TIDMCCPG TIDMCCPE
RNS Number : 4554H
CVC Credit Partners European Opps.
06 April 2022
6 APRIL 2022
FOR IMMEDIATE RELEASE
RELEASED BY BNP PARIBAS SECURITIES SERVICES S.C.A., JERSEY
BRANCH FINAL RESULTS ANNOUNCEMENT
THE BOARD OF DIRECTORS OF CVC CREDIT PARTNERS EUROPEAN
OPPORTUNITIES LIMITED ANNOUNCE FINAL RESULTS FOR THE YEARED 31
DECEMBER 2021
WHY INVEST in CVC CREDIT partners European opportunities?
Generating income and growing your capital
The Company aims to provide shareholders with income and capital
upside by focusing on opportunities within global leveraged finance
markets, with a focus on European issuers.
The Investment Vehicle Manager has an excellent track record in
investing in these asset classes, which provides the Company's
investors with stability and an opportunity to benefit from rising
interest rates through the largely floating rate nature of the
underlying investments. The key features of the Company are its
ability to provide attractive, risk-adjusted returns which includes
a reliable income stream, with the opportunity for enhancement of
capital. The Company also offers investors additional liquidity
opportunities through its tender mechanism.
What we offer
Reliable income Strong track record
The Company seeks to generate The Company has a proven, long-term
high cash income via a stable track record and has typically
and attractive dividend, as outperformed during periods
well as offering the potential of market volatility. Since
for capital appreciation. The the Company's listing in 2013,
Company currently distributes a net average total return per
quarterly dividends to shareholders annum of 4.90%(1) and 5.63%(1)
based on a target of 5p / 5c has been achieved per Euro Share
per GBP and EUR share respectively and Sterling Share respectively.
per annum.
Liquidity Interest rate protection
In addition to the daily liquidity The Company, via the Investment
offered by the stock market, Vehicle, invests mainly in loans,
the Company offers shareholders which are typically floating
alternative liquidity via a rate instruments, which offer
share tender programme. Please investors an opportunity to
refer to the Company's latest benefit from a rising interest
tender circular, available on rate environment. We believe
the Company's website www.ccpeol.com, now more than ever, that floating
for the detailed terms and conditions rate assets are preferable to
of the tender mechanism. fixed rate, due to heightened
inflation risk and growing expectations
of rising central bank interest
rates.
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Capital Preservation Stability
The Company's focus is on downside Offering more security and less
protection and capital preservation. volatility than equity markets,
The Investment Vehicle invests the Company offers investors
primarily in senior secured a way of accessing the wholesale
loans at the top of the capital corporate credit markets, typically
structure, increasing the chance an asset class dominated by
of strong recoveries in the institutional investors. Since
event of a rise in defaults. its establishment in 1998, the
The portfolio typically comprises Credit Suisse Leveraged Loan
around 100 positions in large Index, which represents the
companies diversified by geography closest index analogy to the
and sector across the UK, continental underlying portfolio, has only
Europe and the US. The Investment had one down year, demonstrating
Vehicle's default rate is lower the stability of the asset class.
than the market.
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Attractive, risk-adjusted returns Part of the CVC Credit Platform
even in the current low-interest The Investment Vehicle is managed
rate environment by CVC Credit Partners, a leading
The Company targets attractive global investment management
risk-adjusted returns for its firm with over $32.8bn in AUM
shareholders and has a medium-term across performing credit and
(3-5 years) average annualised private credit strategies, allowing
target total return of 8% per shareholders the opportunity
annum. The Company seeks to to gain exposure to institutional-quality
allocate and reallocate capital credit investments. CVC Credit
to a mix of performing senior Partners is part of the CVC
secured loans and to issuers platform, a world leader in
where t he Investment Vehicle private equity and credit investment
Manager perceives there to be with $106.9 billion of AUM,
a market driven mispricing opportunity $120.0 billion of funds committed
based on fundamental credit and a global network of 25 local
assessment and technical market offices.
factors. The Investment Vehicle
Manager seeks relative value
opportunities, meaning it is
able to simultaneously target
a reliable income stream while
maintaining the potential to
generate capital upside for
shareholders.
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In executing its investment strategy, the Investment Vehicle
utilises leverage and its borrowings, as a percentage of the
Investment Vehicle's NAV, as at 31 December 2021 stood at 30.29%
(31 December 2020: 27.67%). The Investment Vehicle Manager is
entitled to receive a management fee(2) and a performance fee(3)
.
(1) From inception to 31 December 2021.
(2) The Investment Vehicle management fee is 0.90%, which
reduces by a further 5 basis points each time the Investment
Vehicle's NAV exceeds EUR500m, EUR750m and EUR1bn respectively, to
a minimum of 0.75% per annum.
(3) Refer to pages 12 and 13 of the Company's latest prospectus ( https://www.ccpeol.com/media/1316/2019-03-29-prospectus.pdf ) for detail on the basis of the Investment Vehicle performance fee.
SUMMARY
Key performance indicators summary
As at 31 December 2021, the Company's Euro and Sterling NAV per
share was EUR1.0266 and GBP1.1058 respectively and Euro and
Sterling share price (bid price)(1) was EUR0.9500 and GBP1.0400
respectively, representing a 7.46% discount and 5.95% discount to
NAV. The Company's ongoing charges ratio increased to 1.61% for the
year ended 31 December 2021 (ongoing charges for year ended 31
December 2020: 1.54%(2) ). The Company paid total dividends during
the year of EUR0.0475 per Euro Share and GBP0.0475 per Sterling
Share.
Further information in respect of the Company's key performance
indicators, some of which the Board considers to be its alternative
performance measures ("APMs"), can be found in the Financial
Highlights and Performance Summary section of the Annual Financial
Report, within the Executive Report and within the Useful
Information for Shareholders.
Significant events during the year ended 31 December 2021
Refer below for details regarding significant events during the
year.
Purpose
The Company is an investment company, and its scope is
restricted to that activity. In that context, the Company's purpose
is to provide investors with sustainable long-term returns by
investing in a diversified portfolio of principally European
corporate debt. In fulfilling the Company's purpose, the Board
seeks to consider the views of all stakeholders and is mindful of
the impact that the Company has on the society in which it
operates.
Investment objective, policy and strategy
The Company's investment objective is to provide shareholders
with regular income returns and capital appreciation from a
diversified portfolio of predominantly sub-investment grade debt
instruments. The Company's investment policy is to invest
predominantly in debt instruments issued by companies domiciled in,
or with material operations in Western Europe across various
industries. The Company's investments are focused on the senior
secured obligations of such companies, but investments are also
made across the capital structure of such borrowers. Refer below
for the Company's full investment objective, policy and
strategy.
Going concern and viability
The Directors consider it appropriate to adopt the going concern
basis in preparing the financial statements and have a reasonable
expectation that the Company will continue to be viable for a
period of at least three years from the date of this report. Refer
below for further details.
Investment Vehicle Manager's Report
Refer below for the Investment Vehicle Manager's Report.
Directors' remuneration, Directors' Report and Report of the
Audit Committee
David Wood stepped down from the Board of Directors on 31 August
2021.
Vanessa Neill, a specialist consultant on sustainability, joined
the Board on 11 January 2022.
There were no changes to Directors' remuneration during the
year, other than to reflect Mr Wood's retirement. Following Ms
Neill's appointment on 11 January 2022, Ms Neill will receive
GBP42,500, being the same base fee as the other Directors, and a
fee of GBP5,000 per annum as the Chair of the Company's ESG
Committee.
Financial statements
The Company's full financial results can be found in the
accompanying financial statements below.
(1) - Source: Bloomberg
(2) - The Company's ongoing charges are considered to be APMs
which are calculated according to the methodology outlined below
and differ to the ongoing costs disclosed within the Company's KID
which follows the methodology prescribed by EU rules. For example,
the ongoing costs disclosed in the Company's KID include interest
expense and are based on average ongoing charges over the past
three years whereas the ongoing charges ratio disclosed in this
report do not include interest expense and are based on ongoing
charges incurred during the year ended 2021 only. The Company's
most current KID and an accompanying explanatory note reconciling
the two different ratios are available on the Company's website (
www.ccpeol.com/news-documents ).
financial highlights and PERFORMANCE SUMMARY
For the year under review, the NAV total return of 11.41% (Euro)
and 12.17% (Sterling) compared favourably with the Company's medium
term average annualised total return target of +8%.
Euro Shares Sterling Shares
NAV total return(1) NAV total return(1)
31 December 2021: 11.41% 31 December 2021: 12.17%
(31 December 2020: 1.71%) (31 December 2020: 2.80%)
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Dividend Yield(2) Dividend Yield(2)
31 December 2021: 5.00% 31 December 2021: 4.57%
(31 December 2020: 5.42%) (31 December 2020: 5.16%)
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Discount(3) Discount(3)
31 December 2021: 7.46% 31 December 2021: 5.95%
(31 December 2020: 6.80%) (31 December 2020: 8.34%)
-------------------------------
Share price(4,5) Share price(4,5)
31 December 2021: EUR0.9500 31 December 2021: GBP1.0400
(31 December 2020: EUR0.9000) (31 December 2020: GBP0.9440)
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NAV per Share NAV per Share
31 December 2021: EUR1.0266 31 December 2021: GBP1.1058
(31 December 2020: EUR0.9657) (31 December 2020: GBP1.0299)
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For further information on the Company's dividend history and
total return metrics, please refer to the supplementary financial
information section below.
(1) " NAV total return" measures how the NAV per Euro Share and
Sterling Share has performed over a period of time, taking into
account both capital returns and dividends paid to shareholders.
Refer below for further details on how NAV total return is
calculated.
(2) Dividend yield expresses the return that dividends represent
as a percentage of the Company's share price. Refer below for
further details on dividend yield is calculated.
(3) The Company's discount or premium is calculated by
expressing the difference between the share price (bid price) and
its NAV per share as a percentage of its NAV per share.
(4) Bid price
(5) Source: Bloomberg.
strategic report
chairman's statement
Introduction
I am pleased to have the opportunity to report to you on the
Company's performance in respect of the year ended 31 December
2021.
NAV total returns for the Sterling and Euro share classes issued
by the Company for the year ended 31 December 2021 were 12.17% and
11.41% respectively. Your Board is very pleased with this outcome,
which comfortably exceeds the Company's total return target.
Allocations to the Company's two sub-strategies, being performing
credit and credit opportunities, ended the period at 50.8% (42.1%
at 31 December 2020) and 49.2% (57.9% at 31 December 2020). The
Investment Vehicle Manager's report, with which the Board agrees,
appears below and provides a detailed analysis of the performance
of the Company during 2021, alongside its views on the market
outlook, although any conclusions must be tempered by the, at this
stage, unquantifiable impact of the recent Russian invasion of
Ukraine alongside the significant market volatility that this
aggression has generated.
Performance in Context
Market conditions remained challenging for risk assets during
2021, with significant volatility arising from market perception of
Covid-19 pandemic impacts from time to time. This was tempered by a
realisation on the part of governments and central banks that the
significant accommodation provided during 2020 could likely be
materially reduced over time as pharmaceutical development
successes and widespread take-up of vaccination in developed
markets accelerated. New variants of Covid-19 became decreasingly
impactful on the population as a whole, notwithstanding the
continuing tragic loss of life that the pandemic continues to
engender. On balance, these features led to a positive market
backdrop for our chosen asset class during 2021.
As reported in this statement last year, the Investment Vehicle
portfolio was significantly repositioned during the mid-to-latter
part of 2020 to take advantage of the significant value
opportunities generated by the Covid-19 induced market selloff
earlier that year. The repositioning comprised both an increased
allocation to the credit opportunities portion of the portfolio as
well as a rotation of individual positions in recognition of
certain sectors and geographies that were anticipated to perform
either positively or negatively because of the market impacts
arising from the pandemic. As I have said previously, the credit
opportunities portion of the portfolio is generally comprised of
assets where value generation can take many months to play out
fully, and the performance from this portion of the portfolio in
2021 reflects much of the hard allocation work undertaken in 2020.
In addition, the modest allocation to structured finance, in the
form of CLO debt and equity, returned 24% during 2021, which is
indicative of the Investment Vehicle Manager's market leading
expertise in this area.
In my interim statement published in September last year, I
noted that our base case assumptions around risk free rate
expectations in our chosen markets was changing rapidly, as
inflation expectations seemed to increase month on month. We
continue to expect inflation trends to remain upward in the near to
medium term and note many commentators' views that central banks'
"wait and see" approach carries the risk of policy misstep and
potentially sharper adjustments to monetary policy to contain
inflation than might otherwise have been required. Time will tell
whether this problem will manifest itself. Notwithstanding that, a
rising risk-free rate environment, as is now anticipated by
markets, is largely positive for the Company and its future
performance given its predominantly floating rate exposure.
Current Market Conditions and Outlook
Had this statement been written a month previously, I suspect it
may have held a materially different emphasis. The shocking
invasion of Ukraine by Russia, and the daily images of death and
destruction, have horrified us all. The necessary imposition of
financial sanctions on Russia and many of its leaders and banks,
alongside the direct impacts of the conflict, have generated
unavoidable turmoil in commodity markets and have the potential to
see Russia itself and Russian corporate debt issuers default on
their international obligations. Many commercial sectors have also
been materially affected, such as oil and gas, food manufacturers,
aircraft leasing and commercial shipping. It is too early to tell
how these impacts will affect global markets in the medium term,
let alone the impact on securities markets, and much will depend on
whether there is a swift cessation to hostilities. To date,
leveraged loan markets have been particularly resilient to
drawdown, in contrast to equity markets which have experienced
volatility. One market feature that does seem clear already,
however, is that there will be a negative impact on global growth
expectations, which has the potential to feed through to a gentler
approach to interest rate rises. We, and the Investment Vehicle
Manager, will continue to update our views to investors as
conditions dictate.
Corporate Activities & Liquidity
There is nothing material to report currently in relation to
either issuance or the operation of the Company's tender
programme.
Distribution Policy
On 23 April 2021, the Board announced that it would be
increasing its annual dividend by 0.5 pence per Sterling Share /
0.5 cents per Euro Share to 5 pence per Sterling Share / 5 cents
per Euro Share, with effect from the dividend payments for quarter
ended 30 June 2021. This policy change represents the Board's
current position, and as noted at the time of the announcement,
this policy position was designed to last for a 12-month
period.
At the same time, the Board announced a reduction in the
Investment Vehicle Manager's management fee, which was reduced by
0.1% from 1% to 0.9% per annum of net asset value, effective 1 May
2021.
Corporate Governance and Social Responsibility
Considerations
Investors will have noted the appointment to the Board of
Vanessa Neill on 11 January 2022. I and my colleagues are delighted
to welcome her.
ESG
The Board recognises the importance of incorporating ESG factors
into the investment decision-making process and through active
ownership.
Investors will appreciate that, unlike equity investors, which
can be much more active owners through continuous engagement with
their investee companies and voting, it is much harder for a
Company, which holds non-voting debt positions in private, albeit
economically substantial issuers. The greatest opportunity for debt
investors to push for conditions and disclosures around ESG factors
is likely to be pre-issuance.
Whilst there are greater challenges with consistent ESG
disclosure on privately owned companies, the Board's objective is
to ensure that the Company aims for best-in class ESG policies and
processes. Following the appointment of Ms Neill to the Board on
11th January 2022, the Board established an ESG Committee. The
purpose of the ESG Committee is to assist the Board in developing
and reviewing strategies, policies and performance of the Company
in relation to ESG matters generally, identifying ways to drive
improvement in these areas, and to provide meaningful reporting to
investors.
I look forward to updating you in the Interim Report on some ESG
initiatives currently underway including a proprietary CVC Credit
Partners ESG Score Card and improved data collection from issuers
through external providers including the European Leveraged Finance
Association (ELFA) ESG issuer questionnaire. The Company also
continues to support the Jersey National Park, details of which can
be found below and continues to support diversity, including gender
diversity.
At the time of writing, female representation on the Board is
50%, with the Board consisting of two female Directors and two male
Directors.
Current Investor Consultation
On 9 March 2022, the Board announced that it "is considering
amending the Company's investment policy to provide more
flexibility to the Investment Vehicle and CVC Credit Partners to
allow them to capitalise further on their core strengths. In
conjunction with, and because of, the potential changes to the
Company's (and the Investment Vehicle's) investment policy, the
Board is also considering increasing the target dividend, amending
the target total return, and is reviewing the parameters of the
Company's contractual quarterly tender mechanism."
The Board is currently taking soundings from certain larger
shareholders in relation to the above, and such soundings remain
incomplete. Once the soundings process is complete, a further
announcement may be made, which will likely accompany the Company's
annual general meeting circular, which is due to be published
towards the end of March 2022.
Conclusion
As always, I would like to express my sincere thanks to my Board
colleagues, our advisors, our service providers, and the entire
team at the Investment Vehicle Manager for the help, support, and
guidance that they have provided during 2021. Finally, I'd like to
thank all our shareholders for their continued loyal support of the
Company.
Richard Bol é at
Chairman
5 April 2022
INVESTMENT VEHICLE MANAGER'S REPORT
Summary
2021 was a very strong year for European leveraged loan markets,
despite some of the remaining Covid-19 overhang. The loan market
grew significantly in the year, driven by mergers and acquisitions
activity, refinancing, and some dividend recapitalisations for
companies that emerged strongly out of the Covid-19 period.
The portfolio was fully invested during the year with minimal
cash balances, in order to fully capture the opportunities
provided. At the start of the year the credit opportunities sleeve
comprised 58% of the portfolio and the Investment Vehicle Manager
gradually reduced this to just under 50% by the end of the year as
a result of natural repayment on some opportunities, whilst
actively taking profit on other opportunities.
Looking towards 2022, the Investment Vehicle Manager remains
constructive on the outlook for loans. With a combination of strong
anticipated GDP growth and high inflation, we anticipate various
central banks globally to start hiking rates. At the same time,
default rates are anticipated to remain below the long-term average
due to the strong real GDP growth forecasted by most economists.
However, at the time of writing, the conflict arising from the
Russian invasion of Ukraine has escalated materially. Not only is
this leading to a tragic loss of human lives, it will also have an
impact on economic conditions. A sharp rise in the price of oil and
natural gas, as well as some other commodities (including but not
limited to wheat, corn, fertiliser, palladium, or aluminium) will
have an impact on the global economy. The effects will be felt
through consumer confidence, further food price inflation, and
additional supply chain problems. It is too early to determine the
actual impact, as this will partially depend on the duration of the
confrontation and the measures taken by various governments. For
the avoidance of doubt, the Investment Vehicle portfolio has no
direct exposure to the Ukraine, Russia or Belarus.
Portfolio
As at 31 December 2021 the Investment Vehicle portfolio was
invested in-line with the investment policy, was diversified with
107 issuers (1) (31 December 2020: 106) across 29 (31 December
2020: 24) different industries and 17 (31 December 2020: 13)
different countries, and had exposure of no more than 5.3% (31
December 2020: 3.1%) to any single issuer.
Portfolio Statistics(2)
As at 31 December As at 31 December
2021 2020
Perce ntage of Po rtfo l io in
F l o ating Rate As se ts 78.1% 83.5%
----------------- -----------------
Perce ntage of Po rtfo l io in
Fi x ed Rate A ss ets 20.5% 14.7%
----------------- -----------------
Percentage of Portfolio in Other 1.4% 1.8%
----------------- -----------------
W ei g h ted Av era ge Pri ce(3) 96.5 93.6
----------------- -----------------
Y iel d to M aturity ("YTM") 8.3% 7.0%
----------------- -----------------
Current Y ield 7.9% 6.6%
----------------- -----------------
W ei g h ted Av era ge F i x
ed Rate Coupon 6.3% 7.5%
----------------- -----------------
W ei g h ted Av era ge F loa
t ing Rate p l us M argin 4.9% 5.2%
----------------- -----------------
5 Large st Is suers as at 31 December 2021
Issuer % of Gross Industry Country
A ssets
Doncasters 5.3 Diversified/Conglomerate UK
Manufacturing
------------- ------------------------- --------
Colouroz 3.7 Chemicals, Plastics and Germany
Rubber
------------- ------------------------- --------
Civica 3.4 Electronics UK
------------- ------------------------- --------
D&G 2.5 Financial Intermediaries UK
------------- ------------------------- --------
Douglas 2.4 Retail Germany
------------- ------------------------- --------
5 Large st Is suers as at 31 December 2020
Issuer % of Gross Industry Country
A ssets
Colouroz 3.1 Chemicals, Plastics and Germany
Rubber
Manufacturing
------------- ------------------------------- ------------
Civica 2.9 Electronics UK
------------- ------------------------------- ------------
Keter Group 2.9 Chemicals, Plastics and Netherlands
Rubber
------------- ------------------------------- ------------
Concordia 2.6 Healthcare and Pharmaceuticals UK
------------- ------------------------------- ------------
Doncasters 2.5 Diversified/Conglomerate UK
Manufacturing
------------- ------------------------------- ------------
5 Large st Ind u stry Position s as at
31 December 2021(1)
Healthcare & Pharmaceuticals 16.6%
------
Chemicals, Plastics and Rubber 9.7%
------
Hotels, Motels, Inns and Gaming 7.2%
------
Finance 5.7%
------
Diversified/Conglomerate Manufacturing 5.5%
------
5 Large st Ind u stry Position s as at
31 December 2020(1)
Healthcare and Pharmaceuticals 15.0%
------
Hotels, Motels, Inns and Gaming 10.7%
------
Chemicals, Plastics and Rubber 10.1%
------
Retail Store s 7.6%
------
Telecommunications 6.3%
------
G e ographi c al Br ea kdo wn As at 31 December As at 31 December
by issuer countr y(1) 2021 2020
UK 25.4% 27.2%
----------------- -----------------
U.S. 20.9% 12.5%
----------------- -----------------
Germany 13.5% 11.4%
----------------- -----------------
France 11.6% 11.3%
----------------- -----------------
Netherlands 11.0% 18.6%
----------------- -----------------
Luxembourg 3.3% 3.1%
----------------- -----------------
Spain 2.7% 5.2%
----------------- -----------------
Finland 2.3% 3.2%
----------------- -----------------
Sweden 0.7% 2.2%
----------------- -----------------
Other 8.6% 5.3%
----------------- -----------------
Curr ency Breakdo wn As at 31 December As at 31 December
2021 2020
EUR 60.3% 66.2%
----------------- -----------------
USD 23.5% 17.7%
----------------- -----------------
GBP 16.2% 16.1%
----------------- -----------------
A sse t Breakdo wn As at 31 December As at 31 December
2021 2020
Loans (1st Lien) 59.0% 68.5%
----------------- -----------------
Senior Secured Bonds 19.1% 15.3%
----------------- -----------------
Loans (2nd Lien) 7.7% 2.8%
----------------- -----------------
Structured 3.7% 4.7%
----------------- -----------------
Senior Unsecured Bonds 3.5% 2.6%
----------------- -----------------
Cash -0.3% 4.4%
----------------- -----------------
Other 7.3% 1.7%
----------------- -----------------
(1) E x cl u d es 18 (31 December 2020: 23) str uctu r ed fin an ce positi o ns.
(2) Not e: all m e t rics e xclu de ca sh u nless oth e r wise
st ate d.
(3) A ve r age m ar k et price of the p o rtfolio weig hted a g
ainst t he size of e a ch p ositio n.
Performance
The Euro Shares and Sterling Shares NAV total returns for 2021
were 11.41% (31 December 2020: 1.71%) and 12.17% (31 December 2020:
2.80%) respectively.
The performing credit segment of the portfolio returned 6.2%
gross (4) during 2021 (31 December 2020: 6.0%), while the credit
opportunities segment returned 22.2% gross during 2021 (31 December
2020: 2.8%). Based on an average allocation of 47% (31 December
2020: 41%) to performing credit and 53% (31 December 2020: 59%) to
credit opportunities, this resulted in a gross contribution of 2.8%
(31 Dec 2020: 2.0%) from the performing credit segment and 11.8%
(31 Dec 2020: 1.6%) from the credit opportunities segment.
The Credit Suisse Western European Leveraged Loan Index ("CS
WELLI"), hedged to EUR, was up 4.63% in 2021, as compared to being
up 2.38% for the year ended 31 December 2020. The Credit Suisse
Western European High Yield Index ("CS WEHYI"), hedged to EUR, was
up 4.04% in 2021, as compared to being up 1.95% for the year ended
31 December 2020.
(4) Excluding management and performance fees.
Market Review
In 2021, the European sub investment grade markets continued the
rebound that started in April 2020. Macroeconomic conditions were
favourable, boosted by a successful roll-out of vaccination
programs and supported by both fiscal and monetary policies. This
resulted in real GDP growth for the Eurozone being in the region of
5% (5) , despite several Covid-related restrictions remaining in
place at various times throughout the year. As a result of the
strong economic growth, we saw inflation pick up materially
throughout the year. Initially this was mainly a result of supply
chain issues as different countries came out of lockdown at a
different pace. Central banks brushed this inflation off as
transitory and did not really react. However, as the year
progressed, it became clear that inflation was more than transitory
and central banks across the world started changing their tone in
the second half of the year.
Default rates in Europe (based on principal amount) remained
very low throughout the year and ended at 0.62%, with only three
defaults during the year. This compares to a peak default rate of
2.61% in October 2020 as a result of Covid-19. The average default
rate in the S&P European Leveraged Loan Index is now 1.12% over
the last five years. (6)
The CS WELLI, hedged to EUR, returned 4.63% for the year.
However, digging slightly deeper into where the returns came from,
we note that double BBs returned 2.42%, single Bs returned 4.30%
while CCCs returned 10.82% (7) . This outperformance by CCC rated
assets was a result of the low default rates, driven by a strong
economic recovery. In particular, a large number of the travel and
leisure names that underperformed in 2020 had a very strong 2021 as
economies gradually re-opened. Even the new Omicron variant
detected towards the end of 2021 did not really impact returns for
this sub-segment of the market materially.
One of the main themes in 2021 was the growth we saw in the
European leveraged loan market. The size of this market, as
measured by the CS WELLI, grew from EUR321bn at the end of 2020 to
EUR387bn at the end of 2021, a circa 20% growth7. This was driven
by the high mergers and acquisitions and leveraged buyout volumes
we saw during the year. 2021 was a record year for mergers and
acquisitions activity in general, and private equity activity in
particular. (8)
Another theme that the Investment Vehicle Manager observed in
2021 was the increased focus on environmental, social and
governance ("ESG") in the European loan market. We noted an
increasing number of companies issuing loans with an ESG margin
ratchet. This means that the coupon effectively steps up or down,
depending on how a company performs against certain pre-defined ESG
key performance indicators. We also noticed an increasing number of
borrowers publish an ESG report, or pro-actively look for an
external ESG rating.
(5) Bloomberg
(6) S&P European Leveraged Loan Index
(7) Credit Suisse Western European Leveraged Loan Index
(8) Reuters - 31 December 2021
Portfolio Overview
As the global post Covid-19 recovery gathered pace, the
Investment Vehicle Manager proactively remained overweight in the
credit opportunities basket. As the year progressed and the
recovery in the travel and leisure sector continued, the Investment
Vehicle Manager gradually took profit on some of the investments in
this sector, through a combination of selling loans or bonds in the
secondary market, and repayments. The Investment Vehicle Manager
recycled this capital into new opportunities in other sectors.
As of December 2021 close, performing credit (including cash)
was at 50.8% of the portfolio with a weighted average price of
99.6, trading at a YTM of 4.5%, delivering 4.5% cash yield to the
portfolio.
Credit opportunities was at 49.2% of the portfolio, trading at a
weighted average price of 93.3 and a YTM of 9.0%, whilst delivering
a 7.8% cash yield to the portfolio.
Across the entire portfolio, as of December 2021 month end, the
weighted average market price was 96.5, trading at a YTM of 8.3%,
and delivering 7.9% cash yield (on a levered basis) versus a
weighted average price of 93.6, YTM of 7.0% and cash yield of 6.6%
as of December 2020. Floating rate instruments comprised 78.1% of
the portfolio. Senior Secured 78.1%. The portfolio had a cash
position of -0.3% (including leverage) with leverage at 1.3x
assets. The percentage of floating rate assets in the portfolio has
come down, partially as a result of some new fixed rate, low cash
price, investments in the credit opportunities sleeve, and
partially because of an increase in the market value of some of the
fixed rate instruments in 2021.
The portfolio managed to outperform both the CS WELLI (hedged to
EUR) and the CS WEHYI (hedged to EUR) considerably during the year
through a combination of active portfolio management, strong
performance from the credit opportunities sleeve, and high income
generation from the performing credit sleeve with minimal credit
losses.
Conclusion and Outlook
2021 was a strong year for sub investment grade credit after a
volatile 2020. In the early stages of 2022, the outlook for growth
looked strong and inflation remained high. The high levels of
inflation are anticipated to put pressure on central banks to hike
interest rates, which should benefit floating rate credit as an
asset class. The Investment Vehicle Manager believes that it is
well positioned with 78.1% of the portfolio invested in floating
rate assets at the start of 2022. However, at the time of writing,
global growth is being revised downwards as a result of the Russian
invasion of Ukraine, and commodity prices are experiencing wild
price swings. It is too early to ascertain the exact impact on
default rates in the European sub investment grade market,
resulting in a volatile price environment. This allows the
Investment Vehicle Manager to actively identify opportunistic
investments that can create both income and capital upside. At the
same time, pricing on new issues will have to reflect the
additional uncertainty and will lead to higher new issue spreads,
which will benefit the performing credit portfolio.
