TIDMEJFI TIDMEJFZ
RNS Number : 2164U
EJF Investments Ltd
01 April 2021
FOR IMMEDIATE RELEASE
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN
PART, DIRECTLY OR INDIRECTLY, IN OR INTO OR FROM THE UNITED STATES,
ANY MEMBER STATE OF THE EUROPEAN ECONOMIC AREA (OTHER THAN THE
REPUBLIC OF IRELAND), AUSTRALIA, CANADA, SOUTH AFRICA OR ANY OTHER
JURISDICTION WHERE IT IS UNLAWFUL TO DO SO.
1 April 2021
EJF Investments Ltd
Announcement of Final Results to 31 December 2020
The Directors of EJF Investments Ltd ("EJFI" or the "Company")
announce the final results for the year ended 31 December 2020.
In an unprecedented year, the Company continued to meet its
Target Dividend for the year of 10.7 pence per Ordinary Share,
received all expected interest income from its underlying
investments and experienced no noteworthy credit deterioration in
the portfolio during the year. The Manager believes the portfolio
remains well positioned to continue to benefit from favourable
regulatory and improving economic conditions and continues to see
an attractive pipeline of investments.
Highlights
-- Total Net Asset Value ("NAV") return per ordinary share,
inclusive of dividends, of -7.0% for the year ended 31 December
2020;
-- Total NAV return per ordinary share, inclusive of dividends,
of 53.0% since inception (exchange offer on 9 February 2017) to 31
December 2020;
-- NAV as at 31 December 2020 of GBP100.6 million, 164 pence per ordinary share;
-- Share price discount to NAV as at 31 December 2020 of 28.7%; and
-- Dividend yield for the year ended 31 December 2020 based on
dividends declared in respect of the period and NAV at 31 December
2020 of 6.5%.
-- Dividend yield for the year ended 31 December 2020 based on
dividends declared in respect of the period and Share Price at 31
December 2020 of 9.1%.
Post Annual Report Update
-- Dividend of 2.675 pence per ordinary share paid in respect of
the quarter ended 31 December 2020;
-- Partial removal of foreign currency hedges as of 15(th)
February 2021, with only the final sterling capital entitlements of
the 2022 and 2025 zero dividend preference shares remaining
hedged;
-- Further investments of approximately GBP1.6 million made into
Seneca; the Company may deploy further amounts when attractive MSR
pools become available; and
-- NAV as at 28 February 2021 of GBP101.1 million or 165 pence
per ordinary share, representing a year to date total return of
2.14%.
The Company's Annual Report and Audited Financial Statements for
the year ended 31 December 2020, which includes the charts referred
to in the Manager's Report, will be made available to shareholders
shortly.
ENQUIRIES
For the Investment Manager
EJF Investments Manager LLC
Peter Stage / Hammad Khan / Matt Gill
pstage@ejfcap.com / hkhan@ejfcap.com / mgill@ejfcap.com
+44 203 752 6775 / +44 203 752 6771 / +44 203 752 6774
For the Company Secretary and Administrator
BNP Paribas Securities Services S.C.A., Jersey Branch
jersey.bp2s.ejf.cosec@bnpparibas.com
+44 1534 813 996 / + 44 1534 813 873
For the Broker
Numis Securities Limited
David Luck
d.luck@numis.com
+44 20 7260 1301
About EJF Investments Ltd
EJFI is a registered closed-ended limited liability company
incorporated in Jersey under the Companies (Jersey) Law 1991, as
amended, on 20 October 2016 with registered number 122353. The
Company is regulated by the Jersey Financial Services Commission
(the "JFSC"). The JFSC is protected by both the Collective
Investment Funds (Jersey) Law 1988 and the Financial Services
(Jersey) Law 1998, as amended, against liability arising from the
discharge of its functions under such laws.
The JFSC has not reviewed or approved this announcement.
LEI: 549300XZYEQCLA1ZAT25
Investor information & warnings
The latest available information on the Company can be accessed
via its website at www.ejfi.com .
This communication has been issued by, and is the sole
responsibility of, the Company and is for information purposes
only. It is not, and is not intended to be an invitation,
inducement, offer or solicitation to deal in the shares of the
Company. The price and value of shares in the Company and the
income from them may go down as well as up and investors may not
get back the full amount invested on disposal of shares in the
Company. An investment in the Company should be considered only as
part of a balanced portfolio of which it should not form a
disproportionate part. Prospective investors are advised to seek
expert legal, financial, tax and other professional advice before
making any investment decision.
Corporate Summary
Overview
EJFI is a closed-ended investment company incorporated with
limited liability in the Bailiwick of Jersey on 20 October 2016
under the provisions of the Companies Law with registered number
122353. The Company's registered office and principal place of
business is IFC1, The Esplanade, St. Helier, Jersey, JE1 4BP,
Channel Islands. The principal legislation under which the Company
operates is the Companies Law. The Company's capital comprises
Ordinary Shares and ZDP Shares admitted to trading on the SFS.
Purpose
The Company is an essential part of EJF's overall strategy and
acts as a public vehicle to provide exposure to investments in the
equity tranches of EJF sponsored securitisations, subject to
Directors' approval. The Manager believes the Company offers
attractive risk adjusted returns for its shareholders in a niche
asset class, with a target of paying quarterly dividends and
growing the Net Asset Value.
Strategy
The Company aims to achieve its purpose by pursuing a policy of
investing in a diversified portfolio of investments that are
derived from the changing financial services landscape. These
investments are anticipated to include structured debt and equity,
loans, bonds, preference shares, convertible notes and private
equity, in cash and potentially synthetic formats issued by
entities domiciled in the US, UK and Europe.
Values
To promote the long-term success of the Company through
responsible investing, focussing on the values of the Company in a
world with constantly evolving social and economic demographics. We
believe that a strong corporate governance structure is crucial to
the pursuit of this goal along with trusted relationships with our
advisors.
Investment Objective
The Company seeks to generate risk adjusted returns for its
shareholders by investing, through its Subsidiary, in opportunities
created by regulatory and structural changes impacting the
financial services sector. These opportunities can include
structured debt and equity, loans, bonds, preference shares,
convertible notes and private equity, in both cash and synthetic
formats issued by entities domiciled in the US, UK and Europe.
Investments consist primarily of Securitisation and Related
Investments and Specialty Finance Investments.
The Company targeted a Total Return of 8% to 10% per annum for
the financial year to 31 December 2020 (31 December 2019: 8% to
10%), and paid the Target Dividend for the year of 10.7 pence per
Ordinary Share (31 December 2019: 10.7 pence per ordinary share).
The Target Dividend for the financial year to 31 December 2021
remains at 10.7 pence per Ordinary Share.
The Company's detailed Investment Policy can be found on pages
64 to 67 of its Prospectus, which is available on the Company's
website, www.ejfi.com
Structure
Since incorporation, the Company has incorporated two
subsidiaries: EJFIH (incorporated on 9 June 2017), of which the
Company owns 100% of the stated capital, and EJFIF (incorporated on
5 September 2018), of which EJFIH owned 100% of the stated
capital.
During 2020, the Directors of the Company assessed the purpose
of EJFIF and the wider group structure, subsequent to the change in
classification of the Company to a corporation for US federal
income tax purposes on 31 December 2019. As a result of that
assessment, the Directors concluded that EJFIF was no longer
required as a holding company and thus could be liquidated, so as
to reduce the ongoing administration and costs of operating the
group structure. EJFIF was liquidated on 15 December 2020 after all
assets were distributed to EJFIH.
The holding of assets via EJFIH allows the Company to manage the
upstreaming of portfolio income with greater flexibility and cash
flow management and conduct its affairs in accordance with the
criteria for the non-UK investment trust exemption to the UK
Unregulated Collective Investment Schemes and Close Substitutes
Instrument 2013.
Manager
The Company is externally managed by the Manager. EJF holds 100%
of the voting rights in the Manager. EJF is an investment adviser
principally located in the US and registered as such with the SEC
and as a CPO and CTA with the CFTC.
To meet the requirements of Rule 206(4)-2 under the Investment
Advisors Act 1940 (the "Custody Rule") the Audited Financial
Statements of the Company have also been audited in accordance with
US GAAS.
The Company has appointed the Manager to act as the AIFM for the
purposes of the AIFM Directive.
Share Issuance and Buyback
Buy-back Programme
On 9 March 2020, the Company announced that the Directors had
approved a share buy-back, under the authorities given at the AGM
held on 21 June 2019, of up to GBP5,000,000 worth of the Company's
Ordinary Shares. Between 10 March 2020 and 13 March 2020, the
Company bought back 3,030,108 Ordinary Shares at a total cost of
GBP5,005,006 (inclusive of transaction costs).
Issuance
The Company announced on 22 May 2020 that the Board had approved
the issue of 7,396,515 new Ordinary Shares to the Corporate Broker,
under the Placing Programme. Immediately following admission to
trading on SFS on 28 May 2020, these shares were repurchased by the
Company to be held in treasury. Ordinary Shares held in treasury
are available to be sold to meet ongoing market demand.
Capital Raise through Placing of 2025 ZDP Shares
On 12 June 2020, the Company announced its intention to raise
new capital pursuant to its Placing Programme as detailed in the
Prospectus. The Company sought to raise additional capital via a
conditional placing of up to 6.06 million 2025 ZDP Shares at a
price of 100 pence per 2025 ZDP Share.
On 17 June 2020, the Company announced that it had raised gross
proceeds of GBP6 million pursuant to a placing of 6,000,000 new
2025 ZDP Shares at a price of 100 pence per 2025 ZDP Share.
The 2025 ZDP Shares have a gross redemption yield of 7.0%, with
a final capital entitlement of 140 pence per 2025 ZDP Share on the
repayment date of 18 June 2025 and were admitted to trading on the
SFS on 22 June 2020.
Listing Information
As at 31 December 2020
Ordinary 2022 ZDP 2025 ZDP
Shares Shares Shares
ISIN JE00BF0D1M25 JE00BDG12N48 JE00BK1WV903
------------- ------------- -------------
SEDOL BF0D1M2 BDG12N4 BK1WV90
------------- ------------- -------------
TICKER EJFI EJFZ EJF0
------------- ------------- -------------
Total Issued Shares at year
end 76,953,707 15,000,000 6,000,000
------------- ------------- -------------
Total Issued Shares Held in 15,808,509 - -
Treasury at year end
------------- ------------- -------------
Total Issued Shares with voting 61,145,198 - -
rights at year end
------------- ------------- -------------
As at 31 December 2019
Ordinary Shares 2022 ZDP Shares
ISIN JE00BF0D1M25 JE00BDG12N48
---------------- ----------------
SEDOL BF0D1M2 BDG12N4
---------------- ----------------
TICKER EJFI EJFZ
---------------- ----------------
Total Issued Shares at year
end 69,557,192 15,000,000
---------------- ----------------
Total Issued Shares Held in 5,381,886 -
Treasury at year end
---------------- ----------------
Total Issued Shares with voting 64,175,306 -
rights at year end
---------------- ----------------
Significant Events during the Year
Appointment of The ID Register
On 3 January 2020, the Company announced that The ID Register
had been appointed to provide CDD services in relation to non-CREST
investors in the Company and also to assist with certain ongoing
monitoring obligations pursuant to Jersey legal and regulatory
requirements.
Publication of Supplementary Prospectus
On 30 April 2020, the Company announced that the FCA had
approved a supplementary prospectus relating to the publication by
the Company of its audited financial statements for the year ended
31 December 2019 and in connection with certain additional risk
factors faced by the Company in light of the ongoing COVID-19
pandemic.
General Information
The Board Registered Office
Joanna Dentskevich (Chair) IFC1
Alan Dunphy The Esplanade
Nick Watkins St. Helier
Neal J. Wilson Jersey
All c/o the Company's registered office JE1 4BP
Channel Islands
Administrator and Company Secretary Manager
BNP Paribas Securities Services S.C.A. EJF Investments Manager LLC
Jersey Branch The Corporation Trust Company
IFC1 Corporation Trust Center
The Esplanade 1209 Orange Street
St. Helier Wilmington, DE 19801-1120
Jersey JE1 4BP US
Channel Islands
Corporate Broker & Financial Adviser Custodians
Numis Securities Limited Citigroup Global Markets Inc.
The London Stock Exchange Building 390 Greenwich Street
10 Paternoster Square New York City
London NY 10013-2396
EC4M 7LT US
UK
Citibank N.A.
399 Park Avenue
New York City
NY 10043
US
Registrar
Computershare Investor Services (Jersey)
Limited
13 Castle Street
St. Helier
Jersey
JE1 1ES
Channel Islands
Legal Adviser to the Group Independent Auditor
(as to English and US law) KPMG LLP
Clifford Chance LLP 15 Canada Square
10 Upper Bank Street London E14 5GL
London UK
E14 5JJ
United Kingdom
Legal Adviser to the Group Investor Screening Service(1)
(as to Jersey law) The ID Register
Carey Olsen 5(th) Floor Market Building
47 Esplanade Fountain Street
St. Helier St. Peter Port
Jersey Guernsey,
JE1 0BD GY1 1BX
Channel Islands Channel Islands
Legal Adviser to the Group Websites
(as to Delaware law) Company: www.ejfi.com
Richards, Layton & Finger, P.A. Manager: www.ejfimanager.com
One Rodney Square
920 N. King Street
Wilmington, DE 19801
US
Chair's Statement
Introduction
On behalf of the Board, I am pleased to present the Annual
Report for the year ended 31 December 2020.
In an unprecedented year, which saw COVID-19 cause significant
turmoil and volatility in financial markets and impact the modus
operandi of every person and business, I am pleased to say that the
Company, although presented with challenges of its own, remained
stable and continued to meet its Target Dividend.
Performance and Portfolio Activity
The Total Return for the year ended 31 December 2020 was -7.0%,
representing a total return since inception of 53.0%.
The total return for the year ended 31 December 2020 was
predominantly driven by losses incurred from pre-emptively removing
currency hedging contracts and reductions in the valuations of
certain investments when the pandemic took hold as described below.
I am pleased to confirm that by the year-end the investment
portfolio had largely recovered from these negative mark-to-market
valuations.
As previously reported, the Manager believes the mark-to-market
declines in valuations experienced in the portfolio in March
reflected the de-risking by primary dealers in the credit markets,
low marks in CLO equity valuations which are predicated on high
yield loan collateral, that has fundamental differences with the
lower risk profile of regulatory debt issued by bank and insurance
companies in the Company's portfolio, and a lack of clarity over
what collateral primary dealers were able to take to the Federal
Reserve window for repo and the scope of credit assets eligible for
the government-backed TALF program. These influences subsided
during the year when clarity was provided and confidence returned
in the credit markets.
Additionally, in March, as a result of depreciation of GBP
against the USD, significant margin calls were needing to be met on
the Company's currency hedges and, in light of the ongoing
uncertainty and volatility, the Board and the Manager made a
decision to close those hedges in order to preserve cash and
maintain liquidity. By the end of June, volatility had declined and
the Company had fully re-instated these currency hedges.
Post year-end, the Board and the Manager reviewed the Company's
anticipated cash requirements again and decided to reduce the
hedges to cover only the final capital entitlement of the zero
dividend preference shares. It is anticipated that the reduction in
the hedging costs together with the release of the cash on hand for
pipeline investments will positively contribute to the Company's
overall unhedged investment returns.
It is important to add that all expected interest income from
the underlying investments was received during the year and to date
there has been no noteworthy credit deterioration in the
Portfolio.
During the second half of the year, the Company made investments
into its ninth and tenth EJF sponsored Risk Retention Investments,
which was a positive sign given the unprecedented events of the
year.
The first Risk Retention Investment comprised an investment of
approximately GBP10.8 million in the preferred shares of TFINS
2020-1 in August. This is a securitisation collateralised by trust
preferred securities and surplus notes issued by 51 US banks and 21
US insurance companies with an aggregate par value of approximately
US$282.9 million.
The second Risk Retention Investment comprised an investment of
approximately GBP6.7 million in the preferred shares of TFINS
2020-2 in December. This is a securitisation collateralised by
trust preferred securities and surplus notes issued by 26 US banks
and 10 US insurance companies with an aggregate par value of
approximately US$177.25 million.
As at 31 December 2020, via the seven outstanding Risk Retention
Investments, the Company had a well-diversified exposure to over
200 unique US banks and 40 unique US insurance companies.
In addition, at the end of December, the proceeds raised from
the issuance of the 2025 ZDP Shares were partially deployed into
the first investment in Seneca. Further calls amounting to GBP1.2
million have been paid post year end. The Manager has significant
experience in the area of MSRs and anticipates this investment will
return regular and predictable strongly NAV accretive returns and
provides an attractive element of portfolio diversification.
Corporate Activity
In early March, prior to the full impact of the pandemic being
felt in Europe, the Company repurchased GBP5 million of Ordinary
Shares as part of its discount management strategy to address the
imbalance between the supply of, and demand for, the Ordinary
Shares, to increase the NAV per Ordinary Share and to assist in
minimising any discount to the NAV per Ordinary Share at which
Ordinary Shares were trading.
In May, the Company utilised its Placing Programme to execute a
share issuance and repurchase into treasury of 7,396,515 new
Ordinary Shares.
This was followed in June, by the placing of the 2025 ZDP Shares
at a gross redemption yield of 7% raising gross proceeds of GBP6.0
million.
The Company's AGM was held on 2 July 2020. All resolutions were
approved by shareholders, including the re-election of all the
Directors to the Board.
During 2020, the Company continued to benefit from the Manager's
absorption of 80% of the Company's recurring operating expenses.
The Manager has committed to continue to absorb 75% of the
Company's recurring operating expenses for 2021 until such time as
the Company's NAV exceeds GBP300 million demonstrating its ongoing
commitment and alignment with the Company.
Finally, as a planned result of the change to the Company's US
tax status in 2019, the Directors concluded that EJFIF was no
longer required as a holding company and thus could be liquidated
so as to reduce the ongoing administration and costs of operating
the group structure.
Share Price
The Company's Ordinary share price began the year trading at
GBP1.71 representing a discount of 9.5%. At the year end, the share
price was GBP1.17 representing a discount of 29%. A similar pattern
of discount during 2020 was experienced by many issuers in the
alternative credit markets. The Directors and Manager are of the
view that the discount should reduce following the removal of the
share overhang and as the world recovers from COVID-19 related lock
downs.
Dividends
Cash dividends of 2.675p per Ordinary Share were announced in
April 2020, July 2020, October 2020 and January 2021. It is a
reflection of the robustness of the investment portfolio that no
suspension or reduction of the dividends were needed to be made
during the period.
The total dividend paid for 2020 equates to an Annualised
Dividend Yield(1) of 9.1% of the share price at 31 December 2020
and is consistent with Target Dividend of 10.7 pence per share and
which will remain the target for financial year 2021.
Corporate Governance
The Company continues to uphold the principles of good corporate
governance and, by reporting against the AIC Code, meeting our
obligations in relation to the UK Code and in particular for this
year section 172(1). With respect to Section 172(1), the table
below identifies the Company's key stakeholders, their particular
focus and how we engage with them. Through this we aim to ensure
understanding of each stakeholder's interests and the importance of
engagement with all stakeholders in building the long-term success
of the Company.
ESG
The Directors recognise the importance of ESG and ethical
factors, including climate change, when pursuing the Investment
Objective and in the selection of the service providers and
advisers the Company works with. Please refer below for the
Company's and the Manager's approach to ESG matters.
Principal Risks and Uncertainties
The Directors have carried out a robust review and assessment of
the emerging and principal risks facing the Company along with the
continued uncertainty around COVID-19 and the roll out of
vaccination programmes. A summary of those risks and any changes
from last year can be found below.
Outlook
With COVID-19 still causing substantial volatility in many
markets with the long term impact on the global economy expected to
be substantial, the Directors and the Manager continue to closely
monitor the situation to ensure liquidity is preserved and
underlying assets remain robust. However, the Directors also
believe the Company is well positioned to be able to participate in
further opportunities as they arise and continues to represent an
attractive risk adjusted return.
The Board again expresses its thanks for the continued support
from its shareholders and, along with the Manager and the Group's
advisers, looks forward to developing the Group further and
expanding the shareholder base.
2021 AGM
The 2021 AGM is scheduled for 1 July 2021. The Directors
recognise the importance of shareholder engagement and the
opportunity for shareholders to attend the AGM should they wish.
The Directors will continue to monitor the level of restrictions in
place due to COVID-19, and if physical attendance at the AGM is
legally permitted, will ensure all necessary arrangements are in
place to facilitate that. Any changes to the AGM date will be
communicated via the Company's website ( www.ejfi.com ) and the
London Stock Exchange.
Joanna Dentskevich
Chair
Date: 31 March 2021
(1) This is an APM as defined below.
Manager's Report
We are pleased to present our review of the year ended 31
December 2020 and outlook for 2021.
Through its main investment strategy of acquiring bank and
insurance CDO equity positions as the risk retention partner to
EJF, the Group has exposure to a diversified portfolio of more than
200 unique banks and 40 unique insurance companies located across
the US. We believe the Group's investment strategy will benefit
further from the continued consolidation in the US banking and
insurance sectors, which has been driven by recent regulatory
developments. These factors, supported by a favourable
macroeconomic environment, will in our opinion continue to provide
the Group with very attractive investment opportunities.
US Bank Market Update
The Manager believes the US community banks and insurance
sectors have remained, and will remain, resilient through the
COVID-19 pandemic and that these strategies represent a powerful
way to gain exposure to the continued re-opening and recovery of
the US economy as COVID-19 vaccines are administered. The health of
the industry entering the pandemic, as measured by both capital and
problem asset levels, was historically strong. Additionally,
cohesive regulatory, fiscal, and monetary policy afforded the
industry substantial latitude to manage new problem assets and
provided much needed stimulus to hard-hit industries such as
hospitality and retail. As we assess the current operating
environment, we note improving asset quality trends, bolstered
reserves and a more supportive interest rate environment. Loans on
deferral, which we believe peaked at roughly 15% at the end of the
second quarter, have fallen to low single digits at the end of the
year, a support signal suggesting improving prospects for loan
growth and provisioning in 2021.
Following the sweep of the Georgia Senate runoff races in early
January, Democrats controlled Congress for the first time in a
decade as Joe Biden began his term on January 20. The Manager
expects this narrow Democratic majority to be particularly positive
for the US banks, as it increases the likelihood of additional
fiscal stimulus in 2021. In combination with the Fed's inflation
averaging approach which intends to keep short-term rates low for
the foreseeable future in order to stoke inflation, the Manager
sees the ingredients for higher economic growth and a steepening
yield curve. The Manager also notes that the yield curve has
already begun to steepen, with the spread between the 2-year and
10-year US Treasuries widening to 0.82% from 0.55% at the beginning
of the third quarter in 2020. With greater certainty around credit
quality from stimulus measures and vaccine distribution as well as
a potential bottoming in net interest margins, the Manager believes
that US banks are poised for further strong performance.
Additionally, we expect financial regulation to initially remain
relatively unchanged by the current administration, as agency heads
must be approved by the Senate, and FOMC Chairman Jay Powell's term
does not end until early 2022. The appointment of Janet Yellen as
Treasury Secretary was cheered by the markets as her experience
will be valuable in leading the post-pandemic economic recovery.
Lastly, given the very narrow Democrat majority, we consider it is
unlikely that we see any major rollbacks of the current corporate
tax rate of 21%.
The Manager anticipates that ongoing policy stimulus will remain
key to the re-emergence from the pandemic. On December 29,
President Trump signed the second COVID-19 relief bill estimated at
US$900 billion which was passed by Congress at the end of December.
The relief bill will be important for banks as it includes US$325
billion of additional relief to small businesses, particularly
operating in the hardest hit industries, such as hospitality,
restaurants and entertainment venues. A second round of PPP is
estimated at US$284.5 billion and will be crucial in extending
support to those bank customers with fewer than 300 employees that
have seen revenues decline by at least 25% during the first three
quarters of 2020. Additionally, US$286 billion of benefits have
been earmarked for qualifying individuals including a US$600 per
person direct cash payment which should act as a bridge to allow
for additional time to roll out vaccines.
Subtitle C of the COVID-19 relief bill also provides for a
historic investment in CDFIs and MDIs. In particular, the US$9
billion Emergency Capital Investment Program aims to expand
significant lending activity in minority communities, especially
those disproportionately impacted by COVID-19 and those with unmet
financial service needs. The Treasury-led capital initiative will
consist of cumulative preferred stock issued by qualifying MDI and
CDFI institutions. Although full program terms have not yet been
released, the Manager views the program as more powerful in some
ways than the Troubled Asset Relief Program's Capital Purchase
Program or Community Development Capital Initiative programs from
the 2008 Global Financial Crisis. These aforementioned programs
only allowed for preferred stock to be issued at 3%-5% of
risk-weighted assets. With the ability to lower coupons to 0.5%,
the Manager believes that the Emergency Capital Investment Program
would produce the lowest cost of capital instrument in the US
banking industry. This capital can be used to replace higher
costing liabilities such as subordinated debt and Trust Preferred
Securities.
In mid-December, the Fed released the results of the new
mid-cycle CCAR stress tests for the largest 33 banks, measured by
having more than US$100 billion in total assets. Similar to the
primary test, banks were required to resubmit their capital plans,
potentially limiting future capital return in the form of stock
buybacks, dividends, and M&A, should the Fed determine that a
bank lacked sufficient capital in a stress scenario. All banks
passed and performed well on the test given the recovery in the
markets. Importantly, the Fed will allow all banks to repurchase
shares beginning in the first quarter of 2021 and pay dividends in
an amount equal to the preceding four quarters of net income. The
Manager views this guidance as materially positive for the US
banking sector as some market participants had not expected an end
to the share repurchase moratorium on large banks until the middle
of 2021. The Manager also expects current capital limitations to
ease as the economy recovers and vaccines are administered over the
first half of 2021. Furthermore, many non-CCAR qualifying bank
holding companies have been returning capital in the form of
buybacks throughout the pandemic. The Manager estimates that
approximately 150 banks have engaged in, or announced, stock
buybacks since the onset of the pandemic.
Bank M&A activity, a major secular theme within the small
bank space for many years, slowed to 110 announced transactions in
2020 given virus-related uncertainty and its effect on bank stock
prices and credit transparency. However, the pace of M&A
accelerated in the fourth quarter of 2020 as stock prices rebounded
and credit loss estimates mitigated. The Manager is optimistic that
M&A activity is set to rebound in 2021 as the many of the
fundamental drivers of M&A, such as the need for scale, better
expense leverage through cost synergies, and board and management
fatigue, have been accentuated by pandemic. Additionally, the
fourth quarter and early parts of the first quarter of 2021 brought
elevated M&A activity in the regional and super-regional space,
with four notable deals announced. The first, First Citizens
Bancshares and CIT Group merger of equals highlighted in previous
commentary, was followed by PNC Financial Services Group Inc.
announcing its intention to purchase the US$104 billion in assets
US subsidiary of Banco Bilbao Vizcaya Argentaria, S.A. for
approximately US$11.6 billion in cash on November 16th. On December
13th, Huntington Bancshares, Inc. announced its intention to
acquire TCF Financial, a US$48 billion in assets in-market peer,
for approximately US$5.9 billion in an all-stock transaction.
Lastly, SVB Financial announced its intention to acquire Boston
Private Financial Holdings on January 4th for approximately US$941
million in cash and stock. We believe additional deals, both large
and small, will materialise over the coming quarters as banks face
continued margin and cost pressure with diminished opportunity for
organic growth. We expect M&A will continue to lead to early
redemption of trust preferred securities and other high cost
liabilities or inefficient forms of capital.
Capital markets remain wide open for US banks. New subordinated
debt and non-cumulative preferred issuances continue at record
levels, with approximately US$10.8 billion and US$3.83 billion
raised by banks with US$100 billion in assets and below in 2020,
respectively. This compares to US$4.4 billion and US$1.5 billion,
respectively, in 2019. We believe the credit markets are viewing
the current environment as an earnings issue rather than an acute
credit event. Additionally, we anticipate this capital is likely to
be deployed in 2021, primarily through M&A. Increased M&A
brings forward value in the Company's risk retention holdings and
improves the internal rate of return of the positions.
US Insurance Market Update
As for many industries in 2020, COVID-19 presented a new series
of challenges to the insurance industry. Predominantly, COVID-19
related losses, business interruption litigation, a decline in
premium growth and volatility in capital markets affected the
industry throughout the year. Encouragingly for the Group's
portfolio, most COVID-19 related losses are expected to be picked
up by reinsurers, and technical performance for most insurers is
unlikely to materially deteriorate. Many of the companies within
the Group's securitisations have experienced limited losses due to
COVID-19 as they are smaller, niche operators writing mostly
standard insurance contracts with either clear pandemic and
communicable diseases coverage exclusions, or robust reinsurance
coverage. With strict lockdowns in place across the country, motor
and medical claims remained low which had a positive impact on loss
ratios, while developing CAT losses, social unrest, and massive
wildfires have led to underwriters raising rates, lowering capacity
and transferring risk.
However, despite common virus and bacteria exclusions, a
significant number of lawsuits and class actions have been filed
against US insurers for denying business interruption claims
resulting from COVID-19 related losses over the course of the year.
The industry has taken a united stance in that they cannot pay
claims on insurance policies for which they collected no premiums
due to the virus and bacteria exclusions. Nevertheless, this has
not stopped some policymakers from suggesting retroactive measures
that would essentially force insurers to rewrite contracts and pay
out business interruption losses. The suggestion of retroactive
measures has caused some anxiety in the industry albeit primarily
focused on the larger insurers which have a larger exposure to such
claims. Thus far insurers have been winning the majority of the
business interruption lawsuits that have been filed and the
Insurance Journal has reported judges dismissing in excess of four
times the cases they have allowed to proceed as at December of
2020.
Regarding the operating environment, an already hard pricing
environment is continuing to harden into 2021 amidst increased
competition, environmental and social factors, and increased
scrutiny of the risk profile of insureds. Rate increases, capacity
restraints, and tighter underwriting standards are expected to
continue across primary general/products liability and other
casualty markets. Furthermore, with low interest rates restricting
insurers' ability to offset underwriting losses with investment
income, the hard market provides an important mitigant that is
likely to last for some time.
Portfolio Update
EJFI's investment portfolio had recovered from the March lows by
the year end and continued to perform in line with expectations
from an income yield perspective, which supported the payment of
regular dividends.
Risk Retention and Related Investments, in addition to the other
Securitisation and Related Investments, represented approximately
80% of the Group's assets as at 31 December 2020. These investments
are consistent with the Group's strategy of generating risk
adjusted shareholder returns by investing in a diversified
portfolio of long-term, cash-flow generating assets.
The Group invested approximately GBP17.5 million across two
securitisations during the year. The first CDO transaction was a
GBP10.8 million investment in the equity tranche of TFINS 2020-1 in
August 2020. TFINS 2020-1 is a securitisation primarily consisting
of trust preferred securities, subordinated debt and issued surplus
notes issued by 51 US banks and 21 US insurance companies with an
aggregate par value of approximately US$282.9 million.
