REG - Life Settlement - Half-year Report
28/09/2022 07:01
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RNS Number : 9073A Life Settlement Assets PLC 28 September 2022
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 2022.
Highlights
· Total maturities during the period were USD $16.3 million (H1 2021 USD
$25.8 million)
· Estimated AE ratio ("actual to expected ratio") of HIV segment of 54%,
and of non-HIV segment of 168%, aggregating to 127%
· The Company's Net Asset Value ("NAV") as at 30 June 2022 was $USD 2.20
per share
· Acquisition of small portfolios of 20 fractional policies with a face
value of USD $1.6 million
· Cost reductions continuing to be a strategic priority including
making agreed changes to the Investment Manager's remuneration
· Ongoing litigation progressing satisfactorily albeit slower than hoped.
Resolution expected during the first half of 2023.
Michael Baines, Chairman, commented:
"Whilst the market background in this period reflects the challenges arising
from greatly increased global geopolitical tensions and resulting economic
turbulence, the non-correlation of the Company's performance with financial
markets is reassuring. Overall, whilst the portfolio has had mixed results
reflecting the nature of the asset base, it has outperformed expectations,
considering the estimated Actual to Expected maturity performance on an
aggregated basis.
Our focus as a Board is on seeking a successful conclusion to the litigation
being pursued, and continuing to achieve cost reductions, while at the same
time promoting awareness of the Company as a truly decorrelated asset class
and attractive alternative investment, against the background of broader
economic uncertainty."
Enquiries
For further information, please visit https://www.lsaplc.com/
(https://www.lsaplc.com/) , or contact:
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
Company performance
Performance analysis is provided in the tables below:
A Share Class
As at As at Percentage
30 June 31 December Change
2022 2021 (%)
Net assets attributable to Shareholders (USD '000)
109,415 109,314 0.1
Shares in issue 49,826,784 49,826,784 -
NAV per share (USD) 2.20 2.19 0.5
Closing share price (USD) 1.39 1.43 (2.8)
(Discount) to NAV (%) (36.7) (34.7) (2.0)
As at/period to As at/period to Percentage
30 June 30 June Change
2022 2021 (%)
Total maturities (USD '000) 16,266 25,787 (36.9)
Net income from portfolio (USD '000) 4,892 14,630 (66.6)
Profit for the period (USD '000) 101 8,553 (98.8)
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 2022. The market background in this
period reflects the challenges arising from greatly increased global
geopolitical tensions and resulting economic turbulence. Positively for the
Company, the non-correlation of our performance with financial markets, and
the strong US dollar, work in favour of our investment case and are factors
which may strengthen in the face of recessionary headwinds. However, these
factors are balanced by higher discount rates and inflationary pressure on
costs.
Investment overview
The financial highlights above show the results for the half year to 30 June
2022. The Company has continued its strategy of streamlining the Company's
structure with an aim to reduce costs over the longer term, which has been
ongoing from the start of LSA's London Listing. These steps have included
consolidation of all the Company's share classes into Share Class A and, since
the start of 2022, we have also reduced by agreement the future cost to the
Company of the Investment Manager's activities.
For the time being, however, our overall performance is still impacted by the
ongoing litigation costs in the USA in the previously announced MBC case,
where legal action has been taken by the Company in order to protect or
enhance the value of existing investments. Progress continues to be made,
albeit at a frustratingly slow pace, regarding the Company's participation in
the judicially approved sale process relating to the relevant portfolio,
through which we aim to secure an important enhancement to portfolio value.
Once resolved, the Company will, through the Acheron Portfolio Trust, then
overwhelmingly only own 'whole' policies rather than fractional entitlements.
This will improve risk management in the future.
Recent judicial decisions regarding the auction procedure made since the
middle of the calendar year have been encouraging for the Company and,
although progress has been slower than we had hoped, we believe the matter
should be resolved in the first half of 2023. Resolution of this litigation
will have important consequences for the Company. First, the litigation costs
forming part of the ongoing cost base will be significantly reduced, whilst
secondly, it will mark the end of the need to accumulate cash resources to
purchase the relevant policy interests, so enabling the Board to resume
further distributions to Shareholders.
The portfolio itself has had mixed results over the first six months
reflecting the nature of the asset base. The non-HIV policy component of the
portfolio has experienced higher maturities than expected, while the HIV
policy component had significantly less. On an aggregated basis, this has
meant higher than expected cash receipts, but with results close to net asset
value, reflecting the full internal valuation of the policies that have
matured in the period.
