Pollen Street plc Annual Report and Accounts
23/03/2023 07:00
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RNS Number : 9387T Pollen Street PLC 23 March 2023
For immediate release
23 March 2023
Pollen Street plc Annual Report and Accounts
Pollen Street plc ("Pollen Steet" or, together with its subsidiaries, the
"Group") today issues its Annual Report and Accounts for the year ended 31
December 2022.
It has been a transformative year for the Group, with Pollen Street Capital
Holdings Limited and Honeycomb Investment Trust plc combining to form Pollen
Street (the "Combination"). The Group benefits from a complementary set of
asset management activities focused on managing third-party AuM (the "Asset
Manager") together with on-balance sheet investments (the "Investment
Company"). The two complementary business models accelerate growth and
unlock value for shareholders by bringing together the combined business
models of income resilience and growth to provide a highly attractive
proposition to investors.
Highlights for 2022: delivering in line with targets and well-positioned for
growth
· AUM has grown to £3.4 billion supported by an impressive 36 per
cent year on year growth in the Credit AUM
· Financial performance of the Asset Manager is in line with
consensus with Fund Management EBTIDA for 2022 closing at £8.5 million,
equivalent to a 21 per cent year-on-year growth
· The Investment Company delivered performance in line with
expectations, with Net Investment Assets Return of 8.0 per cent per annum and
net income for 2022 of £28.3 million. Against the current macro-economic
backdrop, this performance demonstrates the resilience of the strategy
· The Group has maintained its track record of delivery across both
Private Equity and Credit strategies with an early realisation in Private
Equity IV and strong consistent performance in credit
· Sustainability remains a core part of Pollen Streets investment
strategy and the Group has been recognised by CFI as Best Responsible
Investment Team UK in 2023 for the third year running and also recognised by
FT Adviser for its work in DE&I
· The Group is well-positioned to drive organic long-term growth
and is well on track to deliver its objective of £4-5bn AUM in the medium
term with good near term visibility on making steps towards that
Commenting on the 2022 performance, Lindsey McMurray, Chief Executive Officer,
said:
"Pollen Street offers a unique combination of high-quality income resilience
together with growth, and I am pleased that our first set of full year results
reflects a strong and stable performance. Against a challenging macro-economic
backdrop, Pollen Street has shown resilience and consistent delivery to
perform well, which has seen our AuM grow to £3.4bn. Our outlook remains
strong, and we are well positioned through our core strategies to drive
long-term organic growth."
Shareholder proposals
In the circular published in May 2022, the Board announced an intention to put
forward a proposal to shareholders for the establishment of B Shares prior to
the 2023 AGM. These shares would be 8% preference shares with recourse to the
capital and income deriving from a representative proportion of the credit
portfolio, with a net asset value of up to £50 million. Given the changed
market environment, the Board has consulted with shareholders before
progressing with the proposal and based upon that consultation, the Board does
not believe sufficient shareholders would support it at this time and as such
the Board does not intend to pursue this matter further.
The Directors intend to put forward proposals to shareholders, to:
· insert a Guernsey company as a holding company for the Group; and
· change the Company's listing classification to be a commercial
company, as such the Company will cease to have investment trust status.
A General Meeting will be convened to consider the proposals. The Directors
believe that new corporate structure will be better reflect the Group's
operations as a commercial enterprise and that a classification as a
commercial company would broaden the universe of potential investors, improve
the marketability and liquidity of Pollen Street's shares and bring the
listing classification in line with Pollen Street's quoted peer group.
Results presentation:
Pollen Street will host its results presentation at 8:30 AM on 23 March 2023.
Register for the webinar:
https://2022resultswebinar.pollencap.com/
(https://2022resultswebinar.pollencap.com/)
The full results presentation is available on the Group's website
www.pollenstreetgroup.com (http://www.pollenstreetgroup.com) .
About Pollen Street plc
Pollen Street is an alternative asset manager dedicated to investing with the
financial and business services sectors across both Private Equity and Private
Credit strategies. The business was founded in 2013 and has consistently
delivered top tier returns alongside growing AuM.
Pollen Street benefits from a complementary set of asset management activities
focused on managing third-party AuM, referred to as the Asset Manager, and
on-balance sheet investments, referred to as the Investment Company.
The Investment Company portfolio is well-diversified and focused on senior
asset-based direct lending investments. These investments target stable
high-income returns together with strong capital preservation. The portfolio
consists of both direct investments and investments in funds managed by Pollen
Street.
POLN is listed on the London Stock Exchange (ticker symbol: POLN). Further
details are available at www.pollencap.com (http://www.pollencap.com/) .
For further information about this announcement please contact:
FGS Global - Public Relations Adviser
Chris Sibbald
Chris.Sibbald@fgsglobal.com
+44 (0)7855955531
Barclays Bank plc - Joint Broker
Neal West / Stuart Muress / Dion Di Miceli
+44 (0)20 7623 2323
Liberum Capital Limited - Joint Broker
Chris Clarke / Edward Mansfield
+44 (0)20 3100 2000
Link Company Matters Limited - Corporate Secretary
polncosec@linkgroup.co.uk
Annual Report and Accounts
The Annual Report and Accounts have been submitted in full unedited text to
the Financial Conduct Authority's National Storage Mechanism and are available
for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) in accordance with
DTR 6.3.5(1A) of the Financial Conduct Authority's Disclosure Guidance and
Transparency Rules. The Annual Report and Accounts are also available to view
and download from the Company's website
https://ir.pollenstreetgroup.com/investors/financial-information/
(https://ir.pollenstreetgroup.com/investors/financial-information/) . Neither
the contents of the Company's website nor the contents of any website
accessible from hyperlinks on the Company's website (or any other website) is
incorporated into or forms part of this announcement.
The information set out below does not constitute the Company's statutory
accounts for the year ended 31 December 2022 but is derived from those
accounts. Statutory accounts for the year ended 31 December 2022 will be
delivered to the Registrar of Companies in due course. The Group's auditors
have reported on those accounts: their report was (i) unqualified, (ii) did
not include a reference to any matters to which the Auditors drew attention by
way of emphasis without qualifying their report, and (iii) did not contain a
statement under Section 498 (2) or (3) of the Companies Act 2006.
The following text are selected extracts from the Annual Report &
Accounts.
Pollen Street at a glance
Pollen Street plc (the "Company") is an alternative asset manager dedicated to
investing within the financial and business services sectors across both
Private Equity and Private Credit strategies. The business was founded in 2013
and has consistently delivered top tier returns alongside growing assets under
management ("AuM"). The business had £3.4 billion in AuM as at 31 December
2022, up 31 per cent per annum over the past two years.
Pollen Street benefits from a complementary set of asset management activities
focused on managing third-party AuM (the "Asset Manager") together with
on-balance sheet investments (the "Investment Company").
The Investment Company portfolio is well diversified and focused on senior
asset-based direct lending investments. These investments target stable
high-income returns together with strong capital preservation. The portfolio
consists of both direct investments and investments in funds managed by Pollen
Street.
The Company is an investment trust. It was formed through an all share
combination of Honeycomb Investment Trust plc with Pollen Street Capital
Holdings Limited (the "Combination"). The Combination occurred on 30 September
2022 and was effected by Honeycomb Investment Trust plc acquiring 100 per cent
of the share capital of Pollen Street Capital Holdings Limited with newly
issued shares in the Company as the consideration. As such the financial
statements only incorporate Pollen Street Capital Holdings Limited from 30
September 2022, the point at which it became a subsidiary of the Company. The
combined group was renamed Pollen Street plc and together with its
subsidiaries is referred to as the "Group" or "Pollen Street".
Key Figures0F 1
· Assets under management ("AuM") - £3.4 billion (31 December 2021:
£3.0 billion)
· Growth in Credit AuM1 - 36% (2021: 69%)
· Statutory operating profit1 - £27.3 million (2021: £30.3 million)
· Proforma operating profit1 - £36.8 million (2021: £37.3 million)
· Net Investment Asset Return1 - 8.0% (2021: 8.5%)
· Dividends declared1 - £30 million (2021: £28 million)
Chairman's statement
Robert Sharpe - Chairman
Welcome to the Annual Report and Accounts for Pollen Street, which covers the
year ending 31 December 2022.
A successful year of change
2022 was a transformative year for us with Pollen Street Capital Holdings
Limited and Honeycomb Investment Trust plc combining to form Pollen Street.
In February 2022, we announced the proposed Combination to accelerate growth
and unlock value for shareholders by bringing together the combined business
models of income and growth to provide a highly attractive proposition to
investors.
The Combination was strongly supported by Shareholders and completed on 30
September 2022.
Over the year, the rationale for the Combination has been reinforced. Pollen
Street continues to deliver returns and grow AuM, despite a challenging macro
environment, and the investment portfolio has continued to deliver robust,
attractive returns demonstrating the resilience of the strategy.
On the Asset Manager side, the focus for the year has been on growing AuM,
specifically under the Credit strategy. Pollen Street plc has increased Credit
AuM to £1.6 billion - a 36 per cent increase on prior year - with capital
raised in flagship Credit III and separately managed accounts ("SMAs"). The
Private Equity business was not actively fundraising in 2022 whilst flagship
Private Equity IV is being deployed, however good progress has been made
towards the launch of flagship Private Equity V in 2023.
The Investment Company has continued to perform consistently, in line with its
historic track record, with Net Investment Asset Return of 8.0 per cent per
annum.
Pollen Street declared dividends of £30 million for 2022, an increase of £2
million from the prior year (2021: £28 million). This was in line with the
Board's dividend targets previously issued. These figures reflect a quarterly
dividend of 20.0p per share in respect of the first half of the year prior to
the Combination, and 16.0p per share in respect of the second half of the
year.
We target dividends of £32 million for 2023, and aim to grow dividends
progressively, thereafter, reflecting the strong earnings trajectory of the
combined business. The Group targets a dividend that is no lower than £33
million in 20241F 2 .
Shareholder proposals
In the circular published in May 2022, the Board announced an intention to put
forward a proposal to shareholders for the establishment of B Shares prior to
the 2023 AGM. These shares would be 8% preference shares with recourse to the
capital and income deriving from a representative proportion of the credit
portfolio, with a net asset value of up to £50 million. Given the changed
market environment, the Board has consulted with shareholders before
progressing with the proposal and based upon that consultation, the Board does
not believe sufficient shareholders would support it and as such the Board
does not intend to pursue this matter further.
However, the Directors intend to put forward proposals to shareholders to
insert a Guernsey company as a holding company for the Group and to change the
Company's listing classification to be a commercial company. As such the
Company will cease to have investment trust status. A General Meeting will be
convened to consider the proposals. The Directors believe that the new
corporate structure will better reflect the Group's operations as a commercial
enterprise and that a classification as a commercial company would broaden the
universe of potential investors, improve the marketability and liquidity of
Pollen Street's shares and bring the listing classification in line with
Pollen Street's quoted peer group.
The Board is mindful of the disconnect between the share price and the
fundamental value of the Group. The Board continues to discuss this matter
with advisers and shareholders. However, the Group remains focused on
delivering substantial growth in the business to drive further interest in
Pollen Street shares.
Environmental, Social and Governance ("ESG")
ESG is core to Pollen Street's strategy, purpose and culture, and our ESG
framework aligns to the UN Sustainable Development Goals ("SDGs"). Over the
year progress has been made in embedding a proprietary ESG scoring mechanism.
The data we collect and proprietary scoring mechanism enables us to:
· measure our impact more consistently;
· track progress against targets;
· create league tables; and
· set a base level for improvement plans for portfolio companies
and investments across our strategies.
A cautious but energised outlook
We closely monitor the impact of the more challenging macroeconomic
environment, however our strategies continue to demonstrate strength and
resilience during volatile periods and are well-positioned for the current
climate.
We are continuously building investor relationships and AuM across the Asset
Manager in line with our medium-term guidance. The Investment Company assets
are well positioned and structured to withstand significant macro stress.
Current market dynamics also bring compelling investment opportunities which
we approach with care and selectivity.
Overall, we are pleased with the financial results and we are excited as we
move into 2023. Our compelling combination of balance sheet capital and deep
asset management expertise positions us to deliver the growth we have promised
to the market.
I would like to thank the management team for their hard work as part of the
combined Group and look forward to working with the team going forwards.
Robert Sharpe
Chairman
22 March 2023
CEO report
Lindsey McMurray - Chief Executive Officer
At Pollen Street we recognise the importance of financial services providing
critical infrastructure across the financial ecosystem. We look to work
with businesses that seek to grow by taking share and to build the next
generation of leaders across the sector and as stewards of capital we are
conscious of our responsibility to invest with care, one of our core values
Since our inception in 2013, we have built an institutional infrastructure for
Pollen Street, led by a common purpose and values. We accelerated this in 2022
completing the combination of Honeycomb Investment Trust plc and Pollen Street
Capital Holdings Limited to create Pollen Street, a differentiated and
purpose-led alternative asset manager.
Unique advantages of the Combination
Pollen Street offers a unique combination of high-quality, stable income and
growth of long-term recurring fee income. The Group benefits from a
complementary and synergistic set of asset management activities focused on
managing third-party assets under management, referred to as AuM (the "Asset
Manager") and on-balance sheet investments (the "Investment Company") aligned
to the Company's investment strategies.
The Asset Manager provides exposure to high-margin, capital light recurring
revenue streams. The Investment Company portfolio generates stable returns
through investment in high-quality, diversified, low-risk, asset-based direct
lending debt facilities.
The Combination allows Pollen Street to enable business growth by deploying
our Investment Company capital to accelerate the growth in third-party AuM
through helping to scale existing funds and seed new strategies.
As a purpose-led asset manager, Pollen Street is committed to delivering
sustainable growth and consistent returns for our shareholders and private
investors alongside positive impact for our people, portfolio companies and
wider society.
Delivering strong performance
In our first Annual Report and Accounts as a combined business I am pleased to
report that Pollen Street delivered strong performance in 2022. The Group
continued its track record of consistent delivery, which is particularly
pleasing against a backdrop of increasingly uncertain economic conditions;
increasing our AuM to £3.4 billion and maintaining momentum in deployment
into new investments.
Despite the more challenging macro environment, returns across all funds
managed by the Group, including the Investment Company have been strong and in
line with targets for each strategy.
This strong overall performance confirms the rationale for the bringing
together of Pollen Street Capital Holdings Limited and Honeycomb Investment
Trust plc, as we demonstrate the combination has enhanced the excellent work
of our teams. We continue to grow at a steady and sustainable pace with a
strong platform for the future.
Our Asset Manager business
Pollen Street was founded to provide capital to businesses well-positioned to
benefit from the huge structural changes in the financial ecosystem. We invest
aligned with megatrends that drive structural and technological change across
the industry and we have built expertise that enables us to identify and
champion businesses that can deliver consistent and sustainable revenue and
profit growth.
We work with agile and innovative firms that deliver high quality products and
services to their customers and help enable market share gain and positive
change.
We support our businesses with The Hub. The Hub is our powerful eco-system; a
dedicated team responsible for driving technology development, sales
performance and what we believe to be best practice across our portfolio in
both Private Equity and Credit. The core principle of our Hub is a culture of
continuous improvement. We have a team of experts and advisers who can support
our portfolio on digital transformation, cloud-based IT, digital marketing,
technology scalability, data-led products and ESG.
A Private Equity strategy building next generation market leaders
In Private Equity, we seek to invest and build the next generation of leaders
across the financial eco-system. We work closely with our portfolio companies
and their teams to implement our established playbook to accelerate multiple
routes to growth... We build on the solid foundations of our portfolio
companies to create customer-centric, data-driven organisations that can
become market leaders. We have seen strong performance across the Private
Equity portfolio, which has proven to be extremely resilient and adaptive to
the changing landscape.
Our macro-resilient Credit strategy
In Credit, we partner with high-quality non-bank lenders, technology
companies, and other mid-market companies with diverse portfolios of cash
generative assets, offering something better to their customers. Our credit
facilities are typically on a senior asset-secured basis - where we take
direct security over the cash flow producing assets together with additional
corporate security. We believe this is an underpenetrated non-correlated
investment strategy with a huge market opportunity and provides attractive
relative value when compared with public or private comparable transactions
alongside strong downside protection.
We recognise the challenging macro environment and across our strategies we
are seeing the dislocation in the market presenting opportunities... We are
deploying a highly selective approach, but moving with conviction where we see
good opportunities with attractive characteristics.
Fundraising momentum
The fundraising market was more challenging over 2022 and into 2023 with many
managers reporting that fund raises were either smaller than expected and/or
taking longer to complete.
The market has been impacted by the 'denominator effect' where declines in
investors' public portfolio valuations have led to lower allocations of new
capital to the sector. With this backdrop, we continue to build and deepen
our engagement with long term partners and remain confident that we will
continue our momentum in AuM growth. Pollen Street has delivered 36 per cent
growth in AuM in the Credit business to £1.6 billion in 2022. In 2023, we
expect continued momentum for fundraising in Credit, with the final close of
Credit III expected in Q2 2023 and further growth in the SMAs. On our Private
Equity side, our core focus in 2022 has been in laying the foundations for a
successful launch of flagship Private Equity V. Flagship Private Equity IV is
approaching full deployment with 76 per cent of the fund committed to
investment as at 31 December 2022. The first close of flagship Private Equity
V is expected during 2023.
Investment Company Stable Delivery
The Investment Company has a £588 million portfolio. We have maintained our
track record of performance throughout the year and delivered Net Investment
Asset Return of 8.0 per cent per annum, demonstrating a consistent and robust
performance despite the more challenging macroeconomic backdrop.
We seek to use the Investment Company's balance sheet to seed assets or funds
originated under our Asset Manager strategies. We believe that this approach
will help to accelerate the launch of new strategies and grow AuM. To date the
Investment Company has committed over £50 million across three of our
vehicles. We expect this to grow in the future to help accelerate the growth
of the Asset Manager. However, we intend to maintain the historic risk profile
and the stability of the returns of the Investment Company by limiting the
non-credit investments to be no more than 10 per cent of the investment
portfolio.
A sustainable approach to ESG
Pollen Street is committed to maintaining and enhancing our focus on actions
that generate positive impact for our investors, people, portfolio companies
and wider society, linked to our purpose.
Sustainability is key to our investment strategy and our goals include helping
portfolio companies reach carbon neutrality; set diversity and inclusion
targets; and promote the strongest possible governance standards.
We are proud that our Responsible Investing approach has been recognised as a
leader by Capital Finance International ("CFI") for the third year running,
and our approach to Diversity, Equity and Inclusion ("DEI") has been
recognised by awards from FTAdviser.
We also recently signed the Social Mobility Pledge, committing to outreach,
access and recruitment. There are currently over 700 organisations signed up
across the UK.
Alongside continuing to strengthen our ESG programme and foundations, our
focus for ESG in 2023 includes the following areas:
· Sustainable value creation: Aligning ESG criteria to strategic
business drivers to drive engagement and performance.
· Climate & Net zero: Working across the portfolio to develop
net zero commitments and strategies and strengthen processes to better
understand the impacts of climate change, in line with the Task Force for
Climate related Financial Disclosures ("TCFD").
· Data & reporting excellence: Using a reporting and scoring
framework to rank and compare portfolio investments, and to identify
improvements; continue to address evolving regulations on sustainability
disclosures.
A resilient outlook: opportunities ahead
Our business is well positioned to drive long-term organic growth. Our core
strategies are performing well and are proving to be resilient to the changed
macroeconomic environment over 2022. Our key priorities for 2023 are:
· continue to build AuM steadily in Credit;
· first close of flagship Private Equity V;
· maintaining our track record of deployment and performance across
our strategies including stable and resilient returns in the Investment
Company;
· building cross product relationships with strategic investors;
and
· delivering operational leverage through our platform as we
continue to growth AuM.
Looking back over a successful and transformative year, I thank our investors
for their support; my colleagues for all their hard work and dedication; and
the Board for its guidance. I look forward to the opportunities and growth
ahead as we work together to deliver for our investors and shareholders.
Lindsey McMurray
Chief Executive Officer
22 March 2023
Private Equity strategy
This section gives insight into the strategy for our Private Equity funds. The
Group earns fees from managing these funds.
Key highlights of the strategy are:
- Building next generation leaders for the European financial
ecosystem
- Strong track record with 3.0x gross returns and zero losses
- Sector specialist knowledge and proven operational framework to
accelerate revenue and profit growth
As a financial services specialist, we see significant whitespace in our
sector which serves as critical infrastructure to the economy. We operate
around megatrends that drive structural and technological change and market
share gain for mid-market innovators.
Our strategy has been in place since 2008 and has been tested through many
market cycles. Throughout this period, we have developed a robust and
disciplined approach to investing as evidenced by our strong track record of
returns over time. We identify companies that can thrive in times of
structural changes in the industry by delivering high quality products and
services to their customers. This experience has given us valuable skills and
a keen understanding of risks and opportunities in the market. Ultimately we
believe that change creates opportunity for market share gain and our strategy
is built around capitalising on this to build businesses that are next
generation leaders.
Our Pollen Street portfolio is made up of businesses with sustainable growth
at their core. This encompasses our drive for both long term sustainable
performance and to help the businesses we work with deliver positive impact
for their people, stakeholders and wider society.
How it works: clear opportunity set and established playbook
Our investment strategy focuses on a rich opportunity set within five diverse
sub-sectors, where we seek to identify the key themes that drive growth:
· Payments;
· Wealth;
· Insurance;
· Technology-enabled services; and
· Lending.
Our thematic origination populates a pipeline of fast-growing,
technology-enabled businesses with solid foundations for us to help create
customer-centric, data-driven organisations who can become market leaders.
Within these thematic investment theses, we seek to drive growth through our
established operational framework which his built upon three key pillars:
· Technology innovation and digital transformation;
· Buy, build and consolidation; and
· Globalisation and product development.
2022 - Driving growth and change
2022 was a successful year for our Private Equity funds, delivering returns
and sustainable growth for our investors and stakeholders. The funds had a
strong year with continued growth across the portfolio, continued deployment
activity in flagship Private Equity IV and strong exits, including Private
Equity IV's first investment being realised within two years of Pollen Street
sourcing the investment. This was particularly pleasing with challenging
equity markets as a backdrop and demonstrates the continued demand for
strongly growing businesses; the market leaders that we are helping to create.
Three new platforms were added to the portfolio in the year. PAIR Finance, the
digital collections platform operating from Berlin and focused on the
high-growth eCommerce sector was acquired in October, Autopay the payments
platform based in Poland was acquired in July and Tandem, the UK bank focused
on financing the green transition, was completed in January. 76 per cent of
flagship Private Equity IV has been committed to investments.
Our core focus for fundraising in 2022 has been in laying the foundations for
a successful launch of flagship Private Equity V in 2023. AuM has remained
stable at £1.8 billion with new co-investments offsetting our realisations
and throughout the year we have continued to develop and deepen our
relationships with investors.
Whilst we are mindful of potential economic challenges, we believe our funds
remain well positioned for continued growth. Our new deal pipeline remains
strong and potential for future exits remains attractive.
Key Figures
· AUM - £1.8 billion
· Strategy in place for 17 years
· Realised returns since inception of 3.0x gross2F 3 , zero loss ratio
Michael England
Partner
22 March 2023
Credit strategy
This section gives insight into the strategy for our Credit funds. The Group
earns fees from managing these funds.
Key highlights of the strategy are
- Asset-backed, senior secured lending
- Attractive returns with strong downside protection
- Potential for positive impact financing green transition,
regional growth and financial inclusion
In an uncertain world, our senior secured, asset-based lending has a track
record of attractive returns and has demonstrated resilience through various
economic cycles.
Following the global financial crisis, and the subsequent retrenchment of the
banks from lending markets, Pollen Street identified opportunities to fill the
funding gap in what is a large and growing market with a targeted and
considered approach. Our senior secured lending provides capital primarily to
non-bank lenders, technology companies and other companies with a diverse
portfolio of assets that our debt is secured against providing a highly
resilient approach. This asset backing combined with seniority, comprehensive
covenants, bespoke structuring negotiated bilaterally by our large and expert
team means we are able to generate premium returns versus other public and
private debt strategies with strong downside protection.
We are also passionate about the potential for positive impact through the
financing that we provide whether by funding green alternatives for homes and
transport, building new mass market homes or driving regional economic growth
and levelling up. Our capital facilitates this impact by enabling our
borrowers to build and grow their businesses whether building homes, leasing
electric vehicles or lending to regional small businesses. The
Environmental, Social and Governance section of the Strategic Report gives
more information about how our investments align to the United Nations SDGs.
How it works: structuring for protection
Pollen Street's Credit strategy was formed following the global financial
crisis. The strategy addresses a growing funding gap but at its core is a
highly considered approach built to withstand extreme stresses in the economic
environment.
Since inception, when making decisions about lending, we do not judge based on
current market conditions, rather assessing on the basis of a very stressed
macro environment. We calculate the loan amount for each deal allowing for
significant deterioration in performance, aiming to ensure no impairments. The
stresses we run are broadly equivalent to rating agency stresses to determine
investment grade risk exposure and are more severe than the global financial
crisis and other prior recessions.
The nature of our lending also means that we are protected by the
diversification of the underlying assets we lend against. For example, our
senior facility to IWOCA, a leading SME lender, is secured on more than 6,500
individual SME loans making repayments monthly; or our senior facility to
ONTO, Europe's largest electric car subscription provider, is secured on over
4,500 electric cars and associated monthly customer payments. This
diversification means that cashflows are stable with low volatility even in a
more uncertain environment where credit defaults are predicted to rise.
The terms of our relationship with borrowers are also critical to ensuring
resilience. At Pollen Street the comprehensive covenants that we negotiate
with our credit partners are integral to our strategy and ensure that we have
the right to step in early if there are signs of underperformance. Covenant
packages cover not only borrower financial performance but also asset
performance and diversification with levels set significantly inside
underwriting stress tests.
In addition the terms of our facilities mean that we are only lending against
performing assets and therefore as any underperformance emerges our facilities
automatically de-gear and reduce LTV as borrowers are required to increase
their equity subordination to finance those underperforming assets. Added to
that automatic de-gearing, we retain senior ranking over both the asset and
the cash of the borrower, which means we can control the flow of loans in and
out of the business if a critical moment emerged.
2022 - Good performance and growing AuM
Throughout 2022 the Credit business has been focused on both raising capital
and building long term investor relationships alongside deploying funds in
attractive transactions and ensuring the existing portfolio continues to
perform well. AuM increased in the year by 36 per cent to £1.6 billion with
flagship Credit III nearing its final close in April 2023 with a good pipeline
of new investors in late-stage discussions.
The portfolio performed well in the year despite the challenging macro
environment with structuring, prudent loan to value ratios ("LTVs") and
seniority leading to consistent performance whilst the benefit of the higher
interest rate environment drives increased deal returns. 25 new transactions
or upsizes were completed during the year totalling £0.7 billion of
commitments with all new deals now incorporating sustainability linked factors
including ESG margin ratchets to incentivise our borrowers to improve their
impact.
The pipeline of new opportunities continues to be strong as we observe a shift
to a less competitive environment on the lending side as banks become less
active and public markets are largely closed for new debt issuances. Pollen
Street is maintaining a highly selective approach and cautious underwriting
but believes it is an attractive time to deploy capital with opportunities to
generate higher returns through financing well capitalised borrowers who are
leaders in their markets, underpinned by strong performing assets with prudent
LTVs.
Key Figures
· AuM - £1.6bn
· Deals over the last 6 years - 104
· Gross unlevered returns - 11%
Matthew Potter
Partner
22 March 2023
CFO Report
Julian Dale - Chief Financial Officer
Delivering in line with targets
I am pleased to present Pollen Street's first financial results following
completion of the Combination on 30 September 2022. It was a successful year
with financial performance in line with guidance issued to the market and with
the consensus of equity analysts.
Over 2022, we have been focused on growing assets under management, referred
to as AuM, from organic fundraising under the credit strategy. We raised £0.4
billion of funds into flagship Credit III and SMAs, equivalent to 36 per cent
per annum growth.
Under the Private Equity strategy, AuM was maintained at £1.8 billion with
portfolio realisations offset by increases in co-investment capital. The
Private Equity business was not actively fundraising in 2022, however good
progress has been made towards the launch of flagship Private Equity V. We
expect the first close in 2023.
Deployment under the Credit strategy has also been strong with Average
Fee-Paying AuM across the whole Group increasing by 29 per cent to £2.3
billion as at 31 December 2022 (31 December 2021: £1.8 billion).
The Combination of Pollen Street Capital Holdings Limited and Honeycomb
Investment Trust plc to form Pollen Street plc has been transformative. The
Combination unlocks value by enabling us to deploy capital from the Investment
Company to accelerate the growth in third-party AuM in the Asset Manager
through helping to scale existing funds and seed new strategies. The
Combination occurred on 30 September 2022 and was effected by Honeycomb
Investment Trust plc acquiring 100 per cent of the share capital of Pollen
Street Capital Holdings Limited with newly issued shares in the Company as the
consideration. As such the statutory financial statements only incorporate
Pollen Street Capital Holdings Limited from 30 September 2022, the point at
which it became a subsidiary of the Company. The combined group was renamed
Pollen Street plc. Pollen Street has two complementary business segments: the
Asset Manager, which encompasses all activities focused on managing
third-party AuM, and the Investment Company, which encompasses all on-balance
sheet investment activity and the Group's debt facilities. The Asset Manager
activities solely reside in Pollen Street Capital Holdings Limited and its
subsidiaries. The Investment Company business segment has £588 million of
Investment Asset, £2 million of which are held in Pollen Street Capital
Holdings Limited and its subsidiaries, the remainder are held within Pollen
Street plc, Bud Funding Limited and Sting Funding Limited.
