REG - Pollen Street Group - Annual Report and Accounts
21/03/2024 07:00
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RNS Number : 6947H Pollen Street Group Ltd 21 March 2024
21 March 2024
Pollen Street Group Limited - Annual Report and Accounts for Pollen Street
Limited
Strong Performance, Well Positioned for Further Growth
Pollen Street Group Limited today announces the publication of the Annual
Report and Accounts of Pollen Street Limited for the year ended 31 December
2023. Pollen Street Limited is a wholly owned subsidiary of Pollen Street
Group Limited and was the ultimate parent company of the group prior to
completion of the Scheme of Arrangement on 24 January 2024, as such the Annual
Report and Accounts for Pollen Street Limited cover all activities of the
group for the year ended 31 December 2023. The Annual Report and Accounts
for Pollen Street Group Limited will be published by the end of April 2024 in
compliance with the Listing Rules.
2023 was a successful year for Pollen Street Group Limited with strong
financial and strategic performance. During the year the group maintained its
exceptional track record across its funds, made strong progress against
fundraising targets and benefitted from attractive deployment opportunities in
both Private Credit and Private Equity. This year's results demonstrate the
benefits of the combination of Pollen Street Capital Holdings Limited and
Honeycomb Investment Trust plc, with the Investment Company accelerating the
growth of the Asset Manager.
Financial Highlights for 2023 - Strong Fundraising and Returns
· Total AuM has grown to £4.2 billion, up from £3.4 billion as at
31 December 2022, driven by fund raising in Private Equity and deployment in
Private Credit
· Fee-Paying AuM closed the year at £3.4 billion, growing 36% from
31 December 2022
· Significant step up in Fund Management Income to £49.2 million
up from £37.4 million in 2022
· High operating leverage with Fund Management EBITDA increasing to
£15.2 million in 2023, up 79 per cent from £8.5 million in 2022, resulting
in Fund Management EBITDA Margin or 31 per cent for 2023, up from 23 per cent
· The Investment Company maintained its track record of income
generation with Income on Net Investment Assets increasing to £30.2 million
in 2023, up from £28.3 million in 2022
· Profit After Tax increased by 23 per cent to £40.4 million, up
from £32.9m in 2022
· Dividends increased to £32 million in respect of 2023, up from
£30 million for 2022
Capital Management Framework & Buyback Programme
Pollen Street Group Limited announced a Capital Management Framework and
Buyback Programme earlier today. Details of this are available in a separate
RNS.
2024 Outlook & Upgraded Financial Guidance
Pollen Street Group Limited is in a strong position for growth in 2024 and we
are upgrading our financial guidance.
We had previously issued financial guidance that Fee-Paying AuM would be £4
to £5 billion within 2 to 3 years of the completion of the Combination on 30
September 2022. We expect to exceed the £4 billion threshold during 2024 and
are now upgrading guidance to grow AuM to £10 billion within 4 to 5 years.
We had previously issued financial guidance for the Return on Net Investment
Assets to be c8% in the long-term. Given the performance over 2023 and the
outlook for the portfolio, we are now upgrading the guidance for Return on Net
Investment Assets to rise to low double digits within 2 to 3 years.
Key priorities for 2024 are:
· Final close of Private Equity Fund V
· First close of Private Credit Fund IV, expected imminently
· Continue to deploy the Balance Sheet to invest in Pollen Street
Group Limited funds
· Delivering operational leverage through our platform as we
continue to grow AuM
Commenting on the 2023 performance, Lindsey McMurray, Chief Executive Officer,
said:
"2023 has been a strong year for Pollen Street and we are delivering against
our ambitions. With strong foundations in place, our progress in 2023 is ahead
of target and has positioned us well to drive long-term organic growth.
Looking ahead in 2024 in both Private Credit and Private Equity, we are seeing
strong asset performance, resilient fund-raising progress and an attractive
pipeline of new opportunities".
Results presentation:
Pollen Street Group Limited will host its results presentation for the Annual
Report and Accounts for Pollen Street Limited at 8:30 AM on 21 March 2024.
Register for the webinar:
https://pollencap.zoom.us/webinar/register/WN_x81y85WXSf-x_uNcRydtEw
(https://pollencap.zoom.us/webinar/register/WN_x81y85WXSf-x_uNcRydtEw)
The full results presentation is available on the group's website
www.pollenstreetgroup.com (http://www.pollenstreetgroup.com) .
About Pollen Street
Pollen Street 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 AuM.
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 Asset Manager raises capital from high quality investors and deploys it
into its Private Equity and Private Credit strategies. The strong recurring
revenues from this business enable delivery of scalable growth.
The Investment Company invests in the strategies of the group delivering
attractive risk adjusted returns and accelerating growth in third-party AuM of
the Asset Manager through investing in Pollen Street funds, taking advantage
of attractive investment opportunities and aligning interest with our
investors to grow AuM. Today the portfolio is largely invested in credit
assets with the allocation to Private Equity expect to increase to 30 per cent
in the long term. 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.pollenstreetgroup.com
(http://www.pollenstreetgroup.com) .
For further information about this announcement please contact:
Pollen Street - Corporate Development Director
Shweta Chugh
shweta.chugh@pollencap.com (mailto:shweta.chugh@pollencap.com)
+44 (0)7813581377
FGS Global - Communications Advisor
Chris Sibbald
Chris.Sibbald@fgsglobal.com
+44 (0)7855955531
Barclays Bank plc - Joint Broker
Neal West / Stuart Muress
+44 (0)20 7623 2323
Investec Bank plc - Joint Broker
Ben Griffiths / Bruce Garrow
+44 (0)20 7597 4000
Link Company Matters Limited - Company Secretary
polncosec@linkgroup.co.uk
Annual Report and Accounts
The Annual Report and Accounts are 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 2023 but is derived from those
accounts. Statutory accounts for the year ended 31 December 2023 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 and Accounts.
Chair's Statement
Welcome to the Annual Report and Accounts for Pollen Street, which covers the
year ended 31 December 2023.
Delivering Consistent Performance & Sustainable Growth
In 2023 we demonstrated clear progress in delivering on the strategy set out
when we announced the Combination of Pollen Street Capital Holdings Limited
and Honeycomb Investment Trust plc in February 2022.
Over the year, the performance of Pollen Street has been strong, and we are
delivering against our ambitions. Pollen Street continues to generate strong
contracted income from funds under management, delivering attractive and low
volatility returns within our funds to support further AuM growth as well as
attractive income from our balance sheet investments.
On the Asset Manager side, Pollen Street has demonstrated success in both
growing AuM and continuing to deliver strong returns for our investors. We
have focused on growing Private Equity AuM in 2023, building on the growth in
Private Credit AuM in 2022. Pollen Street has increased Private Equity AuM to
£2.6 billion - a 44 per cent increase on prior year - with capital raised in
Private Equity Fund V and a new continuation vehicle that was oversubscribed.
The Investment Company has continued to deliver strong performance,
maintaining its historic track record. Income on Net Investment Assets was
consistent and progressive at £30.2 million for the year ended 31 December
2023 growing from £28.3 million for the year ended 31 December 2022.
The above success is reflected in the financial results for the Group with
operating profit growing to £44.5 million for 2023, up from £27.3 million
for 2022. Pollen Street declared dividends of £32 million in relation to
2023, an increase of £2 million from the prior year (2022: £30 million).
This was in line with the Board's dividend targets. Pollen Street Group
Limited's target for dividends in respect of 2024 is to declare dividends of
no lower than £33 million and the Group aims to grow dividends progressively
thereafter.
Capital Allocation Framework & Buyback Programme
The Board is mindful of the disconnect between the share price and the
fundamental value of the Group. Pollen Street Group Limited announced a
Capital Allocation Framework and Buyback Programme immediately prior to the
publication of these Annual Report and Accounts.
Under this framework, Pollen Street Group Limited will maintain sufficient
balance sheet capital to: invest in funds managed by the Group to accelerate
the growth of the Asset Manager; support the dividend policy, which is to
declare dividends of no lower than £33 million in respect of 2024 and
dividends growing progressively thereafter; and provide strategic flexibility
for inorganic growth, should opportunities arise. Surplus capital will be
returned to shareholders through share buybacks of approximately 2 to 5 per
cent per annum of the outstanding share capital of the Group.
We continue to focus on delivering substantial growth in the business and
building on our shareholder engagement to improve the liquidity of the shares
by diversifying our shareholder base. The Group has also completed its work to
change the listing category of the shares to that of a commercial company from
an investment company to support this.
Focus on Corporate Governance
On 15 January 2024, we announced the intention to appoint Lucy Tilley as the
Group's next Chief Financial Officer ("CFO"). Lucy will join the Board as an
Executive Director, succeeding Julian Dale, who will be stepping down as CFO.
Lucy brings extensive experience including as CFO of Mortgage Advice Bureau
(Holding) Plc and director in the corporate broking team at Canaccord Genuity
Limited.
Environmental, Social and Governance
At Pollen Street, Environmental, Social and Governance ("ESG") is an important
part of our approach to investing, portfolio monitoring, management and
reporting. It is an embedded part of the culture and investment approach of
the businesses, and our ESG framework aligns to the UN Sustainable Development
Goals ("SDGs"). Over the year progress has been made across:
· Our proprietary ESG scoring mechanism, which is used to benchmark
investments and to assess progress in ESG performance, where we saw an average
score improvement across our Private Equity portfolio, and an increasing
uptake of ESG margin ratchets using the ESG score in our Private Credit
portfolio, with eight ratchets now in place.
· Our climate targets, with Pollen Street maintaining carbon
neutral status for the year and two thirds of portfolio companies with net
zero roadmaps/plans.
Outlook: Building on our Positive Momentum
Over the last year we have been deepening our existing investor relationships
and continuing to develop new relationships to grow AuM. AuM in Private Equity
has grown particularly well in the period as we completed the first close of
Private Equity Fund V and also completed a continuation fund before the
year-end. The Private Credit strategy continues to perform strongly with the
deployment of Private Credit Fund III and we introduced further capital from
new investors through Separately Managed Accounts ("SMAs"). The Investment
Company assets are well positioned and structured to withstand significant
macro stress. Current market conditions bring compelling investment
opportunities, which we approach with care and selectivity.
Our strategies have continued to demonstrate strength and resilience and
Pollen Street Group Limited is well positioned for the year ahead. We are
pleased with the progress we have made in 2023 and the financial results for
the year. Along with the rest of the Board, I would like to thank the
management team for their hard work over 2023 and I look forward to what more
we can achieve in 2024.
Robert Sharpe
Chair
20 March 2024
CEO Report
Delivering Strong Performance
I am pleased to report that Pollen Street delivered strong performance in
2023. During the year the Group recorded continued strong performance across
our funds, made progress against our fundraising targets and benefitted from
attractive deployment opportunities in both Private Credit and Private Equity.
We increased our AuM to £4.2 billion as at 31 December 2023, from £3.4
billion as at 31 December 2022.
The above success is reflected in the financial results for the Group with
operating profit growing to £44.5 million for 2023, up from £27.3 million
for 2022. The primary growth driver was the Asset Manager where operating
profit grew to £15.9 million, up from £2.9 million in 2022 on a statutory
basis and £9.5 million on a proforma basis(( 1 )).
These results provide confidence for the year ahead, reflecting the strength
of our strategies, the power of our market positioning and industry focus as
well as the opportunity presented by our business model, to accelerate growth
using our balance sheet.
In the current macro environment, uncertainty has impacted the industry's deal
flow both in realisations and deployment. Fundraising too has also been
affected by uncertainty and shifting plans. It is against this backdrop that
we deliver our results for the 12 months to 31 December 2023. With a
successful year for our funds, our portfolio and our Investment Company, we
are pleased to see the differentiated approach of Pollen Street serve us well
and set us up to deliver long-term sustainable growth.
Well-Placed Strategy
Pollen Street was founded following the global financial crisis, our
strategies are designed to thrive in times of change. We look to work with
top-rate management teams to enable them to build great businesses that can
win in their markets. Our strategies are designed and proven to perform
through different macro environments to deliver consistent returns and our
balance sheet serves to provide stable income and to accelerate the growth of
our Asset Manager.
Our Asset Manager Business
Pollen Street is an alternative asset manager dedicated to financial and
business services. We have built a wealth of expertise in the industry and a
deep network of passionate people to enable us to deliver consistent and
sustainable returns.
A Private Equity Strategy Building Next Generation Market Leaders
Our Private Equity strategy focusses on backing mid-market companies in the
financial and business services sector. We typically take majority stakes in
companies, whose headquarters are in Europe. These companies are often
founder led and we seek to apply deep sector specialist knowledge and a proven
operational framework to accelerate revenue and profit growth with an
objective to deliver top-tier returns overall with low variance of outcomes.
A typical investment will benefit from the key growth trends, which form the
basis of our investment themes, from the unbundling of services driven by
demand for more convenient personalised experiences, to the wide-ranging
impact of the digital transformation of the entire sector. We pinpoint these
drivers of change and align our investment strategy to support businesses at
the forefront of these opportunities. Our network of experts is brought
together in The Hub, our powerful ecosystem that delivers deep expertise
across digital transformation, technology innovation, ESG and Business
Development. The Hub provides a systematic approach to building and growing
businesses. The team are hands-on driving collaboration and knowledge sharing
across the portfolio.
The wider Pollen Street network has been built through years of experience
across the industry and gives us access to deal flow, expertise and talent.
The performance of our Private Equity strategy over 2023 is testament to the
resilience of our approach and the relevance of our strategy in the current
market landscape. Our portfolio has delivered strong revenue and profit growth
and we continue to see attractive opportunities for deployment on a careful
and selective basis.
A Differentiated Credit Strategy
In Private Credit, our strategy is to provide predominantly senior secured,
asset-based lending to non-bank lenders, leasing businesses, technology
companies, and other companies with diverse portfolios of financial or hard
assets. Our credit facilities are typically senior secured with significant
credit protection created through both asset security and transaction
structuring. We take direct security over large and diverse pools of assets
that generate revenue and cash flow of our borrowers, alongside full corporate
guarantees with comprehensive covenants and our investments are designed to
withstand significant stress in the macro environment to deliver low
volatility returns.
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. We are experts in this large and growing market, with a
deep network and experience that allows us to identify opportunities and
target an underpenetrated part of the market. Our team focuses on the
mid-market where our support and capital is most needed.
Continued Momentum in Fundraising
We are pleased to report a significant step up in AuM for the year, driven by
our Private Equity Fund V raise as well as new capital raised in a
continuation fund.
Overall, we delivered 25 per cent AuM growth (31 December 2022: 13 per cent)
over the course of the year. We are grateful for the strong support from our
existing and new investors across our strategies. In 2024, we expect to
complete our fund raising of Private Equity Fund V as well as completing the
first close of Private Credit Fund IV - expected imminently.
Growing Returns in our Investment Company
In 2023 we continued to deliver consistent performance in the Investment
Company, delivering Income on Net Investment Assets of £30.2 million (2022:
28.3 million). The Investment Company portfolio stands at £533 million (31
December 2022: £588 million).
We highlighted at the time of the Combination, and in previous reporting, the
intention to transition the Investment Company from predominantly holding
direct investments sourced in our Private Credit strategy to holding
investments in Pollen Street funds. This shift creates strong alignment and
synergies where the balance sheet is able to benefit from the returns
generated by a diverse portfolio of investments across Private Equity and
Private Credit while supporting fundraising by demonstrating strong alignment
with investors and providing a catalyst for raising additional third-party
capital, in turn driving higher management fee income for the Group and
Shareholders.
As such, the Investment Company plays an important role in driving sustainable
growth for Pollen Street as a whole. We believe that this approach will help
to accelerate the growth in AuM as well as launch new strategies. To date the
Investment Company has committed over £120 million across our vehicles. We
expect fund investments to represent approximately half of the Investment
Company assets with the allocation to higher yielding Equity Assets increasing
to approximately 30 per cent over the medium term.
Our Commitment to Sustainability & ESG Progress
At Pollen Street we are committed to investing responsibly and developing and
enhancing our focus on actions that generate a positive impact for our
investors, people, portfolio and wider society.
Over the year we have made excellent progress against our ESG targets. We have
recorded improved ESG scores across our portfolio using our proprietary
scoring mechanism with an average score improvement of 2.5 points across our
Private Equity portfolio. In our Credit portfolio we have now introduced a
total of eight ESG margin ratchets, providing accountability for our borrowers
to improve ESG metrics.
We continue to focus on portfolio companies where we see a potential for
positive impact for both investors, people and planet. A recent example is our
Private Equity investment Assessio, the leading talent assessment software
platform in the Nordics. Assessio operates in an exciting and growing market
solving current challenges such as talent shortages and development but its
solutions also support companies in their Diversity Equity and Inclusion
("DEI") efforts.
We are proud that the Group maintained carbon neutral status for 2023. To
further progress our ambitions on climate, we are now using the Private
Markets Decarbonisation Roadmap as a firm and across our funds portfolio to
help accelerate our journey to Net Zero.
Sustainability remains a core part of our investment strategy. We aim to help
portfolio companies make Net Zero progress; set and measure diversity and
inclusion targets; and operate to the highest possible governance standards.
Alongside continuing to strengthen our ESG programme and foundations, our
focus for ESG in 2024 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.
Our Outlook: Accelerating Progress Towards Creating a Fast-Growing
High-Performing Private Capital Asset Manager
Our progress in 2023 has positioned us well to drive long-term organic growth.
We had previously issued financial guidance that Fee-Paying AuM would be £4
to £5 billion between 30 September 2024 and 30 September 2025. We expect to
exceed the £4 billion threshold during 2024 and are upgrading guidance to
grow AuM to £10 billion in the longer term. This is discussed further in the
CFO Report.
Looking ahead in 2024 for Pollen Street Group Limited, in both Private Credit
and Private Equity, we are seeing strong performance, resilience and an
attractive pipeline of new opportunities.
Our key priorities for 2024 are:
· final close of Private Equity Fund V;
· first close of Private Credit Fund IV;
· building cross product relationships with strategic investors;
· continuing to deploy the Investment Company capital in new Pollen
Street funds and assets; and
· delivering operational leverage through our platform as we
continue to grow AuM.
As I reflect on a successful year for Pollen Street, I would like to thank our
investors and shareholders for their support; the whole Pollen Street team for
their dedication and immense work over the year; and the Board for its support
and guidance. I am energised by our progress in 2023 and look forward to the
opportunities ahead in 2024.
Lindsey McMurray
Chief Executive Officer
20 March 2024
Private Equity Strategy
This section gives insight into our Private Equity strategy. The Group earns
management fees and carried interest from managing and advising funds
investing in this strategy.
Michael England - Partner
Our Private Equity strategy focusses on backing mid-market companies in the
financial and business services sector. We typically take majority stakes in
companies whose headquarters are in Europe. These companies are often
founder led and we seek to apply deep sector specialist knowledge and a proven
operational framework to accelerate revenue and profit growth with an
objective to deliver top-tier returns overall with low variance of outcome.
