TIDMRDL
RNS Number : 8778O
RDL Realisation PLC
04 June 2020
RDL REALISATION PLC
(Registered No. 09510201)
LEI: 549300VGZSKYQ7C2U221
Annual Report for the year ended 31 December 2019
The Directors present the Annual Financial Report of RDL
Realisation plc (the "Company") for the year ended 31 December
2019. The full Annual Report and Accounts can be accessed via the
Company's website, www.rdlrealisationplc.co.uk/documents
The financial information set out below does not constitute the
Company's statutory accounts for the year ended 31 December 2019
but is derived from those accounts.
The unaudited full text of those parts of the annual report and
accounts for the year ended 31 December 2019, which require to be
published are set out below.
The Company also announces that it will hold its Annual General
Meeting at 11.00am on 30 June 2020 at the Moto Service Station, M5
Junction 27, Sampford Peverell, Tiverton EX16 7HD. Shareholders
will not be able to attend and vote at the Annual General Meeting
in person due to the ongoing Coronavirus (COVID-19) pandemic and
strict social distancing measures implemented by the UK
Government.
OBJECTIVE AND INVESTMENT POLICY
Investment Objective
The Company will be managed, either by a third party non-EEA
investment manager or internally by the Company's Board of
Directors, with the intention of realising all remaining assets in
the portfolio in a prudent manner consistent with the principles of
good investment management, with a view to returning cash to its
Shareholders in an orderly manner.
Investment Policy
The Company will pursue its Investment Objective by effecting a
managed wind-down with a view to realising all of the investments
in a manner that achieves a balance between maximising the value
received from investments and making timely returns to
Shareholders. The Company may sell its investments either to
co-investors in the relevant investment or to third parties, but in
all cases with the objective of achieving the best available price
in a reasonable time scale.
As part of the realisation process, the Company may also
exchange existing debt instruments issued by any direct lending
platform for equity securities in such direct lending platform
where, in the reasonable opinion of the Board, the Company is
unlikely to be able to otherwise realise such debt instruments or
will only be able to realise them at a material discount to the
outstanding principal balance of that debt instrument.
The following investment restrictions will apply to the
Company:
1. the Company will cease to make any new investments or to
undertake capital expenditure except, with the prior written
consent of the Board and where:
-- the investment is a follow-on investment made in connection
with an existing investment made in order to comply with the
Company's pre-existing obligations; or
-- failure to make the follow-on investment may result in a
breach of contract or applicable law or regulation by the Company;
or
-- the investment is considered necessary by the Board to
protect or enhance the value of any existing investments or to
facilitate orderly disposals.
2. any cash received by the Company as part of the realisation
process prior to its distribution to Shareholders will be held by
the Company as cash on deposit and/or as cash equivalents.
3. the Company will not undertake new borrowing other than for
short-term working capital purposes.
PERFORMANCE SUMMARY
Key Performance Indicators
The Company's Key Performance Indicators ("KPIs") are described
in the Analysis of KPIs and Investment Restrictions below.
Highlights Ordinary Shares
--------------------------------
31 Dec 2019 31 Dec 2018
Net Asset Value(1) (Cum Loss/Income) GBP 2.27 (3) GBP 5.88(3) /USD
per share /USD 3.01 7.49
Net Asset Value(2) (Ex Loss/Income) GBP 2.69 (3) GBP 7.62(3) /USD
per share /USD 3.56 9.71
Total dividends per share 326.77 pence 288.21 pence
Share Price(4) GBP 1.69 (3) GBP 6.70(3) /USD
/USD 2.24 8.41
1 Net Asset Value (cum loss/income) includes all current year
income, less the value of any dividends paid in respect of the
period together with the value of the dividends which have been
declared and market ex-dividend but not paid, see full annual
report for more details.
2 Net Asset Value (ex-loss/income) is the Net Asset Value
cum/income excluding net current year income.
3 Translated at USD to GBP foreign exchange rate of 1.3263 (31
December 2018: 1.2746).
4 Share price taken from Bloomberg Professional as at close of
business on 31 December 2019.
The Company's market capitalisation as at 31 December 2019 was
USD 36,192,155 (GBP 27,288,061 based on a Share
Price of GBP 1.69 and based on 16,122,931 issued Ordinary Shares).
The Group's total comprehensive loss for year ended 31 December
2019 amounted to USD 8,004,088 (31 December
2018: USD 35,046,160 loss).
Further details of the Group's performance for the period are
included in the Executive Directors' Report below which includes a
review of the progress of the asset realisation, impact of
applicable regulations and adherence to investment
restrictions.
Month NAV per Ordinary Share (GBP)
May 2015 9.9
June 2015 9.6
July 2015 9.7
August 2015 9.9
September 2015 10.1
October 2015 10.0
November 2015 10.2
December 2015 10.5
January 2016 10.9
February 2016 11.1
March 2016 10.8
April 2016 10.7
May 2016 10.7
June 2016 11.7
July 2016 11.9
August 2016 11.8
September 2016 12.0
October 2016 12.8
November 2016 12.4
December 2016 12.2
January 2017 12.6
February 2017 12.5
March 2017 12.0
April 2017 11.7
May 2017 11.8
June 2017 11.5
July 2017 11.4
August 2017 11.5
September 2017 11.1
October 2017 10.2
November 2017 9.9
December 2017 9.9
January 2018 9.5
February 2018 9.8
March 2018 9.4
April 2018 9.6
May 2018 9.9
June 2018 9.8
July 2018 9.7
August 2018 9.8
September 2018 9.6
October 2018 9.0
November 2018 8.6
December 2018 5.9
June 2019 5.4
December 2019 2.3
Since July 2018 to the date of this Report, GBP 117,731,097 (USD
146,777,313) or dividends per share of GBP 729.84 (USD 910.36) has
been paid to Shareholders.
Ongoing Charges Information
2019 2018
Annualised ongoing charges(5) 5.88% 2.97%
(5) Ongoing charges are set out as a percentage of annualised
ongoing charge over average reported Net Asset Value. Ongoing
charges are those expenses of a type which are likely to recur in
the foreseeable future. The annualised ongoing charge is calculated
using the Association of Investment Companies recommended
methodology.
Investment Positions
Below is a list of the Company's Investments as at 31 December
2019.
(Shown as aggregate Debt Investments acquired from individual
Direct Lending Platforms)
31 Dec 2019 31 Dec 2018
Investment/Direct Country Principal NAV % of NAV % of
Lending Platform Activity (USD) NAV (USD) NAV
--------------------- --------- --------------------- ----------- ------ ------------ -------
Loans/advances
United to small/medium
SME Loans Platform States size businesses 9,055,260 18.67 40,446,802 33.45
--------------------- --------- --------------------- ----------- ------ ------------ -------
Vehicle Services United Vehicle service
Contract Platform States contract financing 235,000 0.48 39,375,565 32.56
--------------------- --------- --------------------- ----------- ------ ------------ -------
Bridge loans
Real Estate United to real estate
Loans Platform States developers 11,701,548 24.12 36,836,583 30.46
--------------------- --------- --------------------- ----------- ------ ------------ -------
SME Credit Credit lines
Line Platform United to finance
(Princeton) States companies 13,483,500 27.79 15,000,000 12.41
--------------------- --------- --------------------- ----------- ------ ------------ -------
International Loans to businesses
SME Lending with government
Platform Canada grants 2,800,088 5.77 4,974,099 4.11
--------------------- --------- --------------------- ----------- ------ ------------ -------
United Equipment
Equipment Financing States Financing 235,677 0.49 669,641 0.55
--------------------- --------- --------------------- ----------- ------ ------------ -------
Consumer,
Consumer, improving United improving
credit States credit - - 299,655 0.55
--------------------- --------- --------------------- ----------- ------ ------------ -------
United
Factoring States Factoring - - 175,477 0.15
--------------------- --------- --------------------- ----------- ------ ------------ -------
Loans/advances
United to small/medium
MCA Platform States size businesses - - 21,296 0.02
--------------------- --------- --------------------- ----------- ------ ------------ -------
Loans to consumers
Consumer Loans United with improving
Platform States credit - - 7,587 0.01
--------------------- --------- --------------------- ----------- ------ ------------ -------
Total 37,511,073 77.32 176,116,663 114.02
=========== ====== ============ =======
CHAIRMAN'S STATEMENT
Key developments
The Company has continued to fulfil its mandate of realising
assets and returning capital to Shareholders. Substantial progress
has been made since the Annual General Meeting, held on 19 June
2018, after which the Company has returned GBP5.54 per share in the
form of dividend payments. (This figure included dividends paid
from June 2018 and throughout 2019). This amounts to approximately
43.43% of the published NAV as of 30 June 2018.
However, in relation to the remaining portfolio, whilst the full
impact of the Covid-19 pandemic is yet to be felt by businesses
worldwide, it has increased the credit risk associated with the
Company's underlying platform loans. As a result, the risk that
Company's assets may not be realised at their fair market value, or
at any value, has increased. The loans at the highest risk of
realisation are those provided to the SME platforms, which contain
many small businesses that are reliant on consumer spending for
food and retail. The CARES Act passed in the US is providing
meaningful support to this economic demographic, but the lasting
impact of this government stimulus is yet to be proven. Further,
financial reporting has been disrupted making it difficult to
assess the financial health of these borrowers. The Canadian SME
portfolio is made up of venture loans to small tech-oriented
companies. Repayment of these loans is heavily reliant on capital
raise and new equity investment support. The capital markets in
Canada have been disrupted as well making it difficult to assess
the survivability of these borrowers.
Another material exposure is the CRE/real estate loan portfolio.
The realisation of these loans relies more on the capital market
for refinance and construction loan availability than consumer
spending. The refinance and construction loan activity has slowed
significantly thus delaying the payment of these loans. These loans
are materially backed by hard asset collateral making it more
likely to be repaid albeit on a much-delayed basis.
The Company continues to hold discussions with platform managers
regarding impact of the issues highlighted above on the portfolio
and ensures that the results of these discussions are reflected in
portfolio valuations as appropriate.
There were changes to the composition of the Board during the
year and, post the year end. On 20 May 2019, the Company's Board
was strengthened with the appointment of Nicholas Paris as a
non-independent Non-Executive Director. Mr. Paris is a portfolio
manager within the LIM Advisors Group, which currently owns
approximately 26% of RDL's outstanding shares.
On 12 July 2019, Dominik Dolenec stepped down as Chairman of the
Company and I was elected as Chairman by the Board. With the
majority of the work required to wind down the activities of the
Company completed or well underway, the Board felt it appropriate
to transition the role of Chairman to a Non-Executive Director. For
the remainder of 2019, Mr. Dolenec remained on the Board with a
particular focus on maximising the recovery of the Company's
investment in Princeton. The Board expresses their sincere thanks
on behalf of all the Company's Shareholders for his executive
leadership in the portfolio restructuring and the wind down of the
Company.
Separately, the Company was notified that Oaktree Value Equity
Holdings, L.P. and LIM Advisors (London) Limited had agreed with
each other, subject to certain conditions, not to requisition any
addition to or removal from the Company's Board of Directors
initially for the period up to 31 December 2019, which was
subsequently extended to 31 March 2020. Further to this, Mr Paris
resigned from the Board on 31 March 2020 and Mr Dolenec resigned
from the Board on 1 April 2020. In view of the significant progress
with the wind down of the Company and the subsequent shrinkage of
the portfolio, Gregory Share has notified the Board of his
intention to step down as a Director of the Company at the Annual
General Meeting being held on Tuesday, 30 June 2020 .
As announced on 30 July 2019, Deloitte LLP resigned as auditor
to the Company with effect from 29 July 2019, due to a perceived
weakness in the Company's internal controls relating to the
valuation of loan investments. We have addressed this issue by
retaining Duff & Phelps to carry out bi-annual valuations of
the full portfolio on a fair value basis. The Company will
undertake additional valuations in respect of part or all of the
portfolio in connection with potential sales or material changes of
circumstance of its investments to the extent the Board deems it
appropriate to do so.
The Board, on recommendation from the Audit Committee, appointed
Crowe U.K. LLP ("Crowe") as auditor to the Company to fill the
casual vacancy created by Deloitte LLP's resignation. Crowe have
been instrumental in supporting our successful year end processes
this year and I will take this opportunity to thank them for their
hard work and professionalism.
A key development during the year was the repayment of the
Group's outstanding ZDP Shares, which enabled the Company's ability
to pay further dividends as it is no longer constrained by the
cover ratio covenant that required the Company to maintain 2.75
times asset cover in order to pay dividends. Accordingly, the
Company recommenced the payment of dividends as and when it has
excess capital as is detailed below. Further details on the
repayment of the ZDP Shares can be found in the Executive
Director's Report below.
In a further positive development, a significant cash paydown of
USD 27.9 million was received in August 2019 for the refinance of
the entire secured loan provided to the Vehicle Services Contract
Platform as a result of a refinancing with a new lender. A separate
USD 4.5 million loan remains outstanding to the manager of the
platform and is the subject of re-financing negotiations. This loan
is valued at USD 0.2 million.
In January 2019, the Company's exposure to the International MCA
Platform was re-financed and its promissory notes paid off. The
Company realised USD 38 million (at carrying value) pursuant to
this transaction.
The Company made four dividend distributions during the year
under review. On 23 May 2019, the Directors approved the payment of
a dividend of 17.14 pence per ordinary share (USD 21.71 cents)
totalling USD 3.5 million. The dividend was paid on 12 July 2019
and charged to revenue reserves. On 8 August 2019, the Company was
pleased to declare a special dividend of 255.00 pence per ordinary
share (equivalent US 309.32 cents) in respect of the year ended 31
December 2018, which was paid on 30 August 2019 to Shareholders and
totalled USD 49.9 million. The Company elected to designate 13% of
this special dividend as an interest distribution to its
Shareholders in order to maintain its investment trust status and
87% as a dividend distribution. A further special dividend was
declared on 3 October 2019 of 33.00 pence per ordinary share
(equivalent USD 0.40 per ordinary share), which was paid to
Shareholders on 1 November 2019 and totalled USD 6.45 million. On
26 November 2019, the Directors declared a further special dividend
of 22.00 pence per ordinary share (equivalent USD 0.28 per ordinary
share), which was paid to Shareholders on 30 December 2019 and
totalled USD 4.5 million.
Adjusted for capital returns and dividends the NAV return in the
year was -8.24% in USD terms.
Wind-down and Capital Returns
Our investment strategy continues to seek to maximise
risk-adjusted IRRs to our Shareholders. To this end, the Company
has made significant progress with winding down its portfolio. As
we had hoped, the majority of the portfolio has now been repaid and
returned to Shareholders. However, some residual positions remain
which will only be liquidated once various bankruptcy proceedings
are completed.
Portfolio Performance
In accordance with our mandate, no new investments were made
during the year. A detailed analysis of the Company's portfolio is
provided below.
Princeton
The Company announced on 11 February 2019 that it was estimating
a potential recovery of approximately USD 15 million from the
Princeton Alternative Income Fund ("Princeton" or the "Fund")
bankruptcy. This value was further impaired to USD 14 million on 10
January 2020, primarily driven by procedural delays and increased
legal costs. I am pleased to report that since the year end this
matter has been brought to a conclusion and the Company received a
cash payment of USD 13,483,500 on 2 April 2020.
In early 2019, the Company was engaged in active discussions
with the Trustee regarding the content of a Chapter 11 Plan of
Liquidation (the "Plan") proposed by the Court-appointed Trustee.
The Plan was filed on 19 April 2019 and provided for the prompt and
orderly liquidation of Fund assets by approved professionals and
the pursuit of possible third-party litigation claims under the
direction of a liquidating trustee to be appointed under the Plan.
The Plan also contemplated the Company being treated in the same
way as other Princeton investors. However, in light of the
arbitration findings that had previously been announced by the
Company, the Company agreed with the Trustee that it would be paid
USD 2.5 million out of the liquidation proceeds in priority to
other investors. This amount would cover part of the costs of the
legal proceedings that were incurred by the Company.
Subsequently, Microbilt Corporation ("MicroBilt") recruited an
informal group of minority investors to support its alternative
Chapter 11 plan, which was vague in structure and content. Among
other things, the Microbilt plan left the Fund in bankruptcy for an
indeterminate period of time.
The Board believed that the Microbilt plan was not in the best
interest of the Company or other investors. As a result, the
Company continued to support the Plan filed by the Chapter 11
Trustee and sought its confirmation before the Bankruptcy
Court.
On 29 July 2019, the Princeton Trustee filed an adversary
complaint in the Bankruptcy Court against MicroBilt and various
related entities and individuals. The complaint alleged 15 separate
causes of action on behalf of the bankruptcy estate for alleged
wrongdoing by MicroBilt and other defendants.
