REG - RM Infrastructure RM SecDirect - RMDC - Final Results
23/04/2024 07:00
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RNS Number : 5748L RM Infrastructure Income PLC 23 April 2024
RM INFRASTRUCTURE INCOME PLC
(the ''Company'' or "RMII")
ANNUAL REPORT AND ACCOUNTS
For the year ended 31 December 2023
LEI: 213800RBRIYICC2QC958
About us
At a General Meeting held on 20 December 2023, RM Infrastructure Income plc
("RMII" or the "Company") adopted a revised Investment Objective in order to
facilitate a managed wind-down of the Company.
The Company aims to conduct an orderly realisation of the assets of the
Company, to be effected in a manner that seeks to achieve a balance between
returning cash to Shareholders promptly and maximising value.
Prior to this, the Company's investment objective was to generate attractive
and regular dividends through investment in secured debt instruments of UK
Small and Medium sized Enterprises ("SMEs") and mid-market corporates
including any loan, promissory notes, lease, bond, or preference share (such
debt instruments, as further described in the annual report, being "Loans")
sourced or originated by RM Capital Markets Limited (the "Investment Manager")
with a degree of inflation protection through index-linked returns where
appropriate.
PORTFOLIO AT A GLANCE
Operational highlights
· Diversified portfolio with gross assets of £104.5m invested across
31 loans and one wholly owned asset, across 8 sectors and 14 sub-sectors.
· A low interest rate sensitivity portfolio, with an average duration
of circa 1.69 years and a weighted average yield of 10.91%.
· NAV Total Return over the last twelve months of 3.16% and inception
to date of 41.56%.
· As at 31 December 2023, all outstanding debt has been fully repaid
with the company now being completely ungeared.
Financial highlights
Financial information Year ended Year ended
31 December 2023
31 December 2022
Gross asset value (£'000)1 £104,516 £126,076
Net Asset Value ("NAV") (£'000) £104,516 £108,805
NAV per Ordinary Share (pence) 88.88p 92.49p
Ordinary Share price (pence) 74.25p 85.00p
Ordinary Share price discount to NAV1 (16.46%) (8.1%)
Ongoing charges1 1.84% 1.86%
Gearing (net)1 nil 13.1%
Performance summary
% change2,4 % change3,4
Total return - Ordinary Share NAV and dividends1 +3.16% +5.0%
Total return - Ordinary Share price and dividends1 -4.63% +3.7%
1. These are Alternative Performance Measures ("APMs").
2. Total returns for the year to 31 December 2023, including dividend
reinvestment.
3. Total returns for the year to 31 December 2022, including dividend
reinvestment.
4. Source: Bloomberg
As at 19 April 2024, the latest date prior to the publication of this
document, the Ordinary Share price was 77p per share and the latest published
NAV was 89.18p per share as at 31 March 2024.
Alternative Performance Measures ("APMs")
The financial information and performance summary data highlighted in the
footnote to the above table is considered to represent APMs of the Company.
Definitions of these APMs together with how these measures have been
calculated can be found below.
Portfolio (as at 31 December 2023)
Largest 10 loans by drawn amounts across the entire portfolio
Business activity Investment type Valuation(+) Percentage of
(Private/Public/Bond)
£'000
gross asset (%)
Healthcare Private Loans 12,994 12.40
Manufacturing Private Loans 9,980 9.50
Healthcare Private Loans 8,799 8.40
Hotel & Leisure Private Loans 8,115 7.80
Hotel & Leisure Private Loans 5,287 5.10
Asset Backed Lending Private Loans 4,707 4.50
Accommodation Private Loans 4,434 4.20
Hotel & Leisure Private Loans 4,178 4.00
Hotel & Leisure Private Loans 3,691 3.50
Healthcare Private Loans 3,654 3.50
Ten largest holdings 65,839 62.90
Other private loan investments 25,127 24.10
Wholly owned asset 2,966 2.80
Total holdings 93,932 89.80
Other net current assets 10,584 10.20
Gross assets* 104,516 100.00
* The Company's gross assets comprise the net asset values of the Company's
Ordinary Shares and the Bank loan, which had been repaid at the year end.
The calculation can be found below.
(+) Valuation of private loans conducted by external Valuation Agent.
Number of loans: 31
Average yield: 10.91%
Full portfolio (as at 31 December 2023)
Loan Borrower Deal type Sector Business Nominal (£) Market Valuer Payment
ref#
name
description
value (£)
88 Private Loan - SPV Bilateral Loan Healthcare Care home 12,871,346 12,994,338 V Agent Cash
39 Beinbauer Syndicated Loan Manufacturing Auto Parts Manufacturer 10,022,097 9,980,275 V Agent PIK/Cash
76 Gym Franchise Bilateral Loan Healthcare Health and Well-being 8,553,696 8,798,765 V Agent Cash
66 Private Loan - SPV Bilateral Loan Hotel & Leisure Hotel 8,504,440 8,115,336 V Agent Cash
67 Private Loan - SPV Bilateral Loan Hotel & Leisure Hotel 5,540,560 5,287,063 V Agent Cash
15 Voyage Care Bond Healthcare Specialist Care 5,000,000 3,654,167 External Cash
80 Private Loan - SPV Bilateral Loan Hotel & Leisure Hotel 5,000,000 3,690,514 V Agent Cash
60 Private Loan - SPV Bilateral Loan Asset Backed Lending Asset Backed Lending 4,693,916 4,707,150 V Agent Cash
79 Private Loan - SPV Bilateral Loan Construction Construction 4,500,000 3,321,462 V Agent Cash
12 Private Loan - SPV Bilateral Loan Accommodation Student accommodation 4,430,000 4,434,438 V Agent Cash
73 Private Loan - SPV Bilateral Loan Hotel & Leisure Hotel 4,000,000 4,178,126 V Agent Cash
68 Equity Equity Accommodation Student accommodation 3,600,000 2,966,261 V Agent N/A
62 Trent Capital Bilateral Loan Energy Efficiency Energy Efficiency 3,259,437 3,026,936 V Agent PIK
58 Private Loan - SPV Bilateral Loan Hotel & Leisure Hotel 3,107,657 2,697,306 V Agent PIK
99 Private Loan - SPV Bilateral Loan Hotel & Leisure Hotel 2,881,472 2,907,875 V Agent Cash
92 Private Loan - SPV Bilateral Loan Hotel & Leisure Hotel 2,458,629 1,814,721 V Agent Cash
95a Private Loan - SPV Bilateral Loan Childcare & Education Childcare 2,349,061 2,132,123 V Agent Cash
71 Euroports Syndicated Loan Transport Assets Ports business 1,733,853 1,681,838 External Cash
96 Private Loan - SPV Bilateral Loan Energy Efficiency Energy Efficiency 1,539,700 1,601,159 V Agent Cash
97a Private Loan - SPV Bilateral Loan Healthcare Care home 1,258,536 1,286,099 V Agent Cash
74 Private Loan - SPV Bilateral Loan Accommodation Student accommodation 930,000 0 V Agent Cash
87 Private Loan - SPV Bilateral Loan Commercial Property Restaurant 782,623 796,761 V Agent Cash
76.1 Gym Franchise Bilateral Loan Healthcare Health and Well-being 747,017 765,684 V Agent PIK
98 Private Loan - SPV Bilateral Loan Childcare & Education Childcare 742,500 791,403 V Agent Cash
63 Trent Capital (Fusion) RF Bilateral Loan Energy Efficiency Energy Efficiency 612,844 0 V Agent PIK
97b Private Loan - SPV Bilateral Loan Healthcare Care home 566,036 568,330 V Agent Cash
81 Private Loan - SPV Bilateral Loan Finance Wealth Management 500,000 501,839 V Agent Cash
95b Private Loan - SPV Bilateral Loan Childcare & Education Childcare 468,212 444,630 V Agent Cash
91 Private Loan - SPV Bilateral Loan Childcare & Education School 450,000 448,467 V Agent Cash
94a Gym Franchise Bilateral Loan Healthcare Health and Well-being 228,170 239,265 V Agent Cash
52 Private Loan - SPV Bilateral Loan Clean Energy Renewable heat incentive 13,496 13,665 V Agent Cash
Total 101,345,298 93,931,896
MARKET
Market environment
For interest rate products, the market was very weak for the first half of the
year with UK government bond yields rising from January 2023 and peaking
during late June 2023, with 5-year UK yields touching circa 4.9%. The
remaining three months of the year saw a sustained rally with 5-year UK yields
closing at circa 3.5%. Credit spreads were strong during the reporting period
with the Markit iTraxx Crossover Index opening at circa 400 and closing at
circa 310 - although the journey was not linear as spreads widened to circa
500 in March 2023, before tightening over the summer to then widen into the
autumn before a strong year end saw spreads tighten from 460 in October to
close the year at 310.
Overall, whilst the market environment for credit was relatively benign, the
high level of the Sterling Overnight Average "SONIA" is providing tighter
financial conditions. Borrowers who are seeking a refinance are seeing SONIA
levels above 5% currently, which will affect their ability to refinance. In
the US markets in particular, we are starting to see this affecting Commercial
Real Estate "CRE" and we expect this to continue whilst front end interest
rates remain elevated.
Markit iTraxx Europe Crossover index
The Markit iTraxx Europe Crossover index comprises 75 equally weighted credit
default swaps on the most liquid sub-investment grade European corporate
entities. This is the most liquid reference point for high yield credit in
Europe. Spreads opened the year at 460bps and softened throughout the year,
tightening down to 310bps end of December 2023.
COMPANY OBJECTIVES
Although the Company has demonstrated strong NAV total return performance over
the longer term the discount to NAV per Share at which the Shares trade has
been both wide and persistent despite measures taken by the Board to seek to
address this through the use of buybacks and the provision of a periodic
realisation opportunity. This, coupled with the small scale of the Company and
the low levels of liquidity in the Company's shares has restricted the
Company's ability to grow.
As set out in the Company's announcement on 23 May 2023, in April 2023 the
Board received a non-binding indicative proposal which involved a combination
of all the Company's assets with another investment company managed by Gravis
Capital Partners (as disclosed on 11 August 2023). The combination was
proposed to be structured under section 110 of the Insolvency Act 1986 with no
option, partial or otherwise, for you as a shareholder to elect to receive
cash.
The proposal was considered alongside a wide array of potential options under
a broader review of the Company's future strategy: a potential continuation of
the Company's existing investment policy and strategy, a full or partial exit
opportunity, a combination of the Company's assets with another suitable
investment company or fund and a managed wind-down. The Board consulted with
Shareholders on these options and concluded that a partial exit opportunity
would only exacerbate the challenges the Company faces, as it would further
reduce the size of the Company.
Following the receipt of the first proposal, the Board received two additional
business combination proposals, as described in the Company's announcement on
10 July 2023.
Having considered the various proposals in detail, the Board concluded that no
better option existed which was likely to receive the required Shareholder
consent, and on 6 September 2023, the Board
announced its decision to put forward a proposal for a managed wind-down of
the Company. Consequently, on 20 December 2023, the Company revised its
objective to implement a managed wind-down of the company. Its revised
objective is as follows:
Revised objective
The Company aims to conduct an orderly realisation of the assets of the
Company, to be effected in a manner that seeks to achieve a balance between
returning cash to Shareholders promptly and maximising value.
The managed wind-down process is monitored closely by the Board further
details can be found in the Directors' report in the annual report. The
Investment Manager keeps the Board updated on latest developments as the
managed wind-down process progresses which is also discussed at each of the
Company's quarterly Board meetings.
CHAIR'S STATEMENT
Introduction
On behalf of the board of Directors ("the Board"), I am pleased to present RM
Infrastructure Income plc's ("RMII" or "the Company") Annual Report &
Accounts for the year ended 31 December 2023.
This year marks the seventh year since the Company's Initial Public Offering
("IPO") on the London Stock Exchange in December 2016 and was significant as
the Board of Directors proposed the implementation of a managed wind-down of
the Company which was unanimously approved by Shareholders at a General
Meeting convened on 20 December 2023.
