial Position when there is a legally enforceable right to
offset the recognised amounts and there is an intention to settle on a net
basis or realise the asset and settle the liability simultaneously.
g) Sale and Repurchase Agreements
Securities sold subject to repurchase agreements are reclassified in the
financial statements as pledged assets when the transferee has the right by
contract or custom to sell or re-pledge the collateral. The counterparty
liability is included under 'Amounts payable under repurchase agreements'.
Securities purchased under agreements to resell are recorded separately under
'due from agreements to resell'. These securities are valued at amortised cost
on the Statement of Financial Position. The difference between the sale and the
repurchase price is treated as interest and accrued over the life of the
agreement using the effective interest method.
h) Amounts Due from and Due to Brokers
Amounts due from and to brokers represent receivables for securities sold and
payables for securities purchased that have been contracted for but not yet
settled or delivered on the statement of financial position date respectively.
These amounts are recognised initially at fair value and subsequently measured
at amortised cost using the effective interest method.
i) Income
Interest income is recognised on a time-proportionate basis using the effective
interest method. Discounts received or premiums paid in connection with the
acquisition of Asset Backed Securities are amortised into interest income using
the effective interest method over the estimated life of the related security.
The effective interest rate method is a method of calculating the amortised
cost of a financial asset or financial liability and of allocating the interest
income or interest expense over the relevant period. The effective interest
rate is the rate that exactly discounts estimated future cash payments or
receipts throughout the expected life of the financial instrument, or, when
appropriate (see note 3(ii)(b)), a shorter period, to the net carrying amount
of the financial asset or financial liability. When calculating the effective
interest rate, the Company estimates cash flows considering the expected life
of the financial instrument but does not consider future credit losses. The
calculation includes all fees and points paid or received between parties to
the contract that are an integral part of the effective interest rate and all
other premiums or discounts.
j) Cash and Cash Equivalents
Cash and cash equivalents comprises cash in hand and deposits held at call with
banks and other short-term investments in an active market with original
maturities of three months or less and bank overdrafts. Bank overdrafts are
shown in current liabilities in the Statement of Financial Position.
k) Share Capital
As there are only Ordinary Redeemable Shares in issue, which are redeemable at
the discretion of the Board, the shares are presented as equity in accordance
with IAS 32 - "Financial Instruments: Disclosure and Presentation". Incremental
costs directly attributable to the issue of ordinary redeemable shares are
shown in equity as a deduction, net of tax, from the proceeds and disclosed in
the Statement of Changes in Equity.
l) Foreign Currency Translation
Functional and Presentation Currency
Items included in the financial statements are measured using Sterling, the
currency of the primary economic environment in which the Company operates (the
"functional currency"). The Financial Statements are presented in Sterling,
which is the Company's presentation currency.
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 assets and liabilities are translated into the functional currency
using the exchange rate prevailing at the statement of financial position date.
Foreign exchange gains and losses relating to the financial assets and
liabilities carried at fair value through profit or loss are presented in the
Statement of Comprehensive Income.
m) Transaction Costs
Transaction costs on financial assets at fair value through profit or loss
include fees and commissions paid to agents, advisers, brokers and dealers.
Transaction costs, when incurred, are immediately recognised in the Statement
of Comprehensive Income.
n) Segment Reporting
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker. The chief operating
decision-maker, who is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the Board. The
Directors are of the opinion that the Company is engaged in a single segment of
business, being investments in Asset Backed Securities. The Directors manage
the business in this way. Additional information can be found in note 19.
o) Expenses
All expenses are included in the Statement of Comprehensive Income on an
accruals basis. Expenses incurred on the acquisition of investments at fair
value through profit or loss are charged to the Statement of Comprehensive
Income. All other expenses are recognised through profit or loss in the
Statement of Comprehensive Income.
p) Other Receivables
Other receivables are amounts due in the ordinary course of business. If
collection is expected in one year or less, they are classified as current
assets. If not, they are presented as non-current assets. Other receivables are
recognised initially at fair value and subsequently measured at amortised cost
using the effective interest method, less any expected credit losses.
q) Other Payables
Other payables are obligations to pay for services that have been acquired in
the ordinary course of business. Other payables are classified as current
liabilities if payment is due within one year or less. If not, they are
presented as non-current liabilities. Other payables are recognised initially
at fair value and subsequently measured at amortised cost using the effective
interest method.
r) Dividend
A dividend to the Company's Shareholders is recognised as a liability in the
Company's financial statements and disclosed in the Statement of Changes in
Equity in the period in which the dividends are approved by the Board.
s) Income Equalisation on New Issues
In order to ensure there are no dilutive effects on earnings per share for
current Shareholders when issuing new shares, a transfer is made between share
capital and income to reflect that amount of income included in the purchase
price of the new shares.
t) Treasury Shares
The Company has the right to issue and purchase up to 14.99% of the total
number of its own shares, as disclosed in note 13.
Shares held in Treasury are excluded from calculations when determining (Loss)/
Earnings per Ordinary Redeemable Share or NAV per Ordinary Redeemable Share as
detailed in notes 4 and 6.
3. Significant Accounting Judgements, Estimates and Assumptions
The preparation of the Company's Financial Statements requires management to
make judgements, estimates and assumptions that affect the reported amounts of
revenues, expenses, assets and liabilities and the accompanying disclosures.
Uncertainty about these assumptions and estimates could result in outcomes that
require a material adjustment to the carrying amount of assets or liabilities
affected in future periods.
(i) Judgements
In the process of applying the Company's accounting policies, management has
made the following judgements, which have the most significant effect on the
amounts recognised in the Financial Statements:
Functional Currency
As disclosed in note 2(l), the Company's functional currency is Sterling.
Sterling is the currency in which the Company measures its performance and
reports its results, as well as the currency in which it receives subscriptions
from its investors. Dividends are also paid to its investors in Sterling. The
Directors believe that Sterling best represents the functional currency.
(ii) Estimates and Assumptions
The key assumptions concerning the future and other key sources of estimation
uncertainty at the reporting date, that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within
the next financial year, are described below. The Company based its assumptions
and estimates on parameters available when the Financial Statements were
prepared. Existing circumstances and assumptions about future developments,
however, may change due to market changes or circumstances arising which are
beyond the control of the Company. Such changes are reflected in the
assumptions when they occur.
(a) Fair value of Securities not Quoted in an Active Market
The Company carries its investments in Asset Backed Securities at fair value,
with changes in value being recognised in the Statement of Comprehensive
Income. In cases where prices of Asset Backed Securities are not quoted in an
active market, the Portfolio Manager will obtain prices determined at the close
of business on the reporting date from an independent price vendor. The
Portfolio Manager exercises its judgement on the quality of the independent
price vendor and information provided. If a price cannot be obtained from an
independent price vendor or where the Portfolio Manager determines that the
provided price is not an accurate representation of the fair value of the Asset
Backed Security, the Portfolio Manager will source prices from third party
broker or dealer quotes for the relevant security. Where no third party price
is available, or where the Portfolio Manager determines that the third-party
quote is not an accurate representation of the fair value, the Portfolio
Manager will determine the valuation based on the Portfolio Manager's valuation
policy. This may include the use of a comparable arm's length transaction,
reference to other securities that are substantially the same, discounted cash
flow analysis and other valuation techniques commonly used by market
participants making the maximum use of market inputs and relying as little as
possible on entity-specific inputs.
