TIDMRMII TIDMTTM
RNS Number : 8151I
RM Infrastructure Income PLC
21 April 2022
RM INFRASTRUCTURE INCOME PLC
(the "Company" or "RMII")
FINAL RESULTS
CONTINUED DIVERSIFICATION THROUGH REFRESHED INVESTMENT FOCUS
STABLE RETURNS FOR INVESTORS ALONGSIDE TANGIBLE BENEFITS FOR
PEOPLE AND PLANET
RMII, the investment trust specialising in secured debt
investments, announces its results for the year ended 31 December
2021.
Operational highlights
- Diversified portfolio with gross assets of GBP130.8 million
invested across 34 loans, 12 sectors and 16 sub-sectors
- RM Funds further accreditation by the British Business Bank as
an accredited lender for the RLS with RMII as a funding partner
- Portfolio benefits from enhanced credit quality with 25.5%
invested into partially government guaranteed Coronavirus Business
Interruption Loan Scheme (CBILS) and Recovery Loan Scheme (RLS)
- Portfolio credit metrics improved over the year as measured by
the proportion of senior loans and CBILS / RLS vs. junior debt
totalling 60.2% vs. 46% as at the year ended 31 December 2020
- Exposure to target social and environmental infrastructure sectors now 50.8% of NAV
- New loans and further drawdowns from existing facilities
totalled GBP29.7 million during the year with repayments &
divestments totalling GBP39.7 million
- The Good Economy published its first full Impact Assessment
Report for RMII. Key findings include:
o Weighted average portfolio impact score rose from 18.56 as at
July 2021 to 22.4 as at March 2022
o Loans within the RMII portfolio have supported the creation of
1,115 jobs
o 99% invested outside of London compared to the industry
average of 65%
Financial Highlights
- 6.5 pence dividend for full year continuing track record of
having met or exceeded dividend target since IPO (total dividend
distributions since IPO totalling 30.725 pence per ordinary
share)
- Dividend fully covered by earnings 1.01 times
- NAV total return for the year 7.6%
Year ended 31 Year ended 31
December 2021 December 2020
Gross asset value (GBP'000) GBP130,821 GBP132,822
--------------- ---------------
NAV per Ordinary Share (pence) 94.41p 93.26p
--------------- ---------------
Ordinary Share price (pence) 95.00p 87.00p
--------------- ---------------
Ordinary Share price premium
to NAV 0.6% (6.7%)
--------------- ---------------
Total return - Ordinary Share
NAV and dividends +7.6% +3.1%
--------------- ---------------
Outlook
- Strengthened commitment to investing in Social &
Environmental Infrastructure sectors with high quality pipeline
transaction
- Legal claim ongoing to recover costs associated with cladding
replacement and loss of income to date within wholly owned student
accommodation asset in Coventry
- Ongoing reduction of watchlist through successful outcomes -
releasing further valuation adjustments as those loans are marked
back to par. Provisions totalling GBP4.3 million or c.3.6 pence per
ordinary share
- Well-placed to offer fixed income returns with limited
exposure to interest rate risk due to the short duration and
high-yielding nature of the portfolio (weighted average life of the
loan book reduced to 2.23 years vs. 3.04 years as at the year ended
31 December 2020 and weighted average yield of 8.54%)
- Enhanced partnership with The Good Economy to provide
reputable third-party assurance for ESG & Impact reporting
Norman Crighton, Chairman of RMII, commented:
"The Board is pleased to report a strong performance for the
year. Providing support to underserved UK companies who make
positive contributions to society underpins all that we do. We are
pleased with the progress made in further aligning our portfolio to
our target social & environmental infrastructure sectors, which
are both strongly aligned with UN SDG goals. Through our
partnership with The Good Economy and our active ESG engagement
with management teams, we remain confident we can deliver triple
bottom line returns to our investors: stable economic returns
combined with a tangible positive impact for people and planet.
The challenges facing the global environment are widely
reported, particularly the crisis in Ukraine where our thoughts
remain with all those impacted. Alongside having no exposure to
Russia or Ukraine, we have a defensive investment focus
uncorrelated to global equity markets and hold a clear focus on
real assets with limited duration exposure. We therefore have every
confidence the portfolio is well-positioned to navigate this
uncertainty and will continue to deliver for our investors. We look
forward to 2022 with optimism and remain focused on getting back to
trading a premium to NAV. With a strong pipeline and through our
collective expertise, we firmly believe the best days remain ahead
for RMII."
Investor webinar
An investor webinar will be held this afternoon at 2.00 pm,
hosted by James Robson (Chief Investment Officer, RM Funds) and
Thomas Le Grix De La Salle (Co-Portfolio & Investment Manager,
RM Funds). If you would like to join the webinar, please contact
Tulchan for more details.
For further information, please contact:
RM Funds - Investment Manager
James Robson
Thomas Le Grix De La Salle
Pietro Nicholls 0131 603 7060
Singer Capital Markets Advisory LLP - Financial
Adviser and Broker
James Maxwell
Asha Chotai 020 7496 3000
Peel Hunt LLP - Financial Adviser and Broker
Luke Simpson
Liz Yong 020 7418 8900
Tulchan Communications LLP - Financial PR 0207 353 4200
Elizabeth Snow RMII@tulchangroup.com
Oliver Norgate
Sanne Fund Services (UK) Limited - Administrator
and Company Secretary
Brian Smith
Ciara McKillop 020 3327 9720
ANNUAL REPORT AND ACCOUNTS
For the year ended 31 December 2021
About us
RM Infrastructure Income plc ("RMII" or the "Company") aims to
generate attractive and regular dividends through investment in
secured debt instruments of UK Small and Medium sized Enterprises
("SMEs") and mid-market corporates including any loan, promissory
notes, lease, bond, or preference share (such debt instruments, as
further described in the Annual Report, being "Loans") sourced or
originated by RM Capital Markets Limited (the "Investment Manager")
with a degree of inflation protection through index-linked returns
where appropriate.
PORTFOLIO AT A GLANCE
Operational highlights
> Diversified portfolio with gross assets of GBP130.8 million
invested across 34 loans and one wholly owned asset, across 12
sectors and 16 sub-sectors
> RM Funds further accreditation by the British Business Bank
as an accredited lender for the RLS with RMII as a funding
partner
> 25.5% of the portfolio invested into partially government
guaranteed CBILS & RLS eligible loans
> Approximately 50.6% of the portfolio NAV is invested into
Social & Environmental Infrastructure sectors with a strong
pipeline and expectation that allocations to these areas in 2022
will further increase as the portfolios maturing investments are
recycled within those core sectors
> The Good Economy annual impact report assessment noted that
weighted average portfolio impact score rose from 18.56 as at July
2021 to 22.4 as at March 2022 and that loans within the RMII
portfolio have supported the creation of 1,115 jobs
Financial highlights
> 6.5 pence dividend for full year meeting target set at
IPO
> Dividend fully covered by earnings 1.01 times
> NAV total return for the year 7.6%
Year ended Year ended
31 December 2021 31 December 2020
----------------------------------------- ----------------- -----------------
Gross asset value (GBP'000)(1) GBP130,821 GBP132,822
Net Asset Value ("NAV") (GBP'000) GBP111,250 GBP110,384
NAV per Ordinary Share (pence) 94.41p 93.26p
Ordinary Share price (pence) 95.00p 87.00p
Ordinary Share price premium/(discount)
to NAV(1) 0.6% (6.7%)
Ongoing charges(1) 1.92% 1.91%
Gearing (net)(1) 14.6% 18.3%
Accrued entitlement of Zero Dividend
Preference ("ZDP") Share (pence)(2) - 109.87
Performance Summary
% change(3,5) % change(4,5)
------------------------------------- ------------- -------------
Total return - Ordinary Share NAV
and dividends(1) +7.6% +3.1%
Total return - Ordinary Share price
and dividends(1) +16.7% -5.3%
(1) These are Alternative Performance Measures ("APMs").
(2) Based on the net assets attributable to the ZDP Shares as at
31 December 2020. The Final Capital Entitlement in respect of the
ZDPs was paid to ZDP Shareholders on 6 April 2021 following which
the ZDPs and its listing were cancelled.
(3) Total returns for the year to 31 December 2021, including
dividend reinvestment.
(4) Total returns for the year to 31 December 2020, including
dividend reinvestment.
(5) Source: Bloomberg.
Alternative Performance Measures ("APMs")
The financial information and performance summary data
highlighted in the footnote to the above tables are considered to
represent APMs of the Company. Definitions of these APMs together
with how these measures have been calculated can be found in the
Annual Report.
Portfolio (as at 31 December 2021)
Largest 10 loans by drawn amounts across the entire
portfolio
Business activity Investment type Valuation Percentage
(Private/Public/Bond) GBP'000 of
gross asset
(%)
=============================== ================================= ======================= ============
Asset finance Private loans 10,194 7.80
Hotel Private loans 8,504 6.50
Automotive parts manufacturing Private loans 8,321 6.40
Care home Private loans 7,788 6.00
Gym franchise Private loans 7,215 5.50
Hotel Private loans 6,491 5.00
Student accommodation Private loans 5,000 3.80
Care home Private loans 5,000 3.80
Hotel Private loans 4,875 3.70
Healthcare Bond 4,493 3.40
Ten largest holdings 67,881 51.90
Wholly owned asset 3,600 2.80
Other private loan investments 47,847 36.50
Bond investments 7,346 5.60
================================================================== ======================= ============
Total holdings 126,674 96.80
Other net current assets 4,147 3.20
Gross assets* 130,821 100.0
================================================================== ======================= ============
* The Company's gross assets comprise the net asset values of
the Company's Ordinary Shares, accrued capital entitlement of the
ZDP Shares and the Bank loan.
Valuation conducted by external Valuation Agent.
Full portfolio (as at 31 December 2021)
Loan Borrower Deal Type Sector Business Nominal Market Valuer Payment
Ref# Name Description (GBP) Value
(GBP)
Private Loan Bilateral Asset Backed Asset Backed
60 - SPV Loan Lending Lending 10,193,916 10,193,916 V Agent Cash
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Private Loan Bilateral Hotel &
66 - SPV Loan Leisure Hotel 8,504,440 8,504,440 V Agent Cash
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Syndicated Auto Parts
39 Beinbauer Loan Manufacturing Manufacturer 8,320,583 8,320,583 V Agent PIK/Cash
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Bilateral Health and
76 Gym Franchise Loan Healthcare Well-being 7,799,555 7,214,588 V Agent Cash
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Private Loan Bilateral
88 - SPV Loan Healthcare Care home 7,787,776 7,787,776 V Agent Cash
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Private Loan Bilateral Hotel &
67 - SPV Loan Leisure Hotel 6,490,560 6,490,560 V Agent Cash
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Private Loan Bilateral Hotel &
80 - SPV Loan Leisure Hotel 5,000,000 4,450,000 V Agent Cash
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Private Loan Bilateral
82 - SPV Loan Healthcare Care home 5,000,000 5,000,000 V Agent Cash
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Private Loan Bilateral Hotel &
86 - SPV Loan Leisure Hotel 5,000,000 4,875,000 V Agent Cash
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Private Loan Bilateral Student
89 - SPV Loan Accommodation accommodation 5,000,000 5,000,000 V Agent Cash
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Bilateral Other
62 Trent Capital Loan Manufacturing Manufacturing 4,661,351 4,428,283 V Agent PIK
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Syndicated Specialist
6 Elysium Loan Healthcare Care 4,500,000 4,365,000 External Cash
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Specialist
15 Voyage Care Bond Healthcare Care 4,500,000 4,493,250 External Cash
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Private Loan Bilateral
79 - SPV Loan Construction Construction 4,500,000 4,005,000 V Agent Cash
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Private Loan Bilateral Asset Backed Asset Backed
61 - SPV Loan Lending Lending 4,469,939 4,469,939 V Agent Cash
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Private Loan Bilateral Student
12 - SPV Loan Accommodation accommodation 4,420,000 4,420,000 V Agent Cash
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Private Loan Bilateral Hotel &
73 - SPV Loan Leisure Hotel 4,000,000 4,000,000 V Agent Cash
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Private Loan Bilateral Student
84 - SPV Loan Accommodation accommodation 4,000,000 4,000,000 V Agent Cash
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Coventry
Student Student
68 Accommodation Equity Accommodation accommodation 3,600,000 3,600,000 V Agent N/A
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Specialist
16 Voyage Care Bond Healthcare Care 3,000,000 2,852,685 External Cash
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Private Loan Bilateral Asset Backed Invoice
64 - SPV Loan Lending Finance 2,750,000 2,750,000 V Agent Cash
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Private Loan Bilateral
83 - SPV Loan Healthcare Care home 2,589,102 2,589,102 V Agent Cash
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Private Loan Bilateral Hotel &
92 - SPV Loan Leisure Hotel 2,458,629 2,188,180 V Agent Cash
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Private Loan Bilateral Childcare
91 - SPV Loan & Education School 2,000,000 2,000,000 V Agent Cash
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Private Loan Bilateral Hotel &
58 - SPV Loan Leisure Hotel 2,000,000 1,460,000 V Agent PIK
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Syndicated Transport Ports
71 Euroports Loan Assets business 1,681,661 1,679,559 External Cash
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Private Loan Bilateral Student
74 - SPV Loan Accommodation accommodation 1,671,038 1,671,038 V Agent Cash
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Private Loan Bilateral Hotel &
69 - SPV Loan Leisure Hotel 900,000 855,000 V Agent Cash
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Private Loan Bilateral Commercial
87 - SPV Loan Property Restaurant 782,623 782,623 V Agent Cash
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Trent Capital
(Fusion) Bilateral Other
63 RF Loan Manufacturing Manufacturing 699,545 199,335 V Agent PIK
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Bilateral Health and
76.1 Gym Franchise Loan Healthcare Well-being 584,392 540,563 V Agent PIK
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Private Loan Bilateral Energy Energy
78 - SPV Loan Efficiency Efficiency 500,000 500,000 V Agent Cash
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Private Loan Bilateral Wealth
81 - SPV Loan Finance Management 500,000 500,000 V Agent Cash
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Renewable
Private Loan Bilateral heat
9 - SPV Loan Clean Energy incentive 255,978 255,978 V Agent Cash
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Renewable
Private Loan Bilateral heat
52 - SPV Loan Clean Energy incentive 231,429 231,429 V Agent Cash
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
Total 130,352,517 126,673,827
-------------- ----------- --------------- -------------- ------------ ------------ --------- ---------
MARKET
Market environment
Overall credit conditions remained benign with modest volatility
in the credit indices over 2021, although post year end this
changed as the Russian invasion of Ukraine caused credit markets to
widen dramatically. The Bank of England has signalled that over
GBP20 billion of corporate credit will be divested over 2022 and
2023, this combined with strong inflation prints is putting
pressure on government and corporate bonds. Our expectation is that
yields will continue to rise, as despite their recent poor
performance, the UK 10 year government bond still yields 1.65% as
at the end of March 2022 which is historically very low and in our
view could still move materially higher. The gilt curve remains
flat in the long end and our expectation is that long end yields
rising from a low level as at the end of March of 1.8% would cause
material price declines in long dated corporate and government
bonds and is a significant market risk.
