TIDMSMIF
TWENTYFOUR SELECT MONTHLY INCOME FUND LIMITED
LEI: 549300P9Q5O2B3RDNF78
(Classified Regulated Information, under DTR 6 Annex 1 section 1.1)
Annual Report and Audited Financial Statements
For the year ended 30 September 2023
The Directors of TwentyFour Select Monthly Income Fund Limited (the "Company")
announce the results for the year ended 30 September 2023. The Report will
shortly be available via the Company's Portfolio Manager's website
www.twentyfouram.com and will be available for inspection online at
www.morningstar.co.uk/uk/NSM.
FINANCIAL AND OPERATIONAL HIGHLIGHTS
· NAV per share of 75.44 pence (FYE 30/09/22: 69.99 pence)
· Total Net Assets of £181.69 million (FYE 30/09/22: £151.33 million)
· Dividends declared for the year of 7.37 pence per share (FYE 30/09/22: 6.39
pence per share)
· Total Return of 17.54% (FYE 30/09/22: -18.94%)
Eoin Walsh, Partner & Portfolio Manager at TwentyFour Asset Management, said:
"The rising rate environment resulting from global inflation has enabled us to
position the TwentyFour Select Monthly Income Fund Limited positively over the
period. The strong NAV performance coupled with a focus on the credit quality of
the portfolio positions has left the Company well placed for the next stage of
the cycle."
Ashley Paxton, Chairman of TwentyFour Select Monthly Income Fund, said: "We are
very pleased to present the audited financial statements for the Company, which
demonstrate how the TwentyFour Select Monthly Income Fund Limited has delivered
a Total Return of 17.54%, including dividends declared of 7.37 pence per share.
We are also pleased to reflect on the share activity for the period, having
traded at or around NAV (within a c4.5% tolerance above and below NAV)
throughout the year to 30 September 2023, at a time where the majority of the
investment company market saw significant discounts."
FINANCIAL HIGHLIGHTS
Net Asset Value per share
As at 30 September 2023 As at 30 September 2022
75.44p 69.99p
Share price
As at 30 September 2023 As at 30 September 2022
75.60p 73.00p
Total Net Assets
As at 30 September 2023 As at 30 September 2022
£181.69 million £151.33 million
Total return
For the year ended 30 September 2023 For the year ended 30 September 2022
17.54% -18.94%
Dividends declared
For the year ended 30 September 2023 For the year ended 30 September 2022
7.37p 6.39p
Average premium
For the year ended 30 September 2023 For the year ended 30 September 2022
0.03% 3.38%
Shares in issue
As at 30 September 2023 As at 30 September 2022
240.82 million 216.21 million
Portfolio performance
For the year ended 30 September 2023 For the year ended 30 September 2022
12.26% -18.05%
Number of positions in portfolio
As at 30 September 2023 As at 30 September 2022
161 144
Definition of the above measures can be found in the Glossary of Terms and
Alternative Performance Measures.
As at 12 December 2023, the premium had moved to 0.38%. The estimated NAV per
share and share price stood at 76.31p and 76.60p, respectively.
Results are discussed further in the Directors' Report.
Ongoing Charges
Ongoing charges have been calculated in accordance with the Association of
Investment Companies (the "AIC") recommended methodology. The ongoing charges
for the year ended 30 September 2023 were 1.26% (30 September 2022: 1.20%) on an
annualised basis.
SUMMARY INFORMATION
The Company
TwentyFour Select Monthly Income Fund Limited (the "Company") was incorporated
with limited liability in Guernsey, as a closed-ended investment company on 12
February 2014. The Company's Shares were listed with a Premium Listing on the
Official List of the UK Listing Authority and admitted to trading on the Main
Market of the London Stock Exchange ("LSE") on 10 March 2014.
Investment Objective and Investment Policy
The Company's investment objective is to generate attractive risk adjusted
returns, principally through income distributions.
The Company's investment policy is to invest in a diversified portfolio of
credit securities.
The portfolio can be comprised of any category of credit security, including,
without prejudice to the generality of the foregoing, bank capital, corporate
bonds, high yield bonds, leveraged loans, payment-in-kind notes and asset-backed
securities and can include securities of a less liquid nature. The portfolio is
dynamically managed by TwentyFour Asset Management LLP ("TwentyFour" or the
"Portfolio Manager") and, in particular, is not subject to any geographical
restrictions.
The Company maintains a portfolio diversified by issuer and comprises at least
50 credit securities. No more than 5% of the portfolio value will be invested in
any single credit security or issuer of credit securities, tested at the time of
making or adding to an investment in the relevant credit security. The Company
may hold up to 10% in cash but works on the basis of an operational limit of 5%
and any uninvested cash, surplus capital or assets may be invested on a
temporary basis in:
· cash or cash equivalents, money market instruments, bonds, commercial paper
or other debt obligations with banks or other counterparties having a "single A"
or higher credit rating as determined by any internationally recognised rating
agency which may or may not be registered in the EU; and
· any "government and public securities" as defined for the purposes of the
Financial Conduct Authority (the "FCA") Rules.
Efficient portfolio management techniques are employed by the Company, and may
include currency and interest rate hedging and the use of other derivatives to
manage key risks such as interest rate sensitivity and to mitigate market
volatility. The Company's currency hedging policy will only be used for
efficient portfolio management.
The Company does not employ gearing or derivatives for investment purposes. The
Company may use borrowing for short-term liquidity purposes, which could be
achieved through arranging a loan facility or other types of collateralised
borrowing instruments including repurchase transactions and stock lending. The
Articles restrict the borrowings of the Company to 10% of the Company's Net
Asset Value ("NAV") at the time of drawdown. No arrangements for borrowing are
currently in place.
At launch, the Company had a target net total return on the original issue price
of between 8% and 10% per annum. This comprised a target dividend payment of 6p
per share per annum and a target capital return of 2p-4p, both based on the
original issue amount of 100p. Whilst there is no guarantee that this can or
will be achieved, the 6p per share Dividend Target has consistently been met.
Refer to note 19 to the Financial Statements for details of the Company's
dividend policy.
In accordance with the Listing Rules, the Company can only make a material
change to its investment policy with the approval of its Shareholders by
Ordinary Resolution.
Shareholder Information
Apex Fundrock Limited (previously called Maitland Institutional Services
Limited) ("AFL" or the "AIFM") is responsible for calculating the NAV per share
of the Company. Whilst AFL has delegated this responsibility to Northern Trust
International Fund Administration Services (Guernsey) Limited (the
"Administrator"), they still perform an oversight function.
The unaudited NAV per Ordinary Share will be calculated as at the close of
business on every Wednesday that is also a business day, as well as the last
business day of every month and will be announced by a Regulatory News Service
the following business day.
CHAIRMAN'S STATEMENT
For the year ended 30 September 2023
As Chairman to the TwentyFour Select Monthly Income Fund Limited, I am delighted
to present my first report on the Company's progress for the year ended 30
September 2023.
Market Overview
Central bank activity, higher inflation data, continuing low employment rates
and the upward pressure on wages have been the biggest driver for much of the
year as central banks implemented more rate hikes and market participants
watched closely for signs that inflation was moving back towards target. Towards
the end of the year to 30 September 2023, central banks seemed to be approaching
or were already at terminal rates for the cycle, allowing existing rate
increases to feed through and to continue to bring inflation closer to target.
Labour markets and other economic data remained resilient, leading to some
market participants to call for a soft-landing. However, in our view, with
central banks maintaining their "higher for longer" messaging, there is an
increased likelihood of more cracks appearing in the global economic picture.
Towards the end of the year, volatility in the rates market was driven by strong
economic data and concerns over budget deficits together with increased supply
and term premiums. This volatility led to a modest softening in credit spreads
towards the end of the period.
Generally, earnings remained resilient, particularly in the European banking
sector where banks maintained strong capital levels and low non-performing loans
("NPLs") and called and issued Additional Tier-one bonds ("AT1s") as expected,
post the collapse of Credit Suisse.
With the bouts of volatility over the period, there is a lot of value in the
portfolio, with many of the Portfolio Manager's favourite names and bonds
trading at very attractive levels.
The Portfolio Manager also sought to increase the credit quality of the
portfolio by continuing to conduct relative value switches, which served to
improve the yield and extend duration to lock in the available attractive yield
levels.
Outlook
The Portfolio Manager's base case is for a "soft-ish" landing whereby it expects
a short and shallow recession and for the unemployment rate and default rates to
increase moderately. We expect to see a deterioration of economic fundamentals
as the lag effects of the many interest rate increases feed through economies,
leading to a mild recession as the economy is supported by strong consumers,
corporates and banking sector. This should give central banks the ability to cut
interest rates later in 2024.
The Board believes there is a lot of value in the portfolio and the very
attractive yields offer good protection against future volatility and the
Portfolio Manager is actively adjusting the portfolio to find better
opportunities for value, in order to optimise the Company's performance.
Share Activity
In contrast to the wider investment company market, which saw many companies of
the Main Market of the LSE trading at large discounts, the Company traded close
to NAV for the majority of the period, at an average of 0.03% premium (year
ended 30 September 2022: 3.38% premium).
On 3 April 2023, an Extraordinary General Meeting ("EGM") was held, in order to
request shareholder approval to issue further shares, up to 20% of issued
shares, to meet investor demand. This was in addition to the 20% already
approved at the 2022 Annual General Meeting. The EGM's resolutions were
approved.
Due to the availability of accretive assets for purchase, and because of
shareholder demand, the Company was able to issue 28,050,000 of new shares
during the year.
A total of 681,567 shares were submitted for tender in the first two quarterly
tender offers during the year (129,108 for the quarter ended 31 December 2022
and 552,459 for the quarter ended 31 March 2023), and these shares were
subsequently successfully placed or purchased by the Company's Financial Adviser
and Corporate Broker, Deutsche Numis Limited ("Numis").
In respect of the quarter ended 30 June 2023, 3,939,187 shares were submitted
for tender at a price of 72.62p per share; a discount to the relevant NAV of
74.10p per share. 500,000 shares were successfully placed or purchased by Numis,
whilst the Company took advantage of the accretive nature of repurchasing the
residual 3,439,187 shares at a discounted price to NAV, and took them into
Treasury.
Similarly, in respect of the quarter ended 30 September 2023, 1,039,168 shares
were submitted for tender at a price of 73.90p per share, a discount to the
relevant NAV of 75.44p per share, of which 539,168 were successfully placed or
purchased by Numis, whilst the Company repurchased the residual 500,000 shares,
again taking them into Treasury in October 2023.
It is pleasing to note that the Company's shareholder base continues to
diversify with an increase in retail investors investing via platforms.
Return
On formation, the Company's objective was to generate a return of 8-10% with a
0.5p dividend payment each month, with the Board's intention that the balance of
excess income (as defined in note 19 to the Financial Statements) for the
financial year would be paid within the final monthly dividend. Whilst the
Company hasn't achieved its original target capital return, each financial year
it has exceeded its Dividend Target. For the year ended 30 September 2023, the
final dividend declared for September was 1.87p per share giving a total annual
dividend declared for the financial year of 7.37p per share, which the Board
believes is an excellent result for a period when markets continued to see
volatility and negative performance dominate.
During the reporting period, the NAV per share saw an increase from 69.99 to
75.44, a rise of 7.79%, and NAV per share total return for the period was
17.54%.
This, together with the favourable net increase in share capital noted above,
meant the Company saw a very positive increase in net assets from approximately
£151.3m to £181.7m over the year.
Dividend Policy
The Board and the Portfolio Manager are very focused on the sustainability of
the Company's dividend policy and regularly monitor and review the position. A
Committee of the Board meets each month to approve the monthly payment of 0.5p
per share.
The Portfolio Manager is confident that due to the ongoing yields available in
the market generally, the current monthly Dividend Target of 0.5p per share
remains achievable, even though there is no guarantee that the Company will be
able to continue distributing 0.5p per month per share in the years ahead.
Whilst the approach of declaring excess income for the year at the October 2023
dividend meeting is entirely consistent with previous years, the Directors are
cognisant that the amount declared in October 2023 was notably higher than in
recent years. Based on current expectations of yields it is entirely possible
that 2023/24 might also produce a generous excess income amount, and the
Directors and Portfolio Manager have considered whether the Company may be able
to temporarily spread the excess income more evenly during 2023/24 but have
concluded that no immediate change to the monthly dividend profile of 0.5p per
share is warranted. The Directors will continue to monitor the position during
the year ending 30 September 2024 and, where possible to do so, will provide
appropriate updates on its dividend expectations for the year.
Annual General Meeting
The Company's 2023 Annual General Meeting ("AGM") was held on 11 August 2023,
with all resolutions being passed.
Other
At the Company's AGM, Claire Whittet retired as Non-executive Director and
Chairperson, having served on the Board since the Company's formation in 2014.
Claire has been instrumental throughout to its enduring success, and I would
like to thank her for her hard work and dedication throughout her tenure with
the Company.
At the AGM, I was delighted to be appointed as Chairman whilst Sharon Parr
became Audit Chair and Chair of the Remuneration and Nomination Committee. Wendy
Dorey acts as Chair of the Management Engagement Committee.
With a view to building on the ongoing success and governance of the Company,
the Board decided to permanently increase its size to four directors and engaged
an independent recruitment firm, Cornforth Consulting Limited, to perform the
search for a new director. The cost of four directors is covered by the cap on
directors fees of £250,000 approved at the 2022 AGM.
The Board was delighted with the appointment of Richard Class as a Director of
the Company on 1 November 2023. Richard is based in London and has had a fixed
income career of over 30 years in the city, including over a decade at Morgan
Stanley where he was Managing Director and Head of EMEA Business Development for
Fixed Income, managing fixed income portfolios with assets totalling ?7 billion.
Now that the Company has successfully concluded the process of replacing the
scheduled retirements of the legacy Board, and brought its number to four, the
Board will conduct a board evaluation process in early 2024, the last review
having been performed in 2020. Whilst this evaluation will initially be
performed internally, the Board intends to subsequently appoint a firm to
conduct an independent board evaluation. To maximise value for the Company, an
independent review will be undertaken as soon as all Board members are
considered to have fully settled and embedded into their respective roles, no
earlier than 2025.
The growth of platform directed investors means that they constitute a
significant part of our share register and the Board continues to discuss
options to better engage with the full range of our Shareholders.
During the year, asset managers within the UK and Europe have seen increased
pressure from stakeholders to assess and disclose the impact of climate change
on investment portfolios.
The Portfolio Manager has a formalised approach to this risk integrated within a
robust environmental, social and governance framework which is a major factor in
the Portfolio Manager's investment analysis. The Board continues to evaluate
what aspects the Company will consider reporting, based on the regulatory
requirements of the Company and developing best practice in the Company's
sector.
TwentyFour continues to provide excellent thought leadership through various
industry commentary and podcasts and webinar presentations. The Board continues
to liaise closely with the Portfolio Manager and held a Strategy Day on 22
November 2023 in London with TwentyFour and the key advisers to the Company.
On behalf of the Board, I would like to thank all Shareholders for their
continued support.
Ashley Paxton
Chairman
14 December 2023
PORTFOLIO MANAGER'S REPORT
For the year ended 30 September 2023
Market Environment
The period began with volatility after September 2022 saw another US inflation
print higher than expectations and a subsequent hawkish Federal Open Market
Committee meeting saw volatility in the rates market. Meanwhile, the hangover
from the Truss mini budget continued to contribute to instability in the gilts
market.
Towards the end of 2022, protests in China about the strict COVID-19
restrictions that had been in place for multiple years eventually led to the
government relaxing its `zero-COVID' approach, which markets took positively as
a step towards global supply chains being repaired. The Russia-Ukraine conflict
continued to impact markets although growth forecasts in Europe were revised
upwards as the trading bloc's swift response to the Russian gas cut off meant
that they were likely to avoid any of the adverse scenarios that many said were
likely just a few months earlier.
In March 2023, a US regional bank crisis unfolded when Silicon Valley Bank
("SVB") was seized by the Californian authorities. Despite being the 16th
largest bank in the US, SVB appeared to have faced unique circumstances of poor
risk management, a low level of insured deposits, very large deposit outflows
and a large concentration in long-dated Treasuries, held with unrealised losses.
The SVB story came at the worst time for Credit Suisse leading to large deposit
withdrawals that eventually led the Swiss regulator to contentiously deem the
bank to be non-viable. Additionally, the Swiss regulator's hugely controversial
subordination of Additional Tier-one bonds ("AT1s") below equity holders meant
this sector saw a lot of volatility in March. However, the European and UK
rejection of the Swiss regulator's approach helped to comfort the market.
Deposit outflows from regional banks overall steadied in April 2023. However,
First Republic Bank continued to struggle, resulting in a deal being brokered
for JP Morgan to buy the ailing US regional lender. Volatility remained elevated
through to the end of May 2023, but news of deposit inflows and the resultant
stabilising of regional bank share prices meant the sector eventually dropped
out of the headlines.
Towards the end of the year to September 2023, the soft-landing narrative took
hold. Inflation data was progressing encouragingly, with US inflation showing
good signs of slowing. In July 2023, core inflation month-on-month was +0.16%,
the lowest reading in over two years, and the last three prints of core
inflation month-on-month data in the period, when annualised, were close to the
Federal Reserve's 2% target.
European inflation was slightly more volatile, although the data towards the end
of the year was more encouraging, with headline year-on-year inflation down to
4.3% for the eurozone and core inflation for the bloc at 4.5%. In the UK, where
inflation had been stickier, the September 2023 print finally gave the market a
reason to be optimistic that prices were coming down. Year-on-year headline
inflation came in at 6.7% (versus 7% expected), while core inflation was 6.1%
(versus 6.8% expected).
Growth data releases remained robust, in particular, labour markets. In the US,
there were strong non-farm payroll numbers across the year and unemployment
finished at a very impressive 3.8%. In Europe and the UK, the unemployment rate
also stayed at historically low levels.
Portfolio Performance
The Company has returned 17.54% (NAV per share) in the year to 30 September
2023, on a total return basis.
Global inflation and resulting increases in base rates contributed to strong
performance for the year, with the best performing sector in the year being
collateralised loan obligations ("CLOs"), which returned 34.81%, benefitting
from the very high starting spread and the floating rate nature of the
instrument. High Yield assets also performed well returning 13.90% and 10.68% in
Europe and the US, respectively. AT1s saw some volatility over the year due to
the Credit Suisse issues but posted a total return of 11.40%.
Portfolio Strategy
At a sector level, the team reduced US high yield, which had performed well and
looked good value at a spread level. We increased the CLO exposure, which
offered an extremely attractive yield and strong structural protection against
defaults. Within sectors, the team conducted relative value switches looking to
increase the credit quality of the portfolio, improve the yield, and extend
duration to lock in the available attractive yield levels.
Portfolio Events
We took part in an innovative tender and refinance by Shawbrook Bank Limited
with regards to their AT1, which saw significant benefit to bondholders.
As at the year end, the Company held a position in Heimstaden AB, which is a
holding company with the main asset being a significant stake in Heimstaden
Bostad, a pan-European residential Real Estate Investment Trust ("REIT"). The
bonds have underperformed over the year to 30 September 2023 as the sentiment
towards REITs has soured as financing costs have increased over the last year.
Heimstaden Bostad is addressing its high leverage with an asset sale programme
and is committed to its investment grade rating. As it rolls out its asset sale
programme and potentially secures equity support, we expect bonds to recover.
The portfolio suffered no defaults over the year.
Portfolio & Market Outlook
Markets, like central banks, are looking at how the data develops with inflation
and labour market figures at the fore. While currently the market is buying the
soft-landing rhetoric, it seems too early to call this with some growth measures
rolling over, with potentially a number of hikes to come that may affect the
real economy.
We will keep the robust credit quality of the portfolio and continue to conduct
relative value switches across the portfolio.
TwentyFour Asset Management LLP
14 December 2023
TOP TWENTY HOLDINGS
As at 30 September 2023
Credit Percentage of
Nominal/ Security # Fair Value * Net Asset
Shares Sector £ Value
Nationwide Building Financial 4,700,006 2.59
Society 10.25 40,960 - Banks
29/06/2049
Rothesay Life 6.875 Financial 3,813,133 2.10
31/12/2049 4,542,000 - Insurance
Armada Euro Clo ABS 3,275,844 1.80
15/07/2033 4,000,000
Arbour Clo II FRN ABS 3,050,435 1.68
15/04/2034 4,000,000
Avoca Clo XIII FRN ABS 2,736,230 1.51
15/04/2034 3,500,000
Santander UK PLC Financial 2,615,219 1.44
10.375% 2,000,000 - Banks
Aareal Bank AG Financial 2,596,819 1.43
29/11/2049 3,600,000 - Banks
UnipolSai Financial 2,362,248 1.30
Assicurazioni, 6.375% 3,100,000 - Insurance
perp
Intesa Sanpaolo 6.375 Financial 2,343,602 1.29
31/12/2049 3,110,000 - Banks
Banco de Sabadell, 5% Financial 2,245,514 1.23
perp 3,400,000 - Banks
Phoenix Group 5.75 Financial 2,188,013 1.20
31/12/2049 2,780,000 - Insurance
St Pauls Clo ABS 2,130,443 1.17
25/04/2030 2,835,000
Volksbank Wien-baden Financial 2,102,030 1.16
A.G 7.75 31/12/2049 2,600,000 - Banks
Direct Line Insurance, Financial 2,097,657 1.15
4.75% perp 2,900,000 - Insurance
Societe Generale, Financial 1,995,622 1.10
7.875% perp 2,400,000 - Banks
VSK Holdings Limited ABS 1,976,050 1.09
VAR 31/7/2061 309,000
UniCredit SpA, 4.45% Financial 1,941,229 1.07
perp 2,900,000 - Banks
Providus Clo II FRN ABS 1,934,600 1.06
15/07/2031 2,500,000
Syon Securities Frn ABS 1,901,939 1.05
24/02/2027 1,998,767
Investec 6.75 FRN Financial 1,892,880 1.04
31/12/2049 2,157,000 - Banks
Total 49,899,513 27.46
* Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date.
# Asset-backed securities ("ABS"). All other securities are Corporate Bonds.
The full portfolio listing of bonds and ABS as at 30 September 2023 can be
obtained from the Administrator on request.
BOARD MEMBERS
Biographical details of the Directors as at date of signing are as follows:
Ashley Paxton - (Chairman - effective 11 August 2023)
Mr Paxton was appointed as a Director to the Company on 1 November 2021 becoming
its Chairman on 11 August 2023.
Ashley spent the majority of his career with KPMG having retired as partner and
its Channel Islands Head of Advisory in 2019. He has developed a wide breadth of
experience from working within practice, beginning in audit and then building a
dedicated advisory team to provide a full taxonomy of advisory services across
the Channel Islands. Ashley gave specific focus to developing value creation and
preservation strategies for his clients, typically through mergers and
acquisitions.
Ashley currently holds a number of non-executive directorships across the
financial services sector including a number of companies listed on the London
Stock Exchange. He also plays an important role in the local third sector as
Chairman of the Youth Commission for Guernsey & Alderney.
A resident of Guernsey, Ashley is a Fellow of the Institute for Chartered
Accountants in England & Wales and holds an Economics degree from the University
of Warwick.
