REG - Life Settlement Life Settlement LSAB - Half-year Report
LIFE SETTLEMENT ASSETS PLC
LEI: 2138003OL2VBXWG1BZ27
(the "Company" or "LSA")
Half-Year Announcement
LSA, a closed-ended investment company which manages portfolios of whole and fractional interests in life settlement policies issued by life insurance companies operating predominantly in the United States, is pleased to announce its unaudited half-year results for the period ended 30 June 2020.
Highlights
· Distributions totalling USD 5.5 million made during the period
· Total maturities for the first six months amounted to USD 12.2 million (HY2019: USD 33.9 million), generating gains from life settlement portfolios of USD 0.6 million (HY2019: gains of USD 15.6 million)
· Total net loss of USD 2.9 million (HY2019: profit of USD 9.2 million)
Company performance
Performance analysis by Share Class is provided in the tables below:
A Share Class
As at
30 June
2020
As at
31 December
2019
Percentage
Change
(%)
Net assets attributable to Shareholders (USD '000)
92,639
89,108
(4.0)
Shares in issue
43,724,059
39,891,391
9.6
NAV per share (USD)
2.12
2.23
(4.9)
Closing share price (USD)
1.95
1.78
9.6
(Discount) to NAV (%)
(8.0)
(20.2)
12.2
As at
30 June
2020
As at
30 June
2019
Percentage
Change
(%)
Total maturities (USD '000)
8,862
23,981
(63.0)
Net income from portfolio (USD '000)
1,004
13,207
(92.4)
(Loss)/profit for the period (USD '000)
(1,792)
8,036
(122.3)
This includes a contribution of USD 508,000 in respect of the D & E share class profit in the period before the merger.
B Share Class
As at
30 June
2020
As at
31 December
2019
Percentage
Change
(%)
Net assets attributable to Shareholders (USD '000)
13,800
14,863
(7.1)
Shares in issue
14,596,098
14,596,098
-
NAV per share (USD)
0.95
1.02
(7.4)
Closing share price (USD)
0.70
0.63
11.1
(Discount) to NAV (%)
(26.3)
(38.2)
11.9
As at
30 June
2020
As at
30 June
2019
Percentage
Change
(%)
Total maturities (USD '000)
1,448
2,079
(30.3)
Net income from portfolio (USD '000)
(728)
(872)
16.5
Loss for the period (USD '000)
(1,063)
(1,248)
14.8
Enquiries:
Acheron Capital Limited (Investment Manager)
Jean-Michel Paul
020 7258 5990
Shore Capital (Financial Adviser and Broker)
Robert Finlay
020 7408 4080
ISCA Administration Services Limited
Company Secretary
Tel: 01392 487056
CHAIRMAN'S STATEMENT
On behalf of the Board, I am pleased to present the Company`s half-year results for the period ended 30 June 2020. I am also very conscious that I am writing against an uncertain economic background as the world tries to deal with the ongoing Coronavirus pandemic ("Covid-19").
Investment Overview
The financial highlights above show the results for the half year to 30 June 2020.
The NAV of Class A decreased by 4.9% and the NAV of class Class B decreased by 7.4% over the period both reflecting a lower than anticipated level of maturities. The Class A NAV reduction also reflects the distributions made during the period to Class A Shareholders and the former holders of D and E Class shares. When adding back the dividends paid to Shareholders during the period and the effect of the merger with class D and E shares the NAV decreased by 2.0% per A share. Further details on the dividends paid are set out under the paragraph headed "Distributions" below.
The Company has continued with its declared policy of retaining a significant proportion of cash in class A against future investment opportunities. The Board continues to monitor this carefully and to review the decision with its Investment Manager on a regular basis.
The Life Settlement Market
Over the past five years, the life settlement industry has grown both in funds committed to the sector and consumer awareness. In fact, a 2020 industry report showed a 11% increase in policies sold in 2019 compared to 2018, while the face amount of life insurance policies sold increased from USD 3.8 billion to USD 4.4 billion in the same period.
It is somewhat premature to speculate how the Covid-19 Pandemic will impact the Life Settlement Market. As regards the primary market for life insurance policies, there may be an increase in individuals needing to sell policies due to their financial circumstances. Although LSA does not acquire policies directly from the individual holders, there may be an increase in supply at a time when there is greater competition elsewhere for capital in the financial markets, potentially creating purchasing opportunities for LSA in the secondary market.
Structural changes
The proposals to merge the share classes A, D and E as set out in the Circular published by the Company on 2 April 2020, were approved by Shareholders at the class meetings held on 29 April 2020 and the merger was completed on 5 May 2020. Given the very different nature of the structure of Class B, with no exposure to HIV policies, the Board decided not to propose the merger of class B at this stage, although this will be kept under review. As a result of the reconstruction the 8,792,561 D shares and 1,566,603 E shares were re-designated as 2,700,812 and 1,131,856 A shares respectively. The Company now has two classes of shares being A and B shares.
Merging the relatively small D and E Share Classes provided a helpful simplification of the Company's structure. In addition, the A Ordinary Shareholders have already benefitted from improved cash flows which should continue over the next few years. Other benefits include a reduced focus on HIV-related maturities arising from the inclusion of the D and E Ordinary Share Class portfolios together with the benefit through consolidation of the underlying fractional policies into the larger portfolio.
Furthermore, as mentioned in the Annual Report, on 31 March 2020, the four trusts through which the Company invests in the underlying assets of the Company were merged into a single trust in order to reduce annual operating costs and operational risks.
Portfolio
The overall portfolio is subdivided into portfolios exposed to either HIV-positive policy holders or non-HIV positive policy holders. The following table provides information on the Company's policies by Share Class and by exposure to HIV and non-HIV positive insureds as at 30 June 2020.