Earnings from the Asset Manager are incorporated into the Group's statutory
consolidated financial statements from 30 September 2022, being the date of
completion of the acquisition of Pollen Street Capital Holdings Limited which
effect the Combination. This basis (the "Statutory Basis") excludes earnings
arising in Pollen Street Capital Holdings Limited and its subsidiaries prior
to 30 September 2022. In addition to the statutory results, we also present
proforma results for the business that incorporate the earnings from the Asset
Manager as if the Combination had completed prior to the start of the period.
This basis (the "Proforma Basis") explains the performance of the newly
combined entity more fully because it includes a full history of Pollen Street
Capital Holdings Limited and its subsidiaries. It is also aligned to the basis
on which equity analysts forecasts are prepared for the combined business. A
reconciliation between the two bases is presented in the Annual Report on
page 27. There is no material difference between the Statutory Basis and the
Proforma Basis profitability measure for the Investment Company segment.
Comparable results under the Proforma Basis have also been shown for 2021 to
show the profitability trend of the Asset Manager.
On the Statutory Basis, the operating profit for the Group was £27.3 million
(2021: 30.3 million). As noted above, this measure does not include profits
arising in Pollen Street Capital Holdings Limited prior to 30 September 2022,
being the date of completion of the Combination. It also includes a charge of
£3.4 million of business combination expenses associated with the acquisition
of shares in Pollen Street Capital Holdings Limited.
The profit on a Proforma Basis incorporates the earnings of the Asset Manager
for the whole of 2022. On this basis, EBITDA closed the year at £36.8 million
(2021: £37.3 million) with earnings well positioned to grow with the Asset
Manager. Fund Management EBITDA increased by 21 per cent in 2022 to £8.5
million (2021: £7.0 million) driven by growth in the Fund Management Income.
Net Investment Asset Return from the Investment Company was stable at 8.0 per
cent per annum. This corresponds to Net Investment Return of £28.3 million
(2021: £30.3 million). The return for 2022 is in line with the historical
track record and guidance issued to the market. This performance in the
current economic backdrop shows the resilience of the strategy. The
investments are senior and asset-secured with modest LTVs, which provides
strong downside protection.
Proforma Profitability 2022 2021
(Incorporating the Asset Manager for full year)
£ million
£ million
Fund Management EBITDA 8.5 7.0
Net Investment Return 28.3 30.3
EBITDA 36.8 37.3
Asset Manager growth
Assets under management are tracked on a total AuM and fee-paying basis. Total
AuM broadly tracks the commitments that investors have made into funds managed
by the Asset Manager whereas the Average Fee-Paying AuM tracks the basis on
which the Group earns management fee, with the average calculated from the
opening and closing positions.
For Private Equity, the Fee-Paying AuM is the committed capital in the funds,
stepping down to invested capital at the point when the subsequent flagship
fund holds its first close. Co-investment vehicles are typically
non-fee-paying. Fee-Paying AuM for Private Credit is the net invested amount.
See page 212 of the Annual Report for full definitions.
Total AuM grew to £3.4 billion as at 31 December 2022, driven by organic
fundraising under the Credit strategy. £0.4 billion of funds were raised in
the flagship Credit III and SMAs, equivalent to 36 per cent per annum. £0.1
billion of these funds were raised in the fourth quarter, the period over
which the statutory accounts are prepared, demonstrating the consistency of
the AuM growth over the year. Under the Private Equity strategy we have been
preparing for the launch of flagship Private Equity V in 2023 and not actively
fund raising during 2022. AuM for the Private Equity strategy was maintained
at £1.8 billion.
Assets under management 31 December 2022 30 September 2022 31 December 2021
£ billion
£ billion £ billion
Flagship Private Equity IV 0.7 0.7 0.7
Flagship Private Equity III 0.3 0.3 0.3
Satellite and co-investment vehicles 0.8 0.8 0.8
Private Equity 1.8 1.8 1.8
Flagship Credit III 0.4 0.4 0.3
SMAs 0.6 0.5 0.3
Investment Company assets 0.6 0.6 0.6
Credit 1.6 1.5 1.2
Total AuM 3.4 3.3 3.0
The momentum in deployment under the Credit strategy continued in 2022, with a
29 per cent per annum increase in Average Fee-Paying AuM from 2021 to
2022. Average Fee-Paying AuM increased to £2.3 billion by the end of
2022, up from £1.8 billion at the end of 2021. Private Equity constituted
£1.1 billion of the Asset Manager's Average Fee-Paying AuM over 2022 (2021:
£1.0 billion) with Credit making up £1.2 billion (2021: £0.8 billion).
The Asset Manager earns management fees from managing and advising third-party
funds. These fees are long-term contracted revenues that are recurring and
stable and driven by the quantum of Fee-Paying AuM.
In general, Private Equity funds charge fees on committed capital. Investors
who join these funds after the first investors' admission date are charged
catch-up fees, so all investors pay fees from the date of the first close.
When the next flagship fund holds its first close, the fees are charged on
invested capital for earlier funds in the same strategy.
In general, Private Credit funds charge fees on net invested capital. Capital
is generally recycled until the end of the investment period. Management fee
rates remain the same for the duration of the funds, irrespective of strategy.
We have guided to a long-term management fee rate of between 1.25 per cent and
1.5 per cent. This depends on the revenue mix including the relative size of
Private Equity compared to Private Credit.
In addition to management fees, the Group earns performance fees and carried
interest. These fees allow the Group to share in the profits of the funds
under management subject to meeting certain hurdles.
As part of the terms of the Combination, the Group earns 25 per cent of the
carried interest in the most recent vintage of all flagship funds and all
future funds. For the Private Equity strategy, this includes flagship Private
Equity IV. Carried interest is generally 20 per cent of the Private Equity
fund returns over a hurdle of 8 per cent per annum with full catch-up. For the
Private Credit strategy, carry is earned on flagship Credit III and certain
SMAs. Carried interest for the Private Credit funds is generally 10 per cent
of returns with a 5 per cent hurdle and full catch-up.
The Asset Manager segment delivered £2.9 million of Operating Profit on a
Statutory Basis over the fourth quarter of 2022 (2021: nil). Annualising the
Statutory profitability metrics demonstrates the returns are consistent. The
annualised Total Income was £40.6 million. Fund Management Income has been
growing over the year with the growth in Fee-Paying AuM. The annualised
Statutory Asset Manager Administration Costs were £28.9 million. This
resulted in an annualised Statutory Operating Profit of £11.7 million.
Operating profit excludes depreciation of the right of use asset which was
£1.0m on an annualised basis over 2022. The depreciation is part of Fund
Management Administration Costs on a proforma basis.
Statutory Basis 2022 2021
(Incorporating the Asset Manager from 30 September 2022)
£ million
£ million
Total income 10.2 -
Administration costs (7.3) -
Operating profit 2.9 -
The Management Fee Rate for 2022 was 1.28 per cent. This is within the range
of our medium-term guidance of 1.25 per cent to 1.5 per cent. Statutory
performance fees and carried interest for the three months ended 31 December
2022 were 24 per cent of Fund Management Income for the quarter. This is at
the top end of the long-term guidance range of 15 per cent to 25 per cent and
reflects the strength of the underlying investment performance despite the
macroeconomic environment. The Fund Management EBITDA Margin was 26 per cent
for 2022. We are continuing our journey to raising a long-term EBITDA Margin
above 50 per cent.
Financial Ratios for the 3 months ended 31 December 2022 2022
Management Fee Rate (% of Average Fee-Paying AuM) 1.28%
Performance Fee (% of Fund Management Income) 24%
Fund Management EBITDA Margin (%of Fund Management Income) 26%
On a Proforma Basis, the Asset Manager segment delivered £8.5 million (2021:
£7.0 million) of EBITDA over 2022. This was an increase of 21 per cent from
2021. This is consistent with the technical guidance we issued to the market
at the half year and in line with analysts' consensus forecasts.
Proforma Basis 2022 2021 Change
(Incorporating the Asset Manager for full year)
£ million
£ million
%
Fund Management Income 37.4 33.9 +10%
Fund Management Administration Costs (28.9) (26.9) +7%
Fund Management EBITDA 8.5 7.0 +21%
Fund Management Income increased by 10 per cent (2022: £37.4 million, 2021:
£33.9 million). Fund Management Income comprises management fees, performance
fees and income from carried interest.
Revenue growth has been driven by increases in the Group's Average Fee-Paying
AuM and income from carried interest. The growth was offset by catch-up fees
received on flagship Private Equity fund IV occurring during 2021 but not
2022.
The Management Fee Rate for 2022 was 1.27 per cent. This is ahead of the
guidance issued for 2022 of 1.25 per cent, and within the range of our
medium-term guidance of 1.25 per cent to 1.5 per cent. We expect this to
increase in 2023 as Private Equity capital is raised.
Performance fees and carried interest for 2022 were 23 per cent of Fund
Management Income for the period. This is at the top end of the long-term
guidance range of 15 per cent to 25 per cent and reflects the strength of the
underlying investment performance.
Fund Management Administration Costs were £28.9 million for 2022 (2021:
£26.9 million). The increase of 7 per cent is driven by incremental headcount
as well as inflation. This moderate increase reflects a well-invested cost
base leading to a high drop through from incremental revenue to profitability.
We are investing in headcount in the Investor Relations team to support
capital raising across the Group and to internalise some capital raising
costs. This will increase the capacity and improve the efficiency of capital
raising in the longer term with some modest overlap in costs in the shorter
term. We are also investing in dedicated talent in the adjacent strategies
that we described in the capital markets day to support growth in those
business lines.
The Fund Management EBITDA increased by 21 per cent in 2022 to £8.5 million
(2021: £7.0 million) driven by growth in the Fund Management Income. The
Group is well positioned for EBITDA growth in future, given the momentum in
AuM growth and operational leverage.
The Fund Management EBITDA Margin was 23 per cent for 2022. We are continuing
our journey to raising a long-term EBITDA Margin above 50 per cent.
Financial Ratios for the year ended 2022 2022 2021
Management Fee Rate (% of Average Fee-Paying AuM) 1.27% 1.73%
Performance Fee (% of Fund Management Income) 23% 10%
Fund Management EBITDA Margin (%) 23% 21%
Investment Company resilience
The Group's £588 million investment portfolio is well diversified across
deals and borrowers and is 97 per cent invested in Credit Assets originated
under our credit strategy. Investments are all either senior secured or
portfolios of well-seasoned mortgages. The investment portfolio includes a
£30 million commitment to flagship Credit III in line with the strategy of
deploying the balance sheet to align interests with our investors and drive
third-party AuM growth.
Our Investment Asset portfolio maintained its track record of performance
throughout the year and delivered Net Investment Asset Return of 8.0 per cent
per annum, demonstrating a consistent and robust performance despite the more
challenging macroeconomic backdrop. This is in line with the historic track
record and our guidance previously issued. We believe that our Investment
Asset portfolio strategy, combining bespoke structuring and built to withstand
highly stressed scenarios with backing by diverse pools of financial and hard
assets, enables us to deliver consistent performance.The income on Net
Investment Assets was £28.3 million (2021: £30.3 million). The income was
higher in 2021, reflecting a slightly larger Investment Asset base prior to
some share buy-backs in early 2022 and some higher yielding investments in
2021.
Investment Asset Segment 2022 20213F 4
Investment Assets £588 million £615 million
Average Net Investment Assets £355 million £359 million
Income on Net Investment Assets £28.3 million £30.3 million
Return on Net Investment Assets 8.0% 8.5%
This robust performance was driven by strong credit asset return of 9.4 per
cent annualised (2021: 9.5 per cent ). The credit impairment charge for the
year was minimal, a release of £0.2 million (2021: £0.8 million). The low
impairment charge, despite the macroeconomic headwinds, reflects Pollen
Street's underwriting approach where the deals are stress tested to withstand
a materially more adverse macroeconomic environment than has occurred over
2022. See the Credit strategy section on page 10 of the Annual Report for
further information. Investment Assets reduced slightly in the year (31
December 2022: £588 million; 31 December 2021 £615 million) with the Company
redeploying capital from realised deals into new facilities as well as
upsizing existing investments. New transactions in the period have included
five structured deals including Onto, an electric vehicle subscription service
with a commitment of £25 million. There were also two real estate
partnerships, Earlsfort and MM Capital, that target loans between €1
million and €25 million in Ireland. The Investment Asset portfolio comprises
38 investments, with an average balance outstanding of £15 million and an
average LTV of 68 per cent. The remainder of the portfolio is made up of the
small equity portfolio of 3 per cent.
The Investment Company is well-positioned for an interest rate rise with more
floating rate assets than floating rate liabilities. As such, we expect
yield on the Credit Assets to rise with the increase in interest rates over
the period.
Profit after tax
The statutory profit after tax was £26.4 million (2021: £30.3 million). The
main drivers of this change were the operating profit from the new Asset
Manager segment of £2.9 million (2021: nil) and the operating profit of the
Investment Company segment closing the year at £28.3 million (2021: £30.3
million), offset by £3.4 million of expenses incurred by Pollen Street plc in
acquiring the share capital of Pollen Street Capital Holdings Limited and
£0.5 million of costs relating to the start-up losses of the US asset
management business, which form part of the operating profit of the Central
segment. The US business comprises a team of six individuals building our
franchise in that market. The start-up losses are expected to reduce as the US
business raises AuM and increases revenue. The charge for depreciation and
amortisation was £0.4 million. This principally relates to the computer and
office equipment and a charge of £0.7 million per annum effective from
completion of the acquisition in the shares in Pollen Street Capital Holdings
limited until 2028, associated with the amortisation of the intangible assets
representing the value of customer relationships.
Statutory Basis 2022 2021
(Incorporating the Asset Manager from 30 September 2022)
(£ million)
(£ million)
Operating profit of Asset Manager 2.9 -
Operating profit of Investment Company 28.3 30.3
Operating profit of Central segment (3.9) -
Operating profit of Group 27.3 30.3
Depreciation and amortisation (0.5) -
Profit before tax 26.8 30.3
Corporation tax (0.4) -
Profit after tax 26.4 30.3
The profit after tax on the Proforma Basis increased to £32.9 million (2021:
£31.3 million) with the growth principally coming from the Asset Manager.
Proforma Basis 2022 2021
(Incorporating the Asset Manager for full year)
(£ million)
(£ million)
EBITDA 36.8 37.3
US costs (2.0) (2.1)
Depreciation and amortisation (0.4) (0.4)
Profit before tax 34.4 34.8
Corporation tax (1.5) (3.5)
Profit after tax 32.9 31.3
The Investment Company has not incurred corporation tax, because it is an
investment trust. However, the Group incurs corporation tax in its Asset
Manager business, which is not an investment trust. The effective tax rate for
2022 was 14 per cent of Operating profit on a Statutory Basis or 18 per cent
of the Fund Management EBITDA on a Proforma Basis4F 5 . This is slightly
favourable compared to the illustrative tax rate described in the capital
markets day presentation.
The following table shows a reconciliation between the profit before tax under
the Statutory Basis and the Proforma Basis.
Reconciliation of Proforma Basis profit after tax to Statutory Basis profit 2022 2021
after tax
(£ million)
(£ million)
Proforma Basis 32.9 31.3
Profit after tax in Pollen Street Capital Holdings Limited prior to (3.1) (1.0)
Combination
Business combination expenses (3.4) -
Statutory Basis 26.4 30.3
Leverage
The Group uses leverage in the Investment Company. The leverage facilities
were extended and upsized during 2022 to provide long-term liquidity to the
business and a lower blended margin. As at 31 December 2022 the Group had
£263.6 million of leverage and £23.3 million of cash. This is equivalent to
a net debt-to-tangible equity ratio of 69 per cent. It is less than the
borrowing limit set by the Board of 100 per cent and within the target range
of 50 to 75 per cent.
Dividends
Pollen Street declared dividends of £30 million for 2022, an increase of £2
million from the prior year (2021: £28 million). This was in line with the
dividend targets issued by the Board on capital markets day on 1 March 2022.
They reflect a quarterly dividend of 20.0p per share for the first half of the
year and 16.0p per share for the second half.
The Board's dividend targets published in March 2022 remain in place.
Dividends for 2023 are targeted at £32 million with the Group aiming to grow
dividends progressively thereafter, with a dividend no lower than £33 million
in 20245F 6 . The dividend will be paid quarterly for 2022 and 2023, and
semi-annually from 2024 onwards.
As part of the terms of the Combination, former Pollen Street Capital Holdings
Limited shareholders waived dividends paid to them in 2022 and 2023 with
respect to around 50 per cent of the shares issued to them by the Group. As
such, the dividend targets correspond to a dividend per share of 16p for each
quarter for 2023 and at least 25.5p for each half year for 2024.
Outlook
The Group remains in a strong position for growth in 2023. Fund Management
Income is expected to step up following the anticipated closing of the
flagship Private Equity V in 2023 and continued capital deployment under the
credit strategies. The balance sheet assets have strong downside
protection from credit risk and are positioned to benefit from rising interest
rates.
Our financial guidance for the medium term remains in place. The medium term
is defined as two to three years from completion of the Combination, being 30
September 2022.
Financial Guidance
AuM £4 to £5 billion medium-term Fee-Paying AuM
Management Fee Rates c.1.25%-1.50% Average Fee-Paying AuM over the long term
Performance Fees and Carry c.15%-25% of total Fund Management Income on average over the long term
Fund Management EBITDA Margin Long-term fund management adjusted EBITDA margin in excess of 50%
Net Investment Income c.8% long-term target return on net investment assets
Dividend Targeted at £32 million in respect of 2023 and no lower than £33 million in
2024
Julian Dale
Chief Financial Officer
22 March 2023
Investment Company top ten holdings
Country Deal Type Sector Value of Holding Percentage of Investment Assets
at Year-end (£m)
LTV
1 Sancus Loans Limited United Kingdom Senior Short Term Property Loans 60.2 56% 10.5%
2 Creditfix Limited United Kingdom Senior Discounted Fee Receivables 58.2 44% 10.2%
3 UK Agricultural Loans Limited United Kingdom Senior Short Term Property Loans 45.7 51% 8.0%
4 Beaufort United Kingdom Senior Short Term Property Loans 45.4 67% 7.9%
5 IWOCA Loans Limited United Kingdom Senior SME 31.0 89% 5.4%
6 Downing Development Loans United Kingdom Senior Short Term Property Loans 29.8 66% 5.2%
7 Nucleus Limited United Kingdom Senior CBILS SME 26.2 92% 4.6%
8 GE Portfolio United Kingdom Secured Secured Consumer 23.7 66% 4.1%
9 Duke Royalty United Kingdom Senior SME 23.5 21% 4.1%
10 Tier United Kingdom Senior Micro Mobility Fleet Finance 20.6 64% 3.6%
Data as at 31 December 2022
Risk management
The Group has developed a comprehensive risk management framework to ensure
that risks are managed within a risk appetite. Effective risk management
underpins the successful delivery of our strategy and longer-term
sustainability of the business, and offers an integrated approach to the
evaluation, control, and monitoring of the risks that the Group faces. The
Board acknowledges that risk exists in the pursuit of targeted returns for
shareholders, its strategies, and objectives and has implemented a risk
management framework that is proportionate to the Group's activities and
aligned to its objectives.
The Group's culture is expressed through the record of good conduct of its
personnel, the dedicated governance arrangements that it has embedded within
all areas of the business, as well as staff that are sensitive to the need to
maintain appropriate management and control of the business. The Group has an
open, risk-management orientated culture that encourages and facilitates clear
communication and challenge where appropriate and the Group's governance
framework is designed to safely deliver the agreed business strategy, ensuring
its shareholders and clients' best interests are safeguarded and are at the
forefront of the Group's business. As well as the adoption of a robust
governance structure, the Group demonstrates compliance with its governance
requirements by the adoption of a tailored set of systems and controls. The
Group has maintained a strong control environment during periods of remote
working.
The monitoring and control of risk is a fundamental part of the management
process within the Group. The Board oversee the management of the key risks
across the organisation, along with capital and liquidity adequacy.
The Group's governance structure is by way of Committees, designed to ensure
that the Board has adequate oversight and control of the Group's activities.
The effectiveness of the governance framework is considered by senior
management on an ongoing basis so that any emerging risk matters can be
addressed promptly.
The Group has established the Risk Committee as a Board-level Committee with
responsibility for risk oversight. The Group has also established the Risk and
Operation Committee ("ROC") as a management level Committee to provide
stewardship of the risk framework of the Group, promote the risk awareness
culture for all employees, and review the key risk together with the
management approach to each risk.
The Group has established a risk management function consisting of the risk
and compliance teams, headed by the Group's Chief Financial Officer and the
Group's General Counsel respectively.
The individuals making up the risk management function possess an appropriate
knowledge to deliver the level of oversight required to monitor adherence to
the Group's stated risk appetite and tolerance limits, along with the skill
set required to implement the risk framework and react to changes to the risks
affecting the Group and its ability to deliver its business objectives.
Risk management framework
The Group's risk management framework includes risk identification, risk
appetite, accountability, risk limits, controls, and reporting. These
components, when used together, enable effective oversight of risk across the
Group.
The Group has established a three lines of defence model for managing risk.
The first line of defence are the staff that have primary responsibility for
managing a particular risk on a day-to-day basis. First line staff are
responsible for understanding and implementing effective internal controls;
they should identify, assess, control, and mitigate risks, guiding the
development and implementation of internal policies and procedures and
ensuring that activities are consistent with goals and objectives.
The second line of defence are the risk and compliance teams. They are
responsible for oversight and challenge of the first line's management of
risk. The second line provides regular challenge as part of its quality
assurance of first line activity and checks that the first line is operating
within the Group's defined policies, procedures, and risk appetite and
tolerance parameters. A compliance monitoring programme is in place and a
risk-based suite of tests are undertaken on a quarterly basis. The programme
is tailored to key risks and thematic issues that arise and output is provided
to the Risk and Operations Committee, which is the Group's management-level
risk Committee, on a regular basis. The second line also regularly reviews and
reports on the status of the risks recorded within the Group's risk registers.
The third line of defence is the internal audit function. It is responsible
for proving assurance to the Board and senior management that the first and
second lines of defence are operating in line with policy and in compliance
with the requisite laws and regulations. The internal audit function has been
outsourced to a third party thereby ensuring that the function remains truly
independent, has access to the latest industry development and has increased
flexibility of service. The internal audit programme includes the review of
the effectiveness of risk management processes and recommendations to improve
the internal control environment.
Risk environment 2022
2022 remained a year of uncertainty. As the world began to see green shoots of
recovery following the Covid-19 pandemic, other geopolitical events such as
Russia's unprovoked invasion of Ukraine caused the markets to suffer further
instability. Tensions between Russia and the US, the UK and a number of
European states have heightened significantly as a result and should the
conflict escalate further, geopolitical instability could increase causing
additional negative impacts on the global economic environment. The Risk
Committee has conducted an assessment across the funds, which concluded that
there was no direct exposure to Russia and Ukraine through revenues, suppliers
and staff. We continue to work closely with our portfolio companies to assess
and respond to the current economic challenges.
2022 also saw a number of climate-related records broken. The changes in the
physical climate system, most notably more intensive extreme events, have
adversely affected natural and human systems around the world. This has
contributed to a loss and degradation of ecosystems, including tropical coral
reefs; reduced water and food security; increased damage to infrastructure;
additional mortality and morbidity; human migration and displacement; damaged
livelihoods; increased mental health issues; and increased inequality. It is
now more evident than ever that a period of great change must occur if we are
to avoid the worst predictions. Pollen Street is determined to be part of this
change, more information on our ESG approach can be found in the ESG Report on
page 30..
Financial instability, macroeconomic deterioration and monetary and fiscal
stress also increased during the year. Inflation is becoming an important
concern for both experts and the general public and the increase in interest
rates in the UK, and globally, has fuelled social tensions and destabilised
markets further. We continue to monitor our exposure and make amendments to
our strategy where required.
Notwithstanding these pressures, we have seen continued positive momentum in
the portfolio performance across both business lines during the year, and
performance has been underpinned by consistent deployment and a strong asset
base. There are, however, a number of potential headwinds which will affect
the global economy and consumer and investor confidence, and we continue to
monitor performance closely and update our outlook and risk profile
accordingly.
Principal risks & uncertainties
The Group's assessment of risk has identified a broad range of risks and
uncertainties which it believes could adversely impact the Group. The
following key risks have been identified as having the potential to be
material. They include emerging risks and have been reviewed by the Risk and
Operations Committee and the Risk Committee regularly and recorded on the risk
register.
Economic & Market Conditions
· Economic and market factors, may affect the Group's investments, Regular investment reviews are undertaken. The Investment Committee focuses on Despite macroeconomic factors seen during 2022, the portfolios remained
track record or ability to raise new capital investment strategy, exit processes and refinancing strategies throughout the resilient, and performance remained robust. We continue to monitor performance
life of an investment or Credit Asset. and act accordingly when required.
Early involvement of Investment Committee as new investment ideas are
identified ensures that the Group can capitalise from downturns in markets in
certain conditions.
Periods of market volatility may allow the Group to make investments at
attractive prices and terms.
Key
Risk
Description
Risk
Management
2022 Summary
Fund Raising
· An inability to secure new fund mandates or raise capital under The Group has a strong and consistent track record of delivering top tier The risk at the end of 2022 was somewhat elevated given recent market
existing mandates returns. The Group has sector specialism, knowledge of and expertise in the volatility. Management remains actively focused on fund raising across the
industries that it invests in, and the investment team have an extensive business.
network and investment experience to enable them to identify opportunities
attractive to potential investors. The Group is making efforts to broaden its investor base and is targeting new
geographies and investors as part of its ongoing fundraising activities.
The Group maintains open communications with fund advisory boards and
investors to ensure any potential issues are detected.
Management Fee Rates and Other Fund Terms
· The management fee rates, and other terms that the Group receives The Board believes that management fee rates generated are supported by the Pollen Street's management fee revenue is long term and contractual in nature.
to manage new funds could be reduced, affecting the Group's ability to Company's track record and the growing allocations to alternative investment Its investment performance during 2022 was stable and no change in management
generate revenue market investments fee revenue is anticipated.
Recognition of Performance Fees and Carried Interest
· The risk that carried interest recognised on current or future The Group forecasts its income, and budgets carefully using the latest Pollen Street recognition of carried interest and performance fees was in line
funds is less than anticipated information available with management's expectations
On-Balance Sheet Investment Underperformance
· The risk of returns of Pollen Street's Investment Company falling The Group has a clear track record of delivering investment returns that are Our Investment Assets are exposed to credit and market risks. They may be
below target levels due to poor investment decisions or a deterioration in the resilient to market conditions and in line with published guidance. impacted by adverse economic and market conditions, including through higher
macro environment
impairment charges or reduced valuations. The Group has a diversified,
Investments are monitored closely as part of the Group's ongoing investment granular portfolio of assets. Loans are subject to stringent underwriting and
· This includes credit risk, market risk (such as interest rate monitoring programmes and input is given by all investment Committee members stress testing.
risk, currency risk & price risk), capital management risks and liquidity to ensure return objectives are met, and to anticipate and discuss any
risk underperformance. Investment performance remains strong. Further information is set out in
more detail in Note 20
ESG and Sustainability Performance
· Risks associated with the physical effects of climate change, the The ESG Committee oversees Pollen Street's ESG matters, including ESG related Progress has been made over the past year in respect of advancements in data
risks that arise as economies transition towards greener solutions, and the risks. The Risk and Operations Committee as well as the Board Risk Committee and measurement, socially impactful examples from across the portfolio,
risk of a regulatory breach associated with SFDR6F(( 7 )), TCFD7F(( 8 )), has responsibility for oversight of ESG risk matters. becoming carbon neutral and recognition for work on DE&I.
FCA8F(( 9 )), SEC9F(( 10 )) etc. reporting.
ESG is considered as an evolving risk given the nature of the Group's Pollen Street believes that the Group has a important role to play in manging
· Poor or insufficient management of ESG risks or adverse investments. The Group is strengthening its approach to climate-related risk ESG risks for society. However, the Group has not identified any material ESG
developments impact the Group's reputation as an investor. identification and mitigation, including the TCFD framework and disclosing risks related to the financial statements for 2022.
accordingly.
The Group has a set of minimum standards to ensure ESG risks are assessed and
measured, which are incorporated into initial deal team investment assessments
and ongoing portfolio management. This includes reviewing counterparty
approach to environmental factors and collecting metrics to identify the
environmental impacts of their operations.
Talent and Retention
· Failure to attract, retain and develop an inclusive and diverse The Group has competitive reward and retention schemes in place for all The business has made a number of key hires in 2022 and has invested in the
workforce to ensure the right skills are in the right place at the right time employees, aligning individual, team and organisational goals, driving value investment team which possesses a broad skill set covering analytical,
to deliver the Group's strategy, heightened by an ever-increasing competitive for the Group. For senior management, these include a blend of short and technical and strategic capabilities and an operational team which has
job marketplace. long-term incentives. industry experience across servicing, collections, finance, technology,
compliance and risk.