Sharon Parr - (non-executive Director)
Ms Parr has over 35 years in the finance industry and spent a significant
portion of her professional career with Deloitte and Touche in a number of
different countries. After a number of years in the audit department, on
relocating to Guernsey in 1999 she transferred to their fiduciary and fund
management business and, after completing a management buyout and subsequently
selling to Barclays Wealth in 2007, she ultimately retired from her role there
as Global Head of Wealth Structuring in 2011.
Ms Parr holds a number of Non-Executive Directorships across the financial
services sector including in other listed funds.
Ms Parr is a Fellow of the Institute of Chartered Accountants in England and
Wales and a member of the Society of Trust and Estate Practitioners, and is a
resident of Guernsey. Ms Parr was appointed to the Board on 1 November 2022.
Wendy Dorey - (non-executive Director)
Ms Dorey is an experienced professional in the financial services industry, with
key competencies in business strategy, financial regulation, risk management and
investment marketing and distribution. She is currently a Director of Dorey
Financial Modelling Limited, an investment consulting company, a Commissioner
for the Guernsey Financial Services Commission, a Non-Executive Director for
Schroders (CI) Limited and a Non-Executive Director for Weiss Korea Opportunity
Fund Limited.
Ms Dorey has over 25 years' industry experience working for asset managers,
pension consultants and retail banks in the UK, Guernsey and France. She has
worked for a number of leading asset managers: BNY Mellon, M&G Asset Management,
Friends Ivory & Sime and Robert Fleming/Save & Prosper. She has also consulted
to the Defined Contribution Consulting arm of the Punter Southall Group, and
obtained retail banking experience at Lloyds Bank and Le Credit Lyonnais.
Ms Dorey is a Fellow of the Institute of Directors and qualified as a Chartered
Director in 2020. She was, until May 2023, the Chair of the Guernsey Branch of
the Institute of Directors, and is a resident of Guernsey. Ms Dorey was
appointed to the Board on 1 February 2023.
Richard Class - (non-executive Director)
Mr Class' career spans more than thirty years in the financial services sector.
Over more than a decade at Morgan Stanley, he was Managing Director and Head of
EMEA Business Development for Fixed Income, and also a portfolio manager for
their fixed income portfolios with assets totalling ?7 billion. Prior to that,
he was a Board Director and trainer at BG Consulting, a financial products
training and development company. He began his career as a fixed income
derivatives trader in interest rates and FX products at Rabobank and Morgan
Grenfell. He is currently a senior advisor to OptimX, which helps clients to
reduce the costs of using financial markets, and is also a senior mentor.
Mr Class has a Mathematics degree from Oxford University, and is a resident of
the United Kingdom. He was appointed to the Board post the year end, on 1
November 2023.
DISCLOSURE OF DIRECTORSHIPS IN PUBLIC COMPANIES LISTED ON RECOGNISED STOCK
EXCHANGES
The following summarises the Directors' directorships in other public listed
companies:
Company Name Stock Exchange
Ashley Paxton
Downing Renewables & Infrastructure Trust plc London
Ikigai Ventures Limited London
JZ Capital Partners Limited London
Sharon Parr (appointed 1 November 2022)
JZ Capital Partners Limited London
Wendy Dorey (appointed 1 February 2023)
Weiss Korea Opportunity Fund Limited London
Richard Class (appointed 1 November 2023)
None
STRATEGIC REPORT
For the year ended 30 September 2023
The Directors submit to the Shareholders their Strategic Report for the year
ended 30 September 2023.
Business Model and Strategy
The Company is a closed-ended investment company, incorporated with limited
liability in Guernsey. The Company has been granted exemption from income tax
within Guernsey. It is the intention of the Directors to continue to operate the
Company so that each year this tax-exempt status is maintained.
Investment objectives and policy
The Company's investment objective and policy is set out in the Summary
Information.
Income
The Board intends to distribute an amount at least equal to the value of the
Company's excess income (as defined in note 19 to the Financial Statements)
arising each financial year to the holders of Ordinary Shares. However, there is
no guarantee that the Dividend Target of 6.0p per Ordinary Share for each
financial year will be met or that the Company will make any distributions at
all.
The dividends declared per share for the year ended 30 September 2023 totalled
7.37p (30 September 2022: 6.39p). Based on current expectations of yields, it is
entirely possible that the year ending 30 September 2024 might also produce a
generous excess income amount and the Directors and Portfolio Manager will
continue to consider whether the Company may temporarily spread the excess
income more evenly during the year.
Long-term growth in capital value
The asset value of the Company's portfolio is heavily influenced by external
macro-economic factors. The Directors regularly discuss the portfolio with the
Portfolio Manager. Additional details are covered in the Chairman's Statement
and Portfolio Manager's Report.
Business Environment
The Company's risk exposure and the effectiveness of its risk management and
internal control systems are contained within the Company's risk matrix, which
is reviewed regularly by the Audit and Risk Committee and at least annually by
the Board. The Board is satisfied that it has carried out a robust assessment of
its principal risks and uncertainties.
Principal Risks and Uncertainties
Market risk
The Company invests in credit securities which are subject to market risk,
including the potential for both losses and gains from price risk, reinvestment
risk, interest rate risk, and foreign currency risk. These are discussed in
detail in note 16 to the Financial Statements.
The market and macro environments became more challenging during the prior
period when the possibility of more extreme outcomes increased. Despite the
markets discounting a riskier future the Board retained (and continues to
retain) a consistent market risk appetite. Consequently, the Company has not
seen the significant drop in value experienced in the prior year (which was
largely in line with the wider fixed income market and saw very negative
returns, reflecting the economic volatility and heightened geopolitical tensions
experienced in 2022). The attractive yields, which are still on offer have
enabled the Portfolio Manager to maintain higher purchase yields whilst limiting
the impact on credit quality.
The Company's continuing position in relation to interest rate and duration risk
is monitored on a weekly basis by the Portfolio Manager as part of its review of
the weekly NAV calculations prepared by the Company's Administrator. The Company
may also use swap contracts to mitigate the effects of market volatility on
interest rate risk. There were no swaps held as at 30 September 2023.
Given the Company's exposure to investments denominated in currencies other than
sterling, the Company is exposed to foreign currency risk. The Company manages
its exposure to currency movements by using spot and forward foreign exchange
contracts, which are rolled forward periodically and typically for a period of
one month.
Each quarter, the Board formally reviews the investment performance reports, and
amortisation schedules (setting out upcoming maturities for monitoring cashflow
available for reinvestment) provided by the Portfolio Manager. The Board also
considers the impact of economic volatility and of heightened geopolitical
tensions on the Company's performance.
Credit risk
The Company invests in credit securities issued by other companies, trusts or
other investment vehicles which, compared to bonds issued or guaranteed by
governments, are generally exposed to greater risk of default in the repayment
of the capital provided to the issuer or interest payments due to the Company
and also may expose the Company to more structural risk. These are discussed in
detail in note 16 to the Financial Statements.
Each quarter, the Board formally considers portfolio credit analysis presented
to it by the Portfolio Manager.
Liquidity risk
Substantially all of the assets of the Company are invested in credit
securities. These may be illiquid and this may limit the ability of the Company
to realise its investments for the purposes of cash management, including any
needs arising for dividend payments, buying back Ordinary Shares under the
Quarterly Tender process or in the market. There may be no active market in the
Company's interests in credit securities and the Company may be required to
provide liquidity to fund Tender Requests or repay any borrowings. The Company
does not have redemption rights in relation to any of its investments. As a
consequence, the value of the Company's investments may be materially adversely
affected. This is discussed in detail in note 16 to the Financial Statements.
The Company has the authority to arrange a Revolving Credit Facility of up to
10% of NAV to fund short-term liquidity requirements. This arrangement has been
provided in the past by the Company's Principal Banker and could be re-instated
in the future subject to the prior agreement of the Principal Banker.
Each quarter, the Board formally reviews documentation provided by the Portfolio
Manager pertaining to liquidity risk and assesses any action which may be
required.
Valuation of investments
The Company's investments had a fair value of £176,435,682 as at 30 September
2023 (30 September 2022: £148,915,038) which are the key constituent of the
Company's net assets. There has been no change to the accounting policy applied
to how these investments have been valued (see notes 2 and 3 to the Financial
Statements) but the use of an independent third party valuation expert was used
to value approximately 3.2% of the Company's investments at 30 September 2023
(30 September 2022: 2.7%).
Income recognition risk
As disclosed in note 3(ii)(d) to the Financial Statements, interest income is
recognised on a time-proportionate basis using the effective interest rate
method. Discounts received or premiums paid in connection with the acquisition
of credit securities are amortised into interest income using the effective
interest rate method over the expected life of the related security.
When calculating the effective interest rate, the Portfolio Manager estimates
cash flows considering the expected life of the financial instrument, including
future credit losses and deferred interest payments. The calculation includes
all fees paid or received between parties to the contract that are an integral
part of the effective interest rate and all other premiums or discounts.
Revenue estimations are sensitive to changes in interest income resulting from
financial instruments defaulting. Interest income represents the Portfolio
Manager's best estimate having regard to historical volatility and looking
forward at the global environment.
The Board's assessment of income recognition risk has not materially changed
during the year.
Dividends
The Company has a Dividend Target of 6p per Ordinary Share for each financial
year, and the Board consequently targets a minimum monthly dividend of 0.5p per
share. If the Dividend Target was not able to be met in a year or the Board
considers that it should be reduced, a Continuation Resolution would be put to
Shareholders.
As explained in note 19 to the Financial Statements, in addition to the Dividend
Target the Board intends, with the final monthly dividend for each financial
year, to distribute an amount equal to the value of any unaudited excess income
of the Company for that financial year remaining after payment of the monthly
dividends.
A Committee of the Board meets each month to consider and, if appropriate,
approve an interim dividend of 0.5p per share, and in respect of the final
monthly dividend for each financial year any additional amount noted above.
As the Dividend Target is central to the Company's purpose, the Board and the
Portfolio Manager are very focused on the sustainability of the dividend and
regularly monitor and review the position. The Portfolio Manager is confident
that due to the continuing improvement in yields in the market as a result of
the higher interest rate environments, the Dividend Target remains achievable.
The Company's ability to pay dividends is governed by Guernsey company law which
requires the Company to satisfy the prescribed statutory solvency test, which
the Directors formally consider at each monthly meeting prior to approving each
dividend payment. If at the time a dividend is to be made the Directors believe
that the solvency test cannot be passed, then no payment will be made.
Quarterly tenders
The Company has incorporated into its structure a mechanism for a quarterly
tender minimising the risk of Ordinary Shares trading at a significant discount
to NAV. The Company offers a tender on a quarterly basis for up to 20% of the
Ordinary Shares in issue as at the relevant Quarter Record Date, subject to an
aggregate limit of 50% of the Ordinary Shares in issue in any twelve-month
period ending on the relevant Quarter Record Date. In the event that quarterly
tender applications, on any tender submission deadline, exceed the 50% limit,
the Directors will convene a General Meeting in accordance with the Continuation
Vote requirements set out in note 16 to the Financial Statements. The execution
and acceptance of the quarterly tenders is at the sole discretion of the Board.
A key consideration for the ongoing viability of the Company is therefore its
liquidity assessment which is considered on an ongoing basis by the Board. No
liquidity concerns were identified for the year ended 30 September 2023 and the
Board and Portfolio Manager are confident that under anticipated market
conditions the Company can continue to meet tender requests as they arise.
During the year, 4,705,805 shares were tendered. 1,266,618 shares were initially
purchased by the Corporate Broker and subsequently placed with investors, while
3,439,187 shares were repurchased by the Company and are held in Treasury as at
30 September 2023. A further 500,000 shares were taken into Treasury in October
2023 in respect of the 30 September 2023 tender.
Shareholder base
The Corporate Broker has limited ability to engage with all investor types and
non-institutional investors now form a large shareholder group.These are often
more active on a daily basis than passive institutional holders, and with
turnover in the shares relatively low, have an important marginal price impact.
This could cause the price to be especially volatile during periods when market
maker capital is constrained, and information flow is poor. As engagement with
this group of shareholders is difficult, the Company shares could suffer from
periods of short-term market volatility.
The Board utilises the Corporate Broker and media to monitor Shareholders'
opinions and identify potential issues. The Board is reviewing avenues to better
engage with all shareholder groups and in doing so has to weigh up the cost of
this against the long-term benefits. To help limit this risk, subject to market
conditions and cost benefit factors, the Board will actively utilise its buyback
Treasury capacity and ability to sell shares through taps directly into the
market.
Other Risks and Uncertainties
The Board has identified the following other risks and uncertainties along with
steps taken to monitor (and mitigate where appropriate/possible):
Operational risks
The Company does not have executive directors or employees. It has entered into
contractual arrangements with a network of third parties (the "Service
Providers") who provide services to it. The Board, through the Management
Engagement Committee (the "MEC"), undertakes annual due diligence on, and
ongoing monitoring of, all such Service Providers including obtaining a
confirmation that each such Service Provider complies with relevant laws
regulations and good practice and has environmental, social and governance
policies in place.
The Company is exposed to the risk arising from any failures of systems and
controls in the operations of the Service Providers. The Board and its Audit and
Risk Committee regularly review reports from the Portfolio Manager, the AIFM,
Administrator and Custodian and Depositary on their internal controls. The
Administrator will report to the Portfolio Manager any valuation issues which
will be brought to the Board for final approval as required.
The Company is exposed to cyber-attack risk through its Service Providers.
Through the MEC, the Company asks its Service Providers to confirm that they
have appropriate safeguards in place to mitigate the risk of cyber-attacks and
remote working (including minimising the adverse consequences arising from any
such attack), that they provide regular updates to the Board on cyber security,
and conduct ongoing monitoring of industry developments in this area. Due to
COVID-19, Service Providers adopted a work from home arrangement. Since that
time, some Service Providers have continued to work from home from time to time.
None of the Service Providers have reported any problems regarding cyber
security when questioned by the MEC.
The Board's assessment of operational risks has not materially changed during
the year and is satisfied that the Service Providers have the relevant controls
in place to manage operational risks.
Accounting, legal and regulatory risks
The Company is exposed to the risk that it may fail to maintain accurate
accounting records, fail to comply with requirements of its Admission document
and fail to meet listing obligations. The accounting records prepared by the
Administrator are reviewed by the Portfolio Manager. The Portfolio Manager,
Administrator, AIFM, Custodian and Depositary and the Financial Adviser and
Corporate Broker provide regular updates to the Board on compliance with the
Admission document and changes in regulation. Changes in legal or regulatory
environments can have a major impact on some classes of debt. The Portfolio
Manager and Board monitor this and take appropriate action where needed.
The Board's assessment of accounting, legal and regulatory risk has not changed
during the year.
Climate risk
The Financial Stability Board ("FSB") formed the Task Force on Climate-related
Financial Disclosures ("TCFD") in December 2015 to address the impact climate
change is having on companies and the global financial system through
disclosure. On 2 July 2019, the UK Government announced, in its Green Finance
Strategy, the expectation that listed companies and large asset owners should
disclose in line with the TCFD. The Company is a closed-ended Guernsey domiciled
fund. There is no current mandatory requirement under the listing rules or any
other framework to make disclosures in line with the TCFD for closed-ended
funds. The Board continues to assess, with the Portfolio Manager, disclosures
prevailing in the market in similar entities to that of the Company so as to
best articulate the low levels of climate risk to which the Board believes the
Company is exposed.
The Portfolio Manager considers environmental, social and governance ("ESG")
factors in the investment process, utilising an integrated approach. Additional
information is detailed below.
Environmental, social and governance
The Board recognises the importance of ESG factors in the investment management
industry and the wider economy as whole. The Company is a closed-ended
investment company with a limited purpose and without employees. As such, it is
the view of the Board that the direct environmental and social impact of the
Company is limited and that ESG considerations are most applicable in respect of
the asset allocation and security selection decisions made for its portfolio.
The Company has appointed the Portfolio Manager to advise it in relation to all
aspects relevant to the Investment Portfolio. The Company was not established
with explicit ESG targets and does not have any ESG objectives. The Portfolio
Manager includes ESG factors in its investment appraisal and approach and has a
formal ESG framework. The Portfolio Manager has an ESG Committee representing
all areas of its business, which is governed by its Executive Committee. The
Board receives regular updates from the Portfolio Manager on its ESG processes
and assesses their suitability for the Company. ESG factors are assessed by the
Portfolio Manager for every transaction as part of their investment process.
Climate risks are incorporated in the ESG analysis under environmental factors.
Future Prospects
The Board's main focus is to generate attractive risk adjusted returns
principally through income distributions. The future of the Company is dependent
upon the success of the investment strategy. The investment outlook and future
developments are discussed in both the Chairman's Statement and the Portfolio
Manager's Report.
Board Diversity
When appointing new Directors and reviewing the Board composition, the
Remuneration and Nomination Committee considers, amongst other factors,
cognitive diversity, balance of skills, knowledge, gender, social and ethnic
background and experience. Upon appointment of Mr Richard Class to the Board on
1 November 2023, the Board consisted of two female and two male Directors. Ms
Parr is the Chair of the Audit and Risk Committee. As at 30 September 2023, the
Company has therefore met the targets set by the Listing Rules LR 9.8.6R(9) and
LR 14.3.33R(1) in relation to board diversity for the percentage of its board
members who are female and also in a senior position.
The Remuneration and Nomination Committee considers the Listing Rules
Requirement in making its recommendations for appointments but does not consider
it appropriate to establish targets or quotas in this regard. It has not met the
target to have one director from a minority ethnic background but considers this
satisfactory due to the cognitive diversity of the members of the Board and in
particular due to the difference in backgrounds of its constituent members. The
Company has no employees.
Shareholder Engagement
The Board welcomes Shareholders' views and places great importance on
communication with its Shareholders. Shareholders wishing to meet with the
Chairman and other Board members should contact the Company's Administrator.
The Portfolio Manager and Deutsche Numis Limited as Financial Adviser and
Corporate Broker maintain a regular dialogue with institutional Shareholders,
the feedback from which is reported to the Board.
The Company's AGM provides a forum for Shareholders to meet and discuss issues
of the Company and they have the opportunity to vote on the resolutions as
specified in the Notice of the AGM. The Notice of the AGM and the results are
released to the LSE in the form of an announcement.
In addition, members of the Board attend investor days and conferences held by
the Portfolio Manager.
The Company maintains a website which contains comprehensive information,
including links to regulatory announcements, share price information, financial
reports, investment objectives, monthly factsheets and investor contacts.
Position and Performance
Packaged Retail and Insurance-based Investment Products Key Information Document
The Company has published a Key Information Document ("KID") in compliance with
the Packaged Retail and Insurance-based Investment Products ("PRIIPs")
Regulation. The KID can be found on the Company website at the below web
address:
https://twentyfouram.com/funds/twentyfour-select-monthly-income-fund/fund
-literature/
The process for calculating the risks, cost and potential returns are prescribed
by regulation. The figures in the KID may not reflect the Portfolio Manager's
expected returns for the Company and anticipated returns cannot be guaranteed.
Key Performance Indicators ("KPIs")
At each Board meeting, the Directors consider a number of performance measures
to assess the Company's success in achieving its objectives. Balanced with the
Board's consideration of risk factors, below are the main KPIs which have been
identified by the Board for determining the progress of the Company:
· Monthly Dividends;
· Net Asset Value;
· Share Price;
· Premium/Discount; and
· Ongoing Charges.
Net asset value
The Net Asset Value ("NAV") per Ordinary Share, including revenue reserve, at 30
September 2023 was 75.44p, based on net assets as at this date of £181,689,040
divided by number of Ordinary Redeemable Shares in issue of 240,824,331 (30
September 2022: 69.99p based on net assets of 151,334,878 divided by number of
Ordinary Redeemable Shares in issue of 216,213,518).
Share price
The Share Price is the price per share per Ordinary Redeemable Share trading on
the London Stock Exchange. On 30 September 2023, the share price was 75.60p (30
September 2022: 73.00p).
Premium/discount to NAV
The premium/discount to NAV is a percentage difference in share price per share
to the net asset value per share. It is calculated by subtracting the share
price from the NAV per share and dividing it by the NAV per share. If the share
price is lower than the NAV per share, the shares are trading at a discount. If
the share price is higher than the NAV per Share, the shares are trading at a
premium. On 30 September 2023, the premium to NAV was 0.21% (30 September 2022:
premium of 4.30%).
Ongoing charges
Ongoing charges for the year ended 30 September 2023 have been calculated in
accordance with the Association of Investment Companies (the "AIC") recommended
methodology. The ongoing charges represent the Company's management fee and all
other operating expenses, excluding finance costs, share issue or buyback costs
and non-recurring legal and professional fees, expressed as a percentage of the
average of the weekly net assets during the year.
The ongoing charges for the year ended 30 September 2023 were 1.26% (30
September 2022: 1.20%). The ongoing charges were calculated as follows:
30.09.23 30.09.22
£ £
Ongoing charges
Average NAV for the year (a) 174,168,870 172,466,786
Total expenses 2,187,168 2,074,360
Total recognised expenses (b) 2,187,168 2,074,360
Ongoing charges (b/a) 1.26% 1.20%
Dividends
The Company maintains a Dividend Target of 6p per share.
The dividend per share for the year ended 30 September 2023 was 7.37p (30
September 2022: 6.39p) meaning that the Company met and exceeded its Dividend
Target for the current year. During the year, the following dividends were
declared:
Period to Dividend per Dividend Ex Record Pay date
Share (pence) declared -dividend date
(£) date
31 0.50 1,105,068 17 18 2 December 2022
October November November
2022 2022 2022
30 0.50 1,129,068 15 16 30 December 2022
November December December
2022 2022 2022
30 0.50 1,149,068 19 20 3 February 2023
December January January
2022 2023 2023
31 0.50 1,195,318 16 17 3 March 2023
January February February
2023 2023 2023
28 0.50 1,218,818 16 March 17 March 31 March 2023
February 2023 2023
2023
31 March 0.50 1,221,318 20 April 21 April 5 May 2023
2023 2023 2023
28 April 0.50 1,221,318 18 May 19 May 2 June 2023
2023 2023 2023
31 May 0.50 1,221,318 15 June 16 June 30 June 2023
2023 2023 2023
30 June 0.50 1,204,122 20 July 21 July 4 August 2023
2023 2023 2023
31 July 0.50 1,204,122 17 August 18 August 1 September 2023
2023 2023 2023
31 August 0.50 1,204,122 21 22 6 October 2023
2023 September September
2023 2023
29 1.87 4,493,959 19 20 3 November 2023
September October October
2023 2023 2023
The Directors will continue to monitor the appropriateness of the dividend
policy.
Viability Statement
Under the UK Corporate Governance Code, the Board is required to make a
viability statement which considers the Company's current position and principal
risks and uncertainties, combined with an assessment of the prospects of the
Company, in order to be able to state that they have a reasonable expectation
that the Company will be able to continue in operation over the period of their
assessment. The Board considers that three years is an appropriate period to
assess the viability of the Company given the uncertainty of the environment
within which it operates and the principal risks and uncertainties affecting the
Company.