A typical investment will benefit from the key growth trends which form the
basis of our investment themes, from the unbundling of services driven by
demand for more convenient personalised experiences, to the wide-ranging
impact of the digital transformation of the entire sector. We pinpoint these
drivers of change and align our investment strategy to support businesses at
the forefront of these opportunities.
Our strategy has been in place since 2008 and has been tested through many
market events and cycles. Throughout this period, we have developed a robust
and disciplined approach to investing as evidenced by our strong track record
over time. We identify companies that have high potential for digital adoption
and a loyal customer base that can thrive in times of structural change. This
experience has given us valuable skills and a keen understanding of risks and
opportunities in the market.
How it Works: Clear Opportunity Set and Established Investment Strategy
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 investment theses, we seek to drive growth through our
established operational framework, which is built upon four key pillars:
· Technology innovation and digital transformation;
· Buy, build and consolidation;
· Globalisation and product development; and
· ESG embedding.
2023 - Delivering Growth and Building Momentum
We have seen strong performance in our Private Equity funds, with impressive
revenue and EBITDA growth, continued deployment activity in Private Equity
Fund IV and progress on exits.
Six new investments were completed in the year, including Finsolutia, a
leading technology driven credit and real estate platform; Wide Group S.P.A,
one of the leading innovative insurance brokers in Italy was acquired in May
2023; Assessio, the Nordic's leading talent assessment software platform and
Niio, in the European wealth and asset management software market. Alongside
this, there have been exits from both the Fund III and Fund IV portfolios.
Private Equity Fund V has been our core focus for fundraising in the year, as
we continue to develop new relationships with investors and deepen existing
ones. In addition to fundraising in Fund V, there was a step up in AuM due to
the raising of our second continuation fund, reflecting the particularly
strong performance of two of our existing assets and the potential for future
growth.
With the good progress made in 2023 - and our focus on delivery, deployment
and exits in 2024 - our funds remain well positioned for growth and to provide
top-tier returns for our investors and shareholders.
Michael England
Partner
20 March 2024
Private Credit Strategy
This section gives insight into our Private Credit strategy The Group earns
management fees, performance fees and carried interest from managing and
advising funds investing in this strategy.
Matthew Potter - Partner
Asset-based finance is the funding behind the everyday credit that powers our
economy and society. We provide funding to support everything from building
homes, funding SMEs & corporates and vehicle financing. We do this by
providing predominantly senior secured loans to non-bank lenders, banks,
leasing businesses and technology companies that are serving these end markets
taking security over their diverse portfolios of cash flow producing assets,
such as loans, leases and vehicles, alongside corporate guarantees.
We are experts in this large and growing market, with a deep network and
experience that allows us to identify opportunities and target an
underpenetrated part of the market. Our team focuses on the mid-market where
we believe the greatest opportunity and largest financing gap exists meaning
we can create the most favourable risk reward profile.
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 asset-backed lending aims to deliver uncorrelated
returns to other private debt strategies with a through the cycle approach
designed to withstand significant stress. Direct asset-backing combined with
seniority, comprehensive covenants and bespoke structuring delivers
significant downside protection whilst Pollen Street's ability to access a
hard to reach market through our large, dedicated team means we consistently
generate premium returns versus other private and public debt strategies.
We are also passionate about the potential for positive impact through the
financing that we provide whether by funding new mass market homes, driving
regional economic growth, funding green alternatives to transport 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.
How it Works: Structuring for Protection
The investment strategy seeks to combine the benefits of the asset-backed and
corporate lending markets following a tested and a structured investment
approach that has delivered strong returns and low volatility. Significant
credit protection is created through both asset security and transaction
structuring with senior loans secured directly against large and diverse pools
of assets that generate the revenue and cash flow of the borrowers as well as
securing a full corporate guarantee with comprehensive covenants.
We seek to follow a structured investment approach that focuses on:
· Diverse asset-backing: predominantly senior loans secured on
highly diverse tangible assets to maintain credit protection;
· Bespoke structuring: highly structured investments that seek to
create strong downside protection and align incentives with our borrowers;
· Conservative leverage on assets with tangible value: substantial
credit protection from borrower cash equity, asset pool profits and corporate
guarantees;
· Robust cash generation: lending against highly cash generative,
short duration, granular assets;
· Covenants: structured to create alignment with our borrowers.
2023 - Consistent Performance and Preparing for Future Growth
In 2023 the Private Credit business has been focused on deploying Private
Credit Fund III and the SMAs and capitalising on an investor friendly market
with higher returns. This strategy has paid dividends with Private Credit Fund
III almost fully deployed with fundraising started for Private Credit Fund IV
with first close expected imminently. We also won a sizeable new SMA mandate
from a UK public pension plan, which closed in early 2024 building upon the
fundraising momentum and increased investor awareness of Pollen Street's
Private Credit business.
The portfolio has performed well in the year with the higher interest rate
environment driving increased deal returns and new investments being completed
at higher spreads as we faced a less competitive investment environment. There
were 14 new transactions or upsizes (2022: 25) that were completed during the
year totalling £0.7 billion (2022: £0.5 billion) of investment commitments
with new deals incorporating sustainability linked factors including ESG
margin ratchets to incentivise our borrowers to improve their impact.
We continue to develop and review a strong pipeline of new opportunities
alongside fundraising for Private Credit Fund IV. The market trends that drove
opportunities in 2023 are set to continue to contribute to a less competitive
environment on the lending side. On the fundraising side asset-based lending
is gaining traction with an increased awareness of the benefits it can offer
investors as they build out a private debt portfolio. We are capitalising on
our leading position in this market and expect to continue to win new
relationships in 2024 and beyond.
Matthew Potter
Partner
20 March 2024
CFO Report
Momentum Towards our Targets
I am pleased to present Pollen Street's financial results for 2023. It has
been a successful year, with strong fundraising performance, growth in our
financial performance and progress towards our medium-term targets.
We completed the first close of Private Equity Fund V with further closes
completed throughout the second half of the year. The fee rates on this fund
are in line with our historic rates and we have clear visibility over
additional closes. First close sets the date from which the Group charges fees
for all investors, including in subsequent closes and so this gives us a line
of sight to future revenue growth.
We launched a new continuation fund in November 2023 to acquire two
high-performing companies from our existing funds to enable us to continue to
support the growth of both businesses. It is expected to generate £5 million
per annum of revenue for the Group over 2024 and beyond.
We also completed final close of Private Credit Fund III in April 2023 and
closed a new £0.2 billion SMA in February 2024.
Fundraising across both strategies brings total AuM to £4.2 billion as at 31
December 2023 (31 December 2022: £3.4 billion). We are pleased with the
strong support from new and existing investors in both Private Equity and
Private Credit. We expect to substantially complete the fundraising of Private
Equity Fund V during the year and first close of Private Credit Fund IV -
expected imminently. We remain confident in delivering total commitments in
line with our targets.
Income on Net Investment Assets within the Investment Company was £30.2
million (2022: £28.3 million). This increase in income reflects the impact of
increased interest rates together with resilient credit performance.
The total income for the Group was £103.2 million (2022: £63.7 million) and
the operating profit for the Group was £44.5 million for 2023 (2022: £27.3
million). This represents a material increase with the main driver being
growth in the Asset Manager segment from the date that it was acquired, 30
September 2022, as part of the Combination.
Basis of Preparation
In addition to the statutory results, we also present proforma results for the
Group for the year ended 31 December 2022 that incorporate the earnings from
the Asset Manager, as if the Combination had completed prior to the start of
2022. This basis explains the performance of the combined entity more fully
because it includes a full history of Pollen Street Capital Holdings Limited
and its subsidiaries. These are referred to as "Proforma 2022". The statutory
results for the year ended 31 December 2023 are referred to as "2023" and the
year ended 31 December 2022, "Statutory 2022".
On 24 January 2024, the Group completed a scheme of arrangement to effectively
change the listing category of the Company's shares to that of a commercial
company from an investment company and to introduce a Guernsey incorporated
holding company, named Pollen Street Group Limited, as the new parent of the
Group. The purpose of the Scheme is to better reflect the Group's operations
as a commercial enterprise, broaden the universe of potential investors,
improve the marketability and liquidity of Pollen Street shares and bring the
listing classification in line with our quoted peer group. The Company has
therefore ceased to be classified as an investment trust during 2024 and will
incur corporation tax in its Investment Company for the year ended 31 December
2024 and subsequently.
On 14 February 2024, the Company distributed the entire issued share capital
in Pollen Street Capital Holdings Limited to its new parent, Pollen Street
Group Limited, following shareholder approval received on 11 October 2023.
This is referred to as the Distribution. Pollen Street Limited and its current
subsidiaries have therefore ceased all asset management activities, however
they continue their operations of investing in Credit Assets and Equity
Assets. Pollen Street Capital Holdings Limited and its subsidiaries have been
classified as "For Distribution" and presented in a separate column in the
financial statements. Whilst the Distribution changes the activities of the
entities within Pollen Street's overall business and therefore affects the
presentation of the financial results for the Company and Group, it does not
change the activities of the overall business from a shareholder's
perspective. Further information on the Combination and the Reorganisation is
provided in Note 1 to the Financial Statements.
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 fees, with the average calculated from the
opening and closing positions. For Private Equity, the Fee-Paying AuM is the
committed capital in the funds, moving to invested capital at the point when
the subsequent 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 Annual Report and Accounts for full definitions.
Total AuM grew to £4.2 billion as at 31 December 2023 (31 December 2022:
£3.4 billion), driven by fundraising under the Private Equity strategy.
Fundraising has increased Average Fee-Paying AuM for the Private Equity
strategy to £1.5 billion (Statutory 2022: £1.1 billion; Proforma 2022: £1.1
billion).
Average Fee-Paying AuM 2023 Statutory 2022 Proforma 2022
(£ billion)
(£ billion) (£ billion)
Private Equity 1.5 1.1 1.1
Private Credit 1.4 1.3 1.2
Total 2.9 2.4 2.3
The Asset Manager segment delivered £15.9 million of operating profit over
2023 (Statutory 2022: £2.9 million; Proforma 2022: £9.5 million). The Group
tracks the performance of this segment using Fund Management EBITDA, which is
the operating profit less the depreciation of the office lease(( 2 (#_ftn2)
)). The Fund Management EBITDA for 2023 was £15.2 million, which has grown by
79 per cent from £8.5 million for Proforma 2022.
The EBITDA growth of the Asset Manager is driven by Fund Management Income
growing at 32 per cent to £49.2 million for 2023 (Statutory 2022: £10.2
million; Proforma 2022: £37.4 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.
Administration Costs together with the depreciation of the lease asset was a
charge of £34.0 million for 2023 (Statutory 2022: £7.5 million; Proforma
2022: £28.9 million). This represents an increase of 18 per cent, driven
predominantly by incremental headcount growth. This moderate increase reflects
a well-invested cost base, leading to a high drop through from incremental
revenue to profitability. We have invested in headcount principally in the
Investor Relations team to support capital raising across the Group and to
internalise some capital raising costs. This has increased the fundraising
capacity of the Group and improved the efficiency of capital raising in the
longer term.
Asset Manager Profitability 2023 Statutory 2022 Proforma 2022
(£ million) (£ million) (£ million)
Fund Management Income 49.2 10.2 37.4
Administration Costs(( 3 (#_ftn3) )) (33.3) (7.3) (27.9)
Operating Profit 15.9 2.9 9.5
Depreciation of Lease Asset (0.7) (0.2) (1.0)
Fund Management EBITDA 15.2 2.7 8.5
The Management Fee Rate for 2023 excluding the incremental income and AuM from
Accelerator II would have been 1.36 per cent demonstrating growth in
management rate driven by funding raising under the Private Equity strategy.
Including Accelerator II, the Management Fee Rate was 1.17 per cent (Statutory
2022: 1.28 per cent; Proforma 2022: 1.27 per cent). The change in rate is
driven by an 18 per cent year on year increase in the Management Fee Income
offset by a 33 per cent increase in Average Fee-Paying AuM. The ratio is
expected to stabilise over time to fall within 1.25 per cent to 1.5 per cent
medium-term guidance range as the impact of Accelerator II is diluted across
the Group's other AuM.
Performance fees and carried interest for 2023 were 30 per cent of Fund
Management Income for the period (Statutory 2022: 24 per cent; Proforma 2022:
23 per cent). This is in excess of the medium-term guidance range of 15 to 25
per cent and reflects strong performance across the portfolios as portfolio
companies continued to grow revenue and profits.
The Fund Management EBITDA Margin increased to 31 per cent for 2023 (Statutory
2022: 26 per cent; Proforma 2022: 23 per cent). We expect EBITDA margin to
continue to grow as the Group increases its revenue by raising additional
funds under the Private Equity and Private Credit strategies. We are targeting
a Fund Management EBITDA Margin above 50 per cent in the long term.
Asset Manager Financial Ratios 2023 Statutory 2022 Proforma 2022
Management Fee Rate 1.17% 1.28% 1.27%
(% of Average Fee-Paying AuM)
Performance Fee 30% 24% 23%
(% of Fund Management Income)
Fund Management EBITDA Margin 31% 26% 23%
(%of Fund Management Income)
Investment Company Growing Returns
The Group's £533 million (31 December 2022: £588 million) investment
portfolio is well diversified across deals and borrowers. The Investment
Company has committed over £120 million into funds managed by Pollen Street
to date. This reflects our plans to steadily grow Investment Company
commitments in the Asset Manager to help accelerate growth. We expect fund
investments to represent approximately half of the Investment Company assets
with the allocation to higher yielding Equity Assets increasing to
approximately 30 per cent over the medium term.
Our Investment Asset portfolio maintained its track record of performance
throughout the year and delivered Income on Net Investment Assets of £30.2
million. This return is up from £28.3 million in 2022. The step-up was driven
by higher returns on new investments as capital is recycled from investments
made and hedged in a different interest rate environment. The Group has
reduced its Investment Asset portfolio slightly to create capacity for the
Investment Company to make commitments to Pollen Street managed funds, with
the net debt-to-tangible-equity ratio reducing to 54 per cent as at 31
December 2023 (31 December 2022: 69 per cent). Returns are expected to
increase as leverage normalises and the allocation to higher yielding Equity
Assets increases.
Investment Asset Segment 2023 2022
Investment Assets £533 million £588 million
Average Net Investment Assets £344 million £355 million
Income on Net Investment Assets £30.2 million £28.3 million
Return on Net Investment Assets 8.8% 8.0%
Profit After Tax
The profit for the year for the Group was £40.4 million for 2023 (Statutory
2022: £26.4 million; Proforma 2022: £32.9 million). This represents a
material increase in profits compared to both a statutory and proforma basis.
The main drivers of increase were the operating profit from Asset Manager
segment of £15.9 million (Statutory 2022: £2.9 million; Proforma 2022: £9.5
million) and growth in the operating profit of the Investment Company to
£30.2 million from £28.3 million, reflecting the impact of increasing
interest rates.
The operating loss of the Central segment was £1.6 million (Statutory 2022:
£3.9 million loss(( 4 (#_ftn4) )); Proforma 2022: £2.0 million loss). This
relates to ongoing start-up losses of the US asset management business in
addition to certain exceptional costs incurred in the first half of 2023.
The charge for depreciation and amortisation was £1.4 million (Statutory
2022: £0.5 million; Proforma 2022: £1.4 million). This principally relates
to a charge of £0.7 million of depreciation of the lease asset (Statutory
2022: £0.3 million; Proforma 2022: £1.0 million) and £0.5 million
(Statutory 2022: £0.2 million; Proforma 2022: £0.2 million) associated with
the amortisation of the intangible assets.
The Investment Company has not incurred corporation tax to date, because it is
an investment trust. However, the Group has incurred corporation tax in its
Asset Manager business, which is not an investment trust. The effective tax
rate for 2023 was 18 per cent of Fund Management EBITDA (Statutory 2022: 15
per cent; Proforma 2022: 18 per cent).
2023 Statutory 2022 Proforma 2022
(£ million) (£ million) (£ million)
Operating profit of Asset Manager 15.9 2.9 9.5
Operating profit of Investment Company 30.2 28.3 28.3
Operating loss of Central segment (1.6) (3.9) (2.0)
Operating profit of Group 44.5 27.3 35.8
Depreciation and amortisation (1.4) (0.5) (1.4)
Profit before tax 43.1 26.8 34.4
Corporation tax (2.7) (0.4) (1.5)
Profit after tax 40.4 26.4 32.9
Profit for the year on continuing operations was £38.9 million (2022: 30.6
million) and profit for the year from assets held for distribution to the new
parent was £1.5 million (2022: Loss of £4.3 million) as reported in the
Consolidated Statement of Comprehensive Income.
Leverage
The Group uses leverage in the Investment Company. As at 31 December 2023 the
Group had £210.8 million of leverage (2022: £263.6 million) and £19.7
million of cash (2022: £23.3 million). This is equivalent to a net
debt-to-tangible equity ratio of 54 per cent (2022: 69 per cent). It is less
than the borrowing limit set by the Board of 100 per cent.
Dividends
Pollen Street declared dividends of £32 million for 2023, an increase of £2
million from the prior year (2022: £30 million). This was in line with the
dividend targets previously issued by the Board. This reflects a quarterly
dividend of 16.0p per share in relation to the first three quarters of the
year and 13.0p per share for the last quarter of the year. As part of the
terms of the Combination, former Pollen Street Capital Holdings Limited
shareholders waived dividends paid to them in 2022 and 2023 on approximately
50 per cent of the shares issued to them by the Group.
Future dividends are expected to be declared by the new parent, Pollen Street
Group Limited, on a semi-annual basis. Following the conversion to a
commercial company, these dividends will no longer be designated as interest
distributions. The Board of Pollen Street Group Limited has stated its
dividend target for 2024 is to declare dividends of no lower than £33 million
and is aiming to grow dividends progressively thereafter. These targets are
the same as the targets previously issued by Pollen Street Limited.
Outlook
Pollen Street Limited remains in a strong position for growth in 2024. The
portfolio of Investment Assets are performing well with Income and Returns on
Net Investment Assets increasing. We had previously issued financial guidance
for the Return on Net Investment Assets to be c8% in the long-term. Given the
performance over 2023 and the outlook for the portfolio, we are now revising
up the guidance for Return on Net Investment Assets to rise to low double
digits within 2 to 3 years.
We had previously issued financial guidance that Fee-Paying AuM would be £4
to £5 billion within 2 to 3 years of the completion of the Combination on 30
September 2022. Fee Paying AuM was £3.4 billion as at 31 December 2023 and we
expect to exceed the £4 billion threshold during 2024. We are therefore
upgrading guidance to grow AuM to £10 billion within 4 to 5 years.
The outlook for Pollen Street Group Limited and its subsidiaries is also
strong. Fund Management Income is expected to step up further following
fundraising in Private Equity Fund V, which will benefit from catch-up fees
for closes occurring in 2024, and Private Credit Fund IV. The balance sheet
assets have strong downside protection from credit risk and are positioned to
benefit from rising interest rates.