· Inadequate succession planning for key individuals. The Group invests in leadership development.
Pollen Street is committed to raising awareness and encouraging diversity
amongst the workforce and has established a DEI Working Group.
Key persons have been identified and protections are in place.
Information Security & Resilience
· Risks associated with information security and resilience, The Group has implemented appropriate security controls against common The Group continues to invest in external reviews and cyber penetration
including: threats, including cyber-security threats. testing and all policies and procedures have been refreshed during the year.
- Failure to invest and successfully implement, appropriate Awareness of the need for security of the Group's information systems is The technology team has been strengthened and new hires made to cope with the
technology promoted and encouraged, and the importance of processing personal data in increased demands of the Group.
accordance with the Group Data Protection policy is set out.
- Financial loss, data loss, business disruption or damage to
reputation from failure of IT systems The Group's information security incident response plan is a set of guideline
procedures to be followed in the event of an information security attack or
- Data protection & information security breach. The primary aim of any response is to remediate and minimise the
impact of the breach as quickly as possible and the plan sets out
- Business continuity, disaster recovery and operational resilience communication, oversight, and other considerations to be undertaken.
- Financial or reputation losses arising from a cyber attack
Reputational Risk
· Risks that could result in damage to Pollen Street's reputation The Group's reputation in the eyes of our customers, regulators, employees, The Group has established a best practice risk management framework with a
partners and society is critical to delivering our strategic objectives. full suite of policies, procedures, compliance testing and senior management
Business is conducted in a transparent and fair manner, minimising actions oversight in place.
that could damage the Group's reputation or result in customer detriment of
any kind. The Group engages professional third parties to ensure all activities are
performed to a high standard.
The Group engages an external PR agency to handle communications.
Emerging risk identification
The Group monitors its emerging risks, supporting organisational readiness for
external volatility, incorporating input and insight from both a top-down and
bottom-up perspective:
· Top-down: Emerging risks identified by the Risk Committee and the
Board, helping to define the overall attitude of the Group to risk.
· Bottom-up: Emerging risks identified at a business level and
escalated where appropriate by the Risk and Operations Committee.
Geopolitical, macro and climate risk have dominated the headlines during 2022
and look set to continue throughout 2023 and beyond. Technology risk also
continues to be a challenge for companies, with both the emergence of new
technologies whose effects have yet to be understood, and the volatile nature
of digital assets, e.g., cryptocurrencies bringing challenges to the markets.
The Risk Committee will continue to monitor these risks and respond to the
evolving risk landscape.
Financial statements
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2022 For the year ended 31 December 2021
Notes Revenue £'000 Capital Total Revenue £'000 Capital Total
£'000
£'000
£'000
£'000
Management fee income 5 6,212 - 6,212 - - -
Carried interest and performance fee income 8 1,578 - 1,578
Interest income on Credit Assets held at amortised cost 5 51,986 - 51,986 56,484 - 56,484
Gains on Investment Assets held at fair value 7 3,909 - 3,909 1,874 (1,337) 537
Total income 63,685 - 63,685 58,358 (1,337) 57,021
Credit impairment release 10 206 - 206 844 - 844
Third-party servicing costs (2,511) - (2,511) (2,810) - (2,810)
Net operating income 61,380 - 61,380 56,392 (1,337) 55,055
Administration costs 5 (19,468) (117) (19,585) (11,720) (158) (11,878)
Finance costs 9 (14,517) - (14,517) (12,859) - (12,859)
Operating profit 27,395 (117) 27,278 31,813 (1,495) 30,318
Depreciation 13, 14 (322) - (322) - - -
Amortisation 4 (160) - (160) - - -
Profit before tax 26,913 (117) 26,796 31,813 (1,495) 30,318
Tax 11 (435) - (435) - - -
Profit after tax 26,478 (117) 26,361 31,813 (1,495) 30,318
Earnings per share 12 62.4p (0.3)p 62.1p 90.2p (4.2)p 86.0p
(basic and diluted)
The total column of this statement represents the statement of comprehensive
income prepared in accordance with UK-adopted International Accounting
Standards and with the requirements of the Companies Act 2006 as applicable to
companies reporting under those standards. The revenue return and capital
columns are supplementary to this and are prepared under guidance published by
the Association of Investment Companies ("AIC"). All items in the above
statement derive from continuing operations.
No operations were discontinued during the year.
The Company does not have any income or expense that is not included in net
profit for the year. Accordingly, the net profit for the year is also the
total comprehensive Income for the year, as defined in IAS1 (revised). There
is no other comprehensive income for the year.
The notes on pages 134 to 206 of the Annual Report form an integral part of
the financial statements.
Consolidated Statement of Financial Position
Notes 31 December 2022 31 December 2021 £'000
£'000
Non-current assets
Credit Assets at amortised cost 10 523,877 565,994
Investment Assets held at fair value through profit or loss 7 64,506 48,770
Fixed assets 13 1,414 -
Goodwill and intangible assets 4 231,031 -
Lease assets 14 4,776 -
Carried interest 8 7,052 -
Total non-current assets 832,656 614,764
Current assets
Cash and cash equivalents 22 23,303 12,948
Receivables 15 12,870 6,554
Total current assets 36,173 19,502
Total assets 868,829 634,266
Current liabilities
Payables 16 19,221 7,159
Lease payables 14 1,201 -
Current tax payable 11 2,158 -
Derivative liabilities held at fair value through profit or loss 18 916 108
Interest-bearing borrowings 9 60,598 49,339
Total current liabilities 84,094 56,606
Total assets less current liabilities 784,735 577,660
Non-current liabilities
Lease payables 14 4,067 -
Deferred tax liability 94 -
Interest-bearing borrowings 9 203,035 218,318
Total non-current liabilities 207,196 218,318
Net assets 577,539 359,342
Shareholders' funds
Ordinary share capital 24 689 352
Share premium 299,599 299,599
Revenue reserves 2,363 4,790
Capital reserves (2,361) (2,244)
Other reserves 25 277,249 56,845
Total shareholders' funds 577,539 359,342
Net asset value per share (pence) 27 899.5 1,019.1
The notes on pages 134 to 206 of the Annual Report form an integral part of
the financial statements. The financial statements on pages 127 to 133 of the
Annual Report were approved by the Board of Directors of Pollen Street plc (a
public limited company incorporated in England and Wales with company number
09899024) and authorised for issue on 22 March 2023. They were signed on its
behalf by:
Robert Sharpe, Chairman
Company Statement of Financial Position
Notes 31 December 2022 31 December 2021
£'000 £'000
Non-current assets
Credit Assets at amortised cost 10 523,877 565,994
Investment Assets held at fair value through profit or loss 7 62,853 48,770
Investments in subsidiaries 19 239,027 -
Total non-current assets 825,757 614,764
Current assets
Cash and cash equivalents 22 18,229 10,500
Receivables 15 3,831 6,554
Total current assets 22,060 17,054
Total assets 847,817 631,818
Current liabilities
Payables 16 5,174 6,860
Derivative liabilities held at fair value through profit or loss 18 916 108
Deemed loan 23 29,227 4118
Interest-bearing borrowings 9 30,141 15,072
Total current liabilities 65,458 54,158
Total assets less current liabilities 782,359 577,660
Non-current liabilities
Deemed loan 23 63,809 50,208
Interest-bearing borrowings 9 139,226 168,110
Total non-current liabilities 203,035 218,318
Net assets 579,324 359,342
Shareholders' funds
Ordinary share capital 24 689 352
Share premium 299,599 299,599
Revenue reserves 4,148 4,790
Capital reserves (2,361) (2,244)
Other reserves 25 277,249 56,845
Total shareholders' funds 579,324 359,342
Net asset value per share (pence) 27 902.2 1,019.1
The notes on the Annual Report form an integral part of the financial
statements.
Advantage has been taken of the exemption under section 408 of the Companies
Act 2006 and accordingly the Company has not presented a Statement of
Comprehensive Income for the Company alone. The profit on ordinary activities
after taxation of the Company for the year ended 31 December 2022 was £28.1
million (2021: £30.3 million). The financial statements of the Annual Report
were approved by the Board of Directors of Pollen Street plc (a public limited
company incorporated in England and Wales with company number 09899024) and
authorised for issue on 22 March 2023. They were signed on its behalf by:
Robert Sharpe, Chairman
Consolidated Statement of Changes in Shareholders' Funds
For the year ended 31 December 2022
Ordinary Share Revenue Capital Special Total
Share
Premium
Reserves
Reserves
Distributable
Equity
Capital10F 11
£'000
£'000
£'000
Reserves11 Merger Reserves
£'000
£'000
£'000 £'000
Shareholders' funds at 352 299,599 4,790 (2,244) 56,845 - 359,342
1 January 2022
Ordinary shares issued 295 - - - 235,486 235,781
Transaction costs for share issuance - - - - - (10,216) (10,216)
Ordinary shares bought back 42 - - - (4,866) - (4,824)
Profit / (Loss) after taxation - - 26,478 (117) - - 26,361
Dividends paid in the year - - (28,905) - - - (28,905)
Shareholders' funds at 689 299,599 2,363 (2,361) 51,979 225,270 577,539
31 December 2022
For the year ended 31 December 2021
Ordinary Share Revenue Capital Special Total
Share
Premium
Reserves
Reserves
Distributable
Equity
Capital
£'000
£'000
£'000
Reserves Merger Reserves
£'000
£'000
£'000 £'000
Shareholders' funds at 352 299,599 1,185 (749) 56,845 - 357,232
1 January 2021
Profit after taxation - - 31,813 (1,495) - - 30,318
Dividends paid in the year - - (28,208) - - - (28,208)
Shareholders' funds at 352 299,599 4,790 (2,244) 56,845 - 359,342
31 December 2021
The notes pages of the Annual Report form an integral part of the financial
statements.
Company Statement of Changes in Shareholders' Funds
For the year ended 31 December 2022
Ordinary Share Revenue Capital Special Total
Share
Premium
Reserves
Reserves
Distributable
Equity
Capital
£'000
£'000
£'000
Reserves Merger Reserve
£'000
£'00012
£'00011F 12 £'000
Shareholders' funds at 352 299,599 4,790 (2,244) 56,845 - 359,342
1 January 2022
Ordinary shares issued 295 - - - - 235,486 235,781
Transaction costs for share issuance - - - - - (10,216) (10,216)
Ordinary shares bought back 42 - - - (4,866) - (4,824)
Profit / (Loss) after taxation - - 28,263 (117) - - 28,146
Dividends paid in the year - - (28,905) - - - (28,905)
Shareholders' funds at 689 299,599 4,148 (2,361) 51,979 225,270 579,324
31 December 2022
For the year ended 31 December 2021
Ordinary Share Revenue Capital Special Merger Reserve Total
Share
Premium
Reserves
Reserves
Distributable
Equity
Capital
£'000
£'000
£'000
Reserves £'000
£'000
£'000
£'000
Shareholders' funds at 352 299,599 1,185 (749) 56,845 - 357,232
1 January 2021
Profit after taxation - - 31,813 (1,495) - - 30,318
Dividends paid in the year - - (28,208) - - - (28,208)
Shareholders' funds at 352 299,599 4,790 (2,244) 56,845 - 359,342
31 December 2021
For both year ended 2021 and 2022, the Company's capital reserve arising on
investments sold and revenue reserve may be distributed by way of a dividend.
The portion of capital reserve arising on investments held is
non-distributable. There may be factors that restrict the value of the
reserves that can be distributed and these factors may be complex to
determine. Amounts fully distributable may therefore not be the total of the
revenue reserve and the portion of the capital reserve arising on investments
sold.
The notes pages of the Annual Report form an integral part of the financial
statements.
Consolidated Statement of Cash Flows
For the year ended 31 December 2022
Notes 31 December 2022 31 December 2021
£'000
£'000
Cash flows from operating activities:
Profit after taxation 26,361 30,318
Adjustments for:
(Advances) / repayments of Investments at amortised cost 42,322 (22,883)
Purchase of Investments at fair value (12,237) (31,309)
Receipt of Investments at fair value 1,033 9,726
Change in expected credit loss 10 (206) (844)
Net change in unrealised (gains)/losses (1,804) (801)
Finance costs 9 14,517 12,859
Foreign exchange revaluation (2,263) (53)
Corporation tax (2,480) -
Change in carried interest (1,593) -
Depreciation of fixed assets 322 -
Amortisation of intangible assets 4 160 -
(Increase) / decrease in receivables 2,668 219
Decrease / (increase) in derivatives 808 130
Increase in payables 1,744 (13)
Net cash inflow from operating activities 69,352 (2,651)
Cash flows from investing activities:
Cash acquired from Pollen Street Capital Holdings 2,662 -
Purchase of fixed assets (269) -
Net cash (outflow) / inflow from investing activities 2,393 -
Cash flows from financing activities:
Redemption of shares (4,824) -
Transaction costs for issuance of shares (9,120) -
Drawdown of interest-bearing borrowings 22 76,925 27,000
Repayments of interest-bearing borrowings 22 (82,291) (34,375)
Interest paid on financing activities (13,175) (11,366)
Dividends paid in period 9 (28,905) (28,208)
Net cash (outflow) from financing activities (61,390) (46,949)
Net change in cash and cash equivalents 10,355 (49,600)
Cash and cash equivalents at the beginning of the year 12,948 62,548
Cash and cash equivalents 22 23,303 12,948
The notes pages of the Annual Report form an integral part of the financial
statements.
Company Statement of Cash Flows
For the year ended 31 December 2022
Notes 31 December 2022 31 December 2021
£'000
£'000
Cash flows from operating activities:
Profit after taxation 28,146 30,318
Adjustments for:
(Advances) / repayments of Investments at amortised cost 42,322 (22,883)
Purchase of Investments at fair value (12,145) (1,309)
Receipt of Investments at fair value 1,033 9,726
Change in expected credit loss 10 (206) (844)
Net change in unrealised (gains)/losses (1,804) (801)
Finance costs 9 10,950 9,678
Foreign exchange revaluation (2,262) (53)
Business combination expenses (3,246) -
Decrease in receivables 19 2,723 219
Decrease in derivatives 808 130
(Decrease) / Increase in payables (1,686) 91
Net cash inflow from operating activities 64,363 (5,728)
Cash flows from financing activities:
Redemption of shares (4,824) -
Transaction cost for issuance of shares (9,120) -
Receipt of deemed loans 22,789 981
Repayment of deemed loans (12,079) (22,374)
Drawdown of interest-bearing borrowings 22 35,000 27,000
Repayments of interest-bearing borrowings 22 (50,000) (12,000)
Interest paid on financing activities (9,765) (8,844)
Dividends declared and paid 9 (28,905) (28,208)
Net cash (outflow) from financing activities (56,904) (43,445)
Net change in cash and cash equivalents 7,729 (49,173)
Cash and cash equivalents at the beginning of the year 10,500 59,673
Cash and cash equivalents 22 18,229 10,500
The notes pages of the Annual Report form an integral part of the financial
statements.
Notes to the Financial Statements
1. Principal Accounting Policies
Basis of preparation
The financial statements have been prepared in accordance with UK-adopted
International Accounting Standards and with the requirements of the Companies
Act 2006 as applicable to companies reporting under those standards. They
comprise standards and interpretations approved by the International
Accounting Standards Board ("IASB") and International Financial Reporting
Committee, including interpretations issued by the IFRS Interpretations
Committee and interpretations issued by the International Accounting Standard
Committee ("IASC") that remain in effect.
The financial statements have been prepared on a consistent basis year on
year, on a going concern basis and under the historic cost convention modified
by the revaluation of financial assets held at fair value through profit and
loss as applicable. The Directors consider that the Group has adequate
financial resources to enable it to continue operations for a period of no
less than 12 months from the signing of these accounts, being the 22 March
2023. In order to reach this conclusion, the Directors have reviewed the
financial projections of the Group from the date of this report until December
2025, which shows that the Group will be able to generate sufficient cash
flows in order to meet its liabilities as they fall due. These financial
projections have been performed under various stressed scenarios and in all
cases the Group is able to meet its liabilities as they fall due.
The stressed scenarios considered included ceasing to raise future funds,
halting future Investment Asset originations by the Group, late repayments of
significant structured facilities and individual exposures experiencing
ongoing performance at the worst monthly impact noted throughout 2020 and
2021; which incorporated one-off macroeconomic charges for Covid-19. As part
of these projections, the Directors have also considered the discontinuation
resolution, which is described in the Share capital section, and do not
consider that it will affect the Group given the shareholder support already
received and reviewed financial and non-financial covenants under all debt
facilities in, with no breaches anticipated even in our stressed scenario.
The principal accounting policies adopted by the Company and Group are set out
below. Where presentational guidance set out in the Statement of Recommended
Practice ("SORP") for investment trusts issued by the Association of
Investment Companies ("AIC") in July 2018 is consistent with the requirements
of IFRS, the Directors have sought to prepare the financial statements on a
basis compliant with the recommendations of the SORP.
All values are rounded to the nearest thousand pounds unless otherwise
indicated.
Changes to accounting policies
There were no changes to accounting standards during the year that were
applicable to the Group. At the date of authorisation of these financial
statements, the following standards and interpretations have been applied in
these financial statements:
Accounting policies
Consolidation
Subsidiaries are investees controlled by the Company. The Company controls an
investee if it is exposed to, or has the rights to, variable returns from its
involvement with the investee and has the ability to affect those returns
through its power over the investee. The Company reassesses whether it has
control if there are changes to one or more elements of control. Subsidiaries
are valued at the Company level at cost. The Company does not consider itself
to be an investment entity for the purposes of IFRS 10, as it does not hold
substantially all of its investments at fair value. Consequently, it
consolidates its subsidiaries rather than holding at fair value through profit
or loss.
On the 30 September 2022, the Company acquired 100 per cent of Pollen Street
Capital Holdings Limited with newly issued shares in the Company as
consideration. Pollen Street Capital Holdings Limited is a limited company
incorporated under the law of Guernsey as a company limited by shares pursuant
to the Companies (Guernsey) Law, 2008, with company number 58102. This
transaction is referred to as the Combination. The Company is considered to
control the Pollen Street Capital Holdings Limited and its subsidiaries and so
the Group has consolidated Pollen Street Capital Holdings Limited and its
subsidiaries with effect from 30 September 2022.
The Group also assessed the consolidation requirements for the carried
interest partnerships and certain underlying entities or funds which the
company holds as investments.
For the carried interest partnerships, the Directors considered the nature of
the relationships between the Group, the funds, the fund investors, the
carried interest partnerships and participants in the carried interest
partnerships. The Directors also considered any influence that the Group had
in the setup of the carried interest partnerships in order to assess the power
to control the carried interest partnerships. It was determined that the
carried interest partnerships were setup on behalf of the fund investors, and
that on balance, the Group does not control the carried interest partnerships.
Where the Group has in excess of 20 per cent of the interest in the carried
interest partnership the Group is considered to have significant influence. It
was therefore determined that these carried interest partnerships are
accounted for as associates as explained in the investments in associates
section. The key judgemental areas for the accounting of carried interest
partnerships are in note 2 - Judgements. The carried interest partnerships are
presented in the Carried Interest line on the Statement of Financial Position.
For the underlying entities or funds, the Directors considered the nature of
the relationships between the Group, the underlying entities or funds and the
investors. The Directors also considered any influence that the Group had in
the setup of the underlying entities or funds in order to assess the power to
control the underlying entities or funds. It was determined that the
underlying entities or funds were setup for the investors, and that on
balance, the Group does not control the underlying entities or funds. Where
the Group holds more than 20 per cent of the interest in the underlying
entities of funds it is considered to have significant influence. It was
therefore determined that these underlying entities or funds are accounted for
as associates as explained in the investments in associates section. The key
judgemental areas for the accounting of the underlying entities or funds are
in note 2 - Judgements. The underlying entities or funds are presented in the
Investments Assets held at fair value through profit or loss line on the
Statement of Financial Position.
The group also consolidates Bud Funding Limited ("Bud") and Sting Funding
Limited ("Sting").
In the consolidated financial statements, intra-group balances and
transactions, and any unrealised income and expenses arising from intra-group
transactions, are eliminated in preparing consolidated financial statements.
All entities within the Group have co-terminus reporting dates.
Refer to note 19 for further details.
Investments in subsidiaries
Investments in subsidiaries in the Statement of Financial Position of the
Company are recorded at cost less provision for impairments. All transactions
between the Company and its subsidiary undertakings are classified as related
party transactions for the Company accounts and are eliminated on
consolidation.
Investments in associates
Associates are entities over which the Company has significant influence, but
does not control, generally accompanied by a shareholding of between 20 per
cent and 50 percent of the voting rights.
The Group acquired carried interest rights in the most recent flagship funds
as part of the Combination. The rights are in the form of partnership
interests in carried interest partnerships. The Group has between 1 per cent
and 28 per cent of the total interests in these partnerships. Where the Group
has in excess of 20 per cent interest, the Group is considered to have
significant influence over the partnerships and the partnership are considered
to be an associate. Income from these associates is presented in the carried
interest and performance fee income line item on the consolidated statement of
comprehensive income and the carried interest line item on the consolidated
statement of financial position. The carried interest partnerships are
presented in the 'Carried interest' line on the statement of financial
position; and income from the carried interest partnerships is presented in
the 'carried interest and performance fee income' line on the consolidated
statement of comprehensive income.
The Group also holds more than 20 per cent of interest in certain underlying
entities or funds. These entities are treated as associates. The Group elects
to hold investments in associates at FVTPL. This treatment is permitted by IAS
28 Investments in Associates and Joint Ventures, which permits investments
held by entities that are venture capital organisations, mutual funds or
similar entities to be excluded from its measurement methodology requirements
where those investments are designated, upon initial recognition, as at FVTPL
and accounted for in accordance with IFRS 9. These underlying entities or
funds are presented in the Investment assets held at fair value through profit
or loss line on the Statement of Financial Position. Changes in fair value of
these entities or funds are presented in the Gains on Investment Assets held
at fair value in the Consolidated Statement of Comprehensive income.
The disclosures required by Section 409 of the Companies Act 2006 for
associated undertakings are included in Note 24 to the financial statements
and further details of how the Group classifies and measures assets at FVTPL
are in the classification and measurement section on page 137 of the Annual
Report.
The disclosures required by Section 409 of the Companies Act 2006 for
associated undertakings are included in Note 24 to the financial statements.
Foreign currency
The financial statements are prepared in Pounds Sterling because that is the
currency of the majority of the transactions during the year, so has been
selected as the presentational currency.
The liquidity of the Group is managed on a day-to-day basis in Pounds Sterling
as the Group's performance is evaluated in that currency. Therefore, the
Directors consider Pounds Sterling as the currency that most faithfully
represents the economic effects of the underlying transactions, events and
conditions and is therefore the functional currency.
Transactions involving foreign currencies are converted at the exchange rate
ruling at the date of the transaction. Foreign currency monetary assets and
liabilities are translated into Pounds Sterling at the exchange rate ruling on
the year-end date. Foreign exchange differences arising on translation would
be recognised in the Statement of Comprehensive Income.
Presentation of the Statement of Comprehensive Income
In order to better reflect the activities of an investment trust company and
in accordance with guidance issued by the AIC, supplementary information which
analyses the Statement of Comprehensive Income between items of a revenue and
capital nature has been presented alongside the Statement of Comprehensive
Income.
In respect of the analysis between revenue and capital items presented within
the Statement of Comprehensive Income, all expenses and finance costs, which
are accounted for on an accruals basis, have been presented as revenue items
except those items listed below:
· Expenses are allocated to capital where a direct connection with the
maintenance or enhancement of the value of the investments can be
demonstrated; and
· Expenses which are incidental to the disposal of an investment are
deducted from the disposal proceeds of the investment.
The following are presented as capital items:
· Gains and losses on the realisation of capital investments (equity
investments reported in Note 7);
· Increases and decreases in the valuation of capital investments held at
the 31 December 2021 and 31 December 2022;
· Realised and unrealised gains and losses on transactions undertaken to
hedge an exposure of a capital nature;
· Realised and unrealised exchange differences of a capital nature; and
· Expenses, together with the related taxation effect, allocated to
capital in accordance with the above policies.
Business model assessment
The Group assesses the objective of the business model in which a financial
asset is held at a portfolio level in order to generate cash flows because
this best reflects the way the business is managed. That is, whether the
Group's objective is solely to collect the contractual cash flows from the
assets or is to collect both the contractual cash flows and cash flows arising
from the sale of assets. If neither of these are applicable, then the
financial assets are classified as part of the other business model and
measured at FVTPL.
The assessment includes:
· The stated policies and objectives for the portfolio and the operation
of those policies in practice, including whether the strategy focuses on
earning contractual interest revenue, maintaining a particular interest rate
profile, matching duration of the financial assets to the duration of the
liabilities that are funding those assets or realising cash flows through the
sale of assets;
· Past experience on how the cash flows for these assets were collected;
· How the performance of the portfolio is evaluated and reported;
· The risks that affect the performance of the business model (and the
financial assets held within that business model) and how those risks are
managed; and
· The frequency, volume and timing of sales in prior periods, the reasons
for such sales and expectations about future sales activity. However,
information about sales activity is not considered in isolation, but as part
of an overall assessment of how the stated objective for managing the
financial assets is achieved and how cashflows are realised.
Assessment whether contractual cash flows are solely payments of principal and interest
For the purposes of this assessment, 'principal' is defined as the fair value
of the financial asset on initial recognition. 'Interest' is defined as
consideration for the time value of money, for the credit risk associated with
the principal amount outstanding during a particular period of time and for
other basic lending risks and costs (e.g. liquidity risk and administrative
costs), as well as a reasonable profit margin.
In assessing whether the contractual cash flows are solely payments of
principal and interest, the contractual terms of the instrument are
considered. This includes assessing whether the financial asset contains a
contractual term that could change the timing or amount of contractual cash
flows such that it would not meet this condition. In making the assessment the
following features are considered:
· Contingent events that would change the amount and timing of cash
flows;
· Leverage features;
· Prepayment and extension terms;
· Terms that limit the Group's claim to cash flows from specified assets,
e.g. non-recourse asset arrangements; and
· Features that modify consideration for the time value of money, e.g.
periodic reset of interest rates.
Classification and measurement
Financial assets and financial liabilities are recognised in the Statement of
Financial Position when the Group becomes a party to the contractual
provisions of the instrument. The Group shall offset financial assets and
financial liabilities if it has a legally enforceable right to set off the
recognised amounts and interests and intends to settle on a net basis.
Financial assets and liabilities are derecognised when the Group settles its
obligations relating to the instrument.
Classification and measurement - Financial assets
IFRS 9 contains a classification and measurement approach for debt instruments
that reflects the business model in which assets are managed and their cash
flow characteristics. This is a principle-based approach and applies one
classification approach for all types of debt instruments. For debt
instruments, two criteria are used to determine how financial assets should be
classified and measured:
· The entity's business model (i.e. how an entity manages its debt
Instruments in order to generate cash flows by collecting contractual cash
flows, selling financial assets or both); and
· The contractual cash flow characteristics of the financial asset (i.e.
whether the contractual cash flows are solely payments of principal and
interest).
A debt instrument is measured at amortised cost if it meets both of the
following conditions and is not designated as at fair value through profit and
loss ("FVTPL"): (a) it is held within a business model whose objective is to
hold assets to collect contractual cash flows; and (b) its contractual terms
give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
IFRS 9 details the classification and measurement approach for assets measured
at fair value through other comprehensive income ("FVOCI") if it meets both of
the following conditions and is not designated as at FVTPL:
(a) it is held within a business model whose objective is achieved by both
collecting contractual cash flows and selling financial assets; and
(b) its contractual terms give rise on specified dates to cash flows that are
solely payments of principal and interest on the principal amount outstanding.
The Group and Company do not hold any FVOCI assets.
Equity instruments and derivatives are measured at FVTPL, unless they are not
held for trading purposes, in which case an irrevocable election can be made
on initial recognition to measure them at FVOCI with no subsequent
reclassification to profit or loss. This election is made on an investment by
investment basis.
All financial assets not classified as measured at amortised cost or FVOCI as
described above are measured at FVTPL.
All equity positions are measured at FVTPL. Financial assets measured at FVTPL
are recognised in the balance sheet at their fair value. Fair value gains and
losses together with interest coupons and dividend income are recognised in
the consolidated income statement within Gains on Investment Assets held at
fair value in the period in which they occur. The fair values of assets and
liabilities traded in active markets are based on current bid and offer prices
respectively. If the market is not active the Group establishes a fair value
by using valuation techniques. In addition, on initial recognition the Group
may irrevocably designate a financial asset that otherwise meets the
requirements to be measured at amortised cost or at FVOCI as FVTPL if doing so
eliminates or significantly reduces an accounting mismatch that would
otherwise arise.
The carried interest rights acquired by the Group as part of the Combination
are recognised as associates at fair value. Refer to Carried interest
receivable section for further details.
The Group and Company do not hold any FVOCI assets.