Our focus now moves to the realisation of the Company's assets and return of
capital to Shareholders.
Income generation and NAV performance
In the seven years since listing, the Company has returned to Shareholders
43.73 pence per Ordinary Share in dividends.
On the 29 February 2024 the Company declared a fourth interim dividend for the
year of 1.625 pence per Ordinary Share which was paid on the 2 April 2024,
thus total dividends of 6.5 pence per Ordinary Share were declared or paid for
the year ended 31 December 2023.
At 31 December 2023 the audited NAV per share was 88.88 pence per Ordinary
Share (31 December 2022: 92.50 pence). The NAV percentage per Ordinary Share
Total Return for the year was 3.16% (2022: 4.98%) and annualised over 2022 and
2023 gives a 4.15% per annum NAV Total Return. Since inception the NAV
percentage Total Return on an annualised basis has been 5.15%.
Returns to Shareholders
In common with most of the investment trust sector, discounts to net asset
values increased sharply over the year. The closing mid-market share price on
31 December 2023 was 74.25 pence per Ordinary Share compared with 85 pence per
Ordinary Share and as of 31 December 2022. The 10.75 pence per Ordinary Share
decrease, combined with dividends, means the total percentage share price
return for the year was -4.63% (2022: -3.75% and since IPO to date 18.97%).
Portfolio overview
The loan portfolio reduced in size as borrowers repaid and no new loans were
made during the latter half of the year, instead capital was used to repay
borrowing facilities so that at year end these were undrawn. The portfolio
size closed at £94m (2022: £126m) of invested capital across 31 loans (38
loans 2022).
The year was much quieter than previous years in terms of investment activity
with one new loan made during the year to a children's nursery and one
refinance of an existing transaction. There were several smaller drawdowns to
existing facilities.
The Investment Manager is now targeting a reduction of the portfolio and an
expedient return of capital to Shareholders. No new loans will be made save
for the funding of committed facilities and any follow-on funding required to
protect value for RMII Shareholders.
Committed to responsible investing
The Board and the Investment Manager have long been committed to high ESG
standards and to responsible investing. The refreshed investment focus towards
social and environmental infrastructure sectors enhances this commitment
through investment in assets at the forefront of providing essential services
to society. RM Funds' Responsible Investing Investment Policy ensures that
these considerations are integrated into each individual investment process
and the alignment of the portfolio to achieving contributions towards outcomes
linked to UN Sustainable Development Goals 3,4,7,11,12&13.
Outlook
The Investment Manager is targeting a significant return of capital to
shareholders during 2024 and 2025 and is aiming to return a majority of
shareholder capital by year end 2025.
The Investment Manager believes the key risks to this repayment schedule
relate to several factors linked to either recovery or the ability to
refinance for the larger borrowers:
1. The speed and amounts of recovery to the loans secured on
the Clyde Street asset which went into administration in December 2023.
2. The ability of the borrower to refinance loans 66 & 67
secured over a portfolio of hotels. To maximise recovery these two loans will
likely require to be extended.
3. The ability of the borrower of loan 88, secured over a
modern, purpose built operating aged care asset, to secure a refinancing
during 2024.
4. The ability of the gym franchise to be able to achieve a
refinance or sale during 2025.
I look forward to continued engagement with Shareholders. Please do not
hesitate to contact me through our broker Singer Capital Markets if any
additional information is required.
Norman Crighton
Chair
22 April 2024
INVESTMENT MANAGER'S REPORT
Strong and sustainable NAV & income performance
Over the course of the year, the portfolio generated a NAV Total Return of
3.16% with total dividend distributions attributable to Shareholders for the
year totalling 6.5 pence per Ordinary Share. Overall, the NAV per Ordinary
Share decreased by 3.61 pence per Ordinary Share, from 92.50 pence per
Ordinary Share at 31 December 2022 to 88.88 pence per Ordinary Share at 31
December 2023.
For the year ended 31 December 2023
Net interest income +6.30p
Change in portfolio valuations -1.94p
Payment of 2023 Dividends -6.50p
Forecasted Liquidation Expenses -1.47p
Net NAV Movement -3.61p
Following the year end, an interim dividend in respect of the period from 1
October 2023 to 31 December 2023 was declared on 29 February 2024 and paid to
Shareholders on 2 April 2024. These dividends totalling 6.5 pence per Ordinary
Share for the year ending 31 December 2023 bring the total distributions since
the Company's launch in December 2016 to 42.10 pence per Ordinary Share,
exceeding the target set at IPO.
Share price performance
Negative share price performance combined with the widening of the share price
discount to NAV from -8.10% at 31 December 2022 to -16.46% at 31 December 2023
meant that there was a negative share price total return of -4.63%. Since IPO
the total percentage share return achieved is 18.97% which, if annualised,
since inception brings it to 2.54% per annum.
Market environment
For interest rate products, the market was very weak for the first half of the
year with UK government bond yields rising from January 2023 and peaking
during late June 2023, with 5-year UK yields touching circa 4.9%. The
remaining six months of the year saw a sustained rally with 5-year UK yields
closing at circa 3.5%. Credit spreads were strong during the reporting period
with the Markit ITraxx Crossover Index opening at circa 400 and closing at
circa 310, although the journey was not linear as spreads widened to circa 500
in March 2023, before tightening over the summer to then widen into the autumn
before a strong year end saw spreads tighten from 460 in October to close the
year at 310.
Overall, whilst the market environment for credit was relatively benign, the
high level of the Sterling Overnight Average ("SONIA") is providing tighter
financial conditions. Borrowers who are seeking a refinance are seeing SONIA
levels above 5% currently, which will affect their ability to refinance. In
the US markets in particular, we are starting to see this affecting Commercial
Real Estate ("CRE") and we expect this to continue whilst front end interest
rates remain elevated.
Financial performance
All debt facilities held with OakNorth Bank were repaid during the year.
Total income generation for the year was £10.9m (2022: £10.8m) and this was
split between cash interest £10.6m and £0.3m of Payment In Kind ("PIK"),
(2022: £8.0m and £2.8m).
Total operating costs were £5.0m (2022: £3.3m).
Revolving Credit Facility ("RCF") and other finance charges were £1.0m (2022:
£1.1m).
For the year ended 31 December 2023
Income £10,875,596
Total expenses (£1,521,054)
Finance costs (£1,003,658)
Total £8,350,884
Dividends (£7,643,116)
Profit after interest costs & before tax £707,768
There were four dividends paid or declared in respect of the year ending 31
December 2023 totaling 6.5 pence per Ordinary Share.
Period Payment date Dividend proceeds
Q1 2023 30 June 2023 £1,910,779
Q2 2023 29 September 2023 £1,910,779
Q3 2023 29 December 2023 £1,910,779
Q4 2023 2 April 2024 £1,910,779
Portfolio performance
As of 31 December 2023, the number of loans in the portfolio reduced over the
reporting period as there were several repayments over the year. The number of
loans fell to 31 from 38 and the invested capital reduced materially to £94m
(2022: £126m).
The overall yield on the portfolio increased over the reporting period by
176bps to 10.91%, from 9.15%.
Only one new investment loan was funded (Loan reference 98), secured on a
children's nursery. There was a further transaction (Loan reference 99) which
refinanced an existing RMII mezzanine loan secured against a hotel (Loan
reference 69). This transaction was structured to reduce the overall leverage
within the transaction as the borrower injected cash equity and RMII moved
from the junior position to the senior position by providing additional
funding that refinanced the senior lender.
There were 18 drawdowns against existing facilities which totaled £1.6m. As
of 31 December 2023, the remaining commitments to fund totaled approximately
£6m.
There were 15 borrowers that repaid over the period which totaled £33.1m, the
significant repayments were:
> Asset Finance, Ref #60: £3.5m
> Asset Finance, Ref #61 £4.5m
> Healthcare, Ref #82: £5m
> Accommodation, Ref #84: £4m
> Healthcare, Ref #83: £2.8m
> Hotel & Leisure, Ref 86: £5m
The portfolio is now going into a realisation phase with no new loans being
originated and cash being returned to Shareholders as loans repay. Further
loans could be made to existing borrowers to preserve the value of an existing
loan and loan maturities can be extended if that is deemed in the best
interests of the Company. The initial repayments were used to pay down the
leverage facilities of the Company and to retain some liquidity to fund
committed but undrawn facilities.
The Company has been pursuing a legal claim against the former main contractor
of investment loan reference 68, a wholly owned 79 beds student accommodation
located in the city centre of Coventry, UK, since September 2022 via an
adjudication process. This claim related to the provision of cladding and
other areas of the construction the main contractor took responsibility for.
Post Period end, on the 2nd of January 2024, RMII was successfully awarded
circa £1.2m by the adjudicator.
The enhanced monitoring watchlist had four assets as of 30 June 2023. Three of
these groups of loans were off the enhanced monitoring at year end as
described below:
> Loan reference 84 to a purpose-built student
accommodation developer was successfully refinanced.
> Loan reference 89 to 5 operational purpose-built
student accommodation assets claimed against its CBILS guarantee, successfully
recovering the mark.
> Loan references 82, 83 and 88 to purpose built aged
care assets were taken off the watchlist as accrued and outstanding balances
were paid. Loan references 82 & 83 were subsequently repaid.
> Loan references 58,79,80 & 92 secured on the hotel
development and contractor in Glasgow. In December the senior lender appointed
an administrator, so these loans are now in workout and remain on the
watchlist. The investment manager believes these loans are appropriately
marked.
As at 31 December 2023 the enhanced monitoring list was:
> Loan references 58,79,80 & 92 secured on the hotel
development and contractor in Glasgow as described above.
> Loan references 66 and 67 secured on two portfolios of
5 operational hotels. Whilst these loans have paid their interest in cash on
time since inception in 2019, it is doubtful that the borrower will be able to
achieve a successful refinancing ahead of their maturity in April 2024. RM are
liaising with the senior lender and borrower about an appropriate solution
that protects value for RMII and it is likely this will be some form of
amendment and extension of the existing loan facility.
Construction exposure within the portfolio has been closely monitored. During
the period three loans (Loan references 82, 83 & 88) which were facilities
for the provision of construction funding for new purpose-built aged care
homes saw the assets exit the construction phase and enter their operational
phase. Loans 82 & 83 were refinanced, and loan 88 saw its maturity
extended by 12 months, to April 2025.
The portfolio has exposure to two other construction loans (Loan references
97a & 97b) which is to a separate borrower and relate to the final
construction allocations within the portfolio. These Loans have a combined
drawn balance of circa £2.2m at the period end with a combined committed
balance of circa £6.3m. This is expected to be fully utilised during 2024.
Outlook for 2024
The Investment Manager is focused on realising the portfolio and returning
capital to investors as quickly as possible. It is currently expected that
material progress will be made during 2024.
Key risks to the realisation of the portfolio are the ability of existing
borrowers to be able to refinance RMII loans. Our expectation is that Bank of
England rates and the SONIA will come down during 2024 which will be helpful
for borrowers in facilitating their refinancing processes. Set against this,
we see the tighter financial conditions of the last year affecting credit
markets and in particular CRE loans during 2024 in a negative way which could
restrict the availability and willingness of other lenders to make property
backed loans.
RM Capital Markets Limited
22 April 2024
INVESTMENT POLICY, RESULTS AND OTHER INFORMATION
Revised Investment Objective and Investment Policy
At a General Meeting held on 20 December 2023 the following new investment
objective and investment policy were adopted:
Revised Investment Objective
The Company aims to conduct an orderly realisation of the assets of the
Company, to be effected in a manner that seeks to achieve a balance between
returning cash to Shareholders promptly and maximising value.
Revised Investment Policy
The assets of the Company will be realised in an orderly manner, returning
cash to Shareholders at such times and in such manner as the Board may, in its
absolute discretion, determine. The Board will endeavour to realise all of the
Company's investments in a manner that achieves a balance between maximising
the net value received from those investments and making timely returns to
Shareholders.