HIV and Non-HIV Exposed Policies (all values in USD)
Share Class A
HIV
Non-HIV
Total
Number of policies
4,329
173
4,502
Total face value
(USD '000)
372,435
93,297
465,732
Valuation
(USD '000)
50,000
19,996
69,996
Percentage of face
13.4%
21.4%
15.0%
Share Class B
Number of policies
N/A
93
93
Total face value
(USD '000)
N/A
44,108
44,108
Valuation
(USD'000)
N/A
10,722
10,722
Percentage of face
N/A
24.3%
24.3%
During the first half of 2020 small lots of fractional policies to which the trusts were already exposed totalling 49 fractions in all with a face value of $2.2 million, were added to the portfolio.
Maturities
Maturities in the six months ended 30 June 2020, can be seen in the table below.
Class A
Class B
Class D*
Class E*
HIV Maturities (USD '000)
3,609
N/A
-
-
Non-HIV Maturities
(USD '000)
5 253
1,448
1,308
584
Total Maturities
(USD '000)
8,862
1,448
1,308
584
*Maturities to 29 February 2020 in Class D and E
While the impact of Covid-19`s first wave has been very significant in terms of cases in the US, the impact observed on the Company's portfolio has been small. This may reflect the fact that the estimated number of resulting deaths in the US of between 150k to 200k, whilst a multiple of the yearly influenza casualties, is only a small fraction of total deaths observed; a specific geographical distribution not matching the portfolio (concentration of casualties in the north east); and the concentrated nature of the portfolio being non representative. Either way, the mortality observed for the first half of the year has not seen a surge and remains in line with pre-Covid-19 model expectations.
In the period under review, the HIV segment of the portfolio had an estimated AE ("Actual to Expected") of close to 100%. While the HIV portfolio has performed to expectations, the elderly segment of the Share Class B portfolio has shown fewer maturities than had been expected. The elderly segment in Class A was, however, close to 100% of expectation.
AE*
All classes
HIV
94%
Non-HIV
83%
* in maturity dollar amounts, estimated until June
Portfolio Composition
Further information on the composition of the portfolio of each Share Class as at 30 June 2020 can be found on our website https://www.lsaplc.com/investor-relations/reports-company-literature
Distributions
The maturities received in the period were such that the Company was able to make distributions to Shareholders by way of special dividends on 3 April 2020 as follows:
- for A Ordinary Shareholders, a special dividend of 6.267 cents per share totalling USD 2.5 million.
- for D Ordinary Shareholders, a special dividend of 15.922 cents per share totalling USD 1.4 million.
- for E Ordinary Shareholders, a special dividend of 38.299 cents per share totalling USD 0.6 million.
In addition, as part of the restructuring discussed above the following dividends were paid on 30 June 2020.
- for D Ordinary Shareholders, a special dividend of 4.94932 cents per share totalling USD 0.4 million.
- for E Ordinary Shareholders, a special dividend of 35.99451 cents per share totalling USD 0.6 million.
Subsequent to the period end, the Company has declared a further interim dividend of 4.5741 cents per Class A share totalling USD 2.0 million. The dividend will be paid on 29 October 2020 to all class A Shareholders on the register on 9 October 2020.
Board Changes
After serving on the Board (and predecessor Company) for a number of years, Frank Mathe, has expressed his intention to step down from the Board at the end of September. Frank has been a strong supporter of the Company and the Board wishes to record its thanks to him for the valuable advice and guidance he has given.
Separately the Board is currently giving consideration to its current composition. At the time LSA listed on the London Stock Exchange in March 2018, the Board's membership largely reflected that of its predecessor company listed in Luxembourg. Accordingly, the Board believes that it is now appropriate to consider the future shape of the Board taking into account the standards and norms applicable to London listed companies. Further announcements in this regard will be made in due course.
Outlook
As stated in the Annual Report, the mortality of the insureds in the portfolio will continue to be the most significant factor that will affect the financial results of the Company. We will continue to follow the recent research on mortality in general and especially on long-term HIV trends.
In the face of the many challenges and uncertainty facing global economies, communities and individuals, as they grapple with the impact of Covid-19, the Board believes that the investment opportunity offered by LSA, and the underpinning effect of its engagement with the life settlement market in the USA, will continue to offer value to Shareholders.
The Board remains confident that both share classes offer our investors important defensive qualities, which remain highly decorrelated from equities and bonds and the current volatility of those markets.
Michael Baines
Chairman
25 September 2020
KEY PERFORMANCE INDICATORS (KPIs)
The Board monitors success in implementing the Company's strategy against a range of key performance indicators (KPIs), which are viewed as significant measures of success over the longer term. These key indicators are those provided in the performance tables above. Although performance relative to the KPIs is monitored over quarterly periods, it is success over the long-term that is viewed as more important. This is particularly important given the inherent volatility of maturities and short-term investment returns.
The Board has chosen the following KPIs:
· Share Price - a key measure for Shareholders to show the most likely realisable value of this investment if it was sold. Changes in the share price are closely monitored by the Board.
· NAV per share - as this is the primary indicator of the underlying value attributable to each share.
· Premium/(discount) to NAV - as this measure can be used to monitor the difference between the underlying Net Asset Value and share price.
· Total maturities (USD) - the value of the total maturities in USD provides an indicator of the underlying cash flow that the Company receives from its main source of income - policy maturities. There are factors which could impact the outcome of this performance measure including: average life expectancy and the age of the underlying policy holders.
Please note that the Actual to Expected ("A/E") ratio, which is closely linked to the total maturities KPI, is a key method by which the Board monitors the level of maturities. The A/E ratio measures the declared maturities compared to the projected maturities based on the actuarial models. A ratio close to 100% indicates maturities correspond exactly to the model. A percentage greater than 100% means the maturities are more than anticipated by the models and less than 100% the opposite is the case.