(b) Estimated Life of Asset Backed Securities
In determining the estimated life of the Asset Backed Securities held by the
Company, the Portfolio Manager estimates the remaining life of the security
with respect to expected prepayment rates, default rates and loss rates
together with other information available in the market underlying the
security. The estimated life of the Asset Backed Securities as determined by
the Portfolio Manager, impacts the effective interest rate of the Asset Backed
Securities which in turn impacts the calculation of income as discussed in note
2(i).
(c) Determination of Observable Inputs
In note 18, Fair Value Measurement, when determining the levels of investments
within the fair value hierarchy, the determination of what constitutes
'observable' requires significant judgement by the Company. The Company
considers observable data to be market data that is readily available,
regularly distributed or updated, reliable and verifiable, not proprietary, and
provided by independent sources that are actively involved in the relevant
market.
4. Earnings per Ordinary Redeemable Share - Basic & Diluted
The earnings per Ordinary Redeemable Share - Basic and Diluted has been
calculated based on the weighted average number of Ordinary Redeemable Shares
of 503,905,681 (31 March 2019: 402,734,014) and a net loss of GBP64,860,249 (31
March 2019: net gain of GBP6,968,851).
5. Income Equalisation on New Issues
In order to ensure there are no dilutive effects on earnings per share for
current Shareholders when issuing new shares, earnings are calculated in
respect of accrued income at the time of purchase and a transfer is made from
share capital to income to reflect this. The transfer for the year is GBP531,442
(31 March 2019: GBP473,345).
6. Net Asset Value per Ordinary Redeemable Share
The net asset value of each Share of GBP0.94 (31 March 2019: GBP1.13) is determined
by dividing the net assets of the Company attributed to the Shares of GBP
475,369,856 (31 March 2019: GBP500,465,449) by the number of Shares in issue at
31 March 2020 of 504,714,809 (31 March 2019: 441,814,151).
7. Taxation
The Company has been granted Exempt Status under the terms of The Income Tax
(Exempt Bodies) (Guernsey) Ordinance, 1989 to income tax in Guernsey. Its
liability for Guernsey taxation is limited to an annual fee of GBP1,200 (2019: GBP
1,200).
8. Net Foreign Currency (Losses)/Gains
01.04.19 to 01.04.18 to
31.03.20 30.03.19
GBP GBP
Movement on unrealised gain/(loss) on forward currency 14,890,990 (5,799,890)
contracts
Realised (gain)/loss on foreign currency contracts (22,881,290) 13,239,682
Unrealised foreign currency gain/(loss) on receivables/ 84,289 (123,865)
payables
Unrealised foreign currency exchange gain on interest 86,804 5,182
receivable
(7,819,207) 7,321,109
9. Investments
As at As at
31.03.20 31.03.19
Financial assets at fair value through profit or loss: GBP GBP
Unlisted Investments:
Opening book cost 494,729,337 434,416,774
Purchases at 432,039,494 331,409,934
cost
Proceeds on sale/principal repayment (363,056,372) (279,264,771)
Amortisation adjustment under effective interest rate 4,951,929 4,906,587
method
Realised gains on sale/principal 16,068,714 11,564,064
repayment
Realised losses on sale/principal (4,590,916) (8,303,251)
repayment
Closing book cost 580,142,186 494,729,337
Unrealised gains on investments 2,399,458 9,778,665
Unrealised losses on investments (101,227,904) (12,911,397)
Fair value 481,313,740 491,596,605
01.04.19 to 01.04.18 to
31.03.20 30.03.19
GBP GBP
Realised gains on sale/principal 16,068,714 11,564,064
repayment
Realised losses on sales/principal repayment (4,590,916) (8,303,251)
Movement in unrealised gains (7,379,207) (14,572,696)
Movement in unrealised losses (88,316,507) (11,475,279)
Net losses on financial assets at fair value through profit (84,217,916) (22,787,162)
or loss
10. Other Receivables
As at As at
31.03.20 31.03.19
GBP GBP
Coupon interest receivable 3,667,455 3,100,037
Prepaid expenses 70,343 12,540
3,737,798 3,112,577
11. Other Payables
As at As at
31.03.20 31.03.19
GBP GBP
Portfolio management fees payable 699,688 560,933
Custody fees payable 5,628 3,806
Administration and secretarial fees 66,848 58,542
payable
Audit fees payable 66,000 57,000
AIFM management fees payable 43,524 41,194
Depositary fees payable 6,250 5,353
Share issue costs payable - 79,492
General expenses payable 51,229 39,927
939,167 846,247
12. Amounts payable under repurchase agreements
Following the publication of the latest prospectus on 12 April 2019, the
Company is now authorised to enter into repurchase agreements. A repurchase
agreement (Repo) is a short-term loan where both parties agree to the sale and
future repurchase of assets within a specified contract period. Repurchase
agreements may be entered into in respect of securities owned by the Company
which are sold to and repurchased from counterparties on contractually agreed
dates and the cash generated from this arrangement can be used to purchase new
securities, effectively creating leverage. The Company still benefits from any
income received, attributable to the security.
13. Share Capital
Authorised Share Capital
Unlimited number of Ordinary Redeemable Shares at no par value.
As at As at
31.03.20 31.03.19
GBP GBP
Ordinary Redeemable Shares
Share Capital at the beginning of the 459,436,544 407,509,059
year
Issued Share Capital 93,123,125 53,010,450
Redeemed Share Capital (20,050,326)
-
Share issue costs (1,485,986) (609,620)
Income equalisation on new issues (531,442) (473,345)
Total Share Capital at the end of the 530,491,915 459,436,544
year
Issued Share Capital
As at As at
31.03.20 31.03.19
Shares Shares
Ordinary Redeemable Shares
Shares at the beginning of the year 441,814,151 395,814,151
Issue of Shares 81,250,000 46,000,000
Redemption of Shares (18,349,342) -
Total Shares in issue at the end of the 504,714,809 441,814,151
year
As at As at
31.03.20 31.03.19
GBP GBP
Treasury Shares
Treasury Share capital at the beginning of the year 43,083,300 43,083,300
Total Treasury Share capital at the end of the 43,083,300 43,083,300
year
As at As at
31.03.20 31.03.19
Shares Shares
Treasury Shares
Treasury Shares at the beginning of the year 39,000,000 39,000,000
Total Shares at the end of the 39,000,000 39,000,000
year
The Share Capital of the Company consists of an unlimited number of Shares with
or without par value which, upon issue, the Directors may designate as:
Ordinary Redeemable Shares; Realisation Shares or such other class as the Board
shall determine and denominated in such currencies as shall be determined at
the discretion of the Board.
As at 31 March 2020, one share class has been issued, being the Ordinary
Redeemable Shares of the Company.