Market opportunities
With inflation currently moving dramatically higher and yields
rising, as described above, the opportunities focused on by the
Investment Manager ("RM" or "RM Funds") are loans with a 3 year or
less maturity. These loans suit our borrowers as typically they do
not wish to fix in relatively expensive funding for long periods
and it suits the Company as we wish to keep fixed rate exposures
short. In addition, there are a number of opportunities where loans
with coupons linked to the Bank of England base rate or Sonia
linked loans can be made; these are our preference in this
environment and where borrowers have the ability to pass on
inflation costs within their income from fees, leases or other
payment mechanisms.
The Good Economy - Impact Report
April 2022
The Good Economy ("TGE") has been engaged by the Company as the
Impact Reporting and Assurance Partner since 2021. Initially TGE
undertook a baseline assessment of the investment portfolio and
this was communicated to investors in September 2021:
https://rm-funds.co.uk/wp-content/uploads/2021/09/RM-Infrastructure-Income-Impact-Update-Sept-2021.pdf
In April 2022, they released their first full Impact Assessment
Report for the Company:
https://rm-funds.co.uk/rm-infrastructure-income/investor-relations
Results:
> In terms of impact management, RMII is fully geared towards
finding investment opportunities that align with deeper focus on
social and environmental infrastructure.
> RMII has seen an increase of 4% in the last 6 months in
terms of alignment of the portfolio by value with RMII's target
sectors and impact objectives.
> Of the investments which do not cause harm, all are
classified as 'B' or 'C' investments, either benefiting
stakeholders or contributing to solutions.
> RMII has seen an increase in the average portfolio impact
score from 18.56 to 22.40 in the last 6 months. The average across
the portfolio for only those investments which align to RMII's
Impact Objectives is 43.22.
> RMII's loans are estimated to have supported approximately
1,115 jobs. The majority of these are in the construction industry
with up to 390 construction jobs directly resulting from RMII's
loans and a further 430 jobs generated in the supply chain
(indirect jobs). The loans supporting investee's operations could
support approximately 295 jobs with just over half of these
supported directly and the remaining 48% supported in the supply
chain.
> RMII continues to be more regionally distributed than the
average private debt fund, with 99% of the value of live loans in
the UK being invested outside of London compared to the industry
average of 65%.
Strengths:
> RMII has a strong regional footprint providing support to
SMEs across the UK, including in regions which are otherwise
underserved from a 'good jobs' perspective. This has included
proactive support to businesses requiring finance to survive the
challenges of the coronavirus pandemic and recover afterwards.
> Half of RMII's portfolio is now aligned with the new focus
on social and environmental infrastructure sectors, with a clear
line of sight to contributing to Sustainable Development Goal
("SDG") achievement in the UK, monitored through an Impact
Measurement and Management ("IMM") Framework which incorporates
consideration of investor contribution.
> RMII has demonstrated a commitment to providing high levels
of transparency in terms of reporting impact performance. Through
ongoing performance reporting, RMII regularly shares
information
on how the Company is meeting its stated impact objectives. RMII
is transparent not only in sharing its results but also in sharing
methodologies which incorporate market relevant frameworks such as
the Impact Management Project's ABC spectrum which RMII use to
discern and describe the full scope of its impacts.
> RMII has made good progress in formalising its approach to
ESG and impact management. Processes have been put in place to
translate high-level impact goals and intentions into actionable,
investment specific ESG and impact activities.
Recommendations to maximise impact
> RMII should continue to build on its progression during
2021-22 to reduce exposure to 'legacy' sectors such as Hotel &
Leisure and re-deploy into Healthcare, Childcare &
Accommodation, along with Environmental Assets.
> RMII could consider introducing time-bound milestones
against which the portfolio can be held to account in terms of the
pace of this rotation. In addition, RMII should set a target date
for 100% of the portfolio to be aligned with the new Impact
Objectives.
> Over time, RMII should consider shifting towards assessing
deals not just on their own merits, but in relation to the
over-arching portfolio goals.
> RMII should be aware of potential tensions or
inter-linkages between SDGs, especially those that are not directly
aligned to their Impact Objectives.
> During screening, RMII should clearly articulate the way in
which business activities contribute to the SDGs (whether through
avoiding harmful practices, benefiting stakeholders through
positive societal outcomes, or directly contributing towards
addressing the most pressing social and environmental issues).
CHAIR'S STATEMENT
This year marks the fifth year since the Company's Initial
Public Offering ("IPO") on the London Stock Exchange in December
2016 and it is particularly pleasing that since the IPO to 31
December 2021 the Company has generated investors a total
percentage NAV total return of 30.7%, which equates to an
annualised percentage NAV total return of 5.6%.
Introduction
On behalf of the Board, I am pleased to present the annual
report and financial statements of the Company for the year ended
31 December 2021. The performance of the Company in 2021 has been
overshadowed by subsequent events in Ukraine. I am sure that the
Board, the Investment Manager, our Shareholders and all of the
people involved with RMII were shocked by the Russian aggression
and support the actions of the international community, aimed at
bringing the occupation to an end as quickly as possible. The
investment mandate of RMII is focussed on the UK and none of our
investment were directly affected. However, the international
sanctions are influencing global trade, and the consequences of
that are now unknown. We will keep Shareholders informed of any
changes to the portfolio through the usual channels.
The year saw a recovery in the NAV per Ordinary Share of the
Company as valuation adjustments largely taken during March 2020
were partially released during 2021. In March 2020 the Investment
Manager stated that these adjustments, they believed, would be
temporary and it is pleasing to see the adjustments being partially
reversed which has demonstrated the robust approach to underwriting
(and valuations) taken by the Investment Manager. There are further
valuation adjustments totalling GBP4.3 million or 3.64 pence per
Ordinary Share, which are largely from the three companies within
enhanced monitoring and the Investment Manager is focused on
ensuring these positions satisfactorily exit enhanced monitoring,
which is their base case scenario.
Furthermore, post year end there have been two valuation
adjustments. The first of GBP1.5 million was taken to reflect the
cost of cladding replacement within the wholly owned student
accommodation asset in Coventry. These replacement costs were
received in March 2022 and taken in the March 2022 NAV, however
under accounting principles this cost is recognised as an adjusting
event in the 2021 results. Further detail on this asset can be
found in the Investment Manager's report under the enhanced
monitoring section. The second was to an accrual taken in January
2022 that has been moved to Dec 2021 for GBP199,500.
During the year, the Company changed its name to reflect the
narrower investment focus, and good progress has been made on
rotating sector allocations into the target sectors and we look to
continue this into 2022.
Income generation and NAV performance
In the five years since IPO, the Company has returned to
Shareholders 30.725 pence per Ordinary Share in dividends which
have been entirely covered by earnings.
On 22 February 2022, the Company declared a fourth quarterly
dividend for the year of 1.625 pence per Ordinary Share, which was
paid on 25 March 2022, thus total dividends of 6.5 pence per
Ordinary Share were declared or paid for the year ended 31 December
2021.
At 31 December 2021, the NAV per share was 94.41 pence per
Ordinary Share (2020: 93.88 pence). The NAV percentage per Ordinary
Share total return for the year was 7.6% (2020: 3.1%) and
annualised over 2020 and 2021 gives a 5.4% (2020: 11.6%) per annum
NAV total return. Since inception the NAV percentage total return
on an annualised basis has been 5.6%.
Returns to Shareholders
The closing mid-market share price on 31 December 2021 and 31
December 2020 were 95.0 pence and 87.0 pence respectively, being an
8 pence per Ordinary Share increase, which combined with dividends,
means the total percentage share return for the year was 16.7%
(2020: -5.3%).
Historically, the share price of the Company has traded at a
premium to NAV, however as the pandemic took hold the share price
fell to a significant discount to NAV. The Board and the Investment
Manager have taken a number of steps to reduce this discount, one
of which was share buy backs. The lowest price paid was 72.5 pence
per Ordinary Share on 7 April 2020 and since the share buy backs
started the Company has acquired 4,383,593 Ordinary Shares, which
are held in treasury. It is our target during 2022 to regain the
premium rating of the shares to NAV and then the Company will look
to reissue these treasury shares into the market at a premium to
NAV.
Portfolio overview
The overall portfolio size remained largely unchanged during the
year, closing at GBP130.8 million (2020: GBP132.8 million) across
34 loans and one wholly owned asset (2020: 35 loans).
Eight new loans were made during the year alongside further
drawdowns from existing facilities and there were repayments and
divestments totalling GBP39.7 million. The weighted average life of
the portfolio reduced from 3.04 years to 2.23 years which is
reflective of the desire to keep duration relatively short as we
move into a more inflationary environment.
Overall, the credit quality of the portfolio improved as the
percentage of the portfolio benefiting from the Coronavirus
Business Interruption Loan Scheme ("CBILS") or Recovery Loan Scheme
("RLS") increased from c.11% to c.26% and the amount invested with
junior or holding company debt reduced from c.54% to c.39%. The
Investment Manager's report will go into further detail, however,
it is pleasing to note that the list of borrowers under enhanced
monitoring reduced from four to three.
Committed to responsible investing
The Board and the Investment Manager have long been committed to
high ESG standards and to responsible investing. The refreshed
investment focus towards social and environmental infrastructure
sectors enhances this commitment through investment in assets at
the forefront of providing essential services to society. The
Investment Manager's Responsible Investing Investment Policy
ensures that these considerations are integrated into each
individual investment process and the alignment of the portfolio to
achieving contributions towards outcomes linked to UN Sustainable
Development Goals 3, 4, 7, 11, 12 and 13.
The Board and the Investment Manager seek to understand and
report to investors on the impact their capital has made to society
and the planet and have engaged with The Good Economy ("TGE") as
the impact reporting and assurance partner for RMII. During 2021,
TGE undertook a baseline assessment of the portfolio which was
released as an Impact Update in September 2021 and their first
Impact Report will be released during the second quarter of 2022 as
a follow up to this.
The Company will continue to target social good, and
transactions closed during 2021 have contributed to 200 newly
constructed aged care beds in the North West of England coming to
the market. These beds are much needed for our growing ageing
population combined with the desire to house our elderly in modern,
fit for purpose accommodation. We seek to continue this in 2022 and
believe that funding from the Company can continue to make positive
contributions to people and the planet. I look forward to reading
TGE Impact Report and seeing areas identified of strength and where
we can make improvements on our journey to be the very best with
regard to socially responsible investing.
Outlook
At the end of 2020 I noted that the outlook for 2021 was
promising and it is pleasing to see the actual results for the year
deliver on this. Many of the valuation adjustments that were taken
as mark to market losses in March 2020 have now been released and
it is testament to the underwriting process and ongoing loan
management process of the Investment Manager that these potential
losses did not materialise. It is encouraging that the outlook of
the portfolio is positive and that the Investment Manager is
seeking to have further credit provisions released through the
successful resolution of the three loans under enhanced monitoring.
Finally, it is pleasing to see the credit quality of the portfolio
improve as measured by partial government guarantees and the
portfolio composition of junior and holding company debt
Looking into the future we set ourselves three clear
targets:
1. Return to a premium rating as measured by the share price
versus the Company's NAV;
2. Seek overall NAV growth during the year after target dividend
distributions; and
3. Continue to deliver on the Company's dividend target of 6.5
pence per Ordinary Share
The Company is well placed to offer investors fixed income
returns with limited exposure to interest rates due to the short
portfolio duration. Price rises are feeding through to everyday
life with energy prices now a daily topic on news and media
channels and inflation seems to be more permanent than central
banks initially expected. Government bond yields still seem
surprisingly low within this context and there are clear risks to
fixed income prices should we see any shocks to government bond
prices. How stock markets react in such an environment is not clear
but one thing we can expect is an increase in volatility. The
Company's strategy of focusing on real assets with limited duration
exposure is one that we think should be very relevant to investors
at this point in time.
I look forward to continued engagement with Shareholders; please
do not hesitate to contact me through Singer Capital Markets or
Peel Hunt if any additional information is required.
Norman Crighton
Chair
20 April 2022
INVESTMENT MANAGER'S REPORT
Strong and sustainable NAV & income performance
Over the course of the year, the portfolio generated a NAV total
return of 7.6%, with total dividend distributions attributable to
Shareholders for the year totalling 6.5 pence per Ordinary Share.
Overall, the NAV per Ordinary Share increased from 93.26 pence per
Ordinary Share at 31 December 2020 to 94.41 pence per Ordinary
Share at 31 December 2021. In the two years from January 2020
(prior to the global pandemic lockdowns) to the year end, the
Company has generated annualised NAV percentage total returns of
5.4% per annum, demonstrating the stable income and capital
preservation which the Company is seeking to deliver for
Investors.
Post year end and due to the necessary accounting treatment of
an "adjusting event", as the costs of the cladding replacement at
the Coventry Student Accommodation (Loan reference 68) became
known, the value of the asset has been marked lower. Further
commentary is made in the Portfolio Performance section below. In
essence the inadequate nature of the cladding was deemed to have
been in existence at year end so whilst the costs became known in
March 2022, the year end NAV has been adjusted to reflect the
position in March 2022.