On 5 and 8 August 2019, Ranger (the former investment manager)
participated in a court-ordered settlement conference with a group
of minority investors, MicroBilt and the Chapter 11 Trustee. The
settlement conference did not result in a settlement of any claims
in the bankruptcy proceeding. Soon thereafter, the Trustee filed a
motion to affirm his authority to set the relative value of the
investors' capital accounts under the terms of the limited
partnership agreement governing the Fund. After a hearing on the
motion on 10 October 2019, the Bankruptcy Court granted the
Trustee's motion.
The MicroBilt Plan was based upon the use of net asset values as
determined by Princeton's management as of February 2018, which was
the last statement prior to the bankruptcy. The granting of the
motion filed by the Trustee allowed the Trustee to discard
Princeton's net asset values, since they were deemed unreliable. At
the hearing on 10 October 2019, the Bankruptcy Court also rendered
a decision on the Trustee's motion to disallow certain claims in
the bankruptcy case. Among the disallowed claim was a claim by
MicroBilt under its servicing agreement with the fund in excess of
USD 4 million. As a result of these developments, the Trustee
subsequently filed an amended Chapter 11 Plan that reset the
relative values of the investors' capital accounts and moved
forward with the liquidation of the fund under a liquidating trust
agreement to be administered by a liquidating trustee approved by
the Bankruptcy Court.
MicroBilt filed multiple appeals of these decisions made by the
Bankruptcy Court and also filed appeals of other decisions made by
the Bankruptcy Court approving the Trustee's settlements of the
Fund's claims against multiple borrowers of the Fund, which would
allow the Fund to be liquidated so that proceeds could be paid to
creditors and investors under the Trustee's Plan. MicroBilt also
filed a suit directly against the Trustee in the Bankruptcy Court.
Moreover, MicroBilt sought to engage in extensive discovery related
to the proposed confirmation of the Trustee's Plan, resulting in
additional motion practice in the Bankruptcy Court. These
litigation developments created additional costs, which could
reduce the net distribution to investors, as well as the potential
for substantial delay in investors receiving a distribution under
the Trustee's Plan.
On 19 February 2020, the Chapter 11 Trustee filed a Fifth
Amended Plan of Reorganisation (the "Amended Plan") and related
pleadings requesting the Bankruptcy Court to confirm the Amended
Plan and approve a settlement agreement incorporated under its
terms. The Amended Plan was the result of extensive negotiations
between the Trustee, the Company, other investors and MicroBilt and
its related entities and persons. As a result of these
negotiations, the Amended Plan had the support of all key economic
constituents in the Chapter 11 case. The Amended Plan provided a
cash payment to the Company on the effective date of the Amended
Plan in the amount of USD 13,483,500.
The Bankruptcy Court set a hearing date of 13 March 2020 to rule
on the confirmation of the Amended Plan. The effective date of the
Amended Plan was expected to occur before the end of March 2020, at
which time the Company was expected to receive the cash
distribution under the terms of the confirmed Amended Plan and a
related confirmation order.
On Friday, 13 March 2020, the United States Bankruptcy Court
entered an Order confirming the Fifth Amended Chapter 11 Plan
proposed by the Chapter 11 Trustee in the Princeton bankruptcy
case. The Plan was negotiated with the Trustee and other
parties-in-interest in the bankruptcy case and was actively
supported by the Company.
The confirmed plan provided for the distribution of cash to the
Company of USD 13,483,500 on or before 30 March 2020, pursuant to
the terms of the confirmed plan. Upon the Effective Date of the
Plan, all outstanding litigation related to the Princeton Fund was
resolved, the bankruptcy case closed and the Company obtained a
full release of all claims against it by the Princeton fund, its
general partner, MicroBilt and its related entities and all other
investors in Princeton. The Company received the cash payment of
USD 13,483,500 on 2 April 2020.
Outlook
Your Board's overriding objective is to achieve a balance
between delivering maximum value and making timely returns of
capital to Shareholders, and we remain focussed on that. Whilst the
portfolio is now much smaller, we will continue with our attempts
to extract maximum value from the remaining balances whilst
conscientiously focussing on cost reductions.
In the first half of 2020, we hope to realise a substantial part
of the remaining assets and return the proceeds to our
Shareholders. We will also continue to streamline management and
other administrative costs and ultimately will look to delist the
Company's shares once the remaining assets have been substantively
returned to Shareholders.
The Board is fortunate to have the support of an excellent team
of advisors whose industriousness, diligence and experience have
enabled clarity of debate and comfort in the decisions it has made,
and we are grateful for their continuing efforts.
Annual General Meeting
The Company's 2020 Annual General Meeting ("AGM") is due to be
held on Tuesday, 30 June 2020 . Due to the ongoing Covid-19
situation, the Board has taken into consideration the compulsory
'Stay at Home' measures that were published by the UK Government on
23 March 2020. The Board fully supports these measures to protect
public health and safety and in light of these measures, and as our
priority is the health, safety and wellbeing of all our
stakeholders, the Company therefore wishes to notify its
Shareholders that physical attendance in person at the AGM will not
be possible. The meeting will take place with the minimum necessary
quorum of two Shareholders, which will be facilitated by the
Company in line with the Government's strict social distancing
advice.
The Board recognises that the AGM is an important event for all
Shareholders and is keen to ensure that they are able to exercise
their right to participate and vote notwithstanding the current
restrictions on attendance in person. If Shareholders wish to
participate in the AGM, they are encouraged to vote online or
appoint the Chairman of the meeting as their proxy and provide
their voting instructions in advance of the meeting.
Details of the AGM will be available on our website at
https://rdlrealisationplc.co.uk/ and Shareholders are encouraged to
send any questions that would have been raised at the AGM to
info@rdlrealisationplc.co.uk in advance of the AGM. Please refer to
the Notice of AGM for further details.
Brendan Hawthorne
Chairman
3 June 2020
EXECUTIVE DIRECTORS' REPORT
As a reminder, the Board was entrusted by Shareholders with a
mandate to realise assets and return capital to Shareholders. This
investment policy was set out in a circular to Shareholders and
formally approved by Shareholders at a general meeting in November
2018. During the year, the Directors made good progress in
achieving the mandate.
The Executive Directors have spent considerable time in the USA
this year, monitoring the portfolio, meeting investee platforms and
working with the platforms on realisations. This work is ongoing.
To assist in this task Joe Kenary, based in the USA, was appointed
a Non-Executive Director in January and assumed executive
responsibilities shortly thereafter. Some of the key achievements
during the period are:
-- in January 2019, the Company's exposure to the International
MCA Platform was refinanced and its promissory notes paid off. The
Company realised USD 38,007,954 (at carrying value) pursuant to
this transaction.
-- during the year, the Company reached agreement to repay the
Group's outstanding ZDP Shares. As announced by the Company on 20
June 2019, resolutions to place its subsidiary, RDLZ, into a
members' voluntary winding up and to amend the amounts payable in
respect of the ZDP Shares issued by RDLZ in order that ZDP
Shareholders would receive a final capital entitlement of 121.8887
pence per ZDP Share, were passed at the ZDP Class Meeting and the
General Meeting of RDLZ held on 20 June 2019. The cost to the
Company of repaying the ZDP Shares on 21 June 2019 amounted to
approximately USD 70.7 million. Note that this figure does not
include associated transaction expenses, which amounted to
approximately USD 860,000.
-- as a result of the early repayment of the ZDP Shares, the
Company's ability to pay further dividends is no longer constrained
by the cover ratio covenant that required the Company to keep 2.75
times asset cover. Accordingly, the Company was able to recommence
the payment of dividends as and when it had excess capital.
-- during the year, a total of USD 64.3 million or 326.77p per
Ordinary Share was paid to Shareholders by way of dividends. A
further dividend of USD 5.3 million or 33p per Ordinary Share was
declared in January 2020 and a dividend of USD 20.0 million or 106p
per Ordinary Share was declared in April 2020.
Shareholders should take note that a mandate requiring the
active sale or timed liquidation of portfolios presents an inherent
risk which does not present itself with the run-off of a portfolio,
in that such assets may not be realised at their fair value.
Although the Company is not currently considering offers which fall
materially below the values referred to in note 18, the inherent
risk of attracting opportunistic buyers must be managed with the
optionality to run down a short-term portfolio in order to ensure
the realisation of appropriate value.
As detailed in the Chairman's Statement, the Company received
the sum of USD 13,483,500 on 2 April 2020 following the resolution
of the Princeton matter. All outstanding litigation related to the
Princeton Fund has been resolved, the bankruptcy case closed, and
the Company has obtained a full release of all claims against it by
the Princeton Fund, its general partner, MicroBilt and its related
entities and all other investors in the Princeton Fund.
Management arrangements
On 12 February 2019, the Investment Management Agreement between
the Company and Ranger was terminated. The Company has, during the
period, appointed IFM as its replacement Alternative Investment
Fund Manager ("AIFM").
Following the appointment of IFM, the Executive Directors
continue performing the functions they have been carrying out
during the current management arrangements. In particular, any
investment or divestment decisions relating to the Company's
portfolio will not be implemented without prior Board approval. The
Executive Directors are assisted by Steve Bellah, a senior credit
professional and a financial controller, of Remuda Credit Advisors,
LLC ("Remuda"), based in Dallas, USA, to assist with the management
and realisation of the portfolio. A significant amount of time was
spent by the Executive Directors in the run up to 12 February 2019
to ensure a smooth transition of management responsibilities and to
avert any disruption to the portfolio management role.
Investment portfolio
No new investments were made during the year.
At 31 December 2019, 100% of the portfolio was invested in
secured Debt Instruments (including loans, cash advances, and
receivables financing) to mainly SME borrowers, and none of the
portfolio consisted of unsecured consumer loans. For this purpose,
a secured Debt Instrument is defined by the Company as a payment
obligation in which property, financial assets (including
receivables), or a payment guarantee has been pledged, mortgaged or
sold to the Company as partial or full security with respect to
such obligation.
Below is a brief summary of each investment platform/partner
which provides:
-- net balance at 31 December 2019 (estimated fair value); and
-- commentary summarising primary activity and expected disposition of the investments
Please note that all amounts shown below are in USD.
SME/CRE Loans Platform
Net Balance at 31 December Net Balance at 31 December
2019 2018
9,055,260 40,446,802
Since 31 December 2018, there has been a regular run-off of all
performing investments. The Executive Directors have been in
regular contact with this platform. All remaining investments will
be run off in the normal course within the next 12 months.
Second SME Loans Platform
Net Balance at 31 December Net Balance at 31 December
2019 2018
235,000 39,375,565
A significant cash paydown of USD 27.9 million was received in
August 2019 as a result of a refinancing with a new lender. A
separate USD 4.5 million loan remains outstanding to the manager of
the platform and was valued at USD 0.2 million. The remaining loan
is in the process of restructuring efforts which include the direct
involvement of Mr Kenary on behalf of the Board.
Real Estate Lending Partner
Net Balance at 31 December Net Balance at 31 December
2019 2018
11,701,548 36,836,583
There has been a combination of sales of some investments with
help of the platform and regular run-off of all performing
investments, particularly during the latter part of the year. The
platform will continue to assist with the sale of some investments
to its other investors throughout 2020, and the remaining
investments will be run-off in the normal course within the next 12
months.
Princeton Alternative Income Fund
Net Balance at 31 December Net Balance at 31 December
2019 2018
13,483,500 15,000,000
The Bankruptcy Court ruled on 13 March 2020 to confirm the
Amended Plan. The settlement of USD13,483,500 was received on 2
April 2020.
Canadian SME Lending Platform
Net Balance at 31 December Net Balance at 31 December
2019 2018
2,800,088 4,974,099
This platform portfolio is now serviced directly by the Company.
Using the information from the former Investment Manager's direct
contact with the borrowers, the Company continued its servicing and
re-structuring of payment obligations with individual borrowers
whose loans were originated by the platform. These loans are
venture loans to mainly small and early stage companies with
underdeveloped profit profiles which bear certain risks common to
venture lending. The remaining investments are expected to be run
off in due course under a variety of collection efforts. Current
collection efforts include litigation and realisation of collateral
proceeds, restructured pay out terms with longer amortisation, and
participation in royalty streams from future company sales to be
applied to the outstanding loans.
Equipment Loans Platform
Net Balance at 31 December Net Balance at 31 December
2019 2018
235,677 669,641
Since 31 December 2018, there has been a regular run-off of all
performing investments. The remaining investments are expected to
be run-off in the normal course.
Second Consumer Loans Platform
Net Balance at 31 December Net Balance at 31 December
2019 2018
0.00 299,655
Since 31 December 2018, there has been a regular run-off of all
performing investments. All remaining balances were collected or
written off in 2019.
Invoice Factoring Platform
Net Balance at 31 December Net Balance at 31 December
2019 2018
0.00 175,477
Since December 2018, there has been a regular run-off of all
performing investments. The remaining balance was written off in
2019.
Third SME Loans Platform
Net Balance at 31 December Net Balance at 31 December
2019 2018
0.00 21,296
Since December 2018, there has been a regular run-off of all
performing investments and there are no remaining investments
outstanding.
Consumer Loans Platform
Net Balance at 31 December Net Balance at 31 December
2019 2018
0.00 7,587
In October 2018, all performing loans were sold to a third party
which left the non-performing loans to run-off. All remaining
balances were written off in 2019.
Independent valuation of the portfolio
Duff & Phelps, an independent valuation firm is engaged to
perform valuation consulting services on the Company's portfolio.
This excludes the investment in Princeton, owing to a lack of
available information for this investment and the Canadian SME
loans. The consulting services consisted of certain limited
procedures that the Company identified and requested the
independent valuation firm to perform.
A copy of the report from Duff & Phelps (the "DP Report") as
at 31 December 2019 has been delivered to the Board.
The Company is ultimately and solely responsible for determining
fair value of the investments in good faith, and following its
review of the report, the values at 31 December 2019 were updated
based on the Duff & Phelps valuation with the exception of the
Canadian SME Lending Platform. The Canadian SME loans are venture
loans with little to no scheduled payments. Payments are determined
annually and are reliant upon Canadian Government tax rebates and
credits. Further, well over 90% of the portfolio is non-performing.
Thus, Duff & Phelps has indicated that traditional valuation
methods do not apply.
Sector Reporting
As at 31 December 2019, the portfolio (excluding Princeton, cash
and cash equivalents) was diversified as follows:
Allocation
Sector 31 December 31 December
2019 2018 Change
Bridge loans to real estate developers 79% 21% +58%
Credit lines to finance companies 0% 9% -9%
Loans to businesses with government
grants 11% 3% +8%
Loans/advances to small/medium
size businesses 9% 45% -36%
Vehicle service contract financing 1% 22% -21%
Total (excluding cash and cash
equivalents) 100% 100% -
------------ ------------ -------
GROUP STRATEGIC REPORT
Cautionary Statement
The Group Strategic Report contains certain forward-looking
statements. These statements are made by the Directors in good
faith based on the information available to them up to the time of
their approval of this report and such statements should be treated
with caution due to the inherent uncertainties, including both
economic and business risk factors, underlying any such
forward-looking information.
Business Model
The Company is an Investment Trust within the meaning of Chapter
4 of Part 24 of the Corporation Tax Act 2010.
Following the Company's announcement on 11 June 2018 that it
will move to realise its assets and proceed with the wind-down
process, the Company's business model has changed from holding
financial assets to collect their contractual cash flows to
realising assets, in a prudent manner consistent with the
principles of good investment management, with a view to returning
cash to its Shareholders in an orderly manner.
The Directors expect that the process of realisation will result
in a transition to voluntary liquidation to preserve the Company's
Investment Trust status. The timing of such move is uncertain as
the Directors progress the orderly realisation of the portfolio as
soon as practicable and with regard to cost efficiency and the
working capital requirements of the Company.
During the year under review, the Board operated three working
committees to provide the necessary oversight of the Company's
investments.
The first committee, which comprised of Dominik Dolenec, Brendan
Hawthorne, Joe Kenary and Brett Miller is responsible for the
wind-down and realisation of the Company's existing portfolio
(excluding Princeton) with the specific aim of maximising returns
for Shareholders. With effect from 31 March 2020, this committee
was disbanded. The Board as a whole maintains full responsibility
for the wind-down and realisation of the Company's remaining
portfolio
The second committee, which comprises all Board members, is
tasked with management of the Princeton proceedings and the
strategic decisions associated with those proceedings. In view of
the resolution of the Princeton proceedings in March 2020, this
committee has been disbanded.