The Ordinary Redeemable Shares carry the following rights:
a) the Ordinary Redeemable Shares carry the right to receive all income of the
Company attributable to the Ordinary Redeemable Shares.
b) the Shareholders present in person or by proxy or present by a duly
authorised representative at a general meeting has, on a show of hands, one
vote and, on a poll, one vote for each Share held.
c) 56 days before the annual general meeting date of the Company in each third
year (the "Reorganisation Date"), the Shareholders are entitled to serve a
written notice (a "Realisation Election") requesting that all or a part of the
Ordinary Redeemable Shares held by them be redesignated to Realisation Shares,
subject to the aggregate NAV of the continuing Ordinary Redeemable Shares on
the last business day before the Reorganisation Date being not less than GBP100
million. A Realisation Notice, once given is irrevocable unless the Board
agrees otherwise. If one or more Realisation Elections be duly made and the
aggregate NAV of the continuing Ordinary Redeemable Shares on the last business
day before the Reorganisation Date is less than GBP100 million, the Realisation
will not take place. Shareholders do not have a right to have their shares
redeemed and shares are redeemable at the discretion of the Board. The next
realisation opportunity is due to occur at the end of the next three year term,
at the date of the AGM in September 2022.
The Company has the right to issue and purchase up to 14.99% of the total
number of its own shares at GBP0.01 each, to be classed as Treasury Shares and
may cancel those Shares or hold any such Shares as Treasury Shares, provided
that the number of Shares held as Treasury Shares shall not at any time exceed
10% of the total number of Shares of that class in issue at that time or such
amount as provided in the Companies Law.
On 24 January 2017, the Company issued and purchased 39,000,000 Ordinary Shares
of GBP0.01 at a price of 110.47p, to be held in treasury. The total amount paid
to purchase these shares was GBP43,083,300 and has been deducted from the
Shareholders' equity. The Company has the right to re-issue these shares at a
later date. All shares issued were fully paid.
On 12 September 2019, a realisation opportunity took place where the Company
purchased and immediately cancelled 18,349,342 Ordinary Shares at a total cost
of GBP20,050,326.
Shares held in Treasury are excluded from calculations when determining
Earnings per Ordinary Redeemable Share or NAV per Ordinary Redeemable Share, as
detailed in notes 4 and 6.
14. Analysis of Financial Assets and Liabilities by Measurement Basis
Assets at fair Amortised
value through
profit and loss cost Total
GBP GBP GBP
31 March 2020
Financial Assets as per Statement of
Financial Position
Financial assets at fair value through
profit or loss:
- Investments 481,313,740 - 481,313,740
- Derivative assets: Forward currency 14,398,192 - 14,398,192
contracts
Other receivables (excluding prepayments) - 3,667,455 3,667,455
Cash and cash equivalents - 1,409,267 1,409,267
495,711,932 5,076,722 500,788,654
Liabilities at Amortised
fair value
through
profit and loss cost Total
GBP GBP GBP
Financial Liabilities as per Statement
of Financial Position
Financial liabilities at fair value
through profit or loss:
- Derivative liabilities: Forward 1,374,030 - 1,374,030
currency contracts
Amounts payable under repurchase - 23,175,944 23,175,944
agreements
Other payables - 939,167 939,167
1,374,030 24,115,111 25,489,141
Assets at fair Loans and
value through
profit and loss receivables Total
GBP GBP GBP
31 March 2019
Financial Assets as per Statement of
Financial Position
Financial assets at fair value through
profit or loss:
- Investments 491,596,605 - 491,596,605
- Derivative assets: Forward currency 52,575 - 52,575
contracts
Amounts due from broker - 3,908,529 3,908,529
Amounts due from shares issued - 3,456,600 3,456,600
Other receivables (excluding prepayments) - 3,100,037 3,100,037
Cash and cash equivalents - 36,505,984 36,505,984
491,649,180 46,971,150 538,620,330
Liabilities at Other
fair value financial
through
profit and loss liabilities Total
GBP GBP GBP
Financial Liabilities as per Statement
of Financial Position
Financial liabilities at fair value
through profit or loss:
- Derivative liabilities: Forward 1,919,402 - 1,919,402
currency contracts
Amounts due to brokers - 35,401,772 35,401,772
Other payables - 846,247 846,247
1,919,402 36,248,019 38,167,421
15. Related Parties
a) Directors' Remuneration & Expenses
The Directors of the Company are remunerated for their services at such a rate
as the Directors determine. The aggregate fees of the Directors will not exceed
GBP150,000 per annum. Due to the additional work carried out in respect of the
share issues completed on 12 May 2019, this was exceeded. Each Director
received a further GBP5,000 each in relation to additional, exceptional work
carried out on the issue of new shares.
Until 31 December 2018, the annual fees were GBP35,000 payable to Mr Ash, the
Chairman, GBP32,500 to Mr Burns as Chairman of the Audit Committee and GBP30,000
for all other Directors.
Effective from 1 January 2019, the annual fees are GBP40,000 for the Chairman, GBP
37,500 for Chairman of the Audit Committee, and GBP35,000 for all other
Directors.
During the year ended 31 March 2020, Directors fees of GBP167,500 (31 March 2019:
GBP138,917) were charged to the Company, of which GBPNil (31 March 2019: GBPNil)
remained payable at the end of the year.
b) Shares Held by Related Parties
As at 31 March 2020, Directors of the Company held the following shares
beneficially:
Number Number
of Shares of Shares
31.03.20 31.03.19
Trevor Ash 58,734 50,000
Ian Burns 29,242 29,242
Richard Burwood 22,476 5,000
Joanne Fintzen 17,476 -
As at 31 March 2020, the Portfolio Manager held Nil Shares (31 March 2019: Nil
Shares) and partners and employees of the Portfolio Manager held 2,753,384
Shares (31 March 2019: 1,797,760 Shares), which is 0.55% (31 March 2019: 0.41%)
of the Issued Share Capital."
c) Portfolio Manager
The portfolio management fee is payable to the Portfolio Manager, TwentyFour
Asset Management LLP, monthly in arrears at a rate of 0.75% per annum of the
lower of NAV, which is calculated weekly on each valuation day, or market
capitalisation of each class of shares. Total portfolio management fees for the
year amounted to GBP4,228,263 (31 March 2019: GBP3,462,140) of which GBP699,688 (31
March 2019: GBP560,933) is due and payable at the year end. The Portfolio
Management Agreement dated 29 May 2014 remains in force until determined by the
Company or the Portfolio Manager giving the other party not less than twelve
months' notice in writing. Under certain circumstances, the Company or the
Portfolio Manager is entitled to immediately terminate the agreement in
writing.
The Portfolio Manager is also entitled to a commission of 0.15% of the
aggregate gross offering proceeds plus any applicable VAT in relation to any
issue of new Shares, following admission, in consideration of marketing
services that it provides to the Company. During the year, the Portfolio
Manager received GBP110,744 (31 March 2019: GBP79,516) in commission.
