TwentyFour Income Fund - Final results for the year ended 31 March 2024
Final results for the year ended
Financial highlights
-- Total NAV return per ordinary share of 18.1% (2023: -3.74%) -- NAV per ordinary share increased 7.7% to 108.97p (2023: 100.97p) -- Record dividend payment of 9.96p per ordinary share, above the dividend policy of 8p per annum -- Total net assets rose 12.2% to £813.54 million (2023: £724.98 million) -- The portfolio returned 16.57% to31 March 2024 vs (1.17%) to31 March 2023 -- Share price discount to NAV at 3.67% at the end of the year; a comparatively small discount compared to the overall sector where discounts widened to historic levels
Portfolio highlights
-- European ABS has performed strongly across the board, supported by: o Stronger than expected macroeconomic conditions o Higher for longer interest rates o Improving risk sentiment as investors assumed a soft-landing forEurope and theUK --Mezzanine Residential Mortgage-backed Securities (“RMBS”) and Collateralised Loan Obligations (“CLOs”) were the strongest performers whilstCommercial Mortgage-backed Securities (“CMBS”) lagged spread performance. -- Activity in the primary markets has created opportunities to further diversify and rotate the portfolio e.g.UK and European banks have been tapping the ABS sector for both funding and capital transactions following the end of cheap funding. --TwentyFour Asset Management LLP (“the Portfolio Manager”) continues to favour higher-yielding, floating rate ABS, particularly secured assets (RMBS and CLOs) and has increased allocations to the Significant Risk Transfer (“SRT”) market as a source of both yield and diversification. -- As a result, the portfolio had a book yield of 11.7% and a mark-to-market yield of 12.8% at the end of the period. -- The Portfolio Manager continues to prefer bonds with short spread durations, liquidity and low levels of gearing, reflecting concerns over market volatility and geopolitical risk. -- The level of leverage the Company has taken has dropped over the period to -1.6% from -5.4%,
Outlook
Market expectations for rates to remain higher for longer should continue to support strong demand for ABS and performance over the medium term.
Notwithstanding the benefit of higher rates on the portfolio, the Company has delivered dividends within or above the target range of 6p to 9p per share since launch and is confident that it should be able to maintain that record even if, as anticipated, rates start to fall over the next 12 months.
The Portfolio Manager continues to see strong demand and supply of ABS, particularly in European CLOs.
Over the longer term, geopolitical risk remains a driver of market volatility and, as such, the Portfolio Manager sees value in retaining flexibility within the portfolio and maintaining elevated levels of liquidity.
Commenting on the results, Bronwyn Curtis OBE, Chair, said : “The strategy of investing in higher yielding floating rate ABS in a higher interest rate environment has enabled the Company to produce a record dividend for the year for investors, equivalent to a 10% yield on the share price, alongside a strong return on the portfolio.
“Looking forward, the Board is supportive of the Portfolio Manager’s focus on Western European secured assets with short maturities, keeping one eye on market volatility whilst also offering the potential to benefit from potential market dislocations.”
“Going forward, we will focus on secured collateral such as mortgages, senior secured corporate loans and auto loans from Western European countries, where governments have a proven track record in supporting consumers and corporates during recessions.
“We expect current strong supply-demand to continue to drive performance over the medium term, whilst longer term we will continue to position the portfolio flexibly, given heightened geopolitical risk.”
For further information please contact:
Deutsche Numis Tel: +44 (0)20 7015 8900
ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS
For the year ended
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
SUMMARY INFORMATION
The Company
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 (“Portfolio”) of predominantly
Target Returns*
The Company has a target annual net total NAV return of between 6% and 9% per annum, which, effective from the dividend declared in respect of the 3-month period ended
The increases in the annual target dividend have been intended to increase the rate of return to investors following increases in global interest base rates.
Ongoing Charges
Ongoing charges for the year ended
Discount
As at
Published NAV
* The Issue Price being £1.00. This is an annual target only and not a profit forecast. There can be no assurance that this target will be met or that the Company shall continue to pay any dividends at all. This annual 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, as defined by the AIC’s ongoing charges methodology. Potential investors should decide for themselves whether or not any potential 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 18.
Financial Highlights
NAV per Ordinary Share As at31 March 2024 As at31 March 2023 108.79p 100.97p Share price As at31 March 2024 As at31 March 2023 104.80p 100.50p Total net assets As at31 March 2024 As at31 March 2023 £813.54 million £724.98 million Total NAV return per Ordinary Share For the year ended31 March 2024 For the year ended31 March 2023 18.10% (3.74%) Dividends declared per Ordinary Share For the year ended31 March 2024 For the year ended31 March 2023 9.96p 9.46p Dividends paid per Ordinary Share For the year ended31 March 2024 For the year ended31 March 2023 10.46p 7.27p Ordinary Shares in issue As at31 March 2024 As at31 March 2023 747.84 million 718.04 million Portfolio performance For the year ended31 March 2024 For the year ended31 March 2023 16.57% (1.17%) Repurchase agreement borrowing As at31 March 2024 As at31 March 2023 1.73% 6.74% Number of positions in the portfolio As at31 March 2024 As at31 March 2023 204 183 Average (discount)/premium For the year ended31 March 2024 For the year ended31 March 2023 (1.56%) 0.55%
C HAIR’S STATEMENT
for the year ended
Bronwyn Curtis OBE
In my capacity as Chair of the Board of Directors of
Investment Performance
In
During the reporting period, the NAV per Ordinary Share saw an increase from 100.97p to 108.79p, a rise of 7.74%. The NAV per Ordinary Share total return was 18.10%. The Company traded at a narrow discount to NAV for most of the year, with a discount of 0.47% at the beginning of the reporting period and a discount of 3.67% at the end of
The Company issued 29.8 million new Ordinary Shares between
The Company’s portfolio has not had any defaults in its investments since it was launched in 2013 and the portfolio did not see any material interest deferrals or defaults during this reporting period.
Market Overview
Financial markets have been calmer over the past year following the turmoil created by the US regional banking crisis, the energy crisis, and the
The reporting period was once again dominated by the activity of central banks. As the US Federal Reserve (“Fed”) raising the Federal Fund Rate to 5.25-5.5% in 2023– the market was focused on when the rate cutting cycle would begin and then how quickly it would continue. Inflation demonstrated encouraging trends at the end of 2023, leading to the markets pricing in over six rate cuts for 2024. However, with inflation proving to be stickier and US growth remaining robust for the first few months of 2024, the number of cuts expected by the markets for 2024 more than halved. The combination of this “higher for longer” approach by the central banks, and the tightening in credit spreads in the asset classes which the Company invests in, has had a positive impact on the Company’s income, due to the floating rate nature of the Company’s assets.
Elsewhere, whilst a similar inflationary pattern was seen across the eurozone and the
The activity in the primary markets has also created opportunities for the Portfolio Manager to diversify and rotate the portfolio.
In the last quarter of 2023, markets were betting on recessions in developed economies and began anticipating the first key rate cuts. This proved to be premature. With
Environmental, Social and Governance Approach
The Board recognises the importance of Environmental, Social and Governance (“ESG”) factors in both investment management and in wider society, and has appointed the Portfolio Manager to advise it in relation to all aspects relevant to the Company’s portfolio. Throughout the year, the Portfolio Manager has continued to work extensively on engaging with issuers to improve disclosures, and have also extended their proprietary ESG scoring model to cover ABS-specific metrics, meaning ESG data is factored in to every level of the investment process. The Board and the Portfolio Manager believe this proprietary ESG work is unique in the European ABS space.
Dividend
The Company aims to distribute all its investment income to ordinary shareholders and is currently targeting quarterly payments equivalent to an annual dividend of at least 8p per year. The fourth quarter dividend is used to distribute any residual income generated in the year. This year, the fourth quarter dividend was 3.96p per Ordinary Share, with the dividends paid by the Company with respect to the reporting period totalling 9.96p per Ordinary Share.
The increase in dividends for the financial year ended
Premium/Discount and Share Capital Management
The wider investment company market saw trading at historically wide discounts across the board, with the Company remaining one of the best performers. Shares traded at close to NAV for the first half of the period to the end of
Discounts widened further across the investment company market in the second half of the reporting period. The Company traded at an average discount of 1.56% for the whole reporting period and, at the end of
Annual General Meeting
The Company’s 2024 Annual General Meeting (“AGM”) will be held on
Board Composition
On behalf of the Board, I would like to thank Richard for all his hard work and valued contribution to the Board and to the Company during his tenure.
Outlook
With inflation continuing to prevail and relatively high levels of wage growth remaining, the market expectation remains that base rates will be likely to remain higher for longer, with a slower rate cut trajectory priced in.
The Company has always delivered dividends within the target range of 6p to 9p per share, even when key
Outside the political drama, demand for floating rate bonds has increased significantly over recent months, which is expected to persist, and this positive technical, absent of geopolitical surprises, should keep ABS credit spreads range bound.
The ongoing war in
While a moderate deterioration of fundamental performance (such as unemployment, house prices, corporate earnings and defaults) is expected by the Portfolio Manager, the Board does not expect this to materially impact performance of the investment portfolio. The Portfolio Manager expects to see increasing arrears levels in consumer credit, but not to levels seen during the Global Financial Crisis and remain confident based on strong stress test results.
Increasing demand for the asset class and higher for longer rates are expected to remain drivers of performance in the medium term. Throughout the reporting period,
Bronwyn Curtis OBE
Chair
PORTFOLIO MANAGER’S REPORT
for the year ended
In our capacity as Portfolio Manager to the
Market Environment
During the year, the macroeconomic picture began to stabilise after the turbulence experienced globally during the Covid-19 pandemic and its aftermath. This was illustrated best by the rapid climb and then descent of inflation across all major economies, which understandably challenged most markets but fixed income markets even more so given the rise in interest rates as central banks moved to cut off a damaging spiral. US Consumer Price Index (“CPI”) dropped from 6.0% to 3.2% during the year, with eurozone numbers following a similar path to 2.7%. With inflation still above target, central bank forecasts see a normalisation to the 2% long-term objective during 2024 and at target in 2025.
Geopolitics remained a feature of the year; the conflict in
One area of stability across the
ABS performance remained strong, with ratings and underlying asset performance showing resilience as it stayed well within investor tolerance levels.
With markets reacting to a stronger than expected macroeconomic backdrop, risk sentiment has improved and a positive technical demand has supported credit spread tightening across fixed income, including ABS. Liquidity conditions have also been strong with healthy primary issuance and growing amounts of high yield and loan refinancings having taken place, which has reduced concerns around debt maturities. Rates, however, have remained volatile as investors were kept guessing as to when the Fed would cut rates. Up to six 25 basis points cuts were priced in for 2024 at one point of rate hike expectations, with around three currently expected. With growing uncertainty as to exactly when the Fed, the BoE and
Performance
European ABS performance over the year has been very strong across the board. Spreads started the year relatively wide as the market was still recovering from the
The NAV per Ordinary Share total return was 18.10%.
Portfolio Events
We have both added and reduced risk to the portfolio on many occasions over the reporting period, mostly by buying and selling longer dated BB-rated CLOs. Due to strong demand, when spreads tightened quickly in BB CLOs, we booked profits for the Company’s portfolio and replaced these with primary CLOs at wider spreads and mezzanine ABS in primary.
The portfolio allocation approach has remained broadly unchanged over the course of the year as we favoured secured assets (RMBS and CLOs) over unsecured assets from Western European lenders. The portfolio saw increased allocations to SRT trades over the year, a sector that we believe provides both diversification and an attractive yield to the Company.
Although collateral performance has weathered base rate rises well, there have been pockets of deterioration in pre global financial crisis RMBS and office CMBS. We have reduced CMBS exposure to 3.3% from 4.8% in the previous year, also reducing non-conforming RMBS exposure to 14.5% from 21.7%. The level of leverage the Company has taken has dropped to -1.6% from -5.4%, however, we remain flexible to increase allocations if opportunities arise. The yield ended the year at 12.78%, and the weighted average rating of the Company’s portfolio has remained stable at B.
Portfolio Strategy
Our focus during the reporting period, has been and will continue to be on investing in higher-yielding floating-rate ABS, which, in an environment of higher-for-longer rates, should continue to deliver ongoing, attractive levels of income, enabling the Company to continue to deliver on its annual target dividend. At the end of the reporting period, the portfolio had a very healthy book yield of 11.7% and a mark-to-market yield of 12.8%. Spreads have generally tightened through this year and we have crystallised profits on various older investments in favour of primary supply.
As we believe that fundamental performance will likely deteriorate (not least due to increasing consumer arrears and corporate defaults), and with the elevated geopolitical risk (further escalations of the conflicts in
Environmental, Social and Governance
ESG disclosures in the ABS market have continued to evolve over the past 12 months, with the updates to the EU Sustainable Finance Disclosure Regulation (“SFDR”) and
We have continued to engage with lenders on Scope 3 financed emissions in RMBS and ABS deals. Over the past 12 months, the market has experienced a surge in Green RMBS issuance and though volumes are still far from the 2021 record high, we have supported Green transactions and expect to see higher volumes for the remainder of 2024.
Within CLOs, investor demand for ESG integration has increased significantly over the past year resulting in most CLO managers increasing exclusions at portfolio level and within disclosures. We have also worked on several initiatives on the CLO side through the
We have focused particularly on new CLO deals for the Company with positive and negative screening managed by CLO managers with strong ESG credentials.