· Profit/(loss) for the period - this is a key measure of financial performance used to assess the fortunes of the Company over each financial period.
Please Note: The Company regularly uses alternative performance measures to present its financial performance. These measures may not be comparable to similar measures used by other companies, nor do they correspond to IFRS standards or other accounting principles.
Directors' Statement of Principal Risks and Uncertainties
The important events that have occurred during the period under review and the key factors influencing the financial statements are set out in the Chairman's Statement above.
In accordance with DTR 4.2.7, the Directors consider that the principal risks and uncertainties facing the Company have not materially changed since the publication of the Annual Report and Accounts for the year ended 31 December 2019.
The principal risks faced by the Company include, but are not limited to:
· Mortality risk
· Premium management risk
· Volatility risk
· Fractional premium risk
· Advance age mortality risk
· Discount rate risk
· Modelling risk
· Tax
· Breach of applicable legislative obligations
· Counterparty risk
A more detailed explanation of these risks and the way in which they are managed can be found in the Strategic Report on pages 20 to 23 and in Note 4 to the Financial Statements on pages 62 to 64 of the 2019 Annual Report and Accounts - copies can be found via the Company's website, www.lsaplc.com.
There have been no significant changes in the related party disclosures set out in the Annual Report.
Directors' Statement of Responsibilities in Respect of the Financial Statements
In accordance with Disclosure and Transparency Rule (DTR) 4.2.10 Michael Baines (Chairman), Christopher Casey (Chairman of the Audit Committee), Robert Edelstein, Franck Mathe, Yves Mertz and Guner Turkmen, the Directors, confirm that to the best of their knowledge:
· The condensed set of financial statements contained within this Half-Yearly financial report have been prepared in accordance with International Accounting Standard ("IAS") 34 'Interim Financial Reporting' as adopted by the European Union and gives a true and fair view of the assets, liabilities, financial position and loss of the Company; and
· The Half-Yearly financial report includes a fair review of the information required by the FCA's Disclosure and Transparency Rule 4.2.7R being disclosure of important events that have occurred during the first six months of the financial year, their impact on the condensed set of financial statements and a description of the principal risks and uncertainties for the remaining six months of the year; and
· The Half Yearly financial report includes a fair review of the information required by the FCA's Disclosure and Transparency Rule 4.2.8R being disclosure of related party transactions during the first six months of the financial year, how they have materially affected the financial position of the Company during the period and any changes therein.
This Half-Yearly Report was approved by the Board of Directors on 25 September 2020 and the above responsibility statement was signed on its behalf by:
Michael Baines
Chairman
25 September 2020
Life Settlement Assets Plc
Condensed Statement of Comprehensive Income
for the six months ended 30 June 2020
______________________________________________
Six months ended
30 June 2020
Six months ended
30 June 2019
Year ended
31 December 2019
(unaudited)
(unaudited)
(audited)
Note
Revenue
Capital
Total
Revenue
Capital
Total
Revenue
Capital
Total
USD'000
USD'000
USD'000
USD'000
USD'000
USD'000
USD'000
USD'000
USD'000
Income
Income from life settlement portfolios
450
-
450
435
-
435
868
-
868
Gains from life settlement portfolios
3
-
555
555
-
15,604
15,604
-
23,381
23,381
Other income
56
-
56
74
-
74
941
-
941
Net foreign exchange loss
(6)
-
(6)
(12)
-
(12)
(17)
-
(17)
______
______
______
______
______
______
_______
_______
______
Total income
500
555
1,055
497
15,604
16,101
1,792
23,381
25,173
Operating expenses
Investment management fees
4
(855)
647
(208)
(978)
(2,066)
(3,044)
(1,852)
(3,285)
(5,137)
Other expenses
(3,101)
-
(3,101)
(3,104)
-
(3,104)
(5,994)
-
(5,994)
______
______
______
______
______
______
_______
_______
_____
(Loss)/profit before finance costs and taxation
(3,456)
1,202
(2,254)
(3,585)
13,538
9,953
(6,054)
20,096
14,042
Finance costs
Interest payable
(617)
-
(617)
(639)
-
(639)
(1,201)
-
(1,201)
______
______
______
______
______
______
_______
_______
_____
(Loss)/profit/before taxation
(4,073)
1,202
(2,871)
(4,224)
13,538
9,314
(7,255)
20,096
12,841
Taxation
16
-
16
-
(70)
(70)
(130)
-
(130)
______
______
______
______
______
______
_______
_______
_____
(Loss)/profit for the period
(4,057)
1,202
(2,855)
(4,224)
13,468
9,244
(7,385)
20,096
12,711
======
=====
======
======
=====
======
=======
======
=====
Return per class A share USD
6
(0.092)
0.048
(0.044)
(0.070)
0.247
0.177
(0.135)
0.369
0.234
Return per class B share USD
6
(0.019)
(0.054)
(0.073)
(0.024)
(0.062)
(0.086)
(0.036)
(0.052)
(0.088)
Return per class D share USD
6
n/a
n/a
n/a
(0.042)
0.189
0.147
(0.069)
0.313
0.244
Return per class E share USD
6
n/a
n/a
n/a
(0.160)
0.788
0.628
(0.271)
1.328
1.057
All revenue and capital items in the above statement derive from continuing operations of the Company.
The Company does not have any income or expense that is not included in the loss for the period and therefore the loss for the period is also the total comprehensive income for the period.
The total column of this statement is the Statement of Total Comprehensive Income of the Company. The supplementary revenue and capital columns are prepared in accordance with the Statement of Recommended Practice ("SORP") issued by the Association of Investment Companies ("AIC") in October 2019.