The third committee, which was disbanded in July 2019 following
the payment of the revised final capital entitlement in relation to
the ZDP Shares issued by RDLZ, was initially formed to consider
proposals relating to retiring the ZDP Shares. Brendan Hawthorne
and Joe Kenary as Directors of RDLZ were not members of this
committee.
Any final decisions regarding the approach to the investment
portfolio and any other proposals to be put to Shareholders are
decided by the Board as a whole.
In order to focus on the progress of the realisation of assets
within the Company's portfolio, the Board delegated set
responsibility to certain of its members. During 2019, Mr Dolenec
had executive responsibility for the lead on the management of the
Princeton proceedings and reported into the Princeton working
committee. Mr Kenary is lead for the day-to-day management of the
remaining assets in the portfolio, working closely with Steve
Bellah of Remuda. Mr Miller has executive responsibility for
governance and reporting. Whilst these Directors have been
allocated these executive responsibilities, the Board as a whole
makes all decisions relating to the realisation of assets and each
Director regularly reports to the Board.
IFM is the Alternative Investment Fund Manager of the Company
and is subject to the AIFMD only to the limited extent applicable
when a non-EEA Alternative Investment Fund Manager (an "AIFM")
offers or markets an EEA Alternative Investment Fund (an "AIF") in
the EEA. For the purposes of the AIFMD, the Company is the AIF and
IFM is the AIFM.
Outsourced principal service providers include the
following:
Function Provider
Alternative Investment Fund Manager International Fund Management
Limited
English and US (as to Securities Travers Smith LLP and Sidley
Law) Legal Adviser Austin LLP
General Accounting and Administration Sanne Fiduciary Services
Limited
Accounting and Servicing MCA Financial Group
Company Secretarial Link Company Matters Limited
Company Registrar Link Asset Services
Borrowing policy
In accordance with the Company's investment policy, the Company
will not undertake new borrowing other than for short-term working
capital purposes.
During the year, the Company repaid in full its only loan
payable to RDLZ (2018: USD 70,979,233).
Principal Risks and Uncertainties
There are a number of potential risks and uncertainties which
could have a material impact on the Group's performance and could
cause actual results to differ materially from expected and
historical results. The Board of Directors has overall
responsibility for risk management and internal control within the
context of achieving the Company's new investment objective. The
Board agrees the strategy for the Company, approves the Company's
risk appetite and monitors the risk profile of the Company.
The Company has a risk map which consists of the key risks and
controls in place to mitigate those risks. The risk map, which is
reassessed regularly by the Audit Committee, provides a basis for
the Audit Committee and the Board to regularly monitor the
effective operation of the controls and to update the matrix when
new risks are identified. The Board's responsibility for conducting
a robust assessment of the principal risks is embedded in the
Company's risk map and stress testing. The Board, through
delegation to the Audit Committee, undertakes this robust annual
assessment and review of the principal risks facing the Company,
together with a review of any emerging risks which may have arisen
during the year.
The Company's investment management and administration functions
have historically been outsourced to external service providers. In
February 2019, Ranger's contract expired, and the Company appointed
IFM as its AIFM working with the Board. In addition, the Company
continues to rely on external service providers for a number of
management and administrative functions. Any failure of any
external service provider to carry out its obligations could have a
materially detrimental impact on the effective operation, reporting
and monitoring of the Company's financial position. This is likely
to have an effect on the Company's ability to meet its investment
objective successfully. The Company receives and reviews internal
control reports from its key external service providers on an
annual basis from its Administrator, AIFM and Registrar. The Audit
Committee has reviewed and considered the guidance supplied by the
Financial Reporting Council ("FRC") on Risk Management, Internal
Control, and Related Finance and Business Reporting. Information
regarding the Company's internal control and risk management
procedures can be found in the Corporate Governance Statement in
the full annual report.
The Board will continue to keep the Company's system of risk
management and internal control under review and will continue to
ensure that the principal risks and challenges faced by the Group
are fully understood and managed appropriately.
An overview of the principal risks and the main uncertainties
that the Board considers to be currently faced by the Company are
provided below, together with the mitigating actions being
taken.
Risks arising due to Managed Wind-Down
In a managed wind-down, the value of the portfolio will be
reduced and concentrated in fewer holdings, and the mix of asset
exposure will be affected accordingly.
The Company might experience increased volatility in its NAV
and/or its share price as a result of possible changes to the
portfolio structure.
The Company's assets may not be realised at their fair market
value, and it is possible that the Company may not be able to
realise some assets at any value.
Sales commissions, liquidations cost, taxes and other costs
associated with the realisation of the Company's assets will reduce
the cash available for distribution to Shareholders.
Due to the time it would typically take to repatriate the
proceeds from the sale of assets to the UK, it is expected that
there could be potentially significant time lags between sales made
by the Company and any subsequent returns of capital to
Shareholders.
The timing and ultimate amount of any returns will be impacted
by the tax regimes of the countries in which the Company
invests.
The liquidity profile of the portfolio is such that Shareholders
may have to wait a considerable period of time before receiving all
of their distributions pursuant to the managed wind-down. During
that time, the concentration of the value of the portfolio in fewer
holdings will reduce diversification and the spread of risk. This
may adversely affect the portfolio's performance.
The maintenance of the Company as an ongoing listed vehicle will
entail administrative, legal and listing costs, which will decrease
the amount ultimately distributed to Shareholders. Although the
Board intends to maintain the Company's listing for as long as the
Directors believe it to be practicable during the managed wind-down
period, the Directors shall immediately notify the Financial
Conduct Authority ("FCA") and may seek suspension of the listing of
the Shares pursuant to the requirements of the Listing Rules (which
may include Shareholder approval prior to any suspension or
de-listing) if the Company can no longer satisfy the continuing
obligations for listing set out therein including, but not limited
to, the requirements in respect of Shares held in "public hands"
(as such phrase is defined in the Listing Rules) and in relation to
spreading investment risk, and consequently the listing of the
Shares may be suspended and/or cancelled. Once suspended and/or
cancelled, the Shares would no longer be capable of being traded on
the London Stock Exchange, which would materially reduce market
liquidity in the Shares. The Company would also lose its
"Investment Trust" tax status in the UK as a result of such
suspension or cancellation which may impact on the returns to
Shareholders.
It should also be noted that there may be other matters or
factors which affect the availability, amount or timing of receipt
of the proceeds of realisation of some or all of the Company's
investments. In particular, ongoing redemptions will decrease the
size of the Company's assets, thereby increasing the impact of
fixed costs incurred by the Company on the remaining assets. In
determining the size of any distributions, the Directors will take
into account the Company's ongoing running costs. However, should
these costs be greater than expected or should cash receipts for
the realisations of investments be less than expected, this will
reduce the amount available for Shareholders in future
distributions.
Declarations of dividends will be made at the Directors' sole
discretion, as and when they deem that the Company has sufficient
distributable reserves available to make a distribution.
Shareholders, therefore, have little certainty as to whether or not
the Company will make a declaration of dividend.
Mitigation
The Board have designated a number of its members as "Executive
Directors" who are focused on addressing the risks associated with
the managed wind-down.
Risks in relation to COVID-19
Whilst the full impact of the global pandemic is yet to be felt
by businesses worldwide, it is likely to have a negative impact on
the Company's remaining portfolio. As a result, the risk that
Company's assets may not be realised at their fair market value, or
at any value, has increased.
The highest risk of realisation are the SME platforms which
contain many small businesses that are reliant on consumer spending
for food and retail. The CARES Act passed in the US is providing
meaningful support to this economic demographic, but the lasting
impact of this government stimulus is yet to be proven. Further,
financial reporting has been disrupted making it difficult to
assess the financial health of these borrowers. The platform
manager has indicated that no permanent impairments have been
assessed but material deferments and relaxed payment schedules have
been adopted. The Canadian SME portfolio is made up of venture
loans to small tech-oriented companies. Repayment of these loans is
heavily reliant on capital raise and new equity investment support.
The capital markets in Canada have been disrupted as well making it
difficult to assess the survivability of these borrowers.
Another material exposure is the CRE/real estate loan portfolio.
The realisation of these loans rely more on the capital market for
refinance and construction loan availability than consumer
spending. The refinance and construction loan activity has slowed
significantly thus delaying the payment of these loans. These loans
are materially backed by hard asset collateral making it more
likely to be repaid albeit on a much-delayed basis.
Mitigation
The Company is holding ongoing discussions with platform
managers regarding portfolio impacts and ensuring that the results
of these discussions are reflected in future portfolio valuations
as appropriate.
Legal and compliance risk
Laws applicable to Debt Instruments may govern the terms of such
instruments and subject the Company to legal and regulatory
examination or enforcement action.
Further, any proceeding brought by the federal or state
regulatory authorities to any of the Direct Lending Platforms could
result in cases against the Company itself and could affect whether
the Debt Instruments are enforceable in accordance with their
terms.
Mitigation
To manage this risk, the Directors take legal advice as and when
deemed required. Further, regulatory risk is a standing item at
Board meetings.
Investment risk
The Group has residual investments remaining in Debt Instruments
and the major risks include market and credit risks.
Link to KPI
Capital returned to Shareholders
Mitigation
The number of investments held, and sector diversity enable the
Group to spread the risks with regard to market volatility,
currency movements, revenue streams and credit exposure.
Throughout 2019, the Company continued to actively engage with
the trustee, who was appointed in relation to the bankruptcy
proceedings of Princeton and its other advisers in connection with
its investment in Princeton. The Bankruptcy Court ruled on 13 March
2020 to confirm the Amended Plan. The settlement of USD13,483,500
was received by the Company on 2 April 2020.
Taxation risk
As an investment company, the Company needs to comply with
sections 1158/1159 of the Corporation Tax Act 2010.
Link to KPI
Total dividends for the year
Mitigation
The Administrator prepares management accounts which allow the
Board to assess the Company's compliance with Investment Trust
conditions. Further, contractual arrangements with third party
external service providers are in place, to ensure compliance with
tax and regulatory requirements.
Cyber security risk
The Company relies on services provided by its external service
providers and is therefore dependent on the effective operation of
their systems in place. Likewise, the Company is dependent on the
Direct Lending Platforms' ability to effectively manage
vulnerabilities to technological failure and cyber-attacks.
Any weakness in their information security could result in a
disruption to the dealing procedures, accounting and payment
process.
Mitigation
The Company performs a due diligence review before entering into
contracts with any external service provider. Subsequently, the
Company receives a controls performance report such as ISAE 3402
report on an annual basis from key service providers which is
subject to the Audit Committee's review.
Brexit risk
The Company has also considered Brexit's current and potential
impact on the Company. The majority of the Group's portfolio is
denominated in USD. Therefore, the Board has concluded that this
event does not represent a principal risk to the Company.
Viability Statement
Given the change in Investment Policy and in accordance with the
AIC Code of Corporate Governance, the Directors have assessed the
prospects of the Company over its expected realisation
timeframe.
In their assessment of the viability of the Company, the
Directors have considered each of the principal risks and
uncertainties above. The Directors have also reviewed the Company's
income and expenditure projections and the fact the Company's
investments (including those held through the Trust) do not
comprise readily realisable securities which can be sold to meet
funding requirements if necessary. The Company maintains a risk
register for its stress test to identify, monitor and control risk
concentration.
The Company has processes for monitoring operating costs, share
price discount, compliance with the investment objective and
policy, asset allocation, the portfolio risk profile, counterparty
exposure, liquidity risk, financial controls and stress-testing
based assessment of the Company's prospects.
The Directors confirm that they have a reasonable expectation
that the Group will be able to continue in operation and meet its
liabilities as they fall due over the managed wind-down period.
Going Concern
The Board are continuing to progress with the disposal of the
Company's assets in an orderly manner and returning Shareholders'
capital to them.
Given the intention to wind down the Company, the use of the
going concern basis in preparing the financial statements of the
Group is not considered to be appropriate. As such the financial
statements have been prepared on a basis other than that of a going
concern, under which assets are measured at their net realisable
value. There were no adjustments made to the carrying values of the
assets and liabilities of the Group in the current or prior year as
a result of this change in the basis of preparation, because the
Directors consider the carrying value of assets to approximate
their net realisable value.
No provision has been made for the costs of winding up the
Company as these will be charged to the income statement on an
accruals basis as they are incurred or as the Company becomes
obligated to make such payments in the future.
The Directors believe that the Company and Group have adequate
resources to continue in operational existence until the
anticipated liquidation of the Company.
Performance
The Company's NAV as at 31 December 2019 is below:
June 2018 Dec 2018 Dec 2019
NAV 205,619,046 120,836,621 48,511,622
(Discount)/Premium to NAV -20.03% 12.24% -34.04%
Return on Share Price 0.76% -3.79% -18.54%
Dividends
The following dividends were declared and paid during the year
under review.
Declaration Date Type Amount (pence per Payment Date
share)
23 May 2019 Interim Dividend 17.14 12 July 2019
8 August 2019 Special Dividend 255.00 30 August 2019
3 October 2019 Special Dividend 33.00 1 November 2019
26 November 2019 Special Dividend 21.63 30 December 2019
Since the year end, the following dividends have been declared
and paid or are payable:
Declaration Date Type Amount (pence per Payment Date
share)
9 January 2020 Special Dividend 33.00 10 February 2020
7 April 2020 Special Dividend 106.00 19 May 2020
Please refer to note 11 for further details.
Key Performance Indicators and Investment Restrictions
The Company's investment policy calls for an orderly wind-down
of the Company's investments with the aim of maximising
risk-adjusted IRRs to Shareholders. New investments are restricted
only to existing exposures and are subject to a number of
pre-conditions.
Indicator Criteria As at 31 Dec 2019
Capital returned It is the Company's Total dividends paid
to Shareholders intention to return in 2019 amounted
as much of the Company's to USD 64.3 million
remaining NAV to
its Shareholders
in a timely manner.
-------------------- -------------------------- ---------------------
Total dividends for At least 85% of Net Dividends of 100%
the year Profit of Net Profit
-------------------- -------------------------- ---------------------
Environmental, Human Rights, Employee, Social and Community
Issues
Corporate responsibility covers many different aspects of
business. The Group has no direct social or community
responsibilities and the Company has no employees. As an Investment
Trust, the Company's own direct environmental impact is minimal,
and it has no direct impact on the community and as a result does
not maintain specific policies in relation to these matters.
The Company falls outside the scope of the Modern Slavery Act
2015 as it does not meet the turnover requirements under that act.
The Company operates by outsourcing significant parts of its
operations to reputable professional companies, who are required to
comply with all relevant laws and regulations and take account of
social, environmental, ethical and human rights factors, where
appropriate.
The Company has no greenhouse gas emissions to report from its
operations, nor does it have responsibility for any other emissions
producing sources under the Companies Act 2006 (Strategic Report
and Directors' Report) Regulations 2013, including those within its
underlying investment portfolio.
In carrying out the realisation of the portfolio, the Company
aims to conduct itself responsibly and ethically.
Board Diversity
The Board consists entirely of male Directors. A description of
the Company's Board diversity policy is set out in the Corporate
Governance Statement in the full annual report.
Stakeholders
In accordance with the AIC Code of Corporate Governance (the
"AIC Code") and the Companies Act 2006 (the "Law"), the Board is
required to understand the views of the Company's key stakeholders
and describe in the Annual Report how their interests and the
matters set out in section 172 of the Law have been considered in
board discussions and decision-making. This section of the Law
requires the Directors to have regard to the following matters:
-- the likely consequences of any decision in the long term;
-- the need to foster the Company's business relationships with
suppliers, customers and others;
-- the impact of the Company's operations on the community and the environment;
-- the Company's reputation for high standards of business conduct; and
-- the need to act fairly as between members of the Company.
The importance of stakeholder considerations, in particular in
the context of decision making, is taken into account at every
Board meeting. All discussions involve careful consideration of the
consequences of any decisions and their implications for
stakeholders.
Our Stakeholders
The Board seeks to understand the needs and priorities of the
Company's stakeholders and these are taken into account during all
of its discussions and as part of its decision making. The Board
has discussed which parties should be considered as stakeholders of
the Company, whilst having regard to the Company's position. In
view of the Company being in a managed wind-down and realising its
remaining investments, the Board believes that the Company's
stakeholders during this process are its Shareholders and portfolio
companies.
Shareholders
The Board recognises that the Company has certain responsibility
to its Shareholders. Continued Shareholder support and engagement
are critical to the wind-down and delivery of the Company's
Investment Objective.
During 2019, two of the Directors on the Board were
representatives of the Company's two largest Shareholders and
provided input directly to the Board. The presence of these
Directors as members of the Board ensured effective engagement to
understand their views on the managed wind down of the Company and
encouraged participation from all Shareholders.