Approximately 50% of the collateral is indexed to three-month
LIBOR, while the balance of the collateral is fixed rate. The
weighted average spread of the floating assets is approximately
3.54%. Approximately 12% of the underlying securities have a fixed
interest rate with a weighted average coupon of approximately
6.16%. The remaining 39% of the underlying securities have a
fixed-to-float interest rate. TFINS 2020-1 has a final maturity
date in 2039 and is callable after August 2022 at the option of the
majority preferred shareholders, with mandatory auction calls
commencing after August 2028. As part of this transaction, the
Group contributed a GBP4.4 million US bank sub debt security to the
securitisation. The CDO Manager serves as the collateral manager
for TFINS 2020-1 and receives a 30-basis points p.a. fee in
addition to earning an incentive management fee equal to 20% of
profits over a 10% hurdle, subject to certain exceptions.
The second CDO transaction was a GBP6.7 million investment in
the equity tranche of TFINS 2020-2. The underlying collateral of
TFINS 2020-2 mainly consists of trust preferred securities,
subordinated debt senior notes, and surplus notes of 26 US banks
and 10 insurance companies with an aggregate par value of
approximately US$177.25 million. Approximately 40% of the
collateral is indexed to three-month LIBOR, while the balance of
the collateral is fixed rate. The weighted average spread of the
floating assets is approximately 3.58%. Approximately 14% of the
underlying securities have a fixed interest rate with a weighted
average coupon of approximately 7.0%. The remaining 46% of the
underlying securities have a fixed-to-float interest rate. TFINS
2020-2 has a final maturity date in 2041 and is callable after
October 2022 at the option of the majority preferred shareholders,
with mandatory auction calls commencing after October 2028. The CDO
Manager serves as the collateral manager for TFINS 2020-2 and
receives a 30-basis points p.a. fee in addition to earning an
incentive management fee equal to 20% of profits over a 10% hurdle,
subject to certain exceptions.
An important part of the Group's investment thesis is the
consolidation trend among US banks and insurance companies and the
potential prepayment impact on the Group's CDO equity investments.
We believe that the likelihood of calling a securitisation prior to
maturity increases as prepayment activity increases, which we
anticipate may enhance the overall returns to the Group's
investment portfolio.
The Group also sold a number of its specialty finance
investments during the year to generate liquidity for investment
into the new securitisations and to ensure a healthy cash buffer to
protect against any margin calls on the forward foreign exchange
contracts.
At the end of December the Group made its first investment into
an affiliate of Seneca of approximately GBP1.2 million with
approval from the Board to invest up to US$10 million. We consider
that this investment will enable the Company to take advantage of
the economics derived from MSRs as a result of the current interest
rate environment. We expect this investment to be an accretive
investment to the Company's portfolio in an area with high barriers
to entry and in which we believe Seneca has significant experience
and a strong competitive advantage.
The Armadillo portfolio continues to wind down as the underlying
loans repay. During the year, the Armadillo strategy experienced a
further write-down on a portion of its loan portfolio, which
negatively impacted the Group's NAV (by 0.42%). The Group's
remaining exposure to the Armadillo strategy is approximately
GBP2.1 million or 2% of NAV. EJF is still working toward realising
the recovery value of the remaining Armadillo loan portfolio.
Risk Management
We believe the Group's investment portfolio contains a
diversified portfolio of strong borrowers. The Manager's credit
team conducts regular surveillance on issuer financial and business
profiles and the broader portfolio.
The Group's base currency is denominated in Sterling although
most of the Group's investments are denominated in US Dollars. At
the start of 2020, the Company continued to adopt a hedging
strategy whereby 100% of its US Dollar exposure was hedged against
Sterling, and as a result the Company was required to hold
significant levels of cash, including amounts already on margin as
a buffer to protect against margin calls. This strategy was halted
temporarily during March 2020 to preserve liquidity in light of the
volatility in financial markets caused by the COVID-19 pandemic,
with the 100% hedging strategy fully reinstated by 23 June
2020.
It was decided, after discussions with the Board, that from 16
February 2021, the Company would no longer hedge 100% of exposure
and would enter into contracts to hedge only the final Sterling
capital entitlement of its outstanding ZDP Shares. It is
anticipated that the reduction in the hedging costs together with
the release of the cash on hand for pipeline investments will
positively contribute to the Company's overall unhedged investment
returns.
Outlook
The Manager continues to believe that the Group's current
investment portfolio remains well positioned to continue to benefit
from favourable regulatory and improving economic conditions, and
that the Group's addressable investment universe provides ample
opportunity to allow it to continue to harvest and add attractive
risk-adjusted returns and gain in scale. Anticipated 2021
securitisations and CDO management fees are expected to offer
similar risk and return profiles as the recent securitisation
investments. Additionally, EJF continues to support the operations
of the Group through its commitment to cover 75% of operating
expenses until such time as the Company's NAV exceeds GBP300
million.
Statement of Principal Risks
Principal Risks, Uncertainties and Emerging Risks
The Principal Risks of the Company are those risks, or a
combination thereof, that the Directors believe may materially
threaten the Company's ability to meet its Investment Objective,
solvency, liquidity or viability.
Risks faced by the Group include (but are not limited to)
strategic risk, financial risk, investment risk, compliance risk
and operational risk, as summarised in the Prospectus on pages 16
to 49.
In determining the principal risks, a robust assessment of all
risk factors that the Directors believe the Company is exposed to
has been performed. In doing so, the Directors have also considered
the impact of the ongoing uncertainties of the outcome that the
post Brexit negotiations and the COVID-19 pandemic might have on
the principal risks, and the structure and economies within which
the Group operates
As at 31 December 2020, the principal risks and uncertainties
that the Company faces, along with related mitigants and changes to
the principal risks from last year, and consideration of emerging
risks, are set out below.
Principal Risks
Strategic
Changes in the macro economic environment
Changes in global, market and economic conditions may adversely
impact the availability of investment opportunities, the Manager's
ability to source and securitise investments and prevent the Company
from meeting its Investment Objective.
Mitigants
The Manager evaluates and monitors the macro, economic, political
and market cycle risks it deems material to the Company's Investment
Policy, both on an ongoing basis and ahead of any new investment.
The Manager can control the timing of entry into investments and
markets to ensure that the Portfolio adheres to the Investment
Policy and to manage the aforementioned risks. The Board is kept
informed on a regular basis by the Manager and is also updated
at quarterly Board meetings.
Analysis and Change during the year
During the first six months of the year and as reported in the
2020 Interim Report, the Directors consider that this risk increased
as the impact of COVID-19 intensified.
However, during the second half of the year, as global credit
markets stabilised, US support packages were put in place and
confidence grew around the success of a vaccination programme,
the Directors consider this risk to have decreased. This was evidenced
by the Manager's ability to close two new securitisations in the
second half of the year.
The Company continues to have an active pipeline of securitisation
and other investments and the Company's target investment sectors
remain stable, and thus the Directors believe that despite fluctuations
in this risk during 2020, overall there has been no material change
in the residual risk at the year end.
Changes in law, taxes and regulation reduce investment opportunities
The Group's investments are subject to regulations enacted by
national and local governments, changes to which may reduce the
investment opportunities available and make it difficult to pursue
the Investment Policy.
Mitigants
The Manager, along with the Company's Financial Adviser, Administrator
and legal advisers, continually monitors and evaluates the legal
and regulatory horizon for any new or changes to existing legislation
and regulation that could potentially invalidate the Investment
Policy. The Board is kept abreast of any potential changes on
a regular basis through its committee and Board meetings and regular
communication with the Manager and advisers.
In addition, the Company's Investment Policy allows the Company
to pursue a wide variety of investment opportunities.
Analysis and Change during the year
The Directors believe that any changes as a result of post Brexit
trade negotiations or COVID-19 should not impact availability
of investment opportunities, noting that most investments are
US based. In addition, as at the date of the Annual Report, the
Directors have not been advised of any expected changes that would
materially impact the Investment Policy .
Therefore, the Directors believe there has been no material change
in the residual risk during the year.
Changes in law, taxes and regulation undermine the Company's
or Subsidiary's legal, tax or regulatory structure
The Group is subject to taxes, laws and regulations enacted
by national and local governments, changes to which may undermine
or invalidate the tax, legal or regulatory rationale for the
group structure.
Mitigants
The Manager, along with the Company's legal and tax advisers,
keeps abreast of potential changes to the regulatory, legislative
and tax environment that may undermine or invalidate the rationale
for the group structure. The Company takes a proactive approach
to tax structuring as evidenced by:
* The EGM resolutions passed in December 2019 to change
the US tax classification of the Company.
* The engagement of PwC and Carey Olsen to assess and
advise the Company on the new substance requirements
in Jersey.
* The liquidation of EJFIF as a result of changing the
US tax classification of the Company, saving
administration expenses going forward.
Changes are communicated to the Board on a regular basis through
its committee and Board meetings. The staff at the Manager and
the Administrator are sufficiently experienced and trained to
deal with changes which may occur.
Analysis and Change during the year
As at the date of the Annual Report, the Directors have not
been advised of any upcoming legal, tax or regulatory changes
that are likely to materially impact the Investment Policy.
The Company, the Manager and the Company's primary target assets
under the Investment Policy are all domiciled in non-EU third
countries and accordingly the Directors believe that the group
structure should not be adversely impacted by the outcome of
post Brexit trade negotiations.
The Directors believe there has been no material change in the
residual risk during the year.
Availability of cash for investment opportunities and payment
of liabilities
The Company requires regular ongoing funding and available cash
to be in a position to take full advantage of investment opportunities
as and when they arise, along with meeting liabilities as and
when they fall due. The risk of the Company having insufficient
cash to meet investment opportunities continues to be a principal
risk due to several factors:
(i) the impact of the uncertainty surrounding post Brexit trade
negotiations and volatility of Sterling has required previously
unencumbered cash to be used to meet margin calls on the currency
hedge;
(ii) the share price discount to NAV and difficulty in raising
capital, which impact most investment funds in the Company's
peer group;
(iii) the complex nature of the underlying investments continues
to have the potential to deter some investors from investing;
and
(iv) the approaching maturity of the 2022 ZDPs in November
2022 which will require the payment of approximately GBP19 .9
million to settle the final capital entitlement.
Mitigants
The Manager continually monitors the current and projected cash
flows required by the Company to meet its current and future
liabilities, including control over the timing of entry into
investments and expectations on when the Manager may recommend
calling and/or refinancing underlying securitisations.
On a quarterly basis, the Manager produces for the Board a working
capital memo showing forecast balances covering a period of
at least 18 months which is also supplemented every six months
by appropriate scenario analysis.
In addition, the Manager continually seeks to improve the discount
of the share price to NAV and the liquidity of the Ordinary
Shares stock by working with the Company's Corporate Broker,
public relations consultant and research agent and meeting investors
and conducting roadshows to raise market awareness and explain
the Company's strategy and investment thesis.
Analysis and Change during the year
In the Interim Report, the Directors assessed the residual risk
of this principal risk as having increased mainly due to the
negative impact that the prevailing economic and political environment
caused by the uncertainty of COVID-19 and Brexit was having
on global investor sentiment and the strength of Sterling. This
resulted in the Company having to place further margin with
respect to the currency hedges, thereby reducing availability
of cash.
Although post year end, steps were taken to reduce the impact
of currency volatility on this principal risk, the Directors
still consider the residual risk to have increased during the
year.
Dependency on the Manager
The Company is dependent on the Manager for successfully pursuing
its Investment Objective and on its ability to retain and recruit
staff. The loss of one or more senior members of the Manager's
management team could adversely impact the ability of the Manager
to support the Company in pursuing its Investment Objective.
Mitigants
The Manager's senior management team has a proven track record,
with strength and depth of relevant experience and is recognised
as an expert in their field. The Manager employs experienced
individuals and regularly reviews remuneration levels against
the employment market and the requirements for skills and headcount.
The Manager's remuneration policies are designed to strike an
appropriate balance between short-term and long-term rewards,
alignment and retention.
Analysis and Change during the year
The Company continues to have no direct competitors with the
same investment thesis. Due to COVID-19 restrictions during
the year, the independent Directors were unable to carry out
their planned due diligence visit to the London office of the
Manager. In lieu of this, the Directors held a virtual meeting
with each key function within the Manager to gain comfort over
their continued performance and operations. The independent
Directors reaffirm their positive view of the Manager and believe
that the senior management team, and the business generally,
is highly cohesive and aligned with the Company in pursuing
its Investment Objective.
The Directors believe there has been no material change in the
residual risk during the year.
Valuation
The nature of the Group's investments can make them inherently
difficult to value compared to more liquid investments due to
the number of assumptions involved. Furthermore, a general market
collapse and/or a seizing-up of credit markets may render it
difficult to price certain investments with any degree of accuracy,
or at all.
Mitigants
There is a stated valuation policy, reviewed and updated periodically
for all underlying investments, which is applied by the Manager
and the Administrator when preparing the monthly NAV. In most
cases, the Manager obtains quotes from multiple independent
brokers to mark the securities. The Manager has also appointed
a recognised independent valuation agent to provide comfort
over the valuations derived from models developed by the Manager
where appropriate.
The Manager has a valuation committee which meets monthly to
review the valuation of investments which feeds into the NAV
process. The NAV is prepared by the Administrator, and then
reviewed and approved by the Manager and the Board on a monthly
basis.
Analysis and change during the year
The Group's core investment allocation continues to be focused
on Risk Retention assets which are inherently difficult to value
compared to more liquid investments.
The Directors believe there has been no material change in the
residual risk during the year.
Principal Risks
Investments
Credit Risk
The value of the Group's investments may be impacted by adverse
credit events with recovery of initial investments being lengthy
and uncertain.
Mitigants
The Manager carefully assesses the credit risks of every investment,
including the underlying collateral held in the securitisation
vehicles. Assessments of credit risk are derived from various
credit analyses, market and macro conditions and underwriting
stress scenarios. The Manager conducts regular credit surveillance
on the portfolio of investments and underlying collateral in
the securitisation vehicles.
Analysis and change during the year
The Group's investment allocation continues to be focused on
Risk Retention assets with credit analysis focusing on underlying
collateral in the securitisation vehicles. There have been no
changes to the credit risk of the underlying collateral during
the year.
The Directors believe there has been no material change in the
residual risk during the year.
Interest Rate Risk
A large percentage of the Group's assets are linked to floating
interest rates. The translated cashflows and valuation of the
assets are correlated to interest rates. A decline in interest
rates may have a negative impact on expected future cashflows
and the underlying valuation of the assets depending on the
effective duration of each asset.
Mitigants
The Manager carefully evaluates the interest rate environment
at the time of an investment and on an ongoing basis for the
Portfolio and may utilise appropriate strategies to mitigate
any interest rate risk, for example interest rates swaps, if
required.
The Manager continues to follow and assess the impacts of the
cessation of LIBOR and recognises the importance of facilitating
the transition from US Dollar LIBOR-based floating rates to
SOFR-based floating rates on its sponsored securitisations.
Additionally, the Portfolio is not exposed to any EUR or GBP
LIBOR linked instruments.
Analysis and change during the year
During the year, it was announced that USD LIBOR retirement
would be delayed until June 2023 and the Manager is currently
working with third party advisers to review the collateral positions
held within all EJF sponsored securitisations and assessing
the key areas of risk around the transition.
It is not anticipated that the change from LIBOR will materially
impact the economics of EJF sponsored securitisations provided
the transition is managed appropriately. In addition, the Manager
has confirmed that both the collateral and interest due to noteholders
will use the same reference rate to avoid any unnecessary interest
rate risk for the securitisations.
As a result the Directors believe there has been no material
change in the residual risk during the year.
Principal Risks
Operational
Dependency on service providers
The Company is dependent on the ability of all its service providers
for the successful management and administration of the Company's
affairs. This includes a reliance on the strength of their internal
controls, their ability to retain and recruit sufficient appropriately
qualified and experienced staff as well as cyber security, data
protection and business continuity planning.
Mitigants
The Company's service providers are selected through a process
based on recommendation and their experience and ability to
meet the Company's requirements. The Board is in regular contact
with the Administrator and Manager to ensure that the policies
and procedures implemented are appropriate and effective and
meet regularly to review the service level. The Board has established
a Management Engagement Committee which reviews the performance
of all key service providers on an annual basis.
Analysis and change during the year
The Directors and Management Engagement Committee continue to
review all service providers on an ongoing basis with a view
to ensuring that the Company's service requirements and objectives
continue to be fully met. The review for the period also considered
the ability of each service provider to continue without disruption
whilst working from home due to COVID-19 restrictions.
The Directors believe that although the Company has not experienced
any downturn in their service providers' performance, there
is an increased cyber security risk from staff members working
from home as a result of implementation of business continuity
plans, and as a result there has been an increase in the residual
risk during the year.
Uncertainties
BREXIT
As a Jersey domiciled entity with a US Manager, the Company
markets to EU investors through the national private placement
regimes of the EU countries concerned in accordance with AIFMD.
This third country status, along with primarily US Dollar denominated
investments, is expected to afford the Group a relative safe
harbour from many of the potential structural and regulatory
impacts of Brexit.
For these reasons, the Directors continue to believe that the
outcome of post Brexit trade negotiations itself is not a principal
risk for the Company but factors such as long term uncertainty,
negative investor sentiment, sector contagion and a weak Sterling
arising as a result of the next stage of Brexit negotiations
could increase the Principal Risks.
The potential negative impact of these factors has been considered
when applying the scenarios used to stress test the Company's
working capital model and when assessing the Company viability.
COVID-19
The Directors continue to consider the impact of the COVID-19
pandemic on the Company as an uncertainty.
The Manager is constantly monitoring the situation and continues
to believe that the Company's underlying assets remain robust
and are able to withstand significant stress following various
financial and regulatory improvements witnessed in recent years
with all expected near-term cash inflows being received to date.
The Company's forward foreign exchange instruments used to hedge
US Dollar denominated assets into Sterling were reinstated during
the second quarter of 2020 with a reasonable cash buffer being
held to meet potential margin calls. Post year-end, the Board
and the Manager reviewed the Company's anticipated cash requirements
again and decided to reduce the hedges to cover only the final
capital entitlement of the zero dividend preference shares.
Elsewhere, the Board has been informed that the business continuity
plans of all of the Company's service providers have been successfully
implemented and there has been no material impact on the Company's
operations.
As noted above, there has been an increase in the residual risk
of certain of the Principal Risks due to several factors including,
but not limited to, long term uncertainty, reduced investment
opportunities, negative investor sentiment and a weak Sterling/strong
USD, which have been integrated into the scenarios used to stress
test the Company's working capital model and considered when
assessing the Company's ability to continue as a going concern.
Emerging Risks
Emerging risks, along with all other risks that the Directors
consider the Company is exposed to, are monitored via the Company's
risk register which, for each risk, identifies current aggravants
and mitigants, their potential impact on the Investment Objective
and key performance indicators and the Company's risk appetite.
The Directors had previously identified climate risk as an emerging
risk although not considered it to be a material risk to the
Company's business model or long-term viability. As detailed
below, the Directors and the Manager have committed to integrating
ESG, including climate change risk, into its governance structure
and therefore do not consider climate change risk to be an emerging
risk for this year.
As part of their review of risks for the period, the Directors
have not identified any new risk they consider to be an emerging
risk to the Company.
The Board
JOANNA DENTSKEVICH ALAN DUNPHY
Non-executive Non-executive
Chair Director
Appointed in Appointed in
2017 2016
Skills & experience Skills & experience
Joanna Dentskevich has over 30 Alan Dunphy has over 20 years
years of finance, risk and investment of experience in the offshore
banking experience gained in London financial industry moving to Jersey
and Asia. She started her career in 2008 to join the Assurance
in 1986 as an auditor in financial and Business Advisory Division
services group of a London accountancy of PricewaterhouseCoopers. He
firm before moving into investment currently works for LGL Group
risk at Bankers Trust. Prior to as a director on fund and corporate
moving to Jersey in 2008, she was client structure before which
director of risk at Deutsche Bank he was managing director of Bennelong
and Morgan Stanley and chief risk Asset Management, a director of
officer and a co-founder of a London Capita Fiduciary Group. He also
based systematic hedge fund. Joanna worked at Abacus Financial Services
sits on the board of a number of Group. Alan is a fellow of the
investment companies. Institute of Chartered Accountant
in Ireland.
Committees Committees
Audit and Risk Committee Audit and Risk Committee (Chair)
Management Engagement Committee Management Engagement Committee
Other public appointments Other public appointments
GCP Asset Backed Income Fund Ltd None
Executive appointments Executive appointments
None LGL Group
Considered to be independent Considered to be independent
NICK WATKINS NEAL J. WILSON
Non-executive Non-executive
Director Director
Appointed in Appointed in
2017 2017
Skills & experience Skills & experience
Nick Watkins started his career Neal Wilson has over 29 years
as a corporate tax lawyer with of capital market and asset management
Dechert LLP in London in 1997. experience and is Co-CEO of EJF
He is currently a partner and director which he co-founded in 2005. Neal
of Altair Partners Limited, which is also the CEO of the Manager.
provides independent directors Prior to EJF, Neal was in charge
to funds and regulated entities. of the Alternative Asset Investments
Prior to joining Altair in 2014, and Private Wealth Management
he was global head of transaction divisions at FBR, a senior securities
management for Deutsche Bank's attorney at Dechert LLP and Branch
Alternative Fund Services division Chief of the Division of Enforcement
in Jersey and prior to that was at the SEC in Washington, D.C.
assistant managing director and Neal is a non-active member of
senior in-house legal counsel at the bars of Pennsylvania and Washington,
Citco in the Cayman Islands. DC.
Nick is a qualified solicitor in
England and Wales.
Committees Committees
Audit and Risk Committee None
Management Engagement Committee
(Chair)
Other public appointments Other public appointments
None None
Executive appointments Executive appointments
Altair Partners Limited CEO of EJF and the Manager
Considered to be independent Considered to be non-independent
The Manager
EJF Capital LLC
EJF is a global alternative asset management firm focused primarily on regulatory event-driven
investing within the financial sector. EJF was founded by Emanuel Friedman and Neal Wilson
in 2005 and is headquartered just outside of Washington, D.C., with additional offices in
London and Shanghai. EJF manages approximately US$5.9 billion(1) of hedge fund assets, separately
managed accounts, and private equity assets, as well as US$3.5 billion(1) of CDO assets through
its affiliates. EJF's approach combines investment expertise across the capital structure
with a corporate finance focus to unearth creative solutions for investing in complex, mispriced
securities and other assets.
The key employees of the Manager involved with the Company,
excluding Neal Wilson who has been included in the Directors above,
are listed below:
PETER STAGE HAMMAD KHAN
Co-chief Investment Co-chief Investment
Officer of the Officer of the
Manager and Member Manager and Member
of the Investment of the Investment
Committee Committee
Skills & experience Skills & experience
Peter Stage is responsible for Hammad Khan has 15 years' experience
identifying investment opportunities in the financial services industry
in the European fixed income, equity touching on various securities
and private markets with a focus analysis within the European financial
on the banking sector. Peter was sector.
previously Head of Credit Research
at F&C Asset Management where he He previously worked at Oak Circle
also analysed the banking sector. Capital LLC in New York as a credit
Prior to joining F&C in 2008, He analyst where he analysed opportunities
was Head of Credit at Gordian Knot within the US RMBS & CMBS sectors.
Limited, an investment management Prior to joining Oak Circle Capital
company, which he joined in 1998 LLC, Hammad worked at Ivy Square
as a bank analyst. Ltd and Ceres Capital Partners
LLC in New York where he analysed
Peter holds a BA in Economics from investment opportunities in the
the University of Manchester. credit markets, modelled complex
structured deals and aided with
trading/ops. Hammad holds a BA
in International Economics from
Suffolk University in Boston.
MATT GILL OMER IJAZ
Chief Financial Member of the
Officer of the Investment Committee
Manager
Skills & experience Skills & experience
Matt Gill has 10 years' experience Omer Ijaz serves as a Senior Managing
in the financial services industry Director, Portfolio Management,
and previously worked at PwC in at EJF. Omer joined EJF in 2011
Guernsey managing assurance engagements as a specialty finance insurance
for both London listed and private and bank analyst, and currently
alternate investment funds, focused leads the credit analysis and
on debt origination, asset backed trust preferred CDOs structuring
securities and private equity. for the Insurance and Bank TruPS.
He also managed reporting accountant He has designed the framework
engagements for investment fund for four EJF sponsored securitizations,
initial price offerings on the totaling approximately $1.3 billion.
London Stock Exchange. Omer also manages the investments
of legacy TruPS CDOs. Omer came
Matt is a CFA charterholder, Chartered to EJF from Merrill Lynch, where
Accountant (ICAEW) and holds a he was employed as a summer research
BSc. (hons) in Physics from the analyst in the Global Private
University of Leeds. Client Division. Prior to his
time at Merrill Lynch, he worked
for Citibank N.A. and Muslim Commercial
Bank. Omer earned a BA in Business
Economics from the College of
Wooster.
EMANUEL J. FRIEDMAN JASON RUGGIERO
Member of the Member of the
Investment Committee Investment Committee
Skills & experience Skills & experience
Emanuel Friedman co-founded EJF. Jason Ruggiero joined EJF at its
Over the course of his 40+ year founding in 2005 and is a member
career in capital markets and asset of the Executive Committee. Prior
management, Emanuel has structured to joining EJF, Jason was an equity
and built numerous innovative investment trader in FBR's Alternative Asset
strategies that have focused on Investment group, where he assisted
some of the most powerful trends Emanuel in the day-to-day operations
in the financial sector driven of FBR Ashton, L.P., a long/short
by regulatory change. Prior to hedge fund. In 2004, Jason assumed
forming EJF, he was a founder and co-portfolio manager responsibilities
the former Co-Chairman and Co-Chief for FBR Ashton, L.P. Before joining
Executive Officer of Friedman, FBR, Jason was an auditor for
Billings, Ramsey Group, Inc. ("FBR"). Deloitte and Touche in Washington,
At FBR, he assisted in designing DC, where he focused on the financial
property and mortgage REIT vehicles. services industry. He holds a
Throughout the 1990s, Emanuel was BBA in accounting from James Madison
active in building out FBR's alternative University and an MBA in finance
asset management platform. He was from the University of Maryland.
instrumental in the creation of
hedge, private equity and venture
capital funds at FBR, and maintains
an extensive network of contacts
within the CDO, hedge fund, and
private equity fund communities.
Emanuel received his BA in Education
from the University of North Carolina
at Chapel Hill and his JD from
Georgetown University.
(1 As of 31 December 2020. Firm AUM includes US $102.7 million
of uncalled capital.)
Corporate Governance Report
Corporate Governance Compliance Statement
The Company's shares are traded on t he SFS. The Listing Rules,
applicable to companies which are listed on the premium listing
segment of the Official List of the UK therefore do not apply to
the Company. The Directors are committed to the application and
practice of high standards of corporate governance and so the
Company has voluntarily adopted certain provisions of the Listing
Rules as detailed on page 58 of the Prospectus.
The Directors recognise the value of the 2018 UK Code and have
also considered the principles and recommendations of the 2019 AIC
Code. The 2019 AIC Code addresses all the principles set out in the
2018 UK Code, as well as setting out additional principles and
recommendations on issues that are of specific relevance to the
Company as an investment company. This statement outlines how the
principles of the UK Code, which can be found at www.frc.org.uk ,
and the principles of the AIC Code were applied throughout the
financial year. The AIC Code provides a framework of best practice
for investment companies and can be found at www.theaic.co.uk .
The Directors consider that reporting in line with the
principles and recommendations of the 2019 AIC Code will provide
better information to shareholders. Consequently, throughout the
year from 1 January 2020 to 31 December 2020, the Company complied
with the provisions of the 2018 UK Code and the recommendations of
the 2019 AIC Code, with the exception of the recommendations from
the 2018 UK Code and the 2019 AIC Code listed below.
-- The role of chief executive: The Board considers that the
post of chief executive is not relevant for the Company, being an
externally managed investment company.
-- The appointment of a senior independent director: Given the
size and composition of the Board it is not felt necessary to
appoint a senior independent director. However, should a situation
arise where it is felt necessary to appoint a senior independent
director, the Chair of the Audit and Risk Committee will perform
the role.
-- Internal audit function: The Board has reviewed the need for
an internal audit function and due to the size of the Company and
the delegation of day-to-day operations to regulated service
providers, an internal audit function is not considered necessary.
The Directors will continue to monitor the systems of internal
controls in place in order to provide assurance that they operate
as intended.
-- E xecutive directors' remuneration: All of the Company's
day-to-day management and administrative functions are outsourced
to third parties (subject to appropriate systems, controls and
oversight). As a result, the Company has no executive directors,
employees or internal operations and is not required to comply with
the principles of Executive Directors' remuneration.
-- Committees: Given the size of the Board it is considered that
it would be unnecessarily burdensome to establish separate
nomination and remuneration committees, therefore such committees
have not been established and the matters are reserved for the
Board.
-- The Chair of the Company is a member of the Audit and Risk
Committee. Given the size of the Company and that the Chair is
considered to be independent, the Board believe this is
appropriate.
Board Composition and Director Independence
As at 31 December 2020, the Board comprised four non-executive
Directors, the biographies of which are disclosed above. The
Company has no executive directors or any employees.
The Board assesses and reviews the independence of each Director
with respect to the 2019 AIC Code annually, having regard to the
potential relevance and materiality of any Directors' interests and
relationships.
For the reasons disclosed on page 94 of the Prospectus, the
Directors believe it is appropriate that Alan Dunphy be considered
as independent.
The Directors do not consider Neal Wilson to be independent
given he is an officer of the Manager but believe his position on
the Board does not compromise the independence of the Company from
the Manager on the basis that half the Board, excluding the Chair,
comprise independent non-executive Directors.
Matters Reserved for the Board
The Board meets at least quarterly to review the overall
business of the Company and to consider matters specifically
reserved for its attention. At the quarterly meetings, the
Directors monitor the investment performance of the Company and
review its activities to ensure it adheres to the Investment
Policy. Additional ad-hoc reports are received as required and the
Directors have access at all times to the advice and services of
the Company Secretary. Once a year, the Board also considers the
remuneration of the Directors as a separate remuneration committee
has not been established. Representatives of the Manager are
invited to attend Board meetings on at least a quarterly basis.
The Board monitors the level of the share price premium or
discount to determine what action is desirable (if any).
During the year all Directors attended formal training sessions
provided by professional firms and other recognised providers in
order to keep up to date with all relevant corporate governance,
regulatory and market issues.
The Board and relevant personnel of the Manager acknowledge and
adhere to the MAR and the Board has adopted procedures in relation
to the management, identification and disclosure of inside
information and share dealing in accordance with MAR.
Tenure and Succession
In deciding upon the tenure of the Directors, the Board is
strongly committed to balancing the benefit to the Company of
continuity and experience against independence, perspective and the
effective functioning of the Board.
The Board does not consider length of service in itself to
necessarily undermine a Director's independence nor that each
Director, including the Chair, should serve for a finite fixed
period. However, subject to re-election, succession will be
measured by rotation in order that Directors can continue to be
considered independent.
The Articles include provisions for retirement of directors and
eligibility for re-appointment including that any Directors not
independent of the Manager are required to retire at every AGM.
However, notwithstanding the Articles, the Board has adopted a
policy that all Directors will retire and seek re-election on an
annual basis. The Directors are all strongly committed to the
Company and the Board considers the re-election of all Directors on
an annual basis to be in the best interests of the Company.
All Directors were subject to re-election at the Company's AGM,
held on 2 July 2020, and were duly re-elected.