Following the year end a quarterly dividend in respect of the
period from 1 October 2021 to 31 December 2021 was declared on 22
February 2021 and paid to Shareholders on the 25 March 2022. These
dividends totalling 6.5 pence per Ordinary Share for the year ended
31 December 2021 bring the total distributions since the Company's
launch in December 2016 to 30.725 pence per Ordinary Share,
exceeding the 30.0 pence per Ordinary Share targeted over the first
five years by the Investment Manager.
Share price performance
The year saw a combination of strong NAV per share performance
combined with the narrowing of the share price discount from 6.7%
at the year ended 31 December 2020 to a premium of 0.6% at the year
ended 31 December 2021. These factors generated a total percentage
share return for the year of 16.1%. Since IPO the total percentage
share return achieved is 29.6% which is annualised since inception
at 5.5% per annum.
Market environment
Generic credit spreads were stable with the benchmark Markit
ITraxx Crossover index opening and closing the year at around
240bps with relatively modest volatility seen in the credit index
during the year. The year was dominated by the race between the
COVID-19 variants and the vaccines, with the markets overall
believing that the COVID-19 pandemic was moving into an endemic
phase allowing markets to advance with most stock exchanges ending
up 10% or more.
Energy costs and supply chain issues leading to very elevated
inflation readings became the focus for the market. Overall, it was
a weak period for fixed income with the 10-year UK government bond
price falling c.10% as yields rose from the historically tight
levels of 0.25% to the still historically tight level of 1% by year
end. As we look into 2022 it is likely that there will be further
upwards pressure on government bond yields as inflationary
pressures remain and central banks move into a tightening phase.
This gives an overall negative outlook for general fixed income
markets as the direction of global government bond yields appears
to be higher.
Credit spreads will likely move wider over the coming year
largely as the Bank of England has signalled that its GBP20 billion
of holdings in corporate bonds will be sold during 2022 and 2023.
It is likely that credit spread widening will be exacerbated as
these sales will be into a market that is likely itself reducing in
size as investors are themselves reducing fixed income holdings.
Liquid corporate bond funds are therefore likely to underperform
due to a combination of credit spread widening combined with an
increase in government bond yields. The Investment Manager believes
RMII is well positioned with its short duration portfolio which is
focused on attractive assets with higher yields than those
available within the public markets.
Portfolio performance
Portfolio credit metrics improved over the year as measured by
the proportion of senior loans and CBILS/RLS versus junior debt. As
at the year end the portfolio was 60.2% invested within these types
of loans versus 46% at the year ended 31 December 2020. The average
life of the loan book reduced to 2.23 years as at the year-end
(3.04 years 31 December 2020) reflecting a strategic decision for
the duration of the portfolio to remain as short as practically
possible. Such short duration minimises exposure to these continued
inflationary pressures described above and is a key reason why RMII
should offer an attractive proposition as an alternative credit
investment versus more traditional corporate bond funds that
typically are lower yielding with longer durations. As we move into
an environment where central banks are now moving to an interest
rate raising bias RMII's high yielding, short duration portfolio
should outperform more liquid, lower yielding, and longer duration
corporate bond alternatives.
As at 31 December 2021 the overall number of holdings within the
portfolio remained relatively stable with 34 loans and one wholly
owned asset (2020: 35 loans) and total invested capital of GBP132
million (2020: GBP131 million).
Total income generation for the year was GBP11.2 million (2020:
GBP10.9 million) and this was split between cash interest of GBP9.3
million and GBP2 million of Payment In Kind ("PIK"), 82%/18% which
was largely similar to 2020. Our expectation for 2022 is that the
PIK/cash ratio will reduce, and this is largely due to loan
references 39 and 76.
> Loan reference 39, the Auto Parts Manufacturer: during 2020
and 2021, this borrower elected to PIK the whole loan which was
more expensive for them but within the original loan agreement.
This has now returned to 50% cash / 50% PIK which was the original
loan term.
> Loan reference 76, the Gym Franchise: this was allowed to
PIK interest for periods during 2020 and 2021; however since
September 2021 has returned to cash pay.
Total operating costs were GBP2.611 million; these were slightly
above budget as the costs for addressing the issues of the Coventry
student accommodation asset were charged to the P&L during the
year.
Revolving Credit Facility ("RCF") and other finance charges were
GBP0.797 million.
Total costs for the year were GBP3.408 million and when set
against the income allowed for the dividend to be fully
covered.
Income GBP11,164,361
Total expenses (GBP2,609,594)
Finance costs (GBP797,585)
Total GBP7,757,182
Dividends (GBP7,667,385)
Profit GBP89,797
There were four dividends paid or declared in respect of the
year ended 31 December 2021 totalling 6.5 pence per Ordinary
Share.
Period Payment date Dividend paid
Q1 2021 25 June 2021 GBP1,916,603
Q2 2021 24 September 2021 GBP1,916,603
Q3 2021 30 December 2021 GBP1,916,603
Q4 2021 25 March 2022 GBP1,914,916
It was an active year for the portfolio with eight new
investments totalling GBP21.7 million, drawdowns to existing
facilities and re-investments totalling GBP16.9 million and several
repayments and divestments that totalled GBP39.7 million during the
year. The exposure to core sectors as measured by their commitments
increased to 47.5% as at 31 December 2021 vs 47% as of 31 December
2020.
Overall portfolio valuations have credit provisions worth
approximately GBP4.3 million or 3.64 pence per Ordinary Share.
There are three investments within the portfolio that have enhanced
monitoring either due to having the largest provisions or due to
the complex nature of the situation:
1.Trent Capital (Loan reference 62 & 63)
This loan is to a company focused on the manufacture of zero
carbon home heating products: air source heat pumps and electric
boilers. It is estimated that 31% of UK carbon reduction comes from
domestic heating and hot water and RM sees the support of these
businesses operating in this sector as key to meeting carbon
reduction targets. This loan also has a property portfolio
providing significant additional collateral. This loan is due for
repayment post period end and RM is working with the borrower to
realise asset sales to facilitate the loan repayment. Credit
provisions total GBP1.05 million.
2. Hotel Development & Contractor Glasgow (Loan reference
58, 79, 80 & 92)
This hotel is scheduled to open in June 2022 and is to be
operated by Virgin Hotels under a 35 year Hotel Management
Agreement. The total market value exposure that is correlated to
the outcome of this asset is currently 11% of Company net assets.
Credit provisions total GBP1.85 million.
3. Purpose Built Student Accommodation "PBSA" Coventry (Loan
reference 68)
This asset is wholly owned by RMII and has had delays to being
income generative due to issues with getting the recommissioning
approval from the fire department. These issues largely relate to
the works conducted by the original scheme architect and main
contractor and are being addressed so that students can take
occupation for the 2022/2023 academic year. These costs have been
substantial over the year with the total administration costs and
refurbishment costs to date being circa GBP500,000. These costs
have been charged to the P&L. Extensive work has been
undertaken over the last quarter of 2021 with fire specialists to
examine the costs to rectify any non-compliant building work.
There is a requirement to rectify cladding issues and stairwell
issues which will require further expenditure and these contractor
costs were received towards the end of March. These costs were
significantly higher than expectations with the quotes received
indicating that the total cost of cladding replacement and remedial
works would be a further GBP1.5m and the accounting treatment of
such costs is that they are an "adjusting event". This means that
as the building was non-compliant as at the year-end and despite
these costs being not known at the time, the Dec 31st NAV has been
adjusted to reflect the lowering of the asset value to reflect
these costs. These costs will form part of the legal claim via the
original loan documentation collateral warranties. This claim is
ongoing and Shareholders will be kept informed as and when the case
claim progresses. The provision is GBP1.5m as the asset was written
down to reflect these additional remedial costs and further costs
have been incurred during 2021 which have been charged to the
Profit and Loss Account.
Coronavirus Business Interruption Loan Scheme ("CBILS") &
Recovery Loan Scheme ("RLS")
These schemes were introduced by the British Government and
administered by the British Business Bank and were designed to
provide support to corporates affected by the pandemic. The support
is via partial loan guarantees made to accredited lenders. The key
features are that the UK Government provides a maximum 80%
guarantee (70% for RLS Loans originated in 2022, 80% for RLS Loans
originated in 2021) to eligible loans and in addition for CBILS
loans, the UK Government pays the first year's interest in the form
of Business Interruption Payment ("BIP"). The Investment Manager
was accredited as a funder under both CBILS & RLS and RMII was
designated as a funding partner. As at the year-end, 25.5%
(2020:11.4%) of the portfolio was invested into CBILS & RLS
eligible loans. This is a material credit enhancement for the
portfolio. The same robust credit assessment process is followed
for these loans.
Responsible investing
The Investment Manager is a signatory to the Principals for
Responsible Investment ("PRI"). The PRI defines responsible
investment as a strategy and practice to incorporate environmental,
social and governance factors in investment decisions. The
Investment Manager incorporates ESG criteria early on as part of
the investment process and in addition there is active engagement
wherever possible with portfolio Companies to help them improve
their ESG processes. In practice this is delivered by the RM Funds
Responsible Investing Investment Policy which is integral to RM
Fund's business philosophy as we believe we can make a difference.
This policy framework applies to all investment made by the
Investment Manager and is governed by our principles and our
commitments:
Our principles
> Respect for the internationally proclaimed human rights
principles, equal opportunity independent of gender, race or
religion; freedom of association and the right to bargain
collectively;
>Working conditions that surpass basic health and safety
standards;
> The conduct of good governance practices, in particular in
relation to bribery and conflicts of interest; and
> Environmental responsibility and responsibility to active
climate change engagement.
Our commitments
> Integrate the above principles into our decision-making
process, by carefully considering ESG issues associated with any
potential investment during the due diligence phase;
> Encourage portfolio companies to follow the above
principles by implementing governance structures that provide
appropriate level of oversight and by seeking disclosure on ESG
issues;
> Provide ESG training and support to RM Fund's employees
involved in the investment process, so that they may perform their
work in accordance with the above principles and with this
policy;
> Seek to be transparent in our efforts to integrate ESG
considerations in investments and annually report on progress
towards implementing the above principles;
> Comply with national and other applicable laws; and
> Help promote the implementation of the above principles;
consider our alignment with other related conventions and standards
set by Invest Europe, the UN Global Compact Initiative and the UN
Principles for Responsible Investment (PRI); continuously strive to
improve ESG performance within RM Funds and our portfolio
companies.
Investment Manager aligned to investor interests
At the IPO, the Investment Manager purchased 500,000 Ordinary
Shares and in line with the commitment to investors made at IPO,
the Investment Manager has regularly purchased Ordinary Shares
directly in the secondary market. This is an ongoing commitment and
by purchasing RMII shares, the Investment Manager has shown a
significant alignment of its interests with Shareholders. In
addition to this, the management team and parties connected to the
management team own additional shares.
The Investment Manager has continued to purchase Ordinary Shares
of the Company during the year and at the year-end, the Investment
Manager owns 1,279,125 Ordinary Shares in RMII, which is an
increase of 37,500 Ordinary Shares over the year. Following the
year-end, the Investment Manager acquired 12,500 Ordinary Shares of
1 pence each in the Company and the Investment Manager's total
holding of Ordinary Shares is currently 1,291,625.
Outlook for 2022
The focus for the Investment Manager is to see the watchlist
reduce through successful outcomes which in turn will see the
release of valuation adjustments as those loans are marked back to
par. Linked to these resolutions is the further rotation of the
portfolio into RMII's core sectors.
The proportion of the book with floating rate coupons linked to
the underlying interest rate will be increased over 2022 thus
allowing the portfolio maturity to increase without increasing its
duration. Furthermore, this will provide additional income if
interest rates move materially higher, which is now our base case
scenario.
Overall conditions are very positive for the strategy and the
portfolio, with a more supportive overall operating environment as
COVID-19 restrictions are relaxed. Quantitative Tapering ("QT")
will support higher margins for lending as net capital is coming
out of the credit and fixed income markets as described above which
signifies higher lending rates due to more competition for capital.
Additionally, the short duration book will allow capital to be
invested without significant risk from interest rate rises.
Finally, the Investment Manager is keen to see issuance from the
portfolio of sustainability linked loans where the coupons have
meaningful margin ratchets if certain pre-agreed conditions are met
that contribute to improved borrower ESG and sustainability
outcomes.
RM Capital Markets Limited
20 April 2022
INVESTMENT POLICY, RESULTS AND OTHER INFORMATION
Investment objective
The Company aims to generate attractive and regular dividends
through investment in secured debt instruments of UK SMEs and
mid-market corporates and/or individuals including any loan,
promissory notes, lease, bond, or preference share (such debt
instruments, as further described below, being "Loans") sourced or
originated by the Investment Manager with a degree of inflation
protection through index-linked returns where appropriate.
Investment policy
The Company will seek to meet its investment objective by making
investments in a diversified portfolio of Loans to UK SMEs and mid-
market corporates, special purpose vehicles and/or to individuals.
These Loans will generally be, but not limited to, senior,
subordinated, unitranche and mezzanine debt instruments, documented
as loans, notes, leases, bonds or convertible bonds. Such Loans
shall typically have a life of 2-10 years. In certain limited
cases, Loans in which the Company invests may have equity
instruments attached, ordinarily any such equity interests would
come in the form of warrants or options attached to a Loan.
Typically, the Loans will have coupons which may be fixed,
index-linked or LIBOR linked.
For the purposes of this investment policy, UK SMEs include
entities incorporated outside of the UK provided their assets and/
or principal operations are within the UK. The Company is permitted
to make investments outside of the UK to mid-market corporates.
Loans will be directly originated or sourced by the Investment
Manager who will not invest in Loans sourced via or participations
through, peer-to-peer lending platforms.
Loans in which the Company invests will be predominantly secured
against assets such as real estate or plant and machinery and/or
income streams such as account receivables.
The Company will make Loans to borrowers in a range of Market
Sectors within certain exposure limits which will vary from time to
time, according to market conditions and as determined by the
Board, subject to the Investment Restrictions set out below.
The Company will at all times invest and manage its assets in a
manner which is consistent to the spreading of investment risk.