The Board is committed to maintaining open channels of
communication and to engage with all Shareholders in a manner which
they find most meaningful, in order to gain an understanding of the
views of Shareholders. These include:
-- Annual General Meeting - The Company welcomes participation
from Shareholders at the AGM and Shareholders are encouraged to
vote online prior to the AGM. Shareholders have the opportunity to
address questions to the Directors. The Company values any feedback
and questions it may receive from Shareholders ahead of the AGM and
will take action or make changes, when and as appropriate. In view
of the current compulsory 'Stay at Home' measures, Shareholders
will not be permitted to attend the AGM in person ;
-- Publications - The Annual Report and Half-Year results are
made available on the Company's website and the Annual Report is
circulated to Shareholders. These reports provide Shareholders with
a clear understanding of the Company's progress in manging the wind
down of the portfolio and its financial position. Feedback and/or
questions the Company receives from Shareholders help the Company
evolve its reporting, aiming to render the reports and updates
transparent and understandable; and
-- Shareholder concerns - In the event Shareholders wish to
raise issues or concerns with the Directors, they are welcome to do
so at any time by emailing the Chairman at
info@rdlrealisationplc.co.uk. Other members of the Board are also
available to Shareholders if they have concerns that have not been
addressed through the normal channels.
Portfolio companies
Day to day engagement with portfolio companies is undertaken by
Remuda and Joe Kenary. The Board attends a weekly call to receive
detailed updates on the performance and return analyses of the
portfolio and progress on the realisation of assets where possible.
The Board retains responsibility for making decisions in respect of
the realisation of the portfolio.
The Board is committed to engaging with portfolio companies in a
manner which they find most meaningful, in order to maximise the
return from their realisation but also in a timely manner.
Culture
A company's culture would conventionally be defined as a blend
of attributes and behaviours people experience while at work and
which inform actions and decision making. While the Company has no
employees and is in a managed wind down, the Company recognises the
importance of culture in terms of the Board's behaviour and its
alignment with the Company's sole purpose of realising its assets
and returning capital to Shareholders.
The Board's own culture promotes a desire for strong governance
and transparency of debate. The Directors are required to act with
integrity, lead by example and promote this culture with its
commitment to conducting the managed wind down of the portfolio in
a manner to maximise the return to Shareholders.
The Group Strategic Report was approved by the Board of
Directors on 3 June 2020 and signed on its behalf by:
Brendan Hawthorne
Chairman
Board of Directors
Brendan Hawthorne - Non-executive director and Chairman
Brett Miller - Executive Director
Gregory Share - Non-executive Director and Chairman of the
Remuneration and Nomination Committee
Joseph Kenary - Executive Director
Nicholas Paris - Non-Executive Director (Resigned on 31 March
2020)
Dominik Dolenec - Executive Director (Resigned on 1 April
2020)
EXTRACTS FROM DIRECTORS' REPORT
Current Share Capital
As at 31 December 2019 and as at the date of this Report, the
Company had 16,122,931 Ordinary Shares of GBP 0.01 each in issue,
all of which are admitted to the official list maintained by the
Financial Conduct Authority and admitted to trading on the London
Stock Exchange. No shares were held in treasury during the year or
at the year end. During the year, there were no purchases of
Ordinary Shares made by the Company.
The rights attaching to the Company's Ordinary Shares are set
out in the Company's Articles. Further details are shown in note 14
to the consolidated financial statements.
Dividend Policy
As advised to Shareholders in the Company's circular dated 29
October 2018, the Board does not intend to make quarterly dividends
and will instead make payments by way of ad-hoc special dividends,
where appropriate, during the course of the managed wind-down
process so that the Company is able to return available cash to
Shareholders as soon as reasonably practicable after cash becomes
available in the portfolio.
Results and Dividends
A summary of the Company's performance in respect of the
progress made in realising its investments during the year and the
outlook for the forthcoming year in the full annual report.
The declaration of interim and special dividends can be made at
the Directors' sole discretion, as and when they deem that the
Company has sufficient distributable reserves available to make a
distribution. The Company will also look to structure its dividend
payments to maintain its investment trust status for so long as it
remains listed. Details of the dividends paid during the year, can
be found in the full annual report.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report
and financial statements in accordance with United Kingdom
applicable law and regulations.
Company law requires the Directors to prepare financial
statements for each financial period. Under that law they have
elected to prepare the financial statements in accordance with
International Financial Reporting Standards ("IFRS") as adopted by
the European Union.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and the Company and of
the profit or loss of the Group and the Company for that period. In
preparing these financial statements, the Directors are required
to:
-- properly select and apply accounting policies consistently;
-- make judgement and estimates which are reasonable and prudent;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the entity's financial position and financial
performance; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group will continue
in business. As explained in note 2 to the financial statements,
the Directors do not believe the going concern basis to be
appropriate for the preparation of the financial statements of the
Group and accordingly the financial statements of the Group have
not been prepared on a going concern basis. No provision has been
made for the costs of winding up the Company as these will be
charged to the income statement on an accruals basis as they are
incurred or as the Company becomes obligated to make such payments
in the future.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group's
transactions and disclose with reasonable accuracy at any time the
financial position of the Group and Company and enable them to
ensure that the financial statements comply with the Companies Act
2006. They have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Group and
Company and to prevent and detect fraud and other
irregularities.
The Directors are also responsible for preparing a Strategic
Report, Directors' Report, Directors' Remuneration Report and
Corporate Governance Statement that comply with relevant laws and
regulations, and for ensuring that the Annual Report includes
information required by the Disclosure and Transparency Rules of
the UK Listing Authority.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's and Stock Exchange websites. Legislation in the UK
governing the preparation and dissemination of financial statements
may differ from the legislation in other jurisdictions.
Responsibility Statement
We, the Directors listed above, being the persons responsible,
hereby confirm to the best of our knowledge that:
-- the financial statements, have been prepared in accordance
with IFRS, give a true and fair view of the assets, liabilities,
financial positions and profit or loss of the Group and the
Company; and
-- the Group Strategic Report and the Executive Director's
Report includes a fair review of the development and performance of
the business and the position of the Company and the undertakings
included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties the Company
faces.
The Directors consider that the Annual Report, taken as a whole,
is fair, balanced and understandable and provides the information
necessary for Shareholders to assess the Group's and Company's
position and performance, business model and strategy.
This responsibility statement was approved by the Board of
Directors on 3 June 2020 and is signed on behalf of the Board.
Brendan Hawthorne
Chairman
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the
Company's statutory accounts for the year ended 31 December 2019
but is derived from those accounts. Statutory accounts for 2019
will be delivered to the Registrar of Companies in due course. The
Auditor has reported on those accounts; their report was (i)
unqualified, (ii) did not include a reference to any matters to
which the Auditor drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under
Section 498 (2) or (3) of the Companies Act 2006. The text of the
Auditor's report can be found in the Company's full Annual Report
at: www.rdlrealisationplc.com
CONSOLIDATED AND COMPANY STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2019
Notes 2019 2018 2019 2018
ASSETS Group Company
Non-current assets (USD) (USD)
Financial assets
at fair value through
profit or loss 3 24,027,573 137,806,709 2,800,089 4,974,099
Loans held at amortised 4 - - - -
cost
Investment in subsidiaries 6 - - 195,784,147 195,784,147
-------------- -------------- -------------- --------------
Total non-current
assets 24,027,573 137,806,709 198,584,236 200,758,246
-------------- -------------- -------------- --------------
Current assets
Financial assets
at fair value through
profit or loss 3 13,483,500 38,307,954 - 38,307,954
Derivative assets 13 - 412,297 - 412,297
Amounts owed by subsidiary
undertakings 16 - - 6,436,484 6,434,803
Receivable from broker - 5,825,498 - 5,825,498
Advances to/funds
receivable from direct
lending platforms 5 602,463 908,917 - -
Prepayments and other
receivables 80,651 790,379 79,734 790,383
Cash and cash equivalents 15 11,691,307 35,634,844 1,274,604 20,809,196
Total current assets 25,857,921 81,879,889 7,790,822 72,580,130
TOTAL ASSETS 49,885,494 219,686,598 206,375,058 273,338,376
Non-current liabilities
Zero dividend preference
shares 9 - 65,180,787 -
Amounts due to subsidiary
undertaking 16 - - 157,694,910 126,059,851
-------------- -------------- -------------- --------------
Total non-current
liabilities - 65,180,787 157,694,910 126,059,851
Current liabilities
Accrued expenses and other
liabilities 8 1,373,872 32,154,477 548,475 30,825,243
Income tax liability - 1,508,612 - 1,270,363
Derivative liabilities 13 - 6,101 - 6,101
-------------- -------------- -------------- --------------
Total current liabilities 1,373,872 33,669,190 548,475 32,101,707
-------------- -------------- -------------- --------------
TOTAL LIABILITIES 1,373,872 98,849,977 158,243,385 158,161,558
-------------- -------------- -------------- --------------
NET ASSETS 48,511,622 120,836,621 48,131,673 115,176,818
-------------- -------------- -------------- --------------
SHAREHOLDERS' EQUITY
Capital and reserves
Share capital 10 427,300 427,300 427,300 427,300
Share premium account 10 40,346,947 40,346,947 40,346,947 40,346,947
Other reserves 10 156,922,734 156,922,734 102,585,400 156,922,734
Revenue reserves (14,377,824) 1,421,278 (546,354) 8,737,669
Realised capital
profits (133,225,079) (76,365,105) (90,278,627) (72,020,922)
Unrealised capital
losses (3,091,545) (2,475,418) (4,402,993) (19,236,910)
Foreign currency translation
reserves 1,509,089 558,885 - -
-------------- -------------- -------------- --------------
TOTAL SHAREHOLDERS' EQUITY 48,511,622 120,836,621 48,131,673 115,176,818
============== ============== ============== ==============
NAV per Ordinary Share 3.01 7.49 2.99 7.14
============== ============== ============== ==============
The accompanying notes below are an integral part of these
financial statements.
The financial statements for the year ended 31 December of RDL
Realisation Plc, a public listed company limited by shares and
incorporated in England and Wales with the registered number
09510201, were approved and authorised for issue by the Board of
Directors on 3 June 2020.
Signed on behalf of the Board of Directors:
Brendan Hawthorne
Chairman
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2019
Notes 1 Jan to 31 Dec 19 1 Jan to 31 Dec 18
Revenue Capital Total Revenue Capital Total
Income (USD) (USD) (USD) (USD) (USD) (USD)
Investment income 8,690,654 - 8,690,654 22,647,763 - 22,647,763
Gain on revaluation of
derivative
contracts - - - - 203,869 203,869
Realised gain on financial
assets at fair value
through profit or loss - 158,154 158,154 - - -
Other income received
on financial
assets - 1,376,756 1,376,756 4,844,030 - 4,844,030
Other income 109,517 - 109,517 - - -
Bank interest income 10,519 - 10,519 3,765 - 3,765
------------ ------------ ------------- ----------- ------------- -------------
8,810,690 1,534,910 10,345,600 27.495,558 203,869 27,699,427
------------ ------------ ------------- ----------- ------------- -------------
Operating expenditure
Net loss on financial
assets at fair value
through profit or
loss - 4,269,378 4,269,378 - 15,830,398 15,830,398
Loss on sale of RDLZ
Preference Shares 4,063,100 - 4,063,100 - - -
Loss on revaluation of
derivative contracts - 205,376 205,376 - - -
Foreign exchange
loss - 873,104 873,104 - 1,677,065 1,677,065
Investment Management
Fees 17 60,032 - 60,032 2,675,643 - 2,675,643
Service and premium fees 407,369 - 407,369 1,980,905 - 1,980,905
Provision for default 7 - - - - 1,002,222 1,002,222
Realised loss on financial
assets through profit
or loss - - - - 19,199,453 19,199,453
4,
Loans written off 7 - - - - 7,091,372 7,091,372
Company secretarial,
administration and registrar
fees 1,400,043 - 1,400,043 421,019 - 421,019
Finance costs 9 2,723,057 - 2,723,057 3,934,484 - 3,934,484
Other expenses 20 6,438,165 - 6,438,165 8,056,722 - 8,056,722
------------ ------------ ------------- ----------- ------------- -------------
15,091,766 5,347,858 20,439,624 17,068,773 44,800,510 61,869,283
------------ ------------ ------------- ----------- ------------- -------------
(Loss)/profit before
tax (6,281,076) (3,812,948) (10,094,024) 10,426,785 (44,596,641) (34,169,856)
------------ ------------ ------------- ----------- -------------
Taxation 12 465,551 674,181 1,139,732 (872,082) (728,288) (1,600,370)
------------ ------------ ------------- ----------- -------------
(Loss)/profit after
tax (5,815,525) (3,138,767) (8,954,292) 9,554,703 (45,324,929) (35,770,226)
Basic Earnings Per
Ordinary Share -
USD 14 (0.36) (0.19) (0.55) 0.60 (2.81) (2.21)
-------------
Basic Earnings Per
Ordinary Share -
GBP 14 (0.27) (0.15) (0.42) 0.47 (2.21) (1.74)
Diluted Earnings
Per Ordinary Share
- USD 14 (0.36) (0.19) (0.55) 0.60 (2.81) (2.21)
Diluted Earnings
Per Ordinary Share
- GBP 14 (0.27) (0.15) (0.42) 0.47 (2.21) (1,74)
(Loss)/profit for the
year (5,815,525) (3,138,767) (8,954,292) 9,554,703 (45,324,929) (35,770,226)
------------ ------------ ------------- ----------- ------------- -------------
Other comprehensive income:
items that may be reclassified
subsequently to profit
and loss:
Exchange differences
on translation
of net assets of subsidiary - - 950,204 - - 724,066
------------ ------------ ------------- ----------- ------------- -------------
Total comprehensive (loss)/
income for the year (5,815,525) (3,138,767) (8,004,088) 9,554,703 (45,324,929) (35,046,160)
============ ============ ============= =========== ============= =============
The accompanying notes below are an integral part of these
financial statements.
The total column of this Statement of Comprehensive Income was
prepared in accordance with International Financial Reporting
Standards ("IFRS"). The supplementary revenue and capital columns
are both prepared under the guidance published by the Association
of Investment Companies ("AIC"). All items in the above Statement
derive from continuing operations.
COMPANY STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2019
Notes 1 Jan to 31 Dec 19 1 Jan to 31 Dec 18
Revenue Capital Total Revenue Capital Total
Income (USD) (USD) (USD) (USD) (USD) (USD)
Investment
income 1,109,465 - 1,109,465 6,416,459 - 6,416,459
Realised gain
on financial
assets
through profit
or loss - 1,184,580 1,184,580 - - -
Net gain on
financial
assets at fair
value through
profit or loss - 374,379 374,379 - - -
Gain on
revaluation
of derivative
contracts - - - - 203,869 203,869
Dividend and
other
income - - - 3,347 - 3,347
Bank interest
income 10,519 - 10,519 419 - 419
------------ -------------- -------------- ------------- --------------- ---------------
1,119,984 1,558,959 2,678,943 6,420,225 203,869 6,624,094
------------ -------------- -------------- ------------- --------------- ---------------
Operating
expenditure
Net loss on financial
assets at
fair value through
profit
or loss - - - - 8,299,062 8,299,062
Loss on
revaluation
of derivative
contracts - 205,376 205,376 - - -
Investment
Management
Fee 17 60,032 - 60,032 2,675,643 - 2,675,643
Foreign
exchange
loss - 873,104 873,104 - 1,233,184 1,233,184
Service and
premium
fees - - - 143,674 - 143,674
Provision for
default - - - - 68,311 68,311
Realised loss
on financial
assets
through profit
or loss - - - 1,827,807 1,827,807
Loans written
off - - - - 1,145,493 1,145,493
Company secretarial,
administration and
registrar
fees 655,200 - 655,200 320,414 - 320,414
Impairment loss on
investment
in subsidiaries - 285,022 285,022 - 11,077,198 11,077,198
Finance costs 661,643 - 661,643 1,451,834 - 1,451,834
Other expenses 3,914,176 - 3,914,176 2,549,269 119,945 2,669,214
------------ -------------- -------------- ------------- --------------- ---------------
5,291,051 1,363,502 6,654,553 7,140,834 23,771,000 30,911,834
------------ -------------- -------------- ------------- --------------- ---------------
Operating
loss (4,171,067) 195,457 (3,975,610) ( 720,609) (23,567,131) (24,287,740)
Income from shares in
group undertaking 4,294,142 (4,293,427) 715 14,051,791 (31,782,770) (17,730,979)
------------ -------------- -------------- ------------- --------------- ---------------
Profit/(loss)
before tax 123,075 (4,097,970) (3,974,895) 13,331,182 (55,349,901) (42,018,719)
------------ -------------- -------------- ------------- --------------- ---------------
Taxation 576,480 674,181 1,250,661 (622,745) (728,287) (1,351,032)
------------ -------------- -------------- ------------- --------------- ---------------
Profit/(loss) after
tax and total
comprehensive
income/(loss) 699,5
for the system 55 (3,423,789) (2,724,234) 12,708,437 (56,078,188) (43,369,751)
============ ============== ============== ============= =============== ===============
Basic Earnings
Per Ordinary
Share
- USD 14 0.04 (0.21) (0.17) 0.79 (3.48) (2.69)
Basic Earnings
Per Ordinary
Share
- GBP 14 0.03 (0.16) (0.13) 0.62 (2.73) (2.11)
Diluted
Earnings
Per Ordinary
Share
- USD 14 0.04 (0.21) (0.17) 0.79 (3.48) (2.69)
Diluted
Earnings
Per Ordinary
Share
- GBP 14 0.03 (0.16) (0.13) 0.62 (2.73) (2.11)
The accompanying notes below are an integral part of these
financial statements.