Market Outlook
In late
With the current macro environment and the fact that
In the US, the Republican Presidential candidate,
With spreads having performed very well during 2024, despite elevated geopolitical risks posing a threat, we expect the strong demand/supply technical to persist in the medium term.
We continue to see the best value in primary transactions and short-dated BBB and BB-rated RMBS and CLOs, and expect the pace of Euro CLO issuance to persist, with a healthy ABS pipeline for the remainder of 2024. With more older CLOs reaching the end of their reinvestment periods and a healthy leverage loan market, we expect to see an increased amount of older CLOs being called as well as a further pick up in refinancings of the 2022 and 2023 vintages. We will look to reinvest this increasing amount of portfolio amortisations in primary supply.
We anticipate resistance to short-term spreads tightening from here, however, we do see a scenario where the excess demand, particularly in ABS markets, outweighs this effect. Primary supply has been met with very strong demand so far in 2024 and although total volumes are strong, we had expected to see more RMBS deals come to market, but recognise that specialist mortgage lending volumes have likely been suppressed during 2023. In the first half of 2024, €71 billion of primary issuance came to market, which is well above the typical €50-60 billion that was printed in the recent 5 years, and has resulted in an increase of the European ABS market size to €520 billion. We anticipate that the current strong demand/supply technical will remain in place as a driver of medium-term performance. In the longer term, we continue to see geopolitical risk as the key risk for market volatility and value flexibility in positioning and therefore expect to keep elevated levels of liquidity, especially as European ABS continues to benefit from higher rates for longer.
TOP TWENTY HOLDINGS
as at
Nominal/ Asset-Backed Fair Value Percentage of Security Shares Security £ Net Asset Sector* Value UK MORTGAGES CORPORATE F 'KPF4 A' 23,163,656 RMBS 21,718,430 2.67 0.00% 30/11/2070 UK MORTGAGES CORP FDG DAC KPF1 A 0.0% 18,574,611 RMBS 21,057,591 2.60 31/07/2070 UK MORTGAGES CORP FDG DAC KPF2 A 0.0% 21,498,181 RMBS 19,291,586 2.37 31/07/2070 TULPENHUIS 0.0% 19,326,989 RMBS 17,849,173 2.19 18/04/2051 SYON SECURITIES 19-1 16,591,590 RMBS 16,258,646 2.00 B CLO FLT19/07/2026 UKDAC MTGE 'KPF3 A' 17,926,403 RMBS 15,134,868 1.86 0.0% 31/7/2070 CHARLES ST CONDUIT ABS 2 LIMITED CABS 15,000,000 RMBS 14,748,000 1.81 2- CL B MEZZ EQTY. RELEASE FNDG. NO 5 '5 B' FRN 16,500,000 RMBS 14,656,754 1.80 14/07/2050 VSK HOLDINGS LTD VAR 2,058,000 RMBS 14,479,608 1.78 31/7/2061 DEUTSCHE BANK AG/CRAFT 202 '1X 18,000,000 SRT 14,248,960 1.75 CLN' FRN21/11/2033 CHARLES STREET CONDUIT FRN 0.00% 14,000,000 RMBS 13,613,600 1.67 12/04/2067 CASTELL 2022-1 PLC 13,299,000 RMBS 13,436,483 1.65 '1 D' FRN25/4/2054 VSK HLDGS. '1 C4-1' 1,587,000 RMBS 11,011,533 1.36 VAR 01/10/2058 RRME 8X D '8X D' FRN 13,000,000 CLO 10,977,246 1.35 15/10/2036 HABANERO LTD '6W B' 10,795,000 RMBS 10,795,000 1.33 VAR 5/4/2024 SYON SECS. 2020-2 DAC '2 B' FRN 9,945,888 RMBS 10,032,885 1.23 17/12/2027 SANTANDER CONSUMER FINANCE SA SER 23-1 83,986,289 SRT 9,626,337 1.18 CL B FLTG R HOPS HILL NO2 PLC '2 9,262,000 RMBS 8,904,380 1.10 E' FRN27/11/2054 UK MORTGAGES CORP FDG DAC CHL1 A 0.0% 7,165,395 RMBS 8,151,934 1.00 31/07/2070 SYON SECURITIES 2020-2 DESIGNATED A 7,945,495 RMBS 7,971,691 0.98 FLTG 17/12/202 273,964,705 33.68
The full portfolio listing as at
* Definition of Terms
“CLO” – Collateralised Loan Obligations
“RMBS”-
“SRT” – Significant Risk Transfer
BOARD MEMBERS
Biographical details of the Directors are as follows:
Bronwyn Curtis OBE - (Non-Executive Director and Chair)
Board Member who retired during the year
DISCLOSURE OF DIRECTORSHIPS IN PUBLIC COMPANIES LISTED ON RECOGNISED STOCK EXCHANGES
CompanyName Stock Exchange Bronwyn Curtis BH Macro LimitedLondon Pershing Square Holdings LimitedLondon and Euronext Amsterdam Joanne Fintzen JPMorgan Claverhouse Investment Trust plcLondon Paul Le Page NextEnergy Solar Fund LimitedLondon RTW Biotech Opportunities Limited London Sequoia Economic Infrastructure Income Fund London Limited John Le Poidevin BH Macro LimitedLondon International Public Partnerships LimitedLondon Super Group (SGHC) LimitedNew York
STRATEGIC REPORT
for the year ended
The Directors submit to the Shareholders their Strategic Report for the year ended
Business Model and Strategy
The Company is a closed-ended investment company, incorporated with limited liability in
Investment Objectives and Policy
The Company’s investment objective and policy is set out in the Summary Information.
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 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
Income Distributions
The Company’s income consists wholly or mainly of investment income and the Ordinary Shares are designed to offer a consistent dividend yield. The Board intends to distribute substantially all of the Company’s income after expenses to the holders of the Ordinary Shares, paying quarterly interim dividends with equal amounts paid in June, September and December each year, with a fourth quarter dividend paying any remaining income for the year ending 31 March being declared in April.
The full year dividend per share for 2024 totalled 9.96p (2023: 9.46p) representing 99.77% of the total comprehensive income for the year. This is in accordance with the dividend policy approved by Shareholders at an extraordinary shareholders meeting in
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 Portfolio Manager regularly to discuss the portfolio. Additional details are covered in the Chair’s Statement and Portfolio Manager’s Report.
Future Prospects
The Board’s main focus for the Company is to generate attractive risk adjusted returns principally through income distributions. The future of the Company is dependent upon the success of the investment strategy. The investment outlook and future developments are discussed in both the Chair’s Statement and the Portfolio Manager’s Report.
The Board meets at least annually, to consider the long-term strategy of the Company, incorporating presentations from the Portfolio Manager, Corporate Broker and other service providers, to inform discussion on longer-term opportunities and threats to the business. Focus is placed on principal and emerging risks which may have the potential to disrupt the business model.
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 has carried out a robust assessment of the principal risks and uncertainties facing the Company, by assessing the Company’s risk matrix, whilst focusing on internal financial and reporting controls and monitoring the investment limits and restrictions set out in the Company’s investment objective and policy. The Board also regularly meets to discuss any emerging risks affecting the Company and to establish effective controls to manage them.
The below risks are all considered principal risks affecting the Company.
Market Risk and Investment Valuations
Market risk is the risk associated with changes in market factors including spreads, interest rates, economic uncertainty, changes in laws and political circumstances.
Due to residual inflation concerns and growing macro-economic and geopolitical tensions, there is a chance that both the
Liquidity Risk
Liquidity risk is the risk that the Company may not be able to sell securities at a given price and/or over the desired timeframe. Investments made by the Company may be relatively illiquid. Some investments held by the Company may take longer to realise than others and this may limit the ability of the Company to realise its investments and meet its target dividend payments in the scenario where the Company has insufficient income arising from its underlying investments. The Company has the ability to borrow to ensure sufficient cash flows and the Portfolio Manager maintains a liquidity management policy to monitor the liquidity risk of the Company.
Credit Risk and Investment Performance
Credit risk arises when the issuer of a settled security held by the Company experiences financing difficulties or defaults on its payment obligations resulting in an impact to the security market price.
The Company holds debt securities including ABS which, compared to bonds issued or guaranteed by developed market 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 for an ABS is typically indicated by a credit rating which is assigned by one or more internationally recognised rating agencies. This does not amount to a guarantee of creditworthiness of an ABS 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 ABS issues. 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. Whilst they have been historically low since the inception of the Company, 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.
The Company is also exposed to unrated equity tranches of ABS that invest predominantly in the residential mortgage markets in the
In the event of a default under an Asset-Backed Security, the Company’s right to financial recovery will depend on its ability 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. Information regarding investment restrictions that are currently in place in order to manage credit risk can be found in note 18 to the financial statements.
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 predominantly incurred in Sterling. The Company’s financial statements are presented in Sterling. Amongst other factors affecting the foreign exchange markets, events in the eurozone may 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.
Counterparty Credit Risk
Where a market counterparty to an Over-the-Counter (“OTC”) derivative transaction fails, any unrealised positive mark to market profit may be lost. The Company uses OTC derivatives to hedge interest rate risk and mitigates this risk by only trading derivatives against approved counterparties which meet minimum creditworthiness criteria and by employing central clearing and margining where applicable.
Settlement Risk
Settlement risk is the risk of loss associated with any security price movements between trade date and eventual settlement date should a trade fail to settle on time (or at all). The Company mitigates the risk of total loss by trading on a delivery versus payment (“DVP”) basis for all non-derivative transactions and central clearing helps to ensure that trades settle on a timely basis.
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. 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 is also able to borrow against individual holdings in the portfolio via repurchase agreements which facilitate rapid tactical investments when opportunities arise.
The Portfolio Manager expects £85.4m of assets to have a Weighted Average Life of under 1 year. While market conditions are always subject to change, the Portfolio Manager does not currently foresee reinvestment risk significantly impacting the yield nor affecting each quarter’s minimum dividend and recognises the need to be opportunistic as and when market conditions are particularly favourable in order to reinvest any proceeds or in order to take advantage of rapidly evolving pricing during periods of market volatility.
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, Independent Valuer, Custodian and the Depositary amongst others. The Board and its Audit Committee regularly review reports from key service providers on their internal controls, in particular, focussing on changes in working practices. The Administrator, Custodian and Depositary report to the Portfolio Manager any operational issues for final approval of the Board as required.
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. 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. This risk is considered on behalf of the Board by the Audit Committee as discussed in the Audit Committee Report.
Cyber Security Risks
The Company is exposed to the 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.
Geopolitical Risk and Economic Disruption
The Company is exposed to the risk of geopolitical and economic events impacting on the Company, Portfolio Manager and Shareholders, including elevated levels of global inflation, recessionary risks and the current conflicts in
Climate Change Risk
Climate change risk is the risk of the Company not responding sufficiently to pressure from stakeholders to assess and disclose the impact of climate change on investment portfolios and address concerns on what impact the Company and its portfolio has on the environment.
Regular contact is maintained by the Portfolio Manager and Broker with major stakeholders and the Board receives regular updates from the Portfolio Manager on emerging policy and best practice within this area and can take action accordingly.
ESG factors are assessed by the Portfolio Manager for every transaction as part of the investment process. Specifically for ABS, for every transaction an ESG assessment is produced by the Portfolio Manager and an ESG score is assigned. External ESG factors are factors related to the debt issuers of ABS transactions and they are assessed through a combination of internal and third-party data. Climate risks are incorporated in the ESG analysis under environmental factors and taken into consideration in the final investment decision. CO2 emissions are tracked at issuer and deal level where information is available. Given the bankruptcy-remoteness feature of securitisation transactions, the climate risks which the Portfolio Manager considers more relevant and that are able to potentially impact the value of the investment are the ones related to the underlying collateral which include physical and transitional risks. Those risks are also assessed and considered as environmental factors in the ESG analysis.
Board Diversity
When appointing new Directors and reviewing its composition, the Board considers, amongst other factors, diversity, balance of skills, knowledge, gender, social and ethnic background and experience. As at
The Board believes it is fully compliant with Listing Rules LR 9.8.6R(9) and LR 14.3.33R(1) in relation to board diversity which are:
-- At least 40% of the Board are women (Currently 2 out of 5 Directors are female); -- At least one senior position held by a woman (Bronwyn Curtis is currently Chair andJoanne Fintzen is the current Senior Independent Director); and -- At least one individual on the Board to be from a minority ethnic background (please see table below).
Additional detail is set out in the table below:
Name Gender Ethnicity Bronwyn Curtis Female White European John de Garis Male White British Joanne Fintzen Female British/European Indian Paul Le Page Male White British John Le Poidevin Male White British
Environmental, Social and Governance
The Board recognises the importance of ESG factors in the investment management and in wider society. The Company is a closed-ended investment company with a specific purpose and without employees or executive directors. Given the Company’s activities, its own direct carbon footprint is negligible.
Any business travel by Board members is minimal and the Company no longer provides printed copies of its annual and interim financial statements. The Company has entered into contractual arrangements with its primary third-party service providers, all of which provide attestation to the Company that they have appropriate ESG policies in place.
The sustainability risks that the Company may be subject to are likely to have an immaterial impact on the value of the Company’s investments in the medium to long term due to the mitigating nature of the Portfolio Manager’s ESG approach as detailed below.
The key governance processes of the Company are set out in the Directors’ Report.
It is therefore the view of the Board that the direct environmental and social impact of the Company is negligible and that ESG considerations are most important in respect of investment process for its portfolio.
The Company has appointed the Portfolio Manager to advise it in relation to all aspects relevant to the Investment Portfolio.
