REG - RM Infrastructure RM SecDirect - RMDC - Half-year Report
18/08/2023 07:00
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RNS Number : 7023J RM Infrastructure Income PLC 18 August 2023
RM INFRASTRUCTURE INCOME PLC
HALF-YEARLY REPORT ANNOUNCEMENT
FOR THE SIX MONTHS ENDED 30 JUNE 2023
LEI: 213800RBRIYICC2QC958
ABOUT US
How we invest
RM Infrastructure Income plc (the "Company") aims to generate attractive and
regular dividends through investment in secured debt instruments of UK Small
and Medium sized Enterprises ('SMEs'), and mid-market corporates and/or
individuals including any loan, promissory notes, lease, bond, or preference
share (such debt instruments, as further described in the prospectus, 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.
Where we invest
Having had a general sectoral lending approach since inception, the Company
narrowed the sector focus since 2021 to investments within the social and
environmental infrastructure sectors.
Our ethos
The Company aims to make a difference with the deployment of its capital and
as such has adopted an impact framework allowing the measurement and reporting
of impact from investments made. In addition to this the firm seeks to target
investments directly linked to achieving outcomes linked to six Sustainable
Development Goals ("SDGs").
PORTFOLIO AT A GLANCE
Financial information
As at As at
30 June 2023 30 June 2022
Gross asset value (£'000)¹ £121,792 £128,630
Net Asset Value ("NAV") (£'000) £107,805 £110,389
NAV per Ordinary Share (pence) 91.68p 93.68p
Ordinary Share price (pence) 69.00p 90.75p
Ordinary Share price discount to NAV¹ (24.74%) (3.1%)
Dividend (pence) paid in respect of the Period 3.250p 3.250p
Performance summary
% change(2,4) % change(3,4)
Total return - Ordinary Share NAV and dividends¹ +2.7% +2.7%
Total return - Ordinary Share price and dividends¹ -15.4% -1.1%
1. These are Alternative Performance Measures ("APMs").
2. Total returns for the period to 30 June 2023, including
dividend reinvestment.
3. Total returns for the period to 30 June 2022, including
dividend reinvestment.
4. Source: The Company's Factsheet.
Alternative Performance Measures ("APMs")
The financial information and performance summary data highlighted in the
footnote to the above tables represent are considered to represent the APMs of
the Company. Definitions of these APMs together with how these measures have
been calculated can be found within the Report.
Company highlights (as at 30 June 2023)
3.250p 28% of GAV £121.8m
Dividend pence per share CBILS* and RLS** loans Gross assets
+2.66% 37 1.91 years
NAV Total return Number of investments Average life of investments
*Coronavirus Business Interruption Loan Scheme
** Recovery Loan Scheme
Portfolio Summary (as at 30 June 2023)
Largest 10 loans by drawn amounts across the entire portfolio
Investment type Valuation† Percentage of
Business activity (Private/Public/Bond) £'000 gross asset (%)
Care home Private Loans 12,728 10.50
Automotive parts manufacturing Private Loans 9,594 7.90
Hotel Private Loans 8,410 6.90
Health and Well-being Private Loans 8,184 6.70
Asset backed lending Private Loans 6,694 5.50
Hotel Private Loans 5,479 4.50
Care home Private Loans 4,955 4.10
Hotel Private Loans 4,943 4.10
Student accommodation Private Loans 4,430 3.60
Hotel Private Loans 4,085 3.40
Ten largest holdings 69,502 57.20
Other private loan investments 43,564 35.70
Wholly owned asset 3,119 2.60
Total holdings 116,185 95.50
Other net current assets 5,607 4.50
Gross assets* 121,792 100.00
† Valuation conducted by external Valuation Agent.
* The Company's gross assets comprise the net asset value of the Company's
Ordinary Shares and the Bank loan (the calculation can be found in the Interim
Report).
CHAIR'S STATEMENT
Introduction
Dear Shareholders,
On behalf of the Board, I am pleased to present RM Infrastructure Income plc's
("RMII" or "the Company") Interim Report and Accounts for the first half of
2023 (the "Period"). The first six months of the year have been challenging
for fixed income markets as we have seen a further material increase in UK
government bond yields, especially at the front end of the United Kingdom
yield curve, with two-year government bond yields rising circa 200bps over the
Period. Despite this, it is pleasing that the Net Asset Value ("NAV") % Total
Return has remained positive, albeit slightly behind target. The share price %
total return has been -15.4% and whilst it is disappointing to report an
absolute negative return there has been outperformance versus more traditional
corporate bond funds and leveraged loan indices as well as the other listed
peers.
Overall, the short-dated nature of the portfolio has provided a certain
measure of protection from rising interest rates, and this was strategically
planned by the Board and Investment Manager who have been saying for several
years that absolute levels of interest rates were too low and likely to
rise.
Credit spreads as measured by the Markit iTraxx Europe Crossover index have
tightened from 475 to 400bps at the Period end. Given the shape of the UK
yield curve, which is inverted, the tightest point for credit spreads in the
near to medium term may have passed, with credit conditions set to deteriorate
as financing becomes more expensive.