16. Material Agreements
a) Alternative Investment Fund Manager
The Company's Alternative Investment Fund Manager (the "AIFM") is Maitland
Institutional Services Limited. In consideration for the services provided by
the AIFM under the AIFM Agreement the AIFM is entitled to receive from the
Company a minimum fee of GBP20,000 per annum and fees payable quarterly in
arrears at a rate of 0.07% of the NAV of the Company below GBP50 million, 0.05%
on Net Assets between GBP50 million and GBP100 million and 0.03% on Net Assets in
excess of GBP100 million. During the year ended 31 March 2020, AIFM fees of GBP
199,294 (31 March 2019: GBP174,555) were charged to the Company, of which GBP43,524
(31 March 2019: GBP41,194) remained payable at the end of the year.
b) Administrator and Secretary
Administration fees are payable to Northern Trust International Fund
Administration Services (Guernsey) Limited monthly in arrears at a rate of
0.06% of the NAV of the Company below GBP100 million, 0.05% on Net Assets between
GBP100 million and GBP200 million and 0.04% on Net Assets in excess of GBP200 million
as at the last business day of the month subject to a minimum GBP75,000 each
year. In addition, an annual fee of GBP25,000 is charged for corporate governance
and company secretarial services. Total administration and secretarial fees for
the year amounted to GBP280,875 (31 March 2019: GBP236,007) of which GBP66,848 (31
March 2019: GBP58,542) is due and payable at end of the year.
c) Depositary
Depositary fees are payable to Northern Trust (Guernsey) Limited, monthly in
arrears, at a rate of 0.0175% of the Net Asset Value of the Company up to GBP100
million, 0.0150% on Net Assets between GBP100 million and GBP200 million and
0.0125% on Net Assets in excess of GBP200 million as at the last business day of
the month subject to a minimum GBP25,000 each year. Total depositary fees and
charges for the year amounted to GBP78,012, (31 March 2019: GBP65,143) of which GBP
6,250 (31 March 2019: GBP5,353) is due and payable at the year end.
The Depositary is also entitled to a Global Custody fee of a minimum of GBP8,500
per annum plus transaction fees. Total Global Custody fees and charges for the
year amounted to GBP56,377 (31 March 2019: GBP46,696) of which GBP5,628 (31 March
2029: GBP3,806) is due and payable at the year end.
17. Financial Risk Management
The Company's objective in managing risk is the creation and protection of
Shareholder value. Risk is inherent in the Company's activities, but it is
managed through an ongoing process of identification, measurement and
monitoring.
The Company's financial instruments include investments designated at fair
value through profit or loss and cash and cash equivalents. The main risks
arising from the Company's financial instruments are market risk, credit risk
and liquidity risk. The techniques and instruments utilised for the purposes of
efficient portfolio management are those which are reasonably believed by the
Board to be economically appropriate to the efficient management of the
Company.
Market risk
Market risk embodies the potential for both losses and gains and includes
currency risk, interest rate risk, reinvestment risk and price risk. The
Company's strategy on the management of market risk is driven by the Company's
investment objective. The Company's investment objective is to generate
attractive risk adjusted returns principally through investment in Asset Backed
Securities.
(i) Price Risk
The underlying investments comprised in the portfolio are subject to market
risk. The Company is therefore at risk that market events may affect
performance and in particular may affect the value of the Company's investments
which are valued on a mark to market basis. Market risk is risk associated with
changes in market prices or rates, including interest rates, availability of
credit, inflation rates, economic uncertainty, changes in laws, national and
international political circumstances such as the recent UK vote to leave the
EU. The Company's policy is to manage price risk by holding a diversified
portfolio of assets, through its investments in Asset Backed Securities.
The Company's policy also stipulates that no more than 5% of the Portfolio
value can be exposed to any single Asset Backed Security or issuer of Asset
Backed Securities.
The price of an Asset Backed Security can be affected by a number of factors,
including: (i) changes in the market's perception of the underlying assets
backing the security; (ii) economic and political factors such as interest
rates and levels of unemployment and taxation which can have an impact on the
arrears, foreclosures and losses incurred with respect to the pool of assets
backing the security; (iii) changes in the market's perception of the adequacy
of credit support built into the security's structure to protect against losses
caused by arrears and foreclosures; (iv) changes in the perceived
creditworthiness of the originator of the security or any other third parties
to the transaction; (v) the speed at which mortgages or loans within the pool
are repaid by the underlying borrowers (whether voluntary or due to arrears or
foreclosures).
(ii) Interest Rate Risk
Interest rate risk arises from the possibility that changes in interest rates
will affect the fair value of financial assets at fair value through profit or
loss.
The tables below summarise the Company's exposure to interest rate risk:
Floating Fixed rate Non-interest Total
rate bearing
As at 31 March 2020 GBP GBP GBP GBP
Financial assets at fair 481,313,740 - - 481,313,740
value through profit or
loss
Derivative assets - - 14,398,192 14,398,192
Other receivables - - 3,667,455 3,667,455
Cash and cash equivalents 1,409,267 - - 1,409,267
Repurchase agreements - (23,175,944) - (23,175,944)
Other payables - - (939,167) (939,167)
Derivative - - (1,374,030) (1,374,030)
liabilities
Net current assets 482,723,007 (23,175,944) 15,752,450 475,299,513
Floating rate Fixed rate Non-interest Total
bearing
As at 31 March 2019 GBP GBP GBP GBP
Financial assets at fair 491,596,605 491,596,605
value through profit or - -
loss
Derivative assets - 52,575 52,575
-
Amounts due from broker - - 3,908,529 3,908,529
Other receivables - - 3,112,577 3,112,577
Cash and cash equivalents 36,505,984 36,505,984
- -
Capital Shares sold - - 3,456,600 3,456,600
receivable
Amounts due to broker - - (35,401,772)
(35,401,772)
Other payables - - (846,247)
(846,247)
Derivative liabilities (1,919,402)
- - (1,919,402)
Net current assets 528,102,589 (27,637,140) 500,465,449
-
The Company only holds floating rate financial instruments and when short-term
interest rates increase, the interest rate on a floating rate will increase.
The time to re-fix interest rates ranges from 1 month to a maximum of 6 months
and therefore the Company has minimal interest rate risk. However the Company
may choose to utilise appropriate strategies to achieve the desired level of
interest rate exposure (the Company is permitted to use, for example, interest
rate swaps to accomplish this). The value of asset backed securities may be
affected by interest rate movements. Interest receivable on bank deposits or
payable on bank overdraft positions will be affected by fluctuations in
interest rates, however the underlying cash positions will not be affected.
The Company's continuing position in relation to interest rate risk is
monitored on a weekly basis by the Portfolio Manager as part of its review of
the weekly NAV calculations prepared by the Company's Administrator.
(iii) Foreign Currency Risk
Foreign currency risk is the risk that the value of a financial instrument will
fluctuate due to changes in foreign exchange rates. The Company invests
predominantly in non-Sterling assets while its Shares are denominated in
Sterling, its expenses are incurred in Sterling. Therefore the Statement of
Financial Position may be significantly affected by movements in the exchange
rate between Euro and Sterling. The Company manages the exposure to currency
movements by using spot and forward foreign exchange contracts, rolling forward
on a periodic basis.