The notes form part of these financial statements.
Life Settlement Assets Plc
Condensed Statement of Financial Position
as at 30 June 2020
Note
As at
30 June 2020
(unaudited)
As at
30 June
2019
(unaudited)
As at
31 December 2019
(audited)
USD'000
USD'000
USD'000
Non-current assets
Financial assets at fair value through profit or loss:
- Life settlement investments
8
80,718
83,798
78,041
_______
_______
_______
80,718
83,798
78,041
Current assets
Maturities receivable
11,110
11,709
3,867
Trade and other receivables
600
1,060
697
Premiums paid in advance
9,552
11,089
9,231
Cash and cash equivalents
14,421
36,564
28,992
_______
_______
_______
35,683
60,422
42,787
_______
_______
_______
Total assets
116,401
144,220
120,828
_______
_______
_______
Current liabilities
Other payables
(5,555)
(2,460)
(981)
Provision for performance fees
(4,407)
(4,879)
(5,054)
_______
_______
_______
Total liabilities
(9,962)
(7,339)
(6,035)
_______
_______
_______
Net assets
106,439
136,881
114,793
======
======
======
Represented by
Capital and reserves
Share capital
9
583
711
648
Special reserve
10
101,959
133,013
107,458
Capital redemption reserve
128
-
63
Capital reserve
22,712
14,882
21,510
Revenue reserve
(18,943)
(11,725)
(14,886)
_______
_______
_______
Total equity attributable to ordinary shareholders of the Company
106,439
======
136,881
======
114,793
======
Net Asset Value per share basic and diluted
Class A shares
11
2.119
2.194
2.234
Class B shares
11
0.945
1.021
1.018
Class D shares
11
n/a
1.394
0.831
Class E shares
11
n/a
5.386
2.242
The notes form part of these financial statements.
Registered in England and Wales with Company Registration number: 10918785
Condensed Statement of Changes in Equity
for the six months ended 30 June 2020
________________________________________________________
Share capital
Share premium
Special reserve
Capital
redemption
reserve
Capital reserve
Revenue
reserve
Total
USD'000
USD'000
USD'000
USD'000
USD'000
USD'000
USD'000
Six months ended 30 June 2020
Balance as at 1 January 2020
648
-
107,458
63
21,510
(14,886)
114,793
Comprehensive income for the period
-
-
-
-
1,202
(4,057)
(2,855)
Conversion of D shares to A shares
(61)
-
-
61
-
-
-
Conversion of E shares to A shares
(4)
-
-
4
-
-
-
Contributions by and distributions to owners
Dividends paid in the period
-
-
(5,499)
-
-
-
(5,499)
_____
______
_______
_______
______
_______
_______
Balance as at 30 June 2020
583
-
101,959
128
22,712
(18,943)
106,439
=====
======
=======
=======
======
=======
=======
Of which:
Realised gains
17,492
Unrealised gains
5,220
Six months to 30 June 2019
Balance as at 1 January 2019
711
133,013
-
-
1,414
(7,501)
127,637
Comprehensive income for the period
-
-
-
-
13,468
(4,224)
9,244
Contributions by and distributions to owners
Cancellation of share premium account (note 10)
-
(133,013)
133,013
-
-
-
-
____
_______
_______
_______
______
_______
_______
Balance as at 30 June 2019
711
-
133,013
-
14,882
(11,725)
136,881
====
=======
======
=======
======
=======
=======
Of which:
Realised gains
15,937
Unrealised losses
(1,055)
Period ended 31 December 2019
Balance as at 31 December 2018
711
133,013
-
-
1,414
(7,501)
127,637
Comprehensive income for the year
-
-
-
-
20,096
(7,385)
12,711
Contributions by and distributions to owners
Cancellation of share premium account (note 10)
-
(133,013)
133,013
-
-
-
-
Tender Offer July 2019
(56)
-
(10,050)
56
-
-
(10,050)
Share buybacks for cancellation
(7)
-
(1,005)
7
-
-
(1,005)
Dividends paid in year
-
-
(14,500)
-
-
-
(14,500)
_____
_______
_______
_______
______
_______
_______
Balance as at 31 December 2019
648
-
107,458
63
21,510
(14,886)
114,793
=====
=======
=======
=======
======
======
=======
Of which:
Realised gains
17,619
Unrealised gains
3,891
The notes form part of these financial statements.
The Special reserve was created as a result of the cancellation of the Share premium account following a court order issued on 18 June 2019. The Special reserve is distributable and may be used to fund purchases of the Company's own shares and to make distributions to Shareholders.
The revenue and realised capital reserves are also distributable reserves.
Life Settlement Assets Plc
Condensed Cash Flow Statement
for the six months ended 30 June 2020
____________________________________________________
Six
months ended
30 June 2020
(unaudited)
Six
months ended
30 June 2019
(unaudited)
Year ended
31 December 2019
(audited)
USD'000
USD'000
USD'000
Cash flows (used in)/from operating activities
(Loss)/profit for the period
(2,855)
9,244
12,711
Non-cash adjustment
- movement on portfolios
1,980
7,379
15,989
- value adjustment on shares in subsidiary
-
-
(360)
Investment in life settlement portfolios
(58)
(1,077)
(1,167)
Movements in "policy advances"
(4,599)
(286)
(3,050)
-
Changes in operating assets and liabilities
Changes in maturities receivables
(7,243)
6,088
13,930
Changes in trade and other receivables
97
(120)
243
Changes in premiums paid in advance
(321)
2,239
4,097
Changes in other payables
4,574
2,510
(1,034)
Changes in performance fee provision
(647)
-
2,241
Changes in liabilities to subsidiary
-
-
360
______
______
______
Net cash (outflows)/inflows (used in)/from operating activities
(9,072)
25,977
43,960
Cash flow used in financing activities
Dividends paid
(5,499)
-
(14,500)
Tender Offer and buybacks for cancellation
-
-
(11,055)
_____
______
______
Net cash flows used in financing activities
(5,499)
-
(25,555)
______
______
______
Net changes in cash and cash equivalents
(14,571)
25,977
18,405
Cash balance at the beginning of the period
28,992
10,587
10,587
______
______
______
Cash balance at the end of the period
14,421
36,564
28,992
======
======
======
The notes form part of these financial statements.