The Company's prospects are driven by its business model and strategy. The
Company's investment objective is to generate attractive risk adjusted returns,
principally through income distributions, by investing in a diversified
portfolio of credit securities.
Key assumptions considered by the Board in relation to the viability of the
Company are as follows:
Dividend Target
The Company has a Dividend Target of 6p per Ordinary share for each financial
year. If the Dividend Target was not able to be met in a year or the Board
considers that it should be reduced, a Continuation Resolution would be put to
Shareholders.
The Company declared dividends for the financial year of 7.37p per share, and
each financial year since incorporation the Company has paid dividends in excess
of the Company's Target Dividend of 6p per share.
The Portfolio Manager is confident that due to the favourable yields in the
market as a result of the higher interest rate environments, the Dividend Target
remains achievable.
Quarterly Tenders
Due to the quarterly tender process as described in the Strategic Report, a key
consideration for the ongoing viability of the Company is therefore its
liquidity assessment which is considered on an ongoing basis by the Board. No
liquidity concerns were identified for the year ended 30 September 2023 and the
Board and Portfolio Manager are confident that under anticipated market
conditions the Company can continue to meet tender requests as they arise.
During the year, 4,705,805 shares were tendered. 1,266,618 shares were initially
purchased by the Corporate Broker and subsequently placed with investors, while
3,439,187 shares were repurchased and are held in Treasury as at 30 September
2023. A further 500,000 shares were taken into Treasury in October 2023 in
respect of the September 2023 tender. Additional information on the tenders is
detailed in the Chairman's Statement.
As part of the Board's viability assessment for the 3 year period to 30
September 2026, having due regard to the Company's Principal Risks and
Uncertainties summarised in the Strategic Report, it has formally considered
projected cashflow forecasts, the amortisation profile of its current portfolio,
and a detailed dividend coverage analysis incorporating its assumptions around
reinvestment of bond redemptions at yields sufficient to ensure the
sustainability of income to meet the Company's future Dividend Target after
known liabilities such as fees and dividends. Additionally, the Board considered
relevant analyses related to liquidity risk, credit risk, and foreign exchange
risk pertaining to the Company.
Viability Conclusion
Based on the above assessment, the Board has concluded that there is a
reasonable expectation that the Company will be able to continue to operate and
to meet its liabilities as they fall due over the over the three-year period to
30 September 2026 being the viability period.
Section 172 Statement
Although the Company is domiciled in Guernsey, the Board has considered the
guidance set out in The AIC Code of Corporate Governance (the "AIC Code") in
relation to Section 172 of the Companies Act 2006 in the UK. Section 172 of the
Companies Act requires that the Directors of the Company act in the way they
consider, in good faith, is most likely to promote the success of the Company
for the benefit of all stakeholders, including suppliers, customers and
Shareholders.
Further information as to how the Board has had regard to the Section 172
factors is shown below:
Section 172 factors Key examples Location
Consequences of decisions in Investment Summary Information
Objectives and
Policy
the long term Future Prospects Strategic Report
Dividend policy Note 19
Viability Strategic Report
Statement
Fostering business Shareholders; Key Strategic Report; AGM;
Service Providers Monthly Factsheet and
relationships with Commentary
suppliers,
customers and other
stakeholders
Impact of operations on the Environmental, Strategic Report
community and the Social and
environment Governance
Maintaining high standard of Corporate Directors' Report
business conduct Governance
Key Service Providers
The Company does not have any employees and as such the Board delegates
responsibility for its day-to-day operations to a number of key Service
Providers. The key Service Providers include the Portfolio Manager, the
Administrator, the Alternative Investment Fund Manager, the Registrar, the
Receiving Agent, the Corporate Broker, the Legal Advisers and the Auditor. The
activities delegated, service levels and other related reports to the activities
of each Service Provider (such as their own approach to such matters as cyber
risk and assessment of climate change risk to operations) are closely monitored,
where and as appropriate by the Board and they are required to report to the
Board at set intervals.
The Board also meets at least annually to consider the long-term strategy of the
business, incorporating presentations and discussion on longer-term
opportunities and threats to the business. Focus is placed on emerging risks
which have the potential to disrupt the business model.
Signed on behalf of the Board of Directors on 14 December 2023 by:
Ashley PaxtonSharon Parr
ChairmanDirector
DIRECTORS' REPORT
The Directors present their Annual Report and Audited Financial Statements for
the year ended 30September 2023.
Business Review
The Company
TwentyFour Select Monthly Income Fund Limited (the "Company") was incorporated
with limited liability in Guernsey, as a closed-ended investment company on 12
February 2014. The Company's Shares were listed with a Premium Listing on the
Official List of the UK Listing Authority and admitted to trading on the Main
Market of the LSE on 10 March 2014.
Investment Objective and Policy
The investment objective and policy is set out in the Summary Information.
Premium/Discount to Net Asset Value
The Board monitors and takes actions where appropriate to manage the level of
the share price premium/discount to NAV. In doing this, the Company can operate
a share buyback facility whereby it may purchase, subject to various terms as
set out in its Articles and in accordance with The Companies (Guernsey) Law,
2008, up to 14.99% of the Company's Ordinary Shares in issue immediately
following Admission for trading in the LSE.
The Company can also offer investors, at the Board's sole discretion, a
Quarterly Tender, contingent on certain factors, to provide Shareholders with a
quarterly opportunity to submit Ordinary Shares for placing or repurchase by the
Company at a price representing a discount of no more than 2% to the then
prevailing NAV. For additional information, refer to note 16 (i) to the
Financial Statements.
Shareholder Information
Shareholder information is set out in the Summary Information.
The Company had the ability to issue up to 24,426,351 Ordinary Shares under a
tap facility as approved at the Annual General Meeting on 11 August 2023. On 6
December 2022, a written resolution was passed to issue a new Block Listing
facility for 27,020,000 ordinary shares. At the extraordinary general meeting
held 3 April 2023, Shareholders approved authority for the Board to issue and
allot a further 24,376,351 ordinary shares. During the financial year ended 30
September 2023, the Company issued 28,050,000 shares.
Going Concern Statement
A fundamental principle of the preparation of financial statements in accordance
with IFRS is the judgement that an entity will continue in existence as a going
concern for a period of at least 12 months from the signing of the financial
statements.
After the Company experienced, in line with the wider fixed income market, a
significant drop in NAV over the previous financial year, the Company has
started to reverse this during the current financial year and has continued
throughout to meet its Dividend Target. The attractive yields which are still on
offer have enabled the Portfolio Manager to maintain higher purchase yields
whilst creating no additional credit risk.
The Board in its consideration of the going concern position of the Company, has
formally considered projected cashflow forecasts, and relevant analyses related
to liquidity risk, credit risk, and foreign exchange risk pertaining to the
Company. Against the Company's investment objective (see Summary Information),
the Company's Principal Risks and Uncertainties (see the Strategic Report) and
financial risk management (note 16 to the Financial Statements), and the
viability assessment (see the Strategic Report), the Board is satisfied that the
Company has adequate financial resources and suitable management arrangements in
place to continue as a going concern for at least twelve months from the date of
approval of the Financial Statements.
Accordingly, the directors continue to adopt the going concern basis in
preparing these Financial Statements.
Results
The principal purpose of the Company is to generate an income which is currently
framed on a 6p per share annual Dividend Target. The ability to generate this is
a central focus of the Portfolio Manager and the Board. The Board intends to
distribute an amount at least equal to the value of the Company's excess income,
as defined in note 19 to the Financial Statements, arising each financial year
to the holders of Ordinary Shares on an annual basis.
Importantly, the ability to achieve the Dividend Target is linked to market
conditions and the amount of risk the Company takes. In this regard, the
intention is not to increase the Company's risk profile simply to meet the
Dividend Target. However, where the anticipated rewards for higher risk taking
are attractive, the Company would be comfortable assuming more tactical risk
within appropriate parameters.
The results for the year are set out in the Statement of Comprehensive Income.
The Directors declared dividends of £15,001,968 during the year ended 30
September 2023 (30 September 2022: £13,190,681), a breakdown of which can be
found in note 19 to the Financial Statements. The 30 September 2023 distribution
which was declared on 12 October 2023 was paid on 3 November 2023.
Retained earnings improved during the reporting period. Retained earnings
include realised and unrealised gains and losses on the Company's assets. These
include both investment assets, such as bonds, and foreign exchange and other
derivatives used purely for hedging, as well as all forms of income. Securities
purchased at a premium and large foreign exchange movements will further impact
retained earnings as will unfavourable market movements or credit events such as
those prevalent in the financial year.
Managing the portfolio to improve the retained earnings during favourable market
conditions or to maintain these during difficult market conditions is also an
aim of the Portfolio Manager. The ability to do this is fundamentally impacted
by the nominal (6p per share) Dividend Target.
Portfolio Manager
The portfolio management fee is payable to the Portfolio Manager, TwentyFour
Asset Management LLP, monthly in arrears at a rate of 0.75% per annum of the
lower of NAV, which is calculated weekly on each valuation day and on the last
business day of each month, or market capitalisation of each class of share. For
additional information refer to note 14 to the Financial Statements. The
Portfolio Manager is also entitled to a commission of 0.175% of the aggregate
gross offering proceeds in relation to any issue of new Shares.
The Board considers that the interests of Shareholders, as a whole, are best
served by the ongoing appointment of the Portfolio Manager to achieve the
Company's investment objectives.
Alternative Investment Fund Manager ("AIFM")
Alternative investment fund management services are provided by Apex Fundrock
Limited (previously called Maitland Institutional Services Limited) ("AFL"). The
AIFM fee is payable quarterly in arrears at a rate of 0.07% of the NAV of the
Company below £50 million, 0.05% on Net Assets between £50 million and £100
million and 0.03% on Net Assets in excess of £100 million. For additional
information, refer to note 15 to the Financial Statements.
Custodian and Depositary
Custody and Depositary services are provided by Northern Trust (Guernsey)
Limited. The terms of the Depositary agreement allow Northern Trust (Guernsey)
Limited to receive professional fees for services rendered. The Depositary
agreement includes custodian duties. For additional information, refer to note
15 to the Financial Statements.
Directors
The Directors of the Company during the year and as at the date of this report
are set out in the Corporate Information.
Directors' and Other Interests
The Directors of the Company held the following Ordinary Shares beneficially:
30.09.23 30.09.22
Shares Shares
Ashley Paxton 100,000 22,500
Sharon Parr (appointed 1 November 2022) 98,004 -
Wendy Dorey (appointed 1 February 2023) 15,000 -
Claire Whittet (resigned 11 August 2023) 25,000 25,000
Ian Martin (resigned 1 February 2023) 35,000 35,000
The Board do not hold any shareholdings in entities where the Company has a
stake in the same entity that amounts to more than 1% of its portfolio.
Corporate Governance
The Board is committed to high standards of corporate governance and has
implemented a framework for corporate governance which it considers to be
appropriate for an investment company in order to comply with the principles of
the UK Corporate Governance Code (the "UK Code"). The Company is also required
to comply with the Code of Corporate Governance (the "GFSC Code") issued by the
Guernsey Financial Services Commission.
The UK Listing Authority requires all UK premium listing companies to disclose
how they have complied with the provisions of the UK Code. This Corporate
Governance Statement, together with the Going Concern Statement, Viability
Statement and the Statement of Directors' Responsibilities, indicates how the
Company has complied with the principles of good governance of the UK Code and
its requirements on Internal Control.
The Company is a member of the AIC and by complying with the AIC Code of
Corporate Governance (the "AIC Code") is deemed to comply with both the UK Code
and the GFSC Code.
The Board has considered the principles and recommendations of the AIC Code and
considers that reporting against these will provide better information to
Shareholders. To ensure ongoing compliance with these principles the Board
reviews a report from the Corporate Secretary regularly, identifying how the
Company is in compliance and identifying any changes that might be necessary.
The AIC Code is available on the AIC's website, www.theaic.co.uk. The UK Code is
available in the Financial Reporting Council's website, www.frc.org.uk.
Throughout the year ended 30 September 2023, the Company has complied with the
recommendations of the AIC Code and thus the relevant provisions of the UK Code,
except as set out below.
The UK Code includes provisions relating to:
· The role of the Chief Executive;
· Executive Directors' remuneration;
· Annually assessing the need for an internal audit function; and
· Senior Independent Director.
For the reasons set out in the AIC Code, the Board considers that the first
three provisions are not relevant to the position of the Company as it is an
externally managed investment company. The Company has therefore not reported
further in respect of these provisions.
The reason for not appointing a Senior Independent Director is set out below.
There have been no other instances of non-compliance, other than those noted
above.
Role, Composition and Independence of the Board
The Board is the Company's governing body and has overall responsibility for
maximising the Company's success by directing and supervising the affairs of the
business and meeting the appropriate interests of Shareholders and relevant
stakeholders. A summary of the Board's responsibilities is as follows:
· statutory obligations and public disclosure;
· strategic matters and financial reporting;
· risk assessment and management including reporting compliance, governance,
monitoring and control; and
· other matters having a material effect on the Company.
The Board's responsibilities for the Annual Report and Audited Financial
Statements are set out in the Statement of Directors' Responsibilities.
The Board historically consisted of three non-executive Directors, but with the
appointment of Mr Richard Class on 1 November 2023 has increased to four, all of
whom are considered to be independent of the Portfolio Manager and as prescribed
by the Listing Rules.
The Board does not consider it appropriate to appoint a Senior Independent
Director because all Directors are deemed to be independent by the Company.
Having undertaken a skills review, the Board considers it has the appropriate
balance of diverse skills and experience, independence and knowledge of the
Company and the wider sector. This enables it to discharge its duties and
responsibilities effectively and that no individual or group of individuals
dominates decision-making. The Chairman is responsible for leadership of the
Board and ensuring its effectiveness.
The Chairman is Ashley Paxton (effective 11 August 2023). The Chair of the Board
must be, and is considered to be, independent for the purposes of Chapter 15 of
the Listing Rules.
Biographies for all the Directors and their list of directorships in other
public listed companies (including cross directorships in those companies) can
be found in the Board Members section. Furthermore, no member of the Board:
· has any current or historical employment with the Portfolio Manager; and
· has any current directorships in any other investment funds managed by the
Portfolio Manager.
The Board needs to ensure that the Annual Report and Audited Financial
Statements, taken as a whole, is fair, balanced and understandable and provides
the information necessary for Shareholders to assess the Company's position,
performance, business model and strategy. In seeking to achieve this, the
Directors have set out the Company's investment objective and policy and have
explained how the Board and its delegated Committees operate and how the
Directors review the risk environment within which the Company operates and set
appropriate risk controls. Furthermore, throughout the Annual Report and Audited
Financial Statements, the Board has sought to provide further information to
enable Shareholders to have a fair, balanced and understandable view.
The Board has contractually delegated activities related to the management of
its investment portfolio to the Portfolio Manager, the arrangement of custodial
and depositary services and the provision of administration, accounting and
company secretarial services including the independent calculation of the
Company's NAV and the production of the Annual Report and Financial Statements
which are independently audited to the administrator and registrar functions to
the registrar.
The Board is responsible for the appointment and monitoring of all Service
Providers to the Company.
The Directors are kept fully informed of investment and financial controls and
other matters by all Services Providers that are relevant to the business of the
Company and should be brought to the attention of the Directors.
The Company has adopted a policy that the composition of the Board of Directors,
which is required by the Company's Articles to comprise of at least two persons,
is at all times such that a majority of the Directors are independent of the
Portfolio Manager and any company in the same group as the Portfolio Manager;
the Chair of the Board of Directors is free from any conflicts of interest and
is independent of the Portfolio Manager and of any company in the same group as
the Portfolio Manager; and that no more than one director, partner, employee or
professional adviser to the Portfolio Manager or any company in the same group
as the Portfolio Manager may be a Director of the Company at any one time.
The Board has a breadth of experience relevant to the Company and the Directors
believe that any changes to the Board's composition can be managed without undue
disruption. With any new director appointment to the Board, consideration will
be given as to what induction process is appropriate.
The Board has also given careful consideration to the recommendations of the
Davies Review and after review, believes that the current appointments provide
an appropriate range of skills, experience and diversity.
Succession planning is key to the continuance of good corporate governance.
During the year, two Directors rotated off the Board having served approximately
9 years each. Using an independent recruitment firm, Sharon Parr was appointed
to the Board on 1 November 2022 and Wendy Dorey on 1 February 2023. Richard
Class was also identified using an independent recruitment firm and was
appointed to the Board on 1 November 2023.
Directors' Attendance at Meetings
The Board holds quarterly Board meetings to discuss general management
including: dividend policy, structure, finance, corporate governance, marketing,
risk management, liquidity, compliance, asset allocation and gearing, contracts
and performance. The quarterly Board meetings are the principal source of
regular information for the Board enabling it to determine policy and to monitor
performance, compliance and controls. These meetings are also supplemented by
communication and discussions throughout the year, particularly the regular
Board meetings to consider monthly dividends and quarterly tenders.
A representative from each of the Portfolio Manager, AIFM, Administrator,
Custodian and Depositary and the Financial Adviser and Corporate Broker attends
each Board meeting either in person or electronically thus enabling the Board to
fully discuss and review the Company's operation and performance. Each Director
has direct access to the Portfolio Manager and Company Secretary and may, at the
expense of the Company, seek independent professional advice on any matter. Both
appointment and removal of these parties is to be agreed by the Board as a
whole.
The Audit and Risk Committee meets at least twice a year, the Management
Engagement Committee and Remuneration and Nomination Committee meet at least
once a year, a dividend meeting is held monthly and there are additional
meetings covering the Quarterly Tenders as and when necessary. In addition, ad
hoc meetings of the Board to review specific items between the regular scheduled
quarterly meetings can be arranged. Between formal meetings, there is regular
contact with the Portfolio Manager, AIFM, Administrator, Custodian and
Depositary and the Financial Adviser and Corporate Broker, and an annual
strategy day.
Although some of the Directors hold other listed Board positions, none of these
is for a trading company and the Board is satisfied that they have sufficient
time commitment to carry out their duties for the Company as evidenced by their
attendance during the year which was as follows:
Board Audit and Management Remuneration Ad
hoc
Meetings Risk Engagement and
Committee
Committee Committee Nomination
Meetings
Meetings Meetings Committee
Meetings
Held Attended Held Attended Held Attended Held Attended Held
Attended
Ashley 5 5 5 5 1 1 2 2 24
23
Paxton
Sharon 5 5 5 5 1 1 2 2 24
20
Parr¹
Wendy 5 4 5 3 1 1 2 2 24
14
Dorey²
Claire 5 4 5 4 1 1 2 - 24
18
Whittet³
Ian 5 1 5 2 1 - 2 - 24
6
Martin?
1 Sharon Parr was appointed 1 November 2022.
2 Wendy Dorey was appointed on 1 February 2023.
3 Claire Whittet resigned on 11 August 2023.
4 Ian Martin resigned on 1 February 2023.
At the Board meetings, the Directors review the management of the Company's
assets and liabilities and all other significant matters so as to ensure that
the Directors maintain overall control and supervision of the Company's affairs.
Election of Directors
The election of Directors is set out in the Directors' Remuneration Report.
Board Performance and Training
On appointment to the Board, Directors will be offered relevant training and
induction. Training is an on-going matter as is discussion on the overall
strategy of the Company.
On appointment to the Board, each Director considered the expected time needed
to discharge their responsibilities effectively. The Directors confirmed that
each had sufficient time available and would inform the Board of any subsequent
changes.
Now that the Company has successfully concluded the process of replacing the
scheduled retirements of the legacy Board, and brought its number to four, the
Board will conduct a board evaluation process in early 2024, the last review
having been performed in 2020. Whilst this evaluation will initially be
performed internally, the Board intends to subsequently appoint a firm to
conduct an independent board evaluation. To maximise value for the Company, an
independent review will be undertaken as soon as all Board members are
considered to have fully settled and embedded into their respective roles, no
earlier than 2025.
In respect of the Criminal Finances Act 2017 which has introduced a new
corporate criminal offence ("CCO") of `failing to take reasonable steps to
prevent the facilitation of tax evasion', the Board confirms that they are
committed to zero tolerance towards the criminal facilitation of tax evasion.
Retirement by Rotation
Under the terms of their appointment, each Director is required to retire by
rotation and be subject to re-election at least every three years. The Directors
are also required to seek re-election if they have already served for more than
nine years. The Company may terminate the appointment of a Director immediately
on serving written notice and no compensation is payable upon termination of
office as a director of the Company becoming effective. All Directors typically
stand for re-election annually and all were re-elected with votes in favour in
excess of 90% at the AGM.
Board Committees and their Activities
Terms of Reference
All Terms of Reference of the Board's Committees are available from the
Administrator upon request.
Management Engagement Committee
The Board has established a Management Engagement Committee with formal duties
and responsibilities. The Management Engagement Committee commits to meeting at
least once a year and comprises the entire Board where Ian Martin served as
chair until his retirement from the Board on 1 February 2023. Wendy Dorey now
chairs the Management Engagement Committee. The duties and responsibilities
include the regular review of the performance, fees and contractual arrangements
with the Portfolio Manager and other Service Providers and the preparation of
the Committee's annual opinion as to the Portfolio Manager's services.
The Management Engagement Committee carried out its review of the performance
and capabilities of the Portfolio Manager at its meeting during the year and the
Board recommended the continued appointment of TwentyFour Asset Management LLP
as Portfolio Manager to be in the best interest of the Company.
The Board conducts an annual strategy day with the Portfolio Manager at their
offices and did so in November 2023 when they met with various TwentyFour staff
and representatives of Numis. In addition, the Directors have attended various
webinar presentations by the Portfolio Manager.
The Board considers that the interests of Shareholders, as a whole, are best
served by the ongoing appointment of the AIFM and Custodian and Depositary to
achieve the Company's investment objectives.
Audit and Risk Committee
An Audit and Risk Committee has been established consisting of all Directors,
where Ashley Paxton served as chair until 11 August 2023 at which date Sharon
Parr became his successor. As there were only 3 Directors of the Company as at
30 September 2023 (4 Directors effective from 1 November 2023), the Board
considered it appropriate that all Directors should be members of the Audit and
Risk Committee. The terms of reference of the Audit and Risk Committee provide
that the committee shall be responsible, amongst other things, for reviewing the
Interim and Annual Financial Statements, considering the appointment and
independence of external auditors, discussing with the external auditors the
scope of the audit and reviewing the Company's compliance with the AIC Code.
Further details on the Audit and Risk Committee can be found in the Audit and
Risk Committee Report.
Remuneration and Nomination Committee
The Remuneration and Nomination Committee has been established consisting of all
Directors. Ashley Paxton served as chair until 11 August 2023 at which date
Sharon Parr was appointed in his place.
The Committee met on 6 September 2023 and presented an analysis of director fees
against relevant industry comparatives. Despite general inflationary pressures,
the Committee proposed only a modest realignment of fees for the Chair of the
Board to £45,000 per annum (from £44,000 per annum) and for the Chair of the
Audit and Risk Committee to £40,000 per annum (from £38,500 per annum), being
the first increment for these two positions since 2019. The base director fee
level and fee for the Chair of the Management Engagement Committee remain at
£35,000 and £37,000, respectively, having been last reviewed in 2021.