Investment restrictions
The following investment limits and restrictions will apply to
the Company's Loans and business which, where appropriate, shall be
measured at the time of investment or once the Company is fully
invested:
> the amount of no single Loan shall exceed 10% of Gross Assets;
> exposure to a single borrower shall not exceed 10% of Gross Assets;
> loans will be made across not less than four Market Sectors;
> not less than 70% of Gross Assets will be represented by
Loans denominated in sterling or hedged back to sterling;
> loans made to borrowers in any one Market Sector shall not exceed 40% of Gross Assets;
> loans with exposure to project development/construction
assets shall not exceed 20% of Gross Assets;
> the Company will not provide Loans to borrowers whose
principal business is defence, weapons, munitions or gambling;
> the Company will not provide Loans to borrowers which
generate their annual turnover predominantly from tobacco, alcohol
or pornography; and
> the Company will not invest in other listed closed-ended funds.
In the event of a breach of the investment guidelines and
restrictions set out above, the Investment Manager shall inform the
Board upon becoming aware of the same and if the Board considers
the breach to be material, notification will be made to a
Regulatory Information Service and the Investment Manager will look
to resolve the breach with the agreement of the Board.
The Company intends to conduct its affairs so as to qualify as
an investment trust for the purposes of section 1158 of the
Corporation Tax Act 2010, and its investment activities will
therefore be subject to the restrictions set out above.
Borrowing and gearing
The Company intends to utilise borrowings for investment
purposes as well as for share buybacks and short-term liquidity
purposes. Gearing represented by borrowings, including any
obligations owed by the Company in respect of an issue of zero
dividend preference shares (whether issued by the Company or any
other member of its group) or any third-party borrowings, will not,
in aggregate exceed 20% of Net Asset Value calculated at the time
of drawdown.
Hedging and derivatives
The Company may invest in derivatives for efficient portfolio
management purposes. In particular the Company can engage in
interest rate hedging. Loans will primarily be denominated in
sterling, however the Company may make limited Loans denominated in
currencies other than sterling and the Board, at the recommendation
of the Investment Manager, may look to hedge any other currency
back to sterling should they see fit.
In accordance with the requirements of the UK Listing Authority,
any material change to the Company's investment policy will require
the approval of Shareholders by way of an ordinary resolution at a
general meeting.
RM ZDP plc
RM ZDP plc ("RM ZDP"), a public limited company incorporated
under the laws of England and Wales was incorporated on 21 February
2018 as a wholly owned subsidiary of the Company, established
solely for the purpose of issuing ZDP Shares of GBP 0.01 each. RM
ZDP raised gross proceeds of GBP10,869,950 through the issue of ZDP
Shares.
The Company announced on 29 March 2021 that its ZDP shares would
come to the end of their 3-year life on 6 April 2021, with a final
capital entitlement payable of approximately GBP12.1 million
(110.91p per ZDP Share). Subsequently, a General Meeting was held
on 6 April 2021, where all resolutions were duly passed, including
the special resolution to approve the voluntary winding up of the
Company. The payment of the Final Capital Entitlement was made to
ZDP shareholders on 6 April 2021 and the cancellation of the
Company's listing took place on 7 April 2021.
Dividend policy
Dividends are expected to be declared by the Directors in May,
August, November and February of each year in respect of the
preceding quarter with dividends being paid in June, September,
December and March.
The last dividend in respect of any financial year is declared
prior to the relevant annual general meeting. Therefore, it is
declared as a fourth interim dividend and no final dividend is
payable. The Board understands that this means that Shareholders
will not be given the opportunity to vote on the payment of a final
dividend. However, the Board believe that the payment of a fourth
interim dividend as opposed to a final dividend is in the best
interests of Shareholders as it provides them with regularity on
the frequency of dividend payments and avoids the delay to payment
which would result from the declaration of a final dividend. A
resolution will be put forward at the Annual General Meeting to
approve the policy of declaring and paying all dividends of the
Company as interim dividends.
The Company targeted an annualised dividend yield in excess of
6.5% for the financial year to 31 December 2021.
Investors should note that the targeted annualised dividend
yields are targets only and not profit forecasts and there can be
no assurance that either will be met or that any dividend growth
will be achieved.
Results and dividend
The financial statements include the results of the Company. The
Company revenue return after tax for the year ended 31 December
2021 amounted to GBP7,742,000 (2020: GBP7,216,000). The Company
made a capital profit after tax of GBP1,263,000 (2020: capital loss
of GBP5,355,000). Therefore, the total return after tax for the
Company was GBP9,005,000 (2020: GBP1,861,000).
The first interim dividend of 1.625p per Ordinary Share was
declared on 26 May 2021 in respect of the period from January to
March 2021. The second interim dividend of 1.625p per Ordinary
Share for the quarter ended 30 June 2021 was declared on 6 August
2021 and the third interim dividend of 1.625p per Ordinary Share
for the quarter ended 30 September 2021 was declared on 2 November
2021. On 22 February 2022, the Board declared a fourth interim
dividend of 1.625 pence per Ordinary Share for the quarter to 31
December 2021.
Key performance indicators ("KPIs")
The Board measures the Company's success in attaining its
investment objective by reference to the following KPIs:
(i) Dividends
The Company has paid or proposed four interim dividends
totalling, in aggregate, 6.5 pence per Ordinary Share, equivalent
to 6.5% based on the Ordinary Share issue price of GBP1 per share
at Admission. The targeted annualised dividend yield of 5.4% has
therefore been met during the year.
(ii) Total return
The Company's total return is monitored by the Board. The
Ordinary Shares generated a NAV total return of 7.6% (2020: +3.1%)
in the year ended 31 December 2021.
(iii) Discount/premium to NAV
The discount/premium relative to the NAV per share represented
by the share price is closely monitored by the Board. The Ordinary
Share price closed at a 0.6% premium (2020: discount of 6.7%) to
the NAV as at 31 December 2021. To address the discount due to the
impact of COVID-19 in 2021, 523,294 Ordinary Shares were bought
back during the year at prices ranging from 86.0 pence and 94.0
pence per Ordinary Share. This added 0.42 pence per Ordinary Share
to the NAV.
(iv) Control of the level of ongoing charges
The Board monitors the Company's operating costs. Based on the
Company's average net assets for the year ended 31 December 2021,
the Company's ongoing charges figure calculated in accordance with
The Association of Investment Companies ("AIC") methodology was
1.92% (2020: 1.91%).
RISKS AND RISK MANAGEMENT
Principal and emerging risks and uncertainties
The Board is responsible for the management of risks faced by
the Company and delegates this role to the Audit and Management
Engagement Committee (the "Committee"). The Committee periodically
carries out a robust assessment of principal and emerging risks and
uncertainties and monitors the risks on an ongoing basis. The
Committee considers both the impact and the probability of each
risk occurring and ensures appropriate controls are in place to
reduce risk to an acceptable level. The experience and knowledge of
the Board is invaluable to these discussions, as is advice received
from the Board's service providers, specifically the Alternative
Investment Fund Manager ("AIFM") who is responsible for the risk
and portfolio management services and outsources the portfolio
management to the Investment Manager. The Committee has a dynamic
risk matrix in place to help identify key risks in the business and
oversee the effectiveness of internal controls and processes.
The Committee continues to be concerned with the risks posed by
the COVID-19 pandemic which has a significant impact on all risk
categories. In addition to implementing more regular reviews of
investment performance with the Investment Manager, the Committee
has worked closely with the Company's key service providers to
ensure high standards of service were maintained whilst hybrid
working models were implemented. Further information on how the
Committee has considered COVID-19 when assessing its effect on the
Company's ability to operate as a going concern and the Company's
longer-term viability can be found in the Annual Report.
The principal and emerging risks, together with a summary of the
processes and internal controls used to manage and mitigate risks
where possible are outlined in the following paragraphs.
(i) Market risks
Availability of appropriate investments
There is no guarantee that loans will be made in a timely
manner.
Before the Company is able to make or acquire loans, the
Investment Manager is required to complete necessary due diligence
and enter into appropriate legal documentation. In addition, the
Company may become subject to competition in sourcing and making
investments. Some of the Company's competitors may have greater
financial, technical and marketing resources or a lower cost of
capital and the Company may not be able to compete successfully for
investments. Competition for investments may lead to the available
interest coupon on investments decreasing, which may further limit
the Company's ability to generate its desired returns.
If the Investment Manager is not able to source a sufficient
number of suitable investments within a reasonable time frame
whether by reason of lack of demand, competition or otherwise, a
greater proportion of the Company's assets will be held in cash for
longer than anticipated and the Company's ability to achieve its
investment objective will be adversely affected. To the extent that
any investments to which the Company is exposed prepay, mature or
are sold it will seek to reinvest such proceeds in further
investments in accordance with the Company's investment policy.
Market sectors
Loans will be made to borrowers that operate in different market
sectors each of which will have risks that are specific to that
particular market sector.
Management of risks
The Company has appointed an experienced Investment Manager who
directly sources loans. The Company is investing in a wide range of
loan types and sectors and therefore benefits from
diversification.
Investment restrictions are relatively flexible giving the
advisor ability to take advantage of diverse loan
opportunities.
The Investment Manager, AIFM, Brokers and the Board review
market conditions on an ongoing basis. Geopolitical instability may
threaten global economic growth and, consequently the Company's
portfolio and regrettably this view has been justified following
the invasion of Ukraine.
(ii) Risks associated with meeting the Company's investment objective or target dividend yield
The Company's investment objective is to generate attractive and
regular dividends through investment in loans sourced or originated
by the Investment Manager and to generate capital appreciation by
virtue of the fact that the returns on some loans will be
index-linked. The declaration, payment and amount of any future
dividends by the Company will be subject to the discretion of the
Directors and will depend upon, amongst other things, the Company
successfully pursuing the investment policy and the Company's
earnings, financial position, cash requirements, level and rate of
borrowings and availability of profit, as well the provisions of
relevant laws or generally accepted accounting principles from time
to time.
Management of risks
The Investment Manager has a well-defined investment policy and
process which is regularly and rigorously reviewed by the
independent Board of Directors and performance is reviewed at
quarterly Board meetings. The Investment Manager is experienced and
employs its expertise in making investments in a diversified
portfolio of loans. The Investment Manager has a target portfolio
yield which covers the level of dividend targeted by the Company.
The Board reviews the position at board meetings.
(iii) Financial risks
The Company's investment activities expose it to a variety of
financial risks which include liquidity, currency, leverage,
interest rate and credit risks.
Further details on financial risks and the management of those
risks can be found in note -- to the financial statements.
(iv) Corporate governance and internal control risks
The Company has no employees, and the Directors have all been
appointed on a non-executive basis. The Company must therefore rely
upon the performance of third-party service providers to perform
its executive functions. In particular, the AIFM, the Investment
Manager, the Administrator, the Company Secretary and the
Registrar, will perform services that are integral to the Company's
operations and financial performance.
Poor performance of the above service providers could lead to
various consequences including the loss of the Company's assets,
inadequate returns to Shareholders and loss of investment trust
status. Cyber security risks could lead to breaches of
confidentiality, loss of data records and inability to make
investment decisions.
Management of risks
Each of the above contracts was entered into after full and
proper consideration of the quality and cost of services offered,
including the financial control systems in operation in so far as
they relate to the affairs of the Company. All of the above
services are subject to ongoing oversight of the Board and the
performance of the principal service providers is reviewed on a
regular basis. The Company's key service providers report
periodically to the Board on their procedures to mitigate cyber
security risks.
(v) Regulatory risks
The Company and its operations are subject to laws and
regulations enacted by national and local governments and
government policy. Compliance with, and monitoring of, applicable
laws and regulations may be difficult, time consuming and costly.
Any change in the laws, regulations and/or government policy
affecting the Company or any changes to current accountancy
regulations and practice in the UK may have a material adverse
effect on the ability of the Company to successfully pursue its
investment policy and meet its investment objective and/or on the
value of the Company and the shares. In such event, the performance
of the Company, the NAV, the Company's earnings and returns to
Shareholders may be materially adversely affected.
Management of risks
The Company has contracted out relevant services to
appropriately qualified professionals. The Secretary and AIFM
report on compliance matters to the Board on a quarterly basis and
the Board has access to the advice of its Corporate Broker on a
continuing basis. The assessment of regulatory risks forms part of
the Board's risk assessment programme.
(vi) Business interruption and emerging risks
Failure in services provided by key service providers, meaning
information is not processed correctly or in a timely manner,
resulting in regulatory investigation or financial loss, failure of
trade settlement, or potential loss of investment trust status.
Failure to identify emerging risks may cause reactive actions
rather than being proactive and the Company could be forced to
change its structure, objective or strategy and, in worst case,
could cause the Company to become unviable or otherwise fail.
The Board continued to be concerned with the risks posed by the
COVID-19 pandemic during the year, with significant restrictions on
movement of people and disruption to business operations impacting
global portfolio company valuations and returns and potentially
impacting the operational resilience of the Company's service
providers. The impact of COVID-19 on the markets and the Company's
financial position continue to be closely monitored by the
Investment Manager and the Board. The Board and Investment Manager
also continue to monitor the political situation in Ukraine,
however the Company's portfolio has no direct exposure to Russia or
Ukraine and the Company's cash position remains robust.
Management of risks
Each service provider has business continuity policies and
procedures in place to ensure that they are able to meet the
Company's needs and all breaches of any nature are reported to the
Board.
The following is a description of the Company's service
providers who assist in identifying the Company's emerging risks to
the Board.
1. Investment Manager: the Investment Manager provides a report
to the Board at least quarterly on industry trends, insight to
future challenges in the sector, including the regulatory,
political and economic changes likely to impact the Company. The
Chair also has contact with the Investment Manager on a regular
basis to discuss any pertinent issues;
2. Alternative Investment Fund Manager: the AIFM maintains a
register of identified risks including emerging risks likely to
impact the Company, which is updated quarterly following
discussions with the Investment Manager and other service
providers. The risks are documented on a risk register, Company in
main categories: Market Risks; Risks associated with Investment
Objective; Financial Risks; Corporate Governance Risks; Regulatory
Risks and Emerging Risks. Any changes and amendments to the risk
register are highlighted to the Board on a quarterly basis;
3. Brokers: provide advice periodically, specific to the Company
on the Company's sector, competitors and the investment company
market whilst working with the Board and Investment Manager to
communicate with Shareholders;
4. Company Secretary and Auditor: briefs the Board on
forthcoming legislation and regulatory change that might impact on
the Company. The Auditor also has specific briefings at least
annually;
5. The AIC: the Company is a member of the AIC, which provides
regular technical updates as well as drawing members' attention to
forthcoming industry and regulatory issues.