CVC Credit Partners Investment Management Limited
Investment Vehicle Manager
Pieter Staelens
Managing Director, Portfolio Manager
5 April 2022
Pieter Staelens joined CVC in 2018. He is a member of the
Performing Credit team and based in London. Prior to joining CVC,
he worked at Janus Henderson Investors in London where he was
involved in various high yield strategies and a credit long/short
strategy.
Pieter is a graduate of the Université Catholique de Louvain in
Belgium. He also holds an MSc in Finance, Economics and
Econometrics from the Cass Business School and an MBA from the
University of Pennsylvania.
Past performance is not indicative of future results. There can
be no assurance that the Investment Vehicle will be able to
implement its investment strategy, achieve its investment objective
or avoid substantial losses.
The indices referred to herein (including the Credit Suisse
Western European HY Index hedged to Euro and the Credit Suisse
Western ELLI hedged to Euro) are widely recognised, unmanaged
indices of market activity and have been included as general
indicators of market performance. The Credit Suisse Western
European HY Index is a market cap weighted benchmark index designed
as an objective proxy for the investable universe of the Western
European high yield debt market. The Credit Suisse Western European
Leveraged Loan indices are designed to mirror the investable
universe of the Western European leveraged loan market. There are
significant differences between the types of investments made or
expected to be made by the Investment Vehicle and the investments
covered by the indices, and the methodology for calculating
returns. For example, the Credit Suisse Western European HY Index
does not take transaction costs (bid-offer spreads) into account
and for the month during which a coupon is paid, the cash flow is
reinvested at a fixed money-market rate until the end of the month.
Additionally, the Credit Suisse Western ELLI assumes that coupon
payments are reinvested into an index at the beginning of each
period. In contrast, the Investment Vehicle Manager may have
discretion whether to reinvest such payments during any relevant
investment period. It should not be assumed that the Investment
Vehicle will invest in any specific equity or debt investments,
such as those that comprise the indices, nor should it be
understood that there will be a correlation between the Investment
Vehicle's returns and those of the indices. It should not be
assumed that correlations to the indices based on historical
returns will persist in the future. No representation is made that
the Investment Vehicle will replicate the performance of any of the
indices. The indices are included for general, background
informational purposes only and recipients should use their own
judgment to appropriately weight or discount their relevance to the
Investment Vehicle.
Executive REPORT
This Executive Report is designed to provide information about
the Company's business and results for the year ended 31 December
2021. It should be read in conjunction with the Chairman's
Statement and the Investment Vehicle Manager's report which gives a
detailed review of investment activities for the year and an
outlook for the future.
Corporate summary
The Company is a closed-ended investment company limited by
shares, registered and incorporated in Jersey under the Companies
(Jersey) Law 1991 on 20 March 2013, with registration number
112635. The Company's Share capital consists of Euro Shares and
Sterling Shares which are denominated in Euro and Sterling
respectively. The Company's Euro Shares and Sterling Shares are
listed on the Official List of the UK Listing Authority and
admitted to trading on the Main Market of the London Stock
Exchange. The Company also has two Management Shares in issue,
which are unlisted. Details of the shares in issue are detailed
below.
The Company is self-managed and the Directors have invested the
net proceeds from share issues into Compartment A of an existing
European credit opportunities investment vehicle, the Investment
Vehicle, managed by the Investment Vehicle Manager.
The Company is a member of the AIC and is regulated by the
Jersey Financial Services Commission.
Significant events during the year ended 31 December 2021
Contractual quarterly tenders
The Company completed the following tenders under its
Contractual Quarterly Tender mechanism during the period. All of
the shares tendered were transferred into the Company's name and
held in treasury.
Quarterly Settlement Euro Shares Euro Share Sterling Sterling
tender date tendered tender price Shares Share
tendered tender price
December
2020 18/02/2021 4,804,474 EUR0.9557 23,256,443 GBP1.0199
March 2021 17/05/2021 5,926,910 EUR0.9832 8,710,330 GBP1.0521
June 2021 16/08/2021 3,468,577 EUR1.0125 1,732,113 GBP1.0861
September
2021 20/12/2021 290,323 EUR1.0261 9,402,308 GBP1.1026
On 10 November 2021, the Company announced that it had received
tender applications in respect of the December 2021 tender for
6,167,976 Euro Shares and 10,918,578 Sterling Shares. Refer to note
16 for details regarding the settlement of the December 2021
tender.
A description of the current quarterly tender mechanism can be
found below.
On 6 December 2021 the Company held an EGM at which a Resolution
was proposed and approved to amend the terms of the Contractual
Quarterly Tender facility. The changes to the Contractual Quarterly
Tender facility implemented a maximum limit (subject only to Pro
Rata Scaling Back) in respect of the number of Shares a Shareholder
is permitted to tender, and requires Shareholders to provide a
representation and warranty to the Company that they have held the
Shares tendered continuously between the relevant Tender Record
Date and the date and time of receipt by the Company of their
Tender Request and that none of the Shares tendered were acquired
by such Shareholder after the relevant Tender Record Date.
Voluntary conversions
Following requests made by shareholders, the Company converted a
total of 2,625,562 Euro Shares into 2,091,786 Sterling Shares and
9,945,620 Sterling Shares into 12,363,657 Euro Shares under the
monthly conversion facility during the year ended 31 December
2021.
Dividend target
On 23 April 2021 the Board announced that the Company had
increased its annual dividend by 0.5 pence per Sterling Share / 0.5
cents per Euro Share to 5 pence per Sterling Share / 5 cents per
Euro Share, with effect from the dividend payments for quarter
ended 30 June 2021. This increase followed a review of the
Company's distribution policy with the Investment Vehicle Manager
as detailed in the Company's annual financial report for the year
ended 31 December 2020, with a key focus being the determination of
a stable level of dividends that, based on current market
conditions and expected cash yield, could reasonably be declared
without recourse to capital for a forward looking period of 12
months. The Company's distribution policy is reviewed on an ongoing
basis.
Purpose
The Company is an investment company, and its scope is
restricted to that activity. In that context, the Company's purpose
is to provide investors with sustainable long-term returns by
investing in a diversified portfolio of principally European
corporate debt. In fulfilling the Company's purpose, the Board
seeks to consider the views of all stakeholders and is mindful of
the impact that the Company has on wider society.
Investment Objective
The Company's investment objective is to provide shareholders
with regular income returns and capital appreciation from a
diversified portfolio of predominantly sub-investment grade
European corporate debt instruments.
Investment Policy
The Company's investment policy is to invest predominantly in
debt instruments issued by companies domiciled, or with material
operations, in Western Europe across various industries.
The Company's investments are focused on the senior secured
obligations of such companies, but investments are also made across
the capital structure of such borrowers.
The investment policy of the Investment Vehicle is subject to
the following Investment Limits:
-- A minimum of 50% of the Investment Vehicle's gross assets
will be invested in senior secured obligations (which, for the
purposes of this investment limit will include cash and cash
equivalents).
-- A minimum of 60% of the Investment Vehicle's gross assets
will be invested in obligations of companies/borrowers domiciled,
or with material operations, in Western Europe.
-- A maximum of 7.5% of the Investment Vehicle's gross assets
will be invested at any given time in obligations of a single
borrower subject to a single exception at any one time permitting
investment of up to 15% in order to participate in a loan to a
single borrower, provided the exposure is sold down to a maximum of
7.5% within 12 months of acquisition.
-- A maximum of 7.5% of the Investment Vehicle's gross assets
will be invested in credit loan obligation securities.
-- A maximum of 25% of the Investment Vehicle's gross assets
will be invested in CVC Capital Portfolio Company debt obligations
calculated as invested cost as a percentage of the Investment
Vehicle's gross assets.
The Investment Vehicle is permitted to borrow up to an amount
equal to 100% of the NAV of the Investment Vehicle at the time of
borrowing. The Investment Vehicle's borrowings as a percentage of
the Investment Vehicle's NAV as at 31 December 2021 stood at 30.29%
(31 December 2020: 27.67%).
General
The investment objective and investment policy of the Investment
Vehicle are consistent with the investment objective and investment
policy of the Company. In the event that changes are made to the
investment objective or investment policy of the Company or of the
Investment Vehicle (including the investment limits and/or the
borrowing limit), the Directors will seek Shareholder approval for
changes which are either (a) material in their own right or, (b)
when viewed as a whole, together with previous non-material
changes, constitute a material change from the published investment
objective or policy of the Company.
Company borrowing limit
The Company may borrow up to 15% of the NAV of the Company for
the sole purpose of purchasing or redeeming its own shares
otherwise than pursuant to Contractual Quarterly Tenders. As at 31
December 2021, the Company did not have any borrowings (31 December
2020: no borrowings).
Investment strategy and approach
The Company has given effect to its investment policy by
subscribing for Preferred Equity Certificates, (the "PECs"), Series
4 and 5, issued by the Investment Vehicle. Series 4 and 5 PECs are
denominated in Euro and Sterling respectively and are income
distributing.
The Investment Vehicle Manager's investment strategy for the
Investment Vehicle is to make investments across approximately 100
companies based on detailed fundamental analysis of the operations
and market position of each company and its capital structure.
The Investment Vehicle Manager invests in the debt of larger
companies and invests in companies with a minimum EBITDA of EUR50
million or currency equivalent at the time of investment. The
Investment Vehicle Manager believes that the debt of larger
companies offers a number of differentiating characteristics
relative to the broader market:
(i) larger, more defensive market positions;
(ii) access to broader management talent;
(iii) multinational operations which may reduce individual
customer, sector or geographic risk and provide diverse
cashflow;
(iv) levers such as working capital and capital expenditure
which can be managed in the event of a slowdown in economic growth;
and
(v) wider access to both debt and equity capital markets.
Based on the market opportunity, the Investment Vehicle Manager
invests in a range of different credit instruments across the
capital structure of target companies (including, but not limited
to: senior secured, second lien and mezzanine loans and senior
secured, unsecured and subordinated bonds). Assets are sourced in
both the new issue and secondary markets, using the sourcing
networks of the Investment Vehicle Manager and in certain
circumstances the CVC Group more broadly. The Investment Vehicle
Manager's access to deals is supported by the network of contacts
and relationships of its leadership team and investment
professionals, as well as the strong positioning of the CVC Group
in the European leveraged finance markets. CVC Capital Portfolio
Companies are one of the largest sponsor-led issuers of leveraged
loan deals in Europe(1) .
Each investment considered by the Investment Vehicle Manager is
built around an investment thesis and generally falls into one of
two categories:
1. Performing Credit; and
2. Credit Opportunities.
The Investment Vehicle Manager analyses the risk of credit loss
for each investment on the basis it will be held to maturity but
takes an active approach to the sale of investments once the
investment thesis has been realised.
Further information in respect of the Investment Vehicle
portfolio and performance as at 31 December 2021 can be found in
the Investment Vehicle Manager's report.
KPIs
The Board meets regularly to review performance and risk against
a number of key measures. With the exception of dividends, the
Company considers the below KPIs to be Alternative Performance
Measures. Further details of these can be found below.
NAV total return
The Board regularly reviews and compares the NAV and share price
of the Company. The Directors regard the Company's NAV total return
as being the overall measure of value delivered to shareholders
over the long-term.
Total return reflects both NAV growth of the Company and also
dividends paid to shareholders.
The NAV total return for Euro Shares and Sterling Shares has
increased by 52.97 % and 62.87 % respectively from IPO. The Euro
Shares and Sterling Shares NAV total return for the year ended 31
December 2021 was 11.41% (2020: 1.71%) and 12.17% (2020: 2.80%)
respectively. Please refer to the Financial Highlights and
Performance Summary in the Annual Financial Report for the Euro
Shares and Sterling Shares NAV total return analysis. The
divergence in NAV per share performance between share classes
principally derives from the risk-free rate differential between
Euro and Sterling.
Dividend
The Company's present annual dividend level is EUR0.05000 and
GBP0.05000 per Euro Share and Sterling Share respectively. During
2021, S hareholders received total dividends of EUR0.04750 and GBP
0.04750 (2020: EUR 0.04875 and GBP 0.04875 ) per Euro Share and
Sterling Share respectively . Please refer below for the Company's
dividend history from inception.
Ongoing charges
The Board reviews and compares the Company's operating expenses
against budget on a monthly basis and performs an analysis of
deviations.
The Company's ongoing charges for the year ended 31 December
2021 were 1.61% (ongoing charges 31 December 2020: 1.54% (2) ). The
above ongoing charges figure includes the Company's pro-rata share
of the Investment Vehicle management fee, custodian and
administration expenses and other general expenses but excludes
interest costs and performance fees. The ongoing charges for the
Company's Euro and Sterling share classes individually are
approximate to each other and therefore, the Company has chosen to
disclose one ongoing charges figure.
In line with the recommended methodology for the calculation of
an Ongoing Charge figure published by the AIC (and most recently
updated in October 2020), the Board has also chosen to disclose an
ongoing charges figure inclusive of the Investment Vehicle's
performance fee. For the year ended 31 December 2021, the ongoing
charges plus Investment Vehicle's performance fee ratio was 2.86%
for the Company's Euro Shares (31 December 2020: 1.61%) and 2.72%
for the Company's Sterling Shares (31 December 2020: 1.55%).
Premium/discount
The Directors review the trading prices of the Company's Euro
Shares and Sterling Shares and compare them against their
respective NAVs to assess volatility in the discount or premium of
the share prices to their NAVs. As at 31 December 2021, the
Company's discount to NAV per Euro Share was 7.46% (2020: 6.80%
discount) and discount to NAV per Sterling Share was 5.95% (2020:
8.34% discount) respectively. Please refer to the Financial
Highlights and Performance Summary in the Annual Financial Report
for NAV and share price analysis.
Please refer below for further information on the calculation
methodology applied to these KPIs.
Other measures
In addition to the above KPIs, the Board meets regularly to
review the performance and risk against the below other
measures:
Diversification
The Directors review the geographical, industry, asset and
currency diversification of the underlying Investment Vehicle to
ensure that holdings are in line with the prospectus and also to
monitor the diversification risk of the underlying portfolio.
Please refer to the Investment Vehicle Manager's Report for
analysis of the Investment Vehicle portfolio and note 8 for further
details regarding the Investment Vehicle's risk diversification
policies.
Default rates in Europe and US
The Directors regularly discuss historic and emerging default
risk in Europe and the US with the Investment Vehicle Manager to
help assess and understand the performance and prospective
performance of the Company. Performance of the Company may be
affected by the default or perceived credit impairment of
investments held by the Investment Vehicle. A withdrawal of
investment capital, an economic downturn and/or rising interest
rates could severely disrupt the European and US markets which
could impact the ability of issuers to repay principal and interest
and could adversely affect the value of the Company's investment in
the Investment Vehicle and by extension, the Company's NAV and/or
the market price of the Company's Shares. The Directors hold
monthly discussions with representatives of the Investment Vehicle
Manager to assist in monitoring the above indicator.
Life of the Company
The Company has an indefinite life. In accordance with the
Articles, the Directors are required to propose an Ordinary
Resolution that the Company continues its business as a
closed-ended investment company (the "Continuation Resolution") if
the following occur:
(i) the Company NAV falls below EUR75 million; or
(ii) the Directors are required to convene "class closure
meetings" for all classes of shares in issue. A class closure
meeting is required if a share class is delisted for any reason,
or, if in any rolling 12 month period, the average daily closing
market price (as derived from the market data published by
Bloomberg or any successor market data service thereto) of any
class of shares during such 12 month period is 10% or more below
the average NAV per share (calculated inclusive of current year
income).
If a Continuation Resolution is not passed, the Directors are
required to put forward proposals within six months for the
reconstruction or reorganisation of the Company to the shareholders
for their approval.
These proposals may or may not involve winding up the Company
and, accordingly, failure to pass the Continuation Resolution will
not necessarily result in the winding up of the Company. A failure
to pass a Continuation Resolution may result in the redemption by
the Company of its entire holding of PECs.
Going concern
Under the Listing Rules, the AIC Code and applicable
regulations, the Directors are required to satisfy themselves that
it is reasonable to assume that the Company is a going concern from
the date of approval of the financial statements.
In making this assessment, the Directors have reviewed the
Company's budget and cash flow forecast for the next 12 months from
the date of approval of the financial statements and also
considered information regarding climate-related matters in
conjunction with other uncertainties. On the basis of this review,
and after making due enquiries, the Directors have a reasonable
expectation that the Company has adequate resources to continue in
operational existence for at least 12 months to 28 March 2023,
being the period of assessment covered by the Directors. The
Directors are also satisfied that no material climate related
matters or uncertainties exist that cast significant doubt over the
Company's ability to continue as a going concern. In making this
assessment, the Board have considered the impact that COVID-19 may
have on the Company. Accordingly, they continue to adopt the going
concern basis in preparing the financial statements.
Viability Statement
Under the AIC Code, the Directors are required to make a
Viability Statement which explains how they have assessed the
prospects of the Company, over what period they have done so and
why they consider that period to be appropriate, taking into
account the Company's current financial position and principal
risks. The principal risks faced by the Company are described
below.
The prospects of the Company are driven by its investment
objectives, investment policy and investment strategy as summarised
below, and also by the conditions existing in the markets in which
the Company's ordinary shares trade and in which the Investment
Vehicle invests and financial markets generally.
In assessing the prospects of the Company, the Directors have,
in addition to taking into account the principal and emerging risks
facing the Company, taken into account the Company's current
financial position. Their assessment has included a robust process
encompassing an examination of the:
(i) the Investment Vehicle Manager's view of the investment
opportunity and the conditions existing in the markets in which the
Investment Vehicle is exposed and financial markets generally,
including scenario analysis, stress tests and volatility and return
comparisons;
(ii) liquidity and fundamental prospects of the underlying
positions of the Investment Vehicle;
(iii) extent to which the Company directly or indirectly uses gearing;
(iv) liquidity of the PECs in which the Company invests;
(v) impact on the Company's viability under scenarios stemming
from the application of the Contractual Quarterly Tender facility;
and
(vi) topics discussed in detail in the Company's recent strategy
day and to which the RNS announcement on 9 March 2022 refers.
Based on the results of their assessment of the above processes,
and in the absence of any unforeseen circumstances, the Directors
have concluded that a period of three years from the date of this
statement is an appropriate period over which to assess the
prospects of the Company as the principal risks, mitigating
controls and investment strategy and policy are not expected to
materially change over this period. This period reflects the effect
of significant redemption requests received from shareholders under
the Contractual Quarterly Tender mechanism, coupled with no further
issuances of ordinary shares by the Company, before a Continuation
Resolution would be proposed as a result of the NAV falling below
EUR75 million.
The Directors have a reasonable expectation that the Company
will be able to continue in operation and meet its liabilities as
they fall due within at least this period of assessment. The
Directors are also of the opinion that given the information
available to them at the date of these financial statements, the
Company will be able to continue to conduct its commercial
activities in a manner consistent with its investment objectives
for the foreseeable future.
Social and environmental responsibility
The Board acknowledges that the Company, in addition to
utilising financial capital, is also a user of social capital,
particularly in Jersey, the jurisdiction in which the Company
operates. The Board further acknowledges that the Company has an
environmental footprint that is in addition to and distinct from
that of the Investment Vehicle and its portfolio companies. The
Directors have considered the Company's use of social capital and
the environmental impact of the operation of the Company upon wider
society and in response has commenced a programme of support in
favour of the Jersey National Park as further described below. The
Board has also established an ESG Committee chaired by Vanessa
Neill, as referred to in the Chairman's Statement.
Modern slavery
The Company would not fall into the scope of the UK Modern
Slavery Act 2015 (as the Company does not have any turnover derived
from goods and services) if it was incorporated in the UK.
Furthermore, as a closed-ended investment company, the Company has
a non-complex structure, no employees and its supply chain is
considered to be low risk given that suppliers are typically
professional advisers based in either the Channel Islands or the
UK. Based on these factors, the Board have considered that it is
not necessary for the Company to make a slavery and human
trafficking statement.
Investment Vehicle Manager's stewardship
Whilst the Investment Vehicle Manager does not formally commit
to all 12 Principles of the FRC's Stewardship Code, certain aspects
of the Code are crucial to its business activity. The group's
investment policy is based on a disciplined and robust investment
process, supported by strong relationships with associated parties,
the team's knowledge and experience, and extensive monitoring of
the investments.
Climate-related financial disclosures
The Board believes that climate change will have material
impacts on the financial performance of companies in which the
Investment Vehicle Manager invests and on the universe of companies
in which the Investment Vehicle Manager may invest. The Company has
been a formal supporter of the Task Force for Climate Related
Financial Disclosures ("TCFD") recommendations since 2018 and
expects the companies in which the Investment Vehicle Manager
invests to make TCFD disclosures, if appropriate.
With effect from 24 January 2022 the Company has established an
ESG Committee, chaired by Ms Neill who joined the Board with effect
from 11 January 2022. As detailed in Ms Neill's biography below, Ms
Neill is also a consultant specialising in sustainability and
advising global public and private companies on the integration of
ESG factors into their core business strategy, with particular
expertise in asset management and private equity.
The ESG Committee will have responsibility for the Company's
climate-related financial disclosure implementation journey and it
expects full implementation to be achieved through a multi-year
process of collaboration with the Investment Vehicle Manager.
The Company plans to report on progress in this regard twice a
year - through its Half Year and Annual Financial Reports.
Governance
The Company has integrated climate-related risks into its
governance structure and continues to:
-- promote climate change as an item for Directors' continued
professional development in-line with the Board's belief that
climate-related risks and opportunities are key developments in the
credit industry that the Directors should keep up-to-date with;
-- include climate as a priority agenda topic in regular
discussions with the Investment Vehicle Manager at each quarterly
board meeting with a view to exchanging climate-related views and
increasing mutual awareness of climate-related issues. It is
intended that this dialogue and any work streams that it generates
will facilitate continual enhancement, year-on-year, of the
Company's climate-related disclosures;
-- receive climate-related policy and regulation updates from
its legal advisors with a view to continually ensuring best
practice.
Strategy
The Company continues to engage with the Investment Vehicle
Manager in order to better understand and monitor climate-related
risks and opportunities and to keep under review the Investment
Vehicle Manager's ESG policies and practices.
The Investment Vehicle Manager's ESG and investment policies
mandate that the investment management team includes ESG
considerations in the investment process, where possible, before
making an investment. ESG and responsible investing factors are
considered at the following stages:
-- Investment selection - Consider high level and material ESG
and responsible investing issues as part of the overall due
diligence process.
-- Investment paper - Seek to include analysis on material ESG
and responsible investing considerations, if applicable and
relevant, based on the due diligence around those issues. Such due
diligence may include a review of environmental and social reports,
site visits, management interviews, and discussions with key
stakeholders.
Following an investment, the investment team will seek to
monitor ESG and responsible investing considerations on an ongoing
basis.
-- Portfolio review - Investment analysts seek to include
commentary on material ESG and responsible investing risks as part
of their regular portfolio monitoring reporting to the investment
committee of the Investment Vehicle Manager . The compliance team
assists by providing an overview of potentially adverse ESG-related
news for individual issuers. Where relevant, such reports aim to
focus on whether any of the ESG and/or responsible investing risks
identified are likely to have a material adverse effect on the
value of the investment.
The Company plans to continue its collaboration with the
Investment Vehicle Manager and to encourage the Investment Vehicle
Manager to collaborate with sponsors with a view to facilitating
continual improvement in the quantity and quality of the ESG data
gathered by the Investment Vehicle Manager and the Company's
climate-related disclosures.
Risk Management
The Investment Vehicle Manager utilises its proprietary ESG tool
and RepRisk, an ESG reporting service provider, to provide insight
on the key ESG risks by sector and help assess the ESG related
risks of the issuers in which it invests.
Metrics & Targets
The Company continues to work toward reporting and disclosing
the proportional operational (Scope 1 and 2) greenhouse gas
emissions of the investee companies that comprise the Investment
Vehicle investment portfolio along with metrics that evidence an
intention to reduce these emissions. The Company recognizes the
importance of value chain (Scope 3) emissions; however due to the
higher complexity of quantifying Scope 3, the Company will
initially prioritise Scope 1 and 2.
Given the type and structure of the Company, the Company's own
impact is minimal. However, the ESG Committee will be reviewing the
Company's carbon footprint, including travel.
Looking forward
The approach described covers the assets of the Investment
Vehicle. The Company recognises that enhancements to this approach
will be needed in areas where the data to conduct the necessary
analysis is currently limited, or where the tools available remain
in a nascent stage of development. These are challenges that the
Company is working to resolve and progress over time and the Board
will look to provide updates in the Company's Annual and Half Year
Financial Reports. In response to these challenges, the Company has
laid out the following steps to take its commitment further:
-- The Company has identified investors' initiatives, such as
the PRI's Transition Pathway Initiative and ELFA's Industry ESG
initiatives, to be important avenues to increase its understanding
and deepen its risk mitigation strategy.
-- The Company will continue to work with the Investment Vehicle
Manager and external advisors as needed to establish metrics to
measure the climate-related risks and opportunities in the
portfolio (e.g., initially Scope 1 and 2 greenhouse gas emissions
data of portfolio companies) with the objective of future semi and
annual reporting on these metrics in the Investment Vehicle Manager
Report contained in the Company's Half Year and Annual Financial
Report.
Future strategy
On 9 March 2022, the Company announced that the Board was
considering making certain changes pursuant to its ongoing
strategic monitoring activities. It was noted that, in particular,
the Board was considering amending the Company's investment policy,
increasing the Company's target dividend, amending its target total
return and reviewing the parameters of the Company's contractual
quarterly tender mechanism. Any proposed changes to the Company's
investment policy will be subject to shareholder approval.
At present, the overall strategy remains unchanged and it is the
Board's assessment that the Investment Vehicle Manager's resources
are appropriate to properly manage the Investment Vehicle's
portfolio in the current and anticipated investment environment.
The Board continues to believe that the investment strategy and
policy adopted by the Investment Vehicle is appropriate for and is
capable of meeting the Company's current objectives.
Please refer to the Investment Vehicle Manager's report for
detail regarding performance of the Investment Vehicle's
investments and the main trends and factors likely to affect the
future development, performance and position of those
investments.
This Strategic Report was approved by the Board of Directors on
5 April 2022 and signed on its behalf by:
Richard Bol é at
Mark Tucker
Chairman
Audit Committee Chairman
(1) - Source: S&P LCD, for the period between January 2017
and December 2021.
(2) - The Company's ongoing charges are considered to be APMs
which are calculated according to the methodology outlined below
and differ to the ongoing costs disclosed within the Company's KIDs
which follows the methodology prescribed by EU rules. For example,
the ongoing costs disclosed in the Company's KIDs include interest
expense and are based on average ongoing charges over the past
three years whereas the ongoing charges ratio disclosed in this
report do not include interest expense and are based on ongoing
charges incurred during the year ended 2021 only. The Company's
most current KIDs and an accompanying explanatory note reconciling
the two different ratios are available on the Company's website (
www.ccpeol.com/news-documents ).
Principal risks and uncertainties
When considering the total return of the Company, the Directors
take account of the risks which has been taken in order to achieve
that return. The Directors have carried out a robust assessment of
the principal and emerging risks facing the Company including those
which would threaten its business model, future performance,
solvency or liquidity. An overview of the principal and emerging
risks and uncertainties is set out below:
Principal Risks Mitigating Factors
COVID-19 The long-term impact of COVID
The Company is exposed to financial on the portfolio has, to-date,
losses stemming from the impact been minimal, although this
on the Investment Vehicle's was initially perceived to be
Portfolio and on markets generally, potentially considerable at
arising from the spread of the the onset of COVID-19. Government
COVID-19 disease or other global policies have arguably been
pandemics and their impact on largely successful in limiting
global economic activity, supply long-term economic damage, notwithstanding
chains, human freedom of movement the tragic human cost of the
and consequential constraints pandemic globally. The Board
on issuer liquidity and the is still of the view that COVID-19
availability of market financing. and its impacts should be regarded
as presenting a Principal Risk,
due to the potential for ongoing
emergence of new virus strains
from time to time.
Supply and demand
The value of the investments The Company has no control over
in which the Company indirectly the supply and demand characteristics
invests are affected by the of the leveraged finance markets.
supply of primary issuance and However, the Directors are in
secondary paper on the one hand regular communication with the
and the continued demand for Investment Vehicle Manager and
such instruments from buy side receive monthly performance
market participants on the other. reports and independent data
A change in the supply of, or to assist in monitoring the
demand for, underlying investments performance of the Investment
may materially affect the performance Vehicle and the supply and demand
of the Company. characteristics of the asset
class. It is the Investment
Vehicle's performance which
is the main driver of the Company's
performance.