Diversity of the Board was also discussed and it was noted that the split of 33%
men versus 66% women as at 30 September 2023 remained within the gender
diversity guidelines as at the end of the financial year. The Committee also
discussed the skills and experience of the Board and noted that an additional
director with relevant fixed income experience would be beneficial to the Board.
The Committee subsequently proposed the appointment of Richard Class as a
Director, who joined the Board on 1 November 2023.
International Tax Reporting
For purposes of the US Foreign Account Tax Compliance Act, the Company
registered with the US Internal Revenue Service ("IRS") as a Guernsey reporting
Foreign Financial Institution ("FFI"), received a Global Intermediary
Identification Number (E5XSVA.99999.SL.831), and can be found on the IRS FFI
list.
The Common Reporting Standard ("CRS") is a global standard for the automatic
exchange of financial account information developed by the Organisation for
Economic Co-operation and Development ("OECD"), which has been adopted in
Guernsey.
The Board ensures that the Company is compliant with Guernsey regulations and
guidance in this regard. The activities of the Company do not constitute
relevant activities as defined by the Income Tax (Substance Requirements)
(Implementation) Regulations, 2018 (as amended) and as such the Company was out
of scope.
Strategy
The strategy for the Company is to capture the illiquidity premium that is
associated with `off the run' bond issues. By remaining highly selective and
without conceding on underlying credit quality, the strategy targets a monthly
distribution of 0.5p per share, with all excess income, as discussed in the
Results section of the Directors' Report, being distributed to investors at the
year end of the Company.
Internal Controls
The Board is ultimately responsible for establishing and maintaining the
Company's system of internal financial and operating control and for maintaining
and reviewing its effectiveness. The Company's risk matrix continues to be the
core element of the Company's risk management process in establishing the
Company's system of internal financial and reporting control. The risk matrix is
prepared and maintained by the Board which initially identifies the risks facing
the Company and then collectively assesses the likelihood of each risk, the
impact of those risks and the strength of the controls operating over each risk.
The system of internal financial and operating control is designed to manage
rather than to eliminate the risk of failure to achieve business objectives and
by their nature can only provide reasonable and not absolute assurance against
misstatement and loss.
These controls aim to ensure that assets of the Company are safeguarded, proper
accounting records are maintained and the financial information for publication
is reliable. The Board confirms that there is an ongoing process for
identifying, evaluating and managing the significant risks faced by the Company.
This process has been in place for the year under review and up to the date of
approval of this Annual Report and Audited Financial Statements and is reviewed
by the Board and is in accordance with the AIC Code.
The AIC Code requires Directors to conduct at least annually a review of the
Company's system of internal financial and operating control, covering all
controls, including financial, operational, compliance and risk management. The
Board has evaluated the systems of internal controls of the Company. In
particular, it has prepared a process for identifying and evaluating the
significant risks affecting the Company and the policies by which these risks
are managed. The Board also considers whether the appointment of an internal
auditor is required and has determined that there is no requirement for a direct
internal audit function.
The Board has delegated the day-to-day responsibilities for the management of
the Company's investment portfolio, the provision of custodial and depositary
services and administration, accounting, registrar and company secretarial
functions including the independent calculation of the Company's NAV and the
production of the Annual Report and Financial Statements which are independently
audited.
Formal contractual agreements have been put in place between the Company and
providers of these services. Even though the Board has delegated responsibility
for these functions, it retains accountability for these functions and is
responsible for the systems of internal control. At each quarterly Board
meeting, compliance reports are provided by the Administrator, Company
Secretary, Portfolio Manager, AIFM and Depositary. The Board also receives
confirmation from the Administrator of its accreditation under its Service
Organisation Controls 1 report.
Significant Shareholdings
Shareholders with holdings of more than 3.0% of the Shares of the Company at 12
December 2023 were as follows:
Number of shares Percentage of issued share capital
Huntress (CI) Nominees 22,703,262 9.29%
Limited
Hargreaves Lansdown 14,643,290 5.99%
(Nominees) Limited
<15492>
Hargreaves Lansdown 11,799,355 4.83%
(Nominees) Limited
<Vra>
Interactive Investor 11,425,782 4.68%
Services Nominees
Limited
Lawshare Nominees 9,751,223 3.99%
Limited
W B Nominees Limited 8,306,666 3.40%
Hargreaves Lansdown 7,875,730 3.22%
(Nominees) Limited
<Hlnom>
Those invested directly or indirectly in 3.0% or more of the issued share
capital of the Company will have similar and proportionate voting rights as
other holders of the Shares.
Independent Auditor
Following a competitive tender process, a resolution for the reappointment of
PricewaterhouseCoopers CI LLP was proposed and approved at the AGM on 11 August
2023.
Signed on behalf of the Board of Directors on 14 December 2023 by:
Ashley PaxtonSharon Parr
ChairmanDirector
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the Audited
Financial Statements in accordance with applicable Guernsey law and regulations.
The Companies (Guernsey) Law, 2008 requires the Directors to prepare financial
statements for each financial year. Under that law, they have elected to prepare
the financial statements in accordance with International Financial Reporting
Standards ("IFRS") and applicable law.
The Financial Statements are required by law to give a true and fair view of the
state of affairs of the Company and of the profit or loss of the Company for
that year.
In preparing these Financial Statements, the Directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgements and estimates that are reasonable and prudent;
· state whether applicable accounting standards have been followed, subject to
any material departures disclosed and explained in the Financial Statements; and
· prepare the Financial Statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors confirm that they have complied with these requirements in
preparing the Financial Statements.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and to enable them to ensure that the Financial Statements have been
properly prepared in accordance with The Companies (Guernsey) Law, 2008. They
have general responsibility for taking such steps as are reasonably open to them
to safeguard the assets of the Company and to prevent and detect fraud and other
irregularities.
So far as the Directors are aware, there is no relevant audit information of
which the Company's auditor is unaware, and each Director has taken all the
steps that he or she ought to have taken as a Director in order to make himself
or herself aware of any relevant audit information and to establish that the
Company's auditor is aware of that information.
The Directors are responsible for the oversight of the maintenance and integrity
of the corporate and financial information in relation to the Company website;
the work carried out by the auditor does not involve consideration of these
matters and, accordingly, the auditor accepts no responsibility for any changes
that may have occurred to the financial statements since they were initially
presented on the website.
Legislation in Guernsey governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
The Directors confirm that to the best of their knowledge:
(a) The Financial Statements have been prepared in accordance with IFRS and
give a true and fair view of the assets, liabilities, financial position and
profit or loss of the Company as at and for the year ended 30 September 2023.
(b) The Annual Report includes information detailed in the Chairman's
Statement, Portfolio Manager's Report, Strategic Report, Directors' Report,
Statement of Directors' Responsibilities, Directors' Remuneration Report, Audit
and Risk Committee Report, Alternative Investment Fund Manager's Report and
Depositary Statement provides a fair review of the information required by:
(i) DTR 4.1.8 and DTR 4.1.9 of the Disclosure and Transparency
Rules, being a fair review of the Company business and a description of the
principal risks and uncertainties facing the Company; and
(ii) DTR 4.1.11 of the Disclosure and Transparency Rules, being
an indication of important events that have occurred since the end of the
financial year and the likely future development of the Company.
In the opinion of the Board, the Financial Statements taken as a whole, are
fair, balanced and understandable and provide the information necessary to
assess the Company's position and performance, business model and strategy.
By order of the Board,
Ashley PaxtonSharon Parr
ChairmanDirector
14 December 2023
DIRECTORS' REMUNERATION REPORT
The Directors' Remuneration Report has been prepared in accordance with the AIC
Code.
Remuneration Policy
The Company's policy in regard to Directors' remuneration is to ensure that the
Company maintains a competitive fee structure in order to recruit, retain and
motivate non-executive Directors of excellent quality in the overall interests
of Shareholders.
It is the responsibility of the Remuneration and Nomination Committee to
determine and approve the Directors' remuneration, who will have given the
matter proper consideration, having regard to the level of fees payable to non
-executive Directors in the industry generally, the role that individual
Directors fulfil in respect of Board and Committee responsibilities and the time
committed to the Company's affairs. The Chairman's remuneration is decided
separately and is approved by the Board as a whole.
No element of the Directors' remuneration is performance related, nor does any
Director have any entitlement to pensions, share options or any long-term
incentive plans from the Company.
Remuneration
The Directors of the Company are remunerated for their services at such a rate
as the Directors determine, provided that the aggregate amount of such fees does
not exceed £250,000 per annum.
Directors are remunerated in the form of fees, payable quarterly in arrears, to
the Director personally. No Directors have been paid additional remuneration by
the Company outside their normal Directors' fees and expenses.
With respect to the year ended 30 September 2023 and 30 September 2022, the
Directors received the following remuneration in the form of Directors' fees:
2023 2022
Ashley Paxton (Chair of the Board)¹ £39,348 £34,295
Sharon Parr (Audit and Risk Committee Chair)² £32,660 -
Wendy Dorey (MEC Chair)³ £23,613 -
Claire Whittet (resigned 11 August 2023) £38,063 £44,000
Ian Martin (resigned 1 February 2023) £12,392 £37,000
Christopher Legge (resigned 31 January 2022) - £12,895
Total £146,076 £128,190
1 Appointed Chair of the Board on 11 August 2023.
2 Appointed Audit and Risk Committee Chair and Remuneration and Nomination
Committee Chair on 11 August 2023.
3 Appointed Management Engagement Committee Chair on 11 August 2023.
As discussed in the Directors' Report, some Directors' fees increased from 1
October 2023.
Appropriate Directors' and Officers' liability insurance cover is maintained by
the Company on behalf of the Directors.
The Directors were appointed as non-executive Directors by letters issued on the
respective dates of appointment. Each Director's appointment letter provides
that, upon the termination of his/her appointment, that he/she must resign in
writing and all records remain the property of the Company. The Directors'
appointments can be terminated in accordance with the Articles and without
compensation.
There is no notice period specified in the Articles for the removal of
Directors. The Articles provide that the office of Director shall be terminated
by, among other things: (a) written resignation; (b) unauthorised absences from
board meetings for six months or more; (c) unanimous written request of the
other Directors; and (d) an ordinary resolution of the Company.
Under the terms of their appointment, each Director is required to retire by
rotation and be subject to re-election at least every three years but have opted
for annual re-election. The Directors are required to seek re-election if they
have already served for more than nine years. The Company may terminate the
appointment of a Director immediately on serving written notice and no
compensation is payable upon termination of office as a director of the Company
becoming effective.
The amounts payable to Directors shown in note 14 to the Financial Statements
are for services as non-executive Directors.
No Director has a service contract with the Company, nor are any such contracts
proposed.
Signed on behalf of the Board of Directors on 14 December 2023 by:
Sharon ParrAshley Paxton
Chair, Remuneration and Nomination CommitteeDirector
AUDIT AND RISK COMMITTEE REPORT
Below we present the Audit and Risk Committee's Report, setting out the
responsibilities of the Audit and Risk Committee and its key activities for the
year ended 30 September 2023.
The Audit and Risk Committee has reviewed the appropriateness of the Company's
system of risk management and internal financial and operating controls, the
robustness and integrity of the Company's financial reporting, along with the
external audit process. The Audit and Risk Committee has devoted time to
ensuring that controls and processes have been properly established, documented
and implemented. The Company's risk exposure and the effectiveness of its risk
management and internal control systems are contained within the Company's risk
matrix, and the risk matrix was regularly reviewed by the Audit and Risk
Committee during the year and subsequently by the Board.
During the course of the year, the information that the Audit and Risk Committee
has received has been timely and clear and has enabled the Committee to
discharge its duties effectively.
Role and Responsibilities
The primary function of the Audit and Risk Committee is to assist the Board in
fulfilling its oversight responsibilities. This includes reviewing the financial
reports and other financial information and any significant financial judgement
contained therein, before publication.
In addition, on a continuing basis, the Audit and Risk Committee reviews the
systems of internal financial and operating controls which the Administrator,
Portfolio Manager, AIFM, Custodian, Depositary and the Board have established
with respect to finance, accounting, risk management, compliance, fraud and
audit. The Audit and Risk Committee also reviews the accounting and financial
reporting processes, along with reviewing the roles, independence and
effectiveness of the external auditor.
The ultimate responsibility for reviewing and approving the annual and interim
financial statements remains with the Board.
The Audit and Risk Committee's full terms of reference can be obtained by
contacting the Company's Administrator.
Risk Management and Internal Control
The Board, as a whole, considers the nature and extent of the Company's risk
management framework and the risk profile that is acceptable in order to achieve
the Company's strategic objectives. As a result, it is considered that the Board
has fulfilled its obligations under the AIC Code.
The Audit and Risk Committee continues to be responsible for reviewing the
adequacy and effectiveness of the Company's on-going risk management systems and
processes. Its system of internal controls, along with its design and operating
effectiveness, is subject to review by the Audit and Risk Committee through
reports received from the Portfolio Manager, AIFM and Custodian and Depositary,
along with those from the Administrator and external auditor.
Fraud, Bribery and Corruption
The Board has relied on the overarching requirement placed on the Service
Providers under the relevant agreements to comply with applicable law, including
anti-bribery laws. A review of the Service Provider policies took place at the
Management Engagement Committee Meeting on3March2023. The Board receives
confirmation from all Service Providers that they have not been involved in any
fraud, bribery or corruption.
Financial Reporting and Significant Financial Issues
The Audit and Risk Committee assesses whether suitable accounting policies have
been adopted and whether the Portfolio Manager has made appropriate estimates
and judgements. The Audit and Risk Committee reviews accounting papers prepared
by the Portfolio Manager and Administrator which provide details on the main
financial reporting judgements.
The Audit and Risk Committee also reviews reports by the external auditors which
highlight any issues with respect to the work undertaken on the audit.
The significant areas considered during the year by the Audit and Risk Committee
in relation to the Financial Statements and how they were addressed are detailed
below:
(i) Valuation of investments:
The Company's investments had a fair value of £176,435,682 as at 30 September
2023 with 240,824,331 shares in issue (30 September 2022: £148,915,038 with
216,213,518 shares in issue) and represents the key constituent of net assets of
the Company. These investments are valued in accordance with the Accounting
Policies set out in notes 2 and 3 to the Financial Statements. The Audit and
Risk Committee considered the valuation of the investments held by the Company
as at 30 September 2023 to be reasonable based on information provided by the
Portfolio Manager, AIFM, Administrator, Custodian and Depositary on their
processes for the valuation of these investments. In order to obtain more
accurate pricing information a range of pricing sources, including model based
valuations for a small minority of positions, has been used.
(ii) Income recognition:
The Audit and Risk Committee considered the calculation of income from
investments recorded in the Financial Statements for the year ended 30 September
2023. As disclosed in note 3(ii)(b) of the Notes to the Financial Statements,
the estimated life of credit securities is determined by the Portfolio Manager,
and can impact the effective interest rate of the credit securities which in
turn could impact the calculation of income from investments. The Board reviews
relevant information supplied by the Portfolio Manager, on an ongoing basis,
which presents the expected life of the Company's investments and have found
them to be reasonable based on the explanations provided and information
obtained from the Portfolio Manager. The auditor also reviews the processes and
methodology supporting this information. The Audit and Risk Committee was
satisfied that income was appropriately stated in all material aspects in the
Financial Statements.
Following a review of the presentations and reports from the Portfolio Manager
and Administrator and consulting where necessary with the external auditor, the
Audit and Risk Committee is satisfied that the Financial Statements
appropriately address, both in respect to the amounts reported and the
disclosures, the critical judgements and key estimates. The Audit and Risk
Committee is also satisfied that the significant assumptions used for
determining the value of assets and liabilities have been appropriately
reviewed, challenged and are sufficiently robust.
To understand and monitor the Company stakeholder universe, the Audit and Risk
Committee maintains a stakeholder matrix.This aims to identify stakeholder
interests and monitor how these evolve and potentially impact the Company today
and in the future.The matrix is reviewed at least annually.
The Company's reporting currency is sterling even though a significant
proportion of the investments owned are denominated in other currencies. The
Company operates a hedging strategy designed to mitigate the impact of foreign
currency rate changes on the performance of the Company. The Audit and Risk
Committee has used information from the Administrator and Portfolio Manager to
satisfy itself concerning the effectiveness of the hedging process, as well as
to confirm that realised and unrealised foreign currency gains and losses have
been correctly recorded, and to reaffirm that the use of sterling as the
Company's functional currency remains appropriate.
At the Audit and Risk Committee meeting to review the Annual Report and Audited
Financial Statements, the Audit and Risk Committee received a report and
presentation from its external auditor on the key findings from its audit, and
the Audit and Risk Committee is consequently satisfied that the external auditor
has fulfilled its responsibilities with diligence and professional scepticism.
The Audit and Risk Committee advised the Board that these Annual Financial
Statements, taken as a whole, are fair, balanced and understandable.
The Audit and Risk Committee is satisfied that the judgements made by the
Portfolio Manager and Administrator are reasonable, and that appropriate
disclosures have been included in the Financial Statements.
External Auditor
The Audit and Risk Committee has responsibility for making a recommendation on
the appointment, re-appointment and removal of the external auditor.
During the year, the Audit and Risk Committee received and reviewed audit plans
and reports from the external auditor. As standard practice, the external
auditor meets privately with the Audit and Risk Committee without the Portfolio
Manager and other Service Providers being present.
To assess the effectiveness of the external audit process, the auditor was asked
to articulate the steps that they have taken to ensure objectivity and
independence, including where the auditor provides non-audit services. The Audit
and Risk Committee monitors the auditor's performance, behaviour and
effectiveness during the exercise of their duties, which informs the decision to
recommend reappointment on an annual basis. Other than the interim review for
the period ended 31 March 2023, no non-audit services have been performed for
the Company by the auditor.
As the audit for the year ended 30 September 2022 was the ninth annual audit
that PricewaterhouseCoopers CI LLP ("PwC") performed in respect of the Company,
a full and comprehensive competitive audit tender was undertaken during the
year. At an Audit and Risk Committee meeting held 30 June 2023, formal
presentations were received from the short-listed firms and after full and
detailed consideration, it was resolved that PwC be recommended to the Board for
reappointment as auditor.
The Company is considered to be a market traded company based on the Institute
of Chartered Accountants in England and Wales Crown Dependencies' Audit Rules
and Guidance. As such, the auditors are required to apply the FRC Ethical
Standards of 2019.
The FRC Ethical Standards require that the audit engagement leaders on listed
entities are rotated at least every 5 years. Roland Mills served 5 years as the
Company's audit engagement leader and has rotated off. He is replaced by Adrian
Peacegood for the audit of the Financial Statements for the year ended 30
September 2023.
The following table summarises the remuneration paid to PwC and to other PwC
member firms for audit and non-audit services in respect of the year ended 30
September 2023 and for the year ended 30 September 2022.
Year ended Year ended
30.09.23 30.09.22
PricewaterhouseCoopers CI LLP - Assurance work £ £
- Annual audit of the Company 109,250 96,500
- Interim review 23,320 21,200
PricewaterhouseCoopers CI LLP - Non assurance work
- Tax consulting and compliance services nil nil
- Ratio of assurance to non-assurance work 100% / nil 100% / nil
For any questions on the activities of the Audit and Risk Committee not
addressed in the foregoing, a member of the Audit and Risk Committee remains
available to attend each AGM to respond to such questions.
The Audit and Risk Committee and Risk Report was approved by the Audit and Risk
Committee and signed on behalf by:
Sharon Parr
Chair, Audit and Risk Committee
14 December 2023
ALTERNATIVE INVESTMENT FUND MANAGER'S REPORT
Apex Fundrock Limited (previously called Maitland Institutional Services Ltd)
acts as the Alternative Investment Fund Manager ("AIFM") of TwentyFour Select
Monthly Income Fund Limited ("the Company") providing portfolio management and
risk management services to the Company.
The AIFM has delegated the following of its alternative investment fund
management functions:
· It has delegated the portfolio management function for listed and unlisted
investments to TwentyFour Asset Management LLP.
The AIFM is required by the Alternative Investment Fund Managers Directive 2011,
61/EU (the "AIFM Directive") and all applicable rules and regulations
implementing the AIFM Directive in the UK (the "AIFM" Rules):
· to make the annual report available to investors and to ensure that the
annual report is prepared in accordance with applicable accounting standards,
the Company's articles of incorporation and the AIFM Rules and that the annual
report is audited in accordance with International Standards on Auditing;
· be responsible for the proper valuation of the Company's assets, the
calculation of the Company's net asset value and the publication of the
Company's net asset value;
· to make available to the Company's Shareholders, a description of all fees,
charges and expenses and the amounts thereof, which have been directly or
indirectly borne by them; and
· ensure that the Company's Shareholders have the ability to redeem their
share in the capital of the Company in a manner consistent with the principle of
fair treatment of investors under the AIFM Rules and in accordance with the
Company's redemption policy and its obligations.
The AIFM is required to ensure that the annual report contains a report that
shall include a fair and balanced review of the activities and performance of
the Company, containing also a description of the principal risks and investment
or economic uncertainties that the Company might face.
AIFM Remuneration
The AIFM is subject to a staff remuneration policy which meets the requirements
of the AIFM Directive. The policy is designed to ensure remuneration practices
are consistent with, and promote, sound and effective risk management. It does
not encourage risk-taking which is inconsistent with the risk profiles, rules or
instrument of incorporation of the funds managed, and does not impair the AIFM's
compliance with its duty to act in the best interests of the funds it manages.
The AIFM has reviewed the Remuneration Policy and its application in the last
year which has resulted in no material changes to the policy or irregularities
to process.
This disclosure does not include staff undertaking portfolio management
activities as these are undertaken by TwentyFour Asset Management LLP (the
"Portfolio Manager"). The Portfolio Manager is required to make separate public
disclosure as part of their obligations under the Capital Requirements
Directive.
The AIFM also acts as Authorised Corporate Director ("ACD") for non-Alternative
Investment Funds ("AIFs"). It is required to disclose the total remuneration it
pays to its staff during the financial year of the Company, split into fixed and
variable remuneration, with separate aggregate disclosure for staff whose
actions may have a material impact to the risk profile of a fund or the AIFM
itself. This includes executives, senior risk and compliance staff and certain
senior managers.
+-----------------+-------------+------------+------------+------------+
| |Number of |Total |Fixed |Variable |
| |Beneficiaries|Remuneration|Remuneration|Remuneration|
| | |Paid | |Paid |
| |£ | |£ | |
| | |£ | |£ |
+-----------------+-------------+------------+------------+------------+
|Total |17 |2,005,000 |1,446,000 |559,000 |
|remuneration paid| | | | |
|by the ACD | | | | |
|to its staff | | | | |
+-----------------+-------------+------------+------------+------------+
|Remuneration paid|6 |1,147,000 |689,000 |458,000 |
|to employees of | | | | |
|the ACD who are | | | | |
|material risk | | | | |
|takers | | | | |
+-----------------+-------------+------------+------------+------------+
Further information is available in the AIFM's Remuneration Policy Statement
which can be obtained from our website or, on request free of charge, by writing
to the registered office of the AIFM.