The Board regularly reviews the Company's risk matrix, focussing
on risk mitigation and ensuring that the appropriate controls are
in place. Regular review ensures that the Company operates in line
with the risk management policy, prospectus and investment
strategy. Emerging risks are actively discussed throughout the year
to attempt to ensure that emerging (as well as known) risks are
identified and managed so far as practicable. The experience and
knowledge of the Board is invaluable to these discussions, as is
advice received from the Board's service providers.
Due to the ongoing COVID-19 pandemic the Audit and Management
Engagement Committee requested assurances from the Company's key
service providers that business continuity plans and hybrid working
arrangements had been enacted where necessary. This provided a
satisfactory level of assurance that there had not been, and there
was no expectation of any disruption to service quality.
Details of the Directors' assessment of the going concern status
of the Company, which considered the adequacy of the Company's
resources and the impacts of the COVID-19 pandemic, are given on
page --.
(vii) ESG and Climate Change
While efforts to mitigate climate change continue, the physical
impacts are already emerging in the form of changing weather
patterns. Extreme weather events can result in flooding, drought,
fires, storm damage, potentially impairing the operations of a
portfolio company at a certain location or impacting locations of
companies within their supply chain. Climate change leads to
additional costs and risks for portfolio companies.
There is potential reputational damage from non-compliance with
regulations or incorrect disclosures.
Management of risks
The Company's ESG Policy, which is updated annually is published
on the Company's website and the AIC website.
The Company's approach to ESG, including the ESG factors that
are considered in the investment process, such as climate change,
where they are relevant and have a material impact on stock
performance, are included in the Annual Report on page --. It also
includes examples of responsible engagement.
As a signatory to the Principles of Responsible Investment
Initiative ("PRI"), the Investment Manager reports annually
according to the PRI reporting framework. Investment trusts are
currently exempt from the Task Force on Climate-Related Financial
Disclosures ("TCFD") disclosure, but the Board will continue to
monitor the situation.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the annual report
and the financial statements in accordance with applicable United
Kingdom law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have elected to prepare the company financial statements in
accordance with UK-adopted international accounting standards.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and 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 in accordance with IAS
8 Accounting Policies, Changes in Accounting Estimates and Errors
and then apply them consistently;
> make judgements and accounting estimates that are
reasonable and prudent;
> present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
> provide additional disclosures when compliance with the
specific requirements of UK-adopted international accounting
standards is insufficient to enable users to understand the impact
of particular
transactions, other events and conditions on the financial
position and financial performance;
> state whether UK-adopted international 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 are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the Companies' Act 2006. They
are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a strategic report, Directors' report,
Directors' remuneration report and corporate governance statement
that comply with that law and those regulations. The Directors are
responsible for the maintenance and integrity of the corporate and
financial information included on the Company's website.
Directors' confirmation statement
The Directors each confirm to the best of their knowledge
that:
(a) the accounts, prepared in accordance with applicable
accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit of the Company; and
(b) this Annual Report includes a fair review of the development
and performance of the business and position of the Company,
together with a description of the principal risks and
uncertainties that it faces.
The Directors consider that the financial statements are fair,
balanced and understandable and provide the information necessary
for Shareholders to assess the Company's performance, business
model and strategy.
For and on behalf of the Board
Norman Crighton
Chair
20 April 2022
Company Statement of Comprehensive Income
For the year
ended 31
December
2021
Year ended 31 December Year ended 31 December
2021 2020
Revenue Capital Total Revenue Capital Total
NOTES GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Gains/(losses)
on investments 3 - 1,263 1,263 (565) (5,210) (5,775)
Income 4 11,164 - 11,164 10,942 - 10,942
Investment
management fee 5 (1,013) - (1,013) (1,088) - (1,088)
Other expenses 6 (1,598) - (1,598) (1,192) (145) (1,337)
----------------- --------- ------------ ------------- -------- --------- ------------- --------
Return before
finance costs
and taxation 8,553 1,263 9,816 8,097 (5,355) 2,742
Finance costs 7 (797) - (797) (635) - (635)
----------------- --------- ------------ ------------- -------- --------- ------------- --------
Return on ordinary
activities before
taxation 7,756 1,263 9,019 7,462 (5,355) 2,107
Taxation 8 (14) - (14) (246) - (246)
----------------- --------- ------------ ------------- -------- --------- ------------- --------
Return on
ordinary
activities
after taxation 7,742 1,263 9,005 7,216 (5,355) 1,861
----------------- --------- ------------ ------------- -------- --------- ------------- --------
Return per
ordinary share
(pence) 15 6.56p 1.07p 7.63p 5.96p (4.43p) 1.53p
----------------- --------- ------------ ------------- -------- --------- ------------- --------
The total column of this statement is the profit and loss account of the
Company.
All the revenue and capital items in the above statement derive from continuing
operations.
'Return on ordinary activities after taxation' is also the Total comprehensive
income for the year.
The notes form an integral part of these financial statements.
Statement of Financial Position
As at 31 December As at 31 December
2021 2020
Notes GBP'000 GBP'000
---------------------------- ------------ ----------------------- ------------------------
Fixed assets
Investments at fair value
through profit
or loss 3 126,674 122,705
Investments in subsidiary - 50
Current assets
Cash and cash equivalents 3,310 2,218
Receivables 9 2,684 10,498
---------------------------- ------------ ----------------------- ------------------------
5,994 12,716
Payables: amounts falling
due within
one year
Payables 10 (1,847) (2,645)
Intercompany loan payable 11 - (11,942)
Bank loan - Credit facility 12 (19,571) (10,500)
(21,418) (25,087)
---------------------------- ------------ ----------------------- ------------------------
Net current liabilities (15,424) (12,371)
---------------------------- ------------ ----------------------- ------------------------
Total assets less current
liabilities 111,250 110,384
---------------------------- ------------ ----------------------- ------------------------
Net assets 111,250 110,384
---------------------------- ------------ ----------------------- ------------------------
Capital and reserves:
equity
Share capital 13 1,178 1,184
Share premium 14 70,168 70,168
Special reserve 44,813 45,277
Capital reserve (8,149) (9,412)
Revenue reserve 3,240 3,167
Total Shareholders' funds 111,250 110,384
---------------------------- ------------ ----------------------- ------------------------
NAV per share - Ordinary
Shares (pence) 16 94.41p 93.26p
---------------------------- ------------ ----------------------- ------------------------
The financial statements of the Company were approved and
authorised for issue by the Board of Directors on 20 April 2022 and
signed on their behalf by:
Norman Crighton
Chair
Registered in England and Wales with registered number
10449530.
The notes form an integral part of these financial
statements.
Statement of Changes in Equity
For the year ended 31 December
2021
Share
Share premium Special Capital Revenue
capital account reserve reserve reserve Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- ------ --------- --------- --------- --------- --------- --------
Balance as at beginning
of the year 1,184 70,168 45,277 (9,412) 3,167 110,384
Return on ordinary activities - - - 1,263 7,742 9,005
Redemption of shares 13 (6) 6 (464) - - (464)
Share buy back costs - (6) - - - (6)
Dividend paid 17 - - - - (7,669) (7,669)
Balance as at 31 December
2021 1,178 70,168 44,813 (8,149) 3,240 111,250
------------------------------- ------ --------- --------- --------- --------- --------- --------
For the year ended 31 December 2020
Share
Share premium Special Capital Revenue
capital account reserve reserve reserve Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- ------ --------- --------- --------- --------- --------- --------
Balance as at beginning
of the year 1,222 70,146 48,304 (4,057) 3,913 119,528
Return on ordinary activities - - - (5,355) 7,216 1,861
Redemption of shares 13 (38) 38 (3,027) - - (3,027)
Shares buy back costs - (16) - - - (16)
Dividend paid 17 - - - - (7,962) (7,962)
Balance as at 31 December
2020 1,184 70,168 45,277 (9,412) 3,167 110,384
------------------------------- ------ --------- --------- --------- --------- --------- --------
Distributable reserves comprise: the revenue reserve; capital reserves
attributable to realised profits; and the special reserve.
Share capital represents the nominal value of shares that have been issued.
The share premium includes any premiums received on the issue of share
capital. Any transaction costs associated with the issuing of shares are
deducted from share premium.
The notes form an integral part of these financial statements.
Statement of Cash Flows
For the year ended 31 December
2021
Year ended 31 December Year ended 31 December
2021 2020
Notes GBP'000 GBP'000
-------------------------------------------- ------ -------------------------- -----------------------
Operating activities
Return on ordinary activities
before finance costs and taxation* 9,816 2,742
Adjustment for (gains)/losses
on investments (823) 5,357
Adjustment to amortisation costs 114 -
Decrease/(increase) in receivables 484 (958)
(Decrease)/increase in payables (812) 481
PIK adjustments to the operating
cash flow (2,539) (2,081)
Net cash flow from operating
activities 6,240 5,541
-------------------------------------------- ------ -------------------------- -----------------------
Investing activities
Private loan repayments/bonds
sales proceeds 56,292 33,479
Realisation of investment in
subsidiary - non cash adjustment 50 -
Private loans issued/bonds purchases (44,582) (44,435)
Purchase of equity investments (5,100) -
Net cash flow from/(used in)
investing activities 6,660 (10,956)
-------------------------------------------- ------ -------------------------- -----------------------
Financing activities
Finance costs (684) (234)
ZDP loan principal and accumulated
interest paid (12,056) -
Ordinary Share buy back 13 (464) (3,027)
Ordinary Share buy back costs (6) (16)
OakNorth loan facility drawdown 30,071 17,800
OakNorth loan facility repaid (21,000) (7,300)
Equity dividends paid 17 (7,669) (7,962)
Net cash flow used in financing
activities (11,808) (739)
-------------------------------------------- ------ -------------------------- -----------------------
Increase/(decrease) in cash 1,092 (6,154)
Opening balance at beginning
of the year 2,218 8,372
-------------------------------------------- ------ -------------------------- -----------------------
Balance as at 31 December 2021 3,310 2,218
-------------------------------------------- ------ -------------------------- -----------------------
* Cash inflow from interest on investment holdings was GBP9,561,000 (2020:
GBP8,960,000).
The notes form an integral part of these financial
statements.
Changes in Financing Liabilities
Movement in financial liabilities Year ended 31 December Year ended 31 December
- Company 2021 2020
--------------------------- ---------------------------
OakNorth Intercompany OakNorth Intercompany
facility loan facility loan
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- ----------- -------------- ----------- --------------
Balance as at beginning of the
year 10,500 11,942 - 11,541
Facility drawdowns during the
year 30,071 - 17,800 -
Facility interest payable during
the year 595 - 234 -
Facility and interest repayments
during the year (21,595) - (7,534) -
Intercompany finance cost -
non cash flow - 114 - 401
Repayment of intercompany loan - (12,056) - -
Balance as at 31 December 2021 19,571 - 10,500 11,942
----------------------------------- ----------- -------------- ----------- --------------
Notes to the Financial Statements
1. General information
RM Infrastructure Income plc (the "Company"), formerly RM Secured Direct
Lending plc, was incorporated in England and Wales on 27 October 2016
with registered number 10449530, as a closed-ended investment company.
The Company commenced its operations on 15 December 2016. The Company
intends to carry on business as an investment trust within the meaning
of Chapter 4 of Part 24 of the Corporation Tax Act 2010.
On 6 April 2021, the Company's subsidiary RM ZDP plc was placed into
voluntary liquidation.
The Company's investment objective is to generate attractive and regular
dividends through investment in secured debt instruments of UK SMEs
and mid-market corporates including any loan, promissory notes, lease,
bond or preference share sourced or originated by the Investment Manager
with a degree of inflation protection through index-linked return where
appropriate.
The registered office is 6(th) Floor, 125 London Wall, Barbican, London
EC2Y 5AS.
2. Accounting policies
The principal accounting policies followed by the Company are set out
below:
(a) Basis of accounting
The financial statements have been prepared in accordance with UK-adopted
international accounting standards. The financial statements have been
prepared on a historical basis, except for investments measured at
fair value.
In preparing these financial statements the directors have considered
the impact of climate change as a risk and have concluded that there
was no further impact of climate change to be taken into account. In
line with IAS, investments are valued at fair value and climate change
risk is taken into consideration on the investments we hold.
The Board has determined by having regard to the currency of the Company's
share capital and the predominant currency in which the Company operates,
that sterling is the functional and presentational currency. Where
presentational recommendations set out in the Statement of Recommended
Practice "Financial Statements of Investment Trust Companies and Venture
Capital Trusts" ("SORP"), issued in the UK by the AIC in April 2021,
do not conflict with the requirements of UK-adopted international accounting
standards ("IFRS"), the directors have prepared the financial statements
on a basis consistent with the recommendations of the SORP, in the
belief that this will aid comparison with similar investment companies
incorporated in the United Kingdom.
In accordance with the SORP, the Statement of Comprehensive Income
has been analysed between a revenue return (dealing with items of a
revenue nature) and a capital return (relating to items of a capital
nature). Revenue returns include, but are not limited to, investment
related income, operating expenses, income related finance costs and
taxation (insofar as they are not allocated to capital). Net revenue
returns are allocated via the revenue return to the Revenue reserve.
Capital returns include, but are not limited to, profits and losses
on the disposal and the valuation of non-current investments, derivative
instruments and on cash and borrowings, operating costs and finance
costs (insofar as they are not allocated to revenue). Net capital returns
are allocated via the capital return to Capital reserves.
The Company is engaged in a single segment of business, being that
of an investment trust company, consequently no business segmental
analysis is provided.
Dividends on Ordinary Shares may be paid out of Revenue reserve, Capital
reserve and Special reserve.
(b) Adoption of new IFRS standards
New standards, interpretations and amendments adopted from 1 January
2021
A number of new standards, amendments to standards and interpretations
are effective for the annual periods beginning after 1 January 2021.
None of these are expected to have a significant effect on the measurement
of the amounts recognised in the financial statements of the Company.
New standards and amendments issued but not yet effective
The relevant new and amended standards and interpretations that are
issued, but not yet effective, up to the date of issuance of the Company's
financial statements are disclosed below. These standards are not expected
to have a material impact on the entity in future reporting periods
and on foreseeable future transactions.