Diversity
The Directors recognise the benefits and effectiveness that
diversity, including gender, age, professional experience and
cultural background, brings to the Board and its committees and
have a strong commitment to ensuring a correct balance of
knowledge, experience and independence. Board appointments are
based on merit as well as being an appropriate fit for the
Company.
The Board currently comprises one female and three male
Directors. As the Company has no employees there is no further
requirement to report in respect of diversity quotas.
Over-boarding
As a member of the AIC, the Company reports against the
principles and provisions of the AIC Code, as endorsed by the FRC
and the Jersey Financial Services Commission, and considers by
doing so it provides better information to shareholders on specific
relevance to investment companies.
Principle H of the AIC Code states that non-executive directors
should have sufficient time to discharge their Board
responsibilities.
As an investment company, the Directors consider the Company to
demand less time commitment than would be required of an executive
of an operating company and that a formulaic approach to assessing
whether a Director is able to effectively discharge their duties is
not appropriate.
Prior to accepting the appointment as a Director of the Company,
each Director must disclose existing significant commitments and
confirm they have sufficient time to attend to the business of the
Company. In addition, before accepting another significant role a
Director should confirm to the Chair their ability to meet the
ongoing commitments of the Company. The Company Secretary must also
be informed in order that the appropriate records can be updated
and announcements made if required.
Prior to recommendation for re-election to the Board, each
Director's continuing ability to meet the requirements of the role
will be assessed by the other Directors by considering, amongst
other things, their attendance at board, committee and other ad hoc
meetings or events held during the year.
Director Meetings and Attendance
The table below shows the attendance at Board and Committee
meetings held from 1 January 2020 to 31 December 2020.
Management
Quarterly Audit and Engagement
Name Board Risk Committee Committee
-------------------- ---------- ---------------- ------------
Joanna Dentskevich 4/4 5/5 2/2
Alan Dunphy 3/4 5/5 2/2
Nick Watkins 4/4 5/5 2/2
Neal J. Wilson 4/4 N/A N/A
--------------------- ---------- ---------------- ------------
N/A - attendance record not applicable, as the Director
concerned is not a member of the stated Committee.
There were 14 other ad-hoc Board meetings held during the year
relating to matters such as approval of interim and annual reports,
capital raises, restructuring and conflicted investments.
Directors' Performance Evaluation
The Board has established a formal system for the evaluation of
its effectiveness and performance and that of the individual
Directors, which is carried out on an annual basis. It considers
this to be appropriate having regard to the non-executive role of
the Directors and the significant outsourcing of services by the
Company to external providers. The evaluation considers the balance
of skills, experience, independence and knowledge of the Board and
also the Board's oversight and monitoring of the performance of the
Manager and other key service providers.
Director Remuneration
Details of the Director's remuneration can be found below.
Relations with Shareholders
The Company reports to its shareholders twice a year by way of
interim and annual reports. In addition, NAVs are released to the
market along with monthly performance reports, both of which are
published monthly on the Company's website, www.ejfi.com .
Regular communication with major shareholders is undertaken by
the Company's Corporate Broker and the Manager by way of webinars
and arranged video conferencing. Any concerns raised by major
shareholders are reported to the Board. In addition, the Chair and
individual Directors are willing to meet major shareholders to
discuss performance of the Company and are available to answer any
questions that may be raised by shareholders at the Company's
AGM.
Board Committees
Audit and Risk Committee
The Audit and Risk Committee comprises Alan Dunphy, Joanna
Dentskevich and Nick Watkins and meets at least three times a year.
It is chaired by Alan Dunphy. The Board considers it appropriate
for the Chair of the Company to be a member of the Committee given
the size of the Company and as she is considered independent.
In December 2020, the Board resolved to expand the delegated
authorities of the Audit Committee to include risk oversight. As
such, the "Audit Committee" was renamed the "Audit and Risk
Committee" and updated Terms of Reference were approved by the
Board and published on the Company's website.
The key objectives of the Audit and Risk Committee include a
review of the Audited Financial Statements of the Company to ensure
that they are prepared to a high standard and comply with relevant
legislation and guidelines, as appropriate, review of the Company's
internal control and risk management systems and to maintain an
effective relationship with the Auditor. With respect to the
Auditor, the Audit and Risk Committee's role will include the
assessment of auditor independence, the effectiveness of the audit,
and a review of the Auditor's engagement letter, remuneration and
any non-audit services provided by the Auditor. The Audit and Risk
Committee Report below provides further detail of the Audit and
Risk Committee's activities during the year.
Management Engagement Committee
The Management Engagement Committee comprises Nick Watkins,
Joanna Dentskevich and Alan Dunphy and meets at least once a year.
It is chaired by Nick Watkins.
The Committee is responsible for the regular review of the terms
of the Management Agreement, along with the performance of the
Administrator, the Manager and the Company's other service
providers. A formal review is conducted annually which includes
service delivery, the quality of the personnel assigned to handle
the Company's affairs and the investment process.
Internal Control and Risk Management System
The Board is responsible for putting in place a system of
internal controls relevant to the Company and for reviewing the
effectiveness of those systems. It is the responsibility of the
Board to undertake risk assessment and review of the internal
controls in the context of the Company's objectives that cover
business strategy, operational, compliance and financial risks
faced by the Company. The internal controls are implemented by the
Company's main service providers: the Manager, the Administrator,
the Registrar and the Custodians. The Board continues to be
responsible for reviewing the adequacy and effectiveness of the
Company's ongoing risk management systems and processes. Its system
of internal controls, along with its design and operating
effectiveness, is subject to review by the Board through reports
and periodic updates received from service providers at the
quarterly Board meetings of the Company. The Members of the
Management Engagement Committee met with representatives of the
Manager via video-conference in November 2020 to review any changes
to the Manager's controls and the operating effectiveness of the
Manager's existing controls. The Board is satisfied that each
service provider has effective controls in place to control the
risks associated with the services that they are contracted to
provide to the Company and are therefore satisfied with the
internal controls of the Company.
Anti-bribery and Corruption and Anti-facilitation of Tax
Evasion
The Board acknowledges that the Company's operations may give
rise to possible claims of bribery and corruption.
In consideration of the UK Bribery Act 2010, the Board has
conducted an assessment of the perceived risks to the Company
arising from bribery and corruption to identify aspects of business
which may be improved to mitigate such risks. In consideration of
the UK Criminal Finances Act 2017, the Company has adopted an
anti-facilitation of tax evasion policy. The Board has adopted a
zero-tolerance policy towards bribery and facilitation of tax
evasion and has affirmed its commitment to carry out business
fairly, honestly and openly.
AIFM Directive
The Manager is the AIFM of the Company. In such capacity, the
Manager is responsible for the portfolio and risk management of the
Company, including managing the Company's assets and its day-to-day
operations, further details of which are set out in paragraph 11.2
in the section entitled "Material Contracts" in Part XII:
"Additional Information" of the Prospectus. AIFMD requires the AIFM
to comply with certain disclosure, reporting and transparency
obligations for AIFs that it markets in the EU. The Company's
Prospectus contains a schedule of disclosures prepared by the
Directors for the purposes of AIFMD.
In addition, AIFMD requires the Company's Annual Report to
include details of any material changes to the information
contained in that schedule. The Directors confirm that no material
changes have occurred in relation to the information contained in
the schedule.
In making this confirmation, the Directors consider that any
change in respect of which a reasonable investor, becoming aware of
such information, would reconsider its investment in the Company,
including because the information could impact on the investor's
ability to exercise its rights in relation to its investment, or
otherwise prejudice that investor's (or any other investor's)
interest in the Company, should be considered material.
In setting this threshold, the Directors have had due regard to
the current risk profile of the Company, which outlines the
relevant measures to assess the Company's exposure or potential
exposure to those risks, as well as the Company's investment
restrictions set out in the Company's Prospectus. As required by
the Listing Rules, any material change to the Investment Policy of
the Company will be made only with the approval of the
shareholders.
AIFMD also requires the Company to disclose the remuneration of
the Manager as AIFM, providing analysis between fixed and variable
fees along with information on how much of such remuneration was
paid to senior management at the Manager and how much was paid to
members of staff. As the Manager has no employees there is no
information to report in that respect and details of the
remuneration paid to the Manager are disclosed in note 17.
ESG
In carrying out its activities, the Company aims to conduct
itself responsibly, ethically and fairly. Whilst the Investment
Objective of the Company has no direct impact on the environment
per se, the Directors recognise the importance of environmental,
social and ethical factors, including climate change, when pursuing
the Investment Objective and in the selection of the service
providers and advisers the Company works with.
Both the Directors' and Managers' approach to addressing ESG is
evolving and, following discussions during the year, have committed
to developing a formal ESG policy for the Company during 2021.
Currently, the Manager does not consider the principal adverse
impacts of investment decisions on sustainability factors, which is
due to the lack of consistent data in respect of ESG factors on the
investments made by the Company to date to support this
analysis,
However, in accordance with Article 3 of the SFDR, the Manager
recognises that sustainability risks can have an impact on the
performance of assets and therefore, as part of its fiduciary
responsibility, the Manager will look to recognise sustainability
risks more formally within the investment due diligence process and
more broadly account for sustainability risks as increasing ESG
reporting from issuers and inclusion of ESG data by credit rating
agencies and research providers becomes available. In November
2020, the Manager formed an ESG Committee to initiate the process
of reviewing more formally how they can develop and implement ESG
factors into investment analyses and processes. The Manager will
look to use ESG (sustainability) considerations as a risk
management tool that can be used to analyse the underlying
fundamentals of an investment and identify risk within existing
investments. The goal is to merge and integrate these
considerations across all asset classes and investments.
Additionally, the Company's service providers and advisers
recognise the importance of strong corporate governance with a
culture based on integrity, respect and diversity and have adopted
ESG standards based on internationally recognised principles and
international conventions in the areas of human rights, labour
standards, environmental stewardship and anti-corruption. Further,
they have documented and implemented policies on day-to-day
functioning and supporting initiatives to minimise the
environmental impact they have on the climate and, where possible
or relevant, have integrated ESG criteria into their investment
processes through the larger group within which they operate.
Further details on the ESG and corporate responsibility of our
service providers are available on their websites.
Modern Slavery
The Company is not within scope of the Modern Slavery Act 2015,
because it has no turnover as defined by the Modern Slavery Act
2015 and is therefore not obliged to make a human trafficking
statement.
Section 172(1) report
The Board believes in a strong corporate governance structure to
ensure responsible investing focussed on the values of the Company
and that building trusted relationships with the Company's
stakeholders is crucial for the long-term success of the
Company.
Through the Company's policies and procedures, internal controls
and corporate governance, the Directors believe they have acted in
a way they consider, in good faith, would be most likely to promote
the success of the Company for the benefit of its members as a
whole having regard to the stakeholders, as identified below, and
matters set out in Section 172(1) as required through their
compliance with the AIC Code, in the decisions taken during the
year.
Stakeholders
An analysis has been carried out, as shown in the table below,
to identify the key stakeholders of the Company, interests and how
the Directors have considered the interests of the Company's
stakeholders.
RESPONSIBLE INVESTING EFFECTIVE GOVERNANCE TRUST & COLLABORATION
Shareholders Key Service Providers Communities
---------------------------- -------------------------------
ORDINARY SHAREHOLDERS INVESTMENT MANAGER, REGULATORS
2022 ZDP SHAREHOLDERS ADMINISTRATOR, BROKER, LOCAL GOVERNMENTS &
2025 ZDP SHAREHOLDERS REGISTRY SERVICES, JURISDICTIONS
LAWYERS, AUDITORS,
REPORTING ACCOUNTANT,
PRINTER, PR FIRM,
CDD Services
---------------------------- -------------------------------
INTERESTS INTERESTS INTERESTS
Provision of capital Knowledge, experience, Compliance, openness
to pursue the Investment aligned values and and transparency within
Policy and targeting culture within an a respected framework
growth and income effective framework to protect, joint interests
for the long term for pursuance of the of long term success
success of the Company. Investment Policy
Robust governance and long term success
framework and safeguarding of the Company
of assets
---------------------------- -------------------------------
ENGAGEMENT ENGAGEMENT ENGAGEMENT
Investor Meetings, Quarterly & Ad Hoc Annual returns, official
Broker and Registrar, Board Meetings, Committee reporting and communications,
Annual General Meeting, Meetings, Due Diligence ad hoc requests and
Extraordinary General Meetings and Reviews, approvals national
Meetings, RNS announcements, Audit and Interim risk assessment.
Financial Reports, Review, Specialist
Fact Sheets, Ad-hoc Advice, Informal Meetings,
Manager Communications Board Training
---------------------------- -------------------------------
Principal Decisions
Beyond that of usual engagement and decision making by the
Directors, the table below highlights specific actions where the
Directors have had regard for stakeholder interests during the
year.
Principal decisions Description Stakeholders
taken during the
year
Approving conflicted A majority of the Company's investments Shareholders
investments are securities in respect of which The Manager
EJF or an affiliate of EJF has
participated in the original lending
group, structured or originated
the asset. In such cases consent
and approval of the independent
Directors is required.
During the year, following a review
of each conflicted investment
proposal, the Directors provided
consent and approval for four
EJF or EJF affiliated investments.
Restructuring During 2020, the Directors assessed Shareholders
the purpose of EJFIF and the structure Administrator
of the Group, subsequent to the
change in classification of the
Company to a corporation for US
federal income tax purposes on
31 December 2019.
As a result of that assessment,
the Directors concluded that EJFIF
was no longer required as a holding
company and its liquidation would
result in a reduction of the ongoing
administration and costs of operating
the Group. EJFIF was liquidated
on 15 December 2020 after all
assets had been transferred to
EJFIH.
Buyback Programme At the 2019 AGM, a special resolution Shareholders
was passed granting the Company
authority to make market purchases
of up to 14.99% of the Ordinary
Shares in issue as at 14 May 2019.
In early 2020, given the then
excess cash reserves, the Directors
approved a buy-back of Ordinary
Shares of up to GBP5 million with
a view to increasing the NAV to
address the imbalance between
the supply of, and demand for
the Ordinary Shares, to increase
the NAV per Ordinary Share and
to assist in minimising any discount
to the NAV per Ordinary Share
at which Ordinary Shares were
trading.
The Company purchased a total
of 3,030,108 Ordinary Shares in
the amount of GBP5 million under
the Buy-back Programme.
Issuance and Repurchase In order to maximise the benefit Shareholders
of the Company's Placing Programme,
in May 2020, the Directors approved
the issue of 7,396,515 new Ordinary
Shares to the Corporate Broker
under the Placing Programme as
described in the Prospectus at
a price of 162 pence per Ordinary
share, being equivalent to the
NAV per Ordinary Share as at 30
April 2020.
Following admission the shares
were immediately repurchased by
the Company at the same price
to be held in treasury to be sold
in the future to meet any potential
ongoing market demand.
FX Hedge The Company's policy to target Shareholders
hedging of 100% of its US Dollar The Manager
exposure against Sterling requires
significant levels of cash to
be held as margin to protect against
margin calls.
In March 2020, the depreciation
of GBP against USD due to the
impact of the ongoing uncertainty
and volatility caused by the outbreak
of the COVID-19 pandemic resulted
in significant margin calls having
to be made for the currency hedges
in place. Consequently, the Board
and the Manager made a decision
to temporarily close the GBP hedges
to preserve cash and maintain
liquidity.
By the end of June the Company
was again fully hedged.
Issue of ZDP Shares In order to position the Company Shareholders
to take advantage of the attractive The Manager
pipeline of potential investments
that the Manager continued to
see, in May 2020 the Directors
approved the raising of additional
capital through the issue of new
2025 ZDP Shares under the Placing
Programme established by the Prospectus.
The Directors considered that
the creation and issue of the
new ZDP Shares would be beneficial
for the Company by providing greater
diversity to the Company's sources
of capital and operational flexibility
enabling the Company to grow its
portfolio of investments and generate
attractive returns for holders
of Ordinary Shares.
The Company raised gross proceeds
of GBP6 million pursuant to a
placing of 6,000,000 new ZDP Shares
that were admitted to trading
on the SFS on 22 June 2020.
======================== ========================================== ===============
By Order of the Board
Joanna Dentskevich
Chair
Date: 31 March 2021
Directors' Report
The Directors present their Annual Report on the affairs of the
Company, together with the Independent Auditor's Reports, for the
year ended 31 December 2020. The Corporate Governance Report set
out above forms part of this report.
Principal Activities, Business Review and Future
Developments
The principal activities of the Group during the year were to
invest in opportunities created by regulatory and structural
changes impacting the financial services sector. No changes are
envisaged in the Group's principal activities although future
opportunities may include structured debt and equity, loans, bonds,
preference shares, convertible notes and private equity, in both
cash and synthetic formats which may be issued by entities
domiciled in the US, UK and Europe. Information about the use of
financial instruments by the Group is given in note 15 to the
Audited Financial Statements.
Details of significant events since the Statement of Financial
Position date are contained in note 19 to the Audited Financial
Statements.
An indication of likely future developments in the business of
the Company are included in the Chair's Statement and the Manager's
report above.
Results and Dividends
Results for the year ended 31 December 2020 are set out in the
Statement of Comprehensive Income on below.
The Directors declared and paid dividends of GBP 6,623,592
(2019: GBP 6,866,756 ) during the year ended 31 December 2020.
Further details can be found in notes 13 and 19.
Share Capital
At 31 December 2020, the Company's issued share capital
comprised 76,953,707 Ordinary Shares (31 December 2019: 69,557,192
Ordinary Shares), of which 15,808,509 were held in treasury (31
December 2019: 5,381,886). The total number of voting rights of the
Ordinary Shares is 61,145,198 (31 December 2019: 64,175,306) .
Further details can be found in note 12.
Disclosure of Information to the Auditor
The Directors who held office at the date of approval of this
Directors' Report confirm that, so far as they are each aware,
there is no relevant audit information of which the Auditor is
unaware; and each Director has taken all the steps that they ought
to have taken as a director to make them aware of any relevant
audit information and to establish that the Auditor is aware of
that information.
Financial Risk Management
Information about the Company's and the Subsidiary's financial
risk management objectives is set out in note 15 to the Audited
Financial Statements.
Directors and Directors' Interests
The Directors are listed above.
Details of the Directors' remuneration are included in the
Remuneration Report below.
Director's Insurance
During the financial year ended 31 December 2020 and up until
the date of the signing of the Audited Financial Statements, the
Company has maintained director's and officer's liability
insurance, which is deemed to give appropriate cover for any
potential legal action that could be brought against the
Directors.
Significant Shareholdings
On 31 December 2020, the Company had been notified, in
accordance with chapter five of the Disclosure Guidance and
Transparency Rules, of the following voting rights as shareholders
of the Company:
31 December 2020
------------------------------------ ---------------------------------------
% of Issued Ordinary
Name Ordinary Shares Shares(1)
------------------------------------ ---------------- ---------------------
Cheetah Holdings 11,816,558 19.33
Premier Miton Investors 5,093,928 8.33
Newton Investment Management
Limited 4,329,552 7.08
Leon Cooperman 4,000,000 6.54
Expert Investor V ICAV - TwinFocus
Global Asset Fund 3,588,358 5.87
Wolfson Equities 3,314,960 5.42
Credit Suisse Private Banking 3,147,101 5.15
William E Conway Jr 3,113,415 5.09
38,403,872 62.81
------------------------------------ ---------------- ---------------------
Total Issued shares (after
adjusting for treasury shares) 61,145,198 100.00
------------------------------------ ---------------- ---------------------
(1) The calculation of shareholding % is based on number of
Ordinary Shares in issue after adjusting for treasury shares
Independent Auditor
A resolution to re-appoint KPMG LLP as the Independent Auditor
will be put to shareholders at the AGM.
Manager
The Directors are responsible for the determination of the
Company's Investment Policy and have overall responsibility for the
Group's activities. The Company has, however, entered into a
Management Agreement with the Manager under which the Manager has
been appointed to manage the assets of the Group which include
research, analysis and selection of investment opportunities for
the Group and monitoring the ongoing performance of the
investments.
The Directors consider that the interests of shareholders, as a
whole, are best served by the continued appointment of the Manager
to achieve the Company's Investment Objective.
Political Contributions
The Group did not make any political donations or incur any
political expenditure during the year.
Going Concern
The Directors have performed a detailed assessment of the
Company's ability to meet its liabilities as they fall due for the
period of at least twelve months, including evaluating severe but
plausible downside scenarios of a significant reduction in the
liquidity positions and fair value of its investments. The
assessment was completed with reference to the cash position of the
Company and its Subsidiary, the operating expenses, the valuations
of the assets subsequent to the year end and the potential default
risk of the investments held. The Directors also considered the
2022 ZDP liabilities, which will mature on 30 November 2022 and the
continuation vote due in 2022. Based on the Company's performance,
the voting history in the general meetings, and the future
prospects of the Company, the Directors consider the risk of the
continuation vote not being passed to be low. The continuation
vote, which occurs every five years from Admission, requires a
majority of greater than 50% of those voting to be passed. In light
of this analysis, the Directors are satisfied that, at the time of
approving the financial statements, there is a reasonable
expectation that the Company will have adequate resources to
continue in operational existence for a period of at least twelve
months from the date of approval of the financial statements, and
have therefore prepared the financial statements on a going concern
basis.
Viability Statement
The Directors, in conjunction with the Audit and Risk Committee
and the Manager, have conducted a robust assessment of the
viability of the Company, taking into account the Principal Risks
and uncertainties that the Group faces, including that of COVID-19,
and the impact of extreme but plausible market scenarios on the
viability of the Company and the ability to meet its Target
Dividend and financial covenants over a three year period albeit
the Directors consider the Company to be a much longer term
investment proposition for its shareholders.
In establishing the time horizon over which to consider the
longer-term viability of the Company, the Directors considered the
nature of the investment portfolio of the Group, and also the
Investment Objective of the Company taking into account the working
capital model forecasting, the continuation vote due in April 2022
and the maturity of the 2022 ZDPs in November 2022.
The extreme market scenarios used in its stress testing included
severe but plausible adverse movements in bank and insurance
company default rates and recovery rates, foreign exchange
movements impacting margin calls on the forward currency contracts
and working capital availability. The Directors, working with the
Manager, have made assumptions in respect of the continuation vote
passing and in respect of the payment of the final capital
entitlement of the 2022 ZDPs whilst continuing to meet the Target
Dividend.
Having considered each of these scenarios and the potential for
any of its Principal Risks or uncertainties to increase, the
Directors have a reasonable expectation that the Company will be
able to continue in operation and meet its financial covenants and
operating expenses as they fall due over the three-year assessment
period.
2021 AGM
The 2021 AGM is scheduled for 1 July 2021. The Directors
recognise the importance of shareholder engagement and the
opportunity for shareholders to attend the AGM should they wish.
The Directors will continue to monitor the level of restrictions in
place due to COVID-19, and if physical attendance at the AGM is
legally permitted, will ensure all necessary arrangements are in
place to facilitate that. Any changes to the AGM date will be
communicated via the Company's website ( www.ejfi.com ) and the
London Stock Exchange.
By Order of the Board
Joanna Dentskevich
Chair
Date: 31 March 2021
Registered Office
IFC1
The Esplanade
St. Helier
Jersey
JE1 4BP
Channel Islands
Directors' Remuneration Report
The Directors are pleased to present their report on
remuneration for the year ended 31 December 2020.
The Directors believe that due to the size and nature of the
Company it would be unnecessarily burdensome to establish a
separate remuneration committee. Remuneration matters are therefore
included in matters reserved for the Board.
Remuneration Policy
Directors are entitled to receive a fixed fee based upon their
duties, responsibilities and time spent up to an aggregate limit of
GBP150,000 per annum as well as a fee for any special service at
the request of the Company. As such the Chair of the Company and
the Chair of the Audit and Risk Committee receive an additional
fee. Directors are also paid all reasonable travel expenses.
No element of the Directors' remuneration is performance related
nor does any Director have any entitlement to pensions, share
options or any long term incentive plans from the Company. In
accordance with the 2019 AIC Code, no Director is involved in
deciding their remuneration.
No Director has a service contract with the Company, and no such
contracts are proposed. Directors' appointments can be terminated
in accordance with the Company's Articles of Association and
without compensation.
Directors' Remuneration
The Directors are each entitled to a fee of GBP40,000 per annum
with additional fees being paid to the Chair of the Company of
GBP10,000 per annum and to the Chair of the Audit and Risk
Committee of GBP5,000 per annum. Neal Wilson has waived his right
to receive remuneration.
For t he year under consideration, the Directors received the
following amounts:
2020 2019
Director GBP GBP
-------------------- -------- --------
Joanna Dentskevich 50,000 50,000
Alan Dunphy 45,000 45,000
Nick Watkins 40,000 40,000
Neal Wilson - -
-------------------- -------- --------
Total 135,000 135,000
--------------------- -------- --------
Directors' expenses for the year were GBP204 (2019:
GBP4,112).
No other remuneration or compensation was paid by the Company to
the Directors during the year (2019: GBPnil).
Directors' and officers' liability insurance cover is maintained
by the Company on behalf of the Directors.
The terms of the Directors' appointments as non-executive
Directors are set out in letters issued in April 2017 (as amended
in January 2019).
Ordinary Shares held by Directors
Shareholdings by the Directors in the Company as at year end
were as follows:
Percentage Percentage
of Ordinary of Ordinary
Shares in Ordinary Shares in
Name Ordinary Shares Issue Shares Issue
31 December 31 December 31 December 31 December
2020(1) 2020(2) 2019(1) 2019(2)
-------------------- ------------------ ------------- ------------ -------------
Neal Wilson 1,516,381 2.480% 1,408,070 2.194%
Joanna Dentskevich 49,548(3) 0.081% 49,548 0.077%
Nick Watkins 3,000 0.005% 3,000 0.005%
(1) The Directors' shareholdings are either direct and/or
indirect holdings of Ordinary Shares in the Company
(2) The calculation of shareholding % is based on number of
Ordinary Shares in issue after adjusting for treasury shares
(3) Refer to note 19 for changes subsequent to the reporting
period
ZDP Shares held by Directors
Shareholdings by the Directors in the Company as at year end
were as follows:
Percentage Percentage
of 2022 ZDP of 2022 ZDP
2022 ZDP Shares 2022 ZDP Shares
Name Shares in Issue Shares in Issue
31 December 31 December 31 December 31 December
2020 2020 2019 2019
------------- ------------- -------------- ------------ -------------
Neal Wilson - - 375,000 2.500%
Percentage of 2025
ZDP Shares
Name 2025 ZDP Shares in Issue
31 December 31 December
2020 2020
-------------------- ------------------ -------------------
Neal Wilson 1,000,000 16.667%
Joanna Dentskevich 30,000 0.500%
Nick Watkins 10,000 0.167%
Joanna Dentskevich
Chair
Date: 31 March 2021
Audit and Risk Committee Report
The Board is supported by the Audit and Risk Committee with
formally delegated duties and responsibilities relating to audit
and risk, as set out in written terms of reference which are
available from the Company's website. In December 2020, the Board
resolved to expand the remit of the then "Audit Committee" to
include additional delegated duties and responsibilities in
relation to certain risk matters and as such, the Audit Committee
was renamed the "Audit and Risk Committee" and updated terms of
reference were adopted.
Chair and Membership
The Audit and Risk Committee is chaired by Alan Dunphy with its
other members being Joanna Dentskevich and Nick Watkins. All
members are independent, have no links with the Auditor and are
independent of the Manager. The Audit and Risk Committee's
intention is to meet at least twice a year at appropriate times in
the financial reporting cycle and to meet with the Auditor as
appropriate. The membership of the Audit and Risk Committee and its
terms of reference are kept under review.
The Board has considered the composition of the Audit and Risk
Committee and is satisfied it has sufficient recent and relevant
skills and experience. In particular the Board has considered the
requirements of the 2018 UK Code that the Audit and Risk Committee
should have at least one member who has recent and relevant
financial experience and that the Audit and Risk Committee as a
whole has competence relevant to the sector in which the Company
invests. The Board considers all of the relevant requirements to
have been met. The relevant qualifications and experience of each
member are detailed above.
Key Responsibilities
The Audit and Risk Committee's primary role and responsibility
is to review and monitor the integrity of the Company's Annual
Report and Interim Report to ensure they are fair, balanced and
understandable and provide the information necessary for
shareholders to assess the Company's performance, business model
and strategy and reporting to the Board accordingly. This includes
reviewing the Independent Auditor's Report.
The Audit and Risk Committee's other roles and responsibilities
include, but are not limited to:
-- reporting to the Board on any significant financial reporting issues and judgements;
-- reviewing and challenging where necessary significant
accounting policies and practices, including the basis on which the
Company is determined as a going concern and a review of the
viability statement included in the annual report taking into
account the Company's financial position and principal risks
identified;
-- reviewing the adequacy and effectiveness of the Company's
internal financial controls and internal control and risk
management systems;
-- assessing any correspondence from regulators in relation to
the Company's financial reporting;
-- reviewing the external auditor's performance, independence
and objectivity to include a report from the external auditor on
its own internal quality procedures;
-- making recommendations to the Board in relation to the
appointment, re--appointment or removal of the external auditor,
the approval of the external auditor's remuneration and the terms
of the engagement;
-- developing and implementing policies surrounding the
engagement of the external auditor to supply non--audit services,
where appropriate;
-- considering regularly whether the Company should have an
internal audit function and making a recommendation to the Board
accordingly;
-- advising the Board on the Company's overall risk strategy and
to establish the risk assessment measures and methodologies to be
employed by the Company; and
-- reporting to the Board on how it has discharged its responsibilities.
How the Audit and Risk Committee has Discharged Its
Responsibilities
The Audit and Risk Committee met five times during the year and
the individual attendance of Directors is outlined above.
Representatives of the Manager, Auditor and Administrator were
present as required. The main matters discussed at those meetings
were:
-- Detailed review of the 2019 Annual Report and recommendation for approval by the Board;
-- Review of the Company's and the Subsidiary's key risks and internal controls;
-- Assessment of the final audit findings document presented by
the Auditor in respect of the audit of the 2019 Annual Report;
-- Consideration of the independence of the Auditor;
-- Review and approval of the interim review plan of the Auditor
in respect of the 2020 Interim Report;
-- Review and approval of the annual audit plan of the Auditor
in respect of the 2020 Annual Report;
-- Detailed review of the 2020 Interim Report and recommendation for approval by the Board;
-- Review and recommendation to the Board of revised terms of
reference for the Audit and Risk Committee; and
-- Review of the effectiveness of the Auditor.
Subsequent to year end, up to the date of approval of the Annual
Report the Audit and Risk Committee met three times to discuss risk
matters and undertake detailed reviews of the 2020 Annual Report.
The main matters discussed at those meetings were:
-- Review and update of the Company's risk register and
corresponding principal risks for inclusion in the Annual
Report;
-- Review and challenge of the Manager's stress tests for the
purposes of the viability statement and consideration of the
duration of the viability period;
-- Review of the 2020 Annual Report and recommendation for approval by the Board;
-- Assessment of the final audit findings document presented by
the Auditor in respect of the audit of the 2020 Annual Report;
-- Discussion and final approval of the 2020 external auditor fees for the annual audit; and
-- Assessment of the independence of the Auditor.
Monitoring the Integrity of the Audited Financial Statements
including Significant Judgement and Estimates
The Audit and Risk Committee reviewed the Company's 2020 Interim
Report and 2020 Annual Report prior to discussion and approval by
the Board, and the significant financial reporting issues and
judgements contained therein. It also reviewed the Auditor's
reports thereon and reviewed the appropriateness of the Company's
accounting principles and policies and monitored changes to, and
compliance with, accounting standards on an ongoing basis.