In keeping with the Board’s expectation that ESG factors be taken into account, the Portfolio Manager has a formal ESG framework which incorporates ESG factors into its investment process. The Portfolio Manager has an ESG Committee representing all areas of its business, reporting into its Executive Committee. The Portfolio Manager is a signatory to the
ESG factors are assessed by the Portfolio Manager for every transaction as part of the investment process. Specifically for ABS, for every transaction, an ESG assessment is produced by the Portfolio Manager and an ESG score is assigned. External ESG factors are factors related to the debt issuers of ABS transactions and they are assessed through a combination of internal and third-party data. Climate risks are incorporated in the ESG analysis under environmental factors and taken into consideration in the final investment decision. CO2 emissions are tracked at issuer and deal level where information is available. Given the bankruptcy-remoteness feature of securitisation transactions, the climate risks which the Portfolio Manager considers more relevant and that are able to potentially impact the value of the investment are the ones related to the underlying collateral which include physical and transitional risks. Those risks are also assessed and considered as environmental factors in the ESG analysis.
The Portfolio Manager is a member of the
In addition to this ‘top-down’ engagement at the industry level, the Portfolio Manager is committed to extensive ‘bottom-up’ engagement on behalf of themselves and clients. The ongoing due diligence is key to understanding the evolution of risks in the markets invested in, rather than just in relation to evaluating a specific transaction. External ESG factors are related to the debt issuers of ABS transactions and are assessed through a combination of internal and third-party data. The analysis focuses on the following key areas:
Borrower/Transaction analysis:
• Review of due diligence material, rating agency publications
• Sponsor meetings/deal roadshows
• Modelling and stress testing
• Assessment of the issuer’s existing ESG/Corporate Social Responsibility policies and existing/potential impact on environment and society
Scoring:
• Collection of ESG data through engagement and company reports
• ESG assessment using a combination of third-party provider and proprietary tools
• European ABS is not currently covered by ESG data providers, making it important to establish robust proprietary scoring policy. Ongoing monitoring and engagement has been a core part of the Portfolio Manager’s credit process since the business was founded. The Portfolio Manager’s proprietary ESG database system is utilised to record scoring and ongoing engagement
Investment Decision:
• Integration of the ESG assessment into the transaction investment analysis
• ESG score recorded in the database and incorporated as a factor in relative value decision
• Review of the credit in Investment Committee
• Approved or Declined
Monitoring:
• Monitoring and updating of the ESG scores
• Analysis of additions/disposals from ESG perspective
• Monitoring of engagements
Further details of the ESG policies and practices of the Portfolio Manager can be found at:
https:// www.twentyfouram.com/responsible-investment-policy
https:// www.twentyfouram.com/corporate-social-responsibility
https:// www.twentyfouram.com/esg-at-twentyfour-integration-and-engagement
Key Service Providers
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.
The Administrator is a wholly owned indirect subsidiary of Northern Trust Corporation, which has adopted the
Engagement and Voting
Wherever possible, on behalf of its investors, the Company is committed to actively engaging at a corporate, industry and regulatory level. The Company has contracted the Portfolio Manager to perform this function. 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 Portfolio Manager considers engagement as a constructive, active dialogue between investors and companies on all aspects of their ESG performance. While fixed income investors do not have voting rights in the way shareholders do, larger firms typically issue bonds multiple times a year, which puts bondholders in a strong position to be able to influence corporate policy by engaging with management on an ongoing basis.
The Portfolio Manager aims to engage regularly with the management of every issuer held in the Company’s portfolio, to better understand their ESG strengths and weaknesses, monitor their direction of travel, and overall encourage better ESG practices.
As part of the Portfolio Manager’s commitment to the
A copy of the Portfolio Manager’s Engagement Policy can be found at https:// www.twentyfouram.com/engagement-at-twentyfour.
Under the AIC Code, in the event that 20% or more of the Shareholder votes are 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 and following such consultation, should provide a final summary to Shareholders and in the next annual report. There is nothing to report in respect of the Shareholder votes held in the year.
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 web address below:
https://twentyfouram.com/fund s/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
-- Net Asset Value -- Share Price -- Earnings/(Loss) Per Ordinary Share -- Discount/Premium to Net Asset Value -- Ongoing Charges -- Dividends Declared
Net Asset Value
The Net Asset Value (“NAV”) per Ordinary Share, including retained earnings, at
The NAV increase over the period has been driven by the strong performance of European ABS, with spreads tightening as base rates increased and stayed at higher levels, also meaning higher coupons for the Company’s portfolio holdings. Mezzanine RMBS and especially CLOs were the main beneficiaries of spread tightening, resulting in very strong performance for the year for the portfolio holdings. Performance was also driven by the accretive nature of the share issuance throughout the year and reinvestment of amortisations.
The total NAV performance for the year was 18.10%. Additionally, the Company has paid out all of its income as dividend (9.96p), with the resulting impact on the NAV.
Share Price
The Share Price is the price per Ordinary Share trading on the
On
Earnings/(loss) per Ordinary Share – Basic and Diluted
Earnings/(loss) per Ordinary Share is calculated by dividing the net earnings for the year of £134,014,165 (
For the year ended
Discount/Premium to NAV
The discount/premium to NAV is a percentage difference in the share price per share to the net asset value per Ordinary Share. It is calculated by subtracting the share price from the NAV per Ordinary Share and dividing it by the NAV per Ordinary Share. If the share price is lower than the NAV per Ordinary Share, the shares are trading at a discount. If the share price is higher than the NAV per Ordinary Share, the shares are trading at a premium.
On 31
Ongoing Charges
Ongoing charges for the year ended
The ongoing charges for the year ended
31.03.2024 31.03.2023 OngoingCharges £ £ Average NAV for the year (a) 763,780,078 670,955,356 Total expenses 7,306,049 6,828,728 Less: Expenses not recognised as part of the AIC Ongoing (47,305) (287,931) Charges Methodology Total recognised expenses (b) 7,258,744 6,540,797 Ongoing Charges (b/a) 0.95% 0.97%
Dividends
Until
The dividend yield for the year ended
Dividendrate Netdividend Periodto perOrdinary Ex-dividenddate Recorddate Paydate payable(£) Share(£) 30 June 2023 0.0200 14,956,733 20 July 2023 21 July 2023 4 August 2023 30 September 0.0200 14,956,733 19 October 2023 20 October 3 November 2023 2023 2023 31 December 0.0200 14,956,733 18 January 2024 19 January 2 February 2023 2024 2024 31 March 0.0396 29,614,332 18 April 2024 19 April 3 May 2024 2024 2024
The Directors will continue to monitor the appropriateness of the dividend policy.
Viability Statement
Under the
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 above.
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 ended
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, 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 and interest 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 21, during the three-year period an Ordinary Resolution will be put to the Shareholders, at the AGM following any reporting period in which the minimum dividend target of 6p per year is not met, with the continuation vote requirements set out in note 18.
The Company’s ability to continue to meet its dividend target is further disclosed in the Chair’s Statement.
Realisation Opportunity
The next Realisation Opportunity is due to occur just after the AGM in Autumn 2025. The Board’s view is that should the share price remains at the current levels, relative to the NAV, they would not expect to see a major incentive to redeem.
Whilst there is no degree of certainty, rather like the Realisation Opportunity that occurred during 2022, there may be some redemption requests. In the past, these have been matched by secondary selling of the redeemed shares to new purchasers. It is believed the Realisation Opportunity is currently a low risk to the viability prospects of the Company.
Market Uncertainty
The year saw strong performance for most sectors held in the Company’s portfolio, as a result of a high rate environment and robust fundamental performance, helped by solid wage growth and a strong labour market.
Risk of Credit Losses
The risk of credit impairment and losses increased due to the risk of default, caused by higher levels of inflation and increasing global interest rates. The Portfolio Manager continues to stress test the holdings of the Company, under scenarios that specifically address the impact of these significant economic events on individual loan pools, and analyse the performance of the underlying investments.
The Portfolio Manager remains of the view that there is no material risk of credit issues on any holdings in the portfolio, and the price recovery seen since
Between
Section 172 Statement
Although the Company is domiciled in
Further information as to how the Board has had regard to the Section 172 factors:
Section 172 factors Key examples Locations Consequences of decisions in Investment Objectives and Summary Information the long term Policy Future Prospects Strategic Report Dividend Policy Note 21 Viability Statement Strategic Report Fostering business relationships with suppliers, Shareholders; Key Service Strategic Report; AGM; Providers Monthly Factsheet and customers and other Commentary stakeholders Impact of operations on the Environmental, Social and Strategic Report community and the Governance environment Maintaining high standard of Corporate Governance Directors' Report business conduct
Signed on behalf of the Board of Directors on
Director Director
DIRECTORS’ REPORT
The Directors present their Annual Report and Audited Financial Statements (the “Financial Statements”) for the year ended 31
Business Review
The Company
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 (
On
A Realisation Opportunity, where Shareholders of the Company may apply to redeem Ordinary 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 Ordinary Shares held by shareholders who do not submit realisation elections in respect of those Ordinary Shares (“Continuing Ordinary Shares”) on the last Business Day before Reorganisation being not less than £100 million.
The next Realisation Opportunity is due to take place in Autumn 2025.
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 and exceeded its dividend target of
The Company’s continuing ability to meet its dividend target, along with the Company’s ability to continue as a going concern, in light of the external geopolitical and macroeconomic factors, the increased risk of default due to elevated levels of inflation above target, higher global interest rates and the next Realisation Opportunity has been considered as part of the Viability Statement.
On
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 Company and continuingly monitors liabilities, including the Company’s quarterly dividends.
No material doubts in respect of the Company’s ability to continue as a going concern have been identified.
Results
The results for the year are set out in the Statement of Comprehensive Income. The Directors declared dividends of £74,484,531 in respect of income available for distribution earned during the year ended
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 Ordinary 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 risk-free rate differentials between each foreign currency pair, less (d) total expenditure for the period.
Portfolio Manager
The Company entered into a Portfolio Management Agreement with
The Board, through its Management Engagement Committee, has reviewed the performance of the Portfolio Manager and their fee basis and has concluded that it is in the interests of Shareholders and the Company that the appointment of the Portfolio Manager should continue in order to best achieve the Company's investment objectives.
Alternative Investment Fund Manager
Alternative investment fund management services have been provided by
Custodian and Depositary
Custodian and Depositary services are provided by
Directors
The Directors of the Company during the year and at the date of this Report are set out in the Corporate Information.
As at
Number of Number of Ordinary Ordinary Shares Shares 31.03.24 31.03.23 Bronwyn Curtis¹ 114,154 105,313 John Le Poidevin 260,121 260,121 Richard Burwood² N/A 87,186 John de Garis 39,753 39,753 Joanne Fintzen³ 38,538 38,538 Paul Le Page 49,457 49,457
¹
²
³
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
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
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 Code and the AIC Guide are available on the AIC’s website,
www.theaic.co.uk.
The
Throughout the year ended
The
-- The role of the Chief Executive; -- Executive Directors’ remuneration; -- Annually assessing the need for an internal audit function; and -- The means for the workforce to raise concerns.
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 fourth point is not applicable to the Company, as it has no employees.
The Board established a
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 at least 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 five 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 Chair is responsible for leadership of the Board and ensuring its effectiveness.
Chair
The Chair is
-- 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.
Biographies of all the Directors can be found in the Board Members section.
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 Board has adopted a policy on the tenure of its independent Directors that aligns with the AIC Code of Corporate Governance (“the Code”) that none of the Directors, including the Chair of the Board should generally serve for more than 9 years, even though the Board considers that boards of investment companies are more likely to benefit from a director’s long association with a company in that they will experience a number of investment cycles. At the 2023 AGM,
The Board has also given careful consideration to the recommendations of the Davies Review and their implementation. The Board has reviewed its composition and believes that the current Board mix, allied to its recruitment plans, provide an appropriate range of skills, experience and 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.
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 attend 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
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 Audit Management Remuneration Ad hoc Board Committee Engagement and Committee Meetings Meetings Committee Nomination Meetings Meetings Committee Held Attended Held Attended Held Attended Held Attended Held Attended Bronwyn 4 4 3 3 1 1 1 1 7 4 Curtis John Le 4 4 3 3 1 1 1 1 7 5 Poidevin Richard 2 2 1 1 1 1 - - 3 3 Burwood John de 4 4 3 3 1 1 1 1 7 6 Garis Joanne 4 4 3 3 1 1 1 1 7 4 Fintzen Paul Le 4 4 3 3 1 1 1 1 7 7 Page
The number of meetings held indicates the meetings held during each Director’s membership of the relevant Board or Committee during the year ended
In addition to the scheduled Board and Committee meetings, seven ad hoc Committee of the Board meetings were held during the year, which were attended by those Directors available at the time.
Board Performance and Training
During the year, the
Re-Election of Directors
Under the terms of their appointment, each Director is required to seek re-election on an annual basis. At the
In respect of the
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
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 which meets at least once a year and comprises the entire Board, with
The Management Engagement Committee carried out a review of the performance and capabilities of the Portfolio Manager and other service providers at its
Audit Committee
The Audit Committee comprises the entire Board, with the exception of the Chair of the Board, with
Further details on the Audit Committee can be found in the Audit Committee Report.