Amendments to IAS 1: Classification of Liabilities as Current or Non-current
In January 2020, the IASB issued amendments to paragraphs 69 to 76
of IAS 1 to specify the requirements for classifying liabilities as
current or non-current. The amendments are effective for annual reporting
periods beginning on or after 1 January 2023.
Reference to the Conceptual Framework - Amendments to IFRS 3
In May 2020, the IASB issued Amendments to IFRS 3 Business Combinations
- Reference to the Conceptual Framework. The amendments are effective
for annual reporting periods beginning on or after 1 January 2022.
Definition of Accounting Estimates - Amendments to IAS 8
In February 2021, the IASB issued amendments to IAS 8, in which it
introduces a definition of 'accounting estimates'. The amendments are
effective for annual reporting periods beginning on or after 1 January
2023.
Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice
Statement 2
In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice
Statement 2 Making Materiality Judgements. The amendments to IAS 1
are applicable for annual periods beginning on or after 1 January 2023.
(c) Going concern
The Directors have adopted the going concern basis in preparing the
financial statements. In forming this opinion, the directors continue
to consider any potential impacts of the COVID-19 pandemic on the going
concern and viability of the Company. In making their assessment, the
Directors have reviewed income and expense projections and the liquidity
of the investment portfolio, and considered the mitigation measures
which key service providers, including the Investment Manager, continue
to have in place to maintain operational resilience. Details of the
Directors assessment of the going concern status of the Company are
given in the Annual Report.
The Directors have a reasonable expectation that the Company has adequate
resources to continue in operational existence for at least twelve
months from the date of the Annual Report. In reaching this conclusion,
the Directors have considered the Company's portfolio of loan investments
of GBP126.7 million (2020: GBP122.7 million) and the cash position
of GBP3.3 million (2020: GBP2.2 million). The Company's net assets
at 31 December 2021 were GBP111.3 million (2020: GBP110.4 million).
The total expenses (excluding finance costs and taxation) for the year
ended 31 December 2021 were GBP2.6 million (2020: GBP2.4 million),
which represented approximately 1.92% (2020: 1.91%) of average net
assets during the year. At the date of approval of the Annual Report,
based on the aggregate of investments and cash held, the Company has
substantial operating expenses cover.
The Directors have concluded that there is a reasonable expectation
that the Company will have adequate liquidity and cash balances to
meet its liabilities as they fall due and continue in operational existence
for the foreseeable future and continue as a going concern for the
period to 30 June 2023.
(d) Investment entity status
The Company meets the criteria within IFRS 10 as an investment entity
and should therefore hold investments in subsidiaries at fair value
rather than consolidate them, unless those subsidiaries are not themselves
investment entities and their main purpose is to provide services related
to the Company's investment activities.
(e) Investments
Investments consist of private loans and bonds, which are classified
as fair value through profit or loss as they are included in the Company's
financial assets that are managed and their performance evaluated on
a fair value basis. They are initially and subsequently measured at
fair value and gains and losses are attributed to the capital column
of the Statement of Comprehensive Income. Investments are recognised
on the date that the Company becomes a party to the contractual provisions
of the instrument and are derecognised when their term expires, or
on the date they are sold, repaid or transferred.
Unquoted investments are valued at fair value by the Board which is
established with regard to the International Private Equity and Venture
Capital Valuation Guidelines by using, where appropriate, latest dealing
prices, valuations from reliable sources and other relevant factors.
(f) Foreign currency
Transactions denominated in foreign currencies are translated into
sterling at actual exchange rates as at the date of the transaction.
Monetary assets and liabilities and non-monetary assets held at fair
value denominated in foreign currencies are translated into sterling
using London closing foreign exchange rates at the year end. Any gain
or loss arising from a change in exchange rates is included as an exchange
gain or loss to capital or revenue in the Statement of Comprehensive
Income as appropriate. Foreign exchange movements on investments are
included in the Statement of Comprehensive Income within loss on investments.
(g) Income
Interest income is recognised in the revenue column of the Statement
of Comprehensive Income on an effective interest rate basis. Payment-in-kind
("PIK") interest income is recognised on an accruals basis and capitalised
to the principal value of the loan.
All other income including deposit interest is accounted for on an
accruals basis and early settlement fees received are recognised upon
the early repayment of the loan.
Arrangement fees earned on private loan investments are recognised
as an income over the term of the private loans.
(h) Cash and cash equivalents
Cash and cash equivalents include deposits held at call with banks
and other short-term deposits with original maturities of three months
or less.
(i) Capital reserves
Realised and unrealised gains and losses on the Company's investments
are recognised in the capital column of the Statement of Comprehensive
Income and allocated to the capital reserve.
(j) Expenses
All expenses are accounted for on an accruals basis.
Other expenses are recognised in the revenue column of the Statement
of Comprehensive Income, unless they are incurred in order to enhance
or maintain capital profits.
Management fees and finance costs
The Company is expecting to derive its returns predominantly from
interest income. Therefore, the Board has adopted a policy of allocating
all management fees and finance costs to the revenue column of the
Statement of Comprehensive Income.
ZDP Shares finance cost
The ZDP Shares are designed to provide a pre-determined capital growth
from their original issue price of 100p on 3 April 2018 to a final
capital entitlement of 110.91p on 6 April 2021, on which date the RM
ZDP was liquidated. The provision for the capital growth entitlement
of the ZDP Shares is included as a finance cost and charged to revenue
within the Statement of Comprehensive Income.
(k) Taxation
The charge for taxation is based upon the net revenue for the year.
The tax charge is allocated to the revenue and capital columns of the
Statement of Comprehensive Income according to the marginal basis whereby
revenue expenses are first matched against taxable income arising in
the revenue account.
Deferred taxation will be recognised as an asset or a liability if
transactions have occurred at the initial reporting date that give
rise to an obligation to pay more taxation in the future, or a right
to pay less taxation in the future. An asset will not be recognised
to the extent that the transfer of economic benefit is uncertain.
(l) Financial liabilities
Bank loan facility and overdrafts are initially recorded at the proceeds
received net of direct issue costs and subsequently measured at amortised
cost using the effective interest rate. The associated costs of bank
loan facility are treated as revenue and amortised over the period
of the bank loan facility.
(m) Dividends
Interim dividends to the holders of shares are recorded in the Statement
of Changes in Equity on the date that they are paid. Final dividends
would be recorded in the Statement of Changes in Equity when they are
approved by Shareholders, however the Company currently declares four
interim dividends as opposed to any final dividends.
(n) Judgements, estimates and assumptions
The preparation of financial statements requires the directors to
make estimates and assumptions that affect the application of accounting
policies and the reported amounts of assets, liabilities, income and
expenses. Although these estimates are based on management's best knowledge
of current facts, circumstances and, to some extent, future events
and actions, the Company's actual results may ultimately differ from
those estimates, possibly significantly.
The Company recognises loan investments at fair value through profit
or loss and disclosed in note 3 to the financial statements. The significant
assumptions made at the point of valuation of loans are the discounted
cash flow analysis and/or benchmarked discount/interest rates, which
are deemed appropriate to reflect the risk of the underlying loan.
These assumptions are monitored to ensure their ongoing appropriateness.
The sensitivity impact on the measurement of fair value of loan investments
due to price is discussed in note 20.
3. INVESTMENT AT FAIR VALUE THROUGH PROFIT OR LOSS
(a) Summary of valuation
Year ended 31 December Year ended 31
2021 December 2020
GBP'000 GBP'000
------------------------------------------ ----------------------- ---------------
Financial assets held:
Equity investments 3,600 -
Bond investments 7,346 2,695
Private loan investments 115,728 120,010
126,674 122,705
------------------------------------------ ----------------------- ---------------
(b) Movements
Year ended 31 December Year ended 31
2021 December 2020
GBP'000 GBP'000
------------------------------------------ ----------------------- ---------------
Opening valuation 122,705 131,201
Opening losses on investments 8,276 2,919
------------------------------------------ ----------------------- ---------------
Book cost at the beginning of the year 130,981 134,120
Private loans issued/bonds purchases
at cost 44,582 35,589
Purchase in kind interest (PIK) 3,126 2,602
Purchase of equity investments 5,100 -
Sales:
- Private loans repayments/bonds sales
proceeds (48,962) (41,067)
- Losses on investment (1,763) 258
- Purchase in kind interest (PIK) (587) (521)
Unrealised losses on investments held (5,803) (8,276)
Closing valuation at year end 126,674 122,705
------------------------------------------ ----------------------- ---------------
Book cost at end of the year 132,477 130,981
Unrealised losses on investment holdings
at the year end (5,803) (8,276)
Closing valuation at year end 126,674 122,705
------------------------------------------ ----------------------- ---------------
The Company received GBP49.5 million (2020: GBP41.5 million)
from investments sold in the year. The book cost of these
investments when they were purchased was GBP41.6 million (2020:
GBP41.3 million). These investments have been revalued over time
and until they were sold any unrealised gains/losses were included
in the fair value of the investments.
(c) Gains/(losses) on investments
Year ended 31 December Year ended 31
2021 December 2020
GBP'000 GBP'000
------------------------------------------ ----------------------- ---------------
Realised (losses)/gains on investments (1,763) 258
Unrealised gains/(losses) on investments
held 2,473 (5,357)
Foreign exchange gains/(losses) 553 (676)
Total gains/(losses) on investments 1,263 (5,775)
------------------------------------------ ----------------------- ---------------
At the year end, the Company had two unquoted investments;
1. Esprit Holdco Limited (Energie Fitness). The Company
participated in a management buyout during 2020 and owns 28% of the
business, the registered office and principal of business of
Energie Fitness is 1 Pitfield Kiln Farm, Milton Keynes, United
Kingdom, MK11 3LW. The Investment Manager valued holdings in
Energie Fitness at nil. The equity investment in Energie Fitness
meets the criteria within IFRS 10 as an investment entity and
therefore is held at fair value.
2. Trent Capital Limited. The Company structured a Loan in 2019,
which also offered equity within Trent Capital Limited. The Company
has a 30% net equity holding within the business which is
registered at 17 Walkergate, Berwick Upon Tweed, Northumberland,
TD15 1DJ and the principal business address is Unit 7 Newton
Chambers Way, Thornecliffe Industrial Estate, Chapeltown,
Sheffield, S35 2PH. The Investment Manager valued holdings in Trent
Capital Limited at nil. The equity investment in Trent Capital
Limited meets the criteria within IFRS 10 as an investment entity
and therefore is held at fair value.
4. INCOME
Year ended 31 Year ended 31
December 2021 December 2020
GBP'000 GBP'000
------------------------------------ --------------- ---------------
Income from investments
Bond and loan - cash interest 8,581 8,817
Bond and loan - PIK interest 2,277 1,879
Arrangement fees 102 102
Delayed Compensation fees received 19 46
Prepayment fee - 58
Other income 185 40
--------------- ---------------
Total 11,164 10,942
------------------------------------ --------------- ---------------
5. INVESTMENT MANAGEMENT FEE
Year ended Year ended 31
31 December 2021 December 2020
GBP'000 GBP'000
---------------------------------------------- ------------------ ----------------
Basic fee:
100% charged to revenue 1,013 1,088
Total 1,013 1,088
---------------------------------------------- ------------------ ----------------
The Company's Investment Manager is RM Capital Markets Limited. Under
the amended Investment Management Agreement, effective 1 April 2020,
the Investment Manager is entitled to receive a management fee payable
monthly in arrears or as soon as practicable after the end of each calendar
month an amount one-twelfth of;
(a) 0.875 per cent. of the prevailing NAV in the event that the prevailing
NAV is up to or equal to GBP250 million; or
(b) 0.800 per cent. of the prevailing NAV in the event that the prevailing
NAV is above GBP250 million but less than GBP500 million; or
(c) 0.750 per cent. of the prevailing NAV in the event that the prevailing
NAV is above GBP500 million.
The management fee shall be payable in Sterling on a pro-rata basis
in respect of any period which is less than a complete calendar month.
There is no performance fee payable to the Investment Manager.
6. OTHER EXPENSES
Year ended 31 Year ended 31
December 2021 December 2020
GBP'000 GBP'000
---------------------------------------------- ------------------ ----------------
Basic fee charged to revenue:
Administration Fees 246 242
Auditor's remuneration:
Statutory audit fee 112 94
Broker Fees 141 106
Consultancy Fees 138 90
Directors' Fees 99 99
AIFM fees 151 160
Registrar fees 41 31
Valuation Fees 87 90
Other Expenses 583 280
----------------
Total revenue expenses 1,598 1,192
Expenses charged to capital:
Prospectus issue and capital transaction
costs - 145
Total expenses 1,598 1,337
---------------------------------------------- ------------------ ----------------
7. FINANCE COSTS
Year ended 31 December Year ended 31 December
2021 2020
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ------------ -------- ----------- ----------- ------------ --------
Loan arrangement fees 89 - 89 105 - 105
Loan Interest paid 595 - 595 129 - 129
ZDP Shares finance
costs 113 - 113 401 - 401
Total 797 - 797 635 - 635
------------------------ ------------ -------- ----------- ----------- ------------ --------
8. TAXATION
Year ended 31 December Year ended 31 December
2021 2020
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ------------ -------- ----------- ----------- ------------ --------
Analysis of tax charge for the year:
Corporation tax 14 - 14 246 - 246
------------------------ ------------ -------- ----------- ----------- ------------ --------
Total current tax
charge
(see note 6 (b)) 14 - 14 246 - 246
------------------------ ------------ -------- ----------- ----------- ------------ --------
(b) Factors affecting the tax charge
for the year:
The effective UK corporation tax rate for the period is 19.00% (2020:19.00%).
The tax charge differs from the charge resulting from applying the standard
rate of UK corporation tax for an investment trust company. The differences
are explained below:
Year ended 31 December Year ended 31 December
2021 2020
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ------------ -------- ----------- ----------- ------------ --------
Return on ordinary
activities
before taxation 7,756 1,263 9,019 7,463 (5,355) 2,108
------------------------ ------------ -------- ----------- ----------- ------------ --------
UK corporation tax at
19.00%
(2020:19.00%) 1,474 240 1,714 1,418 (1,018) 400
Effects of:
Fair value losses not
deductible - (240) (240) - 990 990
Interest distributions
paid/payable (1,460) - (1,460) (1,172) - (1,172)
Management expenses not
allowable - - - - 28 28
Total tax charge 14 - 14 246 - 246
------------------------ ------------ -------- ----------- ----------- ------------ --------
The Company is not liable to tax on capital gains due to its status as
an investment trust.