The Company may not make any new investments save for:
a) further secured debt instruments of UK SMEs and mid-market
corporates and/or individuals including any loan, promissory note, lease,
bond, or preference share ("Loans"), such debt instruments being to an
existing borrower which is expected to preserve the value of an existing Loan;
or
b) extending the maturity or repayment date or any interest
payment date if that is in the best interests of the Company.
The Company will continue to comply with all the investment restrictions
imposed by the Listing Rules in order to maintain the Company's admission to
the Official List under Chapter 15 of the Listing Rules.
In the event of a breach of the investment guidelines and restrictions, the
Investment Manager shall inform the Board upon becoming aware of the same and
if the Board considers the breach to be material, notification will be made to
a Regulatory Information Service and the Investment Manager will look to
resolve the breach with the agreement of the Board.
The Company intends to conduct its affairs in order to qualify as an
investment trust for the purposes of section 1158 of the CTA 2010, and its
investment activities will therefore be subject to the restrictions set out
above.
Borrowing and gearing
The Company may utilise borrowings for short term liquidity purposes. The
Company may also, from time to time, use borrowing for investment purposes on
a short term basis where it expects to repay those borrowings from realisation
of investments. Gearing represented by borrowings will not exceed 20 per cent.
of Net Asset Value calculated at the time of drawdown.
Hedging and derivatives
The Company may invest in derivatives for efficient portfolio management
purposes. In particular the Company can engage in interest rate hedging.
In accordance with the requirements of the FCA, any material change to the
Company's investment policy will require the approval of Shareholders by way
of an ordinary resolution at a general meeting.
Dividend policy
Since the commencement of the managed wind-down process, the Company expects
not to be able to keep paying dividends at the rate of 6.5 pence per share per
annum as was previously the case. The Company will instead pay dividends only
as required to maintain investment trust status. As the Company's portfolio
reduces in size its fixed costs will become a greater proportion of its
income.
The Company intends to maintain its investment trust status and listing during
this managed realisation process prior to the Company's eventual liquidation.
Maintaining the listing would allow Shareholders to continue to trade Shares
during the managed wind- down of the Company.
Results and dividend
The Company's revenue return after tax for the year ended 31 December 2023
amounted to £7,407,000 (2022: £7,462,000). The Company made a capital loss
after tax of £4,008,000 (2022: capital loss after tax of £2,072,000).
Therefore, the total return after tax for the Company was £3,399,000 (2022:
£5,390,000).
The first interim dividend of 1.625p per Ordinary Share was declared on 23 May
2023 in respect of the period from 1 January to 31 March 2023. The second
interim dividend of 1.625p per Ordinary Share for the quarter ended 30 June
2023 was declared on 14 August 2023 and the third interim dividend of 1.625p
per Ordinary Share for the quarter ended 30 September 2023 was declared on 31
October 2023. On 29 February 2024, the Board declared a fourth interim
dividend of 1.625 pence per Ordinary Share for the quarter to 31 December
2023.
Key performance indicators ("KPIs")
During the year under review, the Board measured the Company's success in
attaining its investment objective that was in place for the year by reference
to the following KPIs:
(i) Dividends
A fourth interim dividend for the quarter ending 31 December 2023 of 1.625p
per share was paid to Shareholders on the 2 April 2024 bringing total payments
for the year to 6.5p per share, thus meeting the annual target.
(ii) Total return
The Company's total return is monitored by the Board. The Ordinary Shares
generated a NAV total return of 3.16% (2022: +4.98%) in the year ended 31
December 2023.
(iii) Discount/premium to NAV
The discount/premium relative to the NAV per share represented by the share
price is closely monitored by the Board. The Ordinary Share price closed at a
16.46% discount (2022: 8.1% discount) to the NAV as at 31 December 2023. To
address the discount, 50,000 shares were bought back during the year at 85.5
pence per share.
(iv) Control of the level of ongoing charges
The Board monitors the Company's operating costs. Based on the Company's
average net assets for the year ended 31 December 2023, the Company's ongoing
charges figure calculated in accordance with the AIC methodology was 1.84%
(2022: 1.86%).
Since the Company's investment objective changed on 20 December 2023 the Board
measured the Company's success of the managed wind-down process through its
regular engagement with the Investment Manager and at its quarterly Board
meetings.
RISK AND RISK MANAGEMENT
Principal and emerging risks and uncertainties
The Board is responsible for the management of risks faced by the Company and
delegates this role to the Audit and Management Engagement Committee (the
"Committee"). The Committee periodically carries out a robust assessment of
principal and emerging risks and uncertainties and monitors the risks on an
ongoing basis. The Committee considers both the impact and the probability of
each risk occurring and ensures appropriate controls are in place to reduce
risk to an acceptable level. The experience and knowledge of the Board is
invaluable to these discussions, as is advice received from the Board's
service providers, specifically the AIFM who is responsible for the risk and
portfolio management services and outsources the portfolio management to the
Investment Manager. The Committee has a dynamic risk matrix in place to help
identify key risks in the business and oversee the effectiveness of internal
controls and processes.
During the year under review the Committee continued to monitor geopolitical
risks, particularly with the ongoing war in Ukraine and increased tensions in
the Middle East following the conflict in Gaza. The Committee continues to
review the processes in place to mitigate risk; and to ensure that these are
appropriate and proportionate in the current market environment.
During the year the Company amended its investment objective/policy in order
to conduct an orderly realisation of the assets of the Company, to be effected
in a manner that seeks to achieve a balance between returning cash to
Shareholders promptly and maximizing value.
The principal and emerging risks, together with a summary of the processes and
internal controls used to manage and mitigate risks where possible are
outlined in the following paragraphs.
(i) Market risks
Inability of the Company's Investment Manager to realise the Company's assets
in accordance with the Company's managed wind-down
The Investment Manager may struggle to meet its obligation to realise the
Company's assets in accordance with the company's newly adopted investment
policy.
Market sectors
Loans are made to borrowers that operate in different market sectors each of
which will have risks that are specific to that particular market sector.
Idiosyncratic risks coupled with a downward turning market may increase
refinancing risk with actions leading to a loss in value and recoverability in
junior and mezzanine positions.
Valuation
The Company's approach regarding the valuation of its investments remains
unchanged albeit the methodology to reach said valuation has become more
substantive. Fair value write downs continue to be driven by market risk and
idiosyncratic risk, with idiosyncratic risk relating to loan specific
information which is reflected within specific loan pricing.
Management of risks
The Company has appointed an experienced Investment Manager who directly
sourced loans and advise on the management there of. The Company has a
portfolio of a wide range of loan types and sectors and therefore benefits
from diversification.
Investment restrictions have been revised now that the Company is in managed
wind-down and are relatively flexible giving the Investment Manager ability to
take advantage of exit opportunities as they arise.
The Investment Manager, AIFM, Brokers and the Board review market conditions
on an ongoing basis.
(ii) Risks associated with meeting the Company's investment
objective or target dividend yield
The Company's updated investment objective is to conduct an orderly
realisation of the assets of the Company, to be effected in a manner that
seeks to achieve a balance between returning cash to Shareholders promptly and
maximizing value. The declaration, payment and amount of any future dividends
by the Company will be subject to the discretion of the Directors and will
depend upon, amongst other things, the Company successfully pursuing the
investment policy and the Company's earnings, financial position, cash
requirements, level and rate of borrowings and availability of profit, as well
as the provisions of relevant laws or generally accepted accounting principles
from time to time.
Management of risks
The Investment Manager has a clearly defined investment policy and process
which is regularly and rigorously reviewed by the independent Board of
Directors and performance is reviewed at quarterly Board meetings. The
Investment Manager is experienced and has employed its expertise in making
investments in a diversified portfolio of loans. The Investment Manager has a
target portfolio yield which covers the level of dividend targeted by the
Company. The Board reviews the position at Board meetings.
(iii) Financial risks
The Company's investment activities expose it to a variety of financial risks
which include liquidity, currency, leverage, interest rate and credit risks.
Further details on financial risks and the management of those risks can be
found in note 19 to the financial statements.
(iv) Corporate governance and internal control risks
The Company has no employees, and the Directors have all been appointed on a
non-executive basis. The Company must therefore rely upon the performance of
third-party service providers to perform its executive functions. In
particular, the AIFM, the Investment Manager, the Administrator, the Company
Secretary and the Registrar, will perform services that are integral to the
Company's operations and financial performance.
Poor performance of the above service providers could lead to various
consequences including the loss of the Company's assets, inadequate returns to
Shareholders and loss of investment trust status. Cyber security risks could
lead to breaches of confidentiality, loss of data records and inability to
make investment decisions.
Management of risks
Each of the above contracts was entered into after full and proper
consideration of the quality and cost of services offered, including the
financial control systems in operation in so far as they relate to the affairs
of the Company. All of the above services are subject to ongoing oversight of
the Board and the performance of the principal service providers is reviewed
on a regular basis. The Company's key service providers report periodically to
the Board on their procedures to mitigate cyber security risks.
(v) Regulatory risks
The Company and its operations are subject to laws and regulations enacted by
national and local governments and government policy. Compliance with, and
monitoring of, applicable laws and regulations may be difficult, time
consuming and costly. Any change in the laws, regulations and/or government
policy affecting the Company or any changes to current accountancy regulations
and practice in the UK may have a material adverse effect on the ability of
the Company to successfully pursue its investment policy and meet its
investment objective and/or on the value of the Company and the shares. In
such event, the performance of the Company, the NAV, the Company's earnings
and returns to Shareholders may be materially adversely affected.
Management of risks
The Company has contracted out relevant services to appropriately qualified
professionals. The Secretary and AIFM report on compliance matters to the
Board on a quarterly basis and the Board has access to the advice of its
Corporate Broker on a continuing basis. The assessment of regulatory risks
forms part of the Board's risk assessment program.
Emerging risks
The Board also has robust processes in place to identify and evaluate emerging
risks.
(vi) Business interruption
Failure in services provided by key service providers, meaning information is
not processed correctly or in a timely manner, resulting in regulatory
investigation or financial loss, failure of trade settlement, or potential
loss of investment trust status.
Failure to identify emerging risks may cause reactive actions rather than
being proactive and the Company could be forced to change its structure,
objective or strategy and, in worst case, could cause the Company to become
unviable or otherwise fail.
Management of risks
Each service provider has business continuity policies and procedures in place
to ensure that they are able to meet the Company's needs and all breaches of
any nature are reported to the Board.
The following is a description of the Company's service providers who assist
in identifying the Company's emerging risks to the Board.
1. Investment Manager: the Investment Manager provides a report to the
Board at least quarterly on industry trends, insight to future challenges in
the sector, including the regulatory, political and economic changes likely to
impact the Company. The Chair also has contact with the Investment Manager on
a regular basis to discuss any pertinent issues;
2. Alternative Investment Fund Manager: the AIFM maintains a register of
identified risks including emerging risks likely to impact the Company, which
is updated quarterly following discussions with the Investment Manager and
other service providers. The risks are documented on a risk register, and
classified in the following categories: Market Risks; Risks associated with
Investment Objective; Financial Risks; Corporate Governance Risks; Regulatory
Risks and Emerging Risks. Any changes and amendments to the risk register are
highlighted to the Board on a quarterly basis;
3. Broker: provides advice periodically, specific to the Company on the
Company's sector, competitors and the investment company market whilst working
with the Board and Investment Manager to communicate with Shareholders;
4. Company Secretary: briefs the Board on forthcoming legislation and
regulatory change that might impact the Company. The Secretary also liaises
with the Company's Legal Adviser, Auditor and the AIC (including other
regulatory bodies) to ensure that industry and regulatory updates are brought
to the Board's attention.
The Board regularly reviews the Company's risk matrix, focusing on risk
mitigation and ensuring that the appropriate controls are in place. Regular
review ensures that the Company operates in line with the risk matrix,
prospectus and investment strategy. Emerging risks are actively discussed
throughout the year to ensure that risks are identified and managed so far as
practicable. The experience and knowledge of the Board is invaluable to these
discussions, as is advice received from the Board's service providers.