The total column of this Statement of Comprehensive Income was
prepared in accordance with International Financial Reporting
Standards ("IFRS"). The supplementary revenue and capital columns
are both prepared under guidance published by the Association of
Investment Companies ("AIC"). All items in the above Statement
derive from continuing operations.
Other comprehensive income
There were no items of other comprehensive income in the current
year or prior year.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARED 31 DECEMBER 2019
Foreign
Realised Unrealised currency
Share Share Other Capital Capital Revenue translation
Notes Capital Premium Reserves Profits/(Losses) Profits/(Losses) Reserves reserves Total
Balance at 1
January
2018 427,300 40,346,947 204,225,570 (30,035,108) (3,480,486) 4,484,858 (165,181) 215,803,900
Dividends 11 - - (47,302,836) - - (12,618,283) - (59,921,119)
Reclassification
of capital
losses - - - (3,480,486) 3,480,486 - - -
(Loss)/profit for
the year - - - (42,849,511) (2,475,418) 9,554,703 - (35,770,226)
Other comprehensive
income
for the year - - - - - - 724,066 724,066
-------- ----------- ------------- ----------------- ----------------- ------------- ------------ -------------
Balance at 31
December
2018 427,300 40,346,947 156,922,734 (76,365,105) (2,475,418) 1,421,278 558,885 120,836,621
======== =========== ============= ================= ================= ============= ============ =============
Balance at 1
January
2019 427,300 40,346,947 156,922,734 (76,365,105) (2,475,418) 1,421,278 558,885 120,836,621
Dividends 11 - - - (54,337,334) - (9,983,577) - (64,320,911)
Reclassification
of capital
losses - - - (2,475,418) 2,475,418 - - -
Loss for the year - - - (47,222) (3,091,545) (5,815,525) - (8,954,292)
Other comprehensive
income
for the year - - - - - - 950,204 950,204
Balance at 31
December
2019 427,300 40,346,947 156,922,734 (133,225,079) (3,091,545) (14,377,824) 1,509,089 48,511,622
======== =========== ============= ================= ================= ============= ============ =============
The accompanying notes below are an integral part of these
financial statements.
COMPANY STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARED 31 DECEMBER 2019
Realised Unrealised
Share Share Other Capital Capital Revenue
Notes Capital Premium Reserves Profits/(Losses) Profits/(Losses) Reserves Total
Balance at 1
January
2018 427,300 40,346,947 204,225,570 (36,982,537) 1,802,893 8,647,515 218,467,688
Dividends 11 - - (47,302,836) - - (12,816,283) (59,921,119)
Reclassification
of capital
losses - - - 1,802,893 (1,802,893) - -
Total comprehensive
(loss)/
income for the year - - - (36,841,278) (19,236,910) 12,708,437 (43,369,751)
Balance at 31
December
2018 427,300 40,346,947 156,922,734 (72,020,922) (19,236,910) 8,737,669 115,176,818
======== =========== ============= ================= ================= ============= =============
Balance at 1
January
2019 427,300 40,346,947 156,922,734 (72,020,922) (19,236,910) 8,737,669 115,176,818
Dividends 11 - - (54,337,334) - - (9,983,577) (64,320,911)
Reclassification
of capital
losses - - - (19,236,910) 19,236,910 - -
Total comprehensive
income/(loss)
for the year - - - 979,205 (4,402,993) 699,554 (2,724,234)
-------- ----------- ------------- ----------------- ----------------- ------------- -------------
Balance at 31 December
2019 427,300 40,346,947 102,585,400 (90,278,627) (4,402,993) (546,354) 48,131,673
======== =========== ============= ================= ================= ============= =============
The accompanying notes below are an integral part of these
financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2019
1 Jan to 1 Jan to
31 Dec 31 Dec
2019 2018
Notes (USD) (USD)
Loss for the year (8,954,292) (35,770,226)
Adjustments for:
Provision for income
tax expense (1,139,733) 1,600,370
Tax paid (346,912) (280,094)
Net loss on financial assets at fair value
through profit or loss (5,527,515) 11,714,842
Impairment - 13,534,657
Interest impairment - 465,284
Investment income (8,690,654) (22,647,763)
Interest expense on ZDP
Shares 9 2,251,140 3,770,242
Amortisation of transaction
fees - net 1,076,763 23,209
(Accretion)/amortisation
of issue costs 9 (632,737) 164,242
Foreign exchange (gain)/loss (507,775) 971,835
Loss/(gain) on revaluation of derivative
financial instruments 205,376 (203,869)
Loss on RDLZ Preference Shares 4,116,612 -
Loans written off 4,7 - 7,091,372
Reversal of default - (719,736)
-------------- -------------
Operating cash flows before movements in
working capital (18,149,727) (20,285,635)
Increase)/decrease in other current assets
and prepaid expenses 6,535,226 (6,423,242)
(Decrease) in accrued expenses and other
liabilities (30,780,605) (111,068)
Decrease in funds receivable from direct
lending platforms - net 306,454 2,873,999
Net cash flows (used in) by operating activities (42,088,652) (23,945,946)
Investing activities
Acquisition of financial assets at
fair value through profit or loss 3 - (6,222,775)
Acquisition of loans 4 - (91,163,256)
Principal repayments 4 - 85,852,639
Proceeds from partial redemption of
financial assets at fair value through
profit or loss 3 144,131,103 68,349,705
Investment income received 8,690,654 24,076,643
Net settlement on derivative
positions 200,819 362,877
-------------- -------------
Net cash flows generated by investing
activities 153,022,576 81,255,833
-------------- -------------
Financing activities
Payment of ZDP shares to Preference Shareholders (70,790,110) -
Dividends paid 11 (64,320,911) (30,275,160)
-------------- -------------
Net cash flows used in financing activities (135,111,021) (30,275,160)
-------------- -------------
Net change in cash and
cash equivalents (24,177,097) 27,034,727
-------------- -------------
Effect of foreign exchanges 233,560 (1,099,682)
Cash and cash equivalents at the beginning
of the year 35,634,844 9,699,799
-------------- -------------
Cash and cash equivalents at the end
of the year 11,691,307 35,634,844
============== =============
The accompanying notes below are an integral part of these
financial statements.
COMPANY STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2019
1 Jan to 1 Jan to
31 Dec 31 Dec
2019 2018
Notes (USD) (USD)
Loss for the year (2,724,234) (43,369,751)
Adjustments for:
Dividend income/income from shares in group
undertaking (715) 17,730,980
Investment income (1,109,465) (6,416,459)
Foreign exchange loss (566,544) 1,229,392
Impairment loss on investment in subsidiaries 6 285,022 11,077,198
Net (gain)/loss on financial assets at fair
value through profit or loss (1,495,568) 8,299,062
Realised (gain)/loss on financial asset at
fair value through profit or loss (2,118,249) 3,028,981
Interest expense on loan with subsidiary
undertaking 661,641 1,451,834
Loss/(gain) on revaluation of derivative
contracts 205,376 (203,869)
Provision for income tax expense (1,250,661) 1,351,032
Provision for default 4,7 - 68,311
-------------- --------------
Operating cash flows before movements in
working capital (8,113,397) (5,753,289)
-------------- --------------
Decrease/(increase) in other current assets
and prepaid expenses 6,536,146 (6,514,392)
Increase in amounts owed by subsidiary
undertakings - (1,200,000)
Decrease)/ increase in accrued expenses and
other liabilities (30,276,768) (155,872)
Net cash flows (used in)/generated from operating
activities (31,854,019) (13,623,553)
-------------- --------------
Investing activities
Acquisition of financial assets at fair
value through profit or loss 4 - (7,706,752)
Proceeds from partial redemption of
financial assets at fair value through
profit or loss 4 44,095,782 1,276,943
Investments in subsidiary undertakings (798,449) (10,804,162)
Investment income received 6 1,109,465 4,756,408
Dividend income received 102,509,050 76,618,000
Net settlement on derivative positions 200,819 362,877
-------------- --------------
Net cash flows generated from investing
activities 147,116,667 64,503,314
-------------- --------------
Financing activities
Payment of ZDP Shares to Preference
Shareholders (70,709,889) -
Dividends paid 11 (64,320,911) (30,275,160)
-------------- --------------
Net cash flows used in financing activities (135,030,800) (30,275,160))
-------------- --------------
Net change in cash and cash equivalents (19,768,152) 20,604,601
Effect of foreign exchanges 233,560 (1,099,682)
Cash and cash equivalents at the beginning
of the year 20,809,196 1,304,277
-------------- --------------
Cash and cash equivalents at the end
of the year 15 1,274,604 20,809,196
============== ==============
The accompanying notes below are an integral part of these
financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2019
1. GENERAL INFORMATION
The Company was incorporated and registered in England and Wales
on 25 March 2015 and commenced operations on 1 May 2015 following
its admission to the London Stock Exchange Main Market. The
registered office of the Company is 6th Floor, 65 Gresham Street,
London, EC2V 7NQ.
The consolidated financial statements ("financial statements")
include the results of the Trust and RDLZ. The Company will be
managed, either by a third party non-EEA investment manager or
internally, by the Company's Board of Directors with the intention
of realising all remaining assets in the portfolio in a prudent
manner consistent with the principles of good investment
management, with a view to returning cash to its Shareholders in an
orderly manner.
2. SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of
these financial statements are set out below.
Basis of accounting and preparation
These financial statements have been prepared in compliance with
International Financial Reporting Standards ("IFRS") as adopted by
the European Union ("EU"). The financial statements were also
prepared in accordance with the Statement of Recommended Practice
("SORP") for Investment Trusts issued by the AIC (as issued in
November 2014 and updated in January 2017), where this guidance is
consistent with IFRS.
Basis of measurement and consolidation
The financial statements have been prepared on a historical cost
basis as modified for the revaluation of certain financial assets.
The Group controls an entity when the Group is exposed to, or has
rights to, variable returns from its involvement with the entity
and has the ability to affect those returns through its power over
the entity. The Trust is fully consolidated from the date on which
control is transferred to the Group and deconsolidated from the
date that control ceases.
Going concern
As the Company is in a managed wind down, the use of the going
concern basis in preparing these financial statements of the Group
is not appropriate. As such the financial statements have been
prepared on a basis other than that of a going concern, which
require assets to be measured at their net realisable value. There
were no adjustments made to the carrying values of the assets and
liabilities of the Group as the Directors' consider the carrying
value of assets to approximate the net realisable value. The
Directors believe that the Company and Group have adequate
resources to continue in operational existence until the
anticipated liquidation of the Company.
Viability statement
In line with the Investment Policy and in accordance with the
AIC Code of Corporate Governance, the Directors have assessed the
prospects of the Company over its expected realisation
timeframe.
In their assessment of the viability of the Company, the
Directors have considered each of the principal risks and
uncertainties in the strategic report. The Directors have also
reviewed the Company's income and expenditure projections and the
fact the Company's investments (including those held through the
Trust) do not comprise readily realisable securities which can be
sold to meet funding requirements if necessary. The Company
maintains a risk register for its stress test to identify, monitor
and control risk concentration.
The Company has processes for monitoring operating costs, share
price discount, compliance with the investment objective and
policy, asset allocation, the portfolio risk profile, counterparty
exposure, liquidity risk, financial controls and stress-testing
based assessment of the Company's prospects. The Directors confirm
that they have a reasonable expectation that the Group will be able
to continue in operation and meet its liabilities as they fall due
over the Managed Wind-Down period.
New Accounting Standards, amendments to existing Accounting
Standards and/or interpretations of existing Accounting Standards
(separately or together, "New Accounting Requirements") adopted
during the current year
The Directors have assessed the impact, or potential impact, of
all New Accounting Requirements. In the opinion of the Directors,
there are no mandatory New Accounting Requirements applicable in
the current period that are relevant and/or material to the
Company. Consequently, no such mandatory New Accounting
Requirements are listed. The Company has not early adopted any New
Accounting Requirements that are not mandatory.
New Accounting Standards, amendments to existing Accounting
Standards and/or interpretations of existing Accounting Standards
(separately or together, "New Accounting Requirements") not yet
adopted
In the Directors' opinion, all non-mandatory New Accounting
Requirements are either not yet permitted to be adopted or would
have no material effect on the reported performance, financial
position or disclosures of the Group and consequently have neither
been adopted nor listed.
Use of estimates, judgements and assumptions
The Company based its assumptions and estimates on parameters
available when the financial statements were prepared. However,
existing circumstances and assumptions about future developments
may change due to market changes or circumstances arising beyond
the control of the Group. Such changes are reflected in the
assumptions when they occur.
The following are areas of particular significance to the
Group's financial statements and include the use of estimates and
the application of judgement.
Key source of estimation uncertainty - fair value of financial
assets at fair value through profit or loss
The determination of fair values based on available market data
requires significant credit judgement by the Group.
Management has applied certain estimated potential impairments
to these financial instruments as of 31 December 2019. For the
material financial instrument positions at 31 December 2019, a
combination of factors was taken into consideration, see note 18
and the Principal Risks and Uncertainties in Group Strategic
Report.
In addition to the credit judgement of management related to the
reserves for potential impairment, third party valuations and
analysis were also employed for the material financial instruments
for comparison and consideration. For these third-party valuations,
a weighted average IRR for each platform was used. Included in the
discount analysis by third parties were increased discount rates
for individual non-performing loans. Such valuations considered
actual and market default rate comparisons for the discount
rate.
Functional and presentation currency
The financial statements are presented in US Dollars ("USD"),
the currency of the primary economic environment in which the
Company operates, the Company's functional currency.
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign currency assets and liabilities are
translated into the functional currency using the exchange rate
prevailing at the Statement of Financial Position date.
Financial Instruments
IFRS 9 Financial Instruments sets out requirements for
recognising and measuring financial assets, financial liabilities
and some contracts to buy or sell non-financial items.
-- Classification - Financial assets
IFRS 9 contains three principal classification categories for
financial assets: measured at amortised cost, Fair Value through
Other Comprehensive Income ("FVOCI") and Fair Value through Profit
or Loss ("FVTPL").
Under IFRS 9, derivatives embedded in contracts where the host
is a financial asset in the scope of the standard are never
bifurcated. Instead, the hybrid financial instrument as a whole is
assessed for classification.
The Group has designated its investments as financial assets at
FVTPL.
-- Impairment - Financial assets and contract assets
IFRS 9 utilises a forward-looking 'expected credit loss' ("ECL")
model which requires considerable judgement about how changes in
economic factors affect ECLs, which will be determined on a
probability-weighted basis.
The impairment model applies to financial assets measured at
amortised cost or FVOCI, except for investments in equity
instruments, and to contract assets.
Under IFRS 9, loss allowances will be measured on either of the
following bases:
-- 12-month ECL: these are ECLs that result from possible
default events within the 12 months after the reporting date;
and
-- lifetime ECL: these are ECLs that result from all possible
default events over the expected life of a financial
instrument.
Lifetime ECL measurement applies if the credit risk of a
financial asset at the reporting date has increased significantly
since initial recognition and 12-month ECL measurement applies if
it has not. An entity may determine that a financial asset's credit
risk has not increased significantly if the asset has low credit
risk at the reporting date.
The Group believes that impairment losses are likely to become
more volatile for assets in the scope of the IFRS 9 impairment
model.
Under IFRS 9, the Group has to classify all financial
instruments in scope for impairment into 3 Stages - stage 1, stage
2 or 3, depending on the change in credit quality since initial
recognition.
Investments in equity instruments and financial assets at FVTPL
are out of scope of the impairment requirement.
Stage 1
This includes loans where there is no significant increase in
credit risk since initial recognition or loans that have low credit
risk on reporting date. For loans in stage 1, interest is accrued
on the gross carrying amount of the loans and a 12-month ECL is
factored in the profit and loss calculations.