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
The Common Reporting Standard (“CRS”) is a global standard developed for the automatic exchange of financial account information developed by the
The Board ensures that the Company is compliant with
Internal Controls
In accordance with the AIC Code, 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 throughout the year. The Company’s risk matrix remains 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 by the Board, identifying the risks facing the Company and then collectively assessing the likelihood and impact of each risk 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, safeguard Company assets and maintain reliable financial information and by its nature can only provide reasonable and not absolute assurance against misstatement and loss.
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 at this time.
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 service providers. 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 at least 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 in the Strategic Report.
Shareholder Engagement
The Board welcomes Shareholders’ views and places great importance on communication with its Shareholders. Shareholders wishing to meet the Chair and other Board members should contact the Company’s Administrator and a number of such meetings occurred during the year.
The Portfolio Manager and Broker 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
In addition, the Company has 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
Number of Percentageof OrdinaryShares issuedshare capital Investec Wealth & Investment 80,714,776 10.79% TwentyFour Asset Management 37,660,875 5.04% RBC Brewin Dolphin 33,309,666 4.45% Hargreaves Lansdown Asset Management 33,144,159 4.43% Aviva Investment 27,042,074 3.62% East Riding of Yorkshire Council 26,062,776 3.49% Killik & Co 25,531,401 3.41% Interactive Investor (EO) 24,835,602 3.32%
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 Ordinary Shares.
Disclosure of Information to Auditor
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 Auditor
A resolution for the reappointment of
Signed on behalf of the Board of Directors on
Director Director
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable
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 (
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
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
(b)
The Annual Report includes information detailed in the Corporate Information, Summary Information, Chair’s Statement, Portfolio Manager’s Report,
(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
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
Director Director
DIRECTORS’ REMUNERATION REPORT
The Directors' Remuneration Report has been prepared on behalf of the Directors in accordance with the
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.
It is the responsibility of the
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 aggregate amount of such fees does not exceed £400,000 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
Total fees (£)Bronwyn Curtis 60,000John Le Poidevin 50,000 Richard Burwood¹ 19,217John de Garis 42,000Joanne Fintzen 42,000 Paul Le Page² 41,087 254,304
¹
²
During the year, the annual fees were £60,000 for the Chair of the Board, £50,000 for the Audit Committee Chair, £42,000 for the Senior Independent Director, the Chair of the
Effective
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
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
AUDIT COMMITTEE REPORT
Below, we present the Audit Committee's Report, setting out the responsibilities of the Audit Committee and its key activities for the year ended
The Audit Committee has continued its 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, and 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 operates within the principles of the
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 accounting, risk management, compliance, fraud and audit seeking reasonable assurance that such systems meet relevant legal and regulatory requirements. The Audit Committee also reviews the accounting and financial reporting processes, along with reviewing the role, 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. The Company’s 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, have relied on the overarching requirement placed on service providers under the relevant agreements to comply with applicable law, including anti-bribery laws. A review of service provider policies took place at the Management Engagement Committee Meeting, held on
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 auditor which highlight any issues with respect to the work undertaken on the audit.
During the year, the
The FRC notes that its review does not provide assurance that the Annual Report and Audited Financial Statements are correct in all material respects and that its role is not to verify the information provided but to consider compliance with reporting requirements.
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 £813,356,415 as at
(ii) Income recognition:
The Audit Committee considered the calculation of income from investments recorded in the Financial Statements as at
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 considers 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 has also appropriately scrutinised the significant assumptions used for determining the value of assets and liabilities and, having reviewed the content of the Annual Report and Financial Statements, has recommended them to the Board on the basis that, taken as a whole, they are fair, balanced and understandable and provide the information necessary for Shareholders to assess the Company’s position and performance, business model and strategy.
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 auditor. 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.
Going Concern
The going concern basis can be found in the Directors’ Report.
External Auditor
The Audit Committee has primary responsibility for the effectiveness of the external audit process and for making recommendations to the Board on the appointment, independence, reappointment or removal of the external auditor and the planning, scope, quality of performance and cost effectiveness of the external audit process. The Audit Committee reviews and approves the external audit plan in advance of the audit and ensures throughout the year that any non-audit services proposed to be performed by the external auditor are in accordance with the Company’s policy on the provision of non-audit services. The Company’s non-audit services policy is set out in full in the Audit Committee’s terms of reference. The external audit plan includes an analysis of the key audit risks and calculations of audit materiality which the Audit Committee considers in forming its assessment of key risks to the Audit Company’s financial statements.
To assess the effectiveness of the external audit, members of the Audit Committee work closely with the Portfolio Manager and the Administrator to obtain a good understanding of the progress and efficiency of the audit. In particular, the Audit Committee reviews the following areas:
• the quality of the audit engagement partner and the audit team;
• the expertise of the audit firm and the resources available to it;
• identification of areas of audit risk;
• planning, scope and execution of the audit;
• consideration of the appropriateness of the level of audit materiality adopted;
• the role of the Audit Committee, the Administrator, the Portfolio Manager and third-party service providers in an effective audit process;
• communications by the Auditor with the Audit Committee; and
• how the Auditor supports the work of the Audit Committee and how the audit contributes added value.
Feedback in relation to the audit process and the effectiveness of the Portfolio Manager and Administrator in performing their roles is also sought from relevant parties, notably the audit partner and team. The Auditor attends Audit Committee meetings on at least two occasions at which they have the opportunity to meet with the Audit Committee without representatives of the Portfolio Manager or Administrator being present. The effectiveness of the Board, the Administrator and the Portfolio Manager in the external audit process is assessed principally in relation to the timely identification and resolution of any process errors or control breaches that might impact the Company’s net asset values and accounting records. It is also assessed by reference to how successfully any issues in respect of areas of accounting judgement are identified and resolved, the quality and timeliness of papers analysing these judgements, the Administrator’s approach to the value of independent audit and the booking of any audit adjustments arising, and the timely provision of draft public documents for review by the Auditor and the Audit Committee.
During the year, the Audit Committee performed its annual review of the independence, effectiveness and objectivity of the external auditor, in accordance with the FRC’s Revised Ethical Standard, 2019.
On a semi-annual basis, the auditor reports the independence of its relationship with the Company and reports to the Audit Committee. As part of this review, the Audit Committee also receives information about policies and processes for maintaining independence and monitoring compliance with relevant requirements from the Company’s Auditor, including information on the rotation of audit partners and staff, the level of fees that the Company pays in proportion to the overall fee income of the firm, and the level of related fees, details of any relationships between the audit firm and its staff and the Company as well as an overall confirmation from the Auditor of its independence and objectivity.
The Company does not utilise the external auditor for internal audit purposes, secondments or valuation advice. Other services which do not compromise auditor independence must be pre-approved by the Audit Committee.
The following tables summarise the remuneration paid to
01. 04. 22 01.04.23 to 31.03.24 to 31. 03. 23 KPMG Channel Islands Limited - Assurance work £ £ 141 - Annual audit (2023: PwC) 156,000 ,05 0 - Interim review (2023: PwC) 35,000 37, 850 1 Ratio of audit to non-audit work 1 : 0.22 : 0.2 6
During the year ended
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
Chair, Audit Committee
ALTERNATIVE INVESTMENT FUND MANAGER’S REPORT
The AIFM has delegated the following of its alternative investment fund management functions:
-- It has delegated the portfolio management function for listed investments toTwentyFour Asset Management LLP .
-- It has delegated the portfolio management function for unlisted investments toTwentyFour 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
-- 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 AIFM Directive. 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
The AIFM also acts as Authorised Corporate Director (“ACD”) for non-Alternative Investment Funds (“AIFs”). It is required to disclose the total remuneration it pays to its staff during the financial year of the Company, 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.
______________________________________________________________________________ | |Number of Beneficiaries|Fixed |Variable| |__________________________________|_______________________|__________|________| |Total remuneration paid by the ACD|17 |£1,515,952|£152,522| |during the year | | | | |__________________________________|_______________________|__________|________| |Remuneration paid to employees of | | | | |the ACD who are material risk |6 |£737,201 |£115,817| |takers | | | | |__________________________________|_______________________|__________|________|
Further information is available in the AIFM’s Remuneration Policy Statement which can be obtained from www.fundrock.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 auditor of the Company or the Board of Directors of the Company 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 auditor is aware of that information.
We hereby certify that this report is made on behalf of the AIFM,
Directors
REPORT OF THE DEPOSITARY TO THE SHAREHOLDERS
for the year ended
We have enquired into the conduct of
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 Schemes Rules 2021.
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 year, 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
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF TWENTYFOUR INCOME FUND LIMITED
Our opinion is unmodified
We have audited
the financial statements
of
In our opinion, the accompanying financial statements:
-- give a true and fair view of the financial position of the Company as at31 March 2024 , and of the Company’s financial performance and cash flows for the year then ended;
-- are prepared in accordance with International Financial Reporting Standards; and comply with the Companies (Guernsey ) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (
Key audit matters: our assessment of the risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In arriving at our audit opinion above, the key audit matter was as follows:
The risk Our response Financial assets at fair value through profit or Valuation of investments Our audit procedures loss - Investments included: (“investments”) Control evaluation: We assessed the design and implementation of the control over the valuation of the Company’s investments. Challenging management’s investment valuations, including the use of our KPMG valuation specialist, as applicable, we: -- Held discussions with the Investment Manager to understand and assess the appropriateness of the valuation methodologies applied; -- Performed Basis: retrospective testing on The Company’s investments realised positions are carried at fair value to assess the through profit or loss and reliability and represent a significant accuracy of proportion of the management’s Company’s net assets. valuations and for any evidence of These investments are valuation bias; valued using recognised -- Assessed the valuation methodologies experience, disclosed in note 2(f) of competence, the financial statements. objectivity and reliability of Risk: work of the independent The valuation of the valuation expert Company’s investments is appointed by the considered a significant Company to provide area of our audit in view valuations of of the significance of the certain estimates and judgements investments where that may be involved in no reliable price the determination of their was deemed fair value and given that available; £813,356,415 (2023: it represents the majority -- For the Company’s £739,385,970) of the net assets. investments which are valued using Refer to the Audit To determine the valuation observable inputs Committee Report, note 2 of investments, the (level 2), we (f) (significant Portfolio Manager requests assessed whether accounting policies), note external prices from the prices used by 9 (investments) and note independent pricing management were 19 (fair value vendors or, where these reasonable by measurement). are unavailable, from comparing them third party brokers or against the dealers. Where the indicative or external price obtained is reference prices deemed unreliable or is obtained from not available, the independent Portfolio Manager will sources; determine, with the -- For a risk based assistance of an selection of the independent valuation Company’s expert, the valuation investments which based on internal models, are valued using which may include significant benchmarking to comparable unobservable transactions, discounted inputs (including cash flows or other internal models), valuation techniques we determined commonly used by market independent participants. reference prices through the use of For those investments fundamental cash valued based on internal flow modelling, models there is a risk of sourcing key fraud and error given the inputs and high level of assumptions used, subjectivity, estimation such as the uncertainty and complexity default rates, when deriving fair value. discount margins and prepayment rates, from observable market data; and -- Assessed the fair value levelling of the investments held by the Company at year-end. Assessing disclosures: We also considered the Company’s accounting policy (see note 2(f)) in relation to the use of estimates and judgements in determining the fair value of Investments, the Company’s investment valuation policies and fair value disclosures (see notes 2(f), 9 and 19) for compliance with IFRS.
Our application of materiality and an overview of the scope of our audit
Materiality for the financial statements as a whole was set at £15,300,000, determined with reference to a benchmark of net assets of £813,539,986, of which it represents approximately 2.0% (2023: 2.25%).
In line with our audit methodology, our procedures on individual account balances and disclosures were performed to a lower threshold, performance materiality, so as to reduce to an acceptable level the risk that individually immaterial misstatements in individual account balances add up to a material amount across the financial statements as a whole. Performance materiality for the Company was set at 65% (2023: 75%) of materiality for the financial statements as a whole, which equates to £9,940,000. We applied this percentage in our determination of performance materiality because we did not identify any factors indicating an elevated level of risk.
We reported to the Audit Committee any corrected or uncorrected identified misstatements exceeding £765,000, in addition to other identified misstatements that warranted reporting on qualitative grounds.
Our audit of the Company was undertaken to the materiality level specified above, which has informed our identification of significant risks of material misstatement and the associated audit procedures performed in those areas as detailed above.
Going concern
The directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Company or to cease its operations, and as they have concluded that the Company's financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over its ability to continue as a going concern for at least a year from the date of approval of the financial statements (the “going concern period").
In our evaluation of the directors' conclusions, we considered the inherent risks to the Company's business model and analysed how those risks might affect the Company's financial resources or ability to continue operations over the going concern period. The risks that we considered most likely to affect the Company's financial resources or ability to continue operations over this period was the availability of capital to meet operating costs and other financial commitments.
We considered whether this risk could plausibly affect the liquidity in the going concern period by comparing severe, but plausible downside scenarios that could arise from this risk individually and collectively against the level of available financial resources indicated by the Company’s financial forecasts.
Our conclusions based on this work:
• we consider that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate;
• we have not identified, and concur with the directors' assessment that there is not, a material uncertainty related to events or conditions that, individually or collectively, may cast significant doubt on the Company's ability to continue as a going concern for the going concern period; and
• we have nothing material to add or draw attention to in relation to the directors' statement in the notes to the financial statements on the use of the going concern basis of accounting with no material uncertainties that may cast significant doubt over the Company's use of that basis for the going concern period, and that statement is materially consistent with the financial statements and our audit knowledge.
However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the above conclusions are not a guarantee that the Company will continue in operation.