Credit risk
The Investment Vehicle invests The Company and the Investment
predominantly in sub-investment Vehicle have Investment Limits
grade European corporate issuers and risk diversification policies
and therefore credit risk is in place to mitigate individual
greater than would be the case issuer credit risk. Please refer
with investments in investment above for details of the Investment
grade issuers. Limits and the Investment Vehicle
Manager 's Report for analysis
of the Investment Vehicle portfolio
.
Liquidity
The Company relies on the periodic The Board holds periodic meetings
redemption mechanism offered at which extensive discussion
by the Investment Vehicle to of the Investment Vehicle's
realise its investment in PECs, portfolio takes place. This
and on that mechanism operating includes consideration of portfolio
in a timely and predictable liquidity. Please refer to note
manner. 8.2 for further details.
The Investment Vehicle's underlying
investments are not inherently
liquid. Investments are generally
bought and sold by market participants
on a bilateral basis and any
reduction in liquidity caused
by a reduction of demand or
market dislocation may have
a negative impact on the Company's
ability to effectively conduct
its periodic redemption activities.
Foreign exchange risk
Foreign exchange risk is the The effect of foreign exchange
risk that the values of the risk at the Investment Vehicle
Company's and the Investment level is actively managed by
Vehicle's assets and liabilities the board of the Investment
are adversely affected by changes Vehicle and its advisors through
in the values of foreign currencies hedging arrangements as detailed
by reference to the Company's in note 8.6. The Board monitors
base currency, the Euro. the NAV per share divergence
between the Euro and Sterling
share classes in order to identify
the impacts of flow through
foreign exchange risk and interest
rate differentials.
Macro-economic factors
Adverse macro-economic conditions The Board is reliant on the
may have a material adverse active portfolio management
effect on the performance of of the Investment Vehicle Manager
the Investment Vehicle's underlying which monitors and manages each
assets and liabilities and on investment on an ongoing basis.
the ability of underlying borrowers Part of this monitoring includes
to service their ongoing debt considering macro-economic,
obligations. credit specific, event-driven
and environmental and social
factors in respect of each investment.
This analysis helps inform the
Investment Vehicle Manager's
decision to buy, sell or hold
each investment. The Directors
are in regular communication
with the Investment Vehicle
Manager and receive monthly
performance reports to assist
in monitoring these factors.
Capital management risks
Shareholders may seek to redeem The Company has placed restrictions
their shareholdings in the Company within the tender facility arrangements
using the Company's periodic that limit the amount of shares
redemption arrangements, subject that Shareholders can redeem
to restrictions as detailed at each tender (refer to note
in note 12, which could result 12 for details of these restrictions).
in the NAV of the Company falling The Board performs an annual
below EUR75 million and as such, modelling exercise to determine
triggering the requirement for whether consecutive tender requests
the Directors to convene an would prompt a continuation
extraordinary general meeting resolution and actively monitors
to propose an ordinary resolution the level of tenders throughout
that the Company continues its the year. The Company engages
business as a closed-ended investment with tendering shareholders
company. There is a risk that to understand the rationale
a continuation resolution will behind significant tender requests.
not be passed which could result The Board and representatives
in the redemption by the Company of the Investment Vehicle Manager
of its entire holding in the proactively engage with current
Investment Vehicle. and prospective shareholders
and seek to understand their
views on the Company.
The engagement and monitoring
in place by the Board allows
the Company to be proactive
in identifying any common themes
driving significant tender requests.
Geopolitical factors
- Brexit The Company
The UK's post-Brexit trading Brexit has brought no change
arrangements with the EU may to the basic principle that
adversely impact the Company, a non-EU based company, such
the Investment Vehicle and/or as the Company has the ability
the Investment Vehicle Manager's to hold PECs issued by an EU
ability to manage the Investment issuer (the Investment Vehicle).
Vehicle. It is anticipated that the Company's
relationship with the Investment
Vehicle will be unaffected by
Brexit.
Brexit has had, and will likely
continue to have, a macroeconomic
impact within Europe which,
for example, includes potential
further disruption to the cross-border
flow of goods and services between
the UK and continental Europe.
This, in turn, has the ability
to have a microeconomic impact
on issuers operating within
Western Europe that the Investment
Vehicle may invest in. The Board
mitigates this ongoing risk,
to the extent possible, by adopting
the mitigating actions described
in the macro-economic factors
principal risk above.
The Investment Vehicle Manager
Before Brexit, the investment
vehicle management agreement
between the Investment Vehicle
and the Investment Vehicle Manager
described the services being
provided by one EU entity to
another whereby the Investment
Vehicle Manager was authorised
to provide its MiFID services
within the EU on a "passported"
basis. The post-Brexit transition
period ended on 31 December
2020, and since that time, the
Investment Vehicle Manager has
been a "third country entity"
providing its investment services
to the Investment Vehicle on
the basis that the Investment
Vehicle is a "per se professional
client" under the investment
management agreement between
them. The Board believes that
continued provision of the investment
services by the Investment Vehicle
Manager to the Investment Vehicle
should be exempt from registration
or authorisation in Luxembourg
- Russian Invasion of Ukraine The Company
The Russian invasion of Ukraine The Board is carefully monitoring
is a new feature which has the the effects of the Russian invasion
potential to destabilise global of Ukraine and any direct and
and regional geopolitics, the indirect impacts on the Company
effects of which cannot be ascertained and its future prospects, and
at this time. will report any material change
in its assessment as appropriate.
In addition, the approach by
the international community
towards the Russian state post
invasion has resulted in significant
volatility in a number of key
commodities, including petrochemicals
and basic foodstuffs. These
impacts have the potential to
sharply increase the rate of
wholesale price appreciation
in the Company's chosen markets,
which may have significant impacts
on the level of global interest
rates and economic activity.
These features have occurred
so recently that it is not possible
to form any meaningful view
about their impacts on the Company
at this time.
Emerging Risks Mitigating Factors
Interest rates The Investment Vehicle Manager
Global risk free rates are now The Investment Vehicle Manager
largely expected to increase, is fully aware of the potential
in some cases meaningfully, effects referred to. This is
over the short to medium term, reflected in dynamic asset selection
as central banks have recalibrated and positioning. Since the Investment
their inflation expectations. Vehicle's portfolio is largely
This represents a significant comprised of floating rate assets,
change from the very benign increases in risk free rates
risk-free rate environment which will be inherently accretive
has existed for more than 10 to net asset value in the absence
years. Increases in interest of any material increase in
rates have the potential to default rates impacting the
stress highly levered corporates portfolio.
which may, in the medium to
long term, lead to increases
in default rates and potential
negative impacts on the Company's
net asset value.
Environmental Social and Governance The Company
("ESG")
Reputational damage stemming The Company continues with its
from the Company's ESG-related program me to better understand
activities and disclosures failing the views and expectations of
to meet the standard expected stakeholders in regard to ESG-related
by shareholders. matters. This is aided by the
appointment of Vanessa Neill
to the Board. Ms Neill is a
consultant specialising in sustainability
and has been appointed as chair
of the Company's ESG Committee
Reputational damage stemming as referred to in the Chairman's
from the Company's Statement.
environmental footprint or from
the Company's deemed disregard The Company is a closed-ended
of its use of social capital. investment company which has
no employees and thus its own
greenhouse gas emissions and
environmental footprint are
minimal, as is its use of social
capital. During the year, to
offset its environmental and
social impact, the Company continued
with its support commitment
in favour of the Jersey National
Park.
Financial losses stemming from The consideration of such risks
climate-related factors adversely is embedded within the Investment
impacting the capital value Vehicle Manager's ESG policy.
of securities held within the
Investment Vehicle portfolio
and/or the ability of those
companies whose securities are
held to meet their financial
obligations thereunder. The Company has reviewed the
ESG policy of the Investment
Reputational damage stemming Vehicle Manager and engages
from the Company's association with representatives of the
with companies whose securities Investment Vehicle Manager on
are held within the Investment a continual basis in order to
Vehicle portfolio and whose ensure the policy is appropriate
ESG policies, activities or and is implemented appropriately.
disclosures fail to meet the
standards expected by stakeholders.
Taxation
There is a risk that revisions The Board and the Investment
to the taxation of the Investment Vehicle take ongoing advice
Vehicle through the introduction on all tax compliance matters
and implementation of new or relating to the Company and
amended tax legislation will the Investment Vehicle as necessary,
impact its ability to continue and keep all such developments
to deliver current after-tax under review.
returns to the Company.
The Company may be exposed to additional risks not disclosed
above or within the Annual Financial Report as they are not
considered by the Board to be principal or emerging risks. The
Company assesses risks, and the mitigation thereof, on an ongoing
basis and as part of its formal business risk assessment
process.
Section 172(1) Statement
Through adopting the AIC Code, the Board acknowledges its duty
to comply with section 172 of the UK Companies Act 2006 to act in a
way that promotes the success of the Company for the benefit of its
members as a whole, having regard to (amongst other things):
a) the consequences of any decision in the long-term;
b) the interests of the Company's employees;
c) the need to foster business relationships with suppliers, customers and others;
d) the impact on community and environment;
e) the maintaining of reputation for high standards of business conduct; and
f) acting fairly as between members of the company
The Board considers this duty to be inherent within the culture
the Company and a part of its decision-making process.
Information on how the Board has engaged with its stakeholders
and promoted the success of the Company, through the decisions it
has taken during the year, whilst having regard to the above, is
outlined below.
The principal decisions section below outlines decisions taken
during the year which the Board believes has the greatest impact on
the Company's long-term success. The Board considers the factors
outlined under section 172 and the wider interests of stakeholders
as a whole in all decisions it takes on behalf of the Company.
Stakeholder engagement
Who Why we engage How we engage Outcome
Shareholders Shareholders The Company's Shareholders receive
enable monthly relevant information
the Company to fact sheets and allowing them
give effect to market to make informed
its purpose announcements are decisions about
through published their investments.
the commitment on the Company's
of risk capital. website The Board receives
Their continued ( www.ccpeol.com the views of Shareholders
support is ). allowing it to
imperative More detailed consider these
to the effective communications views throughout
implementation are made to its deliberations,
of the Company's Shareholders including the
investment on a biannual drafting of its
strategy, basis disclosures in
under the terms through the its half year
of the Company's publication and full year
prospectus as of the half-yearly financial reports.
issued from time and annual
to time. financial In 2021 the views
reports. Also, of shareholders,
representatives communicated to
of the Investment the Board, informed
Vehicle the following
Manager hold changes:
regular
meetings with both * The proposed amendments to the Company's quarterly
current and tender mechanism which received approval at the
potential Company's EGM on 6 December 2021;
shareholders and
periodically
hosts investor * As a result of discussions between the Board and the
events. Investment Vehicle Manager, the Investment Vehicle
The Board, in Manager agreed to the amendments made to the
conjunction management fee charged by the Investment Vehicle
with the input of Manager, as announced on 23 April 2021; and
the
Corporate Brokers,
has arranged, and * The splitting of the Company's auditor resolution at
will its 2021 AGM - to appoint the Company's auditors, an
continue to d
periodically separately to authorise the Directors to agree their
arrange, meetings remuneration.
with
Shareholders for
the
primary purpose of
remaining
cognisant
of Shareholder
views
on a wide range of
topics relevant to
their shareholding
in the Company.
------------------- ------------------- -----------------------------------------------------------
Investment The Board needs The Investment The Company is
Vehicle to inform itself Vehicle well managed,
Manager as to the Manager reports on receives appropriate
effectiveness the performance of and timely advice
of the operation the Investment and guidance and
of the Investment Vehicle has an appropriate,
Vehicle and its to the Board on a open and transparent
investment regular relationship with
programme. basis. In the Investment
In addition, the addition, Vehicle Manager.
Investment Vehicle the Board meets
Manager provides with
investor relations representatives of
support to the the Investment
Company and the Vehicle
Board works with Manager on a
the Investment regular
Vehicle Manager basis in order to
to support the develop
investor relations and monitor its
function on a sales
regular basis. and marketing
strategy.
------------------- ------------------- -----------------------------------------------------------
Corporate The Board needs The Corporate The Board is able
brokers to understand Brokers to properly implement
the manner in are kept updated its capital management
which the on strategies in
Company's the strategy of the context of
shares trade, the the premium or
and to understand Company so that discount at which
the opinions of they the Company's
shareholders and can publish shares trade,
market relevant along with dealing
participants research with any concerns
as expressed to information expressed by investors
the Company's and engage through the Corporate
Corporate Brokers meaningfully Brokers.
from time to time. with potential
investors.
Relationships The sales team
with corporate receives
brokers, other regular contact
than the Company's and
Corporate Brokers, helps the Company
increases the to
public profile participate in
of the Company. exchange
volume and provide
liquidity for
investors.
The Board receives
formal updates
from
the Corporate
Brokers
on a quarterly
basis.
Representatives of
the Investment
Vehicle
Manager interact
with
a number of
corporate
brokers, other
than
the Company's
Corporate
Broker, and are
occasionally
invited to present
at broker
shareholder
conferences.
------------------- ------------------- -----------------------------------------------------------
Research To reach a wider Representatives of Demand for the
partnerships audience of the Investment Company's shares
current Vehicle is increased.
and potential Manager arrange
investors, thus presentations
providing about the Company
potentially with
greater trading research firm,
liquidity in the Edison
Company's shares. and with wealth
managers.
------------------- ------------------- -----------------------------------------------------------
Regulators The Board regards The Company The Company's
full compliance interacts regulatory framework
with the various with regulators remains current.
regulatory and through Applicable laws
statutory rules formal submissions and regulations
to which it is of information on are fully considered
subject as a key a during the Board's
governance periodic basis deliberations.
objective. (for
example, periodic
financial
statements). The
Company
interacts more
formally
with regulators,
and
seeks their
guidance,
where required.
Association In order to inform The Company is an The Board and
of Investment the Board as to active representatives
Companies emerging member of the AIC of the Investment
legislative and Vehicle Manager
and regulatory Board members are well informed
developments and regulatory and positioned
market conditions, attend and to identify market
and to allow the actively trends, opportunities
Company to participate in AIC and emerging risks
interact sponsored events. as well as expand
with the wider the network of
investment the Company.
community
and thus identify
trends and
potential
opportunities.
Auditors To ensure that The Audit Shareholders and
the annual audit Committee the market receive
process operates meets with the audited financial
effectively, Auditors information consistent
efficiently formally on a with the requirements
and predictably, biannual of the exchange
and to calibrate basis and more on which the Company's
the Company's frequently shares trade.
operational where required.
disclosure The
with other market Auditors provide
participants. valuable
feedback on the
Company
and those of its
service
providers that
have
a delegated
responsibility
for areas of
accounting
and internal
control.
------------------- ------------------- -----------------------------------------------------------
Third-party To receive The Board oversees The Company's
service operational, the performance of operations and
providers compliance and third-party internal controls
associated reports service are effective,
and to satisfy providers. Refer efficient and
the Board as to below compliant.
the effective for further
operation of the information.
systems and
internal
controls operated
by service
providers
on behalf of the
Company.
------------------- ------------------- -----------------------------------------------------------
Wider Society As a responsible The Board meet The Board has
corporate citizen with continued with
the Company stakeholders to its programme
recognises remain to offset the
that its current in their impact of the
operations understanding Company's operations
have an of stakeholder on the community
environmental views in which it operates,
footprint and relating to as demonstrated
an impact on wider environmental in the decision
society. and social to engage with
matters. the Jersey National
Park as detailed
below.
------------------- ------------------- -----------------------------------------------------------
Principal decisions
Decision Impact on long-term Stakeholder considerations
success
Dividend Delivering consistent The Board understands that reliable income
level changes income distributions distributions through dividends are of
to shareholders. significant importance to shareholders.
The Board's dividend target at the start
of the year under review was 4.5c/4.5p
per Euro/Sterling share.
In 2021, the Board reviewed the Company's
distribution policy with the Investment
Vehicle Manager, as initially detailed
in the Company's annual financial report
for the year ended 31 December 2020,
with a key focus being the determination
of a stable level of dividends that,
based on current market conditions and
expected cash yield, could reasonably
be declared without recourse to capital
for a forward looking period of 12 months.
The Company's distribution policy is
reviewed on an ongoing basis.
On 23 April 2021 the board subsequently
announced that the Company had increased
its annual dividend by 0.5 pence per
Sterling Share / 0.5 cents per Euro Share
to 5 pence per Sterling Share / 5 cents
per Euro Share, with effect from the
dividend payments for quarter ended 30
June 2021.
The Board continues to re-examine the
dividend level on a periodic basis to
ensure that it is compatible with the
performance of the underlying assets
and is reflective of cash flows from
those assets.
------------------------ ----------------------------------------------
Engagement Acting as a responsible The Board acknowledges the growing importance
with Jersey corporate citizen. placed on ESG considerations by all of
National its stakeholders. Alongside the actions
Park undertaken as detailed in the section
headed Climate-related financial disclosures
above, the Company continued with its
programme of support to the Jersey National
Park, having made a commitment to the
value of GBP100,000 over a five-year
period.
------------------------ ----------------------------------------------
Contractual Offering Shareholders The Board is aware of the importance
quarterly liquidity on a shareholders place on being able to realise
tender policy net asset value a proportion of their shareholding on
basis. a net asset value basis.
To ensure that the contractual quarterly
tender continues to be operated in a
way that is in the best interests of
the Company and the shareholder base
as a whole, the Board sought, and obtained,
shareholder approval to amend terms of
the Contractual Quarterly Tender facility
at an EGM on 6 December 2021. The changes
to the Contractual Quarterly Tender facility
implemented a maximum limit (subject
only to Pro Rata Scaling Back) in respect
of the number of Shares a Shareholder
is permitted to tender, and requires
Shareholders to provide a representation
and warranty to the Company that they
have held the Shares tendered continuously
between the relevant Tender Record Date
and the date and time of receipt by the
Company of their Tender Request and that
none of the Shares tendered were acquired
by such Shareholder after the relevant
Tender Record Date.
------------------------ ----------------------------------------------
Employee engagement
The Company has no employees.
Business relationships
The Board considers its business relationships with stakeholders
to be important to the ongoing success of the Company and is
proactive in fostering these relationships. For details on the
nature of these relationships and how the Company fosters
relationships with its stakeholders, refer to the stakeholder
engagement section above. The Board also considers the impact
principal decisions have on its stakeholders, which is detailed in
the principal decisions section above.
Board members
All the Directors are independent and non-executive.
CHAIRMAN
Richard Michael Boléat, aged 58. Appointed 20 March 2013.
Richard Boléat, FCA. Richard Boléat is a Fellow of the Institute
of Chartered Accountants in England & Wales, having trained
with Coopers & Lybrand in Jersey and the United Kingdom. After
qualifying in 1986, he subsequently worked in the Middle East,
Africa and the UK for a number of commercial and nancial services
groups before returning to Jersey in 1991. He was formerly a
Principal of Channel House Financial Services Group from 1996 until
its acquisition by Capita Group plc ('Capita') in September 2005.
Richard led Capita's nancial services client practice in Jersey
until September 2007, when he left to establish Governance
Partners, L.P., an independent corporate governance practice.
Alongside his role at the Company, he currently acts as: Senior
Independent Director and Audit Committee Chairman of M&G Credit
Income Investment Trust plc; Chairman of SME Credit Realisation
Fund Limited; and a Non-Executive Director of Third Point Investors
Limited, all of which are listed on the London Stock Exchange. He
is regulated in his personal capacity by the Jersey Financial
Services Commission.
Directors
Mark Richard Tucker, aged 59. Appointed 20 March 2013.
In 1997 Mark joined Arborhedge Investments, Inc. (formally HFR
Investments, Inc.) a Chicago based, boutique broker dealer
specialising in the placement of hedge fund interests to
institutions globally. Mark served as the President and Chief
Executive Officer of Arborhedge until his return to Jersey in 2002,
after which he remained a director and shareholder until 2012.
Previously, Mark held a variety of retail and private banking roles
in Jersey with both HSBC and Cater Allen Bank.
In 1988 Mark relocated first to London, where he joined
GNI Limited in a financial futures business development role,
and later to New York where he was responsible for the alternative
investment programme of Gresham Asset Management, Inc. and later
for the asset allocation and manager selection activities of Mitsui
& Company.
Mark is personally regulated by the Jersey Financial Services
Commission in the conduct of financial services business, is an
Associate of the Chartered Institute of Bankers and a Chartered
Fellow of the Chartered Institute for Securities and Investment.
Mark also serves as a non-executive director to several other
offshore structures.
Stephanie Carbonneil, aged 47. Appointed 21 February 2019.
Stephanie is a senior investment professional and is currently
Head of Investment Trusts at Allianz Global Investors. She has
experience in portfolio management specifically in institutional
funds of funds and private wealth management. She also has broad
experience in management of multi-asset funds and manager selection
across European Equities, US and Emerging Equities, Global Emerging
Equities, High Yield and European Fixed Income.
Stephanie has extensive knowledge of best practices in asset
management through the implementation of a disciplined selection
process and capital allocation to best-in-class managers. She has
particularly strong experience in business development based on the
combination of strong asset management technical expertise and
experience as fund allocator. She also has been involved in
implementing a diversity programme whilst in a previous role at
Architas.
Vanessa Neill, aged 56. Appointed 11 January 2022.
Vanessa is a consultant specialising in sustainability. She
advises global public and private companies on the integration of
Environmental, Social and Governance (ESG) factors into their core
business strategy and works with clients to support them in
communicating the value and impact of their sustainability
initiatives in a clear, transparent and authentic way. Vanessa
currently advises companies across multiple sectors, with
particular expertise in asset management and private equity.
Alongside her client work, Vanessa is currently undertaking an
executive Postgraduate Masters Level Diploma at the Cambridge
Institute for Sustainable Leadership (CISL), and in April 2021
successfully completed a Postgraduate Masters Level Certificate in
Sustainable Business at the same institution.
Vanessa is a senior corporate communications professional with
over 20 years of experience. She was formerly a Partner at Kekst
CNC, a global leading strategic communications consultancy, where
she co-led the firm's ESG and Sustainability Steering Group. Prior
to that, she served as Head of Communications for the Investment
Banking and Capital Markets Division at Credit Suisse from 2009 to
2018, where she supported the launch of the Impact Advisory and
Finance Department.
DIRECTORS' REPORT
The Directors present the Annual Financial Report for the
Company for the year ended 31 December 2021. The results for the
year are set out in these accounts.
Dividend Policy
The Company's dividend policy is to generate consistent income
distributions to shareholders, at levels consistent with prevailing
market conditions. This policy is currently implemented by way of
annual dividends of EUR0.05000 / GBP0.05000 per Euro / Sterling
share paid quarterly. The Company announced and paid four quarterly
dividends totalling EUR 0.0475 and GBP 0.0475 (2020: EUR 0.04875
and GBP 0.04875 ) per Euro Share and Sterling Share respectively in
2021 which equates to a dividend yield based on year-end bid share
price of 5.00% and 4.57% (2020: 5.42% and 5.16%) respectively.
Share capital and voting rights
The Company has two classes of ordinary shares, being Euro
Shares and Sterling Shares. The Company held the following number
of shares in treasury as at 31 December 2021:
35,089,055 Euro Shares (31 December 2020: 20,598,771 Euro
Shares)
218,048,635 Sterling Shares (31 December 2020: 174,947,441
Sterling Shares)
Excluding shares held in treasury, the Company had the following
number of shares in issue as at 31 December 2021:
120,016,565 Euro Shares (31 December 2020: 124,768,754 Euro
Shares)
143,874,174 Sterling Shares (31 December 2020: 194,829,202
Sterling Shares)
Each Euro Share holds 1 voting right, and each Sterling Share
holds 1.17 voting rights. As at 31 December 2021, the total number
of voting rights of the Euro Shares of no par value is 120,016,565
(41.62%) and of the Sterling Shares is 168,332,783 (58.38%). The
total number of voting rights in the Company is 288,349,348.
Borrowing limits
The Company does not have any external borrowings. The Directors
may, if they feel it is in the best interests of the Company,
borrow funds subject to the appropriate resolutions of
shareholders. The Investment Vehicle holds external loans and
borrowings as disclosed in note 7.
Acquisition of own shares
The Board has the authority to purchase its own shares under the
terms and conditions of the Contractual Quarterly Tender facility
as summarised in note 12. Details of the shares tendered and
repurchased during the year are given in the Strategic Report
above.
To assist the Company to minimise the discount at which the
Shares trade relative to the net asset value per Share as well as
reduce the volatility and increase liquidity in the Shares on 22
April 2021 the Company renewed the general authority to purchase in
the market up to 14.99% of the Shares in issue as at 22 April 2021.
This authority expires on the date of the 2022 AGM. During the year
the Company did not purchase any shares in the market.
The Directors will seek renewal of these authorities from
Shareholders at the Company's 2022 AGM.
Directors' interests
As at 31 December 2021 and the date of approval of the annual
financial report directors held the following shares in the
Company:
Number of Sterling Shares held
As at 31 December
Director 2021 As at 5 April 2022
Richard Boleat 20,000 20,000
Stephanie Carbonneil 22,200 22,200
Mark Tucker 40,000 40,000
Vanessa Neill - -
No Director has any interest in any contract to which the
Company is a party.
Shareholders' interests
As at 31 December 2021, the Company had been notified in
accordance with Chapter 5 of the DTRs (which covers the acquisition
and disposal of major shareholdings and voting rights), of the
following shareholders that had an interest of greater than 5% in
the Company's issued share capital.
Percentage
of total
voting rights
(%)
Investec Wealth & Investment
Limited 14.15%
FIL Limited 9.75%
Canaccord Genuity Group Inc 6.93%
Between 31 December 2021 and 14 March 2022 the Company received
the following notifications:
Percentage
of total
voting rights
(%)
Investec Wealth & Investment
Limited 15.52%
FIL Limited 10.45%
SG Kleinwort Hambros 5.25%
Disclosures required under LR 9.8.4R
The Financial Conduct Authority's Listing Rule 9.8.4R requires
that the Company includes certain information relating to
arrangements made between a controlling shareholder and the
Company, waivers of Director's fees, and long-term incentive
schemes in force. The Directors confirm that there are no
disclosures to be made in this regard.
Events after the reporting date
The NAV total return of the Euro Shares and Sterling Shares
since 1 January 2021 to 11 March 2022 has decreased by 2.06% and
1.94% respectively. The Directors are not aware of any other
matters that might have a significant effect on the Company in
subsequent financial periods not already disclosed in this report
or the attached financial statements under note 16.
Vanessa Neill was appointed with effect from 11 January 2022.
Refer below for further details and above for Vanessa Neill's
biography.
Strategic Review Update
On 9 March 2022, the Company announced that the Board was
considering making changes pursuant to its ongoing strategic
monitoring programme. It was noted that, in particular, the Board
was considering amending the Company's investment policy,
increasing the Company's target dividend, amending its target total
return and reviewing the parameters of the Company's contractual
quarterly tender mechanism. Any proposed changes to the investment
policy will be subject to shareholder approval.
Statement as to 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 Company's
auditors are unaware and that they have taken the steps that they
ought to have taken as Directors to make themselves aware of any
relevant audit information and to establish that the Company's
auditors are aware of that information.
Fair, balanced and understandable
In assessing the overall fairness, balance and understandability
of the Annual Financial Report and Financial Statements the Board
has performed a comprehensive review to ensure consistency and
overall balance.
AGM
The Company will hold the 2022 AGM on or around 6 May 2022. The
notice and details of the resolutions being proposed will be
circulated in a separate letter and will be available shortly
afterwards on the Company's website https://www.ccpeol.com.
All resolutions proposed at the 2021 AGM held on 22 April 2021
were passed without significant votes cast against any of the
resolutions.
Corporate Governance Statement- Compliance with the AIC Code
The Company has a premium listing on the London Stock Exchange
and is therefore required to report on how the principles of the UK
Corporate Governance Code (the "UK Code") have been applied. Being
an investment company, a number of the provisions of the UK Code
are not applicable as the Company has no executive directors or
internal operations.
The Board has considered the principles and provisions of the
AIC Code. The AIC Code addresses all the principles and provisions
set out in the UK Code, as well as setting out additional
provisions on issues that are of specific relevance to the
Company.
The Board considers that reporting against the principles and
provisions of the AIC Code, which has been endorsed by the
Financial Reporting Council and the Jersey Financial Services
Commission, provides more information to stakeholders. The AIC Code
is available on the AIC website www.theaic.co.uk . It includes an
explanation of how the AIC Code adapts the principles and
provisions set out in the UK Code to make them relevant to
investment companies.
The Company has complied with all the principles and relevant
provisions of the AIC Code during the year ended 31 December
2021.
As the Company is self-managed, provisions pertaining to the
relationship with managers are not applicable to the Company. As
the Company is not newly incorporated, provisions pertaining to new
companies are not applicable. It is noted that Vanessa Neill was
appointed post-year end, and relevant disclosures have been made in
accordance with the AIC Code.
Set out below is where stakeholders can find further information
within the Annual Financial Report about how the Company has
complied with the various Principles and Provisions of the AIC
Code.