Stage 2
This consists of loans with significant increase in credit risk
since initial recognition but not credit impaired. Interest for
loans in stage 2 is accrued on the gross carrying amount. However,
a lifetime ECL is factored into the profit and loss
calculations.
Stage 3
This includes loans which demonstrate evidence of impairment on
the reporting date. Interest is accrued on the net carrying amount
of the loans and a lifetime ECL is factored into the profit and
loss calculations.
For the Group's loan investments, the assessment is performed on
a collective basis per platform as the underlying loans have shared
risk characteristics. However, individual assessment may be
performed depending on the magnitude and available information from
the platform providers.
For short-term receivables and cash and cash equivalents, the
ECL model is not likely to result in a material change of the
balance due to their short-term nature therefore the Group will
apply the simplified approach for contracts that have a maturity of
one year or less.
-- Classification - Financial liabilities
IFRS 9 allows financial liabilities to be designated at
amortised cost or fair value, under IFRS 9 these fair value changes
are generally presented as follows:
- the amount of change in fair value that is attributable to
changes in the credit risk of the liability is presented in the
OCI; and
- the remaining amount of change in the fair value is presented in profit or loss.
The Group has not designated any financial liabilities at FVTPL,
and it has no current intention to do so.
Financial assets held at fair value through profit or loss
The Group's financial assets consist of loans at fair value
through profit or loss and equity investments in funds. The Group
designates its investment as financial assets at fair value through
profit or loss in accordance with IFRS 9: Financial Instruments as
the fund is managed and its performance is evaluated on a fair
value basis and the Group now holds the investments with the
intention to sell rather than to collect contractual cash
flows.
Purchases and sales of financial assets are recognised on the
trade date, the date which the Group commits to purchase or sell
the assets and are derecognised when the rights to receive cash
flows from the financial assets have expired or the Group has
transferred substantially all risks and rewards of ownership.
Financial instruments are initially recognised at fair value, and
transaction costs for financial assets carried at fair value
through profit or loss are expensed. Gains and losses arising from
changes in the fair value of the Group's financial instruments are
included in the Statement of Comprehensive Income in the period
which they arise.
Financial liabilities at amortised cost - Zero Dividend
Preference Shares
These are initially recognised at cost, being the fair value of
the consideration received associated with the borrowing net of
direct issue costs. Zero Dividend Preference Shares are
subsequently measured at amortised cost using the effective
interest method. Direct issue costs are amortised using the
effective interest method and are added to the carrying amount of
the Zero Dividend Preference Shares.
Derivative financial instruments
Derivative financial instruments, including short-term forward
currency and swap contracts are classified as held at fair value
through profit or loss, and are classified in current assets or
current liabilities in the Statement of Financial Position.
Derivatives are entered into to reduce the exposure on the foreign
currency loans. Changes in the fair value of derivative financial
instruments are recognised in the Statement of Comprehensive Income
as a capital item. The Group's derivatives are not used for
speculative purposes and hedge accounting is not applied.
Taxation
Investment trusts which have approval as such under section 1158
of the Corporation Taxes Act 2010 are not liable for taxation on
capital gains. The Company has taken advantage of modified UK tax
treatment in respect of its qualifying interest income for an
accounting period and has chosen to designate as an "interest
distribution" all or part of any amount it distributes to the
Shareholders as dividends, to the extent that it has qualifying
interest income for the accounting period. As such, the Company is
able to deduct such interest distributions from its income in
calculating its taxable profit for the relevant accounting period.
It is expected that the Company will have material amounts of
qualifying interest income and therefore may decide to designate
some or all of the dividends payable as interest distributions.
The current tax payable is based on the taxable profit for the
period. Taxable profit differs from net profit as reported in the
Statement of Comprehensive Income because it excludes items of
income or expense that are taxable or deductible in other years and
it further excludes items that are never taxable or deductible. The
Company's liability for current tax is calculated using tax rates
that have been enacted or substantively enacted at the Statement of
Financial Position date.
Deferred tax is the tax expected to be payable or recoverable on
temporary differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax
bases used in the computation of taxable profit and is accounted
for using the liability method. Deferred tax liabilities are
recognised for all taxable temporary differences and deferred tax
assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible
temporary differences can be utilised.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled, or the asset is
realised based on tax rates that have been enacted or substantively
enacted at the Statement of Financial Position date.
The carrying amount of deferred tax assets is reviewed at each
Statement of Financial Position date and reduced to the extent that
it is no longer probable that sufficient taxable profits will be
available to allow all or part of the asset to be recovered.
Investment and other income
Investment income and other income are recognised when it is
probable that the economic benefits will flow to the Group and the
amount of revenue can be measured reliably. Income for all interest
bearing financial instruments is accrued on a time basis, by
reference to the principal outstanding and at the effective
interest rate applicable which is the rate that exactly discounts
estimated future cash receipts through the expected life of the
financial asset to that asset's net carrying amount on initial
recognition.
Dividend income
Dividend income from investments is recognised when the
Shareholders' rights to receive payment have been established.
Dividends payable
Dividends payable on ordinary shares are recognised in the
Statement of Changes in Equity when approved by the Directors in
respect of interim dividends and by the Shareholders if declared as
a final dividend by the Directors at an AGM. As advised to
Shareholders in the Company's circular dated 29 October 2018, the
Board does not intend to make quarterly dividends and will instead
make payments by way of ad-hoc special dividends, where
appropriate, during the course of the managed wind-down process so
that the Company is able to return available cash to Shareholders
as soon as reasonably practicable after cash becomes available in
the portfolio.
Cash and cash equivalents
Cash and cash equivalents include cash at bank and in hand and
highly liquid interest-bearing securities with original maturities
of three months or less.
Segmental reporting
An operating segment is a component of the Group that engages in
business activities from which it may earn revenues and incur
expenses. The Directors perform regular reviews of the operating
results of the Group and make decisions using financial information
at the Group level only. Accordingly, the Directors believe that
the Group has only one reportable operating segment.
The Directors are responsible for ensuring that the Group
carries out business activities in line with the transaction
documents. They may delegate some or all of the day-to-day
management of the business, including the decisions to purchase and
sell securities, to other parties both internal and external to the
Group. The decisions of such parties are reviewed on a regular
basis to ensure compliance with the policies and legal
responsibilities of the Directors; therefore, the Directors retain
full responsibility as to the major allocation decisions of the
Group.
Earnings per share
The Company presents basic and diluted earnings per share
("EPS") data for its ordinary shares. Basic EPS is calculated by
dividing the profit or loss attributable to ordinary Shareholders
by the weighted average number of ordinary shares outstanding
during the period.
The diluted EPS is the same as the basic EPS as there is
currently no arrangement which could have a dilutive effect on the
Company's ordinary shares.
Share capital and share premium
Ordinary Shares are not redeemable and are classified as equity.
Incremental costs directly attributable to the issue of new shares
are shown in equity as a deduction, net of tax, from the
proceeds.
Expenses (including finance costs)
Expenses are accounted for on an accruals basis and are
recognised in the Statement of Comprehensive Income. Investment
management fee is 100% allocated to revenue, along with all other
expenses which are also charged through revenue.
3. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
The Group's financial asset at fair value through profit or loss
represents all its loan investments.
31 Dec 19 31 Dec 18 31 Dec 19 31 Dec 18
(Group) (Group) (Company) (Company)
USD USD USD USD
Opening fair value 176,114,663 29,621,483 43,282,053 300,000
Transfer in from Loans
held at amortised
cost arising from
reclassification on
1 July 2018 - 248,386,018 - 54,673,978
Purchases - 6,222,775 - 510,168
Repayments (144,131,104) (68,349,705) (44,095,782) (790,841)
Gain/(loss) on financial
assets through profit
and loss 5,527,514 (39,765,908) 3,613,817 (11,411,252)
Closing balance 37,511,073 176,114,663 2,800,088 43,282,053
============== ============= ============= =============
The financial assets amounting to USD 13,483,500 represents
assets realised subsequent to the year-end and therefore, are
classified as current assets. The remaining assets are classified
as non-current.
Following the Company's announcement on 11 June 2018, that it
will move to realise its assets and proceed with the wind-down
process, the Company's business model has changed from holding
financial assets to collect their contractual cash flows to
realising assets, in a prudent manner consistent with the
principles of good investment management with a view to
returning cash to its Shareholders in an orderly manner. In the
prior year, all loans which were previously held at amortised cost
have been reclassified as at fair value through profit or loss.
Fair value estimation
Please refer to the Executive Directors' Report for Princeton
update, the Audit Committee Report and note 18 for the valuation of
financial assets at fair value through profit or loss.
4. LOANS HELD AT AMORTISED COST
31 Dec 31 Dec
19 31 Dec 18 19 31 Dec 18
(Group) (Group) (Company) (Company)
USD USD USD USD
Opening balance - 250,993,296 - 50,793,341
Purchases - 91,163,256 - 7,706,752
Principal repayments - (85,852,639) - (1,276,943)
Amortisation of transaction
fees - (23,209) - -
Accrued interest - 643,065 - 855,865
Interest impaired - - - (218,854)
Loans written-off - (7,091,372) - (1,145,493)
Effect of foreign exchange - (2,166,115) - (2,055,538)
--------- -------------- ---------- -------------
- 247,666,282 - 54,659,130
(Provision for) / utilisation
of default allowance
- net - 719,736 - 14,848
Transfer out to financial
assets at fair value
through profit or loss
arising from reclassification
on 1 July 2018 - (248,386,018) - (54,673,978)
--------- -------------- ---------- -------------
Closing balance - - - -
========= ============== ========== =============
Up to 1 July 2018, the Group's loans were accounted for using
the effective interest method and held at amortised cost. The
carrying value of such instruments includes assumptions that are
based on market conditions existing at each statement of financial
position date. Such assumptions include application of default rate
and identification of effective interest rate taking into account
the credit standing of each borrower as assessed by each direct
lending platform.
5. ADVANCES TO/FUNDS RECEIVABLE FROM DIRECT LING PLATFORMS
31 Dec 19 31 Dec 31 Dec
18 19 31 Dec 18
(Group) (Group) (Company) (Company)
USD USD USD USD
Other direct lending
platforms 602,463 908,917 - -
---------- -------- ---------- ----------
602,463 908,917 - -
========== ======== ========== ==========
6. INVESTMENT IN SUBSIDIARIES
31 Dec 19 31 Dec 18
Investment in RDLZ (Company) (Company)
USD USD
Balance at beginning of the year - -
Investment made during the year 285,022 11,077,198
Amount written-off during the
year (285,022) (11,077,198)
---------- -------------
Balance at end of the year - -
========== =============
31 Dec 19 31 Dec 18
Investment in RDL Trust (Company) (Company)
USD USD
Balance at beginning of the year 195,784,147 195,780,355
Additions made the year - 3,792
------------ ------------
Balance at end of the year 195,784,147 195,784,147
============ ============
Subsidiary name Effective County of Incorporation Principal activity
ownership and Place of Business
%
RDL Fund Trust 100% USA Invests in a portfolio
of Debt Instruments
through Direct Lending
Platforms
RDLZ Realisation 100% United Kingdom Issuance of Zero
Plc Dividend Preference
Shares
In the Company's Statement of Comprehensive Income, an
impairment loss of USD 285,022 (2018: USD 11,077,198) was
recognised relating to the Company's investment in RDLZ, in respect
of expenses paid on behalf of RDLZ for USD nil (2018: USD 662,066)
and in relation to the Company's investment on RDLZ's Ordinary
Shares amounting to USD 285,022 (2018: USD 10,804,162 relating to
the Company's investment in RDLZ's Preference Shares, whose
repayment was waived during 2018). The Company's investment in RDLZ
was fully impaired due to RDLZ's Shareholders' deficit position as
at reporting date.
7. PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
Profit on ordinary activities before taxation is stated after
charging/(crediting):
31 Dec 31 Dec 31 Dec
19 31 Dec 18 19 18
(Group) (Group) (Company) (Company)
USD USD USD USD
Provision for default - 1,002,222 - -
Revaluation gain/(loss)
on financial assets through
profit or loss 4,296,378 (39,765,908) 374,379 (14,848)
Loans written-off - 7,091,372 - -
Foreign exchange loss/(gain)
- net 873,104 1,667,065 873,104 1,233,184
---------- ------------- ---------- ----------
5,142,482 29,995,249 1,247,483 (14,848)
========== ============= ========== ==========
31 Dec 31 Dec
19 18
(Group) (Group)
USD USD
Audit fees for annual financial statements:
-RDL 90,000 165,739
-RDLZ - 36,477
Fee for review of half-yearly financial reporting
- RDL - 30,494
-------- --------
90,000 232,710
======== ========
8. ACCRUED EXPENSES AND OTHER LIABILITIES
31 Dec 31 Dec 31 Dec 31 Dec
19 18 19 18
(Group) (Group) (Company) (Company)
USD USD USD USD
Investment Management fees
payable (note 17) 7,737 639,005 7,737 639,005
Dividend payable - 29,797,917 - 29,797,917
Legal fee payable 104,702 137,540 104,702 23,208
Interest received in advance 69,042 228,037 - -
Service and premium fee payable 547,820 439,471 - -
Audit fee payable 90,000 184,988 90,000 152,689
Administration fee payable 63,861 82,429 63,861 57,128
Registrar and Secretarial
fees payable 9,794 10,625 9,794 7,966
Payable to London Stock Exchange 105,373 3,606 105,373 -
Directors' fees payable (note
16) 151,158 128,577 151,158 128,577
Other payables 224,385 502,282 15,850 18,753
---------- ----------- ---------- -----------
1,373,872 32,154,477 548,475 30,825,243
========== =========== ========== ===========
9. ZERO DIVID PREFERENCE SHARES
31 Dec 19 31 Dec 18
(Group) (Group)
USD USD
Opening balance 65,180,787 76,222,019
Amortisation of issue costs during
the year 1,076,763 371,437
Amortisation of premium during
the year (632,737) (207,195)
Interest expense during the year 2,251,140 3,770,242
Purchased by Company - (10,415,132)
Effect of foreign exchange (1,202,455) (4,560,584)
Redemption of RDLZ Preference Shares (66,673,498) -
------------- -------------
Closing balance - 65,180,787
============= =============
Under RDLZ's Articles of Association, the Directors were
authorised to issue up to 55 million Zero Dividend Preference
shares ("ZDP Shares") for a period of five years from 25 July 2016.
RDLZ issued 53 million ZDP Shares at GBP 0.01 each (the "ZDP
Shares") in 2016. On 1 November 2016, RDLZ passed a resolution to
authorise Directors to issue up to 75 million ZDP Shares, such
authority to expire on 26 July 2021, unless revoked sooner or
varied by the Company in general meeting. The ZDP Shares had a term
of five years and a final capital entitlement of GBP 127.63 pence
per ZDP share on 31 July 2021 being the ZDP Repayment Date.
As part of the Board's assets realisation process and in meeting
the obligations of the Company to RDLZ, it purchased ZDP Shares to
reduce those obligations in advance of the final date for repayment
on the ZDP Shares. As at 14 December 2018, the Company held
7,278,193 ZDP Shares. The Board of the Company has passed a
resolution to waive the Company's entitlement to the acquired
principal and accrued interest on its ZDP holdings up to 14
December 2018.
The ZDP Shares do not carry the right to vote at general
meetings of the Company, although they carry the right to vote as a
class on certain proposals which would be likely to materially
affect their position. Further ZDP Shares (or any shares or
securities which rank in priority to or pari passu with the ZDP
Shares) may be issued without the separate class approval of the
ZDP Shareholders provided that the Directors determine that the ZDP
Shares would have a Cover(7) ratio of not less than 2.75 times
asset cover immediately following such issue.
As announced by the Company on 20 June 2019, resolutions to
place its subsidiary RDLZ into a members' voluntary winding up and
to amend the amounts payable in respect of the ZDP Shares issued by
RDLZ in order that the ZDP Shareholders would receive a revised
final capital entitlement of 121.8887 pence per ZDP Share, were
passed at the ZDP Class Meeting and General Meeting of RDLZ held on
20 June 2019.
On 21 June 2019, the Company paid USD 70,709,889 to third party
holders of ZDP Shares. The Group incurred a realised loss on the
early repayment of ZDP Shares of USD 4,116,612.
The Company did not receive any payment for the ZDP shares it
owned.
(7) Cover represents a fraction where the numerator is equal to
the NAV of the Group on a consolidated basis adjusted to: (i) add
back any liability to ZDP Shareholders; and (ii) deduct the
estimated liquidation costs of the RDLZ, and the denominator is
equal to the amount which would be paid on the ZDP Shares as a
class and (iii) deduct the ZDP Shares held by the Company from the
outstanding ZDP Shares to determine the ZDP redemption amount due
in July 2021.