As the shares were trading above an average discount of zero during the
six-month period to 31 March 2023, the Company undertook a consultation with
Shareholders to determine how they wished for the Company to continue. This
consultation was undertaken in the later part of the Period, and it was
pleasing to speak and hear from so many Shareholders. Whilst the feedback was
overwhelmingly positive and supportive of our investment strategy, there is a
common theme of Shareholder focus which is not just on investment performance
but on other areas in particular liquidity, size and cost for Shareholders.
Robust NAV performance
The NAV % Total Return for the Period was 2.66% which is slightly behind our
target, however, when set against the weaker backdrop for credit as described
above, is not unexpected.
Delivering stable income
Since inception there have been 25 quarterly distributions at or above target
to Shareholders totalling 38.85 pence per Ordinary Share.
The Company paid the dividend for the first quarter of 2023 of 1.625 pence per
Ordinary Share on 30 June 2023 and in addition the Board has declared a second
interim dividend of 1.625 pence per Ordinary Share for Q2 2023, which will be
payable on 29 September 2023 to Shareholders on the register at the close of
business on 8 September 2023. Therefore, the aggregate dividend in respect
of the Period is 3.25 pence per Ordinary Share.
As of 30 June 2023, the issued share capital of the Company consisted of
117,586,359 Ordinary Shares with voting rights and 4,638,222 Ordinary Shares
held in Treasury and the closing mid-price was 69.00 pence per Ordinary Share.
The NAV per Ordinary Share was 91.68 pence, correspondingly the share price to
NAV was a circa 24.74% discount. The Board has been hampered in its option to
address this discount due to the approaches made by third parties but we
expect any solution will help to narrow the discount from its current extreme
levels.
Portfolio
The portfolio size reduced as the Revolving Credit Facility ("RCF") was
largely paid back during the Period. The number of loans remained roughly
stable during the Period, from 38 at year end to 37 at Period end. Invested
assets totalled £123m (£126m at year end). Overall private debt investments
represent circa 96% of the portfolio holdings and 4% within equity (unlevered
ownership of investment reference 68, student accommodation asset Coventry.)
Compared to the position on 31 December 2022 ("year-end") the average yield on
investments at 10.02% is 87 basis points higher and the expected average life
of the portfolio is 1.91 years.
Outlook
As Shareholders will be aware, the Board, the Investment Manager and Singer
Capital Markets, our corporate broker, have been evaluating the future
strategy of the Company. Having consulted widely with Shareholders and
received various approaches from third parties, as an alternative to a managed
wind-down, the Board is currently assessing a proposal from GCP Infrastructure
Income Limited regarding a potential partial combination with RMII in
conjunction with its proposed merger with GCP Asset Backed Income Fund. Once
the proposal has been assessed in full, including further consultation with
our Shareholders, the Board will make an announcement on the future course of
the Company.
Since this process started Shareholders have been very generous in giving
their time and in showing patience in what has turned out to be a much more
complex process than first imagined. In every complex situation where those
involved have very differing views, it will be impossible to "please all of
the people, all of the time" but we expect that whatever decision is made on
the future of the Company will be in the best interests of our Shareholders as
a whole and any proposals tabled will be put to a shareholder vote.
The Board is grateful for the support of Shareholders from such a broad
investor base. Please do not hesitate to contact me through Singer Capital
Markets if any additional information is required.
Norman Crighton
Chair
17 August 2023
INVESTMENT MANAGER'S REPORT
Overview
Income Performance & NAV % Total Return
RM Funds ("RM" or the "Investment Manager") is satisfied with the Company's
continued positive performance in the Period, in which the portfolio delivered
a steady net interest income with two further dividends declared for the
Period totalling 3.25 pence per Ordinary Share. Overall, since inception there
have been 25 distributions totalling 38.85 pence per Ordinary Share to
Shareholders.
The NAV % Total Return for the Period was 2.66%. Whilst slightly behind the
Company's target, the portfolio's performance versus the observable credit
peer group is favourable, as outlined below:
% Total Return
6 month period ending 30 June 2023 Inception to 30 June 2023
RM Infrastructure Income NAV 2.66 40.87
RM Infrastructure Income Share Price TR -15.20 5.77
S&P European Leveraged Loan Index 3.37 -4.18
MarkIT iBoxx EUR Liquid High Yield TRI -1.99 -3.62
Share Price
The share price has been disappointing with the Company's shares opening the
Period at 85.00 pence and closing the period at 69.00 pence, delivering a
negative total return of 15.20%. This has entirely been driven by the share
price discount to NAV increasing from 8.10% to 24.74%. There were some share
buybacks which occurred at the beginning of the Period, however discounts have
opened up not just across investment trusts focused on private debt strategies
but across the whole closed ended Investment Trust and REIT market. Sadly,
RMII is not immune from this and in the view of RM Funds, caused largely as a
function of the shape of the UK yield curve which has one year Sterling
Overnight Interest Average ("SONIA") at over 6% at the Period end. The target
remains to continue to reduce this discount and the steps that the Investment
Manager and Board are undertaking at the moment with regards to consulting
with Shareholders seek to address this discount.
Investment Manager aligned with Shareholder interest
RM Funds purchased 12,500 Ordinary Shares in the Company during the Period.
This takes the direct investment in the Company to 1,329,125 Ordinary Shares.
The Investment Manager continues to believe this is the best way of
demonstrating its alignment with the interests of Shareholders.