Prior to the year end and the commencement of the audit, the
Audit and Risk Committee met and determined that the Company
continues to meet the definition of an Investment Entity in
accordance with IFRS 10 and further that the Company's investment
in EJFIH should be classified at Level 3, as it is not traded and
contains unobservable inputs and due to its materiality in the
context of the Audited Financial Statements as a whole, investments
are considered to be the area which should have the greatest effect
on the overall audit strategy and allocation of resources in
planning and completing the audit.
In undertaking this review, the Audit and Risk Committee
discussed with the Auditor, the Manager and the Administrator the
critical accounting policies and judgements that have been
applied.
As requested by the Board, the Audit and Risk Committee also
reviewed the Annual Report and was able to confirm to the Board
that, in their view, the Annual Report, taken as a whole, was fair,
balanced and understandable and provided the information necessary
for shareholders to assess the Company's position, performance,
business model and strategy.
Significant and other Accounting Matters
The significant accounting matters associated with the
preparation of the Annual Report are:
Significant How addressed by the Audit and Risk Committee
accounting
matter
Valuation EJFIH is not traded and contains unobservable inputs
of the investment and is therefore classified as a Level 3 investment
in EJFIH under IFRS 13. The Company holds a direct investment
in EJFIH and the Board considers that the NAV of EJFIH
is representative of its fair value.
The NAV of EJFIH has been presented in the Annual Report
on a look through basis to the underlying investment
positions. See details in notes 9 and 15. The Group
holds a number of different Level 3 investments which
are also measured at fair value. The Company values
the underlying positions held in the Subsidiary as
follows:
Armadillo Portfolio
The Armadillo Portfolio is valued based on the EJFIH's
proportionate share of the reported net asset value
of each entity.
Partnership
The Partnership is valued by reference to the Company's
proportionate share of the net asset value. The underlying
investments by the Partnership into Risk Retention
Investments are marked clean to broker quotes with
the Manager estimating the expected accrual of interest
earned on each security.
CDO Manager
T he Manager has appointed a recognised independent
valuation agent to value the CDO Manager based on the
underlying CDO management contract cash flows expectations,
using inputs and models developed by the Manager.
CDO Securities
Current cash-yielding securities are marked clean to
broker quotes with interest accrued separately. Legacy
CDO securities are valued dirty using acceptable probability
based discounted cash flow methodologies by the Manager.
Preference Shares
The shares are marked clean to broker quotes with the
Manager estimating the expected accrual of interest
earned on each security.
Derivative financial instruments at FVTPL
The Manager determines the fair value of the forward
foreign currency contracts using quoted mid forward
exchange rates as at the reporting date.
Seneca Portfolio
Seneca is valued based on EJFIH's proportionate share
of the reported net asset value.
The Audit and Risk Committee receives regular updates
on the performance of the Portfolio from the Board
and the Manager. The Audit and Risk Committee is not
aware of any discrepancies with the valuation methodologies
adopted or the independent valuation procedures carried
out by the valuation agents.
Further information regarding the valuation methodologies
and the resultant valuations can be found below.
--------------------------------------------------------------
Risk Management
The Board as a whole is responsible for the Company's system of
internal controls and the Audit and Risk Committee assists the
Board in meeting those obligations, as set out in its terms of
reference. The Board does not currently consider an internal audit
function to be required given the size and nature of the Company's
operations and instead places reliance on the external and internal
controls applicable to the service providers as regulated entities.
The Audit and Risk Committee has reviewed the Administrator's most
recent ISAE 3402 report (Report on the description of controls
placed in operation, their design and operating effectiveness for
the period from 1 October 2019 to 30 September 2020) on Fund
Administration and is pleased to note that no significant issues
were identified. Additionally, the Company receives confirmations
from the principal service providers that no material issues have
arisen in respect of the system of internal controls and risk
management operated within the Company's service providers.
During the year, the independent Directors met with
representatives of the Manager via video-conference to review any
changes to the Manager's controls and the operating effectiveness
of the Manager's existing controls. The Audit and Risk Committee
reaffirms that, to date, there are no risk issues identified in
this area which need to be brought to shareholders' attention.
External Auditor
It is the responsibility of the Audit and Risk Committee to
monitor the performance, independence, objectivity and
reappointment of the Auditor. The Audit and Risk Committee met with
the Auditor to consider the audit strategy and plan for the audit.
The audit plan for the reporting period was reviewed, including
consideration of the key Audited Financial Statements and audit
risks, to seek to ensure that the audit was appropriately
focused.
The Auditor attended a number of the Audit and Risk Committee
meetings throughout the period, which allowed the Auditor the
opportunity to discuss any matters it wished to raise. The Auditor
provided feedback at each Audit and Risk Committee meeting on
topics such as the key accounting matters, mandatory communications
and the control environment. The Audit and Risk Committee chair
meets with the Auditor ahead of Audit and Risk Committee meetings
to review key audit and review areas for discussion with the Audit
and Risk Committee. The Auditor is not in attendance when their
performance and/or levels of remuneration are discussed.
During the year ended 31 December 2020 and 31 December 2019, no
non-audit services were provided by the Auditor to the Company.
For the year For the year
ended ended
31 December 31 December
2020 2019
GBP GBP
---------------------- ------------- -------------
KPMG- audit services
Annual audit 133,250 151,520
Interim review 18,000 18,000
---------------------- ------------- -------------
Total audit fees 151,250 169,520
---------------------- ------------- -------------
Total fees to KPMG 151,250 169,520
---------------------- ------------- -------------
The Audit and Risk Committee continues to be satisfied with the
performance of the Auditor. We have therefore recommended to the
Board that the Auditor, in accordance with agreed terms of
engagement and remuneration, should continue as the Company's
Auditor. Accordingly, a resolution proposing the reappointment of
KPMG as the Company's auditor will be put to the shareholders at
the forthcoming AGM.
KPMG LLP's iRadar team, engaged by the Auditor, supports the
audit of the Company's asset valuations. The iRadar team is based
in Frankfurt and consists of 75 valuation specialists. They perform
valuation testing by repricing complex financial assets. The team
undertook an independent revaluation exercise which resulted in an
acceptable level of deviation from an audit perspective for any
differences between the repricing and the Company's valuations.
A member of the Audit and Risk Committee will be available to
shareholders at the forthcoming AGM of the Company to answer any
questions relating to the role of the Audit and Risk Committee.
KPMG LLP has been the Company's external auditor since its
commencement of trading. The Audit and Risk Committee is satisfied
that the lead audit partner has the experience, independence and
industry knowledge to be an effective lead audit partner.
The Audit and Risk Committee is also responsible for the audit
tender process and will take all key decisions covering timing,
approach, evaluation criteria and recommendations. The tender is
expected to occur seven years following the conclusion of the 2020
Annual Report.
Alan Dunphy
Audit and Risk Committee Chair
Date: 31 March 2021
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report,
including the Directors' Remuneration Report in accordance with
applicable law and regulations.
The Companies Law requires the Directors to prepare Audited
Financial Statements for each financial year. Under the Companies
Law they are required to prepare the Audited Financial Statements
in accordance with International Financial Reporting Standards as
adopted by the EU and applicable law.
Under the Companies Law the Directors must not approve the
Audited Financial Statements unless they are satisfied that they
give a true and fair view of the state of affairs of the Company
and of its profit or loss for that year. In preparing these Audited
Financial Statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable, relevant and reliable;
-- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the Audited Financial Statements;
-- assess the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern;
and
-- use the going concern basis of accounting unless they either
intend to liquidate the Company or to cease operations, or have no
realistic alternative but to do so.
The Directors are responsible for keeping proper 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 its Audited
Financial Statements comply with the Companies Law. They are
responsible for such internal control as they determine is
necessary to enable the preparation of Audited Financial Statements
that are free from material misstatement, whether due to fraud or
error, and have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Company and
to prevent and detect fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in Jersey governing the preparation
and dissemination of Audited Financial Statements may differ from
legislation in other jurisdictions.
Responsibility statement of the Directors in respect of the
Annual Report and Audited Financial Statements
We confirm that to the best of our knowledge:
-- the Audited Financial Statements, prepared in accordance with
IFRS as adopted by the EU, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company
as at and for the year ended 31 December 2020, as required by DTR
4.1.12R; and
-- the Annual Report includes a fair review of the development
and performance of the business and the position of the Company,
together with a description of the principal risks and
uncertainties that it faces, as required by DTR 4.1.8R and DTR
4.1.11R.
We consider the Annual Report and Audited Financial Statements,
taken as a whole, are fair, balanced and understandable and provide
the information necessary for shareholders to assess the Company's
position and performance, business model and strategy.
This responsibility statement has been approved by the Board on
31 March 2021 and is signed on its behalf by:
By Order of the Board
Joanna Dentskevich
Chair
Date: 31 March 2021
Independent Auditor's Report to the Members of EJF Investments
Limited
1. Our opinion is unmodified Overview
Materiality: GBP1.2m (2019:GBP1.4m)
We have audited the financial financial statements 1% (2019: 1%) of Total
statements of EJF Investments as a whole assets
Limited ('the Company") for --------------------- -------------------------
the year ended 31 December Key audit matters vs 2019
2020 which comprise the Statement ================================================
of Comprehensive Income, Statement Recurring risks Valuation of
of Financial Position, Statement financial asset
of Changes in Equity, Statement at fair value
of Cash Flows and the related through profit
notes, including the accounting or loss
policies in note 2. ===================== =======================
In our opinion the financial
statements:
* give a true and fair view, in accordance with
International Financial Reporting Standards as
adopted by the European Union (IFRSs as adopted by
the EU) of the state of the Company's affairs as at
31 December 2020 and its loss for the year then
ended; and
* have been prepared in accordance with the
requirements of the Companies Law (Jersey) 1991.
Basis for opinion
We conducted our audit in
accordance with International
Standards on Auditing (UK)
('ISAs (UK)") and applicable
law. Our responsibilities
are described below. We believe
that the audit evidence we
have obtained is a sufficient
and appropriate basis for
our opinion. Our audit opinion
is consistent with our report
to the audit committee.
We were first appointed as
auditor by the directors on
5 July 2017. The period of
total uninterrupted engagement
is for the four financial
years ended 31 December 2020.
We have fulfilled our ethical
responsibilities under, and
we remain independent of the
Group in accordance with,
UK ethical requirements including
the FRC Ethical Standard as
applied to listed public interest
entities. No non-audit services
prohibited by that standard
were provided.
2. Key audit matters: our assessment of risks of material
misstatement
Key audit matters are those matters that, in our professional
judgment, were of most significance in the audit of the financial
statements and include the most significant assessed risks of
material misstatement (whether or not due to fraud) identified by
us, including those which had the greatest effect on: the overall
audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. We summarise below
the key audit matter in arriving at our audit opinion above,
together with our key audit procedures to address this matter and
our findings from those procedures in order that the Company's
members, as a body, may better understand the process by which we
arrived at our audit opinion. This matter was addressed, and our
findings are based on procedures undertaken, in the context of, and
solely for the purpose of, our audit of the financial statements as
a whole, and in forming our opinion thereon, and consequently are
incidental to that opinion, and we do not provide a separate
opinion on this matter. In arriving at our audit opinion above, the
key audit matter was as follows:
The risk Our response
Valuation of financial Subjective valuation: Our procedures included:
asset at fair value
through profit or The financial asset * Comparing valuations:
loss at fair value through
profit or loss represents
(GBP124.2 million; a 100% holding in For investments in funds
2019: GBP138.1 million) EJF Investment Holdings and entities valued on a
Limited ("the Holdco") net assets value basis,
Refer to page 37-40 and constitutes 99% we assessed whether this
for Audit Committee of the Company's total basis is an appropriate
Report, page 54-57 assets. representation of the fair
for accounting policies value of the investments.
and page 60-64 for As the investments
financial disclosures held by the Holdco For the valuation of interests
are all held at fair in funds, we obtained and
value, which ultimately agreed the net asset value
represents the fair to the latest audited funds'
value of the investment financial statements. We
in the Holdco, the recalculated the valuation
valuation is calculated of the investment by applying
by reference to the the ownership percentages
underlying investments. confirmed by the investment
As those investments manager to the audited net
are largely made up asset value of the funds.
of financial instruments
for which no reliable For the valuation of interests
external price is in other entities, where
readily available, audited financial statements
determining the Holdco's were not available, we performed
fair value involves an independent assessment
the application of of the net asset values,
significant judgement. including the use of our
valuation specialists to
independently value underlying
investments held by those
entities. We recalculated
the valuation of interests
by applying the ownership
percentages to the relevant
net asset value.
* Independent re-performance:
For other investments, our
valuation specialists compared
the investment market value
with our own valuation derived
from a valuation model with
independently observed inputs.
* Assessing transparency:
Consideration of the appropriateness,
in accordance with relevant
accounting standards, of
the disclosures in respect
of unlisted investments
and the effect of changing
one or more inputs to reasonably
possible alternative valuation
assumptions.
Our findings:
We found the Company's valuation
of the financial asset at
fair value through the profit
and loss to be balanced
(2019: balanced).
3. Our application of materiality 4. Going concern ( continued)
and an overview of the scope of
our audit We considered whether the going
concern disclosure in note 2.1
Materiality for the financial to the financial statements gives
statements as a whole was set a full and accurate description
at GBP1.2m (2019: GBP1.4m), determined of the Directors' assessment
with reference to a benchmark of going concern, including the
of total assets, of which it represents identified risks and related
1% (2019:1%). sensitivities.
Performance materiality was set Our conclusions based on this
at 75% (2019: 75%) of materiality work:
for the financial statements as
a whole, which equates to GBP0.94m * We consider that the Directors' use of the going
(2019: GBP1.0m). We applied this concern basis of accounting in the preparation of the
percentage in our determination financial statements is appropriate;
of performance materiality because
we did not identify any factors
indicating an elevated level of * We have not identified, and concur with the
risk. Directors' assessment that there is not, a material
uncertainty related to events or conditions that,
We agreed to report to the Audit individually or collectively, may cast significant
Committee any corrected or uncorrected doubt on the Company's ability to continue as a going
identified misstatements exceeding concern for the going concern period; and
GBP0.06m (2019: GBP0.07m), in
addition to other identified misstatements
that warranted reporting on qualitative * We have nothing material to add or draw attention to
grounds. in relation to the Directors' statement in note 2.1
to the financial statements on the use of the going
Our audit of the Company was undertaken concern basis of accounting with no material
to the materiality level specified uncertainties that may cast significant doubt over
above. the Company's use of that basis for the going concern
period, and we found the going concern disclosure in
4. We have nothing to report on note 2.1 to be acceptable.
going concern
The Directors have prepared the
financial statements on the going However, as we cannot predict
concern basis as they do not intend all future events or conditions
to liquidate the Company or to and as subsequent events may
cease its operations, and as they result in outcomes that are inconsistent
have concluded that the Company's with judgements that were reasonable
financial position means that at the time they were made, the
this is realistic. They have also above conclusions are not a guarantee
concluded that there are no material that the Company will continue
uncertainties that could have in operation.
cast significant doubt over its
ability to continue as a going 5. Fraud and breaches of law
concern for at least a year from and regulations - ability to
the date of approval of the financial detect
statements ("the going concern
period"). Identifying and responding to
risks of material misstatement
We used our knowledge of the Company, due to fraud
its industry, and the general
economic environment to identify To identify risks of material
the inherent risks to its business misstatement due to fraud ("fraud
model and analysed how those risks risks") we assessed events or
might affect the Company's financial conditions that could indicate
resources or ability to continue an incentive or pressure to commit
operations over the going concern fraud or provide an opportunity
period. The risks that we considered to commit fraud. Our risk assessment
most likely to adversely affect procedures included:
the Company's available financial
resources, and its ability to * Enquiring of the Directors and Administrator as to
operate over this period were: the Company's high-level policies and procedures to
prevent and detect fraud, as well as whether they
* The impact of a significant reduction in the have knowledge of any actual, suspected or alleged
valuation of the assets in the portfolio including fraud;
default on underlying collateral in securitization
investments;
* Assessing the segregation of duties in place between
the Directors, the Administrator and the Company's
* Adverse foreign exchange margin calls reducing the Investment Manager; and
availability of cash to meet ongoing obligations as
they fall due; and
* Reading Board minutes and Audit Committee minutes.
* Insufficient votes secured for the continuation vote
in April 2022.
As required by auditing standards,
we perform procedures to address
the risk of management override
We assessed the severe but plausible of controls, in particular to
downside scenarios in which these the risk that management may
risks could affect the liquidity be in a position to make inappropriate
of the Company in the going concern accounting entries. We evaluated
period. This took into account the design and implementation
the Company's current and projected of the controls over journal
cash positions, the investment entries and other adjustments
period of each investment as well and made inquiries of the Administrator
as the valuation and liquidity about inappropriate or unusual
of underlying assets. We also activity relating to the processing
considered the likelihood of the of journal entries and other
Company being able to secure sufficient adjustments. We substantively
vote at the next continuation tested all material post-closing
vote. entries by comparing the identified
entries to supporting documentation
and, based on the results of
our risk assessment procedures
and understanding of the process,
including the segregation of
duties between the Directors
and the Administrator, no further
high-risk journal entries or
other adjustments were identified.
5. Fraud and breaches of law and In addition, as with any audit,
regulations - ability to detect there remained a higher risk
(continued) of non-detection of fraud, as
these may involve collusion,
On this audit we have rebutted forgery, intentional omissions,
the fraud risk related to revenue misrepresentations, or the override
recognition because the revenue of internal controls. Our audit
is non-judgemental and straightforward, procedures are designed to detect
with limited opportunity for manipulation. material misstatement. We are
We did not identify any significant not responsible for preventing
unusual transactions or additional non-compliance or fraud and cannot
fraud risks. be expected to detect non-compliance
with all laws and regulations.
Identifying and responding to
risks of material misstatement 6. We have nothing to report
due to non-compliance with laws on the other information in the
and regulations Annual Report
We identified areas of laws and The Directors are responsible
regulations that could reasonably for the other information presented
be expected to have a material in the Annual Report together
effect on the with the financial statements.
financial statements from our Our opinion on the financial
general commercial and sector statements does not cover the
experience and through discussion other information and, accordingly,
with the Directors and the we do not express an audit opinion
Administrator (as required by or, except as explicitly stated
auditing standards) and discussed below, any form of assurance
with the Directors the policies conclusion thereon.
and procedures regarding compliance
with laws and regulations. Our responsibility is to read
the other information and, in
As the Company is regulated, our doing so, consider whether, based
assessment of risks involved on our financial statements audit
gaining an understanding of the work, the information therein
control environment including is materially misstated or inconsistent
the entity's procedures for complying with the financial statements
with regulatory requirements. or our audit knowledge. Based
solely on that work we have not
The potential effect of these identified material misstatements
laws and regulations on the financial in the other information.
statements varies considerably.
Disclosures of principal risks,
Firstly, the Company is subject uncertainties and emerging risks
to laws and regulations that and longer-term viability
directly affect the financial
statements including financial We are required to perform procedures
reporting legislation (including to identify whether
related companies legislation), there is a material inconsistency
distributable profits legislation between the Directors' disclosures
as set out by Companies (Jersey) in respect of emerging and principal
Law 1991, taxation legislation, risks and the viability statement,
and the Listing Rules, and we and the financial statements
assessed the extent of compliance and our audit knowledge.
with these laws and regulations
as part of our procedures on the Based on those procedures, we
related financial statement items. have nothing material to add
or draw attention to in relation
Secondly, the Company is subject to:
to many other laws and regulations * the Directors' confirmation within the Viability
where the consequences of non-compliance Statement page 34 that they have carried out a robust
could have a material effect on assessment of the emerging and principal risks facing
amounts or disclosures in the the Company, including those that would threaten its
financial statements, for instance business model, future performance, solvency and
through the imposition of fines liquidity;
or litigation. We identified the
following areas as those most
likely to have such an effect: * the Principal Risks, Uncertainties and Emerging Risks
anti-bribery, data protection, disclosures describing these risks and how emerging
anti-money laundering, market risks are identified, and explaining how they are
abuse regulations and certain being managed and mitigated; and
aspects of company legislation
recognising the financial and
regulated nature of the Company's * the Directors' explanation in the Viability Statement
activities and its legal form. of how they have assessed the prospects of the
Auditing standards limit the required Company, over what period they have done so and why
audit procedures to identify non-compliance they considered that period to be appropriate, and
with these laws and regulations their statement as to whether they have a reasonable
to enquiry of the Directors and expectation that the Company will be able to continue
the Administrator and inspection in operation and meet its liabilities as they fall
of regulatory and legal correspondence, due over the period of their assessment, including
if any. Therefore if a breach any related disclosures drawing attention to any
of operational regulations is necessary qualifications or assumptions.
not disclosed to us or evident
from relevant correspondence,
an audit will not detect that
breach. Based on the above procedures,
we have concluded that the
Context of the ability of the above disclosures are materially
audit to detect fraud or breaches consistent with the financial
of statements and our audit knowledge.
law or regulation
Our work is limited to assessing
Owing to the inherent limitations these matters in the context
of an audit, there is an of only the knowledge acquired
unavoidable risk that we may not during our financial statements
have detected some material misstatements audit. As we cannot predict all
in the financial statements, even future events or conditions and
though we have properly planned as subsequent events may result
and performed our audit in accordance in outcomes that are inconsistent
with auditing standards. For example, with judgements that were reasonable
the further removed non-compliance at the time they were made, the
with laws and regulations is from absence of anything to report
the events and transactions reflected on these statements is not a
in the financial statements, the guarantee as to the Company's
less likely the inherently limited longer-term viability.
procedures required by auditing
standards would identify it.
6. We have nothing to report on Auditor's responsibilities
the other information in the Annual
Report (continued) Our objectives are to obtain
reasonable assurance about whether
Corporate governance disclosures the financial statements as a
We are required to perform procedures whole are free from material
to identify whether there is a misstatement, whether due to
material inconsistency between fraud or error, and to issue
the Directors' corporate governance our opinion in an auditor's report.
disclosures and the financial Reasonable assurance is a high
statements and our audit knowledge. level of assurance, but does
not guarantee that an audit conducted
Based on those procedures, we in accordance with ISAs (UK)
have concluded that each of the will always detect a material
following is materially consistent misstatement when it exists.
with the financial statements Misstatements can arise from
and our audit knowledge: fraud or error and are considered
* the Directors' statement that they consider that the material if, individually or
annual report and financial statements taken as a in aggregate, they could reasonably
whole is fair, balanced and understandable, and be expected to influence the
provides the information necessary for shareholders economic decisions of users taken
to assess the Company's position and performance, on the basis of the financial
business model and strategy; statements.
A fuller description of our responsibilities
* the section of the Annual Report describing the work is provided on the FRC's website
of the Audit Committee, including the significant at
issues that the Audit Committee considered in www.frc.org.uk/auditorsresponsibilities
relation to the financial statements, and how these
issues were addressed; and The purpose of our audit work
and to whom we owe our responsibilities
* the section of the Annual Report that describes the This report is made solely to
review of the effectiveness of the Company's risk the Company's members, as a body,
management and internal control systems. in accordance with Article 113A
of the Companies Law (Jersey)
1991 and the terms of our engagement
by the Company. Our audit work
We are required to review the has been undertaken so that we
part of the Corporate Governance might state to the Company's
Statement relating to the Company's members those matters we are
compliance with the provisions required to state to them in
of the UK Corporate Governance an auditor's report, and the
Code specified by the Listing further matters we are required
Rules for our review. We have to state to them in accordance
nothing to report in this respect. with the terms agreed with the
Company, and for no other purpose.
7. We have nothing to report on To the fullest extent permitted
the other matters on which we by law, we do not accept or assume
are required to report by exception responsibility to anyone other
than the Company and the Company's
Under the Companies (Jersey) Law members, as a body, for our audit
1991 we are required to report work, for this report, or for
to you if, in our opinion: the opinions we have formed.
* proper accounting records have not been kept by the
Company; or
* proper returns adequate for our audit have not been
received from branches not visited by us; or
* the Company's accounts are not in agreement with the
accounting records and returns; or
* we have not received all the information and
explanations we require for our audit.
Fang Fang Zhou
We have nothing to report in these for and on behalf of KPMG LLP
respects. Chartered Accountants and Recognised
Auditor
8. Respective responsibilities 15 Canada Square London
E14 5GL
Directors' responsibilities 31 March 2021
As explained more fully in their
statement set out on page 41,
the Directors are responsible
for: the preparation of financial
statements that give a true and
fair view; such internal control
as they determine is necessary
to enable the preparation of financial
statements that are free from
material misstatement, whether
due to fraud or error; assessing
the Company's ability to continue
as a going concern, disclosing,
as applicable, matters related
to going concern; and using the
going concern basis of accounting
unless they either intend to liquidate
the Company or to cease operations,
or have no realistic alternative
but to do so.
Independent Auditors' Report
The Board of Directors
EJF Investments Limited
Report on the Financial Statements
We have audited the accompanying financial statements of EJF
Investments Limited, which comprise the statements of financial
position as of December 31, 2020 and 2019, and the related
statements of comprehensive income, changes in equity, and cash
flows for the years then ended, and the related notes to the
financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair
presentation of these financial statements in accordance with
International Financial Reporting Standards as adopted by the
European Union; this includes the design, implementation, and
maintenance of internal control relevant to the preparation and
fair presentation of financial statements that are free from
material misstatement, whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit in accordance
with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditors' judgment, including the
assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the
entity's preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity's internal control.
Accordingly, we express no such opinion. An audit also includes
evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by
management, as well as evaluating the overall presentation of the
financial statements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
EJF Investments Limited. as of December 31, 2020, and 2019, and the
results of its operations and its cash flows for the year then
ended in accordance with International Financial Reporting
Standards as adopted by the European Union.
The purpose of our audit work and to whom we owe our
responsibilities
This report is made solely to the Company's members, as a body,
in accordance with Article 113A of the Companies Law (Jersey),
1991. Our audit work has been undertaken so that we might state to
the Company's members those matters we are required to state to
them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's
members, as a body, for our audit work, for this report, or for the
opinions we have formed.
London, United Kingdom
March 31, 2021
Statement of Comprehensive Income
For The Years Ended 31 December 2020 and 31 December 2019
1 January 1 January
2020 to 31 2019 to 31
December 2020 December 2019
Notes GBP GBP
Dividend income 5 7,700,000 8,500,000
Net foreign exchange gain 756 20,868
Net unrealised (loss)/gain on financial
assets held at fair value through
profit or loss 9 (13,962,324) 8,191,118
------------------------------------------ ------ --------------- ---------------
Total (loss)/income (6,261,568) 16,711,986
------------------------------------------ ------ --------------- ---------------
Incentive fee 17 - (496,023)
Investment Management fee 17 (902,003) (1,118,440)
Legal fees (199,732) (342,228)
Professional fees (346,313) (322,842)
Prospectus expenses - (509,387)
Administration fees (246,114) (310,159)
Directors' fees 17 (135,000) (135,000)
Directors' and professional indemnity
insurance 17 (95,914) (73,097)
Audit fees 6 (151,250) (169,520)
Printing fees (28,226) (30,417)
Listing fees (36,866) -
Tax services fees (207,036) (103,204)
Other expenses (83,459) 12,879
Total operating expenses (2,431,913) (3,597,438)
------------------------------------------ ------ --------------- ---------------
Expenses reimbursed by the Manager 17 1,161,981 1,211,581
Net operating expenses (1,269,932) (2,385,857)
------------------------------------------ ------ --------------- ---------------
Operating (loss)/profit (7,531,500) 14,326,129
------------------------------------------ ------ --------------- ---------------
Finance costs 7 (1,254,786) (976,319)
------------------------------------------ ------ --------------- ---------------
(Loss)/profit and total comprehensive
(loss)/income for the year attributable
to shareholders (8,786,286) 13,349,810
------------------------------------------ ------ --------------- ---------------
Weighted average number of Ordinary
Shares in issue during the year 61,740,143 64,175,306
------------------------------------------ ------ --------------- ---------------
Basic and diluted (losses)/earnings
per Ordinary Share 18 (14.2)p 20.8p
------------------------------------------ ------ --------------- ---------------
All items in the above statement are derived from continuing
operations. No operations were acquired or discontinued during the
year.
The accompanying notes below form an integral part of these
Audited Financial Statements
Statement of Financial Position
As at 31 December 2020 and 31 December 2019
31 December 31 December
2020 2019
Notes GBP GBP
Non-current assets
Financial assets at fair value
through profit or loss 9 124,151,399 138,113,723
Current assets
Cash and cash equivalents 347 263,781
Balance due from the Manager 17 570,728 563,525
Prepaid expenses and other assets 8 39,788 13,822
----------------------------------- ------ -------------- --------------
Total current assets 610,863 841,128
----------------------------------- ------ -------------- --------------
Total assets 124,762,262 138,954,851
----------------------------------- ------ -------------- --------------
Non-current liabilities
ZDP Shares 11 23,606,438 16,586,361
Current liabilities
Accounts payable and accrued
expenses 10 587,163 1,384,945
----------------------------------- ------ -------------- --------------
Total liabilities 24,193,601 17,971,306
----------------------------------- ------ -------------- --------------
Net assets 100,568,661 120,983,545
----------------------------------- ------ -------------- --------------
Equity
Stated capital 85,254,127 90,259,133
Retained earnings 15,314,534 30,724,412
----------------------------------- ------ -------------- --------------
Total Equity 100,568,661 120,983,545
----------------------------------- ------ -------------- --------------
Number of Ordinary Shares in
issue at year end
(excluding treasury shares) 12 61,145,198 64,175,306
Net Asset Value per Ordinary
Share 164p 189p
----------------------------------- ------ -------------- --------------
The Audited Financial Statements were approved and authorised
for issue by the Board on 31 March 2021 and signed on its behalf
by:
Alan Dunphy
Director
The accompanying notes below form an integral part of these
Audited Financial Statements
Statement of Changes in Equity
For The Years Ended 31 December 2020 and 31 December 2019
For the year ended 31 December 2020
Net assets
attributable
Number Stated Retained to
of shares capital earnings shareholders
Notes GBP GBP GBP
Balance at 1 January
2020 64,175,306 90,259,133 30,724,412 120,983,545
Total comprehensive
loss for the year attributable
to shareholders - - (8,786,286) (8,786,286)
Transactions with shareholders
Shares issued for repurchase 7,396,515 11,982,354 - 11,982,354
Purchase of own shares
to hold in treasury (7,396,515) (11,982,354) - (11,982,354)
Share buyback (3,030,108) (5,005,006) - (5,005,006)
Dividends paid 13 - - (6,623,592) (6,623,592)
Balance at 31 December
2020 12 61,145,198 85,254,127 15,314,534 100,568,661
--------------------------------- ------ ------------ ------------- -------------- --------------
For the year ended 31 December 2019
Net assets
attributable
Number Stated Retained to
of shares capital earnings shareholders
Notes GBP GBP GBP
Balance at 1 January
2019 64,175,306 90,259,133 24,241,358 114,500,491
Total comprehensive
income for the year
attributable to shareholders - - 13,349,810 13,349,810
Transactions with shareholders
Dividends paid 13 - - (6,866,756) (6,866,756)
Balance at 31 December
2019 12 64,175,306 90,259,133 30,724,412 120,983,545
-------------------------------- ------ ----------- ----------- ------------- --------------
The accompanying notes below form an integral part of these
Audited Financial Statements
Statement of Cash Flows
For The Years Ended 31 December 2020 and 31 December 2019
1 January 1 January
2020 to 2019 to
31 December 31 December
2020 2019
Notes GBP GBP
------------------------------------------- ------ ------------- --------------
Cash flows from operating activities
(Loss)/profit and total comprehensive
(loss)/income for the year (8,786,286) 13,349,810
Adjustments for:
Amortisation of ZDP Shares, including
finance costs and issue cost 11 1,233,597 1,040,836
Net loss/(gain) on financial assets
held at fair value through profit
or loss 9 13,962,324 (8,191,118)
Net foreign exchange gain (756) (20,868)
------------------------------------------- ------ ------------- --------------
6,408,879 6,178,660
------------------------------------------- ------ ------------- --------------
Changes in net assets and liabilities:
Balance due from the Manager (7,203) 1,159,049
Prepaid expenses and other assets (25,966) 79,595
Accounts payable and accrued expenses (797,782) (955,954)
------------------------------------------- ------ ------------- --------------
Net cash (used in) / generated
from operating activities (830,951) 282,690
------------------------------------------- ------ ------------- --------------
Cash flow from financing activities
Proceeds from issue of ZDP shares 6,000,000 -
2025 ZDP shares issue costs (213,520) -
Purchase of own shares to hold (5,005,006) -
in treasury
Dividends paid 13 (6,623,592) (6,866,756)
------------------------------------------- ------ ------------- --------------
Net cash used in financing activities (5,842,118) (6,866,756)
------------------------------------------- ------ ------------- --------------
Net decrease in cash and cash equivalents (264,190) (405,406)
Cash and cash equivalents at the
start of the year 263,781 648,319
Effect of movements in exchange
rates on cash and cash equivalents 756 20,868
Cash and cash equivalents at the
end of the year 347 263,781
------------------------------------------- ------ ------------- --------------
The accompanying notes below form an integral part of these
Audited Financial Statements
NOTES TO THE AUDITED FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2020
1. General information
EJFI is a registered closed-ended investment company
incorporated with limited liability in the Bailiwick of Jersey on
20 October 2016 under the provisions of the Companies Law with
registered number 122353. The Company's registered office and
principal place of business is IFC1, The Esplanade, St. Helier,
Jersey, JE1 4BP, Channel Islands. The principal legislation under
which the Company operates is the Companies Law. The Company's
stated capital comprises Ordinary Shares admitted to trading on the
SFS.