Fraud and breaches of laws and regulations – ability to detect
Identifying and responding to risks of material misstatement due to fraud
To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud. Our risk assessment procedures included:
• enquiring of management as to the Company’s policies and procedures to prevent and detect fraud as well as enquiring whether management have knowledge of any actual, suspected or alleged fraud;
• reading minutes of meetings of those charged with governance; and
• using analytical procedures to identify any unusual or unexpected relationships.
As required by auditing standards, and taking into account possible incentives or pressures to misstate performance and our overall knowledge of the control environment, we perform procedures to address the risk of management override of controls, in particular the risk that management may be in a position to make inappropriate accounting entries, and the risk of bias in accounting estimates such as valuation of unquoted investments. On this audit we do not believe there is a fraud risk related to revenue recognition because the Company’s revenue streams are simple in nature with respect to accounting policy choice, and are easily verifiable to external data sources or agreements with little or no requirement for estimation from management. We did not identify any additional fraud risks.
We performed procedures including:
• identifying journal entries and other adjustments to test based on risk criteria and comparing any identified entries to supporting documentation;
• incorporating an element of unpredictability in our audit procedures; and
• assessing significant accounting estimates for bias.
Further detail in respect of valuation of unquoted investments is set out in the key audit matter section of this report.
Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations
We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our sector experience and through discussion with management (as required by auditing standards), and from inspection of the Company’s regulatory and legal correspondence, if any, and discussed with management the policies and procedures regarding compliance with laws and regulations. As the Company is regulated, our assessment of risks involved gaining an understanding of the control environment including the entity’s procedures for complying with regulatory requirements.
The Company is subject to laws and regulations that directly affect the financial statements including financial reporting legislation and taxation legislation and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items.
The Company is subject to other laws and regulations where the consequences of non-compliance could have a material effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation or impacts on the Company’s ability to operate. We identified financial services regulation as being the area most likely to have such an effect, recognising the regulated nature of the Company’s activities and its legal form. Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of management and inspection of regulatory and legal correspondence, if any. Therefore if a breach of operational regulations is not disclosed to us or evident from relevant correspondence, an audit will not detect that breach.
Context of the ability of the audit to detect fraud or breaches of law or regulation
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it.
In addition, as with any audit, there remains a higher risk of non-detection of fraud, as this may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material misstatement. We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non-compliance with all laws and regulations.
Other information
The directors are responsible for the other information. The other information comprises the information included in 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 an audit opinion or any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Disclosures of emerging and principal risks and longer term viability
We are required to perform procedures to identify whether there is a material inconsistency between the directors’ disclosures in respect of emerging and principal risks and the viability statement, and the financial statements and our audit knowledge. We have nothing material to add or draw attention to in relation to:
• the directors’ confirmation within the viability statement (Directors’ Report) that they have carried out a robust assessment of the emerging and principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity;
• the emerging and principal risks disclosures describing these risks and explaining how they are being managed or mitigated;
• the directors’ explanation in the viability statement (Directors’ Report) 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 are also required to review the viability statement, set out in the Directors’ Report under the Listing Rules. Based on the above procedures, we have concluded that the above disclosures are materially consistent with the financial statements and our audit knowledge.
Corporate governance disclosures
We are required to perform procedures to identify whether there is a material inconsistency between the directors’ corporate governance disclosures and the financial statements and our audit knowledge.
Based on those procedures, we have concluded that each of the following is materially consistent with the financial statements and our audit knowledge:
• the directors’ statement that they consider that the annual report and financial statements taken as a whole is fair, balanced and understandable, and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy;
• the section of the annual report describing the work of the Audit Committee, including the significant issues that the audit committee considered in relation to the financial statements, and how these issues were addressed; and
• the section of the annual report that describes the review of the effectiveness of the Company’s risk management and internal control systems.
We are required to review the part of Corporate Governance Statement relating to the Company’s compliance with the provisions of the
We have nothing to report on other matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies (
• the Company has not kept proper accounting records; or
• the financial statements are not in agreement with the accounting records; or
• we have not received all the information and explanations, which to the best of our knowledge and belief are necessary for the purpose of our audit.
Respective responsibilities
Directors' responsibilities
As explained more fully in their statement set out in the Directors’ Report, the directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities
Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (
A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities .
The purpose of this report and restrictions on its use by persons other than the Company's members as a body
This report is made solely to the Company’s members, as a body, in accordance with section 262 of the Companies (
Rachid Frihmat
For and on behalf of
Chartered Accountants and Recognised Auditors
STATEMENT OF COMPREHENSIVE INCOME
for the year ended
Yearended Yearended 31.03.24 31.03.23 Notes £ £ Income Interest income on financial assets at fair 74,803,793 64,542,727 value through profit or loss Net foreign currency gains/(losses) 8 15,368,676 (8,837,545) Net gains/(losses) on financial assets at fair 9 53,903,533 (70,193,539) value through profit or loss Totalincome/(loss) 144,076,002 (14,488,357) Operatingexpenses Portfolio management fees 15 (5,690,248) (5,034,036) Directors' fees 15 (254,304) (261,684) Administration and secretarial fees 16 (358,119) (323,483) Audit fees (156,000) (141,050) Custody fees 16 (75,874) (67,120) Broker fees (50,002) (50,521) AIFM management fees 16 (257,384) (231,363) Depositary fees 16 (102,283) (91,401) Legal and professional fees (76,103) (161,234) Listing fees (25,000) (64,855) Registration fees (64,792) (46,174) Other expenses (195,940) (355,807) Totaloperatingexpenses (7,306,049) (6,828,728) Total operating profit/(loss) 136,769,953 (21,317,085) Finance costs on repurchase agreements 12 (755,788) (1,278,260) Total comprehensive income/(loss) for the year* 136,014,165 (22,595,345) Earnings/(loss)perOrdinaryShare 4 0.1825 (0.0340)
All items in the above statement derive from continuing operations.
The accompanying notes form an integral part of these Financial Statements.
*There is no other comprehensive income during the current and prior year.
STATEMENT OF FINANCIAL POSITION
as at
31.03.2024 31.03.2023 Notes £ £ Assets Financial assets at fair value through profit or loss - Investments 9 813,356,415 739,385,970 - Derivative assets: Forward currency contracts 18 1,958,943 2,281,253 Amounts due from broker 3,427,786 - Other receivables 10 7,642,019 6,976,028 Cash and cash equivalents 13,142,803 27,235,318 Totalassets 839,527,966 775,878,569 Liabilities Financial liabilities at fair value through profit or loss - Derivative liabilities: Forward currency 18 20,877 1,509 contracts Amounts payable under repurchase agreements 12 14,090,507 49,827,700 Amounts due to broker 10,596,437 - Share issue costs payable - 5,219 Other payables 11 1,280,159 1,061,379 Totalliabilities 25,987,980 50,895,807 Netassets 813,539,986 724,982,762 Equity Share capital account 13 780,234,543 750,558,986 Retained earnings/(accumulated losses) 33,305,443 (25,576,224) Totalequity 813,539,986 724,982,762 Ordinary Shares in issue 13 747,836,661 718,036,661 Net Asset Value per Ordinary Share (pence) 6 108.79 100.97
From
The Audited Financial Statements were approved by the Board of Directors on
Director Director
The accompanying notes form an integral part of these Financial Statements.
STATEMENT OF CHANGES IN EQUITY
for the year ended
Share capital (Accumulated losses)/ retainedearnings Total account Notes £ £ £ Balancesat 1April2023 750,558,986 (25,576,224) 724,982,762 Issue of Ordinary Shares 13 30,244,890 - 30,244,890 Share issue costs 13 (347,816) - (347,816) Dividends paid - (77,354,015) (77,354,015) Income equalisation on 5 (221,517) 221,517 - new issues Total comprehensive - 136,014,165 136,014,165 income for the year Balancesat31 March2024 780,234,543 33,305,443 813,539,986 Sharecapital Retainedearnings/ account (accumulatedlosses) Total £ £ £ Balancesat 1April2022 675,350,674 43,126,544 718,477,218 Issue of Ordinary Shares 13 76,631,101 - 76,631,101 Share issue costs 13 (773,112) - (773,112) Release of UKML share 13 798,176 - 798,176 issue costs payable Dividends paid - (47,555,276) (47,555,276) Income equalisation on 5 (1,447,853) 1,447,853 - new issues Total comprehensive loss - (22,595,345) (22,595,345) for the year Balancesat31 March2023 750,558,986 (25,576,224) 724,982,762
The accompanying notes form an integral part of these Financial Statements.
STATEMENT OF CASH FLOWS
for the year ended
Year ended Year ended Notes 31.03.24 31.03.23 £ £ Cash flows from operating activities Total comprehensive income/(loss) for the 136,014,165 (22,595,345) year Less: Adjustments for non-cash transactions: Interest income on financial assets at fair value (74,803,793) (64,542,727) through profit or loss Movement in interest income receivable 746,972 2,960,889 Net (gains)/losses on investments 9 (53,903,533) 70,193,539 Amortisation adjustment under effective 9 (8,874,421) (19,931,829) interest rate method Unrealised losses/(gains) on forward currency 8 341,679 (3,976,681) contracts Exchange gains on cash and cash equivalents (6,164) (8,363) Increase in other receivables (665,991) (2,988,623) Increase/(decrease) in other payables 218,780 (1,248,584) Finance costs on repurchase agreements 755,788 1,278,260 Purchase of investments (270,559,457) (264,066,709) Sale of investments/principal repayments 266,535,617 151,501,203 Investment income received 73,112,680 61,522,830 Bank interest income received 944,140 59,008 Net cash generated from/(used in) operating 69,856,462 (91,843,132) activities Cash flows from financing activities Proceeds from issue of Ordinary Shares 13 30,244,890 76,631,101 Share issue costs (353,035) (3,169,718) Dividend paid 21 (77,354,015) (47,555,276) Finance costs paid 12 (863,838) (1,134,145) (Decrease)/increase in amounts payable under repurchase agreements, excluding finance cost 12 (35,629,143) 34,592,063 liabilities Net cash (used in)/generated from financing (83,955,141) 59,364,025 activities Decrease in cash and cash equivalents (14,098,679) (32,479,107) Cash and cash equivalents at beginning of the 27,235,318 59,706,062 year Exchange gains on cash and cash equivalents 6,164 8,363 Cash and cash equivalents at end of the year 13,142,803 27,235,318
The accompanying notes form an integral part of these Financial Statements.
NOTES TO THE FINANCIAL STATEMENTS
for the year ended
1. General Information
Since
The Company’s investment objective and policy is set out in the Summary Information.
The Portfolio Manager of the Company is
2. Significant Accounting Policies
a) Basis of Preparation
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 . Additional commentary on going concern is in the Directors’ Report.
Realisation Opportunity
The next Realisation Opportunity is due to occur after the AGM in Autumn 2025. The Board’s view is that while the share price discount remains at the current levels, they do not expect to see a major incentive to redeem and therefore the Realisation Opportunity should not automatically trigger the adoption of a basis of preparation other than going concern.
Whilst there is no degree of certainty, rather like the Realisation Opportunity that occurred during 2022, there may be some redemption requests. In the past, these have been matched by secondary selling of the redeemed shares to new purchasers. It is believed the Realisation Opportunity is currently a low risk to the viability prospects of the Company and for this reason these financial statements have been prepared on a going concern basis. See note 18 for further details of the Realisation Opportunity.
b) Statement of Compliance
The Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the
c) 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.
d) 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
Insurance Contracts (IFRS 17) (applicable to accounting periods beginning on or after 1 January 2023);
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) (applicable to accounting periods beginning on or after 1 January 2023);
Definition of Accounting Estimates (Amendments to IAS 8) (applicable to accounting periods beginning on or after
Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12) (applicable to accounting periods beginning on or after 1 January 2023).
The Directors believe that the adoption of the above standards does not have a material impact on the Company’s Audited Financial Statements for the year ended
e) 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:
Non-current Liabilities with Covenants and Classification of Liabilities as Current or Non-Current (Amendments to IAS 1) (applicable to accounting periods beginning on or after 1 January 2024);
Lease Liability in a Sale or Leaseback (Amendments to IFRS 16) (applicable to accounting periods beginning on or after 1 January 2024);
Supplier Finance Arrangements (Amendments to IAS 7 and IFRS 7) (applicable to accounting periods beginning on or after 1 January 2024);
Lack of Exchangeability (Amendments to IAS 21) (applicable to accounting periods beginning on or after 1 January 2025);
Classification and Measurement of Financial Instruments (Amendments to IFRS 7 and IFRS 9) (applicable to periods beginning on or after
Presentation and Disclosures in Financial Statements (IFRS 18) (applicable to accounting periods beginning on or after 1 January 2027).
The Directors anticipate that the adoption of the above standards, effective in future periods, will not have a material impact on the financial statements of the Company.
f) 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 (“ABS”) 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/(losses) 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. The fair value of investments in Asset-Backed Securities are calculated 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 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 Portfolio Manager deems 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 and independent valuation experts, where applicable 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/(losses)’ in the Statement of Comprehensive Income.
Expected credit loss
The expected credit loss (“ECL”) model applies to financial assets measured at amortised cost and IFRS 9 mandates the use of the simplified approach to calculating the expected credit losses for amounts due from broker and other receivables. The ECL calculation is based on the Company’s historical default rates over the expected life of the trade receivables. Given the historical level of defaults on trade receivables, there is a negligible impact because of the lifetime expected credit loss to be recognised.