In so far as the AIFM is aware:
· there is no relevant audit information of which the auditor of the Company
or the Board of Directors of the Company are unaware; and
· the AIFM has taken all steps that it ought to have taken to make itself
aware of any relevant audit information and to establish that the auditor is
aware of that information.
We hereby certify that this report is made on behalf of the AIFM, Apex Fundrock
Ltd.
C O'Keeffe
P Foley- Brickley
Directors
Apex Fundrock Ltd
14 December 2023
DEPOSITARY STATEMENT
For the year ended 30 September 2023
Report of the Depositary to the Shareholders
Northern Trust (Guernsey) Limited has been appointed as Depositary to TwentyFour
Select Monthly Income Fund Limited (the "Company") in accordance with the
requirements of Article 36 and Articles 21(7), (8) and (9) of the Directive
2011/61/EU of the European Parliament and of the Council of 8 June 2011 on
Alternative Investment Fund Managers and amending Directives 2003/41/EC and
2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 (the "AIFM
Directive").
We have enquired into the conduct of Apex Fundrock Limited (previously called
Maitland Institutional Services Limited) (the "AIFM") and the Company for the
year ended 30 September 2023, in our capacity as Depositary to the Company.
This report including the review provided below has been prepared for and solely
for the Shareholders in the Company. We do not, in giving this report, accept or
assume responsibility for any other purpose or to any other person to whom this
report is shown.
Our obligations as Depositary are stipulated in the relevant provisions of the
AIFM Directive and the relevant sections of Commission Delegated Regulation (EU)
No 231/2013 (collectively the "AIFMD legislation") and The Authorised Closed
-Ended Investment Scheme Rules and Guidance, 2021.
Amongst these obligations is the requirement to enquire into the conduct of the
AIFM and the Company and their delegates in each annual accounting period.
Our report shall state whether, in our view, the Company has been managed in
that period in accordance with the AIFMD legislation. It is the overall
responsibility of the AIFM and the Company to comply with these provisions. If
the AIFM, the Company or their delegates have not so complied, we as the
Depositary will state why this is the case and outline the steps which we have
taken to rectify the situation.
The Depositary and its affiliates are or may be involved in other financial and
professional activities which may on occasion cause a conflict of interest with
its roles with respect to the Company. The Depositary will take reasonable care
to ensure that the performance of its duties will not be impaired by any such
involvement and that any conflicts which may arise will be resolved fairly and
any transactions between the Depositary and its affiliates and the Company shall
be carried out as if effected on normal commercial terms negotiated at arm's
length and in the best interests of Shareholders.
Basis of Depositary Review
The Depositary conducts such reviews as it, in its reasonable discretion,
considers necessary in order to comply with its obligations and to ensure that,
in all material respects, the Company has been managed (i) in accordance with
the limitations imposed on its investment and borrowing powers by the provisions
of its constitutional documentation and the appropriate regulations and (ii)
otherwise in accordance with the constitutional documentation and the
appropriate regulations. Such reviews vary based on the type of fund, the assets
in which a fund invests and the processes used, or experts required, in order to
value such assets.
Review
In our view, the Company has been managed during the year, in all material
respects:
(i) in accordance with the limitations imposed on the investment and borrowing
powers of the Company by the constitutional document; and by the AIFMD
legislation; and
(ii) otherwise in accordance with the provisions of the constitutional document;
and the AIFMD legislation.
For and on behalf of
Northern Trust (Guernsey) Limited
14 December 2023
INDEPENT AUDITOR'S REPORT
TO THE MEMBERS OF TWENTYFOUR SELECT MONTHLY INCOME FUND LIMITED
Report on the audit of the financial statements
Our opinion
In our opinion, the financial statements give a true and fair view of the
financial position of TwentyFour Select Monthly Income Fund Limited (the
"company") as at 30 September 2023, and of its financial performance and its
cash flows for the year then ended in accordance with International Financial
Reporting Standards and have been properly prepared in accordance with the
requirements of The Companies (Guernsey) Law, 2008.
What we have audited
The company's financial statements comprise:
? The statement of financial position as at 30 September 2023;
? the statement of comprehensive income for the year then ended;
? the statement of changes in equity for the year then ended;
? the statement of cash flows for the year then ended; and
? the notes to the financial statements, which include significant
accounting policies and other explanatory information.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
("ISAs"). Our responsibilities under those standards are further described in
the Auditor's responsibilities for the audit of the financial statements section
of our report.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Independence
We are independent of the company in accordance with the ethical requirements
that are relevant to our audit of the financial statements of the company, as
required by the Crown Dependencies' Audit Rules and Guidance. We have fulfilled
our other ethical responsibilities in accordance with these requirements.
Our audit approach
Overview
Audit scope
? The company is incorporated and based in Guernsey.
? We conducted our audit of the financial statements from information
provided by Northern Trust International Fund Administration Services
(Guernsey) Limited (the "Administrator") to whom the Board of directors (the
"Board") has delegated the administration functions. The company engages
TwentyFour Asset Management LLP (the "Portfolio Manager") to manage the
company's investment portfolio. We had significant interaction with both the
Administrator and the Portfolio Manager during our audit.
? We conducted all our audit work in Guernsey.
? We tailored the scope of our audit taking into account the types of
investments held by the company, the accounting processes and controls, and
the industry in which the company operates.
Key audit matters
· Valuation of investments
Materiality
? Overall materiality: £3.63 million
(2022: £3.03 million) based on 2% of net
assets.
? Performance materiality: £2.72
million (2022: £2.27 million).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks
of material misstatement in the financial statements. In particular, we
considered where the directors made subjective judgements; for example, in
respect of significant accounting estimates that involved making assumptions and
considering future events that are inherently uncertain. As in all of our
audits, we also addressed the risk of management override of internal controls,
including among other matters, consideration of whether there was evidence of
bias that represented a risk of material misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in the auditor's professional
judgement, were of most significance in the audit of the financial statements of
the current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) identified by the auditor, including
those which had the greatest effect on: the overall audit strategy; the
allocation of resources in the audit; and directing the efforts of the
engagement team. These matters, and any comments we make on the results of our
procedures thereon, were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide
a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
+-------------+----------------------------------------------------------------+
|Key audit |How our audit addressed the key audit matter |
|matter | |
+-------------+----------------------------------------------------------------+
|Valuation of | |
|Investments | |
+-------------+----------------------------------------------------------------+
|Investments |We obtained an understanding of and evaluated the internal |
|are |control environment in place at the Administrator and the |
|designated as|Portfolio Manager over the valuation of investments. |
|financial | |
|assets at |We assessed compliance of the accounting policy for investment |
|fair value |valuation with International Financial Reporting Standards. |
|through | |
|profit or |We independently repriced all of the company's investment |
|loss on the |portfolio using our asset pricing team. Prices were obtained by |
|statement of |the pricing team from a range of independent sources, including |
|financial |exchange traded and consensus prices: |
|position with| |
|a fair value |Where were unable to obtain independent prices or where initial |
|of £176.4 |tolerable variance thresholds per investment (i.e. the initial |
|million as at|threshold for differences between the prices reported and the |
|30 September |repricing obtained over which we undertake further |
|2023. |investigation), the engagement team sought and received |
| |supporting evidence for these specific prices from the |
|The company's|Administrator and/or the Portfolio Manager. |
|investment | |
|policy is to |In doing so, we also assessed the independence, reputation, and |
|invest in a |reliability of any sources of the supporting evidence provided |
|diversified |in these instances. All variances exceeding our tolerable |
|portfolio of |thresholds were evaluated based on supporting evidence obtained.|
|credit | |
|securities | |
|which are | |
|measured at |In order to determine the ongoing reliability of the investment |
|fair valued |valuations from year to year, we also, for a sample of |
|in accordance|investment disposals, compared the disposal price to the most |
|with the |recently recorded valuation prior to the disposal, which allowed|
|policies set |us to assess the reliability of the valuation data at that |
|out in note |point. |
|2(e) to the | |
|financial |Where during the year, the Portfolio Manager has engaged an |
|statements. |external third party expert to value level 3 investments: |
|The fair | |
|value of |We understood the valuation methodology. Selected a sufficient |
|investments |and appropriate sample and obtained the models directly from the|
|and movement |independent valuation expert for the selected sample; |
|therein are | |
|further |We understood how the inputs were derived and agreed the |
|disclosed in |valuation inputs, such as collateral loan amounts, interest |
|notes 9 and |rates and maturity dates to the underlying source data for the |
|17 |selected sample; |
|respectively | |
|to the |We assessed the appropriateness of the selected valuation |
|financial |methodology, being a discounted cash flow model; |
|statements. | |
| |With respect to the selected sample , we engaged our auditor's |
|Investments |expert to assess the methodology and assumptions (such as |
|represent a |prepayments, defaults and the discount rate) used by the |
|significant |independent valuation expert in determining the fair value of a |
|balance on |material investment. They also checked the mathematical accuracy|
|the statement|of the valuation models sampled; and |
|of financial | |
|position. To |We assessed the independence, reputation, competence and |
|determine the|objectivity of the independent valuation expert and reliability |
|fair value of|of their work through reviewing their terms of engagement, |
|these |industry research and discussion with our auditor's expert. |
|investments, | |
|the Portfolio|Based on our work performed, we did not identify any material |
|Manager | |
|obtains |matters to report to those charged with governance. |
|prices from | |
|independent | |
|price | |
|vendors. If | |
|these are | |
|unavailable, | |
|the Portfolio| |
|manager will | |
|obtain prices| |
|from third | |
|party brokers| |
|or dealers | |
|for the | |
|relevant | |
|investments | |
|which may be | |
|indicative | |
|rather than | |
|tradable. | |
|Where no | |
|third party | |
|price is | |
|available, | |
|the Portfolio| |
|Manager will | |
|determine the| |
|valuation | |
|based on | |
|either | |
|comparable | |
|arm's length | |
|transactions,| |
|referenced to| |
|other | |
|securities | |
|that are | |
|substantially| |
|the same, | |
|discounted | |
|cash flow | |
|analysis or | |
|other | |
|valuation | |
|techniques | |
|commonly used| |
|by market | |
|participants.| |
|During the | |
|year, the | |
|Portfolio | |
|Manager | |
|engaged an | |
|independent | |
|valuation | |
|expert to | |
|provide the | |
|valuation of | |
|the level 3 | |
|investments, | |
|these | |
|amounted to | |
|£5.59 million| |
|as at 30 | |
|September | |
|2023. | |
| | |
|Investment | |
|valuations | |
|are subject | |
|to estimates | |
|and | |
|assumptions | |
|underlying | |
|each security| |
|as detailed | |
|under note | |
|3(ii) to the | |
|financial | |
|statements. | |
| | |
|Owing to the | |
|level of | |
|subjectivity | |
|that could be| |
|applied in | |
|fair valuing | |
|investments, | |
|the risk of | |
|manipulation | |
|or error | |
|could be | |
|material and | |
|as a result | |
|we have | |
|designated | |
|the valuation| |
|of | |
|investments | |
|as a key | |
|audit matter.| |
+-------------+----------------------------------------------------------------+
| | |
+-------------+----------------------------------------------------------------+
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be
able to give an opinion on the financial statements as a whole, taking into
account the structure of the company the accounting processes and controls, and
the industry in which the company operates, and we considered the risk of
climate change and the potential impact thereof on our audit approach.
Materiality
The scope of our audit was influenced by our application of materiality. We set
certain quantitative thresholds for materiality. These, together with
qualitative considerations, helped us to determine the scope of our audit and
the nature, timing and extent of our audit procedures on the individual
financial statement line items and disclosures and in evaluating the effect of
misstatements, both individually and in aggregate on the financial statements as
a whole.
Based on our professional judgement, we determined materiality for the financial
statements as a whole as follows:
+-------------+--------------------------------------------------------------+
|Overall |£3.63 million (2022: £3.03 million) |
|materiality | |
+-------------+--------------------------------------------------------------+
|How we |2% of net assets |
|determined it| |
+-------------+--------------------------------------------------------------+
|Rationale for|We believe that net assets is the most appropriate benchmark |
|benchmark |because this is the key metric of interest to investors. It is|
|applied |also a generally accepted measure used for companies in this |
| |industry. |
+-------------+--------------------------------------------------------------+
We use performance materiality to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected misstatements
exceeds overall materiality. Specifically, we use performance materiality in
determining the scope of our audit and the nature and extent of our testing of
account balances, classes of transactions and disclosures, for example in
determining sample sizes. Our performance materiality was 75% (2022: 75%) of
overall materiality, amounting to £2.72 million (2022: £2.27 million) for the
company financial statements.
In determining the performance materiality, we considered a number of factors -
the history of misstatements, risk assessment and aggregation risk and the
effectiveness of controls - and concluded that an amount at the upper end of our
normal range was appropriate.
We agreed with the Audit Committee that we would report to them misstatements
identified during our audit above £181,500 (2022: £151,000) as well as
misstatements below that amount that, in our view, warranted reporting for
qualitative reasons.
Reporting on other information
The other information comprises all the information included in the Annual
Report and Audited Financial Statements (the "Annual Report") but does not
include the financial statements and our auditor's report thereon. Our opinion
on the financial statements does not cover the other information and we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is
to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be materially
misstated. If, based on the work we have performed, we conclude that there is a
material misstatement of this other information, we are required to report that
fact. We have nothing to report based on these responsibilities.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors' Responsibilities, the
directors are responsible for the preparation of the financial statements that
give a true and fair view in accordance with International Financial Reporting
Standards, the requirements of Guernsey law and for such internal control as the
directors determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or
error.
In preparing the financial statements, the directors are responsible for
assessing the company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the company or to
cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to fraud
or error, and to issue an auditor's report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these financial
statements.
Our audit testing might include testing complete populations of certain
transactions and balances, possibly using data auditing techniques. However, it
typically involves selecting a limited number of items for testing, rather than
testing complete populations. We will often seek to target particular items for
testing based on their size or risk characteristics. In other cases, we will use
audit sampling to enable us to draw a conclusion about the population from which
the sample is selected.
As part of an audit in accordance with ISAs, we exercise professional judgement
and maintain professional scepticism throughout the audit. We also:
? Identify and assess the risks of material misstatement of the financial
statements, whether due to fraud or error, design and perform audit procedures
responsive to those risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
? Obtain an understanding of internal control relevant to the audit in
order to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
company's internal control.
? Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made by the
directors.
? Conclude on the appropriateness of the directors' use of the going
concern basis of accounting and, based on the audit evidence obtained, whether a
material uncertainty exists related to events or conditions that may cast
significant doubt on the company's ability to continue as a going concern over a
period of at least twelve months from the date of approval of the financial
statements. If we conclude that a material uncertainty exists, we are required
to draw attention in our auditor's report to the related disclosures in the
financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date
of our auditor's report. However, future events or conditions may cause the
company to cease to continue as a going concern.
? Evaluate the overall presentation, structure and content of the
financial statements, including the disclosures, and whether the financial
statements represent the underlying transactions and events in a manner that
achieves fair presentation.
We communicate with those charged with governance regarding, among other
matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide those charged with governance with a statement that we have
complied with relevant ethical requirements regarding independence, and to
communicate with them all relationships and other matters that may reasonably be
thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine
those matters that were of most significance in the audit of the financial
statements of the current period and are therefore the key audit matters. We
describe these matters in our auditor's report unless law or regulation
precludes public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be communicated in our
report because the adverse consequences of doing so would reasonably be expected
to outweigh the public interest benefits of such communication.
Use of this report
This report, including the opinions, has been prepared for and only for the
members as a body in accordance with Section 262 of The Companies (Guernsey)
Law, 2008 and for no other purpose. We do not, in giving these opinions, accept
or assume responsibility for any other purpose or to any other person to whom
this report is shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
Report on other legal and regulatory requirements
Company Law exception reporting
Under The Companies (Guernsey) Law, 2008 we are required to report to you if, in
our opinion:
? we have not received all the information and explanations we require
for our audit;
? proper accounting records have not been kept; or
? the financial statements are not in agreement with the accounting
records.
We have no exceptions to report arising from this responsibility.
Corporate governance statement
The Listing Rules require us to review the directors' statements in relation to
going concern, longer-term viability and that part of the corporate governance
statement relating to the company's compliance with the provisions of the UK
Corporate Governance Code specified for our review. Our additional
responsibilities with respect to the corporate governance statement as other
information are described in the Reporting on other information section of this
report.
The company has reported compliance against the 2019 AIC Code of Corporate
Governance (the "Code") which has been endorsed by the UK Financial Reporting
Council as being consistent with the UK Corporate Governance Code for the
purposes of meeting the company's obligations, as an investment company, under
the Listing Rules of the FCA.
Based on the work undertaken as part of our audit, we have concluded that each
of the following elements of the corporate governance statement ,included within
the Strategic Report and Directors' Report is materially consistent with the
financial statements and our knowledge obtained during the audit, and we have
nothing material to add or draw attention to in relation to:
? The directors' confirmation that they have carried out a robust
assessment of the emerging and principal risks;
? The disclosures in the Annual Report that describe those principal risks,
what procedures are in place to identify emerging risks and an explanation of
how these are being managed or mitigated;
? The directors' statement in the financial statements about whether they
considered it appropriate to adopt the going concern basis of accounting in
preparing them, and their identification of any material uncertainties to the
company's ability to continue to do so over a period of at least twelve months
from the date of approval of the financial statements;
? The directors' explanation as to their assessment of the company's
prospects, the period this assessment covers and why the period is appropriate;
and
? The directors' statement as to whether they have a reasonable expectation
that the company will be able to continue in operation and meet its liabilities
as they fall due over the period of its assessment, including any related
disclosures drawing attention to any necessary qualifications or assumptions.
Our review of the directors' statement regarding the longer-term viability of
the company was substantially less in scope than an audit and only consisted of
making inquiries and considering the directors' process supporting their
statements; checking that the statements are in alignment with the relevant
provisions of the Code; and considering whether the statement is consistent with
the financial statements and our knowledge and understanding of the company and
its environment obtained in the course of the audit.
In addition, based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the corporate governance
statement is materially consistent with the financial statements and our
knowledge obtained during the audit:
? The directors' statement that they consider the Annual Report, taken as a
whole, is fair, balanced and understandable, and provides the information
necessary for the members to assess the company's position, performance,
business model and strategy;
? The section of the Annual Report that describes the review of
effectiveness of risk management and internal control systems; and
? The section of the Annual Report describing the work of the Audit
Committee.
We have nothing to report in respect of our responsibility to report when the
directors' statement relating to the company's compliance with the Code does not
properly disclose a departure from a relevant provision of the Code specified
under the Listing Rules for review by the auditors.
Adrian Peacegood
For and on behalf of PricewaterhouseCoopers CI LLP
Chartered Accountants and Recognised Auditor
Guernsey, Channel Islands
15 December 2023
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 September 2023
Year ended Year ended
30.09.23 30.09.22
Notes £ £
Income
Interest income on 17,719,752 13,375,971
financial assets
at fair value
through profit and
loss
Net foreign 8 4,130,260 (5,453,122)
currency
gains/(losses)
Net gains/(losses) 9 7,278,794 (43,018,772)
on financial
assets at fair
value through
profit
or loss
Net gains on - 1,720,253
interest rate
swaps
Total 29,128,806 (33,375,670)
income/(loss)
Expenses
Portfolio 14 (1,306,509) (1,290,172)
management fees
Directors' fees 14 (146,076) (128,190)
Administration 15 (122,003) (121,010)
fees
AIFM management 15 (82,178) (81,607)
fees
Audit fees (109,250) (96,500)
Custody fees 15 (20,281) (17,457)
Broker fees (50,446) (50,000)
Depositary fees 15 (28,623) (28,303)
Legal and other (50,634) (25,415)
professional fees
Other expenses (271,168) (235,706)
Total expenses (2,187,168) (2,074,360)
Total 26,941,638 (35,450,030)
comprehensive
income/(loss) for
the year*
Earnings/(loss) 4 0.114 (0.174)
per Ordinary Share
-
Basic & Diluted
All items in the above statement derive from continuing operations.
The accompanying notes are an integral part of these Financial Statements.
*There was no other comprehensive income during the year.
STATEMENT OF FINANCIAL POSITION
As at 30 September 2023
30.09.23 30.09.22
Assets Notes £ £
Current assets
Financial assets at fair
value through profit and loss
- Investments 9 176,435,682 148,915,038
- Derivative assets: Forward 16 373 778
currency contracts
Amounts due from broker 591,537 855,647
Other receivables 10 3,770,602 3,084,550
Cash and cash equivalents 5,302,091 674,776
Total current assets 186,100,285 153,530,789
Liabilities
Current liabilities
Amounts due to broker 937,392 -
Other payables 11 1,662,752 444,657
Financial liabilities at fair
value through profit and loss
- Derivative liabilities: 16 1,811,101 1,751,254
Forward currency contracts
Total current liabilities 4,411,245 2,195,911
Total net assets 181,689,040 151,334,878
Equity
Share capital account 12 219,836,492 201,561,499
Retained earnings (38,147,452) (50,226,621)
Total equity 181,689,040 151,334,878
Ordinary Shares in issue 12 240,824,331 216,213,518
Net Asset Value per Ordinary 6 75.44 69.99
Share (pence)
The Financial Statements were approved by the Board of Directors on 14 December
2023 and signed on its behalf by:
Ashley PaxtonSharon Parr
ChairmanDirector
The accompanying notes are an integral part of these Financial Statements.
STATEMENT OF CHANGES IN EQUITY
For the year ended 30 September 2023
Share Retained
capital
account earnings Total
Note £ £ £
Balance at 1 201,561,499 (50,226,621) 151,334,878
October 2022
Issue of 21,160,665 - 21,160,665
shares
Share issue (248,637) - (248,637)
costs
Repurchased (2,497,538) - (2,497,538)
tendered
shares in
treasury
Income 5 (139,497) 139,497 -
equalisation
on new issues
Dividends - (15,001,966) (15,001,966)
paid
Total - 26,941,638 26,941,638
comprehensive
income for
the year
Balance at 30 219,836,492 (38,147,452) 181,689,040
September
2023
Share Retained
capital
account earnings Total
Note £ £ £
Balance at 1 179,677,592 (1,674,367) 178,003,225
October 2021
Issue of 22,233,683 - 22,233,683
shares
Share issue (261,324) - (261,324)
costs
Income 5 (88,452) 88,452 -
equalisation
on new issues
Dividends - (13,190,676) (13,190,676)
paid
Total - (35,450,030) (35,450,030)
comprehensive
loss for the
year
Balance at 30 201,561,499 (50,226,621) 151,334,878
September
2022
The accompanying notes are an integral part of these Financial Statements.