Life Settlement Assets Plc
Notes to the Condensed Financial Statements
for the six months ended 30 June 2020
Note 1 General information
Life Settlement Assets ("Life Settlement Assets" or the "Company") is a public company limited by shares and an investment company under section 833 of the Companies Act 2006. It was incorporated in England and Wales on 16 August 2017 with a registration number of 10918785. The registered office of the Company is 115 Park Street, 4th Floor, London W1K 7AP.
The principal activity of Life Settlement Assets is to manage investments in whole and partial interests in life settlement policies issued by life insurance companies operating predominantly in the United States.
In May 2018, the Company received confirmation from HM Revenue & Customs of its approval as an investment trust for tax accounting periods commencing on or after 26 March 2018, subject to the Company continuing to meet the eligibility conditions contained in section 1158 of the Corporation Tax Act 2010 and the ongoing requirements in Chapter 3 of Part 2 of the Investment Trust (Approved Company) (Tax) Regulations 2011(Statutory Instrument 2011/2999).
The Company currently has two classes of Ordinary Shares in issue, namely A and B, each of which principally participates in a separate portfolio of life settlement assets and associated liabilities, which were acquired from Acheron Portfolio Corporation (Luxembourg) SA ("APC" or the "Predecessor Company") on 26 March 2018.
The Ordinary Share classes D and E were cancelled following the merger of Ordinary Share Classes A, D and E on 5 May 2020.
Note 2 IFRS accounting policies
2.1 Basis of preparation
These condensed interim financial statements have been prepared using the same accounting policies and methods of computation as in the 2019 annual financial statements.
The condensed financial statements, which comprise the unaudited results of the Company have been prepared in accordance with International Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"), as adopted by the European Union. They have also been prepared in accordance with the SORP for investment companies issued by the AIC in October 2019, except to the extent that it conflicts with IFRS. The accounting policies are as set out in the Report and Accounts for the period ended 31 December 2019.
The half-year financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting".
The financial information contained in this Half-Yearly financial report does not constitute statutory accounts as defined by the Companies Act 2006.The financial information for the periods ended 30 June 2020 and 30 June 2019 have not been audited or reviewed by the Company's Auditor. The figures and financial information for the year ended 31 December 2019 are an extract from the latest published audited statements and do not constitute the statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and include a report of the Auditor, which was unqualified and did not contain a statement under either Section 498(2) or 498(3) of the Companies Act 2006.
2.2 Changes in accounting policy and disclosures
Standards and amendments to existing standards that are not yet effective and have not been early adopted by the Company
The following new standard has been published but is not effective for the Company's accounting period beginning on 1 January 2020. The Directors do not expect the adoption of the following new standard to have a significant impact on the financial statements of the Company in future periods.
IFRS 17 "Insurance contracts" applies to insurance contracts, including reinsurance contracts issued by an entity; reinsurance contracts held by an entity; and investment contracts with discretionary participation features issued by an entity that issues insurance contracts. IFRS 17 will be effective for reporting periods beginning on or after 1 January 2023. As IFRS 17 is not relevant to the life settlement market, it is expected that it will have no impact on the Company's financial statements.
Going concern
The Directors have made an assessment of the Company's ability to continue as a going concern and are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future (being a period of 12 months from the date these financial statements were approved). Furthermore, the Directors are not aware of any material uncertainties that may cast significant doubt upon the Company's ability to continue as a going concern, having taken into account the liquidity of the Company's investment portfolio and the Company's financial position in respect of its cash flows, liabilities from its assets and the ongoing charges, including annual premiums which are approximately 16% of net assets. Therefore, the financial statements have been prepared on the going concern basis and on the basis that approval as an investment trust will continue to be met.
Note 3 Gains from life settlement portfolios
30 June 2020
30 June 2019
31 December 2019
USD'000
USD'000
USD'000
Realised gains:
- Maturities
12,202
33,948
58,725
- Acquisition cost of maturities and fair value movement
(3,309)
(6,323)
(17,218)
______
______
______
Sub total
8,893
27,625
41,507
Incurred premiums
(9,667)
(10,966)
(19,355)
Unrealised gains/(losses)
- Fair value adjustments
1,329
(1,055)
1,229
______
______
______
555
15,604
23,381
======
======
======
When a maturity is declared, a realised capital gain or loss is recognised on the investment in the policy, calculated by deducting from the value of the maturity the initial acquisition cost and the previously unrealised fair value adjustments.
The amount of premiums incurred during the period is reflected as a deduction of income from life settlement portfolios. The amount of premiums paid in advance amounted to USD 9,552,000 as at 30 June 2020 (30 June 2019: USD 11,089,000, 31 December 2019: USD 9,231,000).
Note 4 Management fees and performance fees
30 June
2020
30 June
2019
31 December
2019
USD'000
USD'000
USD'000
Acheron Capital management fees
855
978
1,852
Performance fees
(647)
2,066
3,285
______
_____
_____
208
3,044
5,137
=====
=====
=====
Under an agreement dated 26 March 2018, the Investment Manager is entitled to a management fee payable by the Trust at an annual rate of no more than 1.5% of the Net Asset Value for classes A and B. Previously, until the merger of classes A, D and E on 5 May 2020, an annual rate of no more than 1.5% of the Net Asset Value was payable in respect of classes A, B and D and 2% in respect of class E. Management fees paid in the period amounted to USD 855,000 (30 June 2019: USD 978,000, 31 December 2019:USD 1,852,000).