1. Board Leadership and Purpose
Purpose above
-------
Strategy above
-------
Values and culture below
-------
Stakeholder Engagement above
-------
2. Division of Responsibilities
Director Independence below
-------
Board meetings below
-------
Relationship with the manager n/a(1)
-------
Management Engagement Committee below
-------
3. Composition, Succession and Evaluation
Remuneration and Nomination below
Committee
-------
Director re-election below
-------
Use of an external search agency below
-------
Board evaluation below
-------
4. Audit, Risk and Internal Control
Audit Committee below
-------
Emerging and principal risks above
-------
Risk management and internal below
control systems
-------
Going concern statement above
-------
Viability statement above
-------
5. Remuneration
Directors' Remuneration Report below
(1) As the Company is self-managed, provisions pertaining to the
relationship with managers are not applicable to the Company. As
the Company is not newly incorporated nor appointed any new
directors during the year under the review, provisions pertaining
to new companies and appointment of directors are not
applicable.
This Directors' Report was approved by the Board of Directors on
5 April 2022 and signed on its behalf by:
Richard Bol é at
Mark Tucker
Chairman
Audit Committee Chairman
board and committees
Culture
The Company's culture is one of openness, transparency and
inclusivity. Respect for the opinions of its diverse stakeholders
features foremost as does its desire to implement its operations in
a sustainable way, conducive to the long-term success of the
Company.
The Board
The Board consists of four non-executive directors:
-- Richard Boleat (Chairman);
-- Mark Tucker (Audit Committee Chairman and Senior Independent Director);
-- Stephanie Carbonneil (Nomination and Remuneration Committee Chair); and
-- Vanessa Neill (ESG Committee Chair, appointed 11 January 2022).
David Wood stepped down from his role on the board of Directors
with effect from 31 August 2021.
All of the Directors are independent of the Investment Vehicle
Manager. Please refer above for the biographies and dates of
appointment for each Director.
Mark Tucker is the Senior Independent Director. In this role, he
provides support to the Chairman and serves as an alternate contact
point for stakeholders.
Directors' appointment, retirement and rotation
Following Mr Wood's resignation, the Directors engaged Fletcher
Jones, an external search consultancy, in their search for an
additional Director. Fletcher Jones has no other connection to the
Company or any individual Directors. The Nomination and
Remuneration Committee prepared a candidate specification which
included the Board's desire for an ESG specialist, and shortlisted
and interviewed candidates before appointing Ms Neill. The
Nomination and Remuneration Committee, together with the Board, are
considering a further appointment to enhance the Board's skillset
and support the Company's succession planning.
Directors have agreed letters of appointment with the Company.
No Director has a service contract with the Company and Directors'
appointments may be terminated at any time by one month's written
notice with no compensation payable at termination upon leaving
office for whatever reason.
Subject to the Articles, Directors may be appointed by the
Board. In compliance with the AIC Code, the Board has resolved that
all Directors will stand for re-election at each AGM, including the
forthcoming AGM. Ms Neill's election will be proposed at the
forthcoming AGM, this being the first AGM pursuant to Ms Neill's
appointment.
Board diversity
The Board actively supports diversity in its broadest sense and
has due regard for the benefits of experience, background and
cognitive diversity in its membership, and strives to meet the
right balance of individuals who have the knowledge and skillset to
aid the effective functioning of the Board and maximise shareholder
returns while mitigating the risk exposure of the Company.
The Board supports the recommendations of the Women on Boards
Davies Review and latterly, the Hampton-Alexander Review on FTSE
Women Leaders, Improving gender balance in FTSE Leadership (the
"Hampton-Alexander Review"). In particular, the Board supports the
Hampton-Alexander Review's objective of improving women's
representation in leadership positions. As a self-managed fund, the
Company does not have executive management nor employees and
therefore, the Board's principal focus is on improving diversity
within its own Board composition.
At the time of this report, female representation on the Board
is 50%, consisting of two female Directors and two male Directors.
This is above the current target of 33% set out in the
Hampton-Alexander Review. Whilst the Company's own policy is not to
set prescriptive diversity metrics and to fill vacancies by the
most qualified candidates, the Board recognises that diversity,
including gender diversity, is of material importance to both its
own shareholders and that of wider society, and is pleased to
exceed the Hampton-Alexander Review target.
Committees
The Board has established three committees, namely: the Audit
Committee; the Nomination and Remuneration Committee; and the ESG
Committee (established post-year end). Items relevant to a
management engagement committee were considered by the Board as a
whole.
Audit Committee
The Audit Committee membership comprises all of the Directors.
The Chairman of the Board is a member of this Committee (but he
does not chair it) which is considered appropriate given that he is
a Fellow of the Institute of Chartered Accountants in England and
Wales and also has extensive knowledge of the financial services
industry.
The report on the role and activities of this Committee and its
relationship with the external auditor is set out in the Report of
the Audit Committee below.
Nomination and Remuneration Committee
Prior to Mr Wood's departure with effect from 31 August 2021,
this committee comprised of Ms Carbonneil and Mr Wood, chaired by
Ms Carbonneil. With effect from 28 October 2021, Mr Tucker was
appointed as a member of the Nomination and Remuneration Committee,
and Ms Neill was subsequently appointed as a member on 26 January
2022.
ESG Committee
The ESG Committee was formed on 26 January 2022, is chaired by
Ms Neill and comprises all of the Directors. The terms of reference
of the ESG Committee are being finalised.
Board and Committees evaluation
The Nomination and Remuneration Committee undertook an internal
evaluation which comprised of questionnaires and discussions
between the Chair and each Director in respect of their individual
performance and the Senior Independent Director and the Chair in
respect of the Chairman's performance. The results of this
evaluation were positive and a number of minor suggestions were
made to further enhance the governance practices of the
Company.
The evaluation considered the balance of skills, experience,
independence, knowledge, diversity (including gender), how the
Board works together as a unit and other factors relevant to its
effectiveness. The evaluation also considered the Board's and
committee performance, constitution and terms of reference to
ensure that they are operating effectively. It is intended that the
evaluation will be externally facilitated every three years with
the next external evaluation envisaged to take place at the end of
2022. Previously an external review was facilitated bi-annually,
however the Directors took the decision in 2021 to extend this
timeframe pursuant to positive results and being mindful of
costs.
Director Remuneration
In October 2021, the Nomination and Remuneration Committee
undertook its annual review of the fees paid to the Directors and
compared these with the fees paid by reasonably comparable listed
companies. The committee concluded that the fees should remain
unchanged.
Tenure and succession policy
The Board regularly and critically examines and evaluates its
membership and that of its committees, and its succession
requirements. In doing so the Board takes into consideration: the
duration of each member's appointment. their continued satisfactory
performance; gender diversity; diversity of social and ethnic
background; diversity of thought and previous experience; and
continued prepossession of the skills identified by the Board as
being essential to the Company's long-term success.
In addition, the Board recognises that to carry out its duties
successfully and for the benefit of the Company's long-term success
and its stakeholders, corporate knowledge of the type that is
acquired over time, is beneficial to the Company and its
stakeholders. It is against this backdrop that the policy adopted
by the Company does not include fixed terms of service for
non-executive directors, including the position of Chairman.
Whilst the Board shares the view of the AIC that long periods of
service pose a risk to each Director's independence, the Board
takes the view that tenure is not the sole determinant of
independence. The Board believes that Mr Boléat and Mr Tucker
demonstrate constructive challenge in their dealings with other
Board members and the Investment Vehicle Manager, and that,
notwithstanding the length of their tenure, Mr Boléat and Mr Tucker
remain independent in character and judgement within their roles.
Further, the Nomination and Remuneration Committee considers that
Directors' tenure beyond nine years is appropriate in this instance
on the basis the Board is in a period of transition with regards to
its succession planning, so as not to lose acquired corporate
knowledge and experience. It is also noted that changes to the
Board and the Investment Vehicle Manager personnel have provided
new perspectives within this business relationship.
In making board appointments and developing a succession plan,
the Board takes into consideration the above factors which are
aligned with the principles, provisions and spirit of the AIC Code
and will ensure that any appointments to the board follow a formal,
rigorous and transparent procedure. This is with ultimate
consideration to ensuring that the Board and all committees have an
appropriate mix of skills and experience to best serve the
Company.
The Board continues to welcome the views of major shareholders
on the matter of board tenure, following discussion of this by the
Chairman and Senior Independent Director with shareholders during
the course of 2020.
The Chairman and the Senior Independent Director will continue
to raise the topic with major shareholders going forward.
Board meetings
The Board meets periodically throughout the year. The Investment
Vehicle Manager, together with the Company Secretary, also ensure
that all Directors receive, in a timely manner, all relevant
management, regulatory and financial information relating to the
Company and the Investment Vehicle portfolio.
The Board applies its primary focus to the following:
- investment performance, ensuring that the investment objective
and strategy of the Company are met;
- ensuring investment holdings are in line with the Company's prospectus;
- reviewing and monitoring financial risk management and
operating cash flows, including cash flow forecasts and budgets for
the Company; and
- reviewing and monitoring of the key risks to which the Company
is exposed as set out in the Strategic Report.
At each relevant meeting the Board undertakes reviews of key
investment and financial data, transactions and performance
comparisons, share price and NAV performance, marketing and
shareholder communication strategies, peer group information and
industry issues. The Board holds regular discussions with the
Investment Vehicle Manager to discuss performance of the Investment
Vehicle portfolio, whilst considering ways in which future share
price and overall performance can be enhanced.
The Board considers whether the investment policy continues to
meet the Company's objectives. The Board is considering proposing
amendments to the Company's investment policy as announced on 9
March 2022. This will be consulted with shareholders and any
material changes will require share approval.
Attendance at 2021 scheduled meetings of the Board and its
committees
Vanessa Neill joined the Board as a Non-Executive Director with
effect from 11 January 2022. Accordingly, her attendance at
meetings is not included in the below table of 2021 meetings.
Director Board Meetings Audit Committee Committee Nomination Strategy
of the Board and Remuneration Meeting
(Conversion, Committee
Quarterly
Tender and
Annual Report
Approval)
Richard Boleat 8/8 4/4 10/10* 3/3** 1/1
--------------- ---------------- --------------- ------------------ ---------
Stephanie Carbonneil 8/8 4/4 n/a 3/3 1/1
--------------- ---------------- --------------- ------------------ ---------
Mark Tucker 8/8 4/4 15/15* 3/3** 1/1
--------------- ---------------- --------------- ------------------ ---------
David Wood 6/6*** 2/2*** n/a 2/2*** N/A
--------------- ---------------- --------------- ------------------ ---------
* The Board has formed a committee of any one Jersey based
director to approve routine matters associated with the
administration of the monthly share conversion and quarterly
tender.
** Mr Tucker became a member of the Nomination and Remuneration
Committee with effect from 28 October 2021, prior to which he was
invited to attend these meetings as a Director. Mr Boléat is
invited to attend these meetings as a Director.
*** Mr Wood resigned with effect from 31 August 2021.
Monitoring and evaluation of service providers
The Board reviews the performance of the Company's third-party
service providers together with their anti-bribery and corruption
policies to ensure that they comply with the Corruption (Jersey)
Law 2006, the Bribery Act 2010, the Criminal Finances Act 2017 and
ensure their continued competitiveness and effectiveness and ensure
that performance is satisfactory and in accordance with the terms
and conditions of the respective appointments.
As part of the Board's ongoing evaluation of third-party service
providers, it considers and reviews on a periodic basis contractual
arrangements with the major service suppliers of the Company.
The Directors have adopted a procedure whereby they are required
to report any potential acts of bribery and corruption in respect
of the Company that come to their attention to the Company's
Compliance Officer.
Shareholder communications
An analysis of the substantial shareholders of the Company's
shares is provided to the Board on a quarterly basis.
The Board views shareholder relations and communications as a
high priority and the Board aims to have a thorough understanding
of the views of shareholders. The Chairman and the Senior
Independent Director are available for discussion about governance
and strategy with major shareholders and they communicate
shareholders' expressed views to the Board. Shareholders wishing to
communicate with the Chairman, or the Senior Independent Director,
may do so by any conventional means. The Directors welcome the
views of all shareholders and place considerable importance upon
them.
The main method of communication with shareholders is through
the half-year and annual financial reports which aim to give
shareholders a clear and transparent understanding of the Company's
objectives, strategy and results. This information is supplemented
by the publication of monthly fact sheets, and the weekly estimated
and monthly NAV of the Company's Euro Shares and Sterling Shares on
the London Stock Exchange, via a Regulatory Information
Service.
The Company's website (www.ccpeol.com) is regularly updated with
monthly fact sheets and provides further information about the
Company, including the Company's financial reports and
announcements. The maintenance and integrity of the Company's
website is the responsibility of the Directors. Legislation in
Jersey governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
The Board believes that the AGM provides an appropriate forum
for investors to communicate with the Board, and encourages
participation. The AGM will be attended by at least the Chairman of
the Company and the Chairman of the Audit Committee.
The Board has also instigated a programme of quarterly investor
calls, to allow investors and other interested parties to receive
an update on the previous quarter's performance and market
conditions. It also provides a forum for questions to be posed to
the Chairman and representatives of the Investment Vehicle
Manager.
Financial risk management objectives and policies
The Board is responsible for the Company's system of risk
management and internal control and meets regularly in the form of
periodic Board meetings to assess the effectiveness of such
controls in managing and mitigating risk.
The Board confirms that it has reviewed the effectiveness of the
Company's system of risk management and internal control for the
year ended 31 December 2021, and to the date of approval of this
Annual Financial Report. The Board has taken into consideration the
Financial Reporting Council (FRC)'s, "Guidance on Risk Management,
Internal Control and Related Financial and Business Reporting" to
ensure that the Company's system of risk management and internal
control is designed and operated effectively, in line with best
practice guidance provided by the FRC.
The key financial risks that the Directors believe the Company
is exposed to include credit risk, liquidity risk, market risk,
interest rate risk, valuation risk and foreign currency risk.
Please refer to note 8 for reference to financial risk management
disclosures, which explains in further detail the above risk
exposures and the policies and procedures in place to monitor and
mitigate these risks.
The Company has appointed BNP Paribas Securities Services S.C.A.
to act as administrator. The Administrator has established an
internal control framework to provide reasonable but not absolute
assurance on the effectiveness of the internal controls operated on
behalf of its clients. The effectiveness of these controls are
assessed by the compliance and risk department of the Administrator
on an on-going basis and by periodic review by external parties.
The Company's Compliance Officer presents an assessment of their
review to the Board in line with the compliance monitoring
programme on a quarterly basis which has revealed no matters of
concern.
AIFMD REPORT (UNAUDITED)
The Company (which is a non-EU AIF for the purposes of the AIFM
Directive and related regimes in EEA member states) is a
self-managed fund and therefore acts as the deemed AIFM of the
Company. The Company is authorised as an Alternative Investment
Fund Services Business as defined under Article 2(11) of the
Financial Services (Jersey) Law 1998 and as such, fulfils the role
of Alternative Investment Fund Manager.
In 2014, the Company registered with the Jersey Financial
Services Commission, being the Company's competent regulatory
authority, as a self-managed non-EU Alternative Investment Fund
(AIF), and has registered with the UK Financial Conduct Authority,
under the relevant NPPRs.
In 2015, the Company registered with the Finnish Financial
Supervisory Authority, Belgium Financial Services and Markets
Authority, Danish Finanstilsynet, Luxembourg Commission de
Surveillance du Secteur Finacier and Swedish Finansinspektionen,
under the relevant NPPRs of each jurisdiction.
In 2017, the Company registered with Central Bank of Ireland,
under the relevant NPPR.
As the Company is non-EU domiciled, no depositary has been
appointed in line with the AIFM Directive, however BNP Paribas
Securities Services S.C.A., Jersey Branch has been appointed to act
as custodian.
Information relating to the current risk profile of the Company
and the risk management systems employed by the Company to manage
those risks, as required under paragraph 4(c) of Article 23 of the
AIFM Directive, is set out in note -- - financial risk management.
Please refer above for the Board's assessment of the principal
risks and uncertainties facing the Company.
Table of AIFM remuneration
The total fees paid to the Board by the Company are disclosed
within the Directors' remuneration report below and disclosed in
note 6.
Article 22(2)(e) and 22(2)(f) of the AIFM Directive is not
deemed applicable as the AIFM has no staff. No other remuneration
costs have been incurred with the exception of those costs incurred
by the Board as referenced above.
REPORT OF THE AUDIT COMMITTEE
It is my pleasure to present this report describing the
activities of the Audit Committee in respect of the 2021 financial
year.
Membership
The Board appointed Audit Committee operates within clearly
defined Terms of Reference which are reviewed regularly by the
Audit Committee and amended as required. They can be found within
the tab "Documents" within the "News & Documents" section of
the Company's website (at www.ccpeol.com ).
The Audit Committee comprises all of the Directors as indicated
on above and all of the Audit Committee's members have recent and
relevant financial experience. The Audit Committee has competence
relevant to the sector in which the Company operates.
During the year, the Audit Committee formally convened on four
occasions. The members' attendance record can be found above.
Role of the Audit Committee
The main role of the Audit Committee is to protect the interests
of the Company's shareholders regarding the integrity of the
half-yearly financial report and the annual financial report of the
Company and manage the Company's relationship with the external
auditor.
The Audit Committee's key duties are:
- to review and monitor the fairness and balance of the
financial statements of the Company including its half-year
financial report and annual financial report to shareholders,
reviewing any significant financial reporting issues and judgements
which they contain;
- to advise the Board on whether the Committee believes that the
annual report and accounts, taken as a whole, is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Company's performance, position,
business model and strategy;
- to identify and disclose those risks considered by the Audit
Committee to be significant to their financial reporting
process;
- to consider and make recommendations to the Board in relation
to the appointment, re-appointment and removal of the external
Auditors and to negotiate their remuneration and terms of
engagement on audit and non-audit work;
- to meet regularly with the external Auditor in order to review
their proposed audit programme of work and the subsequent Audit
Report and to assess the effectiveness of the audit process and the
level of fees paid in respect of audit and non-audit work; and
- to annually assess the external Auditor's independence,
objectivity, effectiveness, resources and expertise.
In addition to the workstreams that stem from the roles of the
Audit Committee as described above, the Audit Committee was also
instrumental in a number of other areas during the year
including:
- With regard to the social and environmental responsibilities
owed by the Company to Jersey, the jurisdiction in which the
Company operates, overseeing the Company's sponsorship relationship
with the Jersey National Park;
- Considering the tenure of the Company's Auditor and further
considering the processes the Audit Committee will undertake during
2022 when it will conduct an Auditor rotation review.
- Leading in discussions with the Investment Vehicle Manager in
the area of climate-related financial disclosures. As a result of
these discussions disclosures on these activities appear within the
Strategic Report above. The Committee was also instrumental in an
exercise to support the Board in making its Viability Statement
which appears within the Strategic Report above;
- Involvement in the appointment of Vanessa Neill to the Board
of the Company in January 2022 and more recently to the Audit
Committee to bolster the Board's and the Audit Committee's
environmental credentials. Further details concerning Ms Neill's
appointment can be found above. Commencing with the Company's 2022
half-year financial report, environmental disclosures will be
included within a report of the activities of the recently
established ESG Committee which is chaired by Ms Neill;
- Overseeing the content and structure of the Company's proposed
entry into the ESG section of the Association of Investment
Companies' website;
Significant risks
The Audit Committee view the below as significant risks relating
to the financial statements:
- Title to and the existence of the Company's investments
Procedures to confirm the Company's title to and the existence
of the Company's investments are embedded within the Company's
share issuance, monthly conversation and quarterly tender
processes, accordingly title to and existence of the Company's
investments are confirmed by the Board regularly.
- Valuation of Investments
The risk of misstatement due to errors in the valuation of the
Company's investments is an issue of significance to the Audit
Committee. This risk is mitigated by regular Board meetings in
which a review of the valuation of the Company's investments is
included. Additionally, the Audit Committee regularly interviews
representatives of the Investment Vehicle Manager in order to gain
assurances as to the continued appropriateness of the valuation
methodology.
External audit process
The Audit Committee met formally with the Auditor prior to the
commencement of the audit and agreed an audit plan that would adopt
a risk-based approach. The Audit Committee and the Auditor agreed
that a significant portion of the Audit effort would include an
examination of revenue recognition with respect to investment
income and an examination of the procedures in place at the
Administrator and at the Investment Vehicle Manager in respect of
the valuation of the Company's investments and the underlying
portfolio assets respectively.
Upon completion of the audit the Audit Committee discussed with
the Auditor the effectiveness of the audit and concluded that the
audit had been effective on the grounds that:
- The audit plan had been met;
- The Auditor had demonstrated a good understanding of the Company's business;
- No risks to audit quality had been identified;
- The Auditor demonstrated a robustness of process and
perceptiveness in handling key accounting issues and judgements;
and
- All issues that arose during the audit were satisfactorily resolved.
Additionally, procedures employed by the Auditors, described
above, are viewed by the Audit Committee as being appropriate and
sufficiently robust for the Audit Committee to gain sufficient
assurance as to the effectiveness of the audit.
Non-audit services
The Company has adopted a policy such that the provision of
non-audit services by the Company's auditors is considered and
approved by the Audit Committee on a case-by-case basis, taking
into account relevant law, regulation, the Revised Ethical Standard
2019 and other applicable professional requirements.
The following factors are assessed when considering the
provision of non-audit services by the Auditors:
- Threats to independence and objectivity resulting from the
provision of such services and any safeguards in place to eliminate
or reduce these threats to a level where they would not compromise
the Auditor's independence and objectivity;
- The nature of the non-audit services;
- Whether the skills and experience of the audit firm makes it
the most suitable supplier of the non-audit service; and
- The fees incurred, or to be incurred, for non-audit services
both for individual services and in aggregate, relative to the
audit fee, including special terms and conditions (for example,
contingent fee arrangements).
During the course of the year the Auditor was engaged to conduct
a review of the Company's half-yearly financial report for the six
months ended 30 June 2021.
The fees for the year-end audit were EUR81,118 (GBP69,727)
(2020: EUR 73,289 (GBP63,300)). Fees for non-audit services were
EUR11,750 (GBP10,100) (2020: EUR 11,364 (GBP10,100)) for the review
of the half year report, and EURnil (GBPnil) (2020: EUR33,481
(GBP29,250)) in respect of reporting accountant services.
Auditor independence
The Audit Committee undertakes an annual assessment of the
independence of the Auditor prior to the commencement of the audit,
this includes:
- Discussing with the Auditor the threats to their independence
and the safeguards applied to mitigate such threats;
- Considering all of the relationships between the Company and the Auditor;
- Reviewing and confirming no relationships between the Company
and the Auditor which could impact independence and
objectivity;
- Reviewing the level of fees paid by the Company in proportion
to the overall fee income of the firm, office and partner; and
- Reviewing the Auditor's policies and processes for maintaining
independence and monitoring compliance with relevant
requirements.
Based on the above criteria the Audit Committee was satisfied as
to the independence of the Auditor during the year ended 31
December 2021 and throughout the course of the audit.
Auditor appointment
The Company's current external Auditor is Ernst & Young LLP,
who were appointed on 19 August 2013.
The Audit Committee considers the reappointment of the external
auditor, including the rotation of the audit engagement partner,
each year. The external auditor is required to rotate the audit
engagement partner responsible for the Company audit every five
years. The current audit engagement partner was appointed by the
Auditor prior to the commencement of the Company's 2020 half year
review.
The Committee reviews a number of factors when considering
proposing the re-appointment/appointment of an audit including:
- Effectiveness and quality of the previous audit (if applicable);
- Independence;
- Qualification, expertise and resources; and
- Consideration as to whether it would be appropriate to
recommend an external audit tender be conducted earlier than the
maximum best practice ten-year period.
After considering the above the Audit Committee provided the
Board with its recommendation to the shareholders on the
reappointment of Ernst & Young LLP as external auditor for the
year ending 31 December 2021.
Accordingly, a resolution proposing the reappointment of Ernst
& Young LLP as the Company's Auditor will be put to
shareholders at the AGM. There are no contractual obligations
restricting the Committee's choice of external auditor and the
Company does not indemnify its external auditor.
Internal controls and risk management
The Board is responsible for ensuring that suitable systems of
risk management and internal control are implemented by the
third-party service providers to the Company. The Directors have
reviewed the BNP Paribas Securities Services ISAE 3402 report
(Report on the description of controls placed in operation, their
design and operating effectiveness for the period from 1 October
2020 to 30 September 2021) on Fund Administration and are pleased
to note that no significant issues were identified.
In accordance with the FRC's Internal Control: Guidance to
Directors, and the FRC's Guidance on Audit Committees, the Board
confirms that there is an on-going process for identifying,
evaluating and managing the significant internal control risks
faced by the Company.
As the Company does not have any employees it does not have a
"whistle blowing" policy in place. The Company delegates its day to
day administrative operations to third-party providers who are
monitored by the Board and who report on their policies and
procedures to the Board. Accordingly, the Board believes an
internal audit function is not required.
I welcome feedback from all shareholders as to the form and
content of this annual report.
For and on behalf of the Audit Committee,
Mark Tucker
Audit Committee Chairman
5 April 2022
Directors' Statement of Responsibilities
The Directors are responsible for preparing the Annual Financial
Report and financial statements in accordance with applicable
Jersey law and International Financial Reporting Standards as
adopted by the European Union (IFRS).
Jersey Law requires the Directors to prepare financial
statements for each financial year which give a true and fair view
of the state of affairs of the Company at the end of the year and
of the profit or loss of the Company for that year.
In preparing these financial statements, the Directors
should:
-- select suitable accounting policies and apply them consistently;
-- make judgments and estimates that are reasonable;
-- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping proper accounting
records that disclose, with reasonable accuracy at any time, the
financial position of the Company and enable them to ensure that
the financial statements comply with the Companies (Jersey) Law
1991. They have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Company and
to prevent and detect fraud and other irregularities.
The Directors confirm to the best of their knowledge that:
-- the financial statements, which have been prepared in
accordance with IFRS, give a true and fair view of the assets,
liabilities, financial position and profit of the Company; and
-- the Strategic 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 they face.
The Annual Report and financial statements, taken as a whole,
are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company's performance,
position, business model and strategy.
Richard Bol é at Mark Tucker
Chairman Audit Committee Chairman
5 April 2022
directors' Remuneration report
Table of Directors' Remuneration
Director Annual Rate
Richard Boléat (Chairman)
* Annual Fee GBP65,000 (EUR75,534)
GBP43,750 (EUR50,899)
Mark Tucker GBP1,250 (EUR1,454)
* Annual Fee GBP5,000 (EUR5,817)
* Senior Independent Director GBP42,500 (EUR49,445)
GBP5,000 (EUR5,817)
* Chairman of the Audit Committee
GBP42,500 (EUR49,445)
Stephanie Carbonneil GBP42,500 (EUR49,445)
* Annual Fee GBP5,000 (EUR5,817)
Reimbursement of ad hoc
* Chair of the Nomination and Remuneration Committee expenses
David Wood*
* Annual Fee
Vanessa Neill**
* Annual Fee
* Chair of the ESG Committee
All Directors
-----------------------------
*stepped down from the Board with effect from 31 August 2021
**appointed with effect from 11 January 2022
Directors receive the above annual fees for their commitment as
Directors. All additional fees are for additional responsibilities
and time commitments. The Directors' are also reimbursed for their
expenses on an ad hoc basis.
No other remuneration or compensation was paid or is payable by
the Company during the period to any of the Directors. There has
been no change to the Company's remuneration policy as detailed
below.
The Company has no employees. Accordingly, there are no
differences in policy on the remuneration of Directors and the
remuneration of employees.
Remuneration policy
The determination of the Directors' fees is a matter for the
Board. The Nomination and Remuneration Committee considers the
remuneration policy annually to ensure that it remains
appropriately positioned, and makes recommendations to the Board as
applicable. As part of this process, Directors review the fees paid
to the boards of directors of similar companies. No Director is
involved in decisions relating to their own remuneration.
Directors are remunerated in the form of fees, payable quarterly
in advance. No Director has any entitlement to a pension, and the
Company has not awarded any share options or performance incentives
to any of the Directors.
Directors are authorised to claim reasonable expenses from the
Company in relation to the performance of their duties.
The Company's policy is that the fees payable to the Directors
should reflect the time spent by the Board on the Company's affairs
and the responsibilities borne by the Directors and should be
sufficient to enable high calibre candidates to be recruited. The
policy is for the Chairman of the Board and Chair of Committees to
be paid a higher fee than the other Directors in recognition of
their more onerous roles and more time spent. The Board may amend
the level of remuneration paid within the limits of the Company's
Articles of Association.
The Company's Articles of Association limit the aggregate fees
payable to the Directors to a total of GBP429,786 (EUR500,000) per
annum.
Statement of consideration of shareholder views
An ordinary resolution to ratify the Directors' remuneration
report will be proposed at the forthcoming AGM.
Stephanie Carbonneil
Nomination and Remuneration Committee Chair
5 April 2022
independent auditor's report to the MEMBERS of cvc credit
partners european opportunities limited
Opinion
We have audited the financial statements of CVC Credit Partners
European Opportunities Limited (the "Company") for the year ended
31 December 2021 which comprise the Statement of Comprehensive
Income, the Statement of Financial Position, the Statement of
Changes in Net Assets, the Statement of Cash Flows, and the related
notes 1 to 17, including a summary of significant accounting
policies. The financial reporting framework that has been applied
in their preparation is applicable law and International Financial
Reporting Standards as adopted by the European Union.