All key service providers produce annual internal control reports for review
by the Audit and Management Engagement Committee. These reviews include
consideration of their business continuity plans and the associated cyber
security risks. Service providers report on cyber risk mitigation and
management at least annually, which includes confirmation of business
continuity capability in the event of a cyberattack. Penetration testing is
carried out by the Investment Manager and key service providers at least
annually. Details of the Directors' assessment of the going concern status of
the Company can be found in the annual report. The Investment Manager complies
with all sanctioning regimes and presently views Russia as uninvestable.
(vii) ESG and Climate Change
The impact of climate change has come increasingly into focus and is
considered an emerging risk by both the Board and its Investment Manager.
While the Company itself faces limited direct risk from climate change, the
Company's underlying holdings selected by the Investment Manager are impacted.
While efforts to mitigate climate change continue, the physical impacts are
already emerging in the form of changing weather patterns. Extreme weather
events can result in flooding, drought, fires, storm damage, potentially
impairing the operations of a portfolio company at a certain location, or
impacting locations of companies within their supply chain. Significant
changes in climate, or the Government measures to combat it, could present a
material risk to the Company. There is also potential reputational damage from
non-compliance with regulations or incorrect disclosures.
Management of risks
The Company incorporates ESG considerations into its investment process and
more detail can be found in the Annual Report. The Investment Manager also
uses its position to engage with and influence companies towards taking
positive steps to contribute to ESG and against climate change. The Company's
ESG Policy, which is updated annually is also published on the Company's
website and the AIC website. The Board have considered the impact of climate
change on the financial statements as documented in the Notes to the financial
statements.
The Company released its first annual Impact Report provided by The Good
Economy, an independent advisory firm specialising in impact measurement and
management. The Report, covering the 12-month period to end March 2022,
assesses the Company's 12-month performance against its stated impact
objectives relating to UN Sustainable Development Goals: Healthcare,
Education, Housing, Affordable and clean energy, Climate action and
Responsible consumption and production.
RM Funds is a signatory to the Principles of Responsible Investment Initiative
("PRI") and reports annually according to the PRI reporting framework.
Investment trusts are currently exempt from the Task Force on Climate-Related
Financial Disclosures ("TCFD") disclosure, however the Board will continue to
monitor the situation.
DIRECTORS' RESPONSIBILITY STATEMENT
The Directors are responsible for preparing the annual report and the
financial statements in accordance with applicable United Kingdom law and
regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have elected to prepare the
Company financial statements in accordance with UK- adopted international
accounting standards. Under company law the Directors must not approve the
financial statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of the profit or loss of the
Company for that period.
In preparing these financial statements the Directors are required to:
> select suitable accounting policies in accordance with
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors and then
apply them consistently;
> make judgements and accounting estimates that are
reasonable and prudent;
> present information, including accounting policies, in
a manner that provides relevant, reliable, comparable and understandable
information;
> provide additional disclosures when compliance with the
specific requirements of UK-adopted international accounting standards is
insufficient to enable users to understand the impact of particular
transactions, other events and conditions on the financial position and
financial performance;
> in respect of the financial statements, state whether
UK-adopted international accounting standards, have been followed, subject to
any material departures disclosed and explained in the financial statements;
> prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the Company will continue in
business; and
> for the reasons stated in the Directors'/Strategic
Report and note 2, the financial statements have not been prepared on a going
concern basis.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies'
Act 2006. They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a strategic report, Directors' report, Directors' remuneration
report and corporate governance statement that comply with that law and those
regulations. The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the Company's website.
The Directors each confirm to the best of their knowledge that:
(a) the financial statements, prepared in accordance with
applicable accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit of the Company; and
(b) this Annual Report, including the strategic report, includes a
fair review of the development and performance of the business and position of
the Company, together with a description of the principal risks and
uncertainties that it faces.
The Directors consider that the financial statements are fair, balanced and
understandable and provide the information necessary for Shareholders to
assess the Company's performance, business model and strategy.
For and on behalf of the Board
Norman Crighton
Chair
22 April 2024
FINANCIAL STATEMENTS
Company statement of comprehensive income
For the year ended 31 December 2023
Year ended 31 December 2023 Year ended 31 December 2022
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
(Losses) on investments 3 - (2,441) (2,441) - (2,072) (2,072)
Income 4 10,876 - 10,876 10,768 - 10,768
Investment management fee 5 (944) - (944) (971) - (971)
Other expenses 6 (1,521) (1,567) (3,088) (1,230) - (1,230)
Return before finance costs and taxation 8,411 (4,008) 4,403 8,567 (2,072) 6,495
Finance costs 7 (1,004) - (1,004) (1,102) - (1,102)
Return on ordinary activities before taxation 7,407 (4,008) 3,399 7,465 (2,072) 5,393
Taxation 8 - - - (3) - (3)
Return on ordinary activities after taxation 7,407 (4,008) 3,399 7,462 (2,072) 5,390
Return per ordinary share (pence) 14 6.30p (3.41p) 2.89p 6.33p (1.76p) 1.15p
The total column of this Statement represents the profit and loss account of
the Company. The supplementary revenue and capital columns are prepared under
guidance issued by the Association of Investment Companies.
'Return on ordinary activities after taxation' is also the Total comprehensive
income for the year.
A Statement of Comprehensive Income is not required as the Company does not
have any other comprehensive income and the net return on ordinary activities
after taxation is both the profit and total comprehensive income for the year.
The notes form an integral part of these financial statements.
Statement of financial position
As at 31 December 2023 As at 31 December 2022
£'000 £'000
Notes
Fixed assets
Investments at fair value through profit or loss 93,932 119,970
3
Current assets
Cash and cash equivalents 7,791 2,993
Receivables 9 7,969 5,421
15,760 8,414
Payables: amounts falling due within one year
Payables (5,176)
10 (2,308)
Bank loan - Credit facility 11 - (17,271)
(5,176) (19,579)
Net current liabilities 10,584 (11,165)
Total assets less current liabilities 104,516 108,805
Net assets 104,516 108,805
Capital and reserves: equity
Share capital
12 1,175 1,176
Share premium 13 70,168 70,168
Special reserve 44,597 44,640
Capital reserve (14,229) (10,221)
Revenue reserve 2,805 3,042
Total shareholders' funds 104,516 108,805
NAV per share - Ordinary Shares (pence) 15 88.88p 92.49p
The financial statements of the Company were approved and authorised for issue
by the Board of Directors on 22 April 2024 and signed on their behalf by:
Norman Crighton
Chair
Registered in England and Wales with registered number 10449530.
The notes form an integral part of these financial statements.
Statement of changes in equity
For the year ended 31 December 2023
Share Share Special Capital Revenue
capital premium reserve reserve reserve Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Balance as at beginning of the year 1,176 70,168 44,640 (10,221) 3,042 108,805
Return on ordinary activities - - - (4,008) 7,407 3,399
Buy back of shares 12 (1) - (42) - - (43)
Share buy back costs - - (1) - - (1)
Transfer to capital reserves reserve - - - - - -
Dividend paid 16 - - - - (7,644) (7,644)
Balance as at 31 December 2023 1,175 70,168 44,597 (14,229) 2,805 104,516
For the year ended 31 December 2022
Share
Share premium Special Capital Revenue
capital account reserve reserve reserve Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Balance as at beginning of the year 1,178 70,168 44,813 (8,149) 3,240 111,250
Return on ordinary activities - - - (2,072) 7,462 5,390
Buy back of shares 12 (2) 2 (173) - - (173)
Shares buy back costs - (2) - - - (2)
Dividend paid 16 - - - - (7,660) (7,660)
Balance as at 31 December 2022 1,176 70,168 44,640 (10,221) 3,042 108,805
Distributable reserves comprise: the revenue reserve; capital reserve
attributable to realised profits; and the special reserve.
The capital reserves attributable to realised profits for the year ended 31
December 2022 and 2023 are in a net loss position.
Share capital represents the nominal value of shares that have been issued.
The share premium includes any premiums received on the issue of share
capital. Any transaction costs associated with the issuing of shares are
deducted from share premium.
The notes form an integral part of these financial statements.
Statement of cash flows
For the year ended 31 December 2023
Year ended 31 December 2023
£'000 Year ended 31 December 2022
Notes £'000
Operating activities
Return on ordinary activities before finance costs and taxation* 4,403 6,495
Adjustments for movements not generating an operating cash flow:
Adjustment for losses on investments 2,247 1,802
PIK adjustments to the operating cash flow (2,637) (2,466)
Finance costs 1,004 1,102
Adjustments for balance sheet movements:
Increase in receivables (2,548) (2,737)
Increase in payables 2,868 458
Net cash flow from operating activities 4,333 3,552
Investing activities
Private loan repayments/bonds sales proceeds 33,494 25,784
Private loans issued/bonds purchases (7,066) (18,416)
Net cash flow from investing activities 26,428 7,368
Financing activities
Finance costs (1,004) (1,102)
Ordinary Share bought back 12 (43) (173)
Ordinary Share buyback costs (1) (2)
OakNorth loan facility drawdown 6,621 12,550
OakNorth loan facility repaid (23,892) (14,850)
Equity dividends paid 16 (7,644) (7,660)
Net cash flow used in financing activities (25,963) (11,237)
Increase/(Decrease) in cash 4,798 (317)
Opening balance at beginning of the year 2,993 3,310
Balance as at year end 7,791 2,993
* Cash inflow from interest on investment holdings was £8,743,000 (2022:
£8,396,000).
* Included in return on ordinary activities before finance costs and taxation
was finance costs of £1.00m (2022: £1.10m).
The notes form an integral part of these financial statements.
Changes in financing liabilities
Year ended 31 December 2023 Year ended 31 December 2022
Movement in financial liabilities OakNorth facility Intercompany loan OakNorth facility Intercompany loan
£'000 £'000 £'000 £'000
Balance as at beginning of the year 17,271 - 19,571 -
Facility drawdowns during the year 6,621 - 12,550 -
Facility interest payable during the year 1,004 - 1,102 -
Facility and interest repayments during the year (24,896) - (15,952) -
Balance as at 31 December 2023 - - 17,271 -
NOTES TO THE FINANCIAL STATEMENTS
1. General information
RM Infrastructure Income plc (the "Company") was incorporated in England and
Wales on 27 October 2016 with registered number 10449530, as a closed-ended
investment company. The Company commenced its operations on 15 December 2016.
The Company intends to carry on business as an investment trust within the
meaning of Chapter 4 of Part 24 of the Corporation Tax Act 2010.
The Company aims to conduct an orderly realisation of the assets of the
Company, to be effected in a manner that seeks to achieve a balance between
returning cash to Shareholders promptly and maximising value.
The registered office is 6th Floor, 125 London Wall, London EC2Y 5AS.
2. Accounting policies
The principal accounting policies followed by the Company are set out below:
(a) Basis of accounting
The financial statements have been prepared in accordance with UK-adopted
international accounting standards. The financial statements have been
prepared on a realisation basis, except for investments measured at
recoverable value (being fair value less cost to sell).
In preparing these financial statements the directors have considered the
impact of climate change as a risk as set out in the annual report and have
concluded that there was no further impact of climate change to be taken into
account. In line with IAS, investments are initially valued at fair value and
climate change risk is taken into consideration in the valuation of the
investments we hold.
The Board has determined by having regard to the currency of the Company's
share capital and the predominant currency in which the Company operates, that
sterling is the functional and presentational currency. Where presentational
recommendations set out in the Statement of Recommended Practice "Financial
Statements of Investment Trust Companies and Venture Capital Trusts" ("SORP"),
issued in the UK by the AIC in July 2022, do not conflict with the
requirements of UK-adopted international accounting standards ("IFRS"), the
directors have prepared the financial statements on a basis consistent with
the recommendations of the SORP, in the belief that this will aid comparison
with similar investment companies incorporated in the United Kingdom.
In accordance with the SORP, the Statement of Comprehensive Income has been
analysed between a revenue return (dealing with items of a revenue nature) and
a capital return (relating to items of a capital nature). Revenue returns
include, but are not limited to, investment related income, operating
expenses, income related finance costs and taxation (insofar as they are not
allocated to capital). Net revenue returns are allocated via the revenue
return to the Revenue reserve.