STATEMENT OF CASH FLOWS
For the year ended 30 September 2023
Year ended Year ended
30.09.23 30.09.22
Notes £ £
Cash flows from operating activities
Total comprehensive income/(loss) for 26,941,638 (35,450,030)
the year
Adjustments for:
Net (gains)/losses on financial 9 (7,278,794) 43,018,772
assets at fair value through profit
or loss
Net (gains) on interest rate swaps - (1,720,253)
Amortisation adjustment under 9 (2,243,398) (1,607,825)
effective interest rate method
Unrealised losses on forward currency 8 60,252 869,828
contracts
Exchange loss/(gain) on cash and cash 3,335 (5,253)
equivalents
Increase in other receivables 10 (686,052) (512,134)
Increase/(decrease) in other payables 11 13,973 (6,965)
Purchase of investments (51,463,187) (74,507,758)
Sale of investments 34,666,237 56,703,262
Sales of interest rate swaps - 1,720,253
Net cash generated from/(used in) 14,004 (11,498,103)
operating activities
Cash flows from financing activities
Proceeds from issue of ordinary 12 21,160,665 22,720,033
shares
Payment for purchase of own shares to 12 (2,497,538) -
treasury
Share issue costs 12 (248,637) (261,324)
Dividends paid (13,797,844) (13,190,676)
Net cash generated from financing 4,616,646 9,268,033
activities
Increase/(decrease) in cash and cash 4,630,650 (2,230,070)
equivalents
Cash and cash equivalents at 674,776 2,899,593
beginning of year
Exchange (loss)/gain on cash and cash (3,335) 5,253
equivalents
Cash and cash equivalents at end of 5,302,091 674,776
year
The accompanying notes are an integral part of these Financial Statements.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2023
1.General information
TwentyFour Select Monthly Income Fund Limited (the "Company") was incorporated
with limited liability in Guernsey, as a closed-ended investment company on 12
February 2014. The Company's Shares were listed with a Premium Listing on the
Official List of the UK Listing Authority and admitted to trading on the Main
Market of the London Stock Exchange ("LSE") on 10 March 2014.
The investment objective and policy is set out in the Summary Information.
The Portfolio Manager of the Company is TwentyFour Asset Management LLP (the
"Portfolio Manager").
2.Principal accounting policies
a) Basis of preparation and statement of compliance
The Financial Statements have been prepared in accordance with International
Financial Reporting Standards ("IFRS") as issued by the International Accounting
Standards Board ("IASB") and are in compliance with The Companies (Guernsey)
Law, 2008.
b) Presentation of information
The Financial Statements have been prepared on a going concern basis under the
historical cost convention adjusted to take account of the revaluation of the
Company's financial assets and liabilities at fair value through profit or loss.
Additional commentary on going concern is in the Directors' Report.
c) Standards, amendments and interpretations effective during the year
The following standards, interpretations and amendments were adopted for the
year ended 30 September 2023:
IFRS 9 Financial Instruments (Annual Improvements to IFRS Standards 2018-2020)
(Effective 1 January 2022)
The amendment clarifies the fees a company includes when assessing whether the
terms of a new or modified financial liability are substantially different from
the terms of the original financial liability. The adoption of this standard has
not had a material impact on the financial statements of the Company.
Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets
(Effective 1 January 2022)
The amendment specifies which costs a company includes when assessing whether a
contract will be loss-making. The adoption of this standard has not had a
material impact on the financial statements of the Company.
There are no other standards, amendments and interpretations effective during
the year that are deemed material to the Company.
d) Standards, amendments and interpretations issued but not yet effective
At the reporting date of these Financial Statements, the following standards,
interpretations and amendments, which have not been applied in these Financial
Statements, were in issue but not yet effective:
IFRS 17 Insurance Contracts (Effective 1 January 2023)
The Company expects that the adoption of IFRS 17 in the future period will not
have an impact on the Company's financial statements, as it does not hold or
issue any insurance contracts.
Definition of Accounting Estimates (Amendments to IAS 8) (Effective 1 January
2023)
The definition of a change in accounting estimates is replaced with a definition
of accounting estimates. Under the new definition, accounting estimates are
"monetary amounts in financial statements that are subject to measurement
uncertainty". A change in accounting estimate that results from new information
or new developments is not the correction of an error. In addition, the effects
of a change in an input or a measurement technique used to develop an accounting
estimate are changes in accounting estimates if they do not result from the
correction of prior period errors. A change in an accounting estimate may affect
only the current period's profit or loss, or the profit or loss of both the
current period and future periods. The effect of the change relating to the
current period is recognised as income or expense in the current period. The
effect, if any, on future periods is recognised as income or expense in those
future periods.
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice
Statement 2) (Effective 1 January 2023)
An entity is now required to disclose its material accounting policy information
instead of its significant accounting policies. Explanation has been added
regarding how an entity can identify material accounting policy information and
to give examples of when accounting policy information is likely to be material.
Accounting policy information may be material because of its nature, even if the
related amounts are immaterial. Accounting policy information is material if
users of an entity's financial statements would need it to understand other
material information in the financial statements. If an entity discloses
immaterial accounting policy information, such information shall not obscure
material accounting policy information.
Classification of Liabilities as Current or Non-Current (Amendments to IAS 1)
(Effective 1 January 2024)
The amendments aim to promote consistency in applying the requirements by
helping companies determine whether, in the statement of financial position,
debt and other liabilities with an uncertain settlement date should be
classified as current (due or potentially due to be settled within one year) or
non-current. The amendments include clarifying the classification requirements
for debt a company might settle by converting it into equity.
The Board anticipates that the adoption of these standards, which will be
adopted in the period which they become effective, will not have a material
impact on the Company's financial statements.
e) Financial assets and financial liabilities at fair value through profit or
loss
Classification
The Company classifies its investments in debt securities and derivatives as
financial assets and liabilities at fair value through profit or loss.
Financial assets and financial liabilities designated at fair value through
profit or loss at inception are managed and their performance is evaluated on a
fair value basis in accordance with the Company's investment objective, which is
to generate attractive risk adjusted returns, principally through income
distributions, by investing in a diversified portfolio of credit securities per
IFRS 9.
The Company's policy requires the Portfolio Manager and the Board of Directors
to evaluate the information about these financial assets and liabilities on a
fair value basis together with other related financial information.
Recognition, derecognition and measurement
Regular purchases and sales of investments (securities and derivatives) are
recognised on the trade date, that is, the date on which the Company commits to
purchase or sell the investment. Financial assets and financial liabilities at
fair value through profit or loss are initially recognised at fair value.
Transaction costs are expensed as incurred in the Statement of Comprehensive
Income. Financial assets are derecognised when the rights to receive cash flows
from the investments have expired or the Company has transferred substantially
all risks and rewards of ownership. Financial liabilities are derecognised when
they are extinguished, discharged, cancelled or expired.
The Company may invest in any category of credit security, including, without
prejudice to the generality of the foregoing, bank capital, corporate bonds,
high yield bonds, leveraged loans, payment-in-kind notes and asset-backed
securities. The Company records any principal repayments as they arise and
realises a gain or loss in the net gains on financial assets at fair value
through profit or loss in the Statement of Comprehensive Income in the period in
which they occur.
The interest income arising on these credit securities is recognised on a time
-proportionate basis using the effective interest rate method and shown within
income in the Statement of Comprehensive Income.
Fair value estimation
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. The fair value of financial assets and liabilities traded
in active markets (such as publicly traded derivatives and trading securities)
are based on quoted market prices at the close of trading on the reporting date.
i) Credit securities traded or dealt on an active market or exchange
Credit securities that are traded or dealt on an active market or exchange are
valued by reference to their quoted mid-market price as at the close of trading
on the reporting date as the Portfolio Manager deems the mid-market price to be
a reasonable approximation of an exit price.
ii) Credit securities not traded or dealt on an active market or exchange
Credit securities which are not traded or dealt on active markets or exchanges
are valued by reference to their mid-price, as at the close of business on the
reporting date as determined by pricing Service Providers that use broker dealer
quotations, reported trades or valuation estimates from their internal pricing
models. If a price cannot be obtained from an independent price vendor, or where
the Portfolio Manager determines that the provided price is not an accurate
representation of the fair value of the Credit security, the Portfolio Manager
will source mid-price quotes at the close of business on the reporting date from
independent third party brokers/dealers for the relevant security. If no mid
-price is available then a bid-price will be used.
In cases where no third party price is available (either from an independent
price vendor or independent third party brokers/dealers), or where the Portfolio
Manager determines that the provided price is not an accurate representation of
the fair value of the Credit security, the Portfolio Manager may use a third
party valuation in line with the fair value policy of the Company. This may
include the use of a comparable arm's length transaction, independent third
party valuation experts, reference to other securities that are substantially
the same, discounted cash flow analysis and other valuation techniques commonly
used by market participants making the maximum use of market inputs and relying
as little as possible on entity-specific inputs.
Forward foreign currency contracts
Forward foreign currency contracts are derivative contracts and as such are
recognised at fair value on the date on which they are entered into and
subsequently measured at their fair value. Fair value is determined from
underlying asset prices indices, reference rates and other observable inputs.
These instruments are normally valued by pricing Service Providers or by
utilising broker or dealer quotations. All forward foreign currency contracts
are carried as assets when fair value is positive and as liabilities when fair
value is negative. Gains and losses on forward currency contracts are recognised
as part of net foreign currency gains in the Statement of Comprehensive Income.
Expected credit loss
Financial assets that are stated at cost or amortised cost are reviewed at each
reporting date in line with the expected credit loss policy. An expected credit
loss is recognised in the Statement of Comprehensive Income as the difference
between the carrying value and the estimated recoverable value of the financial
assets.
The expected credit loss ("ECL") model applies to financial assets measured at
amortised cost and the standard mandates the use of the simplified approach to
calculating the expected credit losses for amounts due from broker and other
receivables. The ECL calculation is based on the Company's historical default
rates over the expected life of the trade receivables. Given the historical
level of defaults on trade receivables, there is a negligible impact because of
the lifetime expected credit loss to be recognised.
Cash and cash equivalents are also subject to the ECL requirements of IFRS 9 and
the ECL is assessed as immaterial.
Swap contracts are derivative contracts and as such are recognised at fair value
on the date on which they are entered into and subsequently measured at their
fair value. All swap contracts are carried as assets when fair value is positive
and as liabilities when fair value is negative. Gains and losses on swap
contracts are recognised as part of net gains on derivative assets - swap
contracts in the Statement of Comprehensive Income.
f) Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the
Statement of Financial Position when there is a legally enforceable right to
offset the recognised amounts and there is an intention to settle on a net basis
or realise the asset and settle the liability simultaneously. Derivatives are
not settled on a net basis and therefore derivative assets and liabilities are
shown gross.
g) Amounts due from and due to brokers
Amounts due from and to brokers represent receivables for securities sold and
payables for securities purchased that have been contracted for but not yet
settled or delivered on the Statement of Financial Position date, respectively.
These amounts are recognised initially at fair value and subsequently measured
at amortised cost using the effective interest rate method.
h) Interest income
Interest income is recognised on a time-proportionate basis using the effective
interest rate method. Discounts received or premiums paid in connection with the
acquisition of credit securities are amortised into interest income using the
effective interest rate method over the expected life of the related security.
The effective interest rate method is a method of calculating the amortised cost
of a financial asset or financial liability and of allocating the interest
income or interest expense over the relevant period. The effective interest rate
is the rate that exactly discounts estimated future cash payments or receipts
throughout the expected life of the financial instrument, or, when appropriate,
a shorter period, to the net carrying amount of the financial asset or financial
liability.
When calculating the effective interest rate, the Portfolio Manager estimates
cash flows considering the expected life of the financial instrument, including
future credit losses and deferred interest payments. The calculation includes
all fees and amounts paid or received between parties to the contract that are
an integral part of the effective interest rate and all other premiums or
discounts.
i) Cash and cash equivalents
Cash and cash equivalents comprise deposits held at call with banks and other
short-term investments in an active market with original maturities of three
months or less and for purposes of cash and cash equivalents, less bank
overdrafts. Bank overdrafts are included in current liabilities in the Statement
of Financial Position.
j) Share capital
Ordinary Shares are classified as equity. Incremental costs directly
attributable to the issue of Ordinary Shares are shown in equity as a deduction,
net of tax, from the proceeds and disclosed in the Statement of Changes in
Equity.
Repurchased tendered shares are treated as a distribution of capital and
deducted from the Share Capital account. These shares are held in Treasury.
k) Retained earnings
Retained earnings consist of equalisation on issues of new shares, dividends
paid and total comprehensive income for the year.
l) Foreign currency translation
Functional and presentation currency
Items included in the Financial Statements are measured using sterling, the
currency of the primary economic environment in which the Company operates (the
"functional currency"). The Financial Statements are presented in sterling,
which is the Company's presentation currency.
Transactions and balances
Foreign currency transactions are translated into the functional currency using
the exchange rates prevailing at the dates of the transactions. Foreign currency
assets and liabilities are translated into the functional currency using the
exchange rate prevailing at the Statement of Financial Position date.
All foreign exchange gains and losses are presented in the Statement of
Comprehensive Income. Foreign exchange gains and losses relating to forward
currency contracts, receivables and payables are presented in the statement of
comprehensive income within `net foreign currency gains/(losses)'.
Foreign exchange gains and losses relating to investments are presented in the
Statement of Comprehensive Income within `Net gains/(losses) on financial assets
at fair value through profit or loss'.
m) Transaction costs
Transaction costs on financial assets and liabilities at fair value through
profit or loss include fees and commissions paid to agents, advisers, brokers
and dealers. Transaction costs, when incurred, are immediately recognised in the
Statement of Comprehensive Income.
n) Segment reporting
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker. The chief operating
decision-maker, who is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the Board. The
Directors are of the opinion that the Company is engaged in a single segment of
business, being investments in credit securities. The Directors manage the
business in this way. For additional information refer to note 18.
o) Expenses
All expenses are included in the Statement of Comprehensive Income on an
accruals basis and are recognised through profit or loss in the Statement of
Comprehensive Income.
p) Other receivables
Other receivables are amounts due in the ordinary course of business. If
collection is expected in one year or less, they are classified as current
assets. If not, they are presented as non-current assets. Other receivables are
recognised initially at fair value and subsequently measured at amortised cost
using the effective interest rate method, less expected credit losses.
q) Other payables
Other payables are obligations to pay for services that have been acquired in
the ordinary course of business. Other payables are classified as current
liabilities if payment is due within one year or less. If not, they are
presented as non-current liabilities. Other payables are recognised initially at
fair value and subsequently measured at amortised cost using the effective
interest rate method.
r) Dividends paid
Dividend distributions due to the Company's Shareholders are recognised as
liabilities in the Company's financial statements and disclosed in the Statement
of Changes in Equity in the period in which the dividends are approved by the
Board.
s) Income equalisation on new issues/tendered shares repurchased
In order to ensure there are no dilutive effects on earnings per share for
current Shareholders when issuing new shares, or when repurchasing tendered
shares, a transfer is made between share capital and other reserves to reflect
that amount of income included in the purchase price of the new shares or the
repurchase price of the tendered shares.
t) Treasury shares
The Company has the right to issue and purchase up to 14.99% of the total number
of its own shares, as disclosed in note 12.
Shares held in Treasury are excluded from calculations when determining
earnings/(loss) per Ordinary Share or Net Asset Value per Ordinary Share as
detailed in notes 4 and 6.
3.Significant accounting judgements, estimates and assumptions
The preparation of the Company's financial statements requires management to
make judgements, estimates and assumptions that affect the reported amounts of
revenues, expenses, assets and liabilities and the accompanying disclosures.
Uncertainty about these assumptions and estimates could result in outcomes that
require a material adjustment to the carrying amount of assets or liabilities
affected in future periods.
(i) Judgements
In the process of applying the Company's accounting policies, management has
made the following judgements, which have the most significant effect on the
amounts recognised in the Financial Statements:
Functional currency
As disclosed in note 2(l), the Company's functional currency is sterling.
Sterling is the currency in which the Company measures its performance and
reports its results. Where investments are dominated in other currencies, the
Portfolio Manager enters into hedging arrangements to translate the value of
those investments into sterling using spot and forward foreign exchange
contracts. Additionally, investors buy shares in and receive dividends from the
Company in sterling. Expenses incurred by the Company are also in sterling.
Consequently, the Directors believe that sterling best represents the functional
currency of the Company.
(ii) Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation
uncertainty at the reporting date, that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within the
next financial year, are described below. The Company based its assumptions and
estimates on parameters available when the Financial Statements were prepared.
Existing circumstances and assumptions about future developments, however, may
change due to market changes or circumstances arising which are beyond the
control of the Company. Such changes are reflected in the assumptions when they
occur.
a) Fair value of securities not quoted in active markets
The Company carries its investments in credit securities at fair value, with
changes in value being recognised in the Statement of Comprehensive Income. In
cases where prices of credit securities are not quoted in an active market, the
Portfolio Manager will obtain prices determined at the close of business on the
reporting date from an independent price vendor. The Portfolio Manager exercises
its judgement on the quality of the independent price vendor and information
provided. If a price cannot be obtained from an independent price vendor or
where the Portfolio Manager determines that the provided price is not an
accurate representation of the fair value of the credit security, the Portfolio
Manager will source prices from independent third party brokers or dealers for
the relevant security, which may be indicative rather than tradable. Where no
third party price is available, or where the Portfolio Manager determines that
the third party quote is not an accurate representation of the fair value, the
Portfolio Manager will determine the valuation based on the Portfolio Manager's
valuation policy. This may include the use of a comparable arm's length
transaction, independent valuation experts, reference to other securities that
are substantially the same, discounted cash flow analysis and other valuation
techniques commonly used by market participants making the maximum use of market
inputs and relying as little as possible on entity-specific inputs.
No credit securities were priced by the Portfolio Manager during the year or any
previous year. There has been no change to the accounting policy applied to how
these investments have been valued (see notes 2 and 3) but the use of an
independent third party valuation expert was used to value approximately 3.2% of
the Company's investments at 30 September 2023 (30 September 2022: 2.7%). See
note 16 for price sensitivity analysis and details of interest rate risk.
b) Estimated life of credit securities
In determining the estimated life of the credit securities held by the Company,
the Portfolio Manager estimates the remaining life of the security with respect
to expected prepayment rates, default rates and loss rates together with other
information available in the market underlying the security. The estimated life
of the credit securities, as determined by the Portfolio Manager, impacts the
effective interest rate of the credit securities which in turn impacts the
calculation of income as discussed in note 2(h).
c) Determination of observable inputs
As discussed in note 17, when determining the levels of investments within the
fair value hierarchy, the determination of what constitutes `observable'
requires significant judgement by the Company. The Company considers observable
data to be market data that is readily available, regularly distributed or
updated, reliable and verifiable, not proprietary, and provided by independent
sources that are actively involved in the relevant market.
d) Revenue recognition
Interest income is recognised on a time-proportionate basis using the effective
interest rate method. Discounts received or premiums paid in connection with the
acquisition of credit securities are amortised into interest income using the
effective interest rate method over the expected life of the related security.
When calculating the effective interest rate, the Portfolio Manager estimates
cash flows considering the expected life of the financial instrument, including
future credit losses and deferred interest payments. The calculation includes
all fees and amounts paid or received between parties to the contract that are
an integral part of the effective interest rate and all other premiums or
discounts.
Revenue estimations are sensitive to changes in interest income resulting from
financial instruments defaulting. Interest income represents management's best
estimate having regard to historical volatility and looking forward at the
global environment.
4.Earnings/(loss) per Ordinary Share - basic & diluted
The earnings per Ordinary Share basic and diluted of 11.4p (30 September 2022:
loss of 17.4p) has been calculated based on the weighted average number of
Ordinary Shares of 235,949,235 (30 September 2022: 203,323,245) and a net income
for the year of £26,941,638 (30 September 2022: net loss of £35,450,030). As at
30 September 2023, the Company has 3,949,187 Ordinary Shares in Treasury. As
these will only be issued at a premium, there will be no diluted impact on
earnings per share.
5. Income on equalisation of new issues/tendered shares repurchased
In order to ensure there were no dilutive effects on earnings per share for
current Shareholders when issuing new shares, or when repurchasing tendered
shares, earnings have been calculated in respect of the accrued income at the
time of purchase of new shares/repurchase of tendered shares and a transfer has
been made from share capital to income to reflect this. The transfer for the
year amounted to £139,497 (30 September 2022: £88,452).
6.Net asset value per Ordinary Share
The net asset value of each Share of 75.44p (30 September 2022: 69.99p) is
determined by dividing the total net assets of the Company of £181,689,040 (30
September 2022: £151,334,878) by the number of Shares in issue at 30 September
2023 of 240,824,331 (30 September 2022: 216,213,518).
7. Taxation
The Company has been granted Exempt Status under the terms of The Income Tax
(Exempt Bodies) (Guernsey) Ordinance, 1989 to income tax in Guernsey. Its
liability for Guernsey taxation is limited to an annual fee of £1,200 (30
September 2022: £1,200). The activities of the Company do not constitute
relevant activities as defined by the Income Tax (Substance Requirements)
(Implementation) Regulations, 2018 (as amended) and as such the Company was out
of scope.
8. Net foreign currency gains/(losses)
Year ended Year ended
30.09.23 30.09.22
£ £
Movement in (60,252) (869,828)
net
unrealised
losses on
forward
currency
contracts
Realised 5,988,979 (6,463,419)
gains/(losse
s) on
forward
currency
contracts
Realised (1,767,408) 1,833,144
currency
(losses)/gai
ns on
receivables/
payables
Unrealised (31,059) 46,981
currency
(losses)/gai
ns on
receivables/
payables
4,130,260 (5,453,122)
9. Investments
As at As
at
30.09.23
30.09.22
£ £
Financial
assets at
fair value
through
profit and
loss:
Opening 181,626,982
166,830,696
amortised
cost
Purchases at 64,093,087
72,079,175
cost
Proceeds on (46,094,635)
(57,405,301)
sale/principa
l repayment
Amortisation 2,243,398
1,607,825
adjustment
under
effective
interest
rate method
Realised 1,764,090
8,112,896
gain on
sale/principa
l repayment
Realised (7,581,796)
(9,598,309)
loss on
sale/principa
l repayment
Closing 196,051,126
181,626,982
amortised
cost
Unrealised 1,278,651 695,135
gain on
investments
Unrealised (20,894,095)
(33,407,079)
loss on
investments
Fair value 176,435,682
148,915,038
Year ended
Year ended
30.09.23
30.09.22
£ £
Realised 1,764,090
8,112,896
gain on
sale/principa
l repayment
Realised (7,581,796)
(9,598,309)
loss on
sale/principa
l repayment
Increase/(dec 583,516
(11,980,997)
rease) in
unrealised
gain
Decrease/(inc 12,512,984
(29,552,362)
rease) in
unrealised
loss
Net 7,278,794
(43,018,772)
gain/(loss)
on financial
assets at
fair value
through
profit or
loss
10. Other receivables
As at As at
30.09.23 30.09.22
£ £
Interest income receivable 3,616,445 2,972,574
Prepaid expenses 37,180 11,628
Dividends receivable 99,781 100,348
Other receivable 17,196 -
3,770,602 3,084,550
There are no material expected credit losses for interest income receivable as
at 30 September 2023.
11. Other payables
As at As at
30.09.23 30.09.22
£ £
Portfolio management fees payable 141,472 231,970
Directors' fees payable 848 -
Administration fees payable 62,010 59,267
AIFM management fees payable 34,120 11,860
Audit fees payable 109,250 74,195
Other expenses payable 109,133 59,838
Custody fees payable 1,797 1,112
Share issue costs payable - 6,415
Dividends payable 1,204,122 -
1,662,752 444,657
12.Share capital account
Authorised share capital
The Directors may issue an unlimited number of Ordinary Shares at par value of
1p per share.