In our opinion, the financial statements:
give a true and fair view of the state of the Company's affairs
as at 31 December 2021 and of its profit for the year then
ended;
have been properly prepared in accordance with International
Financial Reporting Standards as adopted by the European Union;
and
have been properly prepared in accordance with the requirements
of the Companies (Jersey) Law 1991.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's responsibilities for the audit of the financial
statements section of our report. We are independent of the Company
in accordance with the ethical requirements that are relevant to
our audit of the financial statements, including the UK FRC's
Ethical Standard as applied to listed entities, and we have
fulfilled our other ethical responsibilities in accordance with
these requirements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the
directors' use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. Our
evaluation of the directors' assessment of the Company's ability to
continue to adopt the going concern basis of accounting
included:
-- Ascertaining that the going concern assessment covers a
period of at least twelve months from the date of approval of the
financial statements. The Directors' have performed an assessment
to 31 July 2023, which is at least twelve months from the date of
approval of the financial statements.
-- Reviewing the cash flow and revenue forecasts which support
the Directors' assessment of going concern. This involved
challenging the sensitivities and assumptions used in the
forecasts, including the impact of the COVID-19 pandemic.
-- Reviewing the stress testing performed by the Directors' and
assessed whether the basis on which it was performed was
appropriate and adequate, including validating static data used,
that could have a material impact, by agreeing these to supporting
documentation where possible.
-- Holding discussions with the Directors' and the Administrator
to determine whether, in their opinion, there is any material
uncertainty regarding the Company's ability to pay liabilities and
commitments as they fall due and challenging this assessment
through our audit procedures over the assessment of the Company's
liquidity.
-- Considering whether the Directors' assessment of going
concern, including the impact of the COVID-19 pandemic as included
in the Annual Report, is consistent with the disclosure in the
viability statement.
-- Assessed whether the subsequent events identified by the
Directors impact the Company's ability to continue as a going
concern.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Company's ability to continue as a going concern for a period of 12
months from when the financial statements are authorised for
issue.
In relation to the Company's reporting on how they have applied
the UK Corporate Governance Code, we have nothing material to add
or draw attention to in relation to the directors' statement in the
financial statements about whether the Directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors
with respect to going concern are described in the relevant
sections of this report. However, because not all future events or
conditions can be predicted, this statement is not a guarantee as
to the Company's ability to continue as a going concern.
Overview of our audit approach
Key audit Risk of inappropriate revenue recognition with
matters respect to investment income, including risk of
management override
Risk of incorrect valuation of investments
Risk that investments do not exist, including incomplete
and inaccurate investment transactions
------------------------------------------------------------------
Materiality Overall materiality of EUR3.1m which represents
1% of the net assets attributable to shareholders.
------------------ ------------------------------------------------------------------
An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and
our allocation of performance materiality determine our audit scope
for the Company. This enables us to form an opinion on the
financial statements. We take into account size, risk profile, the
organisation of the Company and effectiveness of controls,
including controls and changes in the business environment when
assessing the level of work to be performed.
Climate change
The Company has determined that the most significant future
impacts from climate change on its operations will be from
financial losses stemming from climate-related factors adversely
impacting the capital value of securities held within the
Investment Vehicle portfolio and/or the ability of those companies
whose securities are held to meet their financial obligations
thereunder. These are explained on page 25 in the principal risks
and uncertainties, which form part of the "Other information,"
rather than the audited financial statements. Our procedures on
these disclosures therefore consisted solely of considering whether
they are materially inconsistent with the financial statements or
our knowledge obtained in the course of the audit or otherwise
appear to be materially misstated.
As explained in note 2.1(g) governmental and societal responses
to climate change risks are still developing, and are
interdependent upon each other, and consequently financial
statements cannot capture all possible future outcomes as these are
not yet known. The degree of certainty of these changes may also
mean that they cannot be taken into account when determining asset
and liability valuations and the timing of future cash flows under
the requirements of International Financial Reporting Standards as
adopted by the European Union.
Our audit effort in considering climate change was focused on
ensuring that the effects of climate risks disclosed on page 25
have been appropriately reflected in the significant assumptions
used in estimating the valuation of investments. Details of our
procedures and findings are included in our key audit matters
below. We also challenged the Directors' considerations of climate
change in their assessment of going concern and viability and
associated disclosures.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in the context of our
audit of the financial statements as a whole, and in our opinion
thereon, and we do not provide a separate opinion on these
matters.
Risk Our response to the Key observations communicated
risk to the Audit Committee
Risk of inappropriate We have performed the Based on the work
revenue recognition following procedures: performed, we have
with respect to investment Updated our understanding no matters to report
income, including of the nature of the to the Audit Committee.
risk of management investment income attributable
override to the Company from
Refer to Accounting the Investment Vehicle.
policy 2.9 (page 66) Updated our understanding
and Note 3 of the of how this risk is
Financial Statements considered and managed
(page 67) by the Directors, the
For the year ended Investment Vehicle Manager
31 December 2021, (CVC Credit Partners
the Company recognised Investment Management
investment income Limited) and the Administrator
of EUR15.6m (2020: and performed a walkthrough
EUR21.1m). to confirm the design
The ability to generate and implementation effectiveness
dividend yield for of related controls.
shareholders that Traced the investment
is funded from investment income received in the
income (rather than year to bank statements.
capital gains arising Obtained income distribution
on the disposal of notices from the Administrator
investments) is a and agreed these to
key strategic objective the income recorded
of the Company. in the year.
Investment income Recalculated the investment
is primarily generated income attributable
in the form of distributions to the Company from
from the Investment the Investment Vehicle
Vehicle (CVC European based on the Company's
Credit Opportunities ownership of the Investment
S.à.r.l.). Given Vehicle and the income
the importance that distributions made by
the Company's ability the Investment Vehicle
to generate a consistent during the year as agreed
level of investment to the audited financial
income has on the statements of the Investment
Company's dividend Vehicle.
yield objectives, Performed recalculations
we consider that the of the foreign currency
recognition of investment translations from Sterling
income represents to Euros.
a fraud risk and thus
a significant risk.
---------------------------------- ------------------------------
Risk of incorrect We have performed the Based on the work
valuation of investments following procedures: performed, we have
Refer to the Report Updated our understanding no matters to report
of the Audit Committee of how this risk is to the Audit Committee.
- per the financial considered and managed
statements (pages by the Directors and
43 to 46); Accounting the Investment Vehicle
policy 2.4 (pages Manager by performing
64 to 65); and Note walkthrough procedures
8.5 of the Financial to evaluate the design
Statements (page 82). and implementation of
controls.
At the year end, the Obtained an understanding
Company held 118,672,886.93 of the Administrator's
Euro and 142,063,595.26 systems and controls
Sterling PECs (2020: in respect of investment
123,587,333.61 Euro valuation and performed
and 193,056,156.64 walkthrough procedures
Sterling PECs) with to confirm the design
a total value of EUR309.7m effectiveness of the
(2020: EUR341.7m). process and key controls.
There is a risk that Additionally, we obtained
investment values the ISAE 3402 report
are misstated or that and the related bridging
valuations are incorrectly letter from the Administrator
calculated through to consider the impact
errors in the valuation of any significant deficiencies,
of the Preferred Equity identified in this report,
Certificates ('PECs') to our audit.
held by the Company. Confirmed our understanding,
The valuation of the obtained through our
PECs is dependent walkthrough procedures,
on a range of factors of the current valuation
including the NAV methodology used by
of the Investment the Investment Vehicle
Vehicle and its underlying Manager through our
portfolio. The underlying review of relevant documentation
portfolio includes from EY Luxembourg,
level 3 securities who are the auditors
valued by the Investment of the Investment Vehicle,
Vehicle Manager, and and held subsequent
the Directors of the discussions with the
Company assess whether auditors of the Investment
a liquidity adjustment Vehicle, to supplement
should be taken on our understanding.
the NAV of the Investment Reviewed minutes of
Vehicle when arriving meetings of the Board
at the final valuations. and the Valuation Committee
to corroborate the valuation
methodology and data
inputs used and assessed
whether the nature of
the information and
methodology utilised
is appropriate.
Agreed the valuation
of the PECs to the audited
financial statements
of the Investment Vehicle,
taking into account
the ownership percentages.
Reviewed key workpapers
and made enquiries of
the Investment Vehicle's
auditors in relation
to the valuation of
investments held by
the Investment Vehicle
to assess whether year-end
valuations underlying
the PECs held by the
Company are in accordance
with IFRS 13: Fair value
measurement.
We have considered
the impact of climate
change throughout the
procedures performed
on the valuation of
investments, by challenging
whether the valuation
methodologies and assumptions
used are appropriate.
Considered and challenged
whether the Board's
assumptions around liquidity
adjustments to NAV of
the Investment Vehicle
are appropriate by considering
the historic trading
and redemption activity
in the Investment Vehicle
and agreeing PEC redemptions
to the bank statements.
---------------------------------- ------------------------------
Risk that investments We have performed the Based on the work
do not exist, including following procedures: performed, we have
incomplete and inaccurate Updated our understanding no matters to report
investment transactions of how this risk is to the Audit Committee.
Refer to the Report considered and managed
of the Audit Committee by the Directors, the
- per the financial Investment Vehicle Manager
statements (pages and the Administrator
43-46); Accounting and performed walkthrough
policy 2.4 (pages procedures to confirm
64 to 65); and Note the design effectiveness
7 of the Financial of the process.
Statements (pages Obtained the PEC registers
69 to 72). independently from the
At the year end, the Company Secretary of
Company held 118,672,886.93 the Investment Vehicle
Euro and 142,063,595.26 ('SS&C') and agreed
Sterling PECs (2020: the holdings to those
123,587,333.61 Euro disclosed in the accounts.
and 193,056,156.64 Agreed a sample of
Sterling PECs) with investment trades in
a total value of EUR309.7m the year to agreements
(2020: EUR341.7m). and traced cash movements
There is a risk that to bank statements.
investments presented Reviewed the audited
in the financial statements financial statements
do not exist or the of the Investment Vehicle
Company does not have to check the existence
legal title to these. and completeness of
The individual investments the Company's investment
are significant in in PECs, and agreed
value and the process the PEC units held by
that is involved in the Company to the Series
the completion of 4 and Series 5 PEC units
a purchase or a disposal disclosed in the audited
of the PECs takes financial statements
an extended period of the Investment Vehicle.
of time. As a result, Reviewed minutes of
there is a risk that board meetings and other
incomplete or inaccurate internal reports for
transactional information indications of significant
with regards to the investment transactions
PECs would result not appropriately recorded.
in a material misstatement
in the reported results
and financial position
of the Company.
---------------------------------- ------------------------------
Our application of materiality
We apply the concept of materiality in planning and performing
the audit, in evaluating the effect of identified misstatements on
the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually
or in the aggregate, could reasonably be expected to influence the
economic decisions of the users of the financial statements.
Materiality provides a basis for determining the nature and extent
of our audit procedures.
We determined materiality for the Company to be EUR3.1 million
(2020: EUR3.4 million), which is 1% (2020: 1%) of the net assets
attributable to shareholders. We believe that the net assets
attributable to shareholders are the most important financial
metric on which shareholders would judge the performance of the
Company.
Performance materiality
The application of materiality at the individual account or
balance level. It is set at an amount to reduce to an appropriately
low level the probability that the aggregate of uncorrected and
undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our
assessment of the Company's overall control environment, our
judgement was that performance materiality was 75% (2020: 75%) of
our planning materiality, namely EUR2.3m (2020: EUR2.6m). We have
set performance materiality at this percentage based on our
understanding of the entity and past experiences with the
audit.
Reporting threshold
An amount below which identified misstatements are considered as
being clearly trivial.
We agreed with the Audit Committee that we would report to them
all uncorrected audit differences in excess of EUR0.2m (2020:
EUR0.2m), which is set at 5% of planning materiality, as well as
differences below that threshold that, in our view, warranted
reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in light
of other relevant qualitative considerations in forming our
opinion.
Other information
The other information comprises the information included in the
annual report set out on pages 2 to 49 and pages 91 to 97, other
than the financial statements and our auditor's report thereon. The
Directors are responsible for the other information contained
within the annual report.
Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated
in this report, we do not express any form of assurance conclusion
thereon.
Our responsibility is to read the other information and, in
doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the course of the audit or otherwise appears to be
materially misstated. If we identify such material inconsistencies
or apparent material misstatements, we are required to determine
whether there is a material misstatement in the financial
statements themselves. If, based on the work we have performed, we
conclude that there is a material misstatement of the other
information, we are required to report that fact.
We have nothing to report in this regard.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in
relation to which the Companies (Jersey) Law 1991 requires us to
report to you if, in our opinion:
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 financial statements are not in agreement with the Company's
accounting records and returns; or
we have not received all the information and explanations we
require for our audit.
Corporate Governance Statement
The Listing Rules require us to review the directors' statement
in relation to going concern, longer-term viability and that part
of the Corporate Governance Statement relating to the Company's
compliance with the provisions of the UK Corporate Governance Code
specified for our review.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial
statements or our knowledge obtained during the audit:
Directors' statement with regards to the appropriateness of
adopting the going concern basis of accounting and any material
uncertainties identified set out on page 2;
Directors' explanation as to its assessment of the Company's
prospects, the period this assessment covers and why the period is
appropriate set out on pages 16 to 17;
Directors' statement on fair, balanced and understandable set
out on page 35;
Board's confirmation that it has carried out a robust assessment
of the emerging and principal risks set out on pages 21 to 25;
The section of the annual report that describes the review of
effectiveness of risk management and internal control systems set
out on page 46; and;
The section describing the work of the audit committee set out
on pages 43-46.
Responsibilities of directors
As explained more fully in the Directors' Statement of
Responsibilities set out on page 47, the Directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view, and for such
internal control as the Directors determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Company's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
Explanation as to what extent the audit was considered capable
of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect irregularities,
including fraud. The risk of not detecting a material misstatement
due to fraud is higher than the risk of not detecting one resulting
from error, as fraud may involve deliberate concealment by, for
example, forgery or intentional misrepresentations, or through
collusion. The extent to which our procedures are capable of
detecting irregularities, including fraud is detailed below.
However, the primary responsibility for the prevention and
detection of fraud rests with both those charged with governance of
the Company and management.
We obtained an understanding of the legal and regulatory
frameworks that are applicable to the Company and determined that
the most significant are International Financial Reporting
Standards as adopted by the European Union, the Companies (Jersey)
Law 1991, UK Corporate Governance Code (taken in the context of the
AIC Code), and the Listing Rules.
We understood how the Company is complying with those frameworks
by making enquiries with the Directors including the Chair of the
Audit Committee. We corroborated our understanding through our
review of board minutes and board papers provided to the Audit
Committee.
We assessed the susceptibility of the Company's financial
statements to material misstatement, including how fraud might
occur by considering the key risks impacting the financial
statements. We identified fraud risks in relation to inappropriate
revenue recognition with respect to investment income and risk of
management override in relation to inappropriate journal entries.
Our audit procedures stated above in the 'Key audit matters
section' of this Auditor's report, including test of journal
entries, were performed to address this identified fraud risk.
Based on this understanding we designed our audit procedures to
identify non-compliance with such laws and regulations. Our
procedures involved journal entry testing, with a focus on manual
journals, journals posted around the year end date and other
focused testing procedures.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council's website at
https://www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor's report.
Use of our report
This report is made solely to the Company's members, as a body,
in accordance with Article 113A of the Companies (Jersey) Law 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.
Denise Davidson
for and on behalf of Ernst & Young LLP
London
5 April 2022
Statement of comprehensive income
For the year from 1 January 2021 to 31 December 2021
Year ended Year ended
31 December 31 December
2021 2020
Notes EUR EUR
------------------------------------------------- ------ ------------- ---------------
Income
Investment income 3 15,607,537 21,117,386
Tender fee income 3 646,329 1,550,442
Net gains/(losses) on financial assets
held at fair value through profit or
loss 7 21,595,428 (21,681,500)
Foreign exchange gain/(loss) on financial
assets held at fair value through profit
or loss 7 12,303,760 (15,844,430)
Foreign exchange (loss)/gain on ordinary
shares 12 (12,484,070) 15,933,729
Other net foreign currency exchange gain/(loss)
through profit or loss 168,957 (26,204)
------------------------------------------------- ------ ------------- ---------------
37,837,941 1,049,423
------------------------------------------------- ------ ------------- ---------------
Expenses
Operating expenses 4 (1,402,690) (1,135,235)
(1,402,690) (1,135,235)
------------------------------------------------- ------ ------------- ---------------
Profit/(loss) before finance costs and
taxation 36,435,251 (85,812)
------------------------------------------------- ------ ------------- ---------------
Finance costs
Placing programme costs 5 - (33,481)
Share issue costs 5 - (3,524)
5,
Dividends paid 12 (14,328,495) (18,443,393)
------------------------------------------------- ------ ------------- ---------------
Profit/(loss) before taxation 22,106,756 (18,566,210)
------------------------------------------------- ------ ------------- ---------------
Taxation 2.13 - -
Increase/(decrease) in net assets attributable
to shareholders from operations 22,106,756 (18,566,210)
------------------------------------------------- ------ ------------- ---------------
Return per Euro Share 12 EUR0.083772 (EUR0.051747)
------------------------------------------------- ------ ------------- ---------------
Return per Sterling Share (Sterling equivalent) 12 GBP0.070438 (GBP0.046343)
------------------------------------------------- ------ ------------- ---------------
All items in the above statement are derived from continuing
operations.
The Company has no items of other comprehensive
income/(loss).
The notes form an integral part of these financial
statements
statement of financial position
As at 31 December 2021
31 December 31 December
2021 2020
Notes EUR EUR
----------------------------------------- ------ ------------- -------------
Assets
Financial assets held at fair value
through profit or loss 7 309,706,971 341,742,461
Prepayments 78,382 45,421
Cash and cash equivalents 3,001,936 2,870,655
----------------------------------------- ------ ------------- -------------
Total assets 312,787,289 344,658,537
----------------------------------------- ------ ------------- -------------
Liabilities
----------------------------------------- ------ ------------- -------------
Payables 9 (371,590) (118,290)
----------------------------------------- ------ ------------- -------------
Total liabilities (371,590) (118,290)
----------------------------------------- ------ ------------- -------------
Net assets attributable to shareholders 13 312,415,699 344,540,247
----------------------------------------- ------ ------------- -------------
The financial statements were approved by the Board of Directors
on 5 April 2022 and signed on its behalf by:
Richard Bol é at
Mark Tucker
Chairman Audit Committee Chairman
The notes form an integral part of these financial
statements.
statement of changes in net assets
For the year ended 31 December 2021
Net assets
attributable
to shareholders
2021
Note EUR
----------------------------------------------------- ----- -----------------
As at 1 January 2021 344,540,247
----------------------------------------------------- ----- -----------------
Issuance and subscriptions arising from conversion
of ordinary shares 12 14,795,161
Redemption payments arising on conversion and
tender of ordinary shares 12 (81,510,535)
Increase in net assets attributable to shareholders
from operations 22,106,756
Net foreign currency exchange gain on opening
ordinary shares 12 12,484,070
As at 31 December 2021 312,415,699
----------------------------------------------------- ----- -----------------
For the year ended 31 December 2020
Net assets
attributable
to shareholders
2020
Note EUR
----------------------------------------------------- ----- -----------------
As at 1 January 2020 537,324,231
----------------------------------------------------- ----- -----------------
Issuance and subscriptions arising from conversion
of ordinary shares 12 8,445,789
Redemption payments arising on conversion and
tender of ordinary shares 12 (166,729,834)
Decrease in net assets attributable to shareholders
from operations (18,566,210)
Net foreign currency exchange loss on opening
ordinary shares and ordinary shares issued
during the year 12 (15,933,729)
As at 31 December 2020 344,540,247
----------------------------------------------------- ----- -----------------
The notes form an integral part of these financial
statements.
statement of cash flows
For the year ended 31 December 2021
Year ended Year ended
31 December 31 December
2021 2020
Note EUR EUR
------------------------------------------------------------------- ----- ------------- --------------
Cash flows from operating activities
Profit/(loss) before taxation(1) 22,106,756 (18,566,210)
Adjustments to reconcile profit/(loss)
before tax to net cash flows:
* Net (gains)/losses on investments held at fair value
through profit or loss 7 (21,595,428) 21,681,500
* Foreign exchange (gain)/loss on financial assets held
at fair value through profit or loss 7 (12,303,760) 15,844,430
* Foreign currency exchange loss/(gain) on ordinary
shares 12 12,484,070 (15,933,729)
* Placing programme costs 5 - 33,481
* Share issue costs 5 - 3,524
* Dividends paid 12 14,328,495 18,443,393
Changes in working capital:
* Increase in prepayments (32,961) (7,891)
* Increase/(decrease) in payables 253,300 (77,263)
------------------------------------------------------------------- ----- ------------- --------------
Net cash provided by operating activities 15,240,472 21,421,235
------------------------------------------------------------------- ----- ------------- --------------
Cash flows from investing activities
Purchase of financial assets held at
fair value through profit or loss(2) 7 - (348,681)
Proceeds from redemption of financial
assets held at fair value through profit
or loss(2) 7 65,870,004 156,419,064
Net cash provided by investing activities 65,870,004 156,070,383
------------------------------------------------------------------- ----- ------------- --------------
Cash flows from financing activities
Proceeds from issuance and subscriptions
of ordinary shares(3) 12 - 352,205
Payments from redemption of ordinary
shares(3) 12 (66,650,700) (158,565,089)
Placing programme costs 5 - (33,481)
Share issue costs 5 - (3,524)
Dividends paid 12 (14,328,495) (18,443,393)
Net cash used in financing activities (80,979,195) (176,693,282)
------------------------------------------------------------------- ----- ------------- --------------
Net increase in cash and cash equivalents
in the year 131,281 798,336
------------------------------------------------------------------- ----- ------------- --------------
Cash and cash equivalents at beginning
of the year 2,870,655 2,072,319
Cash and cash equivalents at the end
of the year 3,001,936 2,870,655
------------------------------------------------------------------- ----- ------------- --------------
(1) Includes cash receipts relating to income distributions of
EUR15,609,665 (2020: EUR21,114,461), interest income of EUR(2,128)
(2020: EUR2,925) and tender fee income of EUR646,329 (2020:
EUR1,550,442).
(2) Cash flows arising from purchases and redemption of
financial assets above does not include subscriptions and
redemptions arising from conversion of EUR(14,795,162) (2020:
EUR(8,093,584)) and EUR14,859,836 (2020: EUR8,164,745) respectively
as these transactions have no associated cash flow.
(3) Cash flows arising from issuance and redemption of ordinary
shares above does not include subscriptions and redemptions arising
from conversion of EUR(14,795,161) (2020: EUR(8,093,584)) and
EUR14,859,835 (2020 EUR8,164,745) respectively as these
transactions have no associated cash flow.
The notes form an integral part of these financial
statements.
NOTES TO THE FINANCIAL STATEMENTS
1. General information
The Company was incorporated on 20 March 2013 and is registered
in Jersey as a closed-ended Investment Company. Euro Shares and
Sterling Shares were admitted to the Official List of the UK
Listing Authority and admitted to trading on the Main Market of the
London Stock Exchange on 25 June 2013.
The Company's registered address is IFC1, The Esplanade, St
Helier, Jersey, JE1 4BP.
2. Accounting policies
The principal accounting policies applied in the preparation of
these financial statements are set out below. These policies have
been consistently applied to the years presented.
2.1 Basis of preparation
(a) Statement of Compliance
The financial statements of the Company have been prepared in
accordance with International Financial Reporting Standards (IFRS)
as adopted by the European Union which comprise standards and
interpretations approved by the International Accounting Standards
Board (IASB) together with the interpretations of the International
Accounting Standards and Standing Interpretations Committee as
approved by the International Accounting Standards Committee (IASC)
which remain in effect. The financial statements give a true and
fair view of the Company's affairs and comply with the requirements
of the Companies (Jersey) Law 1991.
The liquidity method of presentation is followed in the
Statement of Financial Position. Please refer to note 8.2 for
maturity profiles.
(b) Basis of measurement
These 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 and ordinary shares that are held
at amortised cost, being the amount they can be redeemed at.
(c) Functional and presentation currency
The Company's functional currency is the Euro, which is the
currency of the primary economic environment in which it operates.
The Company's performance is evaluated and its liquidity is managed
in Euros. Therefore the Euro is considered as the currency that
most faithfully represents the economic effects of the underlying
transactions, events and conditions. The financial statements are
presented in Euros, except where otherwise indicated, and are
rounded to the nearest Euro.
(d) Critical accounting estimates and judgements
The preparation of financial statements in conformity with IFRS
requires the Company to make judgements, estimates and assumptions
that affect items reported in the Statement of Financial Position
and Statement of Comprehensive Income and the disclosure of
contingent liabilities at the date of the financial statements. It
also requires management to exercise its judgement in the process
of applying the Company's accounting policies.
Although these judgements, estimates and assumptions are based
on best knowledge of current facts, circumstances and, to some
extent, future events and actions, the actual results may
ultimately differ from those estimates, possibly significantly.
Valuation of financial assets is considered a significant estimate
and is monitored by the Audit Committee to ensure that judgements,
estimates and assumptions made and methodologies applied are
appropriate and in accordance with IFRS 13. Please refer to note
2.4(c) for details regarding fair value estimation of financial
assets and note 7 for IFRS 13 disclosures.
As outlined above in note 2.1(c) the Directors have used their
judgement to determine that the Company's presentational and
functional currency is Euro.
(e) New standards, amendments and interpretations
Interest Rate Benchmark Reform - Phase 2: Amendments to IFRS 9,
IAS 39, IFRS 7, IFRS 4 and IFRS 16
The amendments to the above standards provide temporary reliefs
which address the financial reporting effects when an interbank
offered rate is replaced with an alternative nearly risk-free
interest rate. As the Company does not hold any instruments that
reference interbank offered rates, these amendments had no impact
on the financial statements .
Several other amendments and interpretations apply for the first
time in 2021, but these do not have an impact on the financial
statements.
(f) Standards, amendments and interpretations issued but not yet
effective
Standards, amendments and interpretations that become effective
in future accounting periods and have not been adopted by the
Company:
Effective for periods
beginning on or
International Financial Reporting Standards (IFRS) after
------------------------------------------------------- ----------------------
-- IFRS 17 - Insurance Contracts 1 January 2023
-- IAS 8 - Accounting Policies, Changes in Accounting 1 January 2023
Estimates and Errors - amendments regarding the
definition of accounting estimates
As the Company does not participate in insurance contracts in
the normal course of its business, the Directors believe that the
application of IFRS 17 - Insurance Contracts, will not have an
impact on the Company's financial statements.
The amendments revise IAS 8 to replace the definition of a
change in accounting estimates with a definition of accounting
estimates and provide other clarifications to help entities
distinguish accounting policies from accounting estimates. The
Directors believe that the application of this amendment will not
have an impact on the Company's financial statements.
A number of amendments and interpretations to existing standards
have been issued, but are not yet effective, that are not relevant
to the Company's operations. The Directors believe that the
application of these amendments and interpretations will not impact
the Company's financial statements when they become effective.
(g) Climate change
In preparing the financial statements, the Directors have
considered the impact of climate change, particularly in the
context of the climate change risks identified in the principal
risks and uncertainties section of the Strategic Report.
These considerations did not have a material impact on the
financial reporting judgements and estimates in the current year.
This reflects the conclusion that climate change is not expected to
have a significant impact on the Company's short-term cash flows
including those considered in the going concern and viability
assessments.
2.2 Going concern
The Directors have reviewed the Company's budget and cash flow
forecast for the next 12 months from the date of approval of the
financial statements and also considered information regarding
climate-related matters in conjunction with other uncertainties. On
the basis of this review, and after making due enquiries, the
Directors have a reasonable expectation that the Company has
adequate resources to continue in operational existence for at
least 12 months to -- March 2023, being the period of assessment
covered by the Directors. The Directors are also satisfied that no
material climate related matters or uncertainties exist that cast
significant doubt over the Company's ability to continue as a going
concern. In making this assessment, the Board have considered the
impact that COVID-19 and Russia's invasion of Ukraine may have on
the Company. Accordingly, they continue to adopt the going concern
basis in preparing the financial statements.
2.3 Foreign currency translations
Transactions in foreign currencies are translated to Euro at the
foreign exchange rate on the transaction date. Monetary assets and
liabilities denominated in foreign currencies at the Statement of
Financial Position date are translated to Euro at the foreign
exchange rate ruling at that date. Foreign exchange differences
arising on translation are recognised in the Statement of
Comprehensive Income.
2.4 Financial instruments
Financial assets
(a) Classification
The Company classifies its investments as financial assets held
at fair value through profit or loss. These financial assets do not
possess contractual terms which give rise to cash flows on
specified dates that are solely payments of principal and interest
and therefore these financial assets default to this
classification. Financial assets also include cash and cash
equivalents as well as other receivables which are measured at
amortised cost.