Capital returns include, but are not limited to, profits and losses on the
disposal and the valuation of non-current investments, derivative instruments,
cash (including effect on foreign currency translation), operating costs and
finance costs (insofar as they are not allocated to revenue). Net capital
returns are allocated via the capital return to Capital reserves.
Dividends on Ordinary Shares may be paid out of Revenue reserve, Capital
reserve and Special reserve.
(b) Adoption of new IFRS standards
New standards, interpretations and amendments adopted from 1 January 2023
A number of new standards, amendments to standards and interpretations are
effective for the annual periods beginning after 1 January 2023. None of these
are expected to have a significant effect on the measurement of the amounts
recognized in the financial statements of the Company.
New standards and amendments issued but not yet effective
The relevant new and amended standards and interpretations that are issued,
but not yet effective, up to the date of issuance of the Company's financial
statements are disclosed below. These standards are not expected to have a
material impact on the entity in future reporting periods and on foreseeable
future transactions.
Amendments to IAS 1 Presentation of Financial Statements - Classification of
Liabilities as Current or Non-current
The amendments to IAS 1 clarify that the classification of liabilities as
current or non-current is based on rights that are in existence at the end of
the reporting period, specify that classification is unaffected by
expectations about whether an entity will exercise its right to defer
settlement of a liability, explain that rights are in existence if covenants
are complied with at the end of the reporting period, and introduce a
definition of settlement to make clear that settlement refers to the transfer
to the counterparty of cash, equity instruments, other assets or services. The
amendments are applied retrospectively for annual periods beginning on or
after 1 January 2024, with early application permitted.
Amendments to IAS 1 Presentation of Financial Statements - Non-current
Liabilities with Covenants
The amendments specify that only covenants that an entity is required to
comply with on or before the end of the reporting period affect the entity's
right to defer settlement of a liability for at least twelve months after the
reporting date (and therefore must be considered in assessing the
classification of the liability as current or non-current). Such covenants
affect whether the right exists at the end of the reporting period, even if
compliance with the covenant is assessed only after the reporting date (e.g. a
covenant based on the entity's financial position at the reporting date that
is assessed for compliance only after the reporting date). The amendments are
applied retrospectively for annual reporting periods beginning on or after 1
January 2024. Earlier application of the amendments is permitted.
Amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments:
Disclosures - Supplier Finance Arrangements
The amendments add a disclosure objective to IAS 7 stating that an entity is
required to disclose information about its supplier finance arrangements that
enables users of financial statements to assess the effects of those
arrangements on the entity's liabilities and cash flows. In addition, IFRS 7
was amended to add supplier finance arrangements as an example within the
requirements to disclose information about an entity's exposure to
concentration of liquidity risk. The amendments, which contain specific
transition reliefs for the first annual reporting period in which an entity
applies the amendments, are applicable for annual reporting periods beginning
on or after 1 January 2024. Earlier application is permitted.
(c) Going concern
The Directors, as at the date of this report, are required to consider whether
they have a reasonable expectation that the Company has adequate resources to
continue in operational existence for the foreseeable future. Following the
General Meeting held on 20 December 2023 at which shareholders unanimously
voted in favour of a change in the Company's Objective and Investment Policy
in order to facilitate a managed wind- down, the process for an orderly
realisation of the Company's assets and a return of capital to shareholders
has begun. The Company is therefore preparing its financial statements on a
basis other than going concern due to the Company being in a managed
wind-down.
The Board will endeavour to realise all of the Company's investments in a
manner that achieves a balance between maximising the net value received from
those investments and making timely returns to Shareholders.
Whilst the Directors are satisfied that the Company has adequate resources to
continue in operation throughout the winding down period and to meet all
liabilities as they fall due, given the Company is now in a managed wind-down
the Directors considered it appropriate to adopt a basis other than a going
concern in preparing the financial statements. No material adjustments to
accounting policies or the valuation basis have arisen as a result of ceasing
to apply the going concern basis. All of the balance sheet items have been
recognised on a recoverable basis, which is not materially different from the
carrying amount. The Directors have also made appropriate provisions in order
to bring about the orderly wind- down of the Company and its operations.
(d) Assessment as an Investment Entity
The Company meets the definition of an investment entity on the basis of the
following criteria:
1. the Company obtains funds from multiple investors for the purpose of
providing those investors with investment management services;
2. the Company commits to its investors that its business purpose is to
invest funds solely for returns from capital appreciation, investment income,
or both; and
3. the Company measures and evaluates the performance of substantially
all of its investments on a fair value basis.
To determine that the Company meets the definition of an investment entity,
further consideration is given to the characteristics of an investment entity,
which are that:
- it should have more than one investment, to diversify the risk
portfolio and maximise returns;
- it should have multiple investors, who pool their funds to
maximise investment opportunities;
- it should have investors that are not related parties of the
entity; and
- it should have ownership interests in the form of equity or
similar interests.
The Directors are of the opinion that the Company meets the essential criteria
and typical characteristics of an Investment Entity.
(e) Investments
Investments consist of private loans and bonds, which are classified as fair
value through profit or loss as they are included in the Company's financial
assets that are managed and their performance evaluated on a fair value basis.
They are initially and subsequently measured at fair value and gains and
losses are attributed to the capital column of the Statement of Comprehensive
Income. Investments are recognised on the date that the Company becomes a
party to the contractual provisions of the instrument and are derecognised
when their term expires, or on the date they are sold, repaid or transferred.
Unquoted investments are valued at fair value by the Board which is
established with regard to the International Private Equity and Venture
Capital Valuation Guidelines by using, where appropriate, latest dealing
prices, valuations from reliable sources and other relevant factors. Due to
the Company's wind-down status, investments have been recognised at
recoverable value, which has been determined as fair value less cost to
realise. The difference between the investment's fair value and recoverable
value was not material.
(f) Foreign currency
Transactions denominated in foreign currencies are translated into sterling at
actual exchange rates as at the date of the transaction. Monetary assets and
liabilities and non-monetary assets held at fair value denominated in foreign
currencies are translated into sterling using London closing foreign exchange
rates at the year end. Any gain or loss arising from a change in exchange
rates is included as an exchange gain or loss to capital or revenue in the
Statement of Comprehensive Income as appropriate. Foreign exchange movements
on investments are included in the Statement of Comprehensive Income within
gains and losses on investments. The financial statements are presented in
pounds sterling, which is the Company's functional and presentation currency.
(g) Income
Fair value movements attributable to PIK interest and Cash Interest on the
investment portfolio are recorded under Income in the Statement of
Comprehensive Income.
All other income including deposit interest is accounted for on an accruals
basis and early settlement fees received are recognised upon the early
repayment of the loan.
Arrangement fees earned on private loan investments are recognised as an
income over the term of the private loans.
A simplified credit loss provision has been applied against uncertain interest
receivables.
(h) Cash and cash equivalents
Cash and cash equivalents include deposits held at call with banks and other
short-term deposits with original maturities of three months or less.
(i) Capital reserves
Realised and unrealised gains and losses on the Company's investments are
recognised in the capital column of the Statement of Comprehensive Income and
allocated to the capital reserve.
(j) Expenses
All expenses are accounted for on an accruals basis.
Management fees and finance costs
The Company is expecting to derive its returns predominantly from interest
income. Therefore, the Board has adopted a policy of allocating all management
fees and finance costs to the revenue column of the Statement of Comprehensive
Income.
Other expenses are recognised in the revenue column of the Statement of
Comprehensive Income, unless they are incurred in order to enhance or maintain
capital profits.
(k) Taxation
The charge for taxation is based upon the net revenue for the year. The tax
charge is allocated to the revenue and capital columns of the Statement of
Comprehensive Income according to the marginal basis whereby revenue expenses
are first matched against taxable income arising in the revenue account.
Deferred taxation will be recognised as an asset or a liability if
transactions have occurred at the initial reporting date that give rise to an
obligation to pay more taxation in the future, or a right to pay less taxation
in the future. An asset will not be recognised to the extent that the transfer
of economic benefit is uncertain.
(l) Financial liabilities
Bank loan facility and overdrafts are initially recorded as the proceeds
received net of direct issue costs and subsequently measured at amortised cost
using the effective interest rate. The associated costs of the bank loan
facility are amortised over the period of the bank loan facility. The
Directors have also made appropriate provisions in order to bring about the
orderly wind-down of the Company and its operations.
(m) Dividends
Interim dividends to the holders of shares are recorded in the Statement of
Changes in Equity on the date that they are paid. Final dividends would be
recorded in the Statement of Changes in Equity when they are approved by
Shareholders, however the Company currently declares four interim dividends as
opposed to any final dividends.
(n) Judgements, estimates and assumptions
The preparation of financial statements requires the directors to make
estimates and assumptions that affect the application of accounting policies
and the reported amounts of assets, liabilities, income and expenses. Although
these estimates are based on management's best knowledge of current facts,
circumstances and, to some extent, future events and actions, the Company's
actual results may ultimately differ from those estimates, possibly
significantly.
The Company recognises loan investments at fair value through profit or loss
and disclosed in note 3 to the financial statements. The significant
assumptions made at the point of valuation of loans are the discounted cash
flow analysis and/or benchmarked discount/interest rates, which are deemed
appropriate to reflect the risk of the underlying loan. These assumptions are
monitored to ensure their ongoing appropriateness. The sensitivity impact on
the measurement of fair value of loan investments due to price is discussed in
note 19.
As per AIC SORP, where an Investment Company is approaching a wind-up and a
provision for liquidation expenses has been made, the Board needs to consider
why those expenses have been/are going to be incurred and whether the
circumstances meet the maintenance or enhancement test for allocating them to
capital. It may also be the case that certain of the costs should be treated
as being related to the disposal of the Investment Company's assets. Certain
expenses, such as brokerage fees and stamp duty, are incurred as part of the
process of buying and selling Investments and, for Investment Companies, it is
considered that such expenses are capital in nature.
The liquidation expenses provided for in the accounts are in relation to the
disposal of the Company's assets and the ultimate costs of returning the
shareholders capital. Thus, these have been included within the Capital
section of the Statement of Comprehensive Income.
3. Investment at fair value through profit or loss
(a) Summary of valuation 31 December 2023 31 December 2022
£'000 £'000
Financial assets held:
Equity investments 2,966 3,593
Bond investments 3,654 4,208
Private loan investments 87,312 112,169
93,932 119,970
Year ended Year ended
(b) Movements 31 December 2023 31 December 2022
£'000 £'000
Opening valuation 119,970 126,674
Opening losses on investments 7,306 5,803
Book cost at the beginning of the year 127,276 132,477
Private loans issued/bonds purchases at cost 7,066 18,415
Purchase in kind interest ("PIK") 2,637 2,690
Purchase of equity investments - -
Sales:
- Private loans repayments/bonds sales proceeds (33,121) (25,784)
- Losses on investment (373) (298)
- Purchase in kind interest ("PIK") - (224)
Unrealised losses on investments held (9,553) (7,306)
Closing valuation at year end 93,932 119,970
Book cost at end of the year 103,485 127,276
Unrealised losses on investment holdings at the year end (9,553) (7,306)
Closing valuation at year end 93,932 119,970
The Company received £33.5 million (2022: £25.5 million) from investments
sold in the year. The book cost of these investments when they were purchased
was £33.1 million (2022: £25.8 million). These investments have been
revalued over time and until they were sold any unrealised gains/losses were
included in the fair value of the investments. The Company's investments are
UK-based with the exception of Beinbauer which is based in Germany. The fair
value of the investment in Beinbauer amounted to £10.0 million (2022: £9.6
million).
(c) Gains/(losses) on investments 31 December 2023 31 December 2022
£'000 £'000
Realised gains/(losses) on investments 10 (298)
Unrealised gains/(losses) on investments held (2,247) (1,503)
Other capital gains - 217
Foreign exchange losses (204) (488)
Total losses on investments (2,441) (2,072)
At the year end, the Company had three unquoted investments, which are
recorded at fair value as the Company meets the definition of an investment
entity within IFRS 10.