Issued share capital
As at As at
30.09.23 30.09.22
£ £
Ordinary Shares
Share capital 201,561,499 179,677,592
account at the
beginning of the
year
Issue of shares 21,160,665 22,233,683
Share issue costs (248,637) (261,324)
Purchase of own (2,497,538) -
shares into
treasury
Income (139,497) (88,452)
equalisation on
new issues
Total share 219,836,492 201,561,499
capital account at
the end of the
year
Reconciliation of number of Shares
30.09.23 30.09.22
Shares Shares
Ordinary Shares
Shares at the beginning of the year 216,213,518 190,738,518
Issue of shares 28,050,000 25,475,000
Purchase of own shares into treasury (3,439,187) -
Total Shares in issue at the end of the year 240,824,331 216,213,518
The Ordinary Shares carry the following rights:
a) The Ordinary Shares carry the right to receive all income of the
Company attributable to the Ordinary Shares.
b) The Shareholders present in person or by proxy or present by a
duly authorised representative at a general meeting has, on a show of hands, one
vote and, on a poll, one vote for each Share held.
The Company has the right to issue and purchase up to 14.99% of the total number
of its own shares at £0.01 each, to be classed as Treasury Shares and may cancel
those Shares or hold any such Shares as Treasury Shares, provided that the
number of Shares held as Treasury Shares shall not at any time exceed 10% of the
total number of Shares of that class in issue at that time or such amount as
provided in the Companies Law.
The Company held 3,439,187 shares in Treasury as at 30 September 2023 (30
September 2022: Nil).
13.Analysis of financial assets and liabilities by measurement basis as per
Statement of Financial Position
Financial
assets at fair
Amortised
value through
profit and loss
cost Total
£
£ £
30 September 2023
Financial Assets
Financial assets at fair value through profit and loss
- Investments
- Corporate bonds 114,210,465
- 114,210,465
- Asset-backed securities 62,225,217
- 62,225,217
- Derivative assets: Forward currency contracts 373
- 373
Amounts due from broker -
591,537 591,537
Other receivables (excluding prepaid expenses) -
3,733,422 3,733,422
Cash and cash equivalents -
5,302,091 5,302,091
176,436,055
9,627,050 186,063,105
Financial
liabilities at fair
value through
Amortised
profit and loss
cost Total
£
£ £
30 September 2023
Financial Liabilities
Amounts due to broker -
937,392 937,392
Other payables -
1,662,752 1,662,752
Financial liabilities at fair value through profit and loss
- Derivative liabilities: Forward currency contracts 1,811,101
- 1,811,101
1,811,101
2,600,144 4,411,245
Financial
assets at fair
value through
Amortised
profit and loss
cost Total
£
£ £
30 September 2022
Financial Assets
Financial assets at fair value through profit and loss
- Investments
- Corporate bonds 95,890,726
- 95,890,726
- Asset-backed securities 53,024,312
- 53,024,312
- Derivative assets: Forward currency contracts 778
- 778
Amounts due from broker -
855,647 855,647
Other receivables (excluding prepaid expenses) -
3,072,922 3,072,922
Cash and cash equivalents -
674,776 674,776
148,915,816
4,603,345 153,519,161
Financial
liabilities at fair
value through
Amortised
profit and loss
cost Total
£
£ £
30 September 2022
Financial Liabilities
Other payables -
444,657 444,657
Financial liabilities at fair value through profit and loss
- Derivative liabilities: Forward currency contracts 1,751,254
- 1,751,254
1,751,254
444,657 2,195,911
14.Related parties
a) Directors' remuneration
The Directors of the Company are remunerated for their services at such a rate
as the Directors determine. The aggregate fees of the Directors will not exceed
£250,000.
The Directors' fees for the year and the outstanding fees at year end are as
follows:
30.09.23 30.09.22
£ £
Ashley Paxton (Chair of the Board)¹ 39,348 34,295
Sharon Parr (Audit and Risk Committee Chair)² 32,660 -
Wendy Dorey (MEC Chair)³ 23,613 -
Claire Whittet (resigned 11 August 2023) 38,063 44,000
Ian Martin (resigned 1 February 2023) 12,392 37,000
Christopher Legge (resigned 31 January 2022) - 12,895
Total 146,076 128,190
1 Ashley Paxton was appointed Chair of the Board on 11 August 2023.
2 Sharon Parr was appointed a Director on 1 November 2022 and as Chair of the
Audit and Risk Committee and the Remuneration and Nomination Committee on 11
August 2023.
3 Wendy Dorey was appointed a Director on 1 February 2023 and as Chair of the
Management Engagement Committee on 11 August 2023.
£848 of Directors' fees were outstanding as at 30 September 2023 (30 September
2022: £Nil).
b) Shares held by related parties
The Directors of the Company held the following shares beneficially:
30.09.23 30.09.22
Shares Shares
Ashley Paxton 100,000 22,500
Sharon Parr1 98,004 -
Wendy Dorey 2 15,000 -
Claire Whittet3 25,000 25,000
Ian Martin4 35,000 35,000
1 Sharon Parr was appointed on 1 November 2022.
2 Wendy Dorey was appointed on 1 February 2023.
3 Claire Whittet resigned on 11 August 2023.
4 Ian Martin resigned on 1 February 2023.
Directors are entitled to receive the dividends on any shares held by them
during the year. Dividends declared by the Company are set out in note 19.
As at 30 September 2023, separate fund entities for which the Portfolio Manager
is engaged to provide portfolio management services, collectively held 7,562,744
Shares (30 September 2022: 7,562,744 Shares) which is 3.14% (30 September 2022:
3.50%) of the Issued Share Capital. Partners and employees of the Portfolio
Manager, including their immediate family members, directly or indirectly held
4,993,523 Shares (30 September 2022: 5,064,515), which is 2.07% (30 September
2022: 2.34%) of the Issued Share Capital.
The Shares held by Directors and by partners and employees of the Portfolio
Manager are purchased in their own right on the open market and do not form part
of their remuneration paid by the Company.
The Portfolio Manager, partner and employee amounts therefore exclude Shares
held under any long-term incentive plan ("LTIP") which has not yet vested.
Shares that are held in employee and partner LTIPs total 536,141 (30 September
2022: 246,455), which is 0.22% of the Issued Share Capital (30 September 2022:
0.11%).
The amounts for the Portfolio Manager, its partners and employees are shown for
transparency purposes and are not considered transactions with related parties.
c) Portfolio Manager
The portfolio management fee is payable to the Portfolio Manager monthly in
arrears at a rate of 0.75% per annum of the lower of NAV, which is calculated
weekly on each valuation day, or market capitalisation of each class of shares.
Total portfolio management fees for the year amounted to £1,306,509 (30
September 2022: £1,290,172) of which £141,472 (30 September 2022: £231,970) is
payable at year end. The Portfolio Management Agreement dated 17 February 2014
remains in force until determined by the Company or the Portfolio Manager giving
the other party not less than twelve months' notice in writing. Under certain
circumstances, the Company or the Portfolio Manager is entitled to immediately
terminate the agreement in writing.
The Portfolio Manager is also entitled to a commission of 0.175% of the
aggregate gross offering proceeds in relation to any issue of new Shares,
following admission, in consideration of marketing services that it provides to
the Company. During the year, the Portfolio Manager earned £37,031 (30 September
2022: £38,986) in commission, which is charged as a cost of issuance.
15.Material agreements
a) Alternative Investment Fund Manager ("AIFM")
The Company's AIFM is Apex Fundrock Limited (previously called Maitland
Institutional Services Limited). In consideration for the services provided by
the AIFM under the AIFM Agreement, the AIFM is entitled to receive from the
Company a minimum fee of £20,000 per annum and fees payable quarterly in arrears
at a rate of 0.07% of the Net Asset Value of the Company below £50 million,
0.05% on Net Assets between £50 million and £100 million and 0.03% on Net Assets
in excess of £100 million. During the year, AIFM fees of £82,178 (30 September
2022: £81,607) were charged to the Company, of which £34,120 (30 September 2022:
£11,860) remained payable at the end of the year.
b) Administrator and Secretary
Administration fees are payable to Northern Trust International Fund
Administration Services (Guernsey) Limited monthly in arrears at a rate of 0.06%
of the Net Asset Value of the Company below £100 million, 0.05% on Net Assets
between £100 million and £200 million and 0.04% on Net Assets in excess of £200
million as at the last business day of the month subject to a minimum of £75,000
for each year. In addition, an annual fee of £25,000 will be charged for
corporate governance and company secretarial services. During the year,
administration and secretarial fees of £122,003 (30 September 2022: £121,010)
were charged to the Company, of which £62,010 (30 September 2022: £59,267)
remained payable at the end of the year.
c) Broker
For its services as the Company's broker, Deutsche Numis Limited (the "Broker")
is entitled to receive a retainer fee of £50,000 per annum and also a commission
of 1% on all tap issues. During the year, the Broker earned £211,607 (30
September 2022: £222,337) in commission, which is charged as a cost of issuance.
d) Depositary
Depositary's fees are payable to Northern Trust (Guernsey) Limited monthly in
arrears at a rate of 0.0175% of the NAV of the Company below £100 million,
0.0150% on Net Assets between £100 million and £200 million and 0.0125% on Net
Assets in excess of £200 million as at the last business day of the month
subject to a minimum of £25,000 for each year. During the year, depositary fees
of £28,623 (30 September 2022: £28,303) were charged to the Company, of which
£Nil (30 September 2022: £Nil) remained payable at the end of the year.
The Depositary is also entitled to a Global Custody fee of a minimum of £8,500
per annum plus transaction fees. Total Global Custody fees and charges for the
year amounted to £20,281 (30 September 2022: £17,457) of which £1,797 (30
September 2022: £1,112) is due and payable at the end of the year.
16.Financial risk management
The Company's activities expose it to a variety of financial risks: market risk
(including price risk, reinvestment risk, interest rate risk and foreign
currency risk), credit risk, liquidity risk and capital risk.
The Company's financial instruments include financial assets/liabilities at fair
value through profit or loss, cash and cash equivalents, amounts due to/from
broker, other receivables and other payables. The techniques and instruments
utilised for the purposes of efficient portfolio management are those which are
reasonably believed by the Board to be economically appropriate to the efficient
management of the Company.
Market risk
Market risk embodies the potential for both losses and gains and includes
foreign currency risk, interest rate risk, price risk and reinvestment risk. The
Company's strategy on the management of market risk is driven by the Company's
investment objective. The Company's investment objective is to generate
attractive risk adjusted returns principally through investment in credit
securities.
(i) Price risk
The underlying investments comprised in the portfolio are subject to price risk.
The Company is therefore at risk that market events may affect performance and
in particular may affect the value of the Company's investments which are valued
on a mark to market and mark to model basis. Price risk is risk associated with
changes in market prices or rates, including interest rates, availability of
credit, inflation rates, economic uncertainty, changes in laws, national and
international political circumstances. The Company's policy is to manage price
risk by holding a diversified portfolio of assets, through its investments in
credit securities.
The Company's policy also stipulates that at purchase, no more than 5% of the
portfolio value can be exposed to any single credit security or issuer of credit
securities.
The price of a credit security can be affected by a number of factors,
including: (i) changes in the market's perception of the underlying assets
backing the security; (ii) economic and political factors such as interest rates
and levels of unemployment and taxation which can have an impact on the arrears,
foreclosures and losses incurred with respect to the pool of assets backing the
security; (iii) changes in the market's perception of the adequacy of credit
support built into the security's structure to protect against losses caused by
arrears and foreclosures; (iv) changes in the perceived creditworthiness of the
originator of the security or any other third parties to the transaction; (v)
the speed at which mortgages or loans within the pool are repaid by the
underlying borrowers (whether voluntary or due to arrears or foreclosures).
Price sensitivity analysis
The following details the Company's sensitivity to movement in market prices.
The analysis is based on a 15%, 10% and 5% (30 September 2022: 15%, 10% and 5%)
increase or decrease in market prices. This represents management's best
estimate of a reasonable possible shift in market prices, having regard to
historical volatility.
At 30 September 2023, if the market prices had been 15%, 10% and 5% (30
September 2022: 15%, 10% and 5%) higher with all other variables held constant,
the increase in the net assets attributable to equity Shareholders would have
been £26,465,352, £17,643,568 and £8,821,784 respectively (30 September 2022:
£22,337,256, £14,891,504 and £7,445,752). The total comprehensive income for the
year would have also increased by the same amounts. An equal change in the
opposite direction would have decreased the net assets attributable to equity
Shareholders and total comprehensive income respectively. This price sensitivity
analysis covers the market prices received from price vendors, brokers and those
determined using models (such as discounted cash flow models) on the assumption
that the prices determined from these sources had moved by the indicated
percentages.
Actual trading results may differ from the above sensitivity analysis and those
differences may be material.
(ii) Reinvestment risk
Reinvestment risk is the risk that future coupons from a bond will not be
reinvested at the yield prevailing when the bond was initially purchased.
A key determinant of a bond's yield is the price at which it is purchased and,
therefore, when the market price of bonds generally increases, the yield of
bonds purchased generally decreases. As such, the overall yield of the
portfolio, and therefore the level of dividends payable to Shareholders, would
fall to the extent that the market prices of credit securities generally rise
and the proceeds of credit securities held by the Company that mature or are
sold are not able to be reinvested in credit securities with a yield comparable
to that of the portfolio as a whole. The Company assesses reinvestment risk on
at least a monthly basis by calculating the projected amortisation profile of
the Company across the next three years. In addition, changes in the Company's
yield and income are assessed over the same timeframe as bonds redeem or mature
to identify any periods where reinvestment risk may be more significant.
(iii) Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates
will affect the fair value of financial assets at fair value through profit or
loss.
The tables below summarise the Company's exposure to interest rate risk:
Floating rate Fixed
rate Non-interest bearing Total
As at 30 September 2023 £ £
£ £
Investments 61,673,658
114,762,024 - 176,435,682
Derivative assets: Forward currency contracts - -
373 373
Amounts due from broker - -
591,537 591,537
Other receivables excluding prepaid expenses - -
3,733,422 3,733,422
Cash and cash equivalents 5,302,091 -
- 5,302,091
Derivative liabilities: Forward currency contracts - -
(1,811,101) (1,811,101)
Amounts due to broker - -
(937,392) (937,392)
Other payables - -
(1,662,752) (1,662,752)
Net current assets/(liabilities) 66,975,749
114,762,024 (85,913) 181,651,860
Floating rate Fixed
rate Non-interest bearing Total
As at 30 September 2022 £ £
£ £
Investments 49,024,931
99,890,107 - 148,915,038
Derivative assets: Forward currency contracts - -
778 778
Amounts due from broker - -
855,647 855,647
Other receivables excluding prepaid expenses - -
3,072,922 3,072,922
Cash and cash equivalents 674,776 -
- 674,776
Derivative liabilities: Forward currency contracts - -
(1,751,254) (1,751,254)
Other payables - -
(444,657) (444,657)
Net current assets 49,699,707
99,890,107 1,733,436 151,323,250
The Company holds fixed rate and floating rate financial instruments which,
based on current portfolio duration, have relatively limited exposure to fair
value interest rate risk as, when the short-term interest rates increase, the
interest rate on a floating rate note will increase. The maximum time to re-fix
interest rates is six months and therefore the Company has low interest rate
risk and, as such it is not deemed necessary to perform sensitivity analysis
over interest rate risk.
As at 30 September 2023, 62% of the Company's net current asset position was
invested in fixed rate securities, however the overall credit spread duration of
the Company was 3.26 years. A credit spread duration of 3.3 indicates that the
portfolio's value will rise or fall by 3.3 basis points should the reference
credit spread rise or fall by 1bp. The value of credit securities may be
affected by interest rate movements. Interest receivable on bank deposits or
payable on bank overdraft positions will be affected by fluctuations in interest
rates, however the underlying cash positions will not be affected.
The Company's continuing position in relation to interest rate risk is monitored
on a weekly basis by the Portfolio Manager as part of its review of the weekly
Net Asset Value calculations prepared by the Company's Administrator.
The Company actively trades in debt securities, some of which are variable rate
and linked to interest rate benchmarks. The impact of the transition from US
LIBOR to alternative interest rate benchmarks will be captured in the change in
fair value of these investments and is not expected to be material to the
Company.
(iv) Foreign currency risk
Foreign currency risk is the risk that the value of a financial instrument will
fluctuate due to changes in foreign exchange rates. The Company invests
predominantly in non-sterling assets while its Shares are denominated in
sterling, its expenses are incurred in sterling and its presentational currency
is sterling. Therefore, the Statement of Financial Position may be significantly
affected by movements in the exchange rate between foreign currencies and
sterling. The Company manages the exposure to currency movements by using spot
and forward foreign exchange contracts, rolling forward on a periodic basis.
As at 30 September 2023, the Company had seven (30 September 2022: thirteen)
open forward currency contracts.
Open forward currency contracts
Outstanding
Mark to Unrealised
contracts
market losses
eq
uivalent
Contract
values
30.09.23 30.09.23
30.09.23 30.09.23
Currency £ £
£
Seven
sterling
forward
foreign
currency
contracts
totalling:
5 EUR (125,022,666) (107,061,730)
(108,449,257) (1,387,527)
forward
foreign
currency
contract
2 USD (19,622,562) (15,653,617)
(16,076,818) (423,201)
forward
foreign
currency
contract
(1,810,728
Outstanding
Mark to Unrealised
contracts
market losses
eq
uivalent
Contract
values
30.09.22 30.09.22
30.09.22 30.09.22
Currency £ £
£
Thirteen
sterling
forward
foreign
currency
contracts
totalling:
9 EUR (97,946,859) (84,762,465)
(85,956,857) (1,194,392)
forward
foreign
currency
contracts
4 USD (23,707,876) (20,681,822)
(21,237,906) (556,084)
forward
foreign
currency
contracts
(1,750,476)
Forward currency contracts are not subject to offsetting or master netting
arrangements.
At year end, the Company had nil (30 September 2022: nil) open spot currency
contracts.
As at 30 September 2023 and 2022, the Company held the following assets and
liabilities denominated in currencies other than Pound sterling:
30.09.23 30.09.22
£ £
EUR
Investments 104,829,061 81,335,151
Cash and 1,073,740 316,296
cash
equivalents
Amounts due 2,336,941 2,453,721
from broker
and other
receivables
Less: Open (108,449,257) (85,956,857)
forward
currency
contracts
USD
Investments 14,554,879 20,362,503
Cash and 1,347,044 281,720
cash
equivalents
Amounts due 339,103 512,895
from broker
and other
receivables
Less: (937,392) -
Amounts due
to broker
Less: Open (16,076,818) (21,237,906)
forward
currency
contracts
CHF
Cash and 16,835 17,166
cash
equivalents
(965,864) (1,915,311)
The following tables summarise the sensitivity of the Company's assets and
liabilities to changes in foreign exchange movements between Euro, US Dollar and
Swiss Franc, and the Company functional currency of sterling as at 30 September
2023 and 2022. The analysis is based on the assumption that the relevant foreign
exchange rate increased/decreased by the percentage disclosed in the table, with
all other variables held constant. This represents management's best estimate of
a reasonable possible shift in the foreign exchange rates, having regard to
historical volatility of those rates.
30.09.23 30.09.22
£ £
Impact on
Statement of
Comprehensive
Income
and Equity in
response to
a:
- 10% 19,063 168,311
(30.09.22:
10%) increase
in EUR/GBP
- 10% (20,936) (185,134)
(30.09.22:
10%) decrease
in EUR/GBP
Impact on
Statement of
Changes in
Equity in
response to
a:
- 10% 19,063 168,311
(30.09.22:
10%) increase
in EUR/GBP
- 10% (20,936) (185,134)
(30.09.22:
10%) decrease
in EUR/GBP
30.09.23 30.09.22
£ £
Impact on
Statement of
Comprehensive
Income
and Equity in
response to
a:
- 10% 70,285 7,342
(30.09.22:
10%) increase
in USD/GBP
- 10% (77,314) (8,082)
(30.09.22:
10%) decrease
in USD/GBP
Impact on
Statement of
Changes in
Equity in
response to
a:
- 10% 70,285 7,342
(30.09.22:
10%) increase
in USD/GBP
- 10% (77,314) (8,082)
(30.09.22:
10%) decrease
in USD/GBP
30.09.23 30.09.22
£ £
Impact on
Statement of
Comprehensive
Income
and Equity in
response to
a:
- 10% (1,530) (1,561)
(30.09.22:
10%) increase
in CHF/GBP
- 10% 1,683 1,717
(30.09.22:
10%) decrease
in CHF/GBP
Impact on
Statement of
Changes in
Equity in
response to
a:
- 10% (1,530) (1,561)
(30.09.22:
10%) increase
in CHF/GBP
- 10% 1,683 1,717
(30.09.22:
10%) decrease
in CHF/GBP
Credit risk
Credit risk refers to the risk that a counterparty will default on its
contractual obligations resulting in financial loss to the Company. The Company
has a credit policy in place and the exposure to credit risk is monitored on an
on-going basis.
The main concentration of credit risk to which the Company is exposed arises
from the Company's investments in credit securities. The credit risk is built
into mark to market or mark to model pricing. The Company is also exposed to
counterparty credit risk on forwards, cash and cash equivalents, amounts due
from brokers and other receivable balances.
The Company's policy is to manage this risk by maintaining a portfolio
diversified by issuer. While the prospectus permits no more than 5% of the
portfolio value to be invested in any single credit security or issuer of credit
securities, the Portfolio Manager operates to stricter exposures dependent on
the credit rating of each single credit security or issuer of credit securities.
Portfolio of debt securities and cash and cash equivalents by ratings category
using the highest rating assigned by Standard and Poor's ("S&P"), Moody's
Analytics ("Moody's") or Fitch Ratings ("Fitch"):
30.09.23 30.09.22
A+ 2.93% 0.45%
A 1.05% 0.00%
BBB+ 0.51% 0.00%
BBB 5.29% 3.45%
BBB- 12.20% 10.53%
BB+ 11.40% 10.56%
BB 8.77% 10.63%
BB- 9.79% 7.41%
B+ 11.86% 12.82%
B 7.59% 10.49%
B- 14.37% 13.42%
CCC+ 2.51% 3.58%
CCC 0.00% 0.00%
CCC- 0.29% 0.00%
CC 0.00% 0.07%
C 0.00% 0.06%
Not Rated* 11.44% 16.53%
100.00% 100.00%
*The non-rated exposure within the Company is managed in exactly the same way as
the exposure to any other rated bond in the portfolio. A bond not rated by any
of Moody's, S&P or Fitch does not necessarily translate as poor credit quality.
Often smaller issues/tranches, or private deals which the Company holds, will
not apply for a rating due to the cost of doing so from the relevant credit
agencies. The Portfolio Manager has no significant credit concerns with the
unrated, or rated, asset-backed securities or corporate bonds currently held.
To further understand credit risk, the Portfolio Manager undertakes extensive
due diligence procedures on investments in credit securities and monitors the on
-going investment in these securities.