10.SHARE CAPITAL AND SHARE PREMIUM
The table below shows the total issued share capital as at 31
December 2019 and 31 December 2018.
Nominal value Nominal value Number of
shares
GBP USD
Ordinary Shares 309,591 427,300 16,122,931
Voting Rights
Subject to any rights or restrictions attached to any shares, on
a show of hands every Shareholder present in person has one vote
and every proxy present who has been duly appointed by a
Shareholder entitled to vote has one vote, and on a poll every
Shareholder (whether present in person or by proxy) has one vote
for every share of which he is the holder. A Shareholder entitled
to more than one vote need not, if he votes, use all his votes or
cast all the votes he uses the same way. In the case of joint
holders, the vote of the senior holder who tenders a vote, whether
in person or by proxy, shall be accepted to the exclusion of the
vote of the other joint holders, and seniority shall be determined
by the order in which the names of the holders stand in the
Register.
No Shareholder shall be entitled to vote at any general meeting
or at any separate general meeting of the holders of any class of
shares in the Company, either in person or by proxy, in respect of
any share held by him unless all amounts presently payable by him
in respect of that share have been paid.
Variation of Rights and Distribution on Winding Up
If at any time, the share capital of the Company is divided into
different classes of shares, the rights attached to any class may,
unless otherwise provided by the terms of issue of the shares of
that class, be varied or abrogated, whether or not the Company is
being wound up, either with the consent in writing of the holders
of not less than three-quarters in nominal value amount of the
issued shares of the affected class, or with the sanction of a
special resolution passed at a separate general meeting of the
holders of the shares of that class (but not otherwise).
At every such separate general meeting the necessary quorum,
other than an adjourned meeting, shall be two persons holding or
representing by proxy at least one-third in nominal amount of the
issued shares of the class in question, and at an adjourned meeting
one person holding shares of the class in questions or his proxy;
any holder of shares of the class in question present in person or
by proxy may demand a poll and the holder of shares of the class in
question shall, on a poll, have one vote in respect of every share
of such class held by him. Where the rights of some only of the
shares of any class are to be varied, the foregoing provisions as
if each group of shares of the class differently treated formed a
separate class whose rights are to be varied.
There was no movement in shares, or no shares converted during
the year or the prior year.
11. DIVIDS
The Company intends to distribute at least 85% of its
distributable income earned in each financial year by way of
dividends, in order to maintain its investment trust status.
As advised to Shareholders in the Company's circular dated 29
October 2018, the Board does not intend to make quarterly dividends
and will instead make payments by way of ad-hoc special dividends.
As a result of the early repayment of the ZDP Shares, the Company's
ability to pay further dividends is no longer constrained by the
cover ratio covenant that required the Company to keep 2.75 of
asset cover. Accordingly, where appropriate, during the course of
the managed wind-down process the Company is now able to return
available cash to Shareholders as soon as reasonably
practicable.
During the year, a total of USD 64.3 million or 326.77p per
Ordinary Share was paid to Shareholders by way of dividends. A
further dividend of USD 5.3 million or 33p per Ordinary Share was
declared in
January 2020 and a dividend of USD 20.0 million or 106p per
Ordinary Share was declared in April 2020.
Set out below is the total dividend paid in respect of the
financial year:
1 Jan to 1 Jan
to
31 Dec 19 31 Dec
18
Pence (Group) (Group)
Per share
Ordinary Shares dividends declared
and paid:
Special dividends on 21 December 2018 145 - 29,645,959
Special dividends on 24 October 2018 85 - 17,656,877
Interim dividends in 2018 (in respect
of 30 Jun 2018 results) 14.28 - 3,018,181
Interim dividends in 2018 (in respect
of 31 Mar 2018 results) 19.79 - 4,180,676
Interim dividends in 2018 (in respect
of 31 Dec 2017 results) 24.14 - 5,419,426
Interim dividend in 2018 (in respect
of 31 Dec 2018 results) 17.14 3,500,288 -
Special dividend on 8 August 2019 255 49,871,450 -
Special dividend on 3 October 2019 33 6,449,173 -
Special dividend on 26 November 2019 21.63 4,500,000 -
Total dividends paid during the year 64,320,911 59,921,119
=========== ===========
12.TAXATION
In May 2015, the Company received confirmation from HM Revenue
& Customs as an approved Investment Trust in the UK for
accounting periods commencing on or after 1 May 2015, subject to
the Company continuing to meet the eligibility conditions at
Section 1158 Corporation Tax Act 2010 and the ongoing requirements
for approved Investment Trust companies in Chapter 3 of Part 2
Investment Trust (Approved Company) Tax Regulations 2011 (Statutory
Instrument 2011/2999). The Company intends to retain this approval
and self-assesses compliance with the relevant conditions and
requirements.
As an Investment Trust, the Company is exempt from UK
corporation tax on its chargeable gains. The Company's revenue
income from loans is taxable in the hands of the Company. However,
to the extent that interest distributions are paid to Shareholders,
the Company may treat that amount as deductible from its taxable
profits.
31 Dec 19 31 Dec 19 31 Dec 19
Revenue Capital Total
USD USD USD
Corporation tax
Current year (465,551) (674,181) (1,139,732)
Tax expense for the year (465,551) (674,181) (1,139,732)
31 Dec 18 31 Dec 18 31 Dec 18
Revenue Capital Total
USD USD USD
Corporation tax
Current year 791,413 728,288 1,519,701
Deferred tax expense 80,669 - 80,669
---------- ---------- ----------
Tax expense for the year 872,082 728,288 1,600,370
The tax reconciliation is as follows:
31 Dec
19 31 Dec 19 31 Dec 19
Revenue Capital Total
USD USD USD
Loss before tax (6,281,076) (3,812,948) (10,094,024)
------------ ------------ -------------
Tax at the standard UK corporation
tax rate of 19% (1,193,404) (724,460) (1,917,864)
Effects of:
- Non-deductible expenses 1,498,114 - 1,498,114
- Interest distributions (193,782) - (193,782)
- Adjustment for current tax of
prior period (576,479) (674,181) (1,250,660)
- Capital gains/loan relationships - 724,460 724,460
Tax expense (465,551) (674,181) (1,139,732)
============ ============ =============
31 Dec 31 Dec 18
18 31 Dec 18
Revenue Capital Total
USD USD USD
Profit/(loss) before tax 10,426,785 (44,596,641) (34,169,856)
Tax at the standard UK corporation
tax rate of 19.25% 1,981,089 (8,473,362) (6,299,273)
Effects of:
- Non-deductible expenses 763,277 818,446 1,581,723
- Interest distributions (1,981,858) - (1,981,858)
- Loss brought forward (80,669) - (80,669)
- Marginal relief 90,160 (90,160) -
- Foreign exchange difference on
consolidation 28,905 - 28,905
- Non-taxable fair value adjustments - 8,473,364 8,473,364
Tax expense 791,413 728,288 1,519,701
============ ============ =============
As at 31 December 2019, a corporation tax income of USD
1,139,732 (2018: tax charge of USD 1,519,700) was provided for in
respect of the net loss of the Company for the year. This amount is
due to an adjustment of the current tax in the prior period. The
Board has taken into account the Group's and Company's financial
obligations and it is the intention of the Board to distribute
interest distributions in the foreseeable future.
As of 31 December 2019, the Company had recognised a deferred
tax asset of USD nil (2018: USD nil.
13. DERIVATIVE FINANCIAL INSTRUMENTS
31 Dec 19 31 Dec 18
(Group and (Group and
Company) Company)
USD USD
Derivative assets - 412,297
Derivative liabilities - (6,101)
- 406,196
31 Dec 19 31 Dec 18
(Group and (Group and
Notional Company) Company)
Amount USD USD
Derivative assets/(liabilities)
Forward foreign currency contracts - - 87,449
Forward currency swap contracts - - 318,747
- - 406,196
The Company entered into various swap and forward contracts to
manage exposure to foreign currency on assets. The notional amounts
provided in the table above reflect the aggregate of individual
derivative positions on a gross basis. As at 31 December 2019, the
Company no longer held any derivative financial instruments.
14. BASIC AND DILUTED EARNINGS PER SHARE
The basic and diluted earnings per Ordinary Share is based on
the profit after tax and on 16,122,931 Ordinary Shares, being the
weighted average number of ordinary shares in issue throughout the
year. (31 December 2018: 16,122,931 Ordinary Shares for basic
earnings per share and diluted earnings per share).
15. CASH AND CASH EQUIVALENTS
The components of the Group's cash and cash equivalents are:
31 Dec
31 Dec 19 18 31 Dec 19 31 Dec 18
(Group) (Group) (Company) (Company)
USD USD USD USD
Cash at bank 11,624,992 35,571,114 1,208,289 20,745,466
Cash equivalents 66,315 63,730 66,315 63,730
11,691,307 35,634,844 1,274,604 20,809,196
16. RELATED PARTIES
Transactions between the Group and its related parties are
disclosed below.
The Directors, who are the key management personnel of the
Group, are remunerated per annum as follows:
31 Dec 19 31 Dec 18
(Group) (Group)
USD USD
Chairman 354,185 130,056
Other Directors 1,061,105 342,039
Total 1,415,290 472,095
As at 30 December 2019, USD 151,158 (31 December 2018: USD
128,577) was accrued for Directors' remuneration.
The Company has not made any contribution, to any Directors'
pension scheme and no retirement benefits are otherwise accruing to
any of the Directors under any defined benefit or monthly purchase
scheme for which the Company is liable.
The Group does not have any employees.
The Board had delegated responsibility for day-to-day management
of the loans held by Direct Lending Platforms to Ranger (until 12
February 2019). Under the terms of the Investment Management
Agreement, Ranger was entitled to a management fee and a
performance fee together with reimbursement of reasonable expenses
incurred by it in the performance of its duties. Total Investment
Management fees to Ranger for the year amounted to USD nil (31
December 2018: USD 2,675,643). As at 31 December 2019, the
Investment Management fees payable was USD nil (31 December 2018:
USD 639,005).
During the period, Ranger received a reimbursement amount of USD
nil for expenses (31 December 2018: USD 209,812). Performance fee
for the year amounted to USD nil (31 December 2018: USD nil). As at
31 December 2019, performance fee payable was USD nil (31 December
2018: USD nil).
As at 31 December 2019, Ranger held 4,639 Ordinary Shares
representing 0.03% of the total interest in voting rights of the
Company (31 December 2018: 0.03%).
Following the resignation of Ranger as Investment Manager and
Alternative Investment Fund Manager on 12 February 2019, the
Company appointed IFM as its replacement Alternative Investment
Fund Manager. Under the terms of the AIFM agreement, the Company
shall reimburse the Manager for all documented expenses incurred in
the proper performance of its duties and IFM is entitled to a fixed
fee of GBP 70,000 per annum. Total fees to IFM for the year amount
to USD 60,032. As at 31 December 2019, the fee payable to IFM was
USD 7,737.
The Company entered into a Trust Agreement with the Trust on 22
April 2015. The Company, being the sole unitholder, has sole
discretion to declare distributions from the Trust. As at 31
December 2019, amounts owed by undertaking relating to the Trust's
net income was USD 715 (31 December 2018: negative income USD
6,434,803).
The Company incorporated RDLZ on 23 June 2016 as a public
limited company with limited life and granted an undertaking to
(among other things) subscribe for such number of ordinary shares
in the capital of RDLZ as may be necessary or to otherwise ensure
that RDLZ has sufficient assets to satisfy its obligations to the
ZDP Shareholders and pay any operational costs incurred by RDLZ.
During the year, the Company paid RDLZ's expenses amounting to USD
540,059 (2018: USD 416,971 representing RDLZ's expenses and Share
issue costs).
On 25 July 2016, the Company entered into a Loan Agreement with
the RDLZ. Pursuant to the Loan Agreement, RDLZ immediately
following the admission of its ZDP Shares, on-lent the proceeds to
the Company which the latter have applied towards making
investments in accordance with its investment policy and working
capital purposes. On 18 June 2019, the Loan between the Company and
RDLZ was repaid in full.
During the prior year, the Company purchased a total of
7,278,193 ZDP Shares, to which its rights to interest income and
accrued capital entitlement have been waived, no further ZDP Shares
were purchased in the current period.
On 20 June 2019, ZDP Shareholders received a Revised Final
Capital Entitlement of 121.8887 pence per ZDP share and the Company
repaid its loan to RDLZ in order to meet this liability to ZDP
shareholders, following this, RDLZ, was placed into a members'
voluntary liquidation. The Company did not receive the Final
Capital Entitlement for the ZDP Shares it held.
The amounts payable to RDLZ that are eliminated upon
consolidation are USD 338,422 and payable to the Trust is USD
157,694,910 (2018: USD 71,212,412 payable to RDL and USD 54,847,439
payable to the Trust). The amounts payable to RDLZ as at 31
December 2019 relate to the remaining loan amount held in order to
cover any further outstanding expenses of RDLZ.
17. FEES AND EXPENSES
Management fee
The management fees were payable monthly in arrears and is at
the rate of 1/12 of 1.0% per month of NAV (the "Management Fee").
For the period from Admission until the date on which 80% of the
Net Proceeds have been invested or committed for investment,
directly or indirectly, in Debt Instruments or Direct Lending
Company Equity, the value attributable to any assets of the Group
other than Debt Instruments or in investments in Direct Lending
Company Equity held for investment purposes (including any cash)
will be excluded from the calculation of NAV for the purposes of
determining the Management Fee.
Ranger may have charged a fee based on a percentage of gross
assets (such percentage not to exceed 1.0% and provided that the
aggregate Management Fee payable by the Group shall not exceed an
amount equal to 1.0% of the gross assets of the Company or its
group in aggregate (as applicable) to any entity which is within
the Company's group (including the Company), provided that such
entity employs leverage for the purpose of its investment policy or
strategy.
Performance fee
Ranger was also entitled to a performance fee calculated by
reference to the movements in the Adjusted NAV since the end of the
Calculation Period (as defined below) in respect of which a
performance fee was last earned or Admission if no performance fee
has yet been earned (the Adjusted NAV at such earlier date being
the "High Water Mark").
The performance fee was a sum equal to 10% of the amount by
which the Adjusted Net Asset Value at the end of a Calculation
Period exceeds the High-Water Mark.
The performance fee would have been calculated in respect of
each twelve month period starting on 1 January and ending on 31
December in each calendar year (a "Calculation Period"), save that
the first Calculation Period was the period commencing on Admission
and ending on 31 December 2015 and the last Calculation Period
shall end on the date that the Investment Management Agreement
(IMA) is terminated or, where the Investment Management Agreement
has not previously been terminated, the Business Day prior to the
date on which the Company enters into liquidation, and provided
further that if at the end of what would otherwise be a Calculation
Period no performance fee has been earned in respect of that
period, the Calculation Period shall carry on for the next 12-month
period and shall be deemed to be the same Calculation Period and
this process shall continue until a performance fee is next earned
at the end of the relevant period.
The Management fee and Performance fee payable to the Investment
Manager were calculated and paid in US Dollars.
Termination Arrangements
The IMA was terminated on 12 February 2019. Accordingly, the
Board will manage the activities of the Company and the wind-down
process. On the same day, IFM replaced the Investment Manager as
the Alternative Investment Fund Manager.
18. FINANCIAL RISK MANAGEMENT
Financial risk factors
The Company has an established management process to identify
the principal risks that it faces as a business. The risk
management process relies on the Board of Directors' assessment of
the risk likelihood and impact and also developing and monitoring
appropriate controls. The table below sets out the key financial
risks and examples of relevant controls and mitigating factors. The
Board considers these to be the most significant risks faced by the
Company that may impact the achievement of the Company's investment
objectives. They do not comprise all of the risks associated with
the Company's strategy and are not set out in priority order.
Currency risk Key controls and mitigating factors
The risk that exchange Remuda monitors the Company's exposure to
rate volatility may foreign currencies on a monthly basis and
have an adverse impact reports to the Board at each Board meeting.
to the Company's
financial position The Board of Directors measure the risk
and result. to the Company of the foreign currency exposure
by considering the effect on the Company's
net asset value and total return of a movement
in the exchange rate to which the Company's
assets, liabilities, income and expenses
are exposed.
The Company did not have any derivative
contracts as at 31 December 2019 (see note
13). The Group does not enter into or trade
financial instruments, including derivative
financial instruments, for speculative purposes.