- Esprit Holdco Limited (Energie Fitness). The Company participated
in a management buyout during 2020 and owns 28% of the business, the
registered office and principal of business of Energie Fitness is 1 Pitfield
Kiln Farm, Milton Keynes, United Kingdom, MK11 3LW. The Investment Manager
valued holdings in Energie Fitness at nil.
- Trent Capital Limited. The Company structured a Loan in 2019,
which also offered equity within Trent Capital Limited. The Company has a 70%
net equity holding within the business which is registered at 17 Walkergate,
Berwick Upon Tweed, Northumberland, TD15 1DJ and the principal business
address is Unit 7 Newton Chambers Way, Thornecliffe Industrial Estate,
Chapeltown, Sheffield, S35 2PH. The Investment Manager valued holdings in
Trent Capital Limited at nil.
- Coventry Student Accommodation 1 Limited ("Coventry", wholly owned
asset). The Company holds an unquoted investment in Coventry. As at 31
December 2023, the Company owns 100% of the business. The registered office
and principal place of business of Coventry is 6th Floor, 125 London Wall,
London, EC2Y 5AS. The Investment Manager's valuation of the holdings in
Coventry is £3.0 million as at. 31 December 2023 (2022: £3.6 million). A
credit loss has been recognised under the simplified approach for interest
income in note 10.
4. Income
Year ended 31 December 2023 Year ended 31 December 2022
£'000 £'000
Income from investments
Bond and loan - cash interest 10,352 7,895
Bond and loan - PIK interest 294 2,767
Arrangement fees 42 43
Delayed Compensation fees received - 2
Other income 188 61
Total 10,876 10,768
5. Investment management fee
Year ended 31 December 2023 Year ended 31 December 2022
£'000 £'000
Basic fee:
100% charged to revenue 944 971
Total 944 971
The Company's Investment Manager is RM Capital Markets Limited. Under the
amended Investment Management Agreement, effective 1 April 2020 which was in
place for the year under review, the Investment Manager is entitled to receive
a management fee payable monthly in arrears or as soon as practicable after
the end of each calendar month an amount one-twelfth of;
(a) 0.875 per cent. of the prevailing NAV in the event that
the prevailing NAV is up to or equal to £250 million; or
(b) 0.800 per cent. of the prevailing NAV in the event that
the prevailing NAV is above £250 million but less than £500 million; or
(c) 0.750 per cent. of the prevailing NAV in the event
that the prevailing NAV is above £500 million.
The management fee shall be payable in Sterling on a pro-rata basis in respect
of any period which is less than a complete calendar month.
There is no performance fee payable to the Investment Manager.
Following the General Meeting held on 20 December 2023 at which shareholders
voted to place the Company into managed wind-down, the IMA was amended so that
the management fee will continue to be calculated at the rate of 0.875 per
cent. of NAV per annum (payable monthly in arrears), but subject to a minimum
fee of £33,300 payable monthly in arrears, subject to renegotiation with the
Board, until the earlier of:
> the Company's liquidation;
> the value of the Company's portfolio (excluding
cash and other liquid assets) being less than or equal to £35 million; or
> 31 December 2026.
Additionally, an incentive fee will be accrued from 20 December 2023, being
the date the Company entered managed wind-down, on any loan that is repaid or
sold at or above the NAV as at that date, save for those loans where the
capital is used to repay any leverage or held as a cash balance for future
commitments, of 1.375 per cent. on loans repaid or sold from now until 31
December 2024 and 1.125 per cent. on loans repaid during 2025.
To incentivise the Investment Manager to continue to work on the tail of the
portfolio, the Incentive Fee will be subject to the following escrow and
payment mechanism: (i) 50 per cent. of the fee will be paid in cash to the
Investment Manager at the end of each month when a loan is repaid or sold and
(ii) the remaining 50 per cent. will, so long as the Shares trade at a
discount to the latest published NAV, be used by the company to buy back
Shares on the market, and otherwise held by the company in escrow.
The newly acquired Shares purchased as a result of the payment of the
Incentive Fee under (ii) above will be held by the Company in treasury until
the company is liquidated, and, together with cash amounts held in escrow will
vest to the Investment Manager in the following proportions depending on the
amount of aggregated net proceeds distributed to shareholders:
> 100 per cent. at or above the Reference NAV; or
> 90 per cent. at or greater than 99 per cent. and
less than 100 per cent. of the Reference NAV; or
> 80 per cent. at or greater than 98 per cent. and
less than 99 per cent. of the Reference NAV; or
> 70 per cent. at or greater than 97 per cent. and
less than 98 per cent. of the Reference NAV; or
> 60 per cent. at or greater than 96 per cent. and
less than 97 per cent. of the Reference NAV; or
> 50 per cent. at or greater than 95 per cent. and
less than 96 per cent. of the Reference NAV; or
> 40 per cent. at or greater than 94 per cent. and
less than 95 per cent. of the Reference NAV; or
> 30 per cent. at or greater than 93 per cent. and
less than 94 per cent. of the Reference NAV; or
> 20 per cent. at or greater than 92 per cent. and
less than 93 per cent. of the Reference NAV; or
> 10 per cent. at or greater than 91 per cent. and
less than 92 per cent. of the Reference NAV; or
> 0 per cent. below 91 per cent. of the Reference
NAV.
Any shares held in treasury which vest to the Investment Manager will be
transferred to it to settle the Company's obligation to pay the remaining part
of the Incentive Fee. The Board notes that for companies with a premium
listing, the Investment Associations preference is for no more than 10 per
cent. of their shares to be held in treasury but, given the special use of
treasury shares in this case, believes the use of treasury shares in this
manner is in the best interests of the Company. To the extent that the number
of treasury shares to be transferred to the Investment Manager would otherwise
be equal to or greater than 20 per cent. of the Company's issued share capital
at the time, the Company will deliver such number of treasury Shares as
represents one Share less than 20 per cent of the Company's issued share
capital and instead shall pay the Investment Manager upon the liquidation of
the Company an amount equal to the number of undelivered Shares multiplied by
the amount distributed upon every Share in the liquidation, with such
liability to be paid pro rata alongside all other distributions to
shareholders.
In the event that the Shares are trading at a premium to the prevailing NAV,
the remaining 50 per cent. of the fee under (ii) above will be held in escrow
in liquid funds by the Company. Any dividends paid or declared in respect of
the Shares acquired under (ii), together with any capital distributions made
to shareholders, will be held by the Company in escrow until the incentive
vests as set out above.
6. Other expenses
Year ended Year ended
31 December 2023 31 December 2022
£'000 £'000
Basic fee charged to revenue:
Administration Fees 220 226
Auditor's remuneration:
- Statutory audit fee 122 161
Broker fees 150 146
Consultancy fees 18 72
Custody fees 15 -
Directors' fees 124* 99
AIFM fees 146 144
Registrars fees 40 32
Valuation fees 107 81
Other expenses 579 269
Total revenue expenses 1,521 1,230
Expenses charged to capital:
Wind-down costs* 1,567 -
Total expenses 3,088 1,230
* Includes additional one off fees paid to each Board member (£10,000 paid to
the Chair and £7,500 paid to each of the other Board members). The Company
has estimated the costs of the managed wind-down process and accordingly made
a provision during the year amounting to £1.6 million.
7. Finance costs
Year ended 31 December 2023 Year ended 31 December
2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Loan Interest paid 1,004 - 1,004 1,102 - 1,102
1,004 - 1,004 1,102 - 1,102
Refer to Note 11 for the details of the Company's revolving credit facility.
8. Taxation
Year ended 31 December 2023 Year ended 31 December
2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Analysis of tax charge/(credit) for the year:
Corporation tax - - - - - -
Corporation tax - prior year adjustment - - - 3 - 3
Total current tax charge (see note 6 (b)) - - - 3 - 3
(b) Factors Affecting the tax charge for the year:
The effective UK corporation tax rate for the year is 23.50% (2022:19.00%).
In the Spring Budget 2020, the UK Government announced that from 1 April 2023
the rate of corporation tax will increase to 25% from 19%. A blended rate of
23.5% is used.
The tax charge differs from the charge resulting from applying the standard
rate of UK corporation tax for an investment trust company. The differences
are explained below:
Year ended 31 December 2023
Year ended 31
December 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Return on ordinary activities before taxation 7,407 (4,008) 3,399 7,465 (2,072) 5,393
UK corporation tax at 23.50% (2022:19.00%) 1,741 (942) 799 1,418 (394) 1,024
Effects of:
Fair value losses not deductible - 574 574 - 394 394
Non-deductible expenses - 368 368 - - -
Interest distributions paid/payable (1,796) - (1,796) (1,455) - (1,455)
Excess management expenses carried forward 55 - 55 37 - 37
Prior year adjustment - - - 3 - 3
Total tax charge - - - 3 - 3
The Company is not liable to tax on capital gains due to its status as an
investment trust.
(c) Deferred tax assets/(liabilities)
As at 31 December 2023, the Company had net surplus excess management expenses
of £426,902 (2022: £194,927) in respect of which a deferred tax asset has
not been recognised. This is because the Company is not expected to generate
taxable income in a future period in excess of deductible expenses of
deductible expenses of that future period and, accordingly, it is unlikely
that the Company will be able to reduce future liabilities.
9. Receivables
Year ended 31 December 2023 Year ended 31 December 2022
£'000 £'000
Amounts falling due within one year:
Bond and loan interest receivable 2,133 2,372
Bond and interest receivable with credit loss fully provided 2,741 1,160
Coventry Street Loan 2,686 1,673
Prepayments and other receivables 409 216
7,969 5,421
Bond and interest receivable with credit loss fully provided
Bond and interest receivable with credit loss fully provided is an interest
receivable in relation to the loans of the Company but are not guaranteed. The
total amount is offset against the credit loss under the liability account
(see note 10).
10. Payables
Year ended 31 December 2023 Year ended 31 December 2022
£'000 £'000
Amounts falling due within one year:
Loan reserves retained 270 270
Taxation payable - 3
Credit loss provision on interest receivable 2,741 1,160
Other payables 2,165 875
5,176 2,308
11. Bank loan credit facilities
Year ended 31 December 2023 Year ended 31 December 2022
£'000 £'000
OakNorth Bank - Credit facilities - 17,271
Total - 17,271
On 26 March 2021, the Company renewed and amended its revolving credit
facility with OakNorth. The Company had entered into an uncommitted 90-day
notice revolving loan of £10,500,000 ("Facility A") and a committed term
revolving loan of £11,942,000 ("Facility B"), together with Facility A the
("Facilities") with OakNorth for the purposes set out in the credit facility
agreement.
Facility A will be provided to be applied in or towards:
> repaying all amounts due from the Company to the
OakNorth under its existing loan agreement;
> funding by the Company of customer loans;
> refinancing (where applicable) any customer loans
made by the Company;
> purchasing investments by the Company;
> the provision of liquidity to the Company; and
> payment of finance costs (including fees) payable
under the loan.
Facility B will be provided to be applied in or towards:
> repaying sums due from the Company to RM ZDP plc;
> funding by the Company of customer loans;
> refinancing (where applicable) any customer loans
made by the Company;
> purchasing investments by the Company;
> the provision of liquidity to the Company; and
> payment of finance costs (including fees) payable
under the loan agreement.
The rate of interest on the Facilities are the aggregate of the applicable
margin and base rate (subject to a base rate floor of 0.10%). The margin is
4.65% p.a. The Facilities expire on 26 March 2024.
During the year, the Company drew cumulative amount of £6.6 million (2022:
£12.6 million) from the revolving credit facilities and repaid cumulative
amount of £23.9 million (2022: £14.9 million). The remaining balance as at
31 December 2023 amounts to nil (2022: £17.3 million).
12. Share capital
As at 31 December 2023 As at 31 December 2022
No. of Shares £'000 No. of Shares £'000
Allotted, issued & fully paid:
Ordinary shares of 1p 117,586,359 1,175 117,636,359 1,176
Share movement
The table below sets out the share movement for the year ended 31 December
2023.
