TIDMSEQI
RNS Number : 3613E
Sequoia Economic Infra Inc Fd Ld
29 June 2023
29 June 2023
SEQUOIA ECONOMIC INFRASTRUCTURE INCOME FUND LIMITED
(the "Company" or "SEQI")
RESULTS FOR THE YEARED 31 MARCH 2023
The Directors of SEQI, the specialist investor in economic
infrastructure debt, are pleased to announce the Company's results
for the year ended 31 March 2023.
RESILIENT PERFORMANCE DESPITE VOLATILE MARKET
ROBERT JENNINGS, CHAIR, COMMENTED:
"The Company has remained resilient against a backdrop of an
increase in credit spreads and tighter lending conditions globally,
driven by interest rates which rose at almost unprecedented speed
in FY23. Our income for the year increased due to the high
proportion of floating rate investments in our diversified
portfolio which has allowed us to increase our annual dividend by
10% to 6.875p per Ordinary Share, starting with the February 2023
dividend payment in respect of the quarter ended 31 December
2022.
The Board and the Investment Adviser are very mindful of the
wide discount to Net Asset Value per share which our shares
currently trade on. In that context, SEQI's shorter duration is
beneficial and allows us to take a flexible approach to capital
allocation in optimising the balance between share buy backs,
leverage and attractively yielding portfolio investments."
We believe our economic infrastructure portfolio is well
positioned in the current high interest rate environment and are
taking advantage of credit markets that are favourable to debt
providers. We have demonstrated our resilience throughout the
challenges of the last eight years and, our well-diversified
portfolio, growing interest income and disciplined approach to
capital deployment gives us confidence for our future."
HIGHLIGHTS
-- Annualised portfolio yield-to-maturity of 11.9% (2022: 8.4%) as at 31 March 2023
-- Dividends totalling 6.5625p per Ordinary Share (2022: 6.25p)
paid in respect of the year in line with annual dividend
targets
-- Strong dividend cash cover of 1.21x (2022: 1.06x)
-- Defensive, diversified portfolio of 68 investments across 8
sectors, 26 sub-sectors and 12 mature jurisdictions
o 98% of investments in private debt (2022: 95%)
o 58% floating rate investments (2022: 50%), capturing
short-term rate rises
o Short weighted average life of 3.5 years (2022: 4.1 years)
creating reinvestment opportunities
o Weighted average equity cushion of 34% (2022: 33%)
-- NAV per Ordinary Share cum-dividend of 93.26p (31 March 2022:
100.50p) mostly reflecting the mark-to-market effect of higher
interest rates and credit spreads
-- NAV total return of -0.9% (2022: 3.5%) in the year
-- Share price total return of -16.1% (2022: 4.5%) in the year
-- Ongoing charges ratio of 0.96% (2022: 0.87%) (calculated in accordance with AIC guidance)
-- ESG score of the portfolio is on a long-term and sustainable upward trend
ANNUAL REPORT
A copy of the annual report has been submitted to the National
Storage Mechanism and will be shortly available at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism . The annual
report is also available on the Company's website at
https://www.seqi.fund/investors/results/ where further information
on SEQI can be found.
INVESTOR PRESENTATION
The Investment Adviser will host a presentation on the annual
results for investors and analysts today at 10:00am BST. There will
be the opportunity for participants to ask questions at the end of
the presentation. Those wishing to attend should register via the
following link:
https://stream.brrmedia.co.uk/broadcast/648c3fe1cdb8783915128cb1
For further information, please contact:
Sequoia Investment Management
Company
Steve Cook
Dolf Kohnhorst
Randall Sandstrom
Greg Taylor
Anurag Gupta +44 (0) 20 7079 0480
Jefferies International Limited
(Corporate Broker & Financial
Adviser)
Gaudi Le Roux
Stuart Klein +44 (0) 20 7029 8000
Teneo (Communications Adviser)
Martin Pengelley
Faye Calow +44 (0) 20 7353 4200
Sanne Fund Services (Guernsey)
Limited (Company Secretary)
Matt Falla
Lisa Garnham +44 (0) 20 3530 3107
LEI: 2138006OW12FQHJ6PX91
CHAIR'S STATEMENT
Dear Shareholder,
It is my pleasure to present to you the Annual Report and
Audited Financial Statements of the Company for the financial year
of operations ended 31 March 2023. In the absence of unforeseen
circumstances, this will be my final report to you as your Chair,
as I am now in my ninth year.
The financial year saw interest rates rise at almost
unprecedented speed, as central banks strove to tame rapidly rising
inflation. This led to an increase in credit spreads and tighter
lending conditions globally.
This environment has resulted in mixed fortunes for the Company,
as our NAV declined on the back of higher rates, but our income
increased due to the high proportion of floating rate investments
in the portfolio - this enabled us to increase its dividend by 10%,
to 6.875p per Ordinary Share, starting in January 2023. Less
pleasingly, our share price fell to below its NAV - this is an
unwelcome development, largely driven we believe by sentiment
towards the wider alternative income sector rather than a specific
reflection of the attractiveness of the Company. Nonetheless, we
have taken a number of measures to limit the discount to NAV.
NAV and share price performance
Over the financial year, the Company's NAV per Ordinary Share(1)
decreased from 100.50p to 93.26p, after paying dividends of
approximately 6.41p, producing a NAV total return(1) of -0.9%
(2022: +3.5%), compared to our target return of 7-8%.
The decline in the NAV is mostly down to the mark-to-market
effect of higher interest rates and credit spreads, which rectifies
itself as loans move closer to repayment. If we were to
hypothetically disregard this effect, the NAV total return for the
year(1) would have been over 6%. It could be argued that this 6%
return represents the true underlying performance, since this
decline in marks is an unrealised loss, much of which should
substantially reverse itself over time through the pull-to-par
effect. In other words, as our loans approach their maturity date,
their marks will inevitably (absent any credit event) rise towards
their par value. As interest rates start to plateau gradually, this
represents a helpful tailwind to our NAV in the years ahead.
Moreover, we have once again outperformed the liquid credit
markets, with high yield bonds generating total returns of -4.7%,
and leveraged loans -4.2%, over the same period, compared to -0.9%
in our case.
The Company's share price also declined over the year, from
102.80p to 80.40p, a share price total return(1) of -16.1% (2022:
+4.5%), once dividends are taken into account. This was almost
entirely a result of the decline in the rating of the shares, from
a premium(1) of 2.3% at the beginning, to a discount(1) of 13.8% by
the end of the year.