The Company manages its counterparty exposure in respect of cash and cash
equivalents and forward currency contracts by investing with counterparties with
a "single A" or higher credit rating. The majority of cash is currently placed
with Northern Trust (Guernsey) Limited. The Company is subject to credit risk to
the extent that this institution may be unable to return this cash. Northern
Trust (Guernsey) Limited is a wholly owned subsidiary of The Northern Trust
Corporation. The Northern Trust Corporation is publicly traded and a constituent
of S&P 500. The Northern Trust Corporation has a credit rating of A+ from
Standard & Poor's and A2 from Moody's.
The Company's maximum credit exposure is limited to the carrying amount of
financial assets recognised as at the Statement of Financial Position date, as
summarised below:
30.09.23 30.09.22
£ £
Investments 176,435,682 148,915,038
Amounts due 591,537 855,647
from broker
Cash and 5,302,091 674,776
cash
equivalents
Derivative 373 778
assets:
Forward
currency
contracts
Other 3,733,422 3,072,922
receivables
excluding
prepaid
expenses
186,063,105 153,519,161
Investments in credit securities that are not backed by underlying asset pools
present certain risks that are not presented by asset-backed securities ("ABS").
Primarily, these securities may not have the benefit of the same security
interest in the related collateral. Therefore, there is a possibility that
recoveries on defaulted collateral may not, in some cases, be available to
support payments on these securities. The risk of investing in these types of
securities is ultimately dependent upon payment of the underlying debt by the
debtor. The Portfolio Manager undertakes extensive due diligence procedures on
investments in securities and monitors the on-going investment in these
securities.
The most significant balance of other receivables is interest receivables and
its credit risk is the same as the securities.
Liquidity risk
Liquidity risk is the risk that the Company may not be able to generate
sufficient cash resources to settle its obligations in full as they fall due or
can only do so on terms that are materially disadvantageous.
Investments made by the Company in credit securities may be relatively illiquid
and this may limit the ability of the Company to realise its investments for the
purposes of cash management such as generating cash for dividend payments to
Shareholders or buying back Ordinary Shares under the Quarterly Tenders or in
the market. Investments in credit securities may also have no active market and
the Company also has no redemption rights in respect of these investments. The
Company has the ability to borrow to ensure sufficient cash flows.
The Portfolio Manager considers expected cash flows from financial assets in
assessing and managing liquidity risk, in particular its cash resources and
trade receivables. Cash flows from trade and other receivables are all
contractually due within twelve months.
The Portfolio Manager shall maintain a liquidity management policy to monitor
the liquidity risk of the Company.
Shareholders have no right to have their shares redeemed or repurchased by the
Company, except as detailed under the Capital risk management (Quarterly
tenders) section of this note. Shareholders otherwise wishing to release their
investment in the Company are therefore required to dispose of their shares on
the market.
The following table analyses the Company's liabilities into relevant maturity
groupings based on the maturities at the Statement of Financial Position date.
The amounts in the table are the undiscounted net cash flows on the financial
liabilities:
Up to 1 1-6 months 6-12 Total
month months
As at 30 £ £ £ £
September
2023
Amounts due (937,392) - - (937,392)
to broker
Derivative - (1,811,101) - (1,811,101)
liabilities:
Forward
currency
contracts
Other (1,553,502) (109,250) - (1,662,752)
payables
Total (2,490,894) (1,920,351) - (4,411,245)
Up to 1 1-6 months 6-12 Total
month months
As at 30 £ £ £ £
September
2022
Derivative - (1,751,254) - (1,751,254)
liabilities:
Forward
currency
contracts
Other (370,462) (74,195) - (444,657)
payables
Total (370,462) (1,825,449) - (2,195,911)
Capital risk management
The Company manages its capital to ensure that it is able to continue as a going
concern while following the Company's stated investment policy. The capital
structure of the Company consists of Shareholders' equity, which comprises share
capital and retained earnings. To maintain or adjust the capital structure, the
Company may return capital to Shareholders or issue new Shares. There are no
regulatory requirements to return capital to Shareholders.
(i) Quarterly tenders
With the objective of minimising the risk of the Ordinary Shares trading at a
discount to NAV and to assist in the narrowing of any discount at which the
Ordinary Shares may trade from time to time, the Company has incorporated into
its structure a mechanism (a "Quarterly Tender"), contingent on certain factors
as described below, which can be exercised at the discretion of the Directors,
to provide Shareholders with a quarterly opportunity to submit Ordinary Shares
for placing or repurchase by the Company at a price representing a discount of
no more than 2% to the then prevailing NAV.
Upon confirmation of the number of Tender Requests made in respect of each
Quarter Record Date, the Company intends first, through its broker acting on a
reasonable endeavours basis, to seek to satisfy Tender Requests by placing the
Tendered Shares with investors in the secondary market.
Second, subject to Tender Restrictions, the Company repurchases any Tendered
Shares not placed in the secondary market for cancellation or to be held in
Treasury.
It is anticipated that the Company will tender on a quarterly basis for up to
20% of the Ordinary Shares in issue as at the relevant Quarter Record Date,
subject to an aggregate limit of 50% of the Ordinary Shares in issue in any
twelve-month period ending on the relevant Quarter Record Date. If tender
requests are in excess of 20%, tenders will be scaled back on a pro-rata basis.
(ii) Share buybacks
The Company has been granted the authority to make market purchases of up to a
maximum of 14.99% of the aggregate number of Ordinary Redeemable Shares in issue
immediately following Admission at a price not exceeding the higher of (i) 5%
above the average of the mid-market values of the Ordinary Redeemable Shares for
the 5 business days before the purchase is made or, (ii) the higher of the price
of the last independent trade and the highest current investment bid for the
Ordinary Redeemable Shares.
In deciding whether to make any such purchases, the Directors will have regard
to what they believe to be in the best interests of Shareholders as a whole, to
the applicable legal requirements and any other requirements in its Articles.
The making and timing of any buybacks will be at the absolute discretion of the
Board and not at the option of the Shareholders, and is expressly subject to the
Company having sufficient surplus cash resources available (excluding borrowed
moneys).
The Listing Rules prohibit the Company from conducting any share buybacks during
close periods immediately preceding the publication of annual and interim
results.
(iii) Continuation votes
In the event that:
(i) the Dividend Target, as disclosed in note 19, is not met; or
(ii) on any Tender Submission Deadline, applications for the Company to
repurchase 50% or more of the Company's issued Ordinary Shares, calculated as at
the relevant Quarter Record Date, are received by the Company,
a General Meeting will be convened at which the Directors will propose an
Ordinary Resolution that the Company should continue as an investment company.
If any such Ordinary Resolution is not passed, the Directors shall draw up
proposals for the voluntary liquidation, unitisation, reorganisation or
reconstruction of the Company for submission to the members of the Company at a
General Meeting to be convened by the Directors for a date not more than 6
months after the date of the meeting at which such Ordinary Resolution was not
passed.
17.Fair value measurement
All assets and liabilities are carried at fair value or at carrying value which
equates to fair value.
IFRS 13 requires the Company to classify fair value measurements using a fair
value hierarchy that reflects the significance of the inputs used in making the
measurements. The fair value hierarchy has the following levels:
(i)Quoted prices (unadjusted) in active markets for identical assets or
liabilities (Level 1).
(ii) Inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly (that is, as prices) or indirectly
(that is, derived from prices including interest rates, yield curves,
volatilities, prepayment speeds, credit risks and default rates) or other market
corroborated inputs (Level 2).
(iii) Inputs for the asset or liability that are not based on observable market
data (that is, unobservable inputs) (Level 3).
The following table analyses within the fair value hierarchy the Company's
financial assets and liabilities (by class) measured at fair value as at 30
September 2023.
Level Level 2 Level 3 Total
1
£ £ £ £
Assets
Financial assets
at fair value
through profit or
loss
- Investments
- Corporate bonds - 114,210,465 - 114,210,465
- Asset-backed - 56,636,292 5,588,925 62,225,217
securities
- Derivative - 373 - 373
assets: Forward
currencycontracts
Total assets as - 170,847,130 5,588,925 176,436,055
at 30 September
2023
Liabilities
Financial
liabilities at
fair value
through profit or
loss
- Derivative - 1,811,101 - 1,811,101
liabilities:
Forward currency
contracts
Total liabilities - 1,811,101 - 1,811,101
as at 30
September 2023
The following table analyses within the fair value hierarchy the Company's
financial assets and liabilities (by class) measured at fair value as at 30
September 2022.
Level Level 2 Level 3 Total
1
£ £ £ £
Assets
Financial
assets at
fair value
through
profit or
loss
- Investments
- Corporate - 95,890,726 - 95,890,726
bonds
- Asset - 45,313,705 7,710,607 53,024,312
-backed
securities
- Derivative - 778 - 778
assets:
Forward
currency
contracts
Total assets - 141,205,209 7,710,607 148,915,816
as at 30
September
2022
Liabilities
Financial
liabilities
at fair
value
through
profit or
loss
- Derivative - 1,751,254 - 1,751,254
liabilities:
Forward
currency
contracts
Total - 1,751,254 - 1,751,254
liabilities
as at 30
September
2022
Credit securities which have a value based on quoted market prices in active
markets are classified as Level 1. At the end of the period, no credit
securities held by the Company are classified as Level 1.
Credit securities which are not traded or dealt on organised markets or
exchanges are classified as Level 2 or Level 3. Credit securities with prices
obtained from independent price vendors, where the Portfolio Manager is able to
assess whether the observable inputs used for their modelling of prices are
accurate and the Portfolio Manager has the ability to challenge these vendors
with further observable inputs, are classified as Level 2. Prices obtained from
vendors who are not easily challengeable or transparent in showing their
assumptions for the method of pricing or where an independent value is sought
from an external provider based on an appropriate valuation model, are
classified as Level 3. Credit securities priced at an average of two vendors'
prices are classified as Level 3.
Where the Portfolio Manager determines that the price obtained from an
independent price vendor is not an accurate representation of the fair value of
the credit security, the Portfolio Manager may source prices from third party
dealer quotes and if the price represents a reliable and an observable price,
the credit security is classified as Level 2. Any dealer quote that is over 20
days old is considered stale and is classified as Level 3. Furthermore, the
Portfolio Manager may determine that the application of a mark-to-model basis
may be appropriate where they believe such a model will result in more reliable
information with regards to the fair value of any specific investments and are
also classified as Level 3 investments.
The Portfolio Manager also took advantage of engaging a third party valuer to
value certain investments (primarily residential mortgage-backed security
assets). The valuation of these assets and others that the Portfolio Manager may
deem appropriate to provide fair value, primarily use discounted cash flow
analysis but may also include the use of a comparable arm's length transaction,
reference to other securities that are substantially the same, and other
valuation techniques commonly used by market participants making the maximum use
of market inputs and relying as little as possible on entity-specific inputs. As
at 30 September 2023, investments representing 3.2% of the portfolio were valued
by the third party valuer.
Although the models used do utilise unobservable inputs such as discount
margins, constant default rate and constant prepayment rate. It is the Board's
and Portfolio Manager's views that any reasonable movement in the key
unobservable inputs would not yield a significant change in fair value to the
portfolio and as a result, a sensitivity analysis relating to the unobservable
inputs related to these models has not been presented.
There were no transfers between levels during the year.
The following table presents the movement in Level 3 instruments for the year
ended 30 September 2023 by class of financial instrument.
Bonds Asset-backed securities Total
30 September £ £ £
2023
Opening balance - 7,710,607 7,710,607
Net disposals - (2,254,534) (2,254,534)
Net realised - (428,973) (428,973)
losses for the
year
Net unrealised - 561,825 561,825
gains for the
year
Closing balance - 5,588,925 5,588,925
The following table presents the movement in Level 3 instruments for the year
ended 30 September 2022 by class of financial instrument.
Bonds Asset-backed securities Total
30 September 2022 £ £ £
Opening balance - 12,771,617 12,771,617
Net disposals - (4,676,067) (4,676,067)
Net realised - 262,161 262,161
gains for the
year
Net unrealised - (647,104) (647,104)
losses for the
year
Closing balance - 7,710,607 7,710,607
The following table analyses within the fair value hierarchy the Company's
assets and liabilities not measured at fair value at 30 September 2023, but for
which fair value is disclosed.
Level 1 Level 2 Level 3 Total
30 £ £ £ £
September
2023
Assets
Amounts due - 591,537 - 591,537
from broker
Other - 3,733,422 - 3,733,422
receivables
excluding
prepaid
expenses
Cash and 5,302,091 - - 5,302,091
cash
equivalents
Total 5,302,091 4,324,959 - 9,627,050
Liabilities
Amounts due - 937,392 - 937,392
to broker
Other - 1,662,752 - 1,662,752
payables
Total - 2,600,144 - 2,600,144
The following table analyses within the fair value hierarchy the Company's
assets and liabilities not measured at fair value at 30 September 2022, but for
which fair value is disclosed.
Level 1 Level 2 Level 3 Total
30 £ £ £ £
September
2022
Assets
Amounts due - 855,647 - 855,647
from broker
Other - 3,072,922 - 3,072,922
receivables
excluding
prepaid
expenses
Cash and 674,776 - - 674,776
cash
equivalents
Total 674,776 3,928,569 - 4,603,345
Liabilities
Other - 444,657 - 444,657
payables
Total - 444,657 - 444,657
The assets and liabilities included in the above tables are carried at amortised
cost; due to their short-term nature, their carrying values are a reasonable
approximation of fair value.
Cash and cash equivalents include deposits held with banks.
Amounts due to brokers and other payables represent the contractual amounts and
obligations due by the Company for settlement of trades and expenses.
Amounts due from brokers and other receivables represent the contractual amounts
and rights due to the Company for settlement of trades and income.
18.Segmental reporting
The Board is responsible for reviewing the Company's entire portfolio and
considers the business to have a single operating segment. The Board's asset
allocation decisions are based on a single, integrated investment strategy, and
the Company's performance is evaluated on an overall basis.
The Company invests in a diversified portfolio of credit securities. The fair
value of the major financial instruments held by the Company and the equivalent
percentages of the total value of the Company are reported in the Top Twenty
Holdings.
Revenue earned is reported separately on the face of the Statement of
Comprehensive Income as interest income on financial assets at fair value
through profit and loss being interest income received from credit securities.
19.Dividend policy
The Board intends to distribute an amount at least equal to the value of the
Company's excess income, as defined below, arising each financial year to the
holders of Ordinary Shares. However, there is no guarantee that the Dividend
Target of 6.0 pence per Ordinary Share for each financial year will be met or
that the Company will make any distributions at all.
Excess income is defined as the distributions made with respect to any income
period, which comprise (a) the accrued income of the portfolio for the period
(for these purposes, the Company's income will include the interest payable by
the credit securities in the portfolio and amortisation of any discount or
premium to par at which a credit security is purchased over its remaining
expected life); (b) an additional amount to reflect any income purchased in the
course of any share subscriptions that took place during the period. Including
purchased income in this way ensures that the income yield of the shares is not
diluted as a consequence of the issue of new shares during an income period; (c)
any relevant expenses less 50% of the portfolio management fees for the period;
and (d) any gain/(loss) on the foreign exchange contracts caused by the interest
rate differentials between each foreign exchange currency pair which is
reflected in each pair's forward foreign exchange rate. This definition differs
from the IFRS "net income" definition which also recognises gains and losses on
financial assets.
The Company declared the following dividends in respect of the profit for the
year ended 30 September 2023:
Period to Dividend per Dividend Ex Record Pay date
Share (pence) declared -dividend date
(£) date
31 0.50 1,105,068 17 18 2 December
October November November 2022
2022 2022 2022
30 0.50 1,129,068 15 16 30
November December December December
2022 2022 2022 2022
30 0.50 1,149,068 19 20 3 February
December January January 2023
2022 2023 2023
31 0.50 1,195,318 16 17 3 March
January February February 2023
2023 2023 2023
28 0.50 1,218,818 16 March 17 March 31 March
February 2023 2023 2023
2023
31 March 0.50 1,221,318 20 April 21 April 5 May
2023 2023 2023 2023
28 April 0.50 1,221,318 18 May 19 May 2 June
2023 2023 2023 2023
31 May 0.50 1,221,318 15 June 16 June 30 June
2023 2023 2023 2023
30 June 0.50 1,204,122 20 July 21 July 4 August
2023 2023 2023 2023
31 July 0.50 1,204,122 17 August 18 August 1 Septembe
2023 2023 2023 r 2023
31 August 0.50 1,204,122 21 22 6 October
2023 September September 2023
2023 2023
29 1.87 4,493,959 19 20 3 November
September October October 2023
2023 2023 2023
The Company declared the following dividends in respect of the profit for the
year ended 30 September 2022:
Period to Dividend per Dividend Ex Record Pay date
Share (pence) declared -dividend date
(£) date
29 0.50 966,193 18 19 30
October November November November
2021 2021 2021 2021
30 0.50 966,193 16 17 5 January
November December December 2022
2021 2021 2021
31 0.50 978,693 20 21 4 February
December January January 2022
2021 2021 2022
31 0.50 998,693 17 18 4 March
January February February 2022
2022 2022 2022
28 0.50 1,014,818 17 March 18 March 1 April
February 2022 2022 2022
2022
31 March 0.50 1,029,318 14 April 19 April 6 May
2022 2022 2022 2022
29 April 0.50 1,037,818 19 May 20 May 6 June
2022 2022 2022 2022
31 May 0.50 1,043,318 16 June 17 June 1 July
2022 2022 2022 2022
30 June 0.50 1,049,818 14 July 15 July 29 July
2022 2022 2022 2022
29 July 0.50 1,070,568 18 August 19 August 2 Septembe
2022 2022 2022 r 2022
31 August 0.50 1,078,568 15 16 30
2022 September September September
2022 2022 2022
30 0.89 1,928,308 20 21 4 November
September October October 2022
2022 2022 2022
Under The Companies (Guernsey) Law, 2008, the Company can distribute dividends
from capital and revenue reserves, subject tothe net asset and solvency test.
The net asset andsolvency test considers whether a company is able to pay its
debts when they fall due, and whether the value of a company's assets is greater
than its liabilities. The Board confirms that the Company passed thenet asset
and solvency test for each dividend paid.
20.Ultimate controlling party
In the opinion of the Directors on the basis of shareholdings advised to them,
the Company has no ultimate controlling party.
21.Subsequent events
These Financial Statements were approved for issuance by the Board on 14
December 2023. Subsequent events have been evaluated to this date.
Subsequent to the year end and up to the date of signing of the Annual Report
and Audited Financial Statements, the following events took place:
Dividend declarations
Declaration date Dividend rate per Share (pence)
12 October 2023 1.87
9 November 2023 0.50
14 December 2023 0.50
Tenders
On 5 October 2023, 1,039,168 shares were tendered, 539,168 of which were placed
and 500,000 were repurchased by the Company and held in Treasury.
Other
Richard Class was appointed a Director with effect from 1 November 2023.
GLOSSARY OF TERMS AND ALTERNATIVE PERFORMANCE MEASURES
Alternative Performance Measures ("APMs")
In accordance with ESMA Guidelines on Alternative Performance Measures ("APMs"),
the Board has considered what APMs are included in the Annual Report and Audited
Financial Statements which require further clarification. APMs are defined as a
financial measure of historical or future financial performance, financial
position or cash flows, other than a financial measure defined or specified in
the applicable financial reporting framework. The APMs included in the annual
report and accounts are unaudited and outside the scope of IFRS.
Dividends Declared
Dividends declared are the dividends that are announced in respect of the
current accounting period.
Dividend Target
The Company maintains an annual minimum dividend target of at least 6p per
Ordinary Share.
Net Asset Value ("NAV")
NAV is the assets attributable to Shareholders expressed as an amount per
individual share. NAV is calculated using the accounting standards speci?ed by
International Financial Reporting Standards ("IFRS") and consists of total
assets, less total liabilities.
NAV per Share
NAV per share is calculated by dividing the total net asset value of
£181,689,040 (2022: £151,334,878) by the number of shares at the end of the year
of 240,824,331 shares (2022: 216,213,518). This produces a NAV per share of
75.44p (2022: 69.99p), which was a increase of 7.79% (2022: decrease of 25.74%).
NAV Total Return/(Loss) per Share
NAV total return/(loss) per share is the percentage increase or decrease in NAV,
inclusive of dividends paid and reinvested, in the reporting period. It is
calculated by adding the increase or decrease in NAV per share with the dividend
per share when paid and reinvested back into the NAV, and dividing it by the NAV
per share at the start of the period.
Ongoing Charges
The ongoing charges represent the Company's management fee and all other
operating expenses, excluding finance costs, expressed as a percentage of the
average of the daily net assets during the year. The Board continues to be
conscious of expenses and works hard to maintain a sensible balance between good
quality service and cost.
Portfolio Performance
Portfolio performance is calculated by summing interest earned, realised and
unrealised gains or losses on investments, less unrealised foreign exchange
gains or losses on investments during the year and dividing by closing book cost
for the year, stated as a percentage.
Premium/Discount
If the share price of an investment company is lower than the NAV per share, the
shares are said to be trading at a discount. The size of the discount is
calculated by subtracting the share price from the NAV per share and is usually
expressed as a percentage of the NAV per share. If the share price is higher
than the NAV per share, the shares are said to be trading at a premium.
CORPORATE INFORMATION
Directors Receiving Agent
Ashley Paxton (Chairman) Computershare Investor
Services PLC
Sharon Parr (appointed 1 The Pavillions
November 2022)
Wendy Dorey (appointed 1 Bridgewater Road
February 2023)
Richard Class (appointed 1 Bristol, BS13 8AE
November 2023)
Claire Whittet (resigned 11
August 2023)
Ian Martin (resigned 1
February 2023)
Registered Office UK Legal Adviser to the
Company
PO Box 255 Eversheds Sutherland
(International) LLP
Trafalgar Court One Wood Street
Les Banques London, EC2V 7WS
St Peter Port
Guernsey, GY1 3QL
Portfolio Manager Guernsey Legal Adviser to
the Company
TwentyFour Asset Management Carey Olsen (Guernsey)
LLP LLP
8th Floor, The Monument Carey House
Building
11 Monument Street Les Banques
London, EC3R 8AF St Peter Port
Guernsey, GY1 4BZ
Alternative Investment Fund Independent Auditor
Manager
Apex Fundrock Limited PricewaterhouseCoopers CI
LLP
(Previously called Maitland PO Box 321
Institutional Services
Limited)
Hamilton Centre Royal Bank Place
Rodney Way Glategny Esplanade
Chelmsford, CM1 3BY St Peter Port
Guernsey, GY1 4ND
Custodian, Principal Banker Registrar
and Depositary
Northern Trust (Guernsey) Computershare Investor
Limited Services (Guernsey)
Limited
PO Box 71 1st Floor
Trafalgar Court Tudor House
Les Banques Le Bordage
St Peter Port St Peter Port
Guernsey, GY1 3DA Guernsey, GY1 1DB
Administrator and Company Financial Adviser and
Secretary Corporate Broker
Northern Trust International Deutsche Numis Limited
Fund Administration
45 Gresham Street
Services (Guernsey) Limited
PO Box 255 London, EC2V 7BF
Trafalgar Court
Les Banques
St Peter Port
Guernsey, GY1 3QL
This information was brought to you by Cision http://news.cision.com
END
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