Pollen Street Group Limited announced a Capital Allocation Framework and
Buyback Programme immediately prior to the publication of these Annual Report
and Accounts. Under this framework, surplus capital will be returned to
shareholders through share buybacks that are expected to constitute
approximately 2 to 5 per cent per annum of the outstanding share capital of
the Group.
Financial Guidance
AuM Upgraded: £10 billion of Total AuM within 4 to 5 years
Management Fee Rates Maintained: c.1.25%-1.50% Average Fee-Paying AuM over the long term
Performance Fees and Carry Maintained: c.15%-25% of total Fund Management Income on average over the long
term
Fund Management EBITDA Margin Maintained: Long-term fund management adjusted EBITDA margin in excess of 50
per cent
Return on Net Investment Assets Upgraded: rise to low double digits within 2 to 3 years(( 5 (#_ftn5) ))
Dividend Maintained: Targeted at no lower than £33 million in 2024 and progressive
thereafter
Julian Dale
Chief Financial Officer
20 March 2024
Risk Management
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. A clear organisational structure with well defined, transparent, and
consistent lines of responsibility exists, and effective processes to
identify, manage, monitor, and report the risks the Group is or might be
exposed to, or the Group poses or might pose to others, have been implemented.
The risks arising from the pursuit of the business' strategy, as well as the
risks to achieving the Group's strategy have been analysed carefully and
arrangements in place are appropriate and proportionate to the nature, scale
and complexity of the risks inherent in the business model and the activities
of the Group. The Board is responsible for oversight of the Group's risk
management systems and processes, and oversees the management of the key risks
across the organisation.
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. As well as the
adoption of a robust governance structure, the Group demonstrates a strong
control culture with clear oversight of responsibilities, with the adoption of
a tailored set of systems and controls together with ongoing compliance
monitoring. The monitoring and control of risk is a fundamental part of the
management process within the Group.
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 such that in the event that a material
deficiency in control environment or risk management framework of the Group is
identified, it shall be addressed without undue delay. The Group's Investment
Committees are responsible for all investment decisions across all funds
including setting investment objectives, consideration and approval of new
investments, divestments, ESG risks and opportunities, and material matters in
relation to current investments, ensuring that risks are considered
consistently across our portfolios.
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 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. More details of the Risk Committee are set out in the full Annual
Report and Accounts.
Risk Management Framework
The Group has developed a comprehensive risk management framework to ensure
that all risks are being managed within the Board's risk appetite. All areas
of the business are engaged in the risk management work and the Group has a
strong risk culture. All staff actively manage risk and build mitigants into
their processes, and risk issues are escalated promptly and dealt with
transparently.
The risk management framework can be split into three main areas.
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 is 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 is 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, monitoring the operation of first line
controls, ensuring 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 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 providing 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 is
provided by Deloitte, 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 2023
Global events throughout 2023 resulted in geopolitical tension with knock on
macroeconomic ramifications. Carbon emissions climbed during the year adding
pressure in an ever-shrinking window for transition to a 1.5°C world. Food
and energy costs continued to be affected by global unrest, tepid growth
impacted on markets, and volatility remained. Despite the global challenges
witnessed throughout 2023, the Group's overall risk profile has remained
relatively stable.
The risk management function will continue to ensure preparedness where
possible and consider both current and emerging risks and update our risk
profile accordingly. As we enter 2024, we remain confident that we are best
placed to learn from the challenges presented to us and emerge stronger.
Principal Risks & Uncertainties
The Group's assessment of risk has identified a broad range of internal and
external factors which it believes could adversely impact the Group. The
following summary of key risks has been identified as having the potential to
be material; it is not exhaustive of those faced by the Group. It includes
emerging risks and has been reviewed by the Risk and Operations Committee and
the Risk Committee on a regular basis and recorded on the Group's risk
register.
Economic & Market Conditions
Risk Description Risk Management 2023 Summary
Economic and market factors may affect the Group's investments, track record Pollen Street operates closed ended funds without redemption rights for The portfolios remained resilient throughout 2023. AuM continued to grow and
or ability to raise new capital. investors, allowing a greater degree of freedom to pursue investment performance remained in line with expectations. The year ended with a strong
objectives throughout macroeconomic cycles. pipeline of opportunities in place.
Regular investment reviews are undertaken. The Investment Committees focus on We continue to monitor performance and act accordingly when required.
investment strategy, exit processes and refinancing strategies throughout the
life of an investment.
Early involvement of Investment Committees 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.
Risk Description
Risk Management
2023 Summary
Economic and market factors may affect the Group's investments, track record
or ability to raise new capital.
Pollen Street operates closed ended funds without redemption rights for
investors, allowing a greater degree of freedom to pursue investment
objectives throughout macroeconomic cycles.
Regular investment reviews are undertaken. The Investment Committees focus on
investment strategy, exit processes and refinancing strategies throughout the
life of an investment.
Early involvement of Investment Committees 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.
The portfolios remained resilient throughout 2023. AuM continued to grow and
performance remained in line with expectations. The year ended with a strong
pipeline of opportunities in place.
We continue to monitor performance and act accordingly when required.
Fundraising
Risk Description Risk Management 2023 Summary
The inability to secure new fund mandates or raise capital under existing The Group has a consistent track record of fundraising and delivering strong The risk at the end of 2023 was somewhat elevated given recent market
mandates in an ever increasingly competitive market affecting the Group's returns to investors. The Group has invested in its Investor Relations team to volatility. Management and the in-house Investor Relations team continue to be
revenue and cash flows. support capital raising across the Group and to internalise some capital actively focused on fundraising across the business.
raising costs.
The Group is making efforts to broaden its investor base and is targeting new
The investment team has sector specialist knowledge of and expertise in the geographies and investors as part of its ongoing fundraising activities.
industries that it invests in, and the investment team has an extensive
network and investment experience to enable it to identify opportunities
attractive to potential investors.
We remain confident that the target size for future funds expected in 2024
remains on track.
Risk Description
Risk Management
2023 Summary
The inability to secure new fund mandates or raise capital under existing
mandates in an ever increasingly competitive market affecting the Group's
revenue and cash flows.
The Group has a consistent track record of fundraising and delivering strong
returns to investors. The Group has invested in its Investor Relations team to
support capital raising across the Group and to internalise some capital
raising costs.
The investment team has sector specialist knowledge of and expertise in the
industries that it invests in, and the investment team has an extensive
network and investment experience to enable it to identify opportunities
attractive to potential investors.
The risk at the end of 2023 was somewhat elevated given recent market
volatility. Management and the in-house Investor Relations team continue to be
actively focused on fundraising across the business.
The Group is making efforts to broaden its investor base and is targeting new
geographies and investors as part of its ongoing fundraising activities.
We remain confident that the target size for future funds expected in 2024
remains on track.
Management Fee Rates and Other Fund Terms
Risk Description Risk Management 2023 Summary
The management fee rates, and other terms that the Group receives to manage 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.
new funds could be reduced, affecting the Group's ability to generate revenue. Company's track record and the growing allocations to alternative investment Management fees on funds raised during 2023 were in line with comparable funds
market investments. raised in prior years.
Risk Description
Risk Management
2023 Summary
The management fee rates, and other terms that the Group receives to manage
new funds could be reduced, affecting the Group's ability to generate revenue.
The Board believes that management fee rates generated are supported by the
Company's track record and the growing allocations to alternative investment
market investments.
Pollen Street's management fee revenue is long term and contractual in nature.
Management fees on funds raised during 2023 were in line with comparable funds
raised in prior years.
On-Balance Sheet Investment Underperformance
Risk Description Risk Management 2023 Summary
Our Investment Assets are exposed to credit and market risks. They may be The Group has a clear track record of delivering investment returns that are The Group has a diversified, granular portfolio of assets. Loans are subject
impacted by adverse economic and market conditions, including through higher resilient to market conditions and in line with published guidance. to stringent underwriting and stress testing.
impairment charges or reduced valuations.
Investments are monitored closely as part of the Group's ongoing investment Investment performance remains strong. Further information is set out in
In addition, credit risk, market risk (such as interest rate risk, currency monitoring programmes, adhering to the funds' investment strategy. Input is more detail in Note 22.
risk & price risk), capital management risks and liquidity risk exists. given by all Investment Committee members to ensure return objectives are met,
and to anticipate and discuss any underperformance.
Risk Description
Risk Management
2023 Summary
Our Investment Assets are exposed to credit and market risks. They may be
impacted by adverse economic and market conditions, including through higher
impairment charges or reduced valuations.
In addition, credit risk, market risk (such as interest rate risk, currency
risk & price risk), capital management risks and liquidity risk exists.
The Group has a clear track record of delivering investment returns that are
resilient to market conditions and in line with published guidance.
Investments are monitored closely as part of the Group's ongoing investment
monitoring programmes, adhering to the funds' investment strategy. Input is
given by all Investment Committee members to ensure return objectives are met,
and to anticipate and discuss any underperformance.
The Group has a diversified, granular portfolio of assets. Loans are subject
to stringent underwriting and stress testing.
Investment performance remains strong. Further information is set out in
more detail in Note 22.
ESG and Sustainability Performance
Risk Description Risk Management 2023 Summary
Risks associated with the physical effects of climate change, the risks that The ESG Committee oversees Pollen Street's ESG matters, including ESG-related Pollen Street has recently undertaken a project to identify and assess
arise as economies transition towards greener solutions, and the risk of a risks. The Risk and Operations Committee as well as the Board Risk Committee climate-related risks and opportunities at the Group level, providing
regulatory breach associated with SFDR, TCFD, FCA, SEC reporting. has responsibility for oversight of ESG risk matters. recommendations to strengthen climate considerations in business processes and
decision-making.
Poor or insufficient management of ESG risks or adverse developments may ESG is considered as an evolving risk given the nature of the Group's
impact the Group's reputation as an investor. investments. The Group is strengthening its approach to climate-related risk Anti-ESG legislation, predominantly in the United States, has emerged recently
identification and mitigation, including the TCFD framework and disclosing with the potential impacts hard to assess.
Risks of an anti-ESG legislation leading to unintended consequences for the accordingly.
Group
Pollen Street acknowledges that the Group has an important role to play in
The Group has a set of minimum standards to ensure ESG risks are assessed and manging ESG risks for society. No material ESG risks related to the financial
measured, which are incorporated into initial deal team investment assessments statements were identified during 2023.
and ongoing portfolio management. This includes reviewing counterparty
approach to environmental factors and collecting metrics to identify the
environmental impacts of their operations.
Risk Description
Risk Management
2023 Summary
Risks associated with the physical effects of climate change, the risks that
arise as economies transition towards greener solutions, and the risk of a
regulatory breach associated with SFDR, TCFD, FCA, SEC reporting.
Poor or insufficient management of ESG risks or adverse developments may
impact the Group's reputation as an investor.
Risks of an anti-ESG legislation leading to unintended consequences for the
Group
The ESG Committee oversees Pollen Street's ESG matters, including ESG-related
risks. The Risk and Operations Committee as well as the Board Risk Committee
has responsibility for oversight of ESG risk matters.
ESG is considered as an evolving risk given the nature of the Group's
investments. The Group is strengthening its approach to climate-related risk
identification and mitigation, including the TCFD framework and disclosing
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.
Pollen Street has recently undertaken a project to identify and assess
climate-related risks and opportunities at the Group level, providing
recommendations to strengthen climate considerations in business processes and
decision-making.
Anti-ESG legislation, predominantly in the United States, has emerged recently
with the potential impacts hard to assess.
Pollen Street acknowledges that the Group has an important role to play in
manging ESG risks for society. No material ESG risks related to the financial
statements were identified during 2023.
Talent and Retention
Risk Description Risk Management 2023 Summary
Failure to attract, retain and develop talented individuals to ensure that the The Group has reward and retention schemes in place for all employees, The business has continued to strengthen its team throughout 2023. In
Group is able to deliver key performance objectives, an inclusive and diverse aligning individual, team, and organisational goals, driving value for the addition, there is a well-considered approach to resourcing and succession.
workforce to ensure the right skills are in the right place at the right time Group.
to deliver the Group's strategy.
The Group invests in both leadership development and ongoing development
Inadequate succession planning for key individuals. opportunities for all employees and has introduced a comprehensive induction
programme for all new hires.
Pollen Street is committed to raising awareness and encouraging diversity
amongst the workforce and the ESG Committee spends significant time and effort
progressing Pollen Streets DEI agenda.
Risk Description
Risk Management
2023 Summary
Failure to attract, retain and develop talented individuals to ensure that the
Group is able to deliver key performance objectives, an inclusive and diverse
workforce to ensure the right skills are in the right place at the right time
to deliver the Group's strategy.
Inadequate succession planning for key individuals.
The Group has reward and retention schemes in place for all employees,
aligning individual, team, and organisational goals, driving value for the
Group.
The Group invests in both leadership development and ongoing development
opportunities for all employees and has introduced a comprehensive induction
programme for all new hires.
Pollen Street is committed to raising awareness and encouraging diversity
amongst the workforce and the ESG Committee spends significant time and effort
progressing Pollen Streets DEI agenda.
The business has continued to strengthen its team throughout 2023. In
addition, there is a well-considered approach to resourcing and succession.
Information Security & Resilience
Risk Description Risk Management 2023 Summary
Risks associated with information security and resilience, including: The Group maintains strong technical and operational controls against The Group invests annually in detailed external security reviews and
identified cyber and information security threats. penetration tests. All technology and security policies have been reviewed and
- failure to invest and successfully implement appropriate
updated during the year.
technology; Staff awareness, being key to any modern defence plans, is enhanced through
new joiner and ongoing training, and regular communications to staff about The technology team is appropriately sized to manage the various security
- financial loss, data loss, business disruption or damage to relevant threats observed across the industry. demands and utilises industry standard tooling to ensure monitoring and
reputation from failure of IT systems;
response management is efficient and thorough.
Redundant and resilient systems are deployed to protect the Group's assets and
- data protection & information security; are validated through regular testing and simulations. The Group tested its Disaster Recovery Plan and Business Continuity Plans in
2023 with no material findings.
- business continuity, disaster recovery and operational The Group holds a defined incident response plan as a set of guideline
resilience; and procedures to be followed in the event of an information security attack or
breach. The primary aim of any response is to protect the Group's assets,
- financial or reputation losses arising from a cyber attack. remediate any issues and minimise the impact of the breach as quickly as
possible. The plan sets out communication, oversight and other considerations
to be undertaken.
Risk Description
Risk Management
2023 Summary
Risks associated with information security and resilience, including:
- failure to invest and successfully implement appropriate
technology;
- financial loss, data loss, business disruption or damage to
reputation from failure of IT systems;
- data protection & information security;
- business continuity, disaster recovery and operational
resilience; and
- financial or reputation losses arising from a cyber attack.
The Group maintains strong technical and operational controls against
identified cyber and information security threats.
Staff awareness, being key to any modern defence plans, is enhanced through
new joiner and ongoing training, and regular communications to staff about
relevant threats observed across the industry.
Redundant and resilient systems are deployed to protect the Group's assets and
are validated through regular testing and simulations.
The Group holds a defined incident response plan as a set of guideline
procedures to be followed in the event of an information security attack or
breach. The primary aim of any response is to protect the Group's assets,
remediate any issues and minimise the impact of the breach as quickly as
possible. The plan sets out communication, oversight and other considerations
to be undertaken.
The Group invests annually in detailed external security reviews and
penetration tests. All technology and security policies have been reviewed and
updated during the year.
The technology team is appropriately sized to manage the various security
demands and utilises industry standard tooling to ensure monitoring and
response management is efficient and thorough.
The Group tested its Disaster Recovery Plan and Business Continuity Plans in
2023 with no material findings.
Emerging Risk Identification
The Risk Management Function continually scans the horizon to identify and
communicate emerging risks facing the Group, which are expected to have a
significant impact within 1 to 10 years. Emerging risks are those which may
arise, or ones that already exist but have evolved. They are characterised by
a high degree of uncertainty in terms of impact and likelihood and may have a
substantial impact on the operations of the Group.
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 continued to dominate the headlines
during 2023 and look set to continue. Technology risk, data ethics and AI
continue to challenge companies, with both the emergence of new technologies
whose effects have yet to be understood, and information reliability is
becoming an area of concern. Skills shortages are set to become increasingly
common given a competitive labour market and new business areas.
Emerging risks have been incorporated in the description of risks in the table
above. The Risk Committee will continue to monitor these risks and respond to
the evolving risk landscape.
Viability Statement
In accordance with provision 31 of the UK Corporate Governance Code, including
revisions published in 2023, and the corresponding provision 36 of the
Association of Investment Companies Code of the UK Corporate Governance Code
(the "AIC Code"), the Directors have assessed the prospects of the Group over
the three-year period to Pollen Street Group Limited's AGM in 2027. The Board
believes this period to be appropriate, taking into account the current
trading position and the potential impact of the principal risks that could
affect the viability of the Group.
At the year-end, the Group had cash balances of £19.7 million and £585.8
million of net assets. This strong financial position supports the ongoing
viability of the Group.
To prepare the viability statement, the Board has considered the prospects of
the Group in light of its current position and has considered each of the
Group's principal risks, uncertainties and mitigating factors, to develop a
comprehensive scenario analysis for viability. These projections consider the
Group's income, net asset value and the cash flows over the three-year period
under a range of scenarios. The scenarios are not a business plan in itself,
but rather a prudent view of how the Group may evolve, based principally upon
its growth to date, in order to demonstrate its viability. Analysis to assess
viability focused on the risks of delivery of the growth of the business and a
series of projections have been considered, including changing new business
volumes and the performance of the Investment Assets. As part of these
scenarios, the Directors have considered the Reorganisation, which is
described in the Corporate Background & Basis of Preparation section of
the Strategic Report, and reviewed financial and non-financial covenants in
place for all debt facilities with no breaches anticipated.
The recent geopolitical and macroeconomic disruption has also been considered
in these scenarios.
All the analysis indicates that due to the stability and cash-generating
nature of the Investment Asset portfolio, as well as the long-term debt
facilities in place, the Group would be able to withstand the impact of the
risks identified. Based on the robust assessment of the principal risks,
prospects and viability of the Group, the Board confirms that they have
reasonable expectation that the Group will be able to continue operation and
meet its liabilities as they fall due over the three-year period to Pollen
Street Group Limited's AGM in 2027. The Board also continuously monitors the
financial performance of the Group against key financial metrics and ratios,
ensuring a strict discipline in the financial management of the business.
Going Concern
The Directors have reviewed the financial projections of the Group, which show
that the Group will be able to generate sufficient cash flows in order to meet
its liabilities as they fall due within 12 months from the date of this Annual
Report and Accounts. These financial projections have been performed for the
Group under various new business volumes and stressed scenarios, and in all
cases the Group is able to meet its liabilities as they fall due. The stressed
scenarios included halting future Investment Asset originations, late
repayments of the largest structured facility and individual exposures
experiences ongoing performance at the worst monthly impact experienced
throughout 2022 and 2023. The Directors consider these scenarios to be the
most relevant risks to the Group's operations. As part of these projections,
the Directors have considered the Reorganisation and tested the effect of this
on the continuing Group by assuming no further cash flows received from Pollen
Street Capital Holdings Limited. Finally, the Directors reviewed financial
and non-financial covenants in place for all debt facilities with no breaches
anticipated, even in the stressed scenario.