We are disappointed in this fall in our share price, which we
believe is predominantly a result of investors' concerns over
rising interest rates, high inflation, a sluggish global economy
and geopolitical risks, as well as technical factors specific to
investors but unrelated to the Company, such as the consequences of
redemptions from their own funds. We do not believe it is a
reflection of the fundamental attractiveness of the Company - all
our peers in the infrastructure and debt sectors also trade at a
discount. However, we are not complacent and the following measures
were put in place from an early stage to address this issue:
-- an active buy-back programme, with 33.4 million Shares
repurchased over the financial year, which we have continued since
the year end. Not only does this partly address the excess supply
of shares in the market, but most notably the purchases are
accretive to NAV;
-- ongoing Share purchases by the Directors of the Company and
Sequoia Investment Management Company Limited (the "Investment
Adviser") and its directors. In total, 1,609,258 Shares were bought
by insiders during the year;
-- a 10% increase in the dividend, keeping pace with UK
inflation, which should improve the attractiveness of the Company
to investors looking for strong income; and
-- enhanced investor communication including a revamped website
(www.seqi.fund), a well-attended investor capital markets day and
numerous meetings with individual investors.
1. See Appendix for Alternative Performance Measures
("APMs").
Dividend
As noted above, on the back of higher short-term interest rates,
which has resulted in increased income from the Fund's investments
in floating rate loans, we were able to increase our dividend by
10%, from 6.25p per Ordinary Share to 6.875p per Ordinary Share.
This increase took effect from January 2023. As in previous years,
the dividend remains fully cash-covered.
For the time being, we intend to hold the payout at its current
level. However if, as we anticipate, our interest income continues
to increase, further strengthening in our dividend cash cover
ratio, we will review the situation again later in 2023, in the
context of our ambition to pay out a sustainable and attractive
level of income to our Shareholders.
Portfolio performance
Most of our portfolio has performed well over the course of the
year, with many sectors previously adversely affected by COVID-19
improving materially. Specifically, the Fund's exposures to the
transportation sector (excluding aviation), student accommodation
and midstream assets all improved in credit quality, while other
sectors such as telecommunications and healthcare infrastructure
remained robust.
Of the three non-performing investments identified a year ago,
one has now been exited, albeit at a loss. That leaves only Bulb
Energy and a loan backed by the property at 4000 Connecticut
Avenue, Washington DC (formerly called Whittle Schools). Progress
has been made on these two investments, which represent only 3.3%
of NAV. The Investment Adviser discusses these specific
transactions in more detail in the NAV and Fund Performance section
of its report.
While most of the bonds and loans in our portfolio are
performing in line with expectations, some 10% of our portfolio,
including the two aforementioned loans, are receiving enhanced
scrutiny by our Investment Adviser. The Board has closely reviewed
these positions and is comfortable that their current marks, which
are generated by our valuation agent PricewaterhouseCoopers, and
reviewed by our independent Auditor Grant Thornton, fairly reflect
the current value of these positions.
During the financial year, the Investment Adviser has had a
highly selective approach to new investments. In general, we have
prioritised investments in lower-risk parts of the infrastructure
market, which typically have only a moderate or low correlation to
the economic cycle, such as businesses with a high degree of
contractual income. While net leverage has increased due to the
substantial effect the foreign exchange market's volatility has had
on the Fund's hedging book, we have refrained from drawing too much
on the Company's revolving credit facility ("RCF") and are now
rebuilding liquidity reserves - in part, because having low net
leverage is clearly prudent in turbulent markets.
A retrospective review of the Company since its IPO
The Company has now been in operation for slightly more than
eight years since its IPO on 3 March 2015. As my tenure as Chair is
nearing its end, this seems like a natural time to reflect on the
Company's performance.
Firstly , it is clear that the Company's strategy, as set out in
its very first Prospectus before the IPO, was both attractive to
investors and successfully implemented. Through 11 well --
supported capital raises, the Company grew approximately 12 -- fold
and became a constituent member of the FTSE 250. This scale has
produced some important benefits for investors, including:
-- lower costs, since the fixed costs of the Fund are spread
over a larger capital base and the Investment Adviser's fee has
reduced in percentage terms through a fee -- tapering
mechanism;
-- reduced risk due to an increase in diversification;
-- increased access to investment opportunities thanks to our
ability to fund larger, more important, infrastructure projects;
and
-- greater "pricing power" in the loan terms that we offer to the companies we finance.
Secondly , the Fund has operated through some turbulent times,
which have helped to demonstrate the robustness of infrastructure
debt as an investment class. Periods of high volatility in the
liquid credit markets; COVID-19 lockdowns followed by a recession
or a near-recession; the Ukraine war; ultra-low interest rates
followed by a normalisation of rates at an almost unprecedented
speed; and periods of both abnormally low and abnormally high
energy prices have all challenged us. That is a lot in only eight
years!
During all this, we have of course had some loans default. That
is a natural part of running a loan portfolio - it would be naïve
to imagine that the Fund could keep lending money in perpetuity
without experiencing some bad debts. However, as the chart below
shows, our proportion of defaulted loans is much lower than both
the broader credit markets, and indeed comparable infrastructure
lending.
Note that within this calculation we are including not just the
actual defaults we have experienced but also cases when we have
sold loans at a loss to avoid a further deterioration in credit
quality and the likelihood of a default in the future.
Moreover, when we have had a default, we have on average
recovered more than other lenders. This means that our "loss rate"
(i.e. annualised credit losses, expressed as a percentage of the
loan book) is very low indeed, at approximately 0.56% per annum.
This number includes not just realised losses but projections of
future losses, which have not yet come to pass, on non --
performing loans.
Thirdly , the Company has been able to earn its target yield on
its investments, net of costs, and this has enabled us to pay a
growing and cash -- covered dividend. In its eight years, the
Company has met every dividend payment and target.
Fourthly , as discussed below, the Company has adopted a market
-- leading ESG policy. This has involved implementing ESG scoring,
exiting some non-compliant investments, targeting new investment
sectors, engagement with borrowers and a high (and growing) level
of sustainability reporting.
Our goal on ESG is to be a market leader, not a follower. We
believe that by acting today we are positioning the Company for
success in the future, and this is what our investors want.
Liquidity
One important, but easily overlooked, aspect of listed funds is
the importance of having sufficient liquidity. This is especially
true for companies such as ours that invest in illiquid private
assets. Liquidity can be needed to meet potential margin calls on
FX hedging, finance share buy -- backs and manage borrowing and
funding investment commitments.
We derive liquidity through cash sitting on the balance sheet,
the undrawn portion of the RCF, the natural high level of cash
generation arising from our investment portfolio and a reasonable
number of liquid investments, typically rated infrastructure
bonds.