The Company does not have a fixed life. Under the Company's
Articles, on or about each fifth anniversary of the Company's
Shares being admitted to trading on LSE, the Directors shall
procure that an EGM of the Company be convened at which a
continuance resolution will be proposed. The first such continuance
resolution is expected to take place in or around April 2022.
The Manager has been appointed by the Company to provide
management and investment management services and the Administrator
has been appointed to provide administration services to the
Company.
EJF holds 100% of the voting rights in the Manager. EJF is an
investment adviser principally located in the US and registered as
such with the SEC and as a CPO and CTA with the CFTC. The Company
has appointed the Manager to act as its AIFM for the purposes of
the AIFM Directive.
Additional information has been provided in Note 20 to allow the
Manager to avail of the audit exemption as prescribed in Rule 206
(4)-2 of the US Investment Adviser Act 1940.
Since incorporation, the Company has incorporated two
subsidiaries: EJFIH (incorporated on 9 June 2017), of which the
Company owns 100% of the share capital, and EJFIF (incorporated on
5 September 2018 and liquidated on 15 December 2020), of which
EJFIH owned 100% of the share capital. Refer to note 14.
EJFIH holds 85% (31 December 2019: 85% held by EJFIF) of the
Partnership's interests (refer to note 9 for further
information).
Through the Subsidiary, the Company primarily invests in
opportunities created by regulatory and structural changes
impacting the financial services sector. These opportunities can
include structured debt and equity, loans, bonds, preference
shares, convertible notes and private equity, in both cash and
synthetic formats issued by entities domiciled in the US, UK and
Europe.
2. Significant accounting policies
2.1 Basis of preparation
(a) Statement of Compliance
The Audited Financial Statements of the Company have been
prepared in accordance with IFRS which comprise standards and
interpretations approved by the International Accounting Standards
Board together with the interpretations of the International
Accounting Standards and Standing Interpretations Committee as
approved by the International Accounting Standards Committee which
remain in effect. The Audited Financial Statements give a true and
fair view of the Company's affairs and comply with the requirements
of the Companies Law.
(b) Basis of measurement
These Audited Financial Statements have been prepared on the
historical cost basis except for the revaluation of financial
assets held at fair value through profit or loss.
(c) Going concern
The Directors have performed a detailed assessment of the
Company's ability to meet its liabilities as they fall due for the
period of at least twelve months, including evaluating severe but
plausible downside scenarios of a significant reduction in the
liquidity positions and fair value of its investments. The
assessment was completed with reference to the cash position of the
Company and its Subsidiary, the operating expenses, the valuations
of the assets subsequent to the year end and the potential default
risk of the investments held. The Directors also considered the
2022 ZDP liabilities, which will mature on 30 November 2022 and the
continuation vote due in 2022. Based on the Company's performance,
the voting history in the general meetings, and the future
prospects of the Company, the Directors consider the risk of the
continuation vote not being passed to be low. The continuation
vote, which occurs every five years from Admission, requires a
majority of greater than 50% of those voting to be passed. In light
of this analysis, the Directors are satisfied that, at the time of
approving the financial statements, there is a reasonable
expectation that the Company will have adequate resources to
continue in operational existence for a period of at least twelve
months from the date of approval of the financial statements, and
have therefore prepared the financial statements on a going concern
basis.
(d) Functional and presentation currency
The Company's functional currency is Sterling, which the
Directors deem to be the currency of the primary economic
environment in which it operates, the currency in which finance is
raised, the currency in which distributions are made, the currency
in which investment management fees are paid and ultimately the
currency that would be returned to shareholders if the Company was
wound up. The Group enters into investment transactions that are
denominated in currencies other than the functional currency,
primarily in US Dollars and therefore is exposed to currency risk.
The Company's performance is evaluated and reported to shareholders
in Sterling and its liquidity is managed in Sterling. Sterling is
considered as the currency that most faithfully represents the
economic effects of the underlying transactions, events and
conditions. The Audited Financial Statements are presented in
Sterling, except where otherwise indicated, and are rounded to the
nearest Sterling.
(e) Standards and amendments to existing standards effective
from 1 January 2020
Definition of material (amendments to IAS 1 and IAS 8)
The International Accounting Standards Board has redefined its
definition of material, issued practical guidance on applying the
concept of materiality and issued proposals focused on the
application of materiality to disclosure of other accounting
policies. The amendments do not have a material impact on the
Company's financial statements.
There are no other standards, amendments to standards or
interpretations that are effective for annual periods beginning on
1 January 2020 that have a material effect on the Audited Financial
Statements of the Company.
(f) Standards, amendments and interpretations issued but not yet
effective
Standards that become effective in future accounting periods and
have not been early adopted by the Company:
Standard Effective for annual periods
beginning on or after
------------------------------ -----------------------------
Annual improvements to IFRS 1 January 2022
standard 2018 to 2020
IFRS 17 1 January 2023
---------------------------- -----------------------------
As the Company does not participate in insurance contracts in
the normal course of its business, the Directors believe that the
application of this IFRS 17 will not have an impact on the
Company's Audited Financial Statements.
A number of other new standards, amendments to standards and
interpretations are effective for annual periods beginning after 1
January 2020, and have not been early adopted in preparing these
Audited Financial Statements. None of these are expected to have a
material effect on the Audited Financial Statements of the
Company.
2.2 Foreign currency translations
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign currency assets and liabilities are
translated into the functional currency using the exchange rate
prevailing at the statement of financial position date.
Foreign exchange gains and losses arising from translation are
included in the Statement of Comprehensive Income.
Foreign exchange gains and losses relating to cash and cash
equivalents are presented in the Statement of Comprehensive Income
within 'net foreign exchange gain/(loss)'.
Foreign exchange gains and losses relating to the financial
assets and liabilities carried at FVTPL are presented in the
Statement of Comprehensive Income within 'Net (loss)/gain on
financial assets held at fair value through profit or loss'.
2.3 Accounting for subsidiaries
In accordance with IFRS 10 as amended, the Board has determined
that the Company meets the definition of an investment entity which
is exempted from the consolidation of investment entity
subsidiaries. The services provided by the Subsidiary are
undertaken to maximise the Company's investment returns and do not
represent a separate substantial business activity.
The Company has been deemed to meet the definition of an
investment entity per IFRS 10 as the following conditions
exist:
-- The Company has obtained funds from investors for the purpose
of providing investors with investment management services.
-- The Company's business purpose, which was communicated
directly to investors, is investing funds solely for returns from
capital appreciation and investment income.
-- The Company measures and evaluates all of its investments on a fair value basis.
The Company obtains funding from a diverse group of external
shareholders, to whom it has committed that its business purpose is
to invest funds solely for returns from capital appreciation and
investment income.
The Company ultimately owns 100% of the equity of the
Subsidiary. The Company is exposed to, and has rights to the
returns from, the Subsidiary and has the ability, either directly
or through the Manager, to affect the amount of its returns from
the Subsidiary, representing all the elements of control as
prescribed by IFRS 10.
The Subsidiary is used to acquire exposure to a portfolio
comprising a large number of investments. The fair value method is
used to represent the Subsidiary's performance in its internal
reporting to the Board, and to evaluate the performance of the
Subsidiary's investments and to make investment decisions for
mature investments. Those investments have documented
maturity/redemption dates, or will be sold if other investments
with a better risk/reward profile are identified, which the Manager
considers demonstrate a clear exit strategy.
As a result, under the terms of IFRS 10, the Company does not
consolidate the Subsidiary, and must measure its investment in the
Subsidiary at FVTPL. The Company has determined that the fair value
of the Subsidiary is the Subsidiary's net asset value and has
concluded that the Subsidiary meets the definition of an
unconsolidated subsidiary under IFRS 12 and has made the necessary
disclosures (see notes 9 & 14).
Additionally, the Subsidiary has been deemed to meet the
definition of an investment entity per IFRS 10 as the
above-mentioned conditions are met.
2.4 Taxation
Under Article 123C of the Jersey Income Tax Law and on the basis
that the Company is tax resident in Jersey, the Company is regarded
as subject to Jersey income tax at a rate of 0%. The Company is not
subject to UK income tax or corporation tax. The Company changed
its US tax classification status from a partnership to a non-US
corporation from 1 January 2020.
2.5 Financial instruments
(a) Classification
The Company classifies its financial assets and financial
liabilities in the following measurement categories:
-- those to be measured subsequently at fair value, and
-- those to be measured at amortised cost.
The classification depends on the Company's business model for
managing the financial instruments and the contractual terms of the
cash flows.
Financial assets held at fair value through profit or loss
The Company has been classified as an investment entity and as
such, its investment in EJFIH is held at FVTPL and measured in
accordance with the requirements of IFRS 9.
Cash and cash equivalents and trade and other receivables
(i) Cash and cash equivalents
Cash comprises current deposits with banks. Cash equivalents are
short-term, highly liquid investments that are readily convertible
to known amounts of cash, are subject to an insignificant risk of
changes in value, and are held for the purpose of meeting
short-term cash commitments rather than for investments or other
purposes.
(ii) Trade and other receivables
Trade and other receivables, including balance due from the
Manager , are balances that have been contracted for but not yet
delivered on the Statement of Financial Position date . These
financial assets are included in current assets, except for
maturities greater than twelve months after the reporting date,
which are classified as non-current assets.
On initial recognition, the Company classifies financial assets
as measured at amortised cost or fair value through profit or
loss.
A financial asset is measured at amortised cost if it meets both
of the following conditions and is not designated as at fair value
through profit or loss:
-- It is held within a business model whose objective is to hold
assets to collect contractual cash flows; and
-- Its contractual terms give rise on specified dates to cash
flows that are solely payments of principal and interest.
Financial liabilities measured at amortised cost
These include trade payables and other short-term monetary
liabilities, which are initially recognised at fair value plus
transaction costs that are directly attributable to their
acquisition or issue. They are subsequently carried at amortised
cost.
ZDP Shares
In accordance with IAS 32, ZDP Shares have been disclosed as a
financial liability as the shares are redeemable at a fixed date
and holders are entitled to a final capital entitlement on the
repayment date. ZDP Shares are measured at amortised cost using the
effective interest rate method.
(b) Recognition and initial measurement
Investments made by the Company in EJFIH are recognised on the
trade date when the Company becomes a party to the contractual
provisions of the financial instrument and are measured initially
at fair value. No transaction costs are incurred.
All other financial assets (cash and cash equivalents and
balance due from Manager) and financial liabilities (accounts
payables and accrued expenses) are also recorded on the trade date
and recognised when the Company becomes a party to the contractual
provisions of the financial instrument and are measured initially
at fair value adjusted for transaction costs.
The Company offsets financial assets and financial liabilities
if the Company has a legally enforceable right to offset the
recognised amounts and interests and intends to settle on a net
basis or realise the asset and liability simultaneously.
(c) Subsequent measurement of financial assets
Financial assets at fair value through profit or loss
("Investment in EJFIH")
Subsequent to initial recognition, the Investment in EJFIH is
measured at each subsequent reporting date at FVTPL. The Company
holds all of the shares in EJFIH, which is a holding vehicle used
to hold the Company's investments. EJFIH is not traded and contains
unobservable inputs and is therefore classified as a Level 3
investment under IFRS 13. The Board considers that the net asset
value of EJFIH is representative of its fair value. EJFIH itself
holds a number of Level 3 investments which are also measured at
fair value.
Changes in the fair value of financial assets held at FVTPL are
recognised in net gain on financial assets held at FVTPL in the
Statement of Comprehensive Income as applicable.
Note 9 provides an analysis of the financial assets and
financial liabilities of the Subsidiary on a look-through basis
that ties to the Company's investment in financial assets at
FVTPL.
Derivative financial instruments held by EJFIH
Derivatives are initially recognised at fair value at the date a
derivative contract is entered into and are subsequently
re-measured to their fair value at each financial reporting date.
The resulting gain or loss is recognised in EJFIH's Statement of
Comprehensive Income immediately.
Derivatives are classified as financial assets or financial
liabilities at fair value through profit or loss, attributable
transaction costs are recognised in the Statement of Comprehensive
Income when incurred. EJFIH holds derivative financial instruments
to minimise its exposure to foreign exchange risks.
The fair values of derivative transactions are measured at their
market prices at the reporting date.
Cash and cash equivalents and trade and other receivables
Subsequent measurement of cash and cash equivalents and trade
and other receivables depends on the entity's business model for
managing the asset and the cash flow characteristics of the
asset.
Assets that are held for collection of contractual cash flows
where those cash flows represent solely payments of principal and
interest are measured at amortised cost. Interest income from these
financial assets is included in finance income using the effective
interest rate method. Any gain or loss arising on de-recognition is
recognised directly in profit or loss and presented in other
gains/(losses) together with foreign exchange gains and losses.
Impairment losses are presented as separate line item in the
Statement of Comprehensive Income.
(d) Impairment
The Company assesses on a forward-looking basis the expected
credit loss associated with its cash and cash equivalents and trade
and other receivables carried at amortised cost. The impairment
methodology applied depends on whether there has been a significant
increase in credit risk or indicators of impairment.
For cash and cash equivalents and trade and other receivables,
the Company applies the simplified approach permitted by IFRS 9,
which requires expected 12-month losses to be recognised from
initial recognition of the receivables, see note 15 for further
details.
(e) De-recognition of financial assets and financial liabilities
A financial asset (in whole or in part) is derecognised
either:
-- when the Company has transferred substantially all the risks and rewards of ownership; or
-- when it has neither transferred nor retained substantially
all the risks and rewards and when it no longer has control over
the assets or a portion of the asset; or
-- when the contractual right to receive cash flow has expired.
A financial liability (in whole or in part) is derecognised when
the Company has extinguished its contractual obligations, it
expires or is cancelled. Any gain or loss on de-recognition is
taken to Statement of Comprehensive Income.
2.6 Dividend income
Dividend income is recognised in the Statement of Comprehensive
Income on the date on which the right to receive payment is
established. This is usually the date on which the directors
approve the payment of a dividend. Dividend income from EJFIH is
recognised in the Statement of Comprehensive Income as a separate
line item.
2.7 Interest income and expense
Interest income and expense, are recognised as other income in
the Statement of Comprehensive Income, using the effective interest
method. The effective interest rate is the rate that exactly
discounts the estimated future cash payments and receipts through
the expected life of the financial instrument (or, when
appropriate, a shorter period) to the carrying amount of the
financial instrument on initial recognition.
2.8 Dividends payable
Dividends declared and approved are charged against equity. A
corresponding liability is recognised for any unpaid dividends
prior to year-end. Dividends approved but not declared will be
disclosed in the notes to the Audited Financial Statements.
2.9 Expenses
Fees and other operating expenses are recognised in the
Statement of Comprehensive Income on an accruals basis.
2.10 Ordinary shares
The Ordinary Shares of the Company are classified as equity
based on the substance of the contractual arrangements and in
accordance with the definition of equity instruments under IAS 32.
The proceeds from the issue of Ordinary Shares are recognised in
the Statement of Changes in Equity, net of issue costs.
Where the Company repurchases its own Ordinary Shares (treasury
shares), the consideration paid, including any directly
attributable costs, is deducted from equity attributable to the
shareholders until the Ordinary Shares are cancelled, re-issued or
disposed of. Where such shares are subsequently sold or reissued,
any consideration received, net of any directly attributable issue
costs, is included in equity attributable to the shareholders.
3. Use of judgements and estimates
In the application of the Company's accounting policies, the
Board is required to make judgements, estimates and assumptions
about the carrying amounts of assets and liabilities that are not
readily apparent from other sources. The estimates and associated
assumptions are based on historical experience and other factors
that are considered to be relevant. Actual results may differ from
these estimates. The estimates and underlying assumptions are
reviewed on an ongoing basis. The critical judgements and
estimations of uncertainty at the Statement of Financial Position
date that the Directors have made in the process of applying the
Company's accounting policies and that have the most significant
effect on the amounts recognised in the Audited Financial
Statements are as set out below:
(a) Significant judgements
Non-consolidation of EJFIH
The Directors have used their judgement to determine that the
Company meets the definition of an investment entity as defined in
IFRS 10.
As the Company satisfies the criteria for an investment entity
and has the typical characteristics of an investment entity as
explained in note 2.3 "Accounting for subsidiaries", the Board
considers that the Company is an investment entity. Accordingly the
Company's subsidiary, EJFIH, has not been consolidated but has been
fair valued and accounted for at fair value through profit or
loss.
(b) Significant estimates
Fair value measurements and valuation processes
The Company's investment in EJFIH has been classified as a Level
3 investment and is measured at fair value for financial reporting
purposes. The estimate of the net asset value of EJFIH relies
heavily on the estimate of the fair value of the underlying assets
and liabilities. EJFIH uses market-observable data to the extent it
is available. The Manager has also appointed a recognised
independent valuation agent to provide comfort over the valuations
derived from models developed by the Manager where appropriate.
The Manager works closely with the independent valuation agent
to establish the appropriate valuation techniques and inputs to the
model. The fair value of assets and liabilities classified as Level
3 is determined by the use of valuation models. These include the
net asset value model, discounted cash flow analysis or the use of
observable inputs that require significant adjustments (see note 15
for further information).
4. Segmental reporting
IFRS 8 requires a "management approach", under which segment
information is presented on the same basis as that used for
internal reporting purposes.
The Board has considered the requirements of IFRS 8, and is of
the view that the Company is engaged in a single segment of
business via its investment in EJFIH mainly in one geographical
area, Jersey, and therefore the Company has only a single operating
segment.
5. Dividend income
The Company received the following dividends from EJFIH during
the years ended 31 December 2020 and 31 December 2019:
31 December 31 December 2019
Date received 2020 GBP
GBP
------------------ ------------ -----------------
28 February 2019 - 1,750,000
16 May 2019 - 1,750,000
30 June 2019 - 3,000,000
29 October 2019 - 2,000,000
28 January 2020 2,700,000 -
29 April 2020 2,000,000 -
24 July 2020 1,200,000 -
4 November 2020 1,800,000 -
------------------ ------------ -----------------
7,700,000 8,500,000
------------------ ------------ -----------------
6. Auditor's remuneration
The analysis of KPMG's remuneration is as follows:
1 January 2020 1 January
to 2019 to 31
31 December December 2019
2020
GBP GBP
------------------------------------------ --------------- ---------------
KPMG LLP - audit and audit related
services
Annual audit 133,250 151,520
Audit related services - interim review 18,000 18,000
------------------------------------------ --------------- ---------------
Total audit and audit related fees 151,250 169,520
------------------------------------------ --------------- ---------------
Total fees to KPMG LLP 151,250 169,520
------------------------------------------ --------------- ---------------
7. Finance costs
1 January 2020 1 January
to 2019 to 31
31 December December 2019
2020
GBP GBP
------------------------------------------ --------------- ---------------
ZDP Shares finance costs (see note
11) 1,233,597 935,836
Prime broker costs 21,596 (63,442)
Other finance costs (407) (1,075)
------------------------------------------ --------------- ---------------
Total finance costs 1,254,786 871,319
------------------------------------------ --------------- ---------------
8. Prepaid expenses and other assets
31 December 31 December
2020 2019
GBP GBP
------------------------------------- ------------ --- ------------
Prepaid Directors' and professional
indemnity insurance 6,921 5,413
Prepaid listing fee 1,919 -
Prepaid website fee 6,132 -
Prepaid professional fees 24,816 8,409
------------------------------------- ------------ --- ------------
39,788 13,822
------------------------------------- ------------ --- ------------
9. Financial assets at fair value through profit or loss
Investment in EJFIH
During the year ended 31 December 2020 the Company made no
further investment in EJFIH (31 December 2019: no investment
made).
The investment in EJFIH is used to acquire exposure to a
portfolio comprising a large number of investments. The investment
in EJFIH is measured at FVTPL. The Company has determined that the
fair value of EJFIH is its net asset value.
Below is a summary of the movement in the investment in EJFIH,
held by the Company:
31 December 31 December
2020 2019
GBP GBP
----------------------------------------- -------------- --------------
Opening balance 138,113,723 129,922,605
Net (loss)/gain on investment in EJFIH* (13,962,324) 8,191,118
----------------------------------------- -------------- --------------
Investment in EJFIH at fair value
through profit or loss at
the end of the year 124,151,399 138,113,723
----------------------------------------- -------------- --------------
*Net (loss)/ gain comprise distributions received during the
reporting year in the amount of GBP7,700,000 (31 December 2019:
GBP8,500,000) and unrealised losses on investment in EJFIH in the
amount of GBP6,262,324 (31 December 2019: unrealised gains of
GBP16,691,118).
On a look-through basis, the following table discloses the
Subsidiary's financial assets at FVTPL which agrees to the
Company's financial assets at FVTPL:
31 December 31 December
2020 2019
GBP GBP
-------------------------------------------- ------------ -------------
Subsidiary's investments at fair value
through profit or loss:
Armadillo Portfolio 2,053,370 4,260,152
Investment in the Partnership(1) 88,334,641 77,794,613
Investment in the CDO Manager 9,463,395 9,399,029
CDO securities 772,225 8,383,554
UK bank sub-debt - 4,337,960
Bridge Loan - 7,669,797
Preference Shares(1) 1,234,324 1,315,095
Net Derivative financial assets (note
15) 2,533,786 6,649,760
Seneca 1,244,059 -
-------------------------------------------- ------------ -------------
Total Subsidiary's investments at
fair value through profit or loss 105,635,800 119,809,960
Subsidiary's other assets and liabilities:
Cash and cash equivalents(2) 14,867,476 16,765,867
Cash and cash equivalents held as
margin 3,611,325 375,590
Other receivables(2) 36,798 1,162,306
Subsidiary's net asset value at the
end of the year 124,151,399 138,113,723
-------------------------------------------- ------------ -------------
(1) Held by EJFIH at 31 December 2020 and by EJFIF at 31 December 2019
(2) Held by EJFIH as at 31 December 2020 and EJFIH and EJFIF as
at 31 December 2019
(a) Subsidiary's investments in private investment companies
Investments in the Armadillo Portfolio
The Subsidiary's investments in private investment companies
include the partnership interests in the Armadillo Portfolio . The
investment strategy of the Armadillo Portfolio is to make high
interest rate loans to third-party law firms engaged in mass tort
litigation. The Company, through its investment in EJFIH, had a
35.9% holding in Armadillo I and 0.5% holding in Armadillo II as at
31 December 2020 (30.2% holding in Armadillo I and 0.3% holding in
Armadillo II as at 31 December 2019).
The following table summarises activity for the investment in
the Armadillo Portfolio:
31 December 31 December
2020 2019
GBP GBP
--------------------------------------------- ------------ ------------------
Opening balance 4,260,152 6,448,996
Distributions (1,970,153) (918,564)
Realised gains/(losses) on distributions(1) 268,359 (129,081)
Unrealised (losses)/gains(1) (504,988) (1,141,199)
--------------------------------------------- ------------ ------------------
Investments in the Armadillo Portfolio
at fair value through profit or loss 2,053,370 4,260,152
--------------------------------------------- ------------ ------------------
Investment in the Partnership
As at 31 December 2020, EJFIH held 85% or 122,851,798 units (31
December 2019: 85% or 96,821,048 units held directly by EJFIF)
issued by the Partnership. The Partnership's purpose is to retain
an interest of at least 5% in securitisations sponsored by EJF
pursuant to regulatory requirements within the Dodd-Frank reforms
in the US and EU risk retention rules. The investment in the
Partnership is valued at GBP88,334,641 (31 December 2019:
GBP77,794,613).
As at 31 December 2020, the remaining units outstanding are held
by the Manager (21,680,346 units) (31 December 2019: 17,086,096
units) and EJF Investments GP Inc. (165 units) (31 December 2019:
165 units).
The following table summarises activity for the investment in
the Partnership:
31 December 31 December
2020 2019
GBP GBP
--------------------------------------- ------------- -------------
Opening balance 77,794,613 66,961,764
Additions 29,972,364 22,400,379
Return of Capital (10,390,904) (10,439,891)
Distributions (8,992,709) (10,217,324)
Realised gains on distributions(1) 8,829,146 9,979,943
Unrealised losses (8,877,869) (890,258)
--------------------------------------- ------------- -------------
Investment in the Partnership at fair
value through profit or loss 88,334,641 77,794,613
--------------------------------------- ------------- -------------
(1) Includes fluctuations in foreign exchange rates
Investment in Seneca
The Subsidiary's investments in private investment companies
include the partnership and loan interests in Seneca . The
investment strategy of Seneca is to invest in MSRs.
The following table summarises activity for the investment in
Seneca:
31 December 2020
GBP
--------------------------------------------------- -----------------
Opening balance -
Additions 1,248,056
Unrealised losses(1) (3,997)
--------------------------------------------------- -----------------
Investment in Seneca at fair value through profit
or loss 1,244,059
--------------------------------------------------- -----------------
(1) Includes fluctuations in foreign exchange rates
(b) Subsidiary's investment in private operating company
Investment in the CDO Manager
The CDO Manager, which is 51% owned by the Manager and 49% owned
by EJFIH, provides collateral management services to various CDO
structures. The CDO Manager provides such services directly to
those CDO structures on commercially reasonable terms. The CDO
Manager is also expected to provide collateral management services
to future EJF sponsored securitisations as it will have the
benefit, for so long as the Manager is the manager of the Company,
of a right of first refusal to be appointed as the provider of
collateral administration, monitoring and management services in
respect of each EJF Securitisation. The CDO Manager may also
provide collateral management services to non-EJF securitisations.
The CDO Manager is expected to benefit from collateral management
fees on all CDOs it services and manages until maturity of such
CDOs.
The following table summarises activity for the investment in
the CDO Manager:
31 December 31 December
2020 2019
GBP GBP
--------------------------------------- ------------ ------------
Opening balance 9,399,029 9,606,049
Distributions (2,179,635) -
Unrealised gains/(losses)(1) 2,244,001 (207,020)
--------------------------------------- ------------ ------------
Investment in the CDO Manager at fair
value through profit or loss 9,463,395 9,399,029
--------------------------------------- ------------ ------------
(1) Includes fluctuations in foreign exchange rates
EJFIH through its 49% interest in the CDO Manager, has an
exposure to the cash flows of four REIT TruPS CDO collateral
management contracts plus cash flow from TFINS 2017-2, TFINS
2018-1, TFINS 2018-2, TFINS 2019-1, TFINS 2019-2,FINS 2019-1, TFINS
2020-1 and TFINS 2020-2. The CDO Manager has a total net asset
value of GBP19,313,053 as at 31 December 2020 (31 December 2019:
GBP19,181,694). EJFIH's interest in the CDO Manager has a net asset
value of GBP9,463,396 as at 31 December 2020 (31 December 2019:
GBP9,399,029).
The management fees of each REIT TruPS CDO collateral management
contract vary, ranging from 15bps to 30bps of the outstanding
collateral balance. The TFINS 2017-2 securitisation produces
management fees of 10bps on outstanding collateral. The TFINS
2018-1, TFINS 2018-2, TFINS 2019-1 and TFINS 2019-2 securitisations
produce management fees of 20bps on outstanding collateral. The
FINS 2019-1 securitisation produces management fees of 30bps on
outstanding collateral. TFINS 2020-1 and TFINS 2020-2
securitisations produce management fees of 30bps on outstanding
collateral.
(c) Subsidiary's investments in trading securities
CDO securities
The Subsidiary's CDO securities portfolio consists of REIT TruPS
CDO securities issued prior to the financial crisis by an
unaffiliated third-party sponsor. The remaining CDO security is
generating current income. The bond holdings range from senior
class A bonds to subordinated class F bonds. For the year ended 31
December 2020, EJFIH accrued GBP64,791 and EJFIF accrued GBP195,494
(EJFIH 2019: GBP316,742 and EJFIF 2019: accrued GBP304,843) of
interest income presented as investment income in EJFIH and EJFIF,
up until liquidation, respectively.
The following table summarises activity for the investment in
CDO securities:
31 December 31 December
2020 2019
GBP GBP
---------------------------------------- ------------- -------------
Opening balance 8,383,554 9,695,693
Reclassification from - (d) Due under
repurchase agreement - 7,634,452
Proceeds on disposal (7,280,472) (9,201,266)
Realised (losses)/gains on disposal(1) (449,444) 313,285
Unrealised gains/(losses) from CDO
securities(1) 118,587 (58,610)
---------------------------------------- ------------- -------------
CDO securities at fair value through
profit or loss 772,225 8,383,554
---------------------------------------- ------------- -------------
(1) Includes fluctuations in foreign exchange rates
UK Bank Sub-Debt
The UK Bank Sub-Debt portfolio was held by EJFIF and consisted
of UK specialised bank securities issued in 2019. The securities
yielded fixed coupons of 7.5 - 7.75% denominated in Sterling and
were sold during the year.