Contract values Outstanding Mark to market Unrealised
contracts equivalent gains/
(losses)
31.03.2020 31.03.2020 31.03.2020 31.03.2020
Two Sterling forward foreign currency
contracts totalling:
Settlement date EUR326,624,710 GBP303,716,264 GBP289,333,128 GBP14,383,136
27 May 2020
-
Five Euro forward foreign currency
contracts totalling:
Settlement date (EUR37,688,881) (GBP34,743,774) (GBP33,385,845) (GBP1,357,929)
27 May 2020
One US Dollar forward foreign currency
contracts totalling:
Settlement date ($30,229) (GBP25,399) (GBP24,354) (GBP1,045)
27 May 2020
GBP13,024,162
Contract values Outstanding Mark to market Unrealised
contracts equivalent (losses)/
gains
31.03.2019 31.03.2019 31.03.2019 31.03.2019
Eight Sterling forward foreign currency
contracts totalling:
Settlement date EUR323,454,001 GBP276,923,458 GBP278,836,592 (GBP1,913,134)
18 April 2019
Five Euro forward foreign currency
contracts totalling:
Settlement date (EUR3,409,319) (GBP2,901,682) (GBP2,937,841) GBP36,159
2 April 2019
Settlement date
18 April 2019 (EUR768,162) (GBP658,623) (GBP662,201) GBP3,578
Spot contracts receivable GBP6,570
(GBP1,866,827)
As at 31 March 2020 and as at 31 March 2019, the Company held the following
assets and liabilities denominated in Euro:
As at As at
31.03.2020 31.03.2019
Assets: GBP GBP
Investments 252,846,022 291,455,842
Cash and cash equivalents 359,043 345,503
Other receivables 2,622,172 2,402,677
Amounts due to broker - (22,186,772)
Less: Open forward currency contracts (255,947,284) (275,236,551)
(3,219,301)
(120,047)
The tables below summarise the sensitivity of the Company's assets and
liabilities to changes in foreign exchange movements between Euro and Sterling
at 31 March 2020 and 31 March 2019. The analysis is based on the assumption
that the relevant foreign exchange rate increased/decreased by the percentage
disclosed in the table, with all other variables held constant. This represents
management's best estimate of a reasonable possible shift in the foreign
exchange rates, having regard to historical volatility of those rates.
As at As at
31.03.2020 31.03.2019
GBP GBP
Impact on Statement of Comprehensive Income in response to a:
- 10% increase 250,527 395,422
- 10% decrease 284,951 (232,137)
Impact on Statement of Changes in Equity in response to a:
- 10% increase 250,527 395,422
- 10% decrease 284,951 (232,137)
(iv) Reinvestment Risk
Reinvestment risk is the risk that future coupons from a bond will not be
reinvested at the prevailing interest rate when the bond was initially
purchased.
A key determinant of a bond's yield is the price at which it is purchased and,
therefore, when the market price of bonds generally increases, the yield of
bonds purchased generally decreases. As such, the overall yield of the
portfolio, and therefore the level of dividends payable to Shareholders, would
fall to the extent that the market prices of Asset Backed Securities generally
rise and the proceeds of Asset Backed Securities held by the Company that
mature or are sold are not able to be reinvested in Asset Backed Securities
with a yield comparable to that of the portfolio as a whole.
Price Sensitivity Analysis
The following details the Company's sensitivity to movement in market prices.
The analysis is based on a 5% increase or decrease in market prices. This
represents management's best estimate of a reasonable possible shift in market
prices, having regard to historical volatility.
At 31 March 2020, if the market prices had been 5% higher with all other
variables held constant, the increase in the net assets attributable to equity
Shareholders would have been GBP24,119,725 (31 March 2019: GBP24,579,830). An equal
change in the opposite direction would have decreased the net assets
attributable to equity Shareholders by the same amount.
Actual trading results may differ from the above sensitivity analysis and those
differences may be material.
Credit Risk
Credit risk refers to the risk that a counterparty will default on its
contractual obligations resulting in financial loss to the Company. The Company
has a credit policy in place and the exposure to credit risk is monitored on an
on-going basis.
The main concentration of credit risk to which the Company is exposed arises
from the Company's investments in Asset Backed Securities. The Company is also
exposed to counterparty credit risk on forwards, cash and cash equivalents,
amounts due from brokers and other receivable balances. At the year end, one of
the Company's investments in Asset Backed Securities was impaired (31 March
2019: one).
The Company's policy to manage this risk is by no more than 20% of the
portfolio value being backed by collateral in any single country (save that
this restriction will not apply to Northern European countries). The Company
also manages this credit risk by no more than 5% of the portfolio being exposed
to any single Asset Backed Security or issuer of Asset Back Securities and no
more than 10% of the portfolio value being exposed to instruments not deemed
securities for the purposes of the Financial Services and Market Act 2000.
Portfolio of Asset Backed Securities by ratings category using the highest
rating assigned by
Standard and Poor's ("S&P"), Moody's Analytics (Moody's") or Fitch Ratings
("Fitch"):
31.03.20 31.03.19
AAA 3.28% 2.03%
AA+ 0.39% -
AA - 0.29%
AA- 3.93% 1.49%
A+ 0.99% 1.59%
A 4.01% 4.78%
A- 3.51% 3.96%
BBB+ 4.22% 6.18%
BBB 3.21% 5.40%
BBB- 5.91% 7.04%
BB+ 5.30% 2.52%
BB 9.48% 14.88%
BB- 5.60% 1.62%
B+ 2.78% 3.86%
B 16.07% 21.73%
B- 2.34% 1.73%
CCC+ 1.24% 1.24%
CCC 0.35% 0.38%
NR* 27.39% 19.28%
100.00% 100.00%
*The non-rated exposure within the Company is managed in exactly the same way
as the exposure to any other rated bond in the portfolio. A bond not rated by
any of Moody's, S&P or Fitch does not necessarily translate as poor credit
quality. Often smaller issues/tranches, or private deals which the Company
holds, won't apply for a rating due to the cost of doing so from the relevant
credit agencies. The Portfolio Managers have no credit concerns with the
unrated, or rated, bonds currently held.
To further minimise credit risk, the Portfolio Manager undertakes extensive due
diligence procedures on investments in Asset Backed Securities and monitors the
on-going investment in these securities. The Company may also use credit
default swaps to mitigate the effects of market volatility on credit risk.
The Company manages its counterparty exposure in respect of cash and cash
equivalents and forwards by investing with counterparties with a "single A" or
higher credit rating. All cash is currently placed with The Northern Trust
Company. The Company is subject to credit risk to the extent that this
institution may be unable to return this cash. The Northern Trust Company is a
wholly owned subsidiary of The Northern Trust Corporation. The Northern Trust
Corporation is publicly traded and a constituent of the S&P 500. The Northern
Trust Corporation has a credit rating of A+ from Standard & Poor's and A2 from
Moody's.