I am pleased to say that the Company has remained liquid at all
times since its inception. This is because we are cautious by
nature and conservatively assess our liquidity requirement. In
response to the deteriorating market conditions over the opening
months of the financial year, in September 2022, the Board and the
Investment Adviser agreed that it would be beneficial to increase
liquidity via targeted asset sales. Over the last nine months since
then, the Investment Adviser has cumulatively raised GBP460 million
through sales and loan redemptions. This has provided funds to
support our share price through our buy-back programme and has
allowed our Investment to make selective purchases at attractive
prices of more liquid infrastructure bonds and broadly syndicated
leveraged loans.
Environmental, social and governance ("ESG")
This year has seen continued progress on the development of the
Company's approach to ESG. We have focused on applying the
comprehensive ESG policy which we published in June 2021, and
refreshed earlier this year, across all of our portfolio and deal
pipeline. Our policy sets out in detail our approach to asset
selection and portfolio construction, as well as broader themes
such as how we can engage with our borrowers on ESG-related
matters.
We continue to report under Article 8 of the EU Sustainable
Finance Disclosure Regulation ("SFDR") directive.
In February 2023 we were delighted that our Investment Adviser
won the 2022 global award for Best ESG Infrastructure Investment
Strategy by Capital Finance International ("CFI"), in recognition
of its progress against its ESG commitments and framework.
Overall, the portfolio has shown progression during the year
from an average score of 61.88 to 62.29. A significant number of
the lowest -- scoring loans have been sold or allowed to roll off
at their maturity, and most of our new investments generally score
higher than the ones they replace. Generally, we expect this trend
to continue, and believe that our scoring framework will allow us
to continue to allocate more capital towards sectors and borrowers
who demonstrate appropriate environmental, social or governance
characteristics. However, because we are willing to lend to
borrowers who are seeking finance transition programmes to improve
their ESG metrics, sometimes from a relatively low base, it is not
a given that our portfolio's average ESG score will improve at
every future reporting date.
For the third year running we have mandated KPMG LLP to provide
independent limited assurance of our portfolio's overall ESG score,
which we believe is indicative of our intention to raise standards
of rigour in the qualification of ESG credentials across portfolios
of loans.
As noted in my review last year, the Board wrote to all the
Company's key service providers to request information about the
management of their carbon footprints and the steps they are taking
to reduce these over time. We were greatly encouraged to discover
that the majority of our larger key service providers have already
set up impressive programmes to monitor and reduce their carbon
intensity.
We also put in place a programme to offset our emissions from
our own activities, such as the difficult-to-avoid ones relating to
flights to and from Guernsey. This programme is financed by a
voluntary levy on Directors' fees and by contributions from some of
our key suppliers, most materially from our Investment Adviser.
The credits we acquired during 2022 are expected to be
sufficient to offset estimated corporate-level emissions for 2022
and, pending verification of the Peatland Code certified units due
for conversion in 2025, for 2023 and 2024 as well.
Overall, I continue to believe that the policies that our
Investment Adviser is operating and developing firmly establish us
at the forefront of ESG thinking in the context of an
infrastructure debt -- focused fund.
Board succession plans
In previous Chair's statements, I have discussed Board
succession planning, and I would now like to introduce Fiona Le
Poidevin, who joined the Board in January 2023, having previously
been the Chief Executive Officer of The International Stock
Exchange Group and, before that, the Chief Executive of Guernsey
Finance, the promotional body for Guernsey's finance industry
internationally. Fiona is a Chartered Director, a Fellow of the
Institute of Directors and a Chartered Accountant and brings a
wealth of experience in listed funds. Going forward, Fiona will
chair the Company's Audit Committee.
I would like to thank Sarika Patel, who has diligently served as
a Director of the Company for two years and is now stepping down
for personal reasons at this year's AGM. She has brought many years
of experience to the Board and has contributed significantly to the
Company's success and we wish her the best for the future. The
process to recruit a replacement for Sarika is already
underway.
Of the original four Directors on the Board at the time of the
Company's IPO in March 2015, only two now remain, Sandra Platts and
I. In accordance with best practice, it is anticipated that we will
both retire from the Board over the course of the next 12
months.
Outlook
As noted above, we are taking advantage of credit markets that
are currently favourable to debt providers. As loans mature, we are
able to redeploy capital at higher returns for less risk, and
improve our cash yield and average credit rating on our portfolio.
Tight lending conditions, across not just the banking sector but
also the liquid credit markets (specifically the high yield and
leveraged loan markets) mean that the Investment Adviser can be
extremely selective in the opportunities it chooses to pursue.
In general, not only do the assets that we add to the portfolio
carry attractive yields, but they also:
-- improve the average credit quality of the loan book, for
example by targeting senior over subordinated debt, and defensive
over cyclical sectors;
-- improve the balance of the portfolio by investing in parts of
the infrastructure market where the Fund currently has no or little
exposure; and
-- improve the portfolio's ESG profile.
In addition, higher yields available in the market have allowed
the Investment Adviser to add investments (typically rated
infrastructure bonds) to our liquid asset bucket.
We believe that this approach will position us well to deliver
attractive and sustainable returns for Shareholders.
We will also continue to monitor our Share price closely and,
where appropriate, to engage in limited Share buy-backs. The rate
at which we buy back Shares will flex depending on various factors,
including the level of our Share price discount to NAV. We believe
that buying in Shares at greater discounts will generate
Shareholder value over the long term, even if it means that the
size of our portfolio has to fall somewhat over the interim.
I would like to end by noting that the Company has demonstrated
its resilience throughout the challenges of the last eight years.
Our well diversified portfolio, growing interest income and
disciplined approach to capital deployment give us confidence for
our future.