(c) Deferred tax
assets/(liabilities)
The Company had no recognised or unrecognised deferred asset/liability
as at the year end.
9. RECEIVABLES
As at 31 December As at 31 December
2021 2020
Company GBP'000 GBP'000
-------------------------------------- --------------------- --------------------------------------
Amounts falling due within one year:
Repayment of investment private loans
receivable - 7,330
Bond and loan interest receivable 1,603 1,983
Prepayments and other receivables 1,081 1,185
--------------------------------------
Total 2,684 10,498
-------------------------------------- --------------------- --------------------------------------
10. PAYABLES
Year ended 31 Year ended 31
December 2021 December 2020
GBP'000 GBP'000
-------------------------------------- --------------------- -------------------------
Amounts falling due within one year:
Loan reserves retained 454 595
Intercompany payable - 157
Taxation payable 14 246
Other creditors 1,379 1,647
---------------------
Total 1,847 2,645
-------------------------------------- --------------------- -------------------------
11. INTERCOMPANY LOAN
As at 31 December 2021 As at 31 December 2020
GBP'000 GBP'000
----------------------------------------------------- ------------------------ ---------------------------
Intercompany loan payable
to RM ZDP - 11,541
Finance costs and capital
contribution - 401
---------------------------
Total - 11,942
----------------------------------------------------- ------------------------ ---------------------------
Intercompany Loan Agreement
On 29 March 2018, the Company entered into a Loan Agreement with RM ZDP
(the "ZDP Loan"). Pursuant to the Loan Agreement, RM ZDP lent the entirety
of the gross proceeds of the issue of ZDP Shares on 3 April 2018 to the
Company, which has been applied towards making investments in accordance
with the Investment Policy and for working capital purposes.
The Loan Agreement provides that, interest will accrue on the ZDP Loan
daily at a rate of 2% per annum, compounded annually on each anniversary
of Admission of the ZDP Shares and will be rolled up and paid to RM ZDP
along with repayment of the principal. On 6 April 2021, the Company repaid
principal and rolled up interest of GBP12,056,000 to RM ZDP plc.
12. BANK LOAN-CREDIT FACILITY
Year ended 31 Year ended 31
December 2021 December 2020
GBP'000 GBP'000
------------------------------------------------------- ----------------------- -------------------------
Oak North Bank-Credit facility 19,571 10,500
------------------------------------------------------- ----------------------- -------------------------
Total 19,571 10,500
------------------------------------------------------- ----------------------- -------------------------
On 26 March 2021, the Company renewed and amended its revolving
credit facility with OakNorth. The Company had entered into an
uncommitted 90-day notice revolving loan of GBP10,500,000
("Facility A") and a committed term revolving loan of GBP11,942,000
("Facility B"), together with Facility A the ("Facilities") with
OakNorth for the purposes set out in the credit facility
agreement.
Facility A will be provided to be applied in or towards:
-- repaying all amounts due from the Company to the OakNorth under its existing loan agreement;
-- funding by the Company of customer loans;
-- refinancing (where applicable) any customer loans made by the Company;
-- purchasing investments by the Company;
-- the provision of liquidity to the Company; and
-- payment of finance costs (including fees) payable under the loan.
Facility B will be provided to be applied in or towards:
-- repaying sums due from the Company to RM ZDP plc;
-- funding by the Company of customer loans;
-- refinancing (where applicable) any customer loans made by the Company;
-- purchasing investments by the Company;
-- the provision of liquidity to the Company; and
-- payment of finance costs (including fees) payable under the loan agreement.
The rate of interest on the facilities are the aggregate of the
applicable margin and base rate (subject to a base rate floor of
0.10%). The margin is 4.65% p.a. The facilities expire on 26 March
2024 .
During the year, the Company drew cumulative amount of GBP30.1
million (2020: GBP17.8 million) from the revolving credit facility
and repaid cumulative amount of GBP20.0 million (2020: GBP7.3
million). The remaining balance as at 31 December 2021 amounts to
GBP19.6 million (2020: GBP10.5 million).
13. SHARE CAPITAL
As at 31 December 2021 As at 31 December 2020
------------------------------------- --------------------------------------
No. of Shares GBP'000 No. of Shares GBP'000
----------------------------------- --------------------- -------------- -------------------- ----------------
Allotted, issued & fully paid:
Ordinary shares of 1p 117,840,988 1,178 118,364,282 1,184
----------------------------------- --------------------- -------------- -------------------- ----------------
Share movement
The table below sets out the share movement for the year ended 31 December
2021.
------------------------------------------------------------------------------------------------------------------
Shares in
issue at
Shares bought 31 December
Opening balance Shares issued back 2021
----------------------------------- --------------------- -------------- -------------------- ----------------
Ordinary Shares 118,364,282 - (523,294) 117,840,988
----------------------------------- --------------------- -------------- -------------------- ----------------
At the year end, the Company has 117,840,988 Ordinary Shares in issue with
voting rights and 4,383,593 Ordinary Shares held in Treasury.
Ordinary Share buy backs
During the year, the Company bought back 523,294 Ordinary Shares for an
aggregate cost of GBP463,838. Since the year end no further Ordinary Shares
have been bought back.
14. SHARE PREMIUM
As at 31 December As at 31 December
2021 2020
GBP'000 GBP'000
------------------------------------- ------------------ ------------------
Balance as at beginning of the year 70,168 70,146
Share buybacks 6 38
Share buyback costs (6) (16)
Balance as at 31 December 2021 70,168 70,168
------------------------------------- ------------------ ------------------
15. RETURN PER ORDINARY SHARE
Based on the weighted average of number of 117,976,668 (2020: 120,985,417)
Ordinary Shares in issue for the year ended 31 December 2021, the returns
per share were as follows:
Year ended 31 December Year ended 31 December
2021 2020
Revenue Capital Total Revenue Capital Total
--------------------- ------------ --------------------- -------------- -------- ---------- ----------------
Return per Ordinary
Share 6.56p 1.07p 7.63p 5.96p (4.43p) 1.53p
--------------------- ------------ --------------------- -------------- -------- ---------- ----------------
There are no dilutive shares in issue.
16. NET ASSET VALUE PER SHARE
The NAV per share is based on Company's total shareholders' funds of
GBP112,750,000 (2020: GBP110,384,000), and on 117,840,988 (2020: 118,364,282)
Ordinary Shares in issue at the year end.
Nav per ordinary share reconciliation
The table below is a reconciliation between the NAV per Ordinary
Share of the Company as announced on the London Stock Exchange and
the NAV per Ordinary Share disclosed in these financial
statements.
As at 31 December
As at 31 December 2021 2020
NAV per NAV per
Net assets Ordinary Net assets Ordinary
(GBP) share (p) (GBP) share (p)
-------------------------------- ------------ ----------- ------------ -----------
NAV as published on 15 January
2022/2021 112,949,700 95.85 111,123,419 93.88
Tax liability adjustments - - (246,000) (0.20)
DAS accrual income adjustment (199,500) (0.17) - -
Equity revaluation adjustment* (1,500,000) (1.27) - -
Share buyback adjustments - - (493,851) (0.42)
-------------------------------- ----------- ------------ -----------
NAV as disclosed in these
Financial Statements 111,250,200 94.41 110,383,568 93.26
-------------------------------- ------------ ----------- ------------ -----------
*Refer to Note 21 for a description of the equity revaluation
adjustment
17. DIVID
Total
dividends
paid Year ended 31 December
in the year Year ended 31 December 2021 2020
----------------------------------------------- --------------------------------------------
Pence Pence
per per
Ordinary Revenue Capital Ordinary Revenue Capital
share GBP'000 GBP'000 Total share GBP'000 GBP'000 Total
-------------- --------- --------- -------------- --------- --------- --------- --------- -----------
2020 Interim
- Paid
26 Mar 2021
(2019:
27 Mar 2020) 1.6250p 1,918 - 1,918 1.7000p 2,078 - 2,078
2021 Interim
- Paid
25 Jun 2021
(2020:
26 Jun 2020) 1.6250p 1,917 - 1,917 1.6250p 1,975 - 1,975
2021 Interim
- Paid
24 Sep 2021
(2020:
25 Sep 2020) 1.6250p 1,917 - 1,917 1.6250p 1,967 - 1,967
2021 Interim
- Paid
30 Dec 2021
(2020:
30 Dec 2020) 1.6250p 1,917 - 1,917 1.6250p 1,942 - 1,942
-------------- --------- --------- -------------- --------- --------- --------- --------- -----------
Total 6.5000p 7,669 - 7,669 6.5750p 7,962 - 7,962
-------------- --------- --------- -------------- --------- --------- --------- --------- -----------
The dividend relating to the year ended 31 December 2021, which is the
basis on which the requirements of Section 1159 of the Corporation Tax
Act 2010 are considered is detailed below:
Total Year ended 31 December 2021 Year ended 31 December
dividends in 2020
relation to
the year
-------------- ----------------------------------------------- --------------------------------------------
Pence Pence
per per
Ordinary Revenue Capital Ordinary Revenue Capital
share GBP'000 GBP'000 Total share GBP'000 GBP'000 Total
-------------- --------- --------- -------------- --------- --------- --------- --------- -----------
2021 Interim
- Paid
25 Jun 2021
(2020:
26 Jun 2020) 1.6250p 1,917 - 1,917 1.6250p 1,975 - 1,975
2021 Interim
- Paid
24 Sep 2021
(2020:
25 Sep 2020) 1.6250p 1,917 - 1,917 1.6250p 1,967 - 1,967
2021 Interim
- Paid
30 Dec 2021
(2020:
30 Dec 2020) 1.6250p 1,917 - 1,917 1.6250p 1,942 - 1,942
2021 Interim
- Payable
25 Mar 2022
(2020:
26 Mar 2021* 1.6250p 1,915 - 1,915 1.6250p 1,918 - 1,918
Total 6.5000p 7,666 - 7,666 6.5000p 7,802 - 7,802
-------------- --------- --------- -------------- --------- --------- --------- --------- -----------
*Not included as a liability in the year ended 31 December 2021 financial
statements.
18. RELATED
PARTY
TRANSACTIONS
Fees are payable at an annual rate of GBP36,000 to the Chair, GBP33,000
to the Chair of the Audit and Management Engagement Committee and GBP30,000
to the other Director. As at 31 December 2021, there were no Directors'
fees outstanding. The Directors' fees are disclosed in note 7 and the
Directors' shareholdings are disclosed in the Directors Remuneration
Report in the Annual Report for the year ended 31 December 2021.
Fees payable to the Investment Manager are shown in the Statement of
Comprehensive Income. As at 31 December 2021 the fee outstanding to
the Investment Manager was GBP84,000 (2020: GBP93,000).
Arrangement fees are paid by some borrowers to the Investment Manager.
The amount the Investment Manager can retain from borrowers in most
cases is capped at 1.25% and agreed with the Board. The Company receives
any arrangement fees from the Investment Manager in excess of the 1.25%
or otherwise agreed with the borrower. During the year to 31 December
2021, the Company received GBP102,000 (2020: GBP102,000) in arrangement
fees from RM.
As at 31 December 2021, the Investment Manager held 1,279,125 (2020:
1,237,325) Ordinary Shares in the Company.
Since the year end, the Investment Manager purchased a further 12,500
Ordinary Shares in the Company, and as of the date of the Annual Report,
the Investment Manager's total holding of Ordinary Shares is 1,291,625
(2020: 1,249,825).
Significant Holdings Disclosure Requirements - Companies Act 2006
The Company holds an unquoted investment in Coventry Student Accommodation
1 Limited ("Coventry", the wholly owned asset). As at 31 December 2021,
the Company owns 100% of the business. The registered office and principal
place of business of Coventry is 1(st) Floor Senator House, 85 Queen
Victoria Street, London, United Kingdom, EC4V 4AB. The Investment Manager's
valuation of the holdings in Coventry is GBP3.6 million as at 31 December
2021.
The equity investment in Coventry meets the criteria within IFRS 10
as an investment entity and therefore held at fair value.
19. CLASSIFICATION OF FINANCIAL
INSTRUMENTS
IFRS 13 requires the Company to classify its investments in a fair value
hierarchy that reflects the significance of the inputs used in making the
measurements. IFRS 13 establishes a fair value hierarchy that prioritises
the inputs to valuation techniques used to measure fair value. The three
levels of fair value hierarchy under IFRS 13 are as follows:
Level 1
Inputs are quoted prices in active markets for identical assets or liabilities
that the entity can access at the measurement date.
Level 2
Inputs other than quoted market prices included within Level 1 that are
observable for the asset or liability, either directly or indirectly.
Level 3
Inputs are unobservable for the asset or liability.
The classification of the Company's investments held at fair value through
profit or loss is detailed in the table below:
31 December 2021 31 December 2020
Level Level Level Level Level Level
1 2 3 Total 1 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------- --------- --------- -------------- --------- --------- -------------------- ----------- --------------
Financial
assets:
Financial
assets -
Private
loans and
bonds - 7,346 - 7,346 - 25,013 - 25,013
Financial
assets -
Private
loans - - 115,728 115,728 - - 97,692 97,692
Financial
assets -
Equity
investment - - 3,600 3,600 - - - -
Forward
contract
unrealised
gain - 137 - 137 - 161 - 161
Net financial
assets
(including
forwards)* - 7,483 119,328 126,811 - 25,174 97,692 122,866
-------------- --------- --------- -------------- --------- --------- -------------------- ----------- --------------
*The net unrealised gain of GBP136,729 (2020: GBP161,027) on forwards
is recognised within prepayments and other debtors in the Statement of
Financial Position.
As at 31 December 2021, the fair value of the Company's loans is materially
equal to the carrying value.
Investments that trade in markets that are not considered to be active
but are valued based on quoted market prices, dealer quotations or alternative
pricing sources supported by observable inputs are classified within Level
2.