The Company's maximum credit exposure is limited to the carrying amount of
financial assets recognised as at the statement of financial position date, as
summarised below:
As at As at
31.03.20 31.03.19
GBP GBP
Investments 481,313,740 491,596,605
Cash and cash equivalents 1,409,267 36,505,984
Unrealised gains on derivative assets 14,398,192 52,575
Capital Shares sold receivable - 3,456,600
Amounts due from broker - 3,908,529
Other receivables 3,667,455 3,112,577
500,788,654 538,632,870
Investments in Asset Backed Securities that are not backed by mortgages present
certain risks that are not presented by Mortgage-Backed Securities ("MBS").
Primarily, these securities may not have the benefit of the same security
interest in the related collateral. Therefore, there is a possibility that
recoveries on defaulted collateral may not, in some cases, be available to
support payments on these securities. The risk of investing in these types of
Asset Backed Securities is ultimately dependent upon payment of the underlying
debt by the debtor.
Liquidity Risk
Liquidity risk is the risk that the Company may not be able to generate
sufficient cash resources to settle its obligations in full as they fall due or
can only do so on terms that are materially disadvantageous.
Investments made by the Company in Asset Backed Securities may be relatively
illiquid and this may limit the ability of the Company to realise its
investments. Investments in Asset Backed Securities may also have no active
market and the Company also has no redemption rights in respect of these
investments. The Company has the ability to borrow to ensure sufficient cash
flows.
The Portfolio Manager considers expected cash flows from financial assets in
assessing and managing liquidity risk, in particular its cash resources and
trade receivables. Cash flows from trade and other receivables are all
contractually due within twelve months.
The Portfolio Manager maintains a liquidity management policy to monitor the
liquidity risk of the Company.
Shareholders have no right to have their shares redeemed or repurchased by the
Company, however Shareholders may elect to realise their holdings as detailed
under note 12 and the Capital Risk Management section of this note.
Shareholders wishing to release their investment in the Company are therefore
required to dispose of their shares on the market. Therefore there is no risk
that the Company will not be able to fund redemption requests.
Up to 1 month 1-6 months 6-12 Total
months
As at 31 March 2020 GBP GBP GBP GBP
Financial
liabilities
Repurchase agreements - (23,175,944) - (23,175,944)
Unrealised loss on derivative - (1,374,030) - (1,374,030)
liabilities
Other payables (873,167) (66,000) - (939,167)
Total (873,167) (24,615,974) - (25,489,141)
Up to 1 1-6 months 6-12 months Total
month
As at 31 March 2019 GBP GBP GBP GBP
Financial liabilities
Amounts due to brokers - (35,401,772) - (35,401,772)
Unrealised loss on derivative (1,919,402) - - (1,919,402)
liabilities
Share issue costs payable (79,492) - - (79,492)
Other payables (709,755) (57,000) - (766,755)
Total (2,708,649) (35,458,772) - (38,167,421)
Capital Risk Management
The Company manages its capital to ensure that it is able to continue as a
going concern while following the Company's stated investment policy and when
considering and approving dividend payments. The capital structure of the
Company consists of Shareholders' equity, which comprises share capital and
other reserves. To maintain or adjust the capital structure, the Company may
return capital to Shareholders or issue new Shares. There are no regulatory
requirements to return capital to Shareholders.
(i) Share Buybacks
The Company has been granted the authority to make market purchases of up to a
maximum of 14.99% of the aggregate number of Ordinary Redeemable Shares in
issue immediately following Admission at a price not exceeding the higher of
(i) 5% above the average of the mid-market values of the Ordinary Redeemable
Shares for the 5 business days before the purchase is made or, (ii) the higher
of the price of the last independent trade and the highest current investment
bid for the Ordinary Redeemable Shares.
In deciding whether to make any such purchases the Directors will have regard
to what they believe to be in the best interests of Shareholders as a whole, to
the applicable legal requirements and any other requirements in its Articles.
The making and timing of any buybacks will be at the absolute discretion of the
Board and not at the option of the Shareholders, and is expressly subject to
the Company having sufficient surplus cash resources available (excluding
borrowed moneys). The Listing Rules prohibit the Company from conducting any
share buybacks during close periods immediately preceding the publication of
annual and interim results.
(ii)Realisation Opportunity
The realisation opportunity shall be at the annual general meeting of the
Company in each third year, with the next realisation opportunity being in
2022, subject to the aggregate NAV of the continuing Ordinary Redeemable Shares
on the last Business Day before Reorganisation being not less than GBP100
million.
It is anticipated that realisations will be satisfied by the assets underlying
the relevant shares being managed on a realisation basis, which is intended to
generate cash for distribution as soon as practicable and may ultimately
generate cash which is less than the published NAV per Realisation Share.
In the event that the Realisation takes place, it is anticipated that the
ability of the Company to make returns of cash to the holders of Realisation
Shares will depend in part on the ability of the Portfolio Manager to realise
the portfolio.
(iii) Continuation Votes
In the event that the Company does not meet the dividend target in any
financial reporting period as disclosed in note 19, the Directors may convene a
general meeting of the Company where the Directors will propose a resolution
that the Company should continue as an Investment Company.
18. Fair Value Measurement
All assets and liabilities are carried at fair value or at carrying value which
equates to fair value.
IFRS 13 requires the Company to classify fair value measurements using a fair
value hierarchy that reflects the significance of the inputs used in making the
measurements. The fair value hierarchy has the following levels:
(i) Quoted prices (unadjusted) in active markets for identical assets or
liabilities (Level 1).
(ii) Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (that is, as prices) or
indirectly (that is, derived from prices including interest rates, yield
curves, volatilities, prepayment speeds, credit risks and default rates) or
other market corroborated inputs (Level 2).
(iii) Inputs for the asset or liability that are not based on observable
market data (that is, unobservable inputs) (Level 3).
The following tables analyse within the fair value hierarchy the
Company's financial assets and liabilities (by class) measured at fair value
for the years ended 31 March 2020 and 31 March 2019.
Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Assets
Financial assets at fair value
through profit or loss:
Asset Backed Securities:
Auto Loans - 32,285,510 - 32,285,510
Buy-to-Let RMBS - 40,427,053 13,230,000 53,657,053
CLO - 120,859,988 - 120,859,988
CMBS - 26,893,521 - 26,893,521
Consumer ABS - 22,929,793 - 22,929,793
Non-Conforming RMBS - 75,825,971 32,636,250 108,462,221
Prime RMBS - 58,006,237 53,821,054 111,827,291
Student Loans - 4,398,363 - 4,398,363
Forward currency contracts - 14,398,192 - 14,398,192
Total assets as at 31 March 2020 - 396,024,628 99,687,304 495,711,932
Liabilities
Financial liabilities at fair
value through profit or loss:
Forward currency contracts - 1,374,030 - 1,374,030
Total liabilities as at 31 March
2020 - 1,374,030 - 1,374,030
Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Assets
Financial assets at fair
value through profit or
loss:
Asset Backed Securities:
Auto Loans - 7,497,786 - 7,497,786
Buy-to-Let RMBS - 33,617,638 4,274,394 37,892,032
CLO - 146,496,116 22,634,620 169,130,736
CMBS - 19,075,885 - 19,075,885
Consumer ABS - 23,338,586 23,069,273 46,407,859
Non-Conforming RMBS - 140,656,997 5,738,296 146,395,293
Prime RMBS - 58,566,061 4,964,961 63,531,022
Student Loans - 1,665,992 - 1,665,992
Forward currency contracts - 52,575 - 52,575
Total assets as at 31 March
2019 - 430,967,636 60,681,544 491,649,180
Liabilities
Financial liabilities at
fair value through profit or
loss:
Forward currency contracts - 1,919,402 - 1,919,402
Total liabilities as at 31 - 1,919,402 - 1,919,402
March 2019
Asset Backed Securities which have a value based on quoted market prices in
active markets are classified in Level 1. At the end of the period, no Asset
Backed Securities held by the Company are classified as Level 1.