Robert Jennings
Chair
28 June 2023
INVESTMENT ADVISER'S REPORT
The Investment Adviser's objectives for the year
Over the course of the financial year, Sequoia Investment
Management Company Limited ("Sequoia" or the "Investment Adviser")
has had the following objectives for the Fund:
Goal Commentary [Achieved]
-------------------------- --------------------------------------- ----------
Gross portfolio return(1) The Fund is fully invested with Yes
of 8-9% a portfolio that yields(1) in
excess of 11%, compared to 8%
as at 31 March 2022, the increase
being primarily driven by increases
in long-term interest rates
during the year
-------------------------- --------------------------------------- ----------
Manage the portfolio The Fund has continued to position Yes
responsibly through an its portfolio beneficially considering
inflationary and rising the rise in interest rates and
interest rate environment has increased the floating rate
proportion of its portfolio
from 50.1% at 31 March 2022
to 58.4% at 31 March 2023
-------------------------- --------------------------------------- ----------
Follow a sustainable The Fund has improved the overall Yes
investment strategy ESG score of its portfolio from
61.88 to 62.29 by allocating
capital to higher-rated opportunities
and selling off legacy investments
-------------------------- --------------------------------------- ----------
Timely and transparent Factsheet, commentary and the Yes
investor reporting full portfolio have been provided
monthly for full transparency,
with increased investor engagement
over the year
-------------------------- --------------------------------------- ----------
Continue to improve The Fund's pioneering ESG approach Yes
the ESG profile of the was recognised by investors
Fund and the portfolio when the Investment Adviser
won the 2022 global award for
Best ESG Infrastructure Investment
Strategy by Capital Finance
International
-------------------------- --------------------------------------- ----------
Dividend target of 6.875p The Company paid two quarterly Yes
per Ordinary Share per dividends of 1.5625p and two
annum, increased by 10% of 1.71875p per Ordinary Share
from 6.25p per annum in respect of the year, in accordance
starting in Q3 with the increased dividend
target, amounting to a total
of 6.5625p
-------------------------- --------------------------------------- ----------
Economic infrastructure is a diverse and highly cash --
generative asset class
Economic infrastructure debt is a type of investment that is
widely recognised for its stability and reliability. This asset
class is characterised by several key features that make it
attractive to investors. Firstly, there are high barriers to entry,
which means that it is difficult for new players to enter the
market, creating a certain level of protection for existing
investors. Secondly, the cash flows generated by economic
infrastructure debt are typically stable and predictable, providing
a steady income stream to investors. This is due to the essential
nature of the services provided, which ensures a consistent level
of demand. Finally, the physical assets that support economic
infrastructure debt provide tangible collateral that can be used to
secure the investment. These features have made economic
infrastructure debt an increasingly popular asset class among
investors seeking a stable source of income and a reliable
long-term investment.
Economic infrastructure debt sectors such as transportation,
utilities, power, telecommunications and renewables are often
supported by long-term concessions or licences to operate
infrastructure assets. Projects in these sectors typically earn
their revenues from demand, usage or volume, such as a data
centre's revenue depending on the number of clients using its
services. This contrasts with social infrastructure, such as parks
and hospitals, which are often compensated for the physical asset
simply being available for use.
To mitigate demand risk, economic infrastructure projects are
typically less highly geared than social infrastructure and have
higher equity buffers, more conservative credit ratios, stronger
loan covenants, and higher levels of asset backing for lenders.
This has remained true during the financial year, and SEQI's
investment opportunities continue to be based and analysed on these
characteristics.
Despite market volatility during the period, the Fund took pre
-- emptive actions to position its portfolio defensively for
potential downturns, such as targeting mainly floating rate assets,
focusing on senior debt, and favouring non-cyclical industries.
These measures helped mitigate risks from the lingering effects of
the COVID-19 pandemic, the current inflationary market and opposing
rate hikes, and other global uncertainties, such as Russia's war
with Ukraine.
Overall, economic infrastructure debt remains an attractive
asset class with stable cash flows and high barriers to entry. As
sustainability continues to be a key investment topic, SEQI notes
that investing in new economic infrastructure is often necessary
for the implementation of the latest technologies and manufacturing
processes into existing industries. This creates an abundance of
ESG -- incorporating investment opportunities, benefiting not only
SEQI's portfolio but also the modernisation of otherwise high
barrier-to-entry sectors.
The market environment during the year
Despite the fundamental stability of infrastructure debt as an
asset class, the broader financial markets experienced significant
turbulence over the year, which has inevitably impacted the
valuations of the Fund's investments. For instance, the FTSE
All-Share Index, representing the overall London equity market,
increased by 2.5%, while the FTSE 250, tracking mid-cap companies,
declined by 8.1% during the period. 10-year Gilts (UK government
bonds) decreased by 11.0%, leveraged loans declined by 4.2%, and
high yield bonds fell by 4.7%. These figures include dividends or
interest income, providing a total return for the period.
The deterioration in financial markets resulted from several
factors, such as high inflation, global supply chain disruptions
and rising interest rates. The COVID-19 pandemic continued to
impact economies worldwide, and investors displayed a high level of
risk aversion, requiring higher interest rates and credit spreads
as compensation for elevated risk. Some markets, such as high yield
bonds, experienced significant volatility, with year-on-year new
issuance declining.
The Fund's portfolio of private debt is impacted by interest
rates and credit spreads in liquid markets. While weakness in high
yield bond markets negatively affects in the valuation of the
Fund's investments, the Fund also benefited from weak markets, as
infrastructure businesses had fewer options for raising capital,
and the pricing power enjoyed by the Fund increased. This
translated to higher lending margins, better credit terms, or both,
which benefited the Fund's overall performance. Despite the
challenges, the Fund's investments in infrastructure debt continue
to provide investors with an attractive risk-return profile.
Portfolio overview
Our strategy for the period has been to continue building and
managing a diversified portfolio of private debt investments backed
by infrastructure assets in low-risk jurisdictions. We aim to
maintain our target returns with a focus on avoiding excessive
credit risk. Throughout this period, we continued to employ
cautious investment strategies that were put into place in 2019.
These strategies involve maintaining a large portion of the
portfolio in defensive sectors, prioritising senior debt over
mezzanine debt, and maintaining or gradually improving the
portfolio's credit quality.
The economic outlook for the period ahead remains uncertain,
with concerns over inflation and the impact of rising interest
rates on global growth. Despite these challenges, our diversified
approach to private debt investing has helped us to achieve solid
returns and manage risk effectively. As a result, we have been able
to take advantage of new opportunities to lend to high-quality
infrastructure projects. Following this strategy, we believe that
we can continue to generate attractive returns for our investors
while mitigating risk in a challenging market.
-- We have 57.6% of the portfolio in defensive sectors. These
include telecommunications, accommodation, utilities and
renewables, which are viewed as defensive because they provide
essential services, often operate within a regulated framework and
have high barriers to entry.
-- Our telecommunications sector, which stands at 28.8% of the
portfolio, continues to perform as previous PIK assets become
cash-paying and the appetite for infrastructure such as data
centres grows.
-- We have 57.2% of the portfolio in senior and 42.8% in
mezzanine as opposed to more of a 50-50 blend to position the
portfolio better for a slow-growth environment.
-- We have maintained the credit quality of the portfolio over
the last 12 months while still achieving our target yield. We have
continued our policy, instituted shortly after SEQI's launch in
March 2015, not to invest in CCC profile names.
-- We have maintained a low modified duration(1) of 1.5 with
58.4% of the portfolio in floating rate deals and investing in
short-term fixed rate assets, which currently have a low
weighted-average life of 3.5 years.
The Fund's investment portfolio is diversified by borrower,
jurisdiction, sector and sub-sector, with strict investment limits
in place to ensure that this remains the case. The chart below
shows portfolio sectors and sub-sectors on 31 March 2023:
The Fund has a clear focus on investing in stable and low-risk
regions, which is in line with its investment criteria. As a
result, it limits its investment activities to countries that meet
certain standards, such as being classified as investment-grade.