Cash and cash equivalents are also subject to the ECL requirements of IFRS 9 and the ECL is assessed as immaterial.
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. The amortisation adjustment under the effective interest rate method, as shown in note 9, is classified as interest income.
j) Cash and Cash Equivalents
Cash and cash equivalents comprise 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 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 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) Segmental 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 20.
o) Expenses
All expenses are included in the Statement of Comprehensive Income on an accrual 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/(loss) per Ordinary 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 Ordinary Shares, as disclosed in note 13.
Ordinary Shares held in
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.
Determination of Observable Inputs
In note 19, 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.
(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 Board 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 credit securities at fair value, with changes in value being recognised in the Statement of Comprehensive Income. In cases where prices of credit 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 credit security, the Portfolio Manager will source prices from independent third-party brokers or dealers for the relevant security, which may be indicative rather than tradable. 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, independent valuation experts, 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. See note 19 for details on fair value measurement of investments.
No credit securities were priced by the Portfolio Manager during the year or any previous year. There has been no change to the accounting policy applied to how these investments have been valued (see notes 2 and 3) but the use of an independent third-party valuation expert was used to value approximately 19.12% of the Company’s investments at
(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). As the Asset-Backed Securities are measured at fair value, this estimation uncertainty over the life of the securities will not have a significant risk of resulting in a material adjustment to the carrying amounts of securities within the next financial year, however, it is of significance given the separate presentation of interest income in the Statement of Comprehensive Income.
4. Earnings/(Loss) per Ordinary Share - Basic & Diluted
The earnings/(loss) per Ordinary Share - Basic and Diluted has been calculated based on the weighted average number of Ordinary Shares of 745,285,022 (
5. Income Equalisation on New Issues
In order to ensure there are no dilutive effects on earnings/(loss) per Ordinary 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 £221,517 (
6. Net Asset Value per Ordinary Share
The Net Asset Value of each Ordinary Share of £1.09 (
7. Taxation
The Company has been granted Exempt Status under the terms of The Income Tax (Exempt Bodies) (
8. Net Foreign Currency Gains/(Losses)
For the year For the year 01.04.23 to 31.03.24 01.04.22 to 31.03.23 £ £ Movement on unrealised (gain)/loss on (341,679) 3,976,681 forward currency contracts Realised gains/(losses) on foreign 15,671,051 (13,106,492) currency contracts Unrealised foreign currency gain on 3,428 219,025 receivables/payables Unrealised foreign currency exchange 35,876 73,241 gain on interest receivable 15,368,676 (8,837,545)
9. Investments
For the year For the year 01.04.23 to 01.04.22 to 31.03.24 31.03.23 Financial assets at fair value through profit or £ £ loss: Opening book 832,506,047 693,217,802 cost Purchases at 281,155,894 390,806,347 cost Proceeds on sale/principal (269,963,403) (297,663,729) repayment Amortisation adjustment under effective interest 8,874,421 19,931,829 rate method Realised gains on sale/principal 3,698,699 57,193,656 repayment Realised losses on sale/principal (41,128,677) (30,979,858) repayment Closing book 815,142,981 832,506,047 cost Unrealised gains on investments 19,029,145 3,919,689 Unrealised losses on investments (20,815,711) (97,039,766) Fair value 813,356,415 739,385,970 For the year For the year 01.04.23 to 01.04.22 to 31.03.24 31.03.23 £ £ Realised gains on sales/principal repayment 3,698,699 57,193,656 Realised losses on sales/principal repayment (41,128,677) (30,979,858) Increase/(decrease) in unrealised 15,109,456 (31,815,765) gains Decrease/(increase) in unrealised 76,224,055 (64,591,572) losses Net gains/(losses) on financial assets at fair 53,903,533 (70,193,539) value through profit or loss
10. Other Receivables
As at As at 31.03.24 31.03.23 £ £ Coupon interest receivable 7,617,384 6,808,822 Bank interest receivable - 61,590 Prepaid expenses 24,635 105,616 7,642,019 6,976,028
There are no material expected credit losses for coupon interest receivable as at
11. Other Payables
Asat Asat 31.03.24 31.03.23 £ £ Portfolio management fees payable 835,269 738,231 Custody fees payable 25,479 6,974 Administration and secretarial fees payable 92,065 83,039 Directors' fee payable - 12,629 Audit fees payable 156,000 136,389 AIFM fees payable 66,283 47,885 Depositary fees payable 34,720 16,792 General expenses payable 70,343 19,440 1,280,159 1,061,379
A summary of the expected payment dates of payables can be found in the ‘Liquidity Risk’ section of note 18.
12. Amounts Payable under Repurchase Agreements
The Company, as part of its investment strategy, may enter into repurchase agreements. A repurchase agreement 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.
Under the Company’s Global Master Repurchase Agreement, it may from time to time enter into transactions with a buyer or seller under the terms and conditions as governed by the agreement.
Finance costs on repurchase agreements have been presented separately from interest income. Finance costs on repurchase agreements amounted to £755,788 (
At the end of the year, amounts repayable under open repurchase agreements were £14,090,507 (
The changes in amounts payable under repurchase agreements are disclosed below:
Fortheyear Fortheyear 01.04.23to 01.04.22to 31.03.24 31.03.23 Amounts payable under repurchase agreements £ £ Opening balance, excluding finance cost liabilities 49,670,365 15,078,302 Agreements entered during the year 66,055,670 208,081,481 Repaid/maturities during the year (101,684,813) (173,489,418) Closing balance, excluding finance cost liabilities 14,041,222 49,670,365
Fortheyear Fortheyear 01.04.23to 01.04.22to 31.03.24 31.03.23 Finance cost liabilities £ £ Opening balance 157,335 13,220 Charged during the year 755,788 1,278,260 Repayments during the year (863,838) (1,134,145) Closing balance 49,285 157,335
13. Share Capital
Authorised Share Capital
Unlimited number of Ordinary Shares at no par value.
Issued Share Capital
Fortheyear Fortheyear 01.04.23to 01.04.22to 31.03.24 31.03.23 OrdinaryShares £ £ Share Capital at the beginning of the year 750,558,986 675,350,674 Issue of Ordinary Shares 30,244,890 76,631,101 Share issue costs (347,816) (773,112) Release of UKML share issue costs payable1 - 798,176 Income equalisation on new issues (221,517) (1,447,853)Total Share Capital at the end of the year 780,234,543 750,558,986
1
The release of UK Mortgages Limited (“UKML”) share issue costs payable was as a result of an over-accrual of estimated costs at
For the year For the year 01.04.23 to 01.04.22 to 31.03.24 31.03.23 Number of Ordinary Number of Ordinary Shares Shares Ordinary Shares Shares at the beginning of the year 718,036,661 638,942,655 Issue of Ordinary Shares 29,800,000 79,094,006 Total Shares in issue at the end of the 747,836,661 718,036,661 year
Fortheyear Fortheyear 01.04.23to 01.04.22to 31.03.24 31.03.23 £ £ TreasuryShares Treasury Share capital at the beginning of the - 43,083,300 year Issue of Ordinary Shares from Treasury - (43,083,300) Total Treasury Share capital at the end of the - - year Fortheyear Fortheyear 01.04.23to 01.04.22to 31.03.24 31.03.23 NumberofShares NumberofShares TreasuryShares Treasury Shares at the beginning of the year - 39,000,000 Issue of Ordinary Shares from Treasury - (39,000,000) Total Treasury Shares at the end of the year - -
During the year, the following new Ordinary Shares were issued:
Numberof Shareissue IssueofOrdinary OrdinarySharesissued IssuePrice TotalConsideration Shares IssueDate costs (units) (pence) £ £ £ 12 April 9,200,000 103.28 9,501,760 (109,270) 9,392,490 2023 13 April 1,100,000 103.28 1,136,080 (13,065) 1,123,015 2023 20 April 3,000,000 99.24 2,977,200 (34,238) 2,942,962 2023 27 April 3,000,000 99.61 2,988,300 (34,365) 2,953,935 2023 3 May 1,500,000 100.49 1,507,350 (17,335) 1,490,015 2023 11 May 1,000,000 100.75 1,007,500 (11,586) 995,914 2023 18 May 4,500,000 101.00 4,545,000 (52,267) 4,492,733 2023 25 May 1,000,000 101.24 1,012,400 (11,643) 1,000,757 2023 31 May 4,500,000 101.26 4,556,700 (52,402) 4,504,298 2023 1 June 1,000,000 101.26 1,012,600 (11,645) 1,000,955 2023 30,244,890 (347,816) 29,897,074
The Share Capital of the Company consists of an unlimited number of Ordinary Shares at no par value which, upon issue, the Directors may designate as: Ordinary 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
The Ordinary Shares carry the following rights:
a) The Ordinary Shares carry the right to receive all income of the Company attributable to the Ordinary 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 Ordinary 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 Shares held by them be redesignated to Realisation Shares, subject to the aggregate NAV of the Ordinary Shares held by shareholders who do not submit Realisation Elections in respect of those Ordinary Shares (“Continuing Ordinary Shares”) on the last business day before the Reorganisation Date being not less than £100 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 Shares on the last business day before the Reorganisation Date is less than £100 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 most recent Realisation Election took place in
The Company has the right to issue and purchase up to 14.99% of the total number of its own shares at £0.01 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 (
The Company has the right to re-issue Treasury Shares at a later date.
Shares held in
14. Analysis of Financial Assets and Liabilities by Measurement Basis
Assets at fair value through Amortised profit or loss cost Total £ £ £ 31 March 2024 Financial Assets as per Statement of Financial Position Financial assets at fair value through profit or loss: - Investments 813,356,415 - 813,356,415 - Derivative assets: Forward currency 1,958,943 - 1,958,943 contracts Amounts due from - 3,427,786 3,427,786 broker Other receivables (excluding - 7,617,384 7,617,384 prepayments) Cash and cash - 13,142,803 13,142,803 equivalents 815,315,358 24,187,973 839,503,331 Liabilities at fair value through Amortised profit or loss cost Total £ £ £ Financial Liabilities as per Statement of Financial Position Financial liabilities at fair value through profit or loss: - Derivative liabilities: Forward 20,877 - 20,877 currency contracts Amounts payable under repurchase - 14,090,507 14,090,507 agreements Amounts due to brokers - 10,596,437 10,596,437 Other payables - 1,280,159 1,280,159 20,877 25,967,103 25,987,980 Assets at fair value through Amortised profit or loss cost Total £ £ £ 31 March 2023 Financial Assets as per Statement of Financial Position Financial assets at fair value through profit or loss: - Investments 739,385,970 - 739,385,970 - Derivative assets: Forward currency 2,281,253 - 2,281,253 contracts Other receivables (excluding - 6,870,412 6,870,412 prepayments) Cash and cash - 27,235,318 27,235,318 equivalents 741,667,223 34,105,730 775,772,953 Liabilities at fair value through Amortised profit or loss cost Total 31 March 2023 £ £ £ Financial Liabilities as per Statement of Financial Position Financial liabilities at fair value through profit or loss: - Derivative liabilities: Forward 1,509 - 1,509 currency contracts Amounts payable under repurchase - 49,827,700 49,827,700 agreements Share issue costs payable - 5,219 5,219 Other payables - 1,061,379 1,061,379 1,509 50,894,298 50,895,807
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. At the Annual General Meeting, held on
During the year, the annual fees were £60,000 for the Chair of the Board, £50,000 for the Audit Committee Chair, £42,000 for the Senior Independent Director, the Chair of the
During the year ended
b) Portfolio Manager
The portfolio management fee is payable to the Portfolio Manager, 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 £5,690,248 (
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 Ordinary Shares, following admission, in consideration of marketing services that it provides to the Company. During the year, the Portfolio Manager received £45,367 (
c) Shares Held by Related Parties
As at
Number of Number of Ordinary Shares Ordinary Shares 31.03.24 31.03.23 Bronwyn Curtis¹ 114,154 105,313 John Le Poidevin 260,121 260,121 Richard Burwood² N/A 87,186 John de Garis 39,753 39,753 Joanne Fintzen³ 38,538 38,538 Paul Le Page 49,457 49,457
¹
²
³
As at 31 March 2024, the Portfolio Manager held 36,406,018 Ordinary Shares (31 March 2023: 35,105,683 Shares), which is 4.87% (31 March 2023: 4.89%) of the Issued Share Capital. Partners and employees of the Portfolio Manager held 8,432,398 Ordinary Shares (31 March 2023: 12,155,104 Shares), which is 1.13% (31 March 2023: 1.69%) of the Issued Share Capital.
Any shares purchased by Directors, the Portfolio Manager and employees of the Portfolio Manager are carried out in their capacity as Shareholders. No Ordinary Shares are offered or awarded to any related parties as remuneration.
16. Material Agreements
a) Alternative Investment Fund Manager
The Company’s Alternative Investment Fund Manager (the “AIFM”) is
b) Administrator and Secretary
Administration fees are payable to
c) Depositary
Depositary fees are payable to Northern Trust (
The Depositary is also entitled to a Global Custody fee of a minimum of £8,500 per annum plus transaction fees. Total Global Custody fees and charges for the year amounted to £75,874 (31 March 2023: £67,120) of which £25,479 (31 March 2023: £6,974) is due and payable at the year end.
17. Interests in unconsolidated structured entities
IFRS 12 defines a structured entity as an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to the administrative tasks only and the relevant activities are directed by means of contractual agreements.
A structured entity often has some of the following features or attributes:
i) restricted activities,
ii) a narrow and well defined objective, and
iii) financing in the form of multiple instruments that create concentrations of credit or other risks.