The Directors are satisfied that the going concern basis remains appropriate
for the preparation of the financial statements. The Group also has detailed
policies and processes for managing the risk, set out in the Strategic Report.
Financial Statements
Consolidated Statement of Comprehensive income
For the year ended 31 December 2023 For the year ended 31 December 2022
Notes Analysis of Items for Distribution Non GAAP Total Analysis of Items for Distribution Non GAAP Total
£'000 £'000 £'000 £'000 £'000 £'000
Management fee income 7 - 28,912 28,912 - 6,212 6,212
Carried interest and performance fee income 7, 10 - 11,480 11,480 - 1,578 1,578
Interest income on Credit Assets held at amortised cost 7 57,668 - 57,668 51,986 - 51,986
Gains on Investment Assets held at fair value through profit or loss 5,102 - 5,102 3,909 - 3,909
Total income 62,770 40,392 103,162 55,895 7,790 63,685
Credit impairment release 12 970 - 970 206 - 206
Third-party servicing costs (2,374) - (2,374) (2,511) - (2,511)
Net operating income 61,366 40,392 101,758 53,590 7,790 61,380
Administration costs 7 (2,065) (34,626) (36,691) (8,450) (11,135) (19,585)
Finance costs 7 (20,360) (230) (20,590) (14,517) - (14,517)
Operating profit 38,941 5,536 44,477 30,623 (3,345) 27,278
Depreciation 7 - (927) (927) - (322) (322)
Amortisation 6, 7 - (480) (480) - (160) (160)
Profit before tax 38,941 4,129 43,070 30,623 (3,827) 26,796
Tax - (2,664) (2,664) - (435) (435)
38,941 1,465 40,406 30,623 (4,262) 26,361
Profit after tax from continuing operations 38,941 30,623 (4,262) 26,361
Transfer of profit after tax from items for distribution 1,465 (4,262)
Profit for the year 40,406 26,361
Other comprehensive income
Foreign currency translation reserve from assets held for distribution (453) -
Total comprehensive income 39,953 26,361
Basic and diluted earnings per share (pence) from continuing operations 14 60.6 p 72.2 p
Basic and diluted earnings per share (pence) 14 62.9 p 62.1 p
The notes to the accounts form an integral part of the financial statements.
On 14 February 2024, the Company distributed the entire issued share capital
in Pollen Street Capital Holdings Limited to its new parent, Pollen Street
Group Limited as part of the Reorganisation described in Note 1. As such the
Group has classified the activities of Pollen Street Capital Holdings Limited
as held for distribution to owners in accordance with IFRS 5. The income from
these activities is disclosed in the 'Analysis of Item for Distribution'
columns of this statement. Further disclosure is presented in Note 5.
Consolidated Statement of Financial Position
As at 31 December 2023 As at 31 December 2022
Notes Analysis of items for Distribution Non-GAAP Total
£'000 £'000 £'000 £'000
Non-current assets
Credit Assets at amortised cost 12 444,490 - 444,490 523,877
Investment Assets held at fair value through profit or loss 9 88,220 - 88,220 64,506
Fixed assets 15 - - - 1,414
Goodwill and intangible assets 6 - - - 231,031
Lease assets 16 - - - 4,776
Carried interest 10 - - - 7,052
Total non-current assets 532,710 - 532,710 832,656
Current assets
Cash and cash equivalents 5, 24 18,550 1,196 19,746 23,303
Receivables 5, 17 4,003 13,939 17,942 12,870
Fixed assets 5, 15 - 1,344 1,344 -
Goodwill and intangible assets 5, 6 - 230,551 230,551
Lease assets 5, 16 - 4,056 4,056 -
Carried interest 5, 10 - 17,332 17,332 -
Assets for distribution 5 268,418 - - -
Total current assets 290,971 268,418 290,971 36,173
Total assets 823,681 268,418 823,681 868,829
Current liabilities
Payables 5, 18 1,567 17,582 19,149 19,221
Lease payables 5, 16 - 4,152 4,152 1,201
Current tax payable 5 - 981 981 2,158
Deferred tax liability 5,13 - 2,628 2,628 -
Derivative liabilities held at fair value through profit or loss 5, 20 179 - 179 916
Interest-bearing borrowings 11 132,738 - 132,738 60,598
Liabilities for distribution 58 25,343 - - -
Total current liabilities 159,827 25,343 159,827 84,094
Total assets less current liabilities 663,854 243,075 663,854 784,735
Non-current liabilities
Lease payables 16 - - - 4,067
Deferred tax liability - - - 94
Interest-bearing borrowings 11 78,026 - 78,026 203,035
Total non-current liabilities 78,026 - 78,026 207,196
Net assets 585,828 243,075 585,828 577,539 -
Shareholders' funds
Ordinary share capital 26 642 642 689
Share premium - - 299,599
Retained earnings 8,560 8,560 -
Revenue reserves - - 2,363
Capital reserves - - (2,361)
Other reserves 576,626 576,626 277,249
Total shareholders' funds 585,828 585,828 577,539
Net asset value per share (pence) 28 912.4p 912.4p 899.5p
On 14 February 2024, the Company distributed the entire issued share capital
in Pollen Street Capital Holdings Limited to its new parent, Pollen Street
Group Limited as part of the Reorganisation described in Note 1. As such the
Group has classified the activities of Pollen Street Capital Holdings Limited
as held for distribution to owners in accordance with IFRS 5. The assets and
liabilities related to these activities are disclosed in the 'Analysis of
Items for Distribution' column of this statement. Further disclosure is
presented in Note 5.
The financial statements of Pollen Street Limited (company number 09899024),
which includes the notes, were approved and authorised by the Board of
Directors on 20 March 2024 and were signed on its behalf by:
Robert Sharpe, Chairman
Company Statement of Financial Position
Notes As at 31 December 2023 As at 31 December 2022
£'000 £'000
Non-current assets
Credit Assets at amortised cost 12 444,490 523,877
Investment Assets held at fair value through profit or loss 9 88,220 62,853
Investments in subsidiaries - 239,027
Total non-current assets 532,710 825,757
Current assets
Cash and cash equivalents 5, 24 14,402 18,229
Receivables 5, 17 4,775 3,831
Assets held for distribution - investments in subsidiaries 239,027 -
Total current assets 258,204 22,060
Total assets 790,914 847,817
Current liabilities
Payables 5, 18 4,182 5,174
Derivative liabilities held at fair value through profit or loss 20 179 916
Deemed loan 25 60,412 29,227
Interest-bearing borrowings 11 70,282 30,141
Total current liabilities 135,055 65,458
Total assets less current liabilities 655,859 782,359
Non-current liabilities
Deemed loan 25 3,114 63,809
Interest-bearing borrowings 11 74,912 139,226
Total non-current liabilities 78,026 203,035
Net assets 577,833 579,324
Shareholders' funds
Ordinary share capital 26 642 689
Share premium - 299,599
Retained earnings 296 -
Revenue reserves - 4,148
Capital reserves - (2,361)
Other reserves 576,895 277,249
Total shareholders' funds 577,833 579,324
Net asset value per share (pence) 28 899.5 902.2
The notes to the accounts form an integral part of the financial statements.
On 14 February 2024, the Company distributed the entire issued share capital
in Pollen Street Capital Holdings Limited to its new parent, Pollen Street
Group Limited as part of the Reorganisation described in Note 1. As such the
Group has classified the activities of Pollen Street Capital Holdings Limited
as held for distribution to owners in accordance with IFRS 5. The assets and
liabilities related to these activities are disclosed in the 'Assets held for
distribution - investments in subsidiaries' line item of this statement.
Further disclosure is presented in Note 5.
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 continuing operations was £30.2 million
(2022: £28.1 million) for the year ended 31 December 2023 and there were no
profits from assets held for distribution to the new parent within the Company
(2022: nil).
The financial statements of Pollen Street Limited (company number 09899024),
which includes the notes, were approved and authorised by the Board of
Directors on 20 March 2024 and were signed on its behalf by:
Robert Sharpe, Chairman
Consolidated Statement of Changes in Shareholders' Funds
For the year ended 31 December 2023
Ordinary Share Retained Earnings Revenue Capital Special Merger Reserves Foreign Currency Translation Reserve Total
Share
Premium
Reserves
Reserves
Distributable
Equity
Capital
Reserves
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Shareholders' funds as at 689 299,599 - 2,363 (2,361) 51,979 225,270 - 577,539
1 January 2023
Profit after taxation - - - 40,406 - - - - 40,406
Foreign currency translation reserve - - - - - - - (453) (453)
Dividends paid in the year - - - (31,664) - - - - (31,664)
Cancellation of treasury shares (47) 47 - - - - -
Cancellation of share premium reserve - (299,646) - - - 299,646 - - -
Reallocation of revenue and capital reserves to retained earnings(( 6 - - 8,560 (11,105) 2,361 - - 184 -
(#_ftn6) ))
Shareholders' funds as at 642 - 8,560 - - 351,625 225,270 (269) 585,828
31 December 2023
For the year ended 31 December 2022
Ordinary Share Revenue Capital Special Merger Total
Share
Premium
Reserves
Reserves
Distributable
Equity
Capita(( 7 (#_ftn7) ))l
£'000
£'000
£'000
Reserves Reserves
£'000
£'000
£'000
£'000
Shareholders' funds as 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 after taxation - - 26,478 (117) - - 26,361
Dividends paid in the year - - (28,905) - - - (28,905)
Shareholders' funds as at 31 December 2022 689 299,599 2,363 (2,361) 51,979 577,539
225,270
The notes to the accounts form an integral part of the financial statements.
Company Statement of Changes in Shareholders' Funds
For the year ended 31 December 2023
Ordinary Share Retained Revenue Capital Special Merger Reserves
Share
Premium
Earnings
Reserves
Reserves
Distributable
Capital
Reserves
Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Shareholders' funds as at 689 299,599 - 4,148 (2,361) 51,979 225,270 579,324
1 January 2023
Profit after taxation - - - 30,173 - - - 30,173
Dividends paid in the year - - - (31,664) - - - (31,664)
Cancellation of treasury shares (47) 47 - - - - - -
Cancellation of share premium reserve - (299,646) - - - 299,646 - -
Reallocation of revenue and capital reserves to retained earnings - 296 (2,657) 2,361 - - -
Shareholders' funds as at 642 - 296 - - 351,625 225,270 577,833
31 December 2023
For the year ended 31 December 2022
Ordinary Share Revenue Capital Special Merger Total
Share
Premium
Reserves
Reserves
Distributable
Reserves
Equity
Capital
Reserves
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Shareholders' funds as 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 as at 689 299,599 4,148 (2,361) 51,979 225,270 579,324
31 December 2022
There may be factors that restrict the value of the reserves that can be
distributed and these factors may be complex to determine. Distributable
reserves may therefore not be the total of retained earnings and the special
distributable reserve.
The notes to the accounts form an integral part of the financial statements.
Consolidated Statement of Cash Flows
For the year ended
Notes 31 December 2023 31 December 2022
£'000
£'000
Cash flows from operating activities:
Profit after taxation 5, 7 40,406 26,361
Adjustments for:
(Advances) / repayments of Investments at amortised cost 80,357 42,322
Change in expected credit loss 12 (970) (206)
Purchase of Investments at fair value 5, 9 (44,227) (12,237)
Receipt of Investments at fair value 5, 9 22,935 1,033
Net change in unrealised (gains)/losses (5,659) (1,804)
Finance costs 5, 9 20,590 14,517
Foreign exchange revaluation 2,893 (2,263)
Corporation tax 5 1,357 80
Change in carried interest 5 (10,280) (1,593)
Depreciation of fixed assets 5 ,15 207 56
Depreciation of lease assets 5, 16 720 266
Amortisation of intangible assets 5, 6 480 160
(Increase) / decrease in receivables 5 (5,072) 2,668
Increase / (decrease) in payables 5 (72) 2,082
(Decrease) / increase in derivatives (737) 808
Net cash inflow from operating activities before tax paid 102,928 72,250
Tax paid 5 (105) (2,560)
Net cash inflow from operating activities 102,823 69,690
Cash flows from investing activities:
Cash acquired from Pollen Street Capital Holdings 5 - 2,662
Purchase of fixed assets 5 (137) (269)
Net cash (outflow) / inflow from investing activities (137) 2,393
Cash flows from financing activities:
Payments of lease liabilities 5 (1,350) (338)
Redemption of shares - (4,824)
Transaction costs for issuance of shares - (9,120)
Drawdown of interest-bearing borrowings 11 37,000 76,925
Repayments of interest-bearing borrowings 11 (91,094) (82,291)
Interest paid on financing activities (19,135) (13,175)
Dividends paid in the year 19 (31,664) (28,905)
Net cash (outflow) from financing activities (106,243) (61,728)
Net change in cash and cash equivalents (3,557) 10,355
Cash and cash equivalents at the beginning of the year 23,303 12,948
Cash and cash equivalents 5, 24 19,746 23,303
Interest received for the Group and Company for the year ended 31 December
2023 was £53.9 million (for the year ended 31 December 2022: £53.9 million).
Dividends received for the Group and Company for the year ended 31 December
2023 was £1.5 million (for the year ended 31 December 2022: £2.0 million).
Refer to note 5 for the statement of cash flows for the assets held for
distribution to the new parent.
The notes to the accounts form an integral part of the financial statements.
Company Statement of Cash Flows
For the year ended
Notes 31 December 2023 31 December 2022
£'000
£'000
Cash flows from operating activities:
Profit after taxation 7 30,173 28,146
Adjustments for:
(Advances) / repayments of Investments at amortised cost 80,357 42,322
Change in expected credit loss 12 (970) (206)
Purchase of Investments at fair value 9 (45,879) (12,145)
Receipt of Investments at fair value 9 22,935 1,033
Net change in unrealised (gains)/losses (5,659) (1,804)
Finance costs 9 14,411 10,950
Foreign exchange revaluation 3,228 (2,262)
Business combination expenses - (3,246)
(Increase) / Decrease in receivables (944) 2,723
(Decrease) in payables (992) (1,686)
(Decrease) / increase in derivatives (737) 808
Net cash inflow from operating activities 95,923 64,633
Cash flows from financing activities:
Redemption of shares - (4,824)
Transaction cost for issuance of shares - (9,120)
Receipt of deemed loans 25 - 22,789
Repayment of deemed loans 25 (29,510) (12,079)
Drawdown of interest-bearing borrowings 11 37,000 35,000
Repayments of interest-bearing borrowings 11 (62,000) (50,000)
Interest paid on financing activities (13,576) (9,765)
Dividends declared and paid 19 (31,664) (28,905)
Net cash (outflow) from financing activities (99,750) (56,904)
Net change in cash and cash equivalents (3,827) 7,729
Cash and cash equivalents at the beginning of the year 18,229 10,500
Cash and cash equivalents 24 14,402 18,229
Interest received for the year ended 31 December 2023 was £46.9 million (for
the year ended 31 December 2022: £41.1 million).
The notes to the accounts form an integral part of the financial statements.
Notes to the financial statements
1. General information
Pollen Street Limited was incorporated on 2 December 2015 and is domiciled and
registered in England and Wales with registered number 09899024. The Company
was originally named Honeycomb Investment Trust plc. The name was changed to
Pollen Street plc on 6 October 2022 then Pollen Street Limited on 14 February
2024. Pollen Street Limited is referred to as the Company and together with
its subsidiaries, it is referred to as the Group or Pollen Street. The
registered office and principal place of business of the Group and Company is:
11-12 Hanover Square, London, W1S 1JJ.
On 30 September 2022, the Company combined with Pollen Street Capital Holdings
Limited by way of an all share combination, which is referred to as the
Combination. The Combination occurred on 30 September 2022 and was effected by
the Company 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 Company's financial statements incorporate Pollen
Street Capital Holdings Limited and its subsidiaries from 30 September 2022,
the point at which it became a subsidiary of the Company.
On 24 January 2024, the Group introduced a new Guernsey incorporated holding
company, named Pollen Street Group Limited, as the immediate and ultimate
parent of the Company by way of a scheme of arrangement pursuant to Part 26 of
the Companies Act 2006. As part of this, the shares of the Company were
delisted and cancelled; new shares were issued by the Company to the Pollen
Street Group Limited and Pollen Street Group Limited issued new shares to the
former shareholders of the Company which were admitted to trading on the
London Stock Exchange's main market for listed securities and to the premium
listing segment for commercial companies of the Official List maintained by
the Financial Conduct Authority in accordance with Part VI of the Financial
Services and Markets Act 2000.
On 14 February 2024, the Company re-registered from a public company to a
private company and distributed the entire issued share capital in Pollen
Street Capital Holdings Limited to its new parent company, Pollen Street Group
Limited, referred to as the Distribution. The Scheme and the Distribution are
together referred to as the Reorganisation.
As a result of these changes, the Company classified the activities of Pollen
Street Capital Holdings Limited as held for distribution to owners in
accordance with IFRS 5, ceased to prepare the financial statements on a basis
compliant with the Statement of Recommended Practice for investment trusts
issued by the Association of Investment Companies in July 2022 and ceased to
be classified as an investment trust. However, the Company continues its
operations of investing in Credit Assets and Equity Assets. The activities
classified as for distribution to owners are continuing operations for Pollen
Street Group Limited and its subsidiaries.
2. 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 as adopted in the UK, including interpretations issued by the IFRS
Interpretations Committee and interpretations issued by the International
Accounting Standard Committee ("IASC") that remain in effect.
These financial statements have been prepared using consistent accounting
policies as applied by the Group in previous years, on a going concern basis
and under the historic cost convention as 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
approval of these accounts. In order to reach this conclusion, the Directors
have reviewed the financial projections of the Group from the date of this
report until Pollen Street Group Limited's AGM in 2027, 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 included halting future Investment Asset originations,
late repayments of the largest structured facility and individual exposures
experiences ongoing performance at the worst monthly impact experienced
throughout 2022 and 2023. The Directors consider these scenarios to be the
most relevant risks to the Group's operations.
As part of these projections, the Directors have considered the Reorganisation
that is described above. All operations undertaken by Pollen Street Capital
Holdings Limited have therefore been classified as held for distribution to
owners under IFRS 5 and are on the basis that Pollen Street Capital Holdings
Limited will be a wholly owned subsidiary of Pollen Street Group Limited and
have therefore not been included in the projections. Further information on
this matter is presented in the section on assets held for distribution to the
new parent company, later in this Note and also in Note 5. The Directors note
that 100 per cent of the share capital of the Company is now held by Pollen
Street Group Limited.