The Performance fee in respect of the Trust shall be an amount equal to 25% of the sum of the distributions made to the holders of the Shares in the Company corresponding to the Trust, in excess of the Performance Hurdle (assessed at the time of each distribution).
The "Performance Hurdle" is met when (from time to time) the aggregate distributions (in excess of the Catch-Up Amount) made to the holders of the corresponding Ordinary Shares compounded at 3% per annum for classes A and B, and prior to 5 May 2020, 5% for classes D and E (from the date of each distribution) equal the aggregate investment made by the Ordinary Shares in the Company (from time to time) compounded at 3% and 5% respectively.
The "Catch-Up Amount" is an amount equal to the distributions that would have been required to be made to the Predecessor Company's shareholders of the corresponding share class in order for the Accrued Performance Distributions (less, where applicable, any clawback of such Accrued Performance Distributions) to be paid (determined as at 30 June 2020), reduced by an amount equal to any distributions paid to the Predecessor Company's shareholders of the relevant share class prior to the Acquisition.
Note 5 Taxation
The Company has an effective UK tax rate of 0% for the year ending 31 December 2020. The estimated effective tax rate is 0% as investment gains are exempt from tax owing to the Company's status as an investment trust and there is expected to be an excess of management expenses over taxable income.
The company suffers US withholding tax on income received dividends and interest. The tax credit for the period amounted to USD 16,000.
Withholding tax on matured policies
In accordance with the taxation treaty between the United States of America and the United Kingdom, withholding tax on matured policies is not due if at least 6% of the average capital stock of the main class of Shares is traded during the previous year on a recognised stock exchange. The Board believes that in the period ended 31 December 2019 the Company has fulfilled this requirement.
Note 6 Return per share
As stated in Note 9, the share capital of the Company comprises 58,320,157 shares represented by 43,724,059 A Shares and 14,596,098 B Shares. Share Classes D and E were cancelled following the merger of Share Classes A,D and E on 5 May 2020. All Shares are fully paid. Neither unpaid shares nor any kind of option are outstanding, so the basic (loss)/profit per share is also the diluted (loss)/profit per share.
As the different classes of Shares have specific rights in relation to their investments, the net (loss)/profit per share is given for each Share Class:
Six months ended 30 June 2020
Class A
Class B
Class D
Class E
Earnings per share:
Revenue return (USD'000)
(3,776)
(283)
n/a
n/a
Capital return (USD'000)
1,984
(780)
n/a
n/a
Total return (USD'000)
(1,792)
(1,063)
n/a
n/a
Weighted average number of shares in the period
41,070,674
14,596,098
n/a
n/a
Income return per share (USD)
(0.092)
(0.019)
n/a
n/a
Capital return per share (USD)
0.048
(0.054)
n/a
n/a
Basic and diluted total earnings per share (USD)
(0.044)
(0.073)
n/a
n/a
Six months ended 30 June 2019
Class A
Class B
Class D
Class E
Earnings per share:
Revenue return (USD'000)
(3,207)
(349)
(391)
(276)
Capital return (USD'000)
11,243
(899)
1,757
1,366
Total return (USD'000)
8,036
(1,248)
1,366
1,090
Weighted average number of shares in the period
45,446,946
14,596,098
9,292,561
1,733,269
Income return per share (USD)
(0.070)
(0.024)
(0.042)
(0.160)
Capital return per share (USD)
0.247
(0.062)
0.189
0.788
Basic and diluted total earnings per share (USD)
0.177
(0.086)
0.147
0.628
Period ended 31 December 2019
Class A
Class B
Class D
Class E
Earnings per share:
Revenue return (USD'000)
(5,768)
(531)
(632)
(454)
Capital return (USD'000)
15,778
(755)
2,852
2,221
Total return (USD'000)
10,010
(1,286)
2,220
1,767
Weighted average number of shares in the year
42,691,999
14,596,098
9,106,812
1,672,113
Income return per share (USD)
(0.135)
(0.036)
(0.069)
(0.271)
Capital return per share (USD)
0.369
(0.052)
0.313
1.328
Basic and diluted total earnings per share (USD)
0.234
(0.088)
0.244
1.057
Note 7 Financial instruments measured at fair value
The life settlement portfolios have been classified as financial assets held at fair value through profit or loss as their performance is evaluated on a fair value basis.
The fair value hierarchy set out in IFRS 13 groups financial assets and liabilities into three levels based on the significant inputs used in measuring the fair value of the financial assets and liabilities.
The fair value hierarchy has the following levels:
- level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
- level 2: inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
- level 3: inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
The life settlement portfolios of USD 80,718,000 (30 June 2019: USD 83,798,000, 31 December 2019: USD 78,041,000) are all classified as level 3.
Note 8 Financial assets held at fair value through profit or loss: Life Settlement Portfolios
Movements for the period are as follows:
As at 30 June
2020
USD'000
As at 30 June
2019
USD'000
As at 31 December 2019
USD'000
Opening valuation
78,041
89,813
89,813
Acquisitions during the period
58
1,077
1,167
Proceeds from matured policies
(12,202)
(33,948)
(58,725)
Net realised gains on policies
8,893
27,625
41,507
Movements in cash from policy advances
4,599
286
3,050
Movements in unrealised valuation
1,329
(1,055)
1,229
_______
_______
______
Closing valuation
80,718
83,798
78,041
=======
=======
======
Details at period end:
USD'000
USD'000
USD'000
Acquisition value
90,113
104,169
93,364
Unrealised capital gains
5,220
1,607
3,891
Policy advances
(14,615)
(21,978)
(19,214)
_______
_______
_______
Closing valuation
80,718
83,798
78,041
=======
=======
=======
Distribution of the portfolio by class of Shares and by type of risk:
30 June 2020
Class A
Class B
Class D
Class E
Total
USD'000
USD'000
USD'000
USD'000
USD'000
Elderly life insurance
(non-HIV) portfolio
19,996
10,722
-
-
30,718
HIV portfolio
50,000
-
-
-
50,000
______
_____
_____
_____
______
Balance as at
30 June 2020
69,996
10,722
-
-
80,718
======
=====
=====
=====
======
Fair market value reflects the view of Acheron Capital Ltd, the Investment Manager of the trust in which the policies of Class A and B are kept.