Asset Backed Securities which are not traded or dealt on organised markets or
exchanges are classified in Level 2 or Level 3. Asset Backed securities priced
at cost are classified as Level 3. Asset Backed securities with prices obtained
from independent price vendors, where the Portfolio Manager is able to assess
whether the observable inputs used for their modelling of prices are accurate
and the Portfolio Manager has the ability to challenge these vendors with
further observable inputs, are classified as Level 2. Prices obtained from
vendors who are not easily challengeable or transparent in showing their
assumptions for the method of pricing these assets, are classified as Level 3.
Asset Backed Securities priced at an average of two vendors' prices are
classified as Level 3.
Where the Portfolio Manager determines that the price obtained from an
independent price vendor is not an accurate representation of the fair value of
the Asset Backed Security, the Portfolio Manager may source prices from third
party broker or dealer quotes and if the price represents a reliable and an
observable price, the Asset Backed Security is classified in Level 2. Any
broker quote that is over 20 days old is considered stale and is classified as
Level 3.
There were no transfers between Level 1 and 2 during the period, however
transfers between Level 2 and Level 3 occur based on the Portfolio Manager's
ability to obtain a reliable and observable price as detailed above.
Due to the inputs into the valuation of Asset Backed Securities classified as
Level 3 not being available or visible to the Company, no meaningful
sensitivity on inputs can be performed.
The following tables present the movement in Level 3 instruments for the years
ended
31 March 2020 and 31 March 2019 by class of financial instrument.
Opening Net Net realised Net unrealised Transfer Transfer out Closing
balance (sales)/ (loss)/gain (loss)/gain into Level Level 3 balance
purchases for the year for the year 3
included in included in
the Statement the Statement
of of
Comprehensive Comprehensive
Income for Income for
Level 3 Level 3
Investments Investments
held at 31 held at 31
March 2020 March 2020
GBP GBP GBP GBP GBP GBP GBP
Buy-to-Let 4,274,394 - (174,921) (665,079) 14,070,000 (4,274,394) 13,230,000
RMBS
CLO 22,634,620 (5,449,568) 370,380 (75,297) - (17,480,135) -
Consumer ABS 23,069,273 (16,895,241) 2,111,559 (1,418,094) - (6,867,497) -
Non-Conforming 5,738,296 26,232,265 30,555 81,957 5,000,000 (4,446,823) 32,636,250
RMBS
Prime RMBS 4,964,961 35,943,410 (12,178,465) 9,066,264 20,989,827 (4,964,943) 53,821,054
Total at 31 60,681,544 39,830,866 (9,840,892) 6,989,751 40,059,827 (38,033,792) 99,687,304
March 2020
Opening Net Net realised Net unrealised Transfer Transfer out Closing
balance sales gain/(loss) loss for the into Level Level 3 balance
for the year year included 3
included in in the
the Statement Statement of
of Comprehensive
Comprehensive Income for
Income for Level 3
Level 3 Investments
Investments held at 31
held at 31 March 2019
March 2019
GBP GBP GBP GBP GBP GBP GBP
Buy-to-Let 11,415,545 (8,065,099) 28,579 (35,795) 2,532,194 (1,601,030) 4,274,394
RMBS
CLO 26,925,077 (9,451,515) 686,952 (2,306,438) 12,393,095 (5,612,551) 22,634,620
Consumer ABS 4,624,151 (4,623,230) (38,963) (1,498,289) 24,605,604 - 23,069,273
Non-Conforming 56,869,802 (17,570,445) 195,998 (220,758) 5,785,031 (39,321,332) 5,738,296
RMBS
Prime RMBS 27,739,640 (3,856,534) 1,847,870 (1,615,836) 2,685,927 (21,836,106) 4,964,961
Student Loans 1,605,746 - - - - (1,605,746) -
Total at 31 129,179,961 (43,566,823) 2,720,436 (5,677,116) 48,001,851 (69,976,765) 60,681,544
March 2019
The tables below analyse within the fair value hierarchy the Company's assets
and liabilities not measured at fair value at 31 March 2020 and 31 March 2019
but for which fair value is disclosed.
The assets and liabilities included in the below table are carried at amortised
cost; their carrying values are a reasonable approximation of fair value.
Cash and cash equivalents include cash in hand and deposits held with banks.
Amounts due to brokers and other payables represent the contractual amounts and
obligations due by the Company for settlement of trades and expenses. Amounts
due from brokers and other receivables represent the contractual amounts and
rights due to the Company for settlement of trades and income.
Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Assets
Cash and cash 1,409,267 - - 1,409,267
equivalents
Other receivables - 3,667,455 - 3,667,455
Total assets as at 31 March 2020 1,409,267 3,667,455 - 5,076,722
Liabilities
Other payables - 939,167 - 939,167
Total liabilities as at 31 March - 939,167 - 939,167
2020
Level 1 Level 2 Level 3 Total
GBP GBP GBP GBP
Assets
Cash and cash 36,505,984 - - 36,505,984
equivalents
Amounts due from brokers - 3,908,529 - 3,908,529
Amounts due from shares issued - 3,456,600 - 3,456,600
Other receivables - 3,112,577 - 3,112,577
Total assets as at 31 March 2019 36,505,984 10,477,706 - 46,983,690
Liabilities
Amounts due to brokers - 35,401,772 - 35,401,772
Other payables - 846,247 - 846,247
Total liabilities as at 31 March - 36,248,019 - 36,248,019
2019
19. Segmental Reporting
The Board is responsible for reviewing the Company's entire
portfolio and considers the business to have a single operating segment. The
Board's asset allocation decisions are based on a single, integrated investment
strategy, and the Company's performance is evaluated on an overall basis.
The Company invests in a diversified portfolio of Asset Backed Securities. The
fair value of the major financial instruments held by the Company and the
equivalent percentages of the total value of the Company are reported in the
Top Twenty Holdings.
Revenue earned is reported separately on the face of the Statement of
Comprehensive Income as investment income being interest income received from
Asset Backed Securities.
20. Dividend Policy
The Board intends to distribute an amount at least equal to the value of the
Company's income available for distribution arising each quarter to the holders
of Ordinary Redeemable Shares. For these purposes, the Company's income will
include the interest payable by the Asset Backed Securities in the Portfolio
and the amortisation of any discount or premium to par at which an Asset Backed
Security is purchased over its remaining expected life, prior to its maturity.
However there is no guarantee that the dividend target for future financial
years will be met or that the Company will pay any dividends at all.