The currency risk of the Group's monetary financial assets and
(liabilities) was:
31 Dec 19 31 Dec 18
(Group) (Group)
USD USD
United States Dollars 44,736,620 125,763,235
Great British Pounds 440,724 (26,624,529)
Canadian Dollars 3,334,278 3,506,705
Australian Dollars - 18,191,210
48,511,622 120,836,621
Currency risk continued
Sensitivity analysis
31 Dec 19 31 Dec 18
(Group) (Group)
USD USD
Great British Pounds 22,036 (1,331,226)
Canadian Dollars 166,714 175,335
Australian Dollars - 909,561
Effect on Revenue return after taxation 188,750 (246,330)
A 5% weakening of USD against the above currencies would have
resulted in an equal and opposite effect on the above amounts, on
the basis that all other variables remain constant. The Group's
exposure has been calculated as at the year end and may not be
representative of the year as a whole.
It is assumed that all exchange rates move by +/- 5% against the
US Dollar.
This percentage is deemed reasonable based on the average market
volatility in exchange rates during the period. The sensitivity
analysis is based on the Group's foreign currency financial assets
and financial liabilities held at the Statement of Financial
Position date.
Funding and liquidity Key controls and mitigating factors
risk
The risk of being The Company finances its operations mainly
unable to continue from the issuance of Ordinary Shares. There
to fund the Company's are no redemption rights for the Shareholders
lending operation since the Company is closed-ended investment
on an ongoing basis. company.
As a result of the early repayment of the
ZDP shares, the Company is no longer constrained
by the cover ratio covenant that required
the Company to keep 2.75 times asset cover,
the Board reviews the liquidity before paying
any dividend to Shareholders.
In managing the Company's financial assets,
the Board of Directors ensure that the Company
holds at all times a portfolio of assets to
enable the Company to discharge its payment
obligations.
The Group does not have any overdraft or other
borrowing facilities.
Maturity of financial assets and liabilities:
The maturity profile of the Group's financial assets and
liabilities is as follows:
31 Dec 19 31 Dec 19 31 Dec 18 31 Dec 18
Financial Financial Liabilities Financial Financial
Assets Assets Liabilities
USD USD USD USD
Within one year 25,857,921 1,373,872 86,853,988 33,669,190
In more than
one year but
not more than
five years 24,027,573 - 132,832,610 65,180,787
49,885,494 1,373,872 219,686,598 98,849,977
Interest rate risk Key controls and mitigating factors
The Company is exposed In the event that interest rate movements
to interest rate risk lower the level of income receivable
due to fluctuations on loan portfolios or cash deposits
in the prevailing market the dividend required to be paid by
rates. the Company to the Shareholders will
also be reduced.
Interest rate risk is monitored by the
Board. The Company may also invest in
other investment funds that employ leverage
with the aim of enhancing returns to
investors.
IFRS 7 requires disclosure of a sensitivity analysis for each
type of market risk to which the entity is exposed at the reporting
date, showing how profit or loss and equity would have been
affected by changes in the relevant risk variable that were
reasonably possible at that date.
The sensitivity to a reasonably possible 50 bps
decrease/increase in the interest rates, with all other variables
held constant, would have decreased/increased the Group's returns
after tax by the following:
31 Dec 31 Dec
19 18
USD USD
Effect on Revenue return 174,859 202,891
The above changes are considered by the Directors to be
reasonable given the observation of prevailing market conditions in
the period. The average effective interest income rate during the
year is 6% (31 December 2018: 9.5%).
Credit and counterparty Key controls and mitigating factors
risk
Credit risk is the risk The Group seeks to mitigate the credit
of financial loss to risk by actively monitoring the Group's
the Group if the borrower loan direct lending platform portfolio
fails to meet its contractual and the underlying credit quality of
obligations. The carrying the borrowers.
amounts of financial Further, cash is held at banks that
assets best represent are considered to be reputable and
the maximum credit risk high quality. Cash balances are spread
exposure at the reporting across a range of banks to reduce concentration
date. risk.
The maximum exposure to credit risk was as follows:
31 Dec 19 31 Dec 18
(Group) (Group)
USD USD
Financial assets at fair value through
profit or loss 37,511,073 176,114,663
Derivative assets - 412,297
Advances to/funds receivable from
direct lending platforms 602,463 908,917
Prepayments and other receivables 80,651 790,379
Receivable from broker - 5,825,498
Cash and cash equivalents 11,691,307 35,634,844
49,885,494 219,686,598
Credit and counterparty risk continued
The majority of the Group's cash and cash equivalents is with
SunTrust Bank as at 31 December 2019. SunTrust Bank has a long-term
deposit credit rating of AA- from Standard & Poor and Moody's
has rated SunTrust A3. Given this rating, the Directors do not
expect this counterparty to fail to meet its obligations.
Fair value of groups of financial assets that are measured at
fair value on a recurring basis
Some of the Group's financial assets are measured at fair value
as at 31 December 2019. The following table gives information about
how the fair values of the material financial assets are
determined, in particular the valuation techniques and inputs
used.
Loan Valuation technique Significant Relationship and
platform unobservable sensitivity of unobservable
input inputs to fair value
SME Loans In estimating the fair value Discount If the discount rate
Platform of certain platform loans rate determined was 2% higher/lower
receivable, RDL used market by reference while all other variables
-- observable data to the to the SME were held constant,
extent it is available. platform, the carrying amount
RDL engaged third party ranging from for the SME Platform
qualified valuers to perform 8.82% to loan would decrease/increase
the valuation. Remuda and 16.35%. by USD 77,500 approximately.
the Board worked closely
with the qualified external
valuers to establish the
appropriate valuation techniques
and inputs to the model.
Real In estimating the fair value Discount If the discount rate
Estate of certain platform loans rate by reference was 2% higher/lower
Loans receivable, RDL used market to Real Estate while all other variables
Platform -- observable data to the Loans platform were held constant,
extent it is available. is 9.22%. the carrying amount
RDL engaged third party for the Real Estate
qualified valuers to perform Platform loan would
the valuation. Remuda and decrease/increase
the Board worked closely by USD 88,400 approximately.
with the qualified external
valuers to establish the
appropriate valuation techniques
and inputs to the model.
Fair value hierarchy
The fair values of the financial assets held at fair value
through profit and loss were derived from:
a) Loan Investments - A valuation report by third-party valuer
or proceeds received from sale post year-end or amount estimated to
be recoverable by the Board; and
b) Princeton - estimated potential recovery from the investment;
The fair values of the derivative financial instruments were
provided to the Directors by the counterparty, BNP Paribas S.A. and
RBC Capital Markets, on whom the Directors rely as expert providers
of such valuations.
The fair values of cash and cash equivalents, funds receivable
from/payable to Direct Lending Platforms, prepayments and other
receivables, and accrued expenses and other liabilities are
estimated to be approximately equal to their carrying values due to
their short-term nature.
IFRS 13 "Fair Value Measurement" ("IFRS 13") defines a fair
value hierarchy that prioritises the inputs to valuation techniques
used to measure fair value. The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for
identical assets and liabilities (Level 1 measurements) and the
lowest priority to unobservable inputs (Level 3 measurements).
The three levels of fair value hierarchy under IFRS 13 are as
follows:
Level 1: Inputs that reflect unadjusted quoted prices in active
markets for identical assets and liabilities at the valuation
date;
Level 2: Inputs other than quoted prices included in Level 1
that are observable for the assets or liability either directly (as
prices) or indirectly (derived from prices), including inputs from
markets that are not considered to be active; and
Level 3: Inputs that are not based upon observable market
data.
Inputs are used in applying the various valuation techniques and
broadly refer to the assumptions that market participants use to
make valuation decisions, including assumptions about risk. The
main input parameters for this model are the default rate (the
value rises when the default rate is lower, and decreases when the
default rate is higher), the interest rate (the value rises when
the interest rate is higher, and drops when the interest rate is
lower), and the discount rate (the value rises when the discount
rate is lower, and drops when discount rate is higher). A financial
instrument's level within the fair value hierarchy is based on the
lowest level of any input that is significant to the fair value
measurement.
However, the determination of what constitutes "observable"
requires significant judgement by the Directors. The Directors
consider observable data to be market data, which is readily
available, regularly distributed or updated, reliable and
verifiable, not proprietary, provided by multiple independent
sources that are actively involved in the relevant market.
The categorisation of a financial instrument within the
hierarchy is based upon the pricing transparency of the financial
instruments and does not necessarily correspond to the Group's
perceived risk inherent in such financial instruments.
The following tables include the fair value hierarchy of the
Group's financial assets and liabilities designated at fair value
through profit or loss:
Level 1 Level 2 Level 3 Total
31 December 2019 (USD) (USD) (USD) (USD)
Financial assets - 13,483,500 24,027,573 37,511,073
Financial liabilities - - - -
Level 1 Level 2 Level 3 Total
31 December 2018 (USD) (USD) (USD) (USD)
Financial assets - 38,720,251 137,806,709 176,526,960
Financial liabilities - 6,101 - 6,101
A reconciliation of financial instruments in Level 3 is set out
below:
31 Dec 19 31 Dec 18
(Group) (Group)
(USD) (USD)
Opening Balance 137,806,709 29,621,483
Purchases / Additions - 6,222,775
Disposals / Redemptions (105,823,149) (68,349,705)
Transfer out of Level 3 (13,483,500) (38,307,954)
Transfer into Level 3 - 248,386,018
Loss on financial assets 5,527,513 (39,765,908)
Closing balance 24,027,573 137,806,709
19. OTHER INCOME
31 Dec 19 31 Dec 18
(Group) (Group)
USD USD
Factor income - 4,054,443
Fee income - 715,365
Late fee income - 72,970
Other income 109,517 1,252
109,517 4,844,030
20. OTHER EXPENSES
31 Dec 19 31 Dec 18
(Group) (Group)
USD USD
Legal fees 3,465,916 5,089,097
Auditors' remuneration 233,202 189,368
Amortisation of origination
fee - 28,351
Directors' fees 1,609,849 557,147
Regulatory fees 45,679 61,035
Consultancy fees 578,335 670,518
Other expenses 505,184 1,461,206
6,438,165 8,056,722
21. OPERATING SEGMENTS
Geographical information
The Group is managed as a single asset management business,
being the investment of the Group's capital in financial assets
comprising Debt Instruments and loans originated by Direct Lending
Platforms.
The chief operating decision maker is the Board of Directors.
Under IFRS 8, the Group is required to disclose the geographical
location of revenue and amounts of non-current assets other than
financial instruments.
Revenues
The Group's revenues are currently generated from United States
of America ("USA"), United Kingdom ("UK") and Canada. The total
investment income generated from USA, UK and Canada amounted to USD
7,583,881 USD 77,559 and USD 1,029,214 respectively (2018: USA, UK
and Canada amounted to USD 16,266,025, USD 4,637,666 and USD
1,744,072 respectively).
Non-current assets
The Group does not have non-current assets other than the
financial assets at fair value through profit or loss.
22. CAPITAL MANAGEMENT
The Company's capital is represented by the Ordinary Shares,
share premium account and retained earnings. The capital of the
Company is managed in accordance with its investment policy, in
pursuit of its investment objective.
The Company is subject to externally imposed capital
requirements in relation to its statutory requirement relating to
interest/dividend distributions to Shareholders. The Company has
complied with its capital requirements during the year.
Leverage
During 2016, the Company incorporated RDLZ which issued ZDP
Shares for trading on the London Stock Exchange's main market for
listed securities. The proceeds from the issuance of the ZDP Shares
were on-lent to the Company by way of an intercompany loan
agreement. During the year, the intercompany loan was fully
repaid.
The Company's leverage limit under its Prospectus is 1.5. The
Company has not breached this limit anytime during the year, nor
has the Company made any changes to this maximum limit. The
Company's borrowing policy does not grant the Company any right to
reuse collateral.
Liquidity
As a closed ended investment company in which Shareholders have
no right of redemption, there are no assets of the Company which
are subject to special arrangements due to their illiquid nature,
nor have any new arrangements been implemented for managing the
liquidity of the Company.
23. COMMITMENTS
As at 31 December 2019, the Company had no outstanding
commitments (2018: none).
24. ULTIMATE CONTROLLING PARTY
It is the opinion of the Directors that there is no ultimate
controlling party.
25. SUBSEQUENT EVENTS
Whilst the full impact of the Covid-19 pandemic is yet to be
felt by businesses worldwide, it has increased the credit risk
associated with the Company's underlying platform loans.
On 9 January 2020, the Board declared a special dividend of 33
pence per Ordinary Share, which was paid on 10 February 2020. On 7
April 2020, the Board declared a further special dividend of 106
pence per Ordinary Share which will be paid on 19 May 2020.
On 2 April 2020, the Company received a payment of USD13,
483,500 following resolution of the Princeton litigation
proceedings.
ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE DISCLOSURES
(UNAUDITED)
Ranger was appointed as the Investment Manager following the
Company's Admission. The Investment Management Agreement with the
Investment Manager was terminated on 12 February 2019. Since this
date, IFM replaced the Investment Manager as the Alternative
Investment Fund Manager (the "AIFM").
The AIFM and Company are required in accordance with Alternative
Investment Fund Managers Directive ("AIFMD") to make certain
periodic disclosures as follows:
Changes to AIFMD disclosure schedule
The prospectus issued by the Company in connection with IPO
contained a schedule of disclosures prepared by the Investment
Manager for the purposes of AIFMD. In addition, the AIFMD requires
the Company's annual report to include details of any material
changes to the information contained in that Schedule. The AIFM
confirms that the schedule has been updated and is available on the
Company website.
The AIFM has had regard to the current risk profile of the
Company which outlines the relevant measures to assess actual and
potential exposure to those risks set out in the prospectus and
with taking in to account the revised investment strategy of the
Company as voted on by the Shareholders. As required by the Listing
Rules, the investment policy of the Company was updated with the
approval of Shareholders.
Liquidity Risk Profile and Management
As identified in the Company's prospectus in respect of IPO, the
Company identified that there is a risk that a position held by the
Company cannot be realised at a reasonable value sufficiently
quickly to meet the obligations (primarily, debt) of the Company as
they fall due. The current investment strategy is to realise the
portfolio at the best value possible. To assist with this Board
members have taken on executive functions.
Based on the Company's current strategy to realise its
investments, as opposed to invest, the investment limits set forth
in the prospectus are waived with the focus being on the
realisation of assets at the best possible valuation for the
shareholders. As a closed-ended investment company, Shareholders of
the Company have no right of redemption. Therefore, in managing the
Company's financial assets, the AIFM ensures that the Company holds
at all times a sufficiently liquid portfolio of assets to enable
the Company to discharge its payment obligations.
AIFM Remuneration
From 12 February 2019, IFM is responsible for fulfilling the
role of the AIFM and ensuring the Company complies with the AIFMD
requirements. Details of the total amount of remuneration for the
financial year, split into fixed and variable remuneration, paid by
the AIFM to its staff, and the number of beneficiaries, may be made
available to Shareholders on request to the Company.
COMPANY INFORMATION
Directors
Brendan Hawthorne
Brett Miller
Gregory (Greg) Share
Joseph (Joe) Kenary
Dominik Dolenec (resigned on 1 April 2020)
Nicholas (Nick) Paris (appointed 20 May 2019 and resigned on 31
March 2020)
Company Secretary and Registered Office
Link Company Matters Limited
6 Floor, 65 Gresham Street
London
EC2V 7NQ
United Kingdom
Registrar
Link Asset Services
The Registry, 34 Beckenham Road
Kent
BR3 4TU
United Kingdom
Investment Manager and Alternative Investment Fund Manager
(until 12 February 2019)
Ranger Alternative Management II, LP
2828 N. Harwood Street Suite 1900
Dallas, Texas
United States
Alternative Investment Fund Manager
(from 12 February 2019)
IFM
Sarnia House, Le Truchot
St Peter Port, Guernsey
GY1 1GR
Channel Islands
Broker
Liberum Capital Limited
25 Ropemaker Street
London
EC2Y 9LY
United Kingdom
Administrator
Sanne Fiduciary Services Limited
IFC 5
St Helier, Jersey
JE1 1ST
Channel Islands
English and US Securities Law Legal Adviser
Travers Smith LLP
10 Snow Hill
London
EC1A 2AL
United Kingdom
Sidley Austin LLP
25 Basinghall Street,
London
EC2V 5HA
United Kingdom
Website Address
https://rdlrealisationplc.co.uk/
NATIONAL STORAGE MECHANISM
A copy of the Annual Report and Accounts will be submitted
shortly to the National Storage Mechanism ("NSM") and will be
available for inspection at the NSM, which is situated at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism .
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.
END
FR SSWFIDESSELM
(END) Dow Jones Newswires
June 04, 2020 02:00 ET (06:00 GMT)
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