Due to the Reorganisation described in Note 1, Pollen Street Limited
classified the activities of Pollen Street Capital Holdings Limited as held
for distribution to owners in accordance with IFRS 5 and ceased to prepare the
financial statements on a basis compliant with the Statement of Recommended
Practice for investment trusts issued by the Association of Investment
Companies in July 2022. The Group therefore reallocated reserves from revenue
and capital reserves, to retained earnings. If the Group had shown revenue and
capital reserves during the year, the amount for revenue reserves would have
been £11.1 million (31 December 2022: £2.4 million) and the amount for
capital reserves would have been £(2.4) million (31 December 2022: £(2.4)
million).
The principal accounting policies adopted by the Group are set out below and
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. Following the Reorganisation, the Group has applied
IFRS 5 to the operations of the business that have been distributed to owners.
Further information on this matter is presented in the section on assets held
for distribution to the new parent company, later in this Note.
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. 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 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. As explained in note 1,
Pollen Street Limited classified the activities of Pollen Street Capital
Holdings Limited as held for distribution to owners in accordance with IFRS 5.
Pollen Street Capital Holdings Limited is still consolidated in the financial
statements on a line by line basis, but is shown in a new column for assets
held for distribution to the new parent.
The Group also assessed the consolidation requirements for the carried
interest partnerships and certain underlying entities or funds which the Group
holds as investments.
For the carried interest partnerships in funds in existence prior to
completion of the Combination on 30 September 2022, 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 set up 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 3, Significant accounting estimates and
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 set up 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, funds or carried interest participations, 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 3, Significant
accounting estimates and 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. All entities within the Group have co-terminus
reporting dates.
Refer to Note 21 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 Group 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 25 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 partnerships are
considered to be an associate. The carried interest partnerships (including
associates and contract assets) are presented in the 'Carried interest' line
on the Consolidated 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 on the Consolidated Statement of Comprehensive Income.
Details of how the Group classifies and measures assets at FVTPL are in the
classification and measurement section.
Assets held for distribution to the new parent company
The Group classifies assets and liabilities as held for distribution to
owners, under IFRS 5, if their carrying amounts will be recovered principally
through a distribution of the assets and liabilities to shareholders of the
Company or the Group rather than through continuing use. The criteria for the
classification as held for distribution is regarded as met only when the sale
is highly probable, the assets and liabilities are available for immediate
sale in their present condition and the sale is expected to complete within
one year from the date of the classification.
Assets and liabilities held for distribution to owners are measured at the
lower of their carrying amount and fair value less costs to sell, except for
financial assets within the scope of IFRS 9 and the deferred tax asset, which
are measured in accordance other relevant accounting standards. Costs to sell
are the incremental costs directly attributable to the disposal of the assets
and liabilities, excluding finance costs and income tax expense. Assets held
for distribution to owners are not depreciated or amortised. Interest and
other expenses attributable to the liabilities held for distribution to owners
continue to be recognised.
Assets and liabilities classified as held for distribution to owners are
presented separately as current items in the consolidated and company
statement of financial position and the results of the assets and liabilities
held for distribution to owners are presented separately in the statement of
comprehensive income.
On 11 October 2023, the shareholders of the Company approved resolutions at a
Court Meeting and General Meeting for the distribution of its subsidiary,
Pollen Street Capital Holdings Limited, to its new parent, Pollen Street Group
Limited, as part of the Reorganisation. This transaction is referred to as the
Distribution and it completed on 14 February 2024. Pollen Street Limited and
its current subsidiaries have therefore ceased all asset management
activities, however they continue their operations of investing in Credit
Assets and Equity Assets.
All operations undertaken by Pollen Street Capital Holdings Limited were
therefore classified as held for distribution to owners, also described as
held for distribution to new parent, on 11 October 2023. The Consolidated
Statement of Comprehensive Income, the Consolidated Statement of Financial
Position and the Company Statement of Financial Position have been presented
in columnar format with the 'For Distribution' columns representing the
activities that are being distributed to the new parent and the 'Continuing
Operations' column representing the activities that will remain in Pollen
Street Limited. A 'Total' column has also been presented for information.
Additional disclosures, including disclosure of the effect of the Distribution
on the Consolidated Statement of Cash Flows are provided in Note 5. All other
notes to the financial statements include amounts for continuing operations.
The notes to the accounts include a column that presents the total of the
continuing operations and assets held for distribution to the new parent which
is a non-GAAP measure.
Foreign currency
The financial statements have been 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.
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 years, 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 are
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.
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 Statement of Comprehensive Income 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 or as a contract asset. Refer to
Note 10 for further details on carried interest.
The Group does not hold any FVOCI assets.
Classification and measurement - Financial liabilities
In both the current year 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
years, the Group recognises any expense incurred on the financial liability.
· 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 fees and transaction
costs. After initial recognition loans are subsequently measured at amortised
cost using the effective interest rate method ("EIRM") less expected credit
losses (see Note 12).
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 Group'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; and
· 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.
· Where the credit risk has increased, the remaining lifetime PD at the
reporting date is assessed in comparison 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. As at
31 December 2023 as well as 31 December 2022, all of the portfolios of the
Group use one positive, one optimistic and one downside scenario. These
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, which is unchanged from the prior
year.
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 at each reporting date.
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 IFRS 9 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 23. 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 24) 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 Group 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 2 or Stage 3.
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. Derivatives are also generally
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 Group has
not retained control.
The Group 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 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. Credit Assets held at
FVTPL are valued incorporating 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.
Equity Assets are instruments that have equity-like returns; 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 or investments in Private Equity funds
managed or advised by Pollen Street.
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 earlier in this Note.
Examples of credit instruments include investment in Private Credit funds
managed or advised by Pollen Street or other credit instruments where
incremental cash flows are due contingent on certain events occurring.
Credit Assets at FVTPL are valued based off the net asset value of each fund.
The valuations typically reflect the fair value of the Group's proportionate
share of each investment as at the reporting date or the latest available
date. As at 31 December 2023, the majority of credit assets at FVTPL were
priced at their amortised cost value given that they were floating rate assets
and performing in line with expectations.
Purchases and sales of unquoted investments are recognised when the contract
for acquisition or sale becomes unconditional.
IFRS 13 requires the Group 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.).
· Level 3 - significant unobservable inputs (including the Group'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 Consolidated Statement of Comprehensive Income.
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 up to 10 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
Electric vehicles ‑ 5 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 the consolidated statement of
comprehensive income.
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 the consolidated
statement of comprehensive income.
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 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.
As explained in Note 5, on 14 February 2024, the Company distributed the
entire issued share capital in Pollen Street Capital Holdings Limited to its
new parent, Pollen Street Group Limited. This is referred to as the
Distribution. The Distribution was approved by shareholders on 11 October
2023. At this date, the Group considered that it was highly probable that the
Distribution would take place, and so the Group carried out an impairment
assessment of the goodwill to determine the carrying amount of goodwill that
forms part of the Distribution.
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 assessed
at each reporting date when there are indicators of impairment.
Amortisation is calculated using the straight-line method to allocate the
amortised 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 lease assets
representing the right to use the underlying assets.
Lease assets
The Group recognises lease assets at the commencement date of the lease (i.e.,
the date the underlying asset is available for use). Lease assets are measured
at cost, less any accumulated depreciation and impairment losses, and adjusted
for any remeasurement of lease liabilities. The cost of lease 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.
Lease 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. The
carried interest receivable amounts are recorded 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 that 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 probable that it will not
be subject to significant reversal.
The Group acquired carried interest rights in certain funds that were 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 10 and 25 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 is 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 period 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
Throughout 2023, Pollen Street Limited had approval under Section 1158 of the
Corporation Tax Act 2010 to be an investment trust and so was not liable for
taxation on capital gains. The tax expense of the Group arose within the Asset
Manager segment and comprised current and deferred tax.
Following the Reorganisation that occurred on 24 January 2024, Pollen Street
Limited ceased to be classified as an investment trust. As such Pollen
Street Limited will incur corporation tax on its profits for the year ended 31
December 2024. Further information on the Reorganisation is available in Note
1.
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 consolidated statement of comprehensive
income. 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; and
· 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;
and
· 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 period 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
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 the consolidated statement of comprehensive income.
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; and
· 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.
Following completion of the Scheme, the capital reserves and revenue reserves
were reallocated to a newly created retained earnings reserve on 31 December
2023.
Dividends
Dividends to shareholders are recognised in the period 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 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
Limited. These fees are shown in Note 7, operating segments. However, they are
eliminated on consolidation.
Interest income on Credit Assets held at amortised cost is generated from
loans originated by the Group. Interest from loans are recognised in the
Statement of Comprehensive Income for all instruments measured at amortised
cost using the 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 consolidated statement
of comprehensive income 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. During the year, all
expenses have been presented within retained earnings. In the prior year, all
expenses were presented in revenue reserves except the following which formed
part of capital reserves:
· 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 consolidated 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 Pollen Street Capital
Holdings Limited were allocated to the Capital column on the Consolidated
Statement of Comprehensive Income.
Share-Based Payments
The Group grants annual bonuses to its Executive Directors and other senior
employees that are deferred into share-based awards under the Group's deferred
bonus plan. The share-based awards generally vest after three years, subject
to the opportunity for co-investment. The co-investment opportunity permits
the employee to collect the deferred award early, either in shares or up front
in cash, provided they elect to apply the after-tax proceeds of the deferred
award into a fund managed by the Group that has a contractual duration of
longer than three years.
The Group accounts for the deferred awards as share-based payments. The
awards are considered to be compound financial instruments, because the
employee has the right to demand settlement in cash. The Group first
measures the fair value of the cash component, which is considered to be a
cash-settled share-based payment, and then measures the fair value of the
equity component taking into account that the counterparty must forfeit the
right to receive cash in order to receive the equity instrument, which is
considered to be an equity-settled share-based payment.
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 Private Credit funds. The Investment Company
segment primarily consists of the Group 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. However, they are eliminated in the
consolidated financial statements. Refer to Note 7 for further details.
Prior to the Combination on 30 September 2022, the Group had a single business
segment, which was the Investment Company.
3. 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.
Estimates
The estimates of most significance to the financial statements are detailed
below. 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 Group is described in expected credit
loss allowance for financial assets measured at amortised cost above. As
noted, 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 Group 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 Group 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 2023.
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 period if economic conditions change significantly.
The Group's mild upside scenario can be thought of as an alternative, more
optimistic, base case in which several different upside risks materialise. In
this scenario, the UK economy records growth of 3% in 2024 and 2.9% in 2025.
The labour market recovers gradually, and the unemployment rate falls to its
recent decade-low of 3.6% by mid-2029.Supported by the turnaround in
confidence, incomes and employment, residential house prices only see a mild
fall in 2024-25 and recover thereafter. A sharp increase in consumption lifts
financial market sentiment from its current depressed levels resulting in
renewed gains in asset prices. The one-year forecast changes in key economic
drivers are shown in the table below.
The base case forecasts unemployment to peak at 4.5% in December 2024, and the
Bank of England base rate to be at 4.85% by the end of 2024 before gradually
reducing to 2.0% by the end of 2027. The downside scenario forecasts
unemployment to rise sharply over the coming year, reaching a peak of 7.2% in
late 2026 and remaining relatively high thereafter, staying above 5.7% by the
end of 2032. To counter the economic downturn, the downside scenario forecasts
the base rate to fall more quickly to 3.88% by December 2024.
See Note 12 for the sensitivity analysis.
As at 31 December 2023 Base Upside Down-side
UK unemployment rate yearly change 0.24% (0.15%) 1.56%
UK HPI yearly change (5.85%) (2.32%) (11.93%)
UK Base Rate 4.85% 5.75% 3.88%
As at 31 December 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%
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 9.
Impairment assessment for Goodwill
Goodwill is assessed for indicators of impairment at each reporting date and
whenever there is an indication that the recoverable amount of a
cash-generating unit ("CGU") is less than its carrying amount, and tested for
impairment annually. 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 an agreed 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.
Sensitivity analysis has been performed on carried interest valuations in Note
10.
Judgements
The critical judgements relate to the consolidation of Group companies, the
consolidation of fund investments and the accounting for carried interest
partnerships.
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 period 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 Group 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 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 LPs 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 an agreed threshold or hurdle. The
rights are in the form of partnership interests in carried interest
partnerships. The Group has between 1 and 25 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 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 25 per cent as at 31
December 2023 (31 December 2022: 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 21.
4. Business combination
There were no business combinations in the year ended 31 December 2023.
In the prior year, 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. In the prior year, 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 (4,590)
Intangible assets (4,000)
Total value of assets acquired (8,590)
Goodwill 227,191
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 Limited to the
owners of Pollen Street Capital Holdings Limited. The gross amount was
£235,781,304, which was the number of shares issued on 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 Limited 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:
As at 30 September 2022 £'000
Pollen Street Capital Holdings Limited net asset value:
Receivables 15,054
Payables (23,729)
Carried interest 5,459
Other assets 7,806
Closing balance 4,590
Receivables
The fair value of the receivables acquired in Pollen Street Capital Holdings
Limited were equal to the gross contractual amounts receivable. The main
receivables consist of trade and other debtor balances, prepayments and
accrued income. Receivable balances were 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 significant
majority of the receivable balances were trade debtors that are generally
collected on a monthly or quarterly basis and had been collected by 31
December 2023.
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 waterfalls.
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 included £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 6 for
further details.
5. Assets held for Distribution to the new parent company
On 14 February 2024, the Company distributed the entire issued share capital
in Pollen Street Capital Holdings Limited to its new parent, Pollen Street
Group Limited. This is referred to as the Distribution. All operations
undertaken by Pollen Street Capital Holdings Limited were therefore classified
as held for distribution to owners, also described as held for distribution to
new parent, on 11 October 2023 being the date that shareholders approved the
resolutions for the Distribution. See Note 1 and Note 2 for further
information.
The following table shows the group of assets and liabilities held for
distribution as at 31 December 2023:
As at 31 December 2023
Notes Items for Distribution
£'000
Current assets
Cash and cash equivalents 24 1,196
Receivables 17 13,939
Fixed assets 15 1,344
Goodwill and intangible assets 6 230,551
Lease assets 16 4,056
Carried interest 10 17,332
Total current assets 268,418
Total assets 268,418
Current liabilities
Payables 18 17,582
Lease payables 16 4,152
Current tax payable 13 981
Deferred tax liability 13 2,628
Total current liabilities 25,343
Total assets less current liabilities 243,075
Net assets 243,075
The table above shows the consolidated balance of the items held for
distribution, which are net of intercompany amounts. The intercompany
eliminations amount not shown above is for £3.9 million, which is added to
the net assets of £243.1 million shown above to total the amount being
distributed of £247.0 million.
The Company assets held for distribution comprise investments in subsidiaries
of £239.0 million. See note 21 for further details on subsidiaries.
The following table shows the cash flows from the group of assets and
liabilities held for distribution as at 31 December 2023:
For the year ended 31 December 2023 For the year ended 31 December 2022
£'000 £'000
Net cash flows from operating activities 1,312 1,951
Net cash used in investing activities (1,487) 2,055
Net cash used in financing activities (1,350) (1,285)
Net decrease in cash and cash equivalents (1,525) 2,721
Cash and cash equivalents at beginning of year 2,721 -
Cash and cash equivalents at the end of year 1,196 2,721
As part of the Distribution, the Group was required to account for the assets
that are held for distribution at the lower of their carrying amount and fair
value. A fair value assessment was carried out as at 31 December 2023 on the
assets held for distribution, which had a carrying value of £243.1 million
(31 December 2022: nil) and a fair value of £326.8 million (31 December 2022:
nil).
6. Goodwill and intangible assets
On 11 October 2023, the Group classified the goodwill and intangibles
recognised as part of the acquisition of Pollen Street Capital Holdings
Limited in 2022 as assets held for distribution to the new parent. See Notes
1, 2 and 5 for further information.
The table below shows the total goodwill and intangible assets held by the
Group:
Group For the year ended 31 For the year ended 31
December 2023 December 2022
Continuing Analysis of items for Distribution Total Continuing Total
Operations
Operations
£'000 £'000 £'000 £'000 £'000
Opening balance 231,191 - 231,191 - -
Additions - - - 231,191 231,191
Reallocation to assets held for distribution to the new parent (231,191) 231,191 - - -
Closing balance - 231,191 231,191 231,191 231,191
Accumulated amortisation
Opening balance (160) - (160) - -
Amortisation (480) - (480) (160) (160)
Reallocation to assets held for distribution to the new parent 640 (640) - - -
Closing balance - (640) (640) (160) (160)
Net book value - 230,551 230,551 231,031 231,031
The table below shows the total goodwill held by the Group:
Group For the year ended 31 For the year ended 31
December 2023 December 2022
Continuing Analysis of items for Distribution Total Continuing Total
Operations
Operations
£'000 £'000 £'000 £'000 £'000
Opening balance 227,191 - 227,191 - -
Additions 227,191 227,191
Reallocation to assets held for distribution to the new parent (227,191) 227,191 - - -
Net book value - 227,191 227,191 227,191 227,191
The table below shows the total intangible assets held by the Group:
Group For the year ended 31 December 2023 For the year ended 31 December 2022
Continuing Analysis of items for Distribution Total Continuing Total
Operations
Operations
£'000 £'000 £'000 £'000 £'000
Opening balance 4,000 - 4,000 - -
Additions - - - 4,000 4,000
Reallocation to assets held for distribution to the new parent (4,000) 4,000 - - -
Closing balance - 4,000 4,000 4,000 4,000
Accumulated amortisation
Opening balance (160) - (160) - -
Amortisation (480) - (480) (160) (160)
Reallocation to assets held for distribution to the new parent 640 (640) - - -
Closing balance - (640) (640) (160) (160)
Net book value - 3,360 3,360 3,840 3,840
Goodwill
Goodwill is calculated as the consideration for an acquisition less the value
of the assets acquired. The goodwill, shown in Note 4 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 on 11 October 2023, the date that the Group
considered that it was highly probable that the Distribution would take place
and no impairment was identified. The cashflows have been forecast five years
and three months into the future (2022: 3 years projections used), where the
final year is assigned a terminal value. The value in use of goodwill was
£296 million (31 December 2022: £300 million) which is £69 million (31
December 2022: £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 12.4 per cent (31 December 2022: 11.3 per cent), and
the long-term growth rate of 3.6 per cent (31 December 2022: 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 following table shows the sensitivity of the value in use to the key
inputs as at 11 October 2023:
Group Sensitivity Increase rate Decrease rate Change at which VIU equates to carrying value of goodwill
applied £'000 £'000
Profit after tax +/-50% 147,793 (147,793) Decrease of 23%
Long-term growth rate +/-100bps 30,622 (24,386) Decrease of 350bps
Discount rate +/-100bps (33,945) 42,781 Increase of 230bps
The following table shows the sensitivity of the value in use to the key
inputs as at 31 December 2022:
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 costs on the statement of
comprehensive income. See Notes 2 and 4 for further information on
intangible assets.
7. Operating segments
The Group has two operating segments: the Asset Manager segment and the
Investment Company segment.
The Asset Manager segment encompasses the activities of the Group that provide
investment management and investment advisory services to a range of funds
under management within Private Equity and Private 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 lease 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.