The Fund's investment philosophy is centred around identifying
opportunities that offer attractive risk-adjusted returns while
avoiding potential pitfalls, such as regulatory and legal risks.
While the Fund is exploring potential investments in Spain, it has
decided not to pursue investment opportunities in Portugal or
Italy, as these markets are perceived to be more challenging due to
a combination of economic, regulatory and legal risks. The Fund may
revisit this opinion in the future.
The Fund's investment strategy is primarily focused on private
debt, which is the largest asset class in its portfolio. This
approach is driven by the fact that private debt typically offers
an illiquidity premium, which means it yields higher returns than
liquid bonds with similar characteristics. Since the Fund's main
investment strategy is a "buy and hold" approach, it makes sense to
capture this illiquidity premium. This is supported by Sequoia's
research, which indicates that infrastructure private debt
instruments typically yield about 1% more than public, rated
bonds.
Despite its focus on private debt, the Fund also considers bonds
as an attractive investment option in certain situations. For
example, some bonds may be structured as "private placements",
offering attractive yields that are comparable to loans.
Additionally, some sectors, such as US transportation, primarily
borrow through the bond markets, which means having an allocation
to bonds can improve the diversification of the portfolio. Lastly,
having some liquid assets in the portfolio enables the Fund to take
advantage of future opportunities while avoiding the costs
associated with holding cash.
NAV and Fund performance
The Fund takes a cautious approach to its investment activities,
particularly when it comes to greenfield construction risk. While
the Fund is willing to allocate up to 20% of its NAV to lending for
such projects, its actual exposure to assets in construction(1) as
at 31 March 2023 was 14.2% of its portfolio. The Fund selects
projects carefully and only invests in those where it believes it
is well-compensated for the moderate level of construction risk
taken. Furthermore, the Fund has strict criteria when judging the
underlying strength of the borrower's business or project to ensure
that the potential risk is mitigated.
Over the financial year, the Company's NAV per share(1)
decreased from 100.5p per share to 93.26p per share ex-dividend,
driven by the following effects:
Factor NAV effect
------------------------------------------------------------------ ----------
Interest income on the Fund's investments 10.61p
Gains on foreign exchange movements, net of the effect of hedging 0.19p
Negative market movements (9.86)p
IFRS adjustment from mid-price at acquisition to bid price (0.24)p
Operating costs (1.71)p
Gains from buying back shares at a discount to NAV 0.18p
------------------------------------------------------------------ ----------
Gross decrease in NAV (0.83)p
Less: Dividends paid during the year (6.41)p
------------------------------------------------------------------ ----------
Net decrease in NAV after payments of dividends (7.24)p
------------------------------------------------------------------ ----------
The total return on the NAV(1) was equal to -0.9% over the
period. Whilst this is a disappointing outcome, it ought to be
analysed in the context of the wider market. The portfolio has
outperformed leveraged loans by 3.3%, high-yield bonds by 3.8%, the
FTSE 250 by 7.2% and 10-year Gilts by 10.1%.
As it has been a volatile year for asset valuations, it would be
sensible to compare the performance between the first and second
half of the financial year. It is important to note that given the
continuous increase in interest rates and credit spreads, the
Investment Adviser is not expecting a complete reversal of negative
movements in asset valuations but is more focused on a slowing
trend and a stabilising portfolio.
To capture these characteristics, the portfolio has been split
into two categories, namely cashflow-based valuations and
recovery-based valuations.
Cashflow-based valuations
Cashflow-based asset valuations constitute investments whose
cashflows are reasonably predictable and can therefore be analysed
using a discounted cashflow model. Valuation decreases for assets
that are marked via this methodology are predominantly driven by
systematic inputs such as the previously mentioned increase in
long-term rates and credit spreads. As these do not represent
underlying underperformances of the assets, the Investment Adviser
expects the majority of unrealised losses to be recovered as the
investments reach maturity.
Of the 9.86p per share total loss due to market movements over
the financial year, a valuation loss of 6.42p can be attributed to
cash-flow based valuations. Further decomposing the negative
movement, almost the entirety of this negative movement, 6.41p, was
recognised in the first half of the year, while a minimal further
loss of 0.01p has been recorded for the second half. The
explanation for this substantial improvement is a stabilising of
long-term interest rate forecasts towards the end of the year,
which allowed credit spread tightening and the natural pull-to-par
of the portfolio's asset to counter the loss of valuation due to
risk-free rate adjustments. While a 6.42p loss in valuations for
the full year remains, the Investment Advisor expects further price
appreciation of these assets as they pull-to-par and eventually get
repaid at their maturity.
Recovery-based valuations
Whilst cashflow models may still be used to value assets in this
category, the Investment Adviser tracks their development more
closely and uses additional valuation methodologies to assess
idiosyncratic risks and eventual recoverability of these assets.
This category therefore contains investments with an above-average
degree of uncertainty on future price appreciation.
The remaining 3.44p loss in valuation of the total 9.86p decline
due to market movements falls into this category. In the first half
of the financial year, a loss of 2.18p was due to these
investments, of which 1.47p was attributable to Bulb, Salt Lake
Potash and Whittle Schools. An additional decline of 1.26p was
recognised in the second half of the year, with a 0.35p loss due to
the remaining non-performing loans. While this indicates that
progress has been made on this category of assets, systemic factors
such as long-term interest rates and credit spreads evidently play
a lesser role in the valuation recovery than for cashflow -- based
valuations. Therefore, the potential reversal of negative market
movements for these investments may be slower and less
predictable.
Given that the portfolio has outperformed the FTSE 250,
leveraged loans and high-yield bonds, and supports evidence of
future NAV appreciation, the Investment Adviser wishes to reiterate
why such outperformance can be achieved:
-- resilience of infrastructure debt by leveraging the inherent
defensive attributes of infrastructure assets and the strong asset
backing typically associated with our loans;
-- mitigation of interest rate sensitivity through a significant
proportion of floating rate debt in the portfolio (58%), resulting
in a low level of sensitivity to changes in interest rates; and
-- enhanced portfolio diversification by investing across
various sectors, sub-sectors and jurisdictions, thereby minimising
the impact of country-specific political and economic risks.
Share performance
As at 31 March 2023, the Company had 1,734,819,553 Ordinary
Shares in issue. The closing share price on that day was 80.4p per
share, implying a market capitalisation for the Company of
approximately GBP1.4 billion, compared to GBP1.8 billion a year
previously.
After taking account of dividends paid during the year of
6.40625p, the share price total return over the period was -16.1%.
This decline in the share price is driven by two factors:
-- the decline in NAV as discussed above; and
-- a decrease in the rating of the shares from a 2.3% premium(1) to a 13.8% discount(1) .