Market environment
Fixed income markets continue to be dominated by the inflation story and in
the UK, we have seen the yield curve not only move higher but start to invert
as well. Front end UK-Government bonds have increased materially over the
Period with 2-year gilt yields at 5.25% at the Period end versus 1.75% on 30
June 2022 - 350bp higher. Over the same period 40-year gilts have moved from
2.3% to 4% which is roughly half of the widening seen in the 2-year part of
the curve.
Overall, the inverted shape of the curve is the key takeaway. It shows credit
conditions are tightening, the market environment for credit is deteriorating
and it is probably signalling a recession in the UK is due within the next
twelve months.
Portfolio Update
As at the Period end, the capital available for investment was fully deployed
with a small drawing under the RCF. The average yield on investments of 10.02%
was slightly higher by 87bps than at year end and reflects the yield widening
during the Period. The portfolio remains well diversified with 37 investments
across 12 sectors. RM Funds continues to believe that the CBILS and the
Recovery Loan Scheme ("RLS") investment loans, which benefit from a UK
Government partial guarantee, also offer a material credit enhancement for the
portfolio.
Overall, income generation of £5.52m was similar to the first half of 2022
(£5.3m H1 2021), split between cash and Payment in Kind ("PIK") 85%/15%,
which is down from 86%/14% during the same period last year. For the Period,
there were five drawdowns to existing facilities, one new investment, 11
partial repayments and two full repayments, which again further demonstrate
the successful execution of the business strategy as the Company makes loans,
receive interest from borrowers and continues to get repaid.
As at 31 December 2022, there was one loan which was under enhanced monitoring
by the investment team and at the end of the Period there were three
additional loans added to the enhanced monitoring list. The key developments
during the Period for each of these loans is detailed below:
1. Hotel development & contractor, Glasgow (Loan References 58, 79, 80
& 92)
Overview: This hotel was scheduled to open in June 2022 and will be operated
by Virgin Hotels under a 35-years Hotel Management Agreement. The total market
value exposure that is correlated to the outcome of this asset is currently
c£12.2m representing 11.3% of Company net assets.
Update: The Clyde Street Virgin Hotel, Glasgow, received its temporary
occupational certificate post Period end. This essentially means that the
hotel is now ready to start trading, with the first paying guests expected to
be welcomed before the end of August 2023.
As a reminder, most of the exposure has been funded by CBILS and / or RLS
loans and to date the loans have been marked near their guaranteed level of
c.80p. This was to reflect the uncertain opening date as well as the increased
risk due to cost overruns. Consequently, we believe the risks are
appropriately reflected in the marks, with limited downside given the partial
government guarantee provided by such CBILS and / or RLS facilities.
2. Accommodation, Student Accommodation (Loan Reference 84)
Overview: £4m senior secured CBILS loan to a UK-based Purpose-Built Student
Accommodation ("PBSA") developer and operator.
Update: The Borrower was scheduled to received c.£3.5m of proceeds derived
from the sale of two operational PBSA assets in a JV structure which were to
be used in repayment of RM's outstanding debt. Significant disagreements have
arisen between the JV partners which have led to the above-mentioned proceeds
not yet being transferred to the Borrowing entity. In H1 2023, a total of
c.£3.25m of fresh subordinated capital was injected in the borrowing company
by the borrower. This is a CBILS loan and benefits from a UK government
guarantee covering up to 80% of capital outstanding.
3. Accommodation, Student Accommodation (Loan References 74 & 89)
Overview: RM has two investment loans; £930k junior secured - Loan Reference
74 and £5m CBILS junior secured - Loan Reference 89, secured against a
portfolio of 5 operational & performing PBSA properties in the UK.
Update: In April 2023, the lending group moved to a recovery process.
Accordingly, the principal outstanding for Loan Reference 89, which is RM's
most junior position in the capital structure, was written down to its CBILS
guarantee level of 80p. We expect the receivership process to be concluded
during the course of Q3 2023.
4. Healthcare - Aged care (Loan References 88, 82 &
83)
Overview: RM has three investment loans: £12.8m/£5m CBILS /£2.8m secured
over two separate purpose-built aged care homes. During Q1 2023 a valuation
report was received that triggered a Loan To Value covenant breach. Since
then, a second valuation report providing a second opinion has satisfied the
loan covenant.
Update: By the period end there was an accrued balance on interest which was
paid post period end in cash. These loans have now been removed from the
watchlist.
Outlook
Overall, we see interest rates are now at or near their peaks. The curve
inversion within the UK gilt market is creating a compelling story for
valuations across the front end of the fixed income curve. There will probably
be no better time to be investing into short-dated credit and closed-ended
real asset funds than now, as the high levels of short-dated SONIA have driven
down valuations and increased share price discounts to NAV, which in our view
are unlikely to be maintained. The market is behind the curve as the inflation
story is now moving into the background and the outlook will be driven by
systemic risks that have arisen by the velocity and extent of the interest
rate rises within the United Kingdom.
RM Capital markets Limited
17 August 2023
INTERIM MANAGEMENT REPORT
The Directors are required to provide an Interim Management Report in
accordance with the Financial Conduct Authority ("FCA") Disclosure Guidance
and Transparency Rules ("DTR"). The Chair's Statement and the Investment
Manager's Report in this half-yearly report provide details of the important
events which have occurred during the Period and their impact on the financial
statements. The following statements on principal and emerging risks and
uncertainties, related party transactions, going concern and the statement of
Directors' responsibilities, together, constitute the Interim Management
Report for the Company for the six months ended 30 June 2023. The outlook for
the Company for the remaining six months of the year ending 31 December 2023
is discussed in the Chair's Statement and the Investment Manager's Report.