For the year ended 31 December 2023
Group Asset Manager Investment Company Central Group
£'000 £'000 £'000 £'000
Management fee income 34,332 - (5,420) 28,912
Carried interest and performance fee income 14,831 - (3,351) 11,480
Interest income on Credit Assets held at amortised cost - 57,668 - 57,668
Gains through profit or loss on Investment Assets held at fair value - 5,102 - 5,102
Total income 49,163 62,770 (8,771) 103,162
Credit impairment release - 970 - 970
Third-party servicing costs - (2,374) - (2,374)
Net operating income 49,163 61,366 (8,771) 101,758
Administration costs (33,006) (10,833) 7,148 (36,691)
Finance costs (230) (20,360) - (20,590)
Operating profit 15,927 30,173 (1,623) 44,477
Depreciation (927) - - (927)
Amortisation - - (480) (480)
Profit before tax 15,000 30,173 (2,103) 43,070
For the year ended 31 December 2022
Group Asset Manager Investment Company Central Group
£'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
All of the Credit Assets at amortised cost were held within the Pollen Street
Limited, Sting Funding Limited and Bud Funding Limited. The Investment Assets
held at fair value through profit or loss as at 31 December 2023 were £88.2
million (31 December 2022: £64.5 million), of which £88.2 million (31
December 2022: £62.9 million) were held within the Pollen Street Limited,
Sting Funding Limited and Bud Funding Limited, and no Investment Assets (31
December 2022: £1.7 million) were held within Pollen Street Capital Holdings
Limited and its subsidiaries.
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 the 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.
There was realised carried interest of £1.2 million (2022: nil) arising from
two Separately Managed Accounts ("SMAs"). The remaining carried interest
income 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 Company's auditor
PricewaterhouseCoopers LLP ("PwC"):
Group For the year ended 31 December 2023 For the year ended 31 December 2022
£'000 £'000
Fees for the statutory audit of the Company and consolidated financial 624 595
statements
Fees for the statutory audits of the subsidiaries 262 224
Audit related assurance services - historical financial information 855 -
Non-audit fees 55 -
Total 1,796 819
The audit related assurance services and non-audit fees were in relation to
work performed by PwC as Reporting Accountants in relation to historical
financial information of the Group for the six-month period ended 30 June 2023
and historical financial information for Pollen Street Capital Holdings
Limited for the year ended 31 December 2022 that was required by legislation.
Central
The Central column consists primarily of the elimination of inter-segment
fees, which are fees charged by the Asset Manager to the Investment Company,
losses from the US operations of Pollen Street Capital Holdings Limited,
exceptional costs 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 As at 31 December 2023 As at 31 December 2022
£'000 £'000
UK 428,761 524,181
Europe 102,949 42,961
USA - 21,241
Total 532,710 588,383
Company As at 31 December 2023 As at 31 December 2022
£'000 £'000
UK 429,761 522,528
Europe 102,949 42,961
USA - 21,241
Total 532,710 586,730
The majority of revenue was obtained in the UK. For the year ended 31 December
2023, the Group earned revenues from US and European investment assets of GBP
equivalent 10.4 million (For the year ended 31 December 2022: GBP equivalent
3.8 million).
8. Employees
The following tables show the average monthly number of employees and the
Directors during the year. For the prior year, the average includes the four
Non-Executive Directors of Pollen Street Limited for the entire period and the
addition of two executive Directors from 30 September 2022 alongside the
Pollen Street Capital Holdings Limited staff from 30 September 2022, being the
completion date of the acquisition that occurred in the prior year.
Group For the year ended 31 December 2023 For the year ended 31 December 2022
Average number of staff Average number of staff
Directors 7 5
Employees (the average for the respective period) 82 78
Total 89 83
Company For the year ended 31 December 2023 For the year ended 31 December 2022
Number of staff Number of staff
Directors 7 5
Total 7 5
There were no employees in the Company throughout the year (31 December 2022:
nil) and the Company had 7 Directors as at 31 December 2023 (31 December 2022:
7). The Group had a total of 84 employees as at 31 December 2023 (2022: 78).
The following table shows the total staff costs incurred during the year. This
includes the Group's five Non-Executive Directors of Pollen Street Limited.
The total number of employees and Directors as at 31 December 2023 was 91 (31
December 2022: 85).
Group For the year ended 31 December 2023 For the year ended 31 December 2022
£'000 £'000
Wages and salaries 23,534 5,638
Social security costs 3,719 932
Defined contribution pension cost 148 24
Total 27,401 6,594
Wages and salaries include the expense recognised in relation to awards under
the Group's deferred bonus plan.
9. 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.
For the year ended 31 December 2023 For the year ended 31 December 2022
Group Equity Assets Credit Assets Total Equity Credit Total
Assets
Assets
£'000 £'000 £'000 £'000 £'000 £'000
Opening balance 16,449 48,057 64,506 15,659 33,111 48,770
Additions at cost 10,390 33,837 44,227 790 13,008 13,798
Realisations at cost - (22,935) (22,935) - (1,033) (1,033)
Gains through profit or loss - 5,659 5,659 - 3,762 3,762
Realised gains through profit or loss - (2,747) (2,747) - (1,958) (1,958)
Foreign exchange revaluation - (490) (490) - 1,167 1,167
Closing balance 26,839 61,381 88,220 16,449 48,057 64,506
Comprising:
Valued using an earnings multiple 1,566 11,090 12,656 1,559 10,457 12,016
Valued using a TNAV multiple 25,273 50,291 75,564 14,890 37,600 52,490
Closing balance 26,839 61,381 88,220 16,449 48,057 64,506
The following table shows the total Investment Assets at fair value through
profit or loss of the Company, which includes both Equity Assets and Credit
Assets.
For the year ended 31 December 2023 For the year ended 31 December 2022
Company Equity Assets Credit Assets Total Equity Credit Total
Assets
Assets
£'000 £'000 £'000 £'000 £'000 £'000
Opening balance 15,659 47,194 62,853 15,659 33,111 48,770
Additions at cost 11,180 34,700 45,880 - 12,145 12,145
Realisations at cost - (22,935) (22,935) - (1,033) (1,033)
Gains through profit or loss - 5,659 5,659 - 3,762 3,762
Realised gains through profit or loss - (2,747) (2,747) - (1,958) (1,958)
Unrealised Foreign exchange revaluation - (490) (490) - 1,167 1,167
Closing balance 26,839 61,381 88,220 15,659 47,194 62,853
Comprising:
Valued using an earnings multiple 1,566 11,090 12,656 1,359 10,457 11,816
Valued using a TNAV multiple 25,273 50,291 75,564 14,300 36,737 51,037
Closing balance 26,839 61,381 88,220 15,659 47,194 62,853
Gains through profit or loss are presented in the 'Gains on Investment Assets
held at fair value through profit or loss' in the consolidated statement of
comprehensive income.
The Group and Company Credit Assets at fair value through profit and loss
include investments made into three Private Credit funds that are also managed
or advised by the Group: PSC Credit III (A) SCSp and (B) SCSp, PSC Credit (T)
SCSp, one of the European Separately Managed Accounts ("SMAs"), and PSC US
Badger LLC, one of the US SMAs. As at 31 December 2023, the Group held 12% of
Credit III (31 December 2022: 7.5%), 1% of PSC Credit (T) SCSp (As at 31
December 2022: 1%) and 0% of PSC US Badger LLC (31 December 2022: 49%) as PSC
US Badger LLC was wound down during the year. As at 31 December 2023, the
undrawn commitment for the investment into flagship Credit III was £4.7
million (31 December 2022: £11.9 million), £0.8 million (31 December 2022:
£0.8 million) for the investment in PSC Credit (T) SCSp and £0 million for
the investment in PSC US Badger LLC (31 December 2022: £6.8 million). As at
31 December 2023, the Company holds the investments in Credit III and PSC
Credit (T) SCSP (31 December 2022: the investment in PSC Credit (T) SCSp was
held by a subsidiary of the Group).
The Group and Company Equity Assets at fair value through profit and loss
includes commitments in two private equity funds that are managed or advised
by the Group: PSC Accelerator II (A) LP and PSC V (A) LP. As at 31 December
2023, the Group held 2% of PSC Accelerator II (A) LP's total commitments (31
December 2022: nil) and had drawn amounts of £10.4 million and undrawn
commitments in PSC Accelerator II (A) of £10.5 million (31 December 2022:
nil) and had 5% of the total commitments in PSC V (A) LP with no amounts drawn
(31 December 2022: nil) and an undrawn commitment in PSC V (A) LP of £20
million (31 December 2022: nil).
The Asset Manager does not double charge fees in relation to these assets. 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 Group Investment Assets at fair value through profit or loss are
classified as level 3 assets with a value as at 31 December 2023 of £88.2
million (31 December 2022: £64.5 million). The Company Investment Assets at
fair value through profit or loss are classified as level 3 assets with a
value on 31 December 2023 of £88.2 million (31 December 2022: £62.9
million). There were no movements for the Group and Company (2022: 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 in Equity Assets and 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 and Company's Level 3 positions as at 31 December 2023 and 31 December
2022 is given below:
Valuation technique Sensitivity applied For the year ended For the year ended
31 December 2023 31 December 2022
£'000
£'000
Impact of sensitivity Impact of sensitivity
Earnings multiple Earnings multiple changed by 1x 2,956 2,998
TNAV TNAV changed by 10% 5,243 3,974
The earnings multiple used was between 1.5x and 11.3x (2022: 5.3x and 12.7x).
d) Assets and liabilities not carried at fair value but for which fair
value is disclosed
For the Group as at 31 December 2023:
Group As Presented Fair Value
Level 1 Level 2 Level 3 Total
£'000
£'000
£'000
£'000
Assets
Investments at amortised cost 444,490 - - 475,484 475,484
Receivables 17,942 - 17,942 - 17,942
Cash and cash equivalents 19,746 19,746 - - 19,746
Total assets 482,178 19,746 17,942 475,484 513,172
Liabilities
Payables (19,149) - (19,149) - (19,149)
Interest-bearing borrowings (210,764) - (210,764) - (210,764)
Total liabilities 229,913 - 229,913 - 229,913
For the Company as at 31 December 2023:
Company As Presented Fair Value
Level 1 Level 2 Level 3 Total
£'000
£'000
£'000
£'000
Assets
Investments at amortised cost 444,490 - - 475,484 475,484
Receivables 4,775 - 4,775 - 4,775
Cash and cash equivalents 14,402 14,402 - - 14,402
Total assets 463,667 14,402 4,775 475,484 494,661
Liabilities
Payable (4,185) - (4,185) - (4,185)
Deemed Loan (63,526) - (63,526) - (63,526)
Interest-bearing borrowings (145,194) - (145,194) - (145,194)
Total liabilities (212,905) - (212,905) - (212,905)
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)
Note 12 provides further details of the loans at amortised cost held by the
Group and Company.
The fair value of the receivable and payable balances approximates their
carrying amounts due to the short-term nature of the balances.
10. Carried interest
On 11 October 2023, the Group classified the carried interest as assets held
for distribution to the new parent. See Notes 1, 2 and 5 for further
information.
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 As at 31 December 2023 As at 31 December 2022
Continuing Analysis of items for Distribution Total Continuing Total
Operations
Operations
£'000 £'000 £'000 £'000 £'000
Carried interest at fair value - 15,967 15,967 6,495 6,495
Carried interest receivable - 1,365 1,365 557 557
Closing balance - 17,332 17,332 7,052 7,052
The Company did not hold any carried interest during the year (31 December
2022: nil).
Carried interest assets at fair value through profit or loss
(a) Movements during the year
Group As at 31 December 2023 As at 31 December 20232
Continuing Analysis of items for Distribution Total Continuing Total
Operations
Operations
£'000 £'000 £'000 £'000 £'000
Opening balance 6,495 - 6,495 - -
Additions at cost - - - 5,459 5,459
Gains through profit or loss 10,672 - 10,672 1,036 1,036
Realised proceeds (1,200) - (1,200) - -
Reallocation to assets held for distribution to the new parent (15,967) 15,967 - - -
Closing balance - 15,967 15,967 6,495 6,495
Gains through profit or loss are presented in the 'Carried interest and
performance fee income' line on the consolidated statement of comprehensive
income.
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 as at 31 December 2023 of £16.0 million (31 December
2022: £6.5 million). There were no movements between the fair value
hierarchies during the year (for the year ended 31 December 2022: no
movements).
Sensitivity analysis of carried interest at fair value through profit or loss
The table below is the sensitivity impact on the inputs applied to the carried
interest assets at FVTPL. The sensitivity parameters are considered reasonable
assumptions in the movement in inputs:
Valuation Parameter As at 31 December 2023 As at 31 December 2022
Sensitivity applied Increase Decrease Increase Decrease
£'000 £'000 £'000 £'000
Fund NAV +/- 10% 4,450 (4,349) 2,995 (1,899)
Option volatility +/- 10% 1,302 (716) 816 (569)
Option time to maturity +/- 1 Year 1,532 (1,714) 867 (998)
Option risk free rate +/- 1% 477 (475) 238 (235)
Carried interest receivable
Movements in the year
Group For the year ended 31 For the year ended 31
December 2023 December 2022
Continuing Analysis of items for Distribution Total Continuing Total
Operations
Operations
£'000 £'000 £'000 £'000 £'000
Opening balance 557 - 557 - -
Additions at cost - - - 557 557
Gains through profit or loss 808 - 808 - -
Reallocation to assets held for distribution to the new parent (1,365) 1,365 -
Closing balance - 1,365 1,365 557 557
11. Interest Bearing Borrowings
The table below sets out a breakdown of the Group's interest-bearing
borrowings.
Group As at 31 December 2023 As at 31 December 2022
£'000
£'000
Current liabilities
Credit facility 132,493 60,379
Interest and commitment fees payable 437 415
Prepaid interest and commitment fees (192) (196)
Total current liabilities 132,738 60,598
Non-Current liabilities
Credit facility 78,026 204,234
Prepaid interest and commitment fees - (1,199)
Total non-current liabilities 78,026 203,035
Total interest-bearing borrowings 210,764 263,633
The table below sets out a breakdown of the Company's interest-bearing
borrowings.
Company As at 31 December 2023 As at 31 December 2022
£'000
£'000
Current liabilities
Credit facility 70,088 30,000
Interest and commitment fees payable 194 141
Prepaid interest and commitment fees - -
Total current liabilities 70,282 30,141
Credit facility 74,912 140,000
Prepaid interest and commitment fees - (775)
Total non-current liabilities 74,912 139,226
Total interest-bearing borrowings 145,194 169,367
As at 31 December 2023, the Group and Company's main debt facility was £170
million provided by Goldman Sachs, being a £140 million term loan (31
December 2022: £140 million) and £30 million revolving credit facility (31
December 2022: £30 million). As at 31 December 2023, the term loan was fully
drawn, and the revolving credit facility was £5 million drawn (31 December
2022: both were fully drawn). This main debt facility is charged interest at
SONIA plus a margin and matures in September 2025.
As at 31 December 2023, the Group held an amortising term loan with an
outstanding principal balance of £54.9 million (31 December 2022: £76.6
million) provided by National Westminster bank secured against a structured
SME facility. The debt facility charges SONIA plus a margin and is an
amortising term loan with the full £82 million drawn on day one. The facility
matures in October 2024.
As at 31 December 2023, the Group held an amortising term loan with an
outstanding principal balance of £7.5 million (31 December 2022: £18.0
million) provided by Duomo Funding plc secured against a structured SME
facility. The debt facility charges SONIA 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.
The table below shows the related debt costs incurred by the Group during the
year:
Group For the year ended 31 December 2023 For the year ended 31 December 2022
£'000 £'000
Interest and commitment fees charged during the year 19,141 12,920
Other finance charges 1,219 1,597
Total finance costs 20,360 14,517
The table below shows the related debt costs incurred by the Company during
the year:
Company For the year ended 31 December 2023 For the year ended 31 December 2022
£'000 £'000
Interest and commitment fees payable 13,529 9,813
Other finance charges 886 1,137
Total finance costs 14,415 10,950
The table below shows the movements in interest-bearing borrowings of the
Group:
Group For the year ended 31 December 2023 For the year ended 31 December 2022
£'000 £'000
Opening balance 263,633 267,657
Drawdown of interest-bearing borrowings 37,000 76,925
Repayments of interest-bearing borrowings (91,094) (82,291)
Finance costs 20,360 14,517
Interest paid on financing activities (19,135) (13,175)
Closing balance 210,764 263,633
The table below shows the movements in interest-bearing borrowings of the
Company:
Company For the year ended 31 December 2023 For the year ended 31 December 2022
£'000 £'000
Opening balance 169,367 183,182
Drawdown of interest-bearing borrowings 37,000 35,000
Repayments of interest-bearing borrowings (62,000) (50,000)
Finance costs 14,415 10,950
Interest paid on financing activities (13,588) (9,765)
Closing balance 145,194 169,367
The tables below analyse the Group's financial liabilities into relevant
maturity groupings.
As at 31 December 2023
< 1 year 1 - 5 years More than 5 years Total
£'000
£'000
Group £'000 £'000
Credit facility 132,493 74,912 3,114 210,519
Interest and commitment fees payable 245 - - 245
Total exposure 132,738 74,912 3,114 210,764
As at 31 December 2022
Group < 1 year 1 - 5 years More than 5 years Total
£'000
£'000
£'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
The tables below analyse the Company's financial liabilities into relevant
maturity groupings.
As at 31 December 2023
< 1 year 1 - 5 years More than 5 years Total
£'000
£'000
Company £'000 £'000
Credit facility 70,088 74,912 - 145,000
Interest and commitment fees payable 194 - - 194
Total exposure 70,282 74,912 - 145,194
As at 31 December 2022
Company < 1 year 1 - 5 years More than 5 years Total
£'000
£'000
£'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
12. 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 Expected Credit Loss ("ECL") provision. See Notes 2
and 3 for more detail on the allowance for ECL.
The following table analyses loans by staging for both the Group and Company:
As at 31 December 2023 As at 31 December 2022
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 1 411,491 (693) 410,798 512,030 (1,013) 511,017
Stage 2 21,527 (576) 20,951 6,878 (678) 6,200
Stage 3 19,783 (7,042) 12,741 14,250 (7,590) 6,660
Total Assets 452,801 (8,311) 444,490 533,158 (9,281) 523,877
The fair value of collateral accepted as security for the stage 2 and stage 3
credit assets at amortised cost as at 31 December 2023 was £64.3 million (31
December 2022: £41.7 million).