Continuing the policy described at the time of publication of the 2021 Annual
Report in April 2022, the Board has so far resolved to defer any decision
regarding payment of a special dividend until the final MBC auction takes
place, and the result is known and fully assessed.
The Life Settlement Market
Recent market volatility, high inflation, and overall economic dynamics are
increasing the risk levels for investors across all asset classes. The
prospects of a recession tend to increase interest in truly decorrelated asset
classes, which includes life settlement assets. As increased amounts of
investment capital enter the secondary market for life insurance,
institutional buyers compete for the limited supply of policies available for
purchase. This trend has supported increased awareness of the concept of life
settlements as an attractive alternative asset class.
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, shown by exposure to HIV
and non-HIV positive insureds as at 30 June 2022.
HIV and Non-HIV Exposed Policies
HIV Non-HIV Total
Number of policies 4,147 151 4,298
Total gross face value (USD million) 378.4 87.2 465.6
Valuation (cash in policy included (USD million) 42.1 23.8 65.9
Percentage of face (cash in policy included) 11.1% 27.3% 14.2%
In the first half of 2022, small portfolios of fractional policies, to which
the trusts were already overwhelmingly exposed, were added. 20 policies with a
coverage of USD 1.6 million were assigned to the portfolio held by Acheron
Portfolio Trust.
Maturities in the period to 30 June 2022
Maturities USD million
HIV Maturities 2.6
Non-HIV Maturities 13.7
Total Maturities 16.3
In the period under review, considering the estimated Actual to Expected
maturity performance ("AE") on an aggregated basis, the portfolio outperformed
expectations. In particular, the non-HIV segment of the portfolio experienced
high level of maturities, with estimated AE of 168% until June 2022. However,
the HIV segment of the portfolio had an estimated AE of only 54% by June 2022.
This relative underperformance for HIV and overperformance for non-HIV life
settlements demonstrates how short term results may not always reflect longer
term trends as has been observed in the past, and we would typically expect
this to reverse over time. While recent improvements suggest this, the
assumptions underlying the valuation model are kept under review, and outputs
are carefully monitored to ensure that they do not reveal any new trends which
could potentially affect valuations.
The Actual to Expected ratio achieved in the period is set out in the table
below.
AE*
HIV 54%
Non-HIV 168%
Total 127%
* in maturity dollar amounts, estimated until June 2022
As at 30 June 2022 the net asset value ('NAV') of the A shares was USD 2.20
per share.
The NAV performance history can be seen in the table below.
Year Jan Feb Mar April May Jun YTD
Total NAV Return 2022 -1.59% -1.05% 0.16% -0.29% 1.00% 1.93% 0.10%
Portfolio Composition
Further information on the composition of the portfolio as at 30 June 2022 can
be found on our website
https://www.lsaplc.com/investor-relations/reports-company-literature
(https://www.lsaplc.com/investor-relations/reports-company-literature)
Distributions
No distributions were made to Shareholders in the period.
Outlook
The Board's focus is on seeking a successful conclusion to the litigation
being pursued to protect and enhance the value of the Company's portfolio.
This outcome is not assured but the Board is encouraged by recent progress.
Alongside this, the Board expects to make good progress in continuing to
achieve cost reductions, while at the same time promoting awareness of the
attraction of investment in the Company's asset base against the background of
broader economic uncertainty.
Michael Baines
Chairman
27 September 2022
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 adopted 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.
· Earnings per share - this is a key measure of financial
performance used to assess the fortunes of the Company over each financial
period.
· 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.
· Running costs - The Ongoing Charges of the Company for the
financial period under review represented 8.7% (year to 31 December 2021:
7.6%) of average net assets. Excluding the servicing and legal costs the ratio
would be 3.9%.
Shareholders should note that this ratio has been calculated in accordance
with the Association of Investment Companies' ("AIC") recommended methodology,
published in May 2012. This figure indicates the annual percentage reduction
in Shareholder returns as a result of recurring operational expenses. Although
the Ongoing Charges figure is based on historic information, it does provide
Shareholders with a guide to the level of costs that may be incurred by the
Company in the future.
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
2021.