The rating decrease of the Fund is due to negative market
sentiment towards debt funds, which has also affected the majority
of alternative income vehicles listed on the LSE. The concerns over
inflation and increasing interest rates have contributed to this
sentiment, which is further compounded by long-term economic
prospects. Both the Investment Adviser and the Company's Directors
consider the current share price discount as disproportionate. They
believe that it does not reflect the investment portfolio's
potential for generating attractive risk-adjusted returns during
uncertain periods or its long-term prospects. With this conviction
the Fund has been repurchasing Ordinary Shares, as it considers the
shares to be undervalued, and such repurchases are accretive to our
NAV.
Dividend cover
The Company has paid 6.40625p in dividends during the last 12
months in accordance with its target. It is worth noting any
declared quarterly dividend is paid out to investors in the
following quarter. Therefore, this financial year consisted of
three annualised 6.25p per Ordinary Share dividends and one
increased annualised 6.875p per Ordinary Share dividend. The fourth
quarter dividend payment will be accounted for in the first quarter
of the financial year 2023/24.
The level of dividend cash cover(1) has been increasing and has
reached 1.21x for the financial year 2022/23, which is a
significant improvement from 1.06x for the prior year. The increase
is due to a combination of rising short-term rates, as reflected in
the uplift in the yield-to-maturity(1) from 8.4% to 11.9%, and
interest being received in cash that was previously capitalised,
known as "PIK interest". The Investment Adviser expects further PIK
interest to materialise as loans repay.
Fund performance
31 March 2023 30 September 2022 31 March 2022
--------------------------------- ---------------------------------- ------------- ----------------- -------------
Net asset value per Ordinary Share 93.26p 93.64p 100.50p
--------------------------------- ---------------------------------- ------------- ----------------- -------------
GBP million 1,617.9 1,634.9 1,777.0
-------------------------------------------------------------------- ------------- ----------------- -------------
Cash held (including in the
Subsidiary) GBP million 68.7 38.2 94.1
--------------------------------- ---------------------------------- ------------- ----------------- -------------
Balance of RCF GBP million 181.8 193.0 121.4
--------------------------------- ---------------------------------- ------------- ----------------- -------------
Invested portfolio(1) percentage of NAV 106.5% 116.0% 95.0%
including investments in
Total portfolio(1) settlement 109.6% 121.3% 101.5%
--------------------------------- ---------------------------------- ------------- ----------------- -------------
Portfolio characteristics(1)
31 March 30 September 31 March
2023 2022 2022
-------------------------- ------------------------------ -------- ------------ --------
Number of investments 68 72 76
---------------------------------------------------------- -------- ------------ --------
Valuation of investments 1,723.5 1,924.5 1,804.5
---------------------------------------------------------- -------- ------------ --------
ESG score 62.29 61.59 61.88
---------------------------------------------------------- -------- ------------ --------
Single largest investment GBP million 61.0 64.3 64.7
percentage of NAV 3.8% 3.9% 3.6%
Average investment size GBP million 25.3 25.0 23.7
-------------------------- ------------------------------ -------- ------------ --------
Sectors by number of invested assets 8 8 8
Sub-sectors 26 28 29
Jurisdictions 12 11 12
---------------------------------------------------------- -------- ------------ --------
Private debt percentage of invested assets 98.1% 96.3% 94.7%
Senior debt 57.2% 59.2% 53.6%
Floating rate 58.4% 56.9% 50.1%
Construction risk(1) 14.2% 12.3% 13.1%
---------------------------------------------------------- -------- ------------ --------
Weighted-average maturity years 4.1 4.6 5.2
Weighted-average life years 3.5 3.9 4.1
Yield-to-maturity(1) 11.9% 11.2% 8.4%
Modified duration(1) 1.5 1.6 2.1
---------------------------------------------------------- -------- ------------ --------
1. Relates to the portfolio of investments held in the
Subsidiary.
Credit performance
At an overall portfolio level, the credit performance over the
year remained positive, except for the aviation sector which was
still affected by the COVID-19 pandemic. However, higher energy
prices, even when combined with volatility, had a positive impact
on the power generation, renewable energy and midstream
sectors.
The current inflationary environment could also prove beneficial
to infrastructure assets, as businesses can increase their revenues
by linking the cost of the product or service provided to inflation
while maintaining a constant level of leverage. However, this is a
double-edged sword that could hit borrowers by increasing their
internal costs as well, leading to an unexpected increase in
expenses. In particular, investments exposed to construction risk
are particularly affected, as projected budgets might be overrun.
Continued monitoring of such exposed assets to ensure debt
serviceability is maintained is an essential part of analysing the
portfolio's credit performance.
In the Company's 2022 Annual Report, we highlighted three
investments that were facing significant credit issues, namely a
private school in Washington DC, a UK energy supply business, and a
potash project in Australia. We have since exited most of the
potash project, with only a small residual facility remaining, and
the profit share on the project has been valued at nil. The
non-performing loans incurred a net cost of 1.82p per Ordinary
Share during the period, the majority of which can be attributed to
the potash facility. The status of the two remaining non --
performing loans is as follows:
1. US private school
A loan secured on a large building in a prime area in Washington
D.C., originally occupied by a private school under a long-term
lease agreement. Mostly as a consequence of the COVID-19 pandemic,
enrolments at the school declined to the point where it could not
cover its operating costs, which ultimately led to its insolvency.
The loan was amended and extended in May 2022 to allow the borrower
to deliver on its business plan after the COVID-19 pandemic but the
school failed to recover and was then formally evicted from the
property on 19 October 2022. The owner of the property continues to
market it to other potential tenants, predominantly in the
education sector, with an encouraging early response from a number
of educational and governmental entities. However, the commercial
real-estate market continues to suffer globally as a result of
reduced demand, remote work, economic uncertainty, and shifts in
consumer behaviour. All these factors have contributed to a
valuation decline during the year. As at 31 March 2023, the value
of this loan is 2.2% of the portfolio.
2. UK energy supply company
The Investment Adviser has made substantial progress on
recovering value from the Fund's loan to Bulb Energy, a UK energy
supply company. During the year, the Company became the majority
shareholder, through a partial debt -- for -- equity swap, of Zoa,
a newly formed business set up to market Bulb's best-in-class
software to energy supply companies in the UK and elsewhere. The
Fund still maintains a claim on the assets of Bulb and its parent
Simple Energy and has recovered c.GBP14 million in cash since Bulb
went into administration. The combined value of the Fund's shares
in Zoa and its loan to Bulb is 1.1% of the portfolio.