Principal and emerging risks and uncertainties
The Board has a dynamic risk management register in place to help identify
principal and emerging risks in the business and oversee the effectiveness of
internal controls and processes. The principal and emerging risks and
uncertainties facing the Company are as follows:
· Market risk - rates of inflation (counterparty affordability), rates
of interest
· Liquidity risk - liquidity opportunity and discount control
· Leverage and borrowing risk - the Company's investment policy
involves the use of leverage, which exposes the company to risks associated
with borrowings
· Credit / counterparty risk - counterparty default, borrower default,
loan non-performance and collateral risk
Emerging risks are considered by the Board at its quarterly meetings and by
the Audit and Management Engagement Committee as part of its risk management
and internal control review. 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.
A detailed explanation of the principal and emerging risks and uncertainties
to the Company are detailed in the Company's most recent Annual Report for the
year ended 31 December 2022, published on 26 April 2023, which can be found 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
Board is of the opinion that these principal and emerging risks are equally
applicable to the remaining six months of the financial year as they were to
the six months being reported on.
Since the publication of the 2022 Annual Report and Accounts, there continues
to be increased risk levels within the global economy. The Investment Manager
believes the key risk factors that have increased during the period are:
Interest rate risk - due to a material increase in the Sterling Overnight
Interest Average ("SONIA") which could make the refinancing of loans due for
repayment over the next two years more challenging for borrowers given the
increased cost of the "risk free" rate. These SONIA rates are predicted to
remain high given the shape of the SONIA curve which currently rises over the
next 12 months. This causes specific risk in two areas: portfolio borrowers
seeking refinancing, as the materially higher funding cost could affect the
interest cover on the loan thus making new funding difficult to obtain. On
portfolio exposures where a borrower is seeking to refinance a third-party
debt ranking senior to RMII, this could also increase the likelihood of any
RMII Mezzanine loan covenants being breached.
Collateral risk: real estate values as evidenced by price performance within
the Real Estate Investment Trust ("REIT") segment have reduced over the
period. Whilst these price falls have not been reflected fully by these REITS
or other real estate indices the Investment Managers believe that the
probability has increased that the realisable market valuations are lower at
the end of the period than the beginning of the period. Given that the RMII
portfolio has extensive security over real estate this could negatively affect
recoveries in any enforcement scenarios.
Availability of credit: the Investment Manager believes that credit is less
available at the end of the period than the start of the period and this will
potentially negatively affect borrowers who are seeking refinance. Given the
RMII portfolio is exposed to loans with a final maturity date this will
increase the refinancing risk.
The Board closely monitors and assesses these continued uncertainties as to
how they could impact and affect the Company's trading position with regards
our investment objective, portfolio and thus our Shareholders and where
appropriate endeavour to mitigate the risk.
The Investment Manager and other key service providers provide periodic
reports to the Board on operational resilience. The Board is satisfied that
the key service providers have the ability to continue their operations
efficiently in a hybrid working environment.
Related party transactions
The Company's Investment Manager, RM Capital Markets Limited is considered a
related party under the Listing Rules. Details of the amounts paid to the
Company's Investment Manager and the Directors during the Period are detailed
in the Notes to the Financial Statement.
Going concern
The Directors have adopted the going concern basis in preparing the financial
statements. The following is a summary of the Directors' assessment of the
going concern status of the Company.
The Directors have a reasonable expectation that the Company has adequate
resources to continue in operational existence for at least twelve months from
the date of this document. In reaching this conclusion, the Directors have
considered the Company's portfolio of loan investments of £116.2 million (30
June 2022: £126.5 million; 31 December 2022: £120.0 million) as well as its
income and expense flows and the cash position of £0.9 million (30 June 2022:
£0.7 million; 31 December 2022: £3.0 million). The Company's net assets at
30 June 2023 were £107.8million (30 June 2022: £110.4 million; 31 December
2022: £108.8 million). The total expenses (excluding finance costs and
taxation) for the period ended 30 June 2023 were £1.1 million (30 June 2022:
£1.1 million; 31 December 2022: £2.2 million). At the date of approval of
this document, based on the aggregate of investments and cash held, the
Company has substantial operating expenses cover.
As part of their assessment, the Directors have fully considered each of the
Company's loans, giving careful consideration to the consequences for the
Company of continuing uncertainties in the global economy.
Income obligations have been met by borrowers and there is a diverse portfolio
of Loan investments; Directors see an increase in the risk to the income from
the Company loans within the portfolio as the outlook is uncertain. However,
these loans have a number of specific lender protections (such as loan to
value covenants and cashflow or earnings covenants) which are being monitored.
Given the level of market volatility experienced, the Investment Manager has
performed stress tests on the Company's income and expenses and the Directors
remain comfortable with the liquidity of the Company. As part of their
assessment, the Board have fully considered and assessed the Company's
portfolio of investments, giving careful consideration to the consequences for
the Company of continuing uncertainties in the global economy. The Russian
invasion of Ukraine has created significant supply chain disruption and the
subsequent rise in global energy prices, inflation and rising interest rates
worldwide have led to a more uncertain investment environment. The Directors
continue to review the processes in place to mitigate geopolitical and market
risk; and to ensure that these are appropriate and proportionate in the
current market environment.