30 June 2019
Class A
Class B
Class D
Class E
Total
USD'000
USD'000
USD'000
USD'000
USD'000
Elderly life insurance
(non-HIV) portfolio
20,715
9,832
5,200
2,757
38,504
HIV portfolio
41,773
-
2,484
1,037
45,294
_____
_____
_____
_____
_____
Balance as at
30 June 2019
62,488
9,832
7,684
3,794
83,798
=====
=====
=====
====
=====
31 December 2019
Class A
Class B
Class D
Class E
Total
USD'000
USD'000
USD'000
USD'000
USD'000
Elderly life insurance
(non-HIV) portfolio
15,751
10,739
4,527
1,841
32,858
HIV portfolio
42,380
-
1,916
887
45,183
______
_____
_____
_____
______
Balance as at
31 December 2019
58,131
10,739
6,443
2,728
78,041
======
=====
=====
=====
======
Note 9 Share Capital
At the 30 June 2020, (the Company's share capital amounts to USD 583,202 (30 June 2019: USD 710,689, 31 December 2019: 648,467) and is represented by 58,320,157 ordinary shares of USD 0.01 each. Share classes D and E were cancelled on 5 May 2020 following the merger of Share Classes A, D and E.
Class A
Class B
Class D
Class E
Total
USD'000
USD'000
USD'000
USD'000
USD'000
Balance as at
31 December 2018
455
146
93
17
711
Buybacks and Tender Offer in the year
(56)
-
(5)
(2)
(63)
_____
_____
_____
_____
_____
Balance as at
31 December 2019
399
146
88
15
648
_____
_____
_____
_____
_____
Capital reorganisation on 5 May 2020
38
-
(88)
(15)
(65)
_____
_____
_____
____
_____
Balance as at
30 June 2020
437
146
-
-
583
_____
_____
_____
____
_____
The issued and fully paid share capital is comprised of 43,724,059 Class A shares, and 14,596,098 Class B shares.
Class A and Class B shares relate to specific investments determined by the Board of Directors or as the case may be, by a general meeting of Shareholders. Each investment is undertaken for the exclusive benefit and risk of the relevant class of shares. All shares have equal voting rights.
As announced on 4 May 2020, the Company undertook a capital reorganisation whereby the shares of Classes D and E were merged into class A shares. A total of 8,792,561 D shares and 1,566,603 E shares were redesignated as 3,832,668 A shares.
Note 10 Special reserve
The Special reserve was created as a result of the cancellation of the Share premium account following a court order issued on 18 June 2019. The Special reserve is distributable and may be used to fund purchases of the Company's own shares and to make distributions to Shareholders.
Note 11 Net assets and net asset value per Share Class
The Net Asset Value (NAV) for each Share Class is shown below.
30 June 2020
Class A
Class B
Class D
Class E
Total
Net assets (USD'000)
92,639
13,800
n/a
n/a
106,439
Number of shares
43,724,059
14,596,098
n/a
n/a
58,320,157
NAV per share (USD)
2.119
0.945
n/a
n/a
30 June 2019
Class A
Class B
Class D
Class E
Total
Net assets (USD'000)
99,687
14,901
12,957
9,336
136,881
Number of shares
45,446,946
14,596,098
9,292,561
1,733,269
71,068,874
NAV per share (USD)
2.194
1.021
1.394
5.386
31 December 2019
Class A
Class B
Class D
Class E
Total
Net assets (USD'000)
89,108
14,863
7,310
3,512
114,793
Number of shares
39,891,391
14,596,098
8,792,561
1,566,603
64,846,653
NAV per share (USD)
2.234
1.018
0.831
2.242
Note 12 Related party transactions
Related parties to the Company are the members of the Board of Directors of the Company, Compagnie Européenne de Révision S.à r.l. as Administrator who has a member on the Board of Directors and the Trustee of the US trust who is also a member of the Board of Directors.
30 June 2020
USD'000
Per income statement:
Trustee fees
62
Compagnie Européenne de Révision S.à r.l.
115
Directors' fees
78
Amounts payable per balance sheet:
Compagnie Européenne de Révision S.à r.l.
50
Directors' fees
23
=====
Shares held by related parties (Directors and companies under their control) - Michael Baines 75,000 B shares
All transactions with related parties are undertaken at arm's length.
Note 13 Post balance sheet events
Subsequent to the period end, the Company has declared an interim dividend of 4.5741 cents per Class A share totalling USD 2.0 million. Further details are given in the Chairman's statement.
ADDITIONAL INFORMATION
Additional information of exhibits I and II do not form part of the condensed financial statements.