(b) Recognition, measurement and derecognition
Purchases and sales of investments are recognised on the trade
date - the date on which the Company commits to purchase or sell
the investment. Financial assets at fair value through profit or
loss are measured initially and subsequently at fair value.
Transaction costs are expensed as incurred and movements in fair
value are recorded in the Statement of Comprehensive Income.
Financial assets are derecognised when the rights to receive
cash flows from the investments have expired or the Company has
transferred substantially all risks and rewards of ownership.
(c) Fair value estimation
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The Company holds PECs
issued by the Investment Vehicle. These investments are not listed
or quoted on any securities exchange and are not traded regularly
and, on this basis, no active market exists.
(d) Valuation process
The Company relies on the board of the Investment Vehicle making
fair value estimates of an equivalent basis to those that would be
made under IFRS. As at 31 December 2021, the Directors reviewed
documentary evidence of the valuation of Investment Vehicle
investments and scrutinised fair value estimates used to gain
assurances as to the appropriateness and robustness of the
valuation methodology applied by the Investment Vehicle to its
underlying portfolio assets and hence to the Company investments in
the Investment Vehicle. Being satisfied by the appropriateness and
robustness of the valuation methodology applied by the Investment
Vehicle, the Directors then incorporated those fair value estimates
into the Company's Statement of Financial Position without
adjustment.
The Directors interviewed representatives of the Investment
Vehicle Manager in order to verify how the PECs are valued and the
composition of the NAV of the PECs as of the date of the Statement
of Financial Position.
The Directors are in regular communications with the Investment
Vehicle Manager and receive monthly performance reports from the
Investment Vehicle Manager in respect of the Investment Vehicle and
its underlying investments, which are presented to the Directors by
the Investment Vehicle Manager and discussed by these parties.
The Directors consider the impact of general credit conditions
on the valuation of both the PECs and Investment Vehicle portfolio,
as well as specific credit events in the European corporate
environment. The Directors also analyse the Investment Vehicle
portfolio in terms of both investment mix and fair value
hierarchy.
Financial Liabilities
(a) Classification
As disclosed in note 2.7, the Company classifies its ordinary
shares as financial liabilities held at amortised cost. Financial
liabilities also include payables excluding accruals which are also
held at amortised cost.
(b) Recognition, measurement and derecognition
Financial liabilities are recognised initially at fair value
plus any directly attributable incremental costs of acquisition or
issue and are subsequently carried at amortised cost. Financial
liabilities are derecognised when the obligation specified in the
contract is discharged, cancelled or expires.
Ordinary shares are carried at amortised cost being the carrying
amount of ordinary share value at which investors have the
opportunity to partially tender their shareholding in accordance
with the Company's Quarterly Contractual Tender facility.
2.5 Operating expenses, placing programme costs and share issue
costs
Operating expenses, placing programme costs and share issue
costs are recognised on an accruals basis and are recognised in the
Statement of Comprehensive Income.
2.6 Dividends payable
Dividends are recognised as finance costs in the Statement of
Comprehensive Income on the date they are paid to shareholders.
2.7 Ordinary shares
In accordance with IAS 32 - Financial Instruments: Presentation,
the ordinary shares are classified as a financial liability rather
than equity due to the redemption mechanism of the ordinary shares,
in addition to there being two share classes which have different
characteristics. Please refer to note 12 for further details.
2.8 Management shares
The management shares are non-redeemable and the most
subordinate share class. Therefore, management shares are
classified as equity. Please refer to note 11 for further
detail.
2.9 Investment income
Investment income primarily relates to quarterly income
distributions received from the Investment Vehicle based on income
returns and capital appreciation from a diversified portfolio of
sub-investment grade debt instruments. The Company is entitled to
receive income distributions every quarter, which will equate to
not less than 75% of the net income of the Company's investment in
the Investment Vehicle. Investment income also includes bank
interest income that the Company receives from cash amounts held on
deposit. Investment income is recognised in the Statement of
Comprehensive Income when the Company's right to such income is
established.
2.10 Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits held
at call with banks. Cash equivalents are short term, highly liquid
investments with original maturities of three months or less that
are readily convertible to known amounts of cash and are subject to
an insignificant risk of changes in value.
2.11 Segmental reporting
The Directors view the operations of the Company as one
operating segment, being the investment business. All significant
operating decisions are based upon analysis of the Company's
investments as one segment. The financial results from this segment
are equivalent to the financial results of the Company as a whole,
which are evaluated regularly by the chief operating decision-maker
(the Board with insight from the Investment Vehicle Manager).
2.12 Contingent liabilities and provisions
A contingent liability is a possible obligation depending on
whether some uncertain future event occurs; or a present obligation
but payment is not probable or the amount cannot be measured
reliably. A provision is recognised when:
- the Company has a present legal or constructive obligation as a result of past events;
- it is probable that an outflow of resources will be required
to settle the obligation; and
- the amount has been reliably estimated.
2.13 Taxation
Profits arising in the Company for the 2021 year of assessment
will be subject to Jersey tax at the standard corporate income tax
rate of 0% (2020: 0%).
2.14 Capital risk management
The Board defines capital as financial resources available to
the Company. The Company's capital as at 31 December 2021 comprises
its net assets attributable to shareholders at a total of
EUR312,415,699 (2020: EUR344,540,247).
The Company's objectives when managing capital are to:
- safeguard the Company's ability to continue as a going concern;
- provide returns for shareholders; and
- maintain an optimal capital structure to minimise the cost of capital.
The Board monitors the capital adequacy of the Company on an
on-going basis and the Company's objectives regarding capital
management have been met.
Under the Code of Practice for Alternative Investment Funds and
AIF Services Business, the Company, as a self-managed AIF is
required to have an initial capital of at least EUR300,000. With
the exception of the aforementioned, the Company has no other
internally or externally imposed capital requirements.
3. Investment income
Year ended Year ended
31 December 31 December
2021 2020
EUR EUR
Income distributions 15,609,665 21,114,461
Bank interest income (2,128) 2,925
Total investment income 15,607,537 21,117,386
------------------------- ------------- -------------
Tender fee income
The tender price pursuant to the Contractual Quarterly Tender
facility is calculated based on the NAV per share (calculated as at
the final business day in each quarter or such other date as the
Directors in their absolute discretion may determine from time to
time) less EUR0.01 or GBP0.01 per share respectively (being 1% of
the original placing price of EUR1.00 and GBP1.00 per share (the
"Original Placing Price")) , which is retained by the Company. The
Company recognises retained redemption proceeds of 1% as tender fee
income.
During the year, 14,490,284 Euro Shares and 43,101,194 Sterling
Shares (2020: 14,580,181 Euro Shares and 124,840,303 Sterling
Shares) have been tendered by shareholders which generated tender
fee income of EUR 646,329 (2020: EUR 1,550,442 ). Refer to note 12
for further details on the Contractual Quarterly Tender
facility.
4. Operating expenses
Year ended Year ended
31 December 31 December
2021 2020
EUR EUR
Directors' fees (see note 6) 221,748 231,535
Administration fees 248,809 188,189
Professional fees 189,334 158,848
Advisor fees 137,001 117,488
Audit fees 81,118 73,289
Registrar fees 76,424 69,205
Regulatory fees 69,143 63,992
Corporate Broker fees 53,375 49,654
Marketing fees 47,820 -
Recruitment fees 43,627 -
Trustee fees 11,026 11,730
Non-audit fees paid to the Auditor 11,750 11,364
Sundry expenses 211,515 159,941
------------------------------------ ------------- -------------
Total operating expenses 1,402,690 1,135,235
------------------------------------ ------------- -------------
Non-audit fees paid to the Auditor
Non-audit fees paid to the Auditor relate to interim review
services amounting to EUR11,750 (2020: EUR11,364). The Company also
paid EURnil (2020: EUR 33,481 ) to the Auditor in respect of
reporting accountant services which were provided in a previous
period. This amount has been included within finance costs (refer
to note 5).
Advisor fees
The Investment Vehicle Manager agreed to provide the services of
Mr. Justin Atkinson to assist with the marketing and promotion of
the Company's shares. The Investment Vehicle Manager recharges the
Company for Mr. Atkinson's cost. During the year, Advisor fees
incurred were EUR137,001 (2020: EUR117,488).
Trustee fees
Trustee fees relate to fees paid to the trustee of the Trust
which facilitates the conversion of treasury shares as further
described in note 12. As the Trust was not engaged to convert
treasury shares during the year ended 31 December 2021, the Trust
did not earn any commission fee income for providing such services.
As such, the Board agreed to settle the expenses of the Trust,
being trustee fees of GBP9,525 (EUR11,026) (2020: GBP10,425
(EUR11,730)) which were paid to BNP Paribas Jersey Trust
Corporation Limited during the year.
5. Finance costs
Placing programme costs
On 29 March 2019, the Company published a prospectus in respect
of a 12-month placing programme for up to 500 million placing
shares, being new ordinary shares (to be denominated as either Euro
Shares, Sterling Shares and/or US Dollar Shares) and/or C shares
(to be denominated as either Euro C Shares, Sterling C Shares
and/or US Dollar C shares).
During the year, the Company incurred placing programme fees of
EURnil. In 2020, EUR33,481 placing programme costs were incurred
which represented reporting accountant services. No further placing
programme fees have been accrued.
Share issue costs
The costs of the sale of treasury shares and placing of new
ordinary shares have been expensed in the Statement of
Comprehensive Income and amounted to a total of EURnil (2020:
EUR3,524).
Dividends paid
Refer to note 12 for further information on dividends paid.
6. Directors' fees and interests
During the year ended 31 December 2021, the Directors of the
Company were remunerated for their services as follows:
Richard Boléat (Chairman) - GBP65,000 (EUR75,534) (2020:
GBP65,000 (EUR73,414)) per annum
Mark Tucker - GBP43,750 (EUR50,899) (2020: GBP43,750
(EUR49,413)) per annum
David Wood - GBP28,333 (EUR32,782) (resigned 18 August 2021)
(2020: GBP42,500 (EUR48,001) per annum)
Stephanie Carbonneil - GBP42,500 (EUR49,445) (2020: GBP42,500
(EUR48,001)) per annum
In addition, Mark Tucker, in his capacity as the Chairman of the
Audit Committee and Senior Independent Director receives an
additional GBP5,000 (EUR5,817) (2020: GBP5,000 (EUR5,647)) and
GBP1,250 (EUR1,454) (2020: GBP1,250 (EUR1,412)) for his services in
these roles and Stephanie Carbonneil, in her capacity as Chairwoman
of the Nomination and Remuneration committee, receives an
additional GBP5,000 (EUR5,817) (2020: GBP5,000 (EUR5,647)) for her
services in this role.
On 18 August 2021, the Company announced that David Wood, a
Non-Executive Director of the Company, had given notice that, with
effect from 31 August 2021, he would be stepping down from his role
on the board of directors of the Company.
On 11 January 2022, the Company announced the appointment of
Vanessa Neill, as a Non-Executive Director of the Company. Refer to
note 16 for further detail.
Refer to note 4 for details of total Directors fees during the
year ended 31 December 2021 and 31 December 2020. Director's fees
are paid gross of any taxes and expenses incurred by each Director
are included within sundry expenses within note 4. Details of the
shares held by each Director at the date of approval of this report
can be found above.
No pension contributions were payable in respect of any of the
Directors. The Company has no employees.
Richard Boléat acts as the enforcer of the CVC Credit Partners
European Opportunities Limited Purpose Trust. Please refer to note
15 for further detail.
On 4 January 2021, Richard Boléat purchased 10,000 Sterling
Shares at a price of GBP0.9556 (EUR1.1117), with a total market
value of GBP9,556 (EUR11,117).
On 16 November 2021, Mark Tucker purchased 8,000 and 2,000
Sterling Shares at a price of GBP1.040 (EUR1.210) and GBP1.037
(EUR1.206) respectively, with a total market value of GBP10,394
(EUR12,092).
7. Financial assets held at fair value through profit or
loss
31 December 31 December
2021 2020
EUR EUR
PECs - Unquoted investment 309,706,971 341,742,461
---------------------------- ------------ ------------
The PECs are valued taking into consideration a range of factors
including the audited NAV of the Investment Vehicle as well as
available financial and trading information of the Investment
Vehicle and of its underlying portfolio; the price of recent
transactions of PECs redeemed and advice received from the
Investment Vehicle Manager; and such other factors as the
Directors, in their sole discretion, deem relevant in considering a
positive or negative adjustment to the valuation.
As at the year ended 31 December 2021, the Company held
118,672,886.93 Euro and 142,063,595.26 Sterling PECs (2020:
123,587,333.61 Euro and 193,056,156.64 Sterling PECs). Please refer
below for reconciliation of PECs from 1 January 2020:
Euro PECs Sterling PECs
As at 1 January 2020 130,144,171.50 324,425,319.07
------------------------ ---------------- -----------------
Subscriptions 346,649.89 -
Monthly conversions 7,564,999.22 (6,474,321.43)
Quarterly tenders (14,468,487.00) (124,894,841.00)
As at 31 December 2020 123,587,333.61 193,056,156.64
------------------------ ---------------- -----------------
Subscriptions - -
Monthly conversions 9,421,597.32 (7,729,409.38)
Quarterly tenders (14,336,044.00) (43,263,152.00)
As at 31 December 2021 118,672,886.93 142,063,595.26
------------------------ ---------------- -----------------
Fair value hierarchy
IFRS 13 requires an analysis of investments valued at fair value
based on the reliability and significance of information used to
measure their fair value.
The Company categorises its financial assets and financial
liabilities according to the following fair value hierarchy
detailed in IFRS 13, that reflects the significance of the inputs
used in determining their fair values:
Level 1: Quoted market price (unadjusted) in an active market
for an identical instrument.
Level 2: Valuation techniques based on observable inputs, 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 where
all significant inputs are directly or indirectly observable from
market data.
Level 3: Valuation techniques using significant unobservable
inputs. This category includes all instruments where the valuation
technique includes inputs not based on observable data and the
unobservable variable inputs have a significant effect on the
instrument's valuation. This category includes instruments that are
valued based on quoted prices for similar instruments where
significant unobservable adjustments or assumptions are required to
reflect differences between the instruments.
As at 31 December 2021
Level 1 Level 2 Level 3 Total
Financial assets EUR EUR EUR EUR
---------------------------- ------------ -------- ------------ ------------
Financial assets held at
fair value through profit
or loss - - 309,706,971 309,706,971
---------------------------- ------------ -------- ------------ ------------
Financial liabilities
---------------------------- ------------ -------- ------------ ------------
Ordinary shares(1) 291,969,674 - - 291,969,674
---------------------------- ------------ -------- ------------ ------------
As at 31 December 2020
Level 1 Level 2 Level 3 Total
Financial assets EUR EUR EUR EUR
---------------------------- ------------ -------- ------------ ------------
Financial assets held at
fair value through profit
or loss - - 341,742,461 341,742,461
---------------------------- ------------ -------- ------------ ------------
Financial liabilities
---------------------------- ------------ -------- ------------ ------------
Ordinary shares(1) 317,655,573 - - 317,655,573
---------------------------- ------------ -------- ------------ ------------
(1) - As disclosed in note 2.7, the Company classifies its
ordinary shares as financial liabilities held at amortised cost.
Please note for disclosure purposes only, ordinary shares have been
disclosed at fair value using the quoted price in accordance with
IFRS 13.
The fair value of investments is assessed on an ongoing basis by
the Board.
Level 3 reconciliation
The following table shows a reconciliation of all movements in
the fair value of financial assets held at fair value through
profit or loss categorised within Level 3 between the beginning and
the end of the reporting period.
31 December 2021
EUR
------------------------------------------------------------------------------------------- -----------------
Balance as at 1 January 2021 341,742,461
------------------------------------------------------------------------------------------- -----------------
Purchases -
Subscriptions arising from conversion 14,795,162
Redemption proceeds arising from conversion (14,859,836)
Redemption proceeds arising from quarterly tenders (65,870,004)
Realised loss on financial assets held at fair value through profit or loss (1,282,445)
Unrealised gain on financial assets held at fair value through profit or loss 22,877,873
Foreign exchange gain on financial assets held at fair value through profit or loss 12,303,760
Balance as at 31 December 2021 309,706,971
------------------------------------------------------------------------------------------- -----------------
Net gain on financial assets held at fair value through profit or loss for the year ended
31 December 2021 21,595,428
------------------------------------------------------------------------------------------- -----------------
During 2021, there were no reclassifications between levels of
the fair value hierarchy.
31 December 2020
EUR
------------------------------------------------------------------------------------------- -----------------
Balance as at 1 January 2020 535,409,935
------------------------------------------------------------------------------------------- -----------------
Purchases 348,681
Subscriptions arising from conversion 8,093,584
Redemption proceeds arising from conversion (8,164,745)
Redemption proceeds arising from quarterly tenders (156,419,064)
Realised loss on financial assets held at fair value through profit or loss (13,454,903)
Unrealised loss on financial assets held at fair value through profit or loss (8,226,597)
Foreign exchange loss on financial assets held at fair value through profit or loss (15,844,430)
Balance as at 31 December 2020 341,742,461
------------------------------------------------------------------------------------------- -----------------
Net loss on financial assets held at fair value through profit or loss for the year ended
31 December 2020 (21,681,500)
------------------------------------------------------------------------------------------- -----------------
During 2020, there were no reclassifications between levels of
the fair value hierarchy.
Quantitative information of significant unobservable inputs -
Level 3 - PECs
31 December Input
Description 2021 Valuation technique Unobservable input used
EUR
------------- ------------ -------------------- ------------------- ------
Adjusted net asset Discount for lack
PECs 309,706,971 value of liquidity 0%
31 December Input
Description 2020 Valuation technique Unobservable input used
EUR
------------- ------------ -------------------- ------------------- ------
Adjusted net asset Discount for lack
PECs 341,742,461 value of liquidity 0%
The Board believes that it is appropriate to measure the PECs at
the NAV of the investments held at the Investment Vehicle, adjusted
for discount for lack of liquidity if necessary, as the underlying
investments held at the Investment Vehicle are held at fair value.
The Board has concluded that no adjustment was necessary in the
current year (2020: none).
The net asset value of the Investment Vehicle attributable to
each PEC unit is EUR 1.1878 (2020: EUR 1.0793).
Sensitivity analysis to significant changes in unobservable
inputs within Level 3 hierarchy - Level 3 - PECs
The significant unobservable inputs used in the fair value
measurement categorised within Level 3 of the fair value hierarchy
together with a quantitative sensitivity analysis as at 31 December
2021 and comparative are as shown below:
As at 31 December 2021
Description Input Sensitivity Effect on fair
used value
EUR
------------- ------------------ ------------ ---------------
Discount of lack
PECs of liquidity 3% (9,291,209)
------------- ------------------ ------------ ---------------
As at 31 December 2020
Description Input Sensitivity Effect on fair
used value
EUR
------------- ------------------ ------------ ---------------
Discount of lack
PECs of liquidity 3% (10,252,274)
------------- ------------------ ------------ ---------------
Investment Vehicle portfolio
Listed equity securities and corporate bonds
The fair values of listed equity securities and corporate bonds
at the reporting date are based on quoted market prices or binding
dealer price quotations (bid price for long positions and ask price
for short positions), without any deduction for transaction costs.
The listed equity securities and corporate bonds are included
within Level 1 of the hierarchy.
Unlisted equities, warrants and debt securities
For all other financial instruments, fair value is determined
using valuation techniques.
The Investment Vehicle invests in some unlisted equities,
warrants, corporate bonds and other debt securities. When these
instruments are not measured at the quoted price in an active
market they are valued using observable inputs, initially sourcing
broker quotes from a number of sources and, where this data does
not yield a reliable market price, utilising appropriate valuation
techniques such as recently executed transaction prices in
securities of the issuer or comparable issuers. Adjustments are
made to the valuations when necessary to recognise differences in
the instrument's terms. To the extent that these inputs are
observable, the Investment Vehicle classifies the fair value of
these investments as Level 2.
The Compartment invests in unlisted corporate debt, managed CLOs
including asset backed securities. These investments are generally
not quoted in an active market and may be subject to restrictions
on redemptions such as lock up periods. Transactions in these
assets do not occur on a regular basis. Investments in these debt
securities are valued based on a combination of a third-party
pricing service, an appraisal of the performance of the issuing
company and utilising appropriate valuation techniques such as
counterparty marks and recently executed transaction prices in
securities of the issuer or comparable issuers. The Investment
Vehicle has classified the fair value of these investments as Level
3 for this financial year.
Forward currency contracts
Foreign currency forward contracts are recognised as contractual
commitments on a trade date basis and are carried at fair value
based on quotes obtained from an independent source (e.g.
Bloomberg). Foreign currency forward contracts are commitments to
either purchase or sell a designated currency at a future date for
a specified price and are settled in cash. Foreign currency forward
contracts are valued by reference to the forward price at which a
new contract of the same size and remaining maturity could be
undertaken at the valuation date. For these financial instruments,
significant inputs are market observable and are included within
Level 2.
Valuation process for Level 3 investments
Valuations are the responsibility of the board of the Investment
Vehicle, who have engaged the Investment Vehicle Services Manager,
the Investment Vehicle Manager and the independent service provider
to independently value the assets on a monthly basis, and perform a
price challenge process. Following the completion of the price
challenge process, the Investment Vehicle Manager presents the
valuation of the assets to the Board on a monthly basis, including
a discussion on the assumptions used and significant fair value
changes during the year.
Investments in CLOs are primarily valued based on the bid price
as provided by the third-party pricing service, and may be amended
following consideration of the Net Asset Value published by the
administrator of the CLOs. Furthermore, such a Net Asset Value is
adjusted when necessary, to reflect the effect of the time passed
since the calculation date, liquidity risk, limitations on
redemptions and other factors. Depending on the fair value level of
a CLOs assets and liabilities and on the adjustments needed to the
Net Asset Value published by that CLO, the Investment Vehicle
classifies the fair value of these investments as Level 3.
Investments in debt securities for which there are a limited
number of broker quotes and for which no other evidence of
liquidity exists and investments in unlisted equity and private
equity companies that are not quoted in an active market are
classified as Level 3. For debt securities with a limited number of
broker quotes, these are then valued by considering in detail the
limited broker quotes available for evidence of outliers (which may
skew the average) which, if existent, are then removed, and then by
calculating the average of the remaining quotes. For debt
securities and unlisted equity or private equity companies for
which there are no broker quotes, the Investment Vehicle Manager
produces a pricing memorandum for the Investment Vehicle drawing on
the International Private Equity Valuation guidelines, which is
discussed, reviewed and accepted by the Investment Vehicle Manager
board and the independent service provider.
If the Investment Vehicle Manager and the independent service
provider have difficulty in establishing an agreed upon valuation
for an asset, they will discuss and agree alternative valuation
methods.
The following tables below, detail the investment holding of the
Company at the Investment Vehicle level, categorising these assets
according to the fair value hierarchy in accordance with IFRS 13
and detailing the quantitative information of significant
unobservable inputs of the Level 3 investments held. The below
disclosure has been included to provide an insight to shareholders,
of the asset class mix held by the Investment Vehicle portfolio. It
is important to note that as at 31 December 2021, the Company held
a 58.54% (2020: 58.71%) interest in the net assets of the
Investment Vehicle. This disclosure has not been apportioned
according to the Company's PEC holding, as the Board believes to do
so would be misleading and not an accurate representation of the
Company's investment in the Investment Vehicle.
The below information regarding the financial assets at fair
value through profit or loss for the Investment Vehicle has been
included for information purposes only.
Financial assets and liabilities at fair value through profit
or loss - (for Investment Vehicle)
31 December
2021
Level Level Level
1 2 3
---------------------------------------- -------- -------- -------- --------
Financial assets EUR'000 EUR'000 EUR'000 EUR'000
---------------------------------------- -------- -------- -------- --------
Equity securities
Equities and warrants - - 9,637 9,637
Debt securities
Corporate bonds and other debt
securities 155,985 409,061 89,216 654,262
CLOs including Asset Backed Securities - - 33,307 33,307
Derivative financial instruments
Forward currency contracts - 3,438 - 3,438
---------------------------------------- -------- -------- -------- --------
Total 155,985 412,499 132,160 700,644
---------------------------------------- -------- -------- -------- --------
Financial liabilities
Corporate bonds and other debt
securities sold short - - - -
Total - - - -
---------------------------------------- -------- -------- -------- --------
Financial assets and liabilities at fair value through profit
or loss - (for Investment Vehicle)
31 December
2020
Level Level Level
1 2 3
---------------------------------------- -------- -------- -------- --------
Financial assets EUR'000 EUR'000 EUR'000 EUR'000
---------------------------------------- -------- -------- -------- --------
Equity securities
Equities and warrants - - 12,304 12,304
Debt securities
Corporate bonds and other debt
securities 120,117 437,402 102,919 660,438
CLOs including Asset Backed Securities - - 34,907 34,907
Forward currency contracts - 4,599 - 4,599
Total 120,117 442,001 150,130 712,248
---------------------------------------- -------- -------- -------- --------
Financial liabilities
Corporate bonds and other debt
securities sold short - - - -
Total - - - -
---------------------------------------- -------- -------- -------- --------
Transfers between Level 2 and Level 3 - (for Investment
Vehicle)
Following a period of material weakness in 2020 as a result of
COVID-19, asset prices recovered mostly to pre-pandemic levels in
2021, with the exception of certain sectors such as leisure,
gaming, transport and retail as these have been more meaningfully
impacted by COVID-19. However, in general, markets have been active
and liquid in 2021.
During 2021, there were no investments reclassified from Level 2
to Level 3 (31 December 2020: EUR 50.2 million) and similarly no
reclassifications from Level 1 to Level 3 (31 December 2020: EUR
9.5 million). There were investments reclassified from Level 3 to
Level 2 having a market value of EUR 5.0 million as at 31 December
2021 (31 December 2020: EUR 32.9 million).
Level 3 reconciliation - (for Investment Vehicle)
The following table shows a reconciliation of all movements in
the fair value of financial instruments categorised within Level 3
between the beginning and the end of the reporting year.
Corporate CLOs (including
bonds Asset
Equities and other Backed
and Warrants debt securities Securities) Total
------------------------------------------- -------------- ----------------- ---------------- -----------
EUR'000 EUR'000 EUR'000 EUR'000
------------------------------------------- -------------- ----------------- ---------------- -----------
Balance as at 1 January 2020 16,315 115,933 41,999 174,247
Total losses in statement of
comprehensive income during the
year (3,014) (17,029) (1,467) (21,510)
Purchases / subscriptions 3,696 45,938 19,205 68,839
Sales / redemptions (5,803) (67,614) (24,830) (98,247)
Transfers into and out of Level
3 1,110 25,691 - 26,801
------------------------------------------- -------------- ----------------- ---------------- -----------
Balances as at 31 December 2020 12,304 102,919 34,907 150,130
------------------------------------------- -------------- ----------------- ---------------- -----------
Total gains in statement of comprehensive
income during the year 3,697 20,708 729 25,134
Purchases / subscriptions 77 61,441 20,762 82,280
Sales / redemptions (6,441) (90,890) (23,091) (120,422)
Transfers into and out of Level
3 - (4,962) - (4,962)
------------------------------------------- -------------- ----------------- ---------------- -----------
Balances as at 31 December 2021 9,637 89,216 33,307 132,160
------------------------------------------- -------------- ----------------- ---------------- -----------
Total unrealised losses and gains
at 31 December 2020 included
in statement of comprehensive
income for assets held at the
end of the year (7,030) (19,274) 1,918 (24,386)
------------------------------------------- -------------- ----------------- ---------------- -----------
Total unrealised losses and gains
at 31 December 2021 included
in statement of comprehensive
income for assets held at the
end of the year 523 2,706 (120) 3,109
------------------------------------------- -------------- ----------------- ---------------- -----------
Quantitative information of significant unobservable inputs -
Level 3 - (in Investment Vehicle)
31 December
2021
-------------------------- ----------------- ------------------------ ----------------
EUR'000 Valuation Range (weighted
Description technique Unobservable input average)
-------------------------- ------------ ----------------- ------------------------ ----------------
Discount to broker
Broker quotes quotes / valuation
Equities and warrants 2,881 / other methods method N/A
-------------------------- ------------ ----------------- ------------------------ ----------------
Asset value
Equities and warrants 6,756 approach Valuation method N/A
-------------------------- ------------ ----------------- ------------------------ ----------------
Broker quotes Cost of market
/ Market transactions /
Corporate bonds multiples multiple of listed
and other debt / Discounted companies / management
securities 89,216 Cash Flow information N/A
-------------------------- ------------ ----------------- ------------------------ ----------------
Specific valuations
CLOs (including Broker quotes of the industry:
Asset Backed Securities) 33,307 / other methods expert valuation N/A
-------------------------- ------------ ----------------- ------------------------ ----------------
31 December
2020
--------------------------- ----------------- ------------------------ ----------------
EUR'000 Valuation Range (weighted
Description technique Unobservable input average)
--------------------------- ------------ ----------------- ------------------------ ----------------
Average EBITDA
multiple of peers
including discount
Equities and warrants 1,500 Market multiples to average multiple 5.7x
--------------------------- ------------ ----------------- ------------------------ ----------------
Cash projection Discount rate
and net present on projected cash
Equities and warrants 2,795 value flows 15%
--------------------------- ------------ ----------------- ------------------------ ----------------
Specific valuations
Broker quotes of the industry:
Equities and warrants 8,009 / other methods expert valuation N/A
--------------------------- ------------ ----------------- ------------------------ ----------------
Broker quotes Cost of market
/ Market transactions /
Corporate bonds multiples multiple of listed
and other debt / Discounted companies / management
securities 102,919 Cash Flow information N/A
--------------------------- ------------ ----------------- ------------------------ ----------------
Specific valuations
CLOs (including Broker quotes of the industry:
Asset Backed Securities) 34,907 / other methods expert valuation N/A
--------------------------- ------------ ----------------- ------------------------ ----------------
The Investment Vehicle board and the Investment Vehicle Manager
have valued the CLO positions at bid-price as at 31 December 2021
and 31 December 2020, as they believe this is the most appropriate
value for these positions. The Board and CVC Credit Partners
believe that where certain credit facilities are classified as
Level 3 due to limited number of broker quotes, there is still
sufficient supporting evidence of liquidity to value these at an
undiscounted bid price.