The principal risks faced by the Company include, but are not limited to:
· Mortality risk
· Premium management risk
· Volatility risk
· Fractional premium risk
· Fractional ownership 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 21 to 24 and in Note 4
to the Financial Statements on pages 63 to 66 of the 2021 Annual Report and
Accounts - copies can be found via the Company's website, www.lsaplc.com
(http://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 (Audit Committee Chairman) 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 as adopted in the UK and gives a
true and fair view of the assets, liabilities, financial position and profit
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 27September
2022 and the above responsibility statement was signed on its behalf by:
Michael Baines
Chairman
27 September 2022
Condensed Statement of Comprehensive Income
for the six months ended 30 June 2022
______________________________________________
Six months ended Six months ended Year ended
30 June 2022 30 June 2021 31 December 2021
(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
Gains from life settlement portfolios 3
Maturities - 16,266 16,266 - 25,787 25,787 - 38,510 38,510
Acquisition cost of maturities and fair value movement
- (3,644) (3,644) - (4,751) (4,751) - (7,443) (7,443)
Sub total - 12,622 12,622 - 21,036 21,036 - 31,067 31,067
Incurred premiums paid in period on all policies
- (7,944) (7,944) - (7,770) (7,770) - (15,434) (15,434)
Unrealised gains
Fair value adjustments
- (89) (89) - 955 955 - 9,199 9,199
Income from life settlement portfolios
301 - 301 313 - 313 942 - 942
Other income 6 - 6 102 - 102 107 - 107
Net foreign exchange loss
(4) - (4) (6) - (6) (9) - (9)
______ ______ ______ ______ ______ ______ _______ _______ ______
Total income 303 4,589 4,892 409 14,221 14,630 1,040 24,832 25,872
Operating expenses
Investment management fees 4 (820) 267 (553) (758) (1,250) (2,008) (1,547) (2,509) (4,056)
Other expenses (3,832) - (3,832) (3,578) - (3,578) (6,545) - (6,545)
______ ______ ______ ______ ______ ______ _______ _______ _____
(Loss)/profit before finance costs and taxation (4,349) 4,856 507 (3,927) 12,971 9,044 (7,052) 22,323 15,271
Finance costs
Interest payable (406) - (406) (389) - (389) (732) - (732)
______ ______ ______ ______ ______ ______ _______ _______ _____
(Loss)/profit/before taxation (4,755) 4,856 101 (4,316) 12,971 8,655 (7,784) 22,323 14,539
Taxation - - - (102) - (102) (101) - (101)
______ ______ ______ ______ ______ ______ _______ _______ _____
(Loss)/profit for the period (4,755) 4,856 101 (4,418) 12,971 8,553 (7,885) 22,323 14,438
====== ===== ====== ====== ===== ====== ======= ====== =====
Return per class A share USD 6 (0.095) 0.097 0.002 (0.099) 0.291 0.192 (0.167) 0.472 0.305
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
profit for the period and therefore the profit 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 April 2021.
The notes form part of these financial statements.
Condensed Statement of Financial Position
as at 30 June 2022
As at As at As at
30 June 2022 30 June 31 December 2021
(unaudited) 2021 (audited)
Note (unaudited)
USD'000 USD'000 USD'000
Non-current assets
Financial assets at fair value through profit or loss:
- Life settlement investments 8 65,902 85,095 88,024
_______ _______ _______
65,902 85,095 88,024
Current assets
Maturities receivable 15,454 8,739 6,205
Trade and other receivables 17 348 330
Premiums paid in advance 6,277 7,301 6,525
Cash and cash equivalents 25,902 15,716 12,026
_______ _______ _______
47,650 32,104 25,086
_______ _______ _______
Total assets 113,552 117,199 113,110
_______ _______ _______
Current liabilities
Other payables (1,556) (9,680) (948)
Provision for performance fees (2,581) (1,589) (2,848)
_______ _______ _______
Total liabilities (4,137) (11,269) (3,796)
_______ _______ _______
Net assets 109,415 105,930 109,314
====== ====== ======
Represented by
Capital and reserves
Share capital 9 498 498 498
Special reserve 10 94,290 96,791 94,290
Capital redemption reserve 213 213 213
Capital reserve 49,580 35,372 44,724
Revenue reserve (35,166) (26,944) (30,411)
_______ _______ _______
Total equity attributable to ordinary Shareholders of the Company
109,415 105,930 109,314
====== ====== ======
Net Asset Value per share basic and diluted
Class A shares USD 11 2.20 2.13 2.19
Registered in England and Wales with Company Registration number: 10918785
The notes form part of these financial statements.