The following table analyses ECL by staging for both the Group and Company:
For the year ended 31 December 2023
Group and Company Stage 1 Stage 2 Stage 3
£'000
£'000
£'000
Total
£'000
Opening balance 1,013 678 7,590 9,281
Movement from stage 1 to stage 2 (75) 235 - 160
Movement from stage 1 to stage 3 (202) - 468 266
Movement from stage 2 to stage 1 2 (150) - (148)
Movement from stage 2 to stage 3 - (156) 335 179
Movement from stage 3 to stage 1 - - (124) (124)
Movement from stage 3 to stage 2 - 60 (150) (90)
Decreases due to repayments - (24) (274) (298)
Remeasurements due to modelling (45) (67) (803) (915)
Closing balance 693 576 7,042 8,311
For the year ended 31 December 2022
Group and Company Stage 1 Stage 2 Stage 3
£'000
£'000 £'000
Total
£'000
Opening balance 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)
Closing balance 1,013 678 7,590 9,281
b) Expected Credit Loss allowance for IFRS 9
Under the expected credit loss model ("ECL")introduced by 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 loans by stage:
Group and Company For the year ended 31 December 2023 For the year ended 31
£'000 December 2022
£'000
Opening balance 9,281 10,786
Release for year - Stage 1 (300) (108)
Release for year - Stage 2 (21) (23)
Release for year - Stage 3 (649) (75)
Release for year - total (970) (206)
Loans sold & write-offs - (1,299)
Allowance for ECL 8,311 9,281
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 these financial statements reflects 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
3, 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
scenario 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 £0.6 million higher, as at 31
December 2023 (31 December 2022: £0.7 million higher), if the weighting of
the scenarios are changed to allocate a 100 per cent weight to the downside
scenario. 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 based on the ECL coverage of the loan book at
the reporting date. The analysis shows that the ECL would have been £0.25
million higher (31 December 2022: £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
The Group and Company did not dispose of any assets for the year ended 31
December 2023 (for the year ended 31 December 2022: £43.8 million) and so no
profit or loss was recorded during the year (for the year ended 31 December
2022: £2.1 million profit).
13. Corporation tax
The tax charge for the year was £2.7 million (for the year ended 31 December
2022: £0.4 million). The Company incurred no tax during 2023 (for the year
ended 2022: 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 25 per cent from 1 April 2023 (up to 31 March 2023: 19 per
cent). A reconciliation of the taxation charge from 1 January 2023 to 31
December 2023 is based on the standard rate of UK corporation tax to the
actual taxation charge is shown below.
For the year ended 31 December 2023
Group Continuing Analysis of items for Distribution Total
Operations
£'000 £'000 £'000
Profit before taxation 38,941 4,129 43,070
Profit before taxation multiplied 9,159 971 10,130
by the blended rate of UK Corporation tax (23.52%)
Effects of:
Overseas dividends not chargeable to UK corporation tax (306) - (306)
Interest distributions paid (7,549) - (7,549)
Capital items exempt from corporation tax (845) - (845)
Deferred tax movements not recognised - 1,716 1,716
Movement in excess management expenses (459) - (459)
Disallowed expenses - 115 115
Prior year adjustments - (246) (246)
Changes in tax rate for deferred tax - 127 127
Fixed asset difference - 4 4
Other income not taxable - (23) (23)
Total tax charge in income statement - 2,664 2,664
A reconciliation of the taxation charge from 1 January 2022 to 31 December
2022 is based on the standard rate of UK corporation tax to the actual
taxation charge is shown below.
For the year ended 31 December 2022
Group Revenue Revenue Capital Total
(Continuing operations)
(For distribution)
(Continuing operations)
£'000 £'000 £'000 £'000
Profit before taxation 28,370 (1,457) (117) 26,796
Profit before taxation multiplied 5,390 (277) (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
Movement in excess management expenses 982 2 22 1,006
Interest distributions paid (5,657) - - (5,657)
Total tax charge in income statement - 435 - 435
No corporation tax arose for the Company for continuing operations or assets
held for distribution to the parent during the year ended 31 December 2023 and
31 December 2022. The corporation tax that arose during the year ended 31
December 2023 and 31 December 2022 was in relation to Pollen Street Capital
Holdings Limited and its subsidiaries.
The revenue and capital reserves were combined into retained earnings in 2023
as described in Note 27.
The following table shows the deferred tax for the year:
Group For the year ended 31 December 2023 For the year ended 31 December 2022
£'000 £'000
Opening balance (94) -
Prior year adjustment (26) -
Credit/(charge) to profit or loss (2,508) (94)
Closing balance (2,628) (94)
There was no withholding tax payable by the Group or Company at 31 December
2023 (31 December 2022: £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 asset for the Group as at 31 December 2023 was £0.5 million (31
December 2022: Deferred tax liability £(0.09) million).
14. Earnings per share
Group For the year ended 31 December 2023 For the year ended 31 December 2022
Continuing Operations Analysis of items for Distribution Total Continuing Operations Analysis of items for Distribution Total
Basic and diluted earnings per share (pence)
60.6 pence 2.3 pence 62.9 pence 72.2 pence (10.0) pence 62.1 pence
The calculation for the year ended 31 December 2023 is based on profit after
tax of £40.4 million (2022: £26.4 million) and a weighted average number of
ordinary shares of 64,209,597 for the year ended 31 December 2023 (2022:
42,444,118).
15. Fixed assets
On 11 October 2023, the Group classified the fixed assets within Pollen Street
Capital Holdings Limited and its subsidiaries as assets held for distribution
to the new parent. See Notes 1, 2 and 5 for further information.
The table below sets out the movement in Fixed Assets for the Group for
continuing operations and for assets held for distribution to the new parent.
Group For the year ended 31 For the year ended 31
December 2023 December 2022
Cost Continuing Analysis of items for Distribution Total Continuing Total
Operations
Operations
£'000 £'000 £'000 £'000 £'000
Opening balance 1,470 - 1,470 - -
Additions 137 - 137 1,470 1,470
Reallocation to assets held for distribution to the new parent (1,607) 1,607 - - -
Closing balance - 1,607 1,607 1,470 1,470
Accumulated depreciation
Opening balance (56) - (56) - -
Depreciation charge (207) - (207) (56) (56)
Reallocation to assets held for distribution to the new parent 263 (263) - - -
Closing balance - (263) (263) (56) (56)
Net book value - 1,344 1,344 1,414 1,414
The Group's fixed assets comprise of fixtures and fittings, office equipment
and electric vehicles.
The Company does not have any fixed assets (31 December 2022: nil).
16. Leases
The Group leases include office premises where the Group is a tenant which
include fixed periodic rental payments over the fixed lease terms of no more
than five years remaining from the reporting date. One lease matured during
the year ended 31 December 2023. The total cash outflow during the year in
relation to leases was £1.4 million (31 December 2022: £0.3 million).
On 11 October 2023, the Group classified its leases as assets held for
distribution to the new parent. See Notes 1, 2 and 5 for further information.
Set out below are the carrying amounts of lease assets recognised and the
movements during the year.
Group - Lease assets For the year ended 31 For the year ended 31
December 2023 December 2022
Continuing Analysis of items for Distribution Total Continuing Total
Operations
Operations
£'000 £'000 £'000 £'000 £'000
Cost
Opening balance 5,042 - 5,042 - -
Additions - - - 5,042 5,042
Lease maturity (169) - (169) - -
Reallocation to assets held for distribution to the new parent (4,873) 4,873 - - -
Closing balance - 4,873 4,873 5,042 5,042
Accumulated depreciation
Opening balance (266) - (266) - -
Depreciation expense (720) - (720) (266) (266)
Lease maturity 169 - 169
Reallocation to assets held for distribution to the new parent 817 (817) - - -
Closing balance - (817) (817) (266) (266)
Net book value - 4,056 4,056 4,776 4,776
The table below shows the provision for restoration costs on lease contracts
which has been recognised as part of the lease assets acquired:
Group - Lease provision For the year ended 31 For the year ended 31
December 2023 December 2022
Continuing Analysis of items for Distribution Total Continuing Total
Operations
Operations
£'000 £'000 £'000 £'000 £'000
Opening balance 99 - 99 - -
Arising during the year - - - 98 98
Unwinding of discount 1 - 1 1 1
Lease maturity (18) - (18)
Reallocation to assets held for distribution to the new parent -
(82) 82 - -
Closing balance - 82 82 99 99
Set out below are the carrying amounts of lease liabilities and the movements
during the year.
Group - Lease liabilities For the year ended 31 December 2023 For the year ended 31 December 2022
Continuing Analysis of items for Distribution Total Continuing Total
Operations
Operations
£'000 £'000 £'000 £'000 £'000
Opening balance 5,268 - 5,268 - -
Additions - - - 5,521 5,521
Accretion of interest 170 - 170 71 71
Payments (896) - (896) (324) (324)
Reallocation to assets held for distribution to the new parent -
(4,542) 4,542 - -
Accretion of interest - 59 59 - -
Payments - (449) (449) - -
Closing balance - 4,152 4,152 5,268 5,268
The table below shows the lease liabilities by maturity:
Group - Lease liabilities For the year ended 31 For the year ended 31
December 2023 December 2022
Continuing Analysis of items for Distribution Total Continuing Total
Operations
Operations
£'000 £'000 £'000 £'000 £'000
Cost
Current - 4,152 4,152 1,201 1,201
Non-current - - - 4,067 4,067
Closing balance - 4,152 4,152 5,268 5,268
The following are the amounts recognised in the comprehensive income
statement:
Group - Amounts recognised in profit or loss For the year ended 31 For the year ended 31
December 2023 December 2022
Continuing Analysis of items for Distribution Total Continuing Total
Operations
Operations
£'000 £'000 £'000 £'000 £'000
Depreciation expense lease assets - 720
720 266 266
Finance costs - 230 230 71 71
Total amount recognised in profit or loss during the year - 950
950 337 337
Group - Finance costs For the year ended 31 For the year ended 31
December 2023 December 2022
Continuing Analysis of items for Distribution Total Continuing Total
Operations
Operations
£'000 £'000 £'000 £'000 £'000
Lease liability interest - 229 229 70 70
Unwinding of discount (on restoration provision) - 1 1 1 1
Total finance costs - 230 230 71 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 For the year ended 31 December 2023 For the year ended 31 December 2022
£'000 £'000
Lease assets
Increase IBR by 1% (210) (243)
Decrease IBR by 1% 226 261
Lease liabilities
Increase IBR by 1% (110) (156)
Decrease IBR by 1% 114 162
The Company has no lease assets or lease liabilities (2022: nil).
17. Receivables
On 11 October 2023, the Group classified the receivables arising within Pollen
Street Capital Holdings Limited and its subsidiaries as assets held for
distribution to the new parent. See Notes 1, 2 and 5 for further information.
The table below sets out a breakdown of the Group receivables:
As at 31 As at 31
December 2023 December 2022
Group Continuing Analysis of items for Distribution Total Continuing Total
Operations
Operations
£'000 £'000 £'000 £'000 £'000
Management fees and performance fees - 6,496 6,496 1,956 1,956
Amounts due from debtors 394 4,161 4,555 1,659 1,659
Prepayments and other receivables 3,609 3,282 6,891 9,255 9,255
Closing balance 4,003 13,939 17,942 12,870 12,870
The receivables balance in the assets held for distribution to the new parent
includes £6.5 million (31 December 2022: nil) of receivables from funds
managed by the Group.
The table below sets out a breakdown of the Company receivables:
As at 31 As at 31
December 2023 December 2022
Company Continuing Analysis of items for Distribution Total Continuing Total
Operations
Operations
£'000 £'000 £'000 £'000 £'000
Amounts due from debtors 1,166 - 1,166 767 767
Prepayments and other receivables 3,609 - 3,609 3,064 3,064
Closing balance 4,775 - 4,775 3,831 3,831
The prepayments and other receivables balance for the Group and Company
includes prepaid amounts of £1.4 million (31 December 2022: nil) in relation
to the Scheme described in Note 1.
The above receivables do not carry any interest and are short term in nature.
The Group considers that the carrying values of these receivables approximate
their fair value. There were no impairments on receivables recorded during the
year (31 December 2022: nil).
18. Payables
On 11 October 2023, the Group classified the payables arising within Pollen
Street Capital Holdings Limited and its subsidiaries as assets held for
distribution to the new parent. See Notes 1, 2 and 5 for further information.
The table below sets out a breakdown of the Group payables:
Group As at 31 As at 31
December 2023 December 2022
Continuing Analysis of items for Distribution Total Continuing Total
Operations Operations
£'000 £'000 £'000 £'000 £'000
Staff salaries and bonuses - 12,935 12,935 12,377 12,377
Audit fee accruals 552 507 1,059 863 863
Deferred income - 22 22 964 964
Other payables 1,015 4,118 5,133 5,017 5,017
Closing balance 1,567 17,582 19,149 19,221 19,221
The table below sets out a breakdown of the Company payables:
Company As at 31 As at 31
December 2023 December 2022
Continuing Analysis of items for Distribution Total Continuing Total
Operations
Operations
£'000 £'000 £'000 £'000 £'000
Staff salaries and bonuses - - - 25 25
Audit fee accruals 552 - 552 584 584
Other payables 3,630 - 3,630 4,565 4,565
Closing balance 4,182 - 4,182 5,174 5,174
The payables in Company include an amount due to Pollen Street Capital
Holdings Limited of £3.9 million (31 December 2022: £3.4 million).
19. Ordinary dividends
The following table shows the dividends in relation to or paid during the year
ended 31 December 2023 and the year ended 31 December 2022.
Dividend Payment Date Amount per Share Total
£'000
(pence per share)
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
Interim dividend for the period to 31 March 2023 30 June 2023 16.00p 7,916
Interim dividend for the period to 30 June 2023 29 September 2023 16.00p 7,916
Interim dividend for the period to 30 September 2023 29 December 2023 16.00p 7,916
Interim dividend for the period to 31 December 2023 1 March 2024 13.00p 8,347
The following table shows the total dividends in relation to the year and the
total dividends paid during the year.
For the year ended 31 December 2023 For the year ended 31 December 2022
£'000 £'000
Total dividend paid during the year 31,664 28,905
Total dividend in relation to the year 32,095 29,769
Former shareholders of Pollen Street Capital Holdings Limited, who received
ordinary shares as consideration as part of the Combination, 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, 31 December
2022, 31 March 2023, 30 June 2023 and 30 September 2023 were paid on
49,473,264 ordinary shares. The interim dividend for the period to 31 December
2023 was paid on 64,209,597 ordinary shares. Further information is available
in the prospectus dated 26 September 2022, which is available on the Group's
website.
20. Derivative liabilities held at fair value through
profit or loss
On 11 October 2023, the Group classified the derivatives arising within Pollen
Street Capital Holdings Limited and its subsidiaries as assets held for
distribution to the new parent. See Notes 1, 2 and 5 for further information.
The table below presents the movement in the undiscounted notional values of
the foreign exchange forward contracts for the Group and Company for
continuing operations:
Group For the year ended 31 December 2023 For the year ended 31 December 2022
EUR USD EUR USD
£'000 £'000 £'000 £'000
Opening notional balance 45,560 19,683 6,040 8,759
Reallocation to held for distribution (1,155) - - -
Movement in notional value (1,418) (323) 39,520 10,924
Closing notional balance 42,987 19,360 45,560 19,683
Company For the year ended 31 December 2023 For the year ended 31 December 2022
EUR USD EUR USD
£'000 £'000 £'000 £'000
Opening notional balance 40,956 19,683 1,674 8,759
Movement in notional value 2,031 (323) 39,282 10,924
Closing notional balance 42,987 19,360 40,956 19,683
The table below presents the movement in the undiscounted notional values of
the foreign exchange forward contracts for the Group for assets held for
distribution to the new parent:
Group For the year ended 31 December 2023 For the year ended 31 December 2022
EUR EUR
£'000 £'000
Opening notional balance - -
Reallocation to assets held for distribution to the new parent 1,155 -
Movement in notional value 10,449 -
Closing notional balance 11,604 -
The Company did not have any derivatives held for distribution to the new
parent (2022: nil).
The table below presents the movement in the mark-to-market value of the
foreign exchange forward contracts for the Group and Company for continuing
operations:
Group and Company For the year ended 31 December 2023 For the year ended 31 December 2022
EUR USD Total EUR USD Total
£'000 £'000 £'000 £'000 £'000 £'000
Opening balance (839) (77) (916) 113 (221) (108)
Fair value movement 648 89 737 (952) 144 (808)
Closing balance (191) 12 (179) (839) (77) (916)
There were no movements in the mark-to-market value of the foreign exchange
forward contracts for the Group and Company for assets held for distribution
to the new parent. The mark-to-market value is presented in the Derivative
liabilities held at fair value through profit or loss line on the statement of
financial position.
The fair value for the forward contracts is based on the forward rate curves
for the respective currencies. The maturity date for derivatives that were
held as at 31 December 2023 for the continuing operations and for derivatives
held for distribution to the new parent was less than one year (31 December
2022: less than one year).
Fair value classification of derivatives
The Group and Company derivatives for continuing operations are classified as
level 2 in the fair value hierarchy with a GBP equivalent value on 31 December
2023 of £(0.2) million (31 December 2022: £(0.9) million). 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.
The Group and Company derivatives for asset held for distribution to the new
parent are classified as level 2 in the fair value hierarchy with a GBP
equivalent value on 31 December 2023 of nil (31 December 2022: nil). 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.
21. Investments in subsidiaries
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
Juniper Lending Fund GP S.a.r.l Luxembourg Ordinary 100% General partner
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 Accelerator II GP Limited Guernsey Ordinary 100% General partner
PSC Accelerator II GP S.a.r.l Luxembourg Ordinary 100% General partner
PSC Accelerator I(C) GP Limited Guernsey Ordinary 100% General partner
PSC Accelerator Nominee II Limited Guernsey Ordinary 100% Nominee
PSC Group Carry GP Limited Guernsey Ordinary 100% General partner
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 IV 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
PSC V GP Limited Guernsey Ordinary 100% General partner
PSC V GP S.a.r.l Luxembourg Ordinary 100% General partner
PSC Nominee 5 Limited Guernsey Ordinary 100% Nominee
PSC Saturn G GP Limited Guernsey Ordinary 100% General partner
Saturn GP Limited UK 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 except
otherwise stated.
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 2023 are:
Partnership Jurisdiction
Juniper Lending Fund SCSp Luxembourg
PSC Accelerator Carry LP Guernsey
PSC Accelerator LP Guernsey
PSC Accelerator II (A) LP Guernsey
PSC Accelerator II (B) SCSp Luxembourg
PSC Accelerator II (C) LP Guernsey
PSC Accelerator II Carry LP Guernsey
PSC Credit (OE) I SCSp Luxembourg
PSC Credit (P) SCSp Luxembourg
PSC Credit (T) SCSp Luxembourg
PSC Credit (T) Carry SCSp Luxembourg
PSC Credit III (A) SCSp Luxembourg
PSC Credit III (B) SCSp Luxembourg
PSC Credit III Carry SCSp Luxembourg
PSC Credit IV (A) SCSp Luxembourg
PSC Credit IV (B) SCSp Luxembourg
PSC Credit IV Carry SCSp Luxembourg
PSC Glebe LP Guernsey
PSC III Carry LP UK
PSC III G, LP Guernsey
PSC III LP UK
PSC III Pooling LP UK
PSC InvestIts (C) LP Guernsey
PSC Investments (Q) LP UK
PSC Investments B LP UK
PSC Investments LP UK
ISC IV (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 V (A) LP Guernsey
PSC V (B) SCSp Luxembourg
PSC V Carry LP Guernsey
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 J 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 2023, the carrying amount was
£75.1 million (31 December 2022: £26.9 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 is classified within Investment
Assets at Fair Value Through Profit or Loss in the Group's Statement of
Financial Position.