Classification and measurement - Financial liabilities
In both the current period and prior year, financial liabilities are
classified and subsequently measured at amortised cost, except for:
· Financial liabilities at fair value through profit or loss: this
classification is applied to derivatives, financial liabilities held for
trading other financial liabilities designated as such at initial recognition.
Gains or losses on financial liabilities designated at fair value through
profit or loss are presented partially in other comprehensive income (the
amount of change in the fair value of the financial liability that is
attributable to changes in the credit risk of that liability, which is
determined as the amount that is not attributable to change in market
conditions that give rise to market risk) and partially profit or loss (the
remaining amount of change in the fair value of the liability). This is unless
such a presentation would create, or enlarge, an accounting mismatch, in which
case the gains and losses attributable to changes in the credit risk of the
liability are also presented in the Consolidated Statement of Comprehensive
Income;
· Financial liabilities arising from the transfer of financial assets
which did not qualify for derecognition, whereby a financial liability is
recognised for the consideration received for the transfer. In subsequent
periods, the Company recognises any expense incurred on the financial
liability; and
· Financial guarantee contracts and loan commitments.
Credit assets at amortised cost
Loans are initially recognised at a carrying value equivalent to the funds
advanced to the borrower plus the costs of acquisition such as broker and
packaging fees. After initial recognition loans are subsequently measured at
amortised cost using the effective EIRM less expected credit losses (see Note
10 to the financial statements).
Expected Credit loss allowance for financial assets measured at amortised cost
The impairment charge in the income statement includes the change in expected
credit losses which are recognised for loans and advances to customers, other
financial assets held at amortised cost and certain loan commitments.
IFRS 9 applies a single impairment model to all financial instruments subject
to impairment testing. Impairment losses are recognised on initial
recognition, and at each subsequent reporting period, even if the loss has not
yet been incurred. In addition to past events and current conditions,
reasonable and supportable forecasts affecting collectability are also
considered when determining the amount of impairment in accordance with IFRS
9. Under the IFRS 9 expected credit loss model, expected credit losses are
recognised at each reporting period, even if no actual loss events have taken
place. In addition to past events and current conditions, reasonable and
supportable forward-looking information that is available without undue cost
or effort is considered in determining impairment, with the model applied to
all financial instruments subject to impairment testing.
At initial recognition, allowance is made for expected credit losses resulting
from default events that are possible within the next 12 months (12-month
expected credit losses). In the event of a significant increase in credit
risk, allowance (or provision) is made for expected credit losses resulting
from all possible default events over the expected life of the financial
instrument (lifetime expected credit losses). Financial assets where 12-month
expected credit losses are recognised are considered to be Stage 1; financial
assets which are considered to have experienced a significant increase in
credit risk are in Stage 2; and financial assets which have defaulted or are
otherwise considered to be credit-impaired are allocated to Stage 3. Stage 2
and Stage 3 are based on lifetime expected credit losses.
The measurement of expected credit loss, referred to as "ECL", is primarily
based on the product of the instrument's probability of default ("PD"), loss
given default ("LGD"), and exposure at default ("EAD"), taking into account
the value of any collateral held or other mitigants of loss and including the
impact of discounting using the EIR.
· The PD represents the likelihood of a borrower defaulting on its
financial obligation, either over the next 12 months ("12M PD"), or over the
remaining lifetime ("Lifetime PD") of the obligation.
· EAD is based on the amounts the Group expects to be owed at the time
of default, over the next 12 months or over the remaining lifetime. For
example, for a revolving commitment, the Group includes the current drawn
balance plus any further amount that is expected to be drawn up to the current
contractual limit by the time of default, should it occur. The EAD is
discounted back to the reporting date using the EIR determined at initial
recognition.
· LGD represents the Group's expectation of the extent of loss on a
defaulted exposure. LGD varies by type of counterparty, type and seniority of
claim and availability of collateral or other credit support. LGD is expressed
as a percentage loss per unit of EAD. LGD is calculated on a 12-month or
lifetime basis, where 12-month LGD is the percentage of loss expected to be
made if the default occurs in the next 12 months and Lifetime LGD is the
percentage of loss expected to be made if the default occurs over the
remaining expected lifetime of the loan ("Lifetime LGD").
The ECL is determined by estimating the PD, LGD, and EAD for each individual
exposure or collective segment. These three components are multiplied together
and adjusted for the likelihood of survival (i.e. the exposure has not prepaid
or defaulted in an earlier month). This effectively calculates an ECL, which
is then discounted back to the reporting date and summed. The discount rate
used in the ECL calculation is the original EIR or an approximation thereof.
The Lifetime PD is developed by applying a maturity profile to the current 12M
PD. The maturity profile looks at how defaults develop on a portfolio from the
point of initial recognition throughout the lifetime of the loans. The
maturity profile is based on historical observed data and is assumed to be the
same across all assets within a portfolio and credit grade band where
supported by historical analysis. The 12-month and lifetime EADs are
determined based on the expected payment profile, which varies by product
type.
· For amortising products and bullet repayment loans, this is based on
the contractual repayments owed by the borrower over a 12-month or lifetime
basis. This is also adjusted for any expected overpayments made by a borrower.
Early repayment/refinance assumptions are also incorporated into the
calculation.
· For revolving products, the EAD is predicted by taking current drawn
balance and adding a "credit conversion factor" which allows for the expected
drawdown of the remaining limit by the time of default. These assumptions vary
by product type and current limit utilisation band, based on analysis of the
Company's recent default data.
The 12-month and lifetime LGDs are determined based on the factors which
impact the recoveries made post default. These vary by product type.
· For secured products, this is primarily based on collateral type and
projected collateral values, historical discounts to market/book values due to
forced sales, time to repossession and recovery costs observed.
· For unsecured products, LGDs are typically set at product level due
to the limited differentiation in recoveries achieved across different
borrowers. These LGDs are influenced by collection strategies, including
contracted debt sales and price.
The main difference between Stage 1 and Stage 2 is the respective PD horizon.
Stage 1 estimates use a maximum of a 12-month PD, while Stage 2 estimates use
a lifetime PD. The main difference between Stage 2 and Stage 3 is that Stage 3
is effectively the point at which there has been a default event. For
financial assets in Stage 3, entities continue to recognise lifetime ECL but
now recognise interest income on a net basis. This means that interest income
is calculated based on the gross carrying amount of the financial asset less
ECL. Stage 3 estimates continue to leverage existing processes for estimating
losses on impaired loans, however, these processes are updated to reflect the
requirements of IFRS 9, including the requirement to consider multiple
forward-looking scenarios using independent third-party economic information.
Movements between Stage 1 and Stage 2 are based on whether an instrument's
credit risk as at the reporting date has increased significantly relative to
the date it was initially recognised. Where the credit risk subsequently
improves such that it no longer represents a significant increase in credit
risk since origination, the asset is transferred back to Stage 1.
In assessing whether a borrower has had a significant increase in credit risk
the following indicators are considered:
· Consumer
· Short-term forbearance
- Extension of terms granted
· Structured/SME/Property
· Significant increase in credit spread, where this information is
available
- Significant adverse changes in business, financial and/or economic
conditions in which the borrower operates
- Actual or expected forbearance or restructuring
- Actual or expected significant adverse change in operating results of
the borrower
- Significant change in collateral value (secured facilities only) which
is expected to increase the risk of default
- Early signs of cashflow/liquidity problems such as delay in servicing
of payables
However, as a backstop, unless identified at an earlier stage, the credit risk
of financial assets is deemed to have increased significantly when repayments
are more than 30 days past due. Movements between Stage 2 and Stage 3 are
based on whether financial assets are credit-impaired as at the reporting
date. IFRS 9 contains a rebuttable presumption that default occurs no later
than when a payment is 90 days past due. The Group uses this 90-day backstop
for all its assets except for UK second mortgages, the Group has assumed a
backstop of 180 days past due as mortgage exposures more than 90 days past
due, but less than 180 days, typically show high cure rates and this aligns to
the Group's risk management practices. Assets can move in both directions
through the stages of the impairment model.
In assessing whether a borrower is credit-impaired the following qualitative
indicators are considered:
- Any cases of forbearance, for example where the borrower is
deceased or insolvent
- Whether the borrower is in breach of financial covenants, for
example where concessions have been made by the lender relating to the
borrower's financial difficulty or there are significant adverse changes in
business, financial or economic conditions on which the borrower operates
- Whether the remaining lifetime PD at the reporting date has
increased, compared to the residual lifetime PD expected at the reporting date
when the exposure was first recognised.
The criteria above have been applied to all Credit Asset at amortised costs
held by the Group and are consistent with the definition of default used for
internal credit risk management purposes. The default definition has been
applied consistently to model the PD, EAD and LGD throughout the Group's
expected credit loss calculations.
Inputs into the assessment of whether a financial instrument is in default and
their significance may vary over time to reflect changes in circumstances.
Under IFRS 9, when determining whether the credit risk (i.e. the risk of
default) on a financial instrument has increased significantly since initial
recognition, reasonable and supportable information that is relevant and
available without undue cost or effort, including both quantitative and
qualitative information and analysis based on historical experience, credit
assessment and forward-looking information.
The measurement of expected credit losses for each stage and the assessment of
significant increases in credit risk considers information about past events
and current conditions as well as reasonable and supportable forward-looking
information. A 'Base case' view of the future direction of relevant economic
variables and a representative range of other possible forecasts scenarios
have been developed. The process has involved developing two additional
economic scenarios and considering the relative probabilities of each outcome.
The base case represents a most likely outcome and is aligned with information
used for other purposes, such as strategic planning and budgeting. The number
of scenarios and their attributes are reassessed at each reporting date. At 31
December 2022 as well as 31 December 2021, all the portfolios of the Group use
one positive, more optimistic and one downside, more pessimistic outcomes. The
scenario weightings are determined by a combination of statistical analysis
and expert judgement, taking account of the range of possible outcomes each
chosen scenario is representative of.
The estimation and application of forward-looking information requires
significant judgement. PD, LGD and EAD inputs used to estimate Stage 1 and
Stage 2 credit loss allowances, are modelled and adjusted based on the
macroeconomic variables (or changes in macroeconomic variables) that are most
closely correlated with credit losses in the relevant portfolio. The Group has
utilised macroeconomic scenarios prepared and provided by Oxford Economics
("Oxford"). Oxford combines two decades of forecast errors with the
quantitative assessment of the current risks facing the global and domestic
economy to produce robust forward-looking distributions for the economy.
Oxford construct three alternative scenarios at specific percentile points in
the distribution. In any distribution, the probability of a given discrete
scenario is close to zero. Therefore, scenario probabilities represent the
probability of that scenario or similar scenarios occurring. In effect, a
given scenario represents the average of a broader bucket of similar severity
scenarios and the probability reflects the width of that bucket. Given that it
is known where the IFRS 9 scenarios sit in the distribution (the percentiles),
their probability (the width of the bucket of similar scenarios) depends on
how many scenarios are chosen. Scenario probabilities must add up to 100 per
cent so the more scenarios chosen, the smaller the section of the
distribution, or bucket, each scenario represents and therefore the smaller
the probability. This allows the probabilities to be calculated according to
whichever subset of scenarios chosen to use in the ECL calculation. Oxford
updates these scenarios on a quarterly basis to reflect changes to the
macroeconomic environment. Pollen Street updates the scenarios during the year
if economic conditions change materially. Oxford selects the scenarios to
represent a broadly fixed probability within the distribution of potential
outcomes. As such Pollen Street has maintained the probability of each
scenario at a broadly constant level despite the changing macroeconomic
environment. The Base case is given a 40 per cent weighting and the downside
and upside a 30 per cent weighting each.
As with any economic forecasts, the projections and likelihoods of occurrence
are subject to a high degree of inherent uncertainty and therefore the actual
outcomes may be significantly different to those projected. The Group
considers these forecasts to represent its best estimate of the possible
outcomes and has analysed the non-linearities and asymmetries within the
Group's different portfolios to establish that the chosen scenarios are
appropriately representative of the range of possible scenarios.
Other forward-looking considerations not otherwise incorporated within the
above scenarios, such as the impact of any regulatory, legislative or
political changes, have also been considered, but no adjustment has been made
to the ECL for such factors. This is reviewed and monitored for
appropriateness on an annual basis.
Expected Credit loss allowance for Receivables
Receivables consist of trade and other debtor balances and prepayments and
accrued income. Receivables balances are represented by fees receivable for
investment fund management and advisory services provided during the year to
the Group's customers. The Group's customers are funds that the Group manages
or advises. As such, the Group has detailed and up to date information on the
financial position and outlook of its counterparties. Receivable balances are
generally collected on a monthly or quarterly basis and are therefore
short-term in nature. The Group applies a simplified approach in calculating
ECLs and recognises a loss allowance based on lifetime ECLs at each reporting
date. Given the historic rate of recoverability is 100 per cent and the
absence of reasons to believe the recoverability pattern will change,
management's assessment is that ECL calculated under IFRS9 would be immaterial
at the end of the current and previous reporting period. Further information
as to how the Group manages its credit risk on trade and other receivables is
disclosed in Note 21. Management will continue to assess the recoverability at
each reporting date for changes in the circumstances surrounding the
recoverability of the trade and other receivables and recognise an expected
credit loss allowance when appropriate.
Expected Credit loss allowance for Cash and cash equivalents
Balances with banks are short-term in nature, are held in reputable
institutions (refer to Note 22), and are considered to have a very low risk
of credit losses, therefore the ECL was estimated as immaterial and was not
booked.
Write-off policy for financial assets measured at amortised cost
A loan or advance is normally written off, either partially or in full,
against the related allowance when the proceeds from realising any available
security have been received or there is no realistic prospect of recovery and
the amount of the loss has been determined. Subsequent recoveries of amounts
previously written off decrease the amount of impairment losses recorded in
the income statement.
Modification of loans
The Company sometimes renegotiates or otherwise modifies the contractual cash
flows of loans to customers. When this happens, the Group assesses whether or
not the new terms are substantially different to the original terms. The Group
does this by considering, among others, the following factors:
· If the borrower is in financial difficulty, whether the modification
merely reduces the contractual cash flows to amounts the borrower is expected
to be able to pay;
· Whether any substantial new terms are introduced, such as a profit
share/equity-based return that substantially affects the risk profile of the
loan;
· Significant extension of the loan term when the borrower is not in
financial difficulty;
· Significant change in the interest rate;
· Change in the currency the loan is denominated in; and
· Insertion of collateral, other security or credit enhancements that
significantly affect the credit risk associated with the loan.
If the terms are substantially different, the Group derecognises the original
financial asset and recognises a 'New' asset at fair value and recalculates a
new EIR for the asset. The date of renegotiation is consequently considered to
be the date of initial recognition for impairment calculation purposes,
including for the purpose of determining whether a significant increase in
credit risk has occurred. However, the Group also assesses whether the new
financial asset recognised is deemed to be credit-impaired at initial
recognition, especially in circumstances where the renegotiation was driven by
the debtor being unable to make the originally agreed payments. Differences in
the carrying amounts are also recognised in the Consolidated Statement of
Comprehensive Income as a gain or loss on derecognition. If the terms are not
substantially different, the renegotiation or modification does not result in
derecognition, and the Group recalculates the gross carrying amount based on
the revised cash flows of the financial asset and recognises a modification
gain or loss in the Consolidated Statement of Comprehensive Income. The new
gross carrying amount is recalculated by discounting the modified cash flows
at the original EIR (or credit-adjusted EIR for purchased or originated
credit-impaired financial assets).
Modification of financial assets
The Group sometimes modifies the terms of loans provided to customers due to
commercial renegotiations, or for distressed loans, with a view to maximising
recovery.
Such restructuring activities include extended payment term arrangements,
payment holidays and payment forgiveness. Restructuring policies and practice
are based on indicators or criteria which, in the judgement of management,
indicate that payment will most likely continue. These policies are kept under
continuous review. Restructuring is most commonly applied to term loans.
The risk of default of such assets after modification is assessed at the
reporting date and compared with the risk under the original terms at initial
recognition, when the modification is not substantial and so does not result
in derecognition of the original assets. The Group monitors the subsequent
performance of modified assets. The Group may determine that the credit risk
has significantly improved after restructuring, so that the assets are moved
from Stage 3 or Stage 2.
Collateral and other credit enhancements
The Group employs a range of policies to mitigate credit risk. The most common
of these is accepting collateral for funds advanced. The Group has internal
policies of the acceptability of specific classes of collateral or credit risk
mitigation.
The Group prepares a valuation of the collateral obtained as part of the loan
origination process. This assessment is reviewed periodically. The principal
collateral types for loans and advances are:
· Mortgages over residential properties;
· Security over our borrowers receivables;
· Margin agreement for derivatives, for which the Group has also
entered into master netting agreements;
· Charges over business assets such as premises, inventory and accounts
receivable; and
· Charges over financial instruments such as debt securities and
equities.
Longer-term finance and lending to corporate entities are generally secured;
revolving individual credit facilities are generally unsecured.
Collateral held as security for financial assets other than loans and advances
depends on the nature of the instrument. Debt securities, treasury and other
eligible bills are generally unsecured, with the exception of asset-backed
securities and similar instruments, which are secured by portfolios of
financial instruments. Derivatives are also collateralised.
The Group closely monitors collateral held for financial assets considered to
be credit-impaired, as it becomes more likely that the Group will take
possession of collateral to mitigate potential credit losses.
Derecognition other than a modification
Financial assets, or a portion thereof, are derecognised when the contractual
rights to receive the cash flows from the assets have expired, or when they
have been transferred and either (i) the Group transfers substantially all the
risks and rewards of ownership, or (ii) the Group neither transfers nor
retains substantially all the risks and rewards of ownership and the Company
has not retained control.
The Company enters into transactions where it retains the contractual rights
to receive cash flows from assets but assumes a contractual obligation to pay
those cash flows to other entities and transfers substantially all of the
risks and rewards. These transactions are accounted for as 'pass through'
transfers that result in derecognition if the Group:
· Has no obligation to make payments unless it collects equivalent
amounts from the assets;
· Is prohibited from selling or pledging the assets; and
· Has an obligation to remit any cash it collects from the assets
without material delay.
Derecognition
Financial liabilities are derecognised when they are extinguished (i.e. when
the obligation specified in the contract is discharged, cancelled or expires).
Different terms, as well as substantial modifications of the terms of existing
financial liabilities, are accounted for as an extinguishment of the original
financial liability and the recognition of a new financial liability. The
terms are substantially different if the discounted present value of the cash
flows under the new terms, including any fees paid net of any fees received
and discounted using the original EIR, is at least 10 per cent different from
the discounted present value of the remaining cash flows of the original
financial liability. In addition, other qualitative factors, such as the
currency that the instrument is denominated in, changes in the type of
interest rate, new conversion features attached to the instrument and change
in covenants are also taken into consideration. If an exchange of debt
instruments or modification of terms is accounted for as an extinguishment,
any costs or fees incurred are recognised as part of the gain or loss on the
extinguishment. If the exchange or modification is not accounted for as an
extinguishment, any costs or fees incurred adjust the carrying amount of the
liability and are amortised over the remaining term of the modified liability.
Investments held at fair value through profit or loss
The Investments held at fair value through profit or loss ("FVTPL") include
Equity Assets and Credit Assets.
Equity Assets are instruments that meet the definition of equity from the
issuer's perspective; that is, instruments that do not contain a contractual
obligation to pay and that evidence a residual interest in the issuer's net
assets. Examples of equity instruments include ordinary shares.
Credit Assets at FVTPL consist of loans, together with similar investments,
made by the Investment Company to counterparties where the contractual cash
flows do not meet the requirements of the solely payments of principal and
interest test or are otherwise classified at fair value. See the section on
Classification and measurement - Financial assets later in this note.
Examples of credit instruments include investment in credit funds managed or
advised by Pollen Street or other credit instruments where incremental cash
flows are due contingent on certain events occurring.
Equity Assets and Credit Assets held at FVTPL are valued in accordance with
the International Private Equity and Venture Capital Valuation Guidelines
("IPEVCV") effective 1 January 2019 with the latest update in December 2022 as
recommended by the British Private Equity and Venture Capital Association. The
valuation incorporates the effect of changes interest rates and the credit
risk using similar techniques to those described in the section of expected
credit loss allowance for financial assets measured at amortised costs later
in this note.
Purchases and sales of unquoted investments are recognised when the contract
for acquisition or sale becomes unconditional.
IFRS 13 requires the Company to classify its financial instruments held at
fair value using a hierarchy that reflects the significance of the inputs used
in the valuation methodologies. These are as follows:
· Level 1 - quoted prices in active markets for identical investments;
· Level 2 - other significant observable inputs (including quoted prices
for similar investments, interest rates, prepayments, credit risk, etc.); and
· Level 3 - significant unobservable inputs (including the Company's own
assumptions in determining the fair value of investments).
An investment is always categorised as Level 1, 2 or 3 in its entirety. In
certain cases, the fair value measurement for an investment may use a number
of different inputs that fall into different levels of the fair value
hierarchy. The assessment of the significance of a particular input to the
fair value measurement requires judgement and is specific to the investment.
The gain on fair value is shown in the 'Gains on Investment Assets held at
fair value' line on the statement of profit and loss and there were no
movements from Level 3 valued investment assets during the year.
Fixed assets
Fixed assets are shown at cost less accumulated depreciation. Depreciation is
calculated by the Group on a straight-line basis by reference to the original
cost, estimated useful life and residual value. Cost includes the original
purchase price of the asset and the costs attributable to bringing the asset
to its working condition for its intended use. The period of estimated useful
life for this purpose is one to three years. Residual values are assumed to be
nil.
Plant and equipment is stated at historical cost less accumulated depreciation
and impairment. Historical cost includes expenditure that is directly
attributable to the acquisition of the items.
Depreciation is charged so as to allocate the cost of assets less their
residual value over their estimated useful lives, using the straight‑line
method.
Depreciation is provided on the following basis:
Fixtures and fittings ‑ 3 years
Office equipment ‑ 3 years
Leasehold improvements - 10 years
The assets' residual values, useful lives and depreciation methods are
reviewed, and adjusted prospectively if appropriate, or if there is an
indication of a significant change since the last reporting date.
Gains and losses on disposals are determined by comparing the proceeds with
the carrying amount and are recognised in profit or loss.
Goodwill
Goodwill is initially measured at cost (being the excess of the aggregate of
the consideration transferred over the net identifiable assets acquired and
liabilities assumed). If the fair value of the net assets acquired is in
excess of the aggregate consideration transferred, the Group reassesses
whether it has correctly identified all of the assets acquired and all of the
liabilities assumed and reviews the procedures used to measure the amounts to
be recognised at the acquisition date. If the reassessment still results in an
excess of the fair value of net assets acquired over the aggregate
consideration transferred, then the gain is recognised in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated
impairment losses.
Goodwill is tested for impairment on an annual basis and whenever there is an
indication that the recoverable amount of a cash-generating unit ("CGU") is
less than its carrying amount. Any impairment loss recognised on the goodwill
are not reversed subsequently. For the purpose of impairment testing, goodwill
acquired in a business combination is, from the acquisition date, allocated to
each of the Group's cash-generating units ("CGUs") or group of CGUs that are
expected to benefit from the combination, irrespective of whether other assets
or liabilities of the acquiree are assigned to those units. A CGU represents
the lowest level at which goodwill is monitored for internal management
purposes.
Where goodwill has been allocated to a CGU and part of the operation within
that unit is disposed of, the goodwill associated with the disposed operation
is included in the carrying amount of the operation when determining the gain
or loss on disposal. Goodwill disposed in these circumstances is measured
based on the relative values of the disposed operation and the portion of the
CGU retained.
Intangibles
Intangible assets, which constitute acquired customer relationship assets
acquired from a business combination, are stated at cost less accumulated
amortisation and accumulated impairment losses. Intangible assets are annually
assessed for impairment when there are indicators of impairment.
Amortisation is calculated using the straight-line method to allocate the
depreciable amount of the assets to their residual values over their estimated
useful lives.
Leases
The Group assesses at contract inception whether a contract is, or contains, a
lease. That is, if the contract conveys the right to control the use of an
identified asset for a period of time in exchange for consideration.
Group as a lessee
The Group applies a single recognition and measurement approach for all
leases, except for short-term leases and leases of low-value assets. The Group
recognises lease liabilities to make lease payments and right-of-use assets
representing the right to use the underlying assets.
Lease assets
The Group recognises right-of-use assets at the commencement date of the lease
(i.e., the date the underlying asset is available for use). Right-of-use
assets are measured at cost, less any accumulated depreciation and impairment
losses, and adjusted for any remeasurement of lease liabilities. The cost of
right-of-use assets includes the amount of lease liabilities recognised,
initial direct costs incurred, an estimate of costs to be incurred in
restoring the underlying asset to the condition required by the terms and
conditions of the lease and lease payments made at or before the commencement
date less any lease incentives received. Right-of-use assets are depreciated
on a straight-line basis over the shorter of the lease term and the estimated
useful lives of the assets.
If ownership of the leased asset transfers to the Group at the end of the
lease term or the cost reflects the exercise of a purchase option,
depreciation is calculated using the estimated useful life of the asset.
Lease liabilities
At the commencement date of the lease, the Group recognises lease liabilities
measured at the present value of lease payments to be made over the lease
term. The lease payments include fixed payments less any lease incentives
receivable and amounts expected to be paid under residual value guarantees.
The lease payments also include payments of penalties for terminating the
lease, if the lease term reflects the Group exercising the option to
terminate.
In calculating the present value of lease payments, the Group uses its
incremental borrowing rate at the lease commencement date because the interest
rate implicit in the lease is not readily determinable. After the commencement
date, the amount of lease liabilities is increased to reflect the accretion of
interest and reduced for the lease payments made. In addition, the carrying
amount of lease liabilities is remeasured if there is a modification, a change
in the lease term, a change in the lease payments (e.g., changes to future
payments resulting from a change in an index or rate used to determine such
lease payments) or a change in the assessment of an option to purchase the
underlying asset.
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to its short-term
leases (i.e., those leases that have a lease term of 12 months or less from
the commencement date and do not contain a purchase option). It also applies
the lease of low-value assets recognition exemption to leases of office
equipment that are considered to be low value. Lease payments on short-term
leases and leases of low-value assets are recognised as expense on a
straight-line basis over the lease term.
Carried interest receivable
Carried interest receivable represents a contract asset under IFRS 15 "Revenue
from contracts with customers". The carried interest receivable amounts are in
the Carried interest line on the Consolidated Statement of Financial Position
and are typically presented as non-current assets unless they are expected to
be received within the next 12 months. The entitlement to carried interest and
the amount is determined by the level of accumulated profits exceeding an
agreed threshold or hurdle over the lifetime of each fund. The carried
interest income is recognised when the performance obligations are expected to
be met. Income is only recognised to the extent it is highly probable that
there would not be a significant reversal of any accumulated revenue
recognised on the completion of a fund. The uncertainty of future fund
performance is reduced through the application of discounts in the calculation
of carried interest income. Performance fees are generally calculated as a
percentage of the appreciation in the net asset value of a fund above a
defined hurdle subject to catch-up provisions and are recognised on an accrual
basis when the fee amount can be estimated reliably, and it is highly probably
that it will not be subject to significant reversal.
The Group acquired carried interest rights in the most recent flagship funds
as part of the acquisition of Pollen Street Capital Holdings Limited. These
rights were not part of the Group prior to the Combination and part of the
shares issued to former shareholders of Pollen Street Capital Holdings Limited
were in consideration for the fair value of acquiring rights to this carried
interest. The rights are in the form of partnership interests in carried
interest partnerships. The Group has between 1 and 28 per cent of the total
interests in these partnerships. Where the Group has in excess of 20 percent
of the rights, the Group is considered to have significant influence over the
partnerships and the partnership are considered to be an associate. Associates
are entities in which the Group has an investment and over which it has
significant interest, but not control, through participation in the financial
and operating policy decision. The Group has therefore recognised these
interests as associates at fair value.
Cash and cash equivalents
Cash and cash equivalents (which are presented as a single class of asset on
the Statement of Financial Position) comprise cash at bank including cash that
is restricted and held in reserve.
Receivables
Receivables do not carry any interest and are short term in nature. They are
initially stated at their nominal value and reduced by appropriate allowances
for expected credit losses (if any).
Financial liabilities
Financial liabilities are classified according to the substance of the
contractual arrangements entered into.
Payables
Payables represent amounts for goods and services provided to the consolidated
entity prior to the end of the financial year and which are unpaid. The
amounts are unsecured and are usually paid within 30 days of recognition.
Payables are non-interest-bearing and are initially stated at their nominal
value.
Taxation
As an investment trust, Pollen Street plc has approval under Section 1158 of
the Corporation Tax Act 2010 and so is not liable for taxation on capital
gains. The Company has been approved as an investment trust by HMRC and
continues to monitor itself against the conditions required to satisfy the
investment trust criteria, including but not limited to making sufficient
interest distributions.
The tax expense of the Group arises within the Asset Manager segment and
comprises current and deferred tax.
Current income tax
Current income tax assets and liabilities are measured at the amount expected
to be recovered from or paid to the taxation authorities. The tax rates and
tax laws used to compute the amount are those that are enacted or
substantively enacted at the reporting date in the countries where the Group
operates and generates taxable income.