Condensed Statement of Changes in Equity
for the six months ended 30 June 2022
________________________________________________________
Capital
Share capital Special reserve redemption Capital reserve Revenue
reserve reserve Total
USD'000 USD'000 USD'000 USD'000 USD'000 USD'000
Six months ended 30 June 2022
Balance as at 31 December 2021 498 94,290 213 44,724 (30,411) 109,314
Comprehensive income/(loss) for the period - 4,856 (4,755) 101
- -
____ _______ _______ ______ _______ _______
Balance as at 30 June 2022 498 94,290 213 49,580 (35,166) 109,415
===== ======= ======= ====== ======= =======
Of which:
Realised gains 39,752
Unrealised gains 9,828
Six months to 30 June 2021
Balance as at 31 December 2020 583 99,614 128 22,401 (22,526) 100,200
Comprehensive income/(loss) for the period - 12,971 (4,418) 8,553
- -
Contributions by and distributions to owners
Merger of B share class (85) - 85 - - -
Costs of B class merger - (223) - - - (223)
Dividends paid in the period - (2,600) - - - (2,600)
____ _______ _______ ______ _______ _______
Balance as at 30 June 2021 498 96,791 213 35,372 (26,944) 105,930
==== ====== ======= ===== ====== ======
Of which:
Realised gains 33,628
Unrealised gains 1,744
Year ended 31 December 2021
Balance as at 31 December 2020 583 99,614 128 22,401 (22,526) 100,200
Comprehensive income/(loss) for the year - - - 22,323 (7,885) 14,438
Contributions by and distributions to owners
Merger of B share class (85) - 85 - - -
Costs of B class merger - (224) - - - (224)
Dividends paid in year - (5,100) - - - (5,100)
_____ _______ _______ ______ _______ ______
Balance as at 31 December 2021 498 94,290 213 44,724 (30,411) 109,314
===== ====== ======= ====== ====== ======
Of which:
Realised gains 34,582
Unrealised gains 10,142
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.
The notes form part of these financial statements.
Condensed Cash Flow Statement
for the six months ended 30 June 2022
____________________________________________________
Six Six Year ended
months ended months ended 31 December 2021
30 June 2022 30 June 2021 (audited)
(unaudited) (unaudited)
USD'000 USD'000 USD'000
Cash flows from operating activities
Profit for the period 101 8,553 14,438
Non-cash adjustment
- movement on portfolios 3,958 3,796 (1,756)
Investment in life settlement portfolios (53) (11,199) (11,282)
Movements in "policy advances" 18,217 (49) 2,657
Changes in operating assets and liabilities
Changes in maturities receivables (9,249) 539 3,073
Changes in trade and other receivables 313 103 121
Changes in premiums paid in advance 248 1,053 1,829
Changes in other payables 608 8,668 (64)
Changes in performance fee provision (267) 1,250 2,509
______ ______ ______
Net cash from operating activities 13,876 12,714 11,525
Cash flow used in financing activities
Dividends paid - (2,600) (5,100)
Costs of A & B share class merger - (223) (224)
_____ _____ ______
Net cash flows used in financing activities - (2,823) (5,324)
______ ______ ______
Net changes in cash and cash equivalents 13,876 9,891 6,201
Cash balance at the beginning of the period 12,026 5,825 5,825
______ ______ ______
Cash balance at the end of the period 25,902 15,716 12,026
====== ====== ======
The notes form part of these financial statements.
Notes to the Condensed Financial Statements
for the six months ended 30 June 2022
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 one class of Ordinary Shares in issue, namely the A
shares which principally participates in a 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 B Share class was cancelled following the merger of Ordinary
Share Classes A and B on 3 June 2021.
The Ordinary Share classes D and E were cancelled following the merger of
Ordinary Share Classes A, D and E on 30 April 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 2021 annual financial
statements.
The condensed financial statements, which comprise the unaudited results of
the Company have been prepared in accordance with UK adopted International
Reporting Standards ("IFRS") and with the requirements of the Companies Act
2006. They have also been prepared in accordance with the SORP for investment
companies issued by the AIC in April 2021, 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 2021.
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 2022 and 30 June 2021 have
not been audited or reviewed by the Company's Auditor. The figures and
financial information for the year ended 31 December 2021 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 2022. 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.