As at 31 December 2023 As at 31 December 2022
PSC US Badger LLC £'000 £'000
Investment at fair value - 29,376
Other assets - 977
Liabilities - (103)
Net Asset Value - 30,250
Country of incorporation USA USA
Activity Private credit Private credit
Group's interest in the associate 49% 49%
PSC US Badger LLC realised its assets and returned the proceeds to its
investors during 2023. The profit for the year ended 31 December 2023 was
£1.3 million (for the year ended 31 December 2022: £2.8 million).
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.
As at 31 December 2023
Associates PSC V Carry LP PSC Accelerator II Carry LP PSC IV Carry LP PSC Accelerator Carry LP PSC Credit III Carry SCSp PSC US PSC Credit (T) SCSp
Wolverine LLC
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Net Assets Value - - 53,828 9,749 4,672 - 852
Country of incorporation Guernsey Guernsey Guernsey Guernsey Luxembourg USA Luxembourg
Group's interest in the associate 25% 25% 25% 25% 25% 25% 25%
As at 31 December 2022
Associates PSC IV Carry LP PSC Accelerator Carry LP PSC Credit III Carry SCSp PSC US PSC Credit (T) SCSp
Wolverine LLC
£'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%
22. Financial risk management
This Note details 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, monitoring and risk controls.
Further details can be found in the Risk Management section. The Board
maintains oversight of this framework through 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. 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 23.
Market risk
In addition to the underlying trading performance of the Group's investment
portfolio, 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 reward.
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 and 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) is shown below:
Group As at 31 December 2023 As at 31 December 2022
Floating rate Fixed rate Total Floating rate Fixed rate Total
£'000 £'000 £'000 £'000 £'000 £'000
Credit Assets at amortised cost
Credit Assets at amortised cost 266,965 177,525 444,490 282,847 241,030 523,877
Cash and cash equivalents 19,746 - 19,746 23,303 - 23,303
Interest-bearing borrowings (210,764) - (210,764) (263,633) - (263,633)
Total fixed and floating rate exposure 75,947 177,525 253,472 42,517 241,030 283,547
Company As at 31 December 2023 As at 31 December 2022
Floating rate Fixed rate Total Floating rate Fixed rate Total
£'000 £'000 £'000 £'000 £'000 £'000
Credit Assets at amortised cost
Credit Assets at amortised cost 266,965 177,525 444,490 282,847 241,030 523,877
Cash and cash equivalents 14,402 - 14,402 18,229 - 18,229
Interest-bearing borrowings (145,194) - (145,194) (169,367) - (169,367)
Deemed loan (63,526) - (63,526) (93,036) - (93,036)
Total fixed and floating rate exposure 72,647 177,525 250,172 38,673 241,030 279,703
A 1 per cent change in interest rates impacts Group income on the assets with
a floating rate by £2.7 million for year to 31 December 2023 (for the year
ended 31 December 2022: £2.8 million). For the year ended 31 December 2023, a
1 per cent change in interest rates impacts the debt expense on the floating
rate liabilities by £2.1 million (for the year ended 31 December 2022: £2.6
million).
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 2023 had an outstanding principal of nil (31
December 2022: £24.8 million) and liabilities of nil (31 December 2022:
£nil).
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 need to be applied to SONIA, to enable
the two benchmark rates to be economically equivalent on transition.
As at 31 December 2023, the following table shows the Group and Company's
assets that reference synthetic GBP LIBOR, which is a temporary bridging
benchmark to aid the smooth transaction of contracts to SONIA:
Carrying Value/Nominal Amount at:
Group and Company As at 31 December 2023 As at 31 December 2022
Assets Assets
£'000 £'000
Credit Assets at amortised cost - 24,818
Total exposure - 24,818
b) Currency risk
Currency risk arises from foreign currency assets and liabilities. The Group
uses economic hedges to hedge currency exposure between the Pound 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 current or prior year and records its derivative activities
on a fair value basis.
The Group and Company's foreign exchange exposures are summarised in the
tables below:
As at 31 December 2023 As at 31 December 2022
Group EUR USD EUR USD
£'000 £'000 £'000 £'000
Credit Assets at amortised cost
Credit Assets at amortised cost 42,062 - 47,681 4,656
Investment Assets at fair value 1,828 16,006 - 17,982
Cash and cash equivalents 1,350 1,592 882 3,057
Total assets 45,240 17,598 48,563 25,695
Payables - - (1,945) -
Total liabilities - - (1,945) -
Net assets 45,240 17,598 46,618 25,695
Derivatives notional (54,591) (19,360) (52,325) (23,860)
Net exposure (9,351) (1,762) (5,707) 1,835
As at 31 December 2023 As at 31 December 2022
Company EUR USD EUR USD
£'000 £'000 £'000 £'000
Credit Assets at amortised cost
Credit Assets at amortised cost 42,062 - 47,681 4,656
Investment Assets at fair value 1,461 16,006 - 17,982
Cash and cash equivalents 1,159 1,592 882 3,057
Total assets 44,682 17,598 48,563 25,695
Net assets 44,682 17,598 48,563 25,695
Derivatives notional (42,987) (19,360) (47,125) (23,860)
Net exposure 1,695 (1,762) 1,438 1,835
If the GBP exchange rate increased by 10 percent against the above currencies,
the impact on Group profit for the year ended 31 December 2023 would be
£(0.96) million (for the year ended 31 December 2022: £0.57 million) and the
no change for the Company (for the year ended 31 December 2022: £0.08
million).
If the GBP exchange rate increased by 10 percent against the above currencies,
there would be no impact on the profit of the continuing operations for the
year ended 31 December 2023 (for the year ended 31 December 2022: £0.57
million) and the impact on the assets held for distribution to the new parent
would be £(0.96) million (for the year ended 31 December 2022: nil).
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 9.
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") on certain
subsidiaries within the Group.
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 54
per cent as at 31 December 2023 (31 December 2022: 69 per cent). It is less
than the borrowing limit of 100 per cent set by the Board.
The Company held a minimum share capital of £50,000 throughout the year. The
Company was no longer required to meet this after it had converted to a
private company, which occurred on 14 February 2024.
During the year 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 to 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 100 per cent of
its share capital and reserves.
As at 31 December 2023 the Group had committed debt facilities totalling
£235.4 million (31 December 2022: £264.6 million) with maturity dates
ranging from October 2024 to December 2071. The facilities include a term and
revolving facility secured on a range of assets.
As at 31 December 2023 the Group and Company had a committed debt facility
totalling £170.0 million (31 December 2022: £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 facility starts amortising from 4
September 2024. The Group also has a £54.9 million amortising facility that
matures 30 October 2024. The facility is structured as run-off financing in
that the debt will paydown over the term of the facility. The Group also has
a £10.6 million (31 December 2022: £18.0 million) amortising term loan
with a 48-year term. Further details of the Company's and Group's debt
facilities are in note 11.
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 tables below show the cash flows of the Group's and Company's financial
assets and liabilities on an undiscounted basis by contractual maturity:
As at 31 December 2023
Group <3 months 3-12 months 1-5 years 5+ years Total
£'000 £'000 £'000 £'000 £'000
Credit Assets at amortised cost 72,218 103,751 239,781 24,729 440,479
Investment Assets at fair value through profit or loss - 13,137 62,751 12,332 88,220
Receivables 5,569 9,922 2,451 - 17,942
Cash and cash equivalents 19,747 - - - 19,747
Total assets 97,534 126,810 304,983 37,061 566,388
Liabilities
Payables (14,042) (3,314) (1,793) - (19,149)
Interest-bearing borrowings (2,052) (130,686) (74,912) (3,114) (210,764)
Total liabilities (16,094) (134,000) (76,705) (3,114) (229,913)
As at 31 December 2022
Group <3 months 3-12 months 1-5 years 5+ years Total
£'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) (219,027) (18,050) (283,834)
As at 31 December 2023
Company <3 months 3-12 months 1-5 years 5+ years Total
£'000 £'000 £'000 £'000 £'000
Credit Assets at amortised cost 72,218 103,751 239,781 24,729 440,479
Investment Assets at fair value through profit or loss - 13,137 62,751 12,332 88,220
Receivables 1,162 3,613 - - 4,775
Cash and cash equivalents 14,402 - - - 14,402
Total assets 87,782 120,501 302,532 37,061 547,876
Liabilities
Payables (4,182) - - - (4,182)
Interest-bearing borrowings - (70,282) (74,912) - (145,194)
Deemed loan - (60,412) - (3,114) (63,526)
Total liabilities (4,182) (130,694) (74,912) (3,114) (212,902)
As at 31 December 2022
Company <3 months 3-12 months 1-5 years 5+ years Total
£'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)
23. 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 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 credit risk band that
each loan is assigned to at inception:
As at 31 December 2023
Group and Company Unsecured Secured Total
£'000 £'000 £'000
A & B 68 452,733 452,801
C, D & E - - -
Total 68 452,733 452,801
As at 31 December 2022
Group and Company Unsecured Secured Total
£'000 £'000 £'000
A & B 21,444 511,715 533,158
C, D & E - - -
Total 21,444 511,715 533,158
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)
24. Cash and cash equivalents
On 11 October 2023, the Group classified the cash and cash equivalent arising
within Pollen Street Capital Holdings Limited and its subsidiaries as assets
held for distribution to the new parent. See Notes 1, 2 and 5 for further
information.
Cash and cash equivalents consist of cash at bank and in hand.
As at 31 December 2023 As at 31 December 2022
Continuing For Distribution Total Continuing Total
Operations
Operations
£'000 £'000 £'000 £'000 £'000
Group cash at bank 18,550 1,196 19,746 23,303 23,303
Company cash at bank 14,402 - 14,402 18,229 18,229
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 Group'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.
The amount held in reserve for the continuing operations as at 31 December
2023 was £3.4 million (31 December 2022: £2.4 million). No amounts were
held in reserve for assets held for distribution to the new parent (31
December 2022: nil).
25. Deemed loan
The Company has two deemed loans as at 31 December 2023 (31 December 2022:
two). Deemed loans only relate to the Company as they relate to loans
originated by the Company and subsequently sold to a special purpose entity.
The table below shows the deemed loans:
Company For the year ended 31 December 2023 For the year ended 31 December 2022
£'000 £'000
Opening balance 93,036 82,326
Novations/(Redemptions) (29,510) 10,710
Closing balance 63,526 93,036
26. Ordinary Share Capital
The table below details the issued share capital of the Company. On 8 December
2023, the Company cancelled its treasury shares. There were no other
movements in share issuances by the Company in the year ended 31 December
2023.
For the year ended 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 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.
No. Issued, allotted and fully paid ordinary shares of £0.01 each For the year ended 31 December 2023 For the year ended 31 December 2022
Opening number of shares 64,209,597 35,259,741
Shares issued during the year - 29,472,663
Number of shares bought back - (522,807)
Closing number of shares 64,209,597 64,209,597
Shares in issue at 1 January Cancellation of treasury shares Shares in issue at
2023
31 December 2023
Ordinary shares 64,209,597 - 64,209,597
Treasury shares 4,712,985 (4,712,985) -
Shares in issue at 1 January Shares issued during the year Buyback of Shares in issue at
2022
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
The nominal value of ordinary shares as at 31 December 2023 was £0.6 million
(31 December 2023: £0.6 million).
27. Other reserves
On 21 March 2016, the Company cancelled it share premium account, following
shareholder and court approval. Accordingly, £98.1 million, previously held
in the share premium account, was transferred to the Special Distributable
Reserve in 2015. On 21 November 2023, the Company cancelled its share premium
account again, following shareholder and court approval. Accordingly, £299.6
million, previously held in the share premium account, was transferred to the
Special Distributable Reserve in 2023. As at 31 December 2023 the special
distributable reserve balance was £351.6 million (31 December 2022: £52.0
million).
Following completion of the Scheme, the Company is no longer subject to the
Association of Investment Company requirements to show the Revenue and Capital
reserves. As such, the two reserves were reallocated to a newly created
retained earnings reserve on 31 December 2023. As at 31 December 2023, the
Group had a retained earnings reserve balance of £8.6 million and the Company
had a retained earnings reserve balance of £0.3 million.
Merger Reserves include the additional reserves accounted for as part of the
acquisition that occurred during 2022. The Merger Reserve also includes the
costs associated with the issuance of shares.
The Foreign Currency Translation Reserve reflects the foreign exchange
differences arising on translation that are recognised in the Consolidated
Statement of Comprehensive Income.
28. Net Asset Value per Ordinary Share
The following table shows the net asset value per ordinary share:
Group As at 31 December 2023 As at 31 December 2022
Net asset value per ordinary share pence 912.4 899.5p
Net assets attributable £'000 585,828 577,539
Company As at 31 December 2023 As at 31 December 2022
Net asset value per ordinary share pence 899.9 902.2p
Net assets attributable £'000 577,833 579,324
The Group net asset value per ordinary share as at 31 December 2023 is based
on net assets at the year-end of £585.8 million (31 December 2022: £577.5
million) and ordinary shares of 64,209,597 (31 December 2022: 64,209,597) in
issue at the year-end. The Company net asset value per ordinary share as at 31
December 2023 is based on net assets at the year-end of £577.8 million (31
December 2022: £579.3 million) and ordinary shares of 64,209,597 (31 December
2022: 64,209,597) in issue at the year-end.
29. Contingent Liabilities and Capital Commitments
As at 31 December 2023 there were no contingent liabilities or capital
commitments for the Group or Company (31 December 2022: none). As at 31
December 2023 the Group and Company had £6.3million (31 December 2022: £88.9
million) of undrawn committed structured credit facilities and undrawn
commitments in relation to secured real estate loans of £35.6 million (31
December 2022: £99.1 million).
The Group and Company Credit Assets at fair value through profit and loss
include investments made into three Private Credit funds that are also managed
or advised by the Group: PSC Credit III (A) SCSp and (B) SCSp, PSC Credit (T)
SCSp, one of the European Separately Managed Accounts ("SMAs"), and PSC US
Badger LLC, one of the US SMAs. As at 31 December 2023, the Group held 12% of
Credit III (31 December 2022: 7.5%), 1% of PSC Credit (T) SCSp (As at 31
December 2022: 1%) and 0% of PSC US Badger LLC (31 December 2022: 49%) as PSC
US Badger LLC was wound down during the year. As at 31 December 2023, the
undrawn commitment for the investment into flagship Credit III was £4.7
million (31 December 2022: £11.9 million), £0.8 million (31 December 2022:
£0.8 million) for the investment in PSC Credit (T) SCSp and £0 million for
the investment in PSC US Badger LLC (31 December 2022: £6.8 million). As at
31 December 2023, the Company holds the investments in Credit III and PSC
Credit (T) SCSP (31 December 2022: the investment in PSC Credit (T) SCSp was
held by a subsidiary of the Group).
The Group and Company Equity Assets at fair value through profit and loss
includes commitments in two private equity funds that are managed or advised
by the Group: PSC Accelerator II (A) LP and PSC V (A) LP. As at 31 December
2023, the Group held 2% of PSC Accelerator II (A) LP's total commitments (31
December 2022: nil) and had drawn amounts of £10.4 million and undrawn
commitments in PSC Accelerator II (A) of £10.5 million (31 December 2022:
nil) and had 5% of the total commitments in PSC V (A) LP with no amounts drawn
(31 December 2022: nil) and an undrawn commitment in PSC V (A) LP of £20
million (31 December 2022: nil).
30. Related Party Transactions
IAS 24 'Related Party Disclosures' requires the disclosure of the details of
material transactions between the Group and any related parties. Accordingly,
the disclosures required are set out below.
The remuneration of the Directors is set out in the Directors' Remuneration
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 other than as set out in the
Regulatory Disclosures section of the Directors' Report. 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. Pollen Street Capital
Limited became a subsidiary of the Group following the acquisition of Pollen
Street Capital Holdings Limited by the Company on 30 September 2022, as such,
these transactions were no longer considered to be related party transactions.
The Group considers all transactions with companies that are controlled by
funds managed by the Group as related party transactions.
The Group has a forward facility in place with Oplo Group Limited, a consumer
lender that is controlled by funds managed by the Group. As at 31 December
2023 the facility had an outstanding balance of £6.2 million (31 December
2022: £8.2 million) included in Credit Assets at amortised cost in Note 12.
During the year, the Group made an investment of £9.0 million in Saturn
Holdings Limited, which is a wholly owned subsidiary of a Private Equity fund
managed by the Group.
During the year, the Company made commitments to PSC Accelerator II (A) LP of
£20.9 million and PSC V (A) LP of £20 million which are both funds
management 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 a portfolio
company owned by a private equity fund that is managed by the Group. The
derivatives exposure with Lumon is disclosed in Note 20.
As at 31 December 2023, there was £3.9 million (31 December 2022: £3.4
million) payable to the Investment Manager by the Company.
During the year, the Company cancelled all 4,712,985 treasury shares. There
were no purchases of own shares during the year.
31. Ultimate Controlling Party
It is the opinion of the Directors that there is no ultimate controlling party
throughout 2023 and up to 24 January 2024. As of 24 January 2024, Pollen
Street Group Limited became the immediate parent and ultimate controlling
party of Pollen Street Limited.
32. Subsequent Events
On 9 January 2024, a dividend of 13.0 pence per ordinary share was approved
and duly paid on 1 March 2024.
On 24 January 2024, the Group completed the Scheme that effectively
transitioned the listing category of the Company's shares to that of a
commercial company and introduced Pollen Street Group Limited as the new
parent of the Group.
On 14 February 2024, the Company re-registered as a private company, changed
its name from Pollen Street plc to Pollen Street Limited; and completed the
Distribution of the entire issued share capital of Pollen Street Capital
Holdings Limited to Pollen Street Group Limited. The distribution included
64,209,597 shares with a distribution value of £247.0 million.
As a result of the Reorganisation, the Company ceased to be classified as an
investment trust and ceased to be classified as an AIF.
Further information on the Scheme and the Distribution is provided in Note 1
to the Financial Statements.
1 Operating profit on a proforma basis is calculated as if the combination
had occurred prior to 1 January 2022.
2 The main accounting cost of the office lease is the depreciation of the
lease asset
3 Includes finance costs
4 The statutory operating loss for 2022 included £3.4 million of expenses
incurred in the acquisition of Pollen Street Capital Holdings Limited.
5 Return on Net Investment Assets is measured before the charge for
corporation tax
6 Includes £184,000 of Other Comprehensive Income transferred to Foreign
Currency Translation Reserve in relation to the year ended 31 December 2022
7 Includes £42,000 of Ordinary Share Capital transferred to the Special
Distributable Reserves for buybacks that occurred prior to 1 January 2022
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. END FR LBLLLZXLBBBLRecent news on Pollen Street
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