STATEMENT OF DIRECTORS' RESPONSIBILITY
for the Half-yearly Report
The Directors confirm to the best of their knowledge that:
> The condensed set of financial statements contained within the
Half-yearly report has been prepared in accordance with IAS 34 Interim
Financial Reporting.
> The Interim Management Report includes a fair review of the
information required by 4.2.7R and 4.2.8R of the FCA's Disclosure Guidance and
Transparency Rules.
Norman Crighton
Chair
17 August 2023
FINANCIAL STATEMENTS
Condensed unaudited statement of comprehensive income
For the six months ended 30 June 2023
Six months ended 30 June 2023 Six months ended 30 June 2022 Year ended 31 December 2022*
Revenue Capital Total Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
(Losses) on investments - (936) (936) - (929) (929) - (2,072) (2,072)
Income 4 5,524 - 5,524 5,446 - 5,446 10,768 - 10,768
Investment management fee 5 (476) - (476) (490) - (490) (971) - (971)
Other expenses 5 (649) - (649) (612) - (612) (1,230) - (1,230)
Return before finance costs and taxation 4,399 (936) (3,463 4,344 (929) 3,415 8,567 (2,072) 6,495
Finance costs (597) - (597) (431) - (431) (1,102) - (1,102)
Return on ordinary activities before taxation 3,802 (936) 2,866 3,913 (929) 2,984 7,465 (2,072) 5,393
Taxation 6 - - - (15) - (15) (3) - (3)
Return on ordinary activities after taxation 3,802 (936) 2,866 3,898 (929) 2,969 7,465 (2,072) 5,390
Return per ordinary share (pence) 8 3.23p (0.80p) 2.43p 3.31p (0.79p) 2.52p 6.33p (1.76p) 4.57p
The Total column of this statement is the profit and loss account of the
Company.
All the Revenue and Capital items in the above statement derive from
continuing operations.
'Return on ordinary activities after taxation' is also the Total comprehensive
income for the period.
The notes form an integral part of these financial statements.
Condensed unaudited statement of financial position
As at 30 June 2023 As at 30 June 2022 As at 31 December 2022*
Notes £'000 £'000 £'000
Fixed assets
Investments at fair value through profit or loss 3 116,186 126,460 119,970
Current assets
Cash and cash equivalents 880 690 2,993
Receivables 7,293 3,187 5,421
8,173 3,877 8,414
Payables: amounts falling due within one year
Payables (2,567) (1,707) (2,308)
Bank loan - Credit facility (13,987) (18,241) (17,271)
(16,554) (19,948) (19,579)
Net current liabilities (8,381) (16,071) (11,165)
Total assets less current liabilities 107,805 110,389 108,805
Net assets 107,805 110,389 108,805
Capital and reserves: equity
Share capital 7 1,175 1,178 1,176
Share premium 70,168 70,168 70,168
Special reserve 44,597 44,813 44,640
Capital reserve (11,157) (9,078) (10,221)
Revenue reserve 3,022 3,308 3,042
Total shareholders' funds 107,805 110,389 108,805
NAV per share - Ordinary Shares (pence) 9 91.68p 93.68p 92.49p
*Audited
The financial statements of the Company were approved and authorised for issue
by the Board of Directors on 17 August 2023 and signed on their behalf by:
Norman Crighton
Chair
RM Infrastructure Income plc incorporated in England and Wales with registered
number 10449530.
The notes form an integral part of these financial statements.
Condensed unaudited statement of changes in equity
For the six months ended 30 June 2023
Share capital Share premium Special reserve Capital reserve Revenue reserve Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Balance as at beginning of the period 1,176 70,168 44,640 (10,221) 3,042 108,805
Return on ordinary activities - - - (936) 3,802 2,866
Buy back of shares 7 (1) - (42) - - (43)
Shares buy back costs - - (1) - - (1)
Dividend paid 10 - - - - (3,822) (3,822)
Balance as at 30 June 2023 1,175 70,168 44,597 (11,157) 3,022 107,805
For the six months ended 30 June 2022
Share capital Share premium Special reserve Capital reserve Revenue reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
Balance as at beginning of the period 1,178 70,168 44,813 (8,149) 3,240 111,250
Return on ordinary activities - - - (929) 3,898 2,969
Buyback of shares 7 - - - - - -
Share buyback costs - - - - - -
Dividend paid 10 - - - - (3,830) (3,830)
Balance as at 30 June 2022 1,178 70,168 44,813 (9,078) 3,308 110,389
For the year ended 31 December 2022*
Share capital Share premium Special reserve Capital reserve Revenue reserve Total
£'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 7 (2) 2 (173) - - (173)
Shares buy back costs - (2) - - - (2)
Dividend paid 10 - - - - (7,660) (7,660)
Balance as at 31 December 2022 1,176 70,168 44,640 (10,221) 3,042 108,805
*Audited
Distributable reserves comprise: the revenue reserve; capital reserve
attributable to realised profits; and the special reserve.
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.