Shares in issue at 31 December 2023
Opening balance Shares issued Shares bought back
Ordinary Shares 117,636,359 - (50,000) 117,586,359
At the year end, the Company has 117,586,359 Ordinary Shares in issue with
voting rights and 4,638,222 Ordinary Shares held in Treasury.
Ordinary Share buy backs
During the year, the Company bought back 50,000 (2022: 204,629) Ordinary
Shares for an aggregate cost of £42,750 (2022: £173,935). Since the year end
no shares have been bought back.
13. Share premium
As at 31 December 2023 As at 31 December 2022
£'000 £'000
Balance as at beginning of the year 70,168 70,168
Share buybacks - 2
Share buyback costs - (2)
Balance as at the end of the year 70,168 70,168
14. Return per ordinary share
Total return per Ordinary Share is based on the gain on ordinary activities
after taxation of £3,399,000 (2022: gain of £5,390,000).
Based on the weighted average of number of 117,587,862 (2022: 117,839,605)
Ordinary Shares in issue for the year ended 31 December 2023, the returns per
share were as follows:
Year ended 31 December
2023
Year ended 31 December 2022
Revenue Capital Total Revenue Capital Total
Return per Ordinary Share 6.30p (3.41p) 2.89p 6.33p (1.76p) 4.57p
There are no dilutive shares in issue.
15. Net asset value per share
The NAV per share is based on Company's total shareholders' funds of
£104,516,000 (2022: £108,805,000), and on 117,586,359 (2022: 117,636,359)
Ordinary Shares in issue at the year end.
NAV per ordinary share reconciliation
The table below is a reconciliation between the NAV per Ordinary Share of the
Company as announced on the London Stock Exchange and the NAV per Ordinary
Share disclosed in these financial statements.
As at 31 December 2023 As at 31 December 2022
Net assets NAV per Ordinary share (p) Net assets NAV per Ordinary share (p)
(£) (£)
2023 NAV as published on 16 January 2024
(2022 NAV: Published on 16 January 2023) 106,235,896 90.35 108,807,765 92.50
Revaluation adjustment (153,000) (0.13) - -
Wind-up cost accrual adjustments (1,566,581) (1.34) - -
Prior year tax liability adjustments - - (2,852) (0.01)
NAV as disclosed in these Financial Statements 104,516,315 88.88 108,804,913 92.49
16. Dividend
Total dividends paid in the year
Year ended 31 December 2023 Year ended 31 December 2022
Pence per Ordinary Revenue Capital Total Pence per Ordinary Revenue Capital Total
share £'000 £'000 £'000 share £'000 £'000 £'000
2022 Interim - Paid 31 Mar 2023
(2021: 25 Mar 2022) 1.6250p 1,911 - 1,911 1.6250p 1,915 - 1,915
2023 Interim - Paid 30 Jun 2023
(2022: 24 Jun 2022) 1.6250p 1,911 - 1,911 1.6250p 1,915 - 1,915
2023 Interim - Paid 29 Sep 2023
(2022: 30 Sep 2022) 1.6250p 1,911 - 1,911 1.6250p 1,915 - 1,915
2023 Interim - Paid 29 Dec 2023
(2022: 30 Dec 2022) 1.6250p 1,911 - 1,911 1.6250p 1,915 - 1,915
Total 6.5000p 7,644 - 7,644 6.5000p 7,660 - 7,660
The dividend relating to the period ended 31 December 2023, which is the basis
on which the requirements of Section 1159 of the Corporation Tax Act 2010 are
considered is detailed below:
Total dividends declared in the year
Year ended 31 December 2023 Year ended 31 December 2022
Pence per Ordinary Revenue Capital Total Pence per Ordinary Revenue Capital Total
Share £'000 £'000 £'000 Share £'000 £'000 £'000
2023 Interim - Paid 30 Jun 2023
(2022: 24 Jun 2022) 1.6250p 1,911 - 1,911 1.6250p 1,915 - 1,915
2023 Interim - Paid 29 Sep 2023
(2022: 30 Sep 2022) 1.6250p 1,911 - 1,911 1.6250p 1,915 - 1,915
2023 Interim - Paid 29 Dec 2023
(2022: 30 Dec 2022) 1.6250p 1,911 - 1,911 1.6250p 1,915 - 1,915
2023 Interim - Paid 2 April 2024
(2022: 31 Mar 2023) 1.6250p 1,911 - 1,911 1.6250p 1,911 - 1,911
Total 6.5000p 7,644 - 7,644 6.5000p 7,656 - 7,656
*Not included as a liability in the year ended 31 December 2023 financial
statements.
17. Related party transactions
Fees are payable at an annual rate of £36,000 to the Chair, £33,000 to the
Chair of the Audit and Management Engagement Committee and £30,000 to the
other Director. During the year an additional one-off payment was made of
£10,000 to the Chair, £7,500 to the Audit and Management Engagement Chair
and £7,500 to the other Director in recognition of the extra work undertaken
to consider the Company's various strategic issues and to progress the
wind-down. As at 31 December 2023, there were no Directors' fees outstanding.
During the year under review the Board agreed to an increase on their fees to
£32,500 for Board members and by 8% for the Chair and Audit Chair with effect
from 1 January 2024. The Directors' fees are disclosed in note 6 and the
Directors' shareholdings are disclosed in the Directors Remuneration Report in
the Annual Report for the year ended 31 December 2023.
Fees payable to the Investment Manager are shown in the Statement of
Comprehensive Income. As at 31 December 2023 the fee outstanding to the
Investment Manager was £155,000 (2022: £80,000).
Arrangement fees are paid by some borrowers to the Investment Manager. The
amount the Investment Manager can retain from borrowers in most cases is
capped at 1.25% and agreed with the Board. The Company receives any
arrangement fees from the Investment Manager in excess of the 1.25% or
otherwise agreed with the borrower. During the year to 31 December 2023, the
Company received £42,000 (2022: £43,000) in arrangement fees from RM.
Borrowers paid the Investment Manager arrangement fees during the year
totalling £286,084. The Investment Manager also provides further work and
Loan & Security Agency services to some borrowers and during the year
charged borrowers £185,958.
As at 31 December 2023, the Investment Manager held 1,329,125 (2022:
1,316,625) Ordinary Shares in the Company. Since the year end, the Investment
Manager purchased a further 52,211 Ordinary Shares in the Company, and as of
the date of this report, the Investment Manager's total holding of Ordinary
Shares is 1,381,336 (2022: 1,329,125).
During the year the Company has total investments of £3,119,000 (2022:
£3,593,000) in Coventry Student Accommodation 1 Limited for which investment
details can be found in Note 3. During the year, the Company provided Coventry
Student Accommodation 1 Limited an intercompany loan of £2,686,000 (2022:
£1,673,000) as disclosed in note 9.
18. Classification of financial instruments
IFRS 13 requires the Company to classify its investments in a fair value
hierarchy that reflects the significance of the inputs used in making the
measurements. IFRS 13 establishes a fair value hierarchy that prioritises the
inputs to valuation techniques used to measure fair value. The three levels of
fair value hierarchy under IFRS 13 are as follows:
Level 1
Using unadjusted quoted prices for identical instruments in an active market.
Level 2
Using inputs, other than quoted prices included within Level 1, that are
directly or indirectly observable (based on market data).
Level 3
Using inputs that are unobservable (for which market data is unavailable).
The classification of the Company's investments held at fair value through
profit or loss is detailed in the table below:
31 December 2023 31 December 2022
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Financial assets:
Financial assets - Bond investments
- 3,654 - 3,654 - 4,208 - 4,208
Financial assets - Private loans - - 87,312 87,312 - - 112,169 112,169
Financial assets - Equity investment - - 2,966 2,966 - - 3,593 3,593
Forward contract unrealised loss - 47 - 47 (162) - (162)
Net financial assets - 3,701 90,278 93,979 - 4,046 115,762 119,808
The forward exchange contract has been presented in the fair value hierarchy
at net exposure with the net unrealised loss of £47,360 (2022: gain of
£162,475) recognised within prepayments and other debtors in the Statement of
Financial Position.
Investments that trade in markets that are not considered to be active but are
valued based on quoted market prices, dealer quotations or alternative pricing
sources supported by observable inputs are classified within Level 2.
Level 3 holdings are valued using a discounted cash flow analysis and
benchmarked discount/interest rates appropriate to the nature of the
underlying loan and the date of valuation.
There have been no transfers between levels during the reporting period (2022:
none).
Reconciliation of the Level 3 classification investments during the year to 31
December 2023 is shown below:
31 December 2023 31 December 2022
Equity Loan Total Equity Loan Total
£'000 £'000 £'000 £'000 £'000 £'000
Balance as at beginning of the year 3,593 112,169 115,762 3,600 115,728 119,328
New loans during the year - 9,703 9,703 - 13,605 13,605
Repayments during the year - (33,121) (33,121) - (15,978) (15,978)
Realised gains during the year - (373) (373) - (190) (190)
Unrealised losses during the year on positions held at year end
(597) (1,096) (1,693) (7) (996) (1,003)
Closing balance as at 31 December 2,996 87,282 90,278 3,593 112,169 115,762
Valuation and existence of bonds and private loan investments
The Company holds assets in bonds and private loan investments. The valuation
and existence of these bonds and private loan investments are the most
material matter in the production of the financial statements.
The bonds and private loan investments are valued by an independent valuer
(Mazars LLP) and the valuations at year end were agreed to the valuers report.
The valuation process has been comprehensively reviewed during the year, and
is monitored, by the Board, the Manager and the AIFM. The process includes
quantitative and qualitative analysis, with the analysis performed on a
loan-by-loan basis and the valuation of each loan taking into account the
relevant risks and returns associated with that loan. The Audit and Management
Engagement Committee reviewed valuation reports and also the procedures in
place for ensuring accurate valuation and existence of investments and
recommended these to the Board for review and approval.
The Board has appointed a third-party service provider (Mazars LLP) to value
the Company's loan investments on a monthly basis, in accordance with IFRS.
The Directors have satisfied themselves as to the methodology used, the
discount rates and key assumptions applied and the overall valuation of the
investments.
19. Financial instruments - risk profile
The Company invests in private loan and bond investments. The following
describes the risks involved and the applied risk management.
The Investment Manager reports regularly both verbally and formally to the
Board, and its relevant committees, to allow them to monitor and review all
the risks noted below.
(i) Market risks
The Company is subject to a number of Market risks in relation to economic
conditions. The Company's approach regarding the conservative valuation of its
investments remains unchanged, with fair value write downs driven by market
risk and idiosyncratic risk, with idiosyncratic risk relating to loan specific
information which is reflected within specific loan pricing. Further detail on
these risks and the management of these risks are included in the Investment
Manager's Report and the Risk and Risk Management report.
The Company's financial assets and liabilities at 31 December 2023 comprised:
Year ended 31 December
2023
Year ended 31 December 2022
Investments Interest Non-interest bearing Total Interest bearing Non-interest Total
bearing £'000 £'000 £'000 bearing £'000
£'000 £'000
GBP Sterling 89,284 2,966 92,250 114,713 3,593 118,306
Euro 1,682 - 1,682 1,664 - 1,664
Total investment 90,966 2,966 93,932 116,377 - 119,970
Cash and cash equivalents 7,791 - 7,791 2,993 - 2,993
Receivables - 7,969 7,969 - 5,421 5,421
Payables - (5,176) (5,176) (17,271) (1,148) (19,579)
Total 98,757 5,759 104,516 102,099 4,273 108,805
Price risk sensitivity
The effect on the portfolio of a 10.0% increase or decrease in the value of
the loans would have resulted in an increase or decrease of £9,393,000 (2022:
£11,997,000) in the investments held at fair value through profit or loss at
the period end date. This analysis assumes that all other variables remain
constant.
(ii) Credit risks
The Company's investments will be predominantly in the form of private loans
whose revenue streams are secured against contracted, predictable medium to
long-term cash flows and/or physical assets, and whose debt service payments
are dependent on such cash flows and/or the sale or refinancing of the
physical assets. The key risks relating to the private loans include risks
relating to counterparty default, senior debt covenant breach risk, bridge
loans, delays in the receipt of anticipated cash flows and borrower default,
and collateral risks.