The Company holds various investments in Asset-Backed Securities. The fair value of the Asset-Backed Securities is recorded in the “Financial assets at fair value through profit or loss - Investments” line in the Statement of Financial Position. The Company’s maximum exposure to loss from these investments is equal to their total fair value. Once the Company has disposed of its holding in any of these investments, the Company ceases to be exposed to any risk from that investment. The Company has not provided, and would not be required to provide, any financial support to these investees. The investments are non-recourse.
Below is a summary of the Company’s holdings in unconsolidated structured entities as at 31 March 2024 and 31 March 2023:
As at 31 Number of Range of Average Carrying % of March 2024 investments Nominal Nominal Value Company’s NAV £ million £ million £ million Asset Backed Securities*: Auto Loans 14 7 – 55 22 28 3.4% CLO 108 9 – 36 16 302 37.1% CMBS 6 15 – 65 35 26 3.3% Consumer ABS 6 11 – 45 27 16 1.9% RMBS 66 2 – 85 18 406 49.9% SRT 3 143 – 1,263 591 31 3.8% Student Loans 1 33 33 4 0.5% 204 813 As at 31 Number of Range of Average Carrying % of March 2023 investments Nominal Nominal Value Company’s NAV £ million £ million £ million Asset Backed Securities*: Auto Loans 7 9 - 55 25 13 1.9% CLO 100 7 - 212 18 250 34.5% CMBS 7 9 - 65 31 35 4.8% Consumer ABS 5 16 - 45 30 14 2.0% CRE ABS 3 7 - 13 10 12 1.7% RMBS 60 1 - 85 20 410 56.5% Student Loans 1 33 33 5 0.7% 183 739
* Definition of Terms
“ABS” – Asset-Backed Securities
“CLO” – Collateralised Loan Obligations
“CMBS” – Commercial Mortgage-Backed Securities
“CRE” –
“RMBS”- Residential Mortgage-Backed Securities
“SRT” – Significant Risk Transfer
18. 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 classified at fair value through profit or loss, cash and cash equivalents, derivative liabilities and amounts payable under repurchase agreements. 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.
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. 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.
(i) Price Risk
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; and (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).
The Company’s policy also stipulates that no more than 10% of the portfolio value can be exposed to any single Asset-Backed Security or issuer of Asset-Backed Securities.
(ii) Interest Rate Risk
Interest rate risk arises from the possibility that changes in interest rates will affect the fair value of financial assets and liabilities at fair value through profit or loss.
The following tables summarise the Company’s exposure to interest rate risk:
Non-interest Floating rate Fixed rate Total As at 31 March 2024 bearing £ £ £ £ Financial assets at fair value through profit or 813,356,415 - - 813,356,415 loss Derivative assets - - 1,958,943 1,958,943 Amounts due from broker - - 3,427,786 3,427,786 Other receivables - - 7,617,384 7,617,384 (excluding prepayments) Cash and cash 13,142,803 - - 13,142,803 equivalents Repurchase agreements - (14,090,507) - (14,090,507) Amounts due to brokers - - (10,596,437) (10,596,437) Other payables - - (1,280,159) (1,280,159) Derivative liabilities - - (20,877) (20,877) Net assets 826,499,218 (14,090,507) 1,106,640 813,515,351 Non-interest Floating rate Fixed rate Total bearing As at 31 March 2023 £ £ £ £ Financial assets at fair value through profit or 739,385,970 - - 739,385,970 loss Derivative assets - - 2,281,253 2,281,253 Other receivables - - 6,870,412 6,870,412 (excluding prepayments) Cash and cash 27,235,318 - - 27,235,318 equivalents Repurchase agreements - (49,827,700) - (49,827,700) Share issue costs - - (5,219) (5,219) payable Other payables - - (1,061,379) (1,061,379) Derivative liabilities - - (1,509) (1,509) Net assets 766,621,288 (49,827,700) 8,083,558 724,877,146
If interest rates were to increase or decrease by 2.5%, with all other variables held constant, the expected effect of the returns from floating rate net assets would be a gain or loss of £20,662,480, respectively (31 March 2023: gain or loss of £19,165,532).
The Company only holds floating rate financial assets 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. Please see note 12 for details of the amounts payable under repurchase agreements.
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 foreign currencies 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 Outstanding Mark-to-market Unrealised values contracts equivalent gains/ (losses) 31.03.2024 31.03.2024 31.03.2024 31.03.2024 OneDanish Krone forward foreign currency contract: Settlement date 29 April 91,000,000 £10,485,538 £10,440,444 £45,094 2024 kr. Three Euro forward foreign currency contracts totalling: Settlement date 29 April €510,373,983 £438,550,084 £436,669,844 £1,880,240 2024 One US Dollar forward foreign currency contract: Settlement date 29 April $18,001,273 £14,281,840 £14,248,231 £33,609 2024 One Euro forward foreign currency contract: Settlement date 29 April (€8,401,262) (£7,208,896) (£7,188,019) (£20,877) 2024 £1,938,066 Contract Outstanding Mark-to-market Unrealised values contracts equivalent gains 31.03.2023 31.03.2023 31.03.2023 31.03.2023 Three Euro forward foreign currency contracts totalling: Settlement date 12 April €416,268,352 £368,081,043 £365,820,527 £2,260,516 2023 One Euro forward foreign currency contract: Settlement date 12 April (€7,463,014) (£6,539,339) (£6,558,567) £19,228 2023 £2,279,744
Contract values represent the contract’s notional value. Outstanding contracts are the contract’s notional values, translated at the contracted foreign exchange rate from foreign currencies to Sterling, or from Sterling to foreign currencies.
As at 31 March 2024 and as at 31 March 2023, the Company held the following assets and liabilities denominated in foreign currencies:
As at As at 31.03.2024 31.03.2023 Danish Krone £ £ Assets/(Liabilities): Investments 9,626,337 - Cash and cash equivalents 974,405 - Other receivables 185,957 - Open forward currency contracts (10,440,444) - 346,255 - As at As at 31.03.2024 31.03.2023 Euro £ £ Assets/(Liabilities): Investments 435,362,991 361,420,402 Cash and cash equivalents (2,911,638) 970,272 Other receivables 5,868,282 5,083,861 Amounts due to broker (10,586,437) - Open forward currency contracts (429,481,825) (359,261,960) (1,748,627) 8,212,575 As at As at 31.03.2024 31.03.2023 US Dollar £ £ Assets/(Liabilities): Investments 14,248,960 - Cash and cash equivalents 41,484 - Open forward currency contracts (14,248,231) - 42,213 -
The tables below summarise the sensitivity of the Company’s assets and liabilities to changes in foreign exchange movements between
As at As at 31.03.2024 31.03.2023 £ £ Impact on Statement of Comprehensive Income and Statement of Changes in Equity in response to a: - 20% increase in Danish Krone (49,200) - - 20% decrease in Danish Krone 99,327 - As at As at 31.03.2024 31.03.2023 £ £ Impact on Statement of Comprehensive Income and Statement of Changes in Equity in response to a: - 20% increase in Euro 563,495 (1,321,137) - 20% decrease in Euro (29,071) 2,123,313 As at As at 31.03.2024 31.03.2023 £ £ Impact on Statement of Comprehensive Income and Statement of Changes in Equity in response to a: - 20% increase in US Dollar (8,484) - - 20% decrease in US Dollar 8,381 -
(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.
(v) Price Sensitivity Analysis
The following details the Company’s sensitivity to movement in market prices. The analysis is based on a 10% 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 2024, if the market prices had been 10% higher with all other variables held constant, the increase in the net assets attributable to equity Shareholders would have been £81,335,642 (31 March 2023: £73,938,597). An equal change in the opposite direction would have decreased the net assets attributable to equity Shareholders by the same amount. This price sensitivity analysis covers the market prices received from price vendors, brokers and those determined using models (such as discounted cash flow models) on the assumption that the prices determined from these sources had moved by the indicated percentage.
As noted in note 19, the valuation models used (typically discounted cash flow models) include unobservable inputs that may rely on assumptions that are subject to judgement.
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, none of the Company’s investments in Asset-Backed Securities were in default (31 March 2023: none).
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 10% of the portfolio being exposed to any single Asset-Backed Security or issuer of Asset-Backed Securities, no more than 40% of the portfolio being exposed to issues with a value greater than 5%, 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”):
31.03.24 31.03.23 AAA - 0.23% AA - 0.68% AA- 2.42% 1.92% A+ 3.62% 3.82% A 2.31% 2.93% A- 3.00% 2.95% BBB+ 6.83% 8.47% BBB 1.77% 1.73% BBB- 4.10% 4.90% BB+ 8.62% 5.37% BB 4.65% 3.71% BB- 12.78% 10.58% B+ 4.70% 5.94% B 5.35% 5.04% B- 12.26% 10.81% CCC - 0.17% CCC- 0.59% - NR* 27.00% 30.75% 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 Manager has no credit concerns with the unrated, or rated, bonds currently held. The Portfolio Manager will estimate an internal rating for unrated bonds by considering all relevant factors, including but not limited to, the relationship between the bond’s maturity and its price and/or yield, the ratings of comparable bonds, and the issuer’s financial statements; however, this is not used for any investment monitoring, reporting or otherwise.
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 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:
Asat Asat 31.03.24 31.03.23 £ £ Investments 813,356,415 739,385,970 Cash and cash equivalents 13,142,803 27,235,318 Unrealised gains on derivative assets 1,958,943 2,281,253 Amounts due from broker 3,427,786 - Other receivables (excluding prepayments) 7,617,384 6,870,412 839,503,331 775,772,953
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.
The Company has assessed credit default risk affecting the entity and concluded that any sensitivity analysis would be immaterial.
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.
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 these arrangements can be used for short-term liquidity.
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 13 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 to1month 1-6months 6-12months Total £ £ £ £ As at 31 March 2024 Financialliabilities Repurchase agreements - (14,090,507) - (14,090,507) Unrealised loss on (20,877) - - (20,877) derivative liabilities Amounts due to broker (10,596,437) - - (10,596,437) Other payables (1,124,159) (156,000) - (1,280,159) Total (11,741,473) (14,246,507) - (25,987,980) Up to1month 1-6months 6-12months Total As at 31 March 2023 £ £ £ £ Financialliabilities Repurchase agreements - (49,827,700) - (49,827,700) Unrealised loss on (1,509) - - (1,509) derivative liabilities Share issue costs payable (5,219) - - (5,219) Director fees payable (12,629) - - (12,629) Other payables (912,361) (136,389) - (1,048,750) Total (931,718) (49,964,089) - (50,895,807)
There was an increase in repurchase agreements for the year ended 31 March 2023, which was prompted by an opportunity to finance purchasing of bonds during the liability-driven investment crisis to take advantage of higher available yields.
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 Ordinary 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 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 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 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).
(ii) Realisation Opportunity
The Realisation Opportunity shall be at the annual general meeting of the Company in each third year. On 21 October 2022, the Company concluded its most recent Realisation Opportunity. The next Realisation Opportunity is expected to take place in Autumn 2025, subject to the aggregate NAV of the Continuing Ordinary Shares on the last Business Day before Reorganisation being not less than £100 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 21, the Directors shall propose an Ordinary Resolution that the Company continues its business as a closed-ended collective investment scheme at the Annual General Meeting following that financial reporting period.
19. Fair Value Measurement
All assets and liabilities are carried at fair value or at amortised cost.
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 year ended 31 March 2024 and year ended 31 March 2023.
Level 1 Level 2 Level 3 Total £ £ £ £ Assets Financial assets at fair value through profit or loss: Asset-Backed Securities: Auto Loans - 27,531,003 - 27,531,003 CLO - 302,173,103 - 302,173,103 CMBS - 26,496,489 - 26,496,489 Consumer ABS - 15,682,235 - 15,682,235 RMBS - 222,368,778 183,915,529 406,284,307 SRT - 30,840,110 - 30,840,110 Student Loans - 4,349,168 - 4,349,168 Forward currency contracts - 1,958,943 - 1,958,943 - 631,399,829 183,915,529 815,315,358 Liabilities Financial liabilities at fair value through profit or loss: Forward currency contracts - 20,877 - 20,877 - 20,877 - 20,877 Level 1 Level 2 Level 3 Total £ £ £ £ Assets Financial assets at fair value through profit or loss: Asset-Backed Securities: Auto Loans - 13,473,200 - 13,473,200 CLO - 249,763,889 - 249,763,889 CMBS - 34,835,106 - 34,835,106 Consumer ABS - 14,143,352 - 14,143,352 CRE ABS - 12,224,121 - 12,224,121 RMBS - 202,733,570 207,207,308 409,940,878 Student Loans - 5,005,424 - 5,005,424 Forward currency contracts - 2,281,253 - 2,281,253 - 534,459,915 207,207,308 741,667,223 Liabilities Financial liabilities at fair value through profit or loss: Forward currency contracts - 1,509 - 1,509 Total liabilities as at 31 - 1,509 - 1,509 March 2023
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 year, no Asset-Backed Securities held by the Company are classified as Level 1.
ABS which are not traded or dealt on organised markets or exchanges are classified in Level 2 or Level 3. ABS 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 ABS, 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 ABS is classified as Level 2. Any broker quote that is over 20 days old is considered stale and is classified as Level 3. Any stale price within the portfolio as at 31 March 2024 has been assessed by the Portfolio Manager and the resulting valuation considered a fair value at that date. Furthermore, the Portfolio Manager may determine that the application of a mark-to-model basis may be appropriate where they believe such a model will result in more reliable information with regards to the fair value of any specific investments.