Net leverage
The net debt of the Fund has increased from GBP27.3 million to
GBP113.1 million as a result of an increase in drawings on the
Company's revolving credit facility from GBP121.4 million to
GBP181.8 million and a decrease in cash holdings from GBP94.1
million to GBP68.7 million. This increase in net leverage is mainly
due to the volatility and devaluation of Sterling currency
experienced over the financial year. As Sterling lost value, the
Fund's non-Sterling assets gained value in Sterling terms. However,
the Fund remains currency-hedged, and hence the value of its
hedging book falls by roughly the same amount. Eventually, as the
Fund's currency hedges approach their maturity dates, the Fund
needs to settle them by paying cash, a factor which caused the
increase in net leverage during the year.
The Company has repaid a portion of the revolving credit
facility with the capital repayments it has received, resulting in
additional capacity to manage future volatility in exchange rates,
while simultaneously reducing cash drag on non -- invested
capital.
Portfolio valuation
Currently, the average loan in the portfolio is marked at a
price of about 88 pence in the pound; this mostly reflects the
higher interest rates and credit margins used to value the loan,
compared to those available in the market at the time the loan was
made.
Over time, as these loans approach their repayment dates, their
valuations will accrete back up to 100 pence in the pound - this is
the so-called "pull-to-par" effect.
These NAV estimates are calculated on the basis that interest
rates and bond yields remain constant and does not take into
account NAV-accretive mechanisms other than the pull-to-par; the
only variable is the passage of time. Non-performing loans are
excluded from the calculation.
In monetary terms, the pull to par is expected to be
material:
Pull to par Pull to par
Period (GBPm) (pence per share)
------------------------------ ----------- -----------------
1 April 2023 to 31 March 2024 38.4 2.2
1 April 2024 to 31 March 2025 28.0 1.6
1 April 2025 to 31 March 2026 16.3 0.9
1 April 2026 onwards 37.6 2.2
------------------------------ ----------- -----------------
Origination activities
The investment strategy of the Fund involves investing in both
primary and secondary debt markets. This approach offers several
advantages: investing in the primary market enables the Fund to
earn upfront lending fees and customise its investments to align
with its requirements, while purchasing assets in the secondary
market facilitates the swift deployment of capital into seasoned
assets with demonstrable performance.
Primary market origination
The Fund continues with its focus on the primary loan markets,
which remain an important opportunity. The Investment Adviser has
been able to source bilateral loans and participate in "club"
deals, where a small group of lenders join together. Additionally,
the Fund has participated in more widely syndicated infrastructure
loans.
Primary market loans are appealing since they often come with
favourable economics. As the lender, the Fund benefits from upfront
lending fees and improved term negotiability. With the growth of
the Fund, its primary market investment activity has increased and
has now surpassed secondary market investments. As at 31 March
2023, 87.5% of the portfolio consists of primary investments.
Secondary market origination
Although the Company has been focusing on primary market
investments, it continues to acquire some of its investments from
banks or other lenders in the secondary markets. This has allowed
not only for faster deployment of capital, as primary market
transactions in infrastructure debt can often take a considerable
amount of time to execute, but also provides the Fund with more
liquid assets, providing optionality when times require more cash
at hand.
Furthermore, secondary market loans have a performance history
that allows for credit analysis based on actual results rather than
financial forecasts. Research indicates that infrastructure loans
tend to improve in credit quality over time, so in many cases,
secondary loans have improved in credit quality from the time of
their initial origination.
Strengthening the team at Sequoia Investment Management
Company
Within the past year, the Investment Adviser has expanded its
team by hiring two new team members.
Matt Dimond, who has joined as Head of Client Capital, will be
working with investors, evaluating strategies, and has expertise in
real asset investments. Matt previously held senior roles at
InfraRed Capital Partners and Swiss Life.
Leah Dean joined as a new Associate and will focus on ESG
matters. Leah has previously worked as a Language and Behaviour
Analyst at AKO Capital before starting her role at the Investment
Adviser. The Fund is committed to sustainable investing and is
dedicated to complying with regulatory requirements while engaging
with borrowers on ESG topics. With Leah's addition to the team, the
Fund will be better equipped to stay up to date with the constantly
evolving ESG landscape, assess the current portfolio for possible
enhancements, and offer assistance to investors with any enquiries
they may have.
Strong pipeline of opportunities
While the Investment Adviser has been largely focusing on
monitoring existing positions, it is also seeing a wide range of
attractive potential investments which are being considered. With
weak high yield bond and leveraged loan markets coinciding with the
current risk aversion dominating bank lending, borrowers are more
willing to accept the additional pricing power enjoyed by
alternative debt providers. As such, improved terms can be
negotiated than those typically available in times of abundant bank
lending, which feeds through to favourable conditions for investors
such as higher interest rates, fees, covenants and collateral
provision.
Our strategy is to take advantage of these attractive lending
conditions while adhering to our previously mentioned late cycle
strategies, which in the current market provides us with higher
yields for the same quality of assets compared to last year or
similar yields with improved asset quality. As the Investment
Manager is satisfied with the current yield composition of the
portfolio, the focus has been primarily on improved asset quality.
Preference is therefore given to assets with the following
characteristics:
-- senior debt, as opposed to mezzanine or holdco lending, which
provides additional security over collaterals;
-- defensive sectors, or borrowers with a high degree of
contractual or predictable income, as opposed to businesses exposed
to the economic cycle;
-- assets that will maintain or improve portfolio diversification;
-- operational projects, as opposed to construction projects, as
these have improved visibility over cash flows; and
-- BB or better implied credit quality.
With this selective approach to new investments and limited
funds, we are turning down over 90% of the lending opportunities we
come across. Nonetheless, our portfolio provides security for the
volatile markets ahead as we continue to prioritise quality,
diversity and cash generation.
Sequoia Investment Management Company Limited
Investment Adviser
28 June 2023
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2023
Year ended Year ended
31 March 2023 31 March 2022
GBP GBP
------------------------------------------------------------------------------------- ------------- -------------
Revenue
Net gains/(losses) on non-derivative financial assets at fair value through profit or
loss 26,891,111 (27,520,112)
Net losses on derivative financial assets at fair value
through profit or loss (96,628,102) (39,932,471)
Investment income 80,814,469 151,920,575
Net foreign exchange losses (1,513,107) (1,023,582)
-------------------------------------------------------------------------------------- ------------- -------------
Total revenue 9,564,371 83,444,410
-------------------------------------------------------------------------------------- ------------- -------------
Expenses
Investment Adviser fees 11,989,220 11,836,201
Investment Manager fees 369,422 349,634
Directors' fees and expenses 366,699 305,202
Administration fees 440,937 453,630
Auditor's fees 201,990 188,598
Legal and professional fees(1) 2,973,313 1,327,377
Valuation fees 741,000 821,400
Custodian fees 255,108 255,221
Listing, regulatory and statutory fees 143,257 168,318
Other expenses 497,307 497,617
-------------------------------------------------------------------------------------- ------------- -------------
Total operating expenses 17,978,253 16,203,198
Loan finance costs 9,534,772 4,522,522
-------------------------------------------------------------------------------------- ------------- -------------
Total expenses 27,513,025 20,725,720
-------------------------------------------------------------------------------------- ------------- -------------
Profit and total comprehensive (loss)/income for the year (17,948,654) 62,718,690
-------------------------------------------------------------------------------------- ------------- -------------
Basic and diluted (loss)/earnings per Ordinary Share (1.02)p 3.55p
-------------------------------------------------------------------------------------- ------------- -------------
1. Legal and professional fees includes an amount of
GBP2,218,093 (2022: GBP666,019) in respect of fees relating to the
Fund's investment in Bulb Energy.