The Company is also exposed to the risk of default on cash held at the bank
and other trade receivables. The maximum exposure to credit risk on cash at
bank and other trade receivables at 31 December 2023 was £7,791,000 and
£7,969,000 respectively (2022: £2,993,000 and £5,421,000). None of these
amounts are considered past due or impaired and interest is based on the
prevailing money market rates.
The table below shows the Company's exposure to credit risks as the year end.
As at 31 December
2023
As at 31 December 2022
Fair value Maximum exposure Fair value Maximum exposure
£'000 £'000 £'000 £'000
Private loan investments 87,312 87,312 112,169 112,169
Bond investments 3,654 3,654 4,208 4,208
Cash and cash equivalent 7,791 7,791 2,993 2,993
Receivables 7,969 7,969 5,421 5,421
Total 106,726 106,726 124,791 124,791
Management of risks
The Investment Manager reports a number of key metrics on a monthly basis to
its Credit Committee including pipeline project information, outstanding loan
balances, lending book performance and early warning indicators. The
Investment Manager monitors ongoing credit risks in respect of the loans.
Typically, the Company's loan investments are private loans and would usually
exhibit credit risk classified as 'non-investment grade' if a public rating
agency was referenced.
The Company's main cash balances are held with The Royal Bank of Scotland plc
("RBS"). Bankruptcy or insolvency of the bank holding cash balances may cause
the Company's rights with respect to the cash held by them to be delayed or
limited. The Company manages its risk by monitoring the credit quality of RBS
on an ongoing basis.
(iii) Interest rate risks
Private Loans
The Company may make loans based on estimates or projections of future
interest rates because the Investment Manager expects that the underlying
revenues and/or expenses of a borrower to whom the Company provides loans will
be linked to interest rates, or that the Company's returns from a loan are
linked to interest rates. If actual interest rates differ from such
expectation, the net cash flows of the borrower or payable to the Company may
be lower than anticipated.
Interest rate sensitivity
Interest Income earned by the Company is primarily derived from fixed interest
rates. The interest earned from the floating element of loan and debt security
investments is not significant. Based on the Company's private loan
investments, bond investments, cash and cash equivalents as at 31 December
2023, a 1% increase/(decrease) (2022: 1.00% increase/(decrease)) in interest
rates, all other things being equal, would lead to a corresponding
increase/(decrease) in the Company's income as follows.
As at 31 December
2023
As at 31 December 2022
1.00% Increase 1.00% Decrease 0.50% Increase 0.50% Decrease
£'000 £'000 £'000 £'000
Private loans investments 873 (873) 1,122 (1,122)
Bond investments 37 (37) 42 (42)
Equity investments 30 (30) 36 (36)
Cash and cash equivalent 78 (78) 30 (30)
Total 1,018 (1,018) 1,230 (1,230)
Management of risks
The Company aims to conduct an orderly realisation of the assets of the
Company, to be effected in a manner that seeks to achieve a balance between
returning cash to Shareholders promptly and maximising value.
(iv) Liquidity risks
Liquidity risk is defined as the risk that the Company will encounter
difficulties in realising assets or otherwise raising funds to meet financial
commitments. The cash and cash equivalent balance at the year end was
£7,791,000 (2022: £2,993,000).
Financial liabilities by maturity at the period end are shown below:
31 December 2023 31 December 2022
£'000 £'000
Within one month - -
Between one and three months 598 2,038
Between three months and one year - -
More than one year 4,578 17,541
Total 5,176 19,579
Notwithstanding the contractual maturity of the credit facilities, which is 26
March 2024, the loans have been presented as a current liability in the
statement of financial position which reflects management's intentions to use
the facilities for liquidity purposes and not long term gearing of the
Company.
The Investment Manager manages the Company's liquidity risk by investing in a
diverse portfolio of loans and secured debt instruments in line with the
Company's Investment Policy and Investment restrictions. The Investment
Manager may utilise other measures such as borrowing, share issues including
treasury shares for liquidity purposes. The Investment Manager performs stress
tests on the Company's income and expenses and the Directors, and the Manager
remain comfortable that the Company has substantial operating expenses cover
and adequate liquidity.
The maturity profile of the Company's portfolio as at the year-end is as
follows:
31 December 2023 31 December 2022
£'000 £'000
Within one month 1,700 -
Between one and three months - -
Between three months and one year 26,927 -
More than one year 65,305 119,970
Total 93,932 119,970
(v) Foreign currency risks
Foreign currency risk is the risk that the value of a financial instrument
will fluctuate because of changes in foreign currency exchange rates. Currency
risk arises when future commercial transactions and recognised assets and
liabilities are denominated in a currency that is not the Company's functional
currency. The Company invests in debt security instruments that are
denominated in currencies other than sterling.
Accordingly, the value of the Company's assets may be affected favourably or
unfavourably by fluctuations in currency rates and therefore the Company will
necessarily be subject to foreign exchange risks.
Based on the financial assets and liabilities at 31 December 2023 and all
other things being equal, if sterling had weakened against the local
currencies by 10%, the impact on the Company's net assets at 31 December 2023
would have been as follows:
31 December 2023 31 December 2022
£'000 £'000
Euro 266 230
Total 266 230
Foreign currency risk profile
31 December 2023 31 December 2022
Net monetary Total currency Net monetary Total currency
Investment Investment
exposure exposure exposure exposure exposure exposure
£'000 £'000 £'000 £'000 £'000 £'000
Euro 2,362 302 2,664 2,087 214 2,301
US dollar - 7 7 - 7 7
Total 2,362 309 2,671 2,087 221 2,308
Management of currency risks
The Company's Investment Manager monitors the currency risk of the Company's
portfolio on a regular basis. Foreign currency exposure is regularly reported
to the Board by the Investment Manager. The Investment Manager may hedge any
currency back to sterling as they see fit.
Fair values of financial assets and liabilities
All financial assets and liabilities of the Company are either recorded at
fair value in the statement of financial position, or, where they are recorded
at amortised cost, such carrying amounts are a reasonable approximation of
fair value.
Capital management
The Company considers its capital to consist of its share capital of Ordinary
Shares of 1 pence each, its distributable reserves, which comprise Revenue
reserve, Capital reserve and the Special reserve. In accordance with
accounting standards, the Company's Ordinary Shares are considered to be
equity.
The Company has a stated discount control policy. The Investment Manager and
the Company's brokers monitor the demand for the Company's shares and the
Directors review the position at Board meetings. Further details on share
issues during the year and the Company's policies for issuing further shares
and buying back shares (including the Company's discount management) can be
found in the Directors' Report.
During the year the Company bought back 50,000 shares (2022: 204,629) which
are held in treasury. The Company's policy on borrowing is detailed in the
Directors' Report. The details of the Company's OakNorth facilities are
discussed in note 11.
20. Post balance sheet events
Dividend Declaration
On 29 February 2024, the Company declared a dividend of 1.625 pence per
ordinary share in respect of the period from 1 October 2023 to 31 December
2023 to shareholders who appear on the register on 8 March 2024. The
ex-dividend date is 7 March 2024. This was paid on 2 April 2024.
Legal Claim
The Company has been pursuing a legal claim against the former main contractor
of a 79 bed student accommodation based in Coventry since September 2022. This
was undertaken via an adjudicator (or circa 1 pence per ordinary share), with
circa 90% of said sums now having been received in cleared funds. As of
January 2024, the Company has received proceeds totalling £823,980.
Investment Manager's Holdings
On 28 February 2024 RM Capital Markets Limited (the "Investment Manager")
acquired 52,211 Ordinary Shares at a price of 76 pence per share. Following
the purchase, the Investment Manager's total holding of Ordinary Shares was
1,381,336.
Alternative Performance Measures ("APMs")
APMs are often used to describe the performance of investment companies
although they are not specifically defined under IFRS. APM calculations for
the Company are shown below.
Gearing
A way to magnify income and capital returns, but which can also magnify
losses. A bank loan is a common method of gearing.
31 December 2023 31 December 2022
£'000 £'000
Bank Loan - Credit facility - 17,271
Total borrowings - 17,271
Cash and cash equivalents 7,791 2,993
Total borrowings less cash and cash equivalents a (7,791) 14,278
Net assets b 104,516 108,805
Gearing(net) (a÷b)*100 nil 13.1%
Gross asset
The Company's gross assets comprise the net asset values of the Company's
Ordinary Shares, and the Bank loan breakdown as follows:
As at 31 December 2023 £'000 Per Share (Pence)
Ordinary Shares - NAV a 104,516 88.88
Bank Loan - Credit facility c - -
Gross asset value a+b+c 104,516 n/a
As at 31 December 2022
£'000 Per Share (Pence)
Ordinary Shares - NAV a 108,805 92.49
Bank Loan - Credit facility c 17,271 -
Gross asset value a+b+c 126,076 n/a
Ongoing charges
A measure, expressed as a percentage of average net assets, of the regular,
recurring annual costs of running an investment company.
Year ended 31 December 2023
Average NAV (£'000) a 107,826
Annualised recurring expenses* b 1,984
b÷a 1.84%
Year ended 31 December 2022
£'000
Average NAV (£'000) a 111,126
Annualised recurring expenses* b 2,067
b÷a 1.86%
* Consists of investment management fees of £944,000 (2022: £971,000) and
other recurring expenses of £1,040,000 (2022:£1,096,000). Prospectus issue
and capital transactions are not considered to be recurring costs and
therefore have not been included.
(Discount)/premium
The amount, expressed as a percentage, by which the share price is (less)/more
than the NAV per share.
As at 31 December 2023
NAV per Ordinary Share (p) a 88.88
Share price (p) b 74.25
Discount (b/a)-1 (16.46%)
As at 31 December 2022
NAV per Ordinary Share (p) a 92.49
Share price (p) b 85.00
Discount (b/a)-1 (8.1%)
Total return
A measure of performance that includes both income and capital returns. This
takes into account capital gains and reinvestment of dividends paid out by the
Company into its Ordinary Shares on the ex-dividend date.
As at 31 December 2023 NAV Share Price
Opening at 1 January 2023 (p) a 92.49 85.00
Closing at 31 December 2023 (p) b 88.88 74.25
Dividend payment c 1.0731 1.0918
Adjusted closing (d = b x c) d 95.38 81.06
Total return (d/a)-1 3.16% (4.63%)
As at 31 December 2022
NAV Share Price
Opening at 1 January 2022 (p) a 94.41 95.00
Closing at 31 December 2022 (p) b 92.49 85.00
Dividend adjustment factor c 1.0715 1.1588
Adjusted closing (d = b x c) d 99.1 98.5
Total return (d/a)-1 5.0% 3.7%
FINANCIAL INFORMATION
This announcement does not constitute the Company's statutory accounts. The
financial information is derived from the statutory accounts, which will be
delivered to the registrar of companies and will be put forward for approval
at the Company's Annual General Meeting. The statutory accounts for the year
ended 31 December 2023 have been delivered to the registrar of companies. The
auditors have reported on the accounts for the year ended 31 December 2023 and
the year ended 31 December 2022, their reports were unqualified and did not
include a statement under Section 498(2) or (3) of the Companies Act 2006.
The Annual Report for the year ended 31 December 2023 was approved on 22 April
2024. It will be made available on the Company's website at
https://rm-funds.co.uk/rm-infrastructure-income/investor-relations/
(https://rm-funds.co.uk/rm-infrastructure-income/investor-relations/)
The Annual Report will be submitted to the National Storage Mechanism and will
shortly be available for inspection at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism)
This announcement contains regulated information under the Disclosure Rules
and Transparency Rules of the FCA.
ANNUAL GENERAL MEETING
The Annual General Meeting will be held on 30 May 2024 at 10:00 a.m. at 6th
Floor, 125 London Wall, London, EC2Y 5AS.
For further information contact:
Jennifer Thompson
Apex Listed Companies Services (UK) Limited
Tel: 020 3327 9720
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