The above categorizations and descriptions of valuation
technique and unobservable inputs, including ranges, may vary
year-on-year due to changes or evolutions in valuation techniques
as well as the addition or removal of positions due to trade
activity or transfers to or from Level 3.
Sensitivity analysis to significant changes in unobservable
inputs within Level 3 hierarchy - Level 3 - (for Investment
Vehicle)
The significant unobservable inputs used in the fair value
measurement categorised within Level 3 of the fair value hierarchy
together with a quantitative sensitivity analysis as at 31 December
2021 are as shown below:
Description Input Sensitivity Effect on fair
used value EUR'000
--------------------------- ----------------------------- ------------ ------------------
Discount to broker
quotes / valuation
Equities and warrants method 20% 1,131 / (1,131)
--------------------------- ----------------------------- ------------ ------------------
Equities and warrants Valuation method 20% 2,188 / (2,188)
--------------------------- ----------------------------- ------------ ------------------
Cost of market transactions
/
Multiple of listed
Corporate bonds and other companies / Management
debt securities information 10% 8,922 / (8,922)
--------------------------- ----------------------------- ------------ ------------------
Specific valuations
CLOs (including Asset of the industry:
Backed Securities) expert valuation 20% 6,661 / (6,661)
--------------------------- ----------------------------- ------------ ------------------
The significant unobservable inputs used in the fair value
measurement categorised within Level 3 of the fair value hierarchy
together with a quantitative sensitivity analysis as at 31 December
2020 are as shown below:
Description Input Sensitivity Effect on
used fair value
EUR'000
--------------------------- ---------------------- ------------ ----------------
Average EBITDA
multiple of peers
including discount
Equities and warrants to average multiple 1x 2,565/(1,500)
--------------------------- ---------------------- ------------ ----------------
Discount rate on
projected cash
Equities and warrants flows 1 % 96/(131)
--------------------------- ---------------------- ------------ ----------------
Discount to broker
quotes / valuation
Equities and warrants method 20 % 1,386/(1,386)
--------------------------- ---------------------- ------------ ----------------
Discount to broker
Corporate bonds and other quotes / valuation
debt securities method 10 % 10,292/(10,292)
--------------------------- ---------------------- ------------ ----------------
Discount to broker
CLOs (including Asset quotes / other
Backed Securities) methods 20 % 6,981/(6,981)
--------------------------- ---------------------- ------------ ----------------
The above categorizations, unobservable inputs and use of
sensitivities may vary year-on-year due to changes or evolutions in
valuation techniques as well as the addition or removal of
positions due to trade activity or transfers to or from Level
3.
The below information regarding loans and borrowings for the
Investment Vehicle, which are financial liabilities held at
amortised cost, has been included for information purposes
only.
Effective
interest
rate (EIR, 31 December 31 December
%) Maturity 2021 2020
-------------------------------- ------------ ---------- ------------ ------------
EUR'000 EUR'000
-------------------------------- ------------ ---------- ------------ ------------
Current interest-bearing loans
and borrowings
Loan - Bank (principal EUR
160 million) 1.35% 30-Sep-22 160,000 -
Interest on loan - Bank 389 86
-------------------------------- ------------ ---------- ------------ ------------
160,389 86
-------------------------------- ------------ ---------- ------------ ------------
Current interest-bearing loans
and borrowings
Loan - Bank (principal EUR
175 million) 1.58% 30-Jun-22 - 161,000
-------------------------------- ------------ ---------- ------------ ------------
- 161,000
-------------------------------- ------------ ---------- ------------ ------------
Total loans and borrowings
at year end 160,389 161,086
-------------------------------- ------------ ---------- ------------ ------------
As per the amendment and restatement deed dated 23 March 2021,
the maturity date of the credit facility was amended from 30 June
2022 to 30 September 2022, and the previous rate of interest of (a)
Margin of 1.70%; and (b) Libor or, in relation to a Euro
denominated Loan, Euribor + 3 months, was replaced with a rate of
interest of (a) Margin of 1.35%; and (b) Euribor.
A maximum of 7.5% of the Compartment's Gross Assets (as defined
in the PPM) are invested or shall be invested in structured finance
securities at any time. As at year-end, the Compartment had an
exposure to structured finance securities (CLOs and ABS) of 4.4%
(2020: 4.4%).
The financing Bank has collateral to 95% - 100% of cash assets
as well as to 50% of eligible assets as defined in the amendment
and restatement deed dated 23 March 2021 with regards to the loan
with the Bank.
8. Financial risk management
The main risks arising from the Company's financial instruments
are credit risk, liquidity risk, market risk, interest rate risk,
valuation risk and foreign currency risk.
8.1 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. The Board has in place
monitoring procedures in respect of counterparty risk which is
reviewed on an ongoing basis.
The Company's credit risk is attributable to its financial
assets at fair value through profit or loss, financial assets
receivable and cash and cash equivalents.
In the opinion of the Board, the carrying amounts of financial
assets best represent the maximum credit risk exposure to the
Company. T he Company's financial assets exposed to credit risk
amounted to the following:
31 December 31 December
2021 2020
EUR EUR
Financial assets held at fair value through
profit or loss 309,706,971 341,742,461
Cash and cash equivalents 3,001,936 2,870,655
--------------------------------------------- ------------ ------------
Total assets 312,708,907 344,613,116
--------------------------------------------- ------------ ------------
The Company is indirectly exposed to credit risks associated
with the investments held by the Investment Vehicle. These credit
risks include (among others): (i) the possibility that earnings of
an underlying issuer may be insufficient to meet its debt service
obligations; (ii) an underlying issuer's assets declining in value;
(iii) the declining creditworthiness of the Investment Vehicle's
financial counterparties; and (iv) the declining creditworthiness,
default and potential for insolvency of issuers during periods of
rising interest rates and/or economic downturn. An economic
downturn and/or rising interest rates could severely disrupt the
leveraged finance market and adversely affect the value of the
Investment Vehicle's investments and the ability of issuers to
repay principal and interest. In turn, this may adversely affect
the performance of the Investment Vehicle and, by extension, the
Company's business, financial condition, results of operations, NAV
and/or the market prices of the ordinary shares.
The Board discusses the creditworthiness of the Investment
Vehicle's underlying portfolio constituents and banking
counterparties (e.g. banks, money market funds and the issuers of
the debt securities) with CVC Credit Partners on a periodic
basis.
The Company's investment exposure at the Investment Vehicle,
categorised according to the credit rating of the issuers, is: BB
2%, B 68%, CCC 22% and not rated 8% (31 December 2020: BB 4%, B
67%, CCC 18% and not rated 11% ). Cash and cash equivalents
exposure is with institutions rated A+ 100% (31 December 2020: A+
100%). Derivative financial instruments market value exposure is
with institutions rated A+ 100% (31 December 2020: AA- 24% and A+
76%).
Cash amounts of EUR33,765 and GBP492,341 (EUR585,541) (2020:
EUR13,687 and GBP558,019 (EUR623,084)) are placed with BNP Paribas
Securities Services S.C.A., Jersey Branch and GBP2,003,389
(EUR2,382,630) (2020: GBP2,000,614 (EUR2,233,885)) with Santander
Financial Services plc, Jersey Branch.
BNP Paribas Securities Services S.C.A., Jersey Branch, is a
wholly owned subsidiary of BNP Paribas Securities Services S.A.
which is publicly traded and a constituent of the S&P 500 Index
with a long-standing credit rating of A+ (2020: A+) from Standard
& Poor's. Santander Financial Services plc, Jersey Branch, is a
wholly owned subsidiary of Santander International with a long-term
credit rating of A1 from Moody's.
8.2 Liquidity risk
Liquidity risk is the risk that the Company will encounter
difficulties in realising assets or otherwise raising funds to meet
financial commitments. Given that the PECs issued by the Investment
Vehicle and held by the Company are not traded on a stock exchange,
the Company relies on the periodic redemption mechanism provided by
the Investment Vehicle in order to realise its investments in the
Investment Vehicle, and on mechanisms operating in accordance with
their contracted terms. The Company does not have any control over
the redemption mechanism operated by the Investment Vehicle.
Please refer above - "Principal risks and uncertainties" and
note 12 for detail regarding the election to tender available to
ordinary shareholders and applicable restrictions.
The Company may redeem PECs in accordance with its contracted
rights. However, if the Investment Vehicle receives applications to
redeem Investment Vehicle Interests in respect of any redemption
date and it determines (in its sole judgement) that there is
insufficient liquidity to make redemptions without prejudicing
existing investors in the Investment Vehicle, then the Investment
Vehicle is entitled to suspend or scale down the redemption
requests on a pro rata basis so as to only carry out redemptions
that will not prejudice remaining investors.
As such, in circumstances where the Company wishes to redeem
part or all of its holdings in the Investment Vehicle, it may not
be able to achieve this on a single redemption date. This may also
result in restrictions on the Company's ability to complete or to
conduct Contractual Quarterly Tenders.
In certain circumstances, whether prior to or following a NAV
determination date, (being the quarterly Investment Vehicle
valuation date), the Investment Vehicle directors may, at their
discretion, suspend all calculations, payments and redemptions of
the outstanding Investment Vehicle Interests (including the
Company's Investment Vehicle Interests).
In the event of a material adverse event occurring in relation
to the Investment Vehicle or the market in which it operates
generally, the ability of the Company to realise its investment and
prevent the possibility of further losses could, therefore, be
limited by its restricted ability to realise its investment in the
Investment Vehicle. This delay could materially affect the value of
the PECs and the timing of when the Company is able to realise its
investments in the Investment Vehicle, which may adversely affect
the Company's business, financial condition, results of operations,
NAV and/or the market prices of the ordinary shares.
The table below shows the residual contractual maturity of the
Company's financial assets and liabilities as at 31 December
2021:
Less than 1 to 5 More than No maturity
1 year years 5 years date Total
EUR EUR EUR EUR EUR
Financial assets
Financial assets held
at fair value through
profit or loss(1) - - - 309,706,971 309,706,971
Cash and cash equivalents 3,001,936 - - - 3,001,936
--------------------------- ------------ ------- ---------- ---------------- ----------------
Total undiscounted
financial assets 3,001,936 - - 309,706,971 312,708,907
--------------------------- ------------ ------- ---------- ---------------- ----------------
Financial liabilities
Payables (371,590) - - - (371,590)
Ordinary shares(2) - - - (312,415,699) (312,415,699)
--------------------------- ------------ ------- ---------- ---------------- ----------------
Total undiscounted
financial liabilities (371,590) - - (312,415,699) (312,787,289)
--------------------------- ------------ ------- ---------- ---------------- ----------------
(1) - The Company has not classified financial assets held at
fair value through profit or loss into maturity bands as the Board
has determined to do so would be misleading given the Company's
contractual quarterly tender mechanism as set out in note 12.
(2) - The Company has not classified the ordinary shares into
maturity bands as the Board has determined that to do so would be
misleading. Details of the Company's financial liabilities in
relation to the ordinary shares, which are carried at amortised
cost, are set out in note 12. The ordinary shares above include the
lifetime decrease in net assets attributable to the Euro and
Sterling Shares.
The table below shows the residual contractual maturity of the
financial assets and liabilities as at 31 December 2020:
Less than 1 to 5 More than No maturity
1 year years 5 years date Total
EUR EUR EUR EUR EUR
Financial assets
Financial assets held
at fair value through
profit or loss(1) - - - 341,742,461 341,742,461
Cash and cash equivalents 2,870,655 - - - 2,870,655
--------------------------- ------------ ------- ---------- ---------------- ----------------
Total undiscounted
financial assets 2,870,655 - - 341,742,461 344,613,116
--------------------------- ------------ ------- ---------- ---------------- ----------------
Financial liabilities
Payables (118,290) - - - (118,290)
Ordinary shares(2) - - - (344,540,247) (344,540,247)
--------------------------- ------------ ------- ---------- ---------------- ----------------
Total undiscounted
financial liabilities (118,290) - - (344,540,247) (344,658,537)
--------------------------- ------------ ------- ---------- ---------------- ----------------
(1) - The Company has not classified financial assets held at
fair value through profit or loss into maturity bands as the Board
has determined to do so would be misleading given the Company's
contractual quarterly tender mechanism as set out in note 12.
(2) - The Company has not classified the ordinary shares into
maturity bands as the Board has determined that to do so would be
misleading. Details of the Company's financial liabilities in
relation to the ordinary shares, which are carried at amortised
cost, are set out in note 12. The ordinary shares above include the
lifetime decrease in net assets attributable to the Euro and
Sterling Shares.
In the ordinary course of business the Directors expect the
Company's Contractual Quarterly Tenders to be funded by redemptions
from the Investment Vehicle, excepting cumulative quarterly tenders
received in an amount equal to or less than GBP100,000 which may
initially, at the discretion of the Directors, be funded from the
Company's working capital.
8.3 Market risk
Market risk is the risk that the Company's performance will be
adversely affected by changes in the markets in which it invests.
The Company holds a single investment in the form of PECs in the
Investment Vehicle which is the main driver of the Company's
performance.
At the Investment Vehicle level, performance is driven by the
portfolio of the Investment Vehicle and therefore consideration of
the market risks to which the Company is exposed should be
taken.
The Investment Vehicle is required to hold at least 60% of its
gross assets in companies domiciled in, or with material operations
in, Western Europe. As such, the Company and the Investment Vehicle
could be particularly exposed to any deterioration in the current
European economic climate.
In addition, the Investment Vehicle does not have any
restrictions on the amount of investments it can make in a single
industry. As such, any significant event which affects a specific
industry in which the Investment Vehicle has significant exposure
could materially and adversely affect the performance of the
Investment Vehicle and, by extension, the Company's ordinary
shares.
In order to avoid excessive concentrations of risk, the
Investment Vehicle's private placement memorandum includes specific
guidelines on maintaining a diversified portfolio. These guidelines
are detailed in the investment and borrowing limits section
detailed above. The Board receives from third-party service
providers the results of investment and borrowing restriction
monitoring exercises performed over the investment portfolio.
During the year ended 31 December 2021, the Company was in
compliance with all investment and borrowing limits.
Continued or recurring market deterioration may materially
adversely affect the ability of an issuer whose debt obligations
form part of the Investment Vehicle portfolio to service its debts
or refinance its outstanding debt. Further, such financial market
disruptions may have a negative effect on the valuations of the
Investment Vehicle investments (and, by extension, on the NAV
and/or the market price of the Company's ordinary shares), and on
liquidity events involving such Investment Vehicle investments. In
the future, non-performing assets in the Investment Vehicle's
portfolio may cause the value of the Investment Vehicle's portfolio
to decrease (and, by extension, the NAV and/or the market price of
the Company's ordinary shares to decrease). Adverse economic
conditions may also decrease the value of any security obtained in
relation to any of the Investment Vehicle investments. The Board
receives frequent presentations and reporting at board meetings
from CVC Credit Partners which allows it to monitor the performance
of the Investment Vehicle's investment portfolio.
Please refer below for sensitivity analysis on the Statement of
Comprehensive Income and NAV of the Company, if the fair value of
the PECs at the year-end increased or decreased by 5% (2020:
5%):
Current value 2021 Increase Decrease
by 5% by 5%
Total
Euro PECs EUR123,621,784 EUR6,181,089 EUR(6,181,089)
Sterling PECs (Euro equivalent) EUR186,085,187 EUR9,304,259 EUR(9,304,259)
--------------------------------- --------------- -------------- ----------------
Financial assets held at fair
value through profit or loss EUR309,706,971 EUR15,485,349 EUR(15,485,349)
--------------------------------- --------------- -------------- ----------------
Sterling PECs GBP156,466,146 GBP7,823,307 GBP(7,823,307)
--------------------------------- --------------- -------------- ----------------
Current value 2020 Increase Decrease
by 5% by 5 %
Total
Euro PECs EUR120,499,010 EUR6,024,950 EUR(6,024,950)
Sterling PECs (Euro equivalent) EUR221,243,451 EUR11,062,172 EUR(11,062,172)
--------------------------------- --------------- -------------- ----------------
Financial assets held at fair
value through profit or loss EUR341,742,461 EUR17,087,122 EUR(17,087,122)
--------------------------------- --------------- -------------- ----------------
Sterling PECs GBP198,140,292 GBP9,907,015 GBP(9,907,015)
--------------------------------- --------------- -------------- ----------------
The above calculations are based on the investment valuation at
the Statement of Financial Position date and may not be reflective
of future market conditions.
8.4 Interest rate risk
Interest rate movements affect the fair value of investments in
fixed interest rate securities and floating rate loans and on the
level of income receivable on floating rate loans and cash
deposits.
The Company invests in PECs which are non-interest bearing and
therefore the majority of the Company's interest rate exposure
arises in the fair value of the underlying Investment Vehicle
portfolio which is largely invested in the debt securities of
companies domiciled in, or with material operations in, Western
Europe.
As at 31 December 2021, the Investment Vehicle portfolio
contained interest bearing financial assets at fair value through
profit or loss of EUR687.6m (2020: EUR695.3m) and financial
liabilities at fair value through profit or loss of EURnil (2020:
EUR nil). Most of these investments in debt securities carry
variable interest rates and have various maturity dates. Interest
rate risk on fixed interest instruments is considered to be part of
market risk on fair value and is monitored by the Board on a
monthly basis. In addition, as at 31 December 2021, the Company was
exposed to interest rate risk arising on the Investment Vehicle's
derivative financial instruments of EUR3.4m (2020: EUR4.6m),
receivables and payables on unsettled trades of EUR35.9m (2020:
EUR58.9m) and EUR50.6m (2020: EUR43.6m) respectively and loans and
borrowings of EUR160.4 (2020: EUR161.0m).
The Company is also exposed to changes in interest rates on cash
and cash equivalents held directly of GBP3,001,936 (2020:
GBP2,870,655). The Board considers this risk to be immaterial to
the Company.
8.5 Valuation risk
Valuation risk is the risk that the valuation of the Company's
investments in the Investment Vehicle, and accordingly the periodic
calculation of the NAV of the Company's Euro and Sterling Shares,
does not reflect the true value of the Company's proportionate
interest in the Investment Vehicle's underlying investment
portfolio.
The Investment Vehicle's portfolio may at any given time include
securities or other financial instruments or obligations which are
very thinly traded, for which no ready market exists or which are
restricted as to their transferability under applicable securities
laws. These investments may be extremely difficult to value
accurately.
Further, because of overall size or concentration in particular
markets of positions held by the Investment Vehicle, the value of
its investments at which they can be liquidated may differ,
sometimes significantly, from their carrying values. Third-party
pricing information may not be available for certain positions held
by the Investment Vehicle and therefore investments held by the
Investment Vehicle may be valued based on valuation techniques
using unobservable inputs. In light of the foregoing, there is a
risk that an Investment Vehicle interest holder, such as the
Company, which redeems all or part of its investment while the
Investment Vehicle holds such investments, could be paid an amount
less than it would otherwise be paid if the actual value of the
Investment Vehicle's investment was higher than the value
designated for that investment by the Investment Vehicle.
Similarly, there is a risk that a redeeming Investment Vehicle
interest holder might, in effect, be overpaid at the time of the
applicable redemption if the actual value of the Investment
Vehicle's investment was lower than the value designated for that
Investment by the Investment Vehicle, in which case the value of
the Investment Vehicle interests to the remaining Investment
Vehicle interest holders would be reduced.
The Board of the Investment Vehicle monitors and reviews the PEC
valuation process on an ongoing basis and the Board of the Company
monitors and reviews the Company's NAV production process on an
ongoing basis.
Refer to note 7 for sensitivity analysis to significant changes
in unobservable inputs within Level 3 hierarchy of the Company
investments and underlying investments held by the Investment
Vehicle.
8.6 Foreign currency risk
Foreign currency risk is the risk that the values of the
Company's assets and liabilities are adversely affected by changes
in the values of foreign currencies by reference to the Company's
functional currency. The functional currency of the Company and the
Investment Vehicle is the Euro.
At the Company level, the Euro and Sterling share classes invest
into Euro and Sterling PECs respectively and therefore there is no
material foreign currency risk at the Company level. The Company
only has exposure to material foreign currency movements at the
Investment Vehicle level.
At the Investment Vehicle level, certain assets are typically
denominated in other currencies. The Investment Vehicle is subject
to material foreign currency exchange risks and the value of its
assets may be affected by fluctuations in foreign currency exchange
rates. This may, in turn, result in fluctuations in the value of
the Euro and Sterling PECs which would result in similar variances
within the NAV per Share of the Euro Shares and the Sterling Shares
issued by the Company, and so in variations between the market
prices of Euro Shares and the Sterling Shares.
The Investment Vehicle uses a third-party professional foreign
exchange manager to seek to materially fully hedge the foreign
currency exposures to which it is exposed. However, it may not be
possible for the Investment Vehicle to hedge against a particular
change or event at an acceptable price or at all. In addition,
there can be no assurance that any attempt to hedge against a
particular change or event would be successful, and any such
hedging failure could materially and adversely affect the
performance of the Investment Vehicle and, by extension, the
Company's business, financial condition, results of operations, NAV
and/or the market prices of the ordinary shares.
Subscription monies for Sterling Shares issued by the Company
have been used to fund subscriptions for Sterling-denominated PECs
and such monies may then be converted to Euro by the Investment
Vehicle for operating purposes. The holders of Sterling Shares will
therefore be subject to the foreign currency fluctuations between
Sterling and Euro. Although the Investment Vehicle has in place a
hedging programme, there is no guarantee that any such hedging
arrangements will be successful. In addition, the costs and any
benefit of hedging such foreign currency exposure will be allocated
solely to the Sterling-denominated PECs (and, as a consequence, to
the Company's Sterling Shares).
The below information regarding the foreign currency risk for
the Investment Vehicle has been included for information purposes
only.
The following table indicates the currencies to which the
Investment Vehicle had significant exposure as at its financial
year end on its financial assets and liabilities. The analysis
calculates the total effect of a reasonably possible movement of
principal currency rates against the EUR on the net assets
attributable to PEC holders with all other variables held constant,
and includes the impact of the hedging programme undertaken by the
Investment Vehicle.
Currency Change in Effect on net assets attributable to PEC
currency holders and on the change in net assets
rate attributable to PEC holders from operations
2021 2020
EUR'000 EUR'000
GBP 10% (98) (106)
USD 10% 457 (11)
An equivalent decrease in each of the aforementioned currencies
against the EUR would have resulted in an equivalent but opposite
impact.
9. Payables
31 December 31 December
2021 2020
EUR EUR
Advisor fees 47,691 36,313
Audit fees 89,818 33,257
Administration fees 46,810 16,339
Other payables 187,271 32,381
Total payables 371,590 118,290
--------------------- ------------ ------------
10. Contingent liabilities and commitments
As at 31 December 2021, the Company had no contingent
liabilities or commitments (2020: nil).
11. Stated capital
Number
Number of of
shares Stated capital shares Stated capital
31 December 31 December 31 December 31 December
2021 2021 2020 2020
EUR EUR
-------------------
Management shares 2 - 2 -
------------------- ------------ --------------- ------------ ---------------
Management shares
Management shares are non-redeemable, have no par value and no
voting rights, and also no profit allocated to them in the earnings
per share calculation.
12. Ordinary shares
Number of Number
shares Stated capital of shares Stated capital
31 December 31 December 31 December 31 December
2021 2021 2020 2020
EUR EUR
Euro Shares 120,016,565 121,709,872 124,768,754 126,544,862
Sterling Shares 143,874,174 188,411,142 194,829,202 237,807,456
--------------- --------------- --------------- ---------------
Total 263,890,739(1) 310,121,014(2) 319,597,956(1) 364,352,318(2)
----------------- --------------- --------------- --------------- ---------------
(1) - Excludes 35,089,055 (2020: 20,598,771) Euro Shares and
218,048,635 (2020: 174,947,441) Sterling Shares held as treasury
shares.
(2) - Excludes EUR 2,294,685 (2020: ( EUR 19,812,071)) relating
to the increase since inception (2020: decrease) in net assets
attributable to shareholders from operations.
31 December
2021
Total
EUR
--------------------------------------------------- -------------
Balances as at 1 January 2021 364,352,318
--------------------------------------------------- -------------
Issue of ordinary shares -
Subscriptions arising from conversion of ordinary
shares 14,795,161
Redemption payments arising from conversion
of ordinary shares (14,859,835)
Redemption payments arising from quarterly
tenders of ordinary shares (66,650,700)
Foreign currency exchange loss on ordinary
shares 12,484,070
Balances as at 31 December 2021 310,121,014
--------------------------------------------------- -------------
31 December
2020
Total
EUR
--------------------------------------------------- ---------------
Balances as at 1 January 2020 538,570,092
--------------------------------------------------- ---------------
Issue of ordinary shares 352,205
Subscriptions arising from conversion of ordinary
shares 8,093,584
Redemption payments arising from conversion
of ordinary shares (8,164,745)
Redemption payments arising from quarterly
tenders of ordinary shares (158,565,089)
Foreign currency exchange gain on ordinary
shares (15,933,729)
Balances as at 31 December 2020 364,352,318(1)
--------------------------------------------------- ---------------
(1) - Excludes EUR 2,294,685 (2020: EUR (19,812,071)) relating
to the increase since inception (2020: decrease) in net assets
attributable to shareholders from operations.
The Company has two classes of ordinary shares, being Euro
Shares and Sterling Shares.
Each Euro Share holds 1 voting right, and each Sterling Share
holds 1.17 voting rights. Each Share has no par value.
As at 31 December 2021, the Company had 155,105,620 (inclusive
of 35,089,055 treasury shares) (2020: 145,367,525 (inclusive of
20,598,771 treasury shares)) Euro Shares and 361,922,809 (inclusive
of 218,048,635 treasury shares) (2020: 369,776,643 (inclusive of
174,947,441 treasury shares)) Sterling Shares in issue.
Sale of treasury shares
The Company completed the sale of nil (2020: 350,00 0 ) Euro and
nil (2020: nil) Sterling treasury shares during the year ended 31
December 2021.
Voluntary conversion
The Company offers a monthly conversion facility pursuant to
which holders of ordinary shares of one class may convert such
shares into ordinary shares of any other class, subject to
regulatory considerations.
Such conversion is effected on the basis of the ratio of the NAV
per class to be converted (calculated in Euro less the costs of
effecting such conversion and adjusting any currency hedging
arrangements and taking account of dividends resolved to be paid),
to the NAV per class of the shares into which they will be
converted (also calculated in Euro), in each case on the relevant
conversion calculation date being the first business day of the
month. During the year 2,625,562 (2020: 750,810) Euro Shares were
converted into 2,091,786 (2020: 619,959) Sterling Shares and
9,945,620 (2020: 7,152,706) Sterling Shares were converted into
12,363,657 (2020: 8,474,131) Euro Shares.
Treasury share convertor mechanism
At the 2016 Annual General Meeting the Company requested, and
received, shareholder approval to create a mechanism whereby
treasury shares held by the Company be converted from one currency
denomination to another in accordance with the procedure set out in
the Articles. As the conversion cannot take place while the
treasury shares are held by the Company, it was proposed that a
facility be created so that some or all of the treasury shares be
sold to a related party, who would be willing to facilitate the
conversion of the treasury shares from one currency denomination to
another. The treasury share convertor mechanism was put in place to
provide the Company with a means of converting one class into
another to meet demand in the market from time to time.
Accordingly, on the 11 September 2017, the Company established
the Trust, a business purpose trust established under Jersey law.
The purpose of the Trust is the facilitation of the conversion of
the treasury shares by the incorporation of a company, the
Conversion Vehicle, who would purchase treasury shares from the
Company, convert them into shares of the other currency
denomination and sell those converted shares back to the Company.
The Chairman of the Company was appointed as the enforcer of the
Trust.
The treasury share convertor mechanism was not utilised during
the year ended 31 December 2021 (2020: not utilised).
Contractual Quarterly Tender facility
The Company has established a Contractual Quarterly Tender
facility that enables shareholders to tender their shares in the
Company in accordance with a stated contracted mechanism.