All items in the above statement are from continuing
operations.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the year ended 31 March 2023
Share capital Retained losses Total
Year ended 31 March 2023 GBP GBP GBP
------------------------------------------ ------------- --------------- -------------
At 1 April 2022 1,837,390,531 (60,347,699) 1,777,042,832
Ordinary Shares buy-backs during the year (28,768,020) - (28,768,020)
Total comprehensive loss for the year - (17,948,654) (17,948,654)
Dividends paid during the year - (112,472,856) (112,472,856)
------------------------------------------- ------------- --------------- -------------
At 31 March 2023 1,808,622,511 (190,769,209) 1,617,853,302
------------------------------------------- ------------- --------------- -------------
Share capital Retained (losses)/earnings Total
Year ended 31 March 2022 GBP GBP GBP
--------------------------------------------------------- ------------- -------------------------- -------------
At 1 April 2021 1,831,856,145 (12,725,764) 1,819,130,381
Issue of Ordinary Shares during the year, net of issue
costs 5,534,386 - 5,534,386
Total comprehensive income for the year - 62,718,690 62,718,690
Dividends paid during the year - (110,340,625) (110,340,625)
---------------------------------------------------------- ------------- -------------------------- -------------
At 31 March 2022 1,837,390,531 (60,347,699) 1,777,042,832
---------------------------------------------------------- ------------- -------------------------- -------------
STATEMENT OF FINANCIAL POSITION
At 31 March 2023
31 March 2023 31 March
2022
GBP GBP
---------------------------------------------------------------------- ------------- -------------
Non-current assets
Non-derivative financial assets at fair value through profit or loss 1,704,493,932 1,770,022,999
----------------------------------------------------------------------- ------------- -------------
Current assets
Cash and cash equivalents 7,363,120 8,759,040
Trade and other receivables 100,122,134 143,092,101
Derivative financial assets at fair value through profit or loss 23,254,199 17,536,684
----------------------------------------------------------------------- ------------- -------------
Total current assets 130,739,453 169,387,825
----------------------------------------------------------------------- ------------- -------------
Total assets 1,835,233,385 1,939,410,824
----------------------------------------------------------------------- ------------- -------------
Current liabilities
Trade and other payables 4,530,899 3,855,430
Derivative financial liabilities at fair value through profit or loss 31,060,322 37,143,642
----------------------------------------------------------------------- ------------- -------------
Total current liabilities 35,591,221 40,999,072
----------------------------------------------------------------------- ------------- -------------
Non-current liabilities
Loan payable 181,788,862 121,368,920
----------------------------------------------------------------------- ------------- -------------
Total liabilities 217,380,083 162,367,992
----------------------------------------------------------------------- ------------- -------------
Net assets 1,617,853,302 1,777,042,832
----------------------------------------------------------------------- ------------- -------------
Equity
Share capital 1,808,622,511 1,837,390,531
Retained losses (190,769,209) (60,347,699)
----------------------------------------------------------------------- ------------- -------------
Total equity 1,617,853,302 1,777,042,832
----------------------------------------------------------------------- ------------- -------------
Number of Ordinary Shares 1,734,819,553 1,768,238,998
----------------------------------------------------------------------- ------------- -------------
Net asset value per Ordinary Share 93.26p 100.50p
----------------------------------------------------------------------- ------------- -------------
The Financial Statements were approved and authorised for issue
by the Board of Directors on
28 June 2023 and signed on its behalf by:
Sarika Patel
Director
STATEMENT OF CASH FLOWS
For the year ended 31 March 2023
31 March 31 March
2023 2022
GBP GBP
------------------------------------------------------------------------------------- ------------- -------------
Cash flows from operating activities
(Loss)/profit for the year (17,948,654) 62,718,690
Adjusted for:
Net (gains)/losses on non-derivative financial assets at fair value through profit or
loss (26,891,111) 27,520,112
Net losses on derivative financial assets at fair value through profit or loss 96,628,102 39,932,471
VFN capitalised interest - (7,309,761)
Investment Adviser fees settled through issue of Ordinary Shares - 878,100
Net foreign exchange losses 1,513,107 1,023,582
Loan finance costs 9,534,772 4,522,522
Decrease/(increase) in trade and other receivables
(excluding prepaid finance costs) 42,063,321 (33,004,700)
Increase in trade and other payables
(excluding accrued finance costs and Ordinary Share buy-backs) 67,578 45,287
104,967,115 96,326,303
Cash received on settled forward contracts 16,174,078 43,775,627
Cash paid on settled forward contracts (124,603,014) (16,124,456)
Purchases of investments (302,102,305) (399,588,003)
Sales of investments 394,522,483 339,810,204
-------------------------------------------------------------------------------------- ------------- -------------
Net cash inflow from operating activities 88,958,357 64,199,675
-------------------------------------------------------------------------------------- ------------- -------------
Cash flows from financing activities
Proceeds from loan drawdowns 138,712,919 36,023,268
Loan repayments (80,000,000) -
Payment of loan finance costs (9,058,791) (5,772,304)
Ordinary Share buy-backs(1) (27,770,733) -
Dividends paid (excluding scrip dividends) (1) (112,472,856) (105,684,339)
-------------------------------------------------------------------------------------- ------------- -------------
Net cash outflow from financing activities (90,589,461) (75,433,375)
-------------------------------------------------------------------------------------- ------------- -------------
Net decrease in cash and cash equivalents (1,631,104) (11,233,700)
Cash and cash equivalents at beginning of year 8,759,040 20,018,189
Effect of foreign exchange rate changes on cash
and cash equivalents during the year 235,184 (25,449)
Cash and cash equivalents at end of year 7,363,120 8,759,040
-------------------------------------------------------------------------------------- ------------- -------------
1. Excludes non-cash transactions.
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June 29, 2023 02:00 ET (06:00 GMT)
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