Current income tax relating to items recognised directly in equity is
recognised in equity and not in the statement of profit or loss. Management
periodically evaluates positions taken in the tax returns with respect to
situations in which applicable tax regulations are subject to interpretation
and establishes provisions where appropriate.
Deferred tax
Deferred tax is provided using the liability method on temporary differences
between the tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes at the reporting date.
Deferred tax liabilities are recognised for all taxable temporary differences,
except:
· When the deferred tax liability arises from the initial recognition of
goodwill or an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither the
accounting profit nor taxable profit or loss.
· In respect of taxable temporary differences associated with investments
in subsidiaries, associates and interests in joint arrangements, when the
timing of the reversal of the temporary differences can be controlled and it
is probable that the temporary differences will not reverse in the foreseeable
future.
Deferred tax assets are recognised for all deductible temporary differences,
the carry forward of unused tax credits and any unused tax losses. Deferred
tax assets are recognised to the extent that it is probable that taxable
profit will be available against which the deductible temporary differences,
and the carry forward of unused tax credits and unused tax losses can be
utilised, except:
· When the deferred tax asset relating to the deductible temporary
difference arises from the initial recognition of an asset or liability in a
transaction that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable profit or loss.
· In respect of deductible temporary differences associated with
investments in subsidiaries, associates and interests in joint arrangements,
deferred tax assets are recognised only to the extent that it is probable that
the temporary differences will reverse in the foreseeable future and taxable
profit will be available against which the temporary differences can be
utilised.
The carrying amount of deferred tax assets is reviewed at each reporting date
and reduced to the extent that it is no longer probable that sufficient
taxable profit will be available to allow all or part of the deferred tax
asset to be utilised. Unrecognised deferred tax assets are reassessed at each
reporting date and are recognised to the extent that it has become probable
that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are
expected to apply in the year when the asset is realised or the liability is
settled, based on tax rates (and tax laws) that have been enacted or
substantively enacted at the reporting date.
Deferred tax relating to items recognised outside profit or loss is recognised
outside profit or loss. Deferred tax items are recognised in correlation to
the underlying transaction either in Other Comprehensive Income ("OCI") or
directly in equity.
Tax benefits acquired as part of a business combination, but not satisfying
the criteria for separate recognition at that date, are recognised
subsequently if new information about facts and circumstances change. The
adjustment is either treated as a reduction in goodwill (as long as it does
not exceed goodwill) if it was incurred during the measurement period or
recognised in profit or loss.
The Group offsets deferred tax assets and deferred tax liabilities if and only
if it has a legally enforceable right to set off current tax assets and
current tax liabilities and the deferred tax assets and deferred tax
liabilities relate to income taxes levied by the same taxation authority on
either the same taxable entity or different taxable entities which intend
either to settle current tax liabilities and assets on a net basis, or to
realise the assets and settle the liabilities simultaneously, in each future
period in which significant amounts of deferred tax liabilities or assets are
expected to be settled or recovered.
Sales tax
Expenses and assets are recognised net of the amount of sales tax, except:
· When the sales tax incurred on a purchase of assets or services is not
recoverable from the taxation authority, in which case, the sales tax is
recognised as part of the cost of acquisition of the asset or as part of the
expense item, as applicable.
· When receivables and payables are stated with the amount of sales tax
included.
The net amount of sales tax recoverable from, or payable to, the taxation
authority is included as part of receivables or payables in the statement of
financial position.
Derivatives
The Group uses foreign exchange spot, forward and swap transactions to hedge
foreign exchange movements in non GBP assets or liabilities in order to
minimise foreign exchange exposure.
Derivative financial instruments are initially measured at fair value on the
date on which the derivative contract is entered into and are subsequently
measured at fair value at each reporting date. The Group does not designate
derivatives as cash flow hedges and so all fair value movements are recognised
in the Income Statement in the 'Gains on Investment Assets held at fair value'
line on the statement of comprehensive income. The fair value of unsettled
forward currency contracts is calculated by reference to the market for
forward contracts with similar maturities.
Interest-bearing borrowings
Interest-bearing borrowings are initially recognised at a carrying value
equivalent to the proceeds received net of issue costs associated with the
borrowings. After initial recognition, interest-bearing borrowings are
subsequently measured at amortised cost using the effective interest rate
method.
Deemed loans
The deemed loans are a non-derivative financial liability with fixed or
determinable repayments that are not quoted in an active market. Deemed loans
in relation to the Company arise from loans originated by the Company and
subsequently sold to in a special purpose entity to reduce the cost of
borrowing, in this case Sting Funding Limited and Bud Funding Limited.
Although the loans are no longer legally owned by the Company, the Company
maintains the economic risks and rewards of the underlying assets and
therefore does not meet the criteria to derecognise.
Loans and related transaction costs are measured at initial recognition at
fair value and are subsequently measured at amortised cost using the EIRM.
International accounting standards ("IAS") makes it clear that assets should
only appear on one statement of financial position. IFRS require a reporting
entity, as part of the derecognition assessment, to consider whether the
transfer includes a transfer to a consolidated subsidiary. Derecognition
cannot be achieved by merely transferring the legal title to a financial asset
to another party. The substance of the arrangement must be assessed in order
to determine whether an entity has transferred the economic exposure
associated with the rights inherent in the asset (i.e., its risks and rewards)
and, in some cases, control of those rights.
In the case of the Company, it has not met the requirements of derecognition
in relation to the deemed loans given the economic exposure associated with
the rights inherent in the assets (i.e., its risks and rewards), have been
retained. As such the Company fails to meet the requirements for derecognition
and continues to recognise the financial assets and as such has a deemed loans
liability to the relevant special purpose entity. At a consolidated Group
level, the deemed liability is eliminated.
Shares
Ordinary and treasury shares are classified as equity. The costs of issuing or
acquiring equity are recognised in equity (net of any related income tax
benefit), as a reduction of equity on the condition that these are incremental
costs directly attributable to the equity transaction that otherwise would
have been avoided.
The costs of an equity transaction that is abandoned are recognised as an
expense. Those costs might include registration and other regulatory fees,
legal fees, accounting and other professional advisers, printing costs and
stamp duties.
Treasury shares have no entitlements to vote and are held directly by the
Company.
Capital reserves
Capital reserves arise from:
· Gains or losses on disposal of equity investments during the year;
· Increases and decreases in the valuation of equity investments held at
the year-end; and
· Other capital charges and credits charged to this account in accordance
with the accounting policies above or as applied to the capital column of the
Consolidated Statement of Comprehensive Income, prepared under guidance issued
by the Associated of Investment Companies.
All of the above are accounted for in the Consolidated Statement of
Comprehensive Income. Any other gains or losses, charges or credits from
investments still held or otherwise are included in the revenue reserves.
Dividends
Dividends to shareholders are recognised in the year in which they are paid.
Income
The Group has four primary sources of income: management fee income, carried
interest and performance fee income, interest income on Credit Assets held at
amortised cost and gains on Investment Assets held at fair value.
Management fee income includes fees charged by the Group to the funds that it
manages for the provision of investment fund management and advisory services.
Management fee revenue is shown net of any value added tax. Management fees
are earned over a period of time, and are recognised on an accrual basis in
the same period in which the service is performed. Management fees are
generally calculated at the end of each measurement period as a percentage of
fund assets managed in accordance with individual management agreements or
limited partnership agreements.
Carried interest and performance fee income includes income from holdings in
carried interest partnerships where the Group receives variable returns as an
incentive for the funds that it manages. Carried interest represents a share
of fund profits through the Group's holdings in carried interest partnerships.
The amount is determined by the level of accumulated profits exceeding an
agreed threshold or hurdle.
Management fees and performance fees are charged to the Investment Company by
Pollen Street Capital Limited, an indirect subsidiary of Pollen Street plc.
These fees are shown in the Company accounts and note 5, operating segments.
However, they are eliminated on consolidation.
Interest income on Credit Assets held at amortised cost is generated from
loans originated by the Company. Interest from loans are recognised in the
Statement of Comprehensive Income for all instruments measured at amortised
cost using the effective interest rate method ("EIRM"). The EIRM 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 ("EIR") is the rate that exactly discounts
estimated future cash flows through 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 EIR, the
Group takes into account all contractual terms of the financial instrument,
for example prepayment options, but does not consider future credit losses.
The calculation includes all fees paid or received between parties to the
contract that are an integral part of the EIR, transaction costs and all other
premiums or discounts. Fees and commissions which are not considered integral
to the EIR model and deposit interest income are recognised on an accruals
basis when the service has been provided or received.
Gains on Investment Assets held at fair value include realised and unrealised
income on assets accounted for at fair value. Refer to the Investments held at
fair value through profit or loss section for further details.
Pensions
The Group makes contributions into employee personal pension schemes. Once the
contributions have been paid, the Group has no further payment obligations.
The contributions are recognised as an expense in the profit or loss when they
fall due. Amounts not paid are shown in accruals as a liability in the
Statement of Financial Position.
Expenses
All expenses are accounted for on an accruals basis. In respect of the
analysis between revenue and capital items presented within the Statement of
Comprehensive Income, all expenses have been presented as revenue items
except:
· Transaction costs which are incurred on the purchases or sales of
Equity Assets designated as fair value through profit or loss are expensed to
capital in the Statement of Comprehensive Income;
· Expenses are split and presented partly as capital items where a
connection with the maintenance or enhancement of the value of the equity
investments held can be demonstrated; and
· Management fees and performance fees attributable to equity that were
incurred by the Company and were payable to the Asset Manager segment for the
first three quarters of the year were allocated to the Capital column on the
consolidated statement of comprehensive income.
Finance costs
Finance costs are accrued on the EIR basis and are presented as a separate
line on the statement of comprehensive income.
Segmental reporting
The Group has two segments: the Asset Manager segment and the Investment
Company segment. The primary revenue streams for the Asset Manager segment
consist of management fees and performance fees or carried interest arising
from managing Private Equity and Credit funds. The Investment Company segment
primarily consists of the Company's Investment assets and borrowings. The
primary revenue stream for the Investment Company segment is interest income
and fair value gains on Investments held at fair value.
The Asset Manager segment charges management and performance fees to the
Investment Company segment for managing the segment's assets. These fees are
shown in the segmental results and the Company financial statements. However,
they are eliminated in the consolidated financial statements. Refer to Note 5
for further details.
Prior to the Combination on 30 September 2022, the Company had a single
business segment, which was the entire Group.
2. Significant Accounting estimates and judgements
The preparation of financial statements in conformity with UK-adopted
International Accounting Standards and with the requirements of the Companies
Act 2006 as applicable to companies reporting under those standards requires
the Group to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of income and expenses during the reporting period. UK company law and IFRS
require the Directors, in preparing the Group's financial statements, to
select suitable accounting policies, apply them consistently and make
judgements and estimates that are reasonable. The Group's estimates and
assumptions are based on historical experience and expectations of future
events and are reviewed on an ongoing basis. Although these estimates are
based on the Directors' best knowledge of the amount, actual results may
differ materially from those estimates.
The critical judgements relate to the application of consolidation accounting
principles and determination of associates, and within the Company, the
treatment of asset derecognition and deemed loans. These have been explained
in the accounting policies section of the Notes.
Estimates
The estimates of most significance to the financial statements are detailed
below. There were a number of new accounting estimates as a consequence of the
acquisition of Pollen Street Capital Holdings Limited.
Estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimates are revised and in any future periods affected.
Expected Credit loss ("ECL") allowance for financial assets measured at amortised cost
The calculation of the Group's ECL allowances and provisions against loan
commitments and guarantees under IFRS 9 is complex and involves the use of
significant judgement and estimation. Loan Impairment Provisions represent an
estimate of the losses incurred in the loan portfolios at the balance sheet
date. Individual impairment losses are determined as the difference between
the carrying value and the present value of estimated future cash flows,
discounted at the loans' original EIR. The calculation involves the
formulation and incorporation of multiple forward-looking economic conditions
into ECL to meet the measurement objective of IFRS 9. Depending on a range of
factors such as changes in the economic environment in the UK. The most
significant factors are set out below.
Definition of default - The PD of an exposure, both over a 12-month period and
over its lifetime, is a key input to the measurement of the ECL allowance.
Default has occurred when there is evidence that the customer is experiencing
significant financial difficulty which is likely to affect the ability to
repay amounts due.
A number of the Group's loans are secured against underlying collateral; for
example real estate, SME, and consumer loans. The Directors do not consider
the value of this collateral to directly influence the probability of default.
However, the Directors consider that the structure of some of the Group's
lending arrangements may mean that this collateral generates income for the
Group's borrowers that supports the borrowers' ability to service the loan
from the Group and therefore influence the probability of default.
The definition of default adopted by the Company is described in expected
credit loss allowance for financial assets measured at amortised cost above.
As noted on page 140 of the Annual Report, the Group has rebutted the
presumption in IFRS 9 that default occurs no later than when a payment is 90
days past due on some of its portfolio.
The lifetime of an exposure - To derive the PDs necessary to calculate the ECL
allowance it is necessary to estimate the expected life of each financial
instrument. A range of approaches has been adopted across different product
groupings including the full contractual life and taking into account
behavioural factors such as early repayments and refinancing. The Group has
defined the lifetime for each product by analysing the time taken for all
losses to be observed and for a material proportion of the assets to fully
resolve through either closure or write-off.
Significant increase in credit risk ("SICR") - Performing assets are
classified as either Stage 1 or Stage 2. An ECL allowance equivalent to 12
months' expected credit losses is established against assets in Stage 1;
assets classified as Stage 2 carry an ECL allowance equivalent to lifetime
expected credit losses. Assets are transferred from Stage 1 to Stage 2 when
there has been a SICR since initial recognition.
The Directors do not consider the value of any collateral to directly trigger
whether there has been a significant increase in credit risk. However, the
Directors consider that the structure of some of the Group's lending
arrangements may mean that the underlying loans that the Company is financing
generate income for the borrowers that supports the borrowers' ability to
service the loan from the Group and therefore influence whether there has been
a SICR.
The Company uses a quantitative test together with qualitative indicators and
a backstop of 30 days past due for determining whether there has been a SICR.
The setting of precise trigger points combined with risk indicators requires
judgement. The use of different trigger points may have a material impact upon
the size of the ECL allowance.
Forward-looking information - IFRS 9 requires the incorporation of
forward-looking macroeconomic information that is reasonable and supportable,
but it provides limited guidance on how this should be performed. The
measurement of expected credit losses is required to reflect an unbiased
probability-weighted range of possible future outcomes.
In order to do this the Group uses a model to project a number of key
variables to generate future economic scenarios. These are ranked according to
severity of loss and three economic scenarios have been selected to represent
an unbiased and full loss distribution. They represent a 'most likely outcome'
(the Base case scenario) and two, less likely, 'outer' scenarios, referred to
as the 'Upside' and 'Downside' scenarios. These scenarios are used to produce
a weighted average PD for each product grouping which is used to calculate the
related ECL allowance. This weighting scheme is deemed appropriate for the
computation of unbiased ECL. Key scenario assumptions are set using external
economist forecasts, helping to ensure the IFRS 9 scenarios are unbiased and
maximise the use of independent information. Using externally available
forecast distributions helps ensure independence in scenario construction.
While key economic variables are set with reference to external distributional
forecasts, the overall narrative of the scenarios is aligned to the
macroeconomic risks faced by the Group at 31 December 2022.
The choice of alternative scenarios and probability weighting is a combination
of quantitative analysis and judgemental assessments, designed to ensure that
the full range of possible outcomes and material non-linearity are captured.
Paths for the two outer scenarios are benchmarked to the Base scenario and
reflect the economic risk assessment. Scenario probabilities reflect
management judgement and are informed by data analysis of past recessions,
transitions in and out of recession, and the current economic outlook. The key
assumptions made, and the accompanying paths, represent our 'best estimate' of
a scenario at a specified probability. Suitable narratives are developed for
the central scenario and the paths of the two outer scenarios. It may be
insufficient to use three scenarios in certain economic environments.
Additional analysis may be requested at management's discretion, including the
production of extra scenarios. We anticipate there will only be limited
instances when the standard approach will not apply. The Base case, Upside and
Downside scenarios are usually generated annually and those described herein
reflect the conditions in place at the balance sheet date and are only updated
during the year if economic conditions change significantly.
The Group's UK mild upside scenario can be thought of as an alternative, more
optimistic, base case in which the cost-of-living causes households run down
savings at a more gradual pace than assumed in the baseline, inflation tapers
off and the economy recovers to its pre-crisis trajectory within a couple of
years. This mild-upside case scenario sees UK GDP recovering, with growth
accelerating to 1.4 per cent by 2023 and 3 per cent in 2024. The labour market
is still deteriorated in the near-term, as higher interest rates and lower
real incomes impact employment growth, but the unemployment rate recovers
swiftly and falls back to 3.6 per cent by 2027. Consequently, for the mild
upside scenario the Bank of England base rate is forecast to rise to around
5.25 per cent by mid-2023. The one-year forecast changes in these key economic
drivers are shown in the table below.
The base case forecasts unemployment to remain stable at 4.0 per cent by the
end of 2023; and the Bank of England base rate to rise up to 4.0 per cent by
the end of 2023, before gradually decreasing. The downside scenario, however,
forecasts a significantly greater impact from the cost-of-living crisis and
war in Ukraine, with a much slower recovery, with unemployment at 6.0 per cent
by December 2023 and HPI 14.5 per cent lower in December 2023 than at the end
of 2022.
See Note 10 for the sensitivity analysis.
2022 Base Upside Down-side
UK unemployment rate yearly change 4.66% 4.24% 5.99%
UK HPI yearly change (5.90%) (3.15%) (10.63%)
UK Base Rate 4.00% 5.25% 3.50%
2021 Base Upside Down-side
UK unemployment rate yearly change (0.17%) (0.84%) 1.64%
UK HPI yearly change 0.45% 4.25% (9.43%)
UK Base Rate 0.37% 0.75% (0.13%)
Loss given default - referred to as LGD, represents the expectation of the
extent of loss on a defaulted exposure. LGD varies by type of counterparty,
type and seniority of claim and availability of collateral or other credit
support. LGD is expressed as a percentage loss per unit of exposure at the
time of default. LGD is calculated on a 12-month or lifetime basis, where
12-month LGD is the percentage of loss expected to be made if the default
occurs in the next 12 months and Lifetime LGD is the percentage of loss
expected to be made if the default occurs over the remaining expected lifetime
of the loan.
The 12-month and lifetime LGDs are determined based on the factors which
impact the recoveries made post default. These vary by product type:
· For secured products, this is primarily based on collateral type
and projected collateral values, historical discounts to market/book values
due to forced sales, time to repossession and recovery costs observed.
· For unsecured products, LGDs are typically set at product level
due to the limited differentiation in recoveries achieved across different
borrowers. These LGDs are influenced by collection strategies, including
contracted debt sales and price.
Exposure at default - referred to as EAD, is based on the amounts expected to
be owed at the time of default, over the next 12 months or over the remaining
lifetime. IFRS 9 requires an assumed draw down profile for committed amounts.
The Group also considers post model adjustments to address model limitations
or factors that have not been captured in the models. These represent the
factors that are not fully accounted for as part of the modelling described
above, such as potential uncertainty arising from the cost of living crisis
and the current economic environment.
Equity Asset valuation
The valuation of unquoted investments and investments for which there is an
inactive market is a key area of estimation and may cause material adjustment
to the carrying value of those assets and liabilities. The unquoted equity
assets are valued on a periodic basis using techniques including a market
multiple approach, costs approach and/or income approach. The valuation
process is collaborative, involving the finance and investment functions of
the Group with the final valuations being reviewed by the Valuation Committee,
which is a management-level Committee responsible for the oversight of the
valuation of investments. The techniques used include earnings multiples,
discounted cash flow analysis, the value of recent transactions and the net
asset value of the investment. The valuations often reflect a synthesis of a
number of different approaches in determining the final fair value estimate.
The individual approach for each investment will vary depending on relevant
factors that a market participant would take into account in pricing the
asset. These might include the specific industry dynamics, the Investee's
stage of development, profitability, growth prospects or risk as well as the
rights associated with the particular security.
Increases or decreases in any of the inputs in isolation may result in higher
or lower fair value measurements. Changes in fair value of all investments
held at fair value, which includes Equity Assets are recognised in the
Consolidated Statement of Comprehensive Income as a capital item. On disposal,
realised gains and losses are also recognised in the Consolidated Statement of
Comprehensive Income. Transaction costs are included within gains or losses on
investments held at fair value, although any related interest income, dividend
income and finance costs are disclosed separately in the financial statements.
Sensitivity analysis has been performed on the equity investment valuations in
Note 11.
Impairment assessment for Goodwill
Goodwill is tested for impairment on an annual basis and whenever there is an
indication that the recoverable amount of a cash-generating unit ("CGU") is
less than its carrying amount. For the impairment test, goodwill is allocated
to the CGU or groups of CGUs which benefit from the synergies of the
acquisition and which represent the lowest level at which goodwill is
monitored for internal management purposes.
The recoverable amount of CGUs is determined based on higher of value-in-use
and fair value less cost to sell. Key assumptions in the discounted cash flow
projections are prepared based on current economic conditions and comprise an
estimated long-term growth rate, the period over which future cashflows have
been forecast, the weighted average cost of capital and estimated operating
margins. Wherever possible, the inputs into the discounted cash flow
projections used for the impairment test of goodwill are based on third party
observable data.
Carried interest
The Group participates in carried interest in the underlying funds. Carried
interest represents a share of fund profits through the Group's holdings in
carried interest partnerships. The amount is determined by the level of
accumulated profits exceeding a threshold or hurdle. The rights are in the
form of partnership interests in carried interest partnerships. Carried
interest is accounted for as revenue under IFRS 15, where the carried interest
is obtained as part of the service that the Group provides to the funds, and
it is held at fair value, where the Group acquired carried interest rights as
part of the Combination.
Carried interest income is only recognised under IFRS 15 provided it has been
determined as being highly probable that there will not be a significant
reversal. The value of carried interest, under this method, has been modelled
by assessing the value of the assets in the fund as well as the terms of the
carried interest arrangements that the Group is a beneficiary of. The
value of the assets have been discounted to ensure that it is highly probable
that there will not be a significant reversal.
Carried interest at fair value is modelled by estimating from the value of the
funds' investments and the amount that would be due to the Group under the
terms of the carried interest arrangements if the assets were realised at
these values. Carried interest includes an embedded option where carried
interest holders participate in gains but not losses of the fund subject to
certain hurdles. The value of this option has been modelled using a variety of
techniques, including the Black Scholes option valuation model and scenario
analysis. The modelling showed that the option value of the carried interest
was not material at 31 December 2022.
Sensitivity analysis has been performed on carried interest valuations in Note
8.
Judgements
Consolidation of Group companies
Determining whether the Group has control of an entity is generally
straightforward when based on ownership of the majority of the voting capital.
However, in certain instances, this determination will involve significant
judgement, particularly in the case of structured entities where voting rights
are often not the determining factor in decisions over the relevant
activities. This judgement may involve assessing the purpose and design of the
entity. It will also often be necessary to consider whether the Group, or
another involved party with power over the relevant activities, is acting as a
principal in its own right or as an agent on behalf of others.
Consolidation of fund investments
It was assessed throughout the year whether the Group should consolidate
investments in funds managed or advised by the Group into the results of the
Group. Control is determined by the extent of which the Company has power over
the investee, exposure or rights to variable returns from its involvement with
the investee and the ability to use its power over the investee to affect the
amount of the investor's returns.
The Group has assessed the legal nature of the relationships between the
Group, the relevant fund, the General Partners and the Limited Partners. This
assessment included carrying out a control assessment of each Limited Partner
("LP") in accordance with IFRS 10 "Consolidated Financial Statements" to
consider whether the LPs should be consolidated into the financial statements
of the Group. The Group has determined that control over the LPs ultimately
resides with the underlying fund majority investors and that the Group,
through the Asset Manager, acts as an agent to the underlying fund major
investors and not as principal. The Group also determined that as the manager,
the Group has the power to influence the returns generated by the fund, but
the Group's interests typically represent only a small proportion of the total
capital within each fund. The Group has therefore concluded that the Group
acts as an agent, which is primarily engaged to act on behalf, and for the
benefit, of the Limited Partners rather than to act for its own benefit.
Accounting for carried interest partnerships
Carried interest represents a share of fund profits through the Group's
holdings in carried interest partnerships. The amount is determined by the
level of accumulated profits exceeding a threshold or hurdle. The rights are
in the form of partnership interests in carried interest partnerships. The
Group has between 1 and 28 per cent of the total interests in these
partnerships.
The Group has undertaken a control assessment of each carried interest
partnership in accordance with IFRS 10, Consolidated Financial Statements, to
consider whether they should be consolidated into the Group's results. The
Group has considered the nature of the relationships between the Group, the
fund, the fund investors, the carried interest partnership and participants in
the carried interest partnership. The Group has determined that the power to
control the carried interest partnerships ultimately resides with the fund
investors and that the Group is therefore an agent and not a principal. This
is because the purpose and design of the carried interest partnerships and the
carry rights in the fund are determined at the outset by each fund's Limited
Partner Agreement ("LPA"), which requires investor agreement and reflects
investor expectations to incentivise individuals to enhance performance of the
underlying fund. While the Group has some power over the carried interest
partnerships, these powers are limited and represent the best interests of all
carried interest holders collectively and hence, these are assessed to be on
behalf of the fund investors.
The Group has assessed the payments and the returns the carried interest
holders make and receive from their investment in carried interest and have
considered whether those carried interest holders, who are also employees of
the Group were providing a service for the benefit of the Group or the
investors in the fund. The Group concluded that the carried interest
represents a separate relationship between the fund investors and the
individual employees and that the carried interest represents an investment
requiring the individuals to put their own capital at risk and that, after an
initial vesting period, continued rights to returns from the investment is not
dictated by continuation of employment.
In addition, the Group has also considered the variability of returns for all
carried interest partnerships and in doing so have determined that the Group
is exposed to variable returns in the range of 1 to 28 per cent, with the main
beneficiaries of the carried interest partnership variable returns being the
other participants. The Group concluded that the carried interest partnership
are not controlled by the Group and therefore should not be consolidated.
The Group has also assessed whether the Group has significant influence over
the carried interest partnerships under IAS28, Investments in Associates and
Joint Ventures. Where the Group has a share of 20 per cent or more of the
rights to the carried interest, the Group is considered to have significant
influence and therefore these carried interest partnerships are treated as an
associate. Details of the associates are set out in Note 19.
3. Business Combination
The Company acquired 100 per cent of the shares in Pollen Street Capital
Holdings Limited on 30 September 2022. The Company controls Pollen Street
Capital Holdings Limited so it has been consolidated from 30 September 2022.
The Group expensed £3,352,000 of costs associated with the acquisition of the
shares in Pollen Street Capital Holdings Limited. The costs associated with
the issuance of shares of £10,216,400 were presented in merger reserves in
the Statement of Financial Position and Statement of Changes in Shareholders'
Funds.
The following table shows the fair value of the consideration transferred and
the acquisition-date fair value of each major class of the consideration:
As at 30 September 2022 £'000
Consideration 235,781
Purchase price allocation
Pollen Street Capital Holdings Limited net asset value (4,090)
Intangible assets (4,000)
Total value of assets acquired (8,090)
Goodwill 227,691
The goodwill recognised on acquisition of the Pollen Street Capital Holdings
Limited is made up of one cash-generating unit, which includes future
management and performance fees arising from the acquired company and its
subsidiaries.
Consideration
The consideration for the acquisition of Pollen Street Capital Holdings
Limited was in the form of issuance of shares in Pollen Street plc to the
owners of Pollen Street Capital Holdings Limited. The gross amount was
£235,781,304, which was the number of shares issued on the 30 September 2022
of 29,472,663 multiplied by the prior day closing share price of £8.00 per
share.
In aggregate, the consideration shares represented approximately 45.6 per cent
of the enlarged share capital of Pollen Street plc on the completion date
being 30 September 2022.
Pollen Street Capital Holdings Limited net asset value
Pollen Street Capital Holdings Limited net asset value was formed of the
following balance sheet items on the date of completion, being 30 September
2022:
£'000
Pollen Street Capital Holdings Limited net asset value:
Receivables 14,554
Payables (23,729)
Carried interest 5,459
Other assets 7,806
Pollen Street Capital Holdings Limited book value 30 September 2022 4,090
Receivables
The fair value of the receivables acquired in Pollen Street Capital Holdings
Limited are equal to the gross contractual amounts receivable. The main
receivables consist of trade and other debtor balances, prepayments and
accrued income. Receivable balances are represented by fees receivable for
investment fund management and advisory services provided to Pollen Street
Capital Holdings Limited's customers. The customers include investors in funds
that Pollen Street Capital Holdings Limited manages or advises; as such,
Pollen Street Capital Holdings Limited has detailed and up-to-date information
on the financial position and outlook of its counterparties. The receivable
balances are generally collected on a monthly or quarterly basis and are
therefore short-term in nature. Given the historic rate of recoverability is
100 per cent and the absence of reasons to believe the recoverability pattern
will change, Management's assessment is that all contractual cash flows are
expected to be collected.
Payables
The main items of the payables acquired include corporation tax and general
business accruals.