2.3 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. 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
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 as at 30 June 2022 amounted to USD 6,277,000 (30 June 2021: USD
7,301,000, 31 December 2021: USD 6,525,000).
Note 4 Management fees and performance fees
30 June 30 June 31 December
2022 2021 2021
USD'000 USD'000 USD'000
Acheron Capital management fees 820 758 1,547
Performance fees (267) 1,250 2,509
______ ______ _____
553 2,008 4,056
===== ===== =====
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 class A. Previously, until the merger of classes
A, D and E on 30 April 2020 and A and B on 3 June 2021 an annual rate of no
more than 1.5% of the Net Asset Value was payable in respect of class A, B and
D and 2% in respect of class E. Management fees paid in the period amounted to
USD 820,000 (30 June 2021: USD 758,000, 31 December 2021: USD 1,547,000).
The Performance fee in respect of the Trust shall be an amount equal to 20% 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
prior to 3 June 2021, and prior to 30 April 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 2022), reduced by an
amount equal to any distributions paid to the Predecessor Company's
shareholders of the relevant share class prior to the Acquisition.
As referred to in the Company's annual results for the year ended 31 December
2021, LSA has been in discussions with Acheron Capital Limited ("ACL")
regarding the re-negotiation of the performance fee payable to ACL, which is
currently defined as an amount equal to 20% of the total distributions made by
the Company over an agreed hurdle rate. Agreement has now been reached with
ACL that once the current litigation process with one of the policy trustees
has been resolved, which is expected to occur during the first half of 2023,
the performance fee will be reduced from 20% as described above to 10% over
the existing hurdle rate.
The resolution of the legal dispute is expected to be accompanied by a
judicially approved sale of the policies in the relevant trustee portfolio.
The completion of such a sale process, including LSA`s participation therein
whether successful or not, would mark the end of LSA`s need to accumulate cash
to purchase the relevant policies, so enabling LSA to resume further
distributions to Shareholders. Assuming resolution of the dispute, following
the first such distribution LSA has agreed to make a one-off payment to ACL of
any accrued performance fee payable to ACL held by the Company in excess of $1
million, based on the 2022 financial results and subject to the cash
requirements of the business. As at 31 December 2021 the accrued performance
fee stood at $2.8 million. However, in acknowledgement of the significant
work that ACL has had to perform with regard to engagement with the legal
dispute over a long period, the Directors of LSA have agreed to make an
immediate advance to ACL, subject to an agreed clawback mechanism, of $0.5
million which will be credited against any amount to be paid under the above
one-off payment arrangement following the publication of the 2022 financial
results.
Note 5 Taxation
The Company has an effective UK tax rate of 0% for the year ending 31 December
2022. 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 charge for the period amounted to USD nil.
5.1 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 2021 the Company fulfilled this
requirement.
Note 6 Return per share
As stated in Note 9, the share capital of the Company comprises 49,826,784 A
shares. The B shares were cancelled following the merger of share classes A
and B on 3 June 2021 and Share Classes D and E were cancelled following the
merger of Share Classes A, D and E on 30 April 2020. All Shares are fully
paid. Neither unpaid shares nor any kind of option are outstanding, so the
basic profit/(loss) per share is also the diluted profit/(loss) per share.
Six months ended 30 June 2022 Class A
Earnings per share:
Revenue return (USD'000) (4,755)
Capital return (USD'000) 4,856
Total return (USD'000) 101
Weighted average number of shares in the period
49,826,784
Income return per share (USD) (0.095)
Capital return per share (USD) 0.097
Basic and diluted total earnings per share (USD)
0.002
Six months ended 30 June 2021 Class A
Earnings per share:
Revenue return (USD'000) (4,418)
Capital return (USD'000) 12,971
Total return (USD'000) 8,553
Weighted average number of shares in the period
44,634,411
Income return per share (USD) (0.099)
Capital return per share (USD) 0.291
Basic and diluted total earnings per share (USD)
0.192
Year ended 31 December 2021 Class A
Earnings per share:
Revenue return (USD'000) (7,885)
Capital return (USD'000) 22,323
Total return (USD'000) 14,438
Weighted average number of shares in the year 47,251,936
Income return per share (USD) (0.167)
Capital return per share (USD) 0.472
Basic and diluted total earnings per share (USD)
0.305
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 65,902,000 (30 June 2021: USD
85,095,000, 31 December 2021: USD 88,024,000) are all classified as level 3.