The following table summarises activity for the investment in UK
Bank Sub-Debt:
31 December 31 December
2020 2019
GBP GBP
-------------------------------------------- ------------- -------------
Opening balance 4,337,960 -
Additions - 4,313,000
Proceeds on disposal (4,054,650) -
Realised losses on disposal (283,310) -
Unrealised gains from UK bank sub-debt(1) - 24,960
-------------------------------------------- ------------- -------------
UK Bank Sub-Debt at fair value through
profit or loss - 4,337,960
-------------------------------------------- ------------- -------------
Interest income recognised on UK Bank Sub-Debt was GBP207,432
(31 December 2019: GBP60,360).
Bridge Loan
The Bridge Loan was structured as a senior secured note with a
three-year maturity and an interest rate of 12%. Additionally, the
Bridge Loan investors received a 2% commitment fee in 2019. The
Bridge Loan was secured by the collateral of two CDOs that were
wrapped by an affiliate of the borrower. For the year ended 31
December 2020, EJFIF accrued GBP376,937 (2019: EJFIF accrued
GBP491,233 and EJFIH accrued GBP600,721) of interest income
presented as investment income in EJFIF prior to liquidation.
The following table summarises activity for the investment in
the Bridge Loan:
31 December 31 December
2020 2019
GBP GBP
---------------------------------------- ------------- -------------
Opening balance 7,669,797 9,161,668
Acquisition of interest in the Bridge
Loan / PIK capitalised 215,028 8,717,966
Repayments (6,615,024) (9,902,170)
Realised (losses)/gains on disposal(1) (1,269,801) 91,722
Unrealised gains/(losses) from the
Bridge Loan(1) - (399,389)
---------------------------------------- ------------- -------------
Bridge Loan at fair value through
profit or loss - 7,669,797
---------------------------------------- ------------- -------------
(1) Includes fluctuations in foreign exchange rates
Preference Shares
EJFIH owns an interest in a depositor vehicle which holds an
interest in the TFINS 2017-2 Preference Shares originally issued as
part of the securitisation in October 2017.
The following table summarises activity for the investment in
Preference Shares:
31 December 31 December
2020 2019
GBP GBP
------------------------------------------- ------------- -------------
Opening balance 1,315,095 5,506,737
Acquisition of interest in Preference
Shares - 2,106,563
Distributions (138,704) (8,253,312)
Realised gains on distribution(1) - 2,150,053
Unrealised gains/(losses) from Preference
Shares(1) 57,933 (194,946)
------------------------------------------- ------------- -------------
Preference Shares at fair value through
profit or loss 1,234,324 1,315,095
------------------------------------------- ------------- -------------
(1) Includes fluctuations in foreign exchange rates
10. Accounts payable and accrued expenses
31 December 31 December
2020 2019
GBP GBP
--------------------------- ------------ ------------
Amount due to EJFIH(1) 36,412 201,828
Incentive fees payable - 496,023
Management fee payable 212,083 287,418
Legal fees payable 9,064 22,391
Professional fees payable 141,944 154,622
Audit fees payable 133,250 151,522
Sundry creditors 54,410 71,141
587,163 1,384,945
--------------------------- ------------ ------------
(1) For the year ended 31 December 2019, the amount was due to
EJFIH and EJFIF
The amount due to EJFIH is interest free and repayable on
demand. The balance consists of amounts paid by EJFIH in respect of
the Company's expenses.
11. ZDP shares
On 1 December 2017, the Company issued 15,000,000 2022 ZDP
Shares at a gross redemption yield of 5.75%. Approximately 30% of
the available 2022 ZDP Shares were issued pursuant to the initial
placing and offer for subscription at a price per 2022 ZDP Share of
100 pence. The holders of the 2022 ZDP Shares will have a final
capital entitlement of 132.25 pence on the repayment date of 30
November 2022. As of 31 December 2020 and 31 December 2019, there
were 15,000,000 2022 ZDP Shares outstanding.
On 17 June 2020, the Company issued 6,000,000 2025 ZDP shares at
a gross redemption yield of 7.00%. The 2025 ZDP Shares were issued
pursuant to the initial placing and offer for subscription at a
price per 2025 ZDP Share of 100 pence. The holders of the 2025 ZDP
Shares will have a final capital entitlement of 140 pence on the
repayment date of 18 June 2025. As of 31 December 2020, there were
6,000,000 2025 ZDP Shares outstanding.
The 2022 ZDP Shares rank senior to the 2025 ZDP Shares which in
turn rank senior to the Ordinary Shares in respect of repayment of
the final entitlement. However, they rank behind any borrowings
that remain outstanding. They carry no entitlement to income and do
not carry the right to vote at general meetings of the Company.
Holders of ZDP Shares are not entitled to any dividends paid by
the Company. The following table reconciles the liability for ZDP
Shares, held at amortised cost, for the reporting period.
The table below details changes in the Company's liabilities
from financing activities, including both cash and non-cash
changes.
31 December 31 December
2020 2019
GBP GBP
----------------------------- ------------ ------------
Opening balance 16,586,361 15,545,525
Issuance of 2025 ZDP Shares 6,000,000 -
Issue costs (213,520) -
Finance costs 1,233,597 1,040,836
----------------------------- ------------ ------------
ZDP Shares closing balance 23,606,438 16,586,361
----------------------------- ------------ ------------
Capitalised issue costs are being amortised using the effective
interest rate method.
12. Stated capital
The Ordinary Shares of the Company are classified as equity
based on the substance of the contractual arrangements and in
accordance with the definition of equity instruments under IAS 32.
The proceeds from the issue of Ordinary Shares are recognised in
the Statement of Changes in Equity, and are net of the incremental
issuance costs when applicable.
Net assets attributable to shareholders is represented by
Ordinary Shares that carry one vote each and have equal voting
rights. Ordinary Shares are entitled to dividends when declared.
The Company has no restrictions or specific capital requirements on
the issue and repurchase of Ordinary Shares.
The analysis of movements in the number of Ordinary Shares and
the corresponding changes to the Company's stated capital as a
result of transactions with shareholders during the year were as
follows:
Ordinary Shares issued and fully paid Number of Stated Capital
Shares
GBP
Opening balance as at 1 January 2020 64,175,306 90,259,133
Issuance of Ordinary Shares 7,396,515 11,982,354
Repurchased during the year at GBP1.62
per share (7,396,515) (11,982,354)
Repurchased during the year at GBP1.65
per share (2,998,000) (4,951,653)
Repurchased during the year at GBP1.66
per share (32,108) (53,353)
Closing balance as at 31 December
2020 61,145,198 85,254,127
---------------------------------------- ------------ ---------------
Ordinary Shares issued and fully paid Number of Stated Capital
Shares
GBP
Opening balance as at 1 January 2019 64,175,306 90,259,133
Closing balance as at 31 December
2019 64,175,306 90,259,133
--------------------------------------- ----------- ---------------
On 9 March 2020, before the effects of the COVID-19 pandemic
were realised, the Directors approved and subsequently completed
the buyback of 3,030,108 Ordinary Shares totalling GBP5,005,006
(inclusive of transaction costs of GBP5,006) to address any
imbalance between the supply of, and demand for, the Ordinary
Shares, to increase the NAV per Ordinary Share and to assist in
minimising any discount to the NAV per Ordinary Share at which the
Ordinary Shares were trading.
As at 31 December 2020, the Company had 15,808,509 treasury
shares (31 December 2019: 5,381,886).
13. Dividends paid
The Company paid the following dividends on its Ordinary Shares
during the year ended 31 December 2020:
Period Declared Ex-dividend Record Payment Dividend Net
to: date date date date rate per dividend
Ordinary paid
Share GBP
GBP
31 Dec 23 Jan
2019 2020 6 Feb 2020 7 Feb 2020 28 Feb 2020 0.02675 1,716,687
31 Mar 23 Apr 11 May
2020 2020 7 May 2020 2020 29 May 2020 0.02675 1,635,635
30 June 23 Jul
2020 2020 6 Aug 2020 7 Aug 2020 28 Aug 2020 0.02675 1,635,635
30 Sep 23 Oct
2020 2020 5 Nov 2020 6 Nov 2020 30 Nov 2020 0.02675 1,635,635
--------- ---------- ------------- ------------ ------------- ---------- ----------
6,623,592
------------------------------------------------------------- ---------- ----------
The Company paid the following dividends on its Ordinary Shares
during the year ended 31 December 2019:
Period Declared Ex-dividend Record Payment Dividend Net dividend
to: date date date date rate per paid
Ordinary GBP
Share
GBP
--------- ---------- ------------- ------------ ------------- ---------- ----------------
31 Dec 25 Jan
2018 2019 7 Feb 2019 8 Feb 2019 4 Mar 2019 0.02675 1,716,689
31 Mar 25 Apr 10 May
2019 2019 9 May 2019 2019 7 Jun 2019 0.02675 1,716,689
30 June 26 Jul
2019 2019 8 Aug 2019 9 Aug 2019 6 Sep 2019 0.02675 1,716,689
30 Sep 23 Oct
2019 2019 31 Oct 2019 1 Nov 2019 29 Nov 2019 0.02675 1,716,689
--------- ---------- ------------- ------------ ------------- ---------- ----------------
6,866,756
------------------------------------------------------------- ---------- ----------------
14. Interest in unconsolidated subsidiary and associates
The table below discloses the unconsolidated subsidiaries and
associates in which the Company holds an interest, but does not
consolidate in accordance with IFRS 12:
Name of entity Type of entity Principal Purpose Interest Interest
place held by held
of business the Company
EJFIH Private Company Jersey To hold a portfolio 100% Direct
of investments in
order to generate
capital appreciation
and investment income.
--------------------- ------------- ------------------------ -------------- ---------
Partnership Limited Partnership Delaware To hold a portfolio 85% Indirect
of investments in
order to generate
capital appreciation
and investment income.
--------------------- ------------- ------------------------ -------------- ---------
CDO Manager Limited Liability Delaware To generate management 49% Indirect
Company fee income.
--------------------- ------------- ------------------------ -------------- ---------
Armadillo Limited Partnership Delaware To generate income 35.9% Indirect
I from high-yielding
loans to US law firms
engaged in mass tort
litigation.
(31 December
2019:30%)
--------------------- ------------- ------------------------ -------------- ---------
Seneca Limited Partnerships Delaware To generate income 100% Indirect
from MSRs.
--------------------- ------------- ------------------------ -------------- ---------
15. Financial risk management
The Board has overall responsibility for the oversight of the
Company's risk management framework. The Company's risk management
policies are established by the Manager to identify and analyse the
risks faced by the Company, to set appropriate risk limits and
controls and to monitor risks and adherence to limits. Risk
management policies are reviewed regularly by the Manager to
reflect changes in market conditions and the Company's activities.
This note presents information about the Company's exposure to each
of the financial risks, the Company's objectives, policies and
processes for measuring and managing risk, and the Company's
management of capital.
The Company is exposed to a number of risks through its
investment in the Subsidiary. The risks set out below relate to
those risks faced by the Company through its underlying
investments.
(a) Market risk
Market risk is the risk that changes in market prices such as
interest rates, foreign exchange rates, other price risk and credit
spreads will affect the Company's income and/or the value of its
holding in EJFIH. The changes in credit spreads affect the
Subsidiary's net equity or net income, and hence the value of the
Company's investment in EJFIH.
The Company's exposure to market risk comes mainly from
movements in the value of its investment in EJFIH and on a
look-through basis to the underlying investments in the
Subsidiary's portfolio.
The objective of market risk management is to manage and control
market risk exposures within acceptable parameters while optimising
the return on risk. The Company's strategy for the management of
market risk is driven by the Company's investment objective. The
Company seeks to generate attractive risk-adjusted returns for its
shareholders, by investing in opportunities created by regulatory
and structural changes impacting the financial services sector.
These opportunities are anticipated to include structured debt and
equity, loans, bonds, preference shares, convertible notes and
private equity, in both cash and synthetic formats, and may be
issued by entities domiciled in the US, UK and Europe. The various
components of the Company's market risk are managed on an ongoing
basis by the Manager in accordance with policies and procedures in
place, as detailed below .
In addition, the Company, through the underlying Subsidiary,
intends to mitigate market risk generally by not making investments
that would cause it to have exposure to any one individual asset
exceeding:
-- 20% of the Company's gross assets invested in any single
Capital Solutions, ABS Investment or Specialty Finance Investment
at the time of investment; and
-- 25% of the Company's gross assets in any single non-EJF
sponsored Risk Retention Investment.
The Company's position exposure is monitored on an ongoing basis
by the Manager and reviewed on a quarterly basis by the Board and
the Administrator.
Interest rate risk
Interest rate risk is the risk that the fair value or future
cash flows of a financial instrument will fluctuate because of
changes in market interest rates. The Company's and Subsidiary's
interest-bearing financial assets and liabilities expose the
Company to risks associated with the effects of fluctuations in the
prevailing levels of market interest rates on its financial
position and cash flows.
The Group is exposed to the risk that the fair value of their
investments or future cash flows of the financial instruments will
fluctuate as a result of changes in market interest rates. The
Group is also exposed to interest rate risk in respect of their
cash and cash equivalents and the investments held.
The Manager assesses interest rate risk on an ongoing basis and
may, if deemed necessary, choose to utilise appropriate strategies
to manage interest rate risk using, for example, interest rate
swaps.
Sensitivity analysis
The weighted average effective duration of the portfolio has
been used to identify the potential NAV impact of a 0.25% parallel
shift in the relevant reference rate curve.
The percentage has been determined as reasonable by the
Directors based on potential volatility due to changes in interest
reference rates.
31 December 2020
Change in fair value
GBP GBP
----------------- ---------- -----------
Change in rate 0.25% (0.25%)
----------------- ---------- -----------
Net asset value 644,510 (644,510)
----------------- ---------- -----------
31 December 2019
Change in fair value
GBP GBP
----------------- ------------ ---------
Change in rate 0.25% (0.25%)
----------------- ------------ ---------
Net asset value (493,485) 493,485
----------------- ------------ ---------
(i) Currency risk
Currency risk is the risk that the fair value or future cash
flows of a financial instrument will fluctuate because of changes
in foreign exchange rates.
The Group is directly exposed to currency risk in respect of
their cash and cash equivalents and derivatives denominated in
currencies other than Sterling, and their investments.
The Group enters into transactions that are denominated in
currencies other than their functional currency, primarily in US
Dollar. Consequently, the Group is exposed to risk that the
exchange rate of their currency relative to other foreign
currencies may change in a manner that has an adverse effect on the
fair value or future cash flows of financial assets or financial
liabilities denominated in currencies other than Sterling.
The Manager monitors the exposure to foreign currencies and
reports to the Board monthly. The Manager measures the risk of the
foreign currency exposure by considering the effect on the NAV and
income of a movement in the rates of exchange to which the assets,
liabilities, income and expenses are exposed.
As at 31 December 2020 and 31 December 2019, the following
forward foreign exchange contracts were held by EJFIH and are
included within the financial assets/(liabilities) of EJFIH:
Maturity date Counterparty Contract amount Buy Sell 31 December
(GBP) 2020
GBP
Citibank
8 January 2021 N.A. 106,267,878 GBP USD 2,323,977
Citibank
8 January 2021 N.A. 5,641,608 GBP USD 154,512
Citibank
8 January 2021 N.A. 1,430,393 GBP USD 3,748
Citibank
8 January 2021 N.A. 2,978,000 GBP USD 51,549
Derivative financial assets held by EJFIH 2,533,786
--------------------------------------------------------------- ------------
Refer to note 19 for further details on changes to the foreign
exchange hedging after the year end.
Maturity date Counterparty Contract amount Buy Sell 31 December
(GBP) 2019
GBP
Citibank
31 January 2020 N.A. 15,924,339 GBP USD 1,076,577
Citibank
31 January 2020 N.A. 7,898,202 GBP USD 511,984
Citibank
3 February 2020 N.A. 62,212,168 GBP USD 4,183,747
10 February Citibank
2020 N.A. 7,910,618 GBP USD 602,444
25 February Citibank
2020 N.A. 3,162,060 GBP USD (964)
Citibank
22 June 2020 N.A. 22,128,588 GBP USD 275,972
Derivative financial assets held by EJFIH 6,649,760
---------------------------------------------------------------- ------------
There were no forward foreign exchange derivatives held by the
Company during the years ended 31 December 2020 and 31 December
2019.
At 31 December 2020, the carrying amount of the Group's
financial assets in individual foreign currencies, expressed in
Sterling and as a percentage of its net assets, was as follows:
% of
Currency GBP net assets
------------ ------------ ------------
US Dollar 114,360,669 114%
------------ ------------ ------------
At 31 December 2019, the carrying amount of the Company's
financial assets in individual foreign currencies, expressed in
Sterling and as a percentage of its net assets, was as follows:
% of
Currency GBP net assets
------------ ------------ ------------
US Dollar 108,822,242 90%
------------ ------------ ------------
Sensitivity analysis
The table below sets out the effect on the net assets/increase
in net assets attributable to holders of tradable Ordinary Shares
of a reasonably possible weakening of Sterling against the US
Dollar by 10% at 31 December 2020 (10% at 31 December 2019). 10% is
considered to continue to be deemed reasonable as it reflects
movements experienced in 2020 as a result of Brexit negotiations
and UK general election. The analysis assumes that all other
variables, in particular interest rates, remain constant.
31 December 31 December
2020 2019
------------------------------------------------ --------------- ---------------
Effect in Sterling GBP 12,706,741 GBP 14,424,638
Effect in % of net assets attributable
to the holders of tradable Ordinary Shares 13% 12%
Effect in % of increase in total comprehensive
(loss)/income attributable to the holders
of tradable Ordinary Shares (145)% 108%
------------------------------------------------ --------------- ---------------
A strengthening of the Sterling against the US Dollar would have
resulted in an equal but opposite effect to the amounts shown
above. The analysis does not consider the effects of the
hedges.
(i) Other price risk
Other price risk is the risk that the fair value of the
investment in EJFIH will fluctuate as a result of changes in market
prices (other than those arising from interest rate risk or
currency risk), whether caused by factors specific to an individual
investment or its issuer or factors affecting all instruments
traded in the market.
Price risk is managed by the Manager by diversifying the
portfolio geographically across the US and UK and through holding
diversified collateral in the underlying securitisations. Also, if
the price risk is not in accordance with the Investment Policy or
guidelines of the Company, then the Manager is required to
rebalance the portfolio prior to the end of the reporting period
following each determination of such occurrence.
Exposure
The following table sets out the concentration of the portfolio
profile which shows the total exposure to market risk, held by the
Group at the reporting date.
31 December 2020 31 December 2019
GBP % GBP %
------------------------------------ --------------- ----- --------------- ----
Armadillo Portfolio 2,053,370 2 4,260,152 3
Investment in the Partnership(1,2) 88,334,641 71 77,794,613 56
Investment in CDO Manager 9,463,395 8 9,399,029 7
CDO securities 772,225 0 8,383,554 6
UK bank sub-debt - - 4,337,960 3
Bridge Loan - - 7,669,797 6
Preference Shares(2) 1,234,324 1 1,315,095 1
Net Derivative financial
assets 2,533,786 2 6,649,760 5
Seneca 1,244,059 1 - -
Financial assets and liabilities
at fair value through profit
or loss 105,635,800 85 119,809,960 87
Cash and cash equivalents(3) 14,867,476 12 16,765,867 12
Cash and Cash equivalents
held as margin 3,611,325 3 375,590 0
Other(3,4) 36,798 0 1,162,306 1
------------------------------------- --------------- ----- --------------- ----
Investment in EJFIH 124,151,399 100 138,113,723 100
------------------------------------- --------------- ----- --------------- ----
(1) See table below.
(2) Held by EJFIH at 31 December 2020 and by EJFIF at 31 December 2019.
(3) Held by EJFIH as at 31 December 2020 and EJFIH and EJFIF as
at 31 December 2019.
(4) No individual financial asset held by the Group and included
in this category exceeded 5% of the net assets attributed to the
Group as at 31 December 2020 and 31 December 2019.
The investment held in the Partnership includes the following
underlying investment positions:
31 December 2020 31 December 2019
GBP % of GBP % of
NAV NAV
------------------------------------- --------------- ------- -------------- ------
TPINS 2016-1 (Class A)* - - 105,242 0
TPINS 2016-1 (Class B)* - - 167,173 0
TFINS 2017-2 12,561,821 12 13,705,123 11
TFINS 2018-1 18,969,375 19 20,473,434 17
TFINS 2018-2 14,098,212 14 15,430,539 13
TFINS 2019-1 12,711,085 13 14,119,570 12
FINS 2019-1 10,564,514 11 11,538,704 10
TFINS 2019-2 13,447,514 13 - -
TFINS 2020-1 12,181,382 12 - -
TFINS 2020-2 7,628,545 8 - -
Investments held by the Partnership 102,162,448 102 75,539,785 63
Other net assets 1,760,882 2 15,983,290 13
------------------------------------- --------------- ------- -------------- ------
Net asset value of the Partnership 103,923,330 104 91,523,075 76
% held by the Subsidiary 85 85
------------------------------------- --------------- ------- -------------- ------
Fair value of the Subsidiary's
investment in the Partnership 88,334,641 88 77,794,613 64
------------------------------------- --------------- ------- -------------- ------
* The balances relating to TPINS 2016-1 were escrow receivables
subsequently received in 2020.
Fair value of financial instruments
The Company holds all of the shares in EJFIH, which is a holding
vehicle used to hold the Company's investments. The Board believes
it is appropriate to value this entity based on the fair value of
its portfolio of investment assets held plus its other assets and
liabilities.
Valuation models
IFRS 13 requires disclosure of fair value measurement by level.
The level of financial assets or financial liabilities within the
fair value hierarchy is determined on the basis of the lowest level
input that is significant to the fair value measurement. The
hierarchy gives the highest priority to unadjusted quoted prices in
active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable inputs (Level
3 measurements). The three levels of the fair value hierarchy under
IFRS 13 are as follows:
Level Inputs that are quoted market prices (unadjusted) in active
1 markets for identical instruments.
Level Inputs other than quoted prices included within Level 1
2 that are observable either directly (i.e. as prices) or
indirectly (i.e. derived from prices). This category includes
instruments valued using: quoted market prices in active
markets for similar instruments; quoted prices for identical
or similar instruments in markets that are considered less
than active; or other valuation techniques in which all
significant inputs are directly or indirectly observable
from market data.
Level Inputs that are unobservable. This category includes all
3 instruments for which the valuation technique includes
inputs not based on observable data and the unobservable
inputs have a significant effect on the instrument's valuation.
This category includes instruments that are valued based
on quoted prices for similar instruments but for which
significant unobservable adjustments or assumptions are
required to reflect differences between the instruments.
The Company's investment in EJFIH, through the acquisition of
shares, is classified within Level 3, as it is not traded and
contains unobservable inputs. The Board considers that the net
asset value of EJFIH is representative of its fair value.
The investments held by the Subsidiary in the underlying
portfolio are measured as below:
The fair values of financial assets and financial liabilities
that are traded in active markets are based on prices obtained
directly from an exchange on which the instruments are traded or
obtained from a broker that provides an unadjusted quoted price
from an active market for identical instruments. For all other
financial instruments, the Company determines fair values using
other valuation techniques.
For financial instruments that trade infrequently and have
little price transparency, fair value is less objective and
requires varying degrees of judgement depending on liquidity,
uncertainty of market factors, pricing assumptions and other risks
affecting the specific instrument.
Valuation techniques include net present value and discounted
cash flow models, comparison with similar instruments for which
observable market prices exist and other valuation models.
Assumptions and inputs used in valuation techniques include
risk-free and benchmark interest rates, credit spreads and other
premia used in estimating discount rates, bond and equity prices,
foreign currency exchange rates, equity indices, EBITDA multiples
and revenue multiples and expected price volatilities and
correlations.
The objective of valuation techniques is to arrive at a fair
value measurement that reflects the price that would be received to
sell the asset or paid to transfer the liability in an orderly
transaction between market participants at the measurement date.
The Company uses widely recognised valuation models for determining
the fair value of common and simple financial instruments, such as
interest rate and currency swaps that use only observable market
data and require little management judgement and estimation.
Observable prices and model inputs are usually available in the
market for listed debt and equity securities, exchange traded
derivatives and simple OTC derivatives such as interest rate swaps.
The availability of observable market prices and model inputs
reduces the need for management judgement and estimation and
reduces the uncertainty associated with the determination of fair
values. The availability of observable market prices and inputs
varies depending on the products and markets and is prone to
changes based on specific events and general conditions in the
financial markets.
For more complex instruments, the Company uses proprietary
valuation models, which are developed from discounted cash flow
models. Some or all of the significant inputs into these models may
not be observable in the market, and are derived from market prices
or rates or are estimated based on assumptions.
Valuation models that employ significant unobservable inputs
require a higher degree of management judgement and estimation in
the determination of fair value. Management judgement and
estimation are usually required for the selection of the
appropriate valuation model to be used, determination of expected
future cash flows on the financial instrument being valued,
determination of the probability of counterparty default and
prepayments and selection of appropriate discount rates.
Fair value estimates obtained from models are adjusted for any
other factors, such as liquidity risk or model uncertainties, to
the extent that the Company believe that a third-party market
participant would take them into account in pricing a transaction.
Fair values reflect the credit risk of the instrument and include
adjustments to take account of the credit risk of the Company and
the counterparty where appropriate. For measuring derivatives that
might change classification from being an asset to a liability or
vice versa, such as interest rate swaps, fair values include
adjustment for both own credit risk and counterparty credit
risk.
The Manager has also appointed a recognised independent
valuation agent to provide comfort over the valuations derived from
models developed by the Manager where appropriate.
Valuation approach for specific instruments
Foreign currency forward contracts
The fair value of the foreign currency forward contracts is
determined using quoted mid forward exchange rates at the reporting
date.
Valuation approach for specific instruments held through the
Group
Investments in private investment companies and private
operating company
The fair value of investments in the private investment
companies and private operating company is determined using the net
asset value of the entity (Level 3 valuation). The net asset value
is used when the units or partnership interests in a fund are
redeemable at the reportable net asset value at, or approximately
at, the measurement date. If this is not the case, then net asset
value is used as a valuation input and an adjustment is applied for
lack of marketability/restricted redemptions. This adjustment is
based on management judgement after considering the period of
restrictions and the nature of the underlying investments. No such
adjustment was deemed necessary for the year ended 31 December 2020
and the year ended 31 December 2019.
Investments trading securities
At 31 December 2020, the investment portfolio included bonds
issued by Kodiak, Attentus and Taberna, which are unaffiliated
third-party CDO sponsors. These distressed bonds are valued at
their dirty prices (including any expected interest accruals).
The fair value of distressed bonds is determined by the Manager
using acceptable probability based discounted cash flow
methodologies.
Valuation framework
The Company has an established control framework with respect to
the measurement of fair values. This framework includes the
Manager's valuation committee, which operates independently of the
Manager's investment team, and feeds into the monthly NAV process
for review by the Board, and has overall responsibility for fair
value measurements. Specific controls include:
-- verification of observable pricing inputs;
-- re-performance of model valuations;
-- a review and approval process for new models and changes to such models;
-- analysis and investigation of significant valuation movements; and
-- review of unobservable inputs and valuation adjustments.
When third party information, such as broker quotes or pricing
services, is used to measure fair value, the portfolio valuation
function assesses the evidence obtained from the third parties to
support the conclusion that these valuations meet the requirements
of IFRS, including the level in the fair value hierarchy in which
the valuations should be classified. This includes:
-- verifying that the broker or pricing service is approved by
the Manager for use in pricing the relevant type of financial
instrument;
-- understanding how the fair value has been arrived at and the
extent to which it represents actual market transactions and
whether it represents a quoted price in an active market for an
identical instrument;
-- when prices for similar instruments are used to measure fair
value, understanding how these prices have been adjusted to reflect
the characteristics of the instrument subject to measurement;
and
-- if a number of quotes for the same financial instrument have
been obtained, then understanding how fair value has been
determined using those quotes.
For underlying instruments not traded in an active market and
defined as Level 3 investments, the fair value is determined by
using appropriate valuation techniques. Management also makes
estimates and assumptions concerning the future. The resulting
accounting estimates will by definition, seldom equal the related
actual results. The estimates and assumptions that have a
significant risk of causing a material adjustment to the carrying
amounts of assets are outlined below.
Fair value hierarchy-financial assets at fair value through
profit or loss held by the Company
Investments classified within Level 3 have significant
unobservable inputs, as they trade infrequently. Level 3
instruments include private equity, CDO securities and the Bridge
loan. As observable prices are not available for these securities,
the Company has used valuation techniques to derive the fair
value.
The Company's investment in EJFIH is classified within Level 3,
as it is not traded and contains unobservable inputs. The Board
considers that the net asset value of EJFIH is representative of
its fair value.
The table below analyses financial instruments, held by the
Company, measured at fair value at the reporting date by the level
in the fair value hierarchy into which the fair value measurement
is categorised. The amounts are based on the values recognised in
the Statement of Financial Position as at 31 December 2020. All
fair value measurements below are recurring.
As at 31 December 2020 Level 1 Level 2 Level 3
GBP GBP GBP
-------------------------------- --------- --------- ------------
Investment held in EJFIH - - 124,151,399
--------------------------------- ---------- -------- ------------
Financial assets at fair value
through profit or loss - - 124,151,399
--------------------------------- ---------- -------- ------------
The following table shows the movement of level 3 assets during
the year ended 31 December 2020:
Opening Additions Realised Unrealised Distributions Ending
fair gains losses fair
value value
GBP GBP GBP GBP GBP GBP
----------------- ------------ ---------- --------- ------------- -------------- ------------
EJFIH 138,113,723 - - (13,962,324) - 124,151,399
Total financial
assets 138,113,723 - - (13,962,324) - 124,151,399
----------------- ------------ ---------- --------- ------------- -------------- ------------
The table below analyses financial instruments, held by the
Company, measured at fair value at the reporting date by the level
in the fair value hierarchy into which the fair value measurement
is categorised. The amounts are based on the values recognised in
the Statement of Financial Position as at 31 December 2019. All
fair value measurements below are recurring.
As at 31 December 2019 Level 1 Level Level 3
2
GBP GBP GBP
-------------------------------- --------- ------- ------------
Investment held in EJFIH - - 138,113,723
--------------------------------- ---------- ------ ------------
Financial assets at fair value
through profit or loss - - 138,113,723
--------------------------------- ---------- ------ ------------
Fair value hierarchy-financial assets at fair value through
profit or loss held by the Subsidiary
The tables below are supplemental disclosures of the financial
instruments, held by the Subsidiary, measured at fair value at the
reporting date by the level in the fair value hierarchy into which
the fair value measurement is categorised. The amounts are based on
the values recognised in the Statement of Financial Position as at
31 December 2020 and 31 December 2019. All fair value measurements
below are recurring.