Carried interest
Carried interest refers to the share of the profits of a third-party fund
earned by Pollen Street Capital Holdings Limited and its subsidiaries. The
Group's carried interest participations are defined and agreed with the
Limited Partners in each fund's Limited Partnership Agreement. The exact
measurement for the carried interest in different funds can differ, such as
containing different hurdle rates and watermarks.
Other assets
Other assets are primarily formed of fixed tangible assets including
investments in funds managed or advised by the Investment Manager and a third
party fund management company. The other assets also includes £2.6 million of
cash and cash equivalents.
Intangible assets
The intangible assets represent customer relationships which arose as part of
the acquisition of Pollen Street Capital Holdings Limited. See Note 4 for
further details.
Pollen Street Capital Holdings Limited
Income arising in Pollen Street Capital Holdings Limited has been incorporated
into the consolidated statement of comprehensive income from the date of
completion of the acquisition, being 30 September 2022. Income arising between
1 January 2022 and 30 September 2022 is not included in the consolidated
statement of comprehensive income. The following table shows income arising in
Pollen Street Capital Holdings Limited and its subsidiaries for the whole of
2022:
Pollen Street Capital Holdings Limited 2022
£'000
Management fee income 28,980
Carried interest and performance fee income 8,452
Total income 37,432
Administration costs (29,850)
Operating profit 7,582
Depreciation (1,327)
Profit before tax 6,255
Tax (1,544)
Profit after tax 4,711
4. Goodwill and Intangible assets
The table below shows the goodwill and intangible assets held by the Group:
Group Goodwill Intangibles Total
£'000 £'000 £'000
Cost
Balance as at 1 January 2022 - - -
Additions 227,191 4,000 231,191
Disposals - - -
Balance as at 31 December 2022 227,191 4,000 231,191
Amortisation
Balance as at 1 January 2022 - - -
Amortisation - (160) (160)
Balance as at 31 December 2022 - (160) (160)
Net book value 31 December 2022 227,191 3,840 231,031
There were no goodwill or intangible assets held by the Company as at 31
December 2022 (2021: none).
Goodwill
Goodwill is calculated as the consideration for an acquisition less the value
of the assets acquired. The goodwill, shown in Note 3 above, relates to the
acquisition of the Pollen Street Capital Holdings Limited.
As per the requirements of IAS 36 "impairment of assets", goodwill is tested
for impairment annually. The goodwill recognised as part of the acquisition
above is compared to a financial model used to estimate the value in use of
Pollen Street Capital Holdings Limited. The value in use involves identifying
the cashflows associated with the revenue streams of Pollen Steet Capital
Holdings Limited and carrying out a forecast of future cashflows that are
discounted back to their net present value based on discount rates obtained
from relevant industry comparable information.
Goodwill was tested for impairment at the end of the reporting period and no
impairment was identified. The cashflows have been forecast three years into
the future, where the final year is assigned a terminal value.
As at December 2022, the value in use of goodwill was £300 million which is
£73 million above the goodwill value of £227 million presented by the Group.
The value in use model has a number of assumptions; the most significant
assumptions are the future income projections that are based on Pollen Street
Capital Holdings Limited's forecast profit after tax, the discount rate used
of 11 per cent, and the long-term growth rate of 2.5 per cent.
The future cashflow projections are based on management's best estimate using
historical performance and third party data and applying assumptions to future
potential funds.
The discount rate and long-term growth rates used were based on publicly
available information of industry peers.
The following table shows the sensitivity of the value in use to the key
inputs:
Group Sensitivity Increase rate Decrease rate Change at which VIU equates to carrying value of goodwill
applied £'000 £'000
Profit after tax +/-10% 30,000 (30,000) Decrease of 24%
Long-term growth rate +/-50bps 16,790 (14,988) Decrease of 305bps
Discount rate +/-50bps (16,820) 20,478 Increase of 250bps
Intangible assets
The intangible assets arose as part of the acquisition, and represents
existing customer relationships of Pollen Street Capital Holdings Limited. The
intangible assets have a finite life, which is estimated to be up to the end
of 2028, and so the intangibles are amortised on a straight line basis up to
the end of 2028 and are included in administration expenses on the statement
of comprehensive income. See Notes 1 and 3 for further information on
intangible assets.
5. Operating segments
The Company has two operating segments: the Asset Manager segment and the
Investment Company segment.
The Asset Manager segment is the activities of the Group that provide
investment management and investment advisory services to a range of funds
under management within Private Equity and Credit strategies. The primary
revenue streams for the Asset Manager segment consist of management fees and
performance fees or carried interest. Fund management services are also
provided to the Investment Company segment, however fees from these services
are eliminated from the Group consolidated financial statements. Fund
Management EBITDA in Strategic Report is equivalent to the operating profit of
the Asset Manager segment adjusted for the depreciation of the right of use
asset.
The Investment Company segment holds the investment assets of the Group. The
primary revenue stream for this segment is interest income and fair value
gains on the Investment Asset portfolio. The Income on Net Investment Assets
of the Investment Company segment represents the operating profit of the
segment and is referred to as the Net Investment Income in the Strategic
Report.
Group Asset Manager Investment Company Central Group
2022
£'000 £'000 £'000 £'000
Management fee income 7,750 - (1,538) 6,212
Carried interest and performance fee income 2,411 - (833) 1,578
Interest income on Credit Assets held at amortised cost - 51,986 - 51,986
Gains on Investment Assets held at fair value - 3,909 - 3,909
Total income 10,161 55,895 (2,371) 63,685
Credit impairment release - 206 - 206
Third-party servicing costs - (2,511) - (2,511)
Net operating income 10,161 53,590 (2,371) 61,380
Administration costs (7,224) (10,821) (1,540) (19,585)
Finance costs - (14,517) - (14,517)
Operating profit 2,937 28,252 (3,911) 27,278
Depreciation (322) - - (322)
Amortisation - - (160) (160)
Profit before tax 2,615 28,252 (4,071) 26,796
Group Asset Manager Investment Company Central Group
2021
£'000 £'000 £'000 £'000
Management fee income - - - -
Carried interest and performance fee income - - - -
Interest income on Credit Assets held at amortised cost - 56,484 - 56,484
Gains on Investment Assets held at fair value - 537 - 537
Total income - 57,021 - 57,021
Credit impairments release - 844 - 844
Third-party servicing costs - (2,810) - (2,810)
Net operating income - 55,055 - 55,055
Administration costs - (11,878) - (11,878)
Finance costs (12,859) - (12,859)
Operating profit - 30,318 - 30,318
Depreciation - - - -
Amortisation - - - -
Profit before tax - 30,318 - 30,318
Income
Management fee income, represents all income in the form of management fees
arising in the Asset Manager. Carried interest and performance fee income
includes income earned by the Asset Manager that is in the form of a
performance fee or a carried interest share from the funds under management.
Interest income relates to income earned by the Investment Company on loans
provided to third parties. Gains/(Losses) on Investment Assets held at fair
value include revenue earned by the Group on its Investment Asset portfolio.
The Carried interest income in 2022 was unrealised. The Gains on Investment
assets at fair value includes both realised and unrealised income.
Expenses
Credit impairments relate to any charges (releases) on the assets held at
amortised cost within the Investment Company. Administrative costs include
employee expenses such as salaries, bonuses and any employee benefits costs
incurred by the Asset Manager.
The following table shows the fees payable to the Group auditor
PricewaterhouseCoopers LLP ("PwC"):
Group audit fees payable to PwC 2022 2021
£'000 £'000
Fees payable to the external auditor for the audit of the Company and the 584 319
consolidated financial statements
Fees payable to the external auditor for the audit of the accounts of the 279 29
Company's subsidiaries
Total 863 348
Central
The 'Central' column consists primarily of the elimination of inter-segment
fees, costs associated with the acquisition of the share capital of Pollen
Street Capital Holdings Limited, losses from the US operations of Pollen
Street Capital Holdings Limited and the amortisation of intangibles acquired
as part of the business combination.
Geographical analysis
The Group and Company had the following geographical exposures of its Credit
Assets at amortised cost and Investment Assets held at fair value through
profit or loss in GBP equivalent:
Group Company
2022 2021 2022 2021
£'000 £'000 £'000 £'000
UK 524,181 603,553 522,528 603,553
Europe 42,961 2,097 42,961 2,097
USA 21,241 9,114 21,241 9,114
Total 588,383 614,764 586,730 614,764
The majority of revenue was obtained in the UK. The Group earned revenues from
Irish and US investment assets of GBP equivalent 3,783,000.
6. Employees
The following tables show the average monthly number of employees and the
Directors during the year. The average includes the four Independent
Non-Executive Directors of Pollen Street plc for the entire period and Pollen
Street Capital Holdings Limited staff from 30 September 2022, being the date
of completion of the acquisition.
Group 2022 2021
Average number of staff
Directors 5 4
Professional staff (the average from the date of the combination being 1 78 -
October 2022 to 31 December 2022)
Total 83 4
Company 2022 2021
Number of staff
Directors 5 4
Total 5 4
There were no employees in the Company throughout the year (2021: nil) and the
Company had 7 directors (2021: 4) as at 31 December 2022. The Group had a
total of 78 employees as at 31 December 2022 (2021: nil).
The following table shows the total staff costs for the period. This includes
the four Non-Executive Directors of Pollen Street plc for the entire period
and Pollen Street Capital Holdings Limited staff from 30 September 2022, being
the date of completion of the Combination. The total number of employees and
directors as at the reporting date was 83. The Company did not incur employee
costs besides Director fees disclosed in the Director's remuneration.
Group 2022 2021
Staff costs £'000 £'000
Wages and salaries 5,638 204
Social security costs 932 23
Defined contribution pension cost 24 -
Total 6,594 227
7. Investment assets at Fair Value Through Profit or Loss
(a) Investment Assets at fair value through profit or loss
The following table shows the total Investment Assets at fair value through
profit or loss of the Group, which includes both Equity Assets and Credit
Assets at fair value through profit or loss.
Group Equity Assets Credit Assets Total Equity Assets Credit Assets Total
2022 2022 2022 2021 2021 2021
£'000 £'000 £'000 £'000 £'000 £'000
Fair value as at 1 January 15,659 33,111 48,770 14,959 5,905 20,864
Additions at cost 790 13,008 13,798 2,037 29,310 31,347
Reclassification from loans at amortised cost - - - - 5,476 5,476
Realisations at cost - (1,033) (1,033) - (9,726) (9,726)
Gains - 3,762 3,762 (1,337) 2,423 1,086
Realised gains - (1,958) (1,958) - (456) (456)
Foreign exchange revaluation - 1,167 1,167 - 179 179
Fair value as at 31 December 16,449 48,057 64,506 15,659 33,111 48,770
Comprising:
Valued using an earnings multiple 1,559 10,457 12,016 1,359 7,775 9,134
Valued using a TNAV multiple 14,890 37,600 52,490 14,300 25,336 39,636
Fair value as at 31 December 16,449 48,057 64,506 15,659 33,111 48,770
Company Equity Assets Credit Assets Total Equity Assets Credit Assets Total
2022 2022 2022 2021 2021 2021
£'000 £'000 £'000 £'000 £'000 £'000
Fair value as at 1 January 15,659 33,111 48,770 14,959 5,905 20,864
Additions at cost - 12,145 12,145 2,037 29,310 31,347
Reclassification from loans at amortised cost - - - - 5,476 5,476
Realisations at cost - (1,033) (1,033) - (9,726) (9,726)
Gains - 3,762 3,762 (1,337) 2,423 1,086
Realised gains - (1,958) (1,958) - (456) (456)
Unrealised foreign exchange revaluation - 1,167 1,167 - 179 179
Fair value as at 31 December 15,659 47,194 62,853 15,659 33,111 48,770
Comprising:
Valued using an earnings multiple 1,359 10,457 11,816 1,359 7,775 9,134
Valued using a TNAV multiple 14,300 36,737 51,037 14,300 25,336 39,634
Fair value as at 31 December 15,659 47,194 62,853 15,659 33,111 48,770
Credit Assets at fair value through profit and loss include investments made
by the Group into three Credit funds that are also managed or advised by the
Group: PSC Credit III (B) SCSp, one of the investment vehicles within flagship
Credit III, PSC Credit (T) SCSp, one of the European SMAs, and PSC US Badger
LLC, one of the US SMAs. As at 31 December 2022, the Group held 7.5% of
flagship Credit III (31 December 2021: 13.7%), 1% of PSC Credit (T) SCSp (31
December 2021: nil) and 49% of PSC US Badger LLC (31 December 2021: 49%). As
at 31 December 2022, the undrawn commitment for the investment into flagship
Credit III was £11.9 million (31 December 2021: £17.8 million), £0.8
million (31 December 2021: nil) for the investment in PSC Credit (T) SCSp and
$7.0 million for the investment in PSC US Badger LLC (31 December 2021: $13.6
million). The Company holds the investments in flagship Credit III and PSC US
Badger LLC directly. The investment in PSC Credit (T) SCSp is held by a
subsidiary of the Group. The Asset Manager does not charge the Investment
Company fees in relation to these assets to ensure fees are not 'double
charged'. The costs incurred by these funds are not included in the costs
reported by the Group.
(b) Fair value classification of total investment assets
The Investment Assets at fair value through profit or loss are classified as
level 3 assets with a value on the 31 December 2022 of £62,853,000 (31
December 2021: £48,770,000). There were no movements between the fair value
hierarchies during the year.
(c) Sensitivity analysis of assets at fair value through profit or loss
The investments are inEquity Assets and Credit Assets, both Credit Assets,
both of which are valued using different techniques, including recent
transactions and recent rounds of funding by the investee entities and a
market approach. Sensitivity to the quantitative information regarding the
unobservable inputs for the Group's Level 3 positions as at 31 December 2022
and 31 December 2021 is given below:
31 Dec 2022 Valuation technique Sensitivity applied 31 Dec 2021
£'000
£'000
Impact of sensitivity Impact of sensitivity
2,998 Earnings multiple Earnings multiple changed by 1x 1,978
3,974 TNAV TNAV changed 10% 3,936
The earnings multiple used was between 5.3x and 12.7x (2021: 5.3x).
(d) Assets and liabilities not carried at fair value but for which fair value is disclosed
For the Group as at 31 December 2022:
Group As Presented Fair Value
Level 1 Level 2 Level 3 Total
£'000
£'000
£'000
£'000
Assets
Investments at amortised cost 523,877 - - 557,180 557,180
Receivables 12,870 - 12,870 - 12,870
Cash and cash equivalents 23,303 23,303 - - 23,303
Total assets 560,050 23,303 12,870 557,180 593,353
Liabilities
Payables (19,221) - (19,221) - (19,221)
Interest-bearing borrowings (263,633) - (263,633) - (263,633)
Total liabilities (282,854) - (282,854) - (282,854)
For the Company as at 31 December 2022:
Company As Presented Fair Value
Level 1 Level 2 Level 3 Total
£'000
£'000
£'000
£'000
Assets
Investments at amortised cost 523,877 - - 557,180 557,180
Receivables 3,831 - 3,831 - 3,831
Cash and cash equivalents 18,229 18,229 - - 18,229
Total assets 545,937 18,229 3,831 557,180 579,240
Liabilities
Payable (5,174) - (5,174) - (5,174)-
Deemed Loan (93,036) - (93,036) - (93,036)
Interest-bearing borrowings (169,367) - (169,367) - (169,367)
Total liabilities (267,577) - (267,577) - (267,577)
For the Group as at 31 December 2021:
Group As Presented Fair Value
Level 1 Level 2 Level 3 Total
£'000
£'000
£'000
£'000
Assets
Investments at amortised cost 565,994 - - 579,482 579,482
Receivables 6,554 - 6,554 - 6,554
Cash and cash equivalents 12,948 12,948 - - 12,948
Total assets 585,496 12,948 6,554 579,482 598,984
Liabilities
Payables (7,159) - (7,159) - (7,159)
Interest-bearing borrowings (267,657) - (267,657) - (267,657)
Total liabilities (274,816) - (274,816) - (274,816)
For the Company for the year ended 31 December 2021:
Company As Presented Fair Value
Level 1 Level 2 Level 3 Total
£'000
£'000
£'000
£'000
Assets
Investments at amortised cost 565,994 - - 579,482 579,482
Receivables 6,554 - 6,554 - 6,554
Cash and cash equivalents 10,500 10,500 - - 10,500
Total assets 583,048 10,500 6,554 579,482 596,536
Liabilities
Payables (6,860) - (6,860) - (6,860)
Deemed Loan (82,326) - (82,326) - (82,326)
Interest-bearing borrowings (183,182) - (183,182) - (183,182)
Total liabilities (272,368) - (272,368) - (272,368)
Further details of the loans at amortised cost held by the Group can be found
in Note 10 to the financial statements.
8. Carried interest
The following table shows the total value of the carried interest held by the
Group, which includes both the carried interest at fair value through profit
or loss and the carried interest receivable:
Group 2022 2021
£'000 £'000
Carried interest at fair value 6,495 -
Carried interest receivable 557 -
Fair value as at 31 December 7,052 -
There is no carried interest held by the Company (2021: nil).
Carried interest assets at fair value through profit or loss
(a) Movements in the year
Group 2022 2021
£'000 £'000
Opening fair value - -
Additions 5,459 -
Income 1,036 -
Closing balance 6,495 -
(b) Fair value classification of carried interest at fair value through profit or loss
Carried Interest at fair value through profit or loss is classified as a level
3 asset with a value on the 31 December 2022 of £6.5 million (31 December
2021: nil). There were no movements between the fair value hierarchies during
the year.
(c) Sensitivity analysis of carried interest at fair value through profit or loss
The following is the impact if the TNAV were to change for the underlying
funds:
Group 31 Dec 2022 Valuation technique Sensitivity applied Dec 2021
£'000
£'000
Impact of sensitivity Impact of sensitivity
650 TNAV TNAV changed by 10% -
Carried interest receivable
Movements in the year
Group 31 December 2022 31 December 2021
£'000
£'000
Non-Current receivables
Opening balance - -
Income 557 -
Total carried interest receivable 557 -
9. Interest-Bearing Borrowings
The table below sets out a breakdown of the Group's interest-bearing
borrowings.
Group 31 December 2022 31 December 2021
£'000
£'000
Current Liabilities
Credit facility 60,379 49,435
Interest and commitment fees payable 415 195
Prepaid interest and commitment fees (196) (291)
Total current liabilities 60,598 49,339
Non-Current Liabilities
Credit facility 204,234 220,545
Interest and commitment fees payable - -
Prepaid interest and commitment fees (1,199) (2,227)
Total non-current liabilities 203,035 218,318
Total interest-bearing borrowings 263,633 267,657
The table below sets out a breakdown of the Company's interest-bearing
borrowings.
Company 31 December 2022 31 December 2021
£'000
£'000
Current Liabilities
Credit facility 30,000 15,000
Interest and commitment fees payable 141 72
Prepaid interest and commitment fees - -
Total current liabilities 30,141 15,072
Non-Current Liabilities
Credit facility 140,000 170,000
Interest and commitment fees payable - -
Prepaid interest and commitment fees (774) (1,890)
Total non-current liabilities 139,226 168,110
Total interest-bearing borrowings 169,367 183,182
At 31 December 2022 the Company's main debt facility was £170 million
provided by Goldman Sachs, being a £140 million term loan and £30 million
revolving credit facility. At 31 December 2022 both the term loan and
revolving element were fully drawn with interest charged at SONIA plus a
margin, with the facility maturing in September 2025.
In December 2020, the Group entered into a £35 million debt facility secured
against a structured SME facility. The debt facility charges synthetic LIBOR
plus a margin and is an amortising term loan with the full £35 million drawn
on day one. The facility has a 49-year term.
In October 2022, the Group extended a debt facility and entered into a
two-year facility to finance three residential mortgage portfolios, two
commercial mortgage pools and a small unsecured consumer pool. These
portfolios were previously leveraged through the Company-level debt facility
but getting assets specific leverage on these provides a lower cost of funding
at a higher advance rate. The total debt raised on day one of this facility
was £82.0 million. Interest is charged at SONIA plus a margin.
The table below shows the related debt costs incurred by the Group during the
year:
Group 2022 2021
£'000
£'000
Interest and commitment fees payable 12,920 11,022
Other finance charges 1,597 1,837
Total finance costs 14,517 12,859
The table below shows the related debt costs incurred by the Company:
Company 2022 2021
£'000
£'000
Interest and commitment fees payable 9,813 8,577
Other finance charges 1,137 1,103
Total finance costs 10,950 9,680
The table below shows the movements in interest-bearing borrowings of the
Group:
Group 2022 2021
£'000
£'000
Opening balance 267,657 273,539
Drawdown of interest-bearing borrowings 76,925 27,000
Repayments of interest-bearing borrowing (82,291) (34,375)
Finance costs 14,517 12,859
Interest paid on financing activities (13,175) (11,366)
Closing balance 263,633 267,657
The table below shows the movements in interest-bearing borrowings of the
Company:
Company 2022 2021
£'000
£'000
Opening balance 183,182 167,348
Drawdown of interest-bearing borrowings 35,000 27,000
Repayments of interest-bearing borrowing (50,000) (12,000)
Finance costs 10,950 9,678
Interest paid on financing activities (9,765) (8,844)
Closing balance 169,367 183,182
The table below analyses the Group's financial liabilities into relevant
maturity groupings based on the remaining period at the reporting date to the
final scheduled maturity date.
2022 < 1 year 1 - 5 years More than 5 years Total
£'000
£'000
Group £'000 £'000
Credit facility 61,356 196,351 7,882 265,589
Interest and commitment fees payable 271 (2,069) (158) (1,956)
Total exposure 61,627 194,282 7,724 263,633
2021 < 1 year 1 - 5 years More than 5 years Total
£'000
£'000
Group £'000 £'000
Credit facility 49,435 185,545 35,000 269,980
Interest and commitment fees payable (96) (2,944) 717 (2,323)
Total exposure 49,339 182,601 35,717 267,657
The below table analyses the Company's financial liabilities into relevant
maturity groupings based on the remaining period at the reporting date to the
final scheduled maturity date.
2022 < 1 year 1 - 5 years More than 5 years Total
£'000
£'000
Company £'000 £'000
Credit facility 30,000 140,000 - 170,000
Interest and commitment fees payable 141 (774) - (633)
Total exposure 30,141 139,226 - 169,367
2021 < 1 year 1 - 5 years More than 5 years Total
£'000
£'000
Company £'000 £'000
Credit facility 15,000 170,000 - 185,000
Interest and commitment fees payable 72 (1,890) - (1,818)
Total exposure 15,072 168,110 - 183,182
10. Credit assets at Amortised Cost
(a) Credit Assets at amortised cost
The disclosure below presents the gross carrying value of financial
instruments to which the impairment requirements in IFRS 9 are applied and the
associated allowance for ECL. Please see Note 1 for more detail on the
allowance for ECL. The Group has classified the loan portfolio according to
stages as described in Note 2.
The following table analyses loans by staging for both the Group and Company
as at 31 December 2022:
31 December 2022 31 December 2021
Group and Company Gross Carrying Amount Allowance Net Carrying Amount Gross Carrying Amount Allowance Net Carrying Amount
for ECL
for ECL
£'000
£'000 £'000
£'000
£'000 £'000
Credit Assets at amortised cost
Stage 1 512,030 (1,013) 511,017 544,233 (952) 543,281
Stage 2 6,878 (678) 6,200 6,363 (946) 5,417
Stage 3 14,250 (7,590) 6,660 26,184 (8,888) 17,296
Total Assets 533,158 (9,281) 523,877 576,780 (10,786) 565,994
The following table analyses ECL by staging for both the Group and Company for
2022:
Group and Company - 2022 Stage 1 Stage 2 Stage 3 Total
£'000
£'000
£'000
£'000
At 1 January 952 946 8,888 10,786
Movement from stage 1 to stage 2 (2) 197 - 195
Movement from stage 1 to stage 3 (9) - 359 350
Movement from stage 2 to stage 1 1 (242) - (241)
Movement from stage 2 to stage 3 - (171) 314 143
Movement from stage 3 to stage 1 - - (260) (260)
Movement from stage 3 to stage 2 - 87 (190) (103)
Decreases due to repayments (167) (69) (419) (655)
Increases due to origination 20 - - 20
Remeasurements due to modelling 281 (6) 71 346
Loans sold (63) (63) (77) (203)
Loans written off - (1) (1,096) (1,097)
Allowance for ECL at 31 December 1,013 678 7,590 9,281
The following table analyses ECL by staging for both the Group and Company for
2021:
Group and Company - 2021 Stage 1 Stage 2 Stage 3 Total
£'000
£'000
£'000
£'000
At 1 January 1,464 1,927 27,086 30,477
Movement from stage 1 to stage 2 (8) 450 - 442
Movement from stage 1 to stage 3 (2) - 766 764
Movement from stage 2 to stage 1 - (218) - (218)
Movement from stage 2 to stage 3 - (321) 432 111
Movement from stage 3 to stage 1 2 - (388) (386)
Movement from stage 3 to stage 2 - 58 (237) (179)
Decreases due to repayments (53) (139) (1,651) (1,843)
Increases due to origination 67 - - 67
Remeasurements due to modelling 460 33 (94) 399
Loans sold (978) (843) (16,714) (18,535)
Loans written off - (1) (312) (313)
Allowance for ECL at 31 December 952 946 8,888 10,786
(b) Expected Credit Loss allowance for IFRS 9
Impairment Provisions are driven by changes in credit risk of instruments,
with a provision for lifetime expected credit losses recognised where the risk
of default of an instrument has increased significantly since initial
recognition.
The following table analyses Group and Company ECL by stage.
Group & Company 2022 2021
£'000 £'000
At 1 January 10,786 30,477
(Release) / Charge for the period - Stage 1 (108) 290
(Release) for the period - Stage 2 (23) (483)
(Release) for the period - Stage 3 (75) (651)
Release for the period - total (206) (844)
Loans sold or written off (1,299) (18,847)
Allowance for ECL at 31 December 9,281 10,786
Measurement uncertainty and sensitivity analysis of ECL
The recognition and measurement of ECL is highly complex and involves the use
of significant judgement and estimation. This includes the formulation and
incorporation of multiple forward-looking economic conditions into ECL to meet
the measurement objective of IFRS 9.
The Group has adopted the use of three economic scenarios, representative of
Oxford Economics view of forecast economic conditions, sufficient to calculate
unbiased ECL. They represent a 'most likely outcome' (the Base scenario) and
two, less likely, 'outer' scenarios, referred to as the 'Upside' and
'Downside' scenarios.
The ECL recognised in the financial statements reflect the effect on expected
credit losses of a range of possible outcomes, calculated on a
probability-weighted basis, based on the economic scenarios described in Note
2 to the financial statements, including management overlays where required.
The probability-weighted amount is typically a higher number than would result
from using only the Base (most likely) economic scenario. ECLs typically have
a non-linear relationship to the many factors which influence credit losses,
such that more favourable macroeconomic factors do not reduce defaults as much
as less favourable macroeconomic factors increase defaults. The ECL calculated
for each of the scenarios represent a range of possible outcomes that have
been evaluated to estimate ECL. As a result, the ECL calculated for the Upside
and Downside scenarios should not be taken to represent the upper and lower
limits of possible actual ECL outcomes. There is a high degree of estimation
uncertainty in numbers representing tail risk scenarios when assigned a 100
per cent weight. A wider range of possible ECL outcomes reflects uncertainty
about the distribution of economic conditions and does not necessarily mean
that credit risk on the associated loans is higher than for loans where the
distribution of possible future economic conditions is narrower.
For stage 3 impaired loans, LGD estimates consider independent recovery
valuations provided by external valuers where available, or internal forecasts
corresponding to anticipated economic conditions.
Analysis shows that the ECL would have been £0.7 million higher, as at 31
December 2022, if the weighting of the scenarios are changed to allocate a 100
per cent weight to the downside scenario. At 31 December 2021 if the
weightings used represented a 100 per cent downside scenario the ECL would
have been £4.0 million higher. The sensitivity of the ECL has been further
analysed by assessing the impact of £10.0 million of portfolio credit assets
at amortised cost moving from Stage 1 to Stage 2. The analysis shows that the
ECL would have been £1.1 million higher under this sensitivity as the
provision coverage increases from Stage 1 to Stage 2.
(c) Disposals of Credit assets at amortised cost
Throughout the year, the Company disposed of assets with a net book value of
£43.8 million (2021: £47.7 million), realising a profit of £2.1 million.
The profit recorded on the disposals is shown in the consolidated statement of
comprehensive income.
11. Corporation Tax
The tax charge for the period was £435,000 (2021: nil).
Factors affecting taxation charge for the year
The taxation charge for the year is lower than the standard rate of UK
corporation tax of 19.00 per cent (2021: 19.00 per cent). A reconciliation of
the 2022 taxation charge based on the standard rate of UK corporation tax to
the actual taxation charge is shown below.
Group Revenue Capital Total
£'000
£'000
£'000
Profit before taxation 26,913 (117) 26,796
Profit before taxation multiplied 5,113 (22) 5,091
by the standard rate of UK corporation tax of 19.00%
Effects of:
Capital items exempt from tax (343) - (343)
Income distributions received not taxable (372) - (372)
Disallowed expenses 710 - 710
Excess management expenses not utilised / (utilised) 984 22 1,006
Interest distributions paid in respect of (5,657) - (5,657)
the year
Total tax charge in income statement 435 - 435
The corporation tax charge for 2021 was nil.