Level 3 holdings are valued using a discounted cash flow analysis and benchmarked
discount/interest rates appropriate to the nature of the underlying loan
and the date of valuation.
Interest rates are a significant input into the Level 3 valuation methodology.
Interest rates used in the valuation range from 5.88% to 20.5% (2020: 5.3%
to 15.0%). Sensitivity analysis of interest rates can be found in the Annual
Report.
There have been no movements between levels during the reporting period.
The Company considers factors that may necessitate the transfers between
levels using the definition of the levels 1, 2 and 3 above.
Reconciliation of the Level 3 classification investments during the year
to 31 December 2021 is shown below:
31 December 31 December
2021 2020
GBP'000 GBP'000
-------------- --------- --------- -------------- --------- --------- -------------------- ----------- --------------
Balance as at beginning of the year 97,692 87,878
New loans during the year 38,253 38,258
New equity investments
during
the year 3,600 -
Repayments during the year (16,558) (23,905)
Realised (losses)/gains during the
year (832) 545
Unrealised losses at the year end (2,827) (5,084)
------------------------------------
Closing balance as at 31 December
2021 119,328 97,692
------------------------------------ -------------- --------- --------- -------------------- ----------- --------------
20. FINANCIAL INSTRUMENTS AND CAPITAL DISCLOSURES
The Company invests in private loan, bond investments and an equity
investment. Financial instrument and capital disclosures are only
prepared on a Company basis as this is the basis on which reports
are made to the decision makers. The following describes the risks
involved and the applied risk management. The Investment Manager
reports regularly both verbally and formally to the Board, and its
relevant committees, to allow them to monitor and review all the
risks noted below.
(i) Market risks
The Company is subject to a number of Market risks in relation to economic
conditions and healthcare companies. Further detail on these risks and
the management of these risks are included in the Annual Report.
The Company's financial assets and liabilities at 31 December 2021
comprised:
Year ended 31 December 2021 Year ended 31 December 2020
Interest Non-interest Interest Non-interest
bearing bearing Total bearing bearing Total
Investments GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------- ----------- ------------- --------------- --------------- --------------- ---------------
GB sterling 116,674 - 116,674 109,354 - 109,354
Euro 10,000 - 10,000 13,351 - 13,351
Total
investment 126,674 - 126,674 122,705 - 122,705
-------------- ----------- ------------- --------------- --------------- --------------- ---------------
Cash and cash
equivalents 3,310 - 3,310 2,236 - 2,236
Receivables - 2,684 2,684 - 10,515 10,515
Payables - (21,418) (21,418) (10,500) (2,634) (13,134)
Intercompany
loan payable - - - (11,942) - (11,942)
Total 129,984 (18,734) 111,250 102,499 7,881 110,380
-------------- ----------- ------------- --------------- --------------- --------------- ---------------
Price risk sensitivity
The effect on the portfolio of a 10.0% increase or decrease in the value
of the loans and equity portfolio would have resulted in an increase or
decrease of GBP12,667,000 (2020: GBP12,271,000) in the investments held
at fair value through profit or loss at the period end date. This analysis
assumes that all other variables remain constant.
Given the portfolio has a weighted average life of circa 2.5 years, a
movement of 1bp affects the Company's portfolio values by 0.02bp (GBP220/per
GBP1 million). Therefore, if the discount rates were to move higher by
100bp across GBP131 million (gross assets as at 31 December 2021), that
will result in a loss to the Company's NAV of GBP2.9 million.
(ii) Credit risks
The Company's investments will be predominantly in the form of private
loans whose revenue streams are secured against contracted, predictable
medium to long-term cash flows and/or physical assets, and whose debt
service payments are dependent on such cash flows and/or the sale or refinancing
of the physical assets. The key risks relating to the private loans include
risks relating to counterparty default, senior debt covenant breach risk,
bridge loans, adverse credit risk spread, delays in the receipt of anticipated
cash flows and borrower default, and collateral risks.
The Company is also exposed to the risk of default on cash held at the
bank and other trade receivables. The maximum exposure to credit risk
on cash at bank and other trade receivables at 31 December 2021 was GBP3,310,000
and GBP2,684,000 respectively (2020: GBP2,236,000 and GBP10,515,000).
None of these amounts are considered past due or impaired and interest
is based on the prevailing money market rates.
The table below shows the Company's exposure to credit risks as the
year end.
As at 31 December 2021 As at 31 December 2020
Maximum Maximum
Fair value exposure Fair value exposure
GBP'000 GBP'000 GBP'000 GBP'000
-------------- ----------- ------------- --------------- --------------- --------------- ------------
Private loan
investments 115,728 115,728 120,010 120,010
Equity
instruments 3,600 3,600 - -
Bond
investments 7,346 7,346 2,695 2,695
Cash and cash
equivalent 3,310 3,310 2,236 2,236
Receivables 2,684 2,684 10,515 10,515
Total 132,668 132,668 135,456 135,456
-------------- ----------- ------------- --------------- --------------- --------------- ------------
Management of risks
The Investment Manager reports a number of key metrics on a monthly basis
to its Credit Committee including pipeline project information, outstanding
loan balances, lending book performance and early warning indicators.
The Investment Manager monitors ongoing credit risks in respect of the
loans. Typically, the Company's loan investments are private loans and
would usually exhibit credit risk classified as 'non-investment' if a
public rating agency was referenced.
The Company's main cash balances are held with The Royal Bank of Scotland
plc ("RBS"). Bankruptcy or insolvency of the bank holding cash balances
may cause the Company's rights with respect to the cash held by them
to be delayed or limited. The Company manages its risk by monitoring
the credit quality of RBS on an ongoing basis.
(iii) Interest rate risks
Private Loans
The Company may make loans based on estimates or projections of future
interest rates because the Investment Manager expects that the underlying
revenues and/or expenses of a borrower to whom the Company provides loans
will be linked to interest rates, or that the Company's returns from
a loan are linked to interest rates. If actual interest rates differ
from such expectation, the net cash flows of the borrower or payable
to the Company may be lower than anticipated.
Interest rate sensitivity
Interest Income earned by the Company is primarily derived from fixed
interest rates. The interest earned from the floating element of loan
and debt security investments is not significant. Based on the Company's
private loan investments, bond investments, cash and cash equivalents
as at 31 December 2021, a 0.50% increase/(decrease) in interest rates,
all other things being equal, would lead to a corresponding increase/(decrease)
in the Company's income as follows.
As at 31 December
As at 31 December 2021 2020
0.50%
0.50% Increase 0.50% Decrease 0.50% Increase Decrease
GBP'000 GBP'000 GBP'000 GBP'000
-------------- ----------- ------------- --------------- --------------- --------------- ------------
Private loans investments 579 (579) 488 (488)
Bond
investments 37 (37) 125 (125)
Equity
investments 18 (18) - -
Cash and cash
equivalent 17 (17) 11 (11)
Total 648 (648) 624 (624)
-------------- ----------- ------------- --------------- --------------- --------------- ------------
Management of risks
The Investment Manager's investment process takes into account interest
rate risk. The investment strategy is to invest in private loans with
maturities typically between 2 and 10 years. Exposure to predominantly
higher yielding loans and possible floating rate investments can mitigate
interest rate risk to some extent. On a monthly basis, Investment Managers
review fixed/floating and weighted average life of the portfolio for
interest rate risk.
(iv) Liquidity risks
Liquidity risk is defined as the risk that the Company will encounter
difficulties in realising assets or otherwise raising funds to meet financial
commitments. The cash and cash equivalent balance at the year-end was
GBP3,310,000 (2020: GBP2,236,000).
Financial liabilities by maturity at the period end are shown
below:
31 December 31 December
2021 2020
GBP'000 GBP'000
-------------- ----------- ------------- --------------- --------------- --------------- ------------
Within one - -
month
Between one and three months 1,393 2,039
Between three months and one year - 23,037
More than one year 20,025 -
Total 21,418 25,076
-------------- ----------- ------------- --------------- --------------- --------------- ------------
The Investment Manager manages the Company's liquidity risk by investing
in a diverse portfolio of loans, secured debt instruments and an equity
investment in line with the Investment Policy and Investment restrictions.
The Investment Manager may utilise other measures such as borrowing,
share issues including treasury shares for liquidity purposes.
The maturity profile of the Company's portfolio as at the year-end is
as follows:
31 December 31 December
2021 2020
GBP'000 GBP'000
-------------- ----------- ------------- --------------- --------------- --------------- ------------
Within one
month 4,628 6,625
Between one and three months - -
Between three months and one year 855 5,394
More than one year 121,191 110,686
Total 126,674 122,705
-------------- ----------- ------------- --------------- --------------- --------------- ------------
(v) Foreign currency risks
Foreign currency risk is the risk that the value of a financial instrument
will fluctuate because of changes in foreign currency exchange rates.
Currency risk arises when future commercial transactions and recognised
assets and liabilities are denominated in a currency that is not the
Company's functional currency. The Company invests in debt security instruments
that are denominated in currencies other than sterling.
Accordingly, the value of the Company's assets may be affected favourably
or unfavourably by fluctuations in currency rates and therefore the Company
will necessarily be subject to foreign exchange risks.
Based on the financial assets and liabilities at 31 December 2021 and
all other things being equal, if sterling had weakened against the local
currencies by 10%, the impact on the Company's net assets at 31 December
2021 would have been as follows:
31 December 31 December
2021 2020
GBP'000 GBP'000
-------------- ----------- ------------- --------------- --------------- --------------- ------------
Euro 167 204
US dollar - 16
-------------- ----------- ------------- --------------- --------------- --------------- ------------
Total 167 220
-------------- ----------- ------------- --------------- --------------- --------------- ------------
Foreign currency risk profile
31 December 2021 31 December 2020
Investment Net monetary Total currency Investment Net monetary Total
exposure exposure exposure exposure exposure currency
exposure
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------- ----------- ------------- --------------- --------------- --------------- ------------
Euro 1,410 262 1,672 1,726 313 2,039
US dollar - 4 4 - 156 156
-------------- ------------- --------------- --------------- --------------- ------------
Total 1,410 266 1,676 1,726 469 2,195
-------------- ----------- ------------- --------------- --------------- --------------- ------------
Management of currency risks
The Company's Investment Manager monitors the currency risk of the Company's
portfolio on a regular basis. Foreign currency exposure is regularly
reported to the Board by the Investment Manager. The Investment Manager
may hedge any currency back to sterling as they see fit.
Fair values of financial assets and liabilities
All financial assets and liabilities are recognised in the financial
statements at fair value, with the exception of short-term assets (with
a maturity profile of less than 12 months) and liabilities, which are
held at amortised cost for which fair value is given in note 20.
As at 31 December 2021, the fair value of the Company's loans is materially
equal to the carrying value.
Capital management
The Company's share capital consists of Ordinary Shares of 1 pence each,
its distributable reserves, which comprise Revenue reserve, Capital reserve
and the Special reserve. In accordance with accounting standards, the
Company's Ordinary Shares are considered to be equity.
The Company has a stated discount control policy. The Investment Manager
and the Company's broker monitor the demand for the Company's shares
and the Directors review the position at Board meetings. Further details
on share issues during the year and the Company's policies for issuing
further shares and buying back shares (including the Company's discount
management) can be found in the Annual Report.
During the year the Company bought back 523,294 shares (2020: 3,860,299)
which are held in treasury.
The Company's policy on borrowing is detailed in the Annual Report.
The details of the Company's OakNorth facilities are discussed in note
12.
21. POST BALANCE SHEET EVENTS
Since 31 December 2021, markets have fallen significantly with a number
of investor concerns impacting on stock market valuations. These include:
the Russian invasion of Ukraine, the continuing disruption caused by
Covid and the impact that rising inflation and interest rates may have
on the outlook for the global economy. The Company has assessed it has
no direct exposure to this.
In January 2022, RM Funds received a Fire Safety Report from Osborn Associates,
relating to a property owned within the wholly owned asset, which had
been commissioned during 2021 as a EWS1 form undertaken during 2021 concluded
that remedial works were required due to the fire risk of the building.
The Osborne Associates document focused on fire safety and compliance
and principally identified deficiencies with regards to the design and
construction of certain aspects to the building cladding. The project
agent put out the updated design specification to tender during Q1 2022
to remediate these deficiencies. These remediation costs were received
in late March 2022 and totalled approximately GBP1.5m including VAT.
These remedial works are required to make the building complaint to allow
safe occupation and it was decided to reduce the value of the asset by
these costs. As the building was in this non-compliant state as at 31
December 2021 it is deemed an adjustment event. Concurrent to this workstream
RM Funds are working with lawyers acting on behalf of RMII to lodge a
claim against the original scheme contractors and or consultants to recover
these costs.
FINANCIAL INFORMATION
This announcement does not constitute the Company's statutory
accounts. The financial information is derived from the statutory
accounts, which will be delivered to the registrar of companies and
will be put forward for approval at the Company's Annual General
Meeting. The statutory accounts for the year ended 31 December 2020
have been delivered to the registrar of companies. The auditors
have reported on the accounts for the year ended 31 December 2021
and the year ended 31 December 2020, their reports were unqualified
and did not include a statement under Section 498(2) or (3) of the
Companies Act 2006.
The Annual Report for the year ended 31 December 2021 was
approved on 20 April 2022. It will be made available on the
Company's website at
https://rm-funds.co.uk/rm-infrastructure-income/investor-relations/
The Annual Report will be submitted to the National Storage
Mechanism and will shortly be available for inspection at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
This announcement contains regulated information under the
Disclosure Rules and Transparency Rules of the FCA.
ANNUAL GENERAL MEETING
The Annual General Meeting will be held on 31 May 2022 at 12.00
p.m. at the offices of Singer Capital Markets Advisory LLP, 1
Bartholomew Lane, London EC2N 2AX.
20 April 2022
Secretary and registered office:
Sanne Fund Services (UK) Limited
6th Floor
125 London Wall
London
EC2Y 5AS
For further information contact:
Brian Smith / Ciara McKillop
Sanne Fund Services (UK) Limited
Tel: 020 3327 9720
This information is provided by RNS, the news service of the
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END
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(END) Dow Jones Newswires
April 21, 2022 02:00 ET (06:00 GMT)
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