Condensed unaudited statement of cash flows
For the six months ended 30 June 2023
Six months ended 30 June 2023 Six months ended 30 June 2022 Year ended 31 December 2022*
£'000 £'000 £'000
Operating activities
Return on ordinary activities before finance costs and taxation** 3,463 3,415 6,495
Adjustments for movements not generating an operating cash flow:
Adjustment for losses on investments 845 720 1,802
PIK adjustments to the operating cash flow (1,256) (1,310) (2,466)
Adjustments for balance sheet movements:
Increase in receivables (1,872) (503) (2,737)
Increase/(decrease) in payables 259 (155) 458
Net cash flow from operating activities 1,439 2,167 3,552
Investing activities
Private loan repayments/ bonds sales proceeds 9,426 13,455 25,784
Private loans issued/ bonds purchases (5,231) (12,651) (18,416)
Net cash flow from investing activities 4,195 804 7,368
Financing activities
Finance costs (597) (431) (1,102)
Ordinary Share bought back 7 (43) - (173)
Ordinary Share buyback costs (1) - (2)
Oaknorth loan facility drawdown 4,266 5,670 12,550
Oaknorth loan facility repaid (7,550) (7,000) (14,850)
Equity dividends paid 10 (3,822) (3,830) (7,660)
Net cash flow used in financing activities (7,747) (5,591) (11,237)
Decrease in cash (2,113) (2,620) (317)
Opening balance at beginning of the period/year 2,993 3,310 3,310
Balance as at the period/year end 880 690 2,993
*Audited
** Cash inflow from interest on investment holdings was £2,429,000 (30 June
2022: £3,650,000; 31 December 2022: £8,396,000).
The notes form an integral part of these financial statements.
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's investment objective is to generate attractive and regular
dividends through investment in secured debt instruments of UK SMEs and
mid-market corporates including any loan, promissory notes, lease, bond or
preference share sourced or originated by the Investment Manager with a degree
of inflation protection through index-linked returns where appropriate.
The registered office is 6(th) Floor, 125 London Wall, Barbican, London EC2Y
5AS.
2. Basis of preparation and accounting policies
Statement of compliance
The interim unaudited financial statements have been prepared in accordance
with IAS 34 Interim Financial Reporting and the Disclosure Guidance and
Transparency Rules ("DTRs") of the UK's Financial Conduct Authority. They do
not include all of the information required for full annual financial
statements and should be read in conjunction with the financial statements of
the Company as at and for the year ended 31 December 2022. The financial
statements for the year ended 31 December 2022 have been prepared in
accordance with the UK adopted international accounting standards. The
financial information for the year ended 31 December 2022 in the interim
unaudited financial statements has been extracted from the audited Annual
Report and Accounts.
When presentational guidance set out in the Statement of Recommended Practice
("SORP") for Investment Companies issued by the Association of Investment
Companies ('the AIC') in July 2022 is consistent with the requirements of UK
adopted international accounting standards, the Directors have sought to
prepare the financial statements on a basis compliant with the recommendations
of the SORP.
Going concern
The Directors have adopted the going concern basis in preparing the financial
statements. Details of the Directors' assessment of the going concern status
of the Company, which considered the adequacy of the Company's resources and
the level of market volatility are given in the Interim Report.
Accounting policies
The accounting policies used by the Company in preparing these interim
unaudited financial statements are the same as those applied by the Company in
its financial statements as at and for the year ended 31 December 2022.
3. INVESTMENT AT FAIR VALUE THROUGH PROFIT OR LOSS
Six months ended 30 June 2023 Six months ended 30 June 2022 Year ended 31 December 2022
£'000 £'000 £'000
Financial assets held:
Equity investments 3,119 3,593 3,593
Bond investments 4,020 6,891 4,208
Private loan investments 109,047 115,976 112,169
116,186 126,460 119,970
4. INCOME
Six months ended 30 June 2023 Six months ended 30 June 2022 Year ended 31 December 2022
£'000 £'000 £'000
Income from investments
Bond and loan interest 3,950 3,913 7,895
Bond and loan PIK interest 1,403 1,494 2,767
Arrangement fees 17 22 43
Delayed Compensation fees received - - 2
Other income 154 17 60
Total 5,524 5,446 10,768
5. INVESTMENT MANAGEMENT FEE AND OTHER EXPENSES
Six months ended 30 June 2023 Six months ended 30 June 2022 Year ended 31 December 2022
£'000 £'000 £'000
Expenses charged to revenue:
Investment management fees 476 490 971
Other administration charges 649 612 1,230
Total revenue expenses 1,125 1,102 2,201
The Company's Investment Manager is RM Capital Markets Limited. Under the
amended Investment Management Agreement, effective 1 April 2020, 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.
6. TAXATION
Six months ended 30 June 2023 Six months ended 30 June 2022 Year ended 31 December 2022
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Analysis of tax charge / (credit)
for the period/year:
Corporation tax - - - 15 - 15 3 - 3
Total tax charge - - - 15 - 15 3 - 3
7. SHARE CAPITAL
As at 30 June 2023 As at 30 June 2022 As at 31 December 2022
No. of Shares £'000 No. of Shares £'000 No. of Shares £'000
Allotted, issued & fully paid:
Ordinary shares of 1p 117,586,359 1,175 117,840,988 1,178 117,636,359 1,176
At the period end, the Company has 117,586,359 (30 June 2022: 117,840,988; 31
December 2022: 117,636,359) Ordinary Shares in issue with voting rights and
4,638,222 (30 June 2022: 4,383,593; 31 December 2022: 4,588,222) Ordinary
Shares held in Treasury.