Note 8 Financial assets held at fair value through profit or loss: Life Settlement Portfolios
As at 30 June As at 30 June As at 31 December 2021
2022 2021 USD'000
USD'000 USD'000
Movements for the period are as follows: 88,024 77,643
Opening valuation 77,643
Acquisitions during the period 53 11,199 11,282
Proceeds from matured policies (16,266) (25,787) (38,510)
Net realised gains on policies 12,622 21,036 31,067
Movements in cash from policy advances (18,217) 49 (2,657)
Escrow rebate (225) - -
Movements in unrealised valuation (89) 955 9,199
_______ _______ ______
Closing valuation 65,902 85,095 88,024
======= ======= ======
Details at period end: USD'000 USD'000 USD'000
Acquisition value 91,409 97,764 95,000
Unrealised capital gains 9,828 1,744 10,142
Policy advances (35,335) (14,413) (17,118)
_______ _______ _______
Closing valuation 65,902 85,095 88,024
====== ====== =======
Distribution of the portfolio by class of Shares and by type of risk:
30 June 2022 Class A
USD'000
Elderly life insurance 23,770
(non-HIV) portfolio
HIV portfolio 42,132
( ) ( ) (________)
Balance as at 65,902
30 June 2022
=====
Fair market value reflects the view of Acheron Capital Limited, the Investment
Manager of the trust in which the policies of Class A are kept.
Class A
30 June 2021
USD'000
Elderly life insurance 25,441
(non-HIV) portfolio
HIV portfolio 59,654
( ) ( ) (________)
Balance as at 85,095
30 June 2021
=====
31 December 2021 Class A
USD'000
Elderly life insurance
(non-HIV) portfolio 57,950
HIV portfolio 30,074
( ) ( ) (_________)
Balance as at 88,024
31 December 2021
======
Note 9 Share Capital
At the 30 June 2022, (the Company's share capital amounts to USD 498,268 (30
June 2021: USD 498,268 31 December 2021:498,268) and is represented by
49,826,784 Ordinary A shares of USD 0.01 each. Share class B was cancelled
following the merger of Share classes A and B on 3 June 2021 and Share Classes
D and E were cancelled following the merger of Share Classes A, D and E on 30
April 2020.
A shares B shares Total
USD'000 USD'000 USD'000
Balance as at
31 December 2020 437 146 583
Share class merger 61 (146) (85)
(________) (________) (_______)
Balance as at 31 December 2021 & 498 - 498
30 June 2022
_____ _____ _____
The issued and fully paid share capital at 30 June 2022 is comprised of
49,826,784 Class A shares.
Class A 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. The remaining 6,526,496 D and E shares were designated as Deferred
Shares and subsequently cancelled.
As announced on 2 June 2021, the Company undertook a Capital Reorganisation
whereby the shares of Class B were merged into Class A shares. A total of
14,596,098 B shares were redesignated as 6,102,725 A shares. The remaining
8,493,373 B shares were designated as Deferred Shares and subsequently
cancelled.
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) is shown below.
30 June 2022 Class A
Net assets (USD'000) 109,415
Number of shares 49,826,784
NAV per share (USD) 2.20
30 June 2021 Total
Net assets (USD'000) 105,930
Number of shares 49,826,784
NAV per share (USD) 2.13
31 December 2021 Total
Net assets (USD'000) 109,314
Number of shares 49,826,784
NAV per share (USD) 2.19
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
previously had a member on the Board of Directors and the Trustee of the US
trust who was also previously a member of the Board of Directors.
30 June 2022
USD'000
Per income statement:
Trustee fees 80
Compagnie Européenne de Révision S.à r.l. 101
Directors' fees 84
Amounts payable per balance sheet:
Compagnie Européenne de Révision S.à r.l. 169
Directors' fees 24
=====
All transactions with related parties are undertaken at arm's length.
Shares held by related parties (Directors and companies under their control)
- Michael Baines 50,000 A shares
Note 13 Post balance sheet events
There are no post balance sheets events to disclose.
COMPANY INFORMATION
Directors
Michael Baines Chairman
Christopher Casey
Guner Turkmen
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
Registrars
The City Partnership (UK) Limited
The Mending Rooms
Park Valley Mills
Meltham Road
Huddersfield
HD4 7BH
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 (https://www.lsaplc.com)
Registered in England and Wales with Company Registration number: 10918785
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on this announcement (or any other website) is
incorporated into, or forms part of this announcement.
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