EXHIBIT I (unaudited)
Life Settlement Assets Plc
Class A Shares
Statement of Comprehensive Income
for the six months ended 30 June 2020
Six months
ended
30 June 2020
Six months
ended
30 June 2019
Year ended
31 December 2019
(unaudited)
(unaudited)
(audited)
USD'000
USD'000
USD'000
Income
Income from life settlement portfolios
399
372
752
Gains from life settlement portfolios
605
12,800
18,091
Other income
6
47
601
Net foreign exchange loss
(6)
(12)
(17)
______
______
______
Total income
1,004
13,207
19,427
Operating expenses
Investment management fees
53
(2,174)
(3,655)
Other expenses
(2,758)
(2,295)
(4,447)
______
______
______
(Loss)/profit before finance costs and taxation
(1,701)
8,738
11,325
Finance costs
Interest payable
(615)
(632)
(1,185)
______
______
______
(Loss)/profit before taxation
(2,316)
8,106
10,140
Taxation
16
(70)
(130)
______
______
______
(Loss)/profit for the period
(2,300)
8,036
10,010
Contribution from merger of Share Classes D & E
508
-
-
______
______
______
(Loss)/profit for the period
(1,792)
8,036
10,010
======
======
======
EXHIBIT I (unaudited)
Life Settlement Assets Plc
Class A Shares
Statement of Financial Position
as at 30 June 2020
As at
30 June
2020
(unaudited)
USD'000
As at
30 June
2019
(unaudited)
USD'000
As at
31 December 2019
(audited)
USD'000
ASSETS
Non-current assets
Financial assets at fair value through profit or loss:
- Life settlement investments69,996
62,488
58,131
______
______
______
69,996
62,488
58,131
Current assets
Maturities receivables
10,569
8,099
2,822
Trade and other receivables
491
702
377
Premiums paid in advance
8,151
7,359
6,536
Cash and cash equivalents
13,096
23,263
23,995
Inter-class receivables
208
842
219
______
______
______
32,515
40,265
33,949
______
______
______
Total assets
102,511
102,753
92,080
______
_______
______
Current liabilities
Other payables
(5,465)
(1,580)
(659)
Provision for performance fees
(4,407)
(1,486)
(2,313)
______
______
______
Total liabilities
(9,872)
(3,066)
(2,972)
______
______
______
Net assets
92,639
99,687
89,108
======
======
======
Represented by
Capital and reserves
Share capital
437
455
399
Special reserve
83,501
95,006
82,454
Capital redemption reserve
128
-
56
Capital reserve
26,044
13,132
17,667
Revenue reserve
(17,471)
(8,906)
(11,468)
______
______
______
Total equity attributable to ordinary shareholders of the Company
92,639
======
99,687
======
89,108
======
EXHIBIT II (unaudited)
Life Settlement Assets Plc
Class B Shares
Statement of Comprehensive Income
for the six months ended 30 June 2020
Six months ended
30 June 2020
Six months ended
30 June 2019
Year ended
31 December 2019
(unaudited)
(unaudited)
(audited)
USD'000
USD'000
USD'000
Income
Income from life settlement portfolios
6
19
31
Losses from life settlement portfolios
(783)
(899)
(755)
Other income
49
8
116
______
_____
______
Total income
(728)
(872)
(608)
Operating expenses
Investment management fees
(111)
(121)
(242)
Other expenses
(223)
(253)
(432)
______
_____
______
Loss before finance costs and taxation
(1,062)
(1,246)
(1,282)
Finance costs
Interest payable
(1)
(2)
(4)
______
_____
______
Loss before taxation
(1,063)
(1,248)
(1,286)
Taxation
-
-
-
______
_____
______
Loss for the period
(1,063)
(1,248)
(1,286)
=====
====
=====
EXHIBIT II (unaudited)
Life Settlement Assets Plc
Class B Shares
Statement of Financial Position
as at 30 June 2020
As at
30 June 2020
(unaudited)
USD'000
As at
30 June 2019
(unaudited)
USD'000
As at
31 December 2019
(audited)
USD'000
ASSETS
Non-current assets
Financial assets at fair value through profit or loss:
Life settlement investments
10,722
9,832
10,739
______
______
_______
10,722
9,832
10,739
Current assets
Maturities receivables
541
1,169
513
Trade and other receivables
109
114
113
Premiums paid in advance
1,401
1,828
1,385
Cash and cash equivalents
1,325
2,781
2,269
______
______
_______
3,376
5,892
4,280
______
______
_______
Total assets
14,098
15,724
15,019
______
______
_______
Current liabilities
Other payables
(90)
(482)
(122)
Inter class payables
(208)
(341)
(34)
______
______
_______
Total liabilities
(298)
(823)
(156)
______
______
_______
Net assets
13,800
14,901
14,863
=====
=====
======
Represented by
Capital and reserves
Share capital
146
146
146
Special reserve
18,458
18,459
18,458
Capital reserve
(3,332)
(2,696)
(2,552)
Revenue reserve
(1,472)
(1,008)
(1,189)
______
______
_______
Total equity attributable to ordinary shareholders of the Company
13,800
======
14,901
======
14,863
======
COMPANY INFORMATION
Directors
Michael Baines Chairman
Christopher Casey
Robert Edelstein
Franck Mathé
Yves Metz
Guner Turkman
Registered Office
115 Park Street
4th Floor
London W1K 7AP
Auditors
BDO LLP
55 Baker Street
London
W1U 7EU
Trust's Investment Manager
Acheron Capital Limited
115 Park Street
4th Floor
London W1K 7AP
Share Registrars
Link Asset Services
34 Beckenham Road
Beckenham
Kent BR3 4TU
Brokers
Shore Capital
Cassini House
57 St James Street
London
SW1A 1LD
Company Secretary
ISCA Administration Services Limited
Suite 8,
Bridge House
Courtenay Street
Newton Abbot
TQ12 2QS
Email: lsa@iscaadmin.co.uk
Telephone: 01392 487056
LEI: 2138003OL2VBXWG1BZ27
Website - https://www.lsaplc.com
Registered in England and Wales with Company Registration number: 10918785
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