Share movement
The table below sets out the share movement for the six months ended 30 June
2023.
Opening balance Shares issued Shares bought back Shares in issue at
30 June 2023
Ordinary Shares 117,636,359 - (50,000) 117,586,359
The table below sets out the share movement for the six months ended 30 June
2022.
Opening balance Shares issued Shares bought back Shares in issue at
30 June 2022
Ordinary Shares 117,840,988 - - 117,840,988
The table below sets out the share movement for the year ended 31 December
2022.
Opening balance Shares issued Shares bought back Shares in issue at
31 December 2022
Ordinary Shares 117,840,988 - (204,629) 117,636,359
8. RETURN PER ORDINARY SHARE
Total return per Ordinary Share is based on the gain on ordinary activities
after taxation of £2,866,000 (30 June 2022: gain of £2,969,000; 31 December
2022: gain of £5,390,000).
Based on the weighted average of number of 117,589,381 (30 June 2022:
117,840,988; 31 December 2022: 117,839,605) Ordinary Shares in issue for the
six months ended 30 June 2022, the returns per share were as follows:
Six months ended 30 June 2023 Six months ended 30 June 2022
Revenue Capital Total Revenue Capital Total
Return per ordinary share 3.23p (0.80p) 2.43p 3.31p (0.79p) 2.52p
Year ended 31 December 2022
Revenue Capital Total
Return per ordinary share 6.33p (1.76p) 4.57p
9. NET ASSET VALUE PER SHARE
The net asset value per share is based on Company's total shareholders' funds
of £107,805,000 (30 June 2022: £110,389,000; 31 December 2022:
£108,805,000), and on 117,586,359 (30 June 2022: 117,840,988; 31 December
2022: 117,839,605) Ordinary Shares in issue at the period/year end.
10. DIVIDEND
On the 1 March 2023, the Directors approved the payment of a final interim
dividend for year ended 31 December 2022 to Ordinary Shareholders at the rate
of 1.625 pence per Ordinary Share. The dividend had a record date of 10 March
2023 and was paid on 31 March 2023. The dividend was funded from the Company's
revenue reserve.
On 23 May 2023, the Directors approved the payment of an interim dividend at
the rate of 1.625 pence per Ordinary Share. The dividend had a record date of
2 June 2023 and was paid on 30 June 2023. The dividend was funded from the
Company's revenue reserve.
On 14 August 2023, the Directors approved the payment of an interim dividend
at the rate of 1.625 pence per Ordinary Share. The dividend will have a record
date of 8 September 2023 and will be payable on 29 September 2023. The
dividend will be funded from the Company's revenue reserve.
11. RELATED PARTY TRANSACTION
Fees payable to the Investment Manager are shown in the Statement of
Comprehensive Income. As at 30 June 2023 the fee outstanding to the Investment
Manager was £79,000 (30 June 2022: £80,000; 31 December 2022: £80,000).
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.
The Board has been involved with various strategic issues during the Period
and therefore it was agreed that an additional one-off payment for the six
months ended 30 June 2023 would be in order for work conducted in the first
half of the financial year. Additional fees were payable of £10,000 to the
Chair, £7,500 to the Audit and Management Engagement Chair and £7,500 to the
other Director.
The Directors had the following shareholdings in the Company, all of which are
beneficially owned.
As at 30 June 2023 As at 30 June 2022 As at 31 December 2022
Ordinary shares Ordinary shares Ordinary shares
Norman Crighton 29,982 29,982 29,928
Guy Heald 20,000 20,000 20,000
Marlene Wood 20,000 20,000 20,000
12. 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
Inputs are quoted prices in active markets for identical assets or liabilities
that the entity can access at the measurement date.
Level 2
Inputs other than quoted market prices included within Level 1 that are
observable for the asset or liability, either directly or indirectly.
Level 3
Inputs are unobservable for the asset or liability.
The classification of the Company's investments held at fair value through
profit or loss is detailed in the table below:
30 June 2023 30 June 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 - Private loans and bonds - 4,020 - 4,020 - 6,891 - 6,891
Financial assets - Private loans - - 109,047 109,047 - - 115,976 115,976
Financial assets - Equity investment - - 3,119 3,119 - - 3,593 3,539
Forward contract unrealised gain/(loss)* - 197 - 197 - (66) - (66)
Net financial assets - 4,217 112,166 116,383 - 6,825 119,569 126,394
*The net unrealised gain of £197,000 (30 June 2022: loss of £66,000) on
forwards is recognised within other debtors/(creditors) in the Statement of
Financial Position.
31 December 2022
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Financial assets:
Financial assets - Private loans and bonds - 4,208 - 4,208
Financial assets - Private loans - - 112,169 112,169
Financial assets - Equity Investments - - 3,593 3,593
Forward contract unrealised loss* - (162) - (162)
Net financial assets - 4,046 115,762 119,808
*The net unrealised loss of £162,000 on forwards is recognised within other
creditors in the Statement of Financial Position.