The offer of Contractual Quarterly Tenders is subject to annual
shareholder approval and subject to the terms, conditions and
restrictions as set out in the latest tender circular to gain
shareholder approval. At the time of writing this tender circular,
which was approved on 6 December 2021, is available on the
Company's website ( www.ccpeol.com ).
T he Directors believe that the Company's Contractual Quarterly
Tender facility serves to provide shareholders with additional
liquidity when compared with other listed closed-ended investment
companies.
Pursuant to the terms of the Company's tender circular, the
Board is able to: suspend quarterly tenders; amend the quarterly
tender timetable; and to reduce the maximum number of shares that
may be tendered in any quarter below the limit of 24.99 per cent of
the Shares in issue at the relevant Tender Record Date (being the
date on which the number of shares then in issue will be recorded
for the purposes of determining the restrictions) (the "Additional
Powers"). On the basis that the Additional Powers are not
implemented, each quarterly tender is subject to a limit of 24.99%
of the shares in issue as at the relevant Tender Record Date
(excluding treasury shares), and 50% of the issued shares in issue
as at the Annual Record Date (excluding treasury shares). The Board
has not exercised the Additional Powers to date. In the event of a
stressed liquidity situation, or other market tail risk event, the
Board could exercise the Additional Powers. The Board have
considered post-IPO scenario analysis and stress tests as described
in the Viability Statement and based on this assessment, the Board
have not identified a scenario which would have given rise to the
exercise of the Additional Powers.
On 6 December 2021 the Company held an EGM at which a Resolution
was proposed and approved to amend the terms of the Contractual
Quarterly Tender facility by implementing additional requirements
for shareholders tendering their shares. The changes to the
Contractual Quarterly Tender facility implemented a maximum limit
(subject only to Pro Rata Scaling Back) in respect of the number of
Shares a Shareholder is permitted to tender, and Requires
Shareholders to provide a representation and warranty to the
Company that they have held the Shares tendered continuously
between the relevant Tender Record Date and the date and time of
receipt by the Company of their Tender Request and that none of the
Shares tendered were acquired by such Shareholder after the
relevant Tender Record Date. The Board has not exercised these
additional powers to date.
It is important to note that Contractual Quarterly Tenders, if
made, are contingent upon certain factors including, but not
limited to, the Company's ability to finance tender purchases
through submitting redemption requests to the Investment Vehicle to
redeem a pro rata amount of Company Investment Vehicle
Interests.
Factors, including restrictions at the Investment Vehicle level
on the number of PECs which can be redeemed, may mean that
sufficient Company Investment Vehicle Interests cannot be redeemed
and, consequently, tender purchases in any given quarter may be
scaled back on a pro rata basis.
Shareholders should therefore have no expectation of being able
to tender their shares to the Company successfully on a quarterly
basis.
In addition to the Contractual Quarterly Tender facility, the
Directors seek annual shareholder approval to grant them the power
to make ad hoc market purchases of shares. If such authority is
subsequently granted, the Directors, in the event of a stressed
liquidity situation, or other market tail risk event, may exercise
Additional Powers as to the timing, price and volume of shares to
be purchased. Shareholders should not place any reliance on the
willingness or ability of the Directors so to act.
In the absence of the availability of the Contractual Quarterly
Tender facility shareholders wishing to realise their investment in
the Company will be required to dispose of their shares on the
stock market.
Accordingly, shareholders' ability to realise their investment
at any particular price and/or time may be dependent on the
existence of a liquid market in the shares.
Liquidity risks associated with the Contractual Quarterly Tender
facility are set out in note 8.2.
During the year 14,490,284 (2020: 14,580,181) Euro Shares and
43,101,194 (2020: 124,840,303) Sterling Shares were redeemed as
part of the Contractual Quarterly Tender facility and subsequently
held by the Company in the form of treasury shares. Refer above for
details. Treasury shares do not carry any right to attend or vote
at any general meeting of the Company. In addition, the Contractual
Quarterly Tenders and the voluntary conversion facility are not
available in respect of Treasury shares.
Dividends
The ordinary shares of each class carry the right to receive all
income of the Company attributable to such class of ordinary share,
and to participate in any distribution of such income made by the
Company and within each such class such income shall be divided
pari passu among the shareholders in proportion to the
shareholdings of that class. During the year ended 2021, the
Company declared and paid dividends based on the investment income
received from the Investment Vehicle during the year.
Please refer below for amounts recognised as dividend
distributions to ordinary shareholders in the years ended 31
December 2021 and 31 December 2020.
Ex-dividend
date Payment date GBP equivalent EUR
Euro - EUR0.01125 per
share(1) 04/02/2021 26/02/2021 1,371,742
Sterling - GBP0.01125
per share(1) 04/02/2021 26/02/2021 1,911,608 2,223,908
Euro - EUR0.01125 per
share(1) 06/05/2021 28/05/2021 1,327,003
Sterling - GBP0.01125
per share(1) 06/05/2021 28/05/2021 1,795,612 2,088,961
Euro - EUR0.01000 per
share(1) 05/08/2021 27/08/2021 1,466,964
Sterling - GBP0.01000
per share(1) 05/08/2021 27/08/2021 1,944,693 2,262,398
Euro - EUR0.01125 per
share(1) 11/11/2021 03/12/2021 1,443,022
Sterling - GBP0.01125
per share(1) 11/11/2021 03/12/2021 1,843,348 2,144,497
14,328,495
(1) - Recognised in the year ended 31 December 2021
Ex-dividend
date Payment date GBP equivalent EUR
Euro - EUR0.01375 per
share(1) 06/02/2020 28/02/2020 1,779,806
Sterling - GBP0.01375
per share(1) 06/02/2020 28/02/2020 3,422,457 3,850,776
Euro - EUR0.01375 per
share(1) 14/05/2020 05/06/2020 1,773,850
Sterling - GBP0.01375
per share(1) 14/05/2020 05/06/2020 3,206,426 3,607,710
Euro - EUR0.01000 per
share(1) 06/08/2020 28/08/2020 1,241,591
Sterling - GBP0.01000
per share(1) 06/08/2020 28/08/2020 2,063,199 2,321,408
Euro - EUR0.01125 per
share(1) 12/11/2020 04/12/2020 1,372,756
Sterling - GBP0.01125
per share(1) 12/11/2020 04/12/2020 2,217,922 2,495,496
18,443,393
(2) - Recognised in the year ended 31 December 2020
Please refer to note 16 for further information subsequent to
the reporting period.
Return per share
31 December 31 December 31 December 31 December
2021 2021 2020 2020
GBP equivalent EUR GBP equivalent EUR
Euro Shares
Increase in net assets
for the year - 10,054,074 - (6,581,197)
Results per share - 0.083772 - (0.051747)
Sterling Shares
Increase in net assets
for the year 10,134,266 12,052,682 (10,733,488) (11,985,013)
Results per share 0.070438 0.083772 (0.046343) (0.051747)
Return per share has been calculated on a weighted average
basis. The weighted average number of ordinary shares held during
the year ended 31 December 2021 was 263,890,739 (2020:
358,790,452), comprising 120,016,565 (2020: 127,181,080) Euro
Shares and 143,874,174 (2020: 231,609,372) Sterling Shares.
Refer to note 16 for transactions involving the Company's Euro
or Sterling Shares between 1 January 2021 and date of approval of
these financial statements.
13. Net asset value per ordinary share
31 December 31 December 31 December 31 December
2021 2021 2020 2020
GBP equivalent EUR GBP equivalent EUR
Euro Shares
NAV - 123,210,226 - 120,487,361
NAV per ordinary share - 1.0266 - 0.9657
Sterling Shares
NAV 159,089,778 189,205,473 200,656,354 224,052,886
NAV per ordinary share 1.1058 1.3151 1.0299 1.1500
Net assets attributable
to shareholders - 312,415,699 - 344,540,247
NAV per share has been calculated based on the share capital in
issue as at year end, excluding shares held in treasury. The issued
share capital as at 31 December 2021 comprised of 120,016,565 Euro
Shares (31 December 2020: 124,768,754 ) and 143,874,174 Sterling
Shares (31 December 2020: 194,829,202 ).
14. Reconciliation of liabilities arising from financing
activities
2021 2020
EUR EUR
----------------------------------------------------- ------------- --------------
Opening Balance 344,540,247 537,324,231
----------------------------------------------------- ------------- --------------
Cash flow movements
Proceeds from issuance of ordinary shares - 352,205
Payments from redemption of ordinary shares (81,510,535) (166,729,834)
Placing programme costs - (33,481)
Share issue costs paid - (3,524)
Dividends paid (14,328,495) (18,443,393)
Non cash flow movements
Proceeds from subscriptions arising from conversion
of ordinary shares 14,795,161 8,093,584
Foreign currency exchange loss/(gain) on ordinary
shares 12,484,070 (15,933,729)
Profit/(loss) before finance costs and taxation 36,435,251 (85,812)
Closing Balance 312,415,699 344,540,247
----------------------------------------------------- ------------- --------------
15. Related party disclosure
The Directors are entitled to remuneration for their services
and all Directors hold Sterling shares in the Company. Please refer
to note 6 for further detail.
Transactions between the Company and the Trust and Conversion
Vehicle are disclosed in note 4 and 12.
Richard Boleat acts as the enforcer of the Trust, a business
purpose trust established under Jersey law and settled by the
Company. The role has arisen as a result of the implementation of
the resolution passed at the Company's Annual General Meeting on 4
April 2016 which authorised the Company to make arrangements to
enable the conversion of treasury shares held by the Company from
time to time from one currency denomination to another. The
position is unremunerated and represents an alignment of interests
with those of the Company.
The below information regarding select related party disclosures
for the Investment Vehicle has been included for information
purposes only.
As at 31 December 2021, the Compartment holds debt securities in
entities where CVC Capital Partners also has an interest. These
positions were entered into pari-passu with third party
investors.
16. Material events after the Statement of Financial Position
date
Management has evaluated subsequent events for the Company
through 5 April 2022, the date the financial statements were
available to be issued, and has concluded that the material events
listed below do not require adjustment of the financial
statements.
Ordinary share conversions
On 17 December 2021, the Company announced it had received
applications from shareholders to convert 4,600,392 Euro Shares
into Sterling Shares on 31 January 2021. On 25 January 2022, the
Company subsequently announced the applicable conversion ratio was
0.779466 Sterling Share per Euro Share and that an application
would be made for the admission of 3,585,848 Sterling Shares to the
Official List of the UKLA, to be admitted to trading on the main
market of the London Stock Exchange. As announced on 31 January
2022, dealings in the shares commenced on the same date.
On 21 March 2022, the Company announced it had received
applications from shareholders to convert 980,000 Euro Shares into
Sterling Shares on 29 April 2022.
Contractual quarterly tender
On 6 January 2022, the Company announced it had received
applications from shareholders to tender 6,167,976 Euro Shares and
10,918,578 Sterling Shares under the December 2021 Contractual
Quarterly Tender. The Company, on 25 January 2022, announced a
tender price per share of EUR1.0166 and GBP1.0958 respectively. On
9 February 2021, the December 2021 Contractual Quarterly Tender
completed with 6,167,976 Euro Shares and 10,918,578 Sterling Shares
being repurchased and transferred into the Company's name and held
as treasury shares.
On 10 February 2022, the Company announced it had received
applications from shareholders to tender 852,436 Euro Shares and
3,490,001 Sterling Shares under the March 2022 Contractual
Quarterly Tender.
Dividend declaration
On 26 January 2022, the Company declared a dividend of EUR0.0125
per Euro Share and GBP0.0125 per Sterling Share payable on 25
February 2022 to shareholders on the register as at 3 February
2021.
Directorate appointment
On 11 January 2022, the Company announced the appointment of
Vanessa Neill, as a Non-Executive Director of the Company. Refer to
note 16 for further detail.
Director declaration
On 18 February 2022, the Company announced that Richard Boléat,
Chairman of the Board of the Company, has been appointed as a
non-executive director of Third Point Investors Limited with effect
from 1 March 2022.
Strategic Update
On 9 March 2022 the Company announced that the Board was
considering making changes pursuant to its ongoing strategic
monitoring programme. It was noted that, in particular, the Board
was considering amending the Company's investment policy,
increasing the Company's target dividend, amending its target total
return and reviewing the parameters of the Company's contractual
quarterly tender mechanism. Any proposed changes to the investment
policy will be subject to shareholder approval.
17. Controlling party
In the Directors' opinion, the Company has no ultimate
controlling party
USEFUL INFORMATION FOR SHAREHOLDERS (UNAUDITED)
Dividend history
Year ended Total dividend paid Total dividend paid
per Euro Share per Sterling Share
2014 EUR0.03500 GBP0.03500
2015 EUR0.05000 GBP0.05000
2016(1) EUR0.06250 GBP0.06250
2017(2) EUR0.05250 GBP0.05250
2018 EUR0.05500 GBP0.05500
2019 EUR0.05500 GBP0.05500
2020 EUR0.04875 GBP0.04875
2021 EUR0.04750 GBP0.04750
Alternative performance measures disclosure
In accordance with ESMA Guidelines on APMs the Board has
considered what APMs are included in the Annual Financial Report
and financial statements which require further clarification. An
APM is defined as a financial measure of historical or future
financial performance, financial position, or cash flows, other
than a financial measure defined or specified in the applicable
financial reporting framework. APMs included in the financial
statements, which are unaudited and outside the scope of IFRS, are
deemed to be as follows:
NAV total return vs monitored indices
The NAV total return measures how the NAV per Euro Share and
Sterling Share has performed over a period of time, taking into
account both capital returns and dividends paid to shareholders.
The Company quotes NAV total return as a percentage change from a
certain point in time, such as the initial issuance of Euro and
Sterling Shares or the beginning of the period, to the latest
reporting date, being 31 December 2021 in this instance. It assumes
that dividends paid to shareholders are reinvested back into the
Company therefore future NAV gains are not diminished by the paying
of dividends.
The Board monitors the Company NAV total return against the
Credit Suisse Western European High Yield Index (hedged in Euros)
Total Return and Credit Suisse Western European Leveraged Loan
Index (hedged in Euros) Total Return. The total return results for
both the Company's NAV and the monitored indices over certain time
periods are presented below:
Total Return
3 Months 6 Months 12 Months Since inception
Euro NAV Total Return 0.29% 2.87% 11.41% 52.97%
Sterling NAV Total Return 0.51% 3.19% 12.17% 62.87%
Credit Suisse Western European High Yield Index (hedged in Euros)
Total Return (0.05)% 0.75% 4.04% 32.97%
Credit Suisse Western European Leveraged Loan Index (hedged in
Euros) Total Return 0.7% 1.68% 4.63% 28.18%
The Company's Euro Share and Sterling Share NAV capital return
is calculated by dividing the difference between the closing NAV
per share and the opening NAV per share, divided by the opening NAV
per share. The income return is calculated by adding each dividend
paid back to the NAV per share on the ex-div date (being the date
dividends are deducted from the NAV of the Company). This amplifies
the value of each dividend paid by the capital return and
demonstrates the effect of reinvesting dividends back into the
Company at the ex-div date. The total return is then determined by
adding the capital and income return. The total return calculations
for 31 December 2021 and 31 December 2020 are presented
overleaf.
(1) As a result of the Company amending the frequency of its
dividend payments to a quarterly basis rather than a semi-annual
basis during 2016, shareholders received an additional EUR0.0125
and GBP0.0125 dividend per Euro and Sterling Share
respectively.
(2) During 2017, the Company increased its annual dividend to
5.5 cents per Euro Share and 5.5 pence per Sterling Share.
2021 2021 Annual dividend per share
Euro share
NAV per share as at 31 December 2020 EUR0.9657
NAV per share as at 31 December 2021 EUR1.0266
----------
Capital return 6.31%
----------
Income return 4.750c 5.10%
----------
Total return 11.41%
----------
Sterling share
NAV per share as at 31 December 2020 GBP1.0299
NAV per share as at 31 December 2021 GBP1.1058
----------
Capital return 7.36%
----------
Income return 4.750p 4.80%
----------
Total return 12.17%
----------
2020 2020 Annual dividend per share
Euro share
NAV per share as at 31 December 2019 EUR1.0013
NAV per share as at 31 December 2020 EUR0.9657
----------
Capital return (3.56)%
----------
Income return 4.875c 5.27%
----------
Total return 1.71%
----------
Sterling share
NAV per share as at 31 December 2019 GBP1.0534
NAV per share as at 31 December 2020 GBP1.0299
----------
Capital return (2.23)%
----------
Income return 4.875p 5.03%
----------
Total return 2.80%
----------
NAV to market price discount
The NAV per share is the value of the Company's assets, less any
liabilities it has, divided by the total number of Euro and
Sterling Shares. However, because the Company ordinary shares are
traded on the London Stock Exchange's Main Market, the share price
may be higher or lower than the NAV. The difference is known as a
premium or discount. The Company's premium or discount to NAV is
calculated by expressing the difference between the period end
respective share class price (bid price) and the period end
respective share class NAV per share as a percentage of the
respective NAV per share.
At 31 December 2021, the Company's Euro Shares and Sterling
Shares traded at EUR0.9500 (2020: EUR0.9000) and GBP1.0400 (2020:
GBP0.9440) respectively. The Euro Shares traded at a discount of
7.46% (2020: 6.80% discount) to the NAV per Euro Share of EUR1.0266
(2020: EUR0.9657) and the Sterling Shares traded at a discount of
5.95% (2020: 8.34% discount) to the NAV per Sterling Share of
GBP1.10576 (2020: GBP1.0299).
Ongoing charges
The Company has chosen the AIC's methodology for calculating an
ongoing charges figure. In line with the AIC's recommended guidance
on ongoing charges, the Company's ongoing charges ratio includes a
relevant proportion of the Investment Vehicle's operating expenses;
please refer below for further details. The ongoing charges ratio
for the year ended 31 December 2021 was 1.61% (2020: 1.54%). The
ongoing charges for the Company's Euro and Sterling share classes
individually are approximate to each other and therefore, the
Company has chosen to disclose one ongoing charges figure. The
Company's ongoing charges ratio is based on annualised ongoing
charges of EUR5,104,115 (2020: EUR5,494,360) divided by average NAV
in the period of EUR317,614,082 (2020: EUR355,657,199).
Calculating ongoing charges
The ongoing charges are based on actual costs incurred in the
year excluding any non-recurring fees in accordance with the AIC
methodology. Expense items have been excluded in the calculation of
the ongoing charges figure when they are not deemed to meet the
following AIC definition:
"Ongoing charges are those expenses of a type which are likely
to recur in the foreseeable future, whether charged to capital or
revenue, and which relate to the operation of the investment
company as a collective fund, excluding the costs of
acquisition/disposal of investments, financing charges and
gains/losses arising on investments. Ongoing charges are based on
costs incurred in the year as being the best estimate of future
costs."
Ongoing charges methodology
In accordance with the recommended methodology for the
calculation of an ongoing charge figure published by the AIC (and
most recently updated in October 2021), the Company has
incorporated, in addition to a relevant portion of the management
fee(2) , a relevant proportion Investment Vehicle operating
expenses (that would be considered ongoing charges under the AIC
methodology) into its own ongoing charges figure. For the avoidance
of doubt, the ongoing charges ratio includes the Company's pro-rata
share of the Investment Vehicle management fee, custodian and
administration expenses and other general expenses but excludes
interest costs and performance fees.
Please refer below for ongoing charges reconciliation for the
years ended 31 December 2021 and 31 December 2020:
31 December 31 December
2021 2020
EUR EUR
Total operating expenses for the year: 1,402,690 1,135,235
----------------------------------------------- ------------ ------------
Expenses excluded from the calculation
of ongoing charges figures, in accordance
with AIC's methodology:
Professional fees (174,054) (140,481)
Sundry expenses - (11,730)
----------------------------------------------- ------------ ------------
Total ongoing charges for the year (excluding
Investment Vehicle management fee) 1,228,636 983,024
----------------------------------------------- ------------ ------------
Add: Investment Vehicle operating expenses 901,559 993,197
Add: Investment Vehicle management fee
(2) 2,973,920 3,518,139
Total ongoing charges for the year (including
Investment Vehicle management fee) 5,104,115 5,494,360
----------------------------------------------- ------------ ------------
Ongoing charges inclusive of Investment Vehicle performance
fee
In accordance with the recommended methodology for the
calculation of an ongoing charge figure published by the AIC (and
most recently updated in October 2021), the Board has chosen to
disclose an ongoing charges figure inclusive of the Investment
Vehicle's performance fee(3) . As the performance fee can differ
between share classes, the Company has disclosed the ongoing
charges plus performance fee ratio for both share classes
separately.
31 December 2021
Euro Shares Sterling Shares
Ongoing charges ratio 1.59% 1.62%
Add: Investment Vehicle performance fee(3) 1.13% 1.24%
-------------------------------------------- ------------ ----------------
Ongoing charges plus performance fee ratio 2.72% 2.86%
31 December 2020
Euro Shares Sterling Shares
Ongoing charges ratio 1.54% 1.54%
Add: Investment Vehicle performance fee(3) 0.07% 0.01%
-------------------------------------------- ------------ ----------------
Ongoing charges plus performance fee ratio 1.61% 1.55%
Dividend yield
The dividend per Euro and Sterling Share is expressed as a
percentage of the Euro and Sterling Share price (bid price).
31 December 31 December
2021 2020
Euro shares
Annual dividend per
Euro Share EUR0.04750 EUR0.04875
Share price (bid price) EUR0.9500 EUR0.9000
Dividend yield 5.00% 5.42%
Sterling shares
Annual dividend per GBP0.04750 GBP0.04875
Euro Share
Share price (bid price) GBP1.0400 GBP0.9440
Dividend yield 4.57% 5.16%
(1) - The Company's ongoing charges are considered to be APMs
which are calculated according to the methodology outlined above
and differ to the ongoing costs disclosed within the Company's KIDs
which follows the methodology prescribed by EU rules. For example,
the ongoing costs disclosed in the Company's KIDs include interest
expense and are based on average ongoing charges over the past
three years whereas the ongoing charges ratio disclosed in this
report do not include interest expense and are based on ongoing
charges incurred during the year ended 2021 only. The Company's
most current KIDs and an accompanying explanatory note reconciling
the two different ratios are available on the Company's website (
www.ccpeol.com/news-documents ).
2 - Details of the management fee that CVC Credit Partners is
entitled to can be found on the Company RNS announcement dated 23
April 2021 (
https://www.ccpeol.com/investor-information/rns-updates/distribution-policy-change/
) .
(3) - Details of the performance fee that CVC Credit Partners is
entitled to can be found on pages 12 and 13 of the Company's latest
prospectus (
https://www.ccpeol.com/media/1316/2020-03-29-prospectus.pdf ).
(4) - Annual dividend yield per Euro Share and Sterling Share as
at 31 December 2021 and 31 December 2020 is based on the four
quarterly dividends announced and paid by the Company during the 12
months prior to the year end as applicable.
GLOSSARY
Administrator BNP Paribas Securities Services
S.C.A., Jersey Branch
Advisor fees Cost of services provided by
Mr Justin Atkinson to assist
with the marketing and promotion
of the Company's shares
AGM Annual General Meeting
AIC Association of Investment Companies
AIC Code AIC Code of Corporate Governance,
February 2020
AIFM Alternative Investment Fund Manager
APMs Alternative Performance Measures
Auditor Ernst & Young LLP
Borrowing Limit Up to an amount equal to 100%
of the NAV of the Investment
Vehicle at the time of borrowing
CLOs Collateralised Loan Obligations
Company CVC Credit Partners European
Opportunities Limited
Continuation Resolution An ordinary resolution proposed
by the Directors that the Company
continue its business as a closed-ended
investment company
Conversion Vehicle Conversion SPV Limited
Compartment Compartment A of the Investment
Vehicle
Credit Opportunities Refers to investments where CVC
Credit Partners anticipates an
event in a specific credit is
likely to have a positive impact
on the value of its investment.
This may include events such
as a repayment event before maturity,
a deleveraging event, a change
to the economics of the instrument
such as increased margin and/or
fees or fundamental or sentiment
driven change in the value. CVC
Credit Partners seeks relative
value opportunities which involve
situations where market technicals
have diverged from credit fundamentals
often driven by selling by mandate
constrained investors, CLO managers
or hedge funds rebalancing their
portfolios, macro views affecting
different credit instrument types
or sales by banks. CVC Credit
Partners has additional flexibility
compared to mandate constrained
capital and believes these assets
have potential for capital gains
and early cash flow generation
based on the acquisition prices
CVC Group CVC Group being CVC Credit Partners
and CVC Credit Partners Group
Holding Foundation, together
with its direct and indirect
subsidiaries and their respective
affiliates and excluding any
funds managed and/or advised
by the CVC Group
DTRs Disclosure Guidance and Transparency
Rules
ESG Environmental, Social and Governance
FRC Financial Reporting Council
IFRS 13 IFRS 13 - Fair Value Measurement
IPO Initial Public Offering on 25
June 2013
Investment Limits As defined within the Investment
Policy above
Investment Vehicle Compartment A of CVC European
Credit Opportunities S.à
r.l.
Investment Vehicle Manager CVC Credit Partners Investment
Management Limited
Investment Vehicle Services CVC Credit Partners Investment
Manager Services Management Limited
KIDs Key Information Documents
KPIs Key Performance Indicators
NAV Net Asset Value
NPPRs National Private Placement Regimes
Original Placing Price EUR1.00 and GBP1.00 per share
PECs Preferred Equity Certificates
Performing Credit Generally refers to senior secured
loans and senior secured high
yield bonds sourced in both the
primary and secondary markets.
The investment decision is primarily
driven by a portfolio decision
around liquidity, cash yield
and volatility
PRI Principles for Responsible Investment
Trust CVC Credit Partners European
Opportunities Limited Purpose
Trust
UK Code The UK Corporate Governance Code
2018
Viability Statement A statement made by the Directors
explaining how they assessed
the prospects of the Company,
over which period they have done
so and why they consider that
period to be appropriate
COMPANY INFORMATION
Registered Office Advocates to the Company
IFC1, The Esplanade (as to Jersey law)
St Helier, Jersey Bedell Cristin
JE1 4BP 26 New Street
St Helier, Jersey
JE2 3RA
Investment Vehicle Manager Custodian
BNP Paribas Securities Services
CVC Credit Partners Investment S.C.A.,
Management Limited Jersey Branch
IFC1, The Esplanade
111 Strand, London St Helier, Jersey
WC2R 0AG JE1 4BP
Corporate Services Manager Auditor
CVC Credit Partners Investment
Services Ernst & Young LLP
Management Limited 25 Churchill Place
27 Esplanade,
St Helier, Jersey Canary Wharf
JE1 1SG London, E14 5EY
Corporate Brokers Administrator and Company Secretary
Goldman Sachs International BNP Paribas Securities Services
Peterborough Court, 133 Fleet S.C.A.,
Street Jersey Branch
IFC1, The Esplanade
London St Helier, Jersey
EC4A 2BB JE1 4BP
Winterflood Securities Limited
The Atrium Building
Cannon Bridge House BNP Paribas Securities Services
25 Dowgate Hill S.C.A. Jersey Branch is regulated
London by the Jersey Financial Services
EC4R 2GA Commission.
Solicitors to the Company Registrar
Computershare Investor Services
(as to English law) (Jersey)
Herbert Smith Freehills LLP Limited
Exchange House 13 Castle Street
Primrose Street St Helier, Jersey
London JE1 1ES
EC2A 2EG
For Investors in Switzerland:
The Prospectus, the Memorandum and Articles of Association as
well as the annual and half yearly financial reports of the Company
may be obtained free of charge from the Swiss Representative. In
respect of the Shares distributed in and from Switzerland to
Qualified Investors, the place of performance and the place of
jurisdiction is at the registered office of the Swiss
Representative.
Swiss Representative: FIRST INDEPENDENT FUND SERVICES LTD.,
Klausstrasse 33, CH-8008 Zurich, Switzerland.
Swiss Paying Agent: Helvetische Bank AG, Seefeldstrasse 215, CH-8008 Zurich, Switzerland.
Enquiries:
CVC Credit Partners European Opportunities Limited - Richard Boléat, Chairman
Tel: +44 (0) 1534 625522
BNP Paribas Securities Services S.C.A., Jersey Branch - Company
Secretary
Tel: +44 (0) 1534 813873
A copy of the Company's Annual Financial Report will be
available shortly from the Company Secretary, (BNP Paribas
Securities Services S.C.A., Jersey Branch, IFC 1, The Esplanade, St
Helier, Jersey, JE1 4BP), or will be circulated on the Company's
website (www.ccpeol.com).
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on the Company's website
(or any other website) is incorporated into, or forms part of, this
announcement.
CVC Credit Partners European Opportunities Limited is regulated
by the Jersey Financial Services Commission.
A copy of this announcement is and will be available, subject to
certain restrictions relating to persons resident in restricted
jurisdictions for inspection on the Company's web site at
www.ccpeol.com.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
FR SSESUMEESESL
(END) Dow Jones Newswires
April 06, 2022 05:17 ET (09:17 GMT)
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