There was no withholding tax payable by the Company at 31 December 2022 (31
December 2021: £nil) due to the changes made in the 2017 Finance Act whereby
all interest distributions will be paid gross of tax, therefore withholding
tax is retained by the Company and paid directly to HMRC. The deferred tax
payable by the Group was £94,000 (2021: nil). The Company does not have any
deferred taxation.
12. Earnings per share
Group 31 December 31 December
2022
2021
Revenue 62.4p 90.2p
Capital (0.3)p (4.2)p
Earnings per ordinary share 62.1p 86.0p
The calculation for the year ended 31 December 2022 is based on total Revenue
profit after tax of £26.5 million (2021: 31.8 million), capital of £(0.1)
million (2021: £(1.5) million) and a total profit after tax of £26.4 million
(2021: 30.3 million) and a weighted average number of ordinary shares of
42,444,118 (2021: 35,259,741).
13. Fixed Assets
The table below set out the movement in Fixed Assets for the Group. All of the
movements included below are as a result of the acquisition of Pollen Street
Capital Holdings Limited.
Group 2022 2021
£'000
£'000
Cost
Opening balance as at 1 January - -
Additions 1,470 -
Closing balance as at 31 December 1,470 -
Depreciation
Accumulated depreciation balance as at 1 January - -
Depreciation charge for the year (56) -
Accumulated depreciation balance as at 31 December (56) -
Net book value at 31 December 1,414 -
The Group's fixed assets comprise of fixtures and fittings, office equipment
and two electric vehicles.
The Company does not have any fixed assets (2021: nil).
14. Leases
The Group leases mainly include office premises where the Group is a tenant
which include fixed periodic rental payments over the fixed lease terms
ranging from 1 to 6 years remaining from the reporting date. The total cash
outflow over the period in relation to leases was £0.46 million.
Set out below are the carrying amounts of right-of-use assets recognised and
the movements during the period.
Group - Right-of-use assets 2022 2021
£'000
£'000
Cost
At 1 January - -
Additions 5,042 -
At 31 December 5,042 -
Accumulated depreciation
At 1 January - -
Depreciation expense (266) -
At 31 December (266) -
Net book value 4,776 -
Set out below are the carrying amounts of lease liabilities and the movements
during the period.
A provision for restoration costs on lease contracts has been recognised as
part of the right-of-use assets acquired.
Group - Lease provision 2022 2021
£'000 £'000
At 1 January - -
Arising during the year 98 -
Unwinding of discount 1 -
At 31 December 99 -
Group - Lease liabilities 2022 2021
£'000
£'000
Cost
At 1 January - -
Additions 5,521 -
Accretion of interest 71 -
Payments (324) -
At 31 December 5,268 -
Set out below are the lease liabilities by maturity.
Group - Lease liabilities by maturity 2022 2021
£'000
£'000
Cost
Current 1,201 -
Non-Current 4,067 -
At 31 December 5,268 -
The following are the amounts recognised in the comprehensive income
statement:
Group - Amount recognised in profit or loss 2022 2021
£'000
£'000
Depreciation expense of right of use assets 266 -
Finance costs 71 -
Total amount recognised in profit or loss during the year 337 -
Group - Finance costs 2022 2021
£'000
£'000
Lease liability interest 70 -
Unwinding of discount (on restoration provision) 1 -
Total finance costs 71 -
The incremental borrowing rate ("IBR") has been estimated based on what the
lessee would have to pay to borrow over a similar term as the leases at
origination of the lease. The rate of the IBR is in line with the interest
margin payable on the Group's debt facilities. If the IBR had been 1 per
cent higher or lower, the impact on the lease liabilities would be as
follows:
Group 31 December 2022 31 December 2021
£'000
£'000
Right-of-use assets
Increase IBR by 1% (243) -
Decrease IBR by 1% 261 -
Group 31 December 2022 31 December 2021
£'000
£'000
Lease liabilities
Increase IBR by 1% (156) -
Decrease IBR by 1% 162 -
The Company has no right-of-use assets or lease liabilities (2021: nil).
15. Receivables
The table below sets out a breakdown of the Group receivables as at 31
December 2022.
Group 31 December 2022 31 December 2021
Management fees, performance fees and carried interest 1,956 -
Amounts due from debtors 1,659 924
Prepayments and other receivables 9,255 5,630
Closing balance 12,870 6,554
The table below sets out a breakdown of the Company receivables as at 31
December 2022.
Company 31 December 2022 31 December 2021
Amounts due from platforms 767 924
Prepayments and other receivables 3,064 5,630
Closing balance 3,831 6,554
The above receivables do not carry any interest and are short term in nature.
The Company considers that the carrying values of these receivables
approximate their fair value. There were no impairments on receivables
recorded during the year (2021: none).
The Group prepayments and other receivables includes receivables to the Group
for amounts that the Group settled on behalf of some of the underlying funds.
16. Payables
The table below set out a breakdown of the Group payables.
Group 31 December 2022 31 December 2021
£'000
£'000
Staff salaries and bonuses 12,377 25
Audit fee accruals 863 358
Deferred income 964 -
Other payables 5,017 6,776
Total payables 19,221 7,159
The table below set out a breakdown of the Company payables.
Company 31 December 2022 31 December 2021
£'000
£'000
Staff salaries and bonuses 25 25
Audit fee accruals 584 329
Other payables 4,565 6,506
Total payables 5,174 6,860
17. Ordinary dividends
The following table shows the dividends in relation to or paid during 2022 and
2021.
Dividend Payment Date Amount per Share Total
£'000
(pence per share)
Interim dividend for the period to 31 December 2020 26 March 2021 20.00p 7,052
Interim dividend for the period to 31 March 2021 25 June 2021 20.00p 7,052
Interim dividend for the period to 30 June 2021 30 September 2021 20.00p 7,052
Interim dividend for the period to 30 September 2021 24 December 2021 20.00p 7,052
Interim dividend for the period to 31 December 2021 25 March 2022 20.00p 7,052
Interim dividend for the period to 31 March 2022 24 June 2022 20.00p 6,990
Interim dividend for the period to 30 June 2022 30 September 2022 20.00p 6,947
Interim dividend for the period to 30 September 2022 23 December 2022 16.00p 7,916
Interim dividend for the period to 31 December 2022 31 March 2023 16.00p 7,916
The 31 December 2022 interim dividend of 16.00 pence was approved on 23
February 2023 and will be paid on the 31 March 2023.
The following table show the total dividends in relation to the period and the
total dividends paid in the period.
31 December 2022 31 December 2021
£'000
£'000
Total dividend paid in period 28,905 28,208
Total dividend in relation to period 29,769 28,208
Former shareholders of Pollen Street Capital Holdings Limited, who received
ordinary shares as consideration as part of the Combination, have waived
ordinary dividends paid to them in both 2022 and 2023 on approximately 50.0
per cent of such consideration shares, pursuant to the terms of the
Combination. As a result, the interim dividends for the period to 30 September
2022 and the period to 31 December 2022 were paid on 49,473,264 ordinary
shares. Further information is available in the prospectus dated 26 September
2022, which is available on the Company's website.
18. Derivatives
As at 31 December 2022, the Group and Company had the following notional value
of the forward contracts:
Group EUR USD EUR USD
2022
2022
2021
2021
€'000 $'000 €'000 $'000
Opening notional value 1 January 1,950 12,000 2,780 -
Movement in notional value 50,375 11,860 (830) 12,000
Closing notional value 31 December 52,325 23,860 1,950 12,000
Company EUR USD EUR USD
2022
2022
2021
2021
€'000 $'000 €'000 $'000
Opening notional value 1 January 1,950 12,000 2,780 -
Movement in notional value 45,175 11,860 (830) 12,000
Closing notional value 31 December 47,125 23,860 1,950 12,000
The table below presents the mark to market of EUR and USD foreign exchange
forward contracts as at 31 December for the Group.
Group and Company EUR USD Total EUR USD Total
2022
2022
2022
2021
2021
2021
£'000 £'000 £'000 £'000 £'000 £'000
Opening carrying value 1 January 113 (221) (108) 21 - 21
Fair value movement (952) 144 (808) 92 (221) (129)
Closing carrying value 31 December (839) (77) (916) 113 (221) (108)
The fair value for the forward contracts is based off the forward rate curves
for the respective currencies.
Fair value classification of derivatives
The derivatives are classified as level 2 with a GBP equivalent value on the
31 December 2022 of £(916,000) (31 December 2021: £(108,000)). There were no
movements between the fair value hierarchies during the year. The derivatives
are valued using market forward rates and are contracts with a third party and
so they are not traded on an exchange.
19. Investment in subsidiaries
On the 30 September 2022, the Company acquired 100 per cent of Pollen Street
Capital Holdings Limited a limited company incorporated under the law of
Guernsey as a company limited by shares pursuant to the Companies (Guernsey)
Law, 2008, with company number 58102. The Company has control over the Pollen
Street Capital Holdings Limited. In the Company's Statement of Financial
Position, the investment in Pollen Street Capital Holdings Limited is reported
using the cost method and is shown in the investment in subsidiaries line.
The Company controls Bud Funding Limited ("Bud"), a limited company
incorporated under the law of England and Wales. The Company is considered to
control Bud through its involvement in the initial creation of Bud and because
the activities of Bud are directed by the Company. Bud was incorporated on 2
November 2020 and the junior note was funded on 2 December 2020.
On 20 June 2019, the Group incorporated Sting Funding Limited ("Sting"), a
limited Company incorporated under the law of England and Wales. Sting became
active on 28 August 2019 when it drew down on a debt facility backed by
commercial and second charge residential mortgages. The company is registered
at 1 Bartholomew Lane, London, United Kingdom, EC2N 2AX. The Company is
considered to control Sting through holding 100 per cent of the issued shares.
Due to the nature of Sting, whereby the credit facility is guaranteed by the
investments within Sting this constitutes as a restriction on the Group's
ability to access or use the assets and settle the liabilities of the Group.
There is a restricted ability on the Group to transfer cash or other assets
from Sting to the Company.
Investments in consolidated entities
The consolidated financial statements of the Group include the following
subsidiaries:
Name Country of incorporation Class of shares Holding Activity
Avant Credit of UK, LLC USA Ordinary 100% Lending company
Bud Funding Limited UK Ordinary 100% SPV
Financial Services Infrastructure Limited UK Ordinary 100% Dormant
Honeycomb Finance Limited UK Ordinary 100% Lending company
Pollen Street Capital (US) Holdings LLC USA Ordinary 100% Holding company
Pollen Street Capital (US) LLC USA Ordinary 100% Investment management services
Pollen Street Capital Holdings Limited Guernsey Ordinary 100% Holding company
Pollen Street Capital Limited UK Ordinary 100% Investment management services
Pollen Street Capital Partners Limited UK Ordinary 100% Holding company
PollenUp Limited UK Ordinary 100% Dormant
PSC 3 Funding Limited UK Ordinary 100% Dormant
PSC Accelerator GP Limited Guernsey Ordinary 100% General partner
PSC Accelerator Nominee Limited Guernsey Ordinary 100% Nominee
PSC Credit (OE) I GP S.a.r.l Luxembourg Ordinary 100% General partner
PSC Credit (P) GP S.a.r.l Luxembourg Ordinary 100% General partner
PSC Credit (T) GP S.a.r.l Luxembourg Ordinary 100% General partner
PSC Credit Holdings LLP UK Capital contribution 100% Investment management services
PSC Credit III GP S.a.r.l Luxembourg Ordinary 100% General partner
PSC Credit Limited Cayman Ordinary 100% Holding company
PSC Digital Limited UK Ordinary 100% Holding company
PSC III Carry GP Limited UK Ordinary 100% General partner
PSC III G GP Limited Guernsey Ordinary 100% General partner
PSC III GP Limited UK Ordinary 100% General partner
PSC Income Fund I GP LLC USA Ordinary 100% General partner
PSC Investments (Q) GP Limited UK Ordinary 100% General partner
PSC IV GP Limited Guernsey Ordinary 100% General partner
PSC IV GP S.a.r.l Luxembourg Ordinary 100% General partner
PSC Marlin GP Limited Guernsey Ordinary 100% General partner
PSC Nominee 1 Limited UK Ordinary 100% Dormant
PSC Nominee 3 Limited UK Ordinary 100% Dormant
PSC Nominee 4 Limited Guernsey Ordinary 100% Nominee
PSC Plane GP (Guernsey) Limited Guernsey Ordinary 100% General partner
PSC Saturn G GP Limited Guernsey Ordinary 100% General partner
PSC Service Company Limited UK Ordinary 100% Service company
PSC SPV I GP LLC USA Ordinary 100% General partner
PSC US Credit GP MM LLC USA Ordinary 100% General partner
Saturn GP Limited Guernsey Ordinary 100% General partner
SOF Annex Nominees Limited UK Ordinary 100% Dormant
SOF General Partner (Guernsey) Limited Guernsey Ordinary 100% General partner
SOF General Partner (Scotland) II Limited UK Ordinary 100% General partner
SOF General Partner (UK) Limited UK Ordinary 100% General partner
Special Opportunities Fund General Partner (Cayman) Ltd Cayman Ordinary 100% General partner
Sting Funding Limited UK Ordinary 100% SPV
All shares held in the Group's subsidiaries represent ordinary shares.
Investments in unconsolidated structured entities
The Group has interests in a number of entities who act as general partner to
a number of funds structured as limited partnerships. The limited partnerships
are not treated as subsidiary undertakings of the Group because the rights of
the general partners are exercised on behalf of other investors in the limited
partnerships and, being fiduciary in nature, are not considered to result in
power over the relevant activities of the limited partnerships. As such, the
Group is considered an agent.
The list of such limited partnerships in which the Group has an interest at 31
December 2022 are:
Partnership Jurisdiction
PSC Accelerator Carry LP Guernsey
PSC Accelerator LP Guernsey
PSC Credit (P) SCSp Luxembourg
PSC Credit (T) SCSp Luxembourg
PSC Credit III (A) SCSp Luxembourg
PSC Credit III (B) SCSp Luxembourg
PSC Glebe LP Guernsey
PSC III Carry LP UK
PSC III G, LP Guernsey
PSC III LP UK
PSC III Pooling LP Canada
PSC Investments LP Guernsey
PSC Investments (Q) LP UK
PSC Investments B LP UK
PSC Investments LP UK
PSC IV (B) LP Guernsey
PSC (C) SCSp Luxembourg
PSC IV Carry, LP Guernsey
PSC IV Partners LP Guernsey
PSC IV, LP Guernsey
PSC Marlin LP Guernsey
PSC Neptune LP Guernsey
PSC Plane (Guernsey) LP Incorporated Guernsey
PSC Plane Carry LP Guernsey
PSC US Badger LLC Delaware
PSC US Buckeye LLC Delaware
PSC US Wolverine LLC Delaware
PSC Venus LP Guernsey
PSCM Carry LP Guernsey
PSCM Pooling LP Guernsey
SOF Carry LP Guernsey
Special Opportunities Fund (Guernsey) LP Guernsey
Special Opportunities Fund A LP UK
Special Opportunities Fund B LP UK
Special Opportunities Fund C LP UK
Special Opportunities Fund D LP UK
Special Opportunities Fund Employee LP Cayman
Special Opportunities Fund F LP UK
Special Opportunities Fund G LP UK
Special Opportunities Fund S1 LP UK
Special Opportunities Fund S2 LP UK
The maximum exposure to loss for investments in unconsolidated limited
partnerships is the carrying amount of any investments in limited partnerships
and loss of future fees. As at 31 December 2022 the carrying amount was £26.9
million (2021: £12.4 million).
Associates
The Group accounts for investments in funds or carried interest partnerships
that give the Group significant influence, but not control, through
participation in the financial and operating policy decisions, as associates
at fair value through profit or loss. Information about the Group's
investments in associates measured at fair value is shown below.
The table below shows the investment fund that is accounted for as an
associate by the Group. The investment fund appears as part of Investment
Assets at Fair Value Through Profit or Loss in the Group's Statement of
Financial Position.
Associates PSC US
Badger LLC
2022
£'000
Investments at fair value 29,376
Other assets 977
Liabilities (103)
Total 30,250
Profit for the year 2,831
Country of incorporation USA
Activity Private credit
Group's interest in the associate 49%
The table below shows the carried interest partnerships that are accounted for
as associates by the Group. The carried interest partnerships appear as part
of Carried interest in the Group's Statement of Financial Position.
Associates PSC IV Carry LP PSC Accelerator Carry LP PSC Credit III Carry SCSp PSC US PSC Credit (T) SCSp
Wolverine LLC
2022 2022 2022 2022 2022
£'000 £'000 £'000 £'000 £'000
Carried interest receivable 22,012 1,184 1,229 648 355
Country of incorporation Guernsey Guernsey Luxembourg USA Luxembourg
Group's interest in the associate 25% 25% 28% 25% 28%
20. Financial Risk Management
The risk report on pages 55 to 62 of the Annual Report sets out the Group's
objectives, policies and processes for managing and monitoring all risk types.
This note provides further detail on the management of financial risk and
includes quantitative data on specific financial risks.
The Group has a comprehensive risk management framework that includes risk
appetite statements, risk policies, procedures, a Committee oversight
structure, a risk register, risk reporting and risk controls. The purpose of
the framework is to ensure that the Group's exposure to risks are within the
risk appetite set by the Board and that are there is an effective control
environment. The Board maintains oversight of this framework through the board
Risk Committee.
The Group monitors its exposure to risk using the risk register, which is
reviewed regularly at the board Risk Committee. The most significant financial
risks that the Group is exposed to are credit risk, market risk, capital
management and liquidity risk. Market risk includes interest rate risk,
foreign currency risk and price risk. Capital management includes the risk of
there being insufficient capital, including insufficient capital of a
particular type.
Credit risk
Credit risk is the risk of loss arising from failure of a counterparty to pay
the amounts that they are contractually due to pay. The Group is exposed to
credit risk principally through the Investment Company.
The Investment Committee approves all investment decisions and all investments
are subject to extensive due diligence prior to approval. The performance of
each investment is monitored by the investment Committee by way of regular
reviews of the investment and any collateral. The Board oversees the risk
exposure through a regular review of a sample of investments. As part of this
sector and asset class concentrations across the investment portfolio are
closely monitored and controlled, with mitigating actions taken where
appropriate.
Credit risk is mitigated through first loss protection, where the Group is
senior to equity in the partner and where the Group benefits from underlying
collateral, as well as diversification across the wide range of platforms that
makes up its portfolio.
Credit risk is analysed further in Note 21.
Market risk
The fair value or future cash flows of a financial instrument held by the
Group may fluctuate because of changes in market prices. Market risk can be
summarised as comprising three types of risk:
· Interest rate risk - the risk of loss arising from changes in market
interest rates;
· Currency risk - the risk of loss arising from changes in foreign
exchange rates; and
· Price risk - the risk of loss arising from changes in other market
rates.
The Group's exposure, sensitivity to and management of each of these risks is
described in further detail below. Management of market risk is fundamental to
the Group's investment objective. The investment portfolio is continually
monitored to ensure an appropriate balance of risk and re.
(a) Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates
will affect future cash flows or the fair value of financial instruments.
The Group invests in Credit Assets which may be subject to a fixed rate of
interest, or a floating rate of interest (which may be linked to base rates or
other benchmarks). The Group's borrowings are subject to a floating rate of
interest.
The Group intends to manage the mismatch it has in respect of the income
generated by its Credit Assets, on the one hand, with the liabilities in
respect of its borrowings, on the other hand, by matching any floating rate
borrowings with investments in Credit Assets that are also subject to a
floating rate of interest. To the extent that the Group is unable to match its
funding in this way, it may use derivative instruments, including interest
rate swaps, to reduce its exposure to fluctuations in interest rates, however
some unmatched risk may remain. The Group has not used any interest rate
derivative instruments in the current or prior year.
Exposure of the Group's financial assets and liabilities to floating interest
rates (giving cash flow interest rate risk when rates are reset) and fixed
interest rates (giving fair value risk) as at 31 December 2022 is shown below:
Group Floating Rate Fixed Rate Total
£'000
£'000
£'000
Credit Assets at amortised cost 282,847 241,030 523,877
Cash and cash equivalents 23,303 - 23,303
Interest-bearing borrowings (263,633) - (263,633)
Total exposure 42,517 241,030 283,547
Exposure of the Company's financial assets and liabilities to floating
interest rates (giving cash flow interest rate risk when rates are reset) and
fixed interest rates (giving fair value risk) as at 31 December 2022 is shown
below:
Company Floating Rate Fixed Total
£'000
£'000
£'000
Credit Assets at amortised cost 282,847 241,030 523,877
Cash and cash equivalents 18,229 - 18,229
Interest-bearing borrowings (169,367) - (169,367)
Deemed loan (93,036) - (93,036)
Total exposure 38,673 241,030 279,703
Exposure of the Group's financial assets and liabilities to floating interest
rates (giving cash flow interest rate risk when rates are reset) and fixed
interest rates (giving fair value risk) as at 31 December 2021 is shown below:
Group Floating Rate Fixed Total
£'000
£'000
£'000
Credit Assets at amortised cost 269,053 296,941 565,994
Cash and cash equivalents 12,948 - 12,948
Interest-bearing borrowings (267,657) - (267,657)
Total exposure 14,344 296,941 311,285
Exposure of the Company's financial assets and liabilities to floating
interest rates (giving cash flow interest rate risk when rates are reset) and
fixed interest rates (giving fair value risk) as at 31 December 2021 is shown
below:
Company Floating Rate Fixed Total
£'000
£'000
£'000
Credit Assets at amortised cost 269,053 296,941 565,994
Cash and cash equivalents 10,500 - 10,500
Interest-bearing borrowings (183,182) - (183,182)
Deemed loan (82,326) - (82,326)
Total exposure 14,045 296,941 310,986
A 1 per cent change in interest rates impacts Group income on the assets with
a floating rate by £2.8 million (2021: £2.7 million). A 1 per cent change in
interest rates impacts debt expense on the liabilities with a floating rate by
£2.6 million (2021: £2.7 million).
(b) Currency risk
Currency risk arises from foreign currency assets and liabilities. The Group
hedges currency exposure between Pounds Sterling and other currencies using
foreign exchange contracts.
The Group monitors the fluctuations in foreign currency exchange rates and
uses forward foreign exchange contracts to hedge the currency exposure of the
Group's non-GBP denominated investments. The Group re-examines the currency
exposure on a regular basis in each currency and manages the Group's currency
exposure in accordance with market expectations. The Group did not designate
any derivatives as hedges for accounting purposes as described under IAS 39
or IFRS 9 during the year (2021: none) and records its derivative
activities on a fair value basis.
The Group's and Company's foreign exchange exposures are summarised in the
table below.:
Group 2022 2022 2021 2021
EUR
EUR
USD USD
€'000 $'000 €'000 $'000
Credit Assets at amortised cost 47,681 4,656 2,483 375
Investment Assets at fair value - 17,982 - 10,996
Cash and cash equivalents 882 3,057 13 959
Total assets 48,563 25,695 2,496 12,330
Payables (1,945) - - -
Total liabilities (1,945) - - -
Net assets 46,618 25,695 2,496 12,330
Derivative notional (52,325) (23,860) (1,950) (12,000)
Net exposure (5,707) 1,835 546 330
Company 2022 2022 2021 2021
EUR
EUR
USD USD
€'000 $'000 €'000 $'000
Credit Assets at amortised cost 47,681 4,656 2,483 375
Investment Assets at fair value - 17,982 - 10,996
Cash and cash equivalents 882 3,057 13 959
Total assets 48,563 25,695 2,496 12,330
Payables - - - -
Total liabilities - - - -
Net assets 48,563 25,695 2,496 12,330
Derivative notional liabilities (47,125) (23,860) (1,950) (12,000)
Net exposure 1,438 1,835 546 330
If the GBP exchange rate increased by 10 percent against the above currencies,
the impact on Group profit would be £567,000 (2021: £39,000) and the Company
by £79,000 (2021: £39,000).
(c) Price risk
Price risk is the risk that the fair value of future cash flows of a financial
instrument will fluctuate because of changes in market prices (other than
those arising from interest rate risk or currency risk), whether those changes
are caused by factors specific to the individual financial instrument or its
issuer, or factors affecting similar financial instruments traded in the
market. Local, regional or global events such as war, acts of terrorism, the
spread of infectious illness or other public health issue, recessions, or
other events could have a significant impact on the Group and market prices of
its investments. This risk applies to financial instruments held by the Group,
including equity assets, credit assets and derivatives. Sensitivity analysis
on the equity assets is included in Note 11.
Capital management
The Group manages its capital to ensure that the Group and its subsidiaries
have sufficient capital and the optimum combination of debt and equity. The
Group also manages its capital position to ensure compliance with capital
requirements imposed by the Financial Conduct Authority ("FCA").
The Group monitors capital using a ratio of debt to equity. Debt is calculated
as total interest-bearing borrowings (as shown in the Consolidated Statement
of Financial Position). The Group's net debt to tangible equity ratio was 69.4
per cent at 31 December 2022 (31 December 2021: 74.5 per cent).
As a public company, the Company has a minimum share capital requirement of
£50,000.
During the period the Group was fully compliant with regulatory capital
requirements and the covenants on its debt facilities.
Liquidity risk
Liquidity risk is the risk that the Group will be unable meet its obligations
in respect of financial liabilities as they fall due.
The Group manages its liquid resources to ensure sufficient cash is available
to meet its expected contractual commitments both under normal and stressed
conditions, without incurring unacceptable losses or risking damage to its
reputation. It monitors the level of short-term funding and balances the need
for access to short-term funding, with the long-term funding needs of the
Group.
The Group has the power, under its Articles of Association, to take out both
short and long-term borrowings subject to a maximum value of one hundred per
cent of its share capital and reserves.
At 31 December 2022 the Group had committed debt facilities totalling £264.6
million with maturity dates ranging from October 2024 to December 2071. This
facility includes a term and revolving facility secured on a range of assets.
At 31 December 2022 the Company had a committed debt facility totalling
£170.0 million with a maturity date of 4 September 2025. This facility
includes a term and revolving facility secured on a range of assets. The
Company also has a two-year term facility that is structured as run-off
financing in that the debt will paydown over the term of the facility and a
£18 million amortising term loan with a 49-year term. Further details of the
loans at amortised cost held by the Group can be found in Note 10 to the
financial statements.
The Group utilises its treasury system data such as live cash balance, debt
balances, and upcoming payment obligations in order to monitor liquidity on an
ongoing basis.
The table below show the cash flows on the Group's financial assets and
liabilities on an undiscounted basis by contractual maturity:
2022 <3 months 3-12 months 1-5 years 5+ years Total
Group £'000 £'000 £'000 £'000 £'000
Credit Assets at amortised cost - 126,504 380,426 26,231 533,161
Investment Assets at fair value through profit or loss - - 14,760 49,746 64,506
Receivables 7,601 2,481 2,788 - 12,870
Cash and cash equivalents 23,303 - - - 23,303
Total assets 30,904 128,985 397,974 75,977 633,840
Liabilities
Payables (15,073) (1,684) (2,464) - (19,221)
Interest-bearing borrowings - (30,000) (216,563) (18,050) (264,613)
Total liabilities (15,073) (31,684) (234,027) (18,050) (283,834)
2021 <3 months 3-12 months 1-5 years 5+ years Total
Group £'000 £'000 £'000 £'000 £'000
Credit Assets at amortised cost 14,442 23,583 90,446 448,426 576,897
Investment Assets at fair value through profit or loss - - 28,182 20,589 48,771
Receivables 12,948 - - - 12,948
Cash and cash equivalents 6,554 - - - 6,554
Total assets 33,944 23,583 118,628 469,015 645,170
Liabilities
Payables (7,159) - - - (7,159)
Interest-bearing borrowings 96 (49,435) (182,602) (35,717) (267,658)
Total liabilities (7,063) (49,435) (182,602) (35,717) (274,817)
The tables below show the cash flows on the Company's financial assets and
liabilities on an undiscounted basis by contractual maturity:
2022 <3 months 3-12 months 1-5 years 5+ years Total
Company Financial instrument £'000 £'000 £'000 £'000 £'000
Credit Assets at amortised cost - 126,504 380,426 26,231 533,161
Investment Assets at fair value through profit or loss - - 13,897 48,956 62,853
Receivables 3,831 - - - 3,831
Cash and cash equivalents 18,229 - - - 18,229
Total assets 22,060 126,504 394,323 75,187 618,074
Liabilities
Payables (5,174) - - - (5,174)
Interest-bearing borrowings - (30,000) (140,000) -
(170,000)
Deemed loan 1,229 - (76,563) (18,050) (93,384)
Total liabilities (3,945) (30,000) (216,563) (18,050) (268,558)
2021 <3 months 3-12 months 1-5 years 5+ years Total
Company Financial instrument £'000 £'000 £'000 £'000 £'000
Credit Assets at amortised cost 14,442 23,583 90,446 448,426 576,897
Investment Assets at fair value through profit or loss - - 28,182 20,589 48,771
Receivables 10,500 - - - 10,500
Cash and cash equivalents 6,554 - - - 6,554
Total assets 31,496 23,583 118,628 469,015 642,722
Liabilities
Payables (7,159) - - - (7,159)
Interest-bearing borrowings - (15,000) (170,000) - (185,000)
Deemed loan 2,149 - (54,851) (30,129) (82,831)
Total liabilities (5,010) (15,000) (224,851) (30,129) (274,990)
Effect of IBOR
Following the financial crisis, the reform and replacement of benchmark
interest rates such as GBP LIBOR and other inter-bank offered rates ('IBORs')
became a priority for global regulators. The Group's risk exposure that is
directly affected by the interest rate benchmark reform predominantly
comprises its portfolio of GBP credit assets that are measured at amortised
cost, which as at the 31 December 2022 had an outstanding principal of £24.8
million (2021: £51.3 million) and liabilities of £nil (2021: £30.1
million).