As at 30 June 2023, the fair value of the Company's loans is materially equal
to the carrying value.
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.
Interest rates are a significant input into the Level 3 valuation methodology.
There have been no movements between levels during the reporting period. The
Company considers factors that may necessitate the transfers between levels
using the definition of the levels 1, 2 and 3 above.
13. POST BALANCE SHEET EVENTS
On 11 August 2023, the Board published a strategic review update
(https://rm-funds.co.uk/rm-infrastructure-income/regulatory-news/
(https://rm-funds.co.uk/rm-infrastructure-income/regulatory-news/) ) and will
continue to update Shareholders as appropriate.
There are no other post period end events other than those disclosed in this
report.
14. STATUS OF THIS REPORT
These financial statements are not the Company's statutory accounts for the
purposes of section 434 of the Companies Act 2006. They are unaudited. The
Half-yearly financial report will be made available to the public at the
registered office of the Company. The report will be available in electronic
format on the Manager's website (https://rm-funds.co.uk/
(https://rm-funds.co.uk/) ).
The Half-yearly report was approved by the Board on 17 August 2023.
OTHER INFORMATION
Alternative Performance Measures ("APMs")
Gross asset
The Company's gross assets comprise the net asset values of the Company's
Ordinary Shares and the bank loan-credit facility, with the breakdown as
follows:
As at 30 June 2023 £'000 Per Share (Pence)
Ordinary Shares - NAV a 107,805 91.68
Bank Loan-Credit facility b 13,987 -
Gross asset value a+b 121,792 n/a
Discount
The amount, expressed as a percentage, by which the share price is less than
the Net Asset Value per share.
As at 30 June 2023 Per Share (Pence)
NAV per Ordinary Share (pence) a 91.68
Share price (pence) b 69.00
Discount (b/a)-1 -24.7%
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 30 June 2023 NAV Per Share (Pence)
Opening at 1 January 2023 (pence) a 92.49 85.00
Closing at 30 June 2023 (pence) b 91.68 69.00
Dividend adjustment factor c 1.0361 1.0422
Adjusted closing (d = b x c) d 94.99 71.91
Total return (d/a)-1 +2.70% -15.40%
GLOSSARY
Admission Admission of the Ordinary Shares to the premium listing segment of the
Official List of the UKLA and admission of the Shares to trading on the main
market for listed securities of the London Stock Exchange
AIC Association of Investment Companies
Alternative Investment Fund or "AIF" An investment vehicle under AIFMD. Under AIFMD (see below) the Company is
classified as an AIF
Alternative Investment Fund Managers Directive of "AIFMD" A European Union directive which came into force on 22 July 2013 and has been
implemented Managers Directive or "AIFMD" in the UK.
Annual General Meeting or "AGM" A meeting held once a year which Shareholders can attend and where they can
vote on resolutions to be put forward at the meeting and ask directors
questions about the Company in which they are invested.
C Shares C Shares of 10 pence each in the capital of the Company.
CTA 2010 Corporation Tax Act 2010.
Custodian An entity that is appointed to safeguard a company's assets.
Discount The amount, expressed as a percentage, by which the share price is less than
the net asset value per share.
Dividend Income receivable from an investment in shares.
Ex-dividend date The date from which you are not entitled to receive a dividend which has been
declared and is due to be paid to Shareholders.
Financial Conduct Authority or "FCA" The independent body that regulates the financial services industry in the UK.
Gearing A way to magnify income and capital returns, but which can also magnify
losses. A bank loan is a common method of gearing.
Index A basket of stocks which is considered to replicate a particular stock market
or sector.
Investment company A company formed to invest in a diversified portfolio of assets.
Investment Trust An investment company which is based in the UK and which meets certain tax
conditions which enables it to be exempt from UK corporation tax on its
capital gains. The Company is an investment trust.
Leverage An alternative word for "Gearing".
Under AIFMD, leverage is any method by which the exposure of an AIF is
increased through borrowing of cash or securities or leverage embedded in
derivative positions.
Under AIFMD, leverage is broadly similar to gearing, but is expressed as a
ratio between the assets (excluding borrowings) and the net assets (after
taking account of borrowing). Under the gross method, exposure represents the
sum of the Company's positions after deduction of cash balances, without
taking account of any hedging or netting arrangements. Under the commitment
method, exposure is calculated without the deduction of cash balances and
after certain hedging and netting positions are offset against each other.
Liquidity The extent to which investments can be sold at short notice.
Loans or Secured Debt Instruments Secured debt instruments of UK SMEs and mid-market corporates and/or
individuals including any loan, promissory notes, lease, bond, or preference
share such debt instruments.
Net Assets An investment company's assets less its liabilities.
Net asset value (NAV) per Ordinary Share Net assets divided by the number of Ordinary Shares in issue (excluding any
shares held in treasury).
Ordinary Shares The Company's Ordinary Shares of 1 pence each in the capital of the Company.
Portfolio A collection of different investments held in order to deliver returns to
Shareholders and to spread risk.
Share buyback A purchase of a company's own shares. Shares can either be bought back for
cancellation or held in treasury.
Share price The price of a share as determined by a relevant stock market.
Treasury shares A company's own shares which are available to be sold by a company to raise
funds.
Volatility A measure of how much a share moves up and down in price over a period of
time.
ZDP Share Zero dividend preference Share.
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