The Portfolio Manager has engaged a third-party valuer for certain specific assets where the Portfolio Manager believes the third-party valuer would provide more reliable, fair value information with regards to certain of the Company’s investments for the year ended 31 March 2024. The valuation of these assets and others that the Portfolio Manager may deem appropriate to provide a valuation at fair value, primarily use discounted cash flow analysis but may also include the use of a comparable arm's length transaction, reference to other securities that are substantially the same, 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. The discounted cash flow models include assumptions that are subject to judgement such as prepayment rates, recovery rates and the discount margin/discount rate. As at 31 March 2024, investments (related primarily to RMBS/MBS investments) totalling 19.12% (31 March 2023: 21.73%) of the portfolio were valued by the third-party valuer. Valuations performed by the third-party valuer are classified as Level 3.
Please see note 3 (ii) for the accounting policy outlining the treatment fair value of securities not quoted in an active market.
The tables below represent the significant unobservable inputs used in the fair value measurement of Level 3 investments, valued by a third-party valuer, together with a quantitative sensitivity analysis as of 31 March 2024 and 31 March 2023:
31 March Fair Value Financial Unobservable Sensitivity Effect on Fair Value (£) 2024 (£) Assets/Liabilities Input Used Discount Dutch RMBS 54,142,754 Financial Asset Margin (965 +5% / -5% 6,871,331 / (5,477,982) bps) Discount Margin UK RMBS 64,557,878 Financial Asset (179bps/ +5% / -5% 5,712,626 / (4,538,301) 950bps/ 1025 bps/ 1060bps) UK RMBS Discount (underlying 36,853,297 Financial Asset Margin (300 +3% / -3% 3,338,550 / (2,880,236) risk - AAA) bps/ 351 bps) 31 March Fair Value Financial Unobservable Sensitivity Effect on Fair Value (£) 2023 (£) Assets/Liabilities Input Used Discount Dutch RMBS 42,531,838 Financial Asset Margin +5% / -5% 6,826,229 / (5,364,235) (1065 bps) Discount Margin (933 bps/ UK RMBS 103,350,298 Financial Asset 950 bps/ +5% / -5% 12,567,742 / (8,660,011) 1150 bps/ 1185 bps) UK RMBS Discount (underlying 14,782,507 Financial Asset Margin (431 +3% / -3% 1,429,217 / (1,223,561) risk - AAA) bps)
Although various variable inputs are used in the valuation models of these investments, including constant default rate, the only unobservable input that may have a material impact is the discount margin. As a result, only this input has been disclosed.
Please refer to the price sensitivity analysis disclosed in note 18 where the price sensitivity related to market risk has been disclosed.
The above sensitivity analysis has been completed on those assets valued by the third-party valuer. For the remaining assets classified as Level 3 at 31 March 2024 totalling £28.3 million (2023: £46.5 million), no meaningful sensitivity on inputs can be performed due to the unobservable nature of the pricing. The valuations of these positions are provided monthly from external sources.
During the year, there were no transfers between Level 2 and Level 3 (year ended 31 March 2023: none).
The following tables present the movement in Level 3 instruments for the year ended 31 March 2024 and year ended 31 March 2023 by class of financial instrument.
Realised Unrealised Unrealised gains on Realised gains for losses for losses on the year the year Level 3 Level 3 Total Investments Investments for Level 3 for Level 3 Transfer Transfer Closing Openingbalance purchases Total sales held during Investments Investments into out held during the period held held Level 3 Level 3 balance the year ended 31 March 2024 at 31 March at 31 March ended 31 2024 2024 March 2024 £ £ £ £ £ £ £ £ £ £ RMBS 207,207,308 68,388,091 (111,175,331) 2,023,664 (15,796,291) 36,159,879 (2,891,791) - - 183,915,529 Total at 31 207,207,308 68,388,091 (111,175,331) 2,023,664 (15,796,291) 36,159,879 (2,891,791) - - 183,915,529 March 2024 Realised Unrealised Unrealised gains on Realised gains for losses for losses on the year the year Level 3 Level 3 Total Investments Investments for Level 3 for Level 3 Transfer Transfer Closing Openingbalance purchases Total sales held during Investments Investments into out held during the year held held Level 3 Level 3 balance the year ended 31 March 2023 at 31 March at 31 March ended 31 2023 2023 March 2023 £ £ £ £ £ £ £ £ £ £ RMBS 192,389,060 194,765,464 (158,397,907) 31,414,705 (25,738,076) 29,880,198 (57,106,136) - - 207,207,308 Total at 31 192,389,060 194,765,464 (158,397,907) 31,414,705 (25,738,076) 29,880,198 (57,106,136) - - 207,207,308 March 2023
The following tables analyse within the fair value hierarchy the Company’s assets and liabilities not measured at fair value at 31 March 2024 and 31 March 2023 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 broker 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 £ £ £ £ Assets Cash and cash equivalents 13,142,803 - - 13,142,803 Amounts due from broker - 3,427,786 - 3,427,786 Other receivables (excluding - 7,617,384 - 7,617,384 prepayments) Total assets as at 31 March 2024 13,142,803 11,045,170 - 24,187,973 Liabilities Amounts payable under repurchase - 14,090,507 - 14,090,507 agreements Amounts due to broker - 10,596,437 - 10,596,437 Other payables - 1,280,159 - 1,280,159 Total liabilities as at 31 March - 25,967,103 - 25,967,103 2024 Level 1 Level 2 Level 3 Total £ £ £ £ Assets Cash and cash equivalents 27,235,318 - - 27,235,318 Other receivables (excluding - 6,870,412 - 6,870,412 prepayments) Total assets as at 31 March 2023 27,235,318 6,870,412 - 34,105,730 Liabilities Amounts payable under repurchase - 49,827,700 - 49,827,700 agreements Share issue costs payable - 5,219 - 5,219 Other payables - 1,061,379 - 1,061,379 Total liabilities as at 31 March - 50,894,298 - 50,894,298 2023
20. 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.
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.
21. 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 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 shall pay any dividends at all.
On 24 February 2023, the annual dividend was changed from 7% to 8% (the equivalent of 8 pence per Ordinary Share) or higher of the Issue Price. The change became effective from the dividend declared in respect of the 3-month period ended 31 March 2023.
Dividends paid with respect to any quarter comprise (a) the accrued income of the portfolio for the year, and (b) an additional amount to reflect any income purchased in the course of any share subscriptions that took place during the year. 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 SONIA differentials between each foreign currency pair, less (d) total expenditure for the year.
The Company, being a
The Board expects that dividends will constitute the principal element of the return to the holders of Ordinary Shares.
Under The Companies (
The Company declared the following dividends during the year ended 31 March 2024:
Dividend Period to rate per Net dividend Ex-dividend Record date Pay date Ordinary payable (£) date Share (£) 31 March 0.0446 32,483,816 20 April 2023 21 April 2023 3 May 2023 2023 30 June 0.0200 14,956,733 20 July 2023 21 July 2023 4 August 2023 2023* 30 September 0.0200 14,956,733 19 October 20 October 3 November 2023* 2023 2023 2023 31 December 0.0200 14,956,733 18 January 19 January 2 February 2023* 2024 2024 2024 77,354,015 31 March 0.0396 29,614,332 18 April 2024 19 April 2024 3 May 2024 2024*
*These dividends were declared in respect of distributable profit for the year ended 31 March 2024.
22. Ultimate Controlling Party
In the opinion of the Directors on the basis of shareholdings advised to them, the Company has no ultimate controlling party.
23. Significant Events During the Year
Events arising in
In early October 2023, the situation in
During the year, asset managers within the
24. Subsequent Events
These Audited Financial Statements were approved for issuance by the Board on 10 July 2024. Subsequent events have been evaluated until this date.
On 5 April 2024,
On 11 April 2024, the Company declared a dividend of 3.96p per Ordinary Share, which was paid on 3 May 2024.
Effective 21 June 2024, Waystone Management Company (
As at 5 July 2024, the published NAV per Ordinary Share for the Company was 109.90p. This represents an increase of 1.02% (NAV as at 31 March 2024: 108.79p).
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 Ordinary 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 Ordinary Share and is usually expressed as a percentage of the NAV per Ordinary Share. If the share price is higher than the NAV per Ordinary Share, the shares are said to be trading at a premium.
31.03.2024 31.03.2023 pence pence Share price 104.80 100.50 NAV per Ordinary Share (a) 108.79 100.97 Discount to NAV (b) (3.99) (0.47) Discount as a percentage (b/a) (3.67%) (0.47%)
Average Discount/Premium
The discount or premium is calculated as described above at the close of business on every Friday that is also a business day, as well as the last business day of every month, and an average taken for the year.
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. On 24 February 2023, the fixed interim dividend increased to 2.00 pence per Ordinary Share. A fourth quarter dividend is 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 strategy aims to generate an annual dividend of 6 pence per Ordinary Share or higher, 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.
Net Asset Value (“NAV”)
NAV is the net assets attributable to Shareholders. NAV is calculated using the accounting standards specified by International Financial Reporting Standards (“IFRS”) and consists of total assets, less total liabilities.
NAV per Ordinary Share
NAV per Ordinary Share is the net assets attributable to Shareholders, expressed as an amount per individual share. NAV per Ordinary Share is calculated by dividing the total net asset value of £813,539,986 (2023: £724,982,762) by the number of Ordinary Shares at the end of the year of 747,836,661 units (2023: 718,036,661). This produces a NAV per Ordinary Share of 108.79p (2023: 100.97p), which was an increase of 7.74% (2023: decrease of 10.21%).
Ongoing Charges
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 Board continues to be conscious of expenses and works hard to maintain a sensible balance between good quality service and cost.
Total NAV Return per Ordinary Share
Total NAV return per Ordinary Share is calculated by adding the increase or decrease in NAV per Ordinary Share to the dividends paid per Ordinary Share and dividing it by the NAV per Ordinary Share at the start of the year.
31.03.2024 31.03.2023 pence pence Opening NAV per share (a) 100.97 112.45 Closing NAV per share 108.79 100.97 Increase/(decrease) in NAV per share (b) 7.82 (11.48) Dividends paid per Ordinary Share (c) 10.46 7.27 Total NAV return ((b+c)/a) 18.10% (3.74%)
Portfolio Performance
Portfolio performance is calculated by summing interest earned, realised and unrealised gains or losses on investments, less unrealised foreign exchange gains or losses on investments during the year and divided by the closing book cost for the year, stated as a percentage.
31.03.2024 31.03.2023 £ £ Interest income earned 74,803,793 64,542,727 Realised gains/(losses) on investments 53,903,533 (70,193,539) Unrealised foreign exchange (losses)/gains on (6,323,259) 4,205,417 investments Total portfolio income (a) 135,030,585 (9,856,229) Closing portfolio book cost (b) 815,142,981 832,506,047 Portfolio performance (a/b) 16.57% (1.17%)
Repurchase Agreement Borrowing
Repurchase agreement borrowing is calculated by taking the fair value of repurchase agreements, divided by the fair value of investments, stated as a percentage.
31.03.2024 31.03.2023 £ £ Amounts payable under repurchase agreements (a) 14,090,507 49,827,700 Investments at fair value through profit or loss (b) 813,356,415 739,385,970 Repurchase agreement borrowing (a/b) 1.73% 6.74%
CORPORATE INFORMATION
UK Legal Advisers to the Company DirectorsHogan Lovells International LLP Bronwyn Curtis (Chair) Atlantic HouseJohn de Garis Holborn ViaductJoanne Fintzen (Senior IndependentLondon , EC1A 2FG Director)Eversheds Sutherland (International) LLP Paul Le Page 1 Wood StreetJohn Le Poidevin London , EC2V 7WSRichard Burwood (retired 14 September 2023) Administrator and Company Secretary Registered OfficeNorthern Trust International Fund Administration Services (Guernsey) PO Box 255 Limited Trafalgar Court PO Box 255 Les Banques Trafalgar CourtSt Peter Port Les BanquesGuernsey , GY1 3QLSt Peter Port Guernsey , GY1 3QL Alternative Investment Fund Manager (“AIFM”) Up until 21 June 2024 Financial Adviser and Corporate BrokerApex Fundrock Limited Deutsche Numis (previously called Maitland Institutional Services Limited) 45 Gresham Street Hamilton CentreLondon , EC2V 7BFRodney Way Independent AuditorChelmsford , CM1 3BY KPMG Channel Islands Limited Effective 21 June 2024 Glategny Court Waystone Management Company (IE) Glategny Esplanade LimitedSt Peter Port 35 Shelbourne RoadGuernsey , GY1 1WR BallsbridgeDublin Ireland Portfolio Manager Receiving AgentTwentyFour Asset Management LLP Computershare Investor Services PLC 8th Floor, The Monument Building The Pavilions 11 Monument Street Bridgwater RoadLondon , EC3R 8AFBristol , BS13 8AE Custodian, Principal Banker and Registrar DepositaryComputershare Investor Services Northern Trust (Guernsey ) Limited (Guernsey ) Limited PO Box 71 1st Floor Trafalgar CourtTudor House Les Banques Le BordageSt Peter Port St Peter Port Guernsey, GY1 3DAGuernsey , GY1 1DB Guernsey Legal Adviser to the CompanyCarey Olsen Carey House Les BanquesSt Peter Port Guernsey, GY1 4BZ