For the GBP LIBOR reforms, the FCA decided to no longer compel panel banks to
participate in the GBP LIBOR submission process after the end of 2021. The
Group is now using the SONIA reference rates to measure the variable elements
of its credit assets and obligations. GBP LIBOR was a 'term rate', which means
that it was published for a borrowing period, such as three months or six
months, and was forward looking, because it was published at the beginning of
the borrowing period. SONIA is a backward-looking rate, based on overnight
rates from actual transactions, and it is published at the end of the
overnight borrowing period. Furthermore, LIBOR includes a credit spread over
the risk-free rate, which SONIA currently does not. To transition existing
contracts and agreements that reference GBP LIBOR to SONIA, adjustments for
term differences and credit differences are need to be applied to SONIA, to
enable the two benchmark rates to be economically equivalent on transition.
The Group currently has a number of contracts which reference GBP LIBOR and
extend beyond 2022. The principal balance of these contracts are disclosed
within the tables below in GBP equivalent by GBP and USD exposures:
Group Carrying Value/Nominal Amount at 31 December Carrying Value/Nominal Amount at 31 December
GBP
2022 2021 2022 2021
Assets Assets Liabilities Liabilities
£'000 £'000 £'000 £'000
Contracts 24,818 51,268 - 30,129
Total exposure 24,818 51,268 - 30,129
Group Carrying Value/Nominal Amount at 31 December Carrying Value/Nominal Amount at 31 December
USD
2022 2021 2022 2021
Assets Assets Liabilities Liabilities
£'000 £'000 £'000 £'000
Contracts - 285 - -
Total exposure - 285 - -
21. Credit risk
Credit risk is the risk that one party to a financial instrument will cause a
financial loss for the other party by failing to discharge an obligation.
The Group's credit risks arise principally through exposures to loans
originated or acquired by the Group and cash deposited with banks, both of
which are subject to risk of borrower default.
The Group establishes and adheres to stringent underwriting criteria. The
Group invests in a granular portfolio of assets, diversified at the underlying
borrower level, with each loan being subject to a maximum single loan exposure
limit. This helps mitigate credit concentrations in relation to an individual
customer, a borrower group or a collection of related borrowers.
The credit quality of loans is assessed through evaluation of various factors,
including credit scores, payment data, collateral available from the borrower
and other information.
The Group further mitigates its exposure to credit risk through structuring
facilities whereby the facilities are secured on a granular pool of performing
loans and structured so that the Origination Platform and or borrower provides
the first loss, and the Group finances the senior risk.
Further risk is mitigated in the property sector as the Group takes collateral
in the form of property to mitigate the credit risk arising from residential
mortgage lending and commercial real estate.
Set out below is the analysis of the gross closing balances of the Group and
Company's Credit Assets at amortised cost split by the type of loan and the
credit risk band as at 31 December 2022, each loan is assigned to a credit
risk band at inception:
Credit Risk Band for Credit Assets at amortised cost Unsecured Secured Total
£'000 £'000 £'000
A & B 21,444 511,715 533,159
C, D & E - - -
Total as at 31 December 21,444 511,715 533,159
Set out below is the analysis of the closing balances of the Group and
Company's credit assets split by the type of loan and the credit risk band as
at 31 December 2021:
Credit Risk Band for Credit Assets at amortised cost Unsecured Secured Total
£'000 £'000 £'000
A & B 1,411 575,369 576,780
C, D & E - - -
Total as at 31 December 1,411 575,369 576,780
Each credit risk band is defined below:
Credit Risk Band Definition
A Highest quality with minimal indicators of credit risk
B High quality, with minor adverse indicators
C Medium-grade, moderate credit risk, may have some adverse credit risk
indicators
D/E Elevated credit risk, adverse indicators (e.g. lower borrowing ability, credit
history, existing debt)
22. Cash and cash equivalents
Cash and cash equivalents consist of cash at bank and in hand.
31 December 2022 31 December 2021
£'000
£'000
Group cash at bank 23,303 12,948
Company cash at bank 18,229 10,500
Cash and cash equivalents comprise cash at bank including restricted cash that
is held in reserve as part of the Group's borrowing arrangements. The amount
held in reserve as at the 31 December 2022 was £2,374,897 (31 December 2021:
£2,448,113). The Group's and Company's cash balances are generally held in
call accounts with funds available on a same day basis and earn interest at
the corresponding short-term interest rates.
23. Deemed Loan
The Company has two deemed loans as at 31 December 2022 (two as at 31 December
2021). Deemed loans only relate to the Company as they relate to loans
originated by the Company and subsequently sold to a special purpose entity.
As at the 31 December 2022 the Company had the below deemed loans:
Company 2022 2021
£'000 £'000
Opening balance as at 1 January 82,326 103,719
Novations/(Redemptions) 10,710 (21,393)
Closing balance as at 31 December 93,036 82,326
24. Ordinary Share Capital
The table below details the issued share capital of the Company as at 31
December 2022. The Company issued 29,472,663 of shares on 30 September 2022
with a total value of £235,781,304, which was valued at the market price of
£8.00 per share using the closing share price as at the 29 September 2022
being the date on which the terms of the issue were fixed. The nominal value
of £0.01 per share totalled £294,727 and was recognised in ordinary share
capital. The remaining value of the shares of £235,486,577 was recognised in
Merger Reserves. The costs associated with the issuance of shares of
£10,216,400 were presented in merger reserves in the Statement of Financial
Position and Statement of Changes in Shareholders' Funds. The Company did not
issue any shares during 2021.
No. Issued, allotted and fully paid ordinary shares of £0.01 each 31 December 2022 31 December 2021
Opening number of shares 35,259,741 35,259,741
Shares issued during the year 29,472,663 -
Number bought back (522,807) -
Closing number of shares 64,209,597 35,259,741
The table below shows the movement in shares during the period to 31 December
2022:
Shares in issue at 1 January 2022 Shares issued during the year Buyback of Shares in issue at
Ordinary Shares
31 December 2022
Ordinary Shares 35,259,741 29,472,663 (522,807) 64,209,597
Treasury Shares 4,190,178 522,807 - 4,712,985
25. Other Reserves
At a general meeting of the Company held on 14 December 2015, special
resolutions were passed approving the cancellation of the amount standing to
the credit of the Company's share premium account as at 23 December 2015.
Following the approval of the Court and the subsequent registration of the
Court order with the Registrar of Companies on 21 March 2016, the reduction
became effective. Accordingly, £98.1 million, previously held in the share
premium account, was transferred to the special distributable reserve in 2015.
As at 31 December 2022 the special distributable reserve balance was £52.0
million (31 December 2021: £56.8 million).
Merger Reserves include the additional reserves accounted for as part of the
acquisition that occurred during the year. The Merger Reserve also includes
the costs associated with the issuance of shares.
26. Net Asset Value per Ordinary Share
Group 31 December 2022 31 December 2021
Net asset value per ordinary share pence 899.5p 1,019.1p
Net assets attributable £'000 577,539 359,342
Company 31 December 2022 31 December 2021
Net asset value per ordinary share pence 902.2p 1,019.1p
Net assets attributable £'000 579,324 359,342
The Group net asset value per ordinary share as at 31 December 2022 is based
on net assets at the year-end of £578 million and on 64,209,597 ordinary
shares in issue at the year-end. The net asset value per ordinary share as at
31 December 2021 is based on net assets at the year-end of £357.2 million and
on 35,259,741 ordinary shares in issue at the year-end.
27. Contingent Liabilities and Capital Commitments
As at 31 December 2022 there were no contingent liabilities or capital
commitments for the Group (2021: None). The Group had £88.9 million (2021:
£90.0 million) of undrawn committed structured credit facilities as at 31
December 2022 and £99.1 million (2021: £113.7 million) of undrawn
commitments in relation to secured real estate loans.
28. Related Party Transactions
IAS 24 'Related Party Disclosures' requires the disclosure of the details of
material transactions between the Company and any related parties.
Accordingly, the disclosures required are set out below.
The remuneration of the Directors is set out in the Annual Report on
Remuneration on pages 103 to 111 of the Annual Report. There were no contracts
subsisting during or at the end of the year in which a Director of the Company
is or was interested and which are or were significant in relation to the
Company's business. There were no other transactions during the year with the
Directors of the Company.
For the period from 1 January 2022 to 30 September 2022 the Company paid £9.1
million of fees to Pollen Street Capital Limited, its Investment Manager, and
£2.4 million for the period from 1 October 2022 to 31 December 2022 (2021:
£9.7 million). As at 31 December 2022, there was £3.1 million (2021: £4.5
million) payable to the Investment Manager. The Investment Manager became a
subsidiary of the Group following the acquisition of Pollen Street Capital
Holdings Limited by the Company on 30 September 2022.
The Group considers all transactions with companies that are controlled by
funds managed by the Group as related party transactions.
Oplo Group Limited ("Oplo", formerly 1st Stop Group) is an English based
consumer lender and was controlled by funds managed by the Group. During the
year the Oplo repaid their structured facility with the Group (£29.7
million). The Group has a forward flow facility in place with Oplo of which
the Group sold £32.6 million of loans in 2022 with the total pool having an
outstanding balance of £8.2 million as at 31 December 2022 (31 December 2021:
£47.6 million).
Shawbrook Group plc ("Shawbrook") is a specialist SME and consumer lending and
savings bank. Shawbrook is 50 per cent owned by funds that are managed by the
Group.
During the year, the Company carried out foreign exchange transactions with
Lumon Risk Management LTD ("Lumon", formerly Infinity International Limited)
in relation to EUR and USD derivative transactions. Lumon is owned by a fund
that is managed by the Group. The exposure as at 31 December 2022 is disclosed
in Note 12.
The Group has been involved in a series of transaction with own equity shares,
details of which are disclosed in Note 24.
29. Ultimate Controlling Party
It is the opinion of the Directors that there is no ultimate controlling
party.
30. Subsequent Events
On 23 February 2023, a dividend of 16.0 pence per ordinary share was approved
for the final quarter of 2022.
Shareholders' information
Directors, Advisers & Service Providers
Directors Administrator
Robert Sharpe Apex Fund Services (UK) Ltd
Lindsey McMurray 6th Floor, Bastion House
Jim Coyle 140 London Wall
Gustavo Cardenas London EC2Y 5DN
Julian Dale England
Joanne Lake
Richard Rowney Depositary
all at the registered office below Indos Financial Limited
The Scalpel, 18(th) Floor, 52 Lime Street
Registered Office London EC3M 7AF
6th Floor England
65 Gresham Street
London EC2V 7NQ Registrar
England Computershare Investor Services PLC
The Pavilions, Bridgewater Road
Investment Manager and AIFM Bristol BS99 6ZZ
Pollen Street Capital Limited England
11 - 12 Hanover Square
London W1S 1JJ Company Secretary
England Link Company Matters Limited
6th Floor
Financial Advisers and Brokers 65 Gresham Street
Barclays Bank plc London EC2V 7NQ
1 Churchill Place England
Canary Wharf
London E14 5H Share Identifiers
England ISIN: GB00BYZV3G25
Sedol: BYZV3G2
Liberum Capital Limited Ticker: POLN
Level 12, Ropemaker Place
25 Ropemaker Place Independent Auditors
London EC2Y 9LY PricewaterhouseCoopers LLP
England 7 More London Riverside
London SE1 2RT
England
Custodian
Sparkasse Bank Malta PLC
101 Townsquare
Sliema SLM3112
Malta
Website
http://www.pollenstreetgroup.com/
Website
The Company's website can be found at www.pollenstreetgroup.com. The site
provides visitors with Company information and literature downloads.
The Company's profile is also available on third-party sites such as
www.trustnet.com and www.morningstar.co.uk.
Annual and half-yearly reports
Copies of the annual and half-yearly reports may be obtained from the Company
Secretary by calling 020 7954 9552 or by visiting www.pollenstreetgroup.com.
Share prices and Net Asset Value information
The Company's ordinary shares of 1p each are quoted on the London Stock
Exchange:
· SEDOL number: BYZV3G2
· ISIN number: GB00BYZV3G25
· EPIC code: POLN
The codes above may be required to access trading information relating to the
Company on the internet.
Electronic communications with the Company
The Group's Consolidated Annual Report & audited financial statements,
half-yearly reports and other formal communications are available on the
Company's website. To reduce costs the Company's half-yearly financial
statements are not posted to shareholders but are instead made available on
the Company's website.
Whistleblowing
The Company has established a whistleblowing policy. The Audit Committee
reviews the whistleblowing procedures of the Group to ensure that the concerns
of their staff may be raised in a confidential manner.
Warning to shareholders - share fraud scams
Fraudsters use persuasive and high-pressure tactics to lure investors into
scams. They may offer to sell shares that turn out to be worthless or
non-existent, or to buy shares at an inflated price in return for an upfront
payment. While high profits are promised, if you buy or sell shares in this
way, you will probably lose your money.
How to avoid share fraud
· Keep in mind that firms authorised by the FCA are unlikely to
contact you out of the blue with an offer to buy or sell shares
· Do not get into a conversation, note the name of the person
and firm contacting you and then end the call
· Check the Financial Services Register from www.fca.org.uk to
see if the person and firm contacting you is authorised by the FCA
· Beware of fraudsters claiming to be from an authorised firm,
copying its website or giving you false contact details
· Use the firm's contact details listed on the Register if you
want to call it back
· Call the FCA on 0800 111 6768 if the firm does not have
contact details on the Register or you are told they are out of date
· Search the list of unauthorised firms to avoid at
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Definitions and Reconciliation to Alternative Performance Measures
Definitions
Alternative Investment Fund Manager ("AIFM") An Alternative Investment Fund Manager, as defined in the AIFM Directive.
Pollen Street Capital Limited undertakes this role on behalf of the Company
Alternative Investment Fund ("AIF") An AIF, as defined in the AIFM Directive 2011/61/EU on Alternative Investment
Fund Managers
Asset Manager The business segment of the Group that is responsible for managing third-party
AuM and the Investment Company's assets. All activities of this segment reside
in Pollen Street Capital Holdings Limited and its subsidiaries.
AuM The assets under management of the Group, defined as:
· investor commitments for active Private Equity funds;
· invested cost for other Private Equity funds;
· the total assets for the Investment Company; and
· investor commitments for Private Credit funds.
Average Fee-Paying AuM The fee-paying asset under management of the Group, defined as:
· investor commitments for active fee-paying Private Equity funds;
· invested cost for other fee-paying Private Equity funds;
· the total assets for the Investment Company; and
· net invested amount for fee-paying private Credit funds.
The average is calculated using the opening and closing balances for the
period
Combination The acquisition of 100 per cent of the share capital of Pollen Street Capital
Holdings Limited by Honeycomb Investment Trust plc with newly issued shares in
Company as the consideration that completed on 30 September 2022
Credit Assets Loans, together with similar investments, made by the Group to counterparties
Direct Portfolio Portfolios of loans owned directly by the Group, typically secured on property
Discount If the share price of the Company is lower than the NAV per share, the
Company's shares are said to be trading at a discount. The discount is shown
as a percentage of the NAV
Equity Assets Equity investments made by the Group that are aligned with the strategy and
that present opportunities to enhance the Group's returns from its
investments. Carried interest receivable by the Group is not classified as
an Equity Asset.
Fair Value The amount that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants
Fund Management The administration expenses of the Group's Asset Manager according to IFRS
reporting standards excluding exceptional items and start-up losses of the US
Administration Costs business, but including the full cost of the office leases despite these costs
being reported as depreciation of a right-of-use asset and financing costs
under IFRS 16
Fund Management Fund Management Income less Fund Management Administration Costs
EBITDA
Fund Management The income of the Group's Asset Manager according to IFRS reporting standards
Income
Fund Management The ratio of the Fund Management Adjusted EBITDA and the Fund Management
Income, expressed as a percentage
EBITDA Margin
Group Pollen Street plc and its subsidiaries
Investment Asset The Group's portfolio of Credit Assets and Equity Assets
Investment Company The business segment of the Group that holds the Investment Asset portfolio
and the debt facilities. The activities of this segment predominately reside
within Pollen Street plc, Sting Funding Limited and Bud Funding Limited. The
Investment Assets held within Pollen Street Capital Holdings Limited and its
subsidiaries also form part of this segment.
Investment Manager Pollen Street Capital Limited, which is a subsidiary of the Group and acts as
Pollen Street plc's AIFM and investment manager
Management Fee Rate The ratio of the Fund Management Income attributable to management fees and
the Average Fee-Paying AuM, expressed as a percentage
Net asset value ("NAV") Net asset value represents the total value of the Group's or Company's assets
less the total value of its liabilities. For valuation purposes, it is common
to express NAV on a per share basis
Net Investment Assets The Investment Assets plus surplus cash net of debt
Net Investment Asset Return The ratio of the income from Investment Company to the Net Investment Assets,
expressed as an annualised ratio
Ongoing Charges Ongoing charges are calculated as a percentage of annualised ongoing charge
over average reported NAV. Ongoing charges are those expenses of a type which
are likely to recur in the foreseeable future
Performance Fee Rate The ratio of the Fund Management Income attributable to performance fees and
the total Fund Management Income, expressed as a percentage
Premium If the share price of the Company is higher than the NAV per share, the
Company's shares are said to be trading at a premium. The premium is shown as
a percentage of the NAV
Private Credit The Group's strategy for managing Credit Assets within its private funds
Private Equity The Group's strategy for managing Equity Assets within its private funds
Proforma EBITDA The EBITDA (and other income metrics) for the period as if the Combination had
(and other income metrics) occurred prior to 1 January 2021
Registrar An entity that manages the Company's shareholder register. The Company's
registrar is Computershare Investor Services PLC
Sterling Overnight Interbank Average Rate ("SONIA") The effective overnight interest rate paid by banks for unsecured transactions
in the British sterling market
Structured Loan Credit Asset whereby the Group typically has senior secured loans to
speciality finance companies, with security on the assets originated by the
speciality finance company and first loss protection deriving from the
speciality finance company's equity. Corporate guarantees are also typically
taken
Reconciliation to Alternative performance measures
The alternative performance measures are used to improve the comparability of
information between reporting periods, either by adjusting for uncontrollable
or one-off factors that impact upon IFRS measures or, by aggregating measures,
to aid the user to understand the activity taking place. Alternative
performance measures are not considered to be a substitute for IFRS measures
but provide additional insight on the performance of the business.
Growth in Credit AuM
2022 2021
£'000 £'000
Opening Credit AuM 1,212,000 718,000
Closing Credit AuM 1,647,000 1,212,000
Growth 36% 69%
The growth in Credit AuM is calculated as the year-on-year percentage change
Credit AuM.
Proforma operating profit
Group 2022
Proforma
£'000
Statutory operating profit for Asset Manager 2,937
Right of use asset depreciation (266)
Statutory Fund Management EBITDA for Asset Manager 2,671
(occurring between 1 October & 31 December 2022)
Statutory Income on Net Investment Assets 28,252
(occurring between 1 January & 31 December 2022)
Fund Management EBITDA for Asset Manager 5,861
(occurring between 1 January & 30 September 2022)
Proforma operating profit 36,784
The Statutory Fund Management EBITDA for the Asset Manager is calculated as
the statutory operating profit for the Asset Manager less the right of use
asset depreciation. The proforma operating profit is calculated as the total
of the Statutory Fund Management EBITDA for the Asset Manager plus the
Statutory income on Net Investment Assets for the Investment Company plus the
Fund Management EBITDA of the Asset Manager occurring between 1 January &
30 September 2022.
Management Fee Rate
Group 2022 2022
Proforma Statutory
£'000 £'000
Statutory management fee income for Asset Manager 7,750 7,750
(occurring between 1 October & 31 December 2022)
Management fee income for Asset Manager 21,230 -
(occurring between 1 January & 30 September 2022)
Proforma management fee income for Asset Manager 28,980 7,750
(occurring between 1 January & 31 December 2022)
Average Fee-Paying AuM over 2022 2,281,161 2,395,056
Management Fee Rate (%) 1.27% 1.28%
The Proforma Management Fee Rate is calculated by dividing the Proforma
management fee income for the Asset Manager by the Proforma Average Fee-Paying
AuM. The Statutory Management Fee Rate is calculated by dividing the Statutory
management fee income for the Asset Manager by the Statutory Average
Fee-Paying AuM. The Statutory Management Fee Rate is annualised given that
it only incorporates management fee income for the period from 1 October to 31
December 2022.
Performance Fee Rate
Group 2022 2022
Proforma Statutory
£'000 £'000
Statutory carried interest and performance fee income for Asset Manager 2,411 2,411
(occurring between 1 October & 31 December 2022)
Carried interest and performance fee income for Asset Manager 6,040 -
(occurring between 1 January & 30 September 2022)
Proforma caried interest & performance fee income for Asset Manager 8,451 2,411
(occurring between 1 January & 31 December 2022)
Statutory Fund Management Income for Asset Manager 10,161 10,161
(occurring between 1 October & 31 December 2022)
Fund Management Income for Asset Manager 27,271 -
(occurring between 1 January & 30 September 2022)
Proforma Fund Management Income for Asset Manager 37,432 10,161
(occurring between 1 January & 31 December 2022)
Performance Fee Rate (%) 23% 24%
The Proforma Performance Fee Rate is calculated by dividing the Proforma
carried interest and performance fee income for the Asset Manager by the
Proforma Fund Management Income for the Asset Manager. The Statutory
Performance Fee Rate is calculated by dividing the Statutory carried interest
and performance fee income for the Asset Manager by the Statutory Fund
Management Income for the Asset Manager.
Fund Management EBITDA Margin
Group 2022 2022
Proforma Statutory
£'000 £'000
Statutory operating profit 2,937 2,937
Right of Use asset depreciation (266) (266)
Statutory Fund Management EBITDA for Asset Manager 2,671 2,671
(occurring between 1 October & 31 December 2022)
Fund Management EBITDA for Asset Manager 5,861 -
(occurring between 1 January & 30 September 2022)
Proforma Fund Management EBITDA for Asset Manager 8,532 2,671
(occurring between 1 January & 31 December 2022)
Statutory Fund Management Income for Asset Manager 10,161 10,161
(occurring between 1 October & 31 December 2022)
Fund Management Income for Asset Manager 27,271 -
(occurring for Asset Manager between 1 January & 30 September 2022)
Proforma Fund Management Income for Asset Manager 37,432 10,161
(occurring between 1 January & 31 December 2022)
Fund Management EBITDA Margin (%) 23% 26%
The Proforma Fund Management EBITDA Margin is calculated by dividing the
Proforma Fund Management EBITDA by the Proforma Fund Management Income. The
Statutory Fund Management EBITDA Margin is calculated by dividing the
Statutory Fund Management EBITDA by the Statutory Fund Management Income.
Debt to tangible equity ratio
Group 31 December 2022 31 December 2021
(£'000) (£'000)
Net Asset Value 577,539 359,342
Goodwill & intangible Assets 231,031 -
Tangible Net Asset Value 346,508 359,342
Interest-Bearing Borrowings 263,633 267,657
Debt to tangible equity ratio 76.1% 74.5%
Cash and cash equivalents 23,303 12,948
Net debt to tangible equity ratio 69.4% 70.9%
The debt to tangible equity ratio is calculated as the Group's
interest-bearing debt divided by the tangible net asset value, expressed as a
percentage. The net debt to tangible equity ratio is calculated as the Group's
interest-bearing debt less cash and cash equivalents, divided by the tangible
net asset value expressed, as a percentage.
Dividend return
Group & Company 2022 2021
Dividend declared (pence per share) 72.0 80.0
IPO issue price (pence per share) 1,000.0 1,000.0
Dividend Return 7.2% 8.0%
The dividend return is calculated as the total dividends in pence per share
declared for the period divided by IPO issue price.
Ongoing charges
Company 2022 2021
(£'000) (£'000)
Auditors' remuneration 584 319
Administrator's fees 179 179
Directors' fees 329 227
Management fee 5,853 6,349
Other costs 1,308 1,417
Average net asset value 400,952 360,793
Ongoing Charges 2.0% 2.4%
The ongoing charges ratio is calculated using the Association of Investment
Companies ("AIC") recommended methodology. It is calculated as a percentage of
annualised ongoing charge over average reported Net Asset Value. The average
net asset value is calculated as the average of the quarterly net asset
values. Ongoing charges are those expenses of a type which are likely to recur
in the foreseeable future, whether charged to capital or revenue, and which
relate to the operation of the Investment Company as a collective fund,
excluding the costs of acquisition/disposal of investments, financing charges,
gains/losses arising on investments and costs incurred in the Asset Manager.
Ongoing charges are based on costs incurred in the year as being the best
estimate of future costs. The AIC excludes performance fees from the Ongoing
Charges calculation.
Net Investment Return Bridge
The Net Investment Return Bridge is calculated for the Investment Company
alone and does not including any income of balance information from the Asset
Manager.
Group 2022
£'000
Monthly Average Credit Assets 568,721
Monthly Average Investment Assets 584,380
Average Credit Assets is the mean of the aggregate of the Credit Assets at
amortised cost, Credit Assets held at fair value through profit or loss and
derivative assets and liabilities held at fair value through profit or loss
for each month end from 31 December 2021 to 31 December 2022, inclusive.
Average Net Investment Assets is the mean of the carrying value of the
Investment Assets plus cash and cash equivalents less the carrying value of
debt of the Group for 31 December 2021 and 31 December 2022.
Group 2022
Investment yield 9.4% Investment yield is calculated as interest income on Credit Assets at
amortised cost, plus income on Credit Assets at fair value through profit and
loss, less third-party servicing costs, divided by Monthly Average Credit
Assets
Impairments and write-offs - Impairments and write-offs is calculated as credit impairment release over
Monthly Average Credit Assets
Risk adjusted yield 9.4% Credit asset return is a total of the above items
Equity and working capital (0.6%) The impact of equity and working capital is calculated as the income amounts
noted above, plus income on Equity Assets at fair value through profit and
loss divided by Monthly Average Investment Assets, without deduction of the
carrying value of the debt, plus cash less the impact of items already
disclosed above
Effect of leverage 2.2% Effect of leverage is calculated as the above income amounts less finance
costs divided by Average Net Investment Assets, less the impact of items
already disclosed above
Investment manager fees (2.5%) Calculated as management fee and performance fee divided by Monthly Average
Investment Assets
Fund Operating Expenses (0.5%) Calculated as fund expenses, divided by Monthly Average Investment Assets
Net Investment Return 8.0% Calculated as a total of the above
1 See section 5, page 212 of the Annual Report, for the definition of terms
and the Reconciliation to Alternative Performance Measures ("APM"). The APMs
include AuM, proforma operating profit and Net Investment Asset Return. APMs
are not audited.
Statutory operating profit is the consolidated operating profit for the Group
according to IFRS reporting standards. Proforma operating profit is the EBITDA
of the Group as if the combination had occurred prior to 1 January 2021.
Proforma measures are not audited.
Statutory operating profit does not include profits arising in Pollen Street
Capital Holdings Limited prior to 30 September 2022, being the date of
completion of the Combination.
Proforma operating profit is calculated as the operating profit of the Group's
Investment Company plus the operating profit of the Group's
Asset Manager according to IFRS reporting standards excluding exceptional
items and start-up losses of the US business, but including the
full cost of the office leases despite these costs being reported as
depreciation of a right-of-use asset and financing costs under IFRS 16.
Net Investment Asset Return is defined as the ratio of the income from
Investment Company to the average Net Investment Assets,
expressed as an annualised ratio.
2 This is a target and not a formal dividend forecast or a profit forecast.
The targets stated in GBP amounts are based on the outstanding shares at the
time of publication (64,209,597) and would be scaled according to any buybacks
or new issuance
3 Track record as of 31 December 2022 unless stated.
4 Note 2021 return is calculated as the NAV return for the period
5 Effective tax rate is calculated as the ratio of the tax charge (£ 1.5
million) to the Fund Management EBITDA (£8.5 million), expressed as a
percentage
6 Dividend targets stated in GBP amounts are based on the outstanding shares
at the time of publication (64,209,597) and would be scaled according to any
buybacks or new issuance
7 Sustainable Finance Disclosure Regulation
8 Task Force on Climate-related Financial Disclosures
9 Financial Conduct Authority
10 U.S. Securities and Exchange Commission
11 Includes a re-presented amount of £0.04 million from Ordinary Share
Capital to the Special Distributable Reserves for buybacks that occurred in
2020
12 Includes a re-presented amount of £0.04 million from Ordinary Share
Capital to the Special Distributable Reserves for buybacks that occurred in
2020
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