As at 31 December 2020 Level 1 Level 2 Level 3
GBP GBP GBP
--------------------------------- --------- --------- ------------
Armadillo Portfolio - - 2,053,370
Investment in the Partnership - - 88,334,641
Investment in the CDO Manager - - 9,463,395
CDO securities - - 772,225
Seneca - - 1,244,059
Investment in Preference Shares - - 1,234,324
---------------------------------- ---------- -------- ------------
Financial assets at fair value
through profit or loss - - 103,102,014
---------------------------------- ---------- -------- ------------
Level 1 Level 2 Level 3
GBP GBP GBP
------------------------------- -------- ---------- --------
Derivative financial assets - 2,533,786 -
------------------------------- -------- ---------- --------
Financial assets at fair value - 2,533,786 -
through profit or loss
------------------------------- -------- ---------- --------
As at 31 December 2019 Level 1 Level 2 Level 3
GBP GBP GBP
--------------------------------- --------- ----------- ------------
Armadillo Portfolio - - 4,260,152
Investment in the Partnership - - 77,794,613
Investment in the CDO Manager - - 9,399,029
CDO securities - 7,305,930 1,077,624
UK bank sub-debt - 4,337,960 -
Bridge Loan - - 7,669,797
Investment in Preference Shares - - 1,315,095
---------------------------------- ---------- ----------- ------------
Financial assets at fair value
through profit or loss - 11,643,890 101,516,310
---------------------------------- ---------- ----------- ------------
Level 1 Level 2 Level 3
GBP GBP GBP
------------------------------- -------- ---------- --------
Derivative financial assets - 6,649,760 -
------------------------------- -------- ---------- --------
Financial assets at fair value - 6,649,760 -
through profit or loss
------------------------------- -------- ---------- --------
Level 3 reconciliation
The following tables show a reconciliation of all movements in
the fair value of financial assets held at fair value through
profit or loss of level 3 assets held by the Subsidiary categorised
within level 3 between the beginning and the end of the reporting
period:
Opening Realised Unrealised Disposals Ending
fair Additions gains/ gains/ fair
value as (losses) (losses) value as
at at 31 December
1 January 2020
2020
GBP GBP GBP GBP GBP GBP
--------------------- -------------- ------------- ------------ -------------- --------------- ----------------
Armadillo
Portfolio 4,260,152 - 268,359 (504,988) (1,970,153) 2,053,370
Investments
in the Partnership 77,794,613 29,972,364 8,829,146 (8,877,869) (19,383,613) 88,334,641
Investment
in CDO Manager 9,399,029 - - 2,311,771 (2,247,405) 9,463,395
CDO securities 1,077,624 - - (305,399) - 772,225
Bridge Loan 7,669,797 215,028 (1,437,400) 167,599 (6,615,024) -
Seneca - 1,248,056 - (3,997) - 1,244,059
Investment
in Preference
Shares 1,315,095 - - 57,933 (138,704) 1,234,324
--------------------- -------------- ------------- ------------ -------------- --------------- ----------------
Total financial
assets 101,516,310 31,435,448 7,660,105 (7,154,950) (30,354,899) 103,102,014
--------------------- -------------- ------------- ------------ -------------- --------------- ----------------
During the year ended 31 December 2020 there were no
reclassifications between levels of the fair value hierarchy.
The following table is for the year ended 31 December 2019.
Opening Realised Unrealised Disposals Ending
fair Additions gains/ gains/ fair
value as (losses) (losses) value as
at at 31 December
1 January 2019
2019
GBP GBP GBP GBP GBP GBP
--------------------- ------------- ------------- ------------- -------------- --------------- ----------------
Armadillo
Portfolio 6,448,996 - (129,081) (1,141,199) (918,564) 4,260,152
Investments
in the Partnership 66,961,764 22,400,379 9,979,942 (890,257) (20,657,215) 77,794,613
Investment
in CDO Manager 9,606,049 - - (207,020) - 9,399,029
CDO securities 644,507 - - 433,117 - 1,077,624
Bridge Loan 9,161,668 8,717,966 91,722 (399,389) (9,902,170) 7,669,797
Investment
in Preference
Shares 5,506,737 2,106,563 3,285,217 (194,944) (9,388,478) 1,315,095
--------------------- ------------- ------------- ------------- -------------- --------------- ----------------
Total financial
assets 98,329,721 33,224,908 13,227,800 (2,399,692) (40,866,427) 101,516,310
--------------------- ------------- ------------- ------------- -------------- --------------- ----------------
During the year ended 31 December 2019 there were no
reclassifications between levels of the fair value hierarchy.
Significant unobservable inputs used in measuring fair value
held by the Company - Level 3
The following table shows the sensitivity of fair values in
Level 3 to the net asset value of the investment in EJFIH.
Financial assets Company fair Company fair Valuation techniques Significant unobservable
value at value at and inputs inputs
31 December 31 December
2020 2019
GBP GBP
------------------ ------------- ------------- --------------------- -------------------------
The net asset value
Investment Net asset value of EJFIH is calculated
in EJFIH 124,151,399 138,113,723 of EJFIH under IFRS
Sensitivity analysis for significant changes for unobservable
inputs within Level 3 hierarchy
It is assumed that the net asset value of EJFIH was changed by
10% while all the other variables were held constant. An increase
in the net asset value of EJFIH would have resulted in an equal but
opposite effect to the amounts shown below.
Financial assets 31 December 31 December
2020 2019
GBP GBP
--------------------- ------------ ------------
Investment in EJFIH 124,151,399 138,113,723
--------------------- ------------ ------------
Increase by 10% 136,566,539 151,925,095
Decrease by 10% 111,736,259 124,302,351
--------------------- ------------ ------------
Significant unobservable inputs used in measuring fair value
held by the Subsidiary - Level 3
The estimated fair values of EJFIH's investment in the CDO
Manager was determined through the use of level 3 inputs. A
discounted cash flows method was employed to estimate the fair
values as of 31 December 2020 and 31 December 2019. Projected cash
flows were calculated using a third-party provider of cash flow
information for structured securities for each bond. Key
assumptions included: prepayment assumptions, default rates and
loss severity, recovery lags, and the discount rate. These inputs
were based on internal assumptions and market participant
benchmarks for comparable bonds. An independent valuation agent was
used to provide a final valuation report for CDO Manager.
The Subsidiary's remaining Level 3 investments have been valued
using broker quotes or the Subsidiary's proportionate share of the
net asset value of the entity.
(b) Credit risk
Credit risk is the risk that a counterparty to a financial
instrument will fail to discharge an obligation or commitment that
it has entered into with the Company or the Subsidiary or a vehicle
in which the Company or the Subsidiary invest, resulting in a
financial loss to the Company. It arises principally from debt
securities, derivative financial assets and cash and cash
equivalents. For risk management reporting purposes, the Company
considers and aggregates all elements of credit risk exposure (such
as individual obligation default risk, country risk and sector
risk).
Credit risk is monitored on an ongoing basis by the Manager in
accordance with the policies and procedures in place. The Manager
monitors the Company's and the Subsidiary's cash activity,
concentrations of deposits with counterparties and the credit
worthiness of said counterparties, and obtains periodic collateral
assessments from an affiliate managing Armadillo Portfolio's loan
portfolio. The Company's credit risk is monitored on a quarterly
basis by the Board. If the credit risk is not in accordance with
the Investment Policy or guidelines of the Company, then the
Manager is obliged to address the impact and to liquidate holdings
within a reasonable amount of time, however as the Subsidiary's
portfolio assets are generally illiquid in nature more time may be
required to address the impact the credit risk has on any such
illiquid assets.
The Subsidiary's activities may give rise to settlement risk.
'Settlement risk' is the risk of loss due to the failure of an
entity to honour its obligations to deliver cash, securities or
other assets as contractually agreed. For the majority of
transactions, the Manager mitigates this risk by conducting
settlements through a broker to ensure that a trade is settled only
when both parties have fulfilled their contractual settlement
obligations. Settlement limits form part of the credit approval and
limit monitoring processes described below.
In the opinion of the Board, the carrying amount of financial
assets best represent the maximum credit risk exposure to the
Company. The Company's financial assets exposure to credit risk
amounted to the following:
31 December 2020
GBP
--------------------------------------------- -----------------
Cash and cash equivalents(1) 14,867,476
Cash and cash equivalents held as margin(1) 3,611,325
Derivative financial assets(1) 2,533,786
CDO securities(1) 772,225
Armadillo Portfolio(1) 2,053,370
Investment in the Partnership(1) 88,334,641
Preference Shares(1) 1,234,324
Investment in CDO Manager(1) 9,463,395
Seneca(1) 1,244,059
--------------------------------------------- -----------------
Investment in EJFIH 124,114,601
Cash and cash equivalents 347
Balance due from the Manager 570,728
--------------------------------------------- -----------------
Total financial assets 124,685,676
--------------------------------------------- -----------------
(1) Held by the Subsidiary
Cash and cash equivalents
The Company's and the Subsidiary's cash is predominantly held
with BNPP, AUB and Citibank N.A. The Manager monitors the financial
position and creditworthiness of all its financial institutions on
a quarterly basis.
Balances due from brokers
Balances due from brokers represent margin accounts, cash
collateral for currency contracts and transactions awaiting
settlement. Credit risk relating to unsettled transactions is
considered small due to the short settlement period involved and
the high credit quality of the brokers used. As at the reporting
date, the balance due from brokers was held by Citibank N.A. The
Manager monitors the financial position and creditworthiness of the
brokers on a quarterly basis.
The following table shows the external ratings of the financial
institutions holding cash or collateral deposits on behalf of the
Group, using available ratings from Moody's. Publicly available
ratings are not published for AUB.
Institution Rating Agency 31 December 2020 31 December 2019
-------------- -------------- ----------------- -----------------
Citibank N.A. Moody's Aa3 Aa3
BNPP Moody's Aa3 Aa3
-------------- -------------- ----------------- -----------------
As at the Statement of Financial Position date, no cash balances
were held with AUB.
Balance due from the Manager
The balance due from the Manager relates to the arrangement with
the Manager to absorb ongoing operating expenses incurred by the
Company, excluding management fees, incentive fees and expenses
considered not ongoing. The Company applies the simplified approach
permitted by IFRS 9, which requires expected 12 month losses to be
recognised from initial recognition. The balance due from the
Manager are considered to be low credit risk. Accordingly no
impairment losses have been recognised in the Statement of
Comprehensive Income.
Preference shares
The Company, through its investment in the Subsidiary, is
exposed to the credit risk of its counterparties or the
counterparties of the securitisation preference shares in which it
invests. In the event of a bankruptcy or insolvency of such a
counterparty, the preference shares could suffer significant losses
resulting in declines in the value of the shares, including the
inability to realise any gains on their investment during such
period and fees and expenses incurred in enforcing their rights.
This would also affect the Company's investment in the Subsidiary
as it is exposed to any fair value movements in the Subsidiary. The
preference shares in which the Subsidiary has invested are not
rated.
Investment in CDO securities
At 31 December 2020, the Company, through its investment in
EJFIH, was invested in distressed and cash yielding CDO securities
issued by Attentus, Kodiak and Taberna, which are unaffiliated
third-party CDO sponsors .
The Subsidiary is exposed to the credit risk of their CDO
security counterparties or the counterparties of the
securitisations in which it invests. In the event of a bankruptcy
or insolvency of such a counterparty, the Subsidiary, or a
securitisation in which such an investment is held, could suffer
significant losses including the loss of that part of the
Subsidiary's or securitisation's portfolio financed through such a
transaction, declines in the value of their investment, including
declines that may occur during an applicable stay period, the
inability to realise any gains on their investment during such
period and fees and expenses incurred in enforcing their rights.
This would also affect the Company's investment in the Subsidiary
as it is exposed to any fair value movements in the Subsidiary.
The CDO securities are not rated (31 December 2019: not
rated).
Armadillo Portfolio
At 31 December 2020, the Company, through its investment in
EJFIH, held an interest in the Armadillo Portfolio. In the event of
any default on the Armadillo Portfolio's loan investments by a
counterparty, EJFIH will bear a risk of loss of principal and
accrued interest on the loan investment, which could have a
material adverse effect on EJFIH's income and ability to meet
financial obligations. This would also affect the Company's
investment in EJFIH as it is exposed to any fair value movements in
EJFIH.
The Armadillo Portfolio is not rated (31 December 2019: not
rated).
Investment in the Partnership
At 31 December 2020, the Company, through its investment in the
Subsidiary, held an interest in the Partnership. The Subsidiary is
exposed to the credit risk of its counterparties or the
counterparties of the securitisations in which it invests. In the
event of a bankruptcy or insolvency of such a counterparty, the
securitisation in which such an investment is held could suffer
significant losses, including the loss of that part of the
Subsidiary's or securitisation's portfolio financed through such a
transaction, declines in the value of their investment, including
declines that may occur during an applicable stay period, the
inability to realise any gains on their investment during such
period and fees and expenses incurred in enforcing their rights.
This would also affect the Company's investment in the Subsidiary
as it is exposed to any fair value movements in the Subsidiary.
The securitisations in which the Partnership has invested are
not rated (31 December 2019: not rated).
Concentration of credit risk
The Manager reviews the credit risk of counterparties (primarily
prime brokers or custodians when applicable) that hold a
concentration of the Company's and the Subsidiary's assets, in
particular, the Company's and the Subsidiary's cash deposits.
The Group's exposure was concentrated as below:
31 December 2020 31 December
2019
GBP % GBP %
--------------- ------------ ----- ----------- -----
Citibank N.A. 12,429,781 83.6 15,585,100 91.5
BNPP 2,438,042 16.4 1,120,791 6.6
AUB - - 323,758 1.9
Total 14,867,823 100% 17,029,649 100%
----------------- ------------ ----- ----------- -----
Collateral and other credit enhancements, and their financial
effect
The Group mitigate the credit risk of derivatives by entering
into master netting agreements and holding collateral in the form
of cash and marketable securities.
Derivatives
Derivative transactions are either transacted on an exchange
with central clearing counterparties (CCPs) or entered into under
ISDA master netting agreements. In general, under these agreements,
in certain circumstances - e.g. when a credit event such as a
default occurs - all outstanding transactions under the agreement
are terminated, the termination value is assessed and only a single
net amount is due or payable in settlement of all transactions with
the counterparty. EJFIH has executed a credit support annex in
conjunction with the ISDA agreement, which requires EJFIH and its
counterparties to post collateral to mitigate counterparty credit
risk.
The derivatives are entered into with Citibank N.A., which is
rated Aa3 (31 December 2019: A1), based on Moody's Agency.
Impairment of financial assets
The Company is subject to the ECL model on its financial assets
that are carried at amortised cost. While cash and cash equivalents
and balances due from brokers are also subject to the impairment
requirements of IFRS 9, the identified impairment loss was nil. The
Company is also exposed to credit risk in relation to financial
assets that are measured at FVTPL. The maximum exposure at the end
of the reporting period is the carrying amount of these financial
assets.
(c) Liquidity risk
Liquidity risk is the risk that the Group will encounter
difficulty in meeting the obligations associated with their
financial liabilities that are settled by delivering cash or
another financial asset.
The Company's policy and the Manager's approach to managing
liquidity risk in the Group is to ensure, as far as possible, that
the Group will always have sufficient liquidity to meet their
liabilities when due, under both normal and stress conditions,
without incurring unacceptable losses or risking damage to the
Company's reputation.
The Prospectus provides for the Board to pay quarterly dividends
of available cash to shareholders following the recommendation of
the Manager. Therefore, the Company may be exposed to the liquidity
risk of not meeting this target at each quarterly distribution
date.
The Group's financial assets include illiquid investment
securities and investments in private investment companies. As a
result, the Group may not be able to liquidate some of their
interest in these instruments in due time to meet their liquidity
requirements.
The Company's liquidity is managed on an ongoing basis by the
Manager in accordance with the policies and procedures in place.
Since the Company's liability obligations consist of current
liabilities related to its standard operating activity, liquidity
risk is deemed to be low. Current liabilities are paid and reported
to the Board on a quarterly basis unless a special meeting is
required.
31 December 2020 31 December
2019
Liquid assets GBP15,438,551 GBP17,593,173
Current liabilities GBP590,538 GBP1,388,320
Liquid assets as a % of current liabilities 2614% 1227%
The Group manages its liquidity risk by maintaining a current
ratio (liquid assets divided by current liabilities) of no less
than approximately 100%. The tables below set out the Group assets
with an expected liquidation period within 90 days (liquid assets)
to the Company's current liabilities (presented inclusive of
interest) as at 31 December 2020 and 31 December 2019:
31 December 2020 Carrying Total Less than 7 days 1 month 3 months
Amount 7 days to to to over
1 month 3 months 1 year
Liquid Assets GBP GBP GBP GBP GBP GBP
----------------------- ----------- ----------- ----------- --------- ---------- ---------
Cash 14,867,823 14,867,823 14,867,823 - - -
Balance due from
the Manager 570,728 570,728 - 570,728 - -
----------------------- ----------- ----------- ----------- --------- ---------- ---------
Total 15,438,551 15,438,551 14,867,823 570,728 - -
----------------------- ----------- ----------- ----------- --------- ---------- ---------
Carrying Less than 7 days 1 month 3 months
Amount Total 7 days to to to over
1 month 3 months 1 year
Financial liabilities GBP GBP GBP GBP GBP GBP
----------------------- ----------- ----------- ----------- --------- ---------- ---------
Amount payable
to EJFIH 36,412 36,412 - - 36,412 -
Accounts payable
and accrued expenses 550,751 550,751 - - 550,751 -
Total 587,163 587,163 - - 587,163 -
----------------------- ----------- ----------- ----------- --------- ---------- ---------
31 December 2019 Carrying Total Less than 7 days 1 month 3 months
Amount 7 days to to to over
1 month 3 months 1 year
Liquid Assets GBP GBP GBP GBP GBP GBP
----------------------- ------------ ------------ ----------- --------- ------------ ---------
Cash 17,029,648 17,029,648 17,029,648 - - -
Balance due from
the Manager 563,525 563,525 - 563,525 - -
----------------------- ------------ ------------ ----------- --------- ------------ ---------
Total 17,593,173 17,593,173 17,029,648 563,525 - -
----------------------- ------------ ------------ ----------- --------- ------------ ---------
Carrying Less than 7 days 1 month 3 months
Amount Total 7 days to to to over
1 month 3 months 1 year
Financial liabilities GBP GBP GBP GBP GBP GBP
----------------------- ------------ ------------ ----------- --------- ------------ ---------
Amount payable
to EJFIH 201,828 201,828 - - 201,828 -
Accounts payable
and accrued expenses 1,183,122 1,183,122 - - 1,183,122 -
Total 1,384,950 1,384,950 - - 1,384,950 -
----------------------- ------------ ------------ ----------- --------- ------------ ---------
The tables above shows the undiscounted cash flows of the
Company's financial liabilities on the basis of their earliest
possible contractual maturity. The Company's expected cash flows on
these instruments are not expected to vary significantly from this
analysis.
The Group further manages its liquidity risk by holding at least
2.0% of its net asset value in assets with an expected liquidation
period within 90 days. The ratio of assets with an expected
liquidation period within 90 days (liquid assets) to total net
assets is set out below:
31 December 31 December
2020 2019
--------------------------------------- --------------- ---------------
Liquid assets GBP15,438,551 GBP17,593,173
Total Net Asset Value GBP100,568,661 GBP120,983,545
Liquid assets as % of total Net Asset
Value 15% 15%
--------------------------------------- --------------- ---------------
16. Capital risk management
The Company's issued capital is represented by Ordinary
Shares.
As a result of the ability to issue, repurchase and resell
shares, the capital of the Company can vary. The Company is not
subject to externally imposed capital requirements and has no
restrictions on the issue, repurchase or resale of its shares. The
Company's objectives for managing capital are:
-- to invest the capital in investments meeting the description,
risk exposure and expected return indicated in its Prospectus;
-- to achieve consistent returns while safeguarding capital by
investing in a diversified Portfolio;
-- to maintain sufficient liquidity to meet the expenses of the
Company; and
-- to maintain sufficient size to make the operation of the
Company cost-efficient.
The policy is to maintain a strong capital base so as to
maintain investor, creditor and market confidence and to sustain
future development of the business. The Board monitors the return
on capital, as well as the level of dividends to Ordinary
Shareholders.
The Company may utilise borrowings for share buybacks,
short-term liquidity purposes and investments, seeking leverage via
bank financing, term loans, or debt instruments. The Company has
the availability to borrow up to 35% of its NAV (calculated at the
time of drawdown), provided that:
i. the maximum amount for borrowings for long-term investment
purposes within such limit will be 30% of the NAV; and
ii. borrowings for long-term investment purposes may only be
incurred when the minimum cover amount, 3.5x for ZDP Shares, is met
(calculated at the time of drawdown).
The Company's net debt to equity ratio at the year end was as
follows:
31 December 31 December
2020 2019
GBP GBP
--------------------------------------- ------------ ------------
ZDP Shares 23,606,438 16,586,361
Accounts payable and accrued expenses 587,163 1,384,945
Less: cash and cash equivalents (347) (263,781)
--------------------------------------- ------------ ------------
Net debt 24,193,254 17,707,525
Total equity 100,568,661 120,983,545
--------------------------------------- ------------ ------------
Net debt to adjusted equity ratio 0.24 0.15
--------------------------------------- ------------ ------------
17. Related party transactions and other material contracts
Transactions
On 15 January 2020, the Company, through its investment in the
Partnership, closed on a new Risk Retention Investment TFINS 2019-2
totalling approximately GBP12.6 million. The underlying collateral
of TFINS 2019-2 mainly consists of trust preferred securities,
issued surplus notes, and senior notes issued by 34 US banks and 24
US insurance companies and their holding companies with an
aggregate par value of approximately US$338.4 million. The
transaction was executed using pricing established through
independent third-party valuations and following the review and
approval by the independent non-conflicted members of the
Board.
The Company also participates in the collateral management fee
income via its 49% ownership interest in the CDO Manager, which
serves as the collateral manager for TFINS 2019-2 and receives its
share of a 20bps collateral management fee in addition to earning
an incentive management fee, subject to certain criteria.
On 6 August 2020, the Company, through its investment in the
Partnership, closed on a new Risk Retention Investment TFINS 2020-1
totalling approximately GBP10.8 million. The underlying collateral
of TFINS 2020-1 mainly consists of trust preferred securities and
issued surplus notes issued by 51 US banks and 21 US insurance
companies with an aggregate par value of approximately US$282.9
million. The transaction was executed using pricing established
through independent third-party valuations and following the review
and approval by the independent non-conflicted members of the
Board.
The Company also participates in the collateral management fee
income via its 49% ownership interest in the CDO Manager, which
serves as the collateral manager for TFINS 2020-1 and receives its
share of a 30bps collateral management fee in addition to earning
an incentive management fee, subject to certain criteria.
On 16 December 2020, the Company, through its investment in the
Partnership, closed on a new Risk Retention Investment TFINS 2020-2
totalling approximately GBP6.7 million. The underlying collateral
of TFINS 2020-2 mainly consists of trust preferred securities and
issued surplus notes issued by 26 US banks and 10 US insurance
companies with an aggregate par value of approximately US$177.2
million. The transaction was executed using pricing established
through independent third-party valuations and following the review
and approval by the independent non-conflicted members of the
Board.
The Company also participates in the collateral management fee
income via its 49% ownership interest in the CDO Manager, which
serves as the collateral manager for TFINS 2020-2 and receives its
share of a 30bps collateral management fee in addition to earning
an incentive management fee, subject to certain criteria.
On 31 December 2020, the Board of the Company announced that
approximately GBP3.75 million or US$5 million had been initially
committed towards an investment in Seneca, with the potential to
increase the commitment up to approximately GBP7.5 million or US$10
million. Seneca is a residential mortgage servicer in the United
States which is owned and controlled by EJF. As at 31 December
2020, GBP1.2m had been called by Seneca.
Investment Management fee
The Company, the General Partner of the Partnership and the
Partnership entered into a Management Agreement with the Manager
and EJF on 31 January 2017. In accordance with the Management
Agreement, the Manager has been appointed as the manager of the
Company, the Partnership and the Partnership's General Partner. In
such capacity, the Manager is responsible for the portfolio and
risk management of the Group, including: (i) managing the Company's
assets and its day-to-day operations; (ii) the selection, purchase
and sale of investment securities held via its Subsidiary; (iii)
providing financing and risk management services; and (iv)
providing advisory services to the Board .
The Management Agreement was subsequently amended and restated
on 30 March 2017 to account for the management of the risk
retention investments and revise the terms of the incentive fee
charged to the Company.
On 27 February 2019, the Management Agreement was further
amended and restated to allow settlement of the Incentive Fee
through multiple transactions over an agreed upon timeframe between
the Company and the Manager.
On 22 August 2019, the Management Agreement was again further
amended and restated to provide flexibility in the cash settlement
of the Incentive Fee being used to facilitate a share purchase on
the secondary market or subscription for new shares.
In accordance with the terms of the Management Agreement, the
Company pays a management fee calculated monthly and payable
quarterly in arrears. Subject to certain limitations, the
management fee is equal to 0.0833% (one-twelfth of 1%) of the
Company's NAV.
For the year from the 1 January to 31 December 2020, the Company
accrued management fees of GBP902,003 (2019: GBP1,118,440) which is
presented within operating expenses on the Statement of
Comprehensive Income
The Company recognised an outstanding liability of GBP212,083 as
at 31 December 2020 (31 December 2019: GBP287,418 presented in
accounts payable and accrued expenses on the Statement of Financial
Position.
Directors' fees
The Directors are entitled to a fee for their services at a rate
to be determined from time to time by the Board. For the year ended
31 December 2020, the Company recorded Directors' fees of
GBP135,000 (2019: GBP135,000). As at 31 December 2020, GBPnil (31
December 2019: GBPnil) of this amount was outstanding .
Director's fees are currently GBP40,000 each per annum. Neal
Wilson has waived his right to receive remuneration for his service
as Director.
Joanna Dentskevich is entitled to an additional fee of GBP10,000
per annum in respect of her role as Chair of the Board.
Alan Dunphy is entitled to an additional fee of GBP5,000 per
annum in respect of his role as Chair of the Audit and Risk
Committee.
Neal Wilson, also serves as an officer (Chief Executive Officer)
of the Manager and an officer and director of other affiliates of
the Manager including EJF, the General Partner of the Partnership,
and the general partner of Armadillo I and Armadillo II. Therefore,
conflicts may arise as this individual allocates his time between
the Company, EJF and other programmes and activities in which they
are involved. The independent Directors must consent to and approve
any of the Company's conflicted trades, which also involve approval
by one of these affiliates and its officers, directors and
employees. With respect to EJF Risk Retention investments to be
issued in connection with all future EJF Securitisations, the
Partnership has the right of first refusal over other funds managed
by EJF.
Directors' and Officers' liability insurance cover is maintained
by the Company on behalf of the Directors. During the year ended 31
December 2020, the Company recorded Directors' and Officers'
liability and professional indemnity insurance expense of GBP95,914
(2019: GBP73,097).
Incentive fee
The Manager is entitled to an incentive fee which is calculated
in relation to the assets attributable to Ordinary Shares, in
accordance with the Management Agreement. The Incentive Fee amount
is equal to 10% of the amount by which the Adjusted NAV
attributable to Ordinary Shares exceeds the higher of (i) the
Incentive Hurdle at the relevant time and (ii) the High Watermark
at the relevant time, in respect of the relevant Incentive Fee
Period.
The Incentive Fee is calculated in respect of each Incentive Fee
Period, save for the first Incentive Fee Period which was the
period commencing on Admission and ending on 31 December 2017 and
the final Incentive Fee Period being the date that the Management
Agreement is terminated or, where the Management Agreement has not
been terminated, the actual date of termination of the provision by
the Manager of the Non-Retained Services as defined in the
Management Agreement.
For the year from 1 January to 31 December 2020, the Company did
not accrue an incentive fee liability (31 December 2019:
GBP496,023), which is presented within operating expenses on the
Statement of Comprehensive Income and accounts payable and accrued
expenses on the Statement of Financial Position.
On 28 January 2020, the Company announced that the Manager had
acquired 283,441 Ordinary Shares of no par value in the Company at
an average price of GBP1.75 per share. The Company was also
notified on the same date that the Manager had allocated these
Ordinary Shares as follows:
-- Neal J. Wilson, the Chief Executive Officer of the Manager,
acquired 56,688 Ordinary Shares from the Manager;
-- Lindsay J. Sparacino, the then Co-Chief Investment Officer of
the Manager, acquired 28,344 Ordinary Shares from the Manager;
-- Peter A. Stage, the Chief Financial Officer of the Manager,
acquired 28,344 Ordinary Shares from the Manager;
-- Hammad W. Khan, the Senior Managing Director, Europe, of the
Manager, acquired 28,344 Ordinary Shares from the Manager; and
-- EJF Capital Limited, a wholly-owned subsidiary of EJF Capital
LLC, acquired 141,721 Ordinary Shares from the Manager.
This transaction represents full satisfaction of the Incentive
Fee payable by the Company to the Manager for the Incentive Fee
Period ended 31 December 2019 and the recipients of the Ordinary
Shares are subject to the Lock-Up Deed.
On 3 July 2020, Jason Ruggiero, a member of the investment
committee of the Manager, unconditionally agreed to acquire 165,336
Ordinary Shares in the Company at an average price of GBP1.20 per
share from Lindsay Sparacino, the former Co-Chief Investment
Officer of the Manager. Following the settlement of this
transaction, Mr. Ruggiero is interested in 165,336 Ordinary Shares,
representing approximately 0.27% of the issued Ordinary Shares.
Ordinary Shares held by related parties
Shareholdings in the Company by the Directors as at the year end
were as follows:
Ordinary Shares Percentage Ordinary Shares Percentage of
of Ordinary Ordinary Shares
Name Shares in in Issue
Issue
31 December 31 December 31 December 31 December
2020(1) 2020(2) 2019(1) 2019(2)
Neal Wilson 1,516,381 2.480% 1,408,070 2.19%
Joanna Dentskevich 49,548 0.081% 49,548 0.05%
Nick Watkins 3,000 0.005% 3,000 0.00%
The Manager did not own any Ordinary Shares as at 31 December
2020 (31 December 2019: nil). Ordinary shares previously held by
the Manager have been allocated to EJF affiliates, including EJF
Capital Limited. EJF Capital Limited owned 1,807,495 (2.96%) as of
31 December 2020 (31 December 2019: 565,774 (0.88%)).
As at 31 December 2020, entities affiliated to Emanuel J.
Friedman, chair and Co-CIO of EJF, held an aggregate of 11,816,558
Ordinary Shares , equal to 19.33%(2) of the issued Ordinary Shares
(31 December 2019: 11,552,344 Ordinary Shares , equal to 18.00%(2)
of the issued Ordinary Shares).
(1) The Directors' holdings of Ordinary Shares are either direct
and/or indirect holdings of Ordinary Shares
(2) The calculation of shareholding % is based on number of
Ordinary Shares in issue after adjusting for treasury shares
ZDP Shares held by related parties
On 24 June 2020, the Company announced that the following
acquisitions of 2025 ZDP Shares took place under the related
placing:
-- The Manager acquired 716,445 2025 ZDP Shares at an average price of 100 pence per share.
-- Neal Wilson, the Chief Executive Officer of the Manager,
acquired 1,000,000 2025 ZDP Shares at a price of 100 pence per
share through the Placing;
-- Joanna Dentskevich, Chair of the Board of the Company,
acquired 30,000 2025 ZDP Shares at a price of 100 pence per share;
and
-- Nick Watkins, a Non-Executive Director of the Company,
acquired 10,000 2025 ZDP Shares at a price of 100 pence per
share.
Between 10 August and 25 September 2020 the Company announced
that Neal Wilson sold all his 375,000 2022 ZDP shares at an average
price of 115 pence per share. Neal Wilson does not hold any 2022
ZDP shares but holds 1,000,000 2025 ZDP shares issued in July 2020,
which are subordinate in priority to the 2022 ZDP shares,
representing approximately 16.67% of the issued 2025 ZDP
shares.