Dividends paid with respect to any quarter comprise (a) the accrued income of
the portfolio for the period, and (b) an additional amount to reflect any
income purchased in the course of any share subscriptions that took place
during the period. Including purchased income in this way ensures that the
income yield of the shares is not diluted as a consequence of the issue of new
shares during an income period and (c) any income on the foreign exchange
contracts created by the LIBOR differentials between each foreign currency
pair, less (d) total expenditure for the period.
The Company, being a Guernsey regulated entity, is able to pay dividends out of
capital. Nonetheless, the Board carefully considers any dividend payments made
to ensure the Company's capital is maintained in the longer term. Careful
consideration is also given to ensuring sufficient cash is available to meet
the Company's liabilities as they fall due.
The Board expects that dividends will constitute the principal element of the
return to the holders of Ordinary Redeemable Shares.
Under The Companies (Guernsey) Law, 2008, the Company can distribute dividends
from capital and revenue reserves, subject to the net asset and solvency test.
The net asset and solvency test considers whether a company is able to pay its
debts when they fall due, and whether the value of a company's assets is
greater than its liabilities. The Board confirms that the Company passed the
net asset and solvency test for each dividend paid.
The Company declared the following dividends in respect of distributable profit
for the year ended 31 March 2020:
Period to Dividend Net dividend Record date Ex-dividend Pay date
rate per payable (GBP) date
Share
(GBP)
28 June 2019 0.0150 7,845,962 19 July 2019 18 July 2019 31 July 2019
30 September 0.0150 7,570,722 18 October 2019 17 October 2019 31 October 2019
2019
31 December 0.0150 7,570,722 16 January 2020 17 January 2020 31 January 2020
2019
29 March 2020 0.0190 9,589,581 16 April 2020 17 April 2020 30 April 2020
21. Ultimate Controlling Party
In the opinion of the Directors on the basis of shareholdings advised to
them, the Company has no ultimate controlling party.
22. Subsequent Events
These Financial Statements were approved for issuance by the Board on 21 July
2020. Subsequent events have been evaluated until this date.
On 20 April 2020, 2,500,000 new Ordinary Redeemable Shares were issued for a
total of GBP2,297,000.
On 29 April 2020, 1,300,000 new Ordinary Redeemable Shares were issued for a
total of GBP1,209,390.
On 30 April 2020, the Company paid a dividend as detailed in note 20.
On 9 July 2020, the Company announced a dividend of 1.50p per share. This will
be paid on 31 July 2020.
As at 21 July 2020, the published NAV per Ordinary Share for the Company was
103.44p. This represents a rise of 9.94% (NAV as at 31 March 2020: 94.09p).
In the early months of 2020, the COVID-19 outbreak adversely impacted global
commercial activities. The fluidity of the situation precludes any prediction,
however it is foreseen that the pandemic will continue to have an adverse
impact on the global economic and market conditions. The Directors continue to
monitor the situation and its impact on the Company.
GLOSSARY OF TERMS AND ALTERNATIVE PERFORMANCE MEASURES
Alternative Performance Measures ("APMS")
In accordance with ESMA Guidelines on Alternative Performance Measures ("APMs")
the Board has considered what APMs are included in the Annual Report and
Audited Financial Statements which require further clarification. APMs are
defined as a financial measure of historical or future financial performance,
financial position or cash flows, other than a financial measure defined or
specified in the applicable financial reporting framework. The APMs included in
the annual report and accounts, is unaudited and outside the scope of IFRS.
Discount/Premium
If the share price of an investment company is lower than the NAV per share,
the shares are said to be trading at a discount. The size of the discount is
calculated by subtracting the share price from the NAV per share and is usually
expressed as a percentage of the NAV per share. If the share price is higher
than the NAV per share, the shares are said to be trading at a premium.
Dividends Declared
Dividends declared are the dividends that are announced in respect of the
current accounting period. They usually consist of 4 dividends: three interim
dividends in respect of the periods to June, September and December, in which
the Company aims to declare a fixed dividend of 1.5 pence per share; and a
final dividend declared in respect of March where the residual income for the
year is distributed.
Dividend Yield
Dividend yield is the percentage of dividends declared in respect of the
period, divided by the initial share issue price of 100.00 pence. The Company
maintains an annual dividend yield target of 6% or higher and if it does not
meet this target at the end of an accounting year, a Continuation Vote is held
for all Shareholders.
Net Asset Value ("NAV")
NAV is the assets attributable to Shareholders expressed as an amount per
individual share. NAV is calculated using the accounting standards speci?ed by
International Financial Reporting Standards ("IFRS") and consists of total
assets, less total liabilities.
NAV per Share
NAV per share is calculated by dividing the total net asset value of GBP
461,913,505 (2019: GBP500,465,449) by the number of shares at the end of the year
of 504,714,809 units (2019: 441,814,151). This produces a NAV per share of
91.52p (2019: 113.28p), which was a decrease of 19.21%.
Ongoing Charges
The ongoing charges represent the Company's management fee and all other
operating expenses, excluding finance costs, expressed as a percentage of the
average of the daily net assets during the year (see Strategic Report). The
Board continues to be conscious of expenses and works hard to maintain a
sensible balance between good quality service and cost.
Total Return per Share
Total return per share represents is calculated by adding the increase or
decrease in NAV per share with the dividend per share and dividing it by the
dividend per share at the start of the period.
CORPORATE INFORMATION
Directors Custodian, Principal Banker and Depositary
Trevor Ash (Chairman) Northern Trust (Guernsey) Limited
Ian Burns (Senior Independent Director) PO Box 71
Richard Burwood Trafalgar Court
Joanne Fintzen Les Banques
St Peter Port
Guernsey, GY1 3DA
Registered Office Administrator and Company Secretary
PO Box 255 Northern Trust International Fund
Trafalgar Court Administration
Les Banques Services (Guernsey) Limited
St Peter Port PO Box 255
Guernsey, GY1 3QL Trafalgar Court
Les Banques
St Peter Port
Guernsey, GY1 3QL
Alternative Investment Fund Manager Broker and Financial Adviser
("AIFM") Numis Securities Limited
Maitland Institutional Services Limited The London Stock Exchange Building
Hamilton Centre 10 Paternoster Square
Rodney Way London, EC4M 7LT
Chelmsford, CM1 3BY
Portfolio Manager Independent Auditor
TwentyFour Asset Management LLP PricewaterhouseCoopers CI LLP
8th Floor, The Monument Building PO Box 321
11 Monument Street Royal Bank Place
London, EC3R 8AF 1 Glategny Esplanade
St Peter Port
Guernsey, GY1 4ND
UK Legal Advisers to the Company Receiving Agent
Eversheds Sutherland (International) LLP Computershare Investor Services PLC
1 Wood Street The Pavilions
London, EC2V 7WS Bridgwater Road
Bristol, BS13 8AE
Guernsey Legal Advisers to the Company Registrars
Carey Olsen Computershare Investor Services
Carey House (Guernsey) Limited
Les Banques 1st Floor
St Peter Port Tudor House
Guernsey, GY1 4BZ Le Bordage
St Peter Port
Guernsey, GY1 1DB
END
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