ZDP shareholdings in the Company by the Directors as at year end
were:
2025 ZDP Shares Percentage of 2025 ZDP Shares Percentage
Name ZDP 2025 Shares of ZDP 2025
in Issue Shares in Issue
31 December 31 December 31 December 31 December
2020 2020 2019 2019
-------------------- ---------------- ----------------- ---------------- -----------------
Neal Wilson 1,000,000 16.67% - -
Joanna Dentskevich 30,000 0.50% - -
Nick Watkins 10,000 0.17% - -
2022 ZDP Shares Percentage 2022 ZDP Shares Percentage
Name of ZDP 2022 of ZDP 2022
Shares in Issue Shares in Issue
31 December 31 December 31 December 31 December
2020 2020 2019 2019
------------- ----------------- ------------------ ---------------- -----------------
Neal Wilson - - 375,000 2.5%
The Manager owned no 2022 ZDP Shares and 716,445 2025 ZDP shares
as at 31 December 2020 (31 December 2019: 375,000 2022 ZDP
Shares).
Other material contracts
On 12 November 2019, the Company announced that with effect from
1 January 2020 the Manager voluntarily committed to absorb 80% of
future ongoing operating expenses, aside from management and
incentive fees, incurred by the Company until no earlier than 1
January 2021. For the year ended 31 December 2020, GBP1,161,981
(2019: GBP1,211,581) of operating expenses were offset by
reimbursements from the Manager and are presented in the Statement
of Comprehensive Income.
As at 31 December 2020, the Company had a receivable balance of
GBP570,728 (31 December 2019: GBP563,525) from the Manager relating
to the reimbursement of these operating expenses and is included in
the balance due from the Manager on the Statement of Financial
Position.
18. Basic and diluted (losses)/earnings per Ordinary Share
Basic (losses)/earnings per share is calculated by dividing the
(losses)/earnings for the year by the weighted average number of
Ordinary Shares in issue during the year.
The weighted average number of Ordinary Shares in issue is
61,740,143 (31 December 2019: 64,175,306).
The diluted (losses)/earnings per share is calculated by
considering adjustments required to the earnings and weighted
average number of shares for the effects of potential dilutive
Ordinary Shares. The weighted average of the number of Ordinary
Shares is adjusted for any convertible instruments. At 31 December
2020 and 31 December 2019, there were no convertible instruments
that would have an impact on the weighted average number of
Ordinary Shares.
19. Subsequent events
The Board has evaluated subsequent events for the Company
through to 31 March 2021, the date the Audited Financial Statements
are available to be issued, and other than those listed below,
concluded that there are no material events that require disclosure
or adjustment to the Audited Financial Statements.
Hedging Strategy
The Company previously adopted a hedging strategy whereby 100%
of its US Dollar exposure was hedged against Sterling. As a result,
the Company was required to hold significant levels of cash,
including amounts already on margin as a buffer to protect against
margin calls. The Board announced that, with effect from 15
February 2021, the Company would no longer hedge 100% of its US
Dollar exposure and would enter into contracts to hedge only the
final Sterling capital entitlement of its outstanding 2022 and 2025
ZDP Shares. The Board anticipates that the reduction in the hedging
costs together with the release of the cash on hand for pipeline
investments will positively contribute to the Company's overall
investment returns. The hedged and unhedged proportions of US
Dollar assets will be disclosed in the monthly factsheet. The Board
will review the Company's hedging policy regularly and will
communicate any material changes to the strategy in future.
Dividends
On 28 January 2020, the Company declared a final dividend of
2.675p per share in respect of the quarter ended 31 December 2020.
The dividend was payable to shareholders on the register as at
close of business on 5 February 2021, and the corresponding
ex-dividend date was 4 February 2021. Payment was made on or about
26 February 2021.
Investments
Since period end, up to the date of this report, a further
GBP1,177,382 had been called and invested into Seneca.
Ordinary Shares held by related parties
On 15 February 2021, the Company announced that Neal Wilson had
purchased 35,476 Ordinary Shares on 12 February 2021 at a price of
126 pence per share in a private transaction. Following the
settlement of this transaction, Neal Wilson is interested in
1,551,857 Ordinary Shares representing approximately 2.54% of the
issued Ordinary Shares, and 1,000,000 2025 ZDP Shares, representing
approximately 16.67% of the issued 2025 ZDP Shares.
On 19 February 2021, the Company announced that Joanna
Dentskevich conditionally agreed to purchase 28,348 Ordinary Shares
on 17 December 2020 at a price of 115 pence per share in a private
transaction. Following the settlement of this transaction, Joanna
Dentskevich is interested in 77,896 Ordinary Shares, representing
approximately 0.13% of the issued Ordinary Shares, and 30,000 2025
ZDP Shares, representing approximately 0.50% of the issued 2025 ZDP
Shares.
20. Reconciliation of IFRS to US GAAP
The Manager is a registered adviser with the SEC. To meet the
requirements of Rule 206(4)-2 under the Investment Advisors Act
1940 (the "Custody Rule") the Audited Financial Statements of the
Company have also been audited in accordance with US GAAS. As such,
two independent Auditor's reports are included above, one under
International Standards on Auditing as required by the Crown
Dependencies Audit Rules and the other under US GAAS. Compliance
with the Custody Rule also requires a reconciliation of the
operating profit and net assets under IFRS to US GAAP.
The Company has been assessed to be an investment entity in
accordance with IFRS 10 as well as an investment company in
accordance with ASC 946. Hence, under both accounting frameworks,
the Company does not need to consolidate its investment in EJFIH
and instead has accounted for it at fair value through profit or
loss.
The Directors have assessed the operating profit and NAV of the
Company under both IFRS and US GAAP and have concluded that no
material differences were identified and therefore no
reconciliation has been presented in these Audited Financial
Statements.
Under US GAAP, the Company is required to disclose its financial
highlights and a schedule of investments.
Financial highlights
Financial highlights for the year ended 31 December 2020 are as
follows:
NAV total return, since inception
Beginning of year 64.53%
End of year 53.00%
Expense ratio to average NAV
Expenses before incentive fees 2.34%
Expenses reimbursed by the Manager (1.12 %)
Incentive fees -
------------------------------------ ---------
Expenses, including incentive fees 1.22%
------------------------------------ ---------
Investment income 7.40%
Expenses (2.34%)
----------------------------- --------
Net investment income ratio 5.06%
----------------------------- --------
Schedule of investments
31 December 2020 Cost Cost Fair Value % of
NAV
Investments in trading securities US $ GBP GBP
Cayman Islands
--------------------------------------- ------------ ----------- ----------- ------
TR PFD INS NOTE 2017-2 - Equity
Notes (Z Notes), 1,631,250 1,648,053 1,272,936 1,234,324 1.23
ATTN 2006-1X J 2% 06-10/05/2036
DFLT - Combination Notes, 10,074,040 404,932 303,990 772,225 0.77
ATTN 2007-3A F 9.532% 07-11/10/2042
DFLT - Class F Notes, 62,634,884 - - - -
TBRNA 2006-6A C 06-05/12/2036
FRN DFLT - Class C Notes, 2,500,000 1,563 1,166 - -
ATTN 2006-1A D 06-10/05/2036
FRN - Class D Notes, 11,000,000 - - - -
KDIAK 2006-1A G 06-07/08/2037
FRN - Class G Notes, 49,500,000 - - - -
KDIAK 2007-2A F 07-07/11/2042
FRN - Class F Notes, 43,000,000 - - - -
TBRNA 2005-4A C3 0% 05-05/05/2036
- Class C-3 Notes, 35,000,000 - - - -
TBRNA 2006-5A A3FV 06-05/08/2036
FRN - Class A-3 Notes, 35,000,000 - - - -
--------------------------------------- ------------ ----------- ----------- ------
Total Cayman Islands 2,054,548 1,578,092 2,006,549 2.00
--------------------------------------- ------------ ----------- ----------- ------
Investments in private investment
companies
United States
--------------------------------------- ------------ ----------- ----------- ------
EJF Investments LP - Shares,
122,851,798 121,098,535 93,286,624 88,334,641 87.84
Investment in Armadillo Finance
FD LP 6,658,377 4,617,322 1,929,640 1.92
Investment in Armadillo Finance
FD II LP 1 1 123,730 0.12
Seneca 1,700,430 1,248,055 1,244,059 1.24
Total United States 129,457,343 99,152,002 91,632,070 91.12
--------------------------------------- ------------ ----------- ----------- ------
Investments in private operating
company
United States
---------------------------------- ---------- ---------- ---------- -----
EJF CDO manager LLC 8,547,026 6,379,606 9,463,395 9.41
---------------------------------- ---------- ---------- ---------- -----
Total United States 8,547,026 6,379,606 9,463,395 9.41
---------------------------------- ---------- ---------- ---------- -----
Derivatives Maturity Fair Value % of NAV
Forward currency contracts GBP
------------------------------------- ----------- ------------ ---------
8 January
Purchase GBP106.3m / sell US$142.1m 2021 2,323,977 2.31
8 January
Purchase GBP5.6m / sell US$7.5m 2021 154,512 0.15
8 January
Purchase GBP1.4m / sell US$2.0m 2021 3,748 0.00
8 January
Purchase GBP2.9m / sell US$4.0m 2021 51,549 0.05
Total Derivatives 2,533,786 2.51
-------------------------------------------------- ------------ ---------
Other net assets(1) 18,515,599 18.41
-------------------------------------------------- ------------ ---------
Total investments 124,151,399 123.45
-------------------------------------------------- ------------ ---------
(1) - Other net assets comprises the Subsidiary's cash and cash
equivalents, cash and cash equivalents held as margin and other
receivables.
Refer to note 19 for further details on changes to the foreign
exchange hedging after the year end.
GLOSSARY OF TERMS
TERM DEFINITION
--------------------------- -----------------------------------------------------
ABS Asset backed securities.
--------------------------- -----------------------------------------------------
Adjusted NAV attributable Adjusted NAV attributable to Ordinary Shares
to Ordinary Shares is calculated as an amount equal to the
NAV attributable to Ordinary Shares: (i)
excluding any increases or decreases in
NAV attributable to Ordinary Shares attributable
to the issue or repurchase of any Ordinary
Shares; (ii) adding back the aggregate amount
of any dividends paid or distributions made
in respect of any Ordinary Shares; (iii)
excluding the aggregate amount of dividends
and distributions accrued but unpaid in
respect of any Ordinary Shares; and (iv)
excluding the amount of any accrued but
unpaid Incentive Fees payable in relation
to the NAV attributable to Ordinary Shares,
in each case without double counting.
--------------------------- -----------------------------------------------------
Administrator BNP Paribas Securities Services S.C.A. Jersey
Branch.
--------------------------- -----------------------------------------------------
Admission The Company's Ordinary Shares which were
admitted to trading on the Specialist Fund
Segment of the London Stock Exchange on
the 7th April 2017.
--------------------------- -----------------------------------------------------
AGM Annual general meeting.
--------------------------- -----------------------------------------------------
AIC Code The AIC Code of Corporate Governance
--------------------------- -----------------------------------------------------
AIF An alternative investment fund, as defined
in the AIFM Directive.
--------------------------- -----------------------------------------------------
AIFM An alternative investment fund manager,
as defined in the AIFM Directive.
--------------------------- -----------------------------------------------------
AIFMD or AIFM Directive The Alternative Investment Fund Managers
Directive 2011/61/EU.
--------------------------- -----------------------------------------------------
Annual Report Annual Report and Audited Financial Statements.
--------------------------- -----------------------------------------------------
Annualised Dividend Has the meaning below.
Yield
--------------------------- -----------------------------------------------------
APM Alternative performance measure. The calculation
methodology and rationale for disclosing
each of the APMs has been disclosed below.
--------------------------- -----------------------------------------------------
Armadillo I Armadillo Financial Fund LP.
--------------------------- -----------------------------------------------------
Armadillo II Armadillo Financial Fund II LP.
--------------------------- -----------------------------------------------------
Armadillo Portfolio A portfolio of high-yielding loans to US
law firms engaged in mass tort litigation
by way of the holding of limited partner
interests in Armadillo I and Armadillo II.
--------------------------- -----------------------------------------------------
Articles The articles of association of the Company.
--------------------------- -----------------------------------------------------
AUB Atlantic Union Bank.
--------------------------- -----------------------------------------------------
Auditor KPMG LLP.
--------------------------- -----------------------------------------------------
Brexit Brexit is the withdrawal of the UK from
the EU.
--------------------------- -----------------------------------------------------
BNPP BNP Paribas Securities Services S.C.A.
--------------------------- -----------------------------------------------------
Board The board of Directors of the Company.
--------------------------- -----------------------------------------------------
Bridge Loan An interest in a bridge loan to an affiliate
of a publicly listed insurer.
--------------------------- -----------------------------------------------------
CCAR Comprehensive Capital Analysis and Review
--------------------------- -----------------------------------------------------
CDO Collateralised debt obligation.
--------------------------- -----------------------------------------------------
CDO securities Bonds issued by Kodiak, Attentus, Taberna
and Credit Suisse, which are unaffiliated
third-party CDO sponsors.
--------------------------- -----------------------------------------------------
CDO Manager EJF CDO Manager LLC, a Delaware limited
liability company.
--------------------------- -----------------------------------------------------
CDD Customer due diligence
--------------------------- -----------------------------------------------------
CDFI Community Development Financial Institutions
--------------------------- -----------------------------------------------------
CFTC US Commodities and Futures Trading Commission.
--------------------------- -----------------------------------------------------
CLO Collateralised loan obligation.
--------------------------- -----------------------------------------------------
Companies Law The Companies (Jersey) Law 1991, as amended.
--------------------------- -----------------------------------------------------
Company or EJFI EJF Investments Limited, a closed-ended
investment company incorporated with limited
liability in the Bailiwick of Jersey under
the Companies Law on 20 October 2016 with
registered number 122353.
--------------------------- -----------------------------------------------------
Corporate Broker or Numis Securities Limited.
Numis
--------------------------- -----------------------------------------------------
CPO Commodity pool operator.
--------------------------- -----------------------------------------------------
CTA Commodity trading adviser.
--------------------------- -----------------------------------------------------
Dodd-Frank The Dodd-Frank Wall Street Reform and Consumer
Protection Act of
2010.
--------------------------- -----------------------------------------------------
ECL Expected credit loss.
--------------------------- -----------------------------------------------------
EGM Extraordinary general meeting.
--------------------------- -----------------------------------------------------
EJF EJF Capital LLC.
--------------------------- -----------------------------------------------------
EJFIF EJF Investments Funding Limited.
--------------------------- -----------------------------------------------------
EJFIH EJF Investments Holdings Limited.
--------------------------- -----------------------------------------------------
EJF Risk Retention Has the meaning given to it in paragraph
Securities 5.1(a) of Part I: "The Company" of the Prospectus.
--------------------------- -----------------------------------------------------
EJF Securitisations EJF or EJF Affiliate-sponsored securitisations.
--------------------------- -----------------------------------------------------
ESG Environmental, social and governance.
--------------------------- -----------------------------------------------------
EU The European Union.
--------------------------- -----------------------------------------------------
FCA Financial Conduct Authority.
--------------------------- -----------------------------------------------------
FDIC Federal Deposit Insurance Corporation.
--------------------------- -----------------------------------------------------
Fed US Federal Reserve
--------------------------- -----------------------------------------------------
FINS 2019-1 Financial Note Securitization 2019-1 Ltd.
--------------------------- -----------------------------------------------------
FOMC Federal Open Market Committee
--------------------------- -----------------------------------------------------
FRC Financial Reporting Council.
--------------------------- -----------------------------------------------------
FVTPL Fair value through profit or loss.
--------------------------- -----------------------------------------------------
General Partner EJF Investments GP Inc., being general partner
of the Partnership.
--------------------------- -----------------------------------------------------
Group Means the Company and its Subsidiary.
--------------------------- -----------------------------------------------------
High Watermark High Watermark is calculated using the Adjusted
NAV attributable to Ordinary Shares as determined
on the last day of the latest previous Incentive
Fee Period in respect of which an Incentive
Fee was payable to the Manager.
--------------------------- -----------------------------------------------------
IAS 32 Financial Instruments: Presentation.
--------------------------- -----------------------------------------------------
IFRS International Financial Reporting Standards
as adopted by the European Union.
--------------------------- -----------------------------------------------------
IFRS 8 IFRS 8 IFRS 8 Operating Segments.
--------------------------- -----------------------------------------------------
IFRS 10 IFRS 10 Consolidated Financial Statements.
--------------------------- -----------------------------------------------------
IFRS 12 IFRS 12 Disclosure of Interest in Other
Entities.
--------------------------- -----------------------------------------------------
IFRS 13 IFRS 13 Fair Value Measurement.
--------------------------- -----------------------------------------------------
IFRS 17 IFRS 17 Insurance Contracts.
--------------------------- -----------------------------------------------------
Incentive Fee The incentive fee to which the Manager is
entitled as described in the section entitled
"Fees and Expenses" in Part IV: "Directors,
the Manager and Administration" of the Prospectus.
--------------------------- -----------------------------------------------------
Incentive Fee Period Each 12-month period starting on 1 January
and ending on 31 December in each calendar
year.
--------------------------- -----------------------------------------------------
Incentive Hurdle Incentive hurdle is calculated using the
Adjusted NAV attributable to Ordinary Shares
on the date of Admission, and then the beginning
NAV of each subsequent period, compounded
annually (with effect from 31 December 2017)
at a rate equal to an internal rate of return
of 8% per annum.
--------------------------- -----------------------------------------------------
Incentive Shares The Ordinary Shares used to pay the Incentive
Fee.
--------------------------- -----------------------------------------------------
Interim Report Interim Report and Unaudited Condensed Interim
Financial Statements.
--------------------------- -----------------------------------------------------
Investment Objective The Company seeks to generate attractive
risk adjusted returns for its shareholders
by investing in opportunities created by
regulatory and structural changes impacting
the financial services sector. These opportunities
are anticipated to include structured debt
and equity, loans, bonds, preference shares,
convertible notes and private equity, in
both cash and synthetic formats, and may
be issued by entities domiciled in the US,
UK and Europe.
--------------------------- -----------------------------------------------------
Investment Policy The Company seeks to achieve its Investment
Objective by pursuing a policy of investing
in a diversified portfolio of investments
that are derived from the changing financial
services landscape.
--------------------------- -----------------------------------------------------
Listing Rules The listing rules made by the FCA under
Part VI of the FSMA.
--------------------------- -----------------------------------------------------
Lock-Up Deed Has the meaning given to it in paragraph
11.6 of Part XIII: "Additional Information"
of the Prospectus.
--------------------------- -----------------------------------------------------
Management Agreement The Amended and Restated Management Agreement
dated 30 March 2017 between the Company,
the Partnership, the General Partner, the
Manager and EJF (as amended).
--------------------------- -----------------------------------------------------
Manager EJF Investments Manager LLC.
--------------------------- -----------------------------------------------------
MAR Market Abuse Regulations.
--------------------------- -----------------------------------------------------
MDIs Minority Depository Institutions
--------------------------- -----------------------------------------------------
MSRs Mortgage servicing rights
--------------------------- -----------------------------------------------------
NAV per Ordinary Share Has the meaning on below.
--------------------------- -----------------------------------------------------
Net Asset Value or The NAV means the Company's assets less
NAV liabilities. The Company's assets and liabilities
are valued in accordance with International
Financial Reporting Standards as adopted
by the European Union.
--------------------------- -----------------------------------------------------
Ordinary Shares The non-redeemable Ordinary Shares of no
par value in the share capital of the Company
which, for the avoidance of doubt, includes
all classes of Ordinary Shares (denominated
in such currency) as the Directors may determine
in accordance with the Articles (and for
the purposes of the Prospectus, the Ordinary
Shares shall be denominated in Sterling)
having the rights and subject to the restrictions
set out in the Articles.
--------------------------- -----------------------------------------------------
Ordinary Shareholders The holder or one or more Ordinary Shares.
--------------------------- -----------------------------------------------------
Ordinary Share Price Closing price as the respective reporting
date as published on the London Stock Exchange.
--------------------------- -----------------------------------------------------
Partnership EJF Investments LP (a Delaware limited partnership
formed under the laws of the US state of
Delaware).
--------------------------- -----------------------------------------------------
Placing Programme The placing programme of the Company of
up to 150 million Ordinary Shares and/or
C Shares and up to 75 million ZDP Shares.
--------------------------- -----------------------------------------------------
Portfolio The Company's and the Subsidiary's portfolio
of investments from time to time.
--------------------------- -----------------------------------------------------
PPP Paycheck Protection Program.
--------------------------- -----------------------------------------------------
PIK Payment in kind
--------------------------- -----------------------------------------------------
Preference Shares Investment in TFINS 2017-2 depositor vehicle.
--------------------------- -----------------------------------------------------
Principal Risks Those risks, or a combination thereof, that
are considered to materially threaten the
Company's ability to meet its Investment
Objective, solvency or liquidity
--------------------------- -----------------------------------------------------
Prospectus The Company's prospectus dated 24 June 2019
and the supplementary prospectuses dated
19 December 2019 and 30 April 2019.
--------------------------- -----------------------------------------------------
REIT Real estate investment trust.
--------------------------- -----------------------------------------------------
Risk Retention Has the meaning given to it in Part II:
"The Market Opportunity" of the Prospectus.
--------------------------- -----------------------------------------------------
Risk Retention and Risk Retention Investments, together with
Related Investments investments in non-risk retention securities
of EJF securitisations and other non-EJF
sponsored securitisations.
--------------------------- -----------------------------------------------------
Risk Retention Investments Has the meaning given to it in paragraph
5.1(a) of Part I: "The Company" of the Prospectus.
--------------------------- -----------------------------------------------------
SEC US Securities and Exchange Commission.
--------------------------- -----------------------------------------------------
Section 172 (1) Section 172(1) of the UK Companies Act 2006
--------------------------- -----------------------------------------------------
Securitisation and Risk Retention and Related Investments,
Related Investments capital solutions and ABS investments and
the CDO Manager.
--------------------------- -----------------------------------------------------
Seneca Seneca Base Offshore LP and Seneca EJFI
Excess LP, being affiliates of Seneca Mortgage
Servicing LLC, which is a residential mortgage
servicer in the United States which is owned
and controlled by EJF
--------------------------- -----------------------------------------------------
SFS The Specialist Fund Segment of the London
Stock Exchange.
--------------------------- -----------------------------------------------------
SOFR Secured overnight financing rate.
--------------------------- -----------------------------------------------------
Specialty Finance Represent less liquid UK, European and US
Investments specialty finance investments
such as (but not limited to): (i) growth
equity capital to newly formed companies
with scalable specialty finance platforms;
(ii) secured and unsecured lending; (iii)
investments collateralized by real estate
and real estate related assets; and (iv)
other illiquid, specialty finance investment
opportunities.
--------------------------- -----------------------------------------------------
Sterling or GBP or Pound sterling - the currency of the UK.
GBP
--------------------------- -----------------------------------------------------
Subsidiaries EJF Investments Holdings Limited and EJF
Investments Funding Limited.
--------------------------- -----------------------------------------------------
Subsidiary EJF Investments Holdings Limited.
--------------------------- -----------------------------------------------------
TALF Term Asset-Backed Securities Loan Facility.
--------------------------- -----------------------------------------------------
Target Dividend The Company targeted an annual dividend
of 10.7p per Ordinary Share for the financial
year to 31 December 2020. The Target Dividend
for the year ending 31 December 2021 is
also 10.7p per Ordinary Share.
--------------------------- -----------------------------------------------------
Target Investments Investments that consist primarily of securitisation
and related investments and specialty finance
investments. Has the meaning given to it
in Part I: "The Company" of the Prospectus.
--------------------------- -----------------------------------------------------
Target Return The Company targets an annual total return
on NAV per Share of 8% to 10% per annum.
--------------------------- -----------------------------------------------------
TFINS 2017-2 TruPS Financials Note Securitization 2017-2
Ltd.
--------------------------- -----------------------------------------------------
TFINS 2018-1 TruPS Financials Note Securitization 2018-1
Ltd.
--------------------------- -----------------------------------------------------
TFINS 2018-2 TruPS Financials Note Securitization 2018-2
Ltd.
--------------------------- -----------------------------------------------------
TFINS 2019-1 TruPS Financials Note Securitization 2019-1
Ltd.
--------------------------- -----------------------------------------------------
TFINS 2019-2 TruPS Financials Note Securitization 2019-2
Ltd.
--------------------------- -----------------------------------------------------
TFINS 2020-1 TruPS Financials Note Securitization 2020-1
Ltd.
--------------------------- -----------------------------------------------------
TFINS 2020-2 TruPS Financials Note Securitization 2020-2
Ltd.
--------------------------- -----------------------------------------------------
Total Return As defined below.
--------------------------- -----------------------------------------------------
TPINS Insurance-backed TruPS CDO, Trust Preferred
Insurance Note Securitization 2016-1.
--------------------------- -----------------------------------------------------
TruPS Trust preferred securities.
--------------------------- -----------------------------------------------------
TruPS CDO Collateral Has the meaning given in paragraph 3.3(d)
in the section entitled "Risk Factors" in
the Prospectus.
--------------------------- -----------------------------------------------------
UK United Kingdom.
--------------------------- -----------------------------------------------------
UK Code 2018 UK Corporate Governance Code.
--------------------------- -----------------------------------------------------
US United States of America.
--------------------------- -----------------------------------------------------
US$ United States Dollar.
--------------------------- -----------------------------------------------------
US GAAS Generally Accepted Auditing Standards applicable
in the United States.
--------------------------- -----------------------------------------------------
2022 ZDP Shares The redeemable Zero Dividend Preference
shares of no par value in the Company with
a repayment date during November 2022 and
bearing a gross redemption yield of 5.86%.
--------------------------- -----------------------------------------------------
2025 ZDP Shares The redeemable Zero Dividend Preference
shares of no par value in the Company with
a repayment date during June 2025 and bearing
a gross redemption yield of 7.00%
--------------------------- -----------------------------------------------------
ZDP Shares 2022 ZDP Shares and 2025 ZDP Shares
--------------------------- -----------------------------------------------------
ZDP Shareholder The holder of one or more ZDP Shares.
--------------------------- -----------------------------------------------------
ZDP Share Price Closing price as at the respective reporting
date as published on the London Stock Exchange.
--------------------------- -----------------------------------------------------
ALTERNATIVE PERFORMANCE MEASURES
NAV per Ordinary Share
NAV per Ordinary Share means an amount equal to, as at the
relevant date, the NAV attributable to Ordinary Shares divided by
the Ordinary Shares in issue as at such date.
Reason for use
Common industry performance benchmark for calculating the Total
Return and Share Price (Discount)/Premium to NAV per Ordinary
Share.
Recalculation
NAV per Ordinary Share is calculated as follows:
31 December 31 December
2020 2019
-------------------------------------- --------------- ---------------
Net Assets as per Statement of GBP100,568,661 GBP120,983,547
Financial Position
--------------------------------------- --------------- -------------------
Number of Ordinary Shares in issue
at year (excluding treasury shares) 61,145,198 64,175,306
--------------------------------------- --------------- -------------------
NAV per Ordinary Share 164p 189p
--------------------------------------- --------------- -------------------
Total Return
The increase in the NAV per Ordinary Share plus the total
dividends paid per Ordinary Share during the period, with such
dividends paid being re-invested at NAV, as a percentage of the NAV
per share as at period end.
Reason for use
To provide transparency in the Company's performance and to help
investors identify and monitor the compounded returns of the
Company.
Recalculation
Total Return has been calculated using the following monthly
returns and compounded as follows:
Rating From inception 2020 2019 2018 2017
to 31 December
2020
Compounded monthly return
--------------------------- ---------------- --------- ------- -------- -------
January 0.47% 0.35% 8.28% 0.51%
February 0.18% 0.41% 0.70% 2.96%
March (13.57)% 1.77% 0.12% 3.65%
April 0.58% 5.61% 2.70% 0.24%
May 3.33% 0.83% 2.10% 2.85%
June 0.15% 0.26% 1.62% 0.34%
July 1.25% 0.56% 0.50% 0.90%
August 0.34% 0.62% 2.39% 1.37%
September 0.40% 0.21% 0.08% 0.54%
October (0.73)% 0.04% 0.32% 4.92%
November 1.16% 0.13% 0.22% 0.59%
December 0.25% 0.63% (1.13)% 2.53%
--------------------------- ---------------- --------- ------- -------- -------
Compounded monthly return 52.98% (7.02)% 11.88% 19.08% 23.47%
--------------------------- ---------------- --------- ------- -------- -------
Annualised Dividend Yield
Dividends declared in respect of the relevant period divided by
the share price mid quote as at the end of the relevant period.
Reason for use
To measure the Company's distribution of dividends to the
Company's Ordinary Shareholders relative to share price to allow
comparability to other companies in the market.
Recalculation
Annualised Dividend Yield is calculated as follows:
31 December 2020
------------------------------------------------------ -----------------
Dividends declared and paid for the quarter ended
31 March 2020 (see note 13) 2.675p
------------------------------------------------------- -----------------
Dividends declared and paid for the quarter ended
30 June 2020 (see note 13) 2.675p
------------------------------------------------------- -----------------
Dividends declared and paid for the quarter ended
30 September 2020 (see note 13) 2.675p
------------------------------------------------------- -----------------
Dividends declared for the quarter ended 31 December
2020 (see note 19) 2.675p
------------------------------------------------------- -----------------
Total Dividends declared in respect of the year
ended 31 December 2020 10.700p
------------------------------------------------------- -----------------
Share price mid quote 117.0p
------------------------------------------------------- -----------------
Annualised Dividend Yield 9.1%
------------------------------------------------------- -----------------
31 December 2019
------------------------------------------------------ -----------------
Dividends declared and paid for the quarter ended
31 March 2019 (see note 13) 2.675p
------------------------------------------------------- -----------------
Dividends declared and paid for the quarter ended
30 June 2019 (see note 13) 2.675p
------------------------------------------------------- -----------------
Dividends declared and paid for the quarter ended
30 September 2019 (see note 13) 2.675p
------------------------------------------------------- -----------------
Dividends declared for the quarter ended 31 December
2019 (see note 19) 2.675p
------------------------------------------------------- -----------------
Total Dividends declared in respect of the year
ended 31 December 2019 10.700p
------------------------------------------------------- -----------------
Share price mid quote 171.0p
------------------------------------------------------- -----------------
Annualised Dividend Yield 6.3%
------------------------------------------------------- -----------------
Share Price Discount to NAV per Ordinary Share
Closing price as at such date as published on the London Stock
Exchange divided by the NAV per Ordinary Share.
Reason for use
Common industry measure to understand the price of the Company's
shares relative to its net asset valuation.
Recalculation
Share Price Discount to NAV per Ordinary Share is calculated as
follows:
Rating
31 December 31 December
2020 2019
------------------------------------------ ------------ ------------
Closing price as at 31 December as
published on the London Stock Exchange 117.0p 171.0p
------------------------------------------- ------------ ------------
NAV per Ordinary Share 164.0p 189.0p
------------------------------------------- ------------ ------------
Share Price Discount to NAV Per Ordinary
Share (28.7)% (9.5)%
------------------------------------------- ------------ ------------
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FR EAEDFDLFFEAA
(END) Dow Jones Newswires
April 01, 2021 02:00 ET (06:00 GMT)
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